Salomon Brothers Opportunity Fund
Board Approval of Management Agreement (unaudited)
On June 23, 2005, Citigroup Inc. entered into a definitive
agreement (the "Transaction Agreement") with Xxxx Xxxxx,
Inc. ("Xxxx Xxxxx") under which Citigroup agreed to sell
substantially all of its asset management business,
Citigroup Asset Management ("CAM"), which includes Salomon
Brothers Asset Management Inc., (the "Adviser"), to Xxxx Xxxxx
in exchange for the broker-dealer and investment banking
businesses of Xxxx Xxxxx and certain other considerations
(the "Transaction"). The Transaction closed on December 1,
2005.
The consummation of the Transaction resulted in the
automatic termination of the Fund's then current management
agreement (the "Prior Management Agreement") in
accordance with the Investment Company Act of 1940, as
amended (the "1940 Act"). Prior to the closing of the
Transaction, the Fund's Board approved a new management
agreement between the Fund and the Adviser (the "Current
Management Agreement") and authorized the Fund's officers
to submit the Current Management Agreement to
shareholders for their approval.
On July 11, 2005, members of the Board discussed with CAM
management and certain Xxxx Xxxxx representatives the
Transaction and Xxxx Xxxxx'x general plans and
intentions regarding CAM's business and its combination with
Xxxx Xxxxx'x business. The Board Members also inquired
about the plans for and anticipated roles and
responsibilities of certain CAM employees and officers after
the Transaction.
At a meeting held on August 29, 2005, the Fund's Board,
including a majority of the Board Members who are not
"interested persons" of the Fund or the Adviser as defined in
the 1940 Act (the "Independent Board Members"), approved
continuance of the Prior Management Agreement until the
closing of the Transaction and the Current Management
Agreement to take effect upon such closing. To assist the
Board in its consideration of the Current Management
Agreement, Xxxx Xxxxx provided materials and information
about Xxxx Xxxxx, including its financial condition, asset
management capabilities and organization, and CAM provided
materials and information about the Transaction
between Xxxx Xxxxx and Citigroup. Representatives of CAM and
Xxxx Xxxxx also made presentations to and responded to
questions from the Board. The Independent Board
Members, through their independent legal counsel, also
requested and received additional information from CAM
and Xxxx Xxxxx in connection with their consideration of the
Current Management Agreement. The additional information was
provided in advance of and at the August meeting. After the
presentations and after reviewing the written materials
provided, the Independent Board Members met with their
counsel to consider the Current Management Agreement. The
Independent Board Members also conferred separately
from CAM management with their counsel about the Transaction
on a number of occasions, including in connection with
the July and August meetings.
In their deliberations concerning the Current Management
Agreement, among other things, the Board Members considered
the need to provide for continuity of investment
management services to the Fund following termination of the
Prior Agreement and:
(i) the reputation, financial strength and resources of Xxxx
Xxxxx and its investment advisory subsidiaries;
(ii) that, following the Transaction, CAM will be part of
an organization focused on the asset management business;
(iii) that Xxxx Xxxxx is an experienced and respected asset
management firm, and that Xxxx Xxxxx has advised the Board
Members that (a) it may wish to combine certain CAM operations
with those of certain Xxxx Xxxxx subsidiaries; (b) it is
expected that these combination processes will result in
changes to portfolio managers or portfolio management teams
for a number of the CAM funds, subject to Board
oversight and appropriate notice to shareholders, and that,
in other cases, the current portfolio managers or portfolio
management teams will remain in place; and (c) in
the future, it may recommend that Xxxx Xxxxx subsidiaries be
appointed as the adviser or subadviser to some or all of the
CAM funds, subject to applicable regulatory requirements;
(iv) that CAM management had advised the Board that a number
of portfolio managers and other key CAM personnel would be
retained after the closing of the Transaction;
(v) that CAM management and Xxxx Xxxxx have advised the
Board that following the Transaction, there is not expected
to be any diminution in the nature, quality and extent of
services provided to the Fund and their shareholders by the
Adviser, including compliance services;
(vi) that Xxxx Xxxxx has advised the Board that it has no
present intention to alter any expense waivers and
reimbursements currently in effect for CAM Funds and,
while it reserves the right to do so in the future, it would
consult with the relevant boards before making any changes;
(vii) that under the Transaction Agreement, Citigroup and
Xxxx Xxxxx have agreed not to take any action that is not
contemplated by the Transaction or fail to take any action
that to their respective knowledge would cause any "undue burden"
on Fund shareholders under applicable provisions of the 1940
Act;
(viii) the potential benefits to Fund shareholders from
being part of a combined fund family with Xxxx Xxxxx-sponsored
funds;
(ix) that Citigroup and Xxxx Xxxxx would derive benefits
from the Transaction and that, as a result, they have a
financial interest in the matters that were being
considered;
(x) the potential effects of regulatory restrictions on the
Fund if Citigroup-affiliated broker-dealer remain principal
underwriters of the Fund after the closing of the
Transactions;
(xi) the fact that the Fund's total advisory and
administrative fees will not increase by virtue of the New
Management Agreement, but will remain the same;
(xii) the terms and conditions of the Current Management
Agreement, including
the differences from the current management agreement, and
the benefits of a single,
uniform form of agreement covering these services;
(xiii) that the Fund would not bear the costs of obtaining
shareholder approval of the Current Management Agreement;
(xiv) that the Fund would avail itself of permissions
granted under certain licensing arrangements between
Citigroup and Xxxx Xxxxx that would permit the Fund
(including any share classes thereof) to maintain its
current name, as well as all logos, trademarks and
service marks, related to Citigroup or any of
its affiliates for some agreed upon time period after the
closing of the Transaction: and
(xv) that the Board, earlier at its meeting held on August
29, 2005 had performed a full annual review of the Prior
Management Agreement as required by the 1940 Act. In that
regard, the Board, in its deliberations concerning the Current
Management Agreement, considered the same factors regarding
the nature, quality and extent of services provided, costs
of services provided, profitability, fall-out benefits, fees
and economics of scale and investment performance as it did
when it renewed the Prior Management Agreement, and reached
substantially the same
conclusions.
