Filed with the Securities and Exchange Commission on April 24, 1998
Securities Act File No. 33-64457
Investment Company Act File No. 811-7435
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 13 [X]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 14 [X]
Smith Barney Concert Allocation Series Inc.
(Formerly, Smith Barney Concert Series Inc.)
(Exact Name of Registrant as Specified in Charter)
388 Greenwich Street, New York, NY 10013
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 212-816-6474
Christina T. Sydor, Esq.
Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
XX on April 30, 1998 pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a)(i)
on (date) pursuant to paragraph (a)(i)
75 days after filing pursuant to paragraph (a)(ii)
on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
this post-effective amendment designates a new effective date for
a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Common Stock.
SMITH BARNEY CONCERT SERIES INC.
FORM N-1A
CROSS REFERENCE SHEET
Part A
Item No.
Heading in the Prospectus
1. Cover Page
Cover Page
2. Synopsis
Prospectus Summary
3. Condensed Financial Information
Not Applicable
4. General Description of
Registrant
Cover Page; Prospectus Summary;
Investment Objectives and
Management Policies; Why Invest in
the Concert Series; Description of
Underlying Smith Barney Funds;
Additional Information; Appendix
5. Management of the Fund
Prospectus Summary; Management of
the Concert Series; Additional
Information
6. Capital Stock and Other
Securities
Prospectus Summary; Dividends,
Distributions and Taxes; Purchase
of Shares; Additional Information
7. Purchase of Securities Being
Offered
Purchase of Shares; Valuation of
Shares
8. Redemption or Repurchase
Redemption of Shares
9. Legal Proceedings
Not Applicable
Part B
Item No.
Heading in Statement of Additional
Information
10. Cover Page
Cover Page
11. Table of Contents
Table of Contents
12. General Information and History
Not Applicable
13. Investment Objectives and
Policies
Investment Objectives and Management
Policies
14. Management of the Fund
Management of the Concert Series
15. Control Persons and Principal
Holders of
Securities
Management of the Concert Series
16. Investment Advisory and Other
Services
Management of the Concert Series;
Additional Information
17. Brokerage Allocation and Other
Practices
Not Applicable
18. Capital Stock and Other
Securities
Additional Information
19. Purchase, Redemption and Pricing
of
Securities Being Offered
Purchase of Shares; Redemption of
Shares; Valuation of Shares
20. Tax Status
Taxes (See in the Prospectus
"Dividends, Distributions and Taxes")
21. Underwriters
Not Applicable
22. Calculation of Performance Data
Performance
23. Financial Statements
Financial Statements
PART A
<PAGE>
LOGO
PROSPECTUS
=======
VINTAGE
=======
UNDERLYING FUND PROSPECTUS
SMITH BARNEY CONCERT ALLOCATION SERIES INC.
SELECT PORTFOLIOS
APRIL THIRTIETH
1998
<PAGE>
PROSPECTUS
April 30, 1998
Smith Barney Concert Allocation Series Inc.
388 Greenwich Street
New York, New York 10013
(800) 451-2010
Smith Barney Concert Allocation Series Inc. (the "Concert Series" or "Series")
offers eleven professionally managed investment portfolios, five of which are
offered by this Prospectus (each, a "Portfolio" and collectively, the "Select
Portfolios") to separate accounts sponsored by certain life insurance companies
and qualified pension and retirement plans. Each Portfolio seeks to achieve its
objective by investing in a number of other Smith Barney Mutual Funds.
The Select High Growth Portfolio seeks capital appreciation.
The Select Growth Portfolio seeks long-term growth of capital.
The Select Balanced Portfolio seeks a balance of growth of capital and income.
The Select Conservative Portfolio seeks income and, secondarily, long-term
growth of capital.
The Select Income Portfolio seeks high current income.
This Prospectus sets forth concisely certain information about the Concert
Series and each of the Select Portfolios that prospective investors will find
helpful in making an investment decision. Investors are encouraged to read this
Prospectus carefully and retain it for future reference.
Shares of the Select Portfolios are offered ONLY to insurance company separate
accounts (the "Separate Accounts"), which fund certain variable annuity and
variable life insurance contracts (the "Contracts") and qualified pension and
retirement plans. The Separate Accounts invest in shares of one or all of the
Select Portfolios in accordance with allocation instructions received from Con-
tract owners. Such allocation rights are further described in the accompanying
Contract prospectus.
Shares of each Select Portfolio are offered to Separate Accounts and qualified
pension and retirement plans at their net asset value, without a sales charge,
next determined after receipt of an order by an insurance company. The offering
of shares of a Portfolio may be suspended from time to time and the Series
reserves the right to reject any specific purchase order.
THIS PROSPECTUS, WHICH SETS FORTH CONCISE INFORMATION ABOUT THE CONCERT SERIES
THAT PROSPECTIVE INVESTORS SHOULD KNOW BEFORE INVESTING, SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE. A STATEMENT OF ADDITIONAL INFORMATION, ALSO
REFERRED TO AS "PART B," DATED APRIL 30, 1998 IS HEREBY INCORPORATED BY REFER-
ENCE INTO THIS PROSPECTUS AND IS AVAILABLE FROM THE CONCERT SERIES, WITHOUT
CHARGE, BY WRITING TO THE CONCERT SERIES AT THE ABOVE ADDRESS OR CALLING THE
TELEPHONE NUMBER LISTED ABOVE.
This Prospectus should be read in conjunction with the prospectus for the
Contracts.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
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WHY INVEST IN THE CONCERT SERIES 3
- --------------------------------------------------
FINANCIAL HIGHLIGHTS 4
- --------------------------------------------------
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES 4
- --------------------------------------------------
RISK FACTORS AND SPECIAL CONSIDERATIONS 6
- --------------------------------------------------
PORTFOLIO TURNOVER 7
- --------------------------------------------------
INVESTMENT RESTRICTIONS 7
- --------------------------------------------------
DESCRIPTION OF UNDERLYING SMITH BARNEY FUNDS 7
- --------------------------------------------------
VALUATION OF SHARES 16
- --------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 17
- --------------------------------------------------
PURCHASE OF SHARES 17
- --------------------------------------------------
REDEMPTION OF SHARES 17
- --------------------------------------------------
PERFORMANCE 18
- --------------------------------------------------
MANAGEMENT OF THE CONCERT SERIES 18
- --------------------------------------------------
SHARES OF THE CONCERT SERIES 20
- --------------------------------------------------
APPENDIX A-1
- --------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any represen-
tations in connection with this offering other than those contained in this
Prospectus and, if given or made, such other information and representations
must not be relied upon as having been authorized by the Concert Series or the
Distributor. This Prospectus does not constitute an offer by the Concert Series
or the Distributor to sell or a solicitation of an offer to buy any of the
securities offered hereby or securities of any Underlying Smith Barney Fund in
any jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction.
- --------------------------------------------------------------------------------
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Prospec-
tus. See "Table of Contents."
INVESTMENT OBJECTIVES The Concert Series is an open-end, non-diversified man-
agement investment company that currently offers eleven professionally managed
investment portfolios. This Prospectus offers five Portfolios. The Select High
Growth Portfolio seeks to provide capital appreciation. The Select Growth
Portfolio seeks to provide long-term growth of capital. The Select Balanced
Portfolio seeks to provide a balance of growth of capital and income. The
Select Conservative Portfolio seeks to provide income and, secondarily, long-
term growth of capital. The Select Income Portfolio seeks to provide high cur-
rent income. Each Select Portfolio seeks to achieve its investment objective
by investing in a diverse mix of "Underlying Smith Barney Funds," which con-
sist of open-end management investment companies or series thereof for which
Smith Barney Inc. ("Smith Barney") now or in the future acts as principal
underwriter or for which Smith Barney, Mutual Management Corp. ("MMC"), for-
merly Smith Barney Mutual Funds Management Inc., Travelers Investment Manage-
ment Company ("TIMCO") or Smith Barney Strategy Advisers Inc. ("SBSA") now or
in the future acts as investment adviser. In addition, each Select Portfolio
may invest its short-term cash in repurchase agreements. Investors may choose
to invest in one or more of the Select Portfolios based on their personal
investment goals, risk tolerance and financial circumstances. See "Investment
Objectives and Management Policies."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Redemption of Shares."
MANAGEMENT OF EACH PORTFOLIO Travelers Investment Adviser, Inc. ("TIA") serves
as each Select Portfolio's investment manager. TIA is an indirect wholly owned
subsidiary of Travelers Group Inc. ("Travelers"), a diversified financial
services holding company engaged, through its subsidiaries, principally in
four business segments: Investment Services, including Asset Management, Con-
sumer Finance Services, Life Insurance Services and Property & Casualty Insur-
ance Services.
MMC serves as the investment adviser of each of the Underlying Smith Barney
Funds (other than Smith Barney Premium Total Return Fund). SBSA, a wholly
owned subsidiary of MMC, serves as investment adviser to Smith Barney Premium
Total Return Fund. TIMCO serves as investment adviser to Smith Barney Small
Cap Blend Fund, Inc. See "Management of the Concert Series."
VALUATION OF SHARES Net asset value of each Portfolio for the prior day gener-
ally will be quoted daily in the financial section of most newspapers and is
also available from a Smith Barney Financial Consultant. See "Valuation of
Shares."
DIVIDENDS AND DISTRIBUTIONS The Concert Series intends to pay dividends from
net investment income annually on shares of each Select Portfolio. Distribu-
tions of net realized capital gains, if any, are paid annually for each Select
Portfolio. See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a
Portfolio will be reinvested automatically, unless otherwise specified by an
investor, in additional shares of the same Portfolio at current net asset val-
ue. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS The assets of each Portfolio are
invested in certain Underlying Smith Barney Funds, thus each Portfolio's
investment performance is directly related to the investment performance of
the Underlying Smith Barney Funds held. The ability of each Portfolio to meet
its investment objective is directly related to the ability of the Underlying
Smith Barney Funds held to meet their objectives as well as the allocation
among those Underlying Smith Barney Funds by TIA. There can be no assurance
that the investment objective of any Portfolio or any Underlying Smith Barney
Fund will be achieved.
The value of the Underlying Smith Barney Funds' investments, and thus the net
asset value of both those Underlying Smith Barney Funds' and the Select Port-
folios' shares, will fluctuate in response to changes in market and economic
conditions, as well as the financial condition and prospects of issuers in
which the Underlying Smith Barney Funds invest. For a description of the risks
involved in an investment in the Select Portfolios, see "Investment Objectives
and Management Policies," "Description of the Underlying Smith Barney Funds"
and the Appendix to this Prospectus.
WHY INVEST IN THE CONCERT SERIES
The Select Portfolios are designed to meet the needs of investors who prefer
to have their asset allocation decisions made by professional money managers,
and appreciate the advantages of broad diversification.
The Concert Series will be managed so that each Portfolio can serve as a com-
plete investment program or as a core part of a larger portfolio. Each of the
Portfolios invests in a select group of Underlying Smith Barney Funds suited
to the Portfolio's particular investment objective. The allocation of assets
among Underlying Smith Barney Funds within each Portfolio is determined by TIA
according
3
<PAGE>
WHY INVEST IN THE CONCERT SERIES (CONTINUED)
to fundamental and quantitative analysis. Because the assets will be adjusted
only periodically and only within pre-determined ranges that will attempt to
ensure broad diversification, there should not be any sudden large scale
changes in the allocation of a Portfolio's investments among Underlying Smith
Barney Funds. The Concert Series is not designed as a market timing vehicle,
but rather as a simple and conservative approach to helping investors meet
retirement and other long-term goals.
FINANCIAL HIGHLIGHTS
The following information has been audited by KPMG Peat Marwick LLP, indepen-
dent auditors, whose report thereon appears in the Concert Series' annual
report dated January 31, 1998. The information set out below should be read in
conjunction with the financial statements and related notes that also appear in
the Concert Series' Annual Report to Shareholders, which is incorporated by
reference into the Statement of Additional Information.
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT THE PERIOD:(1)
<TABLE>
<CAPTION>
SELECT
HIGH SELECT SELECT SELECT SELECT
GROWTH GROWTH BALANCED CONSERVATIVE INCOME
PORTFOLIO(2) PORTFOLIO(2) PORTFOLIO(2) PORTFOLIO(2) PORTFOLIO(2)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF PERIOD $ 10.00 $ 10.00 $ 10.00 $ 10.00 $10.00
- -----------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment
income(3) 0.26 0.44 0.64 0.78 0.80
Net realized and
unrealized gain
(loss) 0.80 0.84 0.64 0.52 0.49
- -----------------------------------------------------------------------------------------
TOTAL INCOME (LOSS)
FROM OPERATIONS 1.06 1.28 1.28 1.30 1.29
- -----------------------------------------------------------------------------------------
LESS DISTRIBUTION FROM:
Net investment income -- -- -- -- --
- -----------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS -- -- -- -- --
- -----------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 11.06 $ 11.28 $ 11.28 $ 11.30 $11.29
- -----------------------------------------------------------------------------------------
TOTAL RETURN++ 10.60% 12.80% 12.80% 13.00% 12.90%
- -----------------------------------------------------------------------------------------
NET ASSETS, END OF
PERIOD (000'S) $27,071 $45,982 $45,071 $10,698 $4,440
- -----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS+:
Expenses 0.35% 0.35% 0.35% 0.35% 0.35%
Net investment income 2.41 4.11 5.89 7.24 7.36
- -----------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 43% 43% 19% 35% 11%
- -----------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) For the period from February 5, 1997 (commencement of operations) to Janu-
ary 31, 1998.
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method because
it more accurately reflects the per share data for the period.
(3) Net investment income per share includes short term capital gain distribu-
tions from Underlying Funds.
+ Annualized.
++Total return is not annualized, as it may not be representative of the total
return for the year.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The Concert Series is an open-end, non-diversified, management investment com-
pany that currently offers eleven managed investment portfolios, five of which
are offered by this Prospectus. Each portfolio seeks to achieve its investment
objective by investing within specified ranges among Underlying Smith Barney
Funds, as well as in repurchase agreements. Initially, each portfolio will
invest in the Underlying Smith Barney Funds listed below.
The investment manager for each of the Select Portfolios, TIA, will allocate
investments for each Portfolio among Underlying Smith Barney Funds based on its
outlook for the economy, financial markets and the relative performance of the
Underlying Smith Barney Funds. The allocation among the Underlying Smith Barney
Funds will be made within investment ranges established by the Board of Direc-
tors of the Concert Series which designates minimum and maximum percentages for
each of the Underlying Smith Barney Funds.
The Select High Growth Portfolio's investment objective is to seek capital
appreciation. The Select Growth Portfolio's investment objective is to seek
long-term growth of capital. The Select Balanced Portfolio's investment objec-
tive is to seek a balance of growth of capital and income. The Select Conserva-
tive Portfolio's investment objective is to seek income and, secondarily, long-
term growth of capital. The Select Income Portfolio's investment objective is
to seek high current income. Each Portfolio's investment objective is fundamen-
tal and may be changed only with the approval of a majority of the Portfolio's
outstanding shares. There can be no assurance that any Portfolio's investment
objective will be achieved.
4
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
In investing in Underlying Smith Barney Funds, the Select Portfolios seek to
maintain different allocations between equity funds and fixed income funds (in-
cluding money market funds) depending on a Portfolio's investment objective.
Allocating investments between equity funds and fixed income funds permits each
Portfolio to attempt to optimize performance consistent with its investment
objective. The tables below illustrate the initial equity/fixed income fund
allocation targets and ranges for each Select Portfolio:
Equity/Fixed Income Fund Range (Percentage of Each Portfolio's Net Assets)
<TABLE>
<CAPTION>
TYPE OF FUND TARGET RANGE
- ----------------------------------------------
<S> <C> <C>
Select High Growth Portfolio
Equity 90% 80%-100%
Fixed Income 10% 0%- 20%
Select Growth Portfolio
Equity 70% 60%- 80%
Fixed Income 30% 20%- 40%
Select Balanced Portfolio
Equity 50% 40%- 60%
Fixed Income 50% 40%- 60%
Select Conservative Portfolio
Equity 30% 20%- 40%
Fixed Income 70% 60%- 80%
Select Income Portfolio
Equity 10% 0%- 20%
Fixed Income 90% 80%-100%
- ----------------------------------------------
</TABLE>
The Select Portfolios invest their assets in the Underlying Smith Barney Funds
listed below within the ranges indicated.
Investment Range (Percentage of Each Portfolio's Net Assets)
<TABLE>
<CAPTION>
SELECT SELECT SELECT SELECT SELECT
HIGH GROWTH GROWTH BALANCED CONSERVATIVE INCOME
UNDERLYING SMITH BARNEY FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Smith Barney Aggressive
Growth Fund Inc. 10-30% 0-15% -- -- --
Smith Barney Appreciation
Fund Inc. 0-20% 0-30% 0-20% 0-15% 0-10%
Smith Barney Equity
Funds:
Smith Barney Large Cap
Blend Fund 0-20% 0-20% 5-20% -- --
Smith Barney Fundamental
Value Fund Inc. 0-20% 0-30% 0-20% 0-15% 0-10%
Smith Barney Funds, Inc.:
Large Cap Value Fund 0-20% 0-20% 5-20% 0-20% 0-15%
Short-Term U.S. Treasury
Securities Fund -- 0-15% 0-20% 0-20% 5-30%
Smith Barney Income
Funds:
Smith Barney High Income
Fund 0-20% 5-20% 0-15% 0-20% 0-25%
Smith Barney Utilities
Fund -- 0-20% 0-20% 0-20% 0-15%
Smith Barney Premium
Total Return Fund -- -- 5-20% 5-25% 0-15%
Smith Barney Convertible
Fund -- -- 5-20% 5-15% 0-15%
Smith Barney Diversified
Strategic Income Fund -- -- 5-25% 10-30% 10-30%
Smith Barney Investment
Funds Inc.:
Concert Peachtree Growth
Fund 0-20% 0-20% 0-15% -- --
Smith Barney Managed
Growth Fund 0-20% 0-30% 0-15% -- --
Smith Barney Special
Equities Fund 10-30% 0-15% -- -- --
Smith Barney Government
Securities Fund 0-15% 0-20% 0-20% 5-20% 5-20%
Smith Barney Investment
Grade Bond Fund 0-15% 0-15% -- -- 0-15%
Smith Barney Hansberger
Global Value
Fund 0-25% 0-20% 0-15% 0-10% --
Smith Barney Hansberger
Global Small Cap Value Fund 0-20% 0-10% -- -- --
Smith Barney Investment
Trust:
Smith Barney Large
Capitalization Growth
Fund 0-20% 0-20% 0-15% -- --
Smith Barney Managed
Governments Fund Inc. -- 0-15% 5-20% 5-25% 5-30%
Smith Barney Money Funds,
Inc.:
Cash Portfolio 0-20% 0-20% 0-25% 0-30% 0-30%
Smith Barney Natural
Resources Fund Inc. 0-10% 0-10% 0-10% -- --
Smith Barney Small Cap
Blend Fund, Inc. 0-25% 0-20% 0-15% -- --
Smith Barney World Funds,
Inc.:
International Equity
Portfolio 5-25% 0-20% 0-15% 0-10% 0-10%
Emerging Markets
Portfolio 0-20% -- -- -- --
International Balanced
Portfolio 0-15% 0-10% 0-10% 0-10% 0-10%
Global Government Bond
Portfolio 0-15% 0-15% 0-15% 0-20% 0-20%
- ------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
The Underlying Smith Barney Funds have been selected to represent a broad
spectrum of investment options for the Select Portfolios. The equity/fixed
income ranges and the investment ranges are based on the degree to which the
Underlying Smith Barney Funds selected are expected in combination to be appro-
priate for a Portfolio's particular investment objective. If, as a result of
appreciation or depreciation, the percentage of a Portfolio's assets invested
in an Underlying Smith Barney Fund exceeds or is less than the applicable per-
centage limitations set forth above, TIA will consider, in its discretion,
whether to reallocate the assets of the Portfolio to comply with the foregoing
percentage limitations. THE PARTICULAR UNDERLYING SMITH BARNEY FUNDS IN WHICH
EACH PORTFOLIO MAY INVEST, THE EQUITY/FIXED INCOME FUND TARGETS AND RANGES AND
THE INVESTMENT RANGES APPLICABLE TO EACH UNDERLYING SMITH BARNEY FUND MAY BE
CHANGED FROM TIME TO TIME BY THE CONCERT SERIES' BOARD OF DIRECTORS WITHOUT THE
APPROVAL OF THE PORTFOLIO'S SHAREHOLDERS.
Each Portfolio can invest a certain portion of its cash reserves in repurchase
agreements. Each Portfolio may also invest its cash reserves in the Cash Port-
folio of Smith Barney Money Funds, Inc. A reserve position provides flexibility
in meeting redemptions, expenses and the timing of new investments, and serves
as a short-term defense during periods of unusual volatility.
For information about the investment objectives of each of the Underlying
Smith Barney Funds and the investment techniques and the risks involved in the
Underlying Smith Barney Funds, please refer to "Description of the Underlying
Smith Barney Funds," the Appendix to this Prospectus, the Statement of Addi-
tional Information and the prospectus for each of the Underlying Smith Barney
Funds.
Year 2000. The investment management services provided to the Series by MMC
depend on the smooth functioning of their computer systems. Many computer soft-
ware systems in use today cannot recognize the year 2000, but revert to 1900 or
some other date, due to the manner in which dates were encoded and calculated.
That failure could have a negative impact on the Series' operations, including
the handling of securities trades, pricing and account services. MMC has
advised the Series that they have been reviewing all of their computer systems
and actively working on necessary changes to their systems to prepare for the
year 2000 and expect that their systems will be compliant before that date. In
addition, MMC has been advised by the Series' custodian, transfer agent and
accounting service agent that they are also in the process of modifying their
systems with the same goal. There can, however, be no assurance that MMC or any
other service provider will be successful, or that interaction with other non-
complying computer systems will not impair Fund services at that time.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Non-Diversified Investment Company. The Concert Series is a "non-diversified"
investment company for purposes of the Investment Company Act of 1940, as
amended (the "1940 Act"), because it invests in the securities of a limited
number of mutual funds. However, the Underlying Smith Barney Funds themselves
are diversified investment companies (with the exception of the Global Govern-
ment Bond Portfolio, the International Balanced Portfolio and the Emerging Mar-
kets Portfolio). The Concert Series intends to qualify as a diversified invest-
ment company for the purposes of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code").
Investing in Underlying Smith Barney Funds. The investments of each Portfolio
are concentrated in the Underlying Smith Barney Funds, so each Portfolio's
investment performance is directly related to the investment performance of the
Underlying Smith Barney Funds held by it. The ability of each Portfolio to meet
its investment objective is directly related to the ability of the Underlying
Smith Barney Funds to meet their objectives as well as the allocation among
those Underlying Smith Barney Funds by TIA. There can be no assurance that the
investment objective of any Portfolio or any Underlying Smith Barney Fund will
be achieved.
Affiliated Persons. TIA, the investment manager of the Select Portfolios, and
the officers and directors of the Concert Series presently serve as investment
adviser, officers and directors, respectively, of many of the Underlying Smith
Barney Funds. Therefore, conflicts may arise as these persons fulfill their
fiduciary responsibilities to the Select Portfolios and the Underlying Smith
Barney Funds.
Investment Practices of Underlying Smith Barney Funds. In addition to their
principal investments, certain Underlying Smith Barney Funds may: invest a por-
tion of their assets in foreign securities; enter into forward currency trans-
actions; lend their portfolio securities; enter into stock index, interest
rate, currency and gold futures contracts, and options on such contracts;
engage in options transactions; make short sales; purchase zero coupon bonds
and payment-in-kind bonds; purchase restricted and illiquid securities; enter
into forward roll transactions; purchase securities on a when-issued or delayed
delivery basis; enter into repurchase or reverse repurchase agreements; borrow
money; and engage in various other investment practices.
High Yield Securities. Each of the Portfolios also may invest in an Underlying
Smith Barney Fund that invests primarily in high yield, high risk securities,
commonly referred to as junk bonds. As a result, the Select Portfolios may be
subject to some of the risks resulting from high yield investing. Further, each
of the Portfolios may invest in Underlying Smith Barney Funds that invest in
medium grade bonds. If these bonds are downgraded, the Select Portfolios will
consider whether to increase or decrease their investment in the
6
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS (CONTINUED) DATE
affected Underlying Smith Barney Fund. Lower quality debt instruments generally
offer a higher current yield than that available from higher grade issues, but
typically involve greater risk. Lower rated and comparable unrated securities
are especially subject to adverse changes in general economic conditions, to
changes in the financial condition of their issuers, and to price fluctuation
in response to changes in interest rates. During periods of economic downturn
or rising interest rates, issuers of these instruments may experience financial
stress that could adversely affect their ability to make payments of principal
and interest and increase the possibility of default. Further information on
these investment policies and practices can be found under "Description of the
Underlying Smith Barney Funds," in the Appendix to this Prospectus and in the
Statement of Additional Information as well as the prospectus of each Under-
lying Smith Barney Fund.
Concentration. Each Portfolio other than the Select High Growth Portfolio may
invest in an Underlying Smith Barney Fund that concentrates its investments in
the utilities industry. Under certain unusual circumstances, this could result
in those Portfolios being indirectly concentrated in this industry. If this
were to occur, the relevant Portfolios would consider whether to maintain or
change their investment in that Underlying Smith Barney Fund.
Market and Economic Factors. The Select Portfolios' share prices and yields
will fluctuate in response to various market and economic factors related to
both the stock and bond markets. All Select Portfolios may invest in mutual
funds that in turn invest in international securities and thus are subject to
additional risks of these investments, including changes in foreign currency
exchange rates and political risk.
PORTFOLIO TURNOVER
Each Portfolio's turnover rate is not expected to exceed 25% annually. A Port-
folio may purchase or sell securities to: (a) accommodate purchases and sales
of its shares; (b) change the percentages of its assets invested in each of the
Underlying Smith Barney Funds in response to market conditions; and (c) main-
tain or modify the allocation of its assets between equity and fixed income
funds and among the Underlying Smith Barney Funds within the percentage limits
described above.
The turnover rates of the Underlying Smith Barney Funds have ranged from 1% to
367% during their most recent fiscal years. There can be no assurance that the
turnover rates of these funds will remain within this range during subsequent
fiscal years. Higher turnover rates may result in higher expenses being
incurred by the Underlying Smith Barney Funds.
INVESTMENT RESTRICTIONS
Certain investment restrictions, including fundamental restrictions as well as
restrictions that may be changed without a shareholder vote, adopted by the
Concert Series are described in the Statement of Additional Information.
Investment restrictions of the Underlying Smith Barney Funds in which the
Select Portfolios invest may be more or less restrictive than those adopted by
the Concert Series.
DESCRIPTION OF UNDERLYING SMITH BARNEY FUNDS
The following is a concise description of the investment objectives and prac-
tices for each of the Underlying Smith Barney Funds in which the Select Portfo-
lios may invest. There can be no assurance that the investment objectives of
the Underlying Smith Barney Funds will be met. Additional information regarding
the investment practices of the Underlying Smith Barney Funds is located in the
Appendix to this Prospectus, in the Statement of Additional Information and in
the prospectus of each of the Underlying Smith Barney Funds. No offer is made
in this Prospectus of any of the Underlying Smith Barney Funds.
EQUITY FUNDS The following Underlying Smith Barney Funds are funds that invest
primarily in equity securities.
Smith Barney Aggressive Growth Fund Inc. seeks capital appreciation by invest-
ing primarily in common stock of companies MMC believes are experiencing, or
have the potential to experience, growth in earnings that exceed the average
earnings growth rate of companies whose securities are included in the Standard
& Poor's Daily Price Index of 500 Common Stocks (the "S&P 500"), a weighted
index that measures the aggregate change in market value of 400 industrials, 60
transportation stocks and utility companies and 40 financial issues. MMC
focuses its stock selection for the Fund on a diversified group of small- or
medium-sized emerging growth companies that have passed their "start-up" phase
and show positive earnings and the prospect of achieving significant profit
gains in the two to three years after the Fund acquires their stocks. These
companies generally may be expected to benefit from new technologies, tech-
niques, products or services or cost-reducing measures, and may be affected by
changes in management, capitalization or asset deployment, government regula-
tions or other external circumstances.
Although MMC anticipates that the assets of the Fund ordinarily will be
invested primarily in common stocks of U.S. companies, the Fund may invest in
convertible securities, preferred stocks, securities of foreign issuers, war-
rants and restricted securities. The Fund also
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DESCRIPTION OF UNDERLYING SMITH BARNEY FUNDS (CONTINUED)
is authorized to borrow up to 33 1/3% of its total assets less liabilities for
leveraging purposes. Securities of the kinds of companies in which the Fund
invests may be subject to significant price fluctuation and above average
risk.
Smith Barney Appreciation Fund Inc. seeks long-term appreciation of share-
holders' capital. The Fund attempts to achieve its investment objective by
investing primarily in equity securities (consisting of common stocks, pre-
ferred stocks, warrants, rights and securities convertible into common stocks)
that are believed to afford attractive opportunities for investment apprecia-
tion. The core holdings of the Fund are blue chip companies that are dominant
in their industries; however, at the same time, the Fund may hold securities
of companies with prospects of sustained earnings growth and/or companies with
a cyclical earnings record if it is felt these offer attractive investment
opportunities. Typically, the Fund invests in middle- and larger-sized compa-
nies, though it does invest in smaller companies whose securities may reasona-
bly be expected to appreciate. The Fund's investments are spread broadly among
different industries. The Fund may hold issues traded over-the-counter as well
as those listed on one or more national securities exchanges, and the Fund may
make investments in foreign securities although management intends to limit
such investments to 10% of the Fund's assets.
Smith Barney Fundamental Value Fund Inc.'s investment objective is long-term
capital growth. Current income is a secondary objective. The Fund seeks to
achieve its primary objective by investing in a diversified portfolio of com-
mon stocks and common stock equivalents and, to a lesser extent, in bonds and
other debt instruments. The Fund's investment emphasis is on securities that
are undervalued in the marketplace and, accordingly, have above-average poten-
tial for capital growth. In general, the Fund invests in securities of compa-
nies that are temporarily unpopular among investors but which MMC regards as
possessing favorable prospects for earnings growth and/or improvements in the
value of their assets and, consequently, as having a reasonable likelihood of
experiencing a recovery in market price.
Smith Barney Special Equities Fund, an investment portfolio of Smith Barney
Investment Funds Inc., seeks long-term capital appreciation by investing in
equity securities (common stocks or securities that are convertible into or
exchangeable for such stocks, including warrants) that MMC believes to have
superior appreciation potential. The Fund invests primarily in equity securi-
ties of secondary growth companies, generally not within the S&P 500, as iden-
tified by MMC. These companies may not have reached a fully mature stage of
earnings growth, since they may still be in the developmental stage, or may be
older companies that appear to be entering a new stage of more rapid earnings
progress due to factors such as management change or development of new tech-
nology, products or markets. A significant number of these companies may be in
technology areas, including health care related sectors, and may have annual
sales of less than $300 million. The Fund may also choose to invest in some
relatively unseasoned stocks, i.e., securities issued by companies whose mar-
ket capitalization is under $100 million. The Fund also may invest in small
capitalization companies representative of the benchmarks against which the
Fund's performance is frequently judged by utilizing an actively managed quan-
titative investment strategy to isolate securities that are believed to have a
high probability of outperforming their respective industry/sector peer
groups. In implementing this strategy MMC is supported by investment profes-
sionals, including a team that is quantitatively oriented. Investing in small-
er, newer issuers generally involves greater risk than investing in larger,
more established issuers.
Smith Barney Managed Growth Fund, an investment portfolio of Smith Barney
Investment Funds Inc., has as its investment objective long term growth of
capital. The Fund attempts to achieve its objective by investing primarily in
undervalued or out of favor common stock and other securities, including debt
securities that are convertible into common stock and that are currently price
depressed. Such securities might typically be valued at the low end of their
52-week trading range. Although under normal circumstances the Fund's portfo-
lio will primarily consist of these securities, the Fund may also invest in
preferred stocks and warrants when MMC perceives an opportunity for capital
growth from such securities. The Fund may from time to time enter into futures
contracts, write call options and purchase put options.
Smith Barney Natural Resources Fund Inc. seeks long-term capital appreciation
by investing at least 65% under normal market conditions in "Natural Resource
Investments." Natural Resource Investments are defined as equity and debt
securities of issuers which: (1) own or process natural resources, such as
precious metals, other minerals, water, timberland, agricultural commodities
and forest products; (2) own or produce sources of energy such as oil, natural
gas, coal, uranium, geothermal, oil shale and biomass; (3) participate in the
exploration and development, transportation, distribution and/or processing of
natural resources; (4) own or control oil, gas, or other mineral leases,
rights or royalties; (5) provide related services or supplies, such as drill-
ing, well servicing, chemicals, parts and equipment; (6) develop or partici-
pate in energy-efficient technologies; and (7) are involved in the upgrading
or processing of raw commodities into intermediate products. The Fund may also
invest in gold bullion and gold coins. (A company is considered a "Natural
Resources Investment" when it derives at least 50% of its total revenue from a
business or activity described above.)
Up to 35% of the Fund's assets may be invested in companies not in the natu-
ral resources area, investment grade corporate debt securities, U.S. Govern-
ment securities and, for cash management purposes, money market instruments.
For temporary defensive purposes, the Fund may invest in excess of 35% in
money market instruments. The Fund may utilize up to 10% of its assets to pur-
chase put
8
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DESCRIPTION OF UNDERLYING SMITH BARNEY FUNDS (CONTINUED)
options on securities it owns and up to an additional 10% of its assets to pur-
chase call options on securities it may acquire in the future. The Fund may
purchase only put options that are traded on a regulated exchange. It also may
write covered put and call options on securities and may enter into futures on
domestic and foreign stock indexes and purchase and write related put and call
options to hedge against risks.
The Fund may invest in debt securities when MMC believes they will enhance the
Fund's ability to achieve long-term capital appreciation. The Fund may invest
in fixed-income securities that are rated as low as B by Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Rating Group ("S&P") or if
unrated, are deemed by MMC to be of comparable quality.
Because issuers of Natural Resource Investments often are located outside the
United States, a significant portion of the Fund's investments may consist of
securities of foreign issuers. The percentage of assets invested in particular
countries or regions will change from time to time in accordance with the judg-
ment of MMC, which may be based on, among other things, consideration of the
political stability and economic outlook of these countries or regions.
The Large Cap Value Fund, an investment portfolio of Smith Barney Funds, Inc.,
seeks current income and long-term growth of capital. The Fund invests primar-
ily in common stocks of companies having a market capitalizations of at least
$5 billion that are considered by MMC (i) to be undervalued by the marketplace,
(ii) to offer potential opportunities not yet recognized by the marketplace, or
(iii) to have been out of favor in the marketplace but that are poised to turn
around because of a new management team, product or business strategy. Tempo-
rary defensive investments or a higher percentage of debt securities may be
held when deemed advisable by MMC. In the selection of common stock invest-
ments, emphasis is generally placed on issues with established dividend records
as well as potential for price appreciation. From time to time, however, a por-
tion of the assets may be invested in non-dividend paying stocks. The Fund may
make investments in foreign securities, though management currently intends to
limit such investments to 5% of the Fund's assets, and an additional 10% of its
assets may be invested in American Depository Receipts ("ADRs") representing
shares in foreign securities that are traded in U.S. securities markets.
Smith Barney Large Cap Blend Fund, an investment portfolio of Smith Barney
Equity Funds, seeks long-term capital growth by investing primarily in the com-
mon stocks of large capitalization companies that exhibit growth and/or value
attributes. The Fund may hold securities of companies that are characterized by
earnings growth greater than that of the S&P 500. When selecting stocks with
growth potential, MMC will evaluate the specific financial characteristics of
the issuer such as historical earnings growth, sales growth, profitability and
return on equity. At the same time, the Fund may hold the securities of compa-
nies whose prices are undervalued in the marketplace at the time of purchase.
When selecting stocks with value potential MMC may select securities character-
ized as having below average price to earnings or price to book ratios. The
Fund expects to invest primarily in large capitalization companies, generally
the 1,000 largest domestic companies as measured by market capitalization. The
Fund may also invest up to 20% in the securities of foreign issuers, including
ADRs or European Depository Receipts. Under normal market conditions, the Fund
will invest substantially all, but not less than 65%, of its assets in common
stocks.
Smith Barney Large Capitalization Growth Fund, an investment portfolio of
Smith Barney Investment Trust, seeks long term growth of capital by investing
in equity securities of companies with large market capitalizations. The Fund
attempts to achieve its investment objective by investing primarily in equity
securities consisting of common stocks which are believed to afford attractive
opportunities for investment growth. The core holdings of the Fund are large
capitalization companies that are dominant in their industries, global in scope
and have a long history of performance. The Fund normally invests at least 65%
of its total assets in these securities. The Fund does have the flexibility,
however, to invest the balance in companies with other market capitalizations.
The Fund defines large market capitalization companies as those having $5 bil-
lion or more at the time of the Fund's investment. Companies whose capitaliza-
tion falls below this level after purchase will continue to be considered large
market capitalization companies for purposes of the 65% policy.
Under normal market conditions, the majority of the Fund's portfolio will con-
sist of common stocks, securities convertible into common stock and rights to
subscribe for common stock. The Fund may also contain money market instruments
for cash management purposes such as U.S. government securities, repurchase
agreements, and time deposits.
Concert Peachtree Growth Fund seeks an investment objective of capital appre-
ciation by investing in securities believed to have above average potential for
capital appreciation. In attempting to achieve the Fund's investment objective,
the Fund will use a disciplined approach to identify equity securities of com-
panies having prospects of strong, sustainable earnings growth and that are
believed to afford attractive opportunities for stock price appreciation. This
disciplined approach involves computer-aided, quantitative analysis supported
by fundamental research. The Fund selects stocks for the portfolio by sorting a
universe of 1500 stocks into deciles based on earnings and other valuation
characteristics. Those stocks sorted into the top two deciles are further ana-
lyzed quantitatively and fundamentally to determine if they are attractive
investments. In addition to determining which stocks may be attractive invest-
ments for the
9
<PAGE>
DESCRIPTION OF UNDERLYING SMITH BARNEY FUNDS (CONTINUED)
Fund, this analysis is used to determine if a particular stock held in the
Fund's portfolio continues to be an attractive investment and stocks appearing
in the bottom two deciles are sold. Although the Fund may invest in the stocks
of smaller capitalized companies, the Fund's assets will be invested primarily
in the stock of mid- and larger-capitalized companies.
MMC uses a flexible management style to select what it believes to be unusu-
ally attractive growth investments on an individual company basis. Such securi-
ties will typically be issued by small capitalization companies, larger compa-
nies with established records of growth in sales or earnings, and companies
with new products, new services, or new processes. The Fund may also invest in
companies in cyclical industries during periods when their securities appear
overly depressed and therefore attractive for capital appreciation. In addition
to common stocks of companies, they may invest in securities convertible into
or exchangeable for common stocks, such as convertible preferred stocks or con-
vertible debentures, and warrants.
Smith Barney Small Cap Blend Fund, Inc. seeks long term capital appreciation
by investing primarily (at least 65% of its total assets) in the common stocks
of U.S. companies with relatively small market capitalizations at the time of
investment. Companies with relatively small market capitalization are defined
as those which fall in the lowest 25% of market capitalization of publicly
traded companies in the U.S. with market values above $100 million. TIMCO, the
investment manager to the Fund, will select stocks based on a disciplined quan-
titative screening process that seeks a combination of attractive relative
value and earnings growth.
In order to provide consistent relative performance, the Fund will hold a
portfolio that is comparable to the Russell 2500 Stock Index in terms of over-
all risk, economic sector weightings, and market capitalization. The Russell
2500 is a broad based index of the smaller cap segment of the U.S. stock mar-
ket. By linking its investment strategy to the Russell 2500 Stock Index, the
Fund will provide diversified exposure to the universe of stocks that comprise
the lowest 25% of market capitalization of publicly traded companies in the
U.S. with market values of greater that $100 million. However, the Fund is not
an index fund and is not limited to investing in the stocks that comprise the
Russell 2500 Stock Index. Over time, the Fund is expected to exhibit perfor-
mance volatility that is similar to that of the Russell 2500 Stock Index. Of
course, there can be no assurance that the Fund's total return, before or after
expenses, will match or exceed that of the Russell 2500 Stock Index.
Smith Barney Premium Total Return Fund, an investment portfolio of Smith Bar-
ney Income Funds, seeks to provide shareholders with total return, consisting
of long-term capital appreciation and income, by investing primarily in a
diversified portfolio of dividend-paying common stocks. The Fund also purchases
put and call options and writes covered put and call options on securities it
holds and on stock indexes primarily as a hedge to reduce investment risk.
Because the Fund seeks total return by emphasizing investments in dividend-pay-
ing common stocks, it will not have as much investment flexibility as total
return funds that may pursue their objective by investing in both income and
equity stocks without such an emphasis. The Fund also may invest up to 10% of
its assets in: (a) securities rated less than investment grade by Moody's or
S&P or unrated securities of comparable quality; (b) interest-paying debt secu-
rities, such as U.S. government securities; and (c) other securities, including
convertible bonds, convertible preferred stock and warrants.
The Emerging Markets Portfolio, an investment portfolio of Smith Barney World
Funds, Inc., seeks long term capital appreciation on its assets through a port-
folio invested primarily in securities of emerging country issuers (consisting
of dividend and non-dividend paying common stocks, preferred stocks, convert-
ible securities and rights and warrants to such securities). The Fund will also
invest in debt securities having a high potential for capital appreciation,
especially in countries where direct equity investment is not permitted. Under
normal conditions, at least 70% of the Fund's assets will be invested in equity
securities. For purposes of its investment objective, the Fund considers as
"emerging" all countries other than the United States, Canada, Ireland, the
United Kingdom, Sweden, Norway, Finland, Denmark, Holland, Germany, Switzer-
land, Belgium, France, Italy, Spain, Japan, Australia, Austria and Luxembourg.
The Fund is a non-diversified portfolio, but will generally invest its assets
broadly among countries and will normally have at least 65% of its assets
invested in issuers in not less than three different countries.
The Fund also may invest in debt securities of issuers in countries having
smaller capital markets. Capital appreciation in debt securities may arise as a
result of a favorable change in relative foreign exchange rates, in relative
interest rate levels, or in the creditworthiness of issuers. The Fund will not
seek to benefit from anticipated short-term fluctuations in currency exchange
rates. The Fund may invest in debt securities with relatively high yields (as
compared to other debt securities meeting the Fund's investment criteria), not-
withstanding that the Fund may not anticipate that such securities will experi-
ence substantial capital appreciation. The Fund also may invest in debt securi-
ties issued or guaranteed by foreign governments (including foreign states,
provinces and municipalities) or their agencies and instrumentalities, issued
or guaranteed by supranational organizations or issued by foreign corporations
or financial institutions.
The International Equity Portfolio, an investment portfolio of Smith Barney
World Funds, Inc., seeks a total return on its assets from growth of capital
and income. Under normal market conditions, the Fund invests at least 65% of
its assets in a diversified portfolio of equity securities consisting of divi-
dend and non-dividend paying common stock, preferred stock, convertible debt
and rights and warrants to such securities and up to 35% of the Fund's assets
in bonds, notes and debt securities (consisting of securities issued in the
Eurocurrency markets or obligations of the U.S. or foreign governments and
their political subdivisions) of established non-U.S. issuers. Investments may
be made for capital appreciation or for income or any combination of both for
the purpose of achieving a higher
10
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DESCRIPTION OF UNDERLYING SMITH BARNEY FUNDS (CONTINUED)
overall return than might otherwise be obtained solely from investing for
growth of capital or for income. There is no limitation on the percent or
amount of the Fund's assets that may be invested for growth or income and,
therefore, from time to time the investment emphasis may be placed solely or
primarily on growth of capital or solely or primarily on income.
The Fund will generally invest its assets broadly among countries and will
normally have represented in the portfolio business activities in not less than
three different countries. The Fund will normally invest at least 65% of its
assets in companies organized or governments located in any area of the world
other than the U.S. However, under unusual economic or market conditions as
determined by the investment adviser, for defensive purposes the Fund may tem-
porarily invest all or a major portion of its assets in U.S. government securi-
ties or in debt or equity securities of companies incorporated in and having
their principal business activities in the U.S.
Smith Barney Hansberger Global Value Fund, an investment portfolio of Smith
Barney Investment Funds Inc., seeks long-term capital growth by investing pri-
marily in equity securities of companies in any country including the United
States, which in the opinion of MMC and Hansberger Global Investors, Inc. are
undervalued. Income will be an incidental consideration. The Fund seeks to
invest in companies whose securities are trading at the greatest discount to
future earnings, cash flow and/or net asset value and Hansberger utilizes pro-
prietary valuation screens, internal and external research sources and other
fundamental analysis to identify those securities that appear to be underval-
ued. Under normal market conditions, the Fund will invest its assets in at
least three countries, which may include the United States.
Although the Fund generally invests in common stock, it may also invest in
preferred stocks and certain debt securities, rated or unrated, such as con-
vertible bonds selling at a discount, when Hansberger believes the potential
for appreciation will equal or exceed that available from investments in common
stock. The Fund may also invest in warrants or rights to subscribe to or pur-
chase such securities and sponsored or unsponsored ADRs, EDRs, GDRs and other
depository receipts.
Smith Barney Hansberger Global Small Cap Value Fund, an investment portfolio
of Smith Barney Investment Funds Inc., seeks long-term capital growth by
investing primarily in equity securities of U.S. and foreign issuers with rela-
tively small market capitalizations (share price times number of equity securi-
ties outstanding) which in the opinion of MMC and Hansberger, are undervalued.
Income will be an incidental consideration. Under normal market conditions, the
Fund will invest at least 65% of the value of its total assets in (1) companies
located in developing countries with individual market capitalizations of less
than $750 million U.S. dollars (at the time of purchase) and (2) companies
located in developed countries with individual market capitalizations of less
than $1.5 billion U.S. dollars (at the time of purchase). Under normal market
conditions the Fund will invest its assets in at least three countries, which
may include the United States.
Although the Fund generally invests in common stock, it may also invest in
preferred stocks and certain debt securities, rated or unrated, such as con-
vertible bonds selling at a discount, when Hansberger believes the potential
for appreciation will equal or exceed that available from investments in common
stock. The Fund may also invest in warrants or rights to subscribe to or pur-
chase such securities and sponsored or unsponsored ADRs, EDRs, GDRs and other
depository receipts.
FIXED INCOME FUNDS The following Underlying Smith Barney Funds invest primarily
in fixed income securities, including the money market fund in which each Port-
folio may invest and which may serve as the cash reserve portion of each Port-
folio.
Smith Barney High Income Fund, an investment portfolio of the Smith Barney
Income Funds, seeks to provide shareholders with high current income. Although
growth of capital is not an investment objective of the Fund, MMC may consider
potential for growth as one factor, among others, in selecting investments for
the Fund. The Fund will seek high current income by investing, under normal
circumstances, at least 65% of its assets in high-yielding corporate bonds,
debentures and notes denominated in U.S. dollars or foreign currencies. Up to
40% of the Fund's assets may be invested in fixed-income obligations of foreign
issuers, and up to 20% of its assets may be invested in common stock or other
equity-related securities, including convertible securities, preferred stock,
warrants and rights. Securities purchased by the Fund generally will be rated
in the lower rating categories of recognized rating agencies, as low as Caa by
Moody's or D by S&P, or in unrated securities that MMC deems of comparable
quality. The lower-rated bonds are commonly known as "junk bonds." Bonds of
this type are subject to a greater risk of loss of principal and interest. How-
ever, the Fund will not purchase securities rated lower than B by both Moody's
and S&P unless, immediately after such purchase, no more than 10% of its total
assets are invested in such securities. The Fund may hold securities with
higher ratings when the yield differential between low-rated and higher-rated
securities narrows and the risk of loss may be reduced substantially with only
a relatively small reduction in yield. The Fund also may invest in higher-rated
securities when MMC believes that a more defensive investment strategy is
appropriate in light of market or economic conditions.
Smith Barney Investment Grade Bond Fund, an investment portfolio of Smith Bar-
ney Investment Funds Inc., seeks to provide as high a level of current income
as is consistent with prudent investment management and preservation of capi-
tal. Except when in a temporary defensive investment position, the Fund intends
to maintain at least 65% of its assets invested in bonds. The Fund seeks to
11
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DESCRIPTION OF UNDERLYING SMITH BARNEY FUNDS (CONTINUED)
achieve its objective by investing in any of the following securities: corpo-
rate bonds rated Baa or better by Moody's or BBB or better by S&P; U.S. govern-
ment securities; commercial paper issued by domestic corporations and rated
Prime-1 or Prime-2 by Moody's or A-1 or A-2 by S&P, or, if not rated, issued by
a corporation having an outstanding debt issue rated Aa or better by Moody's or
AA or better by S&P; negotiable bank certificates of deposit and bankers'
acceptances issued by domestic banks (but not their foreign branches) having
total assets in excess of $1 billion; and high-yielding common stocks and war-
rants. A reduction in the rating of a security does not require the sale of the
security by the Fund.
Smith Barney Government Securities Fund, an investment portfolio of Smith Bar-
ney Investment Funds Inc., seeks high current return by investing in obliga-
tions of, or guaranteed by, the U.S. Government, its agencies or instrumentali-
ties ("U.S. government securities") (including, without limitation, Treasury
bills and bonds, mortgage participation certificates issued by the Federal Home
Loan Mortgage Corporation ("FHLMC") and mortgage-backed securities issued by
the Government National Mortgage Association ("GNMA"). The Fund may invest up
to 5% of its net assets in U.S. government securities for which the principal
repayment at maturity, while paid in U.S. dollars, is determined by reference
to the exchange rate between the U.S. dollar and the currency of one or more
foreign countries. In addition, the Fund may borrow money (up to 25% of its
total assets) to increase its investments, thereby leveraging its portfolio and
exaggerating the effect on net asset value of any increase or decrease in the
market value of the Fund's securities. Except when in a temporary defensive
investment position, the Fund intends to maintain at least 65% of its assets
invested in U.S. government securities (including futures contracts and options
thereon and options relating to U.S. government securities).
The Short-Term U.S. Treasury Securities Fund, an investment portfolio of Smith
Barney Funds, Inc., seeks current income, preservation of capital and liquidi-
ty. The Fund seeks to achieve its objective by investing its assets in U.S.
Treasury securities backed by the full faith and credit of the U.S. Government.
Shares of the Fund are not issued, insured or guaranteed, as to value or yield,
by the U.S. Government or its agencies or instrumentalities. In an effort to
minimize fluctuations in market value of its portfolio securities, the Fund is
expected to maintain a dollar-weighted average maturity of approximately three
years. Pending direct investment in U.S. Treasury debt securities, the Fund may
enter into repurchase agreements secured by such securities in an amount up to
10% of the value of its total assets. The Fund may, to a limited degree, engage
in short-term trading to attempt to take advantage of short-term market varia-
tions, or may dispose of a portfolio security prior to its maturity if it
believes such disposition advisable or it needs to generate cash to satisfy
redemptions.
Smith Barney Managed Governments Fund Inc. seeks high current income consis-
tent with liquidity and safety of capital. The Fund invests substantially all
of its assets in U.S. government securities and, under normal circumstances,
the Fund is required to invest at least 65% of its assets in such securities.
The Fund's portfolio of U.S. government securities consists primarily of mort-
gage-backed securities issued or guaranteed by GNMA, the Federal National Mort-
gage Association ("FNMA") and FHLMC. Assets not invested in such mortgage-
backed securities are invested primarily in direct obligations of the United
States Treasury and other U.S. government securities. The weighted average
maturity of the Fund's portfolio will vary from time to time and the Fund may
invest in U.S. government securities of all maturities: short-term, intermedi-
ate-term and long-term. The Fund may invest without limit in securities of any
issuer of U.S. government securities, and may invest up to an aggregate of 15%
of its total assets in securities with contractual or other restrictions on
resale and other instruments that are not readily marketable (such as repur-
chase agreements with maturities in excess of seven days). The Fund may invest
up to 5% of its net assets in U.S. government securities for which the princi-
pal repayment at maturity, while paid in U.S. dollars, is determined by refer-
ence to the exchange rate between the U.S. dollar and the currency of one or
more foreign countries.
Smith Barney Diversified Strategic Income Fund, an investment portfolio of
Smith Barney Income Funds, seeks high current income primarily through invest-
ment in fixed-income securities. The Fund attempts to achieve its objective by
allocating and reallocating its assets primarily among various types of fixed-
income securities selected by MMC based on its analysis of economic and market
conditions and the relative risks and opportunities of particular securities.
The types of fixed-income securities among which the Fund's assets will be pri-
marily allocated are: obligations issued or guaranteed as to principal and
interest by the United States government; mortgage-related securities issued by
various governmental and non-governmental entities; domestic and foreign corpo-
rate securities; and foreign government securities. Under normal conditions, at
least 65% of the Fund's assets will be invested in fixed-income securities,
which includes non-convertible preferred stocks. The Fund generally will invest
in intermediate- and long-term fixed-income securities with the result that,
under normal market conditions, the weighted average maturity of the Fund's
securities is expected to be between five and 12 years.
Mortgage-related securities in which the Fund may invest include mortgage
obligations collateralized by mortgage loans or mortgage pass-through certifi-
cates. Mortgage-related securities held by the Fund generally will be rated no
lower than Aa by Moody's or AA by S&P or, if not rated, of equivalent invest-
ment quality as determined by MMC. The Fund may invest up to 35% of its assets
in corporate fixed-income securities of domestic issuers rated Ba or lower by
Moody's or BB or lower by S&P or in nonrated securities deemed by MMC to be of
comparable quality. The Fund may invest in fixed-income securities rated as low
as Caa by Moody's or CCC by S&P.
12
<PAGE>
DESCRIPTION OF UNDERLYING SMITH BARNEY FUNDS (CONTINUED)
In general, the Fund may invest in debt securities issued by foreign govern-
ments or any of their political subdivisions that are considered stable by
Smith Barney Global Capital Management, Inc., the Fund's subadviser. Up to 5%
of the Fund's assets may be invested in foreign securities issued by countries
with developing economies. The Fund may also invest in securities issued by
supranational organizations.
The Global Government Bond Portfolio, an investment portfolio of Smith Barney
World Funds, Inc., seeks as high a level of current income and capital appreci-
ation as is consistent with its policy of investing principally in high quality
bonds of the U.S. and foreign governments. Under normal market conditions, the
Fund invests at least 65% of its total assets in bonds issued or guaranteed by
the U.S. or foreign governments (including foreign states, provinces, cantons
and municipalities) or their agencies, authorities or instrumentalities denomi-
nated in various currencies, including U.S. dollars, or in multinational cur-
rency units, such as the European Currency Unit. Except with respect to govern-
ment securities of less developed countries, the Fund invests in foreign gov-
ernment securities only if the issue or the issuer thereof is rated in the two
highest rating categories by Moody's or S&P, or if unrated, are of comparable
quality in the determination of MMC.
Under normal circumstances the Fund may invest up to 35% of its total assets
in debt obligations (including debt obligations convertible into common stock)
of U.S. or foreign corporations and financial institutions and supranational
entities. Any non-governmental investment would be limited to issues that are
rated A or better by Moody's or S&P, or if not rated, determined to be of com-
parable quality by the investment adviser.
The Fund is a non-diversified portfolio and currently contemplates investing
primarily in obligations of the U.S. and of developed nations (i.e., industri-
alized countries) that MMC believes to pose limited credit risks. These coun-
tries currently are Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway,
Portugal, Spain, Sweden, Switzerland, the United Kingdom and Germany. Invest-
ments may be made from time to time in government securities, including loan
assignments and loan participations, of less developed countries. Such coun-
tries currently include Argentina, Brazil, Bulgaria,
Czech Republic, Ecuador, Hungary, Indonesia, Lithuania, Malaysia, Mexico, Peru,
Philippines, Poland, Russia, Slovakia, South Africa, Thailand, Turkey, Uruguay
and Venezuela. Countries may be added or deleted from this list as economic and
political conditions warrant. Historical experience indicates that markets of
less developed countries have been more volatile than the markets of the mature
economies of developed countries; however, such markets often provide rates of
return to investors commensurate with the credit and market risks. MMC does not
intend to invest more than 10% of the Fund's total assets in government securi-
ties of less developed countries and will not invest more than 5% of its assets
in the government securities of any one such country. Such investments may be
unrated or rated below investment grade or may be in default. Securities rated
below investment grade (and comparable unrated securities) are the equivalent
of high yield, high risk bonds. Such securities are regarded as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations and involve major
risk exposure to adverse business, financial, economic, and political condi-
tions, whether or not occurring within the issuers' borders. Under normal mar-
ket conditions the Fund invests at least 65% of its assets in issues of not
less than three different countries; issues of any one country (other than the
United States) will represent no more than 45% of the Fund's total assets.
The Cash Portfolio is an investment portfolio of Smith Barney Money Funds,
Inc., a money market fund that seeks maximum current income and preservation of
capital. The Fund may invest in domestic and foreign money market securities
consisting of bank obligations and high quality commercial paper, corporate
obligations and municipal obligations, in addition to U.S. government obliga-
tions and related repurchase agreements. The Fund intends to maintain at least
25% of its total assets invested in obligations of domestic and foreign banks.
Shares of the Fund are not insured or guaranteed by the U.S. government.
The Fund has adopted certain investment policies to assure that, to the extent
reasonably possible, the Fund's price per share will not change from $1.00,
although no assurance can be given that this goal will be achieved on a contin-
uous basis. In order to minimize fluctuations in market price, the Fund will
not purchase a security with a remaining maturity of greater than 13 months or
maintain a dollar-weighted average portfolio maturity in excess of 90 days (se-
curities used as collateral for repurchase agreements are not subject to these
restrictions).
The Fund's investments are limited to U.S. dollar-denominated instruments that
have received the highest rating from the "Requisite NRSROs," securities of
issuers that have received such rating with respect to other short-term debt
securities and comparable unrated securities. "Requisite NRSROs" means (a) any
two nationally recognized statistical ratings organizations ("NRSROs") that
have issued a rating with respect to a security or class of debt obligations of
an issuer, or (b) one NRSRO, if only one NRSRO has issued such a rating at the
time that the Fund acquires the security. The NRSROs currently designated as
such by the Securities and Exchange Commission (the "SEC") are S&P, Moody's,
Duff and Phelps Inc., Fitch IBCA, Inc. and Thomson BankWatch.
For purposes of the equity/fixed income fund allocation targets and ranges
applicable to each Portfolio (see page 5), each of the following Underlying
Smith Barney Funds is considered to be an equity fund with respect to 50% of a
Portfolio's investment in such Fund and an income fund with respect to the
remaining 50% of such Portfolio's investment.
13
<PAGE>
DESCRIPTION OF UNDERLYING SMITH BARNEY FUNDS (CONTINUED)
The Smith Barney Convertible Fund, an investment portfolio of Smith Barney
Income Funds, seeks current income and capital appreciation by investing in
convertible securities and in combinations of nonconvertible fixed-income secu-
rities and warrants or call options that together resemble convertible securi-
ties ("synthetic convertible securities"). Under normal circumstances, the Fund
will invest at least 65% of its assets in convertible securities, but is not
required to sell securities to conform to this limitation and may retain on a
temporary basis securities received upon the conversion or exercise of such
securities. The Fund will not invest in fixed-income securities that are rated
lower than B by Moody's or S&P or, if unrated, deemed by MMC to be comparable
to securities rated lower than B. The Fund may invest up to 35% of its assets
in synthetic convertible securities and in equity and debt securities that are
not convertible into common stock and, for temporary defensive purposes, may
invest in these securities without limitation.
The Smith Barney Utilities Fund, an investment portfolio of Smith Barney
Income Funds, seeks current income by investing in equity and debt securities
of companies in the utility industries. Long-term capital appreciation is a
secondary objective of the Fund. The utility industries are deemed to be com-
prised of companies principally engaged (that is, at least 50% of a company's
assets, gross income or net profits results from utility operations or the com-
pany is regulated as a utility by a government agency or authority) in the man-
ufacture, production, generation, transmission and sale of electric and gas
energy and companies principally engaged in the communications field, including
entities such as telephone, telegraph, satellite, microwave and other companies
regulated by governmental agencies as utilities that provide communication
facilities for the public benefit, but not including those in public broadcast-
ing. The Fund will invest primarily in utility equity and debt securities that
have a high expected rate of return as determined by MMC. Under normal market
conditions, the Fund will invest at least 65% of its assets in such securities.
The Fund may invest up to 35% of its assets in equity and debt securities of
non-utility companies believed to afford a reasonable opportunity for achieving
the Fund's investment objectives. The Fund will invest in investment grade debt
securities, but may invest up to 10% of its assets in securities rated BB or B
by S&P or Ba or B by Moody's whenever MMC believes that the incremental yield
on such securities is advantageous to the Fund in comparison to the additional
risk involved.
The Board of Trustees has voted in favor of changing the Fund's investment
objective and investment policies and has instructed that these changes be sub-
mitted to shareholders for their approval at a meeting scheduled to be held on
May 7, 1998. If approved by shareholders, the Fund's investment objective would
be changed so that income and capital appreciation receive equal consideration.
The Fund would be subject to a target asset allocation of approximately 60% in
equity securities and approximately 40% in fixed-income securities. The Fund
would no longer be required to invest in equity and debt securities of compa-
nies in the utilities industry. Should these changes be approved by Sharehold-
ers, the Board of Trustees has approved changing the Fund's name to the Smith
Barney Balanced Fund.
The International Balanced Portfolio, an investment portfolio of Smith Barney
World Funds, Inc., seeks a competitive total return on its assets from growth
of capital and income through a portfolio invested primarily in securities of
established non-U.S. issuers. The Fund may borrow up to 15% of the value of its
assets for investment purposes, which involves certain risks. Under normal mar-
ket conditions, the Fund will invest its assets in an international portfolio
of equity securities (consisting of dividend and non-dividend paying common
stocks, preferred stocks, convertible securities, ADRs and rights and warrants
to such securities) and debt securities (consisting of corporate debt securi-
ties, sovereign debt instruments issued by governments or governmental enti-
ties, including supranational organizations and U.S. and foreign money market
instruments). The Fund attempts to achieve a balance between equity and debt
securities. However, the proportion of equity and debt held by the Fund at any
one time will depend on MMC's views on current market and economic conditions.
Under normal conditions, no more than 70%, nor less than 30%, of the Fund's
assets will be invested in either equity or debt securities; however, there is
no limitation on the percent or amount of the Fund's assets that may be
invested for growth or income.
The Fund is a non-diversified portfolio but will generally invest its assets
broadly among countries and will normally have at least 65% of its assets
invested in business activities in not less than three different countries out-
side of the U.S. The Fund will invest in a broad range of industries and sec-
tors and will mainly invest in securities issued by companies with market capi-
talization of at least $50,000,000. The Fund may invest in companies organized
or governments located in any area of the world. However, under unusual eco-
nomic or market conditions as determined by the investment adviser, for defen-
sive purposes the Fund may temporarily invest all or a major portion of its
assets in U.S. government securities, debt or equity securities of companies
incorporated in and having their principal business activities in the U.S. or
in U.S. as well as foreign money market instruments and equivalents.
The debt securities in which the Fund invests generally range in maturity from
two to ten years. Debt securities of developed foreign countries must be rated
investment grade (or deemed by MMC to be of comparable quality) at the time of
purchase. Debt securities of emerging market countries may be rated below
investment grade and could include securities that are in default as to pay-
ments of principal or interest. Up to 25% of the total assets of the Fund may
be invested in securities of emerging market countries.
14
<PAGE>
DESCRIPTION OF UNDERLYING SMITH BARNEY FUNDS (CONTINUED)
PERFORMANCE OF UNDERLYING SMITH BARNEY FUNDS
The following chart shows the average annual total returns for the longest
outstanding class of shares for each of the Underlying Smith Barney Funds in
which the Select Portfolios may invest (other than the Cash Portfolio of Smith
Barney Money Funds, Inc.) for the most recent one-, five- and ten-year periods
(or since inception if shorter and giving effect to the maximum applicable
sales charges) and the 30-day yields for income-oriented funds, in each case
for the period ended December 31, 1997.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
ASSETS OF ALL THROUGH DECEMBER 31, 1997 30-DAY YIELD FOR
CLASSES AS OF ------------------------------ PERIOD ENDED
DECEMBER 31, INCEPTION DECEMBER 31,
UNDERLYING SMITH BARNEY FUND 1997 ($000'S) DATE CLASS ONE YEAR FIVE YEARS TEN YEARS 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Smith Barney Aggressive Growth Fund Inc. $ 798,659 10/24/83 A 22.01 % 9.38% 15.64 % --
Smith Barney Appreciation Fund Inc. 4,188,695 03/10/70 A 19.95 14.69 14.64 --
Smith Barney Equity Funds:
Smith Barney Large Cap Blend Fund 429,560 11/06/92 A 16.57 13.49 -- --
Smith Barney Fundamental Value Fund Inc. 1,569,046 11/12/81 A 9.49 15.29 14.99 --
Smith Barney Funds, Inc.:
Large Cap Value Fund 1,010,052 01/01/72 A 21.45 15.87 14.22 --
Short-Term U.S. Treasury Securities Fund 100,885 11/11/91 A 6.73 5.20 -- 5.41%
Smith Barney Income Funds:
Smith Barney High Income Fund 1,390,837 09/02/86 B 7.97 10.79 9.68 7.35
Smith Barney Utilities Fund 1,160,422 03/28/88 B 15.30 9.81 -- --
Smith Barney Premium Total Return Fund 4,094,715 09/16/85 B 19.55 15.72 16.38 --
Smith Barney Convertible Fund 134,833 09/02/86 B 10.88 10.08 10.26 2.83
Smith Barney Diversified Strategic Income Fund 2,941,695 12/28/89 B 2.60 7.90 -- 5.98
Smith Barney Investment Funds Inc.:
Concert Peachtree Growth Fund 224,049 06/30/95 A (0.10) -- -- --
Smith Barney Managed Growth Fund 960,180 06/30/95 A 7.99 -- -- --
Smith Barney Special Equities Fund 566,177 12/13/82 B (11.06) 11.81 10.81 --
Smith Barney Government Securities Fund 574,256 03/20/84 B 6.32 6.32 8.19 5.91
Smith Barney Investment Grade Bond Fund 550,179 01/04/82 B 11.94 10.55 10.82 6.43
Smith Barney Hansberger Global Value Fund 53,405 12/19/97 A N/A N/A N/A
Smith Barney Hansberger Global Small Cap
Value Fund 17,162 12/19/97 A N/A N/A N/A
Smith Barney Investment Trust:
Smith Barney Large Capitalization Growth
Fund 433,696 8/29/97 A -- -- -- --
Smith Barney Managed Governments Fund Inc. 550,549 09/04/84 A 4.54 5.74 7.72 6.36
Smith Barney Natural Resources Fund Inc. 101,818 12/24/86 A (14.37) 9.06 0.33 --
Smith Barney Small Cap Blend Fund, Inc. 164,253 01/23/90 A 21.81 13.60 -- --
Smith Barney World Funds, Inc.:
International Equity Portfolio 1,260,845 02/18/86 A (3.18) 9.46 10.59 --
Emerging Markets Portfolio 31,835 05/11/95 A (13.75) -- -- --
International Balanced Portfolio 65,501 08/25/94 A (11.13) -- -- --
Global Government Bond Portfolio 141,191 07/22/91 A 3.31 -- -- 4.34
- -----------
</TABLE>
+ Since inception (less than 10 years)
- --------------------------------------------------------------------------------
For the seven-day period ended December 31, 1997, the yield for the Cash Port-
folio of Smith Barney Money Funds, Inc. was 5.09% and the effective yield was
5.22%.
The performance data relating to the Underlying Smith Barney Funds set forth
above is not, and should not be viewed as, indicative of the future performance
of either the Underlying Smith Barney Funds or the Concert Series. The perfor-
mance reflects the impact of sales charges and other distribution related
expenses that will not be incurred by the Class Y shares of the Underlying
Smith Barney Funds in which the Portfolios will invest.
INVESTMENT POLICIES AND STRATEGIES OF THE UNDERLYING SMITH BARNEY FUNDS
In pursuing their investment objectives and programs, each of the Underlying
Smith Barney Funds is permitted to engage in a wide range of investment poli-
cies. The Underlying Smith Barney Funds' risks are determined by the nature of
the securities held and the investment strategies used by the Funds' adviser.
Certain of these policies are described below and further information about the
investment policies and strategies of the Underlying Smith Barney Funds in
which the Select Portfolios may invest is contained in the Appendix to this
Prospectus and in the Statement of Additional Information as well as the pro-
spectuses of the Underlying Smith Barney Funds. Because each Portfolio invests
in the Underlying Smith Barney Funds, shareholders of each Portfolio will be
affected by these investment policies in direct proportion to the amount of
assets each Portfolio allocates to the Underlying Smith Barney Funds pursuing
such policies.
Securities of Non-U.S. Issuers. The Select Portfolios will each invest in cer-
tain Underlying Smith Barney Funds that invest all or a portion of their assets
in securities of non-U.S. issuers. These include non-dollar denominated securi-
ties traded outside the U.S. and dollar-denominated securities traded in the
U.S. (such as ADRs). Such investments involve some special risks such as fluc-
tuations in foreign exchange rates, future political and economic developments,
and the possible imposition of exchange controls or other foreign governmental
laws or restrictions. In addition, with respect to certain countries, there is
the possibility of expropriation of assets,
15
<PAGE>
DESCRIPTION OF UNDERLYING SMITH BARNEY FUNDS (CONTINUED)
repatriation, confiscatory taxation, political or social instability or diplo-
matic developments that could adversely affect investments in those countries.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing, and financial reporting standards and requirements comparable to or
as uniform as those of U.S. companies. Non-U.S. securities markets, while grow-
ing in volume, have, for the most part, substantially less volume than U.S.
markets, and securities of many foreign companies are less liquid and their
prices more volatile than securities of comparable U.S. companies. Transaction
costs on non-U.S. securities markets are generally higher than in the U.S.
There is generally less government supervision and regulation of exchanges,
brokers and issuers than there is in the U.S. An Underlying Smith Barney Fund
might have greater difficulty taking appropriate legal action in non-U.S.
courts. Dividend and interest income from non-U.S. securities will generally be
subject to withholding taxes by the country in which the issuer is located and
may not be recoverable by the Underlying Smith Barney Fund or a Portfolio
investing in such Fund.
Options and Futures. Certain of the Underlying Smith Barney Funds may enter
into stock index, interest rate and currency futures contracts (or options
thereon, including swaps, caps, collars and floors) as a hedging device, or as
an efficient means of regulating their exposure to various markets. Certain of
the Underlying Smith Barney Funds may also purchase and sell call and put
options. Futures (a type of potentially high-risk derivative) are often used to
manage risk because they enable the investor to buy or sell an asset at a pre-
determined price in the future. The Underlying Smith Barney Funds may buy and
sell futures and options contracts for a number of reasons including: to manage
their exposure to changes in interest rates, stock and bond prices, and foreign
currencies; as an efficient means of adjusting their overall exposure to cer-
tain markets; to adjust the portfolio's duration; to enhance income; and to
protect the value of the portfolio securities. Certain of the Underlying Smith
Barney Funds may purchase, sell or write call and put options on securities,
financial indices, and foreign currencies. Options and futures can be volatile
investments, and involve certain risks. If the adviser to the Underlying Smith
Barney Fund applies a hedge at an inappropriate time or judges market condi-
tions incorrectly, options and futures strategies may lower the Underlying
Smith Barney Fund's return. Further losses could also be experienced if the
options and futures positions held by an Underlying Smith Barney Fund were
poorly correlated with its other investments, or if it could not close out its
positions because of an illiquid secondary market.
The Smith Barney Natural Resources Fund Inc., may also enter into futures con-
tracts for the purchase and sale of gold, purchase put and call options on
those future contracts and write call options on those futures contracts. The
Smith Barney Natural Resources Fund Inc., will purchase or write options on
gold futures only on a regulated domestic or foreign exchange approved for such
purpose by the Commodities Futures Trading Commission.
Debt Securities. Certain of the Underlying Smith Barney Funds may be affected
by general changes in interest rates, which will result in increases or
decreases in the market value of the debt securities held by the Funds. The
market value of the fixed-income obligations in which the Underlying Smith Bar-
ney Funds may invest can be expected to vary inversely in relation to the
changes in prevailing interest rates and also may be affected by other market
and credit factors.
Certain of the Underlying Smith Barney Funds may invest only in high quality,
high grade or investment grade securities. High quality securities are those
rated in the two highest categories by Moody's (Aaa or Aa) or S&P (AAA or AA).
High grade securities are those rated in the three highest categories by
Moody's (Aaa, Aa or A) or S&P (AAA, AA or A). Investment grade securities are
those rated in the four highest categories by Moody's (Aaa, Aa, A or Baa) or
S&P (AAA, AA, A or BBB). Securities rated Baa or BBB have speculative charac-
teristics and changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity of their issuers to make principal and
interest payments than is the case with higher grade securities.
Certain Underlying Smith Barney Funds may invest in securities that are rated
below investment grade; that is, rated below Baa by Moody's or BBB by S&P.
Securities rated below investment grade (and comparable unrated securities) are
the equivalent of high yield, high risk bonds, commonly known as "junk bonds."
Such securities are regarded as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligations and involve major risk exposure to adverse business,
financial, economic or political conditions. See the Appendix to the Statement
of Additional Information for additional information on the bond ratings by
Moody's and S&P.
VALUATION OF SHARES
Each Select Portfolio's net asset value per share is determined as of the
close of regular trading on the NYSE on each day that the NYSE is open, by
dividing the value of the Portfolio's net assets by the total number of shares
of the Portfolio outstanding. The value of each Underlying Smith Barney Fund
will be its net asset value at the time of computation. Short-term investments
that have a maturity of more than 60 days are valued at prices based on market
quotations for securities of similar type, yield and maturity. Short-term
investments that have a maturity of 60 days or less are valued at amortized
cost unless conditions dictate otherwise.
16
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Concert Series intends to declare annual income dividends on shares of
each Select Portfolio. In addition, the Concert Series intends to make annual
distributions of capital gains, if any, on the shares of each Portfolio.
Income dividends and capital gain distributions that are invested are credited
to shareholders' accounts in additional shares at the net value as of the close
of business on the payment date. A shareholder may change the option at any
time by notifying his or her Smith Barney Financial Consultant. Shareholders
whose accounts are held directly by First Data Investor Services Group Inc.
("First Data") should notify First Data in writing at least five business days
prior to the payment date to permit the change to be entered in the sharehold-
er's account.
TAXES
Each Portfolio of the Concert Series intends to qualify as a "regulated
investment company" under Subchapter M of the Code. To qualify, each Portfolio
must meet certain tests, including distributing at least 90% of its investment
company taxable income, and deriving less than 30% of its gross income from the
sale or other disposition of certain investments held for less than three
months. Each Select Portfolio intends at least annually to declare and make
distributions of substantially all of its taxable income and net taxable capi-
tal gains to its shareowners (i.e., the Separate Accounts). Such distributions
are automatically reinvested in additional shares of the Portfolio at net asset
value and are includable in gross income of the Separate Accounts holding such
shares. See the accompanying Contract prospectus for information regarding the
federal income tax treatment of distributions to the Separate Accounts and to
holders of the Contracts.
Each Select Portfolio of the Concert Series is also subject to asset diversi-
fication regulations promulgated by the U.S. Treasury Department under the
Code. The regulations generally provide that, as of the end of each calendar
quarter or within 30 days thereafter, no more than 55% of the total assets of
each Portfolio may be represented by any one investment, no more than 70% by
any two investments, no more than 80% by any three investments, and no more
than 90% by any four investments. For this purpose all securities of the same
issuer are considered a single investment. If a Select Portfolio should fail to
comply with these regulations, Contracts invested in that Portfolio would not
be treated as annuity, endowment or life insurance contracts under the Code.
PURCHASE OF SHARES
Investment in the Select Portfolios of the Concert Series is available to own-
ers of either variable annuity or variable life insurance contracts issued by
insurance companies through their separate accounts and qualified pension and
retirement plans. It is possible that in the future it may become disadvanta-
geous for both variable annuity and variable life insurance separate accounts
to be invested simultaneously in the Concert Series. However, the Concert
Series does not currently foresee any disadvantages to the contract owners of
the different contracts which are funded by such separate accounts. The Board
of Directors of the Concert Series monitors events for the existence of any
material irreconcilable conflict between or among such owners, and each insur-
ance company will take whatever remedial action may be necessary to resolve any
such conflict. Such action could include the sale of the Concert Series shares
by one or more of the insurance company separate accounts which fund these con-
tracts, which could have adverse consequences to the Concert Series. Material
irreconcilable conflicts could result from, for example: (a) changes in state
insurance laws; (b) changes in U.S. federal income tax laws; or (c) differences
in voting instructions between those given by variable annuity contract owners
and those given by variable life insurance contract owners. If the Board were
to conclude that separate series of the Concert Series should be established
for variable annuity and variable life separate accounts, each insurance com-
pany would bear the attendant expenses. Should this become necessary, contract
owners would presumably no longer have the economies of scale resulting from a
larger combined mutual fund.
REDEMPTION OF SHARES
The redemption price of the shares of each Select Portfolio will be the net
asset value next determined after receipt by the Concert Series of a redemption
order from a Separate Account, which may be more or less than the price paid
for the shares. The Concert Series will ordinarily make payment within one
business day, though redemption proceeds must be remitted to a Separate Account
on or before the third day following receipt of proper tender, except on a day
on which the NYSE is closed or as permitted by the SEC in extraordinary circum-
stances.
17
<PAGE>
PERFORMANCE
From time to time the Concert Series may include a Portfolio's total return,
average annual total return, yield and current distribution return in adver-
tisements and/or other types of sales literature. THESE FIGURES ARE BASED ON
HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. In
addition, these figures will not reflect the deduction of the charges that are
imposed on the Contracts by the Separate Account (see Contract prospectus)
which, if reflected, would reduce the performance quoted. Total return is com-
puted for a specified period of time assuming reinvestment of all income divi-
dends and capital gains distributions at net asset value on the ex-dividend
dates at prices calculated as stated in this Prospectus, then dividing the
value of the investment at the end of the period so calculated by the initial
amount invested and subtracting 100%. The standard average annual total
return, as prescribed by the SEC, is derived from this total return, which
provides the ending redeemable value. Such standard total return information
may also be accompanied with nonstandard total return information over differ-
ent periods of time by means of aggregate, average, year-by-year, or other
types of total return figures. The yield of a Portfolio refers to the net
investment income earned by investments in the Portfolio over a thirty-day
period. This net investment income is then annualized, i.e., the amount of
income earned by the investments during that thirty-day period is assumed to
be earned each 30-day period for twelve periods and is expressed as a percent-
age of the investments. The yield quotation is calculated according to a for-
mula prescribed by the SEC to facilitate comparison with yields quoted by
other investment companies. The Concert Series calculates current distribution
return for each Portfolio by dividing the distributions from investment income
declared during the most recent period by the net asset value on the last day
of the period for which current distribution return is presented. A Portfo-
lio's current distribution return may vary from time to time depending on mar-
ket conditions, the composition of its investment portfolio and operating
expenses. These factors and possible differences in the methods used in calcu-
lating current distribution return, and the charges that are imposed on the
Contracts by the Separate Account, should be considered when comparing the
Portfolio's current distribution return to yields published for other invest-
ment companies and other investment vehicles.
MANAGEMENT OF THE CONCERT SERIES
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the Concert Series
rests with the Concert Series' Board of Directors. A majority of the Series'
directors are non-interested persons as defined in Section 2(a)(19) of the
1940 Act. However, the directors and officers of the Series also serve in sim-
ilar positions with many of the Underlying Smith Barney Funds. Thus, if the
interests of a Portfolio and the Underlying Smith Barney Funds were ever to
become divergent, it is possible that a conflict of interest could arise and
affect how the directors and officers of the Series fulfill their fiduciary
duties to that Portfolio and the Underlying Smith Barney Funds. The directors
of the Series believe they have structured each Portfolio to avoid these con-
cerns. However, conceivably a situation could occur where proper action for
the Series or a Portfolio separately could be adverse to the interests of an
Underlying Smith Barney Fund, or the reverse could occur. If such a possibil-
ity arises, the directors and officers of the Series, the affected Underlying
Smith Barney Funds, TIA and MMC will carefully analyze the situation and take
all steps they believe reasonable to minimize and, where possible, eliminate
the potential conflict. Moreover, limitations on aggregate investments in the
Underlying Smith Barney Funds have been adopted by the Series to minimize this
possibility, and close and continuous monitoring will be exercised to avoid,
insofar as is possible, these concerns. The Statement of Additional Informa-
tion contains background information regarding each director and executive
officer of the Concert Series.
INVESTMENT MANAGER
TIA, the investment manager to each Select Portfolio, is a registered invest-
ment adviser whose principal offices are located at 388 Greenwich Street, New
York, New York 10013. TIA was incorporated in 1996 under the laws of Delaware.
TIA renders investment advice to various investment company clients that had
aggregate assets under management as of December 31, 1997 in excess of $1.6
billion. Subject to the supervision and direction of the Concert Series' Board
of Directors, TIA will determine how each Select Portfolio's assets will be
invested in the Underlying Smith Barney Funds and in repurchase agreements
pursuant to the investment objective and policies of each Select Portfolio set
forth in this Prospectus and make recommendations to the Board of Directors
concerning changes to (a) the Underlying Smith Barney Funds in which the Port-
folios may invest, (b) the percentage range of assets that may be invested by
each Portfolio in any one Underlying Smith Barney Fund and (c) the percentage
range of assets of any Portfolio that may be invested in equity funds and
fixed income funds (including money market funds). The directors of the Con-
cert Series will periodically monitor the allocations made and the basis upon
which such allocations were made or maintained. TIA also furnishes each Select
Portfolio with bookkeeping, accounting and administrative services, office
space and equipment, and the services of the officers and employees of the
Concert Series. Under the Asset Allocation and Administration Agreement with
each Select Portfolio, TIA has agreed to bear all expenses of the Select Port-
folios other than the management fee and extraordinary expenses. For each
Select Portfolio's most recent fiscal period, for the services rendered and
expenses borne, each Select Portfolio paid TIA a monthly fee at the annual
rate of 0.35% of the value of its average daily net assets.
18
<PAGE>
MANAGEMENT OF THE CONCERT SERIES (CONTINUED)
MMC serves as investment adviser to each of the Underlying Smith Barney Funds
in which the Select Portfolios may invest (other than the Smith Barney Premium
Total Return Fund) and is responsible for the selection and management of each
of the Underlying Smith Barney Fund's investments. MMC is a registered
investment adviser whose principal offices are located at 388 Greenwich Street,
New York, New York 10013. MMC renders investment advice to a wide variety of
investment company clients that had aggregate assets under management as of
January 31, 1998 in excess of $95 billion. SBSA, located at 388 Greenwich
Street, New York, New York 10013, serves as investment adviser to Smith Barney
Premium Total Return Fund. SBSA has been in the investment counseling business
since 1968 and is a wholly owned subsidiary of MMC. SBSA renders investment
advice to investment companies that had aggregate assets under management as of
January 31, 1998 in excess of $4.3 billion. TIMCO, located at One Tower Square,
Hartford, Connecticut 06183, serves as investment adviser to Smith Barney Small
Cap Blend Fund, Inc. TIMCO has been the investment counseling business since
1967 and is a wholly-owned subsidiary of Salomon Smith Barney Holdings Inc.
TIMCO renders investment advice to investment companies that had aggregate
assets under management as of January 31, 1998 in excess of $300 million.
Each Portfolio, as a shareholder in the Underlying Smith Barney Funds, will
indirectly bear its proportionate share of any investment management fees and
other expenses paid by the Underlying Smith Barney Funds. The effective manage-
ment fee of each of the Underlying Smith Barney Funds in which the Select Port-
folios may invest is set forth below as a percentage rate of the Fund's annual
net assets:
<TABLE>
<CAPTION>
MANAGEMENT
UNDERLYING SMITH BARNEY FUND FEES
- ---------------------------------------------------------------
<S> <C>
Smith Barney Aggressive Growth Fund Inc. 0.80%
Smith Barney Appreciation Fund Inc. 0.59
Smith Barney Equity Funds
Smith Barney Large Cap Blend Fund 0.65
Smith Barney Fundamental Value Fund Inc. 0.75
Smith Barney Funds, Inc.
Large Cap Value Fund 0.58
Short-Term U.S. Treasury Securities Fund 0.45
Smith Barney Income Funds
Smith Barney High Income Fund 0.70
Smith Barney Utilities Fund 0.65
Smith Barney Premium Total Return Fund 0.75
Smith Barney Convertible Fund 0.70
Smith Barney Diversified Strategic Income Fund 0.65
Smith Barney Investment Funds Inc.
Concert Peachtree Growth Fund 1.00
Smith Barney Managed Growth Fund 0.85
Smith Barney Special Equities Fund 0.75
Smith Barney Government Securities Fund 0.55
Smith Barney Investment Grade Bond Fund 0.65
Smith Barney Hansberger Global Value Fund 0.95
Smith Barney Hansberger Global Small Cap Value Fund 1.05
Smith Barney Investment Trust
Smith Barney Large Capitalization Growth Fund 0.75
Smith Barney Managed Governments Fund Inc. 0.65
Smith Barney Money Funds, Inc.
Cash Portfolio 0.40
Smith Barney Natural Resources Fund Inc. 0.75
Smith Barney Small Cap Blend Fund, Inc. 0.75
Smith Barney World Funds, Inc.
International Equity Portfolio 0.85
Emerging Markets Portfolio 1.00
International Balanced Portfolio 0.85
Global Government Bond Portfolio 0.75
- ---------------------------------------------------------------
</TABLE>
PORTFOLIO MANAGEMENT
Thomas B. Stiles II, Chief Investment Officer of TIA, has primary responsibil-
ity for the day-to-day management of each Select Portfolio. Mr. Stiles, born in
1940, is a Managing Director of Smith Barney. Certain managing directors of TIA
will assist Mr. Stiles in managing the Select Portfolios.
19
<PAGE>
SHARES OF THE CONCERT SERIES
The Concert Series, an open-end, non-diversified investment company, was
incorporated in Maryland on August 11, 1995. The Concert Series commenced oper-
ations on February 5, 1996. The Select Portfolios of Concert Series commenced
operations on February 5, 1997. The Concert Series has authorized capital of
5,500,000,000 shares with a par value of $.001 per share. The Board of Direc-
tors has authorized the issuance of eleven series of shares, each representing
shares in one of eleven separate portfolios and may authorize the issuance of
additional series of shares in the future. The assets of each portfolio are
segregated and separately managed and a shareholder's interest is in the assets
of the Portfolio in which he or she holds shares.
PNC Bank, National Association, located at 17th and Chestnut Streets, Phila-
delphia, Pennsylvania 19103, serves as custodian of the Select Portfolios'
investments.
First Data, located at Exchange Place, Boston, Massachusetts 02109, serves as
the Concert Series' transfer agent.
The Concert Series intends to send its shareholders a semi-annual report and
an audited annual report, which will include listings of the investment securi-
ties held by the Concert Series at the end of the period covered. In an effort
to reduce the Concert Series' printing and mailing costs, the Concert Series
plans to consolidate the mailing of its semi-annual and annual reports by
household. This consolidation means that a household having multiple accounts
with the identical address of record will receive a single copy of each report.
In addition, the Concert Series plans to consolidate the mailing of its Pro-
spectus so that a shareholder having multiple accounts will receive a single
Prospectus annually. Shareholders who do not want this consolidation to apply
to their account should contact their Smith Barney Financial Consultant or the
Concert Series' transfer agent.
VOTING RIGHTS
The Concert Series offers shares of the Select High Growth, Select Growth,
Select Balanced, Select Conservative and Select Income Portfolios only for pur-
chase by insurance company separate accounts and qualified pension and retire-
ment plans. In the case of insurance company separate accounts, the insurance
company is technically the shareholder of these Portfolios and, under the 1940
Act, is deemed to be in control of the these Portfolios. Nevertheless, with
respect to any Concert Series shareholder meeting, an insurance company will
solicit and accept timely voting instruction from its contract owners who own
units in a separate account investment division which corresponds to shares in
the Portfolios in accordance with the procedures set forth in the accompanying
prospectus of the applicable contract issued by the insurance company and to
the extent required by law. Shares of the Concert Series attributable to con-
tract owner interests for which no voting instructions are received will be
voted by an insurance company in proportion to the shares for which voting
instructions are received.
Each share of a Portfolio represents an equal proportionate interest in that
Portfolio with each other share of the same Portfolio and is entitled to such
dividends and distributions out of the net income of that Portfolio as are
declared in the discretion of the Directors. Shareowners are entitled to one
vote for each share held and will vote by individual Portfolio except to the
extent required by the 1940 Act. The Concert Series is not required to hold
annual shareowner meetings, although special meetings may be called for the
Concert Series as a whole, or a specific Portfolio, for purposes such as elect-
ing or removing Directors, changing fundamental policies or approving a manage-
ment contract. Shareowners may cause a meeting of shareowners to be held upon a
vote of 10% of the Series' outstanding shares for the purposes of voting on the
removal of Directors.
20
<PAGE>
APPENDIX
DESCRIPTIONS OF CERTAIN RISKS RELATED TO VARIOUS SECURITIES INVESTED IN, AND
INVESTMENT STRATEGIES EMPLOYED BY, THE UNDERLYING SMITH BARNEY FUNDS IN WHICH
THE SELECT PORTFOLIOS MAY INVEST
Repurchase Agreements. Repurchase agreements, as utilized by an Underlying
Smith Barney Fund or a Portfolio of the Concert Series, could involve certain
risks in the event of default or insolvency of the other party, including pos-
sible delays or restrictions upon the ability of an Underlying Smith Barney
Fund or a Portfolio to dispose of the underlying securities, the risk of a pos-
sible decline in the value of the underlying securities during the period in
which an Underlying Smith Barney Fund or a Portfolio seeks to assert its rights
to them, the risk of incurring expenses associated with asserting those rights
and the risk of losing all or part of the income from the agreement.
Reverse Repurchase Agreements. Certain of the Underlying Smith Barney Funds
may engage in reverse repurchase agreement transactions with banks, brokers and
other financial institutions. Reverse repurchase agreements involve the risk
that the market value of the securities sold by the Underlying Smith Barney
Fund may decline below the repurchase price of the securities.
Lending of Portfolio Securities. The risks in lending portfolio securities,
like those associated with other extensions of secured credit, consist of pos-
sible delays in receiving additional collateral or in the recovery of the secu-
rities or possible loss of rights in the collateral should the borrower fail
financially. Loans will be made to firms deemed by the adviser to the Under-
lying Smith Barney Fund to be of good standing and will not be made unless, in
the judgment of the adviser, the consideration to be earned from such loans
would justify the risk.
When-Issued Securities and Delayed-Delivery Transactions. The purchase of
securities on a when-issued or delayed-delivery basis involves the risk that,
as a result of an increase in yields available in the marketplace, the value of
the securities purchased will decline prior to the settlement date. The sale of
securities for delayed delivery involves the risk that the prices available in
the market on the delivery date may be greater than those obtained in the sale
transaction.
Non-Diversified Funds. Certain of the Underlying Smith Barney Funds are
classified as non-diversified investment companies under the 1940 Act. Since,
as a non-diversified fund, such an Underlying Smith Barney Fund is permitted to
invest a greater proportion of its assets in the securities of a smaller number
of issuers, each such Fund may be subject to greater risk with respect to its
individual portfolio than a Fund that is more broadly diversified.
Securities of Unseasoned Issuers. Securities in which certain of the Under-
lying Smith Barney Funds may invest may have limited marketability and, there-
fore, may be subject to wide fluctuations in market value. In addition, certain
securities may lack a significant operating history and be dependent on prod-
ucts or services without an established market share.
Convertible Securities and Synthetic Convertible Securities. While convertible
securities generally offer lower yields than non-convertible debt securities of
similar quality, their prices may reflect changes in the value of the under-
lying common stock. Convertible securities entail less credit risk than the
issuer's common stock.
Synthetic convertible securities are created by combining non-convertible
bonds or preferred stocks with warrants or stock call options. Synthetic con-
vertible securities differ from convertible securities in certain respects,
including that each component of a synthetic convertible security has a sepa-
rate market value and responds differently to market fluctuations. Investing in
synthetic convertible securities involves the risks normally involved in hold-
ing the securities comprising the synthetic convertible security.
Securities of Developing Countries. A developing country generally is consid-
ered to be a country that is in the initial stages of its industrialization
cycle. Investing in the equity and fixed-income markets of developing countries
involves exposure to economic structures that are generally less diverse and
mature, and to political systems that can be expected to have less stability,
than those of developed countries. Historical experience indicates that the
markets of developing countries have been more volatile than the markets of the
more mature economies of developed countries; however, such markets often have
provided higher rates of return to investors.
Sovereign Debt Obligations. Sovereign debt of developing countries may involve
a high degree of risk, and may be in default or present the risk of default.
Governmental entities responsible for repayment of the debt may be unable or
unwilling to repay principal and interest when due, and may require renegoti-
ation or rescheduling of debt payments. In addition, prospects for repaying of
principal and interest may depend on political as well as economic factors.
Although some sovereign debt, such as Brady Bonds, is collateralized by U.S.
government securities, repayment of principal and interest is not guaranteed by
the U.S. government.
Restrictions on Foreign Investment. Some countries prohibit or impose substan-
tial restrictions on investments in their capital markets, particularly their
equity markets, by foreign entities. As illustrations, certain countries
require governmental approval prior to investments by foreign persons, or limit
the amount of investment by foreign persons in a particular company, or limit
the investment by foreign persons to only a specific class of securities of a
company that may have less advantageous terms than securities of the company
available for purchase by nationals or limit the repatriation of funds for a
period of time.
A-1
<PAGE>
APPENDIX (CONTINUED)
Smaller capital markets, while often growing in trading volume, have substan-
tially less volume than U.S. markets, and securities in many smaller capital
markets are less liquid and their prices may be more volatile than securities
of comparable U.S. companies. Brokerage commissions, custodial services, and
other costs relating to investment in smaller capital markets are generally
more expensive than in the U.S. Such markets have different clearance and set-
tlement procedures, and in certain markets there have been times when settle-
ments have been unable to keep pace with the volume of securities transactions,
making it difficult to conduct such transactions. Further, satisfactory custo-
dial services for investment securities may not be available in some countries
having smaller capital markets, which may result in an Underlying Smith Barney
Fund incurring additional costs and delays in transporting and maintaining cus-
tody of such securities outside such countries. Delays in settlement could
result in temporary periods when assets of a Fund are uninvested and no return
is earned thereon. The inability of an Underlying Smith Barney Fund to make
intended security purchases due to settlement problems could cause such Fund to
miss attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems could result either in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible lia-
bility to the purchaser. There is generally less government supervision and
regulation of exchanges, brokers and issuers in countries having smaller capi-
tal markets than there is in the U.S.
Mortgage-Related Securities. To the extent that an Underlying Smith Barney
Fund purchases mortgage-related securities at a premium, mortgage foreclosures
and prepayments of principal by mortgagors (which may be made at any time with-
out penalty) may result in some loss of the Fund's principal investment to the
extent of the premium paid. The Underlying Smith Barney Fund's yield may be
affected by reinvestment of prepayments at higher or lower rates than the orig-
inal investment. In addition, like other debt securities, the values of mort-
gage-related securities, including government and government-related mortgage
pools, generally will fluctuate in response to market interest rates.
Non-Publicly Traded and Illiquid Securities. The sale of securities that are
not publicly traded is typically restricted under the Federal securities laws.
As a result, an Underlying Smith Barney Fund may be forced to sell these secu-
rities at less than fair market value or may not be able to sell them when the
Fund's adviser believes it desirable to do so. Investments by an Underlying
Smith Barney Fund in illiquid securities are subject to the risk that should
the Fund desire to sell any of these securities when a ready buyer is not
available at a price that the Fund's adviser deems representative of its value,
the value of the Underlying Smith Barney Fund's net assets could be adversely
affected.
Short Sales. Possible losses from short sales differ from losses that could be
incurred from a purchase of a security, because losses from short sales may be
unlimited, whereas losses from purchases can equal only the total amount
invested.
Forward Roll Transactions. Forward roll transactions involve the risk that the
market value of the securities sold by an Underlying Smith Barney Fund may
decline below the repurchase price of the securities. Forward roll transactions
are considered borrowings by a Fund. Although investing the proceeds of these
borrowings in repurchase agreements or money market instruments may provide an
Underlying Smith Barney Fund with the opportunity for higher income, this
leveraging practice will increase a Fund's exposure to capital risk and higher
current expenses. Any income earned from the securities purchased with the
proceeds of these borrowings that exceeds the cost of the borrowings would
cause a Fund's net asset value per share to increase faster than would
otherwise be the case; any decline in the value of the securities purchased
would cause a Fund's net asset value per share to decrease faster than would
otherwise be the case.
Leverage. Certain of the Underlying Smith Barney Funds may borrow from banks,
on a secured or unsecured basis, in order to leverage their portfolios. Lever-
age creates an opportunity for increased returns to shareholders of an Under-
lying Smith Barney Fund but, at the same time, creates special risk considera-
tions. For example, leverage may exaggerate changes in the net asset value of a
Fund's shares and in a Fund's yield. Although the principal or stated value of
such borrowings will be fixed, the Fund's assets may change in value during the
time the borrowing is outstanding. Leverage will create interest or dividend
expenses for the Fund that can exceed the income from the assets retained. To
the extent the income or other gain derived from securities purchased with bor-
rowed funds exceeds the interest or dividends the Fund will have to pay in
respect thereof, the Fund's net income or other gain will be greater than if
leverage had not been used. Conversely, if the income or other gain from the
incremental assets is not sufficient to cover the cost of leverage, the net
income or other gain of the Fund will be less than if leverage had not been
used. If the amount of income for the incremental securities is insufficient to
cover the cost of borrowing, securities might have to be liquidated to obtain
required funds. Depending on market or other conditions, such liquidations
could be disadvantageous to the Underlying Smith Barney Fund.
Floating and Variable Rate Income Securities. Floating and variable rate
income securities include securities whose rates vary inversely with changes in
market rates of interest. Such securities may also pay a rate of interest
determined by applying a multiple to the variable rate. The extent of increases
and decreases in the value of securities whose rates vary inversely with
changes in market rates of interest generally will be larger than comparable
changes in the value of an equal principal amount of a fixed rate security hav-
ing similar credit quality, redemption provisions and maturity.
A-2
<PAGE>
APPENDIX (CONTINUED)
Zero Coupon, Discount and Payment-in-Kind Securities. Zero coupon securities
generally pay no cash interest (or dividends in the case of preferred stock) to
their holders prior to maturity. Payment-in-kind securities allow the lender,
at its option, to make current interest payments on such securities either in
cash or in additional securities. Accordingly, such securities usually are
issued and traded at a deep discount from their face or par value and generally
are subject to greater fluctuations of market value in response to changing
interest rates than securities of comparable maturities and credit quality that
pay cash interest (or dividends in the case of preferred stock) on a current
basis.
Premium Securities. Premium securities are income securities bearing coupon
rates higher than prevailing market rates. Premium securities are typically
purchased at prices greater than the principal amounts payable on maturity. If
securities purchased by an Underlying Smith Barney Fund at a premium are called
or sold prior to maturity, the Fund will recognize a capital loss to the extent
the call or sale price is less than the purchase price. Additionally, the Fund
will recognize a capital loss if it holds such securities to maturity.
Yankee Bonds. Yankee bonds are U.S. dollar-denominated bonds sold in the U.S.
by non-U.S. issuers. As compared with bonds issued in the U.S., such bond
issues normally carry a higher interest rate but are less actively traded.
Swap Agreements. As one way of managing its exposure to different types of
investments, certain of the Underlying Smith Barney Funds may enter into inter-
est rate swaps, currency swaps, and other types of swap agreements such as
caps, collars, and floors. Swap agreements can be highly volatile and may have
a considerable impact on a Fund's performance. Swap agreements are subject to
risks related to the counterparty's ability to perform, and may decline in
value if the counterparty's creditworthiness deteriorates. A Fund may also suf-
fer losses if it is unable to terminate outstanding swap agreements or reduce
its exposure through offsetting transactions.
Indexed Securities. Certain of the Underlying Smith Barney Funds may invest in
indexed securities, including inverse floaters, whose value is linked to cur-
rencies, interest rates, commodities, indices, or other financial indicators.
Indexed securities may be positively or negatively indexed (i.e., their value
may increase or decrease if the underlying instrument appreciates), and may
have return characteristics similar to direct investments in the underlying
instrument or to one or more options on the underlying instrument. Indexed
securities may be more volatile than the underlying instrument itself.
Investment in Utility Securities. The Smith Barney Utilities Fund is particu-
larly subject to risks that are inherent to the utility industries, including
difficulty in obtaining an adequate return on invested capital, difficulty in
financing large construction programs during an inflationary period, restric-
tions on operations and increased cost and delays attributable to environmental
considerations and regulation, difficulty in raising capital in adequate
amounts on reasonable terms in periods of high inflation and unsettled capital
markets, increased costs and reduced availability of certain types of fuel,
occasional reduced availability and high costs of natural gas for resales, the
effects of energy conservation, the effects of a national energy policy and
lengthy delays and greatly increased costs and other problems associated with
the design, construction, licensing, regulation and operation of nuclear facil-
ities for electric generation, including, among other considerations, the prob-
lems associated with the use of radioactive materials and the disposal of
radioactive wastes. There are substantial differences between the regulatory
practices and policies of various jurisdictions, and any given regulatory
agency may make major shifts in policy from time to time. There is no assurance
that regulatory authorities will grant rate increases in the future or that
such increases will be adequate to permit the payment of dividends on common
stocks. Additionally, existing and possible future regulatory legislation may
make it even more difficult for these utilities to obtain adequate relief. Cer-
tain of the issuers of securities held by the Smith Barney Utilities Fund may
own or operate nuclear generating facilities. Governmental authorities may from
time to time review existing policies, and impose additional requirements gov-
erning the licensing, construction and operation of nuclear power plants.
Each of the risks referred to above could adversely affect the ability and
inclination of public utilities to declare or pay dividends and the ability of
holders of common stock to realize any value from the assets of the issuer upon
liquidation or bankruptcy. All of the utilities that are issuers of the securi-
ties held by the Smith Barney Utilities Fund have been experiencing one or more
of these problems in varying degrees. Moreover, price disparities within
selected utility groups and discrepancies in relation to averages and indices
have occurred frequently for reasons not directly related to the general move-
ments or price trends of utility common stocks. Causes of these discrepancies
include changes in the overall demand for and supply of various securities (in-
cluding the potentially depressing effect of new stock offerings), and changes
in investment objectives, market expectations or cash requirements of other
purchasers and sellers of securities.
Should shareholders approve changes to the Fund's investment objectives and
policies, the Smith Barney Utilities Fund would no longer be required to invest
in equity and debt securities of companies of the utilities industry.
A-3
<PAGE>
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<PAGE>
VINTAGE TIFFANY LAMP
LOGO
PROSPECTUS
L 12410 SMITH BARNEY CONCERT ALLOCATION SERIES INC. SB ED. 4-98
PART B
Statement of Additional Information
April 30, 1998
SMITH BARNEY
CONCERT ALLOCATION SERIES INC.
SELECT HIGH GROWTH PORTFOLIO
SELECT GROWTH PORTFOLIO
SELECT BALANCED PORTFOLIO
SELECT CONSERVATIVE PORTFOLIO
SELECT INCOME PORTFOLIO
388 Greenwich Street, New York, New York 10013 (800) 451-2010
Smith Barney Concert Allocation Series Inc. (the "Concert Series")
currently offers eleven investment portfolios, five of which are
offered by this Statement of Additional Information (individually, a
"Portfolio" and collectively, the "Select Portfolios"). This
Statement of Additional Information expands upon and supplements the
information contained in the current Prospectus of Smith Barney
Concert Allocation Series Inc. (the "Concert Series") dated April 30,
1998 for the Select Portfolios, as amended or supplemented from time
to time (the "Prospectus"), and should be read in conjunction
therewith. Each of the Select Portfolios seeks to achieve its
objective by investing in a number of open-end management investment
companies or series thereof ("Underlying Smith Barney Funds") for
which Smith Barney Inc. ("Smith Barney") now or in the future acts as
principal underwriter or for which Mutual Management Corp. ("MMC")
(formerly Smith Barney, Smith Barney Mutual Funds Management Inc.),
or Smith Barney Strategy Advisers Inc. ("SBSA") now or in the future
acts as investment adviser. A Prospectus may be obtained from
designated insurance companies offering separate accounts ("Separate
Accounts") which fund certain variable annuity and variable life
insurance contracts (each a "Contract") or by writing or calling the
Concert Series at the address or telephone number listed above. This
Statement of Additional Information, although not in itself a
prospectus, is incorporated by reference into the Prospectus in its
entirety.
TABLE OF CONTENTS
For ease of reference, the same section headings are used in the
Prospectus for the Select Portfolios and this Statement of Additional
Information, except as shown below:
Caption Page
Management of the Concert Series 2
Investment Objectives and Management Policies 4
Purchase of Shares 20
Redemption of Shares 20
Valuation of Shares 21
Performance 21
Taxes (See in the Prospectus "Dividends, Distributions and Taxes") 22
Voting (See in the Prospectus "Additional Information") 24
Additional Information 25
Financial Statements 25
Appendix - Ratings of Debt Obligations A-1
MANAGEMENT OF THE CONCERT SERIES
The executive officers of the Concert Series are employees of certain
of the organizations that provide services to the Concert Series.
These organizations are the following:
Travelers Investment Adviser, Inc. ("TIA") Investment
Manager
PNC Bank, National Association ("PNC Bank") Custodian
First Data Investor Services Group, Inc. ("First Data") Transfer
Agent
These organizations and the functions they perform for the Concert
Series are discussed in the Prospectus and in this Statement of
Additional Information.
Directors and Executive Officers of the Concert Series
The names of the directors and executive officers of the Concert
Series, together with information as to their principal business
occupations during the past five years, are shown below. Each
director who is an "interested person" of the Concert Series, as
defined in the Investment Company Act of 1940, as amended (the "1940
Act"), is indicated by an asterisk.
Walter E. Auch, Director (Age 77). Consultant to companies in
the financial services industry; Director of Pimco Advisers L.P.;
Brinson Partners; Nicholas-Applegate (each a registered investment
adviser); Legend Properties, a real estate management company; Banyan
Realty Trust; Banyan Land Fund II; Geotek Communications Inc., an
international wireless communications company. His address is 6001 N.
62nd Place, Paradise Valley, Arizona 85253.
Martin Brody, Director (Age 76). Private Investor; His address
is c/o HMK Associates, 30 Columbia Turnpike, Florham Park, N.J.
07932.
H. John Ellis, Jr., Director (Age 71). Retired. His address is
858 East Crystal Downs Drive, Frankfort, Michigan 49635.
Stephen E. Kaufman, Director (Age 66). Attorney. His address
is 277 Park Avenue, New York, New York 10172.
Armon E. Kamesar, Director (Age 70). Chairman of the Board of
TEC, an international organization of Chief Executive Officers;
Trustee, U.S. Bankruptcy Court. His address is 7328 Country Club
Drive, La Jolla, CA 92037.
*Heath B. McLendon, Chairman of the Board (Age 64). Managing
Director of Smith Barney and Chairman of the Board of Smith Barney
Strategy Advisers Inc. and Director and President of MMC and TIA;
prior to July 1993, Senior Executive Vice President of Shearson
Lehman Brothers Inc.; Vice Chairman of Shearson Asset Management,;
and a Director of PanAgora Asset Management, Inc. and PanAgora Asset
Management Limited. Mr. McLendon serves on the Board of 42 Smith
Barney Mutual Funds. His address is 388 Greenwich Street, New York,
New York 10013.
Lewis E. Daidone, Senior Vice President and Treasurer (Age 40).
Managing Director of Smith Barney; Director and Senior Vice President
of MMC and TIA. Mr. Daidone also serves as Senior Vice President and
Treasurer of 42 Smith Barney Mutual Funds. His address is 388
Greenwich Street, New York, New York 10013.
R. Jay Gerken, Vice President and Investment Officer (Age 47).
Managing Director of Smith Barney and portfolio manager of one
other investment company of Smith Barney Mutual Funds; prior to July
1993, Managing Director of Shearson Lehman Advisors. His address is
388 Greenwich Street, New York, New York 10013.
Thomas Stiles, Vice President and Investment Officer (Age *).
Christina T. Sydor, Secretary (Age 47). Managing Director of
Smith Barney; General Counsel and Secretary of MMC and TIA. Ms.
Sydor also serves as Secretary of 42 Smith Barney Mutual Funds. Her
address is 388 Greenwich Street, New York, New York 10013.
Each Director also serves as a director, trustee, consultant and/or
general partner of certain other mutual funds for which Smith Barney
serves as distributor. As of April 3, 1998, the Directors and
officers of the Fund, as a group, owned less than 1.00% of the
outstanding common stock of the Fund.
No officer, director or employee of MMC, or any of its affiliates
will receive any compensation from the Concert Series for serving as
an officer or director of the Concert Series. The Concert Series
pays each director who is not an officer, director or employee of MMC
or any of its affiliates a fee of $5,000 per annum plus $100 per
Portfolio per meeting attended and reimburses travel and out-of-
pocket expenses.
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
receive 50% of the annual retainer fee and meeting fees otherwise
applicable to the Concert Series Directors. All Directors are
reimbursed for travel and out-of-pocket expenses incurred in
attending such meetings.
The following table shows the compensation paid by Concert Series to
each incumbent Director during its first fiscal year:
Compensation Table
Total
Pension or Total Number
Retirement Benefits Compensation of Funds
Aggregate Accrued as Expense From Served in
Name Compensation of Concert Series Fund Complex Complex
Heath B. McLendon* None None None 42
Walter Auch $[ 5,350] None $ [35,814] 2
Martin Brody [5,350] None [120,314] 19
H. John Ellis [5,450] None [36,800] 1
Armon E. Kamesar [5,950] None [37,414] 2
Stephen E. Kaufman [5,950] None [84,214] 13
* Designates "interested director".
Investment Manager - TIA
TIA acts as investment manager to each Select Portfolio pursuant to
separate asset allocation and administration agreements (the "Asset
Allocation and Administration Agreements"). TIA is an indirect
wholly owned subsidiary of Travelers Group Inc. ("Travelers"). The
Asset Allocation and Administration Agreements with respect to each
Select Portfolio were approved by the Board of Directors, including a
majority of the directors who are not "interested persons" of the
Concert Series or TIA (the "Independent Directors"), on September 5,
1996. Pursuant to the Asset Allocation and Administration
Agreements, TIA will determine how each Select Portfolio's assets
will be invested in the Underlying Smith Barney Funds and in
repurchase agreements pursuant to the investment objectives and
policies of each Portfolio set forth in the Prospectus and make
recommendations to the Board of Directors concerning changes to (a)
the Underlying Smith Barney Funds in which the Select Portfolios may
invest, (b) the percentage range of assets that may be invested by
each Portfolio in any one Underlying Smith Barney Fund and (c) the
percentage range of assets of any Portfolio that may be invested in
equity funds and fixed income funds (including money market funds).
In addition to such services, TIA pays the salaries of all officers
and employees who are employed by both it and the Concert Series,
maintains office facilities for the Concert Series, furnishes the
Concert Series with statistical and research data, clerical help and
accounting, data processing, bookkeeping, internal auditing and legal
services and certain other services required by the Concert Series
and each Select Portfolio, prepares reports to each Portfolio's
shareholders and prepares tax returns, reports to and filings with
the Securities and Exchange Commission (the "SEC") and state Blue Sky
authorities. MMC provides investment advisory and management
services to investment companies affiliated with Smith Barney.
The management fee for each Select Portfolio is calculated at the
annual rate of 0.35% of that Portfolio's average daily net assets.
Under the Asset Allocation and Administration Agreements, TIA has
agreed to bear all expenses incurred in the operation of each Select
Portfolio other than the management fee and extraordinary expenses.
Such expenses include taxes, interest, brokerage fees and
commissions, if any; fees of directors who are not officers,
directors, shareholders or employees of Smith Barney or TIA; SEC fees
and state Blue Sky qualification fees; charges of custodians;
transfer and dividend disbursing agent's fees; certain insurance
premiums; outside auditing and legal expenses; costs of maintenance
of corporate existence; investor services (including allocated
telephone and personnel expenses); and costs of preparation and
printing of the prospectus for regulatory purposes and for
distribution to existing shareholders; cost of shareholders' reports
and shareholder meetings and meetings of the officers or Board of
Directors of the Concert Series.
For the fiscal period ended January 31, 1998, the management fees for
each Select Portfolio were as follows:
Select Portfolio
High Growth $37,387
Growth 58,327
Balanced 62,481
Conservative 13,941
Income 5,866
Counsel and Auditors
Willkie Farr & Gallagher serves as legal counsel to the Concert
Series. The Independent Directors of the Concert Series have
selected Stroock & Stroock & Lavan LLP as their legal counsel
KPMG Peat Marwick LLP, independent accountants, 345 Park Avenue, New
York, New York 10154, have been selected as auditors for the Concert
Series for its fiscal year ending January 31, 1999 to examine and
report on the Concert Series' financial statements and highlights.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The Prospectus discusses the investment objectives of the Select
Portfolios and each of the Underlying Smith Barney Funds in which the
Select Portfolios may invest, as well as the policies employed to
achieve those objectives. This section contains supplemental
information concerning the types of securities and other instruments
in which the Underlying Smith Barney Funds may invest (and repurchase
agreements in which the Select Portfolios and/or the Underlying Smith
Barney Funds may invest), the investment policies and portfolio
strategies the Underlying Smith Barney Funds may utilize and certain
risks attendant to such investments, policies and strategies. There
can be no assurance that the respective investment objectives of the
Select Portfolios or the Underlying Smith Barney Funds will be
achieved.
The Articles of Incorporation of the Concert Series permit the Board
of Directors to establish additional portfolios of the Concert Series
from time to time. The investment objectives, policies and
restrictions applicable to additional portfolios would be established
by the Board of Directors at the time such portfolios were
established and may differ from those set forth in the Prospectus and
this Statement of Additional Information.
MONEY MARKET INSTRUMENTS. Each of the Underlying Smith Barney Funds
may invest in certain types of money market instruments which may
include: U.S. government securities; certificates of deposit ("CDs"),
time deposits ("TDs") and bankers' acceptances issued by domestic
banks (including their branches located outside the United States and
subsidiaries located in Canada), domestic branches of foreign banks,
savings and loan associations and similar institutions; high grade
commercial paper; and repurchase agreements with respect to the
foregoing types of instruments. The following is a more detailed
description of such money market instruments.
U.S. GOVERNMENT SECURITIES. U.S. government securities include debt
obligations of varying maturities issued or guaranteed by the U.S.
government or its agencies or instrumentalities. U.S. government
securities include not only direct obligations of the U.S. Treasury,
but also securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of
the United States, Small Business Administration, Government National
Mortgage Association ("GNMA"), General Services Administration,
Central Bank for Cooperatives, Federal Intermediate Credit Banks,
Federal Land Banks, Federal National Mortgage Association ("FNMA"),
Maritime Administration, Tennessee Valley Authority, District of
Columbia Armory Board, Student Loan Marketing Association,
International Bank for Reconstruction and Development and Resolution
Trust Corporation. Certain U.S. government securities, such as those
issued or guaranteed by GNMA, FNMA and Federal Home Loan Mortgage
Corporation ("FHLMC"), are mortgage-related securities. Because the
U.S. Government is not obligated by law to provide support to an
instrumentality that it sponsors, a Portfolio or an Underlying Smith
Barney Fund will invest in obligations issued by such an
instrumentality only if its investment adviser determines that the
credit risk with respect to the instrumentality does not make its
securities unsuitable for investment by the Portfolio or the Fund, as
the case may be.
BANK OBLIGATIONS. Domestic commercial banks organized under Federal
law are supervised and examined by the 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
an Underlying Smith Barney Fund, depending upon the principal amount
of certificates of deposit ("CDs") of each held by the Fund) and are
subject to Federal examination and to a substantial body of Federal
law and regulation. As a result of Federal and state laws and
regulations, domestic branches of domestic banks are, among other
things, generally required to maintain specified levels of reserves,
and are subject to other supervision and regulation designed to
promote financial soundness.
Obligations of foreign branches of U.S. banks, such as CDs and 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 and governmental regulation. Obligations of foreign
branches of U.S. banks and foreign banks are subject to different
risks than are those of U.S. banks or U.S. 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 U.S. banks are not necessarily subject to the
same or similar regulatory requirements that apply to U.S. banks,
such as mandatory reserve requirements, loan limitations and
accounting, auditing and financial recordkeeping requirements. In
addition, less information may be publicly available about a foreign
branch of a U.S. bank than about a U.S. bank. CDs issued by wholly
owned Canadian subsidiaries of U.S. banks are guaranteed as to
repayment of principal and interest, but not as to sovereign risk, by
the U.S. parent bank.
Obligations of U.S. 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 Federal
and state regulation as well as governmental action in the country in
which the foreign bank has its head office. A U.S. branch of a
foreign bank with assets in excess of $1 billion 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 5% 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 U.S. branch of a foreign bank than
about a U.S. bank.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually
from 1 to 270 days) unsecured promissory notes issued by corporations
in order to finance their current operations. A variable amount
master demand note (which is a type of commercial paper) represents a
direct borrowing arrangement involving periodically fluctuating rates
of interest under a letter agreement between a commercial paper
issuer and an institutional lender, such as one of the Underlying
Smith Barney Funds, pursuant to which the lender may determine to
invest varying amounts. Transfer of such notes is usually restricted
by the issuer, and there is no secondary trading market for such
notes.
REPURCHASE AGREEMENTS. The Select Portfolios and the Underlying
Smith Barney Funds may purchase securities and concurrently enter
into repurchase agreements with certain member banks which are the
issuers of instruments acceptable for purchase by the Portfolio or
the Fund, as the case may be, and with certain dealers on the Federal
Reserve Bank of New York's list of reporting dealers. Repurchase
agreements are contracts under which the buyer of a security
simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under each repurchase agreement, the
selling institution will be required to maintain the value of the
securities subject to the repurchase agreement at not less than their
repurchase price. Repurchase agreements could involve certain risks
in the event of default or insolvency of the other party, including
possible delays or restrictions upon a Portfolio's or a Fund's
ability to dispose of the underlying securities, the risk of a
possible decline in the value of the underlying securities during the
period in which the Portfolio or Fund seeks to assert its rights to
them, the risk of incurring expenses associated with asserting those
rights and the risk of losing all or part of the income from the
repurchase agreement.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. To secure
an advantageous price or yield, certain of the Underlying Smith
Barney Funds may purchase certain securities on a when-issued basis
or purchase or sell securities for delayed delivery. Delivery of the
securities in such cases occurs beyond the normal settlement periods,
but no payment or delivery is made by a Fund prior to the reciprocal
delivery or payment by the other party to the transaction. In
entering into a when-issued or delayed-delivery transaction, an
Underlying Smith Barney Fund will rely on the other party to
consummate the transaction and may be disadvantaged if the other
party fails to do so.
U.S. government securities normally are subject to changes in value
based upon changes, real or anticipated, in the level of interest
rates and the public's perception of the creditworthiness of the
issuers. In general, U.S. government securities tend to appreciate
when interest rates decline and depreciate when interest rates rise.
Purchasing these securities on a when-issued or delayed-delivery
basis, therefore, can involve the risk that the yields available in
the market when the delivery takes place may actually be higher than
those obtained in the transaction itself. Similarly, the sale of
U.S. government securities for delayed delivery can involve the risk
that the prices available in the market when the delivery is made may
actually be higher than those obtained in the transaction itself.
In the case of the purchase by an Underlying Smith Barney Fund of
securities on a when-issued or delayed-delivery basis, a segregated
account in the name of the Fund consisting of cash or liquid debt
securities equal to the amount of the when-issued or delayed-delivery
commitments will be established at the Fund's custodian. For the
purpose of determining the adequacy of the securities in the
accounts, the deposited securities will be valued at market or fair
value. If the market or fair value of the securities declines,
additional cash or securities will be placed in the account daily so
that the value of the account will equal the amount of such
commitments by the Fund involved. On the settlement date, a Fund
will meet its obligations from then-available cash flow, the sale of
securities held in the segregated account, the sale of other
securities or, although it would not normally expect to do so, from
the sale of the securities purchased on a when-issued or delayed-
delivery basis (which may have a value greater or less than the
Fund's payment obligations).
LENDING OF PORTFOLIO SECURITIES. Certain of the Underlying Smith
Barney Funds have the ability to lend portfolio securities to
brokers, dealers and other financial organizations. A Fund will not
lend portfolio securities to Smith Barney unless it has applied for
and received specific authority to do so from the SEC. Loans of
portfolio securities will be collateralized by cash, letters of
credit or U.S. government securities which are maintained at all
times in an amount at least equal to the current market value of the
loaned securities. From time to time, an Underlying Smith Barney
Fund may pay 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 and is acting as a
"finder."
By lending its securities, an Underlying Smith Barney 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 U.S. government securities are used as
collateral. A Fund will comply with the following conditions
whenever its 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 loaned 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 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;
provided, however, that if a material event adversely affecting the
investment in the loaned securities occurs, the Fund's trustees or
directors, as the case may be, must terminate the loan and regain the
right to vote the securities. The risks in lending portfolio
securities, as with other extensions of secured credit, consist of a
possible delay in receiving additional collateral or in the recovery
of the securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will be made to firms deemed by
each Underlying Smith Barney Fund's investment adviser to be of good
standing and will not be made unless, in the judgment of the adviser,
the consideration to be earned from such loans would justify the
risk.
OPTIONS ON SECURITIES. Certain of the Underlying Smith Barney Funds
may engage in transactions in options on securities, which, depending
on the Fund, may include the writing of covered put options and
covered call options, the purchase of put and call options and the
entry into closing transactions.
The principal reason for writing covered call options on securities
is to attempt to realize, through the receipt of premiums, a greater
return than would be realized on the securities alone. Certain
Underlying Smith Barney Funds, however, may engage in option
transactions only to hedge against adverse price movements in the
securities that it holds or may wish to purchase and the currencies
in which certain portfolio securities may be denominated. In return
for a premium, the writer of a covered call option forfeits the right
to any appreciation in the value of the underlying security above the
strike price for the life of the option (or until a closing purchase
transaction can be effected). Nevertheless, the call writer retains
the risk of a decline in the price of the underlying security.
Similarly, the principal reason for writing covered put options is to
realize income in the form of premiums. The writer of a covered put
option accepts the risk of a decline in the price of the underlying
security. The size of the premiums that a Fund may receive may be
adversely affected as new or existing institutions, including other
investment companies, engage in or increase their option-writing
activities.
Options written by an Underlying Smith Barney Fund normally will have
expiration dates between one and nine months from the date written.
The exercise price of the options may be below, equal to or above the
market values of the underlying securities at the times the options
are written. In the case of call options, these exercise prices are
referred to as "in-the-money," "at-the-money" and "out-of-the-money,"
respectively. An Underlying Smith Barney Fund with option-writing
authority may write (a) in-the-money call options when its investment
adviser expects that the price of the underlying security will remain
flat or decline moderately during the option period, (b) at-the-money
call options when its adviser expects that the price of the
underlying security will remain flat or advance moderately during the
option period and (c) out-of-the-money call options when its adviser
expects that the price of the underlying security may increase but
not above a price equal to the sum of the exercise price plus the
premiums received from writing the call option. In any of the
preceding situations, if the market price of the underlying security
declines and the security is sold at this lower price, the amount of
any realized loss will be offset wholly or in part by the premium
received. Out-of-the-money, at-the-money and in-the-money put
options (the reverse of call options as to the relation of exercise
price to market price) may be utilized in the same market
environments that such call options are used in equivalent
transactions.
So long as the obligation of an Underlying Smith Barney Fund as the
writer of an option continues, the Fund may be assigned an exercise
notice by the broker-dealer through which the option was sold,
requiring the Fund to deliver, in the case of a call, or take
delivery of, in the case of a put, the underlying security against
payment of the exercise price. This obligation terminates when the
option expires or the Fund effects a closing purchase transaction. A
Fund can no longer effect a closing purchase transaction with respect
to an option once it has been assigned an exercise notice. To secure
its obligation to deliver the underlying security when it writes a
call option, or to pay for the underlying security when it writes a
put option, an Underlying Smith Barney Fund will be required to
deposit in escrow the underlying security or other assets in
accordance with the rules of the Options Clearing Corporation (the
"Clearing Corporation") or similar foreign clearing corporation and
of the securities exchange on which the option is written.
Certain Underlying Smith Barney Funds may purchase and sell put, call
and other types of option securities that are traded on domestic or
foreign exchanges or the over-the-counter market including, but not
limited to, "spread" options, "knock-out" options, "knock-in" options
and "average rate" or "look-back" options. "Spread" options are
dependent upon the difference between the price of two securities or
futures contracts, "knock-out" options are canceled if the price of
the underlying asset reaches a trigger level prior to expiration,
"knock-in" options only have value if the price of the underlying
asset reaches a trigger level and, "average rate" or "look-back"
options are options where, at expiration, the option's strike price
is set based on either the average, maximum or minimum price of the
asset over the period of the option.
An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized
securities exchange or in the over-the-counter market. Certain
Underlying Smith Barney Funds with option-writing authority may write
options on U.S. or foreign exchanges and in the over-the-counter
market.
An Underlying Smith Barney Fund may realize a profit or loss upon
entering into a closing transaction. In cases in which a Fund has
written an option, it will realize a profit if the cost of the
closing purchase transaction is less than the premium received upon
writing the original option and will incur a loss if the cost of the
closing purchase transaction exceeds the premium received upon
writing the original option. Similarly, when a Fund has purchased an
option and engages in a closing sale transaction, whether the Fund
realizes a profit or loss will depend upon whether the amount
received in the closing sale transaction is more or less than the
premium that the Fund initially paid for the original option plus the
related transaction costs.
Although an Underlying Smith Barney Fund generally will purchase or
write only those options for which its adviser believes there is an
active secondary market so as to facilitate closing transactions,
there is no assurance that sufficient trading interest to create a
liquid secondary market on a securities exchange will exist for any
particular option or at any particular time, and for some options no
such secondary market may exist. A liquid secondary market in an
option may cease to exist for a variety of reasons. In the past, for
example, higher than anticipated trading activity or order flow, or
other unforeseen events, have at times rendered inadequate certain of
the facilities of the Clearing Corporation and U.S. and foreign
securities exchanges and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types
of orders or trading halts or suspensions in one or more options.
There can be no assurance that similar events, or events that may
otherwise interfere with the timely execution of customers' orders,
will not recur. In such event, it might not be possible to effect
closing transactions in particular options. If as a covered call
option writer a Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the
underlying security upon exercise.
Securities exchanges generally have established limitations governing
the maximum number of calls and puts of each class which may be held
or written, or exercised within certain time periods, by an investor
or group of investors acting in concert (regardless of whether the
options are written on the same or different securities exchanges or
are held, written or exercised in one or more accounts or through one
or more brokers). It is possible that the Underlying Smith Barney
Funds with authority to engage in options transactions and other
clients of their respective advisers and certain of their affiliates
may be considered to be such a group. A securities exchange may
order the liquidation of positions found to be in violation of these
limits and it may impose certain other sanctions.
In the case of options written by an Underlying Smith Barney Fund
that are deemed covered by virtue of the Fund's holding convertible
or exchangeable preferred stock or debt securities, the time required
to convert or exchange and obtain physical delivery of the underlying
common stocks with respect to which the Fund has written options may
exceed the time within which the Fund must make delivery in
accordance with an exercise notice. In these instances, an
Underlying Smith Barney Fund may purchase or borrow temporarily the
underlying securities for purposes of physical delivery. By so
doing, the Fund will not bear any market risk because the Fund will
have the absolute right to receive from the issuer of the underlying
security an equal number of shares to replace the borrowed stock, but
the Fund may incur additional transaction costs or interest expenses
in connection with any such purchase or borrowing.
Additional risks exist with respect to certain of the U.S. government
securities for which an Underlying Smith Barney Fund may write
covered call options. If a Fund writes covered call options on
mortgage-backed securities, the securities that it holds as cover
may, because of scheduled amortization or unscheduled prepayments,
cease to be sufficient cover. The Fund will compensate for the
decline in the value of the cover by purchasing an appropriate
additional amount of those securities.
STOCK INDEX OPTIONS. Certain of the Underlying Smith Barney Funds
may purchase and write put and call options on U.S. stock indexes
listed on U.S. exchanges for the purpose of hedging its portfolio. A
stock index fluctuates with changes in the market values of the
stocks included in the index. Some stock index options are based on
a broad market index such as the New York Stock Exchange Composite
Index or a narrower market index such as the Standard & Poor's 100.
Indexes also are based on an industry or market segment such as the
American Stock Exchange Oil and Gas Index or the Computer and
Business Equipment Index.
Options on stock indexes are similar to options on stock except that
(a) the expiration cycles of stock index options are monthly, while
those of stock options currently are quarterly, and (b) the delivery
requirements are different. Instead of giving the right to take or
make delivery of stock at a specified price, an option on a stock
index gives the holder the right to receive a cash "exercise
settlement amount" equal to (a) the amount, if any, by which the
fixed exercise price of the option exceeds (in the case of a put) or
is less than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied by (b) a fixed
"index multiplier." Receipt of this cash amount will depend upon the
closing level of the stock index upon which the option is based being
greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. The amount of cash received
will be equal to such difference between the closing price of the
index and the exercise price of the option expressed in dollars times
a specified multiple. The writer of the option is obligated, in
return for the premium received, to make delivery of this amount.
The writer may offset its position in stock index options prior to
expiration by entering into a closing transaction on an exchange or
it may let the options expire unexercised.
The effectiveness of purchasing or writing stock index options as a
hedging technique will depend upon the extent to which price
movements in the portion of a securities portfolio being hedged
correlate with price movements of the stock index selected. Because
the value of an index option depends upon movements in the level of
the index rather than the price of a particular stock, whether a Fund
will realize a gain or loss from the purchase or writing of options
on an index depends upon movements in the level of stock prices in
the stock market generally or, in the case of certain indexes, in an
industry or market segment, rather than movements in the price of a
particular stock. Accordingly, successful use by a Fund of options
on stock indexes will be subject to its adviser's ability to predict
correctly movements in the direction of the stock market generally or
of a particular industry. This requires different skills and
techniques than predicting changes in the prices of individual
stocks.
An Underlying Smith Barney Fund will engage in stock index options
transactions only when determined by its adviser to be consistent
with the Fund's efforts to control risk. There can be no assurance
that such judgment will be accurate or that the use of these
portfolio strategies will be successful. When a Fund writes an
option on a stock index, the Fund will establish a segregated account
with its custodian in an amount equal to the market value of the
option and will maintain the account while the option is open.
MORTGAGE-RELATED SECURITIES. The average maturity of pass-through
pools of mortgage related securities varies with the maturities of
the underlying mortgage instruments. In addition, a pool's stated
maturity may be shortened by unscheduled payments on the underlying
mortgages. Factors affecting mortgage prepayments include the level
of interest rates, general economic and social conditions, the
location of the mortgaged property and age of the mortgage. Because
prepayment rates of individual pools vary widely, it is not possible
to accurately predict the average life of a particular pool. Common
practice is to assume that prepayments will result in an average life
ranging from 2 to 10 years for pools of fixed-rate 30-year mortgages.
Pools of mortgages with other maturities or different characteristics
will have varying average life assumptions.
Mortgage-related securities may be classified as private,
governmental or government-related, depending on the issuer or
guarantor. Private mortgage-related securities represent pass-
through pools consisting principally of conventional residential
mortgage loans created by non-governmental issuers, such as
commercial banks, savings and loan associations and private mortgage
insurance companies. Governmental mortgage-related securities are
backed up by the full faith and credit of the U.S. Government. GNMA,
the principal guarantor of such securities, is a wholly owned U.S.
government corporation within the Department of Housing and Urban
Development. Government-related mortgage-related securities are not
backed by the full faith and credit of the U.S. Government. Issuers
of such securities include FNMA and FHLMC. FNMA is a government-
sponsored corporation owned entirely by private stockholders, which
is subject to general regulation by the Secretary of Housing and
Urban Development. Pass-through securities issued by FNMA are
guaranteed as to timely payment of principal and interest by FNMA.
FHLMC is a corporate instrumentality of the U.S., the stock of which
is owned by Federal Home Loan Banks. Participation certificates
representing interests in mortgages from FHLMC's national portfolio
are guaranteed as to the timely payment of interest and ultimate
collection of principal by FHLMC.
Private U.S. governmental or government-related entities create
mortgage loan pools offering pass-through investments in addition to
those described above. The mortgages underlying these securities may
be alternative mortgage instruments, that is, mortgage instruments
whose principal or interest payments may vary or whose terms to
maturity may be shorter than previously customary. As new types of
mortgage-related securities are developed and offered to investors,
certain of the Underlying Smith Barney Funds, consistent with their
investment objective and policies, may consider making investments in
such new types of securities.
CURRENCY TRANSACTIONS. Certain of the Underlying Smith Barney Funds
may enter into forward currency exchange transactions. A forward
currency contract is an obligation to purchase or sell a currency
against another currency at a future date and price as agreed upon by
the parties. An Underlying Smith Barney Fund that enters into a
forward currency contract may either accept or make delivery of the
currency at the maturity of the forward contract or, prior to
maturity, enter into a closing transaction involving the purchase or
sale of an offsetting contract. A Fund may engage in forward
currency transactions in anticipation of, or to protect itself
against, fluctuations in exchange rates. A Fund might sell a
particular foreign currency forward, for example, when it holds bonds
denominated in that currency but anticipates, and seeks to be
protected against, decline in the currency against the U.S. dollar.
Similarly, a Fund may sell the U.S. dollar forward when it holds
bonds denominated in U.S. dollars but anticipates, and seeks to be
protected against, a decline in the U.S. dollar relative to other
currencies. Further, a Fund may purchase a currency forward to "lock
in" the price of securities denominated in that currency which it
anticipates purchasing.
Transaction hedging is the purchase or sale of forward currency
contracts with respect to a specific receivable or payable of the
Fund generally arising in connection with the purchase or sale of its
securities. Position hedging, generally, is the sale of forward
currency contracts with respect to portfolio security positions
denominated or quoted in the currency. A Fund may not position hedge
with respect to a particular currency to an extent greater than the
aggregate market value at any time of the security or securities held
in its portfolio denominated or quoted in or currently convertible
(such as through exercise of an option or consummation of a forward
currency contract) into that particular currency, except that certain
Underlying Smith Barney Funds may utilize forward currency contracts
denominated in the European Currency Unit to hedge portfolio security
positions when a security or securities are denominated in currencies
of member countries in the European Monetary System. If a Fund
enters into a transaction hedging or position hedging transaction, it
will cover the transaction through one or more of the following
methods: (a) ownership of the underlying currency or an option to
purchase such currency; (b) ownership of an option to enter into an
offsetting forward currency contract; (c) entering into a forward
contract to purchase currency being sold or to sell currency being
purchased, provided that such covering contract is itself covered by
any one of these methods unless the covering contract closes out the
first contract; or (d) depositing into a segregated account with the
custodian or a sub-custodian of the Fund cash or readily marketable
securities in an amount equal to the value of the Fund's total assets
committed to the consummation of the forward currency contract and
not otherwise covered. In the case of transaction hedging, any
securities placed in an account must be liquid debt securities. In
any case, if the value of the securities placed in the segregated
account declines, additional cash or securities will be placed in the
account so that the value of the account will equal the above amount.
Hedging transactions may be made from any foreign currency into
dollars or into other appropriate currencies.
At or before the maturity of a forward contract, a Fund either may
sell a portfolio security and make delivery of the currency, or
retain the security and offset its contractual obligation to deliver
the currency by purchasing a second contract pursuant to which the
relevant Fund will obtain, on the same maturity date, the same amount
of the currency which it is obligated to deliver. If a Fund retains
the portfolio security and engages in an offsetting transaction, the
Fund, at the time of execution of the offsetting transaction, will
incur a gain or loss to the extent movement has occurred in forward
contract prices. Should forward prices decline during the period
between a Fund's entering into a forward contract for the sale of a
currency and the date that it enters into an offsetting contract for
the purchase of the currency, the Fund will realize a gain to the
extent that the price of the currency it has agreed to sell exceeds
the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund will suffer a loss to the extent the price
of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
The cost to a Fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract
period and the market conditions then prevailing. Because
transactions in currency exchange are usually conducted on a
principal basis, no fees or commissions are involved. The use of
forward currency contracts does not eliminate fluctuations in the
underlying prices of the securities, but it does establish a rate of
exchange that can be achieved in the future. In addition, although
forward currency contracts limit the risk of loss due to a decline in
the value of the hedged currency, at the same time, they limit any
potential gain that might result should the value of the currency
increase. If a devaluation is generally anticipated a Fund may not
be able to contract to sell the currency at a price above the
devaluation level anticipated.
FOREIGN CURRENCY OPTIONS. Certain Underlying Smith Barney Funds may
purchase or write put and call options on foreign currencies for the
purpose of hedging against changes in future currency exchange rates.
Foreign currency options generally have three, six and nine month
expiration cycles. Put options convey the right to sell the
underlying currency at a price which is anticipated to be higher than
the spot price of the currency at the time the option expires. Call
options convey the right to buy the underlying currency at a price
which is expected to be lower than the spot price of the currency at
the time that the option expires.
An Underlying Smith Barney Fund may use foreign currency options
under the same circumstances that it could use forward currency
exchange transactions. A decline in the dollar value of a foreign
currency in which a Fund's securities are denominated, for example,
will reduce the dollar value of the securities, even if their value
in the foreign currency remains constant. In order to protect
against such diminutions in the value of securities that it holds,
the Fund may purchase put options on the foreign currency. If the
value of the currency does decline, the Fund will have the right to
sell the currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on its securities
that otherwise would have resulted. Conversely, if a rise in the
dollar value of a currency in which securities to be acquired are
denominated is projected, thereby potentially increasing the cost of
the securities, the Fund may purchase call options on the particular
currency. The purchase of these options could offset, at least
partially, the effects of the adverse movements in exchange rates.
The benefit to the Fund derived from purchases of foreign currency
options, like the benefit derived from other types of options, will
be reduced by the amount of the premium and related transaction
costs. In addition, if currency exchange rates do not move in the
direction or to the extent anticipated, the Fund could sustain losses
on transactions in foreign currency options that would require it to
forego a portion or all of the benefits of advantageous changes in
the rates.
FOREIGN GOVERNMENT SECURITIES. Among the foreign government
securities in which certain Underlying Smith Barney Funds may invest
are those issued by countries with developing economies, which are
countries in the initial stages of their industrialization cycles.
Investing in securities of countries with developing economies
involves exposure to economic structures that are generally less
diverse and less mature, and to political systems that can be
expected to have less stability, than those of developed countries.
The markets of countries with developing economies historically have
been more volatile than markets of the more mature economies of
developed countries, but often have provided higher rates of return
to investors.
RATINGS AS INVESTMENT CRITERIA. In general, the ratings of
nationally recognized statistical rating organization ("NRSROs")
represent the opinions of these agencies as to the quality of
securities that they rate. Such ratings, however, are relative and
subjective, and are not absolute standards of quality and do not
evaluate the market value risk of the securities. These ratings will
be used the by Underlying Smith Barney Funds as initial criteria for
the selection of portfolio securities, but the Funds also will rely
upon the independent advice of their respective advisers to evaluate
potential investments. Among the factors that will be considered are
the long-term ability of the issuer to pay principal and interest and
general economic trends. The Appendix to this Statement of
Additional Information contains further information concerning the
rating categories of NRSROs and their significance.
Subsequent to its purchase by a Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum
required for purchase by the Fund. In addition, it is possible that
an NRSRO might not change its rating of a particular issue to reflect
subsequent events. None of these events will require sale of such
securities by a Fund, but the Fund's adviser will consider such
events in its determination of whether the Fund should continue to
hold the securities. In addition, to the extent that the ratings
change as a result of changes in such organizations or their rating
systems, or due to a corporate reorganization, a Fund will attempt to
use comparable ratings as standards for its investments in accordance
with its investment objective and policies.
FUTURES CONTRACTS. The purpose of the acquisition or sale of a
futures contract by a Fund is to mitigate the effects of fluctuations
in interest rates or currency or market values, depending on the type
of contract, on securities or their values without actually buying or
selling the securities. Of course, because the value of portfolio
securities will far exceed the value of the futures contracts sold by
a Fund, an increase in the value of the futures contracts could only
mitigate -- but not totally offset -- the decline in the value of the
Fund.
Certain of the Underlying Smith Barney Funds may enter into futures
contracts or related options on futures contracts that are traded on
a domestic or foreign exchange or in the over-the-counter market.
Generally, these investments may be made solely for the purpose of
hedging against changes in the value of its portfolio investments due
to anticipated changes in interest rates, currency values and/or
market conditions when the transactions are economically appropriate
to the reduction of risks inherent in the management of the Fund and
not for purposes of speculation. However, the International Equity
Portfolio, the International Balanced Portfolio and the Natural
Resources Fund may also enter into futures transactions for non-
hedging purposes, subject to applicable law. The ability of the
Funds to trade in futures contracts may be limited by the
requirements of the Internal Revenue Code of 1986, as amended (the
"Code"), applicable to a regulated investment company.
No consideration is paid or received by a Fund upon entering into a
futures contract. Initially, a Fund will be required to deposit with
its custodian an amount of cash or cash equivalents equal to
approximately 1% to 10% of the contract amount (this amount is
subject to change by the board of trade on which the contract is
traded and members of such board of trade may charge a higher
amount). This amount, known as initial margin, is in the nature of a
performance bond or good faith deposit on the contract and is
returned to a Fund upon termination of the futures contract, assuming
that all contractual obligations have been satisfied. Subsequent
payments, known as variation margin, to and from the broker, will be
made daily as the price of the securities, currency, index or gold
underlying the futures contract fluctuates, making the long and short
positions in the futures contract more or less valuable, a process
known as "marking-to-market." At any time prior to expiration of a
futures contract, a Fund may elect to close the position by taking an
opposite position, which will operate to terminate the Fund's
existing position in the contract.
Several risks are associated with the use of futures contracts as a
hedging device. Successful use of futures contracts by a Fund is
subject to the ability of its adviser to predict correctly movements
in interest rates, stock or bond indices, the price of gold or
foreign currency values. These predictions involve skills and
techniques that may be different from those involved in the
management of the portfolio being hedged. In addition, there can be
no assurance that there will be a correlation between movements in
the price of the underlying securities, currency, index or gold and
movements in the price of the investments which are the subject of
the hedge. A decision of whether, when and how to hedge involves the
exercise of skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of market behavior or
unexpected trends in interest rates or currency values.
There is no assurance that an active market will exist for future
contracts at any particular time. Most futures exchanges and boards
of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit
has been reached in a particular contract, no trades may be made that
day at a price beyond that limit. It is possible that futures
contract prices could move to the daily limit for several consecutive
trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and subjecting some futures traders
to substantial losses. In such event, and in the event of adverse
price movements, a Fund would be required to make daily cash payments
of variation margin, and an increase in the value of the portion of
the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. As described above, however,
there is no guarantee that the price of the securities being hedged
will, in fact, correlate with the price movements in a futures
contract and thus provide an offset to losses on the futures
contract.
If a Fund has hedged against the possibility of a change in interest
rates or currency or market values adversely affecting the value of
investments held in its portfolio and rates or currency or market
values move in a direction opposite to that which the Fund has
anticipated, the Fund will lose part or all of the benefit of the
increased value of investments which it has hedged because it will
have offsetting losses in its futures positions. In addition, in
such situations, if the Fund had insufficient cash, it may have to
sell investments to meet daily variation margin requirements at a
time when it may be disadvantageous to do so. These sales of
investments may, but will not necessarily, be at increased prices
which reflect the change in interest rates or currency or market
values, as the case may be.
OPTIONS ON FUTURES CONTRACTS. An option on an interest rate or gold
futures contract, as contrasted with the direct investment in such a
contract, gives the purchaser the right, in return for the premium
paid, to assume a position in the underlying interest rate futures
contract at a specified exercise price at any time prior to the
expiration date of the option. An option on a foreign currency
futures contract, as contracted with the direct investment in such a
contract, gives the purchaser the right, but not the obligation, to
assume a long or short position in the relevant underlying foreign
currency futures contract at a predetermined exercise price at a time
in the future. Upon exercise of an option, the delivery of the
futures position by the writer of the option to the holder of the
option will be accompanied by delivery of the accumulated balance in
the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case
of a call, or is less than, in the case of a put, the exercise price
of the option on the futures contract. The potential for loss
related to the purchase of an option on a futures contract is limited
to the premium paid for the option (plus transaction costs). Because
the value of the option is fixed at the point of sale, there are no
daily cash payments to reflect changes in the value of the underlying
contract; however, the value of the option does change daily and that
change would be reflected in the net asset value of a Fund investing
in the options.
Several risks are associated with options on futures contracts. The
ability to establish and close out positions on such options will be
subject to the existence of a liquid market. In addition, the
purchase of put or call options on interest rate, foreign currency
and gold futures will be based upon predictions by a Fund's adviser
as to anticipated trends in interest rates, currency and gold values,
as the case may be, which could be incorrect. Even if the
expectations of an adviser are correct, there may be an imperfect
correlation between the change in the value of the options and of the
portfolio investments being hedged.
FOREIGN INVESTMENTS. Investors should recognize that investing in
foreign companies involves certain considerations which are not
typically associated with investing in U.S. issuers. Since certain
Underlying Smith Barney Funds will be investing in securities
denominated in currencies other than the U.S. dollar, and since
certain Funds may temporarily hold funds in bank deposits or other
money market investments denominated in foreign currencies, the Funds
may be affected favorably or unfavorably by exchange control
regulations or changes in the exchange rate between such currencies
and the dollar. A change in the value of a foreign currency relative
to the U.S. dollar will result in a corresponding change in the
dollar value of a Fund's assets denominated in that foreign currency.
Changes in foreign currency exchange rates may also affect the value
of dividends and interest earned, gains and losses realized on the
sale of securities and net investment income and gain, if any, to be
distributed to shareholders by the Fund.
The rate of exchange between the U.S. dollar and other currencies is
determined by the forces of supply and demand in the foreign exchange
markets. Changes in the exchange rate may result over time from the
interaction of many factors directly or indirectly affecting economic
conditions and political developments in other countries. Of
particular importance are rates of inflation, interest rate levels,
the balance of payments and the extent of government surpluses or
deficits in the U.S. and the particular foreign country, all of which
are in turn sensitive to the monetary, fiscal and trade policies
pursued by the governments of the U.S. and other foreign countries
important to international trade and finance. Governmental
intervention may also play a significant role. National governments
rarely voluntarily allow their currencies to float freely in response
to economic forces. Sovereign governments use a variety of
techniques, such as intervention by a country's central bank or
imposition of regulatory controls or taxes, to affect the exchange
rates of their currencies.
Securities held by an Underlying Smith Barney Fund may not be
registered with, nor the issuers thereof be subject to reporting
requirements of, the SEC. Accordingly, there may be less publicly
available information about the securities and about the foreign
company or government issuing them than is available about a domestic
company or government entity. Foreign issuers are generally not
subject to uniform financial reporting standards, practices and
requirements comparable to those applicable to U.S. issuers. In
addition, with respect to some foreign countries, there is the
possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets of the Fund, political or social
instability, or domestic developments which could affect U.S.
investments in those countries. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy
in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and
balance of payments positions. Certain Underlying Smith Barney Funds
may invest in securities of foreign governments (or agencies or
instrumentalities thereof), and many, if not all, of the foregoing
considerations apply to such investments as well.
Securities of some foreign companies are less liquid and their prices
are more volatile than securities of comparable domestic companies.
Certain foreign countries are known to experience long delays between
the trade and settlement dates of securities purchased or sold.
The interest payable on a Fund's foreign securities may be subject to
foreign withholding taxes, and while investors may be able to claim
some credit or deductions for such taxes with respect to their
allocated shares of such foreign tax payments, the general effect of
these taxes will be to reduce the Fund's income. Additionally, the
operating expenses of a Fund can be expected to be higher than that
of an investment company investing exclusively in the U.S.
securities, since the expenses of the Fund, such as custodial costs,
valuation costs and communication costs, as well as the rate of the
investment advisory fees, though similar to such expenses of some
other international funds, are higher than those costs incurred by
other investment companies.
FOREIGN COMMODITY EXCHANGES. Unlike trading on domestic commodity
exchanges, trading on foreign commodity exchanges is not regulated by
the Commodity Futures Trading Commission and may be subject to
greater risks than trading on domestic exchanges. For example, some
foreign exchanges may be principal markets so that no common clearing
facility exists and a trader may look only to the broker for
performance of the contract. In addition, unless an Underlying Smith
Barney Fund trading on a foreign commodity exchange hedges against
fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits
that the Fund might realize in trading could be eliminated by adverse
changes in the exchange rate, or the Fund could incur losses as a
result of those changes.
SHORT SALES. Certain of the Underlying Smith Barney Funds may from
time to time sell securities short. A short sale is a transaction in
which the Fund sells securities that it does not own (but has
borrowed) in anticipation of a decline in the market price of the
securities.
When a Fund makes a short sale, the proceeds it receives from the
sale are retained by a broker until the Fund replaces the borrowed
securities. To deliver the securities to the buyer, the Fund must
arrange through a broker to borrow the securities and, in so doing,
the Fund becomes obligated to replace the securities borrowed at
their market price at the time of replacement, whatever that price
may be. The Fund may have to pay a premium to borrow the securities
and must pay any dividends or interest payable on the securities
until they are replaced.
A Fund's obligation to replace the securities borrowed in connection
with a short sale will be secured by collateral deposited with the
broker that consists of cash, U.S. government securities, equity
securities or debt securities of any grade so long as such assets are
liquid, unencumbered and marked to market daily. In addition, the
Fund will place in a segregated account with its custodian an amount
of cash or U.S. government securities equal to the difference, if
any, between (a) the market value of the securities sold at the time
they were sold short and (b) any cash or U.S. government securities
deposited as collateral with the broker in connection with the short
sale (not including the proceeds of the short sale). Until it
replaces the borrowed securities, the Fund will maintain the
segregated account daily at a level so that the amount deposited in
the account plus the amount deposited with the broker (not including
the proceeds from the short sale) (a) will equal the current market
value of the securities sold short and (b) will not be less than the
market value of the securities at the time they were sold short.
SHORT SALES AGAINST THE BOX. Certain of the Underlying Smith Barney
Funds may enter into a short sale of common stock such that when the
short position is open the Fund involved owns an equal amount of
preferred stocks or debt securities, convertible or exchangeable,
without payment of further consideration, into an equal number of
shares of the common stock sold short. This kind of short sale,
which is described as "against the box," will be entered into by a
Fund for the purpose of receiving a portion of the interest earned by
the executing broker from the proceeds of the sale. The proceeds of
the sale will be held by the broker until the settlement date when
the Fund delivers the convertible securities to close out its short
position. Although prior to delivery a Fund will have to pay an
amount equal to any dividends paid on the common stock sold short,
the Fund will receive the dividends from the preferred stock or
interest from the debt securities convertible into the stock sold
short, plus a portion of the interest earned from the proceeds of the
short sale. The Fund will deposit, in a segregated account with
their custodian, convertible preferred stock or convertible debt
securities in connection with short sales against the box.
SWAP AGREEMENTS. Among the hedging transactions into which certain
Underlying Smith Barney Funds may enter are interest rate swaps and
the purchase or sale of interest rate caps and floors. Interest rate
swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange
of floating rate payments for fixed rate payments. The purchase of
an interest rate cap entitles the purchaser, to the extent that a
specified index exceeds a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party
selling such interest rate cap. The purchase of an interest rate
floor entitles the purchaser, to the extent that a specified index
falls below a predetermined interest rate, to receive payment of
interest on a notional principal amount from the party selling such
interest rate floor.
Certain Underlying Smith Barney Funds may enter into interest rate
swaps, caps and floors on either an asset-based or liability-based
basis, depending on whether it is hedging its assets or its
liabilities, and will usually enter into interest rate swaps on a net
basis, i.e., the two payment streams are netted, with the Fund
receiving or paying, as the case may be, only the net amount of the
two payments. Inasmuch as these hedging transactions are entered
into for good faith hedging purposes, the investment adviser and the
Fund believe such obligations do not constitute senior securities
and, accordingly will not treat them as being subject to its
borrowing restrictions. The net amount of the excess, if any, of a
Fund's obligations over its entitlement with respect to each interest
rate swap will be accrued on a daily basis and an amount of cash or
liquid securities having an aggregate net asset value at least equal
to the accrued excess will be maintained in a segregated account with
PNC Bank. If there is a default by the other party to such a
transaction, a Fund will have contractual remedies pursuant to the
agreement related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents. As
a result, the swap market has become relatively liquid. Caps and
floors are more recent innovations for which standardized
documentation has not yet been developed and, accordingly, they are
less liquid than swaps.
RESTRICTED SECURITIES. Certain of the Underlying Smith Barney Funds
may invest in securities the disposition of which is subject to legal
or contractual restrictions. The sale of restricted securities often
requires more time and results in higher brokerage charges or dealer
discounts and other selling expenses than does the sale of securities
eligible for trading on a national securities exchange that are not
subject to restrictions on resale. Restricted securities often sell
at a price lower than similar securities that are not subject to
restrictions on resale.
REVERSE REPURCHASE AGREEMENTS. Certain Underlying Smith Barney Funds
may enter into reverse repurchase agreements with banks or broker-
dealers. A reverse repurchase agreement involves the sale of a money
market instrument held by an Underlying Smith Barney Fund coupled
with an agreement by the Fund to repurchase the instrument at a
stated price, date and interest payment. The Fund will use the
proceeds of a reverse repurchase agreement to purchase other money
market instruments which either mature at a date simultaneous with or
prior to the expiration of the reverse repurchase agreement or which
are held under an agreement to resell maturing as of that time.
An Underlying Smith Barney Fund will enter into a reverse repurchase
agreement only when the interest income to be earned from the
investment of the proceeds of the transaction is greater than the
interest expense of the transaction. Under the 1940 Act, reverse
repurchase agreements may be considered to be borrowings by the
seller. Entry into such agreements requires the creation and
maintenance of a segregated account with the Fund's custodian
consisting of U.S. government securities, cash, equity securities or
debt securities of any grade so long as such assets are liquid,
unencumbered and marked to market daily.
LEVERAGING. Certain of the Underlying Smith Barney Funds may from
time to time leverage their investments by purchasing securities with
borrowed money. A Fund is required under the 1940 Act to maintain at
all times an asset coverage of 300% of the amount of its borrowings.
If, as a result of market fluctuations or for any other reason, the
Fund's asset coverage drops below 300%, the Fund must reduce its
outstanding borrowings within three business days so as to restore
its asset coverage to the 300% level.
Any gain in the value of securities purchased with borrowed money
that exceeds the interest paid on the amount borrowed would cause the
net asset value of the Underlying Smith Barney Fund's shares to
increase more rapidly than otherwise would be the case. Conversely,
any decline in the value of securities purchased would cause the net
asset value of the Fund's shares to decrease more rapidly than
otherwise would be the case. Borrowed money thus creates an
opportunity for greater capital gain but at the same time increases
exposure to capital risk. The net cost of any borrowed money would
be an expense that otherwise would not be incurred, and this expense
could restrict or eliminate a Fund's net investment income in any
given period.
AMERICAN, EUROPEAN AND CONTINENTAL DEPOSITORY RECEIPTS. Certain of
the Underlying Smith Barney Funds may invest in the securities of
foreign and domestic issuers in the form of American Depository
Receipts ("ADRs") and European Depository Receipts ("EDRs"). These
securities may not necessarily be denominated in the same currency as
the securities into which they may be converted. ADRs are receipts
typically issued by a U.S. bank or trust company that evidence
ownership of underlying securities issued by a foreign corporation.
EDRs, which sometimes are referred to as Continental Depository
Receipts ("CDRs"), are receipts issued in Europe typically by foreign
banks and trust companies that evidence ownership of either foreign
or domestic securities. Generally, ADRs, in registered form, are
designed for use in U.S. securities markets and EDRs and CDRs are
designed for use in European securities markets.
CONVERTIBLE SECURITIES. Convertible securities are fixed-income
securities that may be converted at either a stated price or stated
rate into underlying shares of common stock. Convertible securities
have general characteristics similar to both fixed-income and equity
securities. Although to a lesser extent than with fixed-income
securities generally, the market value of convertible securities
tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the
conversion feature, the market value of convertible securities tends
to vary with fluctuations in the market value of the underlying
common stocks and, therefore, also will react to variations in the
general market for equity securities. A unique feature of
convertible securities is that as the market price of the underlying
common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value
declines to the same extent as the underlying common stock. When the
market price of the underlying common stock increases, the prices of
the convertible securities tend to rise as a reflection of the value
of the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail
less risk than investments in common stock of the same issuer.
As fixed-income securities, convertible securities are investments
that provide for a stable stream of income with generally higher
yields than common stocks. Of course, like all fixed-income
securities, there can be no assurance of current income because the
issuers of the convertible securities may default on their
obligations. Convertible securities, however, generally offer lower
interest or dividend yields than non-convertible securities of
similar quality because of the potential for capital appreciation. A
convertible security, in addition to providing fixed income, offers
the potential for capital appreciation through the conversion
feature, which enables the holder to benefit from increases in the
market price of the underlying common stock. There can be no
assurance of capital appreciation, however, because securities prices
fluctuate.
Convertible securities generally are subordinated to other similar
but non-convertible securities of the same issuer, although
convertible bonds, such as corporate debt obligations, enjoy
seniority in right of payment to all equity securities, and
convertible preferred stock is senior to common stock, of the same
issuer. Because of the subordination feature, however, convertible
securities typically have lower ratings than similar nonconvertible
securities.
WARRANTS. Because a warrant does not carry with it the right to
dividends or voting rights with respect to the securities that the
warrant holder is entitled to purchase, and because it does not
represent any rights to the assets of the issuer, a warrant may be
considered more speculative than certain other types of investments.
In addition, the value of a warrant does not necessarily change with
the value of the underlying securities and a warrant ceases to have
value if it is not exercised prior to its expiration date. Warrants
acquired by an Underlying Smith Barney Fund in units or attached to
securities may be deemed to be without value.
PREFERRED STOCK. Preferred stocks, like debt obligations, are
generally fixed-income securities. Shareholders of preferred stocks
normally have the right to receive dividends at a fixed rate when and
as declared by the issuer's board of directors, but do not
participate in other amounts available for distribution by the
issuing corporation. Dividends on the preferred stock may be
cumulative, and all cumulative dividends usually must be paid prior
to common shareholders receiving any dividends. Preferred stock
dividends must be paid before common stock dividends and, for that
reason, preferred stocks generally entail less risk than common
stocks. Upon liquidation, preferred stocks are entitled to a
specified liquidation preference, which is generally the same as the
par or stated value, and are senior in right of payment to common
stock. Preferred stocks are, however, equity securities in the sense
that they do not represent a liability of the issuer and, therefore,
do not offer as great a degree of protection of capital or assurance
of continued income as investments in corporate debt securities. In
addition, preferred stocks are subordinated in right of payment to
all debt obligations and creditors of the issuer, and convertible
preferred stocks may be subordinated to other preferred stock of the
same issuer.
Investment Restrictions
The Concert Series has adopted the following investment restrictions
for the protection of shareholders. Restrictions 1 through 5 below
have been adopted by the Concert Series with respect to each
Portfolio as fundamental policies. Under the 1940 Act, a fundamental
policy of a Portfolio may not be changed without the vote of a
majority, as defined in the 1940 Act, of the outstanding voting
securities of the Portfolio. Such majority is defined as the lesser
of (a) 67% or more of the shares present at the meeting, if the
holders of more than 50% of the outstanding shares of the Portfolio
are present or represented by proxy, or (b) more than 50% of the
outstanding shares. Investment restrictions 7 through 15 may be
changed by a vote of a majority of the Concert Series' Board of
Directors at any time.
The investment policies adopted by the Concert Series prohibit a
Portfolio from:
1. Borrowing money except that (a) the Fund may borrow from banks
for temporary or emergency (not leveraging) purposes, including
the meeting of redemption requests which might otherwise require
the untimely disposition of securities, and (b),the Fund may, to
the extent consistent with its investment policies, enter into
reverse repurchase agreements, forward roll transactions and
similar investment strategies and techniques. To the extent that
it engages in transactions described in (a) and (b), the Fund will
be limited so that no more than 33-1/3 % of the value of its total
assets (including the amount borrowed) valued at the lesser of
cost or market, less liabilities (not including the amount
borrowed) valued at the time the borrowing is made, is derived
from such transactions,.
2. Making loans except that this restriction does not apply to: (a)
the purchase of debt obligations in which the Fund may invest
consistent with its investment objectives and policies; (b)
repurchase agreements; and (c) loans of its portfolio securities,
to the fullest extent permitted under the 1940 Act.
3. Engaging in the business if underwriting securities issued by
other persons, except to the extent that the Fund may technically
be deemed to be an underwriter under the Securities Act of 1933,
as amended, in disposing of portfolio securities.
4. Purchasing or selling real estate, real estate mortgages,
commodities or commodity contracts, but this restriction shall not
prevent the Fund from (a) investing in securities of issuers
engaged in the real estate business or business of investing in
real estate (including interests in limited partnerships owning or
otherwise engaging in the real estate business or the business of
investing in real estate) and securities which are secured by real
estate or interests therein; (b) holding or selling real estate
received in connection with securities it holds or held; (c)
trading in futures contracts and options on futures contracts
(including options on currencies to the extent consistent with the
Funds' investment objective and policies); or (d) investing in
real estate investment trust securities.
5. Issuing "senior securities" as defined in the 1940 Act and the
rules, regulations and orders thereunder, except as permitted
under the 1940 Act and the rules, regulations and orders
thereunder.
6. Purchasing securities on margin.
7. Making short sales of securities or maintaining a short position.
8. Pledging, hypothecating, mortgaging or otherwise encumbering more
than 33-1/3% of the value of a Portfolio's total assets.
9. Investing in oil, gas or other mineral exploration or development
programs.
10. Writing or selling puts, calls, straddles, spreads or combinations
thereof.
11. Purchasing restricted securities, illiquid securities (such as
repurchase agreements with maturities in excess of seven days) or
other securities that are not readily marketable.
12. Purchasing any security if as a result the Portfolio would then
have more than 5% of its total assets invested in securities of
companies (including predecessors) that have been in continuous
operation for fewer than three years (except for Underlying Smith
Barney Funds).
13. Making investments for the purpose of exercising control or
management.
14. Purchasing or retaining securities of any company if, to the
knowledge of the Concert Series, any officer or director of the
Concert Series or TIA individually owns more than 1/2 of 1% of the
outstanding securities of such company and together they own
beneficially more than 5% of such securities.
The Concert Series may make commitments more restrictive than the
restrictions listed above with respect to a Portfolio so as to permit
the sale of shares of the Portfolio in certain states. Should the
Concert Series determine that any such commitment is no longer in the
best interests of the Portfolio and its shareholders, the Concert
Series will revoke the commitment by terminating the sale of shares
of the Portfolio in the relevant state. The percentage limitations
contained in the restrictions listed above (other than with respect
to (1) above) apply at the time of purchases of securities.
Notwithstanding the foregoing investment restrictions, the Underlying
Smith Barney Funds in which the Portfolios invest have adopted
certain investment restrictions which may be more or less restrictive
than those listed above, thereby permitting a Portfolio to engage in
investment strategies indirectly that are prohibited under the
investment restrictions listed above. The investment restrictions of
an Underlying Smith Barney Fund are located in its Statement of
Additional Information.
Under Rule 12d(1)(G) of the 1940 Act, each Select Portfolio may
invest substantially all of its assets in the Underlying Smith Barney
Funds.
Because of their investment objectives and policies, the Select
Portfolios will each concentrate more than 25% of their assets in the
mutual fund industry. In accordance with the Select Portfolios'
investment programs set forth in the Prospectus, each of the
Portfolios may invest more than 25% of its assets in certain
Underlying Smith Barney Funds. However, each of the Underlying Smith
Barney Funds in which each Fund will invest (other than the Smith
Barney Utilities Fund) will not concentrate more than 25% of its
total assets in any one industry. The Smith Barney Utilities Fund
will invest at least 65% of its assets in securities of companies in
the utility industries.
Portfolio Turnover
Each Portfolio's turnover rate is not expected to exceed 25%
annually. A Portfolio may purchase or sell securities to: (a)
accommodate purchases and sales of its shares, (b) change the
percentages of its assets invested in each of the Underlying Smith
Barney Funds in response to market conditions, and (c) maintain or
modify the allocation of its assets between equity and fixed income
funds and among the Underlying Smith Barney Funds within the
percentage limits described in the Prospectus.
The turnover rates of the Underlying Smith Barney Funds have ranged
from 1% to 367% during their most recent fiscal years. There can be
no assurance that the turnover rates of these funds will remain
within this range during subsequent fiscal years. Higher turnover
rates may result in higher expenses being incurred by the Underlying
Smith Barney Funds.
PURCHASE OF SHARES
The Concert Series offers its shares of capital stock on a continuous
basis. Shares can only be acquired by buying a Contract from a life
insurance company designated by Concert Series and directing the
allocation of part or all of the net purchase payment to one or more
of five subaccounts (the "Subaccounts"), each of which invests in a
Select Portfolio as permitted under the Contract prospectus.
Investors should read this Statement of Additional Information and
the Fund's Prospectus for the Select Portfolios dated April 30, 1998
along with the Contract prospectus.
Sales Charges and Surrender Charges
The Concert Series does not assess any sales charge, either when it
sells or when it redeems shares of a Portfolio. Surrender charges
may be assessed under the Contract, as described in the Contract
prospectus. Mortality and expense risk fees and other charges are
also described in that prospectus.
REDEMPTION OF SHARES
The Concert Series will redeem any shares of the Select Portfolios
presented by the Subaccounts, its sole shareholders, for redemption.
The Subaccounts' policy on when or whether to buy or redeem Portfolio
shares is described in the Contract prospectus.
Payment upon redemption of shares of a Portfolio is normally made
within three days of receipt of such request. The right of
redemption of shares of a Portfolio may be suspended or the date of
payment postponed (a) for any periods during which the New York Stock
Exchange, Inc. ("NYSE") is closed (other than for customary weekend
and holiday closings), (b) when trading in the markets the Portfolio
customarily utilizes is restricted, or an emergency, as defined by
the rules and regulations of the SEC, exists, making disposal of the
Portfolio's investments or determination of its net asset value not
reasonably practicable, or (c) for such other periods as the SEC by
order may permit for the protection of the Portfolio's shareholders.
Should the redemption of shares of a Portfolio be suspended or
postponed, the Concert Series' Board of Directors may make a
deduction from the value of the assets of the Portfolio to cover the
cost of future liquidations of the assets so as to distribute fairly
these costs among all owners of the Contract.
VALUATION OF SHARES
The net asset value of each Portfolio's Classes of Shares will be
determined on any day that the NYSE is open. The NYSE is closed on
the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day, and on the preceding Friday
or subsequent Monday when one of these holidays falls on a Saturday
or Sunday, respectively. The following is a description of the
procedures used by each Select Portfolio in valuing its assets.
The value of each Underlying Smith Barney Fund will be its net asset
value at the time of computation. Short-term investments that have a
maturity of more than 60 days are valued at prices based on market
quotations for securities of similar type, yield and maturity.
Short-term investments that have a maturity of 60 days or less are
valued at amortized cost, which constitutes fair value as determined
by the Concert Series' Board of Directors. Amortized cost involves
valuing an instrument at its original cost to the Portfolio and
thereafter assuming a constant amortization to maturity of any
discount or premium regardless of the effect of fluctuating interest
rates on the market value of the instrument.
PERFORMANCE
From time to time, the Concert Series may quote a Portfolio's yield
or total return in advertisements or in reports and other
communications to shareholders. The Concert Series may include
comparative performance information in advertising or marketing the
Portfolio's shares. Such performance information may include data
from the following industry and financial publications: BARRON'S,
BUSINESS WEEK, CDA INVESTMENT TECHNOLOGIES, INC., CHANGING TIMES,
FORBES, FORTUNE, INSTITUTIONAL INVESTOR, INVESTORS BUSINESS DAILY,
MONEY, MORNINGSTAR MUTUAL FUND VALUES, THE NEW YORK TIMES, USA TODAY
and THE WALL STREET JOURNAL.
Yield
A Portfolio's 30-day yield figure described below is calculated
according to a formula prescribed by the SEC. The formula can be
expressed as follows: YIELD = 2[( [(a-b/(c*d))/1] + 1)6 - 1], where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of
the period.
For the purpose of determining the interest earned (variable "a" in
the formula) on debt obligations purchased by the Portfolio at a
discount or premium, the formula generally calls for amortization of
the discount or premium; the amortization schedule will be adjusted
monthly to reflect changes in the market values of the debt
obligations.
Investors should recognize that in periods of declining interest
rates a Portfolio's yield will tend to be somewhat higher than
prevailing market rates, and in periods of rising interest rates, the
Portfolio's yield will tend to be somewhat lower. In addition, when
interest rates are falling, the inflow of net new money to the
Portfolio from the continuous sale of its shares will likely be
invested in portfolio instruments producing lower yields than the
balance of the Portfolio's investments, thereby reducing the current
yield of the Portfolio. In periods of rising interest rates, the
opposite can be expected to occur.
Average Annual Total Return
"Average annual total return" figures, as described below, are
computed according to a formula prescribed by the SEC. The formula
can be expressed as follows: P(1+T)/n = ERV, where:
P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical $1,000
investment made at the beginning of a 1-, 5- or 10-year
period at the end of the 1-, 5- or 10-year period (or
fractional portion thereof), assuming reinvestment of all
dividends and distributions.
Each Select Portfolio's average annual total return with respect
to its Shares for the one-year period, five-year period, if any, and
for the life of the Portfolio ended January 31, 1998 is as follows:
One Year Five Years Life Inception Date
High Growth N/A N/A 10.60% 2/5/97
Growth N/A N/A 12.80 2/5/97
Balanced N/A N/A 12.80 2/5/97
Conservative N/A N/A 13.80 2/5/97
Income N/A N/A 12.90 2/5/97
TAXES
The following is a summary of certain Federal income tax
considerations that may affect the Concert Series and its
shareholders. The summary is not intended as a substitute for
individual tax advice, and investors are urged to consult their tax
advisors as to the tax consequences of an investment in any Portfolio
of the Concert Series .
Tax Status of the Portfolios
Each Portfolio will be treated as a separate taxable entity for
Federal income tax purposes.
Each Portfolio intends to qualify separately each year as a
"regulated investment company" under the Code. A qualified Portfolio
will not be liable for Federal income taxes to the extent that its
taxable net investment income and net realized capital gains are
distributed to its shareholders, provided that each Portfolio
distributes at least 90% of its net investment income.
Each Portfolio intends to accrue dividend income for Federal income
tax purposes in accordance with the rules applicable to regulated
investment companies. In some cases, these rules may have the effect
of accelerating (in comparison to other recipients of the dividend)
the time at which the dividend is taken into account by a Portfolio
as taxable income.
Distributions of an Underlying Smith Barney Fund's investment company
taxable income are taxable as ordinary income to a Portfolio which
invests in the Fund. Distributions of the excess of an Underlying
Smith Barney Fund's net long-term capital gain over its net short-
term capital loss, which are properly designated as "capital gain
dividends," are taxable as long-term capital gain to a Portfolio
which invests in the Fund, regardless of how long the Portfolio held
the Fund's shares, and are not eligible for the corporate dividends-
received deduction. Upon the sale or other disposition by a
Portfolio of shares of any Underlying Smith Barney Fund, the
Portfolio generally will realize a capital gain or loss which will be
long-term or short-term, generally depending upon the Portfolio's
holding period for the shares.
Tax Treatment of Shareholders
The Concert Series has been informed that certain of the life
insurance companies offering Contracts intend to qualify each of the
Subaccounts as a "segregated asset account" within the meaning of the
Code. For a Subaccount to quality as a segregated asset account, the
Select Portfolio in which such Subaccount holds shares must meet the
diversification requirements of Section 817(h) of the Code and the
regulations promulgated thereunder. To meet those requirements, a
Select Portfolio may not invest more than certain specified
percentages of its assets in the securities of any one, two, three or
four issuers. However, certain increases are made to the percentage
limitations to the extent of investments in United States Treasury
obligations. For these purposes, all obligations of the United
States Treasury and each instrumentality are treated as securities of
separate issuers.
Income on assets of a Subaccount qualified as a segregated asset
account whose underlying investments are adequately diversified will
not be taxable to Contract owners. However, in the event a
Subaccount is not so qualified, all annuities allocating any amount
of premiums to such Subaccount will not qualify as annuities for
federal income tax purposes and the holders of such annuities would
be taxed on any income on the annuities during the period of
disqualification.
The Concert Series has undertaken to meet the diversification
requirements of Section 817(h) of the Code. This undertaking may
limit the ability of a particular Select Portfolio to make certain
otherwise permitted investments.
Taxation of the Underlying Smith Barney Funds
Each Underlying Smith Barney Fund intends to qualify annually and
elect to be treated as a regulated investment company under
Subchapter M of the Code. In any year in which an Underlying Smith
Barney Fund qualifies as a regulated investment company and timely
distributes all of its taxable income, the Underlying Smith Barney
Fund generally will not pay any federal income or excise tax.
If more than 50% in value of an Underlying Smith Barney Fund's assets
at the close of any taxable year consists of stocks or securities of
foreign corporations, that Underlying Smith Barney Fund may elect to
treat certain foreign taxes paid by it as paid by its shareholders.
The shareholders would then be required to include their
proportionate share of the electing Fund's foreign income and related
foreign taxes in income even if the shareholder does not receive the
amount representing foreign taxes. Shareholders itemizing deductions
could then deduct the foreign taxes, or, whether or not deductions
are itemized but subject to certain limitations, claim a direct
dollar for dollar tax credit against their U.S. federal income tax
liability attributable to foreign income. In many cases, a foreign
tax credit will be more advantageous than a deduction for foreign
taxes. Each of the Portfolios may invest in some Underlying Smith
Barney Funds that expect to be eligible to make the above-described
election. While a Portfolio will be able to deduct the foreign taxes
that it will be treated as receiving if the election is made, the
Portfolio will not itself be able to elect to treat its foreign taxes
as paid by its shareholders. Accordingly, the shareholders of the
Portfolio will not have an option of claiming a foreign tax credit
for foreign taxes paid by the Underlying Smith Barney Funds, while
persons who invest directly in such Underlying Smith Barney Funds may
have that option.
General
The foregoing discussion related only to Federal income tax law as
applicable to U.S. citizens. Distributions by the Portfolio also may
be subject to state, local and foreign taxes, and their treatment
under state, local and foreign income tax laws may differ from the
Federal income tax treatment. Shareholders should consult their tax
advisors with respect to particular questions of Federal, state,
local and foreign taxation.
VOTING
Voting Rights
The Concert Series offers shares of the Select High Growth, Select
Growth, Select Balanced, Select Conservative and Select Income
Portfolios only for purchase by insurance company separate accounts.
Thus, the insurance company is technically the shareholder of these
Portfolios, and under the 1940 Act, is deemed to be in control of
these Portfolios. Nevertheless, with respect to any Concert Series
shareholder meeting, an insurance company will solicit and accept
timely voting instruction from its contract owners who own units in a
separate account investment division which corresponds to shares in
the Select Portfolios in accordance with the procedures set forth in
the accompanying prospectus of the applicable contract issued by the
insurance company and to the extent required by law. Shares of the
Concert Series attributable to contract owner interests for which no
voting instructions are received will be voted by an insurance
company in proportion to the shares for which voting instructions are
received.
Each share of a Portfolio represents an equal proportionate interest
in that Portfolio with each other share of the same Portfolio and is
entitled to such dividends and distributions out of the net income of
that Portfolio as are declared in the discretion of the Directors.
Shareowners are entitled to one vote for each share held and will
vote by individual Portfolio except to the extent required by the
1940 Act. The Concert Series is not required to hold annual
shareowner meetings, although special meetings may be called for the
Concert Series as a whole, or a specific Portfolio, for purposes such
as electing or removing Directors, changing fundamental policies or
approving a management contract. Shareowners may cause a meeting of
shareowners to be held upon a vote of 10% of the Fund's outstanding
shares for the purposes of voting on the removal of Directors.
As used in the Prospectus and this Statement of Additional
Information, a "vote of a majority of the outstanding voting
securities" means the affirmative vote of the lesser of (a) more than
50% of the outstanding shares of the Concert Series (or the affected
Portfolio) or (b) 67% or more of such shares present at a meeting if
more than 50% of the outstanding shares of the Concert Series (or the
affected Portfolio are represented at the meeting in person or by
proxy. A Portfolio shall be deemed to be affected by a matter unless
it is clear that the interests of each Portfolio in the matter are
identical or that the matter does not affect any interest of the
Portfolio. The approval of a management agreement, a distribution
agreement or any change in a fundamental investment policy would be
effectively acted upon with respect to a Portfolio only if approved
by a "vote of a majority of the outstanding voting securities" of the
Portfolio affected by the matter; however, the ratification of
independent accountants and the election of directors are not subject
to separate voting requirements and may be effectively acted upon by
a vote of the holders of a majority of all Concert Series shares
voting without regard to Portfolio.
ADDITIONAL INFORMATION
The Concert Series was incorporated in Maryland on August 11, 1995.
Portfolio securities and cash owned by the Concert Series are held in
the custody of PNC Bank, National Association, 17th and Chestnut
Streets, Philadelphia, Pennsylvania 19103.
In the event of the liquidation or dissolution of the Concert Series,
shareholders of a Portfolio are entitled to receive the assets
belonging to that Portfolio that are available for distribution and a
proportionate distribution, based upon the relative net assets of the
respective Portfolios, of any general assets not belonging to any
particular Portfolio that are available for distribution.
FINANCIAL STATEMENTS
The Concert Series' Annual Report for the fiscal year ended January
31, 1998 is incorporated herein by reference in its entirety.
APPENDIX - RATINGS OF DEBT OBLIGATIONS
BOND (AND NOTE) RATINGS
Moody's Investors Services, Inc. ("Moody's")
Aaa - Bonds that are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely
to impair the fundamentally strong position of such issues.
Aa - Bonds that are 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. They are rated lower than the
best bonds because margins of protection may not be as large as in
"Aaa" securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present that make
the long term risks appear somewhat larger than in "Aaa" securities.
A - Bonds that are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa - Bonds that are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba - Bonds which are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds
in this class.
B - Bonds which are rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long period
of time may be small.
Caa - Bonds which are rated "Caa" are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
Ca - Bonds which are rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C - Bonds which are rated "C" are the lowest class of bonds and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Con (..) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects
under construction, (b) earnings of projects unseasoned in operating
experience, (c) rentals which begin when facilities are completed, or
(d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-
range ranking; and the modifier 3 indicates that the issue ranks in
the lower end of its generic rating category.
Standard & Poor's Ratings Group ("S&P")
AAA - Debt rated "AAA" has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A - Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB - Debt rated "BBB" is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for debt in this category than in
higher rated categories.
BB, B, CCC, CC, C - Debt rated "BB", "B", "CCC", "CC" and "C" is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the
terms of the obligation. 'BB' indicates the lowest degree of
speculation and 'C' the highest degree of speculation. While such
debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures
to adverse conditions.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified
by the addition of a plus or minus to show relative standing within
the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion
of the project being financed by the debt being rated and indicates
that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or
the risk of default upon failure of, such completion. The investor
should exercise judgment with respect to such likelihood and risk.
L - The letter "L" indicates that the rating pertains to the
principal amount of those bonds where the underlying deposit
collateral is fully insured by the FDIC.
+ Continuance of the rating is contingent upon S&P's receipt of
closing documentation confirming investments and cash flow.
* Continuance of the rating is contingent upon S&P's receipt of an
executed copy of the escrow agreement.
"NR" Indicates no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does
not rate a particular type of obligation as a matter of policy.
COMMERCIAL PAPER RATINGS
Moody's
Issuers rated "Prime-1" (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment will normally be evidenced by the following
characteristics: leading market positions in well-established
industries; high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established
access to a range of financial markets and assured sources of
alternate liquidity.
Issuers rated "Prime-2" (or related supporting institutions) have
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
S&P
A-1 - This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issuers
determined to possess overwhelming safety characteristics will be
noted with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for
issues designated A-1.
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PART C
Information required to be included in Part C is set forth after
the
appropriate item, so numbered, in Part C of this Registration
Statement.
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights are incorporated by
reference to Part A filed herewith.
Included in Part B:
The Registrant's Annual Report for the year
ended January 31, 1998 and the Report of
Independent Accountants are incorporated by
reference to the Definitive 30b-1 filed on
April 21, 1998 as Accession #91155-98-272.
Included in Part C:
Consent of Independent Accountants is filed
herewith.
(b) Exhibits
b. Exhibits:
1. Articles of Incorporation of the Registrant is incorporated
by
reference to Registrant's Registration Statement Pre-Effective
Amendment No. 1
on Form N-1A as filed on January 23, 1996 (the "Registration
Statement").
1(a) Articles Supplementary to the Articles of Incorporation of
the
Registrant dated October 28, 1996 is incorporated by reference to Post-
Effective Amendment No. 4 to the Registration Statement as filed on
October
31, 1996 ("Post-Effective Amendment No. 4").
2. Restated By-Laws of the Registrant is incorporated by
reference to
the Registration Statement.
3. Inapplicable.
4.(a) Registrant's form of stock certificates for Class A, B, C
and Y
shares of the High Growth Portfolio is incorporated by reference the
Registration Statement.
(b) Registrant's form of stock certificates for Class A, B, C
and Y
shares of the Growth Portfolio is incorporated by reference to the
Registration Statement.
(c) Registrant's form of stock certificates for Class A, B, C
and Y
shares of the Balanced Portfolio is incorporated by reference to the
Registration Statement.
(d) Registrant's form of stock certificates for Class A, B, C
and Y
shares of the Conservative Portfolio is incorporated by reference to
the
Registration Statement.
(e) Registrant's form of stock certificates for Class A, B, C
and Y
shares of the Income Portfolios incorporated by reference to the
Registration
Statement.
(f) Registrant's form of stock certificate for shares of the
Smith
Barney Concert Series - Select High Growth Portfolio is incorporated by
reference to Post-Effective Amendment No. 3 to Registration Statement
as filed
August 13, 1996 ("Post-Effective Amendment No. 3").
(g) Registrant's form of stock certificate for shares of the
Smith
Barney Concert Series - Select Growth Portfolio is incorporated by
reference
to Post-Effective Amendment No. 3.
(h) Registrant's form of stock certificate for shares of the
Smith
Barney Concert Series - Select Balanced Portfolio is incorporated by
reference
to Post-Effective Amendment No. 3.
(i) Registrant's form of stock certificate for shares of the
Smith
Barney Concert Series - Select Conservative Portfolio is incorporated
by
reference to Post-Effective Amendment No. 3.
(j) Registrant's form of stock certificate for shares of the
Smith
Barney Concert Series - Select Income Portfolio is incorporated by
reference
to Post-Effective Amendment No. 3.
(k) Registrant's form of stock certificate for Class Z shares
of the
High Growth Portfolio is incorporated by reference to Post-Effective
Amendment
No. 5.
(l) Registrant's form of stock certificate for Class Z shares
of the
Growth Portfolio is incorporated by reference to Post-Effective
Amendment No.
5.
(m) Registrant's form of stock certificate for Class Z shares
of the
Balanced Portolio is incorporated by reference to Post-Effective
Amendment No.
5.
(n) Registrant's form of stock certificate for Class Z shares
of the
Conservative Portfolio is incorporated by reference to Post-Effective
Amendment No. 5.
(o) Registrant's form of stock certificate for Class Z shares
of the
Income Portfolio is incorporated by reference to Post-Effective
Amendment No.
5.
(p) Registrant's form of stock certificate for Class A, B, C
and Y
shares of the Global Portfolio will be filed by amendment.
5.(a) Form of Asset Allocation and Administration Agreement
between the
Registrant and Smith Barney Mutual Funds Management Inc. is
incorporated by
reference to the Registration Statement for each of the following:
(i) High Growth Portfolio
(ii) Growth Portfolio
(iii) Balanced Portfolio
(iv) Conservative Portfolio
(v) Income Portfolio
(vi) Global Portfolio
5.(b) Form of Asset Allocation and Administration Agreement
between the
Registrant and Travelers Investment Adviser, Inc. is incorporated by
reference
to Post-Effective Amendment No. 4 for each of the following:
(i) Select High Growth Portfolio
(ii) Select Growth Portfolio
(iii) Select Balanced Portfolio
(iv) Select Conservative Portfolio
(v) Select Income Portfolio
6.(a) Form of the Distribution Agreement between the Registrant
and
Smith Barney Inc. is incorporated by reference to the Registration
Statement.
(b) Form of the Distribution Agreement between the Registrant
and PFS
Distributors, Inc. is incorporated by reference to the Registration
Statement.
(c) Form of Participation Agreement between the Registrant and
Travelers Fund BD for Variable Annuities and Travelers Fund BD II for
Variable
Annuities is incorporated by reference to Post-Effective Amendment No.
4.
7. Inapplicable.
8 Form of Custodian Agreement between the Registrant and PNC
Bank,
National Association is incorporated by reference to the Registration
Statement.
9.(a) Form of Transfer Agency and Service Agreement between the
Registrant and The Shareholder Services Group, Inc. is incorporated by
reference to the Registration Statement.
(b) Form of Sub-Transfer Agency Agreement between the
Registrant and
PFS Shareholders Services is incorporated by reference to the
Registration
Statement.
10. Opinion and Consent of Willkie Farr & Gallagher as to
legality of
the series of shares being registered is incorporated by reference to
the
Registration Statement and Post-Effective
Amendment No. 4.
11. Consent of Independent Public Accountants is to be filed
by amendment.
12. Inapplicable.
13. Form of Purchase Agreement between the Registrant and
the
Purchaser of the initial shares is incorporated by reference to the
Registration Statement.
14. Inapplicable.
15. Form of Service and Distribution Plan pursuant to Rule 12b-
1
between the Registrant and Smith Barney Inc. is incorporated by
reference to
the Registration Statement.
16. Inapplicable.
17. Inapplicable.
18. Form of Multiple Class Plan pursuant to Rule 18f-3(d) of
the
Investment Company Act of 1940 is incorporated by reference to the
Registration Statement.
Item 25. Persons Controlled by or Under Common Control with
Registrant.
None.
Item 26. Number of Holders of Securities.
April 3, 1998 Record Holders
Balanced Portfolio Class A 1,480
Balanced Portfolio Class B 4,916
Balanced Portfolio Class C 1,749
Balanced Portfolio Class Y 3
Balanced Portfolio Class Z 2
Income Portfolio Class A 199
Income Portfolio Class B 540
Income Portfolio Class C 446
Income Portfolio Class Y 3
Income Portfolio Class Z 2
High Growth Portfolio Class A 5,058
High Growth Portfolio Class B 11,349
High Growth Portfolio Class C 3,925
High Growth Portfolio Class Y 4
High Growth Portfolio Class Z 2
Conservative Portfolio Class A 282
Conservative Portfolio Class B 765
Conservative Portfolio Class C 553
Conservative Portfolio Class Y 3
Conservative Portfolio Class Z 2
Growth Portfolio Class A 4,992
Growth Portfolio Class B 14,365
Growth Portfolio Class C 3,926
Growth Portfolio Class Y 3
Growth Portfolio Class Z 2
Global Portfolio Class A 3
Global Portfolio Class B 8
Global Portfolio Class C 8
Global Portfolio Class Y 1
Global Portfolio Class Z 0
Select High Growth Portfolio 3
Select Growth Portfolio 3
Select Balanced Portfolio 3
Select Conservative Portfolio 3
Select Income Portfolio 3
Item 27. Indemnification.
The response to this item is incorporated by reference to the
Registrant
Statement filed with the SEC on January 23, 1996.
Item 28. Business or Other Connections of Investment Adviser.
Investment Adviser -- Mutual Management Corp.,
formerly known as Smith Barney Mutual Funds Management, Inc.
MMC was incorporated in December 1968 under the laws of the State of
Delaware. MMC is a wholly owned subsidiary of Salomon
Smith Barney Holdings Inc., which in
turn is a wholly owned subsidiary of Travelers Group Inc.
("Travelers").
MMC is registered as an
investment adviser under the Investment Advisers Act of 1940 (the
"Advisers
Act").
The list required by this Item 28 of officers and directors of MMC
together with information as to any other business, profession,
vocation
or employment of a substantial nature engaged in by such officers
and
directors during the past two years, is incorporated by reference to
Schedules A and D of the Form ADV filed by SBMFM pursuant to the
Advisers Act (SEC File No. 801-8314).
Travelers Investment Adviser, Inc. ("TIA") was incorporated in June
1996 under
the laws of the State of Delaware. TIA is a wholly owned subsidiary of
The
Plaza Corporation which, in turn, is an indirect wholly owned
subsidiary of
Travelers. TIA is registered as an investment adviser under the
Advisers Act.
The list required by this Item 28 of officers and directors of TIA
together
with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to
Schedules A and D of the Form ADV filed by TIA pursuant to the
Advisers
Act (SEC File No. 801-52365).
Item 29. Principal Underwriters.
Smith Barney Inc. ("Smith Barney") also serves as distributor for each
of the
following investment companies:
(a) Smith Barney Inc. ("Smith Barney ") acts as principal
underwriter for
Consulting Group Capital Markets Funds
Global Horizons Investment Series (Cayman Islands)
Greenwich Street California Municipal Fund Inc.
Greenwich Street Municipal Fund Inc.
Greenwich Street Series Fund
High Income Opportunity Fund Inc.
The Italy Fund Inc.
Managed High Income Portfolio Inc.
Managed Municipals Portfolio II Inc.
Managed Municipals Portfolio Inc.
Municipal High Income Fund Inc.
Puerto Rico Daily Liquidity Fund Inc.
Puerto Rico Equity Index and Income Fund Inc.
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Concert Allocation Series Inc.
Smith Barney Equity Funds
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.
Smith Barney Income Funds
Smith Barney Institutional Cash Management Fund, Inc.
Smith Barney Intermediate Municipal Fund, Inc.
Smith Barney Investment Funds Inc.
Smith Barney Investment Trust
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc.
Smith Barney Muni Funds
Smith Barney Municipal Fund, Inc.
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Natural Resources Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund Inc.
Smith Barney Principal Return Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Telecommunications Trust
Smith Barney Variable Account Funds
Smith Barney World Funds, Inc.
Smith Barney Worldwide Special Fund N.V. (Netherlands Antilles)
Travelers Series Fund Inc.
The USA High Yield Fund N.V.(Netherlands Antilles)
Worldwide Securities Limited (Bermuda)
Zenix Income Fund Inc. and various series of unit investment trusts.
(b) The information required by this Item 29(b) with respect to
each director and officer of Smith Barney is incorporated by reference
to
Schedule A of the Form BD filed by Smith Barney pursuant to the
Securities
Exchange Act of 1934 (File No. 8-8177).
(c) Inapplicable.
Item 30. Location of Accounts and Records.
Certain accounts, books and other documents required to be
maintained by
Section 31(a) of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and the Rules promulgated thereunder are
maintained
by Smith Barney Inc., 388 Greenwich Street, New York, New York 10013.
Records relating to the duties of the Registrant's custodian are
maintained by PNC Bank, National Association, 17th and Chestnut
Streets,
Philadelphia, Pennsylvania. Records relating to the duties of the
Registrant's transfer agent are maintained by First Data Investor
Services
Group, Inc., Exchange Place, Boston, Massachusetts.
Item 31. Management Services.
Inapplicable.
Item 32. Undertakings.
The Registrant hereby undertakes to furnish each person to whom a
prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
The Registrant hereby undertakes to call a meeting of shareholders
for
the purpose of voting on the question of removal of a Director or
Directors
when requested to do so by the holders of at least 10% of the
Registrant's outstanding shares and in connection with such
meeting to
comply with the provisions of Section 16(c) of the Investment
Company
Act relating to shareholder communications.
The Registrant hereby undertakes, insofar as indemnification for
liability arising under the Securities Act may be permitted to
Directors,
officers and controlling persons of the Registrant pursuant to the
foregoing
provisions, or otherwise, to indemnify the Directors, officers and
controlling persons of the Registrant. The Registrant has been
advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities
Act,
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the
Registrant of expenses incurred or paid by a Director, officer or
controlling
person of the Registrant in the successful defense of any action,
suit or
proceeding) is asserted by such Director, officer or controlling
person in
connection with the securities being registered, the Registrant will,
unless
in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the
question whether such indemnification by it is against public
policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets
all
of the requirements for effectiveness of this Post-Effective Amendment
to the
Registration Statement pursuant to Rule 485 (b) under the
Securities Act of 1933 and has duly caused this Post-Effective
Amendment to its
Registration Statement to be signed on its behalf by the undersigned,
and where
applicable, the true and lawful attorney-in-fact, thereto duly
authorized, in the City of New York and State of New York on the
24th day of April,
1998.
By:/s/ Heath B. McLendon
Heath B. McLendon
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Act of 1933, this
Post-
Effective Amendment to the Registration Statement has been signed below
by the
following persons in the capacities and on the date indicated.
Signatures Title Date
/s/ Heath B. McLendon Director, and
(Heath B. McLendon) Chief Executive Officer
4/24/98
Signature
Title
Date
/s/ Heath B. McLendon
Heath B. McLendon
Director; Chairman of
the Board
April 24, 1998
/s/ Lewis E. Daidone
Lewis E. Daidone
Senior Vice President;
Treasurer (Principal
Accounting Officer)
April 24, 1998
/s/ Walter E. Auch*
Walter E. Auch
Director
April 24, 1998
/s/ Martin Brody*
Martin Brody
Director
April 24, 1998
/s/ H. John Ellis*
H. John Ellis
Director
April 24, 1998
/s/ Stephen E.
Kaufman*
Stephen E. Kaufman
Director
April 24, 1998
/s/ Armon E. Kamesar*
Armon E. Kamesar
Director
April 24, 1998
* Signed by Heath B. McLendon, their duly authorized attorney-in-fact,
pursuant to power of attorney dated January 23, 1996.
/s/ Heath B. McLendon
Heath B. McLendon
Independent Auditors' Consent
To the Shareholders and Board of Directors of
Smith Barney Concert Allocation Series Inc.:
We consent to the use of our report dated March 17, 1998 for the
Select High Growth, Select Growth, Select Balanced, Select
Conservative, and Select Income Portfolios of the Smith Barney Concert
Allocation Series Inc. incorporated herein by reference and to the
references to our Firm under the headings "Financial Highlights" in
the Prospectus and "Counsel and Auditors" in the Statement of
Additional Information.
KPMG Peat Marwick LLP
New York, New York
April 21, 1998
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<NAME> SELECT INCOME PORTFOLIO
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