Registration No. 2-71469
811-3158
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. 33 X
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 X
Amendment No. 36 X
SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
(Exact name of Registrant as Specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 720-9218
Christina T. Sydor
Secretary
Smith Barney Fundamental Value Fund 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)
on (date)pursuant to paragraph (b) of Rule 485
XXX 60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) 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.
PART A
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[Logo]
Smith Barney Mutual Funds
Prospectus Smith Barney
Mutual Funds
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January 28, 2000 Fundamental Value Fund Inc.
Class A, B, L and Y Shares
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Contents
Investments, risks and performance..................... 4
More on the fund's investments......................... 8
Management............................................. 9
Choosing a class of shares to buy...................... 10
Comparing the fund's classes........................... 11
Sales charge........................................... 12
More about deferred sales charges...................... 15
Buying shares.......................................... 16
Exchanging shares...................................... 17
Redeeming shares....................................... 18
Other things to know about
share transactions.................................... 20
Smith Barney 401(k) and
ExecChoice(TM) program................................ 22
Distributions, dividends and taxes..................... 23
Share price............................................ 24
Financial highlights................................... 25
You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
<PAGE>
Investments, risks and performance
Investment objective
The fund seeks long-term capital growth. Current income is a secondary
consideration.
Principal Investment Strategies
Key investments The fund invests primarily in common stocks and common stock
equivalents, such as preferred stocks and securities convertible into common
stocks, of companies that the manager believes are undervalued in the
marketplace. The fund generally invests in securities of large, well-known
companies but may also invest a significant portion of its assets in securities
of small to medium-sized companies when the manager believes smaller companies
offer more attractive value opportunities.
Selection process The manager employs a two-step stock selection process in its
search for undervalued stocks of temporarily out of favor companies. First, the
manager uses proprietary models and fundamental research to try to identify
stocks that are underpriced in the market relative to their fundamental value.
Next, the manager looks for a positive catalyst in the company's near term
outlook which the manager believes will accelerate earnings or improve the value
of the company's assets. The manager also emphasizes companies in those sectors
of the economy which the manager believes are undervalued relative to other
sectors.
When evaluating an individual stock, the manager looks for:
. Low market valuations measured by the manager's valuation models
. Positive changes in earnings prospects because of factors such as:
- New, improved or unique products and services
- New or rapidly expanding markets for the company's products
- New management
- Changes in the economic, financial, regulatory or political
environment particularly effecting the company
- Effective research, product development and marketing
- A business strategy not yet recognized by the marketplace
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
. Stock prices decline generally
. The manager's judgment about the attractiveness, value or potential
appreciation of a particular stock proves to be incorrect
. An adverse event, such as negative press reports about a company in which
the fund invests,
depresses the value of the company's stock
. The markets strongly favor growth stocks over stocks with value
characteristics.
. Small or medium capitalization companies fall out of favor with investors
Compared to mutual funds that focus only on large capitalization companies, the
fund's share price may be more volatile because the fund also invests a
significant portion of its assets in small and medium capitalization companies.
Compared to large companies, small and medium capitalization companies are more
likely to have:
. More limited product lines
. Fewer capital resources
. More limited management depth
Further, securities of small and medium capitalization companies are more likely
to:
. Experience sharper swings in market values
. Be harder to sell at times and at prices the manager believes appropriate
. Offer greater potential for gains and losses
Who may want to invest The fund may be an appropriate investment if you:
. Are seeking to participate in the long-term growth potential of the U.S.
stock market
. Are looking for an investment with potentially greater return but higher risk
than fixed income investments
. Are willing to accept the risks of the stock market
<PAGE>
Risk return bar chart
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
The bar chart shows the performance of the fund's Class A shares for each of the
past 10 calendar years. Class B, L and Y shares would have different performance
because of their different expenses. The performance information in the chart
does not reflect sales charges, which would reduce your return.
[BAR CHART APPEARS HERE]
89, 90, 91, 92, 93, 94, 95, 96, 97, 98
5% 5% 5% 5% 5% 5% 5% 5% 5% 5%
Quarterly returns: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___
quarter 199X
Year to date: xx% through 9/30/00
Risk return table
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the S&P
500, a broad-based unmanaged index of 500 widely traded large capitalization
companies, and the Lipper Value Fund Average (the "Lipper Average"), an average
composed of the fund's peer group of mutual funds. This table assumes imposition
of the maximum sales charge applicable to the class, redemption of shares at the
end of the period, and reinvestment of distributions and dividends.
Average Annual Total Returns C Calendar Years Ended December 31, 1998
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Class 1 year 5 years 10 years Since inception Inception date
A [xx/xx/xx]
B n/a 11/6/92
L n/a 5/13/93
Y n/a n/a 1/31/96
S&P 500 Index n/a
Lipper Average n/a
*Index comparison begins on
<PAGE>
Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
(fees paid directly from your Class A Class B Class L Class Y
investment)
Maximum sales charge (load) imposed 5.00% None 1.00% None
on purchases (as a % of offering
price)
Maximum deferred sales charge (load) None* 5.00% 1.00% None
(as a % of the lower of net asset
value at purchase or redemption)
Annual fund operating expenses
(expenses deducted from fund assets)
Management fee** 0.75% 0.75% 0.75% 0.75%
Distribution and service (12b-1) fees 0.25% 1.00% 1.00% None
Other expenses
Total annual fund operating expenses
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of
their purchase, you will pay a deferred sales charge of 1.00%.
Example
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The fund's operating expenses remain the same
Number of years you own your 1 year 3 years 5years 10 years
shares
Class A (with or without redemption) $ $ $ $
Class B (redemption at end of period) $ $ $ $
Class B (no redemption) $ $ $ $
Class L (redemption at end of period) $ $ $ $
Class L (no redemption) $ $ $ $
Class Y (with or without redemption) $ $ $ $
<PAGE>
More on the fund's investments
Foreign investments The fund may invest up to 25% of its assets in securities
of foreign issuers which may involve greater risk than securities of U.S.
issuers. Many foreign countries the fund may invest in have markets that are
less liquid and more volatile than markets in the U.S. In some foreign
countries, less information is available about foreign issuers and markets
because of less rigorous accounting and regulatory standards than in the U.S.
Currency fluctuations could erase investment gains or add to investment losses.
The risks of investing in foreign securities are greater for securities of
emerging market issuers because political or economic instability, lack of
market liquidity, and negative government actions like currency controls or
seizure of private businesses or property are more likely.
Derivatives and hedging techniques. The fund may, but need not, use derivative
contracts, such as futures and options on securities, securities indices or
currencies; options on these futures; forward currency contracts; and interest
rate or currency swaps for any of the following purposes:
. To hedge against the economic impact of adverse changes in the market value
of its securities, because of changes in stock market prices, currency
exchange rates or interest rates.
. As a substitute for buying or selling securities
. To enhance return
A derivative contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities,
currencies or indices. Even a small investment in derivative contracts can have
a big impact on the fund's stock market, currency and interest rate exposure.
Therefore, using derivatives can disproportionately increase losses and reduce
opportunities for gains when stock prices, currency rates or interest rates are
changing. The fund may not fully benefit from or may lose money on derivatives
if changes in their value do not correspond accurately to changes in the value
of the fund's holdings.
The other parties to certain derivative contracts present the same types of
credit risk as issuers of fixed income securities. Derivatives can also make
the fund less liquid and harder to value, especially in declining markets.
Defensive investing The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
<PAGE>
Management
Manager The fund's investment adviser and administrator (the manager) is SSB
Citi Fund Management LLC, an affiliate of Salomon Smith Barney Inc. The
manager's address is 388 Greenwich Street, New York, New York 10013. The
manager selects the fund's investments and oversees its operations. The manager
and Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup
businesses produce a broad range of financial services -- asset management,
banking and consumer finance, credit and charge cards, insurance, investments,
investment banking and trading -- and use diverse channels to make them
available to consumer and corporate customers around the world.
John G. Goode, Chairman and Chief Investment Officer of
Davis Skaggs Investment Management, a division of SSB Citi Fund
Management LLC and managing director of Salomon Smith Barney,
has been responsible for the day-to-day management of the fund's portfolio since
November 1990. Mr. Goode has 16 years of experience with the manager or its
predecessors.
Management fees During the fiscal year ended March 31, 1999, the manager
received a management fee and administrative fee equal to 0.55% and 0.20%,
respectively, of the fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith
Barney and other broker-dealers sells fund shares to the public.
Distribution plans The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and
service fees. These fees are an ongoing expense and, over time, may cost you
more than other types of sales charges.
Year 2000 issue Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by the fund. The manager and Salomon Smith Barney have
addressed the Year 2000 issue for their systems. The fund has been informed by
other service providers that they have taken similar measures. Although the
fund does not expect the Year 2000 issue to adversely affect it, the fund cannot
guarantee that the efforts of the fund, which were limited to requesting and
receiving reports from its service providers, or the efforts of its service
providers to correct the problem have been successful.
<PAGE>
Choosing a class of shares to buy
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
. If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses.
. For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
. Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class L
shares do not, Class B shares may be more attractive to long term investors.
You may buy shares from:
. A Salomon Smith Barney Financial Consultant
. An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
. The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
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Initial Additional
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Classes A, B,L Class Y All Classes
General $1,000 $15 million $50
IRAs, Self Employed $ 250 $15 million $50
Retirement Plans,
Uniform Gift to Minor
Accounts
Qualified Retirement Plans $ 25 $15 million $25
Simple IRAs $ 1 n/a $ 1
Monthly Systematic $ 25 n/a $25
Investment Plans
Quarterly Systematic $ 50 n/a $50
Investment Plans
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Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k) plans
<PAGE>
Comparing the fund's classes
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They may receive different
compensation depending upon which class you choose.
<TABLE>
<CAPTION>
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Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key . Initial sales charge . No initial sales . Initial sales charge . No initial or
features . You may qualify charge is lower than Class deferred sales
for reduction or . Deferred sales A charge
waiver of initial charge declines over . Deferred sales . Must invest at
sales charge time charge for only 1 least $15 million
. Lower annual . Converts to year . Lower annual
expenses than Class Class A after 8 . Does not convert expenses than the
B and Class L years to Class A other classes
. Higher annual . Higher annual
expenses than Class expenses than Class
A A
Initial Up to 5.00%; reduced None 1.00% None
sales for large purchases
charge and waived for
certain investors. No
charge for purchases
of $500,000 or more
Deferred 1% on purchases of Up to 5% charged 1% if you redeem None
sales $500,000 or more if when you redeem within 1 year of
charge you redeem within 1 shares. The charge purchase
year of purchase is reduced over time
and there is no
deferred sales
charge after 6 years
Annual 0.25% of average 1% of average daily 1% of average daily None
distribution daily net assets net assets net assets
and service
fees
Exchange Class A shares of Class B shares of Class L shares of Class Y shares of
privilege most Smith Barney most Smith Barney most Smith Barney most Smith Barney
funds funds funds funds
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</TABLE>
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
<PAGE>
Sales charge:
Class A shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge
on the fund's distributions or dividends you reinvest in additional Class A
shares.
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Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
Less than $25,000 5.00 5.26
$25,000 but less than $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 3.00 3.09
$250,000 but less than $500,000 2.00 2.04
$500,000 or more -0- -0-
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Investments of $500,000 or more You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
Qualifying for a reduced Class A sales charge There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
. Accumulation privilege - lets you combine the current value of Class A
shares owned
. by you, or
. by members of your immediate family,
<PAGE>
and for which a sales charge was paid, with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
. Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney funds over a 13-month period and pay the same sales charge, if any,
as if all shares had been purchased at once. You may include purchases on which
you paid a sales charge within 90 days before you sign the letter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
. Employees of members of the NASD.
. 403(b) or 401(k) retirement plans, if certain conditions are met
. Clients of newly employed Salomon Smith Barney Financial Consultants if
certain conditions are met
. Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn about additional waivers of Class A initial sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the Statement of Additional Information ("SAI").
<PAGE>
Class B shares
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of
purchase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
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6th
Year after purchase 1st 2nd 3rd 4th 5th through 8th
- --------------------------------------------------------------------------------
Deferred sales charge 5% 4% 3% 2% 1% 0%
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Class B conversion After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
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Shares issued: Shares issued: Shares issued:
At initial On reinvestment of Upon exchange from
purchase dividends and another Smith Barney
distributions mutual fund
- --------------------------------------------------------------------------------
Eight years after In same proportion On the date the shares
the date of that the number of originally acquired
purchase Class B shares would have converted
converting is to total into Class A shares
Class B shares you own
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Class L shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund on June 12, 1998,
you will not pay an initial sales charge on Class L shares you buy before June
22, 2001.
Class Y shares
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
<PAGE>
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
. Shares exchanged for shares of another Smith Barney fund
. Shares representing reinvested distributions and dividends
. Shares no longer subject to the deferred sales charge
Each time you place a request to sell shares, the fund will first sell
any shares in your account that are not subject to a deferred sales charge and
then the shares in your account that have been held the longest.
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
. On payments made through certain systematic withdrawal plans
. On certain distributions from a retirement plan
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
<PAGE>
Buying shares
Through a You should contact your Salomon Smith Barney Financial Consultant
Salomon or dealer representative to open a brokerage account and make
Smith arrangements to buy shares.
Barney
Financial If you do not provide the following information, your order will
representative be rejected
. Class of shares being bought
. Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account no
later than the third business day after you place your order.
Salomon Smith Barney or your dealer representative may charge an
annual account maintenance fee.
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Through the Qualified retirement plans and certain other investors who are
fund's clients of the selling group are eligible to buy shares shares
transfer directly from the fund.
agent
. Write the transfer agent at the following address:
Smith Barney Fundamental Value Fund Inc.
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
. Enclose a check to pay for the shares. For initial purchases,
complete and send an account application
. For more information, call the transfer agent at
1-800-451-2010
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<PAGE>
Systematic You may authorize Salomon Smith Barney, your dealer
investment representative or the transfer agent to transfer funds
plan automatically from a regular bank account, cash held in a Salomon
Smith Barney brokerage account or Smith Barney money market fund
to buy shares on a regular basis.
. Amounts transferred should be at least: $25 monthly or $50
quarterly
. If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer representative
or the transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney Financial
Consultant, dealer representative or the transfer agent or
consult the SAI.
<PAGE>
Exchanging shares
Smith You should contact your Salomon Smith Barney Financial
Barney Consultant or dealer representative to exchange into other Smith
offers a Barney funds. Be sure to read the prospectus of the fund you are
distinctive exchanging into. An exchange is a taxable transaction.
family of
funds
tailored to
help meet . You may exchange shares only for shares of the same class of
the varying another Smith Barney fund. Not all Smith Barney funds offer all
needs of classes.
both large
and small . Not all Smith Barney funds may be offered in your state of
investors residence. Contact your Salomon Smith Barney Financial
Consultant, dealer
representative or the transfer agent.
. You must meet the minimum investment amount for each fund
. If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers (documents transferring ownership of certificates)
before the exchange is effective.
. The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges
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Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales
charges Your deferred sales charge (if any) will continue to be measured
from the date of your original purchase. If the fund you exchange
into has a higher deferred sales charge, you will be subject to
that charge. If you exchange at any time into a fund with a lower
charge, the sales charge will not be reduced.
- --------------------------------------------------------------------------------
By telephone If you do not have a brokerage account, you may be eligible to
exchange shares through the transfer agent. You must complete an
authorization form to authorize telephone transfers. If eligible,
you may make telephone exchanges on any day the New York Stock
Exchange is open. Call the transfer agent at 1-800-451-2010
between 9:00 a.m. and 4:00 p.m. (Eastern time). Requests received
after the close of regular trading on the Exchange are priced at
the net asset value next determined.
You can make telephone exchanges only between accounts that have
identical registrations.
- --------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer agent
at the address on the opposite page.
<PAGE>
Redeeming shares
Generally Contact your Salomon Smith Barney Financial Consultant or dealer
representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must receive
the certificates endorsed for transfer or with signed stock
powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business days
after your request is received in good order. However, if you
recently purchased your shares by check, your redemption proceeds
will not be sent to you until your original check clears which
may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
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By mail For accounts held directly at the fund, send written requests to
the transfer agent at the following address:
Smith Barney Fundamental Value Fund Inc.
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
. Your account number
. The class of shares and the dollar amount or number of shares
to be redeemed
. Signatures of each owner exactly as the account is registered
<PAGE>
By telephone If you do not have a brokerage account, you may be eligible to
redeem shares (except those held in retirement plans) in amounts
up to $10,000 per day through the transfer agent. You must
complete an authorization form to authorize telephone
redemptions. If eligible, you may request redemptions by
telephone on any day the New York Stock Exchange is open. Call
the transfer agent at 1-800-451-2010 between 9:00 a.m. and 4:00
p.m. (Eastern time). Requests received after the close of regular
trading on the Exchange are priced at the net asset value next
determined.
Your redemption proceeds can be sent by check to your address of
record or by wire transfer to a bank account designated on your
authorization form. You must submit a new authorization form to
change the bank account designated to receive wire transfers and
you may be asked to provide certain other documents.
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Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans ($5,000 for retirement plans) and each automatic redemption must
be at least $50. If your shares are subject to a deferred sales
charge, the sales charge will be waived if your automatic
payments do not exceed 1% per month of the value of your shares
subject to a deferred sales charge.
The following conditions apply:
. Your shares must not be represented by certificates
. All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the SAI.
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information without which your
request will not be processed:
. Name of the fund
. Account number
. Class of shares being bought, exchanged or redeemed
. Dollar amount or number of shares being bought, exchanged
or redeemed
. Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include
a signature guarantee if you:
. Are redeeming over $10,000 of shares
. Are sending signed share certificates or stock powers to the transfer agent
. Instruct the transfer agent to mail the check to an address different from
the one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
The fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
. Reject any purchase or exchange order
<PAGE>
. Change, revoke or suspend the exchange privilege
. Suspend telephone transactions
. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission
. Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities.
Small account balances If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.
Share certificates The fund does not issue share certificates unless a written
request signed by all registered owners is made to the transfer agent. If you
hold share certificates it will take longer to exchange or redeem shares.
<PAGE>
Smith Barney 401(k) and ExecChoice(TM) programs
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoice(TM) program. The fund offers Class A and Class L shares
to participating plans as investment alternatives under the programs. You can
meet minimum investment and exchange amounts by combining the plan's investments
in any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment. Once a class
of shares is chosen, all additional purchases must be of that class.
. Class A shares may be purchased by plans investing at least $1 million.
. Class L shares may be purchased by plans investing less than $1 million.
Class L shares are eligible for exchange into Class A shares not later than 8
years after the plan joined the program. They are eligible for conversion
sooner:
If the account was opened on or after June 21, 1996 and an aggregate of
$1 million is invested in Smith Barney Funds Class L shares (other than
money market funds), all Class L shares are eligible for exchange after
the plan is in the program 5 years.
If the account was opened before June 21, 1996 and $500,000 in the
aggregate is invested in Smith Barney Funds Class L shares (other than
money market funds), all Class L shares are eligible for exchange on each
December 31 and the exchange will occur no later than March 31 of the
following year.
For more information, call your Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.
<PAGE>
Distributions, dividends and taxes
Dividends The fund generally pays dividends and makes capital gain
distributions, if any, once a year, typically in December. The fund may pay
additional distributions and dividends at other times if necessary for the fund
to avoid a federal tax. Capital gain distributions and dividends are reinvested
in additional fund shares of the same class you hold. The fund expects
distributions to be primarily from capital gains. You do not pay a sales charge
on reinvested distributions or dividends. Alternatively, you can instruct your
Salomon Smith Barney Financial Consultant, dealer representative or the transfer
agent to have your distributions and/or dividends paid in cash. You can change
your choice at any time to be effective as of the next distribution or dividend,
except that any change given to the transfer agent less than five days before
the payment date will not be effective until the next distribution or dividend
is paid.
Taxes In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
- -------------------------------------------------------------------------
Transaction Federal tax status
- -------------------------------------------------------------------------
Redemption or exchange of shares Usually capital gain or loss;
long-term only if shares owned more
than one year
- -------------------------------------------------------------------------
Long-term capital gain Long-term capital gain
distributions
- -------------------------------------------------------------------------
Short-term capital gain Ordinary income
distributions
- -------------------------------------------------------------------------
Dividends Ordinary income
- -------------------------------------------------------------------------
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a long-term capital gain
distribution or a dividend, because it will be taxable to you even though it may
actually be a return of a portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special
tax rules may apply, you should consult your tax adviser about your investment
in the fund.
<PAGE>
Share price
You may buy, exchange or redeem shares at their net asset value, plus applicable
sales charge, next determined after receipt of your request in good order. The
fund's net asset value is the value of its assets minus its liabilities. Net
asset value is calculated separately for each class of shares. The fund
calculates its net asset value every day the New York Stock Exchange is open.
This calculation is done when regular trading closes on the Exchange (normally
4:00 p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. The fund's currency conversions are done when the London stock
exchange closes, which is 12 noon Eastern time. When reliable market prices or
quotations are not readily available, or when the value of a security has been
materially affected by events occurring after a foreign exchange closes, the
fund may price those securities at fair value. Fair value is determined in
accordance with procedures approved by the fund's board. A fund that uses fair
value to price securities may value those securities higher or lower than
another fund using market quotations to price the same securities.
International markets may be open on days when U.S. markets are closed and the
value of foreign securities owned by the fund could change on days when you
cannot buy or redeem shares.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by Deloitte & Touche LLP,
independent accountants, whose report, along with the fund's financial
statements, are included in the annual report (available upon request).
For a Class A share of capital stock outstanding throughout each year
ended September 30:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1999 1998/1/ 1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $11.37 $ 9.31 $ 8.66 $ 8.20
- -----------------------------------------------------------------------------------
Income from Operations:
Net investment income 0.09 0.11 0.20 0.17
Net realized and (0.76) 2.52 1.01 1.23
unrealized gains
- -----------------------------------------------------------------------------------
Total income (loss) from (0.67) 2.63 1.21 1.40
operations
- -----------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.11) (0.13) (0.19) (0.13)
Net realized gains (0.52) (0.44) (0.37) (0.81)
- -----------------------------------------------------------------------------------
Total distributions (0.63) (0.57) (0.56) (0.94)
- -----------------------------------------------------------------------------------
Net asset value, end of year $10.07 $11.37 $ 9.31 $ 8.66
- -----------------------------------------------------------------------------------
Total return (6.04%) 29.53% 14.73% 19.94%
- -----------------------------------------------------------------------------------
Net assets, end of
year (millions) $ 521 $ 606 $ 458 $ 386
- -----------------------------------------------------------------------------------
Ratios to average
net assets:
Expenses 1.15% 1.14% 1.22% 1.34%
Net investment income 0.81 1.14 2.32 2.19
- -----------------------------------------------------------------------------------
Portfolio turnover rate 41% 46% 57% 45%
- -----------------------------------------------------------------------------------
</TABLE>
/1/ 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.
<PAGE>
For a Class B share of capital stock outstanding throughout each year
ended September 30:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1999 1998/1/ 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 11.31 $ 9.26 $ 8.62 $ 8.16
- ---------------------------------------------------------------------------------
Income (loss) from
operations: _ 0.03 0.13 0.12
Net investment income (0.75) 2.55 1.14 1.23
Net realized and
unrealized gain
- ---------------------------------------------------------------------------------
Total income (loss)
from (0.75) 2.55 1.14 1.35
- ---------------------------------------------------------------------------------
Less distribution from:
Net investment income (0.03) (0.06) (0.13) (0.08)
Net realized gains (0.52) (0.44) (0.37) (0.81)
- ---------------------------------------------------------------------------------
Total distributions (0.55) (0.50) (0.50) (0.89)
- ---------------------------------------------------------------------------------
Net asset value, end
of year $ 10.01 $11.31 $ 9.26 $ 8.62
- ---------------------------------------------------------------------------------
Total return (6.79)% 28.62% 13.82% 19.19%
- ---------------------------------------------------------------------------------
Net assets, end of
year (millions) $ 716 $930 $704 $539
- ---------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses 1.92% 1.90% 1.97% 2.09%
Net investment income 0.04 0.38 1.56 1.44
- ---------------------------------------------------------------------------------
Portfolio turnover rate 41% 46% 57% 45%
- ---------------------------------------------------------------------------------
</TABLE>
/1/ 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.
<PAGE>
For a Class L share of capital stock outstanding throughout each year
ended September 30:1
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1999/2/ 1998/1/ 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 11.30 $ 9.26 $ 8.62 $ 8.16
- --------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income -- 0.03 0.13 0.12
Net realized and
unrealized gain (0.74) 2.52 1.00 1.24
- --------------------------------------------------------------------------------
Total income (loss)
from operations (0.74) 2.54 1.14 1.36
- --------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.03) (0.06) (0.13) (0.09)
Net realized gains (0.52) (0.44) (0.37) (0.81)
- --------------------------------------------------------------------------------
Total distributions (0.55) (0.50) (0.50) (0.90)
- --------------------------------------------------------------------------------
Net assets value, end
of year $ 10.01 $11.30 $ 9.26 $ 8.62
- --------------------------------------------------------------------------------
Total return (6.70)% 28.52% 13.82% 19.33%
- --------------------------------------------------------------------------------
Net assets, end of year
(millions) $57.4 $71.9 $44.5 $21.8
- --------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.93% 1.92% 1.96% 2.09
Net investment income 0.03 0.36 1.52 1.44
- --------------------------------------------------------------------------------
Portfolio turnover rate 41% 46% 57% 45%
- --------------------------------------------------------------------------------
</TABLE>
/1/ On June 12, 1998 Class C shares were renamed Class L shares.
/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.
<PAGE>
For a Class Y share of capital stock outstanding throughout each year ended
September 30:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1999 1998/1/ 1997 1996/2/
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of year $ 11.40 $ 9.32 $ 8.54
- --------------------------------------------------------------------------------
Income from operations:
Net investment income 0.12 0.14 0.23
Net realized and
unrealized gain (0.74) 2.54 0.55
- --------------------------------------------------------------------------------
Total income (loss) from
operations (0.62) 2.68 0.78
- --------------------------------------------------------------------------------
Less distribution from:
Net investment income (0.16) (0.16) --
Net realized gains (0.52) (0.44) --
- --------------------------------------------------------------------------------
Total distributions (0.68) (0.60) --
- --------------------------------------------------------------------------------
Net asset value, end of
year $ 10.10 $11.40 $ 9.32
- --------------------------------------------------------------------------------
Total return (6.78)% 30.06% 9.13%*/+/
- --------------------------------------------------------------------------------
Net assets, end of year
(millions) $ 63 $ 109 $ 45
- --------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.79% 0.78% 0.75%/+/
Net investment income 1.15 1.48 2.58/+/
- --------------------------------------------------------------------------------
Portfolio turnover rate 41% 46% 57%
- --------------------------------------------------------------------------------
</TABLE>
/1/ 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.
/2/ For the period from January 31, 1996 (inception date) to September 30,
1996.
* During November 1995 Class Y shares were fully redeemed, therefore
performance for Class Y shares represents performance for the period
beginning January 31, 1996, which represents the date new share purchases
were made into this Class.
/+/ Total return is not realized, as it may not be representative of the total
return for the year.
/+/ Annualized.
<PAGE>
Salomon Smith Barney(SM)
a member of citigroup [Symbol]
Fundamental Value Fund Inc.
Shareholder reports Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
You can also review and copy the fund's shareholder reports, prospectus and
statement of additional information at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. You can get copies of these materials
for a duplicating fee by writing to the Public Reference Section of the
Commission, Washington, D.C. 20549-6009. Information about the public reference
room may be obtained by calling 1-800-SEC-0330. You can get the same information
free from the Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(SM)Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
PART B
SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
388 Greenwich Street
New York, New York 10013
800-451-2010
Statement of Additional Information
January 28, 2000
This Statement of Additional Information (the "SAI") expands
upon and supplements the information contained in the current
prospectus of Smith Barney Fundamental Value Fund Inc. (the "fund"),
dated January 28, 2000, as amended or supplemented from time to
time, and should be read in conjunction with the fund's prospectus.
The fund's prospectus may be obtained from any Salomon Smith Barney
Financial Consultant or by writing or calling the fund at the
address or phone number listed above. This SAI, although not in
itself a prospectus, is incorporated by reference into the
prospectus in its entirety.
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 2
DIRECTORS AND EXECUTIVE OFFICERS 13
COMPENSATION TABLE 15
DISTRIBUTION 18
PURCHASE OF SHARES 20
REDEMPTION OF SHARES 29
VALUATION OF SHARES 30
EXCHANGE PRIVILEGE 31
PERFORMANCE DATA 31
TAXES 33
ADDITIONAL INFORMATION 36
FINANCIAL STATEMENTS 37
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The prospectus discusses the fund's investment objective and
policies. The following discussion supplements the description of
the fund's investment policies in the prospectus. SSB Citi Fund
Management LLC ("SSB" or "the manager") serves as investment manager
and administrator of the fund.
The fund's primary investment objective is long-term capital
growth. Current income is a secondary objective. The fund seeks to
achieve its objective through investment in common stocks and common
stock equivalents, including preferred stocks and other securities
convertible into common stocks. The fund also invests to a lesser
extent in bonds and other debt instruments. There is no guarantee
that the fund will achieve its investment objective.
When SSB believes that a defensive investment posture is
warranted or when opportunities for capital growth to do not appear
attractive, the fund may temporarily invest all or a portion of its
assets in short-term money market instruments, including repurchase
agreements with respect to those instruments. The fund is
authorized to borrow money in an amount up to 10% of its total
assets for temporary or emergency purposes.
Foreign Securities and American Depository Receipts The
fund has the authority to invest up to 25% of its assets in foreign
securities (including European Depository Receipts ("EDRs") and
Global Depository Receipts ("GDRs")) and American Depository
Receipts ("ADRs") or other securities representing underlying shares
of foreign companies. EDRs are receipts issued in Europe which
evidence ownership of underlying securities issued by a foreign
corporation. ADRs are receipts typically issued by an American bank
or trust company which evidence a similar ownership arrangement.
Generally, ADRs which are issued in registered form, are designed
for use in the United States securities markets and EDRs, which are
issued in bearer form, are designed for use in European securities
markets. GDRs are tradeable both in the U.S. and Europe and are
designed for use throughout the world.
Investing in the securities of foreign companies involves
special risks and considerations not typically associated with
investing in U.S. companies. These include differences in
accounting, auditing and financial reporting standards, generally
higher commission rates on foreign portfolio transactions, the
possibility of expropriation or confiscatory taxation, adverse
changes in investment or exchange control regulations, political
instability which could affect U.S. investments in foreign
countries, and potential restrictions on the flow of international
capital. Additionally, foreign securities often trade with less
frequency and volume than domestic securities and therefore may
exhibit greater price volatility. Many of the foreign securities
held by the fund will not be registered with, nor will the issuers
thereof be subject to the reporting requirements of, the SEC.
Accordingly, there may be less publicly available information about
the securities and about the foreign company issuing them than is
available about a domestic company and its securities. Moreover,
individual foreign economies may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, capital reinvestment, resource self-
sufficiency and balance of payment positions. The fund may invest in
securities of foreign governments (or agencies or subdivisions
thereof), and therefore many, if not all, of the foregoing
considerations apply to such investments as well.
Repurchase Agreements. The fund may enter into repurchase
agreements with certain member banks of the Federal Reserve System
and certain dealers on the Federal Reserve Bank of New York's list
of reporting dealers. Under the terms of a typical repurchase
agreement, the fund would acquire securities for a relatively short
period (usually not more than one week) subject to an obligation of
the seller to repurchase, and the fund to resell, the securities at
an agreed-upon price and time, thereby determining the yield during
the fund's holding period. This arrangement results in a fixed rate
of return that is not subject to market fluctuations during the
fund's holding period. Repurchase agreements could involve certain
risks in the event of default or insolvency of the other party,
including possible delays or restrictions upon the 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 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 agreement. SSB, acting
under the supervision of the Board of Directors, reviews on an
ongoing basis the value of the collateral and the creditworthiness
of those dealers and banks with which the Fund enters into
repurchase agreements to evaluate potential risks.
Lending of Portfolio Securities The fund has the ability to
lend securities from its portfolio to brokers, dealers and other
financial organizations. Such loans, if and when made, will be
consistent with applicable regulatory requirements. The fund may
not lend its portfolio securities to Salomon Smith Barney or its
affiliates unless it has applied for and received specific authority
from the SEC. Loans of portfolio securities by the fund will be
collateralized by cash, letters of credit or securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities
("U.S. government securities"), which will be maintained at all
times in an amount equal to at least 100% of the current market
value of the loaned securities. From time to time, the fund may
return a part of the interest earned from the investment of
collateral received for securities loaned to the borrower and/or a
third party, which is unaffiliated with the fund or with Salomon
Smith Barney, and which is acting as a "finder."
In lending its portfolio securities, the fund can increase its
income by continuing to receive interest on the loaned securities,
as well as by either investing the cash collateral in short-term
instruments or obtaining yield in the form of interest paid by the
borrower when government securities are used as collateral.
Requirements of the SEC, which may be subject to future
modifications, currently provide that the following conditions must
be met whenever portfolio securities are loaned: (a) the fund must
receive at least 100% cash collateral or equivalent securities from
the borrower; (b) the borrower must increase such collateral
whenever the market value of the securities rises above the level of
such collateral; (c) the fund must be able to terminate the loan at
any time; (d) the fund must receive reasonable interest on the loan,
as well as an amount equal to any dividends, interest or other
distributions on the loaned securities, and any increase in market
value; (e) the fund may pay only reasonable custodian fees in
connection with the loan; and (f) voting rights on the loaned
securities may pass to the borrower; however, if a material event
adversely affecting the investment occurs, the fund's Board of
Directors 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 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 the manager to be
of good standing and will not be made unless, in the judgment of the
manager, the consideration to be earned from such loans would
justify the risk.
Money Market Instruments As stated in the prospectus, the
fund may invest for temporary defensive purposes or when
opportunities for capital growth do not appear attractive, in short-
term corporate and government money market instruments. Money market
instruments in which the fund may invest include: U.S. government
securities; certificates of deposit, time deposits 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.
Certificates of deposit ("CDs") are short-term negotiable
obligations of commercial banks. Time deposits ("TDs") are non-
negotiable deposits maintained in banking institutions for specified
periods of time at stated interest rates. Bankers' acceptances are
time drafts drawn on commercial banks by borrowers usually in
connection with international transactions.
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
the fund, depending upon the principal amounts of CDs of each bank
held by the fund) and are subject to Federal examination and to a
substantial body of Federal law and regulation. As a result of
governmental regulations, domestic branches of domestic banks are
generally required to, among other things, maintain specified levels
of reserves, and are subject to other supervision and regulation
designed to promote financial soundness.
Obligations of foreign branches of domestic banks, 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 government regulation. Such obligations are subject
to different risks than are those of domestic banks or domestic
branches of foreign banks. These risks include foreign economic and
political developments, foreign governmental restrictions that may
adversely affect payment of principal and interest on the
obligations, foreign exchange controls and foreign withholding and
other taxes on interest income. Foreign branches of domestic banks
are not necessarily subject to the same or similar regulatory
requirements that apply to domestic banks, such as mandatory reserve
requirements, loan limitations, and accounting, auditing and
financial recordkeeping requirements. In addition, less information
may be publicly available about a foreign branch of a domestic bank
than about a domestic bank. CDs issued by wholly owned Canadian
subsidiaries of domestic banks are guaranteed as to repayment of
principal and interest (but not as to sovereign risk) by the
domestic parent bank.
Obligations of domestic branches of foreign banks may be
general obligations of the parent bank in addition to the issuing
branch, or may be limited by the terms of a specific obligation and
by governmental regulation as well as governmental action in the
country in which the foreign bank has its head office. A domestic
branch of a foreign bank 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 domestic
branch of a foreign bank than about a domestic bank.
In view of the foregoing factors associated with the purchase
of CDs and TDs issued by foreign branches of domestic banks or by
domestic branches of foreign banks, SSB will carefully evaluate such
investments on a case-by-case basis.
Savings and loan associations whose CDs may be purchased by
the fund are supervised by the Office of Thrift Supervision and are
insured by the Savings Association Insurance fund, which is
administered by the FDIC and is backed by the full faith and credit
of the U.S. government. As a result, such savings and loan
associations are subject to regulation and examination.
Options, Futures and Currency Strategies. The fund may
use forward currency contracts and certain options and futures
strategies to attempt to hedge its portfolio, i.e., reduce the
overall level of investment risk normally associated with the fund.
There can be no assurance that such efforts will succeed.
In order to assure that the fund will not be deemed to be a
"commodity pool" for purposes of the Commodity Exchange Act,
regulations of the Commodity Futures Trading Commission ("CFTC")
require that the fund enter into transactions in futures contracts
and options on futures only (i) for bona fide hedging purposes (as
defined in CFTC regulations), or (ii) for non-hedging purposes,
provided that the aggregate initial margin and premiums on such non-
hedging positions do not exceed 5% of the liquidation value of the
fund's assets. To attempt to hedge against adverse movements in
exchange rates between currencies, the fund may enter into forward
currency contracts for the purchase or sale of a specified currency
at a specified future date. Such contracts may involve the purchase
or sale of a foreign currency against the U.S. dollar or may involve
two foreign currencies. The fund may enter into forward currency
contracts either with respect to specific transactions or with
respect to its portfolio positions. For example, when the
investment manager anticipates making a purchase or sale of a
security, it may enter into a forward currency contract in order to
set the rate (either relative to the U.S. dollar or another
currency) at which the currency exchange transaction related to the
purchase or sale will be made ("transaction hedging"). Further,
when the investment manager believes that a particular currency may
decline compared to the U.S. dollar or another currency, the fund
may enter into a forward contract to sell the currency the
investment manager expects to decline in an amount approximating the
value of some or all of the fund's securities denominated in that
currency, or when the investment manager believes that one currency
may decline against a currency in which some or all of the portfolio
securities held by the fund are denominated, it may enter into a
forward contract to buy the currency expected to decline for a fixed
amount ("position hedging"). In this situation, the fund may, in
the alternative, enter into a forward contract to sell a different
currency for a fixed amount of the currency expected to decline
where the investment manager believes that the value of the currency
to be sold pursuant to the forward contract will fall whenever there
is a decline in the value of the currency in which portfolio
securities of the fund are denominated ("cross hedging"). The fund
will segregate (i) cash, (ii) U.S. Government securities or (iii)
equity securities or debt securities (of any grade) in certain
currencies provided such assets are liquid, unencumbered and marked
to market daily, or other high-quality debt securities denominated
in certain currencies with a value equal to the aggregate amount of
the fund's commitments under forward contracts entered into with
respect to position hedges and cross-hedges. If the value of the
segregated securities declines, additional cash or securities are
segregated on a daily basis so that the value of the amount will
equal the amount of the fund's commitments with respect to such
contracts.
For hedging purposes, the fund may write covered call options
and purchase put and call options on currencies to hedge against
movements in exchange rates and on debt securities to hedge against
the risk of fluctuations in the prices of securities held by the
fund or which the investment manager intends to include in its
portfolio. The fund also may use interest rates futures contracts
and options thereon to hedge against changes in the general level in
interest rates.
The fund may write call options on securities and currencies
only if they are covered, and such options must remain covered so
long as the fund is obligated as a writer. A call option written by
the fund is "covered" if the fund owns the securities or currency
underlying the option or has an absolute and immediate right to
acquire that security or currency without additional cash
consideration (or for additional cash consideration which has been
segregated by the fund) upon conversion or exchange of other
securities or currencies held in its portfolio. A call option is
also covered if the fund holds on a share-for-share basis a call on
the same security or holds a call on the same currency as the call
written where the exercise price of the call held is equal to less
than the exercise price of the call written or greater than the
exercise price of the call written if the difference is maintained
by the fund in cash, Treasury bills or other high-grade, short-term
obligations in a segregated account with its custodian.
Although the portfolio might not employ the use of forward
currency contracts, options and futures, the use of any of these
strategies would involve certain investment risks and transaction
costs to which it might not otherwise be subject. These risks
include: dependence on the investment manager's ability to predict
movements in the prices of individual debt securities, fluctuations
in the general fixed-income markets and movements in interest rates
and currency markets, imperfect correlation between movements in the
price of currency, options, futures contracts or options thereon and
movements in the price of the currency or security hedged or used
for cover; the fact that skills and techniques needed to trade
options, futures contracts and options thereon or to use forward
currency contracts are different from those needed to select the
securities in which the fund invests; lack of assurance that a
liquid market will exist for any particular option, futures contract
or options thereon at any particular time and possible need to defer
or accelerate closing out certain options, futures contracts and
options thereon in order to continue to qualify for the beneficial
tax treatment afforded "regulated investment companies" under the
Internal Revenue Code of 1986, as amended (the "Code"). See
"Dividends, Distributions and Taxes."
Options on Securities As discussed more generally above, the
fund may engage in the writing of covered call options. The fund may
also purchase put options and enter 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. 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 the 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 the fund will normally have expiration
dates between one and six months from the date written. The
exercise price of the options may be below, equal to, or above the
current 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.
The fund may write (a) in-the-money call options when the
manager expects the price of the underlying security to remain flat
or decline moderately during the option period, (b) at-the-money
call options when the manager expects the price of the underlying
security to remain flat or advance moderately during the option
period and (c) out-of-the-money call options when the manager
expects that the price of the 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 as such call options are used in equivalent
transactions.
So long as the obligation of the 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 it 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. The 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, the
fund will be required to deposit in escrow the underlying security
or other assets in accordance with the rules of the Options Clearing
Corporation ("Clearing Corporation") or similar clearing corporation
and the securities exchange on which the option is written.
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. The fund
expects to write options only on national securities exchanges or in
the over-the-counter market. The fund may purchase put options
issued by the Clearing Corporation or in the over-the-counter
market.
The fund may realize a profit or loss upon entering into a
closing transaction. In cases in which the 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 the fund has purchased an option
and engages in a closing sale transaction, whether it recognizes a
profit or loss will depend upon whether the amount received in the
closing sale transaction is more or less than the premium the fund
initially paid for the original option plus the related transaction
costs.
Although the fund generally will purchase or write only those
options for which the manager 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 certain of the
facilities of the Clearing Corporation and national securities
exchanges inadequate 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, the 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 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 fund and
other clients of SSB 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 the 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, the fund may purchase or
temporarily borrow 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.
Although the manager will attempt to take appropriate measures
to minimize the risks relating to the fund's writing of call options
and purchasing of put and call options, there can be no assurance
that the fund will succeed in its option-writing program.
Stock Index Options As described generally above, the fund
may purchase put and call options and write call options on domestic
stock indexes listed on domestic exchanges in order to realize its
investment objective of capital appreciation or 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 the Canadian Market Portfolio 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 generally similar to options on
stock except that 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 or a foreign currency, as the case may
be, 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 option 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 the securities portfolio of the fund
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 the
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 the
fund of options on stock indexes will be subject to the manager'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 price
of individual stocks.
Futures Contracts and Options on Futures Contracts As
described generally above, the fund may invest in stock index
futures contracts and options on futures contracts that are traded
on a domestic exchange or board of trade.
The purpose of entering into a futures contract by the fund is
to protect the fund from fluctuations in the value of securities
without actually buying or selling the securities. For example, in
the case of stock index futures contracts, if the fund anticipates
an increase in the price of stocks that it intends to purchase at a
later time, the fund could enter into contracts to purchase the
stock index (known as taking a "long" position) as a temporary
substitute for the purchase of stocks. If an increase in the market
occurs that influences the stock index as anticipated, the value of
the futures contracts increases and thereby serves as a hedge
against the fund's not participating in a market advance. The fund
then may close out the futures contracts by entering into offsetting
futures contracts to sell the stock index (known as taking a "short"
position) as it purchases individual stocks. The fund can accomplish
similar results by buying securities with long maturities and
selling securities with short maturities. But by using futures
contracts as an investment tool to reduce risk, given the greater
liquidity in the futures market, it may be possible to accomplish
the same result more easily and more quickly.
No consideration will be paid or received by the fund upon the
purchase or sale of a futures contract. Initially, the fund will be
required to deposit with the broker 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 exchange or board of trade
on which the contract is traded and brokers or members of such board
of trade may charge a higher amount). This amount is known as
"initial margin" and is in the nature of a performance bond or good
faith deposit on the contract which is returned to the fund, upon
termination of the futures contract, assuming 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 index or securities 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." In addition, when the fund enters into a long position in
a futures contract or an option on a futures contract, it must
deposit into a segregated account with the fund's custodian an
amount of cash or cash equivalents equal to the total market value
of the underlying futures contract, less amounts held in the fund's
commodity brokerage account at its broker. At any time prior to the
expiration of a futures contract, the 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.
There are several risks in connection with the use of futures
contracts as a hedging device. Successful use of futures contracts
by the fund is subject to the ability of the manager to predict
correctly movements in the stock market or in the direction of
interest rates. These predictions involve skills and techniques that
may be different from those involved in the management of
investments in securities. In addition, there can be no assurance
that there will be a perfect correlation between movements in the
price of the securities underlying the futures contract and
movements in the price of the securities that 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 market behavior or interest rates.
Positions in futures contracts may be closed out only on the
exchange on which they were entered into (or through a linked
exchange) and no secondary market exists for those contracts. In
addition, although the fund intends to enter into futures contracts
only if there is an active market for the contracts, there is no
assurance that an active market will exist for the 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,
the fund would be required to make daily cash payments of variation
margin; in such circumstances, 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, no assurance can be given that the price of the
securities being hedged will correlate with the price movements in
a futures contract and thus provide an offset to losses on the
futures contract.
Portfolio Turnover
While the fund does not intend to trade in securities for
short-term profits, securities may be sold without regard to the
amount of time they have been held by the fund when warranted by
the circumstances. The fund's portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of
portfolio securities for a year by the monthly average value of
portfolio securities for the year. Securities with remaining
maturities of one year or less at the date of acquisition are
excluded from the calculation. A portfolio turnover rate of 100%
would occur, for example, if all the securities in the fund's
portfolio were replaced once during a period of one year. A high
rate of portfolio turnover in any year will increase brokerage
commissions paid and could result in high amounts of realized
investment gain subject to the payment of taxes by shareholders.
Any realized short-term investment gain will be taxed to
shareholders as ordinary income. For the 1999, 1998 and 1997
fiscal years, the fund's portfolio turnover rates were __%, 41%
and 46%, respectively.
Investment Restrictions
The fund has adopted the following investment restrictions for
the protection of shareholders. Restrictions 1 through 7 cannot be
changed without approval by the holders of a majority of the
outstanding shares of the fund, defined as the lesser of (a) 67% or
more of the fund's shares present at a meeting, if the holders of
more than 50% of the outstanding shares are present in person or by
proxy, or (b) more than 50% of the fund's outstanding shares. The
remaining restrictions may be changed by the fund's Board of
Directors at any time. The fund may not:
1. Invest in a manner that would cause it to fail to be a
"diversified company" under the 1940 Act and the rules
regulations and orders thereunder.
2. Issue senior securities as defined in the 1940 Act, and any
rules and orders thereunder, except insofar as the fund may
be deemed to have issued senior securities by reason of:
(a) borrowing money or purchasing securities on a when-
issued or delayed-delivery basis; (b) purchasing or selling
futures contracts and options on future contracts and other
similar instruments; and (c) issuing separate classes of
shares.
3. Invest more than 25% of its total assets in securities, the
issuers of which are in the same industry. For purposes of
this limitation, U.S. government securities and securities
of state or municipal governments and their political
subdivisions are not considered to be issued by members of
any industry.
4. Borrow 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.
5. Engage in the business of 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.
6. Purchase or sell 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 the
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 fund's investment objective and
policies); or (d) investing in real estate investment trust
securities.
7. Make loans. 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.
8. Invest more than 5.00% of the value of the fund's total
assets in the securities of any issuer which has been in
continuous operation for less than three years. This
restriction does not apply to U.S. government securities.
9. Invest in other open-end investment companies (except as
part of a merger, consolidation, reorganization or
acquisition of assets). This restriction does not apply to
investment in closed-end, publicly traded investment
companies.
10. Invest in interests in oil, gas or other mineral
exploration or development programs (except that the fund
may invest in the securities of issuers which operate,
invest in or sponsor such programs).
11. Purchase or retain the securities of any issuer if, to
the knowledge of the fund, any officer or Director of the
fund or of SSB owns beneficially more than 1/2 of 1.00% of
the outstanding securities of such issuer and the persons
so owning more than 1/2 of 1.00% of such securities
together own beneficially more than 5.00% of such
securities.
12. Purchase warrants if, thereafter, more than 2.00% of the
value of the fund's net assets would consist of such
warrants, but warrants attached to other securities or
acquired in units by the fund are not subject to this
restriction.
13. Purchase or otherwise acquire any security if, as a
result, more than 15% of its net assets would be invested
in securities that are illiquid.
14 Invest in any company for the purpose of exercising control
or management.
15. Purchase or sell real estate limited partnership
interests.
16. Purchase any securities on margin (except for such
short-term credits as are necessary for the clearance of
purchases and sales of portfolio securities) or sell any
securities short (except "Against the box"). For purposes
of this restriction, the deposit or payment by the fund of
underlying securities and other assets in escrow and
collateral agreements with respect to initial or
maintenance margin in connection with futures contracts and
related options and options on securities, indexes or
similar items is not considered to be the purchase of a
security on margin.
17. Write, purchase or sell puts, calls, straddles, spreads
or combinations thereof or engage in transactions involving
futures contracts and related options, except as permitted
under the fund's investment goals and policies, as set
forth in the current prospectus and the Statement of
Additional Information.
Certain restrictions listed above permit the fund without
shareholder approval to engage in investment practices that the fund
does not currently pursue. The fund has no present intention of
altering its current investment practices as otherwise described in
the prospectus and this SAI and any future change in those practices
would require Board approval. If any percentage restriction
described above is complied with at the time of an investment, a
later increase or decrease in percentage resulting from a change in
values or assets will not constitute a violation of the restriction.
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is a list of each Director and executive
officers of the fund, including a description of principal
occupation in the last five years, ages and addresses of each such
person. All of the officers of the fund have their business address
at 388 Greenwich Street, New York, New York 10013.
Lloyd J. Andrews, (Age 79), Director. Private investor;
Chairman Emeritus of Flow International. His address is East 10110
Greenbluff Road, Mead, Washington 99021.
Robert M. Frayn, Jr., (Age 65), Director. President and
Director of Book Publishing Company. His address is 201 Westlake
Avenue North, Seattle, Washington 98109.
Leon P. Gardner, (Age 71), Director. Private investor; Former
Chairman of Fargo's Pizza Company. His address is 2310 N.E. Blue
Ridge Drive, Seattle, Washington 98177.
David E. Maryatt, (Age 63), Director. Director of ALS Co., a
real estate management and development firm; Private Investor. His
address is 1326 Fifth Avenue, Seattle, Washington 98101.
*Heath B. McLendon, (Age 66), Managing Director of Salomon
Smith Barney Inc. ("Salomon Smith Barney"); President and Director
of SSB and Travelers Investment Advisers, Inc. ("TIA"); Director of
64 investment companies associated with Citigroup Inc.
("Citigroup"). His address is 388 Greenwich Street, New York, New
York 10013.
Frederick O. Paulsell, (Age 60), Director. Principal of
Olympic Capital Partners. His address is 1325 Fourth Avenue Suite
1900, Seattle, Washington 98101.
Jerry A. Viscione, (Age 55), Director. Executive Vice
President of Marquette University; Former Dean of Albers School of
Business and Economics, Seattle University. His address is 615 North
11 Street, Milwaukee, WI 53233.
Julie W. Weston, (Age 56), Director. Attorney; Her address is
416 34th Avenue, Seattle, Washington 98122.
Lewis E. Daidone, (Age 42), Senior Vice President and
Treasurer. Managing Director of Salomon Smith Barney; Director and
Senior Vice President of SSB and TIA. Mr. Daidone serves as Senior
Vice President and Treasurer of 59 Smith Barney Mutual funds
associted with Citigroup. His address is 388 Greenwich Street, New
York, New York 10013.
John G. Goode, (Age 55), Vice President and Investment
Officer. Managing Director of Salomon Smith Barney. Chairman and
Chief Investment Officer of Davis Skaggs Investment Management
("Davis Skaggs"), a division of SSB. His address is One Sansome
Street, 36th Floor, San Francisco, California 94104.
Peter Hable, (Age 41), Investment Officer. Managing Director
of Salomon Smith Barney and President of Davis Skaggs. His address
is One Sansome Street, 36th Floor, San Francisco, California 94104.
Christina T. Sydor, (Age 48), Secretary. Managing Director of
Salomon Smith Barney; General Counsel and Secretary of SSB and TIA.
Ms. Sydor serves as Secretary of 59 Smith Barney Mutual Funds
associated with Citigroup. Her address is 388 Greenwich Street, New
York, New York 10013.
*Designates a Director that is an "interested person" as
defined in the Investment Company Act of 1940, as amended (the
"Act"). Such persons compensated by Smith Barney and are not
separately compensated by the fund for serving as a fund officer
or Director.
The following table shows the compensation paid by the fund
to each person who was a Director during the fund's last fiscal
year. None of the officers of the fund received any compensation
from the fund for such period. Officers and interested Directors
of the fund are compensated by Salomon Smith Barney.
COMPENSATION TABLE
Director
Aggregate
Compensation
from the Fund
Pension or
Retirement
Benefits
Accrued as
Expenses
of the
Fund
Total
Compensation
from Smith
Barney
Mutual Funds
Complex
Total
Number
of Funds
Served
in
Complex
Lloyd J. Andrews+
$
$0
$
Robert M. Frayn,
Jr.+
0
Leon P. Gardner
0
David E. Maryatt+
0
Heath B. McLendon*
0
Frederick O.
Paulsell+
0
Jerry A. Viscione
0
Julie W. Weston
0
__________________
* Designates a Director who is an "interested person".
+ Pursuant to a deferred compensation plan, the indicated
Directors have elected to defer payment of the following amounts
of their compensation from the fund: Lloyd J. Andrews - $_____,
Robert M. Frayn, Jr. - $_____, David E. Maryatt- $_________ and
Frederick O. Paulsell $________.
As of January ___, 2000, to the knowledge of the fund and the
Board of Directors, no single shareholder or "group" (as the term is
used in Section 13(d) of the Securities Act of 1934) beneficially
owned more than 5% of the outstanding shares of the fund.
As of January ____, 2000, 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 Salomon Smith Barney or of
its parent or any subsidiary receives any compensation from the fund
for serving as an officer or Director of the fund. The fund pays
each Director who is not an officer or employee of Salomon Smith
Barney or any of its affiliates a fee of $6,000 per annum plus
$1,000 for each in-person meeting and $100 per telephonic meeting.
All Directors are reimbursed for travel and out-of-pocket expenses.
During the fiscal year ended September 30, 1999, such expenses
totaled $_______.
Investment Manager and Administrator
SSB Citi Fund Management LLC (formerly known as Mutual
Management Corp.) serves as investment manager to the fund pursuant
to an investment advisory agreement dated July 30, 1993 (the
"Advisory Agreement"), which was first approved by the fund's Board
of Directors, including a majority of the Directors who are not
"interested persons" of the fund or SSB ("Independent Directors"),
on April 7, 1993 and by shareholders on June 22, 1993 and was most
recently approved by the Board, including a majority of the
Independent Directors, on June 23, 1998. The services provided by
SSB under the Advisory Agreement are described in the prospectus
under "Management." SSB bears all expenses in connection with the
performance of its services and pays the salary of any officer or
employee who is employed by both it and the fund. SSB is a wholly
owned subsidiary of Salomon Smith Barney Holdings Inc. ("Holdings"),
which is in turn a wholly owned subsidiary of Citigroup Inc.
("Citigroup"). The fund pays SSB a fee, computed daily and paid
monthly, at the annual rate of 0.55% of the value of the fund's
average daily net assets up to $1.5 billion and 0.50% of the average
daily net assets in excess of $1.5 billion. SSB bears all of its
expenses in connection with the performance of its services. For the
fiscal years ended September 30, 1999, 1998 and 1997, the fund
incurred $_________, $8,577,966 and $8,151,351, respectively, in
investment advisory fees.
SSB also serves as administrator to the fund pursuant to a
written agreement dated June 28, 1994 (the "Administration
Agreement"), which was first approved by the fund's Board, including
a majority of the Independent Directors on June 28, 1994 and was
most recently approved by the Board, including a majority of the
Independent Directors, on June 23, 1998. SSB pays the salary of any
officer and employee who is employed by both it and the fund and
bears all expenses in connection with the performance of its
services. As compensation for administrative services rendered to
the fund, SSB receives a fee, computed daily and paid monthly, at
the annual rate of 0.20% of the value of the fund's average daily
net assets. For the fiscal years ended September 30, 1999, 1998 and
1997, the fund incurred $________, $3,134,642 and $2,972,630,
respectively, in administration fees.
Certain services provided to the fund by SSB pursuant to the
Administration Agreement are described in the prospectus under
"Management." In addition to those services, SSB pays the salaries
of all officers and employees who are employed by both it and the
fund, maintains office facilities for the fund, furnishes the fund
with statistical and research data, clerical help and accounting,
data processing, bookkeeping, internal auditing and legal services
and certain other services required by the fund, prepares reports to
the fund's shareholders and prepares tax returns, reports to and
filings with the Securities and Exchange Commission (the "SEC") and
state Blue Sky authorities. SSB bears all expenses in connection
with the performance of its services.
The fund bears expenses incurred in its operation, including
taxes, interest, brokerage fees and commissions, if any; fees of
Directors who are not officers, directors, shareholders or employees
of Salomon Smith Barney or SSB; 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); costs of preparation and printing of
prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders and costs of
shareholders' reports and corporate meetings.
Portfolio Transactions
Decisions to buy and sell securities for the fund are made
by the manager, subject to the overall supervision and review of
the fund's Board of Directors. Portfolio securities transactions
for the fund are effected by or under the supervision of SSB.
Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. There generally is no stated
commission in the case of securities traded in the over-the-
counter markets, but the price of those securities includes an
undisclosed commission or mark-up. Over-the-counter purchases and
sales are transacted directly with principal market makers except
in those cases in which better prices and executions may be
obtained elsewhere. The cost of securities purchased from
underwriters includes an underwriting commission or concession,
and the prices at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down. For the fiscal
years ended September 30, 1999, 1998 and 1997, the fund paid total
brokerage commissions of $_________, $2,284,354 and $2,983,857,
respectively.
In executing portfolio transactions and selecting brokers or
dealers, it is the fund's policy to seek the best overall terms
available. The Advisory Agreement between the fund and the manager
provides that, in assessing the best overall terms available for
any transaction, the manager shall consider the factors it deems
relevant, including the breadth of the market in the security, the
price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the
commission, if any, for the specific transaction and on a
continuing basis. In addition, the Advisory Agreement authorizes
the manager, in selecting brokers or dealers to execute a
particular transaction and in evaluating the best overall terms
available, to consider the brokerage and research services (as
those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) provided to the fund and/or other accounts
over which the Manager or an affiliate exercises investment
discretion. For the fiscal year ended September 30, 1999, the
fund directed brokerage transactions totaling approximately
$_________ to brokers because of research services provided. The
amount of brokerage commissions paid on such transactions totaled
approximately $___________.
The fund's Board of Directors periodically will review the
commissions paid by the fund to determine if the commissions paid
over representative periods of time were reasonable in relation to
the benefits inuring to the fund. It is possible certain of the
services received will primarily benefit one or more other
accounts for which investment discretion is exercised. Conversely,
the fund may be the primary beneficiary of services received as a
result of portfolio transactions effected for other accounts.
SSB's fee under the Advisory Agreement is not reduced by reason of
SSB's receiving such brokerage and research services. Further,
Salomon Smith Barney will not participate in commissions from
brokerage given by the fund to other brokers or dealers and will
not receive any reciprocal brokerage business resulting therefrom.
The fund's Board of Directors has determined that any
portfolio transaction for the fund may be executed through Salomon
Smith Barney if, in SSB's judgment, the use of Salomon Smith
Barney is likely to result in price and execution at least as
favorable as those of other qualified brokers, and if in the
transaction, Salomon Smith Barney charges the fund a commission
rate consistent with those charged by Salomon Smith Barney to
comparable unaffiliated customers in similar transactions. In
addition, Salomon Smith Barney may directly execute such
transactions for the fund on the floor of any national securities
exchange, provided: (i) the Board of Directors has expressly
authorized Salomon Smith Barney to effect such transactions; and
(ii) Salomon Smith Barney annually advises the fund of the
aggregate compensation it earned on such transactions. For the
fiscal years ended September 30, 1999, 1998 and 1997, the fund
paid $_________, $161,040 and $27,396 respectively, in brokerage
commissions to Salomon Smith Barney. The percentage of
registrant's aggregate brokerage commissions paid to Salomon Smith
Barney for the fiscal year ended September 30, 1999 was __% and
the percentage of registrant's aggregate dollar amount of
transactions involving the payment of commissions to Salomon Smith
Barney for the fiscal year ended September 30, 1999 was ____%.
While investment decisions for the fund are made independently
from those of the other accounts managed by SSB, or certain
affiliates of SSB, investments of the type the fund may make also
may be made by such other accounts. In such instances, available
investments or opportunities for sales will be allocated in a manner
believed by SSB to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the
fund or the size of the position obtained for or disposed of by the
fund.
DISTRIBUTION
Distributor. CFBDS serves as the fund's distributor on a
best efforts basis pursuant to a written agreement dated October
8, 1998 (the "Distribution Agreement"), which was most recently
approved by the fund's Board of Directors on July 15, 1998. Prior
to October 8, 1998 Salomon Smith Barney Inc. served as the fund's
distributor on a best efforts basis pursuant to a written
agreement dated July 30, 1993, which was most recently approved by
the fund's Board of Directors on July 15, 1998.
For the fiscal years ended September 30, 1999, 1998 and
1997, Salomon Smith Barney received $__________, $466,000 and
$817,000, respectively, in sales charges from the sale of Class A
shares. For the fiscal period ended September 30, 1999 and 1998,
Salomon Smith Barney received $_________ and $10,000 in sales
charges from the sale of Class L shares. For the fiscal years
ended September 30, 1999, 1998 and 1997, Salomon Smith Barney
received $_______, $14,000 and $4,000, respectively, representing
CDSC fees on redemptions of the fund's Class A shares. For the
fiscal years ended September 30, 1999, 1998 and 1997, Salomon
Smith Barney received $______, $11,000 and 11,000, respectively,
representing CDSC fees on redemptions of the fund's Class L
shares. For the fiscal years ended September 30, 1999, 1998 and
1997, Salomon Smith Barney received $________, $1,177,000 and
$1,133,000, respectively, representing CDSC fees on redemptions of
the fund's Class B shares.
When payment is made by the investor before settlement date,
unless otherwise directed by the investor, the funds will be held
as a free credit balance in the investor's brokerage account and
Salomon Smith Barney may benefit from the temporary use of the
funds. The fund's Board of Directors has been advised of the
benefits to Salomon Smith Barney resulting from these settlement
procedures and will take such benefits into consideration when
reviewing the Advisory, Administration and Distribution Agreements
for continuance.
Services and Distribution Plan
To compensate Salomon Smith Barney for the services it
provides and for the expenses it bears, the fund has adopted a
services and distribution plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act. Under the Plan, the fund pays Salomon Smith
Barney a service fee, accrued daily and paid monthly, calculated at
the annual rate of 0.25% of the value of the fund's average daily
net assets attributable to the Class A, Class B and Class L shares.
In addition, the fund pays Salomon Smith Barney a distribution fee
with respect to the Class B and Class L shares primarily intended to
compensate Salomon Smith Barney for its initial expense of paying
Financial Consultants a commission upon sales of those shares. The
Class B and Class L distribution fee is calculated at the annual
rate of 0.75% of the value of the fund's average daily net assets
attributable to the shares.
For the fiscal year ended September 30, 1999, Salomon Smith
Barney incurred distribution expenses for the following:
advertising, printing and mailing prospectuses, support services
and overhead expenses to Salomon Smith Barney Financial
Consultants and accruals for interest on the excess of Salomon
Smith Barney expenses incurred in the distribution of the fund's
shares over the sum of the distribution fees and CDSC received by
Salomon Smith Barney are expressed in the following table:
Financial
Consultant
Compensation
Branch
Expenses
Advertising
Expenses
Printing
Expenses
Interest
Expenses
Other
Expenses
$
$
$
$
$
$
The following shows the total distribution fees paid by each
Class for the fiscal year ended September 30, 1999:
9/30/99
Class A
$
Class B
Class L
Total
$
Under its terms, the Plan continues from year to year,
provided such continuance is approved annually by vote of the fund's
Board of Directors, including a majority of the Independent
Directors. The Plan may not be amended to increase the amount of the
service and distribution fees without shareholder approval, and all
material amendments of the Plan also must be approved by the
Directors and Independent Directors in the manner described above.
The Plan may be terminated with respect to a class of the fund (a
"Class") at any time, without penalty, by the vote of a majority of
the Independent Directors or by a vote of a majority of the
outstanding voting securities of the Class (as defined in the 1940
Act). Pursuant to the Plan, Salomon Smith Barney will provide the
fund's Board of Directors with periodic reports of amounts expended
under the Plan and the purpose for which such expenditures were
made.
Custodian
The fund securities and cash owned by the fund will be held in
the custody of PNC Bank, National Association, 17th and Chestnut
Streets, Philadelphia, Pennsylvania 19103.
Auditors
Deloitte & Touche LLP, 2 World Financial Center, New York, New
York 10281, has been selected as independent auditors to examine and
report on the fund's financial statements for the fiscal year ending
September 30, 2000.
PURCHASE OF SHARES
Sales Charge Alternatives
The following classes of shares are available for purchase. See
the Prospectus for a discussion of factors to consider in
selecting which Class of shares to purchase.
Class A Shares. Class A shares are sold to investors at the
public offering price, which is the net asset value plus an
initial sales charge as follows:
Sales Charge
Amount of
Investment
% of Offering
Price
% of Amount
Invested
Dealers'
Reallowance as %
of Offering Price
Less than $25,000
5.00%
5.26%
4.50%
$25,000 - 49,999
4.00
4.17
3.60
50,000 - 99,999
3.50
3.63
3.15
100,000-249,999
3.00
3.09
2.70
250,000-499,999
2.00
2.04
1.80
500,000 - and
over
*
*
*
* Purchases of Class A shares of $500,000 or more will be made
at net asset value without any initial sales charge, but will be
subject to a deferred sales charge of 1.00% on redemptions made
within 12 months of purchase. The deferred sales charge on Class
A shares is payable to Salomon Smith Barney, which compensates
Salomon Smith Barney Financial Consultants and other dealers whose
clients make purchases of $500,000 or more. The deferred sales
charge is waived in the same circumstances in which the deferred
sales charge applicable to Class B and Class L shares is waived.
See "Deferred Sales Charge Alternatives" and "Waivers of Deferred
Sales Charge."
Members of the selling group may receive up to 90% of the sales
charge and may be deemed to be underwriters of the fund as defined
in the 1933 Act. The reduced sales charges shown above apply to
the aggregate of purchases of Class A shares of the fund made at
one time by "any person," which includes an individual and his or
her immediate family, or a trustee or other fiduciary of a single
trust estate or single fiduciary account.
Class B Shares. Class B shares are sold without an initial sales
charge but are subject to a deferred sales charge payable upon
certain redemptions. See "Deferred Sales Charge Provisions"
below.
Class L Shares. Class L shares are sold with an initial sales
charge of 1.00% (which is equal to 1.01% of the amount invested)
and are subject to a deferred sales charge payable upon certain
redemptions. See "Deferred Sales Charge Provisions" below. Until
June 22, 2001 purchases of Class L shares by investors who were
holders of Class C shares of other Smith Barney Mutual Funds on
June 12, 1998 will not be subject to the 1% initial sales charge.
Class Y Shares. Class Y shares are sold without an initial sales
charge or deferred sales charge and are available only to
investors investing a minimum of $15,000,000 (except for purchases
of Class Y shares (i) of the International Equity Portfolio, for
which the minimum initial investment is $5,000,000 and (ii) by
Smith Barney Concert Allocation Series Inc., for which there is no
minimum purchase amount).
General
Investors may purchase shares from a Salomon Smith Barney
Financial Consultant or a broker that clears through Salomon Smith
Barney ("Dealer Representative"). In addition, certain investors,
including qualified retirement plans purchasing through certain
Dealer Representatives, may purchase shares directly from the
fund. When purchasing shares of the fund, investors must specify
whether the purchase is for Class A, Class B, Class L or Class Y
shares. Salomon Smith Barney and Dealer Representatives may
charge their customers an annual account maintenance fee in
connection with a brokerage account through which an investor
purchases or holds shares. Accounts held directly at First Data
are not subject to a maintenance fee.
Investors in Class A, Class B and Class L shares may open an
account in the fund by making an initial investment of at least
$1,000 for each account, or $250 for an IRA or a Self-Employed
Retirement Plan, in the fund. Investors in Class Y shares may open
an account by making an initial investment of $15,000,000.
Subsequent investments of at least $50 may be made for all
Classes. For participants in retirement plans qualified under
Section 403(b)(7) or Section 401(c) of the Code, the minimum
initial investment required for Class A, Class B and Class L
shares and the subsequent investment requirement for all Classes
in the fund is $25. For shareholders purchasing shares of the
fund through the Systematic Investment Plan on a monthly basis,
the minimum initial investment requirement for Class A, Class B
and Class L shares and subsequent investment requirement for all
Classes is $25. For shareholders purchasing shares of the fund
through the Systematic Investment Plan on a quarterly basis, the
minimum initial investment required for Class A, Class B and Class
L shares and the subsequent investment requirement for all Classes
is $50. There are no minimum investment requirements for Class A
shares for employees of Citigroup Inc. ("Citigroup") and its
subsidiaries, including Salomon Smith Barney, unitholders who
invest distributions from a Unit Investment Trust ("UIT")
sponsored by Salomon Smith Barney, and Directors/Trustees of any
of the Smith Barney Mutual Funds, and their spouses and children.
The fund reserves the right to waive or change minimums, to
decline any order to purchase its shares and to suspend the
offering of shares from time to time. Shares purchased will be
held in the shareholder's account by First Data. Share
certificates are issued only upon a shareholder's written request
to First Data.
Purchase orders received by the fund or a Salomon Smith Barney
Financial Consultant prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), on any day the fund calculates
its net asset value, are priced according to the net asset value
determined on that day (the ''trade date''). Orders received by a
Dealer Representative prior to the close of regular trading on the
NYSE on any day the fund calculates its net asset value, are
priced according to the net asset value determined on that day,
provided the order is received by the fund or the fund's agent
prior to its close of business. For shares purchased through
Salomon Smith Barney or a Dealer Representative purchasing through
Salomon Smith Barney, payment for shares of the fund is due on the
third business day after the trade date. In all other cases,
payment must be made with the purchase order.
Systematic Investment Plan. Shareholders may make additions to
their accounts at any time by purchasing shares through a service
known as the Systematic Investment Plan. Under the Systematic
Investment Plan, Salomon Smith Barney or First Data is authorized
through preauthorized transfers of at least $25 on a monthly basis
or at least $50 on a quarterly basis to charge the shareholder's
account held with a bank or other financial institution on a
monthly or quarterly basis as indicated by the shareholder, to
provide for systematic additions to the shareholder's fund
account. A shareholder who has insufficient funds to complete the
transfer will be charged a fee of up to $25 by Salomon Smith
Barney or First Data. The Systematic Investment Plan also
authorizes Salomon Smith Barney to apply cash held in the
shareholder's Salomon Smith Barney brokerage account or redeem the
shareholder's shares of a Smith Barney money market fund to make
additions to the account. Additional information is available from
the fund or a Salomon Smith Barney Financial Consultant or a
Dealer Representative.
Sales Charge Waivers and Reductions
Initial Sales Charge Waivers. Purchases of Class A shares may be
made at net asset value without a sales charge in the following
circumstances: (a) sales to (i) Board Members and employees of
Citigroup and its subsidiaries and any Citigroup affiliated funds
including the Smith Barney Mutual Funds (including retired Board
Members and employees); the immediate families of such persons
(including the surviving spouse of a deceased Board Member or
employee); and to a pension, profit-sharing or other benefit plan
for such persons and (ii) employees of members of the National
Association of Securities Dealers, Inc., provided such sales are
made upon the assurance of the purchaser that the purchase is made
for investment purposes and that the securities will not be resold
except through redemption or repurchase; (b) offers of Class A
shares to any other investment company to effect the combination
of such company with the fund by merger, acquisition of assets or
otherwise; (c) purchases of Class A shares by any client of a
newly employed Salomon Smith Barney Financial Consultant (for a
period up to 90 days from the commencement of the Financial
Consultant's employment with Salomon Smith Barney), on the
condition the purchase of Class A shares is made with the proceeds
of the redemption of shares of a mutual fund which (i) was
sponsored by the Financial Consultant's prior employer, (ii) was
sold to the client by the Financial Consultant and (iii) was
subject to a sales charge; (d) purchases by shareholders who have
redeemed Class A shares in the fund (or Class A shares of another
Smith Barney Mutual Fund that is offered with a sales charge) and
who wish to reinvest their redemption proceeds in the fund,
provided the reinvestment is made within 60 calendar days of the
redemption; (e) purchases by accounts managed by registered
investment advisory subsidiaries of Citigroup; (f) direct
rollovers by plan participants of distributions from a 401(k) plan
offered to employees of Citigroup or its subsidiaries or a 401(k)
plan enrolled in the Smith Barney 401(k) Program (Note: subsequent
investments will be subject to the applicable sales charge); (g)
purchases by a separate account used to fund certain unregistered
variable annuity contracts; (h) investments of distributions from
a UIT sponsored by Salomon Smith Barney; (i) purchases by
investors participating in a Salomon Smith Barney fee-based
arrangement; and (j) purchases by Section 403(b) or Section 401(a)
or (k) accounts associated with Copeland Retirement Programs. In
order to obtain such discounts, the purchaser must provide
sufficient information at the time of purchase to permit
verification that the purchase would qualify for the elimination
of the sales charge.
Right of Accumulation. Class A shares of the fund may be
purchased by ''any person'' (as defined above) at a reduced sales
charge or at net asset value determined by aggregating the dollar
amount of the new purchase and the total net asset value of all
Class A shares of the fund and of most other Smith Barney Mutual
Funds that are offered with a sales charge then held by such
person and applying the sales charge applicable to such aggregate.
In order to obtain such discount, the purchaser must provide
sufficient information at the time of purchase to permit
verification that the purchase qualifies for the reduced sales
charge. The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares purchased
thereafter.
Letter of Intent - Class A Shares. A Letter of Intent for an
amount of $50,000 or more provides an opportunity for an investor
to obtain a reduced sales charge by aggregating investments over a
13 month period, provided that the investor refers to such Letter
when placing orders. For purposes of a Letter of Intent, the
''Amount of Investment'' as referred to in the preceding sales
charge table includes (i) all Class A shares of the fund and other
Smith Barney Mutual Funds offered with a sales charge acquired
during the term of the letter plus (ii) the value of all Class A
shares previously purchased and still owned. Each investment made
during the period receives the reduced sales charge applicable to
the total amount of the investment goal. If the goal is not
achieved within the period, the investor must pay the difference
between the sales charges applicable to the purchases made and the
charges previously paid, or an appropriate number of escrowed
shares will be redeemed. The term of the Letter will commence
upon the date the Letter is signed, or at the options of the
investor, up to 90 days before such date. Please contact a
Salomon Smith Barney Financial Consultant or First Data to obtain
a Letter of Intent application.
Letter of Intent - Class Y Shares. A Letter of Intent may also be
used as a way for investors to meet the minimum investment
requirement for Class Y shares (except purchases of Class Y shares
by Smith Barney Concert Allocation Series Inc., for which there is
no minimum purchase amount). Iinvestors must make an initial
minimum purchase of $5,000,000 in Class Y shares of the fund and
agree to purchase a total of $15,000,000 of Class Y shares of the
fund within 13 months from the date of the Letter. If a total
investment of $15,000,000 is not made within the 13-month period,
all Class Y shares purchased to date will be transferred to Class
A shares, where they will be subject to all fees (including a
service fee of 0.25%) and expenses applicable to the fund's Class
A shares, which may include a deferred sales charge of 1.00%.
Please contact a Salomon Smith Barney Financial Consultant or
First Data for further information.
Deferred Sales Charge Provisions
''Deferred Sales Charge Shares'' are: (a) Class B shares; (b)
Class L shares; and (c) Class A shares that were purchased without
an initial sales charge but are subject to a deferred sales
charge. A deferred sales charge may be imposed on certain
redemptions of these shares.
Any applicable deferred sales charge will be assessed on an amount
equal to the lesser of the original cost of the shares being
redeemed or their net asset value at the time of redemption.
Deferred Sales Charge Shares that are redeemed will not be subject
to a deferred sales charge to the extent that the value of such
shares represents: (a) capital appreciation of fund assets; (b)
reinvestment of dividends or capital gain distributions; (c) with
respect to Class B shares, shares redeemed more than five years
after their purchase; or (d) with respect to Class L shares and
Class A shares that are Deferred Sales Charge Shares, shares
redeemed more than 12 months after their purchase.
Class L shares and Class A shares that are Deferred Sales Charge
Shares are subject to a 1.00% deferred sales charge if redeemed
within 12 months of purchase. In circumstances in which the
deferred sales charge is imposed on Class B shares, the amount of
the charge will depend on the number of years since the
shareholder made the purchase payment from which the amount is
being redeemed. Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during
a month will be aggregated and deemed to have been made on the
last day of the preceding Salomon Smith Barney statement month.
The following table sets forth the rates of the charge for
redemptions of Class B shares by shareholders, except in the case
of Class B shares held under the Smith Barney 401(k) Program, as
described below. See ''Purchase of Shares-Smith Barney 401(k) and
ExecChoiceTM Programs.''
Year Since Purchase
Payment Was Made
Deferred Sales Charge
First
5.00%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth and thereafter
0.00
Class B shares will convert automatically to Class A shares eight
years after the date on which they were purchased and thereafter
will no longer be subject to any distribution fees. There will
also be converted at that time such proportion of Class B Dividend
Shares (Class B shares that were acquired through the reinvestment
of dividends and distributions) owned by the shareholder as the
total number of his or her Class B shares converting at the time
bears to the total number of outstanding Class B shares (other
than Class B Dividend Shares) owned by the shareholder.
In determining the applicability of any deferred sales charge, it
will be assumed that a redemption is made first of shares
representing capital appreciation, next of shares representing the
reinvestment of dividends and capital gain distributions and
finally of other shares held by the shareholder for the longest
period of time. The length of time that Deferred Sales Charge
Shares acquired through an exchange have been held will be
calculated from the date that the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and fund
shares being redeemed will be considered to represent, as
applicable, capital appreciation or dividend and capital gain
distribution reinvestments in such other funds. For Federal income
tax purposes, the amount of the deferred sales charge will reduce
the gain or increase the loss, as the case may be, on the amount
realized on redemption. The amount of any deferred sales charge
will be paid to Salomon Smith Barney.
To provide an example, assume an investor purchased 100 Class B
shares of the fund at $10 per share for a cost of $1,000.
Subsequently, the investor acquired 5 additional shares of the
fund through dividend reinvestment. During the fifteenth month
after the purchase, the investor decided to redeem $500 of his or
her investment. Assuming at the time of the redemption the net
asset value had appreciated to $12 per share, the value of the
investor's shares would be $1,260 (105 shares at $12 per share).
The deferred sales charge would not be applied to the amount which
represents appreciation ($200) and the value of the reinvested
dividend shares ($60). Therefore, $240 of the $500 redemption
proceeds ($500 minus $260) would be charged at a rate of 4.00%
(the applicable rate for Class B shares) for a total deferred
sales charge of $9.60.
Waivers of Deferred Sales Charge
The deferred sales charge will be waived on: (a) exchanges (see
''Exchange Privilege''); (b) automatic cash withdrawals in amounts
equal to or less than 1.00% per month of the value of the
shareholder's shares at the time the withdrawal plan commences
(see ''Automatic Cash Withdrawal Plan'') (provided, however, that
automatic cash withdrawals in amounts equal to or less than 2.00%
per month of the value of the shareholder's shares will be
permitted for withdrawal plans that were established prior to
November 7, 1994); (c) redemptions of shares within 12 months
following the death or disability of the shareholder; (d)
redemptions of shares made in connection with qualified
distributions from retirement plans or IRAs upon the attainment of
age 591/2; (e) involuntary redemptions; and (f) redemptions of
shares to effect a combination of the fund with any investment
company by merger, acquisition of assets or otherwise. In
addition, a shareholder who has redeemed shares from other Smith
Barney Mutual Funds may, under certain circumstances, reinvest all
or part of the redemption proceeds within 60 days and receive pro
rata credit for any deferred sales charge imposed on the prior
redemption.
Deferred sales charge waivers will be granted subject to
confirmation (by Salomon Smith Barney in the case of shareholders
who are also Salomon Smith Barney clients or by First Data in the
case of all other shareholders) of the shareholder's status or
holdings, as the case may be.
Smith Barney 401(k) and ExecChoiceTM Programs
Investors may be eligible to participate in the Smith Barney
401(k) Program or the Smith Barney ExecChoiceTM Program. To the
extent applicable, the same terms and conditions, which are
outlined below, are offered to all plans participating
(''Participating Plans'') in these programs.
The fund offers to Participating Plans Class A and Class L shares
as investment alternatives under the Smith Barney 401(k) and
ExecChoiceTM Programs. Class A and Class L shares acquired through
the Participating Plans are subject to the same service and/or
distribution fees as the Class A and Class L shares acquired by
other investors; however, they are not subject to any initial
sales charge or deferred sales charge. Once a Participating Plan
has made an initial investment in the fund, all of its subsequent
investments in the fund must be in the same Class of shares,
except as otherwise described below.
Class A Shares. Class A shares of the fund are offered without
any sales charge or deferred sales charge to any Participating
Plan that purchases $1,000,000 or more of Class A shares of one or
more funds of the Smith Barney Mutual Funds.
Class L Shares. Class L shares of the fund are offered without
any sales charge or deferred sales charge to any Participating
Plan that purchases less than $1,000,000 of Class L shares of one
or more funds of the Smith Barney Mutual Funds.
401(k) and ExecChoiceTM Plans Opened On or After June 21, 1996.
If, at the end of the fifth year after the date the Participating
Plan enrolled in the Smith Barney 401(k) Program or the Smith
Barney ExecChoiceTM Program, a Participating Plan's total Class L
and Class O holdings in all non-money market Smith Barney Mutual
Funds equal at least $1,000,000, the Participating Plan will be
offered the opportunity to exchange all of its Class L shares for
Class A shares of the fund. For Participating Plans that were
originally established through a Salomon Smith Barney retail
brokerage account, the five-year period will be calculated from
the date the retail brokerage account was opened. Such
Participating Plans will be notified of the pending exchange in
writing within 30 days after the fifth anniversary of the
enrollment date and, unless the exchange offer has been rejected
in writing, the exchange will occur on or about the 90th day after
the fifth anniversary date. If the Participating Plan does not
qualify for the five-year exchange to Class A shares, a review of
the Participating Plan's holdings will be performed each quarter
until either the Participating Plan qualifies or the end of the
eighth year.
401(k) Plans Opened Prior to June 21, 1996. In any year after the
date a Participating Plan enrolled in the Smith Barney 401(k)
Program, if a Participating Plan's total Class L holdings in all
non-money market Smith Barney Mutual Funds equal at least $500,000
as of the calendar year-end, the Participating Plan will be
offered the opportunity to exchange all of its Class L and Class O
shares for Class A shares of the fund. Such Plans will be notified
in writing within 30 days after the last business day of the
calendar year and, unless the exchange offer has been rejected in
writing, the exchange will occur on or about the last business day
of the following March.
Any Participating Plan in the Smith Barney 401(k) or the Smith
Barney ExecChoiceTM Programs, whether opened before or after June
21, 1996, that has not previously qualified for an exchange into
Class A shares will be offered the opportunity to exchange all of
its Class L shares for Class A shares of the fund, regardless of
asset size, at the end of the eighth year after the date the
Participating Plan enrolled in the Smith Barney 401(k) Program.
Such Plans will be notified of the pending exchange in writing
approximately 60 days before the eighth anniversary of the
enrollment date and, unless the exchange has been rejected in
writing, the exchange will occur on or about the eighth
anniversary date. Once an exchange has occurred, a Participating
Plan will not be eligible to acquire additional Class L shares of
the fund, but instead may acquire Class A shares of the fund. Any
Class L shares not converted will continue to be subject to the
distribution fee.
Participating Plans wishing to acquire shares of the fund through
the Smith Barney 401(k) Program or the Smith Barney ExecChoiceTM
Program must purchase such shares directly from the transfer
agent. For further information regarding these Programs, investors
should contact a Salomon Smith Barney Financial Consultant.
Determination of Public Offering Price
The fund offers its shares to the public on a continuous basis.
The public offering price for Class A shares of the fund is equal
to the net asset value per share at the time of purchase plus an
initial sales charge based on the aggregate amount of the
investment. The public offering price for Class B, Class L and
Class Y shares (and Class A share purchases, including applicable
rights of accumulation, equaling or exceeding $500,000) is equal
to the net asset value per share at the time of purchase and no
sales charge is imposed at the time of purchase. A contingent
deferred sales charge ("CDSC"), however, is imposed on certain
redemptions of Class B and Class L shares, and of Class A shares
when purchased in amounts equaling or exceeding $500,000. The
method of computation of the public offering price is shown in the
fund's financial statements incorporated by reference in their
entirety into this SAI.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of
payment postponed (a) for any period during which the NYSE is closed
(other than for customary weekend or holiday closings), (b) when
trading in markets the fund normally utilizes is restricted, or an
emergency, as determined by the SEC, exists so that disposal of the
fund's investments or determination of net asset value is not
reasonably practicable or (c) for such other periods as the SEC by
order may permit for protection of the fund's shareholders.
If the shares to be redeemed were issued in certificate form,
the certificates must be endorsed for transfer (or be accompanied by
an endorsed stock power) and must be submitted to First Data
together with the redemption request. Any signature appearing on a
share certificate, stock power or written redemption request in
excess of $10,000 must be guaranteed by an eligible guarantor
institution such as a domestic bank, savings and loan institution,
domestic credit union, member bank of the federal Reserve System or
member firm of a national securities exchange. Written redemption
requests of $10,000 or less do not require a signature guarantee
unless more than one such redemption request is made in any 10-day
period or the redemption proceeds are to be sent to an address other
than the address of record. Unless otherwise directed, redemption
proceeds will be mailed to an investor's address of record. First
Data may require additional supporting documents for redemptions
made by corporations, executors, administrators, trustees or
guardians. A redemption request will not be deemed properly
received until First Data receives all required documents in proper
form.
If a shareholder holds shares in more than one Class, any
request for redemption must specify the Class being redeemed. In
the event of a failure to specify which Class, or if the investor
owns fewer shares of the Class than specified, the redemption
request will be delayed until the transfer agent receives further
instructions from Salomon Smith Barney, or if the shareholder's
account is not with Salomon Smith Barney, form the shareholder
directly. The redemption proceeds will be remitted on or before the
third business day following receipt of proper tender, except on any
days on which the NYSE is closed or as permitted under the 1940 Act,
in extraordinary circumstances. Generally, if the redemption
proceeds are remitted to a Salomon Smith Barney brokerage account,
these funds will not be invested for the shareholder's benefit
without specific instruction and Salomon Smith Barney will benefit
from the use of temporarily uninvested funds. Redemption proceeds
for shares purchased by check, other than a certified or official
bank check, will be remitted upon clearance of the check, which may
take up to ten days or more.
Distributions in Kind
If the Board of Directors of the fund determines that it would
be detrimental to the best interests of the remaining shareholders
to make a redemption payment wholly in cash, the fund may pay, in
accordance with the SEC rules, any portion of a redemption in excess
of the lesser of $250,000 or 1.00% of the fund's net assets by
distribution in kind of portfolio securities in lieu of cash.
Securities issued as a distribution in kind may incur brokerage
commissions when shareholders subsequently sell those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan") is
available to shareholders who own shares with a value of at least
$10,000 ($5,000 for retirement plan accounts) and who wish to
receive specific amounts of cash monthly or quarterly. Withdrawals
of at least $50 may be made under the Withdrawal Plan by redeeming
as many shares of the fund as may be necessary to cover the
stipulated withdrawal payment. Any applicable CDSC will not be
waived on amounts withdrawn by shareholders that exceed 1.00% per
month of the value of a shareholder's shares at the time the
Withdrawal Plan commences. (With respect to Withdrawal Plans in
effect prior to November 7, 1994, any applicable CDSC will be waived
on amounts withdrawn that do not exceed 2.00% per month of the value
of a shareholder's shares that are subject to a CDSC). To the
extent withdrawals exceed dividends, distributions and appreciation
of a shareholder's investment in the fund, there will be a reduction
in the value of the shareholder's investment and continued
withdrawal payments will reduce the shareholder's investment and
ultimately may exhaust it. Withdrawal payments should not be
considered as income from investment in the fund. Furthermore, as it
generally would not be advantageous to a shareholder to make
additional investments in the fund at the same time he or she is
participating in the Withdrawal Plan, purchases by such shareholders
in amounts of less than $5,000 ordinarily will not be permitted.
Shareholders who wish to participate in the Withdrawal Plan
and who hold their shares in certificate form must deposit their
share certificates with transfer agent as agent for Withdrawal Plan
members. All dividends and distributions on shares in the Withdrawal
Plan are reinvested automatically at net asset value in additional
shares of the fund. A shareholder who purchases shares directly
through transfer agent may continue to do so and applications for
participation in the Withdrawal Plan must be received by transfer
agent no later than the eighth day of the month to be eligible for
participation beginning with that month's withdrawal. For additional
information, shareholders should contact a Salomon Smith Barney
Financial Consultant or their Financial Consultant, the Introducing
Broker or dealer in the selling group.
VALUATION OF SHARES
The prospectus states that the net asset value of the fund's
classes of shares will be determined on any date that the New York
Stock Exchange ("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 and Christmas Day.
Securities listed on a national securities exchange will be
valued on the basis of the last sale on the date on which the
valuation is made or, in the absence of sales, at the mean between
the closing bid and asked prices. Over-the-counter securities will
be valued on the basis of the bid price at the close of business on
each day, or, if market quotations for those securities are not
readily available, at fair value, as determined in good faith by the
fund's Board of Directors. Short-term obligations with maturities of
60 days or less are valued at amortized cost, which constitutes fair
value as determined by the fund's Board of Directors. Amortized cost
involves valuing an instrument at its original cost to the fund 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. All other
securities and other assets of the fund will be valued at fair value
as determined in good faith by the fund's Board of Directors.
EXCHANGE PRIVILEGE
Additional Information Regarding the Exchange Privilege.
Although the exchange privilege is an important benefit, excessive
exchange transactions can be detrimental to either fund's
performance and its shareholders. The manager may determine that a
pattern of frequent exchanges is excessive and contrary to the best
interests of the fund's other shareholders. In this event, each
fund may, at its discretion, decide to limit additional purchases
and/or exchanges by a shareholder. Upon such a determination, the
fund will provide notice in writing or by telephone to the
shareholder at least 15 days prior to suspending the exchange
privilege and during the 15 day period the shareholder will be
required to (a) redeem his or her shares in the fund or (b) remain
invested in the fund or exchange into any of the funds of the Smith
Barney Mutual Funds ordinarily available, which position the
shareholder would be expected to maintain for a significant period
of time. All relevant factors will be considered in determining
what constitutes an abusive pattern of exchanges.
Additional Information Regarding Telephone Redemption and
Exchange Program. Neither the fund nor its agents will be liable for
following instructions communicated by telephone that are reasonably
believed to be genuine. The fund and its agents will employ
procedures designed to verify the identity of the caller and
legitimacy of instructions (for example, a shareholder's name and
account number will be required and phone calls may be recorded).
The fund reserves the right to suspend, modify or discontinue the
telephone redemption and exchange program or to impose a charge for
this service at any time following at least seven (7) days prior
notice to shareholders.
PERFORMANCE DATA TC "PERFORMANCE DATA" \f C \l "1"
From time to time, the fund may quote total return of a Class
in advertisements or in reports and other communications to
shareholders. The fund may include comparative performance
information in advertising or marketing the fund's shares. Such
performance information may include data from the following industry
and financial publications: Barrons', Business Week, CDA Investment
Technologies, Inc., Changing Times, Forbes, Fortune, Institutional
Investor, Investors Daily, Money, Morningstar Mutual fund Values,
The New York Times, USA Today and The Wall Street Journal. To the
extent any advertisement or sales literature of the fund describes
the expenses or performance of any Class it will also disclose such
information for the other Classes.
Average Annual Total Return
"Average annual total return" figures are computed according
to a formula prescribed by the SEC. The formula can be expressed
as follows:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical
$1,000 investment made at the beginning of
the 1-, 5- or 10-year period at the end of
the 1-, 5- or 10-year period (or fractional
portion thereof), assuming reinvestment of
all dividends and distributions.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period. A fund's net
investment income changes in response to fluctuations in interest
rates and the expenses of the fund.
Average Annual Total Return
Class of Shares
1-Year
5-Year
10-Year
Life of
fund
Inception
date
Class A1
%
%
%
%
Class B2
%
%
%
%
Class L3
%
%
%
%
Class Y4
%
%
%
%
1 The average annual total return figure assumes that the maximum
5.00% sales charge has been deducted from the investment at the
time of purchase. If the maximum sales charge had not been
deducted, the average annual total return for Class A shares for
the same period would have been [ ]%.
2 The average annual total return figure assumes that the maximum
applicable CDSC has been deducted from the investment at the time
of redemption. If the maximum CDSC had not been deducted, the
average annual total return for Class B shares for the same
period would have been [ ]%.
2 The average annual total return figure assumes that the maximum
applicable CDSC has been deducted from the investment at the time
of redemption. If the maximum CDSC had not been deducted, the
average annual total return for Class L shares for the same
period would have been [ ]%.
4 Class Y shares do not incur sales charges nor CDSCs.
Aggregate Total Return
"Aggregate total return" figures represent the cumulative
change in the value of an investment in the Class for the specified
period and are computed by the following formula:
ERV - P
P
Where: P = a hypothetical initial payment of $10,000
ERV = Ending Redeemable Value of a hypothetical
$10,000 investment made at the beginning of
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.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period.
Aggregate Total Return
Class of Shares
1-Year
5-Year
10-
Year
Life of
fund
Inceptio
n
date
Class A1
%
%
%
%
Class B2
%
%
%
%
Class L3
%
%
%
%
Class Y4
%
%
%
%
1 The average annual total return figure assumes that the maximum
5.00% sales charge has been deducted from the investment at the
time of purchase. If the maximum sales charge had not been
deducted, the average annual total return for Class A shares for
the same period would have been [ ]%.
2 The average annual total return figure assumes that the maximum
applicable CDSC has been deducted from the investment at the time
of redemption. If the maximum CDSC had not been deducted, the
average annual total return for Class B shares for the same
period would have been [ ]%.
2 The average annual total return figure assumes that the maximum
applicable CDSC has been deducted from the investment at the time
of redemption. If the maximum CDSC had not been deducted, the
average annual total return for Class L shares for the same
period would have been [ ]%.
4 Class Y shares do not incur sales charges nor CDSCs.
Performance will vary from time to time depending upon market
conditions, the composition of the fund's portfolio, operating
expenses and the expenses exclusively attributable to the Class.
Consequently, any given performance quotation should not be
considered representative of the Class' performance for any
specified period in the future. Because performance will vary, it
may not provide a basis for comparing an investment in the Class
with certain bank deposits or other investments that pay a fixed
yield for a stated period of time. Investors comparing the Class'
performance with that of other mutual funds should give
consideration to the quality and maturity of the respective
investment companies' portfolio securities.
It is important to note that the total return figures set
forth above are based on historical earnings and are not intended
to indicate future performance. Each Class' net investment income
changes in response to fluctuations in interest rates and expenses
of the fund.
TAXES
The following is a summary of selected Federal income tax
considerations that may affect the fund and its shareholders. The
summary is not intended as a substitute for individual tax advice
and investors are urged to consult their own tax advisors as to the
tax consequences of an investment in the fund.
The fund has qualified and intends to continue to qualify each
year as a regulated investment company under the Code. Provided the
fund (a) is a regulated investment company and (b) distributes at
least 90% of its net investment income (including, for this purpose,
net realized short-term capital gains), the fund will not be liable
for Federal income taxes to the extent its net investment income and
its net realized long- and short-term capital gains, if any, are
distributed to its shareholders. Although the fund expects to be
relieved of all or substantially all Federal, state, and local
income or franchise taxes, depending upon the extent of its
activities in states and localities in which its offices are
maintained, in which its agents or independent contractors are
located, or in which it is otherwise deemed to be conducting
business, that portion of the fund's income which is treated as
earned in any such state or locality could be subject to state and
local tax. Any such taxes paid by the fund would reduce the amount
of income and gain available for distribution to shareholders. All
of a shareholder's dividends and distributions payable by the fund
will be reinvested automatically in additional shares of the same
Class of the fund at net asset value, unless the shareholder elects
to receive dividends and distributions in cash.
Gain or loss on the sale of a security by the fund generally
will be long-term capital gain or loss if the fund has held the
securities for more than one year. Gain or loss on the sale of
securities held for not more than one year will be short-term. If
the fund acquires a debt security at a substantial discount, a
portion of any gain upon the sale or redemption will be taxed as
ordinary income, rather than capital gain to the extent it reflects
accrued market discount.
Dividends of net investment income and distributions of net
realized short-term capital gains will be taxable to shareholders as
ordinary income for Federal income tax purposes, whether received in
cash or reinvested in additional shares. Dividends received by
corporate shareholders will qualify for the dividends-received
deduction only to the extent that the fund designates the amount
distributed as a dividend and the amount so designated does not
exceed the aggregate amount of dividends received by the fund from
domestic corporations for the taxable year. The Federal dividends-
received deduction for corporate shareholders may be further reduced
or disallowed if the shares with respect to which dividends are
received are treated as debt-financed or are deemed to have been
held for less than 46 days.
Foreign countries may impose withholding and other taxes on
dividends and interest paid to the fund with respect to investments
in foreign securities. However, certain foreign countries have
entered into tax conventions with the United States to reduce or
eliminate such taxes. Distributions of long-term capital gains will
be taxable to shareholders as such, whether paid in cash or
reinvested in additional shares and regardless of the length of time
that the shareholder has held his or her interest in the fund. If a
shareholder receives a distribution taxable as long-term capital
gain with respect to his or her investment in the fund and redeems
or exchanges the shares before he or she has held them for more than
six months, any loss on the redemption or exchange that is less than
or equal to the amount of the distribution will be treated as a
long-term capital loss.
If a shareholder (a) incurs a sales charge in acquiring or
redeeming shares of the fund, and (b) disposes of those shares and
acquires within 90 days after the original acquisition shares in a
mutual fund for which the otherwise applicable sales charge is
reduced by reason of a reinvestment right (i.e., an exchange
privilege), the original sales charge increases the shareholder's
tax basis in the original shares only to the extent the otherwise
applicable sales charge for the second acquisition is not reduced.
The portion of the original sales charge that does not increase the
shareholder's tax basis in the original shares would be treated as
incurred with respect to the second acquisition and, as a general
rule, would increase the shareholder's tax basis in the newly
acquired shares. Furthermore, the same rule also applies to a
disposition of the newly acquired shares made within 90 days of the
second acquisition. This provision prevents a shareholder from
immediately deducting the sales charge by shifting his or her
investment in a family of mutual funds.
Investors considering buying shares of the fund just prior to
a record date for a taxable dividend or capital gain distribution
should be aware that, regardless of whether the price of the fund
shares to be purchased reflects the amount of the forthcoming
dividend or distribution payment, any such payment will be a taxable
dividend or distribution payment.
If a shareholder fails to furnish a correct taxpayer
identification number, fails to report his or her dividend or
interest income in full, or fails to certify that he or she has
provided a correct taxpayer identification number, and that he or
she is not subject to such withholding, the shareholder may be
subject to a 31% "backup withholding" tax with respect to (a) any
taxable dividends and distributions and (b) any proceeds of any
redemption of fund shares. An individual's taxpayer identification
number is his or her social security number. The 31% backup
withholding tax is not an additional tax and may be credited
against a shareholder's regular Federal income tax liability.
Options Transactions. The tax consequences of options
transactions entered into by the fund will vary depending on the
nature of the underlying security and whether the "straddle" rules,
discussed separately below, apply to the transaction. When the fund
writes a call or put option on an equity or debt security, it will
receive a premium that will, subject to the "section 1256 contract"
and straddle rules discussed below, be treated as follows for tax
purposes. If the option expires unexercised, or if the fund enters
into a closing purchase transaction, the fund will realize a gain
(or loss if the cost of the closing purchase transaction exceeds the
amount of the premium) without regard to any unrealized gain or loss
on the underlying security. Any such gain or loss will be short-term
capital gain or loss, except that any loss on a "qualified" covered
call option not treated as part of a straddle may be treated as
long-term capital loss. If a call option written by the fund is
exercised, the fund will recognize a capital gain or loss from the
sale of the underlying security, and will treat the premium as
additional sales proceeds. Whether the gain or loss will be long-
term or short-term will depend on the holding period of the
underlying security. If a put option written by the fund is
exercised, the amount of the premium will reduce the tax basis of
the security the fund then purchases.
The Code imposes a special "mark-to-market" system for taxing
section 1256 contracts which include options on nonconvertible debt
securities (including U.S. government securities). In general, gain
or loss with respect to section 1256 contracts will be taken into
account for tax purposes when actually realized (by a closing
transaction, by exercise, by taking delivery or by other
termination). In addition, any section 1256 contracts held at the
end of a taxable year will be treated as sold at their year-end fair
market value (that is, marked-to-market), and the resulting gain or
loss will be recognized for tax purposes. Provided section 1256
contracts are held as capital assets and are not part of a straddle,
both the realized and unrealized year-end gain or loss from these
investment positions (including premiums on options that expire
unexercised) will be treated as 60% long-term and 40% short-term
capital gain or loss, regardless of the period of time particular
positions are actually held by the fund.
In order to continue to qualify as a regulated investment
company, the fund may have to limit its transactions in section 1256
contracts.
Straddles. The Code contains rules applicable to "straddles,"
that is, "offsetting positions in actively traded personal
property." Such personal property includes section 1256 contracts or
other investment contracts. Where applicable, the straddle rules
generally override the other provisions of the Code. In general,
investment positions will be offsetting if there is a substantial
diminution in the risk of loss from holding one position by reason
of holding one or more other positions (although certain covered
call options would not be treated as part of a straddle). The fund
is authorized to enter into covered call and covered put positions.
Depending on what other investments are held by the fund, at the
time it enters into one of the above transactions, the fund may
create a straddle for purposes of the Code.
If two (or more) positions constitute a straddle, recognition
of a realized loss from one position (including a marked-to-market
loss) must be deferred to the extent of unrecognized gain in an
offsetting position. Also, long-term capital gain may be
recharacterized as short-term capital gain, or short-term capital
loss as long-term capital loss. Furthermore, interest and other
carrying charges allocable to personal property that is part of a
straddle must be capitalized.
If the fund chooses to identify a particular offsetting
position as being one component of a straddle, a realized loss on
any component of the straddle will be recognized no earlier than
upon the liquidation of all of the components of the straddle.
Special rules apply to "mixed" straddles (that is, straddles
consisting of a section 1256 contract and an offsetting position
that is not a section 1256 contract). If the fund makes certain
elections, the section 1256 contract components of such mixed
straddles will not be subject to the 60%/40% mark-to-market rules.
If any such election is made, the amount, the nature (as long- or
short-term) and the timing of the recognition of the fund's gains or
losses from the affected straddle positions will be determined under
rules that will vary according to the type of election made.
Wash Sales. "Wash sale" rules will apply to prevent the
recognition of loss with respect to a position where an identical or
substantially identical position is or has been acquired within a
prescribed period.
The foregoing is only a summary of certain Federal tax
considerations generally affecting the fund and its shareholders and
is not intended as a substitute for careful tax planning.
Shareholders are urged to consult their tax advisors with specific
reference to their own tax situations, including their state and
local tax liabilities.
ADDITIONAL INFORMATION
The fund was originally incorporated under the laws of the
State of Washington on March 17, 1981, under the name Foster &
Marshall Growth Fund, Inc. On May 22, 1984, December 18, 1987,
November 21, 1989, August 12, 1992, August 17, 1993 and October 14,
1994, the fund changed its name to Shearson Fundamental Value Fund
Inc., Shearson Lehman Fundamental Value Fund Inc., SLH Fundamental
Value Fund Inc., Shearson Lehman Brothers Fundamental Value Fund
Inc., Smith Barney Shearson Fundamental Value Fund Inc., and Smith
Barney Fundamental Value fund Inc. Without changing its name, the
fund was reincorporated as a Maryland corporation on May 24, 1995.
The fund currently offers shares of common stock classified
into four Classes, A, B, L and Y. Each Class of shares represents
an identical pro rata interest in the Fund's investment portfolio.
As a result, the Classes have the same rights, privileges and
preferences, except with respect to: (a) the designation of each
Class; (b) the effect of the respective sales charges, if any, for
each Class; (c) the distribution and/or service fees borne by each
class; (d) the expenses allocable exclusively to each Class; (e)
voting rights on matters exclusively affecting a single Class; (f)
the exchange privilege of each Class; and (g) the conversion
feature of the Class B shares. The Board of Directors does not
anticipate that there will be any conflicts among the interests of
the holders of the different share Classes of the fund. The
Directors, on an ongoing basis, will consider whether any such
conflict exists and, if so, take appropriate action.
The fund is not required to hold annual meetings, however
the Directors will call a meeting for any purpose upon written
request of shareholders holding at least 10% of the fund's
outstanding shares and the fund will assist shareholders in
calling such a meeting as required by the 1940 act. When matters
are submitted for shareholder vote, shareholders of each Class
will have one vote for each full share owned and proportionate,
fractional votes for fractional shares held.
The fund sends its shareholders a semi-annual report and an
audited annual report, which include listings of investment
securities held by the fund at the end of the reporting period.
In an effort to reduce the fund's printing and mailing costs, the
fund 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. Any shareholder
who does not want this consolidation to apply to his or her
account should contact his or her Salomon Smith Barney Financial
Consultant or the transfer agent.
PNC Bank, National Association, located at 17th and Chestnut
Streets, Philadelphia, Pennsylvania, 19103, serves as the custodian
of the fund. Under its agreement with the fund, PNC holds the fund's
portfolio securities and keeps all necessary accounts and records.
For its services, PNC receives a monthly fee based upon the month-
end market value of securities held in custody and also receives
securities transaction charges. The assets of the fund are held
under bank custodianship in compliance with the 1940 Act.
First Data, located at Exchange Place, Boston, Massachusetts
02109, serves as the fund's transfer agent. Under the transfer
agency agreement, First Data maintains the shareholder account
records for the fund, handles certain communications between
shareholders and the fund and distributes dividends and
distributions payable by the fund. For these services, First Data
receives a monthly fee computed on the basis of the number of
shareholder accounts it maintains for the fund during the month and
is reimbursed for out-of-pocket expenses.
FINANCIAL STATEMENTS
The fund's Annual Report for the fiscal year ended September
30, 1999 is incorporated herein by reference in its entirety.
37
PART C
Item 23. Exhibits
All references are to the Registrant's registration statement
on Form N-1A as filed with the Securities and Exchange Commission
("SEC"), File Nos. 2-71469 and 811-3158 (the "Registration Statement").
(a)(1) Registrant's Articles of Incorporation dated May 13, 1994 are
incorporated by reference to post-effective amendment no. 27 to the
Registration Statement as filed with the SEC on May 26, 1995
("Post-Effective Amendment No. 27").
(a)(2) Registrant's Articles of Amendment dated May 24, 1995 are
incorporated by reference to post-effective amendment no. 28 to the
Registration Statement as filed with the SEC on February 1, 1996
("Post-Effective Amendment No. 28").
(a)(3) Registrant's Articles of Amendment dated June 11, 1998 are
incorporated by reference to post-effective amendment no. 31 to the
Registration Statement as filed with the SEC on November 24, 1998
("Post-Effective Amendment No. 31").
(b) Registrant's By-Laws are incorporated by reference
to Post-Effective Amendment No. 27.
(c)(1) Registrant's form of stock certificate relating to Class A
shares are incorporated by reference to Post-Effective Amendment No. 27.
(c)(2) Registrant's form of stock certificate relating to Class B shares
are incorporated by reference to Post-Effective Amendment No. 27.
(c)(3) Registrant's form of stock certificate relating to Class C shares
are incorporated by reference to Post-Effective Amendment No. 27.
(c)(4) Registrant's form of stock certificate relating to Class Y shares
are incorporated by reference to Post-Effective Amendment No. 27.
(d) Form of Investment Advisory Agreement with Smith Barney
Mutual Funds Management Inc. (currently, Mutual Management Corp.)
is incorporated by reference to Post
- -Effective Amendment No. 27.
(e)(1) Form of Distribution Agreement between the Registrant
and Smith Barney Inc. is incorporated by reference to Post-Effective
Amendment No. 27.
(e)(2) Distribution Agreement between the Registrant and
CFBDS, Inc. is incorporated by reference to Post-Effective
Amendment No. 31.
(f) Inapplicable.
(g) Custodian Agreement with PNC Bank, National
Association to is incorporated by reference to Post-Effective Amendment
No. 27.
(h)(1) Form of Transfer Agency Agreement between the Registrant and The
Transfer Agent is incorporated by reference to Post-Effective Amendment No.
28.
(h)(2) Form of Consent to Assignment between the Registrant
and The Shareholder Services Group, Inc. is incorporated by reference
to Post-Effective Amendment No. 27.
(h)(3) Form of Administration Agreement between the Fund and
Smith Barney Mutual Funds Management Inc. is incorporated by
reference to Post-Effective Amendment No. 27.
(i) Opinion of Maryland Counsel is incorporated by reference to Post-
Effective Amendment No. 27.
(j) Consent of Independent Accountants is to be filed by amendment.
(k) Inapplicable.
(l) Inapplicable.
(14) Prototype Self-Employed Retirement Plan is incorporated by
reference to post-effective amendment no. 10 to the Registration Statement
as filed with the SEC on November 29, 1987.
(m)(1) Services and Distribution Plan between the Registrant and
Smith Barney Inc. is incorporated by reference to Post-Effective
Amendment No. 27.
(m)(2) Amended and Restated Shareholder Services and Distribution Plan
pursuant to Rule 12b-1 is incorporated by reference to Post-Effective
Amendment No. 31.
(n) Financial Data Schedule is to be filed by amendment.
(o)(1) Form of Rule 18f-3(d) Multiple Class Plan of the Registrant is
incorporated by reference to Post Effective Amendment No. 28.
(o)(2) Amended Rule 18f-3(d) Multiple Class Plan of the Registrant is
incorporated by reference to Post-Effective
Amendment No. 31.
Item 24. Persons Controlled by or Under Common Control
with Registrant
Not applicable.
Item 25. Indemnification
The response to this item is incorporated by reference to Post-Effective
Amendment No. 5 to the Registration Statement as filed with the SEC.
Item 26(a). Business and Other Connections of Investment Adviser
Investment Adviser - SSB Citi Fund Management LLC ("SSB Citi")
(formerly known as Mutual Management Corp. and
Smith Barney Mutual Funds Management Inc.) was incorporated in December
1968 under the laws of the State of Delaware. SSB Citi is a wholly owned
subsidiary of Salomon Smith Barney Holdings Inc. ("Holdings"), which in
turn is a wholly owned subsidiary of Citigroup Inc. (formerly known as
Travelers Group Inc.). SSB Citi is registered as an investment
adviser under the Investment Advisers Act of 1940 (the "Advisers Act")
and has, through its predecessors, been in the investment counseling
business since 1934. The list required by this Item 26 of officers and
directors of SSB Citi together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by
such officers and directors during the past two fiscal years, is
incorporated by reference to Schedules A and D of FORM ADV filed by
SSB Citi pursuant to the Advisers
Act (SEC File No. 801-8314).
Item 27. Principal Underwriters
(a) CFBDS, Inc. the Registrant's Distributor, is also
the distributor for
CitiFundsSM International Growth & Income Portfolio,
CitiFundsSM International Equity Portfolio, CitiFundsSM Large Cap
Growth
Portfolio, CitiFundsSM Intermediate Income Portfolio,
CitiFundsSM Short-Term U.S. Government Income Portfolio,
CitiFundsSM Emerging Asian Markets Equity Portfolio,
CitiFundsSM U.S. Treasury Reserves, CitiFundsSM Cash Reserves,
CitiFundsSM Premium U.S. Treasury Reserves,
CitiFundsSM Premium Liquid Reserves, CitiFundsSM Institutional U.S.
Treasury Reserves, CitiFundsSM Institutional Liquid Reserves,
SM Institutional Cash Reserves, CitiFundsSM Tax Free Reserves,
CitiFundsSM Institutional Tax Free Reserves,
CitiFundsSM California Tax Free Reserves,
CitiFundsSM Connecticut Tax Free Reserves,
CitiFundsSM New York Tax Free Reserves, CitiFundsSM Balanced Portfolio,
CitiFundsSM Small Cap Value Portfolio, CitiFundsSM Growth & Income
Portfolio,
CitiFundsSM Small Cap Growth Portfolio, CitiFundsSM National
Tax Free Income Portfolio, CitiFundsSM New York Tax Free Income
Portfolio,
CitiSelect VIP Folio 200, Citiselect VIP Folio 300,
CitiSelect VIP Folio 400, CitiSelect VIP Folio 500,
CitiFundsSM Small Cap Growth VIP Portfolio, CitiSelect Folio 200,
CitiSelect Folio 300, CitiSelect Folio 400, and CitiSelect Folio
500.
CFBDS is also the placement agent for Large Cap Value Portfolio,
International Portfolio, Foreign Bond Portfolio,
Intermediate Income Portfolio, Short-Term Portfolio,
Growth & Income Portfolio, Large Cap Growth Portfolio,
Small Cap Growth Portfolio, International Equity Portfolio,
Balanced Portfolio, Government Income Portfolio, Emerging
Asian Markets Equity Portfolio, Tax Free Reserves Portfolio,
Cash Reserves Portfolio and U.S. Treasury Reserves Portfolio.
CFBDS, Inc. is also the distributor for the following
Smith Barney Mutual Fund registrants:
Concert Investment Series
Consulting Group Capital Markets Funds
Greenwich Street Series Fund
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 Funds, Inc.
Smith Barney Income Funds
Smith Barney Institutional Cash Management Fund, Inc.
Smith Barney Investment Trust
Smith Barney Investment Funds Inc.
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 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.
Travelers Series Fund Inc.
And various series of unit investment trusts.
CFBDS, Inc. is also the distributor for the following
Salomon Brothers funds;
Salomon Brothers Opportunity Fund Inc
Salomon Brothers Investors Fund Inc
Salomon Brothers Capital Fund Inc
Salomon Brothers Series Funds Inc
Salomon Brothers Institutional Series Funds Inc
Salomon Brothers Variable Series Funds Inc
The information required by this Item 27 with respect
to each director, officer and partner of CFBDS, Inc.
is incorporated by reference to Schedule A of Form BD
filed by CFBDS, Inc. pursuant to the Securities
Exchange Act of 1934 (SEC File No. 8-32417).
Item 28. Location of Accounts and Records
(1) With respect to the Registrant,
Investment Adviser and Administrator:
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
(2) With respect to the Registrant's Custodian:
PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, Pennsylvania
(3) With respect to the Registrant's Transfer Agent:
First Data Investor Services Group Inc.
Exchange Place
Boston, Massachusetts 02109
Item 29. Management Services
Not applicable.
Item 30. Undertakings
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the
undersigned, this Post-Effective Amendment, 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 29th day of November 1999.
SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
Registrant
By: /s/ Heath B. McLendon
Name: Heath B. McLendon
Title: Chairman of the Board
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.
Signature: Title: Date:
/s/Heath B. McLendon Chairman of the Board 11/29/99
Heath B. McLendon (Chief Executive Officer)
/s/Lewis E. Daidone Senior Vice President 11/29/99
Lewis E. Daidone and Treasurer
(Chief Financial and
Accounting Officer)
/s/Lloyd J. Andrews* Director 11/29/99
Lloyd J. Andrews
/s/Robert M. Frayn* Director 11/29/99
Robert M. Frayn
/s/Leon P. Gardner* Director 11/29/99
Leon P. Gardner
/s/David E. Maryatt* Director 11/29/99
David E. Maryatt
/s/ Frederick O. Paulsell* Director 11/29/99
Frederick O. Paulsell
/s/Jerry A. Viscione* Director 11/29/99
Jerry A. Viscione
/s/Julie W. Weston* Director 11/29/99
Julie W. Weston
* Signed pursuant to power of attorney filed May 26, 1995, as an exhibit
to Post-Effective Amendment No. 27.
/s/ Heath B. McLendon
Heath B. McLendon
EXHIBIT INDEX
Exhibit No. Exhibit
(
