SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
388 Greenwich Street
New York, New York 10013
800-451-2010
Statement of Additional Information
January 28, 2000
As Amended April 14, 2000
And July 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 April 14, 2000, 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, a PFS Investment Registered
Representative- 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 15
COMPENSATION TABLE 16
DISTRIBUTION 20
PURCHASE OF SHARES 23
REDEMPTION OF SHARES 32
VALUATION OF SHARES 37
EXCHANGE PRIVILEGE 38
PERFORMANCE DATA 41
TAXES 43
ADDITIONAL INFORMATION 47
FINANCIAL STATEMENTS 48
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.
Illiquid Securities Up to 15% of the assets of
the fund may be invested in illiquid securities,
including (a) repurchase agreements with maturities
greater than seven days, (b) futures contracts and
options thereon for which a liquid secondary market
does not exist, (c) time deposits maturing in more
than seven calendar days and (d) securities of new and
early stage companies whose securities are not
publicly traded.
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 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 43%, 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.
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 7 World Trade Center, New York, New York
10048.
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 associated
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 are
compensated by Salomon 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
$11,000
$0
$11,000
1
Robert M. Frayn,
Jr.+
11,000
0
11,000
1
Leon P. Gardner
11,000
0
11,000
1
David E. Maryatt+
11,000
0
11,000
1
Heath B. McLendon*
0
0
0
64
Frederick O.
Paulsell+
9,000
0
9,000
1
Jerry A. Viscione
11,000
0
11,000
1
Julie W. Weston
10,000
0
10,000
1
__________________
* 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: Robert M. Frayn, Jr. - $11,000, David E.
Maryatt- $11,000 and Frederick O. Paulsell - $9,000.
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 calendar
year ended December 31, 1998, such expenses totaled
$15,112.
As of January 7, 2000, the Directors and Officers
of the fund as a group, owned less than 1.00% of the
outstanding common stock of the fund.
As of January 7, 2000, the following shareholders
beneficially owned 5% or more of a class of shares of a
fund:
Class Y
Smith Barney Concert Series, Inc.
Balanced Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester, PA 19113-1522
owned 4,024,262.812 (64.33%) shares*
Smith Barney Concert Series, Inc.
Select Balanced Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester, PA 19113-1522
owned 1,408,766.665 (22.52%) shares*
Smith Barney Concert Series, Inc.
Conservative Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester, PA 19113-1522
owned 610,283.57 (9.76%) shares*
* The Fund believes that these entities are not
the beneficial owners of shares held of record by
them.
Investment Manager and Administrator
SSB Citi Fund Management LLC (successor to
Mutual Management Corp.) ("SSB") 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 22, 1999 and amended as
of September 21, 1999. 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. On September 21, 1999, the
Board of Directors approved a management fee
reduction. Consequently, the fund pays SSB a fee,
computed daily and paid monthly on the average daily
net assets, according to the following table:
First $1.5 Billion
0.55%
Next $0.5 Billion 0.50
Next $0.5 Billion 0.49
Next $1.0 Billion 0.46
Over $3.5 Billion 0.38
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 $8,940,574, $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 22,
1999 and amended as of September 21, 1999. 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 on the average daily net assets, at the
following rates:
First $2.0 Billion
0.20%
Next $0.5 Billion 0.16
Next $1.0 Billion 0.14
Over $3.5 Billion 0.12
For the fiscal years ended September 30, 1999,
1998 and 1997, the fund incurred $3,278,909, $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. SSB renders investment advice to investment
companies that had aggregate assets under management as
of December 31, 1999 in excess of $124 billion.
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
$3,075,905, $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 $178,677,300 to
brokers because of research services provided. The
amount of brokerage commissions paid on such
transactions totaled approximately $583,000.
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 $140,412, $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 4.56% 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 2.70%.
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
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 year ended September 30, 1999,
Salomon Smith Barney and CFBDS received $448,000 in
sales charges from the sale of Class A shares. For
the fiscal years ended September 30, 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 year ended September 30,
1999, Salomon Smith Barney and CFBDS received $126,000
in sales charges from the sale of Class L shares. For
the fiscal period ended September 30, 1998, Salomon
Smith Barney received $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 $0, $14,000 and $4,000, respectively,
representing contingent deferred sales charges
("Deferred Sales Charge") on redemptions of the fund's
Class A shares. For the fiscal years ended September
30, 1999, 1998 and 1997, Salomon Smith Barney received
$770,000, $1,177,000 and $1,133,000, respectively,
representing Deferred Sales Charges on redemptions of
the fund's Class B shares. For the fiscal years ended
September 30, 1999, 1998 and 1997, Salomon Smith
Barney received $5,000, $11,000 and 11,000,
respectively, representing Deferred Sales Charges on
redemptions of the fund's Class L 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 or PFS
Investments ("PFSI"), as the case may be, 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 and with
respect to Class A and Class B shares. PFSI, 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 and with respect to the
Class B shares, PFSI for its initial expense of paying
Financial Consultants and PFS Investments Registered
Representatives a commission upon sales of those shares.
The Class B and Class L distribution fees are
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
Deferred Sales Charges received by Salomon Smith Barney
are expressed in the following table:
Financial
Consultant
Compensation
Branch
Expenses
Advertisin
g
Expenses
Printing
Expenses
s
Interes
t
Expenses
s
$1,301,121
$791,725
$69,115
$19,092
$69,428
Fees are paid to PFS Distributors, which in turn,
pays PFS Investments Inc. ("PFS Investments") to pay its
PFS Investment Registered Representatives for servicing
shareholder accounts and, in the case of Class B shares,
to cover expenses primarily intended to result in the
sale of those shares. These expenses include:
advertising expenses; the cost of printing and mailing
prospectuses to potential investors; payments to and
expenses of PFS Investments Registered Representatives
and other persons who provide support services in
connection with the distribution of shares; interest
and/or carrying charges; and indirect and overhead costs
of PFS Investments associated with the sale of fund
shares, including lease, utility, communications and
sales promotion expenses.
PFS Investments may be deemed to be an
underwriter for purposes of the Securities Act of 1933,
as amended. From time to time, PFS or its affiliates
may also pay for certain non-cash sales incentives
provided to PFS Investments Registered Representatives.
Such incentives do not have any effect on the net
amount invested. In addition to the reallowances from
the applicable public offering price described above,
PFS may from time to time, pay or allow additional
reallowances or promotional incentives, in the form of
cash or other compensation to PFS Investments Registered
Representatives who sell shares of the fund.
The following shows the total distribution fees
paid by each Class for the fiscal year ended September
30, 1999:
9/30/99
Class A
$1,601,018
Class B
8,455,412
Class L
Total
727,153
$
10,783,583
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 and
PFSI 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, REDEMPTION AND EXCHANGE OF SHARES
General. The fund offers four Classes of shares:
Classes A, B, L, and Y. Class A, and Class L and shares
are sold to investors with an initial sales charge.
Class B shares are sold without an initial sales charge
but are subject to a deferred sales charge payable upon
certain redemptions. Class L shares are also subject to
a deferred sales charge payable upon certain
redemptions. Class Y shares are sold without an initial
sales charge or a deferred sales charge and are
available only to investors investing a minimum of
$15,000,000. See the prospectuses for a discussion of
factors to consider in selecting which Class of shares
to purchase
Investors in Class A, Class B, and Class L shares may
open an account by making an initial investment in the
fund of at least $1,000 for each account, or $250 for an
IRA or a Self-Employed Retirement Plan. 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(a) of the Code, the minimum initial and
subsequent investment requirement 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 the 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 requirement 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 in Class A shares
for employees of Citigroup and its subsidiaries,
including Salomon Smith Barney, unit holders who invest
distributing from a Unit Investment Trust ("UIT")
sponsored by Salomon Smith Barney, directors or trustees
of any of the Smith Barney Mutual Funds, and their
spouses and children. The funds reserve the right to
waive or change minimums, to decline any order to
purchase their shares and to suspend the offering of
shares from time to time. Shares purchased will be held
in the shareholder's account by PFPC Global Fund
Services ("PFPC"), a sub-transfer agent or PFS
Shareholder Services ("PFSSS"), a sub-transfer agent.
Share certificates are issued only upon a shareholder's
written request to PFPC or PFSSS.
Salomon Smith Barney Accounts. Purchases of shares of
the funds must be made through a brokerage account
maintained with Salomon Smith Barney, an introducing
broker or an investment dealer in the selling group. In
addition, certain investors, including qualified
retirement plans and certain other institutional
investors, may purchase shares directly from the funds
through the transfer agent. When purchasing shares of a
fund, investors must specify whether the purchase is for
Class A, Class B, Class L, or Class Y shares. Salomon
Smith Barney and other broker/dealers may charge their
customers an annual account maintenance fee in
connection with a brokerage account through which an
investor purchases or holds shares. Accounts held
directly at PFPC are not subject to a maintenance fee.
PFS Accounts The Fund offers two Classes of shares to
investors purchasing through PFS Investments: Class A
shares and Class B shares.
Initial purchases of shares of each Fund must be made
through a PFS Investments Registered Representative by
completing the appropriate application found in this
Prospectus. The completed application should be
forwarded to PFSSS, 3100 Breckinridge Blvd., Bldg.
200, Duluth, Georgia 30099-0062. Checks drawn on
foreign banks must be payable in U.S. dollars and have
the routing number of the U.S. bank encoded on the
check. Subsequent investments may be sent directly to
PFSSS. In processing applications and investments,
the PFPC acts as agent for the investor and for PFS
Investments and also as agent for the Distributor, in
accordance with the terms of the Prospectus. If PFPC
ceases to act as such, a successor company named by
the Trust will act in the same capacity so long as the
account remains open.
Shares purchased will be held in the shareholder's
account by PFSSS. Share certificates are issued only
upon a shareholder's written request to PFSSS. A
shareholder who has insufficient funds to complete any
purchase, will be charged a fee of $27.50 per returned
purchase by PFS or PFSSS.
Investors in Class A and Class B shares may open an
account by making an initial investment of at least
$1,000 for each account in each Class (except for
Systematic Investment Plan accounts), or $250 for an
IRA or a Self-Employed Retirement Plan in a Fund.
Subsequent investments of at least $50 may be made for
each Class. For participants in retirement plans
qualified under Section 403(b)(7) or Section 401(a) of
the Code, the minimum initial investment requirement
for Class A and Class B shares and the subsequent
investment requirement for each Class in a Fund is
$25. There are no minimum investment requirements in
Class A shares for employees of Citigroup and its
subsidiaries, including Salomon Smith Barney,
Directors or Trustees of any of the Smith Barney
Mutual Funds, and their spouses and children. The
Trust 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.
Purchase orders received by PFPC or PFSSS prior to the
close of regular trading on the NYSE, on any day a
Fund calculates its net asset value, are priced
according to the net asset value determined on that
day.
Upon completion of certain automated systems, initial
purchases of Fund shares may be made by wire. The
minimum investment that can be made by wire is
$10,000. Before sending the wire, the PFS Investments
Inc. Registered Representative must contact PFSSS at
(800) 665-8677 to obtain proper wire instructions.
Once an account is open, a shareholder may make
additional investments by wire. The shareholder
should contact the PFPC at (800) 544-5445 to obtain
proper wire instructions.
Shareholders who establish telephone transaction
authority on their account and supply bank account
information may make additions to their accounts at
any time. Shareholders should contact PFPC at (800)
544-5445 between 9:00 a.m. and 6:00 p.m. eastern time
any day that the NYSE is open. If a shareholder does
not wish to allow telephone subsequent investments by
any person in his account, he should decline the
telephone transaction option on the account
application. The minimum telephone subsequent
investment is $250 and can be up to a maximum of
$10,000. By requesting a subsequent purchase by
telephone, you authorize PFSSS to transfer funds from
the bank account provided for the amount of the
purchase. A shareholder who has insufficient funds to
complete the transfer will be charged a fee of up to
$27.50 by PFSSS or PFPC. A shareholder who places a
stop payment on a transfer or the transfer is returned
because the account has been closed, will also be
charged a fee of up to $27.50 by PFSSS or PFPC.
Subsequent investments by telephone may not be
available if the shareholder cannot reach PFPC whether
because all telephone lines are busy or for any other
reason; in such case, a shareholder would have to use
the Fund's regular subsequent investment procedure
described above.
PFS may pay its Registered Representatives an amount
equal to 0.40% of the amount invested if the purchase
represents redemption proceeds from an investment
company distributed by an entity other than PFS
Investments. 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.
In addition, Class A shares of the Funds may be
purchased at net asset value by the PFS Primerica
Corporation Savings and Retirement Plan (the
''Primerica Plan'') for its participants, subject to
the provisions of the Employee Retirement Income
Security Act of 1974, as amended (''ERISA''). Class A
shares so purchased are purchased for investment
purposes and may not be resold except by redemption or
repurchase by or on behalf of the Primerica Plan.
Class A shares are also offered at net asset value to
accounts opened for shareholders by PFS Investments
Registered Representatives where the amounts invested
represent the redemption proceeds from investment
companies distributed by an entity other than PFS, if
such redemption has occurred no more than 60 days
prior to the purchase of shares of the Trust, and the
shareholder paid an initial sales charge and was not
subject to a deferred sales charge on the redeemed
account. Class A shares are offered at net asset value
to such persons because of anticipated economies in
sales efforts and sales related expenses. The Trust
may terminate, or amend the terms of, offering shares
of the Trust at net asset value to such persons at any
time. PFS may pay PFS Investments Registered
Representatives through whom purchases are made at net
asset value an amount equal to 0.40% of the amount
invested if the purchase represents redemption
proceeds from an investment company distributed by an
entity other than PFS. Contact PFSSS at (800) 544-5445
for further information and appropriate forms.
a. Additional General Information
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,
shareholders can invest at least $25 on a monthly basis
or at least $50 on a quarterly basis( not available to
PFS accounts) to charge the regular bank account or
other financial institution indicated by the
shareholder, to provide 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
PFS Investments. 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 a
Salomon Smith Barney Financial Consultant, or a PFS
Investments Registered Representative.
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).
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
Citi Fiduciary Trust Company (the "Transfer Agent") or
a PFS Investments Registered Representative 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). Investors 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 the Transfer Agent 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 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 the Transfer Agent 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. Deferred Sales Charge, 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 sub-transfer agent 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. The
Transfer Agent 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 the Transfer Agent 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,
from 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.
a. Salomon Smith Barney Accounts.
Salomon Smith Barney Shares held by Salomon Smith Barney
as custodian must be redeemed by submitting a written
request to a Financial Consultant. Shares other than
those held by Salomon Smith Barney as custodian may be
redeemed through an investor's Financial Consultant,
introducing broker or dealer in the selling group or by
submitting a written request for redemption to:
Smith Barney Fundamental Value Fund Inc.
Class A, B, L, or Y (please specify)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940 - 9699
A written redemption request must (a) state the class
and number or dollar amount of shares to be redeemed,
(b) identify the shareholder's account number and (c) be
signed by each registered owner exactly as the shares
are registered. 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 PFPC together with the
redemption request. Any signature appearing on a share
certificate, stock power or written redemption request
in excess of $2,000 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 $2,000 or less do not require a signature
guarantee unless more than one such redemption request
is made in any 10-day period. Redemption proceeds will
be mailed to an investor's address of record. The
Transfer Agent 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 the Transfer Agent receives all required documents
in proper form.
Automatic Cash Withdrawal Plan. Each fund offers
shareholders an automatic cash withdrawal plan, under
which shareholders who own shares with a value of at
least $10,000 may elect to receive cash payments of at
least $50 monthly or quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal
plans only where the shareholder is eligible to receive
qualified distributions and has an account value of at
least $5,000. The withdrawal plan will be carried over
on exchanges between funds or classes of the fund. Any
applicable deferred sales charge will not be waived on
amounts withdrawn by a shareholder that exceed 1.00% per
month of the value of the shareholder's shares subject
to the deferred sales charge at the time the withdrawal
plan commences. (With respect to withdrawal plans in
effect prior to November 7, 1994, any applicable
deferred sales charge will be waived on amounts
withdrawn that do not exceed 2.00% per month of the
value of the shareholder's shares subject to the
deferred sales charge.) For further information
regarding the automatic cash withdrawal plan,
shareholders should contact a Salomon Smith Barney
Financial Consultant.
Telephone Redemption and Exchange Program. Shareholders
who do not have a brokerage account may be eligible to
redeem and exchange shares by telephone. To determine if
a shareholder is entitled to participate in this
program, he or she should contact the transfer agent at
1-800-451-2010. Once eligibility is confirmed, the
shareholder must complete and return a Telephone/Wire
Authorization Form, along with a signature guarantee,
that will be provided by the transfer agent upon
request. (Alternatively, an investor may authorize
telephone redemptions on the new account application
with the applicant's signature guarantee when making
his/her initial investment in the fund.)
Redemptions. Redemption requests of up to $10,000 of
any class or classes of shares of the fund may be made
by eligible shareholders by calling the transfer agent
at 1-800-451-2010. Such requests may be made between
9:00 a.m. and 4:00 p.m. (New York City time) on any day
the NYSE is open. Redemptions of shares (i) by
retirement plans or (ii) for which certificates have
been issued are not permitted under this program.
A shareholder will have the option of having the
redemption proceeds mailed to his/her address of record
or wired to a bank account predesignated by the
shareholder. Generally, redemption proceeds will be
mailed or wired, as the case may be, on the next
business day following the redemption request. In order
to use the wire procedures, the bank receiving the
proceeds must be a member of the Federal Reserve System
or have a correspondent relationship with a member bank.
The funds reserve the right to charge shareholders a
nominal fee for each wire redemption. Such charges, if
any, will be assessed against the shareholder's account
from which shares were redeemed. In order to change the
bank account designated to receive redemption proceeds,
a shareholder must complete a new Telephone/Wire
Authorization Form and, for the protection of the
shareholder's assets, will be required to provide a
signature guarantee and certain other documentation.
Exchanges. Eligible shareholders may make exchanges by
telephone if the account registration of the shares of
the fund being acquired is identical to the registration
of the shares of the fund exchanged. Such exchange
requests may be made by calling the transfer agent at 1-
800-451-2010 between 9:00 a.m. and 4:00 p.m. (New York
City time) on any day on which the NYSE is open.
Additional Information regarding Telephone Redemption
and Exchange Program. Neither the funds nor any of
their agents will be liable for following instructions
communicated by telephone that are reasonably believed
to be genuine. The funds and their 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 funds reserve 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.
b. PFS Accounts
Shareholders may redeem for cash some or all of their
shares of a Fund at any time by sending a written
request in proper form directly to a sub-transfer agent,
PFS Shareholder Services, at 3100 Breckinridge Blvd,
Bldg. 200, Duluth, Georgia 30099-0062. If you should
have any questions concerning how to redeem your account
after reviewing the information below, please contact
PFSSS at (800) 544-5445, Spanish-speaking
representatives (800) 544-7278 or TDD Line for the
Hearing Impaired (800) 824-1721.
The request for redemption must be signed by all persons
in whose names the shares are registered. Signatures
must conform exactly to the account registration. If the
proceeds of the redemption exceed $50,000, or if the
proceeds are not paid to the record owner(s) at the
record address, if the shareholder(s) has had an address
change in the past 45 days, or if the shareholder(s) is
a corporation, sole proprietor, partnership, trust or
fiduciary, signature(s) must be guaranteed by one of the
following: a bank or trust company; a broker-dealer; a
credit union; a national securities exchange, registered
securities association or clearing agency; a savings and
loan association; or a federal savings bank.
Generally, a properly completed Redemption Form with any
required signature guarantee is all that is required for
a redemption. In some cases, however, other documents
may be necessary. For example, in the case of
shareholders holding certificates, the certificates for
the shares being redeemed must accompany the redemption
request. Additional documentary evidence of authority is
also required by the Sub-Transfer Agent in the event
redemption is requested by a corporation, partnership,
trust, fiduciary, executor or administrator.
Additionally, if a shareholder requests a redemption
from a Retirement Plan account (IRA, SEP or 403(b)(7)),
such request must state whether or not federal income
tax is to be withheld from the proceeds of the
redemption check.
A shareholder may utilize the PFSSS Telephone Redemption
service to redeem his or her account as long as they
have authorized the telephone redemption option. If a
shareholder does not wish to allow telephone redemptions
by any person in his account, he should decline the
telephone transaction option on the account application.
The telephone redemption option can be used only if:
(a) the redemption proceeds are to be mailed to the
address of record and there has been no change of
address of record within the preceding 45 days; (b) the
shares to be redeemed are not in certificate form; (c);
the person requesting the redemption can provide proper
identification information; and (d) the proceeds of the
redemption do not exceed $50,000. 403(b)(7) accounts
and accounts not registered in the name of individual(s)
are not eligible for the telephone redemption option.
Telephone redemption requests can be made by contacting
the PFSSS at (800) 544-5445 between 9:00 a.m. and 6:00
p.m. eastern time any day that the NYSE is open.
Telephone redemption may not be available if the
shareholder cannot reach the PFSSS whether because all
telephone lines are busy or for any other reason; in
such case, a shareholder would have to use the Fund's
regular redemption procedure described above.
A shareholder may utilize the PFSSS FAX to redeem the
shareholder's account as long as a signature guarantee
or other documentary evidence is not required.
Redemption requests should be properly signed by all
owners of the account and faxed to the PFSSS at (800)
554-2374. Facsimile redemptions may not be available if
the shareholder cannot reach the PFSSS by FAX, whether
because all telephone lines are busy or for any other
reason; in such case, a shareholder would have to use
the Fund's regular redemption procedure described above.
Facsimile redemptions received by the PFSSS prior to
4:00 p.m. Eastern time on a regular business day will be
processed at the net asset value per share determined
that day.
After following the redemption guidelines stated in the
Prospectus and SAI, a shareholder may elect to have the
redemption proceeds transferred via Wire or ACH directly
to the shareholder's bank account of record (defined as
a currently established pre-authorized draft on the
shareholder's account included with the application or
with no changes within the previous 30 days) as long as
the bank account is registered in the same name(s) as
the account with the Fund. Redemption proceeds can be
sent by check to the address of record or by wire
transfer to a bank account designated on the
application. A shareholder will be charged a $25
service fee for wire transfers and a nominal service fee
for transfers made directly to the shareholder's bank by
the Automated Clearing House (ACH). If the proceeds are
not to be transferred to the bank account of record or
mailed to the registered owner, the request must be
submitted in writing and a signature guarantee will be
required from all shareholders. Redemption proceeds
will normally be sent to the designated bank account on
the next business day following the redemption, and
should ordinarily be credited to the shareholder's bank
account by his/her bank within 48 to 72 hours for wire
transfers and 72 to 96 hours for ACH transfers.
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 Deferred Sales Charge 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 Deferred Sales Charge 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 Deferred Sales Charge). 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 the sub-
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 the sub-transfer agent
may continue to do so and applications for participation
in the Withdrawal Plan must be received by the sub-
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.
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
As your needs change, you may wish to reposition your
investments. With Smith Barney Mutual Funds, you have
the ability to exchange your shares of most Smith Barney
mutual funds for those of others within the family.
Except as otherwise noted below, shares of each Class of
the fund may be exchanged for shares of the same Class
of certain Smith Barney Mutual Funds, to the extent
shares are offered for sale in the shareholder's state
of residence. Exchanges of Class A, Class B, and and
Class O shares are subject to minimum investment
requirements and all shares are subject to the other
requirements of the fund into which exchanges are made.
Class B Exchanges. In the event a Class B shareholder
wishes to exchange all or a portion of his or her shares
in any fund imposing a higher deferred sales charge than
that imposed by the fund, the exchanged Class B shares
will be subject to the higher applicable deferred sales
charge. Upon an exchange, the new Class B shares will be
deemed to have been purchased on the same date as the
Class B shares of the fund that have been exchanged.
Class L Exchanges. Upon an exchange, the new Class L
shares will be deemed to have been purchased on the same
date as the Class L shares of the fund that have been
exchanged.
Class A and Class Y Exchanges. Class A and Class Y
shareholders of the fund who wish to exchange all or a
portion of their shares for shares of the respective
Class in any of the funds identified above may do so
without imposition of any charge.
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.
Special Provisions - PFS Accounts
For PFS Accounts, shares of each class of the fund may
be exchanged at the net asset value next determined for
shares of the same class in the following funds, to the
extent shares are offered for sale in the shareholder's
state of residence.
Concert Investment Series - Municipal Bond Fund
Concert Peachtree Growth Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Concert Allocation Series Inc. -
Balanced Portfolio
Smith Barney Concert Allocation Series Inc. -
Conservative Portfolio
Smith Barney Concert Allocation Series Inc. -
Global Portfolio
Smith Barney Concert Allocation Series Inc. -
Growth Portfolio
Smith Barney Concert Allocation Series Inc. - High
Growth Portfolio
Smith Barney Concert Allocation Series Inc. -
Income Portfolio
Smith Barney Income Funds - Diversified
Strategic Income Fund
Smith Barney Investment Grade Bond Fund
*Smith Barney Money Funds, Inc. - Cash Portfolio
**Smith Barney Exchange Reserve Fund
* Available for exchange with Class A shares of a
Fund.
** Available for exchange with Class B shares of a
Fund.
Shareholders who establish telephone transaction
authorization on their account may request an exchange
by telephone. If a shareholder does not wish to allow
telephone exchanges by any person in his account, he
should decline the telephone transaction option on the
account application. Redemption procedures discussed
below are also applicable for exchanging shares, and
exchanges will be made upon receipt of all supporting
documents in proper form. Exchanges between funds
involving exact registrations do not require a signature
guarantee.
PERFORMANCE DATA
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
30.31%
16.90%
13.83%
14.24%
11/12/81
Class B2
31.00%
17.10%
N/A
16.28%
11/6/92
Class L3
33.66%
17.01%
N/A
14.91%
08/10/93
Class Y4
37.57%
N/A
N/A
17.74%
10/13/95
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 no sales
charge had not been deducted, the average annual
total return for Class A shares for the same periods
would have been 37.17%, 18.10%,14.42% and 14.57%,
respectively.
2 The average annual total return figure assumes that
the maximum applicable Deferred Sales Charge has been
deducted from the investment at the time of
redemption. If no Deferred Sales Charge had not been
deducted, the average annual total return for Class
B shares for the same periods would have been 36.00%,
17.21% and 16.28%, respectively.
3 The average annual total return figure assumes that
the maximum applicable Deferred Sales Charge has been
deducted from the investment at the time of
redemption. If no Deferred Sales Charge had not been
deducted, the average annual total return for Class
L shares for the same period would have been 36.00%,
17.24% and 15.09%, respectively.
4 Class Y shares do not incur sales charges nor
Deferred Sales Charges. 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 of Class Y
shares.
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
Inception
date
Class A1
30.31%
118.27%
265.2%
983.41%
11/12/81
Class B2
31.00%
120.2%
N/A
183.11%
11/6/92
Class L3
33.66%
119.36%
N/A
134.83%
08/10/93
Class Y4
37.57%
N/A
N/A%
82.03%
10/13/95
1 The aggregate total return figure assumes that
the maximum 5.00% sales charge has been deducted from
the investment at the time of purchase. If no sales
charge had not been deducted, the aggregate
total return for Class A shares for the same period
would have been 37.17%, 129.71%, 284.61% and
1,039.75%, respectively.
2 The aggregate total return figure assumes that
the maximum applicable Deferred Sales Charge has been
deducted from the investment at the time of
redemption. If the no Deferred Sales Charge had not
been deducted, the aggregate total return for
Class B shares for the same period would have been
36.00%, 121.20% and 183.11%, respectively.
3 The aggregate total return figure assumes that
the maximum applicable Deferred Sales Charge has been
deducted from the investment at the time of
redemption. If no Deferred Sales Charge had not been
deducted, the aggregate total return for Class
L shares for the same period would have been 36.00%,
121.51% and 137.13%, respectively.
4 Class Y shares do not incur sales charges nor
Deferred Sales Charges. 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 of Class Y
shares.
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.
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.
Citi Fiduciary Trust Company, located at
388 Greenwich Street, New York, NY 10013 serves as the
Transfer Agent and shareholder services agent of the
fund. PFPC Global Fund Services, located at P.O. Box
9699, Providence, RI 02940-9699, serves as a sub-
transfer agent to render certain shareholder record
keeping and accounting services functions. In
addition, PFS Shareholder Services, located at 3100
Breckinridge Blvd, Bldg. 200, Duluth, Georgia 30099-
0062, serves as a sub-transfer agent to render certain
shareholder record keeping and accounting services
functions.
FINANCIAL STATEMENTS
The fund's Annual Report for the fiscal year ended
September 30, 1999 is incorporated herein by reference
in its entirety. The Annual Report was filed on November
30, 1999, Accession Number 91155-99-758.
