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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON April 4, 2000.
SECURITIES ACT FILE NO. 333-96409
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO.1 [X]
POST-EFFECTIVE AMENDMENT NO. [ ]
SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
388 GREENWICH STREET, NEW YORK, NY 10013
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(800) 451-2010
(REGISTRANT'S AREA CODE AND TELEPHONE NUMBER)
HEATH B. MCLENDON
SSB CITI FUND MANAGEMENT LLC
388 GREENWICH STREET
NEW YORK, NY 10013
(NAME AND ADDRESS OF AGENT FOR SERVICE)
WITH COPIES TO:
BURTON M. LEIBERT, ESQ. CHRISTINA T. SYDOR, ESQ.
WILLKIE FARR & GALLAGHER SSB CITI FUND MANAGEMENT LLC
787 SEVENTH AVENUE 388 GREENWICH STREET
NEW YORK, NY 10019-6099 NEW YORK, NY 10013
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable
after this Registration Statement becomes effective.
TITLE OF SECURITIES BEING REGISTERED:
Shares of Common Stock ($.001 par value) of the Registrant
--------------------
The Registrant has registered an indefinite amount of securities under
the Securities Act of 1933 pursuant to Section 24(f) under the Investment
Company Act of 1940; accordingly, no fee is payable herewith because of reliance
upon Section 24(f).
Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PART A
INFORMATION REQUIRED IN THE PROXY STATEMENT/PROSPECTUS
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SMITH BARNEY INVESTMENT FUNDS INC.
Smith Barney Contrarian Fund
388 Greenwich Street
New York, New York 10013
April 3, 2000
Dear Shareholder:
You are being asked to vote on an Agreement and Plan of Reorganization
whereby all or substantially all of the assets of Smith Barney Contrarian Fund
(the "Fund"), a series of Smith Barney Investment Funds Inc. ("Investment
Funds"), would be transferred in a tax-free reorganization to Smith Barney
Fundamental Value Fund Inc. (the "Acquiring Fund"), in exchange for shares of
the corresponding class of common stock of the Acquiring Fund. If the
Agreement and Plan of Reorganization is approved and consummated, you would no
longer be a shareholder of the Fund, but would become a shareholder of the
corresponding class of the Acquiring Fund, which has similar investment
objectives and policies to your Fund, except as described in the Proxy
Statement/Prospectus.
AFTER CAREFUL REVIEW, THE MEMBERS OF YOUR FUND'S BOARD HAVE APPROVED THE
PROPOSED REORGANIZATION. THE BOARD MEMBERS OF YOUR FUND BELIEVE THAT THE
PROPOSAL SET FORTH IN THE NOTICE OF MEETING FOR YOUR FUND IS IMPORTANT AND
RECOMMEND THAT YOU READ THE ENCLOSED MATERIALS CAREFULLY AND THEN VOTE FOR THE
PROPOSAL.
Your vote is important. PLEASE TAKE A MOMENT NOW TO SIGN AND RETURN YOUR
PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE. For more
information, please call 1-800-451-2010.
Respectfully,
/s/ Heath B. McLendon
__________________________________
Heath B. McLendon
Chairman of the Board, President and Chief Executive Officer Smith Barney
Investment Funds Inc.
WE URGE YOU TO SIGN AND RETURN YOUR PROXY CARD(S) IN THE ENCLOSED POSTAGE-
PAID ENVELOPE TO ENSURE A QUORUM AT THE MEETING. YOUR VOTE IS IMPORTANT
REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
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SMITH BARNEY INVESTMENT FUNDS INC.
Smith Barney Contrarian Fund
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Please take notice that a Special Meeting of Shareholders (the "Special
Meeting") of Smith Barney Investment Funds Inc. ("Investment Funds"), on
behalf of its series, Smith Barney Contrarian Fund (the "Fund"), will be held
at 7 World Trade Center, Downtown Conference Center (Mezzanine Level), New
York, New York 10048, on May 26, 2000, at 9:00 a.m., Eastern time, for the
following purposes:
PROPOSAL 1: To approve an Agreement and Plan of Reorganization for the
Fund;
PROPOSAL 2: To transact such other business as may properly come before
the meeting or any adjournment(s) thereof.
The appointed proxies will vote in their discretion on any other business as
may properly come before the Special Meeting or any adjournments thereof.
Holders of record of shares of the Fund at the close of business on March
15, 2000 are entitled to vote at the Special Meeting and at any adjournments
thereof.
If the necessary quorum to transact business or the vote required to approve
a Proposal is not obtained at the Special Meeting, the persons named as
proxies may propose one or more adjournments of the Special Meeting in
accordance with applicable law to permit further solicitation of proxies. Any
such adjournment as to a matter will require the affirmative vote of the
holders of a majority of the Fund's shares present in person or by proxy at
the Special Meeting. The persons named as proxies will vote in favor of such
adjournment those proxies which they are entitled to vote in favor of the
Proposal and will vote against any such adjournment those proxies to be voted
against the Proposal. For more information, please call 1-800-451-2010.
By Order of the Board of Directors
/s/ Christina T. Sydor
_____________________________________
Christina T. Sydor
Secretary
April 3, 2000
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IMPORTANT--WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND
RETURN THE CARD(S) IN THE ENCLOSED ADDRESSED ENVELOPE WHICH REQUIRES NO
POSTAGE AND IS INTENDED FOR YOUR CONVENIENCE. YOUR PROMPT RETURN OF THE
ENCLOSED PROXY CARD(S) MAY SAVE THE NECESSITY AND EXPENSE OF FURTHER
SOLICITATIONS TO ENSURE A QUORUM AT THE SPECIAL MEETING. IF YOU CAN ATTEND THE
SPECIAL MEETING AND WISH TO VOTE YOUR SHARES IN PERSON AT THAT TIME, YOU WILL
BE ABLE TO DO SO.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROPOSAL: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION.................. 4
SYNOPSIS.................................................................... 5
PRINCIPAL INVESTMENTS AND RISK FACTORS...................................... 17
THE PROPOSED TRANSACTION.................................................... 23
ADDITIONAL INFORMATION ABOUT THE FUNDS...................................... 30
ADDITIONAL INFORMATION...................................................... 31
</TABLE>
ADDITIONAL MATERIALS
The following additional materials, which have been incorporated by
reference into the Statement of Additional Information dated April 3, 2000
relating to this Prospectus/Proxy Statement and the Reorganization, will be
sent to all shareholders of the Fund requesting a copy of such Statement of
Additional Information.
1. The Statement of Additional Information for the Acquiring Fund, dated
January 28, 2000.
2. The Statement of Additional Information for the Fund, dated April 30,
1999.
3. Annual Report of the Acquiring Fund for the year ended September 30,
1999 (and, if applicable, any more recent semi-annual report).
4. Annual Report of the Fund for the year ended December 31, 1999.
ii
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SUBJECT TO COMPLETION, DATED APRIL 4, 2000
PROXY STATEMENT/PROSPECTUS
April 3, 2000
Relating To The Acquisition By
SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
(THE "ACQUIRING FUND")
388 Greenwich Street
New York, New York 10013
(800) 451-2010
Of The Assets Of
SMITH BARNEY CONTRARIAN FUND (THE "FUND"),
A SERIES OF SMITH BARNEY INVESTMENT FUNDS INC. ("INVESTMENT FUNDS").
General
This Proxy Statement/Prospectus is furnished to shareholders of the Fund in
connection with a proposed reorganization in which all or substantially all of
the assets of the Fund would be acquired by the Acquiring Fund, in exchange
solely for voting shares of the corresponding class of common stock of the
Acquiring Fund and the assumption by the Acquiring Fund of all of the
liabilities of the Fund (collectively, the "Reorganization"). Shares of the
Acquiring Fund thereby received would then be distributed to the shareholders
of the Fund in complete liquidation of the Fund, and the Fund would be
terminated as a series of Investment Funds. As a result of the Reorganization,
each shareholder of the Fund would receive that number of full and fractional
shares of the corresponding class of the Acquiring Fund having an aggregate
net asset value equal to the aggregate net asset value of such shareholder's
shares of the Fund held as of the close of business on the Closing Date (as
defined herein) of the Reorganization. Shareholders of the Fund are being
asked to vote on an Agreement and Plan of Reorganization pursuant to which
such transactions, as described more fully below, would be consummated.
----------------------
The Securities and Exchange Commission has not approved or disapproved these
securities nor passed upon the accuracy or adequacy of this Proxy
Statement/Prospectus. Any representation to the contrary is a criminal
offense.
No person has been authorized to give any information or to make any
representations other than those contained in this combined Prospectus/Proxy
Statement and in the materials expressly incorporated herein by reference and,
if given or made, such other information or representations must not be relied
upon as having been authorized by the funds.
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This Proxy Statement/Prospectus, which should be retained for future
reference, sets forth concisely the information about the Acquiring Fund that
a prospective investor should know before investing. For a more detailed
discussion of the investment objectives, policies, restrictions and risks of
the Acquiring Fund, see the prospectus for the Acquiring Fund, dated January
28, 2000, as supplemented from time to time, which is included herewith and
incorporated herein by reference. This Acquiring Fund's annual report to
shareholders for the year ended September 30, 1999, which is incorporated
herein by reference, may be obtained without charge by writing to Smith Barney
Mutual Funds, 388 Greenwich Street, New York, New York 10013, or by calling
toll-free (800) 451-2010. For a more detailed discussion of the investment
objectives, policies, restrictions and risks of the Fund, see the prospectus
for the Fund, dated April 30, 1999, and the annual report to shareholders for
the year ended December 31, 1999, each of which is incorporated herein by
reference and a copy of which may be obtained without charge by writing to the
address or by calling the toll-free number set forth above. A Statement of
Additional Information of the Fund and the Acquiring Fund dated April 3, 2000
containing additional information about the Reorganization and the parties
thereto has been filed with the Securities and Exchange Commission (the "SEC"
or the "Commission") and is incorporated by reference into this Proxy
Statement/ Prospectus. A copy of the Statement of Additional Information is
available upon request and without charge by writing to or calling Smith
Barney Mutual Funds at the address or phone number listed above. Shareholder
inquiries regarding the Fund or the Acquiring Fund may also be made by calling
the phone number listed above. The information contained herein concerning the
Fund has been provided by, and is included herein in reliance upon, Investment
Funds on behalf of the Fund. The information contained herein concerning the
Acquiring Fund has been provided by, and is included herein in reliance upon,
the Acquiring Fund.
The Acquiring Fund is a diversified open-end management investment company
organized as a Maryland corporation. The Fund is a diversified series of
Investment Funds, an open-end management investment company organized as a
Maryland corporation. The principal investment objective of the Acquiring Fund
is long-term capital growth. Current income is a secondary consideration of
the Acquiring Fund. The Acquiring Fund seeks to achieve its primary objective
by investing in common stocks and common stock equivalents, such as preferred
stocks and securities convertible into common stocks, of companies that SSB
Citi Fund Management LLC ("SSB Citi") believes are undervalued in the market
place. The investment objective of the Fund is long-term growth of capital.
The Fund invests primarily in common stocks and other equity securities.
Equity securities include exchange traded and over-the-counter common stocks
and preferred shares, debt securities convertible into equity securities, and
warrants and rights relating to equity securities. SSB Citi uses a
"contrarian" approach to selecting investments for the Fund, which means that
SSB Citi seeks stocks that, at the time of purchase, are price depressed,
undervalued or out of favor.
2
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In the descriptions of the Proposal below, the word "fund" is sometimes used
to mean investment companies or series thereof in general, and not the Fund
whose proxy statement this is. In addition, in this Proxy
Statement/Prospectus, for simplicity, actions are described as being taken by
either the Fund or the Acquiring Fund (each, a "Fund," and collectively, the
"Funds"), although all actions are actually taken by Investment Funds on
behalf of the Fund or by the Acquiring Fund, respectively.
This Proxy Statement/Prospectus, the Notice of Special Meeting and the proxy
card(s) are first being mailed to shareholders on or about April 3, 2000 or as
soon as practicable thereafter.
Any shareholder of the Fund giving a proxy has the power to revoke it by
mail (addressed to the Secretary at the principal executive office of
Investment Funds at the address shown at the beginning of this Proxy
Statement/Prospectus) or in person at the Special Meeting by executing a
superseding proxy or by submitting a notice of revocation to the Fund. All
properly executed proxies received in time for the Special Meeting will be
voted as specified in the proxy or, if no specification is made, in favor of
the Proposals referred to in the Proxy Statement.
The presence at any shareholders' meeting, in person or by proxy, of the
holders of shares of the Fund holding a majority of the votes of the Fund
entitled to be cast shall be necessary and sufficient to constitute a quorum
for the transaction of business. If the necessary quorum to transact business
or the vote required to approve any Proposal is not obtained at the Special
Meeting, the persons named as proxies may propose one or more adjournments of
the Special Meeting in accordance with applicable law to permit further
solicitation of proxies with respect to the Proposal that did not receive the
vote necessary for its passage or to obtain a quorum. Any such adjournment as
to a matter will require the affirmative vote of the holders of a majority of
the Fund's shares present in person or by proxy at the Special Meeting. The
persons named as proxies will vote in favor of such adjournment those proxies
which they are entitled to vote in favor of that Proposal and will vote
against any such adjournment those proxies to be voted against that Proposal.
For purposes of determining the presence of a quorum for transacting business
at the Special Meeting, abstentions and broker "non-votes" will be treated as
shares that are present but which have not been voted. Broker non-votes are
proxies received by the Fund from brokers or nominees when the broker or
nominee has neither received instructions from the beneficial owner or other
persons entitled to vote nor has discretionary power to vote on a particular
matter. Accordingly, shareholders are urged to forward their voting
instructions promptly.
3
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The Proposal requires the affirmative vote of the holders of a majority of
the Fund's shares outstanding and entitled to vote thereon. Abstentions and
broker non-votes will have the effect of a "no" vote on the Proposal.
Holders of record of the shares of the Fund at the close of business on
March 15, 2000 (the "Record Date"), as to any matter on which they are
entitled to vote, will be entitled to one vote per share on all business of
the Special Meeting. As of March 15, 2000, there were 15,493,305.078 shares of
the Fund outstanding.
To the best of the Acquiring Fund's knowledge, as of March 15, 2000, no
person owned beneficially more than 5% of any class of the Acquiring Fund's
outstanding shares. To the best of Investment Funds' knowledge, as of March
15, 2000, except as set forth in Annex A, no person owned beneficially more
than 5% of any class of the Fund's outstanding shares.
As of February 4, 2000, less than 1% of the outstanding shares of the Fund
and the Acquiring Fund were owned directly or beneficially by the directors of
Investment Funds and the Acquiring Fund, respectively.
Each of the Fund and the Acquiring Fund provides periodic reports to all of
its shareholders which highlight relevant information, including investment
results and a review of portfolio changes. You may receive an additional copy
of the most recent annual report for each of the Fund and the Acquiring Fund
and a copy of any more recent semi-annual report, without charge, by calling
800-451-2010 or writing to the Fund or the Acquiring Fund at the address shown
at the beginning of this Proxy Statement/Prospectus.
PROPOSAL: APPROVAL OF AGREEMENT
AND PLAN OF REORGANIZATION
The Board of Directors of each of Investment Funds and the Acquiring Fund,
including all of the Directors who are not "interested persons" of such Funds
(as defined in the Investment Company Act of 1940, as amended (the "1940
Act")) (the "Non-Interested Directors" or "Non-Interested Board Members"),
approved on January 7, 2000, an Agreement and Plan of Reorganization (the
"Plan"). Subject to its approval by the shareholders of the Fund, the Plan
provides for (a) the transfer of all or substantially all of the assets and
all of the liabilities of the Fund to the Acquiring Fund in exchange for
shares of the corresponding class of the Acquiring Fund and assumption of the
Fund's liabilities; (b) the distribution of such Acquiring Fund shares to the
shareholders of the Fund in complete liquidation of the Fund and the
cancellation of the Fund's outstanding shares; and (c) the termination of the
Fund as a series of Investment Funds (collectively, the "Reorganization"). As
a result of the Reorganization, each shareholder of the Fund will become a
shareholder of the corresponding class of the Acquiring Fund and
4
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will hold, immediately after the closing of the Reorganization (the
"Closing"), that number of full and fractional shares of the corresponding
class of the Acquiring Fund having an aggregate net asset value equal to the
aggregate net asset value of such shareholder's shares held in the Fund as of
the close of business on the Closing Date (as defined below). The Closing is
expected to occur on June 2, 2000, or on such later date as the parties may
agree in writing (the "Closing Date").
SYNOPSIS
The following is a summary of certain information contained in this Proxy
Statement/Prospectus. This summary is qualified by reference to the more
complete information contained elsewhere in this Proxy Statement/Prospectus,
the Prospectus of the Acquiring Fund, the Prospectus of the Fund and the Plan,
the form of which is attached to this Proxy Statement/Prospectus as Exhibit A.
Shareholders of the Fund should read this entire Proxy Statement/Prospectus
carefully.
Introduction
Like your Fund, the Acquiring Fund is managed and administered by SSB Citi
an affiliate of Salomon Smith Barney Inc. ("Salomon Smith Barney") and has
long-term capital growth as its investment objective. John G. Goode, who
became the portfolio manager of your Fund on January 7, 2000, is also the
portfolio manager of the Acquiring Fund. Moreover, the distributor, custodian
and transfer agent of each of the Fund and the Acquiring Fund are identical.
Whereas the Fund has retained KPMG LLP as its independent auditors, the
Acquiring Fund has retained Deloitte & Touche LLP as its independent auditors.
If the Plan is consummated, shareholders of the Fund will become shareholders
of the corresponding class of the Acquiring Fund. The Reorganization has been
proposed because the Acquiring Fund is subject to less restrictive investment
limitations with respect to foreign securities and options and futures
contracts which, although past performance is not necessarily indicative of
future returns, may offer the opportunity for higher annual income and total
return. The Acquiring Fund is also subject to lower fees and expenses than the
Fund. Shareholders of the Fund will continue to enjoy the same shareholder
privileges, such as systematic investment, automatic cash withdrawal and
automatic dividend reinvestment, and access to professional service
representatives as shareholders of the Acquiring Fund. Each of the Fund and
the Acquiring Fund declares dividends from net investment income and pays
distributions of net realized capital gains, if any, annually. See "Dividends
and Other Distributions." It is a condition of the Reorganization that each
Fund receive an opinion of independent legal counsel that the Reorganization
will be tax-free. This means that shareholders will not realize any capital
gain or loss as a direct result of the Reorganization.
5
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Proposed Transaction
The aggregate net asset value of each class of voting shares of the
Acquiring Fund (the "Shares") issued in exchange for the assets and
liabilities of the corresponding class of the Fund will be equal to the net
asset value of that class of the Fund as of the Closing Date. Immediately
following the transfer of Shares to the Fund, the Shares received by the Fund
will be distributed pro rata to the shareholders of record of the Fund on the
Closing Date and the shares of the Fund will be cancelled.
For the reasons described below under "The Proposed Transaction-Reasons for
the Proposed Transaction," the Board of Directors of Investment Funds,
including the Non-Interested Directors, has concluded the following:
-- the Reorganization is in the best interests of the Fund and its
shareholders; and
-- the interests of the existing shareholders of the Fund will not be
diluted as a result of the Reorganization.
Accordingly, the Directors recommend approval of the Plan. If the Plan is
not approved, the Fund will continue in existence unless other action is taken
by the Directors; such other action may include termination and liquidation of
the Fund.
Comparison of Investment Objectives and Policies
The principal investment objective of the Acquiring Fund is long-term
capital growth. Current income is a secondary consideration of the Acquiring
Fund. The Acquiring Fund seeks to achieve its primary objective by investing
in common stocks and common stock equivalents, such as preferred stocks and
securities convertible into common stocks, of companies that SSB Citi believes
are undervalued in the market place. The Acquiring Fund may also invest in
securities, such as preferred stocks and convertible securities, that provide
dividend or interest income.
The investment objective of the Fund is long-term growth of capital. The
Fund invests primarily in common stocks and other equity securities. Equity
securities include exchange traded and over-the-counter common stocks and
preferred shares, debt securities convertible into equity securities, and
warrants and rights relating to equity securities. SSB Citi uses a
"contrarian" approach to selecting investment, which means that SSB Citi seeks
stocks that, at the time of purchase, are price depressed, undervalued or out
of favor. The Fund's investment restrictions are substantially similar to that
of the Acquiring Fund, except as described in this Proxy Statement/Prospectus.
Each Fund may purchase short-term investments, money market instruments and
repurchase agreements and may lend portfolio securities. Each Fund also has
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stated that it may invest in small, medium and large capitalization companies.
Whereas the Fund may only invest up to 10% of its assets in foreign securities
(including American Depository Receipts ("ADRs")), the Acquiring Fund may
invest up to 25% of its assets in foreign securities (including, among other
things, ADRs). Whereas each Fund may write covered call options, purchase
options, enter into futures contracts and options on futures contracts, and
use forward currency contracts, the Fund may only do so for hedging purposes,
while the Acquiring Fund may do so for hedging purposes and, in some limited
cases, to generate income. Additionally, while the Fund may only invest up to
10% of its assets in derivative contracts and up to 5% of its assets in any
combination of puts, calls, straddles, or spreads, the Acquiring Fund is not
subject to similar restrictions.
Each Fund has either identical or substantially similar fundamental
investment restrictions with respect to its diversified status; issuing senior
securities; industry concentration; borrowing money; purchasing or selling
real estate, real estate mortgages, commodities or commodity contracts; and
making loans. Whereas the Fund as a fundamental policy may engage in the
business of underwriting securities, the Acquiring Fund as a fundamental
policy may not. Investment restrictions of each Fund which are fundamental
policies may not be changed without the approval of the applicable Fund's
shareholders. Investors should refer to the respective prospectuses and
statements of additional information of the Fund and the Acquiring Fund for a
fuller description of each Fund's investment policies and restrictions.
Investment Objective and Policies of the Acquiring Fund
The Acquiring Fund seeks long-term capital growth. Current income is a
secondary consideration. The Acquiring Fund invests primarily in common stocks
and common stock equivalents, such as preferred stocks and securities
convertible into common stocks, of companies that the manager believes are
undervalued in the market place. The Acquiring Fund generally invests in
securities of large, well-known companies but may also invest a significant
portion of its assets in securities of small to medium-sized companies when
SSB Citi believes smaller companies offer more attractive value opportunities.
The Acquiring Fund's primary objective is fundamental and may not be changed
without the approval of the holders of a majority of the Acquiring Fund's
outstanding shares. There is no guarantee that the Acquiring Fund will achieve
its investment objective.
The Acquiring Fund may also invest in securities, such as preferred stocks
and convertible securities, that provide dividend or interest income.
On behalf of the Acquiring Fund, SSB Citi employs a two-step stock selection
process in its search for undervalued stocks of temporarily out of favor
companies. First, SSB Citi uses proprietary models and fundamental research to
try to identify
7
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stocks that are underpriced in the market relative to their fundamental value.
Next, SSB Citi looks for a positive catalyst in the company's near term
outlook which SSB Citi believes will accelerate earnings or improve the value
of the company's assets. SSB Citi also emphasizes companies in those sections
of the economy which SSB Citi believes are undervalued relative to other
sectors.
When evaluating an individual stock, SSB Citi looks for:
. Low market valuations measured by SSB Citi's valuation models
. Positive changes in earnings prospects because of factors such as:
. New, improved or unique products and services
. New or rapidly expanding markets for the company's products
. New management
. Changes in the economic, financial, regulatory or political
environment particularly affecting the company
. Effective research, product development and marketing
. A business strategy not yet recognized by the market place
Principal risks of investing in the Acquiring Fund. Investors could lose
money on their investment in the Acquiring Fund, or the Acquiring Fund may not
perform as well as other investments, if:
. Stock prices decline generally
. SSB Citi's judgment about the attractiveness, value or potential
appreciation of a particular stock proves to be incorrect
. An adverse event, such as negative press reports about a company in
which the Acquiring Fund invests, depresses the value of the company's
stock
. The markets strongly favor growth stocks over stocks with value
characteristics
. Small or medium capitalization companies fall out of favor with
investors.
Compared to funds that focus only on large capitalization companies, the
Acquiring Fund's share price may be more volatile because the Acquiring Fund
also invests a significant portion of its assets in small and medium
capitalization companies.
8
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Compared to large companies, small and medium capitalization companies are
more likely to have:
. More limited product lines
. Fewer capital resources
. More limited management depth
Further, securities of small and medium capitalization companies are more
likely to:
. Experience sharper swings in market values
. Be harder to sell at times and at prices SSB Citi believes appropriate
. Offer greater potential for gains and losses
Investment Objective and Policies of the Fund
The Fund seeks long-term growth of capital and invests primarily in common
stocks and other equity securities. Equity securities include exchange traded
and over-the-counter common stocks and preferred shares, debt securities
convertible into equity securities, and warrants and rights relating to equity
securities.
SSB Citi uses a "contrarian" approach to selecting investments, which means
that SSB Citi seeks stocks that, at the time of purchase, are price depressed,
undervalued or out of favor. SSB Citi believes that the stock market
ultimately will adjust to reflect the intrinsic value of these stocks. Some of
the Fund's investments have a growth component as well.
SSB Citi emphasizes individual security selection while diversifying the
Fund's investments across industries and sectors. Companies in which the Fund
invests may have large, mid or small size market capitalizations and may
operate in any market sector. In selecting individual securities for
investment, SSB Citi looks for:
. Favorable valuation measures, including stock price relative to book
value, cash flow, earnings and sales per share
. Qualitative measures, such as experienced and effective management,
competitive advantages and effective research, product development and
marketing
. Securities valued at the low end of their 52-week trading range or
significantly below their 52-week high trading range
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Principal risks of investing in the Fund. Investors could lose money on
their investment in the Fund, or the Fund may not perform as well as other
investments, if:
. The stock market declines
. Investors continue to disfavor stocks purchased by the Fund, causing
their prices to remain depressed
. SSB Citi's judgment about the attractiveness, value or potential
appreciation of a particular stock proves to be incorrect
Investment Management Fees and Expenses
Investment Funds, on behalf of the Fund, and the Acquiring Fund each retain
SSB Citi pursuant to separate contracts, to manage the daily investment and
business affairs of the Fund and the Acquiring Fund, respectively, subject to
the policies established by their respective Board of Directors. The expenses
of each Fund are paid out of gross investment income. Shareholders pay no
direct charges or fees for investment services.
The Acquiring Fund. SSB Citi, located at 388 Greenwich Street, New York, New
York 10013, serves as the Acquiring Fund's investment adviser and
administrator. SSB Citi (through its predecessor entities) has been in the
investment counseling business since 1968 and renders investment management
and administration services to a wide variety of individual, institutional and
investment company clients having aggregate assets under management as of
December 31, 1999 in excess of $124 billion.
Subject to the supervision and direction of the Acquiring Fund's Board of
Directors, SSB Citi manages the Fund's portfolio in accordance with the
Acquiring Fund's stated investment objective and policies, makes investment
decisions for the Acquiring Fund, places orders to purchase and sell
securities and employs professional portfolio managers and securities analysts
who provide research services to the Acquiring Fund. Under an investment
advisory agreement, the Acquiring Fund pays SSB Citi a monthly fee at the
annual rate of 0.55% of the value of its average daily net assets up to $1.5
billion and 0.50% of the value of its average daily net assets in excess of
$1.5 billion. The fee is graduated so that increases in the Acquiring Fund's
net assets may result in a lower annual fee rate and decreases in its net
assets may result in a higher annual fee rate. As administrator, SSB Citi
oversees all aspects of the Acquiring Fund's administration and operation. For
administration services rendered to the Acquiring Fund, the Acquiring Fund
pays SSB Citi a fee at the annual rate of 0.20% of the value of the Acquiring
Fund's average daily net assets. For its management and administration
services, SSB Citi received a fee during the fund's last fiscal year equal to
0.75% of the fund's average daily net assets. The total investment management
and
10
<PAGE>
administration fees incurred and paid by the Acquiring Fund for the year ended
September 30, 1999 were $12,219,483.
The Acquiring Fund's total expense ratio (total annual operating expenses as
a percentage of average net assets) for each class of its shares for the year
ended September 30, 1999 is set forth below under "Annual Fund Operating
Expenses." SSB Citi projects that if the proposed Reorganization is effected,
the expense ratio for each class of the Acquiring Fund will be unchanged for
the year ending September 30, 2000. The actual expense ratio for the Acquiring
Fund for the year ending September 30, 2000 may be higher or lower than as set
forth below, depending upon the Acquiring Fund's performance, general bond
market and economic conditions, sales and redemptions of the Acquiring Fund
shares (including redemptions by former shareholders of the Fund), and other
factors.
John G. Goode, Chairman and Chief Investment Officer of Davis Skaggs
Investment Management, a division of SSB Citi, and a managing director of
Salomon Smith Barney has been responsible for the day-to-day management of the
Acquiring Fund since November 1990. Mr. Goode has 16 years of experience with
SSB Citi or its predecessors. Mr. Goode's management discussion and analysis
of the Acquiring Fund's performance during the fiscal year ended September 30,
1999 is included in the Fund's Annual Report to Shareholders dated September
30, 1999.
The Fund. The Fund's investment manager is SSB Citi. SSB Citi selects the
Fund's investments and oversees its operations. SSB Citi and Salomon Smith
Barney are subsidiaries of Citigroup Inc. Citigroup businesses produce a broad
range of financial services--asset management, banking and consumer finance,
credit and charge cards, insurance, investments, investment banking and
trading--and use diverse channels to make them available to consumer and
corporate customers around the world. For its management and administration
services, SSB Citi received a fee during the fund's last fiscal year equal to
0.85% of the fund's average daily net assets. The total investment management
and administration fees incurred and paid by the Fund for the year ended
December 31, 1999 were $3,442,248.
Effective January 7, 2000, John G. Goode (described above) assumed the role
of portfolio manager of the Fund.
11
<PAGE>
The expenses of the Fund and the Acquiring Fund for the fiscal year ended
December 31, 1999 and September 30, 1999, respectively, and pro forma expenses
following the proposed restructuring are outlined below, As a result of the
Reorganization, shareholders of the Fund will be investing in the
corresponding class of the Acquiring Fund with expenses that are currently
between 0.08% and 0.12% lower than those of the relevant class of the Fund.
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<CAPTION>
Smith Barney Fundamental Value Fund Inc. Class A Class B Class L Class Y
---------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases (as a
percentage of offering price) 5.00% None 1.00% None
Maximum CDSC (as a percentage of original cost
or redemption proceeds, whichever is lower) None* 5.00% 1.00% None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees 0.75% 0.75% 0.75% 0.75%
12b-1 fees 0.25 1.00 1.00 None
Other expenses 0.17 0.19 0.20 0.07
---- ---- ---- ----
Total Fund Operating Expenses 1.17% 1.94% 1.95% 0.82%
==== ==== ==== ====
<CAPTION>
Smith Barney Contrarian Fund Class A Class B Class L Class Y
---------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases (as a
percentage of offering price) 5.00% None 1.00% None
Maximum CDSC (as a percentage of original cost
or redemption proceeds, whichever is lower) None* 5.00% 1.00% None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees 0.85% 0.85% 0.85% 0.85%
12b-1 fees 0.25 1.00 1.00 None
Other expenses 0.19 0.21 0.19 0.05
---- ---- ---- ----
Total Fund Operating Expenses 1.29% 2.06% 2.04% 0.90%
==== ==== ==== ====
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Smith Barney Fundamental Value Fund Inc. Pro Forma Pro Forma Pro Forma Pro Forma
(Pro Forma) Class A Class B Class L Class Y
---------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% None 1.00% None
Maximum CDSC (as a percentage of original
cost or redemption proceeds, whichever
is lower) None* 5.00% 1.00% None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees 0.75% 0.75% 0.75% 0.75%
12b-1 fees 0.25 1.00 1.00 None
Other expenses 0.17 0.19 0.20 0.07
---- ---- ---- ----
Total Fund Operating Expenses 1.17% 1.94% 1.95% 0.82%
==== ==== ==== ====
</TABLE>
- -----------
* You may buy Class A Shares in amounts of $500,000 or more at net asset
value (without an initial sales charge) but if you redeem those shares
within 12 months of their purchase, you will pay a deferred sales charge
of 1.00%.
13
<PAGE>
Example. This Example is intended to help you compare the cost of investing
in each of the Funds. The Example assumes you invest $10,000 in each Fund for
the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes your investment has a 5% return each
year and that each Fund's annual operating expenses remain the same. Although
your actual costs maybe higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
Smith Barney Fundamental Value Fund Inc. 1 year 3 years 5 years 10 years*
---------------------------------------- ------ ------- ------- ---------
<S> <C> <C> <C> <C>
An Investor would pay the following expenses
on a $10,000 investment, assuming (1) 5.00%
annual return and (2) redemption at the end
of each time period:
Class A $613 $853 $1,111 $ 1,849
Class B 697 909 1,147 2,065
Class L 396 706 1,142 2,352
Class Y 84 262 455 1,014
An investor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
Class A $613 $853 $1,111 $ 1,849
Class B 197 609 1,047 2,065
Class L 296 706 1,142 2,352
Class Y 84 262 455 1,014
<CAPTION>
Smith Barney Contrarian Fund 1 year 3 years 5 years 10 years*
---------------------------- ------ ------- ------- ---------
<S> <C> <C> <C> <C>
An Investor would pay the following expenses
on a $10,000 investment, assuming (1) 5.00%
annual return and (2) redemption at the end
of each time period:
Class A $625 $889 $1,172 $ 1,979
Class B 709 945 1,208 2,192
Class L 405 733 1,187 2,445
Class Y 92 287 498 1,108
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Smith Barney Contrarian Fund 1 year 3 years 5 years 10 years*
---------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
An investor would pay the following
expenses on the same investment,
assuming the same annual return
and no redemption:
Class A $625 $889 $1,172 $1,979
Class B 209 646 1,108 2,192
Class L 305 733 1,187 2,445
Class Y 92 287 498 1,108
<CAPTION>
Smith Barney Fundamental Value Pro Forma Pro Forma Pro Forma Pro Forma
Fund Inc. (Pro Forma) 1 year 3 years 5 years 10 years*
------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
An Investor would pay the following
expenses on a $10,000 investment,
assuming (1) 5.00% annual return
and (2) redemption at the end of
each time period:
Class A $613 $853 $1,111 $1,849
Class B 697 909 1,147 2,065
Class L 396 706 1,142 2,352
Class Y 84 262 455 1,014
An investor would pay the following
expenses on the same investment,
assuming the same annual return
and no redemption:
Class A $613 $853 $1,111 $1,849
Class B 197 609 1,047 2,065
Class L 296 706 1,142 2,352
Class Y 84 262 455 1,014
</TABLE>
- -----------
* Ten-year figures assume conversion of Class B shares to Class A shares at
the end of the eighth year following the date of purchase.
This example assumes reinvestment of all dividends and distributions. This
example should not be considered a representation of past or future expenses.
Actual Fund expenses can vary from year to year and may be higher or lower
than those shown.
Distribution of Shares and Other Services
Currently, CFBDS, Inc. ("CFBDS"), located at 21 Milk Street, Boston, MA
02109-5408, distributes shares of each Fund as principal underwriter and as
such conducts a continuous offering pursuant to a "best efforts" arrangement
requiring CFBDS to take and pay for only such securities as may be sold to the
public. Each
15
<PAGE>
Fund has adopted a plan of distribution under Rule 12b-1 under the 1940 Act
(the "Plan"), pursuant to which Salomon Smith Barney is paid a service fee
with respect to Class A, Class B and Class L shares of each Fund at the annual
rate of 0.25% of the average daily net assets of the respective Class. Salomon
Smith Barney is also paid a distribution fee with respect to Class B and Class
L shares of each Fund at the annual rate of 0.75% of the average daily net
assets attributable to those Classes. Class B shares of each Fund that
automatically convert to Class A shares eight years after the date of original
purchase will no longer be subject to a distribution fee. The fees are used by
Salomon Smith Barney to pay its Financial Consultants for servicing
shareholder accounts and, in the case of Class B and Class L shares, to cover
expenses primarily intended to result in the sale of those shares.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Salomon Smith Barney and the
payments may exceed distribution expenses actually incurred.
Purchase, Redemption and Exchange Information
The purchase, redemption and exchange procedures and privileges with respect
to the Fund are substantially similar to those of the Acquiring Fund.
Dividends and Other Distributions
Each of the Fund and the Acquiring Fund declares dividends from net
investment income and pays distributions of net realized capital gains, if
any, annually. Each Fund intends to distribute any net realized capital gains
after utilization of capital loss carryforwards, if any, in November or
December to prevent application of a federal excise tax. An additional
distribution may be made if necessary. Any dividends or capital gains
distributions declared in October, November or December with a record date in
such month and paid during the following January will be treated by
shareholders for federal income tax purposes as if received on December 31 of
the calendar year in which it is declared. Dividends and distributions of each
Fund will be invested in additional shares of the applicable Fund at net asset
value and credited to the shareholder's account on the payment date or, at the
shareholder's election, paid in cash.
If the Plan is approved by the Fund's shareholders, then as soon as
practicable before the Closing Date, the Fund will pay or have paid its
shareholders a cash distribution of substantially all undistributed 2000 net
investment income and undistributed realized net capital gains.
Tax Consequences
The Fund and the Acquiring Fund will have received an opinion of Willkie
Farr & Gallagher, counsel to Investment Funds and the Acquiring Fund, in
16
<PAGE>
connection with the Reorganization, to the effect that, based upon certain
facts, assumptions and representations, the Reorganization will constitute a
tax-free reorganization within the meaning of section 368(a)(1) of the
Internal Revenue Code of 1986, as amended (the "Code"). If the Reorganization
constitutes a tax-free reorganization, no gain or loss will be recognized by
the Fund or its shareholders as a direct result of the Reorganization. See
"The Proposed Transaction--Federal Income Tax Consequences."
PRINCIPAL INVESTMENTS AND RISK FACTORS
As set forth herein, the Fund and the Acquiring Fund have substantially
similar investment objectives and policies and pursue their respective
objectives in a similar manner. Accordingly, the Funds engage in investments
practices and techniques that are substantially similar. However, the
investment practices and limitations of each Fund (and the risks related
thereto) are not identical. For instance, the Acquiring Fund may invest a
larger portion of its assets in foreign securities and is generally subject to
less restrictive limitations in connections with its use of options and
futures contracts. The skill of each Fund's portfolio management team in
choosing appropriate investments for the relevant Fund will determine in large
part its ability to achieve its investment objective.
A more complete description of the investment practices and limitations of
the Acquiring Fund is contained in the prospectus and statement of additional
information of the Acquiring Fund, dated January 28, 2000, as supplemented
from time to time, a copy of which is included herewith, and in the Statement
of Additional Information of Investment Funds and the Acquiring Fund dated
April 3, 2000 (relating to the proposed Reorganization) which is incorporated
herein by reference. Please refer to each Fund's prospectus and statement of
additional information for a more detailed discussion of the specific
investment practices and risks of the applicable Fund.
The Acquiring Fund. An investment in the Acquiring Fund includes certain
risks and special considerations, such as those described below:
Short-Term Investments. As noted above, in certain circumstances the
Acquiring Fund may invest in short-term money market instruments, such as
obligations of the U.S. government, its agencies and instrumentalities ("U.S.
government securities"), high-quality commercial paper and bank certificates
of deposit and time deposits, and may engage in repurchase agreement
transactions with respect to such instruments.
Repurchase Agreements. The Acquiring 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
17
<PAGE>
the terms of a typical repurchase agreement, the Acquiring 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 Acquiring Fund
to resell, the securities at an agreed-upon price and time, thereby
determining the yield during the Acquiring Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Acquiring 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 Acquiring 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 Acquiring 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 Citi, 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. Consistent with applicable regulatory
requirements, the Acquiring Fund may lend its portfolio securities to brokers,
dealers and other financial organizations. Loans of portfolio securities by
the Acquiring Fund will be collateralized by cash, letters of credit or U.S.
government securities which are maintained at all times in an amount equal to
at least 100% of the current market value of the loaned securities. The risks
in lending portfolio securities, like those associated with other extensions
of secured credit, consist of possible delays 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 SSB Citi to be of good standing and will not be made unless,
in the judgment of SSB Citi, the consideration to be earned from such loans
would justify the risk.
Options on Securities. The Acquiring Fund may write covered call options
with respect to its portfolio securities. The Acquiring Fund realizes a fee
(referred to as a "premium") for granting the rights evidenced by a call
option. A call option embodies the right of its purchaser to compel the writer
of the option to sell to the option holder an underlying security at a
specified price at any time during the option period. Thus, the purchaser of a
call option written by the Acquiring Fund has the right to purchase from the
Acquiring Fund the underlying security owned by the Acquiring Fund at the
agreed-upon price for a specified time period.
Upon the exercise of a call option written by the Acquiring Fund, the
Acquiring Fund may suffer a loss equal to the excess of the security's market
value at the time of the option exercise over the Acquiring Fund's cost of the
security, less the premium received for writing the option.
18
<PAGE>
The Acquiring Fund will write only covered options with respect to its
portfolio securities. Accordingly, whenever the Acquiring Fund writes a call
option on its securities, it will continue to own or have the present right to
acquire the underlying security for as long as it remains obligated as the
writer of the option. To support its obligation to purchase the underlying
security if a call option is exercised, the Acquiring Fund will either (a)
maintain a segregated account consisting of cash or equity and debt securities
of any grade provided such securities have been determined by SSB Citi to be
liquid, unencumbered and marked to market daily pursuant to guidelines
established by the Board of Directors ("eligible segregated assets") having a
value at least equal to the exercise price of the underlying securities or (b)
continue to own an equivalent number of puts of the same "series" (that is,
puts on the same underlying security) with exercise prices greater than those
that it has written (or, if the exercise prices of the puts that it holds are
less than the exercise prices of those that it has written, it will deposit
the difference with its custodian in a segregated account).
The Acquiring Fund may engage in a closing purchase transaction to realize a
profit, to prevent an underlying security from being called or to unfreeze an
underlying security (thereby permitting its sale or the writing of a new
option on the security prior to the outstanding option's expiration). To
effect a closing purchase transaction, the Acquiring Fund would purchase,
prior to the holder's exercise of an option that the Acquiring Fund has
written, an option of the same series as that on which the Acquiring Fund
desires to terminate its obligation. The obligation of the Acquiring Fund
under an option that it has written would be terminated by a closing purchase
transaction, but the Acquiring Fund would not be deemed to own an option as a
result of the transaction. There can be no assurances that the Acquiring Fund
will be able to effect closing purchase transactions at a time when it wishes
to do so. To facilitate closing purchase transactions, however, the Acquiring
Fund ordinarily will write options only if a secondary market for the options
exists on a domestic securities exchange or in the over-the-counter market.
The Acquiring Fund may also, for hedging purposes, purchase put options on
securities traded on national securities exchanges as well as in the over-the-
counter market. The Acquiring Fund may purchase put options on particular
securities in order to protect against a decline in the market value of the
underlying securities below the exercise price less the premium paid for the
option. The ability to purchase put options allows the Acquiring Fund to
protect the unrealized gain on an appreciated security in its portfolio
without actually selling the security. Prior to expiration, most options may
be sold in a closing sale transaction. Profit or loss from such a sale will
depend on whether the amount received is more or less than the premium paid
for the option plus the related transaction cost.
In addition, the Acquiring Fund may, for hedging purposes and/or to generate
income, write put options on securities traded on national securities
exchanges.
19
<PAGE>
Writing a put option could force the Acquiring Fund to purchase securities at
inopportune times or for prices higher or lower than the current market value.
The Acquiring Fund may purchase options and write put options in the over-
the-counter market ("OTC options") to the same extent that it may engage in
transactions in exchange traded options. OTC options differ from exchange
traded options in that they are negotiated individually and terms of the
contract are not standardized as in the case of exchange traded options.
Moreover, because there is no clearing corporation involved in an OTC option,
there is a risk of non-performance by the counterparty to the option. However,
OTC options generally are more available for securities in a wider range of
expiration dates and exercise prices than exchange traded options. It is the
current position of the staff of the SEC that OTC options (and securities
underlying the OTC options) are illiquid securities. Accordingly, the
Acquiring Fund will treat OTC options as subject to the Acquiring Fund's
limitation on illiquid securities until such time as there is a change in the
SEC's position.
Options on Broad-Based Domestic Stock Indexes. The Acquiring Fund may, for
hedging purposes only, write call options and purchase put options on broad-
based domestic stock indexes and enter into closing transactions with respect
to such options. The Acquiring Fund may also, for hedging purposes and/or to
generate income, write put options on stock indexes. Options on stock indexes
are similar to options on securities except that, rather that having the right
to take or make deliver of stock at the specified exercise price, an option on
a stock index gives the holder the right to receive, upon exercise of the
option, an amount of cash if the closing level of the stock index upon which
the option is based is "in the money." This amount of cash is equal to the
difference between the closing level of the index and the exercise price of
the option, expressed in dollars times a specified multiple. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. Unlike stock options, all settlements are in cash, and gain or
loss depends on price movements in the stock market generally rather than
price movements in the individual stocks.
The effectiveness of purchasing puts and writing calls on stock index
options depends to a large extent on the ability of SSB Citi to predict the
price movement of the stock index selected. Therefore, whether the Acquiring
Fund realizes a gain or loss from the purchase of options on an index depends
upon movements in the level of stock prices in the stock market generally.
Additionally, because exercise of index options are settled in cash, a call
writer such as the Acquiring Fund cannot determine the amount of the
settlement obligations in advance and it cannot provide in advance for, or
cover, its potential settlement obligations by acquiring and holding the
underlying securities. When the Acquiring Fund has written the call, there is
also a risk that the market may decline between the time the Acquiring Fund
has a call exercised against it, at a price which is fixed as of the closing
level
20
<PAGE>
of the index on the date of exercise, and the time the Acquiring Fund is able
to exercise the closing transaction with respect to the long call position it
holds.
Futures Contracts and Options on Futures Contracts. A futures contract
provides for the future sale by one party and the purchase by the other party
of a certain amount of a specified security at a specified price, date, time
and place. The Acquiring Fund may enter into futures contracts to sell
securities when SSB Citi believes that the value of the Acquiring Fund's
securities will decrease. An option on a futures contract, as contrasted with
the direct investment in a futures contract, gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time prior to the expiration date of the
option. A call option gives the purchaser of the option the right to enter
into a futures contract to buy and obligates the writer to enter into a
futures contract to sell the underlying securities. A put option gives the
purchaser the right to sell and obligates the writer to buy the underlying
contract. The Acquiring Fund may enter into futures contracts to purchase
securities when SSB Citi anticipates purchasing the underlying securities and
believes that prices will rise before the purchases will be made. When the
Acquiring Fund enters into a futures contract to purchase an underlying
security, eligible segregated assets equal to the market value of the contract
will be deposited in a segregated account with the Acquiring Fund's custodian
to collateralize the position, thereby insuring that the use of the contract
is unleveraged. The Acquiring Fund will not enter into futures contracts for
speculation and will only enter into futures contracts that are traded on a
U.S. exchange or board of trade.
The Acquiring Fund may purchase options on futures contracts to hedge its
portfolio against the risk of a decline in the market value of securities
held, and may purchase call options on futures contracts to hedge against an
increase in the price of securities it is committed to purchase. The Acquiring
Fund may write put and call options on futures contracts in entering into
closing sale transactions and to increase its ability to hedge against changes
in the market value of the securities it holds or is committed to purchase.
The Acquiring Fund will write put and call options only on futures contracts
that are traded on a domestic exchange or board of trade.
In entering into transactions involving futures contracts and options on
futures contracts, the Acquiring Fund will comply with applicable requirements
of the Commodities Futures Trading Commission (the "CFTC") which require that
its transactions in futures and options be engaged in for "bona fide hedging"
purposes or other permitted purposes, provided that aggregate initial margin
deposits and premiums required to establish positions, other than those
considered by the CFTC to be "bona fide hedging," will not exceed 5% of the
Acquiring Fund's net asset value, after taking into account unrealized profits
and unrealized losses on any such contracts.
21
<PAGE>
Foreign Securities and American Depositary Receipts. The Acquiring Fund can
invest up to 25% of its assets in foreign securities and American Depositary
Receipts ("ADRs"). ADRs are dollar-denominated receipts issued generally by
domestic banks representing the deposit with the bank of a security of a
foreign issuer. ADRs are publicly traded on exchanges or over-the-counter in
the United States.
Portfolio Transactions. Portfolio securities transactions or options on
behalf of the Acquiring Fund are placed by SSB Citi with a number of brokers
and dealers, including Salomon Smith Barney. Salomon Smith Barney has advised
the Acquiring Fund that, in transactions with the Acquiring Fund, Salomon
Smith Barney charges a commission rate at least as favorable as the rate
Salomon Smith Barney charges its comparable unaffiliated customers in similar
transactions.
The Fund. An investment in the Fund also includes certain risks and special
considerations, such as those described below:
Derivative contracts. The Fund may, but need not, use derivative contracts,
such as futures and options on securities or securities indices, or options on
these futures, for any of the following purposes:
. To hedge against the economic impact of adverse changes in the market
value of portfolio securities
. As a substitute for buying or selling securities
A derivative contract will obligate or entitle a fund to deliver or receive
an asset or cash payment based on the change in value of one or more
securities or indices. Even a small investment in derivative contracts can
have a big impact on a fund's stock exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains. The
Fund may not fully benefit from or may lose money on derivatives if changes in
their value do not correspond accurately to changes in the value of the fund's
holdings. The other parties to certain derivative contracts present the same
types of default risk as issuers of fixed income securities. Derivatives can
also make a fund less liquid and harder to value, especially in declining
markets.
Foreign securities. The Fund may invest in ADRs and other securities quoted
in U.S. dollars of foreign issuers, including those in emerging markets.
Because the Fund may invest in securities of foreign issuers, the Fund carries
additional risks. The value of your investment may decline if the U.S. and/or
foreign stock markets decline or an adverse event, such as an unfavorable
earnings report, depresses the value of a particular company's stock. Prices
of foreign securities may go down because of foreign government actions,
political instability or the more limited availability of accurate information
about foreign companies. These risks may be more severe for securities of
issuers in emerging markets.
22
<PAGE>
Defensive Investing. Like the Acquiring Fund, the Fund may depart from its
principal investment strategies in response to adverse market, economic or
political conditions by taking temporary defensive positions in all types of
money market and short-term debt securities. If a Fund takes a temporary
defensive position, it may be unable to achieve its investment goal.
THE PROPOSED TRANSACTION
Description of the Plan. As stated above, the Plan provides for the transfer
of all or substantially all of the assets of the Fund to the Acquiring Fund in
exchange for that number of full and fractional shares of the corresponding
class of the Acquiring Fund having an aggregate net asset value equal to the
aggregate net asset value of the shareholder's shares held in the Fund as of
the close of business on the business day preceding the date of the Closing.
The Acquiring Fund will assume all of the liabilities of the Fund. In
connection with the Closing, the Fund will distribute the shares of the
corresponding class of common stock of the Acquiring Fund received in the
exchange to the shareholders of the Fund in complete liquidation of the Fund.
The Fund will be terminated as a series of Investment Funds.
Upon completion of the Reorganization, each shareholder of the Fund will own
that number of full and fractional shares of the corresponding class of the
Acquiring Fund having an aggregate net asset value equal to the aggregate net
asset value of such shareholder's shares held in the Fund immediately as of
the close of business on the Closing Date. Each Fund shareholder's account
with Investment Funds as a shareholder of the Acquiring Fund will be
substantially similar in all material respects to the accounts currently
maintained by Smith Barney Private Trust Company (the "Transfer Agent") for
such shareholder. Some of the outstanding shares of the Fund are represented
by physical certificates; however, in the interest of economy and convenience,
shares of the Fund generally are not represented by physical certificates, and
shares of the Acquiring Fund issued to Fund shareholders similarly will be in
uncertificated form.
Until the Closing, shareholders of the Fund will, of course, continue to be
able to redeem their shares at the net asset value next determined after
receipt by the Fund's Transfer Agent of a redemption request in proper form.
Redemption requests received by the Transfer Agent thereafter will be treated
as requests received for the redemption of shares of the Acquiring Fund
received by the shareholder in connection with the Reorganization.
The obligations of Investment Funds, on behalf of the Fund, and the
Acquiring Fund, under the Plan are subject to various conditions, as stated
therein. Among
23
<PAGE>
other things, the Plan requires that all filings be made with, and all
authority be received from, the SEC and state securities commissions as may be
necessary in the opinion of counsel to permit the parties to carry out the
transactions contemplated by the Plan. The Fund and the Acquiring Fund are in
the process of making the necessary filings. To provide against unforeseen
events, the Plan may be terminated or amended at any time prior to the Closing
by action of the Directors of either Fund, notwithstanding the approval of the
Plan by the shareholders of the Fund. However, no amendment may be made that
materially adversely affects the interests of the shareholders of the Fund
without obtaining the approval of the Fund's shareholders. The Fund and the
Acquiring Fund may at any time waive compliance with certain of the covenants
and conditions contained in the Plan.
Each of the Fund and the Acquiring Fund will assume and pay all of the
expenses that are solely and directly related to the Reorganization in
proportion to their respective net assets, which expenses are estimated to be
approximately $40,000. Shareholders have no rights of appraisal.
Reasons for the Proposed Transaction
At a telephonic meeting of Investment Funds' Board of Directors held on
January 7, 2000, the Directors of the Fund, including all of the Non-
Interested Directors, were presented with materials discussing the benefits
which would accrue to the shareholders of the Fund if the Fund were to
reorganize with and into the Acquiring Fund. Given the benefits which were
expected to accrue to the Fund and its shareholders, the Directors of the Fund
did not consider the liquidation of the Fund or a merger with another fund to
be favorable alternatives to the Reorganization. For the reasons discussed
below, the Board of Directors of Investment Funds, including all of the Non-
Interested Directors, has determined that the proposed Reorganization is in
the best interests of the Fund and its shareholders and that the interests of
the shareholders of the Fund will not be diluted as a result of the proposed
Reorganization.
The proposed combination of the Fund and the Acquiring Fund will allow the
shareholders of the Fund to continue to participate in a professionally-
managed portfolio governed by similar investment objectives and policies. The
Directors of Investment Funds believe that shareholders of the Fund will
benefit from the proposed Reorganization because the Acquiring Fund offers the
following benefits:
Enhanced Flexibility with Respect to Portfolio Investments. As stated
previously, the Acquiring Fund is generally subject to less restrictive
investment limitations with respect to foreign securities and options and
futures contracts. In light of the enhanced management flexibility provided to
SSB Citi, it is anticipated that the Acquiring Fund may achieve a higher level
of income and return over a year's time than the Fund. As discussed in detail
herein, the management fees and total operating expenses of the Acquiring Fund
are also currently (and are projected to be following the Closing of the
Reorganization) lower than the corresponding fees and expenses incurred by the
Fund.
24
<PAGE>
While past performance is not necessarily indicative of future results, the
Acquiring Fund has generally produced better total returns than the Fund over
the periods ended December 31, 1999. During each of the prior one-year and
three-year periods, the Acquiring Fund has ranked in the top 10% of its Lipper
Category, while the Fund has ranked in the bottom 10% of its Lipper Category.
Moreover, while the Acquiring Fund has a 3-star Morningstar rating, the Fund
has a 1-star Morningstar rating, in each case in their respective rating
categories and over the same one-year and three-year periods.
Lower Fees and Expenses. If the proposed transaction is approved,
shareholders of the Fund may benefit from both lower advisory and
administration fees and lower total fund expenses. Please refer to "Investment
Management Fees and Expenses" and "Annual Fund Operating Expenses" set forth
above.
As set forth above, as of their most recent fiscal year end, each class of
shares of the Fund has a higher management and administration fee and higher
gross operating expenses than the corresponding class of the Acquiring Fund.
As a result of the Reorganization, shareholders of the Fund will be investing
in the corresponding class of the Acquiring Fund with expenses that are
currently between 0.08% and 0.12% lower than those of the relevant class of
the Fund. If the Reorganization is approved by shareholders of the Fund, the
Acquiring Fund's net expense ratio for each class of its shares is estimated
to remain unchanged for the year ending September 30, 2000.
Some of the fixed expenses currently paid by the Acquiring Fund, such as
accounting, legal and printing costs, would also be spread over a larger asset
base. Other things being equal, shareholders should benefit from economies of
scale through lower expense ratios and higher net income distributions over
time.
Due to a combination of factors, including the relatively small size of the
Fund, past and prospective sales of the Fund and current market conditions,
the Directors and management of Investment Funds believe the Fund and its
shareholders would benefit from a tax-free reorganization with a larger fund
with substantially similar investment objectives and policies and with a lower
total annual expense ratio. Accordingly, it is recommended that the
shareholders of the Fund approve the Reorganization with the Acquiring Fund.
The Board of Directors of Investment Funds, in recommending the proposed
transaction, considered a number of factors, including the following:
(1) the positive compatibility of the Acquiring Fund's investment
objectives, policies and restrictions with those of the Fund;
(2) the tax-free nature of the Reorganization;
(3) the potential opportunity for higher income levels and higher annual
return;
25
<PAGE>
(4) the lower total annual expense ratio of the Acquiring Fund;
(5) the terms and conditions of the Reorganization and that it should
not result in a dilution of Fund shareholder interests; and
(6) the level of costs and expenses to the Fund of the proposed
Reorganization.
Description of the Securities to be Issued
The Fund is a diversified series of Investment Funds, which was incorporated
under the laws of the State of Maryland on September 29, 1981, and is
registered with the SEC as an open-end management investment company. The
Acquiring Fund was originally incorporated under the laws of the State of
Washington on March 17, 1981, and is registered with the SEC as a diversified,
open-end management investment company. On January 27, 1995, shareholders
approved the reincorporation of the Acquiring Fund as a Maryland corporation,
which subsequently occurred on May 24, 1995. Each 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 relevant Fund's
investment portfolio. As a result, the Classes of each Fund 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.
Each share of each class of a Fund represents an interest in that class of
the Fund that is equal to and proportionate with each other share of that
class of the Fund. Shareholders are entitled to one vote per share (and a
proportionate fractional vote per each fractional share) held on matters on
which they are entitled to vote. Neither Fund is required to hold shareholder
meetings annually, although shareholder meetings may be called for purposes
such as electing or removing Directors, changing fundamental policies or
approving an investment management contract. In the event that shareholders of
a Fund wish to communicate with other shareholders concerning the removal of
any Director, such shareholders shall be assisted in communicating with other
shareholders for the purpose of obtaining signatures to request a meeting of
shareholders, all in the manner provided in Section 16(c) of the 1940 Act as
if Section 16(c) were applicable.
Federal Income Tax Consequences
The Reorganization is conditioned upon the receipt by Investment Funds, on
behalf of the Fund, and the Acquiring Fund of an opinion from Willkie Farr &
26
<PAGE>
Gallagher, substantially to the effect that, based upon certain facts,
assumptions and representations of the parties, for federal income tax
purposes: (i) the transfer to the Acquiring Fund of all or substantially all
of the assets of the Fund in exchange solely for Shares and the assumption by
the Acquiring Fund of all of the liabilities of the Fund, followed by the
distribution of such Shares to Fund shareholders in exchange for their shares
of the Fund in complete liquidation of the Fund, will constitute a
"reorganization" within the meaning of Section 368(a)(1) of the Code, and the
Acquiring Fund and the Fund will each be "a party to a reorganization" within
the meaning of Section 368(b) of the Code; (ii) no gain or loss will be
recognized by the Fund upon the transfer of the Fund's assets to the Acquiring
Fund in exchange for the Acquiring Fund Shares and the assumption by the
Acquiring Fund of liabilities of the Fund or upon the distribution (whether
actual or constructive) of the Acquiring Fund Shares to the Fund's
shareholders in exchange for their shares of the Fund; (iii) the basis of the
assets of the Fund in the hands of the Acquiring Fund will be the same as the
basis of such assets of the Fund immediately prior to the transfer; (iv) the
holding period of the assets of the Fund in the hands of the Acquiring Fund
will include the period during which such assets were held by the Fund; (v) no
gain or loss will be recognized by the Acquiring Fund upon the receipt of the
assets of the Fund in exchange for Shares and the assumption by the Acquiring
Fund of all of the liabilities of the Fund; (vi) no gain or loss will be
recognized by the shareholders of the Fund upon the receipt of Shares solely
in exchange for their shares of the Fund as part of the transaction; (vii) the
basis of Shares received by the shareholders of the Fund will be the same as
the basis of the shares of the Fund exchanged therefor; and (viii) the holding
period of Shares received by the shareholders of the Fund will include the
holding period during which the shares of the Fund exchanged therefor were
held, provided that at the time of the exchange the shares of the Fund were
held as capital assets in the hands of the shareholders of the Fund.
While neither Investment Funds nor the Acquiring Fund is aware of any
adverse state or local tax consequences of the proposed Reorganization, they
have not requested any ruling or opinion with respect to such consequences and
shareholders may wish to consult their own tax adviser with respect to such
matters.
Liquidation and Termination of Series
If the Reorganization is effected, the Fund will be liquidated and
terminated as a series of Investment Funds, and the Fund's outstanding shares
will be cancelled.
Portfolio Securities
If the Reorganization is effected, SSB Citi will analyze and evaluate the
portfolio securities of the Fund being transferred to the Acquiring Fund.
Consistent
27
<PAGE>
with the Acquiring Fund's investment objective and policies, any restrictions
imposed by the Code and the best interests of the Acquiring Fund's
shareholders (including former shareholders of the Fund), SSB Citi will
determine the extent and duration to which the Fund's portfolio securities
will be maintained by the Acquiring Fund. It is possible that there may be a
significant rebalancing of the Fund portfolio securities in connection with
the Reorganization. Subject to market conditions at the time of any such
rebalancing, the disposition of the Fund's portfolio securities may result in
a capital gain or loss. The actual tax consequences of any disposition of
portfolio securities will vary depending upon the specific security(ies) being
sold.
Portfolio Turnover
The portfolio turnover rate for the Acquiring Fund (i.e., the ratio of the
lesser of annual sales or purchases to the monthly average value of the
portfolio (excluding from both the numerator and the denominator securities
with maturities at the time of acquisition of one year or less)), for the year
ended September 30, 1999 was 43%. The portfolio turnover rate for the Fund for
the year ended December 31, 1999 was 89%.
CAPITALIZATION AND PERFORMANCE
PRO FORMA CAPITALIZATION (UNAUDITED)
The following table sets forth the unaudited capitalization of each class of
each of the Acquiring Fund and the Fund as of March 28, 2000, and on a pro
forma basis as of that date, as adjusted giving effect to the Reorganization
discussed herein:(1)
<TABLE>
<CAPTION>
Acquiring The Pro Forma
Fund Fund Combined
---------- -------- ----------
(Actual) (Actual)
<S> <C> <C> <C>
Class A
Net Assets...................................... $ 901,162 $ 44,194 $ 945,356
Net asset value per share....................... $ 15.48 $ 11.59 $ 15.48
Shares outstanding.............................. 58,226 3,813 61,081
Class B
Net Assets...................................... $1,115,938 $102,085 $1,218,023
Net asset value per share....................... $ 15.21 $ 11.36 $ 15.21
Shares outstanding.............................. 73,384 8,984 80,096
Class L
Net Assets...................................... $ 139,796 $ 10,930 $ 150,726
Net asset value per share....................... $ 15.20 $ 11.38 $ 15.20
Shares outstanding.............................. 9,198 960 9,917
Class Y
Net Assets...................................... $ 88,786 $ 14,931 $ 103,717
Net asset value per share....................... $ 15.55 $ 11.68 $ 15.55
Shares outstanding.............................. 5,710 1,279 6,670
</TABLE>
28
<PAGE>
- -----------
(1) Assumes the Reorganization had been consummated on March 28, 2000, and is
for information purposes only. No assurance can be given as to how many
shares of the Acquiring Fund will be received by shareholders of the Fund
on the date the Reorganization takes place, and the foregoing should not
be relied upon to reflect the number of shares of the Acquiring Fund that
actually will be received on or after such date. As the Fund represents
less than 10% of the net assets of the Acquiring Fund, no other pro forma
financial information is being provided. (In thousands, except for per
share values.)
Total return is a measure of the change in value of an investment in a fund
over the period covered, which assumes that any dividends or capital gains
distributions are automatically reinvested in shares of the fund rather than
paid to the investor in cash. The formula for total return used by a fund is
prescribed by the SEC and includes three steps: (1) adding to the total number
of shares of the fund that would be purchased by a hypothetical $1,000
investment in the fund all additional shares that would have been purchased if
all dividends and distributions paid or distributed during the period had been
automatically reinvested; (2) calculating the redeemable value of the
hypothetical initial investment as of the end of the period by multiplying the
total number of shares owned at the end of the period by the net asset value
per share on the last trading day of the period; and (3) dividing this account
value for the hypothetical investor by the amount of the initial investment,
and annualizing the result for periods of less than one year. Total return may
be stated with or without giving effect to any expense limitations in effect
for a fund.
The following table reflects the average annual total returns of Class A
Shares for the 1, 3, 5 and 10 year (or since inception) periods, as
applicable, ending December 31, 1999 for each of the Fund and the Acquiring
Fund:
<TABLE>
<CAPTION>
The
Acquiring
The Fund Fund
--------- ----------
<S> <C> <C>
Average Annual Total Return:(1)
1-year................................................... (10.02%) 24.29%
3-year................................................... 0.39% 18.39%
5-year................................................... N/A 20.49%
10-year.................................................. N/A 15.62%
Since Inception.......................................... 4.04% 14.80%
(6/30/95) (11/12/81)
</TABLE>
- -----------
(1) The average annual total returns for other classes of each Fund's shares
would be similar to the returns of the Class A Shares of the relevant
Fund, but would differ to the extent that the other class of shares had a
higher or lower total annual expense ratio during the relevant periods.
29
<PAGE>
ADDITIONAL INFORMATION ABOUT THE FUNDS
As noted above, additional information about Investment Funds with respect
to the Fund, the Acquiring Fund, and the Reorganization has been filed with
the SEC and may be obtained without charge by writing to Smith Barney Mutual
Funds, 388 Greenwich Street, New York, New York 10013, or by calling (800)
451-2010.
Each Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act, and in accordance therewith, files
reports, proxy material and other information about the applicable Fund with
the Commission.
Such reports, proxy material and other information can be inspected and
copied at the Public Reference Room maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies of such material can also be
obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates or without charge from the
Commission at [email protected]. Copies of such material can also be obtained
from Smith Barney Mutual Funds, 388 Greenwich Street, New York, New York
10013, or by calling (800) 451-2010.
Interests of Certain Persons
SSB Citi and certain of the Acquiring Fund's service providers have a
financial interest in the Reorganization, arising from the fact that their
respective fees under their respective agreements with the Acquiring Fund will
increase as the amount of the Acquiring Fund's assets increases; the amount of
those assets will increase by virtue of the Reorganization.
THE BOARD MEMBERS OF INVESTMENT FUNDS RECOMMEND THAT THE SHAREHOLDERS OF THE
FUND VOTE IN FAVOR OF THIS PROPOSAL.
30
<PAGE>
ADDITIONAL INFORMATION
General
The cost of preparing, printing and mailing the enclosed proxy card(s) and
Proxy Statement/Prospectus and all other costs incurred in connection with the
solicitation of proxies, including any additional solicitation made by letter,
telephone or telegraph, will be paid by each Fund in proportion to their
respective net assets. In addition to solicitation by mail, certain officers
and representatives of Investment Funds, officers and employees of SSB Citi
and certain financial services firms and their representatives, who will
receive no extra compensation for their services, may solicit proxies by
telegram or personally.
To participate in the Special Meeting, the shareholder may submit the proxy
card originally sent with the Proxy Statement/Prospectus or attend in person.
Any proxy given by a shareholder is revocable until voted at the Special
Meeting.
Proposals of Shareholders
Shareholders wishing to submit proposals for inclusion in a proxy statement
for a shareholder meeting subsequent to the Special Meeting, if any, should
send their written proposals to the Secretary of Investment Funds, c/o Smith
Barney Mutual Funds, 388 Greenwich Street, New York, New York 10013, within a
reasonable time before the solicitation of proxies for such meeting. The
timely submission of a proposal does not guarantee its inclusion.
Other Matters to Come Before the Special Meeting
No Board member is aware of any matters that will be presented for action at
the Special Meeting other than the matters set forth herein. Should any other
matters requiring a vote of shareholders arise, the proxy in the accompanying
form will confer upon the person or persons entitled to vote the shares
represented by such proxy the discretionary authority to vote the shares as to
any such other matters in accordance with their best judgment in the interest
of Investment Funds and/or the Fund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) PROMPTLY. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
By Order of the Board of Directors
/s/ Christina T. Sydor
_____________________________________
Christina T. Sydor
Secretary
31
<PAGE>
Annex A
5% Shareholders
<TABLE>
<CAPTION>
Smith Barney Contrarian Fund (Class Y)
- --------------------------------------
<S> <C>
Smith Barney Concert Series, Inc......................................... 41.02%
Growth Protfolio (PNC Bank NA)
Attn: Beverly Timson
200 Stevens Drive, Suite 440
Lester, PA 19113-1522
Smith Barney Concert Series, Inc......................................... 37.35%
High Growth Portfolio (PNC Bank NA)
Attn: Beverly Timson
200 Stevens Drive, Suite 440
Lester, PA 19113-1522
Smith Barney Concert Series, Inc......................................... 13.79%
Select Growth Protfolio (PNC Bank NA)
Attn: Beverly Timson
200 Stevens Drive, Suite 440
Lester, PA 19113-1522
Smith Barney Concert Series, Inc......................................... 7.83%
Select High Growth Protfolio (PNC Bank NA)
Attn: Beverly Timson
200 Stevens Drive, Suite 440
Lester, PA 19113-1522
</TABLE>
32
<PAGE>
INDEX OF EXHIBITS
Exhibit A: Form of Agreement and Plan of Reorganization
<PAGE>
Exhibit A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 31st day of March, 2000, between Smith Barney Investment Funds Inc.
("Investment Funds"), a Maryland corporation with its principal place of
business at 388 Greenwich Street, New York, New York 10013, on behalf of its
series, Smith Barney Contrarian Fund (the "Acquired Fund"), and Smith Barney
Fundamental Value Fund Inc. (the "Acquiring Fund"), a Maryland corporation
with its principal place of business at 388 Greenwich Street, New York, New
York 10013.
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of all or substantially all of
the assets of the Acquired Fund to the Acquiring Fund in exchange solely for
voting shares of the corresponding class of common stock ($.001 par value per
share) of the Acquiring Fund (the "Acquiring Fund Shares"), the assumption by
the Acquiring Fund of all of the liabilities of the Acquired Fund and the
distribution of the Acquiring Fund Shares to the shareholders of the Acquired
Fund in complete liquidation of the Acquired Fund as provided herein, all upon
the terms and conditions hereinafter set forth in this Agreement.
All representations, warranties, agreements or covenants made or undertaken
by the Acquired Fund in this Agreement are actually made or undertaken by
Investment Funds on behalf of the Acquired Fund.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
FOR THE ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND
LIABILITIES AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund
agrees to transfer to the Acquiring Fund all or substantially all of the
Acquired Fund's assets as set forth in section 1.2, and the Acquiring Fund
agrees in exchange therefor (i) to deliver to the Acquired Fund that number of
full and fractional Acquiring Fund Shares determined by dividing the value of
the Acquired Fund's assets, computed
A-1
<PAGE>
in the manner and as of the time and date set forth in section 2.1, by the net
asset value of one Acquiring Fund Share, computed in the manner and as of the
time and date set forth in section 2.2; and (ii) to assume all of the
liabilities of the Acquired Fund, as set forth in section 1.3. Such
transactions shall take place at the closing provided for in section 3.1 (the
"Closing").
1.2. The assets of the Acquired Fund to be acquired by the Acquiring Fund
(collectively "Assets") shall consist of all assets, including, without
limitation, all cash, cash equivalents, securities, commodities and futures
interests and dividends or interest or other receivables that are owned by the
Acquired Fund and any deferred or prepaid expenses shown on the unaudited
statement of assets and liabilities of the Acquired Fund prepared as of the
effective time of the closing (the "Effective Time Statement"), prepared in
accordance with generally accepted accounting principles ("GAAP") applied
consistently with those of the Acquired Fund's most recent audited balance
sheet. The assets shall constitute at least 90% of the fair market value of
the net assets, and at least 70% of the fair market value of the gross assets,
held by Acquired Fund immediately before the Closing (excluding for these
purposes assets used to pay the dividends and other distributions paid
pursuant to section 1.4).
1.3. The Acquired Fund will endeavor to discharge all the Acquired Fund's
known liabilities and obligations prior to the Closing Date as defined in
section 3.1, other than those liabilities and obligations which would
otherwise be discharged at a later date in the ordinary course of business.
1.4. On or as soon as practicable prior to the Closing Date as defined in
section 3.1, each Fund will declare and pay to its shareholders of record one
or more dividends and/or other distributions so that it will have distributed
substantially all of its investment company taxable income (computed without
regard to any deduction for dividends paid) and realized net capital gain, if
any, for the current taxable year through the Closing Date.
1.5. Immediately after the transfer of assets provided for in section 1.1
(the "Liquidation Time"), the Acquired Fund will distribute to the Acquired
Fund's shareholders of record (the "Acquired Fund Shareholders"), determined
as of the Valuation Time (as defined herein), on a pro rata basis, the
Acquiring Fund Shares received by the Acquired Fund pursuant to section 1.1
and will completely liquidate. Such distribution and liquidation will be
accomplished by the transfer of the Acquiring Fund Shares then credited to the
account of the Acquired Fund on the books of the Acquiring Fund to open
accounts on the share records of the Acquiring Fund in the names of the
Acquired Fund Shareholders. The aggregate net asset value of Acquiring Fund
Shares to be so credited to Acquired Fund Shareholders shall be equal to the
aggregate net asset value of each class of the Acquired Fund shares owned by
such shareholders as of the Valuation Time (as defined herein). All issued and
outstanding shares of the Acquired Fund will
A-2
<PAGE>
simultaneously be cancelled on the books of the Acquired Fund, although share
certificates representing interests in shares of the Acquired Fund will
represent a number of Acquiring Fund Shares after the Closing Date as
determined in accordance with section 2.3. The Acquiring Fund will not issue
certificates representing Acquiring Fund Shares in connection with such
exchange.
1.6. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's then-current prospectus and statement of
additional information.
1.7. Any reporting responsibility of the Acquired Fund including, without
limitation, the responsibility for filing of regulatory reports, tax returns,
or other documents with the Securities and Exchange Commission (the
"Commission"), any state securities commission, and any federal, state or
local tax authorities or any other relevant regulatory authority, is and shall
remain the responsibility of the Acquired Fund.
1.8. All books and records of the Acquired Fund, including all books and
records required to be maintained under the 1940 Act and the rules and
regulations thereunder, shall be available to the Acquiring Fund from and
after the Closing Date and shall be turned over to the Acquiring Fund as soon
as practicable following the closing date.
2. VALUATION
2.1. The value of the Assets shall be computed as of the close of regular
trading on The New York Stock Exchange, Inc. ("NYSE") on the Closing Date, as
defined in Section 3.1 (such time and date also being hereinafter called the
"Valuation Time") after the declaration and payment of any dividends and/or
other distributions on that date, using the valuation procedures set forth in
the Acquiring Fund's Articles of Incorporation, as amended, and then-current
prospectus or statement of additional information.
2.2. The net asset value of an Acquiring Fund share shall be the net asset
value per share of each class computed as of the Valuation Time using the
valuation procedures referred to in section 2.1.
2.3. The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Assets shall be determined by
dividing the value of the Assets with respect to shares of each class of the
Acquired Fund determined in accordance with section 2.1 by the net asset value
by class of an Acquiring Fund Share determined in accordance with section 2.2.
A-3
<PAGE>
2.4. All computations of value hereunder shall be made by or under the
direction of each Fund's respective accounting agent, if applicable, in
accordance with its regular practice and the requirements of the 1940 Act and
shall be subject to confirmation by each Fund's respective independent
accountants.
3. CLOSING AND CLOSING DATE
3.1. The Closing of the transactions contemplated by this Agreement shall be
June 2, 2000, or such later date as the parties may agree in writing (the
"Closing Date"). All acts taking place at the Closing shall be deemed to take
place simultaneously as of 4:00 P.M., Eastern time, on the Closing Date,
unless otherwise agreed to by the parties. The Closing shall be held at the
offices of Willkie Farr & Gallagher or at such other place and time as the
parties may agree.
3.2. Acquired Fund shall deliver to Acquiring Fund on the Closing Date a
schedule of assets.
3.3. PNC Bank, National Association, as custodian for the Acquired Fund,
shall deliver at the Closing a certificate of an authorized officer stating
that (a) the Assets shall have been delivered in proper form to PNC Bank,
National Association, custodian for the Acquiring Fund, prior to or on the
Closing Date and (b) all necessary taxes in connection with the delivery of
the Assets, including all applicable federal and state stock transfer stamps,
if any, have been paid or provision for payment has been made. Acquired Fund's
portfolio securities represented by a certificate or other written instrument
shall be presented by Custodian for Acquired Fund to Custodian for Acquiring
Fund for examination no later than five business days preceding the Closing
Date and transferred and delivered by the Acquired Fund as of the Closing Date
by the Acquired Fund for the account of Acquiring Fund duly endorsed in proper
form for transfer in such condition as to constitute good delivery thereof.
Acquired Fund's portfolio securities and instruments deposited with a
securities depository, as defined in Rule 17f-4 under the 1940 Act, shall be
delivered as of the Closing Date by book entry in accordance with the
customary practices of such depositories and Custodian for Acquiring Fund. The
cash to be transferred by the Acquired Fund shall be delivered by wire
transfer of federal funds on the Closing Date.
3.4. Smith Barney Private Trust Company (the "Transfer Agent"), on behalf of
the Acquired Fund, shall deliver at the Closing a certificate of an authorized
officer stating that its records contain the names and addresses of the
Acquired Fund Shareholders and the number and percentage ownership (to three
decimal places) of outstanding Acquired Fund Shares owned by each such
shareholder immediately prior to the Closing. The Acquiring Fund shall issue
and deliver a confirmation evidencing the Acquiring Fund Shares to be credited
on the Closing Date to the Acquired Fund or provide evidence satisfactory to
the Acquired Fund that such Acquiring Fund Shares have been credited to the
Acquired Fund's
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<PAGE>
account on the books of the Acquiring Fund. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts or other documents as such other party or its
counsel may reasonably request to effect the transactions contemplated by this
Agreement.
3.5. In the event that immediately prior to the Valuation Time (a) the NYSE
or another primary trading market for portfolio securities of the Acquiring
Fund or the Acquired Fund shall be closed to trading or trading thereupon
shall be restricted, or (b) trading or the reporting of trading on such
Exchange or elsewhere shall be disrupted so that, in the judgment of the Board
of Directors of either Fund, accurate appraisal of the value of the net assets
with respect to the Acquiring Fund Shares or the Acquired Fund Shares is
impracticable, the Closing Date shall be postponed until the first business
day after the day when trading shall have been fully resumed and reporting
shall have been restored.
4. REPRESENTATIONS AND WARRANTIES
4.1. Investment Funds, on behalf of the Acquired Fund, represents and
warrants to the Acquiring Fund as follows:
(a) Investment Funds is a corporation duly organized and validly
existing under the laws of the State of Maryland with power under
Investment Funds' Articles of Incorporation, as amended, to own all of its
properties and assets and to carry on its business as it is now being
conducted;
(b) Investment Funds is registered with the Commission as an open-end
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and such registration is in full force and
effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired
Fund of the transactions contemplated herein, except such as have been
obtained under the Securities Act of 1933, as amended (the "1933 Act"),
the Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act and
such as may be required by state securities laws;
(d) Other than with respect to contracts entered into in connection with
the portfolio management of the Acquired Fund which shall terminate on or
prior to the Closing Date, Investment Funds is not, and the execution,
delivery and performance of this Agreement by Investment Funds will not
result, in violation of Maryland law or of Investment Funds' Articles of
Incorporation, as amended, or By-Laws, or of any material agreement,
indenture, instrument, contract, lease or other undertaking known to
counsel to which the Acquired Fund is a party or by which it is bound, and
the execution, delivery and performance of this Agreement by the Acquired
Fund will not result in the acceleration of any obligation, or the
imposition of any penalty, under any
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agreement, indenture, instrument, contract, lease, judgment or decree to
which the Acquired Fund is a party or by which it is bound;
(e) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquired Fund or any properties or assets
held by it. The Acquired Fund knows of no facts which might form the basis
for the institution of such proceedings which would materially and
adversely affect its business and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
(f) The Statements of Assets and Liabilities, including the Investment
Portfolio, Operations, and Changes in Net Assets, and the Financial
Highlights of the Acquired Fund at and for the year ended December 31,
1999, has been audited by KPMG LLP, independent certified public
accountants, and are in accordance with GAAP consistently applied, and
such statements (copies of which have been furnished to the Acquiring
Fund) present fairly, in all material respects, the financial position,
results of operations, changes in net assets and financial highlights of
the Acquired Fund as of such date in accordance with GAAP, and there are
no known contingent liabilities of the Acquired Fund required to be
reflected on a statement of assets and liabilities (including the notes
thereto) in accordance with GAAP as of such date not disclosed therein;
(g) Since December 31, 1999, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquired Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by the Acquiring Fund. For purposes
of this subsection (g), a decline in net asset value per share of the
Acquired Fund due to declines in market values of securities in the
Acquired Fund's portfolio, the discharge of Acquired Fund liabilities, or
the redemption of Acquired Fund shares by Acquired Fund Shareholders shall
not constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquired Fund required by law to have been
filed by such dates (including any extensions) shall have been filed and
are or will be correct in all material respects, and all federal and other
taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the
payment thereof, and, to the best of the Acquired Fund's knowledge, no
such return is currently under audit and no assessment has been asserted
with respect to such returns;
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(i) For each taxable year of its operation, the Acquired Fund has met
the requirements of Subchapter M of the Code for qualification as a
regulated investment company and has elected to be treated as such, has
been eligible to and has computed its federal income tax under Section 852
of the Code, and will have distributed all of its investment company
taxable income and net capital gain (as defined in the Code) that has
accrued through the Closing Date;
(j) All issued and outstanding shares of the Acquired Fund (i) have been
offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the
1933 Act and state securities laws, (ii) are, and on the Closing Date will
be, duly and validly issued and outstanding, fully paid and non-
assessable, and (iii) will be held at the time of the Closing by the
persons and in the amounts set forth in the records of the Transfer Agent,
as provided in section 3.3. The Acquired Fund does not have outstanding
any options, warrants or other rights to subscribe for or purchase any of
the Acquired Fund shares, nor is there outstanding any security
convertible into any of the Acquired Fund shares;
(k) At the Closing Date, the Acquired Fund will have good and marketable
title to the Acquired Fund's assets to be transferred to the Acquiring
Fund pursuant to section 1.2 and full right, power, and authority to sell,
assign, transfer and deliver such assets hereunder free of any liens or
other encumbrances, except those liens or encumbrances as to which the
Acquiring Fund has received notice at or prior to the Closing, and upon
delivery and payment for such assets, the Acquiring Fund will acquire good
and marketable title thereto, subject to no restrictions on the full
transfer thereof, including such restrictions as might arise under the
1933 Act and the 1940 Act, except those restrictions as to which the
Acquiring Fund has received notice and necessary documentation at or prior
to the Closing;
(l) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of the Directors of Investment Funds, and, subject to the
approval of the Acquired Fund Shareholders, this Agreement constitutes a
valid and binding obligation of Investment Funds, on behalf of the
Acquired Fund, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(m) The information to be furnished by the Acquired Fund for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the National Association of
Securities Dealers, Inc.), which may be necessary in connection with the
transactions contemplated hereby, shall be accurate and complete in all
material respects
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<PAGE>
and shall comply in all material respects with federal securities and
other laws and regulations applicable thereto; and
(n) The current prospectus and statement of additional information of
the Acquired Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not materially
misleading; and
(o) The proxy statement of the Acquired Fund to be included in the
Registration Statement referred to in section 5.7 (the "Proxy Statement"),
insofar as it relates to the Acquired Fund, will, on the effective date of
the Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements are made, not materially
misleading; provided, however, that the representations and warranties in
this section shall not apply to statements in or omissions from the Proxy
Statement and the Registration Statement made in reliance upon and in
conformity with information that was furnished or should have been
furnished by the Acquiring Fund for use therein.
4.2. The Acquiring Fund represents and warrants to Investment Funds, on
behalf of the Acquired Fund, as follows:
(a) The Acquiring Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland with power under its
Articles of Incorporation, as amended, to own all of its properties and
assets and to carry on its business as it is now being conducted;
(b) The Acquiring Fund is registered with the Commission as an open-end
management investment company under the 1940 Act, and such registration is
in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring
Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as may
be required by state securities laws;
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement by the Acquiring Fund will not result, in
violation of Maryland law or of the Acquiring Fund's Articles of
Incorporation, as amended, or By-Laws, or of any material agreement,
indenture, instrument, contract, lease or other undertaking known to
counsel
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<PAGE>
to which the Acquiring Fund is a party or by which it is bound, and the
execution, delivery and performance of this Agreement by the Acquiring
Fund will not result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, indenture, instrument,
contract, lease, judgment or decree to which the Acquiring Fund is a party
or by which it is bound;
(e) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquiring Fund or any properties or
assets held by it. The Acquiring Fund knows of no facts which might form
the basis for the institution of such proceedings which would materially
and adversely affect its business and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
(f) The Statements of Assets and Liabilities, including the Investment
Portfolio, Operations, and Changes in Net Assets, and the Financial
Highlights of the Acquiring Fund at and for the year ended September 30,
1999 has been audited by Deloitte & Touche LLP, independent auditors, and
are in accordance with GAAP consistently applied, and such statements
(copies of which have been furnished to the Acquired Fund) present fairly,
in all material respects, the financial position, results of operations,
changes in net assets and financial highlights of the Acquiring Fund as of
such date in accordance with GAAP, and there are no known contingent
liabilities of the Acquiring Fund required to be reflected on a statement
of assets and liabilities (including the notes thereto) in accordance with
GAAP as of such date not disclosed therein;
(g) Since September 30, 1999, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquiring Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by Investment Funds on behalf of the
Acquired Fund. For purposes of this subsection (g), a decline in net asset
value per share of the Acquiring Fund due to declines in market values of
securities in the Acquiring Fund's portfolio, the discharge of Acquiring
Fund liabilities, or the redemption of Acquiring Fund shares by Acquiring
Fund shareholders shall not constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquiring Fund required by law to have been
filed by such dates (including any extensions) shall have been filed and
are or will be correct in all material respects, and all federal and other
taxes shown as due or required to be shown as due on said returns and
reports shall have been
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<PAGE>
paid or provision shall have been made for the payment thereof, and, to
the best of the Acquiring Fund's knowledge, no such return is currently
under audit and no assessment has been asserted with respect to such
returns;
(i) For each taxable year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification as a
regulated investment company and has elected to be treated as such, has
been eligible to and has computed its federal income tax under Section 852
of the Code, and will do so for the taxable year including the Closing
Date;
(j) All issued and outstanding shares of the Acquiring Fund (i) have
been offered and sold in every state and the District of Columbia in
compliance in all material respects with applicable registration
requirements of the 1933 Act and state securities laws and (ii) are, and
on the Closing Date will be, duly and validly issued and outstanding,
fully paid and non-assessable. The Acquiring Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquiring Fund shares, nor is there outstanding any
security convertible into any of the Acquiring Fund shares;
(k) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund, for the account of the Acquired Fund Shareholders, pursuant to the
terms of this Agreement, will at the Closing Date have been duly
authorized and, when so issued and delivered, will be duly and validly
issued and outstanding Acquiring Fund Shares, and will be fully paid and
non-assessable;
(l) At the Closing Date, the Acquiring Fund will have good and
marketable title to the Acquiring Fund's assets, free of any liens or
other encumbrances, except those liens or encumbrances as to which the
Acquired Fund has received notice at or prior to the Closing;
(m) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of the Directors of the Acquiring Fund and this Agreement will
constitute a valid and binding obligation of the Acquiring Fund,
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and other laws relating to or affecting creditors' rights and to general
equity principles;
(n) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the National Association of
Securities Dealers, Inc.), which may be necessary in connection with the
transactions contemplated hereby, shall be accurate and complete in all
material respects
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<PAGE>
and shall comply in all material respects with federal securities and
other laws and regulations applicable thereto;
(o) The current prospectus and statement of additional information of
the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not materially
misleading;
(p) The Proxy Statement to be included in the Registration Statement,
only insofar as it relates to the Acquiring Fund, will, on the effective
date of the Registration Statement and on the Closing Date, not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
materially misleading; provided, however, that the representations and
warranties in this section shall not apply to statements in or omissions
from the Proxy Statement and the Registration Statement made in reliance
upon and in conformity with information that was furnished or should have
been furnished by the Acquired Fund for use therein; and
(q) The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act
and such of the state securities laws as may be necessary in order to
continue its operations after the Closing Date.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1. The Acquiring Fund and the Acquired Fund each covenants to operate its
business in the ordinary course between the date hereof and the Closing Date,
it being understood that (a) such ordinary course of business will include (i)
the declaration and payment of customary dividends and other distributions and
(ii) such changes as are contemplated by the Funds' normal operations; and (b)
each Fund shall retain exclusive control of the composition of its portfolio
until the Closing Date.
5.2. Upon reasonable notice, the Acquiring Fund's officers and agents shall
have reasonable access to the Acquired Fund's books and records necessary to
maintain current knowledge of the Acquired Fund and to ensure that the
representations and warranties made by the Acquired Fund are accurate.
5.3. The Acquired Fund covenants to call a meeting of the Acquired Fund
Shareholders entitled to vote thereon to consider and act upon this Agreement
and
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to take all other reasonable action necessary to obtain approval of the
transactions contemplated herein. Such meeting shall be scheduled for no later
than May 26, 2000 (or such other date as the Acquired Fund and the Acquiring
Fund may agree to in writing).
5.4. The Acquired Fund covenants that the Acquiring Fund Shares to be issued
hereunder are not being acquired for the purpose of making any distribution
thereof other than in accordance with the terms of this Agreement.
5.5. The Acquired Fund covenants that it will assist the Acquiring Fund in
obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Acquired Fund Shares and will
provide the Acquiring Fund with a list of affiliates of the Acquired Fund.
5.6. Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund will each take, or cause to be taken, all actions, and do or
cause to be done, all things reasonably necessary, proper, and/or advisable to
consummate and make effective the transactions contemplated by this Agreement.
5.7. Each Fund covenants to prepare the Registration Statement on Form N-14
(the "Registration Statement"), in compliance with the 1933 Act, the 1934 Act
and the 1940 Act in connection with the meeting of the Acquired Fund
Shareholders to consider approval of this Agreement and the transactions
contemplated herein. The Acquiring Fund will file the Registration Statement,
including the Proxy Statement, with the Commission. The Acquired Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the Proxy Statement referred
to in section 4.1(o), all to be included in the Registration Statement, in
compliance in all material respects with the 1933 Act, the 1934 Act and the
1940 Act.
5.8. The Acquired Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquiring Fund, execute and deliver or cause
to be executed and delivered all such assignments and other instruments, and
will take or cause to be taken such further action as the Acquiring Fund may
reasonably deem necessary or desirable in order to vest in and confirm the
Acquiring Fund's title to and possession of all the assets and otherwise to
carry out the intent and purpose of this Agreement.
5.9. The Acquiring Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act and 1940 Act, and
such of the state securities laws as it deems appropriate in order to continue
its operations after the Closing Date and to consummate the transactions
contemplated herein; provided, however, that the Acquiring Fund may take such
actions it reasonably deems advisable after the Closing Date as circumstances
change.
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<PAGE>
5.10. The Acquiring Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquired Fund, execute and deliver or cause
to be executed and delivered all such assignments, assumption agreements,
releases, and other instruments, and will take or cause to be taken such
further action, as the Acquired Fund may reasonably deem necessary or
desirable in order to (i) vest and confirm to the Acquired Fund title to and
possession of all Acquiring Fund shares to be transferred to Acquired Fund
pursuant to this Agreement and (ii) assume the assumed liabilities from the
Acquired Fund.
5.11. As soon as reasonably practicable after the Closing, the Acquired Fund
shall make a liquidating distribution to its shareholders consisting of the
Acquiring Fund Shares received at the Closing.
5.12. The Acquiring Fund and the Acquired Fund shall each use its reasonable
best efforts to fulfill or obtain the fulfillment of the conditions precedent
to effect the transactions contemplated by this Agreement as promptly as
practicable.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions provided
for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1. All representations and warranties of the Acquiring Fund, contained in
this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date, with the same force
and effect as if made on and as of the Closing Date; and there shall be (i) no
pending or threatened litigation brought by any person (other than Acquired
Fund, its adviser or any of their affiliates) against the Acquiring Fund, the
Acquired Fund or their advisers, trustees or officers arising out of this
Agreement and (ii) no facts known to the Acquired Fund which the Acquired Fund
reasonably believes might result in such litigation.
6.2. The Acquiring Fund shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquired Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Acquiring Fund made in this Agreement are true and correct on and as of
the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as the Acquired
Fund shall reasonably request;
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6.3. The Acquired Fund shall have received on the Closing Date an opinion of
Willkie Farr & Gallagher, in a form reasonably satisfactory to the Acquired
Fund, and dated as of the Closing Date, to the effect that:
(a) The Acquiring Fund has been duly formed and is a validly existing
corporation;
(b) The Acquiring Fund has the power to carry on its business as
presently conducted in accordance with the description thereof in the
Acquiring Fund's registration statement under the 1940 Act;
(c) the Agreement has been duly authorized, executed and delivered by
the Acquiring Fund, and constitutes a valid and legally binding obligation
of the Acquiring Fund, enforceable in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and laws of general applicability relating to or affecting creditors'
rights and to general equity principles;
(d) the execution and delivery of the Agreement did not, and the
exchange of the Acquired Fund's assets for Acquiring Fund Shares pursuant
to the Agreement will not, violate the Acquiring Fund's Articles of
Incorporation, as amended, or By-laws; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by
the Acquiring Fund under the Federal laws of the United States or the laws
of the State of Maryland for the exchange of the Acquired Fund's assets
for Acquiring Fund Shares pursuant to the Agreement have been obtained or
made.
Such opinion may state that it is solely for the benefit of the Acquired
Fund, its Directors and its officers. Such counsel may rely as to matters
governed by the laws of the State of Maryland on an opinion of Maryland
counsel and/or certificates of officers or Directors of the Acquiring Fund.
Such opinion also shall include such other matters incident to the transaction
contemplated hereby as the Acquired Fund may reasonably request.
6.4. The Acquiring Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquiring Fund on or before the Closing Date.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
the
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<PAGE>
Acquired Fund of all of the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following further
conditions:
7.1. All representations and warranties of Investment Funds, with respect to
the Acquired Fund, contained in this Agreement shall be true and correct in
all material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Agreement, as of the Closing
Date, with the same force and effect as if made on and as of the Closing Date;
and there shall be (i) no pending or threatened litigation brought by any
person (other than Acquiring Fund, its adviser or any of their affiliates)
against the Acquired Fund, the Acquiring Fund or their advisers, trustees or
officers arising out of this Agreement and (ii) no facts known to the
Acquiring Fund which the Acquiring Fund reasonably believes might result in
such litigation.
7.2. The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities as of the Closing
Date, certified by the Treasurer of the Acquired Fund;
7.3. The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquiring Fund and dated
as of the Closing Date, to the effect that the representations and warranties
of Investment Funds with respect to the Acquired Fund made in this Agreement
are true and correct on and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and as to such
other matters as the Acquiring Fund shall reasonably request;
7.4. The Acquiring Fund shall have received on the Closing Date an opinion
of Willkie Farr & Gallagher, in a form reasonably satisfactory to the
Acquiring Fund, and dated as of the Closing Date, to the effect that:
(a) Investment Funds has been duly formed and is a validly existing
corporation;
(b) The Acquired Fund has the corporate power to carry on its business
as presently conducted in accordance with the description thereof in
Investment Funds' registration statement under the 1940 Act;
(c) the Agreement has been duly authorized, executed and delivered by
Investment Funds, on behalf of the Acquired Fund, and constitutes a valid
and legally binding obligation of Investment Funds, on behalf of the
Acquired Fund, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and laws of general applicability relating to or affecting creditors'
rights and to general equity principles;
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<PAGE>
(d) the execution and delivery of the Agreement did not, and the
exchange of the Acquired Fund's assets for Acquiring Fund Shares pursuant
to the Agreement will not, violate Investment Funds' Articles of
Incorporation, as amended, or By-laws; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by
the Acquired Fund under the Federal laws of the United States or the laws
of the State of Maryland for the exchange of the Acquired Fund's assets
for Acquiring Fund Shares pursuant to the Agreement have been obtained or
made.
Such opinion may state that it is solely for the benefit of the Acquiring
Fund, its Directors and its officers. Such counsel may rely as to matters
governed by the laws of the State of Maryland on an opinion of Maryland
counsel and/or certificates of officers or Directors of the Acquired Fund.
Such opinion also shall include such other matters incident to the transaction
contemplated hereby, as the Acquiring Fund may reasonably request.
7.5. The Acquired Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquired Fund on or before the Closing Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
If any of the conditions set forth below have not been met on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the
other party to this Agreement shall, at its option, not be required to
consummate the transactions contemplated by this Agreement:
8.1. This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of Investment Funds' Articles
of Incorporation, as amended, and By-Laws, applicable Maryland law and the
1940 Act, and certified copies of the resolutions evidencing such approval
shall have been delivered to the Acquiring Fund. Notwithstanding anything
herein to the contrary, neither the Acquiring Fund nor the Acquired Fund may
waive the conditions set forth in this section 8.1;
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or to its knowledge threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain material damages or
other relief in connection with, this Agreement or the transactions
contemplated herein;
A-16
<PAGE>
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all
material respects, of the transactions contemplated hereby shall have been
obtained, except where failure to obtain any such consent, order or permit
would not involve a risk of a material adverse effect on the assets or
properties of the Acquiring Fund or the Acquired Fund, provided that either
party hereto may for itself waive any of such conditions;
8.4. The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act; and
8.5. The parties shall have received an opinion of Willkie Farr & Gallagher
addressed to Investment Funds and the Acquiring Fund substantially to the
effect that, based upon certain facts, assumptions and representations, for
Federal income tax purposes: (i) the transfer to the Acquiring Fund of all or
substantially all of the assets of the Acquired Fund in exchange solely for
Shares and the assumption by the Acquiring Fund of all of the liabilities of
the Acquired Fund, followed by the distribution of such Shares to Acquired
Fund shareholders in exchange for their shares of the Acquired Fund in
complete liquidation of the Acquired Fund, will constitute a "reorganization"
within the meaning of Section 368(a)(1) of the Code, and the Acquiring Fund
and the Acquired Fund will each be "a party to a reorganization" within the
meaning of Section 368(b) of the Code; (ii) no gain or loss will be recognized
by the Acquired Fund upon the transfer of the Acquired Fund's assets to the
Acquiring Fund in exchange for the Acquiring Fund Shares and the assumption by
the Acquiring Fund of liabilities of the Acquired Fund or upon the
distribution (whether actual or constructive) of the Acquiring Fund Shares to
the Acquired Fund's shareholders in exchange for their shares of the Acquired
Fund; (iii) the basis of the assets of the Acquired Fund in the hands of the
Acquiring Fund will be the same as the basis of such assets of the Acquired
Fund immediately prior to the transfer; (iv) the holding period of the assets
of the Acquired Fund in the hands of the Acquiring Fund will include the
period during which such assets were held by the Acquired Fund; (v) no gain or
loss will be recognized by the Acquiring Fund upon the receipt of the assets
of the Acquired Fund in exchange for Shares and the assumption by the
Acquiring Fund of all of the liabilities of the Acquired Fund; (vi) no gain or
loss will be recognized by the shareholders of the Acquired Fund upon the
receipt of Shares solely in exchange for their shares of the Acquired Fund as
part of the transaction; (vii) the basis of Shares received by the
shareholders of the Acquired Fund will be the same as the basis of the shares
of the Acquired Fund exchanged therefor; and (viii) the holding period of
Shares received by the shareholders of the Acquired Fund will include
A-17
<PAGE>
the holding period during which the shares of the Acquired Fund exchanged
therefor were held, provided that at the time of the exchange the shares of
the Acquired Fund were held as capital assets in the hands of the shareholders
of the Acquired Fund. The delivery of such opinion is conditioned upon receipt
by Willkie Farr & Gallagher of representations it shall request of each of
Investment Funds and the Acquiring Fund. Notwithstanding anything herein to
the contrary, neither the Acquiring Fund nor the Acquired Fund may waive the
condition set forth in this section 8.5.
9. INDEMNIFICATION
9.1. The Acquiring Fund agrees to indemnify and hold harmless the Acquired
Fund and each of the Acquired Fund's directors and officers from and against
any and all losses, claims, damages, liabilities or expenses (including,
without limitation, the payment of reasonable legal fees and reasonable costs
of investigation) to which jointly and severally the Acquired Fund or any of
its trustees or officers may become subject, insofar as any such loss, claim
damage liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Acquiring Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
9.2. The Acquired Fund agrees to indemnify and hold harmless the Acquiring
Fund and each of the Acquiring Fund's directors and officers from and against
any and all losses, claims, damages, liabilities or expenses (including,
without limitation, the payment of reasonable legal fees and reasonable costs
of investigation) to which jointly and severally the Acquiring Fund or any of
its trustees or officers may become subject, insofar as any such loss, claim
damage liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Acquired Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
10. FEES AND EXPENSES
10.1. The Acquiring Fund and Investment Funds, on behalf of the Acquired
Fund, represents and warrants to the other that it has no obligations to pay
any brokers or finders fees in connection with the transactions provided for
herein.
10.2. Expenses of the Reorganization that relate to the Acquiring Fund and
the Acquired Fund will be borne by the Funds in proportion to their respective
net assets. Any such expenses which are so borne by a Fund will be solely and
directly related to the Reorganization.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1. The Acquiring Fund and the Acquired Fund agree that neither party has
made any representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
A-18
<PAGE>
11.2. Except as specified in the next sentence set forth in this section
11.2, the representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall not survive the consummation of the transactions contemplated
hereunder.
The covenants to be performed after the Closing and the obligations of each
of the Acquired Fund and Acquired Fund in Sections 9.1 and 9.2 shall survive
the Closing.
12. TERMINATION
This Agreement may be terminated and the transactions contemplated hereby
may be abandoned by either party by (i) mutual agreement of the parties, or
(ii) by either party if the Closing shall not have occurred on or before
January 1, 2001, unless such date is extended by mutual agreement of the
parties, or (iii) by either party if the other party shall have materially
breached its obligations under this Agreement or made a material and
intentional misrepresentation herein or in connection herewith. In the event
of any such termination, this Agreement shall become void and there shall be
no liability hereunder on the part of any party or their respective directors
or officers, except for any such material breach or intentional
misrepresentation, as to each of which all remedies at law or in equity of the
party adversely affected shall survive.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of
Investment Funds and the Acquiring Fund; provided, however, that following the
meeting of the Acquired Fund Shareholders called by the Acquired Fund pursuant
to section 5.3 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund
Shares to be issued to the Acquired Fund shareholders under this Agreement to
the detriment of such shareholders without their further approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly
given if delivered by hand (including by Federal Express or similar express
courier) or transmitted by facsimile or three days after being mailed by
prepaid registered or certified mail, return receipt requested, addressed to
the Acquired Fund, c/o Smith Barney Investment Funds, Inc., 388 Greenwich
Street, New York, New York 10013, with a copy to Willkie Farr & Gallagher, 787
Seventh Avenue, New York, N.Y. 10019-6099, Attn.: Burton M. Leibert, Esq., or
to the Acquiring Fund, 388 Greenwich Street, New York, New York 10013, with a
copy to Willkie Farr &
A-19
<PAGE>
Gallagher, 787 Seventh Avenue, New York, N.Y. 10019-6099, Attn.: Burton M.
Leibert, Esq., or to any other address that the Acquired Fund or the Acquiring
Fund shall have last designated by notice to the other party.
15. HEADINGS; COUNTERPARTS; ASSIGNMENT; LIMITATION OF LIABILITY
15.1. The Article and section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.2. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
15.3. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any
person, firm or corporation, other than the parties hereto and the
shareholders of the Acquiring Fund and the Acquired Fund and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
15.4. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York, without regard to its
principles of conflicts of laws.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President or Vice President and its seal to be affixed
thereto and attested by its Secretary or Assistant Secretary.
Attest:
SMITH BARNEY INVESTMENT FUNDS INC.
on behalf of Smith Barney Contrarian
Fund
By:
---------------------------------
Name:
Title:
Attest:
SMITH BARNEY FUNDAMENTAL VALUE FUND
INC.
By:
------------------------------
Name:
Title:
A-20
<PAGE>
THE PROSPECTUS AND ANNUAL REPORT OF THE ACQUIRING FUND DATED
JANUARY 28, 2000 AND SEPTEMBER 30, 1999, RESPECTIVELY, ARE
INCORPORATED BY REFERENCE TO THE MOST RECENT FILINGS
THEREOF BY THE ACQUIRING FUND
<PAGE>
PART B
INFORMATION REQUIRED IN THE STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
SUBJECT TO COMPLETION, DATED April 4, 2000
STATEMENT OF ADDITIONAL INFORMATION
RELATING TO THE ACQUISITION BY
SMITH BARNEY FUNDAMENTAL VALUE FUND, INC.
(THE "ACQUIRING FUND")
388 Greenwich Street
New York, New York 10013
(800) 451-2010
OF THE ASSETS OF
SMITH BARNEY CONTRARIAN FUND (THE "FUND"),
A SERIES OF SMITH BARNEY INVESTMENT FUNDS, INC. ("INVESTMENT FUNDS").
Dated: April 3, 2000
This Statement of Additional Information, relating
specifically to the proposed transfer of all or substantially all of the assets
of the Fund, a series of Investment Funds, to the Acquiring Fund in exchange for
shares of the corresponding class of the Acquiring Fund and the assumption by
the Acquiring Fund of liabilities of the Fund, consists of this cover page and
the following described documents, each of which accompanies this Statement of
Additional Information and is incorporated herein by reference.
1. Statement of Additional Information for the Acquiring Fund,
dated January 28, 2000.
2. Statement of Additional Information for the Fund, dated April
30, 1999.
3. Annual Report of the Acquiring Fund for the year ended
September 30, 1999 (and, if applicable, any more recent
semi-annual report).
4. Annual Report of the Fund for the year ended December 31,
1999.
This Statement of Additional Information is not a prospectus. A Prospectus/Proxy
Statement, dated April 3, 2000, relating to the above-referenced matter may be
obtained without charge by calling or writing the Acquiring Fund at the
telephone number or address set forth above. This Statement of Additional
Information should be read in conjunction with the Prospectus/Proxy Statement.
B-1
<PAGE>
FINANCIAL STATEMENTS
The Annual Report of the Acquiring Fund for the year ended September
30, 1999 and the Annual Report of the Fund for the year ended December 31, 1999,
each including audited financial statements, notes to the financial statements
and report of the independent auditors, are incorporated by reference herein. To
obtain a copy of the Annual Reports (and, if applicable, any more recent
semi-annual report) without charge, please call 1-800-451-2010.
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
As the Fund represents less than 10% of the net assets of the Acquiring
Fund, pro forma financial statements have not been provided.
<PAGE>
THE ANNUAL REPORT AND STATEMENT OF ADDITIONAL INFORMATION OF THE
ACQUIRING FUND DATED SEPTEMBER 30, 1999 AND JANUARY 28, 2000,
RESPECTIVELY, ARE INCORPORATED BY REFERENCE
TO THE MOST RECENT FILINGS THEREOF BY
THE ACQUIRING FUND
<PAGE>
THE ANNUAL REPORT AND PROSPECTUS AND STATEMENT OF ADDITIONAL
INFORMATION OF THE FUND DATED DECEMBER 31, 1999 AND APRIL 30,
1999, RESPECTIVELY, ARE INCORPORATED BY REFERENCE
TO THE MOST RECENT FILINGS THEREOF BY
SMITH BARNEY INVESTMENT FUNDS, INC.
<PAGE>
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION -- The response to this item is incorporated by
reference to section 9 of the Agreement and Plan of Reorganization and to the
Registrant's Registration Statement on Form N-1A.
ITEM 16. EXHIBITS
1(a) Registrant's Articles of Incorporation are incorporated by
reference to the Registration Statement on Form N-1A filed May
26, 1995.
1(b) Registrant's Articles of Amendment are incorporated by
reference to the Registration Statement on Form N-1A filed on
February 1, 1996.
1(c) Registrant's Articles of Amendment are incorporated by
reference to the Registration Statement on Form N-1A filed on
November 24, 1998.
2 Registrant's By-Laws are incorporated by reference to the
Registration Statement on Form N-1A filed May 26, 1995.
3 Not Applicable.
4 Form of Agreement and Plan of Reorganization is filed herewith
as Exhibit A.
5 Not Applicable.
6 Registrant's Form of Investment Advisory Agreement is
incorporated by reference to the Registration Statement on
Form N-1A filed May 26, 1995.
7 Not Applicable.
8 Prototype Self-Employed Retirement Plan is incorporated by
reference to the Registration Statement on Form N-1A filed
November 29, 1987.
9 Custodian Agreement with PNC Bank, National Association is
incorporated by reference to the Registration Statement on
Form N-1A filed May 26, 1995.
10(a) Services and Distribution Plan is incorporated by reference to
the Registration Statement on Form N-1A filed May 26, 1995.
10(b) Amended and Restated Shareholder Services and Distribution
Plan is incorporated by reference to the Registration
Statement on Form N-1A filed November 24, 1998.
C-1
<PAGE>
10(c) Form of Distribution Agreement between the Registrant and
Smith Barney Inc. is incorporated by reference to the
Registration Statement on Form N-1A filed May 26, 1995.
10(d) Distribution Agreement between the Registrant and CFBDS, Inc.
is incorporated by reference to the Registration Statement on
Form N-1A filed November 24, 1998.
10(e) Form of Rule 18f-3(d) Multiple Class Plan of the Registrant is
incorporated by reference to the Registration Statement on
Form N-1A filed February 1, 1996.
10(f) Amended Rule 18f-3(d) Multiple Class Plan of the Registrant is
incorporated by reference to the Registration Statement on
Form N-1A filed November 24, 1998.
11(a) Opinion and Consent of Willkie Farr & Gallagher incorporated
by reference to the Registration Statement on Form N-14 filed
on February 8, 2000.
11(b) Opinion and Consent of Maryland Counsel is incorporated by
reference to the Registration Statement on Form N-1A filed May
26, 1995.
12 Form of Opinion and Consent of Willkie Farr & Gallagher
supporting the tax matters and consequences to shareholders
discussed in the prospectus incorporated by reference to the
Registration Statement on Form N-14 filed on February 8, 2000.
13(a) Form of Transfer Agency Agreement is incorporated by reference
to the Registration Statement on Form N-1A filed February 1,
1996.
13(b) Form of Consent to Assignment is incorporated by reference to
the Registration Statement on Form N-1A filed May 26, 1995.
13(c) Form of Administration Agreement is incorporated by reference
to the Registration Statement on Form N-1A filed May 26, 1995.
14(a) Consent of Deloitte & Touche LLP is filed herewith.
14(b) Consent of KPMG LLP is filed herewith.
15 Not Applicable.
16 Not Applicable.
17 (a) Form of proxy card is filed herewith.
(b) Annual Report of Smith Barney Investment Funds Inc., dated
December 31, 1999, is incorporated herein by reference.
(c) Prospectus and statement of additional information of
Smith Barney Investment Funds Inc., dated April 30, 1999, are
incorporated herein by reference.
(d) Annual Report of Registrant, dated September 30, 1999, is
incorporated herein by reference.
C-2
<PAGE>
(e) Prospectus and statement of additional information of
Registrant, dated January 28, 2000, are incorporated herein by
reference.
ITEM 17. UNDERTAKINGS
(1) The undersigned registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus which is
a part of this registration statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act [17 CFR
230.145c], the reoffering prospectus will contain the information called for by
the applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned registrant agrees that every prospectus
that is filed under paragraph (1) above will be filed as a part of an amendment
to the registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the 1933 Act, each
post-effective amendment shall be deemed to be a new registration statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
its Registration Statement on Form N-14 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and the State of
New York on the 4th day of April, 2000.
SMITH BARNEY FUNDAMENTAL
VALUE FUND INC.
By: /s/ Heath B. McLendon
----------------------------
Name: Heath B. McLendon
Title: Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/Heath B. McLendon Chairman of the Board April 4, 2000
- ------------------------------ (Chief Executive Officer)
Heath B. McLendon
/s/Lewis E. Daidone Senior Vice President and April 4, 2000
- ------------------------------ Treasurer (Chief Financial and
Lewis E. Daidone Accounting Officer)
/s/Lloyd J. Andrews* Director April 4, 2000
- ------------------------------
Lloyd J. Andrews
/s/Robert M. Frayn* Director April 4, 2000
- ------------------------------
Robert M. Frayn
/s/Leon P. Gardner* Director April 4, 2000
- ------------------------------
Leon P. Gardner
/s/David E. Maryatt* Director April 4, 2000
- ------------------------------
David E. Maryatt
/s/Frederick O. Paulsell* Director April 4, 2000
- ------------------------------
Frederick O. Paulsell
/s/Jerry A. Viscione* Director April 4, 2000
- ------------------------------
Jerry A. Viscione
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Julie W. Weston* Director April 4, 2000
- ------------------------------
Julie W. Weston
*By: /s/Heath B. McLendon
--------------------------
Heath B. McLendon
</TABLE>
Attorney-in-fact pursuant to a power
of attorney filed herewith.
*Signed pursuant to power of attorney filed May 26, 1995, as an exhibit
to Post-Effective Amendment No. 27 to the Registration Statement on Form N-1A
(Securities File No. 2-71469).
C-5
<PAGE>
Exhibit Index
Exhibit Description
14(a) Consent of Deloitte & Touche LLP is filed herewith.
14(b) Consent of KPMG LLP is filed herewith.
17(a) Form of proxy card is filed herewith.
<PAGE>
Exhibit 99.14A
CONSENT OF INDEPENDENT AUDITORS
Smith Barney Fundamental Value Fund Inc.:
We consent to the use in Pre-Effective Amendment No.1 to Registration Statement
No. 333-96409 of our report dated November 12, 1999 appearing in the Annual
Report to Shareholders for the year ended September 30, 1999, which is
incorporated by reference in the Statement of Additional Information, which is
included in such Registration Statement on Form N-14, and to the references to
us under the captions "Synopsis-Introduction" and "Representations and
Warranties" in the Proxy Statement/Prospectus, which is also included in such
Registration Statement on Form N-14.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
New York, New York
March 27, 2000
<PAGE>
Exhibit 99.14B
Independent Auditors' Consent
To the Shareholders and Board of Directors of
Smith Barney Contrarian Fund:
We consent to the incorporation by reference, of our report dated February 11,
2000 and to the references to our firm, with respect to the Smith Barney
Contrarian Fund, under the headings "Representations and Warranties" and
"Introduction" in the Prospectus/Proxy Statement included in this Registration
Statement on Form N-14 for Smith Barney Contrarian Fund.
/s/ KPMG LLP
KPMG LLP
New York, New York
March 30, 2000
<PAGE>
Exhibit 17(a)
VOTE THIS PROXY CARD TODAY! YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
Please fold and detach card at perforation before mailing
SMITH BARNEY CONTRARIAN FUND
MEETING: MAY 26, 2000 AT 9 A.M PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned holder of shares of Smith Barney Contrarian Fund (the
"Contrarian Fund"), a series of Smith Barney Investment Funds Inc. ("Investment
Funds"), hereby appoints Heath B. McLendon, Christina T. Sydor, Robert M. Nelson
and Lewis E. Daidone attorneys and proxies for the undersigned with full powers
of substitution and revocation, to represent the undersigned and to vote on
behalf of the undersigned all shares of the Contrarian Fund that the undersigned
is entitled to vote at the Special Meeting of Shareholders of the Contrarian
Fund to be held at 7 World Trade Center, Downtown Conference Center (Mezzanine
Level), New York, New York 10048 at 9 A.M., and any adjournment or adjournments
thereof. The undersigned hereby acknowledges receipt of the Notice of Special
Meeting and Prospectus/Proxy Statement dated April 3, 2000 and hereby instructs
said attorneys and proxies to vote said shares as indicated herein. In their
discretion, the proxies are authorized to vote upon such other business as may
properly come before the Special Meeting. A majority of the proxies present and
acting at the Special Meeting in person or by substitute (or, if only one shall
be so present, then that one) shall have and may exercise all of the power and
authority of said proxies hereunder. The undersigned hereby revokes any proxy
previously given.
PLEASE SIGN, DATE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE
Date:________________________
Note: Please sign exactly as your
name appears on this Proxy. If
joint owners, EITHER may sign
this Proxy. When signing as
attorney, executor,
administrator, trustee,
guardian or corporate officer,
please give your full title.
---------------------------
---------------------------
Signature(s) Title(s), if
applicable
<PAGE>
Please fold and detach card at perforation before mailing
Please indicate your vote by an "X" in the appropriate box below. This proxy,
if properly executed, will be voted in the manner directed by the undersigned
shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR APPROVAL OF
THE PROPOSAL.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. To approve or disapprove the Agreement and Plan of Reorganization [ ] [ ] [ ]
providing for (i) the acquisition of all or substantially
all of the assets of Smith Barney Contrarian Fund (the " Contrarian Fund")
in exchange for shares of the corresponding class of Smith Barney
Fundamental Value Fund Inc. (the "Fundamental Value Fund") and the
assumption by the Fundamental Value Fund of substantially all of the
liabilities of the Contrarian Fund, (ii) the distribution to shareholders of
the Contrarian Fund of such shares of the Fundamental Value Fund in
liquidation of the Contrarian Fund and the cancellation of the Fund's
outstanding shares and (iii) the subsequent termination of the Contrarian
Fund as a series of Smith Barney Investment Funds Inc.
2. To transact any other business which may properly come before the Meeting or
any adjournment thereof.
</TABLE>
NOTE: your proxy is not valid unless it is signed on the reverse side.
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