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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 8, 2000.
SECURITIES ACT FILE NO. 333-
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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. [ ]
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 __, 2000
Dear Shareholders:
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 the
offices of SSB Citi Fund Management LLC, 7 World Trade Center, New York, New
York 10048, on May 26, 2000, at [3:00] p.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 __, 2000
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.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PROPOSAL: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION........................................................4
SYNOPSIS..........................................................................................................4
PRINCIPAL INVESTMENTS AND RISK FACTORS...........................................................................13
THE PROPOSED TRANSACTION.........................................................................................18
ADDITIONAL INFORMATION ABOUT THE FUNDS...........................................................................24
ADDITIONAL INFORMATION...........................................................................................25
</TABLE>
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ADDITIONAL MATERIALS
The following additional materials, which have been
incorporated by reference into the Statement of Additional Information dated
April __, 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.
iii
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SUBJECT TO COMPLETION, DATED FEBRUARY 8, 2000
PROXY STATEMENT/PROSPECTUS
APRIL __, 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.
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
-----------------------
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.
<PAGE>
by reference. This Proxy Statement/Prospectus is also accompanied by the
Acquiring Fund's annual report to shareholders for the year ended September 30,
1999, which is included herewith and incorporated herein by reference. 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 Smith Barney Mutual Funds, 388 Greenwich Street,
New York, New York 10013, or by calling toll-free (800) 451-2010. A Statement of
Additional Information of the Fund and the Acquiring Fund dated April __, 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.
-----------------------
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 __, 2000
or as soon as practicable thereafter.
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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.
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 [INSERT], 2000, there were [INSERT] shares of the Fund
outstanding.
To the best of the Acquiring Fund's knowledge, as of [INSERT], 2000,
[no person owned beneficially more than 5% of any class of the Acquiring Fund'
outstanding shares]. To the best of Investment Funds' knowledge, as of [INSERT],
2000, [no person owned beneficially more than 5% of any class of the Fund'
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
3
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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 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
4
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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.
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
5
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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
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
6
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models and fundamental research to try to identify 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.
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
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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
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
8
<PAGE>
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 [$119] 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' 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 administration fees incurred and
paid by the Acquiring Fund for the year ended September 30, 1999 were $[INSERT].
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' 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.
9
<PAGE>
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 $[INSERT].
Effective January 7, 2000, John G. Goode (described above) assumed the
role of portfolio manager of the Fund.
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:
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 5.00% None 1.00% None
(as a percentage of offering price)
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 5.00% None 1.00% None
(as a percentage of offering price)
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>
10
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Pro Forma Pro Forma Pro Forma
Smith Barney Fundamental Value Fund Inc. (Pro Forma) Class A Class B Class L Class Y
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases 5.00% None 1.00% None
(as a percentage of offering price)
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%
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*
- ----------------------------------------------------------------------------------------------------------------------
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:
<S> <C> <C> <C> <C>
Class A............................................... $ 613 $853 $1,111 $ 1,849
Class B............................................... 697 909 1,147 2,067
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 2,067
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*
- ----------------------------------------------------------------------------------------------------------------------
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:
<S> <C> <C> <C> <C>
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>
11
<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>
Pro Forma Pro Forma Pro Forma Pro Forma
Smith Barney Fundamental Value Fund Inc. (Pro Forma) 1 year 3 years 5 years 10 years*
- -------------------------------------------------------------- ------------- ------------- ------------- -------------
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:
<S> <C> <C> <C> <C>
Class A............................................... $613 $853 $1,111 $1,849
Class B............................................... 697 909 1,147 2,067
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 2,067
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 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.
12
<PAGE>
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
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
13
<PAGE>
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
__, 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 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
14
<PAGE>
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.
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
15
<PAGE>
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. 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
16
<PAGE>
it, at a price which is fixed as of the closing level 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.
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.
17
<PAGE>
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.
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
18
<PAGE>
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. Certificates representing shares of the Fund will be cancelled after the
Closing.
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 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 $[INSERT]. 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
19
<PAGE>
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. 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.
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 these periods, the
Acquiring Fund has ranked in the [INSERT] of its Lipper Category, while the Fund
has ranked in the [INSERT] of its Lipper Category. Moreover, while the Acquiring
Fund has a [4-star] Morningstar rating, the Fund has a [1-star] Morningstar
rating in their respective rating categories.
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,
20
<PAGE>
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;
(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
21
<PAGE>
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 &
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.
22
<PAGE>
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 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 [__%].
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 December 31, 1999 as
adjusted giving effect to the Reorganization discussed herein:/1/
<TABLE>
<CAPTION>
ACQUIRING THE PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS/2/ COMBINED
---- ---- -------------- --------
(Actual) (Actual)
<S> <C> <C> <C> <C>
Net Assets $ $ $
Net Asset
Value Per Share/3/ $ $ -- $
Shares Outstanding/4/
</TABLE>
- ------------------
/1/ Assumes the Reorganization had been consummated on December 31, 1999,
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.
/2/ Assumes capital gains distributions, without any reinvestment, of
$[INSERT] and $[INSERT] for the Acquiring Fund and the Fund,
respectively.
/3/ Net asset value per share after capital gains distributions, assuming
no reinvestment.
/4/ Assumes the issuance of [INSERT] shares in exchange for the net assets
of the Fund. The number of shares issued was based on the pro forma net
asset value of each Fund, net of estimated capital gains distributions
on December 31, 1999.
23
<PAGE>
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 FUND THE ACQUIRING FUND
-------- ------------------
Average Annual Total Return:/1/
<S> <C>
1-year..................................... 24.29%
3-year.....................................
5-year..................................... 20.49%
10-year.................................... 15.62%
Since Inception............................ 14.80%
(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.
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
24
<PAGE>
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.
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.
25
<PAGE>
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
26
<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 ____ day of _________, 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 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").
A-1
<PAGE>
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 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
A-2
<PAGE>
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.
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
A-3
<PAGE>
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 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;
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(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 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
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<PAGE>
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;
(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,
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<PAGE>
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 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;
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(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 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 certified public accountants, 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
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<PAGE>
said returns and reports shall have been 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 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
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<PAGE>
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 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
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<PAGE>
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.
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.
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<PAGE>
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;
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
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<PAGE>
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
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:
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(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;
(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
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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;
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 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
A-15
<PAGE>
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.
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.
A-16
<PAGE>
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 & 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.
A-17
<PAGE>
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-18
<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 FEBRUARY 8, 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 __, 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 __, 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)
The following tables set forth the unaudited pro forma condensed
Statement of Assets and Liabilities as of December 31, 1999, and the unaudited
pro forma condensed Statement of Operations for the twelve month period ended
December 31, 1999 for the Acquiring Fund and the Fund as adjusted giving effect
to the Reorganization.
PRO FORMA CONDENSED STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Acquiring Acquiring
Fund Fund Pro forma Fund
(Actual) (Actual) adjustments (As adjusted)
----------------- ---------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Investments, at value $ $ $ $
Cash
Other assets less liabilities $
----------------- ---------------- ----------------- --------------------
Net assets $ $ $ $
================= ================ ================= ====================
Shares outstanding
Net asset value per share $ $ $
</TABLE>
- -----------------------------
<PAGE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTH PERIOD ENDED DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Acquiring Acquiring
Fund Fund Pro Forma Fund
(Actual) (Actual) Adjustments (As adjusted)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest Income $ $ $
----------------------------------------------------------------------------
Total Investment Income
Expenses
Management fee
All other expenses
----------------------------------------------------------------------------
Total expenses before reductions
----------------------------------------------------------------------------
Expense reductions
Expenses, net
----------------------------------------------------------------------------
Net investment income (loss)
----------------------------------------------------------------------------
Net realized and Unrealized Gain (loss) on Investments:
Net realized gain (loss) from Investments
Net unrealized appreciation (depreciation)
of investments
----------------------------------------------------------------------------
Net increase in net assets from operations $ $ $ $
============================================================================
</TABLE>
- --------------------------
<PAGE>
SCHEDULE OF INVESTMENTS
Portfolio of Investments at December 31, 1999 (Unaudited)
<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 is filed
herewith.
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 is filed herewith.
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 Consent of Deloitte & Touche LLP. To be filed by amendment.
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 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 8th
day of February, 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 February 8, 2000
- ------------------------------ (Chief Executive Officer)
Heath B. McLendon
/s/Lewis E. Daidone Senior Vice President and February 8, 2000
- ------------------------------ Treasurer (Chief Financial and
Lewis E. Daidone Accounting Officer)
/s/Lloyd J. Andrews* Director February 8, 2000
- ------------------------------
Lloyd J. Andrews
/s/Robert M. Frayn* Director February 8, 2000
- ------------------------------
Robert M. Frayn
/s/Leon P. Gardner* Director February 8, 2000
- ------------------------------
Leon P. Gardner
/s/David E. Maryatt* Director February 8, 2000
- ------------------------------
David E. Maryatt
/s/Frederick O. Paulsell* Director February 8, 2000
- ------------------------------
Frederick O. Paulsell
/s/Jerry A. Viscione* Director February 8, 2000
- ------------------------------
Jerry A. Viscione
</TABLE>
C-4
<PAGE>
<TABLE>
<S> <C> <C>
/s/Julie W. Weston* Director February 8, 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
11(a) Opinion and Consent of Willkie Farr & Gallagher
is filed herewith.
12 Form of Opinion and Consent of Willkie Farr & Gallagher
supporting the tax matters and consequences to shareholders
discussed in the prospectus is filed herewith.
17(a) Form of proxy card is filed herewith.
<PAGE>
Exhibit 11(a)
February 8, 2000
Smith Barney Fundamental Value Fund Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
We have acted as counsel to Smith Barney Fundamental Value Fund Inc., a Maryland
corporation (the "Fund"), in connection with the proposed acquisition by the
Fund of all or substantially all of the assets and liabilities of Smith Barney
Contrarian Fund (the "Acquired Fund"), a series of Smith Barney Investment Funds
Inc., a Maryland corporation ("Investment Funds"), in exchange for shares of
common stock of the corresponding class of the Fund (the "Shares"), pursuant to
an Agreement and Plan of Reorganization between Investment Funds, on behalf of
the Acquired Fund, and the Fund (the "Plan").
We have examined the Fund's Registration Statement on Form N-14 substantially in
the form in which it is to become effective (the "Registration Statement"), the
Fund's Articles of Incorporation and Bylaws, as amended, and the Plan.
We have also examined and relied upon other documents and certificates with
respect to factual matters as we have deemed necessary to render the opinions
expressed herein. We have assumed, without independent verification, the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity with originals of all documents submitted to us
as copies. We have further assumed that the Plan constitutes the legal, valid
and binding obligation of each of Investment Funds and the Acquired Fund,
enforceable against each of Investment Funds and the Acquired Fund in accordance
with its terms.
We are members of the bar of the State of New York and do not purport to be
experts on, or to express any opinion herein, concerning any law, other than the
laws of the State of New York and the federal laws of the United States of
America. Anything in this opinion to the contrary notwithstanding, we render or
imply no opinion with respect to compliance with any applicable securities or
anti-fraud statutes, rules, regulations or other similar laws of any state
(including the State of Maryland) or the United States of America. In
<PAGE>
rendering the opinions herein, we assume that there will be no material changes
in the facts and conditions on which we base such opinions between the date
hereof and the time of issuance of Shares pursuant to the Plan.
Based upon the foregoing, we are of the opinion that:
(a) The Fund is a duly organized, validly existing corporation under the
laws of the State of Maryland;
(b) The Shares of the Fund to be issued as contemplated in the Plan have
been duly authorized, and, subject to the receipt by the Fund of
consideration equal to the net asset value thereof (but in no event
less than the par value thereof), when issued in accordance with the
Plan, will be validly issued, fully paid and nonassessable Shares of
the Fund under the laws of the State of Maryland.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the references to us in the Prospectus/Proxy
Statement included as part of the Registration Statement and to the filing of
this opinion as an exhibit to any application made by or on behalf of the Fund
or any distributor or dealer in connection with the registration or
qualification of the Fund or the Shares under the securities laws of any state
or other jurisdiction.
This opinion is furnished by us as counsel to the Fund, is solely for the
benefit of the Fund and its Directors and its officers in connection with the
above described acquisition of assets and may not be relied upon for any other
purpose or by any other person.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE>
Exhibit 12
____________, 2000
Smith Barney Fundamental Value Fund Inc.
Smith Barney Investment Funds Inc.
Smith Barney Contrarian Fund
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
You have asked us for our opinion concerning certain federal income tax
consequences to (a) Smith Barney Contrarian Fund (the "Acquired Fund"), a series
of Smith Barney Investment Funds Inc., a diversified open-end management
investment company organized as a Maryland corporation ("Investment Funds"), (b)
Smith Barney Fundamental Value Fund Inc., an open-end management investment
company organized as a Maryland corporation (the "Acquiring Fund"), and (c)
holders of shares of common stock in the Acquired Fund ("Acquired Fund
Shareholders") when Acquired Fund Shareholders receive shares of the
corresponding class of common stock of the Acquiring Fund (the "Acquiring Fund
Shares") in exchange for their common stock in the Acquired Fund pursuant to an
acquisition by the Acquiring Fund of all or substantially all of the assets of
the Acquired Fund in exchange for Acquiring Fund Shares and the assumption by
the Acquiring Fund of all liabilities of the Acquired Fund (collectively, the
"Reorganization"), all pursuant to an agreement and plan of reorganization.
We have reviewed such documents and materials as we have considered necessary
for the purpose of rendering this opinion. In rendering this opinion, we have
assumed that such documents as yet unexecuted will, when executed, conform in
all material respects to the proposed forms of such documents that we have
examined. In addition, we have assumed the genuineness of all signatures, the
capacity of each party executing a document so to execute that document, the
authenticity of all documents submitted to us as originals and the conformity to
original documents of all documents submitted to us as certified or photostatic
copies.
We have made inquiry as to the underlying facts which we considered to be
relevant to the conclusions set forth in this
<PAGE>
letter. The opinions expressed in this letter are based upon certain factual
statements relating to the Acquired Fund and the Acquiring Fund set forth in the
Registration Statement on Form N-14 (the "Registration Statement") filed by the
Acquiring Fund with the Securities and Exchange Commission and representations
made in letters from the Acquired Fund (including its principal shareholders)
and the Acquiring Fund addressed to us for our use in rendering this final
opinion. We have no reason to believe that these representations and facts are
not valid, but we have not attempted to verify independently any of these
representations and facts, and this opinion is based upon the assumption that
each of them is accurate. Capitalized terms used herein and not otherwise
defined shall have the meaning given them in the Registration Statement.
The conclusions expressed herein are based upon the Internal Revenue Code of
1986, as amended (the "Code"), Treasury regulations issued thereunder, published
rulings and procedures of the Internal Revenue Service and judicial decisions,
all as in effect on the date of this letter.
Based upon the foregoing, we are of the opinion that 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 Acquiring Fund
Shares and the assumption by the Acquiring Fund of all of the
liabilities of the Acquired Fund, followed by the distribution of such
Acquiring Fund 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
2
<PAGE>
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 Acquiring
Fund 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 Acquiring Fund Shares solely in exchange for
their shares of the Acquired Fund as part of the transaction;
(vii) the basis of Acquiring Fund 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 Acquiring Fund Shares received by the
shareholders of the Acquired Fund will include 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.
Very truly yours,
3
<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 [3] P.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, 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 the offices of Investment Funds, 388 Greenwich Street, 23rd Floor,
New York, New York on May 26, 2000 at [3] P.M., and any adjournment or
adjournments thereof. The undersigned hereby acknowledges receipt of the Notice
of Special Meeting and Prospectus/Proxy Statement dated April __, 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.
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Signature(s) Title(s), if
applicable
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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.
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FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. To approve or disapprove the Agreement and Plan of Reorganization dated as [ ] [ ] [ ]
of _________, 2000 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.
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NOTE: your proxy is not valid unless it is signed on the reverse side.
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