SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
388 Greenwich Street
New York, New York 10013
800-451-2010
Statement of Additional Information
January 28, 2000
As Amended
April 14, 2000,
July 28, 2000 and
December 19, 2000
This Statement of Additional Information (the "SAI")
expands upon and supplements the information contained in the
current prospectus of Smith Barney Fundamental Value Fund Inc.
(the "fund"), dated January 28, 2000, as amended April 14,
2000, and should be read in conjunction with the fund's
prospectus. The fund's prospectus may be obtained from any
Salomon Smith Barney Financial Consultant, a PFS Investment
Registered Representative- or by writing or calling the fund
at the address or phone number listed above. This SAI,
although not in itself a prospectus, is incorporated by
reference into the prospectus in its entirety.
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 2
DIRECTORS AND EXECUTIVE OFFICERS 15
COMPENSATION TABLE 16
DISTRIBUTION 20
PURCHASE OF SHARES 23
REDEMPTION OF SHARES 32
VALUATION OF SHARES 37
EXCHANGE PRIVILEGE 38
PERFORMANCE DATA 41
TAXES 43
ADDITIONAL INFORMATION 47
FINANCIAL STATEMENTS 48
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The prospectus discusses the fund's investment objective
and policies. The following discussion supplements the
description of the fund's investment policies in the
prospectus. SSB Citi Fund Management LLC ("SSB" or "the
manager") serves as investment manager and administrator of
the fund.
The fund's primary investment objective is long-term
capital growth. Current income is a secondary objective. The
fund seeks to achieve its objective through investment in
common stocks and common stock equivalents, including
preferred stocks and other securities convertible into common
stocks. The fund also invests to a lesser extent in bonds and
other debt instruments. There is no guarantee that the fund
will achieve its investment objective.
When SSB believes that a defensive investment posture is
warranted or when opportunities for capital growth to do not
appear attractive, the fund may temporarily invest all or a
portion of its assets in short-term money market instruments,
including repurchase agreements with respect to those
instruments. The fund is authorized to borrow money in an
amount up to 10% of its total assets for temporary or
emergency purposes.
Foreign Securities and American Depository Receipts
The fund has the authority to invest up to 25% of its assets
in foreign securities (including European Depository Receipts
("EDRs") and Global Depository Receipts ("GDRs")) and American
Depository Receipts ("ADRs") or other securities representing
underlying shares of foreign companies. EDRs are receipts
issued in Europe which evidence ownership of underlying
securities issued by a foreign corporation. ADRs are receipts
typically issued by an American bank or trust company which
evidence a similar ownership arrangement. Generally, ADRs
which are issued in registered form, are designed for use in
the United States securities markets and EDRs, which are
issued in bearer form, are designed for use in European
securities markets. GDRs are tradeable both in the U.S. and
Europe and are designed for use throughout the world.
Investing in the securities of foreign companies
involves special risks and considerations not typically
associated with investing in U.S. companies. These include
differences in accounting, auditing and financial reporting
standards, generally higher commission rates on foreign
portfolio transactions, the possibility of expropriation or
confiscatory taxation, adverse changes in investment or
exchange control regulations, political instability which
could affect U.S. investments in foreign countries, and
potential restrictions on the flow of international capital.
Additionally, foreign securities often trade with less
frequency and volume than domestic securities and therefore
may exhibit greater price volatility. Many of the foreign
securities held by the fund will not be registered with, nor
will the issuers thereof be subject to the reporting
requirements of, the SEC. Accordingly, there may be less
publicly available information about the securities and about
the foreign company issuing them than is available about a
domestic company and its securities. Moreover, individual
foreign economies may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross domestic
product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payment positions. The fund
may invest in securities of foreign governments (or agencies
or subdivisions thereof), and therefore many, if not all, of
the foregoing considerations apply to such investments as
well.
Securities of Other Investment Companies. The fund may
invest in securities of other investment companies to the
extent permitted under the Investment Company Act of 1940, as
amended (the "1940 Act"). Presently, under the 1940 Act, the
fund may hold securities of another investment company in
amounts which (i) do not exceed 3% of the total outstanding
voting stock of such company, (ii) do not exceed 5% of the
value of the fund's total assets and (iii) when added to all
other investment company securities held by the fund, do not
exceed 10% of the value of the fund's total assets.
Index-Related Securities ("Equity Equivalents") The fund
may invest in certain types of securities that enable
investors to purchase or sell shares in a portfolio of
securities that seeks to track the performance of an
underlying index or a portion of an Index. Such Equity
Equivalents include among others DIAMONDS (interests in a
portfolio of securities that seeks to track the performance of
the Dow Jones Industrial Average), SPDRs or Standard & Poor's
Depositary Receipts (interests in a portfolio of securities
that seeks to track the performance of the S&P 500 Index),
WEBS or World Equity Benchmark Shares (interests in a
portfolio of securities that seeks to track the performance of
a benchmark index of a particular foreign country's stocks),
and the Nasdaq-100 Trust (interests in a portfolio of
securities of the largest and most actively traded non-
financial companies listed on the Nasdaq Stock Market). Such
securities are similar to index mutual funds, but they are
traded on various stock exchanges or secondary markets. The
value of these securities is dependent upon the performance of
the underlying index on which they are based. Thus, these
securities are subject to the same risks as their underlying
indexes as well as the securities that make up those indexes.
For example, if the securities comprising an index that an
index-related security seeks to track perform poorly, the
index-related security will lose value.
Equity Equivalents may be used for several purposes,
including, to simulate full investment in the underlying index
while retaining a cash balance for fund management purposes,
to facilitate trading, to reduce transaction costs or to seek
higher investment returns where an Equity Equivalent is priced
more attractively than securities in the underlying index.
Because the expense associated with an investment in Equity
Equivalents may be substantially lower than the expense of
small investments directly in the securities comprising the
indices they seek to track, investments in Equity Equivalents
may provide a cost-effective means of diversifying a Fund's
assets across a broad range of equity securities.
To the extent the fund invests in securities of other
investment companies, fund shareholders would indirectly pay
a portion of the operating costs of such companies in addition
to the expenses of its own operation. These costs include
management, brokerage, shareholder servicing and other
operational expenses. Indirectly, then, shareholders of the
fund that invests in Equity Equivalents may pay higher
operational costs than if they owned the underlying investment
companies directly. Additionally, the fund's investments in
such investment companies are subject to limitations under the
1940 Act and market availability.
The prices of Equity Equivalents are derived and based
upon the securities held by the particular investment company.
Accordingly, the level of risk involved in the purchase or
sale of an Equity Equivalent is similar to the risk involved
in the purchase or sale of traditional common stock, with the
exception that the pricing mechanism for such instruments is
based on a basket of stocks. The market prices of Equity
Equivalents are expected to fluctuate in accordance with both
changes in the net asset values of their underlying indices
and the supply and demand for the instruments on the exchanges
on which they are traded. Substantial market or other
disruptions affecting an Equity Equivalent could adversely
affect the liquidity and value of the shares of the Fund
investing in such instruments.
Repurchase Agreements The fund may enter into
repurchase agreements with certain member banks of the Federal
Reserve System and certain dealers on the Federal Reserve Bank
of New York's list of reporting dealers. Under the terms of
a typical repurchase agreement, the fund would acquire
securities for a relatively short period (usually not more
than one week) subject to an obligation of the seller to
repurchase, and the fund to resell, the securities at an
agreed-upon price and time, thereby determining the yield
during the fund's holding period. This arrangement results in
a fixed rate of return that is not subject to market
fluctuations during the fund's holding period. Repurchase
agreements could involve certain risks in the event of default
or insolvency of the other party, including possible delays or
restrictions upon the fund's ability to dispose of the
underlying securities, the risk of a possible decline in the
value of the underlying securities during the period in which
the fund seeks to assert its rights to them, the risk of
incurring expenses associated with asserting those rights and
the risk of losing all or part of the income from the
agreement. SSB, acting under the supervision of the Board of
Directors, reviews on an ongoing basis the value of the
collateral and the creditworthiness of those dealers and banks
with which the Fund enters into repurchase agreements to
evaluate potential risks.
Lending of Portfolio Securities The fund has the
ability to lend securities from its portfolio to brokers,
dealers and other financial organizations. Such loans, if and
when made, will be consistent with applicable regulatory
requirements. The fund may not lend its portfolio securities
to Salomon Smith Barney or its affiliates unless it has
applied for and received specific authority from the SEC.
Loans of portfolio securities by the fund will be
collateralized by cash, letters of credit or securities issued
or guaranteed by the U.S. government, its agencies or
instrumentalities ("U.S. government securities"), which will
be maintained at all times in an amount equal to at least 100%
of the current market value of the loaned securities. From
time to time, the fund may return a part of the interest
earned from the investment of collateral received for
securities loaned to the borrower and/or a third party, which
is unaffiliated with the fund or with Salomon Smith Barney,
and which is acting as a "finder."
In lending its portfolio securities, the fund can
increase its income by continuing to receive interest on the
loaned securities, as well as by either investing the cash
collateral in short-term instruments or obtaining yield in the
form of interest paid by the borrower when government
securities are used as collateral. Requirements of the SEC,
which may be subject to future modifications, currently
provide that the following conditions must be met whenever
portfolio securities are loaned: (a) the fund must receive at
least 100% cash collateral or equivalent securities from the
borrower; (b) the borrower must increase such collateral
whenever the market value of the securities rises above the
level of such collateral; (c) the fund must be able to
terminate the loan at any time; (d) the fund must receive
reasonable interest on the loan, as well as an amount equal to
any dividends, interest or other distributions on the loaned
securities, and any increase in market value; (e) the fund may
pay only reasonable custodian fees in connection with the
loan; and (f) voting rights on the loaned securities may pass
to the borrower; however, if a material event adversely
affecting the investment occurs, the fund's Board of Directors
must terminate the loan and regain the right to vote the
securities. The risks in lending portfolio securities, as with
other extensions of secured credit, consist of possible delay
in receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will be made to firms
deemed by the manager to be of good standing and will not be
made unless, in the judgment of the manager, the consideration
to be earned from such loans would justify the risk.
Money Market Instruments As stated in the
prospectus, the fund may invest for temporary defensive
purposes or when opportunities for capital growth do not
appear attractive, in short-term corporate and government
money market instruments. Money market instruments in which
the fund may invest include: U.S. government securities;
certificates of deposit, time deposits and bankers'
acceptances issued by domestic banks (including their branches
located outside the United States and subsidiaries located in
Canada), domestic branches of foreign banks, savings and loan
associations and similar institutions; high grade commercial
paper; and repurchase agreements with respect to the foregoing
types of instruments. The following is a more detailed
description of such money market instruments.
Certificates of Deposit ("CDs") are short-term
negotiable obligations of commercial banks. Time Deposits
("TDs") are non-negotiable deposits maintained in banking
institutions for specified periods of time at stated interest
rates. Bankers' acceptances are time drafts drawn on
commercial banks by borrowers usually in connection with
international transactions.
Domestic commercial banks organized under Federal law
are supervised and examined by the Comptroller of the Currency
and are required to be members of the Federal Reserve System
and to be insured by the Federal Deposit Insurance Corporation
(the "FDIC"). Domestic banks organized under state law are
supervised and examined by state banking authorities but are
members of the Federal Reserve System only if they elect to
join. Most state banks are insured by the FDIC (although such
insurance may not be of material benefit to the fund,
depending upon the principal amounts of CDs of each bank held
by the fund) and are subject to Federal examination and to a
substantial body of Federal law and regulation. As a result of
governmental regulations, domestic branches of domestic banks
are generally required to, among other things, maintain
specified levels of reserves, and are subject to other
supervision and regulation designed to promote financial
soundness.
Obligations of foreign branches of domestic banks, such
as CDs and TDs, may be general obligations of the parent bank
in addition to the issuing branch, or may be limited by the
terms of a specific obligation and government regulation. Such
obligations are subject to different risks than are those of
domestic banks or domestic branches of foreign banks. These
risks include foreign economic and political developments,
foreign governmental restrictions that may adversely affect
payment of principal and interest on the obligations, foreign
exchange controls and foreign withholding and other taxes on
interest income. Foreign branches of domestic banks are not
necessarily subject to the same or similar regulatory
requirements that apply to domestic banks, such as mandatory
reserve requirements, loan limitations, and accounting,
auditing and financial recordkeeping requirements. In
addition, less information may be publicly available about a
foreign branch of a domestic bank than about a domestic bank.
CDs issued by wholly owned Canadian subsidiaries of domestic
banks are guaranteed as to repayment of principal and interest
(but not as to sovereign risk) by the domestic parent bank.
Obligations of domestic branches of foreign banks may be
general obligations of the parent bank in addition to the
issuing branch, or may be limited by the terms of a specific
obligation and by governmental regulation as well as
governmental action in the country in which the foreign bank
has its head office. A domestic branch of a foreign bank with
assets in excess of $1 billion may or may not be subject to
reserve requirements imposed by the Federal Reserve System or
by the state in which the branch is located if the branch is
licensed in that state. In addition, branches licensed by the
Comptroller of the Currency and branches licensed by certain
states ("State Branches") may or may not be required to: (a)
pledge to the regulator by depositing assets with a designated
bank within the state, an amount of its assets equal to 5% of
its total liabilities; and (b) maintain assets within the
state in an amount equal to a specified percentage of the
aggregate amount of liabilities of the foreign bank payable at
or through all of its agencies or branches within the state.
The deposits of State Branches may not necessarily be insured
by the FDIC. In addition, there may be less publicly available
information about a domestic branch of a foreign bank than
about a domestic bank.
In view of the foregoing factors associated with the
purchase of CDs and TDs issued by foreign branches of domestic
banks or by domestic branches of foreign banks, SSB will
carefully evaluate such investments on a case-by-case basis.
Savings and loan associations whose CDs may be purchased
by the fund are supervised by the Office of Thrift Supervision
and are insured by the Savings Association Insurance fund,
which is administered by the FDIC and is backed by the full
faith and credit of the U.S. government. As a result, such
savings and loan associations are subject to regulation and
examination.
Illiquid Securities Up to 15% of the assets of the
fund may be invested in illiquid securities, including (a)
repurchase agreements with maturities greater than seven
days, (b) futures contracts and options thereon for which a
liquid secondary market does not exist, (c) time deposits
maturing in more than seven calendar days and (d) securities
of new and early stage companies whose securities are not
publicly traded.
Options, Futures and Currency Strategies The fund
may use forward currency contracts and certain options and
futures strategies to attempt to hedge its portfolio, i.e.,
reduce the overall level of investment risk normally
associated with the fund. There can be no assurance that such
efforts will succeed.
In order to assure that the fund will not be deemed to
be a "commodity pool" for purposes of the Commodity Exchange
Act, regulations of the Commodity Futures Trading Commission
("CFTC") require that the fund enter into transactions in
futures contracts and options on futures only (i) for bona
fide hedging purposes (as defined in CFTC regulations), or
(ii) for non-hedging purposes, provided that the aggregate
initial margin and premiums on such non-hedging positions do
not exceed 5% of the liquidation value of the fund's assets.
To attempt to hedge against adverse movements in exchange
rates between currencies, the fund may enter into forward
currency contracts for the purchase or sale of a specified
currency at a specified future date. Such contracts may
involve the purchase or sale of a foreign currency against the
U.S. dollar or may involve two foreign currencies. The fund
may enter into forward currency contracts either with respect
to specific transactions or with respect to its portfolio
positions. For example, when the investment manager
anticipates making a purchase or sale of a security, it may
enter into a forward currency contract in order to set the
rate (either relative to the U.S. dollar or another currency)
at which the currency exchange transaction related to the
purchase or sale will be made ("transaction hedging").
Further, when the investment manager believes that a
particular currency may decline compared to the U.S. dollar or
another currency, the fund may enter into a forward contract
to sell the currency the investment manager expects to decline
in an amount approximating the value of some or all of the
fund's securities denominated in that currency, or when the
investment manager believes that one currency may decline
against a currency in which some or all of the portfolio
securities held by the fund are denominated, it may enter into
a forward contract to buy the currency expected to decline for
a fixed amount ("position hedging"). In this situation, the
fund may, in the alternative, enter into a forward contract to
sell a different currency for a fixed amount of the currency
expected to decline where the investment manager believes that
the value of the currency to be sold pursuant to the forward
contract will fall whenever there is a decline in the value of
the currency in which portfolio securities of the fund are
denominated ("cross hedging"). The fund will segregate (i)
cash, (ii) U.S. Government securities or (iii) equity
securities or debt securities (of any grade) in certain
currencies provided such assets are liquid, unencumbered and
marked to market daily, or other high-quality debt securities
denominated in certain currencies with a value equal to the
aggregate amount of the fund's commitments under forward
contracts entered into with respect to position hedges and
cross-hedges. If the value of the segregated securities
declines, additional cash or securities are segregated on a
daily basis so that the value of the amount will equal the
amount of the fund's commitments with respect to such
contracts.
For hedging purposes, the fund may write covered call
options and purchase put and call options on currencies to
hedge against movements in exchange rates and on debt
securities to hedge against the risk of fluctuations in the
prices of securities held by the fund or which the investment
manager intends to include in its portfolio. The fund also
may use interest rates futures contracts and options thereon
to hedge against changes in the general level in interest
rates.
The fund may write call options on securities and
currencies only if they are covered, and such options must
remain covered so long as the fund is obligated as a writer.
A call option written by the fund is "covered" if the fund
owns the securities or currency underlying the option or has
an absolute and immediate right to acquire that security or
currency without additional cash consideration (or for
additional cash consideration which has been segregated by the
fund) upon conversion or exchange of other securities or
currencies held in its portfolio. A call option is also
covered if the fund holds on a share-for-share basis a call on
the same security or holds a call on the same currency as the
call written where the exercise price of the call held is
equal to less than the exercise price of the call written or
greater than the exercise price of the call written if the
difference is maintained by the fund in cash, Treasury bills
or other high-grade, short-term obligations in a segregated
account with its custodian.
Although the portfolio might not employ the use of
forward currency contracts, options and futures, the use of
any of these strategies would involve certain investment risks
and transaction costs to which it might not otherwise be
subject. These risks include: dependence on the investment
manager's ability to predict movements in the prices of
individual debt securities, fluctuations in the general fixed-
income markets and movements in interest rates and currency
markets, imperfect correlation between movements in the price
of currency, options, futures contracts or options thereon and
movements in the price of the currency or security hedged or
used for cover; the fact that skills and techniques needed to
trade options, futures contracts and options thereon or to use
forward currency contracts are different from those needed to
select the securities in which the fund invests; lack of
assurance that a liquid market will exist for any particular
option, futures contract or options thereon at any particular
time and possible need to defer or accelerate closing out
certain options, futures contracts and options thereon in
order to continue to qualify for the beneficial tax treatment
afforded "regulated investment companies" under the Internal
Revenue Code of 1986, as amended (the "Code"). See
"Dividends, Distributions and Taxes."
Options on Securities As discussed more
generally above, the fund may engage in the writing of covered
call options. The fund may also purchase put options and enter
into closing transactions.
The principal reason for writing covered call options on
securities is to attempt to realize, through the receipt of
premiums, a greater return than would be realized on the
securities alone. In return for a premium, the writer of a
covered call option forfeits the right to any appreciation in
the value of the underlying security above the strike price
for the life of the option (or until a closing purchase
transaction can be effected). Nevertheless, the call writer
retains the risk of a decline in the price of the underlying
security. Similarly, the principal reason for writing covered
put options is to realize income in the form of premiums. The
writer of a covered put option accepts the risk of a decline
in the price of the underlying security. The size of the
premiums the fund may receive may be adversely affected as new
or existing institutions, including other investment
companies, engage in or increase their option-writing
activities.
Options written by the fund will normally have
expiration dates between one and six months from the date
written. The exercise price of the options may be below, equal
to, or above the current market values of the underlying
securities at the times the options are written. In the case
of call options, these exercise prices are referred to as "in-
the-money," "at-the-money" and "out-of-the-money,"
respectively.
The fund may write (a) in-the-money call options when
the manager expects the price of the underlying security to
remain flat or decline moderately during the option period,
(b) at-the-money call options when the manager expects the
price of the underlying security to remain flat or advance
moderately during the option period and (c) out-of-the-money
call options when the manager expects that the price of the
security may increase but not above a price equal to the sum
of the exercise price plus the premiums received from writing
the call option. In any of the preceding situations, if the
market price of the underlying security declines and the
security is sold at this lower price, the amount of any
realized loss will be offset wholly or in part by the premium
received. Out-of-the-money, at-the-money and in-the-money put
options (the reverse of call options as to the relation of
exercise price to market price) may be utilized in the same
market environments as such call options are used in
equivalent transactions.
So long as the obligation of the fund as the writer of
an option continues, the fund may be assigned an exercise
notice by the broker-dealer through which the option was sold,
requiring it to deliver, in the case of a call, or take
delivery of, in the case of a put, the underlying security
against payment of the exercise price. This obligation
terminates when the option expires or the fund effects a
closing purchase transaction. The fund can no longer effect a
closing purchase transaction with respect to an option once it
has been assigned an exercise notice. To secure its obligation
to deliver the underlying security when it writes a call
option, or to pay for the underlying security when it writes
a put option, the fund will be required to deposit in escrow
the underlying security or other assets in accordance with the
rules of the Options Clearing Corporation ("Clearing
Corporation") or similar clearing corporation and the
securities exchange on which the option is written.
An option position may be closed out only where there
exists a secondary market for an option of the same series on
a recognized securities exchange or in the over-the-counter
market. The fund expects to write options only on national
securities exchanges or in the over-the-counter market. The
fund may purchase put options issued by the Clearing
Corporation or in the over-the-counter market.
The fund may realize a profit or loss upon entering into
a closing transaction. In cases in which the fund has written
an option, it will realize a profit if the cost of the closing
purchase transaction is less than the premium received upon
writing the original option and will incur a loss if the cost
of the closing purchase transaction exceeds the premium
received upon writing the original option. Similarly, when the
fund has purchased an option and engages in a closing sale
transaction, whether it recognizes a profit or loss will
depend upon whether the amount received in the closing sale
transaction is more or less than the premium the fund
initially paid for the original option plus the related
transaction costs.
Although the fund generally will purchase or write only
those options for which the manager believes there is an
active secondary market so as to facilitate closing
transactions, there is no assurance that sufficient trading
interest to create a liquid secondary market on a securities
exchange will exist for any particular option or at any
particular time, and for some options no such secondary market
may exist. A liquid secondary market in an option may cease to
exist for a variety of reasons. In the past, for example,
higher than anticipated trading activity or order flow, or
other unforeseen events, have at times rendered certain of the
facilities of the Clearing Corporation and national securities
exchanges inadequate and resulted in the institution of
special procedures, such as trading rotations, restrictions on
certain types of orders or trading halts or suspensions in one
or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely
execution of customers' orders, will not recur. In such event,
it might not be possible to effect closing transactions in
particular options. If, as a covered call option writer, the
fund is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the
underlying security upon exercise.
Securities exchanges generally have established
limitations governing the maximum number of calls and puts of
each class which may be held or written, or exercised within
certain periods, by an investor or group of investors acting
in concert (regardless of whether the options are written on
the same or different securities exchanges or are held,
written or exercised in one or more accounts or through one or
more brokers). It is possible that the fund and other clients
of SSB and certain of their affiliates may be considered to be
such a group. A securities exchange may order the liquidation
of positions found to be in violation of these limits, and it
may impose certain other sanctions.
In the case of options written by the fund that are
deemed covered by virtue of the fund's holding convertible or
exchangeable preferred stock or debt securities, the time
required to convert or exchange and obtain physical delivery
of the underlying common stocks with respect to which the fund
has written options may exceed the time within which the fund
must make delivery in accordance with an exercise notice. In
these instances, the fund may purchase or temporarily borrow
the underlying securities for purposes of physical delivery.
By so doing, the fund will not bear any market risk because
the fund will have the absolute right to receive from the
issuer of the underlying security an equal number of shares to
replace the borrowed stock, but the fund may incur additional
transaction costs or interest expenses in connection with any
such purchase or borrowing.
Although the manager will attempt to take appropriate
measures to minimize the risks relating to the fund's writing
of call options and purchasing of put and call options, there
can be no assurance that the fund will succeed in its option-
writing program.
Stock Index Options As described generally above,
the fund may purchase put and call options and write call
options on domestic stock indexes listed on domestic exchanges
in order to realize its investment objective of capital
appreciation or for the purpose of hedging its portfolio. A
stock index fluctuates with changes in the market values of
the stocks included in the index. Some stock index options are
based on a broad market index such as the New York Stock
Exchange Composite Index or the Canadian Market Portfolio
Index, or a narrower market index such as the Standard &
Poor's 100. Indexes also are based on an industry or market
segment such as the American Stock Exchange Oil and Gas Index
or the Computer and Business Equipment Index.
Options on stock indexes are generally similar to
options on stock except that the delivery requirements are
different. Instead of giving the right to take or make
delivery of stock at a specified price, an option on a stock
index gives the holder the right to receive a cash "exercise
settlement amount" equal to (a) the amount, if any, by which
the fixed exercise price of the option exceeds (in the case of
a put) or is less than (in the case of a call) the closing
value of the underlying index on the date of exercise,
multiplied by (b) a fixed "index multiplier." Receipt of this
cash amount will depend upon the closing level of the stock
index upon which the option is based being greater than, in
the case of a call, or less than, in the case of a put, the
exercise price of the option. The amount of cash received will
be equal to such difference between the closing price of the
index and the exercise price of the option expressed in
dollars or a foreign currency, as the case may be, times a
specified multiple. The writer of the option is obligated, in
return for the premium received, to make delivery of this
amount. The writer may offset its position in stock index
options prior to expiration by entering into a closing
transaction on an exchange or it may let the option expire
unexercised.
The effectiveness of purchasing or writing stock index
options as a hedging technique will depend upon the extent to
which price movements in the portion of the securities
portfolio of the fund correlate with price movements of the
stock index selected. Because the value of an index option
depends upon movements in the level of the index rather than
the price of a particular stock, whether the fund will realize
a gain or loss from the purchase or writing of options on an
index depends upon movements in the level of stock prices in
the stock market generally or, in the case of certain indexes,
in an industry or market segment, rather than movements in the
price of a particular stock. Accordingly, successful use by
the fund of options on stock indexes will be subject to the
manager's ability to predict correctly movements in the
direction of the stock market generally or of a particular
industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.
Futures Contracts and Options on Futures Contracts As
described generally above, the fund may invest in stock index
futures contracts and options on futures contracts that are
traded on a domestic exchange or board of trade.
The purpose of entering into a futures contract by the
fund is to protect the fund from fluctuations in the value of
securities without actually buying or selling the securities.
For example, in the case of stock index futures contracts, if
the fund anticipates an increase in the price of stocks it
intends to purchase at a later time, the fund could enter into
contracts to purchase the stock index (known as taking a
"long" position) as a temporary substitute for the purchase of
stocks. If an increase in the market occurs that influences
the stock index as anticipated, the value of the futures
contracts increases and thereby serves as a hedge against the
fund's not participating in a market advance. The fund then
may close out the futures contracts by entering into
offsetting futures contracts to sell the stock index (known as
taking a "short" position) as it purchases individual stocks.
The fund can accomplish similar results by buying securities
with long maturities and selling securities with short
maturities. But by using futures contracts as an investment
tool to reduce risk, given the greater liquidity in the
futures market, it may be possible to accomplish the same
result more easily and more quickly.
No consideration will be paid or received by the fund
upon the purchase or sale of a futures contract. Initially,
the fund will be required to deposit with the broker an amount
of cash or cash equivalents equal to approximately 1% to 10%
of the contract amount (this amount is subject to change by
the exchange or board of trade on which the contract is traded
and brokers or members of such board of trade may charge a
higher amount). This amount is known as "initial margin" and
is in the nature of a performance bond or good faith deposit
on the contract which is returned to the fund, upon
termination of the futures contract, assuming all contractual
obligations have been satisfied. Subsequent payments, known as
"variation margin," to and from the broker, will be made daily
as the price of the index or securities underlying the futures
contract fluctuates, making the long and short positions in
the futures contract more or less valuable, a process known as
"marking-to-market." In addition, when the fund enters into a
long position in a futures contract or an option on a futures
contract, it must deposit into a segregated account with the
fund's custodian an amount of cash or cash equivalents equal
to the total market value of the underlying futures contract,
less amounts held in the fund's commodity brokerage account at
its broker. At any time prior to the expiration of a futures
contract, the fund may elect to close the position by taking
an opposite position, which will operate to terminate the
fund's existing position in the contract.
There are several risks in connection with the use of
futures contracts as a hedging device. Successful use of
futures contracts by the fund is subject to the ability of the
manager to predict correctly movements in the stock market or
in the direction of interest rates. These predictions involve
skills and techniques that may be different from those
involved in the management of investments in securities. In
addition, there can be no assurance that there will be a
perfect correlation between movements in the price of the
securities underlying the futures contract and movements in
the price of the securities that are the subject of the hedge.
A decision of whether, when and how to hedge involves the
exercise of skill and judgment, and even a well-conceived
hedge may be unsuccessful to some degree because of market
behavior or unexpected trends in market behavior or interest
rates.
Positions in futures contracts may be closed out only on
the exchange on which they were entered into (or through a
linked exchange) and no secondary market exists for those
contracts. In addition, although the fund intends to enter
into futures contracts only if there is an active market for
the contracts, there is no assurance that an active market
will exist for the contracts at any particular time. Most
futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a
single trading day. Once the daily limit has been reached in
a particular contract, no trades may be made that day at a
price beyond that limit. It is possible that futures contract
prices could move to the daily limit for several consecutive
trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, and in
the event of adverse price movements, the fund would be
required to make daily cash payments of variation margin; in
such circumstances, an increase in the value of the portion of
the portfolio being hedged, if any, may partially or
completely offset losses on the futures contract. As described
above, however, no assurance can be given that the price of
the securities being hedged will correlate with the price
movements in a futures contract and thus provide an offset to
losses on the futures contract.
Portfolio Turnover
While the fund does not intend to trade in securities
for short-term profits, securities may be sold without
regard to the amount of time they have been held by the fund
when warranted by the circumstances. The fund's portfolio
turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for a year by the
monthly average value of portfolio securities for the year.
Securities with remaining maturities of one year or less at
the date of acquisition are excluded from the calculation. A
portfolio turnover rate of 100% would occur, for example, if
all the securities in the fund's portfolio were replaced
once during a period of one year. A high rate of portfolio
turnover in any year will increase brokerage commissions
paid and could result in high amounts of realized investment
gain subject to the payment of taxes by shareholders. Any
realized short-term investment gain will be taxed to
shareholders as ordinary income. For the 1999, 1998 and 1997
fiscal years, the fund's portfolio turnover rates were 43%,
41% and 46%, respectively.
Investment Restrictions
The fund has adopted the following investment
restrictions for the protection of shareholders. Restrictions
1 through 7 cannot be changed without approval by the holders
of a majority of the outstanding shares of the fund, defined
as the lesser of (a) 67% or more of the fund's shares present
at a meeting, if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (b)
more than 50% of the fund's outstanding shares. The remaining
restrictions may be changed by the fund's Board of Directors
at any time. The fund may not:
1. Invest in a manner that would cause it to fail to be
a "diversified company" under the 1940 Act and the
rules, regulations and orders thereunder.
2. Issue senior securities as defined in the 1940 Act,
and any rules and orders thereunder, except insofar
as the fund may be deemed to have issued senior
securities by reason of: (a) borrowing money or
purchasing securities on a when-issued or delayed-
delivery basis; (b) purchasing or selling futures
contracts and options on future contracts and other
similar instruments; and (c) issuing separate classes
of shares.
3. Invest more than 25% of its total assets in
securities, the issuers of which are in the same
industry. For purposes of this limitation, U.S.
government securities and securities of state or
municipal governments and their political
subdivisions are not considered to be issued by
members of any industry.
4. Borrow money, except that (a) the fund may borrow
from banks for temporary or emergency (not
leveraging) purposes, including the meeting of
redemption requests which might otherwise require
the untimely disposition of securities, and (b) the
fund may, to the extent consistent with its
investment policies, enter into reverse repurchase
agreements, forward roll transactions and similar
investment strategies and techniques. To the extent
that it engages in transactions described in (a)
and (b), the fund will be limited so that no more
than 33 -1/3% of the value of its total assets
(including the amount borrowed), valued at the
lesser of cost or market, less liabilities (not
including the amount borrowed) valued at the time
the borrowing is made, is derived from such
transactions.
5. Engage in the business of underwriting securities
issued by other persons, except to the extent that
the fund may technically be deemed to be an
underwriter under the Securities Act of 1933, as
amended, in disposing of portfolio securities.
6. Purchase or sell real estate, real estate mortgages,
commodities or commodity contracts, but this
restriction shall not prevent the fund from (a)
investing in securities of issuers engaged in the
real estate business or the business of investing in
real estate (including interests in limited
partnerships owning or otherwise engaging in the real
estate business or the business of investing in real
estate) and securities which are secured by real
estate or interests therein; (b) holding or selling
real estate received in connection with securities it
holds or held; (c) trading in futures contracts and
options on futures contracts (including options on
currencies to the extent consistent with the fund's
investment objective and policies); or (d) investing
in real estate investment trust securities.
7. Make loans. This restriction does not apply to: (a)
the purchase of debt obligations in which the fund
may invest consistent with its investment objectives
and policies; (b) repurchase agreements; and (c)
loans of its portfolio securities, to the fullest
extent permitted under the 1940 Act.
8. Invest more than 5.00% of the value of the fund's
total assets in the securities of any issuer which
has been in continuous operation for less than three
years. This restriction does not apply to U.S.
government securities.
9. Invest in securities of other investment companies,
except to the extent permitted under the 1940 Act.
10. Invest in interests in oil, gas or other mineral
exploration or development programs (except that the
fund may invest in the securities of issuers which
operate, invest in or sponsor such programs).
11. Purchase or retain the securities of any issuer
if, to the knowledge of the fund, any officer or
Director of the fund or of SSB owns beneficially more
than 1/2 of 1.00% of the outstanding securities of
such issuer and the persons so owning more than 1/2
of 1.00% of such securities together own beneficially
more than 5.00% of such securities.
12. Purchase warrants if, thereafter, more than 2.00%
of the value of the fund's net assets would consist
of such warrants, but warrants attached to other
securities or acquired in units by the fund are not
subject to this restriction.
13. Purchase or otherwise acquire any security if, as
a result, more than 15% of its net assets would be
invested in securities that are illiquid.
14 Invest in any company for the purpose of exercising
control or management.
15. Purchase or sell real estate limited partnership
interests.
16. Purchase any securities on margin (except for such
short-term credits as are necessary for the clearance
of purchases and sales of portfolio securities) or
sell any securities short (except "against the box").
For purposes of this restriction, the deposit or
payment by the fund of underlying securities and
other assets in escrow and collateral agreements with
respect to initial or maintenance margin in
connection with futures contracts and related options
and options on securities, indexes or similar items
is not considered to be the purchase of a security on
margin.
17. Write, purchase or sell puts, calls, straddles,
spreads or combinations thereof or engage in
transactions involving futures contracts and related
options, except as permitted under the fund's
investment goals and policies, as set forth in the
current prospectus and the Statement of Additional
Information.
Certain restrictions listed above permit the fund
without shareholder approval to engage in investment practices
that the fund does not currently pursue. The fund has no
present intention of altering its current investment practices
as otherwise described in the prospectus and this SAI and any
future change in those practices would require Board approval.
If any percentage restriction described above is complied with
at the time of an investment, a later increase or decrease in
percentage resulting from a change in values or assets will
not constitute a violation of the restriction.
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is a list of each Director and executive
officers of the fund, including a description of principal
occupation in the last five years, ages and addresses of each
such person.
Lloyd J. Andrews, (Age 79), Director. Private investor;
Chairman Emeritus of Flow International. His address is East
10110 Greenbluff Road, Mead, Washington 99021.
Robert M. Frayn, Jr., (Age 65), Director. President and
Director of Book Publishing Company. His address is 201
Westlake Avenue North, Seattle, Washington 98109.
Leon P. Gardner, (Age 71), Director. Private investor;
Former Chairman of Fargo's Pizza Company. His address is 2310
N.E. Blue Ridge Drive, Seattle, Washington 98177.
David E. Maryatt, (Age 63), Director. Director of ALS
Co., a real estate management and development firm; Private
Investor. His address is 1326 Fifth Avenue, Seattle,
Washington 98101.
*Heath B. McLendon, (Age 66), Managing Director of
Salomon Smith Barney Inc. ("Salomon Smith Barney"); President
and Director of SSB and Travelers Investment Advisers, Inc.
("TIA"); Director of 64 investment companies associated with
Citigroup Inc. ("Citigroup"). His address is 7 World Trade
Center, New York, New York 10048.
Frederick O. Paulsell, (Age 60), Director. Principal of
Olympic Capital Partners. His address is 1325 Fourth Avenue
Suite 1900, Seattle, Washington 98101.
Jerry A. Viscione, (Age 55), Director. Executive Vice
President of Marquette University; Former Dean of Albers
School of Business and Economics, Seattle University. His
address is 615 North 11 Street, Milwaukee, WI 53233.
Julie W. Weston, (Age 56), Director. Attorney; Her
address is 416 34th Avenue, Seattle, Washington 98122.
Lewis E. Daidone, (Age 42), Senior Vice President and
Treasurer. Managing Director of Salomon Smith Barney; Director
and Senior Vice President of SSB and TIA. Mr. Daidone serves
as Senior Vice President and Treasurer of 59 Smith Barney
Mutual funds associated with Citigroup. His address is 388
Greenwich Street, New York, New York 10013.
John G. Goode, (Age 55), Vice President and Investment
Officer. Managing Director of Salomon Smith Barney. Chairman
and Chief Investment Officer of Davis Skaggs Investment
Management ("Davis Skaggs"), a division of SSB. His address is
One Sansome Street, 36th Floor, San Francisco, California
94104.
Peter Hable, (Age 41), Investment Officer. Managing
Director of Salomon Smith Barney and President of Davis
Skaggs. His address is One Sansome Street, 36th Floor, San
Francisco, California 94104.
Christina T. Sydor, (Age 48), Secretary. Managing
Director of Salomon Smith Barney; General Counsel and
Secretary of SSB and TIA. Ms. Sydor serves as Secretary of 59
Smith Barney Mutual Funds associated with Citigroup. Her
address is 388 Greenwich Street, New York, New York 10013.
*Designates a Director that is an "interested person"
as defined in the Investment Company Act of 1940, as amended
(the "Act"). Such persons are compensated by Salomon Smith
Barney and are not separately compensated by the fund for
serving as a fund officer or Director.
The following table shows the compensation paid by the
fund to each person who was a Director during the fund's
last fiscal year. None of the officers of the fund received
any compensation from the fund for such period. Officers
and interested Directors of the fund are compensated by
Salomon Smith Barney.
COMPENSATION TABLE
Director
Aggregate
Compensation
From the Fund
Pension or
Retirement
Benefits
Accrued as
Expenses
of the
Fund
Total
Compensation
from Smith
Barney
Mutual Funds
Complex
Total
Number
of Funds
Served
in
Complex
Lloyd J. Andrews
$11,000
$0
$11,000
1
Robert M. Frayn,
Jr.+
11,000
0
11,000
1
Leon P. Gardner
11,000
0
11,000
1
David E. Maryatt+
11,000
0
11,000
1
Heath B. McLendon*
0
0
0
64
Frederick O.
Paulsell+
9,000
0
9,000
1
Jerry A. Viscione
11,000
0
11,000
1
Julie W. Weston
10,000
0
10,000
1
__________________
* Designates a Director who is an "interested person".
+ Pursuant to a deferred compensation plan, the indicated
Directors have elected to defer payment of the following
amounts of their compensation from the fund: Robert M.
Frayn, Jr. - $11,000, David E. Maryatt- $11,000 and
Frederick O. Paulsell - $9,000.
No officer, director or employee of Salomon Smith Barney
or of its parent or any subsidiary receives any compensation
from the fund for serving as an officer or Director of the
fund. The fund pays each Director who is not an officer or
employee of Salomon Smith Barney or any of its affiliates a
fee of $6,000 per annum plus $1,000 for each in-person meeting
and $100 per telephonic meeting. All Directors are reimbursed
for travel and out-of-pocket expenses. During the calendar
year ended December 31, 1998, such expenses totaled $15,112.
As of January 7, 2000, the Directors and Officers of the
fund as a group, owned less than 1.00% of the outstanding
common stock of the fund.
As of January 7, 2000, the following shareholders
beneficially owned 5% or more of a class of shares of a fund:
Class Y
Smith Barney Concert Series, Inc.
Balanced Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester, PA 19113-1522
owned 4,024,262.812 (64.33%) shares*
Smith Barney Concert Series, Inc.
Select Balanced Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester, PA 19113-1522
owned 1,408,766.665 (22.52%) shares*
Smith Barney Concert Series, Inc.
Conservative Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester, PA 19113-1522
owned 610,283.57 (9.76%) shares*
* The Fund believes that these entities are not the
beneficial owners of shares held of record by them.
Investment Manager and Administrator
SSB Citi Fund Management LLC (successor to Mutual
Management Corp.) ("SSB") serves as investment manager to
the fund pursuant to an investment advisory agreement dated
July 30, 1993 (the "Advisory Agreement"), which was first
approved by the fund's Board of Directors, including a
majority of the Directors who are not "interested persons"
of the fund or SSB ("Independent Directors"), on April 7,
1993 and by shareholders on June 22, 1993 and was most
recently approved by the Board, including a majority of the
Independent Directors, on June 22, 1999 and amended as of
September 21, 1999. The services provided by SSB under the
Advisory Agreement are described in the prospectus under
"Management." SSB bears all expenses in connection with the
performance of its services and pays the salary of any
officer or employee who is employed by both it and the fund.
SSB is a wholly owned subsidiary of Salomon Smith Barney
Holdings Inc. ("Holdings"), which is in turn a wholly owned
subsidiary of Citigroup. On September 21, 1999, the Board
of Directors approved a management fee reduction.
Consequently, the fund pays SSB a fee, computed daily and
paid monthly on the average daily net assets, according to
the following table:
First $1.5 Billion 0.55%
Next $0.5 Billion 0.50
Next $0.5 Billion 0.49
Next $1.0 Billion 0.46
Over $3.5 Billion 0.38
SSB bears all of its expenses in connection with the
performance of its services. For the fiscal years ended
September 30, 1999, 1998 and 1997, the fund incurred
$8,940,574, $8,577,966 and $8,151,351, respectively, in
investment advisory fees.
SSB also serves as administrator to the fund pursuant
to a written agreement dated June 28, 1994 (the
"Administration Agreement"), which was first approved by the
fund's Board, including a majority of the Independent
Directors on June 28, 1994 and was most recently approved by
the Board, including a majority of the Independent
Directors, on June 22, 1999 and amended as of September 21,
1999. SSB pays the salary of any officer and employee who
is employed by both it and the fund and bears all expenses
in connection with the performance of its services. As
compensation for administrative services rendered to the
fund, SSB receives a fee, computed daily and paid monthly on
the average daily net assets, at the following rates:
First $2.0 Billion 0.20%
Next $0.5 Billion 0.16
Next $1.0 Billion 0.14
Over $3.5 Billion 0.12
For the fiscal years ended September 30, 1999, 1998 and
1997, the fund incurred $3,278,909, $3,134,642 and
$2,972,630, respectively, in administration fees.
Certain services provided to the fund by SSB pursuant to
the Administration Agreement are described in the prospectus
under "Management." In addition to those services, SSB pays
the salaries of all officers and employees who are employed by
both it and the fund, maintains office facilities for the
fund, furnishes the fund with statistical and research data,
clerical help and accounting, data processing, bookkeeping,
internal auditing and legal services and certain other
services required by the fund, prepares reports to the fund's
shareholders and prepares tax returns, reports to and filings
with the Securities and Exchange Commission (the "SEC") and
state Blue Sky authorities. SSB bears all expenses in
connection with the performance of its services. SSB renders
investment advice to investment companies that had aggregate
assets under management as of December 31, 1999 in excess of
$124 billion.
The fund bears expenses incurred in its operation,
including taxes, interest, brokerage fees and commissions, if
any; fees of Directors who are not officers, directors,
shareholders or employees of Salomon Smith Barney or SSB; SEC
fees and state Blue Sky qualification fees; charges of
custodians; transfer and dividend disbursing agent's fees;
certain insurance premiums; outside auditing and legal
expenses; costs of maintenance of corporate existence;
investor services (including allocated telephone and personnel
expenses); costs of preparation and printing of prospectuses
and statements of additional information for regulatory
purposes and for distribution to existing shareholders and
costs of shareholders' reports and corporate meetings.
Portfolio Transactions
Decisions to buy and sell securities for the fund are
made by the manager, subject to the overall supervision and
review of the fund's Board of Directors. Portfolio
securities transactions for the fund are effected by or
under the supervision of SSB.
Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. There generally is no
stated commission in the case of securities traded in the
over-the-counter markets, but the price of those securities
includes an undisclosed commission or mark-up. Over-the-
counter purchases and sales are transacted directly with
principal market makers except in those cases in which
better prices and executions may be obtained elsewhere. The
cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at
which securities are purchased from and sold to dealers
include a dealer's mark-up or mark-down. For the fiscal
years ended September 30, 1999, 1998 and 1997, the fund paid
total brokerage commissions of $3,075,905, $2,284,354 and
$2,983,857, respectively.
In executing portfolio transactions and selecting
brokers or dealers, it is the fund's policy to seek the best
overall terms available. The Advisory Agreement between the
fund and the manager provides that, in assessing the best
overall terms available for any transaction, the manager
shall consider the factors it deems relevant, including the
breadth of the market in the security, the price of the
security, the financial condition and execution capability
of the broker or dealer, and the reasonableness of the
commission, if any, for the specific transaction and on a
continuing basis. In addition, the Advisory Agreement
authorizes the manager, in selecting brokers or dealers to
execute a particular transaction and in evaluating the best
overall terms available, to consider the brokerage and
research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) provided to
the fund and/or other accounts over which the Manager or an
affiliate exercises investment discretion. For the fiscal
year ended September 30, 1999, the fund directed brokerage
transactions totaling approximately $178,677,300 to brokers
because of research services provided. The amount of
brokerage commissions paid on such transactions totaled
approximately $583,000.
The fund's Board of Directors periodically will review
the commissions paid by the fund to determine if the
commissions paid over representative periods of time were
reasonable in relation to the benefits inuring to the fund.
It is possible certain of the services received will
primarily benefit one or more other accounts for which
investment discretion is exercised. Conversely, the fund may
be the primary beneficiary of services received as a result
of portfolio transactions effected for other accounts. SSB's
fee under the Advisory Agreement is not reduced by reason of
SSB's receiving such brokerage and research services.
Further, Salomon Smith Barney will not participate in
commissions from brokerage given by the fund to other
brokers or dealers and will not receive any reciprocal
brokerage business resulting therefrom.
The fund's Board of Directors has determined that any
portfolio transaction for the fund may be executed through
Salomon Smith Barney if, in SSB's judgment, the use of
Salomon Smith Barney is likely to result in price and
execution at least as favorable as those of other qualified
brokers, and if in the transaction, Salomon Smith Barney
charges the fund a commission rate consistent with those
charged by Salomon Smith Barney to comparable unaffiliated
customers in similar transactions. In addition, Salomon
Smith Barney may directly execute such transactions for the
fund on the floor of any national securities exchange,
provided: (i) the Board of Directors has expressly
authorized Salomon Smith Barney to effect such transactions;
and (ii) Salomon Smith Barney annually advises the fund of
the aggregate compensation it earned on such transactions.
For the fiscal years ended September 30, 1999, 1998 and
1997, the fund paid $140,412, $161,040 and $27,396
respectively, in brokerage commissions to Salomon Smith
Barney. The percentage of registrant's aggregate brokerage
commissions paid to Salomon Smith Barney for the fiscal year
ended September 30, 1999 was 4.56% and the percentage of
registrant's aggregate dollar amount of transactions
involving the payment of commissions to Salomon Smith Barney
for the fiscal year ended September 30, 1999 was 2.70%.
While investment decisions for the fund are made
independently from those of the other accounts managed by SSB,
or certain affiliates of SSB, investments of the type the fund
may make also may be made by such other accounts. In such
instances, available investments or opportunities for sales
will be allocated in a manner believed by SSB to be equitable
to each. In some cases, this procedure may adversely affect
the price paid or received by the fund or the size of the
position obtained for or disposed of by the fund.
DISTRIBUTION
Distributor. CFBDS serves as the fund's distributor
on a best efforts basis pursuant to a written agreement
dated October 8, 1998 (the "Distribution Agreement"), which
was most recently approved by the fund's Board of Directors
on July 15, 1998. Prior to October 8, 1998 Salomon Smith
Barney served as the fund's distributor on a best efforts
basis pursuant to a written agreement dated July 30, 1993,
which was most recently approved by the fund's Board of
Directors on July 15, 1998.
For the fiscal year ended September 30, 1999, Salomon
Smith Barney and CFBDS received $448,000 in sales charges
from the sale of Class A shares. For the fiscal years ended
September 30, 1998 and 1997, Salomon Smith Barney received
$466,000 and $817,000, respectively, in sales charges from
the sale of Class A shares. For the fiscal year ended
September 30, 1999, Salomon Smith Barney and CFBDS received
$126,000 in sales charges from the sale of Class L shares.
For the fiscal period ended September 30, 1998, Salomon
Smith Barney received $10,000 in sales charges from the sale
of Class L shares. For the fiscal years ended September 30,
1999, 1998 and 1997, Salomon Smith Barney received $0,
$14,000 and $4,000, respectively, representing contingent
deferred sales charges ("Deferred Sales Charge") on
redemptions of the fund's Class A shares. For the fiscal
years ended September 30, 1999, 1998 and 1997, Salomon Smith
Barney received $770,000, $1,177,000 and $1,133,000,
respectively, representing Deferred Sales Charges on
redemptions of the fund's Class B shares. For the fiscal
years ended September 30, 1999, 1998 and 1997, Salomon Smith
Barney received $5,000, $11,000 and 11,000, respectively,
representing Deferred Sales Charges on redemptions of the
fund's Class L shares.
When payment is made by the investor before settlement
date, unless otherwise directed by the investor, the funds
will be held as a free credit balance in the investor's
brokerage account and Salomon Smith Barney may benefit from
the temporary use of the funds. The fund's Board of Directors
has been advised of the benefits to Salomon Smith Barney
resulting from these settlement procedures and will take such
benefits into consideration when reviewing the Advisory,
Administration and Distribution Agreements for continuance.
Services and Distribution Plan
To compensate Salomon Smith Barney or PFS Investments
("PFSI"), as the case may be, for the services it provides and
for the expenses it bears, the fund has adopted a services and
distribution plan (the "Plan") pursuant to Rule 12b-1 under
the 1940 Act. Under the Plan, the fund pays Salomon Smith
Barney and with respect to Class A and Class B shares. PFSI,
a service fee, accrued daily and paid monthly, calculated at
the annual rate of 0.25% of the value of the fund's average
daily net assets attributable to the Class A, Class B and
Class L shares. In addition, the fund pays Salomon Smith
Barney a distribution fee with respect to the Class B and
Class L shares primarily intended to compensate Salomon Smith
Barney and with respect to the Class B shares, PFSI for its
initial expense of paying Financial Consultants and PFS
Investments Registered Representatives a commission upon sales
of those shares. The Class B and Class L distribution fees are
calculated at the annual rate of 0.75% of the value of the
fund's average daily net assets attributable to the shares.
For the fiscal year ended September 30, 1999, Salomon
Smith Barney incurred distribution expenses for the following:
advertising, printing and mailing prospectuses, support
services and overhead expenses to Salomon Smith Barney
Financial Consultants and accruals for interest on the excess
of Salomon Smith Barney expenses incurred in the distribution
of the fund's shares over the sum of the distribution fees and
Deferred Sales Charges received by Salomon Smith Barney are
expressed in the following table:
Financial
Consultant
Compensation
Branch
Expenses
Advertisin
g
Expenses
Printing
Expenses
s
Interes
t
Expenses
s
$1,301,121
$791,725
$69,115
$19,092
$69,428
Fees are paid to PFS Distributors, which in turn, pays
PFS Investments Inc. ("PFS Investments") to pay its PFS
Investment Registered Representatives for servicing
shareholder accounts and, in the case of Class B shares, to
cover expenses primarily intended to result in the sale of
those shares. These expenses include: advertising expenses;
the cost of printing and mailing prospectuses to potential
investors; payments to and expenses of PFS Investments
Registered Representatives and other persons who provide
support services in connection with the distribution of
shares; interest and/or carrying charges; and indirect and
overhead costs of PFS Investments associated with the sale of
fund shares, including lease, utility, communications and
sales promotion expenses.
PFS Investments may be deemed to be an underwriter for
purposes of the Securities Act of 1933, as amended. From time
to time, PFS or its affiliates may also pay for certain non-
cash sales incentives provided to PFS Investments Registered
Representatives. Such incentives do not have any effect on
the net amount invested. In addition to the reallowances from
the applicable public offering price described above, PFS may
from time to time, pay or allow additional reallowances or
promotional incentives, in the form of cash or other
compensation to PFS Investments Registered Representatives who
sell shares of the fund.
The following shows the total distribution fees paid by
each Class for the fiscal year ended September 30, 1999:
9/30/99
Class A
$1,601,018
Class B
8,455,412
Class L
Total
727,153
$
10,783,583
Under its terms, the Plan continues from year to year,
provided such continuance is approved annually by vote of the
fund's Board of Directors, including a majority of the
Independent Directors. The Plan may not be amended to increase
the amount of the service and distribution fees without
shareholder approval, and all material amendments of the Plan
also must be approved by the Directors and Independent
Directors in the manner described above. The Plan may be
terminated with respect to a class of the fund (a "Class") at
any time, without penalty, by the vote of a majority of the
Independent Directors or by a vote of a majority of the
outstanding voting securities of the Class (as defined in the
1940 Act). Pursuant to the Plan, Salomon Smith Barney and PFSI
will provide the fund's Board of Directors with periodic
reports of amounts expended under the Plan and the purpose for
which such expenditures were made.
Custodian
The fund securities and cash owned by the fund will be
held in the custody of PNC Bank, National Association, 17th
and Chestnut Streets, Philadelphia, Pennsylvania 19103.
Auditors
Deloitte & Touche LLP, 2 World Financial Center, New
York, New York 10281, has been selected as independent
auditors to examine and report on the fund's financial
statements for the fiscal year ending September 30, 2000.
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
General. The fund offers four Classes of shares: Classes A,
B, L, and Y. Class A, and Class L and shares are sold to
investors with an initial sales charge. Class B shares are
sold without an initial sales charge but are subject to a
deferred sales charge payable upon certain redemptions. Class
L shares are also subject to a deferred sales charge payable
upon certain redemptions. Class Y shares are sold without an
initial sales charge or a deferred sales charge and are
available only to investors investing a minimum of
$15,000,000. See the prospectuses for a discussion of factors
to consider in selecting which Class of shares to purchase
Investors in Class A, Class B, and Class L shares may open an
account by making an initial investment in the fund of at
least $1,000 for each account, or $250 for an IRA or a Self-
Employed Retirement Plan. Investors in Class Y shares may open
an account by making an initial investment of $15,000,000.
Subsequent investments of at least $50 may be made for all
classes. For participants in retirement plans qualified under
Section 403(b)(7) or Section 401(a) of the Code, the minimum
initial and subsequent investment requirement for Class A,
Class B, and Class L shares and the subsequent investment
requirement for all Classes in the fund is $25. For
shareholders purchasing shares of the fund through the
Systematic Investment Plan on a monthly basis, the minimum
initial investment requirement for Class A, Class B, and
Class L shares and the subsequent investment requirement for
all Classes is $25. For shareholders purchasing shares of the
fund through the Systematic Investment Plan on a quarterly
basis, the minimum initial investment requirement for Class A,
Class B, and Class L shares and the subsequent investment
requirement for all Classes is $50. There are no minimum
investment requirements in Class A shares for employees of
Citigroup and its subsidiaries, including Salomon Smith
Barney, unit holders who invest distributing from a Unit
Investment Trust ("UIT") sponsored by Salomon Smith Barney,
directors or trustees of any of the Smith Barney Mutual Funds,
and their spouses and children. The funds reserve the right to
waive or change minimums, to decline any order to purchase
their shares and to suspend the offering of shares from time
to time. Shares purchased will be held in the shareholder's
account by PFPC Global Fund Services ("PFPC"), a sub-transfer
agent or PFS Shareholder Services ("PFSSS"), a sub-transfer
agent. Share certificates are issued only upon a
shareholder's written request to PFPC or PFSSS.
Salomon Smith Barney Accounts. Purchases of shares of the
funds must be made through a brokerage account maintained with
Salomon Smith Barney, an introducing broker or an investment
dealer in the selling group. In addition, certain investors,
including qualified retirement plans and certain other
institutional investors, may purchase shares directly from the
funds through the transfer agent. When purchasing shares of a
fund, investors must specify whether the purchase is for Class
A, Class B, Class L, or Class Y shares. Salomon Smith Barney
and other broker/dealers may charge their customers an annual
account maintenance fee in connection with a brokerage account
through which an investor purchases or holds shares. Accounts
held directly at PFPC are not subject to a maintenance fee.
PFS Accounts The Fund offers two Classes of shares to
investors purchasing through PFS Investments: Class A shares
and Class B shares.
Initial purchases of shares of each Fund must be made
through a PFS Investments Registered Representative by
completing the appropriate application found in this
Prospectus. The completed application should be forwarded to
PFSSS, 3100 Breckinridge Blvd., Bldg. 200, Duluth, Georgia
30099-0062. Checks drawn on foreign banks must be payable in
U.S. dollars and have the routing number of the U.S. bank
encoded on the check. Subsequent investments may be sent
directly to PFSSS. In processing applications and
investments, the PFPC acts as agent for the investor and for
PFS Investments and also as agent for the Distributor, in
accordance with the terms of the Prospectus. If PFPC ceases
to act as such, a successor company named by the Trust will
act in the same capacity so long as the account remains
open.
Shares purchased will be held in the shareholder's account
by PFSSS. Share certificates are issued only upon a
shareholder's written request to PFSSS. A shareholder who
has insufficient funds to complete any purchase, will be
charged a fee of $27.50 per returned purchase by PFS or
PFSSS.
Investors in Class A and Class B shares may open an account
by making an initial investment of at least $1,000 for each
account in each Class (except for Systematic Investment Plan
accounts), or $250 for an IRA or a Self-Employed Retirement
Plan in a Fund. Subsequent investments of at least $50 may
be made for each Class. For participants in retirement plans
qualified under Section 403(b)(7) or Section 401(a) of the
Code, the minimum initial investment requirement for Class A
and Class B shares and the subsequent investment requirement
for each Class in a Fund is $25. There are no minimum
investment requirements in Class A shares for employees of
Citigroup and its subsidiaries, including Salomon Smith
Barney, Directors or Trustees of any of the Smith Barney
Mutual Funds, and their spouses and children. The Trust
reserves the right to waive or change minimums, to decline
any order to purchase its shares and to suspend the offering
of shares from time to time. Purchase orders received by
PFPC or PFSSS prior to the close of regular trading on the
NYSE, on any day a Fund calculates its net asset value, are
priced according to the net asset value determined on that
day.
Upon completion of certain automated systems, initial
purchases of Fund shares may be made by wire. The minimum
investment that can be made by wire is $10,000. Before
sending the wire, the PFS Investments Inc. Registered
Representative must contact PFSSS at (800) 665-8677 to
obtain proper wire instructions. Once an account is open, a
shareholder may make additional investments by wire. The
shareholder should contact the PFPC at (800) 544-5445 to
obtain proper wire instructions.
Shareholders who establish telephone transaction authority
on their account and supply bank account information may
make additions to their accounts at any time. Shareholders
should contact PFPC at (800) 544-5445 between 9:00 a.m. and
6:00 p.m. eastern time any day that the NYSE is open. If a
shareholder does not wish to allow telephone subsequent
investments by any person in his account, he should decline
the telephone transaction option on the account application.
The minimum telephone subsequent investment is $250 and can
be up to a maximum of $10,000. By requesting a subsequent
purchase by telephone, you authorize PFSSS to transfer
funds from the bank account provided for the amount of the
purchase. A shareholder who has insufficient funds to
complete the transfer will be charged a fee of up to $27.50
by PFSSS or PFPC. A shareholder who places a stop payment
on a transfer or the transfer is returned because the
account has been closed, will also be charged a fee of up to
$27.50 by PFSSS or PFPC. Subsequent investments by
telephone may not be available if the shareholder cannot
reach PFPC whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have
to use the Fund's regular subsequent investment procedure
described above.
PFS may pay its Registered Representatives an amount equal
to 0.40% of the amount invested if the purchase represents
redemption proceeds from an investment company distributed
by an entity other than PFS Investments. In order to obtain
such discounts, the purchaser must provide sufficient
information at the time of purchase to permit verification
that the purchase would qualify for the elimination of the
sales charge.
In addition, Class A shares of the Funds may be purchased at
net asset value by the PFS Primerica Corporation Savings and
Retirement Plan (the ''Primerica Plan'') for its
participants, subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended
(''ERISA''). Class A shares so purchased are purchased for
investment purposes and may not be resold except by
redemption or repurchase by or on behalf of the Primerica
Plan. Class A shares are also offered at net asset value to
accounts opened for shareholders by PFS Investments
Registered Representatives where the amounts invested
represent the redemption proceeds from investment companies
distributed by an entity other than PFS, if such redemption
has occurred no more than 60 days prior to the purchase of
shares of the Trust, and the shareholder paid an initial
sales charge and was not subject to a deferred sales charge
on the redeemed account. Class A shares are offered at net
asset value to such persons because of anticipated economies
in sales efforts and sales related expenses. The Trust may
terminate, or amend the terms of, offering shares of the
Trust at net asset value to such persons at any time. PFS
may pay PFS Investments Registered Representatives through
whom purchases are made at net asset value an amount equal
to 0.40% of the amount invested if the purchase represents
redemption proceeds from an investment company distributed
by an entity other than PFS. Contact PFSSS at (800) 544-5445
for further information and appropriate forms.
a. Additional General Information
Systematic Investment Plan. Shareholders may make additions
to their accounts at any time by purchasing shares through a
service known as the Systematic Investment Plan. Under the
Systematic Investment Plan, shareholders can invest at least
$25 on a monthly basis or at least $50 on a quarterly basis(
not available to PFS accounts) to charge the regular bank
account or other financial institution indicated by the
shareholder, to provide systematic additions to the
shareholder's fund account. A shareholder who has
insufficient funds to complete the transfer will be charged a
fee of up to $25 by Salomon Smith Barney or PFS Investments.
The Systematic Investment Plan also authorizes Salomon Smith
Barney to apply cash held in the shareholder's Salomon Smith
Barney brokerage account or redeem the shareholder's shares of
a Smith Barney money market fund to make additions to the
account. Additional information is available from the Fund a
Salomon Smith Barney Financial Consultant, or a PFS
Investments Registered Representative.
Sales Charge Alternatives
The following classes of shares are available for purchase.
See the Prospectus for a discussion of factors to consider
in selecting which Class of shares to purchase.
Class A Shares. Class A shares are sold to investors at the
public offering price, which is the net asset value plus an
initial sales charge as follows:
Sales
Charge
Amount of
Investment
% of Offering
Price
% of Amount
Invested
Dealers'
Reallowance as %
of Offering Price
Less than $25,000
5.00%
5.26%
4.50%
$25,000 - 49,999
4.00
4.17
3.60
50,000 - 99,999
3.50
3.63
3.15
100,000-249,999
3.00
3.09
2.70
250,000-499,999
2.00
2.04
1.80
500,000 - and
over
*
*
*
* Purchases of Class A shares of $500,000 or more will
be made at net asset value without any initial sales charge,
but will be subject to a deferred sales charge of 1.00% on
redemptions made within 12 months of purchase. The deferred
sales charge on Class A shares is payable to Salomon Smith
Barney, which compensates Salomon Smith Barney Financial
Consultants and other dealers whose clients make purchases
of $500,000 or more. The deferred sales charge is waived in
the same circumstances in which the deferred sales charge
applicable to Class B and Class L shares is waived. See
"Deferred Sales Charge Alternatives" and "Waivers of
Deferred Sales Charge."
Members of the selling group may receive up to 90% of the
sales charge and may be deemed to be underwriters of the
fund as defined in the 1933 Act. The reduced sales charges
shown above apply to the aggregate of purchases of Class A
shares of the fund made at one time by "any person," which
includes an individual and his or her immediate family, or a
trustee or other fiduciary of a single trust estate or
single fiduciary account.
Class B Shares. Class B shares are sold without an initial
sales charge but are subject to a deferred sales charge
payable upon certain redemptions. See "Deferred Sales
Charge Provisions" below.
Class L Shares. Class L shares are sold with an initial
sales charge of 1.00% (which is equal to 1.01% of the amount
invested) and are subject to a deferred sales charge payable
upon certain redemptions. See "Deferred Sales Charge
Provisions" below. Until June 22, 2001 purchases of Class L
shares by investors who were holders of Class C shares of
other Smith Barney Mutual Funds on June 12, 1998 will not be
subject to the 1% initial sales charge.
Class Y Shares. Class Y shares are sold without an initial
sales charge or deferred sales charge and are available only
to investors investing a minimum of $15,000,000 (except for
purchases of Class Y shares (i) of the International Equity
Portfolio, for which the minimum initial investment is
$5,000,000 and (ii) by Smith Barney Concert Allocation
Series Inc., for which there is no minimum purchase amount).
Sales Charge Waivers and Reductions
Initial Sales Charge Waivers. Purchases of Class A shares
may be made at net asset value without a sales charge in the
following circumstances: (a) sales to (i) Board Members and
employees of Citigroup and its subsidiaries and any
Citigroup affiliated funds including the Smith Barney Mutual
Funds (including retired Board Members and employees); the
immediate families of such persons (including the surviving
spouse of a deceased Board Member or employee); and to a
pension, profit-sharing or other benefit plan for such
persons and (ii) employees of members of the National
Association of Securities Dealers, Inc., provided such sales
are made upon the assurance of the purchaser that the
purchase is made for investment purposes and that the
securities will not be resold except through redemption or
repurchase; (b) offers of Class A shares to any other
investment company to effect the combination of such company
with the fund by merger, acquisition of assets or otherwise;
(c) purchases of Class A shares by any client of a newly
employed Salomon Smith Barney Financial Consultant (for a
period up to 90 days from the commencement of the Financial
Consultant's employment with Salomon Smith Barney), on the
condition the purchase of Class A shares is made with the
proceeds of the redemption of shares of a mutual fund which
(i) was sponsored by the Financial Consultant's prior
employer, (ii) was sold to the client by the Financial
Consultant and (iii) was subject to a sales charge; (d)
purchases by shareholders who have redeemed Class A shares
in the fund (or Class A shares of another Smith Barney
Mutual Fund that is offered with a sales charge) and who
wish to reinvest their redemption proceeds in the fund,
provided the reinvestment is made within 60 calendar days of
the redemption; (e) purchases by accounts managed by
registered investment advisory subsidiaries of Citigroup;
(f) direct rollovers by plan participants of distributions
from a 401(k) plan offered to employees of Citigroup or its
subsidiaries or a 401(k) plan enrolled in the Smith Barney
401(k) Program (Note: subsequent investments will be subject
to the applicable sales charge); (g) purchases by a separate
account used to fund certain unregistered variable annuity
contracts; (h) investments of distributions from a UIT
sponsored by Salomon Smith Barney; (i) purchases by
investors participating in a Salomon Smith Barney fee-based
arrangement; and (j) purchases by Section 403(b) or Section
401(a) or (k) accounts associated with Copeland Retirement
Programs. In order to obtain such discounts, the purchaser
must provide sufficient information at the time of purchase
to permit verification that the purchase would qualify for
the elimination of the sales charge.
Right of Accumulation. Class A shares of the fund may be
purchased by ''any person'' (as defined above) at a reduced
sales charge or at net asset value determined by aggregating
the dollar amount of the new purchase and the total net
asset value of all Class A shares of the fund and of most
other Smith Barney Mutual Funds that are offered with a
sales charge then held by such person and applying the sales
charge applicable to such aggregate. In order to obtain
such discount, the purchaser must provide sufficient
information at the time of purchase to permit verification
that the purchase qualifies for the reduced sales charge.
The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares
purchased thereafter.
Letter of Intent - Class A Shares. A Letter of Intent for
an amount of $50,000 or more provides an opportunity for an
investor to obtain a reduced sales charge by aggregating
investments over a 13 month period, provided that the
investor refers to such Letter when placing orders. For
purposes of a Letter of Intent, the ''Amount of Investment''
as referred to in the preceding sales charge table includes
(i) all Class A shares of the fund and other Smith Barney
Mutual Funds offered with a sales charge acquired during the
term of the letter plus (ii) the value of all Class A shares
previously purchased and still owned. Each investment made
during the period receives the reduced sales charge
applicable to the total amount of the investment goal. If
the goal is not achieved within the period, the investor
must pay the difference between the sales charges applicable
to the purchases made and the charges previously paid, or an
appropriate number of escrowed shares will be redeemed. The
term of the Letter will commence upon the date the Letter is
signed, or at the options of the investor, up to 90 days
before such date. Please contact a Salomon Smith Barney
Financial Consultant or Citi Fiduciary Trust Company (the
"Transfer Agent") or a PFS Investments Registered
Representative to obtain a Letter of Intent application.
Letter of Intent - Class Y Shares. A Letter of Intent may
also be used as a way for investors to meet the minimum
investment requirement for Class Y shares (except purchases
of Class Y shares by Smith Barney Concert Allocation Series
Inc., for which there is no minimum purchase amount).
Investors must make an initial minimum purchase of
$5,000,000 in Class Y shares of the fund and agree to
purchase a total of $15,000,000 of Class Y shares of the
fund within 13 months from the date of the Letter. If a
total investment of $15,000,000 is not made within the 13-
month period, all Class Y shares purchased to date will be
transferred to Class A shares, where they will be subject to
all fees (including a service fee of 0.25%) and expenses
applicable to the fund's Class A shares, which may include a
deferred sales charge of 1.00%. Please contact a Salomon
Smith Barney Financial Consultant or the Transfer Agent for
further information.
Deferred Sales Charge Provisions
''Deferred Sales Charge Shares'' are: (a) Class B shares;
(b) Class L shares; and (c) Class A shares that were
purchased without an initial sales charge but are subject to
a deferred sales charge. A deferred sales charge may be
imposed on certain redemptions of these shares.
Any applicable deferred sales charge will be assessed on an
amount equal to the lesser of the original cost of the
shares being redeemed or their net asset value at the time
of redemption. Deferred Sales Charge Shares that are
redeemed will not be subject to a deferred sales charge to
the extent the value of such shares represents: (a) capital
appreciation of fund assets; (b) reinvestment of dividends
or capital gain distributions; (c) with respect to Class B
shares, shares redeemed more than five years after their
purchase; or (d) with respect to Class L shares and Class A
shares that are Deferred Sales Charge Shares, shares
redeemed more than 12 months after their purchase.
Class L shares and Class A shares that are Deferred Sales
Charge Shares are subject to a 1.00% deferred sales charge
if redeemed within 12 months of purchase. In circumstances
in which the deferred sales charge is imposed on Class B
shares, the amount of the charge will depend on the number
of years since the shareholder made the purchase payment
from which the amount is being redeemed. Solely for
purposes of determining the number of years since a purchase
payment, all purchase payments made during a month will be
aggregated and deemed to have been made on the last day of
the preceding Salomon Smith Barney statement month. The
following table sets forth the rates of the charge for
redemptions of Class B shares by shareholders, except in the
case of Class B shares held under the Smith Barney 401(k)
Program, as described below. See ''Purchase of Shares-Smith
Barney 401(k) and ExecChoiceTM Programs.''
Year Since Purchase
Payment Was Made
Deferred Sales Charge
First
5.00%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth and thereafter
0.00
Class B shares will convert automatically to Class A shares
eight years after the date on which they were purchased and
thereafter will no longer be subject to any distribution
fees. There will also be converted at that time such
proportion of Class B Dividend Shares (Class B shares that
were acquired through the reinvestment of dividends and
distributions) owned by the shareholder as the total number
of his or her Class B shares converting at the time bears to
the total number of outstanding Class B shares (other than
Class B Dividend Shares) owned by the shareholder.
In determining the applicability of any deferred sales
charge, it will be assumed that a redemption is made first
of shares representing capital appreciation, next of shares
representing the reinvestment of dividends and capital gain
distributions and finally of other shares held by the
shareholder for the longest period of time. The length of
time that Deferred Sales Charge Shares acquired through an
exchange have been held will be calculated from the date
that the shares exchanged were initially acquired in one of
the other Smith Barney Mutual Funds, and fund shares being
redeemed will be considered to represent, as applicable,
capital appreciation or dividend and capital gain
distribution reinvestments in such other funds. For Federal
income tax purposes, the amount of the deferred sales charge
will reduce the gain or increase the loss, as the case may
be, on the amount realized on redemption. The amount of any
deferred sales charge will be paid to Salomon Smith Barney.
To provide an example, assume an investor purchased 100
Class B shares of the fund at $10 per share for a cost of
$1,000. Subsequently, the investor acquired 5 additional
shares of the fund through dividend reinvestment. During
the fifteenth month after the purchase, the investor decided
to redeem $500 of his or her investment. Assuming at the
time of the redemption the net asset value had appreciated
to $12 per share, the value of the investor's shares would
be $1,260 (105 shares at $12 per share). The deferred sales
charge would not be applied to the amount which represents
appreciation ($200) and the value of the reinvested dividend
shares ($60). Therefore, $240 of the $500 redemption
proceeds ($500 minus $260) would be charged at a rate of
4.00% (the applicable rate for Class B shares) for a total
deferred sales charge of $9.60.
Waivers of Deferred Sales Charge
The deferred sales charge will be waived on: (a) exchanges
(see ''Exchange Privilege''); (b) automatic cash withdrawals
in amounts equal to or less than 1.00% per month of the
value of the shareholder's shares at the time the withdrawal
plan commences (see ''Automatic Cash Withdrawal Plan'')
(provided, however, that automatic cash withdrawals in
amounts equal to or less than 2.00% per month of the value
of the shareholder's shares will be permitted for withdrawal
plans that were established prior to November 7, 1994); (c)
redemptions of shares within 12 months following the death
or disability of the shareholder; (d) redemptions of shares
made in connection with qualified distributions from
retirement plans or IRAs upon the attainment of age 591/2; (e)
involuntary redemptions; and (f) redemptions of shares to
effect a combination of the fund with any investment company
by merger, acquisition of assets or otherwise. In addition,
a shareholder who has redeemed shares from other Smith
Barney Mutual Funds may, under certain circumstances,
reinvest all or part of the redemption proceeds within 60
days and receive pro rata credit for any deferred sales
charge imposed on the prior redemption.
Deferred sales charge waivers will be granted subject to
confirmation (by Salomon Smith Barney in the case of
shareholders who are also Salomon Smith Barney clients or by
the Transfer Agent in the case of all other shareholders) of
the shareholder's status or holdings, as the case may be.
Smith Barney 401(k) and ExecChoiceTM Programs
Investors may be eligible to participate in the Smith Barney
401(k) Program or the Smith Barney ExecChoiceTM Program. To
the extent applicable, the same terms and conditions, which
are outlined below, are offered to all plans participating
(''Participating Plans'') in these programs.
The fund offers to Participating Plans Class A and Class L
shares as investment alternatives under the Smith Barney
401(k) and ExecChoiceTM Programs. Class A and Class L shares
acquired through the Participating Plans are subject to the
same service and/or distribution fees as the Class A and
Class L shares acquired by other investors; however, they
are not subject to any initial sales charge or deferred
sales charge. Once a Participating Plan has made an initial
investment in the fund, all of its subsequent investments in
the fund must be in the same Class of shares, except as
otherwise described below.
Class A Shares. Class A shares of the fund are offered
without any sales charge or deferred sales charge to any
Participating Plan that purchases $1,000,000 or more of
Class A shares of one or more funds of the Smith Barney
Mutual Funds.
Class L Shares. Class L shares of the fund are offered
without any sales charge or deferred sales charge to any
Participating Plan that purchases less than $1,000,000 of
Class L shares of one or more funds of the Smith Barney
Mutual Funds.
401(k) and ExecChoiceTM Plans Opened On or After June 21,
1996. If, at the end of the fifth year after the date the
Participating Plan enrolled in the Smith Barney 401(k)
Program or the Smith Barney ExecChoiceTM Program, a
Participating Plan's total Class L and Class O holdings in
all non-money market Smith Barney Mutual Funds equal at
least $1,000,000, the Participating Plan will be offered the
opportunity to exchange all of its Class L shares for Class
A shares of the fund. For Participating Plans that were
originally established through a Salomon Smith Barney retail
brokerage account, the five-year period will be calculated
from the date the retail brokerage account was opened. Such
Participating Plans will be notified of the pending exchange
in writing within 30 days after the fifth anniversary of the
enrollment date and, unless the exchange offer has been
rejected in writing, the exchange will occur on or about the
90th day after the fifth anniversary date. If the
Participating Plan does not qualify for the five-year
exchange to Class A shares, a review of the Participating
Plan's holdings will be performed each quarter until either
the Participating Plan qualifies or the end of the eighth
year.
401(k) Plans Opened Prior to June 21, 1996. In any year
after the date a Participating Plan enrolled in the Smith
Barney 401(k) Program, if a Participating Plan's total Class
L holdings in all non-money market Smith Barney Mutual Funds
equal at least $500,000 as of the calendar year-end, the
Participating Plan will be offered the opportunity to
exchange all of its Class L and Class O shares for Class A
shares of the fund. Such Plans will be notified in writing
within 30 days after the last business day of the calendar
year and, unless the exchange offer has been rejected in
writing, the exchange will occur on or about the last
business day of the following March.
Any Participating Plan in the Smith Barney 401(k) or the
Smith Barney ExecChoiceTM Programs, whether opened before or
after June 21, 1996, that has not previously qualified for
an exchange into Class A shares will be offered the
opportunity to exchange all of its Class L shares for Class
A shares of the fund, regardless of asset size, at the end
of the eighth year after the date the Participating Plan
enrolled in the Smith Barney 401(k) Program. Such Plans will
be notified of the pending exchange in writing approximately
60 days before the eighth anniversary of the enrollment date
and, unless the exchange has been rejected in writing, the
exchange will occur on or about the eighth anniversary date.
Once an exchange has occurred, a Participating Plan will not
be eligible to acquire additional Class L shares of the
fund, but instead may acquire Class A shares of the fund.
Any Class L shares not converted will continue to be subject
to the distribution fee.
Participating Plans wishing to acquire shares of the fund
through the Smith Barney 401(k) Program or the Smith Barney
ExecChoiceTM Program must purchase such shares directly from
the Transfer Agent. For further information regarding these
Programs, investors should contact a Salomon Smith Barney
Financial Consultant.
Determination of Public Offering Price
The fund offers its shares to the public on a continuous
basis. The public offering price for Class A shares of the
fund is equal to the net asset value per share at the time
of purchase plus an initial sales charge based on the
aggregate amount of the investment. The public offering
price for Class B, Class L and Class Y shares (and Class A
share purchases, including applicable rights of
accumulation, equaling or exceeding $500,000) is equal to
the net asset value per share at the time of purchase and no
sales charge is imposed at the time of purchase. Deferred
Sales Charge, however, is imposed on certain redemptions of
Class B and Class L shares, and of Class A shares when
purchased in amounts equaling or exceeding $500,000. The
method of computation of the public offering price is shown
in the fund's financial statements incorporated by reference
in their entirety into this SAI.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of
payment postponed (a) for any period during which the NYSE is
closed (other than for customary weekend or holiday closings),
(b) when trading in markets the fund normally utilizes is
restricted, or an emergency, as determined by the SEC, exists
so that disposal of the fund's investments or determination of
net asset value is not reasonably practicable or (c) for such
other periods as the SEC by order may permit for protection of
the fund's shareholders.
If the shares to be redeemed were issued in certificate
form, the certificates must be endorsed for transfer (or be
accompanied by an endorsed stock power) and must be submitted
to sub-transfer agent together with the redemption request.
Any signature appearing on a share certificate, stock power
or written redemption request in excess of $10,000 must be
guaranteed by an eligible guarantor institution such as a
domestic bank, savings and loan institution, domestic credit
union, member bank of the federal Reserve System or member
firm of a national securities exchange. Written redemption
requests of $10,000 or less do not require a signature
guarantee unless more than one such redemption request is made
in any 10-day period or the redemption proceeds are to be sent
to an address other than the address of record. Unless
otherwise directed, redemption proceeds will be mailed to an
investor's address of record. The Transfer Agent may require
additional supporting documents for redemptions made by
corporations, executors, administrators, trustees or
guardians. A redemption request will not be deemed properly
received until the Transfer Agent receives all required
documents in proper form.
If a shareholder holds shares in more than one Class,
any request for redemption must specify the Class being
redeemed. In the event of a failure to specify which Class,
or if the investor owns fewer shares of the Class than
specified, the redemption request will be delayed until the
Transfer Agent receives further instructions from Salomon
Smith Barney, or if the shareholder's account is not with
Salomon Smith Barney, from the shareholder directly. The
redemption proceeds will be remitted on or before the third
business day following receipt of proper tender, except on any
days on which the NYSE is closed or as permitted under the
1940 Act, in extraordinary circumstances. Generally, if the
redemption proceeds are remitted to a Salomon Smith Barney
brokerage account, these funds will not be invested for the
shareholder's benefit without specific instruction and Salomon
Smith Barney will benefit from the use of temporarily
uninvested funds. Redemption proceeds for shares purchased by
check, other than a certified or official bank check, will be
remitted upon clearance of the check, which may take up to
ten days or more.
Distributions in Kind
If the Board of Directors of the fund determines that it
would be detrimental to the best interests of the remaining
shareholders to make a redemption payment wholly in cash, the
fund may pay, in accordance with the SEC rules, any portion of
a redemption in excess of the lesser of $250,000 or 1.00% of
the fund's net assets by distribution in kind of portfolio
securities in lieu of cash. Securities issued as a
distribution in kind may incur brokerage commissions when
shareholders subsequently sell those securities.
a. Salomon Smith Barney Accounts.
Salomon Smith Barney Shares held by Salomon Smith Barney as
custodian must be redeemed by submitting a written request to
a Financial Consultant. Shares other than those held by
Salomon Smith Barney as custodian may be redeemed through an
investor's Financial Consultant, introducing broker or dealer
in the selling group or by submitting a written request for
redemption to:
Smith Barney Fundamental Value Fund Inc.
Class A, B, L, or Y (please specify)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940 - 9699
A written redemption request must (a) state the class and
number or dollar amount of shares to be redeemed, (b) identify
the shareholder's account number and (c) be signed by each
registered owner exactly as the shares are registered. If the
shares to be redeemed were issued in certificate form, the
certificates must be endorsed for transfer (or be accompanied
by an endorsed stock power) and must be submitted to PFPC
together with the redemption request. Any signature appearing
on a share certificate, stock power or written redemption
request in excess of $2,000 must be guaranteed by an eligible
guarantor institution, such as a domestic bank, savings and
loan institution, domestic credit union, member bank of the
Federal Reserve System or member firm of a national securities
exchange. Written redemption requests of $2,000 or less do not
require a signature guarantee unless more than one such
redemption request is made in any 10-day period. Redemption
proceeds will be mailed to an investor's address of record.
The Transfer Agent may require additional supporting documents
for redemptions made by corporations, executors,
administrators, trustees or guardians. A redemption request
will not be deemed properly received until the Transfer Agent
receives all required documents in proper form.
Automatic Cash Withdrawal Plan. Each fund offers shareholders
an automatic cash withdrawal plan, under which shareholders
who own shares with a value of at least $10,000 may elect to
receive cash payments of at least $50 monthly or quarterly.
Retirement plan accounts are eligible for automatic cash
withdrawal plans only where the shareholder is eligible to
receive qualified distributions and has an account value of at
least $5,000. The withdrawal plan will be carried over on
exchanges between funds or classes of the fund. Any
applicable deferred sales charge will not be waived on amounts
withdrawn by a shareholder that exceed 1.00% per month of the
value of the shareholder's shares subject to the deferred
sales charge at the time the withdrawal plan commences. (With
respect to withdrawal plans in effect prior to November 7,
1994, any applicable deferred sales charge will be waived on
amounts withdrawn that do not exceed 2.00% per month of the
value of the shareholder's shares subject to the deferred
sales charge.) For further information regarding the
automatic cash withdrawal plan, shareholders should contact a
Salomon Smith Barney Financial Consultant.
Telephone Redemption and Exchange Program. Shareholders who
do not have a brokerage account may be eligible to redeem and
exchange shares by telephone. To determine if a shareholder is
entitled to participate in this program, he or she should
contact the transfer agent at 1-800-451-2010. Once
eligibility is confirmed, the shareholder must complete and
return a Telephone/Wire Authorization Form, along with a
signature guarantee, that will be provided by the transfer
agent upon request. (Alternatively, an investor may authorize
telephone redemptions on the new account application with the
applicant's signature guarantee when making his/her initial
investment in the fund.)
Redemptions. Redemption requests of up to $10,000 of any
class or classes of shares of the fund may be made by eligible
shareholders by calling the transfer agent at 1-800-451-2010.
Such requests may be made between 9:00 a.m. and 4:00 p.m. (New
York City time) on any day the NYSE is open. Redemptions of
shares (i) by retirement plans or (ii) for which certificates
have been issued are not permitted under this program.
A shareholder will have the option of having the redemption
proceeds mailed to his/her address of record or wired to a
bank account predesignated by the shareholder. Generally,
redemption proceeds will be mailed or wired, as the case may
be, on the next business day following the redemption request.
In order to use the wire procedures, the bank receiving the
proceeds must be a member of the Federal Reserve System or
have a correspondent relationship with a member bank. The
funds reserve the right to charge shareholders a nominal fee
for each wire redemption. Such charges, if any, will be
assessed against the shareholder's account from which shares
were redeemed. In order to change the bank account designated
to receive redemption proceeds, a shareholder must complete a
new Telephone/Wire Authorization Form and, for the protection
of the shareholder's assets, will be required to provide a
signature guarantee and certain other documentation.
Exchanges. Eligible shareholders may make exchanges by
telephone if the account registration of the shares of the
fund being acquired is identical to the registration of the
shares of the fund exchanged. Such exchange requests may be
made by calling the transfer agent at 1-800-451-2010 between
9:00 a.m. and 4:00 p.m. (New York City time) on any day on
which the NYSE is open.
Additional Information regarding Telephone Redemption and
Exchange Program. Neither the funds nor any of their agents
will be liable for following instructions communicated by
telephone that are reasonably believed to be genuine. The
funds and their agents will employ procedures designed to
verify the identity of the caller and legitimacy of
instructions (for example, a shareholder's name and account
number will be required and phone calls may be recorded). The
funds reserve the right to suspend, modify or discontinue the
telephone redemption and exchange program or to impose a
charge for this service at any time following at least seven
(7) days prior notice to shareholders.
b. PFS Accounts
Shareholders may redeem for cash some or all of their shares
of a Fund at any time by sending a written request in proper
form directly to a sub-transfer agent, PFS Shareholder
Services, at 3100 Breckinridge Blvd, Bldg. 200, Duluth,
Georgia 30099-0062. If you should have any questions
concerning how to redeem your account after reviewing the
information below, please contact PFSSS at (800) 544-5445,
Spanish-speaking representatives (800) 544-7278 or TDD Line
for the Hearing Impaired (800) 824-1721.
The request for redemption must be signed by all persons in
whose names the shares are registered. Signatures must conform
exactly to the account registration. If the proceeds of the
redemption exceed $50,000, or if the proceeds are not paid to
the record owner(s) at the record address, if the
shareholder(s) has had an address change in the past 45 days,
or if the shareholder(s) is a corporation, sole proprietor,
partnership, trust or fiduciary, signature(s) must be
guaranteed by one of the following: a bank or trust company;
a broker-dealer; a credit union; a national securities
exchange, registered securities association or clearing
agency; a savings and loan association; or a federal savings
bank.
Generally, a properly completed Redemption Form with any
required signature guarantee is all that is required for a
redemption. In some cases, however, other documents may be
necessary. For example, in the case of shareholders holding
certificates, the certificates for the shares being redeemed
must accompany the redemption request. Additional documentary
evidence of authority is also required by the Sub-Transfer
Agent in the event redemption is requested by a corporation,
partnership, trust, fiduciary, executor or administrator.
Additionally, if a shareholder requests a redemption from a
Retirement Plan account (IRA, SEP or 403(b)(7)), such request
must state whether or not federal income tax is to be withheld
from the proceeds of the redemption check.
A shareholder may utilize the PFSSS Telephone Redemption
service to redeem his or her account as long as they have
authorized the telephone redemption option. If a shareholder
does not wish to allow telephone redemptions by any person in
his account, he should decline the telephone transaction
option on the account application. The telephone redemption
option can be used only if: (a) the redemption proceeds are to
be mailed to the address of record and there has been no
change of address of record within the preceding 45 days; (b)
the shares to be redeemed are not in certificate form; (c);
the person requesting the redemption can provide proper
identification information; and (d) the proceeds of the
redemption do not exceed $50,000. 403(b)(7) accounts and
accounts not registered in the name of individual(s) are not
eligible for the telephone redemption option. Telephone
redemption requests can be made by contacting the PFSSS at
(800) 544-5445 between 9:00 a.m. and 6:00 p.m. eastern time
any day that the NYSE is open. Telephone redemption may not
be available if the shareholder cannot reach the PFSSS whether
because all telephone lines are busy or for any other reason;
in such case, a shareholder would have to use the Fund's
regular redemption procedure described above.
A shareholder may utilize the PFSSS FAX to redeem the
shareholder's account as long as a signature guarantee or
other documentary evidence is not required. Redemption
requests should be properly signed by all owners of the
account and faxed to the PFSSS at (800) 554-2374. Facsimile
redemptions may not be available if the shareholder cannot
reach the PFSSS by FAX, whether because all telephone lines
are busy or for any other reason; in such case, a shareholder
would have to use the Fund's regular redemption procedure
described above. Facsimile redemptions received by the PFSSS
prior to 4:00 p.m. Eastern time on a regular business day
will be processed at the net asset value per share determined
that day.
After following the redemption guidelines stated in the
Prospectus and SAI, a shareholder may elect to have the
redemption proceeds transferred via Wire or ACH directly to
the shareholder's bank account of record (defined as a
currently established pre-authorized draft on the
shareholder's account included with the application or with no
changes within the previous 30 days) as long as the bank
account is registered in the same name(s) as the account with
the Fund. Redemption proceeds can be sent by check to the
address of record or by wire transfer to a bank account
designated on the application. A shareholder will be charged
a $25 service fee for wire transfers and a nominal service fee
for transfers made directly to the shareholder's bank by the
Automated Clearing House (ACH). If the proceeds are not to be
transferred to the bank account of record or mailed to the
registered owner, the request must be submitted in writing and
a signature guarantee will be required from all shareholders.
Redemption proceeds will normally be sent to the designated
bank account on the next business day following the
redemption, and should ordinarily be credited to the
shareholder's bank account by his/her bank within 48 to 72
hours for wire transfers and 72 to 96 hours for ACH transfers.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal
Plan") is available to shareholders who own shares with a
value of at least $10,000 ($5,000 for retirement plan
accounts) and who wish to receive specific amounts of cash
monthly or quarterly. Withdrawals of at least $50 may be made
under the Withdrawal Plan by redeeming as many shares of the
fund as may be necessary to cover the stipulated withdrawal
payment. Any applicable Deferred Sales Charge will not be
waived on amounts withdrawn by shareholders that exceed 1.00%
per month of the value of a shareholder's shares at the time
the Withdrawal Plan commences. (With respect to Withdrawal
Plans in effect prior to November 7, 1994, any applicable
Deferred Sales Charge will be waived on amounts withdrawn that
do not exceed 2.00% per month of the value of a shareholder's
shares that are subject to a Deferred Sales Charge). To the
extent withdrawals exceed dividends, distributions and
appreciation of a shareholder's investment in the fund, there
will be a reduction in the value of the shareholder's
investment and continued withdrawal payments will reduce the
shareholder's investment and ultimately may exhaust it.
Withdrawal payments should not be considered as income from
investment in the fund. Furthermore, as it generally would not
be advantageous to a shareholder to make additional
investments in the fund at the same time he or she is
participating in the Withdrawal Plan, purchases by such
shareholders in amounts of less than $5,000 ordinarily will
not be permitted.
Shareholders who wish to participate in the Withdrawal
Plan and who hold their shares in certificate form must
deposit their share certificates with the sub-transfer agent
as agent for Withdrawal Plan members. All dividends and
distributions on shares in the Withdrawal Plan are reinvested
automatically at net asset value in additional shares of the
fund. A shareholder who purchases shares directly through the
sub-transfer agent may continue to do so and applications for
participation in the Withdrawal Plan must be received by the
sub-transfer agent no later than the eighth day of the month
to be eligible for participation beginning with that month's
withdrawal. For additional information, shareholders should
contact a Salomon Smith Barney Financial Consultant or their
Financial Consultant, the Introducing Broker or dealer in the
selling group.
VALUATION OF SHARES
The prospectus states that the net asset value of the
fund's classes of shares will be determined on any date that
the New York Stock Exchange ("NYSE") is open. The NYSE is
closed on the following holidays: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas.
Securities listed on a national securities exchange will
be valued on the basis of the last sale on the date on which
the valuation is made or, in the absence of sales, at the mean
between the closing bid and asked prices. Over-the-counter
securities will be valued on the basis of the bid price at the
close of business on each day, or, if market quotations for
those securities are not readily available, at fair value, as
determined in good faith by the fund's Board of Directors.
Short-term obligations with maturities of 60 days or less are
valued at amortized cost, which constitutes fair value as
determined by the fund's Board of Directors. Amortized cost
involves valuing an instrument at its original cost to the
fund and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the effect
of fluctuating interest rates on the market value of the
instrument. All other securities and other assets of the fund
will be valued at fair value as determined in good faith by
the fund's Board of Directors.
EXCHANGE PRIVILEGE
As your needs change, you may wish to reposition your
investments. With Smith Barney Mutual Funds, you have the
ability to exchange your shares of most Smith Barney mutual
funds for those of others within the family.
Except as otherwise noted below, shares of each Class of the
fund may be exchanged for shares of the same Class of certain
Smith Barney Mutual Funds, to the extent shares are offered
for sale in the shareholder's state of residence. Exchanges
of Class A, Class B, and and Class O shares are subject to
minimum investment requirements and all shares are subject to
the other requirements of the fund into which exchanges are
made.
Class B Exchanges. In the event a Class B shareholder wishes
to exchange all or a portion of his or her shares in any fund
imposing a higher deferred sales charge than that imposed by
the fund, the exchanged Class B shares will be subject to the
higher applicable deferred sales charge. Upon an exchange, the
new Class B shares will be deemed to have been purchased on
the same date as the Class B shares of the fund that have been
exchanged.
Class L Exchanges. Upon an exchange, the new Class L shares
will be deemed to have been purchased on the same date as the
Class L shares of the fund that have been exchanged.
Class A and Class Y Exchanges. Class A and Class Y
shareholders of the fund who wish to exchange all or a portion
of their shares for shares of the respective Class in any of
the funds identified above may do so without imposition of any
charge.
Additional Information Regarding the Exchange Privilege.
Although the exchange privilege is an important benefit,
excessive exchange transactions can be detrimental to either
fund's performance and its shareholders. The manager may
determine that a pattern of frequent exchanges is excessive
and contrary to the best interests of the fund's other
shareholders. In this event, each fund may, at its
discretion, decide to limit additional purchases and/or
exchanges by a shareholder. Upon such a determination, the
fund will provide notice in writing or by telephone to the
shareholder at least 15 days prior to suspending the exchange
privilege and during the 15 day period the shareholder will be
required to (a) redeem his or her shares in the fund or
(b) remain invested in the fund or exchange into any of the
funds of the Smith Barney Mutual Funds ordinarily available,
which position the shareholder would be expected to maintain
for a significant period of time. All relevant factors will
be considered in determining what constitutes an abusive
pattern of exchanges.
Additional Information Regarding Telephone Redemption
and Exchange Program. Neither the fund nor its agents will be
liable for following instructions communicated by telephone
that are reasonably believed to be genuine. The fund and its
agents will employ procedures designed to verify the identity
of the caller and legitimacy of instructions (for example, a
shareholder's name and account number will be required and
phone calls may be recorded). The fund reserves the right to
suspend, modify or discontinue the telephone redemption and
exchange program or to impose a charge for this service at any
time following at least seven (7) days' prior notice to
shareholders.
Special Provisions - PFS Accounts
For PFS Accounts, shares of each class of the fund may be
exchanged at the net asset value next determined for shares of
the same class in the following funds, to the extent shares
are offered for sale in the shareholder's state of residence.
Concert Investment Series - Municipal Bond Fund
Concert Peachtree Growth Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Concert Allocation Series Inc. - Balanced
Portfolio
Smith Barney Concert Allocation Series Inc. -
Conservative Portfolio
Smith Barney Concert Allocation Series Inc. - Global
Portfolio
Smith Barney Concert Allocation Series Inc. - Growth
Portfolio
Smith Barney Concert Allocation Series Inc. - High
Growth Portfolio
Smith Barney Concert Allocation Series Inc. - Income
Portfolio
Smith Barney Income Funds - Diversified Strategic
Income Fund
Smith Barney Investment Grade Bond Fund
*Smith Barney Money Funds, Inc. - Cash Portfolio
**Smith Barney Exchange Reserve Fund
* Available for exchange with Class A shares of a Fund.
** Available for exchange with Class B shares of a Fund.
Shareholders who establish telephone transaction authorization
on their account may request an exchange by telephone. If a
shareholder does not wish to allow telephone exchanges by any
person in his account, he should decline the telephone
transaction option on the account application. Redemption
procedures discussed below are also applicable for exchanging
shares, and exchanges will be made upon receipt of all
supporting documents in proper form. Exchanges between funds
involving exact registrations do not require a signature
guarantee.
PERFORMANCE DATA
From time to time, the fund may quote total return of a
Class in advertisements or in reports and other communications
to shareholders. The fund may include comparative performance
information in advertising or marketing the fund's shares.
Such performance information may include data from the
following industry and financial publications: Barrons',
Business Week, CDA Investment Technologies, Inc., Changing
Times, Forbes, Fortune, Institutional Investor, Investors
Daily, Money, Morningstar Mutual fund Values, The New York
Times, USA Today and The Wall Street Journal. To the extent
any advertisement or sales literature of the fund describes
the expenses or performance of any Class it will also disclose
such information for the other Classes.
Average Annual Total Return
"Average annual total return" figures are computed
according to a formula prescribed by the SEC. The formula
can be expressed as follows:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of
$1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a
hypothetical $1,000 investment made at
the beginning of the 1-, 5- or 10-year
period at the end of the 1-, 5- or 10-
year period (or fractional portion
thereof), assuming reinvestment of all
dividends and distributions.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period. A fund's net
investment income changes in response to fluctuations in
interest rates and the expenses of the fund.
Average Annual Total Return
Class of Shares
1-Year
5-Year
10-Year
Life of
fund
Inception
date
Class A1
30.31%
16.90%
13.83%
14.24%
11/12/81
Class B2
31.00%
17.10%
N/A
16.28%
11/6/92
Class L3
33.66%
17.01%
N/A
14.91%
08/10/93
Class Y4
37.57%
N/A
N/A
17.74%
10/13/95
1 The average annual total return figure assumes that the
maximum 5.00% sales charge has been deducted from the
investment at the time of purchase. If no sales charge had
not been deducted, the average annual total return for
Class A shares for the same periods would have been 37.17%,
18.10%,14.42% and 14.57%, respectively.
2 The average annual total return figure assumes that the
maximum applicable Deferred Sales Charge has been deducted
from the investment at the time of redemption. If no
Deferred Sales Charge had not been deducted, the average
annual total return for Class B shares for the same periods
would have been 36.00%, 17.21% and 16.28%, respectively.
3 The average annual total return figure assumes that the
maximum applicable Deferred Sales Charge has been deducted
from the investment at the time of redemption. If no
Deferred Sales Charge had not been deducted, the average
annual total return for Class L shares for the same period
would have been 36.00%, 17.24% and 15.09%, respectively.
4 Class Y shares do not incur sales charges nor Deferred
Sales Charges. During November 1995, Class Y shares were
fully redeemed; therefore, performance for Class Y shares
represents performance for the period beginning January 31,
1996, which represents the date new share purchases were
made of Class Y shares.
Aggregate Total Return
"Aggregate total return" figures represent the
cumulative change in the value of an investment in the Class
for the specified period and are computed by the following
formula:
ERV - P
P
Where: P = a hypothetical initial payment of
$10,000
ERV = Ending Redeemable Value of a
hypothetical $10,000 investment made
at the beginning of a 1-, 5- or 10-
year period at the end of the 1-, 5-
or 10-year period (or fractional
portion thereof), assuming
reinvestment of all dividends and
distributions.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period.
Aggregate Total Return
Class of Shares
1-Year
5-Year
10-
Year
Life of
fund
Inceptio
n
date
Class A1
30.31%
118.27%
265.2%
983.41%
11/12/81
Class B2
31.00%
120.2%
N/A
183.11%
11/6/92
Class L3
33.66%
119.36%
N/A
134.83%
08/10/93
Class Y4
37.57%
N/A
N/A%
82.03%
10/13/95
1 The aggregate total return figure assumes that the maximum
5.00% sales charge has been deducted from the investment at
the time of purchase. If no sales charge had not been
deducted, the aggregate total return for Class A shares for
the same period would have been 37.17%, 129.71%, 284.61%
and 1,039.75%, respectively.
2 The aggregate total return figure assumes that the maximum
applicable Deferred Sales Charge has been deducted from the
investment at the time of redemption. If the no Deferred
Sales Charge had not been deducted, the aggregate total
return for Class B shares for the same period would have
been 36.00%, 121.20% and 183.11%, respectively.
3 The aggregate total return figure assumes that the maximum
applicable Deferred Sales Charge has been deducted from the
investment at the time of redemption. If no Deferred Sales
Charge had not been deducted, the aggregate total return
for Class L shares for the same period would have been
36.00%, 121.51% and 137.13%, respectively.
4 Class Y shares do not incur sales charges nor Deferred
Sales Charges. During November 1995, Class Y shares were
fully redeemed; therefore, performance for Class Y shares
represents performance for the period beginning January 31,
1996, which represents the date new share purchases were
made of Class Y shares.
Performance will vary from time to time depending upon
market conditions, the composition of the fund's portfolio,
operating expenses and the expenses exclusively attributable
to the Class. Consequently, any given performance quotation
should not be considered representative of the Class'
performance for any specified period in the future. Because
performance will vary, it may not provide a basis for
comparing an investment in the Class with certain bank
deposits or other investments that pay a fixed yield for a
stated period of time. Investors comparing the Class'
performance with that of other mutual funds should give
consideration to the quality and maturity of the respective
investment companies' portfolio securities.
It is important to note that the total return figures
set forth above are based on historical earnings and are not
intended to indicate future performance. Each Class' net
investment income changes in response to fluctuations in
interest rates and expenses of the fund.
TAXES
The following is a summary of selected Federal income
tax considerations that may affect the fund and its
shareholders. The summary is not intended as a substitute for
individual tax advice and investors are urged to consult their
own tax advisors as to the tax consequences of an investment
in the fund.
The fund has qualified and intends to continue to
qualify each year as a regulated investment company under the
Code. Provided the fund (a) is a regulated investment company
and (b) distributes at least 90% of its net investment income
(including, for this purpose, net realized short-term capital
gains), the fund will not be liable for Federal income taxes
to the extent its net investment income and its net realized
long- and short-term capital gains, if any, are distributed to
its shareholders. Although the fund expects to be relieved of
all or substantially all Federal, state, and local income or
franchise taxes, depending upon the extent of its activities
in states and localities in which its offices are maintained,
in which its agents or independent contractors are located, or
in which it is otherwise deemed to be conducting business,
that portion of the fund's income which is treated as earned
in any such state or locality could be subject to state and
local tax. Any such taxes paid by the fund would reduce the
amount of income and gain available for distribution to
shareholders. All of a shareholder's dividends and
distributions payable by the fund will be reinvested
automatically in additional shares of the same Class of the
fund at net asset value, unless the shareholder elects to
receive dividends and distributions in cash.
Gain or loss on the sale of a security by the fund
generally will be long-term capital gain or loss if the fund
has held the securities for more than one year. Gain or loss
on the sale of securities held for not more than one year will
be short-term. If the fund acquires a debt security at a
substantial discount, a portion of any gain upon the sale or
redemption will be taxed as ordinary income, rather than
capital gain to the extent it reflects accrued market
discount.
Dividends of net investment income and distributions of
net realized short-term capital gains will be taxable to
shareholders as ordinary income for Federal income tax
purposes, whether received in cash or reinvested in additional
shares. Dividends received by corporate shareholders will
qualify for the dividends-received deduction only to the
extent that the fund designates the amount distributed as a
dividend and the amount so designated does not exceed the
aggregate amount of dividends received by the fund from
domestic corporations for the taxable year. The Federal
dividends-received deduction for corporate shareholders may be
further reduced or disallowed if the shares with respect to
which dividends are received are treated as debt-financed or
are deemed to have been held for less than 46 days.
Foreign countries may impose withholding and other taxes
on dividends and interest paid to the fund with respect to
investments in foreign securities. However, certain foreign
countries have entered into tax conventions with the United
States to reduce or eliminate such taxes. Distributions of
long-term capital gains will be taxable to shareholders as
such, whether paid in cash or reinvested in additional shares
and regardless of the length of time that the shareholder has
held his or her interest in the fund. If a shareholder
receives a distribution taxable as long-term capital gain with
respect to his or her investment in the fund and redeems or
exchanges the shares before he or she has held them for more
than six months, any loss on the redemption or exchange that
is less than or equal to the amount of the distribution will
be treated as a long-term capital loss.
If a shareholder (a) incurs a sales charge in acquiring
or redeeming shares of the fund, and (b) disposes of those
shares and acquires within 90 days after the original
acquisition shares in a mutual fund for which the otherwise
applicable sales charge is reduced by reason of a reinvestment
right (i.e., an exchange privilege), the original sales charge
increases the shareholder's tax basis in the original shares
only to the extent the otherwise applicable sales charge for
the second acquisition is not reduced. The portion of the
original sales charge that does not increase the shareholder's
tax basis in the original shares would be treated as incurred
with respect to the second acquisition and, as a general rule,
would increase the shareholder's tax basis in the newly
acquired shares. Furthermore, the same rule also applies to a
disposition of the newly acquired shares made within 90 days
of the second acquisition. This provision prevents a
shareholder from immediately deducting the sales charge by
shifting his or her investment in a family of mutual funds.
Investors considering buying shares of the fund just
prior to a record date for a taxable dividend or capital gain
distribution should be aware that, regardless of whether the
price of the fund shares to be purchased reflects the amount
of the forthcoming dividend or distribution payment, any such
payment will be a taxable dividend or distribution payment.
If a shareholder fails to furnish a correct taxpayer
identification number, fails to report his or her dividend or
interest income in full, or fails to certify that he or she
has provided a correct taxpayer identification number, and
that he or she is not subject to such withholding, the
shareholder may be subject to a 31% "backup withholding" tax
with respect to (a) any taxable dividends and distributions
and (b) any proceeds of any redemption of fund shares. An
individual's taxpayer identification number is his or her
social security number. The 31% backup withholding tax is not
an additional tax and may be credited against a shareholder's
regular Federal income tax liability.
Options Transactions. The tax consequences of options
transactions entered into by the fund will vary depending on
the nature of the underlying security and whether the
"straddle" rules, discussed separately below, apply to the
transaction. When the fund writes a call or put option on an
equity or debt security, it will receive a premium that will,
subject to the "section 1256 contract" and straddle rules
discussed below, be treated as follows for tax purposes. If
the option expires unexercised, or if the fund enters into a
closing purchase transaction, the fund will realize a gain (or
loss if the cost of the closing purchase transaction exceeds
the amount of the premium) without regard to any unrealized
gain or loss on the underlying security. Any such gain or loss
will be short-term capital gain or loss, except that any loss
on a "qualified" covered call option not treated as part of a
straddle may be treated as long-term capital loss. If a call
option written by the fund is exercised, the fund will
recognize a capital gain or loss from the sale of the
underlying security, and will treat the premium as additional
sales proceeds. Whether the gain or loss will be long-term or
short-term will depend on the holding period of the underlying
security. If a put option written by the fund is exercised,
the amount of the premium will reduce the tax basis of the
security the fund then purchases.
The Code imposes a special "mark-to-market" system for
taxing section 1256 contracts which include options on
nonconvertible debt securities (including U.S. government
securities). In general, gain or loss with respect to section
1256 contracts will be taken into account for tax purposes
when actually realized (by a closing transaction, by exercise,
by taking delivery or by other termination). In addition, any
section 1256 contracts held at the end of a taxable year will
be treated as sold at their year-end fair market value (that
is, marked-to-market), and the resulting gain or loss will be
recognized for tax purposes. Provided section 1256 contracts
are held as capital assets and are not part of a straddle,
both the realized and unrealized year-end gain or loss from
these investment positions (including premiums on options that
expire unexercised) will be treated as 60% long-term and 40%
short-term capital gain or loss, regardless of the period of
time particular positions are actually held by the fund.
Straddles. The Code contains rules applicable to
"straddles," that is, "offsetting positions in actively traded
personal property." Such personal property includes section
1256 contracts or other investment contracts. Where
applicable, the straddle rules generally override the other
provisions of the Code. In general, investment positions will
be offsetting if there is a substantial diminution in the risk
of loss from holding one position by reason of holding one or
more other positions (although certain covered call options
would not be treated as part of a straddle). The fund is
authorized to enter into covered call and covered put
positions. Depending on what other investments are held by the
fund, at the time it enters into one of the above
transactions, the fund may create a straddle for purposes of
the Code.
If two (or more) positions constitute a straddle,
recognition of a realized loss from one position (including a
marked-to-market loss) must be deferred to the extent of
unrecognized gain in an offsetting position. Also, long-term
capital gain may be recharacterized as short-term capital
gain, or short-term capital loss as long-term capital loss.
Furthermore, interest and other carrying charges allocable to
personal property that is part of a straddle must be
capitalized.
If the fund chooses to identify a particular offsetting
position as being one component of a straddle, a realized loss
on any component of the straddle will be recognized no earlier
than upon the liquidation of all of the components of the
straddle. Special rules apply to "mixed" straddles (that is,
straddles consisting of a section 1256 contract and an
offsetting position that is not a section 1256 contract). If
the fund makes certain elections, the section 1256 contract
components of such mixed straddles will not be subject to the
60%/40% mark-to-market rules. If any such election is made,
the amount, the nature (as long- or short-term) and the timing
of the recognition of the fund's gains or losses from the
affected straddle positions will be determined under rules
that will vary according to the type of election made.
Wash Sales. "Wash sale" rules will apply to prevent the
recognition of loss with respect to a position where an
identical or substantially identical position is or has been
acquired within a prescribed period.
The foregoing is only a summary of certain Federal tax
considerations generally affecting the fund and its
shareholders and is not intended as a substitute for careful
tax planning. Shareholders are urged to consult their tax
advisors with specific reference to their own tax situations,
including their state and local tax liabilities.
ADDITIONAL INFORMATION
The fund was originally incorporated under the laws of
the State of Washington on March 17, 1981, under the name
Foster & Marshall Growth Fund, Inc. On May 22, 1984, December
18, 1987, November 21, 1989, August 12, 1992, August 17, 1993
and October 14, 1994, the fund changed its name to Shearson
Fundamental Value Fund Inc., Shearson Lehman Fundamental Value
Fund Inc., SLH Fundamental Value Fund Inc., Shearson Lehman
Brothers Fundamental Value Fund Inc., Smith Barney Shearson
Fundamental Value Fund Inc., and Smith Barney Fundamental
Value fund Inc. Without changing its name, the fund was
reincorporated as a Maryland corporation on May 24, 1995.
The fund currently offers shares of common stock
classified into four Classes, A, B, L and Y. Each Class of
shares represents an identical pro rata interest in the
Fund's investment portfolio. As a result, the Classes have
the same rights, privileges and preferences, except with
respect to: (a) the designation of each Class; (b) the
effect of the respective sales charges, if any, for each
Class; (c) the distribution and/or service fees borne by
each class; (d) the expenses allocable exclusively to each
Class; (e) voting rights on matters exclusively affecting a
single Class; (f) the exchange privilege of each Class; and
(g) the conversion feature of the Class B shares. The Board
of Directors does not anticipate that there will be any
conflicts among the interests of the holders of the
different share Classes of the fund. The Directors, on an
ongoing basis, will consider whether any such conflict
exists and, if so, take appropriate action.
The fund is not required to hold annual meetings,
however the Directors will call a meeting for any purpose
upon written request of shareholders holding at least 10% of
the fund's outstanding shares and the fund will assist
shareholders in calling such a meeting as required by the
1940 Act. When matters are submitted for shareholder vote,
shareholders of each Class will have one vote for each full
share owned and proportionate, fractional votes for
fractional shares held.
The fund sends its shareholders a semi-annual report
and an audited annual report, which include listings of
investment securities held by the fund at the end of the
reporting period. In an effort to reduce the fund's
printing and mailing costs, the fund plans to consolidate
the mailing of its semi-annual and annual reports by
household. This consolidation means that a household having
multiple accounts with the identical address of record will
receive a single copy of each report. Any shareholder who
does not want this consolidation to apply to his or her
account should contact his or her Salomon Smith Barney
Financial Consultant or the Transfer Agent.
PNC Bank, National Association, located at 17th and
Chestnut Streets, Philadelphia, Pennsylvania, 19103, serves as
the custodian of the fund. Under its agreement with the fund,
PNC holds the fund's portfolio securities and keeps all
necessary accounts and records. For its services, PNC receives
a monthly fee based upon the month-end market value of
securities held in custody and also receives securities
transaction charges. The assets of the fund are held under
bank custodianship in compliance with the 1940 Act.
Citi Fiduciary Trust Company, located at 388
Greenwich Street, New York, NY 10013 serves as the Transfer
Agent and shareholder services agent of the fund. PFPC
Global Fund Services, located at P.O. Box 9699, Providence,
RI 02940-9699, serves as a sub-transfer agent to render
certain shareholder record keeping and accounting services
functions. In addition, PFS Shareholder Services, located at
3100 Breckinridge Blvd, Bldg. 200, Duluth, Georgia 30099-
0062, serves as a sub-transfer agent to render certain
shareholder record keeping and accounting services
functions.
FINANCIAL STATEMENTS
The fund's Annual Report for the fiscal year ended September
30, 1999 is incorporated herein by reference in its entirety.
The Annual Report was filed on November 30, 1999, Accession
Number 91155-99-758.
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