As filed with the Securities and Exchange Commission on October 24, 1997
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Registration No. 2-74288
811-3275
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. [X] Post-Effective
Amendment
No. 46
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940, as amended Amendment No. 48
SMITH BARNEY INVESTMENT FUNDS INC.
(Exact name of Registrant as Specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(800)-451-2010
Christina T. Sydor
Secretary
SMITH BARNEY INVESTMENT FUNDS INC.
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as possible after this
Post-Effective Amendment becomes effective.
It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485(b)
X on October 27, 1997 pursuant to Rule 485(b)
75 days after filing pursuant to Rule 485(a)
________ on _________ pursuant to Rule 485(a)
The Registrant has previously filed a declaration of indefinite registration
of its
shares pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended. Registrant's Rule 24f-2 Notice for the fiscal year ended December
31, 1996 was filed on February 27, 1997 as accession number 0000091155-97-
000104.
SMITH BARNEY INVESTMENT FUNDS INC.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following pages and documents
Front Cover
Contents Page
Cross-Reference Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
SMITH BARNEY INVESTMENT FUNDS INC.
FORM N-1A CROSS REFERENCE SHEET
PURSUANT TO RULE 485(a) Under the Securities Act of 1933, as amended
Part A
Item No. Prospectus Caption
1. Cover Page Cover Page
2. Synopsis Prospectus Summary
3. Condensed Financial Highlights Not Applicable
4. General Description of Registrant Cover Page;
Prospectus Summary
Investment Objective and
Management Policies; Additional
Information
5. Management of the Fund Management of the Fund
and the Company;
Distributor; Additional
Information;
6. Capital Stock and Other Investment Objective and
Securities Management Policies;
Dividends, Distributions and
Taxes; Additional Information
7. Purchase of Securities Being Offered Valuation of Shares; Purchase of
Shares; Exchange Privilege;
Redemption of Shares;
Minimum Account Size;
Distributor; Additional
Information
8 Redemption or Purchase of Shares; Redemption of Shares; Exchange
Privilege
9. Pending Legal Proceedings Not Applicable
Part B
Item No. and Caption Statement of Additional
Information Caption
10 Cover Page Cover page
11. Table of Contents Contents
12. General Information and History Distributor; Additional
Information
13. Investment Objectives and Policies Investment Objectives
Management and Policies
14. Management of the Fund Management of the Company;
Distributor
15. Control Persons and Management of the Company
Holders of Securities
16. Investment Advisory and Other Management of the Company;
Services Distributor
17. Brokerage Allocation and Investment Objective and
Other Services Management Policies; Distributor
18. Capital Stock and Other Investment Objective and
Securities Management Policies; Purchase of
Shares; Redemption of Shares;
Taxes
19. Purchase, Redemption and Purchase of Shares; Redemption
Pricing of Securities Being Offered of Shares; Redemption of Shares;
Valuation of Shares; Distributor;
Exchange Privilege
20. Tax Status Taxes
21. Underwriters see Prospectus "Purchase of
Shares"
22. Calculations of Performance Performance Data
23. Financial Statements Not Applicable
SMITH BARNEY INVESTMENT FUNDS
PART B
PROSPECTUS
SMITH BARNEY HANSBERGER
Global
Value Fund
OCTOBER 27, 1997
PROSPECTUS BEGINS ON PAGE ONE
[LOGO] [LOGO]
HANSBERGER SMITH BARNEY
GLOBAL MUTUAL FUNDS
INVESTORS, INC. INVESTING FOR YOUR FUTURE.
EVERY DAY.(SM)
<PAGE>
PROSPECTUS October 27, 1997
Smith Barney Hansberger Global Value Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
The investment objective of Smith Barney Hansberger Global Value Fund (the
"Fund") is long-term capital growth. The Fund seeks to achieve this objective
by investing primarily in equity securities of U.S. and foreign issuers.
The Fund is one of a number of funds, each having distinct investment objec-
tives and policies, making up the Smith Barney Investment Funds Inc. (the "Com-
pany"). The Fund is an open-end, management investment company commonly
referred to as a mutual fund.
The initial subscription period for shares is scheduled to end on December 18,
1997, (the "Subscription Period"). After the expiration of the Subscription
Period or a limited continuous offering period, the Fund will suspend the
offering of shares to the public. A continuous offering of shares is expected
to commence on or about January 19, 1998. See "Purchase of Shares."
This Prospectus sets forth concisely certain information about the Company and
the Fund, including sales charges, distribution and service fees and expenses,
that prospective investors will find helpful in making an investment decision.
Investors are encouraged to read this Prospectus carefully and retain it for
future reference.
Additional information about the Fund is contained in a Statement of Addi-
tional Information dated October 27, 1997, as amended or supplemented from time
to time, that is available upon request and without charge by calling or writ-
ing the Fund at the telephone number or address set forth above or by contact-
ing a Smith Barney Financial Consultant. The Statement of Additional Informa-
tion has been filed with the Securities and Exchange Commission (the "SEC") and
is incorporated by reference into this Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
HANSBERGER GLOBAL INVESTORS, INC.
Sub-Investment Adviser
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 10
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RISK FACTORS 18
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VALUATION OF SHARES 19
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DIVIDENDS, DISTRIBUTIONS AND TAXES 20
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PURCHASE OF SHARES 21
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EXCHANGE PRIVILEGE 32
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REDEMPTION OF SHARES 35
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MINIMUM ACCOUNT SIZE 37
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PERFORMANCE 37
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MANAGEMENT OF THE FUND 38
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DISTRIBUTOR 39
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ADDITIONAL INFORMATION 40
</TABLE>
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No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information or
representations must not be relied upon as having been authorized by the Fund
or the distributor. This Prospectus does not constitute an offer by the Fund or
the distributor to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.
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2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Prospec-
tus. See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end, diversified management invest-
ment company whose investment objective is to seek long term capital growth.
The Fund seeks to achieve this objective by investing primarily in equity
securities of U.S. and foreign issuers. See "Investment Objective and Manage-
ment Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several classes of shares
("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three classes of shares: Class A shares, Class B shares and Class C
shares, which differ principally in terms of sales charges and rate of
expenses to which they are subject. A fourth Class of shares, Class Y shares,
is offered only to investors meeting an initial investment minimum of
$5,000,000. See "Purchase of Shares" and "Redemption of Shares."
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.00% and are subject to an annual service fee of 0.25%
of the average daily net assets of the Class. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares of
$500,000 or more will be made at net asset value with no initial sales charge,
but will be subject to a contingent deferred sales charge ("CDSC") of 1.00% on
redemptions made within 12 months of purchase. See "Prospectus Summary--
Reduced or No Initial Sales Charge."
Class B Shares. Class B shares are offered at net asset value subject to a
maximum CDSC of 5.00% of redemption proceeds, declining by 1.00% each year
after the date of purchase to zero. The CDSC may be waived for certain redemp-
tions. Class B shares are subject to an annual service fee of 0.25% and an
annual distribution fee of 0.75% of the average daily net assets of the Class.
The Class B shares' distribution fee may cause that Class to have higher
expenses and pay lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will convert automatically
to Class A shares, based on relative net asset value, eight years after the
date of the original purchase. Upon conversion, these shares will no longer be
subject to an annual distribution fee. In addition, a certain portion of Class
B shares that have been acquired through the reinvestment of dividends and
distributions ("Class B Dividend Shares") will be converted at that time. See
"Purchase of Shares--Deferred Sales Charge Alternatives."
3
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Class C Shares. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the average daily net assets of the Class, and
investors pay a CDSC of 1.00% if they redeem Class C shares within 12 months of
purchase. The CDSC may be waived for certain redemptions. The Class C shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A shares. Purchases of Fund shares which, when combined
with current holdings of Class C shares of the Fund, equal or exceed $500,000
in the aggregate, should be made in Class A shares at net asset value with no
sales charge, and will be subject to a CDSC of 1.00% on redemptions made within
12 months of purchase.
Class Y Shares. Class Y shares are available only to investors meeting an ini-
tial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.
In deciding which Class of Fund shares to purchase, investors should consider
the following factors, as well as any other relevant facts and circumstances:
Intended Holding Period. The decision as to which Class of shares is more ben-
eficial to an investor depends on the amount and intended holding period of his
or her investment. Shareholders who are planning to establish a program of reg-
ular investment may wish to consider Class A shares; as the investment accumu-
lates, shareholders may qualify for reduced sales charges and the shares are
subject to lower ongoing expenses over the term of the investment. As an
investment alternative, Class B shares and Class C shares are sold without any
initial sales charge so the entire purchase price is immediately invested in
the Fund. Any investment return on these additional invested amounts may par-
tially or wholly offset the higher annual expenses of these Classes. Because
the Fund's future return cannot be predicted, however, there can be no assur-
ance that this would be the case.
Finally investors should consider the effect of the CDSC period and any con-
version rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class
B shares, they do not have a conversion feature and, therefore, are subject to
an ongoing distribution fee. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks.
Investors investing a minimum of $5,000,000 must purchase Class Y shares,
which are not subject to an initial sales charge, CDSC or service or distribu-
tion fee. The maximum purchase amount for Class A shares is $4,999,999, Class B
shares is $249,999 and Class C shares is $499,999. There is no maximum purchase
amount for Class Y shares.
4
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Reduced or No Initial Sales Charge. The initial sales charge on Class A shares
may be waived for certain eligible purchasers, and the entire purchase price
will be immediately invested in the Fund. In addition, Class A share purchases
of $500,000 or more will be made at net asset value with no initial sales
charge, but may be subject to a CDSC of 1.00% on redemptions made within 12
months of purchase. The $500,000 investment may be met by adding the purchase
to the net asset value of all Class A shares held in funds sponsored by Smith
Barney Inc. ("SmithBarney") listed under "Exchange Privilege." Class A share
purchases may also be eligible for a reduced initial sales charge. See "Pur-
chase of Shares". Because the ongoing expenses of Class A shares may be lower
than those for Class B and Class C shares, purchasers eligible to purchase
Class A shares at net asset value or at a reduced sales charge should consider
doing so.
Smith Barney Financial Consultants may receive different compensation for
selling different Classes of shares. Investors should understand that the pur-
pose of the CDSC on the Class B and Class C shares is the same as that of the
initial sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Fund" for a complete descrip-
tion of the sales charges and service and distribution fees for each Class of
shares and "Valuation of Shares," "Dividends, Distributions and Taxes" and "Ex-
change Privilege" for other differences between the Classes of shares.
SMITH BARNEY 401(k) AND EXECCHOICE(TM) PROGRAMS Investors may be eligible to
participate in the Smith Barney 401(k) Program, which is generally designed to
assist plan sponsors in the creation and operation of retirement plans under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
as well as other types of participant directed, tax-qualified employee benefit
plans. Investors may also be eligible to participate in the Smith Barney
ExecChoice(TM) Program. Class A and Class C shares are available without sales
charge as investment alternatives under both of these programs. See "Purchase
of Shares--Smith Barney 401(k) and ExecChoice(TM) Programs."
PURCHASE OF SHARES Shares may be purchased through a brokerage account main-
tained at Smith Barney. Shares may also be purchased through a broker that
clears securities transactions through Smith Barney on a fully disclosed basis
(an "Introducing Broker") or an investment dealer in the selling group. In
addition, certain investors, including qualified retirement plans and certain
institutional investors, may purchase shares directly from the Fund through the
Fund's transfer agent, First Data Investor Services Group, Inc. ("First Data").
See "Purchase of Shares."
The initial subscription period for shares is scheduled to end on December 18,
1997, (the "Subscription Period"). After the expiration of the Subscription
Period or a limited continuous offering period, the Fund will suspend the
offering of shares to the public. A continuous offering of shares is expected
to commence on or about January 19, 1998. See "Purchase of Shares."
5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may open
an account by making an initial investment of at least $1,000 for each account,
or $250 for an individual retirement account ("IRA") or a Self-Employed Retire-
ment Plan. Investors in Class Y shares may open an account for an initial
investment of $5,000,000. 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 investment
requirement for Class A, Class B and Class C shares and the subsequent invest-
ment requirement for all Classes is $25. The minimum initial investment
requirement for the purchase of Fund shares through the Systematic Investment
Plan is described below. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN During the continuous offering period, the Fund
offers shareholders a Systematic Investment Plan under which they may authorize
the automatic placement of a purchase order each month or quarter for Fund
shares. The minimum initial investment requirements for Class A, Class B and
Class C shares and the subsequent investment requirement for all classes for
shareholders purchasing shares through the Systematic Investment Plan on a
monthly basis is $25 and on a quarterly basis is $50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and "Re-
demption of Shares."
MANAGEMENT OF THE FUND Smith Barney Mutual Funds Management Inc. ("SBMFM")
serves as the Fund's investment manager. SBMFM provides investment advisory and
management services to investment companies affiliated with Smith Barney. SBMFM
is a wholly owned subsidiary of Smith Barney Holdings Inc. ("Holdings"). Hold-
ings is a wholly owned subsidiary of Travelers Group Inc. ("Travelers"), a
diversified financial services holding company engaged, through its subsidiar-
ies, principally in four business segments: Investment Services, Consumer
Finance Services, Life Insurance Services and Property & Casualty Insurance
Services.
Hansberger Global Investors, Inc. ("Hansberger") serves as the Fund's sub-
adviser. See "Management of the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
Class of certain other funds of the Smith Barney Mutual Funds at the respective
net asset values next determined. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Fund for the prior day generally is
quoted daily in the financial section of most newspapers and is also available
from Smith Barney Financial Consultants. See "Valuation of Shares."
6
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income and distribu-
tions of net realized capital gains, if any, are declared and paid annually.
See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a Class
will be reinvested automatically, unless otherwise specified by an investor, in
additional shares of the same Class at current net asset value. Shares acquired
by dividend and distribution reinvestments will not be subject to any sales
charge or CDSC. Class B shares acquired through dividend and distribution rein-
vestments will become eligible for conversion to Class A shares on a pro-rata
basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS The Fund invests principally in common
stocks. The prices of common stocks and other securities fluctuate and, there-
fore, the value of an investment in the Fund will vary based upon the Fund's
investment performance. Any income from these investments will be incidental to
the goal of capital appreciation. The Fund will invest in foreign securities
which may result in higher costs than investments in U.S. securities, including
foreign government taxes, which may reduce the investment return of the Fund.
In addition foreign investments may include additional risks associated with
currency exchange rates, less complete financial information about companies,
less market liquidity and political instability. The Fund may use management
techniques and strategies involving options, futures contracts and options on
futures (which are sometimes referred to as "derivatives"), as well as borrow-
ing for leverage purposes. The utilization of these techniques may involve
greater than ordinary investment risks and the likelihood of more volatile
price fluctuation. See "Investment Objective and Management Policies."
7
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
THE FUND'S EXPENSES The following expense table lists the costs and expenses
that an investor will incur either directly or indirectly as a shareholder of
the Fund, based on the maximum sales charge or maximum CDSC that may be
incurred at the time of purchase or redemption and the Fund's estimated operat-
ing expenses:
<TABLE>
<CAPTION>
SMITH BARNEY HANSBERGER GLOBAL VALUE FUND CLASS A CLASS B CLASS C CLASS Y
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<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% None None None
Maximum CDSC (as a percentage of original
cost or redemption proceeds, whichever
is lower) None* 5.00% 1.00% None
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ANNUAL FUND OPERATING EXPENSES
(as a percentage of offering price)
Management Fees 0.95% 0.95% 0.95% 0.95%
12b-1 Fees** 0.25 1.00 1.00 None
Other Expenses*** 0.40 0.40 0.40 0.40
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TOTAL FUND OPERATING EXPENSES 1.60% 2.35% 2.35% 1.35%
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</TABLE>
* Purchases of Class A shares of $500,000 or more will be made at net asset
value with no sales charge, but will be subject to a CDSC of 1.00% on
redemptions made within 12 months of purchase.
** Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee. Class C shares do not have a
conversion feature and, therefore, are subject to an ongoing distribution
fee. As a result, long-term shareholders of Class C shares may pay more
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
*** "Other Expenses" have been estimated based on expenses the Fund expects to
incur during its fiscal year ending April 30, 1998.
Class A shares of the Fund purchased through the Smith Barney AssetOne Program
will be subject to an annual asset-based fee, payable quarterly, in lieu of the
initial sales charge. The fee will vary to a maximum of 1.50%, depending on the
amount of assets held through the Program. For more information, please call
your Smith Barney Financial Consultant.
8
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
The sales charge and CDSC set forth in the above table are the maximum charges
imposed on purchases or redemptions of Fund shares and investors may actually
pay lower or no charges, depending on the amount purchased and, in the case of
Class B, Class C and certain Class A shares, the length of time the shares are
held and whether the shares are held through the Smith Barney 401(k) and
ExecChoice(TM) Programs. See "Purchase of Shares" and "Redemption of Shares."
Smith Barney receives an annual 12b-1 service fee of 0.25% of the value of
average daily net assets of Class A shares. Smith Barney also receives with
respect to Class B shares and Class C shares, an annual 12b-1 fee of 1.00% of
the value of average daily net assets of that Class, consisting of a 0.25%
service fee and a 0.75% distribution fee. "Other Expenses" in the above table
include fees for shareholder services, custodial fees, legal and accounting
fees, printing costs and registration fees.
EXAMPLE
The following example is intended to assist an investor in understanding the
various costs that an investor in the Fund will bear directly or indirectly.
The example assumes payment by the Fund of operating expenses at the levels set
forth in the table above. See "Purchase of Shares," "Redemption of Shares" and
"Management of the Fund."
<TABLE>
<CAPTION>
SMITH BARNEY HANSBERGER GLOBAL VALUE FUND 1 YEAR 3 YEARS
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<S> <C> <C>
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5.00% annual return and (2) redemp-
tion at the end of each time period:
Class A.................................................... 65 98
Class B.................................................... 74 103
Class C.................................................... 34 73
Class Y.................................................... 14 43
An investor would pay the following expenses on the same
investment, assuming the same annual return and no redemp-
tion:
Class A.................................................... 65 98
Class B.................................................... 24 73
Class C.................................................... 24 73
Class Y.................................................... 14 43
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</TABLE>
The example also provides a means for the investor to compare expense levels
of funds with different fee structures over varying investment periods. To
facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Fund's actual return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTA-
TION OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN ABOVE.
9
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Fund's investment objective is to provide long-term capital growth. The
Fund seeks to achieve its objective by investing primarily in equity securi-
ties of U.S. and foreign issuers, which, in the opinion of SBMFM and
Hansberger, are undervalued. Such companies may vary in market capitalization
and industry type. Income will be an incidental consideration.
In making investment decisions for the Fund, Hansberger relies heavily on a
fundamental analysis of securities with a long-term investment perspective.
Hansberger's valuation methods focus on a company's share price in relation to
earnings, dividends, assets, sales and a variety of other criteria. The Fund
seeks to invest in companies whose securities are trading at the greatest dis-
count to future earnings, cash flow and/or net asset value and Hansberger
utilizes proprietary valuation screens, internal and external research sources
and other fundamental analysis to identify those securities that appear to be
undervalued. Once undervalued securities are identified, Hansberger analyzes
each security, concentrating on a variety of fundamental issues, including
sales growth, cash flow, new product development, management structure and
other economic factors. This fundamental analysis results in a list of securi-
ties meeting a strict value discipline, which are reviewed by Hansberger for
inclusion in the Fund's portfolio.
Hansberger seeks to increase the scope and effectiveness of this fundamental
investment approach by extending the search for value into many countries
around the world. This global search provides Hansberger with more diverse
opportunities and flexibility to shift portfolio investments not only from
company to company and industry to industry, but also country to country, in
search of undervalued securities. Under normal market conditions the Fund will
invest its assets in at least three countries, which may include the United
States.
INVESTMENT POLICIES
Although the Fund generally invests in common stocks, the Fund may also
invest in preferred stocks and certain debt securities, rated or unrated, such
as convertible bonds and bonds selling at a discount, when Hansberger believes
the potential for appreciation will equal or exceed that available from
investments in common stock. The Fund may also invest in warrants or rights to
subscribe to or purchase such securities, and sponsored or unsponsored Ameri-
can Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs") and other depository receipts (collective-
ly, "Depositary Receipts"). The Fund may also lend its portfolio securities
and borrow money for investment purposes (i.e., "leverage" its portfolio). In
addition, the Fund may invest in closed-end investment companies holding for-
eign securities, and enter into transactions in options on securities, securi-
ties indices and foreign currencies, forward foreign currency contracts, and
futures contracts and related options. When deemed appropriate by SBMFM or
Hansberger, the Fund may invest cash balances
10
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
in repurchase agreements and other money market investments to maintain
liquidity in an amount sufficient to meet expenses or for day-to day operating
purposes. These investment techniques are described below under "Investment
Strategies and Techniques" and "Risk Factors". Whenever, in the judgment of
Hansberger, market or economic conditions warrant, the Fund may adopt a tempo-
rary defensive position and may invest without limit in money market securi-
ties denominated in U.S. dollars or in the currency of any foreign country.
See " Investment Strategies and Techniques--Temporary Investments."
INVESTMENT STRATEGIES AND TECHNIQUES
The Fund may also engage in the investment techniques and make the types of
investments described and discussed below.
Options Transactions. The Fund may seek to hedge all or a portion of its
investments through options on other securities in which it may invest.
Options which the Fund may purchase or sell will be traded on a recognized
securities or futures exchange or over the counter. Options markets in emerg-
ing countries are currently limited and the nature of the strategies adopted
by Hansberger and the extent to which those strategies are used will depend on
the development of such markets.
The Fund may write (i.e., sell) covered call options. A call gives the pur-
chaser the right to buy the security underlying the option from the Fund at
the stated exercise price, on or before a specified date (the "termination
date") that is usually not more than nine months from the date the option is
issued. A call is "covered" if the Fund (i) owns the securities underlying the
option or securities convertible or exchangeable (without the payment of any
consideration) into the securities underlying the option, (ii) maintains in a
segregated account with The Chase Manhattan Bank ("Chase"), the Fund's custo-
dian, cash or equity and debt securities of any grade provided such securities
have been determined by SBMFM and Hansberger to be liquid and unencumbered
pursuant to guidelines established by the Board of Directors ("eligible segre-
gated assets") with a value sufficient to meet the Fund's obligations under
the call, or (iii) owns an offsetting call option.
The Fund may also write (i.e., sell) covered put options. The writer of a
put incurs an obligation to buy the security underlying the option from the
put's purchaser at the exercise price at any time on or before the termination
date, at the purchaser's election (certain options the Fund writes will be
exercisable by the purchaser only on a specific date ). Generally, a put is
"covered" if the Fund maintains eligible segregated assets in an amount equal
to the exercise price of the option or if the Fund holds a put on the same
underlying security with a similar or higher exercise price.
The Fund may also purchase put or call options on individual securities or
baskets of securities. When the Fund purchases a call, it acquires the right
to buy the underlying security at the exercise price on or before the termina-
tion date, and
11
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
when the Fund purchases a put, it acquires the right to sell the underlying
security at the exercise price on or before the termination date.
The primary risks associated with the use of options on securities are (i)
imperfect correlation between the change in market value of the securities the
Fund holds and the prices of options relating to the securities purchased or
sold by the Fund; and (ii) possible lack of a liquid secondary market for an
option. Options not traded on an exchange (OTC options) are generally consid-
ered illiquid and may be difficult to value. Hansberger believes that the Fund
will minimize its risk of being unable to close out an option contract by
transacting in options only if there appears to be a liquid secondary market
for those options.
Real Estate Investment Trust Securities. The Fund may invest up to 10% of its
assets in Real Estate Investment Trusts ("REITs"). REITs are pooled investment
vehicles that invest primarily in either real estate or real estate related
loans. The value of a REIT is affected by changes in the value of the proper-
ties owned by the REIT or securing mortgage loans held by the REIT. A REIT is
dependent upon cash flow from its investments to repay financing costs and the
ability of the REIT's manager. REITs are also subject to risks generally asso-
ciated with investments in real estate.
Futures Contracts. The Fund may buy and sell financial futures contracts,
stock and bond index futures contracts, foreign currency futures contracts and
options on any of the foregoing for hedging purposes only. A financial futures
contract is an agreement between two parties to buy or sell a specified debt
security at a set price on a future date. An index futures contract is an
agreement to take or make delivery of an amount of cash based on the difference
between the value of the index at the beginning and at the end of the contract
period. A futures contract on a foreign currency is an agreement to buy or sell
a specified amount of a currency for a set price on a future date.
When the Fund enters into a futures contract, it must make an initial depos-
it, known as "initial margin," as a partial guarantee of its performance under
the contract. As the value of the security, index or currency fluctuates,
either party to the contract is required to make additional margin payments,
known as "variation margin," to cover any additional obligation it may have
under the contract. In addition, when the Fund enters into a futures contract,
it will segregate assets or "cover" its position in accordance with the Invest-
ment Company Act of 1940, as amended (the "1940 Act"). With respect to posi-
tions in futures and related options that do not constitute "bona fide hedging"
positions as defined in regulations of the Commodity Futures Trading Commis-
sion, the Fund will not enter into a futures contract or related option con-
tract if, immediately thereafter, the aggregate initial margin deposits relat-
ing to such positions plus premiums paid by it for open futures option posi-
tions, less the amount by which any such options are "in-the-money,"
12
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
would exceed 5% of the Fund's total assets. The value of the underlying secu-
rities on which futures contracts will be written at any one time will not
exceed 25% of the total assets of the Fund.
The primary risks associated with the use of futures and options on futures
are (i) imperfect correlation between the change in market value of the secu-
rities held by the Fund and the prices of related futures and options on
futures purchased or sold by the Fund, and (ii) possible lack of a liquid sec-
ondary market for a futures contract (or related option) and the resulting
inability to close a futures position, which could have an adverse impact on
the Fund's ability to hedge. The risk of loss in trading on futures contracts
and related options in some strategies can be substantial, due both to the low
margin deposits required and the extremely high degree of leverage involved in
futures pricing. Gains and losses on futures and related options depend on
Hansberger's ability to predict correctly the direction of stock prices,
interest rates, and other economic factors. The risk that the Fund will be
unable to close out a futures position or related options contract will be
minimized by only entering into futures contracts or related options transac-
tions for which there appears to be a liquid secondary market.
Borrowing. The Fund may borrow money from U.S.-regulated banks in an amount
not to exceed 33 1/3% of the Fund's total assets (including the amount borrow-
ed) less all liabilities and indebtedness other than the borrowing. If the
Fund borrows and uses the proceeds to make additional investments, income and
appreciation from each such investments will improve its performance if they
exceed the associated borrowing costs but impair its performance if they are
less than such borrowing costs. This speculative factor is known as "lever-
age."
Leverage creates an opportunity for increased returns to shareholders of the
Fund but, at the same time, creates special risk considerations. For example,
leverage may exaggerate changes in the net asset value of the Fund's shares
and in the Fund's yield. Although the principal or stated value of such
borrowings will be fixed, the Fund's assets may change in value during the
time the borrowing is outstanding. Leverage will create interest or dividend
expenses for the Fund which can exceed the income from the assets retained. To
the extent the income or other gain derived from securities purchased with
borrowed funds exceeds the interest or dividends the Fund will have to pay in
respect thereof, the Fund's net income or other gain will be greater than if
leverage had not been used. Conversely, if the income or other gain from the
incremental assets is not sufficient to cover the cost of leverage, the net
income or other gain of the Fund will be less than if leverage had not been
used. If the amount of income from the incremental securities is insufficient
to cover the cost of borrowing, securities might have to be liquidated to
obtain required funds. Depending on market or other conditions, such liquida-
tions could be disadvantageous to the Fund.
13
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Depository Receipts. The Fund may purchase sponsored and unsponsored Deposi-
tory Receipts that are or become available, including ADRs, GDRs, EDRs and
other Depository Receipts. Depositary Receipts are typically issued by a
financial institution ("depository") and evidence ownership interests in a
security or a pool of securities ("underlying securities") that have been
deposited with the depository. The depository for ADRs is typically a U.S.
financial institution and the underlying securities are issued by a foreign
issuer. In other Depositary Receipts, the depository may be a foreign or a
U.S. entity, and the underlying securities may have a foreign or a U.S. issu-
er. For purposes of the Fund's investment policies, investments in Depository
Receipts will be deemed to be investments in the underlying securities. Thus,
a Depository Receipt representing ownership of common stock will be treated as
common stock.
Sovereign Debt. The Fund may invest in sovereign debt, which may trade at a
substantial discount from face value. The Fund may hold and trade sovereign
debt of emerging market countries in appropriate circumstances and to partici-
pate in debt conversion programs. Emerging country sovereign debt is generally
lower-quality debt and is considered speculative in nature. The issuer or gov-
ernmental authorities that control Sovereign Debt repayment ("sovereign debt-
ors") may be unable or unwilling to repay principal or interest when due in
accordance with the terms of the debt. A sovereign debtor's willingness or
ability to repay principal and interest due in a timely manner may be affected
by, among other factors, its cash flow, the extent of its foreign reserves,
the availability of sufficient foreign exchange on the date a payment is due,
the relative size of the debt service burden to the economy as a whole, the
sovereign debtor's policy towards the International Monetary Fund and the
political constraints to which the sovereign debtor may be subject.
Brady Bonds. The Fund may invest in Brady Bonds as part of its investment in
sovereign debt of countries that have restructured or are in the process of
restructuring their sovereign debt.
Brady Bonds are often viewed as having three or four valuation components:
(i) the collateralized repayment of principal at final maturity; (ii) the col-
lateralized interest payments; (iii) the uncollateralized interest payments;
and (iv) any uncollateralized interest and principal at maturity (these
uncollateralized amounts constitute the " residual risk"). In light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of coun-
tries issuing Brady Bonds, investments in Brady Bonds can viewed as specula-
tive.
Investment Funds. Some emerging countries have laws and regulations that
preclude direct foreign investment in the securities of companies located
there. However, indirect foreign investment in the securities of companies
listed and traded on
14
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
the stock exchanges in these countries is permitted by certain emerging coun-
tries through specifically authorized investment funds. The Fund may invest in
these investment funds, as well as other closed-end investment companies up to
10% of its assets as permitted by the 1940 Act.
Repurchase Agreements. In order to aid in cash management, the Fund may enter
into repurchase agreements with brokers, dealers or banks ("counterparties")
that SBMFM and Hansberger have determined meet the credit guidelines estab-
lished by the Board of Directors. Repurchase agreements will be fully collater-
alized, and may be viewed for purposes of the 1940 Act as a loan of money by
the Fund to the counterparty. The Fund may incur a loss if the counterparty
defaults and the collateral value declines, or if bankruptcy proceedings are
commenced regarding the counterparty and the Fund's realization upon the col-
lateral is delayed or limited.
Securities Lending. The Fund is authorized to lend up to 33 1/3% of the total
market value of its portfolio securities to brokers, dealers, domestic and for-
eign banks or other financial institutions for the purpose of increasing its
net investment income. Any such loan must be fully secured; however, and there
may be risks of delay in recovery of the securities or even loss of rights in
the collateral should the borrowers of the securities fail financially.
Temporary Investments. The Fund may make money market investments pending
other investments or settlement for liquidity, or in adverse market conditions.
These money market investments include obligations of the U.S. Government and
its agencies and instrumentalities, obligations or foreign sovereignties, other
debt securities, commercial paper including bank obligations, certificates of
deposit (including Eurodollar certificates of deposit) and repurchase agree-
ments.
For temporary defensive purposes, during periods in which SBMFM or Hansberger
believes changes in economic, financial or political conditions make it advis-
able, the Fund may reduce its holdings in equity and other securities and may
invest up to 100% of its assets in certain short-term (less than twelve months
to maturity) and medium-term (not greater than five years to maturity) debt
securities and in cash (U.S. dollars, foreign currencies, multicurrency units).
These short-term and medium-term debt securities consist of (a) obligations of
governments, agencies or instrumentalities of any member state of the Organiza-
tion for Economic Cooperation and Development ("OECD"), (b) bank deposits and
bank obligations (including certificates of deposit, time deposits and banker's
acceptances) of banks organized under the laws of any member state of the OECD,
denominated in any currency: (c) floating rate securities and other instruments
dominated in any currency issued by international development agencies: (d)
finance company and corporate commercial paper and other short-term corporate
debt obligations of corpora-
15
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
tions organized under the laws of any member state of the OECD meeting the
Fund's credit quality standards: and (e) repurchase agreements with banks and
broker-dealers covering any of the foregoing securities. The short-term and
medium-term debt securities in which the Fund may invest for temporary defen-
sive purposes will be those that SBMFM and Hansberger believe to be of high
quality, i.e., subject to relatively low risk of loss of interest or princi-
pal. There is currently no rating system for debt securities in most emerging
countries. If rated, these securities will be rated in one of the three high-
est rating categories by rating services such as Moody's Investors Services,
Inc. or Standard & Poor's Ratings Group (i.e., rated at least A).
When-Issued Securities. The Fund may purchase securities on a when-issued or
delayed delivery basis. The price of debt obligations purchased on a when-
issued basis is fixed at the time the Fund commits to purchase, but delivery
and payment for the securities ("settlement") takes place at a later date. The
price of these securities may be expressed in yield terms. The Fund will enter
into these transactions in order to lock in the yield (price) available at the
time of commitment.
Between purchase and settlement, the Fund assumes the ownership risk of the
when-issued securities, including the risk of fluctuations in the securities
market value due to, among other factors, a change in the general level of
interest rates. However, no interest accrues to the Fund during this period.
Forward Foreign Currency Exchange Contracts and Options on Foreign
Currencies. The Fund may enter into forward foreign currency exchange con-
tracts ("forward contracts"), providing for the purchase of or sale of an
amount of a specified currency at a future date. The Fund may use forward con-
tracts to protect against a foreign currency's decline against the U.S. dollar
between the trade date and settlement date for a securities transaction, or to
lock in the U.S. dollar value of dividends declared on securities it holds, or
generally to protect the U.S. dollar value of the securities it holds against
exchange rate fluctuations. The Fund may also use forward contracts to protect
against fluctuating exchange rates and exchange control regulations. Forward
contracts may limit the Fund's losses due to exchange rate fluctuation, but
they will also limit any gains that the Fund might otherwise have realized.
The Fund may also enter into foreign currency futures contracts ("currency
futures").
Except where segregated accounts are not required by the 1940 Act, when the
Fund enters into a forward contract or currency future, it will place in a
segregated account maintained with Chase, eligible segregated assets, in an
amount equal to the value of the Fund's total assets committed to consummation
of forward contracts and currency futures. If the value of these segregated
securities declines, additional cash or securities will be placed in the
account on a daily basis so that the account value is at least equal to the
Fund's commitments to such contracts.
16
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
The Fund may purchase put and call options and write covered put and call
options on foreign currencies for the purpose of protecting against declines in
the U.S. dollar value of foreign currency denominated portfolio securities and
against increases in the U.S. dollar cost of such securities to be acquired. As
in the case of other kinds of options, however, the writing of an option on a
foreign currency constitutes only a partial hedge, up to the amount of the pre-
mium received, and the Fund could be required to purchase or sell foreign cur-
rencies at disadvantageous exchange rates, thereby incurring losses. The pur-
chase of an option on a foreign currency may constitute an effective hedge
against fluctuations in exchange rates although, in the event of rate movements
adverse to the Fund's position, it may forfeit the entire amount of the premium
plus related transaction costs. Options on foreign currencies to be written or
purchased by the Fund are traded on U.S. and foreign exchanges or over-the-
counter.
Forward Roll Transactions. In order to enhance current income, the Fund may
enter into forward roll transactions. In a forward roll transaction, the Fund
sells a security to a financial institution, such as a bank or broker-dealer,
and simultaneously agrees to repurchase a similar security from the institution
at a later date at an agreed-upon price. During the period between the sale and
repurchase, the Fund will not be entitled to receive interest and principal
payments on the securities sold. Proceeds of the sale will be invested in
short-term investments, particularly repurchase agreements, and the income from
these investments, together with any additional fee income received on the sale
will generate income for the Fund exceeding the yield on the securities sold.
Forward roll transactions involve the risk that the market value of the securi-
ties sold by the Fund may decline below the repurchase price of those securi-
ties. At the time the Fund enters into forward roll transactions, it will place
in a segregated account with Chase, eligible segregated assets having a value
equal to the repurchase price (including accrued interest) and will subse-
quently monitor the account to insure that such equivalent value is maintained.
Non-Publicly Traded Securities. The Fund may invest in securities that are
neither listed on a stock exchange nor traded over the counter, including pri-
vately placed securities. These securities may present a higher degree of busi-
ness and financial risk, which can result in substantial losses. In the absence
of a public trading market for these securities, they may be less liquid than
publicly traded securities. Although these securities may be resold in pri-
vately negotiated transactions, the prices realized from these sales could be
less than those originally paid by the Fund or less than what the Fund may con-
sider the fair value of such securities. Further, companies whose securities
are not publicly traded may not be subject to disclosure and other investor
protection requirements that might apply if their securities were publicly
traded. If such securities are required to be registered under the securities
laws of one or more jurisdictions before being resold, the Fund may
17
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
be required to bear the costs of registration. The Fund may not invest more
than 15% of its net assets in illiquid securities, including securities for
which there is no readily available secondary market. The Fund may invest in
securities that can be offered and sold to qualified institutional buyers under
Rule 144A under the 1933 Act ("Rule 144A Securities"). The Board of Directors
has delegated to SBMFM and Hansberger, subject to the Board's supervision, the
daily function of determining and monitoring the liquidity of Rule 144A Securi-
ties. Rule 144A Securities held by the Fund which have been determined to be
liquid will not be subject to the 15% limitation described above. However, Rule
144A Securities may become illiquid if qualified institutional buyers are not
interested in acquiring them.
Short Sales. The Fund may sell securities short "against the box", that is,
sell a security that the Fund owns or has the right to acquire, for delivery at
a specified date in the future.
RISK FACTORS
FOREIGN INVESTMENT
Investment in securities of foreign issuers and in foreign branches of domes-
tic banks, involves some risks different from, or in addition to, those affect-
ing investments in securities of U.S. issuers. For example, publicly available
information about foreign issuers and economies may be limited; foreign issuers
are not generally subject to uniform accounting, auditing and other reporting
standards; securities of foreign issuers may be less liquid and more volatile
than those of domestic issuers; dividends and interest paid by foreign issuers
may be subject to withholding and other foreign taxes; risks of seizure,
nationalization or expropriation of a foreign issuer exists; and, since securi-
ties of foreign issuers are frequently denominated in foreign currencies,
investments in these securities may involve currency exchange risks.
INVESTING IN LOWER RATED DEBT SECURITIES
When deemed appropriate, the Fund may invest up to 10% of its assets in lower
rated or unrated debt securities. Debt considered below investment grade may be
referred to as "junk bonds" or "high risk" securities. The emerging country
debt securities in which the Fund may invest are subject to significant risk
and will not be required to meet any minimum rating standard or equivalent.
Debt securities are subject to the risk of the issuer's inability to meet prin-
cipal and interest payments (credit risk) and may also be subject to price vol-
atility due to such factors as interest rate sensitivity, market perception of
the issuer's creditworthiness and general
18
<PAGE>
RISK FACTORS (CONTINUED)
market liquidity (market risk). Lower rated or unrated securities are more
likely to react to developments affecting market and credit risk than are more
highly rated securities, which react primarily to movements in general levels
of interest rates. The market values of debt securities tend to vary inversely
with interest rate levels. Yields and market values of lower rated and unrated
debt will fluctuate over time, reflecting not only changing interest rates but
also the market's perception of credit quality and the outlook for economic
growth. When economic conditions appear to be deteriorating, medium to lower
rated securities may decline in value due to heightened concern over credit
quality, regardless of prevailing interest rates. Hansberger will consider
credit risk and market risk in making debt security investment decisions for
the Fund. Investors should carefully consider the relative risks of investing
in the Fund because it purchases lower rated and unrated debt securities, and
should understand that such securities are not generally meant for short-term
investment.
The U.S. market for lower rated and unrated corporate debt is relatively new
and its recent growth paralleled a long period of economic expansion and an
increase in merger, acquisition and leveraged buyout activity. In addition,
trading markets for debt securities of issuers located in emerging countries
may be limited. Adverse economic developments may disrupt the market for U.S.
corporate lower rated and unrated debt securities and for emerging country debt
securities. Such disruptions may severely affect the ability of issuers, espe-
cially highly leveraged issuers, to service their debt obligations or to repay
their obligations upon maturity. In addition, the secondary market for lower
rated and unrated debt securities, which is concentrated in relatively few mar-
ket makers, may not be as liquid as the secondary market for more highly rated
securities. As a result, Hansberger could find it more difficult to sell these
securities or may be able to sell the securities only at prices lower than if
such securities were widely traded. Prices realized upon the sale of such lower
rated or unrated securities, under these circumstances, may be less than the
prices used in calculating the Fund's net asset value.
VALUATION OF SHARES
The Fund's net asset value per share is determined as of the close of regular
trading on the NYSE on each day that the NYSE is open, by dividing the value of
the Fund's net assets attributable to each Class by the total number of shares
of the Class outstanding.
Generally, the Fund's investments are valued at market value, or, in the
absence of a market value with respect to any securities, at fair value. Secu-
rities listed on an exchange are valued on the basis of the last sale prior to
the time the valuation is made. If there has been no sale since the immediately
previous valuation, then the
19
<PAGE>
VALUATION OF SHARES (CONTINUED)
current bid price is used. Quotations are taken from the exchange where the
security is primarily traded. Portfolio securities which are primarily traded
on foreign exchanges may be valued with the assistance of a pricing service and
are generally valued at the preceding closing values of such securities on
their respective exchange, except that when an occurrence subsequent to the
time a foreign security is valued is likely to have changed such value, then
the fair value of those securities will be determined by consideration of other
factors by or under the direction of the Board of Directors. Over-the-counter
securities are valued on the basis of the bid price at the close of business on
each day. Unlisted foreign securities are valued at the mean between the last
available bid and offer price prior to the time of valuation. Any assets or
liabilities initially expressed in terms of foreign currencies will be con-
verted into U.S. dollar values at the mean between the bid and offered quota-
tions of such currencies against U.S. dollars as last quoted by any recognized
dealer. Securities for which market quotations are not readily available are
valued at fair value. Notwithstanding the above, bonds and other fixed-income
securities are valued by using market quotations and may be valued on the basis
of prices provided by a pricing service approved by the Board of Directors.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute substantially all its investment income
(that is, its income other than its net realized capital gains) and net real-
ized capital gains, if any, once a year, normally at the end of the year in
which earned or at the beginning of the next year.
If a shareholder does not otherwise instruct, dividends and capital gain dis-
tributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC. In order to avoid
the application of a 4.00% non-deductible excise tax on certain undistributed
amounts of ordinary income and capital gains, the Fund may make an additional
distribution shortly before December 31 in each year of any undistributed ordi-
nary income or capital gains and expects to pay any other dividends and distri-
butions necessary to avoid the application of this tax.
The per share dividends on Class B and Class C shares of the Fund may be lower
than the per share dividends on Class A and Class Y shares principally as a
result of the distribution fee applicable with respect to Class B and Class C
shares. The per share dividends on Class A shares of the Fund may be lower than
the per share dividends on Class Y shares principally as a result of the serv-
ice fee applicable to Class A shares. Distributions of capital gains, if any,
will be in the same amount for Class A, Class B, Class C and Class Y shares.
20
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
TAXES
The Fund intends to qualify each year as a regulated investment company
under the Code. Dividends paid from net investment income and distributions of
net realized short-term capital gains will be taxable to shareholders as ordi-
nary income, regardless of how long shareholders have held their Fund shares
and whether such dividends and distributions are received in cash or rein-
vested in additional Fund shares. Distributions of net realized long-term cap-
ital gains will be taxable to shareholders as long-term capital gains, regard-
less of how long shareholders have held Fund shares and whether such distribu-
tions are received in cash or are reinvested in additional Fund shares. Fur-
thermore, as a general rule, a shareholder's gain or loss on a sale or redemp-
tion of Fund shares will be a long-term capital gain or loss if the share-
holder has held the shares for more than one year and will be a short-term
capital gain or loss if the shareholder has held the shares for one year or
less. Some of the Fund's dividends declared from net investment income may
qualify for the Federal dividends-received deduction for corporations.
Statements as to the tax status of each shareholder's dividends and distri-
butions will be mailed annually. Each shareholder also will receive, if appro-
priate, various written notices after the close of the Fund's prior taxable
year as to the Federal income tax status of his or her dividends and distribu-
tions which were received from the Fund during the Fund's prior taxable year.
Shareholders should consult their own tax advisors about the status of the
Fund's dividends and distributions for state and local tax liabilities.
PURCHASE OF SHARES
GENERAL
The Fund offers four Classes of shares. Class A shares are sold to investors
with an initial sales charge and Class B and Class C shares are sold without
an initial sales charge but are subject to a CDSC payable upon certain redemp-
tions. Class Y shares are sold without an initial sales charge or CDSC and are
available only to investors investing a minimum of $5,000,000 (except for pur-
chases of Class Y shares by Smith Barney Concert Allocation Series Inc., for
which there is no minimum purchase amount). See "Prospectus Summary--Alterna-
tive Purchase Arrangements" for a discussion of factors to consider in select-
ing which Class of shares to purchase.
INITIAL SUBSCRIPTION PERIOD
Smith Barney, the Fund's distributor, will solicit subscriptions for shares
of the Fund during the Subscription Period. Subscriptions for shares must be
made through a brokerage account maintained with Smith Barney or an Introduc-
ing Broker. Shares of the Fund subscribed for during the Subscription Period
for which
21
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Smith Barney accepts purchase orders will be issued and sold by the Fund on the
third business day after the end of the Subscription Period (the "Purchase
Date"). Also on the Purchase Date, shareholders of other funds of the Smith
Barney Mutual Funds will be able to exchange shares of such funds for shares of
the Fund. On the Purchase Date, Smith Barney will notify the Fund of the aggre-
gate number of shares for which it has received and accepted subscriptions, and
the Fund will issue shares for such subscriptions and commence operations.
The Fund is offering its Class A shares to the public at a maximum purchase
price per share of $12.00, which equals the Class A share initial net asset
value per share of $11.40 plus the maximum sales charge set forth below under
"Continuous Offerings". The Fund is offering its Class B, Class C and Class Y
shares to the public at each Class' respective initial net asset value per
share of $11.40.
The Fund and Smith Barney may in their discretion determine to withdraw the
offering without notice for any reason before the end of the Subscription Peri-
od. The Fund also reserves the right to refuse any order in whole or in part.
CONTINUOUS OFFERINGS
Smith Barney will suspend the offering of shares to the public immediately
after the expiration of the Subscription Period or within three weeks thereaf-
ter. During the three-week period, Smith Barney will commence a limited contin-
uous offering of shares to the public. Once Smith Barney suspends the offering
of shares to the public (the "Closing Period"), it is expected to do so for 30
days. This period may be lengthened or shortened in the absolute discretion of
Smith Barney. During the Closing Period, the Fund will invest the proceeds from
its Subscription Period and its continuous offering, if any, and existing
shareholders of the Fund may request redemptions, purchase additional shares
and exchange shares of the Fund for shares of certain other funds of the Smith
Barney Mutual Funds. See "Exchange Privilege." Immediately after the expiration
of the Closing Period, Smith Barney expects to commence a continuous offering
of shares of the Fund.
During the continuous offering, shares may be purchased through a brokerage
account maintained with Smith Barney. Shares may also be purchased through 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 Fund through
First Data. When purchasing shares of the Fund, investors must specify whether
the purchase is for Class A, Class B, Class C or Class Y shares. Smith Barney
and other broker/dealers may charge their customers an annual account mainte-
nance fee in connection with a brokerage account through which an investor pur-
chases or holds shares. Accounts held directly at First Data are not subject to
a maintenance fee.
Investors in Class A, Class B and Class C shares may open an account by mak-
ing an initial investment of at least $1,000 for each account, or $250 for an
IRA or
22
<PAGE>
PURCHASE OF SHARES (CONTINUED)
a Self-Employed Retirement Plan, in the Fund. Investors in Class Y shares may
open an account by making an initial investment of $5,000,000. 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 investment requirement for Class A, Class B and Class
C 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 C shares and the subsequent investment require-
ment for all Classes is $25. For shareholders purchasing shares of the Fund
through the Systematic Investment Plan on a quarterly basis, the minimum ini-
tial investment requirement for Class A, Class B and Class C shares and subse-
quent investment requirement for all Classes is $50. There are no minimum
investment requirements for Class A shares for employees of Travelers and its
subsidiaries, including Smith Barney, Directors or Trustees of any of the Smith
Barney Mutual Funds and their spouses and children. The Fund reserves the right
to waive or change minimums, to decline any order to purchase its shares and to
suspend the offering of shares from time to time. Shares purchased will be held
in the shareholder's account by First Data. Share certificates are issued only
upon a shareholder's written request to First Data.
Purchase orders received by the Fund or Smith Barney prior to the close of
regular trading on the NYSE, on any day the Fund calculates its net asset val-
ue, are priced according to the net asset value determined on that day (the
"trade date"). Orders received by dealers or Introducing Brokers prior to the
close of regular trading on the NYSE on any day the Fund calculates its net
asset value, are priced according to the net asset value determined on that
day, provided the order is received by the Fund or Smith Barney prior to Smith
Barney's close of business. For shares purchased through Smith Barney or Intro-
ducing Brokers purchasing through Smith Barney, payment for Fund shares is due
on the third business day after the trade date. In all other cases, payment
must be made with the purchase order.
SYSTEMATIC INVESTMENT PLAN
During the continuous offering period, 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, Smith Barney
or First Data is authorized through preauthorized transfers of at least $25 on
a monthly basis or at least $50 on a quarterly basis, to charge the regular
bank account or other financial institution indicated by the shareholder on a
monthly or quarterly basis 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 Smith Barney or First Data. The System-
atic Investment Plan also authorizes Smith Barney to apply cash held in the
shareholder's Smith Barney bro-
23
<PAGE>
PURCHASE OF SHARES (CONTINUED)
kerage account or redeem the shareholder's shares of a Smith Barney money mar-
ket fund to make additions to the account. Additional information is available
from the Fund or a Smith Barney Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund are
as follows:
<TABLE>
<CAPTION>
SALES CHARGE
------------------------------
DEALERS'
% OF % OF REALLOWANCE AS % OF
AMOUNT OF INVESTMENT OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
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 * * *
- ---------------------------------------------------------------------------
</TABLE>
* 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 CDSC of
1.00% on redemptions made within 12 months of purchase. The CDSC on Class A
shares is payable to Smith Barney, which compensates Smith Barney Financial
Consultants and other dealers whose clients make purchases of $500,000 or
more. The CDSC is waived in the same circumstances in which the CDSC
applicable to Class B and Class C shares is waived. See "Deferred Sales
Charge Alternatives" and "Waivers of CDSC."
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 Securities 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. The reduced sales charge
minimums may also be met by aggregating the purchase with the net asset value
of all Class A shares offered with a sales charge held in funds sponsored by
Smith Barney that are offered with a sales charge listed under "Exchange Priv-
ilege."
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 Travelers and its subsidiaries and any of 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, (ii) employees of Hansberger and members of their immediate family
and (iii) employees of members of the National Association of Securities Deal-
ers, Inc., provided such sales are made upon the assurance of the purchaser
that the purchase is made for
24
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 Smith Barney Financial Consultant (for a period up
to 90 days from the commencement of the Financial Consultant's employment with
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 spon-
sored by the Financial Consultant's prior employer, (ii) was sold to the cli-
ent 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 fund in the Smith Barney Mutual Funds that are
offered with a sales charge) and who wish to reinvest their redemption pro-
ceeds 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 Travelers; (f) direct rollovers by plan participants
from a 401(k) plan offered to employees of Travelers 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
separate accounts used to fund certain unregistered variable annuity con-
tracts; and (h) purchases by investors participating in a Smith Barney fee-
based arrangement. In order to obtain such discounts, the purchaser must pro-
vide 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 aggregat-
ing the dollar amount of the new purchase and the total net asset value of all
Class A shares of the Fund and of funds sponsored by Smith Barney which are
offered with a sales charge listed under "Exchange Privilege" 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 informa-
tion at the time of purchase to permit verification that the purchase quali-
fies for the reduced sales charge. The right of accumulation is subject to
modification or discontinuance at any time with respect to all shares pur-
chased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales charge or pur-
chase at net asset value will also be available to employees (and partners) of
the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases
by each member of such a group will be determined by the table set forth above
under
25
<PAGE>
PURCHASE OF SHARES (CONTINUED)
"Initial Sales Charge Alternative--Class A Shares," and will be based upon the
aggregate sales of Class A shares of Smith Barney Mutual Funds offered with a
sales charge to, and share holdings of, all members of the group. To be eligi-
ble for such reduced sales charges or to purchase at net asset value, all pur-
chases must be pursuant to an employer- or partnership-sanctioned plan meeting
certain requirements. One such requirement is that the plan must be open to
specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions, IRAs or
investments pursuant to retirement plans under Section 401 or 408 of the Code.
Smith Barney may also offer a reduced sales charge or net asset value purchase
for aggregating related fiduciary accounts under such conditions that Smith
Barney will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class A
shares at the reduced sales charge applicable to the group as a whole. The
sales charge is based upon the aggregate dollar value of Class A shares offered
with a sales charge that have been previously purchased and are still owned by
the group, plus the amount of the current purchase. A "qualified group" is one
which (a) has been in existence for more than six months, (b) has a purpose
other than acquiring Fund shares at a discount and (c) satisfies uniform crite-
ria which enable Smith Barney to realize economies of scale in its costs of
distributing shares. A qualified group must have more than 10 members, must be
available to arrange for group meetings between representatives of the Fund and
the members, and must agree to include sales and other materials related to the
Fund in its publications and mailings to members at no cost to Smith Barney. In
order to obtain such reduced sales charge or to purchase at net asset value,
the purchaser must provide sufficient information at the time of purchase to
permit verification that the purchase qualifies for the reduced sales charge.
Approval of group purchase reduced sales charge plans is subject to the discre-
tion of Smith Barney.
LETTER OF INTENT
Class A Shares. A Letter of Intent for amounts of $50,000 or more provides an
opportunity for an investor to obtain a reduced sales charge by aggregating the
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 pur-
chases of all Class A shares of the Fund and other funds of the Smith Barney
Mutual Funds offered with a sales charge over the 13-month period based on the
total amount of intended purchases plus the value of all Class A shares previ-
ously purchased and still owned. An alternative is to compute the 13-month
period starting up to 90 days before the date of execution of a Letter of
Intent. 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
26
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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. Please contact a Smith Barney Financial Consultant or First
Data to obtain a Letter of Intent application.
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). Such investors must make an initial minimum
purchase of $1,000,000 in Class Y shares of the Fund and agree to purchase a
total of $5,000,000 of Class Y shares of the same Fund within six months from
the date of the Letter. If a total investment of $5,000,000 is not made within
the six-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 CDSC of 1.00%. Please contact a Smith Barney Financial Consultant or
First Data for further information.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the Fund. A CDSC, however, may be imposed on certain
redemptions of these shares. "CDSC Shares" are: (a) Class B shares; (b) Class C
shares; and (c) Class A shares that were purchased without an initial sales
charge but subject to a CDSC.
Any applicable CDSC will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the time of
redemption. CDSC Shares that are redeemed will not be subject to a CDSC to the
extent that the value of such shares represents: (a) capital appreciation of
Fund assets; (b) reinvestment of dividends or capital gain distributions; (c)
with respect to Class B shares, shares redeemed more than five years after
their purchase; or (d) with respect to Class C shares and Class A shares that
are CDSC Shares, shares redeemed more than 12 months after their purchase.
Class C shares and Class A shares that are CDSC Shares are subject to a 1.00%
CDSC if redeemed within 12 months of purchase. In circumstances in which the
CDSC 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
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
27
<PAGE>
PURCHASE OF SHARES (CONTINUED)
held under Smith Barney 401(k) Program as described below. See "Purchase of
Shares--Smith Barney 401(k) and ExecChoice(TM) Programs."
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
- ---------------------------------
<S> <C>
First 5.00%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth and thereafter 0.00
- ---------------------------------
</TABLE>
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 fee. There will also be converted at that time such propor-
tion of Class B Dividend Shares 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 addition, a portion of Class B Dividend Shares will be con-
verted at that time. See "Prospectus Summary--Alternative Purchase Arrange-
ments--Class B Shares Conversion Feature."
In determining the applicability of any CDSC, 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 distribu-
tions and finally of other shares held by the shareholder for the longest
period of time. The length of time that CDSC 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 CDSC will reduce the gain or increase the loss, as the case may be, on
the amount realized on redemption. The amount of any CDSC will be paid to Smith
Barney.
To provide an example, assume an investor purchased 100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the investor acquired 5 addi-
tional shares 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 CDSC 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.
28
<PAGE>
PURCHASE OF SHARES (CONTINUED)
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts up to 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 withdrawal in
amounts up to 2.00% per month of the value of the shareholders shares will be
permitted for withdrawal plans that were established prior to November 7,
1994); (c) redemption of shares within 12 months following the death or dis-
ability of the shareholder; (d) redemption of shares made in connection with
qualified distributions from retirement plans or IRAs upon the attainment of
age 59 1/2; (e) involuntary redemptions; and (f) redemption 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 funds of the 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 CDSC imposed on the prior redemption.
CDSC waivers will be granted subject to confirmation (by Smith Barney in the
case of shareholders who are also Smith Barney clients or by First Data in the
case of all other shareholders) of the shareholder's status or holdings, as the
case may be.
SMITH BARNEY 401(k) AND EXECCHOICE(TM) PROGRAMS
During the continuous offering period, investors may be eligible to partici-
pate in the Smith Barney 401(k) Program or the Smith Barney ExecChoice(TM) Pro-
gram. To the extent applicable, the same terms and conditions, which are out-
lined below, are offered to all plans participating ("Participating Plans") in
these programs.
The Fund offers to Participating Plans Class A and Class C shares as invest-
ment alternatives under the Smith Barney 401(k) and ExecChoice(TM) Programs.
Class A and Class C shares acquired through the Participating Plans are subject
to the same service and/or distribution fees as the Class A and Class C shares
acquired by other investors; however, they are not subject to any initial sales
charge or CDSC. 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 CDSC 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 C Shares. Class C shares of the Fund are offered without any sales
charge or CDSC to any Participating Plan that purchases less than $1,000,000 of
Class C shares of one or more funds of the Smith Barney Mutual Funds.
29
<PAGE>
PURCHASE OF SHARES (CONTINUED)
401(k) and ExecChoice(TM) Plans Opened On or After June 21, 1996. 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 ExecChoice(TM) Program, if its total
Class C holdings in all non-money market Smith Barney Mutual Funds equal at
least $1,000,000, it will be offered the opportunity to exchange all of its
Class C shares for Class A shares of the Fund. (For Participating Plans that
were originally established through a 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 enroll-
ment 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 Par-
ticipating Plan enrolled in the Smith Barney 401(k) Program, if its total Class
C 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 C 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) Program that has not previ-
ously qualified for an exchange into Class A shares will be offered the oppor-
tunity to exchange all of its Class C shares for Class A shares of the Fund,
regardless of asset size, at the end of the eighth year after the date the Par-
ticipating 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 C shares of the Fund but instead may acquire Class
A shares of the Fund. Any Class C shares not converted will continue to be sub-
ject to the distribution fee.
Participating Plans wishing to acquire shares of the Fund through the Smith
Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program must purchase
such shares directly from First Data. For further information regarding these
Programs, investors should contact a Smith Barney Financial Consultant.
30
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Existing 401(k) Plans Investing in Class B Shares. Class B shares of the
Smith Barney Mutual Funds are not available for purchase by Participating Plans
opened on or after June 21, 1996, but may continue to be purchased by any Par-
ticipating Plan in the Smith Barney 401(k) Program opened prior to such date
and originally investing in such Class. Class B shares acquired are subject to
a CDSC of 3.00% of redemption proceeds, if the Participating Plan terminates
within eight years of the date the Participating Plan first enrolled in the
Smith Barney 401(k) Program.
At the end of the eighth year after the date the Participating Plan enrolled
in the Smith Barney 401(k) Program, the Participating Plan will be offered the
opportunity to exchange all of its Class B shares for Class A shares of the
Fund. Such Participating Plan will be notified of the pending exchange in writ-
ing 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 the exchange has occurred, a Par-
ticipating Plan will not be eligible to acquire additional Class B shares of
the fund but instead may acquire Class A shares of the Fund. If the Participat-
ing Plan elects not to exchange all of its Class B shares at that time, each
Class B share held by the Participating Plan will have the same conversion fea-
ture as Class B shares held by other investors. See "Purchase of Shares--
Deferred Sales Charge Alternatives".
No CDSC is imposed on redemptions of Class B shares to the extent that the
net asset value of the shares redeemed does not exceed the current net asset
value of the shares purchased through reinvestment of dividends or capital gain
distributions, plus the current net asset value of Class B shares purchased
more than eight years prior to the redemption, plus increases in the net asset
value of the shareholder's Class B shares above the purchase payments made dur-
ing the preceding eight years. Whether or not the CDSC applies to the redemp-
tion by a Participating Plan depends on the number of years since the Partici-
pating Plan first became enrolled in the Smith Barney 401(k) Program, unlike
the applicability of the CDSC to redemptions by other shareholders, which
depends on the number of years since those shareholders made the purchase pay-
ment from which the amount is being redeemed.
The CDSC will be waived on redemptions of Class B shares in connection with
lump-sum or other distributions made by a Participating Plan as a result of:
(a) the retirement of an employee in the Participating Plan; (b) the termina-
tion of employment of an employee in the Participating Plan; (c) the death or
disability of an employee in the Participating Plan; (d) the attainment of age
59 1/2 by an employee in the Participating Plan; (e) hardship of an employee in
the Participating Plan to the extent permitted under Section 401(k) of the
Code; or (f) redemptions of shares in connection with a loan made by the Par-
ticipating Plan to an employee.
31
<PAGE>
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class may be exchanged at the
net asset value next determined for shares of the same Class in the following
funds of the 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
Class C shares are subject to minimum investment requirements and all shares
are subject to the other requirements of the fund into which exchanges are
made.
FUND NAME
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Disciplined Small Cap Fund, Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Special Equities Fund
Growth and Income Funds
Concert Social Awareness Fund
Smith Barney Convertible Fund
Smith Barney Funds, Inc.--Equity Income Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
+++Smith Barney Funds, Inc.--Short-Term U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc.--U.S. Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
*Smith Barney Intermediate Maturity California Municipals Fund
*Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Muni Funds--Florida Portfolio
Smith Barney Muni Funds--Georgia Portfolio
32
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
*Smith Barney Muni Funds--Limited Term Portfolio
Smith Barney Muni Funds--National Portfolio
Smith Barney Muni Funds--New York Portfolio
Smith Barney Muni Funds--Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney Hansberger Global Small Cap Value Fund
Smith Barney World Funds, Inc.--Emerging Markets Portfolio
Smith Barney World Funds, Inc.--European Portfolio
Smith Barney World Funds, Inc.--Global Government Bond Portfolio
Smith Barney World Funds, Inc.--International Balanced Portfolio
Smith Barney World Funds, Inc.--International Equity Portfolio
Smith Barney World Funds, Inc.--Pacific Portfolio
Smith Barney Concert Allocation Series Inc.
Smith Barney Allocation Concert Series Inc.--Balanced Portfolio
Smith Barney Allocation Concert Series Inc.--Conservative Portfolio
Smith Barney Allocation Concert Series Inc.--Growth Portfolio
Smith Barney Allocation Concert Series Inc.--High Growth Portfolio
Smith Barney Allocation Concert Series Inc.--Income Portfolio
Money Market Funds
+Smith Barney Exchange Reserve Fund
++Smith Barney Money Funds, Inc.--Cash Portfolio
++Smith Barney Money Funds, Inc.--Government Portfolio
***Smith Barney Money Funds, Inc.--Retirement Portfolio
+++Smith Barney Municipal Money Market Fund, Inc.
+++Smith Barney Muni Funds--California Money Market Portfolio
+++Smith Barney Muni Funds--New York Money Market Portfolio.
- -------------------------------------------------------------------------------
* Available for exchange with Class A, Class C and Class Y shares of the
Fund.
** Available for exchange with Class A and Class B shares of the Fund. In
addition, shareholders who own Class C shares of the Fund through the
Smith Barney 401(k) Program may exchange those shares for Class C shares
of this Fund.
***Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class C shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund. In
addition, participating plans opened prior to June 21, 1996 and investing
in Class C shares may exchange Fund shares for Class C shares of this
Fund.
+++Available for exchange with Class A and Class Y shares of the Fund.
Class B Exchanges. In the event a Class B shareholder wishes to exchange all
or a portion of his or her shares into any of the funds imposing a higher CDSC
than that imposed by the Fund, the exchanged Class B shares will be subject to
the
33
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
higher applicable CDSC. 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 C Exchanges. Upon an exchange, the new Class C shares will be deemed to
have been purchased on the same date as the Class C 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 respec-
tive 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 the Fund's performance and its shareholders. SBMFM may deter-
mine that a pattern of frequent exchanges is excessive and contrary to the best
interests of the Fund's other shareholders. In this event, SBMFM will notify
Smith Barney and Smith Barney may, at its discretion, decide to limit addi-
tional purchases and/or exchanges by the shareholder. Upon such a determina-
tion, Smith Barney will provide notice in writing or by telephone to the share-
holder 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 listed above, 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.
Certain shareholders may be able to exchange shares by telephone. See "Re-
demption of Shares--Telephone Redemption and Exchange Program". Exchanges will
be processed at the net asset value next determined. Redemption procedures dis-
cussed below are also applicable for exchanging shares, and exchanges will be
made upon receipt of all supporting documents in proper form. If the account
registration of the shares of the fund being acquired is identical to the reg-
istration of the shares of the fund exchanged, no signature guarantee is
required. A capital gain or loss for tax purposes will be realized upon the
exchange, depending upon the cost or other basis of shares redeemed. Before
exchanging shares, investors should read the current prospectus describing the
shares to be acquired. The Fund reserves the right to modify or discontinue
exchange privileges upon 60 days' prior notice to shareholders.
34
<PAGE>
REDEMPTION OF SHARES
The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to their net asset value per share
next determined after receipt of a written request in proper form at no charge
other than any applicable CDSC. Redemption requests received after the close of
regular trading on the NYSE are priced at the net asset value next determined.
If a shareholder holds shares in more than one Class, any request for redemp-
tion must specify the Class being redeemed. In the event of a failure to spec-
ify which Class, or if the investor owns fewer shares of the Class than speci-
fied, the redemption request will be delayed until First Data receives further
instructions from Smith Barney, or if the shareholder's account is not with
Smith Barney, from the shareholder directly. The redemption proceeds will be
remitted on or before the third business day following receipt of proper ten-
der, except on 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 Smith Barney brokerage account, these funds will not be invested
for the shareholder's benefit without specific instruction and 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.
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's Finan-
cial Consultant, Introducing Broker or dealer in the selling group or by sub-
mitting a written request for redemption to:
Smith Barney Hansberger Global Value Fund
Class A, B, C or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
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 regis-
tered. If the shares to be redeemed were issued in certificate form, the cer-
tificates must be endorsed for transfer (or be accompanied by an endorsed stock
power) and must be submitted to First Data together with the redemption
request. Any signature appearing on a share certificate, stock power or written
redemption request in excess of $2,000 must be guaranteed by an eligible guar-
antor institution such as a domestic bank, savings and loan institution, domes-
tic 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
35
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
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. First Data may
require additional supporting documents for redemptions made by corporations,
executors, administrators, trustees or guardians. A redemption request will not
be deemed properly received until First Data receives all required documents in
proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The 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 periodic 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 CDSC 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 CDSC at the time the withdrawal plan
commences. For further information regarding the automatic cash withdrawal
plan, shareholders should contact a Smith Barney Financial Consultant.
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
Shareholders who do not have a Smith Barney brokerage account may be eligible
to redeem and exchange Fund shares by telephone. To determine if a shareholder
is entitled to participate in this program, he or she should contact First Data
at 1-800-451-2010. Once eligibility is confirmed, the shareholder must complete
and return a Telephone/Wire Authorization Form, along with a signature guaran-
tee that will be provided by First Data 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
the Fund's shares may be made by eligible shareholders by calling First Data at
1-800-451-2010. Such requests may be made between 9:00 a.m. and 5:00 p.m. (New
York City time) on any day the NYSE is open. Redemption requests received after
the close of regular trading on the NYSE are priced at the net asset value next
determined. 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
36
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
Fund reserves 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 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 First Data at 1-800-451-2010 between 9:00 a.m. and 5:00
p.m. (New York City time) on any day on which the NYSE is open. Exchange
requests received after the close of regular trading on the NYSE are processed
at the net asset value next determined.
Additional Information regarding Telephone Redemption and Exchange
Program. Neither the Fund nor its agents will be liable for following instruc-
tions 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.
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
the Fund, each account must satisfy the minimum account size). The Fund, how-
ever, will not redeem shares based solely on market reductions in net asset
value. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid involuntary liquidation.
PERFORMANCE
From time to time the Fund may include its total return, average annual
total return and current dividend return in advertisements and/or other types
of sales literature. These figures are computed separately for Class A, Class
B, Class C and Class Y shares of the Fund. These figures are based on histori-
cal earnings and are not intended to indicate future performance. Total return
is computed for a speci-
37
<PAGE>
PERFORMANCE (CONTINUED)
fied period of time assuming deduction of the maximum sales charge, if any,
from the initial amount invested and reinvestment of all income dividends and
capital gain distributions on the reinvestment dates at prices calculated as
stated in this Prospectus, then dividing the value of the investment at the
end of the period so calculated by the initial amount invested and subtracting
100%. The standard average annual total return, as prescribed by the SEC, is
derived from this total return, which provides the ending redeemable value.
Such standard total return information may also be accompanied with nonstan-
dard total return information for differing periods computed in the same man-
ner but without annualizing the total return or taking sales charges into
account. The Fund calculates current dividend return for each Class by
annualizing the most recent monthly distribution and dividing by the net asset
value or the maximum public offering price (including sales charge) on the
last day of the period for which current dividend return is presented. The
current dividend return for each Class may vary from time to time depending on
market conditions, the composition of its investment portfolio and operating
expenses. These factors and possible differences in the methods used in calcu-
lating current dividend return should be considered when comparing a Class'
current return to yields published for other investment companies and other
investment vehicles. The Fund may also include comparative performance infor-
mation in advertising or marketing its shares. Such performance information
may include data from Lipper Analytical Services, Inc. and other financial
publications.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the Fund rests with
the Fund's Board of Directors. The Directors approve all significant agree-
ments between the Company and the companies that furnish services to the Fund
and the Company, including agreements with its distributor, investment advis-
er, custodian and transfer agent. The day-to-day operations of the Fund are
delegated to the Fund's investment manager. The Statement of Additional Infor-
mation contains background information regarding each Director of the Fund and
executive officer of the Company.
INVESTMENT MANAGER--SBMFM
SBMFM, located at 388 Greenwich Street, New York, New York 10013, serves as
the Fund's investment manager and manages the day-to-day operations of the
Fund pursuant to an investment management agreement entered into by the Compa-
ny, on behalf of the Fund. SBMFM renders investment advice to investment com-
panies which had aggregate assets under management as of September 30, 1997,
in excess of $84 billion. For investment management services rendered, the
Fund pays
38
<PAGE>
MANAGEMENT OF THE FUND (CONTINUED)
SBMFM a monthly fee at the annual rate of 0.95% of the value of its average
daily net assets. From its fee, SBMFM pays Hansberger a fee of 0.50% of the
value of the Fund's average net assets, for its services as sub-investment
adviser.
SUB-INVESTMENT ADVISER--HANSBERGER
Hansberger, located at 515 East Las Olas Blvd., Suite 1300, Fort Lauderdale,
Florida 33301, serves as the Fund's sub-investment adviser. Hansberger provides
investment advisory services to investment companies that had aggregate total
assets under management as of August 31, 1997 of approximately $1.2 billion.
Subject to the supervision and direction of the Company's Board of Directors,
Hansberger manages the Fund's portfolio in accordance with the Fund's stated
investment objective and policies, makes investment decisions for the Fund,
places orders to purchase and sell securities and employs professional portfo-
lio managers and securities analysts who provide research services to the Fund.
PORTFOLIO MANAGEMENT
Thomas L. Hansberger, James Chaney, Francisco Alzuru and John Hock, manage
the day-to-day investment operations of the Fund, including the oversight of
investment decisions. Mr. Hansberger is Chairman and Chief Executive Officer of
Hansberger. Prior to forming Hansberger, he had served as Chairman, President
and Chief Executive Officer of Templeton Worldwide, Inc. ("Templeton"). Mr.
Chaney has been Chief Investment Officer of Hansberger since 1996. Prior to
that time, Mr. Chaney was Executive Vice President of Templeton. Mr. Alzuru has
been a portfolio manager and research analyst for Hansberger since 1994. Prior
to that time, he was a Latin American analyst at Vestcorp Partners. Mr. Hock
has been a research analyst and assistant portfolio manager for Hansberger
since 1996. Prior to that time, he was a Vice President and Senior Analyst in
the Global Securities Research and Economics Group at Merrill Lynch & Co.
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney distributes shares of the Fund as principal underwriter and as
such conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be sold
to the public. Pursuant to a plan of distribution adopted by the Fund under
Rule 12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid a service fee
with respect to Class A, Class B and Class C shares of the Fund at the annual
rate of 0.25% of the average daily net assets of the respective Class. Smith
Barney is also paid a distribution fee with respect to Class B and Class C
shares at the annual rate of 0.75% of the average daily net assets attributable
to those Classes. Class B shares that automatically convert to Class A shares
eight years after the date of original purchase will
39
<PAGE>
DISTRIBUTOR (CONTINUED)
no longer be subject to distribution fees. The fees are used by Smith Barney
to pay its Financial Consultants for servicing shareholder accounts and, in
the case of Class B and Class C 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 invest-
ors; payments to and expenses of Smith Barney Financial Consultants 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
Smith Barney associated with the sale of Fund shares, including lease, utili-
ty, communications and sales promotion expenses.
The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C shares, a con-
tinuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney and the pay-
ments may exceed distribution expenses actually incurred. The Company's Board
of Directors will evaluate the appropriateness of the Plan and its payment
terms on a continuing basis and in so doing will consider all relevant fac-
tors, including expenses borne by Smith Barney, amounts received under the
Plan and proceeds of the CDSC.
ADDITIONAL INFORMATION
The Company was organized as a Maryland corporation pursuant to Articles of
Incorporation dated September 29, 1981, as amended from time to time. The Fund
offers shares of common stock currently classified into four Classes, A, B, C
and Y, with a par value of $.001 per share. Each Class represents an identical
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 des-
ignation of each Class; (b) the effect of the respective sales charges for
each Class; (c) the distribution and/or service fees borne by each Class pur-
suant to the Plan; (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 Classes. The
Directors, on an ongoing basis, will consider whether any such conflicts
exists and, if so, take appropriate action.
Chase, located at Chase Metrotech Center, Brooklyn, NY 11245, serves as cus-
todian of the Fund's investments.
40
<PAGE>
ADDITIONAL INFORMATION (CONTINUED)
First Data, located at Exchange Place, Boston, Massachusetts 02109, serves as
the Fund's transfer agent.
The Company does not hold annual shareholder meetings. There normally will be
no meeting of shareholders for the purpose of electing Directors unless and
until such time as less than a majority of the Directors holding office have
been elected by shareholders. The Directors will call a meeting for any purpose
upon written request of shareholders holding at least 10% of the Company's out-
standing shares and the Company 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 a proportionate, fractional vote for any fractional share held of that
Class. Generally, shares of the Company will be voted on a Company-wide basis
on all matters except matters affecting only the interests of one Fund or one
Class of shares.
The Fund sends its shareholders a semi-annual report and an audited annual
report, which include a list of the 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 Company plans to consolidate the mailing of its semi-annual
and annual reports by household. This consolidation means that a household hav-
ing multiple accounts with the identical address of record will receive a sin-
gle copy of each report. Shareholders who do not want this consolidation to
apply to their accounts should contact their Smith Barney Financial Consultant
or First Data.
41
<PAGE>
SMITH BARNEY
-------------------------------
A Member of TravelersGroup [LOGO]
SMITH BARNEY
HANSBERGER
GLOBAL
VALUE
FUND
388 Greenwich Street
New York, New York 10013
FD01337 10/97
<PAGE>
PROSPECTUS
SMITH BARNEY HANSBERGER
Global
Small Cap
Value Fund
OCTOBER 27, 1997
PROSPECTUS BEGINS ON PAGE ONE
[LOGO] [LOGO]
HANSBERGER SMITH BARNEY
GLOBAL MUTUAL FUNDS
INVESTORS, INC. INVESTING FOR YOUR FUTURE.
EVERY DAY./SM/
<PAGE>
PROSPECTUS October 27, 1997
Smith Barney Hansberger Global Small Cap Value Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
The primary investment objective of the Smith Barney Hansberger Global Small
Cap Value Fund (the "Fund") is long-term capital growth. The Fund seeks to
achieve this objective by investing primarily in equity securities of U.S. and
foreign issuers with relatively small market capitalizations.
The Fund is one of a number of funds, each having distinct investment objec-
tives and policies, making up the Smith Barney Investment Funds Inc. (the "Com-
pany"). The Fund is an open-end, management investment company commonly
referred to as a mutual fund.
The initial subscription period for shares is scheduled to end on December 18,
1997, (the "Subscription Period"). After the expiration of the Subscription
Period or a limited continuous offering period, the Fund will suspend the
offering of shares to the public. A continuous offering of shares is expected
to commence on or about January 19, 1998. See "Purchase of Shares."
This Prospectus sets forth concisely certain information about the Company and
the Fund, including sales charges, distribution and service fees and expenses,
that prospective investors will find helpful in making an investment decision.
Investors are encouraged to read this Prospectus carefully and retain it for
future reference.
Additional information about the Fund is contained in a Statement of Addi-
tional Information dated October 27, 1997, as amended or supplemented from time
to time, that is available upon request and without charge by calling or writ-
ing the Fund at the telephone number or address set forth above or by contact-
ing a Smith Barney Financial Consultant. The Statement of Additional Informa-
tion has been filed with the Securities and Exchange Commission (the "SEC") and
is incorporated by reference into this Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
HANSBERGER GLOBAL INVESTORS, INC.
Sub-Investment Adviser
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
- -------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 9
- -------------------------------------------------
RISK FACTORS 17
- -------------------------------------------------
VALUATION OF SHARES 19
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 20
- -------------------------------------------------
PURCHASE OF SHARES 21
- -------------------------------------------------
EXCHANGE PRIVILEGE 31
- -------------------------------------------------
REDEMPTION OF SHARES 34
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 37
- -------------------------------------------------
PERFORMANCE 37
- -------------------------------------------------
MANAGEMENT OF THE FUND 38
- -------------------------------------------------
DISTRIBUTOR 39
- -------------------------------------------------
ADDITIONAL INFORMATION 39
</TABLE>
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information or
representations must not be relied upon as having been authorized by the Fund
or the distributor. This Prospectus does not constitute an offer by the Fund or
the distributor to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.
- --------------------------------------------------------------------------------
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Prospec-
tus. See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end, diversified management invest-
ment company whose investment objective is long term capital growth. The Fund
seeks to achieve this objective by investing primarily in equity securities of
U.S. and foreign issuers with relatively small market capitalizations. See
"Investment Objective and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several classes of shares
("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three classes of shares: Class A shares, Class B shares and Class C
shares, which differ principally in terms of sales charges and rate of
expenses to which they are subject. A fourth Class of shares, Class Y shares,
is offered only to investors meeting an initial investment minimum of
$5,000,000. See "Purchase of Shares" and "Redemption of Shares."
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.00% and are subject to an annual service fee of 0.25%
of the average daily net assets of the Class. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares of
$500,000 or more will be made at net asset value with no initial sales charge,
but will be subject to a contingent deferred sales charge ("CDSC") of 1.00% on
redemptions made within 12 months of purchase. See "Prospectus Summary--
Reduced or No Initial Sales Charge."
Class B Shares. Class B shares are offered at net asset value subject to a
maximum CDSC of 5.00% of redemption proceeds, declining by 1.00% each year
after the date of purchase to zero. The CDSC may be waived for certain redemp-
tions. Class B shares are subject to an annual service fee of 0.25% and an
annual distribution fee of 0.75% of the average daily net assets of the Class.
The Class B shares' distribution fee may cause that Class to have higher
expenses and pay lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will convert automatically
to Class A shares, based on relative net asset value, eight years after the
date of the original purchase. Upon conversion, these shares will no longer be
subject to an annual distribution fee. In addition, a certain portion of Class
B shares that have been acquired through the reinvestment of dividends and
distributions ("Class B Dividend Shares") will be converted at that time. See
"Purchase of Shares--Deferred Sales Charge Alternatives."
3
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Class C Shares. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the average daily net assets of the Class, and
investors pay a CDSC of 1.00% if they redeem Class C shares within 12 months of
purchase. The CDSC may be waived for certain redemptions. The Class C shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A shares. Purchases of Fund shares which, when combined
with current holdings of Class C shares of the Fund, equal or exceed $500,000
in the aggregate, should be made in Class A shares at net asset value with no
sales charge, and will be subject to a CDSC of 1.00% on redemptions made within
12 months of purchase.
Class Y Shares. Class Y shares are available only to investors meeting an ini-
tial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.
In deciding which Class of Fund shares to purchase, investors should consider
the following factors, as well as any other relevant facts and circumstances:
Intended Holding Period. The decision as to which Class of shares is more ben-
eficial to an investor depends on the amount and intended holding period of his
or her investment. Shareholders who are planning to establish a program of reg-
ular investment may wish to consider Class A shares; as the investment accumu-
lates, shareholders may qualify for reduced sales charges and the shares are
subject to lower ongoing expenses over the term of the investment. As an
investment alternative, Class B shares and Class C shares are sold without any
initial sales charge so the entire purchase price is immediately invested in
the Fund. Any investment return on these additional invested amounts may par-
tially or wholly offset the higher annual expenses of these Classes. Because
the Fund's future return cannot be predicted, however, there can be no assur-
ance that this would be the case.
Finally investors should consider the effect of the CDSC period and any con-
version rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class
B shares, they do not have a conversion feature and, therefore, are subject to
an ongoing distribution fee. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks.
Investors investing a minimum of $5,000,000 must purchase Class Y shares,
which are not subject to an initial sales charge, CDSC or service or distribu-
tion fee. The maximum purchase amount for Class A shares is $4,999,999, Class B
shares is $249,999 and Class C shares is $499,999. There is no maximum purchase
amount for Class Y shares.
4
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Reduced or No Initial Sales Charge. The initial sales charge on Class A shares
may be waived for certain eligible purchasers, and the entire purchase price
will be immediately invested in the Fund. In addition, Class A share purchases
of $500,000 or more will be made at net asset value with no initial sales
charge, but may be subject to a CDSC of 1.00% on redemptions made within 12
months of purchase. The $500,000 investment may be met by adding the purchase
to the net asset value of all Class A shares held in funds sponsored by Smith
Barney Inc. ("SmithBarney") listed under "Exchange Privilege." Class A share
purchases may also be eligible for a reduced initial sales charge. See "Pur-
chase of Shares". Because the ongoing expenses of Class A shares may be lower
than those for Class B and Class C shares, purchasers eligible to purchase
Class A shares at net asset value or at a reduced sales charge should consider
doing so.
Smith Barney Financial Consultants may receive different compensation for
selling different Classes of shares. Investors should understand that the pur-
pose of the CDSC on the Class B and Class C shares is the same as that of the
initial sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Fund" for a complete descrip-
tion of the sales charges and service and distribution fees for each Class of
shares and "Valuation of Shares," "Dividends, Distributions and Taxes" and "Ex-
change Privilege" for other differences between the Classes of shares.
SMITH BARNEY 401(k) AND EXECCHOICE(TM) PROGRAMS Investors may be eligible to
participate in the Smith Barney 401(k) Program, which is generally designed to
assist plan sponsors in the creation and operation of retirement plans under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
as well as other types of participant directed, tax-qualified employee benefit
plans. Investors may also be eligible to participate in the Smith Barney
ExecChoice(TM) Program. Class A and Class C shares are available without sales
charge as investment alternatives under both of these programs. See "Purchase
of Shares--Smith Barney 401(k) and ExecChoice(TM) Programs."
PURCHASE OF SHARES Shares may be purchased through a brokerage account main-
tained at Smith Barney. Shares may also be purchased through a broker that
clears securities transactions through Smith Barney on a fully disclosed basis
(an "Introducing Broker") or an investment dealer in the selling group. In
addition, certain investors, including qualified retirement plans and certain
institutional investors, may purchase shares directly from the Fund through the
Fund's transfer agent, First Data Investor Services Group, Inc. ("First Data").
See "Purchase of Shares."
The initial subscription period for shares is scheduled to end on December 18,
1997, (the "Subscription Period"). After the expiration of the Subscription
Period or a limited continuous offering period, the Fund will suspend the
offering of shares to the public. A continuous offering of shares is expected
to commence on or about January 19, 1998. See "Purchase of Shares."
5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may open
an account by making an initial investment of at least $1,000 for each account,
or $250 for an individual retirement account ("IRA") or a Self-Employed Retire-
ment Plan. Investors in Class Y shares may open an account for an initial
investment of $5,000,000. 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 investment
requirement for Class A, Class B and Class C shares and the subsequent invest-
ment requirement for all Classes is $25. The minimum initial investment
requirement for the purchase of Fund shares through the Systematic Investment
Plan is described below. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN During the continuous Offering Period, the Fund
offers shareholders a Systematic Investment Plan under which they may authorize
the automatic placement of a purchase order each month or quarter for Fund
shares. The minimum initial investment requirements for Class A, Class B and
Class C shares and the subsequent investment requirement for all classes for
shareholders purchasing shares through the Systematic Investment Plan on a
monthly basis is $25 and on a quarterly basis is $50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and "Re-
demption of Shares."
MANAGEMENT OF THE FUND Smith Barney Mutual Funds Management Inc. ("SBMFM")
serves as the Fund's investment manager. SBMFM provides investment advisory and
management services to investment companies affiliated with Smith Barney. SBMFM
is a wholly owned subsidiary of Smith Barney Holdings Inc. ("Holdings"). Hold-
ings is a wholly owned subsidiary of Travelers Group Inc. ("Travelers"), a
diversified financial services holding company engaged through its subsidiar-
ies, principally in four business segments: Investment Services, Consumer
Finance Services, Life Insurance Services and Property & Casualty Insurance
Services.
Hansberger Global Investors, Inc. ("Hansberger"), serves as the Fund's sub-
investment adviser. See "Management of the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
Class of certain other funds of the Smith Barney Mutual Funds at the respective
net asset values next determined. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Fund for the prior day generally is
quoted daily in the financial section of most newspapers and is also available
from Smith Barney Financial Consultants. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income and distribu-
tions of net realized capital gains, if any, are declared and paid annually.
See "Dividends, Distributions and Taxes."
6
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a
Class will be reinvested automatically, unless otherwise specified by an
investor, in additional shares of the same Class at current net asset value.
Shares acquired by dividend and distribution reinvestments will not be subject
to any sales charge or CDSC. Class B shares acquired through dividend and dis-
tribution reinvestments will become eligible for conversion to Class A shares
on a pro-rata basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS The Fund invests principally in common
stocks. The prices of common stocks and other securities fluctuate and, there-
fore, the value of an investment in the Fund will vary based upon the Fund's
investment performance. Any income from these investments will be incidental
to the goal of capital appreciation. The Fund will invest in foreign securi-
ties which may result in higher costs than investments in U.S. securities,
including foreign government taxes, which may reduce the investment return of
the Fund. In addition foreign investments may include additional risks associ-
ated with currency exchange rates, less complete financial information about
companies, less market liquidity and political instability. The Fund may use
management techniques and strategies involving options, futures contracts and
options on futures (which are sometimes referred to as "derivatives"), as well
as borrowing for leverage purposes. The utilization of these techniques may
involve greater than ordinary investment risks and the likelihood of more vol-
atile price fluctuation. See "Investment Objective and Management Policies."
THE FUND'S EXPENSES The following expense table lists the costs and expenses
that an investor will incur either directly or indirectly as a shareholder of
the Fund, based on the maximum sales charge or maximum CDSC that may be
incurred at the time of purchase or redemption and the Fund's estimated oper-
ating expenses:
<TABLE>
<CAPTION>
SMITH BARNEY HANSBERGER GLOBAL SMALL CAP
VALUE FUND CLASS A CLASS B CLASS C CLASS Y
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% None None None
Maximum CDSC (as a percentage of original
cost or redemption proceeds, whichever
is lower) None* 5.00% 1.00% None
- ------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of offering price)
Management Fees 1.05% 1.05% 1.05% 1.05%
12b-1 Fees** 0.25 1.00 1.00 None
Other Expenses*** 0.40 0.40 0.40 0.40
- ------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.70% 2.45% 2.45% 1.45%
- ------------------------------------------------------------------------------
</TABLE>
* Purchases of Class A shares of $500,000 or more will be made at net asset
value with no sales charge, but will be subject to a CDSC of 1.00% on
redemptions made within 12 months of purchase.
** Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee. Class C shares do not have a
conversion feature and, therefore, are subject to an ongoing distribution
fee. As a result, long-term shareholders of Class C shares may pay more
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
***"Other Expenses" have been estimated based on expenses the Fund expects to
incur during its fiscal year ending April 30, 1998.
7
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Class A shares of the Fund purchased through the Smith Barney AssetOne Program
will be subject to an annual asset-based fee, payable quarterly, in lieu of the
initial sales charge. The fee will vary to a maximum of 1.50%, depending on the
amount of assets held through the Program. For more information, please call
your Smith Barney Financial Consultant.
The sales charge and CDSC set forth in the above table are the maximum charges
imposed on purchases or redemptions of Fund shares and investors may actually
pay lower or no charges, depending on the amount purchased and, in the case of
Class B, Class C and certain Class A shares, the length of time the shares are
held and whether the shares are held through the Smith Barney 401(k) and
ExecChoice(TM) Programs. See "Purchase of Shares" and "Redemption of Shares."
Smith Barney receives an annual 12b-1 service fee of 0.25% of the value of
average daily net assets of Class A shares. Smith Barney also receives with
respect to Class B shares and Class C shares, an annual 12b-1 fee of 1.00% of
the value of average daily net assets of that Class, consisting of a 0.25%
service fee and a 0.75% distribution fee. "Other Expenses" in the above table
include fees for shareholder services, custodial fees, legal and accounting
fees, printing costs and registration fees.
EXAMPLE
The following example is intended to assist an investor in understanding the
various costs that an investor in the Fund will bear directly or indirectly.
The example assumes payment by the Fund of operating expenses at the levels set
forth in the table above. See "Purchase of Shares," "Redemption of Shares" and
"Management of the Fund."
<TABLE>
<CAPTION>
SMITH BARNEY HANSBERGER GLOBAL SMALL CAP VALUE FUND 1 YEAR 3 YEARS
- ------------------------------------------------------------------------------
<S> <C> <C>
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5.00% annual return and (2) redemp-
tion at the end of each time period:
Class A.................................................... 66 101
Class B.................................................... 75 106
Class C.................................................... 35 76
Class Y.................................................... 15 46
An investor would pay the following expenses on the same
investment, assuming the same annual return and no redemp-
tion:
Class A.................................................... 66 101
Class B.................................................... 25 76
Class C.................................................... 25 76
Class Y.................................................... 15 46
- ------------------------------------------------------------------------------
</TABLE>
The example also provides a means for the investor to compare expense levels
of funds with different fee structures over varying investment periods. To
facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Fund's actual return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTA-
TION OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN ABOVE.
8
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Fund's investment objective is long-term capital growth. The Fund seeks
to achieve this objective by investing primarily in equity securities of U.S.
and foreign issuers with relatively small market capitalizations (share price
times number of equity securities outstanding) which, in the opinion of SBMFM
and Hansberger, are undervalued. Income will be an incidental consideration.
In making investment decisions for the Fund, Hansberger relies heavily on a
fundamental analysis of securities with a long-term investment perspective.
Hansberger's valuation methods focus on a company's share price in relation to
earnings, dividends, assets, sales and a variety of other criteria. The Fund
seeks to invest in companies whose securities are trading at the greatest dis-
count to future earnings, cash flow and/or net asset value and Hansberger
utilizes proprietary valuation screens, internal and external research sources
and other fundamental analysis to identify those securities that appear to be
undervalued. Once undervalued securities are identified, Hansberger analyzes
each security, concentrating on a variety of fundamental issues, including
sales growth, cash flow, new product development, management structure and
other economic factors. This fundamental analysis results in a list of securi-
ties meeting a strict value discipline, which are reviewed by Hansberger for
inclusion in the Fund's portfolio.
Hansberger seeks to increase the scope and effectiveness of this fundamental
investment approach by extending the search for value into many countries
around the world. This global search provides Hansberger with more diverse
opportunities and flexibility to shift portfolio investments not only from
company to company and industry to industry, but also country to country, in
search of undervalued securities. Under normal market conditions, the Fund
will invest at least 65% of the value of its total assets in companies with
individual market capitalizations of $1.4 billion U.S. dollars or less (at the
time of purchase). Under normal market conditions the Fund will invest its
assets in at least three countries, which may include the United States.
INVESTMENT POLICIES
Although the Fund generally invests in common stocks, the Fund may also
invest in preferred stocks and certain debt securities, rated or unrated, such
as convertible bonds and bonds selling at a discount, when Hansberger believes
the potential for appreciation will equal or exceed that available from
investments in common stock. The Fund may also invest in warrants or rights to
subscribe to or purchase such securities, and sponsored or unsponsored Ameri-
can Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs") and other depository receipts (collective-
ly, "Depositary Receipts"). The Fund may also lend its portfolio securities
and borrow money for investment purposes (i.e., "leverage" its portfolio). In
addition, the Fund may invest in closed-end invest -
9
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
ment companies holding foreign securities, and enter into transactions in
options on securities, securities indices and foreign currencies, forward for-
eign currency contracts, and futures contracts and related options. When
deemed appropriate by SBMFM or Hansberger, the Fund may invest cash balances
in repurchase agreements and other money market investments to maintain
liquidity in an amount sufficient to meet expenses or for day-to day operating
purposes. These investment techniques are described below under "Investment
Strategies and Techniques" and "Risk Factors". Whenever, in the judgment of
Hansberger, market or economic conditions warrant, the Fund may adopt a tempo-
rary defensive position and may invest without limit in money market securi-
ties denominated in U.S. dollars or in the currency of any foreign country.
See " Investment Strategies and Techniques--Temporary Investments."
INVESTMENT STRATEGIES AND TECHNIQUES
The Fund may also engage in the investment techniques and make the types of
investments described and discussed below.
Options Transactions. The Fund may seek to hedge all or a portion of its
investments through options on other securities in which it may invest.
Options which the Fund may purchase or sell will be traded on a recognized
securities or futures exchange or over the counter. Options markets in emerg-
ing countries are currently limited and the nature of the strategies adopted
by Hansberger and the extent to which those strategies are used will depend on
the development of such markets.
The Fund may write (i.e., sell) covered call options. A call gives the pur-
chaser the right to buy the security underlying the option from the Fund at
the stated exercise price, on or before a specified date (the "termination
date") that is usually not more than nine months from the date the option is
issued. A call is "covered" if the Fund (i) owns the securities underlying the
option or securities convertible or exchangeable (without the payment of any
consideration) into the securities underlying the option, (ii) maintains in a
segregated account with The Chase Manhattan Bank ("Chase"), the Fund's custo-
dian, cash or equity and debt securities of any grade provided such securities
have been determined by SBMFM and Hansberger to be liquid and unencumbered
pursuant to guidelines established by the Board of Directors ("eligible segre-
gated assets") with a value sufficient to meet the Fund's obligations under
the call, or (iii) owns an offsetting call option.
The Fund may also write (i.e., sell) covered put options. The writer of a put
incurs an obligation to buy the security underlying the option from the put's
purchaser at the exercise price at any time on or before the termination date,
at the purchaser's election (certain options the Fund writes will be exercis-
able by the purchaser only on a specific date ). Generally, a put is "covered"
if the Fund
10
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
maintains eligible segregated assets equal to the exercise price of the option
or if the Fund holds a put on the same underlying security with a similar or
higher exercise price.
The Fund may also purchase put or call options on individual securities or
baskets of securities. When the Fund purchases a call, it acquires the right to
buy the underlying security at the exercise price on or before the termination
date, and when the Fund purchases a put, it acquires the right to sell the
underlying security at the exercise price on or before the termination date.
The primary risks associated with the use of options on securities are (i)
imperfect correlation between the change in market value of the securities the
Fund holds and the prices of options relating to the securities purchased or
sold by the Fund; and (ii) possible lack of a liquid secondary market for an
option. Options not traded on an exchange (OTC options) are generally consid-
ered illiquid and may be difficult to value. Hansberger believes that the Fund
will minimize its risk of being unable to close out an option contract by
transacting in options only if there appears to be a liquid secondary market
for those options.
Real Estate Investment Trust Securities. The Fund may invest up to 10% of its
assets in Real Estate Investment Trusts ("REITs"). REITs are pooled investment
vehicles that invest primarily in either real estate or real estate related
loans. The value of a REIT is affected by changes in the value of the proper-
ties owned by the REIT or securing mortgage loans held by the REIT. A REIT is
dependent upon cash flow from its investments to repay financing costs and the
ability of the REIT's manager. REITs are also subject to risks generally asso-
ciated with investments in real estate.
Futures Contracts. The Fund may buy and sell financial futures contracts,
stock and bond index futures contracts, foreign currency futures contracts and
options on any of the foregoing for hedging purposes only. A financial futures
contract is an agreement between two parties to buy or sell a specified debt
security at a set price on a future date. An index futures contract is an
agreement to take or make delivery of an amount of cash based on the difference
between the value of the index at the beginning and at the end of the contract
period. A futures contract on a foreign currency is an agreement to buy or sell
a specified amount of a currency for a set price on a future date.
When the Fund enters into a futures contract, it must make an initial deposit,
known as "initial margin," as a partial guarantee of its performance under the
contract. As the value of the security, index or currency fluctuates, either
party to the contract is required to make additional margin payments, known as
"variation margin," to cover any additional obligation it may have under the
contract. In
11
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
addition, when the Fund enters into a futures contract, it will segregate
assets or "cover" its position in accordance with the Investment Company Act of
1940, as amended (the "1940 Act"). With respect to positions in futures and
related options that do not constitute "bona fide hedging" positions as defined
in regulations of the Commodity Futures Trading Commission, the Fund will not
enter into a futures contract or related option contract if, immediately there-
after, the aggregate initial margin deposits relating to such positions plus
premiums paid by it for open futures option positions, less the amount by which
any such options are "in-the-money," would exceed 5% of the Fund's total
assets. The value of the underlying securities on which futures contracts will
be written at any one time will not exceed 25% of the total assets of the Fund.
The primary risks associated with the use of futures and options on futures
are (i) imperfect correlation between the change in market value of the securi-
ties held by the Fund and the prices of related futures and options on futures
purchased or sold by the Fund, and (ii) possible lack of a liquid secondary
market for a futures contract (or related option) and the resulting inability
to close a futures position, which could have an adverse impact on the Fund's
ability to hedge. The risk of loss in trading on futures contracts and related
options in some strategies can be substantial, due both to the low margin
deposits required and the extremely high degree of leverage involved in futures
pricing. Gains and losses on futures and related options depend on Hansberger's
ability to predict correctly the direction of stock prices, interest rates, and
other economic factors. The risk that the Fund will be unable to close out a
futures position or related options contract will be minimized by only entering
into futures contracts or related options transactions for which there appears
to be a liquid secondary market.
Borrowing. The Fund may borrow money from U.S.-regulated banks in an amount
not to exceed 33 1/3% of the Fund's total assets (including the amount borrow-
ed) less all liabilities and indebtedness other than the borrowing. If the Fund
borrows and uses the proceeds to make additional investments, income and appre-
ciation from such investments will improve its performance if they exceed the
associated borrowing costs but impair its performance if they are less than
such borrowing costs. This speculative factor is known as "leverage."
Leverage creates an opportunity for increased returns to shareholders of the
Fund but, at the same time, creates special risk considerations. For example,
leverage may exaggerate changes in the net asset value of the Fund's shares and
in the Fund's yield. Although the principal or stated value of such borrowings
will be fixed, the Fund's assets may change in value during the time the bor-
rowing is outstanding. Leverage will create interest or dividend expenses for
the Fund which can exceed the income from the assets retained. To the extent
the income or other
12
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
gain derived from securities purchased with borrowed funds exceeds the inter-
est or dividends the Fund will have to pay in respect thereof, the Fund's net
income or other gain will be greater than if leverage had not been used. Con-
versely, if the income or other gain from the incremental assets is not suffi-
cient to cover the cost of leverage, the net income or other gain of the Fund
will be less than if leverage had not been used. If the amount of income from
the incremental securities is insufficient to cover the cost of borrowing,
securities might have to be liquidated to obtain required funds. Depending on
market or other conditions, such liquidations could be disadvantageous to the
Fund.
Depository Receipts. The Fund may purchase sponsored and unsponsored Deposi-
tory Receipts that are or become available, including ADRs, GDRs, EDRs and
other Depository Receipts. Depositary Receipts are typically issued by a
financial institution ("depository") and evidence ownership interests in a
security or a pool of securities ("underlying securities") that have been
deposited with the depository. The depository for ADRs is typically a U.S.
financial institution and the underlying securities are issued by a foreign
issuer. For other Depositary Receipts, the depository may be a foreign or a
U.S. entity, and the underlying securities may have a foreign or a U.S. issu-
er. For purposes of the Fund's investment policies, investments in Depository
Receipts will be deemed to be investments in the underlying securities. Thus,
a Depository Receipt representing ownership of common stock will be treated as
common stock.
Sovereign Debt. The Fund may invest in sovereign debt, which may trade at a
substantial discount from face value. The Fund may hold and trade sovereign
debt of emerging market countries in appropriate circumstances and participate
in debt conversion programs. Emerging country sovereign debt is generally low-
er-quality debt and is considered speculative in nature. The issuer or govern-
mental authorities that control sovereign debt repayment ("sovereign debtors")
may be unable or unwilling to repay principal or interest when due in accor-
dance with the terms of the debt. A sovereign debtor's willingness or ability
to repay principal and interest due in a timely manner may be affected by,
among other factors, its cash flow, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the sover-
eign debtor's policy towards the International Monetary Fund and the political
constraints to which the sovereign debtor may be subject.
Brady Bonds. The Fund may invest in Brady Bonds as part of its investment in
sovereign debt of countries that have restructured or are in the process of
restructuring their sovereign debt.
Brady Bonds are often viewed as having three or four valuation components:
(i) the collateralized repayment of principal at final maturity; (ii) the col-
lateralized
13
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
interest payments; (iii) the uncollateralized interest payment; and (iv) any
uncollateralized interest and principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In light of the residual risk of
Brady Bonds and, among other factors, the history of defaults with respect to
commercial bank loans by public and private entities of countries issuing
Brady Bonds, investments in Brady Bonds can viewed as speculative.
Investment Funds. Some emerging countries have laws and regulations that pre-
clude direct foreign investment in the securities of companies located there.
However, indirect foreign investment in the securities of companies listed and
traded on the stock exchanges in these countries is permitted by certain
emerging countries through specifically authorized investment funds. The Fund
may invest in these investment funds, as well as other closed-end investment
companies up to 10% of its assets, as permitted by the 1940 Act.
Repurchase Agreements. In order to aid in cash management, the Fund may enter
into repurchase agreements with brokers, dealers or banks ("counterparties")
that SBMFM and Hansberger have determined meet the credit guidelines estab-
lished by the Board of Directors. Repurchase agreements will be fully collat-
eralized, and may be viewed for purposes of the 1940 Act as a loan of money by
the Fund to the counterparty. The Fund may incur a loss if the counterparty
defaults and the collateral value declines, or if bankruptcy proceedings are
commenced regarding the counterparty and the Fund's realization upon the col-
lateral is delayed or limited.
Securities Lending. The Fund is authorized to lend up to 33 1/3% of the total
market value of its portfolio securities to brokers, dealers, domestic and
foreign banks or other financial institutions for the purpose of increasing
its net investment income. Any such loan must be fully secured; however, and
there may be risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrowers of the securities fail finan-
cially.
Temporary Investments. The Fund may make money market investments pending
other investments or settlement for liquidity, or in adverse market condi-
tions. These money market investments include obligations of the U.S. Govern-
ment and its agencies and instrumentalities, obligations or foreign sovereign-
ties, other debt securities, commercial paper including bank obligations, cer-
tificates of deposit (including Eurodollar certificates of deposit) and repur-
chase agreements.
For temporary defensive purposes, during periods in which SBMFM or Hansberger
believes changes in economic, financial or political conditions make it advis-
able, the Fund may reduce its holdings in equity and other securities and may
invest up to 100% of its assets in certain short-term (less than twelve months
to maturity) and medium-term (not greater than five years to maturity) debt
securities
14
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
and in cash (U.S. dollars, foreign currencies, multicurrency units). These
short-term and medium-term debt securities consist of (a) obligations of gov-
ernments, agencies or instrumentalities of any member state of the Organization
for Economic Cooperation and Development ("OECD"), (b) bank deposits and bank
obligations (including certificates of deposit, time deposits and banker's
acceptances) of banks organized under the laws of any member state of the OECD,
denominated in any currency: (c) floating rate securities and other instruments
dominated in any currency issued by international development agencies: (d)
finance company and corporate commercial paper and other short-term corporate
debt obligations of corporations organized under the laws of any member state
of the OECD meeting the Fund's credit quality standards: and (e) repurchase
agreements with banks and broker-dealers covering any of the foregoing securi-
ties. The short-term and medium-term debt securities in which the Fund may
invest for temporary defensive purposes will be those that SBMFM and Hansberger
believe to be of high quality, i.e., subject to relatively low risk of loss of
interest or principal. There is currently no rating system for debt securities
in most emerging countries. If rated, these securities will be rated in one of
the three highest rating categories by rating services such as Moody's Invest-
ors Services, Inc. or Standard & Poor's Ratings Group (i.e., rated at least A).
When-Issued Securities. The Fund may purchase securities on a when-issued or
delayed delivery basis. The price of debt obligations purchased on a when-
issued basis is fixed at the time the Fund commits to purchase, but delivery
and payment for the securities ("settlement") takes place at a later date. The
price of these securities may be expressed in yield terms. The Fund will enter
into these transactions in order to lock in the yield (price) available at the
time of commitment.
Between purchase and settlement, the Fund assumes the ownership risk of the
when-issued securities, including the risk of fluctuations in the securities
market value due to, among other factors, a change in the general level of
interest rates. However, no interest accrues to the Fund during this period.
Forward Foreign Currency Exchange Contracts and Options on Foreign
Currencies. The Fund may enter into forward foreign currency exchange contracts
("forward contracts"), providing for the purchase of or sale of an amount of a
specified currency at a future date. The Fund may use forward contracts to pro-
tect against a foreign currency's decline against the U.S. dollar between the
trade date and settlement date for a securities transaction, or to lock in the
U.S. dollar value of dividends declared on securities it holds, or generally to
protect the U.S. dollar value of the securities it holds against exchange rate
fluctuations. The Fund may also use forward contracts to protect against fluc-
tuating exchange rates and exchange control regulations. Forward contracts may
limit the Fund's losses due to exchange rate fluctuation, but they will also
limit any gains that the Fund might
15
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
otherwise have realized. The Fund may also enter into foreign currency futures
contracts ("currency futures").
Except where segregated accounts are not required by the 1940 Act, when the
Fund enters into a forward contract or currency future, it will place in a seg-
regated account maintained with Chase, eligible segregated assets in an amount
equal to the value of the Fund's total assets committed to consummation of for-
ward contracts and currency futures. If the value of these segregated securi-
ties declines, additional cash or securities will be placed in the account on a
daily basis so that the account value is at least equal to the Fund's commit-
ments to such contracts.
The Fund may purchase put and call options and write covered put and call
options on foreign currencies for the purpose of protecting against declines in
the U.S. dollar value of foreign currency denominated portfolio securities and
against increases in the U.S. dollar cost of such securities to be acquired. As
in the case of other kinds of options, however, the writing of an option on a
foreign currency constitutes only a partial hedge, up to the amount of the pre-
mium received, and the Fund could be required to purchase or sell foreign cur-
rencies at disadvantageous exchange rates, thereby incurring losses. The pur-
chase of an option on a foreign currency may constitute an effective hedge
against fluctuations in exchange rates although, in the event of rate movements
adverse to the Fund's position, it may forfeit the entire amount of the premium
plus related transaction costs. Options on foreign currencies to be written or
purchased by the Fund are traded on U.S. and foreign exchanges or over-the-
counter.
Forward Roll Transactions. In order to enhance current income, the Fund may
enter into forward roll transactions. In a forward roll transaction, the Fund
sells a security to a financial institution, such as a bank or broker-dealer,
and simultaneously agrees to repurchase a similar security from the institution
at a later date at an agreed-upon price. During the period between the sale and
repurchase, the Fund will not be entitled to receive interest and principal
payments on the securities sold. Proceeds of the sale will be invested in
short-term instruments, particularly repurchase agreements, and the income from
these investments, together with any additional fee income received on the sale
will generate income for the Fund exceeding the yield on the securities sold.
Forward roll transactions involve the risk that the market value of the securi-
ties sold by the Fund may decline below the repurchase price of those securi-
ties. At the time the Fund enters into forward roll transactions, it will place
in a segregated account with Chase, eligible segregated assets having a value
equal to the repurchase price (including accrued interest) and will subse-
quently monitor the account to insure that such equivalent value is maintained.
Non-Publicly Traded Securities. The Fund may invest in securities that are
neither listed on a stock exchange nor traded over the counter, including pri-
vately placed securities. These securities may present a higher degree of busi-
ness and
16
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
financial risk, which can result in substantial losses. In the absence of a
public trading market for these securities, they may be less liquid than pub-
licly traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less
than those originally paid by the Fund or less than what the Fund may consider
the fair value of such securities. Further, companies whose securities are not
publicly traded may not be subject to disclosure and other investor protection
requirements that might apply if their securities were publicly traded. If such
securities are required to be registered under the securities laws of one or
more jurisdictions before being resold, the Fund may be required to bear the
costs of registration. The Fund may not invest more than 15% of its net assets
in illiquid securities, including securities for which there is no readily
available secondary market. The Fund may invest in securities that can be
offered and sold to qualified institutional buyers under Rule 144A under the
1933 Act ("Rule 144A Securities"). The Board of Directors has delegated to
SBMFM and Hansberger, subject to the Board's supervision, the daily function of
determining and monitoring the liquidity of Rule 144A Securities. Rule 144A
Securities held by the Fund which have been determined to be liquid will not be
subject to the 15% limitation described above. However, Rule 144A Securities
may become illiquid if qualified institutional buyers are not interested in
acquiring them.
Short Sales. The Fund may sell securities short "against the box", that is,
sell a security that the Fund owns or has the right to acquire, for delivery at
a specified date in the future.
RISK FACTORS
FOREIGN INVESTMENT
Investment in securities of foreign issuers and in foreign branches of domes-
tic banks, involves some risks different from, or in addition to, those affect-
ing investments in securities of U.S. issuers. For example, publicly available
information about foreign issuers and economies may be limited; foreign issuers
are not generally subject to uniform accounting, auditing and other reporting
standards; securities of foreign issuers may be less liquid and more volatile
than those of domestic issuers; dividends and interest paid by foreign issuers
may be subject to withholding and other foreign taxes; risks of seizure,
nationalization or expropriation of a foreign issuer exists; and, since securi-
ties of foreign issuers are frequently denominated in foreign currencies,
investments in these securities may involve currency exchange risks.
INVESTING IN SMALLER CAPITALIZATION STOCKS
SBMFM and Hansberger believe that the issuers of smaller capitalization stocks
often have sales and earnings growth rates which exceed those of larger compa-
nies,
17
<PAGE>
RISK FACTORS (CONTINUED)
and that such growth rates may in turn be reflected in more rapid share price
appreciation. However, investing in smaller capitalization stocks can involve
greater risk than is customarily associated with investing in stocks of larger,
more established companies. For example, smaller capitalization companies often
have limited product lines, markets, or financial resources, may be dependent
for management on one or a few key persons, and can be more susceptible to
losses. Also, their securities may be thinly traded (and therefore have to be
sold at a discount from current prices or sold in small lots over an extended
period of time), may be followed by fewer investment research analysts and may
be subject to wider price swings and thus may create a greater chance of loss
than securities of larger capitalization companies. Transaction costs in stocks
of smaller capitalization companies may be higher than those of larger capital-
ization companies.
INVESTING IN LOWER RATED DEBT SECURITIES
When deemed appropriate, the Fund may invest up to 10% of its assets in lower
rated or unrated debt securities. Debt considered below investment grade may be
referred to as "junk bonds" or "high risk" securities. The emerging country
debt securities in which the Fund may invest are subject to significant risk
and will not be required to meet any minimum rating standard or equivalent.
Debt securities are subject to the risk of the issuer's inability to meet prin-
cipal and interest payments (credit risk) and may also be subject to price vol-
atility due to such factors as interest rate sensitivity, market perception of
the issuer's creditworthiness and general market liquidity (market risk). Lower
rated or unrated securities are more likely to react to developments affecting
market and credit risk than are more highly rated securities, which react pri-
marily to movements in general levels of interest rates. The market values of
debt securities tend to vary inversely with interest rate levels. Yields and
market values of lower rated and unrated debt will fluctuate over time,
reflecting not only changing interest rates but also the market's perception of
credit quality and the outlook for economic growth. When economic conditions
appear to be deteriorating, medium to lower rated securities may decline in
value due to heightened concern over credit quality, regardless of prevailing
interest rates. Hansberger will consider credit risk and market risk in making
debt security investment decisions for the Fund. Investors should carefully
consider the relative risks of investing in the Fund because it purchases lower
rated and unrated debt securities, and should understand that such securities
are not generally meant for short-term investment.
The U.S. market for lower rated and unrated corporate debt is relatively new
and its recent growth paralleled a long period of economic expansion and an
increase in merger, acquisition and leveraged buyout activity. In addition,
trading markets for debt securities of issuers located in emerging countries
may be limited. Adverse economic developments may disrupt the market for U.S.
corporate lower rated and
18
<PAGE>
RISK FACTORS (CONTINUED)
unrated debt securities and for emerging country debt securities. Such disrup-
tions may severely affect the ability of issuers, especially highly leveraged
issuers, to service their debt obligations or to repay their obligations upon
maturity. In addition, the secondary market for lower rated and unrated debt
securities, which is concentrated in relatively few market makers, may not be
as liquid as the secondary market for more highly rated securities. As a
result, Hansberger could find it more difficult to sell these securities or may
be able to sell the securities only at prices lower than if such securities
were widely traded. Prices realized upon the sale of such lower rated or
unrated securities, under these circumstances, may be less than the prices used
in calculating the Fund's net asset value.
VALUATION OF SHARES
The Fund's net asset value per share is determined as of the close of regular
trading on the NYSE on each day that the NYSE is open, by dividing the value of
the Fund's net assets attributable to each Class by the total number of shares
of the Class outstanding.
Generally, the Fund's investments are valued at market value, or, in the
absence of a market value with respect to any securities, at fair value. Secu-
rities listed on an exchange are valued on the basis of the last sale prior to
the time the valuation is made. If there has been no sale since the immediately
previous valuation, then the current bid price is used. Quotations are taken
from the exchange where the security is primarily traded. Portfolio securities
which are primarily traded on foreign exchanges may be valued with the assis-
tance of a pricing service and are generally valued at the preceding closing
values of such securities on their respective exchange, except that when an
occurrence subsequent to the time a foreign security is valued is likely to
have changed such value, then the fair value of those securities will be deter-
mined by consideration of other factors by or under the direction of the Board
of Directors. Over-the-counter securities are valued on the basis of the bid
price at the close of business on each day. Unlisted foreign securities are
valued at the mean between the last available bid and offer price prior to the
time of valuation. Any assets or liabilities initially expressed in terms of
foreign currencies will be converted into U.S. dollar values at the mean
between the bid and offered quotations of such currencies against U.S. dollars
as last quoted by any recognized dealer. Securities for which market quotations
are not readily available are valued at fair value. Notwithstanding the above,
bonds and other fixed-income securities are valued by using market quotations
and may be valued on the basis of prices provided by a pricing service approved
by the Board of Directors.
19
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute substantially all its investment income
(that is, its income other than its net realized capital gains) and net real-
ized capital gains, if any, once a year, normally at the end of the year in
which earned or at the beginning of the next year.
If a shareholder does not otherwise instruct, dividends and capital gain dis-
tributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC. In order to avoid
the application of a 4.00% non-deductible excise tax on certain undistributed
amounts of ordinary income and capital gains, the Fund may make an additional
distribution shortly before December 31 in each year of any undistributed ordi-
nary income or capital gains and expects to pay any other dividends and distri-
butions necessary to avoid the application of this tax.
The per share dividends on Class B and Class C shares of the Fund may be lower
than the per share dividends on Class A and Class Y shares principally as a
result of the distribution fee applicable with respect to Class B and Class C
shares. The per share dividends on Class A shares of the Fund may be lower than
the per share dividends on Class Y shares principally as a result of the serv-
ice fee applicable to Class A shares. Distributions of capital gains, if any,
will be in the same amount for Class A, Class B, Class C and Class Y shares.
TAXES
The Fund intends to qualify each year as a regulated investment company under
the Code. Dividends paid from net investment income and distributions of net
realized short-term capital gains will be taxable to shareholders as ordinary
income, regardless of how long shareholders have held their Fund shares and
whether such dividends and distributions are received in cash or reinvested in
additional Fund shares. Distributions of net realized long-term capital gains
will be taxable to shareholders as long-term capital gains, regardless of how
long shareholders have held Fund shares and whether such distributions are
received in cash or are reinvested in additional Fund shares. Furthermore, as a
general rule, a shareholder's gain or loss on a sale or redemption of Fund
shares will be a long-term capital gain or loss if the shareholder has held the
shares for more than one year and will be a short-term capital gain or loss if
the shareholder has held the shares for one year or less. Some of the Fund's
dividends declared from net investment income may qualify for the Federal divi-
dends-received deduction for corporations.
Statements as to the tax status of each shareholder's dividends and distribu-
tions will be mailed annually. Each shareholder also will receive, if appropri-
ate, various written notices after the close of the Fund's prior taxable year
as to the Federal income tax status of his or her dividends and distributions
which were received from the Fund during the Fund's prior taxable year. Share-
holders should consult their own tax advisors about the status of the Fund's
dividends and distributions for state and local tax liabilities.
20
<PAGE>
PURCHASE OF SHARES
GENERAL
The Fund offers four Classes of shares. Class A shares are sold to investors
with an initial sales charge and Class B and Class C shares are sold without
an initial sales charge but are subject to a CDSC payable upon certain redemp-
tions. Class Y shares are sold without an initial sales charge or CDSC and are
available only to investors investing a minimum of $5,000,000 (except for pur-
chases of Class Y shares by Smith Barney Concert Allocation Series Inc., for
which there is no minimum purchase amount). See "Prospectus Summary--Alterna-
tive Purchase Arrangements" for a discussion of factors to consider in select-
ing which Class of shares to purchase.
INITIAL SUBSCRIPTION PERIOD
Smith Barney, the Fund's distributor, will solicit subscriptions for shares
of the Fund during the Subscription Period. Subscriptions for shares must be
made through a brokerage account maintained with Smith Barney or an Introduc-
ing Broker. Shares of the Fund subscribed for during the Subscription Period
for which Smith Barney accepts purchase orders will be issued and sold by the
Fund on the third business day after the end of the Subscription Period (the
"Purchase Date"). Also on the Purchase Date, shareholders of other funds of
the Smith Barney Mutual Funds will be able to exchange shares of such funds
for shares of the Fund. On the Purchase Date, Smith Barney will notify the
Fund of the aggregate number of shares for which it has received and accepted
subscriptions, and the Fund will issue shares for such subscriptions and com-
mence operations.
The Fund is offering its Class A shares to the public at a maximum purchase
price per share of $12.00, which equals the Class A share initial net asset
value per share of $11.40 plus the maximum sales charge set forth below under
"Continuous Offerings". The Fund is offering its Class B, Class C and Class Y
shares to the public at each Class' respective initial net asset value per
share of $11.40.
The Fund and Smith Barney may in their discretion determine to withdraw the
offering without notice for any reason before the end of the Subscription
Period. The Fund also reserves the right to refuse any order in whole or in
part.
CONTINUOUS OFFERINGS
Smith Barney will suspend the offering of shares to the public immediately
after the expiration of the Subscription Period or within three weeks thereaf-
ter. During the three-week period, Smith Barney will commence a limited con-
tinuous offering of shares to the public. Once Smith Barney suspends the
offering of shares to the public (the "Closing Period"), it is expected to do
so for 30 days. This period may be lengthened or shortened in the absolute
discretion of Smith Barney. During the Closing Period, the Fund will invest
the proceeds from its Subscription Period and its continuous offering, if any,
and existing shareholders of the Fund may request
21
<PAGE>
PURCHASE OF SHARES (CONTINUED)
redemptions, purchase additional shares and exchange shares of the Fund for
shares of certain other funds of the Smith Barney Mutual Funds. See "Exchange
Privilege." Immediately after the expiration of the Closing Period, Smith Bar-
ney expects to commence a continuous offering of shares of the Fund.
During the continuous offering, shares may be purchased through a brokerage
account maintained with Smith Barney. Shares may also be purchased through 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 Fund through
First Data. When purchasing shares of the Fund, investors must specify whether
the purchase is for Class A, Class B, Class C or Class Y shares. Smith Barney
and other broker/dealers may charge their customers an annual account mainte-
nance fee in connection with a brokerage account through which an investor pur-
chases or holds shares. Accounts held directly at First Data are not subject to
a maintenance fee.
Investors in Class A, Class B and Class C shares may open an account by mak-
ing an initial investment of at least $1,000 for each account, or $250 for an
IRA or a Self-Employed Retirement Plan, in the Fund. Investors in Class Y
shares may open an account by making an initial investment of $5,000,000. Sub-
sequent invest-ments of at least $50 may be made for all Classes. For partici-
pants in retirement plans qualified under Section 403(b)(7) or Section 401(a)
of the Code, the minimum initial investment requirement for Class A, Class B
and Class C 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 C shares and the subsequent invest-
ment requirement for all Classes is $25. For shareholders purchasing shares of
the Fund through the Systematic Investment Plan on a quarterly basis, the mini-
mum initial investment requirement for Class A, Class B and Class C shares and
subsequent investment requirement for all Classes is $50. There are no minimum
investment requirements for Class A shares for employees of Travelers and its
subsidiaries, including Smith Barney, Directors or Trustees of any of the Smith
Barney Mutual Funds and their spouses and children. The Fund reserves the right
to waive or change minimums, to decline any order to purchase its shares and to
suspend the offering of shares from time to time. Shares purchased will be held
in the shareholder's account by First Data. Share certificates are issued only
upon a shareholder's written request to First Data.
Purchase orders received by the Fund or Smith Barney prior to the close of
regular trading on the NYSE, on any day the Fund calculates its net asset val-
ue, are priced according to the net asset value determined on that day (the
"trade date"). Orders received by dealers or Introducing Brokers prior to the
close of regular trading on the NYSE on any day the Fund calculates its net
asset value, are priced
22
<PAGE>
PURCHASE OF SHARES (CONTINUED)
according to the net asset value determined on that day, provided the order is
received by the Fund or Smith Barney prior to Smith Barney's close of busi-
ness. For shares purchased through Smith Barney or Introducing Brokers pur-
chasing through Smith Barney, payment for Fund shares is due on the third
business day after the trade date. In all other cases, payment must be made
with the purchase order.
SYSTEMATIC INVESTMENT PLAN
During the continuous offering period, 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, Smith Barney
or First Data is authorized through preauthorized transfers of at least $25 on
a monthly basis or at least $50 on a quarterly basis, to charge the regular
bank account or other financial institution indicated by the shareholder on a
monthly or quarterly basis to provide systematic additions to the sharehold-
er's Fund account. A shareholder who has insufficient funds to complete the
transfer will be charged a fee of up to $25 by Smith Barney or First Data. The
Systematic Investment Plan also authorizes Smith Barney to apply cash held in
the shareholder's Smith Barney brokerage account or redeem the shareholder's
shares of a Smith Barney money market fund to make additions to the account.
Additional information is available from the Fund or a Smith Barney Financial
Consultant.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund are
as follows:
<TABLE>
<CAPTION>
SALES CHARGE
------------------------------
DEALERS'
% OF % OF REALLOWANCE AS % OF
AMOUNT OF INVESTMENT OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
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 * * *
- ---------------------------------------------------------------------------
</TABLE>
* 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 CDSC of
1.00% on redemptions made within 12 months of purchase. The CDSC on Class A
shares is payable to Smith Barney, which compensates Smith Barney Financial
Consultants and other dealers whose clients make purchases of $500,000 or
more. The CDSC is waived in the same circumstances in which the CDSC
applicable to Class B and Class C shares is waived. See "Deferred Sales
Charge Alternatives" and "Waivers of CDSC."
23
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 Securities 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. The reduced sales charge
minimums may also be met by aggregating the purchase with the net asset value
of all Class A shares offered with a sales charge held in funds sponsored by
Smith Barney that are offered with a sales charge listed under "Exchange Priv-
ilege."
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 Travelers and its subsidiaries and any of 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, (ii) employees of Hansberger and members of their immediate family
and (iii) employees of members of the National Association of Securities Deal-
ers, 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 com-
pany with the Fund by merger, acquisition of assets or otherwise; (c) pur-
chases of Class A shares by any client of a newly employed Smith Barney Finan-
cial Consultant (for a period up to 90 days from the commencement of the
Financial Consultant's employment with 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 fund in the
Smith Barney Mutual Funds that are 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 Travelers; (f)
direct rollovers by plan participants from a 401(k) plan offered to employees
of Travelers 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 separate accounts used to fund certain unreg-
istered variable annuity contracts; and (h) purchases by investors participat-
ing in a Smith Barney fee-based arrangement. In order to obtain such dis-
counts, the purchaser must provide sufficient information at
24
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 aggregat-
ing the dollar amount of the new purchase and the total net asset value of all
Class A shares of the Fund and of funds sponsored by Smith Barney which are
offered with a sales charge listed under "Exchange Privilege" 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.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales charge or pur-
chase at net asset value will also be available to employees (and partners) of
the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases
by each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative--Class A Shares," and will be based
upon the aggregate sales of Class A shares of Smith Barney Mutual Funds offered
with a sales charge to, and share holdings of, all members of the group. To be
eligible for such reduced sales charges or to purchase at net asset value, all
purchases must be pursuant to an employer- or partnership-sanctioned plan meet-
ing certain requirements. One such requirement is that the plan must be open to
specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions, IRAs or
investments pursuant to retirement plans under Section 401 or 408 of the Code.
Smith Barney may also offer a reduced sales charge or net asset value purchase
for aggregating related fiduciary accounts under such conditions that Smith
Barney will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class A
shares at the reduced sales charge applicable to the group as a whole. The
sales charge is based upon the aggregate dollar value of Class A shares offered
with a sales charge that have been previously purchased and are still owned by
the group, plus the amount of the current purchase. A "qualified group" is one
which (a) has been in existence for more than six months, (b) has a purpose
other than acquiring Fund shares at a discount and (c) satisfies uniform crite-
ria which enable Smith Barney to realize economies of scale in its costs of
distributing shares. A qualified group must have more than 10 members, must be
available to arrange for group meetings between representatives of the Fund and
the members, and must agree to include sales and other materials related to the
25
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Fund in its publications and mailings to members at no cost to Smith Barney. In
order to obtain such reduced sales charge or to purchase at net asset value,
the purchaser must provide sufficient information at the time of purchase to
permit verification that the purchase qualifies for the reduced sales charge.
Approval of group purchase reduced sales charge plans is subject to the discre-
tion of Smith Barney.
LETTER OF INTENT
Class A Shares. A Letter of Intent for amounts of $50,000 or more provides an
opportunity for an investor to obtain a reduced sales charge by aggregating the
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 pur-
chases of all Class A shares of the Fund and other funds of the Smith Barney
Mutual Funds offered with a sales charge over the 13-month period based on the
total amount of intended purchases plus the value of all Class A shares previ-
ously purchased and still owned. An alternative is to compute the 13-month
period starting up to 90 days before the date of execution of a Letter of
Intent. 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. Please con-
tact a Smith Barney Financial Consultant or First Data to obtain a Letter of
Intent application.
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 purchase minimum). Such investors must make an initial minimum purchase
of $1,000,000 in Class Y shares of the Fund and agree to purchase a total of
$5,000,000 of Class Y shares of the same Fund within six months from the date
of the Letter. If a total investment of $5,000,000 is not made within the six-
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 CDSC of 1.00%. Please contact a Smith Barney Financial Consultant or First
Data for further information.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the Fund. A CDSC, however, may be imposed on certain
redemptions of these shares. "CDSC Shares" are: (a) Class B shares; (b) Class C
26
<PAGE>
PURCHASE OF SHARES (CONTINUED)
shares; and (c) Class A shares that were purchased without an initial sales
charge but subject to a CDSC.
Any applicable CDSC will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the time of
redemption. CDSC Shares that are redeemed will not be subject to a CDSC to the
extent that the value of such shares represents: (a) capital appreciation of
Fund assets; (b) reinvestment of dividends or capital gain distributions; (c)
with respect to Class B shares, shares redeemed more than five years after
their purchase; or (d) with respect to Class C shares and Class A shares that
are CDSC Shares, shares redeemed more than 12 months after their purchase.
Class C shares and Class A shares that are CDSC Shares are subject to a 1.00%
CDSC if redeemed within 12 months of purchase. In circumstances in which the
CDSC 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
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 ExecChoice(TM) Programs."
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
- ---------------------------------
<S> <C>
First 5.00%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth and thereafter 0.00
- ---------------------------------
</TABLE>
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 fee. There will also be converted at that time such propor-
tion of Class B Dividend Shares 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 addition, a portion of Class B Dividend Shares will be con-
verted at that time. See "Prospectus Summary--Alternative Purchase Arrange-
ments--Class B Shares Conversion Feature."
In determining the applicability of any CDSC, it will be assumed that a
redemption is made first of shares representing capital appreciation, next of
shares repre-
27
<PAGE>
PURCHASE OF SHARES (CONTINUED)
senting 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 CDSC 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 CDSC will reduce the gain or
increase the loss, as the case may be, on the amount realized on redemption.
The amount of any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the investor acquired 5 addi-
tional shares 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 CDSC 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 CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts up to 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 withdrawal in
amounts up to 2.00% per month of the value of the shareholders shares will be
permitted for withdrawal plans that were established prior to November 7,
1994); (c) redemption of shares within 12 months following the death or dis-
ability of the shareholder; (d) redemption of shares made in connection with
qualified distributions from retirement plans or IRAs upon the attainment of
age 59 1/2; (e) involuntary redemptions; and (f) redemption 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 funds of the 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 CDSC imposed on the prior redemption.
CDSC waivers will be granted subject to confirmation (by Smith Barney in the
case of shareholders who are also Smith Barney clients or by First Data in the
case of all other shareholders) of the shareholder's status or holdings, as the
case may be.
28
<PAGE>
PURCHASE OF SHARES (CONTINUED)
SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS
During the continuous offering period, investors may be eligible to partici-
pate in the Smith Barney 401(k) Program or the Smith Barney ExecChoice(TM) Pro-
gram. To the extent applicable, the same terms and conditions, which are out-
lined below, are offered to all plans participating ("Participating Plans") in
these programs.
The Fund offers to Participating Plans Class A and Class C shares as invest-
ment alternatives under the Smith Barney 401(k) and ExecChoice(TM) Programs.
Class A and Class C shares acquired through the Participating Plans are subject
to the same service and/or distribution fees as the Class A and Class C shares
acquired by other investors; however, they are not subject to any initial sales
charge or CDSC. 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 CDSC 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 C Shares. Class C shares of the Fund are offered without any sales
charge or CDSC to any Participating Plan that purchases less than $1,000,000 of
Class C shares of one or more funds of the Smith Barney Mutual Funds.
401(k) and ExecChoice(TM) Plans Opened On or After June 21, 1996. 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 ExecChoice(TM) Program, if its total
Class C holdings in all non-money market Smith Barney Mutual Funds equal at
least $1,000,000, it will be offered the opportunity to exchange all of its
Class C shares for Class A shares of the Fund. (For Participating Plans that
were originally established through a 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 enroll-
ment 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 Par-
ticipating Plan enrolled in the Smith Barney 401(k) Program, if its total Class
C 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 C shares for Class A shares of the
Fund.
29
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 fol-
lowing March.
Any Participating Plan in the Smith Barney 401(k) Program that has not previ-
ously qualified for an exchange into Class A shares will be offered the oppor-
tunity to exchange all of its Class C shares for Class A shares of the Fund,
regardless of asset size, at the end of the eighth year after the date the Par-
ticipating 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 C shares of the Fund but instead may acquire Class
A shares of the Fund. Any Class C shares not converted will continue to be sub-
ject to the distribution fee.
Participating Plans wishing to acquire shares of the Fund through the Smith
Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program must purchase
such shares directly from First Data. For further information regarding these
Programs, investors should contact a Smith Barney Financial Consultant.
Existing 401(k) Plans Investing in Class B Shares. Class B shares of the
Smith Barney Mutual Funds are not available for purchase by Participating Plans
opened on or after June 21, 1996, but may continue to be purchased by many Par-
ticipating Plan in the Smith Barney 401(k) Program opened prior to such date
and originally investing in such Class. Class B shares acquired are subject to
a CDSC of 3.00% of redemption proceeds, if the Participating Plan terminates
within eight years of the date the Participating Plan first enrolled in the
Smith Barney 401(k) Program.
At the end of the eighth year after the date the Participating Plan enrolled
in the Smith Barney 401(k) Program, the Participating Plan will be offered the
opportunity to exchange all of its Class B shares for Class A shares of the
Fund. Such Participating Plan will be notified of the pending exchange in writ-
ing 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 the exchange has occurred, a Par-
ticipating Plan will not be eligible to acquire additional Class B shares of
the Fund but instead may acquire Class A shares of the Fund. If the Participat-
ing Plan elects not to exchange all of its Class B shares at that time, each
Class B share held by the Participating Plan will have the same conversion fea-
ture as Class B shares held by other investors. See "Purchase of Shares--
Deferred Sales Charge Alternatives".
No CDSC is imposed on redemptions of Class B shares to the extent that the
net asset value of the shares redeemed does not exceed the current net asset
value of the shares purchased through reinvestment of dividends or capital gain
distribu-
30
<PAGE>
PURCHASE OF SHARES (CONTINUED)
tions, plus the current net asset value of Class B shares purchased more than
eight years prior to the redemption, plus increases in the net asset value of
the shareholder's Class B shares above the purchase payments made during the
preceding eight years. Whether or not the CDSC applies to the redemption by a
Participating Plan depends on the number of years since the Participating Plan
first became enrolled in the Smith Barney 401(k) Program, unlike the applica-
bility of the CDSC to redemptions by other shareholders, which depends on the
number of years since those shareholders made the purchase payment from which
the amount is being redeemed.
The CDSC will be waived on redemptions of Class B shares in connection with
lump-sum or other distributions made by a Participating Plan as a result of:
(a) the retirement of an employee in the Participating Plan; (b) the termina-
tion of employment of an employee in the Participating Plan; (c) the death or
disability of an employee in the Participating Plan; (d) the attainment of age
59 1/2 by an employee in the Participating Plan; (e) hardship of an employee in
the Participating Plan to the extent permitted under Section 401(k) of the
Code; or (f) redemptions of shares in connection with a loan made by the Par-
ticipating Plan to an employee.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class may be exchanged at the
net asset value next determined for shares of the same Class in the following
funds of the 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
Class C shares are subject to minimum investment requirements and all shares
are subject to the other requirements of the fund into which exchanges are
made.
FUND NAME
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Disciplined Small Cap Fund, Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Special Equities Fund
Growth and Income Funds
Concert Social Awareness Fund
Smith Barney Convertible Fund
Smith Barney Funds, Inc.--Equity Income Portfolio
31
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
+++Smith Barney Funds, Inc.--Short-Term U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc.--U.S. Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
*Smith Barney Intermediate Maturity California Municipals Fund
*Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Muni Funds--Florida Portfolio
Smith Barney Muni Funds--Georgia Portfolio
*Smith Barney Muni Funds--Limited Term Portfolio
Smith Barney Muni Funds--National Portfolio
Smith Barney Muni Funds--New York Portfolio
Smith Barney Muni Funds--Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney Hansberger Global Value Fund
Smith Barney World Funds, Inc.--Emerging Markets Portfolio
Smith Barney World Funds, Inc.--European Portfolio
Smith Barney World Funds, Inc.--Global Government Bond Portfolio
Smith Barney World Funds, Inc.--International Balanced Portfolio
Smith Barney World Funds, Inc.--International Equity Portfolio
Smith Barney World Funds, Inc.--Pacific Portfolio
Smith Barney Concert Allocation Series Inc.
Smith Barney Allocation Concert Series Inc.--Balanced Portfolio
Smith Barney Allocation Concert Series Inc.--Conservative Portfolio
Smith Barney Allocation Concert Series Inc.--Growth Portfolio
32
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Allocation Concert Series Inc.--High Growth Portfolio
Smith Barney Allocation Concert Series Inc.--Income Portfolio
Money Market Funds
+Smith Barney Exchange Reserve Fund
++Smith Barney Money Funds, Inc.--Cash Portfolio
++Smith Barney Money Funds, Inc.--Government Portfolio
***Smith Barney Money Funds, Inc.--Retirement Portfolio
+++Smith Barney Municipal Money Market Fund, Inc.
+++Smith Barney Muni Funds--California Money Market Portfolio
+++Smith Barney Muni Funds--New York Money Market Portfolio.
- -------------------------------------------------------------------------------
* Available for exchange with Class A, Class C and Class Y shares of the
Fund.
** Available for exchange with Class A and Class B shares of the Fund. In
addition, shareholders who own Class C shares of the Fund through the
Smith Barney 401(k) Program may exchange those shares for Class C shares
of this Fund.
***Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class C shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund. In
addition, participating plans opened prior to June 21, 1996 and investing
in Class C shares may exchange Fund shares for Class C shares of this
Fund.
+++Available for exchange with Class A and Class Y shares of the Fund.
Class B Exchanges. In the event a Class B shareholder wishes to exchange all
or a portion of his or her shares into any of the funds imposing a higher CDSC
than that imposed by the Fund, the exchanged Class B shares will be subject to
the higher applicable CDSC. 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 C Exchanges. Upon an exchange, the new Class C shares will be deemed
to have been purchased on the same date as the Class C 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 impo-
sition of any charge.
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange transactions
can be detrimental to the Fund's performance and its shareholders. SBMFM 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, SBMFM will
notify Smith Barney and Smith Barney may, at its discretion, decide to limit
additional purchases and/or exchanges by the shareholder. Upon such a determi-
nation, Smith Barney will provide notice in writing or by telephone to the
shareholder at least 15
33
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
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 listed above, 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.
Certain shareholders may be able to exchange shares by telephone. See "Re-
demption of Shares--Telephone Redemption and Exchange Program". Exchanges will
be processed at the net asset value next determined. Redemption procedures dis-
cussed below are also applicable for exchanging shares, and exchanges will be
made upon receipt of all supporting documents in proper form. If the account
registration of the shares of the fund being acquired is identical to the reg-
istration of the shares of the fund exchanged, no signature guarantee is
required. A capital gain or loss for tax purposes will be realized upon the
exchange, depending upon the cost or other basis of shares redeemed. Before
exchanging shares, investors should read the current prospectus describing the
shares to be acquired. The Fund reserves the right to modify or discontinue
exchange privileges upon 60 days' prior notice to shareholders.
REDEMPTION OF SHARES
The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to their net asset value per share
next determined after receipt of a written request in proper form at no charge
other than any applicable CDSC. Redemption requests received after the close of
regular trading on the NYSE are priced at the net asset value next determined.
If a shareholder holds shares in more than one Class, any request for redemp-
tion must specify the Class being redeemed. In the event of a failure to spec-
ify which Class, or if the investor owns fewer shares of the Class than speci-
fied, the redemption request will be delayed until First Data receives further
instructions from Smith Barney, or if the shareholder's account is not with
Smith Barney, from the shareholder directly. The redemption proceeds will be
remitted on or before the third business day following receipt of proper ten-
der, except on 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 Smith Barney brokerage account, these funds will not be invested
for the shareholder's benefit without specific instruction and 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.
34
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's Finan-
cial Consultant, Introducing Broker or dealer in the selling group or by sub-
mitting a written request for redemption to:
Smith Barney Hansberger Global Small Cap Value Fund
Class A, B, C or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
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 regis-
tered. If the shares to be redeemed were issued in certificate form, the cer-
tificates must be endorsed for transfer (or be accompanied by an endorsed stock
power) and must be submitted to First Data together with the redemption
request. Any signature appearing on a share certificate, stock power or written
redemption request in excess of $2,000 must be guaranteed by an eligible guar-
antor institution such as a domestic bank, savings and loan institution, domes-
tic 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 invest-
or's address of record. First Data may require additional supporting documents
for redemptions made by corporations, executors, administrators, trustees or
guardians. A redemption request will not be deemed properly received until
First Data receives all required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The 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 periodic 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 CDSC 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 CDSC at the time the withdrawal plan
commences. For further information regarding the automatic cash withdrawal
plan, shareholders should contact a Smith Barney Financial Consultant.
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
Shareholders who do not have a Smith Barney brokerage account may be eligible
to redeem and exchange Fund shares by telephone. To determine if a share-
35
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
holder is entitled to participate in this program, he or she should contact
First Data 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 First Data upon request. (Alter-
natively, an investor may authorize telephone redemptions on the new account
application with the applicant's signature guarantee when making his/her ini-
tial investment in the Fund.)
Redemptions. Redemption requests of up to $10,000 of any class or classes of
the Fund's shares may be made by eligible shareholders by calling First Data
at 1-800-451-2010. Such requests may be made between 9:00 a.m. and 5:00 p.m.
(New York City time) on any day the NYSE is open. Redemption requests received
after the close of regular trading on the NYSE are priced at the net asset
value next determined. 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 Fund reserves 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 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 First Data at 1-800-451-2010 between 9:00 a.m. and 5:00
p.m. (New York City time) on any day on which the NYSE is open. Exchange
requests received after the close of regular trading on the NYSE are processed
at the net asset value next determined.
Additional Information regarding Telephone Redemption and Exchange
Program. Neither the Fund nor its agents will be liable for following instruc-
tions 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.
36
<PAGE>
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
the Fund, each account must satisfy the minimum account size). The Fund, howev-
er, will not redeem shares based solely on market reductions in net asset val-
ue. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid involuntary liquidation.
PERFORMANCE
From time to time the Fund may include its total return, average annual total
return and current dividend return in advertisements and/or other types of
sales literature. These figures are computed separately for Class A, Class B,
Class C and Class Y shares of the Fund. These figures are based on historical
earnings and are not intended to indicate future performance. Total return is
computed for a specified period of time assuming deduction of the maximum sales
charge, if any, from the initial amount invested and reinvestment of all income
dividends and capital gain distributions on the reinvestment dates at prices
calculated as stated in this Prospectus, then dividing the value of the invest-
ment at the end of the period so calculated by the initial amount invested and
subtracting 100%. The standard average annual total return, as prescribed by
the SEC, is derived from this total return, which provides the ending redeem-
able value. Such standard total return information may also be accompanied with
nonstandard total return information for differing periods computed in the same
manner but without annualizing the total return or taking sales charges into
account. The Fund calculates current dividend return for each Class by
annualizing the most recent monthly distribution and dividing by the net asset
value or the maximum public offering price (including sales charge) on the last
day of the period for which current dividend return is presented. The current
dividend return for each Class may vary from time to time depending on market
conditions, the composition of its investment portfolio and operating expenses.
These factors and possible differences in the methods used in calculating cur-
rent dividend return should be considered when comparing a Class' current
return to yields published for other investment companies and other investment
vehicles. The Fund may also include comparative performance information in
advertising or marketing its shares. Such performance information may include
data from Lipper Analytical Services, Inc. and other financial publications.
37
<PAGE>
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the Fund rests with
the Fund's Board of Directors. The Directors approve all significant agree-
ments between the Company and the companies that furnish services to the Fund
and the Company, including agreements with its distributor, investment advis-
er, custodian and transfer agent. The day-to-day operations of the Fund are
delegated to the Fund's investment manager. The Statement of Additional Infor-
mation contains background information regarding each Director of the Fund and
executive officer of the Company.
INVESTMENT MANAGER--SBMFM
SBMFM, located at 388 Greenwich Street, New York, New York 10013, serves as
the Fund's investment manager pursuant to an investment management agreement
entered into by the Company, on behalf of the Fund. SBMFM renders investment
advice to investment companies which had aggregate assets under management as
of September 30, 1997, in excess of $84 billion. For investment management
services rendered, the Fund pays SBMFM a monthly fee at the annual rate of
1.05% of the value of its average daily net assets. From its fee, SBMFM pays
Hansberger a fee of 0.60% of the value of the Fund's average net assets, for
its services as sub-investment adviser.
SUB-INVESTMENT ADVISER--HANSBERGER
Hansberger, located at 515 Las Olas Blvd., Suite 1300, Fort Lauderdale,
Florida 33301, serves as the Fund's sub-investment adviser. Hansberger pro-
vides investment advisory services to investment companies that had aggregate
total assets under management as of August 31, 1997 of approximately $1.2 bil-
lion. Subject to the supervision and direction of the Company's Board of
Directors, Hansberger manages the Fund's portfolio in accordance with the
Fund's stated investment objective and policies, makes investment decisions
for the Fund, places orders to purchase and sell securities and employs pro-
fessional portfolio managers and securities analysts who provide research
services to the Fund.
PORTFOLIO MANAGEMENT
Lauretta (Retz) Reeves, Vladimir Tyurenkov, Robert Mazuelos and Victoria
Gretzky manage the day-to-day investment operations of the Fund, including the
oversight of investment decisions. Ms. Reeves has been a portfolio manager and
Managing Director of Hansberger since 1996. Prior to that time, she was Senior
Vice President of Templeton Worldwide Inc. ("Templeton"). Mr. Tyurenkov has
been a Managing Director of Eastern Europe and Russia for Hansberger since
1995. Prior to that time he worked for the Russian Government. Mr. Mazuelos
has been a research analyst and assistant portfolio manager for Hansberger
since 1995. Prior to that time he was a performance analyst at Templeton
Investment Counsel, Inc. Ms. Gretzky has been a research analyst for
Hansberger since 1995. Prior to that time she was a research analyst for Opti-
mum Consulting, a Russia based firm specializing in restructuring Russian com-
panies.
38
<PAGE>
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney distributes shares of the Fund as principal underwriter and as
such conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be sold
to the public. Pursuant to a plan of distribution adopted by the Fund under
Rule 12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid a service fee
with respect to Class A, Class B and Class C shares of the Fund at the annual
rate of 0.25% of the average daily net assets of the respective Class. Smith
Barney is also paid a distribution fee with respect to Class B and Class C
shares at the annual rate of 0.75% of the average daily net assets attributable
to those Classes. Class B shares that automatically convert to Class A shares
eight years after the date of original purchase will no longer be subject to
distribution fees. The fees are used by Smith Barney to pay its Financial Con-
sultants for servicing shareholder accounts and, in the case of Class B and
Class C shares, to cover expenses primarily intended to result in the sale of
those shares. These expenses include: advertising expenses; the cost of print-
ing and mailing prospectuses to potential investors; payments to and expenses
of Smith Barney Financial Consultants and other persons who provide support
services in connection with the distribution of shares; interest and/or carry-
ing charges; and indirect and overhead costs of Smith Barney associated with
the sale of Fund shares, including lease, utility, communications and sales
promotion expenses.
The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C shares, a con-
tinuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney and the payments
may exceed distribution expenses actually incurred. The Company's Board of
Directors will evaluate the appropriateness of the Plan and its payment terms
on a continuing basis and in so doing will consider all relevant factors,
including expenses borne by Smith Barney, amounts received under the Plan and
proceeds of the CDSC.
ADDITIONAL INFORMATION
The Company was organized as a Maryland corporation pursuant to Articles of
Incorporation dated September 29, 1981, as amended from time to time. The Fund
offers shares of common stock currently classified into four Classes, A, B, C
and Y, with a par value of $.001 per share. Each Class represents an identical
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 desig-
nation of
39
<PAGE>
ADDITIONAL INFORMATION (CONTINUED)
each Class; (b) the effect of the respective sales charges for each Class; (c)
the distribution and/or service fees borne by each Class pursuant to the Plan;
(d) the expenses allocable exclusively to each Class; (e) voting rights on mat-
ters 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 inter-
ests of the holders of the different Classes. The Directors, on an ongoing
basis, will consider whether any such conflicts exists and, if so, take appro-
priate action.
Chase, located at Chase Metrotech Center, Brooklyn, New York 11245, serves as
custodian of the Fund's investments.
First Data, located at Exchange Place, Boston, Massachusetts 02109, serves as
the Fund's transfer agent.
The Company does not hold annual shareholder meetings. There normally will be
no meeting of shareholders for the purpose of electing Directors unless and
until such time as less than a majority of the Directors holding office have
been elected by shareholders. The Directors will call a meeting for any purpose
upon written request of shareholders holding at least 10% of the Company's out-
standing shares and the Company 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 a proportionate, fractional vote for any fractional share held of that
Class. Generally, shares of the Company will be voted on a Company-wide basis
on all matters except matters affecting only the interests of one Fund or one
Class of shares.
The Fund sends its shareholders a semi-annual report and an audited annual
report, which include a list of the 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 Company plans to consolidate the mailing of its semi-annual
and annual reports by household. This consolidation means that a household hav-
ing multiple accounts with the identical address of record will receive a sin-
gle copy of each report. Shareholders who do not want this consolidation to
apply to their accounts should contact their Smith Barney Financial Consultant
or First Data.
40
<PAGE>
SmithBarney
-----------
A Member of TravelersGroup[LOGO]
SMITH BARNEY
HANSBERGER
GLOBAL
SMALL CAP
VALUE FUND
388 Greenwich Street
New York, New York 10013
FD 01336 10/97
SMITH BARNEY INVESTMENT FUNDS
PART C
Smith Barney
Investment Funds Inc.
388 Greenwich Street
New York, New York 10013
800-451-2010
Statement of Additional Information October 27,
1997
This Statement of Additional Information expands upon and
supplements the information contained in the current Prospectuses
each dated October 27, 1997, as amended or supplemented from time
to time, of Smith Barney Hansberger Global Value Fund ("Global
Value Fund") and Smith Barney Hansberger Global Small Cap Value
Fund ("Global Small Cap Value Fund")(each a "Fund" and collectively
the "Funds"), each a separate series of Smith Barney Investment Funds
Inc. (the "Company"), and should be read in conjunction with the
Funds' Prospectuses. Each Fund Prospectus may be obtained from a
Smith Barney Financial Consultant, or by writing or calling the
Company at the address or telephone number listed above. This
Statement of Additional Information, although not in itself a
prospectus, is incorporated by reference into the Prospectuses in its
entirety.
CONTENTS
For ease of reference, the same section headings are used in the
Prospectuses and this Statement of Additional Information, except
where shown below:
Management of the Company
(see in the Prospectuses "Management of the Company
and the Fund") 1
Investment Objectives and Management Policies 4
Purchase of Shares 16
Redemption of Shares 17
Distributor 17
Valuation of Shares 18
Exchange Privilege 19
Performance Data (See in the Prospectus "Performance") 19
Taxes (See in the Prospectus
"Dividends, Distributions and Taxes") 21
Additional Information 23
Appendix A-1
MANAGEMENT OF THE COMPANY
The executive officers of the Company are employees of certain of the
organizations that provide services to the Company. These
organizations are the following:
Name Service
Smith Barney Inc. ("Smith Barney") Distributor
Smith Barney Mutual Funds
Management Inc. ("SBMFM") Investment Manager
Hansberger Global Investors, Inc.
("Hansberger") Sub-Investment Adviser
The Chase Manhattan Bank ("Chase") Custodian
First Data Investor Services Group, Inc.
("First Data") Transfer Agent
These organizations and the functions they perform for the Company
are discussed in the Prospectuses and in this Statement of Additional
Information.
Directors and Executive Officers of the Company
The names of the Directors and executive officers of the Company,
together with information as to their principal business occupations
during the past five years, are shown below. Each Director who is an
"interested person" of the Company, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), is indicated by
an asterisk.
Paul R. Ades, Director (Age 56). Partner in the law firm of Murov
& Ades. His address is 272 South Wellwood Avenue, P.O. Box 504,
Lindenhurst, New York 11757.
Herbert Barg, Director (Age 73). Private investor. His address is
273 Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
Dwight B. Crane, Director (Age 59). Professor, Graduate School of
Business Administration, Harvard University. His address is Graduate
School of Business Administration, Harvard University, Boston,
Massachusetts 02163.
Frank G. Hubbard, Director (Age 61). Vice President, S&S
Industries; Former Corporate Vice President, Materials Management
and Marketing Services of Huls America, Inc. His address is 80
Centennial Avenue P.O. Box 456, Piscataway, New Jersey 08855-
0456.
*Heath B. McLendon, Chairman of the Board and Investment Officer
(Age 64). Managing Director of Smith Barney, Chairman of the Board
of Strategy Advisers and President of SBMFM; prior to July 1993,
Senior Executive Vice President of Shearson Lehman Brothers Inc.
("Shearson Lehman Brothers"), Vice Chairman of Asset Management.
His address is 388 Greenwich Street, New York, New York 10013.
Ken Miller, Director (Age 55). President of Young Stuff Apparel
Group, Inc. His address is 1411 Broadway, New York, New York
10018.
Lewis E. Daidone, Senior Vice President and Treasurer (Age 40).
Director and Senior Vice President of SBMFM. Mr. Daidone serves
as Senior Vice President and Treasurer of 41 investment companies
associated with Smith Barney. His address is 388 Greenwich Street,
New York, New York 10013.
Christina T. Sydor, Secretary (Age 46). Managing Director of
Smith Barney and Secretary of SBMFM; General Counsel and
Secretary of SBMFM. Ms. Sydor serves as Secretary of 41 investment
companies associated with Smith Barney. Her address is 388
Greenwich Street, New York, New York 10013.
Each Director also serves as a director, trustee and/or general partner
of certain other mutual funds for which Smith Barney serves as
distributor. As of January 31, 1997, the Directors and officers of the
Company, as a group, owned less than 1.00% of the outstanding
common stock of the Company.
No officer, director or employee of Smith Barney or any parent or
subsidiary receives any compensation from the Company for serving as
an officer or Director of the Company. The Company pays each
Director who is not an officer, director or employee of Smith Barney
or any of its affiliates a fee of $16,000 per annum plus $2,500 per
meeting attended and reimburses travel and out-of-pocket expenses.
For the fiscal year ended December 31, 1996, the Directors of the
Company were paid the following compensation:
Agregate Compensation
Agregate Compensation from Smith Barney
Director(***) from the Company Mutual Funds
Paul R. Ades (5) $28,600.00 $52,475.00
Herbert Barg (20) 28,600.00 105,175.00
Dwight B. Crane (26) 26,100.00 140,375.00
Frank G. Hubbard (5) 28,600.00 52,475.00
Heath McLendon (41) N/A N/A
Ken Miller (5) 26,100.00** 49,475.00
John F. White (5)(*) 28,500.00** 52,375.00
Allan G. Johnson (5)(*) 18,035.51 33,125.00
*** Number of funds for which director serves within fund
complex
* Director Emeritus. Mr. White became a director emeritus as
of October 23, 1997.
** Mr. Miller and Mr. White have deferred $6,500 and $26,000,
respectively, of compensation from the Company in 1996.
Upon attainment of age 80 Directors are required to change to
emeritus status. Directors Emeritus are entitled to serve in emeritus
status for a maximum of 10 years during which time they are paid
50% of the retainer fee and meeting fees otherwise applicable to the
Company Directors together with reasonable out-of-pocket expenses
for each meeting attended. During the Fund's last fiscal year
aggregate compensation paid by the Company to Directors achieving
emeritus status totaled $18,035.51.
Investment Manager and Sub-Adviser
SBMFM serves as investment adviser to the Funds pursuant to
separate investment management agreements (the "Management
Agreements"). SBMFM is a wholly owned subsidiary of Smith Barney
Holdings Inc. ("Holdings"). Holdings is a wholly owned subsidiary of
Travelers Group Inc. ("Travelers"). Hansberger serves as sub-adviser
to the Funds pursuant to separate sub-advisory agreements (the "Sub-
Advisory Agreements). The Management Agreements and the Sub-
Advisory Agreements were approved by the Board of Directors,
including a majority of the Directors who are not "interested persons"
of the Company or the investment advisers (the "Independent
Directors"), and by shareholders of the respective Funds on on
September 23, 1997. The services provided by SBMFM and
Hansberger under the Management Agreements and Sub-Advisory
Agreements are described in the Prospectuses under "Management of
the Company and the Fund." SBMFM provides investment advisory
and management services to investment companies affiliated with
Smith Barney.
As compensation for investment management services rendered to
Global Value Fund and Global Small Cap Value Fund, each Fund pays
SBMFM a fee computed daily and paid monthly at the annual rates of
0.95% and 1.05%, respectively, of the value of their average daily net
assets. As compensation for sub-advisory services rendered to Global
Value Fund and Global Small Cap Value Fund, SBMFM pays
Hansberger a fee, computed daily and paid monthly, at the annual
rates of 0.50% and 0.60%, respectively, of the value of the respective
Fund's average daily net assets. SBMFM and Hansberger bear all
expenses in connection with the performance of their services.
Counsel and Auditors
Willkie Farr & Gallagher serves as counsel to the Company. The
Directors who are not "interested persons" of the Company have
selected Stroock & Stroock & Lavan LLP as their legal counsel.
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York
10154, has been selected as each Fund's independent auditor to
examine and report on the Fund's financial statements and highlights
for the fiscal year ending April 30, 1998.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
Except as described under "INVESTMENT
RESTRICTIONS," the investment policies described in the
Prospectuses and in this Statement of Additional Information are not
fundamental and the Board of Directors may change such policies
without shareholder approval.
Each of the following investment policies is subject to the
limitations set forth under "Investment Restrictions."
Repurchase Agreements. As described in the applicable Prospectus,
each Fund may enter into repurchase agreements. A repurchase
agreement is a contract under which a Fund acquires a security for a
relatively short period (usually not more than one week) subject to the
obligation of the seller to repurchase and the Fund to resell such
security at a fixed time and price (representing the Fund's cost plus
interest). It is each Fund's present intention to enter into repurchase
agreements only upon receipt of fully adequate collateral and only with
commercial banks (whether U.S. or foreign) and registered broker-
dealers. Repurchase agreements may also be viewed as loans made by
a Fund which are collateralized primarily by the securities subject to
repurchase. A Fund bears a risk of loss in the event that the other
party to a repurchase agreement defaults on its obligations and the
Fund is delayed or prevented from exercising its rights to dispose of
the collateral securities. Pursuant to policies established by the Board
of Directors, SBMFM monitors the creditworthiness of all issuers with
which each Fund enters into repurchase agreements.
Reverse Repurchase Agreements. The Fund does not currently intend
to commit more than 5% of its Fund's net assets to reverse repurchase
agreements. The Fund may enter into reverse repurchase agreements
with broker/dealers and other financial institutions. Such agreements
involve the sale of Fund securities with an agreement to repurchase the
securities at an agreed-upon price, date and interest payment and are
considered to be borrowings by a Fund and are subject to the
borrowing limitations set forth under "Investment Restrictions." Since
the proceeds of reverse repurchase agreements are invested, this would
introduce the speculative factor known as "leverage." The securities
purchased with the funds obtained from the agreement and securities
collateralizing the agreement will have maturity dates no later than the
repayment date. Such transactions are only advantageous if the Fund
has an opportunity to earn a greater rate of interest on the cash derived
from the transaction than the interest cost of obtaining that cash.
Opportunities to realize earnings from the use of the proceeds equal to
or greater than the interest required to be paid may not always be
available, and the Fund intends to use the reverse repurchase
technique only when the Manager believes it will be advantageous to
the Fund. The use of reverse repurchase agreements may exaggerate
any interim increase or decrease in the value of the participating
Fund's assets. The Fund's custodian bank will maintain a separate
account for the Fund with securities having a value equal to or greater
than such commitments.
Securities Lending. Each Fund may seek to increase its net
investment income by lending its securities provided such loans are
callable at any time and are continuously secured by cash or U.S.
Government Obligations equal to no less than the market value,
determined daily, of the securities loaned. Each Fund will receive
amounts equal to dividends or interest on the securities loaned. It will
also earn income for having made the loan because cash collateral
pursuant to these loans will be invested in short-term money market
instruments. In connection with lending of securities the Fund may
pay reasonable finders, administrative and custodial fees.
Management will limit such lending to not more than one-third of the
value of the total assets of each Fund. Where voting or consent rights
with respect to loaned securities pass to the borrower, management
will follow the policy of calling the loan, in whole or in part as may be
appropriate, to permit the exercise of such voting or consent rights if
the issues involved have a material effect on the Fund's investment in
the securities loaned. Apart from lending its securities and acquiring
debt securities of a type customarily purchased by financial
institutions, no Fund will make loans to other persons.
Commercial Bank Obligations. For the purposes of each Fund's
investment policies with respect to bank obligations, obligations of
foreign branches of U.S. banks and of foreign banks may be general
obligations of the parent bank in addition to the issuing bank, or may
be limited by the terms of a specific obligation and by government
regulation. As with investment in non-U.S. securities in general,
investments in the obligations of foreign branches of U.S. banks and of
foreign banks may subject the Fund to investment risks that are
different in some respects from those of investments in obligations of
domestic issuers. Although a Fund will typically acquire obligations
issued and supported by the credit of U.S. or foreign banks having
total assets at the time of purchase in excess of U.S. $1 billion (or the
equivalent thereof), this is not a fundamental investment policy or
restriction of the Fund. For calculation purposes with respect to the
U.S. $1 billion figure, the assets of a bank will be deemed to include
the assets of its U.S. and non-U.S. branches.
Commercial Paper. Commercial paper consists of short-term (usually
from 1 to 270 days) unsecured promissory notes issued by corporations
in order to finance their current operations. A variable amount master
demand note (which is a type of commercial paper) represents a direct
borrowing arrangement involving periodically fluctuating rates of
interest under a letter agreement between a commercial paper issuer
and an institutional lender, such as one of the Funds, pursuant to
which the lender may determine to invest varying amounts. Transfer
of such notes is usually restricted by the issuer, and there is no
secondary trading market for such notes. Each Fund, therefore, may
not invest in a master demand note, if as a result more than 15% of the
value of the Fund's total assets would be invested in such notes and
other illiquid securities.
ADRs, EDRs and GDRs. Each Fund may also purchase American
Depository Receipts ("ADRs"), European Depository Receipts
("EDRs") and Global Depository Receipts ("GDRs") or other securities
representing underlying shares of foreign companies. ADRs are
publicly traded on exchanges or over-the-counter in the United States
and are issued through "sponsored" or "unsponsored" arrangements.
In a sponsored ADR arrangement, the foreign issuer assumes the
obligation to pay some or all of the depository's transaction fees,
whereas under an unsponsored arrangement, the foreign issuer
assumes no obligation and the depository's transaction fees are paid by
the ADR holders. In addition, less information is available in the
United States about an unsponsored ADR than about a sponsored
ADR, and the financial information about a company may not be as
reliable for an unsponsored ADR as it is for a sponsored ADR. The
Funds may invest in ADRs through both sponsored and unsponsored
arrangements.
Writing Covered Call Options. Each Fund may write (sell) covered
call options for hedging purposes. Covered call options will generally
be written on securities and currencies which, in the opinion of the
sub-investment adviser, are not expected to make any major price
moves in the near future but which, over the long term, are deemed to
be attractive investments for the Fund.
A call option gives the holder (buyer) the right to purchase a
security or currency at a specified price (the exercise price) at any time
until a certain date (the expiration date). So long as the obligation of
the writer of a call option continues, he may be assigned an exercise
notice by the broker-dealer through whom such option was sold,
requiring him to deliver the underlying security or currency against
payment of the exercise price. This obligation terminates upon the
expiration of the call option, or such earlier time at which the writer
effects a closing purchase transaction by purchasing an option
identical to that previously sold.
Fund securities or currencies on which call options may be
written will be purchased solely on the basis of investment
considerations consistent with each Fund's investment objective.
When writing a covered call option, the Fund, in return for the
premium, gives up the opportunity for profit from a price increase in
the underlying security or currency above the exercise price and
retains the risk of loss should the price of the security or currency
decline. Unlike one who owns securities or currencies not subject to
an option, the Fund has no control over when it may be required to sell
the underlying securities or currencies, since the option may be
exercised at any time prior to the option's expiration. If a call option
which the Fund has written expires, the Fund will realize a gain in the
amount of the premium; however, such gain may be offset by a decline
in the market value of the underlying security or currency during the
option period. If the call option is exercised, the Fund will realize a
gain or loss from the sale of the underlying security or currency. The
security or currency covering the call option will be maintained in a
segregated account of the Fund's custodian. The Fund does not
consider a security or currency covered by a call option to be "pledged"
as that term is used in the Fund's policy which limits the pledging or
mortgaging of its assets.
The premium the Fund receives for writing a call option is
deemed to constitute the market value of an option. The premium the
Fund will receive from writing a call option will reflect, among other
things, the current market price of the underlying security or currency,
the relationship of the exercise price to such market price, the implied
price volatility of the underlying security or currency, and the length of
the option period. In determining whether a particular call option
should be written on a particular security or currency, Hansberger will
consider the reasonableness of the anticipated premium and the
likelihood that a liquid secondary market will exist for those options.
The premium received by the Fund for writing covered call options
will be recorded as a liability in the Fund's statement of assets and
liabilities. This liability will be adjusted daily to the option's current
market value, which will be calculated as described in "Determination
of Net Asset Value" in the Prospectus. The liability will be
extinguished upon expiration of the option or delivery of the
underlying security or currency upon the exercise of the option. The
liability with respect to a listed option will also be extinguished upon
the purchase of an identical option in a closing transaction.
Closing transactions will be effected in order to realize a
profit or to limit losses on an outstanding call option, to prevent an
underlying security or currency from being called, or to permit the sale
of the underlying security or currency. Furthermore, effecting a
closing transaction will permit the Fund to write another call option on
the underlying security or currency with either a different exercise
price, expiration date or both. If the Fund desires to sell a particular
security or currency from its Fund on which it has written a call option
or purchases a put option, it will seek to effect a closing transaction
prior to, or concurrently with, the sale of the security or currency.
There is no assurance that the Fund will be able to effect such closing
transactions at a favorable price. If the Fund cannot enter into such a
transaction, it may be required to hold a security or currency that it
might otherwise have sold, in which case it would continue to be at
market risk with respect to the security or currency.
Each Fund will pay transaction costs in connection with the
writing of options and in entering into closing purchase contracts.
Transaction costs relating to options activity are normally higher than
those applicable to purchases and sales of Fund securities.
Call options written by each Fund will normally have
expiration dates of less than nine 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 or currencies at the
time the options are written. From time to time, the Fund may
purchase an underlying security or currency for delivery in accordance
with the exercise of an option, rather than delivering such security or
currency from its Fund. In such cases, additional costs will be
incurred.
Each Fund will realize a profit or loss from a closing
purchase transaction if the cost of the transaction is less or more,
respectively, than the premium received from the writing of the option.
Because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security or
currency, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security or currency owned by the Fund.
Purchasing Put Options. Each Fund may purchase put options. As the
holder of a put option, the Fund has the right to sell the underlying
security or currency at the exercise price at any time during the option
period. The Fund may enter into closing sale transactions with respect
to such options, exercise them or permit them to expire.
Each Fund may purchase a put option on an underlying
security or currency (a "protective put") owned by the Fund as a
hedging technique in order to protect against an anticipated decline in
the value of the security or currency. Such hedge protection is
provided only during the life of the put option when the Fund, as the
holder of the put option, is able to sell the underlying security or
currency at the put exercise price regardless of any decline in the
underlying security's market price or currency's exchange value. The
premium paid for the put option and any transaction costs would
reduce any capital gain otherwise available for distribution when the
security or currency is eventually sold.
Each Fund may also purchase put options at a time when the
Fund does not own the underlying security or currency. By purchasing
put options on a security or currency it does not own, the Fund seeks to
benefit from a decline in the market price of the underlying security or
currency. If the put option is not sold when it has remaining value,
and if the market price of the underlying security or currency remains
equal to or greater than the exercise price during the life of the put
option, the Fund will lose its entire investment in the put option. In
order for the purchase of a put option to be profitable, the market price
of the underlying security or currency must decline sufficiently below
the exercise price to cover the premium and transaction costs, unless
the put option is sold in a closing sale transaction.
The premium paid by a Fund when purchasing a put option
will be recorded as an asset in the Fund's statement of assets and
liabilities. This asset will be adjusted daily to the option's current
market value, which will be calculated as described in "Determination
of Net Asset Value" in the Prospectus. The asset will be extinguished
upon expiration of the option or the delivery of the underlying security
or currency upon the exercise of the option. The asset with respect to
a listed option will also be extinguished upon the writing of an
identical option in a closing transaction.
Purchasing Call Options. Each Fund may purchase call options. As
the holder of a call option, a Fund has the right to purchase the
underlying security or currency at the exercise price at any time during
the option period. The Fund may enter into closing sale transactions
with respect to such options, exercise them or permit them to expire.
Call options may be purchased by the Fund for the purpose of
acquiring the underlying security or currency for its Fund. Utilized in
this fashion, the purchase of call options enables the Fund to acquire
the security or currency at the exercise price of the call option plus the
premium paid. At times the net cost of acquiring the security or
currency in this manner may be less than the cost of acquiring the
security or currency directly. This technique may also be useful to the
Fund in purchasing a large block of securities that would be more
difficult to acquire by direct market purchases. So long as it holds
such a call option rather than the underlying security or currency
itself, the Fund is partially protected from any unexpected decline in
the market price of the underlying security or currency and in such
event could allow the call option to expire, incurring a loss only to the
extent of the premium paid for the option.
Each Fund may also purchase call options on underlying
securities or currencies it owns in order to protect unrealized gains on
call options previously written by it. A call option would be purchased
for this purpose where tax considerations make it inadvisable to realize
such gains through a closing purchase transaction. Call options may
also be purchased at times to avoid realizing losses that would result in
a reduction of the Fund's current return.
Interest Rate and Currency Futures Contracts. Each Fund may enter
into interest rate or currency futures contracts ("Futures" or "Futures
Contracts") as a hedge against changes in prevailing levels of interest
rates or currency exchange rates in order to establish more definitely
the effective return on securities or currencies held or committed to be
acquired by the Fund. A Fund's hedging may include holding Futures
as an offset against anticipated changes in interest or currency
exchange rates. A Fund may also enter into Futures Contracts based
on financial indices including any index of U.S. Government
securities, foreign government securities or corporate debt securities.
A Futures Contract provides for the future sale by one party
and purchase by another party of a specified amount of a specific
financial instrument or currency for a specified price at a designated
date, time and place. The purchaser of a Futures Contract on an index
agrees to take or make delivery of an amount of cash equal to the
difference between a specified dollar multiple of the value of the index
on the expiration date of the contract ("current contract value") and
the price at which the contract was originally struck. No physical
delivery of the debt securities underlying the index is made.
Brokerage fees are incurred when a Futures Contract is bought or sold,
and margin deposits must be maintained at all times that the Futures
Contract is outstanding.
Although techniques other than sales and purchases of
Futures Contracts could be used to reduce the Fund's exposure to
interest rate and currency exchange rate fluctuations, the Fund may be
able to hedge its exposure more effectively and at a lower cost through
using Futures Contracts.
Although Futures Contracts typically require future delivery
of and payment for financial instruments or currencies, Futures
Contracts are usually closed out before the delivery date. Closing out
an open Futures Contract sale or purchase is effected by entering into
an offsetting Futures Contract purchase or sale, respectively, for the
same aggregate amount of the identical financial instrument or
currency and the same delivery date. If the offsetting purchase price is
less than the original sale price, the Fund realizes a gain; if it is more,
the Fund realizes a loss. Conversely, if the offsetting sale price is
more than the original purchase price, the Fund realizes a gain; if it is
less, the Fund realizes a loss. The transaction costs must also be
included in these calculations. There can be no assurance, however,
that the Fund will be able to enter into an offsetting transaction with
respect to a particular Futures Contract at a particular time. If the
Fund is not able to enter into an offsetting transaction, the Fund will
continue to be required to maintain the margin deposits of the
underlying financial instrument or currency on the relevant delivery
date. The Fund intends to enter into Futures transactions only on
exchanges or boards of trade where there appears to be a liquid
secondary market. However, there can be no assurance that such a
market will exist for a particular contract at a particular time.
As an example of an offsetting transaction, the contractual
obligations arising from the sale of one Futures Contract of September
Treasury Bills on an exchange may be fulfilled at any time before
delivery under the Futures Contract is required (i.e., on a specific date
in September, the "delivery month") by the purchase of another
Futures Contract of September Treasury Bills on the same exchange.
In such instance the difference between the price at which the Futures
Contract was sold and the price paid for the offsetting purchase, after
allowance for transaction costs, represents the profit or loss to the
Fund.
Persons who trade in Futures Contracts may be broadly
classified as "hedgers" and "speculators." Hedgers, whose business
activity involves investment or other commitment in securities or other
obligations, use the Futures markets to offset unfavorable changes in
value that may occur because of fluctuations in the value of the
securities and obligations held or committed to be acquired by them or
fluctuations in the value of the currency in which the securities or
obligations are denominated. Debtors and other obligers may also
hedge the interest cost of their obligations. The speculator, like the
hedger, generally expects neither to deliver nor to receive the financial
instrument underlying the Futures Contract, but, unlike the hedger,
hopes to profit from fluctuations in prevailing interest rates or
currency exchange rates.
Each Fund's Futures transactions will be entered into for
traditional hedging purposes; that is, Futures Contracts will be sold to
protect against a decline in the price of securities or currencies that the
Fund owns, or Futures Contracts will be purchased to protect a Fund
against an increase in the price of securities or currencies it has
committed to purchase or expects to purchase.
"Margin" with respect to Futures Contracts is the amount of
funds that must be deposited by the Fund with a broker in order to
initiate Futures trading and to maintain the Fund's open positions in
Futures Contracts. A margin deposit made when the Futures Contract
is entered into ("initial margin") is intended to assure the Fund's
performance of the Futures Contract. The margin required for a
particular Futures Contract is set by the exchange on which the
Futures Contract is traded, and may be significantly modified from
time to time by the exchange during the term of the Futures Contract.
Futures Contracts are customarily purchased and sold on margin,
which may be 5% or less of the value of the Futures Contract being
traded.
If the price of an open Futures Contract changes (by increase
in the case of a sale or by decrease in the case of a purchase) so that
the loss on the Futures Contract reaches a point at which the margin
on deposit does not satisfy margin requirements, the broker will
require an increase in the margin deposit ("variation margin"). If,
however, the value of a position increases because of favorable price
changes in the Futures Contract so that the margin deposit exceeds the
required margin, it is anticipated that the broker will pay the excess to
the Fund. In computing daily net asset values, the Fund will mark to
market the current value of its open Futures Contracts. Each Fund
expects to earn interest income on its margin deposits.
Risks of Using Futures Contracts. The prices of Futures Contracts are
volatile and are influenced, among other things, by actual and
anticipated changes in interest rates, which in turn are affected by
fiscal and monetary policies and national and international political
and economic events.
At best, the correlation between changes in prices of Futures
Contracts and of the securities or currencies being hedged can be only
approximate. The degree of imperfection of correlation depends upon
circumstances such as: variations in speculative market demand for
Futures and for debt securities or currencies, including technical
influences on Futures trading; and differences between the financial
instruments being hedged and the instruments underlying the standard
Futures Contracts available for trading, with respect to interest rate
levels, maturities, and creditworthiness of issuers. A decision of
whether, when, and how to hedge involves skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or interest rate trends.
Because of the low margin deposits required, Futures trading
involves an extremely high degree of leverage. As a result, a relatively
small price movement in a Futures Contract may result in immediate
and substantial loss, as well as gain, to the investor. For example, if at
the time of purchase, 10% of the value of the Futures Contract is
deposited as margin, a subsequent 10% decrease in the value of the
Futures Contract would result in a total loss of the margin deposit,
before any deduction for the transaction costs, if the account were then
closed out. A 15% decrease would result in a loss equal to 150% of
the original margin deposit, if the Futures Contract were closed out.
Thus, a purchase or sale of a Futures Contract may result in losses in
excess of the amount invested in the Futures Contract. A Fund,
however, would presumably have sustained comparable losses if,
instead of the Futures Contract, it had invested in the underlying
financial instrument and sold it after the decline. Where a Fund enters
into Futures transactions for non-hedging purposes, it will be subject
to greater risks and could sustain losses which are not offset by gains
on other Fund assets.
Furthermore, in the case of a Futures Contract purchase, in
order to be certain that each Fund has sufficient assets to satisfy its
obligations under a Futures Contract, the Fund segregates and
commits to back the Futures Contract an amount of cash, U.S.
Government securities and other liquid, high-grade debt securities
equal in value to the current value of the underlying instrument less
the margin deposit.
Most U.S. Futures exchanges limit the amount of fluctuation
permitted in Futures Contract prices during a single trading day. The
daily limit establishes the maximum amount that the price of a Futures
Contract may vary either up or down from the previous day's
settlement price at the end of a trading session. Once the daily limit
has been reached in a particular type of Futures Contract, no trades
may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures Contract prices have
occasionally moved 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.
Options on Futures Contracts. Options on Futures Contracts are
similar to options on securities or currencies except that options on
Futures Contracts give the purchaser the right, in return for the
premium paid, to assume a position in a Futures Contract (a long
position if the option is a call and a short position if the option is a
put), rather than to purchase or sell the Futures Contract, at a specified
exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the Futures position by the writer
of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's Futures margin
account which represents the amount by which the market price of the
Futures Contract, at exercise, exceeds (in the case of a call) or is less
than (in the case of a put) the exercise price of the option on the
Futures Contract. If an option is exercised on the last trading day
prior to the expiration date of the option, the settlement will be made
entirely in cash equal to the difference between the exercise price of
the option and the closing level of the securities or currencies upon
which the Futures Contracts are based on the expiration date.
Purchasers of options who fail to exercise their options prior to the
exercise date suffer a loss of the premium paid.
As an alternative to purchasing call and put options on
Futures, each Fund may purchase call and put options on the
underlying securities or currencies themselves (see "Purchasing Put
Options" and "Purchasing Call Options" above). Such options would
be used in a manner identical to the use of options on Futures
Contracts.
To reduce or eliminate the leverage then employed by the
Fund or to reduce or eliminate the hedge position then currently held
by the Fund, the Fund may seek to close out an option position by
selling an option covering the same securities or currency and having
the same exercise price and expiration date. The ability to establish
and close out positions on options on Futures Contracts is subject to
the existence of a liquid market. It is not certain that this market will
exist at any specific time.
In order to assure that the Funds will not be deemed to be
"commodity pools" for purposes of the Commodity Exchange Act,
regulations of the Commodity Futures Trading Commission ("CFTC")
require that each Fund enter into transactions in Futures Contracts and
options on Futures Contracts 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 does not exceed 5% of the liquidation value of the
Fund's assets. The Funds will enter into transactions in Futures
Contracts and options on Futures Contracts only for hedging purposes.
Forward Currency Contracts and Options on Currency. A forward
currency contract is an obligation to purchase or sell a currency
against another currency at a future date and price as agreed upon by
the parties. A Fund may either accept or make delivery of the
currency at the maturity of the forward contract or, prior to maturity,
enter into a closing transaction involving the purchase or sale of an
offsetting contract. Each Fund engages in forward currency
transactions in anticipation of, or to protect itself against, fluctuations
in exchange rates. A Fund might sell a particular foreign currency
forward, for example, when it holds bonds denominated in that
currency but anticipates, and seeks to be protected against, decline in
the currency against the U.S. dollar. Similarly, a Fund might sell the
U.S. dollar forward when it holds bonds denominated in U.S. dollars
but anticipates, and seeks to be protected against, a decline in the U.S.
dollar relative to other currencies. Further, a Fund might purchase a
currency forward to "lock in" the price of securities denominated in
that currency which it anticipates purchasing.
The matching of the increase in value of a forward contract
and the decline in the U.S. dollar equivalent value of the foreign
currency denominated asset that is the subject of the hedge generally
will not be precise. In addition, a Fund may not always be able to
enter into foreign currency forward contracts at attractive prices and
this will limit the Fund's ability to use such contracts to hedge or
cross-hedge its assets. Also, with regard to a Fund's use of cross-
hedges, there can be no assurance that historical correlations between
the movement of certain foreign currencies relative to the U.S. dollar
will continue. Thus, at any time poor correlation may exist between
movements in the exchange rates of the foreign currencies underlying
the Fund's cross-hedges and the movements in the exchange rates of
the foreign currencies in which the Fund's assets that are the subject of
such cross-hedges are denominated.
Forward contracts are traded in an interbank market
conducted directly between currency traders (usually large commercial
banks) and their customers. A forward contract generally has no
deposit requirement and is consummated without payment of any
commission. Each Fund, however, may enter into forward contracts
with deposit requirements or commissions.
A put option gives a Fund, as purchaser, the right (but not the
obligation) to sell a specified amount of currency at the exercise price
until the expiration of the option. A call option gives a Fund, as
purchaser, the right (but not the obligation) to purchase a specified
amount of currency at the exercise price until its expiration. A Fund
might purchase a currency put option, for example, to protect itself
during the contract period against a decline in the value of a currency
in which it holds or anticipates holding securities. If the currency's
value should decline, the loss in currency value should be offset, in
whole or in part, by an increase in the value of the put. If the value of
the currency instead should rise, any gain to the Fund would be
reduced by the premium it had paid for the put option. A currency call
option might be purchased, for example, in anticipation of, or to
protect against, a rise in the value of a currency in which the Fund
anticipates purchasing securities.
Each Fund's ability to establish and close out positions in
foreign currency options is subject to the existence of a liquid market.
There can be no assurance that a liquid market will exist for a
particular option at any specific time. In addition, options on foreign
currencies are affected by all of those factors that influence foreign
exchange rates and investments generally.
A position in an exchange-listed option may be closed out
only on an exchange that provides a secondary market for identical
options. Exchange markets for options on foreign currencies exist but
are relatively new, and the ability to establish and close out positions
on the exchanges is subject to maintenance of a liquid secondary
market. Closing transactions may be effected with respect to options
traded in the over-the-counter ("OTC") markets (currently the primary
markets for options on foreign currencies) only by negotiating directly
with the other party to the option contract or in a secondary market for
the option if such market exists. Although each Fund intends to
purchase only those options for which there appears to be an active
secondary market, there is no assurance that a liquid secondary market
will exist for any particular option at any specific time. In such event,
it may not be possible to effect closing transactions with respect to
certain options, with the result that the Fund would have to exercise
those options which it has purchased in order to realize any profit.
The staff of the Securities and Exchange Commission ("SEC") has
taken the position that, in general, purchased OTC options and the
underlying securities used to cover written OTC options are illiquid
securities. However, a Fund may treat as liquid the underlying
securities used to cover written OTC options, provided it has
arrangements with certain qualified dealers who agree that the Fund
may repurchase any option it writes for a maximum price to be
calculated by a predetermined formula. In these cases, the OTC option
itself would only be considered illiquid to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the
option.
Swap Agreements. Among the hedging transactions into which the
Funds may enter are interest rate swaps and the purchase or sale of
interest rate caps and floors. Each Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular
investment or portion of its Fund or to protect against any increase in
the price of securities the Fund anticipates purchasing at a later date.
Each Fund intends to use these transactions as a hedge and not as a
speculative investment. Each Fund will not sell interest rate caps or
floors that it does not own. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay
or receive interest, e.g., an exchange of floating rate payments for
fixed rate payments. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined
interest rate, to receive payments of interest on a notional principal
amount from the party selling such interest rate cap. The purchase of
an interest rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party
selling such interest rate floor.
A Fund may enter into interest rate swaps, caps and floors on
either an asset-based or liability-based basis, depending on whether it
is hedging its assets or its liabilities, and will usually enter into interest
rate swaps on a net basis, i.e., the two payment streams are netted,
with the Fund receiving or paying, as the case may be, only the net
amount of the two payments. Inasmuch as these hedging transactions
are entered into for good faith hedging purposes, the investment
adviser and the Funds believe such obligations do not constitute senior
securities and, accordingly will not treat them as being subject to its
borrowing restrictions. The net amount of the excess, if any, of a
Fund's obligations over its entitlement with respect to each interest
rate swap will be accrued on a daily basis and an amount of cash or
liquid securities having an aggregate net asset value at least equal to
the accrued excess will be maintained in a segregated account by a
custodian that satisfies the requirements of the Investment Company
Act of 1940 (the "1940 Act"). The Funds will not enter into any
interest rate swap, cap or floor transaction unless the unsecured senior
debt or the claims-paying ability of the other party thereto is rated in
the highest rating category of at least one nationally recognized rating
organization at the time of entering into such transaction. If there is a
default by the other party to such a transaction, a Fund will have
contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years
with a large number of banks and investment banking firms acting
both as principals and as agents utilizing swap documentation. As a
result, the swap market has become relatively liquid. Caps and floors
are more recent innovations for which standardized documentation has
not yet been developed and, accordingly, they are less liquid than
swaps.
New options and Futures Contracts and various combinations
thereof continue to be developed and the Funds may invest in any such
options and contracts as may be developed to the extent consistent
with its investment objective and regulatory requirements applicable to
investment companies.
Sovereign Debt. Each Fund may invest in sovereign debt, which may
trade at a substantial discount from face value. Each Fund may hold
and trade sovereign debt of emerging market countries in appropriate
circumstances and to participate in debt conversion programs.
Emerging country Sovereign Debt involves a high degree of risk, is
generally lower-quality debt, and is considered speculative in nature.
The issuer or governmental authorities that control sovereign debt
repayment ("sovereign debtors") may be unable or unwilling to repay
principal or interest when due in accordance with the terms of the
debt. A sovereign debtor's willingness or ability to repay principal
and interest due in a timely manner may be affected by, among other
factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is
due, the relative size of the debt service burden to the economy as a
whole, the sovereign debtor's policy towards the International
Monetary Fund (the "IMF") and the political constraints to which the
sovereign debtor may be subject. Sovereign debtors may also be
dependent on expected disbursements from foreign governments,
multilateral agencies and others abroad to reduce principal and
interest arrearage on their debt. The commitment of these third
parties to make such disbursements may be conditioned on the
sovereign debtor's implementation of economic reforms or economic
performance and the timely service of the debtor's obligations. The
sovereign debtor's failure to meet these conditions may cause these
third parties to cancel their commitments to provide funds to the
sovereign debtor, which may further impair the debtor's ability or
willingness to timely service its debts.
Brady Bonds. Each Fund may invest in Brady Bonds as part of its
investment in Sovereign Debt of countries that have restructured or are
in the process of restructuring their Sovereign Debt pursuant to the
Brady Plan (discussed below).
Brady Bonds are issued under the framework of the Brady
Plan, an initiative announced by former U.S. Treasury Secretary
Nicholas F. Brady in 1989 as a mechanism for debtor nations to
restructure their outstanding external indebtedness. The Brady Plan
contemplates, among other things, the debtor nation's adoption of
certain economic reforms and the exchange of commercial bank debt
for newly issued bonds. In restructuring its external debt under the
Brady Plan framework, a debtor nation negotiates with its existing
bank lenders as well as the World Bank or IMF. The World Bank or
IMF supports the restructuring by providing funds pursuant to loan
agreements or other arrangements that enable the debtor nation to
collateralize the new Brady Bonds or to replenish reserves used to
reduce outstanding bank debt. Under these loan agreements or other
arrangements with the World Bank or IMF, debtor nations have been
required to agree to implement certain domestic monetary and fiscal
reforms. The Brady Plan sets forth only general guiding principles for
economic reform and debt reduction, emphasizing that solutions must
be negotiated on a case-by-case basis between debtor nations and their
creditors.
Agreements implemented under the Brady Plan are designed
to achieve debt and debt-service reduction through specific options
negotiated by a debtor nation with its creditors. As a result, each
country offers different financial packages. Options have included the
exchange of outstanding commercial bank debt for bonds issued at
100% of face value of such debt, bonds issued at a discount of face
value of such debt, and bonds bearing an interest rate that increases
over time and the advancement of the new money for bonds. The
principal of certain Brady Bonds has been collateralized by U.S.
Treasury zero coupon bonds with a maturity equal to the final maturity
of the Brady Bonds. Collateral purchase are financed by the IMF,
World Bank and the debtor nation's reserves. Interest payments may
also be collateralized in part in various ways.
Brady Bonds are often viewed as having three or four
valuation components: (i) the collateralized repayment of principal at
final maturity; (ii) the collateralized interest payments; (iii) the
uncollateralized interest payment; and (iv) any uncollateralized
interest and principal at maturity (these uncollateralized amounts
constitute the " residual risk"). In light of the residual risk of Brady
Bonds and, among other factors, the history of defaults with respect to
commercial bank loans by public and private entities of countries
issuing Brady Bonds, investments in Brady Bonds can viewed as
speculative.
Investment Restrictions
The Company has adopted the following investment
restrictions with respect to each Fund. Restrictions 1 through 8 cannot
be changed for a Fund without approval by the holders of a majority of
the outstanding shares of the respective 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 Board of
Directors at any time. Each Fund may not:
1. Deviate from the definition of a "diversified
company" as defined in the Investment Company Act of
1940, as amended (the "1940 Act").
2 Issue senior securities as defined in the Investment
Company Act of 1940, as amended (the "1940 Act") and
any rules and orders thereunder, except as permitted under
the 1940 Act.
3 Invest more than 25% of its total assets in securities,
the issuers of which conduct their principal business
activities in the same industry. For purposes of this
limitation, U.S. or foreign 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 The Fund will not 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.
5 The Fund will not 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
(the "1933 Act"), in disposing of portfolio securities.
6. The Fund will not purchase or sell real estate, real
estate mortgages, commodities or commodity contracts, but
this restriction shall not prevent the Fund from (a) investing
in and selling securities of issuers engaged in the real estate
business and securities which are secured by real estate or
interests therein; (b) holding or selling real estate received in
connection with securities it holds; (c) trading in futures
contracts and option on futures contracts or (d) investing in or
purchasing real estate investment trust securities.
7. The Fund will not 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.
8 The Fund will not borrow money, except that (a) the
Fund may borrow from banks in an amount not exceeding 33
1/3% of the value of the Fund's total assets (including the
amount borrowed) valued at market less liabilities (not
including the amount borrowed) at the time the borrowing is
made 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.
9 The Fund will not 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.
10 Invest in companies for the purpose of exercising
management or control.
11 Invest in securities of other investment companies,
except as part of a merger, consolidation, or acquisition of
assets or as permitted by Section 12d-1(A) through (E) the
1940 Act.
Brokerage and Portfolio Transactions
Hansberger is responsible for allocating the Fund's brokerage.
Orders may be directed to any broker including, to the extent and in
the manner permitted by applicable law, Smith Barney . No Fund will
deal with Smith Barney in any transaction in which Smith Barney acts
as principal.
The Fund attempts to obtain the most favorable execution of
each Fund's transaction, that is, the best combination of net price and
prompt reliable execution. In the opinion of Hansberger, however, it
is not possible to determine in advance that any particular broker will
actually be able to effect the most favorable execution because, in the
context of a constantly changing market, order execution involves
judgments as to price, commission rates, volume, the direction of the
market and the likelihood of future change. In making its decision as
to which broker or brokers are most likely to provide the most
favorable execution, Hansberger takes into account the relevant
circumstances. These include, in varying degrees, the size of the
order, the importance of prompt execution, the breadth and trends of
the market in the particular security, anticipated commission rates, the
broker's familiarity with such security including its contacts with
possible buyers and sellers and its level of activity in the security, the
possibility of a block transaction and the general record of the broker
for prompt, competent and reliable service in all aspects of order
processing, execution and settlement.
Commissions are negotiated and take into account the
difficulty involved in execution of a transaction, the time it took to
conclude, the extent of the broker's commitment of its own capital, if
any, and the price received. Anticipated commission rates are an
important consideration in all trades and are weighed along with the
other relevant factors affecting order execution set forth above. In
allocating brokerage among those brokers who are believed to be
capable of providing equally favorable execution, the Fund takes into
consideration the fact that a particular broker may, in addition to
execution capability, provide other services to the Fund such as
research and statistical information. It is not possible to place a dollar
value on such services nor does their availability reduce Hansberger's
expenses in a determinable amount. These various services may,
however, be useful to Hansberger in connection with its services
rendered to other advisory clients and not all such services may be
used in connection with the Fund.
The Board of Directors of the Fund has adopted certain
policies and procedures incorporating the standard of Rule 17e-1
issued by the SEC under the 1940 Act which requires that the
commissions paid to Smith Barney must be "reasonable and fair
compared to the commission fee or other remuneration received or to
be received by other brokers in connection with comparable
transactions involving similar securities during a comparable period of
time." The Rule and the policy and procedures also contain review
requirements and require SBMFM and Hansberger to furnish reports
to the Board of Directors and to maintain records in connection with
such reviews.
PURCHASE OF SHARES
Volume Discounts
The schedules of sales charges on Class A shares described in the
Prospectuses apply to purchases made by any "purchaser," which
defined to include the following: (a) an individual; (b) an individual's
spouse and his or her children purchasing shares for his or her own
account; (c) a trustee or other fiduciary purchasing shares for a single
trust estate or single fiduciary account; (d) a pension, profit-sharing or
other employee benefit plan qualified under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and
qualified employee benefit plans of employers who are "affiliated
persons" of each other within the meaning of the 1940 Act; (e) tax-
exempt organizations enumerated in Section 501(c)(3) or (13) of the
Code; and (f) a trustee or other professional fiduciary (including a
bank, or an investment adviser registered with the SEC under the
Investment Advisers Act of 1940, as amended) purchasing shares of a
Fund for one or more trust estates or fiduciary accounts. Purchasers
who wish to combine purchase orders to take advantage of volume
discounts on Class A shares should contact a Smith Barney Financial
Consultant.
Combined Right of Accumulation
Reduced sales charges, in accordance with the schedule in the
Prospectuses, apply to any purchase of Class A shares if the aggregate
investment of any purchaser in Class A shares of a Fund and in Class
A shares of the other Funds in the Company and of other funds of the
Smith Barney Mutual Funds that are offered with a sales charge,
including the purchase being made, is $25,000 or more. The reduced
sales charge is subject to confirmation of the shareholder's holdings
through a check of appropriate records. Each Fund reserves the right
to terminate or amend the combined right of accumulation at any time
after written notice to shareholders. For further information regarding
the right of accumulation, shareholders should contact a Smith Barney
Financial Consultant.
Determination of Public Offering Price
Each Fund offers its shares to the public on a continuous basis. The
public offering price for a Class A and Class Y share of each Fund is
equal to the net asset value per share at the time of purchase plus, for
Class A shares, an initial sales charge based on the aggregate amount
of the investment. The public offering price for a Class B share and
Class C share, and Class A share purchases, including applicable right
of accumulation, equaling or exceeding $500,000, is equal to the net
asset value per share at the time of purchase and no sales charge is
imposed at the time of purchase. A contingent deferred sales charge
("CDSC"), however, is imposed on certain redemptions of Class B
shares, Class C shares, and Class A shares when purchased in
amounts equaling or exceeding $500,000. The method of computation
of the public offering price is shown in each Fund's financial
statements, incorporated by reference in their entirety into this
Statement of Additional Information.
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 and holiday closings), (b) when trading in
markets a 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 the protection of the Fund's shareholders.
Distributions in Kind
If the Board of Directors of the Company determines that it would be
detrimental to the best interests of the remaining shareholders of a
Fund 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% of the Fund's net assets by a
distribution in kind of portfolio securities in lieu of cash. Securities
issued as a distribution in kind may incur brokerage commissions
when shareholders subsequently sell those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan") is
available to shareholders who own shares with a value of at least
$10,000 ($5,000 for retirement plan accounts) and who wish to receive
specific amounts of cash monthly or quarterly. Withdrawals of at least
$50 may be made under the Withdrawal Plan by redeeming as many
shares of a Fund as may be necessary to cover the stipulated
withdrawal payment. Any applicable CDSC will not be waived on
amounts withdrawn by shareholders that exceed 1.00% per month of
the value of a shareholder's shares at the time the Withdrawal Plan
commences. To the extent withdrawals exceed dividends,
distributions and appreciation of a shareholder's investment in a Fund,
there will be a reduction in the value of the shareholder's investment
and continued withdrawal payments may reduce the shareholder's
investment and ultimately 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 that he or she is participating in the Withdrawal Plan, purchases
by such shareholders in amounts of less than $5,000 will not ordinarily
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 First Data as agent for Withdrawal Plan members.
All dividends and distributions on shares in the Withdrawal Plan are
automatically reinvested at net asset value in additional shares of the
Company. Withdrawal Plans should be set up with a Smith Barney
Financial Consultant. A shareholder who purchases shares directly
through First Data may continue to do so and applications for
participation in the Withdrawal Plan must be received by First Data 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 contract a Smith Barney Financial Consultant.
DISTRIBUTOR
Smith Barney serves as the Company's distributor on a best efforts
basis pursuant to a distribution agreement (the "Distribution
Agreement") which was most recently approved by the Company's
Board of Directors on July 24, 1997.
When payment is made by the investor before the 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 Smith
Barney may benefit from the temporary use of the funds. The investor
may designate another use for the funds prior to settlement date, such
as investment in a money market fund (other than Smith Barney
Exchange Reserve Fund) of the Smith Barney Mutual Funds. If the
investor instructs Smith Barney to invest the funds in a Smith Barney
money market fund, the amount of the investment will be included as
part of the average daily net assets of both the Company and the
money market fund, and affiliates of Smith Barney that serve the funds
in an investment advisory capacity will benefit from the fact that they
are receiving fees from both such investment companies for managing
these assets computed on the basis of their average daily net assets.
The Company's Board of Directors has been advised of the benefits to
Smith Barney resulting from these settlement procedures and will take
such benefits into consideration when reviewing the Management and
Distribution Agreements for continuance.
Distribution Arrangements
To compensate Smith Barney for the services it provides and for the
expense it bears under the Distribution Agreement, the Company has
adopted a services and distribution plan (the "Plan") pursuant to Rule
12b-1 under the 1940 Act. Under the Plan, each Fund pays Smith
Barney a service fee, accrued daily and paid monthly, calculated at the
annual rate of 0.25% of the value of each Fund's average daily net
assets attributable to the Class A, Class B and Class C shares. In
addition, the Fund pays Smith Barney a distribution fee, with respect
to the Class B and Class C shares primarily intended to compensate
Smith Barney for its initial expense of paying its Financial
Consultants a commission upon sales of those shares. Such shares'
distribution fees, which are accrued daily and paid monthly, are
calculated at the annual rate of 0.75% of the value of average daily net
assets attributable to the Class B and Class C shares.
Under its terms, the Plan continues from year to year, provided such
continuance is approved annually by vote of the Board of Directors,
including a majority of the Independent Directors. The Plan may not
be amended to increase the amount to be spent for the services
provided by Smith Barney without shareholder approval, and all
amendments of the Plan also must be approved by the Directors in the
manner described above. The Plan may be terminated at any time,
without penalty, by vote of a majority of the Independent Directors or
by vote of a majority of the outstanding voting securities of the
Company (as defined in the 1940 Act). Pursuant to the Plan, Smith
Barney will provide the Board of Directors periodic reports of amounts
expended under the Plan and the purpose for which such expenditures
were made.
VALUATION OF SHARES
Each Class' net asset value per share is calculated on each day,
Monday through Friday, except days on which the NYSE is closed.
The NYSE currently is scheduled to be closed on New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas, and on the preceding Friday
or subsequent Monday when one of these holidays falls on a Saturday
or Sunday, respectively. Because of the differences in distribution fees
and Class-specific expenses, the per share net asset value of each Class
may differ. The following is a description of the procedures used by
the Funds in valuing its assets.
A security which is listed or traded on more than one exchange is
valued at the quotation on the exchange determined to be the primary
market for such security. All assets and liabilities initially expressed
in foreign currency values will be converted into U.S. dollar values at
the mean between the bid and offered quotations of such currencies
against U.S. dollars as last quoted by any recognized dealer. If such
quotations are not available, the rate of exchange will be determined in
good faith by the Board of Directors. In carrying out the Board of
Directors' valuation policies, SBMFM, as administrator, may consult
with an independent pricing service (the "Pricing Service") retained by
the Company.
Debt securities of United States issuers (other than U.S. government
securities and short-term investments) are valued by SBMFM, as
administrator, after consultation with the Pricing Service approved by
the Board of Directors. When, in the judgment of the Pricing Service,
quoted bid prices for investments are readily available and are
representative of the bid side of the market, these investments are
valued at the mean between the quoted bid prices and asked prices.
Investments for which, in the judgment of the Pricing Service, there
are not readily obtainable market quotations are carried at fair value as
determine by the Pricing Service. The procedures of the Pricing
Service are reviewed periodically by the officers of the Company under
the general supervision and responsibility of the Board of Directors.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any fund of the Smith Barney
Mutual Funds may exchange all or part of their shares for shares of the
same class of other funds of the Smith Barney Mutual Funds, to the
extent such shares are offered for sale in the shareholder's state of
residence and provided your Registered Representative or your
investment dealer is authorized to distribute shares of the fund, on the
basis of relative net asset value per share at the time of exchange.
Class B shares of any fund may be exchanged without a CDSC. Class
B shares of the Fund exchanged for Class B shares of another fund
will be subject to the higher applicable CDSC of the two funds and, for
the purposes of calculating CDSC rates and conversion periods, will be
deemed to have been held since the date the shares being exchanged
were deemed to be purchased.
The exchange privilege enables shareholders to acquire shares of the
same Class in a fund with different investment objectives when they
believe that a shift between funds is an appropriate investment
decision. This privilege is available to shareholders residing in any
state in which the fund shares being acquired may legally be sold.
Prior to any exchange, the shareholder should obtain and review a
copy of the current prospectus of each fund into which an exchange is
being considered. Prospectuses may be obtained from a Smith Barney
Financial Consultant.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-
current net asset value and, subject to any applicable CDSC, the
proceeds are immediately invested at a price as described above, in
shares of the fund being acquired. Smith Barney reserves the right to
reject any exchange request. The exchange privilege may be modified
or terminated at any time after written notice to shareholders.
PERFORMANCE DATA
From time to time, a Fund may quote its yield, average annual total
return or total return 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 maybe included in the
following industry and financial publications: Barron's, 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 a
Fund describes the expenses or performance of a Class, it will also
disclose such information for the other Classes.
Yield
A Fund's 30-day yield figure described below is calculated according
to a formula prescribed by the SEC. The formula can be expressed as
follows:
YIELD = 2[(a-b/cd + 1)6 - 1]
Where: a = dividends and interest earned during the
period.
b = expenses accrued for the period (net of
reimbursement).
c = the average daily number of shares
outstanding during the period that were entitled to receive dividends.
d = the maximum offering price per share on
the last day of the period.
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations purchased by the Fund at a discount or
premium, the formula generally calls for amortization of the discount
or premium; the amortization schedule will be adjusted monthly to
reflect changes in the market values of the debt obligations.
Investors should recognize that in periods of declining interest rates a
Fund's yield will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates, the Fund's yield will tend
to be somewhat lower. In addition, when interest rates are falling, the
inflow of net new money to the Fund from the continuous sales of its
shares will likely be invested in portfolio instruments producing lower
yields than the balance of the Fund's investments, thereby reducing
the current yield of the Fund. In periods of rising interest rates, the
opposite can be expected to occur.
Average Annual Total Return
"Average annual total return" figures, as described below, 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 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. A Class' total return figures calculated in accordance
with the above formula assume that the maximum applicable sales
charge or maximum applicable CDSC, as the case may be, has been
deducted from the hypothetical $1,000 initial investment at the time of
purchase or redemption, as applicable.
Aggregate Total Return
Aggregate total return figures, as described below, represent the
cumulative change in the value of an investment in the Class for the
specified period and are computed by the following formula:
AGGREGATE TOTAL RETURN =
ERV-P
P
Where P = a hypothetical initial payment of $1,000.
ERV = Ending Redeemable Value of a hypothetical $10,000
investment made at the beginning of a 1-, 5- or 10-year period (a
fractional portion thereof) at the end of the 1-, 5- or 10- year period (or
fractional portion thereof), assuming reinvestment of all dividends and
distributions.
It is important to note that the yield and total return figures set forth
above are based on historical earnings and are not intended to indicate
future performance. A Class' performance will vary from time to time
depending upon market conditions, the composition of the Fund's
investment portfolio and 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.
Performance information may be useful in evaluating a Fund and for
providing a basis for comparison with other financial alternatives.
Since the performance of the Fund changes in response to fluctuations
in market conditions, interest rates and Fund expenses, no
performance quotation should be considered a representation as to the
Fund's performance for any future period.
A Fund may from time to time compare its investment results with the
following:
(1) The Consumer Price Index, which is a measure
of the average change in prices over time in a fixed
market basket of goods and services (e.g., food,
clothing, shelter, fuels, transportation fares, charges
for doctors' and dentists' services, prescription
medicines, and other goods and services that people
buy for day-to-day living).
(2) Data and mutual fund rankings published or
prepared by Lipper Analytical Services, Inc., which
ranks mutual funds by overall performance,
investment objectives and assets.
(3) Dow Jones Industrial Average which is a price-
weighted average of 30 actively traded stocks of
highly reputable companies prepared by Dow Jones
& Co.
(4) Financial News Composite Index.
(5) Morgan Stanley Capital International World
Indices, including, among others, the Morgan
Stanley Capital International Europe, Australia, Far
East Index ("EAFE Index"). The EAFE Index is an
unmanaged index of more than 800 companies of
Europe, Australia and the Far East.
(6) Data and comparative performance rankings
published or prepared by CDA Investment
Technologies, Inc.
(7) Data and comparative performance rankings
published or prepared by Wiesenberger Investment
Company Service.
Indices prepared by the research departments of such
financial organizations as Salomon Brothers, Inc., Merrill Lynch, Bear
Stearns & Co., Inc., Morgan Stanley, and Ibbottson Associates may be
used, as well as information provided by the Federal Reserve Board.
In addition, performance rankings and ratings reported periodically in
national financial publications, including but not limited to Money
Magazine, Forbes, Business Week, The Wall Street Journal and
Barron's may also be used.
TAXES
The following summary addresses the principal United States
income tax considerations regarding the purchase, ownership and
disposition of shares in a Fund.
General
Each Fund intends to qualify and elect to be treated for each
taxable year as a "regulated investment company" under Sections 851-
855 of the Internal Revenue Service Code of 1986, as amended ("the
Code"). To so qualify, a Fund must, among other things, (i) derive at
least 90% of its gross income in each taxable year from dividends,
interest, proceeds from loans of stock and securities, gains from the
sale or other disposition of stock, securities or foreign currency, or
certain other income (including but not limited to gains from options,
Futures and forward contracts) derived from its business of investing
in stock, securities or currency; and (ii) diversify its holdings so that,
at the end of each quarter of its taxable year, the following two
conditions are met: (a) at least 50% of the market value of the Fund's
total assets is represented by cash, U.S. Government securities,
securities of other regulated investment companies and other
securities, with such other securities limited, in respect of any one
issuer, to an amount not greater than 5% of the Fund's assets and not
more than 10% of the outstanding voting securities of such issuer; and
(b) not more than 25% of the value of the Fund's assets is invested in
securities of any one issuer (other than U.S. Government securities or
securities of other regulated investment companies). The
diversification requirements described above may limit the Fund's
ability to engage in hedging transactions by writing or buying options
or by entering into Futures or forward contracts.
Foreign currency gains that are not directly related to a
Fund's principal business of investing in stock or securities, or options
or forward contracts thereon, might be excluded by regulations from
income that counts toward the 90% gross income requirement
described above.
As a regulated investment company, each Fund will not be
subject to U.S. federal income tax on net investment income and net
long-term capital gains distributed to shareholders if, as is intended,
the Fund distributes at least 90% of its ordinary income and net short-
term capital gains to the Fund's shareholders each year.
Each Fund, however, will generally be subject to a
nondeductible excise tax of 4% to the extent that it does not meet
certain minimum distribution requirements as of the end of each
calendar year. Each Fund intends to make timely distributions of its
income (including any net capital gains) in compliance with these
requirements. As a result, it is anticipated that each Fund will not be
subject to the excise tax.
For federal income tax purposes, dividends declared by each
Fund in October, November or December as of a record date in such
month and which are actually paid in January of the following year
will be treated as if they were paid on December 31. These dividends
will be taxable to shareholders in the year declared, and not in the year
in which shareholders actually receive the dividend.
Gains or losses that a Fund recognizes upon the sale or other
disposition of stock or securities will be treated as long-term capital
gains or losses if the securities have been held by it for more than one
year, except in certain cases where the Fund sells the stock or security
short or acquires a put or writes a call thereon. Other gains or losses
on the sale of stock or securities will be short-term capital gains or
losses. Gains and losses on the sale, lapse or other termination of
options on stock or securities will generally be treated as gains and
losses from the sale of stock or securities. If an option written for a
Fund lapses or is terminated through a closing transaction the Fund
may realize a short-term capital gain or loss, depending on whether
the premium income is greater or less than the amount paid in the
closing transaction. If a Fund sells stock or securities pursuant to the
exercise of a call option written by it, the Fund will add the premium
received to the sale price of the stock or securities delivered in
determining the amount of gain or loss on the sale.
Under the Code, gains or losses attributable to foreign
currency contracts, or to fluctuations in exchange rates between the
time a Fund accrues income or receivables or expenses or other
liabilities denominated in a foreign currency and the time the Fund
actually collects such income or pays such liabilities, are treated as
ordinary income or ordinary loss. Similarly, gains or losses on the
disposition of debt securities held by the Fund denominated in foreign
currency, to the extent attributable to fluctuations in exchange rates
between the acquisition and disposition dates, are also treated as
ordinary income or loss.
Forward currency contracts, options and Futures contracts
entered into by a Fund may create "straddles" for federal income tax
purposes and this may affect the character and timing of gains or
losses realized by the Fund on such contracts or options or on the
underlying securities.
Certain options, Futures and foreign currency contracts held
by a Fund at the end of each fiscal year will be required to be "marked
to market" for federal income tax purposes; that is, treated as having
been sold at market value. Sixty percent of any capital gain or loss
recognized on these deemed sales and on actual dispositions will be
treated as long-term capital gain or loss, and the remainder will be
treated as short-term capital gain or loss regardless of how long the
Fund has held such options or contracts.
If a Fund purchases shares in certain foreign investment
entities, referred to as "passive foreign investment companies," the
Fund itself may be subject to U.S. federal income tax and an additional
charge in the nature of interest on a portion of any "excess
distribution" from such company or gain from the disposition of such
shares, even if the distribution or gain is distributed by the Fund to its
shareholders in a manner that satisfies the requirements described
above. If the Fund were able and elected to treat a passive foreign
investment company as a "qualified electing fund," in lieu of the
treatment described above, the Fund would be required each year to
include in income, and distribute to shareholders in accordance with
the distribution requirements described above, the Fund's pro rata
share of the ordinary earnings and net capital gains of the company,
whether or not actually received by the Fund.
Distributions
If the net asset value of shares of a Fund is reduced below a
shareholder's cost as a result of distribution by the Fund, such
distribution will be taxable even though it represents a return of
invested capital.
Redemption of Shares
Any gain or loss realized on the redemption or exchange of
Fund shares by a shareholder who is not a dealer in securities will be
treated as long-term capital gain or loss if the shares have been held
for more than one year, and otherwise as short-term capital gain or
loss.
However, any loss realized by a shareholder upon the
redemption or exchange of Fund shares held six months or less will be
treated as long-term capital loss to the extent of any long-term capital
gain distributions received by the shareholder with respect to such
shares. Additionally, any loss realized on a redemption or exchange of
Fund shares will be disallowed to the extent the shares disposed of are
replaced within a period of 61 days beginning 30 days before and
ending 30 days after such disposition, such as pursuant to
reinvestment of dividends in Fund shares.
ADDITIONAL INFORMATION
The Company was incorporated on September 29, 1981 under the
name Hutton Investment Series Inc. The Company's corporate name
was changed on December 29, 1988, July 30, 1993 and October 28,
1994, to SLH Investment Portfolios Inc., Smith Barney Shearson
Investment Funds Inc., and Smith Barney Investment Funds, Inc.,
respectively.
Chase , located at Chase Metrotech Center, Brooklyn NY 11245,
serves as the custodian of the Company. Under its custody agreement
with the Company, Chase holds the Company's fund securities and
keeps all necessary accounts and records. For its services, Chase
receives a monthly fee based upon the month-end market value of
securities held in custody and also receives transaction charges. Chase
bank is authorized to establish separate accounts for foreign securities
owned by the Company to be held with foreign branches of other
domestic banks as well as with certain foreign banks and securities
depositories. The assets of the Company are held under bank
custodianship in compliance with the 1940 Act.
First Data, located at Exchange Place, Boston, Massachusetts 02109,
serves as the Company's transfer agent. For these services, First Data
receives a monthly fee computed on the basis of the number of
shareholder accounts it maintains for the Company during the month
and is reimbursed for out-of-pocket expenses.
APPENDIX
BOND (AND NOTE) RATINGS
Moody's Investors Service, Inc. ("Moody's")
Aaa - Bonds that are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by
a large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds that are rated "Aa" are judged to be of high
quality by all standards. Together with the "Aaa" group they comprise
what are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as large
as in "Aaa" securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present that make
the long term risks appear somewhat larger than in "Aaa" securities.
A - Bonds that are rated "A" possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa - Bonds that are rated "Baa" are considered as medium
grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate
and therefor not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long period
of time may be small.
Caa - Bonds that are rated Caa are of poor standing. These
issues may be in default or present elements of danger may exist with
respect to principal or interest.
Ca - Bonds that are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked short-comings.
C - Bonds that are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 in each
generic rating classification from Aa through B. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Standard & Poor's Ratings Group ("S&P")
AAA - Debt rated "AAA" has the highest rating assigned by
S&P. Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay
interest and repay principal and differs from the highest rated issues
only in small degree.
A - Debt rated "A" has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than debt in higher rated categories.
BBB - Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
BB, B and CCC - Bonds rated BB and B are regarded, on
balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. BB represents a lower degree if speculation than B and
CCC the highest degree of speculation. While such bonds will likely
have some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse conditions.
C - The rating C is reserved for income bonds on which no
interest is being paid.
D - Bonds rated D are in default, and payment of interest
and/or repayment of principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus
or a minus sign, which is used to show relative standing within the
major rating categories, except in the AAA category.
COMMERCIAL PAPER RATINGS
Moody's
Issuers rated "Prime-1" (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well-established
industries; high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earnings coverage of fixed financial
charges and high internal cash generation; well-established access to a
range of financial markets and assured sources of alternate liquidity.
Issuers rated "Prime-2" (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
S&P
A-1 - This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics will be
denoted with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this designation
is strong. However, the relative degree of safety is not as high as for
issues designated A-1.
Supplementary Description of Interest Rate Futures Contracts and
Related Options
Characteristics of Futures Contracts. Currently, futures contracts can
be purchased and sold on such securities as U.S. Treasury bonds, U.S.
Treasury notes, GNMAs and U.S. Treasury bills. Unlike when the
Fund purchases or sells a security, no price is paid or received by the
Fund upon the purchase or sales of a futures contract. The Fund will
initially be required to deposit with the custodian or the broker an
amount of "initial margin" of cash or U.S. Treasury bills. The nature
of initial margin in futures transactions is different from that of
margin in security transactions in that futures contract initial margin
does not involve the borrowing of funds by the customer to finance the
transaction. Rather, the initial margin 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, called maintenance margin, to and from the broker, will be
made on a daily basis as the price of the underlying debt security
fluctuates, making the long and short positions in the futures contract
more or less valuable, a process known as "marking-to-market." For
example, when the Fund has purchased a futures contract and the
price of the underlying debt security has risen, that position will have
increased in value and the Fund will receive from the broker a
maintenance margin payment equal to that increase in value.
Conversely, when the Fund has purchased a futures contract and the
price of the underlying debt security has declined, the position would
be less valuable and the Fund would be required to make a
maintenance margin payment to the broker. At any time prior to
expiration of the futures contract, the Fund may elect to close the
position by taking an opposite position which will operate to terminate
the Fund's position in the futures contract. A final determination of
maintenance margin is then made, additional cash is required to be
paid by or released to the Fund, and the Fund realizes a loss or a gain.
While futures contracts based on debt securities do provide for the
delivery and acceptance of securities, such deliveries and acceptances
are very seldom made. Generally, the futures contract is terminated by
entering into an offsetting transaction. An offsetting transaction for a
futures contract sale is effected by the Fund entering into a futures
contract purchase for the same aggregate amount of the specific type of
financial instrument and same delivery date. If the price in the sale
exceeds the price in the offsetting purchase, the Fund pays the
difference and realizes the loss. Similarly, the closing out of a futures
contract purchase is effected by the Fund entering into a futures
contract sale. If the offsetting sale price exceeds the purchase price,
the Fund realizes a gain, and if the purchase price exceeds the
offsetting price, the Fund realizes a loss.
Risks of Transactions in Futures Contracts. There are several risks in
connection with the use of futures contracts by the Fund as a hedging
device. One risk arises because of the imperfect correlation between
movements in the price of the futures contracts and movements in the
price of the debt securities which are the subject of the hedge. The
price of the futures contract may move more than or less than the price
of the debt securities being hedged. If the price of the futures contract
moves less than the price of the securities which are the subject of the
hedge, the hedge will not be fully effective, but, if the price of the
securities being hedged has moved in an unfavorable direction, the
Fund would be in a better position than if it has not hedged at all. If
the price of the securities being hedged has moved in a favorable
direction, this advantage will be partially offset by the movement in
the price of the futures contract. If the price of the futures contracts
moves more than the price of the security, the Fund will experience
either a loss or a gain on the future which will not be completely offset
by movements in the prices of the debt securities which are the subject
of the hedge. To compensate for the imperfect correlation of
movements in the price of debt securities being hedged and
movements in the prices of the futures contracts, the Fund may buy or
sell futures contracts in a greater dollar amount of the securities being
hedged if the historical volatility of the prices of such securities has
been greater than the historical volatility of the futures contracts.
Conversely, the Fund may buy or sell fewer futures contracts if the
historical volatility of the price of the securities being hedged is less
than the historical volatility of the futures contracts. It is also possible
that, where the Fund has sold futures to hedge its portfolio against a
decline in the market, the market may advance and the value of
securities held in the Fund's portfolio may decline. If this occurred,
the Fund would lose money on the futures contracts and also
experience a decline in value in its portfolio securities. However,
while this could occur for a very brief period or to a very small degree,
over time the value of a diversified portfolio will tend to move in the
same direction as the futures contracts. Where futures are purchased
to hedge against a possible increase in prices of securities before the
Fund is able to invest its cash (or cash equivalents) in U.S.
government securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Fund then concludes not to
invest in U.S. government securities or options at that time because of
concern as to possible further market decline or for other reasons, the
Fund will realize a loss on the futures contract that is not offset by a
reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures
contracts and the portion of the portfolio being hedged, the market
prices of futures contracts may be affected by certain factors. First, all
participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts though
offsetting transactions which could distort the normal relationship
between the debt securities and futures markets; second, from the point
of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market
may also cause temporary price distortions. Due to the possibility of
price distortion in the futures market and because of the imperfect
correlation between movements in the debt securities and movements
in the prices of futures contracts, a correct forecast of interest rate
trends by the investment advisor may still not result in a successful
hedging transaction over a very short time frame.
Positions in futures contracts may be closed out only on an exchange
or board of trade which provides a secondary market for such futures.
Although the Fund intends to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active
secondary market, there is no assurance that a liquid secondary market
on an exchange or board of trade will exist for any particular contract
or at any particular time. In such event, it may not be possible to close
a futures position, and in the event of adverse price movements, the
Fund would continue to be required to make daily cash payments of
variation margin. However, in the event that the futures contracts
have been used to hedge portfolio securities, such securities will not be
sold until the futures contracts can be terminated. In such
circumstances, an increase in the price of the securities, if any, may
partially or completely offset losses on the futures contracts. However,
as described above, there is no guarantee that the price of the securities
will, in fact, correlate with the price movements of the futures
contracts and thus provide an offset to losses on futures contracts.
Successful use of futures contracts by the Fund is also subject to the
investment adviser's ability to predict correctly movements in the
direction of interest rates and other factors affecting markets of debt
securities. For example, if the Fund has hedged against the possibility
of an increase in interest rates which would adversely affect debt
securities held in its portfolio and prices of such securities increase
instead, the Fund will lose part or all of the benefit of the increased
value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations,
if the Fund has insufficient cash, it may have to sell securities to meet
daily variation margin requirements. Such sale of securities may be,
but will not necessarily be, at increased prices which reflect the rising
market. The Fund may have to sell securities at a time when it may be
disadvantageous to do so.
Characteristics of Options on Futures Contracts. As with options on
debt securities, the holder of an option may terminate his position by
selling an option of the same series. There is no guarantee that such
closing transactions can be effected. The Fund will be required to
deposit initial margin and maintenance margin with respect to put and
call options on futures contracts described above, and, in addition, net
option premiums received will be included as initial margin deposits.
In addition to the risks which apply to all options transaction, there are
several special risks relating to options on futures contracts. The
ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid secondary
market. It is not certain that this market will develop. The Fund will
not purchase options on futures contracts on any exchange unless and
until, in the investment advisor's opinion, the market for such options
had developed sufficiently that the risks in connection with options on
futures contracts are not greater than the risks in connection with
futures contracts. Compared to the use of futures contracts, the
purchase of options on futures contracts involves less potential risk to
the Fund because the maximum amount of risk is the premium paid
for the options (plus transaction costs). However, there may be
circumstances when the use of an option on a futures contract would
result in a loss to the Fund when the use of a futures contract would
not, such as when there is no movement in the prices of debt
securities. Writing an option on a futures contract involves risks
similar to those arising in the sale of futures contracts, as described
above.
HANSSAI.DOC.40 A-40 8/11/97 8:38 AM
Item 24. Financial Statements and Exhibits
(a) Not Applicable
Included in Part B:
(b) Exhibits
All references are to the Registrant's registration statement on Form N-1A (the
"Registration Statement") as filed with the SEC on October 2, 1981 (File Nos.
2-74288 and 811-3275).
(1) Articles of Restatement dated September 17, 1993 to Registrant's Articles
of Incorporation dated September 28, 1981, Articles of Amendment dated
October 14, 1994, Articles Supplementary, Articles of Amendment dated
October 14, 1994, Articles Supplementary, Articles of Amendments and
Certificates of Correction dated November 7, 1994, are incorporated by
reference to Post-Effective Amendment No. 37 to the Registration Statement
filed on November 7, 1994 ("Post Effective Amendment No. 37"). Articles of
Amendment dated October 23, 1997 (filed herewith).
(2) Registrant's By-Laws, as amended on September 30, 1992 are incorporated
by reference to Post-Effective Amendment No. 30 to the Registration Statement
filed on April 30, 1993.
(3) Not Applicable.
(4) Registrant's form of stock certificate for Smith Barney Hansberger Global
Value Fund ("Global Value Fund") and Smith Barney Hansberger Global Value
Small Cap Value Fund ("Small Cap Value Fund") will be filed herewith.
(5) (a) Investment Advisory Agreement dated July 30, 1993, between the
Registrant on behalf of Smith Barney Investment Grade Bond Fund, Smith
Barney Government Securities Fund and Smith Barney Special Equities Fund
and Greenwich Street Advisors is incorporated by reference to the Registration
Statement filed on Form N-14 on September 2, 1993, File No. 33-50153.
(b) Investment Advisory Agreements on behalf of Smith Barney Growth
Opportunity Fund and Smith Barney Managed Growth Fund is incorporated by
reference to Post-Effective Amendment No. 40 filed on June 27, 1995.
(c) Investment Management Agreements on behalf of Global Value Fund
and Global Small Cap Value Fund between Registrant and Smith Barney Mutual
Funds Management Inc. will be filed herewith.
(d) Sub-Advisory Agreements on behalf of Global Value Fund and Global
Small Cap Value Fund between SBMFM and Hansberger Global Investors Inc.
will be filed herewith.
(6) (a) Distribution Agreement dated July 30, 1993, between the Registrant and
Smith Barney Shearson Inc. is incorporated by reference to the registration
statement filed on Form N-14 on September 2, 1993. File 33-50153.
(b) Form of Distribution Agreement between the Registrant and PFS
Distributors on behalf of Smith Barney Investment Funds Inc. is incorporated
by reference to Post-Effective Amendment No. 40 filed on June 27, 1995.
(7) Not Applicable.
8 (a) Custodian Agreement with PNC Bank, National Association is
incorporated by reference to Post -Effective Amendment No. 44 filed on April
29, 1997.
(b) Global Custodian Agreement with Chase Manhattan Bank will be filed
herewith.
9 (a) Transfer Agency and Registrar Agreement dated August 5, 1993 with
First Data Investor Services Group, Inc. (formerly The Shareholder Services
Group, Inc.) is incorporated by reference to Post-Effective Amendment No. 31
as filed on December 22, 1993 (Post-Effective Amendment No. 31").
(b) Sub-Transfer Agency Agreement between the Registrant and PFS
Shareholders Services on behalf of Smith Barney Investment Funds Inc. is
incorporated by reference to Post-Effective Amendment No. 40 filed on June
27, 1995.
(10) Opinion of Robert A. Vegliante, Deputy General Counsel of Smith Barney
Mutual Funds Management Inc. filed with the Registrant's rule 24-f2 Notice
(Accession No. 000091155-97-000104) is incorporated by reference.
(11) Not Applicable
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) (a) Amended Services and Distribution Plans pursuant to Rule 12b-1
between the Registrant on behalf of Smith Barney Invest Grade Bond Fund,
Smith Barney Government Securities Fund, Smith Barney Special Equities
Fund and Smith Barney European Fund and Smith Barney, Inc. ("Smith
Barney") are incorporated by reference to Post-Effective Amendment No. 37'
(b) Form of Services and Distribution Plans pursuant to Rule 12b-1 between
the Registrant on behalf of Smith Barney Growth Opportunity Fund and Smith
Barney Managed Growth Fund is incorporated by reference to Post-Effective
Amendment No. 40 filed on June 27, 1995.
(c) Form of Services and Distribution Plans pursuant to Rule 12b-1 between
the Registrant on behalf of the Global Value Fund and Small Cap Value Fund
will be filed herewith.
(16) Performance Date is incorporated by reference to Post-Effective
Amendment No. 22 as filed on May 1, 1989.
(17) Not Applicable
(18) Plan pursuant to Rule 18f-3 is incorporated by reference to Post-Effective
Amendment No. 42 to Registration Statement dated January 10, 1996.
Item 25 Persons Controlled by or Under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
Smith Barney Hansberger Number of Holders
Global Value Fund of Securities
Class A 1
Class B 1
Class C 1
Class Y 1
Class Z 1
Smith Barney Hansberger
Global Small Cap Number of Holders
Value Fund of Securities
Class A 1
Class B 1
Class C 1
Class Y 1
Class Z 1
Item 27. Indemnification
The response to this item is incorporated by reference to Pre-Effective
Amendment No. 1 to the registration statement filed on Form N-14 on October
8, 1993 (File No. 33-50153).
Item 28(a). Business and Other Connections of Investment Adviser
Investment Adviser - - Smith Barney Mutual Funds Management Inc., formerly
known as Smith Barney Advisers, Inc. ("SBMFM")
SBMFM was incorporated in December 1968 under the laws of the State of
Delaware. SBMFM is a wholly owned subsidiary of Smith Barney Holdings
Inc. ("Holdings") (formerly known as Smith Barney Shearson Holdings Inc.),
which in turn is a wholly owned subsidiary of Travelers Group Inc. (formerly
known as Primerica Corporation) ("Travelers"). SBMFM is registered as an
investment adviser under the Investment Advisers Act of 1940 (the "Advisers
Act").The list required by this Item 28 of officers and directors of SBMFM
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
FORM ADV filed by SBMFM pursuant to the Advisers Act (SEC File No. 801-
8314).
Item 29. Principal Underwriters
Smith Barney Inc. ("Smith Barney") currently acts as distributor for Consulting
Group Capital Markets Funds; Global Horizons Investment Series (Cayman
Islands); Greenwich Street California Municipal Fund Inc.; Greenwich Street
Municipal Fund Inc.; High Income Opportunity Fund Inc.; The Italy Fund Inc.;
Managed High Income Portfolio Inc.; Managed Municipals Portfolio II Inc.;
Managed Municipals Portfolio Inc.; Municipal High Income Fund Inc.; Puerto
Rico Daily Liquidity Fund Inc.; Smith Barney Adjustable Rate Government
Income Fund; Smith Barney Aggressive Growth Fund Inc.; Smith Barney
Appreciation Fund Inc.; Smith Barney Arizona Municipals Fund Inc.; Smith
Barney California Municipals Fund Inc.; Smith Barney Concert Series Inc.;
Smith Barney Disciplined Small Cap Fund, Inc.; Smith Barney Equity Funds;
Smith Barney Fundamental Value Fund Inc.; Smith Barney Funds, Inc.; Smith
Barney Income Funds; Smith Barney Income Trust; Smith Barney Institutional
Cash Management Fund, Inc.; Smith Barney Intermediate Municipal Fund,
Inc.; Smith Barney Investment Funds Inc.; Smith Barney Investment Trust;
Smith Barney Managed Governments Fund Inc.; Smith Barney Managed
Municipals Fund Inc.; Smith Barney Massachusetts Municipals Fund; Smith
Barney Money Funds, Inc.; Smith Barney Muni Funds; Smith Barney
Municipal Fund, Inc.; Smith Barney Municipal Money Market Fund, Inc.;
Smith Barney Natural Resources Fund Inc.; Smith Barney New Jersey
Municipals Fund Inc.; Smith Barney Oregon Municipals Fund Inc.; Smith
Barney Principal Return Fund; Smith Barney Series Fund; Smith Barney
Telecommunications Trust; Smith Barney Variable Account Funds; Smith
Barney World Funds, Inc.; Smith Barney Worldwide Special Fund N.V.
(Netherlands Antilles); Travelers Series Fund Inc.; The USA High Yield Fund
N.V.; Worldwide Securities Limited (Bermuda); Zenix Income Fund Inc. and
various series of unit investment trusts.
Smith Barney is a wholly owned subsidiary of Holdings. The information
required by this Item 29 with respect to each director, officer and partner of
Smith Barney is incorporated by reference to Schedule A of Form BD filed by
Smith Barney pursuant to the Securities Exchange Act of 1934 (SEC File No.
812-8510).
Item 30. Location of Accounts and Records
(1) Smith Barney Investment Funds Inc.
388 Greenwich Street
New York, New York 10013
(2) Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
(3) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, PA
(4) The Chase Manhattan Bank
Chase Metrotech Center
Brooklyn, New York 11245
(5) First Data Investor Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(b) The Registrant hereby undertakes to file a post-effective amendment,
which includes financial statements, within four to six month from the effective
date of this Registration Statement.
(c) The Registrant hereby undertakes to furnish to each person to whom a
prospectus of any series of the Registrant is delivered a copy of the
Registrant's latest annual report, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the
Registrant, SMITH BARNEY INVESTMENT FUNDS INC., has duly caused
this Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of New York, State of
New York on the 24th day of October, 1997.
SMITH BARNEY INVESTMENT FUNDS INC.
By: /s/ Heath B. McLendon
Heath B. McLendon*
Chief Executive Officer
WITNESS our hands on the date set forth below.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Post-Effective Amendment to the Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
/s/ Heath B. Mclendon Chairman of the Board 10/24/97
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Senior Vice President
Lewis E. Daidone and Treasurer 10/24/97
(Chief Financial
and Accounting Officer)
/s/ Paul R. Ades * Director 10/24/97
Paul R. Ades
/s/ Herbert Barg* Director 10/24/97
Herbert Barg
/s/ Dwight B. Crane* Director 10/24/97
Dwight B. Crane
/s/ Frank Hubbard* Director 10/24/97
Frank Hubbard
/s/ Ken Miller* Director 10/24/97
Ken Miller
*Signed by Heath B. McLendon, their duly authorized attorney-in-fact,
pursuant to power of attorney dated November 3, 1994.
/s/ Heath B. McLendon
Heath B. McLendon
EXHIBITS
Exhibit No. Description of Exhibit
1. Articles of Amendment
4 Form of Stock Certificate
for the Global Value
Fund and Small Cap Value
Fund.
5(c) Investment Management Agreements
on behalf of the Global Value Fund
and the Small Cap Global Value Fund.
5(d) Sub-Advisory Agreements
on behalf of the Global Value Fund
and the Small Cap Global Value Fund.
8(b) Global Custodian Agreement with
Chase Manhattan Bank.
15(c) Form of Service and Distribution Plans
pursuant to Rule 12b-1 between the
Registrant on behalf of the Global Value
Fund and the Small Cap Value Fund.
ARTICLES SUPPLEMENTARY
SMITH BARNEY INVESTMENT FUNDS INC.
Smith Barney Investment Funds Inc., a Maryland corporation
having its principal office in the State of Maryland in Baltimore City
(hereinafter called the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The Corporation is authorized to issue ten billion
shares of capital stock, par value $.001 per share, with an aggregate
par value of $10,000,000. These Articles Supplementary do not
increase the total authorized capital stock of the Corporation or the
aggregate par value thereof.
SECOND: The Board of Directors hereby reclassifies two
billion of the unissued shares of capital stock of the Corporation
heretofore allocated to the Class A Common Stock, Class B Common
Stock, Class C Common Stock, Class Y Common Stock and Class Z
Common Stock of the Special Equities Fund of the Corporation as two
billion shares of Class A Common Stock, Class B Common Stock,
Class C Common Stock, Class Y Common Stock and Class Z
Common Stock of the Smith Barney Hansberger Global Value Fund of
the Corporation, which is hereby established, as follows: The
Corporation shall be authorized to issue up to two billion shares of
each of the Class A Common Stock, Class B Common Stock, Class C
Common Stock, Class Y Common Stock and Class Z Common Stock
of the Smith Barney Hansberger Global Value Fund less, at any time,
the total number of shares of all such other classes of capital stock of
the Smith Barney Hansberger Global Value Fund then issued and
outstanding. At no time may the Corporation cause to be issued and
outstanding more than two billion shares of the capital stock of all
such classes of the Smith Barney Hansberger Global Value Fund in the
aggregate unless such number be hereafter increased in accordance
with the Maryland General Corporation Law.
THIRD: The Board of Directors hereby reclassifies two
hundred fifty million of the unissued shares of capital stock of the
Corporation heretofore allocated to the Class A Common Stock, Class
B Common Stock, Class C Common Stock, Class Y Common Stock
and Class Z Common Stock of the Investment Grade Bond Fund of the
Corporation, one hundred fifty million of the unissued shares of
capital stock of the Corporation heretofore allocated to Class A
Common Stock, Class B Common Stock, Class C Common Stock,
Class Y Common Stock and Class Z Common Stock of the Special
Equities Fund of the Corporation, one billion three hundred fifty
million of the unissued shares of capital stock of the Corporation
heretofore allocated to Class A Common Stock, Class B Common
Stock, Class C Common Stock, Class Y Common Stock and Class Z
Common Stock of the Government Securities Fund of the Corporation,
and two hundred fifty million shares of the unissued shares of capital
stock of the Corporation heretofore allocated to the Class A Common
Stock, Class B Common Stock, Class C Common Stock, Class Y
Common Stock and Class Z Common Stock of the European Fund of
the Corporation as two billion shares of Class A Common Stock, Class
B Common Stock, Class C Common Stock, Class Y Common Stock
and Class Z Common Stock of the Smith Barney Hansberger Global
Small Cap Value Fund of the Corporation, which is hereby
established, as follows: The Corporation shall be authorized to issue
up to two billion shares of each of the Class A Common Stock, Class B
Common Stock, Class C Common Stock, Class Y Common Stock and
Class Z Common Stock of the Smith Barney Hansberger Global Small
Cap Value Fund less, at any time, the total number of shares of all
such other classes of capital stock of the Smith Barney Hansberger
Global Small Cap Value Fund then issued and outstanding. At no
time may the Corporation cause to be issued and outstanding more
than two billion shares of the capital stock of all such classes of the
Smith Barney Hansberger Global Small Cap Value Fund in the
aggregate unless such number be hereafter increased in accordance
with the Maryland General Corporation Law.
FOURTH: The shares of Class A Common Stock, Class B
Common Stock, Class C Common Stock, Class Y Common Stock and
Class Z Common Stock of the Smith Barney Hansberger Global Value
Fund of the Corporation classified hereby shall have the preferences,
conversion and other rights, voting powers, restrictions, limitations as
to dividends, qualifications, and terms and conditions of redemption as
set forth in Article SEVENTH of the Corporation's Articles of
Incorporation and shall be subject to all provisions of its Articles of
Incorporation relating to stock of the Corporation generally, and those
set forth as follows:
(1) The assets belonging to the Class A
Common Stock, Class B Common Stock, Class C Common Stock,
Class Y Common Stock and Class Z Common Stock of the Smith
Barney Hansberger Global Value Fund shall be invested in the same
investment portfolio of the Corporation.
(2) The dividends and distributions of
investment income and capital gains with respect to each such class of
capital stock of the Smith Barney Hansberger Global Value Fund shall
be in such amounts as may be declared from time to time by the Board
of Directors, and such dividends and distributions may vary from
dividends and distributions with respect to each other class of capital
stock of the Smith Barney Hansberger Global Value Fund to reflect
differing allocations of the expenses of the Fund among the holders of
each such class and any resultant differences among the net asset
values per share of each such class, to such extent and for such
purposes as the Board of Directors may deem appropriate.
(3) The allocation of investment income,
realized and unrealized capital gains and losses, expenses and
liabilities of the Corporation among the said classes of capital stock of
the Smith Barney Hansberger Global Value Fund and any other class
of the Corporation's capital stock and the determination of their
respective net asset values and rights upon liquidation or dissolution of
the Corporation shall be determined conclusively by the Board of
Directors in a manner that is consistent with Rule 18f-3 of the
Investment Company Act of 1940, as amended (the "Investment
Company Act") and any existing or future amendment to such rule or
any rule of interpretation under the Investment Company Act that
modifies, is an authorized alternative to, or supersedes such rule (the
"Rule").
(4) The proceeds of the redemption of the
shares of any class of capital stock of the Smith Barney Hansberger
Global Value Fund shall be reduced by the amount of any contingent
deferred sales charge or other charge (which charges may vary among
the classes) payable on such redemption pursuant to the terms of
issuance of such shares, all in accordance with the Investment
Company Act and applicable rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD").
(5) At such times as may be determined by the
Board of Directors (or with the authorization of the Board of Directors,
the officers of the Corporation) in accordance with the Rule, the
Investment Company Act and applicable rules and regulations of the
NASD and reflected in the registration statement relating to the Smith
Barney Hansberger Global Value Fund, shares of a particular class of
capital stock of the Smith Barney Hansberger Global Value Fund may
be automatically converted into shares of another class of capital stock
of the Smith Barney Hansberger Global Value Fund based on the
relative net asset values of such classes at the time of conversion,
subject, however, to any conditions of conversion that may be imposed
by the Board of Directors (or with the authorization of the Board of
Directors, the officers of the Corporation) and reflected in the
registration statement relating to the Smith Barney Hansberger Global
Value Fund as aforesaid.
FIFTH: The shares of Class A Common Stock, Class B
Common Stock, Class C Common Stock, Class Y Common Stock and
Class Z Common Stock of the Smith Barney Hansberger Global Small
Cap Value Fund of the Corporation classified hereby shall have the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption as set forth in Article SEVENTH of the Corporation's
Articles of Incorporation and shall be subject to all provisions of its
Articles of Incorporation relating to stock of the Corporation
generally, and those set forth as follows:
(1) The assets belonging to the Class A
Common Stock, Class B Common Stock, Class C Common Stock,
Class Y Common Stock and Class Z Common Stock of the Smith
Barney Hansberger Global Small Cap Value Fund shall be invested in
the same investment portfolio of the Corporation.
(2) The dividends and distributions of
investment income and capital gains with respect to each such class of
capital stock of the Smith Barney Hansberger Global Small Cap Value
Fund shall be in such amounts as may be declared from time to time
by the Board of Directors, and such dividends and distributions may
vary from dividends and distributions with respect to each other class
of capital stock of the Smith Barney Hansberger Global Small Cap
Value Fund to reflect differing allocations of the expenses of the Fund
among the holders of each such class and any resultant differences
among the net asset values per share of each such class, to such extent
and for such purposes as the Board of Directors may deem appropriate.
(3) The allocation of investment income,
realized and unrealized capital gains and losses, expenses and
liabilities of the Corporation among the said classes of capital stock of
the Smith Barney Hansberger Global Small Cap Value Fund and any
other class of the Corporation's capital stock and the determination of
their respective net asset values and rights upon liquidation or
dissolution of the Corporation shall be determined conclusively by the
Board of Directors in a manner that is consistent with Rule 18f-3 of
the Investment Company Act and any existing or future amendment to
such rule or any rule or interpretation under the Investment Company
Act that modifies, is an authorized alternative to, or supersedes such
rule (the "Rule").
(4) The proceeds of the redemption of the
shares of any class of capital stock of the Smith Barney Hansberger
Global Small Cap Value Fund shall be reduced by the amount of any
contingent deferred sales charge or other charge (which charges may
vary among the classes) payable on such redemption pursuant to the
terms of issuance of such shares, all in accordance with the Investment
Company Act and applicable rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD").
(5) At such times as may be determined by the
Board of Directors (or with the authorization of the Board of Directors,
the officers of the Corporation) in accordance with the Rule, the
Investment Company Act and applicable rules and regulations of the
NASD and reflected in the registration statement relating to the Smith
Barney Hansberger Global Small Cap Value Fund, shares of a
particular class of capital stock of the Smith Barney Hansberger
Global Small Cap Value Fund may be automatically converted into
shares of another class of capital stock of the Smith Barney
Hansberger Global Small Cap Value Fund based on the relative net
asset values of such classes at the time of conversion, subject, however,
to any conditions of conversion that may be imposed by the Board of
Directors (or with the authorization of the Board of Directors, the
officers of the Corporation) and reflected in the registration statement
relating to the Smith Barney Hansberger Global Small Cap Value
Fund as aforesaid.
SIXTH: The Board of Directors of the Corporation has
classified and reclassified the shares described above pursuant to
authority contained in the Corporation's charter.
SEVENTH: Following the reclassification of the unissued
shares of the Corporation set forth above, the capital stock of the
Corporation is classified as follows:
Fund Total Shares
Growth 2.0 billion Class A Common Class B
Common Class C Common Class Y Common Class Z
Common
Opportunity Fund Stock Stock
Stock Stock Stock
Government 1.0 billion Class A Common Class B
Common Class C Common Class Y Common Class Z
Common
Securities Fund Stock Stock
Stock Stock Stock
Investment 1.0 billion Class A Common Class B
Common Class C Common Class Y Common Class Z
Common
Grade Bond Fund Stock Stock
Stock Stock Stock
Special 1.0 billion Class A Common Class B
Common Class C Common Class Y Common Class Z
Common
Equities Fund Stock Stock
Stock Stock Stock
Managed 1.0 billion Class A Common Class B
Common Class C Common Class Y Common Class Z
Common
Growth Fund Stock Stock
Stock Stock Stock
Smith Barney 2.0 billion Class A Common Class B
Common Class C Common Class Y Common Class Z
Common
Hansberger Global Stock Stock
Stock Stock Stock
Value Fund
Smith Barney 2.0 billion Class A Common Class B Common
Class C Common Class Y Common Class Z Common
Hansberger Global Stock Stock
Stock Stock Stock
Small Cap Value Fund
The undersigned Chairman of the Board of the Corporation
acknowledges these Articles Supplementary to be the corporate act of
the Corporation and states that to the best of his knowledge,
information and belief, the matters and facts set forth in these Articles
with respect to authorization and approval are true in all material
respects and that this statement is made under penalties of perjury.
IN WITNESS WHEREOF, Smith Barney Investment Funds
Inc. has caused these Articles Supplementary to be signed on its behalf
by its Chairman of the Board and witnessed by its Assistant Secretary
as of October 23, 1997.
SMITH BARNEY
INVESTMENT FUNDS INC.
By: /s/ Heath B.
McLendon
Heath B. McLendon,
Chairman of the
Board
WITNESS:
/s/ Robert M. Nelson
Robert M. Nelson
Assistant Secretary
7
SMITH BARNEY INVESTMENT FUNDS INC.-
SMITH BARNEY HANSBERGER GLOBAL VALUE FUND
CLASS [ ] SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
ACCOUNT NO. CUSIP
THIS IS TO CERTIFY THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE CLASS A SHARES OF CAPITAL
STOCK OF PAR VALUE OF $0.001 EACH OF SMITH BARNEY
INVESTMENT FUND INC.-SMITH BARNEY HANSBERGER GLOBAL
VALUE FUND
("the Corporation") transferable only on the books of the Corporation by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed. This certificate is not valid until countersigned
by the Transfer Agent.
WITNESS the facsimile Seal of the Corporation and the facsimile Seal of the
corporation and the facsimile signatures of its duly authorized officers.
DATED
___________________ ____________________
CHAIRMAN SECRETARY
BY _________________________
AUTHORIZED SIGNATURE
THE FUND HAS MORE THAN ONE CLASS OS THE CAPITAL STOCK
AND THE BOARD OF DIRECTORS MAY AUTHORIZE ADDITIONAL
CLASSES OF THE CAPITAL STOCK. THE CORPORATION WILL
FURNISH A FULL STATEMENT OF THE BOARD OF DIRECTOR'S
AUTHORITY AND OF THE DESIGNATIONS AND ANY PREFERENCES,
CONVERSIONS AND OTHER RIGHTS, VOTING POWERS,
RESTRICTIONS LIMITATIONS AS TO DIVIDENDS, QUALIFICATIONS
AND TERMS AND CONDITIONS OF REDEMPTION OF THE STOCK OF
EACH CLASS WHICH THE CORPORATION IS AUTHORIZED TO ISSUE
TO ANY STOCKHOLDER UPON REQUEST WITHOUT CHARGE.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according
to applicable laws or regulations.
TEN COM- as tenants in commom UNIF GIFT MIN ACT-
..........Custodian............
(Cust) (Minor)
TEN ENT- as tenants by entireties under Uniform Gifts to
Minors Act.................
JT TEN- as joint tenants with right
of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
For value recieved,_______________________hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
__________________________________________
________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING
POSTAL ZIP CODE OF ASSIGNEE
________________________________________________________________
of the Capital Stock represented by the Certificate, and do hereby irrevocably
constitute and appoint
_________________________________________________________
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated,_______________________
_________________________
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the Certificate. In every
particular, without alteration or enlargement,
or any change whatever.
SMITH BARNEY INVESTMENT FUNDS INC.-
SMITH BARNEY HANSBERGER GLOBAL SMALL CAP
VALUE FUND
CLASS [ ] SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
ACCOUNT NO. CUSIP
THIS IS TO CERTIFY THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE CLASS A SHARES OF CAPITAL
STOCK OF PAR VALUE OF $0.001 EACH OF SMITH BARNEY
INVESTMENT FUND INC.-SMITH BARNEY HANSBERGER GLOBAL
SMALL CAP VALUE FUND
("the Corporation") transferable only on the books of the Corporation by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed. This certificate is not valid until countersigned
by the Transfer Agent.
WITNESS the facsimile Seal of the Corporation and the facsimile Seal of the
corporation and the facsimile signatures of its duly authorized officers.
DATED
___________________ ____________________
CHAIRMAN SECRETARY
BY _________________________
AUTHORIZED SIGNATURE
THE FUND HAS MORE THAN ONE CLASS OS THE CAPITAL STOCK
AND THE BOARD OF DIRECTORS MAY AUTHORIZE ADDITIONAL
CLASSES OF THE CAPITAL STOCK. THE CORPORATION WILL
FURNISH A FULL STATEMENT OF THE BOARD OF DIRECTOR'S
AUTHORITY AND OF THE DESIGNATIONS AND ANY PREFERENCES,
CONVERSIONS AND OTHER RIGHTS, VOTING POWERS,
RESTRICTIONS LIMITATIONS AS TO DIVIDENDS, QUALIFICATIONS
AND TERMS AND CONDITIONS OF REDEMPTION OF THE STOCK OF
EACH CLASS WHICH THE CORPORATION IS AUTHORIZED TO ISSUE
TO ANY STOCKHOLDER UPON REQUEST WITHOUT CHARGE.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according
to applicable laws or regulations.
TEN COM- as tenants in commom UNIF GIFT MIN ACT-
..........Custodian............
(Cust) (Minor)
TEN ENT- as tenants by entireties under Uniform Gifts to
Minors Act.................
JT TEN- as joint tenants with right
of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
For value recieved,_______________________hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
__________________________________________
________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING
POSTAL ZIP CODE OF ASSIGNEE
________________________________________________________________
Of the Capital Stock represented by the Certificate, and do hereby irrevocably
constitute and appoint
__________________________________________________________
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated,_______________________
_________________________
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the Certificate. In every
particular, without alteration or enlargement,
or any change whatever.
FORM OF
INVESTMENT MANAGEMENT AGREEMENT
October [ ], 1997
Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
This Investment Management Agreement (the "Agreement") is made on this
[ ] day of October, 1997, by and between Smith Barney Investment Funds Inc.
, a corporation organized under the laws of the State of Maryland (the
"Corporation"), in respect of its new series, Smith Barney Hansberger
Global Value Fund (the "Fund"), and Smith Barney Mutual Funds Management
Inc. ("SBMFM") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and reinvesting in
investments of the kind and in accordance with the limitations specified in:
(i)
the Corporation's Charter as amended from time to time (the "Charter of the
Corporation"); (ii) the Fund's Prospectus (the "Prospectus"); and (iii) the
Fund's Statement of Additional Information (the "Statement") filed with the
Securities and Exchange Commission (the "SEC") as part of the Fund's
Registration Statement on Form N-1A, as amended from time to time, and in
such manner and to such extent as may from time to time be approved by the
Board of Directors of the Corporation (the "Board"). Copies of the Fund's
Prospectus and the Statement and the Charter of the Corporation hav
en or will be submitted to SBMFM. The Corporation desires to employ and
hereby appoints SBMFM to act as investment manager for the Fund. SBMFM
accepts the appointment and agrees to furnish the services for the
compensation set forth below. SBMFM is hereby authorized to retain
third parties and is hereby
authorized to delegate some or all of its duties and obligations hereunder to
such persons, provided such persons shall remain under the general
supervision of SBMFM.
2. Services as Investment Manager
Subject to the supervision and direction of the Board, SBMFM will: (a) assist
in supervising all aspects of the Fund's operations; (b) supply the Fund
with office facilities (which may be in SBMFM's own offices), statistical
and research data, data processing services, clerical, accounting and
bookkeeping services, including, but not limited to, the calculation o
f (i) the net asset value of shares of the Fund, (ii) applicable contingent
deferred sales charges and similar fees and charges and (iii) distribu
fees, internal auditing and legal services, internal executive and
administrative services, and stationery and office supplies; and (c)
prepare reports to shareholders of the Fund, tax returns and reports to and
filings with the SEC and state blue sky authorities.
3. Compensation
In consideration of the services rendered pursuant to this Agreement, the
Corporation will pay SBMFM, on the first business day of each month, a fee
for the previous month at an annual rate of 0.95% of the Fund's average
daily net assets. The fee for the period from the date the Fund commences
its investment operations to the end of the month during which the Fund
commences its investment operations shall be pro-rated according to the
proportion that such period bears to the full monthly period. Upon any
mination of this Agreement before the end of any month, the fee for such
part of that month shall be pro-rated according to the proportion that such
period bears to the full monthly period and shall be payable upon the date
of termination of this Agreement. For the purpose of determining fees
payable to SBMFM, the value of the Fund's net assets shall be computed
at the times and in the manner specified in the Fund's Prospectus and/or
the Statement, as from time to time in effect.
4. Expenses
SBMFM will bear all expenses in connection with the performance of its services
under this Agreement. The Fund will bear certain other expenses to be incurred
in its operation, including: investment advisory and administration fees;
charges of custodians and transfer and dividend disbursing agents; fees for
necessary professional services, such as the Fund's and Board members'
proportionate share of insurance premiums, professional associations,
dues and/or assessments; and brokerage services, including t
, interest and commissions; costs attributable to investor services, including
without limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders;
the costs of regulatory compliance, such as SEC fees and state blue sky
qualifications fees; outside auditing and legal expenses and costs
associated with maintaining the Fund's legal existence; costs of
shareholders' repo
and meetings of the officers or Board; fees of the members of the Board
who are not officers, directors or employees of Smith Barney, Inc. or its
affiliates or any person who is an affiliate of any person to whom duties
may be delegated hereunder and any extraordinary expenses. In addition,
the Fund will pay all service and distribution fees pursuant to a Services
and Distribution Plan adopted under Rule 12b-1 of the Investment Company
Act of 1940, as amended (the "1940 Act").
5. Reimbursement to the Fund
If in any fiscal year the aggregate expenses of the Fund (including fees
pursuant to this Agreement, but excluding distribution fees, interest,
taxes, brokerage and, if permitted by state securities commissions,
extraordinary expenses) exceed the expense limitations of any state having
jurisdiction over the Fund, SBMFM will reimburse the Fund for that excess
expense to the extent required by state law in the same proportion as its
respective fees bear to the combined fees for investment advice and administ
on. The expense reimbursement obligation of SBMFM will be limited to the
amount of its fees hereunder. Such expense reimbursement, if any, will be
estimated, reconciled and paid on a monthly basis.
6. Brokerage
In selecting brokers or dealers to execute transactions on behalf of the Fund,
SBMFM will seek the best overall terms available. In assessing the best
overall terms available for any transaction, SBMFM will consider factors it
deems relevant, including, but not limited to, 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 conti
g basis. In selecting brokers or dealers to execute a particular
transaction, and in evaluating the best overall terms available, SBMFM is
authorized to consider the brokerage and research services (as those terms
are defined in Section 28(e) of the Securities Exchange Act of 1934, a
s amended) provided to the Fund and/or other accounts over which SBMFM or
its affiliates exercise investment discretion.
7. Information Provided to the Fund
SBMFM will keep the Corporation informed of developments materially
affecting the Fund's portfolio, and will, on its own initiative, furnish
the Corporation from time to time with whatever information SBMFM believes
is appropriate for this purpose.
8. Standard of Care
SBMFM shall exercise its best judgment in rendering the services listed in
paragraph 2 above. SBMFM shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
matters to which this Agreement relates, provided that nothing in this
Agreement shall be deemed to protect or purport to protect SBMFM against
any liability to the Corporation or to the Fund's shareholders to which
SBMFM would otherwise be subject by reason of willful malfeasance, bad
faith or gross negligence on its part in the performance of its duties or
by reason of SBMFM 's reckless disregard of its obligations and duties under
this Agreement.
9. Services to Other Companies or Accounts
The Corporation understands that SBMFM now acts, will continue to act and may
act in the future as: investment adviser to fiduciary and other managed
accounts, as well as to other investment companies; and the Corporation
has no objection to SBMFM's so acting, provided that whenever the Fund
and one or more other investment companies advised by SBMFM have available
funds for investment, investments suitable and appropriate for each will be
allocated in accordance with a formula believed to be equitable to
BMFM to assist in the performance of SBMFM's duties under this Agreement
will not devote their full time to such service and nothing contained in
this Agreement shall be deemed to limit or restrict the right of SBMFM or
any affiliate of SBMFM to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature.
l0. Term of Agreement
This Agreement shall become effective as of the date the Fund commences its
investment operations and continue for an initial two-year term and shall
continue thereafter so long as such continuance is specifically approved at
least annually by (i) the Board or (ii) a vote of a "majority" (as defined in
the 1940 Act) of the Fund's outstanding voting securities, provided that in
either event the continuance is also approved by a majority of the Board
members who are not "interested persons" (as defined in th
by the Board or by vote of holders of a majority of the Fund's shares, or
upon 90 days' written notice, by SBMFM. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act).
11. Representation by the Corporation
The Corporation represents that a copy of the Charter of the Corporation is
on file with the State of Maryland Department of Assessments and Taxation.
12. Limitation of Liability
The Corporation and SBMFM agree that the obligations of the Corporation under
this Agreement shall not be binding upon any of the Board members,
shareholders, nominees, officers, employees or agents, whether past, present
or
future, of the Corporation individually, but are binding only upon the assets
and property of the Fund, as provided in the Charter of the Corporation.
The execution and delivery of this Agreement have been duly authorized by the
Corporation and SBMFM, and signed by an authorized offic
hem individually or to impose any liability on any of them personally, but shall
bind only the assets and property of the Fund as provided in the Charter of
the Corporation.
If the foregoing is in accordance with your understanding, kindly indicate your
acceptance hereof by signing and returning the enclosed copy of this Agreement
to us.
Very truly yours,
Smith Barney Investment Funds Inc.
on behalf of
Smith Barney Hansberger Global Value Fund
By:
Title:
Accepted:
Smith Barney Mutual Funds Management Inc.
By:
Title:
FORM OF
INVESTMENT MANAGEMENT AGREEMENT
October [ ], 1997
Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
This Investment Management Agreement (the "Agreement") is made
on this [ ] day of October, 1997, by and between Smith Barney Investment
Funds Inc. , a corporation organized under the laws of the State of
Maryland (the "Corporation"), in respect of its new series, Smith Barney
Hansberger Global Small Cap Value Fund (the "Fund"), and Smith
Barney Mutual Funds Management Inc. ("SBMFM") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in: (i) the Corporation's Charter as amended
from time to time (the "Charter of the Corporation"); (ii) the Fund's
Prospectus (the "Prospectus"); and (iii) the Fund's Statement of\
Additional Information (the "Statement") filed with the Securities
and Exchange Commission (the
"SEC") as part of the Fund's Registration Statement on Form N-1A, as
amended from time to time, and in such manner and to such extent as
may from time to time be approved by the Board of Directors of the
Corporation (the "Board"). Copies of the Fund's Prospectus and the
Statement and the Charter of the Corporation have been or will be
submitted to SBMFM. The Corporation desires to employ and hereby
appoints SBMFM to act as investment manager for the Fund. SBMFM
accepts the appointment and agrees to furnish the services for the
compensation set forth below. SBMFM is hereby authorized to retain third
parties and is hereby authorized to delegate some or all of its duties and
obligations hereunder to such persons, provided such persons shall remain
under the general supervision of SBMFM.
2. Services as Investment Manager
Subject to the supervision and direction of the Board, SBMFM will: (a)
assist in supervising all aspects of the Fund's operations; (b) supply the
Fund with office facilities (which may be in SBMFM's own offices),
statistical and research data, data processing services, clerical, accounting
and bookkeeping services, including, but not limited to, the calculation of
(i) the net asset value of shares of the Fund, (ii) applicable contingent
deferred sales charges and similar fees and charges and (iii) distribution
fees, internal auditing and legal services, internal executive and
administrative services, and stationery and office supplies; and (c) prepare
reports to shareholders of the Fund, tax returns and reports to and filings
with the SEC and state blue sky authorities.
3. Compensation
In consideration of the services rendered pursuant to this Agreement, the
Corporation will pay SBMFM, on the first business day of each month, a
fee for the previous month at an annual rate of 1.05% of the Fund's
average daily net assets. The fee for the period from the date the Fund
commences its investment operations to the end of the month during
which the Fund commences its investment operations shall be pro-rated
according to the proportion that such period bears to the full monthly
period. Upon any termination of this Agreement before the end of any
month, the fee for such part of that month shall be pro-rated according to
the proportion that such period bears to the full monthly period and shall
be payable upon the date of termination of this Agreement. For the
purpose of determining fees payable to SBMFM, the value of the Fund's
net assets shall be computed at the times and in the manner specified in
the Fund's Prospectus and/or the Statement, as from time to time in effect.
4. Expenses
SBMFM will bear all expenses in connection with the performance of its
services under this Agreement. The Fund will bear certain other expenses
to be incurred in its operation, including: investment advisory and
administration fees; charges of custodians and transfer and dividend
disbursing agents; fees for necessary professional services, such as the
Fund's and Board members' proportionate share of insurance premiums,
professional associations, dues and/or assessments; and brokerage
services, including taxes, interest and commissions; costs attributable to
investor services, including without limitation, telephone and personnel
expenses; costs of preparing and printing prospectuses and statements of
additional information for regulatory purposes and for distribution to
existing shareholders; the costs of regulatory compliance, such as SEC
fees and state blue sky qualifications fees; outside auditing and legal
expenses and costs associated with maintaining the Fund's legal existence;
costs of shareholders' reports and meetings of the officers or Board; fees of
the members of the Board who are not officers, directors or employees of
Smith Barney, Inc. or its affiliates or any person who is an affiliate of any
person to whom duties may be delegated hereunder and any extraordinary
expenses. In addition, the Fund will pay all service and distribution fees
pursuant to a Services and Distribution Plan adopted under Rule 12b-1 of
the Investment Company Act of 1940, as amended (the "1940 Act").
5. Reimbursement to the Fund
If in any fiscal year the aggregate expenses of the Fund (including fees
pursuant to this Agreement, but excluding distribution fees, interest,
taxes, brokerage and, if permitted by state securities commissions,
extraordinary expenses) exceed the expense limitations of any state having
jurisdiction over the Fund, SBMFM will reimburse the Fund for that
excess expense to the extent required by state law in the same proportion
as its respective fees bear to the combined fees for investment advice and
administration. The expense reimbursement obligation of SBMFM will be
limited to the amount of its fees hereunder. Such expense reimbursement,
if any, will be estimated, reconciled and paid on a monthly basis.
6. Brokerage
In selecting brokers or dealers to execute transactions on behalf of the
Fund, SBMFM will seek the best overall terms available. In assessing the
best overall terms available for any transaction, SBMFM will consider
factors it deems relevant, including, but not limited to, 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 selecting brokers or dealers to execute a particular transaction,
and in evaluating the best overall terms available, SBMFM is authorized
to consider the brokerage and research services (as those terms are defined
in Section 28(e) of the Securities Exchange Act of 1934, as amended)
provided to the Fund and/or other accounts over which SBMFM or its
affiliates exercise investment discretion.
7. Information Provided to the Fund
SBMFM will keep the Corporation informed of developments materially
affecting the Fund's portfolio, and will, on its own initiative, furnish the
Corporation from time to time with whatever information SBMFM
believes is appropriate for this purpose.
8. Standard of Care
SBMFM shall exercise its best judgment in rendering the services listed in
paragraph 2 above. SBMFM shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the Fund in connection with
the matters to which this Agreement relates, provided that nothing in this
Agreement shall be deemed to protect or purport to protect SBMFM
against any liability to the Corporation or to the Fund's shareholders to
which SBMFM would otherwise be subject by reason of willful
malfeasance, bad faith or gross negligence on its part in the performance
of its duties or by reason of SBMFM 's reckless disregard of its obligations
and duties under this Agreement.
9. Services to Other Companies or Accounts
The Corporation understands that SBMFM now acts, will continue to act
and may act in the future as: investment adviser to fiduciary and other
managed accounts, as well as to other investment companies; and the
Corporation has no objection to SBMFM's so acting, provided that
whenever the Fund and one or more other investment companies advised
by SBMFM have available funds for investment, investments suitable and
appropriate for each will be allocated in accordance with a formula
believed to be equitable to each company. The Corporation recognizes
that in some cases this procedure may adversely affect the size of the
position obtainable for the Fund. In addition, the Corporation
understands that the persons employed by SBMFM to assist in the
performance of SBMFM's duties under this Agreement will not devote
their full time to such service and nothing contained in this Agreement
shall be deemed to limit or restrict the right of SBMFM or any affiliate of
SBMFM to engage in and devote time and attention to other businesses or
to render services of whatever kind or nature.
l0. Term of Agreement
This Agreement shall become effective as of the date the Fund commences
its investment operations and continue for an initial two-year term and
shall continue thereafter so long as such continuance is specifically
approved at least annually by (i) the Board or (ii) a vote of a "majority" (as
defined in the 1940 Act) of the Fund's outstanding voting securities,
provided that in either event the continuance is also approved by a
majority of the Board members who are not "interested persons" (as
defined in the 1940 Act) of any party to this Agreement, by vote cast in
person or by proxy at a meeting called for the purpose of voting on such
approval. This Agreement is terminable, without penalty, on 60 days'
written notice, by the Board or by vote of holders of a majority of the
Fund's shares, or upon 90 days' written notice, by SBMFM. This
Agreement will also terminate automatically in the event of its assignment
(as defined in the 1940 Act).
11. Representation by the Corporation
The Corporation represents that a copy of the Charter of Corporation is
on file with the State of Maryland Department of Assessments and
Taxation.
12. Limitation of Liability
The Corporation and SBMFM agree that the obligations of the
Corporation under this Agreement shall not be binding upon any of the
Board members, shareholders, nominees, officers, employees or agents,
whether past, present or future, of the Corporation individually, but are
binding only upon the assets and property of the Fund, as provided in the
Charter of the Corporation. The execution and delivery of this Agreement
have been duly authorized by the Corporation and SBMFM, and signed by
an authorized officer of each, acting as such. Neither the authorization by
the Board members of the Corporation, nor the Corporation's execution
and delivery by the officer of the Corporation shall be deemed to have
been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the assets and property of the Fund as
provided in the Charter of the Corporation .
If the foregoing is in accordance with your understanding, kindly indicate
your acceptance hereof by signing and returning the enclosed copy of this
Agreement to us.
Very truly yours,
Smith Barney Investment Funds Inc.,
on behalf of
Smith Barney Hansberger Global SmallCap Value Fund
By:
Title:
Accepted:
Smith Barney Mutual Funds Management Inc.
By:
Title:
CHASE
GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective December 6, 1996 and is
between THE CHASE MANHATTAN BANK ("Bank") and each of the
investment companies listed on Exhibit I hereto, as amended
from time to time, each acting on its own behalf and not on
behalf of any other investment company and each being solely
responsible for its obligations (each, a "Customer").
1. Customer Accounts.
Bank shall establish and maintain the following
accounts ("Accounts"):
(a) A custody account in the name of Customer
("Custody Account") for any and all stocks, shares, bonds,
debentures, notes, mortgages or other obligations for the
payment of money, bullion, coin and any certificates,
receipts, warrants or other instruments representing rights
to receive, purchase or subscribe for the same or evidencing
or representing any other rights or interests therein and
other similar property whether certificated or
uncertificated as may be received by Bank or its
Subcustodian (as defined in Section 3) for the account of
Customer ("Securities"); and
(b) A deposit account in the name of Customer
("Deposit Account") for any and all cash in any currency
received by Bank or its Subcustodian for the account of
Customer, which cash shall not be subject to withdrawal by
draft or check.
Customer warrants its authority to: 1) deposit the
cash and Securities ("Assets") received in the Accounts and
2) give Instructions (as defined in Section 11) concerning
the Accounts. Bank may deliver securities of the same class
in place of those deposited in the Custody Account.
Upon written agreement between Bank and Customer,
additional Accounts may be established and separately
accounted for as additional Accounts hereunder.
2. Maintenance of Securities and Cash at Bank and
Subcustodian Locations.
Unless Instructions specifically require another
location acceptable to Bank:
(a) Securities shall be held in the country or other
jurisdiction in which the principal trading market for such
Securities is located, where such Securities are to be
presented for payment or where such Securities are acquired;
and
(b) Cash shall be credited to an account in a
country or other jurisdiction in which such cash may be
legally deposited or is the legal currency for the payment
of public or private debts.
Cash may be held pursuant to Instructions in either
interest or non-interest bearing accounts as may be
available for the particular currency. To the extent
Instructions are issued and Bank can comply with such
Instructions, Bank is authorized to maintain cash balances
on deposit for Customer with itself or one of its
"Affiliates" at such reasonable rates of interest as may
from time to time be paid on such accounts, or in
non-interest bearing accounts as Customer may direct, if
acceptable to Bank. For purposes hereof, the term
"Affiliate" shall mean an entity controlling, controlled by,
or under common control with, Bank.
If Customer wishes to have any of its Assets held in
the custody of an institution other than the established
Subcustodians as defined in Section 3 (or their securities
depositories), such arrangement must be authorized by a
written agreement, signed by Bank and Customer.
3. Subcustodians and Securities Depositories.
Bank may act hereunder through the subcustodians
listed in Schedule A hereof with which Bank has entered into
subcustodial agreements ("Subcustodians"). Customer
authorizes Bank to hold Assets in the Accounts in accounts
which Bank has established with one or more of its branches
or Subcustodians. Bank and Subcustodians are authorized to
hold any of the Securities in their account with any
securities depository in which they participate.
Bank reserves the right to add new, replace or remove
Subcustodians. Customer shall be given reasonable notice by
Bank of any amendment to Schedule A. Upon request by
Customer, Bank shall identify the name, address and
principal place of business of any Subcustodian of
Customer's Assets and the name and address of the
governmental agency or other regulatory authority that
supervises or regulates such Subcustodian.
4. Use of Subcustodian.
(a) Bank shall identify the Assets on its books as
belonging to Customer.
(b) A Subcustodian shall hold such Assets together
with assets belonging to other customers of Bank in accounts
identified on such Subcustodian's books as custody accounts
for the exclusive benefit of customers of Bank.
(c) Any Assets in the Accounts held by a
Subcustodian shall be subject only to the instructions of
Bank or its agent. Any Securities held in a securities
depository for the account of a Subcustodian shall be
subject only to the instructions of such Subcustodian.
(d) Any agreement Bank enters into with a
Subcustodian for holding Bank's customers' assets shall
provide that such assets shall not be subject to any right,
charge, security interest, lien or claim of any kind in
favor of such Subcustodian, except for safe custody or
administration, and that the beneficial ownership of such
assets shall be freely transferable without the payment of
money or value other than for safe custody or
administration. The foregoing shall not apply to the extent
of any special agreement or arrangement made by Customer
with any particular Subcustodian.
5. Deposit Account Transactions.
(a) Bank or its Subcustodians shall make payments
from the Deposit Account upon receipt of Instructions which
include all information required by Bank.
(b) In the event that any payment to be made under
this Section 5 exceeds the funds available in the Deposit
Account, Bank, in its discretion, may advance Customer such
excess amount which shall be deemed a loan payable on
demand, bearing interest at the rate customarily charged by
Bank on similar loans.
(c) If Bank credits the Deposit Account on a payable
date, or at any time prior to actual collection and
reconciliation to the Deposit Account, with interest,
dividends, redemptions or any other amount due, Customer
shall promptly return any such amount upon oral or written
notification: (i) that such amount has not been received in
the ordinary course of business or (ii) that such amount was
incorrectly credited. If Customer does not promptly return
any amount upon such notification, Bank shall be entitled,
upon oral or written notification to Customer, to reverse
such credit by debiting the Deposit Account for the amount
previously credited. Bank or its Subcustodian shall have no
duty or obligation to institute legal proceedings, file a
claim or a proof of claim in any insolvency proceeding or
take any other action with respect to the collection of such
amount, but may act for Customer upon Instructions after
consultation with Customer.
6. Custody Account Transactions.
(a) Securities shall be transferred, exchanged or
delivered by Bank or its Subcustodian upon receipt by Bank
of Instructions which include all information required by
Bank. Settlement and payment for Securities received for,
and delivery of Securities out of, the Custody Account may
be made in accordance with the customary or established
securities trading or securities processing practices and
procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery
of Securities to a purchaser, dealer or their agents against
a receipt with the expectation of receiving later payment
and free delivery. Delivery of Securities out of the
Custody Account may also be made in any manner specifically
required by Instructions acceptable to Bank.
(b) Bank, in its discretion, may credit or debit the
Accounts on a contractual settlement date with cash or
Securities with respect to any sale, exchange or purchase of
Securities. Otherwise, such transactions shall be credited
or debited to the Accounts on the date cash or Securities
are actually received by Bank and reconciled to the Account.
(i) Bank may reverse credits or debits made to
the Accounts in its discretion if the related
transaction fails to settle within a reasonable
period, determined by Bank in its discretion, after
the contractual settlement date for the related
transaction.
(ii) If any Securities delivered pursuant to
this Section 6 are returned by the recipient thereof,
Bank may reverse the credits and debits of the
particular transaction at any time.
7. Actions of Bank.
Bank shall follow Instructions received regarding
assets held in the Accounts. However, until it receives
Instructions to the contrary, Bank shall:
(i) Present for payment any Securities which
are called, redeemed or retired or otherwise become
payable and all coupons and other income items which
call for payment upon presentation, to the extent that
Bank or Subcustodian is actually aware of such
opportunities.
(ii) Execute in the name of Customer such
ownership and other certificates as may be required to
obtain payments in respect of Securities.
(iii) Exchange interim receipts or temporary
Securities for definitive Securities.
(iv) Appoint brokers and agents for any
transaction involving the Securities, including,
without limitation, Affiliates of Bank or any
Subcustodian.
(v) Issue statements to Customer, at times
mutually agreed upon, identifying the Assets in the
Accounts.
Bank shall send Customer an advice or notification of
any transfers of Assets to or from the Accounts. Such
statements, advice or notifications shall indicate the
identity of the entity having custody of the Assets. Unless
Customer sends Bank a written exception or objection to any
Bank statement within sixty (60) days of receipt, Customer
shall be deemed to have approved such statement. In such
event, or where Customer has otherwise approved any such
statement, Bank shall, to the extent permitted by law, be
released, relieved and discharged with respect to all
matters set forth in such statement or reasonably implied
therefrom as though it had been settled by the decree of a
court of competent jurisdiction in an action where Customer
and all persons having or claiming an interest in Customer
or Customer's Accounts were parties.
All collections of funds or other property paid or
distributed in respect of Securities in the Custody Account
shall be made at the risk of Customer. Bank shall have no
liability for any loss occasioned by delay in the actual
receipt of notice by Bank or by its Subcustodians of any
payment, redemption or other transaction regarding
Securities in the Custody Account in respect of which Bank
has agreed to take any action hereunder.
8. Corporate Actions; Proxies; Tax Reclaims.
(a) Corporate Actions. Whenever Bank receives
information concerning the Securities which requires
discretionary action by the beneficial owner of the
Securities (other than a proxy), such as subscription
rights, bonus issues, stock repurchase plans and rights
offerings, or legal notices or other material intended to be
transmitted to securities holders ("Corporate Actions"),
Bank shall give Customer notice of such Corporate Actions to
the extent that Bank's central corporate actions department
has actual knowledge of a Corporate Action in time to notify
its customers.
When a rights entitlement or a fractional interest
resulting from a rights issue, stock dividend, stock split
or similar Corporate Action is received which bears an
expiration date, Bank shall endeavor to obtain Instructions
from Customer or its Authorized Person, but if Instructions
are not received in time for Bank to take timely action, or
actual notice of such Corporate Action was received too late
to seek Instructions, Bank is authorized to sell such rights
entitlement or fractional interest and to credit the Deposit
Account with the proceeds or take any other action it deems,
in good faith, to be appropriate in which case it shall be
held harmless for any such action.
(b) Proxy Voting. Bank shall provide proxy voting
services, if elected by Customer, in accordance with the
terms of the proxy voting services rider hereto. Proxy
voting services may be provided by Bank or, in whole or in
part, by one or more third parties appointed by Bank (which
may be Affiliates of Bank).
(c) Tax Reclaims.
(i) Subject to the provisions hereof, Bank
shall apply for a reduction of withholding tax and any
refund of any tax paid or tax credits which apply in
each applicable market in respect of income payments
on Securities for the benefit of Customer which Bank
believes may be available to such Customer.
(ii) The provision of tax reclaim services by
Bank is conditional upon Bank receiving from the
beneficial owner of Securities (A) a declaration of
its identity and place of residence and (B) certain
other documentation (pro forma copies of which are
available from Bank). Customer acknowledges that, if
Bank does not receive such declarations, documentation
and information, additional United Kingdom taxation
shall be deducted from all income received in respect
of Securities issued outside the United Kingdom and
that U.S. non-resident alien tax or U.S. backup
withholding tax shall be deducted from U.S. source
income. Customer shall provide to Bank such
documentation and information as it may require in
connection with taxation, and warrants that, when
given, this information shall be true and correct in
every respect, not misleading in any way, and contain
all material information. Customer undertakes to
notify Bank immediately if any such information
requires updating or amendment.
(iii) Bank shall not be liable to Customer or
any third party for any tax, fines or penalties
payable by Bank or Customer, and shall be indemnified
accordingly, whether these result from the inaccurate
completion of documents by Customer or any third
party, or as a result of the provision to Bank or any
third party of inaccurate or misleading information or
the withholding of material information by Customer or
any other third party, or as a result of any delay of
any revenue authority or any other matter beyond the
control of Bank.
(iv) Customer confirms that Bank is authorized
to deduct from any cash received or credited to the
Deposit Account any taxes or levies required by any
revenue or governmental authority for whatever reason
in respect of the Securities or Cash Accounts.
(v) Bank shall perform tax reclaim services
only with respect to taxation levied by the revenue
authorities of the countries notified to Customer from
time to time and Bank may, by notification in writing,
at its absolute discretion, supplement or amend the
markets in which the tax reclaim services are offered.
Other than as expressly provided in this sub-clause,
Bank shall have no responsibility with regard to
Customer's tax position or status in any jurisdiction.
(vi) Customer confirms that Bank is authorized
to disclose any information requested by any revenue
authority or any governmental body in relation to
Customer or the Securities and/or Cash held for
Customer.
(vii) Tax reclaim services may be provided by
Bank or, in whole or in part, by one or more third
parties appointed by Bank (which may be Affiliates of
Bank); provided that Bank shall be liable for the
performance of any such third party to the same extent
as Bank would have been if it performed such services
itself.
9. Nominees.
Securities which are ordinarily held in registered
form may be registered in a nominee name of Bank,
Subcustodian or securities depository, as the case may be.
Bank may without notice to Customer cause any such
Securities to cease to be registered in the name of any such
nominee and to be registered in the name of Customer. In
the event that any Securities registered in a nominee name
are called for partial redemption by the issuer, Bank may
allot the called portion to the respective beneficial
holders of such class of security in any manner Bank deems
to be fair and equitable. Customer shall hold Bank,
Subcustodians, and their respective nominees harmless from
any liability arising directly or indirectly from their
status as a mere record holder of Securities in the Custody
Account.
10. Authorized Persons.
As used herein, the term "Authorized Person" means
employees or agents including investment managers as have
been designated by written notice from Customer or its
designated agent to act on behalf of Customer hereunder.
Such persons shall continue to be Authorized Persons until
such time as Bank receives Instructions from Customer or its
designated agent that any such employee or agent is no
longer an Authorized Person.
11. Instructions.
The term "Instructions" means instructions of any
Authorized Person received by Bank, via telephone, telex,
facsimile transmission, bank wire or other teleprocess or
electronic instruction or trade information system
acceptable to Bank which Bank believes in good faith to have
been given by Authorized Persons or which are transmitted
with proper testing or authentication pursuant to terms and
conditions which Bank may specify. Unless otherwise
expressly provided, all Instructions shall continue in full
force and effect until canceled or superseded.
Any Instructions delivered to Bank by telephone shall
promptly thereafter be confirmed in writing by an Authorized
Person (which confirmation may bear the facsimile signature
of such Person), but Customer shall hold Bank harmless for
the failure of an Authorized Person to send such
confirmation in writing, the failure of such confirmation to
conform to the telephone instructions received or Bank's
failure to produce such confirmation at any subsequent time.
Bank may electronically record any Instructions given by
telephone, and any other telephone discussions with respect
to the Custody Account. Customer shall be responsible for
safeguarding any testkeys, identification codes or other
security devices which Bank shall make available to Customer
or its Authorized Persons.
12. Standard of Care; Liabilities.
(a) Bank shall be responsible for the performance of
only such duties as are set forth herein or expressly
contained in Instructions which are consistent with the
provisions hereof as follows:
(i) Bank shall use reasonable care with
respect to its obligations hereunder and the
safekeeping of Assets. Bank shall be liable to
Customer for any loss which shall occur as the result
of the failure of a Subcustodian to exercise
reasonable care with respect to the safekeeping of
such Assets to the same extent that Bank would be
liable to Customer if Bank were holding such Assets in
New York. In the event of any loss to Customer by
reason of the failure of Bank or its Subcustodian to
utilize reasonable care, Bank shall be liable to
Customer only to the extent of Customer's direct
damages, to be determined based on the market value of
the property which is the subject of the loss at the
date of discovery of such loss and without reference
to any special conditions or circumstances. Bank
shall have no liability whatsoever for any
consequential, special, indirect or speculative loss
or damages (including, but not limited to, lost
profits) suffered by Customer in connection with the
transactions contemplated hereby and the relationship
established hereby even if Bank has been advised as to
the possibility of the same and regardless of the form
of the action. Bank shall not be responsible for the
insolvency of any Subcustodian which is not a branch
or Affiliate of Bank.
(ii) Bank shall not be responsible for any act,
omission, default or the solvency of any broker or
agent which it or a Subcustodian appoints unless such
appointment was made negligently or in bad faith.
(iii) Bank shall be indemnified by, and without
liability to Customer for any action taken or omitted
by Bank whether pursuant to Instructions or otherwise
within the scope hereof if such act or omission was in
good faith, without negligence. In performing its
obligations hereunder, Bank may rely on the
genuineness of any document which it believes in good
faith to have been validly executed.
(iv) Customer shall pay for and hold Bank
harmless from any liability or loss resulting from the
imposition or assessment of any taxes or other
governmental charges, and any related expenses with
respect to income from or Assets in the Accounts.
(v) Bank shall be entitled to rely, and may
act, upon the advice of counsel (who may be counsel
for Customer) on all matters and shall be without
liability for any action reasonably taken or omitted
pursuant to such advice.
(vi) Bank need not maintain any insurance for
the benefit of Customer.
(vii) Without limiting the foregoing, Bank shall
not be liable for any loss which results from: 1) the
general risk of investing, or 2) investing or holding
Assets in a particular country including, but not
limited to, losses resulting from malfunction,
interruption of or error in the transmission of infor-
mation caused by any machines or system or
interruption of communication facilities, abnormal
operating conditions, nationalization, expropriation
or other governmental actions; regulation of the
banking or securities industry; currency restrictions,
devaluations or fluctuations; and market conditions
which prevent the orderly execution of securities
transactions or affect the value of Assets.
(viii) Neither party shall be liable to the
other for any loss due to forces beyond their control
including, but not limited to strikes or work
stoppages, acts of war (whether declared or
undeclared) or terrorism, insurrection, revolution,
nuclear fusion, fission or radiation, or acts of God.
(b) Consistent with and without limiting the first
paragraph of this Section 12, it is specifically
acknowledged that Bank shall have no duty or responsibility
to:
(i) question Instructions or make any
suggestions to Customer or an Authorized Person
regarding such Instructions;
(ii) supervise or make recommendations with
respect to investments or the retention of Securities;
(iii) advise Customer or an Authorized Person
regarding any default in the payment of principal or
income of any security other than as provided in
Section 5(c) hereof;
(iv) evaluate or report to Customer or an
Authorized Person regarding the financial condition of
any broker, agent or other party to which Securities
are delivered or payments are made pursuant hereto;
and
(v) review or reconcile trade confirmations
received from brokers. Customer or its Authorized
Persons (as defined in Section 10) issuing
Instructions shall bear any responsibility to review
such confirmations against Instructions issued to and
statements issued by Bank.
(c) Customer authorizes Bank to act hereunder
notwithstanding that Bank or any of its divisions or
Affiliates may have a material interest in a transaction, or
circumstances are such that Bank may have a potential
conflict of duty or interest including the fact that Bank or
any of its Affiliates may provide brokerage services to
other customers, act as financial advisor to the issuer of
Securities, act as a lender to the issuer of Securities, act
in the same transaction as agent for more than one customer,
have a material interest in the issue of Securities, or earn
profits from any of the activities listed herein.
13. Fees and Expenses.
Customer shall pay Bank for its services hereunder
such amounts as may be agreed upon in writing, together with
Bank's reasonable out-of-pocket or incidental expenses,
including, but not limited to, legal fees. Bank shall have
a lien on and is authorized to charge any Accounts of
Customer for any amount owing to Bank under any provision
hereof.
14. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate
the administration of Customer's trading and investment
activity, Bank is authorized to enter into spot or forward
foreign exchange contracts with Customer or an Authorized
Person for Customer and may also provide foreign exchange
through its subsidiaries, Affiliates or Subcustodians.
Instructions, including standing instructions, may be issued
with respect to such contracts but Bank may establish rules
or limitations concerning any foreign exchange facility made
available. In all cases where Bank, its subsidiaries,
Affiliates or Subcustodians enter into a foreign exchange
contract related to Accounts, the terms and conditions of
the then current foreign exchange contract of Bank, its
subsidiary, Affiliate or Subcustodian and, to the extent not
inconsistent, this Agreement shall apply to such
transaction.
(b) Certification of Residency, etc. Customer
certifies that it is a resident of the United States and
shall notify Bank of any changes in residency. Bank may
rely upon this certification or the certification of such
other facts as may be required to administer Bank's
obligations hereunder. Customer shall indemnify Bank
against all losses, liability, claims or demands arising
directly or indirectly from any such certifications.
(c) Access to Records. Bank shall allow Customer's
independent public accountant reasonable access to the
records of Bank relating to the Assets as is required in
connection with their examination of books and records
pertaining to Customer's affairs. Subject to restrictions
under applicable law, Bank shall also obtain an undertaking
to permit Customer's independent public accountants
reasonable access to the records of any Subcustodian which
has physical possession of any Assets as may be required in
connection with the examination of Customer's books and
records.
(d) Governing Law; Successors and Assigns, Captions
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS
MADE AND TO BE PERFORMED IN NEW YORK
and shall not be assignable by either party, but
shall bind the successors in interest of Customer and Bank.
The captions given to the sections and subsections of this
Agreement are for convenience of reference only and are not
to be used to interpret this Agreement.
(e) Entire Agreement; Applicable Riders. Customer
represents that the Assets deposited in the Accounts are
(Check one):
Employee Benefit Plan or other assets subject
to the Employee Retirement Income Security Act of
1974, as amended ("ERISA");
X Investment Company assets subject to certain
U.S. Securities and Exchange Commission rules
and regulations;
Neither of the above.
This Agreement consists exclusively of this document
together with Schedule A, Exhibit I and the following
Rider(s) [Check applicable rider(s)]:
ERISA
X INVESTMENT COMPANY
X PROXY VOTING
X SPECIAL TERMS AND CONDITIONS
There are no other provisions hereof and this
Agreement supersedes any other agreements, whether written
or oral, between the parties. Any amendment hereto must be
in writing, executed by both parties.
(f) Severability. In the event that one or more
provisions hereof are held invalid, illegal or unenforceable
in any respect on the basis of any particular circumstances
or in any jurisdiction, the validity, legality and
enforceability of such provision or provisions under other
circumstances or in other jurisdictions and of the remaining
provisions shall not in any way be affected or impaired.
(g) Waiver. Except as otherwise provided herein, no
failure or delay on the part of either party in exercising
any power or right hereunder operates as a waiver, nor does
any single or partial exercise of any power or right
preclude any other or further exercise, or the exercise of
any other power or right. No waiver by a party of any
provision hereof, or waiver of any breach or default, is
effective unless in writing and signed by the party against
whom the waiver is to be enforced.
(h) Representations and Warranties. (i) Customer
hereby represents and warrants to Bank that: (A) it has
full authority and power to deposit and control the
Securities and cash deposited in the Accounts; (B) it has
all necessary authority to use Bank as its custodian; (C)
this Agreement is its legal, valid and binding obligation,
enforceable in accordance with its terms; (D) it shall have
full authority and power to borrow moneys and enter into
foreign exchange transactions; and (E) it has not relied on
any oral or written representation made by Bank or any
person on its behalf, and acknowledges that this Agreement
sets out to the fullest extent the duties of Bank. (ii)
Bank hereby represents and warrants to Customer that: (A)
it has the power and authority to perform its obligations
hereunder, (B) this Agreement constitutes a legal, valid
and binding obligation on it; enforceable in accordance
with its terms; and (C) that it has taken all necessary
action to authorize the execution and delivery hereof.
(i) Notices. All notices hereunder shall be
effective when actually received. Any notices or other
communications which may be required hereunder are to be
sent to the parties at the following addresses or such
other addresses as may subsequently be given to the other
party in writing: (a) Bank: The Chase Manhattan Bank, 4
Chase MetroTech Center, Brooklyn, NY 11245, Attention:
Global Custody Division; and (b) Customer: C/O Smith
Barney Inc., 388 Greenwich Street, 22nd Floor, New York,
New York 10013, Attn: Lewis E. Daidone or Christina T.
Sydor.
(j) Termination. This Agreement may be terminated
by Customer or Bank by giving sixty (60) days written notice
to the other, provided that such notice to Bank shall
specify the names of the persons to whom Bank shall deliver
the Assets in the Accounts. If notice of termination is
given by Bank, Customer shall, within sixty (60) days
following receipt of the notice, deliver to Bank
Instructions specifying the names of the persons to whom
Bank shall deliver the Assets. In either case Bank shall
deliver the Assets to the persons so specified, after
deducting any amounts which Bank determines in good faith to
be owed to it under Section 13. If within sixty (60) days
following receipt of a notice of termination by Bank, Bank
does not receive Instructions from Customer specifying the
names of the persons to whom Bank shall deliver the Assets,
Bank, at its election, may deliver the Assets to a bank or
trust company doing business in the State of New York to be
held and disposed of pursuant to the provisions hereof, or
to Authorized Persons, or may continue to hold the Assets
until Instructions are provided to Bank.
(k) Imputation of Certain Information. Bank shall
not be held responsible for and shall not be required to
have regard to information held by any person by imputation
or information of which Bank is not aware by virtue of a
"Chinese Wall" arrangement. If Bank becomes aware of
confidential information which in good faith it feels
inhibits it from effecting a transaction hereunder Bank may
refrain from effecting it.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first-above written.
CUSTOMER
By:____________________________________________
Title: Senior Vice President and Treasurer
Date: December 6, 1996
THE CHASE MANHATTAN BANK
By:____________________________________________
Title:
Date:
78111
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this 6th day of December, 1996, before me
personally came Lewis E. Daidone, to me known, who being by
me duly sworn, did depose and say that he resides in
Holmdel, New Jersey at 15 Sherwood Court, that he is Senior
Vice President and Treasurer of Customer, the entity
described in and which executed the foregoing instrument;
and that he signed his name thereto by order of said entity.
Lewis E. Daidone
Sworn to before me this 6th
day of December, 1996.
Notary
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this _______ day of December, 1996, before me
personally came
, to me known, who being by me duly sworn, did depose and
say that he/she resides in
at that he/she is a Vice President of THE CHASE MANHATTAN
BANK, the corporation described in and which executed the
foregoing instrument; that he/she knows the seal of said
corporation, that the seal affixed to said instrument is
such corporate seal, that it was so affixed by order of the
Board of Directors of said corporation, and that he/she
signed his/her name thereto by like order.
Sworn to before me this
day of , 199 .
Notary
EXHIBIT I
Dated December 6, 1996
Smith Barney World Funds, Inc.
Emerging Market Portfolio
European Portfolio
Global Government Bond Portfolio
International Balanced Portfolio
International Equity Portfolio
Pacific Portfolio
Smith Barney Natural Resources Fund Inc.
Smith Barney Income Funds
Smith Barney Diversified Strategic Income Fund
Consulting Group Capital Markets Funds (TRAK)
International Equity Investments
International Fixed Income Investments
Emerging Markets Equity Investments
The Italy Fund
Travelers Series Fund Inc. (Vintage)
GT Global Strategic Income Portfolio
Smith Barney International Equity Portfolio
Smith Barney Pacific Basin Portfolio
Travelers Series Trust (Architect)
Lazard International Stock Portfolio
Smith Barney Series Trust (Symphony)
Diversified Strategic Income Fund
International Equity Fund
Investment Company Rider to Global Custody Agreement
Between The Chase Manhattan Bank and
Each of the Investment Companies listed on Exhibit I to said
Global Custody Agreement
effective December 6, 1996
Customer represents that the Assets being placed in
Bank's custody are subject to the Investment Company Act of
1940, as amended (the "1940 Act"), as the same may be
amended from time to time.
Except to the extent that Bank has specifically agreed
to comply with a condition of a rule, regulation,
interpretation promulgated by or under the authority of the
Securities and Exchange Commission ("SEC") or the Exemptive
Order applicable to accounts of this nature issued to Bank
(1940 Act, Release No. 12053, November 20, 1981), as
amended, or unless Bank has otherwise specifically agreed,
Customer shall be solely responsible to assure that the
maintenance of Assets hereunder complies with such rules,
regulations, interpretations or exemptive order promulgated
by or under the authority of the Securities Exchange
Commission.
The following modifications are made to the Agreement:
Section 3. Subcustodians and Securities
Depositories.
Add the following language to the end of Section 3:
The terms Subcustodian and securities depositories as
used herein shall mean a branch of a qualified U.S.
bank, an eligible foreign custodian or an eligible
foreign securities depository, which are further
defined as follows:
(a) "qualified U.S. Bank" shall mean a qualified U.S.
bank as defined in Rule 17f-5 under the 1940 Act;
(b) "eligible foreign custodian" shall mean (i) a
banking institution or trust company, incorporated or
organized under the laws of a country other than the
United States, that is regulated as such by that
country's government or an agency thereof and that has
shareholders' equity in excess of $200 million in U.S.
currency (or a foreign currency equivalent thereof) as
of the close of its fiscal year most recently
completed prior to the date hereof, (ii) a majority
owned direct or indirect subsidiary of a qualified
U.S. bank or bank holding company that is incorporated
or organized under the laws of a country other than
the United States and that has shareholders' equity in
excess of $100 million in U.S. currency (or a foreign
currency equivalent thereof) as of the close of its
fiscal year most recently completed prior to the date
hereof, (iii) a banking institution or trust company
incorporated or organized under the laws of a country
other than the United States or a majority owned
direct or indirect subsidiary of a qualified U.S. bank
or bank holding company that is incorporated or
organized under the laws of a country other than the
United States which has such other qualifications as
shall be specified in Instructions and approved by
Bank; or (iv) any other entity that shall have been so
qualified by exemptive order, rule or other
appropriate action of the SEC; and
(c) "eligible foreign securities depository" shall
mean a securities depository or clearing agency,
incorporated or organized under the laws of a country
other than the United States, which operates (i) the
central system for handling securities or equivalent
book-entries in that country, or (ii) a transnational
system for the central handling of securities or
equivalent book-entries.
Customer represents that its Board of Directors has
approved each of the Subcustodians listed in Schedule A
hereto, and further represents that its Board has determined
that the use of each Subcustodian and the terms of each
subcustody agreement are consistent with the best interests
of the Fund(s) and its (their) shareholders. Bank shall
supply Customer with any amendment to Schedule A for
approval. Customer has supplied or shall supply Bank with
certified copies of its Board of Directors resolution(s)
with respect to the foregoing prior to placing Assets with
any Subcustodian so approved.
Section 11. Instructions.
Add the following language to the end of Section 11:
Deposit Account Payments and Custody Account
Transactions made pursuant to Section 5 and 6 hereof
may be made only for the purposes listed below.
Instructions must specify the purpose for which any
transaction is to be made and Customer shall be solely
responsible to assure that Instructions are in accord
with any limitations or restrictions applicable to
Customer by law or as may be set forth in its
prospectus.
(a) In connection with the purchase or sale of
Securities at prices as confirmed by Instructions;
(b) When Securities are called, redeemed or retired,
or otherwise become payable;
(c) In exchange for or upon conversion into other
securities alone or other securities and cash pursuant
to any plan or merger, consolidation, reorganization,
recapitalization or readjustment;
(d) Upon conversion of Securities pursuant to their
terms into other securities;
(e) Upon exercise of subscription, purchase or other
similar rights represented by Securities;
(f) For the payment of interest, taxes, management or
supervisory fees, distributions or operating expenses;
(g) In connection with any borrowings by Customer
requiring a pledge of Securities, but only against
receipt of amounts borrowed;
(h) In connection with any loans, but only against
receipt of adequate collateral as specified in
Instructions which shall reflect any restrictions
applicable to Customer;
(i) For the purpose of redeeming shares of the
capital stock of Customer and the delivery to, or the
crediting to the account of, Bank, its Subcustodian or
Customer's transfer agent, such shares to be purchased
or redeemed;
(j) For the purpose of redeeming in kind shares of
Customer against delivery to Bank, its Subcustodian or
Customer's transfer agent of such shares to be so
redeemed;
(k) For delivery in accordance with the provisions of
any agreement among Customer, Bank and a broker-dealer
registered under the Securities Exchange Act of 1934
and a member of The National Association of Securities
Dealers, Inc., relating to compliance with the rules
of The Options Clearing Corporation and of any
registered national securities exchange, or of any
similar organization or organizations, regarding
escrow or other arrangements in connection with
transactions by Customer;
(l) For release of Securities to designated brokers
under covered call options, provided, however, that
such Securities shall be released only upon payment to
Bank of monies for the premium due and a receipt for
the Securities which are to be held in escrow. Upon
exercise of the option, or at expiration, Bank shall
receive from brokers the Securities previously
deposited. Bank shall act strictly in accordance with
Instructions in the delivery of Securities to be held
in escrow and shall have no responsibility or
liability for any such Securities which are not
returned promptly when due other than to make proper
request for such return;
(m) For spot or forward foreign exchange transactions
to facilitate security trading, receipt of income from
Securities or related transactions;
(n) For other proper purposes as may be specified in
Instructions issued by an officer of Customer which
shall include a statement of the purpose for which the
delivery or payment is to be made, the amount of the
payment or specific Securities to be delivered, the
name of the person or persons to whom delivery or
payment is to be made, and a certification that the
purpose is a proper purpose under the instruments
governing Customer; and
(o) Upon the termination hereof as set forth in
Section 14(j).
Section 12. Standard of Care; Liabilities.
Add the following at the end of Section as 12:
(d) Bank hereby warrants to Customer that in its
opinion, after due inquiry, the established procedures
to be followed by each of its branches, each branch of
a qualified U.S. Bank, each eligible foreign custodian
and each eligible foreign securities depository
holding Customer's Securities pursuant hereto afford
protection for such Securities at least equal to that
afforded by Bank's established procedures with respect
to similar securities held by Bank and its securities
depositories in New York.
Section 14. Access to Records.
Add the following language to the end of Section
14(c):
Upon reasonable request from Customer, Bank shall
furnish Customer such reports (or portions thereof) of
Bank's system of internal accounting controls
applicable to Bank's duties hereunder. Bank shall
endeavor to obtain and furnish Customer with such
similar reports as it may reasonably request with
respect to each Subcustodian and securities depository
holding Assets.
GLOBAL PROXY SERVICE RIDER
To Global Custody Agreement
Between
THE CHASE MANHATTAN BANK
AND
Each of the Investment Companies Listed on Exhibit I to said
Global Custody Agreement
dated December 6, 1996.
1. Global Proxy Services ("Proxy Services") shall be
provided for the countries listed in the procedures
and guidelines ("Procedures") furnished to Customer,
as the same may be amended by Bank from time to time
on prior notice to Customer. The Procedures are
incorporated by reference herein and form a part of
this Rider.
2. Proxy Services shall consist of those elements as set
forth in the Procedures, and shall include (a)
notifications ("Notifications") by Bank to Customer of
the dates of pending shareholder meetings, resolutions
to be voted upon and the return dates as may be
received by Bank or provided to Bank by its
Subcustodians or third parties, and (b) voting by Bank
of proxies based on Customer Directions. Original
proxy materials or copies thereof shall not be
provided. Notifications shall generally be in English
and, where necessary, shall be summarized and
translated from such non-English materials as have
been made available to Bank or its Subcustodian. In
this respect Bank's only obligation is to provide
information from sources it believes to be reliable
and/or to provide materials summarized and/or
translated in good faith. Bank reserves the right to
provide Notifications, or parts thereof, in the
language received. Upon reasonable advance request by
Customer, backup information relative to
Notifications, such as annual reports, explanatory
material concerning resolutions, management
recommendations or other material relevant to the
exercise of proxy voting rights shall be provided as
available, but without translation.
3. While Bank shall attempt to provide accurate and
complete Notifications, whether or not translated,
Bank shall not be liable for any losses or other
consequences that may result from reliance by Customer
upon Notifications where Bank prepared the same in
good faith.
4. Notwithstanding the fact that Bank may act in a
fiduciary capacity with respect to Customer under
other agreements or otherwise under the Agreement, in
performing Proxy Services Bank shall be acting solely
as the agent of Customer, and shall not exercise any
discretion with regard to such Proxy Services.
5. Proxy voting may be precluded or restricted in a
variety of circumstances, including, without
limitation, where the relevant Securities are: (i) on
loan; (ii) at registrar for registration or
reregistration; (iii) the subject of a conversion or
other corporate action; (iv) not held in a name
subject to the control of Bank or its Subcustodian or
are otherwise held in a manner which precludes voting;
(v) not capable of being voted on account of local
market regulations or practices or restrictions by the
issuer; or (vi) held in a margin or collateral
account.
6. Customer acknowledges that in certain countries Bank
may be unable to vote individual proxies but shall
only be able to vote proxies on a net basis (e.g., a
net yes or no vote given the voting instructions
received from all customers).
7. Customer shall not make any use of the information
provided hereunder, except in connection with the
funds or plans covered hereby, and shall in no event
sell, license, give or otherwise make the information
provided hereunder available, to any third party, and
shall not directly or indirectly compete with Bank or
diminish the market for Proxy Services by provision of
such information, in whole or in part, for
compensation or otherwise, to any third party.
8. The names of Authorized Persons for Proxy Services
shall be furnished to Bank in accordance with "10 of
the Agreement. Proxy Services fees shall be as set
forth in "13 of the Agreement or as separately agreed.
DOMESTIC AND GLOBAL
SPECIAL TERMS AND CONDITIONS RIDER
Domestic Corporate Actions and Proxies
With respect to domestic U.S. and Canadian Securities (the
latter if held in DTC), the following provisions shall apply
rather than the pertinent provisions of Section 8 of the
Agreement and the Global Proxy Service rider:
Bank shall send to Customer or the Authorized
Person for a Custody Account, such proxies
(signed in blank, if issued in the name of
Bank's nominee or the nominee of a central
depository) and communications with respect to
Securities in the Custody Account as call for
voting or relate to legal proceedings within a
reasonable time after sufficient copies are
received by Bank for forwarding to its
customers. In addition, Bank shall follow
coupon payments, redemptions, exchanges or
similar matters with respect to Securities in
the Custody Account and advise Customer or the
Authorized Person for such Account of rights
issued, tender offers or any other discretionary
rights with respect to such Securities, in each
case, of which Bank has received notice from the
issuer of the Securities, or as to which notice
is published in publications routinely utilized
by Bank for this purpose.
AMENDMENT, dated as of October 27, 1997 to the Global
Custody Agreement ("Agreement"), dated December 6, 1996,
between The Chase Manhattan Bank and each of the investment
companies listed on Exhibit 1 thereto.
It is agreed as follows:
1. The contents of Exhibit 1 to the Agreement are
deleted, and the following is hereby substituted in lieu
thereof:
Smith Barney World Funds, Inc.
Emerging Market Portfolio
European Portfolio
Global Government Bond Portfolio
International Balanced Portfolio
International Equity Portfolio
Pacific Portfolio
Smith Barney Natural Resources Fund Inc.
Smith Barney Income Funds
Smith Barney Diversified Strategic Income Fund
Smith Barney Investment Funds Inc.
Smith Barney Hansberger Global Value Fund
Smith Barney Hansberger Global Small Cap Value Fund
Consulting Group Capital Markets Funds (TRAK)
International Equity Investments
International Fixed Income Investments
Emerging Markets Equity Investments
The Italy Fund
Travelers Series Fund Inc. (Vintage)
GT Global Strategic Income Portfolio
Smith Barney International Equity Portfolio
Smith Barney Pacific Basin Portfolio
Travelers Series Trust (Architect)
Lazard International Stock Portfolio
Greenwich Street Series Fund (Symphony) (Formerly, Smith
Barney Series Fund)
Diversified Strategic Income Fund
International Equity Fund
2. Except as modified hereby, the Agreement is
confirmed in all respects.
IN WITNESS WHEREOF, the parties have executed this
Amendment as of the date first above written.
EACH OF THE INVESTMENT THE CHASE
COMPANIES LISTED ABOVE MANHATTAN BANK
By: By:
Print Name: Lewis Daidone Print Name:
Title: Senior Vice President Title:
FORM OF SHAREHOLDER
SERVICES AND DISTRIBUTION PLAN
SHAREHOLDER SERVICES AND DISTRIBUTION PLAN
This Shareholder Services and Distribution Plan (the "Plan") is
adopted in accordance with Rule 12b-1 (the "Rule") under the Investment
Company Act of 1940, as amended (the "1940 Act"), by Smith Barney
Investment Funds Inc., a corporation organized under the laws of the State of
Maryland (the "Corporation"), in respect to the Smith Barney Hansberger
Global Value Fund (the "Fund"), subject to the following terms and
conditions:
Section 1. Annual Fee.
(a) Class A Service Fee. The Corporation will pay to the
distributor of the Fund's shares of beneficial interest, Smith Barney Inc., a
corporation organized under the laws of the State of Delaware (the
"Distributor"), a service fee under the Plan at an annual rate of 0.25% of the
average daily net assets of the Fund attributable to the Class A shares sold by
the Distributor (the "Class A Service Fee").
(b) Service Fee for Class B shares. The Corporation will pay to
the Fund's Distributor a service fee under the Plan at the annual rate of 0.25%
of the average daily net assets of the Fund attributable to the Class B shares
sold by the Distributor (the "Class B Service Fee").
(c) Distribution Fee for Class B shares. In addition to the Class
B Service Fee, the Corporation will pay the Distributor a distribution fee
under
the Plan at the annual rate of 0.75% of the average daily net assets of the
Fund
attributable to the Class B shares sold by the Distributor (the "Class B
Distribution Fee").
(d) Service Fee for Class C shares. The Corporation will pay to
the Fund's Distributor a service fee under the plan at the annual rate of 0.25%
of the average daily net assets of the Fund attributable to the Class C shares
sold by the Distributor (the "Class C Service Fee").
(e) Distribution Fee for Class C shares. In addition to the Class
C Service Fee, the Corporation will pay the Fund's Distributor a distribution
fee under the plan at the annual rate of 0.75% of the average daily net
assets of
the Fund attributable to the Class C shares sold by the Distributor (the "Class
C
Distribution Fee").
(f) Payment of Fees. The Service Fees and Distribution Fees will
be calculated daily and paid monthly by the Corporation with respect to the
foregoing classes of the Fund's shares (each a "Class" and together, the
"Classes") at the annual rates indicated above.
Section 2. Expenses Covered by the Plan.
With respect to expenses incurred by each Class, its respective
Service Fees and/or Distribution Fees may be used by the Distributor for: (a)
costs of printing and distributing the Fund's prospectuses, statements of
additional information and reports to prospective investors in the Fund; (b)
costs involved in preparing, printing and distributing sales literature
pertaining to the Fund; (c) an allocation of overhead and other branch office
distribution-related expenses of the Distributor; (d) payments made
to, and expenses of, the Distributor's financial consultants and other persons
who provide support services to Fund shareholders in connection with the
distribution of the Fund's shares, including but not limited to, office space
and
equipment, telephone facilities, answering routine inquires regarding the Fund
and its operation, processing shareholder transactions, forwarding and
collecting proxy material, changing dividend payment elections and providing
any other shareholder services not otherwise provided by the Fund's transfer
agent; and (e) accruals for interest on the amount of the foregoing
expenses that exceed the Distribution Fee and, in the case of Class B and Class
C shares, the contingent deferred sales charge received by the Distributor;
provided, however, that the Distribution Fees may be used by the Distributor
only to cover expenses primarily intended to result in the sale of those
shares,
including, without limitation, payments to the Distributor's financial
consultants at the time of the sale of the shares. In addition,
Service Fees are intended to be used by the Distributor primarily to pay its
financial consultants for servicing shareholder accounts, including a
continuing fee to each such financial consultant, which fee shall begin to
accrue immediately after the sale of such shares.
Section 3. Approval by Shareholders
The Plan will not take effect, and no fees will be payable in
accordance with Section 1 of the Plan, with respect to a Class until the Plan
has been approved by a vote of at least a majority of the outstanding voting
securities of the Class. The Plan will be deemed to have been approved with
respect to a Class, so long as a majority of the outstanding voting securities
of
the Class votes for the approval of the Plan, notwithstanding that: (a) the
Plan
has not been approved by a majority of the outstanding voting securities of any
other Class; or (b) the Plan has not been approved by a majority of the
outstanding voting securities of the Fund.
Section 4. Approval by Directors
Neither the Plan nor any related agreements will take effect until
approved by a majority vote of both (a) the Board of Directors and (b) those
Directors who are not interested persons of the Corporation and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreements related to it (the "Qualified "), cast in person at a meeting called
for the purpose of voting on the Plan and the related agreements.
Section 5. Continuance of the Plan.
The Plan will continue in effect with respect to each Class until
October 31, 1998 and thereafter for successive twelve-month periods with
respect to each Class; provided, however, that such continuance is specifically
approved at least annually by the Directors of the Corporation and by a
majority of the Qualified Directors.
Section 6. Termination.
The Plan may be terminated at any time with respect to a Class (i) by
the Corporation without the payment of any penalty, by the vote of a majority
of the outstanding voting securities of such Class or (ii) by a majority vote
of
the Qualified Directors. The Plan may remain in effect with respect to a
particular Class even if the Plan has been terminated in accordance with this
Section 6 with respect to any other Class.
Section 7. Amendments.
The Plan may not be amended with respect to any Class so as to
increase materially the amounts of the fees described in Section 1 above,
unless the amendment is approved by a vote of holders of at least a majority of
the outstanding voting securities of that Class. No material amendment to the
Plan may be made unless approved by the Corporation's Board of Directors in
the manner described above.
Section 8. Selection of Certain Directors.
While the Plan is in effect, the selection and nomination of the
Corporation's Directors who are not interested persons of the Fund will be
committed to the discretion of the Directors then in office who are not
interested persons of the Fund.
Section 9. Written Reports
In each year during which the Plan remains in effect, any person
authorized to direct the disposition of monies paid or payable by the Fund
pursuant to the Plan or any related agreement will prepare and furnish to the
Corporation's Board of Directors and the Board will review, at least quarterly,
written reports complying with the requirements of the Rule, which set out the
amounts expended under the Plan and the purposes for which those
expenditures were made.
Section 10. Preservation of Materials.
The Corporation will preserve copies of the Plan, any agreement
relating to the Plan and any report made pursuant to Section 9 above, for a
period of not less than six years (the first two years in an easily accessible
place) from the date of the Plan, agreement or report.
Section 11. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and "majority of
the outstanding voting securities" will be deemed to have the same meaning
that those terms have under the rules and regulations under the 1940 Act,
subject to any exemption that may be granted to the Fund under the 1940 Act,
by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the Fund has executed the Plan as of
October ____, 1997.
SMITH BARNEY INVESTMENT FUNDS INC.
On behalf of Smith Barney Hansberger Global Value Fund
By: ____________________________________
Heath B. McLendon
Chairman of the Board
FORM OF SHAREHOLDER
SERVICES AND DISTRIBUTION PLAN
SHAREHOLDER SERVICES AND DISTRIBUTION PLAN
This Shareholder Services and Distribution Plan (the "Plan") is adopted in
accordance with Rule 12b-1 (the "Rule") under the Investment Company Act of
1940, as amended (the "1940 Act"), by Smith Barney Investment Funds Inc. , a
business corporation organized under the laws of the State of Maryland (the
"Corporation"), in respect to the Smith Barney Hansberger Global Small Cap
Value Fund (the "Fund"), subject to the following terms and conditions:
Section 1. Annual Fee.
(a) Class A Service Fee. The Corporation will pay to the distributor of the
Fund's shares of beneficial interest, Smith Barney Inc., a corporation
organized under the laws of the State of Delaware (the "Distributor"), a
service fee under the Plan at an annual rate of 0.25% of the average
daily net assets of the Fund attributable to the Class A shares sold by
the Distributor (the "Class A Service Fee").
(b) Service Fee for Class B shares. The Corporation will pay to the Fund's
Distributor a service fee under the Plan at the annual rate of 0.25% of
the average daily net assets of the Fund attributable to the Class B
shares sold by the Distributor (the "Class B Service Fee").
(c) Distribution Fee for Class B shares. In addition to the Class B Service
Fee, the Corporation will pay the Distributor a distribution fee under
the Plan at the annual rate of 0.75% of the average daily net assets of
the Fund attributable to the Class B shares sold by the Distributor (the
"Class B Distribution Fee").
(d) Service Fee for Class C shares. The Corporation will pay to the Fund's
Distributor a service fee under the plan at the annual rate of 0.25% of
the average daily net assets of the Fund attributable to the Class C
shares sold by the Distributor (the "Class C Service Fee").
(e) Distribution Fee for Class C shares. In addition to the Class C Service
Fee, the Corporation will pay the Fund's Distributor a distribution fee
under the plan at the annual rate of 0.75% of the average daily net
assets of the Fund attributable to the Class C shares sold by the
Distributor (the "Class C Distribution Fee").
(f) Payment of Fees. The Service Fees and Distribution Fees will be
calculated daily and paid monthly by the Corporation with respect to
the foregoing classes of the Fund's shares (each a "Class" and together,
the "Classes") at the annual rates indicated above.
Section 2. Expenses Covered by the Plan.
With respect to expenses incurred by each Class, its respective Service Fees
and/or Distribution Fees may be used by the Distributor for: (a) costs of
printing
and distributing the Fund's prospectuses, statements of additional information
and
reports to prospective investors in the Fund; (b) costs involved in preparing,
printing and distributing sales literature pertaining to the Fund; (c) an
allocation of
overhead and other branch office distribution-related expenses of the
Distributor;
(d) payments made to, and expenses of, the Distributor's financial
consultants and
other persons who provide support services to Fund shareholders in connection
with the distribution of the Fund's shares, including but not limited to,
office space
and equipment, telephone facilities, answering routine inquires regarding the
Fund
and its operation, processing shareholder transactions, forwarding and
collecting
proxy material, changing dividend payment elections and providing any other
shareholder services not otherwise provided by the Fund's transfer agent; and
(e)
accruals for interest on the amount of the foregoing expenses that exceed the
Distribution Fee and, in the case of Class B and Class C shares, the
contingent
deferred sales charge received by the Distributor; provided, however, that the
Distribution Fees may be used by the Distributor only to cover expenses
primarily
intended to result in the sale of those shares, including, without limitation,
payments to the Distributor's financial consultants at the time of the sale of
the
shares. In addition, Service Fees are intended to be used by the Distributor
primarily to pay its financial consultants for servicing shareholder accounts,
including a continuing fee to each such financial consultant, which fee
shall begin
to accrue immediately after the sale of such shares.
Section 3. Approval by Shareholders
The Plan will not take effect, and no fees will be payable in accordance with
Section 1 of the Plan, with respect to a Class until the Plan has been approved
by a
vote of at least a majority of the outstanding voting securities of the Class.
The
Plan will be deemed to have been approved with respect to a Class, so
long as a
majority of the outstanding voting securities of the Class votes for the
approval of
the Plan, notwithstanding that: (a) the Plan has not been approved by a
majority of
the outstanding voting securities of any other Class; or (b) the Plan has not
been
approved by a majority of the outstanding voting securities of the Fund.
Section 4. Approval by Directors
Neither the Plan nor any related agreements will take effect until approved by
a
majority vote of both (a) the Board of Directors and (b) those Directors who are
not
interested persons of the Corporation and who have no direct or indirect
financial
interest in the operation of the Plan or in any agreements related to it (the
"Qualified Directors"), cast in person at a meeting called for the purpose of
voting
on the Plan and the related agreements.
Section 5. Continuance of the Plan.
The Plan will continue in effect with respect to each Class until October 31,
1998 and thereafter for successive twelve-month periods with respect to each
Class;
provided, however, that such continuance is specifically approved at least
annually
by the Directors of the Corporation and by a majority of the Qualified
Directors.
Section 6. Termination.
The Plan may be terminated at any time with respect to a Class (i) by the
Corporation without the payment of any penalty, by the vote of a majority of
the
outstanding voting securities of such Class or (ii) by a majority vote of the
Qualified Directors. The Plan may remain in effect with respect to a
particular
Class even if the Plan has been terminated in accordance with this Section 6
with
respect to any other Class.
Section 7. Amendments.
The Plan may not be amended with respect to any Class so as to increase
materially the amounts of the fees described in Section 1 above, unless the
amendment is approved by a vote of holders of at least a majority of the
outstanding voting securities of that Class. No material amendment to the Plan
may be made unless approved by the Corporation's Board of Directors in the
manner described above.
Section 8. Selection of Certain Directors.
While the Plan is in effect, the selection and nomination of the Corporation's
Directors who are not interested persons of the Fund will be committed to the
discretion of the Directors then in office who are not interested persons of
the
Fund.
Section 9. Written Reports
In each year during which the Plan remains in effect, any person authorized to
direct the disposition of monies paid or payable by the Fund pursuant to the
Plan or
any related agreement will prepare and furnish to the Corporation's Board of
Directors and the Board will review, at least quarterly, written reports
complying
with the requirements of the Rule, which set out the amounts expended under the
Plan and the purposes for which those expenditures were made.
Section 10. Preservation of Materials.
The Corporation will preserve copies of the Plan, any agreement relating to the
Plan and any report made pursuant to Section 9 above, for a period of not less
than
six years (the first two years in an easily accessible place) from the date of
the Plan,
agreement or report.
Section 11. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning that
those
terms have under the rules and regulations under the 1940 Act, subject to any
exemption that may be granted to the Fund under the 1940 Act, by the
Securities
and Exchange Commission.
IN WITNESS WHEREOF, the Fund has executed the Plan as of October ____,
1997.
SMITH BARNEY INVESTMENT FUNDS INC.,
On behalf of
Smith Barney Hansberger Global Small Cap Value Fund
By: ____________________________________
Heath B. McLendon
Chairman of the Board
