As filed with the Securities and Exchange Commission
on July 16, 1998
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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. 49
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940,
Amendment No. 51
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)
(800)-451-2010
(Registrant's Telephone Number, including Area Code:)
Christina T. Sydor
388 Greenwich Street, New York, New York 10013(22nd
Floor)
(Name and Address of Agent For Service)
Continuous
(Approximate Date of Proposed Public Offering)
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to Paragraph
(b)
___ On (date) pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)
(1)
_____ On (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)
(2)
XXX On September 30, 1998 pursuant to paragraph (a)(2) of rule
485
If appropriate, check the following box:
_____ This post-effective amendment designates a new
effective date for a previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Common
Stock
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 Financial
Highlights Information
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;
Annual Report
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 Principal
Management of the Company
Holders of Securities
16. Investment Advisory
and Other Services Management of the
Company;
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;
Pricing of Securities Being Redemption of
Shares
Offered 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 Financial
Statements
SMITH BARNEY INVESTMENT FUNDS
PART A
<PAGE>
P R O S P E C T U S
SMITH BARNEY
Small Cap
Growth
Fund
SEPTEMBER 30, 1998
PROSPECTUS BEGINS ON PAGE ONE
LOGO Smith Barney Mutual Funds
INVESTING FOR YOUR FUTURE.
EVERY DAY.
<PAGE>
PROSPECTUS SEPTEMBER 30, 1998
Smith Barney
Small Cap Growth Fund
388 Greenwich Street
New York, New York 10013
1-800-451-2010
Smith Barney Small Cap Growth Fund (the "Fund") is a mutual fund that seeks
long-term growth of capital by investing, under normal market conditions, at
least 65% of its total assets in the equity securities of smaller capitalized
companies (companies with market capitalizations of $1.4 billion or less at
the time of investment).
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 Company 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 [ ]
1998, (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 [ ] 1998. See "Purchase of Shares."
This Prospectus sets forth concisely certain information about the Fund,
including sales charges, distribution and service fees and expenses, that pro-
spective investors will find helpful in making an investment decision. Invest-
ors are encouraged to read this Prospectus carefully and retain it for future
reference.
Shares of the other Funds offered by the Company are described in separate
prospectuses that may be obtained by calling the Company at 1-800-451-2010.
Additional information about the Fund is contained in a Statement of Addi-
tional Information, (the "SAI") dated September 30, 1998, as amended or sup-
plemented from time to time, that is available upon request and without charge
by calling or writing the Fund at the telephone number or address set forth
above or by contacting a Smith Barney Financial Consultant. The SAI has been
filed with the Securities and Exchange Commission (the "SEC") and is incorpo-
rated by reference into this Prospectus in its entirety.
CFBDS, INC.
Distributor
MUTUAL MANAGEMENT CORP.
Investment Manager
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 9
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VALUATION OF SHARES 11
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DIVIDENDS, DISTRIBUTIONS AND TAXES 11
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PURCHASE OF SHARES 13
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EXCHANGE PRIVILEGE 23
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REDEMPTION OF SHARES 26
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MINIMUM ACCOUNT SIZE 28
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PERFORMANCE 29
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MANAGEMENT OF THE COMPANY AND THE FUND 29
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DISTRIBUTION 30
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ADDITIONAL INFORMATION 31
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APPENDIX A A-1
</TABLE>
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No person has been authorized to give any information or to make any repre-
sentations 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 distribu-
tor. This Prospectus does not constitute an offer by the Fund or the distribu-
tor 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 SAI. Cross references in this
summary are to headings in this Prospectus. 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 growth of capital
by investing, under normal market conditions, at least 65% of its total assets
in the equity securities of smaller capitalized companies (companies with mar-
ket capitalizations of $[1.6] billion or less at the time of investment). 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 L
shares, which differ principally in terms of sales charges and rates 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
$15,000,000. 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. This 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 dis-
tributions ("Class B Dividend Shares") will be converted at that time. See
"Purchase of Shares--Deferred Sales Charge Alternatives."
3
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Class L Shares. Class L shares are sold at net asset value plus an initial
sales charge of 1.00%. 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 L shares within
12 months of purchase. The CDSC may be waived for certain redemptions. The
Class L 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 L 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
initial investment minimum of $15,000,000. 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 con-
sider the following factors, as well as any other relevant facts and circum-
stances:
Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended duration of his
or her investment. Shareholders who are planning to establish a program of
regular investment may wish to consider Class A shares; as the investment
accumulates, shareholders may qualify for reduced sales charges and the shares
are subject to lower ongoing expenses over the term of the investment. As an
alternative, Class B 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 partially or wholly offset the
higher annual expenses of this Class. Because the Fund's future return cannot
be predicted, however, there can be no assurance that this would be the case.
Finally, Class L shares which have a lower upfront sales charge but are sub-
ject to higher distribution fees than Class A shares, are suitable for invest-
ors who are not investing or intending to invest an amount which would receive
a substantive sales charge discount and who have a short-term or undetermined
time frame.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, while Class L 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 L shares to investors with longer term investment outlooks.
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
4
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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 will 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 offered with a sales charge held in Smith
Barney Mutual Funds listed under "Exchange Privilege." Class A share purchases
may also be eligible for a reduced initial sales charge. See "Purchase of
Shares." Because the ongoing expenses of Class A shares may be lower than those
for Class B and Class L 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 certain Class A shares, the Class B and Class L shares is
the same as that of an initial sales charge.
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
"Exchange 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. Other investors may be eligible to participate in the Smith Barney
ExecChoice(TM) Program. Class A and Class L shares are available as investment
alternatives under both of these programs. See "Purchase of Shares--Smith Bar-
ney 401(k) and ExecChoice(TM) Programs."
PURCHASE OF SHARES Shares may be purchased through a brokerage account main-
tained by Smith Barney during the Initial Subscription Period. During the con-
tinuous offering period, shares may also be purchased through a brokerage
account maintained with Smith Barney, a broker that clears securities transac-
tions through Smith Barney on a fully disclosed basis (an "Introducing Broker")
or any other 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 trans-
fer agent, First Data Investors Services Group, Inc. ("First Data" or "Transfer
Agent"). See "Purchase of Shares." The initial subscription period for shares
is scheduled to end on [ ], 1998, (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 offer-
ing of shares is expected to commence on or about [ ], 1998. See "Purchase
of Shares."
5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
INVESTMENT MINIMUMS Investors in Class A, Class B and Class L 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 Retirement Plan. Investors in Class Y shares may open an account for
an initial investment of $15,000,000. Subsequent investments of at least $50
may be made for all Classes. For participants in retirement plans qualified
under Section 403(b)(7) or Section 401(a) of the Code, the minimum initial
investment requirement for Class A, Class B and Class L shares and the subse-
quent investment requirement for all Classes of shares is $25. The minimum
investment requirements for purchases of Fund shares through the Systematic
Investment Plan are 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 autho-
rize the automatic placement of a purchase order each month or quarter for
Fund shares. The minimum initial investment requirement for Class A, Class B
and Class L 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
"Redemption of Shares."
MANAGEMENT OF THE FUND Mutual Management Corp. ("MMC" or the "Manager"),
formerly known as Smith Barney Mutual Funds Management Inc., serves as the
Fund's investment manager. The Manager is a wholly owned subsidiary of Salomon
Smith Barney Holdings Inc, ("Holdings") formerly known as Smith Barney
Holdings. Holdings is a wholly owned subsidiary of Travelers Group Inc.
("Travelers"), a diversified financial services holding company engaged,
through its subsidiaries, principally in four business segments: Investment
Services including Asset Management, Consumer Finance Services, Life Insurance
Services and Property & Casualty Insurance Services. See "Management of the
Company and 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 respec-
tive 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 There can be no assurance that the
Fund's investment objective will be achieved. The value of the Fund's invest-
ments, and thus the net asset value of the Fund's shares, will fluctuate in
response to changes in market and economic conditions, as well as the finan-
cial condition and prospects of issuers in which the Fund invests. The Fund
may invest in foreign securities, though management intends to limit such
investments to 25% of the Fund's assets. Foreign investments may include addi-
tional risks associated with currency exchange rates, less complete financial
information about individual companies, less market liquidity and political
instability. See "Investment Objective and Management Policies."
THE FUND'S EXPENSES The following expense table lists the costs and expenses
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 operating
expenses:
<TABLE>
<CAPTION>
SMITH BARNEY
SMALL CAP GROWTH FUND CLASS A CLASS B CLASS L 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 1.00% 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 average net assets)
Management fees [ %] [ %] [ %] [ %]
12b-1 fees** 0.25 1.00 1.00 None
Other expenses*** [ ] [ ] [ ] [ ]
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TOTAL FUND OPERATING EXPENSES [ %] [ %] [ %] [ %]
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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 L shares do not have a
conversion feature and, therefore, are subject to an ongoing distribution
fee. As a result, long-term shareholders of Class L shares may pay more
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers ("NASD").
*** "Other Expenses" have been estimated based on expenses the Fund expects
to incur during its fiscal year ending August 31, 1999.
7
<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 L 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. For Class B and Class L
shares, Smith Barney receives an annual 12b-1 fee of 1.00% of the value of
average daily net assets of each respective Class, consisting of a 0.75% dis-
tribution fee and a 0.25% service 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 Company and the Fund."
<TABLE>
<CAPTION>
SMITH BARNEY
SMALL CAP GROWTH 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.................................................... $
Class B....................................................
Class L....................................................
Class Y....................................................
An investor would pay the following expenses on the same
investment, assuming the same annual return and no redemp-
tion:
Class A.................................................... $
Class B....................................................
Class L....................................................
Class Y....................................................
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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.
8
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Fund's investment objective is long-term growth of capital. This invest-
ment objective may not be changed without the approval of the holders of a
majority of the Fund's outstanding shares. There can be no assurance that the
Fund's investment objective will be achieved.
The Fund attempts to achieve its investment objective by investing, under
normal market conditions, substantially all of its assets in equity securities
and at least 65% of its total assets in equity securities of smaller capital-
ized companies (companies with market capitalizations of $1.4 billion or
less at the time of investment). Companies whose capitalization falls outside
this range after purchase continue to be considered smaller capitalized compa-
nies for purposes of the 65% policy. Investments in smaller capitalized compa-
nies may offer greater opportunities for growth of capital than larger, more
established companies, but may also involve certain risks because smaller cap-
italized companies often have limited market or financial resources and may be
dependent on one or two people for management. In addition, small capitalized
companies may be subject to a limited liquidity and more volatility which
could result in significant fluctuations in the price of their shares.
In selecting the Fund's equity investments, the Manager seeks to identify
companies that exhibit growth attributes. When selecting stocks with growth
potential, the Manager will evaluate the specific financial characteristics of
the issuer such as historical and forecasted earnings growth, sales growth,
profitability and return on equity. In addition, the Manager may utilize an
active quantitative investment strategy for a portion of the Fund. This por-
tion will provide added diversification and, in addition, will select securi-
ties using a proprietary technique that are believed to have a high probabil-
ity of outperforming their respective industry or sector. In identifying these
securities, the Fund's portfolio manager is supported by a quantitatively ori-
ented investment team.
The Fund will normally invest in all types of equity securities, including
common stocks, preferred stocks, securities that are convertible into common
or preferred stocks, such as warrants and convertible bonds, and depository
receipts for those securities. It is the policy of the Fund to be as fully
invested in equity securities as practicable at all times. Under certain cir-
cumstances, the Fund may maintain a portion of its assets, which will usually
not exceed 10%, in U.S. Government securities, money market obligations, and
in cash to provide for payment of the Fund's expenses and to meet redemption
requests. The Fund reserves the right, as a defensive measure, to hold money
market securities, including repurchase agreements or cash, in such propor-
tions as, in the opinion of management, prevailing market or economic condi-
tions warrant.
Consistent with its investment objective and policies described above, the
Fund may invest up to 25% of its total assets in foreign securities, including
both direct
9
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
investments and investments made through depository receipts. The Fund may also
invest in real estate investment trusts; purchase or sell securities on a when-
issued or delayed-delivery basis; enter into forward commitments to purchase
securities; lend portfolio securities; purchase and sell put and call options;
and enter into interest rate futures contracts, stock index futures contracts
and related options.
The different types of securities and investment techniques used by the Fund
all involve risks of varying degrees. For example, with respect to common
stock, there can be no assurance of capital appreciation, and there is a risk
of market decline. With respect to debt securities, including money market
instruments, there is the risk that the issuer of a security may not be able to
meet its obligation to make scheduled interest or principal payments. See
Appendix A for a more complete discussion of certain of these securities and
investment techniques and the associated risks.
PORTFOLIO TRANSACTIONS AND TURNOVER
Transactions on behalf of the Fund are allocated to various brokers and deal-
ers by the Manager in its best judgment. The primary consideration is prompt
and effective execution of orders at the most favorable price. Subject to that
primary consideration, brokers and dealers, including Smith Barney, may be
selected for research, statistical or other services to enable the Manager to
supplement its own research and analysis with the views and information of
other securities firms.
The Fund cannot accurately predict its portfolio turnover rate, but antici-
pates that its annual turnover normally will not exceed 150%. An annual turn-
over rate of 100% would occur if all of the securities held by the Fund were
replaced once during a period of one year. The Manager will not consider turn-
over rate a limiting factor in making investment decisions consistent with the
Fund's investment objective and policies.
Year 2000. The investment management services provided to the Fund by the
Manager and the services provided to shareholders who hold their shares in bro-
kerage accounts maintained with Smith Barney Inc. ("Smith Barney"), depend on
the smooth functioning of their computer systems. Many computer software sys-
tems in use today cannot recognize the year 2000, but revert to 1900 or some
other date, due to the manner in which dates were encoded and calculated. That
failure could have a negative impact on the Fund's operations, including the
handling of securities trades, pricing and account services. The Manager and
Smith Barney have advised the Fund that they have been reviewing all of their
computer systems and actively working on necessary changes to their systems to
prepare for the year 2000 and expect that their systems will be compliant
before that date. In addition, the Manager has been advised by the Fund's cus-
todian, transfer agent and accounting
10
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
service agent that they are also in the process of modifying their systems
with the same goal. There can, however, be no assurance that the Manager,
Smith Barney or any other service provider will be successful, or that inter-
action with other non-complying computer systems will not impair Fund services
at that time.
VALUATION OF SHARES
The Fund's net asset value per share is determined as of the close of regu-
lar 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 as
determined by or under the direction of the Company's Board of Directors.
Short-term investments that mature in 60 days or less are valued at amortized
cost. Amortized cost involves valuing an investment at its cost initially and,
thereafter, assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. Further information regarding the Fund's valuation
policies is contained in the SAI.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute dividends from net investment income and
net realized capital gains, if any, annually. The Fund may also pay additional
dividends shortly before December 31 from certain amounts of undistributed
ordinary income and capital gains realized, in order to avoid a Federal excise
tax liability. If a shareholder does not otherwise instruct, dividends and
capital gain distributions will be reinvested automatically in additional
shares of the same Class at net asset value, with no additional sales charge
or CDSC. A shareholder may change the option at any time by notifying his or
her Smith Barney Financial Consultant or their financial consultant, Introduc-
ing Broker or dealer in the selling group. Shareholders whose accounts are
held directly by First Data should notify First Data in writing, requesting a
change to this reinvest option.
The per share amounts of dividends from net investment income on Classes B
and L may be lower than that of Classes A and Y, mainly as a result of the
distribution fees applicable to Class B and L shares. Similarly, the per share
amounts of dividends from net investment income on Class A shares may be lower
than that of Class Y, as a result of the service fee attributable to Class A
shares. Capital gain distributions, if any, will be the same amount across all
Classes of Fund shares (A, B, L and Y).
11
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
TAXES
The following is a summary of the material federal tax considerations affect-
ing the Fund and Fund shareholders. Please refer to the SAI for further discus-
sion. In addition to the considerations described below and in the SAI, there
may be other federal, state, local, and/or foreign tax implications to consid-
er. Because taxes are a complex matter, prospective shareholders are urged to
consult their tax advisors for more detailed information with respect to the
tax consequences of any investment.
The Fund will be treated as a separate entity of the Company for Federal
Income Tax purposes. The Fund intends to qualify under Subchapter M of the
Internal Revenue Code (the "Code") for tax treatment as a regulated investment
company. In each taxable year that the Fund qualifies, the Fund will pay no
federal income tax on its net investment company taxable income and long-term
capital gain that is distributed to shareholders.
Dividends paid from net investment income and net realized short-term securi-
ties gain, are subject to federal income tax as ordinary income. Distributions,
if any, from net realized long-term securities gains derived from the sale of
securities held by the Fund for more than one year, are taxable as long-term
capital gains, regardless of the length of time a shareholder has owned Fund
shares.
Shareholders are required to pay tax on all taxable distributions, even if
those distributions are automatically reinvested in additional Fund shares. A
portion of the dividends paid by the Fund may qualify for the corporate divi-
dends received deduction. Dividends consisting of interest from U.S. government
securities may be exempt from state and local income taxes. The Fund will
inform shareholders of the source and tax status of all distributions promptly
after the close of each calendar year.
A shareholder's gain or loss on the disposition of Fund shares (whether by
redemption, sale or exchange), generally will be a long-term or short-term gain
or loss depending on the length of time the shares had been owned at disposi-
tion. Losses realized by a shareholder on the disposition of Fund shares owned
for six months or less will be treated as a long-term capital loss to the
extent a capital gain dividend had been distributed on such shares.
The Fund is required to withhold ("backup withholding") 31% of all taxable
dividends, capital gain distributions, and the proceeds of any redemption,
regardless of whether gain or loss is realized upon the redemption, for share-
holders who do not provide the Fund with a correct taxpayer identification num-
ber (social security or employer identification number). Withholding from tax-
able dividends and capital
12
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
gain distributions also is required for shareholders who otherwise are subject
to backup withholding. Any tax withheld as a result of backup withholding does
not constitute an additional tax, and may be claimed as a credit on the share-
holder's federal income tax return.
PURCHASE OF SHARES
GENERAL
The Fund currently offers four Classes of shares. Class A shares are sold to
investors with an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to a CDSC payable upon certain redemp-
tions. Class L shares are sold to investors with an initial sales charge and
are subject to a CDSC payable upon certain redemptions. Class Y shares are
sold without an initial sales charge or CDSC and are available only to invest-
ors investing a minimum of $15,000,000 (except, for purchases of Class Y
shares by Smith Barney Concert Allocation Series, Inc. for which there is no
minimum purchase amount). See "Prospectus Summary--Alternative Purchase
Arrangements" for a discussion of factors to consider in selecting which Class
of shares to purchase.
INITIAL SUBSCRIPTION PERIOD
During the Initial Subscription Period, subscriptions for shares must be
made through a brokerage account maintained with Smith Barney. Shares of the
Fund subscribed for during the Subscription Period for which the Fund 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, the Fund will issue shares for which it has received and
accepted subscriptions and commence operations.
The Fund is offering its Class A shares to the public at a maximum purchase
price per share of $[ ], which equals the Class A share initial net asset
value per share of $[ ] plus the maximum sales charge set forth below under
"Continuous Offerings". The Fund is offering its Class B, Class L and Class Y
shares to the public at each Class' respective initial net asset value per
share of $[ ].
The Fund may in its 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.
13
<PAGE>
PURCHASE OF SHARES (CONTINUED)
CONTINUOUS OFFERINGS
The Fund will suspend the offering of shares to the public immediately after
the expiration of the Subscription Period or within three weeks thereafter.
During the three-week period, the Fund will commence a limited continuous
offering of shares to the public. Once the Fund 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
the Fund. 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 expira-
tion of the Closing Period, the Fund expects to commence a continuous offering
of shares.
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 any other 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 L or Class Y shares. Smith
Barney and other broker/dealers may charge their customers an annual account
maintenance fee in connection with a brokerage account through which an
investor purchases or holds shares. Accounts held directly at First Data are
not subject to a maintenance fee.
Investors in Class A, Class B and Class L 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 $15,000,000.
Subsequent investments of at least $50 may be made for all Classes. For par-
ticipants 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 L shares and the subsequent investment requirement for all
Classes in the Fund is $25. For shareholders purchasing shares of the Fund
through the Systematic Investment Plan on a monthly basis, the minimum initial
investment requirement for Class A, Class B and Class L shares and the subse-
quent investment requirement for all Classes is $25. For shareholders purchas-
ing shares of the Fund through the Systematic Investment Plan on a quarterly
basis, the minimum initial investment requirement for Class A, Class B and
Class L shares and the subsequent investment requirement for all Classes is
$50. There are no minimum investment requirements for Class A shares purchased
by employees of Travelers and its subsidiaries, including Smith Barney, Direc-
tors or Trustees of any of the Smith Barney Mutual Funds, and their
14
<PAGE>
PURCHASE OF SHARES (CONTINUED)
immediate family. 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 the Fund's transfer agent. Share certificates are issued only upon a share-
holder's written request to the Transfer Agent.
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 value
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 Introducing Brokers
purchasing through Smith Barney, payment for Fund shares is due on the third
business day (the "settlement date") after the trade date. In all other cases,
payments must be made with the purchase order.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or the Transfer Agent 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 to provide systematic additions to the
shareholder's Fund account. A shareholder who has insufficient funds to com-
plete the transfer will be charged a fee of up to $25 by Smith Barney or the
Transfer Agent. 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.
15
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 L 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
of 1933, as amended.
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.
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 of any of the Smith Barney
Mutual Funds or other Travelers affiliated funds (including retired Board mem-
bers and employees); the immediate families of such persons (including the sur-
viving spouse of a deceased Board Member or employee); and to a pension, prof-
it-sharing or other benefit plan for such persons and (ii) employees of members
of the NASD, 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) purchases
of Class A shares by any client of a newly employed Smith Barney Financial Con-
sultant (for a period up to 90 days from the commencement of the Financial Con-
sultant's employment with
16
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 of 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
of distributions 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 contracts; (h) purchases by investors participating in a Smith Barney
fee-based arrangement; and (i) purchases of Class A Shares by Section 403(b)
or 401(a) or (k) accounts associated with Copeland Retirement Programs. In
order to obtain such discounts, the purchaser must provide sufficient informa-
tion 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 other Smith Barney Mutual Funds 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 "Initial Sales Charge Alternative--Class A Shares," and will be based
upon the aggregate sales of Class A shares of the 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 meeting certain require-
17
<PAGE>
PURCHASE OF SHARES (CONTINUED)
ments. 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 pursu-
ant to retirement plans under Sections 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 criteria 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 pub-
lications 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 pur-
chaser 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 discretion 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
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 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 previously 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 applica-
ble 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. Such investors must
18
<PAGE>
PURCHASE OF SHARES (CONTINUED)
make an initial minimum purchase of $5,000,000 in Class Y shares of the Fund
and agree to purchase a total of $15,000,000 of Class Y shares of the Fund
within thirteen (13) months from the date of the Letter. If a total investment
of $15,000,000 is not made within the thirteen-month period, all Class Y shares
pur4 chased 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%. The Fund
expects that such transfer will not be subject to Federal income taxes. Please
contact a Smith Barney Financial Consultant or First Data for further informa-
tion.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at the net asset value next determined without an ini-
tial 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 L
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 L shares and Class A shares that
are CDSC Shares, shares redeemed more than 12 months after their purchase.
Class L 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."
19
<PAGE>
PURCHASE OF SHARES (CONTINUED)
<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 fees. There also will be converted at that time
such proportion 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. See "Prospectus Summary--Alternative Pur-
chase Arrangements--Class B Shares Conversion Feature." The length of time
that CDSC Shares acquired through an exchange have been held will be calcu-
lated from the date that the shares exchanged were initially acquired in one
of the other applicable 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 redemp-
tion. 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
additional shares through dividend reinvestment. During the fifteenth month
after the purchase, the investor decided to redeem $500 of his or her invest-
ment. Assuming at the time of the redemption the net asset value had appreci-
ated 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 equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan com-
mences (see "Automatic Cash Withdrawal Plan") (provided, however, that auto-
matic cash withdrawals in amounts equal to or less than 2.00% per month of the
value of the shareholder's shares will be permitted for withdrawal plans that
were established prior to November 7, 1994); (c) redemptions of shares within
12 months following
20
<PAGE>
PURCHASE OF SHARES (CONTINUED)
the death or disability of the shareholder; (d) redemptions of shares made in
connection with qualified distributions from retirement plans or IRAs upon the
attainment of age 59 1/2; (e) involuntary redemptions; and (f) redemptions of
shares to effect a combination of the Fund with any investment company by
merger, acquisition of assets or otherwise. In addition, a shareholder who has
redeemed shares from other Smith Barney Mutual Funds may, under certain cir-
cumstances, 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 the Transfer
Agent in the case of all other shareholders) of the shareholder's status or
holdings, as the case may be.
SMITH BARNEY 401(K) PROGRAM AND EXECCHOICE(TM) PROGRAMS
Investors may be eligible to participate in the Smith Barney 401(k) Program
or the Smith Barney ExecChoice(TM) Program. To the extent applicable, the same
terms and conditions, which are outlined below, are offered to all plans par-
ticipating ("Participating Plans") in these programs.
Each Fund offers to Participating Plans Class A and Class L shares as
investment alternatives under the Smith Barney 401(k) and ExecChoice(TM) Pro-
grams. Class A and Class L shares acquired through the Participating Plans are
subject to the same service and/or distribution fees as the Class A and Class
L shares acquired by other investors; however, they are not subject to any
initial sales charge or CDSC. Once a Participating Plan has made an initial
investment in a 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 a 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 L Shares. Class L shares of a Fund are offered without any sales
charge or CDSC to any Participating Plan that purchases less than $1,000,000
of Class L shares of one or more funds of the Smith Barney Mutual Funds.
401(k) and 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 L 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 L shares for Class A shares of a Fund. (For Participating Plans that
were originally established through a Smith Barney retail brokerage account,
the five year period will be
21
<PAGE>
PURCHASE OF SHARES (CONTINUED)
calculated from the date the retail brokerage account was opened.) Such Partic-
ipating Plans will be notified of the pending exchange in writing within 30
days after the fifth anniversary of the enrollment date and, unless the
exchange offer has been rejected in writing, the exchange will occur on or
about the 90th day after the fifth anniversary date. If the Participating Plan
does not qualify for the five year exchange to Class A shares, a review of the
Participating Plan's holdings will be performed each quarter until either the
Participating Plan qualifies or the end of the eighth year.
401(k) Plans Opened Prior to June 21, 1996. In any year after the date a Par-
ticipating Plan enrolled in the Smith Barney 401(k) Program, if its total Class
L holdings in all non-money market Smith Barney Mutual Funds equal at least
$500,000 as of the calendar year-end, the Participating Plan will be offered
the opportunity to exchange all of its Class L shares for Class A shares of a
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 L shares for Class A shares of a 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 L shares of the Fund but instead may acquire Class
A shares of the Fund. Any Class L shares not converted will continue to be sub-
ject to the distribution fee.
Participating Plans wishing to acquire shares of a Fund through the Smith
Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program must purchase
such shares directly from the Transfer Agent. For further information regarding
these Programs, investors should contact a Smith Barney Financial Consultant.
22
<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
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 L
shares are subject to minimum investment requirements and all shares are sub-
ject to the other requirements of the fund into which exchanges are made.
FUND NAME
Growth Funds
Concert Peachtree Growth Fund
Concert Social Awareness Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Balanced Fund
Smith Barney Contrarian Fund
Smith Barney Convertible Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.--Large Cap Value Fund
Smith Barney Large Cap Blend Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney Mid Cap Blend Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Premium Total Return Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Small Cap Value Fund
Smith Barney Special Equities Fund
Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
+++Smith Barney Funds, Inc.--Short-Term High Grade Bond Fund
Smith Barney Funds, Inc.--U.S. Government Securities Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney Total Return Bond Fund
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
23
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Municipal High Income 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
Global-International Funds
Smith Barney Hansberger Global Small Cap Value Fund
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 Concert Allocation Series Inc.--Balanced Portfolio
Smith Barney Concert Allocation Series Inc.--Conservative Portfolio
Smith Barney Concert Allocation Series Inc.--Global Portfolio
Smith Barney Concert Allocation Series Inc.--Growth Portfolio
Smith Barney Concert Allocation Series Inc.--High Growth Portfolio
Smith Barney Concert Allocation Series Inc.--Income Portfolio
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 L and Class Y shares of the
Fund.
** Available for exchange with Class A and Class B shares of the Fund.
***Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class L shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund. In
addition, shareholders who own Class L shares of the Fund through the Smith
Barney 401(k) and ExecChoice(TM) Programs may exchange those shares for
Class L shares of this Fund.
+++Available for exchange with Class A and Class Y shares of the Fund.
24
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Class B Exchanges. In the event a Class B shareholder wishes to exchange all
or a portion of his or her shares in any of the funds imposing a CDSC higher
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 L Exchanges. Upon an exchange, the new Class L shares will be deemed
to have been purchased on the same date as the Class L shares of the Fund that
have been exchanged.
Class A and Class Y Exchanges. Class A and Class Y shareholders of the Fund
who wish to exchange all or a portion of their shares for shares of the
respective Class in any of the funds identified above may do so without 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. The Manager
may determine that a pattern of frequent exchanges is excessive and contrary
to the best interests of the Fund's other shareholders. In this event, the
Fund may, at its discretion, decide to limit additional purchases and/or
exchanges by a shareholder. Upon such a determination, the Fund will provide
notice in writing or by telephone to the shareholder at least 15 days prior to
suspending the exchange privilege and during the 15 day period the shareholder
will be required to (a) redeem his or her shares in the Fund or (b) remain
invested in the Fund or exchange into any of the funds of the Smith Barney
Mutual Funds ordinarily available, which position the shareholder would be
expected to maintain for a significant period of time. All relevant factors
will be considered in determining what constitutes an abusive pattern of
exchanges.
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
discussed 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 registration 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.
25
<PAGE>
REDEMPTION OF SHARES
The Fund is required to redeem shares 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 trad-
ing 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 the Transfer Agent 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
tender, except on any days on which the NYSE is closed or as permitted under
the Investment Company Act of 1940, as amended (the "1940 Act"), in extraordi-
nary circumstances. Generally, if the redemption proceeds are remitted to a
Smith Barney brokerage account, these funds will not be invested for the share-
holder'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 Small Cap Growth Fund
Class A, B, L 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 $10,000 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 Fed-
26
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
eral Reserve System or member firm of a national securities exchange. Written
redemption requests of $10,000 or less do not require a signature guarantee
unless more than one such redemption request is made in any 10-day period or
the redemption proceeds are to be sent to an address other than the address of
record. Unless otherwise directed, redemption proceeds will be mailed to an
investor's address of record. 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.
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
Shareholders who do not have a Smith Barney brokerage account may be eligi-
ble to redeem and exchange Fund shares by telephone. To determine if a share-
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, including a sig-
nature guarantee, that will be provided by First Data upon request. (Alterna-
tively, an investor may authorize telephone redemptions on the new account
application with a 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 4:00 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 the shares of the fund being acquired is identical to
the
27
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
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 4:00
p.m. (New York City time) on any day the NYSE is open. Exchange requests
received after the close of regular trading on the NYSE are priced 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.
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 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. (With respect to withdrawal plans in effect prior
to November 7, 1994, any applicable CDSC will be waived on amounts withdrawn
that do not exceed 2.00% per month of the shareholder's shares subject to the
CDSC.) For further information regarding the automatic cash withdrawal plan,
shareholders should contact a Smith Barney Financial Consultant or their
financial consultant, Introducing Broker or dealer in the selling group.
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.
28
<PAGE>
PERFORMANCE
From time to time the Fund may advertise its total return and average annual
total return in advertisements and/or other types of sales literature. These
figures are computed separately for Class A, Class B, Class L 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 speci-
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 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 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.
MANAGEMENT OF THE COMPANY AND THE FUND
BOARD OF DIRECTORS
Overall responsibility for the management and supervision of the Fund rests
with the Company's Board of Directors. The Directors approve all significant
agreements between the Company and the persons and companies that furnish serv-
ices to the Fund, including agreements with the Fund's distributor, investment
manager, custodian and transfer agent. The day-to-day operations of the Fund
are delegated to the Fund's investment manager. The SAI contains background
information regarding each Director and executive officer of the Company.
INVESTMENT MANAGER--MMC
The Fund's investment manager, MMC, is a registered investment adviser whose
principal executive offices are located at 388 Greenwich Street, New York, New
York 10013. MMC was incorporated in March, 1968 under the laws of Delaware and
renders investment advice to a wide variety of individual, institutional and
investment company clients that had aggregate assets under management as of
[ ], 1998 in excess of $[ ] billion.
Subject to the supervision and direction of the Company's Board of Directors,
the Manager 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
29
<PAGE>
MANAGEMENT OF THE COMPANY AND THE FUND (CONTINUED)
and securities analysts who provide research services to the Fund. For invest-
ment management services rendered, the Fund pays the Manager a monthly fee at
the annual rate of 0.[ ]% of the value of the Fund's average daily net assets.
PORTFOLIO MANAGEMENT
[ ], Vice President and Investment Officer of the Fund, is the portfolio
manager and manages the day-to-day operations of the Fund, including making all
investment decisions.
DISTRIBUTION
CFBDS, Inc. distributes shares of the Fund as principal underwriter and as
such conducts a continuous offering pursuant to a "best efforts" arrangement
requiring CFBDS, Inc. to take and pay for only such securities as may be sold
to the public.
The Fund has adopted a plan of distribution under Rule 12b-1 under the 1940
Act (the "Plan"), pursuant to which Smith Barney is paid an annual service fee
with respect to Class A, Class B and Class L 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 an annual distribution fee with respect to Class B and
Class L shares at the annual rate of 0.75% of the average daily net assets
attributable to those Classes. Class B shares which 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 Consultants for servicing shareholder accounts and, in the case of
Class B and Class L shares, to cover expenses primarily intended to result in
the sale of those shares. These expenses include: advertising; the cost of
printing 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
carrying 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 L 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 Fund's Board of Direc-
tors will
30
<PAGE>
DISTRIBUTION (CONTINUED)
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.
On April 6, 1998, Travelers announced that it had entered into a Merger
Agreement with Citicorp. The transaction, which is expected to be completed
during the third quarter of 1998, is subject to various regulatory approvals,
including approval by the Federal Reserve Board. The transaction is also sub-
ject to approval by the stockholders of each of Travelers and Citicorp. Trav-
elers has filed an application to become a bank holding company so that, upon
consummation of the merger, the surviving corporation would be a bank holding
company subject to regulation under the Bank Holding Company Act of 1956 (the
"BHCA"). The requirements of the Glass-Steagall Act and certain other laws and
regulations will then be applicable to Travelers and its subsidiaries. The
Glass-Steagall Act currently prohibits certain financial institutions from
underwriting securities of open-end investment companies, such as the Fund.
Therefore, in connection with the anticipated merger of Travelers and Citicorp
and as a consequence of the anticipated applicability of the BHCA and the
Glass-Steagall Act, the Fund as retained the services of CFBDS, Inc. as Dis-
tributor.
The Manager does not believe that its compliance with applicable law follow-
ing the merger of Travelers and Citicorp will have a material adverse effect
on its ability to continue to provide the Fund with the same level of invest-
ment advisory services that it currently receives. Smith Barney and the Man-
ager believe that the Manager's services under the Management Agreement and
the shareholder service activities performed by Smith Barney are not under-
writing and are consistent with the Glass-Steagall Act and other relevant fed-
eral and state laws. However, there is little controlling precedent regarding
the performance of the combination of investment advisory, shareholder servic-
ing and administrative activities by subsidiaries of bank holding companies.
If Smith Barney and the Manager, or their affiliates, were to be prevented
from acting as the manager or a shareholder service agent, the Fund would seek
alternative means for obtaining these services. The Fund does not expect that
shareholders would suffer any adverse financial consequences as a result of
any such occurrence.
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, L,
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, privi-
31
<PAGE>
ADDITIONAL INFORMATION (CONTINUED)
leges and preferences, except with respect to: (a) the designation 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 pursuant 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 con-
sider whether any such conflict exists and, if so, take appropriate action.
PNC Bank, National Association, located at 17th and Chestnut Streets, Phila-
delphia, Pennsylvania 19103, serves as custodian of the Fund's investments.
First Data, located at Exchange Place, Boston, Massachusetts 02109, serves as
the Company'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 the Fund's Transfer Agent.
32
<PAGE>
APPENDIX A
Convertible Securities. Convertible securities are generally preferred secu-
rities or fixed-income securities that are convertible into common stock at
either a stated price or stated rate. The price of the convertible security
will normally vary in some proportion to changes in the price of the underlying
common stock because of this conversion feature. A convertible security will
normally also provide a fixed income stream. For this reason, the convertible
security may not decline in price as rapidly as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. The
Manager will select convertible securities to be purchased by the Fund based
primarily upon its evaluation of the fundamental investment characteristics and
growth prospects of the issuer of the security. As a fixed income security, a
convertible security tends to increase in market value when interest rates
decline and decrease in value when interest rates rise. While convertible secu-
rities generally offer lower interest or dividend yields than non-convertible
fixed income securities of similar quality, their value tends to increase as
the market value of the underlying stock increases and to decrease when the
value of the underlying stock decreases.
Foreign Securities. In addition to direct investment in securities of foreign
issuers, the Fund may also invest in securities of foreign issuers in the form
of sponsored and unsponsored American Depositary Receipts (ADRs), European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs) or other similar
securities convertible into securities of foreign issuers. These securities may
not necessarily be denominated in the same currency as the securities into
which they may be converted. The Fund also may invest in securities denominated
in European Currency Units (ECUs). An ECU is a "basket" consisting of a
specified amount of currencies of certain of the twelve member states of the
European Community. In addition, the Fund may invest in securities denominated
in other currency "baskets."
There are certain risks involved in investing in securities of companies and
governments of foreign nations that are in addition to the usual risks inherent
in domestic investments. These risks include those resulting from revaluation
of currencies, future adverse political and economic developments and the pos-
sible imposition of currency exchange blockages or other foreign governmental
laws or restrictions, reduced availability of public information concerning
issuers and the lack of uniform accounting, auditing and financial reporting
standards or of other regulatory practices and requirements comparable to those
applicable to domestic companies. The yield of the Fund may be adversely
affected by fluctuations in value of one or more foreign currencies relative to
the U.S. dollar. Moreover, securities of many foreign companies and their mar-
kets may be less liquid and their prices more volatile than those of securities
of comparable domestic companies. In addition, with
A-1
<PAGE>
APPENDIX A (CONTINUED)
respect to certain foreign countries, there is the possibility of expropria-
tion, nationalization, confiscatory taxation and limitations on the use or
removal of funds or other assets of the Fund, including the withholding of div-
idends. Foreign securities may be subject to foreign government taxes that
could reduce the yield on such securities. Because the Fund may invest in secu-
rities denominated or quoted in currencies other than the U.S. dollar, changes
in foreign currency exchange rates may adversely affect the value of portfolio
securities and the appreciation or depreciation of investments. Investment in
foreign securities also may result in higher expenses due to the cost of con-
verting foreign currency to U.S. dollars, the payment of fixed brokerage com-
missions on foreign exchanges, which generally are higher than commissions on
domestic exchanges, and the expense of maintaining securities with foreign cus-
todians, and the imposition of transfer taxes or transaction charges associated
with foreign exchanges.
Real Estate Investment Trusts ("REITS"). The Fund may invest in REITS, which
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 properties owned by the REIT or securing mortgage loans held by
the REIT. REITs are dependent upon cash flow from their investments to repay
financing costs and the ability of the REIT's manager. REITs are also subject
to risks generally associated with investments in real estate. The Fund will
indirectly bear its proportionate share of any expenses, including management
fees, paid by a REIT in which it invests.
Debt Securities. Debt securities in which the Fund may invest include notes,
bills, commercial paper, obligations issued or guaranteed by the government or
any of its political subdivisions, agencies or instrumentalities, and
certificates of deposit. Debt securities represent money borrowed that
obligates the issuer (e.g., a corporation, municipality, government, government
agency) to repay the borrowed amount at maturity (when the obligation is due
and payable) and usually to pay the holder interest at specific times.
All debt securities are subject to market risk and credit risk. Market risk
relates to market-induced changes in a security's value, usually as a result of
changes in interest rates. The value of the Fund's investments in debt securi-
ties will change as the general levels of interest rates fluctuate. During
periods of falling interest rates, the value of the Fund's debt securities will
generally rise. Conversely, during periods of rising interest rates, the value
of the Fund's debt securities will generally decline. Credit risk relates to
the ability of the issuer to make payments of principal and interest. The Fund
has no restrictions with respect to the maturities or duration of the debt
securities it holds. The Fund's investments in fixed income securities with
longer terms to maturity or greater duration are subject to greater volatility
than the Fund's shorter-term securities.
A-2
<PAGE>
APPENDIX A (CONTINUED)
Money Market Instruments. Short-term instruments in which the Fund may invest
include obligations of banks having at least $1 billion in assets (including
certificates of deposit, time deposits and bankers' acceptances of domestic or
foreign banks, domestic savings and loan associations and similar institu-
tions); commercial paper rated no lower than A-2 by Standard & Poor's Ratings
Group or Prime-2 by Moody's Investors Service, Inc. or the equivalent from
another nationally recognized statistical rating organization or, if unrated,
of an issuer having an outstanding, unsecured debt issue then rated within the
two highest rating categories; and repurchase agreements with respect to any of
the foregoing entered into with banks and non-bank dealers approved by the
Company's Board of Directors.
U.S. Government Securities. The Fund may invest in U.S. Government securi-
ties. Generally, these securities include U.S. Treasury obligations and obliga-
tions issued or guaranteed by U.S. Government agencies, instrumentalities or
sponsored enterprises. U.S. Government securities also include Treasury
receipts and other stripped U.S. Government securities, where the interest and
principal components of stripped U.S. Government securities are traded indepen-
dently. The Fund may also invest in zero coupon U.S. Treasury securities and in
zero coupon securities issued by financial institutions, which represent a pro-
portionate interest in underlying U.S. Treasury securities. A zero coupon secu-
rity pays no interest to its holder during its life and its value consists of
the difference between its face value at maturity and its cost. The market val-
ues of zero coupon securities generally are more volatile than the market
prices of securities that pay interest periodically.
Repurchase Agreements. The Fund may enter into repurchase agreements in order
to earn income on available cash or as a temporary defensive measure. Under a
repurchase agreement, the Fund acquires securities subject to the seller's
agreement to repurchase at a specified time and price. If the seller becomes
subject to a proceeding under the bankruptcy laws or its assets are otherwise
subject to a stay order, the Fund's right to liquidate the securities may be
restricted (during which time the value of the securities could decline). As
discussed in the SAI, the Fund has adopted certain procedures intended to mini-
mize the risks of investing in repurchase agreements.
Reverse Repurchase Agreements. In order to generate additional income, the
Fund may engage in reverse repurchase agreement transactions with banks, bro-
ker-dealers and other financial intermediaries. Reverse repurchase agreements
are the same as repurchase agreements except that, in this instance, the Fund
would assume the role of seller/borrower in the transaction. The Fund will
maintain a segregated account consisting of assets determined to be liquid by
the Manager that at all times have a value equal to its obligations under
reverse repurchase agreements. The Fund will invest the proceeds in other money
market instruments or repurchase agreements maturing not later than the expira-
tion of the reverse repur-
A-3
<PAGE>
APPENDIX A (CONTINUED)
chase agreement. Reverse repurchase agreements involve the risk that the mar-
ket value of the securities sold by the Fund may decline below the repurchase
price of the securities.
When-Issued, Delayed-Delivery and Forward Commitment Transactions. The Fund
may purchase securities on a when-issued basis, may purchase and sell securi-
ties for delayed delivery and may make contracts to purchase securities for a
fixed price at a future date beyond normal settlement time (forward commit-
ments). When-issued transactions, delayed delivery purchases and forward com-
mitments involve a risk of loss if the value of the securities declines prior
to the settlement date, which risk is in addition to the risk of decline in
the value of the Fund's other assets. Typically, no income accrues on securi-
ties the Fund has committed to purchase prior to the time delivery of the
securities is made, although the Fund may earn income on securities it has
deposited in a segregated account.
Lending of Securities. Consistent with applicable regulatory requirements,
the Fund may seek to increase its income by lending portfolio securities to
entities deemed creditworthy by the Manager. Such loans will usually be made
to brokers, dealers and other financial organizations, and would be required
to be secured continuously by collateral in cash, letters of credit or U.S.
government securities, which are maintained at all times in an amount equal to
the current market value of the loaned securities. Any gain or loss in the
market price of the securities loaned that might occur during the term of the
loan would be for the account of the Fund. The risks in lending portfolio
securities, as with other extensions of secured credit, consist of possible
delay in receiving additional collateral or in the recovery of the securities
or possible loss of rights in the collateral should the borrower fail finan-
cially. Loans will be made to firms deemed by the Manager to be of good stand-
ing and will not be made unless, in the judgment of Manager the consideration
to be earned from such loans would justify the risk.
Options on Securities, Securities Indexes and Currencies. The Fund may write
(sell) covered put and call options on securities, securities indexes and cur-
rencies ("Options") and purchase put and call Options that are traded on for-
eign or U.S. securities exchanges and over the counter. The Fund will write
such Options for the purpose of increasing its return and/or protecting the
value of its portfolio. In particular, where the Fund writes an Option that
expires unexercised or is closed out by the Fund at a profit, it will retain
the premium paid for the Option, which will increase its gross income and will
offset in part the reduced value of a portfolio security in connection with
which the Option may have been written or the increased cost of portfolio
securities to be acquired. However, the writing of Options constitutes only a
partial hedge, up to the amount of the premium, less any transaction costs. In
contrast, if the price of the security underlying the Option
A-4
<PAGE>
APPENDIX A (CONTINUED)
moves adversely to the Fund's position, the Option may be exercised and the
Fund will be required to purchase or sell the security at a disadvantageous
price, resulting in losses that may only be partially offset by the amount of
the premium. The Fund may also write combinations of put and call Options on
the same security, known as "straddles." Such transactions generate additional
premium income but also present increased risk.
The Fund may purchase put and call Options in anticipation of declines in the
value of portfolio securities or increases in the value of securities to be
acquired. In the event that the expected changes occur, the Fund may be able to
offset the resulting adverse effect on its portfolio, in whole or in part,
through the Options purchased. The risk assumed by the Fund in connection with
such transactions is limited to the amount of the premium and related transac-
tion costs associated with the Option, although the Fund may be required to
forfeit such amounts in the event that the prices of securities underlying the
Options do not move in the direction or to the extent anticipated.
Over-the-counter options in which the Fund may invest differ from traded
options in that they are two-party contracts, with price and other terms nego-
tiated between buyer and seller, and generally do not have as much market
liquidity as exchange-traded options. The Fund may be required to treat as
illiquid over-the-counter options purchased and securities being used to cover
certain written over-the-counter options.
Futures Contracts and Options on Futures Contracts. The Fund may enter into
transactions in futures contracts and options on futures only (i) for bona fide
hedging purposes (as defined in Commodities Futures Trading Commission regula-
tions), or (ii) for non-hedging purposes, provided that the aggregate initial
margin and premiums on such non-hedging positions do not exceed 5% of the liq-
uidation value of the Fund's assets.
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific security at a specified
future time and at a specified price. The primary purpose of entering into a
futures contract by the Fund is to protect the Fund from fluctuations in the
value of securities without actually buying or selling the securities. The Fund
may enter into futures contracts and options on futures to seek higher invest-
ment returns when a futures contract is priced more attractively than stocks
comprising a benchmark index, to facilitate trading or to reduce transaction
costs. The Fund will only enter into futures contracts and options on futures
contracts that are traded on a domestic exchange and board of trade. Assets
committed to futures contracts will be segregated at the Fund's custodian to
the extent required by law.
A-5
<PAGE>
APPENDIX A (CONTINUED)
Among the several risks accompanying the utilization of futures contracts and
options on futures contracts are: First, the successful use of futures and
options is dependent upon the ability of the Manager to predict correctly move-
ments in the stock market or in the direction of interest rates. These predic-
tions involve skills and techniques that may be different from those involved
in the management of investments in securities. If the prices of the underlying
commodities move in an unanticipated manner, the Fund may lose the expected
benefit of these futures or options transactions and may incur losses. Second,
positions in futures contracts and options on futures contracts may only be
closed out by entering into offsetting transactions on the exchange where the
position was entered into (or through a linked exchange), and as a result of
daily price fluctuations limits there can be no assurance the offsetting trans-
action could be entered into at an advantageous price at a particular time.
Consequently, the Fund may realize a loss on a futures contract or option that
is not offset by an increase in the value of its portfolio securities that are
being hedged or the Fund may not be able to close a futures or options position
without incurring a loss in the event of adverse price movements.
A-6
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
SMITH BARNEY
-------------------------------
A Member of TravelersGroup LOGO
SMITH BARNEY SMALL CAP GROWTH FUND
388 Greenwich Street
New York, New York 10013
FD 9/98
<PAGE>
P R O S P E C T U S
SMITH BARNEY
Small Cap
Value
Fund
SEPTEMBER 30, 1998
PROSPECTUS BEGINS ON PAGE ONE
LOGO Smith Barney Mutual Funds
INVESTING FOR YOUR FUTURE.
EVERY DAY.
<PAGE>
PROSPECTUS SEPTEMBER 30, 1998
Smith Barney
Small Cap Value Fund
388 Greenwich Street
New York, New York 10013
1-800-451-2010
Smith Barney Small Cap Value Fund (the "Fund") is a mutual fund that seeks
long-term growth of capital by investing, under normal market conditions, at
least 65% of its total assets in the equity securities of smaller capitalized
companies (companies with market capitalizations of 1.4 billion or less at
the time of investment).
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 Company 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 [ ],
1998, (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 [ ], 1998. See "Purchase of Shares."
This Prospectus sets forth concisely certain information about the Fund,
including sales charges, distribution and service fees and expenses, that pro-
spective investors will find helpful in making an investment decision. Invest-
ors are encouraged to read this Prospectus carefully and retain it for future
reference.
Shares of the other Funds offered by the Company are described in separate
prospectuses that may be obtained by calling the Company at 1-800-451-2010.
Additional information about the Fund is contained in a Statement of Addi-
tional Information, (the "SAI") dated September 30, 1998, as amended or supple-
mented from time to time, that is available upon request and without charge by
calling or writing the Fund at the telephone number or address set forth above
or by contacting a Smith Barney Financial Consultant. The SAI has been filed
with the Securities and Exchange Commission (the "SEC") and is incorporated by
reference into this Prospectus in its entirety.
CFBDS, INC.
Distributor
MUTUAL MANAGEMENT CORP.
Investment Manager
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
- -------------------------------------------------
VALUATION OF SHARES 11
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 11
- -------------------------------------------------
PURCHASE OF SHARES 13
- -------------------------------------------------
EXCHANGE PRIVILEGE 23
- -------------------------------------------------
REDEMPTION OF SHARES 26
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 28
- -------------------------------------------------
PERFORMANCE 29
- -------------------------------------------------
MANAGEMENT OF THE COMPANY AND THE FUND 29
- -------------------------------------------------
DISTRIBUTION 30
- -------------------------------------------------
ADDITIONAL INFORMATION 31
- -------------------------------------------------
APPENDIX A A-1
</TABLE>
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any repre-
sentations 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 distribu-
tor. This Prospectus does not constitute an offer by the Fund or the distribu-
tor 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 SAI. Cross references in this
summary are to headings in this Prospectus. 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 growth of capital
by investing, under normal market conditions, at least 65% of its total assets
in the equity securities of smaller capitalized companies (companies with mar-
ket capitalizations of $[1.6] billion or less at the time of investment). 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 L
shares, which differ principally in terms of sales charges and rates 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
$15,000,000. 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. This 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 dis-
tributions ("Class B Dividend Shares") will be converted at that time. See
"Purchase of Shares--Deferred Sales Charge Alternatives."
3
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Class L Shares. Class L shares are sold at net asset value plus an initial
sales charge of 1.00%. 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 L shares within
12 months of purchase. The CDSC may be waived for certain redemptions. The
Class L 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 L 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
initial investment minimum of $15,000,000. 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 con-
sider the following factors, as well as any other relevant facts and circum-
stances:
Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended duration of his
or her investment. Shareholders who are planning to establish a program of
regular investment may wish to consider Class A shares; as the investment
accumulates, shareholders may qualify for reduced sales charges and the shares
are subject to lower ongoing expenses over the term of the investment. As an
alternative, Class B 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 partially or wholly offset the
higher annual expenses of this Class. Because the Fund's future return cannot
be predicted, however, there can be no assurance that this would be the case.
Finally, Class L shares which have a lower upfront sales charge but are sub-
ject to higher distribution fees than Class A shares, are suitable for invest-
ors who are not investing or intending to invest an amount which would receive
a substantive sales charge discount and who have a short-term or undetermined
time frame.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, while Class L 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 L shares to investors with longer term investment outlooks.
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
4
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
or more will be made at net asset value with no initial sales charge, but will
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 offered with a sales charge held in Smith Barney
Mutual Funds listed under "Exchange Privilege." Class A share purchases may
also be eligible for a reduced initial sales charge. See "Purchase of Shares."
Because the ongoing expenses of Class A shares may be lower than those for
Class B and Class L 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 certain Class A shares, the Class B and Class L shares is
the same as that of an initial sales charge.
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
"Exchange 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. Other investors may be eligible to participate in the Smith Barney
ExecChoice(TM) Program. Class A and Class L shares are available as investment
alternatives under both of these programs. See "Purchase of Shares--Smith Bar-
ney 401(k) and ExecChoice(TM) Programs."
PURCHASE OF SHARES Shares may be purchased through a brokerage account main-
tained by Smith Barney during the Initial Subscription Period. During the con-
tinuous offering period, shares may also be purchased through a brokerage
account maintained with Smith Barney, a broker that clears securities transac-
tions through Smith Barney on a fully disclosed basis (an "Introducing Broker")
or any other 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 trans-
fer agent, First Data Investors Services Group, Inc. ("First Data" or "Transfer
Agent"). See "Purchase of Shares." The initial subscription period for shares
is scheduled to end on [ ], 1998, (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 offer-
ing of shares is expected to commence on or about [ ], 1998. See "Purchase
of Shares."
5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
INVESTMENT MINIMUMS Investors in Class A, Class B and Class L 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 Retirement Plan. Investors in Class Y shares may open an account for
an initial investment of $15,000,000. Subsequent investments of at least $50
may be made for all Classes. For participants in retirement plans qualified
under Section 403(b)(7) or Section 401(a) of the Code, the minimum initial
investment requirement for Class A, Class B and Class L shares and the subse-
quent investment requirement for all Classes of shares is $25. The minimum
investment requirements for purchases of Fund shares through the Systematic
Investment Plan are 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 autho-
rize the automatic placement of a purchase order each month or quarter for
Fund shares. The minimum initial investment requirement for Class A, Class B
and Class L 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
"Redemption of Shares."
MANAGEMENT OF THE FUND Mutual Management Corp. ("MMC" or the "Manager"),
formerly known as Smith Barney Mutual Funds Management Inc., serves as the
Fund's investment manager. The Manager is a wholly owned subsidiary of Salomon
Smith Barney Holdings Inc, ("Holdings") formerly known as Smith Barney
Holdings. Holdings is a wholly owned subsidiary of Travelers Group Inc.
("Travelers"), a diversified financial services holding company engaged,
through its subsidiaries, principally in four business segments: Investment
Services including Asset Management, Consumer Finance Services, Life Insurance
Services and Property & Casualty Insurance Services. See "Management of the
Trust and 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 respec-
tive 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 There can be no assurance that the
Fund's investment objective will be achieved. The value of the Fund's invest-
ments, and thus the net asset value of the Fund's shares, will fluctuate in
response to changes in market and economic conditions, as well as the finan-
cial condition and prospects of issuers in which the Fund invests. The Fund
may invest in foreign securities, though management intends to limit such
investments to 25% of the Fund's assets. Foreign investments may include addi-
tional risks associated with currency exchange rates, less complete financial
information about individual companies, less market liquidity and political
instability. See "Investment Objective and Management Policies."
THE FUND'S EXPENSES The following expense table lists the costs and expenses
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 operating
expenses:
<TABLE>
<CAPTION>
SMITH BARNEY
SMALL CAP VALUE FUND CLASS A CLASS B CLASS L CLASS Y
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% None 1.00% None
Maximum CDSC (as a percentage of original
cost or redemption proceeds, whichever is
lower) None* 5.00% 1.00% None
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees [ %] [ %] [ %] [ %]
12b-1 fees** 0.25 1.00 1.00 None
Other expenses*** [ ] [ ] [ ] [ ]
- -------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES [ %] [ %] [ %] [ %]
- -------------------------------------------------------------------------------
</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 L shares do not have a
conversion feature and, therefore, are subject to an ongoing distribution
fee. As a result, long-term shareholders of Class L shares may pay more
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers ("NASD").
*** "Other Expenses" have been estimated based on expenses the Fund expects
to incur during its fiscal year ending August 31, 1999.
7
<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 L 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. For Class B and Class L
shares, Smith Barney receives an annual 12b-1 fee of 1.00% of the value of
average daily net assets of each respective Class, consisting of a 0.75% dis-
tribution fee and a 0.25% service 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 Trust and the Fund."
<TABLE>
<CAPTION>
SMITH BARNEY
SMALL CAP VALUE FUND 1 YEAR 3 YEARS
- ------------------------------------------------------------------------------
<S> <C> <C>
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5.00% annual return and (2) redemp-
tion at the end of each time period:
Class A.................................................... [$
Class B....................................................
Class L....................................................
Class Y.................................................... ]
An investor would pay the following expenses on the same
investment, assuming the same annual return and no redemp-
tion:
Class A.................................................... [$
Class B....................................................
Class L....................................................
Class Y.................................................... ]
- ------------------------------------------------------------------------------
</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.
8
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Fund's investment objective is long-term growth of capital. This invest-
ment objective may not be changed without the approval of the holders of a
majority of the Fund's outstanding shares. There can be no assurance that the
Fund's investment objective will be achieved.
The Fund attempts to achieve its investment objective by investing, under
normal market conditions, substantially all of its assets in equity securities
and at least 65% of its total assets in equity securities of smaller capital-
ized companies (companies with market capitalizations of $1.4 billion or
less at the time of investment). Companies whose capitalization falls outside
this range after purchase continue to be considered smaller capitalized compa-
nies for purposes of the 65% policy. Investments in smaller companies may
offer greater opportunities for growth of capital than larger, more estab-
lished companies, but may also involve certain risks because smaller capital-
ized companies often have limited market or financial resources and may be
dependent on one or two people for management. In addition, small capitalized
companies may be subject to a limited liquidity and more volatility which
could result in significant fluctuations in the price of their shares.
In selecting the Fund's equity investments, the Manager seeks to identify
companies that exhibit value attributes. When selecting stocks with value
characteristics, the Manager will typically be looking at companies that are
perhaps growing more slowly but whose valuation may be below average relative
to earnings and/or assets. In addition, the Manager may utilize an active
quantitative investment strategy for a portion of the Fund. This portion will
provide added diversification and, in addition, will select securities using a
proprietary technique that are believed to have a high probability of
outperforming their respective industry or sector. In identifying these secu-
rities, the Fund's portfolio manager is supported by a quantitatively oriented
investment team.
The Fund will normally invest in all types of equity securities, including
common stocks, preferred stocks, securities that are convertible into common
or preferred stocks, such as warrants and convertible bonds, and depository
receipts for those securities. It is the policy of the Fund to be as fully
invested in equity securities as practicable at all times. Under certain cir-
cumstances, the Fund may maintain a portion of its assets, which will usually
not exceed 10%, in U.S. Government securities, money market obligations, and
in cash to provide for payment of the Fund's expenses and to meet redemption
requests. The Fund reserves the right, as a defensive measure, to hold money
market securities, including repurchase agreements or cash, in such propor-
tions as, in the opinion of management, prevailing market or economic condi-
tions warrant.
Consistent with its investment objective and policies described above, the
Fund may invest up to 25% of its total assets in foreign securities, including
both
9
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
direct investments and investments made through depository receipts. The Fund
may also invest in real estate investment trusts; purchase or sell securities
on a when-issued or delayed-delivery basis; enter into forward commitments to
purchase securities; lend portfolio securities; purchase and sell put and call
options; and enter into interest rate futures contracts, stock index futures
contracts and related options.
The different types of securities and investment techniques used by the Fund
all involve risks of varying degrees. For example, with respect to common
stock, there can be no assurance of capital appreciation, and there is a risk
of market decline. With respect to debt securities, including money market
instruments, there is the risk that the issuer of a security may not be able to
meet its obligation to make scheduled interest or principal payments. See
Appendix A for a more complete discussion of certain of these securities and
investment techniques and the associated risks.
PORTFOLIO TRANSACTIONS AND TURNOVER
Transactions on behalf of the Fund are allocated to various brokers and deal-
ers by the Manager in its best judgment. The primary consideration is prompt
and effective execution of orders at the most favorable price. Subject to that
primary consideration, brokers and dealers, including Smith Barney, may be
selected for research, statistical or other services to enable the Manager to
supplement its own research and analysis with the views and information of
other securities firms.
The Fund cannot accurately predict its portfolio turnover rate, but antici-
pates that its annual turnover normally will not exceed 150%. An annual turn-
over rate of 100% would occur if all of the securities held by the Fund were
replaced once during a period of one year. The Manager will not consider turn-
over rate a limiting factor in making investment decisions consistent with the
Fund's investment objective and policies.
Year 2000. The investment management services provided to the Fund by the
Manager and the services provided to shareholders who hold their shares in bro-
kerage accounts maintained with Smith Barney Inc. ("Smith Barney") depend on
the smooth functioning of their computer systems. Many computer software sys-
tems in use today cannot recognize the year 2000, but revert to 1900 or some
other date, due to the manner in which dates were encoded and calculated. That
failure could have a negative impact on the Fund's operations, including the
handling of securities trades, pricing and account services. The Manager and
Smith Barney have advised the Fund that they have been reviewing all of their
computer systems and actively working on necessary changes to their systems to
prepare for the year 2000 and expect that their systems will be compliant
before that date. In addition, the Manager has been advised by the Fund's cus-
todian, transfer agent and accounting
10
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
service agent that they are also in the process of modifying their systems
with the same goal. There can, however, be no assurance that the Manager,
Smith Barney or any other service provider will be successful, or that inter-
action with other non-complying computer systems will not impair Fund services
at that time.
VALUATION OF SHARES
The Fund's net asset value per share is determined as of the close of regu-
lar 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 as
determined by or under the direction of the Company's Board of Directors.
Short-term investments that mature in 60 days or less are valued at amortized
cost. Amortized cost involves valuing an investment at its cost initially and,
thereafter, assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. Further information regarding the Fund's valuation
policies is contained in the SAI.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute dividends from net investment income and
net realized capital gains, if any, annually. The Fund may also pay additional
dividends shortly before December 31 from certain amounts of undistributed
ordinary income and capital gains realized, in order to avoid a Federal excise
tax liability. If a shareholder does not otherwise instruct, dividends and
capital gain distributions will be reinvested automatically in additional
shares of the same Class at net asset value, with no additional sales charge
or CDSC. A shareholder may change the option at any time by notifying his or
her Smith Barney Financial Consultant or their financial consultant, Introduc-
ing Broker or dealer in the selling group. Shareholders whose accounts are
held directly by First Data should notify First Data in writing, requesting a
change to this reinvest option.
The per share amounts of dividends from net investment income on Classes B
and L may be lower than that of Classes A and Y, mainly as a result of the
distribution fees applicable to Class B and L shares. Similarly, the per share
amounts of dividends from net investment income on Class A shares may be lower
than that of Class Y, as a result of the service fee attributable to Class A
shares. Capital gain distributions, if any, will be the same amount across all
Classes of Fund shares (A, B, L and Y).
11
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
TAXES
The following is a summary of the material federal tax considerations affect-
ing the Fund and Fund shareholders. Please refer to the SAI for further discus-
sion. In addition to the considerations described below and in the SAI, there
may be other federal, state, local, and/or foreign tax implications to consid-
er. Because taxes are a complex matter, prospective shareholders are urged to
consult their tax advisors for more detailed information with respect to the
tax consequences of any investment.
The Fund will be treated as a separate entity of the Company for Federal
Income Tax purposes. The Fund intends to qualify under Subchapter M of the
Internal Revenue Code (the "Code") for tax treatment as a regulated investment
company. In each taxable year that the Fund qualifies, the Fund will pay no
federal income tax on its net investment company taxable income and long-term
capital gain that is distributed to shareholders.
Dividends paid from net investment income and net realized short-term securi-
ties gain, are subject to federal income tax as ordinary income. Distributions,
if any, from net realized long-term securities gains, derived from the sale of
securities held by the Fund for more than one year, are taxable as long-term
capital gains, regardless of the length of time a shareholder has owned Fund
shares.
Shareholders are required to pay tax on all taxable distributions, even if
those distributions are automatically reinvested in additional Fund shares. A
portion of the dividends paid by the Fund may qualify for the corporate divi-
dends received deduction. Dividends consisting of interest from U.S. government
securities may be exempt from state and local income taxes. The Fund will
inform shareholders of the source and tax status of all distributions promptly
after the close of each calendar year.
A shareholder's gain or loss on the disposition of Fund shares (whether by
redemption, sale or exchange), generally will be a long-term or short-term gain
or loss depending on the length of time the shares had been owned at disposi-
tion. Losses realized by a shareholder on the disposition of Fund shares owned
for six months or less will be treated as a long-term capital loss to the
extent a capital gain dividend had been distributed on such shares.
The Fund is required to withhold ("backup withholding") 31% of all taxable
dividends, capital gain distributions, and the proceeds of any redemption,
regardless of whether gain or loss is realized upon the redemption, for share-
holders who do not provide the Fund with a correct taxpayer identification num-
ber (social security
12
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
or employer identification number). Withholding from taxable dividends and
capital gain distributions also is required for shareholders who otherwise are
subject to backup withholding. Any tax withheld as a result of backup with-
holding does not constitute an additional tax, and may be claimed as a credit
on the shareholder's federal income tax return.
PURCHASE OF SHARES
GENERAL
The Fund currently offers four Classes of shares. Class A shares are sold to
investors with an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to a CDSC payable upon certain redemp-
tions. Class L shares are sold to investors with an initial sales charge and
are subject to a CDSC payable upon certain redemptions. Class Y shares are
sold without an initial sales charge or CDSC and are available only to invest-
ors investing a minimum of $15,000,000 (except, for purchases of Class Y
shares by Smith Barney Concert Allocation Series, Inc. for which there is no
minimum purchase amount). See "Prospectus Summary--Alternative Purchase
Arrangements" for a discussion of factors to consider in selecting which Class
of shares to purchase.
INITIAL SUBSCRIPTION PERIOD
During the Initial Subscription Period, subscriptions for shares must be
made through a brokerage account maintained with Smith Barney. Shares of the
Fund subscribed for during the Subscription Period for which the Fund 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, the Fund will issue shares for which it has received and
accepted subscriptions and commence operations.
The Fund is offering its Class A shares to the public at a maximum purchase
price per share of $[ ], which equals the Class A share initial net asset
value per share of $[ ] plus the maximum sales charge set forth below under
"Continuous Offerings". The Fund is offering its Class B, Class L and Class Y
shares to the public at each Class' respective initial net asset value per
share of $[ ].
The Fund may in its 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.
13
<PAGE>
PURCHASE OF SHARES (CONTINUED)
CONTINUOUS OFFERINGS
The Fund will suspend the offering of shares to the public immediately after
the expiration of the Subscription Period or within three weeks thereafter.
During the three-week period, the Fund will commence a limited continuous
offering of shares to the public. Once the Fund 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
the Fund. 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 expira-
tion of the Closing Period, the Fund expects to commence a continuous offering
of shares.
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 any other 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 L or Class Y shares. Smith
Barney and other broker/dealers may charge their customers an annual account
maintenance fee in connection with a brokerage account through which an
investor purchases or holds shares. Accounts held directly at First Data are
not subject to a maintenance fee.
Investors in Class A, Class B and Class L 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 $15,000,000.
Subsequent investments of at least $50 may be made for all Classes. For par-
ticipants 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 L shares and the subsequent investment requirement for all
Classes in the Fund is $25. For shareholders purchasing shares of the Fund
through the Systematic Investment Plan on a monthly basis, the minimum initial
investment requirement for Class A, Class B and Class L shares and the subse-
quent investment requirement for all Classes is $25. For shareholders purchas-
ing shares of the Fund through the Systematic Investment Plan on a quarterly
basis, the minimum initial investment requirement for Class A, Class B and
Class L shares and the subsequent investment requirement for all Classes is
$50. There are no minimum investment requirements for Class A shares purchased
by employees of Travelers and its subsidiaries, including Smith Barney, Direc-
tors or Trustees of any of the Smith Barney Mutual Funds, and their
14
<PAGE>
PURCHASE OF SHARES (CONTINUED)
immediate family. 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 the Fund's transfer agent. Share certificates are issued only upon a share-
holder's written request to the Transfer Agent.
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 value
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 Introducing Brokers
purchasing through Smith Barney, payment for Fund shares is due on the third
business day (the "settlement date") after the trade date. In all other cases,
payments must be made with the purchase order.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or the Transfer Agent 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 to provide systematic additions to the
shareholder's Fund account. A shareholder who has insufficient funds to com-
plete the transfer will be charged a fee of up to $25 by Smith Barney or the
Transfer Agent. 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.
15
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 L 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
of 1933, as amended.
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.
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 of any of the Smith Barney
Mutual Funds or other Travelers affiliated funds (including retired Board mem-
bers and employees); the immediate families of such persons (including the sur-
viving spouse of a deceased Board Member or employee); and to a pension, prof-
it-sharing or other benefit plan for such persons and (ii) employees of members
of the NASD, 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) purchases
of Class A shares by any client of a newly employed Smith Barney Financial Con-
sultant (for a period up to 90 days from the commencement of the Financial Con-
sultant's employment with Smith Barney), on the condition the purchase of Class
A shares is made with the
16
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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) pur-
chases by shareholders who have redeemed Class A shares in the Fund or Class A
shares of another fund of 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 redemp-
tion; (e) purchases by accounts managed by registered investment advisory sub-
sidiaries of Travelers; (f) direct rollovers by plan participants of distribu-
tions 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; (h) purchases by investors participating in a Smith Barney fee-based
arrangement; and (i) purchases of Class A shares by Section 403(b) or 401(a)
or (k) accounts associated with Copeland Retirement Programs. In order to
obtain such discounts, the purchaser must provide sufficient information at
the time of purchase to permit verification that the purchase would qualify
for the elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by 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 other Smith Barney Mutual Funds 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 "Initial Sales Charge Alternative--Class A Shares," and will be based
upon the aggregate sales of Class A shares of the 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 meeting certain require-
17
<PAGE>
PURCHASE OF SHARES (CONTINUED)
ments. 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 pursu-
ant to retirement plans under Sections 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 criteria 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 pub-
lications 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 pur-
chaser 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 discretion 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
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 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 previously 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 applica-
ble 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. Such investors must
18
<PAGE>
PURCHASE OF SHARES (CONTINUED)
make an initial minimum purchase of $5,000,000 in Class Y shares of the Fund
and agree to purchase a total of $15,000,000 of Class Y shares of the Fund
within thirteen (13) months from the date of the Letter. If a total investment
of $15,000,000 is not made within the thirteen-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%. The Fund
expects that such transfer will not be subject to Federal income taxes. Please
contact a Smith Barney Financial Consultant or First Data for further informa-
tion.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at the net asset value next determined without an ini-
tial 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 L
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 L shares and Class A shares that
are CDSC Shares, shares redeemed more than 12 months after their purchase.
Class L 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."
19
<PAGE>
PURCHASE OF SHARES (CONTINUED)
<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 fees. There also will be converted at that time
such proportion 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. See "Prospectus Summary--Alternative Pur-
chase Arrangements--Class B Shares Conversion Feature." The length of time
that CDSC Shares acquired through an exchange have been held will be calcu-
lated from the date that the shares exchanged were initially acquired in one
of the other applicable 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 redemp-
tion. 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
additional shares through dividend reinvestment. During the fifteenth month
after the purchase, the investor decided to redeem $500 of his or her invest-
ment. Assuming at the time of the redemption the net asset value had appreci-
ated 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 equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan com-
mences (see "Automatic Cash Withdrawal Plan") (provided, however, that auto-
matic cash withdrawals in amounts equal to or less than 2.00% per month of the
value of the
20
<PAGE>
PURCHASE OF SHARES (CONTINUED)
shareholder's shares will be permitted for withdrawal plans that were estab-
lished prior to November 7, 1994); (c) redemptions of shares within 12 months
following the death or disability of the shareholder; (d) redemptions of
shares made in connection with qualified distributions from retirement plans
or IRAs upon the attainment of age 59 1/2; (e) involuntary redemptions; and
(f) redemptions of shares to effect a combination of the Fund with any invest-
ment company by merger, acquisition of assets or otherwise. In addition, a
shareholder who has redeemed shares from other Smith Barney Mutual Funds may,
under certain circumstances, reinvest all or part of the redemption proceeds
within 60 days and receive pro rata credit for any 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 the Transfer
Agent in the case of all other shareholders) of the shareholder's status or
holdings, as the case may be.
SMITH BARNEY 401(K) PROGRAM AND EXECCHOICE(TM) PROGRAMS
Investors may be eligible to participate in the Smith Barney 401(k) Program
or the Smith Barney ExecChoice(TM) Program. To the extent applicable, the same
terms and conditions, which are outlined below, are offered to all plans par-
ticipating ("Participating Plans") in these programs.
Each Fund offers to Participating Plans Class A and Class L shares as
investment alternatives under the Smith Barney 401(k) and ExecChoice(TM) Pro-
grams. Class A and Class L shares acquired through the Participating Plans are
subject to the same service and/or distribution fees as the Class A and Class
L shares acquired by other investors; however, they are not subject to any
initial sales charge or CDSC. Once a Participating Plan has made an initial
investment in a 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 a 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 L Shares. Class L shares of a Fund are offered without any sales
charge or CDSC to any Participating Plan that purchases less than $1,000,000
of Class L shares of one or more funds of the Smith Barney Mutual Funds.
401(k) and 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 L 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 L shares
21
<PAGE>
PURCHASE OF SHARES (CONTINUED)
for Class A shares of a 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 enrollment date and,
unless the exchange offer has been rejected in writing, the exchange will occur
on or about the 90th day after the fifth anniversary date. If the Participating
Plan does not qualify for the five year exchange to Class A shares, a review of
the Participating Plan's holdings will be performed each quarter until either
the Participating Plan qualifies or the end of the eighth year.
401(k) Plans Opened Prior to June 21, 1996. In any year after the date a Par-
ticipating Plan enrolled in the Smith Barney 401(k) Program, if its total Class
L holdings in all non-money market Smith Barney Mutual Funds equal at least
$500,000 as of the calendar year-end, the Participating Plan will be offered
the opportunity to exchange all of its Class L shares for Class A shares of a
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 L shares for Class A shares of a 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 L shares of the Fund but instead may acquire Class
A shares of the Fund. Any Class L shares not converted will continue to be sub-
ject to the distribution fee.
Participating Plans wishing to acquire shares of a Fund through the
Smith Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program must
purchase such shares directly from the Transfer Agent. For further information
regarding these Programs, investors should contact a Smith Barney Financial
Consultant.
22
<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
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 L
shares are subject to minimum investment requirements and all shares are sub-
ject to the other requirements of the fund into which exchanges are made.
FUND NAME
Growth Funds
Concert Peachtree Growth Fund
Concert Social Awareness Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Balanced Fund
Smith Barney Contrarian Fund
Smith Barney Convertible Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.--Large Cap Value Fund
Smith Barney Large Cap Blend Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney Mid Cap Blend Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Premium Total Return Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Small Cap Growth Fund
Smith Barney Special Equities Fund
Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
+++Smith Barney Funds, Inc.--Short-Term High Grade Bond Fund
Smith Barney Funds, Inc.--U.S. Government Securities Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney Total Return Bond Fund
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.
23
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Massachusetts Municipals Fund
Smith Barney Municipal High Income 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
Global-International Funds
Smith Barney Hansberger Global Small Cap Value Fund
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 Concert Allocation Series Inc.--Balanced Portfolio
Smith Barney Concert Allocation Series Inc.--Conservative Portfolio
Smith Barney Concert Allocation Series Inc.--Global Portfolio
Smith Barney Concert Allocation Series Inc.--Growth Portfolio
Smith Barney Concert Allocation Series Inc.--High Growth Portfolio
Smith Barney Concert Allocation Series Inc.--Income Portfolio
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 L and Class Y shares of the
Fund.
** Available for exchange with Class A and Class B shares of the Fund.
***Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class L shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund. In
addition, shareholders who own Class L shares of the Fund through the Smith
Barney 401(k) and ExecChoice(TM) Programs may exchange those shares for
Class L shares of this Fund.
+++Available for exchange with Class A and Class Y shares of the Fund.
24
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Class B Exchanges. In the event a Class B shareholder wishes to exchange all
or a portion of his or her shares in any of the funds imposing a CDSC higher
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 L Exchanges. Upon an exchange, the new Class L shares will be deemed
to have been purchased on the same date as the Class L shares of the Fund that
have been exchanged.
Class A and Class Y Exchanges. Class A and Class Y shareholders of the Fund
who wish to exchange all or a portion of their shares for shares of the
respective Class in any of the funds identified above may do so without 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. The Manager
may determine that a pattern of frequent exchanges is excessive and contrary
to the best interests of the Fund's other shareholders. In this event, the
Fund may, at its discretion, decide to limit additional purchases and/or
exchanges by a shareholder. Upon such a determination, the Fund will provide
notice in writing or by telephone to the shareholder at least 15 days prior to
suspending the exchange privilege and during the 15 day period the shareholder
will be required to (a) redeem his or her shares in the Fund or (b) remain
invested in the Fund or exchange into any of the funds of the Smith Barney
Mutual Funds ordinarily available, which position the shareholder would be
expected to maintain for a significant period of time. All relevant factors
will be considered in determining what constitutes an abusive pattern of
exchanges.
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
discussed 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 registration 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.
25
<PAGE>
REDEMPTION OF SHARES
The Fund is required to redeem shares 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 trad-
ing 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 the Transfer Agent 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
tender, except on any days on which the NYSE is closed or as permitted under
the Investment Company Act of 1940, as amended (the "1940 Act"), in extraordi-
nary circumstances. Generally, if the redemption proceeds are remitted to a
Smith Barney brokerage account, these funds will not be invested for the share-
holder'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 Small Cap Value Fund
Class A, B, L 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 $10,000 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 Fed-
26
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
eral Reserve System or member firm of a national securities exchange. Written
redemption requests of $10,000 or less do not require a signature guarantee
unless more than one such redemption request is made in any 10-day period or
the redemption proceeds are to be sent to an address other than the address of
record. Unless otherwise directed, redemption proceeds will be mailed to an
investor's address of record. 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.
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
Shareholders who do not have a Smith Barney brokerage account may be eligi-
ble to redeem and exchange Fund shares by telephone. To determine if a share-
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, including a sig-
nature guarantee, that will be provided by First Data upon request. (Alterna-
tively, an investor may authorize telephone redemptions on the new account
application with a 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 4:00 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 the shares of the fund being acquired is identical to
the
27
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
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 4:00
p.m. (New York City time) on any day the NYSE is open. Exchange requests
received after the close of regular trading on the NYSE are priced 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.
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 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. (With respect to withdrawal plans in effect prior
to November 7, 1994, any applicable CDSC will be waived on amounts withdrawn
that do not exceed 2.00% per month of the shareholder's shares subject to the
CDSC.) For further information regarding the automatic cash withdrawal plan,
shareholders should contact a Smith Barney Financial Consultant or their
financial consultant, Introducing Broker or dealer in the selling group.
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.
28
<PAGE>
PERFORMANCE
From time to time the Fund may advertise its total return and average annual
total return in advertisements and/or other types of sales literature. These
figures are computed separately for Class A, Class B, Class L 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 speci-
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 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 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.
MANAGEMENT OF THE COMPANY AND THE FUND
BOARD OF DIRECTORS
Overall responsibility for the management and supervision of the Fund rests
with the Company's Board of Directors. The Directors approve all significant
agreements between the Company and the persons and companies that furnish serv-
ices to the Fund, including agreements with the Fund's distributor, investment
manager, custodian and transfer agent. The day-to-day operations of the Fund
are delegated to the Fund's investment manager. The SAI contains background
information regarding each Director and executive officer of the Company.
INVESTMENT MANAGER--MMC
The Fund's investment manager, MMC, is a registered investment adviser whose
principal executive offices are located at 388 Greenwich Street, New York, New
York 10013. MMC was incorporated in March, 1968 under the laws of Delaware and
renders investment advice to a wide variety of individual, institutional and
investment company clients that had aggregate assets under management as of
[ ], 1998 in excess of $[ ] billion.
Subject to the supervision and direction of the Company's Board of Directors,
the Manager 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
29
<PAGE>
MANAGEMENT OF THE TRUST AND THE FUND (CONTINUED)
and securities analysts who provide research services to the Fund. For invest-
ment management services rendered, the Fund pays the Manager a monthly fee at
the annual rate of 0.[ ]% of the value of the Fund's average daily net assets.
PORTFOLIO MANAGEMENT
[ ], Vice President and Investment Officer of the Fund, is the portfolio
manager and manages the day-to-day operations of the Fund, including making all
investment decisions.
DISTRIBUTION
CFBDS, Inc. distributes shares of the Fund as principal underwriter and as
such conducts a continuous offering pursuant to a "best efforts" arrangement
requiring CFBDS, Inc. to take and pay for only such securities as may be sold
to the public.
The Fund has adopted a plan of distribution under Rule 12b-1 under the 1940
Act (the "Plan"), pursuant to which Smith Barney is paid an annual service fee
with respect to Class A, Class B and Class L 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 an annual distribution fee with respect to Class B and
Class L shares at the annual rate of 0.75% of the average daily net assets
attributable to those Classes. Class B shares which 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 Consultants for servicing shareholder accounts and, in the case of
Class B and Class L shares, to cover expenses primarily intended to result in
the sale of those shares. These expenses include: advertising; the cost of
printing 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
carrying 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 L 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 Fund's Board of Direc-
tors will
30
<PAGE>
DISTRIBUTION (CONTINUED)
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.
On April 6, 1998, Travelers announced that it had entered into a Merger
Agreement with Citicorp. The transaction, which is expected to be completed
during the third quarter of 1998, is subject to various regulatory approvals,
including approval by the Federal Reserve Board. The transaction is also sub-
ject to approval by the stockholders of each of Travelers and Citicorp. Travel-
ers has filed an application to become a bank holding company so that, upon
consummation of the merger, the surviving corporation would be a bank holding
company subject to regulation under the Bank Holding Company Act of 1956 (the
"BHCA"). The requirements of the Glass-Steagall Act and certain other laws and
regulations will then be applicable to Travelers and its subsidiaries. The
Glass-Steagall Act currently prohibits certain financial institutions from
underwriting securities of open-end investment companies, such as the Fund.
Therefore, in connection with the anticipated merger of Travelers and Citicorp
and as a consequence of the anticipated applicability of the BHCA and the
Glass-Steagall Act, the Fund has retained the services of CFBDS, Inc. as Dis-
tributor.
The Manager does not believe that its compliance with applicable law follow-
ing the merger of Travelers and Citicorp will have a material adverse effect on
its ability to continue to provide the Fund with the same level of investment
advisory services that it currently receives. Smith Barney and the Manager
believe that the Manager's services under the Management Agreement and the
shareholder service activities performed by Smith Barney are not underwriting
and are consistent with the Glass-Steagall Act and other relevant federal and
state laws. However, their is little controlling precedent regarding the per-
formance of the combination of investment advisory, shareholder servicing and
administrative activities by subsidiaries of bank holding companies. If Smith
Barney and the Manager, or their affiliates, were to be prevented from acting
as the manager or a shareholder service agent, the Fund would seek alternative
means for obtaining these services. The Fund does not expect that shareholders
would suffer any adverse financial consequences as a result of any such occur-
rence.
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, L
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
31
<PAGE>
ADDITIONAL INFORMATION (CONTINUED)
rights, privileges and preferences, except with respect to: (a) the designation
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 pursuant to the
Plan; (d) the expenses allocable exclusively to each Class; (e) voting rights
on maters 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.
PNC Bank, National Association, located at 17th and Chestnut Streets, Phila-
delphia, Pennsylvania 19103, 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 sharehold-
ers vote, shareholders of each Class will have one vote for each full share
owned and a proportionate, 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 the Fund's Transfer Agent.
32
<PAGE>
APPENDIX A
Convertible Securities. Convertible securities are generally preferred secu-
rities or fixed-income securities that are convertible into common stock at
either a stated price or stated rate. The price of the convertible security
will normally vary in some proportion to changes in the price of the underlying
common stock because of this conversion feature. A convertible security will
normally also provide a fixed income stream. For this reason, the convertible
security may not decline in price as rapidly as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. The
Manager will select convertible securities to be purchased by the Fund based
primarily upon its evaluation of the fundamental investment characteristics and
growth prospects of the issuer of the security. As a fixed income security, a
convertible security tends to increase in market value when interest rates
decline and decrease in value when interest rates rise. While convertible secu-
rities generally offer lower interest or dividend yields than non-convertible
fixed income securities of similar quality, their value tends to increase as
the market value of the underlying stock increases and to decrease when the
value of the underlying stock decreases.
Foreign Securities. In addition to direct investment in securities of foreign
issuers, the Fund may also invest in securities of foreign issuers in the form
of sponsored and unsponsored American Depositary Receipts (ADRs), European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs) or other similar
securities convertible into securities of foreign issuers. These securities may
not necessarily be denominated in the same currency as the securities into
which they may be converted. The Fund also may invest in securities denominated
in European Currency Units (ECUs). An ECU is a "basket" consisting of a speci-
fied amount of currencies of certain of the twelve member states of the Euro-
pean Community. In addition, the Fund may invest in securities denominated in
other currency "baskets."
There are certain risks involved in investing in securities of companies and
governments of foreign nations that are in addition to the usual risks inherent
in domestic investments. These risks include those resulting from revaluation
of currencies, future adverse political and economic developments and the pos-
sible imposition of currency exchange blockages or other foreign governmental
laws or restrictions, reduced availability of public information concerning
issuers and the lack of uniform accounting, auditing and financial reporting
standards or of other regulatory practices and requirements comparable to those
applicable to domestic companies. The yield of the Fund may be adversely
affected by fluctuations in value of one or more foreign currencies relative to
the U.S. dollar. Moreover, securities of many foreign companies and their mar-
kets may be less liquid and their prices more volatile than those of securities
of comparable domestic companies. In addition, with
A-1
<PAGE>
APPENDIX A (CONTINUED)
respect to certain foreign countries, there is the possibility of expropria-
tion, nationalization, confiscatory taxation and limitations on the use or
removal of funds or other assets of the Fund, including the withholding of div-
idends. Foreign securities may be subject to foreign government taxes that
could reduce the yield on such securities. Because the Fund may invest in secu-
rities denominated or quoted in currencies other than the U.S. dollar, changes
in foreign currency exchange rates may adversely affect the value of portfolio
securities and the appreciation or depreciation of investments. Investment in
foreign securities also may result in higher expenses due to the cost of con-
verting foreign currency to U.S. dollars, the payment of fixed brokerage com-
missions on foreign exchanges, which generally are higher than commissions on
domestic exchanges, and the expense of maintaining securities with foreign cus-
todians, and the imposition of transfer taxes or transaction charges associated
with foreign exchanges.
Real Estate Investment Trusts ("REITS"). The Fund may invest in REITS, which
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 properties owned by the REIT or securing mortgage loans held by
the REIT. REITs are dependent upon cash flow from their investments to repay
financing costs and the ability of the REIT's manager. REITs are also subject
to risks generally associated with investments in real estate. The Fund will
indirectly bear its proportionate share of any expenses, including management
fees, paid by a REIT in which it invests.
Debt Securities. Debt securities in which the Fund may invest include notes,
bills, commercial paper, obligations issued or guaranteed by the government or
any of its political subdivisions, agencies or instrumentalities, and
certificates of deposit. Debt securities represent money borrowed that
obligates the issuer (e.g., a corporation, municipality, government, government
agency) to repay the borrowed amount at maturity (when the obligation is due
and payable) and usually to pay the holder interest at specific times.
All debt securities are subject to market risk and credit risk. Market risk
relates to market-induced changes in a security's value, usually as a result of
changes in interest rates. The value of the Fund's investments in debt securi-
ties will change as the general levels of interest rates fluctuate. During
periods of falling interest rates, the value of the Fund's debt securities will
generally rise. Conversely, during periods of rising interest rates, the value
of the Fund's debt securities will generally decline. Credit risk relates to
the ability of the issuer to make payments of principal and interest. The Fund
has no restrictions with respect to the maturities or duration of the debt
securities it holds. The Fund's investments in fixed income securities with
longer terms to maturity or greater duration are subject to greater volatility
than the Fund's shorter-term securities.
A-2
<PAGE>
APPENDIX A (CONTINUED)
Money Market Instruments. Short-term instruments in which the Fund may invest
include obligations of banks having at least $1 billion in assets (including
certificates of deposit, time deposits and bankers' acceptances of domestic or
foreign banks, domestic savings and loan associations and similar institu-
tions); commercial paper rated no lower than A-2 by Standard & Poor's Ratings
Group or Prime-2 by Moody's Investors Service, Inc. or the equivalent from
another nationally recognized statistical rating organization or, if unrated,
of an issuer having an outstanding, unsecured debt issue then rated within the
two highest rating categories; and repurchase agreements with respect to any of
the foregoing entered into with banks and non-bank dealers approved by the
Company's Board of Directors.
U.S. Government Securities. The Fund may invest in U.S. Government securi-
ties. Generally, these securities include U.S. Treasury obligations and obliga-
tions issued or guaranteed by U.S. Government agencies, instrumentalities or
sponsored enterprises. U.S. Government securities also include Treasury
receipts and other stripped U.S. Government securities, where the interest and
principal components of stripped U.S. Government securities are traded indepen-
dently. The Fund may also invest in zero coupon U.S. Treasury securities and in
zero coupon securities issued by financial institutions, which represent a pro-
portionate interest in underlying U.S. Treasury securities. A zero coupon secu-
rity pays no interest to its holder during its life and its value consists of
the difference between its face value at maturity and its cost. The market val-
ues of zero coupon securities generally are more volatile than the market
prices of securities that pay interest periodically.
Repurchase Agreements. The Fund may enter into repurchase agreements in order
to earn income on available cash or as a temporary defensive measure. Under a
repurchase agreement, the Fund acquires securities subject to the seller's
agreement to repurchase at a specified time and price. If the seller becomes
subject to a proceeding under the bankruptcy laws or its assets are otherwise
subject to a stay order, the Fund's right to liquidate the securities may be
restricted (during which time the value of the securities could decline). As
discussed in the SAI, the Fund has adopted certain procedures intended to mini-
mize the risks of investing in repurchase agreements.
Reverse Repurchase Agreements. In order to generate additional income, the
Fund may engage in reverse repurchase agreement transactions with banks, bro-
ker-dealers and other financial intermediaries. Reverse repurchase agreements
are the same as repurchase agreements except that, in this instance, the Fund
would assume the role of seller/borrower in the transaction. The Fund will
maintain a segregated account consisting of assets determined to be liquid by
the Manager that at all times have a value equal to its obligations under
reverse repurchase agreements. The Fund will invest the proceeds in other money
market instruments or repurchase agreements maturing not later than the expira-
tion of the reverse repur-
A-3
<PAGE>
APPENDIX A (CONTINUED)
chase agreement. Reverse repurchase agreements involve the risk that the mar-
ket value of the securities sold by the Fund may decline below the repurchase
price of the securities.
When-Issued, Delayed-Delivery and Forward Commitment Transactions. The Fund
may purchase securities on a when-issued basis, may purchase and sell securi-
ties for delayed delivery and may make contracts to purchase securities for a
fixed price at a future date beyond normal settlement time (forward commit-
ments). When-issued transactions, delayed delivery purchases and forward com-
mitments involve a risk of loss if the value of the securities declines prior
to the settlement date, which risk is in addition to the risk of decline in
the value of the Fund's other assets. Typically, no income accrues on securi-
ties the Fund has committed to purchase prior to the time delivery of the
securities is made, although the Fund may earn income on securities it has
deposited in a segregated account.
Lending of Securities. Consistent with applicable regulatory requirements,
the Fund may seek to increase its income by lending portfolio securities to
entities deemed creditworthy by the Manager. Such loans will usually be made
to brokers, dealers and other financial organizations, and would be required
to be secured continuously by collateral in cash, letters of credit or U.S.
government securities, which are maintained at all times in an amount equal to
the current market value of the loaned securities. Any gain or loss in the
market price of the securities loaned that might occur during the term of the
loan would be for the account of the Fund. The risks in lending portfolio
securities, as with other extensions of secured credit, consist of possible
delay in receiving additional collateral or in the recovery of the securities
or possible loss of rights in the collateral should the borrower fail finan-
cially. Loans will be made to firms deemed by the Manager to be of good stand-
ing and will not be made unless, in the judgment of Manager the consideration
to be earned from such loans would justify the risk.
Options on Securities, Securities Indexes and Currencies. The Fund may write
(sell) covered put and call options on securities, securities indexes and cur-
rencies ("Options") and purchase put and call Options that are traded on for-
eign or U.S. securities exchanges and over the counter. The Fund will write
such Options for the purpose of increasing its return and/or protecting the
value of its portfolio. In particular, where the Fund writes an Option that
expires unexercised or is closed out by the Fund at a profit, it will retain
the premium paid for the Option, which will increase its gross income and will
offset in part the reduced value of a portfolio security in connection with
which the Option may have been written or the increased cost of portfolio
securities to be acquired. However, the writing of Options constitutes only a
partial hedge, up to the amount of the premium, less any transaction costs. In
contrast, if the price of the security underlying the Option
A-4
<PAGE>
APPENDIX A (CONTINUED)
moves adversely to the Fund's position, the Option may be exercised and the
Fund will be required to purchase or sell the security at a disadvantageous
price, resulting in losses that may only be partially offset by the amount of
the premium. The Fund may also write combinations of put and call Options on
the same security, known as "straddles." Such transactions generate additional
premium income but also present increased risk.
The Fund may purchase put and call Options in anticipation of declines in the
value of portfolio securities or increases in the value of securities to be
acquired. In the event that the expected changes occur, the Fund may be able to
offset the resulting adverse effect on its portfolio, in whole or in part,
through the Options purchased. The risk assumed by the Fund in connection with
such transactions is limited to the amount of the premium and related transac-
tion costs associated with the Option, although the Fund may be required to
forfeit such amounts in the event that the prices of securities underlying the
Options do not move in the direction or to the extent anticipated.
Over-the-counter options in which the Fund may invest differ from traded
options in that they are two-party contracts, with price and other terms nego-
tiated between buyer and seller, and generally do not have as much market
liquidity as exchange-traded options. The Fund may be required to treat as
illiquid over-the-counter options purchased and securities being used to cover
certain written over-the-counter options.
Futures Contracts and Options on Futures Contracts. The Fund may enter into
transactions in futures contracts and options on futures only (i) for bona fide
hedging purposes (as defined in Commodities Futures Trading Commission regula-
tions), or (ii) for non-hedging purposes, provided that the aggregate initial
margin and premiums on such non-hedging positions do not exceed 5% of the liq-
uidation value of the Fund's assets.
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific security at a specified
future time and at a specified price. The primary purpose of entering into a
futures contract by the Fund is to protect the Fund from fluctuations in the
value of securities without actually buying or selling the securities. The Fund
may enter into futures contracts and options on futures to seek higher invest-
ment returns when a futures contract is priced more attractively than stocks
comprising a benchmark index, to facilitate trading or to reduce transaction
costs. The Fund will only enter into futures contracts and options on futures
contracts that are traded on a domestic exchange and board of trade. Assets
committed to futures contracts will be segregated at the Fund's custodian to
the extent required by law.
A-5
<PAGE>
APPENDIX A (CONTINUED)
Among the several risks accompanying the utilization of futures contracts and
options on futures contracts are: First, the successful use of futures and
options is dependent upon the ability of the Manager to predict correctly move-
ments in the stock market or in the direction of interest rates. These predic-
tions involve skills and techniques that may be different from those involved
in the management of investments in securities. If the prices of the underlying
commodities move in an unanticipated manner, the Fund may lose the expected
benefit of these futures or options transactions and may incur losses. Second,
positions in futures contracts and options on futures contracts may only be
closed out by entering into offsetting transactions on the exchange where the
position was entered into (or through a linked exchange), and as a result of
daily price fluctuations limits there can be no assurance the offsetting trans-
action could be entered into at an advantageous price at a particular time.
Consequently, the Fund may realize a loss on a futures contract or option that
is not offset by an increase in the value of its portfolio securities that are
being hedged or the Fund may not be able to close a futures or options position
without incurring a loss in the event of adverse price movements.
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<PAGE>
SMITH BARNEY
-------------------------------
A Member of TravelersGroup LOGO
SMITH BARNEY
SMALL CAP
VALUE
FUND
388 Greenwich Street
New York, New York 10013
FD 9/98
PART B
Smith Barney
Small Cap Growth Fund
Small Cap Value Fund
388 Greenwich Street
New York, New York 10013
1-800-451-2010
Statement of Additional
Information
September 30, 1998
This Statement of Additional Information ("SAI")
expands upon and supplements the information contained
in the current Prospectuses of Smith Barney Small Cap
Growth Fund and Smith Barney Small Cap Value Fund
(collectively referred to as "Funds" and each
individually as a "Fund") dated September 30, 1998,
as amended or supplemented from time to time, and
should be read in conjunction with each Fund's
Prospectus. Each Fund is a series of Smith Barney
Investment Funds Inc. (the "Company"). Each Fund's
Prospectus may be obtained from a Smith Barney
Financial Consultant or by writing or calling the Fund
at the address or telephone number set forth above.
This SAI, although not in itself a prospectus, is
incorporated by reference into each Prospectus in its
entirety.
CONTENTS
For ease of reference, the same section headings are
used in both the Prospectus and this SAI, except where
shown below:
Management of the Funds 1
Investment Objective and Management Policies 4
Purchase of Shares 14
Redemption of Shares 15
Distributor 16
Valuation of Shares 17
Exchange Privilege 17
Performance Data (See in the Prospectus
"Performance") 18
Taxes (See in the Prospectus "Dividends,
Distributions and Taxes") 19
Additional Information 20
MANAGEMENT OF THE FUNDS
The executive officers of the Funds are employees of
certain of the organizations that provide services to
the Fund. These organizations are the following:
CFBDS, Inc. ("CFBDS" or the "Distributor") Distributor
Mutual Management Corp. ("MMC" or the "Manager") Investment Manager
PNC Bank, National Association ("PNC" or the
"Custodian") Custodian
First Data Investor Services Group, Inc.,
("First Data" or the "Transfer Agent") Transfer Agent
These organizations and the functions they perform for
the Funds are discussed in the Prospectuses and in
this
SAI.
Directors and Executive Officers of the Funds
The Directors and executive officers of the Funds,
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 Fund, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), is
indicated by an asterisk.
Paul R. Ades, Director (Age 57). 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 74). Private investor. His
address is 273 Montgomery Avenue, Bala Cynwyd,
Pennsylvania 19004.
Dwight B. Crane, Director (Age 60). 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 62). 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, President
and Chief Executive Officer (Age 65). Managing
Director of Smith Barney and Chairman of the Board of
Smith Barney Strategy Advisers Inc.; prior
to July 1993, Senior Executive Vice President of
Shearson Lehman Brothers Inc.; Vice Chairman of
Shearson Asset Management; a Director of PanAgora
Asset Management, Inc. and PanAgora Asset Management
Limited. Mr. McLendon is a director of 58 investment
companies associated with Salomon Smith Barney
Holdings Inc.. His address is 388 Greenwich Street,
New York, New York 10013.
Jerome Miller, Director (Age 60). Retired, Former
President, Asset Management Group of Shearson Lehman
Brothers. His address is 27 Hemlock Road, Manhasset,
New York, NY 11030.
Ken Miller, Director (Age 56). 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 41). Managing Director of Smith Barney, Chief
Financial Officer of the Smith Barney Mutual Funds;
Director and Senior Vice President of MMC and TIA. His
address is 388 Greenwich Street, New York, New York
10013.
Christina T. Sydor, Secretary (Age 47). Managing
Director of Smith Barney; General Counsel and
Secretary of MMC and TIA. Her address is 388 Greenwich
Street, New York, New York 10013.
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. During the fiscal year
ended December 31, 1997 such expenses totaled $10,097.
For the fiscal year ended December 31,
1997, the Directors of the Company were paid the
following compensation:
Name of Person
Aggregate
Compensation
from Fund
Total Pension
or Retirement
Benefits
Accrued as
part of Fund
Expenses
Compensation
from Fund and
Fund Complex
Paid to
Directors
Number of
Funds for
Which
Director
Serves Within
Fund Complex
Paul R. Ades
$0
$0
$49,000
5
Herbert Barg
0
0
101,600
16
Dwight B. Crane
0
0
133,850
22
Frank G. Hubbard
0
0
52,000
5
Heath B. McLendon
0
0
0
58
Jerome Miller
0
0
12,400
5
Ken Miller
0
0
52,000
5
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
annual retainer fee and meeting fees otherwise
applicable to the Fund Directors together with
reasonable out-of-pocket expenses for each meeting
attended.
Investment Manager - MMC
MMC serves as investment manager to the Fund pursuant
to an investment management agreement (the
"Investment Management Agreement") with the Company
which was approved by the Board of Directors,
including a majority of Directors who are not
"interested persons" of the Company or the Manager.
The Manager is a wholly owned subsidiary of Salomon
Smith Barney Holdings Inc. ("Holdings"), which in
turn, is a wholly owned subsidiary of Travelers Group
Inc. ("Travelers"). The services provided by the
Manager under the Investment Management Agreement are
described in the prospectus under "Management of the
Company and the Fund." The Manager pays the salary of
any officer and employee who is employed by both it
and the Company. The Manager bears all expenses in
connection with the performance of its services.
As compensation for investment management services,
the Fund pays the Manager a fee computed daily and
paid monthly at the annual rate of _______% of the
Fund's average daily net assets.
Counsel and Auditors
Willkie Farr & Gallagher serves as counsel to the
Company. The Directors who are not "interested
persons" of the Fund have selected Stroock & Stroock
& Lavan LLP to serve as their legal counsel.
KPMG Peat Marwick LLP, independent accountants, 345
Park Avenue, New York, New York 10154, serve as
auditors of the Company and will render an opinion on
the Company's financial statements annually beginning
with the fiscal period ending August 31, 1999.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
Each Prospectus discusses each respective Fund's
investment objective and the policies it employs to
achieve its objective. This section contains
supplemental information concerning the types of
securities and other instruments in which the Fund may
invest, the investment policies and portfolio
strategies that the Fund may utilize and certain risks
attendant to such investments, policies and
strategies.
Foreign Securities and American Depository Receipts
Each Fund has the authority to invest up to 25% of its
assets in foreign securities (including European
Depository Receipts ("EDRs") and Global Depository
Receipts ("GDRs")) and American Depository Receipts
("ADRs") or other securities representing underlying
shares of foreign companies. EDRs are receipts issued
in Europe which evidence ownership of underlying
securities issued by a foreign corporations. ADRs are
receipts typically issued by an American bank or trust
company which evidence a similar ownership
arrangement. Generally, ADRs which are issued in
registered form, are designed for use in the United
States securities markets and EDRs, which are issued
in bearer form, are designed for use in European
securities markets. GDRs are tradeable both in the
U.S. and Europe and are designed for use throughout
the world.
Investing in the securities of foreign companies
involves special risks and considerations not
typically associated with investing in U.S. companies.
These include differences in accounting, auditing and
financial reporting standards, generally higher
commission rates on foreign portfolio transactions,
the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange
control regulations, political instability which could
affect U.S. investments in foreign countries, and
potential restrictions on the flow of international
capital. Additionally, foreign securities often trade
with less frequency and volume than domestic
securities and therefore may exhibit greater price
volatility. Many of the foreign securities held by the
Fund will not be registered with, nor will the issuers
thereof be subject to the reporting requirements of,
the SEC. Accordingly, there may be less publicly
available information about the securities and about
the foreign company issuing them than is available
about a domestic company and its securities. Moreover,
individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as
growth of gross domestic product, rate of inflation,
capital reinvestment, resource self-sufficiency and
balance of payment positions. Each Fund may invest in
securities of foreign governments (or agencies or
subdivisions thereof), and therefore many, if not all,
of the foregoing considerations apply to such
investments as well.
Lending of Portfolio Securities
Consistent with applicable regulatory requirements,
each Fund may lend securities from its portfolio to
brokers, dealers and other financial organizations.
Each Fund may not lend its portfolio securities to the
Investment Adviser or the Administrator or their
affiliates unless they have applied for and received
specific authority from the SEC. Loans of portfolio
securities by the Fund will be collateralized by cash,
letters of credit or U.S. government securities that
are maintained at all times in an amount equal to at
least 100% of the current market value of the loaned
securities.
In lending its portfolio securities, the Funds can
increase its income by continuing to receive interest
on the loaned securities as well as by either
investing the cash collateral in short-term
instruments or obtaining yield in the form of interest
paid by the borrower when U.S. government securities
are used as collateral. Requirements of the SEC, which
may be subject to future modifications, currently
provide that the following conditions must be met
whenever the Funds' portfolio securities are loaned:
(a) the Funds must receive at least 100% cash
collateral or equivalent securities from the borrower;
(b) the borrower must increase such collateral
whenever the market value of the securities rises
above the level of such collateral; (c) the Funds must
be able to terminate the loan at any time; (d) the
Funds must receive reasonable interest on the loan, as
well as an amount equal to any dividends, interest or
other distributions on the loaned securities, and any
increase in market value; (e) the Funds may pay only
reasonable custodian fees in connection with the loan;
and (f) voting rights on the loaned securities may
pass to the borrower; however, if a material event
adversely affecting the investment occurs, the
Company's Board of Directors must terminate the loan
and regain the right to vote the securities. The risks
in lending portfolio securities, as with other
extensions of secured credit, consist of possible
delay in receiving additional collateral or in the
recovery of the securities or possible loss of rights
in the collateral should the borrower fail
financially. Loans will be made to firms deemed by the
Investment Adviser to be of good standing and will not
be made unless, in the judgment of the Investment
Adviser, the consideration to be earned from such
loans would justify the risk. From time to time, the
Funds may return a part of the interest earned from
the investment of collateral received for securities
loaned to: (a) the borrower; and/or (b) a third party,
which is unaffiliated with the Funds, the Investment
Adviser or Administrator and which is acting as a
"finder."
Reverse Repurchase Agreements
Each Fund may enter into reverse repurchase
agreements. A reverse repurchase agreement involves
the sale of a money market instrument by the Fund and
its agreement to repurchase the instrument at a
specified time and price. The Fund will maintain a
segregated account consisting of U.S. government
securities or cash or cash equivalents to cover its
obligations under reverse repurchase agreements with
broker-dealers and other financial institutions. The
Funds will invest the proceeds in other money market
instruments or repurchase agreements maturing not
later than the expiration of the reverse repurchase
agreement. Under the Investment Company Act of 1940,
as amended, reverse repurchase agreements may be
considered borrowing by the seller.
Reverse repurchase agreements create opportunities for
increased returns to the shareholders of the Funds
but, at the same time, create special risk
considerations. Although the principal or stated value
of such borrowings will be fixed, the Funds' assets
may change in value during the time the borrowing is
outstanding. 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 this type of
leverage had not been used. Conversely, if the income
or other gain from the incremental assets is not
sufficient to cover this cost, the net income or other
gain of the Fund will be less than if the reverse
repurchase agreement had not been used.
Each Fund currently intends to invest not more than
33% of its net assets in reverse repurchase
agreements.
When-Issued Securities and Delayed Delivery
Transactions
In order to secure what the Manager considers to be an
advantageous price or yield, each Fund may purchase
U.S. government securities on a when-issued basis or
purchase or sell U.S. government securities for
delayed delivery. The Funds will enter into such
purchase transactions for the purpose of acquiring
portfolio securities and not for the purpose of
leverage. Delivery of the securities in such cases
occurs beyond the normal settlement periods, but no
payment or delivery is made by the Fund prior to the
reciprocal delivery or payment by the other party to
the transaction. In entering into a when-issued or
delayed-delivery transaction, the Fund relies on the
other party to consummate the transaction and may be
disadvantaged if the other party fails to do so.
U.S. government securities normally are subject to
changes in value based upon changes, real or
anticipated, in the level of interest rates and, to a
lesser extent, the public's perception of the
creditworthiness of the issuers. In general, U.S.
government securities tend to appreciate when interest
rates decline and depreciate when interest rates rise.
Purchasing U.S. government securities on a when-issued
basis or delayed-delivery basis, therefore, can
involve the risk that the yields available in the
market when the delivery takes place may
actually be higher than those obtained in the
transaction itself. Similarly, the sale of U.S.
government securities for delayed delivery can involve
the risk that the prices available in the market when
the delivery is made may actually be higher than those
obtained in the transaction itself.
A Fund will at times maintain in a segregated account
at PNC cash or liquid securities equal to the amount
of the Fund's when-issued or delayed-delivery
commitments. For the purpose of determining the
adequacy of the securities in the account, the
deposited securities will be valued at market or fair
value. If the market or fair value of such securities
declines, additional cash or securities will be placed
in the account on a daily basis so that the value of
the account will equal the amount of such commitments
by the Fund. Placing securities rather than cash in
the account may have a leveraging effect on the Fund's
assets. That is, to the extent that the Fund remains
substantially fully invested in securities at the time
that it has committed to purchase securities on a
when-issued basis, there will be greater fluctuation
in its net asset value than if it had set aside cash
to satisfy its purchase commitments. On the settlement
date, the Fund will meet its obligations from then
available cash flow, the sale of securities held in
the separate account, the sale of other securities or,
although it normally would not expect to do so, from
the sale of the when-issued or delayed-delivery
securities themselves (which may have a greater or
lesser value than the Fund's payment obligations).
Money Market Instruments
As stated in the Prospectus, the Funds may invest for
temporary defensive purposes in corporate and
government bonds and notes and money market
instruments. Money market instruments in which the
Funds may invest include: U.S. government securities;
certificates of deposit, time deposits and bankers'
acceptances issued by domestic banks (including their
branches located outside the United States and
subsidiaries located in Canada), domestic branches of
foreign banks, savings and loan associations and
similar institutions; high grade commercial paper; and
repurchase agreements with respect to the foregoing
types of instruments. The following is a more detailed
description of such money market instruments.
Certificates of deposit ("CDs") are short-term
negotiable obligations of commercial banks. Time
deposits ("TDs") are non-negotiable deposits
maintained in banking institutions for specified
periods of time at stated interest rates. Bankers'
acceptances are time drafts drawn on commercial banks
by borrowers usually in connection with international
transactions.
Domestic commercial banks organized under Federal law
are supervised and examined by the Comptroller of the
Currency and are required to be members of the Federal
Reserve System and to be insured by the Federal
Deposit Insurance Corporation (the "FDIC"). Domestic
banks organized under state law are supervised and
examined by state banking authorities but are members
of the Federal Reserve System only if they elect to
join. Most state banks are insured by the FDIC
(although such insurance may not be of material
benefit to the Fund, depending upon the principal
amounts of CDs of each bank held by the Fund) and are
subject to Federal examination and to a substantial
body of Federal law and regulation. As a result of
governmental regulations, domestic branches of
domestic banks are generally required to, among other
things, maintain specified levels of reserves, and are
subject to other supervision and regulation designed
to promote financial soundness.
Obligations of foreign branches of domestic banks,
such as CDs and TDs, may be general obligations of the
parent bank in addition to the issuing branch, or may
be limited by the terms of a specific obligation and
government regulation. Such obligations are subject to
different risks than are those of domestic banks or
domestic branches of foreign banks. These risks
include foreign economic and political developments,
foreign governmental restrictions that may adversely
affect payment of principal and interest on the
obligations, foreign exchange controls and foreign
withholding and other taxes on interest income.
Foreign branches of domestic banks are not necessarily
subject to the same or similar regulatory requirements
that apply to domestic banks, such as mandatory
reserve requirements, loan limitations, and
accounting, auditing and financial recordkeeping
requirements. In addition, less information may be
publicly available about a foreign branch of a
domestic bank than about a domestic bank. CDs issued
by wholly owned Canadian subsidiaries of
domestic banks are guaranteed as to repayment of
principal and interest (but not as to sovereign risk)
by the domestic parent bank.
Obligations of domestic branches of foreign banks may
be general obligations of the parent bank in addition
to the issuing branch, or may be limited by the terms
of a specific obligation and by governmental
regulation as well as governmental action in the
country in which the foreign bank has its head office.
A domestic branch of a foreign bank with assets in
excess of $1 billion may or may not be subject to
reserve requirements imposed by the Federal Reserve
System or by the state in which the branch is located
if the branch is licensed in that state. In addition,
branches licensed by the Comptroller of the Currency
and branches licensed by certain states ("State
Branches") may or may not be required to: (a) pledge
to the regulator by depositing assets with a
designated bank within the state, an amount of its
assets equal to 5% of its total liabilities; and (b)
maintain assets within the state in an amount equal to
a specified percentage of the aggregate amount of
liabilities of the foreign bank payable at or through
all of its agencies or branches within the state. The
deposits of State Branches may not necessarily be
insured by the FDIC. In addition, there may be less
publicly available information about a domestic branch
of a foreign bank than about a domestic bank.
In view of the foregoing factors associated with the
purchase of CDs and TDs issued by foreign branches of
domestic banks or by domestic branches of foreign
banks, MMC will carefully evaluate such investments on
a case-by-case basis.
Savings and loan associations whose CDs may be
purchased by the Fund are supervised by the Office of
Thrift Supervision and are insured by the Savings
Association Insurance Fund, which is administered by
the FDIC and is backed by the full faith and credit of
the U.S. government. As a result, such savings and
loan associations are subject to regulation and
examination.
Options, Futures and Currency Strategies
The Funds may use forward currency contracts and
certain options and futures strategies to attempt to
hedge its portfolio, i.e., reduce the overall level of
investment risk normally associated with the Funds.
There can be no assurance that such efforts will
succeed.
In order to assure that the Funds will not be deemed
to be a "commodity pool" for purposes of the
Commodity Exchange Act, regulations of the Commodity
Futures Trading Commission ("CFTC") require that the
Funds enter into transactions in futures contracts and
options on futures only (i) for bona fide hedging
purposes (as defined in CFTC regulations), or (ii) for
non-hedging purposes, provided that the aggregate
initial margin and premiums on such non-hedging
positions do not exceed 5% of the liquidation value of
the Fund's assets. To attempt to hedge against adverse
movements in exchange rates between currencies, the
Fund may enter into forward currency contracts for the
purchase or sale of a specified currency at a
specified future date. Such contracts may involve the
purchase or sale of a foreign currency against the
U.S. dollar or may involve two foreign currencies. The
Fund may enter into forward currency contracts either
with respect to specific transactions or with respect
to its portfolio positions. For example, when the
investment adviser anticipates making a purchase or
sale of a security, it may enter into a forward
currency contract in order to set the rate (either
relative to the U.S. dollar or another currency) at
which the currency exchange transaction related to the
purchase or sale will be made ("transaction
hedging"). Further, when the investment adviser
believes that a particular currency may decline
compared to the U.S. dollar or another currency, the
Fund may enter into a forward contract to sell the
currency the investment adviser expects to decline in
an amount approximating the value of some or all of
the Fund's securities denominated in that currency, or
when the investment adviser believes that one currency
may decline against a currency in which some or all of
the portfolio securities held by the Fund are
denominated, it may enter into a forward contract to
buy the currency expected to decline for a fixed
amount ("position hedging"). In this situation, the
Fund may, in the alternative, enter into a forward
contract to sell a different currency for a fixed
amount of the currency expected to decline where the
investment manager believes that the value of the
currency to be sold pursuant to the forward contract
will fall whenever there is a decline in the value of
the currency inwhich portfolio securities of the Fund
are denominated ("cross hedging"). The Funds'
custodian places (i) cash, (ii) U.S. Government
securities or (iii) equity securities or debt
securities (of any grade) in certain currencies
provided such assets are liquid, unencumbered and
marked to market daily, or other high-quality debt
securities denominated in certain currencies in a
separate account of the Fund having a value equal to
the aggregate account of the Fund's commitments under
forward contracts entered into with respect to
position hedges and cross-hedges. If the value of the
securities placed in a separate account declines,
additional cash or securities are placed in the
account on a daily basis so that the value of the
amount will equal the amount of the Fund's commitments
with respect to such contracts.
For hedging purposes, the Funds may write covered call
options and purchase put and call options on
currencies to hedge against movements in exchange
rates and on debt securities to hedge against the risk
of fluctuations in the prices of securities held by
the Fund or which the investment adviser intends to
include in its portfolio. The Fund also may use
interest rates futures contracts and options thereon
to hedge against changes in the general level in
interest rates.
The Funds may write call options on securities and
currencies only if they are covered, and such options
must remain covered so long as the Fund is obligated
as a writer. A call option written by the Fund is
"covered" if the Fund owns the securities or
currency underlying the option or has an absolute and
immediate right to acquire that security or currency
without additional cash consideration (or for
additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange
of other securities or currencies held in its
portfolio. A call option is also covered if the Fund
holds on a share-for-share basis a call on the same
security or holds a call on the same currency as the
call written where the exercise price of the call held
is equal to less than the exercise price of the call
written or greater than the exercise price of the call
written if the difference is maintained by the Funds
in cash, Treasury bills or other high-grade,
short-term obligations in a segregated account with
its custodian.
Although the portfolio might not employ the use of
forward currency contracts, options and futures, the
use of any of these strategies would involve certain
investment risks and transaction costs to which it
might not otherwise be subject. These risks include:
dependence on the investment adviser's ability to
predict movements in the prices of individual debt
securities, fluctuations in the general fixed-income
markets and movements in interest rates and currency
markets, imperfect correlation between movements in
the price of currency, options, futures contracts or
options thereon and movements in the price of the
currency or security hedged or used for cover; the
fact that skills and techniques needed to trade
options, futures contracts and options thereon or to
use forward currency contracts are different from
those needed to select the securities in which the
Fund invests; lack of assurance that a liquid market
will exist for any particular option, futures contract
or options thereon at any particular time and possible
need to defer or accelerate closing out certain
options, futures contracts and options thereon in
order to continue to qualify for the beneficial tax
treatment afforded "regulated investment companies"
under the Internal Revenue Code of 1986, as amended
(the "Code"). See "Dividends, Distributions and
Taxes."
Options on Securities
As discussed more generally above, the Funds may
engage in the writing of covered call options. The
Funds may also purchase put options and enter into
closing transactions.
The principal reason for writing covered call options
on securities is to attempt to realize, through the
receipt of premiums, a greater return than would be
realized on the securities alone. In return for a
premium, the writer of a covered call option forfeits
the right to any appreciation in the value of the
underlying security above the strike price for the
life of the option (or until a closing purchase
transaction can be effected). Nevertheless, the call
writer retains the risk of a decline in the price of
the underlying security. Similarly, the principal
reason for writing covered put options is to realize
income in the form of premiums. The writer of a
covered put option accepts the risk of a decline in
the price of the underlying security. The size of the
premiums the Fund may receive may be adversely
affected as new or existing institutions, including
other investment companies, engage in or increase
their option-writing activities.
Options written by the Funds will normally have
expiration dates between one and six months from the
date written. The exercise price of the options may be
below, equal to, or above the current market values of
the underlying securities at the times the options are
written. In the case of call options, these exercise
prices are referred to as "in-the-money,"
"at-the-money" and "out-of-the-money,"
respectively.
The Funds may write (a) in-the-money call options when
MMC expects the price of the underlying security to
remain flat or decline moderately during the option
period, (b) at-the-money call options when MMC expects
the price of the underlying security to remain flat or
advance moderately during the option period and (c)
out-of-the-money call options when MMC expects that
the price of the security may increase but not above a
price equal to the sum of the exercise price plus the
premiums received from writing the call option. In any
of the preceding situations, if the market price of
the underlying security declines and the security is
sold at this lower price, the amount of any realized
loss will be offset wholly or in part by the premium
received. Out-of-the-money, at-the-money and
in-the-money put options (the reverse of call options
as to the relation of exercise price to market price)
may be utilized in the same market environments as
such call options are used in equivalent transactions.
So long as the obligation of the Funds as the writer
of an option continues, the Funds may be assigned an
exercise notice by the broker-dealer through which the
option was sold, requiring it to deliver, in the case
of a call, or take delivery of, in the case of a put,
the underlying security against payment of the
exercise price. This obligation terminates when the
option expires or the Fund effects a closing purchase
transaction. The Funds can no longer effect a closing
purchase transaction with respect to an option once it
has been assigned an exercise notice. To secure its
obligation to deliver the underlying security when it
writes a call option, or to pay for the underlying
security when it writes a put option, the Fund will be
required to deposit in escrow the underlying security
or other assets in accordance with the rules of the
Options Clearing Corporation ("Clearing
Corporation") or similar clearing corporation and the
securities exchange on which the option is written.
An option position may be closed out only where there
exists a secondary market for an option of the same
series on a recognized securities exchange or in the
over-the-counter market. The Fund expects to write
options only on national securities exchanges or in
the over-the-counter market. The Fund may purchase put
options issued by the Clearing Corporation or in the
over-the-counter market.
A Fund may realize a profit or loss upon entering into
a closing transaction. In cases in which a Fund has
written an option, it will realize a profit if the
cost of the closing purchase transaction is less than
the premium received upon writing the original option
and will incur a loss if the cost of the closing
purchase transaction exceeds the premium received upon
writing the original option. Similarly, when a Fund
has purchased an option and engages in a closing sale
transaction, whether it recognizes a profit or loss
will depend upon whether the amount received in the
closing sale transaction is more or less than the
premium the Fund initially paid for the original
option plus the related transaction costs.
Although the Funds generally will purchase or write
only those options for which MMC believes there is an
active secondary market so as to facilitate closing
transactions, there is no assurance that sufficient
trading interest to create a liquid secondary market
on a securities exchange will exist for any particular
option or at any particular time, and for some options
no such secondary market may exist. A liquid secondary
market in an option may cease to exist for a variety
of reasons. In the past, for example, higher than
anticipated trading activity or order flow, or other
unforeseen events, have at times rendered certain of
the facilities of the Clearing Corporation and
national securities exchanges inadequate and resulted
in the institution of special procedures, such as
trading rotations, restrictions on certain types of
orders or trading halts or suspensions in one or more
options. There can be no assurance that similar
events, or events that may otherwise interfere with
the timely execution of customers' orders, will not
recur. In such event, it might not be possible to
effect closing transactions in particular options. If,
as a covered call option writer, the Fund is unable to
effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying
security until the option expires or it delivers the
underlying security upon exercise.
Securities exchanges generally have established
limitations governing the maximum number of calls and
puts of each class which may be held or written, or
exercised within certain periods, by an investor or
group of investors acting in concert (regardless of
whether the options are written on the same or
different securities exchanges or are held, written or
exercised in one or more accounts or through one or
more brokers). It is possible that the Fund and other
clients of MMC and certain of their affiliates may be
considered to be such a group. A securities exchange
may order the liquidation of positions found to be in
violation of these limits, and it may impose certain
other sanctions.
In the case of options written by a Fund that are
deemed covered by virtue of a Fund's holding
convertible or exchangeable preferred stock or debt
securities, the time required to convert or exchange
and obtain physical delivery of the underlying common
stocks with respect to which the Fund has written
options may exceed the time within which a Fund must
make delivery in accordance with an exercise notice.
In these instances, the Fund may purchase or
temporarily borrow the underlying securities for
purposes of physical delivery. By so doing, a Fund
will not bear any market risk because a Fund will have
the absolute right to receive from the issuer of the
underlying security an equal number of shares to
replace the borrowed stock, but the Fund may incur
additional transaction costs or interest expenses in
connection with any such purchase or borrowing.
Although MMC will attempt to take appropriate measures
to minimize the risks relating to the Fund's writing
of call options and purchasing of put and call
options, there can be no assurance that the Fund will
succeed in its option-writing program.
Stock Index Options
As described generally above, a Fund may purchase put
and call options and write call options on domestic
stock indexes listed on domestic exchanges in order to
realize its investment objective of capital
appreciation or for the purpose of hedging its
portfolio. A stock index fluctuates with changes in
the market values of the stocks included in the index.
Some stock index options are based on a broad market
index such as the New York Stock Exchange Composite
Index or the Canadian Market Portfolio Index, or a
narrower market index such as the Standard & Poor's
100. Indexes also are based on an industry or market
segment such as the American Stock Exchange Oil and
Gas Index or the Computer and Business Equipment
Index.
Options on stock indexes are generally similar to
options on stock except that the delivery requirements
are different. Instead of giving the right to take or
make delivery of stock at a specified price, an option
on a stock index gives the holder the right to receive
a cash "exercise settlement amount" equal to (a) the
amount, if any, by which the fixed exercise price of
the option exceeds (in the case of a put) or is less
than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied
by (b) a fixed "index multiplier." Receipt of this
cash amount will depend upon the closing level of the
stock index upon which the option is based being
greater than, in the case of a call, or less than, in
the case of a put, the exercise price of the option.
The amount of cash received will be equal to such
difference between the closing price of the index and
the exercise price of the option expressed in dollars
or a foreign currency, as the case may be, times a
specified multiple. The writer of the option is
obligated, in return for the premium received, to make
delivery of this amount. The writer may offset its
position in stock index options prior to expiration by
entering into a closing transaction on an exchange or
it may let the option expire unexercised.
The effectiveness of purchasing or writing stock index
options as a hedging technique will depend upon the
extent to which price movements in the portion of the
securities portfolio of the Fund correlate with pric
movements of the stock index selected. Because the
value of an index option depends upon movements in the
level of the index rather than the price of a
particular stock, whether the Fund will realize a gain
or loss from the purchase or writing of options on an
index depends upon movements in the level of stock
prices in the stock market generally or, in the case
of certain indexes, in an industry or market segment,
rather than movements in the price of a particular
stock. Accordingly, successful use by the Fund of
options on stock indexes will be subject to MMC's
ability to predict correctly movements in the
direction of the stock market generally or of a
particular industry. This requires different skills
and techniques than predicting changes in the price of
individual stocks.
Futures Contracts and Options on Futures Contracts
As described generally above, each Fund may invest in
stock index futures contracts and options on futures
contracts that are traded on a domestic exchange or
board of trade.
The purpose of entering into a futures contract by a
Fund is to protect the Fund from fluctuations in the
value of securities without actually buying or selling
the securities. For example, in the case of stock
index futures contracts, if a Fund anticipates an
increase in the price of stocks that it intends to
purchase at a later time, the Fund could enter into
contracts to purchase the stock index (known as taking
a "long" position) as a temporary substitute for the
purchase of stocks. If an increase in the market
occurs that influences the stock index as anticipated,
the value of the futures contracts increases and
thereby serves as a hedge against a Fund's not
participating in a market advance. A Fund then may
close out the futures contracts by entering into
offsetting futures contracts to sell the stock index
(known as taking a "short" position) as it purchases
individual stocks. The Fund can accomplish similar
results by buying securities with long maturities and
selling securities with short maturities. But by using
futures contracts as an investment tool to reduce
risk, given the greater liquidity in the futures
market, it may be possible to accomplish the same
result more easily and more quickly.
No consideration will be paid or received by the Fund
upon the purchase or sale of a futures contract.
Initially, a Fund will be required to deposit with the
broker an amount of cash or cash equivalents equal to
approximately 1% to 10% of the contract amount (this
amount is subject to change by the exchange or board
of trade on which the contract is traded and brokers
or members of such board of trade may charge a higher
amount). This amount is known as "initial margin"
and is in the nature of a performance bond or good
faith deposit on the contract which is returned to the
Fund, upon termination of the futures contract,
assuming all contractual obligations have been
satisfied. Subsequent payments, known as "variation
margin," to and from the broker, will be made daily
as the price of the index or securities underlying the
futures contract fluctuates, making the long and short
positions in the futures contract more or less
valuable, a process known as "marking-to-market." In
addition, when a Fund enters into a long position in a
futures contract or an option on a futures contract,
it must deposit into a segregated account with a
Fund's custodian an amount of cash or cash equivalents
equal to the total market value of the underlying
futures contract, less amounts held in the Fund's
commodity brokerage account at its broker. At any time
prior to the expiration of a futures contract, the
Fund may elect to close the position by taking an
opposite position, which will operate to terminate the
Fund's existing position in the contract.
There are several risks in connection with the use of
futures contracts as a hedging device. Successful use
of futures contracts by the Fund is subject to the
ability of MMC to predict correctly movements in the
stock market or in the direction of interest rates.
These predictions involve skills and techniques that
may be different from those involved in the management
of investments in securities. In addition, there can
be no assurance that there will be a perfect
correlation between movements in the price of the
securities underlying the futures contract and
movements in the price of the securities that are the
subject of the hedge. A decision of whether, when and
how to hedge involves the exercise of skill and
judgment, and even a well-conceived hedge may be
unsuccessful to some degree because of market behavior
or unexpected trends in market behavior or interest
rates.
Positions in futures contracts may be closed out only
on the exchange on which they were entered into (or
through a linked exchange) and no secondary market
exists for those contracts. In addition, although the
Fund intends to enter into futures contracts only if
there is an active market for the contracts, there is
no assurance that an active market will exist for the
contracts at any particular time. Most futures
exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices
during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may
be made that day at a price beyond that limit. It is
possible that futures contract prices could move to
the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt
liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event,
and in the event of adverse price movements, the Fund
would be required to make daily cash payments of
variation margin; in such circumstances, an increase
in the value of the portion of the portfolio being
hedged, if any, may partially or completely offset
losses on the futures contract. As described above,
however, no assurance can be given that the price of
the securities being hedged will correlate with the
price movements in a futures contract and thus provide
an offset to losses on the futures contract.
INVESTMENT RESTRICTIONS
Each Fund has adopted the following investment
restrictions for the protection of shareholders.
Restrictions I through 7 below cannot be changed
without approval by the holders of a majority of the
outstanding shares of a Fund, defined as the lesser of
(a) 67% or more of a 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 a Fund's outstanding shares.
The remaining restrictions may be changed by the
Fund's Board of Directors at any time. In accordance
with these restrictions, the Fund will not:
1. Invest in a manner that would cause it to
fail to be a "diversified company" under the 1940
Act and the rules, regulations and orders thereunder.
2. Issue "senior securities" as defined in the
1940 Act, and the rules, regulations and orders
thereunder, except as permitted under the 1940 Act and
the rules, regulations and orders thereunder.
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, securities of the
U.S. government (including its agencies and
instumentalities) and securities of state or municipal
governments and their political subdivisions are not
considered to be issued by members of any industry.
4. Borrow money, except that (a) the Fund may
borrow from banks for temporary or emergency (not
leveraging) purposes, including the meeting of
redemption requests which might otherwise require the
untimely disposition of securities, and (b) the Fund
may, to the extent consistent with its investment
policies, enter into reverse repurchase agreements,
forward roll transactions and similar investment
strategies and techniques. To the extent that it
engages in transactions described in (a) and (b), the
Fund will be limited so that no more than 33 1/3% of
the value of its total assets (including the amount
borrowed), valued at the lesser of cost or market,
less liabilities (not including the amount borrowed)
valued at the time the borrowing is made, is derived
from such transactions.
5. Make loans. This restriction does not apply
to: (a) the purchase of debt obligations in which the
Fund may invest consistent with its investment
objective and policies; (b) repurchase agreements; and
(c) loans of its portfolio securities, to the fullest
extent permitted under the 1940 Act.
6. Engage in the business of underwriting
securities issued by other persons, except to the
extent that the Fund may technically be deemed to be
an underwriter under the Securities Act of 1933, as
amended, in disposing of portfolio securities.
7. Purchase or sell real estate, real estate
mortgages, commodities or commodity contracts, but
this restriction shall not prevent the Fund from: (a)
investing in securities of issuers engaged in the real
estate business or the business of investing in real
estate (including interests in limited partnerships
owning or otherwise engaging in the real estate
business or the business of investing in real estate)
and securities which are secured by real estate or
interests therein; (b) holding or selling real estate
received in connection with securities it holds or
held; (c) trading in futures contracts and options on
futures contracts (including options on currencies to
the extent consistent with the Funds' investment
objective and policies); or (d) investing in real
estate investment trust securities.
8. 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.
9. Invest in oil, gas or other mineral
exploration or development programs.
10. 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.
11. Invest for the purpose of exercising control
of management.
12. Invest in securities of an issuer which,
together with any predecessor, has been in operation
for less than three years if, as a result, more than
5% of the total assets of the Funds would then be
invested in such securities (for purposes of this
restriction, issuers include predecessors, sponsors,
controlling persons, general guarantors and
originators of underlying assets).
If any percentage restriction described above is
complied with at the time of an investment, a later
increase or decrease in percentage resulting from a
change in values or assets will not constitute a
violation of such restriction.
Portfolio Turnover
While the Fund's portfolio turnover rate (the lesser
of purchases or sales of portfolio securities during
the year, excluding purchases or sales of short-term
securities, divided by the monthly average value of
portfolio securities) is generally not expected to
exceed 100%. The rate of turnover will not be a
limiting factor, however, when the Fund deems it
desirable to sell or purchase securities. This policy
should not result in higher brokerage commissions to
the Fund, as purchases and sales of portfolio
securities are usually effected as principal
transactions. Securities may be sold in anticipation
of a rise in interest rates (market decline) or
purchased in anticipation of a decline in interest
rates (market rise) and later sold. In addition, a
security may be sold and another security of
comparable quality purchased at approximately the same
time to take advantage of what the Fund believes to be
a temporary disparity in the normal yield relationship
between the two securities. These yield disparities
may occur for reasons not directly related to the
investment quality of particular issues or the general
movement of interest rates, such as changes in the
overall demand for, or supply of, various types of
tax-exempt securities.
Portfolio Transactions
Decisions to buy and sell securities for the Fund are
made by the Manager, subject to the overall review of
the Company's Board of Directors. Although investment
decisions for the Fund are made independently from
those of the other accounts managed by the Manager,
investments of the type that the Fund may make also
may be made by those other accounts. When the Fund and
one or more other accounts managed by the Manager are
prepared to invest in, or desire to dispose of, the
same security, available investments or opportunities
for sales will be allocated in a manner believed by
the Manager to be equitable to each. In some cases,
this procedure may adversely affect the price paid or
received by the Fund or the size of the position
obtained or disposed of by the Fund. The Company has
paid no brokerage commissions since its commencement
of operations.
Allocation of transactions on behalf of the Funds,
including their frequency, to various dealers is
determined by the Manager in its best judgment and in
a manner deemed fair and reasonable to the Fund's
shareholders. The primary considerations of the
Manager in allocating transactions are availability of
the desired security and the prompt execution of
orders in an effective manner at the most favorable
prices. Subject to these considerations, dealers that
provide supplemental investment research and
statistical or other services to the Manager may
receive orders for portfolio transactions by a Fund.
Information so received is in addition to, and not in
lieu of, services required to be performed by the
Manager, and the fees of the Manager are not reduced
as a consequence of their receipt of the supplemental
information. The information may be useful to the
Manager in serving both the Fund and other clients,
and conversely, supplemental information obtained by
the placement of business of other clients may be
useful to the Manager in carrying out its obligations
to the Fund.
The Funds will not purchase securities during the
existence of any underwriting or selling group
relating to the securities, of which the Manager is a
member, except to the extent permitted by the SEC.
Under certain circumstances, the Funds may be at a
disadvantage because of this limitation in comparison
with other funds that have similar investment
objectives but that are not subject to a similar
limitation.
Even though investment decisions for the Fund are made
independently from those of the other accounts managed
by the Investment Adviser, investments of the kind
made by the Fund also may be made by those other
accounts. When the Funds and one or more accounts
managed by the Investment Adviser are prepared to
invest in, or desire to dispose of, the same security,
available investments or opportunities for sales will
be allocated in a manner believed by the Investment
Adviser to be equitable. In some cases, this procedure
may adversely affect the price paid or received by the
Fund or the size of the position obtained for or
disposed of by the Fund.
PURCHASE OF SHARES
Volume Discounts
The schedules of sales charges described in the
Prospectus apply to purchases of shares of a Fund made
by any "purchaser," which term is 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 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;
or (f) any other organized group of persons, provided
that the organization has been in existence for at
least six months and was organized for a purpose other
than the purchase of investment company securities at
a discount. Purchasers who wish to combine purchase
orders to take advantage of volume discounts should
contact a Smith Barney Financial Consultant.
Combined Right of Accumulation
Reduced sales charges, in accordance with the
schedules in the Prospectus, apply to any purchase of
shares of a Fund by any "purchaser" (as defined
above). The reduced sales charge is subject to
confirmation of the shareholder's holdings through a
check of appropriate records. The Company 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 a 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 L share (and Class A share
purchases, including applicable rights of
accumulation, equaling or exceeding $500,000) is equal
to the net asset value per share at the time of
purchase and no sales charge is imposed at the time of
purchase. A contingent deferred sales charge
("CDSC"), however, is imposed on certain redemptions
of Class L shares, and Class A shares when purchased
in amounts 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 SAI.
REDEMPTION OF SHARES
Detailed information on how to redeem shares of a Fund
is included in the Prospectus. The right of redemption
of shares of the Fund may be suspended or the date of
payment postponed (a) for any periods during which the
New York Stock Exchange, Inc. (the "NYSE") is closed
(other than for customary weekend and holiday
closings), (b) when trading in the markets the Fund
normally utilizes is restricted, or an emergency
exists, as determined by the SEC, so that disposal of
the Fund's investments or determination of its net
asset value is not reasonably practicable or (c) for
any 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 to make a redemption
payment wholly in cash, the Fund may pay, in
accordance with SEC rules, any portion of a redemption
in excess of the lesser of $250,000 or 1.00% of the
Fund's net assets by 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 the
Fund as may be necessary to cover the stipulated
withdrawal payment. To the extent withdrawals exceed
dividends, distributions and appreciation of a
shareholder's investment in the Fund, there will be a
reduction in the value of the shareholder's investment
and continued withdrawal payments will reduce the
shareholder's investment and ultimately may exhaust
it. Withdrawal payments should not be considered as
income from investment in the Fund. Furthermore, as it
generally would not be advantageous to a shareholder
to make additional investments in the Fund at the same
time he or she is participating in the Withdrawal
Plan, purchases by such shareholders in amounts of
less than $5,000 ordinarily will not be permitted.
Shareholders who wish to participate in the Withdrawal
Plan and who hold their shares in certificate form
must deposit their share certificates with First Data
as agent for Withdrawal Plan members. All dividends
and distributions on shares in the Withdrawal Plan are
reinvested automatically at net asset value in
additional shares of the Fund. Withdrawal Plans should
be set up with a Smith Barney Financial Consultant.
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
contact a Financial Consultant.
DISTRIBUTOR
CFBDS, Inc. serves as the Company's distributor on a
best efforts basis pursuant to a written agreement
(the Distribution Agreement"), which was approved by
the Company's Board of Directors.
Distribution Arrangements
To compensate Smith Barney for the services it
provides and for the expense it bears under the
Distribution Agreement, the Fund has adopted a
services and distribution plan (the "Plan") pursuant
to Rule l2b-1 under the 1940 Act. Under the Plan, the
Fund pays Smith Barney a service fee, accrued daily
and paid monthly, calculated at the annual rate of
0.25% of the value of the Fund's average daily net
assets attributable to the Class A, Class B and Class
L shares. In addition, the Fund pays Smith Barney a
distribution fee with respect to the Class B and Class
L shares primarily intended to compensate Smith Barney
for its initial expense of paying Financial
Consultants a commission upon sales of those shares.
The Class B and Class L distribution fee is calculated
at the annual rate of 0.75% of the value of the Fund's
average daily net assets attributable to the shares of
the respective Class.
VALUATION OF SHARES
The net asset value per share of the Fund's Classes 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, Martin
Luther King, Jr. Day, Presidents' 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 Company in
valuing its assets.
Securities listed on a national securities exchange
will be valued on the basis of the last sale on the
date on which the valuation is made or, in the absence
of sales, at the mean between the closing bid and
asked prices. Over-the-counter securities will be
valued at the mean between the closing bid and asked
prices on each day, or, if market quotations for those
securities are not readily available, at fair value,
as determined in good faith by the Fund's Board of
Directors. Short-term obligations with maturities of
60 days or less are valued at amortized cost, which
constitutes fair value as determined by the Fund's
Board of Directors. Amortized cost involves valuing an
instrument at its original cost to the Fund and
thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the
effect of fluctuating interest rates on the market
value of the instrument. All other securities and
other assets of the Fund will be valued at fair value
as determined in good faith by the Fund's Board of
Directors.
EXCHANGE PRIVILEGE
Except as noted below and in the Prospectus,
shareholders of any of the Smith Barney Mutual Funds
may exchange all or part of their shares for shares of
the same class of other Smith Barney Mutual Funds, to
the extent such shares are offered for sale in the
shareholder's state of residence, on the basis of
relative net asset value per share at the time of
exchange as follows:
A. Class A and Class Y shares of the Fund may be
exchanged without a sales charge for the
respective shares of any of the Smith Barney
Mutual Funds.
B. Class B shares of any fund may be exchanged
without a sales charge. Class B shares of the
Fund exchanged for Class B shares of another
Smith Barney Mutual Fund will be subject to the
higher applicable CDSC of the two funds and, for
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.
C. Class L shares of any fund may be exchanged
without a sales charge. For purposes of CDSC
applicability, Class L shares of the Fund
exchanged for Class C shares of another Smith
Barney Mutual Fund will be deemed to have been
owned 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
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, the Company may quote a Fund's
yield or total return in advertisements or in reports
and other communications to shareholders. The Company
may include comparative performance information in
advertising or marketing the Fund's shares. Such
performance information may include 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 any Class it will also disclose such
information for the other Classes.
Average Annual Total Return
"Average annual total return" figures are computed
according to a formula prescribed by the SEC. The
formula can be expressed as follows:
P (1 + T)n = ERV
Where: P = a hypothetical initial
payment of $ 1,000.
T = average annual total
return.
n = number of years.
ERV = Ending Redeemable Value
of a hypothetical $1,000 investment made
at the beginning of 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.
Aggregate Total Return
"Aggregate total return" figures represent the
cumulative change in the value of an investment in the
Fund for the specified period and are computed by the
following formula:
ERV-P
P
Where: P = a hypothetical initial
payment of $10,000.
ERV = Ending Redeemable Value
of a hypothetical $ 10,000 investment made
at the beginning of a
l-, 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.
Performance will vary from time to time depending on
market conditions, the composition of the Fund's
portfolio and operating expenses. Consequently, any
given performance quotation should not be considered
representative of the Fund's performance for any
specified period in the future. Because performance
will vary, it may not provide a basis for comparing an
investment in the Fund with certain bank deposits or
other investments that pay a fixed yield for a stated
period of time.
TAXES
The following is a summary of certain Federal income
tax considerations that may affect the Fund and its
shareholders. The summary is not intended as a
substitute for individual tax advice and investors are
urged to consult their own tax advisors as to the tax
consequences of an investment in the Fund.
The Company intends to qualify each year as a
regulated investment company under the Code. If the
Fund (a) qualifies as a regulated investment company
and (b) distributes to its shareholders at least 90%
of its net investment income (including, for this
purpose, its net realized short-term capital gains),
the Fund will not be liable for Federal income taxes
to the extent that its net investment income and its
net realized long- and short term capital gains, if
any, are distributed to its shareholders.
As described above, the Fund may invest in futures
contracts and options on futures contracts that are
traded on a U.S. exchange or board of trade. As a
general rule, these investment activities will
increase or decrease the amount of long-term and
short-term capital gains or losses realized by the
Fund and, thus, will affect the amount of capital
gains distributed to the Fund's shareholder.
For federal income tax purposes, gain or loss on the
futures and options described above (collectively
referred to as "Section 1256 Contracts") would, as a
general rule, be taxed pursuant to a special
"mark-to-market system." Under the mark-to-market
system, the Fund may be treated as realizing a greater
or lesser amount of gains or losses than actually
realized. As a general rule, gain or loss on Section
1256 Contracts is treated as 60% long-term capital
gain or loss and 40% short-term capital gain or loss,
and as a result, the mark-to market will generally
affect the amount of capital gains or losses taxable
to the Fund and the amount of distributions taxable to
a shareholder. Moreover, if the Fund invests in both
Section 1256 and offsetting positions in those
contracts, then the Fund may not be able to receive
the benefit of certain realized losses for an
indeterminate period of time. The Fund expects that
its activities with respect to Section 1256 Contracts
and offsetting position in those Contracts (1) will
not cause it or its shareholders to be treated as
receiving a materially greater amount of capital gains
or distributions than actually realized or received
and (2) will permit it to use substantially all of its
losses for the fiscal years in which the losses
actually occur.
Gains or losses on the sales of stock or securities by
the Fund generally will be long-term capital gains or
losses if a Fund has held the stock or securities for
more than one year. Gains or losses on sales of stock
or securities held for not more than one year
generally will be short-term capital gains or losses.
Foreign countries may impose withholding and other
taxes on dividends and interest paid to the Fund with
respect to investments in foreign securities. However,
certain foreign countries have entered into tax
conventions with the United States to reduce or
eliminate such taxes. Distributions of long-term
capital gains will be taxable to shareholders as such,
whether paid in cash or reinvested in additional
shares and regardless of the length of time that the
shareholder has held his or her interest in the Fund.
If a shareholder receives a distribution taxable as
long-term capital gain with respect to his or her
investment in the Fund and redeems or exchanges the
shares before he or she has held them for more than
six months, any loss on the redemption or exchange
that is less than or equal to the amount of the
distribution will be treated as a long-term capital
loss.
Any net long-term capital gains realized by the Fund
will be distributed annually as described in the
Prospectus. Such distributions ("capital gain
dividends") will be taxable to shareholders as
long-term capital gains, regardless of how long a
shareholder has held Fund shares, and will be
designated as capital gain dividends in a written
notice mailed by the Fund to shareholders after the
close of the Fund's prior taxable year. If a
shareholder receives a capital gain dividend with
respect to any share and if the share has been held by
the shareholder for six months or less, then any loss
on the sale or exchange of such share will be treated
as a long-term capital loss to the extent of the
capital gain dividend.
Investors considering buying shares of the Fund on or
just prior to a record date for a taxable dividend or
capital gain distribution should be aware that,
regardless of whether the price of the Fund shares to
be purchased reflects the amount of the forthcoming
dividend or distribution payment, any such payment
will be a taxable dividend or distribution payment.
If a shareholder fails to furnish a correct taxpayer
identification number, fails fully to report dividend
and interest income, or fails to certify that he or
she has provided a correct taxpayer identification
number and that he or she is not subject to "backup
withholding," then the shareholder may be subject to
a 31% backup withholding tax with respect to (a) any
taxable dividends and distributions and (b) the
proceeds of any redemptions of Fund shares. An
individual's taxpayer identification number is his or
her social security number. The backup withholding tax
is not an additional tax and may be credited against a
shareholder's regular Federal income tax liability.
The foregoing is only a summary of certain tax
considerations generally affecting the Fund and its
shareholders and is not intended as a substitute for
careful tax planning. Shareholders are urged to
consult their tax advisors with specific reference to
their own tax situations, including their state and
local tax liabilities.
ADDITIONAL INFORMATION
The 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.
PNC Bank, located at 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103, serves as the
custodian of the Funds. Under its agreement with the
Company on behalf of the Funds, PNC Bank holds each
Fund's portfolio securities and keeps all necessary
accounts and records. For its services, PNC Bank
receives a monthly fee based upon the month-end market
value of securities held in custody and also receives
securities transaction charges. The assets of the
Funds 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. Under the transfer agency agreement, First Data
maintains the shareholder account records for the
Company, handles certain communications between
shareholders and the Company and distributes dividends
and distributions payable by the Company. 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.
Smith Barney
Small Cap Growth Fund
Small Cap Value Fund
Statement of
Additional Information
September 30, 1998
Smith Barney
Small Cap Growth Fund
Small Cap Value Fund
388 Greenwich Street
New York, New York 100 13
SMITH BARNEY
A Member of Travelers Group
SMCPSAIe
1
PART C Item 24. Financial Statements and Exhibits a) Financial Statements:
Included in Part A:
Included in Part B:
The Registrant's Annual Reports for series whose fiscal year ended
December 31, 1997 and the Report of Independent Auditors dated
February 10, 1998 are incorporated by reference to the Definitive 30b2-1
filed on March 10, 1998 as Accession #0000091155-98-157.
The Registrant's Annual Reports for series whose fiscal year ended
April 30, 1998 and the Report of Independent Auditors dated June 12, 1998
are incorporated by reference to the Definitive 30b2-1 filed on
July 9,1998 as Accession #0000091155-98-444.
(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.
Articles of Amendment dated October 23, 1997 are
incorporated by reference to Post-Effective Amendment
No. 46 dated October 23, 1997("Post-Effective
Amendment No.46"). Articles of Amendment dated
February 27, 1998 are incorporated by reference
to Post-Effective Amendment No. 48 dated April 29, 1998.
Articles of Amendment dated June 1, 1998 are 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 Fund ("Small Cap Fund") is incorporated by
reference to Post Effective Amendment 46.
(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 Fund between
Registrant and Smith Barney Mutual Funds Management
Inc. is incorporated by reference to Post-Effective
Amendment No. 46.
(d) Sub-Advisory Agreement on behalf of Global
Value Fund and Global Small Cap Fund between MMC and
Hansberger Global Investors Inc. is
incorporated by reference to Post-Effective
Amendment No. 46.
(e)Form of Investment Management Agreements on behalf of
Smith Barney Small Cap Growth Fund and Smith Barney
Small Cap Value Fund between Registrant and
Mutual Management Corp. are 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.
(c) Form of Distribution Agreement between the
Registrant and CFBDS, Inc. is filed herewith.
(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) Custodian Agreement with Chase Manhattan Bank
is incorporated by reference to Post-Effective
Amendment No. 46.
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) To be filed by amendment.
(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 Fund is
incorporated by reference to Post-Effective Amendment
No. 46.
(d) Form of Amended and Restated Shareholder Services
and Distribution Plan pursuant to Rule 12b-1 between
the Registrant on behalf of each of its series
is filed herewith.
(16) Performance Data 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. Title of Class Number of Record Holders
Smith Barney
Investment Grade Fund
Class A 12,970
Class B 12,631
Class C 508
Class Y 4
Smith Barney
Government Securities Fund
Class A 21,658
Class B 6,124
Class C 151
Class Y 11
Smith Barney
Contrarian Fund
Class A 15,981
Class B 40,226
Class C 4,967
Class Y 8
Class Z 1
Smith Barney
Special Equities Fund
Class A 21,000
Class B 30,564
Class C 2,138
Class Y 6
Class Z 1
Concert
Peachtree Growth Fund
Class A 123
Class B 224
Class C 31
Class Y 7
Smith Barney Hansberger Global Small Cap
Value Fund
Class A 625
Class B 1,540
Class C 428
Class Y 3
Smith Barney Hansberger Global Value Fund
Class A 2,130
Class B 4,910
Class C 1,260
Class Y 9
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 -Mutual Management Corp.("MMC")
formerly Smith Barney Mutual Funds Management Inc.
MMC was incorporated in December 1968 under the laws
of the State of Delaware. MMC is a wholly owned
subsidiary of Salomon Smith Barney Holdings Inc.
("Holdings")(formerly known as Smith Barney Holdings
Inc.), which in turn is a wholly owned subsidiary of
Travelers Group Inc. MMC 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 MMC 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 MMC pursuant to the Advisers
Act (SEC File No. 801-8314).
Item 29. Principal Underwriters
(a) CFBDS, Inc. the Registrant's Distributor effective on
or about ______, 1998, is also the distributor for
CitiFundsSM International Growth & Income Portfolio,
CitiFundsSM International Equity Portfolio, CitiFundsSM Large Cap Growth
Portfolio, CitiFundsSM Intermediate Income Portfolio,
CitiFundsSM Short-Term U.S. Government Income Portfolio,
CitiFundsSM Emerging Asian Markets Equity Portfolio,
CitiFundsSM U.S. Treasury Reserves, CitiFundsSM Cash Reserves,
CitiFundsSM Premium U.S. Treasury Reserves,
CitiFundsSM Premium Liquid Reserves, CitiFundsSM Institutional U.S.
Treasury Reserves, CitiFundsSM Institutional Liquid Reserves,
SM Institutional Cash Reserves, CitiFundsSM Tax Free Reserves,
CitiFundsSM Institutional Tax Free Reserves,
CitiFundsSM California Tax Free Reserves,
CitiFundsSM Connecticut Tax Free Reserves,
CitiFundsSM New York Tax Free Reserves, CitiFundsSM Balanced Portfolio,
CitiFundsSM Small Cap Value Portfolio, CitiFundsSM Growth & Income Portfolio,
CitiFundsSM Small Cap Growth Portfolio, CitiFundsSM National
Tax Free Income Portfolio, CitiFundsSM New York Tax Free Income Portfolio,
CitiSelect VIP Folio 200, Citiselect VIP Folio 300,
CitiSelect (VIP Folio 400, CitiSelect (VIP Folio 500,
CitiFundsSM Small Cap Growth VIP Portfolio, CitiSelect (Folio 200,
CitiSelect (Folio 300, CitiSelect (Folio 400, and CitiSelect (Folio 500.
CFBDS is also the placement agent for Large Cap Value Portfolio,
International Portfolio, Foreign Bond Portfolio,
Intermediate Income Portfolio, Short-Term Portfolio,
Growth & Income Portfolio, Large Cap Growth Portfolio,
Small Cap Growth Portfolio, International Equity Portfolio,
Balanced Portfolio, Government Income Portfolio, Emerging
Asian Markets Equity Portfolio, Tax Free Reserves Portfolio,
Cash Reserves Portfolio and U.S. Treasury Reserves Portfolio.
CFBDS, Inc. will become the distributor effective
_______, 1998 for the following Smith Barney Mutual Fund
registrants:
Consulting Group Capital Markets Funds
Global Horizons Investment Series (Cayman Islands)
Greenwich Street Series Fund
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 Allocation Series Inc.
Smith Barney Equity Funds
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.
Smith Barney Income Funds
Smith Barney Institutional Cash Management Fund, 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 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 Small Cap Blend Fund, Inc.
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.(Netherlands Antilles)
Worldwide Securities Limited (Bermuda).
The information required by this Item 29 with respect
to each director, officer and partner of CFBDS, Inc.
is incorporated by reference to Schedule A of Form BD
filed by CFBDS, Inc. pursuant to the Securities
Exchange Act of 1934 (SEC File No. 8-32417).
Item 30. Location of Accounts and Records
(1) Smith Barney Investment Funds Inc.
388 Greenwich Street
New York, New York 10013
(2) Mutual Management Corp.
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.
One Exchange Place
Boston, Massachusetts 02109
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Not applicable
(b) Not applicable
(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
16th day of July, 1998.
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 7/16/98
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Senior Vice President
Lewis E. Daidone and Treasurer 7/16/98
(Chief Financial
and Accounting Officer)
/s/ Paul R. Ades * Director 7/16/98
Paul R. Ades
/s/ Herbert Barg* Director 7/16/98
Herbert Barg
/s/ Dwight B. Crane* Director 7/16/98
Dwight B. Crane
/s/ Frank Hubbard* Director 7/16/98
Frank Hubbard
/s/ Jerome Miller* Director 7/16/98
Jerome Miller
/s/ Ken Miller* Director 7/16/98
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
5(e) Form of Investment Management Agreements
6(c) Form of Distribution Agreement
15(d) Form of Amended and Restated Shareholder Services
and Distribution Plan pursuant to Rule 12b-1
SMITH BARNEY INVESTMENT FUNDS INC.
ARTICLES OF AMENDMENT
Smith Barney Investment Funds Inc., a Maryland corporation, having its
principal office in Baltimore City, Maryland (the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The Charter of the Corporation is hereby amended to provide as
follows:
The name of all of the issued and unissued Class C Common Stock of
each of the Government Securities Fund, the Investment Grade Bond Fund, the
Special Equities Fund, the Concert Peachtree Growth Fund, the Smith Barney
Contrarian Fund, the Smith Barney Hansberger Global Small Cap Value Fund and
the Smith Barney Hansberger Global Value Fund series of capital stock of the
Corporation is hereby changed to Class L Common Stock of such series or
Fund.
SECOND: The foregoing amendment to the Charter of the Corporation has
been approved by a majority of the entire Board of Directors and is limited
to a change expressly permitted by Section 2-605 of the Maryland General
Corporation Law to be made without action of the stockholders.
THIRD: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940.
FOURTH: The amendment to the Charter of the Corporation effected
hereby shall become effective at 9:00 a.m. on June 12, 1998.
IN WITNESS WHEREOF, Smith Barney Investment Funds Inc. has caused
these presents to be signed in its name and on its behalf by its President
and witnessed by its Assistant Secretary as of June 1, 1998.
WITNESS: SMITH BARNEY INVESTMENT FUNDS INC
By:
Robert M. Nelson Heath B. McLendon
Assistant Secretary President
THE UNDERSIGNED, President of Smith Barney Investment Funds Inc., who
executed on behalf of the Corporation Articles of Amendment of which this
Certificate is made a part, hereby acknowledges in the name and on behalf of
said Corporation the foregoing Articles of Amendment to be the corporate act
of said Corporation and hereby certifies that the matters and facts set
forth herein with respect to the authorization and approval thereof are true
in all material respects under the penalties of perjury.
Heath B. McLendon
President
U:legal\general\boards\genlmemo\artic698
FORM OF
INVESTMENT MANAGEMENT AGREEMENT
July 23, 1998
Mutual Management Corp.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
This Investment Management Agreement (the "Agreement") is made on
this 23rd day of July, 1998, 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 Small Cap
Growth Fund (the "Fund"), and Mutual Management Corp. ("MMC") 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 MMC. The Corporation
desires to employ and hereby appoints MMC to act as investment
manager for the Fund. MMC accepts the appointment and agrees to
furnish the services for the compensation set forth below. MMC 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 MMC.
2. Services as Investment Manager
Subject to the supervision and direction of the Board, MMC will:
(a) assist in supervising all aspects of the Fund's operations;
(b) supply the Fund with office facilities (which may be in MMC'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 MMC, 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 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 MMC, 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
MMC 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, MMC 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 MMC 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, MMC will seek the best overall terms available. In
assessing the best overall terms available for any transaction, MMC
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, MMC 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 MMC or its affiliates exercise investment discretion.
7. Information Provided to the Fund
MMC 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
MMC believes is appropriate for this purpose.
8. Standard of Care
MMC shall exercise its best judgment in rendering the services
listed in paragraph 2 above. MMC 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 MMC against any liability to the Corporation
or to the Fund's shareholders to which MMC 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 MMC 's reckless disregard of its obligations and duties
under this Agreement.
9. Services to Other Companies or Accounts
The Corporation understands that MMC 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 MMC's so acting, provided
that whenever the Fund and one or more other investment companies
advised by MMC 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 MMC to assist in the performance of MMC'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 MMC or any affiliate of MMC 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
MMC. 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 MMC 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 MMC, 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 Small Cap Growth Fund
By:_________________________________
Name: Heath B. McLendon
Title: Chairman, President and Chief
Executive Officer
Accepted:
Mutual Management Corp.
By:___________________________________
Name: Christina T. Sydor
Title: Secretary
u:\legal\boards\thur\1997\memos\hansber1.doc
SMITH BARNEY SMALL CAP VALUE FUND
FORM OF
INVESTMENT MANAGEMENT AGREEMENT
July 23, 1998
Mutual Management Corp.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
This Investment Management Agreement (the "Agreement") is made on
this 23rd day of July, 1998, 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 Small Cap
Value Fund (the "Fund"), and Mutual Management Corp. ("MMC") 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 MMC. The Corporation
desires to employ and hereby appoints MMC to act as investment
manager for the Fund. MMC accepts the appointment and agrees to
furnish the services for the compensation set forth below. MMC 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 MMC.
2. Services as Investment Manager
Subject to the supervision and direction of the Board, MMC will:
(a) assist in supervising all aspects of the Fund's operations;
(b) supply the Fund with office facilities (which may be in MMC'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 MMC, on the first business day
of each month, a fee for the previous month at an annual rate of [
]% 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 MMC, 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
MMC 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, MMC 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 MMC 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, MMC will seek the best overall terms available. In
assessing the best overall terms available for any transaction, MMC
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, MMC 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 MMC or its affiliates exercise investment discretion.
7. Information Provided to the Fund
MMC 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
MMC believes is appropriate for this purpose.
8. Standard of Care
MMC shall exercise its best judgment in rendering the services
listed in paragraph 2 above. MMC 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 MMC against any liability to the Corporation
or to the Fund's shareholders to which MMC 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 MMC 's reckless disregard of its obligations and duties
under this Agreement.
9. Services to Other Companies or Accounts
The Corporation understands that MMC 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 MMC's so acting, provided
that whenever the Fund and one or more other investment companies
advised by MMC 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 MMC to assist in the performance of MMC'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 MMC or any affiliate of MMC 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
MMC. 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 MMC 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 MMC, 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 Small Cap Value Fund
By:_________________________________
Name: Heath B. McLendon
Title: Chairman, President and Chief
Executive Officer
Accepted:
Mutual Management Corp.
By:___________________________________
Name: Christina T. Sydor
Title: Secretary
u:\legal\boards\thur\1998\misc\scvfmgt
FORM OF
DISTRIBUTION AGREEMENT
[Date]
CFBDS, Inc.
6 St. James Avenue
Boston, MA 02116
Dear Sirs:
This is to confirm that, in consideration of the agreements hereinafter
contained, the above-named investment company (the "Fund") has agreed that
you shall be, for the period of this Agreement, the non-exclusive principal
underwriter and distributor of shares of the Fund and each Series of the Fund
set forth on Exhibit A hereto, as such Exhibit may be revised from time to
time (each, including any shares of the Fund not designated by series, a
"Series"). For purposes of this Agreement, the term "Shares" shall mean
shares of the each Series, or one or more Series, as the context may require.
1. Services as Principal Underwriter and Distributor
1.1 You will act as agent for the distribution of Shares covered
by, and in accordance with, the registration statement, prospectus and
statement of additional information then in effect under the Securities Act of
1933, as amended (the "1933 Act"), and the Investment Company Act of 1940, as
amended (the "1940 Act"), and will transmit or cause to be transmitted
promptly any orders received by you or those with whom you have sales or
servicing agreements for purchase or redemption of Shares to the Transfer and
Dividend Disbursing Agent for the Fund of which the Fund has notified you in
writing.
1.2 You agree to use your best efforts to solicit orders for the
sale of Shares. It is contemplated that you will enter into sales or
servicing agreements with registered securities dealers and banks and into
servicing agreements with financial institutions and other industry
professionals, such as investment advisers, accountants and estate planning
firms. In entering into such agreements, you will act only on your own behalf
as principal underwriter and distributor. You will not be responsible for
making any distribution plan or service fee payments pursuant to any plans the
Fund may adopt or agreements it may enter into.
1.3 You shall act as principal underwriter and distributor of
Shares in compliance with all applicable laws, rules, and regulations,
including, without limitation, all rules and regulations made or adopted from
time to time by the Securities and Exchange Commission (the "SEC") pursuant
to the 1933 Act or the 1940 Act or by any securities association registered
under the Securities Exchange Act of 1934, as amended.
1.4 Whenever in their judgment such action is warranted for any
reason, including, without limitation, market, economic or political
conditions, the Fund's officers may decline to accept any orders for, or make
any sales of, any Shares until such time as those officers deem it advisable
to accept such orders and to make such sales and the Fund shall advise you
promptly of such determination.
2. Duties of the Fund
2.1 The Fund agrees to pay all costs and expenses in connection
with the registration of Shares under the 1933 Act, and all expenses in
connection with maintaining facilities for the issue and transfer of Shares
and for supplying information, prices and other data to be furnished by the
Fund hereunder, and all expenses in connection with the preparation and
printing of the Fund's prospectuses and statements of additional information
for regulatory purposes and for distribution to shareholders; provided
however, that nothing contained herein shall be deemed to require the Fund to
pay any of the costs of advertising or marketing the sale of Shares.
2.2 The Fund agrees to execute any and all documents and to
furnish any and all information and otherwise to take any other actions that
may be reasonably necessary in the discretion of the Fund's officers in
connection with the qualification of Shares for sale in such states and other
U.S. jurisdictions as the Fund may approve and designate to you from time to
time, and the Fund agrees to pay all expenses that may be incurred in
connection with such qualification. You shall pay all expenses connected with
your own qualification as a securities broker or dealer under state or Federal
laws and, except as otherwise specifically provided in this Agreement, all
other expenses incurred by you in connection with the sale of Shares as
contemplated in this Agreement.
2.3 The Fund shall furnish you from time to time, for use in
connection with the sale of Shares, such information reports with respect to
the Fund or any relevant Series and the Shares as you may reasonably request,
all of which shall be signed by one or more of the Fund's duly authorized
officers; and the Fund warrants that the statements contained in any such
reports, when so signed by the Fund's officers, shall be true and correct.
The Fund also shall furnish you upon request with (a) the reports of annual
audits of the financial statements of the Fund for each Series made by
independent certified public accountants retained by the Fund for such
purpose; (b) semi-annual unaudited financial statements pertaining to each
Series; (c) quarterly earnings statements prepared by the Fund; (d) a monthly
itemized list of the securities in each Series' portfolio; (e) monthly balance
sheets as soon as practicable after the end of each month; and (f) the
current net asset value and offering price per share for each Series on each
day such net asset value is computed and (g)from time to time such additional
information regarding the financial condition of each Series of the Fund as
you may reasonably request.
3. Representations and Warranties
The Fund represents to you that all registration statements,
prospectuses and statements of additional information filed by the Fund with
the SEC under the 1933 Act and the 1940 Act with respect to the Shares have
been prepared in conformity with the requirements of said Acts and the rules
and regulations of the SEC thereunder. As used in this Agreement, the terms
"registration statement", "prospectus" and "statement of additional
information" shall mean any registration statement, prospectus and statement
of additional information filed by the Fund with the SEC and any amendments
and supplements thereto filed by the Fund with the SEC. The Fund represents
and warrants to you that any registration statement, prospectus and statement
of additional information, when such registration statement becomes effective
and as such prospectus and statement of additional information are amended or
supplemented, included at the time of such effectiveness, amendment or
supplement all statements required to be contained therein in conformance with
the 1933 Act, the 1940 Act and the rules and regulations of the SEC; that all
statements of material fact contained in any registration statement,
prospectus or statement of additional information will be true and correct
when such registration statement becomes effective; and that neither any
registration statement nor any prospectus or statement of additional
information when such registration statement becomes effective will include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading to a purchaser of the Fund's Shares. The Fund may, but shall not
be obligated to, propose from time to time such amendment or amendments to any
registration statement and such supplement or supplements to any prospectus or
statement of additional information as, in the light of future developments,
may, in the opinion of the Fund, be necessary or advisable. If the Fund shall
not propose such amendment or amendments and/or supplement or supplements
within fifteen days after receipt by the Fund of a written request from you to
do so, you may, at your option, terminate this Agreement or decline to make
offers of the Fund's Shares until such amendments are made. The Fund shall
not file any amendment to any registration statement or supplement to any
prospectus or statement of additional information without giving you
reasonable notice thereof in advance; provided, however, that nothing
contained in this Agreement shall in any way limit the Fund's right to file at
any time such amendments to any registration statement and/or supplements to
any prospectus or statement of additional information, of whatever character,
as the Fund may deem advisable, such right being in all respects absolute and
unconditional.
4. Indemnification
4.1 The Fund authorizes you to use any prospectus or statement of
additional information furnished by the Fund from time to time, in connection
with the sale of Shares. The Fund agrees to indemnify, defend and hold you,
your several officers and directors, and any person who controls you within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any such
counsel fees incurred in connection therewith) which you, your officers and
directors, or any such controlling person, may incur under the 1933 Act or
under common law or otherwise, arising out of or based upon any untrue
statement, or alleged untrue statement, of a material fact contained in any
registration statement, any prospectus or any statement of additional
information or arising out of or based upon any omission, or alleged omission,
to state a material fact required to be stated in any registration statement,
any prospectus or any statement of additional information or necessary to make
the statements in any of them not misleading; provided, however, that the
Fund's agreement to indemnify you, your officers or directors, and any such
controlling person shall not be deemed to cover any claims, demands,
liabilities or expenses arising out of any statements or representations made
by you or your representatives or agents other than such statements and
representations as are contained in any prospectus or statement of additional
information and in such financial and other statements as are furnished to you
pursuant to paragraph 2.3 of this Agreement; and further provided that the
Fund's agreement to indemnify you and the Fund's representations and
warranties herein before set forth in paragraph 3 of this Agreement shall not
be deemed to cover any liability to the Fund or its shareholders to which you
would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of your duties, or by reason of your
reckless disregard of your obligations and duties under this Agreement. The
Fund's agreement to indemnify you, your officers and directors, and any such
controlling person, as aforesaid, is expressly conditioned upon the Fund's
being notified of any action brought against you, your officers or directors,
or any such controlling person, such notification to be given by letter or by
telegram addressed to the Fund at its principal office in New York, New York
and sent to the Fund by the person against whom such action is brought, within
ten days after the summons or other first legal process shall have been
served. The failure so to notify the Fund of any such action shall not
relieve the Fund from any liability that the Fund may have to the person
against whom such action is brought by reason of any such untrue, or alleged
untrue, statement or omission, or alleged omission, otherwise than on account
of the Fund's indemnity Agreement contained in this paragraph 4.1. The Fund
will be entitled to assume the defense of any suit brought to enforce any such
claim, demand or liability, but, in such case, such defense shall be conducted
by counsel of good standing chosen by the Fund. In the event the Fund elects
to assume the defense of any such suit and retains counsel of good standing,
the defendant or defendants in such suit shall bear the fees and expenses of
any additional counsel retained by any of them; but if the Fund does not elect
to assume the defense of any such suit, the Fund will reimburse you, your
officers and directors, or the controlling person or persons named as
defendant or defendants in such suit, for the fees and expenses of any counsel
retained by you or them. The Fund's indemnification Agreement contained in
this paragraph 4.1 and the Fund's representations and warranties in this
Agreement shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of you, your officers and directors, or
any controlling person, and shall survive the delivery of any of the Fund's
Shares. This agreement of indemnity will inure exclusively to your benefit,
to the benefit of your several officers and directors, and their respective
estates, and to the benefit of the controlling persons and their successors.
The Fund agrees to notify you promptly of the commencement of any litigation
or proceedings against the Fund or any of its officers or Board members in
connection with the issuance and sale of any of the Fund's Shares.
4.2 You agree to indemnify, defend and hold the Fund, its several
officers and Board members, and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the costs of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) that the Fund, its officers or Board
members or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, but only to the extent that such liability or expense
incurred by the Fund, its officers or Board members, or such controlling
person resulting from such claims or demands shall arise out of or be based
upon any untrue, or alleged untrue, statement of a material fact contained in
information furnished in writing by you to the Fund and used in the answers to
any of the items of the registration statement or in the corresponding
statements made in the prospectus or statement of additional information, or
shall arise out of or be based upon any omission, or alleged omission, to
state a material fact in connection with such information furnished in writing
by you to the Fund and required to be stated in such answers or necessary to
make such information not misleading. Your agreement to indemnify the Fund,
its officers or Board members, and any such controlling person, as aforesaid,
is expressly conditioned upon your being notified of any action brought
against the Fund, its officers or Board members, or any such controlling
person, such notification to be given by letter or telegram addressed to you
at your principal office in Boston, Massachusetts and sent to you by the
person against whom such action is brought, within ten days after the summons
or other first legal process shall have been served. You shall have the right
to control the defense of such action, with counsel of your own choosing,
satisfactory to the Fund, if such action is based solely upon such alleged
misstatement or omission on your part or with the Fund's consent, and in any
event the Fund, its officers or Board members or such controlling person shall
each have the right to participate in the defense or preparation of the
defense of any such action with counsel of its own choosing reasonably
acceptable to you but shall not have the right to settle any such action
without your consent, which will not be unreasonably withheld. The failure to
so notify you of any such action shall not relieve you from any liability that
you may have to the Fund, its officers or Board members, or to such
controlling person by reason of any such untrue, or alleged untrue, statement
or omission, or alleged omission, otherwise than on account of your indemnity
agreement contained in this paragraph 4.2. You agree to notify the Fund
promptly of the commencement of any litigation or proceedings against you or
any of your officers or directors in connection with the issuance and sale of
any of the Fund's Shares.
5. Effectiveness of Registration
No Shares shall be offered by either you or the Fund under any of the
provisions of this Agreement and no orders for the purchase or sale of such
Shares under this Agreement shall be accepted by the Fund if and so long as
the effectiveness of the registration statement then in effect or any
necessary amendments thereto shall be suspended under any of the provisions of
the 1933 Act, or if and so long as a current prospectus as required by Section
5(b) (2) of the 1933 Act is not on file with the SEC; provided, however, that
nothing contained in this paragraph 5 shall in any way restrict or have an
application to or bearing upon the Fund's obligation to repurchase its Shares
from any shareholder in accordance with the provisions of the Fund's
prospectus, statement of additional information or charter documents, as
amended from time to time.
6. Offering Price
Shares of any class of any Series of the Fund offered for sale by you
shall be offered for sale at a price per share (the "offering price") equal
to (a) their net asset value (determined in the manner set forth in the Fund's
charter documents and the then-current prospectus and statement of additional
information) plus (b) a sales charge, if applicable, which shall be the
percentage of the offering price of such Shares as set forth in the Fund's
then-current prospectus relating to such Series. In addition to or in lieu of
any sales charge applicable at the time of sale, Shares of any class of any
Series of the Fund offered for sale by you may be subject to a contingent
deferred sales charge as set forth in the Fund's then-current prospectus and
statement of additional information. You shall be entitled to receive any
sales charge levied at the time of sale in respect of the Shares without
remitting any portion to the Fund. Any payments to a broker or dealer through
whom you sell Shares shall be governed by a separate agreement between you and
such broker or dealer and the Fund's then-current prospectus and statement of
additional information
7. Notice to You
The Fund agrees to advise you immediately in writing:
(a) of any request by the SEC for amendments
to the registration statement, prospectus or
statement of additional information then in effect
or for additional information;
(b) in the event of the issuance by the SEC
of any stop order suspending the effectiveness of
the registration statement, prospectus or statement
of additional information then in effect or the
initiation of any proceeding for that purpose;
(c) of the happening of any event that makes
untrue any statement of a material fact made in the
registration statement, prospectus or statement of
additional information then in effect or that
requires the making of a change in such
registration statement, prospectus or statement of
additional
information in order to make the statements therein
not misleading; and
(d) of all actions of the SEC with respect
to any amendment to the registration statement, or
any supplement to the prospectus or statement of
additional information which may from time to time
be filed with the SEC.
8. Term of the Agreement
This Agreement shall become effective on the date hereof, shall have an
initial term of one year from the date hereof, and shall continue for
successive annual periods thereafter so long as such continuance is
specifically approved at least annually by (a) the Fund's Board or (b) by 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 of the Fund who are not interested
persons (as defined in the 1940 Act) of any party to this Agreement, by vote
cast in person at a meeting called for the purpose of voting on such approval.
This Agreement is terminable, without penalty, on 30 days' notice by the
Fund's Board or by vote of holders of a majority of the relevant Series
outstanding voting securities, or on 90 days' notice by you. This Agreement
will also terminate automatically, as to the relevant Series, in the event of
its assignment (as defined in the 1940 Act and the rules and regulations
thereunder).
9. Arbitration
Any claim, controversy, dispute or deadlock arising under this
agreement (collectively, a "Dispute") shall be settled by arbitration
administered under the rules of the American Arbitration Association
("AAA") in New York, New York. Any arbitration and award of the
arbitrators, or a majority of them, shall be final and the judgment upon
the award rendered may be entered in any state or federal court having
jurisdiction. No punitive damages are to be awarded.
10. Miscellaneous
So long as you act as a principal underwriter and distributor of Shares,
you shall not perform any services for any entity other than investment
companies advised or administered by Citigroup Inc. or its subsidiaries. The
Fund recognizes that the persons employed by you to assist in the performance
of your duties under this Agreement may not devote their full time to such
service and nothing contained in this Agreement shall be deemed to limit or
restrict your or any of your affiliates right to engage in and devote time and
attention to other businesses or to render services of whatever kind or
nature. This Agreement and the terms and conditions set forth herein shall
be governed by, and construed in accordance with, the laws of the State of New
York.
11. Limitation of Liability (Massachusetts business trusts only)
The Fund and you agree that the obligations of the Fund under this
Agreement shall not be binding upon any of the Trustees, shareholders,
nominees, officers, employees or agents, whether past, present or future, of
the Fund, individually, but are binding only upon the assets and property of
the Fund, as provided in the Master Trust Agreement. The execution and
delivery of this Agreement have been authorized by the Trustees and signed by
an authorized officer of the Fund, acting as such, and neither such
authorization by such Trustees nor such execution and delivery by such officer
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 trust property of
the Fund as provided in its Master Trust Agreement.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance
of this Agreement by signing and returning to us the enclosed copy, whereupon
this Agreement will become binding on you.
Very truly yours,
[Name of Fund]
By: _____________________
[Title]
Accepted:
CFBDS, INC.
By: __________________________
Authorized Officer
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Page: 3
7
FORM OF
AMENDED AND RESTATED
SHAREHOLDER SERVICES AND DISTRIBUTION PLAN
This Amended and Restated 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
[Name of Fund], a [business trust organized under the laws of the
Commonwealth of Massachusetts (the "Trust") on behalf of its sub-trust]
/ [a corporation organized under the laws of the State of Maryland (the
"Fund")], subject to the following terms and conditions:
Section 1. Annual Fee.
(a) Service Fee for Class A shares. The [Trust/Fund] will pay to
Smith Barney Inc., a corporation organized under the laws of
the State of Delaware ("Smith Barney"), a service fee under
the Plan at an annual rate of [ %] of the average daily net
assets of the Fund attributable to the Class A shares sold and
not redeemed (the "Class A Service Fee").
(b) Service Fee for Class B shares. The [Trust/Fund] will pay to
Smith Barney a service fee under the Plan at the annual rate of
[ %] of the average daily net assets of the Fund
attributable to the Class B shares sold and not redeemed (the
"Class B Service Fee").
(c) Distribution Fee for Class B shares. In addition to the Class B
Service Fee, the [Trust/Fund] will pay Smith Barney a
distribution fee under the Plan at the annual rate of [ %]
of the average daily net assets of the Fund attributable to the
Class B shares sold and not redeemed (the "Class B
Distribution Fee").
(d) Service Fee for Class L shares. The [Trust/Fund] will pay to
Smith Barney a service fee under the plan at the annual rate of
[ %] of the average daily net assets of the Fund
attributable to the Class L shares sold and not redeemed (the
"Class L Service Fee").
(e) Distribution Fee for Class L shares. In addition to the Class
L Service Fee, the [Trust/Fund] will pay Smith Barney a
distribution fee under the Plan at the annual rate of [ %]
of the average daily net assets of the Fund attributable to the
Class L shares sold and not redeemed (the "Class L Distribution
Fee").
(f) Payment of Fees. The Service Fees and Distribution Fees will be
calculated daily and paid monthly by the [Trust/Fund] 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 Fee and/or Distribution Fee may be used by Smith Barney for: (a)
costs of printing and distributing the [Trust's/Fund's] prospectuses,
statements of additional information and reports to prospective
investors in the [Trust/Fund]; (b) costs involved in preparing, printing
and distributing sales literature pertaining to the [Trust/Fund]; (c) an
allocation of overhead and other branch office distribution-related
expenses of Smith Barney; (d) payments made to, and expenses of, Smith
Barney's financial consultants and other persons who provide support
services to [Trust/Fund] shareholders in connection with the
distribution of the [Trust's/Fund's] shares, including but not limited
to, office space and equipment, telephone facilities, answering routine
inquires regarding the [Trust/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 [Trust's/Fund's] transfer agent;
and (e) accruals for interest on the amount of the foregoing expenses
that exceed the Distribution Fee for that Class and, in the case of
Class B and Class L shares, any contingent deferred sales charges
received by Smith Barney; provided, however, that (i) the Distribution
Fee for a particular Class may be used by Smith Barney only to cover
expenses primarily intended to result in the sale of shares of that
Class, including, without limitation, payments to the financial
consultants of Smith Barney and other persons as compensation for the
sale of the shares, and (ii) the Service Fees are intended to be used by
Smith Barney 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
[Trust/Fund].
Section 4. Approval by [Trustees/Directors.]
Neither the Plan nor any related agreements will take effect until
approved by a majority vote of both (a) the Board of
[Trustees/Directors] and (b) those [Trustees/Directors] who are not
interested persons of the [Trust/Fund] and who have no direct or
indirect financial interest in the operation of the Plan or in any
agreements related to it (the "Qualified [Trustees/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 [
, 1999] 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 [Trustees/Directors] of the
[Trust/Fund] and by a majority of the Qualified [Trustees/Directors].
Section 6. Termination.
The Plan may be terminated at any time with respect to a Class (i) by
the [Trust/Fund] 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 [Trustees/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
[Trust's/Fund's] Board of [Trustees/Directors] in the manner described
in Section 4 above.
Section 8. Selection of Certain [Trustees/Directors].
While the Plan is in effect, the selection and nomination of the
[Trust's/Fund's] [Trustees/Directors] who are not interested persons of
the [Trust/Fund] will be committed to the discretion of the
[Trustees/Directors] then in office who are not interested persons of
the [Trust/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 [Trust's/Fund's] Board of [Trustees/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 [Trust/Fund] 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
[Trust/Fund] under the 1940 Act, by the Securities and Exchange
Commission.
Section 12. Limitation of Liability. (Massachusetts business trusts
only)
The obligations of the Trust under this Agreement shall not be
binding upon any of the Trustees, shareholders, nominees, officers,
employees or agents, whether past, present or future, of the Trust,
individually, but are binding only upon the assets and property of the
Trust, as provided in the Master Trust Agreement. The execution of this
Plan has been authorized by the Trustees and signed by an authorized
officer of the Trust, acting as such, and neither such authorization by
such Trustees nor such execution by such officer 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 trust property of the Trust
as provided in its Master Trust Agreement.
IN WITNESS WHEREOF, the Fund has executed the Plan as of July _____,
1998.
[NAME OF TRUST/FUND] On behalf of
By:
____________________________________
Heath B. McLendon
Chairman of the Board
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