As filed with the Securities and Exchange Commission
on April 29, 1998
- ------------------------------------------------------
- -----------------------
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. 48
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940,
Amendment No. 50
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)
__X__ On April 30, 1998 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)
_____ On (date) 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
CONCERT
PEACHTREE
GROWTH
FUND
APRIL 30, 1998
PROSPECTUS BEGINS ON PAGE ONE
[LOGO] SMITH BARNEY MUTUAL FUNDS
Investing for your future.
Every day.
<PAGE>
PROSPECTUS
April 30, 1998
Concert Peachtree Growth Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
The Concert Peachtree Growth Fund (the "Fund") seeks
capital appreciation
through investments in securities believed to have
above average potential for
capital appreciation.
The Fund is one of a number of funds, each having
distinct investment objec-
tives and policies, making up the Smith Barney
Investment Funds Inc (the "Com-
pany"). The Fund is an open-end, management investment
company commonly
referred to as a mutual fund.
This Prospectus sets forth concisely certain
information about the Company
and the Fund, including sales charges, distribution
and service fees and
expenses, that prospective investors will find helpful
in making an investment
decision. Investors are encouraged to read this
Prospectus carefully and
retain it for future reference.
Additional information about the Fund is contained in
a Statement of Addi-
tional Information dated April 30, 1998, as amended or
supplemented from time
to time, that is available upon request and without
charge by calling or writ-
ing the Fund at the telephone number or address set
forth above or by contact-
ing a Smith Barney Financial Consultant. The Statement
of Additional Informa-
tion has been filed with the Securities and Exchange
Commission (the "SEC")
and is incorporated by reference into this Prospectus
in its entirety.
SMITH BARNEY INC.
Distributor
MUTUAL MANAGEMENT CORP.
Investment Adviser and Administrator
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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FINANCIAL HIGHLIGHTS 9
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 13
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VALUATION OF SHARES 18
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DIVIDENDS, DISTRIBUTIONS AND TAXES 19
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PURCHASE OF SHARES 20
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EXCHANGE PRIVILEGE 30
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REDEMPTION OF SHARES 33
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MINIMUM ACCOUNT SIZE 36
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PERFORMANCE 36
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MANAGEMENT OF THE COMPANY AND THE FUND 37
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DISTRIBUTOR 38
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ADDITIONAL INFORMATION 39
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</TABLE>
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- --------------------------
No person has been authorized to give any
information or to make any
representations in connection with this offering other
than those contained in
this Prospectus and, if given or made, such other
information or
representations must not be relied upon as having been
authorized by the Fund
or the distributor. This Prospectus does not
constitute an offer by the Fund or
the distributor to sell or a solicitation of an offer
to buy any of the
securities offered hereby in any jurisdiction to any
person to whom it is
unlawful to make such offer or solicitation in such
jurisdiction.
- ------------------------------------------------------
- --------------------------
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety
by detailed information
appearing elsewhere in this Prospectus and in the
Statement of Additional
Information. Cross references in this summary are to
headings in the Prospec-
tus. See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end,
management investment company
whose investment objective is to seek capital
appreciation through investments
in securities believed to have above average potential
for capital apprecia-
tion. See "Investment Objective and Management
Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers
several classes of shares
("Classes") to investors designed to provide them with
the flexibility of
selecting an investment best suited to their needs.
The general public is
offered three classes of shares: Class A shares, Class
B shares and Class C
shares, which differ principally in terms of sales
charges and rate of
expenses to which they are subject. A fourth Class of
shares, Class Y shares,
is offered only to investors meeting an initial
investment minimum of
$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 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
redemptions. Class B shares bear an annual service fee
of 0.25% and an annual
distribution fee of 0.75% of the average daily net
assets of the Class. The
Class B shares' distribution fee may cause that Class
to have higher expenses
and pay lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares
will convert automatically
to Class A shares, based on relative net asset value,
eight years after the
date of the original purchase. Upon conversion, these
shares will no longer be
subject to an annual distribution fee. In addition, a
certain portion of Class
B shares that have been acquired through the
reinvestment of dividends and
distributions ("Class B Dividend Shares") will be
converted at that time. See
"Purchase of Shares--Deferred Sales Charge
Alternatives."
3
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Class C Shares. Class C shares are sold at net asset
value with no initial
sales charge. They bear an annual service fee of 0.25%
and an annual distribu-
tion fee of 0.75% of the average daily net assets of
the Class, and investors
pay a CDSC of 1.00% if they redeem Class C shares
within 12 months of pur-
chase. The CDSC may be waived for certain redemptions.
The Class C shares'
distribution fee may cause that Class to have higher
expenses and pay lower
dividends than Class A shares. Purchases of Fund
shares which, when combined
with current holdings of Class C shares of the Fund,
equal or exceed $500,000
in the aggregate should be made in Class A shares at
net asset value with no
sales charge, and will be subject to a CDSC of 1.00%
on redemptions made
within 12 months of purchase.
Class Y Shares. Class Y shares are available only to
investors meeting an
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
circumstances:
Intended Holding Period. The decision as to which
Class of shares is more
beneficial to an investor depends on the amount and
intended length of his or
her investment. Shareholders who are planning to
establish a program of regu-
lar investment may wish to consider Class A shares; as
the investment accumu-
lates shareholders may qualify for reduced sales
charges and the shares are
subject to lower ongoing expenses over the term of the
investment. As an
investment alternative, Class B shares and Class C
shares are sold without any
initial sales charge so the entire purchase price is
immediately invested in
the Fund. Any investment return on these additional
invested amounts may par-
tially or wholly offset the higher annual expenses of
these Classes. Because
the Fund's future return cannot be predicted, however,
there can be no assur-
ance that this would be the case.
Finally investors should consider the effect of the
CDSC period and any con-
version rights of the Classes in the context of their
own investment time
frame. For example, while Class C shares have a
shorter CDSC period than Class
B shares, they do not have a conversion feature, and
therefore, are subject to
an ongoing distribution fee. Thus, Class B shares may
be more attractive than
Class C shares to investors with longer term
investment outlooks.
Reduced or No Initial Sales Charge. The initial
sales charge on Class A
shares may be waived for certain eligible purchasers,
and the entire purchase
price will be immediately invested in the Fund. In
addition, Class A share
purchases of $500,000 or more will be made at net
asset value with no initial
sales charge, but 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
4
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
of all Class A shares held in funds sponsored by Smith
Barney Inc. ("Smith Bar-
ney") 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 C shares, purchasers eligible to purchase Class
A shares at net asset
value or at a reduced sales charge should consider
doing so.
Smith Barney Financial Consultants may receive
different compensation for
selling different Classes of shares. Investors should
understand that the pur-
pose of the CDSC on the Class B and Class C shares is
the same as that of the
initial sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the
Company and the Fund" for a
complete description 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. Investors may also be eligible to participate
in the Smith Barney
ExecChoice(TM) Program. Class A and Class C shares are
available without sales
charge as investment alternatives under both of these
programs. See "Purchase
of Shares--Smith Barney 401(k) and ExecChoice(TM)
Programs."
PURCHASE OF SHARES Shares may be purchased through a
brokerage account main-
tained at Smith Barney. Shares may also be purchased
through a broker that
clears securities transactions through Smith Barney on
a fully disclosed basis
(an "Introducing Broker") or an investment dealer in
the selling group. In
addition, certain investors, including qualified
retirement plans and certain
institutional investors, may purchase shares directly
from the Fund through the
Fund's transfer agent, First Data Investor Services
Group, Inc. ("First Data").
See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and
Class C shares may open
an account by making an initial investment of at least
$1,000 for each account,
or $250 for an individual retirement account ("IRA")
or a Self-Employed Retire-
ment Plan. Investors in Class Y shares may open an
account for an initial
investment of $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 require
-
5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
ment for Class A, Class B and Class C shares and the
subsequent investment
requirement for all Classes 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 The Fund offers
shareholders a Systematic Invest-
ment Plan under which they may authorize 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 C shares
and the subsequent invest-
ment requirements 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")
(formerly known as
Smith Barney Mutual Funds Management, Inc.), serves as
the Fund's investment
adviser and administrator. MMC provides investment
advisory and management
services to investment companies affiliated with Smith
Barney. MMC is a wholly
owned subsidiary of Salomon Smith Barney Holdings Inc.
("Holdings"). Holdings
is a wholly owned subsidiary of Travelers Group Inc.
("Travelers"), a diversi-
fied 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 at least
annually. See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions
paid on shares of a
Class will be reinvested automatically, unless
otherwise specified by an
investor, in additional shares of the same Class at
current net asset value.
Shares acquired by dividend and distribution
reinvestments will not be subject
to any sales charge or
6
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
CDSC. Class B shares acquired through dividend and
distribution reinvestments
will become eligible for conversion to Class A shares
on a pro rata basis. See
"Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS The Fund
invests principally in common
stocks. The prices of common stocks and other
securities fluctuate and, there-
fore, the value of an investment in the Fund will vary
based upon the Fund's
investment performance. Any income from these
investments will be incidental
to the goal of capital appreciation. The Fund may use
management techniques
and strategies involving options, futures contracts
and options on futures
(which are sometimes referred to as "derivatives").
The utilization of these
techniques may involve greater than ordinary
investment risks and the likeli-
hood of more volatile price fluctuation. See
"Investment Objective and Manage-
ment 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 unless
otherwise noted the Fund's
operating expenses for its most recent fiscal year:
<TABLE>
<CAPTION>
CONCERT PEACHTREE GROWTH FUND CLASS
A CLASS B CLASS C CLASS Y
- ------------------------------------------------------
- --------------------------
<S> <C>
<C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price)
5.00% None None None
Maximum CDSC (as a percentage of original
cost or redemption proceeds, whichever is
lower)
None* 5.00% 1.00% None
- ------------------------------------------------------
- --------------------------
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF OFFERING PRICE)
Management Fees
1.00% 1.00% 1.00% 1.00%
12b-1 Fees** 0.25
1.00 1.00 None
Other Expenses 0.42
0.42 0.41 0.10
- ------------------------------------------------------
- --------------------------
TOTAL FUND OPERATING EXPENSES
1.67% 2.42% 2.41% 1.10%
</TABLE>
- ------------------------------------------------------
- -------------------------
* Purchases of Class A shares of $500,000 or more
will be made at net asset
value with no sales charge, but will be subject
to a CDSC of 1.00% on
redemptions made within 12 months of purchase.
** Upon conversion of Class B shares to Class A
shares, such shares will no
longer be subject to a distribution fee. Class C
shares do not have a
conversion feature and, therefore, are subject to
an ongoing distribution
fee. As a result, long-term shareholders of Class
C shares may pay more
than the economic equivalent of the maximum
front-end sales charge
permitted by the National Association of
Securities Dealers, Inc.
Class A shares of the Fund purchased through Smith
Barney AssetOne Program
will be subject to an annual asset-based fee, payable
quarterly, in lieu of
the initial sales charge. The fee will vary to a
maximum of 1.50%, depending
on the amount of assets held through the Program. For
more information, please
call your Smith Barney Financial Consultant.
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 C and certain Class A shares,
the length of time the
shares are held and whether the shares are held
through the Smith Barney 401(k)
and ExecChoice(TM) Programs. See "Purchase of Shares"
and "Redemption of
Shares." Smith Barney receives an annual 12b-1 service
fee of 0.25% of the
value of average daily net assets of Class A shares.
Smith Barney also
receives, with respect to Class B shares and Class C
shares, an annual 12b-1
fee of 1.00% of the value of average daily net assets
of the respective Clas-
ses, consisting of a 0.25% service fee and a 0.75%
distribution fee. "Other
Expenses" in the above table include fees for
shareholder services, custodial
fees, legal and accounting fees, printing costs and
registration fees.
EXAMPLE
The following example is intended to assist an
investor in understanding the
various costs that an investor in the Fund will bear
directly or indirectly.
The example assumes payment by the Fund of operating
expenses at the levels set
forth in the table above. See "Purchase of Shares,"
"Redemption of Shares" and
"Management of the Company and the Fund."
<TABLE>
<CAPTION>
CONCERT PEACHTREE GROWTH FUND 1
YEAR 3 YEARS 5 YEARS 10 YEARS*
- ------------------------------------------------------
- ----------------------------
<S> <C>
<C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment, assuming (1) 5.00%
annual return and (2) redemption at the end of
each time period:
Class A..................................... $66
$100 $136 $238
Class B..................................... 75
105 139 257
Class C..................................... 35
75 129 275
Class Y..................................... 11
35 61 134
An investor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
Class A..................................... $66
$100 $136 $238
Class B..................................... 25
75 129 257
Class C..................................... 24
75 129 275
Class Y..................................... 11
35 61 134
- ------------------------------------------------------
- ----------------------------
</TABLE>
* Ten-year figures assume conversion of Class B
shares to Class A shares at
the end of the eighth year following the date of
purchase.
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 PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN
THOSE SHOWN ABOVE.
8
<PAGE>
FINANCIAL HIGHLIGHTS
The following information has been audited by KPMG
Peat Marwick LLP, indepen-
dent auditors, whose report thereon appears in the
Fund's annual report dated
December 31, 1997. The information set out below
should be read in conjunction
with the financial statements and related notes that
also appear in the Fund's
Annual Report to Shareholders, which is incorporated
by reference into the
Statement of Additional Information.
FOR A CLASS A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
CONCERT PEACHTREE GROWTH FUND 1997 1996
1995(1)
- ------------------------------------------------------
- ----------
<S> <C> <C>
<C>
NET ASSET VALUE, BEGINNING OF YEAR $13.80 $14.31
$13.36
- ------------------------------------------------------
- ----------
INCOME FROM OPERATIONS:
Net investment income 0.03 0.01
0.03
Net realized and unrealized gain 0.65 1.85
1.87
- ------------------------------------------------------
- ----------
Total Income From Operations 0.68 1.86
1.90
- ------------------------------------------------------
- ----------
LESS DISTRIBUTIONS FROM:
Net investment income -- (0.11)
(0.02)
Net realized gains (1.07) (2.26)
(0.93)
- ------------------------------------------------------
- ----------
Total Distributions (1.07) (2.37)
(0.95)
- ------------------------------------------------------
- ----------
NET ASSET VALUE, END OF YEAR $13.41 $13.80
$14.31
- ------------------------------------------------------
- ----------
TOTAL RETURN 5.18% 13.96%
14.61%++
- ------------------------------------------------------
- ----------
NET ASSETS, END OF YEAR (MILLIONS) $67 $72
$58
- ------------------------------------------------------
- ----------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.67% 1.78%
1.72%+
Net investment income 0.22 0.13
0.46+
- ------------------------------------------------------
- ----------
PORTFOLIO TURNOVER RATE 227% 183%
51%
- ------------------------------------------------------
- ----------
AVERAGE COMMISSIONS PER SHARE PAID ON
EQUITY TRANSACTIONS $0.05 $0.06
$0.06
- ------------------------------------------------------
- ----------
</TABLE>
(1) For the period from July 3, 1995 (inception date)
to December 31, 1995.
++Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
9
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
CONCERT PEACHTREE GROWTH FUND 1997 1996
1995(1)
- ------------------------------------------------------
- ----------
<S> <C> <C>
<C>
NET ASSET VALUE, BEGINNING OF YEAR $13.74 $14.27
$13.36
- ------------------------------------------------------
- ----------
INCOME FROM OPERATIONS:
Net investment loss (0.07) (0.09)
(0.02)
Net realized and unrealized gain 0.64 1.84
1.86
- ------------------------------------------------------
- ----------
Total Income From Operations 0.57 1.75
1.84
- ------------------------------------------------------
- ----------
LESS DISTRIBUTIONS FROM:
Net investment income -- (0.02)
- --
Net realized gains (1.07) (2.26)
(0.93)
- ------------------------------------------------------
- ----------
Total Distributions (1.07) (2.28)
(0.93)
- ------------------------------------------------------
- ----------
NET ASSET VALUE, END OF YEAR $13.24 $13.74
$14.27
- ------------------------------------------------------
- ----------
TOTAL RETURN 4.40% 13.12%
14.15%++
- ------------------------------------------------------
- ----------
NET ASSETS, END OF YEAR (MILLIONS) $42 $43
$33
- ------------------------------------------------------
- ----------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.42% 2.53%
2.46%+
Net investment loss (0.53) (0.63)
(0.27)+
- ------------------------------------------------------
- ----------
PORTFOLIO TURNOVER RATE 227% 183%
51%
- ------------------------------------------------------
- ----------
AVERAGE COMMISSIONS PER SHARE PAID ON
EQUITY TRANSACTIONS $0.05 $0.06
$0.06
- ------------------------------------------------------
- ----------
</TABLE>
(1) For the period from July 3, 1995 (inception date)
to December 31, 1995.
++Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
10
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS C SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
CONCERT PEACHTREE GROWTH FUND 1997 1996
1995(1)
- ------------------------------------------------------
- ----------
<S> <C> <C>
<C>
NET ASSET VALUE, BEGINNING OF YEAR $13.78 $14.29
$14.05
- ------------------------------------------------------
- ----------
INCOME FROM OPERATIONS:
Net investment income (loss) (0.05) (0.08)
0.01
Net realized and unrealized gain 0.62 1.85
1.16
- ------------------------------------------------------
- ----------
Total Income From Operations 0.57 1.77
1.17
- ------------------------------------------------------
- ----------
LESS DISTRIBUTIONS FROM:
Net investment income -- (0.02)
- --
Net realized gains (1.07) (2.26)
(0.93)
- ------------------------------------------------------
- ----------
Total Distributions (1.07) (2.28)
(0.93)
- ------------------------------------------------------
- ----------
NET ASSET VALUE, END OF YEAR $13.28 $13.78
$14.29
- ------------------------------------------------------
- ----------
TOTAL RETURN 4.38% 13.24%
8.69%++
- ------------------------------------------------------
- ----------
NET ASSETS, END OF YEAR (000S) $203 $174
$88
- ------------------------------------------------------
- ----------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.41% 2.40%
2.29%+
Net investment income (loss) (0.53) (0.48)
0.13+
- ------------------------------------------------------
- ----------
PORTFOLIO TURNOVER RATE 227% 183%
51%
- ------------------------------------------------------
- ----------
AVERAGE COMMISSIONS PER SHARE PAID ON
EQUITY TRANSACTIONS $0.05 $0.06
$0.06
- ------------------------------------------------------
- ----------
</TABLE>
(1) For the period from August 8, 1995 (inception
date) to December 31, 1995.
++Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
11
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
DATE
FOR A CLASS Y SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
CONCERT PEACHTREE GROWTH
FUND 1997(/1/)
- -------------------------------------
<S> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $14.86
- -------------------------------------
INCOME FROM OPERATIONS:
Net investment income 0.01
Net realized and
unrealized loss (0.38)
- -------------------------------------
Total Loss From
Operations (0.37)
- -------------------------------------
LESS DISTRIBUTIONS FROM:
Net realized gains (1.07)
- -------------------------------------
Total Distributions (1.07)
- -------------------------------------
NET ASSET VALUE, END OF
YEAR $13.42
- -------------------------------------
TOTAL RETURN (2.25)%++
- -------------------------------------
NET ASSETS, END OF YEAR
(MILLIONS) $115
- -------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.10%+
Net investment income 0.62+
- -------------------------------------
PORTFOLIO TURNOVER RATE 227%
- -------------------------------------
AVERAGE COMMISSIONS PER
SHARE
PAID ON EQUITY
TRANSACTIONS $0.05
- -------------------------------------
</TABLE>
(1) For the period from October 15, 1997 (inception
date) to December 31, 1997.
++Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
12
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Fund has an investment objective of achieving
capital appreciation. It
seeks to achieve this objective by investing in
securities believed to have
above average potential for capital appreciation.
There can be no assurance
that the Fund will achieve its investment objective.
The Fund invests principally in common stocks and
uses a disciplined manage-
ment style involving computer-aided, quantitative
analysis supported by funda-
mental research to select what it believes to be
equity securities of compa-
nies having prospects of strong sustainable earnings
growth and stock price
appreciation. Such securities will typically be issued
by small capitalization
companies, larger companies with established records
of growth in sales or
earnings, and companies with new products, new
services, or new processes. The
Fund may also invest in companies in cyclical
industries during periods when
their securities appear overly depressed and therefore
attractive for capital
appreciation. In addition to common stocks of
companies, the Fund may invest
in securities convertible into or exchangeable for
common stocks, such as con-
vertible preferred stocks or convertible debentures,
and warrants.
The Fund generally holds a portion of its assets in
investment grade short-
term debt securities, investment grade corporate or
government bonds, cash and
cash equivalents in order to provide liquidity. Such
investments may be
increased when deemed appropriate by MMC for temporary
defensive purposes.
Under such circumstances, the Fund may invest up to
100% of its assets in
short-term investments which may include repurchase
agreements with domestic
banks or broker-dealers. The Fund may invest up to 35%
of its total assets in
securities of foreign issuers. The Fund may also
engage in portfolio manage-
ment strategies and techniques involving options,
futures contracts and
options on futures (which are sometimes referred to as
"derivatives"). A
derivative is a financial instrument whose performance
is derived, at least in
part, from the performance of an underlying asset. The
Fund's use of deriva-
tives is limited to 10% of the Fund's net assets.
Investments in smaller capitalized companies
(companies with a capitaliza-
tion of less than $1 billion) may offer greater
opportunities for growth of
capital than larger, more established companies, but
may also involve certain
risks because smaller capitalized companies often have
limited product use,
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 lim-
ited liquidity and more volatility which could result
in significant fluctua-
tions in the price of their shares.
The Fund may also invest in money market
instruments, enter into repurchase
agreements and reverse repurchase agreements for
temporary defensive purposes,
lend its portfolio securities, invest in real estate
investment trusts, sell
securities short "against the box", purchase the
securities of companies with
less than three years of continuous operation, and
enter into forward
contracts.
13
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
In making purchases of securities consistent with
the above policies, the
Fund will be subject to the applicable restrictions
referred to under "Invest-
ment Restrictions" in the Statement of Additional
Information. Except for the
Fund's investment objective and those restrictions
specifically identified as
fundamental, which may not be changed without the
"vote of a majority of the
outstanding voting securities", as defined in the
Investment Company Act of
1940, as amended (the "1940 Act"), all investment
policies and practices
described in this Prospectus and in the Statement of
Additional Information are
non-fundamental, and may be changed by the Board of
Directors without share-
holder approval.
RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS
Repurchase Agreements. The Fund may enter into
repurchase agreement transac-
tions with domestic banks or broker-dealers. Under the
terms of a typical
repurchase agreement, the Fund would acquire an
underlying debt obligation for
a relatively short period (usually not more than one
week) subject to an obli-
gation of the seller to repurchase, and the Fund to
resell, the obligation at
an agreed-upon price and time, thereby determining the
yield during the Fund's
holding period. This arrangement results in a fixed
rate of return that is not
subject to market fluctuations during the Fund's
holding period. Under each
repurchase agreement, the selling institution will be
required to maintain the
value of the securities subject to the repurchase
agreement at not less than
their repurchase price. Repurchase agreements could
involve certain risks in
the event of default or insolvency of the other party
including possible delays
or restrictions upon the Fund's ability to dispose of
the underlying securi-
ties, the risk of a possible decline in the value of
the underlying securities
during the period in which the Fund seeks to assert
its rights to them, the
risk of incurring expenses associated with asserting
those rights and the risk
of losing all or part of the income from the
agreement. MMC, acting under the
supervision of the Board of Directors, reviews on an
ongoing basis, the value
of the collateral and the creditworthiness of those
banks and dealers with
which the Fund enters into repurchase agreements.
Options, Futures Contracts and Related Options. The
Fund expects to utilize
options (including interest rate and currency swaps,
caps, collars and floors),
futures contracts and options thereon in several
different ways, depending upon
the status of the Fund's portfolio and MMC's
expectations concerning the secu-
rities markets. The purchase and sale of options and
futures contracts involve
risks different from those involved with direct
investments in securities. If
MMC is not successful in utilizing options, futures
contracts and similar
instruments in managing the Fund's investments, the
Fund's performance will be
worse than if the Fund did not make such investments.
The Fund may write or
purchase options in privately negotiated transactions
("OTC Options") as well
as listed options. OTC Options can be closed out only
by agreement with the
other party to the transaction. Any OTC Option
purchased by the Fund will be
considered an illiquid security. Any
14
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
OTC Option written by the Fund will be with a
qualified dealer pursuant to an
agreement under which the Fund may repurchase the
option at a formula price.
Such options will be considered illiquid to the extent
that the formula price
exceeds the intrinsic value of the option. The Fund
may not write or purchase
options, purchase or sell futures contracts or related
options for which the
aggregate initial margin and premiums exceed 5% of the
fair market value of the
Fund's assets. In order to prevent leverage in
connection with the purchase of
futures contracts thereon by the Fund, an amount of
cash, debt securities of
any grade or equity securities having a value equal to
or greater than the mar-
ket value of the obligation under the futures
contracts (less any related mar-
gin deposits) will be maintained in a segregated
account with the Fund's custo-
dian, provided such securities have been determined by
MMC to be liquid and
unencumbered, and are marked to market daily, pursuant
to guidelines estab-
lished by the Directors. The Fund may not invest more
than 15% of its net
assets in illiquid securities and repurchase
agreements which have a maturity
of longer than seven days. A more complete discussion
of the potential risks
involved in transactions involving options or futures
contracts and related
options, is contained in the Statement of Additional
Information.
Foreign Securities. The Fund may also invest in
securities of foreign issuers
of developed and emerging market countries, including
non-U.S. dollar denomi-
nated securities, Eurodollar securities and securities
issued, assumed or guar-
anteed by a foreign government, political subdivisions
or instrumentalities
thereof. The Fund will limit its investment in foreign
securities to 35% of its
total assets. Investments in securities of foreign
entities and securities
denominated in foreign currencies involve risks not
typically involved in
domestic investments, including fluctuations in
foreign exchange rates, future
foreign political and economic developments and the
possible imposition of
exchange controls or other foreign or United States
governmental laws or
restrictions applicable to such investments. Since the
Fund may invest in secu-
rities denominated or quoted in currencies other than
the U.S. dollar, changes
in foreign currency exchange rates will, to the extent
the Fund does not ade-
quately hedge against such fluctuations, affect the
value of securities in its
portfolio. In addition, with respect to certain
countries, there is the possi-
bility of expropriation of assets, repatriation,
confiscatory taxation, politi-
cal or social instability or diplomatic developments
which could adversely
affect investments in those countries.
There also may be less publicly available
information about a foreign company
than about a U.S. company and foreign companies may
not be subject to account-
ing, auditing and financial reporting standards
comparable to those of U.S.
companies.
The Fund may also purchase foreign securities in the
form of American Deposi-
tary Receipts ("ADRs") and European Depositary
Receipts ("EDRs") or other
15
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
securities representing underlying shares of foreign
companies. ADRs are pub-
licly traded on exchanges or over-the-counter in the
United States and are
issued through "sponsored" or "unsponsored"
arrangements. In a sponsored ADR
arrangement, the foreign issuer assumes the obligation
to pay some or all of
the depositary's transaction fees, whereas under an
unsponsored arrangement,
the foreign issuer assumes no obligation and the
depositary's transaction fees
are paid by the ADR holders. In addition, less
information is available in the
United States about an unsponsored ADR than about a
sponsored ADR, and the
financial information about a company may not be as
reliable for an
unsponsored ADR as it is for a sponsored ADR. The Fund
may invest in ADRs
through both sponsored and unsponsored arrangements.
Foreign Currency Transactions. The value of the
Fund's portfolio securities
that are traded in foreign markets may be affected by
changes in currency
exchange rates and exchange control regulations. In
addition, the Fund will
incur costs in connection with the conversions between
various currencies. The
Fund's foreign currency exchange transactions
generally will be conducted on a
spot basis (that is, cash basis) at the spot rate for
purchasing or selling
currency prevailing in the foreign currency exchange
market. The Fund pur-
chases and sells foreign currency on a spot basis in
connection with the set-
tlement of transactions in securities traded in such
foreign currency. The
Fund does not purchase and sell foreign currencies as
an investment.
The Fund may also enter into contracts with banks or
other foreign currency
brokers and dealers in which the Fund purchases or
sells foreign currencies at
a future date ("futures contracts") and purchase and
sell foreign currency
futures contracts to hedge against changes in foreign
currency exchange rates.
A foreign currency forward contract is a negotiated
agreement between the con-
tracting parties to exchange a specified amount of
currency at a specified
future time at a specified rate. The rate can be
higher or lower than the spot
rate between the currencies that are the subject of
the contract.
The Fund may attempt to hedge against changes in the
value of the U.S. dol-
lar in relation to a foreign currency by entering into
a forward contract for
the purchase or sale of the amount of foreign currency
invested or to be
invested, or by buying or selling a foreign currency
futures contract for such
amount. Such hedging strategies may be employed before
the Fund purchases a
foreign security traded in the hedged currency which
the Fund anticipates
acquiring or between the date the foreign security is
purchased or sold and
the date on which payment therefor is made or
received. Hedging against a
change in the value of a foreign currency in the
foregoing manner does not
eliminate fluctuations in the price of portfolio
securities or prevent losses
if the prices of such securities decline. Furthermore,
such hedging transac-
tions reduce or preclude the opportunity for gain if
the value of the
16
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
hedged currency should move in the direction opposite
to the hedged position.
The Fund will not speculate in foreign currency
forward or futures contracts or
through the purchase and sale of foreign currencies.
Forward Commitments. The Fund may purchase or sell
debt securities on a
"when-issued" or "delayed delivery" basis ("Forward
Commitments"). These trans-
actions occur when securities are purchased or sold by
the Fund with payment
and delivery taking place in the future (a month or
more after such transac-
tions). The price is fixed on the date of the
commitment and the seller contin-
ues to accrue interest on the securities covered by
the Forward Commitment
until delivery and payment take place. At the time of
settlement, the market
value of the securities may be more or less than the
purchase or sale price.
Loans of Portfolio Securities. Consistent with
applicable regulatory require-
ments, the Fund may lend its portfolio securities
provided: (a) the loan is
secured continuously by collateral consisting of U.S.
government securities or
cash or cash equivalents maintained on a daily marked-
to-market basis in an
amount at least equal to the current market value of
the securities loaned; (b)
the Fund may at any time call the loan and obtain the
return of the securities
loaned; and (c) the Fund will receive any interest or
dividend paid on the
loaned securities.
Restricted and Illiquid Securities. The Fund may
invest in restricted securi-
ties. Restricted securities are securities subject to
legal or contractual
restrictions on their resale. Such restrictions might
prevent the sale of
restricted securities at a time when such sale would
otherwise be desirable.
Restricted securities and securities for which there
is no readily available
market ("illiquid assets") will not be acquired if the
total amount of all
illiquid assets of the Fund would exceed 10% of the
Fund's total assets.
Borrowing. The Fund may borrow money from banks
temporarily for emergency
purposes in an amount not exceeding 33 1/3% of the
Fund's total assets.
Year 2000. The investment management services
provided to the Fund by MMC and
the services provided to shareholders by Smith Barney,
the Fund's Distributor,
depend on the smooth functioning of their computer
systems. Many computer soft-
ware systems 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. MMC and Smith
Barney have advised the Fund that they have been
reviewing all of their com-
puter 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, MMC has been advised by
the Fund's custodian,
transfer
17
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
agent and accounting service agent that they are also
in the process of modify-
ing their systems with the same goal. There can,
however, be no assurance that
MMC, Smith Barney or any other service provider will
be successful, or that
interaction with other non-complying computer systems
will not impair Fund
services at that time.
PORTFOLIO TRANSACTIONS AND TURNOVER
MMC arranges for the purchase and sale of the Fund's
securities and selects
brokers and dealers (including Smith Barney), which in
its best judgment pro-
vide prompt and reliable execution at favorable prices
and reasonable commis-
sion rates. MMC may select brokers and dealers which
provide it with research
services and may cause the Fund to pay such brokers
and dealers commissions
which exceed those other brokers and dealers may have
charged, if it views the
commissions as reasonable in relation to the value of
the brokerage and/or
research services.
The Fund may experience high portfolio turnover as a
result of its investment
strategies. Short-term gains realized from portfolio
transactions are taxable
to shareholders as ordinary income. In addition,
higher portfolio turnover
rates can result in corresponding increases in
brokerage commissions for the
Fund. While the Fund does not intend to engage in
short-term trading, it will
not consider portfolio turnover rate as a limiting
factor in making investment
decisions consistent with its objectives and policies.
The Fund's portfolio
turnover rate is calculated by dividing the lesser of
purchases or sales of
portfolio securities for the fiscal year by the
monthly average of the value of
the Fund's securities, with money market instruments
with less than one year to
maturity excluded. A 100% portfolio turnover rate
would occur, for example, if
all included securities were replaced once during the
year. See "Financial
Highlights" for the Fund's annual turnover rates
during each year since incep-
tion.
VALUATION OF SHARES
The Fund's net asset value per share is determined
as of the close of regular
trading on the NYSE on each day that the NYSE is open,
by dividing the value of
the Fund's net assets attributable to each Class by
the total number of shares
of the Class outstanding.
Generally, the Fund's investments are valued at
market value, or, in the
absence of a market value with respect to any
securities, at fair value. Secu-
rities listed on an exchange are valued on the basis
of the last sale prior to
the time the valuation is made. If there has been no
sale since the immediately
previous valuation, then the current bid price is
used. Quotations are taken
from the exchange where the security is primarily
traded. Portfolio securities
which are primarily traded on foreign exchanges may be
valued with the assis-
tance of a pricing service and are generally
18
<PAGE>
VALUATION OF SHARES (CONTINUED)
valued at the preceding closing values of such
securities on their respective
exchange, except that when an occurrence subsequent to
the time a foreign secu-
rity is valued is likely to have changed such value,
then the fair value of
those securities will be determined by consideration
of other factors by or
under the direction of the Board of Directors. Over-
the-counter securities are
valued on the basis of the bid price at the close of
business on each day.
Unlisted foreign securities are valued at the mean
between the last available
bid and offer price prior to the time of valuation.
Any assets or liabilities
initially expressed in terms of foreign currencies
will be converted into U.S.
dollar values at the mean between the bid and offered
quotations of such cur-
rencies against U.S. dollars as last quoted by any
recognized dealer. Securi-
ties for which market quotations are not readily
available are valued at fair
value. Notwithstanding the above, bonds and other
fixed-income securities are
valued by using market quotations and may be valued on
the basis of prices pro-
vided by a pricing service approved by the Board of
Directors.
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 cap-
ital gain distributions will be reinvested
automatically in additional shares
of the same Class at net asset value, with no
additional sales charge or CDSC.
The per share amounts of dividends from net
investment income on Classes B
and C may be lower than that of Classes A and Y,
mainly as a result of the dis-
tribution fees applicable to Class B and C 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, C and Y).
TAXES
The following is a summary of the material federal
tax considerations affect-
ing the Fund and Fund shareholders, please refer to
the Statement of Additional Information for further
discus-
sion. In addition to the considerations described
below and in the Statement of Additional Information,
there
may be other federal, state, local, and/or foreign tax
applications 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.
19
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
The Fund intends to qualify, as it has in prior
years, under Subchapter M of
the Internal Revenue Code (the "Code") for tax
treatment as a regulated invest-
ment company. In each taxable year that the Fund
qualifies, so long as such
qualification is in the best interests of its
shareholders, 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 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 shareholders' federal income tax
return.
PURCHASE OF SHARES
GENERAL
The Fund offers four Classes of shares. Class A
shares are sold to investors
with an initial sales charge and Class B and Class C
shares are sold without an
initial sales charge but are subject to a CDSC payable
upon certain redemp-
tions. Class Y
20
<PAGE>
PURCHASE OF SHARES (CONTINUED)
shares are sold without an initial sales charge or
CDSC and are available only
to investors 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.
Purchases of Fund shares must be made through a
brokerage account maintained
with Smith Barney, an Introducing Broker or an
investment dealer in the sell-
ing group. In addition, certain investors, including
qualified retirement
plans and certain other institutional investors, may
purchase shares directly
through First Data. When purchasing shares of the
Fund, investors must specify
whether the purchase is for Class A, Class B, Class C
or Class Y shares. Smith
Barney and other broker/dealers may charge their
customers an annual account
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 C shares may
open an account by mak-
ing an initial investment of at least $1,000 for each
account, or $250 for an
IRA or a Self-Employed Retirement Plan, in the Fund.
Investors in Class Y
shares may open an account by making an initial
investment of $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 C shares and the subsequent
investment requirement for all
Classes in the Fund is $25. For shareholders
purchasing shares of the Fund
through the Systematic Investment Plan on a monthly
basis, the minimum initial
investment requirement for Class A, Class B and Class
C shares and the 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 C shares and the subsequent investment
requirement for all Classes is
$50. There are no minimum investment requirements for
Class A shares for
employees of Travelers and its subsidiaries, including
Smith Barney, Directors
or Trustees of any of the Smith Barney Mutual Funds or
of other funds affili-
ated with Travelers and their spouses and children.
The Fund reserves the
right to waive or change minimums, to decline any
order to purchase its shares
and to suspend the offering of shares from time to
time. Shares purchased will
be held in the shareholder's account by the Fund's
transfer agent, First Data.
Share certificates are issued only upon a
shareholder's written request to
First Data.
Purchase orders received by the Fund or Smith Barney
prior to the close of
regular trading on the NYSE, on any day the Fund
calculates its net asset val-
ue, are priced according to the net asset value
determined on that day (the
"trade date").
21
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Orders received by dealers or Introducing Brokers
prior to the close of regu-
lar 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 after the trade date. In all other
cases, payment 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 First Data
is authorized through
preauthorized transfers of at least $25 on a monthly
basis or at least $50 on
a quarterly basis to charge the regular bank account
or other financial insti-
tution 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 First
Data. The Systematic Investment Plan also authorizes
Smith Barney to apply
cash held in the shareholder's Smith Barney brokerage
account or redeem the
shareholder's shares of a Smith Barney money market
fund to make additions to
the account. Additional information is available from
the Fund or a Smith Bar-
ney Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The sales charges applicable to purchases of Class A
shares of the Fund are
as follows:
<TABLE>
<CAPTION>
SALES CHARGE
------------------------------
DEALERS'
% OF % OF
REALLOWANCE AS % OF
AMOUNT OF INVESTMENT OFFERING PRICE AMOUNT INVESTED
OFFERING PRICE
- ------------------------------------------------------
- ------------------
<S> <C> <C>
<C>
Less than $25,000 5.00% 5.26%
4.50%
$ 25,000 - 49,999 4.00 4.17
3.60
50,000 - 99,999 3.50 3.63
3.15
100,000 - 249,999 3.00 3.09
2.70
250,000 - 499,999 2.00 2.04
1.80
500,000 and over * *
*
- ------------------------------------------------------
- ------------------
</TABLE>
* Purchases of Class A shares of $500,000 or more will
be made at net asset
value without any initial sales charge, but will be
subject to a CDSC of
1.00% on redemptions made within 12 months of
purchase. The CDSC on Class A
shares is payable to Smith Barney, which compensates
Smith Barney Financial
Consultants and other dealers whose clients make
purchases of $500,000 or
more. The CDSC is waived in the same circumstances
in which the CDSC
applicable to Class B and Class C shares is waived.
See "Deferred Sales
Charge Alternatives" and "Waivers of CDSC."
22
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Members of the selling group who receive at least
90% of the sales charge
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 any of
the Smith Barney Mutual
Funds or other Travelors-affiliated funds (including
retired board members and
employees); the immediate families of such persons
(including the surviving
spouse of a deceased board member or employee); and to
a pension, profit-shar-
ing or other benefit plan for such persons and (ii)
employees of members of
the National Association of Securities Dealers, Inc.,
provided such sales are
made upon the assurance of the purchaser that the
purchase is made for invest-
ment purposes and that the securities will not be
resold except through
redemption or repurchase; (b) offers of Class A shares
to any other investment
company to effect the combination of such company with
the Fund by merger,
acquisition of assets or otherwise; (c) purchases of
Class A shares by any
client of a newly employed Smith Barney Financial
Consultant (for a period up
to 90 days from the commencement of the Financial
Consultant's employment with
Smith Barney), on the condition that the purchase of
Class A shares is made
with the proceeds of the redemption of shares of a
mutual fund which (i) was
sponsored by the Financial Consultant's prior
employer, (ii) was sold to the
client by the Financial Consultant and (iii) was
subject to a sales charge;
(d) purchases by shareholders who have redeemed Class
A shares in the Fund (or
Class A shares of another fund in the Smith Barney
Mutual Funds that are
offered with a sales charge) and who wish to reinvest
their redemption 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; and (h) purchases by investors
participating in a Smith
Barney fee-based arrangement; and (i) purchases of
Class A shares by Section
403(b) or Section 401(a) or (k) accounts associated
with Copeland Retirement
Programs. In order to obtain such discounts, the
purchaser must provide suffi-
cient information at the time of purchase to permit
verification that the pur-
chase would qualify for the elimination of the sales
charge.
23
<PAGE>
PURCHASE OF SHARES (CONTINUED)
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any
person" (as defined
above) at a reduced sales charge or at net asset value
determined by aggregat-
ing the dollar amount of the new purchase and the
total net asset value of all
Class A shares of the Fund and of funds sponsored by
Smith Barney that 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 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 requirements. One such
requirement is that the
plan must be open to specified partners or employees
of the employer and its
subsidiaries, if any. Such plan may, but is not
required to, provide for pay-
roll deductions, IRAs or investments pursuant to
retirement plans under Sec-
tion 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 quali-
fied group may also purchase Class A shares at the
reduced sales charge appli-
cable 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 pre-
viously purchased and 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 dis-
count 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
publications and mailings
to members at no cost to Smith Barney. In order to
obtain such reduced sales
charge or to purchase at net asset value, the
24
<PAGE>
PURCHASE OF SHARES (CONTINUED)
purchaser must provide sufficient information at the
time of purchase to per-
mit verification that the purchase qualifies for the
reduced sales charge.
Approval of group purchase reduced sales charge plans
is subject to the dis-
cretion of Smith Barney.
LETTER OF INTENT
Class A Shares. A Letter of Intent for amounts of
$50,000 or more provides
an opportunity for an investor to obtain a reduced
sales charge by aggregating
the investments over a 13-month period, provided that
the investor refers to
such Letter when placing orders. For purposes of a
Letter of Intent, the
"Amount of Investment" as referred to in the preceding
sales charge table
includes purchases of all Class A shares of the Fund
and other funds of the
Smith Barney Mutual Funds offered with a sales charge
over the 13 month period
based on the total amount of intended purchases plus
the value of all Class A
shares 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 Let-
ter of Intent. Each investment made during the period
receives the reduced
sales charge applicable to the total amount of the
investment goal. If the
goal is not achieved within the period, the investor
must pay the difference
between the sales charges applicable to the purchases
made and the charges
previously paid, or an appropriate number of escrowed
shares will be redeemed.
Please 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 make an initial minimum purchase of $5,000,000 in
Class Y shares of the
Fund and agree to purchase a total of $15,000,000 of
Class Y shares of the
Fund within 13 months from the date of the Letter. If
a total investment of
$15,000,000 is not made within the 13-month period,
all Class Y shares pur-
chased to date will be transferred to Class A shares,
where they will be sub-
ject 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 information.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next
determined without an initial
sales charge so that the full amount of an investor's
purchase payment may be
immediately invested in the Fund. A CDSC, however, may
be imposed on certain
redemptions of these shares. "CDSC Shares" are: (a)
Class B shares; (b) Class
C shares; and (c) Class A shares purchased without an
initial sales charge but
subject to a CDSC.
25
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Any applicable CDSC will be assessed on an amount
equal to the lesser of the
original cost of the shares being redeemed or their
net asset value at the time
of redemption. CDSC Shares that are redeemed will not
be subject to a CDSC to
the extent that the value of such shares represents:
(a) capital appreciation
of Fund assets; (b) reinvestment of dividends or
capital gain distributions;
(c) with respect to Class B shares, shares redeemed
more than five years after
their purchase; or (d) with respect to Class C shares
and Class A shares that
are CDSC Shares, shares redeemed more than 12 months
after their purchase.
Class C shares and Class A shares that are CDSC
Shares are subject to a 1.00%
CDSC if redeemed within 12 months of purchase. In
circumstances in which the
CDSC is imposed on Class B shares, the amount of the
charge will depend on the
number of years since the shareholder made the
purchase payment from which the
amount is being redeemed. Solely for purposes of
determining the number of
years since a purchase payment, all purchase payments
made during a month will
be aggregated and deemed to have been made on the last
day of the preceding
Smith Barney statement month. The following table sets
forth the rates of the
charge for redemptions of Class B shares by
shareholders, except in the case of
Class B shares held under the Smith Barney 401(k)
program as described below.
See "Purchase of Shares--Smith Barney 401(k) and
ExecChoice(TM) Programs."
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
- ---------------------------------
<S> <C>
First 5.00%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth and thereafter 0.00
- ---------------------------------
</TABLE>
Class B shares will convert automatically to Class A
shares eight years after
the date on which they were purchased and thereafter
will no longer be subject
to any distribution fee. There will also be converted
at that time such propor-
tion of Class B Dividend Shares owned by the
shareholder as the total number of
his or her Class B shares converting at the time bears
to the total number of
outstanding Class B shares (other than Class B
Dividend Shares) owned by the
shareholder. See "Prospectus Summary--Alternative
Purchase Arrangements--Class
B Shares Conversion Feature."
In determining the applicability of any CDSC, it
will be assumed that a
redemption is made first of shares representing
capital appreciation, next of
shares representing the reinvestment of dividends and
capital gain distribu-
tions and finally of other shares held by the
shareholders for the longest
period of time. The length of time that CDSC Shares
acquired through an
exchange have been held will be calcu-
26
<PAGE>
PURCHASE OF SHARES (CONTINUED)
lated from the date that the shares exchanged were
initially acquired in one of
the other Smith Barney Mutual Funds, and Fund shares
being redeemed will be
considered to represent, as applicable, capital
appreciation or dividend and
capital gain distribution reinvestments in such other
funds. For Federal income
tax purposes, the amount of the CDSC will reduce the
gain or increase the loss,
as the case may be, on the amount realized on
redemption. The amount of any
CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased
100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the
investor acquired 5 addi-
tional shares through dividend reinvestment. During
the fifteenth month after
the purchase, the investor decided to redeem $500 of
his or her investment.
Assuming at the time of the redemption the net asset
value had appreciated to
$12 per share, the value of the investor's shares
would be $1,260 (105 shares
at $12 per share). The CDSC would not be applied to
the amount which represents
appreciation ($200) and the value of the reinvested
dividend shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500
minus $260) would be
charged at a rate of 4.00% (the applicable rate for
Class B shares) for a total
deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see
"Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less
than 1.00% per month of
the value of the shareholder's shares at the time the
withdrawal plan commences
(see "Automatic Cash Withdrawal Plan") (provided,
however, that automatic cash
withdrawals in amounts equal to or less than 2.00% per
month of the value of
the shareholder's shares will be permitted for
withdrawal plans that were
established prior to November 7, 1994); (c)
redemptions of shares within 12
months following the death or disability of the
shareholder; (d) redemption of
shares made in connection with qualified distributions
from retirement plans or
IRAs upon the attainment of age 59 1/2; (e)
involuntary redemptions; and (f)
redemption of shares to effect a combination of the
Fund with any investment
company by merger, acquisition of assets or otherwise.
In addition, a share-
holder who has redeemed shares from other funds of the
Smith Barney Mutual
Funds may, under certain circumstances, reinvest all
or part of the redemption
proceeds within 60 days and receive pro rata credit
for any CDSC imposed on the
prior redemption.
CDSC waivers will be granted subject to confirmation
(by Smith Barney in the
case of shareholders who are also Smith Barney clients
or by First Data in the
case of all other shareholders) of the shareholder's
status or holdings, as the
case may be.
SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS
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
27
<PAGE>
PURCHASE OF SHARES (CONTINUED)
and conditions, which are outlined below, are offered
to all plans participat-
ing ("Participating Plans") in these programs.
The Fund offers to Participating Plans Class A and
Class C shares as invest-
ment alternatives under the Smith Barney 401(k) and
ExecChoice(TM) Programs.
Class A and Class C shares acquired through the
Participating Plans are subject
to the same service and/or distribution fees as the
Class A and Class C shares
acquired by other investors; however, they are not
subject to any initial sales
charge or CDSC. Once a Participating Plan has made an
initial investment in the
Fund, all of its subsequent investments in the Fund
must be in the same Class
of shares, except as otherwise described below.
Class A Shares. Class A shares of the Fund are
offered without any sales
charge or CDSC to any Participating Plan that
purchases $1,000,000 or more of
Class A shares of one or more funds of the Smith
Barney Mutual Funds.
Class C Shares. Class C shares of the Fund are
offered without any sales
charge or CDSC to any Participating Plan that
purchases less than $1,000,000 of
Class C shares of one or more funds of the Smith
Barney Mutual Funds.
401(k) and ExecChoice(TM) Plans Opened On or After
June 21, 1996. If, at the
end of the fifth year after the date the Participating
Plan enrolled in the
Smith Barney 401(k) Program or the Smith Barney
ExecChoice(TM) Program, a Par-
ticipating Plan's total Class C holdings in all non-
money market Smith Barney
Mutual Funds equal at least $1,000,000, the
Participating Plan will be offered
the opportunity to exchange all of its Class C shares
for Class A shares of the
Fund. (For Participating Plans that were originally
established through a Smith
Barney retail brokerage account, the five year period
will be calculated from
the date the retail brokerage account was opened.)
Such Participating Plans
will be notified of the pending exchange in writing
within 30 days after the
fifth anniversary of the 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
C holdings in all non-money market Smith Barney Mutual
Funds equal at least
$500,000 as of the calendar year-end, the
Participating Plan will be offered
the opportunity to exchange all of its Class C shares
for Class A shares of the
Fund. Such Plans will be notified in writing within 30
days after the last
business day of the calendar year and, unless the
exchange offer has been
rejected in writing, the exchange will occur on or
about the last business day
of the following March.
28
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Any Participating Plan in the Smith Barney 401(k) or
ExecChoice(TM) Program,
whether opened before or after June 21, 1996, that has
not previously qualified
for an exchange into Class A shares will be offered
the opportunity to exchange
all of its Class C shares for Class A shares of the
Fund regardless of asset
size, at the end of the eighth year after the date the
Participating Plan
enrolled in the Smith Barney 401(k) or ExecChoice(TM)
Program. Such Plans will
be notified of the pending exchange in writing
approximately 60 days before the
eighth anniversary of the enrollment date and, unless
the exchange has been
rejected in writing, the exchange will occur on or
about the eighth anniversary
date. Once an exchange has occurred, a Participating
Plan will not be eligible
to acquire additional Class C shares of the Fund but
instead may acquire Class
A shares of the Fund. Any Class C shares not converted
will continue to be sub-
ject to the distribution fee.
Participating Plans wishing to acquire shares of the
Fund through the Smith
Barney 401(k) Program or the Smith Barney
ExecChoice(TM) Program must purchase
such shares directly from First Data. For further
information regarding these
Programs, investors should contact a Smith Barney
Financial Consultant.
Existing 401(k) Plans Investing in Class B Shares.
Class B shares of the Fund
are not available for purchase by Participating Plans
opened on or after June
21, 1996, but may continue to be purchased by any
Participating Plan in the
Smith Barney 401(k) Program opened prior to such date
and originally investing
in such Class. Class B shares acquired are subject to
a CDSC of 3.00% of
redemption proceeds, if the Participating Plan
terminates within eight years of
the date the Participating Plan first enrolled in the
Smith Barney 401(k) Pro-
gram.
At the end of the eighth year after the date the
Participating Plan enrolled
in the Smith Barney 401(k) Program, the Participating
Plan will be offered the
opportunity to exchange all of its Class B shares for
Class A shares of the
Fund. Such Participating Plan will be notified of the
pending exchange in writ-
ing approximately 60 days before the eighth
anniversary of the enrollment date
and, unless the exchange has been rejected in writing,
the exchange will occur
on or about the eighth anniversary date. Once the
exchange has occurred, a Par-
ticipating Plan will not be eligible to acquire
additional Class B shares of
the Fund but instead may acquire Class A shares of the
Fund. If the Participat-
ing Plan elects not to exchange all of its Class B
shares at that time, each
Class B share held by the Participating Plan will have
the same conversion fea-
ture as Class B shares held by other investors. See
"Purchase of Shares--
Deferred Sales Charge Alternatives."
No CDSC is imposed on redemptions of Class B shares
to the extent that the
net asset value of the shares redeemed does not exceed
the current net asset
value of the shares purchased through reinvestment of
dividends or capital gain
distributions, plus the current net asset value of
Class B shares purchased
more than eight years prior to the redemption, plus
increases in the net asset
value of the sharehold-
29
<PAGE>
PURCHASE OF SHARES (CONTINUED)
er's Class B shares above the purchase payments made
during the preceding
eight years. Whether or not the CDSC applies to the
redemption by a Partici-
pating Plan depends on the number of years since the
Participating Plan first
became enrolled in the Smith Barney 401(k) Program,
unlike the applicability
of the CDSC to redemptions by other shareholders,
which depends on the number
of years since those shareholders made the purchase
payment from which the
amount is being redeemed.
The CDSC will be waived on redemptions of Class B
shares in connection with
lump-sum or other distributions made by a
Participating Plan as a result of:
(a) the retirement of an employee in the Participating
Plan; (b) the termina-
tion of employment of an employee in the Participating
Plan; (c) the death or
disability of an employee in the Participating Plan;
(d) the attainment of age
59 1/2 by an employee in the Participating Plan; (e)
hardship of an employee
in the Participating Plan to the extent permitted
under Section 401(k) of the
Code; or (f) redemptions of shares in connection with
a loan made by the Par-
ticipating Plan to an employee.
EXCHANGE PRIVILEGE
Except as otherwise noted below and provided your
investment dealer is an
authorized distributor of the fund, shares of each
Class may be exchanged at
the net asset value next determined for shares of the
same Class in the fol-
lowing funds of the Smith Barney Mutual Funds, to the
extent shares are
offered for sale in the shareholder's state of
residence. Exchanges of Class
A, Class B and Class C shares are subject to minimum
investment requirements
and all shares are subject to the other requirements
of the fund into which
exchanges are made.
FUND NAME
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Large Cap Blend Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney Managed Growth Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Special Equities Fund
Growth and Income Funds
Concert Social Awareness Fund
Smith Barney Convertible Fund
Smith Barney Funds, Inc.--Large Cap Value Fund
30
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Premium Total Return Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government Income
Fund
Smith Barney Diversified Strategic Income Fund
+++Smith Barney Funds, Inc.--Short-Term U.S.
Treasury Securities 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
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 Municipal High Income Fund
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
31
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
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 C and
Class Y shares of the
Fund.
** Available for exchange with Class A and Class B
shares of the Fund. In
addition, shareholders who own Class C shares of
the Fund through the
Smith Barney 401(k) Program may exchange those
shares for Class C shares
of this Fund.
***Available for exchange with Class A shares of the
Fund.
+ Available for exchange with Class B and Class C
shares of the Fund.
++ Available for exchange with Class A and Class Y
shares of the Fund. In
addition, participating plans prior to June 21,
1996 and investing in
Class C shares may exchange Fund shares for Class
C shares of this Fund.
+++Available for exchange with Class A and Class Y
shares of the Fund.
Class B Exchanges. In the event a Class B
shareholder wishes to exchange all
or a portion of his or her shares into any of the
funds imposing a higher CDSC
than that imposed by the Fund, the exchanged Class B
shares will be subject to
the higher applicable CDSC. Upon an exchange, the new
Class B shares will be
deemed to have been purchased on the same date as the
Class B shares of the
Fund that have been exchanged.
Class C Exchanges. Upon an exchange, the new Class C
shares will be deemed
to have been purchased on the same date as the Class C
shares of the Fund that
have been exchanged.
Class A and Class Y Exchanges. Class A and Class Y
shareholders of the Fund
who wish to exchange all or a portion of their shares
for shares of the
respective Class in any of the funds identified above
may do so without impo-
sition of any charge.
Additional Information Regarding the Exchange
Privilege. Although the
exchange privilege is an important benefit, excessive
exchange transactions
can be detrimental to the Fund's performance and its
shareholders. MMC 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, MMC will
notify Smith Barney and
32
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney may, at its discretion, decide to limit
additional purchases
and/or exchanges by the shareholder. Upon such a
determination, Smith Barney
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 listed above, which position the
shareholder would be
expected to maintain for a significant period of time.
All relevant factors
will be considered in determining what constitutes an
abusive pattern of
exchanges.
Certain shareholders may be able to exchange shares
by telephone. See "Re-
demption and Exchange Program."
Exchanges will be processed at the net asset value
next determined. Redemp-
tion 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 identi-
cal to the registration of the shares of the fund
exchanged, no signature guar-
antee 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 describ-
ing the shares to be acquired. The Fund reserves the
right to modify or discon-
tinue exchange privileges upon 60 days' prior notice
to shareholders.
REDEMPTION OF SHARES
The Fund is required to redeem the shares of the
Fund tendered to it, as
described below, at a redemption price equal to their
net asset value per share
next determined after receipt of a written request in
proper form at no charge
other than any applicable CDSC. Redemption requests
received after the close of
regular trading on the NYSE are priced at the net
asset value next determined.
If a shareholder holds shares in more than one
Class, any request for redemp-
tion must specify the Class being redeemed. In the
event of a failure to spec-
ify which Class, or if the investor owns fewer shares
of the Class than speci-
fied, the redemption request will be delayed until the
Fund's 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 the NYSE is
closed or as permitted under
the 1940 Act, in extraordinary circumstances.
Generally, if the redemption pro-
ceeds are remitted to a Smith Barney brokerage
account, these funds will not be
invested for the shareholder's benefit without
specific instruction and Smith
Barney will benefit from the use of temporarily
33
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
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 Bar-
ney Financial Consultant.
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
Financial Consultant, Introducing Broker or dealer in
the selling group or by
submitting a written request for redemption to:
Concert Peachtree Growth Fund
Class A, B, C or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
A written redemption request must (a) state the
Class and number or dollar
amount of shares to be redeemed, (b) identify the
shareholder's account number
and (c) be signed by each registered owner exactly as
the shares are regis-
tered. If the shares to be redeemed were issued in
certificate form, the cer-
tificates must be endorsed for transfer (or be
accompanied by an endorsed
stock power) and must be submitted to First Data
together with the redemption
request. Any signature appearing on a share
certificate, stock power or writ-
ten redemption request in excess of $10,000 must be
guaranteed by an eligible
guarantor institution such as a domestic bank, savings
and loan institution,
domestic credit union, member bank of the Federal
Reserve System or member
firm of a national securities exchange. Written
redemption requests of $10,000
or less do not require a signature guarantee unless
more than one such redemp-
tion request is made in any 10-day period or the
redemption proceeds are to be
sent to an address other than the address of the
record. Unless otherwise
directed, redemption proceeds will be mailed to an
investor's address on rec-
ord. First Data may require additional supporting
documents for redemptions
made by corporations, executors, administrators,
trustees or guardians. A
redemption request will not be deemed properly
received until First Data
receives all required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash
withdrawal plan, under which
shareholders who own shares with a value of at least
$10,000 may elect to
receive periodic cash payments of at least $50 monthly
or quarterly. Retire-
ment 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
34
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
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 com-
mences. For further information regarding the
automatic cash withdrawal plan,
shareholders should contact a Smith Barney Financial
Consultant.
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
Shareholders who do not have a Smith Barney
brokerage account may be eligible
to redeem and exchange Fund shares by telephone. To
determine if a shareholder
is entitled to participate in this program, he or she
should contact First Data
at 1-800-451-2010. Once eligibility is confirmed, the
shareholder must complete
and return a Telephone/Wire Authorization Form, along
with a signature guaran-
tee that will be provided by First Data upon request.
(Alternatively, an
investor may authorize telephone redemptions on the
new account application
with the applicant's signature guarantee when making
his/her initial investment
in the Fund.)
Redemptions. Redemption requests of up to $10,000 of
any class or classes of
the Fund's shares may be made by eligible shareholders
by calling First Data at
1-800-451-2010. Such requests may be made between 9:00
a.m. and 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 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 sharehold-
er' 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
shareholders's assets, will be required to provide a
signature guarantee and
certain other documentation.
Exchanges. Eligible shareholders may make exchanges
by telephone if the
account registration of the shares of the fund being
acquired is identical to
the registration of the shares of the fund exchanged.
Such exchange request may
be made by calling First Data at 1-800-451-2010
between 9:00 a.m. and 4:00 p.m.
(New York time) on any day on which the NYSE is open.
Exchange requests
received after the close of regular trading on the
NYSE are processed at the
net asset value next determined.
35
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
Additional Information regarding Telephone
Redemption and Exchange Program.
Neither the Fund nor its agents will be liable for
following instructions com-
municated 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
shareholders'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 impose a charge for this service at any
time following at least
seven (7) days prior notice to shareholders.
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily
liquidate any shareholder's
account in the Fund if the aggregate net asset value
of the shares held in the
Fund account is less than $500. (If a shareholder has
more than one account in
this Fund, each account must satisfy the minimum
account size). The Fund, how-
ever, will not redeem shares based solely on market
reductions in net asset
value. Before the Fund exercises such right,
shareholders will receive written
notice and will be permitted 60 days to bring accounts
up to the minimum to
avoid involuntary liquidation.
PERFORMANCE
From time to time, the Fund may include its total
return, average annual
total return and current dividend return in
advertisements and/or other types
of sales literature. These figures are computed
separately for Class A, Class
B, Class C and Class Y shares of the Fund. These
figures are based on histori-
cal earnings and are not intended to indicate future
performance. Total return
is computed for a specified period of time assuming
deduction of the maximum
sales charge, if any, from the initial amount invested
and reinvestment of all
income dividends and capital gain distributions on the
reinvestment dates at
prices calculated as stated in this Prospectus, then
dividing the value of the
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 Securities and Exchange Commission,
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 infor-
mation for differing periods computed in the same
manner but without
annualizing the total return or taking sales charges
into account. The Fund
calculates current dividend return for each Class by
annualizing the most
recent monthly distribution and dividing by the net
asset value or the maximum
public offering price (including sales charge) on the
last day of the period
for which current divi -
36
<PAGE>
PERFORMANCE (CONTINUED)
dend return is presented. The current dividend return
for each Class may vary
from time to time depending on market conditions, the
composition of its
investment portfolio and operating expenses. These
factors and possible dif-
ferences in the methods used in calculating current
dividend return should be
considered when comparing a Class' current return to
yields published for
other investment companies and other investment
vehicles. The Fund may also
include comparative performance 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 management and
supervision of the Fund rests with
the Company's Board of Directors. The Directors
approve all significant agree-
ments between the Company and the companies that
furnish services to the Fund
and the Company, including agreements with the Fund's
investment adviser, dis-
tributor, custodian and transfer agent. The day-to-day
operations of the Fund
are delegated to the Fund's investment manager. The
Statement of Additional
Information contains background information regarding
each Director of the
Fund and executive officer of the Company.
MMC
MMC, located at 388 Greenwich Street, New York, New
York 10013, serves as
the Fund's investment adviser and manages the day-to-
day operations of the
Fund pursuant to a management agreement entered into
by the Company, on behalf
of the Fund. MMC (through its predecessor entities)
has been in the investment
counseling business since 1940. MMC renders investment
advice to investment
companies that had aggregate assets under management
as of March 31, 1998, of
approximately $100.5 billion.
Subject to the supervision and direction of the
Company's Board of Direc-
tors, MMC manages the Fund's portfolio in accordance
with the Fund's stated
investment objective and policies, makes investment
decisions for the Fund,
places orders to purchase and sell securities and
employs professional portfo-
lio managers and securities analysts who provide
research services to the
Fund. For the services rendered, the Fund pays MMC a
monthly fee at the annual
rate of 1.00% of the value of its average daily net
assets up to $250 million
and 0.85% of the average daily net assets thereafter.
Although this fee is
higher than that paid by most investment companies,
the Fund's management has
determined that it is comparable to the fee charged by
other investment advisers
of investment companies that have similar objectives
and policies.
37
<PAGE>
MANAGEMENT OF THE COMPANY AND THE FUND (CONTINUED)
PORTFOLIO MANAGEMENT
Dennis A. Johnson, CFA, a Managing Director of Smith
Barney Inc. and Presi-
dent and Chief Investment Officer of Peachtree Asset
Management ("Peachtree"),
a division of MMC, has been the Fund's portfolio
manager since August 1997 and
is responsible for managing the day to day investment
operations of the Fund,
including the making of investment decisions. Prior to
joining Peachtree, Mr.
Johnson was Vice President of Trusco Capital.
Management's discussion and analysis, and additional
performance information
regarding the Fund during the fiscal year ended
December 31, 1997 is included
in the Annual Report dated December 31, 1997. A copy
of the Annual Report may
be obtained upon request and without charge from a
Smith Barney Financial Con-
sultant or by writing or calling the Fund at the
address or phone number listed
on page one of this Prospectus.
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 Group and Citicorp.
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. Although the effects of the
merger of Travelers and
Citicorp and compliance with the requirements of the
BHCA and the Glass-
Steagall Act are still under review, MMC does not
believe that its compliance
with applicable law following 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.
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New
York, New York 10013.
Smith Barney distributes shares of the Fund as
principal underwriter and as
such conducts a continuous offering pursuant to a
"best efforts" arrangement
requiring Smith Barney to take and pay for only such
securities as may be sold
to the public. Pursuant to a plan of distribution
adopted by the Fund under
Rule 12b-1 under the 1940 Act (the "Plan"), Smith
Barney is paid an annual
service fee with respect to Class A, Class B and Class
C shares of the Fund at
the annual rate of 0.25% of the average daily net
assets of the respective
Class. Smith Barney is also paid an annual
distribution fee with respect to
Class B and Class C shares at the annual rate of 0.75%
of the average daily net
assets attributable to those Classes. Class B
38
<PAGE>
DISTRIBUTOR (CONTINUED)
shares that automatically convert to Class A shares
eight years after the date
of original purchase will no longer be subject to
distribution fees. The fees
are used by Smith Barney to pay its Financial
Consultants for servicing share-
holder accounts and, in the case of Class B and Class
C shares, to cover
expenses primarily intended to result in the sale of
those shares. These
expenses include: advertising expenses; the cost of
printing and mailing pro-
spectuses to potential investors; payments to and
expenses of Smith Barney
Financial Consultants and other persons who provide
support services in connec-
tion 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 C shares, a con-
tinuing fee for servicing shareholder accounts for as
long as a shareholder
remains a holder of that Class. Smith Barney Financial
Consultants may receive
different levels of compensation for selling different
Classes of shares.
Payments under the Plan are not tied exclusively to
the distribution and
shareholder service expenses actually incurred by
Smith Barney and the payments
may exceed distribution expenses actually incurred.
The Company's Board of
Directors will evaluate the appropriateness of the
Plan and its payment terms
on a continuing basis and in so doing will consider
all relevant factors,
including expenses borne by Smith Barney, amounts
received under the Plan and
proceeds of the CDSC.
ADDITIONAL INFORMATION
The Company was incorporated under the laws of the
State of Maryland pursuant
to Articles of Incorporation dated September 29, 1981,
as amended from time to
time. The Fund was organized in 1995 and, through a
reorganization, acquired
the assets of the Growth Opportunity Fund, a separate
series fund of Common
Sense Trust. The Fund offers shares of common stock
currently classified into
four Classes, A, B, C and Y, with a par value of $.001
per share. Each Class
represents an identical interest in the Fund's
investment portfolio. As a
result, the Classes have the same rights, privileges
and preferences, except
with respect to: (a) the 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
hold -
39
<PAGE>
ADDITIONAL INFORMATION (CONTINUED)
ers of the different Classes. The Directors, on an
ongoing basis, will consider
whether any such conflicts exists and, if so, take
appropriate action.
PNC Bank National Association, located at 17th and
Chestnut Streets, Phila-
delphia, Pennsylvania, PA 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 listing 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.
----------------------
40
<PAGE>
SMITH
BARNEY
-------
- --------------------------
A
Member of TravelersGroup [LOGO]
CONCERT
PEACHTREE
GROWTH
FUND
388 Greenwich Street
New York, New York 10013
FD 0970 4/98
<PAGE>
PROSPECTUS April 30,
1998
- ------------------------------------------------------
- --------------------------
Smith Barney Investment Funds Inc.
Concert Peachtree Growth Fund
3100 Breckinridge Blvd., Bldg 200
Duluth, Georgia 30099-0062
(800) 544-5445
The Concert Peachtree Growth Fund (the "Fund") seeks
capital appreciation
through investments in securities believed to have
above average potential for
capital appreciation.
The Fund is one of a number of funds, each having
distinct investment objec-
tives and policies, making up the Smith Barney
Investment Funds Inc. (the "Com-
pany"). The Fund is an open-end, management investment
company commonly
referred to as a mutual fund.
This Prospectus sets forth concisely certain
information about the Company and
the Fund, including sales charges, distribution and
service fees and expenses,
that prospective investors will find helpful in making
an investment decision.
Investors are encouraged to read this Prospectus
carefully and retain it for
future reference.
Additional information about the Fund is contained in
a Statement of Addi-
tional Information dated April 30, 1998, as amended or
supplemented from time
to time, that is available upon request and without
charge by calling or writ-
ing the Fund at the telephone number or address set
forth above or by contact-
ing a Registered Representative of PFS Investments
Inc. ("PFS Investments").
The Statement of Additional Information has been filed
with the Securities and
Exchange Commission (the "SEC") and is incorporated by
reference into this Pro-
spectus in its entirety.
PFS DISTRIBUTORS, INC.
Distributor
MUTUAL MANAGEMENT CORP.
Investment Adviser and Administrator
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
- -------------------------------------------------
FINANCIAL HIGHLIGHTS 8
- -------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 10
- -------------------------------------------------
VALUATION OF SHARES 15
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 16
- -------------------------------------------------
PURCHASE OF SHARES 18
- -------------------------------------------------
EXCHANGE PRIVILEGE 23
- -------------------------------------------------
REDEMPTION OF SHARES 24
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 26
- -------------------------------------------------
PERFORMANCE 26
- -------------------------------------------------
MANAGEMENT OF THE COMPANY AND THE FUND 27
- -------------------------------------------------
DISTRIBUTOR 29
- -------------------------------------------------
ADDITIONAL INFORMATION 30
- -------------------------------------------------
</TABLE>
- ------------------------------------------------------
- --------------------------
No person has been authorized to give any
information or to make any
representations in connection with this offering other
than those contained in
this Prospectus and, if given or made, such other
information or
representations must not be relied upon as having been
authorized by the Fund
or the distributor. This Prospectus does not
constitute an offer by the Fund or
the distributor to sell or a solicitation of an offer
to buy any of the
securities offered hereby in any jurisdiction to any
person to whom it is
unlawful to make such offer or solicitation in such
jurisdiction.
- ------------------------------------------------------
- --------------------------
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by
detailed information
appearing elsewhere in this Prospectus and in the
Statement of Additional
Information. Cross references in this summary are to
headings in the Prospec-
tus. See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end,
management investment company
whose investment objective is to seek capital
appreciation through investments
in securities believed to have above average potential
for capital
appreciation. See "Investment Objective and Management
Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers two
classes of shares
("Classes") to investors purchasing through PFS
Investments Registered
Representatives. These Classes, which are designed to
provide them with the
flexibility of selecting an investment best suited to
their needs, are: Class
A shares and Class B shares. See "Purchase of Shares"
and "Redemption of
Shares." In addition to Class A and Class B shares,
the Fund offers Class C
and Class Y shares to investors purchasing through
Smith Barney Inc. ("Smith
Barney"), a distributor of the Fund. Those shares have
different sales charges
and other expenses than Class A and Class B shares,
which may affect
performance.
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
redemptions. Class B shares bear an annual service fee
of 0.25% and an annual
distribution fee of 0.75% of the average daily net
assets of the Class. The
Class B shares' distribution fee may cause that Class
to have higher expenses
and pay lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares
will convert automatically
to Class A shares, based on relative net asset value,
eight years after the
date of the original purchase. Upon conversion, these
shares will no longer be
subject to an annual distribution fee. In addition, a
certain portion of Class
B shares that have been acquired through the
reinvestment of dividends and
distributions ("Class B Dividend Shares") will be
converted at that time. See
"Purchase of Shares--Deferred Sales Charge
Alternatives."
3
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
In deciding which Class of Fund shares to purchase,
investors should consider
the following factors, as well as any other relevant
facts and circumstances:
Intended Holding Period. The decision as to which
Class of shares is more
beneficial to an investor depends on the amount and
intended length of his or
her investment. Shareholders who are planning to
establish a program of regu-
lar investment may wish to consider Class A shares; as
the investment accumu-
lates shareholders may qualify for reduced sales
charges and the shares are
subject to lower ongoing expenses over the term of the
investment. As an
investment alternative, Class B shares 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.
Reduced or No Initial Sales Charge. The initial sales
charge on Class A
shares may be waived for certain eligible purchasers,
and the entire purchase
price will be immediately invested in the Fund. In
addition, Class A share
purchases of $500,000 or more may 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
held in funds sponsored
by Smith Barney 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 shares, purchasers eligible to purchase Class
A shares at net asset
value or at a reduced sales charge should consider
doing so.
PFS Investments Registered Representatives may
receive different compensation
for selling each Class of shares. Investors should
understand that the purpose
of the CDSC on the Class B shares is the same as that
of the initial sales
charge on the Class A shares.
See "Purchase of Shares" and "Management of the
Company and the Fund" for a
complete description 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.
PURCHASE OF SHARES Shares may be purchased through the
Fund's distributor, PFS
Distributors, Inc. ("PFS"). See "Purchase of Shares."
4
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
INVESTMENT MINIMUMS Investors in Class A and Class B
shares may open an account
by making an initial investment of at least $1,000 for
each account, or $250
for an individual retirement account ("IRA") or a
Self-Employed Retirement
Plan. Subsequent investments of at least $50 may be
made for both Classes. For
participants in retirement plans qualified under
Section 403(b)(7) or Section
401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), the
minimum initial and subsequent investment requirement
for both Classes is $25.
The minimum initial and subsequent investment
requirement for both Classes
through the Systematic Investment Plan described below
is $25. See "Purchase of
Shares."
SYSTEMATIC INVESTMENT PLAN The Fund offers
shareholders a Systematic Investment
Plan under which they may authorize the automatic
placement of a purchase order
each month for Fund shares in an amount of at least
$25. 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")
(formerly Smith Barney
Mutual Funds Management Inc.) serves as the Fund's
investment adviser and
administrator. MMC provides investment advisory and
management services to
investment companies affiliated with Smith Barney. MMC
is a wholly owned
subsidiary of Salomon Smith Barney Holdings Inc.
("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 respective
net asset values next determined. See "Exchange
Privilege."
VALUATION OF SHARES Net asset value of the Fund for
the prior day generally is
quoted daily in the financial section of most
newspapers and is also available
from PFS Shareholder Services (the "Sub-Transfer
Agent"). See "Valuation of
Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net
investment income and
distributions of net realized capital gains, if any,
are declared and paid at
least annually. See "Dividends, Distributions and
Taxes."
5
<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
distribution reinvestments will become eligible for
conversion to Class A
shares on a pro rata basis. See "Dividends,
Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS The Fund
invests principally in common
stocks. The prices of common stocks and other
securities fluctuate and,
therefore, the value of an investment in the Fund will
vary based upon the
Fund's investment performance. Any income from these
investments will be
incidental to the goal of capital appreciation. The
Fund may use management
techniques and strategies involving options, futures
contracts and options on
futures (which are sometimes referred to as
"derivatives"). The utilization of
these techniques may involve greater than ordinary
investment risks and the
likelihood of more volatile price fluctuation. See
"Investment Objective and
Management Policies."
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
operating expenses for
its most recent fiscal year:
<TABLE>
<CAPTION>
CONCERT PEACHTREE GROWTH FUND
CLASS A CLASS B
- ------------------------------------------------------
- --------------------------
<S>
<C> <C>
SHAREHOLDER TRANSACTION EXPENSES
<CAPTION>
Maximum sales charge imposed on purchases
(as a percentage of offering
price)........................ 5.00% None
Maximum CDSC (as a percentage of original cost or
redemption
proceeds, whichever is
lower).............................. None* 5.00%
- ------------------------------------------------------
- --------------------------
<S>
<C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of offering price)
Management
Fees.............................................
1.00% 1.00%
12b-1
Fees**................................................
0.25 1.00
Other
Expenses..............................................
0.42 0.42
- ------------------------------------------------------
- --------------------------
TOTAL FUND OPERATING
EXPENSES................................. 1.67%
2.42%
</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.
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
6
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
case of Class B and certain Class A shares, the length
of time the shares are
held. See "Purchase of Shares" and "Redemption of
Shares." PFS receives an
annual 12b-1 service fee of 0.25% of the value of
average daily net assets of
Class A shares. With respect to Class B shares, PFS
receives an annual 12b-1
fee of 1.00% of the value of average daily net assets
of that Class, consist-
ing of a 0.25% service fee and a 0.75% distribution
fee. "Other Expenses" in
the above table include fees for shareholder services,
custodial fees, legal
and accounting fees, printing costs and registration
fees.
EXAMPLE
The following example is intended to assist an
investor in understanding the
various costs that an investor in the Fund will bear
directly or indirectly.
The example assumes payment by the Fund of operating
expenses at the levels
set forth in the table above. See "Purchase of
Shares," "Redemption of Shares"
and "Management of the Company and the Fund."
<TABLE>
<CAPTION>
CONCERT PEACHTREE GROWTH FUND 1 YEAR 3
YEARS 5 YEARS 10 YEARS*
- ------------------------------------------------------
- ------------------------
<S> <C>
<C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment, assuming (1) 5.00%
annual return and (2) redemption at the end
of each time period:
Class A..................................... $66
$100 $136 $238
Class B..................................... 75
105 139 257
An investor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
Class A..................................... $66
$100 $136 $238
Class B..................................... 25
75 129 257
- ------------------------------------------------------
- ------------------------
</TABLE>
* Ten-year figures assume conversion of Class B shares
to Class A shares at
the end of the eighth year following the date of
purchase.
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 REPRESENTA-
TIVE OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES
MAY BE GREATER OR LESS
THAN THOSE SHOWN ABOVE.
7
<PAGE>
FINANCIAL HIGHLIGHTS
The following information has been audited by KPMG
Peat Marwick LLP,
independent auditors, whose report thereon appears in
the Fund's annual report
dated December 31, 1997. The information set out below
should be read in
conjunction with the financial statements and related
notes that also appear in
the Fund's Annual Report to Shareholders, which is
incorporated by reference
into the Statement of Additional Information.
FOR A CLASS A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
CONCERT PEACHTREE GROWTH FUND 1997 1996
1995(1)
- ------------------------------------------------------
- -----------
<S> <C> <C>
<C>
NET ASSET VALUE, BEGINNING OF YEAR $13.80 $14.31
$13.36
- ------------------------------------------------------
- -----------
INCOME FROM OPERATIONS:
Net investment income 0.03 0.01
0.03
Net realized and unrealized gain 0.65 1.85
1.87
- ------------------------------------------------------
- -----------
Total Income From Operations 0.68 1.86
1.90
- ------------------------------------------------------
- -----------
LESS DISTRIBUTIONS FROM:
Net investment income -- (0.11)
(0.02)
Net realized gains (1.07) (2.26)
(0.93)
- ------------------------------------------------------
- -----------
Total Distributions (1.07) (2.37)
(0.95)
- ------------------------------------------------------
- -----------
NET ASSET VALUE, END OF YEAR $13.41 $13.80
$14.31
- ------------------------------------------------------
- -----------
TOTAL RETURN 5.18% 13.96%
14.61%++
- ------------------------------------------------------
- -----------
NET ASSETS, END OF YEAR (MILLIONS) $ 67 $ 72
$ 58
- ------------------------------------------------------
- -----------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.67% 1.78%
1.72%+
Net investment income 0.22 0.13
0.46 +
- ------------------------------------------------------
- -----------
PORTFOLIO TURNOVER RATE 227%
183% 51%
- ------------------------------------------------------
- -----------
AVERAGE COMMISSIONS PER SHARE PAID ON
EQUITY TRANSACTIONS $ 0.05 $ 0.06
$ 0.06
- ------------------------------------------------------
- -----------
</TABLE>
(1) For the period from July 3, 1995 (inception date)
to December 31, 1995.
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
8
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
CONCERT PEACHTREE GROWTH FUND 1997 1996
1995(1)
- ------------------------------------------------------
- ----------
<S> <C> <C>
<C>
NET ASSET VALUE, BEGINNING OF YEAR $13.74 $14.27
$13.36
- ------------------------------------------------------
- ----------
INCOME FROM OPERATIONS:
Net investment loss (0.07) (0.09)
(0.02)
Net realized and unrealized gain 0.64 1.84
1.86
- ------------------------------------------------------
- ----------
Total Income From Operations 0.57 1.75
1.84
- ------------------------------------------------------
- ----------
LESS DISTRIBUTIONS FROM:
Net investment income -- (0.02)
- --
Net realized gains (1.07) (2.26)
(0.93)
- ------------------------------------------------------
- ----------
Total Distributions (1.07) (2.28)
(0.93)
- ------------------------------------------------------
- ----------
NET ASSET VALUE, END OF YEAR $13.24 $13.74
$14.27
- ------------------------------------------------------
- ----------
TOTAL RETURN 4.40% 13.12%
14.15%++
- ------------------------------------------------------
- ----------
NET ASSETS, END OF YEAR (MILLIONS) $42 $43
$33
- ------------------------------------------------------
- ----------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.42% 2.53%
2.46%+
Net investment loss (0.53) (0.63)
(0.27)+
- ------------------------------------------------------
- ----------
PORTFOLIO TURNOVER RATE 227% 183%
51%
- ------------------------------------------------------
- ----------
AVERAGE COMMISSIONS PER SHARE PAID ON
EQUITY TRANSACTIONS $0.05 $0.06
$0.06
- ------------------------------------------------------
- ----------
</TABLE>
(1) For the period from July 3, 1995 (inception date)
to December 31, 1995.
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
9
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Fund has an investment objective of achieving
capital appreciation. It
seeks to achieve this objective by investing in
securities believed to have
above average potential for capital appreciation.
There can be no assurance
that the Fund will achieve its investment objective.
The Fund invests principally in common stocks and
uses a disciplined manage-
ment style involving computer-aided, quantitative
analysis supported by funda-
mental research to select what it believes to be
equity securities of compa-
nies having prospects of strong sustainable earnings
appreciation. Such secu-
rities will typically be issued by small
capitalization companies, larger com-
panies with established records of growth in sales or
earnings, and companies
with new products, new services, or new processes. The
Fund may also invest in
companies in cyclical industries during periods when
their securities appear
overly depressed and therefore attractive for capital
appreciation. In addi-
tion to common stocks of companies, the Fund may
invest in securities convert-
ible into or exchangeable for common stocks, such as
convertible preferred
stocks or convertible debentures, and warrants.
The Fund generally holds a portion of its assets in
investment grade short-
term debt securities, investment grade corporate or
government bonds, cash and
cash equivalents in order to provide liquidity. Such
investments may be
increased when deemed appropriate by MMC for temporary
defensive purposes.
Under such circumstances, the Fund may invest up to
100% of its assets in
short-term investments which may include repurchase
agreements with domestic
banks or broker-dealers. The Fund may invest up to 35%
of its total assets in
securities of foreign issuers. The Fund may also
engage in portfolio manage-
ment strategies and techniques involving options,
futures contracts and
options on futures (which are sometimes referred to as
"derivatives"). A
derivative is a financial instrument whose performance
is derived, at least in
part, from the performance of an underlying asset. The
Fund's use of deriva-
tives is limited to 10% of the Fund's net assets.
Investments in smaller capitalized companies
(companies with a capitalization
of less than $1 billion) may offer greater
opportunities for growth of capital
than larger, more established companies, but may also
involve certain risks
because smaller capitalized companies often have
limited product use, market
or financial resources and may be dependent on one or
two people for manage-
ment. In addition, smaller capitalized companies may
be subject to a limited
liquidity and more volatility which could result in
significant fluctuations
in the price of their shares.
The Fund may also invest in money market instruments,
enter into repurchase
agreements and reverse repurchase agreements for
temporary defensive purposes,
lend its portfolio securities, invest in real estate
investment trusts, sell
securities short "against the box", purchase the
securities of companies with
less than three years of continuous operation, and
enter into forward con-
tracts.
10
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
In making purchases of securities consistent with the
above policies, the Fund
will be subject to the applicable restrictions
referred to under "Investment
Restrictions" in the Statement of Additional
Information. Except for the Fund's
investment objective and those restrictions
specifically identified as funda-
mental, which may not be changed without the "vote of
a majority of the out-
standing voting securities", as defined in the
Investment Company Act of 1940,
as amended (the "1940 Act") all investment policies
and practices described in
this Prospectus and in the Statement of Additional
Information are non-funda-
mental and may be changed by the Board of Directors,
without shareholder
approval.
RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS
Repurchase Agreements. The Fund may enter into
repurchase agreement transac-
tions with domestic banks or broker-dealers. Under the
terms of a typical
repurchase agreement, the Fund would acquire an
underlying debt obligation for
a relatively short period (usually not more than one
week) subject to an obli-
gation of the seller to repurchase, and the Fund to
resell, the obligation at
an agreed-upon price and time, thereby determining the
yield during the Fund's
holding period. This arrangement results in a fixed
rate of return that is not
subject to market fluctuations during the Fund's
holding period. Under each
repurchase agreement, the selling institution will be
required to maintain the
value of the securities subject to the repurchase
agreement at not less than
their repurchase price. Repurchase agreements could
involve certain risks in
the event of default or insolvency of the other party
including possible delays
or restrictions upon the Fund's ability to dispose of
the underlying securi-
ties, the risk of a possible decline in the value of
the underlying securities
during the period in which the Fund seeks to assert
its rights to them, the
risk of incurring expenses associated with asserting
those rights and the risk
of losing all or part of the income from the
agreement. MMC, acting under the
supervision of the Board of Directors, reviews on an
ongoing basis the value of
the collateral and the creditworthiness of those banks
and dealers with which
the Fund enters into repurchase agreements.
Options, Futures Contracts and Related Options. The
Fund expects to utilize
options (including interest rate and currency swaps,
caps, collars and floors),
futures contracts and options thereon in several
different ways, depending upon
the status of the Fund's portfolio and MMC's
expectations concerning the secu-
rities markets. The purchase and sale of options and
futures contracts involve
risks different from those involved with direct
investments in securities. If
MMC is not successful in utilizing options, futures
contracts and similar
instruments in managing the Fund's investments, the
Fund's performance will be
worse than if the Fund did not make such investments.
The Fund may write or
purchase options in privately negotiated transactions
("OTC Options") as well
as listed options. OTC Options can be closed out only
by agreement with the
other party to the transaction. Any
11
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
OTC Option purchased by the Fund will be considered an
illiquid security. Any
OTC Option written by the Fund will be with a
qualified dealer pursuant to an
agreement under which the Fund may repurchase the
option at a formula price.
Such options will be considered illiquid to the extent
that the formula price
exceeds the intrinsic value of the option. The Fund
may not write or purchase
options, purchase or sell futures contracts or related
options for which the
aggregate initial margin and premiums exceed 5.00% of
the fair market value of
the Fund's assets. In order to prevent leverage in
connection with the purchase
of futures contracts thereon by the Fund, an amount of
cash, debt securities of
any grade, or equity securities having a value equal
to or greater than the
market value of the obligation under the futures
contracts (less any related
margin deposits) will be maintained in a segregated
account with the Fund's
custodian, provided such securities have been
determined by MMC to be liquid
and unencumbered and are marked to market daily
pursuant to guidelines estab-
lished by the Directors. The Fund may not invest more
than 15% of its net
assets in illiquid securities and repurchase
agreements which have a maturity
of longer than seven days. A more complete discussion
of the potential risks
involved in transactions involving options or futures
contracts and related
options, is contained in the Statement of Additional
Information.
Foreign Securities. The Fund may also invest in
securities of foreign issuers
of developed and emerging market countries, including
non-U.S. dollar denomi-
nated securities, Eurodollar securities and securities
issued, assumed or guar-
anteed by a foreign government, political subdivisions
or instrumentalities
thereof. The Fund will limit its investment in foreign
securities to 35% of its
total assets. Investments in securities of foreign
entities and securities
denominated in foreign currencies involve risks not
typically involved in
domestic investments, including fluctuations in
foreign exchange rates, future
foreign political and economic developments and the
possible imposition of
exchange controls or other foreign or United States
governmental laws or
restrictions applicable to such investments. Since the
Fund may invest in secu-
rities denominated or quoted in currencies other than
the U.S. dollar, changes
in foreign currency exchange rates will, to the extent
the Fund does not ade-
quately hedge against such fluctuations, affect the
value of securities in its
portfolio. In addition, with respect to certain
countries, there is the possi-
bility of expropriation of assets, repatriation,
confiscatory taxation, politi-
cal or social instability or diplomatic developments
which could adversely
affect investments in those countries.
There also may be less publicly available
information about a foreign company
than about a U.S. company and foreign companies may
not be subject to account-
ing, auditing and financial reporting standards
comparable to those of U.S.
companies.
12
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
The Fund may also purchase foreign securities in the
form of American Deposi-
tary Receipts ("ADRs") and European Depositary
Receipts ("EDRs") or other secu-
rities representing underlying shares of foreign
companies. ADRs are publicly
traded on exchanges or over-the-counter in the United
States and are issued
through "sponsored" or "unsponsored" arrangements. In
a sponsored ADR arrange-
ment, the foreign issuer assumes the obligation to pay
some or all of the
depositary's transaction fees, whereas under an
unsponsored arrangement, the
foreign issuer assumes no obligation and the
depositary's transaction fees are
paid by the ADR holders. In addition, less information
is available in the
United States about an unsponsored ADR than about a
sponsored ADR, and the
financial information about a company may not be as
reliable for an unsponsored
ADR as it is for a sponsored ADR. The Fund may invest
in ADRs through both
sponsored and unsponsored arrangements.
Foreign Currency Transactions. The value of the
Fund's portfolio securities
that are traded in foreign markets may be affected by
changes in currency
exchange rates and exchange control regulations. In
addition, the Fund will
incur costs in connection with the conversions between
various currencies. The
Fund's foreign currency exchange transactions
generally will be conducted on a
spot basis (that is, cash basis) at the spot rate for
purchasing or selling
currency prevailing in the foreign currency exchange
market. The Fund purchases
and sells foreign currency on a spot basis in
connection with the settlement of
transactions in securities traded in such foreign
currency. The Fund does not
purchase and sell foreign currencies as an investment.
The Fund may also enter contracts with banks or other
foreign currency brokers
and dealers in which the Fund purchases or sells
foreign currencies at a future
date ("futures contracts") and purchase and sell
foreign currency futures con-
tracts to hedge against changes in foreign currency
exchange rates. A foreign
currency forward contract is a negotiated agreement
between the contracting
parties to exchange a specified amount of currency at
a specified future time
at a specified rate. The rate can be higher or lower
than the spot rate between
the currencies that are the subject of the contract.
The Fund may attempt to hedge against changes in the
value of the U.S. dollar
in relation to a foreign currency by entering into a
forward contract for the
purchase or sale of the amount of foreign currency
invested or to be invested,
or by buying or selling a foreign currency futures
contract for such amount.
Such hedging strategies may be employed before the
Fund purchases a foreign
security traded in the hedged currency which the Fund
anticipates acquiring or
between the date the foreign security is purchased or
sold and the date on
which payment therefor is made or received. Hedging
against a change in the
value of a foreign currency in the foregoing manner
does not eliminate fluctua-
tions in the price of portfolio securities
13
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
or prevent losses if the prices of such securities
decline. Furthermore, such
hedging transactions reduce or preclude the
opportunity for gain if the value
of the hedged currency should move in the direction
opposite to the hedged
position. The Fund will not speculate in foreign
currency forward or futures
contracts or through the purchase and sale of foreign
currencies.
Forward Commitments. The Fund may purchase or sell
debt securities on a "when-
issued" or "delayed delivery" basis ("Forward
Commitments"). These transactions
occur when securities are purchased or sold by the
Fund with payment and deliv-
ery taking place in the future (a month or more after
such transactions). The
price is fixed on the date of the commitment and the
seller continues to accrue
interest on the securities covered by the Forward
Commitment until delivery and
payment take place. At the time of settlement, the
market value of the securi-
ties may be more or less than the purchase or sale
price.
Loans of Portfolio Securities. Consistent with
applicable regulatory require-
ments, the Fund may lend its portfolio securities
provided: (a) the loan is
secured continuously by collateral consisting of U.S.
government securities or
cash or cash equivalents maintained on a daily marked-
to-market basis in an
amount at least equal to the current market value of
the securities loaned; (b)
the Fund may at any time call the loan and obtain the
return of the securities
loaned; and (c) the Fund will receive any interest or
dividend paid on the
loaned securities.
Restricted and Illiquid Securities. The Fund may
invest in restricted securi-
ties. Restricted securities are securities subject to
legal or contractual
restrictions on their resale. Such restrictions might
prevent the sale of
restricted securities at a time when such sale would
otherwise be desirable.
Restricted securities and securities for which there
is no readily available
market ("illiquid assets") will not be acquired if the
total amount of all
illiquid assets of the Fund would exceed 10% of the
Fund's total assets.
Borrowing. The Fund may borrow money from banks
temporarily for emergency
purposes in an amount not exceeding 33 1/3% of the
Fund's total assets.
Year 2000. The investment management services
provided to the Fund by MMC and
the services provided to shareholders by Smith Barney,
the Fund's Distributor,
depend on the smooth functioning of their computer
systems. Many computer soft-
ware systems 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. MMC and Smith
Barney have advised the Fund that they have been
reviewing all of their com-
puter systems and actively working on necessary
changes to their systems to
14
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
prepare for the year 2000 and expect that their
systems will be compliant
before that date. In addition, MMC has been advised by
the Fund's custodian,
transfer agent and accounting service agent that they
are also in the process
of modifying their systems with the same goal. There
can, however, be no assur-
ance that MMC, Smith Barney or any other service
provider will be successful,
or that interaction with other non-complying computer
systems will not impair
Fund services at that time.
PORTFOLIO TRANSACTIONS AND TURNOVER
MMC arranges for the purchase and sale of the Fund's
securities and selects
brokers and dealers (including Smith Barney), which in
its best judgment pro-
vide prompt and reliable execution at favorable prices
and reasonable commis-
sion rates. MMC may select brokers and dealers which
provide it with research
services and may cause the Fund to pay such brokers
and dealers commissions
which exceed those other brokers and dealers may have
charged, if it views the
commissions as reasonable in relation to the value of
the brokerage and/or
research services.
The Fund may experience high portfolio turnover as a
result of its investment
strategies. Short-term gains realized from portfolio
transactions are taxable
to shareholders as ordinary income. In addition,
higher portfolio turnover
rates can result in corresponding increases in
brokerage commissions for the
Fund. While the Fund does not intend to engage in
short-term trading, it will
not consider portfolio turnover rate as a limiting
factor in making investment
decisions consistent with its respective objectives
and policies. The Fund's
portfolio turnover rate is calculated by dividing the
lesser of purchases or
sales of portfolio securities for the fiscal year by
the monthly average of the
value of the Fund's securities, with money market
instruments with less than
one year to maturity excluded. A 100% portfolio
turnover rate would occur, for
example, if all included securities were replaced once
during the year. See
"Financial Highlights" for the Fund's annual turnover
rates during each year
since inception.
VALUATION OF SHARES
The Fund's net asset value per share is determined as
of the close of regular
trading on the NYSE on each day that the NYSE is open,
by dividing the value of
the Fund's net assets attributable to each Class by
the total number of shares
of the Class outstanding.
Generally, the Fund's investments are valued at
market value, or, in the
absence of a market value with respect to any
securities, at fair value. Secu-
rities listed on an
15
<PAGE>
VALUATION OF SHARES (CONTINUED)
exchange are valued on the basis of the last sale
prior to the time the valua-
tion is made. If there has been no sale since the
immediately previous valua-
tion, then the current bid price is used. Quotations
are taken from the
exchange where the security is primarily traded.
Portfolio securities which are
primarily traded on foreign exchanges may be valued
with the assistance of a
pricing service and are generally valued at the
preceding closing values of
such securities on their respective exchange, except
that when an occurrence
subsequent to the time a foreign security is valued is
likely to have changed
such value, then the fair value of those securities
will be determined by con-
sideration of other factors by or under the direction
of the Board of Direc-
tors. Over-the-counter securities are valued on the
basis of the bid price at
the close of business on each day. Unlisted foreign
securities are valued at
the mean between the last available bid and offer
price prior to the time of
valuation. Any assets or liabilities initially
expressed in terms of foreign
currencies will be converted into U.S. dollar values
at the mean between the
bid and offered quotations of such currencies against
U.S. dollars as last
quoted by any recognized dealer. Securities for which
market quotations are not
readily available are valued at fair value.
Notwithstanding the above, bonds
and other fixed-income securities are valued by using
market quotations and may
be valued on the basis of prices provided by a pricing
service approved by the
Board of Directors.
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 cap-
ital gain distributions will be reinvested
automatically in additional shares
of the same Class at net asset value, with no
additional sales charge or CDSC.
The per share amounts of dividends from net
investment income on Class B may
be lower than that of Class A, mainly as a result of
the distribution fees
applicable to Class B shares. Capital gain
distributions, if any, will be
the same amount for both all Classes of Fund shares (A
and B).
TAXES
The following is a summary of the material federal
tax considerations affect-
ing the Fund and Fund shareholders, please refer to
the Statement of Additional Information for further
discus-
sion. In
16
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
addition to the considerations described below and in
the Statement of Additional Information, there may be
other federal, state, local, and/or foreign tax
applications to consider.
Because taxes are a complex matter, prospective
shareholders are urged to con-
sult their tax advisors for more detailed information
with respect to the tax
consequences of any investment.
The Fund intends to qualify, as it has in prior
years, under Subchapter M of
the Internal Revenue Code (the "Code") for tax
treatment as a regulated invest-
ment company. In each taxable year that the Fund
qualifies, so long as such
qualification is in the best interests of its
shareholders, 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 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 shareholders' federal income tax
return.
17
<PAGE>
PURCHASE OF SHARES
GENERAL
The Fund offers two Classes of shares to investors
purchasing through PFS
Investments Registered Representatives. Class A shares
are sold to investors
with an initial sales charge and Class B shares are
sold without an initial
sales charge but are subject to a CDSC payable upon
certain redemptions. See
"Prospectus Summary--Alternative Purchase
Arrangements" for a discussion of
factors to consider in selecting which Class of shares
to purchase.
Initial purchases of Fund shares must be made through
a PFS Investments Reg-
istered Representative by completing the appropriate
application found in the
prospectus. The completed application should be
forwarded to the Sub-Transfer
Agent, 3100 Breckinridge Blvd., Bldg 200, Duluth,
Georgia 30099-0062. Checks
drawn on foreign banks must be payable in U.S. dollars
and have the routing
number of the U.S. bank encoded on the check.
Subsequent investments may be
sent directly to the Sub-Transfer Agent.
Investors in Class A and Class B shares may open an
account by making an ini-
tial investment of at least $1,000 for each account,
or $250 for an IRA or a
Self-Employed Retirement Plan in the Fund. Subsequent
investments of at least
$50 may be made for both Classes. For participants in
retirement plans quali-
fied under Section 403(b)(7) or Section 401(a) of the
Code, the minimum ini-
tial and subsequent investment requirement for both
Classes in the Fund is
$25. For the Fund's Systematic Investment Plan, the
minimum initial and subse-
quent investment requirement for both Classes is $25.
There are no minimum
investment requirements for Class A shares for
employees of Travelers and its
subsidiaries, including Smith Barney, Directors of the
Company or Directors or
Trustee of other funds affiliated with Travelers and
their spouses and chil-
dren. 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
Sub-Transfer Agent. Share certificates are issued only
upon a shareholder's
written request to the Sub-Transfer Agent. A
shareholder who has insufficient
funds to complete any purchase will be charged a fee
of $25 per returned pur-
chase by PFS or the Sub-Transfer Agent.
Purchase orders received by the Sub-Transfer Agent
prior to the close of reg-
ular 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.
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, the Sub-Transfer Agent is
authorized through
preautho-
18
<PAGE>
PURCHASE OF SHARES (CONTINUED)
rized transfers of $25 or more to charge the regular
bank account or other
financial institution indicated by the shareholder on
a monthly basis to pro-
vide systematic additions to the shareholder's Fund
account. A shareholder who
has insufficient funds to complete the transfer will
be charged a fee of up to
$25 by PFS or the Sub-Transfer Agent. A shareholder
who places a stop payment
on a transfer or shareholders whose transfer is
returned because the account
has been closed will also be charged a fee of $25 by
PFS or the Sub-Transfer
Agent.
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
-----------------------------
- -
CONCERT PEACHREE
DEALERS'
GROWTH FUND % 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 PFS, which in turn, pays PFS
Investments to compensate
its Investments Registered Representatives 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 shares is waived. See
"Deferred Sales Charge
Alternatives" and "Waivers of CDSC."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset
value without a sales
charge in the following circumstances: (a) sales to
(i) Board Members and
employees of Travelers and its subsidiaries and any of
the Smith Barney Mutual
Funds or other Travelers-affiliated funds (including
retired Board Members and
employees); the immediate families of such persons
(including the surviving
spouse of a deceased Board Member or employee); and to
a pension, profit-shar-
ing or other benefit plan for such persons and (ii)
employees of members of
the National Association of Securities Dealers, Inc.,
provided such sales are
made upon the assurance of the purchaser that the
purchase is made for invest-
ment purposes and that the securities will not be
resold except through
redemption or repurchase; (b) offers of Class A shares
to any other investment
company to effect the combination of such company with
the Fund by merger,
acquisition of assets or otherwise; (c) purchases by
shareholders who have
redeemed Class A shares in the Fund (or Class A shares
of another fund in the
Smith Barney Mutual Funds that are offered with a
sales charge) and who wish
to reinvest their redemption proceeds in the Fund,
provided
19
<PAGE>
PURCHASE OF SHARES (CONTINUED)
the reinvestment is made within 60 calendar days of
the redemption; (d) pur-
chases by accounts managed by registered investment
advisory subsidiaries of
Travelers; and (e) sales through PFS Investments
Registered Representatives
where the amounts invested represent the redemption
proceeds from investment
companies distributed by an entity other than PFS, on
the condition that (i)
the redemption has occurred no more than 60 days prior
to the purchase of the
shares, (ii) the shareholder paid an initial sales
charge on such redeemed
shares and (iii) the shares redeemed were not subject
to a deferred sales
charge. PFS Investments may pay its Investments
Registered Representatives an
amount equal to 0.40% of the amount invested if the
purchase represents
redemption proceeds from an investment company
distributed by an entity other
than PFS. In order to obtain such discounts, the
purchaser must provide suffi-
cient information at the time of purchase to permit
verification that the pur-
chase would qualify for the elimination of the sales
charge.
VOLUME DISCOUNTS
The "Amount of Investment" referred to in the sales
charge table set forth
above under "Initial Sales Charge Alternative--Class A
Shares" includes the
purchase of Class A shares in the Fund and of other
funds sponsored by Smith
Barney that are offered with a sales charge listed
under "Exchange Privilege."
A person eligible for a volume discount includes an
individual; members of a
family unit comprising a husband, wife and minor
children; a trustee or other
fiduciary purchasing for a single fiduciary account
including pension, profit-
sharing and other employee benefit trusts qualified
under Section 401(a) of
the Code, or multiple custodial accounts where more
than one beneficiary is
involved if purchases are made by salary reduction
and/or payroll deduction
for qualified and nonqualified accounts and
transmitted by a common employer
entity. Employer entity for payroll deduction accounts
may include trade and
craft associations and any other similar
organizations.
LETTER OF INTENT
A Letter of Intent for amounts of $50,000 or more
provides an opportunity for
an investor to obtain a reduced sales charge by
aggregating the investments
over a 13-month period, provided that the investor
refers to such Letter when
placing orders. For purposes of a Letter of Intent,
the "Amount of Investment"
as referred to in the preceding sales charge table
includes purchases of all
Class A shares of the Fund and other funds of the
Smith Barney Mutual Funds
that are offered with a sales charge listed under
"Exchange Privilege" over a
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 exe-
cution 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
20
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next
determined without an initial
sales charge so that the full amount of an investor's
purchase payment may be
immediately invested in the Fund. A CDSC, however, may
be imposed on certain
redemptions of these shares. "CDSC Shares" are: (a)
Class B shares; and (b)
Class A shares 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
original 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 A shares
that are CDSC Shares,
shares redeemed more than 12 months after their
purchase.
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 pur-
chase 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 state-
ment month. The following table sets forth the rates
of the charge for redemp-
tions of Class B shares by shareholders.
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
- --------------------------------
<S> <C>
First 5.00%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth and thereafter 0.00
- --------------------------------
</TABLE>
Class B shares will convert automatically to Class A
shares eight years after
the date on which they were purchased and thereafter
will no longer be subject
to any distribution fee. There will also be converted
at that time such propor-
tion of Class B Dividend Shares owned by the
shareholder as the total number of
his or her
21
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Class B shares converting at the time bears to the
total number of outstanding
Class B shares (other than Class B Dividend Shares)
owned by the shareholder.
In determining the applicability of any CDSC, it will
be assumed that a
redemption is made first of shares representing
capital appreciation, next of
shares representing the reinvestment of dividends and
capital gain distribu-
tions and finally of other shares held by the
shareholder for the longest
period of time. The length of time that CDSC Shares
acquired through an
exchange have been held will be calculated from the
date that the shares
exchanged were initially acquired in one of the other
Smith Barney Mutual
Funds, and Fund shares being redeemed will be
considered to represent, as
applicable, capital appreciation or dividend and
capital gain distribution
reinvestments in such other funds. For Federal income
tax purposes, the amount
of the CDSC will reduce the gain or increase the loss,
as the case may be, on
the amount realized on redemption. The amount of any
CDSC will be paid to PFS.
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 pur-
chase, the investor decided to redeem $500 of his or
her investment. Assuming
at the time of the redemption the net asset value had
appreciated to $12 per
share, the value of the investor's shares would be
$1,260 (105 shares at $12
per share). The CDSC would not be applied to the
amount which represents appre-
ciation ($200) and the value of the reinvested
dividend shares ($60). There-
fore, $240 of the $500 redemption proceeds ($500-$260)
would be charged at a
rate of 4% (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 commences
(see "Redemption of Shares--Automatic Cash Withdrawal
Plan"); (c) redemption of
shares within 12 months following the death or
disability of the shareholder;
(d) redemption of shares made in connection with
qualified distributions from
retirement plans or IRAs upon the attainment of age 59
1/2; (e) involuntary
redemptions; and (f) redemption of shares to effect a
combination of the Fund
with any investment company by merger, acquisition of
assets or otherwise. In
addition, a shareholder who has redeemed shares from
other funds of the Smith
Barney Mutual Funds may, under certain circumstances,
reinvest all or part of
the redemption proceeds within 60 days and receive pro
rata credit for any CDSC
imposed on the prior redemption.
CDSC waivers will be granted subject to confirmation
by PFS of the sharehold-
er's status or holdings, as the case may be.
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
funds of the Smith Barney Mutual Funds, to the extent
shares are offered for
sale in the shareholder's state of residence.
Exchanges of Class A and Class B
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
.Concert Investment Series--Emerging Growth
Fund
.Concert Investment Series--Government Fund
.Concert Investment Series--Growth Fund
.Concert Investment Series--Growth & Income
Fund
.Concert Investment Series--International
Equity Fund
.Concert Investment Series--Municipal Bond Fund
.Concert Social Awareness Fund
.Smith Barney Concert Allocation Series Inc.--
Balanced Portfolio
.Smith Barney Concert Allocation Series Inc.--
Conservative Portfolio
.Smith Barney Concert Allocation Series Inc.--
Global Portfolio
.Smith Barney Concert Allocation Series Inc.--
Growth Portfolio
.Smith Barney Concert Allocation Series Inc.--
High Growth Portfolio
.Smith Barney Concert Allocation Series Inc.--
Income Portfolio
.Smith Barney Appreciation Fund Inc.
.Smith Barney Investment Grade Bond Fund
*.Smith Barney Money Funds, Inc.--Cash
Portfolio
**.Smith Barney Exchange Reserve Fund
* Available for exchange with Class A shares of
the Fund
** Available for exchange with Class B shares of
the Fund
Class B Exchanges. In the event a Class B shareholder
wishes to exchange all
or a portion of his or her shares in any of the funds
imposing a higher CDSC
than that imposed by the Fund, the exchanged Class B
shares will be subject to
the higher applicable CDSC. Upon an exchange, the new
Class B shares will be
deemed to have been purchased on the same date as the
Class B shares of the
Fund that have been exchanged.
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. MMC 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, MMC will
notify PFS that the Fund
23
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
and PFS may, at its discretion, decide to limit
additional purchases and/or
exchanges by the shareholder. Upon such a
determination by the Fund, PFS 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 Smith Barney Mutual
Funds listed under "Exchange Privilege", 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.
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 identi-
cal to the registration of the shares of the fund
exchanged, no signature guar-
antee 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 describ-
ing the shares to be acquired. The Fund reserves the
right to modify or discon-
tinue exchange privileges upon 60 days' prior notice
to shareholders.
REDEMPTION OF SHARES
Shareholders may redeem for cash some or all of their
shares of the Fund at
any time by sending a written request in proper form
directly to the Sub-Trans-
fer Agent, PFS Shareholder Services, at 3100
Breckinridge Blvd., Bldg. 200,
Duluth, Georgia 30099-0062. If you should have any
questions concerning how to
redeem your account after reviewing the information
below, please contact the
Sub-Transfer Agent at (800) 544-5445, Spanish-speaking
representatives (800)
544-7278 or TDD Line for the Hearing Impaired (800)
824-1721.
As described under "Purchase of Shares," redemptions
of Class B shares are
subject to a contingent deferred sales charge.
The request for redemption must be signed by all
persons in whose names the
shares are registered. Signatures must conform exactly
to the account registra-
tion. If the proceeds of the redemption exceed $50,000
or are not to be paid to
the record owner(s) at the record address, if the
shareholder(s) has had an
address change in the past 45 days, or if the
shareholder(s) is a corporation,
sole proprietor, partnership, trust or fiduciary the
signature(s) must be guar-
anteed by one of the following: a bank or trust
company; a broker-dealer; a
credit union; a national securities exchange,
registered securities association
or clearing agency; a savings and loan association; or
a federal savings bank.
24
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
Generally, a properly completed Redemption Form with
any required signature
guarantee is all that is required for a redemption. In
some cases, however,
other documents may be necessary. For example, in the
case of shareholders
holding certificates, the certificates for the shares
being redeemed must
accompany the redemption request. Additional
documentary evidence of authority
is also required by the Sub-Transfer Agent in the
event redemption is requested
by a corporation, partnership, trust, fiduciary,
executor or administrator.
Additionally, if a shareholder requests a redemption
from a Retirement Plan
account (IRA, SEP or 403(b)(7) ), such request must
state whether or not fed-
eral income tax is to be withheld from the proceeds of
the redemption check.
Shareholders may utilize the Sub-Transfer Agent's fax
to redeem their account
as long as a signature guarantee or other documentary
evidence is not required.
Redemption requests should be properly signed by all
owners of the account and
faxed to the Sub-Transfer Agent at (800) 554-2374.
Facsimile redemptions may
not be available if the shareholder cannot reach the
Sub-Transfer Agent by fax,
whether because all telephone lines are busy or for
any other reason; in such
case, a shareholder would have to use the Fund's
regular redemption procedure
described above. Facsimile redemptions received by the
Sub-Transfer Agent prior
to 4:00 p.m. Eastern time on a regular business day
will be processed at the
net asset value per share determined that day.
In all cases, the redemption price is the net asset
value per share of the
Fund next determined after the request for redemption
is received in proper
form by the Sub-Transfer Agent. Payment for shares
redeemed will be made by
check mailed within three days after acceptance by the
Sub-Transfer Agent of
the request and any other necessary documents in
proper order. Such payment may
be postponed or the right of redemption suspended as
provided by the rules of
the SEC. If the shares to be redeemed have been
recently purchased by check or
draft, the Sub-Transfer Agent may hold the payment of
the proceeds until the
purchase check or draft has cleared, usually a period
of up to 15 days. Any
taxable gain or loss will be recognized by the
shareholder upon redemption of
shares.
After following the above-stated redemption
guidelines, a shareholder(s) may
elect to have the redemption proceeds wire-transferred
directly to the share-
holder's bank account of record (defined as a
currently established pre-autho-
rized draft on the shareholder's account with no
changes within the previous 45
days), as long as the bank account is registered in
the same name(s) as the
account with the Fund. If the proceeds are not to be
wired to the bank account
of record, or mailed to the registered owner(s), a
signature guarantee will be
required from all shareholder(s). A $25 service fee
will be charged by the Sub-
Transfer Agent to help defray the administrative
expense of executing a wire
redemption. Redemption proceeds will normally be wired
to the designated bank
account on the next business day follow -
25
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
ing the redemption, and should ordinarily be credited
to your bank account by
your bank within 48 to 72 hours.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash
withdrawal plan, under which
shareholders who own shares with a value of at least
$10,000 may elect to
receive periodic cash payments of at least $50 monthly
or quarterly. Retirement
plan accounts are eligible for automatic cash
withdrawal plans only where the
shareholder is eligible to receive qualified
distributions and has an account
value of at least $5,000. The withdrawal plan will be
carried over on exchanges
between funds or Classes of the Fund. Any applicable
CDSC will not be waived on
amounts withdrawn by a shareholder that exceed 1.00%
per month of the value of
the shareholder's shares subject to the CDSC at the
time the withdrawal plan
commences. For further information regarding the
automatic cash withdrawal
plan, shareholders should contact the Sub-Transfer
Agent.
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily
liquidate any shareholder's
account in the Fund if the aggregate net asset value
of the shares held in the
Fund account is less than $500. (If a shareholder has
more than one account in
the Fund, each account must satisfy the minimum
account size). The Fund, howev-
er, will not redeem shares based solely on market
reductions in net asset val-
ue. Before the Fund exercises such right, shareholders
will receive written
notice and will be permitted 60 days to bring accounts
up to the minimum to
avoid involuntary liquidation.
PERFORMANCE
From time to time, the Fund may include its total
return, average annual total
return and current dividend return in advertisements
and/or other types of
sales literature. These figures are computed
separately for Class A and Class B
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 Securities
and Exchange Commission 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 dif -
26
<PAGE>
PERFORMANCE (CONTINUED)
fering periods computed in the same manner but without
annualizing the total
return or taking sales charges into account. The Fund
calculates current divi-
dend return for each Class by annualizing the most
recent monthly distribution
and dividing by the net asset value or the maximum
public offering price (in-
cluding sales charge) on the last day of the period
for which current dividend
return is presented. The current dividend return for
each Class may vary from
time to time depending on market conditions, the
composition of its investment
portfolio and operating expenses. These factors and
possible differences in
the methods used in calculating current dividend
return should be considered
when comparing a Class' current return to yields
published for other invest-
ment companies and other investment vehicles. The Fund
may also include com-
parative performance information in advertising or
marketing its shares. Such
performance information may include data from Lipper
Analytical Services, Inc.
and other financial publications. The Fund will
include performance data for
Class A and Class B shares in any advertisement or
information including per-
formance data of the Fund.
The Fund may from time to time illustrate the
benefits of tax-deferral by
comparing taxable investments to investments made
through tax-deferred retire-
ment plans and the Fund may illustrate in graph or
chart form, or otherwise,
the benefits of the Systematic Investment Plan by
comparing investments made
pursuant to a systematic investment plan to
investments made in a rising mar-
ket.
MANAGEMENT OF THE COMPANY AND THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and supervision
of the Fund rests with
the Company's Board of Directors. The Directors
approve all significant agree-
ments between the Company and the companies that
furnish services to the Fund
and the Company, including agreements with its
investment adviser, distribu-
tor, custodian and transfer agent. The day-to-day
operations of the Fund are
delegated to the Fund's investment manager. The
Statement of Additional Infor-
mation contains background information regarding each
Director of the Fund and
executive officer of the Company.
MMC
MMC, located at 388 Greenwich Street, New York, New
York 10013, serves as the
Fund's investment adviser and manages the day-to-day
operations of the Fund
pursuant to a management agreement entered into by the
Company, on behalf of
the Fund. MMC (through its predecessors) has been in
the investment counseling
business since 1934 and is a registered investment
adviser. MMC renders
investment advice to investment companies that had
aggregate assets under man-
agement as of March 31, 1998, of approximately $100.5
billion.
27
<PAGE>
MANAGEMENT OF THE COMPANY AND THE FUND (CONTINUED)
Subject to the supervision and direction of the
Company's Board of Directors,
MMC manages the Fund's portfolio in accordance with
the Fund's stated invest-
ment objective and policies, makes investment
decisions for the Fund, places
orders to purchase and sell securities and employs
professional portfolio man-
agers and securities analysts who provide research
services to the Fund. For
the services rendered, the Fund pays MMC a monthly fee
at the annual rate of
1.00% of the value of its average daily net assets up
to $250 million and 0.85%
of the average daily net assets thereafter. Although
this fee is higher than
that paid by most investment companies, the Fund's
management has determined
that it is comparable to the fee charged by other
investment advisers of
investment companies that have similar investment
objectives and policies.
PORTFOLIO MANAGEMENT
Dennis A. Johnson, CFA, a Managing Director of Smith
Barney Inc. and Presi-
dent and Chief Investment Officer of Peachtree Asset
Management ("Peachtree"),
a division of MMC, has been the Fund's portfolio
manager since August 1997 and
is responsible for managing the day to day investment
operations of the Fund,
including the making of investment decisions. Prior to
joining Peachtree, Mr.
Johnson was Vice President of Trusco Capital.
Management's discussion and analysis, and additional
performance information
regarding the Fund during the fiscal year ended
December 31, 1997 is included
in the Annual Report dated December 31, 1997. A copy
of the Annual Report may
be obtained upon request and without charge from the
Sub-Transfer Agent or by
writing or calling the Fund at the address or phone
number listed on page one
of this Prospectus.
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 Group and Citicorp.
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. Although the effects of the
merger of Travelers and
Citicorp and compliance with the requirements of the
BHCA and the Glass-
Steagall Act are still under review, MMC does not
believe that its compliance
with applicable law following 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.
28
<PAGE>
DISTRIBUTOR
PFS is located at 3100 Breckinridge Boulevard,
Duluth, Georgia 30099-0001.
PFS distributes shares of the Fund as principal
underwriter and as such con-
ducts a continuous offering pursuant to a "best
efforts" arrangement requiring
PFS to take and pay for only such securities as may be
sold to the public.
Pursuant to a plan of distribution adopted by the Fund
under Rule 12b-1 under
the 1940 Act (the "Plan"), PFS is paid an annual
service fee with respect to
Class A and Class B shares of the Fund at the annual
rate of 0.25% of the
average daily net assets of the respective Class. PFS
is also paid an annual
distribution fee with respect to Class B shares at the
annual rate of 0.75% of
the average daily net assets attributable to that
Class. Class B shares that
automatically convert to Class A shares eight years
after the date of original
purchase will no longer be subject to distribution
fees. The fees are paid to
PFS which in turn pays PFS Investments to pay its
Registered Representatives
for servicing shareholder accounts and, in the case of
Class B shares, to
cover expenses primarily intended to result in the
sale of those shares. These
expenses include: advertising expenses; the cost of
printing and mailing pro-
spectuses to potential investors; payments to and
expenses of Registered Rep-
resentatives and other persons who provide support
services in connection with
the distribution of shares; interest and/or carrying
charges; and indirect and
overhead costs of PFS Investments associated with the
sale of Fund shares,
including lease, utility, communications and sales
promotion expenses.
The payments to PFS Investments Registered
Representatives for selling shares
of a Class include a commission or fee paid by the
investor or PFS at the time
of sale and a continuing fee for servicing shareholder
accounts for as long as
a shareholder remains a holder of that Class.
Registered Representatives may
receive different levels of compensation for selling
different Classes of
shares.
PFS Investments may be deemed to be an underwriter
for purposes of the Secu-
rities Act of 1933. From time to time, PFS or its
affiliates may also pay for
certain non-cash sales incentives provided to PFS
Investments Registered Rep-
resentatives. Such incentives do not have any effect
on the net amount invest-
ed. In addition to the reallowances from the
applicable public offering price
described above, PFS may, from time to time, pay or
allow additional
reallowances or promotional incentives, in the form of
cash or other compensa-
tion to PFS Investments Registered Representatives
that sell shares of the
Fund.
Payments under the Plan are not tied exclusively to
the distribution and
shareholder service expenses actually incurred by PFS
and the payments may
exceed distribution expenses actually incurred. The
Company's Board of Direc-
tors will evaluate the appropriateness of the Plan and
its payment terms on a
continuing basis and in so doing will consider all
relevant factors, including
expenses borne by PFS, amounts received under the Plan
and proceeds of the
CDSC.
29
<PAGE>
ADDITIONAL INFORMATION
The Company was incorporated under the laws of the
State of Maryland pursuant
to Articles of Incorporation dated September 29, 1981,
as amended from time to
time. The Fund was organized in 1995 and, through a
reorganization, acquired
the assets of the Growth Opportunity Fund, a separate
series fund of Common
Sense Trust. The Fund offers to investors purchasing
through PFS shares of com-
mon stock currently classified into two Classes, A and
B, with a par value of
$.001 per share. Each Class represents an identical
interest in the Fund's
investment portfolio. As a result, the Classes have
the same rights, privileges
and preferences, except with respect to: (a) the
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 consider
whether any such conflicts exists and, if so, take
appropriate action.
PNC Bank National Association, located at 17th and
Chestnut Streets, Philadel-
phia, Pennsylvania 19103, serves as custodian of the
Fund's investments.
First Data Investor Services Group, Inc., located at
Exchange Place, Boston,
Massachusetts 02109, serves as the Fund's transfer
agent.
PFS Shareholder Services, located at 3100
Breckinridge Blvd, Bldg 200, Duluth,
Georgia 30099-0062, serves as the Fund's Sub-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 listing 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
30
<PAGE>
ADDITIONAL INFORMATION (CONTINUED)
annual reports by household. This consolidation means
that a household having
multiple accounts with the identical address of record
will receive a single
copy of each report. Shareholders who do not want this
consolidation to apply
to their accounts should contact their PFS Investments
Registered Representa-
tive or the Fund's Sub-Transfer Agent. Also available
at the shareholder's
request, is an Account Transcript identifying every
financial transaction in an
account since it was opened. To defray administrative
expenses involved with
providing multiple years worth of information, there
is a $15 charge for each
Account Transcript requested.
Additional copies of tax forms are available at the
Shareholder's request. A
$10 charge fee for each tax form will be assessed.
Additional information regarding the Sub-Transfer
Agent's services may be
obtained by contacting the Client Services Department
at (800) 544-5445.
----------------------
31
<PAGE>
[This page is intentionally left
blank]
<PAGE>
P R O S P E C T U S
SMITH BARNEY
Managed
Growth
Fund
APRIL 30, 1998
PROSPECTUS BEGINS ON PAGE ONE
[LOGO] SMITH BARNEY MUTUAL FUNDS
Investing for your future.
Every day.
<PAGE>
PROSPECTUS
April 30, 1998
Smith Barney
Managed Growth Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
The primary investment objective of the Smith Barney
Managed Growth Fund
("Fund") is long term growth of capital.
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. ("Compa-
ny"). The Fund is an open-end, management investment
company commonly referred
to as a mutual fund.
This Prospectus sets forth concisely certain
information about the Company and
the Fund, including sales charges, distribution and
service fees and expenses,
that prospective investors will find helpful in making
an investment decision.
Investors are encouraged to read this Prospectus
carefully and retain it for
future reference.
Additional information about the Fund is contained in
a Statement of Addi-
tional Information dated April 30, 1998, as amended or
supplemented from time
to time, that is available upon request and without
charge by calling or writ-
ing the Fund at the telephone number or address set
forth above or by contact-
ing a Smith Barney Financial Consultant. The Statement
of Additional Informa-
tion has been filed with the Securities and Exchange
Commission ("SEC") and is
incorporated by reference into this Prospectus in its
entirety.
SMITH BARNEY INC.
Distributor
MUTUAL MANAGEMENT CORP.
Investment Adviser and Administrator
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
- -------------------------------------------------
FINANCIAL HIGHLIGHTS 10
- -------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 14
- -------------------------------------------------
VALUATION OF SHARES 20
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 20
- -------------------------------------------------
PURCHASE OF SHARES 22
- -------------------------------------------------
EXCHANGE PRIVILEGE 32
- -------------------------------------------------
REDEMPTION OF SHARES 35
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 38
- -------------------------------------------------
PERFORMANCE 38
- -------------------------------------------------
MANAGEMENT OF THE COMPANY AND THE FUND 39
- -------------------------------------------------
DISTRIBUTOR 40
- -------------------------------------------------
ADDITIONAL INFORMATION 41
- -------------------------------------------------
</TABLE>
- ------------------------------------------------------
- --------------------------
No person has been authorized to give any
information or to make any
representations in connection with this offering other
than those contained in
this Prospectus and, if given or made, such other
information or
representations must not be relied upon as having been
authorized by the Fund
or the distributor. This Prospectus does not
constitute an offer by the Fund or
the distributor to sell or a solicitation of an offer
to buy any of the
securities offered hereby in any jurisdiction to any
person to whom it is
unlawful to make such offer or solicitation in such
jurisdiction.
- ------------------------------------------------------
- --------------------------
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by
detailed information
appearing elsewhere in this Prospectus and in the
Statement of Additional
Information. Cross references in this summary are to
headings in the Prospec-
tus. See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end,
diversified management invest-
ment company whose investment objective is long term
growth of capital. See
"Investment Objective and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers
several classes of shares
("Classes") to investors designed to provide them with
the flexibility of
selecting an investment best suited to their needs.
The general public is
offered three classes of shares: Class A shares, Class
B shares and Class C
shares, which differ principally in terms of sales
charges and rate of
expenses to which they are subject. A fourth Class of
shares, Class Y shares,
is offered only to investors meeting an initial
investment minimum of
$15,000,000. In addition, a fifth Class, Class Z
shares, which is offered pur-
suant to a separate prospectus, is offered exclusively
to tax-exempt employee
benefit and retirement plans of Smith Barney Inc.
("Smith Barney") and its
affiliates. See "Purchase of Shares" and "Redemption
of Shares."
Class A Shares. Class A shares are sold at net asset
value plus an initial
sales charge of up to 5.00% and are subject to an
annual service fee of 0.25%
of the average daily net assets of the Class. The
initial sales charge may be
reduced or waived for certain purchases. Purchases of
Class A shares of
$500,000 or more will be made at net asset value with
no initial sales charge,
but will be subject to a contingent deferred sales
charge ("CDSC") of 1.00% on
redemptions made within 12 months of purchase. See
"Prospectus Summary--
Reduced or No Initial Sales Charge."
Class B Shares. Class B shares are offered at net
asset value subject to a
maximum CDSC of 5.00% of redemption proceeds,
declining by 1.00% each year
after the date of purchase to zero. The CDSC may be
waived for certain redemp-
tions. Class B shares are subject to an annual service
fee of 0.25% and an
annual distribution fee of 0.75% of the average daily
net assets of the Class.
The Class B shares' distribution fee may cause that
Class to have higher
expenses and pay lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares
will convert automatically
to Class A shares, based on relative net asset value,
eight years after the
date of the original purchase. Upon conversion, these
shares will no longer be
subject to an annual distribution fee. In addition, a
certain portion of Class
B shares that have
3
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
been acquired through the reinvestment of dividends
and distributions ("Class B
Dividend Shares") will be converted at that time. See
"Purchase of Shares--
Deferred Sales Charge Alternatives."
Class C Shares. Class C shares are sold at net asset
value with no initial
sales charge. They are subject to an annual service
fee of 0.25% and an annual
distribution fee of 0.75% of the average daily net
assets of the Class, and
investors pay a CDSC of 1.00% if they redeem Class C
shares within 12 months of
purchase. The CDSC may be waived for certain
redemptions. The Class C shares'
distribution fee may cause that Class to have higher
expenses and pay lower
dividends than Class A shares. Purchases of Fund
shares which, when combined
with current holdings of Class C shares of the Fund,
equal or exceed $500,000
in the aggregate, should be made in Class A shares at
net asset value with no
sales charge, and will be subject to a CDSC of 1.00%
on redemptions made within
12 months of purchase.
Class Y Shares. Class Y shares are available only to
investors meeting an ini-
tial investment minimum of $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 consider
the following factors, as well as any other relevant
facts and circumstances:
Intended Holding Period. The decision as to which
Class of shares is more ben-
eficial to an investor depends on the amount and
intended holding period of his
or her investment. Shareholders who are planning to
establish a program of reg-
ular investment may wish to consider Class A shares;
as the investment accumu-
lates, shareholders may qualify for reduced sales
charges and the shares are
subject to lower ongoing expenses over the term of the
investment. As an
investment alternative, Class B shares and Class C
shares are sold without any
initial sales charge so the entire purchase price is
immediately invested in
the Fund. Any investment return on these additional
invested amounts may par-
tially or wholly offset the higher annual expenses of
these Classes. Because
the Fund's future return cannot be predicted, however,
there can be no assur-
ance that this would be the case.
Finally investors should consider the effect of the
CDSC period and any con-
version rights of the Classes in the context of their
own investment time
frame. For example, while Class C shares have a
shorter CDSC period than Class
B shares, they do not have a conversion feature and,
therefore, are subject to
an ongoing distribution fee. Thus, Class B shares may
be more attractive than
Class C shares to investors with longer term
investment outlooks.
4
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Reduced or No Initial Sales Charge. The initial sales
charge on Class A shares
may be waived for certain eligible purchasers, and the
entire purchase price
will be immediately invested in the Fund. In addition,
Class A share purchases
of $500,000 or more, will be made at net asset value
with no initial sales
charge, but may be subject to a CDSC of 1.00% on
redemptions made within 12
months of purchase. The $500,000 investment may be met
by adding the purchase
to the net asset value of all Class A shares held in
funds sponsored by Smith
Barney 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 C shares, purchasers eligible to purchase Class
A shares at net asset
value or at a reduced sales charge should consider
doing so.
Smith Barney Financial Consultants may receive
different compensation for
selling different Classes of shares. Investors should
understand that the pur-
pose of the CDSC on the Class B and Class C shares is
the same as that of the
initial sales charge on the Class A shares.
See "Purchase of Shares" and "Management of Company
and the Fund" for a com-
plete description 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. Investors may also be eligible to participate
in the Smith Barney
ExecChoice(TM) Program. Class A and Class C shares are
available without a
sales charge as investment alternatives under both of
these programs. See "Pur-
chase of Shares--Smith Barney 401(k) Program."
PURCHASE OF SHARES Shares may be purchased through a
brokerage account main-
tained at Smith Barney. Shares may also be purchased
through a broker that
clears securities transactions through Smith Barney on
a fully disclosed basis
(an "Introducing Broker") or an investment dealer in
the selling group. In
addition, certain investors, including qualified
retirement plans and certain
institutional investors, may purchase shares directly
from the Fund through the
Fund's transfer agent, First Data Investor Services
Group, Inc. ("First Data").
See "Purchase of Shares."
5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
INVESTMENT MINIMUMS Investors in Class A, Class B and
Class C shares may open
an account by making an initial investment of at least
$1,000 for each account,
or $250 for an individual retirement account ("IRA")
or a Self-Employed Retire-
ment Plan. Investors in Class Y shares may open an
account for an initial
investment of $5,000,000. Subsequent investments of at
least $50 may be made
for all Classes. For participants in retirement plans
qualified under Section
403(b)(7) or Section 401(a) of the Code, the minimum
initial investment
requirement for Class A, Class B and Class C shares
and the subsequent invest-
ment requirement for all Classes is $25. The minimum
investment requirements
for the purchase of Fund shares through the Systematic
Investment Plan are
described below. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Fund offers
shareholders a Systematic Investment
Plan under which they may authorize the automatic
placement of a purchase order
each month or quarter for Fund shares. The minimum
initial investment require-
ments for Class A, Class B and Class C shares and the
subsequent investment
requirement for all classes for shareholders
purchasing shares through the Sys-
tematic Investment Plan on a monthly basis is $25 and
on a quarterly basis is
$50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each
day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See
"Purchase of Shares" and "Re-
demption of Shares."
MANAGEMENT OF THE FUND Mutual Management Corp. ("MMC")
(formerly known as Smith
Barney Mutual Funds Management Inc.) serves as the
Fund's investment adviser.
MMC provides investment advisory and management
services to investment compa-
nies affiliated with Smith Barney. MMC is a wholly
owned subsidiary of Salomon
Smith Barney Holdings Inc. ("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 seg-
ments: Investment Services, including Asset
Management, Consumer Finance Serv-
ices, Life Insurance Services and Property & Casualty
Insurance Services. MMC
also serves as the Fund's administrator. 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 respective
net asset values next determined. See "Exchange
Privilege."
VALUATION OF SHARES Net asset value of the Fund for
the prior day generally is
quoted daily in the financial section of most
newspapers and is also available
from Smith Barney Financial Consultants. See
"Valuation of Shares."
6
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
DIVIDENDS AND DISTRIBUTIONS Dividends from net
investment income and distribu-
tions of net realized capital gains, if any, are
declared and paid at least
annually. See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions
paid on shares of a Class
will be reinvested automatically, unless otherwise
specified by an investor, in
additional shares of the same Class at current net
asset value. Shares acquired
by dividend and distribution reinvestments will not be
subject to any sales
charge or CDSC. Class B shares acquired through
dividend and distribution rein-
vestments will become eligible for conversion to Class
A shares on a pro rata
basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS The Fund
invests principally in common
stocks. The prices of common stocks and other
securities fluctuate and, there-
fore, the value of an investment in the Fund will vary
based upon the Fund's
investment performance. Any income from these
investments will be incidental to
the goal of capital appreciation. The Fund may use
management techniques and
strategies involving options, futures contracts and
options on futures (which
are sometimes referred to as "derivatives"). The
utilization of these tech-
niques may involve greater than ordinary investment
risks and the likelihood of
more volatile price fluctuation. See "Investment
Objective and Management Poli-
cies."
7
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
THE FUND'S EXPENSES The following expense table lists
the costs and expenses
that an investor will incur either directly or
indirectly as a shareholder of
the Fund, based on the maximum sales charge or maximum
CDSC that may be
incurred at the time of purchase or redemption and the
Fund's operating
expenses for its most recent fiscal year:
<TABLE>
<CAPTION>
SMITH BARNEY MANAGED GROWTH FUND CLASS A
CLASS B CLASS C CLASS Y
- ------------------------------------------------------
- ------------------------
<S> <C>
<C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00%
None None None
Maximum CDSC (as a percentage of original
cost or redemption proceeds, whichever
is lower) None*
5.00% 1.00% None
- ------------------------------------------------------
- ------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of offering price)
Management Fees 0.85%
0.85% 0.85% 0.85%
12b-1 Fees** 0.25
1.00 1.00 None
Other Expenses 0.18
0.20 0.19 0.05
- ------------------------------------------------------
- ------------------------
TOTAL FUND OPERATING EXPENSES 1.28%
2.05% 2.04% 0.90%
- ------------------------------------------------------
- ------------------------
</TABLE>
* Purchases of Class A shares of $500,000 or more
will be made at net asset
value with no sales charge, but will be subject
to a CDSC of 1.00% on
redemptions made within 12 months of purchase.
** Upon conversion of Class B shares to Class A
shares, such shares will no
longer be subject to a distribution fee. Class C
shares do not have a
conversion feature and, therefore, are subject to
an ongoing distribution
fee. As a result, long-term shareholders of Class
C shares may pay more
than the economic equivalent of the maximum
front-end sales charge
permitted by the National Association of
Securities Dealers, Inc.
Class A shares of the Fund purchased through the
Smith Barney AssetOne Program
will be subject to an annual asset-based fee, payable
quarterly, in lieu of the
initial sales charge. The fee will vary to a maximum
of 1.50%, depending on the
amount of assets held through the Program. For more
information, please call
your Smith Barney Financial Consultant.
The sales charge and CDSC set forth in the above
table are the maximum charges
imposed on purchases or redemptions of Fund shares and
investors may actually
pay lower or no charges, depending on the amount
purchased and, in the case of
Class B, Class C and certain Class A shares, the
length of time the shares are
held and whether the shares are held through the Smith
Barney 401(k) and
ExecChoice(TM) Programs. See "Purchase of Shares" and
"Redemption of Shares."
Smith Barney receives an annual 12b-1 service fee of
0.25% of the value of
average daily net assets of Class A shares. Smith
Barney also receives with
respect to Class B shares and Class C shares, an
annual 12b-1 fee of 1.00% of
the value of average daily net assets of that Class,
consisting of a 0.25%
service fee and a 0.75% distribution fee. "Other
Expenses" in the above table
include fees for share-
8
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
holder 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 MANAGED GROWTH FUND 1 YEAR 3
YEARS 5 YEARS 10 YEARS*
- ------------------------------------------------------
- ------------------------
<S> <C>
<C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment, assuming
(1) 5.00% annual return and (2) redemption
at the end of each time period:
Class A.................................. $62
$89 $117 $197
Class B.................................. 71
94 120 218
Class C.................................. 31
64 110 237
Class Y.................................. 9
29 50 111
An investor would pay the following
expenses on the same investment, assuming
the same annual return and no redemption:
Class A.................................. 62
89 117 197
Class B.................................. 21
64 110 218
Class C.................................. 21
64 110 237
Class Y.................................. 9
29 50 111
- ------------------------------------------------------
- ------------------------
</TABLE>
* Ten-year figures assume conversion of Class B shares
to Class A shares at the
end of the eighth year following the date of
purchase.
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 PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN
THOSE SHOWN ABOVE.
9
<PAGE>
FINANCIAL HIGHLIGHTS
The following information has been audited by KPMG
Peat Marwick LLP, inde-
pendent auditors, whose report thereon appears in the
Fund's annual report
dated December 31, 1997. The information set out below
should be read in con-
junction with the financial statements and related
notes that also appear in
the Fund's Annual Report to Shareholders, which is
incorporated by reference
into the Statement of Additional Information.
FOR A CLASS A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
SMITH BARNEY MANAGED GROWTH FUND 1997 1996(1)
1995(1)(2)
- ------------------------------------------------------
- -------------
<S> <C> <C>
<C>
NET ASSET VALUE, BEGINNING OF YEAR $13.42 $12.03
$12.00
- ------------------------------------------------------
- -------------
INCOME FROM OPERATIONS:
Net investment income 0.08 0.10
0.16
Net realized and unrealized gain 1.77 1.84
0.02
- ------------------------------------------------------
- -------------
Total Income From Operations 1.85 1.94
0.18
- ------------------------------------------------------
- -------------
LESS DISTRIBUTION FROM:
Net investment income (0.02) (0.09)
(0.15)
Net realized gains (1.04) (0.46)
- --
- ------------------------------------------------------
- -------------
Total Distributions (1.06) (0.55)
(0.15)
- ------------------------------------------------------
- -------------
NET ASSET VALUE, END OF YEAR $14.21 $13.42
$12.03
- ------------------------------------------------------
- -------------
TOTAL RETURN 13.70% 16.33%
1.53%++
- ------------------------------------------------------
- -------------
NET ASSETS, END OF YEAR (MILLIONS) $235 $219
$160
- ------------------------------------------------------
- -------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.28% 1.27%
1.19%+
Net investment income 0.55 0.84
2.74+
- ------------------------------------------------------
- -------------
PORTFOLIO TURNOVER RATE 35% 34%
6%
- ------------------------------------------------------
- -------------
AVERAGE COMMISSIONS PER SHARE PAID ON
EQUITY TRANSACTIONS $0.06 $0.06
$0.06
- ------------------------------------------------------
- -------------
</TABLE>
(1) Per share amounts have been calculated using the
monthly average shares
method, rather than the undistributed net
investment income method
because it more accurately reflects the per share
data for the period.
(2) For the period from June 30, 1995 (inception
date) to December 31, 1995.
++Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
10
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
SMITH BARNEY MANAGED GROWTH FUND 1997 1996(1)
1995(1)(2)
- ------------------------------------------------------
- ------------
<S> <C> <C>
<C>
NET ASSET VALUE, BEGINNING OF YEAR $13.41 $12.02
$12.00
- ------------------------------------------------------
- ------------
INCOME FROM OPERATIONS:
Net investment income (loss) (0.03) 0.01
0.11
Net realized and unrealized gain 1.77 1.84
0.02
- ------------------------------------------------------
- ------------
Total Income From Operations 1.74 1.85
0.13
- ------------------------------------------------------
- ------------
LESS DISTRIBUTION FROM:
Net investment income -- --
(0.11)
Net realized gains (1.04) (0.46)
- --
- ------------------------------------------------------
- ------------
Total Distributions (1.04) (0.46)
(0.11)
- ------------------------------------------------------
- ------------
NET ASSET VALUE, END OF YEAR $14.11 $13.41
$12.02
- ------------------------------------------------------
- ------------
TOTAL RETURN 12.84% 15.55%
1.16%++
- ------------------------------------------------------
- ------------
NET ASSETS, END OF YEAR (MILLIONS) $547 $485
$300
- ------------------------------------------------------
- ------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.05% 2.03%
1.94%+
Net investment income (loss) (0.22) 0.08
1.99+
- ------------------------------------------------------
- ------------
PORTFOLIO TURNOVER RATE 35% 34%
6%
- ------------------------------------------------------
- ------------
AVERAGE COMMISSIONS PER SHARE PAID ON
EQUITY TRANSACTIONS $0.06 $0.06
$0.06
- ------------------------------------------------------
- ------------
</TABLE>
(1) Per share amounts have been calculated using the
monthly average shares
method, rather than the undistributed net
investment income method
because it more accurately reflects the per share
data for the period.
(2) For the period from June 30, 1995 (inception
date) to December 31, 1995.
++Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
11
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS C SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
SMITH BARNEY MANAGED GROWTH FUND 1997 1996(1)
1995(1)(2)
- ------------------------------------------------------
- -------------
<S> <C> <C>
<C>
NET ASSET VALUE, BEGINNING OF YEAR $13.41 $12.03
$12.00
- ------------------------------------------------------
- -------------
INCOME FROM OPERATIONS:
Net investment income (loss) (0.03) 0.00*
0.11
Net realized and unrealized gain 1.78 1.84
0.03
- ------------------------------------------------------
- -------------
Total Income From Operations 1.75 1.84
0.14
- ------------------------------------------------------
- -------------
LESS DISTRIBUTION FROM:
Net investment income -- --
(0.11)
Net realized gains (1.04) (0.46)
- --
- ------------------------------------------------------
- -------------
Total Distributions (1.04) (0.46)
(0.11)
- ------------------------------------------------------
- -------------
NET ASSET VALUE, END OF YEAR $14.12 $13.41
$12.03
- ------------------------------------------------------
- -------------
TOTAL RETURN 12.91% 15.45%
1.16%++
- ------------------------------------------------------
- -------------
NET ASSETS, END OF YEAR (MILLIONS) $77 $68
$43
- ------------------------------------------------------
- -------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.04% 2.03%
1.91%+
Net investment income (loss) (0.21) 0.08
2.02+
- ------------------------------------------------------
- -------------
PORTFOLIO TURNOVER RATE 35% 34%
6%
- ------------------------------------------------------
- -------------
AVERAGE COMMISSIONS PER SHARE PAID ON
EQUITY TRANSACTIONS $0.06 $0.06
$0.06
- ------------------------------------------------------
- -------------
</TABLE>
(1) Per share amounts have been calculated using the
monthly average shares
method, rather than the undistributed net
investment income method
because it more accurately reflects the per share
data for the period.
(2) For the period from June 30, 1995 (inception
date) to December 31, 1995.
++Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
* Amount Represents less than $0.01 per share.
12
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OF CLASS Y SHARES OF CAPITAL STOCK
OUTSTANDING THROUGHOUT EACH
YEAR.
<TABLE>
<CAPTION>
SMITH BARNEY MANAGED GROWTH FUND 1997
1996(1)(2)
- ------------------------------------------------------
- ----
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $13.43
$12.21
- ------------------------------------------------------
- ----
INCOME FROM OPERATIONS:
Net investment income 0.16
0.12
Net realized and unrealized gain 1.77
1.69
- ------------------------------------------------------
- ----
Total Income From Operations 1.93
1.81
- ------------------------------------------------------
- ----
LESS DISTRIBUTION FROM:
Net investment income (0.08)
(0.13)
Net realized gains (1.04)
(0.46)
- ------------------------------------------------------
- ----
Total Distributions (1.12)
(0.59)
- ------------------------------------------------------
- ----
NET ASSET VALUE, END OF YEAR $14.24
$13.43
- ------------------------------------------------------
- ----
TOTAL RETURN 14.23%
14.97%++
- ------------------------------------------------------
- ----
NET ASSETS, END OF YEAR (MILLIONS) $72
$65
- ------------------------------------------------------
- ----
RATIOS TO AVERAGE NET ASSETS+:
Expenses 0.90%
0.92%
Net investment income 0.92
1.12%
- ------------------------------------------------------
- ----
PORTFOLIO TURNOVER RATE 35%
34%
- ------------------------------------------------------
- ----
AVERAGE COMMISSIONS PER SHARE PAID ON
EQUITY TRANSACTIONS $0.06
$0.06
- ------------------------------------------------------
- ----
</TABLE>
(1) Per share amounts have been calculated using the
monthly average shares
method, rather than the undistributed net
investment income method
because it more accurately reflects the per share
data for the period.
(2) For the period from January 31, 1996 (inception
date) to December 31,
1996.
++Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
13
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The investment objective of the Fund is long term
growth of capital. There
can be no assurance that the investment objective of
the Fund will be
achieved. The Fund's investment objective may be
changed only by the "vote of
a majority of the outstanding voting securities" as
defined in the Investment
Company Act of 1940, as amended (the "1940 Act").
The Fund attempts to achieve its objective by
investing primarily in common
stock and securities, including debt securities which
are convertible into
common stock and which are currently price depressed,
undervalued or out of
favor. Such securities might typically be valued at
the low end of their 52
week trading range. Although under normal
circumstances the Fund's portfolio
will primarily consist of these securities, the Fund
may also invest in pre-
ferred stocks and warrants when MMC perceives an
opportunity for capital
growth from such securities. The Fund may, from time
to time enter into
futures contracts, write call options and purchase put
options (which are
sometimes referred to as "derivatives"). A derivative
is a financial instru-
ment whose performance is derived, at least in part,
from the performance of
an underlying asset. The Fund will not invest more
than 10% of its assets in
derivatives. The Fund may also invest in repurchase
agreements and reverse
repurchase agreements, sell securities short "against
the box", purchase the
securities of companies with less than three years of
continuous operation,
lend its portfolio securities and invest in real
estate investment trusts and
foreign securities. Additionally, the Fund may,
subject to the limitations set
forth in the 1940 Act, invest in the securities of
other closed-end investment
companies.
MMC's investment decisions with respect to the Fund's
portfolio are based
upon analysis and research, taking into account, among
other factors, the
relationship of book value to market value of the
securities, cash flow, the
multiple of earnings, private market value and the
ratio of market capitaliza-
tion to sales. These factors are not applied
formulaically, as MMC examines
each security separately.
Although the Fund's assets will be invested primarily
in equity securities,
government securities and money market instruments may
be held and repurchase
agreements may be entered into for temporary defensive
purposes and so that
the Fund may receive a return on its otherwise
uninvested cash. When MMC
invests in such securities, investment income will
increase and may constitute
a larger portion of the return on the Fund.
RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS
Warrants; Convertible Securities. A warrant is a
security that gives the
holder the right, but not the obligation, to subscribe
for newly created secu-
rities of the issuer or a related company at a fixed
price either at a certain
date or during a set period. A convertible security is
a security that may be
converted either at a stated price or rate within a
specified period of time
into a specified number of shares of common stock. In
investing in convertible
securities, the Fund seeks the opportuni-
14
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
(CONTINUED)
ty, through the conversion feature, to participate in
the capital appreciation
of the common stock into which the securities are
convertible.
Covered Option Writing. The Fund may utilize listed
options (including puts,
calls, interest rate and currency swaps, caps,
collars, spreads, straddles and
floors) with respect to its portfolio securities. The
Fund realizes a fee (re-
ferred to as a "premium") for granting the rights
evidenced by the options. A
put option embodies the right of its purchaser to
compel the writer of the
option to purchase from the option holder an
underlying security at a specified
price at any time during the option period. In
contrast, a call option embodies
the right of its purchaser to compel the writer of the
option to sell to the
option holder an underlying security at a specified
price at any time during
the option period.
Upon the exercise of a put option written by the
Fund, the Fund may suffer a
loss equal to the difference between the price at
which the Fund is required to
purchase the underlying security and its market value
at the time of the option
exercise, less the premium received for writing the
option. Upon the exercise
of a call option written by the Fund, the Fund may
suffer a loss equal to the
excess of the security's market value at the time of
the option exercise over
the Fund's cost of the security, less the premium
received for writing the
option.
The Fund will write only covered options with
respect to its portfolio secu-
rities. Accordingly, whenever the Fund writes a call
option on its securities,
it will continue to own or have the present right to
acquire the underlying
security for as long as it remains obligated as the
writer of the option. To
support its obligation to purchase the underlying
security if a call option is
exercised, the Fund will either (a) deposit with its
custodian in a segregated
account, cash, government securities or other high
grade debt obligations hav-
ing a value at least equal to the exercise price of
the underlying securities
or (b) continue to own an equivalent number of puts of
the same "series" (that
is, puts on the same underlying security) with
exercise prices greater than
those that it has written (or, if the exercise prices
of the puts that it holds
are less than the exercise prices of those that it has
written, it will deposit
the difference with its custodian in a segregated
account).
The Fund may engage in a closing purchase
transaction to realize a profit, to
prevent an underlying security from being called or to
unfreeze an underlying
security (thereby permitting its sale or the writing
of a new option on the
security prior to the outstanding option's
expiration). To effect a closing
purchase transaction, the Fund would purchase, prior
to the holder's exercise
of an option that the Fund has written, an option of
the same series as that on
which the Fund desires to terminate its obligation.
The obligation of the Fund
under an option that it has written would be
terminated by a closing purchase
transaction, but the Fund would not be deemed to own
an option as a result of
the transaction. There can be no assurance that the
Fund will be able to effect
closing purchase transactions at a time when it wishes
to
15
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
(CONTINUED)
do so. To facilitate closing purchase transactions,
however, the Fund ordinar-
ily will write options only if a secondary market for
the options exists on
domestic securities exchanges or in the over-the-
counter market.
Purchasing Put and Call Options on Securities. The
Fund may utilize up to 5%
of its assets to purchase put options on portfolio
securities and may do so at
or about the same time that it purchases the
underlying security or at a later
time. By buying a put, the Fund limits the risk of
loss from a decline in the
market value of the security until the put expires.
Any appreciation in the
value of, or in the yield otherwise available from the
underlying security,
however, will be partially offset by the amount of the
premium paid for the put
option and any related transaction costs. The Fund may
utilize up to 5% of its
assets to purchase call options on portfolio
securities. Call options may be
purchased by the Fund in order to acquire the
underlying securities for the
Fund at a price that avoids any additional cost that
would result from a sub-
stantial increase in the market value of a security.
The Fund also may purchase
call options to increase its return to investors at a
time when the call is
expected to increase in value due to anticipated
appreciation of the underlying
security.
Prior to their expirations, put and call options may
be sold in closing sale
transactions (sales by the Fund, prior to the exercise
of options it has pur-
chased, of options of the same series), and profit or
loss from the sale will
depend on whether the amount received is more or less
than the premium paid for
the option plus the related transaction costs.
Options on Broad-Based Domestic Stock Indexes. The
Fund may write call
options and purchase put options on broad-based
domestic stock indexes and
enter into closing transactions with respect to such
options. Options on stock
indexes are similar to options on securities except
that, rather than having
the right to take or make delivery of stock at the
specified exercise price, an
option on a stock index gives the holder the right to
receive, upon exercise of
the option, an amount of cash if the closing level of
the stock index upon
which the option is based is "in the money"; i.e. the
closing level of the
index is higher than the exercise price of the option.
This amount of cash is
equal to the difference between the closing level of
the index and the exercise
price of the option, expressed in dollars times a
specified multiple. The
writer of the option is obligated, in return for the
premium received, to make
delivery of this amount. Unlike stock options, all
settlements are in cash, and
gain or loss depends on price movements in the stock
market generally rather
than price movements in the individual stocks.
The effectiveness of purchasing and writing puts and
calls on stock index
options depends to a large extent on the ability of
the MMC to predict the
price movement of the stock index selected. Therefore,
whether the Fund real-
izes a gain or loss from the purchase of options on an
index depends upon move-
ments in the
16
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
(CONTINUED)
level of stock prices in the stock market generally.
Additionally, because
exercises of index options are settled in cash, a call
writer such as the Fund
cannot determine the amount of the settlement
obligations in advance and it
cannot provide in advance for, or cover, its potential
settlement obligations
by acquiring and holding the underlying securities.
When the Fund has written
the call, there is also a risk that the market may
decline between the time
the Fund has a call exercised against it, at a price
which is fixed as of the
closing level of the index on the date of exercise,
and the time the Fund is
able to exercise the closing transaction with respect
to the long call posi-
tion it holds.
Futures Contracts and Options on Futures Contracts.
A futures contract pro-
vides for the future sale by one party and the
purchase by the other party of
a certain amount of a specified security at a
specified price, date, time and
place. The Fund may enter into futures contracts to
sell securities when MMC
believes that the value of the Fund's securities will
decrease. An option on a
futures contract, as contrasted with the direct
investment in a futures con-
tract, gives the purchaser the right, in return for
the premium paid, to
assume a position in a futures contract at a specified
exercise price at any
time prior to the expiration date of the option. A
call option gives the pur-
chaser of the option the right to enter into a futures
contract to buy and
obliges the writer to enter into a futures contract to
sell the underlying
securities. A put option gives a purchaser the right
to sell and obliges the
writer to buy the underlying contract. The Fund may
enter into futures con-
tracts to purchase securities when MMC anticipates
purchasing the underlying
securities and believes that prices will rise before
the purchases will be
made. The Fund's custodian will maintain, in a
segregated account of the Fund,
cash, debt securities of any grade or equity
securities having a value equal
to or greater than the Fund's obligations, provided
such securities have been
determined by MMC to be liquid and unencumbered, and
are marked to market dai-
ly, pursuant to guidelines established by the
Directors. The Fund will not
enter into futures contracts for speculation and will
only enter into futures
contracts that are traded on a U.S. exchange or board
of trade.
Lending Securities. Consistent with applicable
regulatory requirements, the
Fund is authorized to lend securities it holds to
brokers, dealers and other
financial organizations. The Fund's loans of
securities will be collateralized
by cash, letters of credit or government securities
that are maintained at all
times in a segregated account with the Fund's
custodian in an amount at least
equal to the current market value of the loaned
securities. By lending its
portfolio securities, the Fund will seek to generate
income by continuing to
receive interest on the loaned securities, by
investing the cash collateral in
short-term instruments or by obtaining yield in the
form of interest paid by
the borrower when government securities are used as
collateral. The risks in
lending portfolio securities, as with other extensions
of secured credit, con-
sist of possible delays in receiving additional
collateral or in the recovery
17
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
(CONTINUED)
of the securities or possible loss of rights in the
collateral should the bor-
rower fail financially. Loans will be made to firms
deemed by MMC to be of
good standing and will not be made unless, in the
judgment of MMC, the consid-
eration to be earned from such loans would justify the
risk.
Foreign Securities. The Fund may invest up to 10% of
its net assets in secu-
rities of foreign issuers. Investing in foreign
securities involves certain
risks, including those resulting from fluctuations in
currency exchange rates,
revaluation of currencies, future political or
economic developments and the
possible imposition of restrictions or prohibitions on
the repatriation of
foreign currencies or other foreign governmental laws
or restrictions, reduced
availability of public information concerning issuers,
and, typically, the
lack of uniform accounting, auditing and financial
reporting standards or
other regulatory practices and requirements comparable
to those applicable to
domestic companies. Moreover, securities of many
foreign companies may be less
liquid and their prices more volatile than those of
securities of comparable
domestic companies. In addition, with respect to
certain foreign countries,
the possibility exists of expropriation, confiscatory
taxation and limitations
on the use or removal of funds or other assets of the
Fund, including the
withholding of dividends.
The Fund may invest in securities commonly known as
American Depositary
Receipts ("ADR's") of foreign issuers which have
certain risks, including
trading for a lower price, having less liquidity than
their underlying securi-
ties and risks relating to the issuing bank or trust
company. ADR's can be
sponsored by the issuing bank or trust company or
unsponsored. Holders of
unsponsored ADR's have a greater risk that receipt of
corporate information
will be untimely and incomplete and costs may be
higher.
Restricted and Illiquid Securities. The Fund may
invest in securities which
are not readily marketable, as well as restricted
securities not registered
under the Securities Act of 1933, as amended (the
"Securities Act"), OTC
options and securities that are otherwise considered
illiquid as a result of
market or other factors. Although it may invest up to
15% of its assets in
such securities, the Fund does not currently
anticipate investing more than 5%
on its assets in restricted or illiquid securities.
The Fund may invest in
securities eligible for resale under Rule 144A of the
Securities Act ("Rule
144A securities"). The Board of Directors of the Fund
may determine that spe-
cific Rule 144A securities held by the Fund may be
deemed liquid. Neverthe-
less, due to changing market or other factors, Rule
144A securities may be
subject to a greater possibility of becoming illiquid
than registered securi-
ties.
Borrowing. The Fund may also borrow money from banks
temporarily for emer-
gency purposes in an amount not exceeding 33 1/3% of
the Fund's total assets.
18
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
(CONTINUED)
A complete list of investment restrictions that the
Fund has adopted includ-
ing restrictions that cannot be changed without the
approval of the Fund's out-
standing shares is contained in the Statement of
Additional Information. Except
for the Fund's investment objective and those
restrictions specifically identi-
fied as fundamental which may not be changed without
the "vote of a majority of
the outstanding voting securities" as defined in the
1940 Act, all investment
policies and practices described in this Prospectus
and in the Statement of
Additional Information are non-fundamental and may be
changed by the Board of
Directors without shareholder approval.
Year 2000. The investment management services
provided to the Fund by MMC and
the services provided to shareholders by Smith Barney,
the Fund's Distributor,
depend on the smooth functioning of their computer
systems. Many computer soft-
ware systems 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. MMC and Smith
Barney have advised the Fund that they have been
reviewing all of their com-
puter 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, MMC has been advised by
the Fund's custodian,
transfer agent and accounting service agent that they
are also in the process
of modifying their systems with the same goal. There
can, however, be no assur-
ance that MMC, Smith Barney or any other service
provider will be successful,
or that interaction with other non-complying computer
systems will not impair
Fund services at that time.
PORTFOLIO TRANSACTIONS AND TURNOVER
MMC arranges for the purchase and sale of the Fund's
securities and selects
brokers and dealers (including Smith Barney), which in
its best judgment pro-
vide prompt and reliable execution at favorable prices
and reasonable commis-
sion rates. MMC may select brokers and dealers which
provide it with research
services and may cause the Fund to pay such brokers
and dealers commissions
which exceed those other brokers and dealers may have
charged, if it views the
commissions as reasonable in relation to the value of
the brokerage and/or
research services. In selecting a broker, including
Smith Barney, for a trans-
action, the primary consideration is prompt and
effective execution of orders
at the most favorable prices. Subject to that primary
consideration, dealers
may be selected for research, statistical or other
services to enable MMC to
supplement its own research and analysis.
It is anticipated that the annual portfolio turnover
rate of the Fund normally
will be less than 100%. The Fund's portfolio turnover
rate is calculated by
dividing the lesser of purchases or sales of portfolio
securities for the fis-
cal year by the monthly
19
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
(CONTINUED)
average of the value of the Fund's securities, with
money market instruments
with less than one year to maturity excluded. A 100%
portfolio turnover rate
would occur, for example, if all included securities
were replaced once during
the year. See "Financial Highlights" for the Fund's
annual turnover rates dur-
ing each year since inception.
VALUATION OF SHARES
The Fund's net asset value per share is determined as
of the close of regular
trading on the NYSE on each day that the NYSE is open,
by dividing the value of
the Fund's net assets attributable to each Class by
the total number of shares
of the Class outstanding.
Generally, the Fund's investments are valued at
market value, or, in the
absence of a market value with respect to any
securities, at fair value. Secu-
rities listed on an exchange are valued on the basis
of the last sale prior to
the time the valuation is made. If there has been no
sale since the immediately
previous valuation, then the current bid price is
used. Quotations are taken
from the exchange where the security is primarily
traded. Portfolio securities
which are primarily traded on foreign exchanges may be
valued with the assis-
tance of a pricing service and are generally valued at
the preceding closing
values of such securities on their respective
exchange, except that when an
occurrence subsequent to the time a foreign security
is valued is likely to
have changed such value, then the fair value of those
securities will be deter-
mined by consideration of other factors by or under
the direction of the Board
of Directors. Over-the-counter securities are valued
on the basis of the bid
price at the close of business on each day. Unlisted
foreign securities are
valued at the mean between the last available bid and
offer price prior to the
time of valuation. Any assets or liabilities initially
expressed in terms of
foreign currencies will be converted into U.S. dollar
values at the mean
between the bid and offered quotations of such
currencies against U.S. dollars
as last quoted by any recognized dealer. Securities
for which market quotations
are not readily available are valued at fair value.
Notwithstanding the above,
bonds and other fixed-income securities are valued by
using market quotations
and may be valued on the basis of prices provided by a
pricing service approved
by the Board of Directors.
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
20
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
and capital gains realized, in order to avoid a
Federal excise tax liability.
If a shareholder does not otherwise instruct,
dividends and capital gain dis-
tributions will be reinvested automatically in
additional shares of the same
Class at net asset value, with no additional sales
charge or CDSC.
The per share amounts of dividends from net
investment income on Classes B and
C may be lower than that of Classes A and Y, mainly as
a result of the distri-
bution fees applicable to Class B and C 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, C and Y).
TAXES
The following is a summary of the material federal
tax consideration affecting
the Fund and Fund shareholders, please refer to the
SAI for further discussion.
In addition to the considerations described below and
in the SAI, there may be
other federal, state, local, and/or foreign tax
applications to consider.
Because taxes are a complex matter, prospective
shareholders are urged to con-
sult their tax advisors for more detailed information
with respect to the tax
consequences of any investment.
The Fund intends to qualify, as it has in prior
years, under Subchapter M of
the Internal Revenue Code (the "Code") for tax
treatment as a regulated invest-
ment company. In each taxable year that the Fund
qualifies, so long as such
qualification is in the best interests of its
shareholders, 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.
21
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
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 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 shareholders' federal income tax
return.
PURCHASE OF SHARES
GENERAL
The Fund offers four Classes of shares. Class A
shares are sold to investors
with an initial sales charge and Class B and Class C
shares are sold without an
initial sales charge but are subject to a CDSC payable
upon certain redemp-
tions. Class Y shares are sold without an initial
sales charge or CDSC and are
available only to investors investing a minimum of
$15,000,000 (except for pur-
chases of Class Y shares by Smith Barney Concert
Allocation Series Inc., for
which there is no minimum purchase amount). The Fund
offers a fifth class of
shares: Class Z shares, which are offered without a
sales charge, CDSC, service
fee or distribution fee, exclusively to tax-exempt
employee benefit and retire-
ment plans of Smith Barney and its affiliates.
Investors meeting this criteria
who are interested in acquiring Class Z shares should
consult a Smith Barney
Financial Consultant for a Class Z shares prospectus.
See "Prospectus Summary--
Alternative Purchase Arrangements" for a discussion of
factors to consider in
selecting which Class of shares to purchase.
Purchases of Fund shares must be made through a
brokerage account maintained
with Smith Barney, an Introducing Broker or an
investment dealer in the selling
group. In addition, certain investors, including
qualified retirement plans and
certain other institutional investors, may purchase
shares directly from the
Fund through First Data. When purchasing shares of the
Fund, investors must
specify whether the purchase is for Class A, Class B,
Class C or Class Y
shares. Smith Barney and other broker/dealers may
charge their customers an
annual account maintenance fee
22
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 main-
tenance fee.
Investors in Class A, Class B and Class C shares may
open an account by mak-
ing an initial investment of at least $1,000 for each
account, or $250 for an
IRA or a Self-Employed Retirement Plan, in the Fund.
Investors in Class Y
shares may open an account by making an initial
investment of $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 C shares and the subsequent
investment requirement for all
Classes in the Fund is $25. For shareholders
purchasing shares of the Fund
through the Systematic Investment Plan on a monthly
basis, the minimum initial
investment requirement for Class A, Class B and Class
C shares and the 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 C shares and subsequent investment requirement
for all Classes is $50.
There are no minimum investment requirements for Class
A shares for employees
of Travelers and its subsidiaries, including Smith
Barney, Directors or Trust-
ees of any of the Smith Barney Mutual Funds or other
funds affiliated with
Travelers, and their spouses and children. The Fund
reserves the right to
waive or change minimums, to decline any order to
purchase its shares and to
suspend the offering of shares from time to time.
Shares purchased will be
held in the shareholder's account by First Data. Share
certificates are issued
only upon a shareholder's written request to First
Data.
Purchase orders received by the Fund or Smith Barney
prior to the close of
regular trading on the NYSE, on any day the Fund
calculates its net asset val-
ue, are priced according to the net asset value
determined on that day (the
"trade date"). Orders received by dealers or
Introducing Brokers prior to the
close of regular trading on the NYSE on any day the
Fund calculates its net
asset value, are priced according to the net asset
value determined on that
day, provided the order is received by the Fund or
Smith Barney prior to Smith
Barney's close of business. For shares purchased
through Smith Barney or
Introducing Brokers purchasing through Smith Barney,
payment for Fund shares
is due on the third business day after the trade date.
In all other cases,
payment must be made with the purchase order.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at
any time by purchasing
shares through a service known as the Systematic
Investment Plan. Under the
Systematic Investment Plan, Smith Barney or First Data
is authorized through
preautho-
23
<PAGE>
PURCHASE OF SHARES (CONTINUED)
rized transfers of at least $25 on a monthly basis or
at least $50 on a quar-
terly basis to charge the regular bank account or
other financial institution
indicated by the shareholder on a monthly or quarterly
basis to provide sys-
tematic additions to the shareholder's Fund account. A
shareholder who has
insufficient funds to complete the transfer will be
charged a fee of up to $25
by Smith Barney or First Data. The Systematic
Investment Plan also authorizes
Smith Barney to apply cash held in the shareholder's
Smith Barney brokerage
account or redeem the shareholder's shares of a Smith
Barney money market fund
to make additions to the account. Additional
information is available from the
Fund or a Smith Barney Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The sales charges applicable to purchases of Class A
shares of the Fund are
as follows:
<TABLE>
<CAPTION>
SALES CHARGE
-----------------------------
- -
DEALERS'
% OF % OF
REALLOWANCE AS % OF
AMOUNT OF INVESTMENT OFFERING PRICE AMOUNT
INVESTED OFFERING PRICE
- ------------------------------------------------------
- ---------------------
<S> <C> <C>
<C>
Less than $25,000 5.00% 5.26%
4.50%
$ 25,000 - 49,999 4.00 4.17
3.60
50,000 - 99,999 3.50 3.63
3.15
100,000 - 249,999 3.00 3.09
2.70
250,000 - 499,999 2.00 2.04
1.80
500,000 - and over * *
*
- ------------------------------------------------------
- ---------------------
</TABLE>
* Purchases of Class A shares of $500,000 or more will
be made at net asset
value without any initial sales charge, but will be
subject to a CDSC of
1.00% on redemptions made within 12 months of
purchase. The CDSC on Class A
shares is payable to Smith Barney, which compensates
Smith Barney Financial
Consultants and other dealers whose clients make
purchases of $500,000 or
more. The CDSC is waived in the same circumstances
in which the CDSC
applicable to Class B and Class C shares is waived.
See "Deferred Sales
Charge Alternatives" and "Waivers of CDSC."
Members of the selling group may receive up to 90%
of the sales charge and
may be deemed to be underwriters of the Fund as
defined in the Securities Act.
The reduced sales charges shown above apply to the
aggregate of purchases of
Class A shares of the Fund made at one time by "any
person," which includes an
individual and his or her immediate family, or a
trustee or other fiduciary of
a single trust estate or single fiduciary account.
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset
value without a sales
charge in the following circumstances: (a) sales to
(i) Board members and
employees of Travelers and its subsidiaries and any of
the Smith Barney Mutual
Funds or other Travelers-affiliated funds (including
retired Board members and
employees);
24
<PAGE>
PURCHASE OF SHARES (CONTINUED)
the immediate families of such persons (including the
surviving spouse of a
deceased Board member or employee); and to a pension,
profit-sharing or other
benefit plan for such persons and (ii) employees of
members of the National
Association of Securities Dealers, Inc., provided such
sales are made upon the
assurance of the purchaser that the purchase is made
for investment purposes
and that the securities will not be resold except
through redemption or repur-
chase; (b) offers of Class A shares to any other
investment company to effect
the combination of such company with the Fund by
merger, acquisition of assets
or otherwise; (c) purchases of Class A shares by any
client of a newly
employed Smith Barney Financial Consultant (for a
period up to 90 days from
the commencement of the Financial Consultant's
employment with Smith Barney),
on the condition the purchase of Class A shares is
made with the proceeds of
the redemption of shares of a mutual fund which (i)
was sponsored by the
Financial Consultant's prior employer, (ii) was sold
to the client by the
Financial Consultant and (iii) was subject to a sales
charge; (d) purchases by
shareholders who have redeemed Class A shares in the
Fund (or Class A shares
of another fund in the Smith Barney Mutual Funds that
are offered with a sales
charge) and who wish to reinvest their redemption
proceeds in the Fund, pro-
vided the reinvestment is made within 60 calendar days
of the redemption; (e)
purchases by accounts managed by registered investment
advisory subsidiaries
of Travelers; (f) direct rollovers by plan
participants from a 401(k) plan
offered to employees of Travelers or its subsidiaries
or a 401(k) plan
enrolled in the Smith Barney 401(k) Program (Note:
subsequent investments will
be subject to the applicable sales charge); (g)
purchases by separate accounts
used to fund certain unregistered variable annuity
contracts; (h) purchases by
investors participating in a Smith Barney fee-based
arrangement; and (i) pur-
chases of Class A shares by Section 403(b) or Section
401(a) or (k) accounts
associated with Copeland Retirement Programs. In order
to obtain such dis-
counts, the purchaser must provide sufficient
information at the time of pur-
chase to permit verification that the purchase would
qualify for the elimina-
tion of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any
person" (as defined
above) at a reduced sales charge or at net asset value
determined by aggregat-
ing the dollar amount of the new purchase and the
total net asset value of all
Class A shares of the Fund and of funds sponsored by
Smith Barney which are
offered with a sales charge listed under "Exchange
Privilege" then held by
such person and applying the sales charge applicable
to such aggregate. In
order to obtain such discount, the purchaser must
provide sufficient informa-
tion at the time of purchase to permit verification
that the purchase quali-
fies for the reduced sales charge. The right of
accumulation is subject to
modification or discontinuance at any time with
respect to all shares pur-
chased thereafter.
25
<PAGE>
PURCHASE OF SHARES (CONTINUED)
GROUP PURCHASES
Upon completion of certain automated systems, a
reduced sales charge or pur-
chase at net asset value will also be available to
employees (and partners) of
the same employer purchasing as a group, provided each
participant makes the
minimum initial investment required. The sales charge
applicable to purchases
by each member of such a group will be determined by
the table set forth above
under "Initial Sales Charge Alternative--Class A
Shares," and will be based
upon the aggregate sales of Class A shares of Smith
Barney Mutual Funds offered
with a sales charge to, and share holdings of, all
members of the group. To be
eligible for such reduced sales charges or to purchase
at net asset value, all
purchases must be pursuant to an employer- or
partnership-sanctioned plan meet-
ing certain requirements. One such requirement is that
the plan must be open to
specified partners or employees of the employer and
its subsidiaries, if any.
Such plan may, but is not required to, provide for
payroll deductions, IRAs or
investments pursuant to retirement plans under Section
401 or 408 of the Code.
Smith Barney may also offer a reduced sales charge or
net asset value purchase
for aggregating related fiduciary accounts under such
conditions that Smith
Barney will realize economies of sales efforts and
sales related expenses. An
individual who is a member of a qualified group may
also purchase Class A
shares at the reduced sales charge applicable to the
group as a whole. The
sales charge is based upon the aggregate dollar value
of Class A shares offered
with a sales charge that have been previously
purchased and still owned by the
group, plus the amount of the current purchase. A
"qualified group" is one
which (a) has been in existence for more than six
months, (b) has a purpose
other than acquiring Fund shares at a discount and (c)
satisfies uniform crite-
ria which enable Smith Barney to realize economies of
scale in its costs of
distributing shares. A qualified group must have more
than 10 members, must be
available to arrange for group meetings between
representatives of the Fund and
the members, and must agree to include sales and other
materials related to the
Fund in its publications and mailings to members at no
cost to Smith Barney. In
order to obtain such reduced sales charge or to
purchase at net asset value,
the purchaser must provide sufficient information at
the time of purchase to
permit verification that the purchase qualifies for
the reduced sales charge.
Approval of group purchase reduced sales charge plans
is subject to the discre-
tion of Smith Barney.
LETTER OF INTENT
Class A Shares. A Letter of Intent for amounts of
$50,000 or more provides an
opportunity for an investor to obtain a reduced sales
charge by aggregating the
investments over a 13-month period, provided that the
investor refers to such
Letter when placing orders. For purposes of a Letter
of Intent, the "Amount of
Investment" as referred to in the preceding sales
charge table includes pur-
chases of all Class A shares of the Fund and other
funds of the Smith Barney
Mutual Funds
26
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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
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 same Fund
within 13 months from the date of the Letter. If a
total investment of
$15,000,000 is not made within the 13-month period,
all Class Y shares pur-
chased to date will be transferred to Class A shares,
where they will be sub-
ject to all fees (including a service fee of 0.25%)
and expenses applicable to
the Fund's Class A shares, which may include a CDSC of
1.00%. Please contact a
Smith Barney Financial Consultant or First Data for
further information.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next
determined without an initial
sales charge so that the full amount of an investor's
purchase payment may be
immediately invested in the Fund. A CDSC, however, may
be imposed on certain
redemptions of these shares. "CDSC Shares" are: (a)
Class B shares; (b) Class C
shares; and (c) Class A shares that were purchased
without an initial sales
charge but subject to a CDSC.
Any applicable CDSC will be assessed on an amount
equal to the lesser of the
cost of the shares being redeemed or their net asset
value at the time of
redemption. CDSC Shares that are redeemed will not be
subject to a CDSC to the
extent that the value of such shares represents: (a)
capital appreciation of
Fund assets; (b) reinvestment of dividends or capital
gain distributions; (c)
with respect to Class B shares, shares redeemed more
than five years after
their purchase; or (d) with respect to Class C shares
and Class A shares that
are CDSC Shares, shares redeemed more than 12 months
after their purchase.
Class C shares and Class A shares that are CDSC
Shares are subject to a 1.00%
CDSC if redeemed within 12 months of purchase. In
circumstances in which the
CDSC is imposed on Class B shares, the amount of the
charge will depend on the
number of years since the shareholder made the
purchase payment from which the
27
<PAGE>
PURCHASE OF SHARES (CONTINUED)
amount is being redeemed. Solely for purposes of
determining the number of
years since a purchase payment, all purchase payments
made during a month will
be aggregated and deemed to have been made on the last
day of the preceding
Smith Barney statement month. The following table sets
forth the rates of the
charge for redemptions of Class B shares by
shareholders, except in the case of
Class B shares held under the Smith Barney 401(k)
Program, as described below.
See "Purchase of Shares--Smith Barney 401(k) and
ExecChoice(TM) Programs."
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
- ---------------------------------
<S> <C>
First 5.00%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth and thereafter 0.00
- ---------------------------------
</TABLE>
Class B shares will convert automatically to Class A
shares eight years after
the date on which they were purchased and thereafter
will no longer be subject
to any distribution fee. There will also be converted
at that time such propor-
tion of Class B Dividend Shares owned by the
shareholder as the total number of
his or her Class B shares converting at the time bears
to the total number of
outstanding Class B shares (other than Class B
Dividend Shares) owned by the
shareholder. See "Prospectus Summary--Alternative
Purchase Arrangements--Class
B Shares Conversion Feature."
In determining the applicability of any CDSC, it
will be assumed that a
redemption is made first of shares representing
capital appreciation, next of
shares representing the reinvestment of dividends and
capital gain distribu-
tions and finally of other shares held by the
shareholder for the longest
period of time. The length of time that CDSC Shares
acquired through an
exchange have been held will be calculated from the
date that the shares
exchanged were initially acquired in one of the other
Smith Barney Mutual
Funds, and Fund shares being redeemed will be
considered to represent, as
applicable, capital appreciation or dividend and
capital gain distribution
reinvestments in such other funds. For Federal income
tax purposes, the amount
of the CDSC will reduce the gain or increase the loss,
as the case may be, on
the amount realized on redemption. The amount of any
CDSC will be paid to Smith
Barney.
To provide an example, assume an investor purchased
100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the
investor acquired 5 addi-
tional shares through dividend reinvestment. During
the fifteenth month after
the purchase, the investor decided to redeem $500 of
his or her investment.
Assuming at
28
<PAGE>
PURCHASE OF SHARES (CONTINUED)
the time of the redemption the net asset value had
appreciated to $12 per
share, the value of the investor's shares would be
$1,260 (105 shares at $12
per share). The CDSC would not be applied to the
amount which represents appre-
ciation ($200) and the value of the reinvested
dividend shares ($60). There-
fore, $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 commences
(see "Automatic Cash Withdrawal Plan") (provided,
however, that automatic cash
withdrawal in amounts equal to or less than 2.00% per
month of the value of the
shareholders shares will be permitted for withdrawal
plans that were estab-
lished prior to November 7, 1994); (c) redemption of
shares within 12 months
following the death or disability of the shareholder;
(d) redemption of shares
made in connection with qualified distributions from
retirement plans or IRAs
upon the attainment of age 59 1/2; (e) involuntary
redemptions; and (f) redemp-
tion of shares to effect a combination of the Fund
with any investment company
by merger, acquisition of assets or otherwise. In
addition, a shareholder who
has redeemed shares from other funds of the Smith
Barney Mutual Funds may,
under certain circumstances, reinvest all or part of
the redemption proceeds
within 60 days and receive pro rata credit for any
CDSC imposed on the prior
redemption.
CDSC waivers will be granted subject to confirmation
(by Smith Barney in the
case of shareholders who are also Smith Barney clients
or by First Data in the
case of all other shareholders) of the shareholder's
status or holdings, as the
case may be.
SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS
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.
The Fund offers to Participating Plans Class A and
Class C shares as invest-
ment alternatives under the Smith Barney 401(k) and
ExecChoice(TM) Programs.
Class A and Class C shares acquired through the
Participating Plans are subject
to the same service and/or distribution fees as the
Class A and Class C shares
acquired by other investors; however, they are not
subject to any initial sales
charge or CDSC. Once a Participating Plan has made an
initial investment in the
Fund, all of its subsequent investments in the Fund
must be in the same Class
of shares, except as otherwise described below.
29
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Class A Shares. Class A shares of the Fund are
offered without any sales
charge or CDSC to any Participating Plan that
purchases $1,000,000 or more of
Class A shares of one or more funds of the Smith
Barney Mutual Funds.
Class C Shares. Class C shares of the Fund are
offered without any sales
charge or CDSC to any Participating Plan that
purchases less than $1,000,000 of
Class C shares of one or more funds of the Smith
Barney Mutual Funds.
401(k) and ExecChoice(TM) Plans Opened On or After
June 21, 1996. If, at the
end of the fifth year after the date the Participating
Plan enrolled in the
Smith Barney 401(k) Program or the Smith Barney
ExecChoice(TM) Program, a Par-
ticipating Plan's total Class C holdings in all non-
money market Smith Barney
Mutual Funds equal at least $1,000,000, the
Participating Plan will be offered
the opportunity to exchange all of its Class C shares
for Class A shares of the
Fund (For Participating Plans that were originally
established through a Smith
Barney retail brokerage account, the five year period
will be calculated from
the date the retail brokerage account was opened.)
Such Participating Plans
will be notified of the pending exchange in writing
within 30 days after the
fifth anniversary of the 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
C holdings in all non-money market Smith Barney Mutual
Funds equal at least
$500,000 as of the calendar year-end, the
Participating Plan will be offered
the opportunity to exchange all of its Class C shares
for Class A shares of the
Fund. Such Plans will be notified in writing within 30
days after the last
business day of the calendar year and, unless the
exchange offer has been
rejected in writing, the exchange will occur on or
about the last business day
of the following March.
Any Participating Plan in the Smith Barney 401(k) or
ExecChoice(TM) Program,
whether opened before or after June 21, 1996, that has
not previously qualified
for an exchange into Class A shares will be offered
the opportunity to exchange
all of its Class C shares for Class A shares of the
Fund regardless of asset
size, at the end of the eighth year after the date the
Participating Plan
enrolled in the Smith Barney 401(k) or ExecChoice(TM)
Program. Such Plans will
be notified of the pending exchange in writing
approximately 60 days before the
eighth anniversary of the enrollment date and, unless
the exchange has been
rejected in writing, the exchange will occur on or
about the eighth anniversary
date. Once an exchange has occurred, a Participating
Plan will not be eligible
to acquire additional Class C shares of the
30
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Fund but instead may acquire Class A shares of the
Fund. Any Class C shares not
converted will continue to be subject to the
distribution fee.
Participating Plans wishing to acquire shares of the
Fund through the Smith
Barney 401(k) Program or the Smith Barney
ExecChoice(TM) Program must purchase
such shares directly from First Data. For further
information regarding these
Programs, investors should contact a Smith Barney
Financial Consultant.
Existing 401(k) Plans Investing in Class B Shares.
Class B shares of the Fund
are not available for purchase by Participating Plans
opened on or after June
21, 1996, but may continue to be purchased by any
Participating Plan in the
Smith Barney 401(k) Program opened prior to such date
and originally investing
in such Class. Class B shares acquired are subject to
a CDSC of 3.00% of
redemption proceeds, if the Participating Plan
terminates within eight years of
the date the Participating Plan first enrolled in the
Smith Barney 401(k) Pro-
gram.
At the end of the eighth year after the date the
Participating Plan enrolled
in the Smith Barney 401(k) Program, the Participating
Plan will be offered the
opportunity to exchange all of its Class B shares for
Class A shares of the
Fund. Such Participating Plan will be notified of the
pending exchange in writ-
ing approximately 60 days before the eighth
anniversary of the enrollment date
and, unless the exchange has been rejected in writing,
the exchange will occur
on or about the eighth anniversary date. Once the
exchange has occurred, a Par-
ticipating Plan will not be eligible to acquire
additional Class B shares of
the Fund but instead may acquire Class A shares of the
Fund. If the Participat-
ing Plan elects not to exchange all of its Class B
shares at that time, each
Class B share held by the Participating Plan will have
the same conversion fea-
ture as Class B shares held by other investors. See
"Purchase of Shares--
Deferred Sales Charge Alternatives."
No CDSC is imposed on redemptions of Class B shares
to the extent that the
net asset value of the shares redeemed does not exceed
the current net asset
value of the shares purchased through reinvestment of
dividends or capital gain
distributions, plus the current net asset value of
Class B shares purchased
more than eight years prior to the redemption, plus
increases in the net asset
value of the shareholder's Class B shares above the
purchase payments made dur-
ing the preceding eight years. Whether or not the CDSC
applies to the redemp-
tion by a Participating Plan depends on the number of
years since the Partici-
pating Plan first became enrolled in the Smith Barney
401(k) Program, unlike
the applicability of the CDSC to redemptions by other
shareholders, which
depends on the number of years since those
shareholders made the purchase pay-
ment from which the amount is being redeemed.
The CDSC will be waived on redemptions of Class B
shares in connection with
lump-sum or other distributions made by a
Participating Plan as a result of:
(a) the
31
<PAGE>
PURCHASE OF SHARES (CONTINUED)
retirement of an employee in the Participating Plan;
(b) the termination of
employment of an employee in the Participating Plan;
(c) the death or disabil-
ity of an employee in the Participating Plan; (d) the
attainment of age 59 1/2
by an employee in the Participating Plan; (e) hardship
of an employee in the
Participating Plan to the extent permitted under
Section 401(k) of the Code; or
(f) redemptions of shares in connection with a loan
made by the Participating
Plan to an employee.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each
Class may be exchanged at the
net asset value next determined for shares of the same
Class in the following
funds of the Smith Barney Mutual Funds, to the extent
shares are offered for
sale in the shareholder's state of residence.
Exchanges of Class A, Class B and
Class C shares are subject to minimum investment
requirements and all shares
are subject to the other requirements of the fund into
which exchanges are
made.
FUND NAME
Growth Funds
Concert Peachtree Growth Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Large Cap Blend Fund
Smith Barney Large Capitalization Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Small Cap Blend Fund
Smith Barney Special Equities Fund
Growth and Income Funds
Concert Social Awareness Fund
Smith Barney Convertible Fund
Smith Barney Funds, Inc.--Large Cap Value Fund
Smith Barney Premium Total Return Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government Income
Fund
Smith Barney Diversified Strategic Income Fund
+++Smith Barney Funds, Inc.--Short-Term U.S. Treasury
Securities Fund
Smith Barney Funds, Inc.--U.S. Government
Securities Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
32
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
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
Smith Barney Muni Funds--Florida Portfolio
Smith Barney Muni Funds--Georgia Portfolio
*Smith Barney Muni Funds--Limited Term Portfolio
Smith Barney Muni Funds--New York Portfolio
Smith Barney Muni Funds--National Portfolio
Smith Barney Muni Funds--Pennsylvania Portfolio
Smith Barney Municipal High Income Fund
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.--
Growth Portfolio
Smith Barney Concert Allocation Series Inc.--
Global Portfolio
Smith Barney Concert Allocation Series Inc.--High
Growth Portfolio
Smith Barney Concert Allocation Series Inc.--
Income Portfolio
33
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Money Market Funds
+Smith Barney Exchange Reserve Fund
++Smith Barney Money Funds, Inc.--Cash Portfolio
++Smith Barney Money Funds, Inc.--Government
Portfolio
***Smith Barney Money Funds, Inc.--Retirement
Portfolio
+++Smith Barney Municipal Money Market Fund, Inc.
+++Smith Barney Muni Funds--California Money
Market Portfolio
+++Smith Barney Muni Funds--New York Money Market
Portfolio.
- ------------------------------------------------------
- -------------------------
* Available for exchange with Class A, Class C and
Class Y shares of the
Fund.
** Available for exchange with Class A and Class B
shares of the Fund. In
addition, shareholders who own Class C shares of
the Fund through the
Smith Barney 401(k) Program may exchange those
shares for Class C shares
of this Fund.
***Available for exchange with Class A shares of the
Fund.
+ Available for exchange with Class B and Class C
shares of the Fund.
++ Available for exchange with Class A and Class Y
shares of the Fund. In
addition, participating plans opened prior to June
21, 1996 and investing
in Class C shares may exchange Fund shares for
Class C shares of this
Fund.
+++Available for exchange with Class A and Class Y
shares of the Fund.
Class B Exchanges. In the event a Class B
shareholder wishes to exchange all
or a portion of his or her shares into any of the
funds imposing a higher CDSC
than that imposed by the Fund, the exchanged Class B
shares will be subject to
the higher applicable CDSC. Upon an exchange, the new
Class B shares will be
deemed to have been purchased on the same date as the
Class B shares of the
Fund that have been exchanged.
Class C Exchanges. Upon an exchange, the new Class C
shares will be deemed
to have been purchased on the same date as the Class C
shares of the Fund that
have been exchanged.
Class A and Class Y Exchanges. Class A and Class Y
shareholders of the Fund
who wish to exchange all or a portion of their shares
for shares of the
respective class in any of the funds identified above
may do so without impo-
sition of any charge.
Additional Information Regarding the Exchange
Privilege. Although the
exchange privilege is an important benefit, excessive
exchange transactions
can be detrimental to the Fund's performance and its
shareholders. MMC 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, MMC will
notify Smith Barney and Smith Barney may, at its
discretion, decide to limit
additional purchases and/or exchanges by the
shareholder. Upon such a determi-
nation, Smith Barney will provide notice in writing or
by telephone to the
shareholder at least 15 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
34
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
in the Fund or exchange into any of the funds of the
Smith Barney Mutual Funds
listed above, which position the shareholder would be
expected to maintain for
a significant period of time. All relevant factors
will be considered in deter-
mining what constitutes an abusive pattern of
exchanges.
Certain shareholders may be able to exchange shares
by telephone. See "Re-
demption of Shares--Telephone Redemption and Exchange
Program". Exchanges will
be processed at the net asset value next determined.
Redemption procedures dis-
cussed below are also applicable for exchanging
shares, and exchanges will be
made upon receipt of all supporting documents in
proper form. If the account
registration of the shares of the fund being acquired
is identical to the reg-
istration of the shares of the fund exchanged, no
signature guarantee is
required. A capital gain or loss for tax purposes will
be realized upon the
exchange, depending upon the cost or other basis of
shares redeemed. Before
exchanging shares, investors should read the current
prospectus describing the
shares to be acquired. The Fund reserves the right to
modify or discontinue
exchange privileges upon 60 days' prior notice to
shareholders.
REDEMPTION OF SHARES
The Fund is required to redeem the shares of the
Fund tendered to it, as
described below, at a redemption price equal to their
net asset value per share
next determined after receipt of a written request in
proper form at no charge
other than any applicable CDSC. Redemption requests
received after the close of
regular trading on the NYSE are priced at the net
asset value next determined.
If a shareholder holds shares in more than one
Class, any request for redemp-
tion must specify the Class being redeemed. In the
event of a failure to spec-
ify which Class, or if the investor owns fewer shares
of the Class than speci-
fied, the redemption request will be delayed until the
Fund's 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 days on which the NYSE is
closed or as permitted
under the 1940 Act, in extraordinary circumstances.
Generally, if the redemp-
tion proceeds are remitted to a Smith Barney brokerage
account, these funds
will not be invested for the shareholder's benefit
without specific instruction
and Smith Barney will benefit from the use of
temporarily uninvested funds.
Redemption proceeds for shares purchased by check,
other than a certified or
official bank check, will be remitted upon clearance
of the check, which may
take up to ten days or more.
Shares held by Smith Barney as custodian must be
redeemed by submitting a
written request to a Smith Barney Financial
Consultant. Shares other than those
35
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
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 Managed Growth Fund
Class A, B, C or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
A written redemption request must (a) state the
Class and number or dollar
amount of shares to be redeemed, (b) identify the
shareholder's account number
and (c) be signed by each registered owner exactly as
the shares are regis-
tered. If the shares to be redeemed were issued in
certificate form, the cer-
tificates must be endorsed for transfer (or be
accompanied by an endorsed stock
power) and must be submitted to First Data together
with the redemption
request. Any signature appearing on a share
certificate, stock power or written
redemption request in excess of $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 Federal Reserve
System or member firm of a
national securities exchange. Written redemption
requests of $10,000 or less do
not require a signature guarantee unless more than one
such redemption request
is made in any 10-day period. Redemption proceeds will
be mailed to an invest-
or's address of record. First Data may require
additional supporting documents
for redemptions made by corporations, executors,
administrators, trustees or
guardians. A redemption request will not be deemed
properly received until
First Data receives all required documents in proper
form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash
withdrawal plan, under which
shareholders who own shares with a value of at least
$10,000 may elect to
receive periodic cash payments of at least $50 monthly
or quarterly. Retirement
plan accounts are eligible for automatic cash
withdrawal plans only where the
shareholder is eligible to receive qualified
distributions and has an account
value of at least $5,000. The withdrawal plan will be
carried over on exchanges
between funds or Classes of the Fund. Any applicable
CDSC will not be waived on
amounts withdrawn by a shareholder that exceed 1.00%
per month of the value of
the shareholder's shares subject to the CDSC at the
time the withdrawal plan
commences. For further information regarding the
automatic cash withdrawal
plan, shareholders should contact a Smith Barney
Financial Consultant.
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
Shareholders who do not have a Smith Barney
brokerage account may be eligible
to redeem and exchange Fund shares by telephone. To
determine if a share-
36
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
holder is entitled to participate in this program, he
or she should contact
First Data at 1-800-451-2010. Once eligibility is
confirmed, the shareholder
must complete and return a Telephone/Wire
Authorization Form, along with 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 the applicant's signature guarantee
when making his/her ini-
tial investment in the Fund.)
Redemptions. Redemption requests of up to $10,000 of
any class or classes of
the Fund's shares may be made by eligible shareholders
by calling First Data
at 1-800-451-2010. Such requests may be made between
9:00 a.m. and 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 shares of the fund being
acquired is identical to the
registration of the shares of the fund exchanged. Such
exchange requests may
be made by calling First Data at 1-800-451-2010
between 9:00 a.m. and 4:00
p.m. (New York City time) on any day on which the NYSE
is open. Exchange
requests received after the close of regular trading
on the NYSE are processed
at the net asset value next determined.
Additional Information regarding Telephone
Redemption and Exchange
Program. Neither the Fund nor its agents will be
liable for following instruc-
tions communicated by telephone that are reasonably
believed to be genuine.
The Fund and its agents will employ procedures
designed to verify the identity
of the caller and legitimacy of instructions (for
example, a shareholder's
name and account number will be required and phone
calls may be recorded). The
Fund reserves the right to suspend, modify or
discontinue the telephone
redemption and exchange program
37
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
or to impose a charge for this service at any time
following at least seven (7)
days' prior notice to shareholders.
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily
liquidate any shareholder's
account in the Fund if the aggregate net asset value
of the shares held in the
Fund account is less than $500. (If a shareholder has
more than one account in
this Fund, each account must satisfy the minimum
account size). The Fund, how-
ever, will not redeem shares based solely on market
reductions in net asset
value. Before the Fund exercises such right,
shareholders will receive written
notice and will be permitted 60 days to bring accounts
up to the minimum to
avoid involuntary liquidation.
PERFORMANCE
From time to time the Fund may include its total
return, average annual total
return and current dividend return in advertisements
and/or other types of
sales literature. These figures are computed
separately for Class A, Class B,
Class C and Class Y shares of the Fund. These figures
are based on historical
earnings and are not intended to indicate future
performance. Total return is
computed for a specified period of time assuming
deduction of the maximum sales
charge, if any, from the initial amount invested and
reinvestment of all income
dividends and capital gain distributions on the
reinvestment dates at prices
calculated as stated in this Prospectus, then dividing
the value of the invest-
ment at the end of the period so calculated by the
initial amount invested and
subtracting 100%. The standard average annual total
return, as prescribed by
the SEC, is derived from this total return, which
provides the ending redeem-
able value. Such standard total return information may
also be accompanied with
nonstandard total return information for differing
periods computed in the same
manner but without annualizing the total return or
taking sales charges into
account. The Fund calculates current dividend return
for each Class by
annualizing the most recent monthly distribution and
dividing by the net asset
value or the maximum public offering price (including
sales charge) on the last
day of the period for which current dividend return is
presented. The current
dividend return for each Class may vary from time to
time depending on market
conditions, the composition of its investment
portfolio and operating expenses.
These factors and possible differences in the methods
used in calculating cur-
rent dividend return should be considered when
comparing a Class' current
return to yields published for other investment
companies and other investment
vehicles. The Fund may also include comparative
performance information in
advertising or mar-
38
<PAGE>
PERFORMANCE (CONTINUED)
keting 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 management and
supervision of the Fund rests with
the Company's Board of Directors. The Directors
approve all significant agree-
ments between the Company and the companies that
furnish services to the Fund
and the Company, including agreements with its
distributor, investment adviser,
custodian and transfer agent. The day-to-day
operations of the Fund are dele-
gated to the Fund's investment manager. The Statement
of Additional Information
contains background information regarding each
Director of the Fund and execu-
tive officer of the Company.
MMC
MMC, located at 388 Greenwich Street, New York, New
York 10013, serves as the
Fund's investment adviser and manages the day-to-day
operations of the Fund
pursuant to a management agreement entered into by the
Company, on behalf of
the Fund. MMC renders investment advice to investment
companies which had
aggregate assets under management as of March 31,
1998, of approximately $100.5
billion.
Subject to the supervision and direction of the
Company's Board of Directors,
MMC manages the Fund's portfolio in accordance with
the Fund's stated invest-
ment objective and policies, makes investment
decisions for the Fund, places
orders to purchase and sell securities and employs
professional portfolio man-
agers and securities analysts who provide research
services to the Fund. For
the services rendered, the Fund pays MMC a monthly fee
at the annual rate of
0.85% of the value of its average daily net assets.
Although this fee is higher
than that paid by most investment companies, the
Fund's management has deter-
mined that it is comparable to the fee charged by
other investment advisers of
investment companies that have similar investment
objectives and policies.
PORTFOLIO MANAGEMENT
John Stoeser has served as Vice President and
Investment Officer of the Fund
and has been responsible for the management of the
Fund's assets since April
1998. Mr. Stoeser was Vice President and Research
Analyst of the Fund since
July 1997. From 1992 until July 1997 Mr. Stoeser was
Assistant Vice President,
Portfolio Manager and Research Analyst with Safeco
Asset Management.
39
<PAGE>
MANAGEMENT OF THE COMPANY AND THE FUND (CONTINUED)
Management's discussion and analysis, and additional
performance information
regarding the Fund during the fiscal year ended
December 31, 1997 is included
in the Annual Report dated December 31, 1997. A copy
of the Annual Report may
be obtained upon request and without charge from a
Smith Barney Financial Con-
sultant or by writing or calling the Fund at the
address or phone number listed
on page one of this Prospectus.
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 Group and Citicorp.
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. Although the effects of the
merger of Travelers and
Citicorp and compliance with the requirements of the
BHCA and the Glass-
Steagall Act are still under review, MMC does not
believe that its compliance
with applicable law following 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.
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New
York, New York 10013.
Smith Barney distributes shares of the Fund as
principal underwriter and as
such conducts a continuous offering pursuant to a
"best efforts" arrangement
requiring Smith Barney to take and pay for only such
securities as may be sold
to the public. Pursuant to a plan of distribution
adopted by the Fund under
Rule 12b-1 under the 1940 Act (the "Plan"), Smith
Barney is paid a service fee
with respect to Class A, Class B and Class C shares of
the Fund at the annual
rate of 0.25% of the average daily net assets of the
respective Class. Smith
Barney is also paid a distribution fee with respect to
Class B and Class C
shares at the annual rate of 0.75% of the average
daily net assets attributable
to those Classes. Class B shares that automatically
convert to Class A shares
eight years after the date of original purchase will
no longer be subject to
distribution fees. The fees are used by Smith Barney
to pay its Financial Con-
sultants for servicing shareholder accounts and, in
the case of Class B and
Class C shares, to cover expenses primarily intended
to result in the sale of
those shares. These expenses include: advertising
expenses; the cost of print-
ing and mailing prospectuses to potential investors;
payments to and expenses
of Smith Barney Financial Consultants and other
persons who provide support
services in connection with the distribution of
shares; interest and/or carry-
ing charges;
40
<PAGE>
SMITH
BARNEY
-------
- --------------------------
A
Member of TravelersGroup [LOGO]
SMITH BARNEY
MANAGED
GROWTH
FUND
388 Greenwich Street
New York, New York 10013
FD 0899 4/98
<PAGE>
P R O S P E C T U S
SMITH BARNEY
Managed
Growth
Fund
Class Z Shares Only
APRIL 30, 1998
PROSPECTUS BEGINS ON PAGE ONE
[LOGO] SMITH BARNEY MUTUAL FUNDS
Investing for your future.
Every day.
<PAGE>
PROSPECTUS
April 30, 1998
Smith Barney
Managed Growth Fund--Class Z Shares
388 Greenwich Street
New York, New York 10013
(800) 451-2010
The primary investment objective of the Smith Barney
Managed Growth Fund
("Fund") is long term growth of capital.
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. ("Compa-
ny"). The Fund is an open-end, diversified management
investment company com-
monly referred to as a mutual fund.
This Prospectus sets forth concisely certain
information about the Company and
the Fund, including expenses, that prospective
investors will find helpful in
making an investment decision. Investors are
encouraged to read this Prospectus
carefully and retain it for future reference.
The Class Z shares described in this Prospectus are
currently offered exclu-
sively for sale to tax-exempt employee benefit and
retirement plans of Smith
Barney Inc. ("Smith Barney") or any of its affiliates
("Qualified Plans").
Additional information about the Fund is contained in
a Statement of Addi-
tional Information dated April 30, 1998, as amended or
supplemented from time
to time, that is available upon request and without
charge by calling or writ-
ing the Fund at the telephone number or address set
forth above or by contact-
ing a Smith Barney Financial Consultant. The Statement
of Additional Informa-
tion has been filed with the Securities and Exchange
Commission ("SEC") and is
incorporated by reference into this Prospectus in its
entirety.
SMITH BARNEY INC.
Distributor
MUTUAL MANAGEMENT CORP.
Investment Adviser and Administrator
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>
THE FUND'S EXPENSES 3
- -------------------------------------------------
FINANCIAL HIGHLIGHTS 4
- -------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 5
- -------------------------------------------------
VALUATION OF SHARES 11
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 11
- -------------------------------------------------
PURCHASE, EXCHANGE AND REDEMPTION OF SHARES 13
- -------------------------------------------------
PERFORMANCE 13
- -------------------------------------------------
MANAGEMENT OF THE COMPANY AND THE FUND 14
- -------------------------------------------------
ADDITIONAL INFORMATION 15
- -------------------------------------------------
</TABLE>
- ------------------------------------------------------
- --------------------------
No person has been authorized to give any
information or to make any
representations in connection with this offering other
than those contained in
this Prospectus and, if given or made, such other
information or
representations must not be relied upon as having been
authorized by the Fund
or the distributor. This Prospectus does not
constitute an offer by the Fund or
the distributor to sell or a solicitation of an offer
to buy any of the
securities offered hereby in any jurisdiction to any
person to whom it is
unlawful to make such offer or solicitation in such
jurisdiction.
- ------------------------------------------------------
- --------------------------
2
<PAGE>
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 Class Z shares of the
Fund, based on the Fund's operating expenses for its
most recent fiscal year:
<TABLE>
<CAPTION>
SMITH BARNEY MANAGED GROWTH FUND--CLASS Z
- -------------------------------------------------
<S> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.85%
Other Expenses 0.07
- -------------------------------------------------
TOTAL FUND OPERATING EXPENSES 0.92%
- -------------------------------------------------
</TABLE>
The nature of the services for which the Fund pays
management fees is
described under "Management of the Company and the
Fund." "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 and Redemption
of Shares" and "Manage-
ment of the Fund."
<TABLE>
<CAPTION>
SMITH BARNEY MANAGED GROWTH FUND 1 YEAR
3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------
- -------------------------
<S> <C>
<C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment in Class Z shares of
the Fund, assuming (1) a 5.00% annual return
and (2) redemption at the end of each time
period: $9
$29 $51 $113
</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 PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN
THOSE SHOWN.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following information has been audited by KPMG
Peat Marwick LLP, indepen-
dent auditors, whose report thereon appears in the
Fund's annual report dated
December 31, 1997. The information set out below
should be read in conjunction
with the financial statements and related notes that
also appear in the Fund's
Annual Report to Shareholders, which is incorporated
by reference into the
Statement of Additional Information.
FOR A CLASS Z SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
MANAGED GROWTH FUND 1997 1996(1)
1995(1)(2)
- ------------------------------------------------------
- -----------
<S> <C> <C>
<C>
NET ASSET VALUE, BEGINNING OF YEAR $13.43 $12.03
$11.83
- ------------------------------------------------------
- -----------
INCOME FROM OPERATIONS:
Net investment income 0.13 0.15
0.04
Net realized and unrealized gain 1.79 1.84
0.32
- ------------------------------------------------------
- -----------
Total Income From Operations 1.92 1.99
0.36
- ------------------------------------------------------
- -----------
LESS DISTRIBUTIONS FROM:
Net investment income (0.07) (0.13)
(0.16)
Net realized gains (1.04) (0.46)
- --
- ------------------------------------------------------
- -----------
Total Distributions (1.11) (0.59)
(0.16)
- ------------------------------------------------------
- -----------
NET ASSET VALUE, END OF YEAR $14.24 $13.43
$12.03
- ------------------------------------------------------
- -----------
TOTAL RETURN 14.21% 16.69%
3.06%++
- ------------------------------------------------------
- -----------
NET ASSETS, END OF YEAR (000S) $29,561 $22,296
$10,040
- ------------------------------------------------------
- -----------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.92% 0.97%
0.90%+
Net investment income 0.90 1.12
2.30+
- ------------------------------------------------------
- -----------
PORTFOLIO TURNOVER RATE 35% 34%
6%
- ------------------------------------------------------
- -----------
AVERAGE COMMISSIONS PER SHARE
PAID ON EQUITY TRANSACTIONS $0.06 $0.06
$0.06
- ------------------------------------------------------
- -----------
</TABLE>
(1) Per share amounts have been calculated using the
monthly average share
method, which rather than the undistributed net
investment income method,
because it more accurately reflects the per share
data for the period.
(2) For the period from October 2, 1995 (inception
date) to December 31,
1995.
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
4
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The investment objective of the Fund is long term
growth of capital. There
can be no assurance that the investment objective of
the Fund will be achieved.
The Fund's investment objective may be changed only by
the "vote of a majority
of the outstanding voting securities" as defined in
the Investment Company Act
of 1940, as amended (the "1940 Act").
The Fund attempts to achieve its objective by
investing primarily in common
stock and securities, including debt securities which
are convertible into com-
mon stock and which are currently price depressed,
undervalued or out of favor.
Such securities might typically be valued at the low
end of their 52 week trad-
ing range. Although under normal circumstances the
Fund's portfolio will pri-
marily consist of these securities, the Fund may also
invest in preferred
stocks and warrants when Mutual Management Corp.
("MMC"), (formerly known as
Smith Barney Mutual Funds Management Inc.), the fund's
investment adviser, per-
ceives an opportunity for capital growth from such
securities. The Fund may,
from time to time enter into futures contracts, write
call options and purchase
put options (which are sometimes referred to as
"derivatives"). A derivative is
a financial instrument whose performance is derived,
at least in part, from the
performance of an underlying asset. The Fund will not
invest more than 10% of
its assets in derivatives. The Fund may also invest in
repurchase agreements
and reverse repurchase agreements, sell securities
short "against the box",
purchase the securities of companies with less than
three years of continuous
operation, lend its portfolio securities and invest in
real estate investment
trusts and foreign securities. Additionally, the Fund
may, subject to the limi-
tations set forth in the 1940 Act, invest in the
securities of other closed-end
investment companies.
MMC's investment decisions with respect to the
Fund's portfolio are based
upon analysis and research, taking into account, among
other factors, the rela-
tionship of book value to market value of the
securities, cash flow, the multi-
ple of earnings, private market value and the ratio of
market capitalization to
sales. These factors are not applied formulaically, as
MMC examines each secu-
rity separately.
Although the Fund's assets will be invested
primarily in equity securities,
government securities and money market instruments may
be held and repurchase
agreements may be entered into for temporary defensive
purposes and so that the
Fund may receive a return on its otherwise uninvested
cash. When MMC invests in
such securities, investment income will increase and
may constitute a larger
portion of the return on the Fund.
RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS
Warrants; Convertible Securities. A warrant is a
security that gives the
holder the right, but not the obligation, to subscribe
for newly created secu-
rities of the issuer or a related company at a fixed
price either at a certain
date or during a set period. A convertible security is
a security that may be
converted either at a stated price or rate within a
specified period of time
into a specified number of shares of
5
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
common stock. In investing in convertible securities,
the Fund seeks the oppor-
tunity, through the conversion feature, to participate
in the capital apprecia-
tion of the common stock into which the securities are
convertible.
Covered Option Writing. The Fund may utilize listed
options (including puts,
calls, interest rate and currency swaps, caps,
collars, spreads, straddles and
floors) with respect to its portfolio securities. The
Fund realizes a fee (re-
ferred to as a "premium") for granting the rights
evidenced by the options. A
put option embodies the right of its purchaser to
compel the writer of the
option to purchase from the option holder an
underlying security at a specified
price at any time during the option period. In
contrast, a call option embodies
the right of its purchaser to compel the writer of the
option to sell to the
option holder an underlying security at a specified
price at any time during
the option period.
Upon the exercise of a put option written by the
Fund, the Fund may suffer a
loss equal to the difference between the price at
which the Fund is required to
purchase the underlying security and its market value
at the time of the option
exercise, less the premium received for writing the
option. Upon the exercise
of a call option written by the Fund, the Fund may
suffer a loss equal to the
excess of the security's market value at the time of
the option exercise over
the Fund's cost of the security, less the premium
received for writing the
option.
The Fund will write only covered options with
respect to its portfolio secu-
rities. Accordingly, whenever the Fund writes a call
option on its securities,
it will continue to own or have the present right to
acquire the underlying
security for as long as it remains obligated as the
writer of the option. To
support its obligation to purchase the underlying
security if a call option is
exercised, the Fund will either (a) deposit with its
custodian in a segregated
account, cash, government securities or other high
grade debt obligations hav-
ing a value at least equal to the exercise price of
the underlying securities
or (b) continue to own an equivalent number of puts of
the same "series" (that
is, puts on the same underlying security) with
exercise prices greater than
those that it has written (or, if the exercise prices
of the puts that it holds
are less than the exercise prices of those that it has
written, it will deposit
the difference with its custodian in a segregated
account).
The Fund may engage in a closing purchase
transaction to realize a profit, to
prevent an underlying security from being called or to
unfreeze an underlying
security (thereby permitting its sale or the writing
of a new option on the
security prior to the outstanding option's
expiration). To effect a closing
purchase transaction, the Fund would purchase, prior
to the holder's exercise
of an option that the Fund has written, an option of
the same series as that on
which the Fund desires to terminate its obligation.
The obligation of the Fund
under an option that it has written would be
terminated by a closing purchase
transaction, but the Fund would not be deemed to own
an option as a result of
the transaction. There can be no assurance that the
Fund will be able to effect
closing purchase transactions at a time when it wishes
to
6
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
do so. To facilitate closing purchase transactions,
however, the Fund ordinar-
ily will write options only if a secondary market for
the options exists on
domestic securities exchanges or in the over-the-
counter market.
Purchasing Put and Call Options on Securities. The
Fund may utilize up to 5%
of its assets to purchase put options on portfolio
securities and may do so at
or about the same time that it purchases the
underlying security or at a later
time. By buying a put, the Fund limits the risk of
loss from a decline in the
market value of the security until the put expires.
Any appreciation in the
value of, or in the yield otherwise available from the
underlying security,
however, will be partially offset by the amount of the
premium paid for the put
option and any related transaction costs. The Fund may
utilize up to 5% of its
assets to purchase call options on portfolio
securities. Call options may be
purchased by the Fund in order to acquire the
underlying securities for the
Fund at a price that avoids any additional cost that
would result from a sub-
stantial increase in the market value of a security.
The Fund may also purchase
call options to increase its return to investors at a
time when the call is
expected to increase in value due to anticipated
appreciation of the underlying
security.
Prior to their expirations, put and call options
may be sold in closing sale
transactions (sales by the Fund, prior to the exercise
of options it has pur-
chased, of options of the same series), and profit or
loss from the sale will
depend on whether the amount received is more or less
than the premium paid for
the option plus the related transaction costs.
Options on Broad-Based Domestic Stock Indexes. The
Fund may write call
options and purchase put options on broad-based
domestic stock indexes and
enter into closing transactions with respect to such
options. Options on stock
indexes are similar to options on securities except
that, rather than having
the right to take or make delivery of stock at the
specified exercise price, an
option on a stock index gives the holder the right to
receive, upon exercise of
the option, an amount of cash if the closing level of
the stock index upon
which the option is based is "in the money"; i.e. the
closing level of the
index is higher than the exercise price of the option.
This amount of cash is
equal to the difference between the closing level of
the index and the exercise
price of the option, expressed in dollars times a
specified multiple. The
writer of the option is obligated, in return for the
premium received, to make
delivery of this amount. Unlike stock options, all
settlements are in cash, and
gain or loss depends on price movements in the stock
market generally rather
than price movements in the individual stocks.
The effectiveness of purchasing and writing puts and
calls on stock index
options depends to a large extent on the ability of
MMC to predict the price
movement of the stock index selected. Therefore,
whether the Fund realizes a
gain or loss from the purchase of options on an index
depends upon movements in
the level of stock prices in the stock market
generally. Additionally, because
exercises
7
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
of index options are settled in cash, a call writer
such as the Fund cannot
determine the amount of the settlement obligations in
advance and it cannot
provide in advance for, or cover, its potential
settlement obligations by
acquiring and holding the underlying securities. When
the Fund has written the
call, there is also a risk that the market may decline
between the time the
Fund has a call exercised against it, at a price which
is fixed as of the
closing level of the index on the date of exercise,
and the time the Fund is
able to exercise the closing transaction with respect
to the long call posi-
tion it holds.
Futures Contracts and Options on Futures Contracts.
A futures contract pro-
vides for the future sale by one party and the
purchase by the other party of
a certain amount of a specified security at a
specified price, date, time and
place. The Fund may enter into futures contracts to
sell securities when MMC
believes that the value of the Fund's securities will
decrease. An option on a
futures contract, as contrasted with the direct
investment in a futures con-
tract, gives the purchaser the right, in return for
the premium paid, to
assume a position in a futures contract at a specified
exercise price at any
time prior to the expiration date of the option. A
call option gives the pur-
chaser of the option the right to enter into a futures
contract to buy and
obliges the writer to enter into a futures contract to
sell the underlying
securities. A put option gives a purchaser the right
to sell and obliges the
writer to buy the underlying contract. The Fund may
enter into futures con-
tracts to purchase securities when MMC anticipates
purchasing the underlying
securities and believes that prices will rise before
the purchases will be
made. The Fund's custodian will maintain, in a
segregated account of the Fund,
cash, debt securities of any grade or equity
securities having a value equal
to or greater than the Fund's obligations, provided
such securities have been
determined by MMC to be liquid and unencumbered, and
are marked to market
daily pursuant to guidelines established by the
Directors. The Fund will not
enter into futures contracts for speculation and will
only enter into futures
contracts that are traded on a U.S. exchange or board
of trade.
Lending Securities.Consistent with applicable
regulatory requirements, the
Fund is authorized to lend securities it holds to
brokers, dealers and other
financial organizations. The Fund's loans of
securities will be collateralized
by cash, letters of credit or government securities
that are maintained at all
times in a segregated account with the Fund's
custodian in an amount at least
equal to the current market value of the loaned
securities. By lending its
portfolio securities, the Fund will seek to generate
income by continuing to
receive interest on the loaned securities, by
investing the cash collateral in
short-term instruments or by obtaining yield in the
form of interest paid by
the borrower when government securities are used as
collateral. The risks in
lending portfolio securities, as with other extensions
of secured credit, con-
sist of possible delays in receiving additional
collateral or in the recovery
of the securities or possible loss of rights in the
collateral should the bor-
rower fail
8
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
financially. Loans will be made to firms deemed by MMC
to be of good standing
and will not be made unless, in the judgment of MMC,
the consideration to be
earned from such loans would justify the risk.
Foreign Securities.The Fund may invest up to 10% of
its net assets in secu-
rities of foreign issuers. Investing in foreign
securities involves certain
risks, including those resulting from fluctuations in
currency exchange rates,
revaluation of currencies, future political or
economic developments and the
possible imposition of restrictions or prohibitions on
the repatriation of
foreign currencies or other foreign governmental laws
or restrictions, reduced
availability of public information concerning issuers,
and, typically, the
lack of uniform accounting, auditing and financial
reporting standards or
other regulatory practices and requirements comparable
to those applicable to
domestic companies. Moreover, securities of many
foreign companies may be less
liquid and their prices more volatile than those of
securities of comparable
domestic companies. In addition, with respect to
certain foreign countries,
the possibility exists of expropriation, confiscatory
taxation and limitations
on the use or removal of funds or other assets of the
Fund, including the
withholding of dividends.
The Fund may invest in securities commonly known as
American Depository
Receipts ("ADR's") of foreign issuers which have
certain risks, including
trading for a lower price, having less liquidity than
their underlying securi-
ties and risks relating to the issuing bank or trust
company. ADR's can be
sponsored by the issuing bank or trust company or
unsponsored. Holders of
unsponsored ADR's have a greater risk that receipt of
corporate information
will be untimely and incomplete and costs may be
higher.
Restricted and Illiquid Securities.The Fund may
invest in securities which
are not readily marketable as well as restricted
securities not registered
under the Securities Act of 1933, as amended (the
"Securities Act"), OTC
options and securities that are otherwise considered
illiquid as a result of
market or other factors. Although it may invest up to
15% of its assets in
such securities, the Fund does not currently
anticipate investing more than 5%
of its assets in restricted or illiquid securities.
The Fund may invest in
securities eligible for resale under Rule 144A of the
Securities Act ("Rule
144A securities"). The Board of Directors of the Fund
may determine that spe-
cific Rule 144A securities held by the Fund may be
deemed liquid. Neverthe-
less, due to changing market or other factors, Rule
144A securities may be
subject to a greater possibility of becoming illiquid
than registered securi-
ties.
Borrowing.The Fund may also borrow money from banks
temporarily for emer-
gency purposes in an amount not exceeding 33 1/3% of
the Fund's total assets.
A complete list of investment restrictions that the
Fund has adopted includ-
ing restrictions that cannot be changed without the
approval of the Fund's
outstanding shares is contained in the Statement of
Additional Information.
Except for the
9
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
Fund's investment objective and those restrictions
specifically identified as
fundamental which may not be changed without the "vote
of a majority of the
outstanding voting securities" as defined in the 1940
Act, all investment poli-
cies and practices described in this Prospectus and in
the Statement of Addi-
tional Information are non-fundamental and may be
changed by the Board of
Directors without shareholder approval.
Year 2000.The investment management services
provided to the Fund by MMC and
the services provided to shareholders by Smith Barney,
the Fund's Distributor,
depend on the smooth functioning of their computer
systems. Many computer soft-
ware systems 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. MMC and Smith
Barney have advised the Fund that they have been
reviewing all of their com-
puter 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, MMC has been advised by
the Fund's custodian,
transfer agent and accounting service agent that they
are also in the process
of modifying their systems with the same goal. There
can, however, be no assur-
ance that MMC, Smith Barney or any other service
provider will be successful,
or that interaction with other non-complying computer
systems will not impair
Fund services at that time.
PORTFOLIO TRANSACTIONS AND TURNOVER
MMC arranges for the purchase and sale of the Fund's
securities and selects
brokers and dealers (including Smith Barney), which in
its best judgment pro-
vide prompt and reliable execution at favorable prices
and reasonable commis-
sion rates. MMC may select brokers and dealers which
provide it with research
services and may cause the Fund to pay such brokers
and dealers commissions
which exceed those other brokers and dealers may have
charged, if it views the
commissions as reasonable in relation to the value of
the brokerage and/or
research services. In selecting a broker for a
transaction, including Smith
Barney, the primary consideration is prompt and
effective execution of orders
at the most favorable prices. Subject to that primary
consideration, dealers
may be selected for research, statistical or other
services to enable MMC to
supplement its own research and analysis.
It is anticipated that the annual portfolio turnover
rate of the Fund nor-
mally will be less than 100%. The Fund's portfolio
turnover rate is calculated
by dividing the lesser of purchases or sales of
portfolio securities for the
fiscal year by the monthly average of the value of the
Fund's securities, with
money market instruments with less than one year to
maturity excluded. A 100%
portfolio turnover rate would occur, for example, if
all included securities
were replaced once during the year.
10
<PAGE>
VALUATION OF SHARES
The Fund's net asset value per share is determined
as of the close of regular
trading on the New York Stock Exchange (the "NYSE") on
each day that the NYSE
is open, by dividing the value of the Fund's net
assets attributable to each
Class by the total number of shares of the Class
outstanding.
Generally, the Fund's investments are valued at
market value, or, in the
absence of a market value with respect to any
securities, at fair value. Secu-
rities listed on an exchange are valued on the basis
of the last sale prior to
the time the valuation is made. If there has been no
sale since the immediately
previous valuation, then the current bid price is
used. Quotations are taken
from the exchange where the security is primarily
traded. Portfolio securities
which are primarily traded on foreign exchanges may be
valued with the assis-
tance of a pricing service and are generally valued at
the preceding closing
values of such securities on their respective
exchange, except that when an
occurrence subsequent to the time a foreign security
is valued is likely to
have changed such value, then the fair value of those
securities will be deter-
mined by consideration of other factors by or under
the direction of the Board
of Directors. Over-the-counter securities are valued
on the basis of the bid
price at the close of business on each day. Unlisted
foreign securities are
valued at the mean between the last available bid and
offer price prior to the
time of valuation. Any assets or liabilities initially
expressed in terms of
foreign currencies will be converted into U.S. dollar
values at the mean
between the bid and offered quotations of such
currencies against U.S. dollars
as last quoted by any recognized dealer. Securities
for which market quotations
are not readily available are valued at fair value.
Notwithstanding the above,
bonds and other fixed-income securities are valued by
using market quotations
and may be valued on the basis of prices provided by a
pricing service approved
by the Board of Directors.
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 cap-
ital gain distributions will be reinvested
automatically in additional shares
of the same Class at net asset value, with no
additional sales charge or CDSC.
TAXES
The following is a summary of the material federal
tax considerations affect-
ing the Fund and Fund shareholders, please refer to
the Statement of Additional
Information for further discussion. In addition to the
considerations described
below
11
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
and in the Statement of Additional Information, there
may be other federal,
state, local, and/or foreign tax applications to
consider. Because taxes are a
complex matter, prospective shareholders are urged to
consult their tax advi-
sors for more detailed information with respect to the
tax consequences of any
investment.
The Fund intends to qualify, as it has in prior
years, under Subchapter M of
the Internal Revenue Code (the "Code") for tax
treatment as a regulated invest-
ment company. In each taxable year that the Fund
qualifies, so long as such
qualification is in the best interests of its
shareholders, 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 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 shareholder's' federal income tax
return.
12
<PAGE>
PURCHASE, EXCHANGE AND REDEMPTION OF SHARES
Purchases of the Fund's Class Z shares must be made
in accordance with the
terms of a Qualified Plan. Purchases are effected at
the net asset value next
determined after a purchase order is received by Smith
Barney (the "trade
date"). Payment is due to Smith Barney on the third
business day (the "settle-
ment date") after the trade date. Investors who make
payment prior to the set-
tlement date may designate a temporary investment
(such as a money market fund
of the Smith Barney Mutual Funds) for such payment
until settlement date. The
Fund reserves the right to reject any purchase order
and to suspend the offer-
ing of shares for period of time. There are no minimum
investment requirements
for Class Z shares; however, the Fund reserves the
right to vary this policy at
any time.
Purchase orders received by Smith Barney prior to
the close of regular trad-
ing on the NYSE, currently 4:00 p.m., New York time,
on any day that the Fund
calculates its net asset value, are priced according
to the net asset value
determined on that day. See "Valuation of Shares."
Qualified Plans may redeem their shares on any day
on which the Fund calcu-
lates its net asset value. See "Valuation of Shares."
Redemption requests
received in proper form prior to the close of regular
trading on the NYSE are
priced at the net asset value per share determined on
that day. Redemption
requests received after the close of regular trading
on the NYSE are priced at
the net asset value as next determined. Shareholders
acquiring Class Z shares
through a Qualified Plan should consult the terms of
their respective plans for
redemption provisions.
Holders of Class Z shares should consult their
Qualified Plans for informa-
tion about available exchange options.
PERFORMANCE
From time to time the Fund may include its total
return, average annual total
return and current dividend return for Class Z shares
in advertisements and/or
other types of sales literature. These figures are
based on historical earnings
and are not intended to indicate future performance.
Total return is computed
for a specified period of time assuming deduction of
the maximum sales charge,
if any, from the initial amount invested and
reinvestment of all income divi-
dends and capital gain distributions on the
reinvestment dates at prices calcu-
lated 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 sub-
tracting 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 non-
standard total return information for differing
periods computed in the same
manner but without annualizing the total return or
taking sales charges into
account. The Fund calculates current dividend return
for Class Z
13
<PAGE>
PERFORMANCE (CONTINUED)
shares by annualizing the most recent monthly
distribution and dividing by the
net asset value or the maximum public offering price
(including sales charge)
on the last day of the period for which current
dividend return is presented.
The current dividend may vary from time to time
depending on market conditions,
the composition of its investment portfolio and
operating expenses. These fac-
tors and possible differences in the methods used in
calculating current divi-
dend return should be considered when comparing Class
Z shares current return
to yields published for other investment companies and
other investment vehi-
cles. The Fund may also include comparative
performance information in adver-
tising or marketing its shares. Such performance
information may include data
from Lipper Analytical Services, Inc. and other
financial publications. The
Fund will include performance data for Class Z shares
in any advertisement or
information including performance data of the Fund.
MANAGEMENT OF THE COMPANY AND THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and
supervision of the Fund rests with
the Company's Board of Directors. The Directors
approve all significant agree-
ments between the Company and the companies that
furnish services to the Fund
and the Company, including agreements with its
distributor, investment adviser,
custodian and transfer agent. The day-to-day
operations of the Fund are dele-
gated to the Fund's investment manager. The Statement
of Additional Information
contains background information regarding each
Director of the Fund and execu-
tive officer of the Company.
MMC
MMC, located at 388 Greenwich Street, New York, New
York 10013, serves as the
Fund's investment adviser and manages the day-to-day
operations of the Fund
pursuant to a management agreement entered into by the
Company, on behalf of
the Fund. MMC renders investment advice to investment
companies, individual,
institutional and investment company clients which had
aggregate assets under
management as of March 31, 1998 of approximately
$100.5 billion.
Subject to the supervision and direction of the
Company's Board of Directors,
MMC manages the Fund's portfolio in accordance with
the Fund's stated invest-
ment objective and policies, makes investment
decisions for the Fund, places
orders to purchase and sell securities and employs
professional portfolio man-
agers and securities analysts who provide research
services to the Fund. For
investment advisory services rendered, the Fund pays
MMC a monthly fee at the
annual rate of 0.85% of the value of its average daily
net assets. Although
this fee is higher than that paid by most investment
companies, the Fund's man-
agement has determined
14
<PAGE>
MANAGEMENT OF THE COMPANY AND THE FUND (CONTINUED)
that it is comparable to the fee charged by other
investment advisers of
investment companies that have similar investment
objectives and policies.
PORTFOLIO MANAGEMENT
John Stoeser, has served as Vice President and
Investment Officer of the
Fund and has been is responsible for the management of
the Fund's assets since
April 1998. Mr. Stoeser was Vice President and
Research Analyst of the Fund
since July 1997. From 1992 until July 1997 Mr. Stoeser
was Assistant Vice
President, Portfolio Manager and Research Analyst with
Safeco Asset Manage-
ment.
Management's discussion and analysis, and additional
performance information
regarding the Fund during the fiscal year ended
December 31, 1997 is included
in the Annual Report dated December 31, 1997. A copy
of the Annual Report may
be obtained upon request and without charge from a
Smith Barney Financial Con-
sultant or by writing or calling the Fund at the
address or phone number
listed on page one of this Prospectus.
On April 6, 1998, Travelers Group Inc. ("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 vari-
ous regulatory approvals, including approval by the
Federal Reserve Board. The
transaction is also subject to approval by the
stockholders of each of Travel-
ers Group and Citicorp. Upon consummation of the
merger, the surviving corpo-
ration 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.
Although the effects of
the merger of Travelers and Citicorp and compliance
with the requirements of
the BHCA and the Glass-Steagall Act are still under
review, MMC does not
believe that its compliance with applicable law
following the merger of Trav-
elers and Citicorp will have a material adverse effect
on its ability to con-
tinue to provide the Fund with the same level of
investment advisory services
that it currently receives.
DISTRIBUTOR-SMITH BARNEY
Smith Barney is located at 388 Greenwich Street, New
York, New York 10013,
and services as the Fund's distributor. Smith Barney
is a wholly-owned subsid-
iary of Travelers.
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 five Classes, A, B, C,
Y and
15
<PAGE>
ADDITIONAL INFORMATION (CONTINUED)
Z, with a par value of $.001 per share. Each Class
represents an identical
interest in the Fund's investment portfolio. As a
result, the Classes have the
same rights, privileges and preferences, except with
respect to: (a) the des-
ignation of each Class; (b) the effect of the
respective sales charges for
each Class; (c) the distribution and/or service fees
borne by each Class pur-
suant to the Plan; (d) the expenses allocable
exclusively to each Class; (e)
voting rights on matters exclusively affecting a
single Class; (f) the
exchange privilege of each Class; and (g) the
conversion feature of the Class
B shares. The Board of Directors does not anticipate
that there will be any
conflicts among the interests of the holders of the
different Classes. The
Directors, on an ongoing basis, will consider whether
any such conflicts
exists and, if so, take appropriate action.
PNC Bank, National Association is located at 17th
and Chestnut Streets,
Philadelphia, Pennsylvania 19103 and serves as
custodian of the Fund's invest-
ments.
First Data Investor Services Group, Inc. ("First
Data") is located at
Exchange Place, Boston, Massachusetts 02109 and serves
as the Company's trans-
fer 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 pur-
pose upon written request of shareholders holding at
least 10% of the
Company's outstanding shares and the Company will
assist shareholders in call-
ing 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, each of which includes 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 having multiple accounts with the
identical address of record will
receive a single copy of each report. Shareholders who
do not want this con-
solidation to apply to their accounts should contact
their Smith Barney Finan-
cial Consultant or First Data.
16
<PAGE>
SMITH
BARNEY
-------
- --------------------------
A
Member of TravelersGroup [LOGO]
SMITH BARNEY
MANAGED
GROWTH
FUND
388 Greenwich Street
New York, New York 10013
FD 01010 4/97
<PAGE>
P R O S P E C T U S
SMITH BARNEY
Special
Equities
Fund
Class Z Shares Only
APRIL 30, 1998
PROSPECTUS BEGINS ON PAGE ONE
LOGO Smith Barney Mutual Funds
INVESTING FOR YOUR FUTURE.
EVERY DAY.
<PAGE>
PROSPECTUS
April 30, 1998
Smith Barney
Special Equities Fund -- Class Z Shares
388 Greenwich Street
New York, New York 10013
(800) 451-2010
Smith Barney Special Equities Fund ("Fund") seeks
long-term capital apprecia-
tion by investing in a diversified portfolio of common
stocks or securities
convertible into or exchangeable for common stocks,
primarily of growth compa-
nies as identified by the Fund's investment adviser.
The Fund is one of a number of funds, each having
distinct investment objec-
tives and policies, making up Smith Barney Investment
Funds Inc. ("Company").
The Company is an open-end, diversified management
investment company commonly
referred to as a mutual fund.
This Prospectus sets forth concisely certain
information about the Fund and
the Company, including expenses, that prospective
investors will find helpful
in making an investment decision. Investors are
encouraged to read this Pro-
spectus carefully and to retain it for future
reference.
The Class Z shares described in this Prospectus are
currently offered exclu-
sively for sale to tax-exempt employee benefit and
retirement plans of Smith
Barney Inc. ("Smith Barney") or any of its affiliates
("Qualified Plans").
Additional information about the Fund and the
Company is contained in a
Statement of Additional Information dated April 30,
1998 as amended or supple-
mented from time to time, that is available upon
request and without charge by
calling or writing the Company at the telephone number
or address set forth
above or by contacting a Smith Barney Financial
Consultant. The Statement of
Additional Information has been filed with the
Securities and Exchange Commis-
sion ("SEC") and is incorporated by reference into
this Prospectus in its
entirety.
SMITH BARNEY INC.
Distributor
MUTUAL MANAGEMENT CORP.
Investment Adviser and Administrator
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>
THE FUND'S EXPENSES 3
- -------------------------------------------------
FINANCIAL HIGHLIGHTS 4
- -------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 5
- -------------------------------------------------
VALUATION OF SHARES 9
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 10
- -------------------------------------------------
PURCHASE, EXCHANGE AND REDEMPTION OF SHARES 11
- -------------------------------------------------
PERFORMANCE 12
- -------------------------------------------------
MANAGEMENT OF THE COMPANY AND THE FUND 13
- -------------------------------------------------
ADDITIONAL INFORMATION 14
- -------------------------------------------------
</TABLE>
- ------------------------------------------------------
- --------------------------
No person has been authorized to give any
information or to make any
representations in connection with this offering other
than those contained in
this Prospectus and, if given or made, such other
information and
representations must not be relied upon as having been
authorized by the Fund
or the Distributor. This Prospectus does not
constitute an offer by the Fund or
the distributor to sell or a solicitation of an offer
to buy any of the
securities offered hereby in any jurisdiction to any
person to whom it is
unlawful to make such offer or solicitation in such
jurisdiction.
- ------------------------------------------------------
- --------------------------
2
<PAGE>
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 Class Z shares of the
Fund, based on the Fund's operating expenses for its
most recent fiscal year.
- ------------------------------------------------------
- --------------------------
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.75%
Other expenses 0.06
- --------------------------------------------------
TOTAL FUND OPERATING EXPENSES 0.81%
</TABLE>
- ------------------------------------------------------
- --------------------------
The nature of the services for which the Fund pays
management fees is
described under "Management of the Company and the
Fund." "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 and Redemption
of Shares" and "Manage-
ment of the Fund."
<TABLE>
<CAPTION>
SMITH BARNEY SPECIAL EQUITIES FUND 1 YEAR
3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------
- -------------------------
<S> <C>
<C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment in Class Z shares of
the Fund, assuming (1) 5.00% annual return
and (2) redemption at the end of each time
period: $ 8
$26 $45 $100
- ------------------------------------------------------
- -------------------------
</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 PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN
THOSE SHOWN.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following information for the three-year period
ended December 31, 1997
has been audited by KPMG Peat Marwick LLP, independent
auditors, whose report
thereon appears in the Fund's Annual Report dated
December 31, 1997. The
information set out below should be read in
conjunction with the financial
statements and related notes that also appear in the
Fund's Annual Report,
which is incorporated by reference into the Statement
of Additional
Information.
FOR A CLASS Z SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
SMITH BARNEY SPECIAL EQUITIES FUND 1997
1996(1) 1995(2)
- ------------------------------------------------------
- ---------------
<S> <C> <C>
<C>
NET ASSET VALUE, BEGINNING OF YEAR $28.26
$30.46 $26.49
- ------------------------------------------------------
- ---------------
INCOME FROM OPERATIONS:
Net investment loss (0.08)
(0.08) (0.06)
Net realized and unrealized gain (loss) (1.42)
(1.48) 4.79
- ------------------------------------------------------
- ---------------
Total Income (Loss) From Operations (1.50)
(1.56) 4.73
- ------------------------------------------------------
- ---------------
LESS DISTRIBUTIONS FROM:
Net realized gains --
(0.28) (0.76)
Capital --
(0.36) --
- ------------------------------------------------------
- ---------------
Total Distributions --
(0.64) (0.76)
- ------------------------------------------------------
- ---------------
NET ASSET VALUE, END OF YEAR $26.76
$28.26 $30.46
- ------------------------------------------------------
- ---------------
TOTAL RETURN (5.31)%
(5.37)% 17.95%++
- ------------------------------------------------------
- ---------------
NET ASSETS, END OF YEAR (MILLIONS) $14
$13 $5
- ------------------------------------------------------
- ---------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.81%
0.80% 1.10%+
Net investment loss (0.29)
(0.24) (0.86)+
- ------------------------------------------------------
- ---------------
PORTFOLIO TURNOVER RATE 145%
118% 113%
- ------------------------------------------------------
- ---------------
AVERAGE COMMISSIONS PER SHARE PAID ON
EQUITY TRANSACTIONS $0.06
$0.06 $ 0.06
- ------------------------------------------------------
- ---------------
</TABLE>
(1) Per share amounts have been calculated using the
monthly average shares
method, rather than the net investment income
undistributed method,
because it more accurately reflects the per share
data for the period.
(2) For the period from October 2, 1995 (inception
date) to December 31,
1995.
++
Total return is not annualized, as it may not be
representative of the
total return for the year.
+
Annualized.
4
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Fund's investment objective is long-term capital
appreciation. It seeks
to achieve this objective by investing in equity
securities (common stocks or
securities which are convertible into or exchangeable
for such stocks, includ-
ing warrants) which Mutual Management Corp. ("MMC"),
(formerly known as Smith
Barney Mutual Funds Management Inc.), the Fund's
investment adviser, believes
to have superior appreciation potential. There can be
no assurance that the
Fund will achieve its investment objective.
The Fund attempts to achieve its investment
objective by investing primarily
in equity securities of growth companies, generally
not within the Standard &
Poor's 500 Composite Stock Price Index ("S&P 500"), as
identified by MMC. These
companies may not have reached a fully mature stage of
earnings growth, since
they may still be in the developmental stage, or may
be older companies which
appear to be entering a new stage of more rapid
earnings progress due to fac-
tors such as management change or development of new
technology, products or
markets. A significant number of these companies may
be in technology areas,
including health care related sectors, and may have
annual sales of less than
$300 million. The Fund may also choose to invest in
some relatively unseasoned
stocks, i.e., securities issued by companies whose
market capitalization is
under $100 million.
The Fund also may invest in small capitalization
companies representative of
the broad benchmarks against which the Fund's
performance is frequently judged
by utilizing an active quantitative investment
strategy for a portion of the
Fund. This portion will provide added diversification
and, in addition, MMC
will select securities using a proprietary technique
that are believed to have
a high probability of outperforming their respective
industry or sector peer
groups. In identifying these securities, the Fund's,
the Portfolio Manager is
supported by a quantitatively oriented investment
team.
Investing in smaller, newer issuers generally
involves greater risk than
investing in larger, more established issuers. The
Fund may purchase restricted
securities (subject to a limit on all illiquid
securities of 10% of total
assets), invest in money market instruments, enter
into repurchase and reverse
repurchase agreements for temporary defensive
purposes, invest in real estate
investment trusts, purchase the securities of
companies with less than three
years of continuous operation, borrow money from banks
as a temporary measure
for extraordinary or emergency purposes in an amount
not exceeding 5% of the
Fund's total assets, lend its portfolio securities and
enter into short sales
"against the box."
In making purchases of securities consistent with
the above policies, the
Fund will be subject to the applicable restrictions
referred to under "Invest-
ment Restrictions" in the Statement of Additional
Information. Except for the
Fund's investment objective and those restrictions
specifically identified as
fundamental, which may not be changed without a
majority vote of shareholders
of the Fund, all invest -
5
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
ment policies and practices described in this
Prospectus and in the Statement
of Additional Information are non-fundamental, and may
be changed by the Board
of Directors without shareholder approval.
ADDITIONAL INVESTMENTS
U.S. Government Securities. U.S. government
securities are obligations of,
or are guaranteed by, the U.S. government, its
agencies or instrumentalities.
These include bills, certificates of indebtedness, and
notes and bonds issued
by the United States Treasury or by agencies or
instrumentalities of the
United States government. Some U.S. government
securities, such as United
States Treasury bills and bonds, are supported by the
full faith and credit of
the United States Treasury; others are supported by
the right of the issuer to
borrow from the United States Treasury; others, such
as those of the Federal
National Mortgage Association, are supported by the
discretionary authority of
the United States government to purchase the agency's
obligations; still oth-
ers, such as those of the Student Loan Marketing
Association and the Federal
Home Loan Mortgage Corporation ("FHLMC"), are
supported only by the credit of
the instrumentality. Mortgage participation
certificates issued by the FHLMC
generally represent ownership interests in a pool of
fixed-rate conventional
mortgages. Timely payment of principal and interest on
these certificates is
guaranteed solely by the issuer of the certificates.
Other investments will
include Government National Mortgage Association
Certificates ("GNMA Certifi-
cates"), which are mortgage-backed securities
representing part ownership of a
pool of mortgage loans on which timely payment of
interest and principal is
guaranteed by the full faith and credit of the United
States government. While
the United States government guarantees the payment of
principal and interest
on GNMA Certificates, the market value of the
securities is not guaranteed and
will fluctuate.
Repurchase Agreements. The Fund may enter into
repurchase agreement transac-
tions on U.S. government securities with banks which
are the issuers of
instruments acceptable for purchase by the Fund and
with certain dealers on
the Federal Reserve Bank of New York's list of
reporting dealers. Under the
terms of a typical repurchase agreement, the Fund
would acquire an underlying
debt obligation for a relatively short period (usually
not more than one week)
subject to an obligation of the seller to repurchase,
and the Fund to resell,
the obligation at an agreed-upon price and time,
thereby determining the yield
during the Fund's holding period. This arrangement
results in a fixed rate of
return that is not subject to market fluctuations
during the Fund's holding
period. Under each repurchase agreement, the selling
institution will be
required to maintain the value of the securities
subject to the repurchase
agreement at not less than their repurchase price.
Repurchase agreements could
involve certain risks in the event of default or
insolvency of the other par-
ty, including possible delays or restrictions upon the
Fund's ability to dis-
pose of the underlying securities, the risk of a
possible decline in the value
of the under-
6
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
lying securities during the period in which the Fund
seeks to assert its rights
to them, the risk of incurring expenses associated
with asserting those rights
and the risk of losing all or part of the income from
the agreement. MMC, act-
ing under the supervision of the Board of Directors,
reviews on an ongoing
basis to evaluate potential risks, the value of the
collateral and the credit-
worthiness of those banks and dealers with which the
Fund enters into repur-
chase agreements.
Loans of Portfolio Securities. Consistent with
applicable regulatory require-
ments, the Fund may lend its portfolio securities
provided: (a) the loan is
secured continuously by collateral consisting of U.S.
government securities,
cash or cash equivalents maintained on a daily marked-
to-market basis in an
amount at least equal to the current market value of
the securities loaned; (b)
the Fund may at any time call the loan and obtain the
return of the securities
loaned; (c) the Fund will receive any interest or
dividends paid on the loaned
securities.
Futures Contracts and Options on Futures. The Fund
may enter into transac-
tions in futures contracts and options on futures only
(i) for bona fide hedg-
ing 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.
Among the several risks accompanying the utilization
of futures contracts and
options on futures contracts are the following: First,
the successful use of
futures and options is dependent upon the ability of
MMC to predict correctly
movements in the stock market or in the direction of
interest rates. These pre-
dictions 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
7
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
linked exchange), and, as a result of daily price
fluctuations limits, there
can be no assurance the offsetting transaction 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.
Short Sales. The Fund may sell securities short
"against the box." While a
short sale is the sale of a security the Fund does not
own, it is "against the
box" if at all times when the short position is open,
the Fund owns an equal
amount of the securities or securities convertible
into, or exchangeable with-
out further consideration for, securities of the same
issue as the securities
sold short. Short sales "against the box" are used to
defer recognition of cap-
ital gains or losses.
American Depositary Receipts. The Fund may purchase
American Depositary
Receipts ("ADRs"), which are dollar-denominated
receipts issued generally by
domestic banks and representing the deposit with the
bank of a security of a
foreign issuer. ADRs are publicly traded on exchanges
or over-the-counter in
the United States.
Restricted Securities. The Fund may invest in
restricted securities.
Restricted securities are securities subject to legal
or contractual restric-
tions on their resale. Such restrictions might prevent
the sale of restricted
securities at a time when such a sale would otherwise
be desirable. Restricted
securities and securities for which there is no
readily available market ("il-
liquid assets") will not be acquired if such
acquisition would cause the aggre-
gate value of illiquid assets and restricted
securities to exceed 10% of the
Fund's total assets.
Year 2000. The investment management services
provided to the Fund by MMC and
the services provided to shareholders by Smith Barney,
the Fund's Distributor,
depend on the smooth functioning of their computer
systems. Many computer soft-
ware systems 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. MMC and Smith
Barney have advised the Fund that they have been
reviewing all of their com-
puter 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, MMC has been advised by
the Fund's custodian,
transfer agent and accounting service agent that they
are also in the process
of modifying their systems with the same goal. There
can, however, be no assur-
ance that MMC, Smith Barney or any other service
provider will be successful,
or that interaction with other non-complying computer
systems will not impair
Fund services at that time.
8
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
PORTFOLIO TRANSACTIONS AND TURNOVER
MMC arranges for the purchase and sale of the Fund's
securities and selects
brokers and dealers (including Smith Barney) which, in
its best judgment, pro-
vide prompt and reliable execution at favorable prices
and reasonable commis-
sion rates. MMC may select brokers and dealers which
provide it with research
services and may cause the Fund to pay such brokers
and dealers commissions
which exceed those other brokers and dealers may have
charged, if it views the
commissions as reasonable in relation to the value of
the brokerage and/or
research services.
The Fund may experience high portfolio turnover as a
result of its investment
strategies. Short-term gains realized from portfolio
transactions are taxable
to shareholders as ordinary income. In addition,
higher portfolio turnover
rates can result in corresponding increases in
brokerage commissions for the
Fund. While the Fund does not intend to engage in
short-term trading, it will
not consider portfolio turnover rate a limiting factor
in making investment
decisions consistent with its objectives and policies.
The Fund's portfolio
turnover rate is calculated by dividing the lesser of
purchases or sales of
portfolio securities for the fiscal year by the
monthly average of the value of
the Fund's securities, with money market instruments
with less than one year to
maturity excluded. A 100% portfolio turnover rate
would occur, for example, if
all included securities were replaced once during the
year. The Fund's portfo-
lio turnover rates for each of the past fiscal years
are set forth under "Fi-
nancial Highlights."
VALUATION OF SHARES
The Fund's net asset value per share is determined
as of the close of regular
trading on the New York Stock Exchange (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.
Securities listed on an exchange are valued on the
basis of the last sale
prior to the time the valuation is made. If there has
been no sale since the
immediately previous valuation, then the current bid
price is used. Quotations
are taken from the exchange where the security is
primarily traded. Portfolio
securities which are primarily traded on foreign
exchanges may be valued with
the assistance of a pricing service and are generally
valued at the preceding
closing values of such securities on their respective
exchange, except that
when an occurrence subsequent to the time a foreign
security is valued is
likely to have changed such value, then the fair value
of those securities will
be determined by consideration of other factors by or
under the direction of
the Board of Directors. Over-the-counter securities
are valued on the basis of
the bid price at the close of business on each day.
Unlisted foreign securities
are valued at the mean between the last available bid
and offer
9
<PAGE>
VALUATION OF SHARES (CONTINUED)
price prior to the time of valuation. Any assets or
liabilities initially
expressed in terms of foreign currencies will be
converted into U.S. dollar
values at the mean between the bid and offered
quotations of such currencies
against U.S. dollars as last quoted by any recognized
dealer. Securities for
which market quotations are not readily available are
valued at fair value.
Notwithstanding the above, bonds and other fixed-
income securities are valued
by using market quotations and may be valued on the
basis of prices provided by
a pricing service approved by the Board of Directors.
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 cap-
ital gain distributions will be reinvested
automatically in additional shares
of the same Class at net asset value, with no
additional sales charge or CDSC.
TAXES
The following is a summary of the material federal
tax considerations affect-
ing the Fund and Fund shareholders, please refer to
the Statement of Additional
Information for further discussion. In addition to the
considerations described
below and in the Statement of Additional Information,
there may be other feder-
al, state, local, and/or foreign tax applications to
consider. 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 intends to qualify, as it has in prior
years, under Subchapter M of
the Internal Revenue Code (the "Code") for tax
treatment as a regulated invest-
ment company. In each taxable year that the Fund
qualifies, so long as such
qualification is in the best interests of its
shareholders, 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.
10
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
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 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 shareholders' federal income tax
return.
PURCHASE, EXCHANGE AND REDEMPTION OF SHARES
Purchases of the Fund's Class Z shares must be made
in accordance with the
terms of a Qualified Plan. Purchases are effected at
the net asset value next
determined after a purchase order is received by Smith
Barney (the "trade
date"). Payment is due to Smith Barney on the third
business day (the "settle-
ment date") after the trade date. Investors who make
payment prior to the set-
tlement date may designate a temporary investment
(such as a money market fund
of the Smith Barney Mutual Funds) for such payment
until settlement date. The
Fund reserves the right to reject any purchase order
and to suspend the offer-
ing of shares for a period of time. There are no
minimum investment require-
ments for Class Z shares; however, the Fund reserves
the right to vary this
policy at any time.
Purchase orders received by the Fund or Smith Barney
prior to the close of
regular trading on the NYSE, currently 4:00 p.m., New
York time, on any day
that the Fund calculates its net asset value, are
priced according to the net
asset value determined on that day. See "Valuation of
Shares."
Qualified Plans may redeem their shares on any day
the Fund calculates its
net asset value. See "Valuation of Shares." Redemption
requests received in
proper
11
<PAGE>
PURCHASE, EXCHANGE AND REDEMPTION OF SHARES
(CONTINUED)
form prior to the close of regular trading on the NYSE
are priced at the net
asset value per share determined on that day.
Redemption requests received
after the close of regular trading on the NYSE are
priced at the net asset
value as next determined. Shareholders acquiring Class
Z shares through a Qual-
ified Plan should consult the terms of their
respective plans for redemption
provisions.
Holders of Class Z shares should consult their
Qualified Plans for informa-
tion about available exchange options.
PERFORMANCE
TOTAL RETURN
From time to time, the Fund may include its total
return, average annual
total return and current dividend return for Class Z
shares in advertisements
and/or other types of sales literature. These figures
are based on historical
earnings and are not intended to indicate future
performance. Total return is
computed for a specified period of time assuming
deduction of the maximum sales
charge, if any, from the initial amount invested and
reinvestment of all income
dividends and capital gain distributions on the
reinvestment dates at prices
calculated as stated in this Prospectus, then dividing
the value of the invest-
ment at the end of the period so calculated by the
initial amount invested and
subtracting 100%. The standard average annual total
return, as prescribed by
the SEC, is derived from this total return, which
provides the ending redeem-
able value. Such standard total return information may
also be accompanied with
non-standard total return information for differing
periods computed in the
same manner but without annualizing the total return
or taking sales charges
into account. The Fund calculates current dividend
return for Class Z shares by
annualizing the most recent monthly distribution and
dividing by the net asset
value or the maximum public offering price (including
sales charge) on the last
day of the period for which current dividend return is
presented. The current
dividend return may vary from time to time depending
on market conditions, the
composition of its investment portfolio and operating
expenses. These factors
and possible differences in the methods used in
calculating current dividend
return should be considered when comparing Class Z
shares' current return to
yields published for other investment companies and
other investment vehicles.
The Fund may also include comparative performance
information in advertising or
marketing its shares. Such performance information may
include data from Lipper
Analytical Services, Inc. or similar independent
services that monitor the per-
formance of mutual funds or other industry
publications. the Fund will include
performance data for Class Z shares in any
advertisement or information includ-
ing performance data of the Fund.
12
<PAGE>
MANAGEMENT OF THE COMPANY AND THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and
supervision of the Fund rests with
the Company's Board of Directors. The Directors
approve all significant agree-
ments between the Company and the companies that
furnish services to the Fund
and the Company, including agreements with its
investment adviser, distributor,
administrator, custodian and transfer agent. The day-
to-day operations of the
Fund are delegated to the Fund's investment adviser
and administrator. The
Statement of Additional Information contains
background information regarding
each Director and executive officer of the Company.
INVESTMENT ADVISER AND ADMINISTRATOR-MMC
MMC, located at 388 Greenwich Street, New York, New
York 10013, serves as the
Fund's investment adviser. MMC (through predecessor
entities) has been in the
investment counseling business since 1940 and is a
registered investment advis-
er. MMC renders investment advice to a wide variety of
investment company cli-
ent, which had aggregate assets under management as of
March 31, 1998 of
approximately $100.5 billion.
Subject to the supervision and direction of the
Company's Board of Directors,
MMC manages the Fund's portfolio in accordance with
the Fund's stated invest-
ment objective and policies, makes investment
decisions for the Fund, places
orders to purchase and sell securities and employs
professional portfolio man-
agers and securities analysts who provide research
services to the Fund. For
investment advisory services rendered, the Fund pays
MMC a monthly fee at the
annual rate of 0.55% of the value of its average daily
net assets.
MMC also serves as the Fund's administrator and
oversees all aspects of the
Fund's administration. For administration services
rendered to the Fund, the
Fund pays MMC a fee at the annual rate of 0.20% of the
value of the Fund's
average daily net assets.
PORTFOLIO MANAGEMENT
George V. Novello, a Managing Director of MMC, has
served as Investment Offi-
cer of the Fund since September 1990 and manages the
day-to-day operations of
the Fund, including making all investment decisions.
Management's discussion and analysis and additional
performance information
regarding the Fund during the fiscal year ended
December 31, 1997 is included
in the Fund's Annual Report dated December 31, 1997. A
copy of the Annual
Report may be obtained upon request without charge
from a Smith Barney Finan-
cial Consultant or by writing or calling the Fund at
the address or phone num-
ber listed on page one of this Prospectus.
On April 6, 1998, Travelers Group Inc. ("Travelers")
announced that it had
entered into a Merger Agreement with Citicorp. The
transaction, which is
expected
13
<PAGE>
MANAGEMENT OF THE FUND (CONTINUED)
to be completed during the third quarter of 1988, is
subject to various regu-
latory approvals, including approval by the Federal
Reserve Board. The trans-
action is also subject to approval by the stockholders
of each of Travelers
Group and Citicorp. 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. Although the
effects of the merger of
Travelers and Citicorp and compliance with the
requirements of the BHCA and
the Glass-Steagall Act are still under review, MMC
does not believe that its
compliance with applicable law following 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.
DISTRIBUTOR-SMITH BARNEY
Smith Barney is located at 388 Greenwich Street, New
York, New York 10013,
and serves as the Fund's distributor. Smith Barney is
a wholly owned subsidi-
ary of Travelers.
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 five Classes, A, B, C,
Y and Z with a par value of $.001 per share. Each
Class of shares has the same
rights, privileges and preferences, except with
respect to: (a) the designa-
tion 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; (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 ongo-
ing basis, will consider whether any such conflict
exists and, if so, take
appropriate action.
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 pur-
pose upon written request of shareholders holding at
least 10% of the
Company's outstanding shares and the Company will
assist shareholders in call-
ing 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 frac-
14
<PAGE>
ADDITIONAL INFORMATION (CONTINUED)
tional 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 each of its shareholders a semi-
annual report and an audited
annual report, which include listings of the
investment securities held by the
Fund at the end of the period covered. In an effort to
reduce the Fund's print-
ing 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 having multiple accounts with the identical
address of record will
receive a single copy of each report. In addition, the
Company also plans to
consolidate the mailing of its Prospectuses so that a
shareholder having multi-
ple accounts (i.e., individual, IRA and/or Self-
Employed Retirement Plan
accounts) will receive a single Prospectus annually.
Shareholders who do not
want this consolidation to apply to their accounts
should contact their Smith
Barney Financial Consultants or the Fund's transfer
agent.
PNC Bank National Association, located at 17th and
Chestnut Streets Philadel-
phia, PA 19103, serves as custodian of the Fund's
investments.
First Data Investor Services Group, Inc., located at
Exchange Place, Boston,
Massachusetts 02109, serves as the Fund's transfer
agent.
15
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SMITH BARNEY
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A
MEMBER OF TRAVELERSGROUP LOGO
SMITH
BARNEY SPECIAL EQUITIES FUND
388 Greenwich Street
New York, New York 10013
FD 1009 4/98
P R O S P E C T U S
SMITH BARNEY
Special
Equities
Fund
APRIL 30, 1998
PROSPECTUS BEGINS ON PAGE ONE
[LOGO] SMITH BARNEY MUTUAL FUNDS
Investing for your future.
Every day.
<PAGE>
PROSPECTUS
April 30, 1998
Smith Barney
Special Equities Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
Smith Barney Special Equities Fund ("Fund") seeks
long-term capital apprecia-
tion in a diversified portfolio of common stocks or
securities convertible into
or exchangeable for common stocks, primarily of growth
companies as identified
by the Fund's investment adviser.
The Fund is one of a number of funds, each having
distinct investment objec-
tives and policies, making up Smith Barney Investment
Funds Inc. ("Company").
The Company is an open-end management investment
company commonly referred to
as a mutual fund.
This Prospectus sets forth concisely certain
information about the Fund and
the Company, including sales charges, distribution and
service fees and
expenses, that prospective investors will find helpful
in making an investment
decision. Investors are encouraged to read this
Prospectus carefully and to
retain it for future reference.
Additional information about the Fund and the
Company is contained in a
Statement of Additional Information dated April 30,
1998 as amended or supple-
mented from time to time, that is available upon
request and without charge by
calling or writing the Company at the telephone number
or address set forth
above or by contacting a Smith Barney Financial
Consultant. The Statement of
Additional Information has been filed with the
Securities and Exchange Commis-
sion ("SEC") and is incorporated by reference into
this Prospectus in its
entirety.
SMITH BARNEY INC.
Distributor
MUTUAL MANAGEMENT CORP.
Investment Adviser and Administrator
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
- -------------------------------------------------
FINANCIAL HIGHLIGHTS 9
- -------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 14
- -------------------------------------------------
VALUATION OF SHARES 18
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 19
- -------------------------------------------------
PURCHASE OF SHARES 20
- -------------------------------------------------
EXCHANGE PRIVILEGE 30
- -------------------------------------------------
REDEMPTION OF SHARES 33
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 36
- -------------------------------------------------
PERFORMANCE 36
- -------------------------------------------------
MANAGEMENT OF THE COMPANY AND THE FUND 37
- -------------------------------------------------
DISTRIBUTOR 38
- -------------------------------------------------
ADDITIONAL INFORMATION 39
- -------------------------------------------------
</TABLE>
- ------------------------------------------------------
- --------------------------
No person has been authorized to give any
information or to make any
representations in connection with this offering other
than those contained in
this Prospectus and, if given or made, such other
information and
representations must not be relied upon as having been
authorized by the Fund
or the distributor. This Prospectus does not
constitute an offer by the Fund or
the Distributor to sell or a solicitation of an offer
to buy any of the
securities offered hereby in any jurisdiction to any
person to whom it is
unlawful to make such offer or solicitation in such
jurisdiction.
- ------------------------------------------------------
- --------------------------
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety
by detailed information
appearing elsewhere in this Prospectus and in the
Statement of Additional
Information. Cross references in this summary are to
headings in the Prospec-
tus. See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end,
diversified management invest-
ment company that seeks long-term capital appreciation
by investing in equity
securities consisting of common stocks or securities
which are convertible
into or exchangeable for such stocks, including
warrants, which the investment
adviser believes to have superior appreciation
potential. See "Investment
Objective and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers
several classes of shares
("Classes") to investors designed to provide them with
the flexibility of
selecting an investment best suited to their needs.
The general public is
offered three Classes of shares: Class A shares, Class
B shares and Class C
shares, which differ principally in terms of the sales
charges and rate of
expenses to which they are subject. A fourth Class of
shares, Class Y shares,
is offered only to investors meeting an initial
investment minimum of
$15,000,000. In addition, a fifth class, Class Z
shares, which is offered pur-
suant to a separate prospectus, is offered exclusively
to tax-exempt employee
benefit and retirement plans of Smith Barney Inc.
("Smith Barney") and its
affiliates. 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
redemptions. 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 no longer will be
subject to an annual distribution fee. In addition, a
certain portion of Class
B shares that have
3
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
been acquired through the reinvestment of dividends
and distributions ("Class
B Dividend Shares") will be converted at that time.
See "Purchase of Shares--
Deferred Sales Charge Alternatives."
Class C Shares. Class C shares are sold at net asset
value with no initial
sales charge. They are subject to an annual service
fee of 0.25% and an annual
distribution fee of 0.75% of the average daily net
assets of the Class, and
investors pay a CDSC of 1.00% if they redeem Class C
shares within 12 months
of purchase. The CDSC may be waived for certain
redemptions. The Class C
shares' distribution fee may cause that Class to have
higher expenses and pay
lower dividends than Class A shares. Purchases of Fund
shares which, when com-
bined with current holdings of Class C shares of the
Fund, equal or exceed
$500,000 in the aggregate should be made in Class A
shares at net asset value
with no sales charge, and will be subject to a CDSC of
1.00% on redemptions
made within 12 months of purchase.
Class Y Shares. Class Y shares are available only to
investors meeting an
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 length of his or
her investment. Shareholders who are planning to
establish a program of regu-
lar investment may wish to consider Class A shares; as
the investment accumu-
lates shareholders may qualify for reduced sales
charges and the shares are
subject to lower ongoing expenses over the term of the
investment. As an
investment alternative, Class B and Class C shares are
sold without any ini-
tial 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 these
Classes. Because the
Fund's future return cannot be predicted, however,
there can be no assurance
that this would be the case.
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 C shares have a
shorter CDSC period than Class
B shares, they do not have a conversion feature, and
therefore, are subject to
an ongoing distribution fee. Thus, Class B shares may
be more attractive than
Class C shares to investors with longer term
investment outlooks.
Reduced or No Initial Sales Charge. The initial
sales charge on Class A
shares may be waived for certain eligible purchasers,
and the entire purchase
price will be immediately invested in the Fund. In
addition, Class A share
purchases of $500,000 or more will be made at net
asset value with no initial
sales charge, but will be
4
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
subject to a CDSC of 1.00% on redemptions made within
12 months of purchase.
The $500,000 investment may be met by adding the
purchase to the net asset
value of all Class A shares held in other funds
sponsored by Smith Barney Inc.
("Smith Barney") 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 C shares, purchasers eligible to
purchase Class A shares at
net asset value or at a reduced sales charge should
consider doing so.
Smith Barney Financial Consultants may receive
different compensation for
selling different Classes of shares. Investors should
understand that the pur-
pose of the CDSC on the Class B and Class C shares is
the same as that of the
initial sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the
Company and the Fund" for a
complete description 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. Investors may also be eligible to participate
in the Smith Barney
ExecChoice(TM) Program. Class A and Class C shares are
available without a
sales charge as investment alternatives under both of
these programs. See "Pur-
chase of Shares--Smith Barney 401(k) and
ExecChoice(TM) Programs."
PURCHASE OF SHARES Shares may be purchased through a
brokerage account main-
tained by Smith Barney. Shares may also be purchased
through a broker that
clears securities transactions through Smith Barney on
a fully disclosed basis
(an "Introducing Broker") or an investment dealer in
the selling group. In
addition, certain investors, including qualified
retirement plans and certain
institutional investors, may purchase shares directly
from the Fund made
through the Fund's transfer agent, First Data Investor
Services Group, Inc.
("First Data"). See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and
Class C shares may open
an account by making an initial investment of at least
$1,000 for each account,
or $250 for an individual retirement account ("IRA")
or a Self-Employed Retire-
ment Plan. Investors in Class Y shares may open an
account for an initial
investment of $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
5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Section 401(a) of the Code, the minimum investments
requirement for Class A,
Class B and Class C shares and the subsequent
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 The Fund offers
shareholders a Systematic Invest-
ment Plan under which they may authorize the automatic
placement of a purchase
order each month or quarter for shares. The minimum
initial investment
requirement for Class A, Class B and Class C shares
and the subsequent invest-
ment 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")
(formerly known as
Smith Barney Mutual Funds Management Inc.) serves as
the Fund's investment
adviser and administrator. MMC provides investment
advisory and management
services to investment companies affiliated with Smith
Barney. MMC is a wholly
owned subsidiary of Salomon Smith Barney Holdings Inc.
("Holdings"). Holdings
is a wholly owned subsidiary of Travelers Group Inc.
("Travelers"), a diversi-
fied 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 a Smith Barney Financial Consultant. 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 at least
annually. See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions
paid on shares of a
Class will be reinvested automatically, unless
otherwise specified by an
investor, in additional shares of the same Class at
current net asset value.
Shares acquired by dividend and distribution
reinvestments will not be subject
to any sales charge or CDSC. Class B shares acquired
through dividend and dis-
tribution reinvestments
6
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
will become eligible for conversion to Class A shares
on a pro rata basis. See
"Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS The Company is
designed for long-term
investors and not for investors who intend to
liquidate their investment after
a short period. Neither the Company as a whole nor any
particular fund in the
Company, including the Fund, constitutes a balanced
investment plan. There can
be no assurance that the Fund will achieve its
investment objective. The Fund
may employ investment techniques which involve certain
risks, including lend-
ing portfolio securities, investing in restricted
securities, selling securi-
ties short and investing in foreign securities through
the use of American
Depositary Receipts. See "Investment Objective and
Management Policies--Addi-
tional Investments."
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
operating expenses for
its most recent fiscal year:
<TABLE>
<CAPTION>
SMITH BARNEY SPECIAL EQUITIES FUND CLASS
A CLASS B CLASS C CLASS Y
- ------------------------------------------------------
- -------------------------
<S> <C>
<C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00%
None None None
Maximum CDSC (as a percentage of original
cost or redemption proceeds whichever is
lower) None*
5.00% 1.00% None
- ------------------------------------------------------
- -------------------------
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fees 0.75%
0.75% 0.75% 0.75%
12b-1 fees** 0.25
1.00 1.00 None
Other expenses 0.20
0.19 0.20 0.05
- ------------------------------------------------------
- -------------------------
TOTAL FUND OPERATING EXPENSES 1.20%
1.94% 1.95% 0.80%
- ------------------------------------------------------
- -------------------------
</TABLE>
* Purchases of Class A shares of $500,000 or more
will be made at net asset
value with no sales charge, but will be subject to
a CDSC of 1.00% on
redemptions made within 12 months of purchase.
** Upon conversion of Class B shares to Class A
shares, such shares will no
longer be subject to a distribution fee. Class C
shares do not have a
conversion feature and, therefore, are subject to
an ongoing distribution
fee. As a result, long-term shareholders of Class C
shares may pay more
than the economic equivalent of the maximum front-
end sales charge
permitted by the National Association of Securities
Dealers, Inc.
Class A shares of the Fund purchased through the
Smith Barney AssetOne Pro-
gram will be subject to an annual asset-based fee,
payable quarterly, in lieu
of the initial sales charge. The fee will vary to a
maximum of 1.50%, depend-
ing on the amount of assets held through the program.
For more information,
please call your Smith Barney Financial Consultant.
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 C and certain Class A
shares, the length of time
the shares are held and whether shares are held
through the Smith Barney
401(k) and ExecChoice(TM) Programs. See "Purchase of
Shares" and "Redemption
of Shares." Smith Barney receives an annual 12b-1
service fee of 0.25% of the
value of average daily net assets of Class A shares.
Smith Barney also
receives, with respect to Class B and Class C shares,
an annual 12b-1 fee of
1.00% of the value of average daily net assets of the
respective Class, con-
sisting of a 0.75% distribution 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 understand-
ing the various costs that an investor in the Fund
will bear directly or indi-
rectly. 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 SPECIAL EQUITIES FUND 1 YEAR 3
YEARS 5 YEARS 10 YEARS*
- ------------------------------------------------------
- ------------------------
<S> <C>
<C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment, assuming
(1) 5.00% annual return and (2) redemption
at the end of each time period:
Class A.................................. $62
$86 $113 $188
Class B.................................. 70
91 115 207
Class C.................................. 30
61 105 227
Class Y.................................. 8
26 44 99
An investor would pay the following
expenses on the same investment, assuming
the same annual return and no redemption:
Class A.................................. 62
86 113 188
Class B.................................. 20
61 105 207
Class C.................................. 20
61 105 227
Class Y.................................. 8
26 44 99
- ------------------------------------------------------
- ------------------------
</TABLE>
* Ten-year figures assume conversion of Class B shares
to Class A shares at
the end of the eighth year following the date of
purchase.
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 REPRESEN-
TATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES
MAY BE GREATER OR LESS
THAN THOSE SHOWN.
8
<PAGE>
FINANCIAL HIGHLIGHTS
The following information for the three year period
ended December 31, 1997
has been audited by KPMG Peat Marwick LLP, independent
auditors, whose report
thereon appears in the Fund's Annual Report dated
December 31, 1997. The fol-
lowing information for the fiscal years ended December
31, 1988 through Decem-
ber 31, 1994 has been audited by other independent
auditors. The information
set out below should be read in conjunction with the
financial statements and
related notes that also appear in the Fund's Annual
Report, which is incorpo-
rated by reference into the Statement of Additional
Information.
FOR A CLASS A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
SMITH BARNEY SPECIAL
EQUITIES FUND 1997 1996(1) 1995
1994(1) 1993(1) 1992(2)
- ------------------------------------------------------
- ---------------------------
<S> <C> <C> <C>
<C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $28.11 $30.44 $19.10
$20.23 $15.47 $14.13
- ------------------------------------------------------
- ---------------------------
INCOME (LOSS) FROM OPER-
ATIONS:
Net investment loss (0.21) (0.19) (0.27)
(0.13) (0.08) (0.01)
Net realized and
unrealized gain (loss) (1.38) (1.50) 12.37
(1.00) 5.17 1.35
- ------------------------------------------------------
- ---------------------------
Total Income (Loss) From
Operations (1.59) (1.69) 12.10
(1.13) 5.09 1.34
- ------------------------------------------------------
- ---------------------------
LESS DISTRIBUTIONS FROM:
Net realized gains -- (0.28) (0.76)
- -- (0.33) --
Capital -- (0.36) --
- -- -- --
- ------------------------------------------------------
- ---------------------------
Total Distributions -- (0.64) (0.76)
- -- (0.33) --
- ------------------------------------------------------
- ---------------------------
NET ASSET VALUE, END OF
YEAR $26.52 $28.11 $30.44
$19.10 $20.23 $15.47
- ------------------------------------------------------
- ---------------------------
TOTAL RETURN (5.66)% (5.81)% 63.48%
(5.59)% 32.90% 9.48%++
- ------------------------------------------------------
- ---------------------------
NET ASSETS, END OF YEAR
(MILLIONS) $177 $237 $159
$101 $50 $0.2
- ------------------------------------------------------
- ---------------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.20% 1.17% 1.43%
1.49% 1.67% 1.51%+
Net investment loss (0.67) (0.61) (1.05)
(0.94) (0.46) (0.97)+
- ------------------------------------------------------
- ---------------------------
PORTFOLIO TURNOVER RATE 145% 118% 113%
123% 112% 211%
- ------------------------------------------------------
- ---------------------------
AVERAGE COMMISSIONS PAID
PER SHARE ON EQUITY
TRANSACTIONS(3) $0.06 $0.06 $0.06
- -- -- --
- ------------------------------------------------------
- ---------------------------
</TABLE>
(1) Per share amounts have been calculated using the
monthly average shares
method, rather than the undistributed net
investment income method, because
it more accurately reflects the per share data for
the period.
(2) For the period from November 6, 1992 (inception
date) to December 31, 1992.
(3) As of September 1995, the SEC instituted new
guidelines requiring the
disclosure of average commissions per share.
++Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
9
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
SMITH BARNEY SPECIAL EQUITIES
FUND 1997 1996(1)
1995 1994(1) 1993(1)
- ------------------------------------------------------
- ------------------------
<S> <C> <C>
<C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $27.28 $29.76
$18.82 $20.08 $15.47
- ------------------------------------------------------
- ------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.45) (0.41)
(0.37) (0.27) (0.20)
Net realized and unrealized gain
(loss) (1.29) (1.43)
12.07 (0.99) 5.14
- ------------------------------------------------------
- ------------------------
Total Income (Loss) From Opera-
tions (1.74) (1.84)
11.70 (1.26) 4.94
- ------------------------------------------------------
- ------------------------
LESS DISTRIBUTIONS FROM:
Net realized gains -- (0.28)
(0.76) -- (0.33)
Capital -- (0.36)
- -- -- --
- ------------------------------------------------------
- ------------------------
Total Distributions -- (0.64)
(0.76) -- (0.33)
- ------------------------------------------------------
- ------------------------
NET ASSET VALUE, END OF YEAR $25.54 $27.28
$29.76 $18.82 $20.08
- ------------------------------------------------------
- ------------------------
TOTAL RETURN (6.38)% (6.44)%
62.30% (6.27)% 31.93%
- ------------------------------------------------------
- ------------------------
NET ASSETS, END OF YEAR
(MILLIONS) $244 $362
$171 $94 $138
- ------------------------------------------------------
- ------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.94% 1.91%
2.04% 2.21% 2.34%
Net investment (loss) (1.41) (1.36)
(1.61) (1.66) (1.13)
- ------------------------------------------------------
- ------------------------
PORTFOLIO TURNOVER RATE 145% 118%
113% 123% 112%
- ------------------------------------------------------
- ------------------------
AVERAGE COMMISSIONS PER SHARE
PAID ON EQUITY TRANSACTIONS(2) $0.06 $0.06
$0.06 -- --
- ------------------------------------------------------
- ------------------------
</TABLE>
(1) Per share amounts have been calculated using the
monthly average shares
method, rather than the undistributed net
investment income method, because
it more accurately reflects the per share data for
the period.
(2) As of September, 1995, the SEC instituted new
guidelines requiring the
disclosure of average commissions per share.
+ Net investment income before reimbursement of
expenses by investment adviser
and sub-investment adviser and administrator for
the year ended December 31,
1988 was $0.70.
10
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
1992 1991 1990
1989 1988
- ------------------------------------------------------
- --------------------------------------------
<S> <C> <C>
<C> <C>
$14.18 $ 9.82 $13.77
$12.04 $11.48
- ------------------------------------------------------
- --------------------------------------------
(0.26) (0.07) 0.29
0.28 0.71+
1.55 4.46 (3.70)
1.96 0.70
- ------------------------------------------------------
- --------------------------------------------
1.29 4.39 (3.41)
2.24 1.41
- ------------------------------------------------------
- --------------------------------------------
-- -- (0.23)
- -- (0.30)
-- (0.03) (0.02)
(0.24) --
- ------------------------------------------------------
- --------------------------------------------
-- (0.03) (0.54)
(0.51) (0.85)
- ------------------------------------------------------
- --------------------------------------------
$15.47 $14.18 $9.82
$13.77 $12.04
- ------------------------------------------------------
- --------------------------------------------
9.10% (24.71)% 18.60%
12.60% (10.91)%
- ------------------------------------------------------
- --------------------------------------------
$78 $82 $76
$142 $170
- ------------------------------------------------------
- --------------------------------------------
2.32% 2.31% 2.30%
2.34% 2.32%
(1.77) (0.74) 2.12
1.69 5.23
- ------------------------------------------------------
- --------------------------------------------
211% 379% 372%
228% 165%
- ------------------------------------------------------
- --------------------------------------------
-- -- --
- -- --
- ------------------------------------------------------
- --------------------------------------------
</TABLE>
11
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS C SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
SMITH BARNEY SPECIAL
EQUITIES FUND 1997 1996(1) 1995
1994(1) 1993(1)(2)
- ------------------------------------------------------
- -------------------------
<S> <C> <C> <C>
<C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR $27.28 $29.77
$18.82 $20.08 $22.62
- ------------------------------------------------------
- -------------------------
INCOME (LOSS) FROM OPERA-
TIONS:
Net investment loss (0.45) (0.41)
(0.42) (0.25) (0.16)
Net realized and unrealized
gain (loss) (1.29) (1.44)
12.13 (1.01) (2.05)
- ------------------------------------------------------
- -------------------------
Total Income (Loss) From
Operations (1.74) (1.85)
11.71 (1.26) (2.21)
- ------------------------------------------------------
- -------------------------
LESS DISTRIBUTIONS FROM:
Net realized gains -- (0.28)
(0.76) -- (0.33)
Capital -- (0.36) --
- -- --
- ------------------------------------------------------
- -------------------------
Total Distributions -- (0.64)
(0.76) -- (0.33)
- ------------------------------------------------------
- -------------------------
NET ASSET VALUE, END OF YEAR $25.54 $27.28
$29.77 $18.82 $20.08
- ------------------------------------------------------
- -------------------------
TOTAL RETURN (6.38)% (6.44)%
62.35% (6.27)% (9.77)%++
- ------------------------------------------------------
- -------------------------
NET ASSETS, END OF YEAR
(MILLIONS) $19 $26
$9 $2 $0.2
- ------------------------------------------------------
- -------------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.95% 1.90%
2.25% 2.15% 2.19%+
Net investment loss (1.42) (1.34)
(1.79) (1.60) (0.98)+
- ------------------------------------------------------
- -------------------------
PORTFOLIO TURNOVER RATE 145% 118%
113% 123% 112%
- ------------------------------------------------------
- -------------------------
AVERAGE COMMISSIONS PER
SHARE PAID ON EQUITY
TRANSACTIONS(3) $0.06 $0.06
$0.06 -- --
- ------------------------------------------------------
- -------------------------
</TABLE>
(1) Per share amounts have been calculated using the
monthly average shares
method, rather than of the undistributed net
investment income method,
because it more accurately reflects the per share
data for the period.
(2) For the period from October 18, 1993 (inception
date) to December 31, 1993.
(3) As of September 1995, the SEC instituted new
guidelines requiring the
disclosure of average commissions per share.
++Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
12
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS Y SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
SMITH BARNEY SPECIAL
EQUITIES FUND 1997 1996(1)(2)
- -----------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF YEAR $28.21 $28.99
- -----------------------------------------------
INCOME (LOSS) FROM OPER-
ATIONS:
Net investment loss (0.09) (0.08)
Net realized and
unrealized loss (1.40) (0.06)
- -----------------------------------------------
Total Loss From Opera-
tions (1.49) (0.14)
- -----------------------------------------------
LESS DISTRIBUTIONS FROM:
Net realized gains -- (0.28)
Capital -- (0.36)
- -----------------------------------------------
Total Distributions -- (0.64)
- -----------------------------------------------
NET ASSET VALUE, END OF
YEAR $26.72 $28.21
- -----------------------------------------------
TOTAL RETURN (5.28)% (0.75)%++
- -----------------------------------------------
NET ASSETS, END OF YEAR
(MILLIONS) $106 $94
- -----------------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.80% 0.82%+
Net investment loss (0.27) (0.29)+
- -----------------------------------------------
PORTFOLIO TURNOVER RATE 145% 118%
- -----------------------------------------------
AVERAGE COMMISSIONS PER
SHARE PAID ON EQUITY
TRANSACTIONS $0.06 $0.06
- -----------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the
monthly average shares
method, rather than the undistributed net
investment income method, because
it more accurately reflects the per share data for
the period.
(2) For the period from January 31, 1996 (inception
date) to December 31, 1996.
++Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
13
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Fund's investment objective is long-term capital
appreciation. It seeks
to achieve this objective by investing in equity
securities (common stocks or
securities which are convertible into or exchangeable
for such stocks, includ-
ing warrants) which MMC believes to have superior
appreciation potential. There
can be no assurance that the Fund will achieve its
investment objective.
The Fund attempts to achieve its investment
objective by investing primarily
in equity securities of growth companies, generally
not within the Standard &
Poor's 500 Composite Stock Price Index ("S&P 500"), as
identified by MMC. These
companies may not have reached a fully mature stage of
earnings growth, since
they may still be in the developmental stage, or may
be older companies which
appear to be entering a new stage of more rapid
earnings progress due to fac-
tors such as management change or development of new
technology, products or
markets. A significant number of these companies may
be in technology areas,
including health care related sectors, and may have
annual sales of less than
$300 million. The Fund may also choose to invest in
some relatively unseasoned
stocks, i.e., securities issued by companies whose
market capitalization is
under $100 million.
The Fund also may invest in small capitalization
companies representative of
the broad benchmarks against which the Fund's
performance is frequently judged
by utilizing an active quantitative investment
strategy for a portion of the
Fund. This portion will provide added diversification
and, in addition, MMC
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 securities, the Fund's Portfolio
Manager is supported by a
quantitatively oriented investment team.
Investing in smaller, newer issuers generally
involves greater risk than
investing in larger, more established issuers. The
Fund may purchase restricted
securities (subject to a limit on all illiquid
securities of 10% of total
assets), invest in money market instruments, enter
into repurchase and reverse
repurchase agreements for temporary defensive
purposes, invest in real estate
investment trusts, purchase the securities of
companies with less than three
years of continuous operation, borrow money from banks
as a temporary measure
for extraordinary or emergency purposes in an amount
not exceeding 5% of the
Fund's total assets, lend its portfolio securities and
enter into short sales
"against the box."
In making purchases of securities consistent with
the above policies, the
Fund will be subject to the applicable restrictions
referred to under "Invest-
ment Restrictions" in the Statement of Additional
Information. Except for the
Fund's investment objective and those restrictions
specifically identified as
fundamental which may not be changed without a
majority vote of shareholders of
the Fund, all investment policies and practices
described in this Prospectus
and in the Statement of Additional Informa -
14
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
tion are non-fundamental, and may be changed by the
Board of Directors without
shareholder approval.
ADDITIONAL INVESTMENTS
U.S. Government Securities. U.S. government
securities are obligations of,
or are guaranteed by, the U.S. government, its
agencies or instrumentalities.
These include bills, certificates of indebtedness, and
notes and bonds issued
by the United States Treasury or by agencies or
instrumentalities of the
United States government. Some U.S. government
securities, such as United
States Treasury bills and bonds, are supported by the
full faith and credit of
the United States Treasury; others are supported by
the right of the issuer to
borrow from the United States Treasury; others, such
as those of the Federal
National Mortgage Association, are supported by the
discretionary authority of
the United States government to purchase the agency's
obligations; still oth-
ers, such as those of the Student Loan Marketing
Association and the Federal
Home Loan Mortgage Corporation ("FHLMC"), are
supported only by the credit of
the instrumentality. Mortgage participation
certificates issued by the FHLMC
generally represent ownership interests in a pool of
fixed-rate conventional
mortgages. Timely payment of principal and interest on
these certificates is
guaranteed solely by the issuer of the certificates.
Other investments will
include Government National Mortgage Association
Certificates ("GNMA Certifi-
cates"), which are mortgage-backed securities
representing part ownership of a
pool of mortgage loans on which timely payment of
interest and principal is
guaranteed by the full faith and credit of the United
States government. While
the United States government guarantees the payment of
principal and interest
on GNMA Certificates, the market value of the
securities is not guaranteed and
will fluctuate.
Repurchase Agreements. The Fund may enter into
repurchase agreement transac-
tions on U.S. government securities with banks which
are the issuers of
instruments acceptable for purchase by the Fund and
with certain dealers on
the Federal Reserve Bank of New York's list of
reporting dealers. Under the
terms of a typical repurchase agreement, the Fund
would acquire an underlying
debt obligation for a relatively short period (usually
not more than one week)
subject to an obligation of the seller to repurchase,
and the Fund to resell,
the obligation at an agreed-upon price and time,
thereby determining the yield
during the Fund's holding period. This arrangement
results in a fixed rate of
return that is not subject to market fluctuations
during the Fund's holding
period. Under each repurchase agreement, the selling
institution will be
required to maintain the value of the securities
subject to the repurchase
agreement at not less than their repurchase price.
Repurchase agreements could
involve certain risks in the event of default or
insolvency of the other par-
ty, including possible delays or restrictions upon the
Fund's ability to dis-
pose of
15
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
the underlying securities, the risk of a possible
decline in the value of the
underlying securities during the period in which the
Fund seeks to assert its
rights to them, the risk of incurring expenses
associated with asserting those
rights and the risk of losing all or part of the
income from the agreement.
MMC, acting under the supervision of the Board of
Directors, reviews on an
ongoing basis to evaluate potential risks, the value
of the collateral and the
creditworthiness of those banks and dealers with which
the Fund enters into
repurchase agreements.
Loans of Portfolio Securities. Consistent with
applicable regulatory require-
ments, the Fund may lend its portfolio securities
provided: (a) the loan is
secured continuously by collateral consisting of U.S.
government securities,
cash or cash equivalents maintained on a daily marked-
to-market basis in an
amount at least equal to the current market value of
the securities loaned; (b)
the Fund may at any time call the loan and obtain the
return of the securities
loaned; and (c) the Fund will receive any interest or
dividends paid on the
loaned securities.
Futures Contracts and Options on Futures. The Fund
may enter into transac-
tions in futures contracts and options on futures only
(i) for bona fide hedg-
ing 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 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 investment
returns when a futures contract is priced more
attractively than stocks com-
prising 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.
Among the several risks accompanying the utilization
of futures contracts and
options on futures contracts are the following: First,
the successful use of
futures and options is dependent upon the ability of
MMC to predict correctly
movements in the stock market or in the direction of
interest rates. These pre-
dictions 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
16
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
and options on futures contracts may only be closed
out by entering into off-
setting transactions on the exchange where the
position was entered into (or
through a linked exchange), and, as a result of daily
price fluctuations lim-
its, there can be no assurance the offsetting
transaction could be entered into
at an advantageous price at a particular time.
Consequently, the Fund may real-
ize 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.
Short Sales. The Fund may sell securities short
"against the box." While a
short sale is the sale of a security the Fund does not
own, it is "against the
box" if at all times when the short position is open,
the Fund owns an equal
amount of the securities or securities convertible
into, or exchangeable with-
out further consideration for, securities of the same
issue as the securities
sold short. Short sales "against the box" are used to
defer recognition of cap-
ital gains or losses.
American Depositary Receipts. The Fund may purchase
American Depositary
Receipts ("ADRs"), which are dollar-denominated
receipts issued generally by
domestic banks and representing the deposit with the
bank of a security of a
foreign issuer. ADRs are publicly traded on exchanges
or over-the-counter in
the United States.
Restricted Securities. The Fund may invest in
restricted securities.
Restricted securities are securities subject to legal
or contractual restric-
tions on their resale. Such restrictions might prevent
the sale of restricted
securities at a time when such a sale would otherwise
be desirable. Restricted
securities and securities for which there is no
readily available market ("il-
liquid assets") will not be acquired if such
acquisition would cause the aggre-
gate value of illiquid assets and restricted
securities to exceed 10% of the
Fund's total assets.
Year 2000. The investment management services
provided to the Fund by MMC and
the services provided to shareholders by Smith Barney,
the Fund's Distributor,
depend on the smooth functioning of their computer
systems. Many computer soft-
ware systems 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. MMC and Smith
Barney have advised the Fund that they have been
reviewing all of their com-
puter 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, MMC has been advised by
the Fund's custodian,
transfer agent and accounting service agent that they
are also in the process
of modifying their systems with the same goal. There
can, however, be no assur-
ance that MMC,
17
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
Smith Barney or any other service provider will be
successful, or that interac-
tion with other non-complying computer systems will
not impair Fund services at
that time.
PORTFOLIO TRANSACTIONS AND TURNOVER
MMC arranges for the purchase and sale of the Fund's
securities and selects
brokers and dealers (including Smith Barney) which, in
its best judgment, pro-
vide prompt and reliable execution at favorable prices
and reasonable commis-
sion rates. MMC may select brokers and dealers which
provide it with research
services and may cause the Fund to pay such brokers
and dealers commissions
which exceed those other brokers and dealers may have
charged, if it views the
commissions as reasonable in relation to the value of
the brokerage and/or
research services.
The Fund may experience high portfolio turnover as a
result of its investment
strategies. Short-term gains realized from portfolio
transactions are taxable
to shareholders as ordinary income. In addition,
higher portfolio turnover
rates can result in corresponding increases in
brokerage commissions for the
Fund. While the Fund does not intend to engage in
short-term trading, it will
not consider portfolio turnover rate a limiting factor
in making investment
decisions consistent with its objectives and policies.
The Fund's portfolio
turnover rate is calculated by dividing the lesser of
purchases or sales of
portfolio securities for the fiscal year by the
monthly average of the value of
the Fund's securities, with money market instruments
with less than one year to
maturity excluded. A 100% portfolio turnover rate
would occur, for example, if
all included securities were replaced once during the
year. The Fund's portfo-
lio turnover rates for each of the past fiscal years
are set forth under "Fi-
nancial Highlights."
VALUATION OF SHARES
The Fund's net asset value per share is determined
as of the close of regular
trading on the NYSE on each day that the NYSE is open,
by dividing the value of
the Fund's net assets attributable to each Class by
the total number of shares
of the Class outstanding.
Securities listed on an exchange are valued on the
basis of the last sale
prior to the time the valuation is made. If there has
been no sale since the
immediately previous valuation, then the current bid
price is used. Quotations
are taken from the exchange where the security is
primarily traded. Portfolio
securities which are primarily traded on foreign
exchanges may be valued with
the assistance of a pricing service and are generally
valued at the preceding
closing values of such securities on their respective
exchange, except that
when an occurrence subsequent to the
18
<PAGE>
VALUATION OF SHARES (CONTINUED)
time a foreign security is valued is likely to have
changed such value, then
the fair value of those securities will be determined
by consideration of other
factors by or under the direction of the Board of
Directors. Over-the-counter
securities are valued on the basis of the bid price at
the close of business on
each day. Unlisted foreign securities are valued at
the mean between the last
available bid and offer price prior to the time of
valuation. Any assets or
liabilities initially expressed in terms of foreign
currencies will be con-
verted into U.S. dollar values at the mean between the
bid and offered quota-
tions of such currencies against U.S. dollars as last
quoted by any recognized
dealer. Securities for which market quotations are not
readily available are
valued at fair value. Notwithstanding the above, bonds
and other fixed-income
securities are valued by using market quotations and
may be valued on the basis
of prices provided by a pricing service approved by
the Board of Directors.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute 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 cap-
ital gains distributions will be reinvested
automatically in additional shares
of the same Class at net asset value, with no
additional sales charge or CDSC.
The per share amounts of dividends from net
investment income on Classes B
and C may be lower than that of Classes A and Y,
mainly as a result of the dis-
tribution fees applicable to Class B and C 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, C and Y).
TAXES
The following is a summary of the material federal
tax considerations affect-
ing the Fund and Fund shareholders, please refer to
the Statement of Additional
Information for further discussion. In addition to the
considerations described
below and in the Statement of Additional Information,
there may be other feder-
al, state, local, and/or foreign tax applications to
consider. 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.
19
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
The Fund intends to qualify, as it has in prior
years, under Subchapter M of
the Internal Revenue Code (the "Code") for tax
treatment as a regulated invest-
ment company. In each taxable year that the Fund
qualifies, so long as such
qualification is in the best interests of its
shareholders, 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 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 shareholders' federal income tax
return.
PURCHASE OF SHARES
GENERAL
The Fund offers four Classes of shares. Class A
shares are sold to investors
with an initial sales charge and Class B and Class C
shares are sold without an
initial sales charge but are subject to a CDSC payable
upon certain redemp-
tions. Class Y
20
<PAGE>
PURCHASE OF SHARES (CONTINUED)
shares are sold without an initial sales charge or a
CDSC and are available
only to investors 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). The Fund also offers a
fifth class of shares:
Class Z shares, which are offered without a sales
charge, CDSC, service fee or
distribution fee, exclusively to tax-exempt employee
benefit and retirement
plans of Smith Barney and its affiliates. Investors
meeting these criteria who
are interested in acquiring Class Z shares should
contact a Smith Barney
Financial Consultant for a Class Z shares Prospectus.
See "Prospectus Summa-
ry--Alternative Purchase Arrangements" for a
discussion of factors to consider
in selecting which Class of shares to purchase.
Purchases of Fund shares must be made through a
brokerage account maintained
with Smith Barney, an Introducing Broker or an
investment dealer in the sell-
ing group. In addition, certain investors, including
qualified retirement
plans and certain other institutional investors, may
purchase shares directly
through First Data. When purchasing shares of the
Fund, investors must specify
whether the purchase is for Class A, Class B, Class C
or Class Y shares. Smith
Barney and other broker/dealers may charge their
customers an annual account
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 C shares may
open an account by mak-
ing an initial investment of at least $1,000 for each
account, or $250 for an
IRA or a Self-Employed Retirement Plan, in the Fund.
Investors in Class Y
shares may open an account by making an initial
investment of $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 C shares and the subsequent
investment requirement for all
Classes in the Fund is $25. For shareholders
purchasing shares of the Fund
through the Systematic Investment Plan on a monthly
basis, the minimum initial
investment requirement for Class A, Class B and Class
C shares and the 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 C shares and the subsequent investment
requirement for all Classes is
$50. There are no minimum investment requirements for
Class A shares for
employees of Travelers and its subsidiaries, including
Smith Barney, Directors
or Trustees of any of the Smith Barney Mutual Funds or
other funds affiliated
with Travelers, and their spouses and children. The
Fund reserves the right to
waive or change minimums, to decline any order to
purchase its shares and to
suspend the offering of shares from time to time.
Shares purchased will be
held in the shareholder's account by First Data. Share
certificates are issued
only upon a shareholder's written request to First
Data.
21
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Purchase orders received by the Fund or Smith Barney
prior to the close of
regular trading on the NYSE, on any day the Fund
calculates its net asset val-
ue, are priced according to the net asset value
determined on that day (the
"trade date"). Orders received by dealers or
Introducing Brokers prior to the
close of regular trading on the NYSE on any day the
Fund calculates its net
asset value, are priced according to the net asset
value determined on that
day, provided the order is received by the Fund or
Smith Barney prior to Smith
Barney's close of business. For shares purchased
through Smith Barney or Intro-
ducing Brokers purchasing through Smith Barney,
payment for Fund shares is due
on the third business day after the trade date. In all
other cases, payment
must be made with the purchase order.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at
any time by purchasing
shares through a service known as the Systematic
Investment Plan. Under the
Systematic Investment Plan, Smith Barney or First Data
is authorized, through
preauthorized transfers of at least $25 on a monthly
basis or at least $50 on a
quarterly basis, to charge the regular bank account or
other financial institu-
tion indicated by the shareholder to provide
systematic additions to the share-
holder's Fund account. A shareholder who has
insufficient funds to complete the
transfer will be charged a fee of up to $25 by Smith
Barney or First Data. The
Systematic Investment Plan also authorizes Smith
Barney to apply cash held in
the shareholder's Smith Barney brokerage account or
redeem the shareholder's
shares of a Smith Barney money market fund to make
additions to the account.
Additional information is available from the Fund or a
Smith Barney Financial
Consultant.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
The sales charges applicable to purchases of Class A
shares of the Fund are
as follows:
<TABLE>
<CAPTION>
SALES CHARGE
------------------------------
DEALERS
% OF % OF
REALLOWANCE AS % OF
AMOUNT OF INVESTMENT OFFERING PRICE AMOUNT INVESTED
OFFERING PRICE
- ------------------------------------------------------
- ------------------
<S> <C> <C>
<C>
Less than $ 25,000 5.00% 5.26%
4.50%
$ 25,000 - $ 49,999 4.00 4.17
3.60
50,000 - $ 99,999 3.50 3.63
3.15
100,000 - $249,999 3.00 3.09
2.70
250,000 - $499,999 2.00 2.04
1.80
500,000 and over * *
*
- ------------------------------------------------------
- ------------------
</TABLE>
* Purchases of Class A shares of $500,000 or more will
be made at net asset
value without any initial sales charge, but will be
subject to a CDSC of
1.00% on redemptions made within 12 months of
purchase. The CDSC on Class A
shares is payable to Smith Barney, which compensates
Smith Barney Financial
Consultants and other dealers whose clients make
purchases of $500,000 or
more. The CDSC is waived in the same circumstances
in which the CDSC
applicable to Class B and Class C shares is waived.
See "Deferred Sales
Charge Alternatives" and "Waivers of CDSC."
22
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Members of the selling group may receive up to 90%
of the sales charge and
may be deemed to be underwriters of the Fund as
defined in the Securities Act
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 any of
the Smith Barney Mutual
Funds or other Travelers-affiliated funds (including
retired Board Members and
employees); the immediate families of such persons
(including the surviving
spouse of a deceased Board Member or employee); and to
a pension, profit-shar-
ing or other benefit plan for such persons and (ii)
employees of members of
the National Association of Securities Dealers, Inc.,
provided such sales are
made upon the assurance of the purchaser that the
purchase is made for invest-
ment 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 in connection with the combination of such
company with the Fund by
merger, acquisition of assets or otherwise; (c)
purchases of Class A shares by
any client of a newly employed Smith Barney Financial
Consultant (for a period
up to 90 days from the commencement of the Financial
Consultant's employment
with Smith Barney), on the condition that the purchase
of Class A shares is
made with the proceeds of the redemption of shares of
a mutual fund which (i)
was sponsored by the Financial Consultant's prior
employer, (ii) was sold to
the client by the Financial Consultant and (iii) was
subject to a sales
charge; (d) purchase 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 redemption; (e) purchase by accounts
managed by registered invest-
ment advisory subsidiaries of Travelers; (f) direct
rollovers by plan partici-
pants 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; and (h) purchases by investors
participating in a Smith
Barney fee-based arrangement; and (i) purchases of
Class A Shares by Section
403(b) or Section 401(a) or (k) accounts associated
with Copeland Retirement
Programs. In order to obtain such discounts, the
purchaser must provide suffi-
cient information at the time of purchase
23
<PAGE>
PURCHASE OF SHARES (CONTINUED)
to permit verification that the purchase would qualify
for the elimination of
the sales charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any
person" (as defined
above) at a reduced sales charge or at net asset value
determined by aggregat-
ing the dollar amount of the new purchase and the
total net asset value of all
Class A shares of the Fund and of funds sponsored by
Smith Barney which are
offered with a sales charge listed under "Exchange
Privilege" then held by such
person and applying the sales charge applicable to
such aggregate. In order to
obtain such discount, the purchaser must provide
sufficient information at the
time of purchase to permit verification that the
purchase qualifies for the
reduced sales charge. The right of accumulation is
subject to modification or
discontinuance at any time with respect to all shares
purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a
reduced sales charge or pur-
chase at net asset value will also be available to
employees (and partners) of
the same employer purchasing as a group, provided each
participant makes the
minimum initial investment required. The sales charge
applicable to purchases
by each member of such a group will be determined by
the table set forth above
under "Initial Sales Charge Alternative--Class A
Shares," and will be based
upon the aggregate sales of Class A shares of Smith
Barney Mutual Funds offered
with a sales charge to, and share holdings of, all
members of the group. To be
eligible for such reduced sales charges or to purchase
at net asset value, all
purchases must be pursuant to an employer- or
partnership-sanctioned plan meet-
ing certain requirements. One such requirement is that
the plan must be open to
specified partners or employees of the employer and
its subsidiaries, if any.
Such plan may, but is not required to, provide for
payroll deductions, IRAs or
investments pursuant to retirement plans under
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 crite-
ria which enable Smith Barney to realize economies of
scale in its costs of
distributing shares. A qualified group must have more
than 10 members, must be
available to arrange for group meetings between
representatives of the Fund and
24
<PAGE>
PURCHASE OF SHARES (CONTINUED)
the members, and must agree to include sales and other
materials related to
the Fund in its publications and mailings to members
at no cost to Smith Bar-
ney. In order to obtain such reduced sales charge or
to purchase at net asset
value, the purchaser must provide sufficient
information at the time of pur-
chase 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
funds of the Smith Barney
Mutual Funds offered with a sales charge over the 13
month period based on the
total amount of intended purchases plus the value of
all Class A shares previ-
ously purchased and still owned. An alternative is to
compute the 13 month
period starting up to 90 days before the date of
execution of a Letter of
Intent. Each investment made during the period
receives the reduced sales
charge applicable to the total amount of the
investment goal. If the goal is
not achieved within the period, the investor must pay
the difference between
the sales charges applicable to the purchases made and
the charges previously
paid, or an appropriate number of escrowed shares will
be redeemed. Please
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 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
same Fund within 13 months from the date of the
Letter. If a total investment
of $15,000,000 is not made within the 13-month period,
all Class Y shares pur-
chased to date will be transferred to Class A shares,
where they will be sub-
ject to all fees (including a service fee of 0.25%)
and expenses applicable to
the Fund's Class A shares, which may include a CDSC of
1.00%. Please contact a
Smith Barney Financial Consultant or First Data for
further information.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next
determined without an initial
sales charge so that the full amount of an investor's
purchase payment may be
immediately invested in the Fund. A CDSC, however, may
be imposed on certain
redemptions of these shares. "CDSC Shares" are: (a)
Class B shares; (b) Class
C
25
<PAGE>
PURCHASE OF SHARES (CONTINUED)
shares; and (c) Class A shares 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
original 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 gains distributions;
(c) with respect to Class B shares, shares redeemed
more than five years after
their purchase; or (d) with respect to Class C shares
and Class A shares that
are CDSC Shares, shares redeemed more than 12 months
after their purchase.
Class C shares and Class A shares that are CDSC
Shares are subject to a 1.00%
CDSC if redeemed within 12 months of purchase. In
circumstances in which the
CDSC is imposed on Class B shares, the amount of the
charge will depend on the
number of years since the shareholder made the
purchase payment from which the
amount is being redeemed. Solely for purposes of
determining the number of
years since a purchase payment, all purchase payments
made during a month will
be aggregated and deemed to have been made on the last
day of the preceding
Smith Barney statement month. The following table sets
forth the rates of the
charge for redemptions of Class B shares by
shareholders, except in the case of
Class B shares held under the Smith Barney 401(k)
Programs as described below.
See "Purchase of Shares--Smith Barney 401(k) and
ExecChoice(TM) Programs."
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
- ---------------------------------
<S> <C>
First 5.00%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth and thereafter 0.00
- ---------------------------------
</TABLE>
Class B shares will convert automatically to Class A
shares eight years after
the date on which they were purchased and thereafter
will no longer be subject
to any distribution fee. There also will be converted
at that time such propor-
tion of Class B Dividend Shares owned by the
shareholder as the total number of
his or her Class B shares converting at the time bears
to the total number of
Class B shares (other than Class B Dividend Shares)
owned by the shareholder.
See "Prospectus Summary--Alternative Purchase
Arrangements--Class B Shares Con-
version Feature."
In determining the applicability of any CDSC, it
will be assumed that a
redemption is made first of shares representing
capital appreciation, next of
shares representing the reinvestment of dividends and
capital gain distribu-
tions and finally of
26
<PAGE>
PURCHASE OF SHARES (CONTINUED)
other shares held by the shareholder for the longest
period of time. The length
of time that CDSC Shares acquired through an exchange
have been held will be
calculated from the date that the shares exchanged
were initially acquired in
one of the other applicable Smith Barney Mutual Funds,
and Fund shares being
redeemed will be considered to represent, as
applicable, capital appreciation
or dividend and capital gains distribution
reinvestments in such other funds.
For Federal income tax purposes, the amount of the
CDSC will reduce the gain or
increase the loss, as the case may be, on the amount
realized on redemption.
The amount of any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased
100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the
investor acquired 5 addi-
tional shares through dividend reinvestment. During
the fifteenth month after
the purchase, the investor decided to redeem $500 of
his or her investment.
Assuming at the time of the redemption the net asset
value had appreciated to
$12 per share, the value of the investor's shares
would be $1,260 (105 shares
at $12 per share). The CDSC would not be applied to
the amount which represents
appreciation ($200) and the value of the reinvested
dividend shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500
minus $260) would be
charged at a rate of 4.00% (the applicable rate for
Class B shares) for a total
deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see
"Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less
than 1.00% per month of
the value of the shareholder's shares at the time the
withdrawal plan commences
(see "Automatic Cash Withdrawal Plan") (provided,
however, that automatic cash
withdrawals in amounts equal to or less than 2.00% per
month of the value of
the shareholder's shares will be permitted for
withdrawal plans that were
established prior to November 7, 1994); (c)
redemptions of shares within 12
months following the death or disability of the
shareholder; (d) redemption of
shares made in connection with qualified distributions
from retirement plans or
IRAs upon the attainment of age 59 1/2; (e)
involuntary redemptions; and (f)
redemptions of shares to effect a combination of the
Fund with any investment
company by merger, acquisition of assets or otherwise.
In addition, a share-
holder who has redeemed shares from other funds of the
Smith Barney Mutual
Funds may, under certain circumstances, reinvest all
or part of the redemption
proceeds within 60 days and receive pro rata credit
for any CDSC imposed on the
prior redemption.
CDSC waivers will be granted subject to confirmation
(by Smith Barney in the
case of shareholders who are also Smith Barney clients
or by First Data in the
case of all other shareholders) of the shareholder's
status or holdings, as the
case may be.
27
<PAGE>
PURCHASE OF SHARES (CONTINUED)
SMITH BARNEY 401(K) 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.
The Fund offers to Participating Plans Class A and
Class C shares as invest-
ment alternatives under the Smith Barney 401(k) and
ExecChoice(TM) Programs.
Class A and Class C shares acquired through the
Participating Plans are subject
to the same service and/or distribution fees as the
Class A and Class C shares
acquired by other investors; however, they are not
subject to any initial sales
charge or CDSC. Once a Participating Plan has made an
initial investment in the
Fund, all of its subsequent investments in the Fund
must be in the same Class
of shares, except as otherwise described below.
Class A Shares. Class A shares of the Fund are
offered without any sales
charge or CDSC to any Participating Plan that
purchases $1,000,000 or more of
Class A shares of one or more funds of the Smith
Barney Mutual Funds.
Class C Shares. Class C shares of the Fund are
offered without any sales
charge or CDSC to any Participating Plan that
purchases less than $1,000,000 of
Class C shares of one or more funds of the Smith
Barney Mutual Funds.
401(k) and ExecChoice(TM) Plans Opened On or After
June 21, 1996. If, at the
end of the fifth year after the date the Participating
Plan enrolled in the
Smith Barney 401(k) Program or the Smith Barney
ExecChoice(TM) Program, a Par-
ticipating Plan's total Class C holdings in all non-
money market Smith Barney
Mutual Funds equal at least $1,000,000, the
Participating Plan will be offered
the opportunity to exchange all of its Class C shares
for Class A shares of the
Fund (For Participating Plans that were originally
established through a Smith
Barney retail brokerage account, the five year period
will be calculated from
the date the retail brokerage account was opened.)
Such Participating Plans
will be notified of the pending exchange in writing
within 30 days after the
fifth anniversary of the 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.
40l(k) Plans Opened Prior to June 21, 1996. In any
year after the date a Par-
ticipating Plan enrolled in the Smith Barney 401(k)
Program, if its total Class
C holdings in all non-money market Smith Barney Mutual
Funds equal at least
$500,000 as of the calendar year-end, the
Participating Plan will be offered
the opportunity to exchange all of its Class C shares
for Class A shares of the
Fund. Such Plans will be notified in writing within 30
days after the last
business day of the calendar year
28
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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, whether opened
before or after June 21, 1996, that has not previously
qualified for an
exchange into Class A shares will be offered the
opportunity to exchange all of
its Class C shares for Class A shares of the Fund,
regardless of asset size, at
the end of the eighth year after the date the
Participating Plan enrolled in
the Smith Barney 401(k) Program. Such Plans will be
notified of the pending
exchange in writing approximately 60 days before the
eighth anniversary of the
enrollment date and, unless the exchange has been
rejected in writing, the
exchange will occur on or about the eighth anniversary
date. Once an exchange
has occurred, a Participating Plan will not be
eligible to acquire additional
Class C shares of the Fund but instead may acquire
Class A shares of the Fund.
Any Class C shares not converted will continue to be
subject to the distribu-
tion fee.
Participating Plans wishing to acquire shares of the
Fund through the Smith
Barney 401(k) Program or the Smith Barney
ExecChoice(TM) Program must purchase
such shares directly from the Transfer Agent. For
further information regarding
these Programs, investors should contact a Smith
Barney Financial Consultant.
Existing 401(k) Plans Investing in Class B shares.
Class B shares of the Fund
are not available for purchase by Participating Plans
opened on or after June
21, 1996, but may continue to be purchased by any
Participating Plan in the
Smith Barney 401(k) Program opened prior to such date
and originally investing
in such Class. Class B shares acquired are subject to
a CDSC of 3.00% of
redemption proceeds, if the Participating Plan
terminates within eight years of
the date the Participating Plan first enrolled in the
Smith Barney 401(k) Pro-
gram.
At the end of the eighth year after the date the
Participating Plan enrolled
in the Smith Barney 401(k) Program, the Participating
Plan will be offered the
opportunity to exchange all of its Class B shares for
Class A shares of the
Fund. Such Participating Plan will be notified of the
pending exchange in writ-
ing approximately 60 days before the eighth
anniversary of the enrollment date
and, unless the exchange has been rejected in writing,
the exchange will occur
on or about the eighth anniversary date. Once the
exchange has occurred, a Par-
ticipating Plan will not be eligible to acquire
additional Class B shares of
the Fund but instead may acquire Class A shares of the
Fund. If the Participat-
ing Plan elects not to exchange all of its Class B
Shares at that time, each
Class B share held by the Participating Plan will have
the same conversion fea-
ture as Class B shares held by other investors. See
"Purchase of Shares--
Deferred Sales Charge Alternatives."
No CDSC is imposed on redemptions of Class B shares
to the extent that the
net asset value of the shares redeemed does not exceed
the current net asset
value of the shares purchased through reinvestment of
dividends or capital gain
distribu-
29
<PAGE>
PURCHASE OF SHARES (CONTINUED)
tions, plus the current net asset value of Class B
shares purchased more than
eight years prior to the redemption, plus increases in
the net asset value of
the shareholder's Class B shares above the purchase
payments made during the
preceding eight years. Whether or not the CDSC applies
to the redemption by a
Participating Plan depends on the number of years
since the Participating Plan
first became enrolled in the Smith Barney 401(k)
Program, unlike the applica-
bility of the CDSC to redemptions by other
shareholders, which depends on the
number of years since those shareholders made the
purchase payment from which
the amount is being redeemed.
The CDSC will be waived on redemptions of Class B
shares in connection with
lump-sum or other distributions made by a
Participating Plan as a result of:
(a) the retirement of an employee in the Participating
Plan; (b) the termina-
tion of employment of an employee in the Participating
Plan; (c) the death or
disability of an employee in the Participating Plan;
(d) the attainment of age
59 1/2 by an employee in the Participating Plan; (e)
hardship of an employee in
the Participating Plan to the extent permitted under
Section 401(k) of the
Code; or (f) redemptions of shares in connection with
a loan made by the Par-
ticipating Plan to an employee.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each
Class may be exchanged at the
net asset value next determined for shares of the same
Class in the following
funds of the Smith Barney Mutual Funds, to the extent
shares are offered for
sale in the shareholder's state of residence.
Exchanges of Class A, Class B and
Class C shares are subject to minimum investment
requirements and all shares
are subject to the other requirements of the fund into
which exchanges are
made.
FUND NAME
Growth Funds
Concert Peachtree Growth Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Large Cap Blend Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney Managed Growth Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Small Cap Blend Fund, Inc.
Growth and Income Funds
Concert Social Awareness Fund
Smith Barney Convertible Fund
30
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Funds, Inc.--Large Cap Value Fund
Smith Barney Premium Total Return Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government Income
Fund
Smith Barney Diversified Strategic Income Fund
+++Smith Barney Funds, Inc.--Short-Term U.S.
Treasury Securities 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
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 Municipal High Income Fund
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 Series Inc.
Smith Barney Concert Allocation Series Inc.--
Balanced Portfolio
31
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
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 Muni Funds--California Money
Market Portfolio
+++Smith Barney Muni Funds--New York Money Market
Portfolio
+++Smith Barney Municipal Money Market Fund, Inc.
- ------------------------------------------------------
- --------------------------
* Available for exchange with Class A, Class C and
Class Y shares of the
Fund.
** Available for exchange with Class A and Class B
shares of the Fund. In
addition, shareholders who own Class C shares of
the Fund through the Smith
Barney 401(k) Program may exchange those shares
for Class C shares of this
fund.
*** Available for exchange with Class A shares of the
Fund.
+ Available for exchange with Class B and Class C
shares of the Fund.
++ Available for exchange with Class A and Class Y
shares of the Fund. In
addition, Participating Plans opened prior to June
21, 1996 and investing
in Class C shares may exchange Fund shares for
Class C shares of this fund.
+++ Available for exchange with Class A and Class Y
shares of the Fund.
Class B Exchanges. In the event a Class B
shareholder wishes to exchange all
or a portion of his or her shares in any of the funds
imposing a higher CDSC
than that imposed by the Fund, the exchanged Class B
shares will be subject to
the higher applicable CDSC. Upon an exchange, the new
Class B shares will be
deemed to have been purchased on the same date as the
Class B shares of the
Fund that have been exchanged.
Class C Exchanges. Upon an exchange, the new Class C
shares will be deemed to
have been purchased on the same date as the Class C
shares of the Fund that
have been exchanged.
Class A and Class Y Exchanges. Class A and Class Y
shareholders of the Fund
who wish to exchange all or a portion of their shares
for shares of the respec-
tive class in any of the funds identified above may do
so without imposition of
any charge.
Additional Information Regarding the Exchange
Privilege. Although the
exchange privilege is an important benefit, excessive
exchange transactions can
be detrimental to the Fund's performance and its
shareholders. MMC may deter-
mine that a pattern of frequent exchanges is excessive
and contrary to the best
interests of the Fund's other shareholders. In this
event, the Fund may, at its
discretion,
32
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
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 consti-
tutes 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. Redemp-
tion 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 identi-
cal to the registration of the shares of the fund
exchanged, no signature guar-
antee 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 describ-
ing the shares to be acquired. The Fund reserves the
right to modify or discon-
tinue exchange privileges upon 60 days prior notice to
shareholders.
REDEMPTION OF SHARES
The Fund is required to redeem the shares of the
Fund tendered to it, as
described below, at a redemption price equal to their
net asset value per share
next determined after receipt of a written request in
proper form at no charge
other than any applicable CDSC. Redemption requests
received after the close of
regular trading on the NYSE are priced at the net
asset value next determined.
If a shareholder holds shares in more than one
Class, any request for redemp-
tion must specify the Class being redeemed. In the
event of a failure to spec-
ify which Class, or if the investor owns fewer shares
of the Class than speci-
fied, the redemption request will be delayed until the
Fund's 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 the NYSE is
closed or as permitted under
the 1940 Act in extraordinary circumstances.
Generally, if the redemption pro-
ceeds are remitted to a Smith Barney brokerage
account, these funds will not be
invested for the shareholder's benefit without
specific instruction and Smith
Barney will benefit from the use of temporarily
uninvested funds. Redemption
proceeds for shares
33
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
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
Financial Consultant, Introducing Broker or dealer in
the selling group or by
submitting a written request for redemption to:
Smith Barney Special Equities Fund, Inc.
Class A, B, C or Y (please specify)
c/o First Data Investors 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 on a
written redemption request in excess of $10,000 must
be guaranteed by an eli-
gible guarantor institution such as a domestic bank,
savings and loan institu-
tion, domestic credit union, member bank of the
Federal Reserve System or mem-
ber 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 rec-
ord. 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, along with a
signature guarantee that will be provided by First
Data upon request. (Alter-
natively, an investor may authorize telephone
redemptions on the new account
application with the applicant's signature guarantee
when making his/her ini-
tial investment in the Fund.)
34
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
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 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 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 on which the NYSE
is open.
Additional Information regarding Telephone
Redemption and Exchange Program.
Neither the Fund nor its agents will be liable for
following instructions
communicated by telephone that are reasonably believed
to be genuine. The Fund
and its agents will employ procedures designed to
verify the identity of the
caller and legitimacy of instructions (for example, a
shareholder's name and
account number will be required and phone calls may be
recorded). The Fund
reserves the right to suspend, modify or discontinue
the telephone redemption
and exchange program or to impose a charge for this
service at any time fol-
lowing 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
35
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
Fund. Any applicable CDSC will not be waived on
amounts withdrawn by a share-
holder that exceed 1.00% per month of the value of the
shareholder's shares
subject to the CDSC at the time the withdrawal plan
commences. For further
information regarding the automatic cash withdrawal
plan, shareholders should
contact a Smith Barney Financial Consultant.
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
this Fund, each account must satisfy the minimum
account size.) The Fund, how-
ever, will not redeem shares based solely on market
reductions in net asset
value. Before the Fund exercises such right,
shareholders will receive written
notice and will be permitted 60 days to bring accounts
up to the minimum to
avoid involuntary liquidation.
PERFORMANCE
TOTAL RETURN
From time to time, the Fund may include its total
return, average annual
total return and current dividend return in
advertisements and/or other types
of sales literature. These figures are computed
separately for Class A, Class
B, Class C and Class Y shares of the Fund. These
figures are based on histori-
cal earnings and are not intended to indicate future
performance. Total return
is computed for a specified period of time assuming
deduction of the maximum
sales charge, if any, from the initial amount invested
and reinvestment of all
income dividends and capital gain distributions on the
reinvestment dates at
prices calculated as stated in this Prospectus, then
dividing the value of the
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 calculates
current dividend return for
each Class by annualizing the most recent monthly
distribution and dividing by
the net asset value or the maximum public offering
price (including sales
charge) on the last day of the period for which
current dividend return is pre-
sented. The current dividend return for each Class may
vary from time to time
depending on market conditions, the composition of its
investment portfolio and
operating expenses. These factors and possible
differences in the methods used
in calculating current
36
<PAGE>
PERFORMANCE (CONTINUED)
dividend return should be considered when comparing a
Class' current return to
yields published for other investment companies and
other investment vehicles.
The Fund may also include comparative performance
information in advertising or
marketing its shares. Such performance information may
include data from Lipper
Analytical Services, Inc. and other financial
publications.
MANAGEMENT OF THE COMPANY AND THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and
supervision of the Fund rests with
the Company's Board of Directors. The Directors
approve all significant agree-
ments between the Company and the companies that
furnish services to the Fund
and the Company, including agreements with its
investment adviser, distributor,
administrator, custodian and transfer agent. The day-
to-day operations of the
Fund are delegated to the Fund's investment adviser
and administrator. The
Statement of Additional Information contains
background information regarding
each Director and executive officer of the Company.
INVESTMENT ADVISER AND ADMINISTRATOR--MMC
MMC, located at 388 Greenwich Street, New York, New
York 10013, serves as the
Fund's investment adviser. MMC (through predecessor
entities) has been in the
investment counseling business since 1940. MMC renders
investment advice to a
wide variety of individual, institutional and
investment company clients which
had aggregate assets under management as of March 31,
1998 of approximately
$100.5 billion.
Subject to the supervision and direction of the
Company's Board of Directors,
MMC manages the Fund's portfolio in accordance with
the Fund's stated invest-
ment objective and policies, makes investment
decisions for the Fund, places
orders to purchase and sell securities and employs
professional portfolio man-
agers and securities analysts who provide research
services to the Fund. For
investment advisory services rendered, the Fund pays
MMC a monthly fee at the
annual rate of 0.55% of the value of its average daily
net assets.
MMC also serves as the Fund's administrator and
oversees all aspects of the
Fund's administration. For administration services
rendered to the Fund, the
Fund pays MMC a fee at the annual rate of 0.20% of the
value of the Fund's
average daily net assets.
PORTFOLIO MANAGEMENT
George V. Novello, a Managing Director of MMC, has
served as Investment Offi-
cer of the Fund since September 1990 and manages the
day-to-day operations of
the Fund, including making investment decisions.
37
<PAGE>
MANAGEMENT OF THE COMPANY AND THE FUND (CONTINUED)
Management's discussion and analysis and additional
performance information
regarding the Fund during the fiscal year ended
December 31, 1997 is included
in the Fund's Annual Report dated December 31, 1997. A
copy of the Annual
Report may be obtained upon request without charge
from a Smith Barney Finan-
cial Consultant or by writing or calling the Fund at
the address or phone num-
ber listed on page one of this Prospectus.
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 Group and Citicorp.
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. Although the effects of the
merger of Travelers and
Citicorp and compliance with the requirements of the
BHCA and the Glass-
Steagall Act are still under review, MMC does not
believe that its compliance
with applicable law following 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.
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New
York, New York 10013.
Smith Barney distributes shares of the Fund as
principal underwriter and as
such conducts a continuous offering pursuant to a
"best efforts" arrangement
requiring Smith Barney to take and pay for only such
securities as may be sold
to the public. Pursuant to a plan of distribution
adopted by the Fund under
Rule 12b-1 under the 1940 Act (the "Plan"), Smith
Barney is paid a service fee
with respect to Class A, Class B and Class C shares of
the Fund at the annual
rate of 0.25% of the average daily net assets of the
respective Class. Smith
Barney is also paid a distribution fee with respect to
Class B and Class C
shares at the annual rate of 0.75% of the average
daily net assets attributable
to those Classes. Class B shares that automatically
convert to Class A shares
eight years after the date of original purchase will
no longer be subject to a
distribution fee. The fees are used by Smith Barney to
pay its Financial Con-
sultants for servicing shareholder accounts and, in
the case of Class B and
Class C shares, to cover expenses primarily intended
to result in the sale of
those shares. These expenses include: advertising
expenses; the cost of print-
ing and mailing prospectuses to potential investors;
payments to and expenses
of Smith Barney Financial Consultants and other
persons who provide support
services in connection with the distribution of
shares; interest and/or carry-
ing charges;
38
<PAGE>
DISTRIBUTOR (CONTINUED)
and indirect and overhead costs of Smith Barney
associated with the sale of
Fund shares, including lease, utility, communications
and sales promotion
expenses.
The payments to Smith Barney Financial Consultants
for selling shares of a
Class include a commission or fee paid by the investor
or Smith Barney at the
time of sale and, with respect to Class A, Class B and
Class C shares, a con-
tinuing fee for servicing shareholder accounts for as
long as a shareholder
remains a holder of that Class. Smith Barney Financial
Consultants may receive
different levels of compensation for selling different
Classes of shares.
Payments under the Plan are not tied exclusively to
the distribution and
shareholder service expenses actually incurred by
Smith Barney and the payments
may exceed distribution expenses actually incurred.
The Company's Board of
Directors will evaluate the appropriateness of the
Plan and its payment terms
on a continuing basis and in so doing will consider
all relevant factors,
including expenses borne by Smith Barney, amounts
received under the Plan and
proceeds of the CDSC.
ADDITIONAL INFORMATION
The Company was organized as a Maryland corporation
pursuant to Articles of
Incorporation dated September 29, 1981, as amended
from time to time. The Fund
offers shares of common stock currently classified
into five Classes, A, B, C ,
Y and Z with a par value of $.001 per share. Each
Class of shares has the same
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; (d) the expenses
allocable exclusively to each Class; (e) voting rights
on matters exclusively
affecting a single Class; (f) the exchange privilege
of each Class; and (g) the
conversion feature of the Class B shares. The Board of
Directors does not
anticipate that there will be any conflicts among the
interests of the holders
of the different Classes. The Directors, on an ongoing
basis, will consider
whether any such conflict exists and, if so, take
appropriate action.
PNC Bank National Association, located at 17th and
Chestnut Streets, Phila-
delphia, PA 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
39
<PAGE>
ADDITIONAL INFORMATION (CONTINUED)
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 mat-
ters affecting only the interests of one Fund or one
Class of shares.
The Fund sends each of its shareholders a semi-
annual report and an audited
annual report, which include listings of the
investment securities held by the
Fund at the end of the period covered. In an effort to
reduce the Fund's print-
ing 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 having multiple accounts with the identical
address of record will
receive a single copy of each report. Shareholders who
do not want this consol-
idation to apply to their accounts should contact
their Smith Barney Financial
Consultant or First Data.
40
<PAGE>
SMITH BARNEY
-------
- --------------------------
A
Member of TravelersGroup [LOGO]
SMITH BARNEY
SPECIAL
EQUITIES
FUND
388 Greenwich Street
New York, New York 10013
FD 0232 4/98
PROSPECTUS
SMITH BARNEY
Investment
Grade
Bond
Fund
April 30, 1998
Prospectus begins on page one
[Logo] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
- ------------------------------------------------------
- --------------------------
Prospectus
April 30, 1998
- ------------------------------------------------------
- --------------------------
Smith Barney Investment Grade Bond Fund
388 Greenwich Street
New York, New York 10013
1-800-451-2010
Smith Barney Investment Grade Bond Fund (the
"Fund") has an investment
objective of high current income consistent with
prudent investment management
and preservation of capital by investing in bonds and
other income-producing
securities.
The Fund is one of a number of funds, each having
distinct investment
objectives and policies, making up Smith Barney
Investment Funds Inc. (the
"Company"). The Company is an open-end management
investment company commonly
referred to as a mutual fund.
This Prospectus briefly sets forth certain
information about the Fund and the
Company, including sales charges, distribution and
service fees and expenses,
that prospective investors will find helpful in making
an investment decision.
Investors are encouraged to read this Prospectus
carefully and to retain it for
future reference. Shares of other funds offered by the
Company are described in
separate Prospectuses that may be obtained by calling
the Company at the
telephone number set forth above or by contacting a
Smith Barney Financial
Consultant.
Additional information about the Fund and the
Company is contained in a
Statement of Additional Information (the "SAI") dated
April 30, 1998, as amended
or supplemented from time to time, that is available
upon request and without
charge by calling or writing the Company 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.
Smith Barney Inc.
Distributor
Mutual Management Corp.
Investment Adviser and Administrator
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>
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Table of Contents
- ------------------------------------------------------
- --------------------------
Prospectus Summary
3
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Financial Highlights
11
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- --------------------------
Investment Objective and Management Policies
16
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- --------------------------
Valuation of Shares
22
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- --------------------------
Dividends, Distributions and Taxes
23
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- --------------------------
Purchase of Shares
25
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- --------------------------
Exchange Privilege
34
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- --------------------------
Redemption of Shares
37
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- --------------------------
Minimum Account Size
40
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- --------------------------
Performance
40
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- --------------------------
Management of the Company and the Fund
41
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- --------------------------
Distributor
42
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- --------------------------
Additional Information
43
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- --------------------------
- ------------------------------------------------------
- --------------------------
No person has been authorized to give any
information or to make any
representations in connection with this offering other
than those contained in
this Prospectus and, if given or made, such other
information or representations
must not be relied upon as having been authorized by
the Fund or the
distributor. This Prospectus does not constitute an
offer by the Fund or the
distributor to sell or a solicitation of an offer to
buy any of the securities
offered hereby in any jurisdiction to any person to
whom it is unlawful to make
such an 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 the Prospectus. See "Table
of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end,
diversified management investment
company that seeks to provide as high a level of
current income as is consistent
with prudent investment management and preservation of
capital. Under normal
circumstances, the Fund will invest at least 65% of
its assets in bonds. See
"Investment Objective and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers
several classes of shares
("Classes") to investors designed to provide them with
the flexibility of
selecting an investment best suited to their needs.
The general public is
offered three Classes of shares: Class A shares, Class
B shares and Class C
shares, which differ principally in terms of sales
charges and rate of expenses
to which they are subject. A fourth Class of shares,
Class Y shares, is offered
only to investors meeting an initial investment
minimum of $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 4.50% 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 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 4.50% of redemption proceeds,
declining by 0.50% the first year
after purchase and by 1.00% each year thereafter to
zero. This CDSC may be
waived for certain redemptions. Class B shares are
subject to an annual service
fee of 0.25% and an annual distribution fee of 0.50%
of the average daily net
assets of this Class. The Class B shares' distribution
fee may cause that Class
to have higher expenses and pay lower dividends than
Class A shares.
Class B Shares Conversion Feature. Class B shares
will convert automatically
to Class A shares, based on relative net asset value,
eight years after the date
of the original purchase. Upon conversion, these
shares will no longer be
subject to an annual distribution fee. In addition, a
certain portion of Class B
shares that have been acquired through the
reinvestment of dividends and
distributions ("Class B Dividend Shares") will be
converted at that time. See
"Purchase of Shares-Deferred Sales Charge
Alternatives."
3
<PAGE>
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- --------------------------
Prospectus Summary (continued)
- ------------------------------------------------------
- --------------------------
Class C Shares. Class C shares are sold at net
asset value with no initial
sales charge. They are subject to an annual service
fee of 0.25% and an annual
distribution fee of 0.45% of the average daily net
assets of the Class, and
investors pay a CDSC of 1.00% if they redeem Class C
shares within 12 months of
purchase. This CDSC may be waived for certain
redemptions. The Class C shares'
distribution fee may cause that Class to have higher
expenses and pay lower
dividends than Class A shares.Purchases of Fund
shares, which when combined with
current holdings of Class C shares of the Fund equal
or exceed $500,000 in the
aggregate, should be made in Class A shares at net
asset value with no sales
charge, and will be subject to a CDSC of 1.00% on
redemptions made within 12
months of purchase.
Class Y Shares. Class Y shares are available only
to investors meeting an
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 consider
the following factors, as well as any other relevant
facts and circumstances:
Intended Holding Period. The decision as to which
Class of shares is more
beneficial to an investor depends on the amount and
intended length 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 investment
alternative, Class B and Class C shares are sold
without any initial sales
charge so the entire purchase price is immediately
invested in the Fund. Any
investment return on these additional invested amounts
may partially or wholly
offset the higher annual expenses of these Classes.
Because the Fund's future
return cannot be predicted, however, there can be no
assurance that this would
be the case.
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 C shares have a
shorter CDSC period than Class B
shares, they do not have a conversion feature, and
therefore, are subject to an
ongoing distribution fee. Thus, Class B shares may be
more attractive than Class
C shares to investors with longer term investment
outlooks.
Reduced or No Initial Sales Charge. The initial
sales charge on Class A
shares may be waived for certain eligible purchasers,
and the entire purchase
price will be immediately invested in the Fund. In
addition, Class A share
purchases of $500,000 or more will be made at net
asset value with no initial
sales charge, but will be subject to a CDSC of 1.00%
on redemptions made within
12 months of
4
<PAGE>
- ------------------------------------------------------
- --------------------------
Prospectus Summary (continued)
- ------------------------------------------------------
- --------------------------
purchase. The $500,000 investment may be met by adding
the purchase to the net
asset value of all Class A shares held in funds
sponsored by Smith Barney Inc.
("Smith Barney") 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 C shares, purchasers eligible to purchase
Class A shares at net
asset value or at a reduced sales charge should
consider doing so.
Smith Barney Financial Consultants may receive
different compensation for
selling different Classes of shares. Investors should
understand that the
purpose of the CDSC on the Class B and Class C shares
is the same as that of the
initial sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the
Company and the Fund" for a
complete description 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 operations of
retirement plans under
Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), as
well as other types of participant directed, tax-
qualified employee benefit
plans. Investors may also be eligible to participate
in the Smith Barney
ExecChoice(TM) Program. Class A and Class C shares are
available without sales
charge as investment alternatives under both of these
programs. See "Purchase of
Shares-Smith Barney 401(k) and ExecChoice(TM)
Programs."
PURCHASE OF SHARES Shares may be purchased through a
brokerage account
maintained at Smith Barney. Shares may also be
purchased through a broker that
clears securities transactions through Smith Barney on
a fully disclosed basis
(an "Introducing Broker") or an investment dealer in
the selling group. In
addition, certain investors, including qualified
retirement plans and certain
institutional investors, may purchase shares directly
from the Fund through the
Fund's transfer agent, First Data Investor Services
Group, Inc. ("First Data").
See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and
Class C shares may open an
account by making an initial investment of at least
$1,000 for each account, or
$250 for an individual retirement account ("IRA") or a
Self-Employed Retirement
Plan. Investors in Class Y shares may open an account
for an initial
5
<PAGE>
- ------------------------------------------------------
- --------------------------
Prospectus Summary (continued)
- ------------------------------------------------------
- --------------------------
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 C shares
and the subsequent
investment requirement for all Classes 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 The Fund offers
shareholders a Systematic Investment
Plan under which they may authorize the automatic
placement of a purchase order
each month or quarter for Fund shares. The minimum
initial investment
requirement for Class A, Class B and Class C shares
and the subsequent
investment requirement for all Classes for
shareholders purchasing shares
through the Systematic Investment Plan on a monthly
basis is $25 and on a
quarterly basis is $50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each
day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See
"Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE FUND Mutual Management Corp. ("MMC")
(formerly known as Smith
Barney Mutual Funds Management Inc.), serves as the
Fund's investment adviser
and administrator. MMC provides investment advisory
and management services to
investment companies affiliated with Smith Barney. MMC
is a wholly owned
subsidiary of Salomon Smith Barney Holdings Inc.
("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 respective
net asset values next determined. See "Exchange
Privilege."
VALUATION OF SHARES Net asset value of the Fund for
the prior day generally is
quoted daily in the financial section of most
newspapers and is also available
from Smith Barney Financial Consultants. See
"Valuation of Shares."
6
<PAGE>
- ------------------------------------------------------
- --------------------------
Prospectus Summary (continued)
- ------------------------------------------------------
- --------------------------
DIVIDENDS AND DISTRIBUTIONS Dividends from net
investment income are declared
monthly. Distributions of net realized long- and
short-term capital gains, if
any, are declared and paid at least annually. See
"Dividends, Distributions and
Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions
paid on shares of a Class
will be reinvested automatically, unless otherwise
specified by an investor, in
additional shares of the same Class at current net
asset value. Shares acquired
by dividend and distribution reinvestments will not be
subject to any sales
charge or CDSC. Class B shares acquired through
dividend and distribution
reinvestments will become eligible for conversion to
Class A shares on a pro
rata basis. See "Dividends, Distribution and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS The Company is
designed for long-term
investors and not for investors who intend to
liquidate their investment after a
short period. Neither the Company as a whole nor any
particular fund in the
Company, including the Fund, constitutes a balanced
investment plan. There can
be no assurance that the Fund will achieve its
investment objective. The Fund
does not have a stated maturity policy, but will
generally invest in medium- to
long-term securities, which are generally more
sensitive to interest rate
changes, market conditions and other economic news
than shorter-term securities.
The Fund may employ investment techniques which
involve certain risks, including
entering into repurchase agreements and reverse
repurchase agreements, lending
portfolio securities, selling securities short and
investing in foreign
securities through the use of American Depositary
Receipts. See "Investment
Objective and Management Policies -- Additional
Investments."
7
<PAGE>
- ------------------------------------------------------
- --------------------------
Prospectus Summary (continued)
- ------------------------------------------------------
- --------------------------
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
operating expenses for its most
recent fiscal year:
<TABLE>
<CAPTION>
Investment Grade Bond Fund
Class A Class B Class C Class Y
- ------------------------------------------------------
- ---------------------------------
<S>
<C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price)
4.50% None None None
Maximum CDSC (as a percentage of original cost or
redemption proceeds, whichever is lower)
None* 4.50% 1.00% None
- ------------------------------------------------------
- ---------------------------------
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees
0.65% 0.65% 0.65% 0.65%
12b-1 fees**
0.25 0.75 0.70 None
Other expenses
0.12 0.11 0.14 0.04
- ------------------------------------------------------
- ---------------------------------
TOTAL FUND OPERATING EXPENSES
1.02% 1.51% 1.49% 0.69%
======================================================
=================================
</TABLE>
* Purchases of Class A shares of $500,000 or more
will be made at net asset
value with no sales charge, but will be subject
to a CDSC of 1.00% on
redemptions made within 12 months of purchase.
** Upon conversion of Class B shares to Class A
shares, such shares will no
longer be subject to a distribution fee. Class C
shares do not have a
conversion feature and, therefore, are subject
to an ongoing distribution
fee. As a result, long-term shareholders of
Class C shares may pay more
than the economic equivalent of the maximum
front-end sales charge
permitted by the National Association of
Securities Dealers, Inc.
Class A shares of the Fund purchased through the
Smith Barney Asset One
Program will be subject to an annual asset-based fee,
payable quarterly, in lieu
of the initial sales charge. The fee will vary to a
maximum of 1.50%, depending
on the amount of assets held through the program. For
more information, please
call your Smith Barney Financial Consultant.
The sales charge and CDSC set forth in the above
table are the maximum
charges imposed upon purchases or redemptions of Fund
shares and investors may
actually pay lower or no charges, depending on the
amount purchased and, in the
case of Class B, Class C and certain Class A shares,
the length of time the
shares are held and whether the shares are held
through the Smith Barney 401(k)
and ExecChoice(TM) Programs. See "Purchase of Shares"
and "Redemption of
Shares." Smith Barney receives an annual 12b-1 service
fee of 0.25% of the value
of average daily net assets of Class A shares. Smith
Barney also receives, with
respect to Class B shares, an annual 12b-1 fee of
0.75% of the value of average
daily net assets of that Class, consisting of a 0.50%
distribution fee and a
0.25% service fee. For Class C shares, Smith Barney
receives an annual 12b-1 fee
of 0.70% of the value of average daily net assets of
the Class, consisting of a
0.45% distribution fee
8
<PAGE>
- ------------------------------------------------------
- --------------------------
Prospectus Summary (continued)
- ------------------------------------------------------
- --------------------------
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."
Example 1 year 3
years 5 years 10 years*
- ------------------------------------------------------
- --------------------------
An investor would pay the following
expenses on a $1,000 investment, assuming
(1) 5.00% annual return and (2) redemption
at the end of each time period:
Class A $55
$76 $99 $164
Class B 60
78 87 167
Class C 25
47 81 178
Class Y 7
21 37 83
An investor would pay the following
expenses on the same investment, assuming
the same annual return and no redemption:
Class A 55
76 99 164
Class B 15
48 82 167
Class C 15
47 81 178
Class Y 7
21 37 83
- ------------------------------------------------------
- --------------------------
* Ten-year figures assume conversion of Class B
shares to Class A shares at
the end of the eighth year following the date of
purchase.
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
representation of past or future expenses and actual
expenses may be greater or
less than those shown.
9
<PAGE>
(This page intentionally left
blank.)
10
<PAGE>
- ------------------------------------------------------
- --------------------------
Financial Highlights
- ------------------------------------------------------
- --------------------------
The following information for the three-year period
ended December 31, 1997
has been audited by KPMG Peat Marwick LLP, independent
auditors, whose report
thereon appears in the Fund's Annual Report dated
December 31, 1997. The
following information for the fiscal years ended
December 31, 1988 through
December 31, 1994 has been audited by other
independent auditors. The
information set out below should be read in
conjunction with the financial
statements and related notes that also appear in the
Fund's Annual Report, which
is incorporated by reference into the SAI.
For a Class A share of capital stock outstanding
throughout each year:
<TABLE>
<CAPTION>
Investment Grade Bond Fund 1997
1996 1995(1) 1994(1) 1993(1) 1992(2)
======================================================
====================================================
<S> <C>
<C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.27
$13.25 $10.67 $13.01 $11.89 $11.67
- ------------------------------------------------------
- ----------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.80
0.80 0.83 0.74 0.88 0.14
Net realized and unrealized gain (loss) 1.20
(0.90) 2.80 (1.88) 1.27 0.23
- ------------------------------------------------------
- ----------------------------------------------------
Total Income (Loss) From Operations 2.00
(0.10) 3.63 (1.14) 2.15 0.37
- ------------------------------------------------------
- ----------------------------------------------------
Less Distributions From:
Net investment income (0.80)
(0.76) (0.89) (0.86) (0.89) (0.14)
Net realized gains (0.28)
(0.12) (0.16) (0.31) (0.14) --
Capital --
- -- -- (0.03) -- (0.01)
- ------------------------------------------------------
- ----------------------------------------------------
Total Distributions (1.08)
(0.88) (1.05) (1.20) (1.03) (0.15)
- ------------------------------------------------------
- ----------------------------------------------------
Net Asset Value, End of Year $13.19
$12.27 $13.25 $10.67 $13.01 $11.89
- ------------------------------------------------------
- ----------------------------------------------------
Total Return 17.10%
(0.47)% 35.29% (8.95)% 18.45% 3.25%++
- ------------------------------------------------------
- ----------------------------------------------------
Net Assets, End of Year (millions) $ 222 $
206 $ 226 $ 181 $ 10 $ 1
- ------------------------------------------------------
- ----------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.02%
1.04% 1.11% 1.11% 1.11% 1.03%+*
Net investment income 6.43
6.63 7.02 7.35 6.67 7.53+
- ------------------------------------------------------
- ----------------------------------------------------
Portfolio Turnover Rate 39%
48% 49% 18% 65% 47%
======================================================
====================================================
</TABLE>
(1) Per share amounts have been calculated using the
monthly average shares
method rather than the undistributed net
investment income method, because
it more accurately reflects the per share data
for the period.
(2) For the period from November 6, 1992 (inception
date) to December 31,
1992.
* For the year ended December 31, 1992, the
expense ratios were calculated
excluding interest expense. The expense ratio
including interest expense
would have been 1.04% (annualized).
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
11
<PAGE>
- ------------------------------------------------------
- --------------------------
Financial Highlights (continued)
- ------------------------------------------------------
- --------------------------
For a Class B share of capital stock outstanding
throughout each year:
<TABLE>
<CAPTION>
Investment Grade Bond Fund 1997 1996
1995(1) 1994(1) 1993(1) 1992 1991 1990
1989 1988
======================================================
======================================================
==================
<S> <C> <C>
<C> <C> <C> <C> <C> <C>
<C> <C>
Net Asset Value, Beginning of Year $12.29 $13.25
$10.67 $13.01 $11.89 $11.80 $10.43 $11.01
$10.33 $10.55
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------
Income (Loss) From Operations:
Net investment income 0.75 0.74
0.77 0.82 0.80 0.83 0.86 0.86
0.87*** 0.90***
Net realized and unrealized
gain (loss) 1.18 (0.90)
2.80 (2.02) 1.29 0.12 1.38 (0.57)
0.68 (0.24)
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------
Total Income (Loss) From Operations 1.93 (0.16)
3.57 (1.20) 2.09 0.95 2.24 0.29
1.55 0.66
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------
Less Distributions From:
Net investment income (0.75) (0.68)
(0.83) (0.80) (0.83) (0.83) (0.87) (0.87)
(0.87) (0.88)
Net realized gains (0.28) (0.12)
(0.16) (0.31) (0.14) -- -- --
- -- --
Capital -- --
.-- (0.03) .-- (0.03) -- --
- -- .--
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------
Total Distributions (1.03) (0.80)
(0.99) (1.14) (0.97) (0.86) (0.87) (0.87)
(0.87) (0.88)
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------
Net Asset Value, End of Year $13.19 $12.29
$13.25 $10.67 $13.01 $11.89 $11.80 $10.43
$11.01 $10.33
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------
Total Return 16.44% (0.89)%
34.63% (9.41)% 18.06% 8.36% 22.50% 2.98%
15.57% 6.43%
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------
Net Assets, End of Year (millions) $ 249 $ 258 $
289 $ 221 $ 476 $ 432 $ 414 $ 406 $
483 $ 533
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------
Ratios to Average Net Assets:
Expenses 1.51% 1.54%
1.61% 1.57% 1.58% 1.57%* 1.53% 1.58%
1.63%** 1.22%**
Net investment income 5.95 6.13
6.51 6.89 6.20 6.99 7.90 8.20
8.07 8.74
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------
Portfolio Turnover Rate 39% 48%
49% 18% 65% 47% 82% 59%
118% 72%
======================================================
======================================================
==================
</TABLE>
(1) Per share amounts have been calculated using the
monthly average shares
method rather than the undistributed net
investment income method, because
it more accurately reflects the per share data
for the period.
* For the year ended December 31, 1992, the
expense ratio excludes interest
expense. The expense ratio including interest
expense was 1.58%.
** Annualized expense ratio before waiver of fees
by the distributor for the
years ended December 31, 1989 and 1988 were
1.66% and 1.57%, respectively.
*** Net investment income before waiver of fees by
the distributor would have
been $0.86 and $0.87 for the years ended
December 31, 1989 and 1988,
respectively.
12 & 13
<PAGE>
- ------------------------------------------------------
- --------------------------
Financial Highlights (continued)
- ------------------------------------------------------
- --------------------------
For a Class C share of capital stock outstanding
throughout each year:
<TABLE>
<CAPTION>
Investment Grade Bond Fund 1997
1996 1995(1) 1994(1) 1993(1)(2)
======================================================
======================================
<S> <C>
<C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.30
$13.26 $10.67 $13.01 $12.56
- ------------------------------------------------------
- --------------------------------------
Income (Loss) From Operations:
Net investment income 0.72
0.75 0.78 0.75 0.63
Net realized and unrealized gain (loss) 1.21
(0.90) 2.80 (1.95) 0.65
- ------------------------------------------------------
- --------------------------------------
Total Income (Loss) From Operations 1.93
(0.15) 3.58 (1.20) 1.28
- ------------------------------------------------------
- --------------------------------------
Less Distributions From:
Net investment income (0.77)
(0.69) (0.83) (0.80) (0.69)
Net realized gains (0.28)
(0.12) (0.16) (0.31) (0.14)
Capital --
- -- -- (0.03) --
- ------------------------------------------------------
- --------------------------------------
Total Distributions (1.05)
(0.81) (0.99) (1.14) (0.83)
- ------------------------------------------------------
- --------------------------------------
Net Asset Value, End of Year $13.18
$12.30 $13.26 $10.67 $13.01
- ------------------------------------------------------
- --------------------------------------
Total Return 16.41%
(0.83)% 34.74% (9.41)% 10.38%++
- ------------------------------------------------------
- --------------------------------------
Net Assets, End of Year (millions) $ 10 $
7 $ 4 $ 1 _$ 2
Ratios to Average Net Assets:
Expenses 1.49%
1.42% 1.56% 1.57% 1.61%+
Net investment income 5.93
6.28 6.55 6.89 6.17+
- ------------------------------------------------------
- --------------------------------------
Portfolio Turnover Rate 39%
48% 49% 18% 65%
======================================================
======================================
</TABLE>
(1) Per share amounts have been calculated using the
monthly average shares
method, rather than the undistributed net
investment income method,
because it more accurately reflects the per
share data for the period.
(2) For the period from February 26, 1993 (inception
date) to December 31,
1993.
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
14
<PAGE>
- ------------------------------------------------------
- --------------------------
Financial Highlights (continued)
- ------------------------------------------------------
- --------------------------
For a Class Y share of capital stock outstanding
throughout each year:
Investment Grade Bond Fund
1997 1996(1)
======================================================
========================
Net Asset Value, Beginning of Year
$12.28 $13.03
- ------------------------------------------------------
- ------------------------
Income From Operations:
Net investment income
0.83 0.75
Net realized and unrealized gain (loss)
1.21 (0.66)
- ------------------------------------------------------
- ------------------------
Total Income From Operations
2.04 0.09
- ------------------------------------------------------
- ------------------------
Less Distributions From:
Net investment income
(0.85) (0.72)
Net realized gains
(0.28) (0.12)
- ------------------------------------------------------
- ------------------------
Total Distributions
(1.13) (0.84)
- ------------------------------------------------------
- ------------------------
Net Asset Value, End of Year
$13.19 $12.28
- ------------------------------------------------------
- ------------------------
Total Return
17.44% 1.01%++
- ------------------------------------------------------
- ------------------------
Net Assets, End of Year (millions)
$ 69 $ 18
- ------------------------------------------------------
- ------------------------
Ratios to Average Net Assets:
Expenses
0.69% 0.72%+
Net investment income
6.63 7.34+
- ------------------------------------------------------
- ------------------------
Portfolio Turnover Rate
39% 48%
- ------------------------------------------------------
- ------------------------
(1) For the period from February 7, 1996 (inception
date) to December 31,
1996.
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
15
<PAGE>
- ------------------------------------------------------
- --------------------------
Investment Objective and Management Policies
- ------------------------------------------------------
- --------------------------
Set forth below is a description of the investment
objective and policies of
the Fund. There can be no assurance that the Fund will
achieve its investment
objective. Certain instruments and techniques
discussed in this summary are
described in greater detail in this Prospectus under
"Additional Investments"
and in the SAI. A description of the rating systems of
Moody's Investors
Services Inc. ("Moody's") and Standard & Poors Ratings
Group ("S&P") is
contained in the Appendix to the SAI.
The Fund's investment objective is to provide as
high a level of current
income as is consistent with prudent investment
management and preservation of
capital. The Fund's investment objective may not be
changed without the approval
of a majority of the Fund's outstanding shares. The
Fund seeks to achieve its
objective by investing primarily in fixed income
securities that are of a higher
credit quality and present a lower risk of principal
loss at maturity. Such
securities are typically considered "investment grade"
quality, i.e. securities
having a rating by a nationally recognized statistical
rating organization
("NRSRO") within one of the four highest rating
categories of their class. The
Fund will invest primarily in the following
securities: corporate bonds rated in
the highest four categories for debt securities by an
NRSRO (such as Baa or
better by Moody's or BBB or better by S&P); U.S.
government securities;
commercial paper issued by domestic corporations and
rated in the top two
ratings categories for short-term debt securities by
an NRSRO (such as Prime-1
or Prime-2 by Moody's or A-1 or A-2 by S&P), or, if
not rated, issued by a
corporation having an outstanding debt issue rated in
the highest two categories
for debt securities by an NRSRO (such as Aa or better
by Moody's or AA or better
by S&P); negotiable bank certificates of deposit and
bankers' acceptances issued
by domestic banks (but not their foreign branches)
having total assets in excess
of $1 billion; and high-yielding common stocks and
warrants. Obligations rated
in the lowest of the top four rating categories (such
as Baa by Moody's or BBB
by S&P) may have speculative characteristics and
changes in economic conditions
or other circumstances are more likely to lead to a
weakened capacity to make
principal and interest payments, including a greater
possibility of default or
bankruptcy of the issuer, than is the case with higher
grade bonds. Subsequent
to its purchase by the Fund, an issue of securities
may cease to be rated or its
rating may be reduced below the minimum required for
purchase by the Fund. In
addition, it is possible that Moody's, S&P and other
NRSROs might not timely
change their ratings of a particular issue to reflect
subsequent events. None of
these events will require the sale of the securities
by the Fund, although MMC
will consider these events in determining whether the
Fund should continue to
hold the securities.
The Fund's portfolio will be managed by purchasing
and selling securities, as
well as holding selected securities to maturity. In
managing the Fund's
portfolio, MMC analyzes the business and credit
qualities of a particular issuer
as well as the
16
<PAGE>
- ------------------------------------------------------
- --------------------------
Investment Objective and Management Policies
(continued)
- ------------------------------------------------------
- --------------------------
economy in general to identify and monitor trends and
to identify fixed-income
securities with characteristics most likely to meet
the Fund's objective. This
process requires ongoing adjustments to the portfolio
based on the relative
values or maturities of individual debt securities or
changes in the
creditworthiness or overall investment merits of an
issue.
Any such change in the Fund's portfolio may result
in increases or decreases
in the Fund's current income available for
distribution to shareholders. If the
Fund's expectations of changes in interest rates or
its evaluation of the normal
yield relationships between securities prove to be
incorrect, the Fund's income,
net asset value and potential capital gain may be
reduced or its potential
capital loss may be increased. An increase in interest
rates will generally
reduce the value of portfolio investments (and,
therefore, the net asset value
of the shares of the Fund), and a decline in interest
rates will generally
increase their value. The average weighted maturity of
a bond fund can be used
to measure the fund's sensitivity to interest rate
movements. The longer the
Fund's average weighted maturity, the more sensitive
the net asset value is to
interest rate changes. The Fund has no stated maturity
policy, but generally
invests in medium- to long-term securities. At times,
the Fund's portfolio may
have an average weighted maturity exceeding 25 years
which would result in the
Fund's net asset value being extremely sensitive to
interest rate movements.
Since all investments, including securities with a
higher credit quality, have
inherent market risks and fluctuations in value due to
changing economic
conditions and other factors, the Fund, of course,
cannot assure that its
investment objective will be achieved.
The Fund may enter into repurchase agreements,
reverse repurchase agreements,
firm commitment agreements, "short sales against the
box", borrow money from
banks as a temporary measure for extraordinary or
emergency purposes, invest in
real estate investment trusts, purchase the securities
of companies with less
than three years of continuous operation, and may lend
its portfolio securities.
Except when in a temporary defensive investment
position, the Fund intends to
maintain at least 65% of its assets invested in
investment grade bonds.
In making purchases of securities consistent with
the above policies, the
Fund will be subject to the applicable restrictions
referred to under
"Investment Restrictions" in the SAI.
ADDITIONAL INVESTMENTS
U.S. Government Securities. U.S. government
securities are obligations of, or
are guaranteed by, the United States government, its
agencies or
instrumentalities. These include bills, certificates
of indebtedness, and notes
and bonds issued by the United States Treasury or by
agencies or
instrumentalities of the United States government.
Some U.S. government
securities, such as U.S. Treasury bills and bonds, are
supported by the full
faith and credit of the United States Treasury;
17
<PAGE>
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- --------------------------
Investment Objective and Management Policies
(continued)
- ------------------------------------------------------
- --------------------------
others are supported by the right of the issuer to
borrow from the United States
Treasury; others, such as those of the Federal
National Mortgage Association,
are supported by the discretionary authority of the
United States government to
purchase the agency's obligations; still others, such
as those of the Student
Loan Marketing Association and the Federal Home Loan
Mortgage Corporation
("FHLMC") are supported only by the credit of the
instrumentality. Mortgage
participation certificates issued by the FHLMC
generally represent ownership
interests in a pool of fixed-rate conventional
mortgages. Timely payment of
principal and interest on these certificates is
guaranteed solely by the issuer
of the certificate. Other investments will include
Government National Mortgage
Association Certificates ("GNMA Certificates"), which
are mortgage-backed
securities representing part ownership of a pool of
mortgage loans on which
timely payment of interest and principal is guaranteed
by the full faith and
credit of the United States government. While the
United States government
guarantees the payment of principal and interest on
GNMA Certificates, the
market value of the securities is not guaranteed and
will fluctuate.
Yankee Obligations. The Fund may also invest in
Yankee obligations. Yankee
obligations are dollar denominated obligations issued
in the U.S. capital
markets by foreign issuers. Yankee obligations are
subject to certain sovereign
risks. One such risk is the possibility that a foreign
government might prevent
dollar denominated funds from flowing across its
borders. Other risks include:
adverse political and economic developments in a
foreign country; the extent and
quality of government regulation of financial markets
and institutions; the
imposition of foreign withholding taxes; and
expropriation or nationalization of
foreign issuers.
Repurchase Agreements. The Fund may enter into
repurchase agreement
transactions on U.S. government securities with banks
which are the issuers of
instruments acceptable for purchase by the Fund and
with certain dealers on the
Federal Reserve Bank of New York's list of reporting
dealers. Under the terms of
a typical repurchase agreement, the Fund would acquire
an underlying debt
obligation for a relatively short period (usually not
more than one week)
subject to an obligation of the seller to repurchase,
and the Fund to resell,
the obligation at an agreed-upon price and time,
thereby determining the yield
during the Fund's holding period. This arrangement
results in a fixed rate of
return that is not subject to market fluctuations
during the Fund's holding
period. The value of the underlying securities will be
at least equal at all
times to the total amount of the repurchase
obligation, including interest. The
Fund bears a risk of loss in the event that the other
party to a repurchase
agreement defaults on its obligations and the Fund is
delayed or prevented from
exercising its rights to dispose of the collateral
securities, including the
risk of a possible decline in the value of the
underlying securities during the
period while the Fund seeks to assert its rights to
them, the risk
18
<PAGE>
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- --------------------------
Investment Objective and Management Policies
(continued)
- ------------------------------------------------------
- --------------------------
of incurring expenses associated with asserting those
rights and the risk of
losing all or part of the income from the agreement.
MMC, acting under the
supervision of the Board of Directors, reviews on an
ongoing basis the
creditworthiness and the value of the collateral of
those banks and dealers with
which the Fund enters into repurchase agreements to
evaluate potential risks.
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 cash or other debt
obligations of any grade
having a value equal to or greater than Fund's
obligations, provided such
securities have been determined byMMC to be liquid and
unencumbered and are
marked to market daily pursuant to guidelines
established by the Directors
("eligible segregated assets") to cover its
obligations under reverse repurchase
agreements with broker-dealers (but not banks). The
Fund 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 (the "1940
Act"), reverse repurchase
agreements may be considered borrowings by the seller;
accordingly, the Fund
will limit its investments in reverse repurchase
agreements and other borrowings
to no more than 331/3% of its total assets.
Firm Commitment Agreements and When-Issued
Purchases. Firm commitment
agreements and when-issued purchases call for the
purchase of securities at an
agreed-upon price on a specified future date, and
would be used, for example,
when a decline in the yield of securities of a given
issuer is anticipated. The
Fund as purchaser assumes the risk of any decline in
value of the security
beginning on the date of the agreement or purchase.
The Fund will not use such
transactions for leveraging purposes, and accordingly
will segregate eligible
segregated assets in an amount sufficient to meet its
purchase obligations under
the agreement.
Loans of Portfolio Securities. Consistent with
applicable regulatory
requirements, the Fund may lend its portfolio
securities provided: (a) the loan
is secured continuously by collateral consisting of
U.S. government securities,
cash or cash equivalents maintained on a daily marked-
to-market basis in an
amount at least equal to the current market value of
the securities loaned; (b)
the Fund may at any time call the loan and obtain the
return of the securities
loaned; and (c) the Fund will receive any interest or
dividends paid on the
loaned securities. The risks in lending portfolio
securities, as with other
extensions of secured credit, consists of possible
delays in receiving
additional collateral or in the recovery of the
securities or possible loss of
rights in the collateral should the borrower fail
financially. Loans will be
made to firms deemed by MMC to be in good standing and
will not be made unless,
in the judgement of MMC, the consideration to be
earned from such loans would
justify the risk.
19
<PAGE>
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- --------------------------
Investment Objective and Management Policies
(continued)
- ------------------------------------------------------
- --------------------------
Interest Rate Futures Contracts. The Fund may
purchase and sell interest rate
futures contracts ("futures contracts") as a hedge
against changes in interest
rates. A futures contract is an agreement between two
parties to buy and sell a
security for a set price on a future date. Futures
contracts are traded on
designated "contracts markets" which, through their
clearing corporations,
guarantee performance of the contracts. Currently,
there are futures contracts
based on securities such as long-term Treasury bonds,
Treasury notes, GNMA
Certificates and three-month Treasury bills.
Generally, if market interest rates increase, the
value of outstanding debt
securities declines (and vice versa). Entering into a
futures contract for the
sale of securities has an effect similar to the actual
sale of securities,
although the sale of the futures contract might be
accomplished more easily and
quickly. For example, if the Fund holds long-term U.S.
government securities and
MMC anticipates a rise in long-term interest rates, it
could, in lieu of
disposing of its portfolio securities, enter into
futures contracts for the sale
of similar long-term securities. If interest rates
increased and the value of
the Fund's securities declined, the value of the
Fund's futures contracts would
increase, thereby protecting the Fund by preventing
the net asset value from
declining as much as it otherwise would have.
Similarly, entering into futures
contracts for the purchase of securities has an effect
similar to actual
purchase of the underlying securities, but permits the
continued holding of
securities other than the underlying securities. For
example, if MMC expects
long-term interest rates to decline, the Fund might
enter into futures contracts
for the purchase of long-term securities, so that it
could gain rapid market
exposure that may offset anticipated increases in the
cost of securities it
intends to purchase, while continuing to hold higher-
yielding short-term
securities or waiting for the long-term market to
stabilize.
The Fund also may purchase and sell listed put and
call options on futures
contracts. An option on a futures contract gives the
purchaser the right, in
return for the premium paid, to assume a position in a
futures contract (a long
position if the option is a call and a short position
if the option is a put),
at a specified exercise price at any time during the
option period. When an
option on a futures contract is exercised, delivery of
the futures position is
accompanied by cash representing the difference
between the current market price
of the futures contract and the exercise price of the
option. The Fund may
purchase put options on interest rate futures
contracts in lieu of, and for the
same purpose as, the sale of a futures contract. It
also may purchase such put
options in order to hedge a long position in the
underlying futures contract in
the same manner as it purchases "protective puts" on
securities. The purchase of
call options on interest rate futures contracts is
intended to serve the same
purpose as the actual purchase of the futures
contract, and the Fund will set
aside cash or cash equivalents sufficient to purchase
the amount of portfolio
securities represented by the underlying futures
contracts.
20
<PAGE>
- ------------------------------------------------------
- --------------------------
Investment Objective and Management Policies
(continued)
- ------------------------------------------------------
- --------------------------
The Fund may not purchase futures contracts or
related options if,
immediately thereafter, more than 30% of the Fund's
total assets would be so
invested. In purchasing and selling futures contracts
and related options, the
Fund will comply with rules and interpretations of the
Commodity Futures Trading
Commission ("CFTC"), under which the Company is
excluded from regulation as a
"commodity pool." CFTC regulations permit use of
commodity futures and options
for bona fide hedging purposes without limitations on
the amount of assets
committed to margin and option premiums.
The Fund will not engage in transactions involving
futures contracts or
related options for speculation but only as a hedge
against changes in the
market values of debt securities held, or intended to
be purchased, by the Fund
and where the transactions are appropriate to
reduction of the Fund's risks. The
Fund's futures transactions will be entered into for
traditional hedging
purposes -- that is, futures contracts will be sold
(or related put options
purchased) to protect against a decline in the price
of securities that the Fund
owns, or futures contracts (or related call options)
will be purchased to
protect the Fund against an increase in the price of
securities it is committed
to purchase.
There is no assurance that the Fund will be able to
close out its futures
positions at any time, in which case it would be
required to maintain the margin
deposits on the contract. There can be no assurance
that hedging transactions
will be successful, as there may be an imperfect
correlation (or no correlation)
between movements in the prices of the futures
contracts and of the debt
securities being hedged, or price distortions due to
market conditions in the
futures markets. Where futures contracts are purchased
to hedge against an
increase in the price of long-term securities, but the
long-term market declines
and the Fund does not invest in long-term securities,
the Fund would realize a
loss on the futures contracts, which would not be
offset by a reduction in the
price of securities purchased. Where futures contracts
are sold to hedge against
a decline in the price of the Fund's long-term
securities but the long-term
market advances, the Fund would lose part or all of
the benefit of the advance
due to offsetting losses in its futures positions.
Short Sales. The Fund may sell securities short
"against the box." While a
short sale is the sale of a security the Fund does not
own, it is "against the
box" if at all times when the short position is open,
the Fund owns an equal
amount of the securities or securities convertible
into, or exchangeable without
further consideration for, securities of the same
issue as the securities sold
short. Short sales "against the box" are used to defer
recognition of capital
gains or losses.
American Depositary Receipts. The Fund may purchase
American Depositary
Receipts ("ADRs"), which are dollar-denominated
receipts issued generally by
domestic banks and representing the deposit with the
bank of a security of a
foreign issuer. ADRs are publicly traded on exchanges
or over-the-counter in the
United States.
21
<PAGE>
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- --------------------------
Investment Objective and Management Policies
(continued)
- ------------------------------------------------------
- --------------------------
Year 2000. The investment management services
provided to the Fund by MMC and
the services provided to shareholders by Smith Barney,
the Fund's Distributor,
depend on the smooth functioning of their computer
systems. Many computer
software systems 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. MMC
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, MMC has been
advised by the Fund's
custodian, transfer agent and accounting service agent
that they are also in the
process of modifying their systems with the same goal.
There can, however, be no
assurance that MMC, Smith Barney or any other service
provider will be
successful, or that interaction with other non-
complying computer systems will
not impair Fund services at that time.
PORTFOLIO TRANSACTIONS AND TURNOVER
MMC arranges for the purchase and sale of the
Fund's securities and selects
broker-dealers (including Smith Barney) which, in its
best judgment, provide
prompt and reliable execution at favorable prices and
reasonable commission
rates. MMC may select broker-dealers which provide it
with research services and
may cause the Fund to pay such broker-dealers
commissions which exceed those
other broker-dealers may have charged, if it views the
commissions as reasonable
in relation to the value of the brokerage and/or
research services.
For reporting purposes, the Fund's portfolio
turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio
securities for the fiscal
year by the monthly average of the value of the Fund's
securities, with money
market instruments with less than one year to maturity
excluded. A 100%
portfolio turnover rate would occur, for example, if
all included securities
were replaced once during the year. The Fund's
portfolio turnover rates for each
of the past fiscal years are set forth under
"Financial Highlights."
- ------------------------------------------------------
- --------------------------
Valuation of Shares
- ------------------------------------------------------
- --------------------------
The Fund's net asset value per share is determined
as of the close of regular
trading on the NYSE on each day that the NYSE is open,
by dividing the value of
the Fund's net assets attributable to each Class by
total number of shares of
the Class outstanding.
A security that is primarily traded on a United
States or foreign stock
exchange
22
<PAGE>
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- --------------------------
Valuation of Shares (continued)
- ------------------------------------------------------
- --------------------------
is valued at the last sale price on that exchange or,
if there were no sales
during the day, at the current quoted bid price. In
cases where securities are
traded on more than one exchange, the securities are
valued on the exchange
designated by or under the authority of the Board of
Directors as the primary
market. Fund securities which are primarily traded on
foreign exchanges may be
valued with the assistance of a pricing service and
are generally valued at the
preceding closing values of such securities on their
respective exchanges,
except that when an occurrence subsequent to the time
a foreign security is
valued is likely to have changed such value, then the
fair value of those
securities will be determined by consideration of
other factors by or under the
direction of the Board of Directors. Unlisted foreign
securities are valued at
the mean between the last available bid and offer
price prior to the time of
valuation. U.S. over-the-counter securities will be
valued on the basis of the
bid price at the close of business on each day.
Securities and assets for which
market quotations are not readily available are valued
at fair value as
determined in good faith by or under the direction of
the Board of Directors.
Notwithstanding the above, bonds and other fixed
income securities are valued by
using market quotations and may be valued on the basis
of prices provided by a
pricing service approved by the Board of Directors.
Any assets or liabilities
initially expressed in terms of foreign currencies
will be converted into U.S.
dollar values at the mean between the bid and offered
quotations of such
currencies against U.S. dollars as last quoted by any
recognized dealer.
- ------------------------------------------------------
- --------------------------
Dividends, Distributions and Taxes
- ------------------------------------------------------
- --------------------------
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to declare and pay monthly
dividends from its net
investment income. Dividends from net realized capital
gains, if any, will be
distributed 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 automatically reinvested in
additional same Class shares
at the appropriate net asset value, with no additional
sales charge or CDSC.
The per share amounts of dividends from net
investment income on Classes B
and C may be lower than that of Classes A and Y,
mainly as a result of the
distribution fees applicable to Class B and C 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, C and Y).
23
<PAGE>
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- --------------------------
Dividends, Distributions and Taxes (continued)
- ------------------------------------------------------
- --------------------------
TAXES
The following is a summary of the material federal
tax considerations
affecting the Fund and Fund shareholders, please refer
to the SAI for further
discussion. In addition to the considerations
described below and in the SAI,
there may be other federal, state, local, and/or
foreign tax applications to
consider. 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 intends to qualify, as it has in prior
years, 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, so long as
such qualification is in the best interests of its
shareholders, 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
securities 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
dividends 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
disposition. 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
shareholders who do not provide the Fund with a
correct taxpayer identification
number (social security 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 withholding does not constitute
an additional tax, and may
be claimed as a credit on the shareholders' federal
income tax return.
24
<PAGE>
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- --------------------------
Purchase of Shares
- ------------------------------------------------------
- --------------------------
GENERAL
The Fund offers four Classes of shares. Class A
shares are sold to investors
with an initial sales charge and Class B and Class C
shares are sold without an
initial sales charge but are subject to a CDSC payable
upon certain redemptions.
Class Y shares are sold without an initial sales
charge or CDSC and are
available only to investors 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.
Purchases of Fund shares must be made through a
brokerage account maintained
with Smith Barney, an Introducing Broker or an
investment dealer in the selling
group. In addition, certain investors, including
qualified retirement plans and
certain other institutional investors, may purchase
shares directly through
First Data. When purchasing shares of the Fund,
investors must specify whether
the purchase is for Class A, Class B, Class C or Class
Y shares. Smith Barney
and other broker/dealers may charge their customers an
annual account
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 C shares
may open an account by
making 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 participants in
retirement plans qualified under Section 403(b)(7) or
Section 401(a) of the
Code, the minimum initial investment requirement for
Class A, Class B and Class
C shares and the subsequent investment requirement for
all Classes in the Fund
is $25. For shareholders purchasing shares of the Fund
through the Systematic
Investment Plan on a monthly basis, the minimum
initial investment requirement
for Class A, Class B and Class C shares and the
subsequent investment
requirement for all classes is $25. For shareholders
purchasing shares of the
Fund through the Systematic Investment Plan on a
quarterly basis, the minimum
initial investment requirement for Class A, Class B
and Class C shares and the
subsequent investment requirement for all Classes is
$50. There are no minimum
investment requirements for Class A shares for
employees of Travelers and its
subsidiaries, including Smith Barney, Directors or
Trustees of any of the Smith
Barney Mutual Funds or other funds affiliated with
Travelers and their spouses
and children. The Fund reserves the right to waive or
change minimums, to
decline any order to purchase its shares and to
suspend the offering of shares
from time to time. Shares purchased will be held in
the shareholder's account by
the Fund's transfer agent, First Data. Share
certificates are issued only upon a
shareholder's written request to First Data.
25
<PAGE>
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- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
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
an Introducing Broker
purchasing through Smith Barney, payment for Fund
shares is due on the third
business day after the trade date. In all other cases,
payment must be made with
the purchase order.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts
at any time by purchasing
shares through a service known as the Systematic
Investment Plan. Under the
Systematic Investment Plan, Smith Barney or First Data
is authorized through
preauthorized transfers of at least $25 on a monthly
basis or at least $50 on a
quarterly basis to charge the regular bank account or
other financial
institution indicated by the shareholder to provide
systematic additions to the
shareholder's Fund account. A shareholder who has
insufficient funds to complete
the transfer will be charged a fee of up to $25 by
Smith Barney or First Data.
The Systematic Investment Plan also authorizes Smith
Barney to apply cash held
in the shareholder's Smith Barney brokerage account or
redeem the shareholder's
shares of a Smith Barney money market fund to make
additions to the account.
Additional information is available from the Fund or a
Smith Barney Financial
Consultant.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
The sales charge applicable to purchases of Class A
shares of the Fund are as
follows:
Sales
Sales Dealer's
Charge as % Charge as
% of Reallowance as %
Amount of Investment of Offering Price Amount
Invested of Offering Price
======================================================
==========================
Less than $25,000 4.50%
4.71% 4.05%
$25,000 - $49,999 4.00%
4.17% 3.60%
$50,000 - $99,999 3.50%
3.63% 3.15%
$100,000 - $249,999 2.50%
2.56% 2.25%
$250,000 - $499,999 1.50%
1.52% 1.35%
$500,000 and over * *
*
======================================================
==========================
* Purchases of Class A shares of $500,000 or more
will be made at net asset
value without any initial sales charge, but will
be subject to a CDSC of
1.00% on redemptions made within 12 months of
purchase. The CDSC on Class
A shares is payable to Smith Barney, which
compensates Smith Barney
Financial Consultants and other dealers whose
clients make purchases of
$500,000 or more. The CDSC is waived in the same
circumstances in which
the CDSC applicable to Class B and Class C
shares is waived. See "Deferred
Sales Charge Alternatives" and "Waivers of
CDSC."
26
<PAGE>
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- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
Members of the selling group may receive up to 90%
of the sales charge and
may be deemed to be underwriters of the Fund as
defined in the Securities Act 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 any of
the Smith Barney Mutual
Funds or other Travelers affiliated funds (including
retired Board Members and
employees) the immediate families of such persons
(including the surviving
spouse of a deceased Board Member or employee); and to
a pension, profit-sharing
or other benefit plan for such persons; and (ii)
employees of members of the
National Association of Securities Dealers, Inc.,
provided such sales are made
upon the assurance of the purchaser that the purchase
is made for investment
purposes and that the securities will not be resold
except through redemption or
repurchase; (b) offers of Class A shares to any other
investment company to
effect the combination of such company with the Fund
by merger, acquisition of
assets or otherwise; (c) purchases of Class A shares
by any client of a newly
employed Smith Barney Financial Consultant (for a
period up to 90 days from the
commencement of the Financial Consultant's employment
with Smith Barney), on the
condition the purchase of Class A shares is made with
the proceeds of the
redemption of shares of a mutual fund which (i) was
sponsored by the Financial
Consultant's prior employer, (ii) was sold to the
client by the Financial
Consultant and (iii) was subject to a sales charge;
(d) purchases by
shareholders who have redeemed Class A shares in the
Fund (or Class A shares of
another fund 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 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
Section 401(a) or (k)
accounts associated with Copeland Retirement Programs.
In order to obtain such
discounts, the purchaser must provide sufficient
information
27
<PAGE>
- ------------------------------------------------------
- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
at the time of purchase to permit verification that
the purchase would qualify
for the elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any
person" (as defined
above) at a reduced sales charge or at net asset value
determined by aggregating
the dollar amount of the new purchase and the total
net asset value of all Class
A shares of the Fund and of funds sponsored by Smith
Barney, which are offered
with a sales charge listed under "Exchange Privilege"
then held by such person
and applying the sales charge applicable to such
aggregate. In order to obtain
such discount, the purchaser must provide sufficient
information at the time of
purchase to permit verification that the purchase
qualifies for the reduced
sales charge. The right of accumulation is subject to
modification or
discontinuance at any time with respect to all shares
purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a
reduced sales charge or
purchase 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 requirements. One such requirement is
that the plan must be open
to specified partners or employees of the employer and
its subsidiaries, if any.
Such plan may, but is not required to, provide for
payroll deductions, IRAs or
investments pursuant to retirement plans under
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
28
<PAGE>
- ------------------------------------------------------
- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
of the Fund and the members, and must agree to include
sales and other materials
related to the Fund in its publications and mailings
to members at no cost to
Smith Barney. In order to obtain such reduced sales
charge or to purchase at net
asset value, the purchaser must provide sufficient
information at the time of
purchase to permit verification that the purchase
qualifies for the reduced
sales charge. Approval of group purchase reduced sales
charge plans is subject
to the 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
purchases of all Class A shares of the Fund and other
funds of the Smith Barney
Mutual Funds offered with a sales charge over the 13
month period based on the
total amount of intended purchases plus the value of
all Class A shares
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
sale charges applicable to the purchases made and the
charges previously paid,
or an appropriate number of escrowed shares will be
redeemed. Please contact a
Smith Barney Financial Consultant or First Data to
obtain a Letter of Intent
application.
Class Y Shares. A Letter of Intent may also be used
as a way for investors to
meet the minimum investment requirement for Class Y
shares. Such investors must
make an initial minimum purchase of $5,000,000 in
Class Y shares of the Fund and
agree to purchase a total of $15,000,000 of Class Y
shares of the same Fund
within thirteen 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%. Please contact
a Smith Barney Financial Consultant or First Data for
further information.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next
determined without an initial
sales charge so that the full amount of an investor's
purchase payment may be
immediately invested in the Fund. A CDSC, however, may
be imposed on certain
redemptions of these shares. "CDSC Shares" are: (a)
Class B shares; (b) Class C
29
<PAGE>
- ------------------------------------------------------
- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
shares; and (c) Class A shares that were purchased
without an initial sales
charge but subject to a CDSC.
Any applicable CDSC will be assessed on an amount
equal to the lesser of the
cost of the shares being redeemed or their net asset
value at the time of
redemption. CDSC Shares that are redeemed will not be
subject to a CDSC to the
extent that the value of such shares represents: (a)
capital appreciation of
Fund assets; (b) reinvestment of dividends or capital
gains distributions; (c)
with respect to Class B shares, shares redeemed more
than five years after their
purchase; or (d) with respect to Class C shares and
Class A shares that are CDSC
Shares, shares redeemed more that 12 months after
their purchase.
Class C shares and Class A shares that are CDSC
Shares are subject to a 1.00%
CDSC if redeemed within 12 months of purchase. In
circumstances in which the
CDSC is imposed on Class B shares, the amount of the
charge will depend on the
number of years since the shareholder made the
purchase payment from which the
amount is being redeemed. Solely for purposes of
determining the number of years
since a purchase payment, all purchase payments made
during a month will be
aggregated and deemed to have been made on the last
day of the preceding Smith
Barney statement month. The following table sets forth
the rates of the charge
for redemptions of Class B shares by shareholders,
except in the case of Class B
shares held under the Smith Barney 401(k) Program, as
described below. See
"Purchase of Shares-Smith Barney 401(k) and
ExecChoice(TM) Programs."
Year Since Purchase
Payment Was Made
CDSC
======================================================
==========================
First
4.50%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth and thereafter
0.00
======================================================
==========================
Class B shares will convert automatically to Class
A shares eight years after
the date on which they were purchased and thereafter
will no longer be subject
to any distribution fees. There 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 Class B shares (other than Class B Dividend
Shares) owned by the
shareholder. See "Prospectus Summary-Alternative
Purchase Arrangements-Class B
Shares Conversion Feature."
The length of time that CDSC Shares acquired
through an exchange have been
held will be calculated from the date that the shares
exchanged were initially
acquired in one of the other applicable Smith Barney
Mutual Funds, and Fund
shares being redeemed will be considered to represent,
as applicable, capital
appreciation or dividend and capital gains
distribution reinvestments in such
other
30
<PAGE>
- ------------------------------------------------------
- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
funds. For Federal income tax purposes, the amount of
the CDSC will reduce
the gain or increase the loss, as the case may be, on
the amount realized on
redemption. The amount of any CDSC will be paid to
Smith Barney.
To provide an example, assume an investor purchased
100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the
investor acquired 5 additional
shares through dividend reinvestment. During the
fifteenth month after the
purchase, the investor decided to redeem $500 of his
or her investment. Assuming
at the time of the redemption the net asset value had
appreciated to $12 per
share, the value of the investor's shares would be
$1,260 (105 shares at $12 per
share). The CDSC would not be applied to the amount
which represents
appreciation ($200) and the value of the reinvested
dividend shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500
minus $260) would be
charged at a rate of 4.00% (the applicable rate for
Class B shares) for a total
deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see
"Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less
than 1.00% per month of
the value of the shareholder's shares at the time the
withdrawal plan commences
(see "Automatic Cash Withdrawal Plan" (provided,
however, that automatic cash
withdrawals in amounts equal to or less than 2.00% per
month of the value of the
shareholder's shares will be permitted for withdrawal
plans that were
established prior to November 7, 1994); (c)
redemptions of shares within 12
months following the death or disability of the
shareholder; (d) redemption of
shares, made in connection with qualified
distributions from retirement plans or
IRAs upon the attainment of age 591/2; (e) involuntary
redemptions; and (f)
redemptions of shares to effect a combination of the
Fund with any investment
company by merger, acquisition of assets or otherwise.
In addition, a
shareholder who has redeemed shares from other funds
of the Smith Barney Mutual
Funds may, under certain circumstances, reinvest all
or part of the redemption
proceeds within 60 days and receive pro rata credit
for any CDSC imposed on the
prior redemption.
CDSC waivers will be granted subject to
confirmation (by Smith Barney in the
case of shareholders who are also Smith Barney clients
or by First Data in the
case of all other shareholders) of the shareholder's
status or holdings, as the
case may be.
SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS
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
participating ("Participating Plans") in these
programs.
The Fund offers to Participating Plans Class A and
Class C shares as
invest-
31
<PAGE>
- ------------------------------------------------------
- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
ment alternatives under the Smith Barney 401(k) and
ExecChoice(TM) Programs.
Class A and Class C shares acquired through the
Participating Plans are subject
to the same service and/or distribution fees as the
Class A and Class C shares
acquired by other investors; however, they are not
subject to any initial sales
charge or CDSC. Once a Participating Plan has made an
initial investment in the
Fund, all of its subsequent investments in the Fund
must be in the same Class of
shares, except as otherwise described below.
Class A Shares. Class A shares of the Fund are
offered without any sales
charge or CDSC to any Participating Plan that
purchases $1,000,000 or more of
Class A shares of one or more funds of the Smith
Barney Mutual Funds.
Class C Shares. Class C shares of the Fund are
offered without any sales
charge or CDSC to any Participating Plan that
purchases less than $1,000,000 of
Class C shares of one or more funds of the Smith
Barney Mutual Funds.
401(k) and ExecChoice(TM) Plans Opened On or After
June 21, 1996. If, at the
end of the fifth year after the date the Participating
Plan enrolled in the
Smith Barney 401(k) Program or the Smith Barney
ExecChoice(TM) Program, a
Participating Plan's total Class C holdings in all
non-money market Smith Barney
Mutual Funds equal at least $1,000,000, the
Participating Plan will be offered
the opportunity to exchange all of its Class C shares
for Class A shares of the
Fund. (For Participating Plans that were originally
established through a Smith
Barney retail brokerage account, the five-year period
will be calculated from
the date the retail brokerage account was opened.)
Such Participating Plans will
be notified of the pending exchange in writing within
30 days after the fifth
anniversary of the enrollment date and, unless the
exchange offer has been
rejected in writing, the exchange will occur on or
about the 90th day after the
fifth anniversary date. If the Participating Plan does
not qualify for the
five-year exchange to Class A shares, a review of the
Participating Plan's
holdings will be performed each quarter until either
the Participating Plan
qualifies or the end of the eighth year.
401(k) Plans Opened Prior to June 21, 1996. In any
year after the date a
Participating Plan enrolled in the Smith Barney 401(k)
Program, if its total
Class C holdings in all non-money market Smith Barney
Mutual Funds equal at
least $500,000 as of the calendar year-end, the
Participating Plan will be
offered the opportunity to exchange all of its Class C
shares for Class A shares
of the Fund. Such Plans will be notified in writing
within 30 days after the
last business day of the calendar year and, unless the
exchange offer has been
rejected in writing, the exchange will occur on or
about the last business day
of the following March.
Any Participating Plan in the Smith Barney 401(k)
or ExecChoice(TM) Programs,
whether opened before or after June 21, 1996, that has
not previously qualified
for an exchange into Class A shares will be offered
the opportunity to exchange
all of its Class C shares for Class A shares of the
Fund regardless of asset
size, at the end of the eighth year after the date the
Participating Plan
enrolled in the Smith Barney
32
<PAGE>
- ------------------------------------------------------
- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
401(k) or ExecChoice(TM) Program. Such Plans will be
notified of the pending
exchange in writing approximately 60 days before the
eighth anniversary of the
enrollment date and, unless the exchange has been
rejected in writing, the
exchange will occur on or about the eighth anniversary
date. Once an exchange
has occurred, a Participating Plan will not be
eligible to acquire additional
Class C shares of the Fund but instead may acquire
Class A shares of the Fund.
Any Class C shares not converted will continue to be
subject to the distribution
fee.
Participating Plans wishing to acquire shares of
the Fund through the Smith
Barney 401(k) Program or the Smith Barney
ExecChoice(TM) Program must purchase
such shares directly from First Data. For further
information regarding these
Programs, investors should contact a Smith Barney
Financial Consultant.
Existing 401(k) Plans Investing in Class B Shares.
Class B shares of the Fund
are not available for purchase by Participating Plans
opened on or after June
21, 1996, but may continue to be purchased by any
Participating Plan in the
Smith Barney 401(k) Program opened prior to such date
and originally investing
in such Class. Class B shares acquired are subject to
a CDSC of 3.00% of
redemption proceeds if the Participating Plan
terminates within eight years of
the date the Participating Plan first enrolled in the
Smith Barney 401(k)
Program.
At the end of the eighth year after the date the
Participating Plan enrolled
in the Smith Barney 401(k) Program, the Participating
Plan will be offered the
opportunity to exchange all of its Class B shares for
Class A shares of the
Fund. Such Participating Plan will be notified of the
pending exchange in
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
the exchange has occurred, a
Participating Plan will not be eligible to acquire
additional Class B shares of
the Fund but instead may acquire Class A shares of the
Fund. If the
Participating Plan elects not to exchange all of its
Class B shares at that
time, each Class B share held by the Participating
Plan will have the same
conversion feature as Class B shares held by other
investors. See "Purchase of
Shares -- Deferred Sales Charge Alternatives."
No CDSC is imposed on redemptions of Class B shares
to the extent that the
net asset value of the shares redeemed does not exceed
the current net asset
value of the shares purchased through reinvestment of
dividends or capital gain
distributions, plus the current net asset value of
Class B shares purchased more
than eight years prior to the redemption, plus
increases in the net asset value
of the shareholder's Class B shares above the purchase
payments made during the
preceding eight years. Whether or not the CDSC applies
to the redemption by a
Participating Plan depends on the number of years
since the Participating Plan
first became enrolled in the Smith Barney 401(k)
Program, unlike the
applicability of the CDSC to redemptions by other
shareholders, which depends on
the number of years since those shareholders made the
purchase payment from
which the amount is being redeemed.
33
<PAGE>
- ------------------------------------------------------
- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
The CDSC will be waived on redemptions of Class B
shares in connection with
lump-sum or other distributions made by a
Participating Plan as a result of: (a)
the retirement of an employee in the Participating
Plan; (b) the termination of
employment of an employee in the Participating Plan;
(c) the death or disability
of an employee in the Participating Plan; (d) the
attainment of age 591/2 by an
employee in the Participating Plan; (e) hardship of an
employee in the
Participating Plan to the extent permitted under
Section 401(k) of the Code; or
(f) redemptions of shares in connection with a loan
made by the Participating
Plan to an employee.
- ------------------------------------------------------
- --------------------------
Exchange Privilege
- ------------------------------------------------------
- --------------------------
Except as otherwise noted below, shares of each
Class may be exchanged at the
net asset value next determined for shares of the same
Class in the following
funds of the Smith Barney Mutual Funds, to the extent
shares are offered for
sale in the shareholder's state of residence. Exchange
of Class A, Class B and
Class C shares are subject to minimum investment
requirements and all shares are
subject to the other requirements of the fund into
which exchanges are made.
FUND NAME
Growth Funds
Concert Peachtree Growth Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Large Cap Blend Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney Managed Growth Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Special Equities Fund
Growth and Income Funds
Concert Social Awareness Fund
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Large Cap Value Fund
Smith Barney Premium Total Return Fund
Smith Barney Utilities Fund
34
<PAGE>
- ------------------------------------------------------
- --------------------------
Exchange Privilege (continued)
- ------------------------------------------------------
- --------------------------
Taxable Fixed-Income Funds
** Smith Barney Adjustable Rate Government Income
Fund
Smith Barney Diversified Strategic Income Fund
+++ Smith Barney Funds, Inc. -- Short-Term U.S.
Treasury Securities Fund
Smith Barney Funds, Inc. -- U.S. Government
Securities Fund
Smith Barney Government Securities Fund
Smith Barney High Income 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
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 Municipal High Income Fund
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
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
35
<PAGE>
- ------------------------------------------------------
- --------------------------
Exchange Privilege (continued)
- ------------------------------------------------------
- --------------------------
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 Muni Funds -- California Money Market
Portfolio
+++ Smith Barney Muni Funds -- New York Money Market
Portfolio
+++ Smith Barney Municipal Money Market Fund, Inc.
======================================================
==========================
* Available for exchange with Class A, Class C and
Class Y shares of the
Fund.
** Available for exchange with Class A and Class B
shares of the Fund. In
addition, shareholders who own Class C shares of
the Fund through the
Smith Barney 401(k) Program may exchange those
shares for Class C shares
of this fund.
*** Available for exchange with Class A shares of
the Fund.
+ Available for exchange with Class B and Class C
shares of the Fund.
++ Available for exchange with Class A and Class Y
shares of the Fund. In
addition, Participating Plans opened prior to
June 21, 1996 and investing
in Class C shares may exchange Fund shares for
Class C shares of this
fund.
+++ Available for exchange with Class A and Class Y
shares of the Fund.
Class B Exchanges. In the event a Class B
shareholder wishes to exchange all
or a portion of his or her shares in any of the funds
imposing a higher CDSC
than that imposed by the Fund, the exchanged Class B
shares will be subject to
the higher applicable CDSC. Upon an exchange, the new
Class B shares will be
deemed to have been purchased on the same date as the
Class B shares of the Fund
that have been exchanged.
Class C Exchanges. Upon an exchange, the new Class
C shares will be deemed to
have been purchased on the same date as the Class C
shares of the Fund that have
been exchanged.
Class A and Class Y Exchanges. Class A and Class Y
shareholders of the Fund
who wish to exchange all or a portion of their shares
for shares of the
respective class in any of the funds identified above
may do so without
imposition of any charge.
Additional Information Regarding the Exchange
Privilege. Although the
exchange privilege is an important benefit, excessive
exchange transactions can
be detrimental to the Fund's performance and its
shareholders. MMC 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, MMC will notify Smith
Barney and Smith Barney may, at its discretion, decide
to limit additional
purchases and/or exchanges by a shareholder. Upon such
a determination, Smith
Barney 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
36
<PAGE>
- ------------------------------------------------------
- --------------------------
Exchange Privilege (continued)
- ------------------------------------------------------
- --------------------------
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
"Redemption 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.
- ------------------------------------------------------
- --------------------------
Redemption of Shares
- ------------------------------------------------------
- --------------------------
The Fund is required to redeem the shares of the
Fund tendered to it, as
described below, at a redemption price equal to their
net asset value per share
next determined after receipt of a written request in
proper form at no charge
other than any applicable CDSC. Redemption requests
received after the close of
regular trading on the NYSE are priced at the net
asset value next determined.
If a shareholder holds shares in more than one
Class, any request for
redemption must specify the Class being redeemed. In
the event of a failure to
specify which Class, or if the investor owns fewer
shares of the Class than
specified, the redemption request will be delayed
until the Fund's 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 1940 Act, in extraordinary circumstances.
Generally, if the redemption
proceeds are remitted to a Smith Barney brokerage
account, these funds will not
be invested for the shareholder's benefit without
specific instruction and Smith
Barney will benefit from the use of temporarily
uninvested funds. Redemption
proceeds for shares purchased by check, other than a
certified or official bank
check, will be remitted upon clearance of the check,
with 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
37
<PAGE>
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- --------------------------
Redemption of Shares (continued)
- ------------------------------------------------------
- --------------------------
Financial Consultant, Introducing Broker or dealer in
the selling group or by
submitting a written request for redemption to:
Smith Barney Investment Grade Bond Fund
Class A, B, C, or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
A written redemption request must (a) state the
Class and number or dollar
amount of shares to be redeemed, (b) identify the
shareholder's account number
and (c) be signed by each registered owner exactly as
the shares are registered.
If the shares to be redeemed were issued in
certificate form, the certificates
must be endorsed for transfer (or be accompanied by an
endorsed stock power) and
must be submitted to 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 guarantor
institution such as a domestic bank, savings and loan
Institution, domestic
credit union, member bank of the Federal Reserve
System or member firm of a
national securities exchange. Written redemption
requests of $10,000 or less do
not require a signature guarantee unless more than one
such redemption request
is made in any 10-day period. Redemption proceeds will
be mailed to an
investor's address of record. First Data may require
additional supporting
documents for redemptions made by corporations,
executors, administrators,
trustees or guardians. A redemption request will not
be deemed properly received
until First Data receives all required documents in
proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash
withdrawal plan, under which
shareholders who own shares with a value of at least
$10,000 may elect to
receive cash payments of at least $50 monthly or
quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal
plans only where the
shareholder is eligible to receive qualified
distributions and has an account
value of at least $5,000. The withdrawal plan will be
carried over on exchanges
between funds or Classes of the Fund. Any applicable
CDSC will not be waived on
amounts withdrawn by a shareholder that exceed 1.00%
per month of the value of
the shareholder's shares subject to the CDSC at the
time the withdrawal plan
commences. For further information regarding the
automatic cash withdrawal plan,
shareholders should contact a Smith Barney Financial
Consultant.
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
Shareholders who do not have a Smith Barney
brokerage account may be eligible
to redeem and exchange Fund shares by telephone. To
determine if a shareholder
is entitled to participate in this program, he or she
should contact First
38
<PAGE>
- ------------------------------------------------------
- --------------------------
Redemption of Shares (continued)
- ------------------------------------------------------
- --------------------------
Data at 1-800-451-2010. Once eligibility is confirmed,
the shareholder must
complete and return a Telephone/Wire Authorization
Form, along with a signature
guarantee that will be provided by First Data upon
request. (Alternatively, an
investor may authorize telephone redemptions on the
new account application with
the applicant's signature guarantee when making
his/her initial investment in
the Fund.)
Redemptions. Redemption requests of up to $10,000
of any Class or Classes of
the Fund's shares may be made by eligible shareholders
by calling First Data at
1-800-451-2010. Such requests may be made between 9:00
a.m. and 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 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 on which the NYSE is
open. Exchange requests
received after the close of regular trading on the
NYSE are processed at the net
asset value next determined.
Additional Information regarding Telephone
Redemption and Exchange Program.
Neither the Fund nor its agents will be liable for
following instructions
communicated by telephone that are reasonably believed
to be genuine. The Fund
and its agents will employ procedures designed to
verify the identity of the
caller and legitimacy of instructions (for example, a
shareholder's name and
account number will be required and phone calls may be
recorded.) The Fund
reserves the right to suspend, modify or discontinue
the telephone redemption
and exchange program or to impose a charge for this
service at any time
following at least seven (7) days' prior notice to
shareholders.
39
<PAGE>
- ------------------------------------------------------
- --------------------------
Minimum Account Size
- ------------------------------------------------------
- --------------------------
The Fund reserves the right to involuntarily
liquidate any shareholder's
account in the Fund if the aggregate net asset value
of the shares held in the
Fund account is less than $500. (If a shareholder has
more than one account in
the Fund, each account must satisfy the minimum
account size.) The Fund,
however, will not redeem shares based solely on market
reductions in net asset
value. Before the Fund exercises such right,
shareholders will receive written
notice and will be permitted 60 days to bring accounts
up to the minimum to
avoid involuntary liquidation.
- ------------------------------------------------------
- --------------------------
Performance
- ------------------------------------------------------
- --------------------------
YIELD
From time to time, the Fund may advertise its 30
day "yield" for each Class
of shares. The yield of a Class refers to the income
generated by an investment
in such Class over the 30 day period identified in the
advertisement, and is
computed by dividing the net investment income per
share earned by the Class
during the period by the net asset value per share on
the last day of the
period. This income is "annualized" by assuming that
the amount of income is
generated each month over a one year period and is
compounded semi-annually. The
annualized income is then shown as a percentage of the
net asset value.
TOTAL RETURN
From time to time, the Fund may include its total
return, average annual
total return and current dividend return in
advertisements and/or other types of
sales literature. These figures are computed
separately for Class A, Class B,
Class C and Class Y shares of the Fund. These figures
are based on historical
earnings and are not intended to indicate future
performance. Total return is
computed for a specific 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 gains 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 calculates current dividend return
for each Class by
annualizing the most recent monthly distribution and
dividing by the net asset
value or the maximum public offering price (including
sales charge) on the last
day of the period for which current dividend return is
presented. The current
dividend return for each Class may vary from time to
time depending on market
conditions, the composition of its investment
portfolio and operating
40
<PAGE>
- ------------------------------------------------------
- --------------------------
Performance (continued)
- ------------------------------------------------------
- --------------------------
expenses. These factors and possible differences in
the methods used in
calculating current dividend return should be
considered when comparing a Class'
current return to yields published for other
investment companies and other
investment vehicles. The Fund may also include
comparative performance
information in advertising or marketing its shares.
Such performance information
may include data from Lipper Analytical Services, Inc.
or similar independent
services that monitor the performance of mutual funds
or other industry
publications.
- ------------------------------------------------------
- --------------------------
Management of the Company and the Fund
- ------------------------------------------------------
- --------------------------
BOARD OF DIRECTORS
Overall responsibility for management and
supervision of the Fund rests with
the Company's Board of Directors. The Directors
approve all significant
agreements between the Company and companies that
furnish services to the Fund,
including agreements with the Fund's distributor,
investment adviser,
administrator, custodian and transfer agent. The day-
to-day operations of the
Fund are delegated to the Fund's investment adviser
and administrator. The SAI
contains general and background information regarding
each Director and
executive officer of the Company.
INVESTMENT ADVISER -- MMC
MMC, located at 388 Greenwich Street, New York, New
York 10013, serves as the
Fund's investment adviser. MMC (through predecessor
entities) has been in the
investment counseling business since 1940. MMC renders
investment advice to
investment companies that had aggregate assets under
management as of March 31,
1998 of approximately $100.5 billion.
Subject to the supervision and direction of the
Fund's Board of Directors,
MMC 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 portfolio managers, and
securities analysts who provide research services to
the Fund. Under an
investment advisory agreement, the Fund pays MMC a
monthly fee at the annual
rate of 0.45% of the value of the Fund's average daily
net assets up to $500
million and 0.42% of the value of average daily net
assets thereafter. For the
fiscal year ended December 31, 1997, MMC was paid
investment advisory fees equal
to 0.45% of the value of the Fund's average daily net
assets.
PORTFOLIO MANAGEMENT
George E. Mueller, Jr., Managing Director of Smith
Barney, has served as the
Investment Officer of the Fund since January 1, 1985,
and manages the day-to-day
operations of the Fund, including making all
investment decisions.
41
<PAGE>
- ------------------------------------------------------
- --------------------------
Management of the Company and the Fund (continued)
- ------------------------------------------------------
- --------------------------
Management's discussion and analysis and additional
performance information
regarding the Fund during the fiscal year ended
December 31, 1997 is included in
the Annual Report dated December 31, 1997. A copy of
the Annual Report may be
obtained upon request and without charge from a Smith
Barney Financial
Consultant or by writing or calling the Fund at the
address or phone number
listed on page one of this Prospectus.
ADMINISTRATOR -- MMC
MMC also serves as the Fund's administrator and
oversees all aspects of the
Fund's administration. For administration services
rendered to the Fund, the
Fund paid an administration fee at the annual rate of
0.20% of the value of the
Fund's average daily net assets up to $500 million and
0.18% of the average
daily net assets thereafter.
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 subject
to approval by the stockholders of each of Travelers
and Citicorp. Upon
consummation of the merger, the surviving corporation
would be a bank holding
company subject to regulation under the Holding
Company Act of 1956 (the
"BCHA"), the requirements of the Glass-Steagall Act
and certain other laws and
regulations. Although the effects of the merger of
Travelers and Citicorp and
compliance with the requirements of the BCHA and the
Glass-Steagall Act are
still under review, MMC does not believe that its
compliance with applicable law following 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.
- ------------------------------------------------------
- --------------------------
Distributor
- ------------------------------------------------------
- --------------------------
Smith Barney is located at 388 Greenwich Street,
New York, New York 10013.
Smith Barney distributes shares of the Fund as
principal underwriter and as such
conducts a continuous offering pursuant to a "best
efforts" arrangement
requiring Smith Barney to take and pay for only such
securities as may be sold
to the public. Pursuant to a plan of distribution
adopted by the Fund under Rule
12b-1 under the 1940 Act (the "Plan"), Smith Barney is
paid a service fee with
respect to Class A, Class B and Class C shares of the
Fund at the annual rate of
0.25% of the average daily net assets of the
respective Class. Smith Barney is
also paid a distribution fee with respect to Class B
and Class C shares at the
annual rate of 0.50% and 0.45%, respectively, of the
average daily net assets
attributable to those Classes. Class B shares which
automatically convert to
Class A shares eight years
42
<PAGE>
- ------------------------------------------------------
- --------------------------
Distributor (continued)
- ------------------------------------------------------
- --------------------------
after the date of original purchase will not longer be
subject to distribution
fees. The fees are used by Smith Barney to pay its
Financial Consultants for
servicing shareholder accounts and, in the case of
Class B and Class C shares,
to cover expenses primarily intended to result in the
sale of those shares.
These expenses include: advertising expenses; the cost
of printing and mailing
prospectuses to potential 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 C shares, a
continuing fee for servicing shareholder accounts for
as long as a shareholder
remains a holder of that Class. Smith Barney Financial
Consultants may receive
different levels of compensation for selling different
Classes of shares.
Payments under the Plan are not tied exclusively to
the distribution and
shareholder service expenses actually incurred by
Smith Barney, and the payments
may exceed distribution expenses actually incurred.
The Company's Board of
Directors will evaluate the appropriateness of the
Plan and its payment terms on
a continuing basis and in doing so will consider all
relevant factors, including
expenses borne by Smith Barney, amounts received under
the Plan and proceeds of
the CDSC.
- ------------------------------------------------------
- --------------------------
Additional Information
- ------------------------------------------------------
- --------------------------
The Company was organized as a Maryland corporation
pursuant to Articles of
Incorporation dated September 29, 1981, as amended
from time to time.
The Fund offers shares of common stock currently
classified into four
Classes, A, B, C and Y, with a par value of $.001 per
share. Each Class of
shares has the same rights, privileges and
preferences, except with respect to:
(a) the designation of each Class; (b) the effect of
the respective sales
charges, if any, for each Class; (c) the distribution
and/or service fees borne
by each Class; (d) the expenses allocable exclusively
to each Class; (e) voting
rights on matters exclusively affecting a single
Class; (f) the exchange
privilege of each Class; and (g) the conversion
feature of the Class B shares.
The Board of Directors does not anticipate that there
will be any conflicts
among the interests of the holders of the different
Classes of shares of the
Fund. The Directors, on an ongoing basis, will
consider whether any such
conflict exists and, if so, take appropriate action.
PNC Bank, located at 17th & Chestnut Streets,
Philadelphia, PA 19103, serves
as custodian of the Company's investments.
43
<PAGE>
- ------------------------------------------------------
- --------------------------
Additional Information (continued)
- ------------------------------------------------------
- --------------------------
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
outstanding 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, a 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 each of its shareholders a semi-
annual report and an audited
annual report, which include listings of the
investment securities held by the
Fund at the end of the period covered. 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 having multiple accounts with the identical
address of record will
receive a single copy of each report. Shareholders who
do not want this
consolidation to apply to their accounts should
contact their Smith Barney
Financial Consultants or First Data.
44
<PAGE>
SMITH BARNEY
- ------------
A
Member of TravelersGroup[Logo]
Smith Barney
Investment
Grade Bond
Fund
388 Greenwich Street
New York, New York 10013
FD 0233 4/98
PROSPECTUS
SMITH BARNEY
Government
Securities
Fund
April 30, 1998
Prospectus begins on page one
[Logo] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
- ------------------------------------------------------
- --------------------------
Prospectus
April 30, 1998
- ------------------------------------------------------
- --------------------------
Smith Barney Government Securities Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
Smith Barney Government Securities Fund (the
"Fund") has an investment
objective of high current return through investments
that are issued or
guaranteed by the United States government, its
agencies or instrumentalities
("U.S. government securities"). It may write covered
call options and secured
put options and purchase put options on U.S.
government securities. For hedging
purposes, the Fund may purchase and sell interest rate
futures contracts and put
and call options thereon.
The Fund is one of a number of funds, each having
distinct investment
objectives and policies, making up Smith Barney
Investment Funds Inc. (the
"Company"). The Company is an open-end management
investment company commonly
referred to as a mutual fund.
This Prospectus sets forth concisely certain
information about the Fund and
the Company, including sales charges, distribution and
service fees and
expenses, that prospective investors will find helpful
in making an investment
decision. Investors are encouraged to read this
Prospectus carefully and to
retain it for future reference. Shares of other funds
offered by the Company are
described in separate Prospectuses that may be
obtained by calling the Company
at the telephone number set forth above or by
contacting a Smith Barney
Financial Consultant.
Additional information about the Fund and the
Company is contained in a
Statement of Additional Information (the "SAI") dated
April 30, 1998, as amended
or supplemented from time to time, that is available
upon request and without
charge by calling or writing the Company 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.
Smith Barney Inc.
Distributor
Mutual Management Corp.
Investment Adviser and Administrator
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
- ------------------------------------------------------
- --------------------------
Prospectus Summary
3
- ------------------------------------------------------
- --------------------------
Financial Highlights
10
- ------------------------------------------------------
- --------------------------
Investment Objective and Management Policies
17
- ------------------------------------------------------
- --------------------------
Valuation of Shares
25
- ------------------------------------------------------
- --------------------------
Dividends, Distributions and Taxes
25
- ------------------------------------------------------
- --------------------------
Purchase of Shares
27
- ------------------------------------------------------
- --------------------------
Exchange Privilege
36
- ------------------------------------------------------
- --------------------------
Redemption of Shares
39
- ------------------------------------------------------
- --------------------------
Minimum Account Size
42
- ------------------------------------------------------
- --------------------------
Performance
42
- ------------------------------------------------------
- --------------------------
Management of the Company and the Fund
43
- ------------------------------------------------------
- --------------------------
Distributor
45
- ------------------------------------------------------
- --------------------------
Additional Information
46
- ------------------------------------------------------
- --------------------------
======================================================
==========================
No person has been authorized to give any
information or to make any
representations in connection with this offering other
than those contained in
this Prospectus and, if given or made, such other
information or representations
must not be relied upon as having been authorized by
the Fund or the
distributor. This Prospectus does not constitute an
offer by the Fund or the
distributor to sell or a solicitation of an offer to
buy any of the securities
offered hereby in any jurisdiction to any person to
whom it is unlawful to make
such an 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 the Prospectus. See "Table
of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end,
diversified management investment
company that seeks high current return by investing in
U.S. government
securities. The Fund may write covered call options
and secured put options and
purchase put options on U.S. government securities.
The Fund may purchase and
sell interest rate futures contracts, and purchase and
sell put and call options
on futures contracts, as a means of hedging against
changes in interest rates.
See "Investment Objective and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers
several classes of shares
("Classes") to investors designed to provide them with
the flexibility of
selecting an investment best suited to their needs.
The general public is
offered three Classes of shares: Class A shares, Class
B shares and Class C
shares, which differ principally in terms of the sales
charges and rate of
expenses to which they are subject. A fourth Class of
shares, Class Y shares, is
offered only to investors meeting an initial
investment minimum of $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 4.50% 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 4.50% of redemption proceeds,
declining by 0.50% the first year
after purchase and 1.00% each year thereafter to zero.
This CDSC may be waived
for certain redemptions. Class B shares are subject to
an annual service fee of
0.25% and an annual distribution fee of 0.50% of the
average daily net assets of
the Class. The Class B shares' distribution fee may
cause that Class to have
higher expenses and pay lower dividends than Class A
shares.
Class B Shares Conversion Feature. Class B shares
will convert automatically
to Class A shares, based on relative net asset value,
eight years after the date
of the original purchase. Upon conversion, these
shares will no longer be
subject to an annual distribution fee. In addition, a
certain portion of Class B
shares that have been acquired through the
reinvestment of dividends and
distributions ("Class B Dividend Shares") will be
converted at that time. See
"Purchase of Shares -- Deferred Sales Charge
Alternatives."
3
<PAGE>
- ------------------------------------------------------
- --------------------------
Prospectus Summary (continued)
- ------------------------------------------------------
- --------------------------
Class C Shares. Class C shares are sold at net
asset value with no initial
sales charge. They are subject to an annual service
fee of 0.25% and an annual
distribution fee of 0.45% of the average daily net
assets of the Class, and
investors pay a CDSC of 1.00% if they redeem Class C
shares within 12 months of
purchase. The CDSC may be waived for certain
redemptions. The Class C shares'
distribution fee may cause that Class to have higher
expenses and pay lower
dividends than Class A shares. Purchases of Fund
shares, which when combined
with current holdings of Class C shares of the Fund
equal or exceed $500,000 in
the aggregate, should be made in Class A shares at net
asset value with no sales
charge, and will be subject to a CDSC of 1.00% on
redemptions made within 12
months of purchase.
Class Y Shares. Class Y shares are available only
to investors meeting an
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 consider
the following factors, as well as any other relevant
facts and circumstances:
Intended Holding Period. The decision as to which
Class of shares is more
beneficial to an investor depends on the amount and
intended length 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 investment
alternative, Class B and Class C shares are sold
without any initial sales
charge so the entire purchase price is immediately
invested in the Fund. Any
investment return on these additional invested amounts
may partially or wholly
offset the higher annual expenses of these Classes.
Because the Fund's future
return cannot be predicted, however, there can be no
assurance that this would
be the case.
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 C shares have a
shorter CDSC period than Class B
shares, they do not have a conversion feature, and
therefore, are subject to an
ongoing distribution fee. Thus, Class B shares may be
more attractive than Class
C shares to investors with longer term investment
outlooks.
Reduced or No Initial Sales Charge. The initial
sales charge on Class A
shares may be waived for certain eligible purchasers,
and the entire purchase
price will be immediately invested in the Fund. In
addition, Class A share
purchases of $500,000 or more will be made at net
asset value with no initial
sales charge, but 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
4
<PAGE>
- ------------------------------------------------------
- --------------------------
Prospectus Summary (continued)
- ------------------------------------------------------
- --------------------------
asset value of all Class A shares held in funds
sponsored by Smith Barney Inc.
("Smith Barney") 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 C shares, purchasers eligible to purchase
Class A shares at net
asset value or at a reduced sales charge should
consider doing so.
Smith Barney Financial Consultants may receive
different compensation for
selling different Classes of shares. Investors should
understand that the
purpose of the CDSC on the Class B and Class C shares
is the same as that of the
initial sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the
Company and the Fund" for a
complete description 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. Investors may also be eligible to participate
in the Smith Barney
ExecChoice(TM) Program. Class A and Class C shares are
available without sales
charge as investment alternatives under both of these
Programs. See "Purchase of
Shares -- Smith Barney 401(k) and ExecChoice(TM)
Programs."
Purchase of Shares Shares may be purchased through a
brokerage account
maintained at Smith Barney. Shares may also be
purchased through a broker that
clears securities transactions through Smith Barney on
a fully disclosed basis
(an "Introducing Broker") or an investment dealer in
the selling group. In
addition, certain investors, including qualified
retirement plans and certain
institutional investors, may purchase shares directly
from the Fund through the
Fund's transfer agent, First Data Investor Services
Group, Inc. ("First Data").
Investment Minimums Investors in Class A, Class B and
Class C shares may open an
account by making an initial investment of at least
$1,000 for each account, or
$250 for an individual retirement account ("IRA") or a
Self-Employed 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 C shares and the subsequent
investment
5
<PAGE>
- ------------------------------------------------------
- --------------------------
Prospectus Summary (continued)
- ------------------------------------------------------
- --------------------------
requirement for all Classes 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 The Fund offers
shareholders a Systematic Investment
Plan under which they may authorize the automatic
placement of a purchase order
each month or quarter for Fund shares. The minimum
initial investment
requirement for Class A, Class B and Class C shares
and the subsequent
investment requirement for all Classes for
shareholders purchasing shares
through the Systematic Investment Plan on a monthly
basis is $25 and on a
quarterly basis is $50. See "Purchase of Shares."
Redemption of Shares Shares may be redeemed on each
day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See
"Redemption of Shares."
Management of the Fund Mutual Management Corp. ("MMC")
(formerly known as Smith
Barney Mutual Funds Management Inc.) serves as the
Fund's investment adviser and
administrator. MMC provides investment advisory and
management services to
investment companies affiliated with Smith Barney. MMC
is a wholly owned
subsidiary of Salomon Smith Barney Holdings Inc.
("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 respective
net asset values next determined. See "Exchange
Privilege."
Valuation of Shares Net asset value of the Fund for
the prior day generally is
quoted daily in the financial section of most
newspapers and is also available
from Smith Barney Financial Consultants. See
"Valuation of Shares."
Dividends and Distributions Dividends from net
investment income are declared
monthly. Distributions of net realized long- and
short-term capital gains, if
any, are declared and paid at least annually. See
"Dividends, Distributions and
Taxes."
Reinvestment of Dividends Dividends and distributions
paid on shares of a Class
will be reinvested automatically, unless otherwise
specified by an investor, in
additional shares of the same Class at current net
asset value. Shares
6
<PAGE>
- ------------------------------------------------------
- --------------------------
Prospectus Summary (continued)
- ------------------------------------------------------
- --------------------------
acquired by dividend and distribution reinvestments
will not be subject to any
sales charge or CDSC. Class B shares acquired through
dividend and distribution
reinvestments will become eligible for conversion to
Class A shares on a pro
rata basis. See "Dividends, Distributions and Taxes."
Risk Factors and Special Considerations The Company is
designed for long-term
investors and not for investors who intend to
liquidate their investment after a
short period. Neither the Company as a whole nor any
particular fund in the
Company, including the Fund, constitutes a balanced
investment plan. There can
be no assurance that the Fund will achieve its
investment objective. The value
of the Fund's investments, and hence the net asset
value of Fund shares, will
fluctuate in response to changes in interest rates and
market and economic
conditions. The Fund may enter into interest rate
futures contracts and put and
call options thereon for hedging purposes, which may
be subject to certain risks
in addition to those inherent in investments in the
underlying securities. The
Fund may also employ other investment techniques which
involve certain other
risks, including entering into repurchase agreements
and lending portfolio
securities. See "Investment Objective and Management
Policies -- Additional
Investments."
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
operating expenses for its most
recent fiscal year:
<TABLE>
<CAPTION>
Government Securities Fund
Class A Class B Class C Class Y
- ------------------------------------------------------
- ---------------------------------
<S>
<C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price)
4.50% None None None
Maximum CDSC
(as a percentage of original cost or redemption
proceeds, whichever is lower)
None* 4.50% 1.00% None
- ------------------------------------------------------
- ---------------------------------
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees
0.55% 0.55% 0.55% 0.55%
12b-1 fees**
0.25 0.75 0.70 None
Other expenses
0.12 0.14 0.14 0.03
- ------------------------------------------------------
- ---------------------------------
TOTAL FUND OPERATING EXPENSES
0.92% 1.44% 1.39% 0.58%
======================================================
=================================
</TABLE>
* Purchases of Class A shares of $500,000 or more
will be made at net asset
value with no sales charge, but will be subject
to a CDSC of 1.00% on
redemptions made within 12 months of purchase.
** Upon conversion of Class B shares to Class A
shares, such shares will no
longer be subject to a distribution fee. Class C
shares do not have a
conversion feature and, therefore, are subject
to an ongoing distribution
fee. As a result, long-term shareholders of
Class C shares may pay more
than the economic equivalent of the maximum
front-end sales charge
permitted by the National Association of
Securities Dealers, Inc.
7
<PAGE>
- ------------------------------------------------------
- --------------------------
Prospectus Summary (continued)
- ------------------------------------------------------
- --------------------------
Class A shares of the Fund purchased through the
Smith Barney AssetOne
Program will be subject to an annual asset-based fee,
payable quarterly, in lieu
of the initial sales charge. The fee will vary to a
maximum of 1.50%, depending
on the amount of assets held through the Program. For
more information, please
call your Smith Barney Financial Consultant.
The sales charge and CDSC set forth in the above
table are the maximum
charges imposed on purchases or redemptions of Fund
shares and investors may
actually pay lower or no charges, depending on the
amount purchased and, in the
case of Class B, Class C and certain Class A shares,
the length of time the
shares are held and whether the shares are held
through the Smith Barney 401(k)
and ExecChoice(TM) Programs. See "Purchase of Shares"
and "Redemption of
Shares." Smith Barney receives an annual 12b-1 service
fee of 0.25% of the value
of average daily net assets of Class A shares. Smith
Barney also receives, with
respect to Class B shares, an annual 12b-1 fee of
0.75% of the value of average
daily net assets of that Class, consisting of a 0.50%
distribution fee and a
0.25% service fee. For Class C shares, Smith Barney
receives an annual 12b-1 fee
of 0.70% of the value of average daily net assets of
this Class, consisting of a
0.45% distribution 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."
Government Securities Fund 1 year 3
years 5 years 10 years*
- ------------------------------------------------------
- --------------------------
An investor would pay the following
expenses on a $1,000 investment,
assuming (1) 5.00% annual return and
(2) redemption at the end of each time
period:
Class A $54 $73
$94 $153
Class B 60 76
84 158
Class C 24 42
73 161
Class Y 6 19
32 73
An investor would pay the following
expenses on the same investment,
assuming the same annual return and
no redemption:
Class A 54 73
94 153
Class B 15 46
79 158
Class C 14 42
73 161
Class Y 6 19
32 73
- ------------------------------------------------------
- --------------------------
* Ten-year figures assume conversion of Class B
shares to Class A shares at
the end of the eighth year following the date of
purchase.
8
<PAGE>
- ------------------------------------------------------
- --------------------------
Prospectus Summary (continued)
- ------------------------------------------------------
- --------------------------
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 result in
an actual return greater or less than 5.00%. This
example should not be
considered a representation of past or future expenses
and actual expenses may
be greater or less than those shown.
9
<PAGE>
- ------------------------------------------------------
- --------------------------
Financial Highlights
- ------------------------------------------------------
- --------------------------
The following information for the three-year period
ended December 31, 1997
has been audited by KPMG Peat Marwick LLP, independent
auditors, whose report
thereon appears in the Fund's Annual Report dated
December 31, 1997. The
following information for the fiscal years ended
December 31, 1988 through
December 31, 1994 has been audited by other
independent auditors. The
information set out below should be read in
conjunction with the financial
statements and related notes that also appear in the
Fund's Annual Report, which
is incorporated by reference into the Statement of
Additional Information.
For a share of capital stock outstanding throughout
each year:
<TABLE>
<CAPTION>
Government Securities Fund
Class A Shares 1997
1996 1995(1) 1994 1993(1) 1992(2)
======================================================
=============================================
<S> <C>
<C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $9.34
$9.77 $9.17 $10.01 $9.69 $9.56
- ------------------------------------------------------
- ---------------------------------------------
Income (Loss) From Operations:
Net investment income (3) 0.59
0.61 0.67 0.52 0.81 0.10
Net realized and unrealized gain (loss) 0.42
(0.44) 0.62 (0.80) 0.23 0.13
- ------------------------------------------------------
- ---------------------------------------------
Total Income (Loss) From Operations 1.01
0.17 1.29 (0.28) 1.04 0.23
- ------------------------------------------------------
- ---------------------------------------------
Less Distributions From:
Net investment income (0.60)
(0.59) (0.69) (0.49) (0.72) (0.08)
Capital --
(0.01) -- (0.07) -- (0.02)
- ------------------------------------------------------
- ---------------------------------------------
Total Distributions (0.60)
(0.60) (0.69) (0.56) (0.72) (0.10)
- ------------------------------------------------------
- ---------------------------------------------
Net Asset Value, End of Year $9.75
$9.34 $9.77 $9.17 $10.01 $9.69
- ------------------------------------------------------
- ---------------------------------------------
Total Return 11.23%
1.96% 14.50% (2.76)% 10.87% 2.41%++
- ------------------------------------------------------
- ---------------------------------------------
Net Assets, End of Year (millions) $ 361 $
389 $ 453 $ 482 $ 7 $ 0.3
- ------------------------------------------------------
- ---------------------------------------------
Ratios to Average Net Assets:
Expenses (3) (4) 0.92%
0.93% 0.94% 1.00% 0.92% 0.68%+
Net investment income 6.24
6.16 6.70 6.18 7.76 6.24+
- ------------------------------------------------------
- ---------------------------------------------
Portfolio Turnover Rate 274%
.420% 294% 276% 540% 426%
======================================================
=============================================
</TABLE>
(1) Per share amounts have been calculated using the
monthly average shares
method, rather than the undistributed net
investment income method,
because it more accurately reflects the per
share data for the period.
(2) For the period from November 6, 1992 (inception
date) to December 31,
1992.
(3) The investment adviser waived a portion of its
fees for the year ended
December 31, 1993. If such fees had not been
waived, the per share
decrease of net investment income would have
been $0.10 and the expense
ratio would have been 1.12%.
(4) For the years ended December 31, 1994 and
December 31, 1993 and the period
ended December 31, 1992, the expense ratios were
calculated excluding
interest expense. The expense ratios including
interest expense were
1.26%, 1.07% and 1.01% (annualized),
respectively.
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
10 & 11
<PAGE>
- ------------------------------------------------------
- --------------------------
Financial Highlights (continued)
- ------------------------------------------------------
- --------------------------
For a share of capital stock outstanding throughout
each year:
<TABLE>
<CAPTION>
Government Securities Fund
Class B Shares 1997 1996
1995(1) 1994 1993(1) 1992 1991 1990
1989 1988
======================================================
======================================================
======================
<S> <C> <C>
<C> <C> <C> <C> <C> <C>
<C> <C>
Net Asset Value, Beginning of Year $ 9.38 $9.81
$9.17 $10.01 $9.68 $9.81 $9.11 $9.25
$8.75 $8.90
- ------------------------------------------------------
- ------------------------------------------------------
- ----------------------
Income (Loss) From Operations:
Net investment income (2) 0.54 0.56
0.59 0.46 0.73 0.53 0.70 0.68
0.70 0.75
Net realized and unrealized
gain (loss) 0.44 (0.44)
0.65 (0.78) 0.27 (0.02) 0.71 (0.08)
0.53 (0.16)
- ------------------------------------------------------
- ------------------------------------------------------
- ----------------------
Total Income (Loss) From Operations 0.98 0.12
1.24 (0.32) 1.00 0.51 1.41 0.60
1.23 0.59
- ------------------------------------------------------
- ------------------------------------------------------
- ----------------------
Less Distributions From:
Net investment income (0.57) (0.54)
(0.60) (0.45) (0.67) (0.53) (0.63)
(0.68) (0.70) (0.74)
Capital -- (0.01)
- -- (0.07) -- (0.11) (0.08) (0.06)
(0.03) --
- ------------------------------------------------------
- ------------------------------------------------------
- ----------------------
Total Distributions (0.57) (0.55)
(0.60) (0.52) (0.67) (0.64) (0.71)
(0.74) (0.73) (0.74)
- ------------------------------------------------------
- ------------------------------------------------------
- ----------------------
Net Asset Value, End of Year $ 9.79 $9.38
$9.81 $9.17 $10.01 $9.68 $9.81 $9.11
$9.25 $8.75
- ------------------------------------------------------
- ------------------------------------------------------
- ----------------------
Total Return 10.82% 1.42%
13.87% (3.25)% 10.45% 5.45% 16.28%
6.99% 14.58% 6.75%
- ------------------------------------------------------
- ------------------------------------------------------
- ----------------------
Net Assets, End of Year (millions) $101,273 $ 122
$ 158 $ 173 $ 851 $1,047 $1,286
$1,521 $2,002 $2,736
- ------------------------------------------------------
- ------------------------------------------------------
- ----------------------
Ratios to Average Net Assets:
Expenses (2) (3) 1.44% 1.45%
1.45% 1.48% 1.40% 1.45% 1.40% 1.43%
1.40% 1.34%
Net investment income 5.73 5.64
6.19 5.69 7.28 5.47 6.80 7.60
7.79 8.00
- ------------------------------------------------------
- ------------------------------------------------------
- ----------------------
Portfolio Turnover Rate 274% 420%
.294% .276% 540% 426% 326% 274%
352% 281%
======================================================
======================================================
======================
</TABLE>
(1) Per share amounts have been calculated using the
monthly average shares
method, rather than the undistributed net
investment income method,
because it more accurately reflects the per
share data for the period.
(2) The investment adviser waived a portion of its
fees for the year ended
December 31, 1993. If such fees had not been
waived, the per share
decrease of net investment income would have
been $0.01 and the expense
ratio would have been 1.61%.
(3) For the years ended December 31, 1994 and
December 31, 1993, the expense
ratios were calculated excluding interest
expense. The expense ratios
including interest expense would have been 1.74%
and 1.55%, respectively.
12 & 13
<PAGE>
- ------------------------------------------------------
- --------------------------
Financial Highlights (continued)
- ------------------------------------------------------
- --------------------------
For a share of capital stock outstanding throughout
each year:
<TABLE>
<CAPTION>
Government Securities Fund
Class C Shares 1997
1996 1995(1) 1994 1993(1)(2)
======================================================
==================================
<S> <C>
<C> <C> <C> <C>
Net Asset Value, Beginning of Year $9.38
$9.81 $9.17 $10.01 $9.90
- ------------------------------------------------------
- ----------------------------------
Income (Loss) From Operations:
Net investment income (3) 0.54
0.57 0.60 0.49 0.68
Net realized and unrealized gain (loss) 0.43
(0.44) 0.65 (0.81) 0.04
- ------------------------------------------------------
- ----------------------------------
Total Income (Loss) From Operations 0.97
0.13 1.25 (0.32) 0.72
- ------------------------------------------------------
- ----------------------------------
Less Distributions From:
Net investment income (0.57)
(0.55) (0.61) (0.45) (0.61)
Capital --
(0.01) -- (0.07) --
- ------------------------------------------------------
- ----------------------------------
Total Distributions (0.57)
(0.56) (0.61) (0.52) (0.61)
- ------------------------------------------------------
- ----------------------------------
Net Asset Value, End of Year $9.78
$9.38 $9.81 $9.17 $10.01
- ------------------------------------------------------
- ----------------------------------
Total Return 10.75%
1.47% 13.93% (3.25)% 7.36%++
- ------------------------------------------------------
- ----------------------------------
Net Assets, End of Year (000s) $2,311
$1,443 $1,039 $ 646 $ 213
- ------------------------------------------------------
- ----------------------------------
Ratios to Average Net Assets:
Expenses (3) (4) 1.39%
1.38% 1.37% 1.47% 1.40%+
Net investment income 5.70
5.71 6.27 5.71 7.28+
- ------------------------------------------------------
- ----------------------------------
Portfolio Turnover Rate 274%
420% .294% .276% 540%
======================================================
==================================
</TABLE>
(1) Per share amounts have been calculated using the
monthly average shares
method, rather than the undistributed net
investment income method,
because it more accurately reflects the per
share data for the period.
(2) For the period from February 4, 1993 (inception
date) to December 31,
1993.
(3) The investment adviser waived a portion of its
fees for the year ended
December 31, 1993. If such fees had not been
waived, the per share
decrease of net investment income would have
been $0.13 and the expense
ratio would have been 1.61% (annualized).
(4) For the year ended December 31, 1994 and the
period ended December 31,
1993, the expense ratios were calculated
excluding interest expense. The
expense ratios including interest expense would
have been 1.72% and 1.55%
(annualized), respectively.
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
14 & 15
<PAGE>
- ------------------------------------------------------
- --------------------------
Financial Highlights (continued)
- ------------------------------------------------------
- --------------------------
For a share of capital stock outstanding throughout
each year:
Government Securities Fund
Class Y Shares
1997 1996(1)
======================================================
==========================
Net Asset Value, Beginning of Year
$ 9.34 $ 9.71
- ------------------------------------------------------
- --------------------------
Income From Operations:
Net investment income
0.61 0.57
Net realized and unrealized gain (loss)
0.44 (0.37)
- ------------------------------------------------------
- --------------------------
Total Income From Operations
1.05 0.20
- ------------------------------------------------------
- --------------------------
Less Distributions From:
Net investment income
(0.63) (0.56)
Capital
- -- (0.01)
- ------------------------------------------------------
- --------------------------
Total Distributions
(0.63) (0.57)
- ------------------------------------------------------
- --------------------------
Net Asset Value, End of Year
$ 9.76 $ 9.34
- ------------------------------------------------------
- --------------------------
Total Return
11.73% 2.30%++
- ------------------------------------------------------
- --------------------------
Net Assets, End of Year (000s)
$109,909 $39,667
- ------------------------------------------------------
- --------------------------
Ratios to Average Net Assets:
Expenses
0.58% 0.44%+
Net investment income
6.46 6.49+
- ------------------------------------------------------
- --------------------------
Portfolio Turnover Rate
274% 420%
======================================================
==========================
(1) For the period from February 7, 1996 (inception
date) to December 31,
1996.
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
16
<PAGE>
- ------------------------------------------------------
- --------------------------
Investment Objective and Management Policies
- ------------------------------------------------------
- --------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is high
current return. The Fund's
investment objective may not be changed without the
"vote of a majority of the
outstanding voting securities" as defined in the
Investment Company Act of 1940
(the "1940 Act") shareholders of the Fund. There can
be no assurance that the
Fund will achieve its investment objective.
The Fund seeks to achieve its investment objective
by investing primarily in
U.S. government securities. U.S. government securities
are obligations of, or
are guaranteed by, the U.S. government, its agencies
or instrumentalities. These
include bills, certificates of indebtedness, and notes
and bonds issued by the
United States Treasury or by agencies or
instrumentalities of the United States
government. Some United States government securities,
such as Treasury bills and
bonds, are supported by the full faith and credit of
the United States Treasury;
others are supported by the right of the issuer to
borrow from the United States
Treasury; others, such as those of the Federal
National Mortgage Association,
are supported by the discretionary authority of the
United States government to
purchase the agency's obligations; still others, such
as those of the Student
Loan Marketing Association and the Federal Home Loan
Mortgage Corporation
("FHLMC"), are supported only by the credit of the
instrumentality. Mortgage
participation certificates issued by the FHLMC
generally represent ownership
interests in a pool of fixed-rate conventional
mortgages. Timely payment of
principal and interest on these certificates is
guaranteed solely by the issuer
of the certificates. Other investments of the Fund
will include Government
National Mortgage Association Certificates ("GNMA
Certificates") which are
mortgage-backed securities representing part ownership
of a pool of mortgage
loans on which timely payment of interest and
principal is guaranteed by the
full faith and credit of the United States government.
While the United States
government guarantees the payment of principal and
interest on GNMA
Certificates, the market value of the securities is
not guaranteed and will
fluctuate. The Fund may write covered call options and
secured put options and
purchase put options on U.S. government securities.
The Fund also purchases and
sells interest rate futures contracts, and purchases
and sells put and call
options on futures contracts, as a means of hedging
against changes in interest
rates. The Fund may also invest in real estate
investment trusts and purchase
the securities of companies with less than three years
of continuous operation.
The Fund may invest up to 5% of its net assets in
U.S. government securities
for which the principal repayment at maturity, while
paid in U.S. dollars, is
determined by reference to the exchange rate between
the U.S. dollar and the
currency of one or more foreign countries ("Exchange
Rate-Related Securities").
The interest payable on these securities is
denominated in U.S. dollars, is not
subject to foreign currency risk and, in most cases,
is paid at rates higher
than most other U.S. government securities in
recognition of the foreign
currency risk component of Exchange Rate-Related
Securities.
17
<PAGE>
- ------------------------------------------------------
- --------------------------
Investment Objective and Management Policies
(continued)
- ------------------------------------------------------
- --------------------------
The Fund may borrow money (up to 25% of its total
assets) to increase its
investments, thereby leveraging its portfolio and
exaggerating the effect on net
asset value of any increase or decrease in the market
value of the Fund's
securities. See "Leverage through Borrowing." The Fund
may enter into repurchase
agreements, reverse repurchase agreements and firm
commitment agreements and
"short sales against the box" and may lend its
portfolio securities. The total
of the Fund's direct borrowing and borrowings in
connection with entering into
reverse repurchase agreements will not exceed 33 1/3%
of the Fund's total
assets. Except when in a temporary defensive
investment position, the Fund
intends to maintain at least 65% of its assets
invested in U.S. government
securities (including futures contracts and options
thereon and options relating
to U.S. government securities).
The Fund's distributions may consist of interest
income from U.S. government
securities, premiums from expired put and call options
written by the Fund, net
gains from closing purchase and sale transactions in
options, futures contracts
or related options, and net gains from sales of
portfolio securities pursuant to
options or otherwise. The investments of the Fund
involve certain special risks
set forth in the description of those techniques in
this Prospectus and in the
Statement of Additional Information.
The value of securities in which the Fund invests
(and therefore the Fund's
net asset value per share) generally will vary
inversely with changes in
interest rates and also will fluctuate in response to
other factors.
In making purchases of securities consistent with
the above policies, the
Fund will be subject to the applicable restrictions
referred to under
"Investment Restrictions" in the Statement of
Additional Information.
ADDITIONAL INVESTMENTS
Repurchase Agreements. The Fund may enter into
repurchase agreement
transactions on U.S. government securities with banks
which are the issuers of
instruments acceptable for purchase by the Fund and
with certain dealers on the
Federal Reserve Bank of New York's list of reporting
dealers. Under the terms of
a typical repurchase agreement, the Fund would acquire
an underlying debt
obligation for a relatively short period (usually not
more than one week),
subject to an obligation of the seller to repurchase,
and the Fund to resell,
the obligation at an agreed-upon price and time,
thereby determining the yield
during the Fund's holding period. This arrangement
results in a fixed rate of
return that is not subject to market fluctuations
during the Fund's holding
period. The value of the underlying securities will be
at least equal at all
times to the total amount of the repurchase
obligation, including interest. The
Fund bears a risk of loss in the event that the other
party to a repurchase
agreement defaults on its obligations and the Fund is
delayed or prevented from
exercising its rights to dispose of the collateral
securities, including the
risk of a possible decline in the value of the
underlying securities during the
period while the Fund seeks to assert its rights to
them, the
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Investment Objective and Management Policies
(continued)
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risk of incurring expenses associated with asserting
those rights and the risk
of losing all or part of the income from the
agreement. MMC, acting under the
supervision of the Board of Directors, reviews on an
ongoing basis the
creditworthiness and the value of the collateral of
those banks and dealers with
which the Fund enters into repurchase agreements to
evaluate potential risks.
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 (but not banks). The Fund 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 (the "1940 Act"), reverse
repurchase agreements may be
considered borrowings by the seller; accordingly, the
Fund will limit its
investments in reverse repurchase agreements and other
borrowings to no more
than 33 1/3% of its total assets.
Zero Coupon Securities. The Fund may also invest in
zero coupon bonds. A zero
coupon bond pays no interest in cash to its holder
during its life, although
interest is accrued during that period. Its value to
an investor consists of the
difference between its face value at the time of
maturity and the price for
which it was acquired, which is generally an amount
significantly less than its
face value (sometimes referred to as a "deep discount"
price). Because such
securities usually trade at a deep discount, they will
be subject to greater
fluctuations of market value in response to changing
interest rates than debt
obligations of comparable maturities which make
periodic distributions of
interest. On the other hand, because there are no
periodic interest payments to
be reinvested prior to maturity, zero coupon
securities eliminate reinvestment
risk and lock in a rate of return to maturity.
Dollar Roll Transactions. The fund may enter into
"dollar rolls," in which
the Fund sells fixed income securities and
simultaneously contracts to
repurchase substantially similar (same type, coupon
and maturity) securities on
a specified future date. During this "roll" period,
the Fund would forego
principal and interest paid on such securities. The
Fund would be compensated by
the difference between the current sales price and the
forward price for the
future purchase, as well as by the interest earned on
the cash proceeds of the
initial sale. Since the Fund will receive interest on
the securities in which it
invests the transaction proceeds, such transactions
may involve leverage.
However, since the proceeds will be invested only in
U.S. Treasury obligations
and since the Fund will enter into dollar roll
transactions only with dealers of
sufficient creditworthiness in the judgement of the
Fund's investment adviser,
such transactions do not present the risks to the Fund
that are associated with
other types of leverage. Dollar roll transactions are
considered borrowings by
the Fund and will be subject to the Fund's overall
borrowing limitation.
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Investment Objective and Management Policies
(continued)
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Firm Commitment Agreements and When-Issued
Purchases. Firm commitment
agreements and when-issued purchases call for the
purchase of securities at an
agreed-upon price on a specified future date, and
would be used, for example,
when a decline in the yield of securities of a given
issuer is anticipated. The
Fund as purchaser assumes the risk of any decline in
value of the security
beginning on the date of the agreement or purchase.
The Fund will not use such
transactions for leveraging purposes, and accordingly
will segregate U.S.
government securities, cash or cash equivalents in an
amount sufficient to meet
its purchase obligations under the agreement.
Loans of Portfolio Securities. Consistent with
applicable regulatory
requirements, the Fund is authorized to lend
securities it holds to broker
dealers and other financial organizations provided:
(a) the loan is secured
continuously by collateral consisting of U.S.
government securities, cash or
cash equivalents maintained on a daily marked-to-
market basis in an amount at
least equal to the current market value of the
securities loaned; (b) the Fund
may at any time call the loan and obtain the return of
the securities loaned;
(c) the Fund will receive any interest or dividends
paid on the loaned
securities. The risks in lending portfolio securities,
as with other extensions
of secured credit, consists of possible delays in
receiving additional
collateral or in the recovery of the securities or
possible loss of rights in
the collateral should the borrower fail financially.
Loans will be made to firms
deemed by MMC to be in good standing and will not be
made unless, in the
judgement of MMC, the considerations to be earned from
such loans would justify
the risk.
Short Sales. The Fund may sell securities short
"against the box." While a
short sale is the sale of a security the Fund does not
own, it is "against the
box" if at all times when the short position is open,
the Fund owns an equal
amount of the securities or securities convertible
into, or exchangeable without
further consideration for, securities of the same
issue as the securities sold
short. Short sales "against the box" are used to defer
recognition of capital
gains or losses.
Options Activities. The Fund may write (i.e., sell)
call options ("calls") if
the calls are "covered" throughout the life of the
option. A call is "covered"
if the Fund owns the optioned securities, if the Fund
maintains in a segregated
account with the Company's custodian cash, cash
equivalents or U.S. government
securities with a value sufficient to meet its
obligations under the call, or if
the Fund owns an offsetting call option. When the Fund
writes a call, it
receives a premium and gives the purchaser the right
to buy the underlying
security at any time during the call period (usually
not more than nine months
in the case of common stock or fifteen months in the
case of U.S. government
securities) at a fixed exercise price regardless of
market price changes during
the call period. If the call is exercised, the Fund
foregoes any gain from an
increase in the market price of the underlying
security over the exercise price.
The Fund may purchase call options on securities.
However, the Fund may only
purchase a call on securities to effect a "closing
purchase transaction," which
is the purchase of a call covering the same underlying
security and having the
same exercise price and expiration date as a call
previously
20
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Investment Objective and Management Policies
(continued)
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- --------------------------
written by the Fund on which it wishes to terminate
its obligation.
The Fund also may write and purchase put options
("puts"). When the Fund
writes a put, it receives a premium and gives the
purchaser of the put the right
to sell the underlying security to the Fund at the
exercise price at any time
during the option period. When the Fund purchases a
put, it pays a premium in
return for the right to sell the underlying security
at the exercise price at
any time during the option period. If any put is not
exercised or sold, it will
become worthless on its expiration date. The Fund will
not purchase puts on
securities if more than 10% of its net assets would be
invested in premiums on
puts.
The Fund may write puts on securities only if they
are "secured." A put is
"secured" if the Fund maintains cash, cash equivalents
or U.S. government
securities with a value equal to the exercise price in
a segregated account or
holds a put on the same underlying security at an
equal or greater exercise
price. The aggregate value of the obligations
underlying puts written by the
Fund will not exceed 50% of its net assets. The Fund
also writes "straddles,"
which are combinations of secured puts and covered
calls on the same underlying
security.
The Fund will realize a gain (or loss) on a closing
purchase transaction with
respect to a call or put previously written by the
Fund if the premium, plus
commission costs, paid to purchase the call or put is
less (or greater) than the
premium, less commission costs, received on the sale
of the call or put. A gain
also will be realized if a call or put which the Fund
has written lapses
unexercised, because the Fund would retain the
premium. See "Dividends,
Distributions and Taxes."
There can be no assurance that a liquid secondary
market will exist at a
given time for any particular option. In this regard,
it is difficult to predict
to what extent liquid markets will develop or
continue. See below for a
discussion of the purchase by the Fund of options on
futures contracts. See the
Statement of Additional Information for further
discussion of risks involved in
options trading, and particular risks applicable to
options trading on U.S.
government securities, including risks involved in
options trading on GNMA
Certificates.
Swap Agreements. As one way of managing its
exposure to different types of
investments, the Fund may enter into interest rate
swaps, currency swaps, and
other types of swap agreements such as caps, collars,
and floors. In a typical
interest rate swap, one party agrees to make regular
payments equal to a
floating interest rate times a "notional principal
amount," in return for
payments equal to a fixed rate times the same amount
for a specified period of
time. If a swap agreement provides for payments in
different currencies, the
parties might agree to exchange the notional principal
amount as well. Swaps may
also depend on other prices or rates, such as the
value of an index or mortgage
prepayment rates.
Swap agreements are sophisticated hedging
instruments that typically involve
a small investment of cash relative to the magnitude
of risks assumed. As a
result, swaps can be highly volatile and may have a
considerable impact on the
Fund's performance. Swap agreements are subject to
risks related to the
counterparty's
21
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Investment Objective and Management Policies
(continued)
- ------------------------------------------------------
- --------------------------
ability to perform, and may decline in value if the
counterparty's
creditworthiness deteriorates. The Fund may also
suffer losses if it is unable
to terminate outstanding swap agreements or reduce its
exposure through
offsetting transactions.
Interest Rate Futures Contracts. The Fund may
purchase and sell interest rate
futures contracts ("futures contracts") as a hedge
against changes in interest
rates. A futures contract is an agreement between two
parties to buy and sell a
security for a set price on a future date. Futures
contracts are traded on
designated "contracts markets" which, through their
clearing corporations,
guarantee performance of the contracts. Currently,
there are futures contracts
based on securities such as long-term Treasury bonds,
Treasury notes, GNMA
Certificates and three-month Treasury bills.
Generally, if market interest rates increase, the
value of outstanding debt
securities declines (and vice versa). Entering into a
futures contract for the
sale of securities has an effect similar to the actual
sale of securities,
although the sale of the futures contract might be
accomplished more easily and
quickly. For example, if the Fund holds long-term U.S.
government securities and
MMC anticipates a rise in long-term interest rates, it
could, in lieu of
disposing of its portfolio securities, enter into
futures contracts for the sale
of similar long-term securities. If interest rates
increased and the value of
the Fund's securities declined, the value of the
Fund's futures contracts would
increase, thereby protecting the Fund by preventing
the net asset value from
declining as much as it otherwise would have.
Similarly, entering into futures
contracts for the purchase of securities has an effect
similar to actual
purchase of the underlying securities, but permits the
continued holding of
securities other than the underlying securities. For
example, if MMC expects
long-term interest rates to decline, the Fund might
enter into futures contracts
for the purchase of long-term securities, so that it
could gain rapid market
exposure that may offset anticipated increases in the
cost of securities it
intends to purchase, while continuing to hold higher-
yielding short-term
securities or waiting for the long-term market to
stabilize.
The Fund also may purchase and sell listed put and
call options on futures
contracts. An option on a futures contract gives the
purchaser the right, in
return for the premium paid, to assume a position in a
futures contract (a long
position if the option is a call and a short position
if the option is a put),
at a specified exercise price at any time during the
option period. When an
option on a futures contract is exercised, delivery of
the futures position is
accompanied by cash representing the difference
between the current market price
of the futures contract and the exercise price of the
option. The Fund may
purchase put options on interest rate futures
contracts in lieu of, and for the
same purpose as, the sale of a futures contract. It
also may purchase such put
options in order to hedge a long position in the
underlying futures contract in
the same manner as it purchases "protective puts" on
securities. The purchase of
call options on interest rate futures contracts is
intended to serve the same
purpose as the actual purchase of the futures
contract, and the Fund will set
aside cash or cash equivalents sufficient to purchase
the
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Investment Objective and Management Policies
(continued)
- ------------------------------------------------------
- --------------------------
amount of portfolio securities represented by the
underlying futures contracts.
See "Options Activities" and "Dividends, Distributions
and Taxes."
The Fund may not purchase futures contracts or
related options if,
immediately thereafter, more than 30% of the Fund's
total assets would be so
invested. In purchasing and selling futures contracts
and related options, the
Fund will comply with rules and interpretations of the
Commodity Futures Trading
Commission ("CFTC"), under which the Company is
excluded from regulation as a
"commodity pool." CFTC regulations permit use of
commodity futures and options
for bona fide hedging purposes without limitation on
the amount of assets
committed to margin and option premiums.
The Fund will not engage in transactions involving
futures contracts or
related options for speculation but only as a hedge
against changes in the
market values of debt securities held, or intended to
be purchased, by the Fund
and where the transactions are appropriate to
reduction of the Fund's risks. The
Fund's futures transactions will be entered into for
traditional hedging
purposes -- that is, futures contracts will be sold
(or related put options
purchased) to protect against a decline in the price
of securities that the Fund
owns, or futures contracts (or related call options)
will be purchased to
protect the Fund against an increase in the price of
securities it is committed
to purchase.
There is no assurance that the Fund will be able to
close out its futures
positions at any time, in which case it would be
required to maintain the margin
deposits on the contract. There can be no assurance
that hedging transactions
will be successful, as there may be an imperfect
correlation (or no correlation)
between movements in the prices of the futures
contracts and of the debt
securities being hedged, or price distortions due to
market conditions in the
futures markets. Where futures contracts are purchased
to hedge against an
increase in the price of long-term securities, but the
long-term market declines
and the Fund does not invest in long-term securities,
the Fund would realize a
loss on the futures contracts, which would not be
offset by a reduction in the
price of securities purchased. Where futures contracts
are sold to hedge against
a decline in the price of the Fund's long-term
securities but the long-term
market advances, the Fund would lose part or all of
the benefit of the advance
due to offsetting losses in its futures positions.
Foreign Currency Risks. The Fund has the ability to
invest up to 5% of its
net assets in U.S. government securities where the
principal repayment amount
may be increased or decreased due to fluctuations of
foreign currency exchange
rates.
Leverage through Borrowing. The Fund may borrow up
to 25% of the value of its
net assets on an unsecured basis from banks to
increase its holdings of
portfolio securities or to acquire securities to be
placed in a segregated
account with the custodian for various purposes (e.g.
to secure puts written by
the Fund). The Fund is required to maintain continuous
asset coverage of 300%
with respect to such borrowings, and to sell (within
three days) sufficient
portfolio holdings to restore
23
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Investment Objective and Management Policies
(continued)
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- --------------------------
such coverage, if it should decline to less than 300%
due to market fluctuations
or otherwise, even if it is disadvantageous from an
investment standpoint.
Leveraging will exaggerate the effect of any increase
or decrease in the value
of portfolio securities on the Fund's net asset value,
and money borrowed will
be subject to interest costs (which may include
commitment fees and/or the cost
of maintaining minimum average balances) which may or
may not exceed the
interest and option premiums received from the
securities purchased with
borrowed funds.
American Depositary Receipts. The Fund may purchase
foreign securities and
American Depositary Receipts ("ADRs"), which are
dollar-denominated receipts
issued generally by domestic banks and representing
the deposit with the bank of
a security of a foreign issuer. ADRs are publicly
traded on exchanges or
over-the-counter in the United States.
Year 2000. The investment management services
provided to the Fund by MMC and
the services provided to shareholders by Smith Barney,
the Fund's Distributor,
depend on the smooth functioning of their computer
systems. Many computer
software systems 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. MMC
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, MMC has been
advised by the Fund's
custodian, transfer agent and accounting service agent
that they are also in the
process of modifying their systems with the same goal.
There can, however, be no
assurance that MMC, Smith Barney or any other service
provider will be
successful, or that interaction with other non-
complying computer systems will
not impair Fund services at that time.
PORTFOLIO TRANSACTIONS AND TURNOVER
MMC arranges for the purchase and sale of the
Fund's securities and selects
brokers and dealers (including Smith Barney) which, in
its best judgment,
provide prompt and reliable execution at favorable
prices and reasonable
commission rates. MMC may select brokers and dealers
which provide it with
research services and may cause the Fund to pay such
brokers and dealers
commissions which exceed those other brokers and
dealers may have charged, if it
views the commissions as reasonable in relation to the
value of the brokerage
and/or research services.
The Fund may experience high portfolio turnover as
a result of its investment
strategies. Short-term gains realized from portfolio
transactions are taxable to
shareholders as ordinary income. While the Fund does
not intend to engage in
short-term trading, it will not consider portfolio
turnover rate a limiting
factor in making investment decisions consistent with
its respective objectives
and policies.
24
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Investment Objective and Management Policies
(continued)
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- --------------------------
For reporting purposes, the Fund's portfolio
turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio
securities for the fiscal
year by the monthly average of the value of the Fund's
securities, with money
market instruments with less than one year to maturity
excluded. A 100%
portfolio turnover rate would occur, for example, if
all included securities
were replaced once during the year. The Fund's
portfolio turnover rates for each
of the past fiscal years are set forth under
"Financial Highlights."
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Valuation of Shares
- ------------------------------------------------------
- --------------------------
The Fund's net asset value per share is determined
as of the close of regular
trading on the NYSE on each day that the NYSE is open,
by dividing the value of
the Fund's net assets attributable to each Class by
the total number of shares
of the Class outstanding.
Securities listed on an exchange are valued on the
basis of the last sale
prior to the time the valuation is made. If there has
been no sale since the
immediately previous valuation, then the current bid
price is used. Quotations
are taken from the exchange where the security is
primarily traded. United
States over-the-counter securities are valued on the
basis of the bid price at
the close of business on each day. Securities for
which market quotations are
not readily available are valued at fair value as
determined in good faith by or
under the direction of the Board of Directors.
Notwithstanding the above, bonds
and other fixed-income securities are valued by using
market quotations and may
be valued on the basis of prices provided by a pricing
service approved by the
Board of Directors.
When the Fund writes a put or call option, it
records the premium received as
an asset and equivalent liability, and thereafter
adjusts the liability to the
market value of the option determined in accordance
with the preceding
paragraph. The premium paid for an option purchased by
the Fund is recorded as
an asset and subsequently adjusted to market value.
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Dividends, Distributions and Taxes
- ------------------------------------------------------
- --------------------------
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to declare and pay monthly
dividends from its net
investment income. Dividends from net realized capital
gains, if any, will be
distributed 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 automatically reinvested in
additional same Class shares
at the appropriate net asset value, with
25
<PAGE>
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Dividends, Distributions and Taxes (continued)
- ------------------------------------------------------
- --------------------------
no additional sales charge or CDSC.
The per share amounts of dividends from net
investment income on Classes B
and C may be lower than that of Classes A and Y,
mainly as a result of the
distribution fees applicable to Class B and C 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, C and Y).
TAXES
The following is a summary of the material federal
tax considerations
affecting the Fund and Fund shareholders, please refer
to the SAI for further
discussion. In addition to the considerations
described below and in the SAI,
there may be other federal, state, local, and/or
foreign tax applications to
consider. 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 intends to qualify, as it has in prior
years, 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, so long as
such qualification is in the best interests of its
shareholders, 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
securities 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
dividends 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
disposition. 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.
26
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Dividends, Distributions and Taxes (continued)
- ------------------------------------------------------
- --------------------------
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
shareholders who do not provide the Fund with a
correct taxpayer identification
number (social security 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 withholding does not constitute
an additional tax, and may
be claimed as a credit on the shareholders' federal
income tax return.
- ------------------------------------------------------
- --------------------------
Purchase of Shares
- ------------------------------------------------------
- --------------------------
GENERAL
The Fund offers four Classes of shares. Class A
shares are sold to investors
with an initial sales charge and Class B and Class C
shares are sold without an
initial sales charge but are subject to a CDSC payable
upon certain redemptions.
Class Y shares are sold without an initial sales
charge or CDSC and are
available only to investors 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.
Purchases of Fund shares must be made through a
brokerage account maintained
with Smith Barney, an Introducing Broker or an
investment dealer in the selling
group. In addition, certain investors, including
qualified retirement plans and
certain other institutional investors, may purchase
shares directly through
First Data. When purchasing shares of the Fund,
investors must specify whether
the purchase is for Class A, Class B, Class C or Class
Y shares. Smith Barney
and other broker/dealers may charge their customers an
annual account
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 C shares
may open an account by
making 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 participants in
retirement plans qualified under Section 403(b)(7) or
Section 401(a) of the
Code, the minimum initial investment requirement for
Class A, Class B and Class
C shares and the subsequent investment requirement for
all Classes in the Fund
is $25. For shareholders purchasing shares of the Fund
through the Systematic
Investment Plan
27
<PAGE>
- ------------------------------------------------------
- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
on a monthly basis, the minimum initial investment
requirement for Class A,
Class B and Class C shares and the subsequent
investment requirement for all
Classes is $25. For shareholders purchasing shares of
the Fund through the
Systematic Investment Plan on a quarterly basis, the
minimum initial investment
requirement for Class A, Class B and Class C shares
and the subsequent
investment requirement for all Classes is $50. There
are no minimum investment
requirements for Class A shares for employees of
Travelers and its subsidiaries,
including Smith Barney, Directors or Trustees of any
of the Smith Barney Mutual
Funds or other funds affiliated with Travelers and
their spouses and children.
The Fund reserves the right to waive or change
minimums, to decline any order to
purchase its shares and to suspend the offering of
shares from time to time.
Shares purchased will be held in the shareholder's
account by First Data. Share
certificates are issued only upon a shareholder's
written request to First Data.
Purchase orders received by the Fund or Smith
Barney prior to the close of
regular trading on the NYSE, on any day the Fund
calculates its net asset 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 after the trade date. In all other cases,
payment 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 First Data
is authorized through
preauthorized transfers of at least $25 on a monthly
basis or at least $50 on a
quarterly basis to charge the regular bank account or
other financial
institution indicated by the shareholder to provide
systematic additions to the
shareholder's Fund account. A shareholder who has
insufficient funds to complete
the transfer will be charged a fee of up to $25 by
Smith Barney or First Data.
The 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.
28
<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:
Sales
Sales Dealer's
Charge as % Charge
as % Reallowance as %
Amount of Investment of Offering Price of Amount
Invested of Offering Price
- ------------------------------------------------------
- --------------------------
Less than $25,000 4.50%
4.71% 4.05%
$25,000 - $49,999 4.00%
4.17% 3.60%
$50,000 - $99,999 3.50%
3.63% 3.15%
$100,000 - $249,999 2.50%
2.56% 2.25%
$250,000 - $499,999 1.50%
1.52% 1.35%
$500,000 and over * *
*
- ------------------------------------------------------
- --------------------------
* Purchases of Class A shares of $500,000 or more
will be made at net asset
value without any initial sales charge, but will
be subject to a CDSC of
1.00% on redemptions made within 12 months of
purchase. The CDSC on Class
A shares is payable to Smith Barney, which
compensates Smith Barney
Financial Consultants and other dealers whose
clients make purchases of
$500,000 or more. The CDSC is waived in the same
circumstances in which
the CDSC applicable to Class B and Class C
shares is waived. See "Deferred
Sales Charge Alternatives" and "Waivers of
CDSC."
Members of the selling group may receive up to 90%
of the sales charge and
may be deemed to be underwriters of the Fund as
defined in the Securities Act 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 any of
the Smith Barney Mutual
Funds or other Travelers-affiliated funds (including
retired Board Members and
employees); the immediate families of such persons
(including the surviving
spouse of a deceased Board Member or employee); and to
a pension, profit-sharing
or other benefit plan for such persons and (ii)
employees of members of the
National Association of Securities Dealers, Inc.,
provided such sales are made
upon the assurance of the purchaser that the purchase
is made for investment
purposes and that the securities will not be resold
except through redemption or
repurchase; (b) offers of Class A shares to any other
investment company to
effect the combination of such company with the Fund
by merger, acquisition of
assets or otherwise; (c) purchases of Class A shares
by any client of a newly
employed Smith Barney Financial Consultant (for a
period up to 90 days from the
commencement of the Financial Consultant's employment
with Smith Barney), on the
condition the purchase of Class A shares is made with
the proceeds of the
redemption of shares of a mutual fund which (i) was
sponsored by the Financial
Consultant's prior
29
<PAGE>
- ------------------------------------------------------
- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
employer, (ii) was sold to the client by the Financial
Consultant and (iii) was
subject to a sales charge; (d) purchases by
shareholders who have redeemed Class
A shares in the Fund (or Class A shares of another
fund 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 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 Class A
shares by Section 403(b) or Section 401(a) or (k)
accounts associated with
Copeland Retirement Programs. In order to obtain such
discounts, the purchaser
must provide sufficient information at the time of
purchase to permit
verification that the purchase would qualify for the
elimination of the sales
charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any
person" (as defined
above) at a reduced sales charge or at net asset value
determined by aggregating
the dollar amount of the new purchase and the total
net asset value of all Class
A shares of the Fund and of funds sponsored by Smith
Barney, which are offered
with a sales charge listed under "Exchange Privilege"
then held by such person
and applying the sales charge applicable to such
aggregate. In order to obtain
such discount, the purchaser must provide sufficient
information at the time of
purchase to permit verification that the purchase
qualifies for the reduced
sales charge. The right of accumulation is subject to
modification or
discontinuance at any time with respect to all shares
purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a
reduced sales charge or
purchase at net asset value will also be available to
employees (and partners)
of the same employer purchasing as a group, provided
each participant makes the
minimum initial investment required. The sales charge
applicable to purchases by
each member of such a group will be determined by the
table set forth above
under "Initial Sales Charge Alternative -- Class A
Shares," and will be based
upon the aggregate sales of Class A shares of Smith
Barney Mutual Funds offered
with a sales charge to, and share holdings of, all
members of the group. To be
eligible for such reduced sales charges or to purchase
at net asset value, all
purchases must be pursuant to an employer- or
partnership-sanctioned plan
meeting certain
30
<PAGE>
- ------------------------------------------------------
- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
requirements. One such requirement is that the plan
must be open to specified
partners or employees of the employer and its
subsidiaries, if any. Such plan
may, but is not required to, provide for payroll
deductions, IRAs or investments
pursuant to retirement plans under 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
publications and mailings to members at no cost to
Smith Barney. In order to
obtain such reduced sales charge or to purchase at net
asset value, the
purchaser must provide sufficient information at the
time of purchase to permit
verification that the purchase qualifies for the
reduced sales charge. Approval
of group purchase reduced sales charge plans is
subject to the 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
purchases of all Class A shares of the Fund and other
funds of the Smith Barney
Mutual Funds offered with a sales charge over the 13
month period based on the
total amount of intended purchases plus the value of
all Class A shares
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
sale charges applicable to the purchases made and the
charges previously paid,
or an appropriate number of escrowed shares will be
redeemed. Please contact a
Smith Barney Financial Consultant or First Data to
obtain a Letter of Intent
application.
31
<PAGE>
- ------------------------------------------------------
- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
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
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 same Fund
within thirteen 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%. Please contact
a Smith Barney Financial Consultant or First Data for
further information.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next
determined without an initial
sales charge so that the full amount of an investor's
purchase payment may be
immediately invested in the Fund. A CDSC, however, may
be imposed on certain
redemptions of these shares. "CDSC Shares" are: (a)
Class B shares; (b) Class C
shares; and (c) Class A shares that were purchased
without an initial sales
charge but subject to a CDSC.
Any applicable CDSC will be assessed on an amount
equal to the lesser of the
original 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
gains distributions; (c)
with respect to Class B shares, shares redeemed more
than five years after their
purchase; or (d) with respect to Class C shares and
Class A shares that are CDSC
Shares, shares redeemed more than 12 months after
their purchase.
Class C shares and Class A shares that are CDSC
Shares are subject to a 1.00%
CDSC if redeemed within 12 months of purchase. In
circumstances in which the
CDSC is imposed on Class B shares, the amount of the
charge will depend on the
number of years since the shareholder made the
purchase payment from which the
amount is being redeemed. Solely for purposes of
determining the number of years
since a purchase payment, all purchase payments made
during a month will be
aggregated and deemed to have been made on the last
day of the preceding Smith
Barney statement month. The following table sets forth
the rates of the charge
for redemptions of Class B shares by shareholders,
except in the case of Class B
shares held under the Smith Barney 401(k) Program, as
described below. See
"Purchase of Shares --Smith Barney 401(k) and
ExecChoice(TM) Programs."
32
<PAGE>
- ------------------------------------------------------
- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
Year Since Purchase
Payment Was Made
CDSC
======================================================
==========================
First
4.50%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth and thereafter
0.00
======================================================
==========================
Class B shares will convert automatically to Class
A shares eight years after
the date on which they were purchased and thereafter
will no longer be subject
to any distribution fees. There 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 Class B shares (other than Class B Dividend
Shares) owned by the
shareholder. See "Prospectus Summary -- Alternative
Purchase Arrangements --
Class B Shares Conversion Feature."
The length of time that CDSC Shares acquired
through an exchange have been
held will be calculated from the date that the shares
exchanged were initially
acquired in one of the other applicable Smith Barney
Mutual Funds, and Fund
shares being redeemed will be considered to represent,
as applicable, capital
appreciation or dividend and capital gains
distribution reinvestments in such
other funds. For Federal income tax purposes, the
amount of the CDSC will reduce
the gain or increase the loss, as the case may be, on
the amount realized on
redemption. The amount of any CDSC will be paid to
Smith Barney.
To provide an example, assume an investor purchased
100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the
investor acquired 5 additional
shares through dividend reinvestment. During the
fifteenth month after the
purchase, the investor decided to redeem $500 of his
or her investment. Assuming
at the time of the redemption the net asset value had
appreciated to $12 per
share, the value of the investor's shares would be
$1,260 (105 shares at $12 per
share). The CDSC would not be applied to the amount
which represents
appreciation ($200) and the value of the reinvested
dividend shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500
minus $260) would be
charged at a rate of 4.00% (the applicable rate for
Class B shares) for a total
deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see
"Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less
than 1.00% per month of
the value of the shareholder's shares at the time the
withdrawal plan commences
(see "Automatic Cash Withdrawal Plan") (provided,
however, that automatic cash
withdrawals in amounts equal to or less than 2.00% per
month of the value of the
33
<PAGE>
- ------------------------------------------------------
- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
shareholder's shares will be permitted for withdrawal
plans that were
established prior to November 7, 1994); (c)
redemptions of shares within 12
months following the death or disability of the
shareholder; (d) redemption of
shares made in connection with qualified distributions
from retirement plans or
IRAs upon the attainment of age 591/2; (e) involuntary
redemptions; and (f)
redemptions of shares to effect a combination of the
Fund with any investment
company by merger, acquisition of assets or otherwise.
In addition, a
shareholder who has redeemed shares from other funds
of the Smith Barney Mutual
Funds may, under certain circumstances, reinvest all
or part of the redemption
proceeds within 60 days and receive pro rata credit
for any CDSC imposed on the
prior redemption.
CDSC waivers will be granted subject to
confirmation (by Smith Barney in the
case of shareholders who are also Smith Barney clients
or by First Data in the
case of all other shareholders) of the shareholder's
status or holdings, as the
case may be.
SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS
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
participating ("Participating Plans") in these
programs.
The Fund offers to Participating Plans Class A and
Class C shares as
investment alternatives under the Smith Barney 401(k)
and ExecChoice(TM)
Programs. Class A and Class C shares acquired through
the Participating Plans
are subject to the same service and/or distribution
fees as the Class A and
Class C shares acquired by other investors; however,
they are not subject to any
initial sales charge or CDSC. Once a Participating
Plan has made an initial
investment in the Fund, all of its subsequent
investments in the Fund must be in
the same Class of shares, except as otherwise
described below.
Class A Shares. Class A shares of the Fund are
offered without any sales
charge or CDSC to any Participating Plan that
purchases $1,000,000 or more of
Class A shares of one or more funds of the Smith
Barney Mutual Funds.
Class C Shares. Class C shares of the Fund are
offered without any sales
charge or CDSC to any Participating Plan that
purchases less than $1,000,000 of
Class C shares of one or more funds of the Smith
Barney Mutual Funds.
401(k) and ExecChoice(TM) Plans Opened On or After
June 21, 1996. If, at the
end of the fifth year after the date the Participating
Plan enrolled in the
Smith Barney 401(k) Program or the Smith Barney
ExecChoice(TM) Program, a
Participating Plan's total Class C holdings in all
non-money market Smith Barney
Mutual Funds equal at least $1,000,000, the
Participating Plan will be offered
the opportunity to exchange all of its Class C shares
for Class A shares of the
Fund.
34
<PAGE>
- ------------------------------------------------------
- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
(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
Participating Plan enrolled in the Smith Barney 401(k)
Program, if its total
Class C holdings in all non-money market Smith Barney
Mutual Funds equal at
least $500,000 as of the calendar year-end, the
Participating Plan will be
offered the opportunity to exchange all of its Class C
shares for Class A shares
of the Fund. Such Plans will be notified in writing
within 30 days after the
last business day of the calendar year and, unless the
exchange offer has been
rejected in writing, the exchange will occur on or
about the last business day
of the following March.
Any Participating Plan in the Smith Barney 401(k)
or ExecChoice(TM) Programs,
whether opened before or after June 21, 1996, that has
not previously qualified
for an exchange into Class A shares will be offered
the opportunity to exchange
all of its Class C shares for Class A shares of the
Fund regardless of asset
size, at the end of the eighth year after the date the
Participating Plan
enrolled in the Smith Barney 401(k) Program. Such
Plans will be notified of the
pending exchange in writing approximately 60 days
before the eighth anniversary
of the enrollment date and, unless the exchange has
been rejected in writing,
the exchange will occur on or about the eighth
anniversary date. Once an
exchange has occurred, a Participating Plan will not
be eligible to acquire
additional Class C shares of the Fund but instead may
acquire Class A shares of
the Fund. Any Class C shares not converted will
continue to be subject to the
distribution fee.
Participating Plans wishing to acquire shares of
the Fund through the Smith
Barney 401(k) Program or the Smith Barney
ExecChoice(TM) Program must purchase
such shares directly from First Data. For further
information regarding these
Programs, investors should contact a Smith Barney
Financial Consultant.
Existing 401(k) Plans Investing in Class B Shares.
Class B shares of the Fund
are not available for purchase by Participating Plans
opened on or after June
21, 1996, but may continue to be purchased by any
Participating Plan in the
Smith Barney 401(k) Program opened prior to such date
and originally investing
in such Class. Class B shares acquired are subject to
a CDSC of 3.00% of
redemption proceeds if the Participating Plan
terminates within eight years of
the date the Participating Plan first enrolled in the
Smith Barney 401(k)
Program.
35
<PAGE>
- ------------------------------------------------------
- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
At the end of the eighth year after the date the
Participating Plan enrolled
in the Smith Barney 401(k) Program, the Participating
Plan will be offered the
opportunity to exchange all of its Class B shares for
Class A shares of the
Fund. Such Participating Plan will be notified of the
pending exchange in
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
the exchange has occurred, a
Participating Plan will not be eligible to acquire
additional Class B shares of
the Fund but instead may acquire Class A shares of the
Fund. If the
Participating Plan elects not to exchange all of its
Class B shares at that
time, each Class B share held by the Participating
Plan will have the same
conversion feature as Class B shares held by other
investors. See "Purchase of
Shares -- Deferred Sales Charge Alternatives."
No CDSC is imposed on redemptions of Class B shares
to the extent that the
net asset value of the shares redeemed does not exceed
the current net asset
value of the shares purchased through reinvestment of
dividends or capital gain
distributions, plus the current net asset value of
Class B shares purchased more
than eight years prior to the redemption, plus
increases in the net asset value
of the shareholder's Class B shares above the purchase
payments made during the
preceding eight years. Whether or not the CDSC applies
to the redemption by a
Participating Plan depends on the number of years
since the Participating Plan
first became enrolled in the Smith Barney 401(k)
Program, unlike the
applicability of the CDSC to redemptions by other
shareholders, which depends on
the number of years since those shareholders made the
purchase payment from
which the amount is being redeemed.
The CDSC will be waived on redemptions of Class B
shares in connection with
lump-sum or other distributions made by a
Participating Plan as a result of: (a)
the retirement of an employee in the Participating
Plan; (b) the termination of
employment of an employee in the Participating Plan;
(c) the death or disability
of an employee in the Participating Plan; (d) the
attainment of age 591/2 by an
employee in the Participating Plan; (e) hardship of an
employee in the
Participating Plan to the extent permitted under
Section 401(k) of the Code; or
(f) redemptions of shares in connection with a loan
made by the Participating
Plan to an employee.
- ------------------------------------------------------
- --------------------------
Exchange Privilege
- ------------------------------------------------------
- --------------------------
Except as otherwise noted below, shares of each
Class may be exchanged at the
net asset value next determined for shares of the same
Class in the following
funds of the Smith Barney Mutual Funds, to the extent
shares are offered for
sale in the shareholder's state of residence.
Exchanges of Class A, Class B and
Class C shares are subject to minimum investment
requirements and all shares are
subject to the other requirements of the fund into
which exchanges are made.
36
<PAGE>
- ------------------------------------------------------
- --------------------------
Exchange Privilege (continued)
- ------------------------------------------------------
- --------------------------
FUND NAME
Growth Funds
Concert Peachtree Growth Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Large Cap Blend Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney Managed Growth Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Special Equities Fund
Growth and Income Funds
Concert Social Awareness Fund
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Large Cap Value Fund
Smith Barney Premium Total Return Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
** Smith Barney Adjustable Rate Government Income
Fund
Smith Barney Diversified Strategic Income Fund
+++ Smith Barney Funds, Inc. -- Short-Term U.S.
Treasury Securities Fund
Smith Barney Funds, Inc. -- U.S. 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
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 Municipal High Income Fund
37
<PAGE>
- ------------------------------------------------------
- --------------------------
Exchange Privilege (continued)
- ------------------------------------------------------
- --------------------------
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
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 Muni Funds -- California Money Market
Portfolio
+++ Smith Barney Muni Funds -- New York Money Market
Portfolio
+++ Smith Barney Municipal Money Market Fund, Inc.
======================================================
==========================
* Available for exchange with Class A, Class C and
Class Y shares of the
Fund.
** Available for exchange with Class A and Class B
shares of the Fund. In
addition, shareholders who own Class C shares of
the Fund through the
Smith Barney 401(k) Program may exchange those
shares for Class C shares
of this fund.
*** Available for exchange with Class A shares of
the Fund.
+ Available for exchange with Class B and Class C
shares of the Fund.
++ Available for exchange with Class A and Class Y
shares of the Fund. In
addition, Participating Plans opened prior to
June 21, 1996 and investing
in Class C shares may exchange Fund shares for
Class C shares of this
fund.
+++ Available for exchange with Class A and Class Y
shares of the Fund.
Class B Exchanges. In the event a Class B
shareholder wishes to exchange all
or a portion of his or her shares in any of the funds
imposing a higher CDSC
than that imposed by the Fund, the exchanged Class B
shares will be subject to
the higher applicable CDSC. Upon an exchange, the new
Class B shares will be
deemed to have been purchased on the same date as the
Class B shares of the Fund
that have been exchanged.
38
<PAGE>
- ------------------------------------------------------
- --------------------------
Exchange Privilege (continued)
- ------------------------------------------------------
- --------------------------
Class C Exchanges. Upon an exchange, the new Class
C shares will be deemed to
have been purchased on the same date as the Class C
shares of the Fund that have
been exchanged.
Class A and Class Y Exchanges. Class A and Class Y
shareholders of the Fund
who wish to exchange all or a portion of their shares
for shares of the
respective class in any of the funds identified above
may do so without
imposition of any charge.
Additional Information Regarding the Exchange
Privilege. Although the
exchange privilege is an important benefit, excessive
exchange transactions can
be detrimental to the Fund's performance and its
shareholders. MMC 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 listed above,
which position the shareholder would be expected to
maintain for a significant
period of time. All relevant factors will be
considered in determining what
constitutes an abusive pattern of exchanges.
Certain shareholders may be able to exchange shares
by telephone. See
"Redemption 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.
- ------------------------------------------------------
- --------------------------
Redemption of Shares
- ------------------------------------------------------
- --------------------------
The Fund is required to redeem the shares of the
Fund tendered to it, as
described below, at a redemption price equal to their
net asset value per share
next determined after receipt of a written request in
proper form at no charge
other than any applicable CDSC. Redemption requests
received after the close of
regular trading on the NYSE are priced at the net
asset value next determined.
If a shareholder holds shares in more than one
Class, any request for
39
<PAGE>
- ------------------------------------------------------
- --------------------------
Redemption of Shares (continued)
- ------------------------------------------------------
- --------------------------
redemption must specify the Class being redeemed. In
the event of a failure to
specify which Class, or if the investor owns fewer
shares of the Class than
specified, the redemption request will be delayed
until the Fund's 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 1940 Act in extraordinary circumstances.
Generally, if the redemption
proceeds are remitted to a Smith Barney brokerage
account, these funds will not
be invested for the shareholder's benefit without
specific instruction and Smith
Barney will benefit from the use of temporarily
uninvested funds. Redemption
proceeds for shares purchased by check, other than a
certified or official bank
check, will be remitted upon clearance of the check,
which may take up to ten
days or more.
Shares held by Smith Barney as custodian must be
redeemed by submitting a
written request to a Smith Barney Financial
Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed
through an investor's
Financial Consultant, Introducing Broker or dealer in
the selling group or by
submitting a written request for redemption to:
Smith Barney Government Securities Fund
Class A, B, C or Y (please specify)
c/o First Data Investors 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 registered.
If the shares to be redeemed were issued in
certificate form, the certificates
must be endorsed for transfer (or be accompanied by an
endorsed stock power) and
must be submitted to First Data together with the
redemption request. Any
signature appearing on a share certificate stock power
or redemption request in
excess of $10,000 must be guaranteed by an eligible
guarantor institution such
as a domestic bank, savings and loan institution,
domestic credit union, member
bank of the Federal Reserve System or member firm of a
national securities
exchange. Written redemption requests of $10,000 or
less do not require a
signature guarantee unless more than one such
redemption request is made in any
10-day period. 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 eligible
40
<PAGE>
- ------------------------------------------------------
- --------------------------
Redemption of Shares (continued)
- ------------------------------------------------------
- --------------------------
to redeem and exchange Fund shares by telephone. To
determine if a shareholder
is entitled to participate in this program, he or she
should contact First Data
at 1-800-451-2010. Once eligibility is confirmed, the
shareholder must complete
and return a Telephone/Wire Authorization Form, along
with a signature guarantee
that will be provided by First Data upon request.
(Alternatively, an investor
may authorize telephone redemptions on the new account
application with the
applicant's signature guarantee when making his/her
initial investment in the
Fund.)
Redemptions. Redemption requests of up to $10,000
of any Class or Classes of
the Fund's shares may be made by eligible shareholders
by calling First Data at
1-800-451-2010. Such requests may be made between 9:00
a.m. and 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 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) any day on which the NYSE is
open. Exchange requests
received after the close of regular trading on the
NYSE are processed at the net
asset value next determined.
Additional Information regarding Telephone
Redemption and Exchange Program.
Neither the Fund nor its agents will be liable for
following instructions
communicated by telephone that are reasonably believed
to be genuine. The Fund
and its agents will employ procedures designed to
verify the identity of the
caller and legitimacy of instructions (for example, a
shareholder's name and
account number will be required and phone calls may be
recorded). The Fund
reserves the right to suspend, modify or discontinue
the telephone redemption
and exchange program or to impose a charge for this
service at any time
following at least seven
41
<PAGE>
- ------------------------------------------------------
- --------------------------
Redemption of Shares (continued)
- ------------------------------------------------------
- --------------------------
(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. For further information regarding the
automatic cash withdrawal plan,
shareholders should contact a Smith Barney Financial
Consultant.
- ------------------------------------------------------
- --------------------------
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,
however, will not redeem shares based solely on market
reductions in net asset
value. Before the Fund exercises such right,
shareholders will receive written
notice and will be permitted 60 days to bring accounts
up to the minimum to
avoid involuntary liquidation.
- ------------------------------------------------------
- --------------------------
Performance
- ------------------------------------------------------
- --------------------------
YIELD
From time to time, the Fund advertises the 30 day
"yield" of each Class of
shares. The Fund's yield refers to the income
generated by an investment in
those shares over the 30 day period identified in the
advertisement and is
computed by dividing the net investment income per
share earned by the Class
during the period by the maximum public offering price
per share on the last day
of the period. This income is "annualized" by assuming
the amount of income is
generated each month over a one year period and is
compounded semi-annually. The
annualized income is then shown as a percentage of the
net asset value.
TOTAL RETURN
From time to time, the Fund may include its total
return, average annual
total return and current dividend return in
advertisements and/or other types of
sales literature. These figures are computed
separately for Class A, Class B,
Class C and
42
<PAGE>
- ------------------------------------------------------
- --------------------------
Performance (continued)
- ------------------------------------------------------
- --------------------------
Class Y shares of the Fund. These figures are based on
historical earnings and
are not intended to indicate future performance. Total
return is computed for a
specified period of time assuming deduction of the
maximum sales charge, if any,
from the initial amount invested and reinvestment of
all income dividends and
capital gains 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
calculates current dividend return for each Class by
annualizing the most recent
monthly distribution and dividing by the net asset
value or the maximum public
offering price (including sales charge) on the last
day of the period for which
current dividend return is presented. The current
dividend return for each Class
may vary from time to time depending on market
conditions, the composition of
its investment portfolio and operating expenses. These
factors and possible
differences in the methods used in calculating current
dividend return should be
considered when comparing a Class' current return to
yields published for other
investment companies and other investment vehicles.
The Fund may also include
comparative performance information in advertising or
marketing its shares. Such
performance information may include data from Lipper
Analytical Services, Inc.
or similar independent services that monitor the
performance of mutual funds, or
other industry publications.
- ------------------------------------------------------
- --------------------------
Management of the Company and the Fund
- ------------------------------------------------------
- --------------------------
BOARD OF DIRECTORS
Overall responsibility for management and
supervision of the Company rests
with the Company's Board of Directors. The Directors
approve all significant
agreements between the Company and the companies that
furnish services to the
Company and the Fund, including agreements with the
Fund's distributor,
investment adviser, administrator, custodian and
transfer agent. The day-to-day
operations of the Fund are delegated to the Fund's
investment adviser and
administrator. The SAI contains background information
regarding each Director
and executive officer of the Company.
INVESTMENT ADVISER -- MMC
MMC, located at 388 Greenwich Street, New York, New
York 10013, serves as the
Fund's investment adviser. The Adviser (through
predecessor entities) has been
in the investment counseling business since 1940. The
Adviser renders
43
<PAGE>
- ------------------------------------------------------
- --------------------------
Management of the Company and the Fund (continued)
- ------------------------------------------------------
- --------------------------
investment advice to investment companies which had
aggregate assets under
management as of March 31, 1998 of approximately
$100.5 billion.
Subject to the supervision and direction of the
Company's Board of Directors,
the Adviser 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 portfolio
managers and securities analysts who provide research
services to the Fund. For
investment advisory services rendered, the Fund pays
the Adviser a fee at the
following annual rates of average daily net assets:
0.35% up to $2 billion,
0.30% of the next $2 billion, 0.25% of the next $2
billion, 0.20% of the next $2
billion and 0.15% of net assets thereafter. For the
fiscal year ended December
31, 1997, the Adviser was paid investment advisory
fees equal to 0.35% of the
value of the Fund's average daily net assets.
PORTFOLIO MANAGEMENT
James E. Conroy, Managing Director of Smith Barney,
has served as Vice
President and Investment Officer of the Fund since the
Fund's commencement of
operations (March 20, 1984) and manages the day-to-day
operations of the Fund,
including making all investment decisions.
Management's discussion and analysis and additional
performance information
regarding the Fund during the fiscal year ended
December 31, 1997 is included in
the Fund's Annual Report dated December 31, 1997. A
copy of the Annual Report
may be obtained upon request without charge from a
Smith Barney Financial
Consultant or by writing or calling the Fund at the
address or phone number
listed on page one of this Prospectus.
ADMINISTRATOR -- MMC
MMC also serves as the Fund's administrator and
oversees all aspects of the
Fund's administration. For administration services
rendered, the Fund pays the
Administrator a fee at the annual rate of 0.20% of the
value of the Fund's
average daily net assets.
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 subject
to approval by the stockholders of each of Travelers
and Citicorp. Upon
consummation of the merger, the surviving corporation
would be a bank holding
company subject to regulation under the Holding
Company Act of 1956 (the
"BCHA"), the requirements of the Glass-Steagall Act
and certain other laws and
regulations. Although the effects of the merger of
Travelers and Citicorp and
compliance with the requirements of the BCHA and the
Glass-Steagall Act are
44
<PAGE>
- ------------------------------------------------------
- --------------------------
Management of the Company and the Fund (continued)
- ------------------------------------------------------
- --------------------------
still under review, MMC does not believe that its
compliance with applicable law following 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.
- ------------------------------------------------------
- --------------------------
Distributor
- ------------------------------------------------------
- --------------------------
Smith Barney is located at 388 Greenwich Street,
New York, New York 10013.
Smith Barney distributes shares of the Fund as
principal underwriter and as such
conducts a continuous offering pursuant to a "best
efforts" arrangement
requiring Smith Barney to take and pay for only such
securities as may be sold
to the public. Pursuant to a plan of distribution
adopted by the Fund under Rule
12b-1 under the 1940 Act (the "Plan"), Smith Barney is
paid a service fee with
respect to Class A, Class B and Class C shares of the
Fund at the annual rate of
0.25% of the average daily net assets of the
respective Class. Smith Barney is
also paid a distribution fee with respect to Class B
and Class C shares at the
annual rate of 0.50% and 0.45%, respectively, of the
average daily net assets
attributable to those Classes. Class B shares that
automatically convert to
Class A shares eight years after the date of original
purchase will no longer be
subject to distribution fees. The fees are used by
Smith Barney to pay its
Financial Consultants for servicing shareholder
accounts and, in the case of
Class B and Class C shares, to cover expenses
primarily intended to result in
the sale of those shares. These expenses include:
advertising expenses; the cost
of printing and mailing prospectuses to potential
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 with respect to Class A, Class B and
Class C shares, and a
continuing fee for servicing shareholder accounts for
as long as a shareholder
remains a holder of that Class. Smith Barney Financial
Consultants may receive
different levels of compensation for selling different
Classes of shares.
Payments under the Plan are not tied exclusively to
the distribution and
shareholder service expenses actually incurred by
Smith Barney and the payments
may exceed distribution expenses actually incurred.
The Company's Board of
Directors will evaluate the appropriateness of the
Plan and its payment terms on
a continuing basis and in so doing will consider all
relevant factors, including
expenses borne by Smith Barney, amounts received under
the Plan and proceeds of
the CDSC.
45
<PAGE>
- ------------------------------------------------------
- --------------------------
Additional Information
- ------------------------------------------------------
- --------------------------
The Company was organized as a Maryland corporation
pursuant to Articles of
Incorporation dated September 29, 1981, as amended
from time to time. The Fund
offers shares of common stock currently classified
into four Classes, A, B, C
and Y, with a par value of $.001 per share. Each Class
of shares has the same
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; (d) the expenses
allocable exclusively to each Class; (e) voting rights
on matters exclusively
affecting a single Class; (f) the exchange privilege
of each Class; and (g) the
conversion feature of the Class B shares. The Board of
Directors does not
anticipate that there will be any conflicts among the
interests of the holders
of the different Classes. The Directors, on an ongoing
basis, will consider
whether any such conflict exists and, if so, take
appropriate action.
PNC Bank, located at 17th and Chestnut Streets,
Philadelphia PA 19103, serves
as custodian of the Company'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
outstanding 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 listings of the investment
securities held by the Fund at
the end of the period covered. 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
having multiple accounts with the identical address of
record will receive a
single copy of each report. Shareholders who do not
want this consolidation to
apply to their account should contact their Smith
Barney Financial Consultants
or First Data.
46
<PAGE>
SMITH BARNEY
- ------------
A
Member of TravelersGroup[Logo]
Smith Barney
Government
Securities
Fund
388 Greenwich Street
New York, New York 10013
FD 0234 4/98
- ------------------------------------------------------
- --------------------------
Prospectus
April 30, 1998
- ------------------------------------------------------
- --------------------------
Smith Barney Investment Grade Bond Fund
3100 Breckinridge Blvd., Bldg. 200
Duluth, Georgia 30099-0062
(800) 544-5445
Smith Barney Investment Grade Bond Fund (the
"Fund") has an investment
objective of high current income consistent with
prudent investment management
and preservation of capital by investing in bonds and
other income-producing
securities.
The Fund is one of a number of funds, each
having distinct investment
objectives and policies, making up Smith Barney
Investment Funds Inc. (the
"Company"). The Company is an open-end management
investment company commonly
referred to as a mutual fund.
This Prospectus sets forth concisely certain
information about the Company
and the Fund, including sales charges, distribution
and service fees and
expenses, that prospective investors will find helpful
in making an investment
decision. Investors are encouraged to read this
Prospectus carefully and to
retain it for future reference.
Additional information about the Fund and the
Company is contained in a
Statement of Additional Information (the "SAI") dated
April 30, 1998, as amended
or supplemented from time to time, that is available
upon request and without
charge by calling or writing the Company at the
telephone number or address set
forth above or by contacting a Registered
Representative of PFS Investments Inc.
("PFS Investments"). The SAI has been filed with the
Securities and Exchange
Commission (the "SEC") and is incorporated by
reference into this Prospectus in
its entirety.
PFS Distributors, Inc.
Distributor
Mutual Management Corp.
Investment Adviser and Administrator
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
MISREPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
1
<PAGE>
- ------------------------------------------------------
- --------------------------
Table of Contents
- ------------------------------------------------------
- --------------------------
Prospectus Summary
3
- ------------------------------------------------------
- --------------------------
Financial Highlights
9
- ------------------------------------------------------
- --------------------------
Investment Objective and Management Policies
12
- ------------------------------------------------------
- --------------------------
Valuation of Shares
18
- ------------------------------------------------------
- --------------------------
Dividends, Distributions and Taxes
19
- ------------------------------------------------------
- --------------------------
Purchase of Shares
21
- ------------------------------------------------------
- --------------------------
Exchange Privilege
25
- ------------------------------------------------------
- --------------------------
Redemption of Shares
27
- ------------------------------------------------------
- --------------------------
Minimum Account Size
29
- ------------------------------------------------------
- --------------------------
Performance
29
- ------------------------------------------------------
- --------------------------
Management of the Company and the Fund
30
- ------------------------------------------------------
- --------------------------
Distributor
32
- ------------------------------------------------------
- --------------------------
Additional Information
33
- ------------------------------------------------------
- --------------------------
======================================================
==========================
No person has been authorized to give any
information or to make any
representations in connection with this offering other
than those contained in
this Prospectus and, if given or made, such other
information or representations
must not be relied upon as having been authorized by
the Fund or the
distributor. This Prospectus does not constitute an
offer by the Fund or the
distributor to sell or a solicitation of an offer to
buy any of the securities
offered hereby in any jurisdiction to any person to
whom it is unlawful to make
such an 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 the Prospectus. See "Table
of Contents."
INVESTMENT OBJECTIVE. The Fund is an open-end,
diversified management investment
company that seeks to provide as high a level of
current income as is consistent
with prudent investment management and preservation of
capital. Under normal
circumstances, the Fund will invest at least 65% of
its assets in bonds. See
"Investment Objective and Management Policies".
ALTERNATIVE PURCHASE ARRANGEMENTS. The Fund offers two
classes of shares
("Classes") to investors purchasing through PFS
Investments Registered
Representatives designed to provide them with the
flexibility of selecting an
investment best suited to their needs. The two Classes
of shares available are:
Class A shares and Class B shares. See "Purchase of
Shares" and "Redemption of
Shares." In addition to Class A and Class B shares,
the Fund offers Class C and
Class Y shares to investors purchasing through Smith
Barney Inc. ("Smith
Barney"), a distributor of the Fund. Those shares have
different sales charges
and other expenses than Class A and Class B shares
which may affect performance.
Class A Shares. Class A shares are sold at net
asset value plus an initial
sales charge of up to 4.50% 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 4.50% of redemption proceeds,
declining by 0.50% the first year
after purchase and by 1.00% each year thereafter to
zero. This CDSC may be
waived for certain redemptions. Class B shares are
subject to an annual service
fee of 0.25% and an annual distribution fee of 0.50%
of the average daily net
assets of this Class. The Class B shares' distribution
fee may cause that Class
to have higher expenses and pay lower dividends than
Class A shares.
Class B Shares Conversion Feature. Class B
shares will convert
automatically to Class A shares, based on relative net
asset value, eight years
after the date of the original purchase. Upon
conversion, these shares will no
longer be subject to an annual distribution fee. In
addition, a certain portion
of Class B shares that have been acquired through the
reinvestment of dividends
and distributions ("Class B Dividend Shares") will be
converted at that time.
See "Purchase of Shares-Deferred Sales Charge
Alternatives."
3
<PAGE>
- ------------------------------------------------------
- --------------------------
Prospectus Summary (continued)
- ------------------------------------------------------
- --------------------------
In deciding which Class of Fund shares to
purchase, investors should
consider the following factors, as well as any other
relevant facts and
circumstances:
Intended Holding Period. The decision as to
which Class of shares is more
beneficial to an investor depends on the amount and
intended length 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 investment
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.
Reduced or No Initial Sales Charge. The initial
sales charge on Class A
shares may be waived for certain eligible purchasers,
and the entire purchase
price will be immediately invested in the Fund. In
addition, Class A share
purchases of $500,000 or more will be made at net
asset value with no initial
sales charge, but 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 held in
funds sponsored by Smith
Barney 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
shares, purchasers eligible to purchase Class A shares
at net asset value or at
a reduced sales charge should consider doing so.
PFS Investments Registered Representatives may
receive different
compensation for selling different classes of shares.
Investors should
understand that the purpose of the CDSC on the Class B
shares is the same as
that of the initial sales charge on the Class A
shares.
See "Purchase of Shares" and "Management of the
Company and the Fund" for
a complete description 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.
PURCHASE OF SHARES. Shares may be purchased through
the Fund's distributor, PFS
Distributors, Inc. ("PFS"). See "Purchase of Shares."
INVESTMENT MINIMUMS. Investors in Class A and Class B
shares may open an account
by making an initial investment of at least $1,000 for
each account, or $250 for
an individual retirement account ("IRA") or a Self-
Employed Retirement Plan.
4
<PAGE>
- ------------------------------------------------------
- --------------------------
Prospectus Summary (continued)
- ------------------------------------------------------
- --------------------------
Subsequent investments of at least $50 may be made for
both Classes. For
participants in retirement plans qualified under
Section 403(b)(7) or Section
401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), the
minimum initial and subsequent investment requirement
for both Classes is $25.
The minimum initial and subsequent investment
requirement for both Classes
through the Systematic Investment Plan described below
is $25. See"Purchase of
Shares."
SYSTEMATIC INVESTMENT PLAN. The Fund offers
shareholders a Systematic Investment
Plan under which they may authorize the automatic
placement of a purchase order
each month for Fund shares in an amount of at least
$25. 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") (formerly known as Smith
Barney Mutual Funds Management Inc.) serves as the
Fund's investment adviser and
administrator. MMC provides investment advisory and
management services to
investment companies affiliated with Smith Barney. MMC
is a wholly owned
subsidiary of Salomon Smith Barney Holdings Inc.
("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 respective
net asset values next determined. See "Exchange
Privilege".
VALUATION OF SHARES. Net asset value of the Fund for
the prior day generally is
quoted daily in the financial section of most
newspapers and is also available
from PFS Shareholder Services (the "Sub-Transfer
Agent"). See "Valuation of
Shares."
DIVIDENDS AND DISTRIBUTIONS. Dividends from net
investment income are declared
monthly. Distributions of net realized long-and short-
term capital gains, if
any, are declared and paid at least annually. See
"Dividends, Distributions and
Taxes."
REINVESTMENT OF DIVIDENDS. Dividends and distributions
paid on shares of a Class
will be reinvested automatically in additional shares
of the same Class at
current net asset value unless otherwise specified by
an investor. Shares
acquired by
5
<PAGE>
- ------------------------------------------------------
- --------------------------
Prospectus Summary (continued)
- ------------------------------------------------------
- --------------------------
dividend and distribution reinvestments will not be
subject to any sales charge
or CDSC. Class B shares acquired through dividend and
distribution reinvestments
will become eligible for conversion to Class A shares
on a pro rata basis. See
"Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS. The Company
is designed for long-term
investors and not for investors who intend to
liquidate their investment after a
short period. Neither the Company as a whole nor any
particular fund in the
Company, including the Fund, constitutes a balanced
investment plan. There can
be no assurance that the Fund will achieve its
investment objective. The Fund
does not have a stated maturity policy, but will
generally invest in medium- to
long-term securities which are generally more
sensitive to interest rate
changes, market conditions and other economic news
than shorter-term securities.
The Fund may employ investment techniques which
involve certain risks, including
entering into repurchase agreements and reverse
repurchase agreements, lending
portfolio securities, selling securities short and
investing in foreign
securities through the use of American Depositary
Receipts. See "Investment
Objective and Management Policies-Additional
Investments."
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
operating expenses for its most
recent fiscal year:
Investment Grade Bond Fund
Class A Class B
======================================================
==========================
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price)
4.50% None
Maximum CDSC (as a percentage of original cost or
redemption proceeds, whichever is lower)
None* 4.50%
======================================================
==========================
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees
0.65% 0.65%
12b-1 fees**
0.25 0.75
Other expenses
0.12 0.11
======================================================
==========================
TOTAL FUND OPERATING EXPENSES
1.02% 1.51%
======================================================
==========================
* 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.
The sales charge and CDSC set forth in the above table
are the maximum charges
imposed upon 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
6
<PAGE>
- ------------------------------------------------------
- --------------------------
Prospectus Summary (continued)
- ------------------------------------------------------
- --------------------------
Class B and certain Class A shares, the length of time
the shares are held. See
"Purchase of Shares" and "Redemption of Shares". PFS
receives an annual 12b-1
service fee of 0.25% of the value of average daily net
assets of Class A shares.
With respect to Class B shares, PFS receives an annual
12b-1 fee of 0.75% of the
value of average daily net assets of that Class,
consisting of a 0.25% service
fee and a 0.50% distribution fee. "Other expenses" in
the above table include
fees for shareholder services, custodial fees, legal
and accounting fees,
printing costs and registration fees.
EXAMPLE The following example is intended to assist an
investor in understanding
the various costs that an investor in the Fund will
bear directly or indirectly.
The example assumes payment by the Fund of operating
expenses at the levels set
forth in the table above. See "Purchase of Shares,"
"Redemption of Shares" and
"Management of the Fund."
Investment Grade Bond Fund 1 year 3 years
5 years 10 years*
======================================================
==========================
An investor would pay the
following expenses on a
$1,000 investment, assuming
(1) 5.00% annual return and
(2) redemption at the end of
each time period:
Class A $55 $76
$99 $164
Class B 60 78
87 167
An investor would pay the
following expenses on the
same investment, assuming
the same annual return and
no redemption:
Class A 55 76
99 164
Class B 15 48
82 167
======================================================
==========================
* Ten-year figures assume conversion of Class B shares
to Class A shares at
the end of the eighth year following the date of
purchase.
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 representative
of past or future expenses and actual expenses may be
greater or less than those
shown.
7
<PAGE>
(This page intentionally left
blank.)
8
<PAGE>
- ------------------------------------------------------
- --------------------------
Financial Highlights
- ------------------------------------------------------
- --------------------------
The following information for the three-year
period ended December 31,
1997 has been audited by KPMG Peat Marwick LLP,
independent auditors, whose
report thereon appears in the Fund's Annual Report
dated December 31, 1997. The
following information for the fiscal years ended
December 31, 1988 through
December 31, 1994 has been audited by other
independent auditors. The
information set out below should be read in
conjunction with the financial
statements and related notes that also appear in the
Fund's Annual Report, which
is incorporated by reference into the Statement of
Additional Information.
For a Class A share outstanding throughout each year:
<TABLE>
<CAPTION>
Investment Grade Bond Fund 1997
1996 1995(1) 1994(1) 1993(1) 1992(2)
======================================================
======================================================
=====
<S> <C>
<C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.27
$13.25 $10.67 $13.01 $11.89 $11.67
- ------------------------------------------------------
- ------------------------------------------------------
- -----
Income (Loss) From Operations:
Net investment income 0.80
0.80 0.83 0.74 0.88 0.14
Net realized and unrealized gain (loss) 1.20
(0.90) 2.80 (1.88) 1.27 0.23
- ------------------------------------------------------
- ------------------------------------------------------
- -----
Total Income (Loss) From Operations 2.00
(0.10) 3.63 (1.14) 2.15 0.37
- ------------------------------------------------------
- ------------------------------------------------------
- -----
Less Distributions From:
Net investment income (0.80)
(0.76) (0.89) (0.86) (0.89) (0.14)
Net realized gains (0.28)
(0.12) (0.16) (0.31) (0.14) --
Capital --
- -- -- (0.03) -- (0.01)
- ------------------------------------------------------
- ------------------------------------------------------
- -----
Total Distributions (1.08)
(0.88) (1.05) (1.20) (1.03) (0.15)
- ------------------------------------------------------
- ------------------------------------------------------
- -----
Net Asset Value, End of Year $13.19
$12.27 $13.25 $10.67 $13.01 $11.89
- ------------------------------------------------------
- ------------------------------------------------------
- -----
Total Return 17.10%
(0.47)% 35.29% (8.95)% 18.45%
3.25%++
- ------------------------------------------------------
- ------------------------------------------------------
- -----
Net Assets, End of Year (millions) $222
$206 $226 $181 $10 $1
- ------------------------------------------------------
- ------------------------------------------------------
- -----
Ratios to Average Net Assets:
Expenses 1.02%
1.04% 1.11% 1.11% 1.11%
1.03%++
Net investment income 6.43
6.63 7.02 7.35 6.67 7.53+
- ------------------------------------------------------
- ------------------------------------------------------
- -----
Portfolio Turnover Rate 39%
48% 49% 18% 65% 47%
======================================================
======================================================
=====
</TABLE>
(1) Per share amounts have been calculated using the
monthly average shares
method, rather than the undistributed net
investment income method,
because it more accurately reflects the per share
data for the period.
(2) For the period from November 6, 1992 (inception
date) to December 31,
1992.
* For the year ended December 31, 1992, the expense
ratio excludes interest
expense. The expense ratio including interest
expense would have been
1.04% (annualized).
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
9
<PAGE>
- ------------------------------------------------------
- --------------------------
Financial Highlights (continued)
- ------------------------------------------------------
- --------------------------
For a Class B share outstanding throughout each year:
<TABLE>
<CAPTION>
Investment Grade Bond Fund 1997
1996 1995(1) 1994(1) 1993(1) 1992
1991
======================================================
======================================================
==
<S> <C> <C>
<C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.29
$13.25 $10.67 $13.01 $11.89 $11.80
$10.43
- ------------------------------------------------------
- ------------------------------------------------------
- --
Income (Loss) From Operations:
Net investment income 0.75
0.74 0.77 0.82 0.80 0.83
0.86
Net realized and unrealized
gain (loss) 1.18
(0.90) 2.80 (2.02) 1.29 0.12
1.38
- ------------------------------------------------------
- ------------------------------------------------------
- --
Total Income (Loss) From Operations 1.93
(0.16) 3.57 (1.20) 2.09 0.95
2.24
- ------------------------------------------------------
- ------------------------------------------------------
- --
Less Distributions From:
Net investment income (0.75)
(0.68) (0.83) (0.80) (0.83) (0.83)
(0.87)
Net realized gains (0.28)
(0.12) (0.16) (0.31) (0.14) --
- --
Capital --
- -- .-- (0.03) .-- (0.03) -
- -
- ------------------------------------------------------
- ------------------------------------------------------
- --
Total Distributions (1.03)
(0.80) (0.99) (1.14) (0.97) (0.86)
(0.87)
- ------------------------------------------------------
- ------------------------------------------------------
- --
Net Asset Value, End of Year $13.19
$12.29 $13.25 $10.67 $13.01 $11.89
$11.80
- ------------------------------------------------------
- ------------------------------------------------------
- --
Total Return++ 16.44%
(0.89)% 34.63% (9.41)% 18.06% 8.36%
22.50%
- ------------------------------------------------------
- ------------------------------------------------------
- --
Net Assets, End of Year (millions) $249
$258 $289 $221 $476 $432
$414
- ------------------------------------------------------
- ------------------------------------------------------
- --
Ratios to Average Net Assets:
Expenses 1.51%
1.54% 1.61% 1.57% 1.58% 1.57%*
1.53%
Net investment income 5.95%
6.13 6.51 6.89 6.20 6.99
7.90
- ------------------------------------------------------
- ------------------------------------------------------
- --
Portfolio Turnover Rate 39%
48% 49% 18% 65% 47%
82%
======================================================
======================================================
==
</TABLE>
Investment Grade Bond Fund 1990 1989
1988
======================================================
=================
Net Asset Value, Beginning of Year $11.01 $10.33
$10.55
- ------------------------------------------------------
- -----------------
Income (Loss) From Operations:
Net investment income 0.86
0.87*** 0.90***
Net realized and unrealized
gain (loss) (0.57) 0.68
(0.24)
- ------------------------------------------------------
- -----------------
Total Income (Loss) From Operations 0.29 1.55
0.66
- ------------------------------------------------------
- -----------------
Less Distributions From:
Net investment income (0.87)
(0.87) (0.88)
Net realized gains -- --
- --
Capital -- --
.--
- ------------------------------------------------------
- -----------------
Total Distributions (0.87)
(0.87) (0.88)
- ------------------------------------------------------
- -----------------
Net Asset Value, End of Year $10.43 $11.01
$10.33
- ------------------------------------------------------
- -----------------
Total Return++ 2.98%
15.57% 6.43%
- ------------------------------------------------------
- -----------------
Net Assets, End of Year (millions) $406 $483
$533
- ------------------------------------------------------
- -----------------
Ratios to Average Net Assets:
Expenses 1.58%
1.63%** 1.22%**
Net investment income 8.20 8.07
8.74
- ------------------------------------------------------
- -----------------
Portfolio Turnover Rate 59%
118% 72%
======================================================
=================
(1) Per share amounts have been calculated using the
monthly average shares
method, rather than the undistributed net
investment income method,
because it more accurately reflects the per share
data of the period.
* For the year ended December 31, 1992, the expense
ratio excludes interest
expense. The expense ratio including interest
expense was 1.58%.
** Annualized expense ratio before waiver of fees by
the distributor for the
years ended December 31, 1989 and 1988 were 1.66%
and 1.57%, respectively.
*** Net investment income before waiver of fees by the
distributor would have
been $0.86 and $0.87 for the years ended December
31, 1989 and 1988,
respectively.
10 & 11
<PAGE>
- ------------------------------------------------------
- --------------------------
Investment Objective and Management Policies
- ------------------------------------------------------
- --------------------------
Set forth below is a description of the
investment objective and policies
of the Fund. There can be no assurance that the Fund
will achieve its investment
objective. Certain instruments and techniques
discussed in this summary are
described in greater detail in this Prospectus under
"Additional Investments"
and in the Statement of Additional Information. A
description of the rating
systems of Moody's Investors Service Inc. ("Moody's")
and Standard & Poor's
Ratings Group ("S&P") is contained in the Appendix to
the Statement of
Additional Information.
The Fund's investment objective is to provide as
high a level of current
income as is consistent with prudent investment
management and preservation of
capital. The Fund's investment objective may not be
changed without the approval
of the "vote of a majority of the Fund's outstanding
voting securities" as defined in the Investment
Company Act of 1940 (the "1940 Act".) The Fund seeks
to achieve its objective by investing primarily in
fixed income securities that are
of a higher credit quality and present a lower risk of
principal loss at
maturity. Such securities are typically considered
"investment grade" quality,
i.e., securities having a rating by a nationally
recognosed statistical ratings
organization ("NRSRO") within one of the four highest
rating categories of their
class. The Fund will invest primarily in the following
securities: corporate
bonds rated in the highest four categories for debt
securities by an NRSRO (such
as Baa or better by Moody's or BBB or better by S&P);
U.S. government
securities; commercial paper issued by domestic
corporations and rated in the
top two categories for short-term debt securities by
an NRSRO (such as Prime-1
or Prime-2 by Moody's or A-1 or A-2 by S&P), or, if
not rated, issued by a
corporation having an outstanding debt issue rated in
the highest two ratings
categories for debt securities by an NRSRO (such as Aa
or better by Moody's or
AA or better by S&P); negotiable bank certificates of
deposit and bankers'
acceptances issued by domestic banks (but not their
foreign branches) having
total assets in excess of $1 billion; and high-
yielding common stocks and
warrants. Obligations rated in the lowest of the top
four rating categories
(such as Baa by Moody's or BBB by S&P) may have
speculative characteristics and
changes in economic conditions or other circumstances
are more likely to lead to
a weakened capacity to make principal and interest
payments, including a greater
possibility of default or bankruptcy of the issuer,
than is the case with higher
grade bonds. Subsequent to its purchase by the Fund,
an issue of securities may
cease to be rated or its rating may be reduced below
the minimum required for
purchase by the Fund. In addition, it is possible that
Moody's, S&P and other
NRSROs might not timely change their ratings of a
particular issue to reflect
subsequent events. None of these events will require
the sale of the securities
by the Fund, although MMC will consider these events
in determining whether the
Fund should continue to hold the securities.
The Fund's portfolio will be managed by
purchasing and selling securities,
as well as holding selected securities to maturity. In
managing the Fund's
portfolio,
12
<PAGE>
- ------------------------------------------------------
- --------------------------
Investment Objective and Management Policies
(continued)
- ------------------------------------------------------
- --------------------------
MMC analyzes the business and credit qualities of a
particular issuer as well as
the economy in general to identify and monitor trends
and to identify
fixed-income securities with characteristics most
likely to meet the Fund's
objective. This process requires ongoing adjustments
to the portfolio based on
the relative values or maturities of individual debt
securities or changes in
the credit-worthiness or overall investment merits of
an issue.
Any such change in the Fund's portfolio may
result in increases or
decreases in the Fund's current income available for
distribution to
shareholders. If the Fund's expectations of changes in
interest rates or its
evaluation of the normal yield relationships between
securities prove to be
incorrect, the Fund's income, net asset value and
potential capital gain may be
reduced or its potential capital loss may be
increased. An increase in interest
rates will generally reduce the value of portfolio
investments (and, therefore,
the net asset value of the shares of the Fund), and a
decline in interest rates
will generally increase their value. The average
weighted maturity of a bond
fund can be used to measure the fund's sensitivity to
interest rate movements.
The longer the Fund's average weighted maturity, the
more sensitive the net
asset value is to interest rate changes. The Fund has
no stated maturity policy,
but generally invests in medium- to long-term
securities. At times, the Fund's
portfolio may have an average weighted maturity
exceeding 25 years which would
result in the Fund's net asset value being extremely
sensitive to interest rate
movements. Since all investments, including securities
with a higher credit
quality, have inherent market risks and fluctuations
in value due to changing
economic conditions and other factors, the Fund, of
course, cannot assure that
its investment objective will be achieved.
The Fund may enter into repurchase agreements,
reverse repurchase
agreements, firm commitment agreements, "short sales
against the box", borrow
money from banks as a temporary measure for
extraordinary or emergency purposes,
invest in real estate investment trusts, purchase the
securities of companies
with less than three years of continuous operation and
may lend its portfolio
securities. Except when in a temporary defensive
investment position, the Fund
intends to maintain at least 65% of its assets
invested in investment grade
bonds.
In making purchases of securities consistent
with the above policies, the
Fund will be subject to the applicable restrictions
referred to under
"Investment Restrictions" in the SAI.
ADDITIONAL INVESTMENTS
U.S. Government Securities. U.S. government
securities are obligations of,
or are guaranteed by, the United States government,
its agencies or
instrumentalities. These include bills, certificates
of indebtedness, notes, and
bonds issued by the United States Treasury or by
agencies or instrumentalities
of the United States government. Some U.S. government
securities, such as U.S.
Treasury bills and bonds, are supported by the full
faith and credit of the
United States Treasury;
13
<PAGE>
- ------------------------------------------------------
- --------------------------
Investment Objective and Management Policies
(continued)
- ------------------------------------------------------
- --------------------------
others are supported by the right of the issuer to
borrow from the United States
Treasury; others, such as those of the Federal
National Mortgage Association,
are supported by the discretionary authority of the
United States government to
purchase the agency's obligations; still others, such
as those of the Student
Loan Marketing Association and the Federal Home Loan
Mortgage Corporation
("FHLMC") are supported only by the credit of the
instrumentality. Mortgage
participation certificates issued by the FHLMC
generally represent ownership
interests in a pool of fixed-rate conventional
mortgages. Timely payment of
principal and interest on these certificates is
guaranteed solely by the issuer
of the certificates. Other investments will include
Government National Mortgage
Association Certificates ("GNMA Certificates"), which
are mortgage-backed
securities representing part ownership of a pool of
mortgage loans on which
timely payment of interest and principal is guaranteed
by the full faith and
credit of the United States government. While the
United States government
guarantees the payment of principal and interest on
GNMA Certificates, the
market value of the securities is not guaranteed and
will fluctuate.
Yankee Obligations. The Fund may invest in
Yankee obligations. Yankee
obligations are dollar denominated obligations issued
in the U.S. capital
markets by foreign issuers. Yankee obligations are
subject to certain sovereign
risks. One such risk is the possibility that a foreign
government might prevent
dollar denominated funds from flowing across its
borders. Other risks include:
adverse political and economic developments in a
foreign country; the extent and
quality of government regulation of financial markets
and institutions; the
imposition of foreign withholding taxes; and
expropriation or nationalization of
foreign issuers.
Repurchase Agreements. The Fund may enter into
repurchase agreement
transactions on U.S. government securities with banks
which are the issuers of
instruments acceptable for purchase by the Fund and
with certain dealers on the
Federal Reserve Bank of New York's list of reporting
dealers. Under the terms of
a typical repurchase agreement, the Fund would acquire
an underlying debt
obligation for a relatively short period (usually not
more than one week)
subject to an obligation of the seller to repurchase,
and the Fund to resell,
the obligation at an agreed-upon price and time,
thereby determining the yield
during the Fund's holding period. This arrangement
results in a fixed rate of
return that is not subject to market fluctuations
during the Fund's holding
period. The value of the underlying securities will be
at least equal at all
times to the total amount of the repurchase
obligation, including interest. The
Fund bears a risk of loss in the event that the other
party to a repurchase
agreement defaults on its obligations and the Fund is
delayed or prevented from
exercising its rights to dispose of the collateral
securities, including the
risk of a possible decline in the value of the
underlying securities during the
period while the Fund seeks to assert its rights to
them, the risk of incurring
expenses associated with asserting those rights and
the risk of
14
<PAGE>
- ------------------------------------------------------
- --------------------------
Investment Objective and Management Policies
(continued)
- ------------------------------------------------------
- --------------------------
losing all or part of the income from the agreement.
MMC, acting under the
supervision of the Board of Directors, reviews on an
ongoing basis the
creditworthiness and the value of the collateral of
those banks and dealers with
which the Fund enters into repurchase agreements to
evaluate potential risks.
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 cash or other debt
obligations of any grade
having a value equal to or greater than the Fund's
obligations, provided such
securities have been determined by MMC to be liquid
and unencumbered and are
marked to market daily pursuant to guidelines
established by the Directors
("eligible segregated assets") to cover its
obligations under reverse repurchase
agreements with broker-dealers (but not banks). The
Fund 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 1940
Act, reverse repurchase agreements may be considered
borrowings by the seller;
accordingly, the Fund will limit its investments in
reverse repurchase
agreements and other borrowings to no more than 331/3%
of its total assets.
Firm Commitment Agreements and When-Issued
Purchases. Firm commitment
agreements and when-issued purchases call for the
purchase of securities at an
agreed-upon price on a specified future date, and
would be used, for example,
when a decline in the yield of securities of a given
issuer is anticipated. The
Fund as purchaser assumes the risk of any decline in
value of the security
beginning on the date of the agreement or purchase.
The Fund will not use such
transactions for leveraging purposes, and accordingly
will segregate eligible
segregated assets in an amount sufficient to meet its
purchase obligations under
the agreement.
Loans of Portfolio Securities. Consistent with
applicable regulatory
requirements, The Fund may lend its portfolio
securities provided: (a) the loan
is secured continuously by collateral consisting of
U.S. government securities,
cash or cash equivalents maintained on a daily marked-
to-market basis in an
amount at least equal to the current market value of
the securities loaned; (b)
the Fund may at any time call the loan and obtain the
return of the securities
loaned and (c) the Fund will receive any interest or
dividends paid on the
loaned securities. The risks in lending portfolio
securities, as with other
extensions of secured credit, consists of possible
delays in receiving
additional collateral or in the recovery of the
securities or possible loss of
rights in the collateral should the borrower fail
financially. Loans will be
made to firms deemed by MMC to be in good standing and
will not be made unless,
in the judgement of MMC, the consideration to be
earned from such loans would
justify the risk.
15
<PAGE>
- ------------------------------------------------------
- --------------------------
Investment Objective and Management Policies
(continued)
- ------------------------------------------------------
- --------------------------
Interest Rate Futures Contracts The Fund may
purchase and sell interest
rate futures contracts ("futures contracts") as a
hedge against changes in
interest rates. A futures contract is an agreement
between two parties to buy
and sell a security for a set price on a future date.
Futures contracts are
traded on designated "contracts markets" which,
through their clearing
corporations, guarantee performance of the contracts.
Currently, there are
futures contracts based on securities such as long-
term Treasury bonds, Treasury
notes, GNMA Certificates and three-month Treasury
bills.
Generally, if market interest rates increase,
the value of outstanding
debt securities declines (and vice versa). Entering
into a futures contract for
the sale of securities has an effect similar to the
actual sale of securities,
although the sale of the futures contract might be
accomplished more easily and
quickly. For example, if the Fund holds long-term U.S.
government securities and
MMC anticipates a rise in long-term interest rates, it
could, in lieu of
disposing of its portfolio securities, enter into
futures contracts for the sale
of similar long-term securities. If interest rates
increased and the value of
the Fund's securities declined, the value of the
Fund's futures contracts would
increase, thereby protecting the Fund by preventing
the net asset value from
declining as much as it otherwise would have.
Similarly, entering into futures
contracts for the purchase of securities has an effect
similar to actual
purchase of the underlying securities, but permits the
continued holding of
securities other than the underlying securities. For
example, if MMC expects
long-term interest rates to decline, the Fund might
enter into futures contracts
for the purchase of long-term securities, so that it
could gain rapid market
exposure that may offset anticipated increases in the
cost of securities it
intends to purchase, while continuing to hold higher-
yielding short-term
securities or waiting for the long-term market to
stabilize.
The Fund also may purchase and sell listed put
and call options on futures
contracts. An option on a futures contract gives the
purchaser the right, in
return for the premium paid, to assume a position in a
futures contract (a long
position if the option is a call and a short position
if the option is a put),
at a specified exercise price at any time during the
option period. When an
option on a futures contract is exercised, delivery of
the futures position is
accompanied by cash representing the difference
between the current market price
of the futures contract and the exercise price of the
option. The Fund may
purchase put options on interest rate futures
contracts in lieu of, and for the
same purpose as, the sale of a futures contract. It
also may purchase such put
options in order to hedge a long position in the
underlying futures contract in
the same manner as it purchases "protective puts" on
securities. The purchase of
call options on interest rate futures contracts is
intended to serve the same
purpose as the actual purchase of the futures
contract, and the Fund will set
aside cash or cash equivalents sufficient to purchase
the amount of portfolio
securities represented by the underlying futures
contracts.
16
<PAGE>
- ------------------------------------------------------
- --------------------------
Investment Objective and Management Policies
(continued)
- ------------------------------------------------------
- --------------------------
The Fund may not purchase futures contracts or
related options if,
immediately thereafter, more than 30% of the Fund's
total assets would be so
invested. In purchasing and selling futures contracts
and related options, the
Fund will comply with rules and interpretations of the
Commodity Futures Trading
Commission ("CFTC"), under which the Company is
excluded from regulation as a
"commodity pool." CFTC regulations permit use of
commodity futures and options
for bona fide hedging purposes without limitations on
the amount of assets
committed to margin and option premiums.
The Fund will not engage in transactions
involving futures contracts or
related options for speculation but only as a hedge
against changes in the
market values of debt securities held, or intended to
be purchased, by the Fund
and where the transactions are appropriate to
reduction of the Fund's risks. The
Fund's futures transactions will be entered into for
traditional hedging
purposes -- that is, futures contracts will be sold
(or related put options
purchased) to protect against a decline in the price
of securities that the Fund
owns, or futures contracts (or related call options)
will be purchased to
protect the Fund against an increase in the price of
securities it is committed
to purchase.
There is no assurance that the Fund will be able
to close out its futures
positions at any time, in which case it would be
required to maintain the margin
deposits on the contract. There can be no assurance
that hedging transactions
will be successful, as there may be an imperfect
correlation (or no correlation)
between movements in the prices of the futures
contracts and of the debt
securities being hedged, or price distortions due to
market conditions in the
futures markets. Where futures contracts are purchased
to hedge against an
increase in the price of long-term securities, but the
long-term market declines
and the Fund does not invest in long-term securities,
the Fund would realize a
loss on the futures contracts, which would not be
offset by a reduction in the
price of securities purchased. Where futures contracts
are sold to hedge against
a decline in the price of the Fund's long-term
securities but the long-term
market advances, the Fund would lose part or all of
the benefit of the advance
due to offsetting losses in its futures positions.
Short Sales. The Fund may sell securities short
"against the box". While a
short sale is the sale of a security the Fund does not
own, it is "against the
box" if at all times when the short position is open,
the Fund owns an equal
amount of the securities or securities convertible
into, or exchangeable without
further consideration for, securities of the same
issue as the securities sold
short. Short sales "against the box" are used to defer
recognition of capital
gains or losses.
American Depositary Receipts. The Fund may
purchase American Depositary
Receipts ("ADRs"), which are dollar-denominated
receipts issued generally by
domestic banks and representing the deposit with the
bank of a security of a
foreign issuer. ADRs are publicly traded on exchanges
or over-the-counter in the
United States.
17
<PAGE>
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- --------------------------
Investment Objective and Management Policies
(continued)
- ------------------------------------------------------
- --------------------------
Year 2000. The investment management services
provided to the Fund by MMC
and the services provided to shareholders by Smith
Barney, the Fund's
Distributor, depend on the smooth functioning of their
computer systems. Many
computer software systems 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. MMC 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, MMC has been advised by
the Fund's custodian, transfer agent and accounting
service agent that they are
also in the process of modifying their systems with
the same goal. There can,
however, be no assurance that MMC, Smith Barney or any
other service provider
will be successful, or that interaction with other
non-complying computer
systems will not impair Fund services at that time.
PORTFOLIO TRANSACTIONS AND TURNOVER
MMC arranges for the purchase and sale of the
Fund's securities and
selects broker-dealers (including Smith Barney) which,
in its best judgment,
provide prompt and reliable execution at favorable
prices and reasonable
commission rates. MMC may select broker-dealers which
provide it with research
services and may cause the Fund to pay such broker-
dealers commissions which
exceed those other broker-dealers may have charged, if
it views the commissions
as reasonable in relation to the value of the
brokerage and/or research
services.
For reporting purposes, the Fund's portfolio
turnover rate is calculated
by dividing the lesser of purchases or sales of
portfolio securities for the
fiscal year by the monthly average of the value of the
Fund's securities, with
money market instruments with less than one year to
maturity excluded. A 100%
portfolio turnover rate would occur, for example, if
all included securities
were replaced once during the year. The Fund's
portfolio turnover rates for each
of the past fiscal years are set forth under
"Financial Highlights."
- ------------------------------------------------------
- --------------------------
Valuation of Shares
- ------------------------------------------------------
- --------------------------
The Fund's net asset value per share is
determined as of the close of
regular trading on the NYSE on each day that the NYSE
is open, by dividing the
value of the Fund's net assets attributable to each
Class by total number of
shares of the Class outstanding.
A security that is primarily traded on a United
States or foreign stock
exchange is valued at the last sale price on that
exchange or, if there were no
sales during the
18
<PAGE>
- ------------------------------------------------------
- --------------------------
Valuation of Shares (continued)
- ------------------------------------------------------
- --------------------------
day, at the current quoted bid price. In cases where
securities are traded on
more than one exchange, the securities are valued on
the exchange designated by
or under the authority of the Board of Directors as
the primary market. Fund
securities which are primarily traded on foreign
exchanges may be valued with
the assistance of a pricing service and are generally
valued at the preceding
closing values of such securities on their respective
exchanges, except that
when an occurrence subsequent to the time a foreign
security is valued is likely
to have changed such value, then the fair value of
those securities will be
determined by consideration of other factors by or
under the direction of the
Board of Directors. Unlisted foreign securities are
valued at the mean between
the last available bid and offer price prior to the
time of valuation. U.S.
over-the-counter securities will be valued on the
basis of the bid price at the
close of business on each day. Securities and assets
for which market quotations
are not readily available are valued at fair value as
determined in good faith
by or under the direction of the Board of Directors.
Notwithstanding the above,
bonds and other fixed income securities are valued by
using market quotations
and may be valued on the basis of prices provided by a
pricing service approved
by the Board of Directors. Any assets or liabilities
initially expressed in
terms of foreign currencies will be converted into
U.S. dollar values at the
mean between the bid and offered quotations of such
currencies against U.S.
dollars as last quoted by any recognized dealer.
- ------------------------------------------------------
- --------------------------
Dividends, Distributions and Taxes
- ------------------------------------------------------
- --------------------------
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to declare and pay monthly
dividends from its net
investment income. Dividends from net realized capital
gains, if any, will be
distributed 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 automatically reinvested in
additional same Class shares
at the appropriate net asset value, with no additional
sales charge or CDSC.
The per share amounts of dividends from net
investment income on Class B
may be lower than that of Class A, mainly as a result
of the
distribution fees applicable to Class B shares.
Capital gain distributions, if any, will be the same
amount for both Classes of Fund shares (A, and B).
TAXES
The following is a summary of the material
federal tax considerations
affecting
19
<PAGE>
- ------------------------------------------------------
- --------------------------
Dividends, Distributions and Taxes (continued)
- ------------------------------------------------------
- --------------------------
the Fund and Fund shareholders, please refer to the
SAI for further discussion.
In addition to the considerations described below and
in the SAI, there may be
other federal, state, local, and/or foreign tax
applications to consider.
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 intends to qualify, as it has in prior
years, 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, so long as
such qualification is in the best interests of its
shareholders, 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
securities 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
dividends 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
disposition. 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
shareholders who do not provide the Fund with a
correct taxpayer identification
number (social security 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 withholding does not constitute
an additional tax, and may
be claimed as a credit on the shareholders' federal
income tax return.
20
<PAGE>
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- --------------------------
Purchase of Shares
- ------------------------------------------------------
- --------------------------
GENERAL
The Fund offers two Classes of shares to
investors purchasing through PFS
Investments Registered Representatives. Class A shares
are sold to investors
with an initial sales charge and Class B shares are
sold without an initial
sales charge but are subject to a CDSC payable upon
certain redemptions. See
"Prospectus Summary-Alternative Purchase Arrangements"
for a discussion of
factors to consider in selecting which Class of shares
to purchase.
Initial purchases of Fund shares must be made
through a PFS Investments
Registered Representative by completing the
appropriate application found in the
prospectus. The completed application should be
forwarded to the Sub-Transfer
Agent, 3100 Breckinridge Blvd., Bldg 200, Duluth,
Georgia 30099-0062. Checks
drawn on foreign banks must be payable in U.S. dollars
and have the routing
number of the U.S. bank encoded on the check.
Subsequent investments may be sent
directly to the Sub-Transfer Agent.
Investors in Class A and Class B shares may open
an account by making an
initial investment of at least $1,000 for each
account, or $250 for an IRA or a
Self-Employed Retirement Plan, in the Fund. Subsequent
investments of at least
$50 may be made for both Classes. For participants in
retirement plans qualified
under Section 403(b)(7) or Section 401(a) of the Code,
the minimum initial and
subsequent investment requirement for both Classes in
the Fund is $25. For the
Fund's Systematic Investment Plan the minimum initial
and subsequent investment
requirement for both classes is $25. There are no
minimum investment requirements for
Class A shares for employees of Travelers and its
subsidiaries, including Smith
Barney, Directors of the Company or Directors or
Trustees of other funds
affiliated with Travelers and their spouses and
children. The Fund reserves the
right to waive or change minimums, to decline any
order to purchase its shares
and to suspend the offering of shares from time to
time. Shares purchased will
be held in the shareholder's account by the Sub-
Transfer Agent. Share
certificates are issued only upon a shareholder's
written request to the
Sub-Transfer Agent. A shareholder who has insufficient
funds to complete any
purchase will be charged a fee of $25 per returned
purchase by pfs or the
Sub-Transfer Agent.
Purchase orders received by the Sub-Transfer
Agent 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.
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, the Sub-Transfer
Agent is authorized
through preauthorized transfers of $25 or more to
charge the regular bank
account or other
21
<PAGE>
- ------------------------------------------------------
- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
financial institution indicated by the shareholder on
a monthly basis to provide
systematic additions to the shareholder's Fund
account. A shareholder who has
insufficient funds to complete the transfer will be
charged a fee of up to $25
by PFS or the Sub-Transfer Agent. A shareholder who
places a stop payment on a
transfer or a shareholder whose transfer is returned
because the account has
been closed will also be charged a fee of $25 by PFS
or the Sub-Transfer Agent.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A
SHARES
The sales charge applicable to purchases of
Class A shares of the Fund are
as follows:
Sales Sales
Dealer's
Charge as % Charge
as % Reallowance as %
Amount of Investment of Offering Price of Amount
Invested of Offering Price
======================================================
==========================
Less than $25,000 4.50%
4.71% 4.05%
$25,000 - $49,999 4.00 4.17
3.60
$50,000 - $99,999 3.50 3.63
3.15
$100,000 - $249,999 2.50 2.56
2.25
$250,000 - $499,999 1.50 1.52
1.35
$500,000 and over * *
*
======================================================
==========================
* Purchases of Class A shares of $500,000 or more will
be made at net asset
value without any initial sales charge, but will be
subject to a CDSC of
1.00% on redemptions made within 12 months of
purchase. The CDSC on Class
A shares is payable to PFS, which in turn pays PFS
Investments to
compensate its Investments Registered
Representatives 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 shares is waived.
See "Deferred Sales Charge Alternatives" and
"Waivers of CDSC".
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net
asset value without a sales
charge in the following circumstances: (a) sales to
(i) Board Members and
employees of Travelers and its subsidiaries and any of
the Smith Barney Mutual
Funds or other Travelers-affiliated funds (including
retired Board Members and
employees); the immediate families of such persons
(including the surviving
spouse of a deceased Board Member or employee); and to
a pension, profit-sharing
or other benefit plan for such persons and Board
Members of any funds sponsored
by Travelers and its affiliates and (ii) employees of
members of the National
Association of Securities Dealers, Inc., provided such
sales are made upon the
assurance of the purchaser that the purchase is made
for investment purposes and
that the securities will not be resold except through
redemption or repurchase;
(b) offers of Class A shares to any other investment
company to effect the
combination of such company with the Fund by merger,
acquisition of assets or
otherwise; (c) purchases by shareholders who have
redeemed Class A shares in the
Fund (or Class A shares of another fund in the Smith
Barney Mutual Funds that
are offered with a sales charge) and who wish to
reinvest their redemption
proceeds in the Fund, provided the reinvestment is
made within 60 calendar days
of the redemption; (d) purchases by accounts managed
by registered investment
advisory
22
<PAGE>
- ------------------------------------------------------
- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
subsidiaries of Travelers; and (e) sales through PFS
Investments Registered
Representatives where the amounts invested represent
the redemption proceeds
from investment companies distributed by an entity
other than PFS, on the
condition that (i) the redemption has occurred no more
than 60 days prior to the
purchase of the shares, (ii) the shareholder paid an
initial sales charge on
such redeemed shares and (iii) the shares redeemed
were not subject to a
deferred sales charge. PFS Investments may pay its
Investments Registered
Representatives an amount equal to 0.40% of the amount
invested if the purchase
represents redemption proceeds from an investment
company distributed by an
entity other than PFS. 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.
VOLUME DISCOUNTS
The "Amount of Investment" referred to in the
sales charge table set forth
above under "Initial Sales Charge Alternative-Class A
Shares" includes the
purchase of Class A shares in the Fund and of other
funds sponsored by Smith
Barney that are offered with a sales charge listed
under "Exchange Privilege". A
person eligible for a volume discount includes an
individual; members of a
family unit comprising a husband, wife and minor
children; a trustee or other
fiduciary purchasing for a single fiduciary account
including pension,
profit-sharing and other employee benefit trusts
qualified under Section 401(a)
of the Code, or multiple custodial accounts where more
than one beneficiary is
involved if purchases are made by salary reduction
and/or payroll deduction for
qualified and nonqualified accounts and transmitted by
a common employer entity.
Employer entity for payroll deduction accounts may
include trade and craft
associations and any other similar organizations.
LETTER OF INTENT
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 purchases of all Class
A shares of the Fund and other funds of the Smith
Barney Mutual Funds that are
offered with a sales charge listed under "Exchange
Privilege" over a 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 sale charges applicable to
23
<PAGE>
- ------------------------------------------------------
- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
the purchases made and the charges previously paid, or
an appropriate number of
escrowed shares will be redeemed.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next
determined without an
initial sales charge so that the full amount of an
investor's purchase payment
may be immediately invested in the Fund. A CDSC,
however, may be imposed on
certain redemptions of these shares. "CDSC Shares"
are: (a) Class B shares; and
(b) Class A shares 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 original 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 gains distributions;
(c) with respect to Class B shares, shares redeemed
more than five years after
their purchase; or (d) with respect to Class A shares
that are CDSC Shares,
shares redeemed more than 12 months after their
purchase.
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.
Year Since Purchase
Payment Was Made
CDSC
======================================================
==========================
First
4.50%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth and thereafter
0.00
======================================================
==========================
Class B shares will convert automatically to
Class A shares eight years
after the date on which they were purchased and
thereafter will no longer be
subject to any distribution fee. There will also 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.
In determining the applicability of any CDSC, it
will be assumed that a
redemption is made first of shares representing
capital appreciation, next of
shares
24
<PAGE>
- ------------------------------------------------------
- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
representing the reinvestment of dividends and capital
gains distributions and
finally of other shares held by the shareholder for
the longest period of time.
The length of time that CDSC Shares acquired through
an exchange have been held
will be calculated from the date that the shares
exchanged were initially
acquired in one of the other Smith Barney Mutual
Funds, and Fund shares being
redeemed will be considered to represent, as
applicable, capital appreciation or
dividend and capital gains distribution reinvestments
in such other funds. For
Federal income tax purposes, the amount of the CDSC
will reduce the gain or
increase the loss, as the case may be, on the amount
realized on redemption. The
amount of any CDSC will be paid to PFS.
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
investment. Assuming at the time of the redemption the
net asset value had
appreciated to $12 per share, the value of the
investor's shares would be $1,260
(105 shares at $12 per share). The CDSC would not be
applied to the amount which
represents appreciation ($200) and the value of the
reinvested dividend shares
($60). Therefore, $240 of the $500 redemption proceeds
($500 minus $260) would
be charged at a rate of 4.00% (the applicable rate for
Class B shares) for a
total deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see
"Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less
than 1.00% per month of
the value of the shareholder's shares at the time the
withdrawal plan commences
(see "Redemption of Shares - Automatic Cash Withdrawal
Plan"); (c) redemption of
shares within 12 months following the death or
disability of the shareholder;
(d) redemption of shares made in connection with
qualified distributions from
retirement plans or IRAs upon the attainment of age
591/2; (e) involuntary
redemptions; and (f) redemption of shares to effect a
combination of the Fund
with any investment company by merger, acquisition of
assets or otherwise. In
addition, a shareholder who has redeemed shares from
other funds of the Smith
Barney Mutual Funds may, under certain circumstances,
reinvest all or part of
the redemption proceeds within 60 days and receive pro
rata credit for any CDSC
imposed on the prior redemption.
CDSC waivers will be granted subject to
confirmation by PFS of the
shareholder's status or holdings, as the case may be.
- ------------------------------------------------------
- --------------------------
Exchange Privilege
- ------------------------------------------------------
- --------------------------
Except as otherwise noted below, shares of each
Class may be exchanged at
the net asset value next determined for shares of the
same Class in the
following funds
25
<PAGE>
- ------------------------------------------------------
- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
of the Smith Barney Mutual Funds, to the extent shares
are offered for sale in
the shareholder's state of residence. Exchanges of
Class A and Class B shares
are subject to minimum investment requirements and all
shares are subject to the
other requirements of the fund into which exchanges
are made.
FUND NAME
o Concert Investment Series -- Emerging Growth Fund
o Concert Investment Series -- Government Fund
o Concert Investment Series -- Growth Fund
o Concert Investment Series -- Growth and Income
Fund
o Concert Investment Series -- International Equity
Fund
o Concert Investment Series -- Municipal Bond Fund
o Concert Social Awareness Fund
o Smith Barney Concert Allocation Series Inc. --
Balanced Portfolio
o Smith Barney Concert Allocation Series Inc. --
Conservative Portfolio
Smith Barney Concert Allocation Series Inc. --
Global Portfolio
o Smith Barney Concert Allocation Series Inc. --
Growth Portfolio
o Smith Barney Concert Allocation Series Inc. --
High Growth Portfolio
o Smith Barney Concert Allocation Series Inc. --
Income Portfolio
o Smith Barney Appreciation Fund Inc.
o Concert Peachtree Growth Fund
*o Smith Barney Money Funds, Inc. -- Cash Portfolio
**o Smith Barney Exchange Reserve Fund
* Available for exchange with Class A shares of the
Fund
** Available for exchange with Class B shares of the
Fund
Class B Exchanges. In the event a Class B
shareholder wishes to exchange
all or a portion of his or her shares in any of the
funds imposing a higher CDSC
than that imposed by the Fund, the exchanged Class B
shares will be subject to
the higher applicable CDSC. Upon an exchange, the new
Class B shares will be
deemed to have been purchased on the same date as the
Class B shares of the Fund
that have been exchanged.
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. MMC 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 MMC will notify
PFS that the Fund and PFS may, at its discretion,
decide to limit additional
purchases and/or exchanges by a shareholder. Upon such
a determination by the
Fund, PFS 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 Smith Barney
Mutual Funds listed under "Exchange Privilege," which
position the shareholder
would be expected to
26
<PAGE>
- ------------------------------------------------------
- --------------------------
Exchange Privilege (continued)
- ------------------------------------------------------
- --------------------------
maintain for a significant period of time. All
relevant factors will be
considered in determining what constitutes an abusive
pattern of exchanges.
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.
- ------------------------------------------------------
- --------------------------
Redemption of Shares
- ------------------------------------------------------
- --------------------------
Shareholders may redeem for cash some or all of
their shares of the Fund
at any time by sending a written request in proper
form directly to the
Sub-Transfer Agent, PFS Shareholder Services, at 3100
Breckinridge Blvd., Bldg.
200, Duluth, Georgia 30099-0062. If you should have
any questions concerning how
to redeem your account after reviewing the information
below, please contact the
Sub-Transfer Agent at (800) 544-5445, Spanish-speaking
representatives (800)
544-7278 or TDD Line for the Hearing Impaired (800)
824-1721.
As described under "Purchase of Shares",
redemptions of Class B shares are
subject to a contingent deferred sales charge.
The request for redemption must be signed by all
persons in whose names
the shares are registered. Signatures must conform
exactly to the account
registration. If the proceeds of the redemption exceed
$50,000, or are not to be
paid to the record owner(s) at the record address, if
the shareholder(s) has had
an address change in the past 45 days, or if the
shareholder(s) is a
corporation, sole proprietor, partnership, trust or
fiduciary, the signatures
must be guaranteed by one of the following: a bank or
trust company; a
broker-dealer; a credit union; a national securities
exchange, registered
securities association or clearing agency; a savings
and loan association; or a
federal savings bank.
Generally, a properly completed Redemption Form
with any required
signature guarantee is all that is required for a
redemption. In some cases,
however, other documents may be necessary. For
example, in the case of
shareholders holding certificates, the certificates
for the shares being
redeemed must accompany the redemption request.
Additional documentary evidence
of authority is also required by the Sub-Transfer
Agent in the event redemption
is requested by a corporation,
27
<PAGE>
- ------------------------------------------------------
- --------------------------
Redemption of Shares (continued)
- ------------------------------------------------------
- --------------------------
partnership, trust, fiduciary, executor or
administrator. Additionally, if a
shareholder requests a redemption from a Retirement
Plan account (IRA, SEP or
403(b)(7)), such request must state whether or not
federal income tax is to be
withheld from the proceeds of the redemption check.
A shareholder may utilize the Sub-Transfer
Agent's fax to redeem their
account as long as a signature guarantee or other
documentary evidence is not
required. Redemption requests should be properly
signed by all owners of the
account and faxed to the Sub-Transfer Agent at (800)
554-2374. Facsimile
redemptions may not be available if the shareholder
cannot reach the
Sub-Transfer Agent by fax, whether because all
telephone lines are busy or for
any other reason; in such case, a shareholder would
have to use the Fund's
regular redemption procedure described above.
Facsimile redemptions received by
the Sub-Transfer Agent prior to 4:00 p.m. Eastern time
on a regular business day
will be processed at the net-asset value per share
determined that day.
In all cases, the redemption price is the net
asset value per share of the
Fund next determined after the request for redemption
is received in proper form
by the Sub-Transfer Agent. Payment for shares redeemed
will be made by check
mailed within three days after acceptance by the Sub-
Transfer Agent of the
request and any other necessary documents in proper
order. Such payment may be
postponed or the right of redemption suspended as
provided by the rules of the
SEC. If the shares to be redeemed have been recently
purchased by check or
draft, the Sub-Transfer Agent may hold the payment of
the proceeds until the
purchase check or draft has cleared, usually a period
of up to 15 days. Any
taxable gain or loss will be recognized by the
shareholder upon redemption of
shares.
After following the above-stated redemption
guidelines, a shareholder(s)
may elect to have the redemption proceeds wire-
transferred directly to the
shareholder's bank account of record (defined as a
currently established
pre-authorized draft on the shareholder's account with
no changes within the
previous 45 days), as long as the bank account is
registered in the same name(s)
as the account with the Fund. If the proceeds are not
to be wired to the bank
account of record, or mailed to the registered
owner(s), a signature guarantee
will be required from all shareholder(s). A $25
service fee will be charged by
the Sub-Transfer Agent to help defray the
administrative expense of executing a
wire redemption. Redemption proceeds will normally be
wired to the designated
bank account on the next business day following the
redemption, and should
ordinarily be credited to your bank account by your
bank within 48 to 72 hours.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash
withdrawal plan, under
which shareholders who own shares with a value of at
least $10,000 may elect to
receive periodic cash payments of at least $50 monthly
or quarterly. Retirement
plan
28
<PAGE>
- ------------------------------------------------------
- --------------------------
Redemption of Shares (continued)
- ------------------------------------------------------
- --------------------------
accounts are eligible for automatic cash withdrawal
plans only where the share
holder is eligible to receive qualified distributions
and has an account value
of at least $5,000. The withdrawal plan will be
carried over on exchanges
between funds or Classes of the Fund. Any applicable
CDSC will not be waived on
amounts withdrawn by a shareholder that exceed 1.00%
per month of the value of
the shareholder's shares subject to the CDSC at the
time the withdrawal plan
commences. For further information regarding the
automatic cash withdrawal plan,
shareholders should contact the Sub-Transfer Agent.
- ------------------------------------------------------
- --------------------------
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,
however, will not redeem shares based solely on market
reductions in net asset
value. Before the Fund exercises such right,
shareholders will receive written
notice and will be permitted 60 days to bring accounts
up to the minimum to
avoid involuntary liquidation.
- ------------------------------------------------------
- --------------------------
Performance
- ------------------------------------------------------
- --------------------------
YIELD
From time to time, the Fund may advertise its 30
day "yield" for each
Class of shares. The yield of a Class refers to the
income generated by an
investment in such Class over the 30 day period
identified in the advertisement,
and is computed by dividing the net investment income
per share earned by the
Class during the period by the net asset value per
share on the last day of the
period. This income is "annualized" by assuming that
the amount of income is
generated each month over a one year period and is
compounded semi-annually. The
annualized income is then shown as a percentage of the
net asset value.
TOTAL RETURN
From time to time, the Fund may include its
total return, average annual
total return and current dividend return in
advertisements and/or other types of
sales literature. These figures are computed
separately for Class A and Class B
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 specific
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
gains distributions on the reinvestment dates at
prices calculated as stated in
this Prospectus, then dividing
29
<PAGE>
- ------------------------------------------------------
- --------------------------
Performance (continued)
- ------------------------------------------------------
- --------------------------
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 Securities and Exchange
Commission, 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
calculates current dividend return for each Class by
annualizing the most recent
monthly distribution and dividing by the net asset
value or the maximum public
offering price (including sales charge) on the last
day of the period for which
current dividend return is presented. The current
dividend return for each Class
may vary from time to time depending on market
conditions, the composition of
its investment portfolio and operating expenses. These
factors and possible
differences in the methods used in calculating current
dividend return should be
considered when comparing a Class' current return to
yields published for other
investment companies and other investment vehicles.
The Fund may also include
comparative performance information in advertising or
marketing its shares. Such
performance information may include data from Lipper
Analytical Services, Inc.
and other financial publications.
The Fund may from time to time illustrate the
benefits of tax-deferral by
comparing taxable investments to investments made
through tax-deferred
retirement plans and the Fund may illustrate in graph
or chart form, or
otherwise, the benefits of the Systematic Investment
Plan by comparing
investments made pursuant to a systematic investment
plan to investments made in
a rising market.
- ------------------------------------------------------
- --------------------------
Management of the Company and the Fund
- ------------------------------------------------------
- --------------------------
BOARD OF DIRECTORS
Overall responsibility for management and
supervision of the Fund rests
with the Company's Board of Directors. The Directors
approve all significant
agreements between the Company and companies that
furnish services to the Fund,
including agreements with its distributor, investment
adviser, custodian and
transfer agent. The day-to-day operations of the Fund
are delegated to the
Fund's investment manager. The SAI contains general
and background information
regarding each Director of the Fund and executive
officer of the Company.
INVESTMENT ADVISER
MMC, located at 388 Greenwich Street, New York,
New York 10013, serves as
the Fund's investment adviser. MMC (through its
predecessor entities) has been
in the investment counseling business since 1940 and
is a registered investment
adviser. MMC renders investment advice to investment
companies that had
aggregate assets under management as of March 31, 1998
of approximately of
$100.5 billion.
30
<PAGE>
- ------------------------------------------------------
- --------------------------
Management of the Company and the Fund (continued)
- ------------------------------------------------------
- --------------------------
Subject to the supervision and direction of the
Fund's Board of Directors,
MMC 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 portfolio managers and
securities analysts who provide research services to
the Fund. Under an
investment advisory agreement, the Fund pays MMC a
monthly fee at the annual
rate of 0.45% of the value of the Fund's average daily
net assets up to $500
million and 0.42% of the value of average daily net
assets thereafter. For the
fiscal year ended December 31, 1997, MMC was paid
investment advisory fees equal
to 0.45% of the value of the Fund's average daily net
assets.
PORTFOLIO MANAGEMENT
George E. Mueller, Jr., Managing Director of
Smith Barney, has served as
the Investment Officer of the Fund since January 1,
1985, and manages the
day-to-day operations of the Fund, including making
all investment decisions.
Management's discussion and analysis and
additional performance
information regarding the Fund during the fiscal year
ended December 31, 1997 is
included in the Annual Report dated December 31, 1997.
A copy of the Annual
Report may be obtained upon request and without charge
from the Sub-Transfer
Agent or by writing or calling the Fund at the address
or phone number listed on
page one of this Prospectus.
ADMINISTRATOR
MMC also serves as the Fund's administrator and
oversees all aspects of
the Fund's administration. For administration services
rendered, the Fund paid
an administration fee at the annual rate of 0.20% of
the value of the Fund's
average daily net assets up to $500 million and 0.18%
of the average daily net
assets thereafter.
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 subject
to approval by the stockholders of each of Travelers
Group and Citicorp. 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
"BCHA"), the requirements of the Glass-Steagall Act
and certain other laws and
regulations. Although the effects of the merger of
Travelers and Citicorp and
compliance with the requirements of the BCHA and the
Glass-Steagall Act are
still under review, MMC does not believe that its
compliance with applicable law following 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.
31
<PAGE>
- ------------------------------------------------------
- --------------------------
Distributor
- ------------------------------------------------------
- --------------------------
PFS is located at 3100 Breckinridge Boulevard,
Duluth, Georgia 30099-0062.
PFS distributes shares of the Fund as a principal
underwriter and as such
conducts a continuous offering pursuant to a "best
efforts" arrangement
requiring PFS to take and pay for only such securities
as may be sold to the
public. Pursuant to a plan of distribution adopted by
the Fund under Rule 12b-1
under the 1940 Act (the "Plan"), PFS is paid an annual
service fee with respect
to Class A and Class B shares of the Fund at the
annual rate of 0.25% of the
average daily net assets of the respective Class. PFS
is also paid an annual
distribution fee with respect to Class B shares at the
annual rate of 0.50%, of
the average daily net assets attributable to that
Class. Class B shares that
automatically convert to Class A shares eight years
after the date of original
purchase will no longer be subject to distribution
fees. The fees are paid to
PFS which, in turn pays PFS Investments to pay its
Registered Representatives
for servicing shareholder accounts and, in the case of
Class B shares, to cover
expenses primarily intended to result in the sale of
those shares. These
expenses include: advertising expenses; the cost of
printing and mailing
prospectuses to potential investors; payments to and
expenses of Registered
Representatives and other persons who provide support
services in connection
with the distribution of shares; interest and/or
carrying charges; and indirect
and overhead costs of PFS Investments associated with
the sale of Fund shares,
including lease, utility, communications and sales
promotion expenses.
The payments to PFS Investments Registered
Representatives for selling
shares of a Class include a commission or fee paid by
the investor or PFS at the
time of sale and a continuing fee for servicing
shareholder accounts for as long
as a shareholder remains a holder of that Class.
Registered Representatives may
receive different levels of compensation for selling
different Classes of
shares.
PFS Investments may be deemed to be an
underwriter for purposes of the
Securities Act of 1933, as amended. From time to time,
PFS or its affiliates may
also pay for certain non-cash sales incentives
provided to PFS Investments
Registered Representatives. Such incentives do not
have any effect on the net
amount invested. In addition to the reallowances from
the applicable public
offering price described above, PFS may, from time to
time, pay or allow
additional reallowances or promotional incentives, in
the form of cash or other
compensation to PFS Investments Registered
Representatives that sell shares of
the Fund.
Payments under the Plan are not tied exclusively
to the distribution and
shareholder service expenses actually incurred by PFS
and the payments may
exceed distribution expenses actually incurred. The
Company's Board of Directors
will evaluate the appropriateness of the Plan and its
payment terms on a
continuing basis and in doing so will consider all
relevant factors, including
expenses borne by PFS, amounts received under the Plan
and proceeds of the CDSC.
32
<PAGE>
- ------------------------------------------------------
- --------------------------
Addtional 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 to investors purchasing through PFS shares
of common stock currently
classified into two Classes, A and B, with a par value
of $.001 per share. Each
Class represents an identical interest in the Fund's
investment portfolio. As a
result, the Classes have the same rights, privileges
and preferences, except
with respect to: (a) the 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
consider whether any such
conflict exists and, if so, take appropriate action.
PNC Bank, National Association, located at 17th
and Chestnut Streets,
Philadelphia, PA 10103, serves as custodian of the
Fund's investments.
PFS Shareholder Services located at 3100
Breckinridge Blvd., Bldg. 200,
Duluth, Georgia 30099-0062, serves as the Fund's Sub-
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
outstanding 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, each of which includes 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 having multiple accounts with the identical
address of record will
receive a single copy of each report. Shareholders who
do not want this
consolidation to apply to their accounts should
contact the Sub-Transfer Agent.
Also available at the shareholder's request, is
an Account Transcript
identifying every financial transaction in an account
since it was opened. To
defray administrative expenses involved with providing
multiple years worth of
information, there is a $15 charge for each Account
Transcript requested.
33
<PAGE>
- ------------------------------------------------------
- --------------------------
Additional Information (continued)
- ------------------------------------------------------
- --------------------------
Additional copies of tax forms are available at
the Shareholder's request.
A $10 charge for each tax form will be assessed.
Additional information regarding the Sub-
Transfer Agent's services may be
obtained by contacting the Client Services Department
at 1-800-544-5445.
34
PART B
Smith Barney
Investment Funds Inc.
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Statement of Additional Information
April 30, 1998
This Statement of Additional Information expands upon
and
supplements the information contained in the current
Prospectuses
of Smith Barney Investment Funds Inc. (the "Company"),
dated April
30, 1998, as amended or supplemented from time to
time, and should
read in conjunction with the Company's Prospectuses.
The Company
issues a Prospectus for each of the investment funds
offered by the
Company (the "Funds"). The Company's Prospectuses may
be obtained
from a Smith Barney Financial Consultant, or by
writing or calling
the Company at the address or telephone number listed
above. This
Statement of Additional Information, although not in
itself a
prospectus, is incorporated by reference into the
Prospectuses in
its entirety.
CONTENTS
For ease of reference, the same section headings are
used in the
Prospectuses and this Statement of Additional
Information, except
where shown below:
Management of the Company (see in the
Prospectuses
"Management of the Company and the
Fund") 1
Investment Objectives and Management Policies 5
Purchase of Shares 14
Redemption of Shares 15
Distributor 16
Valuation of Shares 18
Exchange Privilege 19
Performance Data (See in the Prospectus
"Performance") 19
Taxes (See in the Prospectus "Dividends, Distributions
and
Taxes") 23
Additional Information 27
Financial Statements 27
Appendix A-1
MANAGEMENT OF THE COMPANY
The executive officers of the Company are employees of
certain of
the organizations that provide services to the
Company. These
organizations are the following:
Name
Service
Smith Barney Inc. ("Smith Barney")
Distributor
PFS Distributors, Inc.("PFS")
Mutual Management Corp. ("MMC") (formerly Smith Barney
Mutual Fund
Management Inc.)
Distributor (Concert Peachtree Growth Fund and
Investment Grade
Bond Fund)
Investment Adviser and Administrator
PNC Bank, National Association ("PNC")
Custodian
First Data Investor Services Group, Inc. ("First
Data")
Transfer Agent
These organizations and the functions they perform for
the Company
are discussed in the Prospectuses and in this
Statement of
Additional Information.
Directors and Executive Officers of the Company
The names of the Directors and executive officers of
the Company,
together with information as to their principal
business
occupations during the past five years, are shown
below. Each
Director who is an "interested person" of the Company,
as defined
in the Investment Company Act of 1940, as amended (the
"1940
Act"), is indicated by an asterisk.
Paul R. Ades, Director (Age 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 64). 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 42
investment
companies associated with Smith Barney. His address
is 388
Greenwich Street, New York, New York 10013.
Ken Miller, Director (Age 56). President of
Young Stuff Apparel
Group, Inc. His address is 1411 Broadway, New York,
New York
10018.
John F. White, Director Emeritus (Age 80)
President Emeritus of
The Cooper Union for the Advancement of Science and
Art; Special
Assistant to the President of the Aspen Institute.
His address is
Crows Nest Road, Tuxedo Park, New York 10987.
James Conroy, Vice President and Investment
Officer. Managing
Director of Smith Barney. His address is 388 Greenwich
Street, New
York, New York 10013.
John Stoeser, Vice President and Investment Officer.
Prior to
July 1997, Assistant Vice President of Safeco Asset
Management
Company. His address is 500 108th Avenue, Suite 1900
North E.,
Bellevue, Washington 98004.
George E. Mueller, Jr., Vice President and Investment
Officer.
Managing Director of MMC; prior to July 1993, Managing
Director of
Shearson Lehman Advisors. His address is 388 Greenwich
Street, New
York, New York 10013.
George V. Novello, Vice President and Investment
Officer.
Managing Director of MMC; prior to July 1993, Managing
Director of
Shearson Lehman Advisors. Prior to September 1990,
Mr. Novello was
a Managing Director at McKinley-Allsopp, where he
served as Head of
Research. His address is 388 Greenwich Street, New
York, New York
10013.
Lewis E. Daidone, Senior Vice President and Treasurer
(Age 40).
Director and Senior Vice President of MMC. Mr.
Daidone serves as
Senior Vice President and Treasurer of 42 investment
companies
associated with Smith Barney. His address is 388
Greenwich Street,
New York, New York 10013.
Christina T. Sydor, Secretary (Age 47). Managing
Director of
Smith Barney and Secretary of MMC; General Counsel and
Secretary
of MMC. Ms. Sydor serves as Secretary of 42
investment companies
associated with Smith Barney. Her address is 388
Greenwich Street,
New York, New York 10013.
Each Director also serves as a director, trustee
and/or general
partner of certain other mutual funds for which Smith
Barney serves
as distributor. As of April 20, 1998, the Directors
and officers
of the Company, as a group, owned less than 1.00% of
the
outstanding common stock of the Company.
As of April 20, 1998 to the knowledge of the Funds and
the Board of
Directors, no single shareholder or group (as the term
is used in
Section 13(d) of the Securities Act of 1934)
beneficially owned
more than 5% of the outstanding shares of the Fund
with the
exception of the following:
FUND
CLASS
PERCENT
NAME
ADDRESS
Special Equities Fund
Y
57.4964%
Smith Barney
Concert Series, Inc.
High Growth Port, PNC Bank NA
ATTN: Beverly Timson
210 Stevens Drive Suite 440
Lester PA 19113
Special Equities Fund
Y
36.2424
Smith Barney
Concert Series, Inc.
Growth Portfolio, PNC Bank NA
ATTN: Beverly Timson
210 Stevens Drive Suite 440
Lester PA 19113
Special Equities Fund
Z
100.00
CitiBank NA TTEE
Travelers Group Master Trust
Smith Barney 401K Savings Plan
ATTN: Nancy Kronenberg
111 Wall Street
FISD/20th Floor
New York, NY 10043
Managed Growth Fund
Y
51.6760
Smith Barney
Concert Series, Inc.
Growth Portfolio, PNC Bank NA
ATTN: Beverly Timson
210 Stevens Drive Suite 440
Lester PA 19113
Managed Growth Fund
Y
41.7579
Smith Barney
Concert Series, Inc.
High Growth Port, PNC Bank NA
ATTN: Beverly Timson
210 Stevens Drive Suite 440
Lester PA 19113
Managed Growth Fund
Z
100.00
CitiBank NA TTEE
Travelers Group Master Trust
Smith Barney 401K Savings Plan
ATTN: Nancy Kronenberg
111 Wall Street
FISD/20th Floor
New York, NY 10043
Government Securities Fund
C
6.2144
Geoffrey K. Burke
Smith Barney Inc. Rollover Cust.
Savings Incentive Plan
245 Uwquaha Road
Fairfield CT 06430
Government Securities Fund
Y
57.8514
Smith Barney
Concert Series, Inc.
Growth Portfolio, PNC Bank NA
ATTN: Beverly Timson
210 Stevens Drive Suite 440
Lester PA 19113
Government Securities Fund
Y
16.9109
Smith Barney
Concert Series, Inc.
Balanced Portfolio, PNC Bank NA
ATTN: Beverly Timson
210 Stevens Drive Suite 440
Lester PA 19113
Government Securities Fund
Y
8.9388
Smith Barney
Concert Series, Inc.
Conservative Port., PNC Bank NA
ATTN: Beverly Timson
210 Stevens Drive Suite 440
Lester PA 19113
Government Securities Fund
Y
7.4300
Smith Barney
Concert Series, Inc.
Income Portfolio, PNC Bank NA
ATTN: Beverly Timson
210 Stevens Drive Suite 440
Lester PA 19113
Investment Grade Bond Fund
Y
92.6039
Smith Barney
Concert Series, Inc.
Growth Portfolio, PNC Bank NA
ATTN: Beverly Timson
210 Stevens Drive Suite 440
Lester PA 19113
Investment Grade Bond Fund
Y
7.3960
Smith Barney
Concert Series, Inc.
Select Growth Portfolio, PNC Bank NA
ATTN: Beverly Timson
210 Stevens Drive Suite 440
Lester PA 19113
Concert Peachtree Growth Fund
B
96.7095
PFS Shareholder Services (b)
ATTN: Jay Barnhill
3100 Breckinridge Blvd
Duluth GA 30199
FUND
CLASS
PERCENT
NAME
ADDRESS
Concert Peachtree Growth Fund
C
9.1312
Richard Love
Smith Barney Inc. Rollover Cust.
25 Muirwoods Court
Annapolis MD 21403
Concert Peachtree Growth Fund
C
7.8865
Allen Francis Schafer
Smith Barney Inc. Rollover Cust.
20 Cortes Court
San Rafael CA 94903
Concert Peachtree Growth Fund
C
6.5776
David Deichler
Smith Barney Inc. Rollover Cust.
513 Raven Pl
Clayton CA 94517
Concert Peachtree Growth Fund
C
5.8060
Victor B Karoblis and
Laura E Karoblis CO-TTEES
Karoblis Trust
1953 San Marco Road
Marco Island FL 34145
Concert Peachtree Growth Fund
C
5.0246
Richard D Reed
16 Pickering Way
Nashua NH 03063
Concert Peachtree Growth Fund
Y
52.1378
Smith Barney
Concert Series, Inc.
Growth Portfolio, PNC Bank NA
ATTN: Beverly Timson
210 Stevens Drive Suite 440
Lester PA 19113
Concert Peachtree Growth Fund
Y
41.3077
Smith Barney
Concert Series, Inc.
High Growth Port, PNC Bank NA
ATTN: Beverly Timson
210 Stevens Drive Suite 440
Lester PA 19113
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:
Director
Aggregate Compensation
From the Fund**
Pension Or Retirement Benefits
Accrued As Part of the Fund Expenses
Aggregate Compensation
From the Smith Barney Mutual Funds
Paul R. Ades (7)
$26,200
$0
$49,000
Herbert Barg (20)
28,700
0
101,600
Alger B. Chapman (9)+
19,600
0
35,125
Dwight B. Crane (26)
26,100
0
133,850
Frank G. Hubbard (7)
28,700
0
52,000
Heath B. McLendon (42)
- ---
0
- ---
Jerome Miller (2)
- -0-
0
12,400
Ken Miller (7)
28,700
0
52,000
John F. White (7)*
28,700
0
52,000
+ Mr. Chapman's compensation reflects his
resignation from the
Board of Directors effective June 20, 1997.
* For 1997 Mr. White deferred all of
his compensation from the Fund and
from Smith Barney Mutual Funds.
** 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. During the
Fund's last
fiscal year aggregate compensation paid by the Fund to
Directors
emeritus totaled $25,000. Effective March 9, 1998 Mr.
White became
a director emeritus.
Investment Adviser and Administrator - MMC
MMC serves as investment adviser to the Funds pursuant
to separate
advisory agreements (the "Advisory Agreements"). With
respect to
the Investment Grade Bond Fund, Government Securities
Fund and
Special Equities Fund, the Advisory Agreements were
transferred to
MMC effective November 7, 1994, from its affiliate,
Mutual
Management Corp. Mutual Management Corp. and MMC are
both wholly
owned subsidiaries of Salomon Smith Barney Holdings
Inc.
("Holdings") (formerly Smith Barney Holdings).
Holdings is a
wholly owned subsidiary of Travelers Group Inc.
("Travelers").
The Advisory Agreements were most recently approved by
the Board of
Directors, including a majority of the Directors who
are not
"interested persons" of the Company or the investment
advisers
(the "Independent Directors"), on July 24, 1997. MMC
bears all
expenses in connection with the performance of its
services. The
services provided by MMC under the Advisory Agreements
are
described in the Prospectuses under "Management of the
Company and
the Fund." MMC provides investment advisory and
management
services to investment companies affiliated with Smith
Barney.
As compensation for investment advisory and
administrative services
rendered to Managed Growth Fund and Concert Peachtree
Growth Fund,
Managed Growth Fund pays MMC a fee computed daily and
paid monthly
at the annual rates of 0.85% and Concert Peachtree
Growth Fund pays
MMC a fee computed daily and paid monthly at the
annual rate of
1.00% up to $250 million and 0.85% thereafter,
respectively, of the
value of its average daily net assets.
As compensation for investment advisory services
rendered to
Special Equities Fund, the Fund pays MMC a fee
computed daily and
paid monthly at the annual rate of 0.55% of the value
of its
average daily net assets.
As compensation for investment advisory services
rendered to
Government Securities Fund, the Fund pays MMC a fee
computed daily
and paid monthly at the following annual rates of
average daily net
assets: 0.35% up to $2 billion; 0.30% on the next $2
billion;
0.25% on the next $2 billion; 0.20% on the next $2
billion; and
0.15% on net assets thereafter.
As compensation for investment advisory services
rendered to
Investment Grade Bond Fund, the Fund pays MMC a fee
computed daily
and paid monthly at the following annual rates of
average daily net
assets: 0.45% up to $500 million and 0.42% on net
assets
thereafter.
For the fiscal years ended December 31, 1995, 1996 and
1997, the
Funds accrued advisory fees as follows:
Fund
1995
1996
1997
Investment Grade Bond Fund
$2,067,222
$2,198,162
$2,183,438
Government Securities Fund..................
2,287,647
1,979,639
1,900,510
Special Equities Fund
1,276,355
3,094,925
3,748,595
Managed Growth Fund
2,022,754
6,034,652
8,127,871
Concert Peachtree Growth Fund
390,902
1,040,355
1,262,626
MMC also serves as administrator to Investment Grade
Bond Fund,
Government Securities Fund and Special Equities Fund
pursuant to a
written agreement dated May 5, 1994 (the
"Administration
Agreement"), which was first approved by the Board of
Directors,
including a majority of the Independent Directors, on
May 5, 1994.
The services provided by MMC under the Administration
Agreement are
described in the Prospectuses under "Management of the
Company and
the Fund." MMC pays the salary of any officer and
employee who is
employed by both it and the Fund and bears all
expenses in
connection with the performance of its services.
As compensation for administrative services rendered
to each of
Investment Grade Bond Fund, Government Securities Fund
and Special
Equities Fund, MMC receives a fee computed daily and
paid monthly
at the annual rate of 0.20 of the value of the Fund's
average daily
net assets. For the fiscal years ended December 31,
1995, 1996 and
1997, these Funds paid administrative fees to MMC as
follows:
MMC
Fund
For the Fiscal
Year Ended
12/31/95
For the Fiscal
Year Ended
12/31/96
For the Fiscal
Year Ended
12/31/97
Investment Grade Bond Fund
$918,765
$976,938
$969,973
Government Securities Fund
1,307,222
1,131,222
1,086,006
Special Equities Fund
464,129
1,125,428
1,363,125
Counsel and Auditors
Willkie Farr & Gallagher LLP. serves as counsel to the
Company.
The Directors who are not "interested persons" of the
Company have
selected Stroock & Stroock & Lavan LLP as their legal
counsel.
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New
York 10154,
has been selected as the Fund's independent auditor to
examine and
report on the Fund's financial statements and
highlights for the
fiscal year ending December 31, 1998.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The Prospectuses discuss the investment objectives of
each Fund and
the policies they employ to achieve such objectives.
The following
discussion supplements the description of the Funds'
investment
objectives and management policies contained in the
Prospectuses.
Repurchase Agreements.
As described in the applicable Prospectus, each Fund
may enter into
repurchase agreements. A repurchase agreement is a
contract under
which a Fund acquires a security for a relatively
short period
(usually not more than one week) subject to the
obligation of the
seller to repurchase and the Fund to resell such
security at a fixed
time and price (representing the Fund's cost plus
interest). It is
each Fund's present intention to enter into repurchase
agreements
only upon receipt of fully adequate collateral and
only with
commercial banks (whether U.S. or foreign) and
registered broker-
dealers. Repurchase agreements may also be viewed as
loans made by a
Fund which are collateralized primarily by the
securities subject to
repurchase. A Fund bears a risk of loss in the event
that the other
party to a repurchase agreement defaults on its
obligations and the
Fund is delayed or prevented from exercising its
rights to dispose of
the collateral securities. Pursuant to policies
established by the
Board of Directors, MMC monitors the creditworthiness
of all issuers
with which each Fund enters into repurchase
agreements.
Reverse Repurchase Agreements.
Each Fund may enter into reverse repurchase
agreements. A reverse
repurchase agreement involves the sale of a money
market instrument
held by a Fund coupled with an agreement by a Fund to
repurchase
the instrument at a stated price, date and interest
payment. A
Fund will use the proceeds of a reverse repurchase
agreement to
purchase other money market instruments which either
mature at a
date simultaneous with or prior to the expiration of
the reverse
repurchase agreement or which are held under an
agreement to resell
maturing as of that time.
A Fund will enter into a reverse repurchase agreement
only when the
interest income to be earned from the investment of
the proceeds of
the transaction is greater than the interest expense
of the
transaction. Under the Investment Company Act of 1940
(the "1940
Act"), reverse repurchase agreements may be considered
to be
borrowings by the seller. A Fund may not enter into a
reverse
repurchase agreement if, as a result, its current
obligations under
such agreements would exceed one-third of the current
value of a
Fund's total assets (including the amount borrowed)
valued at the
lesser cost or market less liabilities (other than
obligations
under such agreements) valued at the time the
borrowing is made.
A Fund may enter into reverse repurchase agreements
with banks or
broker-dealers. Entry into such agreements with
broker-dealers
requires the creation and maintenance of a segregated
account with
the Company's custodian consisting of U.S. government
securities,
cash or cash equivalents.
Warrants.
All Funds except the Government Securities Fund may
purchase
warrants. A warrant is a security that gives the
holder the right,
but not the obligation, to subscribe for newly created
securities of
the issuer at a fixed price either at a certain date
or during a set
period. The Investment Grade Bond Fund and the Special
Equities Fund
will not invest in warrants if, as a result of such
investment, the
value of their investments in warrants, valued at the
lower of cost
or market, exceeds 5% of the value of the Fund's net
assets.
Included in this 5% limitation, but not to exceed 2%
of the Fund's
net assets, may be warrants which are not listed on
either the New
York Stock Exchange (the "NYSE") or the American Stock
Exchange.
Warrants acquired by the Fund in units or attached to
securities
will be deemed to be without value for purposes of
this
restriction. These limits are not fundamental
policies of either
Fund and may be changed by the Board of Directors
without
shareholder approval.
Short Sales Against the Box.
Each Fund may sell securities short "against the box"
which means
that at all times when the short position is open, the
Fund owns an
equal amount of the securities or securities
convertible into, or
exchangeable without further consideration for,
securities of the
same issue as the securities sold short. Short sales
against the
box are used to defer recognition of capital gains or
losses or to
extend the holding period of securities for certain
Federal income
tax purposes.
Firm Commitment Agreements and When-Issued Purchases.
The Government Securities Fund, Investment Grade Bond
Fund and
Concert Peachtree Growth Fund may enter into firm
commitment
agreements and purchase when-issued securities, as
described more
fully in each Fund's Prospectus. Firm commitment
agreements and
when-issued purchases involve the purchase of
securities at an
agreed-upon price on a specified future date. Such
agreements
might be entered into, for example, when a decline in
the yield of
securities of a given issuer is anticipated and a more
advantageous
yield may be obtained by committing currently to
purchase
securities to be issued later. Liability for the
purchase price,
and all the rights and risks of ownership of the
securities, accrue
to the Fund at the time it becomes obligated to
purchase such
securities, although delivery and payment occur at a
later date.
Accordingly, if the market price of the security
should decline,
the effect of the agreement would be to obligate the
Fund to
purchase the security at a price above the current
market price on
the date of delivery and payment. During the time a
Fund is
obligated to purchase such securities, it will
maintain in a
segregated account with the Company's custodian,
eligible
segregated assets (as defined in each Fund's
Prospectus) equal to
the aggregate current value sufficient to make payment
for the
securities. The Government Securities Fund and
Investment Grade
Bond Fund will not enter into such agreements for the
purpose of
investment leverage
Lending Portfolio Securities.
Consistent with applicable regulatory requirements
each Fund has
the ability to lend securities from its portfolio to
brokers,
dealers and other financial organizations. A Fund
will not lend
its portfolio securities to Smith Barney or its
affiliates unless
it has applied for and received specific authority to
do so from
the SEC. Loans of portfolio securities will be
collateralized by
cash, letters of credit or U.S. government securities
in an amount
at least equal to the current market value of the
loaned
securities. From time to time, a Fund may return a
part of the
interest earned from the investment of collateral
received for
securities loaned to the borrower and/or a third
party, which is
unaffiliated with the Fund or with Smith Barney, and
which is
acting as a "finder".
In lending its securities, a Fund can increase its
income by
continuing to receive interest on the loaned
securities as well as
by either investing the cash collateral in short-term
instruments
or obtaining yield in the form of interest paid by the
borrower
when U.S. government securities are used as
collateral.
Requirements of the SEC, which may be subject to
further
modifications, currently provide that the following
conditions must
be met whenever a Fund's portfolio securities are
loaned: (a) the
Fund must receive at least 100% cash collateral or
equivalent
securities from the borrower; (b) the borrower must
increase such
collateral whenever the market value of the securities
loaned rises
above the level of such collateral; (c) the Fund must
be able to
terminate the loan at any time; (d) the Fund must
receive
reasonable interest on the loan, as well as an amount
equal to
dividends, interest or other distributions on the
loaned
securities, and any increase in market value; (e) the
Fund may pay
only reasonable custodian fees in connection with the
loan; and (f)
voting rights on the loaned securities may pass to the
borrower;
provided, however, that if a material event adversely
affecting the
investment in the loaned securities occurs, the 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
MMC to be of good standing and will not be made
unless, in the
judgment of MMC, the consideration to be earned from
such loans
would justify the risk.
Government Securities.
Direct obligations of the United States Treasury
include a variety
of securities, which differ in their interest rates,
maturities and
dates of issuance. Treasury Bills have maturities of
one year or
less; Treasury Notes have maturities of one to ten
years and
Treasury Bonds generally have maturities of greater
than ten years
at the date of issuance.
In addition to direct obligations of the United States
Treasury,
securities issued or guaranteed by the United States
government,
its agencies or instrumentalities include securities
issued or
guaranteed by the Federal Housing Administration,
Federal Financing
Bank, Export-Import Bank of the United States, Small
Business
Administration, Government National Mortgage
Association ("GNMA"),
General Services Administration, Federal Home Loan
Banks, Federal
Home Loan Mortgage Corporation, Federal National
Mortgage
Association ("FNMA"), Federal Maritime Administration,
Tennessee
Valley Authority, Resolution Trust Corporation,
District of
Columbia Armory Board, Student Loan Marketing
Association and
various institutions that previously were or currently
are part of
the Farm Credit System (which has been undergoing a
reorganization
since 1987). Because the United States government is
not obligated
by law to provide support to an instrumentality that
it sponsors, a
Fund will invest in obligations of an instrumentality
to which the
United States government is not obligated by law to
provide support
only if MMC determines that the credit risk with
respect to the
instrumentality does not make its securities
unsuitable for
investment by a Fund.
Exchange Rate-Related U.S. Government Securities.
The Government Securities Fund may invest up to 5% of
its net
assets in U.S. government securities for which the
principal
repayment at maturity, while paid in U.S. dollars, is
determined by
reference to the exchange rate between the U.S. dollar
and the
currency of one or more foreign countries ("Exchange
Rate-Related
Securities"). The interest payable on these
securities is
denominated in U.S. dollars, is not subject to foreign
currency
risks and, in most cases, is paid at rates higher than
most other
U.S. government securities in recognition of the
foreign currency
risk component of Exchange Rate-Related Securities.
Exchange Rate-Related Securities are issued in a
variety of forms,
depending on the structure of the principal repayment
formula. The
principal repayment formula may be structured so that
the security
holder will benefit if a particular foreign currency
to which the
security is linked is stable or appreciates against
the U.S.
dollar. In the alternative, the principal repayment
formula may be
structured so that the security holder benefits if the
U.S. dollar
is stable or appreciates against the linked foreign
currency.
Finally, the principal repayment formula can be a
function of more
than one currency and, therefore, be designed in
either of the
aforementioned forms or a combination of those forms.
Investments in Exchange Rate-Related Securities entail
special
risks. There is the possibility of significant
changes in rates of
exchange between the U.S. dollar and any foreign
currency to which
an Exchange Rate-Related Security is linked. If
currency exchange
rates do not move in the direction or to the extent
anticipated at
the time of purchase of the security, the amount of
principal
repaid at maturity might be significantly below the
par value of
the security, which might not be offset by the
interest earned by
the Fund over the term of the security. The rate of
exchange
between the U.S. dollar and other currencies is
determined by the
forces of supply and demand in the foreign exchange
markets. These
forces are affected by the international balance of
payments and
other economic and financial conditions, government
intervention,
speculation and other factors. The imposition or
modification of
foreign exchange controls by the United States or
foreign
governments or intervention by central banks also
could affect
exchange rates. Finally, there is no assurance that
sufficient
trading interest to create a liquid secondary market
will exist for
particular Exchange Rate-Related Securities due to
conditions in
the debt and foreign currency markets. Illiquidity in
the forward
foreign exchange market and the high volatility of the
foreign
exchange market may from time to time combine to make
it difficult
to sell an Exchange Rate-Related Security prior to
maturity without
incurring a significant price loss.
Special Considerations Relating to Options on Certain
U.S.
Government Securities
Treasury Bonds and Notes. Because trading
interest in U.S.
Treasury bonds and notes tends to center on the most
recently
auctioned issues, the exchanges will not continue
indefinitely to
introduce new expirations to replace expiring options
on particular
issues. The expirations introduced at the
commencement of options
trading on a particular issue will be allowed to run,
with the
possible addition of a limited number of new
expirations as the
original expirations expire. Options trading on each
issue of
bonds or notes will thus be phased out as new options
are listed on
more recent issues, and a full range of expirations
will not
ordinarily be available for every issue on which
options are
traded.
Treasury Bills. Because the deliverable U.S.
Treasury bill
changes from week to week, writers of U.S. Treasury
bill calls
cannot provide in advance for their potential exercise
settlement
obligations by acquiring and holding the underlying
security.
However, if the Fund holds a long position in U.S.
Treasury bills
with a principal amount corresponding to the contract
size of the
option, it may be hedged from a risk standpoint. In
addition, the
Fund will maintain U.S. Treasury bills maturing no
later than those
which would be deliverable in the event of the
exercise of a call
option it has written in a segregated account with its
custodian so
that it will be treated as being covered for margin
purposes.
GNMA Certificates. GNMA Certificates are
mortgage-backed
securities representing part ownership of a pool of
mortgage loans.
These loans are made by private lenders and are either
insured by
the Federal Housing Administration or guaranteed by
the Veterans
Administration. Once approved by GNMA, the timely
payment of
interest and principal on each mortgage in a "pool" of
such
mortgages is guaranteed by the full faith and credit
of the U.S.
government. Unlike most debt securities, GNMA
Certificates provide
for repayment of principal over the term of the loan
rather than in
a lump sum at maturity. GNMA Certificates are called
"pass-
through" securities because both interest and
principal payments on
the mortgages are passed through to the holder.
Since the remaining principal balance of GNMA
Certificates declines
each month as mortgage payments are made, the Fund as
a writer of a
GNMA call may find that the GNMA Certificates it holds
no longer
have a sufficient remaining principal balance to
satisfy its
delivery obligation in the event of exercise of the
call options it
has written. Should this occur, additional GNMA
Certificates from
the same pool (if obtainable) or replacement GNMA
Certificates will
have to be purchased in the cash market to meet
delivery
obligations.
The Fund will either replace GNMA Certificates
representing cover
for call options it has written or will maintain in a
segregated
account with its custodian cash, cash equivalents or
U.S.
government securities having an aggregate value equal
to the market
value of the GNMA Certificates underlying the call
options it has
written.
Other Risks. In the event of a shortage of the
underlying
securities deliverable on exercise of an option, the
Options
Clearing Corporation has the authority to permit
other, generally
comparable securities to be delivered in fulfillment
of option
exercise obligations. If the Options Clearing
Corporation
exercises its discretionary authority to allow such
other
securities to be delivered it may also adjust the
exercise prices
of the affected options by setting different prices at
which
otherwise ineligible securities may be delivered. As
an
alternative to permitting such substitute deliveries,
the Options
Clearing Corporation may impose special exercise
settlement
procedures.
The hours of trading for options on U.S. government
securities may
not conform to the hours during which the underlying
securities are
traded. To the extent that the options markets close
before the
markets for the underlying securities, significant
price and rate
movements can take place in the underlying markets
that cannot be
reflected in the options markets.
Options are traded on exchanges on only a limited
number of U.S.
government securities, and exchange regulations limit
the maximum
number of options which may be written or purchased by
a single
investor or a group of investors acting in concert.
The Company
and other clients advised by affiliates of Smith
Barney may be
deemed to constitute a group for these purposes. In
light of these
limits, the Board of Directors may determine at any
time to
restrict or terminate the public offering of the
Fund's shares
(including through exchanges from the other Funds).
Exchange markets in options on U.S. government
securities are a
relatively new and untested concept. It is impossible
to predict
the amount of trading interest that may exist in such
options, and
there can be no assurance that viable exchange markets
will develop
or continue.
Leverage Through Borrowing
The Government Securities Fund may borrow up to 25% of
the value of
its net assets on an unsecured basis from banks to
increase its
holdings of portfolio securities or to acquire
securities to be
placed in a segregated account with its custodian for
various
purposes (e.g., to secure puts written by the Fund).
The Fund is
required to maintain continuous asset coverage of 300%
with respect
to such borrowings, and to sell (within three days)
sufficient
portfolio holdings to restore such coverage, if it
should decline
to less than 300% due to market fluctuations or
otherwise, even if
disadvantageous from an investment standpoint.
Leveraging will
exaggerate the effect of any increase or decrease in
the value of
portfolio securities on the Fund's net asset value,
and money
borrowed will be subject to interest costs (which may
include
commitment fees and/or the cost of maintaining minimum
average
balances) which may or may not exceed the interest and
option
premiums received from the securities purchased with
borrowed
funds.
Special Risks Involving Investments in Smaller, Newer
Companies
The Special Equities Fund invests primarily in equity
securities of
companies that have yet to reach a fully mature stage
of earnings
growth. A significant number of these companies may
be in
technology areas and may have annual sales less than
$300 million.
Some of the securities in which the Fund invests may
not be listed
on a national securities exchange, but such securities
will usually
have an established over-the-counter market.
Investors should
realize that the very nature of investing in smaller,
newer
companies involves greater risk than is customarily
associated with
investing in larger, more established companies.
Smaller, newer
companies often have limited product lines, markets or
financial
resources, and they may be dependent for management
upon one or a
few key persons. The securities of such companies may
be subject
to more abrupt or erratic market movements than
securities of
larger, more established companies or than the market
averages in
general. In accordance with its investment objective
of long-term
capital appreciation, securities purchased for the
Fund will not
generally be traded for short-term profits, but will
be retained
for their longer-term appreciation potential. This
general
practice limits the Fund's ability to adopt a
defensive position by
investing in money market instruments during periods
of market
downturn. Accordingly, while in periods of market
upturn the Fund
may outperform the market averages, in periods of
downturn, it is
likely to underperform the market averages. Thus,
investing in
Special Equities Fund may involve greater risk than
investing in
other Funds. The Fund may also invest in smaller
capitalized
companies representing the broad benchmarks against
which the Fund
is frequently judged by utilizing an active
quantitative oriented
investment strategy.
Investment Restrictions
The Fund's investment objectives and investment
restrictions 1-7
set forth below are fundamental policies of each Fund
(except as
otherwise indicated), i.e., they may not be changed
with respect to
a Fund without a majority vote of the outstanding
shares of that
Fund. Investment Restrictions 8 through 15 may be
changed by the
Board of Directors without the approval of
shareholders. (All other
investment practices described in the Prospectuses and
this
Statement of Additional Information may be changed by
the Board of
Directors without the approval of shareholders.)
Unless otherwise indicated, all percentage limitations
apply to
each Fund on an individual basis, and apply only at
the time a
transaction is entered into. (Accordingly, if a
percentage
restriction is complied with at the time of
investment, a later
increase or decrease in the percentage which results
from a
relative change in values or from a change in the
Fund's net assets
will not be considered a violation.)
Restrictions Applicable to All Funds. No Fund may:
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. 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.
3. Make loans. This restriction does not
apply to: (a)
the purchase of debt obligations in which the Fund may
invest consistent with its investment objectives and
policies; (b) repurchase agreements; and (c) loans of
its
portfolio securities, to the fullest extent permitted
under
the 1940 Act.
4. 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 instrumentalities) and
securities of state or municipal governments and their
political subdivisions are not considered to be issued
by
members of any industry.
5. 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.
6. Restriction Applicable to all funds except
Government Securities Fund. The Funds may not:
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-l/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.
7. Restriction Applicable to all funds
except Special
Equities Fund, Concert Peachtree Growth Fund and
Managed
Growth Fund. The Funds may not: Act as an
underwriter of
securities. Restrictions Applicable to Special
Equities
Fund. Special Equities Fund may not act as an
underwriter
of securities, except that the Fund may invest up to
10% of
its total assets in securities which it may not be
free to
resell without registration under the 1933 Act, in
which
registration the Fund may technically be deemed an
underwriter for purposes of the 1933 Act.
8. Invest in oil, gas or other mineral
exploration or
development programs
9. Purchase securities of any other
investment company,
except in connection with a merger, consolidation,
reorganization, or acquisition or assets. (For
purposes of
this limitation, foreign banks or their agencies or
subsidiaries are not considered "investment
companies")
(the Managed Growth Fund may purchase the securities
of
closed-end investment companies to the extent
permitted by
law);
10. Make investments in securities for
the purpose of
exercising control over or management of the issuer;
11. 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;
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 Fund 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);
13. Purchase or otherwise acquire any
security if, as a
result, more than 15% of its net assets would be
invested in
securities that are illiquid;
14. Restrictions Applicable to all funds
except
Government Securities Fund. The Funds may not:
Write,
purchase or sell puts, calls, straddles, spreads or
any
combinations thereof (the Managed Growth Fund and the
Concert Peachtree Growth Fund each may write or
purchase
puts, calls, straddles, spreads and any combination
thereof
up to 5% of their assets).
Brokerage
In selecting brokers or dealers to execute securities
transactions
on behalf of a Fund, MMC seeks the best overall terms
available.
In assessing the best overall terms available for any
transaction,
MMC will consider the factors that it deems relevant,
including the
breadth of the market in the security, the price of
the security,
the financial condition and execution capability of
the broker or
dealer and the reasonableness of the commission, if
any, for the
specific transaction and on a continuing basis. In
addition, each
investment advisory agreement authorizes MMC, in
selecting brokers
or dealers to execute a particular transaction and in
evaluating
the best overall terms available, to consider the
brokerage and
research services (as those terms are defined in
Section 28(e) of
the Securities Exchange Act of 1934) provided to the
Company, the
other Funds and other accounts over which MMC or its
affiliates
exercise investment discretion. The fees under the
investment
advisory agreements and the administration agreement
between the
Company and MMC are not reduced by reason of their
receiving such
brokerage and research services. The Board of
Directors
periodically will review the commissions paid by the
Funds to
determine if the commissions paid over representative
periods of
time were reasonable in relation to the benefits
inuring to the
Company. SEC rules require that commissions paid to
Smith Barney
by a Fund on exchange transactions not exceed "usual
and customary
brokerage commissions." The rules define "usual and
customary"
commissions to include amounts which are "reasonable
and fair
compared to the commission, fee or other remuneration
received or
to be received by other brokers in connection with
comparable
transactions involving similar securities being
purchased or sold
on a securities exchange during a comparable period of
time." The
Board of Directors, particularly the Independent
Directors of the
Company (as defined in the 1940 Act), has adopted
procedures for
evaluating the reasonableness of commissions paid to
Smith Barney
and reviews these procedures periodically. In
addition, under
rules adopted by the SEC, Smith Barney may directly
execute
transactions for a Fund on the floor of any national
securities
exchange, provided: (a) the Board of Directors has
expressly
authorized Smith Barney to effect such transactions;
and (b) Smith
Barney annually advises the Fund of the aggregate
compensation it
earned on such transactions.
To the extent consistent with applicable provisions of
the 1940 Act
and the rules and exemptions adopted by the SEC
thereunder, the
Board of Directors has determined that transactions
for a Fund may
be executed through Smith Barney and other affiliated
broker-
dealers if, in the judgment of MMC, the use of such
broker-dealer
is likely to result in price and execution at least as
favorable as
those of other qualified broker-dealers, and if, in
the
transaction, such broker-dealer charges the Fund a
rate consistent
with that charged to comparable unaffiliated customers
in similar
transactions.
Portfolio securities are not purchased from or through
Smith Barney
or any affiliated person (as defined in the 1940 Act)
of Smith
Barney where such entities are acting as principal,
except pursuant
to the terms and conditions of exemptive rules or
orders
promulgated by the SEC. Pursuant to conditions set
forth in rules
of the SEC, the Company may purchase securities from
an
underwriting syndicate of which Smith Barney is a
member (but not
from Smith Barney). Such conditions relate to the
price and amount
of the securities purchased, the commission or spread
paid, and the
quality of the issuer. The rules further require that
such
purchases take place in accordance with procedures
adopted and
reviewed periodically by the Board of Directors,
particularly those
Directors who are not interested persons of the
Company.
The Funds may use Smith Barney as a commodities broker
in
connection with entering into futures contracts and
commodity
options. Smith Barney has agreed to charge the Funds
commodity
commissions at rates comparable to those charged by
Smith Barney to
its most favored clients for comparable trades in
comparable
amounts.
The following table sets forth certain information
regarding each
Fund's payment of brokerage commissions to Smith
Barney:
Fiscal Year
Ended
December 31,
Special
Equities
Fund
Managed
Growth
Fund
Concert Peachtree Growth
Fund
Total Brokerage Commissions
1995
$56,735
$164,975
$201,706
1996
378,451
1,272,702
716,937
1997
894,872
658,099
891,375
Commissions paid to Smith Barney
1995
$11,052
$140,970
$650
1996
47,100
166,656
21,680
1997
53,748
167,712
20,784
% of Total Brokerage
Commissions paid to
Smith Barney
1997
6.0%
25.5%
2.3%
% of Total Transactions
Involving Commissions paid
to Smith Barney
1997
3.6%
12.5%
1.7%
_____________________
No commissions were paid by the Investment Grade Bond
Fund and
Government Securities Fund.
Portfolio Turnover
For reporting purposes, a Fund's portfolio turnover
rate is
calculated by dividing the lesser of purchases or
sales of
portfolio securities for the fiscal year by the
monthly average of
the value of the portfolio securities owned by the
Fund during the
fiscal year. In determining such portfolio turnover,
all
securities whose maturities at the time of acquisition
were one
year or less are excluded. A 100% portfolio turnover
rate would
occur, for example, if all of the securities in the
Fund's
investment portfolio (other than short-term money
market
securities) were replaced once during the fiscal year.
Investment Grade Bond Fund will not normally engage in
the trading
of securities for the purpose of realizing short-term
profits, but
it will adjust its portfolio as considered advisable
in view of
prevailing or anticipated market conditions.
Portfolio turnover
will not be a limiting factor should MMC deem it
advisable to
purchase or sell securities.
Special Equities Fund invests for long-term capital
appreciation
and will not generally trade for short-term profits.
However, its
portfolio will be adjusted as deemed advisable by MMC,
and
portfolio turnover will not be a limiting factor
should MMC deem it
advisable to purchase or sell securities.
The options activities of Government Securities Fund
may affect its
portfolio turnover rate and the amount of brokerage
commissions
paid by the Fund. The exercise of calls written by
the Fund may
cause the Fund to sell portfolio securities, thus
increasing its
turnover rate. The exercise of puts also may cause
the sale of
securities and increase turnover; although such
exercise is within
the Fund's control, holding a protective put might
cause the Fund
to sell the underlying securities for reasons which
would not exist
in the absence of the put. The Fund will pay a
brokerage
commission each time it buys or sells a security in
connection with
the exercise of a put or call. Some commissions may
be higher than
those which would apply to direct purchases or sales
of portfolio
securities. High portfolio turnover involves
correspondingly
greater commission expenses and transaction costs.
For the fiscal years ended December 31, 1995,1996 and
1997, the
portfolio turnover rates were as follows:
Fund
1995
1996
1997
Investment Grade Bond Fund
49%
48%
39%
Government Securities Fund
294
420
274
Special Equities Fund
113
118
145
Managed Growth
Fund............................................
6
34
35
Concert Peachtree Growth
Fund............................................
51
183
227
Increased portfolio turnover necessarily results in
correspondingly
greater brokerage commissions which must be paid by
the Fund. To
the extent that portfolio trading results in
realization of net
short-term capital gains, shareholders will be taxed
on such gains
at ordinary tax rates (except shareholders who invest
through IRAs
and other retirement plans which are not taxed
currently on
accumulations in their accounts).
MMC manages a number of private investment accounts on
a
discretionary basis and it is not bound by the
recommendations of
the Smith Barney research department in managing the
Funds.
Although investment decisions are made individually
for each
client, at times decisions may be made to purchase or
sell the same
securities for one or more of the Funds and/or for one
or more of
the other accounts managed by MMC or the Fund manager.
When two or
more such accounts simultaneously are engaged in the
purchase or
sale of the same security, transactions are allocated
in a manner
considered equitable to each, with emphasis on
purchasing or
selling entire orders wherever possible. 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.
PURCHASE OF SHARES
Volume Discounts
The schedules of sales charges on Class A shares
described in the
Prospectuses apply to purchases made by any
"purchaser," which 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 Internal Revenue Code of
1986, as
amended (the "Code"), and qualified employee benefit
plans of
employers who are "affiliated persons" of each other
within the
meaning of the 1940 Act; (e) tax-exempt organizations
enumerated in
Section 501(c)(3) or (13) of the Code; and (f) a
trustee or other
professional fiduciary (including a bank, or an
investment adviser
registered with the SEC under the Investment Advisers
Act of 1940,
as amended) purchasing shares of a Fund for one or
more trust
estates of fiduciary accounts. Purchasers who wish to
combine
purchase orders to take advantage of volume discounts
on Class A
shares should contact a Smith Barney Financial
Consultant.
Combined Right of Accumulation
Reduced sales charges, in accordance with the schedule
in the
Prospectuses, apply to any purchase of Class A shares
if the
aggregate investment of any purchaser in Class A
shares of a Fund
and in Class A shares of the other Funds in the
Company and of
other funds of the Smith Barney Mutual Funds that are
offered with
a sales charge, including the purchase being made is
$25,000 or
more. The reduced sales charge is subject to
confirmation of the
shareholder's holdings through a check of appropriate
records.
Each Fund reserves the right to terminate or amend the
combined
right of accumulation at any time after written notice
to
shareholders. For further information regarding the
right of
accumulation, shareholders should contact a Smith
Barney Financial
Consultant.
Determination of Public Offering Price
Each Fund offers its shares to the public on a
continuous basis.
The public offering price for a Class A and Class Y
share of each
Fund is equal to the net asset value per share at the
time of
purchase plus, for Class A shares, an initial sales
charge based on
the aggregate amount of the investment. The public
offering price
for a Class B share and Class C share, and Class A
share purchases,
including applicable right of accumulation, equaling
or exceeding
$500,000, is equal to the net asset value per share at
the time of
purchase and no sales charge is imposed at the time of
purchase. A
contingent deferred sales charge ("CDSC"), however, is
imposed on
certain redemptions of Class B shares, Class C shares,
and Class A
shares when purchased in amounts equaling or exceeding
$500,000.
The method of computation of the public offering price
is shown in
each Fund's financial statements, incorporated by
reference in
their entirety into this Statement of Additional
Information.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date
of payment
postponed (a) for any period during which the NYSE is
closed (other
than for customary weekend and holiday closings), (b)
when trading
in markets a Fund normally utilizes is restricted, or
an emergency
as determined by the SEC exists, so that disposal of
the Fund's
investments or determination of net asset value is not
reasonably
practicable or (c) for such other periods as the SEC
by order may
permit for the protection of the Fund's shareholders.
Distributions in Kind
If the Board of Directors of the Company determines
that it would
be detrimental to the best interests of the remaining
shareholders
of a Fund to make a redemption payment wholly in cash,
the Fund may
pay, in accordance with the SEC rules, any portion of
a redemption
in excess of the lesser of $250,000 or 1% of the
Fund's net assets
by a distribution in kind of portfolio securities in
lieu of cash.
Securities issued as a distribution in kind may incur
brokerage
commissions when shareholders subsequently sell those
securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal
Plan") is
available to shareholders who own shares with a value
of at least
$10,000 ($5,000 for retirement plan accounts) and who
wish to
receive specific amounts of cash monthly or quarterly.
Withdrawals
of at least $50 may be made under the Withdrawal Plan
by redeeming
as many shares of a Fund as may be necessary to cover
the
stipulated withdrawal payment. Any applicable CDSC
will not be
waived on amounts withdrawn by shareholders that
exceed 1.00% per
month of the value of a shareholder's shares at the
time the
Withdrawal Plan commences. To the extent withdrawals
exceed
dividends, distributions and appreciation of a
shareholder's
investment in a Fund, there will be a reduction in the
value of the
shareholder's investment and continued withdrawal
payments may
reduce the shareholder's investment and ultimately
exhaust it.
Withdrawal payments should not be considered as income
from
investment in the Fund. Furthermore, as it generally
would not be
advantageous to a shareholder to make additional
investments in the
Fund at the same time that he or she is participating
in the
Withdrawal Plan, purchases by such shareholders in
amounts of less
than $5,000 will not ordinarily be permitted.
Shareholders who wish to participate in the Withdrawal
Plan and who
hold their shares in certificate form must deposit
their share
certificates with First Data as agent for Withdrawal
Plan members.
All dividends and distributions on shares in the
Withdrawal Plan
are automatically reinvested at net asset value in
additional
shares of the Company. Withdrawal Plans should be set
up with a
Smith Barney Financial Consultant. A shareholder who
purchases
shares directly through First Data may continue to do
so and
applications for participation in the Withdrawal Plan
must be
received by First Data no later than the eighth day of
the month to
be eligible for participation beginning with that
month's
withdrawal. For additional information, shareholders
should
contract a Smith Barney Financial Consultant.
DISTRIBUTORS
Smith Barney serves as the Company's distributor on a
best efforts
basis pursuant to a distribution agreement (the
"Distribution
Agreement") which was most recently approved by the
Company's Board
of Directors on July 24, 1997.
PFS serves as one of the Company's distributors with
respect to the
Concert Peachtree Growth Fund and Investment Grade
Bond Fund
pursuant to a Distribution Agreement which was most
recently
approved by the Company's Board of Directors on July
24, 1997.
When payment is made by the investor before the
settlement date,
unless otherwise directed by the investor, the funds
will be held
as a free credit balance in the investor's brokerage
account, and
Smith Barney may benefit from the temporary use of the
funds. The
investor may designate another use for the funds prior
to
settlement date, such as investment in a money market
fund (other
than Smith Barney Exchange Reserve Fund) of the Smith
Barney Mutual
Funds. If the investor instructs Smith Barney to
invest the funds
in a Smith Barney money market fund, the amount of the
investment
will be included as part of the average daily net
assets of both
the Company and the money market fund, and affiliates
of Smith
Barney that serve the funds in an investment advisory
capacity will
benefit from the fact that they are receiving fees
from both such
investment companies for managing these assets
computed on the
basis of their average daily net assets. The
Company's Board of
Directors has been advised of the benefits to Smith
Barney
resulting from these settlement procedures and will
take such
benefits into consideration when reviewing the
Advisory,
Administration and Distribution Agreements for
continuance.
For the fiscal year ended December 31, 1997, Smith
Barney incurred
distribution expenses totaling approximately
$14,900,000 consisting
of approximately $557,439 for advertising, $87,008 for
printing and
mailing of Prospectuses, $5,555,333 for support
services,
$5,722,178 to Smith Barney Financial Consultants, and
$94,410 in
accruals for interest on the excess of Smith Barney
expenses
incurred in distributing the Fund's shares over the
sum of the
distribution fees and CDSC received by Smith Barney
from the Fund.
Distribution Arrangements
To compensate Smith Barney for the services it
provides and for the
expense it bears under the Distribution Agreement, the
Company has
adopted a services and distribution plan (the "Plan")
pursuant to
Rule 12b-1 under the 1940 Act. Under the Plan, each
Fund pays
Smith Barney and, with respect to the Class A and
Class B shares of
Concert Peachtree Growth Fund and Investment Grade
Bond Fund, PFS,
a service fee, accrued daily and paid monthly,
calculated at the
annual rate of 0.25% of the value of each Fund's
average daily net
assets attributable to the Class A, Class B and Class
C shares. In
addition, the Fund pays Smith Barney, and with
respect to the
Class B shares of Concert Peachtree Growth Fund and
Investment
Grade Bond Fund, PFS, a distribution fee with respect
to the Class
B and Class C shares primarily intended to compensate
Smith Barney
and/or PFS for its initial expense of paying its
Financial
Consultants and Registered Representatives,
respectively, a
commission upon sales of those shares. Such shares'
distribution
fees, which are accrued daily and paid monthly, are
calculated at
the annual rate of 0.75% of the value of average daily
net assets
attributable to the Class B and Class C shares with
respect to
Special Equities Fund, Managed Growth Fund and Concert
Peachtree
Growth Fund, and 0.50% of the value of average daily
net assets
attributable to the Class B shares and 0.45% of the
value of
average daily net assets attributable to Class C
shares, with
respect to Government Securities Fund and Investment
Grade Bond
Fund.
The following expenses were incurred during the
periods indicated:
Sales Charges paid to Smith Barney.
Class A
Name of Fund
Fiscal Year
Ended 12/31/95
Fiscal Year
Ended 12/31/96
Fiscal Year
Ended 12/31/97
Investment Grade Bond Fund
$181,000
$182,000
$122,000
Government Securities Fund
63,000
65,000
50,000
Special Equities Fund
347,000
1,800,000
381,000
Managed Growth Fund...............................
5,400,000
1,700,000
608,000
Concert Peachtree Growth Fund..................
18,000
18,000
4,000
CDSC paid to Smith Barney.
Class B
Name of Fund
Fiscal Year
Ended 12/31/95
Fiscal Year
Ended 12/31/96
Fiscal Year
Ended 12/31/97
Investment Grade Bond Fund
$541,000
$422,000
$375,000
Government Securities Fund
512,000
305,000
180,000
Special Equities Fund
379,000
658,000
1,514,000
Managed Growth Fund...............................
174,000
1,112,000
1,167,000
Concert Peachtree Growth Fund..................
-
3,000
3,000
Class C
Name of Fund
Fiscal Year
Ended 12/31/95
Fiscal Year
Ended 12/31/96
Fiscal Year
Ended 12/31/97
Investment Grade Bond Fund
$5,000
$1,000
$1,000
Government Securities Fund
5,000
-
-
Special Equities Fund
1,000
22,000
17,000
Managed Growth Fund...............................
10,000
27,000
9,000
Concert Peachtree Growth Fund.................
-
1,000
-
Service Fees
Class A
Name of Fund
Fiscal Year
Ended 12/31/95
Fiscal Year
Ended 12/31/96
Fiscal Year
Ended 12/31/97
Investment Grade Bond Fund
$505,094
$524,533
$508,201
Government Securities Fund
1,212,522
1,026,748
920,147
Special Equities Fund
286,910
525,204
512,879
Managed Growth Fund...............................
189,955
495,536
581,527
Concert Peachtree Growth Fund................
63,606
162,606
175,590
Class B
Name of Fund
Fiscal Year
Ended 12/31/95
Fiscal Year
Ended 12/31/96
Fiscal Year
Ended 12/31/97
Investment Grade Bond Fund .
$638,293
$662,187
$604,461
Government Securities Fund .
419,433
340,572
272,331
Special Equities Fund .
283,978
696,750
768,448
Managed Growth Fund...............................
351,874
1,024,802
1,327,608
Concert Peachtree Growth Fund.................
34,096
96,931
105,790
Class C
(formerly designated as Class D)
Name of Fund
Fiscal Year
Ended 12/31/95
Fiscal Year
Ended 12/31/96
Fiscal Year
Ended 12/31/97
Investment Grade Bond Fund
$5,068
$14,456
$17,704
Government Securities Fund
2,078
3,050
4,326
Special Equities Fund
8,675
56,094
58,273
Managed Growth Fund...............................
47,170
141,702
186,753
Concert Peachtree Growth Fund.................
23
552
445
Distribution Fees
Class B
Name of Fund
Fiscal Year
Ended 12/31/95
Fiscal Year
Ended 12/31/96
Fiscal Year
Ended 12/31/97
Investment Grade Bond Fund
$ 1,276,588
$ 1,324,350
$1,208,922
Government Securities Fund
838,868
681,144
544,662
Special Equities Fund
851,933
2,090,250
2,305,342
Managed Growth Fund...............................
1,055,621
3,074,405
3,982,825
Concert Peachtree Growth Fund..................
102,289
290,792
317,370
Class C
(formerly designated as Class D)
Name of Fund
Fiscal Year
Ended 12/31/95
Fiscal Year
Ended 12/31/96
Fiscal Year
Ended 12/31/97
Investment Grade Bond Fund
$ 9,124
$ 26,020
$35,407
Government Securities Fund
3,741
5,491
7,786
Special Equities Fund
26,026
168,282
174,819
Managed Growth Fund...............................
141,508
425,107
560,257
Concert Peachtree Growth Fund..................
71
1,657
1,334
Under its terms, the Plan continues from year to year,
provided
such continuance is approved annually by vote of the
Board of
Directors, including a majority of the Independent
Directors. The
Plan may not be amended to increase the amount to be
spent for the
services provided by Smith Barney or PFS without
shareholder
approval, and all amendments of the Plan also must be
approved by
the Directors in the manner described above. The Plan
may be
terminated at any time, without penalty, by vote of a
majority of
the Independent Directors or by a vote of a majority
of the
outstanding voting securities of the Company (as
defined in the
1940 Act). Pursuant to the Plan, Smith Barney and PFS
will provide
the Board of Directors periodic reports of amounts
expended under
the Plan and the purpose for which such expenditures
were made.
VALUATION OF SHARES
Each Class' net asset value per share is calculated on
each day,
Monday through Friday, except days on which the NYSE
is closed.
The NYSE currently is scheduled to be closed on New
Year's Day,
Martin Luther King Jr., Day, President's Day, Good
Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and
Christmas, and
on the preceding Friday or subsequent Monday when one
of these
holidays falls on a Saturday or Sunday, respectively.
Because of
the differences in distribution fees and Class-
specific expenses,
the per share net asset value of each Class may
differ. The
following is a description of the procedures used by
the Funds in
valuing their assets.
A security which is listed or traded on more than one
exchange is
valued at the quotation on the exchange determined to
be the
primary market for such security. All assets and
liabilities
initially expressed in foreign currency values will be
converted
into U.S. dollar values at the mean between the bid
and offered
quotations of such currencies against U.S. dollars as
last quoted
by any recognized dealer. If such quotations are not
available, the
rate of exchange will be determined in good faith by
the Board of
Directors. In carrying out the Board of Directors'
valuation
policies, MMC, as administrator, may consult with an
independent
pricing service (the "Pricing Service") retained by
the Company.
Debt securities of United States issuers (other than
U.S.
government securities and short-term investments) are
valued by
MMC, as administrator, after consultation with the
Pricing Service
approved by the Board of Directors. When, in the
judgment of the
Pricing Service, quoted bid prices for investments are
readily
available and are representative of the bid side of
the market,
these investments are valued at the mean between the
quoted bid
prices and asked prices. Investments for which, in
the judgment of
the Pricing Service, there are not readily obtainable
market
quotations are carried at fair value as determined by
the Pricing
Service. The procedures of the Pricing Service are
reviewed
periodically by the officers of the Company under the
general
supervision and responsibility of the Board of
Directors.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any fund of the
Smith Barney
Mutual Funds may exchange all or part of their shares
for shares of
the same class of other funds of the Smith Barney
Mutual Funds, to
the extent such shares are offered for sale in the
shareholder's
state of residence and provided your Registered
Representative or
your investment dealer is authorized to distribute
shares of the
fund, on the basis of relative net asset value per
share at the
time of exchange. Class B shares of any fund may be
exchanged
without a CDSC. Class B shares of the Fund exchanged
for Class B
shares of another fund will be subject to the higher
applicable
CDSC of the two funds and, for the purposes of
calculating CDSC
rates and conversion periods, will be deemed to have
been held
since the date the shares being exchanged were deemed
to be
purchased.
The exchange privilege enables shareholders to acquire
shares of
the same Class in a fund with different investment
objectives when
they believe that a shift between funds is an
appropriate
investment decision. This privilege is available to
shareholders
residing in any state in which the fund shares being
acquired may
legally be sold. Prior to any exchange, the
shareholder should
obtain and review a copy of the current prospectus of
each fund
into which an exchange is being considered.
Prospectuses may be
obtained from a Smith Barney Financial Consultant or
Registered
Representative of PFS Investments Inc.
Upon receipt of proper instructions and all necessary
supporting
documents, shares submitted for exchange are redeemed
at the then-
current net asset value and, subject to any applicable
CDSC, the
proceeds are immediately invested at a price as
described above, in
shares of the fund being acquired. Smith Barney
reserves the right
to reject any exchange request. The exchange
privilege may be
modified or terminated at any time after written
notice to
shareholders.
PERFORMANCE DATA
From time to time, a Fund may quote its yield or total
return in
advertisements or in reports and other communications
to
shareholders. The Fund may include comparative
performance
information in advertising or marketing the Fund's
shares. Such
performance information 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 a Class, it will also
disclose such
information for the other Classes.
Yield
A Fund's 30-day yield figure described below is
calculated
according to a formula prescribed by the SEC. The
formula can be
expressed as follows:
YIELD = 2[(a-bcd + 1)6 - 1]
Where:
a =
Dividends and interest earned during the period.
b =
Expenses accrued for the period (net of
reimbursement).
c =
the average daily number of shares outstanding during
the period
that were entitled to receive dividends.
d =
the maximum offering price per share on the last day
of the period.
For the purpose of determining the interest earned
(variable "a"
in the formula) on debt obligations purchased by the
Fund at a
discount or premium, the formula generally calls for
amortization
of the discount or premium; the amortization schedule
will be
adjusted monthly to reflect changes in the market
values of the
debt obligations.
Investors should recognize that in periods of
declining interest
rates a Fund's yield will tend to be somewhat higher
than
prevailing market rates, and in periods of rising
interest rates,
the Fund's yield will tend to be somewhat lower. In
addition, when
interest rates are falling, the inflow of net new
money to the Fund
from the continuous sales of its shares will likely be
invested in
portfolio instruments producing lower yields than the
balance of
the Fund's investments, thereby reducing the current
yield of the
Fund. In periods of rising interest rates, the
opposite can be
expected to occur.
Average Annual Total Return
"Average annual total return" figures, as described
below, are
computed according to a formula prescribed by the SEC.
The formula
can be expressed as follows:
P(1+T)n = ERV
Where:
P =
a hypothetical initial payment of $1,000.
T =
average annual total return.
n =
number of years.
ERV =
Ending Redeemable Value of a hypothetical $1,000
investment made at
the beginning of a 1-, 5- or 10-year period at the end
of the 1-5-
or 10- year period (or fractional portion thereof),
assuming
reinvestment of all dividends and distributions. A
Class' total
return figures calculated in accordance with the above
formula
assume that the maximum applicable sales charge or
maximum
applicable CDSC, as the case may be, has been deducted
from the
hypothetical $1,000 initial investment at the time of
purchase or
redemption, as applicable.
Class A average annual total returns were as follows
for the
periods indicated:
Name of Fund
Year Ended
December 31, 1997
Inception*
Through December 31, 1997
Investment Grade Bond Fund
11.82%
10.55%
Government Securities Fund
6.32
6.31
Special Equities Fund
(10.38)
13.25
Managed Growth Fund
7.99
10.20
Concert Peachtree Growth Fund
0.10
11.25
__________________
* The Investment Grade Bond, Government Securities
and Special
Equities Funds commenced selling Class A shares on
November 6,
1992. The Managed Growth Fund and Concert Peachtree
Growth Fund
Commenced Selling Class A shares on June 30, 1995 and
July 3,
1995, respectively.
Performance calculations include the historical
return
information related to the Common Sense II Aggressive
Opportunity
Fund of the Common Sense Trust (for the period from
May 3, 1994
through June 30, 1995.)
Class B's average annual total returns were as follows
for the
periods indicated:
Name of Fund
Year Ended
December 31, 1997
Five Year
Period Ended
December 31, 1997
Ten Year
Period Ended
December 31, 1997(1)
Inception Through
December 31, 1997
Investment Grade Bond Fund
11.94%
10.55%
10.82%
12.19%
Government Securities Fund
6.32
6.32
8.19
8.31
Special Equities Fund
(11.06)
11.81
10.81
9.34
Managed Growth Fund
7.84
N/A
N/A
10.61
Concert Peachtree Growth Fund
(0.60)
N/A
N/A
11.64
__________________
(1) Class B shares automatically convert to Class A
shares eight
years after date of original purchase. Thus, a
shareholder's
actual return for the ten years ended December 31,
1994 would be
different than that reflected above.
Performance calculations include the historical
return
information related to the Common Sense II Aggressive
Opportunity
Fund of the Common Sense Trust (for the period from
May 3, 1994
through June 30, 1995.)
Class C's average annual total returns were as follows
for the
periods indicated:
Name of Fund
One Year
Period Ended
12/31/97
Inception
Through 12/31/97
Investment Grade Bond Fund (1)
15.41%
9.54%
Government Securities Fund (2)
9.75
6.04
Special Equities Fund (3)
(7.31)
4.47
Managed Growth Fund (4)
11.91
11.66
Concert Peachtree Growth Fund (5) .............
3.38
11.00
__________________
(1) The Fund commenced selling Class C shares on
February 26, 1993.
(2) The Fund commenced selling Class C shares on
February 4,
1993.
(3) The Fund commenced selling Class C shares on
October 18,
1993.
(4) The Fund commenced selling Class C shares on
June 30, 1995.
(5) The Fund commenced selling Class C shares on
July 3, 1995.
Aggregate Total Return
Aggregate total return figures, as described below,
represent the
cumulative change in the value of an investment in the
Class during
of the specified period and are computed by the
following formula:
AGGREGATE TOTAL RETURN = ERV-P
P
Where:
P =
a hypothetical initial payment of $1,000.
ERV =
Ending Redeemable Value of a hypothetical $10,000
investment made
at the beginning of a 1-, 5- or 10-year period
(fractional portion
thereof) at the end of the 1-5- or 10- year period (or
fractional
portion thereof), assuming reinvestment of all
dividends and
distributions.
Class A's aggregate total returns were as follows for
the periods
indicated:
Name of Fund
One Year
Period Ended
December 31, 1997**
Period from
Inception
through
December 31,1997**
One Year
Period Ended
December 31,1997***
Period from
Inception
Through
December 31, 1997***
Investment Grade Bond Fund
17.10%
75.56%
11.82%
67.66%
Government Securities Fund
11.23
43.49
6.23
37.04
Special Equities Fund
(5.66)
99.58
(10.38)
89.65
Managed Growth Fund
13.70
34.30
7.99
27.60
Concert Peachtree Growth Fund
5.18
37.38
(0.10)
30.54
* The Investment Grade Bond Fund, Government
Securities Fund, and
Special Equities Fund commenced selling Class A shares
on
November 6, 1992. The Managed Growth Fund and Concert
Peachtree
Growth Fund commenced selling Class A shares on June
30, 1995 and
July 3, 1995, respectively.
** Figures do not include the effect of the maximum
sales charge.
*** Figures include the effect of the maximum sales
charge.
Performance calculations include the historical
return
information related to the Common Sense II Aggressive
Opportunity
Fund of the Common Sense Trust (for the period from
May 3, 1994
through June 30, 1995)
Class B's aggregate total returns were as follows for
the periods
indicated:
Name of Fund
One Year
Period
Ended
Dec. 31,
1997*
Five Year
Period
Ended
Dec. 31,
1997*
Ten Year
Period
Ended
Dec. 31,
1997*
One Year
Period
Ended
Dec. 31,
1997**
Five Year
Period
Ended
Dec. 31,
1997**
Ten Year
Period
Ended
Dec. 31,
1997**(1)
Period from
Inception
Through
Dec. 31,
1997**
Investment Grade
Bond Fund
16.44%
66.12%
179.30%
11.94%
65.12%
179.30%
530.01%
Government
Securities Fund
10.82
36.86
119.62
6.32
35.86
119.62
198.20
Special Equities
Fund
(6.38)
75.78
179.14
(11.06)
74.78
179.14
283.64
Managed Growth
Fund
12.84
N/A
N/A
7.84
N/A
N/A
28.79
Concert Peachtree Growth Fund
4.40
N/A
N/A
(0.60)
N/A
N/A
31.80
* Figures do not include the effect of the CDSC
(maximum 4.50% for
Investment Grade Bond Fund and Government Securities
Fund and
5.00% for the other Funds).
** Figures include the effect of the maximum
applicable CDSC, if
any.
(1) Class B shares automatically convert to Class A
shares eight
years after date of original purchase. Thus, a
shareholder's
actual return for the ten years ended December 31,
1997 would be
different than that reflected above.
Performance calculations include the historical
return
information related to the Common Sense II Aggressive
Opportunity
Fund of the Common Sense Trust (for the period from
May 3, 1994
through June 30, 1995.
Class C's aggregate total returns were as follows for
the periods
indicated:
Name of Fund
One Year
Period Ended
Dec. 31, 1997**
Period from
Inception*
Through
Dec. 31,1997**
One Year
Period Ended
Dec. 31, 1997***
Period from
Inception*
Through
Dec. 31, 1997***
Investment Grade Bond Fund
16.41%
55.50%
15.41%
55.50%
Government Securities Fund
10.75
33.33
9.75
33.33
Special Equities Fund
(6.38)
20.21
(7.31)
20.21
Managed Growth Fund
12.91
31.87
11.91
31.87
Concert Peachtree Growth Fund
4.38
28.47
3.38
28.47
* Investment Grade Bond Fund, Government
Securities Fund, Special
Equities Fund, Managed Growth Fund and Concert
Peachtree Growth
Fund commenced selling Class C shares on February 26,
1993,
February 4, 1993 October 18, 1993, June 30, 1995 and
July 3,
1995, respectively. Class C shares are sold at net
asset value
without any sales charge or CDSC.
** Figures do not include the effect of the CDSC.
*** Figures include the effect of the applicable
CDSC (1.00%)
It is important to note that the yield and total
return figures set
forth above are based on historical earnings and are
not intended
to indicate future performance. A Class' performance
will vary
from time to time depending upon market conditions,
the composition
of the Fund's investment portfolio and operating
expenses and the
expenses exclusively attributable to the Class.
Consequently, any
given performance quotation should not be considered
representative
of the Class' performance for any specified period in
the future.
Because performance will vary, it may not provide a
basis for
comparing an investment in the Class with certain bank
deposits or
other investments that pay a fixed yield for a stated
period of
time. Investors comparing the Class' performance with
that of
other mutual funds should give consideration to the
quality and
maturity of the respective investment companies'
portfolio
securities.
TAXES
The following is a summary of certain Federal income
tax
considerations that may affect the Company and its
shareholders.
The summary is not intended as a substitute for
individual tax
advice, and investors are urged to consult their tax
advisors as to
the tax consequences of an investment in any Fund of
the Company.
Tax Status of the Funds
Each Fund will be treated as a separate taxable entity
for Federal
income tax purposes.
Each Fund has qualified and the Company intends that
each Fund will
continue to qualify separately each year as a
"regulated investment
company" under the Code. A qualified Fund will not be
liable for
Federal income taxes to the extent that its taxable
net investment
income and net realized capital gains are distributed
to its
shareholders, provided that each Fund distributes at
least 90% of
its net investment income.
Each Fund intends to accrue dividend income for
Federal income tax
purposes in accordance with the rules applicable to
regulated
investment companies. In some cases, these rules may
have the
effect of accelerating (in comparison to other
recipients of the
dividend) the time at which the dividend is taken into
account by a
Fund as taxable income.
Certain options, futures contracts and forward
contracts in which
the Funds may invest are "section 1256 contracts."
Gains or
losses on 1256 contracts generally are considered 60%
long-term and
40% short-term capital gains or losses ("60/40");
however, foreign
currency gains or losses arising from certain section
1256
contracts may be treated as ordinary income or loss.
Also, section
1256 contracts held by a Fund at the end of each
taxable year are
"marked-to-market" with the result that unrealized
gains or losses
are treated as though they were realized and the
resulting gain or
loss is treated as 60/40 gain or loss as ordinary
income or loss,
as the case may be. These contracts also may be
marked-to-market
for purposes of the 4% excise tax under rules
prescribed in the
Code.
Many of the hedging transactions undertaken by the
Funds will
result in "straddles" for Federal income tax purposes.
Straddles
are defined to include "offsetting positions" in
actively traded
personal property. It is not entirely clear under
what
circumstances one investment made by a Fund will be
treated as
offsetting another investment held by the Fund. In
general,
positions are offsetting if there is a substantial
diminution in
the risk of loss from holding one position by reason
of holding one
or more other positions. The straddle rules may
affect the
character of gains (or losses) realized on straddle
positions. In
addition, losses realized by a Fund on straddle
positions may be
deferred under the straddle rules, rather than being
taken into
account in calculating the taxable income for the
taxable year in
which losses are realized. Hedging transactions may
increase the amount
of short-term capital gain realized by a Fund which is
taxed as
ordinary income when distributed to the shareholders.
The Fund may
make one or more of the elections available under the
Code which
are applicable to straddles. If a Fund makes any of
the elections,
the amount, character and timing of the recognition of
gains or
losses from the affected straddle positions will be
determined
under rules that vary according to the election(s)
made.
Distributions of investment company taxable income
generally are
taxable to shareholders as ordinary income. In view
of each Fund's
investment policy, it is expected that dividends from
domestic
corporations will constitute a portion of the gross
income of
several of the Funds but not of others. Therefore, it
is expected
that a portion of the income distributed by the Funds
(with the
exception of Investment Grade Bond Fund and Government
Securities
Fund) may be eligible for the dividends-received
deduction for
corporations.
Distributions of net realized capital gains designated
by a Fund as
capital gains dividends are taxable to shareholders as
long-term
capital gain, regardless of the length of time the
shares of a Fund
have been held by a shareholder. Distributions of
capital gains,
whether long or short-term, are not eligible for the
dividends-
received deduction.
Dividends (including capital gain dividends) declared
by a Fund in
October, November or December of any calendar year to
shareholders
of record on a date in such a month will be deemed to
have been
received by shareholders on December 31 of that
calendar year,
provided that the dividend is actually paid by the
Fund during
January of the following calendar year.
All dividends are taxable to the shareholder whether
reinvested in
additional shares or received in cash. Shareholders
receiving
distributions in the form of additional shares will
have a cost
basis for Federal income tax purposes in each share
received equal
to the net asset value of a share of the Fund on the
reinvestment
date. Shareholders will be notified annually as to
the Federal tax
status of distributions.
Under the Code, gains or losses attributable to
fluctuations in
currency exchange rates which occur between the time a
Fund accrues
income or other receivables or accrues expenses or
other
liabilities denominated in a foreign currency and the
time a Fund
actually collects such receivables or pays such
liabilities,
generally are treated as ordinary income or ordinary
loss.
Similarly, on disposition of debt securities
denominated in a
foreign currency and on disposition of certain futures
contracts,
forward contracts and options, gains or losses
attributable to
fluctuations in the value of a currency between the
date of
acquisition of the security and the date of
disposition also are
treated as ordinary gain or loss. These gains or
losses, referred
to under the Code as "section 988" gains or losses,
may increase
or decrease the amount of a Fund's investment company
taxable
income to be distributed to its shareholders as
ordinary income.
It is expected that certain dividends and interest
received by the
Fund will be subject to foreign withholding taxes. So
long as more
than 50% in value of a Fund's total assets at the
close of a given
taxable year consists of stocks or securities of
foreign
corporations, the Fund may elect to treat any foreign
taxes paid or
accrued by it as paid by its shareholders. Each Fund
will notify
shareholders in writing each year whether it makes the
election and
the amount of foreign taxes it has elected to have
treated as paid
by the shareholders. If a Fund makes the election,
shareholders
will be required to include as income their
proportionate share of
the amount of foreign taxes paid or accrued by the
Fund and
generally be entitled to claim either a credit or
deduction (as an
itemized deduction) for their share of the taxes in
computing their
Federal income tax, subject to limitations.
Generally, a credit for foreign taxes is subject to
the limitation
that it may not exceed the shareholder's United States
tax
attributable to his or her total foreign source
taxable income.
For this purpose, if the pass-through election is
made, the source
of the electing Fund's income will flow through to its
shareholders. With respect to a Fund, gains from the
sales of
securities generally will be treated as derived from
United States
sources and certain currency fluctuation gains,
including
fluctuation gains from foreign currency denominated
debt
securities, receivables and payables, will be treated
as ordinary
income derived from United States sources. The
limitation on the
foreign tax credit is applied separately to foreign
source passive
income (as defined for purposes of the foreign tax
credit),
including the foreign source passive income passed
through by a
Fund. Shareholders may be unable to claim a credit
for the full
amount of their proportionate share of the foreign tax
paid or
accrued by a Fund. A foreign tax credit can be used
to offset only
90% of the alternative minimum tax (as computed under
the Code for
purposes of the limitation) imposed on corporations
and
individuals. If a Fund is not eligible to make the
election to
"pass through" to its shareholders its foreign taxes,
the foreign
taxes it pays will reduce investment company taxable
income and the
distributions by that Fund will be treated as United
States source
income.
The foregoing is only a general description of the
foreign tax
credit. Because application of the credit depends on
the
particular circumstances of each shareholder,
shareholders are
advised to consult their own tax advisors.
Distributions by a Fund reduce the net asset value of
the Fund's
shares. Should a distribution reduce the net asset
value below a
shareholder's cost basis, such distribution
nevertheless generally
would be taxable to the shareholder as ordinary income
or capital
gains as described above, even though, from an
investment
standpoint, it may constitute a partial return of
capital. In
particular, investors should be careful to consider
the tax
implications of buying shares just prior to a
distribution. The
price of shares purchased at that time includes the
amount of the
forthcoming distribution but the distribution
generally would be
taxable to the investor.
Upon redemption, sale or exchange of his shares, a
shareholder will
realize a taxable gain or loss depending upon his
basis for his
shares. Such gain or loss will be treated as capital
gain or loss
if the shares are capital assets in the shareholder's
hands. Such
gain or loss generally will be long-term or short-term
depending
upon the shareholder's holding period for the shares
[for
individuals, the maximum tax rate for long-term
capital gains is
28% , (20% if the shares have been held for more than
18 months)]
However, a loss realized by a shareholder on the sale
of shares of
a Fund with respect to which capital gain dividends
have been paid
will, to the extent of such capital gain dividends, be
treated as
long-term capital loss if such shares have been held
by the
shareholder for six months or less. A gain realized
on a
redemption, sale or exchange will not be affected by a
reacquisition of shares. A loss realized on a
redemption, sale or
exchange, however, will be disallowed to the extent
the shares
disposed of are replaced (whether through reinvestment
of
distributions or otherwise) within a period of 61 days
beginning 30
days before and ending 30 days after the shares are
disposed of.
In such a case, the basis of the shares acquired will
be adjusted
to reflect the disallowed loss.
For the purposes of computing the revised alternative
minimum tax
of 20% for corporations, 75% of the excess of the
adjusted current
earnings (as defined in the Code) over other
alternative minimum
taxable income is treated as an adjustment item.
Shareholders are
advised to consult their own tax advisors for details
regarding the
alternative minimum tax.
If a Fund purchases shares in certain foreign
investment funds
classified under the Code as a "passive foreign
investment
company," the Fund may be subject to Federal income
tax on a
portion of an "excess distribution" and gain from the
disposition
of such shares, even though such income may have to be
distributed
as a taxable dividend by the Fund to its shareholders.
In
addition, gains on the disposition of shares in a
passive foreign
investment company generally are treated as ordinary
income even
though the shares are capital assets in the hands of
the Company.
Certain interest charges may be imposed on either the
Fund or its
shareholders in respect of any taxes arising from such
distributions or gains. A Fund may be eligible to
elect to include
in its gross income its share of earnings of a passive
foreign
investment company on a current basis. Generally the
election
would eliminate the interest charge and the ordinary
income
treatment on the disposition of stock, but such an
election may
have the effect of accelerating the recognition of
income and gains
by the Fund compared to a fund that did not make the
election. In
addition, another election may be available that would
involve
marking to market a Fund's passive foreign investment
company
shares at the end of each taxable year (and on certain
other dates
prescribed in the Code), with the result that
unrealized gains are
treated as though they were realized. If this
election were made,
tax at the Fund level under the passive foreign
investment company
rules would generally be eliminated, but the Fund
could, in limited
circumstances, incur nondeductible interest charges.
Each Fund's
intention to qualify annually as a regulated
investment company may
limit its elections with respect to shares of passive
foreign
investment companies.
Because the application of the passive foreign
investment company
rules may affect, among other things, the character of
gains, the
amount of gain or loss and the timing of the
recognition of income
with respect to passive foreign investment company
shares, as well
as subject a Fund itself to tax on certain income from
such shares,
the amount that must be distributed to shareholders,
and which will
be taxed to shareholders as ordinary income or long-
term capital
gain, may be increased or decreased substantially as
compared to a
fund that did not invest in passive foreign investment
companies.
If a shareholder (a) incurs a sales charge in
acquiring shares of
the Company, (b) disposes of those shares within 90
days and (c)
acquires shares in a mutual fund for which the
otherwise applicable
sales charge is reduced by reason of a reinvestment
right (i.e.,
exchange privilege), the original sales charge
increases the
shareholder's tax basis in the original shares only to
the extent
the otherwise applicable sales charge for the second
acquisition is
not reduced. The portion of the original sales charge
that does
not increase the shareholder's tax basis in the
original shares
would be treated as incurred with respect to the
second acquisition
and, as a general rule, would increase the
shareholder's tax basis
in the newly acquired shares. Furthermore, the same
rule also
applies to a disposition of the newly acquired shares
made within
90 days of a subsequent acquisition. This provision
prevents a
shareholder from immediately deducting the sales
charge by shifting
his or her investment in a family of mutual funds.
Backup Withholding. If a shareholder fails to furnish
a correct
taxpayer identification number, fails to fully report
dividend or
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 such withholding, then the shareholder may
be subject to
a 31% "backup withholding tax" with respect to (a) any
taxable
dividends and distributions and (b) any proceeds of
any redemption
of Company 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 discussion relates only to Federal
income tax law as
applicable to United States citizens. Distributions
by the Funds
also may be subject to state, local and foreign taxes,
and their
treatment under state, local and foreign income tax
laws may differ
from the Federal income tax treatment. The Government
Securities
Fund's dividends, to the extent they consist of
interest from
obligations of the United States government and
certain of its
agencies and instrumentalities, may be exempt from
state and local
income taxes in some jurisdictions. The Company
intends to advise
shareholders of the proportion of that Fund's
dividends which are
derived from such interest. Shareholders should
consult their tax
advisors with respect to particular questions of
Federal, state,
local and foreign taxation.
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
Company. Under
its custody agreement with the Company, PNC Bank holds
each Funds
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 transaction charges. PNC bank is authorized
to establish
separate accounts for foreign securities owned by the
Company to be
held with foreign branches of other domestic banks as
well as with
certain foreign banks and securities depositories.
The assets of
the Company are held under bank custodianship in
compliance with
the 1940 Act.
First Data, located at Exchange Place, Boston,
Massachusetts 02109,
serves as the Company's transfer agent. For these
services, First
Data receives a monthly fee computed on the basis of
the number of
shareholder accounts it maintains with the Company
during the month
and is reimbursed for out-of-pocket expenses.
FINANCIAL STATEMENTS
The Annual Reports for each Fund for the fiscal year
ended December
31, 1997 are incorporated herein by reference in their
entirety.
APPENDIX
BOND (AND NOTE) RATINGS
Moody's Investors Service, Inc. ("Moody's")
Aaa - Bonds that are rated "Aaa" are judged to
be of the best
quality. They carry the smallest degree of investment
risk and are
generally referred to as "gilt edge." Interest
payments are
protected by a large or by an exceptionally stable
margin and
principal is secure. While the various protective
elements are
likely to change, such changes as can be visualized
are most unlikely
to impair the fundamentally strong position of such
issues.
Aa - Bonds that are rated "Aa" are judged to be
of high
quality by all standards. Together with the "Aaa"
group they
comprise what are generally known as high grade bonds.
They are
rated lower than the best bonds because margins of
protection may not
be as large as in "Aaa" securities or fluctuation of
protective
elements may be of greater amplitude or there may be
other elements
present that make the long term risks appear somewhat
larger than in
"Aaa" securities.
A - Bonds that are rated "A" possess many
favorable
investment attributes and are to be considered as
upper medium grade
obligations. Factors giving security to principal and
interest are
considered adequate but elements may be present that
suggest a
susceptibility to impairment sometime in the future.
Baa - Bonds that are rated "Baa" are considered
as medium
grade obligations, i.e., they are neither highly
protected nor poorly
secured. Interest payments and principal security
appear adequate
for the present but certain protective elements may be
lacking or may
be characteristically unreliable over any great length
of time. Such
bonds lack outstanding investment characteristics and
in fact have
speculative characteristics as well.
Ba - Bonds that are rated Ba are judged to have
speculative
elements; their future cannot be considered as well
assured. Often
the protection of interest and principal payments may
be very
moderate and thereby not well safeguarded during both
good and bad
times over the future. Uncertainty of position
characterizes bonds
in this class.
B - Bonds that are rated B generally lack
characteristics of
desirable investments. Assurance of interest and
principal payments
or of maintenance of other terms of the contract over
any long period
of time may be small.
Caa - Bonds that are rated Caa are of poor
standing. These
issues may be in default or present elements of danger
may exist with
respect to principal or interest.
Ca - Bonds that are rated Ca represent
obligations which are
speculative in a high degree. Such issues are often
in default or
have other marked short-comings.
C - Bonds that are rated C are the lowest rated
class of
bonds, and issues so rated can be regarded as having
extremely poor
prospects of ever attaining any real investment
standing.
Moody's applies the numerical modifiers 1, 2 and
3 in each
generic rating classification from Aa through B. The
modifier 1
indicates that the security ranks in the higher end of
its generic
rating category; the modifier 2 indicates a mid-range
ranking; and
the modifier 3 indicates that the issue ranks in the
lower end of its
generic rating category.
Standard & Poor's Ratings Group ("Standard & Poors")
AAA - Debt rated "AAA" has the highest rating
assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is
extremely strong.
AA - Debt rated "AA" has a very strong capacity
to pay
interest and repay principal and differs from the
highest rated
issues only in small degree.
A - Debt rated "A" has a strong capacity to pay
interest and
repay principal although it is somewhat more
susceptible to the
adverse effects of changes in circumstances and
economic conditions
than debt in higher rated categories.
BBB - Debt rated "BBB" is regarded as having an
adequate
capacity to pay interest and repay principal. Whereas
it normally
exhibits adequate protection parameters, adverse
economic conditions
or changing circumstances are more likely to lead to a
weakened
capacity to pay interest and repay principal for debt
in this
category than in higher rated categories.
BB, B and CCC - Bonds rated BB and B are
regarded, on
balance, as predominantly speculative with respect to
capacity to pay
interest and repay principal in accordance with the
terms of the
obligation. BB represents a lower degree if
speculation than B and
CCC the highest degree of speculation. While such
bonds will likely
have some quality and protective characteristics,
these are
outweighed by large uncertainties or major risk
exposures to adverse
conditions.
C - The rating C is reserved for income bonds on
which no
interest is being paid.
D - Bonds rated D are in default, and payment of
interest
and/or repayment of principal is in arrears.
S&P's letter ratings may be modified by the
addition of a
plus or a minus sign, which is used to show relative
standing within
the major rating categories, except in the AAA
category.
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.
Issuers rated "Prime-1" (or related supporting
institutions) have a
superior capacity for repayment of short-term
promissory obligations.
Prime-1 repayment capacity will normally be evidenced
by the
following characteristics: leading market positions in
well-
established industries; high rates of return on funds
employed;
conservative capitalization structures with moderate
reliance on debt
and ample asset protection; broad margins in earnings
coverage of
fixed financial charges and high internal cash
generation; well-
established access to a range of financial markets and
assured
sources of alternate liquidity.
Issuers rated "Prime-2" (or related supporting
institutions) have a
strong capacity for repayment of short-term promissory
obligations.
This will normally be evidenced by many of the
characteristics cited
above but to a lesser degree. Earnings trends and
coverage ratios,
while sound, will be more subject to variation.
Capitalization
characteristics, while still appropriate, may be more
affected by
external conditions. Ample alternate liquidity is
maintained.
Standard & Poor's Ratings Group
A-1 - This designation indicates that the
degree of safety
regarding timely payment is either overwhelming or
very strong.
Those issues determined to possess overwhelming safety
characteristics will be denoted with a plus (+) sign
designation.
A-2 - Capacity for timely payment on issues with
this
designation is strong. However, the relative degree
of safety is not
as high as for issues designated A-1.
Supplementary Description of Interest Rate Futures
Contracts and
Related Options
Characteristics of Futures Contracts. Currently,
futures contracts
can be purchased and sold on such securities as U.S.
Treasury
bonds, U.S. Treasury notes, GNMAs and U.S. Treasury
bills. Unlike
when the Fund purchases or sells a security, no price
is paid or
received by the Fund upon the purchase or sales of a
futures
contract. The Fund will initially be required to
deposit with the
custodian or the broker an amount of "initial margin"
of cash of
U.S. Treasury bills. The nature of initial margin in
futures
transactions is different from that of margin in
security
transactions in that futures contract initial margin
does not
involve the borrowing of funds by their customer to
finance the
transaction. Rather, the initial margin is in the
nature of a
performance bond or good faith deposit on the contract
which is
returned to the Fund upon termination of the futures
contract,
assuming all contractual obligations have been
satisfied.
Subsequent payments, called maintenance margin, to and
from the
broker, will be made on a daily basis as the price of
the
underlying debt security fluctuates, making the long
and short
positions in the futures contract more or less
valuable, a process
known as "marked-to-market." For example, when the
Fund has
purchased a futures contract and the price of the
underlying debt
security has risen, that position will have increased
in value and
the Fund will receive from the broker a maintenance
margin payment
equal to that increase in value. Conversely, when the
Fund has
purchased a futures contract and the price of the
underlying debt
security has declined, the position would be less
valuable and the
Fund would be required to make a maintenance margin
payment to the
broker. At any time prior to expiration of the
futures contract,
the Fund may elect to close the position by taking an
opposite
position which will operate to terminate the Fund's
position in the
futures contract. A final determination of
maintenance margin is
then made, additional cash is required to be paid by
or released to
the Fund, and the Fund realizes a loss or a gain.
While futures contracts based on debt securities do
provide for the
delivery and acceptance of securities, such deliveries
and
acceptances are very seldom made. Generally, the
futures contract
is terminated by entering into an offsetting
transaction. An
offsetting transaction for a futures contract sale is
effected by
the Fund entering into a futures contract purchase for
the same
aggregate amount of the specific type of financial
instrument and
same delivery date. If the price in the sale exceeds
the price in
the offsetting purchase, the Fund pays the difference
and realizes
the loss. Similarly, the closing out of a futures
contract
purchase is effected by the Fund entering into a
futures contract
sale. If the offsetting sale price exceeds the
purchase price, the
Fund realizes a gain, and if the purchase price
exceeds the
offsetting price, the Fund realizes a loss.
Risks of Transactions in Futures Contracts. There are
several
risks in connection with the use of futures contracts
by a Fund as
a hedging device. One risk arises because of the
imperfect
correlation between movements in the price of the
futures contracts
and movements in the price of the debt securities
which are the
subject of the hedge. The price of the futures
contract may move
more than or less than the price of the debt
securities being
hedged. If the price of the futures contract moves
less than the
price of the securities which are the subject of the
hedge, the
hedge will not be fully effective, but, if the price
of the
securities being hedged has moved in an unfavorable
direction, the
Fund would be in a better position than if it has not
hedged at
all. If the price of the securities being hedged has
moved in a
favorable direction, this advantage will be partially
offset by the
movement in the price of the futures contract. If the
price of the
futures contracts moves more than the price of the
security, the
Fund will experience either a loss or a gain on the
future which
will not be completely offset by movements in the
prices of the
debt securities which are the subject of the hedge.
To compensate
for the imperfect correlation of movements in the
price of debt
securities being hedged and movements in the prices of
the futures
contracts, the Fund may buy or sell futures contracts
in a greater
dollar amount of the securities being hedged if the
historical
volatility of the prices of such securities has been
greater than
the historical volatility of the futures contracts.
Conversely,
the Fund may buy or sell fewer futures contracts if
the historical
volatility of the price of the securities being hedged
is less than
the historical volatility of the futures contracts.
It is also
possible that, where the Fund has sold futures to
hedge its
portfolio against decline in the market, the market
may advance and
the value of securities held in the Fund's portfolio
may decline.
If this occurred, the Fund would lose money on the
futures
contracts and also experience a decline in value in
its portfolio
securities. However, while this could occur for a
very brief
period or to a very small degree, over time the value
of a
diversified portfolio will tend to move in the same
direction as
the futures contracts. Where futures are purchased to
hedge
against a possible increase in prices of securities
before the Fund
is able to invest its cash (or cash equivalents) in
U.S. government
securities (or options) in an orderly fashion, it is
possible that
the market may decline instead; if the Fund then
concludes not to
invest in U.S. government securities or options at
that time
because of concern as to possible further market
decline or for
other reasons, the Fund will realize a loss on the
futures contract
that is not offset by a reduction in the price of
securities
purchased.
In addition to the possibility that there may be an
imperfect
correlation, or no correlation at all, between
movements in the
futures contracts and the portion of the portfolio
being hedged,
the market prices of futures contracts may be affected
by certain
factors. First, all participants in the futures
market are subject
to margin deposit and maintenance requirements.
Rather than
meeting additional margin deposit requirements,
investors may close
futures contracts though offsetting transactions which
could
distort the normal relationship between the debt
securities and
futures markets; second, from the point of view of
speculators, the
deposit requirements in the futures market are less
onerous than
margin requirements in the securities market.
Therefore, increased
participation by speculators in the futures market may
also cause
temporary price distortions. Due to the possibility
of price
distortion in the futures market and because of the
imperfect
correlation between movements in the debt securities
and movements
in the prices of futures contracts, a correct forecast
of interest
rate trends by the investment advisor may still not
result in a
successful hedging transaction over a very short time
frame.
Positions in futures contracts may be closed out only
on an
exchange or board of trade which provides a secondary
market for
such futures. Although an unauthorized Fund intends
to purchase or
sell futures only on exchanges or boards of trade
where there
appears to be an active secondary market, there is no
assurance
that a liquid secondary market on an exchange or board
of trade
will exist for any particular contract or at any
particular time.
In such event, it may not be possible to close a
futures position,
and in the event of adverse price movements, the Fund
would
continue to be required to make daily cash payments of
variation
margin. However, in the event that the futures
contracts have been
used to hedge portfolio securities, such securities
will not be
sold until the futures contracts can be terminated.
In such
circumstances, an increase in the price of the
securities, if any,
may partially or completely offset losses on the
futures contracts.
However, as described above, there is no guarantee
that the price
of the securities will, in fact, correlate with the
price movements
of the futures contracts and thus provide an offset to
losses on
futures contracts. Successful use of futures
contracts by the Fund
is also subject to the investment adviser's ability to
predict
correctly movements in the direction of interest rates
and other
factors affecting markets of debt securities. For
example, if the
Fund has hedged against the possibility of an increase
in interest
rates which would adversely affect debt securities
held in its
portfolio and prices of such securities increase
instead, the Fund
will lose part or all of the benefit of the increased
value of its
securities which it has hedged because it will have
offsetting
losses in its futures positions. In addition, in such
situations,
if the Fund has insufficient cash, it may have to sell
securities
to meet daily variation margin requirements. Such
sale of
securities may be, but will not necessarily be, at
increased prices
which reflect the rising market. The Fund may have to
sell
securities at a time when it may be disadvantageous to
do so.
Characteristics of Options on Futures Contracts. As
with options
on debt securities, the holder of an option may
terminate his
position by selling an option of the same series.
There is no
guarantee that such closing transactions can be
effected. The Fund
will be required to deposit initial margin and
maintenance margin
with respect to put and call options on futures
contracts described
above, and, in addition, net option premiums received
will be
included as initial margin deposits.
In addition to the risks which apply to all options
transaction,
there are several special risks relating to options on
futures
contracts. The ability to establish and close out
positions on
such options will be subject to the development and
maintenance of
a liquid secondary market. It is not certain that
this market will
develop. The Fund will not purchase options on
futures contracts
on any exchange unless and until, in the investment
advisor's
opinion, the market for such options had developed
sufficiently
that the risks in connection with options on futures
contracts are
not greater than the risks in connection with futures
contracts.
Compared to the use of futures contracts, the purchase
of options
on futures contracts involves less potential risk to
the Fund
because the maximum amount of risk is the premium paid
for the
options (plus transaction costs). However, there may
be
circumstances when the use of an option on a futures
contract would
result in a loss to the Fund when the use of a futures
contract
would not, such as when there is no movement in the
prices of debt
securities. Writing an option on a futures contract
involves risks
similar to those arising in the sale of futures
contracts, as
described above.
47
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4/29/98 11:37 AM
SAI98.52 4/29/98 11:37 AM
PART C
Item 24. Financial Statements and Exhibits
(a) Not Applicable
Included in Part B:
(b) Exhibits
All references are to the Registrant's registration
statement on Form N-1A (the "Registration Statement")
as filed with the SEC on October 2, 1981(File Nos. 2-
74288 and 811-3275).
(1) Articles of Restatement dated September 17, 1993
to Registrant's Articlesof 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 (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. filed herewith.
(6) (a) Distribution Agreement dated July 30, 1993,
between the Registrant andSmith Barney Shearson Inc.
is incorporated by reference to the registration
statement filed on Form N-14 on September 2, 1993.
File 33-50153.
(b) Form of Distribution Agreement between the
Registrant and PFS Distributors on behalf of Smith
Barney Investment Funds Inc. is incorporated by
reference to Post-Effective Amendment No. 40 filed on
June 27, 1995.
(7) Not Applicable.
8 (a) Custodian Agreement with PNC Bank, National
Association is incorporated byreference 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) Filed herewith
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) (a) Amended Services and Distribution Plans
pursuant to Rule 12b-1 betweenthe Registrant on behalf
of Smith Barney Invest Grade Bond Fund, Smith
BarneyGovernment 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-EffectiveAmendment 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.
(16) Performance Data is incorporated by reference to
Post-Effective Amendment No. 22 as filed on May 1,
1989.
(17) Filed herewith
(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
Managed Growth 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
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. (formerly known as Primerica
Corporation) ("Travelers"). 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) Smith Barney Inc. ("Smith Barney ") acts as
principal underwriter for
Consulting Group Capital Markets Funds
Global Horizons Investment Series (Cayman Islands)
Greenwich Street California Municipal Fund Inc.
Greenwich Street Municipal Fund Inc.
Greenwich Street Series Fund
High Income Opportunity Fund Inc.
The Italy Fund Inc.
Managed High Income Portfolio Inc.
Managed Municipals Portfolio II Inc.
Managed Municipals Portfolio Inc.
Municipal High Income Fund Inc.
Puerto Rico Daily Liquidity Fund Inc.
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Concert 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 Intermediate Municipal Fund, Inc.
Smith Barney Investment Funds Inc.
Smith Barney Investment Trust
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc.
Smith Barney Muni Funds
Smith Barney Municipal Fund, Inc.
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Natural Resources Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund Inc.
Smith Barney Principal Return Fund
Smith Barney 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)
Zenix Income Fund Inc. and various series of unit
investment trusts.
Smith Barney is a wholly owned subsidiary of Holdings.
The information required by this Item 29 with respect
to each director, officer and partner of Smith Barney
is incorporated by reference to Schedule A of Form BD
filed by Smith Barney pursuant to the Securities
Exchange Act of 1934 (SEC File No.812-8510).
Item 30. Location of Accounts and Records
(1) Smith Barney Investment Funds Inc.
388 Greenwich Street
New York, New York 10013
(2) 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
(b) The Registrant hereby undertakes to file a post-
effective amendment, which includes financial
statements, within four to six month from the
effective date of this Registration Statement.
(c) The Registrant hereby undertakes to furnish to
each person to whom a prospectus of any series of the
Registrant is delivered a copy of the Registrant's
latest annual report, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of
1940, as amended, the Registrant, SMITH BARNEY
INVESTMENT FUNDS INC., has duly caused this Amendment
to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized,
all in the City of New York, State of New York on the
29th day of April, 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
04/29/98
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Senior Vice President
Lewis E. Daidone and Treasurer
04/29/98
(Chief Financial
and Accounting Officer)
/s/ Paul R. Ades * Director
04/29/98
Paul R. Ades
/s/ Herbert Barg* Director
04/29/98
Herbert Barg
/s/ Dwight B. Crane* Director
04/29/98
Dwight B. Crane
/s/ Frank Hubbard* Director
04/29/98
Frank Hubbard
/s/ Jerome Miller* Director
04/29/98
Jerome Miller
/s/ Ken Miller* Director
04/29/98
Ken Miller
/s/ John F. White* Director
04/29/98
John F. White
*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
Cover
5(d) Sub Advisory Agreement on
behalf of the Global Value
Fund
and the Small Cap Global Value
Fund
11 Auditor's Consent
17 Financial Data Schedule
Independent Auditors' Consent
To the Shareholders and Board of Trustees of
Smith Barney Investment Funds Inc.:
We consent to the use of our reports dated February 10, 1998 for
the Smith Barney Government Securities Fund, Smith Barney Managed
Growth Fund, Smith Barney Special Equities Fund, Concert
Peachtree Growth Fund, and Smith Barney Investment Grade Bond
Fund of Smith Barney Investment Funds Inc. incorporated herein by
reference and to the references to our Firm under the headings
"Financial Highlights" in the Prospectuses and "Counsel and
Auditors" in the Statement of Additional Information.
KPMG
Peat Marwick LLP
New York, New York
April 27, 1998
SUBADVISORY AGREEMENT
Smith Barney Investment Funds Inc.
Hansberger Global Small Cap Value Fund
October 23, 1997
Hansberger Global Investors, Inc.
515 East Las Olas Boulevard
Suite 1300
Fort Lauderdale, Florida 33301
Dear Sirs:
Smith Barney Investment Funds (the "Company"), a corporation
organized under the laws of the State of Maryland on behalf of the
Hansberger Global Small Cap Value Fund (the "Fund") and Smith
Barney Mutual Funds Management Inc. (the "Manager"), each confirms
its agreement with Hansberger Global Investors Inc. (the "Sub-
Adviser"), as follows:
1. Investment Description; Appointment
The Company desires to employ its capital relating to the Fund by
investing and reinvesting in investments of the kind and in
accordance with the investment objective(s), policies and
limitations specified in the prospectus (the "Prospectus") and the
statement of additional information (the "Statement") filed with
the Securities and Exchange Commission as part of the Company's
Registration Statement on Form N-1A, as amended or supplemented
from time to time, and in the manner and to the extent as may from
time to time be approved by the Board of Directors of the Company
(the "Board"). Copies of the Prospectus, the Statement, the
Company's Bylaws (the "Bylaws") and any policies or procedures
adopted by the Board and in effect from time-to-time related to the
Company and the Sub-Adviser (the "Procedures") have been or will be
submitted to the Sub-Adviser. The Company agrees promptly to
provide copies of all amendments and supplements to the current
Prospectus, the Statement, the Bylaws and Procedures to the Sub-
Adviser on an on-going basis. Until the Company delivers any such
amendment or supplement to the Sub-Adviser, the Sub-Adviser shall
be fully protected in relying on the Prospectus, Statement, Bylaws
and Procedures as previously furnished to the Sub-Adviser. The
Company employs the Manager as the manager to the Portfolio
pursuant to the Management Agreement dated October 23, 1997 (the
"Management Agreement"), and the Company and the Manager desire to
employ and hereby appoint the Sub-Adviser to act as the sub-
investment adviser to the Fund. The Sub-Adviser accepts the
appointment and agrees to furnish the services for the compensation
set forth below.
2. Services as Sub-Adviser
Subject to the supervision, direction and approval of the Board of
the Company and the Manager, the Sub-Adviser shall conduct a
continual program of investment, evaluation and, if appropriate in
the view of the Sub-Adviser, sale and reinvestment of the Fund's
assets. The Sub-Adviser is authorized, in its sole discretion and
without prior consultation with the Manager, to: (a) manage the
Fund's assets in accordance with the Fund's investment objective(s)
and policies as stated in the Prospectus and the Statement; (b)
make investment decisions for the Fund; (c) place purchase and sale
orders for portfolio transactions on behalf of the Fund; and (d)
employ professional portfolio managers and securities analysts who
provide research services to the Portfolio.
In addition, (i) the Sub-Adviser shall furnish the Manager daily
information concerning portfolio transactions and quarterly and
annual reports concerning transactions and performance of the Fund
in such form as may be mutually agreed upon, and the Sub-Adviser
agrees to review the Fund and discuss the management of it with the
Manager and the Board of Directors of the Company.
(ii) Unless the Manager gives the Sub-Adviser written instructions
to the contrary, the Sub-Adviser shall use its good faith judgment
in a manner which it reasonably believes best serves the interests
of the Fund's shareholders to vote or abstain from voting all
proxies solicited by or with respect to the issuers of securities
in which assets of the Fund may be invested.
(iii) The Sub-Adviser shall maintain and preserve such records
related to the Fund's transactions as shall be required under the
Investment Company Act of 1940, as amended (the "1940 Act"). The
Manager shall maintain and preserve all books and other records not
related to the Fund's transactions as required under the 1940 Act
and shall timely furnish to Sub-Adviser all information and copies
of books and records reasonably requested by Sub-Adviser to comply
with any request made in connection with a regulatory inspection.
The Sub-Adviser shall timely furnish to the Manager all information
relating to the Sub-Adviser's services hereunder reasonably
requested by the Manager to keep and preserve the books and records
of the Portfolio. The Sub-Adviser agrees that all records which it
maintains for the Portfolio are the property of the Company and the
Sub-Adviser will surrender promptly to the Company copies of any of
such records.
(iv) The Sub-Adviser shall maintain compliance procedures for the
Portfolio that it reasonably believes are adequate to ensure the
Fund's compliance with (A) the 1940 Act and the rules and
regulations promulgated thereunder and (B) the Fund's investment
objective(s) and policies as stated in the Prospectus and
Statement. The Sub-Adviser shall maintain compliance procedures
that it reasonably believes are adequate to ensure its compliance
with the Investment Advisers Act of 1940, as amended (the "Advisers
Act").
(v) The Sub-Adviser has adopted a written code of ethics that it
reasonably believes complies with the requirements of Rule 17j-1
under the 1940 Act, which it will provide to the Company. The Sub-
Adviser has written policies and procedures reasonably designed to
prevent the misuse of material, nonpublic information by the Sub-
Adviser or any person associated with the Sub-Adviser as required
by Section 204A of the Advisers Act.
3. Brokerage
In selecting brokers or dealers (including, if permitted by
applicable law, Smith Barney Inc. or any other broker or dealer
affiliated with the Manager or the Sub-Adviser) to execute
transactions on behalf of the Fund, the Sub-Adviser will seek the
best overall terms available. In assessing the best overall terms
available for any transaction, the Sub-Adviser 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, the Sub-Adviser 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 the Sub-Adviser or its affiliates exercise investment
discretion. Nothing in this paragraph shall be deemed to prohibit
the Sub-Adviser from paying an amount of commission for effecting a
securities transaction in excess of the amount of commission
another member of an exchange, broker, or dealer would have charged
for effecting that transaction, if the Sub-Adviser determined in
good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services
provided by such member, broker, or dealer, viewed in terms of
either that particular transaction or its overall responsibilities
with respect to the Fund and/or other accounts over which the Sub-
Adviser or its affiliates exercise investment discretion.
4. Information Provided to the Company and the Manager
The Sub-Adviser shall keep the Company and the Manager informed of
developments materially affecting the Fund's holdings, and shall,
on its own initiative, furnish the Company and the Manager from
time to time with whatever information the Sub-Adviser believes is
appropriate for this purpose.
5. Compensation
(i) In consideration of the services rendered pursuant to this
Agreement, the Manager will pay the Sub-Adviser an annual fee
calculated at the rate of 0.60% of the Fund's average daily net
assets; the fee is calculated daily and paid monthly. The Sub-
Adviser shall have no right to obtain compensation directly from
the Company for services provided hereunder and agrees to look
solely to the Manager for payment of fees due. The fee for the
period from the Effective Date (defined below) of the Agreement to
the end of the month during which the Effective Date occurs shall
be prorated according to the proportion that such period bears to
the full monthly period. Upon any termination of this Agreement
before the end of a month, the fee for such part of that month
shall be prorated 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 the Sub-Adviser, the value of the Fund's net assets
shall be computed at the times and in the manner specified in the
Prospectus and/or the Statement.
(ii) The Sub-Adviser agrees that, to the extent that the fee that
is payable to the Manager by the Fund is reduced by action of the
Board, the fee payable to the Sub-Adviser shall be reduced pro
rata. Additionally, to the extent that any part of the fee that is
payable to the Manager is waived by the Manager, the Sub-Adviser
agrees to waive its fees proportionately. The Manager agrees to
consult with the Sub-Adviser prior to making a decision as to
whether to waive its fees.
6. Expenses
The Sub-Adviser shall bear all expenses (excluding brokerage costs,
custodian fees, auditors fees or other expenses to be borne by the
Fund or the Company) 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, but not
limited to, investment advisory fees, sub-advisory fees (other than
sub-advisory fees paid pursuant to this Agreement) and
administration fees; fees for necessary professional and brokerage
services; costs relating to local administration of securities;
fees for any pricing service; the costs of regulatory compliance;
and pro rata costs associated with maintaining the Company's legal
existence and shareholder relations. All other expenses not
specifically assumed by the Sub-Adviser hereunder or by the Manager
under the Management Agreement are borne by the Fund or the
Company.
7. Standard of Care
The Sub-Adviser shall exercise its best judgment and shall act in
good faith in rendering the services listed in paragraphs 2 and 3
above. The Sub-Adviser shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund or
the Manager in connection with the matters to which this Agreement
relates as well as in connection with the performance of its
obligations under this Agreement, provided that nothing in this
Agreement shall be deemed to protect or purport to protect the Sub-
Adviser against any liability to the Manager, the Company or to the
shareholders of the Portfolio to which the Sub-Adviser would
otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence on its part in the performance of its duties or by
reason of the Sub-Adviser's reckless disregard of its obligations
and duties under this Agreement.
8. Term of Agreement
This Agreement shall become effective October 23, 1997 (the
"Effective Date") and shall continue for an initial two-year term.
This Agreement shall continue thereafter so long as such
continuance is specifically approved at least annually as required
by the 1940 Act. This Agreement is terminable, without penalty, on
60 days' written notice, by the Board of the Company or by vote
of holders of a majority (as defined in the 1940 Act and the rules
thereunder) of the outstanding voting securities of THE FUND, or
upon 60 days' written notice by the Sub-Adviser except as otherwise
agreed by the Manager and the Sub-Adviser. This Agreement will
also terminate automatically in the event of its assignment (as
defined in the 1940 Act and the rules thereunder).
9. Services to Other Companies or Accounts
The Company understands that the Sub-Adviser now acts, and may act
in the future, unless otherwise agreed to by the parties, as
investment manager, adviser, or sub-adviser to other investment
companies and/or managed accounts, including offshore entities.
Sub-Adviser agrees that whenever the Portfolio and one or more
other accounts managed or advised by the Sub-Adviser 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 and account. The Company recognizes that
in some cases this procedure may adversely affect the size of the
position obtainable for the Fund. In addition, the Company
understands that the persons employed by the Sub-Adviser to assist
in the performance of the Sub-Adviser's duties under this Agreement
will not devote their full time to such service.
10. Representations
The Company and Portfolio represent that (i) a copy of the
Company's Articles of Incorporation, dated September 29, 1981,
together with all amendments thereto, is on file with the
Secretary of the State of Maryland, (ii) the appointment of the
Manager has been duly authorized, (iii) the appointment of the Sub-
Adviser has been duly authorized, and (iv) they have acted, and
will continue to act, in conformity with the 1940 Act and other
applicable laws.
The Sub-Adviser represents that it is authorized to perform the
services described herein.
Each of the parties hereto represents that the Agreement has been
duly authorized, executed and delivered by all required corporate
action.
11. Materials
The Manager shall not publish or distribute or allow the Company
or the Fund to publish or distribute any information, including but
not limited to registration statements, advertising or promotional
materials, specifically describing the Sub-Adviser, without prior
written consent of the Sub-Adviser, which consent shall not be
unreasonably withheld or delayed. If the Sub-Adviser has not
notified the Manager of its disapproval of sample materials within
three (3) business days after its receipt thereof, such materials
shall be deemed approved. Materials substantially similar to
materials approved on an earlier occasion shall also be deemed
approved.
12.Governing Law
This Agreement shall be governed by the internal laws of the
State of Maryland, without regard to the conflict of law
principles thereof; provided, however, that to the extent that
anything herein is inconsistent with the 1940 Act, the 1940 Act
shall control.
13. Notice
Any notice, advice or report to be given pursuant to this Agreement
shall be deemed sufficient if delivered or mailed by registered,
certified or overnight mail, postage prepaid addressed by the party
giving notice to the other party at the last address furnished by
the other party:
To the Company at:
388 Greenwich Street
22nd Floor
New York, NY 10013
Attention: Chairman
with a copy to the Secretary of the Company
To the Manager at:
388 Greenwich Street
22nd Floor
New York, NY 10013
Attention: President
To the Sub-Adviser at:
515 East Las Olas Boulevard
Suite 1300
Fort Lauderdale, Florida 33301
Attention: Thomas Hansberger Chairman & CEO
with a copy to the General Counsel.
14. Counterparts
This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance of this Agreement by signing and returning
the enclosed copy of this Agreement.
Very truly yours:
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
____________________________
By:
SMITH BARNEY INVESTMENT FUNDS INC.
_____________________________
By:
Accepted:
HANSBERGER GLOBAL INVESTORS, INC.
______________________________
By:
SUBADVISORY AGREEMENT
Smith Barney Investment Funds Inc.
Hansberger Global Value Fund
October 23, 1997
Hansberger Global Investors, Inc.
515 East Las Olas Boulevard
Suite 1300
Fort Lauderdale, Florida 33301
Dear Sirs:
Smith Barney Investment Funds (the "Company"), a corporation
organized under the laws of the State of Maryland on behalf of the
Hansberger Global Value Fund (the "Fund") and Smith Barney Mutual
Funds Management Inc. (the "Manager"), each confirms its agreement
with Hansberger Global Investors Inc. (the "Sub-Adviser"), as
follows:
1. Investment Description; Appointment
The Company desires to employ its capital relating to the Fund by
investing and reinvesting in investments of the kind and in
accordance with the investment objective(s), policies and
limitations specified in the prospectus (the "Prospectus") and the
statement of additional information (the "Statement") filed with
the Securities and Exchange Commission as part of the Company's
Registration Statement on Form N-1A, as amended or supplemented
from time to time, and in the manner and to the extent as may from
time to time be approved by the Board of Directors of the Company
(the "Board"). Copies of the Prospectus, the Statement, the
Company's Bylaws (the "Bylaws") and any policies or procedures
adopted by the Board and in effect from time-to-time related to the
Company and the Sub-Adviser (the "Procedures") have been or will be
submitted to the Sub-Adviser. The Company agrees promptly to
provide copies of all amendments and supplements to the current
Prospectus, the Statement, the Bylaws and Procedures to the Sub-
Adviser on an on-going basis. Until the Company delivers any such
amendment or supplement to the Sub-Adviser, the Sub-Adviser shall
be fully protected in relying on the Prospectus, Statement, Bylaws
and Procedures as previously furnished to the Sub-Adviser. The
Company employs the Manager as the manager to the Portfolio
pursuant to the Management Agreement dated October 23, 1997 (the
"Management Agreement"), and the Company and the Manager desire to
employ and hereby appoint the Sub-Adviser to act as the sub-
investment adviser to the Fund. The Sub-Adviser accepts the
appointment and agrees to furnish the services for the compensation
set forth below.
2. Services as Sub-Adviser
Subject to the supervision, direction and approval of the Board of
the Company and the Manager, the Sub-Adviser shall conduct a
continual program of investment, evaluation and, if appropriate in
the view of the Sub-Adviser, sale and reinvestment of the Fund's
assets. The Sub-Adviser is authorized, in its sole discretion and
without prior consultation with the Manager, to: (a) manage the
Fund's assets in accordance with the Fund's investment objective(s)
and policies as stated in the Prospectus and the Statement; (b)
make investment decisions for the Fund; (c) place purchase and sale
orders for portfolio transactions on behalf of the Fund; and (d)
employ professional portfolio managers and securities analysts who
provide research services to the Portfolio.
In addition, (i) the Sub-Adviser shall furnish the Manager daily
information concerning portfolio transactions and quarterly and
annual reports concerning transactions and performance of the Fund
in such form as may be mutually agreed upon, and the Sub-Adviser
agrees to review the Fund and discuss the management of it with the
Manager and the Board of Directors of the Company.
(ii) Unless the Manager gives the Sub-Adviser written instructions
to the contrary, the Sub-Adviser shall use its good faith judgment
in a manner which it reasonably believes best serves the interests
of the Fund's shareholders to vote or abstain from voting all
proxies solicited by or with respect to the issuers of securities
in which assets of the Fund may be invested.
(iii) The Sub-Adviser shall maintain and preserve such records
related to the Fund's transactions as shall be required under the
Investment Company Act of 1940, as amended (the "1940 Act"). The
Manager shall maintain and preserve all books and other records not
related to the Fund's transactions as required under the 1940 Act
and shall timely furnish to Sub-Adviser all information and copies
of books and records reasonably requested by Sub-Adviser to comply
with any request made in connection with a regulatory inspection.
The Sub-Adviser shall timely furnish to the Manager all information
relating to the Sub-Adviser's services hereunder reasonably
requested by the Manager to keep and preserve the books and records
of the Portfolio. The Sub-Adviser agrees that all records which it
maintains for the Portfolio are the property of the Company and the
Sub-Adviser will surrender promptly to the Company copies of any of
such records.
(iv) The Sub-Adviser shall maintain compliance procedures for the
Portfolio that it reasonably believes are adequate to ensure the
Fund's compliance with (A) the 1940 Act and the rules and
regulations promulgated thereunder and (B) the Fund's investment
objective(s) and policies as stated in the Prospectus and
Statement. The Sub-Adviser shall maintain compliance procedures
that it reasonably believes are adequate to ensure its compliance
with the Investment Advisers Act of 1940, as amended (the "Advisers
Act").
(v) The Sub-Adviser has adopted a written code of ethics that it
reasonably believes complies with the requirements of Rule 17j-1
under the 1940 Act, which it will provide to the Company. The Sub-
Adviser has written policies and procedures reasonably designed to
prevent the misuse of material, nonpublic information by the Sub-
Adviser or any person associated with the Sub-Adviser as required
by Section 204A of the Advisers Act.
3. Brokerage
In selecting brokers or dealers (including, if permitted by
applicable law, Smith Barney Inc. or any other broker or dealer
affiliated with the Manager or the Sub-Adviser) to execute
transactions on behalf of the Fund, the Sub-Adviser will seek the
best overall terms available. In assessing the best overall terms
available for any transaction, the Sub-Adviser 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, the Sub-Adviser 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 the Sub-Adviser or its affiliates exercise investment
discretion. Nothing in this paragraph shall be deemed to prohibit
the Sub-Adviser from paying an amount of commission for effecting a
securities transaction in excess of the amount of commission
another member of an exchange, broker, or dealer would have charged
for effecting that transaction, if the Sub-Adviser determined in
good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services
provided by such member, broker, or dealer, viewed in terms of
either that particular transaction or its overall responsibilities
with respect to the Fund and/or other accounts over which the Sub-
Adviser or its affiliates exercise investment discretion.
4. Information Provided to the Company and the Manager
The Sub-Adviser shall keep the Company and the Manager informed of
developments materially affecting the Fund's holdings, and shall,
on its own initiative, furnish the Company and the Manager from
time to time with whatever information the Sub-Adviser believes is
appropriate for this purpose.
5. Compensation
(i) In consideration of the services rendered pursuant to this
Agreement, the Manager will pay the Sub-Adviser an annual fee
calculated at the rate of 0.50% of the Fund's average daily net
assets; the fee is calculated daily and paid monthly. The Sub-
Adviser shall have no right to obtain compensation directly from
the Company for services provided hereunder and agrees to look
solely to the Manager for payment of fees due. The fee for the
period from the Effective Date (defined below) of the Agreement to
the end of the month during which the Effective Date occurs shall
be prorated according to the proportion that such period bears to
the full monthly period. Upon any termination of this Agreement
before the end of a month, the fee for such part of that month
shall be prorated 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 the Sub-Adviser, the value of the Fund's net assets
shall be computed at the times and in the manner specified in the
Prospectus and/or the Statement.
(ii) The Sub-Adviser agrees that, to the extent that the fee that
is payable to the Manager by the Fund is reduced by action of the
Board, the fee payable to the Sub-Adviser shall be reduced pro
rata. Additionally, to the extent that any part of the fee that is
payable to the Manager is waived by the Manager, the Sub-Adviser
agrees to waive its fees proportionately. The Manager agrees to
consult with the Sub-Adviser prior to making a decision as to
whether to waive its fees.
6. Expenses
The Sub-Adviser shall bear all expenses (excluding brokerage costs,
custodian fees, auditors fees or other expenses to be borne by the
Fund or the Company) 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, but not
limited to, investment advisory fees, sub-advisory fees (other than
sub-advisory fees paid pursuant to this Agreement) and
administration fees; fees for necessary professional and brokerage
services; costs relating to local administration of securities;
fees for any pricing service; the costs of regulatory compliance;
and pro rata costs associated with maintaining the Company's legal
existence and shareholder relations. All other expenses not
specifically assumed by the Sub-Adviser hereunder or by the Manager
under the Management Agreement are borne by the Fund or the
Company.
7. Standard of Care
The Sub-Adviser shall exercise its best judgment and shall act in
good faith in rendering the services listed in paragraphs 2 and 3
above. The Sub-Adviser shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund or
the Manager in connection with the matters to which this Agreement
relates as well as in connection with the performance of its
obligations under this Agreement, provided that nothing in this
Agreement shall be deemed to protect or purport to protect the Sub-
Adviser against any liability to the Manager, the Company or to the
shareholders of the Portfolio to which the Sub-Adviser would
otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence on its part in the performance of its duties or by
reason of the Sub-Adviser's reckless disregard of its obligations
and duties under this Agreement.
8. Term of Agreement
This Agreement shall become effective October 23, 1997 (the
"Effective Date") and shall continue for an initial two-year term.
This Agreement shall continue thereafter so long as such
continuance is specifically approved at least annually as required
by the 1940 Act. This Agreement is terminable, without penalty, on
60 days' written notice, by the Board of the Company or by vote of
holders of a majority (as defined in the 1940 Act and the rules
thereunder) of the outstanding voting securities of THE FUND, or
upon 60 days' written notice by the Sub-Adviser except as otherwise
agreed by the Manager and the Sub-Adviser. This Agreement will
also terminate automatically in the event of its assignment (as
defined in the 1940 Act and the rules thereunder).
9. Services to Other Companies or Accounts
The Company understands that the Sub-Adviser now acts, and may act
in the future, unless otherwise agreed to by the parties, as
investment manager, adviser, or sub-adviser to other investment
companies and/or managed accounts, including offshore entities.
Sub-Adviser agrees that whenever the Portfolio and one or more
other accounts managed or advised by the Sub-Adviser 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 and account. The Company recognizes that
in some cases this procedure may adversely affect the size of the
position obtainable for the Fund. In addition, the Company
understands that the persons employed by the Sub-Adviser to assist
in the performance of the Sub-Adviser's duties under this Agreement
will not devote their full time to such service.
10. Representations
The Company and Portfolio represent that (i) a copy of the
Company's Articles of Incorporation, dated September 29, 1981,
together with all amendments thereto, is on file with the Secretary
of the State of Maryland, (ii) the appointment of the Manager has
been duly authorized, (iii) the appointment of the Sub-Adviser has
been duly authorized, and (iv) they have acted, and will continue
to act, in conformity with the 1940 Act and other applicable laws.
The Sub-Adviser represents that it is authorized to perform the
services described herein.
Each of the parties hereto represents that the Agreement has been
duly authorized, executed and delivered by all required corporate
action.
11. Materials
The Manager shall not publish or distribute or allow the Company or
the Fund to publish or distribute any information, including but
not limited to registration statements, advertising or promotional
materials, specifically describing the Sub-Adviser, without prior
written consent of the Sub-Adviser, which consent shall not be
unreasonably withheld or delayed. If the Sub-Adviser has not
notified the Manager of its disapproval of sample materials within
three (3) business days after its receipt thereof, such materials
shall be deemed approved. Materials substantially similar to
materials approved on an earlier occasion shall also be deemed
approved.
12. Governing Law
This Agreement shall be governed by the internal laws of the State
of Maryland, without regard to the conflict of law principles
thereof; provided, however, that to the extent that anything herein
is inconsistent with the 1940 Act, the 1940 Act shall control.
13. Notice
Any notice, advice or report to be given pursuant to this Agreement
shall be deemed sufficient if delivered or mailed by registered,
certified or overnight mail, postage prepaid addressed by the party
giving notice to the other party at the last address furnished by
the other party:
To the Company at:
388 Greenwich Street
22nd Floor
New York, NY 10013
Attention: Chairman
with a copy to the Secretary of the Company
To the Manager at:
388 Greenwich Street
22nd Floor
New York, NY 10013
Attention: President
To the Sub-Adviser at:
515 East Las Olas Boulevard
Suite 1300
Fort Lauderdale, Florida 33301
Attention: Thomas Hansberger Chairman & CEO
with a copy to the General Counsel.
14. Counterparts
This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts
shall, together, constitute only one instrument.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance of this Agreement by signing and returning
the enclosed copy of this Agreement.
Very truly yours:
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
____________________________
By:
SMITH BARNEY INVESTMENT FUNDS INC.
_____________________________
By:
Accepted:
HANSBERGER GLOBAL INVESTORS, INC.
______________________________
By:
u:\legal\funds\sliv\agreements\valuesub.doc
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
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<NAME> SMITH BARNEY INVESTMENT FUNDS INC.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
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<NAME> SMITH BARNEY INVESTMENT FUNDS INC.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> SMITH BARNEY INVESTMENT FUNDS INC.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> SMITH BARNEY INVESTMENT FUNDS INC.
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<NAME> SMITH BARNEY INVESTMENT FUNDS INC.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000355747
<NAME> SMITH BARNEY INVESTMENT FUNDS INC.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> SMITH BARNEY INVESTMENT FUNDS INC.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> SMITH BARNEY INVESTMENT FUNDS INC.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000355747
<NAME> SMITH BARNEY INVESTMENT FUNDS INC.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000355747
<NAME> SMITH BARNEY INVESTMENT FUNDS INC.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> SMITH BARNEY INVESTMENT FUNDS INC.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<CIK> 0000355747
<NAME> SMITH BARNEY INVESTMENT FUNDS INC.
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<TABLE> <S> <C>
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<NAME> SMITH BARNEY INVESTMENT FUNDS INC.
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<NUMBER-OF-SHARES-REDEEMED> 93,713
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (172,128,144)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 6,962
<OVERDIST-NET-GAINS-PRIOR> 10,190,912
<GROSS-ADVISORY-FEES> 3,748,595
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,000,738
<AVERAGE-NET-ASSETS> 14,421,586
<PER-SHARE-NAV-BEGIN> 28.26
<PER-SHARE-NII> 00.08
<PER-SHARE-GAIN-APPREC> (01.42)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.76
<EXPENSE-RATIO> 00.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
