As filed with the Securities and Exchange Commission
on August 28, 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. 50
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940,
Amendment No. 52
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:
XXX immediately upon filing pursuant to Paragraph (b)
___ On (date) pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)
(1)
_____ On (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)
(2)
____ 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>
PROSPECTUS
SMITH BARNEY HANSBERGER
Global
Small Cap
Value Fund
AUGUST 28, 1998
PROSPECTUS BEGINS ON PAGE ONE
LOGO LOGO
HANSBERGER SMITH BARNEY MUTUAL FUNDS
GLOBAL INVESTING FOR YOUR FUTURE. EVERY DAY./SM/
INVESTORS, INC.
<PAGE>
PROSPECTUS August 28, 1998
Smith Barney Hansberger Global Small Cap Value Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
The primary investment objective of the Smith Barney Hansberger Global Small
Cap Value Fund (the "Fund") is long-term capital growth. The Fund seeks to
achieve this objective by investing primarily in equity securities of U.S. and
foreign issuers with relatively small market capitalizations.
The Fund is one of a number of funds, each having distinct investment objec-
tives and policies, making up the Smith Barney Investment Funds Inc. (the "Com-
pany"). The Fund is an open-end, management investment company commonly
referred to as a mutual fund.
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 August 28, 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 Manager
HANSBERGER GLOBAL INVESTORS, INC.
Sub-Investment Adviser
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE 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 10
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RISK FACTORS 19
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VALUATION OF SHARES 20
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DIVIDENDS, DISTRIBUTIONS AND TAXES 21
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PURCHASE OF SHARES 23
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EXCHANGE PRIVILEGE 32
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REDEMPTION OF SHARES 35
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MINIMUM ACCOUNT SIZE 38
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PERFORMANCE 38
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MANAGEMENT OF THE COMPANY AND THE FUND 39
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DISTRIBUTOR 40
- -------------------------------------------------
ADDITIONAL INFORMATION 41
</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, diversified management invest-
ment company whose investment objective is long term capital growth. The Fund
seeks to achieve this objective by investing primarily in equity securities of
U.S. and foreign issuers with relatively small market capitalizations. See
"Investment Objective and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several classes of shares
("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three classes of shares: Class A shares, Class B shares and Class L
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 initial sales charge,
but will be subject to a contingent deferred sales charge ("CDSC") of 1.00% on
redemptions made within 12 months of purchase. See "Prospectus Summary--
Reduced or No Initial Sales Charge."
Class B Shares. Class B shares are offered at net asset value subject to a
maximum CDSC of 5.00% of redemption proceeds, declining by 1.00% each year
after the date of purchase to zero. The CDSC may be waived for certain redemp-
tions. Class B shares are subject to an annual service fee of 0.25% and an
annual distribution fee of 0.75% of the average daily net assets of the Class.
The Class B shares' distribution fee may cause that Class to have higher
expenses and pay lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will convert automatically
to Class A shares, based on relative net asset value, eight years after the
date of the original purchase. Upon conversion, these shares will no longer be
subject to an annual distribution fee. In addition, a certain portion of Class
B shares that have been acquired through the reinvestment of dividends and
distributions ("Class B Dividend Shares") will be converted at that time. See
"Purchase of Shares--Deferred Sales Charge Alternatives."
3
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Class L Shares. Class L shares are sold at net asset value plus an initial
sales charge of 1.00% of the purchase price. They are subject to an annual
service fee of 0.25% and an annual distribution fee of 0.75% of the average
daily net assets of the Class, and investors pay a CDSC of 1.00% if they redeem
Class L shares within 12 months of purchase. The CDSC may be waived for certain
redemptions. The Class L shares' distribution fee may cause that Class to have
higher expenses and pay lower dividends than Class A shares. Purchases of Fund
shares which, when combined with current holdings of Class L shares of the
Fund, equal or exceed $500,000 in the aggregate, should be made in Class A
shares at net asset value with no sales charge, and will be subject to a CDSC
of 1.00% on redemptions made within 12 months of purchase.
Class Y Shares. Class Y shares are available only to investors meeting an 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 are sold without any initial sales
charge so the entire purchase price is immediately invested in the Fund. Any
investment return on these additional invested amounts may partially or wholly
offset the higher annual expenses of this Class. Because the Fund's future
return cannot be predicted, however, there can be no assurance that this would
be the case. Finally, Class L shares, which have a lower upfront sales charge
but are subject to higher distribution fees than Class A shares, are suitable
for investors who are not investing or intending to invest an amount which
would receive a substantive sales charge discount and who have a short-term or
undetermined time frame.
Finally investors should consider the effect of the CDSC period and any con-
version rights of the Classes in the context of their own investment time
frame. For example, while Class L shares have a shorter CDSC period than Class
B shares, they do not have a conversion feature and, therefore, are subject to
an ongoing distribution fee. Thus, Class B shares may be more attractive than
Class L shares to investors with longer term investment outlooks.
4
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Reduced or No Initial Sales Charge. The initial sales charge on Class A shares
may be waived for certain eligible purchasers, and the entire purchase price
will be immediately invested in the Fund. In addition, Class A share purchases
of $500,000 or more will be made at net asset value with no initial sales
charge, but may be subject to a CDSC of 1.00% on redemptions made within 12
months of purchase. The $500,000 investment may be met by adding the purchase
to the net asset value of all Class A shares held in funds sponsored by Smith
Barney Inc. ("SmithBarney'') listed under "Exchange Privilege." Class A share
purchases may also be eligible for a reduced initial sales charge. See "Pur-
chase of Shares." Because the ongoing expenses of Class A shares may be lower
than those for Class B and Class L shares, purchasers eligible to purchase
Class A shares at net asset value or at a reduced sales charge should consider
doing so.
Smith Barney Financial Consultants may receive different compensation for
selling different Classes of shares. Investors should understand that the pur-
pose of the CDSC on the Class B and Class L shares is the same as that of an
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 L 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 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"
or the "Transfer Agent"). See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and Class L shares may open
an account by making an initial investment of at least $1,000 for each account,
or $250 for an individual retirement account ("IRA") or a Self-Employed
5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Retirement Plan. Investors in Class Y shares may open an account for an ini-
tial 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 invest-
ment requirement for Class A, Class B and Class L shares and the subsequent
investment requirement for all Classes is $25. The minimum initial investment
requirement for the purchase of Fund shares through the Systematic Investment
Plan is described below. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN 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
requirements for Class A, Class B and Class L shares and the subsequent
investment requirement for all classes for shareholders purchasing shares
through the Systematic Investment Plan on a monthly basis is $25 and on a
quarterly basis is $50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE FUND Mutual Management Corp. ("MMC") (formerly known as
Smith Barney Mutual Funds Management Inc.) serves as the Fund's investment
manager. MMC provides investment advisory and management services to invest-
ment 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, Con-
sumer Finance Services, Life Insurance Services and Property & Casualty Insur-
ance Services.
Hansberger Global Investors, Inc. ("Hansberger"), serves as the Fund's sub-
investment adviser. See "Management of the Company and the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
Class of certain other funds of the Smith Barney Mutual Funds at the respec-
tive net asset values next determined. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Fund for the prior day generally is
quoted daily in the financial section of most newspapers and is also available
from Smith Barney Financial Consultants. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income and distribu-
tions of net realized capital gains, if any, are declared and paid annually.
See "Dividends, Distributions and Taxes."
6
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a Class
will be reinvested automatically, unless otherwise specified by an investor, in
additional shares of the same Class at current net asset value. Shares acquired
by dividend and distribution reinvestments will not be subject to any sales
charge or CDSC. Class B shares acquired through dividend and distribution rein-
vestments will become eligible for conversion to Class A shares on a pro rata
basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS The Fund invests principally in common
stocks. The prices of common stocks and other securities fluctuate and, there-
fore, the value of an investment in the Fund will vary based upon the Fund's
investment performance. Any income from these investments will be incidental to
the goal of capital appreciation. The Fund will invest in foreign securities
which may result in higher costs than investments in U.S. securities, including
foreign government taxes, which may reduce the investment return of the Fund.
In addition, foreign investments may include additional risks associated with
currency exchange rates, less complete financial information about companies,
less market liquidity, and political instability. The Fund may use management
techniques and strategies involving options, futures contracts and options on
futures (which are sometimes referred to as "derivatives"), as well as borrow-
ing for leverage purposes. The utilization of these techniques may involve
greater than ordinary investment risks and the likelihood of more volatile
price fluctuation. See "Investment Objective and Management Policies."
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, unless otherwise noted, the
Fund's estimated operating expenses for its most recent fiscal year:
<TABLE>
<CAPTION>
SMITH BARNEY HANSBERGER GLOBAL SMALL CAP
VALUE FUND CLASS A CLASS B CLASS L* CLASS Y
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<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on
purchases
(as a percentage of offering price) 5.00% None 1.00% None
Maximum CDSC (as a percentage of
original cost or redemption proceeds,
whichever is lower) None** 5.00% 1.00% None
- ------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES***
(as a percentage of average net assets)
Management Fees (after fee waiver) 0% 0% 0% 0%
12b-1 Fees**** 0.25 1.00 1.00 None
Other Expenses (after reimbursement) 1.70 1.68 1.71 1.73
- ------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.95% 2.68% 2.71% 1.73%
- ------------------------------------------------------------------------------
</TABLE>
*Class L shares were previously named Class C shares. For shareholders who
owned Class C shares of the Fund on June 12, 1998, Class L shares may be
purchased without including the 1% initial sales charge until June 25, 1999.
** 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.
*** "Management fees" reflect the management fee waiver currently in effect
for the Fund. Absent the fee waiver the management fee would be incurred
at the rate of 1.05% of each Class' average daily net assets for the
current fiscal period. Absent the fee waiver and expense reimbursement,
total expenses would be incurred at the rate of 3.25%, 3.96%, 4.02% and
3.05% for Class A, Class B, Class C and Class Y shares, respectively.
**** 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 L and certain Class A shares, the length of time the shares are
held and whether the shares are held through the Smith Barney 401(k) and
ExecChoice(TM) Programs. See "Purchase of Shares" and "Redemption of Shares."
Smith Barney receives an annual 12b-1 service fee of 0.25% of the value of
average daily net assets of Class A shares. Smith Barney also receives with
respect to Class B shares and Class L shares, an annual 12b-1 fee of 1.00% of
the value of average daily net assets of that Class, consisting of a 0.25%
service fee and a 0.75% distribution fee. "Other Expenses" in the above table
include fees for shareholder services, custodial fees, legal and accounting
fees, printing costs and registration fees.
EXAMPLE
The following example is intended to assist an investor in understanding the
various costs that an investor in the Fund will bear directly or indirectly.
The example assumes payment by the Fund of operating expenses at the levels set
forth in the table above. See "Purchase of Shares," "Redemption of Shares" and
"Management of the Fund."
<TABLE>
<CAPTION>
SMITH BARNEY HANSBERGER GLOBAL SMALL CAP
VALUE FUND 1 YEAR 3 YEARS 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................................... 69 108 150 266
Class B................................... 77 113 152 283
Class L................................... 47 93 152 311
Class Y................................... 18 54 94 204
An investor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
Class A................................... 69 108 150 266
Class B................................... 27 83 142 283
Class L................................... 37 93 152 311
Class Y................................... 18 54 94 204
- -------------------------------------------------------------------------------
</TABLE>
The example also provides a means for the investor to compare expense levels
of funds with different fee structures over varying investment periods. To
facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Fund's actual return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTA-
TION OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN ABOVE.
8
<PAGE>
FINANCIAL HIGHLIGHTS
The following information has been audited by KPMG Peat Marwick LLP, inde-
pendent auditors, whose report thereon for the fiscal period from December 19,
1997 to April 30, 1998 appears in the Fund's Annual Report dated April 30,
1998. The information 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 to the Statement of Additional Information.
For a share of each class of capital stock outstanding throughout the peri-
od:
<TABLE>
<CAPTION>
1998
-----------------------------------------------
SMITH BARNEY HANSBERGER CLASS A CLASS B CLASS L CLASS Y
GLOBAL SMALL CAP VALUE FUND SHARES(/1/) SHARES(/1/) SHARES(/1/) SHARES(/2/)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $11.40 $11.40 $11.40 $11.74
- -------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income(/3/) 0.05 0.02 0.02 0.00*
Net realized and unrealized
gain 0.93 0.93 0.93 0.63
- -------------------------------------------------------------------------------
Total Income From Operations 0.98 0.95 0.95 0.63
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.01) (0.01) (0.01) --
- -------------------------------------------------------------------------------
Total Distributions (0.01) (0.01) (0.01) --
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $12.37 $12.34 $12.34 $12.37
- -------------------------------------------------------------------------------
TOTAL RETURN++ 8.64% 8.38% 8.38% 5.37%
- -------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(000S) $9,296 $11,606 $2,682 $234
- -------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS+:
Expenses(/3/) 1.95% 2.68% 2.71% 1.73%
Net investment income 1.28 0.58 0.58 2.42
- -------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 2% 2% 2% 2%
- -------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE
ON EQUITY TRANSACTIONS(/4/) $0.01 $0.01 $0.01 $0.01
- -------------------------------------------------------------------------------
</TABLE>
(1) For the period from December 19, 1997 (inception date) to April 30, 1998.
(2) For the period March 10, 1998 (inception date) to April 30, 1998.
(3) The Manager waived all of its fees for the period ended April 30, 1998. In
addition, the Manager reimbursed the Portfolio for $17,302 in expenses for
the period ended April 30, 1998. If such fees had not been waived and
expenses not reimbursed, the per share effect on net investment income and
the expense ratios would have been as follows.
<TABLE>
<CAPTION>
EXPENSE RATIOS
NET INVESTMENT INCOME WITHOUT FEE WAIVERS
PER SHARE DECREASES AND REIMBURSEMENT+
--------------------- -------------------
<S> <C> <C>
Class A $0.05 3.25%
Class B 0.04 3.96
Class L 0.04 4.02
Class Y 0.00* 3.05
</TABLE>
(4) Trades executed in the United States and Canada have an average commission
rate of $0.06 per share. Commissions on trades executed outside these
countries are generally executed as a percentage of cost or proceeds
ranging from 0.5% to 1.0%.
* Amount represents less than $0.01 per share.
++ 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's investment objective is long-term capital growth. The Fund seeks
to achieve this objective by investing primarily in equity securities of U.S.
and foreign issuers with relatively small market capitalizations (share price
times number of equity securities outstanding) which, in the opinion of MMC
and Hansberger, are undervalued. Income will be an incidental consideration.
In making investment decisions for the Fund, Hansberger relies heavily on a
fundamental analysis of securities with a long-term investment perspective.
Hansberger's valuation methods focus on a company's share price in relation to
earnings, dividends, assets, sales and a variety of other criteria. The Fund
seeks to invest in companies whose securities are trading at the greatest dis-
count to future earnings, cash flow and/or net asset value and Hansberger
utilizes proprietary valuation screens, internal and external research sources
and other fundamental analysis to identify those securities that appear to be
undervalued. Once undervalued securities are identified, Hansberger analyzes
each security, concentrating on a variety of fundamental issues, including
sales growth, cash flow, new product development, management structure and
other economic factors. This fundamental analysis results in a list of securi-
ties meeting a strict value discipline, which are reviewed by Hansberger for
inclusion in the Fund's portfolio.
Hansberger seeks to increase the scope and effectiveness of this fundamental
investment approach by extending the search for value into many countries
around the world. This global search provides Hansberger with more diverse
opportunities and flexibility to shift portfolio investments not only from
company to company and industry to industry, but also country to country, in
search of undervalued securities. Under normal market conditions, the Fund
will invest at least 65% of the value of its total assets in companies with
individual market capitalizations of $1.4 billion U.S. dollars or less (at the
time of purchase). Under normal market conditions the Fund will invest its
assets in at least three countries, which may include the United States.
INVESTMENT POLICIES
Although the Fund generally invests in common stocks, the Fund may also
invest in preferred stocks and certain debt securities, rated or unrated, such
as convertible bonds and bonds selling at a discount, when Hansberger believes
the potential for appreciation will equal or exceed that available from
investments in common stock. The Fund may also invest in warrants or rights to
subscribe to or purchase such securities, and sponsored or unsponsored Ameri-
can Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs") and other depository receipts (collective-
ly, "Depositary Receipts"). The Fund may also lend its portfolio securities
and borrow money for investment purposes (i.e., "leverage" its portfolio). In
addition, the Fund may invest in closed-end invest-
10
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
ment companies holding foreign securities, and enter into transactions in
options on securities, securities indices and foreign currencies, forward for-
eign currency contracts, and futures contracts and related options. When
deemed appropriate by MMC or Hansberger, the Fund may invest cash balances in
repurchase agreements and other money market investments to maintain liquidity
in an amount sufficient to meet expenses or for day-to day operating purposes.
These investment techniques are described below under "Investment Strategies
and Techniques" and "Risk Factors". Whenever, in the judgment of Hansberger,
market or economic conditions warrant, the Fund may adopt a temporary defen-
sive position and may invest without limit in money market securities denomi-
nated in U.S. dollars or in the currency of any foreign country. See " Invest-
ment Strategies and Techniques--Temporary Investments."
INVESTMENT STRATEGIES AND TECHNIQUES
The Fund may also engage in the investment techniques and make the types of
investments described and discussed below.
Options Transactions. The Fund may seek to hedge all or a portion of its
investments through options on other securities in which it may invest.
Options which the Fund may purchase or sell will be traded on a recognized
securities or futures exchange or over the counter. Options markets in emerg-
ing countries are currently limited and the nature of the strategies adopted
by Hansberger and the extent to which those strategies are used will depend on
the development of such markets.
The Fund may write (i.e., sell) covered call options. A call gives the pur-
chaser the right to buy the security underlying the option from the Fund at
the stated exercise price, on or before a specified date (the "termination
date") that is usually not more than nine months from the date the option is
issued. A call is "covered" if the Fund (i) owns the securities underlying the
option or securities convertible or exchangeable (without the payment of any
consideration) into the securities underlying the option, (ii) maintains in a
segregated account with The Chase Manhattan Bank ("Chase"), the Fund's custo-
dian, cash or equity and debt securities of any grade provided such securities
have been determined by MMC and Hansberger to be liquid and unencumbered pur-
suant to guidelines established by the Board of Directors ("eligible segre-
gated assets") with a value sufficient to meet the Fund's obligations under
the call, or (iii) owns an offsetting call option.
The Fund may also write (i.e., sell) covered put options. The writer of a put
incurs an obligation to buy the security underlying the option from the put's
purchaser at the exercise price at any time on or before the termination date,
at the purchaser's election (certain options the Fund writes will be exercis-
able by the purchaser only on a specific date ). Generally, a put is "covered"
if the Fund
11
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
maintains eligible segregated assets equal to the exercise price of the option
or if the Fund holds a put on the same underlying security with a similar or
higher exercise price.
The Fund may also purchase put or call options on individual securities or
baskets of securities. When the Fund purchases a call, it acquires the right to
buy the underlying security at the exercise price on or before the termination
date, and when the Fund purchases a put, it acquires the right to sell the
underlying security at the exercise price on or before the termination date.
The primary risks associated with the use of options on securities are (i)
imperfect correlation between the change in market value of the securities the
Fund holds and the prices of options relating to the securities purchased or
sold by the Fund; and (ii) possible lack of a liquid secondary market for an
option. Options not traded on an exchange (OTC options) are generally consid-
ered illiquid and may be difficult to value. Hansberger believes that the Fund
will minimize its risk of being unable to close out an option contract by
transacting in options only if there appears to be a liquid secondary market
for those options.
Real Estate Investment Trust Securities. The Fund may invest up to 10% of its
assets in Real Estate Investment Trusts ("REITs"). REITs are pooled investment
vehicles that invest primarily in either real estate or real estate related
loans. The value of a REIT is affected by changes in the value of the proper-
ties owned by the REIT or securing mortgage loans held by the REIT. A REIT is
dependent upon cash flow from its investments to repay financing costs and the
ability of the REIT's manager. REITs are also subject to risks generally asso-
ciated with investments in real estate.
Futures Contracts. The Fund may buy and sell financial futures contracts,
stock and bond index futures contracts, foreign currency futures contracts and
options on any of the foregoing for hedging purposes only. A financial futures
contract is an agreement between two parties to buy or sell a specified debt
security at a set price on a future date. An index futures contract is an
agreement to take or make delivery of an amount of cash based on the difference
between the value of the index at the beginning and at the end of the contract
period. A futures contract on a foreign currency is an agreement to buy or sell
a specified amount of a currency for a set price on a future date.
When the Fund enters into a futures contract, it must make an initial deposit,
known as "initial margin," as a partial guarantee of its performance under the
contract. As the value of the security, index or currency fluctuates, either
party to the contract is required to make additional margin payments, known as
"variation margin," to cover any additional obligation it may have under the
contract. In
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<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
addition, when the Fund enters into a futures contract, it will segregate
assets or "cover" its position in accordance with the Investment Company Act of
1940, as amended (the "1940 Act"). With respect to positions in futures and
related options that do not constitute "bona fide hedging" positions as defined
in regulations of the Commodity Futures Trading Commission, the Fund will not
enter into a futures contract or related option contract if, immediately there-
after, the aggregate initial margin deposits relating to such positions plus
premiums paid by it for open futures option positions, less the amount by which
any such options are "in-the-money," would exceed 5% of the Fund's total
assets. The value of the underlying securities on which futures contracts will
be written at any one time will not exceed 25% of the total assets of the Fund.
The primary risks associated with the use of futures and options on futures
are (i) imperfect correlation between the change in market value of the securi-
ties held by the Fund and the prices of related futures and options on futures
purchased or sold by the Fund, and (ii) possible lack of a liquid secondary
market for a futures contract (or related option) and the resulting inability
to close a futures position, which could have an adverse impact on the Fund's
ability to hedge. The risk of loss in trading on futures contracts and related
options in some strategies can be substantial, due both to the low margin
deposits required and the extremely high degree of leverage involved in futures
pricing. Gains and losses on futures and related options depend on Hansberger's
ability to predict correctly the direction of stock prices, interest rates, and
other economic factors. The risk that the Fund will be unable to close out a
futures position or related options contract will be minimized by only entering
into futures contracts or related options transactions for which there appears
to be a liquid secondary market.
Borrowing. The Fund may borrow money from U.S.-regulated banks in an amount
not to exceed 33 1/3% of the Fund's total assets (including the amount borrow-
ed) less all liabilities and indebtedness other than the borrowing. If the Fund
borrows and uses the proceeds to make additional investments, income and appre-
ciation from such investments will improve its performance if they exceed the
associated borrowing costs but impair its performance if they are less than
such borrowing costs. This speculative factor is known as "leverage."
Leverage creates an opportunity for increased returns to shareholders of the
Fund but, at the same time, creates special risk considerations. For example,
leverage may exaggerate changes in the net asset value of the Fund's shares and
in the Fund's yield. Although the principal or stated value of such borrowings
will be fixed, the Fund's assets may change in value during the time the bor-
rowing is outstanding. Leverage will create interest or dividend expenses for
the Fund which can exceed the income from the assets retained. To the extent
the income or other
13
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
gain derived from securities purchased with borrowed funds exceeds the inter-
est or dividends the Fund will have to pay in respect thereof, the Fund's net
income or other gain will be greater than if leverage had not been used. Con-
versely, if the income or other gain from the incremental assets is not suffi-
cient to cover the cost of leverage, the net income or other gain of the Fund
will be less than if leverage had not been used. If the amount of income from
the incremental securities is insufficient to cover the cost of borrowing,
securities might have to be liquidated to obtain required funds. Depending on
market or other conditions, such liquidations could be disadvantageous to the
Fund.
Depository Receipts. The Fund may purchase sponsored and unsponsored Deposi-
tory Receipts that are or become available, including ADRs, GDRs, EDRs and
other Depository Receipts. Depository Receipts are typically issued by a
financial institution ("depository") and evidence ownership interests in a
security or a pool of securities ("underlying securities") that have been
deposited with the depository. The depository for ADRs is typically a U.S.
financial institution and the underlying securities are issued by a foreign
issuer. For other Depository Receipts, the depository may be a foreign or a
U.S. entity, and the underlying securities may have a foreign or a U.S. issu-
er. For purposes of the Fund's investment policies, investments in Depository
Receipts will be deemed to be investments in the underlying securities. Thus,
a Depository Receipt representing ownership of common stock will be treated as
common stock.
Sovereign Debt. The Fund may invest in sovereign debt, which may trade at a
substantial discount from face value. The Fund may hold and trade sovereign
debt of emerging market countries in appropriate circumstances and participate
in debt conversion programs. Emerging country sovereign debt is generally low-
er-quality debt and is considered speculative in nature. The issuer or govern-
mental authorities that control sovereign debt repayment ("sovereign debtors")
may be unable or unwilling to repay principal or interest when due in accor-
dance with the terms of the debt. A sovereign debtor's willingness or ability
to repay principal and interest due in a timely manner may be affected by,
among other factors, its cash flow, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the sover-
eign debtor's policy towards the International Monetary Fund and the political
constraints to which the sovereign debtor may be subject.
Brady Bonds. The Fund may invest in Brady Bonds as part of its investment in
sovereign debt of countries that have restructured or are in the process of
restructuring their sovereign debt.
Brady Bonds are often viewed as having three or four valuation components:
(i) the collateralized repayment of principal at final maturity; (ii) the col-
lateralized
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<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
interest payments; (iii) the uncollateralized interest payment; and (iv) any
uncollateralized interest and principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In light of the residual risk of
Brady Bonds and, among other factors, the history of defaults with respect to
commercial bank loans by public and private entities of countries issuing
Brady Bonds, investments in Brady Bonds can viewed as speculative.
Investment Funds. Some emerging countries have laws and regulations that pre-
clude direct foreign investment in the securities of companies located there.
However, indirect foreign investment in the securities of companies listed and
traded on the stock exchanges in these countries is permitted by certain
emerging countries through specifically authorized investment funds. The Fund
may invest in these investment funds, as well as other closed-end investment
companies up to 10% of its assets, as permitted by the 1940 Act.
Repurchase Agreements. In order to aid in cash management, the Fund may enter
into repurchase agreements with brokers, dealers or banks ("counterparties")
that MMC and Hansberger have determined meet the credit guidelines established
by the Board of Directors. Repurchase agreements will be fully collateralized,
and may be viewed for purposes of the 1940 Act as a loan of money by the Fund
to the counterparty. The Fund may incur a loss if the counterparty defaults
and the collateral value declines, or if bankruptcy proceedings are commenced
regarding the counterparty and the Fund's realization upon the collateral is
delayed or limited.
Securities Lending. Consistent with applicable regulatory requirements, the
Fund is authorized to lend portfolio securities to brokers, dealers, domestic
and foreign banks or other financial institutions for the purpose of increas-
ing its net investment income. Any such loan must be fully secured, however,
there may be risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrowers of the securities fail finan-
cially.
Temporary Investments. The Fund may make money market investments pending
other investments or settlement for liquidity, or in adverse market condi-
tions. These money market investments include obligations of the U.S. Govern-
ment and its agencies and instrumentalities, obligations or foreign sovereign-
ties, other debt securities, commercial paper including bank obligations, cer-
tificates of deposit (including Eurodollar certificates of deposit) and repur-
chase agreements.
For temporary defensive purposes, during periods in which MMC or Hansberger
believes changes in economic, financial or political conditions make it advis-
able, the Fund may reduce its holdings in equity and other securities and may
invest up to 100% of its assets in certain short-term (less than twelve months
to maturity) and medium-term (not greater than five years to maturity) debt
securities
15
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
and in cash (U.S. dollars, foreign currencies, multicurrency units). These
short-term and medium-term debt securities consist of (a) obligations of gov-
ernments, agencies or instrumentalities of any member state of the Organiza-
tion for Economic Cooperation and Development ("OECD"), (b) bank deposits and
bank obligations (including certificates of deposit, time deposits and bank-
ers' acceptances) of banks organized under the laws of any member state of the
OECD, denominated in any currency: (c) floating rate securities and other
instruments dominated in any currency issued by international development
agencies: (d) finance company and corporate commercial paper and other short-
term corporate debt obligations of corporations organized under the laws of
any member state of the OECD meeting the Fund's credit quality standards: and
(e) repurchase agreements with banks and broker-dealers covering any of the
foregoing securities. The short-term and medium-term debt securities in which
the Fund may invest for temporary defensive purposes will be those that MMC
and Hansberger believe to be of high quality, i.e., subject to relatively low
risk of loss of interest or principal. There is currently no rating system for
debt securities in most emerging countries. If rated, these securities will be
rated in one of the three highest rating categories by any nationally recog-
nized statistical ratings organization ("NRSRO") such as A or better by
Moody's Investors Services, Inc. or Standard & Poor's Ratings Group.
When-Issued Securities. The Fund may purchase securities on a when-issued or
delayed delivery basis. The price of debt obligations purchased on a when-
issued basis is fixed at the time the Fund commits to purchase, but delivery
and payment for the securities ("settlement") take place at a later date. The
price of these securities may be expressed in yield terms. The Fund will enter
into these transactions in order to lock in the yield (price) available at the
time of commitment.
Between purchase and settlement, the Fund assumes the ownership risk of the
when-issued securities, including the risk of fluctuations in the securities
market value due to, among other factors, a change in the general level of
interest rates. However, no interest accrues to the Fund during this period.
Forward Foreign Currency Exchange Contracts and Options on Foreign
Currencies. The Fund may enter into forward foreign currency exchange con-
tracts ("forward contracts"), providing for the purchase of or sale of an
amount of a specified currency at a future date. The Fund may use forward con-
tracts to protect against a foreign currency's decline against the U.S. dollar
between the trade date and settlement date for a securities transaction, or to
lock in the U.S. dollar value of dividends declared on securities it holds, or
generally to protect the U.S. dollar value of the securities it holds against
exchange rate fluctuations. The Fund may also use forward contracts to protect
against fluctuating exchange rates and exchange control regulations. Forward
contracts may limit the Fund's losses due to exchange rate fluctuation, but
they will also limit any gains that the Fund might
16
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
otherwise have realized. The Fund may also enter into foreign currency futures
contracts ("currency futures").
When the Fund enters into a forward contract or currency future, it will place
in a segregated account maintained with Chase, eligible segregated assets in an
amount equal to the value of the Fund's total assets committed to consummation
of forward contracts and currency futures. If the value of these segregated
securities declines, additional cash or securities will be placed in the
account on a daily basis so that the account value is at least equal to the
Fund's commitments to such contracts.
The Fund may purchase put and call options and write covered put and call
options on foreign currencies for the purpose of protecting against declines in
the U.S. dollar value of foreign currency denominated portfolio securities and
against increases in the U.S. dollar cost of such securities to be acquired. As
in the case of other kinds of options, however, the writing of an option on a
foreign currency constitutes only a partial hedge, up to the amount of the pre-
mium received, and the Fund could be required to purchase or sell foreign cur-
rencies at disadvantageous exchange rates, thereby incurring losses. The pur-
chase of an option on a foreign currency may constitute an effective hedge
against fluctuations in exchange rates although, in the event of rate movements
adverse to the Fund's position, it may forfeit the entire amount of the premium
plus related transaction costs. Options on foreign currencies to be written or
purchased by the Fund are traded on U.S. and foreign exchanges or over-the-
counter.
Forward Roll Transactions. In order to enhance current income, the Fund may
enter into forward roll transactions. In a forward roll transaction, the Fund
sells a security to a financial institution, such as a bank or broker-dealer,
and simultaneously agrees to repurchase a similar security from the institution
at a later date at an agreed-upon price. During the period between the sale and
repurchase, the Fund will not be entitled to receive interest and principal
payments on the securities sold. Proceeds of the sale will be invested in
short-term instruments, particularly repurchase agreements, and the income from
these investments, together with any additional fee income received on the sale
will generate income for the Fund exceeding the yield on the securities sold.
Forward roll transactions involve the risk that the market value of the securi-
ties sold by the Fund may decline below the repurchase price of those securi-
ties. At the time the Fund enters into forward roll transactions, it will place
in a segregated account with Chase eligible segregated assets having a value
equal to the repurchase price (including accrued interest) and will subse-
quently monitor the account to insure that such equivalent value is maintained.
Non-Publicly Traded Securities. The Fund may invest in securities that are
neither listed on a stock exchange nor traded over the counter, including pri-
vately placed securities. These securities may present a higher degree of busi-
ness and
17
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
financial risk, which can result in substantial losses. In the absence of a
public trading market for these securities, they may be less liquid than pub-
licly traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less
than those originally paid by the Fund or less than what the Fund may consider
the fair value of such securities. Further, companies whose securities are not
publicly traded may not be subject to disclosure and other investor protection
requirements that might apply if their securities were publicly traded. If such
securities are required to be registered under the securities laws of one or
more jurisdictions before being resold, the Fund may be required to bear the
costs of registration. The Fund may not invest more than 15% of its net assets
in illiquid securities, including securities for which there is no readily
available secondary market. The Fund may invest in securities that can be
offered and sold to qualified institutional buyers under Rule 144A under the
1933 Act ("Rule 144A Securities"). The Board of Directors has delegated to MMC
and Hansberger, subject to the Board's supervision, the daily function of
determining and monitoring the liquidity of Rule 144A Securities. Rule 144A
Securities held by the Fund which have been determined to be liquid will not be
subject to the 15% limitation described above. However, Rule 144A Securities
may become illiquid if qualified institutional buyers are not interested in
acquiring them.
Short Sales. The Fund may sell securities short "against the box", that is,
sell a security that the Fund owns or has the right to acquire, for delivery at
a specified date in the future.
Year 2000. The investment management services provided to the Fund by MMC and
the services provided to shareholders by Smith Barney 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.
In addition, the ability of issuers to make timely payments of interest and
principal or to continue their operations or services may be impaired by the
inadequate preparation of their computer systems for the year 2000. This may
adversely affect
18
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
the market values of securities of specific issuers or of securities generally
if the inadequacy of preparation is perceived as widespread or as affecting
trading markets.
RISK FACTORS
FOREIGN INVESTMENT
Investment in securities of foreign issuers and in foreign branches of domes-
tic banks involves some risks different from, or in addition to, those affect-
ing investments in securities of U.S. issuers. For example, publicly available
information about foreign issuers and economies may be limited; foreign issuers
are not generally subject to uniform accounting, auditing and other reporting
standards; securities of foreign issuers may be less liquid and more volatile
than those of domestic issuers; dividends and interest paid by foreign issuers
may be subject to withholding and other foreign taxes; risks of seizure,
nationalization or expropriation of a foreign issuer exists; and, since securi-
ties of foreign issuers are frequently denominated in foreign currencies,
investments in these securities may involve currency exchange risks.
INVESTING IN SMALLER CAPITALIZATION STOCKS
MMC and Hansberger believe that the issuers of smaller capitalization stocks
often have sales and earnings growth rates which exceed those of larger compa-
nies, and that such growth rates may in turn be reflected in more rapid share
price appreciation. However, investing in smaller capitalization stocks can
involve greater risk than is customarily associated with investing in stocks of
larger, more established companies. For example, smaller capitalization compa-
nies often have limited product lines, markets, or financial resources, may be
dependent for management on one or a few key persons, and can be more suscepti-
ble to losses. Also, their securities may be thinly traded (and therefore have
to be sold at a discount from current prices or sold in small lots over an
extended period of time), may be followed by fewer investment research analysts
and may be subject to wider price swings and thus may create a greater chance
of loss than securities of larger capitalization companies. Transaction costs
in stocks of smaller capitalization companies may be higher than those of
larger capitalization companies.
INVESTING IN LOWER RATED DEBT SECURITIES
When deemed appropriate, the Fund may invest up to 10% of its assets in lower
rated or unrated debt securities. Debt considered below investment grade may be
referred to as "junk bonds" or "high risk" securities. The emerging country
debt securities in which the Fund may invest are subject to significant risk
and will not
19
<PAGE>
RISK FACTORS (CONTINUED)
be required to meet any minimum rating standard or equivalent. Debt securities
are subject to the risk of the issuer's inability to meet principal and inter-
est payments (credit risk) and may also be subject to price volatility due to
such factors as interest rate sensitivity, market perception of the issuer's
creditworthiness and general market liquidity (market risk). Lower rated or
unrated securities are more likely to react to developments affecting market
and credit risk than are more highly rated securities, which react primarily to
movements in general levels of interest rates. The market values of debt secu-
rities tend to vary inversely with interest rate levels. Yields and market val-
ues of lower rated and unrated debt will fluctuate over time, reflecting not
only changing interest rates but also the market's perception of credit quality
and the outlook for economic growth. When economic conditions appear to be
deteriorating, medium to lower rated securities may decline in value due to
heightened concern over credit quality, regardless of prevailing interest
rates. Hansberger will consider credit risk and market risk in making debt
security investment decisions for the Fund. Investors should carefully consider
the relative risks of investing in the Fund because it purchases lower rated
and unrated debt securities, and should understand that such securities are not
generally meant for short-term investment.
The U.S. market for lower rated and unrated corporate debt is relatively new
and its recent growth paralleled a long period of economic expansion and an
increase in merger, acquisition and leveraged buyout activity. In addition,
trading markets for debt securities of issuers located in emerging countries
may be limited. Adverse economic developments may disrupt the market for U.S.
corporate lower rated and unrated debt securities and for emerging country debt
securities. Such disruptions may severely affect the ability of issuers, espe-
cially highly leveraged issuers, to service their debt obligations or to repay
their obligations upon maturity. In addition, the secondary market for lower
rated and unrated debt securities, which is concentrated in relatively few mar-
ket makers, may not be as liquid as the secondary market for more highly rated
securities. As a result, Hansberger could find it more difficult to sell these
securities or may be able to sell the securities only at prices lower than if
such securities were widely traded. Prices realized upon the sale of such lower
rated or unrated securities, under these circumstances, may be less than the
prices used in calculating the Fund's net asset value.
VALUATION OF SHARES
The Fund's net asset value per share is determined as of the close of regular
trading on the NYSE on each day that the NYSE is open, by dividing the value of
the Fund's net assets attributable to each Class by the total number of shares
of the Class outstanding.
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<PAGE>
VALUATION OF SHARES (CONTINUED)
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.
The per share amounts of dividends from net investment income on Classes B
and L may be lower than that of Classes A and Y, mainly as a result of the dis-
tribution fees applicable to Class B and L shares. Similarly, the per share
amounts of dividends from net investment income on Class A shares may be lower
than that of Class Y, as a result of the service fee attributable to Class A
shares. Capital gain distributions, if any, will be the same amount across all
Classes of Fund shares (A, B, L and Y).
21
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
TAXES
The following is a summary of the material federal tax considerations affect-
ing the Fund and Fund shareholders, please refer to the 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 previously, 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.
Dividends consisting of interest from U.S. government securities, if any, 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.
22
<PAGE>
PURCHASE OF SHARES
SALES CHARGE ALTERNATIVES
The following Classes of shares are available for purchase through this Pro-
spectus. See "Prospectus Summary--Alternative Purchase Arrangements" for a dis-
cussion of factors to consider in selecting which Class of shares to purchase.
Class A Shares. Class A shares are sold to investors at the public offering
price, which is the net asset value plus an initial sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE DEALER'S
AMOUNT OF AS A % OF AS A % OF REALLOWANCE AS % OF
INVESTMENT TRANSACTION AMOUNT INVESTED OFFERING PRICE
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.50%
$ 25,000 - $49,999 4.00 4.17 3.60
$ 50,000 - $99,999 3.50 3.63 3.15
$100,000 - $249,999 3.00 3.09 2.70
$250,000 - $499,999 2.00 2.04 1.80
$500,000 and over * * *
- ---------------------------------------------------------------------
</TABLE>
* Purchases of Class A shares of $500,000 or more will be made at net asset
value without any initial sales charge, but will be subject to a CDSC of
1.00% on redemptions made within 12 months of purchase. The CDSC on Class A
shares is payable to Smith Barney, which compensates Smith Barney Financial
Consultants and other dealers whose clients make purchases of $500,000 or
more. The CDSC is waived in the same circumstances in which the CDSC
applicable to Class B and Class L shares is waived. See "Deferred Sales
Charge Provisions" 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 "1933 Act"). The reduced sales charges shown above
apply to the aggregate of purchases of Class A shares of the Fund made at one
time by "any person," which includes an individual and his or her immediate
family, or a trustee or other fiduciary of a single trust estate or single
fiduciary account.
Class B Shares. Class B shares are sold without an initial sales charge but
are subject to a CDSC payable upon certain redemptions. See "Deferred Sales
Charge Provisions" below.
Class L Shares. Class L shares are sold with an initial sales charge of 1%
(which is equal to 1.01% of the amount invested) and are subject to a CDSC pay-
able upon certain redemptions. See "Deferred Sales Charge Provisions" below.
Until June 25, 1999 purchases of Class L shares by investors who were holders
of Class C shares of the Fund on June 12, 1998 will not be subject to the 1%
front-end sales charge.
Class Y Shares. 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 purchase of Class Y shares by Smith Barney Concert Allocation Series
Inc., for which there is no minimum purchase amount).
23
<PAGE>
PURCHASE OF SHARES (CONTINUED)
GENERAL
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 institutional investors, may purchase shares directly from
the Fund. When purchasing shares of the Fund, investors must specify whether
the purchase is for Class A, Class B, Class L or Class Y shares. Smith Barney
and other broker/dealers may charge their customers an annual account mainte-
nance fee in connection with a brokerage account through which an investor
purchases or holds shares. Accounts held directly at the Transfer Agent are
not subject to a maintenance fee.
Investors in Class A, Class B and Class L shares may open an account in the
Fund by making an initial investment of at least $1,000 for each account, or
$250 for an IRA of 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 Clas-
ses. For participants in retirement plans qualified under Section 403(b)(7) or
Section 401(c) of the Code, the minimum initial investment requirement for
Class A, Class B and Class L shares and the subsequent investment requirement
for all Classes in the Fund is $25. For shareholders purchasing shares of the
Fund through the Systematic Investment Plan on a monthly basis, the minimum
initial investment requirement for Class A, Class B and Class L shares and
subsequent investment requirements 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 required for Class A, Class B
and Class L shares and the subsequent investment requirement for all Classes
is $50. There are no minimum investment requirements for Class A shares for
employees of Travelers and its subsidiaries, including Smith Barney, and
Directors/Trustees of any of the Smith Barney Mutual Funds and their spouses
and children. The Fund reserves the right to waive or change minimums, to
decline any order to purchase its shares and to suspend the offering of shares
from time to time. Shares purchased will be held in the shareholder's account
by the Transfer Agent. Share certificates are issued only upon a shareholder's
written request to the Transfer Agent.
Purchase orders received by the Fund or Smith Barney prior to the close of
regular trading on the NYSE, on any day the Fund calculates its net asset 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.
24
<PAGE>
PURCHASE OF SHARES (CONTINUED)
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or the Transfer Agent is authorized
through preauthorized transfers of at least $25 on a monthly basis or at least
$50 on a quarterly basis to charge the shareholder's account held with a bank
or other financial institution on a monthly or quarterly basis as indicated by
the shareholder to provide for 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 the Transfer Agent. The Sys-
tematic 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. Addi-
tional information is available from the Fund or a Smith Barney Financial Con-
sultant.
SALES CHARGE WAIVERS AND REDUCTIONS--INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales to (i) Board Members and
employees of Travelers and its subsidiaries and any Travelers Affiliated Funds
including the Smith Barney Mutual Funds (including retired Board Members and
employees), the immediate families of such persons (including the surviving
spouse of a deceased Board Member or employee); and to a pension, profit-shar-
ing or other benefit plan for such persons (ii) employees of Hansberger and
their immediate family and (iii) employees of members of the National Associa-
tion of Securities Dealers, Inc., provided such sales are made upon the assur-
ance 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 com-
bination of such company with the Fund by merger, acquisition of assets or oth-
erwise; (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 Smith Barney
Mutual Fund that is offered with a sales charge) and who wish to reinvest their
redemption proceeds in the Fund, provided the reinvestment is made within 60
calendar days of the redemption; (e) purchases by accounts managed by regis-
tered investment advisory subsidiaries of Travelers; (f) direct rollovers by
plan participants of distribution from a 401(k) plan enrolled in the Smith Bar-
ney
25
<PAGE>
PURCHASE OF SHARES (CONTINUED)
401(k) Program (Note: subsequent investment will be subject to the applicable
sales charge); (g) purchases by separate accounts used to fund certain unregis-
tered variable annuity contracts; and (h) purchases by investors participating
in a Smith Barney fee-based arrangement. In order to obtain such discounts, the
purchaser must provide sufficient information at the time of purchase to permit
verification that the purchase would qualify for the elimination of the sales
charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by aggregat-
ing the dollar amount of the new purchase and the total net asset value of all
Class A shares of the Fund and of funds sponsored by Smith Barney which are
offered with a sales charge as currently 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 infor-
mation 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 mod-
ification 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 group will be determined by the table set forth above
under "Sales Charge Alternatives--Class A Shares" and will be based upon the
aggregate sales of Class A shares of Smith Barney Mutual Funds offered with a
sales charge to, and share holdings of, all members of the group. To be eligi-
ble for such reduced sales charges or to purchase at net asset value, all pur-
chases must be pursuant to an employee 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, provided for payroll deductions, IRAs or
investment 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 of the Fund 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
26
<PAGE>
PURCHASE OF SHARES (CONTINUED)
purpose other than acquiring Fund shares at a discount and (c) satisfies uni-
form 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 an amount of $50,000 or more provides
an opportunity for an investor to obtain a reduced sales charge by aggregating
investments over a 13 month period, provided that the investor refers to such
Letter when placing orders. For purposes of a Letter of Intent, the "Amount of
Investment" as referred to in the preceding sales charge table includes (i) all
Class A shares of the Fund and other Smith Barney Mutual Funds offered with a
sales charge acquired during the term of the Letter plus (ii) the value of all
Class A shares previously purchased and still owned. Each investment made dur-
ing the period receives the reduced sales charge applicable to the total amount
of the investment goal. If the goal is not achieved within the period, the
investor must pay the difference between the sales charges applicable to the
purchases made and the charges previously paid, or an appropriate number of
escrowed shares will be redeemed. The term of the Letter will commence upon the
date the Letter is signed, or at the option of the investor, up to 90 days
before such date. Please contact a Smith Barney Financial Consultant or the
Transfer Agent to obtain a Letter of Intent application.
Class Y Shares. A Letter of Intent may also be used as a way for investors to
meet the minimum investment requirement for Class Y shares (except purchases of
Class Y shares by Smith Barney Concert Allocation Series Inc., for which there
is no minimum purchase amount). Such investors must make an initial minimum
purchase of $5,000,000 in Class Y shares of the Fund and agree to purchase a
total of $15,000,000 of Class Y shares of the Fund within 13 months from the
date of the Letter. If a total investment of $15,000,000 is not made within the
13 month period, all Class Y shares purchased to date will be transferred to
Class A shares, where they will be subject to all fees (including a service fee
of 0.25%) and expenses applicable to the Fund's Class A shares, which may
include a CDSC of 1.00%. Please contact a Smith Barney Financial Consultant or
the Transfer Agent for further information.
27
<PAGE>
PURCHASE OF SHARES (CONTINUED)
DEFERRED SALES CHARGE PROVISIONS
"CDSC Shares" are: (a) Class B shares; (b) Class L shares; and (c) Class A
shares that were purchased without an initial sales charge but are subject to a
CDSC. A CDSC may be imposed on certain redemptions of these shares.
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 L shares and Class A shares that
are CDSC Shares, shares redeemed more than 12 months after their purchase.
Class A shares and Class L 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 fees. They will also be converted at that time such propor-
tion of Class B Dividend Shares owned by the shareholders 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."
28
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 redemp-
tion. The amount of any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares at
$10 per share for a cost of $1,000. Subsequently, the investor acquired 5
additional shares through dividend reinvestment. During the fifteenth month
after the purchase, the investor decided to redeem $500 of his or her invest-
ment. Assuming at the time of the redemption the net asset value had appreci-
ated to $12 per share, the value of the investor's shares would be $1,260 (105
shares at $12 per share). The CDSC would not be applied to the amount which
represents appreciation ($200) and the value of the reinvested dividend shares
($60). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4.00% (the applicable rate for Class B shares) for a
total deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchange (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan com-
mences (see "Automatic Cash Withdrawal Plan") (provided, however, that auto-
matic cash withdrawals in amounts equal to or less than 2.00% per month of the
value of the shareholder's shares will be permitted for withdrawal plans that
were established prior to November 7, 1994); (c) redemptions of shares within
12 months following the death or disability of the shareholder; (d) redemp-
tions of shares made in connection with qualified distributions from retire-
ment plans or IRAs upon the attainment of age 59 1/2; (e) involuntary redemp-
tions; and (f) redemptions of shares to effect a combination of the Fund with
any investment company by merger, acquisition of assets or otherwise. In addi-
tion, a shareholder who has redeemed shares from other Smith Barney Mutual
Funds may, under certain circumstances, reinvest all or part of the redemption
proceeds within 60 days and receive pro rata credit for any CDSC imposed on
the prior redemption.
CDSC waivers will be granted subject to confirmation (by Smith Barney in the
case of shareholders who are also Smith Barney clients or by the Transfer
Agent in the case of all other shareholders) of the shareholder's status or
holdings, as the case may be.
29
<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 L shares as invest-
ment alternatives under the Smith Barney 401(k) and ExecChoice(TM) Programs.
Class A and Class L shares acquired through the Participating Plans are subject
to the same service and/or distribution fees as the Class A and Class L shares
acquired by other investors; however, they are not subject to any initial sales
charge or 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 L Shares. Class L 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 L shares of one or more funds of the Smith Barney Mutual Funds.
401(k) and ExecChoice(TM) Plans Opened On or After June 21, 1996. 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 L holdings in all non-money market Smith Barney
Mutual Funds equal at least $1,000,000, it will be offered the opportunity to
exchange all of its Class L shares for Class A shares of the Fund. (For Partic-
ipating 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 anni-
versary date. If the Participating Plan does not qualify for the five year
exchange to Class A shares, a review of the Participating Plan's holdings will
be performed each quarter until either the Participating Plan qualifies or the
end of the eighth year.
401(k) Plans Opened Prior to June 21, 1996. In any year after the date a Par-
ticipating Plan enrolled in the Smith Barney 401(k) Program, if its total Class
L holdings in all non-money market Smith Barney Mutual Funds equal at least
$500,000 as of the calendar year-end, the Participating Plan will be offered
the opportunity to exchange all of its Class L shares for Class A shares of 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.
30
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Any Participating Plan in the Smith Barney 401(k) Program that has not previ-
ously qualified for an exchange into Class A shares will be offered the oppor-
tunity to exchange all of its Class L shares for Class A shares of the Fund,
regardless of asset size, at the end of the eighth year after the date the Par-
ticipating Plan enrolled in the Smith Barney 401(k) Program. Such Plans will be
notified of the pending exchange in writing approximately 60 days before the
eighth anniversary of the enrollment date and, unless the exchange has been
rejected in writing, the exchange will occur on or about the eighth anniversary
date. Once an exchange has occurred, a Participating Plan will not be eligible
to acquire additional Class L shares of the Fund but instead may acquire Class
A shares of the Fund. Any Class L shares not converted will continue to be sub-
ject to the distribution fee.
Participating Plans wishing to acquire shares of the Fund through the Smith
Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program must purchase
such shares directly from First Data. For further information regarding these
Programs, investors should contact a Smith Barney Financial Consultant.
Existing 401(k) Plans Investing in Class B Shares. Class B shares of the
Smith Barney Mutual Funds are not available for purchase by Participating Plans
opened on or after June 21, 1996, but may continue to be purchased by any Par-
ticipating Plan in the Smith Barney 401(k) Program opened prior to such date
and originally investing in such Class. Class B shares acquired are subject to
a CDSC of 3.00% of redemption proceeds, if the Participating Plan terminates
within eight years of the date the Participating Plan first enrolled in the
Smith Barney 401(k) Program.
At the end of the eighth year after the date the Participating Plan enrolled
in the Smith Barney 401(k) Program, the Participating Plan will be offered the
opportunity to exchange all of its Class B shares for Class A shares of the
Fund. Such Participating Plan will be notified of the pending exchange in writ-
ing approximately 60 days before the eighth anniversary of the enrollment date
and, unless the exchange has been rejected in writing, the exchange will occur
on or about the eighth anniversary date. Once the exchange has occurred, a Par-
ticipating Plan will not be eligible to acquire additional Class B shares of
the Fund but instead may acquire Class A shares of the Fund. If the Participat-
ing Plan elects not to exchange all of its Class B shares at that time, each
Class B share held by the Participating Plan will have the same conversion fea-
ture as Class B shares held by other investors. See "Purchase of Shares--
Deferred Sales Charge Alternatives".
No CDSC is imposed on redemptions of Class B shares to the extent that the
net asset value of the shares redeemed does not exceed the current net asset
value of the shares purchased through reinvestment of dividends or capital gain
distributions, plus the current net asset value of Class B shares purchased
more than eight years prior to the redemption, plus increases in the net asset
value of the shareholder's Class B shares above the purchase payments made dur-
ing the preceding eight
31
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 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 L 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
Concert Social Awareness Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Balanced Fund
Smith Barney Contrarian Fund
Smith Barney Convertible Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.--Large Cap Value Fund
Smith Barney Large Cap Blend Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney Mid Cap Blend Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Premium Total Return Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Special Equities Fund
32
<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 High Grade Bond Fund
Smith Barney Funds, Inc.--U.S. Government Securities Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney Total Return Bond Fund
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
*Smith Barney Intermediate Maturity California Municipals Fund
*Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Municipal High Income Fund
Smith Barney Muni Funds--Florida Portfolio
Smith Barney Muni Funds--Georgia Portfolio
*Smith Barney Muni Funds--Limited Term Portfolio
Smith Barney Muni Funds--National Portfolio
Smith Barney Muni Funds--New York Portfolio
Smith Barney Muni Funds--Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Global-International Funds
Smith Barney Hansberger Global Value Fund
Smith Barney World Funds, Inc.--Emerging Markets Portfolio
Smith Barney World Funds, Inc.--European Portfolio
Smith Barney World Funds, Inc.--Global Government Bond Portfolio
Smith Barney World Funds, Inc.--International Balanced Portfolio
Smith Barney World Funds, Inc.--International Equity Portfolio
Smith Barney World Funds, Inc.--Pacific Portfolio
Smith Barney Concert Allocation Series Inc.
Smith Barney Concert Allocation Series Inc.--Balanced Portfolio
Smith Barney Concert Allocation Series Inc.--Conservative Portfolio
Smith Barney Concert Allocation Series Inc.--Global Portfolio
Smith Barney Concert Allocation Series Inc.--Growth Portfolio
Smith Barney Concert Allocation Series Inc.--High Growth Portfolio
Smith Barney Concert Allocation Series Inc.--Income Portfolio
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 L and Class Y shares of the
Fund.
** Available for exchange with Class A and Class B shares of the Fund.
***Available for exchange with Class A shares of the Fund.
+ AVAILABLE FOR EXCHANGE WITH CLASS B AND CLASS L SHARES OF THE FUND.
++ AVAILABLE FOR EXCHANGE WITH CLASS A AND CLASS Y SHARES OF THE FUND. IN
ADDITION, PARTICIPATING PLANS OPENED PRIOR TO JUNE 21, 1996 AND INVESTING
IN CLASS L SHARES MAY EXCHANGE FUND SHARES FOR CLASS L SHARES OF THIS FUND.
+++ AVAILABLE FOR EXCHANGE WITH CLASS A AND 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 L Exchanges. Upon an exchange, the new Class L shares will be deemed to
have been purchased on the same date as the Class L shares of the Fund that
have been exchanged.
Class A and Class Y Exchanges. Class A and Class Y shareholders of the Fund
who wish to exchange all or a portion of their shares for shares of the 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, MMC will notify
Smith Barney and Smith Barney may, at its discretion, decide to limit addi-
tional purchases and/or exchanges by the shareholder. Upon such a determina-
tion, Smith Barney will provide notice in writing or by telephone to the share-
holder at least 15 days prior to suspending the exchange privilege and during
the 15-day period the shareholder will be required to (a) redeem his or her
shares in the Fund or (b) remain invested in the Fund or exchange into any of
the funds of the Smith Barney Mutual Funds listed above, which position the
shareholder would be expected to maintain for a
34
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
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 First Data receives further
instructions from Smith Barney, or if the shareholder's account is not with
Smith Barney, from the shareholder directly. The redemption proceeds will be
remitted on or before the third business day following receipt of proper ten-
der, except on days on which the NYSE is closed or as permitted under the 1940
Act, in extraordinary circumstances. Generally, if the redemption proceeds are
remitted to a Smith Barney brokerage account, these funds will not be invested
for the shareholder's benefit without specific instruction and Smith Barney
will benefit from the use of temporarily uninvested funds. Redemption proceeds
for shares purchased by check, other than a certified or official bank check,
will be remitted upon clearance of the check, which may take up to ten days or
more.
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's Finan-
35
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
cial Consultant, Introducing Broker or dealer in the selling group or by sub-
mitting a written request for redemption to:
Smith Barney Hansberger Global Small Cap Value Fund
Class A, B, L or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account number
and (c) be signed by each registered owner exactly as the shares are regis-
tered. If the shares to be redeemed were issued in certificate form, the cer-
tificates must be endorsed for transfer (or be accompanied by an endorsed stock
power) and must be submitted to First Data together with the redemption
request. Any signature appearing on a share certificate, stock power or written
redemption request in excess of $10,000 must be guaranteed by an eligible guar-
antor institution such as a domestic bank, savings and loan institution, domes-
tic credit union, member bank of the 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 or their
financial consultant, introducing broker or dealer in the Selling Group.
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
36
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
at 1-800-451-2010. Once eligibility is confirmed, the shareholder must com-
plete 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 invest-
ment 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.
(Eastern 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. (Eastern time) on any day on which the NYSE is open. Exchange requests
received after the close of regular trading on the NYSE are processed at the
net asset value next determined.
Additional Information regarding Telephone Redemption and Exchange
Program. Neither the Fund nor its agents will be liable for following instruc-
tions communicated by telephone that are reasonably believed to be genuine.
The Fund and its agents will employ procedures designed to verify the identity
of the caller and legitimacy of instructions (for example, a shareholder's
name and account number will be required and phone calls may be recorded). The
Fund reserves the right to suspend, modify or discontinue the telephone
redemption and exchange program or to impose a charge for this service at any
time following at least seven (7) days' prior notice to shareholders.
37
<PAGE>
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
the Fund, each account must satisfy the minimum account size). The Fund, howev-
er, will not redeem shares based solely on market reductions in net asset val-
ue. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid involuntary liquidation.
PERFORMANCE
From time to time the Fund may include its total return, average annual total
return and current dividend return in advertisements and/or other types of
sales literature. These figures are computed separately for Class A, Class B,
Class L and Class Y shares of the Fund. These figures are based on historical
earnings and are not intended to indicate future performance. Total return is
computed for a specified period of time assuming deduction of the maximum sales
charge, if any, from the initial amount invested and reinvestment of all income
dividends and capital gain distributions on the reinvestment dates at prices
calculated as stated in this Prospectus, then dividing the value of the invest-
ment at the end of the period so calculated by the initial amount invested and
subtracting 100%. The standard average annual total return, as prescribed by
the SEC, is derived from this total return, which provides the ending redeem-
able value. Such standard total return information may also be accompanied with
nonstandard total return information for differing periods computed in the same
manner but without annualizing the total return or taking sales charges into
account. The Fund calculates current dividend return for each Class by
annualizing the most recent monthly distribution and dividing by the net asset
value or the maximum public offering price (including sales charge) on the last
day of the period for which current dividend return is presented. The current
dividend return for each Class may vary from time to time depending on market
conditions, the composition of its investment portfolio and operating expenses.
These factors and possible differences in the methods used in calculating cur-
rent dividend return should be considered when comparing a Class' current
return to yields published for other investment companies and other investment
vehicles. The Fund may also include comparative performance information in
advertising or marketing its shares. Such performance information may include
data from Lipper Analytical Services, Inc. and other financial publications.
38
<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 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.
INVESTMENT MANAGER--MMC
MMC, located at 388 Greenwich Street, New York, New York 10013, serves as the
Fund's investment manager pursuant to an investment management agreement
entered into by the Company, on behalf of the Fund. MMC renders investment
advice to investment companies which had aggregate assets under management as
of July 31, 1998, in excess of $100 billion. For investment management services
rendered, the Fund pays MMC a monthly fee at the annual rate of 1.05% of the
value of its average daily net assets. From its fee, MMC pays Hansberger a fee
of 0.60% of the value of the Fund's average net assets, for its services as
sub-investment adviser.
MMC waived its management fee for the Fund for the fiscal year ended April
30, 1998, and the effective rate of the management fee was 0%. For the past
fiscal year, total operating expenses without fee waivers and reimbursement of
expenses were 3.25% of the average daily net assets for Class A shares; 3.96%
of the average daily net assets of Class B shares; 4.02% of the average daily
net assets for Class L shares; and 3.05% of the average daily net assets for
Class Y shares.
SUB-INVESTMENT ADVISER--HANSBERGER
Hansberger, located at 515 Las Olas Blvd., Suite 1300, Fort Lauderdale, Flor-
ida 33301, serves as the Fund's sub-investment adviser. Hansberger provides
investment advisory services to investment companies that had aggregate total
assets under management as of July 31, 1998 of approximately $2.0 billion. Sub-
ject to the supervision and direction of the Company's Board of Directors,
Hansberger manages the Fund's portfolio in accordance with the Fund's stated
investment objective and policies, makes investment decisions for the Fund,
places orders to purchase and sell securities and employs professional portfo-
lio managers and securities analysts who provide research services to the Fund.
PORTFOLIO MANAGEMENT
Lauretta (Retz) Reeves, Vladimir Tyurenkov, Robert Mazuelos and Victoria
Gretzky manage the day-to-day investment operations of the Fund, including the
oversight of investment decisions. Ms. Reeves has been a portfolio manager and
39
<PAGE>
MANAGEMENT OF THE COMPANY AND THE FUND (CONTINUED)
Managing Director of Hansberger since 1996. In July, 1997, Ms. Reeves became
Hansberger's Director of Research. Prior to joining Hansberger, she was Senior
Vice President of Templeton Worldwide Inc. ("Templeton"). Mr. Tyurenkov has
been a Managing Director of Eastern Europe and Russia for Hansberger since
1995. Prior to that time he worked for the Russian Government. Mr. Mazuelos has
been a research analyst and assistant portfolio manager for Hansberger since
1995. Prior to that time he was a performance analyst at Templeton Investment
Counsel, Inc. Ms. Gretzky has been a research analyst for Hansberger since
1995. Prior to that time she was a research analyst for Optimum Consulting, a
Russia based firm specializing in restructuring Russian companies.
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 has been
approved by the stockholders of each of Travelers and Citicorp. Upon consumma-
tion 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 regula-
tions. Although the effects of the merger of Travelers and Citicorp and compli-
ance with the requirements of the BHCA and the Glass-Steagall Act are still
under review, the Adviser 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 L shares of the Fund at the annual
rate of 0.25% of the average daily net assets of the respective Class. Smith
Barney is also paid a distribution fee with respect to Class B and Class L
shares at the annual rate of 0.75% of the average daily net assets attributable
to those Classes. Class B shares 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 L shares, to cover expenses primarily intended to result in the
40
<PAGE>
DISTRIBUTOR (CONTINUED)
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 L shares, a con-
tinuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney and the payments
may exceed distribution expenses actually incurred. The 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.
The Glass-Steagall Act currently prohibits certain financial institutions
from underwriting securities of open-end investment companies, such as the
Fund. Therefore, in connection with the anticipated merger of Travelers and
Citicorp and as a consequence of the anticipated applicability of the BHCA and
the Glass-Steagall Act, the Fund plans to retain the services of a new entity
(which is not otherwise affiliated with Travelers) to act as distributor of the
Portfolio's shares.
ADDITIONAL INFORMATION
The Company was organized as a Maryland corporation pursuant to Articles of
Incorporation dated September 29, 1981, as amended from time to time. The Fund
offers shares of common stock currently classified into four Classes, A, B, L
and Y, with a par value of $.001 per share. Each Class represents an identical
interest in the Fund's investment portfolio. As a result, the Classes have the
same rights, privileges and preferences, except with respect to: (a) the desig-
nation 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 privi-
lege 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 differ-
41
<PAGE>
ADDITIONAL INFORMATION (CONTINUED)
ent Classes. The Directors, on an ongoing basis, will consider whether any such
conflicts exists and, if so, take appropriate action.
Chase, located at Chase Metrotech Center, Brooklyn, New York 11245, serves as
custodian of the Fund's investments.
First Data, located at Exchange Place, Boston, Massachusetts 02109, serves as
the Fund's transfer agent.
The Company does not hold annual shareholder meetings. There normally will be
no meeting of shareholders for the purpose of electing Directors unless and
until such time as less than a majority of the Directors holding office have
been elected by shareholders. The Directors will call a meeting for any purpose
upon written request of shareholders holding at least 10% of the Company's out-
standing shares and the Company will assist shareholders in calling such a
meeting as required by the 1940 Act. When matters are submitted for shareholder
vote, shareholders of each Class will have one vote for each full share owned
and a proportionate, fractional vote for any fractional share held of that
Class. Generally, shares of the Company will be voted on a Company-wide basis
on all matters except matters affecting only the interests of one Fund or one
Class of shares.
The Fund sends its shareholders a semi-annual report and an audited annual
report, which include a list of the investment securities held by the Fund at
the end of the reporting period. In an effort to reduce the Fund's printing and
mailing costs, the Company plans to consolidate the mailing of its semi-annual
and annual reports by household. This consolidation means that a household hav-
ing multiple accounts with the identical address of record will receive a sin-
gle copy of each report. Shareholders who do not want this consolidation to
apply to their accounts should contact their Smith Barney Financial Consultant
or First Data.
42
<PAGE>
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<PAGE>
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<PAGE>
SMITH BARNEY
--------------------------------
A Member of TravelersGroup[LOGO]
SMITH BARNEY
HANSBERGER
GLOBAL
SMALL CAP
VALUE FUND
388 Greenwich Street
New York, New York 10013
FD 01336 8/98
<PAGE>
PROSPECTUS
SMITH BARNEY HANSBERGER
Global
Value Fund
AUGUST 28, 1998
PROSPECTUS BEGINS ON PAGE ONE
LOGO LOGO
HANSBERGER SMITH BARNEY MUTUAL FUNDS
GLOBAL INVESTING FOR YOUR FUTURE. EVERY DAY./SM/
INVESTORS, INC.
<PAGE>
PROSPECTUS August 28, 1998
Smith Barney Hansberger Global Value Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
The investment objective of Smith Barney Hansberger Global Value Fund (the
"Fund") is long-term capital growth. The Fund seeks to achieve this objective
by investing primarily in equity securities of U.S. and foreign issuers.
The Fund is one of a number of funds, each having distinct investment objec-
tives and policies, making up the Smith Barney Investment Funds Inc. (the "Com-
pany"). The Fund is an open-end, management investment company commonly
referred to as a mutual fund.
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 August 28, 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 Manager
HANSBERGER GLOBAL INVESTORS, INC.
Sub-Investment Adviser
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE 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 11
- -------------------------------------------------
RISK FACTORS 20
- -------------------------------------------------
VALUATION OF SHARES 21
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 21
- -------------------------------------------------
PURCHASE OF SHARES 23
- -------------------------------------------------
EXCHANGE PRIVILEGE 32
- -------------------------------------------------
REDEMPTION OF SHARES 35
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 38
- -------------------------------------------------
PERFORMANCE 38
- -------------------------------------------------
MANAGEMENT OF THE COMPANY AND THE FUND 39
- -------------------------------------------------
DISTRIBUTOR 41
- -------------------------------------------------
ADDITIONAL INFORMATION 42
</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 to seek long term capital growth.
The Fund seeks to achieve this objective by investing primarily in equity
securities of U.S. and foreign issuers. See "Investment Objective and Manage-
ment Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several classes of shares
("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three classes of shares: Class A shares, Class B shares and Class L
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 initial sales charge,
but will be subject to a contingent deferred sales charge ("CDSC") of 1.00% on
redemptions made within 12 months of purchase. See "Prospectus Summary--
Reduced or No Initial Sales Charge."
Class B Shares. Class B shares are offered at net asset value subject to a
maximum CDSC of 5.00% of redemption proceeds, declining by 1.00% each year
after the date of purchase to zero. The CDSC may be waived for certain redemp-
tions. Class B shares are subject to an annual service fee of 0.25% and an
annual distribution fee of 0.75% of the average daily net assets of the Class.
The Class B shares' distribution fee may cause that Class to have higher
expenses and pay lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will convert automatically
to Class A shares, based on relative net asset value, eight years after the
date of the original purchase. Upon conversion, these shares will no longer be
subject to an annual distribution fee. In addition, a certain portion of Class
B shares that have been acquired through the reinvestment of dividends and
distributions ("Class B Dividend Shares") will be converted at that time. See
"Purchase of Shares--Deferred Sales Charge Alternatives."
3
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Class L Shares. Class L shares are sold at net asset value plus an initial
sales charge of 1.00% of the purchase price. They are subject to an annual
service fee of 0.25% and an annual distribution fee of 0.75% of the average
daily net assets of the Class, and investors pay a CDSC of 1.00% if they redeem
Class L shares within 12 months of purchase. The CDSC may be waived for certain
redemptions. The Class L shares' distribution fee may cause that Class to have
higher expenses and pay lower dividends than Class A shares. Purchases of Fund
shares which, when combined with current holdings of Class L shares of the
Fund, equal or exceed $500,000 in the aggregate, should be made in Class A
shares at net asset value with no sales charge, and will be subject to a CDSC
of 1.00% on redemptions made within 12 months of purchase.
Class Y Shares. Class Y shares are available only to investors meeting an 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 are sold without any initial sales
charge so the entire purchase price is immediately invested in the Fund. Any
investment return on these additional invested amounts may partially or wholly
offset the higher annual expenses of this Class. Because the Fund's future
return cannot be predicted, however, there can be no assurance that this would
be the case. Finally, Class L shares, which have a lower upfront sales charge
but are subject to higher distribution fees than Class A shares, are suitable
for investors who are not investing or intending to invest an amount which
would receive a substantive sales charge discount and who have a short-term or
undetermined time frame.
Finally investors should consider the effect of the CDSC period and any con-
version rights of the Classes in the context of their own investment time
frame. For example, while Class L shares have a shorter CDSC period than Class
B shares, they do not have a conversion feature and, therefore, are subject to
an ongoing distribution fee. Thus, Class B shares may be more attractive than
Class L shares to investors with longer term investment outlooks.
4
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Reduced or No Initial Sales Charge. The initial sales charge on Class A shares
may be waived for certain eligible purchasers, and the entire purchase price
will be immediately invested in the Fund. In addition, Class A share purchases
of $500,000 or more will be made at net asset value with no initial sales
charge, but may be subject to a CDSC of 1.00% on redemptions made within 12
months of purchase. The $500,000 investment may be met by adding the purchase
to the net asset value of all Class A shares held in funds sponsored by Smith
Barney Inc. ("SmithBarney'') listed under "Exchange Privilege." Class A share
purchases may also be eligible for a reduced initial sales charge. See "Pur-
chase of Shares." Because the ongoing expenses of Class A shares may be lower
than those for Class B and Class L shares, purchasers eligible to purchase
Class A shares at net asset value or at a reduced sales charge should consider
doing so.
Smith Barney Financial Consultants may receive different compensation for
selling different Classes of shares. Investors should understand that the pur-
pose of the CDSC on the Class B and Class L shares is the same as that of an
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 L 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 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"or
the "Transfer Agent"). See "Purchase of Shares."
5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
INVESTMENT MINIMUMS Investors in Class A, Class B and Class L shares may open
an account by making an initial investment of at least $1,000 for each
account, or $250 for an individual retirement account ("IRA") or a Self-
Employed Retirement Plan. Investors in Class Y shares may open an account for
an initial investment of $15,000,000. Subsequent investments of at least $50
may be made for all Classes. For participants in retirement plans qualified
under Section 403(b)(7) or Section 401(a) of the Code, the minimum initial
investment requirement for Class A, Class B and Class L shares and the subse-
quent investment requirement for all Classes is $25. The minimum initial
investment requirement for the purchase of Fund shares through the Systematic
Investment Plan is described below. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN 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
requirements for Class A, Class B and Class L shares and the subsequent
investment requirement for all classes for shareholders purchasing shares
through the Systematic Investment Plan on a monthly basis is $25 and on a
quarterly basis is $50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE FUND Mutual Management Corp. ("MMC") (formerly known as
Smith Barney Mutual Funds Management Inc.) serves as the Fund's investment
manager. MMC provides investment advisory and management services to invest-
ment 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, Con-
sumer Finance Services, Life Insurance Services and Property & Casualty Insur-
ance Services.
Hansberger Global Investors, Inc. ("Hansberger") serves as the Fund's sub-
adviser. 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."
6
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income and distribu-
tions of net realized capital gains, if any, are declared and paid annually.
See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a Class
will be reinvested automatically, unless otherwise specified by an investor, in
additional shares of the same Class at current net asset value. Shares acquired
by dividend and distribution reinvestments will not be subject to any sales
charge or CDSC. Class B shares acquired through dividend and distribution rein-
vestments will become eligible for conversion to Class A shares on a pro rata
basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS The Fund invests principally in common
stocks. The prices of common stocks and other securities fluctuate and, there-
fore, the value of an investment in the Fund will vary based upon the Fund's
investment performance. Any income from these investments will be incidental to
the goal of capital appreciation. The Fund will invest in foreign securities
which may result in higher costs than investments in U.S. securities, including
foreign government taxes, which may reduce the investment return of the Fund.
In addition, foreign investments may include additional risks associated with
currency exchange rates, less complete financial information about companies,
less market liquidity, and political instability. The Fund may use management
techniques and strategies involving options, futures contracts and options on
futures (which are sometimes referred to as "derivatives"), as well as borrow-
ing for leverage purposes. The utilization of these techniques may involve
greater than ordinary investment risks and the likelihood of more volatile
price fluctuation. See "Investment Objective and Management Policies."
7
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
THE FUND'S EXPENSES The following expense table lists the costs and expenses
that an investor will incur either directly or indirectly as a shareholder of
the Fund, based on the maximum sales charge or maximum CDSC that may be
incurred at the time of purchase or redemption and, unless otherwise noted, the
Fund's operating expenses for its most recent fiscal year:
<TABLE>
<CAPTION>
SMITH BARNEY HANSBERGER GLOBAL VALUE FUND CLASS A CLASS B CLASS L* CLASS Y
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on
purchases
(as a percentage of offering price) 5.00% None 1.00% None
Maximum CDSC (as a percentage of
original cost or redemption proceeds,
whichever is lower) None** 5.00% 1.00% None
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES***
(as a percentage of average net assets)
Management Fees (after fee waiver) 0.56% 0.56% 0.56% 0.56%
12b-1 Fees**** 0.25 1.00 1.00 None
Other Expenses 0.90 0.92 0.93 0.91
- -------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.71% 2.48% 2.49% 1.47%
- -------------------------------------------------------------------------------
</TABLE>
* Class L shares were previously named Class C shares. For shareholders who
owned Class C shares of the Fund, on June 12, 1998 Class L shares may be
purchased without including the 1% initial sales charge until June 25,
1999.
** 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.
*** "Management Fees" reflect the management fee waiver currently in effect
for the Fund. Absent the fee waiver, the management fee would be incurred
at the rate of 0.95% of each Class' average daily net assets for the
current fiscal period. Absent the fee waiver, total expenses would be at
the rate of 2.09%, 2.87%, 2.88% and 1.85% for Class A, Class B, Class L
and Class Y, respectively.
**** Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee. Class L shares do not have a
conversion feature and, therefore, are subject to an ongoing distribution
fee. As a result, long-term shareholders of Class L shares may pay more
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, 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 L and certain Class A shares, the length of time the shares are
held and whether the shares are held through the Smith Barney 401(k) and
ExecChoice(TM) Programs. See "Purchase of Shares" and "Redemption of Shares."
8
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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 L shares, an annual 12b-1 fee of 1.00% of
the value of average daily net assets of that Class, consisting of a 0.25%
service fee and a 0.75% distribution fee. "Other Expenses" in the above table
include fees for shareholder services, custodial fees, legal and accounting
fees, printing costs and registration fees.
EXAMPLE
The following example is intended to assist an investor in understanding the
various costs that an investor in the Fund will bear directly or indirectly.
The example assumes payment by the Fund of operating expenses at the levels set
forth in the table above. See "Purchase of Shares," "Redemption of Shares" and
"Management of the Fund."
<TABLE>
<CAPTION>
SMITH BARNEY HANSBERGER GLOBAL VALUE FUND 1 YEAR 3 YEARS 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................................... 67 101 138 242
Class B................................... 75 107 142 263
Class L................................... 45 87 141 290
Class Y................................... 15 46 80 176
An investor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
Class A................................... 67 101 138 242
Class B................................... 25 77 132 263
Class L................................... 35 87 141 290
Class Y................................... 15 46 80 176
- -------------------------------------------------------------------------------
</TABLE>
The example also provides a means for the investor to compare expense levels
of funds with different fee structures over varying investment periods. To
facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Fund's actual return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTA-
TION OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN ABOVE.
9
<PAGE>
FINANCIAL HIGHLIGHTS
The following information has been audited by KPMG Peat Marwick LLP, inde-
pendent auditors, whose report thereon for the period from December 19, 1997
to April 30, 1998 appears in the Fund's Annual Report dated April 30, 1998.
The information below should be read in conjunction with the financial state-
ments and related notes that also appear in the Fund's Annual Report, which is
incorporated by reference to the Statement of Additional Information.
For a share of each class of capital stock outstanding throughout the period:
<TABLE>
<CAPTION>
1998
-----------------------------------------------
SMITH BARNEY HANSBERGER GLOBAL CLASS A CLASS B CLASS L CLASS Y
VALUE FUND SHARES(/1/) SHARES(/1/) SHARES(/1/) SHARES(/2/)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $11.40 $11.40 $11.40 $12.44
- --------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income(/3/).... 0.05 0.02 0.02 0.00*
Net realized and unrealized
gain........................ 1.56 1.56 1.56 0.56
- --------------------------------------------------------------------------------
Total Income From Operations... 1.61 1.58 1.58 0.56
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income......... (0.02) (0.02) (0.02) --
- --------------------------------------------------------------------------------
Total Distributions............ (0.02) (0.02) (0.02) --
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD. $12.99 $12.96 $12.96 $13.00
- --------------------------------------------------------------------------------
TOTAL RETURN++................. 14.13% 13.87% 13.87% 4.50%
- --------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(000S)....................... $27,478 $45,526 $11,060 $56,414
- --------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS+:
Expenses(/3/)................. 1.71% 2.48% 2.49% 1.47%
Net investment income......... 1.25 0.52 0.42 1.83
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE........ 1% 1% 1% 1%
- --------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE
ON EQUITY TRANSACTIONS(/4/).. $0.01 $0.01 $0.01 $0.01
- --------------------------------------------------------------------------------
</TABLE>
(1) For the period from December 19, 1997 (inception date) to April 30, 1998.
(2) For the period from March 10, 1998 (inception date) to April 30, 1998.
(3) The Manager waived part of its fees for the period ended April 30, 1998.
If such fees had not been waived, the per share effect on net investment
income and the expense ratios would have been as follows:
<TABLE>
<CAPTION>
NET INVESTMENT INCOME EXPENSE RATIOS
PER SHARE DECREASES WITHOUT FEE WAIVERS+
--------------------- --------------------
<S> <C> <C>
Class A $0.01 2.09%
Class B 0.01 2.87
Class L 0.01 2.88
Class Y 0.00* 1.85
</TABLE>
(4) Trades executed in the United States and Canada have an average commission
rate of $0.06 per share. Commissions on trades executed outside these
countries are generally executed as a percentage of cost or proceeds
ranging from 0.5% to 1.0%.
* Amount represents less than $0.01 per share.
++Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
10
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Fund's investment objective is to provide long-term capital growth. The
Fund seeks to achieve its objective by investing primarily in equity securi-
ties of U.S. and foreign issuers, which, in the opinion of MMC and Hansberger,
are undervalued. Such companies may vary in market capitalization and industry
type. Income will be an incidental consideration.
In making investment decisions for the Fund, Hansberger relies heavily on a
fundamental analysis of securities with a long-term investment perspective.
Hansberger's valuation methods focus on a company's share price in relation to
earnings, dividends, assets, sales and a variety of other criteria. The Fund
seeks to invest in companies whose securities are trading at the greatest dis-
count to future earnings, cash flow and/or net asset value and Hansberger
utilizes proprietary valuation screens, internal and external research sources
and other fundamental analysis to identify those securities that appear to be
undervalued. Once undervalued securities are identified, Hansberger analyzes
each security, concentrating on a variety of fundamental issues, including
sales growth, cash flow, new product development, management structure and
other economic factors. This fundamental analysis results in a list of securi-
ties meeting a strict value discipline, which are reviewed by Hansberger for
inclusion in the Fund's portfolio.
Hansberger seeks to increase the scope and effectiveness of this fundamental
investment approach by extending the search for value into many countries
around the world. This global search provides Hansberger with more diverse
opportunities and flexibility to shift portfolio investments not only from
company to company and industry to industry, but also country to country, in
search of undervalued securities. Under normal market conditions, the Fund
will invest its assets in at least three countries, which may include the
United States.
INVESTMENT POLICIES
Although the Fund generally invests in common stocks, the Fund may also
invest in preferred stocks and certain debt securities, rated or unrated, such
as convertible bonds and bonds selling at a discount, when Hansberger believes
the potential for appreciation will equal or exceed that available from
investments in common stock. The Fund may also invest in warrants or rights to
subscribe to or purchase such securities, and sponsored or unsponsored Ameri-
can Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs") and other depository receipts (collective-
ly, "Depositary Receipts"). The Fund may also lend its portfolio securities
and borrow money for investment purposes (i.e., "leverage" its portfolio). In
addition, the Fund may invest in closed-end investment companies holding for-
eign securities, and enter into transactions in options on securities, securi-
ties indices and foreign currencies, forward foreign currency contracts, and
futures contracts and related options. When deemed appropriate by MMC or
Hansberger, the Fund may invest cash balances
11
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
in repurchase agreements and other money market investments to maintain
liquidity in an amount sufficient to meet expenses or for day-to day operating
purposes. These investment techniques are described below under "Investment
Strategies and Techniques" and "Risk Factors." Whenever, in the judgment of
Hansberger, market or economic conditions warrant, the Fund may adopt a tempo-
rary defensive position and may invest without limit in money market securi-
ties denominated in U.S. dollars or in the currency of any foreign country.
See " Investment Strategies and Techniques--Temporary Investments."
INVESTMENT STRATEGIES AND TECHNIQUES
The Fund may also engage in the investment techniques and make the types of
investments described and discussed below.
Options Transactions. The Fund may seek to hedge all or a portion of its
investments through options on other securities in which it may invest.
Options which the Fund may purchase or sell will be traded on a recognized
securities or futures exchange or over the counter. Options markets in emerg-
ing countries are currently limited and the nature of the strategies adopted
by Hansberger and the extent to which those strategies are used will depend on
the development of such markets.
The Fund may write (i.e., sell) covered call options. A call gives the pur-
chaser the right to buy the security underlying the option from the Fund at
the stated exercise price, on or before a specified date (the "termination
date") that is usually not more than nine months from the date the option is
issued. A call is "covered" if the Fund (i) owns the securities underlying the
option or securities convertible or exchangeable (without the payment of any
consideration) into the securities underlying the option, (ii) maintains in a
segregated account with The Chase Manhattan Bank ("Chase"), the Fund's custo-
dian, cash or equity and debt securities of any grade provided such securities
have been determined by MMC and Hansberger to be liquid and unencumbered pur-
suant to guidelines established by the Board of Directors ("eligible segre-
gated assets") with a value sufficient to meet the Fund's obligations under
the call, or (iii) owns an offsetting call option.
The Fund may also write (i.e., sell) covered put options. The writer of a
put incurs an obligation to buy the security underlying the option from the
put's purchaser at the exercise price at any time on or before the termination
date, at the purchaser's election (certain options the Fund writes will be
exercisable by the purchaser only on a specific date ). Generally, a put is
"covered" if the Fund maintains eligible segregated assets in an amount equal
to the exercise price of the option or if the Fund holds a put on the same
underlying security with a similar or higher exercise price.
The Fund may also purchase put or call options on individual securities or
baskets of securities. When the Fund purchases a call, it acquires the right
to buy the
12
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
underlying security at the exercise price on or before the termination date,
and when the Fund purchases a put, it acquires the right to sell the underlying
security at the exercise price on or before the termination date.
The primary risks associated with the use of options on securities are (i)
imperfect correlation between the change in market value of the securities the
Fund holds and the prices of options relating to the securities purchased or
sold by the Fund; and (ii) possible lack of a liquid secondary market for an
option. Options not traded on an exchange (OTC options) are generally consid-
ered illiquid and may be difficult to value. Hansberger believes that the Fund
will minimize its risk of being unable to close out an option contract by
transacting in options only if there appears to be a liquid secondary market
for those options.
Real Estate Investment Trust Securities. The Fund may invest up to 10% of its
assets in Real Estate Investment Trusts ("REITs"). REITs are pooled investment
vehicles that invest primarily in either real estate or real estate related
loans. The value of a REIT is affected by changes in the value of the proper-
ties owned by the REIT or securing mortgage loans held by the REIT. A REIT is
dependent upon cash flow from its investments to repay financing costs and the
ability of the REIT's manager. REITs are also subject to risks generally asso-
ciated with investments in real estate.
Futures Contracts. The Fund may buy and sell financial futures contracts,
stock and bond index futures contracts, foreign currency futures contracts and
options on any of the foregoing for hedging purposes only. A financial futures
contract is an agreement between two parties to buy or sell a specified debt
security at a set price on a future date. An index futures contract is an
agreement to take or make delivery of an amount of cash based on the difference
between the value of the index at the beginning and at the end of the contract
period. A futures contract on a foreign currency is an agreement to buy or sell
a specified amount of a currency for a set price on a future date.
When the Fund enters into a futures contract, it must make an initial depos-
it, known as "initial margin," as a partial guarantee of its performance under
the contract. As the value of the security, index or currency fluctuates,
either party to the contract is required to make additional margin payments,
known as "variation margin," to cover any additional obligation it may have
under the contract. In addition, when the Fund enters into a futures contract,
it will segregate assets or "cover" its position in accordance with the Invest-
ment Company Act of 1940, as amended (the "1940 Act"). With respect to posi-
tions in futures and related options that do not constitute "bona fide hedging"
positions as defined in regulations of the Commodity Futures Trading Commis-
sion, the Fund will not enter into a futures contract or related option con-
tract if, immediately thereafter, the aggregate initial
13
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
margin deposits relating to such positions plus premiums paid by it for open
futures option positions, less the amount by which any such options are "in-
the-money," would exceed 5% of the Fund's total assets. The value of the
underlying securities on which futures contracts will be written at any one
time will not exceed 25% of the total assets of the Fund.
The primary risks associated with the use of futures and options on futures
are (i) imperfect correlation between the change in market value of the secu-
rities held by the Fund and the prices of related futures and options on
futures purchased or sold by the Fund, and (ii) possible lack of a liquid sec-
ondary market for a futures contract (or related option) and the resulting
inability to close a futures position, which could have an adverse impact on
the Fund's ability to hedge. The risk of loss in trading on futures contracts
and related options in some strategies can be substantial, due both to the low
margin deposits required and the extremely high degree of leverage involved in
futures pricing. Gains and losses on futures and related options depend on
Hansberger's ability to predict correctly the direction of stock prices,
interest rates, and other economic factors. The risk that the Fund will be
unable to close out a futures position or related options contract will be
minimized by only entering into futures contracts or related options transac-
tions for which there appears to be a liquid secondary market.
Borrowing. The Fund may borrow money from U.S.-regulated banks in an amount
not to exceed 33 1/3% of the Fund's total assets (including the amount borrow-
ed) less all liabilities and indebtedness other than the borrowing. If the
Fund borrows and uses the proceeds to make additional investments, income and
appreciation from such investments will improve its performance if they exceed
the associated borrowing costs but impair its performance if they are less
than such borrowing costs. This speculative factor is known as "leverage."
Leverage creates an opportunity for increased returns to shareholders of the
Fund but, at the same time, creates special risk considerations. For example,
leverage may exaggerate changes in the net asset value of the Fund's shares
and in the Fund's yield. Although the principal or stated value of such
borrowings will be fixed, the Fund's assets may change in value during the
time the borrowing is outstanding. Leverage will create interest or dividend
expenses for the Fund which can exceed the income from the assets retained. To
the extent the income or other gain derived from securities purchased with
borrowed funds exceeds the interest or dividends the Fund will have to pay in
respect thereof, the Fund's net income or other gain will be greater than if
leverage had not been used. Conversely, if the income or other gain from the
incremental assets is not sufficient to cover the cost of leverage, the net
income or other gain of the Fund will be less than if leverage had not been
used. If the amount of income from the incremental securities is insuf-
14
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
ficient to cover the cost of borrowing, securities might have to be liquidated
to obtain required funds. Depending on market or other conditions, such liqui-
dations could be disadvantageous to the Fund.
Depository Receipts. The Fund may purchase sponsored and unsponsored Deposi-
tory Receipts that are or become available, including ADRs, GDRs, EDRs and
other Depository Receipts. Depository Receipts are typically issued by a
financial institution ("depository") and evidence ownership interests in a
security or a pool of securities ("underlying securities") that have been
deposited with the depository. The depository for ADRs is typically a U.S.
financial institution and the underlying securities are issued by a foreign
issuer. In other Depository Receipts, the depository may be a foreign or a
U.S. entity, and the underlying securities may have a foreign or a U.S. issu-
er. For purposes of the Fund's investment policies, investments in Depository
Receipts will be deemed to be investments in the underlying securities. Thus,
a Depository Receipt representing ownership of common stock will be treated as
common stock.
Sovereign Debt. The Fund may invest in sovereign debt, which may trade at a
substantial discount from face value. The Fund may hold and trade sovereign
debt of emerging market countries in appropriate circumstances and to partici-
pate in debt conversion programs. Emerging country sovereign debt is generally
lower-quality debt and is considered speculative in nature. The issuer or gov-
ernmental authorities that control Sovereign Debt repayment ("sovereign debt-
ors") may be unable or unwilling to repay principal or interest when due in
accordance with the terms of the debt. A sovereign debtor's willingness or
ability to repay principal and interest due in a timely manner may be affected
by, among other factors, its cash flow, the extent of its foreign reserves,
the availability of sufficient foreign exchange on the date a payment is due,
the relative size of the debt service burden to the economy as a whole, the
sovereign debtor's policy towards the International Monetary Fund and the
political constraints to which the sovereign debtor may be subject.
Brady Bonds. The Fund may invest in Brady Bonds as part of its investment in
sovereign debt of countries that have restructured or are in the process of
restructuring their sovereign debt.
Brady Bonds are often viewed as having three or four valuation components:
(i) the collateralized repayment of principal at final maturity; (ii) the col-
lateralized interest payments; (iii) the uncollateralized interest payments;
and (iv) any uncollateralized interest and principal at maturity (these
uncollateralized amounts constitute the " residual risk"). In light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of coun-
tries issuing Brady Bonds, investments in Brady Bonds can viewed as specula-
tive.
15
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Investment Funds. Some emerging countries have laws and regulations that
preclude direct foreign investment in the securities of companies located
there. However, indirect foreign investment in the securities of companies
listed and traded on the stock exchanges in these countries is permitted by
certain emerging countries through specifically authorized investment funds.
The Fund may invest in these investment funds, as well as other closed-end
investment companies up to 10% of its assets as permitted by the 1940 Act.
Repurchase Agreements. In order to aid in cash management, the Fund may
enter into repurchase agreements with brokers, dealers or banks
("counterparties") that MMC and Hansberger have determined meet the credit
guidelines established by the Board of Directors. Repurchase agreements will
be fully collateralized, and may be viewed for purposes of the 1940 Act as a
loan of money by the Fund to the counterparty. The Fund may incur a loss if
the counterparty defaults and the collateral value declines, or if bankruptcy
proceedings are commenced regarding the counterparty and the Fund's realiza-
tion upon the collateral is delayed or limited.
Securities Lending. Consistent with applicable regulatory requirements, the
Fund is authorized to lend its portfolio securities to brokers, dealers,
domestic and foreign banks or other financial institutions for the purpose of
increasing its net investment income. Any such loan must be fully secured;
however, there may be risks of delay in recovery of the securities or even
loss of rights in the collateral should the borrowers of the securities fail
financially.
Temporary Investments. The Fund may make money market investments pending
other investments or settlement for liquidity, or in adverse market condi-
tions. These money market investments include obligations of the U.S. Govern-
ment and its agencies and instrumentalities, obligations or foreign sovereign-
ties, other debt securities, commercial paper including bank obligations, cer-
tificates of deposit (including Eurodollar certificates of deposit) and repur-
chase agreements.
For temporary defensive purposes, during periods in which MMC or Hansberger
believes changes in economic, financial or political conditions make it advis-
able, the Fund may reduce its holdings in equity and other securities and may
invest up to 100% of its assets in certain short-term (less than twelve months
to maturity) and medium-term (not greater than five years to maturity) debt
securities and in cash (U.S. dollars, foreign currencies, multicurrency
units). These short-term and medium-term debt securities consist of (a) obli-
gations of governments, agencies or instrumentalities of any member state of
the Organization for Economic Cooperation and Development ("OECD"), (b) bank
deposits and bank obligations (including certificates of deposit, time depos-
its and bankers' acceptances) of banks organized under the laws of any member
state of the OECD, denominated in any currency: (c) floating rate securities
and other instruments dominated in any currency issued by inter -
16
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
national development agencies: (d) finance company and corporate commercial
paper and other short-term corporate debt obligations of corporations orga-
nized under the laws of any member state of the OECD meeting the Fund's credit
quality standards: and (e) repurchase agreements with banks and broker-dealers
covering any of the foregoing securities. The short-term and medium-term debt
securities in which the Fund may invest for temporary defensive purposes will
be those that MMC and Hansberger believe to be of high quality, i.e., subject
to relatively low risk of loss of interest or principal. There is currently no
rating system for debt securities in most emerging countries. If rated, these
securities will be rated in one of the three highest rating categories by any
nationally recognized statistical ratings organization ("NRSRO"), such as A or
better by Moody's Investors Services, Inc. or Standard & Poor's Ratings Group.
When-Issued Securities. The Fund may purchase securities on a when-issued or
delayed delivery basis. The price of debt obligations purchased on a when-
issued basis is fixed at the time the Fund commits to purchase, but delivery
and payment for the securities ("settlement") take place at a later date. The
price of these securities may be expressed in yield terms. The Fund will enter
into these transactions in order to lock in the yield (price) available at the
time of commitment.
Between purchase and settlement, the Fund assumes the ownership risk of the
when-issued securities, including the risk of fluctuations in the securities
market value due to, among other factors, a change in the general level of
interest rates. However, no interest accrues to the Fund during this period.
Forward Foreign Currency Exchange Contracts and Options on Foreign
Currencies. The Fund may enter into forward foreign currency exchange con-
tracts ("forward contracts"), providing for the purchase of or sale of an
amount of a specified currency at a future date. The Fund may use forward con-
tracts to protect against a foreign currency's decline against the U.S. dollar
between the trade date and settlement date for a securities transaction, or to
lock in the U.S. dollar value of dividends declared on securities it holds, or
generally to protect the U.S. dollar value of the securities it holds against
exchange rate fluctuations. The Fund may also use forward contracts to protect
against fluctuating exchange rates and exchange control regulations. Forward
contracts may limit the Fund's losses due to exchange rate fluctuation, but
they will also limit any gains that the Fund might otherwise have realized.
The Fund may also enter into foreign currency futures contracts ("currency
futures").
When the Fund enters into a forward contract or currency future, it will
place in a segregated account maintained with Chase, eligible segregated
assets, in an amount equal to the value of the Fund's total assets committed
to consummation of forward contracts and currency futures. If the value of
these segregated securities
17
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
declines, additional cash or securities will be placed in the account on a
daily basis so that the account value is at least equal to the Fund's commit-
ments to such contracts.
The Fund may purchase put and call options and write covered put and call
options on foreign currencies for the purpose of protecting against declines in
the U.S. dollar value of foreign currency denominated portfolio securities and
against increases in the U.S. dollar cost of such securities to be acquired. As
in the case of other kinds of options, however, the writing of an option on a
foreign currency constitutes only a partial hedge, up to the amount of the pre-
mium received, and the Fund could be required to purchase or sell foreign cur-
rencies at disadvantageous exchange rates, thereby incurring losses. The pur-
chase of an option on a foreign currency may constitute an effective hedge
against fluctuations in exchange rates although, in the event of rate movements
adverse to the Fund's position, it may forfeit the entire amount of the premium
plus related transaction costs. Options on foreign currencies to be written or
purchased by the Fund are traded on U.S. and foreign exchanges or over-the-
counter.
Forward Roll Transactions. In order to enhance current income, the Fund may
enter into forward roll transactions. In a forward roll transaction, the Fund
sells a security to a financial institution, such as a bank or broker-dealer,
and simultaneously agrees to repurchase a similar security from the institution
at a later date at an agreed-upon price. During the period between the sale and
repurchase, the Fund will not be entitled to receive interest and principal
payments on the securities sold. Proceeds of the sale will be invested in
short-term investments, particularly repurchase agreements, and the income from
these investments, together with any additional fee income received on the sale
will generate income for the Fund exceeding the yield on the securities sold.
Forward roll transactions involve the risk that the market value of the securi-
ties sold by the Fund may decline below the repurchase price of those securi-
ties. At the time the Fund enters into forward roll transactions, it will place
in a segregated account with Chase eligible segregated assets having a value
equal to the repurchase price (including accrued interest) and will subse-
quently monitor the account to insure that such equivalent value is maintained.
Non-Publicly Traded Securities. The Fund may invest in securities that are
neither listed on a stock exchange nor traded over the counter, including pri-
vately placed securities. These securities may present a higher degree of busi-
ness and financial risk, which can result in substantial losses. In the absence
of a public trading market for these securities, they may be less liquid than
publicly traded securities. Although these securities may be resold in pri-
vately negotiated transactions, the prices realized from these sales could be
less than those originally paid by the Fund or less than what the Fund may con-
sider the fair value of such securities. Further, companies whose securities
are not publicly traded may not be subject
18
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
to disclosure and other investor protection requirements that might apply if
their securities were publicly traded. If such securities are required to be
registered under the securities laws of one or more jurisdictions before being
resold, the Fund may be required to bear the costs of registration. The Fund
may not invest more than 15% of its net assets in illiquid securities, includ-
ing securities for which there is no readily available secondary market. The
Fund may invest in securities that can be offered and sold to qualified insti-
tutional buyers under Rule 144A under the 1933 Act ("Rule 144A Securities").
The Board of Directors has delegated to MMC and Hansberger, subject to the
Board's supervision, the daily function of determining and monitoring the
liquidity of Rule 144A Securities. Rule 144A Securities held by the Fund which
have been determined to be liquid will not be subject to the 15% limitation
described above. However, Rule 144A Securities may become illiquid if qualified
institutional buyers are not interested in acquiring them.
Short Sales. The Fund may sell securities short "against the box", that is,
sell a security that the Fund owns or has the right to acquire, for delivery at
a specified date in the future.
Year 2000. The investment management services provided to the Fund by MMC and
the services provided to shareholders by Smith Barney 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.
In addition, the ability of issuers to make timely payments of interest and
principal or to continue their operations or services may be impaired by the
inadequate preparation of their computer systems for the year 2000. This may
adversely affect the market values of securities of specific issuers or of
securities generally if the inadequacy of preparation is perceived as wide-
spread or as affecting trading markets.
19
<PAGE>
RISK FACTORS
FOREIGN INVESTMENT
Investment in securities of foreign issuers and in foreign branches of domes-
tic banks involves some risks different from, or in addition to, those affect-
ing investments in securities of U.S. issuers. For example, publicly available
information about foreign issuers and economies may be limited; foreign issuers
are not generally subject to uniform accounting, auditing and other reporting
standards; securities of foreign issuers may be less liquid and more volatile
than those of domestic issuers; dividends and interest paid by foreign issuers
may be subject to withholding and other foreign taxes; risks of seizure,
nationalization or expropriation of a foreign issuer exists; and, since securi-
ties of foreign issuers are frequently denominated in foreign currencies,
investments in these securities may involve currency exchange risks.
INVESTING IN LOWER RATED DEBT SECURITIES
When deemed appropriate, the Fund may invest up to 10% of its assets in lower
rated or unrated debt securities. Debt considered below investment grade may be
referred to as "junk bonds" or "high risk" securities. The emerging country
debt securities in which the Fund may invest are subject to significant risk
and will not be required to meet any minimum rating standard or equivalent.
Debt securities are subject to the risk of the issuer's inability to meet prin-
cipal and interest payments (credit risk) and may also be subject to price vol-
atility due to such factors as interest rate sensitivity, market perception of
the issuer's creditworthiness and general market liquidity (market risk). Lower
rated or unrated securities are more likely to react to developments affecting
market and credit risk than are more highly rated securities, which react pri-
marily to movements in general levels of interest rates. The market values of
debt securities tend to vary inversely with interest rate levels. Yields and
market values of lower rated and unrated debt will fluctuate over time,
reflecting not only changing interest rates but also the market's perception of
credit quality and the outlook for economic growth. When economic conditions
appear to be deteriorating, medium to lower rated securities may decline in
value due to heightened concern over credit quality, regardless of prevailing
interest rates. Hansberger will consider credit risk and market risk in making
debt security investment decisions for the Fund. Investors should carefully
consider the relative risks of investing in the Fund because it purchases lower
rated and unrated debt securities, and should understand that such securities
are not generally meant for short-term investment.
The U.S. market for lower rated and unrated corporate debt is relatively new
and its recent growth paralleled a long period of economic expansion and an
increase in merger, acquisition and leveraged buyout activity. In addition,
trading markets for debt securities of issuers located in emerging countries
may be limited. Adverse economic developments may disrupt the market for U.S.
corporate lower rated and unrated debt securities and for emerging country debt
securities. Such disruptions
20
<PAGE>
RISK FACTORS (CONTINUED)
may severely affect the ability of issuers, especially highly leveraged
issuers, to service their debt obligations or to repay their obligations upon
maturity. In addition, the secondary market for lower rated and unrated debt
securities, which is concentrated in relatively few market makers, may not be
as liquid as the secondary market for more highly rated securities. As a
result, Hansberger could find it more difficult to sell these securities or may
be able to sell the securities only at prices lower than if such securities
were widely traded. Prices realized upon the sale of such lower rated or
unrated securities, under these circumstances, may be less than the prices used
in calculating the Fund's net asset value.
VALUATION OF SHARES
The Fund's net asset value per share is determined as of the close of regular
trading on the NYSE on each day that the NYSE is open, by dividing the value of
the Fund's net assets attributable to each Class by the total number of shares
of the Class outstanding.
Generally, the Fund's investments are valued at market value, or, in the
absence of a market value with respect to any securities, at fair value. Secu-
rities listed on an exchange are valued on the basis of the last sale prior to
the time the valuation is made. If there has been no sale since the immediately
previous valuation, then the current bid price is used. Quotations are taken
from the exchange where the security is primarily traded. Portfolio securities
which are primarily traded on foreign exchanges may be valued with the assis-
tance of a pricing service and are generally valued at the preceding closing
values of such securities on their respective exchange, except that when an
occurrence subsequent to the time a foreign security is valued is likely to
have changed such value, then the fair value of those securities will be deter-
mined by consideration of other factors by or under the direction of the Board
of Directors. Over-the-counter securities are valued on the basis of the bid
price at the close of business on each day. Unlisted foreign securities are
valued at the mean between the last available bid and offer price prior to the
time of valuation. Any assets or liabilities initially expressed in terms of
foreign currencies will be converted into U.S. dollar values at the mean
between the bid and offered quotations of such currencies against U.S. dollars
as last quoted by any recognized dealer. Securities for which market quotations
are not readily available are valued at fair value. Notwithstanding the above,
bonds and other fixed-income securities are valued by using market quotations
and may be valued on the basis of prices provided by a pricing service approved
by the Board of Directors.
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
21
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
shortly before December 31 from certain amounts of undistributed ordinary
income and capital gains realized, in order to avoid a Federal excise tax lia-
bility. If a shareholder does not otherwise instruct, dividends and capital
gain distributions will be reinvested automatically in additional shares of the
same Class at net asset value, with no additional sales charge or CDSC.
The per share amounts of dividends from net investment income on Classes B
and L may be lower than that of Classes A and Y, mainly as a result of the dis-
tribution fees applicable to Class B and L shares. Similarly, the per share
amounts of dividends from net investment income on Class A shares may be lower
than that of Class Y, as a result of the service fee attributable to Class A
shares. Capital gain distributions, if any, will be the same amount across all
Classes of Fund shares (A, B, L and Y).
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 previously, 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.
Dividends consisting of interest room U.S. government securities, if any, 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.
22
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
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
number (social security or employer identification number). Withholding from
taxable dividends and capital gain distributions also is required for share-
holders 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.
PURCHASE OF SHARES
SALES CHARGE ALTERNATIVES
The following Classes of shares are available for purchase through this Pro-
spectus. See "Prospectus Summary--Alternative Purchase Arrangements" for a
discussion of factors to consider in selecting which Class of shares to pur-
chase.
Class A Shares. Class A shares are sold to investors at the public offering
price, which is the net asset value plus an initial sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE
---------------------------
DEALER'S
AS A % OF AS A % OF REALLOWANCE AS % OF
AMOUNT OF INVESTMENT TRANSACTION AMOUNT INVESTED OFFERING PRICE
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.50%
$ 25,000 - 49,999 4.00 4.17 3.60
50,000 - 99,999 3.50 3.63 3.15
100,000 - 249,999 3.00 3.09 2.70
250,000 - 499,999 2.00 2.04 1.80
500,000 and over * * *
- ------------------------------------------------------------------------
</TABLE>
* Purchases of Class A shares of $500,000 or more will be made at net asset
value without any initial sales charge, but will be subject to a CDSC of
1.00% on redemptions made within 12 months of purchase. The CDSC on Class A
shares is payable to Smith Barney, which compensates Smith Barney Financial
Consultants and other dealers whose clients make purchases of $500,000 or
more. The CDSC is waived in the same circumstances in which the CDSC
applicable to Class B and Class L shares is waived. See "Deferred Sales
Charge Alternatives" and "Waivers of CDSC."
Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of the Fund as defined in the Securities Act
of 1933, as amended (the "1933 Act"). The reduced sales charges shown above
apply
23
<PAGE>
PURCHASE OF SHARES (CONTINUED)
to the aggregate of purchases of Class A shares of the Fund made at one time
by "any person," which includes an individual and his or her immediate family,
or a trustee or other fiduciary of a single trust estate or single fiduciary
account.
Class B Shares. Class B shares are sold without an initial sales charge but
are subject to a CDSC payable upon certain redemptions. See "Deferred Sales
Charge Provisions" below.
Class L Shares. Class L shares are sold with an initial sales charge of 1%
(which is equal to 1.01% of the amount invested) and are subject to a CDSC
payable upon certain redemptions. See "Deferred Sales Charge Provisions"
below. Until June 25, 1999 purchases of Class L shares by investors who were
holders of Class C shares of the Fund on June 12, 1998 will not be subject to
the 1% front-end sales charge.
Class Y Shares. 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 purchase of Class Y shares by Smith Barney Concert Allocation Series
Inc., for which there is no minimum purchase amount).
GENERAL
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 institutional investors, may purchase shares directly from
the Fund. When purchasing shares of the Fund, investors must specify whether
the purchase is for Class A, Class B, Class L or Class Y shares. Smith Barney
and other broker/dealers may charge their customers an annual account mainte-
nance fee in connection with a brokerage account through which an investor
purchases or holds shares. Accounts held directly at the Transfer Agent are
not subject to a maintenance fee.
Investors in Class A, Class B and Class L shares may open an account in the
Fund 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 Clas-
ses. For participants in retirement plans qualified under Section 403(b)(7) or
Section 401(c) of the Code, the minimum initial investment requirement for
Class A, Class B and Class L shares and the subsequent investment requirement
for all Classes in the Fund is $25. For shareholders purchasing shares of the
Fund through the Systematic Investment Plan on a monthly basis, the minimum
initial investment requirement for Class A, Class B and Class L shares and
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 required
24
<PAGE>
PURCHASE OF SHARES (CONTINUED)
for Class A, Class B and Class L shares and the subsequent investment require-
ment 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, and Directors/Trustees of any of the Smith Barney Mutual Funds and
their spouses and children. The Fund reserves the right to waive or change min-
imums, 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 Transfer Agent. Share certificates are issued only upon a share-
holder's written request to the Transfer Agent.
Purchase orders received by the Fund or Smith Barney prior to the close of
regular trading on the NYSE, on any day the Fund calculates its net asset 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 the Transfer Agent is authorized
through preauthorized transfers of at least $25 on a monthly basis or at least
$50 on a quarterly basis to charge the shareholder's account held with a bank
or other financial institution on a monthly or quarterly basis as indicated by
the shareholder to provide for 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 the Transfer Agent. The Sys-
tematic 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. Addi-
tional information is available from the Fund or a Smith Barney Financial Con-
sultant.
SALES CHARGE WAIVERS AND REDUCTIONS
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales to (i) Board Members and
employees of Travelers and its subsidiaries and any Travelers Affiliated Funds
including the Smith Barney Mutual Funds (including retired Board Members and
employees);
25
<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 (ii) employees of Hansberger and their immediate
family and (iii) 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 com-
pany with the Fund by merger, acquisition of assets or otherwise; (c) purchases
of Class A shares by any client of a newly employed Smith Barney Financial Con-
sultant (for a period up to 90 days from the commencement of the Financial Con-
sultant's employment with Smith Barney), on the condition the purchase of Class
A shares is made with the proceeds of the redemption of shares of a mutual fund
which (i) was sponsored by the Financial Consultant's prior employer, (ii) was
sold to the client by the Financial Consultant and (iii) was subject to a sales
charge; (d) purchases by shareholders who have redeemed Class A shares in the
Fund (or Class A shares of another Smith Barney Mutual Fund that is offered
with a sales charge) and who wish to reinvest their redemption proceeds in the
Fund, provided the reinvestment is made within 60 calendar days of the redemp-
tion; (e) purchases by accounts managed by registered investment advisory sub-
sidiaries of Travelers; (f) direct rollovers by plan participants of distribu-
tion from a 401(k) plan enrolled in the Smith Barney 401(k) Program (Note: sub-
sequent investment will be subject to the applicable sales charge); (g) pur-
chases by separate accounts used to fund certain unregistered variable annuity
contracts; and (h) purchases by investors participating in a Smith Barney fee-
based arrangement. In order to obtain such discounts, the purchaser must pro-
vide sufficient information at the time of purchase to permit verification that
the purchase would qualify for the elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by aggregat-
ing the dollar amount of the new purchase and the total net asset value of all
Class A shares of the Fund and of funds sponsored by Smith Barney which are
offered with a sales charge as currently 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 infor-
mation 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 mod-
ification 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
26
<PAGE>
PURCHASE OF SHARES (CONTINUED)
same employer purchasing as a group, provided each participant makes the mini-
mum 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 "Sales Charge Alternatives--Class A Shares" and will be based upon the
aggregate sales of Class A shares of Smith Barney Mutual Funds offered with a
sales charge to, and share holdings of, all members of the group. To be eligi-
ble for such reduced sales charges or to purchase at net asset value, all pur-
chases must be pursuant to an employee 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
investment 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
of the Fund 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 repre-sentatives 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 (i) all
Class A shares of the Fund and other Smith Barney Mutual Funds offered with a
sales charge acquired during the term of the Letter plus (ii) the value of all
Class A shares previously purchased and still owned. Each investment made dur-
ing the period receives the reduced sales charge applicable to the total amount
of the investment goal. If the
27
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 pre-
viously paid, or an appropriate number of escrowed shares will be redeemed. The
term of the Letter will commence upon the date the Letter is signed, or at the
option of the investor, up to 90 days before such date. Please contact a Smith
Barney Financial Consultant or the Transfer Agent to obtain a Letter of Intent
application.
Class Y Shares. A Letter of Intent may also be used as a way for investors to
meet the minimum investment requirement for Class Y shares (except purchases of
Class Y shares by Smith Barney Concert Allocation Series Inc., for which there
is no minimum purchase amount). Such investors must make an initial minimum
purchase of $5,000,000 in Class Y shares of the Fund and agree to purchase a
total of $15,000,000 of Class Y shares of the Fund within 13 months from the
date of the Letter. If a total investment of $15,000,000 is not made within the
13 month period, all Class Y shares purchased to date will be transferred to
Class A shares, where they will be subject to all fees (including a service fee
of 0.25%) and expenses applicable to the Fund's Class A shares, which may
include a CDSC of 1.00%. Please contact a Smith Barney Financial Consultant or
the Transfer Agent for further information.
DEFERRED SALES CHARGE PROVISIONS
"CDSC Shares" are: (a) Class B shares; (b) Class L shares; and (c) Class A
shares that were purchased without an initial sales charge but are subject to a
CDSC. A CDSC may be imposed on certain redemptions of these shares.
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 L shares and Class A shares that
are CDSC Shares, shares redeemed more than 12 months after their purchase.
Class A shares and Class L 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 Smith Barney 401(k) Program as described below. See
"Purchase of Shares--Smith Barney 401(k) and ExecChoice(TM) Programs."
28
<PAGE>
PURCHASE OF SHARES (CONTINUED)
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
- ---------------------------------
<S> <C>
First 5.00%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth and thereafter 0.00
- ---------------------------------
</TABLE>
Class B shares will convert automatically to Class A shares eight years after
the date on which they were purchased and thereafter will no longer be subject
to any distribution fee. They 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."
The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and Fund shares being
redeemed will be considered to represent, as applicable, capital appreciation
or dividend and capital gain distribution reinvestments in such other funds.
For Federal income tax purposes, the amount of the CDSC will reduce the gain or
increase the loss, as the case may be, on the amount realized on redemption.
The amount of any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the investor acquired 5 addi-
tional shares through dividend reinvestment. During the fifteenth month after
the purchase, the investor decided to redeem $500 of his or her investment.
Assuming at the time of the redemption the net asset value had appreciated to
$12 per share, the value of the investor's shares would be $1,260 (105 shares
at $12 per share). The CDSC would not be applied to the amount which represents
appreciation ($200) and the value of the reinvested dividend shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would be
charged at a rate of 4.00% (the applicable rate for Class B shares) for a total
deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts 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
29
<PAGE>
PURCHASE OF SHARES (CONTINUED)
shareholder's shares will be permitted for withdrawal plans that were estab-
lished prior to November 7, 1994); (c) redemptions of shares within 12 months
following the death or disability of the shareholder; (d) redemptions of
shares made in connection with qualified distributions from retirement plans
or IRAs upon the attainment of age 59 1/2; (e) involuntary redemptions; and
(f) redemption of shares to effect a combination of the Fund with any invest-
ment company by merger, acquisition of assets or otherwise. In addition, a
shareholder who has redeemed shares from other Smith Barney Mutual Funds may,
under certain circumstances, reinvest all or part of the redemption proceeds
within 60 days and receive pro rata credit for any CDSC imposed on the prior
redemption.
CDSC waivers will be granted subject to confirmation (by Smith Barney in the
case of shareholders who are also Smith Barney clients or by the Transfer
Agent in the case of all other shareholders) of the shareholder's status or
holdings, as the case may be.
SMITH BARNEY 401(K) 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 L shares as invest-
ment alternatives under the Smith Barney 401(k) and ExecChoice(TM) Programs.
Class A and Class L shares acquired through the Participating Plans are sub-
ject to the same service and/or distribution fees as the Class A and Class L
shares acquired by other investors; however, they are not subject to any ini-
tial 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 L Shares. Class L 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 L shares of one or more funds of the Smith Barney Mutual Funds.
401(k) and ExecChoice(TM) Plans Opened On or After June 21, 1996. 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 Plans total Class L holdings in all non-money market Smith Barney
Mutual Funds equal at least $1,000,000, it will be offered the opportunity to
exchange all
30
<PAGE>
PURCHASE OF SHARES (CONTINUED)
of its Class L 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 bro-
kerage account was opened.) Such Participating Plans will be notified of the
pending exchange in writing within 30 days after the fifth anniversary of the
enrollment date and, unless the exchange offer has been rejected in writing,
the exchange will occur on or about the 90th day after the fifth anniversary
date. If the Participating Plan does not qualify for the five year exchange to
Class A shares, a review of the Participating Plan's holdings will be performed
each quarter until either the Participating Plan qualifies or the end of the
eighth year.
401(k) Plans Opened Prior to June 21, 1996. In any year after the date a Par-
ticipating Plan enrolled in the Smith Barney 401(k) Program, if its total Class
L holdings in all non-money market Smith Barney Mutual Funds equal at least
$500,000 as of the calendar year-end, the Participating Plan will be offered
the opportunity to exchange all of its Class L shares for Class A shares of the
Fund. Such Plans will be notified in writing within 30 days after the last
business day of the calendar year and, unless the exchange offer has been
rejected in writing, the exchange will occur on or about the last business day
of the following March.
Any Participating Plan in the Smith Barney 401(k) Program that has not previ-
ously qualified for an exchange into Class A shares will be offered the oppor-
tunity to exchange all of its Class L shares for Class A shares of the Fund,
regardless of asset size, at the end of the eighth year after the date the Par-
ticipating Plan enrolled in the Smith Barney 401(k) Program. Such Plans will be
notified of the pending exchange in writing approximately 60 days before the
eighth anniversary of the enrollment date and, unless the exchange has been
rejected in writing, the exchange will occur on or about the eighth anniversary
date. Once an exchange has occurred, a Participating Plan will not be eligible
to acquire additional Class L shares of the Fund but instead may acquire Class
A shares of the Fund. Any Class L shares not converted will continue to be sub-
ject to the distribution fee.
Participating Plans wishing to acquire shares of the Fund through the Smith
Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program must purchase
such shares directly from First Data. For further information regarding these
Programs, investors should contact a Smith Barney Financial Consultant.
Existing 401(k) Plans Investing in Class B Shares. Class B shares of the
Smith Barney Mutual Funds are not available for purchase by Participating Plans
opened on or after June 21, 1996, but may continue to be purchased by any Par-
ticipating Plan in the Smith Barney 401(k) Program opened prior to such date
and originally investing in such Class. Class B shares acquired are subject to
a CDSC of 3.00% of redemption proceeds, if the Participating Plan terminates
within eight years of the date the Participating Plan first enrolled in the
Smith Barney 401(k) Program.
31
<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 writ-
ing approximately 60 days before the eighth anniversary of the enrollment date
and, unless the exchange has been rejected in writing, the exchange will occur
on or about the eighth anniversary date. Once the exchange has occurred, a Par-
ticipating Plan will not be eligible to acquire additional Class B shares of
the fund but instead may acquire Class A shares of the Fund. If the Participat-
ing Plan elects not to exchange all of its Class B shares at that time, each
Class B share held by the Participating Plan will have the same conversion fea-
ture as Class B shares held by other investors. See "Purchase of Shares--
Deferred Sales Charge Alternatives".
No CDSC is imposed on redemptions of Class B shares to the extent that the
net asset value of the shares redeemed does not exceed the current net asset
value of the shares purchased through reinvestment of dividends or capital gain
distributions, plus the current net asset value of Class B shares purchased
more than eight years prior to the redemption, plus increases in the net asset
value of the shareholder's Class B shares above the purchase payments made dur-
ing the preceding eight years. Whether or not the CDSC applies to the redemp-
tion by a Participating Plan depends on the number of years since the Partici-
pating Plan first became enrolled in the Smith Barney 401(k) Program, unlike
the applicability of the CDSC to redemptions by other shareholders, which
depends on the number of years since those shareholders made the purchase pay-
ment from which the amount is being redeemed.
The CDSC will be waived on redemptions of Class B shares in connection with
lump-sum or other distributions made by a Participating Plan as a result of:
(a) the retirement of an employee in the Participating Plan; (b) the termina-
tion of employment of an employee in the Participating Plan; (c) the death or
disability of an employee in the Participating Plan; (d) the attainment of age
59 1/2 by an employee in the Participating Plan; (e) hardship of an employee in
the Participating Plan to the extent permitted under Section 401(k) of the
Code; or (f) redemptions of shares in connection with a loan made by the Par-
ticipating Plan to an employee.
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 L shares are subject to minimum investment requirements and all shares
are subject to the other requirements of the fund into which exchanges are
made.
32
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
FUND NAME
Growth Funds
Concert Peachtree Growth Fund
Concert Social Awareness Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Balanced Fund
Smith Barney Contrarian Fund
Smith Barney Convertible Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.--Large Cap Value Fund
Smith Barney Large Cap Blend Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney Mid Cap Blend Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Premium Total Return Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Special Equities Fund
Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
+++Smith Barney Funds, Inc.--Short-Term High Grade Bond Fund
Smith Barney Funds, Inc.--U.S. Government Securities Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney Total Return Bond Fund
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
*Smith Barney Intermediate Maturity California Municipals Fund
*Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Municipal High Income Fund
Smith Barney Muni Funds--Florida Portfolio
Smith Barney Muni Funds--Georgia Portfolio
*Smith Barney Muni Funds--Limited Term Portfolio
Smith Barney Muni Funds--National Portfolio
Smith Barney Muni Funds--New York Portfolio
33
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Muni Funds--Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Global-International Funds
Smith Barney Hansberger Global Small Cap Value Fund
Smith Barney World Funds, Inc.--Emerging Markets Portfolio
Smith Barney World Funds, Inc.--European Portfolio
Smith Barney World Funds, Inc.--Global Government Bond Portfolio
Smith Barney World Funds, Inc.--International Balanced Portfolio
Smith Barney World Funds, Inc.--International Equity Portfolio
Smith Barney World Funds, Inc.--Pacific Portfolio
Smith Barney Concert Allocation Series Inc.
Smith Barney Concert Allocation Series Inc.--Balanced Portfolio
Smith Barney Concert Allocation Series Inc.--Conservative Portfolio
Smith Barney Concert Allocation Series Inc.--Global Portfolio
Smith Barney Concert Allocation Series Inc.--Growth Portfolio
Smith Barney Concert Allocation Series Inc.--High Growth Portfolio
Smith Barney Concert Allocation Series Inc.--Income Portfolio
Money Market Funds
+Smith Barney Exchange Reserve Fund
++Smith Barney Money Funds, Inc.--Cash Portfolio
++Smith Barney Money Funds, Inc.--Government Portfolio
***Smith Barney Money Funds, Inc.--Retirement Portfolio
+++Smith Barney Municipal Money Market Fund, Inc.
+++Smith Barney Muni Funds--California Money Market Portfolio
+++Smith Barney Muni Funds--New York Money Market Portfolio.
- -------------------------------------------------------------------------------
* Available for exchange with Class A, Class L and Class Y shares of the
Fund.
** Available for exchange with Class A and Class B shares of the Fund.
***Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class L shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund. In
addition, participating plans opened prior to June 21, 1996 and investing
in Class L shares may exchange Fund shares for Class L shares of this
Fund.
+++Available for exchange with Class A and 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 L Exchanges. Upon an exchange, the new Class L shares will be deemed
to have been purchased on the same date as the Class L shares of the Fund that
have been exchanged.
34
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
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, MMC will notify
Smith Barney and Smith Barney may, at its discretion, decide to limit addi-
tional purchases and/or exchanges by the shareholder. Upon such a determina-
tion, Smith Barney will provide notice in writing or by telephone to the share-
holder at least 15 days prior to suspending the exchange privilege and during
the 15-day period the shareholder will be required to (a) redeem his or her
shares in the Fund or (b) remain invested in the Fund or exchange into any of
the funds of the Smith Barney Mutual Funds listed above, which position the
shareholder would be expected to maintain for a significant period of time. All
relevant factors will be considered in determining what constitutes an abusive
pattern of exchanges.
Certain shareholders may be able to exchange shares by telephone. See "Re-
demption of Shares--Telephone Redemption and Exchange Program". Exchanges will
be processed at the net asset value next determined. Redemption procedures dis-
cussed below are also applicable for exchanging shares, and exchanges will be
made upon receipt of all supporting documents in proper form. If the account
registration of the shares of the fund being acquired is identical to the reg-
istration of the shares of the fund exchanged, no signature guarantee is
required. A capital gain or loss for tax purposes will be realized upon the
exchange, depending upon the cost or other basis of shares redeemed. Before
exchanging shares, investors should read the current prospectus describing the
shares to be acquired. The Fund reserves the right to modify or discontinue
exchange privileges upon 60 days' prior notice to shareholders.
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 redemp-
35
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
tion request will be delayed until First Data receives further instructions
from Smith Barney, or if the shareholder's account is not with Smith Barney,
from the shareholder directly. The redemption proceeds will be remitted on or
before the third business day following receipt of proper tender, except on
days on which the NYSE is closed or as permitted under the 1940 Act, in
extraordinary circumstances. Generally, if the redemption proceeds are remitted
to a Smith Barney brokerage account, these funds will not be invested for the
shareholder's benefit without specific instruction and Smith Barney will bene-
fit from the use of temporarily uninvested funds. Redemption proceeds for
shares purchased by check, other than a certified or official bank check, will
be remitted upon clearance of the check, which may take up to ten days or more.
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's Finan-
cial Consultant, Introducing Broker or dealer in the selling group or by sub-
mitting a written request for redemption to:
Smith Barney Hansberger Global Value Fund
Class A, B, L or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account number
and (c) be signed by each registered owner exactly as the shares are regis-
tered. If the shares to be redeemed were issued in certificate form, the cer-
tificates must be endorsed for transfer (or be accompanied by an endorsed stock
power) and must be submitted to First Data together with the redemption
request. Any signature appearing on a share certificate, stock power or written
redemption request in excess of $10,000 must be guaranteed by an eligible guar-
antor institution such as a domestic bank, savings and loan institution, domes-
tic credit union, member bank of the 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
36
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
periodic cash payments of at least $50 monthly or quarterly. Retirement plan
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 a Smith Barney Financial Consultant or their
financial consultant, introducing broker or dealer in the selling group.
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.
(Eastern 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 com-
plete 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
37
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
calling First Data at 1-800-451-2010 between 9:00 a.m. and 4:00 p.m. (Eastern
time) on any day on which the NYSE is open. Exchange requests received after
the close of regular trading on the NYSE are processed at the net asset value
next determined.
Additional Information regarding Telephone Redemption and Exchange
Program. Neither the Fund nor its agents will be liable for following instruc-
tions communicated by telephone that are reasonably believed to be genuine.
The Fund and its agents will employ procedures designed to verify the identity
of the caller and legitimacy of instructions (for example, a shareholder's
name and account number will be required and phone calls may be recorded). The
Fund reserves the right to suspend, modify or discontinue the telephone
redemption and exchange program or to impose a charge for this service at any
time following at least seven (7) days' prior notice to shareholders.
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
the Fund, each account must satisfy the minimum account size). The Fund, how-
ever, will not redeem shares based solely on market reductions in net asset
value. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid involuntary liquidation.
PERFORMANCE
From time to time the Fund may include its total return, average annual
total return and current dividend return in advertisements and/or other types
of sales literature. These figures are computed separately for Class A, Class
B, Class L 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
38
<PAGE>
PERFORMANCE (CONTINUED)
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 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 informa-
tion 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.
INVESTMENT MANAGER--MMC
MMC, located at 388 Greenwich Street, New York, New York 10013, serves as the
Fund's investment manager and manages the day-to-day operations of the Fund
pursuant to an investment management agreement entered into by the Company, on
behalf of the Fund. MMC renders investment advice to investment companies which
had aggregate assets under management as of July 31, 1998, in excess of $100
billion. For investment management services rendered, the Fund pays MMC a
monthly fee at the annual rate of 0.95% of the value of its average daily net
assets. From its fee, MMC pays Hansberger a fee of 0.50% of the value of the
Fund's average net assets, for its services as sub-investment adviser.
MMC waived a portion of its management fee for the Fund for the fiscal year
ended April 30, 1998, and the effective rate of the management fee was 0.56%.
For the past fiscal year, total operating expenses without fee waivers were
2.09% of the average daily net assets for Class A shares; 2.87% of the average
daily net assets of Class B shares; 2.88% of the average daily net assets for
Class L shares; and 1.85% of the average daily net assets for Class Y shares.
39
<PAGE>
MANAGEMENT OF THE COMPANY AND THE FUND (CONTINUED)
SUB-INVESTMENT ADVISER--HANSBERGER
Hansberger, located at 515 East Las Olas Blvd., Suite 1300, Fort Lauderdale,
Florida 33301, serves as the Fund's sub-investment adviser. Hansberger pro-
vides investment advisory services to investment companies that had aggregate
total assets under management as of July 31, 1998 of approximately $2.0 bil-
lion. Subject to the supervision and direction of the Company's Board of
Directors, Hansberger manages the Fund's portfolio in accordance with the
Fund's stated investment objective and policies, makes investment decisions
for the Fund, places orders to purchase and sell securities and employs pro-
fessional portfolio managers and securities analysts who provide research
services to the Fund.
PORTFOLIO MANAGEMENT
Thomas L. Hansberger, James Chaney, Francisco Alzuru and John Hock, manage
the day-to-day investment operations of the Fund, including the oversight of
investment decisions. Mr. Hansberger is Chairman and Chief Executive Officer
of Hansberger. Prior to forming Hansberger, he had served as Chairman, Presi-
dent and Chief Executive Officer of Templeton Worldwide, Inc. ("Templeton").
Mr. Chaney has been Chief Investment Officer of Hansberger since 1996. Prior
to that time, Mr. Chaney was Executive Vice President of Templeton. Mr. Alzuru
has been a portfolio manager and research analyst for Hansberger since 1994.
Prior to that time, he was a Latin American analyst at Vestcorp Partners. Mr.
Hock has been a research analyst and assistant portfolio manager for
Hansberger since 1996. Prior to that time, he was a Vice President and Senior
Analyst in the Global Securities Research and Economics Group at Merrill Lynch
& Co.
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 has been
approved by the stockholders of each of Travelers and Citicorp. Upon consumma-
tion 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 regula-
tions. Although the effects of the merger of Travelers and Citicorp and com-
pliance with the requirements of the BHCA and the Glass-Steagall Act are still
under review, the Adviser 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.
40
<PAGE>
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney distributes shares of the Fund as principal underwriter and as
such conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be sold
to the public. Pursuant to a plan of distribution adopted by the Fund under
Rule 12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid a service fee
with respect to Class A, Class B and Class L shares of the Fund at the annual
rate of 0.25% of the average daily net assets of the respective Class. Smith
Barney is also paid a distribution fee with respect to Class B and Class L
shares at the annual rate of 0.75% of the average daily net assets attributable
to those Classes. Class B shares 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 L shares, to cover expenses primarily intended to result in the sale of
those shares. These expenses include: advertising expenses; the cost of print-
ing and mailing prospectuses to potential investors; payments to and expenses
of Smith Barney Financial Consultants and other persons who provide support
services in connection with the distribution of shares; interest and/or carry-
ing charges; and indirect and overhead costs of Smith Barney associated with
the sale of Fund shares, including lease, utility, communications and sales
promotion expenses.
The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class L shares, a con-
tinuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney and the payments
may exceed distribution expenses actually incurred. The 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.
The Glass-Steagall Act currently prohibits certain financial institutions
from underwriting securities of open-end investment companies, such as the
Fund. Therefore, in connection with the anticipated merger of Travelers and
Citicorp and as a consequence of the anticipated applicability of the BHCA and
the Glass-Steagall Act, the Fund plans to retain the services of a new entity
(which is not otherwise affiliated with Travelers) to act as distributor of the
Portfolio's shares.
41
<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, L
and Y, with a par value of $.001 per share. Each Class represents an identical
interest in the Fund's investment portfolio. As a result, the Classes have the
same rights, privileges and preferences, except with respect to: (a) the des-
ignation of each Class; (b) the effect of the respective sales charges for
each Class; (c) the distribution and/or service fees borne by each Class pur-
suant to the Plan; (d) the expenses allocable exclusively to each Class; (e)
voting rights on matters exclusively affecting a single Class; (f) the
exchange privilege of each Class; and (g) the conversion feature of the Class
B shares. The Board of Directors does not anticipate that there will be any
conflicts among the interests of the holders of the different Classes. The
Directors, on an ongoing basis, will consider whether any such conflicts
exists and, if so, take appropriate action.
Chase, located at Chase Metrotech Center, Brooklyn, NY 11245, serves as cus-
todian of the Fund's investments.
First Data, located at Exchange Place, Boston, Massachusetts 02109, serves
as the Fund's transfer agent.
The Company does not hold annual shareholder meetings. There normally will
be no meeting of shareholders for the purpose of electing Directors unless and
until such time as less than a majority of the Directors holding office have
been elected by shareholders. The Directors will call a meeting for any 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, which include a list of the investment securities held by the Fund at
the end of the reporting period. In an effort to reduce the Fund's printing
and mailing costs, the Company plans to consolidate the mailing of its semi-
annual and annual reports by household. This consolidation means that a house-
hold 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.
42
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<PAGE>
SMITH BARNEY
--------------------------------
A Member of TravelersGroup[LOGO]
SMITH BARNEY
HANSBERGER
GLOBAL
VALUE
FUND
388 Greenwich Street
New York, New York 10013
FD01337 8/98
PART B
Smith Barney
Investment Funds Inc.
388 Greenwich Street
New York, New York 10013
800-451-2010
Statement of Additional Information
August 28, 1998
This Statement of Additional Information expands upon and
supplements the information contained in the current Prospectuses
each dated August 28, 1998, as amended or supplemented from time to
time, of Smith Barney Hansberger Global Value Fund ("Global Value
Fund") and Smith Barney Hansberger Global Small Cap Value Fund
("Global Small Cap Value Fund")(each a "Fund" and collectively the
"Funds"), each a separate series of Smith Barney Investment Funds
Inc. (the "Company"), and should be read in conjunction with the
Funds' Prospectuses. Each Fund Prospectus may be obtained from a
Smith Barney Financial Consultant, or by writing or calling the
Company at the address or telephone number listed above. This
Statement of Additional Information, although not in itself a
prospectus, is incorporated by reference into the Prospectuses in
its entirety.
CONTENTS
For ease of reference, the same section headings are used in
the Prospectuses and this Statement of Additional Information,
except where shown below:
Management of the Company (see in the Prospectuses
"Management of the Company and the
Fund") 1
Investment Objectives and Management
Policies...........................................................
.......... 4
Purchase of Shares 17
Redemption of Shares 18
Distributor 19 Valuation of Shares 20
Exchange Privilege 20
Performance Data (See in the Prospectus "Performance") 21
Taxes (See in the Prospectus "Dividends, Distributions and
Taxes") 24
Additional Information 26
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
Mutual Management Corp. ("MMC") (formerly Smith Barney Mutual
Funds Management Inc.)
Investment Manager
Hansberger Global Investors, Inc.
("Hansberger")
Sub-Investment Adviser
The Chase Manhattan Bank ("Chase")
Custodian
First Data Investor Services Group, Inc.
("First Data")
Transfer Agent
These organizations and the functions they perform for the
Company are discussed in the Prospectuses and in this Statement of
Additional Information.
Directors and Executive Officers of the Company
The names of the Directors and executive officers of the
Company, together with information as to their principal business
occupations during the past five years, are shown below. Each
Director who is an "interested person" of the Company, as defined
in the Investment Company Act of 1940, as amended (the "1940 Act"),
is indicated by an asterisk.
Paul R. Ades, Director (Age 57). Partner in the law firm of
Murov & Ades. His address is 272 South Wellwood Avenue, P.O. Box
504, Lindenhurst, New York 11757.
Herbert Barg, Director (Age 74). Private investor. His address
is 273 Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
Dwight B. Crane, Director (Age 60). Professor, Graduate School
of Business Administration, Harvard University. His address is
Graduate School of Business Administration, Harvard University,
Boston, Massachusetts 02163.
Frank G. Hubbard, Director (Age 62). Vice President, S&S
Industries; Former Corporate Vice President, Materials Management
and Marketing Services of Huls America, Inc. His address is 80
Centennial Avenue P.O. Box 456, Piscataway, New Jersey 08855-0456.
*Heath B. McLendon, Chairman of the Board, President and Chief
Executive Officer (Age 65). Managing Director of Smith Barney,
Chairman of the Board of Smith Barney Strategy Advisors Inc. and
President of MMC and Travelers Investment Adviser, Inc. ("TIA").
Mr. McLendon is Chairman or Co-Chairman of the Board and Director
of 58 investment companies associated with Salomon Smith Barney
Holdings Inc. Prior to July 1993, Senior Executive Vice President
of Shearson Lehman Brothers Inc., Vice Chairman of Shearson Asset
Management, Director of PanAgora Asset Management, Inc. and
PanAgora Asset Management Limited. His address is 388 Greenwich
Street, New York, New York 10013.
Jerome Miller, Director (Age 60). Retired, Former President,
Asset Management Group of Shearson Lehman Brothers. His address is
27 Hemlock Road, Manhasset, New York, NY 11030.
Ken Miller, Director (Age 57). President of Young Stuff Apparel
Group, Inc. His address is 1411 Broadway, New York, New York
10018.
Lewis E. Daidone, Senior Vice President and Treasurer (Age 41).
Managing Director of Smith Barney; Director and Senior Vice
President of MMC and TIA. Mr. Daidone serves as Senior Vice
President and Treasurer of 42 Smith Barney Mutual Funds. His
address is 388 Greenwich Street, New York, New York 10013.
Christina T. Sydor, Secretary (Age 47). Managing Director of
Smith Barney; General Counsel and Secretary of MMC and TIA. Ms.
Sydor also serves as Secretary of 42 Smith Barney Mutual Funds.
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 August 12, 1998, the Directors and officers
of the Company, as a group, owned less than 1.00% of the
outstanding common stock of the Company with the exception of the
following.
FUND
CLASS
PERCENT
NAME
ADDRESS
Global Small Cap Value Fund
A
10.0769%
John A Zingsheim TTEE
John A Zingsheim Living Trust
Of 1997
U/A/D 07/25/97
814 Weiss Dr.
Sheboygan WI 53083-3066
Global Small Cap Value Fund
A
8.7092
Gordon W. Petherick
Smith Barney Inc. IRA Custodian
3331 Oaklane CT SW
Bonita Springs FL. 34134-2668
Global Small Cap Value Fund
A
7.8481
Philip S. Zettler
Box 307
Helena AL. 35080-0307
Global Small Cap Value Fund
A
5.2430
The marital Tr. under the last will & testament of Elliot T.
Williams Jr. deceased
Alabane E. Williams TTEE
2964 Briarcliff Road
Birmingham AL. 35223-2605
Global Small Cap Value Fund
L
6.6773
Mel D. Blumenthal
Smith Barney Inc. IRA Custodian
2184 Mandeville Canyon Rd.
Los Angeles CA. 90049-1825
Global Small Cap Value Fund
Y
100.00
Smith Barney
Concert Series, Inc.
Global Portfolio, PNC Bank NA
ATTN: Beverly Timson
210 Stevens Drive Suite 440
Lester PA 19113
Global Value Fund
A
8.0341
Sun Trust Bank Chattanooga NA
Cust/Arthur S Demoss FDN
PO Box 1638
Chattanooga TN 37401-1638
Global Value Fund
Y
52.0961
Smith Barney
Concert Series, Inc.
High Growth Port. PNC Bank NA
ATTN: Beverly Timson
210 Stevens Drive Suite 440
Lester PA 19113
Global Value Fund
Y
32.2052
Smith Barney
Concert Series, Inc.
Growth Portfolio, PNC Bank NA
ATTN: Beverly Timson
210 Stevens Drive Suite 440
Lester PA 19113
Global Value Fund
Y
5.3585
Smith Barney
Concert Series, Inc.
Conservative 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. For the fiscal year ended April 30, 1998, the Directors
of the Company were paid the following compensation. For the
fiscal year ended April 30, 1998, such expenses totaled $10,096.58:
Number of Funds
Total Pension Compensation from for which Directors
Name of Aggregate or Retirement Benefits Fund and Fund serves within
Person Compensation Accrued as part Complex Paid to Fund Complex
from the Fund of Fund Expenses Directors
Paul R. Ades $1,067 0 49,000 5
Herbert Barg 967 0 101,600 16
Dwight B.
Crane 967 0 133,850 22
Frank G.
Hubbard 1,067 0 52,000 5
Heath B.
McLendon - - - 58
Jerome
Miller 29 0 12,400 5
Ken
Miller 1,067 0 52,000 5
Upon attainment of age 80 Directors are required to change to
emeritus status. Directors Emeritus are entitled to serve in
emeritus status for a maximum of 10 years during which time they
are paid 50% of the annual retainer fee and meeting fees otherwise
applicable to the Fund Directors together with reasonable out-of-
pocket expenses for each meeting attended such expenses totaled
$825.
Investment Manager and Sub-Adviser
MMC serves as investment adviser to the Funds pursuant to
separate investment management agreements (the "Management
Agreements"). MMC is a wholly owned subsidiary of Salomon Smith
Barney Holdings Inc. ("Holdings"). Holdings is a wholly owned
subsidiary of Travelers Group Inc. ("Travelers"). Hansberger serves
as sub-adviser to the Funds pursuant to separate sub-advisory
agreements (the "Sub-Advisory Agreements"). The Management
Agreements and the Sub-Advisory Agreements were 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"), and by
shareholders of the respective Funds on July 23, 1998. The
services provided by MMC and Hansberger under the Management
Agreements and Sub-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 management services rendered
to Global Value Fund and Global Small Cap Value Fund, each Fund
pays MMC a fee computed daily and paid monthly at the annual rates
of 0.95% and 1.05%, respectively, of the value of their average
daily net assets. As compensation for sub-advisory services
rendered to Global Value Fund and Global Small Cap Value Fund, MMC
pays Hansberger a fee, computed daily and paid monthly, at the
annual rates of 0.50% and 0.60%, respectively, of the value of the
respective Fund's average daily net assets. MMC and Hansberger
bear all expenses in connection with the performance of their
services. For the period ended April 30, 1998 MMC waived all or
part of its fees in the amounts of $97,265 and $74,043 for the
Global Value Fund and the Global Small Cap Value Fund respectively,
and agreed to reimburse Global Small Cap Value Fund for expenses in
the amount of $17,302.
Counsel and Auditors
Willkie Farr & Gallagher serves as counsel to the Company.
The Directors who are not "interested persons" of the Company have
selected Stroock & Stroock & Lavan LLP as their legal counsel.
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York
10154, has been selected as each Fund's independent auditor to
examine and report on the Fund's financial statements and
highlights for the fiscal year ending April 30, 1999.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
Except as described under "INVESTMENT RESTRICTIONS," the
investment policies described in the Prospectuses and in this
Statement of Additional Information are not fundamental and the Board
of Directors may change such policies without shareholder approval.
Each of the following investment policies is subject to the
limitations set forth under "Investment Restrictions."
Repurchase Agreements
As described in the applicable Prospectus, each Fund may
enter into repurchase agreements. A repurchase agreement is a
contract under which a Fund acquires a security for a relatively
short period (usually not more than one week) subject to the
obligation of the seller to repurchase and the Fund to resell such
security at a fixed time and price (representing the Fund's cost plus
interest). It is each Fund's present intention to enter into
repurchase agreements only upon receipt of fully adequate collateral
and only with commercial banks (whether U.S. or foreign) and
registered broker-dealers. Repurchase agreements may also be viewed
as loans made by a Fund which are collateralized primarily by the
securities subject to repurchase. A Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its
obligations and the Fund is delayed or prevented from exercising its
rights to dispose of the collateral securities. Pursuant to policies
established by the Board of Directors, MMC monitors the
creditworthiness of all issuers with which each Fund enters into
repurchase agreements.
Reverse Repurchase Agreements
The Fund does not currently intend to commit more than 5% of
its Fund's net assets to reverse repurchase agreements. The Fund may
enter into reverse repurchase agreements with broker/dealers and
other financial institutions. Such agreements involve the sale of
Fund securities with an agreement to repurchase the securities at an
agreed-upon price, date and interest payment and are considered to be
borrowings by a Fund and are subject to the borrowing limitations set
forth under "Investment Restrictions." Since the proceeds of reverse
repurchase agreements are invested, this would introduce the
speculative factor known as "leverage." The securities purchased
with the funds obtained from the agreement and securities
collateralizing the agreement will have maturity dates no later than
the repayment date. Such transactions are only advantageous if the
Fund has an opportunity to earn a greater rate of interest on the
cash derived from the transaction than the interest cost of obtaining
that cash. Opportunities to realize earnings from the use of the
proceeds equal to or greater than the interest required to be paid
may not always be available, and the Fund intends to use the reverse
repurchase technique only when MMC believes it will be advantageous
to the Fund. The use of reverse repurchase agreements may exaggerate
any interim increase or decrease in the value of the participating
Fund's assets. The Fund's custodian bank will maintain a separate
account for the Fund with securities having a value equal to or
greater than such commitments.
Securities Lending
Consistent with applicable regulatory requirements each Fund
may seek to increase its net investment income by lending its
securities provided such loans are callable at any time and are
continuously secured by cash or U.S. Government Obligations equal to
no less than the market value, determined daily, of the securities
loaned. Each Fund will receive amounts equal to dividends or
interest on the securities loaned. It will also earn income for
having made the loan because cash collateral pursuant to these loans
will be invested in short-term money market instruments. In
connection with lending of securities the Fund may pay reasonable
finders, administrative and custodial fees. Consistent with
applicable regulatory requirements each Fund has the ability to lend
securities from its portfolio to brokers, dealers and other financial
organizations. Where voting or consent rights with respect to loaned
securities pass to the borrower, management will follow the policy of
calling the loan, in whole or in part as may be appropriate, to
permit the exercise of such voting or consent rights if the issues
involved have a material effect on the Fund's investment in the
securities loaned. Apart from lending its securities and acquiring
debt securities of a type customarily purchased by financial
institutions, no Fund will make loans to other persons.
Commercial Bank Obligations
For the purposes of each Fund's investment policies with
respect to bank obligations, obligations of foreign branches of U.S.
banks and of foreign banks may be general obligations of the parent
bank in addition to the issuing bank, or may be limited by the terms
of a specific obligation and by government regulation. As with
investment in non-U.S. securities in general, investments in the
obligations of foreign branches of U.S. banks and of foreign banks
may subject the Fund to investment risks that are different in some
respects from those of investments in obligations of domestic
issuers. Although a Fund will typically acquire obligations issued
and supported by the credit of U.S. or foreign banks having total
assets at the time of purchase in excess of U.S. $1 billion (or the
equivalent thereof), this is not a fundamental investment policy or
restriction of the Fund. For calculation purposes with respect to
the U.S. $1 billion figure, the assets of a bank will be deemed to
include the assets of its U.S. and non-U.S. branches.
Commercial Paper
Commercial paper consists of short-term (usually from 1 to
270 days) unsecured promissory notes issued by corporations in order
to finance their current operations. A variable amount master demand
note (which is a type of commercial paper) represents a direct
borrowing arrangement involving periodically fluctuating rates of
interest under a letter agreement between a commercial paper issuer
and an institutional lender, such as one of the Funds, pursuant to
which the lender may determine to invest varying amounts. Transfer
of such notes is usually restricted by the issuer, and there is no
secondary trading market for such notes. Each Fund, therefore, may
not invest in a master demand note, if as a result more than 15% of
the value of the Fund's total assets would be invested in such notes
and other illiquid securities.
ADRs, EDRs and GDRs
Each Fund may also purchase American Depository Receipts
("ADRs"), European Depository Receipts ("EDRs") and Global Depository
Receipts ("GDRs") or other securities representing underlying shares
of foreign companies. ADRs are publicly traded on exchanges or over-
the-counter in the United States and are issued through "sponsored"
or "unsponsored" arrangements. In a sponsored ADR arrangement, the
foreign issuer assumes the obligation to pay some or all of the
depository's transaction fees, whereas under an unsponsored
arrangement, the foreign issuer assumes no obligation and the
depository's transaction fees are paid by the ADR holders. In
addition, less information is available in the United States about an
unsponsored ADR than about a sponsored ADR, and the financial
information about a company may not be as reliable for an unsponsored
ADR as it is for a sponsored ADR. The Funds may invest in ADRs
through both sponsored and unsponsored arrangements.
Writing Covered Call Options
Each Fund may write (sell) covered call options for hedging
purposes. Covered call options will generally be written on
securities and currencies which, in the opinion of the sub-investment
adviser, are not expected to make any major price moves in the near
future but which, over the long term, are deemed to be attractive
investments for the Fund.
A call option gives the holder (buyer) the right to purchase
a security or currency at a specified price (the exercise price) at
any time until a certain date (the expiration date). So long as the
obligation of the writer of a call option continues, he may be
assigned an exercise notice by the broker-dealer through whom such
option was sold, requiring him to deliver the underlying security or
currency against payment of the exercise price. This obligation
terminates upon the expiration of the call option, or such earlier
time at which the writer effects a closing purchase transaction by
purchasing an option identical to that previously sold.
Fund securities or currencies on which call options may be
written will be purchased solely on the basis of investment
considerations consistent with each Fund's investment objective.
When writing a covered call option, the Fund, in return for the
premium, gives up the opportunity for profit from a price increase in
the underlying security or currency above the exercise price and
retains the risk of loss should the price of the security or currency
decline. Unlike one who owns securities or currencies not subject to
an option, the Fund has no control over when it may be required to
sell the underlying securities or currencies, since the option may be
exercised at any time prior to the option's expiration. If a call
option which the Fund has written expires, the Fund will realize a
gain in the amount of the premium; however, such gain may be offset
by a decline in the market value of the underlying security or
currency during the option period. If the call option is exercised,
the Fund will realize a gain or loss from the sale of the underlying
security or currency. The security or currency covering the call
option will be maintained in a segregated account of the Fund's
custodian. The Fund does not consider a security or currency covered
by a call option to be "pledged" as that term is used in the Fund's
policy which limits the pledging or mortgaging of its assets.
The premium the Fund receives for writing a call option is
deemed to constitute the market value of an option. The premium the
Fund will receive from writing a call option will reflect, among
other things, the current market price of the underlying security or
currency, the relationship of the exercise price to such market
price, the implied price volatility of the underlying security or
currency, and the length of the option period. In determining
whether a particular call option should be written on a particular
security or currency, Hansberger will consider the reasonableness of
the anticipated premium and the likelihood that a liquid secondary
market will exist for those options. The premium received by the
Fund for writing covered call options will be recorded as a liability
in the Fund's statement of assets and liabilities. This liability
will be adjusted daily to the option's current market value, which
will be calculated as described in "Determination of Net Asset Value"
in the Prospectus. The liability will be extinguished upon
expiration of the option or delivery of the underlying security or
currency upon the exercise of the option. The liability with respect
to a listed option will also be extinguished upon the purchase of an
identical option in a closing transaction.
Closing transactions will be effected in order to realize a
profit or to limit losses on an outstanding call option, to prevent
an underlying security or currency from being called, or to permit
the sale of the underlying security or currency. Furthermore,
effecting a closing transaction will permit the Fund to write another
call option on the underlying security or currency with either a
different exercise price, expiration date or both. If the Fund
desires to sell a particular security or currency from its Fund on
which it has written a call option or purchases a put option, it will
seek to effect a closing transaction prior to, or concurrently with,
the sale of the security or currency. There is no assurance that the
Fund will be able to effect such closing transactions at a favorable
price. If the Fund cannot enter into such a transaction, it may be
required to hold a security or currency that it might otherwise have
sold, in which case it would continue to be at market risk with
respect to the security or currency.
Each Fund will pay transaction costs in connection with the
writing of options and in entering into closing purchase contracts.
Transaction costs relating to options activity are normally higher
than those applicable to purchases and sales of Fund securities.
Call options written by each Fund will normally have
expiration dates of less than nine months from the date written. The
exercise price of the options may be below, equal to or above the
current market values of the underlying securities or currencies at
the time the options are written. From time to time, the Fund may
purchase an underlying security or currency for delivery in
accordance with the exercise of an option, rather than delivering
such security or currency from its Fund. In such cases, additional
costs will be incurred.
Each Fund will realize a profit or loss from a closing
purchase transaction if the cost of the transaction is less or more,
respectively, than the premium received from the writing of the
option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying
security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by
appreciation of the underlying security or currency owned by the
Fund.
Purchasing Put Options
Each Fund may purchase put options. As the holder of a put
option, the Fund has the right to sell the underlying security or
currency at the exercise price at any time during the option period.
The Fund may enter into closing sale transactions with respect to
such options, exercise them or permit them to expire.
Each Fund may purchase a put option on an underlying security
or currency (a "protective put") owned by the Fund as a hedging
technique in order to protect against an anticipated decline in the
value of the security or currency. Such hedge protection is provided
only during the life of the put option when the Fund, as the holder
of the put option, is able to sell the underlying security or
currency at the put exercise price regardless of any decline in the
underlying security's market price or currency's exchange value. The
premium paid for the put option and any transaction costs would
reduce any capital gain otherwise available for distribution when the
security or currency is eventually sold.
Each Fund may also purchase put options at a time when the
Fund does not own the underlying security or currency. By purchasing
put options on a security or currency it does not own, the Fund seeks
to benefit from a decline in the market price of the underlying
security or currency. If the put option is not sold when it has
remaining value, and if the market price of the underlying security
or currency remains equal to or greater than the exercise price
during the life of the put option, the Fund will lose its entire
investment in the put option. In order for the purchase of a put
option to be profitable, the market price of the underlying security
or currency must decline sufficiently below the exercise price to
cover the premium and transaction costs, unless the put option is
sold in a closing sale transaction.
The premium paid by a Fund when purchasing a put option will
be recorded as an asset in the Fund's statement of assets and
liabilities. This asset will be adjusted daily to the option's
current market value, which will be calculated as described in
"Determination of Net Asset Value" in the Prospectus. The asset will
be extinguished upon expiration of the option or the delivery of the
underlying security or currency upon the exercise of the option. The
asset with respect to a listed option will also be extinguished upon
the writing of an identical option in a closing transaction.
Purchasing Call Options
Each Fund may purchase call options. As the holder of a call
option, a Fund has the right to purchase the underlying security or
currency at the exercise price at any time during the option period.
The Fund may enter into closing sale transactions with respect to
such options, exercise them or permit them to expire. Call options
may be purchased by the Fund for the purpose of acquiring the
underlying security or currency for its Fund. Utilized in this
fashion, the purchase of call options enables the Fund to acquire the
security or currency at the exercise price of the call option plus
the premium paid. At times the net cost of acquiring the security or
currency in this manner may be less than the cost of acquiring the
security or currency directly. This technique may also be useful to
the Fund in purchasing a large block of securities that would be more
difficult to acquire by direct market purchases. So long as it holds
such a call option rather than the underlying security or currency
itself, the Fund is partially protected from any unexpected decline
in the market price of the underlying security or currency and in
such event could allow the call option to expire, incurring a loss
only to the extent of the premium paid for the option.
Each Fund may also purchase call options on underlying
securities or currencies it owns in order to protect unrealized gains
on call options previously written by it. A call option would be
purchased for this purpose where tax considerations make it
inadvisable to realize such gains through a closing purchase
transaction. Call options may also be purchased at times to avoid
realizing losses that would result in a reduction of the Fund's
current return.
Interest Rate and Currency Futures Contracts
Each Fund may enter into interest rate or currency futures
contracts ("Futures" or "Futures Contracts") as a hedge against
changes in prevailing levels of interest rates or currency exchange
rates in order to establish more definitely the effective return on
securities or currencies held or committed to be acquired by the
Fund. A Fund's hedging may include holding Futures as an offset
against anticipated changes in interest or currency exchange rates.
A Fund may also enter into Futures Contracts based on financial
indices including any index of U.S. Government securities, foreign
government securities or corporate debt securities.
A Futures Contract provides for the future sale by one party
and purchase by another party of a specified amount of a specific
financial instrument or currency for a specified price at a
designated date, time and place. The purchaser of a Futures Contract
on an index agrees to take or make delivery of an amount of cash
equal to the difference between a specified dollar multiple of the
value of the index on the expiration date of the contract ("current
contract value") and the price at which the contract was originally
struck. No physical delivery of the debt securities underlying the
index is made. Brokerage fees are incurred when a Futures Contract
is bought or sold, and margin deposits must be maintained at all
times that the Futures Contract is outstanding.
Although techniques other than sales and purchases of Futures
Contracts could be used to reduce the Fund's exposure to interest
rate and currency exchange rate fluctuations, the Fund may be able to
hedge its exposure more effectively and at a lower cost through using
Futures Contracts.
Although Futures Contracts typically require future delivery
of and payment for financial instruments or currencies, Futures
Contracts are usually closed out before the delivery date. Closing
out an open Futures Contract sale or purchase is effected by entering
into an offsetting Futures Contract purchase or sale, respectively,
for the same aggregate amount of the identical financial instrument
or currency and the same delivery date. If the offsetting purchase
price is less than the original sale price, the Fund realizes a gain;
if it is more, the Fund realizes a loss. Conversely, if the
offsetting sale price is more than the original purchase price, the
Fund realizes a gain; if it is less, the Fund realizes a loss. The
transaction costs must also be included in these calculations. There
can be no assurance, however, that the Fund will be able to enter
into an offsetting transaction with respect to a particular Futures
Contract at a particular time. If the Fund is not able to enter into
an offsetting transaction, the Fund will continue to be required to
maintain the margin deposits of the underlying financial instrument
or currency on the relevant delivery date. The Fund intends to enter
into Futures transactions only on exchanges or boards of trade where
there appears to be a liquid secondary market. However, there can be
no assurance that such a market will exist for a particular contract
at a particular time.
As an example of an offsetting transaction, the contractual
obligations arising from the sale of one Futures Contract of
September Treasury Bills on an exchange may be fulfilled at any time
before delivery under the Futures Contract is required (i.e., on a
specific date in September, the "delivery month") by the purchase of
another Futures Contract of September Treasury Bills on the same
exchange. In such instance the difference between the price at which
the Futures Contract was sold and the price paid for the offsetting
purchase, after allowance for transaction costs, represents the
profit or loss to the Fund.
Persons who trade in Futures Contracts may be broadly
classified as "hedgers" and "speculators." Hedgers, whose business
activity involves investment or other commitment in securities or
other obligations, use the Futures markets to offset unfavorable
changes in value that may occur because of fluctuations in the value
of the securities and obligations held or committed to be acquired by
them or fluctuations in the value of the currency in which the
securities or obligations are denominated. Debtors and other
obligors may also hedge the interest cost of their obligations. The
speculator, like the hedger, generally expects neither to deliver nor
to receive the financial instrument underlying the Futures Contract,
but, unlike the hedger, hopes to profit from fluctuations in
prevailing interest rates or currency exchange rates.
Each Fund's Futures transactions will be entered into for
traditional hedging purposes; that is, Futures Contracts will be sold
to protect against a decline in the price of securities or currencies
that the Fund owns, or Futures Contracts will be purchased to protect
a Fund against an increase in the price of securities or currencies
it has committed to purchase or expects to purchase.
"Margin" with respect to Futures Contracts is the amount of
funds that must be deposited by the Fund with a broker in order to
initiate Futures trading and to maintain the Fund's open positions in
Futures Contracts. A margin deposit made when the Futures Contract
is entered into ("initial margin") is intended to assure the Fund's
performance of the Futures Contract. The margin required for a
particular Futures Contract is set by the exchange on which the
Futures Contract is traded, and may be significantly modified from
time to time by the exchange during the term of the Futures Contract.
Futures Contracts are customarily purchased and sold on margin, which
may be 5% or less of the value of the Futures Contract being traded.
If the price of an open Futures Contract changes (by increase
in the case of a sale or by decrease in the case of a purchase) so
that the loss on the Futures Contract reaches a point at which the
margin on deposit does not satisfy margin requirements, the broker
will require an increase in the margin deposit ("variation margin").
If, however, the value of a position increases because of favorable
price changes in the Futures Contract so that the margin deposit
exceeds the required margin, it is anticipated that the broker will
pay the excess to the Fund. In computing daily net asset values, the
Fund will mark to market the current value of its open Futures
Contracts. Each Fund expects to earn interest income on its margin
deposits.
Risks of Using Futures Contracts. The prices of Futures
Contracts are volatile and are influenced, among other things, by
actual and anticipated changes in interest rates, which in turn are
affected by fiscal and monetary policies and national and
international political and economic events.
At best, the correlation between changes in prices of Futures
Contracts and of the securities or currencies being hedged can be
only approximate. The degree of imperfection of correlation depends
upon circumstances such as: variations in speculative market demand
for Futures and for debt securities or currencies, including
technical influences on Futures trading; and differences between the
financial instruments being hedged and the instruments underlying the
standard Futures Contracts available for trading, with respect to
interest rate levels, maturities, and creditworthiness of issuers. A
decision of whether, when, and how to hedge involves skill and
judgment, and even a well-conceived hedge may be unsuccessful to some
degree because of unexpected market behavior or interest rate trends.
Because of the low margin deposits required, Futures trading
involves an extremely high degree of leverage. As a result, a
relatively small price movement in a Futures Contract may result in
immediate and substantial loss, as well as gain, to the investor.
For example, if at the time of purchase, 10% of the value of the
Futures Contract is deposited as margin, a subsequent 10% decrease in
the value of the Futures Contract would result in a total loss of the
margin deposit, before any deduction for the transaction costs, if
the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, if the Futures
Contract were closed out. Thus, a purchase or sale of a Futures
Contract may result in losses in excess of the amount invested in the
Futures Contract. A Fund, however, would presumably have sustained
comparable losses if, instead of the Futures Contract, it had
invested in the underlying financial instrument and sold it after the
decline. Where a Fund enters into Futures transactions for non-
hedging purposes, it will be subject to greater risks and could
sustain losses which are not offset by gains on other Fund assets.
Furthermore, in the case of a Futures Contract purchase, in
order to be certain that each Fund has sufficient assets to satisfy
its obligations under a Futures Contract, the Fund segregates and
commits to back the Futures Contract an amount of cash, U.S.
Government securities and other liquid, high-grade debt securities
equal in value to the current value of the underlying instrument less
the margin deposit.
Most U.S. Futures exchanges limit the amount of fluctuation
permitted in Futures Contract prices during a single trading day.
The daily limit establishes the maximum amount that the price of a
Futures Contract may vary either up or down from the previous day's
settlement price at the end of a trading session. Once the daily
limit has been reached in a particular type of Futures Contract, no
trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit
may prevent the liquidation of unfavorable positions. Futures
Contract prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of Futures positions and subjecting
some Futures traders to substantial losses.
Options on Futures Contracts
Options on Futures Contracts are similar to options on
securities or currencies except that options on Futures Contracts
give the purchaser the right, in return for the premium paid, to
assume a position in a Futures Contract (a long position if the
option is a call and a short position if the option is a put), rather
than to purchase or sell the Futures Contract, at a specified
exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the Futures position by the
writer of the option to the holder of the option will be accompanied
by delivery of the accumulated balance in the writer's Futures margin
account which represents the amount by which the market price of the
Futures Contract, at exercise, exceeds (in the case of a call) or is
less than (in the case of a put) the exercise price of the option on
the Futures Contract. If an option is exercised on the last trading
day prior to the expiration date of the option, the settlement will
be made entirely in cash equal to the difference between the exercise
price of the option and the closing level of the securities or
currencies upon which the Futures Contracts are based on the
expiration date. Purchasers of options who fail to exercise their
options prior to the exercise date suffer a loss of the premium paid.
As an alternative to purchasing call and put options on
Futures, each Fund may purchase call and put options on the
underlying securities or currencies themselves (see "Purchasing Put
Options" and "Purchasing Call Options" above). Such options would be
used in a manner identical to the use of options on Futures
Contracts.
To reduce or eliminate the leverage then employed by the Fund
or to reduce or eliminate the hedge position then currently held by
the Fund, the Fund may seek to close out an option position by
selling an option covering the same securities or currency and having
the same exercise price and expiration date. The ability to
establish and close out positions on options on Futures Contracts is
subject to the existence of a liquid market. It is not certain that
this market will exist at any specific time.
In order to assure that the Funds will not be deemed to be
"commodity pools" for purposes of the Commodity Exchange Act,
regulations of the Commodity Futures Trading Commission ("CFTC")
require that each Fund enter into transactions in Futures Contracts
and options on Futures Contracts only (i) for bona fide hedging
purposes (as defined in CFTC regulations), or (ii) for non-hedging
purposes, provided that the aggregate initial margin and premiums on
such non-hedging positions does not exceed 5% of the liquidation
value of the Fund's assets. The Funds will enter into transactions
in Futures Contracts and options on Futures Contracts only for
hedging purposes.
Forward Currency Contracts and Options on Currency
A forward currency contract is an obligation to purchase or
sell a currency against another currency at a future date and price
as agreed upon by the parties. A Fund may either accept or make
delivery of the currency at the maturity of the forward contract or,
prior to maturity, enter into a closing transaction involving the
purchase or sale of an offsetting contract. Each Fund engages in
forward currency transactions in anticipation of, or to protect
itself against, fluctuations in exchange rates. A Fund might sell a
particular foreign currency forward, for example, when it holds bonds
denominated in that currency but anticipates, and seeks to be
protected against, decline in the currency against the U.S. dollar.
Similarly, a Fund might sell the U.S. dollar forward when it holds
bonds denominated in U.S. dollars but anticipates, and seeks to be
protected against, a decline in the U.S. dollar relative to other
currencies. Further, a Fund might purchase a currency forward to
"lock in" the price of securities denominated in that currency which
it anticipates purchasing.
The matching of the increase in value of a forward contract
and the decline in the U.S. dollar equivalent value of the foreign
currency denominated asset that is the subject of the hedge generally
will not be precise. In addition, a Fund may not always be able to
enter into foreign currency forward contracts at attractive prices
and this will limit the Fund's ability to use such contracts to hedge
or cross-hedge its assets. Also, with regard to a Fund's use of
cross-hedges, there can be no assurance that historical correlations
between the movement of certain foreign currencies relative to the
U.S. dollar will continue. Thus, at any time poor correlation may
exist between movements in the exchange rates of the foreign
currencies underlying the Fund's cross-hedges and the movements in
the exchange rates of the foreign currencies in which the Fund's
assets that are the subject of such cross-hedges are denominated.
Forward contracts are traded in an interbank market conducted
directly between currency traders (usually large commercial banks)
and their customers. A forward contract generally has no deposit
requirement and is consummated without payment of any commission.
Each Fund, however, may enter into forward contracts with deposit
requirements or commissions.
A put option gives a Fund, as purchaser, the right (but not
the obligation) to sell a specified amount of currency at the
exercise price until the expiration of the option. A call option
gives a Fund, as purchaser, the right (but not the obligation) to
purchase a specified amount of currency at the exercise price until
its expiration. A Fund might purchase a currency put option, for
example, to protect itself during the contract period against a
decline in the value of a currency in which it holds or anticipates
holding securities. If the currency's value should decline, the loss
in currency value should be offset, in whole or in part, by an
increase in the value of the put. If the value of the currency
instead should rise, any gain to the Fund would be reduced by the
premium it had paid for the put option. A currency call option might
be purchased, for example, in anticipation of, or to protect against,
a rise in the value of a currency in which the Fund anticipates
purchasing securities.
Each Fund's ability to establish and close out positions in
foreign currency options is subject to the existence of a liquid
market. There can be no assurance that a liquid market will exist
for a particular option at any specific time. In addition, options
on foreign currencies are affected by all of those factors that
influence foreign exchange rates and investments generally.
A position in an exchange-listed option may be closed out
only on an exchange that provides a secondary market for identical
options. Exchange markets for options on foreign currencies exist
but are relatively new, and the ability to establish and close out
positions on the exchanges is subject to maintenance of a liquid
secondary market. Closing transactions may be effected with respect
to options traded in the over-the-counter ("OTC") markets (currently
the primary markets for options on foreign currencies) only by
negotiating directly with the other party to the option contract or
in a secondary market for the option if such market exists. Although
each Fund intends to purchase only those options for which there
appears to be an active secondary market, there is no assurance that
a liquid secondary market will exist for any particular option at any
specific time. In such event, it may not be possible to effect
closing transactions with respect to certain options, with the result
that the Fund would have to exercise those options which it has
purchased in order to realize any profit. The staff of the
Securities and Exchange Commission ("SEC") has taken the position
that, in general, purchased OTC options and the underlying securities
used to cover written OTC options are illiquid securities. However,
a Fund may treat as liquid the underlying securities used to cover
written OTC options, provided it has arrangements with certain
qualified dealers who agree that the Fund may repurchase any option
it writes for a maximum price to be calculated by a predetermined
formula. In these cases, the OTC option itself would only be
considered illiquid to the extent that the maximum repurchase price
under the formula exceeds the intrinsic value of the option.
Swap Agreements
Among the hedging transactions into which the Funds may enter
are interest rate swaps and the purchase or sale of interest rate
caps and floors. Each Fund expects to enter into these transactions
primarily to preserve a return or spread on a particular investment
or portion of its Fund or to protect against any increase in the
price of securities the Fund anticipates purchasing at a later date.
Each Fund intends to use these transactions as a hedge and not as a
speculative investment. Each Fund will not sell interest rate caps
or floors that it does not own. Interest rate swaps involve the
exchange by a Fund with another party of their respective commitments
to pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments. The purchase of an interest rate
cap entitles the purchaser, to the extent that a specified index
exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such
interest rate cap. The purchase of an interest rate floor entitles
the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a
notional principal amount from the party selling such interest rate
floor.
A Fund may enter into interest rate swaps, caps and floors on
either an asset-based or liability-based basis, depending on whether
it is hedging its assets or its liabilities, and will usually enter
into interest rate swaps on a net basis, i.e., the two payment
streams are netted, with the Fund receiving or paying, as the case
may be, only the net amount of the two payments. Inasmuch as these
hedging transactions are entered into for good faith hedging
purposes, the investment adviser and the Funds believe such
obligations do not constitute senior securities and, accordingly will
not treat them as being subject to its borrowing restrictions. The
net amount of the excess, if any, of a Fund's obligations over its
entitlement with respect to each interest rate swap will be accrued
on a daily basis and an amount of cash or liquid securities having an
aggregate net asset value at least equal to the accrued excess will
be maintained in a segregated account by a custodian that satisfies
the requirements of the Investment Company Act of 1940 (the "1940
Act"). The Funds will not enter into any interest rate swap, cap or
floor transaction unless the unsecured senior debt or the claims-
paying ability of the other party thereto is rated in the highest
rating category of at least one nationally recognized rating
organization at the time of entering into such transaction. If there
is a default by the other party to such a transaction, a Fund will
have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years
with a large number of banks and investment banking firms acting both
as principals and as agents utilizing swap documentation. As a
result, the swap market has become relatively liquid. Caps and
floors are more recent innovations for which standardized
documentation has not yet been developed and, accordingly, they are
less liquid than swaps.
New options and Futures Contracts and various combinations
thereof continue to be developed and the Funds may invest in any such
options and contracts as may be developed to the extent consistent
with its investment objective and regulatory requirements applicable
to investment companies.
Sovereign Debt
Each Fund may invest in sovereign debt, which may trade at a
substantial discount from face value. Each Fund may hold and trade
sovereign debt of emerging market countries in appropriate
circumstances and to participate in debt conversion programs.
Emerging country Sovereign Debt involves a high degree of risk, is
generally lower-quality debt, and is considered speculative in
nature. The issuer or governmental authorities that control
sovereign debt repayment ("sovereign debtors") may be unable or
unwilling to repay principal or interest when due in accordance
with the terms of the debt. A sovereign debtor's willingness or
ability to repay principal and interest due in a timely manner may
be affected by, among other factors, its cash flow situation, the
extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign
debtor's policy towards the International Monetary Fund (the
"IMF") and the political constraints to which the sovereign debtor
may be subject. Sovereign debtors may also be dependent on
expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest
arrearage on their debt. The commitment of these third parties to
make such disbursements may be conditioned on the sovereign
debtor's implementation of economic reforms or economic performance
and the timely service of the debtor's obligations. The sovereign
debtor's failure to meet these conditions may cause these third
parties to cancel their commitments to provide funds to the
sovereign debtor, which may further impair the debtor's ability or
willingness to timely service its debts.
Brady Bonds
Each Fund may invest in Brady Bonds as part of its
investment in Sovereign Debt of countries that have restructured or
are in the process of restructuring their Sovereign Debt pursuant
to the Brady Plan (discussed below).
Brady Bonds are issued under the framework of the Brady
Plan, an initiative announced by former U.S. Treasury Secretary
Nicholas F. Brady in 1989 as a mechanism for debtor nations to
restructure their outstanding external indebtedness. The Brady
Plan contemplates, among other things, the debtor nation's adoption
of certain economic reforms and the exchange of commercial bank
debt for newly issued bonds. In restructuring its external debt
under the Brady Plan framework, a debtor nation negotiates with its
existing bank lenders as well as the World Bank or IMF. The World
Bank or IMF supports the restructuring by providing funds pursuant
to loan agreements or other arrangements that enable the debtor
nation to collateralize the new Brady Bonds or to replenish
reserves used to reduce outstanding bank debt. Under these loan
agreements or other arrangements with the World Bank or IMF, debtor
nations have been required to agree to implement certain domestic
monetary and fiscal reforms. The Brady Plan sets forth only
general guiding principles for economic reform and debt reduction,
emphasizing that solutions must be negotiated on a case-by-case
basis between debtor nations and their creditors.
Agreements implemented under the Brady Plan are designed to
achieve debt and debt-service reduction through specific options
negotiated by a debtor nation with its creditors. As a result,
each country offers different financial packages. Options have
included the exchange of outstanding commercial bank debt for bonds
issued at 100% of face value of such debt, bonds issued at a
discount of face value of such debt, and bonds bearing an interest
rate that increases over time and the advancement of the new money
for bonds. The principal of certain Brady Bonds has been
collateralized by U.S. Treasury zero coupon bonds with a maturity
equal to the final maturity of the Brady Bonds. Collateral
purchase are financed by the IMF, World Bank and the debtor
nation's reserves. Interest payments may also be collateralized in
part in various ways.
Brady Bonds are often viewed as having three or four
valuation components: (i) the collateralized repayment of principal
at final maturity; (ii) the collateralized interest payments; (iii)
the uncollateralized interest payment; and (iv) any
uncollateralized interest and principal at maturity (these
uncollateralized amounts constitute the " residual risk"). In
light of the residual risk of Brady Bonds and, among other factors,
the history of defaults with respect to commercial bank loans by
public and private entities of countries issuing Brady Bonds,
investments in Brady Bonds can viewed as speculative.
Investment Restrictions
The Company has adopted the following investment
restrictions with respect to each Fund. Restrictions 1 through 8
cannot be changed for a Fund without approval by the holders of a
majority of the outstanding shares of the respective Fund, defined
as the lesser of (a) 67% or more of the Fund's shares present at a
meeting, if the holders of more than 50% of the outstanding shares
are present in person or by proxy or (b) more than 50% of the
Fund's outstanding shares. The remaining restrictions may be
changed by the Board of Directors at any time. Each Fund may not:
1. Deviate from the definition of a "diversified
company" as defined in the Investment Company Act of 1940,
as amended (the "1940 Act").
2. Issue senior securities as defined in the Investment
Company Act of 1940, as amended (the "1940 Act") and any
rules and orders thereunder, except as permitted under the
1940 Act.
3. Invest more than 25% of its total assets in
securities, the issuers of which conduct their principal
business activities in the same industry. For purposes of
this limitation, U.S. or foreign government securities and
securities of state or municipal governments and their
political subdivisions are not considered to be issued by
members of any industry.
4. The Fund will not make loans. This restriction does
not apply to: (a) the purchase of debt obligations in which
the Fund may invest consistent with its investment
objectives and policies; (b) repurchase agreements; and (c)
loans of its portfolio securities.
5. The Fund will not engage in the business of
underwriting securities issued by other persons, except to
the extent that the Fund may technically be deemed to be an
underwriter under the Securities Act of 1933, as amended
(the "1933 Act"), in disposing of portfolio securities.
6. The Fund will not purchase or sell real estate, real
estate mortgages, commodities or commodity contracts, but
this restriction shall not prevent the Fund from (a)
investing in and selling securities of issuers engaged in
the real estate business and securities which are secured by
real estate or interests therein; (b) holding or selling
real estate received in connection with securities it holds;
(c) trading in futures contracts and option on futures
contracts or (d) investing in or purchasing real estate
investment trust securities.
7. The Fund will not purchase any securities on margin
(except for such short-term credits as are necessary for the
clearance of purchases and sales of portfolio securities) or
sell any securities short (except against the box). For
purposes of this restriction, the deposit or payment by the
Fund of underlying securities and other assets in escrow and
collateral agreements with respect to initial or maintenance
margin in connection with futures contracts and related
options and options on securities, indexes or similar items
is not considered to be the purchase of a security on
margin.
8. The Fund will not borrow money, except that (a) the
Fund may borrow from banks in an amount not exceeding 33
1/3% of the value of the Fund's total assets (including the
amount borrowed) valued at market less liabilities (not
including the amount borrowed) at the time the borrowing is
made and (b) the Fund may, to the extent consistent with its
investment policies, enter into reverse repurchase
agreements, forward roll transactions and similar investment
strategies and techniques.
9. The Fund will not purchase or otherwise acquire any
security if, as a result, more than 15% of its net assets
would be invested in securities that are illiquid.
10. Invest in companies for the purpose of exercising
management or control.
11. Invest in securities of other investment companies,
except as part of a merger, consolidation, or acquisition of
assets or as permitted by Section 12d-1(A) through (E) the
1940 Act.
Brokerage and Portfolio Transactions
Hansberger is responsible for allocating the Fund's
brokerage. Twice a year, Hansberger, through a committee of its
securities analysts, will consider the amount and nature of research
and research services provided by brokers, as well as the extent to
which such services are relied upon, and attempt to allocate a
portion of the brokerage business of the Funds and other advisory
clients on the basis of that consideration. In addition, brokers
may suggest a level of business they would like to receive in order
to continue to provide such services. The actual brokerage
business received by a broker may be more or less than the
suggested allocations, depending upon the Hansberger's evaluation
of all applicable considerations. Orders may be directed to any
broker including, to the extent and in the manner permitted by
applicable law, Smith Barney . No Fund will deal with Smith Barney
in any transaction in which Smith Barney acts as principal.
The Fund attempts to obtain the most favorable execution of
each Fund's transaction, that is, the best combination of net price
and prompt reliable execution. In the opinion of Hansberger,
however, it is not possible to determine in advance that any
particular broker will actually be able to effect the most favorable
execution because, in the context of a constantly changing market,
order execution involves judgments as to price, commission rates,
volume, the direction of the market and the likelihood of future
change. In making its decision as to which broker or brokers are
most likely to provide the most favorable execution, Hansberger takes
into account the relevant circumstances. These include, in varying
degrees, the size of the order, the importance of prompt execution,
the breadth and trends of the market in the particular security,
anticipated commission rates, the broker's familiarity with such
security including its contacts with possible buyers and sellers and
its level of activity in the security, the possibility of a block
transaction and the general record of the broker for prompt,
competent and reliable service in all aspects of order processing,
execution and settlement.
Commissions are negotiated and take into account the
difficulty involved in execution of a transaction, the time it took
to conclude, the extent of the broker's commitment of its own
capital, if any, and the price received. Anticipated commission
rates are an important consideration in all trades and are weighed
along with the other relevant factors affecting order execution set
forth above. In allocating brokerage among those brokers who are
believed to be capable of providing equally favorable execution, the
Fund takes into consideration the fact that a particular broker may,
in addition to execution capability, provide other services to the
Fund such as research and statistical information. It is not
possible to place a dollar value on such services nor does their
availability reduce Hansberger's expenses in a determinable amount.
These various services may, however, be useful to Hansberger in
connection with its services rendered to other advisory clients and
not all such services may be used in connection with the Fund.
The Board of Directors of the Fund has adopted certain
policies and procedures incorporating the standard of Rule 17e-1
issued by the SEC under the 1940 Act which requires that the
commissions paid to Smith Barney must be "reasonable and fair
compared to the commission fee or other remuneration received or to
be received by other brokers in connection with comparable
transactions involving similar securities during a comparable period
of time." The Rule and the policy and procedures also contain review
requirements and require MMC and Hansberger to furnish reports to
the Board of Directors and to maintain records in connection with
such reviews.
The following table sets forth certain information regarding each
Fund's payment of brokerage commissions to Smith Barney:
Period Global
Global
Ended Small Cap Value
April 30, Value Fund Fund
Total
Brokerage
Commissions 1998 $68,021 $248,109
Commissions
paid to
Smith Barney 1998 6,139 4,302
% of Total
Brokerage
Commissions
paid to
Smith Barney 1998 9.03% 1.73%
% of Total
Transactions
Involving
Commissions
Paid
to Smith Barney 1998 8.77 1.68
_____________________
PURCHASE OF SHARES
Volume Discounts
The schedules of sales charges on Class A shares described
in the Prospectuses apply to purchases made by any "purchaser,"
which defined to include the following: (a) an individual; (b) an
individual's spouse and his or her children purchasing shares for
his or her own account; (c) a trustee or other fiduciary purchasing
shares for a single trust estate or single fiduciary account; (d) a
pension, profit-sharing or other employee benefit plan qualified
under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and qualified employee benefit plans of
employers who are "affiliated persons" of each other within the
meaning of the 1940 Act; (e) tax-exempt organizations enumerated in
Section 501(c)(3) or (13) of the Code; and (f) a trustee or other
professional fiduciary (including a bank, or an investment adviser
registered with the SEC under the Investment Advisers Act of 1940,
as amended) purchasing shares of a Fund for one or more trust
estates or fiduciary accounts. Purchasers who wish to combine
purchase orders to take advantage of volume discounts on Class A
shares should contact a Smith Barney Financial Consultant.
Combined Right of Accumulation
Reduced sales charges, in accordance with the schedule in
the Prospectuses, apply to any purchase of Class A shares if the
aggregate investment of any purchaser in Class A shares of a Fund
and in Class A shares of the other Funds in the Company and of
other funds of the Smith Barney Mutual Funds that are offered with
a sales charge, including the purchase being made, is $25,000 or
more. The reduced sales charge is subject to confirmation of the
shareholder's holdings through a check of appropriate records.
Each Fund reserves the right to terminate or amend the combined
right of accumulation at any time after written notice to
shareholders. For further information regarding the right of
accumulation, shareholders should contact a Smith Barney Financial
Consultant.
Determination of Public Offering Price
Each Fund offers its shares to the public on a continuous
basis. The public offering price for a Class A and Class Y share
of each Fund is equal to the net asset value per share at the time
of purchase plus, for Class A shares, an initial sales charge based
on the aggregate amount of the investment. The public offering
price for a Class B share and Class L 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 L shares,
and Class A shares when purchased in amounts equaling or exceeding
$500,000. The method of computation of the public offering price
is shown in each Fund's financial statements, incorporated by
reference in their entirety into this Statement of Additional
Information.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of
payment postponed (a) for any period during which the NYSE is
closed (other than for customary weekend and holiday closings), (b)
when trading in markets a Fund normally utilizes is restricted, or
an emergency as determined by the SEC exists, so that disposal of
the Fund's investments or determination of net asset value is not
reasonably practicable or (c) for such other periods as the SEC by
order may permit for the protection of the Fund's shareholders.
Distributions in Kind
If the Board of Directors of the Company determines that it
would be detrimental to the best interests of the remaining
shareholders of a Fund to make a redemption payment wholly in cash,
the Fund may pay, in accordance with the SEC rules, any portion of
a redemption in excess of the lesser of $250,000 or 1% of the
Fund's net assets by a distribution in kind of portfolio securities
in lieu of cash. Securities issued as a distribution in kind may
incur brokerage commissions when shareholders subsequently sell
those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan") is
available to shareholders who own shares with a value of at least
$10,000 ($5,000 for retirement plan accounts) and who wish to
receive specific amounts of cash monthly or quarterly. Withdrawals
of at least $50 may be made under the Withdrawal Plan by redeeming
as many shares of a Fund as may be necessary to cover the
stipulated withdrawal payment. Any applicable CDSC will not be
waived on amounts withdrawn by shareholders that exceed 1.00% per
month of the value of a shareholder's shares at the time the
Withdrawal Plan commences. To the extent withdrawals exceed
dividends, distributions and appreciation of a shareholder's
investment in a Fund, there will be a reduction in the value of the
shareholder's investment and continued withdrawal payments may
reduce the shareholder's investment and ultimately exhaust it.
Withdrawal payments should not be considered as income from
investment in the Fund. Furthermore, as it generally would not be
advantageous to a shareholder to make additional investments in the
Fund at the same time that he or she is participating in the
Withdrawal Plan, purchases by such shareholders in amounts of less
than $5,000 will not ordinarily be permitted.
Shareholders who wish to participate in the Withdrawal Plan
and who hold their shares in certificate form must deposit their
share certificates with First Data as agent for Withdrawal Plan
members. All dividends and distributions on shares in the
Withdrawal Plan are automatically reinvested at net asset value in
additional shares of the Company. Withdrawal Plans should be set
up with a Smith Barney Financial Consultant. A shareholder who
purchases shares directly through First Data may continue to do so
and applications for participation in the Withdrawal Plan must be
received by First Data no later than the eighth day of the month to
be eligible for participation beginning with that month's
withdrawal. For additional information, shareholders should
contract a Smith Barney Financial Consultant.
DISTRIBUTOR
Smith Barney serves as the Company's distributor on a best
efforts basis pursuant to a distribution agreement (the
"Distribution Agreement") which was most recently approved by the
Company's Board of Directors on July 23, 1998.
When payment is made by the investor before the settlement
date, unless otherwise directed by the investor, the funds will be
held as a free credit balance in the investor's brokerage account,
and Smith Barney may benefit from the temporary use of the funds.
The investor may designate another use for the funds prior to
settlement date, such as investment in a money market fund (other
than Smith Barney Exchange Reserve Fund) of the Smith Barney Mutual
Funds. If the investor instructs Smith Barney to invest the funds
in a Smith Barney money market fund, the amount of the investment
will be included as part of the average daily net assets of both
the Company and the money market fund, and affiliates of Smith
Barney that serve the funds in an investment advisory capacity will
benefit from the fact that they are receiving fees from both such
investment companies for managing these assets computed on the
basis of their average daily net assets. The Company's Board of
Directors has been advised of the benefits to Smith Barney
resulting from these settlement procedures and will take such
benefits into consideration when reviewing the Management and
Distribution Agreements for continuance.
For the fiscal year ended April 30, 1998, Smith Barney
incurred distribution expenses totaling approximately $679,000
consisting of approximately $13,000 for advertising, $700 for
printing and mailing of Prospectuses, $121,700 for support
services, $534,000 to Smith Barney Financial Consultants, and
$9,000 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 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 L shares. In addition, the Fund pays Smith
Barney a distribution fee, with respect to the Class B and Class L
shares primarily intended to compensate Smith Barney for its
initial expense of paying its Financial Consultants a commission
upon sales of those shares. Such shares' distribution fees, which
are accrued daily and paid monthly, are calculated at the annual
rate of 0.75% of the value of average daily net assets attributable
to the Class B and Class L shares.
Under its terms, the Plan continues from year to year,
provided such continuance is approved annually by vote of the Board
of Directors, including a majority of the Independent Directors.
The Plan may not be amended to increase the amount to be spent for
the services provided by Smith Barney without shareholder approval,
and all amendments of the Plan also must be approved by the
Directors in the manner described above. The Plan may be terminated
at any time, without penalty, by vote of a majority of the
Independent Directors or by vote of a majority of the outstanding
voting securities of the Company (as defined in the 1940 Act).
Pursuant to the Plan, Smith Barney will provide the Board of
Directors periodic reports of amounts expended under the Plan and
the purpose for which such expenditures were made.
Sales Charges paid to Smith Barney:
Name of Fund Inception*
Through April 30, 1998
Global Value Fund $414,000
Global Small Cap
Value Fund 109,000
* For the period from December 19, 1997 (inception date)
to April 30, 1998.
Class B share CDSC paid to Smith Barney:
Name of Fund Inception*
Through April 30, 1998
Global Value Fund $8,000
Global Small Cap
Value Fund 2,000
* For the period from December 19, 1997 (inception date)
to April 30, 1998.
Class L share CDSC paid to Smith Barney:
Name of Fund Inception*
Through April 30, 1998
Global Value Fund $1,000
Global Small Cap
Value Fund ---
* For the period from December 19, 1997 (inception date)
to April 30, 1998.
Total Distribution fees incurred by the Funds for the period ended
April 30, 1998 were:
Name of
Fund Class A Shares Class B Shares Class L
Shares
Global Value
Fund* $20,329 $130,729 $30,488
Global Small
Cap Value Fund* 6,679 36,118 7,601
* For the period from December 19, 1997 (inception date) to April
30, 1998.
VALUATION OF SHARES
Each Class' net asset value per share is calculated on each
day, Monday through Friday, except days on which the NYSE is
closed. The NYSE currently is scheduled to be closed on New Year's
Day, President's Day, Good Friday, Martin Luther King Jr. Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas, and on the preceding Friday or subsequent Monday when
one of these holidays falls on a Saturday or Sunday, respectively.
Because of the differences in distribution fees and Class-specific
expenses, the per share net asset value of each Class may differ.
The following is a description of the procedures used by the Funds
in valuing its assets.
A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to
be the primary market for such security. All assets and
liabilities initially expressed in foreign currency values will be
converted into U.S. dollar values at the mean between the bid and
offered quotations of such currencies against U.S. dollars as last
quoted by any recognized dealer. If such quotations are not
available, the rate of exchange will be determined in good faith by
the Board of Directors. In carrying out the Board of Directors'
valuation policies, 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 determine by the Pricing
Service. The procedures of the Pricing Service are reviewed
periodically by the officers of the Company under the general
supervision and responsibility of the Board of Directors.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any fund of the Smith
Barney Mutual Funds may exchange all or part of their shares for
shares of the same class of other funds of the Smith Barney Mutual
Funds, to the extent such shares are offered for sale in the
shareholder's state of residence and provided your Registered
Representative or your investment dealer is authorized to
distribute shares of the fund, on the basis of relative net asset
value per share at the time of exchange. Class B shares of any
fund may be exchanged without a CDSC. Class B shares of the Fund
exchanged for Class B shares of another fund will be subject to the
higher applicable CDSC of the two funds and, for the purposes of
calculating CDSC rates and conversion periods, will be deemed to
have been held since the date the shares being exchanged were
deemed to be purchased.
The exchange privilege enables shareholders to acquire
shares of the same Class in a fund with different investment
objectives when they believe that a shift between funds is an
appropriate investment decision. This privilege is available to
shareholders residing in any state in which the fund shares being
acquired may legally be sold. Prior to any exchange, the
shareholder should obtain and review a copy of the current
prospectus of each fund into which an exchange is being considered.
Prospectuses may be obtained from a Smith Barney Financial
Consultant.
Upon receipt of proper instructions and all necessary
supporting documents, shares submitted for exchange are redeemed at
the then-current net asset value and, subject to any applicable
CDSC, the proceeds are immediately invested at a price as described
above, in shares of the fund being acquired. Smith Barney reserves
the right to reject any exchange request. The exchange privilege
may be modified or terminated at any time after written notice to
shareholders.
PERFORMANCE DATA
From time to time, a Fund may quote its yield, average
annual total return or total return in advertisements or in reports
and other communications to shareholders. The Fund may include
comparative performance information in advertising or marketing the
Fund's shares. Such performance information maybe included in the
following industry and financial publications: Barron's, Business
Week, CDA Investment Technologies, Inc., Changing Times, Forbes,
Fortune, Institutional Investor, Investors Daily, Money,
Morningstar Mutual Fund Values, The New York Times, USA Today and
The Wall Street Journal. To the extent any advertisement or sales
literature of a Fund describes the expenses or performance of a
Class, it will also disclose such information for the other
Classes.
Yield
A Fund's 30-day yield figure described below is calculated
according to a formula prescribed by the SEC. The formula can be
expressed as follows:
YIELD = 2[(a-b/cd + 1)6 - 1]
Where:
a =
Dividends and interest earned during the period.
b =
Expenses accrued for the period (net of reimbursement).
c =
the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d =
the maximum offering price per share on the last day of the
period.
For the purpose of determining the interest earned (variable
"a" in the formula) on debt obligations purchased by the Fund at a
discount or premium, the formula generally calls for amortization
of the discount or premium; the amortization schedule will be
adjusted monthly to reflect changes in the market values of the
debt obligations.
Investors should recognize that in periods of declining
interest rates a Fund's yield will tend to be somewhat higher than
prevailing market rates, and in periods of rising interest rates,
the Fund's yield will tend to be somewhat lower. In addition, when
interest rates are falling, the inflow of net new money to the Fund
from the continuous sales of its shares will likely be invested in
portfolio instruments producing lower yields than the balance of
the Fund's investments, thereby reducing the current yield of the
Fund. In periods of rising interest rates, the opposite can be
expected to occur.
Average Annual Total Return
"Average annual total return" figures, as described below,
are computed according to a formula prescribed by the SEC. The
formula can be expressed as follows:
P(1+T)n = ERV
Where:
P =
a hypothetical initial payment of $1,000.
T =
Average annual total return.
n =
Number of years.
ERV =
Ending Redeemable Value of a hypothetical $1,000 investment
made at the beginning of a 1-, 5- or 10-year period at the
end of the 1-, 5- or 10- year period (or fractional portion
thereof), assuming reinvestment of all dividends and
distributions. A Class' total return figures calculated in
accordance with the above formula assume that the maximum
applicable sales charge or maximum applicable CDSC, as the
case may be, has been deducted from the hypothetical $1,000
initial investment at the time of purchase or redemption,
as applicable.
Class A average annual total returns were as follows for the
periods indicated:
Name of Fund Inception*
Through April 30, 1998
Global Value Fund 8.42%
Global Small Cap
Value Fund 3.21
* For the period from December 19, 1997 (inception date) to April
30, 1998.
These aggregate total return figures assume that the maximum
5.00% sales charge assessed by the Funds on purchases of Class A
shares has been deducted from the investment at the time of
purchase. If the maximum sales charge had not been deducted at the
time of purchase, the Funds' aggregate total return reflecting the
waiver of the investment advisory and sub-investment advisory
and/or administration fees for the same period would have been
14.13% and 8.64%, respectively.
Class B average annual total returns were as follows for the
periods indicated:
Name of Fund Inception*
Through April 30, 1998
Global Value Fund 8.87%
Global Small Cap
Value Fund 3.38
* For the period from December 19, 1997 (inception date) to April
30, 1998.
These figures assume that the applicable maximum 5.00% CDSC has
been deducted from the investment at the time of purchase. If the
investment advisory and sub-investment advisory and/or
administration fees had not been partially waived and the maximum
CDSC had not been deducted at the time of purchase, the Funds'
aggregate total returns for the same period would have been 13.87%
and 8.38% respectively, for the same period.
Class L average annual total returns were as follows for the
periods indicated:
Name of Fund Inception*
Through April 30, 1998
Global Value Fund 12.87%
Global Small Cap
Value Fund 7.38
* For the period from December 19, 1997 (inception date) to April
30, 1998.
These average annual total return figures assume that the
applicable CDSC has been deducted from the investment. Had the
CDSC not been deducted, the average annual total return on the
Funds' Class L shares would have been 13.87% and 8.38%,
respectively, for the same period.
Class Y average annual total returns were as follows for the
periods indicated:
Name of Fund Inception*
Through April 30, 1998
Global Value Fund 4.50%
Global Small Cap
Value Fund 5.37
* For the period from December 19, 1997 (inception date) to April
30, 1998.
Aggregate Total Return
Aggregate total return figures, as described below, represent
the cumulative change in the value of an investment in the Class
for the specified period and are computed by the following formula:
AGGREGATE TOTAL RETURN = ERV-P
P
Where:
P =
a hypothetical initial payment of $1,000.
ERV =
Ending Redeemable Value of a hypothetical $10,000
investment made at the beginning of a 1-, 5- or 10-year
period (a fractional portion thereof) at the end of the 1-,
5- or 10- year period (or fractional portion thereof),
assuming reinvestment of all dividends and distributions.
It is important to note that the yield and total return
figures set forth above are based on historical earnings and are
not intended to indicate future performance. A Class' performance
will vary from time to time depending upon market conditions, the
composition of the Fund's investment portfolio and operating
expenses and the expenses exclusively attributable to the Class.
Consequently, any given performance quotation should not be
considered representative of the Class' performance for any
specified period in the future. Because performance will vary, it
may not provide a basis for comparing an investment in the Class
with certain bank deposits or other investments that pay a fixed
yield for a stated period of time. Investors comparing the Class'
performance with that of other mutual funds should give
consideration to the quality and maturity of the respective
investment companies' portfolio securities.
Performance information may be useful in evaluating a Fund
and for providing a basis for comparison with other financial
alternatives. Since the performance of the Fund changes in response
to fluctuations in market conditions, interest rates and Fund
expenses, no performance quotation should be considered a
representation as to the Fund's performance for any future period.
A Fund may from time to time compare its investment results with the
following:
(1) The Consumer Price Index, which is a measure of
the average change in prices over time in a fixed
market basket of goods and services (e.g., food,
clothing, shelter, fuels, transportation fares,
charges for doctors' and dentists' services,
prescription medicines, and other goods and services
that people buy for day-to-day living).
(2) Data and mutual fund rankings published or
prepared by Lipper Analytical Services, Inc., which
ranks mutual funds by overall performance, investment
objectives and assets.
(3) Dow Jones Industrial Average which is a price-
weighted average of 30 actively traded stocks of
highly reputable companies prepared by Dow Jones &
Co.
(4) Financial News Composite Index.
(5) Morgan Stanley Capital International World
Indices, including, among others, the Morgan Stanley
Capital International Europe, Australia, Far East
Index ("EAFE Index"). The EAFE Index is an unmanaged
index of more than 800 companies of Europe, Australia
and the Far East.
(6) Data and comparative performance rankings
published or prepared by CDA Investment Technologies,
Inc.
(7) Data and comparative performance rankings
published or prepared by Wiesenberger Investment
Company Service.
Indices prepared by the research departments of such
financial organizations as Salomon Brothers, Inc., Merrill Lynch,
Bear Stearns & Co., Inc., Morgan Stanley, and Ibbottson Associates
may be used, as well as information provided by the Federal Reserve
Board. In addition, performance rankings and ratings reported
periodically in national financial publications, including but not
limited to Money Magazine, Forbes, Business Week, The Wall Street
Journal and Barron's may also be used.
TAXES
The following summary addresses the principal United States
income tax considerations regarding the purchase, ownership and
disposition of shares in a Fund.
General
Each Fund intends to qualify and elect to be treated for each
taxable year as a "regulated investment company" under Sections 851-
855 of the Internal Revenue Service Code of 1986, as amended ("the
Code"). To so qualify, a Fund must, among other things, (i) derive
at least 90% of its gross income in each taxable year from dividends,
interest, proceeds from loans of stock and securities, gains from the
sale or other disposition of stock, securities or foreign currency,
or certain other income (including but not limited to gains from
options, Futures and forward contracts) derived from its business of
investing in stock, securities or currency; and (ii) diversify its
holdings so that, at the end of each quarter of its taxable year, the
following two conditions are met: (a) at least 50% of the market
value of the Fund's total assets is represented by cash, U.S.
Government securities, securities of other regulated investment
companies and other securities, with such other securities limited,
in respect of any one issuer, to an amount not greater than 5% of the
Fund's assets and not more than 10% of the outstanding voting
securities of such issuer; and (b) not more than 25% of the value of
the Fund's assets is invested in securities of any one issuer (other
than U.S. Government securities or securities of other regulated
investment companies). The diversification requirements described
above may limit the Fund's ability to engage in hedging transactions
by writing or buying options or by entering into Futures or forward
contracts.
Foreign currency gains that are not directly related to a
Fund's principal business of investing in stock or securities, or
options or forward contracts thereon, might be excluded by
regulations from income that counts toward the 90% gross income
requirement described above.
As a regulated investment company, each Fund will not be
subject to U.S. federal income tax on net investment income and net
long-term capital gains distributed to shareholders if, as is
intended, the Fund distributes at least 90% of its ordinary income
and net short-term capital gains to the Fund's shareholders each
year.
Each Fund, however, will generally be subject to a
nondeductible excise tax of 4% to the extent that it does not meet
certain minimum distribution requirements as of the end of each
calendar year. Each Fund intends to make timely distributions of its
income (including any net capital gains) in compliance with these
requirements. As a result, it is anticipated that each Fund will not
be subject to the excise tax.
For federal income tax purposes, dividends declared by each
Fund in October, November or December as of a record date in such
month and which are actually paid in January of the following year
will be treated as if they were paid on December 31. These dividends
will be taxable to shareholders in the year declared, and not in the
year in which shareholders actually receive the dividend.
Gains or losses that a Fund recognizes upon the sale or other
disposition of stock or securities will be treated as long-term
capital gains or losses if the securities have been held by it for
more than one year, except in certain cases where the Fund sells the
stock or security short or acquires a put or writes a call thereon.
Other gains or losses on the sale of stock or securities will be
short-term capital gains or losses. Gains and losses on the sale,
lapse or other termination of options on stock or securities will
generally be treated as gains and losses from the sale of stock or
securities. If an option written for a Fund lapses or is terminated
through a closing transaction the Fund may realize a short-term
capital gain or loss, depending on whether the premium income is
greater or less than the amount paid in the closing transaction. If
a Fund sells stock or securities pursuant to the exercise of a call
option written by it, the Fund will add the premium received to the
sale price of the stock or securities delivered in determining the
amount of gain or loss on the sale.
Under the Code, gains or losses attributable to foreign
currency contracts, or to fluctuations in exchange rates between the
time a Fund accrues income or receivables or expenses or other
liabilities denominated in a foreign currency and the time the Fund
actually collects such income or pays such liabilities, are treated
as ordinary income or ordinary loss. Similarly, gains or losses on
the disposition of debt securities held by the Fund denominated in
foreign currency, to the extent attributable to fluctuations in
exchange rates between the acquisition and disposition dates, are
also treated as ordinary income or loss.
Forward currency contracts, options and Futures contracts
entered into by a Fund may create "straddles" for federal income tax
purposes and this may affect the character and timing of gains or
losses realized by the Fund on such contracts or options or on the
underlying securities.
Certain options, Futures and foreign currency contracts held
by a Fund at the end of each fiscal year will be required to be
"marked to market" for federal income tax purposes; that is, treated
as having been sold at market value. Sixty percent of any capital
gain or loss recognized on these deemed sales and on actual
dispositions will be treated as long-term capital gain or loss, and
the remainder will be treated as short-term capital gain or loss
regardless of how long the Fund has held such options or contracts.
If a Fund purchases shares in certain foreign investment
entities, referred to as "passive foreign investment companies," the
Fund itself may be subject to U.S. federal income tax and an
additional charge in the nature of interest on a portion of any
"excess distribution" from such company or gain from the disposition
of such shares, even if the distribution or gain is distributed by
the Fund to its shareholders in a manner that satisfies the
requirements described above. If the Fund were able and elected to
treat a passive foreign investment company as a "qualified electing
fund," in lieu of the treatment described above, the Fund would be
required each year to include in income, and distribute to
shareholders in accordance with the distribution requirements
described above, the Fund's pro rata share of the ordinary earnings
and net capital gains of the company, whether or not actually
received by the Fund.
Distributions
If the net asset value of shares of a Fund is reduced below a
shareholder's cost as a result of distribution by the Fund, such
distribution will be taxable even though it represents a return of
invested capital.
Redemption of Shares
Any gain or loss realized on the redemption or exchange of
Fund shares by a shareholder who is not a dealer in securities will
be treated as long-term capital gain or loss if the shares have been
held for more than one year, and otherwise as short-term capital gain
or loss.
However, any loss realized by a shareholder upon the
redemption or exchange of Fund shares held six months or less will be
treated as long-term capital loss to the extent of any long-term
capital gain distributions received by the shareholder with respect
to such shares. Additionally, any loss realized on a redemption or
exchange of Fund shares will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30 days
before and ending 30 days after such disposition, such as pursuant to
reinvestment of dividends in Fund shares.
ADDITIONAL INFORMATION
The Company was incorporated on September 29, 1981 under the
name Hutton Investment Series Inc. The Company's corporate name
was changed on December 29, 1988, July 30, 1993 and October 28,
1994, to SLH Investment Portfolios Inc., Smith Barney Shearson
Investment Funds Inc., and Smith Barney Investment Funds, Inc.,
respectively.
Chase, located at Chase Metrotech Center, Brooklyn NY 11245,
serves as the custodian of the Company. Under its custody
agreement with the Company, Chase holds the Company's fund
securities and keeps all necessary accounts and records. For its
services, Chase receives a monthly fee based upon the month-end
market value of securities held in custody and also receives
transaction charges. Chase bank is authorized to establish
separate accounts for foreign securities owned by the Company to be
held with foreign branches of other domestic banks as well as with
certain foreign banks and securities depositories. The assets of
the Company are held under bank custodianship in compliance with
the 1940 Act.
First Data, located at Exchange Place, Boston, Massachusetts
02109, serves as the Company's transfer agent. For these services,
First Data receives a monthly fee computed on the basis of the
number of shareholder accounts it maintains for the Company during
the month and is reimbursed for out-of-pocket expenses.
APPENDIX
BOND (AND NOTE) RATINGS
Moody's Investors Service, Inc. ("Moody's")
Aaa - Bonds that are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely
to impair the fundamentally strong position of such issues.
Aa - Bonds that are rated "Aa" are judged to be of high
quality by all standards. Together with the "Aaa" group they
comprise what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of protection may not
be as large as in "Aaa" securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements
present that make the long term risks appear somewhat larger than in
"Aaa" securities.
A - Bonds that are rated "A" possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa - Bonds that are rated "Baa" are considered as medium
grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very
moderate and therefor not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds
in this class.
B - Bonds that are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long period
of time may be small.
Caa - Bonds that are rated Caa are of poor standing. These
issues may be in default or present elements of danger may exist with
respect to principal or interest.
Ca - Bonds that are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked short-comings.
C - Bonds that are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 in each
generic rating classification from Aa through B. The modifier 1
indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
Standard & Poor's Ratings Group ("S&P")
AAA - Debt rated "AAA" has the highest rating assigned by
S&P. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated "AA" has a very strong capacity to pay
interest and repay principal and differs from the highest rated
issues only in small degree.
A - Debt rated "A" has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than debt in higher rated categories.
BBB - Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B and CCC - Bonds rated BB and B are regarded, on
balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. BB represents a lower degree if speculation than B and
CCC the highest degree of speculation. While such bonds will likely
have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
C - The rating C is reserved for income bonds on which no
interest is being paid.
D - Bonds rated D are in default, and payment of interest
and/or repayment of principal is in arrears.
S&P's letter ratings may be modified by the addition of a
plus or a minus sign, which is used to show relative standing within
the major rating categories, except in the AAA category.
COMMERCIAL PAPER RATINGS
Moody's
Issuers rated "Prime-1" (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well-
established industries; high rates of return on funds employed;
conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of
fixed financial charges and high internal cash generation; well-
established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated "Prime-2" (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
S&P
A-1 - This designation indicates that the degree of safety
regarding timely payment is either overwhelming or very strong.
Those issues determined to possess overwhelming safety
characteristics will be denoted with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this
designation is strong. However, the relative degree of safety is not
as high as for issues designated A-1.
Supplementary Description of Interest Rate Futures Contracts and
Related Options
Characteristics of Futures Contracts. Currently, futures contracts
can be purchased and sold on such securities as U.S. Treasury
bonds, U.S. Treasury notes, GNMAs and U.S. Treasury bills. Unlike
when the Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sales of a futures
contract. The Fund will initially be required to deposit with the
custodian or the broker an amount of "initial margin" of cash or
U.S. Treasury bills. The nature of initial margin in futures
transactions is different from that of margin in security
transactions in that futures contract initial margin does not
involve the borrowing of funds by the customer to finance the
transaction. Rather, the initial margin is in the nature of a
performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract,
assuming all contractual obligations have been satisfied.
Subsequent payments, called maintenance margin, to and from the
broker, will be made on a daily basis as the price of the
underlying debt security fluctuates, making the long and short
positions in the futures contract more or less valuable, a process
known as "marking-to-market." For example, when the Fund has
purchased a futures contract and the price of the underlying debt
security has risen, that position will have increased in value and
the Fund will receive from the broker a maintenance margin payment
equal to that increase in value. Conversely, when the Fund has
purchased a futures contract and the price of the underlying debt
security has declined, the position would be less valuable and the
Fund would be required to make a maintenance margin payment to the
broker. At any time prior to expiration of the futures contract,
the Fund may elect to close the position by taking an opposite
position which will operate to terminate the Fund's position in the
futures contract. A final determination of maintenance margin is
then made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or a gain.
While futures contracts based on debt securities do provide for the
delivery and acceptance of securities, such deliveries and
acceptances are very seldom made. Generally, the futures contract
is terminated by entering into an offsetting transaction. An
offsetting transaction for a futures contract sale is effected by
the Fund entering into a futures contract purchase for the same
aggregate amount of the specific type of financial instrument and
same delivery date. If the price in the sale exceeds the price in
the offsetting purchase, the Fund pays the difference and realizes
the loss. Similarly, the closing out of a futures contract
purchase is effected by the Fund entering into a futures contract
sale. If the offsetting sale price exceeds the purchase price, the
Fund realizes a gain, and if the purchase price exceeds the
offsetting price, the Fund realizes a loss.
Risks of Transactions in Futures Contracts. There are several
risks in connection with the use of futures contracts by the Fund
as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the futures contracts
and movements in the price of the debt securities which are the
subject of the hedge. The price of the futures contract may move
more than or less than the price of the debt securities being
hedged. If the price of the futures contract moves less than the
price of the securities which are the subject of the hedge, the
hedge will not be fully effective, but, if the price of the
securities being hedged has moved in an unfavorable direction, the
Fund would be in a better position than if it has not hedged at
all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the
movement in the price of the futures contract. If the price of the
futures contracts moves more than the price of the security, the
Fund will experience either a loss or a gain on the future which
will not be completely offset by movements in the prices of the
debt securities which are the subject of the hedge. To compensate
for the imperfect correlation of movements in the price of debt
securities being hedged and movements in the prices of the futures
contracts, the Fund may buy or sell futures contracts in a greater
dollar amount of the securities being hedged if the historical
volatility of the prices of such securities has been greater than
the historical volatility of the futures contracts. Conversely,
the Fund may buy or sell fewer futures contracts if the historical
volatility of the price of the securities being hedged is less than
the historical volatility of the futures contracts. It is also
possible that, where the Fund has sold futures to hedge its
portfolio against a decline in the market, the market may advance
and the value of securities held in the Fund's portfolio may
decline. If this occurred, the Fund would lose money on the
futures contracts and also experience a decline in value in its
portfolio securities. However, while this could occur for a very
brief period or to a very small degree, over time the value of a
diversified portfolio will tend to move in the same direction as
the futures contracts. Where futures are purchased to hedge
against a possible increase in prices of securities before the Fund
is able to invest its cash (or cash equivalents) in U.S. government
securities (or options) in an orderly fashion, it is possible that
the market may decline instead; if the Fund then concludes not to
invest in U.S. government securities or options at that time
because of concern as to possible further market decline or for
other reasons, the Fund will realize a loss on the futures contract
that is not offset by a reduction in the price of securities
purchased.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the
futures contracts and the portion of the portfolio being hedged,
the market prices of futures contracts may be affected by certain
factors. First, all participants in the futures market are subject
to margin deposit and maintenance requirements. Rather than
meeting additional margin deposit requirements, investors may close
futures contracts though offsetting transactions which could
distort the normal relationship between the debt securities and
futures markets; second, from the point of view of speculators, the
deposit requirements in the futures market are less onerous than
margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price
distortion in the futures market and because of the imperfect
correlation between movements in the debt securities and movements
in the prices of futures contracts, a correct forecast of interest
rate trends by the investment advisor may still not result in a
successful hedging transaction over a very short time frame.
Positions in futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market for
such futures. Although the Fund intends to purchase or sell
futures only on exchanges or boards of trade where there appears to
be an active secondary market, there is no assurance that a liquid
secondary market on an exchange or board of trade will exist for
any particular contract or at any particular time. In such event,
it may not be possible to close a futures position, and in the
event of adverse price movements, the Fund would continue to be
required to make daily cash payments of variation margin. However,
in the event that the futures contracts have been used to hedge
portfolio securities, such securities will not be sold until the
futures contracts can be terminated. In such circumstances, an
increase in the price of the securities, if any, may partially or
completely offset losses on the futures contracts. However, as
described above, there is no guarantee that the price of the
securities will, in fact, correlate with the price movements of the
futures contracts and thus provide an offset to losses on futures
contracts. Successful use of futures contracts by the Fund is also
subject to the investment adviser's ability to predict correctly
movements in the direction of interest rates and other factors
affecting markets of debt securities. For example, if the Fund has
hedged against the possibility of an increase in interest rates
which would adversely affect debt securities held in its portfolio
and prices of such securities increase instead, the Fund will lose
part or all of the benefit of the increased value of its securities
which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund
has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sale of securities may be, but
will not necessarily be, at increased prices which reflect the
rising market. The Fund may have to sell securities at a time when
it may be disadvantageous to do so.
Characteristics of Options on Futures Contracts. As with options
on debt securities, the holder of an option may terminate his
position by selling an option of the same series. There is no
guarantee that such closing transactions can be effected. The Fund
will be required to deposit initial margin and maintenance margin
with respect to put and call options on futures contracts described
above, and, in addition, net option premiums received will be
included as initial margin deposits.
In addition to the risks which apply to all options transaction,
there are several special risks relating to options on futures
contracts. The ability to establish and close out positions on
such options will be subject to the development and maintenance of
a liquid secondary market. It is not certain that this market will
develop. The Fund will not purchase options on futures contracts
on any exchange unless and until, in the investment advisor's
opinion, the market for such options had developed sufficiently
that the risks in connection with options on futures contracts are
not greater than the risks in connection with futures contracts.
Compared to the use of futures contracts, the purchase of options
on futures contracts involves less potential risk to the Fund
because the maximum amount of risk is the premium paid for the
options (plus transaction costs). However, there may be
circumstances when the use of an option on a futures contract would
result in a loss to the Fund when the use of a futures contract
would not, such as when there is no movement in the prices of debt
securities. Writing an option on a futures contract involves risks
similar to those arising in the sale of futures contracts, as
described above.
2
u:\legal\funds\sliv\1998\secdocs\hans98 8/27/98 3:05 PM
HANS98.4 A-4 8/27/98 3:05 PM
PART C Item 24. Financial Statements and Exhibits a) Financial
Statements:
Included in Part A:
Included in Part B:
The Registrant's Annual Reports for series whose fiscal year ended
December 31, 1997 and the Report of Independent Auditors dated
February 10, 1998 are incorporated by reference to the Definitive 30b2-
1 filed on March 10, 1998 as Accession #0000091155-98-157.
The Registrant's Annual Reports for series whose fiscal year ended
April 30, 1998 and the Report of Independent Auditors dated June 12,
1998 are incorporated by reference to the Definitive 30b2-1 filed on
July 9,1998 as Accession #0000091155-98-444.
(b) Exhibits All references are to the Registrant's registration
statement on Form N-1A (the "Registration Statement")
as filed with the SEC on October 2, 1981(File Nos. 2-
74288 and 811-3275).
(1) Articles of Restatement dated September 17, 1993
to Registrant's Articles of Incorporation dated
September 28, 1981, Articles of Amendment dated
October 14, 1994, Articles Supplementary, Articles of
Amendment dated October 14, 1994, Articles
Supplementary, Articles of Amendments and Certificates
of Correction dated November 7, 1994, are incorporated
by reference to Post-Effective Amendment No. 37 to the
Registration Statement filed on November 7, 1994.
Articles of Amendment dated October 23, 1997 are
incorporated by reference to Post-Effective Amendment
No. 46 dated October 23, 1997("Post-Effective
Amendment No.46"). Articles of Amendment dated
February 27, 1998 are incorporated by reference
to Post-Effective Amendment No. 48 dated April 29, 1998.
Articles of Amendment dated June 1, 1998 are incorporated
by reference to Post-Effective Amendment No. 49.
(2) Registrant's By-Laws, as amended on September 30,
1992 are incorporated by reference to Post-Effective
Amendment No. 30 to the Registration Statement filed
on April 30, 1993.
(3) Not Applicable.
(4) Registrant's form of stock certificate for Smith
Barney Hansberger Global Value Fund ("Global Value
Fund") and Smith Barney Hansberger Global Value Small
Cap Fund ("Small Cap Fund") is incorporated by
reference to Post Effective Amendment 46.
(5) (a) Investment Advisory Agreement dated July 30,
1993, between the Registrant on behalf of Smith Barney
Investment Grade Bond Fund, Smith Barney Government
Securities Fund and Smith Barney Special Equities
Fund and Greenwich Street Advisors is incorporated by
reference to the Registration Statement filed on Form
N-14 on September 2, 1993, File No. 33-50153.
(b) Investment Advisory Agreements on behalf of
Smith Barney Growth Opportunity Fund and Smith Barney
Managed Growth Fund is incorporated by reference to
Post-Effective Amendment No. 40 filed on June 27,
1995.
(c) Investment Management Agreements on behalf of
Global Value Fund and Global Small Cap Fund between
Registrant and Smith Barney Mutual Funds Management
Inc. is incorporated by reference to Post-Effective
Amendment No. 46.
(d) Sub-Advisory Agreement on behalf of Global
Value Fund and Global Small Cap Fund between MMC and
Hansberger Global Investors Inc. is
incorporated by reference to Post-Effective
Amendment No. 46.
(e)Form of Investment Management Agreements on behalf of
Smith Barney Small Cap Growth Fund and Smith Barney
Small Cap Value Fund between Registrant and
Mutual Management Corp. are incorporated
by reference to Post-Effective Amendment No. 49.
(6) (a) Distribution Agreement dated July 30, 1993,
between the Registrant and Smith Barney Shearson Inc.
is incorporated by reference to the registration
statement filed on Form N-14 on September 2, 1993.
File 33-50153.
(b) Form of Distribution Agreement between the
Registrant and PFS Distributors on behalf of Smith
Barney Investment Funds Inc. is incorporated by
reference to Post-Effective Amendment No. 40 filed on
June 27, 1995.
(c) Form of Distribution Agreement between the
Registrant and CFBDS, Inc. is incorporated
by reference to Post-Effective Amendment No. 49.
(7) Not Applicable.
8 (a) Custodian Agreement with PNC Bank, National
Association is incorporated by reference to Post -
Effective Amendment No. 44 filed on April 29, 1997.
(b) Custodian Agreement with Chase Manhattan Bank
is incorporated by reference to Post-Effective
Amendment No. 46.
9 (a) Transfer Agency and Registrar Agreement dated
August 5, 1993 with First Data Investor Services
Group, Inc. (formerly The Shareholder Services Group,
Inc.) is incorporated by reference to Post-Effective
Amendment No. 31 as filed on December 22, 1993 (Post-
Effective Amendment No. 31").
(b)Sub-Transfer Agency Agreement between the
Registrant and PFS Shareholders Services on behalf of
Smith Barney Investment Funds Inc. is incorporated by
reference to Post-Effective Amendment No. 40 filed on
June 27, 1995.
(10) Opinion of Robert A. Vegliante, Deputy General
Counsel of Smith Barney Mutual Funds Management Inc.
filed with the Registrant's rule 24-f2 Notice
(Accession No. 000091155-97-000104) is incorporated by
reference.
(11) filed herewith.
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) (a) Amended Services and Distribution Plans
pursuant to Rule 12b-1 between the Registrant on behalf
of Smith Barney Invest Grade Bond Fund, Smith
Barney Government Securities Fund, Smith Barney Special
Equities Fund and Smith Barney European Fund and Smith
Barney, Inc. ("Smith Barney") are incorporated by
reference to Post-Effective Amendment No. 37.
(b) Form of Services and Distribution Plans
pursuant to Rule 12b-1 between the Registrant on
behalf of Smith Barney Growth Opportunity Fund and
Smith Barney Managed Growth Fund is incorporated by
reference to Post-Effective Amendment No. 40 filed on
June 27, 1995.
(c) Form of Services and Distribution Plans
pursuant to Rule 12b-1 between the Registrant on
behalf of the Global Value Fund and Small Cap Fund is
incorporated by reference to Post-Effective Amendment
No. 46.
(d) Form of Amended and Restated Shareholder Services
and Distribution Plan pursuant to Rule 12b-1 between
the Registrant on behalf of each of its series
are incorporated by reference to Post-Effective Amendment
No. 49.
(16) Performance Data is incorporated by reference to
Post-Effective Amendment No. 22 as filed on May 1,
1989.
(17) Filed herewith
(18) Form of Registrant's Amended Rule 18-f3(d) Multiple Class
Plan is filed herein.
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 12,698
Class B 12,504
Class L 613
Class Y 4
Smith Barney
Government Securities Fund
Class A 20,606
Class B 5,802
Class L 179
Class Y 11
Smith Barney
Contrarian Fund
Class A 13,295
Class B 34,214
Class L 3,876
Class Y 8
Class Z 1
Smith Barney
Special Equities Fund
Class A 18,696
Class B 26,321
Class L 1,786
Class Y 6
Class Z 1
Concert
Peachtree Growth Fund
Class A 128
Class B 246
Class L 34
Class Y 7
Smith Barney Hansberger Global Small Cap
Value Fund
Class A 657
Class B 1,546
Class L 427
Class Y 3
Smith Barney Hansberger Global Value Fund
Class A 2,096
Class B 4,857
Class L 1,278
Class Y 9
Item 27. Indemnification
The response to this item is incorporated by
reference to Pre-Effective Amendment No. 1 to the
registration statement filed on Form N-14 on October
8, 1993 (File No. 33-50153).
Item 28(a). Business and Other Connections of
Investment Adviser
Investment Adviser -Mutual Management Corp.("MMC")
formerly Smith Barney Mutual Funds Management Inc.
MMC was incorporated in December 1968 under the laws
of the State of Delaware. MMC is a wholly owned
subsidiary of Salomon Smith Barney Holdings Inc.
("Holdings")(formerly known as Smith Barney Holdings
Inc.), which in turn is a wholly owned subsidiary of
Travelers Group Inc. MMC is registered as an
investment adviser under the Investment Advisers Act
of 1940 (the "Advisers Act").The list required by this
Item 28 of officers and directors of MMC together with
information as to any other business, profession,
vocation or employment of a substantial nature engaged
in by such officers and directors during the past two
years, is incorporated by reference to Schedules A and
D of FORM ADV filed by MMC pursuant to the Advisers
Act (SEC File No. 801-8314).
Item 29. Principal Underwriters
(a) Smith Barney Inc. ("Smith Barney ") acts as
principal underwriter for
Concert Investment Series
Consulting Group Capital Markets Funds
Global Horizons Investment Series (Cayman Islands)
Global Horizons Investment Series (Ireland)
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.
Puerto Rico Equity Index & Income 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 Global Enhanced Income Fund
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
(a) Not applicable
(b) Not applicable
(c) The Registrant hereby undertakes to furnish to
each person to whom a prospectus of any series of the
Registrant is delivered a copy of the Registrant's
latest annual report, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of
1940, as amended, the Registrant, SMITH BARNEY
INVESTMENT FUNDS INC., has duly caused this Amendment
to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized,
all in the City of New York, State of New York on the
28th day of August, 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 8/28/98
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Senior Vice President
Lewis E. Daidone and Treasurer 8/28/98
(Chief Financial
and Accounting Officer)
/s/ Paul R. Ades * Director 8/28/98
Paul R. Ades
/s/ Herbert Barg* Director 8/28/98
Herbert Barg
/s/ Dwight B. Crane* Director 8/28/98
Dwight B. Crane
/s/ Frank Hubbard* Director 8/28/98
Frank Hubbard
/s/ Jerome Miller** Director 8/28/98
Jerome Miller
/s/ Ken Miller* Director 8/28/98
Ken Miller
*Signed by Heath B. McLendon, their duly authorized
attorney-in-fact, pursuant
to power of attorney dated November 3, 1994.
**Signed by Heath B. McLendon, their duly authorized
attorney-in-fact, pursuant
to power of attorney dated April 15, 1998.
/s/ Heath B. McLendon
Heath B. McLendon
EXHIBITS
Exhibit No. Description of Exhibit
11. Auditor's Consent
17. Financial Data Schedule
18. Rule 18f-3(d) Multiple Class Plan
Cover
Rule 18f-3 (d) Multiple Class Plan for Smith Barney Mutual Funds
Introduction
This plan (the "Plan") is adopted pursuant to Rule 18f-3 (d) of
the Investment Company Act of 1940, as amended (the "1940 Act").
The purpose of the Plan is to restate the existing arrangements
previously approved by the Boards of Directors and Trustees of
certain of the open-end investment companies set forth on Schedule
A (the "Funds" and each a "Fund") distributed by Smith Barney Inc.
("Smith Barney") under the Funds' existing order of exemption
(Investment Company Act Release Nos. 20042 (January 28,
1994) (notice) and 20090 (February 23, 1994)). Shares of the
Funds are distributed pursuant to a system (the "Multiple Class
System") in which each class of shares (a "Class") of a Fund
represents a pro rata interest in the same portfolio of
investments of the Fund and differs only to the extent outlined
below.
I. Distribution Arrangements and Service Fees
One or more Classes of shares of the Funds are offered for
purchase by investors with the following sales load structure. In
addition, pursuant to Rule 12b-1 under the 1940 Act (the "Rule"),
the Funds have each adopted a plan (the "Services and Distribution
Plan") under which shares of the Classes are subject to the
services and distribution fees described below.
1. Class A Shares
Class A shares are offered with a front-end sales load and under
the Services and Distribution Plan are subject to a service fee of
up to 0.25% of average daily net assets. In addition, the Funds
are permitted to assess a contingent deferred sales charge
("CDSC") on certain redemptions of Class A shares sold pursuant to
a complete waiver of front-end sales loads applicable to large
purchases, if the shares are redeemed within one year of the date
of purchase. This waiver applies to sales of Class A shares where
the amount of purchase is equal to or exceeds $500,000 although
this amount may be changed in the future.
2. Class B Shares
Class B shares are offered without a front-end sales load, but are
subject to a five-year declining CDSC and under the Services and
Distribution Plan are subject to a service fee at an annual rate
of up to 0.25% of average daily net assets and a distribution fee
at an annual rate of up to 0.75% of average daily net assets.
3. Class D Shares
Class D shares are offered without a front-end sales load, CDSC,
service fee or distribution fee.
4. Class L Shares
Class L shares are offered with a front-end load, are subject to a
one-year CDSC and under the Services and Distribution Plan are
subject to a service fee at an annual rate of up to 0.25% of
average daily net assets and a distribution fee at an annual rate
of up to 0.75% of average daily net assets. Unlike Class B
shares, Class L shares do not have the conversion feature as
discussed below and accordingly, these shares are subject to a
distribution fee for an indefinite period of time. The Funds
reserve the right to impose these fees at such higher rates as may
be determined.
5. Class I Shares
Class I shares are offered without a front-end sales load, but are
subject under the Services and Distribution Plan to a service fee
at an annual rate of up to 0.25% of average daily net assets.
6. Class O Shares
Class O shares are offered without a front-end load, but are
subject to a one-year CDSC and under the Services and Distribution
Plan are subject to a service fee at an annual rate of up to 0.25%
of average daily net assets and a distribution fee at an annual
rate of up to 0.50% of average daily net assets. Unlike Class B
shares, Class O shares do not have the conversion feature as
discussed below and accordingly, these shares are subject to a
distribution fee for an indefinite period of time. The Funds
reserve the right to impose these fees at such higher rates as may
be determined.
Effective June 28, 1999, Class O shares will be offered with a
front-end load and will continue to be subject to a one year CDSC,
a service fee at an annual rate of up to 0.25% of average daily
net assets and a distribution fee at an annual rate of up to 0.50%
of average daily net assets.
7. Class Y Shares
Class Y shares are offered without imposition of either a sales
charge or a service or distribution fee for investments where the
amount of purchase is equal to or exceeds a specific amount as
specified in each Fund's prospectus.
8. Class Z Shares
Class Z shares are offered without imposition of either a sales
charge or a service or distribution fee for purchase (i) by
employee benefit and retirement plans of Smith Barney and its
affiliates, (ii) by certain unit investment trusts sponsored by
Smith Barney and its affiliates, and (iii) although not currently
authorized by the governing boards of the Funds, when and if
authorized, (x) by employees of Smith Barney and its affiliates
and (y) by directors, general partners or trustees of any
investment company for which Smith Barney serves as a distributor
and, for each of (x) and (y), their spouses and minor children.
9. Additional Classes of Shares
The Boards of Directors and Trustees of the Funds have the
authority to create additional classes, or change existing
Classes, from time to time, in accordance with Rule 18f-3 of the
1940 Act.
II. Expense Allocations
Under the Multiple Class System, all expenses incurred by a Fund
are allocated among the various Classes of shares based on the net
assets of the Fund attributable to each Class, except that each
Class's net asset value and expenses reflect the expenses
associated with that Class under the Fund's Services and
Distribution Plan, including any costs associated with obtaining
shareholder approval of the Services and Distribution Plan (or an
amendment thereto) and any expenses specific to that Class. Such
expenses are limited to the following:
(i) transfer agency fees as identified by the transfer
agent as being attributable to a specific Class;
(ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders;
(iii) Blue Sky registration fees incurred by a Class of
shares;
(iv) Securities and Exchange Commission registration fees
incurred by a Class of shares;
(v) the expense of administrative personnel and services
as required to support the shareholders of a specific Class;
(vi) litigation or other legal expenses relating solely to
one Class of shares; and
(vii) fees of members of the governing boards of the funds
incurred as a result of issues relating to one Class of shares.
Pursuant to the Multiple Class System, expenses of a Fund
allocated to a particular Class of shares of that Fund are borne
on a pro rata basis by each outstanding share of that Class.
III. Conversion Rights of Class B Shares
All Class B shares of each Fund will automatically convert to
Class A shares after a certain holding period, expected to be, in
most cases, approximately eight years but may be shorter. Upon
the expiration of the holding period, Class B shares (except those
purchases through the reinvestment of dividends and other
distributions paid in respect of Class B shares) will
automatically convert to Class A shares of the Fund at the
relative net asset value of each of the Classes, and will, as a
result, thereafter be subject to the lower fee under the Services
and Distribution Plan. For purposes of calculating the holding
period required for conversion, newly created Class B shares
issued after the date of implementation of the Multiple Class
System are deemed to have been issued on (i) the date on which the
issuance of the Class B shares occurred or (ii) for Class B shares
obtained through an exchange, or a series of exchanges, the date
on which the issuance of the original Class B shares occurred.
Shares purchased through the reinvestment of dividends and other
distributions paid in respect of Class B shares are also Class B
shares. However, for purposes of conversion to Class A, all Class
B shares in a shareholder's Fund account that were purchased
through the reinvestment of dividends and other distributions paid
in respect of Class B shares (and that have not converted to Class
A shares as provided in the following sentence) are considered to
be held in a separate sub-account. Each time any Class B shares
in the shareholder's Fund account (other than those in the sub-
account referred to in the preceding
sentence) convert to Class A, a pro rata portion of the Class B
shares then in the sub-account also converts to Class A. The
portion is determined by the ratio that the shareholder's Class B
shares converting to Class A bears to the shareholder's total
Class B shares not acquired through dividends and distributions.
The conversion of Class B shares to Class A shares is subject to
the continuing availability of a ruling of the Internal Revenue
Service that payment of different dividends on Class A and Class B
shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Internal Revenue
Code of 1986, as amended (the "Code"), and the continuing
availability of an opinion of counsel to the effect that the
conversion of shares does not constitute a taxable event under the
Code. The conversion of Class B shares to Class A shares may be
suspended if this opinion is no longer available, In the event
that conversion of Class B shares does not occur, Class B shares
would continue to be subject to the distribution fee and any
incrementally higher transfer agency costs attending the Class B
shares for an indefinite period.
IV. Exchange Privileges
Shareholders of a Fund may exchange their shares at net asset
value for shares of the same Class in certain other of the Smith
Barney Mutual Funds as set forth in the prospectus for such Fund.
Funds only permit exchanges into shares of money market funds
having a plan under the Rule if, as permitted by paragraph (b) (5)
of Rule 11a-3 under the 1940 Act, either (i) the time period
during which the shares of the money market funds are held is
included in the calculations of the CDSC or (ii) the time period
is not included but the amount of the CDSC is reduced by the
amount of any payments made under a plan adopted pursuant to the
Rule by the money market funds with respects to those shares.
Currently, the Funds include the time period during which shares
of the money market fund are held in the CDSC period. The
exchange privileges applicable to all Classes of shares must
comply with Rule 11a-3 under the 1940 Act.
Smith Barney Sponsored Investment Companies
Operating under Rule 18f-3 - Schedule A
(as of June 30, 1998)
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
Smith Barney Concert Allocation Series Inc.
Conservative Portfolio
Balanced Portfolio
Global Portfolio
Growth Portfolio
Income Portfolio
High Growth Portfolio
Smith Barney Equity Funds -
Concert Social Awareness Fund
Smith Barney Large Cap Blend Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. -
Large Cap Value Fund
Short-Term High Grade Bond Fund
U.S. Government Securities Fund
Smith Barney Income Funds -
Smith Barney Balanced Fund
Smith Barney Convertible Fund
Smith Barney Diversified Strategic Income Fund
Smith Barney Exchange Reserve Fund
Smith Barney High Income Fund
Smith Barney Municipal High Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Total Return Bond Fund
Smith Barney Investment Trust -
Smith Barney Intermediate Maturity California Municipals Fund
Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney S&P 500 Index Fund
Smith Barney Mid Cap Blend Fund
Smith Barney Investment Funds Inc. -
Concert Peachtree Growth Fund
Smith Barney Contrarian Fund
Smith Barney Government Securities Fund
Smith Barney Hansberger Global Small Cap Value Fund
Smith Barney Hansberger Global Value Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Special Equities Fund
Smith Barney Institutional Cash Management Fund, Inc.
Cash Portfolio
Government Portfolio
Municipal Portfolio
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc. -
Cash Portfolio
Government Portfolio
Retirement Portfolio
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Muni Funds -
California Money Market Portfolio
Florida Portfolio
Georgia Portfolio
Limited Term Portfolio
National Portfolio
New York Portfolio
New York Money Market
Pennsylvania Portfolio
Smith Barney Natural Resources Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Telecommunications Trust -
Smith Barney Telecommunications Income Fund
Smith Barney World Funds, Inc. -
International Equity Portfolio
International Balanced Portfolio
European Portfolio
Pacific Portfolio
Global Government Bond Portfolio
Emerging Markets Portfolio
Independent Auditors' Consent
To the Shareholders and Board of Directors of
Smith Barney Investment Funds Inc.:
We consent to the use of our reports dated June 12, 1998 for
Smith Barney Hansberger Global Value Fund and Smith Barney
Hansberger Global Small Cap Value Fund, incorporated herein by
reference and to the references to our Firm under the headings
"Financial Highlights" in the Prospectus and "Counsel and
Auditors" in the Statement of Additional Information.
KPMG
Peat Marwick LLP
New York, New York
August 12, 1998
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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.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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