As filed with the Securities and Exchange Commission
on April 30, 1999
- ------------------------------------------------------
- -----------------------
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. 59
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940,
Amendment No. 61
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:
[XX] immediately upon filing pursuant to Paragraph (b) of Rule 485
[ ] On (date) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] On (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] 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
PART A
<PAGE>
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Everyday(R)
PROSPECTUS
Special Equities Fund
Class A, B, L and Y Shares
________________________________________________________________________________
April 30, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Special Equities Fund
Contents
<TABLE>
<S> <C>
Fund goal and main strategies............................................... 2
Risks, performance and expenses............................................. 3
More on the fund's investments.............................................. 6
Management.................................................................. 7
Choosing a class of shares to buy........................................... 8
Comparing the fund's classes................................................ 9
Sales charges............................................................... 10
More about deferred sales charges........................................... 12
Buying shares............................................................... 13
Exchanging shares........................................................... 14
Redeeming shares............................................................ 16
Other things to know
about share transactions.................................................... 18
Smith Barney 401(k) and
ExecChoice(TM) programs..................................................... 20
Dividends, distributions and taxes.......................................... 21
Share price................................................................. 22
Financial highlights........................................................ 23
</TABLE>
You should know: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds
1
<PAGE>
The Fund is not selling shares while the Fund's shareholders consider whether
to merge the Fund into Salomon Brothers Small Cap Growth Fund.
Fund goal and main strategies
Investment objective
The fund seeks long-term capital appreciation.
Key investments
The fund invests primarily in equity securities of U.S. companies which the
manager expects to experience above average growth. Generally these companies
have market capitalizations below those of the companies included in the Stan-
dard & Poor's 500 Index.
The fund typically invests in:
. Newer companies in their developmental stages that have not reached a fully
mature level of earnings growth
. Older companies that appear to be entering a new stage of more rapid earnings
growth, due to recent or expected fundamental changes
. Companies with above average earnings potential that are leaders in niche
industries
Many of these companies are in the technology, health care, consumer products
and financial services sectors.
Selection process
The manager emphasizes individual security selection while diversifying the
fund's investments among industries and sectors in order to reduce risk. The
manager selects investments primarily for their capital appreciation potential.
Any current income is incidental. The manager uses a combination of qualitative
and quantitative techniques.
In selecting individual securities, the manager looks for:
. Companies that occupy a dominant position in an emerging industry or a grow-
ing market share in a larger fragmented industry
. Smaller companies with accelerating growth in revenues and earnings
. Management with demonstrated ability and commitment to the company
. Effective research, product development and marketing
. Competitive advantages
Special Equities Fund
2
<PAGE>
Risks, performance and expenses
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
. Stock prices decline
. Smaller capitalization companies fall out of favor with investors
. The manager's judgment about the attractiveness, value or potential apprecia-
tion of a particular stock proves to be incorrect
. A particular product or service developed by a company in which the fund
invests is unsuccessful, the company does not meet earnings expectations or
other events depress the value of the company's stock
The fund may engage in active and frequent
trading, resulting in high portfolio turnover. This may lead to the
realization and distribution to shareholders of higher capital gains,
increasing their tax liability. Frequent trading also increases
transaction costs, which could detract from the fund's performance.
Compared to mutual funds that focus on large capitalization companies, the
fund's share price may be more volatile because of its focus on smaller capi-
talization companies. Compared to large companies, smaller capitalization com-
panies, and the markets for their common stocks, are more likely to:
. Offer greater potential for losses
. Have more limited product lines, capital resources and management depth
. Experience sharper swings in market values, reflecting the lesser liquidity
of the market for their securities
. Be harder to sell at times and prices the manager believes appropriate
Who may want to invest
The fund may be an appropriate investment if you:
. Are seeking to participate in the long term growth potential of smaller capi-
talization companies
. Currently have exposure to fixed income investments and companies with large
capitalizations and wish to diversify your investment portfolio
. Are willing to accept the risks of the stock market and the special risks of
investing in unproven companies with limited track records
Smith Barney Mutual Funds
3
<PAGE>
Total return
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not neces-
sarily indicate how the fund will perform in the future.
Total Return for Class B Shares
[CHART APPEARS HERE]
The bar chart shows the performance of the fund's Class B shares for each of
the past 10 years. Class A, L and Y shares would have different performance
because of their different expenses. The performance information in the chart
does not reflect sales charges, which would reduce your return.
Quarterly returns (past 10 years):
Highest: 28.79% in 4th quarter 1998; Lowest: (28.82%) in 3rd quarter 1990
Comparative performance
This table indicates the risks of investing in the fund by comparing the aver-
age annual total return of each class for the periods shown with that of the
Russell 2000 Index, a broad-based unmanaged index of common stocks of smaller
capitalization companies and the S&P 500 Index, a broad based index composed of
500 widely held common stocks. This table assumes imposition of the maximum
sales charge applicable to the class, redemption of shares at the end of the
period, and reinvestment of distributions and dividends.
Average Annual Total Returns
Calendar Years Ended December 31, 1998
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since Inception Inception Date
<S> <C> <C> <C> <C> <C>
A 4.91% 7.56% n/a 12.79% 11/06/92
B 4.63 7.72 10.51% 9.36 12/13/82
L 7.53 7.66 n/a 5.24 10/18/93
Y n/a n/a n/a 0.61+ 01/31/96
S&P 500 Index 28.60 24.05 19.19 18.17 *
Russell 2000 Index *
</TABLE>
+For the period from 1/31/96 (inception date) through 12/29/98.
*Index comparison begins on 12/31/82
Special Equities Fund
4
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price) 5.00% None 1.00% None
Maximum deferred sales charge (load) (as a %
of the lower of net asset value at purchase or
redemption) None* 5.00% 1.00% None
Annual fund operating expenses**
<CAPTION>
(expenses deducted from fund assets) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Management fee 0.75% 0.75% 0.75% 0.75%
Distribution and service (12b-1) fee 0.25% 1.00% 1.00% None
Other expenses 0.24% 0.24% 0.24% 0.24%
----- ----- ----- -----
Total annual fund operating expenses 1.24% 1.99% 1.99% 0.99%
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase, you will pay a deferred sales charge of 1.00%.
**For Class Y shares, "Other expenses" have been estimated based on expenses
incurred by Class A shares because no Class Y shares were outstanding for the
year ended December 31, 1998.
Example
This example helps you compare the costs of investing in the fund with the
costs of investing in other mutual funds. Your actual costs may be higher or
lower. The example assumes:
. You invest $10,000 in the fund for the period shown
.Your investment has a 5% return each year
.You reinvest all distributions and dividends without a sales charge
.The fund's operating expenses remain the same
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A (with or without redemption) $620 $874 $1,147 $1,925
Class B (redemption at end of period) $702 $924 $1,173 $2,123
Class B (no redemption) $202 $624 $1,073 $2,123
Class L (redemption at end of period) $400 $718 $1,162 $2,394
Class L (no redemption) $300 $718 $1,162 $2,394
Class Y (with or without redemption) $101 $315 $ 547 $1,213
</TABLE>
Smith Barney Mutual Funds
5
<PAGE>
More on the fund's investments
Derivative contracts The fund may, but need not, use derivative contracts, such
as futures and options on securities or securities indices, or options on these
futures for any of the following purposes:
.To hedge against the economic impact of adverse changes in the market value of
portfolio securities, because of changes in stock market prices
.As a substitute for buying or selling securities
A derivative contract will obligate or entitle a fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities or
indices. Even a small investment in derivative contracts can have a big impact
on a fund's stock exposure. Therefore, using derivatives can disproportionately
increase losses and reduce opportunities for gains. The fund may not fully ben-
efit from or may lose money on derivatives if changes in their value do not
correspond accurately to changes in the value of the fund's holdings. The other
parties to certain derivative contracts present the same types of default risk
as issuers of fixed income securities. Derivatives can also make a fund less
liquid and harder to value, especially in declining markets.
Foreign securities The fund may invest in American Depository Receipts (ADRs)
and other securities quoted in U.S. dollars of foreign issuers, including those
in emerging markets. Because the fund may invest in securities of foreign
issuers, the fund carries additional risks. The value of your investment may
decline if the U.S. and/or foreign stock markets decline or an adverse event,
such as an unfavorable earnings report, depresses the value of a particular
company's stock. Prices of foreign securities may go down because of foreign
government actions, political instability or the more limited availability of
accurate information about foreign companies. These risks may be more severe
for securities of issuers in emerging markets.
Defensive investing The fund may depart from its principal investment strate-
gies in response to adverse market, economic or political conditions by taking
temporary defensive positions in all types of money market and short-term debt
securities. If the fund takes a temporary defensive position, it may be unable
to achieve its investment goal.
Special Equities Fund
6
<PAGE>
Management
Manager The fund's investment manager is SSBC Fund Management Inc., an affili-
ate of Salomon Smith Barney Inc. The manager's address is 388 Greenwich Street,
New York, New York 10013. The manager selects the fund's investments and
oversees its operations. The manager and Salomon Smith Barney are subsidiaries
of Citigroup Inc. Citigroup businesses produce a broad range of financial serv-
ices--asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading--and use diverse chan-
nels to make them available to consumer and corporate customers around the
world.
Pamela P. Milunovich, investment officer of the manager and a director of Salo-
mon Brothers Asset Management, has been responsible for the day to day manage-
ment of the fund since November 1998.
Management fee For its services, the manager received a fee during the fund's
last fiscal year equal to 0.55% of the fund's average daily net assets. In
addition, the manager received a fee for its administrative services to the
fund equal to 0.20% of the fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to distrib-
ute the fund's shares. A selling group consisting of Salomon Smith Barney and
other broker-dealers sells fund shares to the public.
Distribution plans The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and serv-
ice fees. These fees are an ongoing expense and, over time, may cost you more
than other types of sales charges.
Year 2000 issue Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if sub-
stantial, could adversely affect companies and governments that issue securi-
ties held by the fund. The manager and Salomon Smith Barney are addressing the
Year 2000 issue for their systems. The fund has been informed by other service
providers that they are taking similar measures. Although the fund does not
expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
that the efforts of the fund which are limited to requesting
and receiving reports
from its service providers, or the efforts of its service providers to correct
the problem will be successful.
Smith Barney Mutual Funds
7
<PAGE>
Choosing a class of shares to buy
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
.If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.
.For Class B shares, all of your purchase price and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
.Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and
Class L shares do not, Class B shares may be more attractive to long-term
investors.
You may buy shares from:
.A Salomon Smith Barney Financial Consultant
.An investment dealer in the selling group or a broker that clears through Sal-
omon Smith Barney--a dealer representative
.The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
Initial Additional
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $250 $15 million $50
Qualified Retirement Plans* $25 $15 million $25
Simple IRAs $1 n/a $1
Monthly Systematic Investment Plans $25 n/a $25
Quarterly Systematic Investment Plans $50 n/a $50
</TABLE>
* Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k)
plans
Special Equities Fund
8
<PAGE>
Comparing the fund's classes
Your Salomon Smith Barney Financial Consultant or dealer representative can
help you decide which class meets your goals. They may receive different com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .Initial .No initial
sales sales sales or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge .Deferred .Must
tion or declines sales invest at
waiver of over time charge for least $15
initial .Converts only 1 million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than Class expenses annual classes
B and than Class expenses
Class L A than Class
A
- ------------------------------------------------------------------------
Initial sales charge Up to None 1.00% None
5.00%;
reduced for
large pur-
chases and
waived for
certain
investors.
No charge
for pur-
chases of
$500,000 or
more
- ------------------------------------------------------------------------
Deferred sales charge 1% on pur- Up to 5% 1% if you None
chases of charged redeem
$500,000 or when you within 1
more if you redeem year of
redeem shares. The purchase
within 1 charge is
year of reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
- ------------------------------------------------------------------------
Annual distribution and 0.25% of 1% of aver- 1% of aver- None
service fees average age daily age daily
daily net net assets net assets
assets
- ------------------------------------------------------------------------
Exchangeable into* Class A Class B Class L Class Y
shares of shares of shares of shares of
most Smith most Smith most Smith most Smith
Barney Barney Barney Barney
funds funds funds funds
- ------------------------------------------------------------------------
</TABLE>
* Ask your Salomon Smith Barney Financial Consultant or dealer representative
or visit the web site for the Smith Barney funds available for exchange.
Smith Barney Mutual Funds
9
<PAGE>
Sales charges
Class A Shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge
on the fund's distributions or dividends you reinvest in additional Class A
shares.
<TABLE>
<CAPTION>
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
<S> <C> <C>
Less than $25,000 5.00 5.26
$25,000 but less than $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 3.00 3.09
$250,000 but less than $500,000 2.00 2.04
$500,000 or more 0.00 0.00
</TABLE>
Investments of $500,000 or more You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
Qualifying for a reduced Class A sales charge There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Accumulation privilege - lets you combine the current value of Class A shares
owned
.by you, or
.by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
Letter of intent - lets you purchase Class A shares of the fund and other Smith
Barney funds over a 13-month period and pay the same sales charge,
Special Equities Fund
10
<PAGE>
if any, as if all shares had been purchased at once. You may include purchases
on which you paid a sales charge within 90 days before you sign the letter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
.Employees of members of the NASD
.403(b) or 401(k) retirement plans, if certain conditions are met
.Clients of newly employed Salomon Smith Barney Financial Consultants, if cer-
tain conditions are met
.Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn about additional waivers of
Class A initial sales charges, contact your Salomon Smith Barney Financial Con-
sultant or dealer representative or consult the Statement of Additional Infor-
mation ("SAI").
Class B Shares
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of pur-
chase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
<TABLE>
<CAPTION>
Year after purchase 1st 2nd 3rd 4th 5th 6th through 8th
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 5% 4% 3% 2% 1% 0%
</TABLE>
Class B conversion. After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
Shares issued: Shares issued: Shares issued:
At initial On reinvestment of Upon exchange from
purchase dividends and another Smith Barney
distributions fund
<S> <C> <C>
Eight years after the date of purchase In same proportion On the date the
as the number of shares originally
Class B shares acquired would
converting is to have converted
total Class B into Class A
shares you own shares
</TABLE>
Smith Barney Mutual Funds
11
<PAGE>
Class L Shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund on June 12, 1998,
you will not pay an initial sales charge on Class L shares you buy before June
22, 2001.
Class Y Shares
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 6-month period. To qualify, you
must initially invest $5,000,000.
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of pur-
chase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
.Shares exchanged for shares of another Smith Barney fund
.Shares representing reinvested distributions and dividends
.Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation
for its expenses in selling shares, including the payment of compensation to
your Salomon Smith Barney Financial Consultant or dealer representative.
Special Equities Fund
12
<PAGE>
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
.On payments made through certain systematic withdrawal plans
.On certain distributions from a retirement plan
.For involuntary redemptions of small account balances
.For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant or
dealer will
be
representative
If you do not provide the following information, your order
rejected
.Class of shares being bought
.Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account
no later than the third business day after you place your
order. Salomon Smith Barney or your dealer representative may
charge an annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the
fund's Qualified retirement plans and certain other investors who
transfer are clients of the selling group are eligible to buy shares
directly from directly from the fund.
agent
.Write the transfer agent at the following address:
Smith Barney Investment Funds Inc.
Smith Barney Special Equities Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
.Enclose a check to pay for the shares. For initial pur-
chases, complete and send an account application.
.For more information, call the transfer agent at 1-800-451-
2010.
Smith Barney Mutual Funds
13
<PAGE>
Through a You may authorize Salomon Smith Barney, your dealer represen-
systematic tative or the transfer agent to transfer funds automatically
investment from a regular bank account, cash held in a Salomon Smith
plan Barney brokerage account or Smith Barney money market fund to
buy shares on a regular basis.
.Amounts transferred should be at least: $25 monthly or $50
quarterly
.If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer represen-
tative or the transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the SAI.
Exchanging shares
Smith Barney You should contact your Salomon Smith Barney Financial Con-
offers a sultant or dealer representative to exchange into other Smith
distinctive Barney funds. Be sure to read the prospectus of the Smith
family of Barney fund you are exchanging into. An exchange is a taxable
funds transaction.
tailored to
help meet the
varying needs
of both large
and small
investors.
.You may exchange shares only for shares of the same class of
another Smith Barney fund. Not all Smith Barney funds offer
all classes.
.Not all Smith Barney funds may be offered in your state of
residence. Contact your Smith Barney Financial Consultant,
dealer representative or the transfer agent.
.You must meet the minimum investment amount for each fund
.If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with
signed stock powers (documents transferring ownership of
certificates) before the exchange is effective.
.The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges
Special Equities Fund
14
<PAGE>
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will continue to be mea-
sured from the date of your original purchase. If the fund
you exchange into has a higher deferred sales charge, you
will be subject to that charge. If you exchange at any time
into a fund with a lower charge, the sales charge will not be
reduced.
- --------------------------------------------------------------------------------
By telephone If you do not have a brokerage account, you may be eligible
to exchange shares through the transfer agent. You must com-
plete an authorization form to authorize telephone transfers.
If eligible, you may make telephone exchanges on any day the
New York Stock Exchange is open. Call the transfer agent at
1-800- 451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern
time). Requests received after the close of regular trading
on the Exchange are priced at the net asset value next deter-
mined. You can make telephone exchanges only between accounts
that have identical registrations.
- --------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer
agent at the address on the opposite page.
Smith Barney Mutual Funds
15
<PAGE>
Redeeming shares
Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However,
if you recently purchased your shares by check, your redemp-
tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests
to the transfer agent at the following address:
Smith Barney Investment Funds Inc.
Smith Barney Special Equities Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
.Your account number
.The class of shares and the dollar amount or number of
shares to be redeemed
.Signatures of each owner exactly as the account is regis-
tered
Special Equities Fund
16
<PAGE>
By telephone If you do not have a brokerage account, you may be eligible
to redeem shares (except those held in retirement plans) in
amounts up to $10,000 per day through the transfer agent. You
must complete an authorization form to authorize telephone
redemptions. If eligible, you may request redemptions by tel-
ephone on any day the New York Stock Exchange is open. Call
the transfer agent at 1-800-451-2010 between 9:00 a.m. and
5:00 p.m. (Eastern time). Requests received after the close
of regular trading on the Exchange are priced at the net
asset value next determined.
Your redemption proceeds can be sent by check to your address
of record or by wire transfer to a bank account designated on
your authorization form. You may be charged a fee for wire
transfers. You must submit a new authorization form to change
the bank account designated to receive wire transfers and you
may be asked to provide certain other documents.
- --------------------------------------------------------------------------------
Automatic
cash You can arrange for the automatic redemption of a portion of
withdrawal your shares on a monthly or quarterly basis. To qualify you
plans must own shares of the fund with a value of at least $10,000
($5,000 for retirement plans) and each automatic redemp-
tion must be at least $50. If your shares are subject to a
deferred sales charge, the sales charge will be waived if
your automatic payments do not exceed 1% per month of the
value of your shares subject to a deferred sales charge.
The following conditions apply:
.Your shares must not be represented by certificates
.All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
Smith Barney Mutual Funds
17
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
.Name of the fund
.Account number
.Class of shares being bought, exchanged or redeemed
.Dollar amount or number of shares being bought, exchanged or redeemed
.Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemp-
tion request is genuine by recording calls, asking the caller to provide a per-
sonal identification number for the account, sending you a written confirmation
or requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include
a signature guarantee if you:
.Are redeeming over $10,000 of shares
.Are sending signed share certificates or stock powers to the transfer agent
.Instruct the transfer agent to mail the check to an address different from the
one on your account
.Changed your account registration
.Want the check paid to someone other than the account owner(s)
.Are transferring the redemption proceeds to an account with a different regis-
tration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
The fund has the right to:
.Suspend the offering of shares
.Waive or change minimum and additional investment amounts
.Reject any purchase or exchange order
.Change, revoke or suspend the exchange privilege
.Suspend telephone transactions
Special Equities Fund
18
<PAGE>
.Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securi-
ties and Exchange Commission
.Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other share-
holders. If so, the fund may limit additional purchases and/or exchanges by the
shareholder.
Share certificates The fund does not issue share certificates unless a written
request signed by all registered owners is made to the transfer agent. If you
hold share certificates it will take longer to exchange or redeem shares.
Smith Barney Mutual Funds
19
<PAGE>
Smith Barney 401(k) and ExecChoiceTM programs
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoiceTM program. The fund offers Class A and Class L shares
to participating plans as investment alternatives under the programs. You can
meet minimum investment and exchange amounts by combining the plan's invest-
ments in any of the Smith Barney funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment. Once a class
of shares is chosen, all additional purchases must be of the same class.
.Class A shares may be purchased by plans investing at least $1 million.
.Class L shares may be purchased by plans investing less than $1 million. Class
L shares are eligible for exchange to Class A shares not later than 8 years
after the plan joined the program. They are eligible for exchange sooner in
the following circumstances:
If the account was opened on or after June 21, 1996 and a total of $1 mil-
lion is invested in Smith Barney Funds Class L shares (other than money
market funds), all Class L shares are eligible for exchange after the plan
is in the program 5 years.
If the account was opened before June 21, 1996 and a total of $500,000 is
invested in Smith Barney Funds Class L shares (other than money market
funds) on December 31 in any year, all Class L shares are eligible for
exchange on or about March 31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant or
the transfer agent, or consult the SAI.
Special Equities Fund
20
<PAGE>
Dividends, distributions and taxes
Dividends The fund generally makes capital gain distributions and pays divi-
dends, if any, once a year, typically in December. The fund may pay additional
distributions and dividends at other times if necessary for the fund to avoid a
federal tax. Capital gain distributions and dividends are reinvested in addi-
tional fund shares of the same class you hold. The fund expects distributions
to be primarily from capital gain. You do not pay a sales charge on reinvested
distributions or dividends. Alternatively, you can instruct your Salomon Smith
Barney Financial Consultant, dealer representative or the transfer agent to
have your distributions and/or dividends paid in cash. You can change your
choice at any time to be effective as of the next distribution or dividend,
except that any change given to the transfer agent less than five days before
the payment date will not be effective until the next distribution or dividend
is paid.
Taxes In general, redeeming shares, exchanging shares and receiving distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually capital gain or
loss;
long-term only if shares
owned more than one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
</TABLE>
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a capital gain distribution or
a dividend, because it will be taxable to you even though it may actually be a
return of a portion of your investment.
After the end of each year, the fund will provide you with information about
the distributions and dividends you received and any redemptions of shares dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer identification number and any required certifications, you may be subject
to back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special
tax rules may apply, you should consult your tax adviser about your investment
in the fund.
Smith Barney Mutual Funds
21
<PAGE>
Share price
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its liabili-
ties. Net asset value is calculated separately for each class of shares. The
fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This calcu-
lation is done when regular trading closes on the Exchange (normally 4:00 p.m.,
Eastern time).
The fund generally values its fund securities based on market prices or quota-
tions. The fund's currency conversions are done when the London stock exchange
closes, which is 12 noon Eastern time. When reliable market prices or quota-
tions are not readily available, or when the value of a security has been mate-
rially affected by events occurring after a foreign exchange closes, the fund
may price those securities at fair value. Fair value is determined in accor-
dance with procedures approved by the fund's board. A fund that uses fair value
to price securities may value those securities higher or lower than another
fund using market quotations to price the same securities.
International markets may be open on days when U.S. markets are closed and the
value of foreign securities owned by the fund could change on days when you
cannot buy or redeem shares.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer repre-
sentative before the New York Stock Exchange closes. If the Exchange closes
early, you must place your order prior to the actual closing time. Otherwise,
you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders
to buy, exchange or redeem shares to the fund's agent before the agent's close
of business.
Special Equities Fund
22
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance of each class for the past 5 years. Certain information reflects finan-
cial results for a single share. Total return represents the rate that a
shareholder would have earned (or lost) on a fund share assuming reinvestment
of all dividends and distributions. The information in the following tables was
audited by KPMG LLP, independent accountants, whose report, along with the
fund's financial statements, are included in the annual report (available upon
request). The financial highlights for the year eneded December 31, 1994 were
audited by other auditors.
For a Class A share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1998(/1/) 1997 1996(/1/) 1995 1994(/1/)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $26.52 $28.11 $30.44 $19.10 $20.23
- --------------------------------------------------------------------------------
Income (loss) from operations:
Net investment loss (0.15) (0.21) (0.19) (0.27) (0.13)
Net realized and unrealized gain
(loss) 2.92 (1.38) (1.50) 12.37 (1.00)
- --------------------------------------------------------------------------------
Total income (loss) from
operations 2.77 (1.59) (1.69) 12.10 (1.13)
- --------------------------------------------------------------------------------
Less distributions from:
Net realized gains -- -- (0.28) (0.76) --
Capital -- -- (0.36) -- --
- --------------------------------------------------------------------------------
Total Distributions -- -- (0.64) (0.76) --
- --------------------------------------------------------------------------------
Net asset value, end of year $29.29 $26.52 $28.11 $30.44 $19.10
- --------------------------------------------------------------------------------
Total return 10.44% (5.66)% (5.81)% 63.48% (5.59)%
- --------------------------------------------------------------------------------
Net assets, end of year--
(millions) $153 $177 $237 $159 $101
- --------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.24% 1.20% 1.17% 1.43% 1.49%
Net investment loss (0.58) (0.67) (0.61) (1.05) (0.94)
- --------------------------------------------------------------------------------
Portfolio turnover rate 157% 145% 118% 113% 123%
- --------------------------------------------------------------------------------
</TABLE>
(/1/Per)share amounts calculated using the monthly average shares method.
Smith Barney Mutual Funds
23
<PAGE>
For a Class B share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1998(/1/) 1997 1996(/1/) 1995 1994(/1/)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $25.54 $27.28 $29.76 $18.82 $20.08
- --------------------------------------------------------------------------------
Income (loss) from operations:
Net investment loss (0.34) (0.45) (0.41) (0.37) (0.27)
Net realized and unrealized gain
(loss) 2.80 (1.29) (1.43) 12.07 (0.99)
- --------------------------------------------------------------------------------
Total income (loss) from
operations 2.46 (1.74) (1.84) 11.70 (1.26)
- --------------------------------------------------------------------------------
Less distributions from:
Net realized gains -- -- (0.28) (0.76) --
Capital -- -- (0.36) -- --
- --------------------------------------------------------------------------------
Total distributions -- -- (0.64) (0.76) --
- --------------------------------------------------------------------------------
Net asset value, end of year $28.00 $25.54 $27.28 $29.76 $18.82
- --------------------------------------------------------------------------------
Total return 9.63% (6.38)% (6.44)% 62.30% (6.27)%
- --------------------------------------------------------------------------------
Net assets, end of year (millions) $148 $244 $362 $171 $94,920
- --------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.99% 1.94% 1.91% 2.04% 2.21%
Net investment loss (1.33) (1.41) (1.36) (1.61) (1.66)
- --------------------------------------------------------------------------------
Portfolio turnover rate 157% 145% 118% 113% 123%
- --------------------------------------------------------------------------------
</TABLE>
(/1/Per)share amounts calculated using the monthly average shares method.
Special Equities Fund
24
<PAGE>
For a Class L share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1998(/1/)(/2/) 1997 1996(/1/) 1995 1994(/1/)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $25.54 $27.28 $29.77 $18.82 $20.08
- --------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment loss (0.34) (0.45) (0.41) (0.42) (0.25)
Net realized and unrealized
gain (loss) 2.80 (1.29) (1.44) 12.13 (1.01)
- --------------------------------------------------------------------------------
Total income (loss) from
operations 2.46 (1.74) (1.85) 11.71 (1.26)
- --------------------------------------------------------------------------------
Less distributions from:
Net realized gains -- -- (0.28) (0.76) --
Capital -- -- (0.36) -- --
- --------------------------------------------------------------------------------
Total Distributions -- -- (0.64) (0.76) --
- --------------------------------------------------------------------------------
Net asset value, end of
year $28.00 $25.54 $27.28 $29.77 $18.82
- --------------------------------------------------------------------------------
Total return 9.63% (6.38)% (6.44)% 62.35% (6.27)%
- --------------------------------------------------------------------------------
Net assets, end of year
(millions) $10 $19 $26 $9 $2
- --------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses 1.99% 1.95% 1.90% 2.25% 2.15%
Net investment loss (1.33) (1.42) (1.34) (1.79) (1.60)
- --------------------------------------------------------------------------------
Portfolio turnover rate 157% 145% 118% 113% 123%
- --------------------------------------------------------------------------------
</TABLE>
(/1/Per)share amounts calculated using the monthly average shares method.
(/2/Prior)to June 12, 1998, Class L shares were called Class C shares.
Smith Barney Mutual Funds
25
<PAGE>
For a Class Y share* of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1997 1996(/1/)(/2/)
- -----------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year $28.21 $28.99
- -----------------------------------------------------------
Loss from operations:
Net investment loss (0.09) (0.08)
Net realized and unrealized loss (1.40) (0.06)
- -----------------------------------------------------------
Total loss from operations (1.49) (0.14)
- -----------------------------------------------------------
Less distributions from:
Net realized gains -- (0.28)
Capital -- (0.36)
- -----------------------------------------------------------
Total Distributions -- (0.64)
- -----------------------------------------------------------
Net asset value, end of year $26.72 $28.21
- -----------------------------------------------------------
Total return (5.28)% (0.75)%(/3/)
- -----------------------------------------------------------
Net assets, end of year (millions) $106 $94
- -----------------------------------------------------------
Ratios to average net assets:
Expenses 0.80% 0.82%(/4/)
Net investment loss (0.27) (0.29)(/4/)
- -----------------------------------------------------------
Portfolio turnover rate 145% 118%
- -----------------------------------------------------------
</TABLE>
(/1/Per)share amounts calculated using the monthly average shares method.
(/2/For)the period from January 31, 1996 (inception date) to December 31, 1996.
(/3/Not)annualized.
(/4/Annualized.)
* There were no Class Y shares outstanding for the year ended December 31, 1998
Special Equities Fund
26
<PAGE>
(This page is intentionally left blank.)
<PAGE>
SALOMONSMITHBARNEY
- ----------------------------
A member of citigroup [LOGO]
Special Equities Fund
An investment portfolio of Smith Barney Investment Funds Inc.
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket conditions and investment strategies that affected the fund's performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by refer-
ence into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site Our web site is located at www.smithbarney.com
You can also review and copy the fund's shareholder reports, prospectus and
statement of additional information at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. You can get copies of these materials
for a duplicating fee by writing to the Public Reference Section of the Commis-
sion, Washington, D.C. 20549-6009. Information about the public reference room
may be obtained by calling 1-800-SEC-0330. You can get the same information
free from the Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not law-
fully sell its shares.
SMSalomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file
no. 811-03275)
[FD00232 4/99]
<PAGE>
[LOGO] Smith Barney Mutal Funds
Investing for your future.
Everyday.(R)
PROSPECTUS
Concert Peachtree Growth Fund
Class A, B, L and Y Shares
________________________________________________________________________________
April 30, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Concert Peachtree Growth Fund
Contents
<TABLE>
<S> <C>
Fund goal and main strategies............................................... 2
Risks, performance and expenses............................................. 3
More on the fund's investments.............................................. 7
Management.................................................................. 8
Choosing a class of shares to buy........................................... 9
Comparing the fund's classes................................................ 10
Sales charge................................................................ 11
More about deferred sales charges........................................... 14
Buying shares............................................................... 15
Exchanging shares........................................................... 16
Redeeming shares............................................................ 17
Other things to know
about share transactions.................................................... 19
Smith Barney 401(k) and
ExecChoiceTM programs....................................................... 21
Dividends, distributions and taxes.......................................... 22
Share price................................................................. 23
</TABLE>
You should know: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds
1
<PAGE>
Fund goal and main strategies
Investment objective
The fund seeks capital appreciation.
Key investments
The fund invests primarily in common stocks of companies with medium and large
market capitalizations.
To a lesser extent, the fund also may invest in common stocks of companies with
small market capitalizations and other equity securities, including exchange
traded and over-the-counter common stocks and preferred shares, debt securities
convertible into equity securities, and warrants and rights relating to equity
securities.
Selection process
The manager emphasizes individual security selection, while diversifying across
industries and sectors. The manager uses a disciplined management style involv-
ing both quantitative analysis and fundamental research. The manager uses a
computer-aided quantitative model supported by its own fundamental qualitative
research. In selecting individual securities for investment, the manager looks
for the following:
.Above average potential for capital appreciation
.Strong, sustainable earnings growth
.Stocks of companies in cyclical industries that the manager believes are tem-
porarily depressed
.Experienced and effective management
.Effective research, product development and marketing
.Competitive advantages
Concert Peachtree Growth Fund
2
<PAGE>
Risks, performance and expenses
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
.The stock market declines
.Companies with medium and large market capitalizations fall out of favor with
investors
.Companies in which the fund invests fail to meet earnings expectations, or
other events depress their stock prices
.The manager's judgment about the attractiveness, value or potential apprecia-
tion of a particular stock proves to be incorrect
Who may want to invest
The fund may be an appropriate investment if you:
.Are seeking to participate in the long term capital appreciation potential of
the stock market
.Are planning for a long-term goal and are willing to accept periods of market
volatility
.Are willing to accept the risks of investing in the stock market
Smith Barney Mutual Funds
3
<PAGE>
Total return
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not neces-
sarily indicate how the fund will perform in the future.
Total Return for Class A Shares
Total Return Bar Chart appears here.
The bar chart shows the performance of the fund's Class A shares for each of
the past 3 years. Class B, L and Y shares would have different performance
because of their different expenses. The performance information in the chart
does not reflect sales charges, which would reduce your return.
*The fund's current management team began managing the fund in August 1997.
Quarterly returns:
Highest: 29.90% in 4th quarter 1998; Lowest: (12.26)% in 3rd quarter 1998
Concert Peachtree Growth Fund
4
<PAGE>
Comparative performance
This table indicates the risks of investing in the fund by comparing the aver-
age annual total return of each class for the periods shown with that of the
Russell 1000 Growth Index, a broad-based unmanaged index of large capitaliza-
tion growth oriented common stocks and the Russell 2000 Index, a broad-based
unmanaged index of smaller capitalization companies. This table assumes imposi-
tion of the maximum sales charge applicable to the class, redemption of shares
at the end of the period, and reinvestment of distributions and dividends.
Average Annual Total Returns
Calendar Years Ended December 31, 1998
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since inception Inception Date
<S> <C> <C> <C> <C> <C>
A 26.43% n/a n/a 17.11% 07/03/95
B 27.11 n/a n/a 17.55 07/03/95
L 29.89 n/a n/a 16.51 08/08/95
Y 33.62 n/a n/a 24.68 10/15/97
Russell 1000 Growth 38.71 n/a n/a 29.83 *
Index
Russell 2000 Index 12.27 n/a n/a 12.04 *
</TABLE>
*Index comparison begins on 07/31/95
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge on (load) imposed
purchases (as a % of offering price) 5.00% None 1.00% None
Maximum deferred sales charge (load) (as a %
of the lower of net asset value at purchase or
redemption) None* 5.00% 1.00% None
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund assets)
<S> <C> <C> <C> <C>
Management fee 0.99% 0.99% 0.99% 0.99%
Distribution and service (12b-1) fee 0.25% 1.00% 1.00% None
Other expenses 0.16% 0.22% 0.17% 0.08%
----- ----- ----- -----
Total annual fund operating expenses 1.40% 2.21% 2.16% 1.07%
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase, you will pay a deferred sales charge of 1.00%.
Smith Barney Mutual Funds
5
<PAGE>
Example
This example helps you compare the costs of investing in the fund with the
costs of investing in other mutual funds. Your actual costs may be higher or
lower. The example assumes:
.You invest $10,000 in the fund for the period shown
.Your investment has a 5% return each year
.You reinvest all distributions and dividends without a sales charge
.The fund's operating expenses remain the same
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A
(with or without redemption) $635 $921 $1,228 $2,096
Class B
(redemption at end of period) $724 $991 $1,285 $2,339
Class B
(no redemption) $224 $691 $1,185 $2,339
Class L
(redemption at end of period) $417 $769 $1,248 $2,568
Class L
(no redemption) $317 $769 $1,248 $2,568
Class Y
(with or without redemption) $109 $340 $ 590 $1,306
</TABLE>
Concert Peachtree Growth Fund
6
<PAGE>
More on the fund's investments
Foreign securities The fund may invest in American Depository Receipts (ADRs)
and other securities quoted in U.S. dollars of foreign issuers, including those
in emerging markets. Because the fund may invest in securities of foreign
issuers, the fund carries additional risks. The value of your investment may
decline if the U.S. and/or foreign stock markets decline or an adverse event,
such as an unfavorable earnings report, depresses the value of a particular
company's stock. Prices of foreign securities may go down because of foreign
government actions, political instability or the more limited availability of
accurate information about foreign companies. These risks may be more severe
for securities of issuers in emerging markets.
Defensive investing The fund may depart from its principal investment strate-
gies in response to adverse market, economic or political conditions by taking
temporary defensive positions in all types of money market and short-term debt
securities. If the fund takes a temporary defensive position, it may be unable
to achieve its investment goal.
Smith Barney Mutual Funds
7
<PAGE>
Management
Manager The fund's investment manager is SSBC Fund Management Inc., an affili-
ate of Salomon Smith Barney Inc. The manager's address is 388 Greenwich Street,
New York, New York 10013. The manager selects the fund's investments and
oversees its operations. The manager and Salomon Smith Barney are subsidiaries
of Citigroup Inc. Citigroup businesses produce a broad range of financial serv-
ices--asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading--and use diverse chan-
nels to make them available to consumer and corporate customers around the
world.
Dennis A. Johnson, CFA, investment officer of the manager and president and
chief investment officer of Peachtree Asset Management, a division of the man-
ager, has been responsible for the management of the fund since August 1997.
Management fee For its services, the manager received a fee during the fund's
last fiscal year equal to 0.99% of the fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to distrib-
ute the fund's shares. A selling group consisting of Salomon Smith Barney and
other broker-dealers sells fund shares to the public.
Distribution plans The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and serv-
ice fees. These fees are an ongoing expense and, over time, may cost you more
than other types of sales charges.
Year 2000 issue Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if sub-
stantial, could adversely affect companies and governments that issue securi-
ties held by the fund. The manager and Salomon Smith Barney are addressing the
Year 2000 issue for their systems. The fund has been informed by other service
providers that they are taking similar measures. Although the fund does not
expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
that the efforts of the fund which are limited to
requesting and receiving reports
from its service providers, or the efforts of its service providers to correct
the problem will be successful.
Concert Peachtree Growth Fund
8
<PAGE>
Choosing a class of shares to buy
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
.If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.
.For Class B shares, all of your purchase price and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
.Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term
investors.
You may buy shares from:
.A Salomon Smith Barney Financial Consultant
.An investment dealer in the selling group or a broker that clears through Sal-
omon Smith Barney--a dealer representative
.The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
Initial Additional
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $250 $15 million $50
Qualified Retirement Plans* $25 $15 million $25
Simple IRAs $1 n/a $1
Monthly Systematic Investment Plans $25 n/a $25
Quarterly Systematic Investment Plans $50 n/a $50
</TABLE>
*Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k)
plans
Smith Barney Mutual Funds
9
<PAGE>
Comparing the fund's classes
Your Salomon Smith Barney Financial Consultant or dealer representative can
help you decide which class meets your goals. They may receive different com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .Initial .No initial
sales sales sales or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge .Deferred .Must
tion or declines sales invest at
waiver of over time charge for least $15
initial .Converts only 1 million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than Class expenses annual classes
B and than Class expenses
Class L A than Class
A
- ------------------------------------------------------------------------
Initial sales charge Up to None 1.00% None
5.00%;
reduced for
large pur-
chases and
waived for
certain
investors.
No charge
for pur-
chases of
$500,000 or
more
- ------------------------------------------------------------------------
Deferred sales charge 1% on pur- Up to 5% 1% if you None
chases of charged redeem
$500,000 or when you within 1
more if you redeem year of
redeem shares. The purchase
within 1 charge is
year of reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
- ------------------------------------------------------------------------
Annual distribution and 0.25% of 1% of aver- 1% of aver- None
service fees average age daily age daily
daily net net assets net assets
assets
- ------------------------------------------------------------------------
Exchangeable into* Class A Class B Class L Class Y
shares of shares of shares of shares of
most Smith most Smith most Smith most Smith
Barney Barney Barney Barney
funds funds funds funds
- ------------------------------------------------------------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
Concert Peachtree Growth Fund
10
<PAGE>
Sales charge
Class A shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge
on the fund's distributions or dividends you reinvest in additional Class A
shares.
<TABLE>
<CAPTION>
Sales charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
<S> <C> <C>
Less than $25,000 5.00 5.26
$25,000 but less than $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 3.00 3.09
$250,000 but less than $500,000 2.00 2.04
$500,000 or more 0.00 0.00
</TABLE>
Investments of $500,000 or more You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
Qualifying for a reduced Class A sales charge There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
.Accumulation privilege - lets you combine the current value of Class A shares
owned
.by you, or
.by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase
of Class A shares for purposes of calculating the initial sales charge. Cer-
tain trustees and fiduciaries may be entitled to combine accounts in deter-
mining their sales charge.
.Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney funds over a 13-month period and pay the same sales charge, if
any, as if all shares had been purchased at once. You may include purchases
on which you paid a sales charge within 90 days before you sign the letter.
Smith Barney Mutual Funds
11
<PAGE>
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
.Employees of members of the NASD
.403(b) or 401(k) retirement plans, if certain conditions are met
.Clients of newly employed Salomon Smith Barney Financial Consultants, if cer-
tain conditions are met
.Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn about addtional waivers of
Class A initial sales charges, contact your Salomon Smith Barney Financial Con-
sultant or dealer representative or consult the Statement of Additional Infor-
mation ("SAI").
Class B Shares
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of pur-
chase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
<TABLE>
<CAPTION>
Year after purchase 1st 2nd 3rd 4th 5th 6th through 8th
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 5% 4% 3% 2% 1% 0%
</TABLE>
Class B conversion After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
Shares issued: Shares issued:
On reinvestment of Upon exchange from
Shares issued: dividends and another Smith Barney
At initial purchase distributions fund
<S> <C> <C>
Eight years after the date of purchase In same proportion On the date the
as the number of shares originally
Class B shares acquired would
converting is to have converted
total Class B into Class A
shares you own shares
</TABLE>
Concert Peachtree Growth Fund
12
<PAGE>
Class L Shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund on June 12, 1998,
you will not pay an initial sales charge on Class L shares you buy before June
22, 2001.
Class Y Shares
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 6-month period. To qualify, you
must initially invest $5,000,000.
Smith Barney Mutual Funds
13
<PAGE>
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of pur-
chase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
.Shares exchanged for shares of another Smith Barney fund
.Shares representing reinvested distributions and dividends
.Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation
for its expenses in selling shares, including the payment of compensation to
your Salomon Smith Barney Financial Consultant or dealer representative.
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
.On payments made through certain systematic withdrawal plans
.On certain distributions from a retirement plan
.For involuntary redemptions of small account balances
.For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
Concert Peachtree Growth Fund
14
<PAGE>
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant or
dealer
representative
If you do not provide the following information, your order
will be rejected
.Class of shares being bought
.Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account
no later than the third business day after you place your
order. Salomon Smith Barney or your dealer representative may
charge an annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who
fund's are clients of the selling group are eligible to buy shares
transfer directly from the fund.
agent
.Write the transfer agent at the following address:
Smith Barney Investment Funds Inc.
Concert Peachtree Growth Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
.Enclose a check to pay for the shares. For initial pur-
chases, complete and send an account application.
.For more information, call the transfer agent at 1-800-451-
2010.
- --------------------------------------------------------------------------------
Through a You may authorize Salomon Smith Barney, your dealer represen-
systematic tative or the transfer agent to transfer funds automatically
investment from a regular bank account, cash held in a Salomon Smith
plan Barney brokerage account or Smith Barney money market fund to
buy shares on a regular basis.
.Amounts transferred should be at least: $25 monthly or $50
quarterly
.If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer represen-
tative or the transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the SAI.
Smith Barney Mutual Funds
15
<PAGE>
Exchanging shares
Smith Barney You should contact your Salomon Smith Barney Financial Con-
offers a sultant or dealer representative to exchange into other Smith
distinctive Barney funds. Be sure to read the prospectus of the Smith
family of Barney fund you are exchanging into. An exchange is a taxable
funds transaction.
tailored to
help meet
varying needs
of both large
and small
investors.
.You may exchange shares only for shares of the same class of
the another Smith Barney fund. Not all Smith Barney funds
offer all classes.
.Not all Smith Barney funds may be offered in your state of
residence. Contact your Smith Barney Financial Consultant,
dealer representative or the transfer agent.
.You must meet the minimum investment amount for each fund
.If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with
signed stock powers (documents transferring ownership of
certificates) before the exchange is effective.
.The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges
- --------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will continue to be mea-
sured from the date of your original purchase. If the fund
you exchange into has a higher deferred sales charge, you
will be subject to that charge. If you exchange at any time
into a fund with a lower charge, the sales charge will not be
reduced.
- --------------------------------------------------------------------------------
By telephone If you do not have a brokerage account, you may be eligible
to exchange shares through the transfer agent. You must com-
plete an authorization form to authorize telephone transfers.
If eligible, you may make telephone exchanges on any day the
New York Stock Exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern
time). Requests received after the close of regular trading
on the Exchange are priced at the net asset value next deter-
mined.
You can make telephone exchanges only between accounts that
have identical registrations.
- --------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer
agent at the address on the opposite page.
Concert Peachtree Growth Fund
16
<PAGE>
Redeeming shares
Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However,
if you recently purchased your shares by check, your redemp-
tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests
to the transfer agent at the following address:
Smith Barney Investment Funds Inc.
Concert Peachtree Growth Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
.Your account number
.The class of shares and the dollar amount or number of
shares to be redeemed
.Signatures of each owner exactly as the account is regis-
tered
- --------------------------------------------------------------------------------
Smith Barney Mutual Funds
17
<PAGE>
By telephone If you do not have a brokerage account, you may be eligible
to redeem shares (except those held in retirement plans) in
amounts up to $10,000 per day through the transfer agent. You
must complete an authorization form to authorize telephone
redemptions. If eligible, you may request redemptions by tel-
ephone on any day the New York Stock Exchange is open. Call
the transfer agent at 1-800-451-2010 between 9:00 a.m. and
5:00 p.m. (Eastern time). Requests received after the close
of regular trading on the Exchange are priced at the net
asset value next determined.
Your redemption proceeds can be sent by check to your address
of record or by wire transfer to a bank account designated on
your authorization form. You may be charged a fee for wire
transfers. You must submit a new authorization form to change
the bank account designated to receive wire transfers and you
may be asked to provide certain other documents.
- --------------------------------------------------------------------------------
Automatic
cash You can arrange for the automatic redemption of a portion of
withdrawal your shares on a monthly or quarterly basis. To qualify you
plans must own shares of the fund with a value of at least $10,000
($5,000 for retirement plans) and each automatic redemp-
tion must be at least $50. If your shares are subject to a
deferred sales charge, the sales charge will be waived if
your automatic payments do not exceed 1% per month of the
value of your shares subject to a deferred sales charge.
The following conditions apply:
.Your shares must not be represented by certificates
.All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
Concert Peachtree Growth Fund
18
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
.Name of the fund
.Account number
.Class of shares being bought, exchanged or redeemed
.Dollar amount or number of shares being bought, exchanged or redeemed
.Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemp-
tion request is genuine by recording calls, asking the caller to provide a per-
sonal identification number for the account, sending you a written confirmation
or requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include
a signature guarantee if you:
.Are redeeming over $10,000 of shares
.Are sending signed share certificates or stock powers to the transfer agent
.Instruct the transfer agent to mail the check to an address different from the
one on your account
.Changed your account registration
.Want the check paid to someone other than the account owner(s)
.Are transferring the redemption proceeds to an account with a different regis-
tration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
The fund has the right to:
.Suspend the offering of shares
.Waive or change minimum and additional investment amounts
.Reject any purchase or exchange order
.Change, revoke or suspend the exchange privilege
Smith Barney Mutual Funds
19
<PAGE>
.Suspend telephone transactions
.Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securi-
ties and Exchange Commission
.Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other share-
holders. If so, the fund may limit additional purchases and/or exchanges by the
shareholder.
Share certificates The fund does not issue share certificates unless a written
request signed by all registered owners is made to the transfer agent. If you
hold share certificates it will take longer to exchange or redeem shares.
Concert Peachtree Growth Fund
20
<PAGE>
Smith Barney 401(k) and ExecChoiceTM programs
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoiceTM program. The fund offers Class A and Class L shares
to participating plans as investment alternatives under the programs. You can
meet minimum investment and exchange amounts by combining the plan's invest-
ments in any of the Smith Barney funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment. Once a class
of shares is chosen, all additional purchases must be of the same class.
.Class A shares may be purchased by plans investing at least $1 million.
.Class L shares may be purchased by plans investing less than $1 million. Class
L shares are eligible for exchange to Class A shares not later than 8 years
after the plan joined the program. They are eligible for exchange sooner in
the following circumstances:
If the account was opened on or after June 21, 1996 and a total of $1 mil-
lion is invested in Smith Barney Funds Class L shares (other than money
market funds), all Class L shares are eligible for exchange after the plan
is in the program 5 years.
If the account was opened before June 21, 1996 and a total of $500,000 is
invested in Smith Barney Funds Class L shares (other than money market
funds) on December 31 of any year, all Class L shares are eligible for
exchange on or about March 31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant or
the transfer agent, or consult the SAI.
Smith Barney Mutual Funds
21
<PAGE>
Dividends, distributions and taxes
Dividends The fund generally makes capital gain distributions and pays divi-
dends, if any, once a year, typically in December. The fund may pay additional
distributions and dividends at other times if necessary for the fund to avoid a
federal tax. Capital gain distributions and dividends are reinvested in addi-
tional fund shares of the same class you hold. The fund expects distributions
to be primarily from capital gain. You do not pay a sales charge on reinvested
distributions or dividends. Alternatively, you can instruct your Salomon Smith
Barney Financial Consultant, dealer representative or the transfer agent to
have your distributions and/or dividends paid in cash. You can change your
choice at any time to be effective as of the next distribution or dividend,
except that any change given to the transfer agent less than five days before
the payment date will not be effective until the next distribution or dividend
is paid.
Taxes In general, redeeming shares, exchanging shares and receiving distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually capital gain or loss;
long-term only if shares owned
more than one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
</TABLE>
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a capital gain distribution or
a dividend, because it will be taxable to you even though it may actually be a
return of a portion of your investment.
After the end of each year, the fund will provide you with information about
the distributions and dividends you received and any redemptions of shares dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer identification number and any required certifications, you may be subject
to back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special
tax rules may apply, you should consult your tax adviser about your investment
in the fund.
Concert Peachtree Growth Fund
22
<PAGE>
Share price
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its liabili-
ties. Net asset value is calculated separately for each class of shares. The
fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This calcu-
lation is done when regular trading closes on the Exchange (normally 4:00 p.m.,
Eastern time).
The fund generally values its fund securities based on market prices or quota-
tions. The fund's currency conversions are done when the London stock exchange
closes, which is 12 noon Eastern time. When reliable market prices or quota-
tions are not readily available, or when the value of a security has been mate-
rially affected by events occurring after a foreign exchange closes, the fund
may price those securities at fair value. Fair value is determined in accor-
dance with procedures approved by the fund's board. A fund that uses fair value
to price securities may value those securities higher or lower than another
fund using market quotations to price the same securities.
International markets may be open on days when U.S. markets are closed and the
value of foreign securities owned by the fund could change on days when you
cannot buy or redeem shares.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer repre-
sentative before the New York Stock Exchange closes. If the Exchange closes
early, you must place your order prior to the actual closing time. Otherwise,
you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders
to buy, exchange or redeem shares to the fund's agent before the agent's close
of business.
Smith Barney Mutual Funds
23
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance of each class since inception. Certain information reflects financial
results for a single share. Total return represents the rate that a shareholder
would have earned (or lost) on a fund share assuming reinvestment of all divi-
dends and distributions. The information in the following tables was audited by
KPMG LLP, independent accountants, whose report, along with the fund's finan-
cial statements, are included in the annual report (available upon request).
For a Class A share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1998(/1/) 1997 1996 1995(/2/)
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $13.41 $13.80 $14.31 $13.36
- ------------------------------------------------------------------------
Income from operations:
Net investment income (loss) (0.07) 0.03 0.01 0.03
Net realized and unrealized gain 4.50 0.65 1.85 1.87
- ------------------------------------------------------------------------
Total income from operations 4.43 0.68 1.86 1.90
- ------------------------------------------------------------------------
Less distributions from:
Net investment income -- -- (0.11) (0.02)
Net realized gains (0.13) (1.07) (2.26) (0.93)
- ------------------------------------------------------------------------
Total distributions (0.13) (1.07) (2.37) (0.95)
- ------------------------------------------------------------------------
Net asset value, end of year $17.71 $13.41 $13.80 $14.31
- ------------------------------------------------------------------------
Total return 33.13% 5.18% 13.96% 14.61%(/3/)
- ------------------------------------------------------------------------
Net assets, end of year millions $87 $67 $72 $58
- ------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.40% 1.67% 1.78% 1.72%(/4/)
Net investment income (0.48) 0.22 0.13 0.46(/4/)
- ------------------------------------------------------------------------
Portfolio turnover rate 93% 227% 183% 51%
- ------------------------------------------------------------------------
</TABLE>
(/1/Per)share amounts have calculated using the monthly average shares method.
(/2/For)the period from July 3, 1995 (inception date) to December 31, 1995.
(/3/Not)annualized.
(/4/Annualized.)
Concert Peachtree Growth Fund
24
<PAGE>
For a Class B share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1998(/1/) 1997 1996 1995(/2/)
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $13.24 $13.74 $14.27 $13.36
- ------------------------------------------------------------------------
Income from operations:
Net investment loss (0.19) (0.07) (0.09) (0.02)
Net realized and unrealized gain 4.43 0.64 1.84 1.86
- ------------------------------------------------------------------------
Total income from operations 4.24 0.57 1.75 1.84
- ------------------------------------------------------------------------
Less distributions from:
Net investment income -- -- (0.02) --
Net realized gains (0.13) (1.07) (2.26) (0.93)
- ------------------------------------------------------------------------
Total distributions (0.13) (1.07) (2.28) (0.93)
- ------------------------------------------------------------------------
Net asset value, end of year $17.35 $13.24 $13.74 $14.27
- ------------------------------------------------------------------------
Total return 32.11% 4.40% 13.12% 14.15%(/3/)
- ------------------------------------------------------------------------
Net assets, end of year (millions) $59 $42 $43 $33
- ------------------------------------------------------------------------
Ratios to average net assets:
Expenses 2.21% 2.42% 2.53% 2.46%(/4/)
Net investment loss (1.29) (0.53) (0.63) (0.27)(/4/)
- ------------------------------------------------------------------------
Portfolio turnover rate 93% 227% 183% 51%
- ------------------------------------------------------------------------
</TABLE>
(/1/Per)share amounts have been calculated using the monthly average shares
method.
(/2/For)the period from July 3, 1995 (inception date) to December 31, 1995.
(/3/Not)annualized.
(/4/Annualized.)
Smith Barney Mutual Funds
25
<PAGE>
For a Class L share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1998(/1/)(/2/) 1997 1996 1995(/3/)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $13.28 $13.78 $14.29 $14.05
- ----------------------------------------------------------------------------
Income from operations:
Net investment income (loss) (0.18) (0.05) (0.08) 0.01
Net realized and unrealized gain 4.44 0.62 1.85 1.16
- ----------------------------------------------------------------------------
Total income from operations 4.26 0.57 1.77 1.17
- ----------------------------------------------------------------------------
Less distributions from:
Net investment income -- -- (0.02) --
Net realized gains (0.13) (1.07) (2.26) (0.93)
- ----------------------------------------------------------------------------
Total distributions (0.13) (1.07) (2.28) (0.93)
- ----------------------------------------------------------------------------
Net asset value, end of year $17.41 $13.28 $13.78 $14.29
- ----------------------------------------------------------------------------
Total return 32.17% 4.38% 13.24% 8.69%(/4/)
- ----------------------------------------------------------------------------
Net assets, end of year (000)'s $222 $203 $174 $88
- ----------------------------------------------------------------------------
Ratios to average net assets:
Expenses 2.16% 2.41% 2.40% 2.29%(/5/)
Net investment income (loss) (1.23) (0.53) (0.48) 0.13(/5/)
- ----------------------------------------------------------------------------
Portfolio turnover rate 93% 227% 183% 51%
- ----------------------------------------------------------------------------
</TABLE>
(/1/Per)share amounts have been calculated using the monthly average shares
method.
(/2/On)June 12, 1998, Class C shares were renamed Class L shares.
(/3/For)the period from August 8, 1995 (inception date) to December 31, 1995.
(/4/Not)annualized.
(/5/Annualized.)
Concert Peachtree Growth Fund
26
<PAGE>
For a Class Y share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1998(/1/) 1997(/2/)
- -----------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year $13.42 $14.86
- -----------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) (0.02) 0.01
Net realized and unrealized gain (loss) 4.52 (0.38)
- -----------------------------------------------------------------
Total income (loss) from operations 4.50 (0.37)
- -----------------------------------------------------------------
Less distributions from:
Net realized gains (0.13) (1.07)
- -----------------------------------------------------------------
Total distributions (0.13) (1.07)
- -----------------------------------------------------------------
Net asset value, end of year $17.79 $13.42
- -----------------------------------------------------------------
Total return 33.62% (2.25)%(/3/)
- -----------------------------------------------------------------
Net assets, end of year (millions) $188 $115
- -----------------------------------------------------------------
Ratios to average net assets:
Expenses 1.07% 1.10%(/4/)
Net investment income (loss) (0.14) 0.62(/4/)
- -----------------------------------------------------------------
Portfolio turnover rate 93% 227%
- -----------------------------------------------------------------
</TABLE>
(/1/)Per share amounts have been calculated using the monthly average shares
method.
(/2/For)the period from October 15, 1997 (inception date) to December 31, 1997.
(/3/Not)annualized.
(/4/Annualized.)
Smith Barney Mutual Funds
27
<PAGE>
SALOMONSMITHBARNEY
- ----------------------------
A member of citigroup [LOGO]
Concert Peachtree
Growth Fund
An investment portfolio of Smith Barney Investment Funds Inc.
Shareholder Reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket conditions and investment strategies that affected the fund's performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by refer-
ence into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
You can also review and copy the fund's shareholder reports, prospectus and
statement of additional information at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. You can get copies of these materials
for a duplicating fee by writing to the Public Reference Section of the Commis-
sion, Washington, D.C. 20549-6009. Information about the public reference room
may be obtained by calling 1-800-SEC-0330. You can get the same information
free from the Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not law-
fully sell its shares.
SMSalomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act
file no. 811-03725
(FD0970 4/99)
<PAGE>
[Logo]
Smith Barney Mutual Funds
Investing for your future.
Every day.
PROSPECTUS SMITH BARNEY
MUTUAL FUNDS
April 30, 1999 CONTRARIAN FUND
Class A, B, L and Y Shares
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Contrarian Fund
Contents
<TABLE>
<S> <C>
Fund goal and main strategies............................................... 2
Risks, performance and expenses............................................. 3
More on the fund's investments.............................................. 6
Management.................................................................. 7
Choosing a class of shares to buy........................................... 8
Comparing the fund's classes................................................ 9
Sales charges............................................................... 10
More about deferred sales charges........................................... 12
Buying shares............................................................... 13
Exchanging shares........................................................... 14
Redeeming shares............................................................ 16
Other things to know about share transactions............................... 18
Smith Barney 401(k) and
ExecChoice(TM) programs..................................................... 20
Dividends, distributions and taxes.......................................... 21
Share price................................................................. 22
Financial highlights........................................................ 23
</TABLE>
You should know: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds
1
<PAGE>
Fund goal and main strategies
Investment objective
The fund seeks long-term growth of capital.
Key investments
The fund invests primarily in common stocks and other equity securities. Equity
securities include exchange traded and over-the-counter common stocks and pre-
ferred shares, debt securities convertible into equity securities, and warrants
and rights relating to equity securities.
Selection process
The manager uses a "contrarian" approach to selecting investments, which means
that the manager seeks stocks that, at the time of purchase, are price
depressed, undervalued or out of favor. The manager believes that the stock
market ultimately will adjust to reflect the intrinsic value of these stocks.
Some of the fund's investments have a growth component as well.
The manager emphasizes individual security selection while diversifying the
fund's investments across industries and sectors. Companies in which the fund
invests may have large, mid or small size market capitalizations and may oper-
ate in any market sector. In selecting individual securities for investment,
the manager looks for:
.Favorable valuation measures, including stock price relative to book value,
cash flow, earnings and sales per share
.Qualitative measures, such as experienced and effective management, competi-
tive advantages and effective research, product development and marketing
.Securities valued at the low end of their 52-week trading range or signifi-
cantly below their 52-week high trading range
Contrarian Fund
2
<PAGE>
Risks, performance and expenses
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
.The stock market declines
.Investors continue to disfavor stocks purchased by the fund, causing their
prices to remain depressed
.The manager's judgment about the attractiveness, value or potential apprecia-
tion of a particular stock proves to be incorrect
Who may want to invest
The fund may be an appropriate investment if you:
.Are seeking to participate in the long term growth potential of the stock mar-
ket, through a contrarian approach to investing
.Are planning for a long-term goal and are willing to accept periods of market
volatility
.Are willing to accept the risks of investing in the stock market, including
the risks of investing in stocks that are price
depressed, undervalued or out of
favor
Smith Barney Mutual Funds
3
<PAGE>
Total return
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not neces-
sarily indicate how the fund will perform in the future.
Total Return for Class A Shares
[BAR GRAPH]
1996 1997 1998
---- ---- ----
16.33% 13.70% -1.12%
Calendar years ended December 31
The bar chart shows the performance of the fund's Class A shares for each of
the past 3 years. Class B, L and Y shares would have different performance
because of their different expenses. The performance information in the chart
does not reflect sales charges, which would reduce your return.
Quarterly returns:
Highest: 18.34% in 4th quarter 1998; Lowest: (19.16)% in 3rd quarter 1998
Comparative performance
This table indicates the risks of investing in the fund by comparing the aver-
age annual total return of each class for the periods shown with that of the
Standard & Poor's 500 Index (S&P 500 Index) and the Russell 3000 Index, each
a broad-based
unmanaged index of common stocks. This table assumes imposition of the maximum
sales charge applicable to the class, redemption of shares at the end of the
period, and reinvestment of distributions and dividends.
Average Annual Total Returns
Calendar Years Ended December 31, 1998
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since inception Inception Date
<S> <C> <C> <C> <C> <C>
A (6.07)% n/a n/a 6.85% 06/30/95
B (6.59) n/a n/a 7.14 06/30/95
L (3.81) n/a n/a 7.31 06/30/95
Y (0.76) n/a n/a 9.50 01/31/96
S&P 500
Index 28.60 n/a n/a 28.61 *
Russell 3000
Index 24.14 n/a n/a 26.65 *
</TABLE>
*Index comparison begins on 06/30/95
Contrarian Fund
4
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price) 5.00% None 1.00% None
Maximum deferred sales charge (load) on
redemptions (as a % of the lower of net asset
value at purchase or redemption) None* 5.00% 1.00% None
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund assets)
<S> <C> <C> <C> <C>
Management fee 0.85% 0.85% 0.85% 0.85%
Distribution and service (12b-1) fee 0.25% 1.00% 1.00% None
Other expenses 0.19% 0.21% 0.19% 0.05%
----- ----- ----- -----
Total annual fund operating expenses 1.29% 2.06% 2.04% 0.90%
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase, you will pay a deferred sales charge of 1.00%.
Example
This example helps you compare the costs of investing in the fund with the
costs of investing in other mutual funds. Your actual costs may be higher or
lower. The example assumes:
.You invest $10,000 in the fund for the period shown
.Your investment has a 5% return each year
.You reinvest all distributions and dividends without a sales charge
.The fund's operating expenses remain the same
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A (with or without redemption) $625 $889 $1,172 $1,979
Class B (redemption at end of period) $709 $945 $1,208 $2,192
Class B (no redemption) $209 $646 $1,108 $2,192
Class L (redemption at end of period) $405 $733 $1,187 $2,445
Class L (no redemption) $305 $733 $1,187 $2,445
Class Y (with or without redemption) $ 92 $287 $ 498 $1,108
</TABLE>
Smith Barney Mutual Funds
5
<PAGE>
More on the fund's investments
Derivative contracts The fund may, but need not, use derivative contracts, such
as futures and options on securities or securities indices, or options on these
futures, for any of the following purposes:
.To hedge against the economic impact of adverse changes in the market value of
portfolio securities
.As a substitute for buying or selling securities
A derivative contract will obligate or entitle a fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities or
indices. Even a small investment in derivative contracts can have a big impact
on a fund's stock exposure. Therefore, using derivatives can disproportionately
increase losses and reduce opportunities for gains. The fund may not fully ben-
efit from or may lose money on derivatives if changes in their value do not
correspond accurately to changes in the value of the fund's holdings. The other
parties to certain derivative contracts present the same types of default risk
as issuers of fixed income securities. Derivatives can also make a fund less
liquid and harder to value, especially in declining markets.
Foreign securities The fund may invest in American Depository Receipts (ADRs)
and other securities quoted in U.S. dollars of foreign issuers, including those
in emerging markets. Because the fund may invest in securities of foreign
issuers, the fund carries additional risks. The value of your investment may
decline if the U.S. and/or foreign stock markets decline or an adverse event,
such as an unfavorable earnings report, depresses the value of a particular
company's stock. Prices of foreign securities may go down because of foreign
government actions, political instability or the more limited availability of
accurate information about foreign companies. These risks may be more severe
for securities of issuers in emerging markets.
Defensive investing The fund may depart from its principal investment strate-
gies in response to adverse market, economic or political conditions by taking
temporary defensive positions in all types of money market and short-term debt
securities. If the fund takes a temporary defensive position, it may be unable
to achieve its investment goal.
Contrarian Fund
6
<PAGE>
Management
Manager The fund's investment manager is SSBC Fund Management Inc., an affili-
ate of Salomon Smith Barney Inc. The manager's address is 388 Greenwich Street,
New York, New York 10013. The manager selects the fund's investments and
oversees its operations. The manager and Salomon Smith Barney are subsidiaries
of Citigroup Inc. Citigroup businesses produce a broad range of financial serv-
ices--asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading--and use diverse chan-
nels to make them available to consumer and corporate customers around the
world.
John Stoeser, investment officer of the manager and vice president of Salomon
Smith Barney, has been responsible for the day to day management of the fund
since April 1998. Mr. Stoeser was vice president and research analyst of the
fund from July 1997 to April 1998. Prior thereto, Mr. Stoeser was assistant
vice president, portfolio manager and research analyst with Safeco Asset Man-
agement.
Management fee For its services, the manager received a fee during the fund's
last fiscal year equal to 0.85% of the fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to distrib-
ute the fund's shares. A selling group consisting of Salomon Smith Barney and
other broker-dealers sells fund shares to the public.
Distribution plans The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and serv-
ice fees. These fees are an ongoing expense and, over time, may cost you more
than other types of sales charges.
Year 2000 issue Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if sub-
stantial, could adversely affect companies and governments that issue securi-
ties held by the fund. The manager and Salomon Smith Barney are addressing the
Year 2000 issue for their systems. The fund has been informed by other service
providers that they are taking similar measures. Although the fund does not
expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
that
the efforts of the fund which are limited to requesting and receiving reports
from its service providers, or the efforts of its service providers to correct
the problem will be successful.
Smith Barney Mutual Funds
7
<PAGE>
Choosing a class of shares to buy
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
.If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.
.For Class B shares, all of your purchase price and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
.Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term invest-
ors.
You may buy shares from:
.A Salomon Smith Barney Financial Consultant
.An investment dealer in the selling group or a broker that clears through Sal-
omon Smith Barney--a dealer representative
.The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
Initial Additional
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $250 $15 million $50
Qualified Retirement Plans* $25 $15 million $25
Simple IRAs $1 n/a $1
Monthly Systematic Investment Plans $25 n/a $25
Quarterly Systematic Investment Plans $50 n/a $50
</TABLE>
* Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k)
plans
Contrarian Fund
8
<PAGE>
Comparing the fund's classes
Your Salomon Smith Barney Financial Consultant or dealer representative can
help you decide which class meets your goals. They may receive different com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .Initial .No initial
sales sales sales or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge .Deferred .Must
tion or declines sales invest at
waiver of over time charge for least $15
initial .Converts only 1 million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than Class expenses annual classes
B and than Class expenses
Class L A than Class
A
- ------------------------------------------------------------------------
Initial sales charge Up to None 1.00% None
5.00%;
reduced for
large pur-
chases and
waived for
certain
investors.
No charge
for pur-
chases of
$500,000 or
more
- ------------------------------------------------------------------------
Deferred sales charge 1% on pur- Up to 5% 1% if you None
chases of charged redeem
$500,000 or when you within 1
more if you redeem year of
redeem shares. The purchase
within 1 charge is
year of reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
- ------------------------------------------------------------------------
Annual distribution and 0.25% of 1% of aver- 1% of aver- None
service fees average age daily age daily
daily net net assets net assets
assets
- ------------------------------------------------------------------------
Exchangeable into* Class A Class B Class L Class Y
shares of shares of shares of shares of
most Smith most Smith most Smith most Smith
Barney Barney Barney Barney
funds funds funds funds
- ------------------------------------------------------------------------
</TABLE>
* Ask your Salomon Smith Barney Financial Consultant or dealer representative
or visit the web site for the Smith Barney funds available for exchange.
Smith Barney Mutual Funds
9
<PAGE>
Sales charges
Class A shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge
on the fund's distributions or dividends you reinvest in additional Class A
shares.
<TABLE>
<CAPTION>
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
<S> <C> <C>
Less than $25,000 5.00 5.26
$25,000 but less than $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 3.00 3.09
$250,000 but less than $500,000 2.00 2.04
$500,000 or more -0- -0-
</TABLE>
Investments of $500,000 or more You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
Qualifying for a Reduced class A sales charge There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
.Accumulation privilege - lets you combine the current value of Class A shares
owned
.by you, or
.by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase
of Class A shares for purposes of calculating the initial sales charge. Cer-
tain trustees and fiduciaries may be entitled to combine accounts in deter-
mining their sales charge.
.Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney funds over a 13-month period and pay the same sales
Contrarian Fund
10
<PAGE>
charge, if any, as if all shares had been purchased at once. You may include
purchases on which you paid a sales charge within 90 days before you sign the
letter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
.Employees of members of the NASD
.403(b) or 401(k) retirement plans, if certain conditions are met
.Clients of newly employed Salomon Smith Barney Financial Consultants, if cer-
tain conditions are met
.Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn about additional waivers of
Class A initial sales charges, contact your Salomon Smith Barney Financial Con-
sultant or dealer representative or consult the Statement of Additional Infor-
mation ("SAI").
Class B shares
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of pur-
chase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
<TABLE>
<CAPTION>
Year after purchase 1st 2nd 3rd 4th 5th 6th through 8th
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 5% 4% 3% 2% 1% 0%
</TABLE>
Class B conversion After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
Shares issued: Shares issued:
On reinvestment of Upon exchange from
Shares issued: dividends and another Smith Barney
At initial purchase distributions fund
<S> <C> <C>
Eight years after the date of purchase In same proportion On the date the
as the number of shares originally
Class B shares acquired would
converting is to have converted
total Class B into Class A
shares you own shares
</TABLE>
Smith Barney Mutual Funds
11
<PAGE>
Class L shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund on June 12, 1998,
you will not pay an initial sales charge on Class L shares you buy before June
22, 2001.
Class Y shares
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 6-month period. To qualify, you
must initially invest $5,000,000.
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of pur-
chase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
.Shares exchanged for shares of another Smith Barney fund
.Shares representing reinvested distributions and dividends
.Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation
for its expenses in selling shares, including the payment of compensation to
your Salomon Smith Barney Financial Consultant or dealer representative.
Contrarian Fund
12
<PAGE>
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
.On payments made through certain systematic withdrawal plans
.On certain distributions from a retirement plan
.For involuntary redemptions of small account balances
.For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant or
dealer
representative
If you do not provide the following information, your order
will be rejected
.Class of shares being bought
.Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account
no later than the third business day after you place your
order. Salomon Smith Barney or your dealer representative may
charge an annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who
fund's are clients of the selling group are eligible to buy shares
transfer directly from the fund.
agent
.Write the transfer agent at the following address:
Smith Barney Investment Funds Inc.
Smith Barney Contrarian Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
.Enclose a check to pay for the shares. For initial pur-
chases, complete and send an account application.
.For more information, call the transfer agent at 1-800-451-
2010.
Smith Barney Mutual Funds
13
<PAGE>
Through a You may authorize Salomon Smith Barney, your dealer represen-
systematic tative or the transfer agent to transfer funds automatically
investment from a regular bank account, cash held in a Salomon Smith
plan Barney brokerage account or Smith Barney money market fund to
buy shares on a regular basis.
.Amounts transferred should be at least: $25 monthly or $50
quarterly
.If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer represen-
tative or the transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the SAI.
Exchanging shares
Smith Barney You should contact your Salomon Smith Barney Financial Con-
offers a sultant or dealer representative to exchange into other Smith
distinctive Barney funds. Be sure to read the prospectus of the Smith
family of Barney fund you are exchanging into. An exchange is a taxable
funds transaction.
tailored to
help meet
needs of both .You may exchange shares only for shares of the same class of
large and another Smith Barney fund. Not all Smith Barney funds offer
small all classes.
investors. .Not all Smith Barney funds may be offered in your state of
residence. Contact your Smith Barney Financial Consultant,
dealer representative or the transfer agent.
.You must meet the minimum investment amount for each fund
.If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with
signed stock powers (documents transferring ownership of
certificates) before the exchange is effective.
.The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges
Contrarian Fund
14
<PAGE>
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will continue to be mea-
sured from the date of your original purchase. If the fund
you exchange into has a higher deferred sales charge, you
will be subject to that charge. If you exchange at any time
into a fund with a lower charge, the sales charge will not be
reduced.
- --------------------------------------------------------------------------------
By telephone If you do not have a brokerage account, you may be eligible
to exchange shares through the transfer agent. You must com-
plete an authorization form to authorize telephone transfers.
If eligible, you may make telephone exchanges on any day the
New York Stock Exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern
time). Requests received after the close of regular trading
on the Exchange are priced at the net asset value next deter-
mined.
You can make telephone exchanges only between accounts that
have identical registrations.
- --------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer
agent at the address on the opposite page.
Smith Barney Mutual Funds
15
<PAGE>
Redeeming shares
Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However,
if you recently purchased your shares by check, your redemp-
tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests
to the transfer agent at the following address:
Smith Barney Investment Funds Inc.
Smith Barney Contrarian Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
.Your account number
.The class of shares and the dollar amount or number of
shares to be redeemed
.Signatures of each owner exactly as the account is regis-
tered
Contrarian Fund
16
<PAGE>
By telephone If you do not have a brokerage account, you may be eligible
to redeem shares (except those held in retirement plans) in
amounts up to $10,000 per day through the transfer agent. You
must complete an authorization form to authorize telephone
redemptions. If eligible, you may request redemptions by tel-
ephone on any day the New York Stock Exchange is open. Call
the transfer agent at 1-800-451-2010 between 9:00 a.m. and
5:00 p.m. (Eastern time). Requests received after the close
of regular trading on the Exchange are priced at the net
asset value next determined.
Your redemption proceeds can be sent by check to your address
of record or by wire transfer to a bank account designated on
your authorization form. You may be charged a fee for wire
transfers. You must submit a new authorization form to change
the bank account designated to receive wire transfers and you
may be asked to provide certain other documents.
- --------------------------------------------------------------------------------
Automatic
cash You can arrange for the automatic redemption of a portion of
withdrawal your shares on a monthly or quarterly basis. To qualify you
plans must own shares of the fund with a value of at least $10,000
($5,000 for retirement plans) and each automatic redemp-
tion must be at least $50. If your shares are subject to a
deferred sales charge, the sales charge will be waived if
your automatic payments do not exceed 1% per month of the
value of your shares subject to a deferred sales charge.
The following conditions apply:
.Your shares must not be represented by certificates
.All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
Smith Barney Mutual Funds
17
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
.Name of the fund
.Account number
.Class of shares being bought, exchanged or redeemed
.Dollar amount or number of shares being bought, exchanged or redeemed
.Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemp-
tion request is genuine by recording calls, asking the caller to provide a per-
sonal identification number for the account, sending you a written confirmation
or requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include
a signature guarantee if you:
.Are redeeming over $10,000 of shares
.Are sending signed share certificates or stock powers to the transfer agent
.Instruct the transfer agent to mail the check to an address different from the
one on your account
.Changed your account registration
.Want the check paid to someone other than the account owner(s)
.Are transferring the redemption proceeds to an account with a different regis-
tration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
The fund has the right to:
.Suspend the offering of shares
.Waive or change minimum and additional investment amounts
.Reject any purchase or exchange order
.Change, revoke or suspend the exchange privilege
.Suspend telephone transactions
Contrarian Fund
18
<PAGE>
.Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securi-
ties and Exchange Commission
.Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other share-
holders. If so, the fund may limit additional purchases and/or exchanges by the
shareholder.
Share certificates The fund does not issue share certificates unless a written
request signed by all registered owners is made to the transfer agent. If you
hold share certificates it will take longer to exchange or redeem shares.
Smith Barney Mutual Funds
19
<PAGE>
Smith Barney 401(k) and ExecChoiceTM programs
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoice(TM) program. The fund offers Class A and Class L shares
to participating plans as investment alternatives under the programs. You can
meet minimum investment and exchange amounts by combining the plan's invest-
ments in any of the Smith Barney funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment. Once a class
of shares is chosen, all additional purchases must be of the same class.
.Class A shares may be purchased by plans investing at least $1 million.
.Class L shares may be purchased by plans investing less than $1 million. Class
L shares are eligible for exchange to Class A shares not later than 8 years
after the plan joined the program. They are eligible for exchange sooner in
the following circumstances:
If the account was opened on or after June 21, 1996 and a total of $1 mil-
lion is invested in Smith Barney Funds Class L shares (other than money
market funds), all Class L shares are eligible for exchange after the plan
is in the program 5 years.
If the account was opened before June 21, 1996 and a total of $500,000 is
invested in Smith Barney Funds Class L shares (other than money market
funds) on December 31 in any year, all Class L shares are eligible for
exchange on or about March 31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant or
the transfer agent, or consult the SAI.
Contrarian Fund
20
<PAGE>
Dividends, distributions and taxes
Dividends The fund generally makes capital gain distributions and pays divi-
dends, if any, once a year, typically in December. The fund may pay additional
distributions and dividends at other times if necessary for the fund to avoid a
federal tax. Capital gain distributions and dividends are reinvested in addi-
tional fund shares of the same class you hold. The fund expects distributions
to be primarily from capital gain. You do not pay a sales charge on reinvested
distributions or dividends. Alternatively, you can instruct your Salomon Smith
Barney Financial Consultant, dealer representative or the transfer agent to
have your distributions and/or dividends paid in cash. You can change your
choice at any time to be effective as of the next distribution or dividend,
except that any change given to the transfer agent less than five days before
the payment date will not be effective until the next distribution or dividend
is paid.
Taxes In general, redeeming shares, exchanging shares and receiving distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually capital gain or
loss; long-term only if
shares owned more than
one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
</TABLE>
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a capital gain distribution or
a dividend, because it will be taxable to you even though it may actually be a
return of a portion of your investment.
After the end of each year, the fund will provide you with information about
the distributions and dividends you received and any redemptions of shares dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer identification number and any required certifications, you may be subject
to back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special
tax rules may apply, you should consult your tax adviser about your investment
in the fund.
Smith Barney Mutual Funds
21
<PAGE>
Share price
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its liabili-
ties. Net asset value is calculated separately for each class of shares. The
fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This calcu-
lation is done when regular trading closes on the Exchange (normally 4:00 p.m.,
Eastern time).
The fund generally values its fund securities based on market prices or quota-
tions. The fund's currency conversions are done when the London stock exchange
closes, which is 12 noon Eastern time. When reliable market prices or quota-
tions are not readily available, or when the value of a security has been mate-
rially affected by events occurring after a foreign exchange closes, the fund
may price those securities at fair value. Fair value is determined in accor-
dance with procedures approved by the fund's board. A fund that uses fair value
to price securities may value those securities higher or lower than another
fund using market quotations to price the same securities.
International markets may be open on days when U.S. markets are closed and the
value of foreign securities owned by the fund could change on days when you
cannot buy or redeem shares.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer repre-
sentative before the New York Stock Exchange closes. If the Exchange closes
early, you must place your order prior to the actual closing time. Otherwise,
you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders
to buy, exchange or redeem shares to the fund's agent before the agent's close
of business.
Contrarian Fund
22
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance of each class since inception. Certain information reflects financial
results for a single share. Total return represents the rate that a shareholder
would have earned (or lost) on a fund share assuming reinvestment of all divi-
dends and distributions. The information in the following tables was audited by
KPMG LLP, independent accountants, whose report, along with the fund's finan-
cial statements, are included in the annual report (available upon request).
For a Class A share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1998(/1/) 1997 1996(/1/) 1995(/1/)(/2/)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 14.21 $13.42 $12.03 $12.00
- -------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.06 0.08 0.10 0.16
Net realized and unrealized gain
(loss) (0.21) 1.77 1.84 0.02
- -------------------------------------------------------------------------------
Total income (loss) from operations (0.15) 1.85 1.94 0.18
- -------------------------------------------------------------------------------
Less distribution from:
Net investment income -- (0.02) (0.09) (0.15)
Net realized gain (0.44) (1.04) (0.46) --
- -------------------------------------------------------------------------------
Total distributions (0.44) (1.06) (0.55) (0.15)
- -------------------------------------------------------------------------------
Net asset value, end of year $13.62 $14.21 $13.42 $12.03
- -------------------------------------------------------------------------------
Total return (1.12)% 13.70% 16.33% 1.53%(/3/)
- -------------------------------------------------------------------------------
Net assets, end of year (millions) $115 $235 $219 $160
- -------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.29% 1.28% 1.27% 1.19%(/4/)
Net investment income 0.43 0.55 0.85 2.74(/4/)
- -------------------------------------------------------------------------------
Portfolio turnover rate 77% 35% 34% 6%
- -------------------------------------------------------------------------------
</TABLE>
(/1/)Per share amounts calculated using the monthly average shares method.
(/2/)For the period from June 30, 1995 (inception date) to December 31, 1995.
(/3/)Not Annualized.
(/4/)Annualized.
Smith Barney Mutual Funds
23
<PAGE>
For a Class B share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1998(/1/) 1997 1996(/1/) 1995(/1/)(/2/)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 14.11 $13.41 $12.02 $12.00
- -------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) (0.05) (0.03) 0.01 0.11
Net realized and unrealized gain
(loss) (0.20) 1.77 1.84 0.02
- -------------------------------------------------------------------------------
Total income (loss) from
operations (0.25) 1.74 1.85 0.13
- -------------------------------------------------------------------------------
Less distributions from:
Net investment income -- -- -- (0.11)
Net realized gain (0.44) (1.04) (0.46) --
- -------------------------------------------------------------------------------
Total distributions (0.44) (1.04) (0.46) (0.11)
- -------------------------------------------------------------------------------
Net asset value, end of year $13.42 $14.11 $13.41 $12.02
- -------------------------------------------------------------------------------
Total return (1.84)% 12.84% 15.55 1.16%(/3/)
- -------------------------------------------------------------------------------
Net assets, end of year (millions) $291 $547 $485 $300
- -------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 2.06% 2.05% 2.03% 1.94%(/4/)
Net investment income (loss) (0.33) (0.22) 0.08 1.99(/4/)
- -------------------------------------------------------------------------------
Portfolio turnover rate 77% 35% 34% 6%
- -------------------------------------------------------------------------------
</TABLE>
(/1/)Per share amounts calculated using the monthly average shares method.
(/2/)For the period from June 30, 1995 (inception date) to December 31, 1995.
(/3/)Not Annualized.
(/4/)Annualized.
Contrarian Fund
24
<PAGE>
For a Class L share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1998(/1/)(/2/) 1997 1996(/2/) 1995(/2/)(/3/)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
year $ 14.12 $13.41 $12.03 $12.00
- -------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) (0.05) (0.03) 0.00(/4/) 0.11
Net realized and unrealized
gain (loss) (0.21) 1.78 1.84 0.03
- -------------------------------------------------------------------------------
Total income from operations (0.26) 1.75 1.84 0.14
- -------------------------------------------------------------------------------
Less distributions from:
Net investment income -- -- -- (0.11)
Net realized gain (0.44) (1.04) (0.46) --
- -------------------------------------------------------------------------------
Total distributions (0.44) (1.04) (0.46) (0.11)
- -------------------------------------------------------------------------------
Net asset value, end of year $13.42 $14.12 $13.41 $12.03
- -------------------------------------------------------------------------------
Total return (1.91)% 12.91% 15.45% 1.16%(/5/)
- -------------------------------------------------------------------------------
Net assets, end of year
(millions) $33 $77 $68 $43
- -------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 2.04% 2.04% 2.03% 1.91%(/6/)
Net investment income (loss) (0.33) (0.21) 0.08 2.02(/6/)
- -------------------------------------------------------------------------------
Portfolio turnover rate 77% 35% 34% 6%
- -------------------------------------------------------------------------------
</TABLE>
(/1/On)June 12, 1998, Class C shares were renamed Class L shares.
(/2/)Per share amounts calculated using the monthly average shares method.
(/3/)For the period from June 30, 1995 (inception date) to December 31, 1995.
(/4/)Amount represents less than $0.01 per share.
(/5/)Not annualized.
(/6/)Annualized.
Smith Barney Mutual Funds
25
<PAGE>
For a Class Y share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1998(/1/) 1997 1996(/1/)(/2/)
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year $ 14.24 $13.43 $12.21
- --------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.13 0.16 0.12
Net realized and unrealized gain (loss) (0.23) 1.77 1.69
- --------------------------------------------------------------------------
Total income (loss) from operations (0.10) 1.93 1.81
- --------------------------------------------------------------------------
Less distributions from:
Net investment income -- (0.08) (0.13)
Net realized gain (0.44) (1.04) (0.46)
- --------------------------------------------------------------------------
Total distributions (0.44) (1.12) (0.59)
- --------------------------------------------------------------------------
Net asset value, end of year $13.70 $14.24 $13.43
- --------------------------------------------------------------------------
Total return (0.76)% 14.23% 14.97%(/3/)
- --------------------------------------------------------------------------
Net assets, end of year (millions) $85 $72 $65
- --------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.90% 0.90% 0.92%(/4/)
Net investment income 0.95 0.92 1.12(/4/)
- --------------------------------------------------------------------------
Portfolio turnover rate 77% 35% 34%
- --------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts calculated using the monthly average shares method.
(/2/) For the period from January 31, 1996 to December 31, 1996.
(/3/) Not annualized.
(/4/) Annualized.
Contrarian Fund
26
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
Contrarian Fund
An investment portfolio of Smith Barney Investment Funds Inc.
Shareholder reports Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's perfor-
mance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply
to you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by ref-
erence into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salo-
mon Smith Barney Financial Consultant or dealer representative, by calling the
fund at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual
Funds, 388 Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
You can also review and copy the fund's shareholder reports, prospectus and
statement of additional information at the Securities and Exchange Commis-
sion's Public Reference Room in Washington, D.C. You can get copies of these
materials for a duplicating fee by writing to the Public Reference Section of
the Commission, Washington, D.C. 20549-6009. Information about the public ref-
erence room may be obtained by calling 1-800-SEC-0330. You can get the same
information free from the Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus,
you should not rely upon that information. Neither the fund nor the distribu-
tor is offering to sell shares of the fund to any person to whom the fund may
not lawfully sell its shares.
SM Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file
no. 811-03275)
[FD00899 4/99]
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.(R)
P R O S P E C T U S
Government
Securities
Fund
Class A, B, L and Y Shares
-------------------------------------------------------------------------
April 30, 1999
The Securities and Exchange Commission has not approved or disapproved
these securities or determined whether this prospectus is accurate or
complete. Any statement to the contrary is a crime.
<PAGE>
Government Securities Fund
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
Fund goal and main strategies ........... 4
Risks, performance and expenses ......... 5
More on the fund's investments .......... 8
Management .............................. 9
Choosing a class of shares to buy ....... 10
Comparing the fund's classes ............ 11
Sales charges ........................... 12
More about deferred sales charges ....... 14
Buying shares ........................... 15
Exchanging shares ....................... 16
Redeeming shares ........................ 18
Other things to know about share
transactions ............................ 20
Smith Barney 401(k) and ExecChoice --
programs ................................ 22
Dividends, distributions and taxes ...... 23
Share price ............................. 24
Financial highlights .................... 25
You should know: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds 3
<PAGE>
- --------------------------------------------------------------------------------
Fund goal and main strategies
- --------------------------------------------------------------------------------
Investment objective
The fund seeks high current return.
Key investments
The fund invests primarily in debt securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities. These securities include U.S.
Treasury securities and mortgage-related securities. Mortgage- related
securities issued by federal agencies or instrumentalities may be backed by the
full faith and credit of the U.S. Treasury, by the right of the issuer to borrow
from the U.S. government or only by the credit of the issuer itself.
The fund may also enter into mortgage dollar roll transactions where the fund
sells a mortgage related security and simultaneously agrees to repurchase,
at a future date, another mortgage related security with the same interest
rate and maturity date but generally backed by a different pool
of mortgages. The benefits from these transactions depend on the manager's
ability to forecast mortgage prepayment patterns on different mortgage
pools. The fund may lose money if the securities to be repurchased decline
Selection process
The manager focuses on identifying undervalued securities. Specifically, the
manager:
o Monitors the spreads between U.S. Treasury and government agency or
instrumentality issuers and purchases agency and instrumentality issues
that it believes will provide a yield advantage
o Determines sector and maturity weightings based on intermediate and
long-term assessments of the economic environment and relative value
factors based on interest rate outlook
o Uses research to identify sectors of the government and mortgage markets
that are inefficiently priced, and adjusts portfolio positions to take
advantage of new information
o Measures the potential impact of supply/demand imbalances, yield curve
shifts and changing prepayment patterns to identify individual securities
that balance potential return and risk
4 Government Securities Fund
<PAGE>
- --------------------------------------------------------------------------------
Risks, performance and expenses
- --------------------------------------------------------------------------------
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
o Interest rates increase, causing the prices of fixed income securities to
decline and reducing the value of the fund's portfolio
o As interest rates decline, the issuers of mortgage-related securities held
by the fund may pay principal earlier than scheduled or exercise a right
to call the securities, forcing the fund to reinvest in lower yielding
securities. This is known as prepayment or call risk.
o As interest rates increase, slower than expected principal payments may
extend the average life of fixed income securities, locking in
below-market interest rates and reducing the value of these securities.
This is known as extension risk.
o The manager's judgment about interest rates or the attractiveness, value
or income potential of a particular security proves incorrect
o The fund may engage in active and frequent trading, resulting in high
portfolio turnover. This may lead to the realization and
distribution to shareholders of higher capital gains, increasing their tax
liability. Frequent trading also increases transaction costs, which could
detract from the fund's performance.
Payments of principal and interest on mortgage pools issued by instrumentalities
of the U.S. government are not guaranteed by the U.S. government. Although
mortgage pools issued by U.S. agencies are guaranteed with respect to payments
of principal and interest, this guarantee does not apply to losses resulting
from declines in the market value of these securities.
Who may want to invest
The fund may be an appropriate investment if you:
o Are seeking income consistent with preservation of capital
o Are willing to accept the interest rate risks and market risks of
investing in government bonds and mortgage-related securities
o Prefer to invest in U.S. government securities rather than higher yielding
corporate securities
Smith Barney Mutual Funds 5
<PAGE>
Total return
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
- --------------------------------------------------------------------------------
Total Return for Class B Shares
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
[The following data was depicted as a bar chart in the printed material.]
Calendar years ended December 31
89 90 91 92 93 94 95 96 97 98
14.58% 6.99% 16.28% 5.45% 10.45% -3.25% 13.87% 1.42% 10.82% 7.44%
The bar chart shows the performance of the fund's Class B shares for each of the
past 10 years. Class A, L and Y shares would have different performance because
of their different expenses. The performance information in the chart does not
reflect sales charges, which would reduce your return.
Quarterly returns
Quarterly returns (past 10 years): Highest: 8.45 % in 2nd quarter 1989; Lowest:
(3.62)% in 1st quarter 1992
Comparative performance
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Lehman
Brothers Government Bond Index ("Lehman Index"), a broad-based unmanaged index
of all U.S. government obligations. This table assumes imposition of the
maximum sales charge applicable to the class, redemption of shares at the end of
the period, and reinvestment of distributions and dividends.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Calendar Years Ended December 31, 1998
- --------------------------------------------------------------------------------
Class 1 year 5 years 10 years Since Inception Inception Date
- --------------------------------------------------------------------------------
A 3.25% 5.47% n/a 6.60% 11/06/92
- --------------------------------------------------------------------------------
B 2.94% 5.73% 8.25% 8.18% 03/20/84
- --------------------------------------------------------------------------------
L 5.47% 5.75% n/a 6.12% 02/04/93
- --------------------------------------------------------------------------------
Y 8.42% n/a n/a 7.68% 02/07/96
- --------------------------------------------------------------------------------
Lehman
Index 9.85% 7.18% 9.17% 10.14%*
- --------------------------------------------------------------------------------
*Index comparison begins on March 31, 1984.
6 Government Securities Fund
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
- --------------------------------------------------------------------------------
Shareholder fees
- --------------------------------------------------------------------------------
(fees paid directly from your investment) Class A Class B Class L Class Y
- --------------------------------------------------------------------------------
Maximum sales charge (load)
imposed on purchases 4.50%* None 1.00% None
(as a % of offering price)
- --------------------------------------------------------------------------------
Maximum deferred sales charge (load)
(as a % of the lower of net asset
value at purchase or redemption) None* 4.50% 1.00% None
- --------------------------------------------------------------------------------
Annual fund operating expenses
- --------------------------------------------------------------------------------
(expenses deducted from fund assets) Class A Class B Class L Class Y
- --------------------------------------------------------------------------------
Management fee 055% 0.55% 0.55% 0.55%
- --------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.25% 0.75% 0.70% None
- --------------------------------------------------------------------------------
Other expenses 0.12% 0.13% 0.15% 0.04%
---- ---- ---- ----
- --------------------------------------------------------------------------------
Total annual fund operating expenses 0.92% 1.43% 1.40% 0.59%
==== ==== ==== ====
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase, you will pay a deferred sales charge of 1.00%.
Example
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
o You invest $10,000 in the fund for the period shown
o Your investment has a 5% return each year
o You reinvest all distributions and dividends without a sales charge
o The fund's operating expenses remain the same
- --------------------------------------------------------------------------------
Number of years you own your shares
- --------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class A (with or without redemption) $540 $730 $936 $1,530
- --------------------------------------------------------------------------------
Class B (redemption at end of period) $596 $752 $882 $1,574
- --------------------------------------------------------------------------------
Class B (no redemption) $146 $452 $782 $1,574
- --------------------------------------------------------------------------------
Class L (redemption at end of period) $341 $539 $858 $1,763
- --------------------------------------------------------------------------------
Class L (no redemption) $241 $539 $858 $1,763
- --------------------------------------------------------------------------------
Class Y (with or without redemption) 60 $189 $329 738
Smith Barney Mutual Funds 7
<PAGE>
- --------------------------------------------------------------------------------
More on the fund's investments
- --------------------------------------------------------------------------------
Derivative contracts
The fund may, but need not, use derivative contracts, such as interest rate
futures and options on interest rate futures, for any of the following purposes:
o To hedge against the economic impact of adverse changes in the market
value of portfolio securities, because of changes in interest rates
o As a substitute for buying or selling securities
A futures contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities.
Even a small investment in derivative contracts can have a big impact on a
fund's interest rate exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains when
interest rates are changing. The fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of default risk as issuers of fixed
income securities. Derivatives can also make a fund less liquid and harder to
value, especially in declining markets.
Defensive investing
The fund may depart from its principal investment strategies in response to
adverse market, economic or political conditions by taking temporary defensive
positions in all types of money market and short-term debt securities. If the
fund takes a temporary defensive position, it may be unable to achieve its
investment goal.
8 Government Securities Fund
<PAGE>
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
Manager
The fund's investment manager is SSBC Fund Management Inc., an affiliate of
Salomon Smith Barney Inc. The manager's address is 388 Greenwich Street, New
York, New York 10013. The manager selects the fund's investments and oversees
its operations. The manager and Salomon Smith Barney are subsidiaries of
Citigroup Inc. Citigroup businesses produce a broad range of financial services
- -- asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading -- and use diverse
channels to make them available to consumer and corporate customers around the
world.
James E. Conroy, investment officer of the manager and managing director of
Salomon Smith Barney, has been responsible for the day to day management of the
fund since its inception in 1984.
Management fee
For its services, the manager received a fee during the fund's last fiscal year
equal to 0.35% of the fund's average daily net assets. In addition, the manager
received a fee for its administrative services to the fund equal to 0.20% of the
fund's average daily net assets.
Distributor
The fund has entered into an agreement with CFBDS, Inc. to distribute the fund's
shares. A selling group consisting of Salomon Smith Barney and other
broker-dealers sells fund shares to the public.
Distribution plans
The fund has adopted Rule 12b-1 distribution plans for its Class A, B and L
shares. Under each plan, the fund pays distribution and service fees. These fees
are an ongoing expense and, over time, may cost you more than other types of
sales charges.
Year 2000 issue
Information technology experts are concerned about computer systems' ability to
process date-related information on and after January 1, 2000. This situation,
commonly known as the "Year 2000" issue, could have an adverse impact on the
fund. The cost of addressing the Year 2000 issue, if substantial, could
adversely affect companies and governments that issue securities held by the
fund. The manager and Salomon Smith Barney are addressing the Year 2000 issue
for their systems. The fund has been informed by other service providers that
they are taking similar measures. Although the fund does not expect the Year
2000 issue to adversely affect it, the fund cannot guarantee that the efforts
of the fund which are limited to requesting and receiving reports from its
service
providers, or the efforts of its service providers to correct the problem will
be successful.
Smith Barney Mutual Funds 9
<PAGE>
- --------------------------------------------------------------------------------
Choosing a class of shares to buy
- --------------------------------------------------------------------------------
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
o If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses.
o For Class B shares, all of your purchase price and, for Class L shares,
more of your purchase amount (compared to Class A shares) will be
immediately invested. This may help offset the higher expenses of Class B
and Class L shares, but only if the fund performs well.
o Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and
Class L shares do not, Class B shares may be more attractive to long-term
investors.
You may buy shares from:
o A Salomon Smith Barney Financial Consultant
o An investment dealer in the selling group or a broker that clears
through Salomon Smith Barney -- a dealer representative
o The fund, but only if you are investing through certain qualified plans
or certain dealer representatives
Investment minimums
Minimum initial and additional investment amounts vary depending on the class of
shares you buy and the nature of your investment account.
- --------------------------------------------------------------------------------
Initial Additional
- --------------------------------------------------------------------------------
Classes A, B, L Class Y All Classes
- --------------------------------------------------------------------------------
General $1,000 $15 million $50
- --------------------------------------------------------------------------------
IRAs, Self Employed Retirement
Plans, Uniform Gift to Minor
Accounts $250 $15 million $50
- --------------------------------------------------------------------------------
Qualified Retirement Plans* $ 25 $15 million $25
- --------------------------------------------------------------------------------
Simple IRAs $ 1 n/a $ 1
- --------------------------------------------------------------------------------
Monthly Systematic Investment Plans $25 n/a $25
- --------------------------------------------------------------------------------
Quarterly Systematic Investment Plans $ 50 n/a $50
*Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k) plans
10 Government Securities Fund
<PAGE>
- --------------------------------------------------------------------------------
Comparing the fund's classes
- --------------------------------------------------------------------------------
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They may receive different compensation
depending upon which class you choose.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Class A Class B Class L Class Y
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Key features o Initial sales charge o No initial sales o Initial sales charge o No initial or
charge is lower than Class deferred sales
o You may qualify for A charge
reduction or waiver o Deferred sales
of initial sales charge declines over o Deferred sales o Must invest at least
charge time charge for only 1 $15 million
year
o Lower annual o Converts to Class A o Lower annual
expenses than Class after 8 years o Does not convert to expenses than the
B and Class L Class A other classes
o Higher annual
expenses than Class o Higher annual
A expenses than Class
A
- ----------------------------------------------------------------------------------------------------------------------------
Initial sales Up to 4.50%; reduced None 1.00% None
charge for large purchases
and waived for certain
investors; no charge
for purchases of
$500,000 or more
- ----------------------------------------------------------------------------------------------------------------------------
Deferred 1% on purchases of Up to 4.50% charged 1% if you redeem None
sales charge $500,000 or more if when you redeem within 1 year of
you redeem within 1 shares. The charge is purchase
year of purchase reduced over time and
there is no deferred
sales charge after 6
years
- ----------------------------------------------------------------------------------------------------------------------------
Annual 0.25% of average daily 0.75% of average daily 0.70% of average daily None
distribution net assets net assets net assets
and service
fees
- ----------------------------------------------------------------------------------------------------------------------------
Exchangeable Class A shares of most Class B shares of most Class L shares of most Class Y shares of most
into* Smith Barney funds Smith Barney funds. Smith Barney funds Smith Barney funds
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant, dealer representative or
visit the web site for the Smith Barney funds available for exchange.
Smith Barney Mutual Funds 11
<PAGE>
- --------------------------------------------------------------------------------
Sales charges
- --------------------------------------------------------------------------------
Class A shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund's distributions or dividends you reinvest in additional Class A shares.
- --------------------------------------------------------------------------------
Sales Charge as a % of:
Offering Net amount
Amount of purchase price (%) invested (%)
- --------------------------------------------------------------------------------
Less than $25,000 4.50 4.71
- --------------------------------------------------------------------------------
$25,000 but less than $50,000 4.00 4.17
- --------------------------------------------------------------------------------
$50,000 but less than $100,000 3.50 3.63
- --------------------------------------------------------------------------------
$100,000 but less than $250,000 2.50 2.56
- --------------------------------------------------------------------------------
$250,000 but less than $500,000 1.50 1.52
- --------------------------------------------------------------------------------
$500,000 or more 0.00 0.00
- --------------------------------------------------------------------------------
Investments of $500,000 or more
You do not pay an initial sales charge when you buy $500,000 or more of Class A
shares. However, if you redeem these Class A shares within one year of purchase,
you will pay a deferred sales charge of 1%.
Qualifying for a reduced Class A sales charge
There are several ways you can combine multiple purchases of Class A shares of
Smith Barney funds to take advantage of the breakpoints in the sales charge
schedule.
Accumulation privilege -- lets you combine the current value of Class A shares
owned
o by you, or
o by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
12 Government Securities Fund
<PAGE>
Letter of intent -- lets you purchase Class A shares of the fund and other Smith
Barney funds over a 13-month period and pay the same sales charge, if any, as if
all shares had been purchased at once. You may include purchases on which you
paid a sales charge within 90 days before you sign the letter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
o Employees of members of the NASD
o 403(b) or 401(k) retirement plans, if certain conditions are met
o Clients of newly employed Salomon Smith Barney Financial Consultants, if
certain conditions are met
o Investors who redeemed Class A shares of a Smith Barney fund in the past
60 days, if the investor's Salomon Smith Barney Financial Consultant or
dealer representative is notified
If you want to learn more about the requirements for reductions or waivers of
Class A initial sales charges, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the Statement of Additional
Information ("SAI").
Class B shares
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of purchase,
you will pay a deferred sales charge. The deferred sales charge decreases as the
number of years since your purchase increases.
- --------------------------------------------------------------------------------
Year after purchase 1st 2nd 3rd 4th 5th 6th through 8th
- --------------------------------------------------------------------------------
Deferred sales charge 4.5% 4% 3% 2% 1% 0%
- --------------------------------------------------------------------------------
Class B conversion
After 8 years, Class B shares automatically convert into Class A shares. This
helps you because Class A shares have lower annual expenses. Your Class B shares
will convert to Class A shares as follows:
- --------------------------------------------------------------------------------
Shares issued: Shares issued: Shares issued:
At initial On reinvestment of Upon exchange from
purchase dividends and another Smith Barney
distributions fund
- --------------------------------------------------------------------------------
Eight years In same proportion as On the date the shares
after the date the number of Class B originally acquired
of purchase shares converting is to would have converted
total Class B shares into Class A shares
you own
- --------------------------------------------------------------------------------
Smith Barney Mutual Funds 13
<PAGE>
Class L shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund on June 12, 1998, you
will not pay an initial sales charge on Class L shares you buy before June 22,
2001.
Class Y shares
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify,
you must initially invest $5,000,000.
- --------------------------------------------------------------------------------
More about deferred sales charges
- --------------------------------------------------------------------------------
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
o Shares exchanged for shares of another Smith Barney fund
o Shares representing reinvested distributions and dividends
o Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
14 Government Securities Fund
<PAGE>
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
o On payments made through certain systematic withdrawal plans
o On certain distributions from a retirement plan
o For involuntary redemptions of small account balances
o For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Through a You should contact your Salomon Smith Barney
Salomon Smith Financial Consultant or dealer representative to
Barney Financial open a brokerage account and make arrangements to
Consultant or buy shares.
dealer
representative If you do not provide the following information,
your order will be rejected
o Class of shares being bought
o Dollar amount or number of shares being
bought
You should pay for your shares through your
brokerage account no later than the third business
day after you place your order. Salomon Smith
Barney or your dealer representative may charge an
annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other
fund's transfer investors who are clients of the selling group are
agent eligible to buy shares directly from the fund.
o Write the transfer agent at the following
address:
Smith Barney Investment Funds Inc.
Smith Barney Government Securities Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
o Enclose a check to pay for the shares. For
initial purchases, complete and send an
account application.
o For more information, call the transfer
agent at 1-800-451-2010.
Smith Barney Mutual Funds 15
<PAGE>
- --------------------------------------------------------------------------------
Through a You may authorize Salomon Smith Barney, your
systematic dealer representative or the transfer agent to
investment plan transfer funds automatically from a regular bank
account, cash held in a Salomon Smith Barney
brokerage account or Smith Barney money market
fund to buy shares on a regular basis.
o Amounts transferred should be at least: $25
monthly or $50 quarterly.
o If you do not have sufficient funds in your
account on a transfer date, Salomon Smith
Barney, your dealer representative or the
transfer agent may charge you a fee.
For more information, contact your Salomon Smith
Barney Financial Consultant, dealer representative
or the transfer agent or consult the SAI.
- --------------------------------------------------------------------------------
Exchanging shares
- --------------------------------------------------------------------------------
Smith Barney offers You should contact your Salomon Smith Barney
a distinctive Financial Consultant or dealer representative to
family of funds exchange into other Smith Barney funds. Be sure to
tailored to help read the prospectus of the Smith Barney fund you
meet the varying are exchanging into. An exchange is a taxable
needs of both large transaction.
and small
investors. o You may exchange shares only for shares of
the same class of another Smith Barney fund.
Not all Smith Barney funds offer all
classes.
o Not all Smith Barney funds may be offered in
your state of residence. Contact your
Salomon Smith Barney Financial Consultant,
dealer representative or the transfer agent.
o You must meet the minimum investment amount
for each fund.
o If you hold share certificates, the transfer
agent must receive the certificates endorsed
for transfer or with signed stock powers
(documents transferring ownership of
certificates) before the exchange is
effective.
o The fund may suspend or terminate your
exchange privilege if you engage in an
excessive pattern of exchanges.
- --------------------------------------------------------------------------------
16 Government Securities Fund
<PAGE>
- --------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial
additional sales sales charge at the time of the exchange.
charges
Your deferred sales charge (if any) will continue
to be measured from the date of your original
purchase. If the fund you exchange into has a
higher deferred sales charge, you will be subject
to that charge. If you exchange at any time into a
fund with a lower charge, the sales charge will
not be reduced.
- --------------------------------------------------------------------------------
By telephone If you do not have a brokerage account, you may be
eligible to exchange shares through the transfer
agent. You must complete an authorization form to
authorize telephone transfers. If eligible, you
may make telephone exchanges on any day the New
York Stock Ex change is open. Call the transfer
agent at 1-800- 451- 2010 between 9:00 a.m. and
5:00 p.m. (Eastern time). Requests received after
the close of regular trading on the Exchange are
priced at the net asset value next determined.
You can make telephone exchanges only between
accounts that have identical registrations.
- --------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney
brokerage account, contact your dealer
representative or write to the transfer agent at
the address on the opposite page.
- --------------------------------------------------------------------------------
Smith Barney Mutual Funds 17
- --------------------------------------------------------------------------------
Redeeming shares
- --------------------------------------------------------------------------------
Generally Contact your Salomon Smith Barney Financial
Consultant or dealer representative to redeem
shares of the fund.
If you hold share certificates, the transfer agent
must receive the certificates endorsed for
transfer or with signed stock powers before the
redemption is effective.
If the shares are held by a fiduciary or
corporation, other documents may be required.
Your redemption proceeds will be sent within three
business days after your request is received in
good order. However, if you recently purchased
your shares by check, your redemption proceeds
will not be sent to you until your original check
clears, which may take up to 15 days.
If you have a Salomon Smith Barney brokerage
account, your redemption proceeds will be placed
in your account and not reinvested without your
specific instruction. In other cases, unless you
direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send
written re quests to the transfer agent at the
following address:
Smith Barney Investment Funds Inc.
Smith Barney Government Securities Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
o Your account number
o The class of shares and the dollar amount or
number of shares to be redeemed
o Signatures of each owner exactly as the
account is registered
- --------------------------------------------------------------------------------
18 Government Securities Fund
<PAGE>
- --------------------------------------------------------------------------------
By telephone If you do not have a brokerage account, you may be
eligible to redeem shares (except those held in
retirement plans) in amounts up to $10,000 per day
through the transfer agent. You must complete an
authorization form to authorize telephone
redemptions. If eligible, you may request
redemptions by telephone on any day the New York
Stock Exchange is open. Call the transfer agent
at 1-800-451-2010 between 9:00 a.m. and 5:00 p.m.
(Eastern time). Requests received after the close
of regular trading on the Exchange are priced at
the net asset value next determined.
Your redemption proceeds can be sent by check to
your address of record or by wire transfer to a
bank account designated on your authorization
form. You may be charged a fee for wire transfers.
You must submit a new authorization form to change
the bank account designated to receive wire
transfers and you may be asked to provide certain
other documents.
- --------------------------------------------------------------------------------
Automatic cash You can arrange for the automatic redemption of a
withdrawal plans portion of your shares on a monthly or quarterly
basis. To qualify you must own shares of the fund
with a value of at least $10,000 ($5,000 for
retirement plans) and each automatic redemption
must be at least $50. If your shares are subject
to a deferred sales charge, the sales charge will
be waived if your automatic payments do not exceed
1% per month of the value of your shares subject
to a deferred sales charge.
The following conditions apply:
o Your shares must not be represented by
certificates
o All dividends and distributions must be
reinvested
For more information, contact your Salomon Smith
Barney Financial Consultant or dealer
representative or consult the SAI.
Smith Barney Mutual Funds 19
<PAGE>
- --------------------------------------------------------------------------------
Other things to know about share transactions
- --------------------------------------------------------------------------------
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
o Name of the fund
o Account number
o Class of shares being bought, exchanged or redeemed
o Dollar amount or number of shares being bought, exchanged or redeemed
o Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include a
signature guarantee if you:
o Are redeeming over $10,000 of shares
o Are sending signed share certificates or stock powers to the transfer
agent
o Instruct the transfer agent to mail the check to an address different from
the one on your account
o Changed your account registration
o Want the check paid to someone other than the account owner(s)
o Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
20 Government Securities Fund
<PAGE>
The fund has the right to:
o Suspend the offering of shares
o Waive or change minimum and additional investment amounts
o Reject any purchase or exchange order
o Change, revoke or suspend the exchange privilege
o Suspend telephone transactions
o Suspend or postpone redemptions of shares on any day when trading on the
New York Stock Exchange is restricted, or as otherwise permitted by the
Securities and Exchange Commission o Pay redemption proceeds by giving you
securities. You may pay transaction costs to dispose of the securities
Small account balances
If your account falls below $500 because of a redemption of fund shares, the
fund may ask you to bring your account up to $500. If your account is still
below $500 after 60 days, the fund may close your account and send you the
redemption proceeds.
Excessive exchange transactions
The manager may determine that a pattern of frequent exchanges is detrimental to
the fund's performance and other shareholders. If so, the fund may limit
additional purchases and/or exchanges by the shareholder.
Share certificates
The fund does not issue share certificates unless a written request signed by
all registered owners is made to the transfer agent. If you hold share
certificates it will take longer to exchange or redeem shares.
Smith Barney Mutual Funds 21
<PAGE>
- --------------------------------------------------------------------------------
Smith Barney 401(k) and ExecChoice-- programs
- --------------------------------------------------------------------------------
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoice-- program. The fund offers Class A and Class L shares to
participating plans as investment alternatives under the programs. You can meet
minimum investment and exchange amounts by combining the plan's investments in
any of the Smith Barney funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment. Once a class
of shares is chosen, all additional purchases must be of the same class.
o Class A shares may be purchased by plans investing at least $1 million.
o Class L shares may be purchased by plans investing less than $1 million.
Class L shares are eligible for exchange to Class A shares not later than
8 years after the plan joined the program. They are eligible for exchange
sooner in the following circumstances:
If the account was opened on or after June 21, 1996 and a total of
$1 million is invested in Smith Barney Funds Class L shares (other
than money market funds), all Class L shares are eligible for
exchange after the plan is in the program 5 years.
If the account was opened before June 21, 1996 and a total of
$500,000 is invested in Smith Barney Funds Class L shares (other
than money market funds) on December 31 in any year, all Class L
shares are eligible for exchange on or about March 31 of the
following year.
For more information, call your Salomon Smith Barney Financial Consultant
or the transfer agent, or consult the SAI.
22 Government Securities Fund
<PAGE>
- --------------------------------------------------------------------------------
Dividends, distributions and taxes
- --------------------------------------------------------------------------------
Dividends The fund generally pays dividends from net investment income
periodically and makes capital gain distributions if any, once a year,
typically in December. The fund may pay additional distributions and dividends
at other times if necessary for the fund to avoid a federal tax. Capital
gain distributions and dividends are reinvested in additional fund shares
of the same class that you hold. The fund expects distributions to be
primarily from income. You do not pay a sales charge on reinvested distrib
Taxes In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
- --------------------------------------------------------------------------------
Transaction Federal tax status
- --------------------------------------------------------------------------------
- --------------------
Transaction Federal tax status
- --------------------------------------------------------------------------------
Redemption or exchange of shares Usually capital gain or loss;
long-term only if shares owned more
than one year
- --------------------------------------------------------------------------------
Long-term capital gain distributions Long-term capital gain
- --------------------------------------------------------------------------------
Short-term capital gain distributions Ordinary income
- --------------------------------------------------------------------------------
Dividends Ordinary income
- --------------------------------------------------------------------------------
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a capital gain distribution
because it will be taxable to you even though it may actually be a
return of a portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special tax
rules may apply, you should consult your tax adviser about your investment in
the fund.
Smith Barney Mutual Funds 23
<PAGE>
- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. When reliable market prices or quotations are not readily available,
or when the value of a security has been materially affected by events occurring
after the close of the Exchange or market on which the security is principally
traded, the fund may price those securities at fair value. Fair value is
determined in accordance with procedures approved by the fund's board. A fund
that uses fair value to price securities may value those securities higher or
lower than another fund using market quotations to price the same securities.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the Exchange closes
early, you must place your order prior to the actual closing time. Otherwise,
you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
24 Government Securities Fund
<PAGE>
- --------------------------------------------------------------------------------
Financial highlights
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years. Certain information reflects
financial results for a single share. Total return represents the rate that a
shareholder would have earned (or lost) on a fund share assuming reinvestment of
all dividends and distributions. The information in the following tables was
audited by KPMG LLP, independent accountants, whose report, along with the
fund's financial statements, are included in the annual report (available upon
request). The financial highlights for the year ended December 31, 1994 were
audited by other auditors.
- --------------------------------------------------------------------------------
For a Class A share of capital stock
outstanding throughout each year ended December 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1998(1) 1997 1996 1995(1) 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 9.75 $ 9.34 $ 9.77 $ 9.17 $ 10.01
- -----------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.51 0.59 0.61 0.67 0.52
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) 0.26 0.42 (0.44) 0.62 (0.80)
- -----------------------------------------------------------------------------------------------------
Total income (loss)
from operations 0.77 1.01 0.17 1.29 (0.28)
- -----------------------------------------------------------------------------------------------------
Less distribution from:
Net investment income (0.55) (0.60) (0.59) (0.69) (0.49)
Capital -- -- (0.01) -- (0.07)
- -----------------------------------------------------------------------------------------------------
Total distributions (0.55) (0.60) (0.60) (0.69) (0.56)
- -----------------------------------------------------------------------------------------------------
Net assets value, end of year $ 9.97 $ 9.75 $ 9.34 $ 9.77 $ 9.17
- -----------------------------------------------------------------------------------------------------
Total return 8.12% 11.23% 1.96% 14.50% (2.76)%
- -----------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $347,622 $361,124 $388,563 $453,378 $482,404
- -----------------------------------------------------------------------------------------------------
Ratios to average net assets:
Other expenses 0.92% 0.92% 0.93% 0.94% 1.00%
Interest expense 0.08 0.85 0.84 0.43 0.26
Net investment income 5.15 6.24 6.16 6.70 6.18
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate 334% 274% 420% 294% 276%
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
Smith Barney Mutual Funds 25
<PAGE>
- --------------------------------------------------------------------------------
For a Class B share of capital stock
outstanding throughout each year ended December 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1998(1) 1997 1996 1995(1) 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 9.79 $ 9.38 $ 9.81 $ 9.17 $ 10.01
- ------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.45 0.54 0.56 0.59 0.46
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) 0.26 0.44 (0.44) 0.65 (0.78)
- ------------------------------------------------------------------------------------------------------
Total income (loss)
from operations 0.71 0.98 0.12 1.24 (0.32)
- ------------------------------------------------------------------------------------------------------
Less distribution from:
Net investment income (0.53) (0.57) (0.54) (0.60) (0.45)
Capital -- -- (0.01) -- (0.07)
- ------------------------------------------------------------------------------------------------------
Total distributions (0.53) (0.57) (0.55) (0.60) (0.52)
- ------------------------------------------------------------------------------------------------------
Net assets value, end of year $ 9.97 $ 9.79 $ 9.38 $ 9.81 $ 9.17
- ------------------------------------------------------------------------------------------------------
Total return 7.44% 10.82% 1.42% 13.87% (3.25)%
- ------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $92,082 $101,273 $121,894 $158,459 $172,705
- ------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Other expenses 1.43% 1.44% 1.45% 1.45% 1.48%
Interest expense 0.08 0.85 0.84 0.43 0.26
Net investment income 4.64 5.73 5.64 6.19 5.69
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate 334% 274% 420% 294% 276%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
26 Government Securities Fund
<PAGE>
- --------------------------------------------------------------------------------
For a Class L(2) share of capital stock
outstanding throughout each year ended December 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
1998(1) 1997 1996 1995(1) 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 9.78 $ 9.38 $ 9.81 $ 9.17 $10.01
- ---------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.45 0.54 0.57 0.60 0.49
- ---------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) 0.27 0.43 (0.44) 0.65 (0.81)
- ---------------------------------------------------------------------------------------------
Total income (loss)
from operations 0.72 0.97 0.13 1.25 (0.32)
- ---------------------------------------------------------------------------------------------
Less distribution from:
Net investment income (0.53) (0.57) (0.55) (0.61) (0.45)
Capital -- -- (0.01) -- (0.07)
- ---------------------------------------------------------------------------------------------
Total distributions (0.53) (0.57) (0.56) (0.61) (0.52)
- ---------------------------------------------------------------------------------------------
Net assets value, end of year $ 9.97 $ 9.78 $ 9.38 $ 9.81 $ 9.17
- ---------------------------------------------------------------------------------------------
Total return 7.56% 10.75% 1.47% 13.93% (3.25)%
Net assets, end of year (000)'s $4,411 $2,311 $1,443 $1,039 $ 646
- ---------------------------------------------------------------------------------------------
Ratios to average net assets:
Other expenses 1.40% 1.39% 1.38% 1.37% 1.47%
Interest expense 0.08 0.85 0.84 0.43 0.26
- ---------------------------------------------------------------------------------------------
Net investment income 4.63 5.70 5.71 6.27 5.71
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate 334% 274% 420% 294% 276%
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(2) On June 12, 1998, Class C shares were renamed Class L shares.
Smith Barney Mutual Funds 27
<PAGE>
- --------------------------------------------------------------------------------
For a Class Y share of capital stock
outstanding throughout each year ended December 31:
- --------------------------------------------------------------------------------
1998(1) 1997 1996(2)
- --------------------------------------------------------------------------------
Net asset value,
beginning of year $ 9.76 $ 9.34 $ 9.71
- --------------------------------------------------------------------------------
Income from operations:
Net investment income 0.54 0.61 0.57
Net realized and unrealized
gain (loss) 0.26 0.44 (0.37)
- --------------------------------------------------------------------------------
Total income
from operations 0.80 1.05 0.20
- --------------------------------------------------------------------------------
Less distribution from:
Net investment income (0.59) (0.63) (0.56)
Net realized gains -- -- (0.01)
- --------------------------------------------------------------------------------
Total distributions (0.59) (0.63) (0.57)
- --------------------------------------------------------------------------------
Net assets value, end of year $ 9.97 $ 9.76 $ 9.34
- --------------------------------------------------------------------------------
Total return 8.42% 11.73% 2.30%(3)
- --------------------------------------------------------------------------------
Net assets, end of year (000)'s $191,253 $109,909 $39,667
- --------------------------------------------------------------------------------
Ratios to average net assets:
Other expenses 0.59% 0.58% 0.44%(4)
Interest expense 0.08 0.85 0.84(4)
Net investment income 5.43 6.46 6.49(4)
- --------------------------------------------------------------------------------
Portfolio turnover rate 334% 274% 420%
- --------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the period from February 7, 1996 (inception date) to December 31,
1996.
(3) Not Annualized.
(4) Annualized.
28 Government Securities Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SALOMON SMITH BARNEY
---------------------------
A member of citigroup[LOGO]
Government
Securities Fund
- -- an investment portfolio of Smith Barney Investment Funds Inc.
Shareholder reports
Annual and semiannual reports to shareholders provide additional information
about the fund's investments. These reports discuss the market conditions and
investment strategies that affected the fund's performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information
Statement of additional information. The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
You can also review and copy the fund's shareholder reports, prospectus and
statement of additional information at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. You can get copies of these materials
for a duplicating fee by writing to the Public Reference Section of the
Commission, Washington, D.C. 20549-6009. Information about the public reference
room may be obtained by calling 1-800-SEC-0330. You can get the same information
free from the Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file
no. 811-03275)
FD0234 4/99
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Everyday.
PROSPECTUS
Government
Securities
Fund
Class Z Shares
-------------------------------------------------------------------------
April 30, 1999
The Securities and Exchange Commission has not approved or disapproved
these securities or determined whether this prospectus is accurate or
complete. Any statement to the contrary is a crime.
<PAGE>
Government Securities Fund
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
Fund goal and main strategies .................. 2
Risks, performance and expenses.................. 3
More on the fund's investments ................. 6
Management ..................................... 7
Buying, selling and exchanging Class Z shares .. 8
Distributions, dividends and taxes ............. 9
Share price .................................... 10
You should know: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds 1
<PAGE>
- --------------------------------------------------------------------------------
Fund goal and main strategies
- --------------------------------------------------------------------------------
Investment objective The fund seeks high current return.
Key investments
The fund invests primarily in debt securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities. These securities include U.S.
Treasury securities and mortgage-related securities. Mortgage- related
securities issued by federal agencies or instrumentalities may be backed by the
full faith and credit of the U.S. Treasury, by the right of the issuer to borrow
from the U.S. government or only by the credit of the issuer itself.
The fund may also enter into mortgage dollar roll transactions where the fund
sells a mortgage related security and simultaneously agrees to repurchase,
at a future date, another mortgage related security with the same interest
rate and maturity date but generally backed by a different pool of mortgages.
The benefits from these transactions depend on the manager's ability to
forecast mortgage prepayment patterns on different mortgage pools. The fund
may lose money if the securities to be repurchased decline
Selection process
The manager focuses on identifying undervalued securities. Specifically, the
manager:
o Monitors the spreads between U.S. Treasury and government agency or
instrumentality issuers and purchases agency and instrumentality issues that
it believes will provide a yield advantage
o Determines sector and maturity weightings based on intermediate and long-term
assessments of the economic environment and relative value factors based on
interest rate outlook
o Uses research to identify sectors of the government and mortgage markets that
are inefficiently priced, and adjusts portfolio positions to take advantage
of new information
o Measures the potential impact of supply/demand imbalances, yield curve shifts
and changing prepayment patterns to identify individual securities that
balance potential return and risk
2 Government Securities Fund
<PAGE>
- --------------------------------------------------------------------------------
Risks, performance and expenses
- --------------------------------------------------------------------------------
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
o Interest rates increase, causing the prices of fixed income securities to
decline and reducing the value of the fund's portfolio
o As interest rates decline, the issuers of mortgage-related securities held by
the fund may pay principal earlier than scheduled or exercise a right to call
the securities, forcing the fund to reinvest in lower yielding securities.
This is known as prepayment or call risk
o As interest rates increase, slower than expected principal payments may
extend the average life of fixed income securities, locking in below-market
interest rates and reducing the value of these securities. This is known as
extension risk.
o The manager's judgment about interest rates or the attractiveness, value or
income potential of a particular security proves incorrect
o The fund may engage in active and frequent trading, resulting in high
portfolio turnover. This may lead to the realization and distribution to
shareholders of higher capital gains, increasing their tax liability. Frequent
trading also increases transaction costs, which could detract from the fund's
performance.
Payments of principal and interest on mortgage pools issued by instrumentalities
of the U.S. government are not guaranteed by the U.S. government. Although
mortgage pools issued by U.S. agencies are guaranteed with respect to payments
of principal and interest, this guarantee does not apply to losses resulting
from declines in the market value of these securities.
Who may want to invest
The fund may be an appropriate investment if you:
o Are seeking income consistent with preservation of capital
o Are willing to accept the interest rate risks and market risks of investing
in government bonds and mortgage-related securities
o Prefer to invest in U.S. government securities rather than higher yielding
corporate securities
Smith Barney Mutual Funds 3
<PAGE>
Total return
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
The fund's Class Z shares did not commence operation until January 1999.
The fund is showing total return, quarterly returns and comparative
performance of its Class B shares (the oldest class of shares) to provide you
with some indication of the fund's historical performance.
- --------------------------------------------------------------------------------
% Total Return: Class B Shares
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Quarterly returns:
(past 10 years)*: Highest: 8.45% in 2nd quarter 1989;
Lowest: (3.62)% in 1st quarter 1992
Comparative performance
This table indicates the risks of investing in the fund by comparing the average
annual total return of the fund for the periods shown to that of the Lehman
Brothers Government Bond Index ("Lehman Index"), a broad based unmanaged index
of all U.S. government obligations. This table assumes the reinvestment of
distributions and dividends.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Calendar Years Ended December 31, 1998
- --------------------------------------------------------------------------------
Class 1 year 5 years 10 years Since Inception Inception Date
Government Securities
Fund (Class B)* 2.94% 5.73% 8.25% 8.18% 3/20/84
Lehman Index 9.85% 7.18% 9.17% 10.14% **
* Class Z shares were not offered during these periods. Total returns shown
above are for Class B shares, which are not offered in this prospectus.
** Index comparison begins on March 31, 1984.
4 Government Securities Fund
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
- --------------------------------------------------------------------------------
Annual fund operating expenses
- --------------------------------------------------------------------------------
(expenses deducted from fund assets)
Management fee 0.55%
Other expenses 0.04%
------
Total annual fund operating expenses 0.59%
======
Example
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
o You invest $10,000 in the fund for the period shown
o Your investment has a 5% return each year
o You reinvest all distributions and dividends
o The fund's operating expenses remain the same
- --------------------------------------------------------------------------------
Number of years you own your shares
- --------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
Class Z $ 60 $189 $329 $738
Smith Barney Mutual Funds 5
<PAGE>
- --------------------------------------------------------------------------------
More on the fund's investments
- --------------------------------------------------------------------------------
Derivative contracts The fund may, but need not, use derivative contracts, such
as interest rate futures and options on interest rate futures, for any of the
following purposes:
o To hedge against the economic impact of adverse changes in the market value
of portfolio securities, because of changes in interest rates
o As a substitute for buying or selling securities
A futures contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities.
Even a small investment in derivative contracts can have a big impact on a
fund's interest rate exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains when
interest rates are changing. The fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of default risk as issuers of fixed
income securities. Derivatives can also make a fund less liquid and harder to
value, especially in declining markets.
Defensive investing Defensive investing. The fund may depart from its principal
investment strategies in response to adverse market, economic or political
conditions by taking temporary defensive positions in all types of money market
and short-term debt securities. If the fund takes a temporary defensive
position, it may be unable to achieve its investment goal.
6 Government Securities Fund
<PAGE>
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
Manager The fund's investment manager is SSBC Fund Management Inc., an affiliate
of Salomon Smith Barney Inc. The manager's address is 388 Greenwich Street, New
York, New York 10013. The manager selects the fund's investments and oversees
its operations. The manager and Salomon Smith Barney are subsidiaries of
Citigroup Inc. Citigroup businesses produce a broad range of financial services
- -- asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading -- and use diverse
channels to make them available to consumer and corporate customers around the
world.
James E. Conroy, investment officer of the manager and managing director of
Salomon Smith Barney, has been responsible for the day to day management of the
fund since its inception in 1984.
Management fee For its services, the manager received a fee during the fund's
last fiscal year equal to 0.35% of the fund's average daily net assets. In
addition, the manager received a fee for its administrative services to the fund
equal to 0.20% of the fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares.
Year 2000 issue Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
that the efforts of the fund which are limited to requesting and receiving
reports from its service providers, or the efforts of its service providers to
correct the problem will be successful.
Smith Barney Mutual Funds 7
<PAGE>
- --------------------------------------------------------------------------------
Buying, selling and exchanging Class Z shares
- --------------------------------------------------------------------------------
Through a You may buy, sell or exchange Class Z shares only through a
qualified "qualified plan." A qualified plan is a tax-exempt employee benefit
plan or retirement plan of Salomon Smith Barney, Inc. or one of its
affiliates.
There are no minimum investment requirements for Class Z shares.
However, the fund reserves the right to change this policy at any
time.
- --------------------------------------------------------------------------------
Buying Orders to buy Class Z shares must be made in accordance with the
terms of a qualified plan. If you are a participant in a qualified
plan, you may place an order with your plan to buy Class Z shares at
net asset value, without any sales charge. Payment is due to Salomon
Smith Barney on settlement date, which is the third business day
after your order is accepted. If you make payment prior to this
date, you may designate a temporary investment (such as a money
market fund of the Smith Barney Mutual Funds) for payment until
settlement date. The fund reserves the right to reject any order to
buy shares and to suspend the offering of shares for a period of
time.
- --------------------------------------------------------------------------------
Selling Qualified plans may redeem their shares on any day on which the fund
calculates its net asset value. You should consult the terms of your
qualified plan for special redemption provisions.
- --------------------------------------------------------------------------------
Exchanging You should should consult your qualified plan for information about
available exchange options.
8 Government Securities Fund
<PAGE>
- --------------------------------------------------------------------------------
Distributions, dividends and taxes
- --------------------------------------------------------------------------------
An investment in the fund will have the following consequences for a qualified
plan as the owner of shares in the fund. Qualified plan participants should
consult their plan document or tax advisors about the tax consequences of
participating in a qualified plan.
Dividends The fund generally pays dividends from net investment income
periodically and makes capital gain distributions if any, once a year,
typically in December. The fund may pay
additional distributions and dividends at other times if necessary for the fund
to avoid a federal tax. Capital gain distributions and dividends are reinvested
in additional Class Z shares. The fund expects distributions to be primarily
from income. No sales charge is imposed on reinvested distributions or
dividends. Alternatively, a qualified plan can instruct its Salomon Smith Barney
Financial Consultant, dealer representative, or the transfer agent to have
distributions and/or dividends paid in cash. It can change that choice at any
time to be effective as of the next distribution or dividend, except that any
change given to the transfer agent less than five days before the payment date
will not be effective until the next distribution or dividend is paid.
Taxes Provided that a qualified plan has not borrowed to finance its investment
in the fund, it will not be taxable on the receipt of dividends and
distributions from the fund.
Smith Barney Mutual Funds 9
<PAGE>
- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------
Qualified plans may buy, exchange or redeem Class Z shares of the fund at the
net asset value next determined after receipt of your request in good order. The
fund's net asset value is the value of its assets minus its liabilities. Net
asset value is calculated separately for each class of shares. The fund
calculates its net asset value every day the New York Stock Exchange is open.
The Exchange is closed on certain holidays listed in the SAI. This calculation
is done when regular trading closes on the Exchange (normally 4:00 p.m., Eastern
time).
The fund generally values its fund securities based on market prices or
quotations. When reliable market prices or quotations are not readily available,
or when the value of a security has been materially affected by events occurring
after the close of the Exchange or market on which the security is principally
traded, the fund may price those securities at fair value. Fair value is
determined in accordance with procedures approved by the fund's board. A fund
that uses fair value to price securities may value those securities higher or
lower than another fund that uses market quotations to price the same
securities.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your qualified plan before the New York Stock Exchange closes.
If the Exchange closes early, you must place your order with your qualified plan
prior to the actual closing time. Otherwise, you will receive the next business
day's price.
Your qualified plan must transmit all orders to buy, exchange or redeem shares
to the fund's agent before the agent's close of business.
10 Government Securities Fund
<PAGE>
SALOMON SMITH BARNEY(SM)
a member of citigroup [Symbol]
Government
Securities Fund
An investment portfolio of
Smith Barney Investment Funds Inc.
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your qualified plan or the transfer agent if you do not
want this policy to apply to you.
Statement of additional information. The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally a part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your
qualified plan, by calling the fund at 1-800-451-2010, or by writing to the fund
at Smith Barney Mutual Funds, 388 Greenwich Street, MF2, New York, New York
10013. Visit our web site. Our web site is located at www.smithbarney.com
You can also review and copy the fund's shareholder reports, prospectus and
statement of additional information at the Securities and Exchange Commission's
Public Reference Room in Washing ton, D.C. You can get copies of these materials
for a duplicating fee by writing to the Public Reference Section of the
Commission, Washington, D.C. 20549-6009. Information about the public reference
room may be obtained by calling 1-800-SEC-0330. You can get the same information
free from the Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file
no. 811-03275)
FD0234 4/99
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day!
PROSPECTUS
Investment
Grade
Bond Fund
Class A, B, L and Y Shares
--------------------------------------------------
April 30, 1999
The Securities and Exchange Commission has not approved or disapproved
these securities or determined whether this prospectus is accurate or
complete. Any statement to the contrary is a crime.
<PAGE>
Investment Grade Bond Fund
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
Fund goal and main strategies .....................................4
Risks, performance and expenses ...................................5
More on the fund's investments ....................................8
Management ........................................................9
Choosing a class of shares to buy ................................10
Comparing the fund's classes .....................................11
Sales charges ....................................................12
More about deferred sales charges ................................14
Buying shares ....................................................15
Exchanging shares ................................................16
Redeeming shares .................................................18
Other things to know about share transactions ....................20
Smith Barney 401(k) and ExecChoice (TM) programs .................22
Dividends, distributions and taxes ...............................23
Share price ......................................................24
Financial highlights .............................................25
You should know: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds 3
<PAGE>
- --------------------------------------------------------------------------------
Fund goal and main strategies
- --------------------------------------------------------------------------------
Investment objective
The fund seeks as high a level of current income as is consistent with prudent
investment management and preservation of capital.
Key investments
The fund invests primarily in "investment grade" fixed income securities. These
are securities rated by a national ratings organization within one of the top
four categories, or, if unrated, judged by the manager to be of comparable
credit quality. The fund also may invest in U.S. government securities and U.S.
dollar denominated fixed income securities of foreign issuers. The fund may
invest in securities having any maturity.
Selection process
The manager emphasizes individual bond selection while diversifying the fund's
investments across a range of issues, industries and maturity dates. In
selecting individual corporate bonds for investment, the manager:
o Uses fundamental credit analysis to estimate the relative value and
attractiveness of various companies and bond issues
o Identifies undervalued corporate bond issues and avoids issues that may be
subject to credit downgrades
o Determines sector and maturity weightings based on intermediate and
long-term assessments of the economic environment and interest rate
outlook
The manager monitors the fund's portfolio and makes ongoing adjustments based on
the relative values or maturities of individual corporate bonds or changes in
the creditworthiness or overall investment merits of an issue.
4 Investment Grade Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
Risks, performance and expenses
- --------------------------------------------------------------------------------
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
o The issuer of a security owned by the fund defaults on its obligation to
pay principal and/or interest or has its credit rating downgraded
o Interest rates increase, causing the prices of fixed income securities to
decline, thereby reducing the value of the fund's portfolio. The fund has
greater sensitivity to changes in interest rates than a fund investing in
securities with shorter maturities
o The manager's judgment about interest rates or the attractiveness, value
or income potential of a particular security proves incorrect
Who may want to invest
The fund may be an appropriate investment if you:
o Are seeking a high level of current income consistent with investing in
high quality, long-term corporate bonds
o Wish to diversify your investment portfolio by adding an investment in
corporate bonds
o Are willing to accept the risks of investing in the corporate bond market,
including credit risk and interest rate risk
Smith Barney Mutual Funds 5
<PAGE>
Total return
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
- --------------------------------------------------------------------------------
Total Return for Class B Shares
- --------------------------------------------------------------------------------
[The following table was depicted as a bar chart in the printed material.]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
15.57% 2.98% 22.5% 8.36% 18.06% -9.41% 34.63% -0.89% 16.44% 7.72%
The bar chart shows the performance of the fund's Class B shares for each of the
past 10 years. Class A, L and Y shares would have different performance because
of their different expenses. The performance information in the chart does not
reflect sales charges, which would reduce your return.
Quarterly returns
(past 10 years): Highest: 12.34% in 2nd quarter 1995; Lowest: (7.56)% in 1st
quarter 1996
Comparative performance
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Lehman
Brothers Long Term Corporate Bond Index ("Lehman Index"), a broad-based
unmanaged index of investment grade corporate bonds and the Salomon Corporate
Index 10+ ("Salomon Index"), a broad-based unmanaged index of investment grade
corporate bonds with maturities of ten years or more. This table assumes
imposition of the maximum sales charge applicable to the class, redemption of
shares at the end of the period, and reinvestment of distributions and
dividends.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Calendar Years Ended December 31, 1998
- --------------------------------------------------------------------------------
Class 1 year 5 years 10 years Since Inception Inception Date
- --------------------------------------------------------------------------------
A 3.43% 8.23% n/a 10.18% 11/06/92
- --------------------------------------------------------------------------------
B 3.26% 8.53% 10.95% 11.92% 1/4/82
- --------------------------------------------------------------------------------
L 5.80% 8.51% n/a 9.05% 02/26/93
- --------------------------------------------------------------------------------
Y 8.66% n/a n/a 9.16% 02/07/96
- --------------------------------------------------------------------------------
Lehman
Index 9.03% 8.80% 10.90% 13.73% *
- --------------------------------------------------------------------------------
Salomon Index 5.52% 9.44% 10.67% 13.43% *
*
* Index comparison begins on January 31, 1982.
6 Investment Grade Bond Fund
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
- --------------------------------------------------------------------------------
Shareholder fees
- --------------------------------------------------------------------------------
(fees paid directly from your investment) Class A Class B Class L Class Y
- --------------------------------------------------------------------------------
Maximum sales charge on
(load) imposed purchases 4.50%* None 1.00% None
- --------------------------------------------------------------------------------
(as a % of offering price)
Maximum deferred sales charge (load)
(as a % of the lower of net asset
value at purchase or redemption) None* 4.50% 1.00% None
- --------------------------------------------------------------------------------
Annual fund operating expenses
- --------------------------------------------------------------------------------
(expenses deducted from fund assets) Class A Class B Class L Class Y
- --------------------------------------------------------------------------------
Management fee 0.65% 0.65% 0.65% 0.65%
- --------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.25% 0.75% 0.70% None
- --------------------------------------------------------------------------------
Other expenses 0.14% 0.13% 0.19% 0.05%
- --------------------------------------------------------------------------------
Total annual fund operating expenses 1.04% 1.53% 1.54% 0.70%
* You may buy Class A shares in amounts of $500,000 or more at net asset
value (without an initial charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
Example
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
o You invest $10,000 in the fund for the period shown
o Your investment has a 5% return each year
o You reinvest all distributions and dividends without a sales charge
o The fund's operating expenses remain the same
- --------------------------------------------------------------------------------
Number of years you own your shares
- --------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class A (with or without redemption) $551 $766 $998 $1,664
- --------------------------------------------------------------------------------
Class B (redemption at end of period) $606 $783 $934 $1,692
- --------------------------------------------------------------------------------
Class B (no redemption) $156 $483 $834 $1,692
- --------------------------------------------------------------------------------
Class L (redemption at end of period) $355 $582 $931 $1,916
- --------------------------------------------------------------------------------
Class L (no redemption) $255 $582 $931 $1,916
- --------------------------------------------------------------------------------
Class Y (with or without redemption) $ 72 $224 $390 $ 871
Smith Barney Mutual Funds 7
<PAGE>
- --------------------------------------------------------------------------------
More on the fund's investments
- --------------------------------------------------------------------------------
Derivative contracts The fund may, but need not, use derivative contracts, such
as interest rate futures and options on interest rate futures, for any of the
following purposes:
o To hedge against the economic impact of adverse changes in the market
value of portfolio securities, because of changes in interest rates
o As a substitute for buying or selling securities
A futures contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities.
Even a small investment in derivative contracts can have a big impact on a
fund's interest rate exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains when
interest rates are changing. The fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of default risk as issuers of fixed
income securities. Derivatives can also make a fund less liquid and harder to
value, especially in declining markets.
Foreign Securities The fund may invest in U.S. dollar denominated securities of
foreign issuers. To the extent the fund invests in these securities, it carries
additional risks. The value of your investment may decline if the U.S. and/or
foreign fixed-income markets decline or an adverse event, such as an unfavorable
earnings report, depresses the value of a particular issuer's securities. Prices
of foreign securities may go down because of foreign government actions,
political instability or the more limited availability of accurate information
about foreign companies.
Defensive investing The fund may depart from its principal investment strategies
in response to adverse market, economic or political conditions by taking
temporary defensive positions in all types of money market and short-term debt
securities. If the fund takes a temporary defensive position, it may be unable
to achieve its investment goal.
8 Investment Grade Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
Manager The fund's investment manager is SSBC Fund Management Inc., an affiliate
of Salomon Smith Barney Inc. The manager's address is 388 Greenwich Street, New
York, New York 10013. The manager selects the fund's investments and oversees
its operations. The manager and Salomon Smith Barney are subsidiaries of
Citigroup Inc. Citigroup businesses produce a broad range of financial services
- -- asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading -- and use diverse
channels to make them available to consumer and corporate customers around the
world.
James E. Conroy, investment officer of the manager and managing director of
Salomon Smith Barney, has been responsible for the day to day management of the
fund since November, 1998.
Management fee For its services, the manager received a fee during the fund's
last fiscal year equal to 0.45% of the fund's average daily net assets. In
addition, the manager received a fee for its administrative services to the fund
equal to 0.20% of the fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker-dealers sells fund shares to the public.
Distribution plans The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and service
fees. These fees are an ongoing expense and, over time, may cost you more than
other types of sales charges.
Year 2000 issue Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
that the efforts of the fund which are limited to requesting and receiving
reports from its service providers, or the efforts of its service providers
to correct the problem will be successful.
Smith Barney Mutual Funds 9
<PAGE>
- --------------------------------------------------------------------------------
Choosing a class of shares to buy
- --------------------------------------------------------------------------------
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
o If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses.
o For Class B shares, all of your purchase price and, for Class L shares,
more of your purchase amount (compared to Class A shares) will be
immediately invested. This may help offset the higher expenses of Class B
and Class L shares, but only if the fund performs well.
o Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and
Class L shares do not, Class B shares may be more attractive to long-term
investors.
You may buy shares from:
o A Salomon Smith Barney Financial Consultant
o An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
o The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
- --------------------------------------------------------------------------------
Initial Additional
- --------------------------------------------------------------------------------
Classes A, B, L Class Y All Classes
- --------------------------------------------------------------------------------
General $1,000 $15 million $50
- --------------------------------------------------------------------------------
IRAs, Self Employed Retirement
Plans, Uniform Gift to Minor
Accounts $250 $15 million $50
- --------------------------------------------------------------------------------
Qualified Retirement Plans* $25 $15 million $25
- --------------------------------------------------------------------------------
Simple IRAs $1 n/a $1
- --------------------------------------------------------------------------------
Monthly Systematic Investment Plans $25 n/a $25
- --------------------------------------------------------------------------------
Quarterly Systematic Investment Plans $50 n/a $50
* Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k) plans
10 Investment Grade Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
Comparing the fund's classes
- --------------------------------------------------------------------------------
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They may receive different compensation
depending upon which class you choose.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Class A Class B Class L Class Y
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Key features o Initial sales o No initial o Initial sales o No initial
charge sales charge charge is lower or deferred
o You may qualify o Deferred than Class A sales charge
for reduction sales charge o Deferred sales o Must invest
or waiver of declines charge for at least
initial sales over time only 1 year $15 million
charge o Converts to o Does not convert o Lower annual
o Lower annual Class A after to Class A expenses than
expenses than 8 years o Higher annual the other
Class B and o Higher annual expenses than classes
Class L expenses than Class A
Class A
- -----------------------------------------------------------------------------------------
Initial sales Up to 4.50%; None 1.00% None
charge reduced for
large purchases
and waived
for certain
investors; no
charge for
purchases of
$500,000 or more
- -----------------------------------------------------------------------------------------
Deferred 1% on purchases Up to 4.50% 1% if you None
sales charge of $500,000 charged when redeem within
or more if you redeem 1 year of
you redeem shares. The purchase
within 1 year charge is
of purchase reduced over
time and
there is no
deferred sales
charge after
6 years
- -----------------------------------------------------------------------------------------
Annual 0.25% of average 0.75% of average 0.70% of average None
distribution daily net assets daily net assets daily net assets
and service
fees
- -----------------------------------------------------------------------------------------
Exchangable Class A shares Class B shares Class L shares Class Y shares
into* of most Smith of most Smith of most Smith of most Smith
Barney funds Barney funds. Barney funds Barney funds
- -----------------------------------------------------------------------------------------
</TABLE>
* Ask your Salomon Smith Barney Financial Consultant, dealer representative or
visit the web site for the Smith Barney funds available for exchange.
Smith Barney Mutual Funds 11
<PAGE>
- --------------------------------------------------------------------------------
Sales charges
- --------------------------------------------------------------------------------
Class A shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund's distributions or dividends you reinvest in additional Class A shares.
- --------------------------------------------------------------------------------
Sales Charge as a % of:
Offering Net amount
Amount of purchase price (%) invested (%)
Less than $25,000 4.50 4.71
- --------------------------------------------------------------------------------
$25,000 but less than $50,000 4.00 4.17
- --------------------------------------------------------------------------------
$50,000 but less than $100,000 3.50 3.63
- --------------------------------------------------------------------------------
$100,000 but less than $250,000 2.50 2.56
- --------------------------------------------------------------------------------
$250,000 but less than $500,000 1.50 1.52
- --------------------------------------------------------------------------------
$500,000 or more 0.00 0.00
- --------------------------------------------------------------------------------
Investments of $500,000 or more You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
Qualifying for a reduced Class A sales charge. There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Qualifying for a reduced Class A sales charge There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Accumulation privilege -- lets you combine the current value of Class A shares
owned
o by you, or
o by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
12 Investment Grade Bond Fund
<PAGE>
Letter of intent -- lets you purchase Class A shares of the fund and other Smith
Barney funds over a 13-month period and pay the same sales charge, if any, as if
all shares had been purchased at once. You may include purchases on which you
paid a sales charge within 90 days before you sign the letter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
o Employees of members of the NASD
o 403(b) or 401(k) retirement plans, if certain conditions are met
o Clients of newly employed Salomon Smith Barney Financial Consultants, if
certain conditions are met
o Investors who redeemed Class A shares of a Smith Barney fund in the past
60 days, if the investor's Salomon Smith Barney Financial Consultant or
dealer representative is notified
If you want to learn more about the requirements for reductions or waivers of
Class A initial sales charges, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the Statement of Additional
Information ("SAI").
Class B shares
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of purchase,
you will pay a deferred sales charge. The deferred sales charge decreases as the
number of years since your purchase increases.
- --------------------------------------------------------------------------------
Year after purchase 1st 2nd 3rd 4th 5th 6th through 8th
- --------------------------------------------------------------------------------
Deferred sales charge 4.5% 4% 3% 2% 1% 0%
- --------------------------------------------------------------------------------
Class B conversion After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
- --------------------------------------------------------------------------------
Shares issued: Shares issued: Shares issued:
- --------------------------------------------------------------------------------
At initial On reinvestment of Upon exchange from
purchase dividends and another Smith Barney
distributions fund
Eight years In same proportion as On the date the shares
after the date the number of Class B originally acquired
of purchase shares converting is would have converted
to total Class B into Class A shares
shares you own
Smith Barney Mutual Funds 13
<PAGE>
Class L shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund on June 12, 1998, you
will not pay an initial sales charge on Class L shares you buy before June 22,
2001.
Class Y shares
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 6-month period. To qualify, you must
initially invest $5,000,000.
- --------------------------------------------------------------------------------
More about deferred sales charges
- --------------------------------------------------------------------------------
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
o Shares exchanged for shares of another Smith Barney fund
o Shares representing reinvested distributions and dividends
o Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
14 Investment Grade Bond Fund
<PAGE>
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
o On payments made through certain systematic withdrawal plans
o On certain distributions from a retirement plan
o For involuntary redemptions of small account balances
o For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Through a You should contact your Salomon Smith Barney Financial
Salomon Smith Consultant or dealer representative to open a brokerage
Barney Financial account and make arrangements to buy shares.
Consultant or
dealer If you do not provide the following information, your
representative order will be rejected
o Class of shares being bought
o Dollar amount or number of shares being bought
You should pay for your shares through your brokerage
account no later than the third business day after you
place your order. Salomon Smith Barney or your dealer
representative may charge an annual account maintenance
fee.
- --------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors
fund's transfer who are clients of the selling group are eligible to buy
agent shares directly from the fund.
o Write the transfer agent at the following address:
Smith Barney Investment Funds Inc.
Smith Barney Investment Grade Bond Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
o Enclose a check to pay for the shares. For initial
purchases, complete and send an account
application.
o For more information, call the transfer agent at
1-800-451-2010.
Smith Barney Mutual Funds 15
<PAGE>
Through a You may authorize Salomon Smith Barney, your dealer
systematic representative or the transfer agent to transfer funds
investment plan automatically from a regular bank account, cash held in
a Salomon Smith Barney brokerage account or Smith Barney
money market fund to buy shares on a regular basis.
o Amounts transferred should be at least: $25
monthly or $50 quarterly.
o If you do not have sufficient funds in your
account on a transfer date, Salomon Smith Barney,
your dealer representative or the transfer agent
may charge you a fee.
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the
transfer agent or consult the SAI.
- --------------------------------------------------------------------------------
Exchanging shares
- --------------------------------------------------------------------------------
Smith Barney You should contact your Salomon Smith Barney Financial
offers a Consultant or dealer representative to exchange into
distinctive other Smith Barney funds. Be sure to read the prospectus
family of funds of the Smith Barney fund you are exchanging into. An
tailored to exchange is a taxable transaction.
help meet the
varying needs o You may exchange shares only for shares of the
of both large same class of another Smith Barney fund. Not all
and small Smith Barney funds offer all classes.
investors.
o Not all Smith Barney funds may be offered in your
state of residence.Contact your Salomon Smith
Barney Financial Consultant, dealer representative
or the transfer agent.
o You must meet the minimum investment amount for
each fund.
o If you hold share certificates, the transfer agent
must receive the certificates endorsed for
transfer or with signed stock powers (documents
transferring ownership of certificates) before the
exchange is effective.
o The fund may suspend or terminate your exchange
privilege if you engage in an excessive pattern of
exchanges.
- --------------------------------------------------------------------------------
16 Investment Grade Bond Fund
<PAGE>
Waiver of Your shares will not be subject to an initial sales
additional charge at the time of the exchange.
sales charges
Your deferred sales charge (if any) will continue to be
measured from the date of your original purchase. If the
fund you exchange into has a higher deferred sales
charge, you will be subject to that charge. If you
exchange at any time into a fund with a lower charge,
the sales charge will not be reduced.
- --------------------------------------------------------------------------------
By telephone If you do not have a brokerage account, you may be
eligible to exchange shares through the transfer agent.
You must complete an authorization form to authorize
telephone transfers. If eligible, you may make telephone
exchanges on any day the New York Stock Exchange is
open. Call the transfer agent at 1-800-451- 2010 between
9:00 a.m. and 5:00 p.m. (Eastern time). Requests
received after the close of regular trading on the
Exchange are priced at the net asset value next
determined.
You can make telephone exchanges only between accounts
that have identical registrations.
- --------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage
account, contact your dealer representative or write to
the transfer agent at the address on the opposite page.
Smith Barney Mutual Funds 17
<PAGE>
- --------------------------------------------------------------------------------
Redeeming shares
- --------------------------------------------------------------------------------
Generally Contact your Salomon Smith Barney Financial Consultant
or dealer representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with
signed stock powers before the redemption is effective.
If the shares are held by a fiduciary or corporation,
other documents may be required.
Your redemption proceeds will be sent within three
business days after your request is received in good
order. However, if you recently purchased your shares by
check, your redemption proceeds will not be sent to you
until your original check clears, which may take up to
15 days.
If you have a Salomon Smith Barney brokerage account,
your redemption proceeds will be placed in your account
and not reinvested without your specific instruction. In
other cases, unless you direct otherwise, your
redemption proceeds will be paid by check mailed to your
address of record.
- --------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written
requests to the transfer agent at the following address:
Smith Barney Investment Funds Inc.
Smith Barney Investment Grade Bond Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
o Your account number
o The class of shares and the dollar amount or
number of shares to be redeemed
o Signatures of each owner exactly as the account is
registered
- --------------------------------------------------------------------------------
18 Investment Grade Bond Fund
<PAGE>
By telephone If you do not have a brokerage account, you may be
eligible to redeem shares (except those held in
retirement plans) in amounts up to $10,000 per day
through the transfer agent. You must complete an
authorization form to authorize telephone redemptions.
If eligible, you may request redemptions by telephone on
any day the New York Stock Exchange is open. Call the
transfer agent at 1-800-451-2010 between 9:00 a.m. and
5:00 p.m. (Eastern time). Requests received after the
close of regular trading on the Exchange are priced at
the net asset value next determined.
Your redemption proceeds can be sent by check to your
address of record or by wire transfer to a bank account
designated on your authorization form. You may be
charged a fee for wire transfers. You must submit a new
authorization form to change the bank account designated
to receive wire transfers and you may be asked to
provide certain other documents.
- --------------------------------------------------------------------------------
Automatic cash You can arrange for the automatic redemption of a
withdrawal portion of your shares on a monthly or quarterly basis.
plans To qualify you must own shares of the fund with a value
of at least $10,000 ($5,000 for retirement plans) and
each automatic redemption must be at least $50. If your
shares are subject to a deferred sales charge, the sales
charge will be waived if your automatic payments do not
exceed 1% per month of the value of your shares subject
to a deferred sales charge.
The following conditions apply:
o Your shares must not be represented by
certificates
o All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult
the SAI.
Smith Barney Mutual Funds 19
<PAGE>
- --------------------------------------------------------------------------------
Other things to know about share transactions
- --------------------------------------------------------------------------------
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
o Name of the fund
o Account number
o Class of shares being bought, exchanged or redeemed
o Dollar amount or number of shares being bought, exchanged or redeemed
o Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include a
signature guarantee if you:
o Are redeeming over $10,000 of shares
o Are sending signed share certificates or stock powers to the transfer
agent
o Instruct the transfer agent to mail the check to an address different from
the one on your account
o Changed your account registration
o Want the check paid to someone other than the account owner(s)
o Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
20 Investment Grade Bond Fund
<PAGE>
The fund has the right to:
o Suspend the offering of shares
o Waive or change minimum and additional investment amounts n Reject any
purchase or exchange order
o Change, revoke or suspend the exchange privilege
o Suspend telephone transactions
o Suspend or postpone redemptions of shares on any day when trading on the
New York Stock Exchange is restricted, or as otherwise permitted by the
Securities and Exchange Commission
o Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.
Share certificates The fund does not issue share certificates unless a written
request signed by all registered owners is made to the transfer agent. If you
hold share certificates it will take longer to exchange or redeem shares.
Smith Barney Mutual Funds 21
<PAGE>
- --------------------------------------------------------------------------------
Smith Barney 401(k) and ExecChoice(TM) programs
- --------------------------------------------------------------------------------
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoice(TM) program. The fund offers Class A and Class L shares
to participating plans as investment alternatives under the programs. You can
meet minimum investment and exchange amounts by combining the plan's investments
in any of the Smith Barney funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment. Once a class
of shares is chosen, all additional purchases must be of the same class.
o Class A shares may be purchased by plans investing at least $1 million.
o Class L shares may be purchased by plans investing less than $1 million.
Class L shares are eligible for exchange to Class A shares not later than
8 years after the plan joined the program. They are eligible for exchange
sooner in the following circumstances:
If the account was opened on or after June 21, 1996 and a total of $1
million is invested in Smith Barney Funds Class L shares (other than money
market funds), all Class L shares are eligible for exchange after the plan
is in the program 5 years.
If the account was opened before June 21, 1996 and a total of $500,000 is
invested in Smith Barney Funds Class L shares (other than money market
funds) on December 31 in any year, all Class L shares are eligible for
exchange on or about March 31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.
22 Investment Grade Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
Dividends, distributions and taxes
- --------------------------------------------------------------------------------
Dividends. The fund generally pays dividends from net investment
income periodically and makes capital gain distributions if any, once a year,
typically in December. The fund may pay additional distributions and
dividends at other times if necessary for the fund to avoid a federal tax.
Capital gain distributions and dividends are reinvested in additional fund
shares of the same class that you hold. The fund expects distributions to be
primarily from income. You do not pay a sales charge on reinvested distri
Taxes In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
- --------------------------------------------------------------------------------
Transaction Federal tax status
- --------------------------------------------------------------------------------
- ------------------------
Transaction Federal tax status
- --------------------------------------------------------------------------------
Redemption or exchange of shares Usually capital gain or loss;
long-term only if shares owned more
than one year
- --------------------------------------------------------------------------------
Long-term capital gain distributions Long-term capital gain
- --------------------------------------------------------------------------------
Short-term capital gain distributions Ordinary income
- --------------------------------------------------------------------------------
Dividends Ordinary income
- --------------------------------------------------------------------------------
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a capital gain distribution
because it will be taxable to you even though it may actually be a
return of a portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special tax
rules may apply, you should consult your tax adviser about your investment in
the fund.
Smith Barney Mutual Funds 23
<PAGE>
- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. When reliable market prices or quotations are not readily available,
or when the value of a security has been materially affected by events occurring
after a foreign exchange closes, the fund may price those securities at fair
value. Fair value is determined in accordance with procedures approved by the
fund's board. A fund that uses fair value to price securities may value those
securities higher or lower than another fund using market quotations to price
the same securities.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the Exchange closes
early, you must place your order prior to the actual closing time. Otherwise,
you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
24 Investment Grade Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
Financial highlights
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG LLP, independent
accountants, whose report, along with the fund's financial statements, are
included in the annual report (available upon request).
- --------------------------------------------------------------------------------
For a Class A share of capital stock
outstanding throughout each year ended December 31:
- --------------------------------------------------------------------------------
1998(1) 1997 1996 1995(1) 1994(1)
Net asset value,
beginning of year $13.19 $12.27 $13.25 $10.67 $13.01
- --------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.77 0.80 0.80 0.83 0.74
Net realized and unrealized
gain (loss) 0.29 1.20 (0.90) 2.80 (1.88)
- --------------------------------------------------------------------------------
Total income (loss)
from operations 1.06 2.00 (0.10) 3.63 (1.14)
- --------------------------------------------------------------------------------
Less distribution from:
Net investment income (0.76) (0.80) (0.76) (0.89) (0.86)
Net realized gains (0.37) (0.28) (0.12) (0.16) (0.31)
Capital -- -- -- -- (0.03)
- --------------------------------------------------------------------------------
Total distributions (1.13) (1.08) (0.88) (1.05) (1.20)
- --------------------------------------------------------------------------------
Net assets value, end of year $13.12 $13.19 $12.27 $13.25 $10.67
- --------------------------------------------------------------------------------
Total return 8.30% 17.10% (0.47)% 35.29% (8.95)%
- --------------------------------------------------------------------------------
Net assets, end of year millions $253 $222 $206 $226 $181
- --------------------------------------------------------------------------------
Ratios to average net assets:
Total return 8.30% 17.10% (0.47)% 35.29% (8.95)%
- --------------------------------------------------------------------------------
Expenses 1.04% 1.02% 1.04% 1.11% 1.11%
Net investment income 5.73 6.43 6.63 7.02 7.35
- --------------------------------------------------------------------------------
Portfolio turnover rate 32% 39% 48% 49% 18%
- --------------------------------------------------------------------------------
(1) Per share amounts calculated using the monthly average shares method.
Smith Barney Mutual Funds 25
<PAGE>
- --------------------------------------------------------------------------------
For a Class B share of capital stock
outstanding throughout each year ended December 31:
- --------------------------------------------------------------------------------
1998(1) 1997 1996 1995(1) 1994(1)
- --------------------------------------------------------------------------------
Net asset value,
beginning of year $13.19 $12.29 $13.25 $10.67 $13.01
- --------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.70 0.75 0.74 0.77 0.82
Net realized and unrealized
gain (loss) 0.29 1.18 (0.90) 2.80 (2.02)
- --------------------------------------------------------------------------------
Total income (loss)
from operations 0.99 1.93 (0.16) 3.57 (1.20)
- --------------------------------------------------------------------------------
Less distribution from:
Net investment income (0.72) (0.75) (0.68) (0.83) (0.80)
Net realized gains (0.37) (0.28) (0.12) (0.16) (0.31)
Capital -- -- -- -- (0.03)
- --------------------------------------------------------------------------------
Total distributions (1.09) (1.03) (0.80) (0.99) (1.14)
- --------------------------------------------------------------------------------
Net assets value, end of year $13.09 $13.19 $12.29 $13.25 $10.67
- --------------------------------------------------------------------------------
Total return 7.72% 16.44% (0.89)% 34.63% (9.41)%
- --------------------------------------------------------------------------------
Net assets, end of year millions $260 $249 $258 $289 $221
- --------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.04% 1.02% 1.04% 1.11% 1.57%
Net investment income 5.23 5.95 6.13 6.51 6.89
- --------------------------------------------------------------------------------
Portfolio turnover rate 32% 39% 48% 49% 18%
- --------------------------------------------------------------------------------
(1)Per share amounts calculated using the monthly average shares method.
26 Investment Grade Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
For a Class L(1) share of capital stock
outstanding throughout each year ended December 31:
1998(1) 1997 1996 1995(1) 1994(1)
- --------------------------------------------------------------------------------
Net asset value,
beginning of year $13.18 $12.30 $13.26 $10.67 $13.01
- --------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.70 0.72 0.75 0.78 0.75
Net realized and unrealized
gain (loss) 0.30 1.21 (0.90) 2.80 (1.95)
- --------------------------------------------------------------------------------
Total income (loss)
from operations 1.00 1.93 (0.15) 3.58 (1.20)
- --------------------------------------------------------------------------------
Less distribution from:
Net investment income (0.74) (0.77) (0.69) (0.83) (0.80)
Net realized gains (0.37) (0.28) (0.12) (0.16) (0.31)
Capital -- -- -- -- (0.03)
- --------------------------------------------------------------------------------
Total distributions (1.11) (1.05) (0.81) (0.99) (1.14)
- --------------------------------------------------------------------------------
Net assets value, end of year $13.07 $13.18 $12.30 $13.26 $10.67
- --------------------------------------------------------------------------------
Total return 7.83% 16.41% (0.83)% 34.74% (9.41)%
- --------------------------------------------------------------------------------
Net assets, end of
year (000)'s $18,671 $10,182 $6,724 $3,769 $999
- --------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.54% 1.49% 1.42% 1.56% 1.57%
Net investment income 5.22 5.93 6.28 6.55 6.89
- --------------------------------------------------------------------------------
Portfolio turnover rate 32% 39% 48% 49% 18%
- --------------------------------------------------------------------------------
(1) On June 12, 1998, Class C shares were renamed Class L shares.
(2) Per share amounts calculated using the monthly average shares method.
Smith Barney Mutual Funds 27
<PAGE>
- --------------------------------------------------------------------------------
For a Class Y share of capital stock
outstanding throughout each year ended December 31:
- --------------------------------------------------------------------------------
1998(1) 1997 1996(1)(2)
- --------------------------------------------------------------------------------
Net asset value,
beginning of year $13.19 $12.28 $13.03
- --------------------------------------------------------------------------------
Income from operations:
Net investment income 0.82 0.83 0.75
Net realized and unrealized
gain (loss) 0.29 1.21 (0.66)
- --------------------------------------------------------------------------------
Total income
from operations 1.11 2.04 0.09
- --------------------------------------------------------------------------------
Less distribution from:
Net investment income (0.82) (0.85) (0.72)
Net realized gains (0.37) (0.28) (0.12)
- --------------------------------------------------------------------------------
Total distributions (1.19) (1.13) (0.84)
- --------------------------------------------------------------------------------
Net assets value, end of year $13.11 $13.19 $12.28
- --------------------------------------------------------------------------------
Total return 8.66% 17.44% 1.01%(3)
- --------------------------------------------------------------------------------
Net assets, end of year (000)'s $95,708 $69,328 $18,174
- --------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.70% 0.69% 0.72(4)
Net investment income 6.07 6.63 7.34(4)
- --------------------------------------------------------------------------------
Portfolio turnover rate 32% 39% 48%
- --------------------------------------------------------------------------------
(1) Per share amounts calculated using the monthly average shares method.
(2) For the period from February 7, 1996 (inception date) to December 31,
1996.
(3) Not Annualized.
(4) Annualized.
28 Investment Grade Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO] SALOMON SMITH BARNEY
A member of citigroup [LOGO]
Investment Grade Bond Fund
- -- an investment portfolio of Smith Barney Investment Funds Inc.
Shareholder reports Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information. The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
You can also review and copy the fund's shareholder reports, prospectus and
statement of additional information at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. You can get copies of these materials
for a duplicating fee by writing to the Public Reference Section of the
Commission, Washington, D.C. 20549-6009. Information about the public reference
room may be obtained by calling 1-800-SEC-0330. You can get the same information
free from the Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares. Salomon Smith Barney is a service mark of Salomon
Smith Barney Inc.
(Investment Company Act file
no. 811-03275)
FD0233 4/99
PART B
Smith Barney
Investment Funds Inc.
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Statement of Additional Information
April 30, 1999
This Statement of Additional Information expands upon
and supplements the information
contained in the current Prospectuses of Smith Barney
Investment Funds Inc. (the
"Company"), dated April 30, 1999, as amended or
supplemented from time to time, and should
be read in conjunction with the Company's
Prospectuses. The Company issues a Prospectus
for each of the investment funds offered by the
Company (the "Funds"). The Company's
Prospectuses may be obtained from a Salomon 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 in its entirety into each Fund's
Prospectus.
CONTENTS
For ease of reference, the same section headings are
used in the Prospectuses and this
Statement of Additional Information, except where
shown below:
Directors and Executive Officers of the Company 2
Investment Objectives and Management Policies 7
Investment Restrictions 32
Brokerage 33
Portfolio Turnover 35
Purchase, Exchange and Redemption of Shares 37
Distributors 47
Determination of Net Asset Value 50
Performance Data 51
Taxes 55
Ira and Other Prototype Retirement Plans 59
Additional Information 60
Financial Statements 60
Appendix A-1
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. The address of the "interested" directors
and the executive officers of the
fund, unless otherwise noted, is 388 Greenwich Street,
New York, NY 10013.
Paul R. Ades, Director (Age 58). 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 75). Private investor. His
address is 273 Montgomery Avenue,
Bala Cynwyd, Pennsylvania 19004.
Dwight B. Crane, Director (Age 61). 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 63). 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 Salomon Smith Barney Inc.
("Salomon Smith Barney) and President if
SSBC Fund Management Inc. ("SSBC")(formerly known as
Mutual Management Corp.) and
Citigroup Investment Advisers, Inc. ("TIA"); Chairman
and Co-Chairman of the Board of 64
investment companies associated with Citigroup
formerly Chairman of the Board of Smith
Barney Strategy Advisers Inc.
Ken Miller, Director (Age 57). President of Young
Stuff Apparel Group, Inc. His address
is 1411 Broadway, New York, New York 10018.
John F. White, Director Emeritus (Age 81). President
Emeritus of The Cooper Union for the
Advancement of Science and Art; Special Assistant to
the President of the Aspen Institute.
His address is 97 Sunset Drive, Apt. A402, Sarasota,
FL 34236.
James Conroy, Vice President and Investment Officer.
(Age 47) Managing Director of
Citigroup. His address is 388 Greenwich Street, New
York, New York 10013.
John Stoeser, Vice President and Investment Officer.
(Age 37) Prior to April 1998 Vice
President and Research Analyst of Smith Barney
Contrarian Fund. Prior to July 1997,
Assistant Vice President, Portfolio Manager and
Research Analyst of Safeco Asset
Management. His address is 500 108th Avenue, Suite
1900 North E., Bellevue, Washington
98004.
Dennis Johnson, Vice President and Investment Officer
and Chief Investment Officer of
Peachtree Asset Management a division of SSBC. (Age
39)
Pamela Milonovich, Vice President and Investment
Officer. (Age 36) Her address is 7 World
Trade Center, 38th Floor NY, NY 10048.
Lewis E. Daidone, Senior Vice President and Treasurer
(Age 41). Managing Director of
Salomon Smith Barney, Chief Financial Officer of the
Smith Barney Mutual Funds; Director
and Senior Vice President of SSBC and TIA.
Christina T. Sydor, Secretary (Age 48). Managing
Director of Salomon Smith Barney;
General Counsel and Secretary of SSBC and TIA.
Paul Brook, Controller (Age 45), Director, Salomon
Smith Barney; Managing Director of AMT
Capital Services Inc. from 1997-1998; Prior to 1997,
Partner, Ernest & Young LLP.
As of April 15, 1999, the Directors and officers of
the Company, as a group, owned less
than 1.00% of the outstanding common stock of the
Company.
As of April 15, 1999 to the knowledge of the funds and
the Board of Directors, no single
shareholder or group (as the term is used in Section
13(d) of the Securities Act of 1934)
beneficially owned more than 5% of the outstanding
shares of the fund with the exception
of the following:
Fund
Class
Percent
Name
Address
Government Securities Fund
Y
41.6130
Smith Barney
Concert Series
Growth Portfolio PNC Bank, NA
ATTN: Beverly Timson
200 Stevens Drive
Suite 440
Lester PA 19113-1522
Government Securities Fund
Y
26.7013
Smith Barney
Concert Series
Balanced Portfolio PNC Bank, NA
ATTN: Beverly Timson
200 Stevens Drive
Suite 440
Lester PA 19113-1522
Government Securities Fund
Y
7.6383
Smith Barney
Concert Series
Select Growth Portfolio PNC Bank, NA
ATTN: Beverly Timson
200 Stevens Drive
Suite 440
Lester PA 19113-1522
Government Securities Fund
Y
7.4526
Smith Barney
Concert Series
Select Balanced Portfolio PNC Bank, NA
ATTN: Beverly Timson
200 Stevens Drive
Suite 440
Lester PA 19113-1522
Government Securities Fund
Y
7.1909
Smith Barney
Concert Series
Conservative Portfolio PNC Bank, NA
ATTN: Beverly Timson
200 Stevens Drive
Suite 440
Lester PA 19113-1522
Fund
Class
Percent
Name
Address
Government Securities Fund
Y
5.5404
Smith Barney
Concert Series
Income Portfolio PNC Bank, NA
ATTN: Beverly Timson
200 Stevens Drive
Suite 440
Lester PA 19113-1522
Government Securities Fund
Z
100.00
State Street Bank & Trust Cust.
The Citigroup Group 401(k)
ATTN: Rick Vest
225 Franklin Street
Boston MA 02101
Investment Grade Bond Fund
Y
84.3992
Smith Barney
Concert Series
Growth Portfolio PNC Bank, NA
ATTN: Beverly Timson
200 Stevens Drive
Suite 440
Lester PA 19113-1522
Investment Grade Bond Fund
Y
15.6007
Smith Barney
Concert Series
Select Growth Portfolio PNC Bank, NA
ATTN: Beverly Timson
200 Stevens Drive
Suite 440
Lester PA 19113-1522
Contrarian Fund
Y
48.5730
Smith Barney
Concert Series
Growth Portfolio PNC Bank, NA
ATTN: Beverly Timson
200 Stevens Drive
Suite 440
Lester PA 19113-1522
Contrarian Fund
Y
37.3526
Smith Barney
Concert Series
High Growth Portfolio PNC Bank, NA
ATTN: Beverly Timson
200 Stevens Drive
Suite 440
Lester PA 19113-1522
Contrarian Fund
Y
8.9825
Smith Barney
Concert Series
Select Growth Portfolio PNC Bank, NA
ATTN: Beverly Timson
200 Stevens Drive
Suite 440
Lester PA 19113-1522
Contrarian Fund
Y
5.0917
Smith Barney
Concert Series
Select High Growth Portfolio
PNC Bank, NA
ATTN: Beverly Timson
200 Stevens Drive
Suite 440
Lester PA 19113-1522
Concert Peachtree Growth Fund
A
97.5974
PFS Shareholder Services
ATTN: Jay Barnhill
3100 Breckinridge Blvd
Duluth GA 30199
Fund
Class
Percent
Name
Address
Concert Peachtree Growth Fund
B
96.7365
PFS Shareholder Services
ATTN: Jay Barnhill
3100 Breckinridge Blvd
Duluth GA 30199
Concert Peachtree Growth Fund
L
19.0702
Tendrich Group LTD
A Florida Limited Partnership
8 Bammock Rd
Palm Beach Gardens
FL 33418-3706
Concert Peachtree Growth Fund
Y
49.0702
Smith Barney
Concert Series
Growth Portfolio PNC Bank, NA
ATTN: Beverly Timson
200 Stevens Drive
Suite 440
Lester PA 19113-1522
Concert Peachtree Growth Fund
Y
38.6281
Smith Barney
Concert Series
High Growth Portfolio PNC Bank, NA
ATTN: Beverly Timson
200 Stevens Drive
Suite 440
Lester PA 19113-1522
Concert Peachtree Growth Fund
Y
7.5314
Smith Barney
Concert Series
Select Growth Portfolio PNC Bank, NA
ATTN: Beverly Timson
200 Stevens Drive
Suite 440
Lester PA 19113-1522
Concert Peachtree Growth Fund
Y
7.5314
Smith Barney
Concert Series
Select Growth Portfolio PNC Bank, NA
ATTN: Beverly Timson
200 Stevens Drive
Suite 440
Lester PA 19113-1522
No officer, director or employee of Salomon 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
Salomon Smith Barney or any of its affiliates a fee of
$22,500 per annum plus $2,900 per
meeting attended and reimburses travel and out-of-
pocket expenses. During the fiscal year
ended December 31, 1998 such expenses totaled $9,443.
For the fiscal year ended December
31, 1998, the Directors of the Company were paid the
following compensation:
COMPENSATION TABLE
Name of Person
Aggregate Compensation from the Company*
Compensation from Company and Complex Paid to
Directors
Number of Funds for Which Director Serves Within Fund
Complex
Paul Ades
29,700
54,225
5
Herbert Barg
29,7000
105,425
16
Dwight B. Crane
29,300
139,975
22
Frank G. Hubbard
29,600
54,125
5
Heath B. McLendon
0
0
59
Ken Miller
29,500
53,625
5
Jerome Miller
22,900
44,925
5
John White
73,086
144,788
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. During the fund's last fiscal year
aggregate compensation paid by the fund to
Directors Emeritus totaled $10,941. Effective March
9, 1998 Mr. White became a Director
Emeritus.
Investment Adviser and Administrator - SSBC
SSBC serves as investment adviser to the Funds
pursuant to separate advisory agreements
(the "Advisory Agreements"). With respect to the
Investment Grade Bond Fund, Government
Securities Fund and Special Equities Fund, the
Advisory Agreements were transferred to
SSBC effective November 7, 1994, from its affiliate,
Mutual Management Corp. Mutual
Management Corp. was and SSBC is a wholly owned
subsidiary of Salomon Smith Barney
Holdings Inc. ("Holdings") (formerly Smith Barney
Holdings). Holdings is a wholly owned
subsidiary of Citigroup Inc. ("Citigroup"). The
Advisory Agreements were most recently
approved by the Board of Directors, including a
majority of the Directors who are not
"interested persons" of the Company or the investment
advisers (the "Independent
Directors"), on July 23, 1998. SSBC bears all
expenses in connection with the performance
of its services. The services provided by SSBC under
the Advisory Agreements are
described in the Prospectuses under "Management of the
Company and the Fund." SSBC
provides investment advisory and management services
to investment companies affiliated
with Salomon Smith Barney.
As compensation for investment advisory and
administrative services rendered to the
Contrarian Fund and Concert Peachtree Growth Fund,
Contrarian Fund pays SSBC a fee
computed daily and paid monthly at the annual rate of
0.85% and Concert Peachtree Growth
Fund pays SSBC a fee computed daily and paid monthly
at the annual rate of 1.00% up to
$250 million and 0.85% thereafter, of the value of
their average daily net assets.
As compensation for investment advisory services
rendered to Special Equities Fund, the
fund pays SSBC a fee computed daily and paid monthly
at the annual rate of 0.55% of the
value of its average daily net assets.
As compensation for investment advisory services
rendered to Government Securities Fund,
the fund pays SSBC a fee computed daily and paid
monthly at the following annual rates of
average daily net assets: 0.35% up to $2 billion;
0.30% on the next $2 billion; 0.25% on
the next $2 billion; 0.20% on the next $2 billion; and
0.15% on net assets thereafter.
As compensation for investment advisory services
rendered to Investment Grade Bond Fund,
the fund pays SSBC a fee computed daily and paid
monthly at the following annual rates of
average daily net assets: 0.45% up to $500 million and
0.42% on net assets thereafter.
For the fiscal years ended December 31, 1996, 1997 and
1998, the Funds accrued advisory
fees as follows:
Fund
1996
1997
1998
Investment Grade Bond Fund
$ 2,198,162
$ 2,183,438
$ 2,618,948
Government Securities Fund
1,979,639
1,900,510
2,107,128
Special Equities Fund
3,094,925
3,748,595
2,510,436
Contrarian Fund
6,034,652
8,127,871
6,552,382
Concert Peachtree Growth Fund
1,040,355
1,262,626
2,644,062
SSBC also serves as administrator to Investment Grade
Bond Fund, Government Securities
Fund and Special Equities Fund pursuant to a written
agreement dated May 5, 1994 (the
"Administration Agreement"), which was first approved
by the Board of Directors, including
a majority of the Independent Directors, on May 5,
1994. Under the Administration
Agreement, SSBC oversees all aspects of a Fund's
administration. SSBC pays the salary of
any officer and employee who is employed by both it
and the fund and bears all expenses in
connection with the performance of its services.
As compensation for administrative services rendered
to each of Investment Grade Bond
Fund, Government Securities Fund and Special Equities
Fund, SSBC receives a fee computed
daily and paid monthly at the annual rate of 0.20 of
the value of the fund's average daily
net assets.
For the fiscal years ended December 31, 1996, 1997 and
1998, these Funds paid
administrative fees to SSBC as follows:
Fund
1996
1997
1998
Investment Grade Bond Fund
$ 976,938
$ 969,973
$1,158,123
Government Securities Fund
1,131,222
1,086,006
1,204,073
Special Equities Fund
1,125,428
1,363,125
912,886
Auditors
KPMG LLP, 345 Park Avenue, New York, New York 10154,
has been selected as the fund's
independent auditor to examine and report on the
fund's financial statements and
highlights for the fiscal year ending December 31,
1999.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES tc \l1
"INVESTMENT OBJECTIVES AND MANAGEMENT
POLICIES
The Prospectuses discuss the investment objectives of
each fund and the policies they
employ to achieve such objectives. The following
discussion supplements the description
of the funds' investment objectives and management
policies contained in the
Prospectuses.The funds may engage in these and any
other practices not prohibited by their
investment restrictions. For further information
regarding the risks associated with
these practices, see "Risk Factors" below.
EQUITY SECURITIES (All Funds except Government
Securities Fund except as otherwise noted)
Common Stocks. Common stocks are shares of a
corporation or other entity that entitle the
holder to a pro rata share of the profits of the
corporation, if any, without preference
over any other shareholder or class of shareholders,
including holders of the entity's
preferred stock and other senior equity. Common stock
usually carries with it the right
to vote and frequently an exclusive right to do so.
Preferred Stocks and Convertible Securities (all Funds
except Government Securities Fund
and Investment Grade Bond Fund). Convertible debt
securities and preferred stock entitle
the holder to acquire the issuer's stock by exchange
or purchase for a predetermined rate.
Convertible securities are subject both to the credit
and interest rate risks associated
with fixed income securities and to the stock market
risk associated with equity
securities.
Warrants. Warrants acquired by a fund entitle it to
buy common stock from the issuer at a
specified price and time. Warrants are subject to the
same market risks as stocks, but
may be more volatile in price. A Fund's investment in
warrants will not entitle it to
receive dividends or exercise voting rights and will
become worthless if the warrants
cannot be profitably exercised before the expiration
dates. The Investment Grade Bond
Fund and the Special Equities Fund will not invest in
warrants if, as a result of such
investment, the value of their investments in
warrants, valued at the lower of cost or
market, exceeds 5% of the value of the fund's net
assets. Included in this 5% limitation,
but not to exceed 2% of the Fund's net assets, may be
warrants which are not listed on
either the New York Stock Exchange (the "NYSE") or the
American Stock Exchange. Warrants
acquired by the fund in units or attached to
securities will be deemed to be without value
for purposes of this restriction. These limits are
not fundamental policies of either
fund and may be changed by the Board of Directors
without shareholder approval.
REITs. Real estate investment trusts (REITs) are
pooled investment vehicles that invest
in real estate or real estate loans or interests.
Investing in REITs involves risks
similar to those associated with investing in equity
securities of small capitalization
companies. REITs are dependent upon management
skills, are not diversified, and are
subject to risks of project financing, default by
borrowers, self-liquidation, and the
possibility of failing to qualify for the exemption
from taxation on distributed amounts
under the Internal Revenue Code of 1986, as amended
(the "Code").
FIXED INCOME SECURITIES (All Funds)
Corporate Debt Obligations. Corporate debt
obligations are subject to the risk of an
issuer's inability to meet principal and interest
payments on the obligations and may also
be subject to price volatility due to such factors as
market interest rates, market
perception of the creditworthiness of the issuer and
general market liquidity. Zero
coupon securities are securities sold at a discount to
par value and on which interest
payments are not made during the life of the security.
U.S. Government Securities. The U.S. Government
securities in which the Funds may invest
include: bills, certificates of indebtedness, and
notes and bonds issued by the U.S.
Treasury or by agencies or instrumentalities of the
U.S. Government. Some U.S. Government
securities, such as U.S. Treasury bills and bonds, are
supported by the full faith and
credit of the U.S. Treasury; others are supported by
the right of the issuer to borrow
from the U.S. Treasury; others are supported by the
discretionary authority of the U.S.
Government to purchase the agency's obligations; still
others are supported only by the
credit of the instrumentality.
Mortgage Related Securities (Government Securities
Fund and Investment Grade Bond Fund).
These Funds may invest in mortgage-related securities,
including those representing an
undivided ownership interest in a pool of mortgage
loans, e.g., GNMA, FNMA, FHLMC
Certificates. Mortgage loans made by banks, savings
and loan institutions, and other
lenders are often assembled into pools, which are
issued or guaranteed by an agency or
instrumentality of the U.S. Government, though not
necessarily by the U.S. Government
itself. Interests in such pools are collectively
referred to as ''mortgage-related
securities.''
Mortgage-related securities are characterized by
monthly payments to the holder,
reflecting the monthly payments made by the borrowers
who received the underlying mortgage
loans. The payments to the securityholders (such as
the Funds), like the payments on the
underlying loans, represent both principal and
interest. Although the underlying mortgage
loans are for specified periods of time, such as 20 or
30 years, the borrowers can, and
typically do, pay them off sooner. Thus, the
securityholders frequently receive
prepayments of principal, in addition to the principal
which is part of the regular
monthly payment. A borrower is more likely to prepay a
mortgage which bears a relatively
high rate of interest. This means that in times of
declining interest rates, some of the
Fund's higher yielding securities might be converted
to cash, and the Funds will be forced
to accept lower interest rates when that cash is used
to purchase additional securities.
The increased likelihood of prepayment when interest
rates decline also limits market
price appreciation of mortgage-related securities. If
a Fund buys mortgage-related
securities at a premium, mortgage foreclosures or
mortgage prepayments may result in a
loss to the Fund of up to the amount of the premium
paid since only timely payment of
principal and interest is guaranteed.
The Government National Mortgage Association ("GNMA")
is a wholly owned corporate
instrumentality of the United States within the U.S.
Department of Housing and Urban
Development. GNMA's principal programs involve its
guarantees of privately issued
securities backed by pools of mortgages. Certificates
of the Government National Mortgage
Association ("GNMA Certificates") are mortgage-backed
securities, which evidence an
undivided interest in a pool of mortgage loans. GNMA
Certificates differ from bonds in
that principal is paid back monthly by the borrower
over the term of the loan rather than
returned in a lump sum at maturity. GNMA Certificates
that the Fund purchases are the
"modified pass-through" type. "Modified pass-through"
GNMA Certificates entitle the holder
to receive a share of all interest and principal
payments paid and owned on the mortgage
pool net of fees paid to the "issuer" and GNMA,
regardless of whether or not the mortgagor
actually makes the payment. The National Housing Act
authorizes GNMA to guarantee the
timely payment of principal and interest on securities
backed by a pool of mortgages
insured by the Federal Housing Administration ("FHA")
or the Farmers' Home Administration
("FMHA"), or guaranteed by the Veterans Administration
("VA"). Once a pool of such
mortgages is assembled and approved by GNMA, the GNMA
guarantee is backed by the full
faith and credit of the U.S. Government. GNMA is also
empowered to borrow without
limitation from the U.S. Treasury if necessary to make
any payments required under its
guarantee.
The average life of a GNMA Certificate is likely to be
substantially less than the
original maturity of the mortgage pools underlying the
securities. Prepayments of
principal by mortgagors and mortgage foreclosures will
usually result in the return of the
greater part of principal investment long before
maturity of the mortgages in the pool. A
Fund normally will not distribute principal payments
(whether regular or prepaid) to its
shareholders. Rather, it will invest such payments in
additional mortgage-related
securities of the types described above or other U.S.
Government securities. Interest
received by the Fund will, however, be distributed to
shareholders. Foreclosures impose
no risk to principal investment because of the GNMA
guarantee.
As prepayment rates of the individual mortgage pools
vary widely, it is not possible to
predict accurately the average life of a particular
issue of GNMA Certificates. However,
statistics published by the FHA indicate that the
average life of single-family dwelling
mortgages with 25-to 30-year maturities, the type of
mortgages backing the vast majority
of GNMA Certificates, is approximately 12 years.
Therefore, it is customary to treat GNMA
Certificates as 30-year mortgage-backed securities
which prepay fully in the twelfth year.
The coupon rate of interest of GNMA Certificates is
lower than the interest rate paid on
the VA-guaranteed or FHA-insured mortgages underlying
the Certificates, but only by the
amount of the fees paid to GNMA and the GNMA
Certificate issuer. For the most common type
of mortgage pool, containing single-family dwelling
mortgages, GNMA receives an annual fee
of 0.06 of one percent of the outstanding principal
for providing its guarantee, and the
GNMA Certificate issuer is paid an annual servicing
fee of 0.44 of one percent for
assembling the mortgage pool and for passing through
monthly payments of interest and
principal to Certificate holders.
The coupon rate by itself, however, does not indicate
the yield which will be earned on
the GNMA Certificates for the following reasons:
1. Certificates are usually issued at a premium or
discount, rather than at par.
2. After issuance, Certificates usually trade in the
secondary market at a premium or
discount.
3. Interest is paid monthly rather than semi-annually
as is the case for traditional
bonds. Monthly compounding has the effect of raising
the effective yield earned on GNMA
Certificates.
4. The actual yield of each GNMA Certificate is
influenced by the prepayment experience
of the mortgage pool underlying the Certificate. If
mortgagors prepay their mortgages,
the principal returned to Certificate holders may be
reinvested at higher or lower rates.
In quoting yields for GNMA Certificates, the customary
practice is to assume that the
Certificates will have a 12 year life. Compared on
this basis, GNMA Certificates have
historically yielded roughly 1/4 of 1.00% more than
high grade corporate bonds and 1/2
of 1.00% more than U.S. Government and U.S. Government
agency bonds. As the life of
individual pools may vary widely, however, the actual
yield earned on any issue of GNMA
Certificates may differ significantly from the yield
estimated on the assumption of a
twelve-year life.
Since the inception of the GNMA mortgage-backed
securities program in 1970, the amount of
GNMA Certificates outstanding has grown rapidly. The
size of the market and the active
participation in the secondary market by securities
dealers and many types of investors
make GNMA Certificates highly liquid instruments.
Quotes for GNMA Certificates are
readily available from securities dealers and depend
on, among other things, the level of
market rates, the Certificate's coupon rate and the
prepayment experience of the pool of
mortgages backing each Certificate.
The Federal Home Loan Mortgage Corporation ("FHLMC")
was created in 1970 to promote
development of a nationwide secondary market in
conventional residential mortgages. FHLMC
issues two types of mortgage pass-through securities,
mortgage participation certificates
("PCs") and guaranteed mortgage certificates ("GMCs").
PCs resemble GNMA Certificates in
that each PC represents a pro rata share of all
interest and principal payments made and
owed on the underlying pool. Like GNMA Certificates,
PCs are assumed to be prepaid fully
in their twelfth year. FHLMC guarantees timely
monthly payment of interest of PCs and the
ultimate payment of principal.
GMCs also represent a pro rata interest in a pool of
mortgages. However, these
instruments pay interest semiannually and return
principal once a year in guaranteed
minimum payments. The expected average life of these
securities is approximately
10 years.
The Federal National Mortgage Association ("FNMA") was
established in 1938 to create a
secondary market in mortgages insured by the FHA.
FNMA issues guarantee mortgage
pass-through certificates ("FNMA Certificates"). FNMA
Certificates resemble GNMA
Certificates in that each Certificate represents a pro
rata share of all interest and
principal payments made and owed on the underlying
pool. FNMA guarantees timely payment
of interest on FNMA Certificates and the full return
of principal. Like GNMA
Certificates, FNMA Certificates are assumed to be
prepaid fully in their twelfth year.
Risk of foreclosure of the underlying mortgages is
greater with FHLMC and FNMA securities
because, unlike GNMA securities, FHLMC and FNMA
securities are not guaranteed by the full
faith and credit of the U.S. Government.
Short-Term Investments. In certain circumstances the
Funds may invest without limitation
in all types of short-term money market instruments,
including U.S. Government securities;
certificates of deposit, time deposits and bankers'
acceptances issued by domestic banks
(including their branches located outside the United
States and subsidiaries located in
Canada), domestic branches of foreign banks, savings
and loan associations and similar
institutions; high grade commercial paper; and
repurchase agreements. To the extent a Fund
is investing in short-term investments as a temporary
defensive posture, the applicable
Fund's investment objective may not be achieved.
Investment Grade Bond fund may invest in
negotiable bank certificates of deposit and bankers'
acceptances issued by domestic banks
(but not their foreign branches) having total assets
in excess of $1 billion.
Commercial Paper (Investment Grade Bond Fund).
Commercial paper consists of short-term
(usually 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
only invest in a master demand note to the extent that
the investment would not violate
the Fund's limits on restricted and illiquid
securities. Investment Grade Bond Fund may
invest only in commercial paper issued by domestic
corporations, rated in the highest two
short-term ratings categories by a nationally
recognized ratings organization, or, if
unrated, issued by a corporation that has an
outstanding debt issue rated in the highest
two ratings categories by a nationally recognized
statistical ratings organization
("NRSO").
Exchange Rate-Related Securities (Government
SecuritiesFund). The Government Securities
Fund may invest up to 5% of its net assets in U.S.
government securities for which the
principal repayment at maturity, while paid in U.S.
dollars, is determined by reference to
the exchange rate between the U.S. dollar and the
currency of one or more foreign
countries ("Exchange Rate-Related Securities"). The
interest payable on these securities
is denominated in U.S. dollars, is not subject to
foreign currency risks and, in most
cases, is paid at rates higher than most other U.S.
government securities in recognition
of the foreign currency risk component of Exchange
Rate-Related Securities.
Exchange Rate-Related Securities are issued in a
variety of forms, depending on the
structure of the principal repayment formula. The
principal repayment formula may be
structured so that the security holder will benefit if
a particular foreign currency to
which the security is linked is stable or appreciates
against the U.S. dollar. In the
alternative, the principal repayment formula may be
structured so that the security holder
benefits if the U.S. dollar is stable or appreciates
against the linked foreign currency.
Finally, the principal repayment formula can be a
function of more than one currency and,
therefore, be designed in either of the aforementioned
forms or a combination of those
forms.
Investments in Exchange Rate-Related Securities entail
special risks. There is the
possibility of significant changes in rates of
exchange between the U.S. dollar and any
foreign currency to which an Exchange Rate-Related
Security is linked. If currency
exchange rates do not move in the direction or to the
extent anticipated at the time of
purchase of the security, the amount of principal
repaid at maturity might be
significantly below the par value of the security,
which might not be offset by the
interest earned by the Fund over the term of the
security. The rate of exchange between
the U.S. dollar and other currencies is determined by
the forces of supply and demand in
the foreign exchange markets. These forces are
affected by the international balance of
payments and other economic and financial conditions,
government intervention, speculation
and other factors. The imposition or modification of
foreign exchange controls by the
United States or foreign governments or intervention
by central banks also could affect
exchange rates. Finally, there is no assurance that
sufficient trading interest to create
a liquid secondary market will exist for particular
Exchange Rate-Related Securities due
to conditions in the debt and foreign currency
markets. Illiquidity in the forward
foreign exchange market and the high volatility of the
foreign exchange market may from
time to time combine to make it difficult to sell an
Exchange Rate-Related Security prior
to maturity without incurring a significant price
loss.
Zero Coupon Securities (Government Securities Fund).
The Government Securities Fund may
also invest in zero coupon bonds. A zero coupon bond
pays no interest in cash to its
holder during its life, although interest is accrued
during that period. Its value to an
investor consists of the difference between its face
value at the time of maturity and the
price for which it was acquired, which is generally an
amount significantly less than its
face value (sometimes referred to as a "deep discount"
price). Because such securities
usually trade at a deep discount, they will be subject
to greater fluctuations of market
value in response to changing interest rates than debt
obligations of comparable
maturities which make periodic distributions of
interest. On the other hand, because
there are no periodic interest payments to be
reinvested prior to maturity, zero coupon
securities eliminate reinvestment risk and lock in a
rate of return to maturity.
Dollar Roll Transactions. Government Securities Fund
may enter into "dollar rolls," in
which the Fund sells fixed income securities and
simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity)
securities on a specified future
date. During this "roll" period, the Fund would
forego principal and interest paid on
such securities. The Fund would be compensated by the
difference between the current
sales price and the forward price for the future
purchase, as well as by the interest
earned on the cash proceeds of the initial sale.
Since the Fund will receive interest on
the securities in which it invests the transaction
proceeds, such transactions may involve
leverage. However, the proceeds will be invested only
in U.S. Treasury obligations and
the Fund will enter into dollar roll transactions only
with dealers of sufficient
creditworthiness in the judgment of the Fund's
investment adviser, such transactions do
not present the risks to the Fund that are associated
with other types of leverage.
Dollar roll transactions are considered borrowings by
the Fund and will be subject to the
Fund's overall borrowing limitation.
DERIVATIVE CONTRACTS
Each Fund may use certain options, futures and other
strategies to attempt to hedge its
portfolio, i.e., reduce the overall level of
investment risk normally associated with the
Fund. These hedging techniques are described in
detail below. Each of Contrarian Fund and
Concert Peachtree Growth Fund may invest up to 10% of
its assets in derivative contracts.
As a fundamental policy, the Contrarian Fund and the
Concert Peachtree Growth Fund each
may write or purchase puts, calls, straddles, spreads
and any combination thereof up to 5%
of their assets (and Investment Grade Bond Fund and
Special Equities Fund may not engage
in any of these practices). Government Securities
Fund may only purchase call options on
securities to effect a closing purchase transaction.
In addition, Government Securities
Fund may not purchase puts on securities if more than
10% of its net assets would be
invested in premiums on put options. The aggregate
value of the obligations underlying
puts written by Government Securities Fund will not
exceed 50% of its net assets.
Writing Covered Call Options (Government Securities
Fund, Concert Peachtree Growth Fund
and Contrarian Fund). These Funds 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 Manager, 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. The
Manager and the Company believe that
writing covered call options is less risky than
writing uncovered or "naked" options,
which the Funds will not do.
Portfolio 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 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, the Manager 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." 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 portfolio 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 portfolio securities.
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, a 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 portfolio. 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 (Government Securities Fund,
Concert Peachtree Growth Fund and
Contrarian Fund). These Funds 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. For
example, a put option may be purchased in order to
protect unrealized appreciation of a
security or currency when the Manager deems it
desirable to continue to hold the security
or currency because of tax considerations. The
premium paid for the put option and any
transaction costs may reduce any capital gain or, in
the case of currency, ordinary income
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, as calculated by the
Fund. 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 Government Securities Fund,
Concert Peachtree Growth Fund and
Contrarian Fund). 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 a 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 portfolio. 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.
Futures Contracts (All Funds). 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 Company
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 normally 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.
The Funds may, however, enter into
Futures transactions for non-hedging purposes, subject
to applicable law.
"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 margins, 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.
Options on Futures Contracts (All Funds). 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.
Forward Currency Contracts, Options on Currency and
Currency Swaps (Government Securities
Fund, Concert Peachtree Growth Fund and Contrarian
Fund). 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 of
these Funds 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 contract 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.
A Fund may also enter into currency swaps. A currency
swap is an arrangement whereby each
party exchanges one currency for another on a
particular date and agrees to reverse the
exchange on a later date at a specific exchange rate.
Forward foreign currency contracts
and currency swaps are established in the interbank
market conducted directly between
currency traders (usually large commercial banks or
other financial institutions) on
behalf of their customers.
Interest Rate Swaps, Caps and Floors (Government
Securities Fund, Concert Peachtree Growth
Fund and Contrarian Fund). 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 portfolio 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 Manager and the Funds
believe such obligations do not
constitute senior securities and, accordingly will not
treat them as being subject to
their borrowing restrictions. The net amount of the
excess, if any, of a Fund's
obligations over its entitlements 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 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 their investment
objectives and regulatory requirements
applicable to investment companies.
OTHER PRACTICES
Securities of Foreign Issuers (All Funds). Concert
Peachtree Growth Fund may invest up to
35% of its assets, and Contrarian Fund may invest up
to 10% of its assets, in securities
of foreign issuers. Investments in securities of
foreign entities and securities
denominated in foreign currencies involve risks not
typically involved in domestic
investment, including fluctuations in foreign exchange
rates, future foreign political and
economic developments, and the possible imposition of
exchange controls or other foreign
or United States governmental laws or restrictions
applicable to such investments. Since
each Fund may invest in securities denominated or
quoted in currencies other than the U.S.
dollar, changes in foreign currency exchange rates may
affect the value of investments in
the portfolio and the accrued income and unrealized
appreciation or depreciation of
investments. Changes in foreign currency rates
relative to the U.S. dollar will affect the
U.S. dollar value of the Fund's assets denominated in
that currency and the Fund's yield
on such assets.
Each Fund may also purchase foreign securities in the
form of American Depositary Receipts
(''ADRs''). 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
depositary's transaction fees, whereas under an
unsponsored arrangement, the foreign
issuer assumes no obligation and the depositary's
transaction fees are paid by the ADR
holders. In addition, less information is available in
the United States about an
unsponsored ADR than about a sponsored ADR, and the
financial information about a company
may not be as reliable for an unsponsored ADR as it is
for a sponsored ADR. Each Fund may
invest in ADRs through both sponsored and unsponsored
arrangements.
Investment Grade Bond Fund also may purchase foreign
securities in the form of Yankee
obligations. Yankee obligations are dollar
denominated obligations (bonds) issued in the
U.S. capital markets by foreign issuers. Yankee
obligations are subject to certain
sovereign risks, such as the risk that a foreign
government might prevent dollar
denominated funds from flowing across its border. As
compared with obligations issued in
the United States, Yankee obligations normally carry a
higher interest rate but are less
actively traded.
With respect to certain foreign countries, there is
the possibility of expropriation of
assets, confiscatory taxation, political or social
instability or diplomatic developments
which could affect investment in those countries.
There may be less publicly available
information about a foreign security than about a
United States security, and foreign
entities may not be subject to accounting, auditing
and financial reporting standards and
requirements comparable to those of United States
entities. In addition, certain foreign
investments made by the Fund may be subject to foreign
withholding taxes, which would
reduce the Fund's total return on such investments and
the amounts available for
distributions by the Fund to its shareholders.
Foreign financial markets, while growing
in volume, have, for the most part, substantially less
volume than United States markets,
and securities of many foreign companies are less
liquid and their prices more volatile
than securities of comparable domestic companies.
The foreign markets also have different clearance and
settlement procedures, and in
certain markets there have been times when settlements
have been unable to keep pace with
the volume of securities transactions making it
difficult to conduct such transactions.
Delays in settlement could result in temporary periods
when assets of a Fund are not
invested and no return is earned thereon. The
inability of each Fund to make intended
security purchases due to settlement problems could
cause the Fund to miss attractive
investment opportunities. Inability to dispose of
portfolio securities due to settlement
problems could result either in losses to the Fund due
to subsequent declines in value of
the portfolio security or, if the Fund has entered
into a contract to sell the security,
could result in possible liability to the purchaser.
Costs associated with transactions in
foreign securities, including custodial costs and
foreign brokerage commissions, are
generally higher than with transactions in United
States securities. In addition, each
Fund will incur cost in connection with conversions
between various currencies. There is
generally less government supervision and regulation
of exchanges, financial institutions
and issuers in foreign countries than there are in the
United States. These risks may be
intensified in the case of investments in developing
or emerging markets. In many
developing markets, there is less government
supervision and regulation of business and
industry practices, stock exchanges, brokers and
listed companies than in the United
States. The foreign securities markets of many of the
countries in which a Fund may invest
may also be smaller, less liquid, and subject to
greater price volatility than those in
the United States. Finally, in the event of a default
on any such foreign debt
obligations, it may be more difficult for a Fund to
obtain or to enforce a judgment
against the issuers of such securities.
A developing country generally is considered to be a
country that is in the initial stages
of its industrialization cycle. Investing in the
equity and fixed-income markets of
developing countries involves exposure to economic
structures that are generally less
diverse and mature, and to political systems that can
be expected to have less stability,
than those of developed countries. Historical
experience indicates that the markets of
developing countries have been more volatile than the
markets of the more mature economics
of developed countries; however, such markets often
have provided higher rates of return
to investors.
One or more of the risk discussed above could affect
adversely the economy of a developing
market or a Fund's investments in such a market. In
Eastern Europe, for example, upon the
accession to power of Communist regimes in the past,
the governments of a number of
Eastern European countries expropriated a large amount
of property. The claims of many
property owners against those governments were never
finally settled. There can be no
assurance that any investments that the Fund might
make in such emerging markets would not
be expropriated, nationalized or otherwise confiscated
at some time in the future. In such
an event, the Fund could lose its entire investment in
the market involved. Moreover,
changes in the leadership or policies of such markets
could halt the expansion or reverse
the liberalization of foreign investment policies now
occurring in certain of these
markets and adversely affect existing investment
opportunities.
Illiquid and Restricted Securities (Concert Peachtree
Growth Fund, Contrarian Fund and
Special Equities Fund). These Funds may invest in
restricted securities. As used herein,
restricted securities are those that have been sold in
the United States without
registration under the Securities Act of 1933 and are
thus subject to restrictions on
resale. Excluded from the limitation, however, are any
restricted securities which are
eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 and which have
been determined to be liquid by the Trustees or by the
manager pursuant to board-approved
guidelines. The determination of liquidity is based on
the volume of reported trading in
the institutional secondary market for each security.
This investment practice could have
the effect of increasing the level of illiquidity in
each Fund to the extent that
qualified institutional buyers become for a time
uninterested in purchasing these
restricted securities. These difficulties and delays
could result in a Fund's inability to
realize a favorable price upon disposition of
restricted securities, and in some cases
might make disposition of such securities at the time
desired by the Fund impossible.
Since market quotations are not readily available for
restricted securities, such
securities will be valued by a method that the
Trustees believe accurately reflects fair
value.
Concert Peachtree Growth Fund and Special Equities
Fund each may invest up to 10% of its
assets in restricted and illiquid securities.
Contrarian Fund may invest up to 15% of its
assets in restricted and illiquid securities, but
currently does not anticipate investing
more than 5% of its assets in these securities.
Forward Commitments (Government Securities Fund,
Investment Grade Bond Fund and Concert
Peachtree Growth Fund). These Funds may purchase or
sell securities on a "when-issued"
or "delayed delivery" basis ("Forward Commitments" or
"Firm Commitment Agreements"). These
transactions occur when securities are purchased or
sold by a Fund with payment and
delivery taking place in the future, frequently a
month or more after such transactions.
The price is fixed on the date of the commitment, and
the seller continues to accrue
interest on the securities covered by the Forward
Commitment until delivery and payment
take place. At the time of settlement, the market
value of the securities may be more or
less than the purchase or sale price.
A Forward Commitment sale is covered if the Fund owns
or has the right to acquire the
underlying securities subject to the Forward
Commitment. A Forward Commitment sale is for
cross-hedging purposes if it is not covered, but is
designed to provide a hedge against a
decline in value of a security which the Fund owns or
has the right to acquire. In either
circumstance, the Fund maintains in a segregated
account (which is marked to market daily)
either the security covered by the Forward Commitment
or appropriate securities as
required by the 1940 Act (which may have maturities
which are longer than the term of the
Forward Commitment) with the Fund's custodian in an
aggregate amount equal to the amount
of its commitment as long as the obligation to sell
continues. By entering into a Forward
Commitment sale transaction, the Fund forgoes or
reduces the potential for both gain and
loss in the security which is being hedged by the
Forward Commitment sale.
A Fund may either settle a Forward Commitment by
taking delivery of the securities or may
either resell or repurchase a Forward Commitment on or
before the settlement date in which
event the Fund may reinvest the proceeds in another
Forward Commitment. A Fund's use of
Forward Commitments may increase its overall
investment exposure and thus its potential
for gain or loss. When engaging in Forward
Commitments, the Fund relies on the other party
to complete the transaction; should the other party
fail to do so, the Fund might lose a
purchase or sale opportunity that could be more
advantageous than alternative
opportunities at the time of the failure.
Each Fund maintains a segregated account (which is
marked to market daily) of appropriate
securities as required by the 1940 Act covered by the
Forward Commitment with the Fund's
custodian in an aggregate amount equal to the amount
of its commitment as long as the
obligation to purchase or sell continues. The
Government Securities Fund and Investment
Grade Bond Fund will not enter into Forward
Commitments for the purpose of investment
leverage.
Repurchase Agreements (All Funds). Each Fund may
enter into repurchase agreements with
broker-dealers or domestic banks. The Trustees will
review on a continuing basis those
institutions which enter into a repurchase agreement
with a Fund. A repurchase agreement
is a short-term investment in which the purchaser
(i.e., the Fund) acquires ownership of a
debt security and the seller agrees to repurchase the
obligation at a future time and set
price, usually not more than seven days from the date
of purchase, thereby determining the
yield during the purchaser's holding period.
Repurchase agreements are collateralized by
the underlying debt securities and may be considered
to be loans under the 1940 Act. The
Fund will make payment for such securities only upon
physical delivery or evidence of book
entry transfer to the account of a custodian or bank
acting as agent. The seller under a
repurchase agreement is required to maintain the value
of the underlying securities marked
to market daily at not less than the repurchase price.
The underlying securities
(normally securities of the U.S. Government, or its
agencies and instrumentalities), may
have maturity dates exceeding one year. The Fund does
not bear the risk of a decline in
value of the underlying security unless the seller
defaults under its repurchase
obligation. In the event of a bankruptcy or other
default of a seller of a repurchase
agreement, the Fund could experience both delays in
liquidating the underlying securities
and loss including: (a) possible decline in the value
of the underlying security during
the period while the Fund seeks to enforce its rights
thereto, (b) possible lack of access
to income on the underlying security during this
period, and (c) expenses of enforcing its
rights.
For the purpose of investing in repurchase agreements,
the manager may aggregate the cash
that certain funds advised or subadvised by the
manager or its affiliates would otherwise
invest separately into a joint account. The cash in
the joint account is then invested in
repurchase agreements and the funds that contributed
to the joint account share pro rata
in the net revenue generated. The manager believes
that the joint account produces
efficiencies and economies of scale that may
contribute to reduced transaction costs,
higher returns, higher quality investments and greater
diversity of investments for a Fund
than would be available to a Fund investing
separately. The manner in which the joint
account is managed is subject to conditions set forth
in an SEC exemptive order
authorizing this practice, which conditions are
designed to ensure the fair administration
of the joint account and to protect the amounts in
that account.
Reverse Repurchase Agreements (All Funds). Each Fund
may enter into reverse repurchase
agreements with broker/dealers and other financial
institutions. Such agreements involve
the sale of portfolio securities with an agreement to
repurchase the securities at an
agreed-upon price, date and interest payment and are
considered to be borrowings by the
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.
Generally, the effect of such a
transaction is that the Fund can recover all or most
of the cash invested in the portfolio
securities involved during the term of the reverse
repurchase agreement, while in many
cases it will be able to keep some of the interest
income associated with those
securities. Such transactions are only advantageous
if the Fund has an opportunity to
earn a greater rate of interest on the cash derived
from the transaction than the interest
cost of obtaining that cash. Opportunities to realize
earnings from the use of the
proceeds equal to or greater than the interest
required to be paid may not always be
available, and the Fund intends to use the reverse
repurchase technique only when the
manager believes it will be advantageous to the Fund.
The use of reverse repurchase
agreements may exaggerate any interim increase or
decrease in the value of the Fund's
assets. The Funds' custodian bank will maintain a
separate account for the Fund with
securities having a value equal to or greater than
such commitments.
Short Sales Against the Box (All Funds). Each Fund
may from time to time make short
sales of securities it owns or has the right to
acquire through conversion or exchange of
other securities it owns. A short sale is ''against
the box'' to the extent that the Fund
contemporaneously owns or has the right to obtain at
no added cost securities identical to
those sold short. In a short sale, the Fund does not
immediately deliver the securities
sold and does not receive the proceeds from the sale.
The Fund is said to have a short
position in the securities sold until it delivers the
securities sold, at which time it
receives the proceeds of the sale. The Fund may not
make short sales or maintain a short
position if to do so would cause more than 25% of its
total assets, taken at market value,
to be held as collateral for such sales.
To secure its obligation to deliver the securities
sold short, the Fund will deposit in
escrow in a separate account with its custodian an
equal amount of the securities sold
short or securities convertible into or exchangeable
for such securities. The Fund may
close out a short position by purchasing and
delivering an equal amount of the securities
sold short, rather than by delivering securities
already held by the Fund, because the
Fund may want to continue to receive interest and
dividend payments on securities in its
portfolio that are convertible into the securities
sold short. However, the Fund will not
purchase and deliver new securities to satisfy its
short order if such purchase and sale
would cause the Fund to derive more than 30% of its
gross income from the sale of
securities held for less than three months.
Borrowing (All Funds). Each Fund may borrow up to 33%
(except that Special Equities Fund
may borrow only up to 5%) of the value of its total
assets from banks for temporary or
emergency purposes, such as to meet the Fund's
redemptions.
Leverage (Government Securities Fund). The Fund may
borrow from banks, on a secured or
unsecured basis, up to 25% of the value of its assets.
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 exceed the interest or dividends
the Fund will have to pay in respect
thereof, the Fund's net income or other gain will be
greater than if leverage had not been
used. Conversely, if the income or other gain from the
incremental assets is not
sufficient to cover the cost of leverage, the net
income or other gain of the Fund will be
less than if leverage had not been used. If the amount
of income from the incremental
securities is insufficient to cover the cost of
borrowing, securities might have to be
liquidated to obtain required funds. Depending on
market or other conditions, such
liquidations could be disadvantageous to the Fund.
The Fund is required to maintain continuous asset
coverage of 300% with respect to such
borrowings, and to sell (within three days) sufficient
portfolio holdings to restore such
coverage, if it should decline to less than 300% due
to market fluctuations or otherwise,
even if disadvantageous from an investment standpoint.
Leveraging will exaggerate the
effect of any increase or decrease in the value of
portfolio securities on the Fund's net
asset value, and money borrowed will be subject to
interest costs (which may include
commitment fees and/or the cost of maintaining minimum
average balances) which may or may
not exceed the interest and option premiums received
from the securities purchased with
borrowed funds.
Lending Portfolio Securities (All Funds). Consistent
with applicable regulatory
requirements each Fund has the ability to lend
securities from its portfolio to brokers,
dealers and other financial organizations. A Fund
will not lend its portfolio securities
to Smith Barney or its affiliates unless it has
applied for and received specific
authority to do so from the SEC. Loans of portfolio
securities will be collateralized by
cash, letters of credit or U.S. government securities
in an amount at least equal to the
current market value of the loaned securities. From
time to time, a Fund may return a
part of the interest earned from the investment of
collateral received for securities
loaned to the borrower and/or a third party, which is
unaffiliated with the Fund or with
Smith Barney, and which is acting as a "finder".
In lending its securities, a Fund can increase its
income by continuing to receive
interest on the loaned securities as well as by either
investing the cash collateral in
short-term instruments or obtaining yield in the form
of interest paid by the borrower
when U.S. government securities are used as
collateral. Requirements of the SEC, which
may be subject to further modifications, currently
provide that the following conditions
must be met whenever a Fund's portfolio securities are
loaned: (a) the Fund must receive
at least 100% cash collateral or equivalent securities
from the borrower; (b) the borrower
must increase such collateral whenever the market
value of the securities loaned rises
above the level of such collateral; (c) the Fund must
be able to terminate the loan at any
time; (d) the Fund must receive reasonable interest on
the loan, as well as an amount
equal to dividends, interest or other distributions on
the loaned securities, and any
increase in market value; (e) the Fund may pay only
reasonable custodian fees in
connection with the loan; and (f) voting rights on the
loaned securities may pass to the
borrower; provided, however, that if a material event
adversely affecting the investment
in the loaned securities occurs, the Board of
Directors must terminate the loan and regain
the right to vote the securities. The risks in
lending portfolio securities, as with
other extensions of secured credit, consist of
possible delay in receiving additional
collateral or in the recovery of the securities or
possible loss of rights in the
collateral should the borrower fail financially.
Loans will be made to firms deemed by
SSBC to be of good standing and will not be made
unless, in the judgment of SSBC, the
consideration to be earned from such loans would
justify the risk.
RISK FACTORS
General. Investors should realize that risk of loss
is inherent in the ownership of any
securities and that each Fund's net asset value will
fluctuate, reflecting fluctuations in
the market value of its portfolio positions.
Fixed Income Securities. Investments in fixed income
securities may subject the Funds to
risks, including the following.
Interest Rate Risk. When interest rates decline, the
market value of fixed income
securities tends to increase. Conversely, when
interest rates increase, the market value
of fixed income securities tends to decline. The
volatility of a security's market value
will differ depending upon the security's duration,
the issuer and the type of instrument.
Default Risk/Credit Risk. Investments in fixed income
securities are subject to the risk
that the issuer of the security could default on its
obligations, causing a Fund to
sustain losses on such investments. A default could
impact both interest and principal
payments.
Call Risk and Extension Risk. Fixed income securities
may be subject to both call risk
and extension risk. Call risk exists when the issuer
may exercise its right to pay
principal on an obligation earlier than scheduled,
which would cause cash flows to be
returned earlier than expected. This typically
results when interest rates have declined
and a Fund will suffer from having to reinvest in
lower yielding securities. Extension
risk exists when the issuer may exercise its right to
pay principal on an obligation later
than scheduled, which would cause cash flows to be
returned later than expected. This
typically results when interest rates have increased,
and a Fund will suffer from the
inability to invest in higher yield securities.
Lower Rated and Below Investment Grade Fixed Income
Securities. Securities which are
rated BBB by S&P or Baa by Moody's are generally
regarded as having adequate capacity to
pay interest and repay principal, but may have some
speculative characteristics.
Securities rated below Baa by Moody's or BBB by S&P
may have speculative characteristics,
including the possibility of default or bankruptcy of
the issuers of such securities,
market price volatility based upon interest rate
sensitivity, questionable
creditworthiness and relative liquidity of the
secondary trading market. Because high
yield bonds have been found to be more sensitive to
adverse economic changes or individual
corporate developments and less sensitive to interest
rate changes than higher-rated
investments, an economic downturn could disrupt the
market for high yield bonds and
adversely affect the value of outstanding bonds and
the ability of issuers to repay
principal and interest. In addition, in a declining
interest rate market, issuers of high
yield bonds may exercise redemption or call
provisions, which may force a Fund, to the
extent it owns such securities, to replace those
securities with lower yielding
securities. This could result in a decreased return.
Subsequent to its purchase by a Fund, an issue of
securities may cease to be rated or its
rating may be reduced below the minimum required for
purchase by the Fund. In addition,
it is possible that Moody's, S&P and other ratings
agencies might not timely change their
ratings of a particular issue to reflect subsequent
events.
Foreign Securities. Investments in securities of
foreign issuers involve certain risks
not ordinarily associated with investments in
securities of domestic issuers. Such risks
include fluctuations in foreign exchange rates, future
political and economic
developments, and the possible imposition of exchange
controls or other foreign
governmental laws or restrictions. Since each Fund
will invest heavily in securities
denominated or quoted in currencies other than the
U.S. dollar, changes in foreign
currency exchange rates will, to the extent the Fund
does not adequately hedge against
such fluctuations, affect the value of securities in
its portfolio and the unrealized
appreciation or depreciation of investments so far as
U.S. investors are concerned. In
addition, with respect to certain countries, there is
the possibility of expropriation of
assets, confiscatory taxation, political or social
instability or diplomatic developments
which could adversely affect investments in those
countries.
There may be less publicly available information about
a foreign company than about a U.S.
company, and foreign companies may not be subject to
accounting, auditing, and financial
reporting standards and requirements comparable to or
as uniform as those of U.S.
companies. Foreign securities markets, while growing
in volume, have, for the most part,
substantially less volume than U.S. markets, and
securities of many foreign companies are
less liquid and their price more volatile than
securities of comparable U.S. companies.
Transaction costs on foreign securities markets are
generally higher than in the U.S.
There is generally less government supervision and
regulation of exchanges, brokers and
issuers than there is in the U.S. A Fund might have
greater difficulty taking appropriate
legal action in foreign courts. Dividend and interest
income from foreign securities will
generally be subject to withholding taxes by the
country in which the issuer is located
and may not be recoverable by the Fund or the
investors. Capital gains are also subject
to taxation in some foreign countries.
Currency Risks. The U.S. dollar value of securities
denominated in a foreign currency
will vary with changes in currency exchange rates,
which can be volatile. Accordingly,
changes in the value of the currency in which a Fund's
investments are denominated
relative to the U.S. dollar will affect the Fund's net
asset value. Exchange rates are
generally affected by the forces of supply and demand
in the international currency
markets, the relative merits of investing in different
countries and the intervention or
failure to intervene of U.S. or foreign governments
and central banks. However, currency
exchange rates may fluctuate based on factors
intrinsic to a country's economy. Some
emerging market countries also may have managed
currencies, which are not free floating
against the U.S. dollar. In addition, emerging
markets are subject to the risk of
restrictions upon the free conversion of their
currencies into other currencies. Any
devaluations relative to the U.S. dollar in the
currencies in which a Fund's securities
are quoted would reduce the Fund's net asset value per
share.
Special Risks of Countries in the Asia Pacific Region.
Certain of the risks associated
with international investments are heightened for
investments in these countries. For
example, some of the currencies of these countries
have experienced devaluations relative
to the U.S. dollar, and adjustments have been made
periodically in certain of such
currencies. Certain countries, such as Indonesia,
face serious exchange constraints.
Jurisdictional disputes also exist, for example,
between South Korea and North Korea. In
addition, Hong Kong reverted to Chinese administration
on July 1, 1997. The long-term
effects of this reversion are not known at this time.
Securities of Developing/Emerging Markets Countries.
A developing or emerging markets
country generally is considered to be a country that
is in the initial stages of its
industrialization cycle. Investing in the equity
markets of developing countries involves
exposure to economic structures that are generally
less diverse and mature, and to
political systems that can be expected to have less
stability, than those of developed
countries. Historical experience indicates that the
markets of developing countries have
been more volatile than the markets of the more mature
economies of developed countries;
however, such markets often have provided higher rates
of return to investors.
One or more of the risks discussed above could affect
adversely the economy of a
developing market or a Fund's investments in such a
market. In Eastern Europe, for
example, upon the accession to power of Communist
regimes in the past, the governments of
a number of Eastern European countries expropriated a
large amount of property. The
claims of many property owners against those of
governments may remain unsettled. There
can be no assurance that any investments that a Fund
might make in such emerging markets
would not be expropriated, nationalized or otherwise
confiscated at some time in the
future. In such an event, the Fund could lose its
entire investment in the market
involved. Moreover, changes in the leadership or
policies of such markets could halt the
expansion or reverse the liberalization of foreign
investment policies now occurring in
certain of these markets and adversely affect existing
investment opportunities.
Many of a Fund's investments in the securities of
emerging markets may be unrated or rated
below investment grade. Securities rated below
investment grade (and comparable unrated
securities) are the equivalent of high yield, high
risk bonds, commonly known as "junk
bonds." Such securities are regarded as predominantly
speculative with respect to the
issuer's capacity to pay interest and repay principal
in accordance with the terms of the
obligations and involve major risk exposure to adverse
business, financial, economic, or
political conditions.
Derivative Instruments. In accordance with its
investment policies, each Fund may invest
in certain derivative instruments which are securities
or contracts that provide for
payments based on or "derived" from the performance of
an underlying asset, index or other
economic benchmark. Essentially, a derivative
instrument is a financial arrangement or a
contract between two parties (and not a true security
like a stock or a bond).
Transactions in derivative instruments can be, but are
not necessarily, riskier than
investments in conventional stocks, bonds and money
market instruments. A derivative
instrument is more accurately viewed as a way of
reallocating risk among different parties
or substituting one type of risk for another. Every
investment by a Fund, including an
investment in conventional securities, reflects an
implicit prediction about future
changes in the value of that investment. Every Fund
investment also involves a risk that
the portfolio manager's expectations will be wrong.
Transactions in derivative
instruments often enable a Fund to take investment
positions that more precisely reflect
the portfolio manager's expectations concerning the
future performance of the various
investments available to the Fund. Derivative
instruments can be a legitimate and often
cost-effective method of accomplishing the same
investment goals as could be achieved
through other investment in conventional securities.
Derivative contracts include options, futures
contracts, forward contracts, forward
commitment and when-issued securities transactions,
forward foreign currency exchange
contracts and interest rate, mortgage and currency
swaps. The following are the principal
risks associated with derivative instruments.
Market risk: The instrument will decline in value or
that an alternative investment would
have appreciated more, but this is no different from
the risk of investing in conventional
securities.
Leverage and associated price volatility: Leverage
causes increased volatility in the
price and magnifies the impact of adverse market
changes, but this risk may be consistent
with the investment objective of even a conservative
Fund in order to achieve an average
portfolio volatility that is within the expected range
for that type of Fund.
Credit risk: The issuer of the instrument may default
on its obligation to pay interest
and principal.
Liquidity and valuation risk: Many derivative
instruments are traded in institutional
markets rather than on an exchange. Nevertheless,
many derivative instruments are
actively traded and can be priced with as much
accuracy as conventional securities.
Derivative instruments that are custom designed to
meet the specialized investment needs
of a relatively narrow group of institutional
investors such as the Funds are not readily
marketable and are subject to a Fund's restrictions on
illiquid investments.
Correlation risk: There may be imperfect correlation
between the price of the derivative
and the underlying asset. For example, there may be
price disparities between the trading
markets for the derivative contract and the underlying
asset.
Each derivative instrument purchased for a Fund's
portfolio is reviewed and analyzed by
the Fund's portfolio manager to assess the risk and
reward of each such instrument in
relation the Fund's portfolio investment strategy.
The decision to invest in derivative
instruments or conventional securities is made by
measuring the respective instrument's
ability to provide value to the Fund and its
shareholders.
Special Risks of Using Futures Contracts and Options
on Futures Contracts. The prices of
Futures Contracts are volatile and are influenced by,
among other things, 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 in
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 and liquid
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.
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 option
transactions, 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.
Economic and Monetary Union (EMU). EMU conversion
began on January 1, 1999, through which
11 European countries will adopt a single currency -
the euro. For participating
countries, EMU will mean sharing a single currency and
single official interest rate and
adhering to agreed upon limits on government
borrowing. Budgetary decisions will remain
in the hands of each participating country, but will
be subject to each country's
commitment to avoid "excessive deficits" and other
more specific budgetary criteria. A
European Central Bank will be responsible for setting
the official interest rate to
maintain price stability within the euro zone. EMU is
driven by the expectation of a
number of economic benefits, including lower
transaction costs, reduced exchange risk,
greater competition, and a broadening and deepening of
European financial markets.
However, there are a number of significant risks
associated with EMU. Monetary and
economic union on this scale has never been attempted
before. There is a significant
degree of uncertainty as to whether participating
countries will remain committed to EMU
in the face of changing economic conditions. This
uncertainty may increase the volatility
of European markets and may adversely affect the
prices of securities of European issuers
in the Funds' portfolios.
Year 2000. The investment management services
provided to each Fund by the manager
depend on the smooth functioning of its computer
systems and those of its service
providers. 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 each Fund's operations, including
the handling of securities trades, pricing and account
services. The manager has advised
each Fund that it has been reviewing all of its
computer systems and actively working on
necessary changes to its systems to prepare for the
year 2000 and expect that its systems
will be compliant before that date. In addition, the
manager has been advised by each
Fund's custodian, distributor, transfer agent sub-
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 the manager
or any other service provider will be
successful, or that interaction with other non-
complying computer systems will not impair
Fund services at that time.
Portfolio Turnover. Each Fund may purchase or sell
securities without regard to the
length of time the security has been held and thus may
experience a high rate of portfolio
turnover. A 100% turnover rate would occur, for
example, if all the securities in a
portfolio were replaced in a period of one year. Under
certain market conditions, the a
Fund may experience a high rate of portfolio turnover.
This may occur, for example, if a
Fund writes a substantial number of covered call
options and the market prices of the
underlying securities appreciate. The rate of
portfolio turnover is not a limiting factor
when the manager deems it desirable to purchase or
sell securities or to engage in options
transactions. High portfolio turnover involves
correspondingly greater transaction costs,
including any brokerage commissions, which are borne
directly by the respective Fund and
may increase the recognition of short-term, rather
than long-term, capital gains if
securities are held for one year or less and may be
subject to applicable income taxes.
Special Considerations Relating to Options on Certain
U.S. Government Securities
Treasury Bonds and Notes. Because trading interest in
U.S. Treasury bonds and notes tends
to center on the most recently auctioned issues, the
exchanges will not continue
indefinitely to introduce new expirations to replace
expiring options on particular
issues. The expirations introduced at the
commencement of options trading on a particular
issue will be allowed to run, with the possible
addition of a limited number of new
expirations as the original expirations expire.
Options trading on each issue of bonds or
notes will thus be phased out as new options are
listed on more recent issues, and a full
range of expirations will not ordinarily be available
for every issue on which options are
traded.
Treasury Bills. Because the deliverable U.S. Treasury
bill changes from week to week,
writers of U.S. Treasury bill calls cannot provide in
advance for their potential exercise
settlement obligations by acquiring and holding the
underlying security. However, if the
Fund holds a long position in U.S. Treasury bills with
a principal amount corresponding to
the contract size of the option, it may be hedged from
a risk standpoint. In addition,
the Fund will maintain U.S. Treasury bills maturing no
later than those which would be
deliverable in the event of the exercise of a call
option it has written in a segregated
account with its custodian so that it will be treated
as being covered for margin
purposes.
GNMA Certificates. GNMA Certificates are mortgage-
backed securities representing part
ownership of a pool of mortgage loans. These loans
are made by private lenders and are
either insured by the Federal Housing Administration
or guaranteed by the Veterans
Administration. Once approved by GNMA, the timely
payment of interest and principal on
each mortgage in a "pool" of such mortgages is
guaranteed by the full faith and credit of
the U.S. government. Unlike most debt securities,
GNMA Certificates provide for repayment
of principal over the term of the loan rather than in
a lump sum at maturity. GNMA
Certificates are called "pass-through" securities
because both interest and principal
payments on the mortgages are passed through to the
holder.
Since the remaining principal balance of GNMA
Certificates declines each month as mortgage
payments are made, the Fund as a writer of a GNMA call
may find that the GNMA Certificates
it holds no longer have a sufficient remaining
principal balance to satisfy its delivery
obligation in the event of exercise of the call
options it has written. Should this
occur, additional GNMA Certificates from the same pool
(if obtainable) or replacement GNMA
Certificates will have to be purchased in the cash
market to meet delivery obligations.
The Fund will either replace GNMA Certificates
representing cover for call options it has
written or will maintain in a segregated account with
its custodian cash, cash equivalents
or U.S. government securities having an aggregate
value equal to the market value of the
GNMA Certificates underlying the call options it has
written.
Special Risks Involving Investments in Smaller, Newer
Companies
The Special Equities Fund invests primarily in equity
securities of companies that have
yet to reach a fully mature stage of earnings growth.
A significant number of these
companies may be in technology areas and may have
annual sales less than $300 million.
Some of the securities in which the Fund invests may
not be listed on a national
securities exchange, but such securities will usually
have an established over-the-counter
market. Investors should realize that the very nature
of investing in smaller, newer
companies involves greater risk than is customarily
associated with investing in larger,
more established companies. Smaller, newer companies
often have limited product lines,
markets or financial resources, and they may be
dependent for management upon one or a few
key persons. The securities of such companies may be
subject to more abrupt or erratic
market movements than securities of larger, more
established companies or than the market
averages in general. In accordance with its
investment objective of long-term capital
appreciation, securities purchased for the Fund will
not generally be traded for short-
term profits, but will be retained for their longer-
term appreciation potential. This
general practice limits the Fund's ability to adopt a
defensive position by investing in
money market instruments during periods of market
downturn. Accordingly, while in periods
of market upturn the Fund may outperform the market
averages, in periods of downturn, it
is likely to underperform the market averages. Thus,
investing in Special Equities Fund
may involve greater risk than investing in other
Funds. The Fund may also invest in
smaller capitalized companies representing the broad
benchmarks against which the Fund is
frequently judged by utilizing an active quantitative
oriented investment strategy.
Other Risks. In the event of a shortage of the
underlying securities deliverable on
exercise of an option, the Options Clearing
Corporation has the authority to permit other,
generally comparable securities to be delivered in
fulfillment of option exercise
obligations. If the Options Clearing Corporation
exercises its discretionary authority to
allow such other securities to be delivered it may
also adjust the exercise prices of the
affected options by setting different prices at which
otherwise ineligible securities may
be delivered. As an alternative to permitting such
substitute deliveries, the Options
Clearing Corporation may impose special exercise
settlement procedures.
The hours of trading for options on U.S. government
securities may not conform to the
hours during which the underlying securities are
traded. To the extent that the options
markets close before the markets for the underlying
securities, significant price and rate
movements can take place in the underlying markets
that cannot be reflected in the options
markets.
Options are traded on exchanges on only a limited
number of U.S. government securities,
and exchange regulations limit the maximum number of
options which may be written or
purchased by a single investor or a group of investors
acting in concert. The Company and
other clients advised by affiliates of Smith Barney
may be deemed to constitute a group
for these purposes. In light of these limits, the
Board of Directors may determine at any
time to restrict or terminate the public offering of
the Fund's shares (including through
exchanges from the other Funds).
Exchange markets in options on U.S. government
securities are a relatively new and
untested concept. It is impossible to predict the
amount of trading interest that may
exist in such options, and there can be no assurance
that viable exchange markets will
develop or continue.
INVESTMENT RESTRICTIONS tc \l1 "INVESTMENT
RESTRICTIONS
The Fund's investment objectives and investment
restrictions 1-7 set forth below are
fundamental policies of each Fund (except as otherwise
indicated), i.e., they may not be
changed with respect to a Fund without a majority vote
of the outstanding shares of that
Fund. Investment Restrictions 8 through 13 may be
changed by the Board of Directors
without the approval of shareholders. (All other
investment practices described in the
Prospectuses and this Statement of Additional
Information may be changed by the Board of
Directors without the approval of shareholders.)
Unless otherwise indicated, all percentage limitations
apply to each Fund on an individual
basis, and apply only at the time a transaction is
entered into. (Accordingly, if a
percentage restriction is complied with at the time of
investment, a later increase or
decrease in the percentage which results from a
relative change in values or from a change
in the Fund's net assets will not be considered a
violation.)
Restrictions Applicable to All Funds. No Fund may:
1. Invest in a manner that would cause it to fail
to be a "diversified company" under
the 1940 Act and the rules, regulations and orders
thereunder.
2. Purchase or sell real estate, real estate
mortgages, commodities or commodity
contracts, but this restriction shall not prevent the
Fund from (a) investing in
securities of issuers engaged in the real estate
business or the business of investing in
real estate (including interests in limited
partnerships owning or otherwise engaging in
the real estate business or the business of investing
in real estate) and securities which
are secured by real estate or interests therein; (b)
holding or selling real estate
received in connection with securities it holds or
held; (c) trading in futures contracts
and options on futures contracts (including options on
currencies to the extent consistent
with the Funds' investment objective and policies); or
(d) investing in real estate
investment trust securities.
3. Make loans. This restriction does not apply to:
(a) the purchase of debt
obligations in which the Fund may invest consistent
with its investment objectives and
policies; (b) repurchase agreements; and (c) loans of
its portfolio securities, to the
fullest extent permitted under the 1940 Act.
4. Invest more than 25% of its total assets in
securities, the issuers of which
conduct their principal business activities in the
same industry. For purposes of this
limitation, securities of the U.S. government
(including its agencies and
instrumentalities) and securities of state or
municipal governments and their political
subdivisions are not considered to be issued by
members of any industry.
5. Issue "senior securities" as defined in the 1940
Act and the rules, regulations
and orders thereunder, except as permitted under the
1940 Act and the rules, regulations
and orders thereunder.
6. Restriction Applicable to all Funds except
Government Securities Fund. The Funds
may not: Borrow money, except that (a) the Fund may
borrow from banks for temporary or
emergency (not leveraging) purposes, including the
meeting of redemption requests which
might otherwise require the untimely disposition of
securities, and (b) the Fund may, to
the extent consistent with its investment policies,
enter into reverse repurchase
agreements, forward roll transactions and similar
investment strategies and techniques.
To the extent that it engages in transactions
described in (a) and (b), the Fund will be
limited so that no more than 33-l/3% of the value of
its total assets (including the amount
borrowed), valued at the lesser of cost or market,
less liabilities (not including the
amount borrowed) valued at the time the borrowing is
made, is derived from such
transactions.
7. Restriction Applicable to all Funds except
Special Equities Fund, Concert
Peachtree Growth Fund and Contrarian Fund. The Funds
may not: Act as an underwriter of
securities. Restrictions Applicable to Special
Equities Fund. Special Equities Fund may
not act as an underwriter of securities, except that
the Fund may invest up to 10% of its
total assets in securities which it may not be free to
resell without registration under
the 1933 Act, in which registration the Fund may
technically be deemed an underwriter for
purposes of the 1933 Act.
8. Invest in oil, gas or other mineral exploration
or development programs
9. Make investments in securities for the purpose
of exercising control over or
management of the issuer;
10. 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;
11. Invest in securities of an issuer which,
together with any predecessor, has been
in operation for less than three years if, as a
result, more than 5% of the total assets
of the Fund would then be invested in such securities
(for purposes of this restriction,
issuers include predecessors, sponsors, controlling
persons, general guarantors and
originators of underlying assets);
12. 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;
13. Restrictions Applicable to all Funds except
Government Securities Fund. The Funds
may not: Write, purchase or sell puts, calls,
straddles, spreads or any combinations
thereof (the Contrarian Fund and the Concert Peachtree
Growth Fund each may write or
purchase puts, calls, straddles, spreads and any
combination thereof up to 5% of their
assets).
Brokerage
In selecting brokers or dealers to execute securities
transactions on behalf of a Fund,
SSBC seeks the best overall terms available. In
assessing the best overall terms
available for any transaction, SSBC will consider the
factors that it deems relevant,
including the breadth of the market in the security,
the price of the security, the
financial condition and execution capability of the
broker or dealer and the
reasonableness of the commission, if any, for the
specific transaction and on a continuing
basis. In addition, each investment advisory
agreement authorizes SSBC, in selecting
brokers or dealers to execute a particular transaction
and in evaluating the best overall
terms available, to consider the brokerage and
research services (as those terms are
defined in Section 28(e) of the Securities Exchange
Act of 1934) provided to the Company,
the other Funds and other accounts over which SSBC or
its affiliates exercise investment
discretion. For the fiscal year ended December 31,
1998 the Special Equities Fund,
Contrarian Fund and the Concert Peachtree Growth Fund
directed brokerage transactions
totaling approximately $747,918,914, $53,498,048 and
$19,389,969, respectively, to brokers
because of research services provided. The amount of
brokerage commissions paid on such
transactions for the Special Equities Fund, Contrarian
Fund and the Concert Peachtree
Growth Fund total approximately $1,410,922, $120,584
and $20,185, respectively. The fees
under the investment advisory agreements and the
administration agreement between the
Company and SSBC are not reduced by reason of their
receiving such brokerage and research
services. The Board of Directors periodically will
review the commissions paid by the
Funds to determine if the commissions paid over
representative periods of time were
reasonable in relation to the benefits inuring to the
Company. SEC rules require that
commissions paid to Salomon Smith Barney by a Fund on
exchange transactions not exceed
"usual and customary brokerage commissions." The
rules define "usual and customary"
commissions to include amounts which are "reasonable
and fair compared to the commission,
fee or other remuneration received or to be received
by other brokers in connection with
comparable transactions involving similar securities
being purchased or sold on a
securities exchange during a comparable period of
time." The Board of Directors,
particularly the Independent Directors of the Company
(as defined in the 1940 Act), has
adopted procedures for evaluating the reasonableness
of commissions paid to Salomon Smith
Barney and reviews these procedures periodically. In
addition, under rules adopted by the
SEC, Salomon Smith Barney may directly execute
transactions for a Fund on the floor of any
national securities exchange, provided: (a) the Board
of Directors has expressly
authorized Salomon Smith Barney to effect such
transactions; and (b) Salomon Smith Barney
annually advises the Fund of the aggregate
compensation it earned on such transactions.
To the extent consistent with applicable provisions of
the 1940 Act and the rules and
exemptions adopted by the SEC thereunder, the Board of
Directors has determined that
transactions for a Fund may be executed through
Salomon Smith Barney and other affiliated
broker-dealers if, in the judgment of SSBC, the use of
such broker-dealer is likely to
result in price and execution at least as favorable as
those of other qualified broker-
dealers, and if, in the transaction, such broker-
dealer charges the Fund a rate consistent
with that charged to comparable unaffiliated customers
in similar transactions.
Portfolio securities are not purchased from or through
Salomon Smith Barney or any
affiliated person (as defined in the 1940 Act) of
Salomon Smith Barney where such entities
are acting as principal, except pursuant to the terms
and conditions of exemptive rules or
orders promulgated by the SEC. Pursuant to conditions
set forth in rules of the SEC, the
Company may purchase securities from an underwriting
syndicate of which Salomon Smith
Barney is a member (but not from Salomon Smith
Barney). Such conditions relate to the
price and amount of the securities purchased, the
commission or spread paid, and the
quality of the issuer. The rules further require that
such purchases take place in
accordance with procedures adopted and reviewed
periodically by the Board of Directors,
particularly those Directors who are not interested
persons of the Company.
The Funds may use Salomon Smith Barney as a
commodities broker in connection with entering
into futures contracts and commodity options. Salomon
Smith Barney has agreed to charge
the Funds commodity commissions at rates comparable to
those charged by Salomon Smith
Barney to its most favored clients for comparable
trades in comparable amounts.
The following table sets forth certain information
regarding each Fund's payment of
brokerage commissions to Salomon Smith Barney:
Fiscal Year
Ended
December 31,
Special
Equities
Fund
Contrarian
Fund
Concert Peachtree Growth
Fund
Total Brokerage Commissions
1996
$ 378,451
$1,272,702
$716,937
1997
894,872
658,099
891,375
1998
1,410,922
2,483,848
430,920
Commissions paid to Smith Barney
1996
$47,100
$166,656
$21,680
1997
53,748
167,712
20,784
1998
97,130
72,150
0
% of Total Brokerage
Commissions paid to
Smith Barney
1998
6.88%
2.90
0
% of Total Transactions
Involving Commissions paid
to Smith Barney
1998
4.70%
2.96%
0
No commissions were paid by the Investment Grade Bond
Fund and Government Securities Fund.
Portfolio Turnover
For reporting purposes, a Fund's portfolio turnover
rate is calculated by dividing the
lesser of purchases or sales of portfolio securities
for the fiscal year by the monthly
average of the value of the portfolio securities owned
by the Fund during the fiscal year.
In determining such portfolio turnover, all
securities whose maturities at the time of
acquisition were one year or less are excluded. A
100% portfolio turnover rate would
occur, for example, if all of the securities in the
Fund's investment portfolio (other
than short-term money market securities) were replaced
once during the fiscal year.
Investment Grade Bond Fund will not normally engage in
the trading of securities for the
purpose of realizing short-term profits, but it will
adjust its portfolio as considered
advisable in view of prevailing or anticipated market
conditions. Portfolio turnover will
not be a limiting factor should SSBC deem it advisable
to purchase or sell securities.
Special Equities Fund invests for long-term capital
appreciation and will not generally
trade for short-term profits. However, its portfolio
will be adjusted as deemed advisable
by SSBC, and portfolio turnover will not be a limiting
factor should SSBC deem it
advisable to purchase or sell securities.
The options activities of Government Securities Fund
may affect its portfolio turnover
rate and the amount of brokerage commissions paid by
the Fund. The exercise of calls
written by the Fund may cause the Fund to sell
portfolio securities, thus increasing its
turnover rate. The exercise of puts also may cause
the sale of securities and increase
turnover; although such exercise is within the Fund's
control, holding a protective put
might cause the Fund to sell the underlying securities
for reasons which would not exist
in the absence of the put. The Fund will pay a
brokerage commission each time it buys or
sells a security in connection with the exercise of a
put or call. Some commissions may
be higher than those which would apply to direct
purchases or sales of portfolio
securities. High portfolio turnover involves
correspondingly greater commission expenses
and transaction costs.
For the fiscal years ended December 31, 1996,1997 and
1998, the portfolio turnover rates
were as follows:
Fund
1996
1997
1998
Investment Grade Bond Fund
48
%
39
%
32%
Government Securities Fund
420
274
334
Special Equities Fund
118
145
157
Contrarian Fund
34
35
77
Concert Peachtree Growth Fund
183
227
93.
Increased portfolio turnover necessarily results in
correspondingly greater brokerage
commissions which must be paid by the Fund. To the
extent that portfolio trading results
in realization of net short-term capital gains,
shareholders will be taxed on such gains
at ordinary tax rates (except shareholders who invest
through IRAs and other retirement
plans which are not taxed currently on accumulations
in their accounts).
SSBC manages a number of private investment accounts
on a discretionary basis and it is
not bound by the recommendations of the Salomon Smith
Barney research department in
managing the Funds. Although investment decisions are
made individually for each client,
at times decisions may be made to purchase or sell the
same securities for one or more of
the Funds and/or for one or more of the other accounts
managed by SSBC or the Fund
manager. When two or more such accounts
simultaneously are engaged in the purchase or
sale of the same security, transactions are allocated
in a manner considered equitable to
each, with emphasis on purchasing or selling entire
orders wherever possible. In some
cases, this procedure may adversely affect the price
paid or received by the Fund or the
size of the position obtained or disposed of by the
Fund.
PURCHASE, EXCHANGE AND REDEMPTION OF SHARES tc \l1
"PURCHASE, EXCHANGE AND REDEMPTION OF
SHARES
PURCHASE OF SHARES
- Class A Shares are sold to investors at the public
offering price as net asset value
plus an initial sales charge. The sales charges
applicable to purchases of Class A shares
of a Fund are as follows:
Government Securities Fund
and Investment Grade Bond Fund
Concert Peachtree Growth Fund,
Contrarian Fund and Special Equities Fund
Amount of
Investment
Sales Charge as % of
Offering Price
Sales Charge as
% of Amount Invested
Sales Charge as % of
Offering Price
Sales Charge as
% of Amount Invested
Less than $25,000
4.50%
4.71%
5.00%
5.26%
$ 25,000 - 49,999
4.00
4.17
4.00
4.17
50,000 - 99,999
3.50
3.63
3.50
3.63
100,000 - 249,999
2.50
2.56
3.00
3.09
250,000 - 499,999
1.50
1.52
2.00
2.04
500,000 and over
- -0-
- -0-
- -0-
- -0-
* 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 Salomon Smith
Barney, which compensates Salomon 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 a Fund as defined in the 1933
Act. The reduced sales charges shown
above apply to the aggregate of purchases of Class A
shares of the Fund made at one time
by ''any person,'' which includes an individual and
his or her immediate family, or a
trustee or other fiduciary of a single trust estate or
single fiduciary account.
Class B Shares -Class B shares are sold without an
initial sales charge but are subjest to
to a deffered sales charge payable upon certain
redemptions (See "Deferred Sales Charge
Provisions").
Initial Sales Charge Alternative - Class L Shares.
Class L shares are sold with a sales
charge of 1% (which is equal to 1.01% of the net
amount invested).
Investors may purchase shares from a Salomon Smith
Barney Financial Consultant, or a
broker that clears Salomon Smith Barney ("Dealer
Representative"). In addition, certain
investors, including qualified retirement plans
purchasing through certain Dealer
Representatives, may purchase shares directly from the
funds. When purchasing shares of a
Fund, investors must specify whether the purchase is
for Class A, Class B, Class L or
Class Y shares. Salomon Smith Barney and Dealer
Representatives may charge their customers
an annual account maintenance fee in connection with a
brokerage account through which an
investor purchases or holds shares. Accounts held
directly at the transfer agent are not
subject to a maintenance fee.
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 IRA or a Self-Employed
Retirement Plan, in a Fund. Investors in Class Y
shares may open an account by making an
initial investment of $15,000,000. Subsequent
investments of at least $50 may be made for
all Classes. For participants in retirement plans
qualified under Section 403(b)(7) or
Section 401(a) of the Code, the minimum initial and
subsequent investment requirement for
Class A, Class B and Class L shares and the subsequent
investment requirement for all
Classes in a Fund is $25. For shareholders purchasing
shares of a Fund through the
Systematic Investment Plan on a monthly basis, the
minimum initial investment requirement
for Class A, Class B and Class L shares and the
subsequent investment requirement for all
Classes is $25. For shareholders purchasing shares of
a Fund through the Systematic
Investment Plan on a quarterly basis, the minimum
initial investment requirement for Class
A, Class B and Class L shares and the subsequent
investment requirement for all Classes is
$50. There are no minimum investment requirements in
Class A shares for employees of
Citigroup and its subsidiaries, including Salomon
Smith Barney, unit holders who invest
distributing from a Unit Investment Trust ("UIT")
sponsored by Salomon Smith Barney,
Directors or Trustees of any of the Smith Barney
Mutual Funds, and their spouses and
children. The Company 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 Company or a Salomon
Smith Barney Financial Consultant
prior to the close of regular trading on the NYSE, on
any day the Funds calculate their
net asset values, are priced according to the net
asset value determined on that day (the
''trade date''). Orders received by a Dealer
Representative or Introducing Brokers prior
to the close of regular trading on the NYSE on any day
the Funds calculate their net asset
values, are priced according to the net asset value
determined on that day, provided the
order is received by the Company's agent prior to he
agent's close of business. For shares
purchased through Salomon Smith Barney and Introducing
Brokers purchasing through Salomon
Smith Barney, payment for shares of a Fund 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, Salomon Smith Barney or
the transfer agent is authorized
through preauthorized transfers of at least $25 on a
monthly basis or at least $50 on a
quarterly basis to charge the regular bank account or
other financial institution
indicated by the shareholder, to provide systematic
additions to the shareholder's Fund
account. A shareholder who has insufficient funds to
complete the transfer will be
charged a fee of up to $25 by Salomon Smith Barney or
the transfer agent. The Systematic
Investment Plan also authorizes Salomon Smith Barney
to apply cash held in the
shareholder's Salomon Smith Barney brokerage account
or redeem the shareholder's shares of
a Smith Barney money market fund to make additions to
the account. Additional information
is available from the Company or a Salomon Smith
Barney Financial Consultant Dealer
Representative.
Sales Charge Waivers and Deductions
Initial Sales Charge Waivers. Purchases of Class A
shares may be made at net asset value
without a sales charge in the following circumstances:
(a) sales to (i) Board Members and
employees of Citigroup and its subsidiaries and any
Citigroup affiliated funds including
the Smith Barney Mutual Funds (including retired Board
Members and employees); the
immediate families of such persons (including the
surviving spouse of a deceased Board
Member or employee); and to a pension, profit-sharing
or other benefit plan for such
persons and (ii) employees of members of the National
Association of Securities Dealers,
Inc., provided such sales are made upon the assurance
of the purchaser that the purchase
is made for investment purposes and that the
securities will not be resold except through
redemption or repurchase; (b) offers of Class A shares
to any other investment company to
effect the combination of such company with a Fund by
merger, acquisition of assets or
otherwise; (c) purchases of Class A shares by any
client of a newly employed Salomon Smith
Barney Financial Consultant (for a period up to 90
days from the commencement of the
Financial Consultant's employment with Salomon Smith
Barney), on the condition the
purchase of Class A shares is made with the proceeds
of the redemption of shares of a
mutual fund which (i) was sponsored by the Financial
Consultant's prior employer, (ii) was
sold to the client by the Financial Consultant and
(iii) was subject to a sales charge;
(d) purchases by shareholders who have redeemed Class
A shares in the Fund (or Class A
shares of another Fund of the Smith Barney Mutual
Funds that are offered with a sales
charge) and who wish to reinvest their redemption
proceeds in the same Fund, provided the
reinvestment is made within 60 calendar days of the
redemption; (e) purchases by accounts
managed by registered investment advisory subsidiaries
of Citigroup; (f) direct rollovers
by plan participants of distributions from a 401(k)
plan offered to employees of Citigroup
or its subsidiaries or a 401(k) plan enrolled in the
Salomon Smith Barney 401(k) Program
(Note: subsequent investments will be subject to the
applicable sales charge); (g)
purchases by separate accounts used to fund certain
unregistered variable annuity
contracts (h) investments of distributions from or
proceeds from a sale of a UIT sponsored
by Salomon Smith Barney; and (i) purchases by
investors participating in a Salomon 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 a Fund may
be purchased by "any person"' (as
defined above) at a reduced sales charge or at net
asset value determined by aggregating
the dollar amount of the new purchase and the total
net asset value of all Class A shares
of the Fund and of Funds sponsored by Salomon Smith
Barney, which are offered with a sales
charge, listed under "Exchange Privilege" then held by
such person and applying the sales
charge applicable to such aggregate. In order to
obtain such discount, the purchaser must
provide sufficient information at the time of purchase
to permit verification that the
purchase qualifies for the reduced sales charge. The
right of accumulation is subject to
modification or discontinuance at any time with
respect to all shares purchased
thereafter.
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
Funds and other Funds of the Smith Barney Mutual Funds
offered with a sales charge
acquired during the term of the letter plus (ii) the
value of all Class A shares
previously purchased and still owned.. Each
investment made during the period receives
the reduced sales charge applicable to the total
amount of the investment goal. If the
goal is not achieved within the period, the investor
must pay the difference between the
sales charges applicable to the purchases made and the
charges previously paid, or an
appropriate number of escrowed shares will be
redeemed. Please contact a Salomon Smith
Barney Financial Consultant or the transfer agent to
obtain a Letter of Intent
application.
Letter of Intent Class Y Shares. A Letter of Intent
may also be used as a way for
investors to meet the minimum investment requirement
for Class Y shares. Except
purchases of Class Y shares by Smith Barney Concert
Allocation Series Inc. for which there
is no minimum purchase amount. Such investors must
make an initial minimum purchase of
$5,000,000 in Class Y shares of a Fund and agree to
purchase a total of $15,000,000 of
Class Y shares of the same Fund within 13 months from
the date of the Letter. If a total
investment of $15,000,000 is not made within the 13-
month period, all Class Y shares
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 Salomon Smith Barney Financial
Consultant or the transfer agent for further
information.
Deferred Sales Charge Alternatives. ''CDSC Shares''
are: (a) Class B shares; (b) Class L
shares; and (c) Class A shares that were purchased
without an initial sales charge but
subject to a CDSC.
Any applicable CDSC will be assessed on an amount
equal to the lesser of the 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 L shares and Class A shares that are CDSC Shares
are subject to a 1.00% CDSC if
redeemed within 12 months of purchase. In
circumstances in which the CDSC is imposed on
Class B shares, the amount of the charge will depend
on the number of years since the
shareholder made the purchase payment from which the
amount is being redeemed. Solely for
purposes of determining the number of years since a
purchase payment, all purchase
payments made during a month will be aggregated and
deemed to have been made on the last
day of the preceding Salomon Smith Barney statement
month. The following table sets forth
the rates of the charge for redemptions of Class B
shares by shareholders, except in the
case of Class B shares held under the Salomon Smith
Barney 401(k) Program, as described
below. See ''Purchase of Shares-Smith Barney 401(k)
and ExecChoiceTM Programs.''
Year Since Purchase
Payment Was Made
CDSC For Concert PeachtreeGrowth Fund, Contrarian Fund
and Special Equities Fund
CDSC For Government Securities Fund and Investment
Grade Bond Fund
First
5.00%
4.50%
Second
4.00
4.00
Third
3.00
3.00
Fourth
2.00
2.00
Fifth
1.00
1.00
Sixth and thereafter
0.00
0.00
Class B shares will convert automatically to Class A
shares eight years after the date on
which they were purchased and thereafter will no
longer be subject to any distribution
fees. There will also be converted at that time such
proportion of Class B Dividend Shares
(Class B shares that were acquired through the
reinvestment of dividends and
distributions)owned by the shareholder as the total
number of his or her Class B shares
converting at the time bears to the total number of
outstanding Class B shares (other than
Class B Dividend Shares) owned by the shareholder.
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 redemption. The
amount of any CDSC will be paid to Salomon Smith
Barney.
To provide an example, assume an investor purchased
100 Class B shares of a Fund at $10
per share for a cost of $1,000. Subsequently, the
investor acquired 5 additional shares
of the Fund through dividend reinvestment. During the
fifteenth month after the purchase,
the investor decided to redeem $500 of his or her
investment. Assuming at the time of the
redemption the net asset value had appreciated to $12
per share, the value of the
investor's shares would be $1,260 (105 shares at $12
per share). The CDSC would not be
applied to the amount which represents appreciation
($200) and the value of the reinvested
dividend shares ($60). Therefore, $240 of the $500
redemption proceeds ($500 minus $260)
would be charged at a rate of 4.00% (the applicable
rate for Class B shares) for a total
deferred sales charge of $9.60.
Waivers of CDSC. The CDSC will be waived on: (a)
exchanges (see ''Exchange Privilege'');
(b) automatic cash withdrawals in amounts equal to or
less than 1.00% per month of the
value of the shareholder's shares at the time the
withdrawal plan commences (see
''Automatic Cash Withdrawal Plan'') (provided,
however, that automatic cash withdrawals in
amounts equal to or less than 2.00% per month of the
value of the shareholder's shares
will be permitted for withdrawal plans that were
established prior to November 7, 1994);
(c) redemptions of shares within twelve months
following the death or disability of the
shareholder; (d) redemptions of shares made in
connection with qualified distributions
from retirement plans or IRAs upon the attainment of
age 591/2; (e) involuntary redemptions;
and (f) redemptions of shares to effect the
combination of a Fund with any other
investment company by merger, acquisition of assets or
otherwise. In addition, a
shareholder who has redeemed shares from other Funds
of the Smith Barney Mutual Funds may,
under certain circumstances, reinvest all or part of
the redemption proceeds within 60
days and receive pro rata credit for any CDSC imposed
on the prior redemption.
CDSC waivers will be granted subject to confirmation
(by Salomon Smith Barney in the case
of shareholders who are also Salomon Smith Barney
clients or by the transfer agent in the
case of all other shareholders) of the shareholder's
status or holdings, as the case may
be.
Smith Barney 401(k) and ExecChoiceTM Programs.
Investors may be eligible to participate in
the Smith Barney 401(k) Program or the Smith Barney
ExecChoiceTM Program. To the extent
applicable, the same terms and conditions, which are
outlined below, are offered to all
plans participating (''Participating Plans'') in these
programs.
Each Fund offers to Participating Plans Class A and
Class L shares as investment
alternatives under the Smith Barney 401(k) and
ExecChoiceTM Programs. Class A and Class L
shares acquired through the Participating Plans are
subject to the same service and/or
distribution fees as the Class A and Class L shares
acquired by other investors; however,
they are not subject to any initial sales charge or
deferred sales charge. Once a
Participating Plan has made an initial investment in a
Fund, all of its subsequent
investments in the Fund must be in the same Class of
shares, except as otherwise described
below.
Class A Shares. Class A shares of each Fund are
offered without any sales charge or
deferred sales charge to any Participating Plan that
purchases $1,000,000 or more of Class
A shares of one or more Funds of the Smith Barney
Mutual Funds.
Class L Shares. Class L shares of each Fund are
offered without any sales charge or
deferred sales charge to any Participating Plan that
purchases less than $1,000,000 of
Class L shares of one or more Funds of the Smith
Barney Mutual Funds.
401(k) and ExecChoiceTM Plans Opened On or After June
21, 1996. If, at the end of the
fifth year after the date the Participating Plan
enrolled in the Smith Barney 401(k)
Program or ExecChoiceTM Program, a Participating
Plan's total Class L holdings in all non-
money market Smith Barney Mutual Funds equal at least
$1,000,000, the Participating Plan
will be offered the opportunity to exchange all of its
Class L shares for Class A shares
of the Funds. (For Participating Plans that were
originally established through a Salomon
Smith Barney retail brokerage account, the five-year
period will be calculated from the
date the retail brokerage account was opened.) Such
Participating Plans will be notified
of the pending exchange in writing within 30 days
after the fifth anniversary of the
enrollment date and, unless the exchange offer has
been rejected in writing, the exchange
will occur on or about the 90th day after the fifth
anniversary date. If the Participating
Plan does not qualify for the five-year exchange to
Class A shares, a review of the
Participating Plan's holdings will be performed each
quarter until either the
Participating Plan qualifies or the end of the eighth
year.
401(k) Plans Opened Prior to June 21, 1996. In any
year after the date a Participating
Plan enrolled in the Smith Barney 401(k) Program, if
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 same Fund.
Such Plans will be notified in writing
within 30 days after the last business day of the
calendar year and, unless the exchange
offer has been rejected in writing, the exchange will
occur on or about the last business
day of the following March.
Any Participating Plan in the Smith Barney 401(k) or
ExecChoiceTM Program, whether opened
before or after June 21, 1996, that has not previously
qualified for an exchange into
Class A shares will be offered the opportunity to
exchange all of its Class L shares for
Class A shares of the same Fund regardless of asset
size, at the end of the eighth year
after the date the Participating Plan enrolled in the
Smith Barney 401(k) or ExecChoiceTM
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, but instead may acquire
Class A shares of the same Fund. Any
Class L shares not converted will continue to be
subject to the distribution fee.
Participating Plans wishing to acquire shares of a
Fund through the Smith Barney 401(k)
Program or the Smith Barney ExecChoiceTM Program must
purchase such shares directly from
the transfer agent. For further information regarding
these Programs, investors should
contact a Salomon Smith Barney Financial Consultant.
Exchange Privilege
Except as otherwise noted below, shares of each Class
of each Fund may be exchanged for
shares of the same Class of certain Smith Barney
Mutual Funds, to the extent shares are
offered for sale in the shareholder's state of
residence. Exchanges of Class A, Class B
and 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.
Class B Exchanges. In the event a Class B shareholder
wishes to exchange all or a portion
of his or her shares in any of the Funds imposing a
higher CDSC than that imposed by a
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 a Fund who wish to
exchange all or a portion of their shares for shares
of the respective Class in any of the
Funds identified above may do so without imposition of
any charge.
Additional Information Regarding the Exchange
Privilege. Although the exchange privilege
is an important benefit, excessive exchange
transactions can be detrimental to a Fund's
performance and its shareholders. The Manager may
determine that a pattern of frequent
exchanges is excessive and contrary to the best
interests of a Fund's other shareholders.
In this event, the Company may, at its discretion,
decide to limit additional purchases
and/or exchanges by the shareholder. Upon such a
determination, the Company will provide
notice in writing or by telephone to the shareholder
at least 15 days prior to suspending
the exchange privilege and during the 15 day period
the shareholder will be required to
(a) redeem his or her shares in the Fund or (b) remain
invested in the Fund or exchange
into any of the Funds of the Smith Barney Mutual Funds
ordinarily available, which
position the shareholder would be expected to maintain
for a significant period of time.
All relevant factors will be considered in determining
what constitutes an abusive pattern
of exchanges.
Certain shareholders may be able to exchange shares by
telephone. See ''Redemption of
Shares-Telephone Redemptions and Exchange Program.''
Exchanges will be processed at the
net asset value next determined. Redemption
procedures discussed below are also
applicable for exchanging shares, and exchanges will
be made upon receipt of all
supporting documents in proper form. If the account
registration of the shares of the
Fund being acquired is identical to the registration
of the shares of the Fund exchanged,
no signature guarantee is required. An exchange
involves a taxable redemption of shares,
subject to the tax treatment described in "ADDITIONAL
INFORMATION CONCERNING TAXES" below,
followed by a purchase of shares of a different fund.
Before exchanging shares, investors
should read the current prospectus describing the
shares to be acquired. The Company
reserves the right to modify or discontinue exchange
privileges upon 60 days' prior notice
to shareholders.
Redemption of Shares
The Company is required to redeem the shares of a Fund
tendered to it, as described below,
at a redemption price equal to their net asset value
per share next determined after
receipt of a written request in proper form at no
charge other than any applicable CDSC.
Redemption requests received after the close of
regular trading on the NYSE are priced at
the net asset value next determined.
If a shareholder holds shares in more than one Class,
any request for redemption must
specify the Class being redeemed. In the event of a
failure to specify which Class, or if
the investor owns fewer shares of the Class than
specified, the redemption request will be
delayed until the transfer agent receives further
instructions from Salomon Smith Barney,
or if the shareholder's account is not with Salomon
Smith Barney, from the shareholder
directly. The redemption proceeds will be remitted on
or before the third business day
following receipt of proper tender, except on any days
on which the NYSE is closed or as
permitted under the 1940 Act in extraordinary
circumstances. Generally, if the redemption
proceeds are remitted to a Salomon Smith Barney
brokerage account, these Funds will not be
invested for the shareholder's benefit without
specific instruction and Salomon Smith
Barney will benefit from the use of temporarily
uninvested funds. Redemption proceeds for
shares purchased by check, other than a certified or
official bank check, will be remitted
upon clearance of the check, which may take up to ten
days or more.
Shares held by Salomon Smith Barney as custodian must
be redeemed by submitting a written
request to a Salomon Smith Barney Financial
Consultant. Shares other than those held by
Salomon Smith Barney as custodian may be redeemed
through an investor's Financial
Consultant, Introducing Broker or dealer in the
selling group or by submitting a written
request for redemption to:
Smith Barney Investment Funds, Inc./[name of 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
registered. If the shares to be redeemed
were issued in certificate form, the certificates must
be endorsed for transfer (or be
accompanied by an endorsed stock power) and must be
submitted to the transfer agent
together with the redemption request. Any signature
appearing on a share certificate,
stock power or written redemption request in excess of
$10,000 must be guaranteed by an
eligible guarantor institution, such as a domestic
bank, savings and loan institution,
domestic credit union, member bank of the Federal
Reserve System or member firm of a
national securities exchange. Written redemption
requests of $10,000 or less do not
require a signature guarantee unless more than one
such redemption request is made in any
10-day period. Redemption proceeds will be mailed to
an investor's address of record. The
transfer agent may require additional supporting
documents for redemptions made by
corporations, executors, administrators, trustees or
guardians. A redemption request will
not be deemed properly received until the transfer
agent receives all required documents
in proper form.
Automatic Cash Withdrawal Plan. Each Fund offers
shareholders an automatic cash
withdrawal plan, under which shareholders who own
shares with a value of at least $10,000
may elect to receive cash payments of at least $50
monthly or quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal
plans only where the shareholder is
eligible to receive qualified distributions and has an
account value of at least $5,000.
The withdrawal plan will be carried over on exchanges
between Funds or Classes of a Fund.
Any applicable CDSC will not be waived on amounts
withdrawn by a shareholder that exceed
1.00% per month of the value of the shareholder's
shares subject to the CDSC at the time
the withdrawal plan commences. (With respect to
withdrawal plans in effect prior to
November 7, 1994, any applicable CDSC will be waived
on amounts withdrawn that do not
exceed 2.00% per month of the value of the
shareholder's shares subject to the CDSC.) For
further information regarding the automatic cash
withdrawal plan, shareholders should
contact a Salomon Smith Barney Financial Consultant.
Telephone Redemption and Exchange Program.
Shareholders who do not have a brokerage
account may be eligible to redeem and exchange shares
by telephone. To determine if a
shareholder is entitled to participate in this
program, he or she should contact the
transfer agent at 1-800-451-2010. Once eligibility is
confirmed, the shareholder must
complete and return a Telephone/Wire Authorization
Form, along with a signature guarantee,
that will be provided by the transfer agent upon
request. (Alternatively, an investor may
authorize telephone redemptions on the new account
application with the applicant's
signature guarantee when making his/her initial
investment in a Fund.)
Redemptions. Redemption requests of up to $10,000 of
any class or classes of shares of a
Fund may be made by eligible shareholders by calling
the transfer agent at 1-800-451-2010.
Such requests may be made between 9:00 a.m. and 5:00
p.m. (New York City time) on any day
the NYSE is open. Redemptions of shares (i) by
retirement plans or (ii) for which
certificates have been issued are not permitted under
this program.
A shareholder will have the option of having the
redemption proceeds mailed to his/her
address of record or wired to a bank account
predesignated by the shareholder. Generally,
redemption proceeds will be mailed or wired, as the
case may be, on the next business day
following the redemption request. In order to use the
wire procedures, the bank receiving
the proceeds must be a member of the Federal Reserve
System or have a correspondent
relationship with a member bank. The Company reserves
the right to charge shareholders a
nominal fee for each wire redemption. Such charges,
if any, will be assessed against the
shareholder's account from which shares were redeemed.
In order to change the bank
account designated to receive redemption proceeds, a
shareholder must complete a new
Telephone/Wire Authorization Form and, for the
protection of the shareholder's assets,
will be required to provide a signature guarantee and
certain other documentation.
Exchanges. Eligible shareholders may make exchanges
by telephone if the account
registration of the shares of the Fund being acquired
is identical to the registration of
the shares of the Fund exchanged. Such exchange
requests may be made by calling the
transfer agent at 1-800-451-2010 between 9:00 a.m. and
5:00 p.m. (New York City time) on
any day on which the NYSE is open.
Additional Information regarding Telephone Redemption
and Exchange Program. Neither the
Company, a Fund nor any of their agents will be liable
for following instructions
communicated by telephone that are reasonably believed
to be genuine. The Company, the
Funds and their agents will employ procedures designed
to verify the identity of the
caller and legitimacy of instructions (for example, a
shareholder's name and account
number will be required and phone calls may be
recorded). The Company 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.
Redemptions in Kind. In conformity with applicable
rules of the SEC, redemptions may be
paid in portfolio securities, in cash or any
combination of both, as the Board of
Directors may deem advisable; however, payments shall
be made wholly in cash unless the
Board of Directors believes that economic conditions
exist that would make such a practice
detrimental to the best interests of the Company and
its remaining shareholders. If a
redemption is paid in portfolio securities, such
securities will be valued in accordance
with the procedures described under "Determination of
Net Asset Value" in the Prospectus
and a shareholder would incur brokerage expenses if
these securities were then converted
to cash.
DISTRIBUTORS tc \l1 "DISTRIBUTORS
CFBDS serves as the Company's distributor on a best
efforts basis pursuant to a
distribution agreement (the "Distribution Agreement")
dated October 8, 1998 which was most
recently approved by the Company's Board of Directors
on July 15, 1998. Prior to
October 8, 1998, Salomon Smith Barney served as the
Company's distributor.
Prior to October 8, 1998 PFS served as one of the
Company's distributors with respect to
the Concert Peachtree Growth Fund and Investment Grade
Bond Fund.
The payments to Salomon Smith Barney Financial
Consultants for selling shares of a Class
include a commission or fee paid by the investor or
CFBDS at the time of sale and, with
respect to Class A, Class B and Class L shares, a
continuing fee for servicing shareholder
accounts for as long as a shareholder remains a holder
of that Class. Salomon Smith Barney
Financial Consultants may receive different levels of
compensation for selling different
Classes of shares.
Payments under each Plan with respect to Class B and
Class L shares are not tied
exclusively to the distribution and shareholder
services expenses actually incurred by
Salomon Smith Barney and the payments may exceed
distribution expenses actually incurred.
The Company's Board of Directors will evaluate the
appropriateness of each Plan and its
payment terms on a continuing basis and in so doing
will consider all relevant factors,
including expenses borne by CFBDS, amounts received
under the Plan and proceeds of the
CDSC.
For the fiscal year ended December 31, 1998, CFBDS and
its predecessor, Salomon Smith
Barney, incurred following distribution expenses for
the funds:
Fund Name
Advertising
Printing and Mailing of Prospectuses
Support Services
Salomon Smith Barney Financial Consultants
Interest Expense
Total
Investment Grade Bond
146,668
16,808
$1,647,211
$2,152,169
$82,624
$4,045,480
Government Securities
209,385
38,594
2,689,009
1,292,983
(19,839)
4,210,132
Special Equities
921,356
61,464
6,683,887
16,787,985
748,438
25,203,130
Contrarian
121,395
32,407
1,559,155
323,188
(41,775)
1,994,370
Concert Peachtree Growth
1,540
32
17,360
668,021
27,764
714,717
Distribution Arrangements
To compensate CFBDS 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 CFBDS
and, with respect to the Class A and Class B shares of
Concert Peachtree Growth Fund and
Investment Grade Bond Fund, PFS, a service fee,
accrued daily and paid monthly, calculated
at the annual rate of 0.25% of the value of each
Fund's average daily net assets
attributable to the Class A, Class B and Class L
shares. In addition, the Fund pays
CFBDS, and with respect to the Class B shares of
Concert Peachtree Growth Fund and
Investment Grade Bond Fund, PFS, a distribution fee
with respect to the Class B and Class
L shares primarily intended to compensate CFBDS and/or
PFS for its initial expense of
paying Financial Consultants and Registered
Representatives, respectively, a commission
upon sales of those shares. Such shares' distribution
fees, which are accrued daily and
paid monthly, are calculated at the annual rate of
0.75% of the value of average daily net
assets attributable to the Class B and Class L shares
with respect to Special Equities
Fund, Contrarian Fund and Concert Peachtree Growth
Fund, and 0.50% of the value of average
daily net assets attributable to the Class B shares
and 0.45% of the value of average
daily net assets attributable to Class L shares, with
respect to Government Securities
Fund and Investment Grade Bond Fund.
Commissions on Class A Shares: For the 1996, 1997
fiscal years, the aggregate dollar
amount of commissions on Class A shares, all of which
was paid to Salomon Smith Barney, is
as follows:
Class A
Name of Fund
Fiscal Year
Ended 12/31/96
Fiscal Year
Ended 12/31/97
Investment Grade Bond
$ 182,000
$ 122,000
Government Securities Fund
65,000
50,000
Special Equities Fund
1,800,000
381,000
Contrarian Fund
1,700,000
608,000
Concert Peachtree Growth Fund
18,000
4,000
For the period January 1, 1998 through October 7, 1998
and for the period October 8, 1998
through December 31, 1998, the aggregate dollar
amounts of commissions on Class A shares,
are as follows:
Class A
Name of Fund
1/1/98 through 10/07/98*
10/8/98 through 12/31/98**
Investment Grade Bond
239,000
75,000
Government Securities Fund
91,000
49,000
Special Equities Fund
24,000
50,000
Contrarian Fund
39,000
9,000
Concert Peachtree Growth Fund
3,000
1,000
* The entire amount was paid to Salomon Smith
Barney.
** The following amounts were paid to Salomon Smith
Barney: $67,500,
44,100, $45,000, 8,100 and 900, repectively.
Commissions of Class L shares. For the period June
12, 1998 through October 7, 1998 and
for the period from October 8, 1998 through December
31, 1998, the aggregate dollar
amounts of commission on Class L share are as follows:
Class L
(On June 12, 1998, Class C shares were renamed Class L
Shares)
Name of Fund
1/1/98 through 10/07/98*
10/8/98 through 12/31/98**
Investment Grade Bond
39,000
39,000
Government Securities Fund
7,000
10,000
Special Equities Fund
1,000
0
Contrarian Fund
2,000
0
Concert Peachtree Growth Fund
0
0
* The entire amount was paid to Salomon Smith
Barney.
** The following amounts were paid to Salomon Smith
Barney: $35,100,
$9,000, $0, $0 and $0, repectively.
CDSC paid to Smith Barney
Class B Shares
Name of Fund
Fiscal Year Ended
12/31/96
Fiscal Year Ended
12/31/97
Fiscal Year Ended
12/31/98
Investment Grade Bond Fund*
$ 422,000
$ 422,000
$224,000
Government Securities Fund
305,000
305,000
87,000
Special Equities Fund*
658,000
658,000
929,000
Contrarian Fund*
1,112,000
1,112,000
1,214,000
Concert Peachtree Growth Fund
3,000
3,000
6,000
* For the fiscal year ended December 31, 1998, the
Special Equities Fund, Investment Grade
Bond Fund, Government Securities Fund and the
Contrarian Fund Class A shares paid a CDSC
of $1,000, $20,000, $6,000 and $2,000, respectively.
Class L Shares (formerly designated as Class C shares)
Name of Fund
Fiscal Year Ended
12/31/96
Fiscal Year Ended
12/31/97
Fiscal Year Ended
12/31/98
Investment Grade Bond Fund
$ 1,000
$ 1,000
$5,000
Government Securities Fund
- -
- -
1,000
Special Equities Fund
22,000
17,000
11,000
Contrarian Fund
27,000
9,000
3,000
Concert Peachtree Growth Fund
1,000
- -
0
Distribution Plan Fees
Class A Shares
Name of Fund
Fiscal Year Ended
12/31/96
Fiscal Year Ended
12/31/97
Fiscal Year Ended
12/31/98
Investment Grade Bond Fund
$ 524,533
$ 508,201
$597,417
Government Securities Fund
1,026,748
920,147
883,941
Special Equities Fund
525,204
512,879
379,620
Contrarian Fund
495,536
581,527
445,269
Concert Peachtree Growth Fund
162,606
175,590
179,750
Class B Shares
Name of Fund
Fiscal Year Ended
12/31/96
Fiscal Year Ended
12/31/97
Fiscal Year Ended
12/31/98
Investment Grade Bond Fund
$1,986,537
$1,813,383
$1,886,202
Government Securities Fund
1,012,716
326,793
690,191
Special Equities Fund
2,787,000
3,073,790
1,803,038
Contrarian Fund
4,009,207
5,310,433
4,387,199
Concert Peachtree Growth Fund
387,723
423,160
469,725
Class L Shares (formerly designated as Class C shares)
Name of Fund
Fiscal Year Ended
12/31/96
Fiscal Year Ended
12/31/97
Fiscal Year Ended
12/31/98
Investment Grade Bond Fund
$ 40,476
$ 53,111
$ 91,306
Government Securities Fund
8,541
12,112
19,664
Special Equities Fund
224,376
233,092
129,062
Contrarian Fund
566,809
747,010
569,578
Concert Peachtree Growth Fund
2,209
1,779
1,883
Under its terms, the Plan continues from year to year,
provided such continuance is
approved annually by vote of the Board of Directors,
including a majority of the
Independent Directors. The Plan may not be amended to
increase the amount to be spent for
the services provided by Smith Barney or PFS without
shareholder approval, and all
amendments of the Plan also must be approved by the
Directors in the manner described
above. The Plan may be terminated at any time, without
penalty, by vote of a majority of
the Independent Directors or by a vote of a majority
of the outstanding voting securities
of the Company (as defined in the 1940 Act). Pursuant
to the Plan, Smith Barney and PFS
will provide the Board of Directors periodic reports
of amounts expended under the Plan
and the purpose for which such expenditures were made.
DETERMINATION OF NET ASSET VALUE tc \l1 "DETERMINATION
OF NET ASSET VALUE
The net asset value per share of each Fund normally 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. If the NYSE closes early, the Fund
accelerates the calculation of its
net asset value to the actual closing time. The NYSE
is closed for the following
holidays: New Year's Day, Martin Luther King Day,
President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Securities for which market quotations are readily
available are valued at current market
value or, in their absence, at fair value. Securities
traded on an exchange are valued at
last sales prices on the principal exchange on which
each such security is traded, or if
there were no sales on that exchange on the valuation
date, the last quoted sale, up to
the time of valuation, on the other exchanges. If
instead there were no sales on the
valuation date with respect to these securities, such
securities are valued at the mean of
the latest published closing bid and asked prices.
Over-the-counter securities are valued
at last sales price or, if there were no sales that
day, at the mean between the bid and
asked prices. Options, futures contracts and options
thereon that are traded on exchanges
are also valued at last sales prices as of the close
of the principal exchange on which
each is listed or if there were no such sales on the
valuation date, the last quoted sale,
up to the time of valuation, on the other exchanges.
In the absence of any sales on the
valuation date, valuation shall be the mean of the
latest closing bid and asked prices.
Securities with a remaining maturity of 60 days or
less are valued at amortized cost where
the Board of Directors has determined that amortized
cost is fair value. Premiums received
on the sale of call options will be included in the
Fund's net assets, and current market
value of such options sold by the Fund will be
subtracted from the Fund's net assets. Any
other investments of the Fund, including restricted
securities and listed securities for
which there is a thin market or that trade
infrequently (i.e., securities for which prices
are not readily available), are valued at a fair value
determined by the Board of
Directors in good faith. This value generally is
determined as the amount that the Fund
could reasonably expect to receive from an orderly
disposition of these assets over a
reasonable period of time but in no event more than
seven days. The value of any security
or commodity denominated in a currency other than U.S.
dollars will be converted into U.S.
dollars at the prevailing market rate as determined by
the Manager.
Foreign securities trading may not take place on all
days on which the NYSE is open.
Further, trading takes place in various foreign
markets on days on which the NYSE is not
open. Accordingly, the determination of the net asset
value of the Fund may not take place
contemporaneously with the determination of the prices
of investments held by such Fund.
Events affecting the values of investments that occur
between the time their prices are
determined and 4:00 P.M. on each day that the NYSE is
open will not be reflected in the
Fund's net asset value unless the Manager, under the
supervision of the Company's Board of
Directors, determines that the particular event would
materially affect net asset value.
As a result, a Fund's net asset value may be
significantly affected by such trading on
days when a shareholder has no access to that Fund.
PERFORMANCE DATA tc \l1 "PERFORMANCE DATA
From time to time, a Fund may quote its yield or total
return in advertisements or in
reports and other communications to shareholders. The
Fund may include comparative
performance information in advertising or marketing
the Fund's shares. Such performance
information may include the following industry and
financial publications: Barron's,
Business Week, CDA Investment Technologies, Inc.,
Changing Times, Forbes, Fortune,
Institutional Investor, Investors Daily, Money,
Morningstar Mutual Fund Values, The New
York Times, USA Today and The Wall Street Journal. To
the extent any advertisement or
sales literature of a Fund describes the expenses or
performance of a Class, it will also
disclose such information for the other Classes.
Yield
A Fund's 30-day yield figure described below is
calculated according to a formula
prescribed by the SEC. The formula can be expressed
as follows:
YIELD = 2[(a-b + 1)6 - 1]
cd
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.
The yields for the 30-day period ended January 31,
1999 for Government Securities Fund's
Class A, Class B, Class L and Class Y Shares were
4.81%, 4.53%, 4.52% and 5.38%,
respectively.
The yields for the 30-day period ended January 31,
1999 for Investment Grade Bond Fund's
Class A, Class B, Class L and Class Y Shares were
5.32%, 5.08%, 5.09% and 5.92%,
respectively.
Average Annual Total Return
"Average annual total return" figures, as described
below, are computed according to a
formula prescribed by the SEC. The formula can be
expressed as follows:
P(1+T)n = ERV
Where:
P =
a hypothetical initial payment of $1,000.
T =
Average annual total return.
n =
Number of years.
ERV =
Ending Redeemable Value of a hypothetical $1,000
investment made at the beginning of a 1-,
5- or 10-year period at the end of the 1-5- or 10-
year period (or fractional portion
thereof), assuming reinvestment of all dividends and
distributions. A Class' total return
figures calculated in accordance with the above
formula assume that the maximum applicable
sales charge or maximum applicable CDSC, as the case
may be, has been deducted from the
hypothetical $1,000 initial investment at the time of
purchase or redemption, as
applicable.
Aggregate Total Return
Aggregate total return figures, as described below,
represent the cumulative change in the
value of an investment in the Class during of the
specified period and are computed by the
following formula:
AGGREGATE TOTAL RETURN = ERV-P
P
Where:
P =
a hypothetical initial payment of $1,000.
ERV =
Ending Redeemable Value of a hypothetical $10,000
investment made at the beginning of a 1-
, 5- or 10-year period (fractional portion thereof) at
the end of the 1-5- or 10- year
period (or fractional portion thereof), assuming
reinvestment of all dividends and
distributions.
The total returns below show what an investment in the
fund would have earned over a
specified period of time (one, five or ten years or
since inception) without assuming the
payment of the maximum sales load when the investment
was first made and that all
distributions and dividends by the fund were invested
on the reinvestment dates during the
period, less all recurring fees. The following chart
reflects the financial performance
of the funds through the period ended December 31,
1998 for the one, five, and ten year
periods and since inception:
Total Returns
5 Year
Since Inception
Since
Class
1 Year
Average
Annual
5 Year
Cumulative
Average Annual
Inception
Cumulative
Special Equties Fund
Inception: 11/06/92
A
10.44
8.66
51.49
13.73
120.43
Inception: 12/31/82
B*
9.63
7.87
46.07
9.36
320.59
Inception: 10/18/93
L
9.63
7.87
46.07
5.45
31.79
Inception: 01/31/96
Y
N/A
N/A
N/A
N/A
N/A
Contrarian Fund
Inception: 06/30/95
A
(1.12)
N/A
N/A
8.42
32.80
Inception: 06/30/95
B
(1.84)
N/A
N/A
7.61
29.37
Inception: 06/30/95
L
(1.91)
N/A
N/A
7.61
29.36
Inception: 01/31/96
Y
(0.76)
N/A
N/A
9.50
30.34
Concert Peachtree Fund
Inception: 07/03/95
A
33.13
N/A
N/A
18.83
82.88
Inception: 07/03/95
B
32.11
N/A
N/A
17.93
78.09
Inception: 08/08/95
L
32.17
N/A
N/A
16.85
69.79
Inception: 09/15/97
Y
33.62
N/A
N/A
24.68
30.62
Investment Grade Bond Fund
Inception:11/6/92
A
8.30
9.23
55.46
11.01
90.12
Inception: 1/4/82
B**
7.72
8.67
51.57
11.92
578.65
Inception: 2/26/93
L
7.83
8.72
51.92
9.24
67.68
Inception: 2/7/96
Y
8.66
N/A
N/A
9.16
28.91
Government Securities Fund
Inception: 11/06/92
A
8.12
6.44
36.64
7.40
55.14
Inception: 3/20/84
B***
7.44
5.89
33.12
8.18
219.90
Inception: 2/4/93
L
7.56
5.96
33.59
6.30
43.43
Inception: 2/7/96
Y
8.42
N/A
N/A
7.68
23.92
* The ten average annual return was 10.51% and the
ten year cumulative total return was
171.77% for class B shares
** The ten average annual return was 10.95% and the
ten year cumulative total return was
182.69% for class B shares
*** The ten average annual return was 8.25% and the
ten year cumulative total return was
121.03% for class B shares
The total returns below show what an investment in the
fund would have earned over a
specified period of time (one, five or ten years or
since inception) assuming the payment
of the maximum sales load when the investment was
first made and that all distributions
and dividends by the fund were invested on the
reinvestment dates during the period, less
all recurring fees. The average annual total return
is derived from this total return,
which provides the ending redeemable value. The
following chart reflects the financial
performance of the funds through the period ended
December 31, 1998 for the one, and five
year periods and since inception:
Total Returns
5 Year
Since Inception
Since
Class
1 Year
Average
Annual
5 Year
Cumulative
Average Annual
Inception
Cumulative
Special Equties Fund
Inception: 11/06/92
A
4.91
7.56
43.95
12.79
109.46
Inception: 12/31/82
B*
4.63
7.72
45.07
9.36
320.59
Inception: 10/18/93
L
7.53
7.66
44.62
5.24
30.47
Inception: 01/31/96
Y
N/A
N/A
N/A
N/A
N/A
Contrarian Fund
Inception: 06/30/95
A
(6.07)
N/A
N/A
6.85
26.18
Inception: 06/30/95
B
(6.59)
N/A
N/A
7.14
27.37
Inception: 06/30/95
L
(3.81)
N/A
N/A
7.31
28.07
Inception: 01/31/96
Y
(0.76)
N/A
N/A
9.50
30.34
Concert Peachtree Fund
Inception: 07/03/95
A
26.43
N/A
N/A
17.11
73.78
Inception: 07/03/95
B
27.11
N/A
N/A
17.55
76.05
Inception: 08/08/95
L
29.89
N/A
N/A
16.51
68.12
Inception: 09/15/97
Y
33.62
N/A
N/A
24.68
30.62
Investment Grade Bond Fund
Inception: 11/6/92
A
3.43
8.23
48.50
10.18
81.57
Inception: 1/4/82
B**
3.26
8.53
50.57
11.92
578.65
Inception: 2/26/93
L
5.80
8.51
50.41
9.05
65.97
Inception: 2/7/96
Y
8.66
N/A
N/A
9.16
28.91
Government Securities Fund
Inception: 11/06/92
A
3.25
5.47
30.51
6.60
48.17
Inception: 12/31/82
B***
2.94
5.73
32.13
8.18
219.90
Inception: 10/18/93
L
5.47
5.75
32.27
6.12
41.99
Inception: 01/31/96
Y
8.42
N/A
N/A
7.68
23.92
* The ten average annual return was 10.51%and the
ten year cumulative total return was
171.77 for class B shares
** The ten average annual return was 10.95 and the
ten year cumulative total return was
182.69 for class B shares
*** The ten average annual return was 8.25% and the
ten year cumulative total return was
121.03% for class B shares
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.
ADDITIONAL INFORMATION CONCERNING TAXES tc "Additional
Information Concerning Taxes" \f C
\l 1
The following is a summary of the material United
States federal income tax
considerations regarding the purchase, ownership and
disposition of shares of a Fund of
the Company. Each prospective shareholder is urged to
consult his own tax adviser with
respect to the specific federal, state, local and
foreign tax consequences of investing in
a Fund. The summary is based on the laws in effect on
the date of this Statement of
Additional Information, which are subject to change.
The Funds and Their Investments
Each Fund intends to qualify to be treated as a
regulated investment company each taxable
year under the Internal Revenue Code of 1986, as
amended (the "Code"). To so qualify, a
Fund must, among other things: (a) derive at least 90%
of its gross income in each taxable
year from dividends, interest, payments with respect
to securities, loans and gains from
the sale or other disposition of stock or securities
or foreign currencies, or other
income (including, but not limited to, gains from
options, futures or forward contracts)
derived with respect to its business of investing in
such stock, securities or currencies;
and (b) diversify its holdings so that, at the end of
each quarter of a Fund's taxable
year, (i) at least 50% of the market value of a Fund's
assets is represented by cash,
securities of other regulated investment companies,
United States government securities
and other securities, with such other securities
limited, in respect of any one issuer, to
an amount not greater than 5% of a Fund's assets and
not greater than 10% of the
outstanding voting securities of such issuer and (ii)
not more than 25% of the value of
its assets is invested in the securities (other than
United States government securities
or securities of other regulated investment companies)
of any one issuer or any two or
more issuers that a Fund controls and are determined
to be engaged in the same or similar
trades or businesses or related trades or businesses.
As a regulated investment company, each Fund will not
be subject to United States
federal income tax on its net investment income (i.e.,
income other than its net realized
long- and short-term capital gains) and its net
realized long- and short-term capital
gains, if any, that it distributes to its
shareholders, provided that an amount equal to
at least 90% of the sum of its investment company
taxable income (i.e., 90% of its taxable
income minus the excess, if any, of its net realized
long-term capital gains over its net
realized short-term capital losses (including any
capital loss carryovers), plus or minus
certain other adjustments as specified in the Code)
and its net tax-exempt income for the
taxable year is distributed, but will be subject to
tax at regular corporate rates on any
taxable income or gains that it does not distribute.
Furthermore, each Fund will be
subject to a United States corporate income tax with
respect to such distributed amounts
in any year that it fails to qualify as a regulated
investment company or fails to meet
this distribution requirement.
The Code imposes a 4% nondeductible excise tax on each
Fund to the extent a Fund
does not distribute by the end of any calendar year at
least 98% of its net investment
income for that year and 98% of the net amount of its
capital gains (both long-and short-
term) for the one-year period ending, as a general
rule, on October 31 of that year. For
this purpose, however, any income or gain retained by
a Fund that is subject to corporate
income tax will be considered to have been distributed
by year-end. In addition, the
minimum amounts that must be distributed in any year
to avoid the excise tax will be
increased or decreased to reflect any
underdistribution or overdistribution, as the case
may be, from the previous year. Each Fund anticipates
that it will pay such dividends and
will make such distributions as are necessary in order
to avoid the application of this
tax.
If, in any taxable year, a Fund fails to qualify as a
regulated investment company
under the Code or fails to meet the distribution
requirement, it would be taxed in the
same manner as an ordinary corporation and
distributions to its shareholders would not be
deductible by a Fund in computing its taxable income.
In addition, in the event of a
failure to qualify, a Fund's distributions, to the
extent derived from a Fund's current or
accumulated earnings and profits would constitute
dividends (eligible for the corporate
dividends-received deduction) which are taxable to
shareholders as ordinary income, even
though those distributions might otherwise (at least
in part) have been treated in the
shareholders' hands as long-term capital gains. If a
Fund fails to qualify as a regulated
investment company in any year, it must pay out its
earnings and profits accumulated in
that year in order to qualify again as a regulated
investment company. In addition, if a
Fund failed to qualify as a regulated investment
company for a period greater than one
taxable year, a Fund may be required to recognize any
net built-in gains (the excess of
the aggregate gains, including items of income, over
aggregate losses that would have been
realized if it had been liquidated) in order to
qualify as a regulated investment company
in a subsequent year.
The Government Securities Fund may invest in zero
coupons securities having an
original issue discount (that is, the discount
represented by the excess of the stated
redemption price at maturity over the issue price).
Each year, each Fund will be required
to accrue as income a portion of this original issue
discount even though the Fund will
receive no cash payment of interest with respect to
these securities. In addition, if the
Fund acquires a security after its initial issuance at
a discount that resulted from
fluctuations in prevailing interest rates ("market
discount"), the Fund may elect to
include in income each year a portion of this market
discount.
Each Fund will be required to distribute substantially
all of its income
(including accrued original issue and recognized
market discount) in order to qualify for
"pass-through" federal income tax treatment and also
in order to avoid the imposition of
4% excise tax referred to above. Therefore, a Fund
may be required in some years to
distribute an amount greater than the total cash
income the Fund actually receives. In
order to make the required distribution in such a
year, a Fund may be required to borrow
or to liquidate securities. The amount of cash that a
Fund would have to distribute, and
thus the degree to which securities would need to be
liquidated or borrowing made would
depend upon the number of shareholders who chose not
to have their dividends reinvested.
A Fund's transactions in options and futures, will be
subject to special
provisions of the Code (including provisions relating
to "hedging transactions" and
"straddles") that, among other things, may affect the
character of gains and losses
realized by a Fund (i.e., may affect whether gains or
losses are ordinary or capital),
accelerate recognition of income to a Fund and defer
Fund losses. These rules could
therefore affect the character, amount and timing of
distributions to shareholders. These
provisions also (a) will require a Fund to mark-to-
market certain types of the positions
in its fund (i.e., treat them as if they were closed
out) and (b) may cause a Fund to
recognize income without receiving cash with which to
pay dividends or make distributions
in amounts necessary to satisfy the distribution
requirements for avoiding income and
excise taxes. Each Fund will monitor its
transactions, will make the appropriate tax
elections and will make the appropriate entries in its
books and records when it acquires
any option, futures contract or hedged investment in
order to mitigate the effect of these
rules and prevent disqualification of a Fund as a
regulated investment company.
A Fund's investment in Section 1256 contracts, such as
regulated futures contracts
and options on most stock indices, are subject to
special tax rules. All section 1256
contracts held by a Fund at the end of its taxable
year are required to be marked to their
market value, and any unrealized gain or loss on those
positions will be included in the
Fund's income as if each position had been sold for
its fair market value at the end of
the taxable year. The resulting gain or loss will be
combined with any gain or loss
realized by the Fund from positions in section 1256
contracts closed during the taxable
year. Provided such positions were held as capital
assets and were not part of a "hedging
transaction" nor part of a "straddle," 60% of the
resulting net gain or loss will be
treated as long-term capital gain or loss, and 40% of
such net gain or loss will be
treated as short-term capital gain or loss, regardless
of the period of time the positions
were actually held by the Fund.
Foreign Investments. Dividends or other income
(including, in some cases, capital
gains) received by a Fund from investments in foreign
securities may be subject to
withholding and other taxes imposed by foreign
countries. Tax conventions between certain
countries and the United States may reduce or
eliminate such taxes in some cases. A Fund
will not be eligible to elect to treat any foreign
taxes it pays as paid by its
shareholders, who therefore will not be entitled to
credits for such taxes on their own
tax returns. Foreign taxes paid by a Fund will reduce
the return from its investments.
Taxation of United States Shareholders
Dividends and Distributions. Any dividend declared by
a Fund in October, November
or December of any calendar year and payable to
shareholders of record on a specified date
in such a month shall be deemed to have been received
by each shareholder on December 31
of such calendar year and to have been paid by a Fund
not later than such December 31,
provided that such dividend is actually paid by a Fund
during January of the following
calendar year. Each Fund intends to distribute
annually to its shareholders substantially
all of its investment company taxable income, and any
net realized long-term capital gains
in excess of net realized short-term capital losses
(including any capital loss
carryovers). Each Fund currently expects to
distribute any excess annually to its
shareholders. However, if a Fund retains for
investment an amount equal to all or a
portion of its net long-term capital gains in excess
of its net short-term capital losses
and capital loss carryovers, it will be subject to a
corporate tax (currently at a rate of
35%) on the amount retained. In that event, a Fund
will designate such retained amounts
as undistributed capital gains in a notice to its
shareholders who (a) will be required to
include in income for United Stares federal income tax
purposes, as long-term capital
gains, their proportionate shares of the undistributed
amount, (b) will be entitled to
credit their proportionate shares of the 35% tax paid
by the Fund on the undistributed
amount against their United States federal income tax
liabilities, if any, and to claim
refunds to the extent their credits exceed their
liabilities, if any, and (c) will be
entitled to increase their tax basis, for United
States federal income tax purposes, in
their shares by an amount equal to 65% of the amount
of undistributed capital gains
included in the shareholder's income. Organizations
or persons not subject to federal
income tax on such capital gains will be entitled to a
refund of their pro rata share of
such taxes paid by a Fund upon filing appropriate
returns or claims for refund with the
Internal Revenue Service (the "IRS").
Dividends of net investment income and distributions
of net realized short-term
capital gains are taxable to a United States
shareholder as ordinary income, whether paid
in cash or in shares. Distributions of net-long-term
capital gains, if any, that a Fund
designates as capital gains dividends are taxable as
long-term capital gains, whether paid
in cash or in shares and regardless of how long a
shareholder has held shares of a Fund.
Dividends and distributions paid by a Fund (except for
the portion thereof, if any,
attributable to dividends on stock of U.S.
corporations received by a Fund) will not
qualify for the deduction for dividends received by
corporations. Distributions in excess
of a Fund's current and accumulated earnings and
profits will, as to each shareholder, be
treated as a tax-free return of capital, to the extent
of a shareholder's basis in his
shares of a Fund, and as a capital gain thereafter (if
the shareholder holds his shares of
a Fund as capital assets).
Investors considering buying shares just prior to a
dividend or capital gain
distribution should be aware that, although the price
of shares just purchased at that
time may reflect the amount of the forthcoming
distribution, such dividend or distribution
may nevertheless be taxable to them.
If a Fund is the holder of record of any stock on the
record date for any
dividends payable with respect to such stock, such
dividends are included in a Fund's
gross income not as of the date received but as of the
later of (a) the date such stock
became ex-dividend with respect to such dividends
(i.e., the date on which a buyer of the
stock would not be entitled to receive the declared,
but unpaid, dividends) or (b) the
date a Fund acquired such stock. Accordingly, in
order to satisfy its income distribution
requirements, a Fund may be required to pay dividends
based on anticipated earnings, and
shareholders may receive dividends in an earlier year
than would otherwise be the case.
Sales of Shares. Upon the sale or exchange of his
shares, a shareholder will
realize a taxable gain or loss equal to the difference
between the amount realized and his
basis in his shares. Such gain or loss will be
treated as capital gain or loss, if the
shares are capital assets in the shareholder's hands,
and will be long-term capital gain
or loss if the shares are held for more than one year
and short-term capital gain or loss
if the shares are held for one year or less. Any loss
realized on a sale or exchange will
be disallowed to the extent the shares disposed of are
replaced, including replacement
through the reinvesting of dividends and capital gains
distributions in a Fund, within a
61-day period beginning 30 days before and ending 30
days after the disposition of the
shares. In such a case, the basis of the shares
acquired will be increased to reflect the
disallowed loss. Any loss realized by a shareholder
on the sale of a Fund share held by
the shareholder for six months or less will be treated
for United States federal income
tax purposes as a long-term capital loss to the extent
of any distributions or deemed
distributions of long-term capital gains received by
the shareholder with respect to such
share.
Backup Withholding. Each Fund may be required to
withhold, for United States
federal income tax purposes, 31% of the dividends and
distributions payable to
shareholders who fail to provide a Fund with their
correct taxpayer identification number
or to make required certifications, or who have been
notified by the IRS that they are
subject to backup withholding. Certain shareholders
are exempt from backup withholding.
Backup withholding is not an additional tax and any
amount withheld may be credited
against a shareholder's United States federal income
tax liabilities.
Notices. Shareholders will be notified annually by a
Fund as to the United States
federal income tax status of the dividends,
distributions and deemed distributions
attributable to undistributed capital gains (discussed
above in "Dividends and
Distributions") made by a Fund to its shareholders.
Furthermore, shareholders will also
receive, if appropriate, various written notices after
the close of a Fund's taxable year
regarding the United States federal income tax status
of certain dividends, distributions
and deemed distributions that were paid (or that are
treated as having been paid) by a
Fund to its shareholders during the preceding taxable
year.
Other Taxation
Distributions also may be subject to additional state,
local and foreign taxes
depending on each shareholder's particular situation.
The foregoing is only a summary of certain material
tax consequences affecting the Funds
and their shareholders. Shareholders are advised to
consult their own tax advisers with
respect to the particular tax consequences to them of
an investment in the Funds
IRA AND OTHER PROTOTYPE RETIREMENT PLANS tc \l1 "IRA
AND OTHER PROTOTYPE RETIREMENT PLANS
Copies of the following plans with custody or trust
agreements have been approved by the
Internal Revenue Service and are available from the
Company or Salomon Smith Barney;
investors should consult with their own tax or
retirement planning advisors prior to the
establishment of a plan.
IRA, Rollover IRA and Simplified Employee Pension -
IRA
The Small Business Job Protection Act of 1996 changed
the eligibility requirements for
participants in Individual Retirement Accounts
("IRAs"). Under these new provisions, if
you or your spouse have earned income, each of you may
establish an IRA and make maximum
annual contributions equal to the lesser of earned
income or $2,000. As a result of this
legislation, married couples where one spouse is non-
working may now contribute a total of
$4,000 annually to their IRAs.
The Taxpayer Relief Act of 1997 has changed the
requirements for determining whether or
not you are eligible to make a deductible IRA
contribution. Under the new rules effective
beginning January 1, 1998, if you are considered an
active participant in an employer-
sponsored retirement plan, you may still be eligible
for a full or partial deduction
depending upon your combined adjusted gross income
("AGI"). For married couples filing
jointly for 1998, a full deduction is permitted if
your combined AGI is $50,000 or less
($30,000 for unmarried individuals); a partial
deduction will be allowed when AGI is
between $50,000-$60,000 ($30,000-$40,000 for an
unmarried individual); and no deduction
when AGI is above $60,000 ($40,000 for an unmarried
individual). However, if you are
married and your spouse is covered by a employer-
sponsored retirement plan, but you are
not, you will be eligible for a full deduction if your
combined AGI is $150,000 or less.
A partial deduction is permitted if your combined AGI
is between $150,000-$160,000 and no
deduction is permitted after $160,000.
The rules applicable to so-called "Roth IRAs" differ
from those described above.
A Rollover IRA is available to defer taxes on lump sum
payments and other qualifying
rollover amounts (no maximum) received from another
retirement plan.
An employer who has established a Simplified Employee
Pension - IRA ("SEP-IRA") on behalf
of eligible employees may make a maximum annual
contribution to each participant's account
of 15% (up to $24,000) of each participant's
compensation. Compensation is capped at
$160,000 for 1998.
Paired Defined Contribution Prototype
Corporations (including Subchapter S corporations) and
non-corporate entities may purchase
shares of the Company through the Salomon Smith Barney
Prototype Paired Defined
Contribution Plan (the "Prototype"). The Prototype
permits adoption of profit-sharing
provisions, money purchase pension provisions, or
both, to provide benefits for eligible
employees and their beneficiaries. The Prototype
provides for a maximum annual tax
deductible contribution on behalf of each Participant
of up to 25% of compensation, but
not to exceed $30,000 (provided that a money purchase
pension plan or both a profit-
sharing plan and a money purchase pension plan are
adopted thereunder).
ADDITIONAL INFORMATION tc \l1 "ADDITIONAL INFORMATION
The Company was incorporated on September 29, 1981
under the name Hutton Investment Series
Inc. The Company's corporate name was changed on
December 29, 1988, July 30, 1993 and
October 28, 1994, to SLH Investment Portfolios Inc.,
Smith Barney Shearson Investment
Funds Inc., and Smith Barney Investment Funds, Inc.,
respectively.
PNC Bank, National Association located at 17th and
Chestnut Streets, Philadelphia,
Pennsylvania 19103, serves as the custodian of the
Company. Under its custody agreement
with the Company, PNC Bank holds each Funds portfolio
securities and keeps all necessary
accounts and records. For its services, PNC Bank
receives a monthly fee based upon the
month-end market value of securities held in custody
and also receives transaction
charges. PNC bank is authorized to establish separate
accounts for foreign securities
owned by the Company to be held with foreign branches
of other domestic banks as well as
with certain foreign banks and securities
depositories. The assets of the Company are
held under bank custodianship in compliance with the
1940 Act.
First Data, located at Exchange Place, Boston,
Massachusetts 02109, serves as the
Company's transfer agent. For these services, First
Data receives a monthly fee computed
on the basis of the number of shareholder accounts it
maintains with the Company during
the month and is reimbursed for out-of-pocket
expenses.
FINANCIAL STATEMENTS tc \l1 "FINANCIAL STATEMENTS
The Annual Reports for each Fund for the fiscal year
ended December 31, 1998 are
incorporated herein by reference in their
entirety.APPENDIX tc \l1 "APPENDIX
BOND (AND NOTE) RATINGS
Moody's Investors Service, Inc. ("Moody's")
Aaa - Bonds that are rated "Aaa" are judged to be of
the best quality. They carry the
smallest degree of investment risk and are generally
referred to as "gilt edge." Interest
payments are protected by a large or by an
exceptionally stable margin and principal is
secure. While the various protective elements are
likely to change, such changes as can
be visualized are most unlikely to impair the
fundamentally strong position of such
issues.
Aa - Bonds that are rated "Aa" are judged to be of
high quality by all standards.
Together with the "Aaa" group they comprise what are
generally known as high grade bonds.
They are rated lower than the best bonds because
margins of protection may not be as
large as in "Aaa" securities or fluctuation of
protective elements may be of greater
amplitude or there may be other elements present that
make the long term risks appear
somewhat larger than in "Aaa" securities.
A - Bonds that are rated "A" possess many favorable
investment attributes and are to be
considered as upper medium grade obligations. Factors
giving security to principal and
interest are considered adequate but elements may be
present that suggest a susceptibility
to impairment sometime in the future.
Baa - Bonds that are rated "Baa" are considered as
medium grade obligations, i.e., they
are neither highly protected nor poorly secured.
Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be
characteristically unreliable over any great length of
time. Such bonds lack outstanding
investment characteristics and in fact have
speculative characteristics as well.
Ba - Bonds that are rated Ba are judged to have
speculative elements; their future cannot
be considered as well assured. Often the protection
of interest and principal payments
may be very moderate and thereby not well safeguarded
during both good and bad times over
the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds that are rated B generally lack
characteristics of desirable investments.
Assurance of interest and principal payments or of
maintenance of other terms of the
contract over any long period of time may be small.
Caa - Bonds that are rated Caa are of poor standing.
These issues may be in default or
present elements of danger may exist with respect to
principal or interest.
Ca - Bonds that are rated Ca represent obligations
which are speculative in a high degree.
Such issues are often in default or have other marked
short-comings.
C - Bonds that are rated C are the lowest rated class
of bonds, and issues so rated can be
regarded as having extremely poor prospects of ever
attaining any real investment
standing.
Moody's applies the numerical modifiers 1, 2 and 3 in
each generic rating classification
from Aa through B. The modifier 1 indicates that the
security ranks in the higher end of
its generic rating category; the modifier 2 indicates
a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
Standard & Poor's Ratings Group ("Standard & Poors")
AAA - Debt rated "AAA" has the highest rating assigned
by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay
interest and repay principal and
differs from the highest rated issues only in small
degree.
A - Debt rated "A" has a strong capacity to pay
interest and repay principal although it
is somewhat more susceptible to the adverse effects of
changes in circumstances and
economic conditions than debt in higher rated
categories.
BBB - Debt rated "BBB" is regarded as having an
adequate capacity to pay interest and
repay principal. Whereas it normally exhibits
adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened
capacity to pay interest and repay principal for debt
in this category than in higher
rated categories.
BB, B and CCC - Bonds rated BB and B are regarded, on
balance, as predominantly
speculative with respect to capacity to pay interest
and repay principal in accordance
with the terms of the obligation. BB represents a
lower degree if speculation than B and
CCC the highest degree of speculation. While such
bonds will likely have some quality and
protective characteristics, these are outweighed by
large uncertainties or major risk
exposures to adverse conditions.
C - The rating C is reserved for income bonds on which
no interest is being paid.
D - Bonds rated D are in default, and payment of
interest and/or repayment of principal is
in arrears.
S&P's letter ratings may be modified by the addition
of a plus or a minus sign, which is
used to show relative standing within the major rating
categories, except in the AAA
category.
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.
Issuers rated "Prime-1" (or related supporting
institutions) have a superior capacity for
repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally
be evidenced by the following characteristics: leading
market positions in well-
established industries; high rates of return on funds
employed; conservative
capitalization structures with moderate reliance on
debt and ample asset protection; broad
margins in earnings coverage of fixed financial
charges and high internal cash generation;
well-established access to a range of financial
markets and assured sources of alternate
liquidity.
Issuers rated "Prime-2" (or related supporting
institutions) have a strong capacity for
repayment of short-term promissory obligations. This
will normally be evidenced by many
of the characteristics cited above but to a lesser
degree. Earnings trends and coverage
ratios, while sound, will be more subject to
variation. Capitalization characteristics,
while still appropriate, may be more affected by
external conditions. Ample alternate
liquidity is maintained.
Standard & Poor's Ratings Group
A-1 - This designation indicates that the degree of
safety regarding timely payment is
either overwhelming or very strong. Those issues
determined to possess overwhelming
safety characteristics will be denoted with a plus (+)
sign designation.
A-2 - Capacity for timely payment on issues with this
designation is strong. However, the
relative degree of safety is not as high as for issues
designated A-1.
1
PART C - OTHER INFORMATION
Item 23. 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).
(a) 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.
(b) 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.
(c) 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.
(d)(1) 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.
(d)(2) 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.
(d)(3) 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)(4) 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.
(d)(5)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. is incorporated by reference
To Post-Effective Amendment No. 49.
(e)(1) 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.
(e)(2) 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.
(e)(3) Form of Distribution Agreement between the
Registrant and CFBDS, Inc. is incorporated by reference
To Post-Effective Amendment No. 49.
(e)(4) Selling Group Agreement
is incorporated by reference
To Post-Effective Amendment No.56 filed on
February 26, 1999.
(f) Not Applicable.
(g)(1) Custodian Agreement with PNC Bank, National
Association is incorporated by reference to Post -
Effective Amendment No. 44 filed on April 29, 1997.
(g)(2) Custodian Agreement with Chase Manhattan Bank
is incorporated by reference to Post-Effective
Amendment No. 46.
(h)(1) 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").
(h)(2)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.
(i) 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.
(j) Auditors' Consent filed herewith
(k) Not Applicable
(l) Not Applicable
(m)(1) Amended Services and Distribution Plans
pursuant to Rule 12b-1 between the Registrant on behalf
of Smith Barney Investment 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'
(m)(2) 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.
(m)(3) 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.
(m)(4) Form of Amended and Restated Shareholder Services and
Distribution Plan pursuant to Rule 12b-1 between
the Registrant on behalf of each of its series
is incorporated by reference to Post-Effective Amendment
No. 49.
(n) Financial Data Schedule filed herewith
(o) Form of Plan pursuant to Rule 18f-3 is incorporated by
reference to Post-Effective Amendment No.50 to
Registration Statement.
Item 24.
None.
Item 25. 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 26. Business and Other Connections of
Investment Adviser
Investment Adviser -SSBC Fund Management Inc.("SSBC")
formerly Mutual Management Corp.
SSBC was incorporated in December 1968 under the laws
of the State of Delaware. SSBC 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
Citigroup Inc. SSBC is registered as an
investment adviser under the Investment Advisers Act
of 1940 (the "Advisers Act").The list required by this
Item 26 of officers and directors of SSBC 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 SSBC pursuant to the Advisers
Act (SEC File No. 801-8314).
Item 27. Principal Underwriters
(a) CFBDS, Inc. the Registrant's Distributor, is also
the distributor for
CitiFundsSM International Growth & Income Portfolio,
CitiFundsSM International Equity Portfolio, CitiFundsSM Large Cap
Growth
Portfolio, CitiFundsSM Intermediate Income Portfolio,
CitiFundsSM Short-Term U.S. Government Income Portfolio,
CitiFundsSM Emerging Asian Markets Equity Portfolio,
CitiFundsSM U.S. Treasury Reserves, CitiFundsSM Cash Reserves,
CitiFundsSM Premium U.S. Treasury Reserves,
CitiFundsSM Premium Liquid Reserves, CitiFundsSM Institutional U.S.
Treasury Reserves, CitiFundsSM Institutional Liquid Reserves,
SM Institutional Cash Reserves, CitiFundsSM Tax Free Reserves,
CitiFundsSM Institutional Tax Free Reserves,
CitiFundsSM California Tax Free Reserves,
CitiFundsSM Connecticut Tax Free Reserves,
CitiFundsSM New York Tax Free Reserves, CitiFundsSM Balanced
Portfolio,
CitiFundsSM Small Cap Value Portfolio, CitiFundsSM Growth & Income
Portfolio,
CitiFundsSM Small Cap Growth Portfolio, CitiFundsSM National
Tax Free Income Portfolio, CitiFundsSM New York Tax Free Income
Portfolio,
CitiSelect VIP Folio 200, Citiselect VIP Folio 300,
CitiSelect (VIP Folio 400, CitiSelect (VIP Folio 500,
CitiFundsSM Small Cap Growth VIP Portfolio, CitiSelect (Folio 200,
CitiSelect (Folio 300, CitiSelect (Folio 400, and CitiSelect (Folio
500.
CFBDS is also the placement agent for Large Cap Value Portfolio,
International Portfolio, Foreign Bond Portfolio,
Intermediate Income Portfolio, Short-Term Portfolio,
Growth & Income Portfolio, Large Cap Growth Portfolio,
Small Cap Growth Portfolio, International Equity Portfolio,
Balanced Portfolio, Government Income Portfolio, Emerging
Asian Markets Equity Portfolio, Tax Free Reserves Portfolio,
Cash Reserves Portfolio and U.S. Treasury Reserves Portfolio.
CFBDS, Inc. is also the distributor for the following
Smith Barney Mutual Fund registrants:
Concert Investment Series
Consulting Group Capital Markets Funds
Greenwich Street Series Fund
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Concert Allocation Series Inc.
Smith Barney Equity Funds
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.
Smith Barney Income Funds
Smith Barney Institutional Cash Management Fund, Inc.
Smith Barney Investment Trust
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc.
Smith Barney Muni Funds
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Natural Resources Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund Inc.
Smith Barney Principal Return Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Telecommunications Trust
Smith Barney Variable Account Funds
Smith Barney World Funds, Inc.
Travelers Series Fund Inc.
And various series of unit investment trusts.
CFBDS, Inc. is also the distributor for the following
Salomon Brothers funds;
Salomon Brothers Opportunity Fund Inc
Salomon Brothers Investors Fund Inc
Salomon Brothers Capital Fund Inc
Salomon Brothers Series Funds Inc
Salomon Brothers Institutional Series Funds Inc
Salomon Brothers Variable Series Funds Inc
The information required by this Item 27 with respect
to each director, officer and partner of CFBDS, Inc.
is incorporated by reference to Schedule A of Form BD
filed by CFBDS, Inc. pursuant to the Securities
Exchange Act of 1934 (SEC File No. 8-32417).
Item 28. Location of Accounts and Records
(1) Smith Barney Investment Funds Inc.
388 Greenwich Street
New York, New York 10013
(2) SSBC Fund Management Inc.
388 Greenwich Street
New York, New York 10013
(3) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, PA
(4) The Chase Manhattan Bank
Chase Metrotech Center
Brooklyn, New York 11245
(5) First Data Investor Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
(6) CFBDS Inc.
21 Milk Street, 5th floor
Boston, Massachusetts 02109
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Not applicable
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
30th day of April, 1999.
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 4/30/99
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Senior Vice President
Lewis E. Daidone and Treasurer 4/30/99
(Chief Financial
and Accounting Officer)
/s/ Paul R. Ades * Director
4/30/99
Paul R. Ades
/s/ Herbert Barg* Director
4/30/99
Herbert Barg
/s/ Dwight B. Crane* Director 4/30/99
Dwight B. Crane
/s/ Frank Hubbard* Director 4/30/99
Frank Hubbard
/s/ Jerome Miller** Director 4/30/99
Jerome Miller
/s/ Ken Miller* Director
4/30/99
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
(j) Auditors Consent
(n) Financial Data Schedule
cover
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 February 8, 1999, with
respect to the Funds listed below of Smith Barney Investment
Funds Inc., incorporated herein by reference and to the
references to our Firm under the headings "Financial Highlights"
in the Prospectus and "Auditors" in the Statement of Additional
Information.
Funds
Government Securities Fund
Investment Grade Bond Fund
Concert Peachtree Growth Fund
Special Equities Fund
Contrarian Fund
KPMG
LLP
New York, New York
April 26, 1999
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<OVERDISTRIBUTION-NII> 0
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<ACCUM-APPREC-OR-DEPREC> 70,458,038
<NET-ASSETS> 524,629,287
<DIVIDEND-INCOME> 10,406,506
<INTEREST-INCOME> 2,998,753
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<REALIZED-GAINS-CURRENT> 23,711,092
<APPREC-INCREASE-CURRENT> 40,630,163
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<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 4,722,458
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<NUMBER-OF-SHARES-SOLD> 841,540
<NUMBER-OF-SHARES-REDEEMED> 9,232,541
<SHARES-REINVESTED> 324,842
<NET-CHANGE-IN-ASSETS> (436,002,536)
<ACCUMULATED-NII-PRIOR> 33,246
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,552,382
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,373,710
<AVERAGE-NET-ASSETS> 177,781,152
<PER-SHARE-NAV-BEGIN> 14.21
<PER-SHARE-NII> 00.06
<PER-SHARE-GAIN-APPREC> 00.21
<PER-SHARE-DIVIDEND> 00.00
<PER-SHARE-DISTRIBUTIONS> 00.44
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<SENIOR-EQUITY> 0
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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.
<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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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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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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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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