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[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.
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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
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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
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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
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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 Standard & Poor's 500 Index
("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
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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
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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
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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
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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 amount 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
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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
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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
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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
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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 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
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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
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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 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 plan accounts) 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 that 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 have been 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 have been 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 have been 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 have been 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
Financial highlights 24
</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 (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)
<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 amount 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 13-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
the 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 plan
accounts) 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 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 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.)
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)
(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 amount 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 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 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
the varying
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 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 plan accounts)
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 that 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 have 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 have been 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 have been 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 have been 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 ........... 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 --
programs ................................ 20
Dividends, distributions and taxes ...... 21
Share price ............................. 22
Financial highlights .................... 23
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.
- --------------------------------------------------------------------------------
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.
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.
- --------------------------------------------------------------------------------
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 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
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. 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 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.
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
8 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 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.
- --------------------------------------------------------------------------------
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.
10 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 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 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.
12 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 13
<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.
- --------------------------------------------------------------------------------
14 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 15
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
16 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 plan accounts) 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 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:
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.
18 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 19
<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.
20 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
- --------------------------------------------------------------------------------
ditional shares) are all taxable events.
- --------------------------------------------------------------------------------
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 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
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.
22 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 (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). 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 23
<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.
24 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 25
<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.
26 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
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.
SM 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, resultin
g 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. Class Z shares would have different performance because
of their different expenses.
- --------------------------------------------------------------------------------
% 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%
======
* Other expenses are based on estimates from the prior fiscal year.
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 .....................................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
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 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.
2 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 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.
- --------------------------------------------------------------------------------
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% 11/6/92
- --------------------------------------------------------------------------------
B 3.26% 8.53% 10.95% 11.92% 1/4/82
- --------------------------------------------------------------------------------
L 5.80% 8.51% n/a 9.05% 2/26/93
- --------------------------------------------------------------------------------
Y 8.66% n/a n/a 9.16% 2/7/96
- --------------------------------------------------------------------------------
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.
4 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
(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 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 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.
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.
6 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 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.
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 amount 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
8 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 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.
- --------------------------------------------------------------------------------
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.
10 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 about additional 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 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 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.
12 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 13
<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.
- --------------------------------------------------------------------------------
14 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 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 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
- --------------------------------------------------------------------------------
16 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 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 plan accounts) 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 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:
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.
18 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 19
<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.
20 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
- --------------------------------------------------------------------------------
ther in cash or additional shares) are all taxable events.
- --------------------------------------------------------------------------------
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 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
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.
22 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:
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 23
<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 1.53% 1.51% 1.54% 1.61% 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.
24 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 25
<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.
26 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.
SM Salomon Smith Barney is a service mark of Salomon
Smith Barney Inc.
(Investment Company Act file
no. 811-03275)
FD0233 4/99
<PAGE>
- -------------------------------
[Logo]
Smith Barney Mutual Funds
Investing for your future.
Every day.(R)
- -------------------------------
PROSPECTUS
______________________________________________________________________________
CONCERT
PEACHTREE
GROWTH FUND
Class A and B 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 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........................................................... 15
Redeeming shares............................................................ 16
Other things to know
about share transactions.................................................... 18
Dividends, distributions and taxes.......................................... 20
Share price................................................................. 21
Financial Highlights........................................................ 22
</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 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
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 Bar Chart appears here.
Total Return for Class A Shares
1996 13.96%
1997 5.18%
1998 13.96%
The bar chart shows the performance of the fund's Class A shares for each of
the past 3 years. Class B, 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.
Smith Barney Mutual Funds
3
<PAGE>
Quarterly returns:
Highest: xx% in 29.90% quarter 1998; Lowest: (12.26%) 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
Russell 1000 Growth Index, a broad-based unmanaged index of large capitaliza-
tion growth oriented common stocks. This table assumes imposition of the maxi-
mum 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
Russell 1000 Growth
Index 38.71 n/a n/a 29.83 *
Russell 2000 Index 12.27 n/a n/a 12.04 *
</TABLE>
*Index comparison begins on 07/03/95
Concert Peachtree Growth 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>
(paid directly from your investment) Class A Class B
<S> <C> <C>
Maximum sales charge on purchases (as a % of offering price) 5.00% None
Maximum deferred sales charge on redemptions (as a % of the
lower of net asset value at purchase or redemption) None* 5.00%
Annual fund operating expenses
<CAPTION>
(paid by the fund as a % of net assets)
<S> <C> <C>
Management fee 0.99% 0.99%
Distribution and service (12b-1) fee 0.25% 1.00%
Other expenses 0.16% 0.22%
----- -----
Total annual fund operating expenses 1.40% 2.21%
</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) $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
</TABLE>
Smith Barney Mutual Funds
5
<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.
Concert Peachtree Growth 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.
Dennis A. Johnson, CFA, investment officer of SSBC and president and chief
investment officer of Peachtree Asset Management, a division of SSBC, 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 on an annual basis 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. Through a selling agreement, PFS Investments Inc. sells
fund shares to the public.
Distribution plans The fund has adopted Rule 12b-1 distribution plans for its
Class A and B 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 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 (limited to requesting and receiving reports from
its service providers) or 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 between two classes of shares: Classes A and B. 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 will be immediately invested.
This may help offset the higher expenses of Class B shares, but only if the
fund performs well.
Initial purchases of shares must be made through a PFS Investments Registered
Representative.
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 and B Both Classes
<S> <C> <C>
General $1,000 $50
IRAs, Self Employed Retirement Plans, Uniform
Gift to Minor Accounts $250 $50
Qualified Retirement Plans* $25 $25
Systematic Investment Plans $25 $25
Quarterly Systematic Investment Plans $50 $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
Concert Peachtree Growth Fund
8
<PAGE>
Comparing the fund's classes
Your PFS Investments Registered 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
<S> <C> <C>
Key features .Initial .No initial
sales sales
charge charge
.You may .Deferred
qualify sales
for reduc- charge
tion or declines
waiver of over time
initial .Converts
sales to Class A
charge after 8
.Lower years
annual .Higher
expenses annual
than Class expenses
B than Class
A
- -------------------------------------------------------------
Initial sales charge Up to None
5.00%;
reduced or
waived for
large pur-
chases and
certain
investors.
No charge
for pur-
chases of
$500,000 or
more
- -------------------------------------------------------------
Deferred sales charge 1% on pur- Up to 5.00%
chases of charged
$500,000 or when you
more if you redeem
redeem shares. The
within 1 charge is
year of reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
- -------------------------------------------------------------
Annual distribution and service fees 0.25% of 1% of aver-
average age daily
daily net net assets
assets
- -------------------------------------------------------------
Exchangeable into* Class A Class B
shares of shares of
certain certain
Smith Smith
Barney Barney
funds funds
- -------------------------------------------------------------
</TABLE>
*Ask your PFS Investments Registered Representative for the funds available for
exchange.
Smith Barney Mutual Funds
9
<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 certain
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.
Concert Peachtree Growth Fund
10
<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
.Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if your PFS Investments Registered Representative is notified
.Participants in the Primerica Corporation Savings and Retirement Plan
.Investors who purchase through a PFS Investments Registered Representative
with proceeds from a prior mutual fund redemption, if certain conditions are
met
If you want to learn about additional waivers of Class A initial sales charges,
contact your PFS Registered 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 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 and over
<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>
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 PFS Investments Registered Representative.
PFS Distributors Inc., an affiliate of PFS Investments Inc., receives deferred
sales charges as partial compensation for its expenses in connection with the
sale of shares, including the payment of compensation to your PFS Investments
Registered 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 PFS Investments Registered Representative or consult the SAI.
Concert Peachtree Growth Fund
12
<PAGE>
Buying shares
Buying shares
by mail .Initial purchases of shares of each fund must be made
through a PFS Investments Registered Representative by com-
pleting the appropriate application. The completed applica-
tion should be forwarded to the Fund's subtransfer agent,
PFS Shareholder Services.
.Subsequent investments may be sent by mail directly to PFS
Shareholder Services, or, if you elect telephone transac-
tions on your account application you may call PFS Share-
holder Services and request a purchase through a transfer
from your bank account. Telephone purchases can be made
between 8:00 a.m. and 8:00 p.m. eastern time on any day the
New York Stock Exchange is open. Purchase orders received
after the close of regular trading on the Exchange are
priced at the net asset value next determined. The minimum
telephone investment is $250 and the maximum is $10,000.
You will be charged a fee if your have insufficient funds
to complete the investment.
.The address and telephone number of PFS Shareholder Services
is: 3100 Breckinridge Blvd., Bldg. 200, Duluth, Georgia
30099-0062; (800) 544-5445.
.You may also reach PFS Shareholder Services by calling (800)
544-7278 for Spanish speaking representative or (800) 824-
1721 for the TDD Line for the hearing impaired.
.Checks drawn on foreign banks must be payable in U.S. dol-
lars and have the routing number of the U.S. bank encoded
on the check.
- --------------------------------------------------------------------------------
Buying shares Initial purchases of shares for $10,000 may be made by wire
by wire order from your bank account. Contact PFS Shareholder Serv-
ices for details. In addition, once an account is open, you
may make additional wire orders through your PFS Investments
Registered Representative.
Through a
systematic You may authorize PFS Shareholder Services to transfer funds
investment automatically from a regular bank account, or other financial
plan institution to buy shares of a fund.
Concert Peachtree Growth Fund
13
<PAGE>
Buying shares (continued)
.Amounts transferred should be at least $25 monthly
.If you do not have sufficient funds in your account on a
transfer date, PFS Shareholder Services may charge you a
fee
For more information, contact your PFS Investments Registered
Representative or consult the SAI.
Smith Barney Mutual Funds
14
<PAGE>
Exchanging shares
Smith Barney You should contact your PFS Investments Registered Represen-
offers a tative to exchange into other Smith Barney funds. Be sure to
distinctive read the prospectus of the SmithBarney fund you are exchang-
family of ing into. An exchange is a taxable transaction.
funds
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
certain Smith Barney funds. Not all Smith Barney funds
offer all classes.
.Not all Smith Barney funds may be offered in your state of
residence. Contact your PFS Investments Registered Repre-
sentative.
.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 You may exchange shares by telephone if you elect telephone
transactions on your account application. Telephone exchanges
are subject to the same limitations as telephone redemptions.
To learn more about the exchange privilege and Smith Barney
mutual funds you may be eligible to exchange into, contact
your PFS Investments Registered Representative or consult the
SAI.
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund
15
<PAGE>
Redeeming shares
Redemptions Generally, a properly completed Redemption Form with any
by mail required signature guarantee is all that is required for a
redemption. In some cases, however, other documents may be
necessary.
You may redeem some or all of your shares by sending a
Redemption Form or other written request in proper form to
PFS Shareholder Services, 3100 Breckinridge Blvd., Bldg. 200,
Duluth, Georgia 30099-0062. You may also reach PFS Share-
holder Services by calling (800) 544-5445 or (800) 544-7278
for Spanish speaking representatives or (800) 824-1721 for the
TDD Line for the hearing impaired. The written request for
redemption must be in good order. This means that your have
provided the following information. Your request will not be
processed without this information.
. Name of the fund
. Account number
. Dollar amount or number of shares to redeem
. Signature of each owner exactly as account is registered
. Other documentation required by PFS Shareholder Services
To be in good order, your request must include a signature
guarantee if:
. The proceeds of the redemption exceed $50,000
. The proceeds are not paid to the record owner(s) at the rec-
ord address
. The shareholder(s) has had an address change in the past 45
days
. The shareholder(s) is a corporation, sole proprietor, part-
nership, trust or fiduciary
You can obtain a signature guarantee from most banks, deal-
ers, brokers, credit unions and federal savings and loans,
but not from a notary public.
Smith Barney Mutual Funds
16
<PAGE>
- --------------------------------------------------------------------------------
In all cases, your redemption price is the net asset value
next determined after your request is received in good order.
Redemption proceeds normally will be sent within three days.
However, if you recently purchased your shares by check, your
redemption proceeds will not be sent to you until your origi-
nal check clears, which may take up to 15 days. Any request
that your redemption proceeds be sent to a destination other
than your bank account or address of record must be in writ-
ing and must include signature guarantees.
- --------------------------------------------------------------------------------
Redemptions You may redeem shares by fax as long as a signature guarantee
by fax or other documentary evidence is not required. Redemption
requests should be properly signed by all owners of the
account and faxed to PFS Shareholder Services at (800) 554-
2374. If fax redemptions are not available for any reason,
you may use the Fund's regular redemption procedure described
above.
- --------------------------------------------------------------------------------
Redemptions Your may redeem shares by telephone if you elect the tele-
by telephone phone transaction option on your account application. This is
available only for redemptions of $50,000 or less, and the
proceeds must be mailed to your address of record. In addi-
tion, you must be able to provide proper identification
information. You may not redeem by telephone if your address
has changed within the past 45 days or if your shares are in
certificate form. Telephone redemption requests may be made
by calling PFS Shareholder Services at (800) 544-5445 between
8:00 a.m. and 8:00 p.m. eastern time on any day the New York
Stock Exchange is open. Requests received after the close of
regular trading on the New York Stock Exchange are priced at
the net asset value next computed. If telephone redemptions
are not available for any reason, you may use the Fund's reg-
ular redemption procedure described above.
- --------------------------------------------------------------------------------
Payment of Whether you redeem by mail, fax or telephone, your redemption
redemption proceeds can be sent by check to your address of record or by
proceeds wire transfer to a bank account
Concert Peachtree Growth Fund
17
<PAGE>
designated on your application. You will be charged
for wire transfers and for transfers made directly to
your bank by the Automated Clearinghouse (ACH).
- --------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plan ($5,000 for retirement plan accounts) 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 are equal to or less than 1% per
month of the value of your shares subject to a deferred sales
charge. The following conditions apply:
.Shares may not be represented by certificates
.All dividends and distributions must be reinvested
.You can establish a withdrawal plan for a retirement account
only if you are eligible to receive distributions from the
account
- --------------------------------------------------------------------------------
Other things to know about share transactions
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
.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.
Smith Barney Mutual Funds
18
<PAGE>
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
19
<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 PFS Invest-
ments Registered Representative 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.
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 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
20
<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 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 proce-
dures approved by the fund's board. A fund that uses fair value to price secu-
rities 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 PFS Shareholder Services before the New York Stock
Exchange closes. If the New York Stock 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.
Concert Peachtree Growth Fund
21
<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 been calculated using the monthly 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
22
<PAGE>
For a Class B share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1998 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 1.16
- ---------------------------------------------------------------------
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 31.11% 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.)
Concert Peachtree Growth Fund
23
<PAGE>
(This page is intentionally left blank.)
<PAGE>
[SALOMON SMITH BARNEY LOGO APPEARS HERE]
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.
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 PFS
Investments Registered Representative, by calling PFS Shareholder Services at
1-800-544-5445, or by writing to the fund at 3100 Breckinridge Boulevard,
Building 200, Duluth, Georgia 30099-0062.
You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public Ref-
erence Room in Washington, D.C. You can get copies of these materials for a 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 Commis-
sion'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
SB-1A
PFS Distributors, Inc.
19933
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.(R)
PROSPECTUS
[GRAPHIC OMITTED]
Investment Grade
Bond Fund
Class A and B 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 .................................. 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
Dividends, distributions and taxes ............................. 19
Share price .................................................... 20
Financial highlights ........................................... 21
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 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.
2 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 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.
- --------------------------------------------------------------------------------
Total Return for Class B Shares
- --------------------------------------------------------------------------------
[The following table was depicted as a bar graph in the printed material.]
Calendar years
ended December 31
89 15.57%
90 2.98%
91 22.5%
92 8.36%
93 18.06%
94 -9.41%
95 34.63%
96 -0.89%
97 16.44%
98 7.72%
The bar chart shows the performance of the fund's Class B shares for each of the
past 10 years. Class A 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% 11/6/92
- --------------------------------------------------------------------------------
B 3.26% 8.53% 10.95% 11.92% 1/4/82
- --------------------------------------------------------------------------------
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.
4 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
- --------------------------------------------------------------------------------
Maximum sales charge
(load) imposed on purchases 4.50%* 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%
- --------------------------------------------------------------------------------
Annual fund operating expenses
- --------------------------------------------------------------------------------
(expenses deducted from fund assets) Class A Class B
- --------------------------------------------------------------------------------
Management fee 0.65% 0.65%
- --------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.25% 0.75%
- --------------------------------------------------------------------------------
Other expenses 0.14% 0.13%
---- ----
- --------------------------------------------------------------------------------
Total annual fund operating expenses 1.04% 1.53%
* 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
- --------------------------------------------------------------------------------
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.
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.
6 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. Through a selling agreement, PFS Investments Inc.
sells fund shares to the public.
Distribution plans The fund has adopted Rule 12b-1 distribution plans for its
Class A and B 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 7
<PAGE>
- --------------------------------------------------------------------------------
Choosing a class of shares to buy
- --------------------------------------------------------------------------------
You can choose between two classes of shares: Classes A and B. 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 amount will be immediately
invested. This may help offset the higher expenses of Class B shares, but
only if the fund performs well.
Initial purchases of shares must be made through a PFS Investments Registered
Representative.
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 and B Both Classes
- --------------------------------------------------------------------------------
General $1,000 $50
- --------------------------------------------------------------------------------
IRAs, Self Employed Retirement
Plans, Uniform Gift to Minor
Accounts $250 $50
- --------------------------------------------------------------------------------
Qualified Retirement Plans* $25 $25
- --------------------------------------------------------------------------------
Systematic Investment Plans $25 $25
* 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
8 Investment Grade Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
Comparing the fund's classes
- --------------------------------------------------------------------------------
Your PFS Investments Registered Representative can help you decide which class
meets your goals. They may receive different compensation depending upon which
class you choose.
- --------------------------------------------------------------------------------
Class A Class B
- --------------------------------------------------------------------------------
Key features o Initial sales charge o No initial sales
o You may qualify for charge
reduction or waiver o Deferred sales
of initial sales charge declines over
charge time
o Lower annual o Converts to Class A
expenses than Class after 8 years
B o Higher annual
expenses than Class
A
- --------------------------------------------------------------------------------
Initial sales Up to 4.50%; reduced 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
sales charge $500,000 or more if you when you redeem shares.
redeem within 1 year of The charge is reduced
purchase over time and there is
no deferred sales
charge after 6 years
- --------------------------------------------------------------------------------
Annual 0.25% of average daily 0.75% of average daily
distribution net assets net assets
and service
fees
- --------------------------------------------------------------------------------
Exchangeable Class A shares of Class B shares of
into* certain Smith Barney certain Smith Barney
funds funds.
- --------------------------------------------------------------------------------
* Ask your PFS Investments Registered Representative for the 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.
- --------------------------------------------------------------------------------
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.
10 Investment Grade Bond Fund
<PAGE>
Letter of intent -- lets you purchase Class A shares of the fund and certain
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 Investors who redeemed Class A shares of a Smith Barney fund in the past
60 days, if your PFS Investments Registered Representative is notified
o Participants in the Primerica Corporation Savings and Retirement Plan
o Investors who purchase through a PFS Investments Registered Representative
with proceeds from a prior mutual fund redemption, if certain conditions
are met
If you want to learn about additional waivers of
Class A initial sales charges, contact your PFS Investments Registered
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 11
<PAGE>
- --------------------------------------------------------------------------------
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 PFS Investments Registered Representative.
PFS Distributors Inc., an affiliate of PFS Investments Inc., receives deferred
sales charges as partial compensation for its expenses in connection with the
sale of shares, including the payment of compensation to your PFS Investments
Registered Representative.
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 PFS Investments Registered Representative or consult the SAI.
12 Investment Grade Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Buying shares by o Initial purchases of shares of each fund must be
mail made through a PFS Investments Registered
Representative by completing the appropriate
application. The completed application should be
forwarded to the Fund's sub-transfer agent, PFS
Shareholder Services.
o Subsequent investments may be sent by mail
directly to PFS Shareholder Services, or, if you
elect telephone transactions on your account
application you may call PFS Shareholder Services
and request a purchase through a transfer from
your bank account. Telephone purchases can be made
between 8:00 a.m. and 8:00 p.m. eastern time on
any day the New York Stock Exchange is open.
Purchase orders received after the close of
regular trading on the Exchange are priced at the
net asset value next determined. The minimum
telephone investment is $250 and the maximum is
$10,000. You will be charged a fee if you have
insufficient funds to complete the investment.
o The address and telephone number of PFS
Shareholder Services is: 3100 Breckinridge Blvd.,
Bldg. 200, Duluth, Georgia 30099-0062; (800)
544-5445.
o You may also reach PFS Shareholder Services by
calling (800) 544-7278 for Spanish speaking
representatives or (800) 824-1721 for the TDD Line
for the Hearing Impaired.
o Checks drawn on foreign banks must be payable in
U.S. dollars and have the routing number of the
U.S. bank encoded on the check.
- --------------------------------------------------------------------------------
Buying shares by Initial purchases of shares for $10,000 may be made by
wire wire order from your bank account. Contact PFS
Shareholder Services for details. In addition, once an
account is open, you may make additional wire orders
through your PFS Investments Registered Representative.
- --------------------------------------------------------------------------------
Smith Barney Mutual Funds 13
<PAGE>
- --------------------------------------------------------------------------------
Through a systematic You may authorize PFS Shareholder Services to transfer
investment plan funds automatically from a regular bank account, or
other financial institution to buy shares of a fund.
o Amounts transferred should be at least $25
monthly.
o If you do not have sufficient funds in your
account on a transfer date, PFS Shareholder
Services may charge you a fee.
For more information, contact your PFS Investments
Registered Representative or consult the SAI.
- --------------------------------------------------------------------------------
Exchanging shares
- --------------------------------------------------------------------------------
Smith Barney offers You should contact your PFS Investments Registered
a distinctive family Representative to exchange into other eligible Smith
of funds tailored to Barney funds. Be sure to read the prospectus of the
help meet the varying Smith Barney fund you are exchanging into. An exchange
needs of both large is a taxable transaction.
and small investors o You may exchange shares only for shares of the
same class of certain Smith Barney funds. Not all
Smith Barney funds offer all classes.
o Not all Smith Barney funds may be offered in your
state of residence. Contact your PFS Investments
Registered Representative.
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.
- --------------------------------------------------------------------------------
14 Investment Grade Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
Waiver of additional Your shares will not be subject to an initial sales
sales charges charge at the time of the exchange.
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 You may exchange shares by telephone if you elect
telephone transactions on your account application.
Telephone exchanges are subject to the same limitations
as telephone redemptions.
To learn more about the exchange privilege and Smith
Barney mutual funds you may be eligible to exchange
into, contact your PFS Investments Registered
Representative or consult the SAI.
- --------------------------------------------------------------------------------
Smith Barney Mutual Funds 15
<PAGE>
- --------------------------------------------------------------------------------
Redeeming shares
- --------------------------------------------------------------------------------
Redemptions by mail Generally, a properly completed Redemption Form with any
required signature guarantee is all that is required for
a redemption. In some cases, however, other documents
may be necessary.
You may redeem some or all of your shares by sending a
Redemption Form or other written request in proper form
to PFS Shareholder Services, 3100 Breckinridge Blvd.,
Bldg. 200, Duluth, Georgia 30099-0062. You may also
reach PFS Shareholder Services by calling (800) 544-5445
or (800) 544-7278 for Spanish speaking representatives
or (800) 824-1721 for the TDD Line for the Hearing
Impaired. The written request for redemption must be in
good order. This means that you have provided the
following information. Your request will not be
processed without this information.
o Name of the fund
o Account number
o Dollar amount or number of shares to redeem
o Signature of each owner exactly as account is
registered
o Other documentation required by PFS Shareholder
Services
To be in good order, your request must include a
signature guarantee if:
o The proceeds of the redemption exceed $50,000
o The proceeds are not paid to the record owner(s)
at the record address
o The shareholder(s) has had an address change in
the past 45 days
o The shareholder(s) is a corporation, sole
proprietor, partnership, trust or fiduciary
You can obtain a signature guarantee from most banks,
dealers, brokers, credit unions and federal savings and
loans, but not from a notary public.
- --------------------------------------------------------------------------------
16 Investment Grade Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
In all cases, your redemption price is the net asset
value next determined after your request is received in
good order. Redemption proceeds normally will be sent
within three days. 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. Any request that your redemption
proceeds be sent to a destination other than your bank
account or address of record must be in writing and must
include signature guarantees.
- --------------------------------------------------------------------------------
Redemptions You may redeem shares by fax as long as a signature
by fax guarantee or other documentary evidence is not required.
Redemption requests should be properly signed by all
owners of the account and faxed to PFS Shareholder
Services at (800) 554-2374. If fax redemptions are not
available for any reason, you may use the Fund's regular
redemption procedure described above.
- --------------------------------------------------------------------------------
Redemptions You may redeem shares by telephone if you elect the
by telephone telephone transaction option on your account
application. This is available only for redemptions of
$50,000 or less, and the proceeds must be mailed to your
address of record. In addition, you must be able to
provide proper identification information. You may not
redeem by telephone if your address has changed within
the past 45 days or if your shares are in certificate
form. Telephone redemption requests may be made by
calling PFS Shareholder Services at (800) 544-5445
between 8:00 a.m. and 8:00 p.m. eastern time on any day
the New York Stock Exchange is open. Requests received
after the close of regular trading on the New York Stock
Exchange are priced at the net asset value next
computed. If telephone redemptions are not available for
any reason, you may use the Fund's regular redemption
procedure described above.
- --------------------------------------------------------------------------------
Payment of Whether you redeem by mail, fax or telephone, your
redemption redemption proceeds can be sent by check to your address
proceeds of record or by wire transfer to a bank account
designated on your application. You will be charged a
service fee for wire transfers and for transfers made
directly to your bank by the Automated Clearinghouse
(ACH).
Smith Barney Mutual Funds 17
<PAGE>
- --------------------------------------------------------------------------------
Automatic Cash You can arrange for the automatic redemption of a
Withdrawal Plan 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 plan
accounts) 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 are equal to or less than 1% per
month of the value of your shares subject to a deferred
sales charge. The following conditions apply:
o Shares may not be represented by certificates
o All dividends and distributions must be reinvested
o You can establish a withdrawal plan for a
retirement account only if you are eligible to
receive distributions from the account
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other things to know about share transactions
- --------------------------------------------------------------------------------
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.
18 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 distributions or dividends.
Alternatively, you can instruct your PFS Investments Registered Representative
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
distributions (whether in cash or additional shares) are all taxable events.
- --------------------------------------------------------------------------------
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 19
<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 PFS Shareholder Services 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.
20 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:
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 21
<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 1.53% 1.51% 1.54% 1.61% 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.
22 Investment Grade Bond Fund
<PAGE>
Securities offered through
PFS Investments Inc.
==========================
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.
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 PFS
Investments Registered Representative, by calling PFS Shareholder Services at
1-800-544-5445, or by writing to the fund at 3100 Breckinridge Boulevard,
Building 200, Duluth, Georgia 30099-0062.
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.
SM Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file
no. 811-03275
SB-1C
PFS Investments Inc.
16085
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 8
Investment Restrictions 32
Brokerage 34
Portfolio Turnover 36
Purchase, Exchange and Redemption of Shares 37
Distributor 45
PFS Accounts 50
Determination of Net Asset Value 51
Performance Data 52
Taxes 57
Class Z shares 61
Ira and Other Prototype Retirement Plans 62
Additional Information 63
Financial Statements 63
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 Travelers Investment Advisers, Inc. ("TIA"); Chairman and Co-
Chairman of the Board of 64 investment companies associated with
Citigroup, Inc. ("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 Citigroup 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
64
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"). As of March 31, 1999
SSBC had aggregate assets under management in excess of $115
billion. 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
Salomon Smith Barney
1998
6.88%
2.90
0
% of Total Transactions
Involving Commissions
paid
to Salomon 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.
DISTRIBUTOR
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 13, 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.
Salomon Smith Barney continues to sell the Funds shares as part of
the selling group.
For the fiscal year ended December 31, 1998, CFBDS and its
predecessor, Salomon Smith Barney and/or PFS Distributors ,
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 Salomon Smith Barney for the services it provides and
for the expense it bears under the Distribution Agreement, the
Company has adopted a services and distribution plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, each
Fund pays Salomon Smith Barney and, with respect to the Class A and
Class B shares of Concert Peachtree Growth Fund and Investment
Grade Bond Fund, PFS, a service fee, accrued daily and paid
monthly, calculated at the annual rate of 0.25% of the value of
each Fund's average daily net assets attributable to the Class A,
Class B and Class L shares. In addition, the Fund pays Salomon
Smith Barney, and with respect to the Class B shares of Concert
Peachtree Growth Fund and Investment Grade Bond Fund, PFS, a
distribution fee with respect to the Class B and Class L shares
primarily intended to compensate Salomon Smith Barney 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.
The payments to Salomon Smith Barney Financial Consultants for
selling shares of a Class include a commission or fee paid by the
investor or Salomon Smith Barney/PFS 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 or PFS Investment Registered Representatives 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 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 Salomon Smith
Barney, amounts received under the Plan and proceeds of the CDSC.
With respect to Smith Barney Investment Grade Bond Fund and Concert
Peachtree Growth Fund, The fees are paid to PFS Distributors, which
in turn, pays PFS Investments Inc. ("PFS Investments") to pay its
PFS Investment Registered Representatives for servicing shareholder
accounts and, in the case of Class B shares, to cover expenses
primarily intended to result in the sale of those shares. These
expenses include: advertising expenses; the cost of printing and
mailing prospectuses to potential investors; payments to and
expenses of PFS Investments Registered Representatives and other
persons who provide support services in connection with the
distribution of shares; interest and/or carrying charges; and
indirect and overhead costs of PFS Investments associated with the
sale of fund shares, including lease, utility, communications and
sales promotion expenses.
PFS Investments may be deemed to be an underwriter for purposes of
the Securities Act of 1933. From time to time, PFS or its
affiliates may also pay for certain non-cash sales incentives
provided to PFS Investments Registered Representatives. Such
incentives do not have any effect on the net amount invested. In
addition to the reallowances from the applicable public offering
price described above, PFS may from time to time, pay or allow
additional reallowances or promotional incentives, in the form of
cash or other compensation to PFS Investments Registered
Representatives who sell shares of the fund.
Redemption proceeds can be sent by check to the address of record
or by wire transfer to a bank account designated on the
application. A shareholder will be charged $25 service feee for
wire transfers and a nominal service fee for transfers made
directly to the shareholder's bank by the Automated Clearing House
(ACH).
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.
PFS ACCOUNTS
Initial purchase of shares of the fund must be made through a PFS
Investments Registered Representative by completing the appropriate
application found in this prospectus. The completed application
should be forwarded to the sub-transfer agent, 3100 Breckinridge
Blvd., Bldg. 200, Duluth, Georgia 30099-0062. Checks drawn on
foreign banks must be payable in U.S. dollars and have the routing
number of the U.S. bank encoded on the check. Subsequent
investments may be sent directly to the sub-transfer agent. In
processing applications and investments, the transfer agent acts as
agent for the investor and for PFS Investments and also as agent
for the distributor, in accordance with the terms of the
prospectus. If the transfer agent ceases to act as such, a
successor company named by the fund will act in the same capacity
so long as the account remains open.
Shares purchased will be held in the shareholder's account by the
sub-transfer agent. Share certificates are issued only upon a
shareholder's written request to the sub-transfer agent. A
shareholder that has insufficient funds to complete any purchase
will be charged a fee up to $27.50 per returned purchase by PFS.
Investors in Class A and Class B shares may open an account by
making an initial investment of at least $1,000 for each account in
each Class (except for Systematic Investment Plan accounts), or
$250 for an IRA or a Self-Employed Retirement Plan in a Fund.
Subsequent investments of at least $50 may be made for each Class.
For participants in retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Code, the minimum initial
investment requirement for Class A and Class B shares and the
subsequent investment requirement for each Class in the Fund is
$25. For the fund's Systematic Investment Plan, the minimum initial
investment requirement for Class A and Class B shares and the
subsequent investment requirement for each Class is $25. There are
no minimum investment requirements in Class A shares for employees
of Citigroup and its subsidiaries, including Salomon Smith Barney,
Directors or Trustees of any of the Smith Barney Mutual Funds, and
their spouses and children. The fund reserves the right to waive or
change minimums, to decline any order to purchase its shares and to
suspend the offering of shares from time to time. Purchase orders
received by the transfer agent or sub-transfer agent prior to the
close of regular trading on the NYSE, on any day the fund
calculates its net asset value, are priced according to the net
asset value determined on that day.
Upon completion of certain automated systems, initial purchases of
fund shares may be made by wire. The minimum investment that can
be made by wire is $10,000. Before sending the wire, the PFS
Investments Registered Representative must contact the sub-transfer
agent at (800) 665-8677 to obtain proper wire instructions. Once
an account is open, a shareholder may make additional investments
by wire. The shareholder should contact the sub-transfer agent at
(800) 544-5445 to obtain proper wire instructions.
Upon completion of certain automated systems, shareholders who
establish telephone transaction authority on their account and
supply bank account information may make additions to their
accounts at any time. Shareholders should contact the sub-transfer
agent at (800) 544-5445 between 8:00 a.m. and 8:00 p.m. eastern
time any day that the NYSE is open. If a shareholder does not wish
to allow telephone subsequent investments by any person in his
account, he should decline the telephone transaction option on the
account application. The minimum telephone subsequent investment
is $250 and can be up to a maximum of $10,000. By requesting a
subsequent purchase by telephone, you authorize the sub-transfer
agent to transfer funds from the bank account provided for the
amount of the purchase. A shareholder that has insufficient funds
to complete the transfer will be charged a fee of up to $27.50 by
PFS or the sub-transfer agent. A shareholder who places a stop
payment on a transfer or the transfer is returned because the
account has been closed, will also be charged a fee of up to $27.50
by PFS or the sub-transfer agent. Subsequent investments by
telephone may not be available if the shareholder cannot reach the
sub-transfer agent whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use
the fund's regular subsequent investment procedure described above.
Additional information regarding the sub-transfer agent's services
may be obtained by contacting the Client Services Department at
(800) 544-5445.
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.
TAXES
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.
CLASS Z SHARES
Qualified plan participants should consult their plan document or
tax advisors about the tax consequences of participating in a
Qualified Plan. In addition to the considerations described below,
there may be other federal, state, local, and/or foreign tax
applications to consider. Provided 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. Qualified plan participants should consult their plan
document or tax advisors about the tax consequences of
participating in a Qualified Plan.
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. The Fund has engaged
the services of PFS Shareholder Services as the sub-transfer agent
for PFS Accounts ("sub-transfer agent"). The sub-transfer agent is
located at 3100 Breckinridge Blvd, Bldg 200, Duluth, Georgia 30099-
0062.
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
(filed on March 23, 1999; accession number 0000091155-99-000187)
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
