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[LOGO] Smith Barney
Mutual Funds
PROSPECTUS
Small Cap
Growth Fund
Class A, B, L and Y Shares
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October 11, 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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Small Cap Growth Fund
Contents
<TABLE>
<S> <C>
Investments, risks, and expenses............................................ 2
More on the fund's investments.............................................. 5
Management.................................................................. 6
Subscription offering period................................................ 7
Choosing a class of shares to buy........................................... 7
Comparing the fund's classes................................................ 9
Sales charges............................................................... 10
More about deferred sales charges........................................... 13
Buying shares............................................................... 14
Exchanging shares........................................................... 15
Redeeming shares............................................................ 16
Other things to know
about share transactions.................................................... 19
Smith Barney 401(k) and ExecChoice(TM) programs............................. 21
Dividends, distributions and taxes.......................................... 22
Share price................................................................. 23
</TABLE>
You should know: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
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Investments, risks and expenses
Investment objective
The fund seeks long-term growth of capital.
Principal investment strategies
Key investments The fund invests primarily in equity securities of high growth
companies. These companies possess a market capitalization within the market
capitalization range of companies in the Russell 2000 Growth Index (the "In-
dex") at the time of the fund's investment. The size of the companies in the
Index changes with market conditions and the composition of the Index. As of
September 30, 1999, the largest market capitalization of a company in the Index
was $3.5 billion. Equity securities include exchange traded and over-the-
counter common stocks, preferred stocks, debt securities convertible into
equity securities and warrants and rights relating to equity securities. The
fund may invest up to 35% of its assets in equity securities of companies with
market capitalizations outside the range of companies in the Index.
Selection process The manager focuses on small capitalization companies that
exhibit attractive growth characteristics. The manager selects individual
stocks for investment by identifying those companies which exhibit the most
favorable growth prospects. In selecting individual companies for investment,
the manager considers:
.Growth characteristics, including high historic growth rates and high fore-
casted growth of sales, profits and return on equity
.Innovative companies at the cutting edge of positive and dynamic demographic
and economic trends
.Products and services that give the company a competitive advantage
.Skilled management committed to long-term growth
.Potential for a long-term investment by the fund
The manager uses a disciplined investment process to identify small financially
sound growth companies that exhibit the potential to become much larger and
more successful. Elements of this process include fundamental research, evalua-
tion of key management and screening techniques.
Small Cap Growth Fund
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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:
.Key economic trends become materially unfavorable, such as rising interest
rates and levels of inflation or a slowdown of economic growth
.U.S. stock markets perform poorly relative to other types of investments
.An adverse company specific event, such as an unfavorable earnings report,
negatively affects the stock price of a company in which the fund invests
.Small capitalization stocks underperform mid capitalization and large capital-
ization stocks
.The manager's judgment about the attractiveness, growth prospects, value or
potential appreciation of a particular stock proves to be incorrect
Because the fund invests primarily in small capitalization growth companies, an
investment in the fund may be more volatile and more susceptible to loss than
an investment in a fund which invests primarily in large capitalization compa-
nies. Small capitalization companies may have more limited product lines, mar-
kets and financial resources than large capitalization companies. They may have
shorter operating histories and more erratic businesses. In addition, small
capitalization company stocks may be less liquid than large capitalization com-
pany stocks.
Who may want to invest The fund may be an appropriate investment if you:
.Are seeking to participate in the long term potential of small capitalization
growth companies
.Are looking for an investment with potentially greater return but higher risk
than a fund that invests primarily in large cap companies
.Are willing to accept the risks of the stock market and the special risks and
potential long-term rewards of investing in smaller companies with limited
track records
.Are seeking diversification
Performance
Because this fund was added as a series to Smith Barney Investment Funds Inc.
this year, the fund does not yet have a sufficient operating history to gener-
ate the performance information which other Smith Barney funds show in bar and
table form in this location of the prospectus.
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Fee table
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) fees 0.25% 1.00% 1.00% None
Other expenses** 0.25% 0.25% 0.25% 0.25%
----- ----- ----- -----
Total annual fund operating expenses 1.25% 2.00% 2.00% 1.00%
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
**"Other expenses" have been estimated based on expenses the fund expects to
incur during its fiscal year ending September 30, 2000.
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
<S> <C> <C>
Class A (with or without redemption) $621 $877
Class B (redemption at end of period) $703 $927
Class B (no redemption) $203 $627
Class L (redemption at end of period) $401 $721
Class L (no redemption) $301 $721
Class Y (with or without redemption) $102 $318
</TABLE>
Small Cap Growth Fund
4
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More on the fund's investments
Foreign investments The fund may invest up to 10% of its assets (at the time of
investment) in foreign securities. The fund may invest directly in foreign
issuers or invest in depositary receipts. The fund's investments in securities
of foreign issuers involve greater risk than investments in securities of U.S.
issuers. Because the value of a depositary receipt is dependent upon the market
price of an underlying foreign security, depositary receipts are subject to
most of the risks associated with investing in foreign securities directly.
Foreign countries generally have markets that are less liquid and more volatile
than markets in the U.S. In some foreign countries, less information is avail-
able about foreign issuers and markets because of less rigorous accounting and
regulatory standards than in the U.S. Currency fluctuations could erase invest-
ment gains or add to investment losses.
Other investments
Short-term debt securities While the fund intends to be substantially fully
invested in equity securities, the fund may maintain a portion of its assets
(normally not more than 10%) in money market instruments and/or cash to pay
expenses and meet redemption requests. Generally, the value of these fixed
income obligations will decline if interest rates rise, the credit rating of
the security is downgraded or the issuer defaults on its obligation to pay
principal or interest.
Derivatives and hedging techniques The fund may, but need not, use derivative
contracts, such as futures and options on securities, securities indices or
currencies; options on these futures; forward currency contracts; and interest
rate or currency swaps for any of the following purposes:
.To hedge against the economic impact of adverse changes in the market value of
its securities, because of changes in stock market prices, currency exchange
rates or interest rates.
.As a substitute for buying or selling securities
.As a cash flow management technique
A derivative 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 securi-
ties, currencies or indices. Even a small investment in derivative contracts
can have a big impact on the fund's stock market, currency and interest rate
exposure. Therefore, using derivatives can disproportionately increase losses
and reduce opportunities for gains when stock prices, currency rates or inter-
est rates are changing. The fund may not fully benefit
Smith Barney Mutual Funds
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from or may lose money on derivatives if changes in their value do not corre-
spond accurately to changes in the value of the fund's holdings.
The other parties to certain derivative contracts present the same types of
credit risk as issuers of fixed income securities. Derivatives can also make
the fund less liquid and harder to value, especially in declining 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 instruments. If the
fund takes a temporary defensive position, it may be unable to achieve its
investment goal.
Management
Manager The fund's investment manager is SSB Citi Fund Management LLC, 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 subsidi-
aries 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.
Timothy Woods, CFA, investment officer of the manager and managing director of
Salomon Smith Barney, is responsible for the day-to-day management of the
fund's portfolio. Mr. Woods has more than 15 years of securities business expe-
rience. Prior to July 1999, he was a Principal at Bankers Trust Company and
manager of the Small-Mid Cap Growth Team.
Management fee For its services, the manager will receive a fee on an annual
basis of 0.75% 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 govern-
Small Cap Growth Fund
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ments 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 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.
Subscription offering period
Salomon Smith Barney and investment dealers in the selling group will solicit
subscriptions for shares of the fund during the subscription offering period,
which is scheduled to end on November 23, 1999. On the third business day after
the end of the subscription offering period, subscriptions for the shares will
be payable, exchanges into the fund will be permitted, shares will be issued
and the fund will commence investment operations.
The fund will suspend the offering of shares to new investors on November 30,
1999. This suspension, which is expected to last two weeks, may be lengthened
or shortened at the fund's discretion. During the suspension, existing share-
holders of the fund may still purchase, redeem or exchange fund shares. After
the suspension, the fund will commence a continuous offering of shares to the
public. The continuous offering period is expected to begin on or about Decem-
ber 13, 1999.
For more information on how to subscribe for fund shares during the subscrip-
tion offering period, please contact a Salomon Smith Barney Financial Consul-
tant.
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.
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.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
Small Cap Growth 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
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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
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Deferred sales charge 1.00% on Up to 5.00% 1.00% if None
purchases charged you redeem
of $500,000 when you within 1
or more if redeem year of
you redeem shares. The purchase
within 1 charge is
year of reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
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Annual Distribution and 0.25% of 1.00% of 1.00% of None
service fees average average average
daily net daily net daily net
assets assets assets
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Exchange Privilege* Class A Class B Class L Class Y
shares shares shares shares
of most of most of most of most
Smith Smith Smith Smith
Barney Barney Barney Barney
funds funds funds funds
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</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- -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 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.
Small Cap Growth Fund
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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 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 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: Upon exchange from
On reinvestment of another Smith
Shares issued: dividends and 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
(excluding shares
issued as a
dividend)
</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 and/or other Smith
Barney Mutual Funds 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.
Small Cap Growth Fund
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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.
Smith Barney Mutual Funds
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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 If you do not provide the following information, your order
dealer will be rejected:
representative
.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.
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Qualified retirement plans and certain other investors who
Through the are clients of the selling group are eligible to buy shares
fund's directly from the fund.
transfer
agent .Write the transfer agent at the following address:
Smith Barney Investment Funds Inc. Small Cap Growth Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 9699
Providence, RI 02940-9699
.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
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You may authorize Salomon Smith Barney, your dealer represen-
Through a tative or the transfer agent to transfer funds automatically
systematic from a regular bank account, cash held in a Salomon Smith
investment Barney brokerage account or Smith Barney money market fund to
plan buy shares on a regular basis.
.Amounts transferred should be at least: $25 monthly or $50
quarterly.
Small Cap Growth Fund
14
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.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
offers a You should contact your Salomon Smith Barney Financial Con-
distinctive sultant or dealer representative to exchange into other
family of Smith Barney funds. Be sure to read the prospectus of the
mutual funds Smith Barney fund you are exchanging into. An exchange is a
tailored to taxable transaction.
help meet the
varying needs
of both large .You may exchange shares only for shares of the same class
and small of another Smith Barney fund. Not all Smith Barney funds
investors offer all classes.
.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
for further information.
.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
additional at 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.
Smith Barney Mutual Funds
15
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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 next 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.
Small Cap Growth Fund
16
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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. Small Cap Growth Fund
(Specify class of shares)
First Data Investor Services Group, Inc.
P.O. Box 9699
Providence, RI 02940-9699
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
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 docu-
ments.
- --------------------------------------------------------------------------------
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
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.
Smith Barney Mutual Funds
17
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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.
Small Cap Growth Fund
18
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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
Smith Barney Mutual Funds
19
<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 is made to the transfer agent. If you hold share certificates it will
take longer to exchange or redeem shares.
Small Cap Growth Fund
20
<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 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 into 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.
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. You do not pay a sales charge on
reinvested distributions or dividends. The fund expects distributions to be
primarily from capital gains. 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 long-term capital gain dis-
tribution 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.
Small Cap 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>
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<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
Small Cap 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 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 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 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 reports and information free from
the Commission's Internet web site--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.
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-03275)
FD0 01712 10/99
Smith Barney
Small Cap Growth Fund
388 Greenwich Street
New York, New York 10013
1-800-451-2010
Statement of Additional Information
October 11, 1999
This Statement of Additional Information ("SAI") expands upon and supplements
the information contained in the current Prospectus of Smith Barney Small Cap
Growth Fund (the "Fund") dated October 11, 1999, as amended or supplemented
from time to time, and should be read in conjunction with the
Fund's Prospectus. The Fund is a series of Smith Barney Investment Funds Inc.
(the "Company"). The Fund's Prospectus may be obtained from a Salomon Smith
Barney Financial Consultant or by writing or calling the Fund at the address or
telephone number set forth above. This SAI, although not in itself
a prospectus, is incorporated by reference into the Prospectus in its entirety.
CONTENTS
For ease of reference, the same section headings are used in both the
Prospectus and this SAI, except where shown below:
Management of the Company and the Fund 1
Investment Objective and Management Policies 3
Purchase of Shares 14
Redemption of Shares 15
Distributor 21
Valuation of Shares 21
Exchange Privilege 21
Performance Data (See in the Prospectus "Performance") 21
Taxes (See in the Prospectus "Dividends, Distributions and Taxes") 23
Additional Information 24
MANAGEMENT OF THE COMPANY AND THE FUND
The executive officers of the Company are employees of certain of the
organizations that provide services to the Company and the Fund. These
organizations are the following:
CFBDS, Inc. ("CFBDS" or the "Distributor") Distributor
SSB Citi Fund Management LLC. (formerly SSBC Fund Management Inc.)
("SSB Citi" or the "Manager") Investment Manager
PNC Bank, National Association ("PNC" or the "Custodian") Custodian
First Data Investor Services Group, Inc.,
("First Data" or the "Transfer Agent") Transfer Agent
These organizations and the functions they perform for the Company and the Fund
are discussed in the Prospectus and in this SAI.
Directors and Executive Officers of the Company
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 Fund, as defined in
the Investment Company Act of 1940, as amended (the "1940 Act"), is indicated by
an asterisk.
Paul R. Ades, Director (Age 59). Partner in the law firm of Murov &
Ades.Director of 5 investment companies associated with Citigroup Inc.
His address is 272 South Wellwood Avenue, P.O. Box 504,
Lindenhurst, New York 11757.
Herbert Barg, Director (Age 76). Private investor. Director of 16 investment
companies associated with Citigroup Inc. His address is
273 Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
Dwight B. Crane, Director (Age 61). Professor, Graduate School of Business
Administration, Harvard University; Director of 22 investment companies
associated with Citigroup Inc. His address is Graduate
School of Business Administration, Harvard University, Boston, Massachusetts
02163.
Frank G. Hubbard, Director (Age 61). Vice President, S&S Industries; Former
Corporate Vice President, Materials Management and Marketing Services of
Huls America, Inc.; Director of 5 investment companies
associated with Citigroup 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 66). Managing Director of Salomon Smith Barney Inc.
("Salomon Smith Barney"); Director and President of SSB Citi and
Travelers Investment Adviser, Inc. ("TIA"); and formerly Chairman of the Board
of Smith Barney Strategy Advisers Inc. Mr. McLendon is a director of
64 investment companies associated with Citigroup Inc.
His address is 388 Greenwich Street, New York, New York 10013.
Jerome Miller, Director (Age 60). Retired, Former President,
Asset Management Group of Shearson Lehman Brothers. Director of 5 investment
companies associated with Citigroup Inc. His address is 27 Hemlock Road,
Manhasset, New York, NY 11030.
Ken Miller, Director (Age 57). President of Young Stuff Apparel Group, Inc.
Director of 5 investment companies associated with Citigroup Inc.
His address is 1411 Broadway, New York, New York 10018.
Lewis E. Daidone, Senior Vice President and Treasurer (Age 42).
Managing Director of Salomon Smith Barney, Director and Senior Vice President
of SSB Citi and TIA. Treasurer of 59 investment companies
associated with Citigroup. His address is 388 Greenwich Street,
New York, New York 10013.
Timothy Woods, CFA, Vice President and Investment Officer (Age 38). Managing
Director of Salomon Smith Barney. Prior to July 1999, Principal at
Bankers Trust Company and manager of the Small-Mid Cap Growth Team.
His address is 388 Greenwich Street, New York, New York 10013.
Paul Brook, Controller (Age 45). Director of Salomon Smith Barney;
Controller or Assistant Treasurer of 43 investment companies associated
with Citigroup; from 1997-1998 Managing Director of AMT Capital
Services Inc.; prior to 1997 Partner with Ernst & Young LLP;
His address is 388 Greenwich Street, New York, New York 10013.
Christina T. Sydor, Secretary (Age 48). Managing Director of
Salomon Smith Barney; General Counsel and Secretary of SSB Citi and TIA.
Secretary of 59 investment companies associated with Citigroup. Her
address is 388 Greenwich Street, New York, New York 10013.
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. For the fiscal year ended September 30, 1999, the
Directors of the Company were paid the following compensation:
Name of Person
Aggregate
Compensation
from Fund
Total Pension
or Retirement
Benefits
Accrued as
part of Fund
Expenses
Compensation
from Fund and
Fund Complex
Paid to
Directors
Number of
Funds for
Which
Director
Serves Within
Fund Complex
Paul R. Ades
$0
$0
$49,000
5
Herbert Barg
0
0
101,600
16
Dwight B. Crane
0
0
133,850
22
Frank G. Hubbard
0
0
52,000
5
Heath B. McLendon
0
0
0
64
Jerome Miller
0
0
12,400
5
Ken Miller
0
0
52,000
5
Upon attainment of age 80, Directors are required to change to emeritus status.
Directors Emeritus are entitled to serve in emeritus status for a maximum of
10 years during which time they are paid 50% of the annual retainer fee
and meeting fees otherwise applicable to the Fund Directors together with
reasonable out-of-pocket expenses for each meeting attended.
Investment Manager - SSB Citi
SSB Citi serves as investment manager to the Fund pursuant to an investment
management agreement (the "Investment Management Agreement") with the
Company which was approved by the Board of Directors, including a majority
of Directors who are not "interested persons" of the Company or the Manager.
The Manager is a wholly owned subsidiary of Salomon Smith Barney Holdings Inc.
("Holdings"), which in turn, is a wholly owned subsidiary of Citigroup Inc.
("Citigroup"). The services provided by the Manager under the Investment
Management Agreement are described in the prospectus under "Management of
the Company and the Fund." The Manager pays the salary of any officer and
employee who is employed by both it and the Company. The Manager bears
all expenses in connection with the performance of its services.
As compensation for investment management services, the Fund pays the
Manager a fee computed daily and paid monthly at the annual rate of 0.75% of
the Fund's average daily net assets.
Auditors
KPMG LLP, independent accountants, 757 Third Avenue, New York, New York
10017, serve as auditors of the Fund and will render an opinion on the
Fund's financial statements annually beginning with the fiscal period
ending September 30, 1999.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Prospectus discusses the Fund's investment objective and the policies it
employs to achieve its objective. This section contains supplemental
information concerning the types of securities and other
instruments in which the Fund may invest, the investment policies and
portfolio strategies the Fund may utilize and certain risks attendant to
such investments, policies and strategies.
Foreign Securities and American Depository Receipts
The Fund has the authority to invest up to 10% of its assets in foreign
securities (including European Depository Receipts ("EDRs") and Global
Depository Receipts ("GDRs")) and American Depository Receipts
("ADRs") or other securities representing underlying shares of foreign
companies. EDRs are receipts issued in Europe which evidence ownership
of underlying securities issued by a foreign corporations. ADRs are receipts
typically issued by an American bank or trust company which evidence a similar
ownership arrangement. Generally, ADRs which are issued in registered form,
are designed for use in the United States securities markets and EDRs,
which are issued in bearer form, are designed for use in European
securities markets. GDRs are tradeable both in the U.S. and
Europe and are designed for use throughout the world.
Investing in the securities of foreign companies involves special risks
and considerations not typically associated with investing in U.S.
companies. These include differences in accounting, auditing and financial
reporting standards, generally higher commission rates on foreign portfolio
transactions, the possibility of expropriation or confiscatory taxation,
adverse changes in investment or exchange control regulations, political
instability which could affect U.S. investments in foreign
countries, and potential restrictions on the flow of international capital.
Additionally, foreign securities often trade with less frequency and volume
than domestic securities and therefore may exhibit greater price volatility.
Many of the foreign securities held by the Fund will not be registered with,
nor will the issuers thereof be subject to the reporting requirements of,
the SEC. Accordingly, there may be less
publicly available information about the securities and about the
foreign company issuing them than is available about a domestic company and
its securities. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of
payment positions. The risks of investing in foreign securities are
greater for securities of emerging market issuers because political or economic
instability, lack of market liquidity and negative government actions
like currency controls or seizure of private business
or property are more likely. The Fund may invest in securities of
foreign governments (or agencies or subdivisions thereof), and therefore
many, if not all, of the foregoing considerations apply to such
investments as well.
Lending of Portfolio Securities
Consistent with applicable regulatory requirements and for cash
management purposes, the Fund may lend securities from its portfolio to
brokers, dealers and other financial organizations. The Fund may not
lend its Portfolio securities to the Manager or its affiliates unless it
has applied for and received specific authority from the Securities and
Exchange Commission ("SEC"). Loans of portfolio securities
by the Fund will be collateralized by cash, letters of credit or U.S. government
securities that are maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities.
In lending its portfolio securities, the 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
future modifications, currently provide that the following
conditions must be met whenever the 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 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 any 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;
however, if a material event adversely affecting the investment occurs,
the Company's Board of Directors must terminate the loan and regain
the right to vote the securities. The risks in lending portfolio
securities, as with other extensions of secured credit, consist of
possible delay in receiving additional collateral or in the recovery
of the securities or possible loss of rights in the
collateral should the borrower fail financially. Loans will be made
to firms deemed by the Manager to be of good standing and will not be
made unless, in the judgment of the Manager, the consideration to
be earned from such loans would justify the risk. From time to time,
the Fund may return a part of the interest earned from the investment
of collateral received for securities loaned to: (a) the borrower;
and/or (b) a third party, which is unaffiliated with the Fund, the Manager
and which is acting as a "finder."
Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements. A reverse
repurchase agreement involves the sale of a money market instrument by the
Fund and its agreement to repurchase the instrument at a
specified time and price. The Fund will maintain a segregated account
consisting of U.S. government securities or cash or cash equivalents to
cover its obligations under reverse repurchase agreements with broker-dealers
and other financial institutions. The Fund will invest the proceeds in other
money market instruments or repurchase agreements maturing not later than
the expiration of the reverse repurchase agreement. Under the Investment
Company Act of 1940, as amended, reverse repurchase agreements may be
considered borrowing by the seller.
Reverse repurchase agreements create opportunities for increased returns to
the shareholders of the Fund but, at the same time, create special
risk considerations. 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. To the extent the income or
other gain derived from securities purchased with borrowed
funds exceeds the interest or dividends the Fund will have to pay in respect
thereof, the Fund's net income or other gain will be greater than if this
type of investment technique had not been used. Conversely, if the income
or other gain from the incremental assets is not sufficient to cover
this cost, the net income or other gain of the Fund will be less than if
the reverse repurchase agreement had not been used.
The Fund currently intends to invest not more than 33% of its net assets in
reverse repurchase agreements.
When-Issued Securities and Delayed Delivery Transactions
In order to secure what the Manager considers to be an advantageous price or
yield, the Fund may purchase U.S. government securities on a when-issued
basis or purchase or sell U.S. government
securities for delayed delivery. The Fund will enter into such
purchase transactions for the purpose of acquiring portfolio securities and
not for the purpose of leverage. Delivery of the securities in
such cases occurs beyond the normal settlement periods, but no payment
or delivery is made by the Fund prior to the reciprocal delivery or payment
by the other party to the transaction. In entering into a
when-issued or delayed-delivery transaction, the Fund relies on the other
party to consummate the transaction and may be disadvantaged if the other
party fails to do so.
U.S. government securities normally are subject to changes in value based
upon changes, real or anticipated, in the level of interest rates and, to a
lesser extent, the public's perception of the
creditworthiness of the issuers. In general, U.S. government securities tend
to appreciate when interest rates decline and depreciate when interest
rates rise. Purchasing U.S. government securities
on a when-issued basis or delayed-delivery basis, therefore, can involve
the risk that the yields available in the market when the delivery takes
place may actually be higher than those obtained in
the transaction itself. Similarly, the sale of U.S. government securities
for delayed delivery can involve the risk that the prices available in
the market when the delivery is made may actually be higher than those
obtained in the transaction itself.
The Fund will at times maintain in a segregated account cash or liquid
securities equal to the amount of the Fund's when-issued or delayed-
delivery commitments. For the purpose
of determining the adequacy of the securities in the account, the deposited
securities will be valued at market or fair value. If
the market or fair value of such securities declines, additional cash or
securities will be placed in the account on a daily basis so the value of the
account will equal the amount of such commitments by
the Fund. Placing securities rather than cash in the account may have a
leveraging effect on the Fund's assets. That is, to the extent the Fund
remains substantially fully invested in securities at
the time that it has committed to purchase securities on a when-issued basis,
there will be greater fluctuation in its net asset value than if it had
set aside cash to satisfy its purchase commitments.
On the settlement date, the Fund will meet its obligations from then available
cash flow, the sale of securities held in the separate account, the sale
of other securities or, although it normally would not expect to do so,
from the sale of the when-issued or delayed-delivery securities
themselves (which may have a greater or lesser value than the Fund's
payment obligations).
Money Market Instruments
As stated in the Prospectus, the Fund may invest for temporary defensive
purposes in corporate and government bonds and notes and money market
instruments. Money market instruments in which the Fund may invest include:
U.S. government securities; certificates of deposit, time deposits and
bankers'acceptances issued by domestic banks (including their branches
located outside the United States and subsidiaries located in Canada),
domestic branches of foreign banks, savings and loan associations and
similar institutions; high grade commercial paper; and repurchase
agreements with respect to the foregoing types of instruments. The following
is a more detailed description of such money market instruments.
Certificates of deposit ("CDs") are short-term negotiable obligations
of commercial banks. Time deposits ("TDs") are non-negotiable
deposits maintained in banking institutions for specified periods
of time at stated interest rates. Bankers' acceptances are time drafts drawn
on commercial banks by borrowers usually in connection with
international transactions.
Domestic commercial banks organized under Federal law are supervised
and examined by the Comptroller of the Currency and are required to be
members of the Federal Reserve System and to be insured by the
Federal Deposit Insurance Corporation (the "FDIC"). Domestic banks
organized under state law are supervised and examined by state banking
authorities but are members of the Federal Reserve System
only if they elect to join. Most state banks are insured by the
FDIC (although such insurance may not
be of material benefit to the Fund, depending upon the principal amounts of
CDs of each bank held by the Fund) and are subject to Federal examination and
to a substantial body of Federal law and regulation. As a result of
governmental regulations, domestic branches of domestic banks are generally
required to, among other things, maintain specified levels of reserves, and
are subject to other supervision and regulation designed to promote financial
soundness.
Obligations of foreign branches of domestic banks, such as CDs and TDs, may
be general obligations of the parent bank in addition to the issuing branch,
or may be limited by the terms of a specific
obligation and government regulation. Such obligations are subject to different
risks than are those of domestic banks or domestic branches of foreign
banks. These risks include foreign economic and political developments,
foreign governmental restrictions that may adversely affect payment of
principal and interest on the obligations, foreign exchange controls and
foreign withholding and other taxes on interest income. Foreign branches
of domestic banks are not necessarily subject to the same
or similar regulatory requirements that apply to domestic banks, such
as mandatory reserve requirements, loan limitations, and accounting,
auditing and financial recordkeeping requirements. In addition, less
information may be publicly available about a foreign branch of a domestic
bank than about a domestic bank. CDs issued by wholly owned
Canadian subsidiaries of domestic banks are guaranteed as to repayment
of principal and interest (but not as to sovereign risk) by the domestic
parent bank.
Obligations of domestic branches of foreign banks may be general obligations
of the parent bank in addition to the issuing branch, or may be limited by
the terms of a specific obligation and by governmental regulation as well
as governmental action in the country in which the foreign bank has
its head office. A domestic branch of a foreign bank with assets in excess of
$1 billion may or may not be subject to reserve requirements imposed by
the Federal Reserve System or by the state in which
the branch is located if the branch is licensed in that state.
In addition, branches licensed by the Comptroller of the Currency and
branches licensed by certain states ("State Branches") may or may not
be required to: (a) pledge to the regulator by depositing assets with
a designated bank within the state, an amount of its assets equal to 5%
of its total liabilities; and (b) maintain assets within the state in an
amount equal to a specified percentage of the aggregate amount of liabilities
of the foreign bank payable at or through all of its agencies or branches
within the state. The deposits of State Branches may not necessarily be
insured by the FDIC.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks or by domestic branches
of foreign banks, SSB Citi will carefully evaluate such investments on a
case-by-case basis.
Savings and loan associations whose CDs may be purchased by the Fund
are supervised by the Office of Thrift Supervision and are insured by
the Savings Association Insurance Fund, which is administered by
the FDIC and is backed by the full faith and credit of the U.S. government.
As a result, such savings and loan associations are subject to regulation
and examination.
Options, Futures and Currency Strategies
The Fund may use forward currency contracts and certain options and
futures strategies to attempt to hedge its portfolio, i.e., reduce the overall
level of investment risk normally associated with the
Fund. There can be no assurance that such efforts will succeed.
In order to assure that the Fund will not be deemed to be a
"commodity pool" for purposes of the Commodity Exchange Act, regulations
of the Commodity Futures Trading Commission ("CFTC") require that
the Fund enter into transactions in futures contracts and options on
futures only (i) for bona fide hedging purposes (as defined in
CFTC regulations), or (ii) for non-hedging purposes, provided that the
aggregate initial margin and premiums on such non-hedging positions do
not exceed 5% of the liquidation value of the Fund's assets. To attempt to
hedge against adverse movements in exchange rates between currencies,
the Fund may enter into forward currency contracts for the purchase or sale
of a specified currency at a specified future date. Such contracts may
involve the purchase or sale of a foreign currency against the U.S. dollar
or may involve two foreign currencies. The Fund may enter
into forward currency contracts either with respect to specific transactions or
with respect to its portfolio positions. For example, when the
investment adviser anticipates making a purchase or sale of
a security, it may enter into a forward currency contract in order to set
the rate (either relative to the U.S. dollar or another currency) at which
the currency exchange transaction related to the
purchase or sale will be made ("transaction hedging"). Further, when
the investment adviser believes that a particular currency may decline
compared to the U.S. dollar or another currency, the Fund may
enter into a forward contract to sell the currency the Manager expects
to decline in an amount approximating the value of some or all of the
Fund's securities denominated in that currency, or when
the Manager believes that one currency may decline against a currency in
which some or all of the portfolio securities held by the Fund are
denominated, it may enter into a forward contract to buy the
currency expected to decline for a fixed amount ("position hedging").
In this situation, the Fund may, in the alternative, enter into a
forward contract to sell a different currency for a fixed amount of the
currency expected to decline where the Manager believes that the value of
the currency to be sold pursuant to the forward contract will fall
whenever there is a decline in the value of the currency in
which portfolio securities of the Fund are denominated ("cross hedging").
The Fund's custodian places (i) cash, (ii) U.S. Government securities or
(iii) equity securities or debt securities (of any grade)
in certain currencies provided such assets are liquid, unencumbered and
marked to market daily, or other high-quality debt securities denominated
in certain currencies in a separate account of the Fund
having a value equal to the aggregate account of the Fund's commitments
under forward contracts entered into with respect to position hedges and
cross-hedges. If the value of the securities placed
in a separate account declines, additional cash or securities are placed in
the account on a daily basis so that the value of the amount will equal
the amount of the Fund's commitments with respect to such contracts.
For hedging purposes, the Fund may write covered call options and purchase
put and call options on currencies to hedge against movements in exchange
rates and on debt securities to hedge against the
risk of fluctuations in the prices of securities held by the Fund or
which the Manager intends to include in its portfolio. The Fund also may
use interest rates futures contracts and options thereon
to hedge against changes in the general level in interest rates.
The Fund may write call options on securities and currencies only if they
are covered, and such options must remain covered so long as the Fund
is obligated as a writer. A call option written by the
Fund is "covered" if the Fund owns the securities or currency underlying
the option or has an absolute and immediate right to acquire that security
or currency without additional cash consideration (or for
additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other securities or
currencies held in its portfolio. A call option is also covered if the
Fund holds on a share-for-share basis a call on the same security or holds
a call on the same currency as the call written where the exercise price of
the call held is equal to less than the exercise price of the call written
or greater than the exercise price of the call written if the difference is
maintained by the Fund in cash, Treasury bills or other high-grade,
short-term obligations in a segregated account with its custodian.
Although the portfolio might not employ the use of forward currency
contracts,options and futures, the use of any of these strategies would
involve certain investment risks and transaction costs to
which it might not otherwise be subject. These risks include: dependence on
the investment adviser's ability to predict movements in the prices
of individual debt securities, fluctuations in the general
fixed-income markets and movements in interest rates and currency
markets, imperfect correlation between movements in the price of
currency, options, futures contracts or options thereon and movements in
the price of the currency or security hedged or used for cover; the fact
that skills and techniques needed to trade options, futures contracts
and options thereon or to use forward currency contracts are different
from those needed to select the securities in which the Fund invests; lack of
assurance that a liquid market will exist for any particular option,
futures contract or options thereon at any particular time and possible need
to defer or accelerate closing out certain options,
futures contracts and options thereon in order to continue to qualify for
the beneficial tax treatment afforded "regulated investment companies" under
the Internal Revenue Code of 1986, as amended (the "Code").
See "Dividends, Distributions and Taxes."
Options on Securities
As discussed more generally above, the Fund may engage in the writing of
covered call options. The Fund may also purchase put options and enter into
closing transactions.
The principal reason for writing covered call options on securities is to
attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, the
writer of a covered call option forgoes the right to any appreciation in the
value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected).
Nevertheless, the call writer retains the risk of a decline in
the price of the underlying security. Similarly, the principal reason for
writing covered put options is to realize income in the form of premiums. The
writer of a covered put option accepts the risk of a
decline in the price of the underlying security. The size of the premiums the
Fund may receive may be adversely affected as new or existing institutions,
including other investment companies, engage in or increase their
option-writing activities.
Options written by the Fund will normally have expiration dates between one
and six months from the date written. The exercise price of the options may
be below, equal to, or above the current market
values of the underlying securities at the times the options are written.
In the case of call options, these exercise prices are referred to as
"in-the-money," "at-the-money" and "out-of-the-money," respectively.
The Fund may write (a) in-the-money call options when SSB Citi expects the
price of the underlying security to remain flat or decline moderately during
the option period, (b) at-the-money call options when SSB Citi expects the
price of the underlying security to remain flat or advance moderately during
the option period and (c) out-of-the-money call options when SSB Citi
expects that the price of the security may increase but not above a price
equal to the sum of the exercise price plus the premiums
received from writing the call option. In any of the preceding situations,
if the market price of the underlying security declines and the security is
sold at this lower price, the amount of any realized
loss will be offset wholly or in part by the premium received.
Out-of-the-money, at-the-money and in-the-money put options
(the reverse of call options as to the relation of exercise price to market
price) may be utilized in the same market environments as such
call options are used in equivalent transactions.
So long as the obligation of the Fund as the writer of an option continues,
the Fund may be assigned an exercise notice by the broker-dealer through
which the option was sold, requiring it to deliver, in
the case of a call, or take delivery of, in the case of a put, the
underlying security against payment of the exercise price. This
obligation terminates when the option expires or the Fund effects a
closing purchase transaction. The Fund can no longer effect a closing
purchase transaction with respect to an option once it has been assigned
an exercise notice. To secure its obligation to deliver
the underlying security when it writes a call option, or to pay for
the underlying security when it writes a put option, the Fund will be
required to deposit in escrow the underlying security or other
assets in accordance with the rules of the Options
Clearing Corporation ("Clearing Corporation") or similar clearing
corporation and the securities exchange on which the option is written.
An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized
securities exchange or in the over-the-counter market. The Fund expects
to write options only on national securities exchanges or in the
over-the-counter market. The Fund may purchase put options issued by
the Clearing Corporation or in the over-the-counter market.
The Fund may realize a profit or loss upon entering into a closing t
ransaction. In cases in which a Fund has written an option, it will realize
a profit if the cost of the closing purchase transaction
is less than the premium received upon writing the original option and
will incur a loss if the cost of the closing purchase transaction exceeds
the premium received upon writing the original option.
Similarly, when the Fund has purchased an option and engages in a
closing sale transaction, whether it
recognizes a profit or loss will depend upon whether the amount
received in the closing sale transaction is more or less than the premium
the Fund initially paid for the original option plus the
related transaction costs.
Although the Fund generally will purchase or write only those options for
which SSB Citi believes there is an active secondary market so as to
facilitate closing transactions, there is no assurance
that sufficient trading interest to create a liquid secondary market on
a securities exchange will exist for any particular option or at any
particular time, and for some options no such secondary
market may exist. A liquid secondary market in an option may cease to exist
for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow, or other unforeseen
events, have at times rendered certain of the facilities of the
Clearing Corporation and national securities exchanges inadequate and
resulted in the institution of special procedures, such as trading
rotations, restrictions on certain types of orders or trading halts
or suspensions in one or more options. There can be no assurance that
similar events, or events that may otherwise interfere with
the timely execution of customers' orders, will not recur. In such event,
it might not be possible to effect closing transactions in particular
options. If, as a covered call option writer, the Fund is
unable to effect a closing purchase transaction in a secondary market,
it will not be able to sell the underlying security until the option expires
or it delivers the underlying security upon exercise.
Securities exchanges generally have established limitations governing
the maximum number of calls and puts of each class which may be held or
written, or exercised within certain periods, by an investor
or group of investors acting in concert (regardless of whether the options
are written on the same or different securities exchanges or are held,
written or exercised in one or more accounts or through
one or more brokers). It is possible that the Fund and other clients of
SSB Citi and certain of their affiliates may be considered to be such a
group. A securities exchange may order the liquidation of
positions found to be in violation of these limits, and it may impose
certain other sanctions.
In the case of options written by the Fund that are deemed covered by
virtue of the Fund's holding convertible or exchangeable preferred stock or
debt securities, the time required to convert or
exchange and obtain physical delivery of the underlying common stocks
with respect to which the Fund has written options may exceed the time
within which the Fund must make delivery in accordance with an
exercise notice. In these instances, the Fund may purchase or temporarily
borrow the underlying securities for purposes of physical delivery. By so
doing, the Fund will not bear any market risk
because a Fund will have the absolute right to receive from the issuer of
the underlying security an equal number of shares to replace the borrowed
stock, but the Fund may incur additional transaction
costs or interest expenses in connection with any such purchase or borrowing.
Although SSB Citi will attempt to take appropriate measures to minimize
the risks relating to the Fund's writing of call options and purchasing of
put and call options, there can be no assurance that the Fund will succeed
in its option-writing program.
Stock Index Options
As described generally above, the Fund may purchase put and call options and
write call options on domestic stock indexes listed on domestic exchanges
in order to realize its investment objective of capital appreciation or for
the purpose of hedging its portfolio. A stock index fluctuates with
changes in the market values of the stocks included in the index. Some stock
index options are based on a broad market index such as the
New York Stock Exchange Composite Index or the Canadian Market
Portfolio Index, or a narrower market index such as the
Standard & Poor's 100. Indexes also are based on an industry or market
segment such as the American Stock Exchange Oil and Gas Index or the Computer
and Business Equipment Index.
Options on stock indexes are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right
to take or make delivery of stock at a specified price, an option on a
stock index gives the holder the right to receive a cash "exercise
settlement amount" equal to (a) the amount, if any, by which the fixed
exercise price of the option exceeds (in the case of a put) or is less than
(in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied by (b) a fixed
"index multiplier." Receipt of this cash amount will depend upon the
closing level of the stock index upon which the option is based
being greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. The amount of cash received will be
equal to such difference between the closing price of
the index and the exercise price of the option expressed in dollars or a
foreign currency, as the case may be, times a specified multiple.
The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. The writer may offset its position
in stock index options prior to expiration by entering into a
closing transaction on an exchange or it may let the option
expire unexercised.
The effectiveness of purchasing or writing stock index options as a
hedging technique will depend upon the extent to which price movements in
the portion of the securities portfolio of the Fund correlate
with price movements of the stock index selected. Because the value of an
index option depends upon movements in the level of the index rather than
the price of a particular stock, whether the Fund will
realize a gain or loss from the purchase or writing of options on an
index depends upon movements in the level of stock prices in the stock
market generally or, in the case of certain indexes, in an
industry or market segment, rather than movements in the price of a
particular stock. Accordingly, successful use by the Fund of options on
stock indexes will be subject to SSB Citi's ability to
predict correctly movements in the direction of the stock market generally or
of a particular industry. This requires different skills and techniques
than predicting changes in the price of individual stocks.
Futures Contracts and Options on Futures Contracts
As described generally above, the Fund may invest in stock index futures
contracts and options on futures contracts that are traded on a domestic
exchange or board of trade.
The purpose of entering into a futures contract by the Fund is to protect the
Fund from fluctuations in the value of securities without actually buying or
selling the securities. For example, in the case of stock index futures
contracts, if the Fund anticipates an increase in the price of stocks that it
intends to purchase at a later time, the Fund could enter into contracts to
purchase the stock index (known as taking a "long" position) as a temporary
substitute for the purchase of stocks. If an
increase in the market occurs that influences the stock index as anticipated,
the value of the futures contracts increases and thereby serves as a hedge
against the Fund's not participating in a market
advance. The Fund then may close out the futures contracts by entering into
offsetting futures contracts to sell the stock index (known as taking a "short"
position) as it purchases individual stocks. The Fund can accomplish similar
results by buying securities with long maturities and selling
securities with short maturities. But by using futures contracts as an
investment tool to reduce risk, given the greater liquidity in the futures
market, it may be possible to accomplish the same result
more easily and more quickly.
No consideration will be paid or received by the Fund upon the purchase or sale
of a futures contract. Initially, the Fund will be required to deposit with the
broker an amount of cash or cash equivalents
equal to approximately 1% to 10% of the contract amount (this amount is subject
to change by the exchange or board of trade on which the contract is traded and
brokers or members of such board of trade may charge a higher amount). This
amount is known as "initial margin" and is in the nature of a
performance bond or good faith deposit on the contract which is returned to the
Fund, upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Subsequent
payments, known as "variation margin," to and from the broker, will be made
daily as the price of the index or securities underlying the futures contract
fluctuates, making the long and short positions in
the futures contract more or less valuable, a process known as "marking-to-
market." In addition, when the Fund enters into a long position in a
futures contract or an option on a futures contract, it must
deposit into a segregated account with the Fund's custodian an amount
of cash or cash equivalents equal to the total market value of the
underlying futures contract, less amounts held in the Fund's
commodity brokerage account at its broker. At any time prior to the expiration
of a futures contract, the Fund may elect to close the position by taking an
opposite position, which will operate to terminate the Fund's existing position
in the contract.
There are several risks in connection with the use of futures contracts as a
hedging device. Successful use of futures contracts by the Fund is subject to
the ability of SSB Citi to predict correctly movements in the stock market or
in the direction of interest rates. These predictions involve skills and
techniques that may be different from those involved in the management of
investments in securities. In addition, there can be no assurance there will be
a perfect correlation between movements in the price of the securities
underlying the futures contract and movements in the
price of the securities that are the subject of the hedge. A decision of
whether, when and how to hedge involves the exercise of skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of
market behavior or unexpected trends in market behavior or interest rates.
Positions in futures contracts may be closed out only on the exchange on which
they were entered into (or through a linked exchange) and no secondary market
exists for those contracts. In addition, although the Fund intends to
enter into futures contracts only if there is an active market for the
contracts, there is no assurance that an active market will exist for the
contracts at any particular time. Most futures exchanges and boards of trade
limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures
contract prices could move to the daily limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of
futures positions and subjecting some futures traders to substantial losses.
In such event, and in the event of adverse price movements, the Fund
would be required to make daily cash payments of variation margin; in such
circumstances, an increase in the value of the portion of the portfolio being
hedged, if any, may partially or completely offset
losses on the futures contract. As described above, however, no assurance
can be given that the price of the securities being hedged will correlate
with the price movements in a futures contract and thus provide an offset to
losses on the futures contract.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions for the
protection of shareholders. Restrictions 1 through 7 below cannot be
changed without approval by the holders of a majority of the outstanding
shares of a Fund, defined as the
lesser of (a) 67% or more of a Fund's shares present at a
meeting, if the holders of more than 50% of the outstanding shares are present
in person or by proxy or (b) more than 50% of a Fund's outstanding shares. The
remaining restrictions may be changed by the
Fund's Board of Directors at any time. In accordance with these restrictions,
the Fund will not:
1. Invest in a manner that would cause it to fail to be a "diversified company"
under the 1940 Act and the rules, regulations and orders thereunder.
2. Issue "senior securities" as defined in the 1940 Act, and the rules,
regulations and orders thereunder, except as permitted under the 1940 Act and
the rules, regulations and orders thereunder.
3. Invest more than 25% of its total assets in securities, the issuers of which
4. conduct their principal business activities in the same industry. For
5. purposes of this limitation, securities of the
U.S. government (including its agencies and instumentalities) and securities of
state or municipal governments and their political subdivisions are not
considered to be issued by members of any industry.
4. Borrow money, except that (a) the Fund may borrow from banks for
temporary or emergency (not leveraging) purposes, including the meeting of
redemption requests which might otherwise require the
untimely disposition of securities, and (b) the Fund may, to the extent
consistent with its investment policies, enter into reverse repurchase
agreements, forward roll transactions and similar investment
strategies and techniques. To the extent that it engages in transactions
described in (a) and (b), the Fund will be limited so that no more than 33 1/3%
of the value of its total assets (including the
amount borrowed), valued at the lesser of cost or market, less liabilities (not
including the amount borrowed) valued at the time the borrowing is made, is
derived from such transactions.
5. Make loans. This restriction does not apply to: (a) the purchase of debt
obligations in which the Fund may invest consistent with its investment
objective and policies; (b) repurchase agreements; and
(c) loans of its portfolio securities, to the fullest extent permitted
under the 1940 Act.
6. Engage in the business of underwriting securities issued by other persons,
except to the extent that the Fund may technically be deemed to be an
underwriter under the Securities Act of 1933, as
amended, in disposing of portfolio securities.
7. Purchase or sell real estate, real estate mortgages, commodities or
commodity contracts, but this restriction shall not prevent the Fund from:
(a) investing in securities of issuers engaged in the real estate business
or the business of investing in real estate (including interests in limited
partnerships owning or otherwise engaging in the real estate business or the
business of investing in real estate) and securities which are secured by real
estate or interests therein; (b) holding or selling real estate received in
connection with securities it holds or held; (c) trading in futures
contracts and options on futures contracts (including options on currencies to
the extent consistent with the Fund's investment objective and policies);
or (d) investing in real estate investment trust securities.
8. Purchase any securities on margin (except for such short-term credits as are
necessary for the clearance of purchases and sales of portfolio
securities) or sell any securities short (except "against the box"). For
purposes of this restriction, the deposit or payment by the Fund of
underlying securities and other assets in escrow and collateral agreements with
respect to initial or maintenance margin in connection with futures contracts
and related options and options on securities, indexes or
similar items is not considered to be the purchase of a security on margin.
9. Invest in oil, gas or other mineral exploration or development programs.
10. Purchase or otherwise acquire any security if, as a result, more
than 15% of its net assets would be invested in securities that are illiquid.
11. Invest for the purpose of exercising control over or management of the
issuer.
12. Invest in securities of an issuer which, together with any predecessor,
has been in operation for less than three years if, as a result, more than
5% of the total assets of the Fund would then be invested in such securities
(for purposes of this restriction, issuers include predecessors, sponsors,
controlling persons, general guarantors and originators of underlying assets).
If any percentage restriction described above is complied with at the time
of an investment, a later increase or decrease in percentage resulting from
a change in values or assets will not constitute a violation of such
restriction.
Portfolio Turnover
The Fund's portfolio turnover rate (the lesser of purchases or sales of
portfolio securities during the year, excluding purchases or sales of
short-term securities, divided by the monthly average value
of portfolio securities) is generally not expected to exceed 150%. The rate of
turnover will not be a limiting factor, however, when the Fund deems it
desirable to sell or purchase securities. This policy
should not result in higher brokerage commissions to the Fund, as purchases and
sales of portfolio securities are usually effected as principal transactions.
Securities may be sold in anticipation of a rise in interest rates (market
decline) or purchased in anticipation of a decline in interest rates
(market rise) and later sold. In addition, a security may be sold and another
security of comparable quality purchased at approximately the same time to take
advantage of what the Fund believes to be a temporary disparity in the normal
yield relationship between the two securities. These yield
disparities may occur for reasons not directly related to the investment
quality of particular issues or the general movement of interest rates,
such as changes in the overall demand for, or supply of, various types of
tax-exempt securities.
Portfolio Transactions
Decisions to buy and sell securities for the Fund are made by the Manager,
subject to the overall review of the Company's Board of Directors. Although
investment decisions for the Fund are made
independently from those of the other accounts managed by the Manager,
investments of the type the Fund may make also may be made by those other
accounts. When the Fund and one or more other accounts
managed by the Manager are prepared to invest in, or desire to dispose of, the
same security, available investments or opportunities for sales will be
allocated in a manner believed by the Manager
to be equitable to each. In some cases, this procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained or
disposed of by the Fund.
Allocation of transactions on behalf of the Fund, including their frequency, to
various dealers is determined by the Manager in its best judgment and in a
manner deemed fair and reasonable to the Fund's shareholders. The primary
considerations of the Manager in allocating transactions are
availability of the desired security and the prompt execution of orders in an
effective manner at the most favorable prices. Subject to these considerations,
dealers that provide supplemental investment research and statistical or other
services to the Manager may receive orders for portfolio
transactions by the Fund. Information so received is in addition to, and not in
lieu of, services required to be performed by the Manager, and the fees of the
Manager are not reduced as a consequence of their receipt of the supplemental
information. The information may be useful to the Manager in
serving both the Fund and other clients, and conversely, supplemental
information obtained by the placement of business of other clients may be
useful to the Manager in carrying out its obligations to the Fund.
The Fund will not purchase securities during the existence of any underwriting
or selling group relating to the securities, of which the Manager is a member,
except to the extent permitted by the SEC. Under certain circumstances,
the Fund may be at a disadvantage because of this limitation in
comparison with other funds that have similar investment objectives but
that are not subject to a similar limitation.
Even though investment decisions for the Fund are made independently from those
of the other accounts managed by the SSB Citi, investments of the kind made by
the Fund also may be made by those other accounts. When the Fund and one or
more accounts managed by SSB Citi are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities
for sales will be allocated in a manner believed by SSB Citi to be equitable.
In some cases, this procedure may adversely affect the price paid or
received by the Fund or the size of the position obtained for or disposed
of by the Fund.
PURCHASE OF SHARES
Sales Charge Alternatives
The following classes of shares are available for purchase. See the Prospectus
for a discussion of factors to consider in selecting which Class of shares to
purchase.
Class A Shares. Class A shares are sold to investors at the public offering
price, which is the net asset value plus an initial sales charge as follows:
Sales Charge
Amount of
Investment
% of Offering
Price
% of Amount
Invested
Dealers'
Reallowance as %
of Offering Price
Less than $25,000
5.00%
5.26%
4.50%
$25,000 - 49,999
4.00
4.17
3.60
50,000 - 99,999
3.50
3.63
3.15
100,000-249,999
3.00
3.09
2.70
250,000-499,999
2.00
2.04
1.80
500,000 - and
over
*
*
*
* 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 deferred sales
charge of 1.00% on redemptions made within 12 months of purchase. The deferred
sales charge 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 deferred sales
charge is waived in the same circumstances in which the deferred sales charge
applicable to Class B and Class L shares is waived. See "Deferred Sales Charge
Alternatives" and "Waivers of Deferred Sales Charge."
Members of the selling group may receive up to 90% of the sales charge and may
be deemed to be underwriters of the fund as defined in the 1933 Act. The
reduced sales charges shown above apply to the aggregate of purchases of
Class A shares of the fund made at one time by "any person," which
includes an individual and his or her immediate family, or a trustee or other
fiduciary of a single trust estate or single fiduciary account.
Class B Shares. Class B shares are sold without an initial sales charge
but are subject to a deferred sales charge payable upon certain redemptions.
See "Deferred Sales Charge Provisions" below.
Class L Shares. Class L shares are sold with an initial sales charge of 1.00%
(which is equal to 1.01% of the amount invested) and are subject to a deferred
sales charge payable upon certain redemptions. See "Deferred Sales Charge
Provisions" below. Until June 22, 2001 purchases of Class L
shares by investors who were holders of Class C shares of other Smith Barney
Mutual Funds on June 12, 1998 will not be subject to the 1% initial sales
charge.
Class Y Shares. Class Y shares are sold without an initial sales charge or
deferred sales charge and are available only to investors investing a minimum
of $15,000,000 (except for purchases of Class Y shares by Smith Barney
Concert Allocation Series Inc., for which there is no minimum purchase amount).
General
Investors may purchase shares from a Salomon Smith Barney Financial Consultant
or a broker that clears through Salomon Smith Barney ("Dealer
Representative").In addition, certain investors, including
qualified retirement plans purchasing through certain Dealer Representatives,
may purchase shares directly from the fund. When purchasing shares of the
fund, investors must specify whether the purchase is for Class A, Class B,
Class L or Class Y shares. 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 First Data are not subject to a maintenance fee.
Investors in Class A, Class B and Class L shares may open an account in the
fund by making an initial investment of at least $1,000 for each account, or
$250 for an IRA or a Self-Employed Retirement Plan, in the fund.
Investors in Class Y shares may open an account by making an initial
investment of $15,000,000. Subsequent investments of at least $50 may be
made for all Classes. For participants in retirement plans qualified under
Section 403(b)(7) or Section 401(c) of the Code, the minimum initial
investment required for Class A, Class B and Class L shares and the
subsequent investment requirement for all Classes in the fund is $25.
For shareholders purchasing shares of the fund through the Systematic
Investment Plan on a monthly basis, the minimum initial investment
requirement for Class A, Class B and Class L shares and subsequent
investment requirement for all Classes is $25. For shareholders purchasing
shares of the fund through the Systematic Investment
basis, the minimum initial investment required for Class A, Class B and Class L
shares and the subsequent investment requirement for all Classes is $50. There
are no minimum investment requirements for Class A shares for employees of
Citigroup Inc. ("Citigroup") and its subsidiaries,
including Salomon Smith Barney, unitholders who invest distributions from a
Unit Investment Trust ("UIT") sponsored by Salomon Smith Barney, and
Directors/Trustees of any of the Smith Barney Mutual Funds, and their spouses
and children. The fund reserves the right to waive or change minimums, to
decline any order to purchase its shares and to suspend the offering of shares
from time to time. Shares purchased will be held in the shareholder's account
by First Data. Share certificates are issued only upon a shareholder's written
request to First Data.
Purchase orders received by the fund or a Salomon Smith Barney Financial
Consultant prior to the close of regular trading on the New York Stock Exchange
("NYSE"), on any day the fund calculates its net asset value, are priced
according to the net asset value determined on that day (the ''trade date'').
Orders received by a Dealer Representative prior to the close of regular
trading on the NYSE on any day the fund calculates its net asset value, are
priced according to the net asset value determined on
that day, provided the order is received by the fund or the fund's agent prior
to its close of business. For shares purchased through Salomon Smith Barney
or a Dealer Representative purchasing through Salomon Smith Barney, payment for
shares of the 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
First Data is authorized through preauthorized transfers of
at least $25 on a monthly basis or at least $50 on a quarterly basis to charge
the shareholder's account held with a bank or other financial institution on a
monthly or quarterly basis as indicated by the shareholder, to provide for
systematic additions to the shareholder's fund account. A
shareholder who has insufficient funds to complete the transfer will be charged
a fee of up to $25 by Salomon Smith Barney or First Data. 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 fund or a Salomon
Smith Barney Financial Consultant or a Dealer Representative.
Sales Charge Waivers and Reductions
Initial Sales Charge Waivers. Purchases of Class A shares may be made at net
asset value without a sales charge in the following circumstances: (a) sales to
(i)Board Members and employees of 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 the 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 Smith Barney Mutual Fund that is
offered with a sales charge) and who
wish to reinvest their redemption proceeds in the fund, provided the
reinvestment is made within 60 calendar days of the redemption; (e) purchases
by accounts managed by 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 Smith Barney 401(k) Program (Note: subsequent
investments will be subject to the applicable sales charge);
(g) purchases by a separate account used to fund certain unregistered
variable annuity contracts; (h) investments of distributions from a UIT
sponsored by Salomon Smith Barney; (i) purchases by
investors participating in a Salomon Smith Barney fee-based arrangement;
and (j) purchases by Section 403(b) or Section 401(a) or (k) accounts
associated with Copeland Retirement Programs. In order to obtain such
discounts, the purchaser must provide sufficient information at the time of
purchase to permit verification that the purchase would qualify for the
elimination of the sales charge.
Right of Accumulation. Class A shares of the fund may be purchased by ''any
person'' (as defined above) at a reduced sales charge or at net asset value
determined by aggregating the dollar amount of the new purchase and the total
net asset value of all Class A shares of the fund and of most other
Smith Barney Mutual Funds that are offered with a sales charge then held
by such person and applying the sales charge applicable to such aggregate.
n 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 an amount of $50,000
or more provides an opportunity for an investor to obtain a reduced sales
charge by aggregating investments over a 13 month period, provided that the
investor refers to such Letter when placing orders. For purposes of a
Letter of Intent, the ''Amount of Investment'' as referred to in the preceding
sales charge table includes (i) all Class A shares of the fund and other Smith
Barney Mutual Funds offered with a sales charge acquired during the term of the
letter plus (ii) the value of all Class A shares previously
purchased and still owned. Each investment made 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. The term of the Letter will commence upon the date the
Letter is signed, or at the options of the investor, up to 90 days before
such date. Please contact a Salomon Smith Barney Financial Consultant or
First Data 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).
Investors must make an initial minimum purchase of $5,000,000 in Class Y
shares of the fund and agree to purchase a total of $15,000,000 of Class Y
shares of the fund within 13 months from the date of the Letter. If a total
investment of $15,000,000 is not made within the 13-month period, all
Class Y shares purchased to date will be transferred to Class A shares,
where they will be subject to all fees (including a service fee of 0.25%)
and expenses applicable to the fund's Class A shares, which may include a
deferred sales charge of 1.00%. Please contact a Salomon Smith Barney
Financial Consultant or First Data for further information.
Deferred Sales Charge Provisions
''Deferred Sales Charge Shares'' are: (a) Class B shares; (b) Class L shares;
and (c) Class A shares that were purchased without an initial sales charge but
are subject to a deferred sales charge. A deferred sales charge may be imposed
on certain redemptions of these shares.
Any applicable deferred sales charge 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. Deferred Sales Charge Shares that are redeemed
will not be subject to a deferred sales charge 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
Deferred Sales Charge Shares, shares redeemed more than 12 months after their
purchase.
Class L shares and Class A shares that are Deferred Sales Charge Shares are
subject to a 1.00% deferred sales charge if redeemed within 12 months of
purchase. In circumstances in which the deferred sales charge 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 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
Deferred Sales Charge
First
5.00%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth and thereafter
0.00
Class B shares will convert automatically to Class A shares eight years after
the date on which they were purchased and thereafter will no longer be subject
to any distribution fees. There 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.
In determining the applicability of any deferred sales charge, it will be
assumed that a redemption is made first of shares representing capital
appreciation, next of shares representing the reinvestment
of dividends and capital gain distributions and finally of other shares held by
the shareholder for the longest period of time. The length of time that
Deferred Sales Charge 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 deferred sales charge will reduce the gain or increase the loss, as the
case may be, on the amount realized on redemption. The amount of any deferred
sales charge will be paid to Salomon Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares of the
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 deferred sales
charge 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 Deferred Sales Charge
The deferred sales charge will be waived on: (a) exchanges (see ''Exchange
Privilege''); (b) automatic cash withdrawals in amounts equal to or less than
1.00% per month of the value of the shareholder's
shares at the time the withdrawal plan commences (see ''Automatic Cash
Withdrawal Plan'') (provided, however, that automatic cash withdrawals in
amounts equal to or less than 2.00% per month of the value
of the shareholder's shares will be permitted for withdrawal plans that were
established prior to November 7, 1994); (c) redemptions of shares within 12
months following the death or disability of the
shareholder; (d) 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 a combination of the fund with any investment company by
merger, acquisition of assets or otherwise. In addition, a shareholder who has
redeemed shares from other Smith Barney Mutual
Funds may, under certain circumstances, reinvest all or part of the redemption
proceeds within 60 days and receive pro rata credit for any deferred sales
charge imposed on the prior redemption.
Deferred sales charge 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 First Data in the case of all
other shareholders) of the shareholder's status or holdings, as the case may be.
Smith Barney 401(k) and 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.
The 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 the fund, all of
its subsequent investments in the fund must be in the same Class of shares,
except as otherwise described below.
Class A Shares. Class A shares of the fund are offered without any sales
charge or 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 the 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 the Smith Barney ExecChoiceTM Program, a Participating
Plan's total Class L and Class O 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 fund. 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 a
Participating Plan's 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 and Class O shares for Class A shares of the fund. Such
Plans will be notified in writing within 30 days after the last
business day of the calendar year and, unless the exchange offer has been
rejected in writing, the exchange will occur on or about the last business day
of the following March.
Any Participating Plan in the Smith Barney 401(k) or the Smith Barney
ExecChoiceTM Programs, whether opened before or after June 21, 1996, that has
not previously qualified for an exchange into Class A shares will be offered
the opportunity to exchange all of its Class L shares for Class A shares of the
fund, regardless of asset size, at the end of the eighth year after the
date the Participating Plan enrolled in the Smith Barney 401(k) Program.
Such Plans will be notified of the pending exchange in writing
approximately 60 days before the
eighth anniversary of the enrollment date and, unless the
exchange has been rejected in writing, the exchange will occur on or about the
eighth anniversary date. Once an exchange has occurred, a Participating Plan
will not be eligible to acquire additional Class L shares of the fund, but
instead may acquire Class A shares of the fund. Any Class L shares not
converted will continue to be subject to the distribution fee.
Participating Plans wishing to acquire shares of the fund through the Smith
Barney 401(k) Program or the Smith Barney 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.
REDEMPTION OF SHARES
Detailed information on how to redeem shares of the Fund is included in the
Prospectus. The right of redemption of shares of the Fund may be suspended or
the date of payment postponed (a) for any periods
during which the New York Stock Exchange, Inc. (the "NYSE") is closed (other
than for customary weekend and holiday closings), (b) when trading in the
markets the Fund normally utilizes is restricted, or an emergency exists, as
determined by the SEC, so that disposal of the Fund's
investments or determination of its net asset value is not reasonably
practicable or (c) for any other periods as the SEC by order may permit for the
protection of the Fund's shareholders.
Distributions in Kind
If the Board of Directors of the Company determines that it would be
detrimental to the best interests of the remaining shareholders to make a
redemption payment wholly in cash, the Fund may pay, in accordance with SEC
rules, any portion of a redemption in excess of the lesser of $250,000 or
1.00% of the Fund's net assets by a distribution in kind of portfolio
securities in lieu of cash. Securities issued as a distribution in kind
may incur brokerage commissions when shareholders subsequently sell those
securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan") is available to
shareholders who own shares with a value of at least $10,000 ($5,000 for
retirement plan accounts) and who wish to receive specific amounts of cash
monthly or quarterly. Withdrawals of at least $50 may be made under the
Withdrawal Plan by redeeming as many shares of the Fund as may be necessary to
cover the stipulated withdrawal payment. To the extent withdrawals exceed
dividends, distributions and appreciation of a
shareholder's investment in the Fund, there will be a reduction in the value of
the shareholder's investment and continued withdrawal payments will reduce the
shareholder's investment and ultimately may exhaust it. Withdrawal payments
should not be considered as income from investment in the Fund.
Furthermore, as it generally would not be advantageous to a shareholder to make
additional investments in the Fund at the same time he or she is participating
in the Withdrawal Plan, purchases by such shareholders in amounts of less than
$5,000 ordinarily will not be permitted.
Shareholders who wish to participate in the Withdrawal Plan and who hold their
shares in certificate form must deposit their share certificates with First
Data as agent for Withdrawal Plan members. All dividends and distributions
on shares in the Withdrawal Plan are reinvested automatically at net asset
value in additional shares of the Fund. Withdrawal Plans should be set up
with a Salomon Smith Barney Financial Consultant. Applications for
participation in the Withdrawal Plan must be received by First Data no
later than the eighth day of the month to be eligible for participation
beginning with that month's withdrawal. For additional information,
shareholders should contact a Salomon Smith Barney Financial Consultant.
DISTRIBUTOR
CFBDS serves as the Fund's distributor on a best efforts basis pursuant to a
written agreement (the Distribution Agreement"), which was approved by the
Company's Board of Directors.
Distribution Arrangements
To compensate Salomon Smith Barney for the services it provides and for the
expense it bears under the Distribution Agreement, the Fund has adopted a
services and distribution plan (the "Plan") pursuant to
Rule l2b-1 under the 1940 Act. Under the Plan, the Fund pays Salomon Smith
Barney a service fee, accrued daily and paid monthly, calculated at the annual
rate of 0.25% of the value of the Fund's average daily net assets attributable
to the Class A, Class B and Class L shares. In addition, the
Fund pays Salomon Smith Barney a distribution fee with respect to the Class B
and Class L shares primarily intended to compensate Salomon Smith Barney
for its initial expense of paying Financial Consultants a commission upon
sales of those shares. The Class B and Class L distribution fee is
calculated at the annual rate of 0.75% of the value of the Fund's average
daily net assets attributable to the shares of the respective Class.
VALUATION OF SHARES
The net asset value per share of the Fund's Classes is calculated on each day,
Monday through Friday, except days on which the NYSE is closed. The NYSE
currently is scheduled to be closed on New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas, and on the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday, respectively.
Because of the differences in distribution fees and Class-specific expenses,
the per share net asset value of each Class may differ. The following is
a description of the procedures used by the Fund in valuing its assets.
Securities listed on a national securities exchange will be valued on the basis
of the last sale on the date on which the valuation is made or, in the absence
of sales, at the mean between the closing bid and asked prices.
Over-the-counter securities will be valued at the mean between the closing bid
and asked prices on each day, or, if market quotations for those securities are
not readily available, at fair value, as determined in good faith by the
Company's Board of Directors. Short-term obligations
with maturities of 60 days or less are valued at amortized cost, which
constitutes fair value as determined by the Fund's Board of Directors.
Amortized cost involves valuing an instrument at its original cost to the
Fund and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the effect of fluctuating interest rates
on the market value of the instrument. All other securities and other
assets of the Fund will be valued at fair value as determined in good faith
by the Company's Board of Directors.
EXCHANGE PRIVILEGE
Except as noted below and in the Prospectus, shareholders of any of the Smith
Barney Mutual Funds may exchange all or part of their shares for shares of the
same class of other Smith Barney Mutual Funds, to the extent such shares are
offered for sale in the shareholder's state of residence, on the basis
of relative net asset value per share at the time of exchange as follows:
A. Class A and Class Y shares of the Fund may be exchanged without a sales
charge for the respective shares of any of the Smith Barney Mutual Funds.
B. Class B shares of any fund may be exchanged without a sales charge. Class B
shares of the Fund exchanged for Class B shares of another Smith Barney Mutual
Fund will be subject to the higher applicable deferred sales charge of the two
funds and, for purposes of calculating deferred sales charge rates and
conversion periods, will be deemed to have been held since the date the shares
being exchanged were deemed to be purchased.
C. Class L shares of any fund may be exchanged without a sales charge. For
purposes of deferred sales charge applicability, Class L shares of the Fund
exchanged for Class L shares of another Smith Barney Mutual Fund will be deemed
to have been owned since the date the shares being exchanged were deemed to be
purchased.
The exchange privilege enables shareholders to acquire shares of the same Class
in a fund with different investment objectives when they believe that a shift
between funds is an appropriate investment decision. This privilege is
available to shareholders residing in any state in which fund shares being
acquired may legally be sold. Prior to any exchange, the shareholder should
obtain and review a copy of the current prospectus of each fund into which
an exchange is being considered. Prospectuses may be obtained from a
Salomon Smith Barney Financial Consultant.
Upon receipt of proper instructions and all necessary supporting documents,
shares submitted for exchange are redeemed at the then-current net asset value
and the proceeds are immediately invested, at a price as described above, in
shares of the fund being acquired. Salomon Smith Barney reserves the right to
reject any exchange request. The exchange privilege may be modified or
terminated at any time after written notice to shareholders.
PERFORMANCE DATA
From time to time, the Company may quote the Fund's yield or total return in
advertisements or in reports and other communications to shareholders. The
Company may include comparative performance information in advertising or
marketing the Fund's shares. Such performance information may include
the following industry and financial publications- Barron's, Business Week, CDA
Investment Technologies, Inc., Changing Times, Forbes, Fortune, Institutional
Investor, Investors Daily, Money, Morningstar Mutual Fund Values, The New York
Times, USA Today and The Wall Street Journal. To the extent any advertisement
or sales literature of the Fund describes the expenses or performance of any
Class it will also disclose such information for the other Classes.
Average Annual Total Return
"Average annual total return" figures are computed according to a formula
prescribed by the SEC. The formula can be expressed as follows:
P (1 + T)n = ERV
Where: P = a hypothetical initial payment of $ 1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical $1,000 investment made
at the beginning of a 1-, 5- or 10-year period at the end of the 1-, 5- or
10-year period (or fractional portion thereof), assuming reinvestment
of all dividends and distributions.
Performance will vary from time to time depending on market conditions, the
composition of the Fund's portfolio and operating expenses. Consequently, any
given performance quotation should not be considered representative of the
Fund's performance for any specified period in the future. Because
performance will vary, it may not provide a basis for comparing an investment
in the Fund with certain bank deposits or other investments that pay a
fixed yield for a stated period of time.
TAXES
The following is a summary of certain Federal income tax considerations that
may affect the Fund and its shareholders. The summary is not intended as a
substitute for individual tax advice and investors are urged to consult their
own tax advisors as to the tax consequences of an investment in the Fund.
The Company intends to qualify each year as a regulated investment company
under the Code. If the Fund (a) qualifies as a regulated investment company
and (b) distributes to its shareholders at least 90% of its net investment
income (including, for this purpose, its net realized short-term capital
gains), the Fund will not be liable for Federal income taxes to the extent
that its net investment income and its net realized long- and short term
capital gains, if any, are distributed to its shareholders.
As described above, the Fund may invest in futures contracts and options on
futures contracts that are traded on a U.S. exchange or board of trade. As a
general rule, these investment activities will
increase or decrease the amount of long-term and short-term capital gains or
losses realized by the Fund and, thus, will affect the amount of capital
gains distributed to the Fund's shareholders.
For federal income tax purposes, gain or loss on the futures and options
described above (collectively referred to as "Section 1256 Contracts")
would, as a general rule, be taxed pursuant to a special "mark-to-market
system." Under the mark-to-market system", the Fund may be treated as
realizing a greater or lesser amount of gains or losses than actually
realized. As a general rule, gain or loss on Section 1256 Contracts is \
treated as 60% long-term capital gain or loss and 40% short-term capital
gain or loss, and as a result, the mark-to market will generally affect the
amount of capital gains or losses taxable to the Fund and the amount of
distributions taxable to a shareholder. Moreover, if the Fund invests in
both Section 1256 and offsetting positions in those contracts, then the Fund
may not be able to receive the benefit of certain realized losses for an
indeterminate period of time. The Fund expects that its activities with
respect to Section 1256 Contracts and offsetting position in those Contracts
(1) will not cause it or its shareholders to be treated as receiving a
materially greater amount of capital gains or distributions than actually
realized or received and (2) will permit it to use substantially all of its
losses for the fiscal years in which the losses actually occur.
Gains or losses on the sales of stock or securities by the Fund generally will
be long-term capital gains or losses if a Fund has held the stock or securities
for more than one year. Gains or losses on sales of stock or securities held
for not more than one year generally will be short-term capital gains or losses.
Foreign countries may impose withholding and other taxes on dividends and
interest paid to the Fund with respect to investments in foreign securities.
However, certain foreign countries have entered
into tax conventions with the United States to reduce or eliminate such taxes.
Distributions of long-term capital gains will be taxable to shareholders as
such, whether paid in cash or reinvested in additional shares and regardless of
the length of time that the shareholder has held his or her interest in the
Fund. If a shareholder receives a distribution taxable as long-term capital
gain with respect to his or her investment in the Fund and redeems or
exchanges the shares before he or she has held them for more than six
months, any loss on the redemption or exchange that is less than or equal
to the amount of the distribution will be treated as a long-term capital loss.
Any net long-term capital gains realized by the Fund will be distributed
annually as described in the Prospectus. Such distributions ("capital gain
dividends") will be taxable to shareholders as long-term
capital gains, regardless of how long a shareholder has held Fund shares, and
will be designated as capital gain dividends in a written notice mailed by the
Fund to shareholders after the close of the
Fund's prior taxable year. If a shareholder receives a capital gain dividend
with respect to any share and if the share has been held by the shareholder for
six months or less, then any loss on the sale or exchange of such share will be
treated as a long-term capital loss to the extent of the capital gain
dividend.
Investors considering buying shares of the Fund on or just prior to a record
date for a taxable dividend or capital gain distribution should be aware that,
regardless of whether the price of the Fund shares to be purchased reflects the
amount of the forthcoming dividend or distribution payment,
any such payment will be a taxable dividend or distribution payment.
If a shareholder fails to furnish a correct taxpayer identification number,
fails fully to report dividend and interest income, or fails to certify that he
or she has provided a correct taxpayer identification number and that he or she
is not subject to "backup withholding," then the shareholder may be subject
to a 31% backup withholding tax with respect to (a) any taxable dividends and
distributions and (b) the proceeds of any redemptions of Fund shares. An
individual's taxpayer identification number is his or her social security
number. The backup withholding tax is not an additional tax and may be credited
against a shareholder's regular Federal income tax liability.
The foregoing is only a summary of certain tax considerations generally
affecting the Fund and its shareholders and is not intended as a substitute for
careful tax planning. Shareholders are urged to consult their tax advisors with
specific reference to their own tax situations, including their state
and local tax liabilities.
ADDITIONAL INFORMATION
The Company was incorporated on September 29, 1981 under the name Hutton
Investment Series Inc. The Company's corporate name was changed on December
29, 1988, July 30, 1993 and October 28, 1994,to SLH Investment Portfolios Inc.,
Smith Barney Shearson Investment Funds Inc., and Smith Barney Investment
Funds Inc., respectively.
PNC Bank, located at 17th and Chestnut Streets, Philadelphia, Pennsylvania
19103, serves as the custodian of the Fund. Under its agreement with the
Company on behalf of the Fund, PNC Bank holds the Fund's portfolio
securities and keeps all necessary accounts and records.
For its services, PNC Bank receives a monthly fee based upon the month-end
market value of securities held in custody and also receives securities
transaction charges. The assets of the Fund are held under bank
custodianship in compliance with the 1940 Act.
First Data, located at Exchange Place, Boston, Massachusetts 02109, serves as
the Fund's transfer agent. Under the transfer agency agreement, First Data
maintains the shareholder account records for the Fund, handles certain
communications between shareholders and the Fund and distributes dividends
and distributions payable by the Fund. For these services, First Data
receives a monthly fee computed on the basis of the number of shareholder
accounts it maintains for the Fund during the month and is reimbursed for
out-of-pocket expenses.
Smith Barney
Small Cap Growth Fund
Statement of
Additional Information
October 11, 1999
Smith Barney
Small Cap Growth Fund
388 Greenwich Street
New York, New York 100 13
SALOMON SMITH BARNEY
A Member of Citigroup
