Registration No. 2-74288
811-3275
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
[ ] Pre-Effective Amendment No.
[X] Post-Effective Amendment No. 69
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940,
Amendment No. 71
SMITH BARNEY INVESTMENT FUNDS INC.
(Exact name of Registrant as Specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (Zip Code)
(800)-451-2010
(Registrant's Telephone Number, including Area
Code:)
Christina T. Sydor
388 Greenwich Street, New York, New York 10013(22nd
Floor)
(Name and Address of Agent For Service)
Continuous
(Approximate Date of Proposed Public Offering)
It is proposed that this filing will become
effective:
immediately upon filing pursuant to Paragraph
(b) of
Rule 485
On (date) pursuant to paragraph (b) of Rule
485
60 days after filing pursuant to paragraph
(a)(1) of
Rule 485
On (date) pursuant to paragraph (a)(1) of
Rule 485
XXX 75 days after filing pursuant to paragraph
(a)(2) of
Rule 485
On (date) pursuant to paragraph (a)(2) of
rule 485
If appropriate, check the following box:
This post-effective amendment designates a
new
effective date for a previously filed post-
effective
amendment.
Title of Securities Being Registered: Shares of
Common
Stock
PART A
<PAGE>
[SB] SMITH BARNEY
[MF] MUTUAL FUNDS
P R O S P E C T U S
Premier Selections
All Cap Growth
Fund
Class A, B, L and Y Shares
May 24, 2000
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.
77664 SB Large Cap Cvr 3/9/00 22:19 Page 1
<PAGE>
Premier Selections Fund
Contents
<TABLE>
<S> <C>
Investments, risks and performance.......................................... 2
More on the fund's investments.............................................. 9
Management.................................................................. 12
Subscription offering period................................................ 13
Choosing a class of shares to buy........................................... 14
Comparing the fund's classes................................................ 15
Sales charges............................................................... 16
More about deferred sales charges........................................... 18
Buying shares............................................................... 19
Exchanging shares........................................................... 20
Redeeming shares............................................................ 22
Other things to know about share transactions............................... 24
Salomon Smith Barney Retirement Programs.................................... 26
Dividends, distributions, and taxes......................................... 27
Share price................................................................. 28
</TABLE>
You should know: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
The Premier Selections All Cap Growth Fund is made up of a Large Cap Growth
portion, Mid Cap Growth portion and a Small Cap Growth portion (collectively
the "fund").
Investment objective
Long-term capital growth.
Principal investment strategies
Key investments
Large Cap Growth portion This portion invests primarily in equity securities of
companies with large market capitalizations. Large capitalization companies are
those with total market capitalizations of $5 billion or more at the time of
investment. Equity securities include U.S. exchange traded and over-the-counter
common stocks, debt securities convertible into equity securities, and warrants
and rights relating to equity securities.
Mid Cap Growth portion This portion invests primarily in equity securities of
medium sized companies. Medium sized companies are those whose market capital-
ization is within the market capitalization range of companies in the S&P
MidCap Index (the "Index") at the time of this portion's investment. The size
of the companies in the Index changes with market conditions and the composi-
tion of the Index. As of January 29, 1999, the largest market capitalization of
a company in the Index was $11.4 billion and the smallest market capitalization
was $0.24 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. This
portion of the fund may also invest up to 25% of its assets in securities of
foreign issuers both directly and through depositary receipts for those securi-
ties.
Small Cap Growth portion This portion 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 "Index") at the time of this portion's investment. The size of the compa-
nies 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.
This portion of the fund may
Premier Selections Fund
2
<PAGE>
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 fund's strategy is to combine the efforts of three
portfolio managers and to invest in the most attractive stock selections in the
opinion of each portfolio manager. Each portfolio manager builds a portfolio of
stocks which he or she believes will offer superior long-term capital growth
potential. Each portfolio manager may utilize up to one third of the assets to
select stocks. In connection with the execution of purchases and sales, each
portfolio manager may hold temporarily more or fewer securities than
represented by one third of the fund's assets. The size of the fund's position
in any particular security will be determined by SSB Citi Fund Management LLC
(successor to SSBC Fund Management Inc.) (the "Manager") based on the
recommendation of the portfolio managers.
In order to maintain an approximately equal division of all of the fund's
assets between the three portfolio managers, the Manager will:
.Divide all daily cash inflows (purchases and reinvested distributions) and
outflows (redemptions and expense items) between the two portfolio managers
.Rebalance the assets available for investment by each portfolio manager quar-
terly to take account of market fluctuations in order to maintain the approx-
imately equal allocation
.Rebalance the allocation of securities in the fund's portfolio at any time in
which the percentage of the fund's portfolio invested in either Large Cap,
Mid Cap and Small Cap Growth securities equals or exceeds 55% of the fund's
total assets invested in both value and growth securities for a period of
more than 10 days
As a consequence of the rebalancing of assets described above, the Manager will
reallocate assets from the better performing investment style to the other.
Reallocations may result in early recognition of taxable gains and in addi-
tional transaction costs to the extent that the sales of securities as part of
these reallocations result in higher portfolio turnover. In addition, if one
portfolio manager buys a security during a time frame when the other portfolio
manager sells it, the net position of the fund in the security may be approxi-
mately the same as it would have been with a single portfolio manager and no
such sale and purchase. The Manager will consider these costs in determining
the allocation and reallocation of assets. Where possible, in these instances,
the Manager will seek to avoid transaction costs.
Large Cap Growth portion The Large Cap Growth portion manager emphasizes indi-
vidual security selection while diversifying this portion of the fund's invest-
ments across industries, which may help to reduce risk. The Large Cap Growth
portion manager attempts to identify established large capitalization companies
with the highest growth potential. The
Smith Barney Mutual Funds
3
<PAGE>
Large Cap Growth portion manager then analyzes each company in detail, ranking
its management, strategy and competitive market position. Finally, the Large
Cap Growth portion manager attempts to identify the best values available among
the growth companies identified.
In selecting individual companies for investment, the Large Cap Growth portion
manager considers:
.Favorable earnings prospects
.Technological innovation
.Industry dominance
.Competitive products and services
.Global scope
.Long term operating history
.Consistent and sustainable long-term growth in dividends and earnings per
share
.Strong cash flow
.High return on equity
.Strong financial condition
.Experienced and effective management
Mid Cap Growth portion The Mid Cap Growth portion manager focuses on medium
capitalization companies that exhibit attractive growth characteristics. The
Mid Cap Growth portion manager selects individual "growth" stocks for invest-
ment in two ways: by identifying those companies which exhibit the most favora-
ble growth prospects and by identifying those companies which have favorable
valuations relative to their growth characteristics. This strategy is commonly
known as "growth at a reasonable price" and offers investors style diversifica-
tion within a single mutual fund. In selecting individual companies for invest-
ment, Mid Cap Growth portion the manager considers:
.Growth characteristics, including high historic growth rates and high relative
growth compared with companies in the same industry or sector
.Increasing profits and sales
.Competitive advantages that could be more fully exploited by a company
.Skilled management committed to long-term growth
.Potential for a long-term investment by this portion of the fund
The Mid Cap Growth portion manager uses fundamental research to find stocks
with strong growth potential and also uses quantitative analysis to determine
whether these stocks are relatively undervalued or overvalued compared to
stocks with similar fundamental characteristics. The Mid Cap Growth portion
manager's quantitative valuations determine whether and when this portion of
the fund will purchase or sell the stocks it identifies through fundamental
research.
Premier Selections Fund
4
<PAGE>
Small Cap Growth portion The Small Cap Growth portion manager focuses on small
capitalization companies that exhibit attractive growth character-istics. The
Small Cap Growth portion manager selects individual stocks for investment by
identifying those companies which exhibit the most favorable growth prospects.
In selecting individual companies for investment, the Small Cap Growth portion
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 this portion of the fund
The Small Cap Growth portion 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 funda-
mental research, evaluation of key management and screening techniques.
Principal risks of investing in the fund
Investors could lose money on their investments in the fund, or the fund may
not perform as well as other investments, if:
Large Cap, Mid Cap and Small Cap Growth portions
.U.S. stock markets go down, or 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
Large Cap Growth portion
.Large capitalization stock falls out of favor with investors
.The manager's judgement about the attractiveness, growth prospects or poten-
tial appreciation of a particular stock proves to be incorrect
Mid Cap Growth portion
.Medium capitalization stocks fall out of favor with investors. Because one
third of the fund's assets are invested primarily in medium capitalization
companies, an investment in the fund may be more volatile and more suscepti-
ble to loss than an investment in a fund which invests primarily in large
capitalization companies. Medium capitalization companies may have more lim-
ited product lines, markets and financial resources than large capitalization
companies. They may have shorter operating histories and more erratic busi-
nesses, although they generally have more established businesses than small
capitalization companies.
Smith Barney Mutual Funds
5
<PAGE>
The prices of medium capitalization company stocks tend to be more volatile
than the prices of large capitalization company stocks.
Small Cap Growth portion
.Key economic trends become materially unfavorable, such as rising interest
rates and levels of inflation or slowdown of economic growth
.Small capitalization stocks underperform mid capitalization and large capital-
ization stocks. Because one third of the fund's assets are invested 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 companies. Small capitalization
companies may have more limited product lines, markets and financial
resources than large capitalization companies. They may have shorter operat-
ing histories and more erratic businesses. In addition, small capitalization
company stocks may be less liquid than large capitalization company stocks.
Who may want to invest The fund may be an appropriate investment if you:
Large Cap and Mid Cap Growth portions
.Are seeking to participate in the long-term growth potential of the U.S. stock
market
Large Cap Growth portion
.Are looking for an investment with potentially greater return but higher risk
than fixed income investments
Large Cap, Mid Cap and Small Cap Growth portion
.Are willing to accept the risks of the stock market
Mid Cap and Small Cap Growth portion
.Are looking for an investment with potentially greater return but higher risk
than a fund that invests primarily in large cap companies
Small Cap Growth portion
.Are seeking to participate in the long term potential of small capitalization
growth companies
.Are willing to accept 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.
Premier Selections Fund
6
<PAGE>
Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares. Annual fund operating expense figures are based on estimated expenses
for the fiscal period ending April 30, 2000.
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 [ ]% [ ]% [ ]% [ ]%
Distribution and service (12b-1) fees 0.25% 1.00% 1.00% None
Other expenses** % % % %
----- ----- ----- ----
Total annual fund operating expenses % % % %
</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%.
**The amounts set forth in "Other expenses" have been estimated based on
expenses the fund expects to incur during its first full fiscal year
Smith Barney Mutual Funds
7
<PAGE>
Example
This example helps you compare the costs of investing in the fund with the
costs of investing in other mutual funds. Your actual costs may be higher or
lower. The example assumes:
.You invest $10,000 in the fund for the period shown
.You redeem all of your shares at the end of the period
.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) $ $
Class B (redemption at end of period) $ $
Class B (no redemption) $ $
Class L (redemption at end of period) $ $
Class L (no redemption) $ $
Class Y (with or without redemption) $ $
</TABLE>
Premier Selections Fund
8
<PAGE>
More on the fund's investments
Mid Cap Growth Portion
Secondary investment practices The fund may invest up to 35% of its assets in
equity securities of companies with market capitalizations outside the market
capitalization range of companies in the Index (i.e., small or large capital-
ization companies).
Foreign investments The fund's investments in securities of foreign issuers
involve greater risk than investments in securities of U.S. issuers. Many for-
eign countries the fund invests in have markets that are less liquid and more
volatile than markets in the U.S. In some foreign countries, less information
is available about foreign issuers and markets because of less rigorous
accounting and regulatory standards than in the U.S. Currency fluctuations
could erase investment gains or add to investment losses. The risks of invest-
ing in foreign securities are greater for securities of emerging market issuers
because political or economic instability, lack of market liquidity, and nega-
tive government actions like currency controls or seizure of private businesses
or property are more likely.
Small Cap Growth Portion
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
Large Cap Growth & Mid Cap Growth Portion
Short-term investments While the fund intends to invest substantially all of
its assets in equity securities, the fund may maintain up to 35% of its assets
in money market instruments and/or cash to pay expenses and meet redemption
requests. Generally, the value of these fixed income obligations
Smith Barney Mutual Funds
9
<PAGE>
will go down if interest rates go up, the credit rating of the security is
downgraded or the issuer defaults on its obligation to pay principal or inter-
est.
Small Cap Growth Portion
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.
Large Cap Growth Portion
The fund may invest up to 35% of its assets in equity securities of companies
with total market capitalizations below $5 billion (i.e., medium or small capi-
talization companies). The fund may invest up to 10% of its net assets in the
securities of foreign issuers in the form of depositary receipts representing
an interest in those securities.
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 coun-
tries generally have markets that are less liquid and more volatile than mar-
kets in the U.S. In some foreign countries, less information is available about
foreign issuers and markets because of less rigorous accounting and regulatory
standards than in the U.S. Currency fluctuations could erase investment gains
or add to investment losses.
Mid Cap Growth & Small Cap Growth Portion
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.
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
Premier Selections Fund
10
<PAGE>
contracts can have a big impact on the fund's stock market, currency and inter-
est rate exposure. Therefore, using derivatives can disproportionately increase
losses and reduce opportunities for gains when stock prices, currency rates or
interest rates are changing. The fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the fund's holdings.
The other parties to certain derivative contracts present the same types of
credit risk as issuers of fixed income securities. Derivatives can also make
the fund less liquid and harder to value, especially in declining markets.
Mid Cap Growth Portion
In Europe, Economic and Monetary Union (EMU) and the introduction of a single
currency began on January 1, 1999. There are significant political and economic
risks associated with EMU, which may increase the volatility of the Fund's
European investments and present valuation problems.
Large Cap Growth, Mid Cap Growth & Small Cap Growth Portion
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.
Master/feeder option The fund may in the future seek to achieve its investment
objective by investing all of its net assets in another investment company hav-
ing the same investment objective and substantially the same investment poli-
cies and restrictions as those applicable to the fund. Shareholders of the fund
will be given at least 30 days prior notice of any such investment.
Smith Barney Mutual Funds
11
<PAGE>
Management
Manager The fund's 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 subsidiaries of
Citigroup Inc. Citigroup businesses produce a broad range of financial servic-
es--asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading--and use diverse chan-
nels to make them available to consumer and corporate customers around the
world.
Alan Blake, investment officer of the Manager and managing director of Salomon
Smith Barney, is the portfolio manager responsible for the day-to-day manage-
ment of the fund's portfolio. Mr. Blake has more than 20 years of securities
business experience.
Lawrence Weissman, investment officer of the Manager and managing director of
Salomon Smith Barney, is the portfolio manager responsible for the day- to-day
management of the fund's portfolio. Mr. Weissman has more than 14 years of
securities business experience.
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.
The Manager will monitor the fund's investments to ensure that the fund
complies with its investment policies. The Manager will rebalance the alloca-
tion of value and growth securities in the fund's portfolio at the end of each
quarter and at any time in which the percentage of the fund's portfolio
invested in either value or growth securities equals or exceeds 55% of the
fund's total assets invested in both value and growth securities for a period
of more than 10 days. The Manager will also monitor the fund's portfolio to
ensure that no more than 25% of the fund's assets are concentrated in the secu-
rities of companies in the same industry.
Management fees The Manager will be paid an advisory fee equal to 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.
Premier Selections Fund
12
<PAGE>
Distribution plan The fund has adopted a Rule 12b-1 distribution plan for its
Class A, B and L shares. Under the plan, the fund pays distribution and/or
service fees. These fees are an ongoing expense and, over time, may cost you
more than other types of sales charges.
Transfer agent and shareholder servicing agent Smith Barney Private Trust Com-
pany serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement
with the transfer agent, PFPC Global Fund Services serves as the fund's sub-
transfer agent (the "sub-transfer agent") to render certain shareholder record
keeping and accounting services and functions.
Subscription offering period
Salomon Smith Barney and other broker-dealers in the selling group will solicit
subscriptions for shares of the fund during the initial offering period, which
is scheduled to end on . On the third business day after termination of
the initial offering period, subscriptions for the shares will be payable,
shares will be issued and the fund will commence investment operations.
The fund will suspend the offering of shares to new investors on . This
suspension, which is expected to last two weeks, may be lengthened or shortened
at the fund's discretion. During the suspension, existing shareholders 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 con-
tinuous offering period is expected to begin on or about .
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.
Smith Barney Mutual Funds
13
<PAGE>
Choosing a class of shares to buy
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
.If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.
.For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
.Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term invest-
ors.
You may buy shares from:
.A Salomon Smith Barney Financial Consultant
.An investment dealer in the selling group or a broker that clears through Sal-
omon Smith Barney--a dealer representative
.The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
Initial Additional
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $250 $15 million $50
Qualified Retirement Plans* $25 $15 million $25
Simple IRAs $1 n/a $1
Monthly Systematic Investment Plans $25 n/a $25
Quarterly Systematic Investment Plans $50 n/a $50
</TABLE>
* Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k)
plans
Premier Selections Fund
14
<PAGE>
Comparing the fund's classes
Your Salomon Smith Barney Financial Consultant or dealer representative can
help you decide which class meets your goals. They may receive different com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .Initial .No initial
sales sales sales or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge .Deferred .Must
tion or declines sales invest at
waiver of over time charge for least $15
initial .Converts only 1 million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than Class expenses annual classes
B and than Class expenses
Class L A than Class
A
- ------------------------------------------------------------------------
Initial sales charge Up to None 1.00% None
5.00%;
reduced for
large pur-
chases and
waived for
certain
investors.
No charge
for pur-
chases of
$500,000 or
more
- ------------------------------------------------------------------------
Deferred sales charge 1.00% 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
- ------------------------------------------------------------------------
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
- ------------------------------------------------------------------------
Exchange privilege* Class A Class B Class L Class Y
shares of shares of shares of shares of
most Smith most Smith most Smith most Smith
Barney Barney Barney Barney
funds funds funds funds
- ------------------------------------------------------------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
Smith Barney Mutual Funds
15
<PAGE>
Sales charges
Class A shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge
on the fund's distributions or dividends you reinvest in additional Class A
shares.
<TABLE>
<CAPTION>
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
<S> <C> <C>
Less than $25,000 5.00 5.26
$25,000 but less than $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 3.00 3.09
$250,000 but less than $500,000 2.00 2.04
$500,000 or more -0- -0-
</TABLE>
Investments of $500,000 or more You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of
1.00%.
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
Premier Selections Fund
16
<PAGE>
charge, if any, as if all shares had been purchased at once. You may include
purchases on which you paid a sales charge made within 90 days before you
sign the letter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
.Employees of members of the NASD
.403(b) or 401(k) retirement plans, if certain conditions are met
.Clients of newly employed Salomon Smith Barney Financial Consultants, if cer-
tain conditions are met
.Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn about additional waivers of Class A initial sales charges,
contact your Salomon Smith Barney Financial 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>
6th through
Year after purchase 1st 2nd 3rd 4th 5th 8th
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 5% 4% 3% 2% 1% 0%
</TABLE>
Class B conversion After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
Shares issued: Shares issued: Shares issued:
At initial purchase On reinvestment of Upon exchange from
dividends and another Smith
distributions Barney 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
17
<PAGE>
Class L shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1.00% (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 1.00%. 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 1.00% initial sales charge.
Class Y shares
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of pur-
chase or redemption, whichever is less, and therefore, you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
.Shares exchanged for shares of another Smith Barney fund
.Shares representing reinvested distributions and dividends
.Shares no longer subject to the deferred sales charge
Each time you place a request to sell shares, the fund will first sell any
shares in your account that are not subject to a deferred sales charge and then
the shares in your account that have been held the longest.
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.
Premier Selections Fund
18
<PAGE>
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
.On payments made through certain systematic withdrawal plans
.On certain distributions from a retirement plan
.For involuntary redemptions of small account balances
.For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant or 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.
- --------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who
fund's sub- are clients of the selling group are eligible to buy shares
transfer directly from the fund.
agent
.Write the sub-transfer agent at the following address:
Premier Selections All Cap Growth Fund Smith Barney
Investment Funds Inc.
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
.Enclose a check made payable to the fund to pay for the
shares. For initial purchases, complete and send an account
application.
.For more information, call the transfer agent at 1-800-451-
2010.
Smith Barney Mutual Funds
19
<PAGE>
Through a You may authorize Salomon Smith Barney, your dealer represen-
systematic tative or the sub-transfer agent to transfer funds automati-
investment cally from a regular bank account, cash held in a Salomon
plan Smith Barney brokerage account or Smith Barney money market
fund to buy shares on a regular basis.
.Amounts transferred should be at least: $25 monthly or $50
quarterly.
.If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer represen-
tative or the sub-transfer agent may charge you a fee.
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the SAI.
Exchanging shares
Smith Barney You should contact your Salomon Smith Barney Financial Con-
offers a sultant or dealer representative to exchange into other Smith
distinctive Barney funds. Be sure to read the prospectus of the Smith
family of Barney fund you are exchanging into. An exchange is a taxable
funds transaction.
tailored to
help meet the .You may exchange shares only for shares of the same class of
varying needs another Smith Barney fund. Not all Smith Barney funds offer
of both large all classes.
and small .Not all Smith Barney funds may be offered in your state of
investors residence. Contact your Salomon Smith Barney Financial Con-
sultant, 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 sub-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.
Premier Selections Fund
20
<PAGE>
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will continue to be mea-
sured from the date of your original purchase. If the fund
you exchange into has a higher deferred sales charge, you
will be subject to that charge. If you exchange at any time
into a fund with a lower charge, the sales charge will not be
reduced.
- --------------------------------------------------------------------------------
By telephone If you do not have a brokerage account, you may be eligible
to exchange shares through the transfer agent. You must com-
plete an authorization form to authorize telephone transfers.
If eligible, you may make telephone exchanges on any day the
New York Stock Exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 4:00 p.m. (Eastern
time).
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 sub-trans-
fer agent at the address on the next page.
Smith Barney Mutual Funds
21
<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 sub-transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However,
if you recently purchased your shares by check, your redemp-
tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests
to the sub-transfer agent at the following address:
Premier Selections All Cap Growth Fund Smith Barney
Investment Funds Inc.
(Specify class of shares)
c/o PFPC Global Fund Services
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
Premier Selections Fund
22
<PAGE>
By telephone If you do not have a brokerage account, you may be eligible
to redeem shares (except those held in retirement plans) in
amounts up to $10,000 per day through the transfer agent. You
must complete an authorization form to authorize telephone
redemptions. If eligible, you may request redemptions by tel-
ephone on any day the New York Stock Exchange is open. Call
the transfer agent at 1-800-451-2010 between 9:00 a.m. and
4:00 p.m. (Eastern time).
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 You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans ($5,000 for retirement plan accounts) and each automatic
redemption must be at least $50. If your shares are subject
to a deferred sales charge, the sales charge will be waived
if your automatic payments do not exceed 1% per month of the
value of your shares subject to a deferred sales charge.
The following conditions apply:
.Your shares must not be represented by certificates
.All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
Smith Barney Mutual Funds
23
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
.Name of the fund
.Account number
.Class of shares being bought, exchanged or redeemed
.Dollar amount or number of shares being bought, exchanged or redeemed
.Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemp-
tion request is genuine by recording calls, asking the caller to provide a per-
sonal identification number for the account, sending you a written confirmation
or requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include
a signature guarantee if you:
.Are redeeming over $10,000 of shares
.Are sending signed share certificates or stock powers to the sub-transfer
agent
.Instruct the sub-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
Premier Selections Fund
24
<PAGE>
.Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securi-
ties and Exchange Commission
.Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions The Manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other share-
holders. If so, the fund may limit additional purchases and/or exchanges by the
shareholder.
Share certificates The fund does not issue share certificates unless a written
request signed by all registered owners is made to the sub-transfer agent. If
you hold share certificates it will take longer to exchange or redeem shares.
Smith Barney Mutual Funds
25
<PAGE>
Salomon Smith Barney Retirement Programs
You may be eligible to participate in a retirement program sponsored by Salomon
Smith Barney or one of its affiliates. The fund offers Class A shares at net
asset value to participating plans under the programs. You can meet minimum
investment and exchange amounts, if any, by combining the plan's investments in
any of the Smith Barney mutual 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 and/or the
date your account is opened. Once a class of shares is chosen, all additional
purchases must be of the same class.
.For accounts opened on or after March 1, 2000 that are not part of the Paychex
offering, Class A shares may be purchased regardless of the amount invested.
.For accounts opened prior to March 1, 2000 and for accounts that are part of
the Paychex offering, the class of shares you may purchase depends on the
amount of your initial investment:
.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 to exchange into Class A shares not later than
8 years after the plan joined the program. They are eligible for exchange
in the following circumstances:
If the account was opened on or after June 21, 1996 and a total of $1 million
is invested in Smith Barney Funds Class L shares (other than money market
funds), all Class L shares are eligible for exchange after the plan is in the
program 5 years.
If the account was opened before June 21, 1996 and a total of $500,000 is
invested in Smith Barney Funds Class L shares (other than money market funds)
on December 31 in any year, all Class L shares are eligible for exchange on or
about March 31 of the following year.
For more information, call you Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.
Premier Selections Fund
26
<PAGE>
Dividends, distributions and taxes
Dividends The fund pays dividends, if any, from its net investment income and
makes capital gain distributions once a year, typically in December. The fund
may pay additional distributions and dividends at other times if necessary for
the fund to avoid a federal tax. Capital gain distributions and dividends are
reinvested in additional fund shares of the same class you hold. The fund
expects distributions to be primarily from capital gains. You do not pay a
sales charge on reinvested distributions or dividends. Alternatively, you can
instruct your Salomon Smith Barney Financial Consultant, dealer representative
or the transfer agent to have your distributions and/or dividends paid in cash.
You can change your choice at any time to be effective as of the next distribu-
tion 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 distri-
bution or dividend is paid.
Taxes In general, redeeming shares, exchanging shares and receiving distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually capital gain or
loss; long-term only if
shares owned more than
one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
</TABLE>
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a capital gain distribution or
a dividend, because it will be taxable to you even though it may actually be a
return of a portion of your investment.
After the end of each year, the fund will provide you with information about
the distributions and dividends you received and any redemptions of shares dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer identification number and any required certifications, you may be subject
to back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special
tax rules may apply, you should consult your tax adviser about your investment
in the fund.
Premier Selections Fund
27
<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 a 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. When reliable market prices or quotations are not readily available, the
fund may price those securities at fair value. Fair value is determined in
accordance with procedures approved by the fund's board. A fund that uses fair
value to price securities may value those securities higher or lower than
another fund using market quotations to price the same securities.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer repre-
sentative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders
to buy, exchange or redeem shares to the fund's agent before the agent's close
of business.
Smith Barney Mutual Funds
28
<PAGE>
(This page is intentionally left blank.)
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
Premier Selections All Cap Growth Fund
A series of Smith Barney Investment Funds Inc.
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket conditions and investment strategies that affected the fund's performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by refer-
ence into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
Information about the Fund (including the SAI) can be reviewed and copied at
the Commission's Public Reference Room in Washington D.C. In addition, informa-
tion on the operation of the Public Reference Room may be obtained by calling
the Commission at 1-202-942-8090. Reports and other information about the Fund
are available on the EDGAR Database on the Commission's Internet site at
http://www.sec.gov. Copies of this information may be obtained for a duplicat-
ing fee by electronic request at the following E-mail address:
[email protected], or by writing the Commission's Public Reference Section,
Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not law-
fully sell its shares.
SMSalomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-3275)
FD[ ] 6/00
<PAGE>
[LOGO] Smith Barney
Mutual Funds
P R O S P E C T U S
Premier
Selections Global
Growth Fund
Class A, B, L and Y Shares
- -------------------------------------------------------------------------------
May 24, 2000
The Securities and Exchange Commission has not approved or
disapproved these securities or determined whether this prospectus is
accurate or complete. Any statement to the contrary is a crime.
<PAGE>
Premier Selections Fund
Contents
<TABLE>
<S> <C>
Investments, risks and performance.......................................... 2
More on the fund's investments.............................................. 9
Management.................................................................. 11
Subscription offering period................................................ 12
Choosing a class of shares to buy........................................... 13
Comparing the fund's classes................................................ 14
Sales charges............................................................... 15
More about deferred sales charges........................................... 17
Buying shares............................................................... 18
Exchanging shares........................................................... 19
Redeeming shares............................................................ 21
Other things to know about share transactions............................... 23
Salomon Smith Barney Retirement Programs.................................... 24
Dividends, distributions, and taxes......................................... 25
Share price................................................................. 26
</TABLE>
You should know: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
The Premier Selections Global Growth Fund is made up of a U.S. Equity portion
and an International Equity portion (collectively the "fund").
Investment objective
The U.S. Equity portion seeks capital appreciation and the International Equity
Fund seeks total return on its assets from growth of capital and income.
Principal investment strategies
Key investments
U.S. Equity portion This portion invests primarily in common stocks of compa-
nies that the manager believes are experiencing, or will experience, growth in
earnings that exceeds the average rate of earnings growth of the companies
which comprise the S&P 500 Index. This portion of the fund may invest in the
securities of large, well-known companies which offer prospects of long-term
earnings growth. However, because higher earnings growth rates are often
achieved by small to medium-sized companies, a significant portion of this por-
tion's assets are invested in the securities of such companies.
International Equity portion This portion invests primarily in equity securi-
ties of foreign companies. Equity securities include exchange traded and over-
the-counter common stocks and preferred shares, debt securities convertible
into equity securities, and warrants and rights relating to equity securities.
Selection process The fund's strategy is to combine the efforts of two portfo-
lio managers and to invest in the most attractive stock selections in the opin-
ion of each portfolio manager. Each portfolio manager builds a portfolio of
stocks which he or she believes will offer superior long-term capital growth
potential. Each portfolio manager may utilize up to one half of the assets to
select stocks. In connection with the execution of purchases and sales, each
portfolio manager may hold temporarily more or fewer securities than repre-
sented by one half of the fund's assets. The size of the fund's position in any
particular security will be determined by SSB Citi Fund Management LLC (succes-
sor to SSBC Fund Management Inc.) (the "Manager") based on the recommendation
of the portfolio managers.
Premier Selections Fund
2
<PAGE>
In order to maintain an approximately equal division of all of the fund's
assets between the two portfolio managers, the Manager will:
.Divide all daily cash inflows (purchases and reinvested distributions) and
outflows (redemptions and expense items) between the two portfolio managers
.Rebalance the assets available for investment by each portfolio manager quar-
terly to take account of market fluctuations in order to maintain the approx-
imately equal allocation
.Rebalance the allocation of securities in the fund's portfolio at any time in
which the percentage of the fund's portfolio invested in either U.S. and
International securities equals or exceeds 55% of the fund's total assets
invested in both value and growth securities for a period of more than 10
days
As a consequence of the rebalancing of assets described above, the Manager will
reallocate assets from the better performing investment style to the other.
Reallocations may result in early recognition of taxable gains and in addi-
tional transaction costs to the extent that the sales of securities as part of
these reallocations result in higher portfolio turnover. In addition, if one
portfolio manager buys a security during a time frame when the other portfolio
manager sells it, the net position of the fund in the security may be approxi-
mately the same as it would have been with a single portfolio manager and no
such sale and purchase. The Manager will consider these costs in determining
the allocation and reallocation of assets. Where possible, in these instances,
the Manager will seek to avoid transaction costs.
U.S. Equity portion The U.S. Equity portion manager emphasizes individual secu-
rity selection while diversifying this portion's of the fund's investments
across industries, which may help to reduce risk. The U.S. Equity portion man-
ager focuses primarily, but not exclusively, on emerging growth companies that
have passed their "start-up" phase and show positive earnings and the prospect
of achieving significant profit gains beginning in the two to three years after
this portion's of the fund acquires their stocks. When evaluating an individual
stock, the U.S. Equity portion manager considers whether the company may bene-
fit from:
.new technologies, products or services
.new cost reducing measures
.changes in management
.favorable changes in government regulations
International Equity portion The International Equity portion manager empha-
sizes individual security selection while diversifying this portion's of
Smith Barney Mutual Funds
3
<PAGE>
the fund's investments across regions and countries which can help to reduce
risk. While the International Equity portion manager selects investments pri-
marily for their capital appreciation potential, some investments have an
income component as well. Companies in which this portion of the fund invests
may have large, mid or small size market capitalizations and may operate in any
market sector. Market conditions around the world change constantly as does the
location of potential investment opportunities. Depending on the International
Equity portion manager's assessment of overseas potential for long-term growth,
this portion's emphasis among foreign markets (including emerging markets) and
types of issuers may vary.
In selecting individual companies for investment, the International Equity por-
tion manager looks for the following:
.Above average earnings growth
.High relative return on invested capital
.Experienced and effective management
.Effective research, product development and marketing
.Competitive advantages
.Strong financial condition or stable or improving credit quality
By spreading the International Equity portion of the fund's investments across
many international markets, the International Equity portion manager seeks to
reduce volatility compared to an investment in a single region. Unlike global
mutual funds which may allocate a substantial portion of assets to the U.S.
markets, this portion of the fund invests substantially all of its assets in
countries outside of the U.S.
In allocating assets among countries and regions, the economic and political
factors the manager evaluates include:
.Low or decelerating inflation which creates a favorable environment for secu-
rities markets
.Stable governments with policies that encourage economic growth, equity
investment and development of securities markets
.Currency stability
.The range of individual investment opportunities
Principal risks of investing in the fund
U.S. Equity portion Investors could lose money on their investments in this
portion of the fund, or it may not perform as well as other investments, if:
.Stock prices decline generally
.Small or medium capitalization companies fall out of favor with investors
Premier Selections Fund
4
<PAGE>
.The manager's judgment about the attractiveness, growth prospects or potential
appreciation of a particular stock proves to be incorrect
.A particular product or service developed by a company in which the fund
invests is unsuccessful, the company does not meet earnings expectations or
other events depress the value of the company's stock
Compared to mutual funds that focus only on large capitalization companies,
this portion of the fund's share price may be more volatile because it also
invests a significant portion of its assets in small and medium capitalization
companies.
Compared to large capitalization companies, small and medium capitalization
companies are likely to have:
.More limited product lines
.Fewer capital resources
.More limited management depth
Further, securities of small and medium capitalization companies are more
likely to:
.Experience sharper swings in market values
.Be harder to sell at times and at prices the manager believes appropriate
.Offer greater potential for gains and losses
International Equity portion Investing in foreign securities can bring added
benefits, but it may also involve additional risks. Investors could lose money
on their investment in the International Equity portion of the fund, or this
portion of the fund may not perform as well as other investments, if:
.Foreign securities prices decline
.Adverse governmental action or political, economic or market instability
affects a foreign country or region
.The currency in which a security is priced declines in value relative to the
U.S. dollar
.The manager's judgment about the attractiveness, value or potential apprecia-
tion of a particular security proves to be incorrect
Economic and Monetary Union (EMU) and the introduction of a single European
currency (the Euro), which began on January 1, 1999, may increase uncertainties
relating to investment in European markets. Among other things, EMU entails
sharing a single currency and official interest rate and adhering to limits on
government borrowing by participating countries. EMU is driven by the expecta-
tion of economic benefits, however,
Smith Barney Mutual Funds
5
<PAGE>
there are significant risks associated with EMU. Monetary and economic union on
this scale has not been attempted before, and there is uncertainty whether par-
ticipating countries will remain committed to EMU in the face of changing eco-
nomic conditions.
The International Equity portion of the fund invests in certain European coun-
tries where the securities markets are less liquid and more volatile than mar-
kets in the U.S. In some European countries, less information is available
about issuers and markets because of less rigorous accounting and regulatory
standards than in the U.S. Currency fluctuations could erase investment gains
or add to investment losses. The risks of investing in the emerging markets of
Eastern Europe are substantially greater than investing in the more developed
markets of Western Europe.
Who may want to invest The fund may be an appropriate investment if you:
U.S. Equity portion
.Are seeking to participate in the long-term growth potential of small and
medium capitalization companies
.Currently have exposure to the stocks commonly held by large capitalization
and value oriented mutual funds and wish to broaden your investment portfolio
.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 more lim-
ited track records
International Equity portion
.Are seeking to participate in the long-term growth potential of international
markets
.Currently have exposure to U.S. stock markets and wish to diversify your
investment portfolio by adding non-U.S. stocks that may not move in tandem
with U.S. stocks
.Are comfortable with the risks of the stock market and the special risks of
investing in foreign securities, including emerging market securities
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.
Premier Selections Fund
6
<PAGE>
Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares. Annual fund operating expense figures are based on estimated expenses
for the fiscal period ending April 30, 2000.
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 [ ]% [ ]% [ ]% [ ]%
Distribution and service (12b-1) fees 0.25% 1.00% 1.00% None
Other expenses** % % % %
----- ----- ----- -----
Total annual fund operating expenses % % % %
</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%.
**The amounts set forth in "Other expenses" have been estimated based on
expenses the fund expects to incur during its first full fiscal year.
Smith Barney Mutual Funds
7
<PAGE>
Example
This example helps you compare the costs of investing in the fund with the
costs of investing in other mutual funds. Your actual costs may be higher or
lower. The example assumes:
.You invest $10,000 in the fund for the period shown
.You redeem all of your shares at the end of the period
.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) $ $
Class B (redemption at end of period) $ $
Class B (no redemption) $ $
Class L (redemption at end of period) $ $
Class L (no redemption) $ $
Class Y (with or without redemption) $ $
</TABLE>
Premier Selections Fund
8
<PAGE>
More on the fund's investments
U.S. Equity portion
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 foreign
securities may 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.
International Equity portion
Currency transactions The fund may enter into transactions to buy or sell cur-
rencies at a future date, which may be a few days or a number of months. The
fund may enter into these forward currency contracts to:
. Settle transactions in securities quoted in foreign currencies
. Attempt to protect against the economic impact of adverse changes in the
value of the U.S. dollar.
The fund may not fully benefit from or may lose money on forward currency
transactions if changes in currency rates do not occur as anticipated or do not
correspond accurately to changes in the value of the fund's holdings.
Debt securities The fund may invest up to 20% of its assets in debt securities
of foreign corporate and governmental issuers as well as U.S. Government secu-
rities and money market obligations of U.S. issuers. The fund may invest in all
types of debt securities of any maturity or credit quality. These securities
may be denominated in U.S. dollars or other currencies and may pay fixed or
variable rates of interest. The value of debt securities will go down if inter-
est rates go up, or the credit rating of the security is downgraded or the
issuer defaults on its obligation to pay principal or interest. These risks are
greater for debt securities rated below investment grade.
Smith Barney Mutual Funds
9
<PAGE>
Emerging markets The fund may invest up to 20% of assets in issuers located or
doing business in emerging markets. Emerging market investments offer the
potential of significant gains but also involve greater risks than investing in
more developed countries. Political or economic stability, lack of market
liquidity and government actions such as currency controls or seizure of pri-
vate businesses or property are more likely in emerging markets.
U.S. and International Equity portion
Defensive investing The fund may depart from its principal investment strate-
gies in response to adverse market, economic or political conditions by taking
temporary defensive positions in all types of money market and short-term debt
securities. If the fund takes a temporary defensive position, it may be unable
to achieve its investment goal.
Master/feeder option The fund may in the future seek to achieve its investment
objective by investing all of its net assets in another investment company hav-
ing the same investment objective and substantially the same investment poli-
cies and restrictions as those applicable to the fund.
Premier Selections Fund
10
<PAGE>
Management
Manager The fund's 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 subsidiaries of
Citigroup Inc. Citigroup businesses produce a broad range of financial servic-
es--asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading--and use diverse chan-
nels to make them available to consumer and corporate customers around the
world.
Richard Freeman, investment officer of the Manager and managing director of
Salomon Smith Barney, is the portfolio manager responsible for the day-to-day
management of the fund's portfolio. Mr. Freeman has more than 24 years of secu-
rities business experience.
Jeffrey Russell, investment officer of the Manager and managing director of
Salomon Smith Barney, is the portfolio manager responsible for the day- to-day
management of the fund's portfolio. Mr. Russell has 18 years of securities
business experience.
The Manager will monitor the fund's investments to ensure that the fund
complies with its investment policies. The Manager will rebalance the alloca-
tion of value and growth securities in the fund's portfolio at the end of each
quarter and at any time in which the percentage of the fund's portfolio
invested in either value or growth securities equals or exceeds 55% of the
fund's total assets invested in both value and growth securities for a period
of more than 10 days. The Manager will also monitor the fund's portfolio to
ensure that no more than 25% of the fund's assets are concentrated in the secu-
rities of companies in the same industry.
Management fees The Manager will be paid an advisory fee equal to 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 plan The fund has adopted a Rule 12b-1 distribution plan for its
Class A, B and L shares. Under the plan, the fund pays distribution and/or
service fees. These fees are an ongoing expense and, over time, may cost you
more than other types of sales charges.
Smith Barney Mutual Funds
11
<PAGE>
Transfer agent and shareholder servicing agent Smith Barney Private Trust Com-
pany serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement
with the transfer agent, PFPC Global Fund Services serves as the fund's sub-
transfer agent (the "sub-transfer agent") to render certain shareholder record
keeping and accounting services and functions.
Subscription offering period
Salomon Smith Barney and other broker-dealers in the selling group will solicit
subscriptions for shares of the fund during the initial offering period, which
is scheduled to end on . On the third business day after termination of
the initial offering period, subscriptions for the shares will be payable,
shares will be issued and the fund will commence investment operations.
The fund will suspend the offering of shares to new investors on , .
This suspension, which is expected to last two weeks, may be lengthened or
shortened at the fund's discretion. During the suspension, existing sharehold-
ers 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 pub-
lic. The continuous offering period is expected to begin on or about , .
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.
Premier Selections Fund
12
<PAGE>
Choosing a class of shares to buy
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
.If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.
.For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
.Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term invest-
ors.
You may buy shares from:
.A Salomon Smith Barney Financial Consultant
.An investment dealer in the selling group or a broker that clears through Sal-
omon Smith Barney--a dealer representative
.The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
Initial Additional
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $250 $15 million $50
Qualified Retirement Plans* $25 $15 million $25
Simple IRAs $1 n/a $1
Monthly Systematic Investment Plans $25 n/a $25
Quarterly Systematic Investment Plans $50 n/a $50
</TABLE>
* Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k)
plans
Smith Barney Mutual Funds
13
<PAGE>
Comparing the fund's classes
Your Salomon Smith Barney Financial Consultant or dealer representative can
help you decide which class meets your goals. They may receive different com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .Initial .No initial
sales sales sales or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge .Deferred .Must
tion or declines sales invest at
waiver of over time charge for least $15
initial .Converts only 1 million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than Class expenses annual classes
B and than Class expenses
Class L A than Class
A
- ------------------------------------------------------------------------
Initial sales charge Up to None 1.00% None
5.00%;
reduced for
large pur-
chases and
waived for
certain
investors.
No charge
for pur-
chases of
$500,000 or
more
- ------------------------------------------------------------------------
Deferred sales charge 1.00% 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
- ------------------------------------------------------------------------
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
- ------------------------------------------------------------------------
Exchange Class A Class B Class L Class Y
privilege* shares of shares of shares of shares of
most Smith most Smith most Smith most Smith
Barney Barney Barney Barney
funds funds funds funds
- ------------------------------------------------------------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
Premier Selections Fund
14
<PAGE>
Sales charges
Class A shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge
on the fund's distributions or dividends you reinvest in additional Class A
shares.
<TABLE>
<CAPTION>
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
<S> <C> <C>
Less than $25,000 5.00 5.26
$25,000 but less than $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 3.00 3.09
$250,000 but less than $500,000 2.00 2.04
$500,000 or more -0- -0-
</TABLE>
Investments of $500,000 or more You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of
1.00%.
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
Smith Barney Mutual Funds
15
<PAGE>
include purchases on which you paid a sales charge made within 90 days before
you sign the letter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
.Employees of members of the NASD
.403(b) or 401(k) retirement plans, if certain conditions are met
.Clients of newly employed Salomon Smith Barney Financial Consultants, if cer-
tain conditions are met
.Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn about additional waivers of Class A initial sales charges,
contact your Salomon Smith Barney Financial 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>
6th through
Year after purchase 1st 2nd 3rd 4th 5th 8th
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 5% 4% 3% 2% 1% 0%
</TABLE>
Class B conversion After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
Shares issued: Shares issued: Shares issued:
At initial purchase On reinvestment of Upon exchange from
dividends and another Smith
distributions Barney 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>
Premier Selections Fund
16
<PAGE>
Class L shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1.00% (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 1.00%. 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 1.00% initial sales charge.
Class Y shares
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of pur-
chase or redemption, whichever is less, and therefore, you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
.Shares exchanged for shares of another Smith Barney fund
.Shares representing reinvested distributions and dividends
.Shares no longer subject to the deferred sales charge
Each time you place a request to sell shares, the fund will first sell any
shares in your account that are not subject to a deferred sales charge and then
the shares in your account that have been held the longest.
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.
Smith Barney Mutual Funds
17
<PAGE>
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
.On payments made through certain systematic withdrawal plans
.On certain distributions from a retirement plan
.For involuntary redemptions of small account balances
.For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant or 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.
- --------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who
fund's sub- are clients of the selling group are eligible to buy shares
transfer directly from the fund.
agent
.Write the sub-transfer agent at the following address:
Premier Selections Global Growth Fund Smith Barney
Investment Funds Inc.
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
.Enclose a check made payable to the fund to pay for the
shares. For initial purchases, complete and send an account
application.
.For more information, call the transfer agent at 1-800-451-
2010.
Premier Selections Fund
18
<PAGE>
Through a You may authorize Salomon Smith Barney, your dealer represen-
systematic tative of the sub-transfer agent to transfer funds automati-
investment cally from a regular bank account, cash held in a Salomon
plan Smith Barney money market fund to buy shares on a regular
basis.
.Amounts transferred should be at least:
$25 monthly or $50 quarterly.
.If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer represen-
tative or the sub-transfer agent may charge you a fee.
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the SAI.
Exchanging shares
Smith Barney You should contact your Salomon Smith Barney Financial Con-
offers a sultant or dealer representative to exchange into other Smith
distinctive Barney funds. Be sure to read the prospectus of the Smith
family of Barney fund you are exchanging into. An exchange is a taxable
funds transaction.
tailored to
help meet the .You may exchange shares only for shares of the same class of
varying needs another Smith Barney fund. Not all Smith Barney funds offer
of both large all classes.
and small .Not all Smith Barney funds may be offered in your state of
investors residence. Contact your Salomon Smith Barney Financial Con-
sultant, 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 sub-transfer agent must
receive the certificates endorsed for transfer or with
signed stock powers (documents transferring ownership of
certificates) before the exchange is effective.
.The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges.
- --------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales charges
Smith Barney Mutual Funds
19
<PAGE>
Your deferred sales charge (if any) will continue to be mea-
sured from the date of your original purchase. If the fund
you exchange into has a higher deferred sales charge, you
will be subject to that charge. If you exchange at any time
into a fund with a lower charge, the sales charge will not be
reduced.
- --------------------------------------------------------------------------------
By telephone If you do not have a brokerage account, you may be eligible
to exchange shares through the transfer agent. You must com-
plete an authorization form to authorize telephone transfers.
If eligible, you may make telephone exchanges on any day the
New York Stock Exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 4:00 p.m. (Eastern
time).
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 sub-trans-
fer agent at the address on the next page.
Premier Selections Fund
20
<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 sub-transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However,
if you recently purchased your shares by check, your redemp-
tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests
to the sub-transfer agent at the following address:
Premier Selections Global Growth Fund Smith Barney
Investment Funds Inc.
(Specify class of shares)
c/o PFPC Global Fund Services
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
Smith Barney Mutual Funds
21
<PAGE>
By telephone If you do not have a brokerage account, you may be eligible
to redeem shares (except those held in retirement plans) in
amounts up to $10,000 per day through the transfer agent. You
must complete an authorization form to authorize telephone
redemptions. If eligible, you may request redemptions by tel-
ephone on any day the New York Stock Exchange is open. Call
the transfer agent at 1-800-451-2010 between 9:00 a.m. and
4:00 p.m. (Eastern time).
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 You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans ($5,000 for retirement plan accounts) and each automatic
redemption must be at least $50. If your shares are subject
to a deferred sales charge, the sales charge will be waived
if your automatic payments do not exceed 1% per month of the
value of your shares subject to a deferred sales charge.
The following conditions apply:
.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.
Premier Selections Fund
22
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
.Name of the fund
.Account number
.Class of shares being bought, exchanged or redeemed
.Dollar amount or number of shares being bought, exchanged or redeemed
.Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemp-
tion request is genuine by recording calls, asking the caller to provide a per-
sonal identification number for the account, sending you a written confirmation
or requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include
a signature guarantee if you:
.Are redeeming over $10,000 of shares
.Are sending signed share certificates or stock powers to the sub-transfer
agent
.Instruct the sub-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
23
<PAGE>
.Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securi-
ties and Exchange Commission
.Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions The Manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other share-
holders. If so, the fund may limit additional purchases and/or exchanges by the
shareholder.
Share certificates The fund does not issue share certificates unless a written
request signed by all registered owners is made to the sub-transfer agent. If
you hold share certificates it will take longer to exchange or redeem shares.
Premier Selections Fund
24
<PAGE>
Salomon Smith Barney Retirement Programs
You may be eligible to participate in a retirement program sponsored by Salomon
Smith Barney or one of its affiliates. The fund offers Class A shares at net
asset value to participating plans under the programs. You can meet minimum
investment and exchange amounts, if any, by combining the plan's investments in
any of the Smith Barney mutual 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 and/or the
date your account is opened. Once a class of shares is chosen, all additional
purchases must be of the same class.
.For accounts opened on or after March 1, 2000 that are not part of the Pay-
check offering, Class A shares may be purchased regardless of the amount
invested.
.For accounts opened prior to March 1, 2000 and for accounts that are part of
the Paycheck offering, the class of shares you may purchase depends on the
amount of your initial investment:
.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 to exchange into Class A shares not later than
8 years after the plan joined the program. They are eligible for exchange
in the following circumstances;
If the account was opened on or after June 21, 1996 and a total of $1 million
is invested in Smith Barney Funds Class L shares (other than money market
funds), all Class L shares are eligible for exchange after the plan is in the
program 5 years.
If the account was opened before June 21, 1996 and a total of $500,000 is
invested in Smith Barney Funds Class L shares (other than money market funds)
on December 31 in any year, all Class L shares are eligible for exchange on or
about March 31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant or
the transfer agent, or consult the SAI.
Premier Selections Fund
25
<PAGE>
Dividends, distributions and taxes
Dividends The fund pays dividends, if any, from its net investment income and
makes capital gain distributions once a year, typically in December. The fund
may pay additional distributions and dividends at other times if necessary for
the fund to avoid a federal tax. Capital gain distributions and dividends are
reinvested in additional fund shares of the same class you hold. The fund
expects distributions to be primarily from capital gains. You do not pay a
sales charge on reinvested distributions or dividends. Alternatively, you can
instruct your Salomon Smith Barney Financial Consultant, dealer representative
or the transfer agent to have your distributions and/or dividends paid in cash.
You can change your choice at any time to be effective as of the next distribu-
tion 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 distri-
bution or dividend is paid.
Taxes In general, redeeming shares, exchanging shares and receiving distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually capital gain or
loss; long-term only if
shares owned more than
one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
</TABLE>
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a capital gain distribution or
a dividend, because it will be taxable to you even though it may actually be a
return of a portion of your investment.
After the end of each year, the fund will provide you with information about
the distributions and dividends you received and any redemptions of shares dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer identification number and any required certifications, you may be subject
to back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special
tax rules may apply, you should consult your tax adviser about your investment
in the fund.
Smith Barney Mutual Funds
26
<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 a 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. When reliable market prices or quotations are not readily available, the
fund may price those securities at fair value. Fair value is determined in
accordance with procedures approved by the fund's board. A fund that uses fair
value to price securities may value those securities higher or lower than
another fund using market quotations to price the same securities.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer repre-
sentative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders
to buy, exchange or redeem shares to the fund's agent before the agent's close
of business.
Premier Selections Fund
27
<PAGE>
(This page is intentionally left blank.)
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
Premier Selections Global Growth Fund
A series of Smith Barney Investment Funds Inc.
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket conditions and investment strategies that affected the fund's performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by refer-
ence into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
Information about the Fund (including the SAI) can be reviewed and copied at
the Commission's Public Reference Room in Washington D.C. In addition, informa-
tion on the operation of the Public Reference Room may be obtained by calling
the Commission at 1-202-942-8090. Reports and other information about the Fund
are available on the EDGAR Database on the Commission's Internet site at
http://www.sec.gov. Copies of this information may be obtained for a duplicat-
ing fee by electronic request at the following E-mail address:
[email protected], or by writing the Commission's Public Reference Section,
Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not law-
fully sell its shares.
SMSalomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-3275)
FD[ ] 6/00
PART B
Smith Barney
Premier Selections All Cap Growth Fund
388 Greenwich Street
New York, New York 10013
1-800-451-2010
Statement of Additional
Information
May 24, 2000
This Statement of Additional Information ("SAI")
expands upon and supplements the information contained
in the current Prospectus of Smith Barney Premier
Selections All Cap Growth Fund consisting of the Large Cap,
Growth, Mid Cap Growth and Small Cap Growth portions
(collectively the "Fund") dated May 24, 2000, 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.
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 2
INVESTMENT RESTRICTIONS 21
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY 23
PURCHASE OF SHARES 29
REDEMPTION OF SHARES 35
VALUATION OF SHARES 37
EXCHANGE PRIVILEGE 37
PERFORMANCE DATA 38
DIVIDENDS, DISTRIBUTIONS AND TAXES 40
ADDITIONAL INFORMATION 46
FINANCIAL STATEMENTS 47
OTHER INFORMATION 47
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The prospectus discusses the Fund's investment
objective and policies. 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
associated with these investments, policies and
strategies. SSB Citi Fund Management LLC ("SSB Citi"
or the "Manager") serves as investment manager to the
Fund.
Mid Cap Growth Portion of the Fund
The Fund is an open-end, diversified, management
investment company whose investment objective is to
seek long-term growth of capital by investing, under
normal market conditions, at least 65% of its total
assets in equity securities of medium-sized companies.
Medium sized companies are those whose market
capitalization is within the market capitalization
range of companies in the S&P Mid Cap Index ("Index")
at the time of investment. The size of the companies
in the Index changes with market conditions and the
composition of the Index. As of January 29, 1999, the
largest market capitalization of a company in the
Index was $11.4 billion and the smallest market
capitalization was $240 million. Investing in medium-
capitalization stocks may involve greater risk than
investing in large capitalization stocks since they
can be subject to more abrupt or erratic movements.
However, they tend to involve less risk than stocks of
small capitalization companies.
The Fund normally invests in all types of equity
securities, including common stocks, preferred stocks,
securities that are convertible into common or
preferred stocks, such as warrants and convertible
bonds, and depository receipts for those securities.
The Fund may maintain a portion of its assets, which
will usually not exceed 10%, in U.S. Government
securities, money market obligations, and in cash to
provide for payment of the Fund's expenses and to meet
redemption requests. It is the policy of the Fund to
be as fully invested in equity securities as
practicable at all times.
Large Cap Growth Portion of the Fund
The Fund normally invests at least 65% of its total
assets in equity securities of large capitalization
companies that are dominant in their industries,
global in scope and have a long- term history of
performance. The Fund does have the flexibility,
however, to invest the balance in companies with other
market capitalizations. The Fund defines large market
capitalization companies as those with market
capitalization of $5 billion or more at the time of
the Fund's investment. Companies whose
capitalizations falls below this level after purchase
will continue to be considered large capitalization
companies for purposes of the 65% policy.
Under normal market conditions, the majority of the
Fund's portfolio will consist of common stock, but it
also may contain money market instruments for cash
management purposes. The Fund reserves the right, as
a defensive measure, to hold money market securities,
including repurchase agreements or cash, in such
proportions as, in the opinion of management,
prevailing market or economic conditions warrant.
FOREIGN SECURITIES
Large Cap Growth Portion of the Fund
The Large Cap Growth portion of the Fund may invest in
securities of foreign issuers in the form of American
Depository Receipts ("ADRs"), European Depository
Receipts ("EDRs") or similar securities representing
interests in the common stock of foreign issuers.
Management intends to limit the Fund's investment in
these types of securities to 10% of the Fund's net
assets. ADRs are receipts, typically issued by a U.S.
bank or trust company, which evidence ownership of
underlying securities issued by a foreign corporation.
EDRs are receipts issued in Europe which evidence a
similar ownership arrangement. Generally, ADRs, in
registered form, are designed for use in the U.S.
securities markets and EDRs are designed for use in
European securities markets. The underlying
securities are not always denominated in the same
currency as the ADRs or EDRs. Although investment in
the form of ADRs or EDRs facilitates trading in
foreign securities, it does not mitigate the risks
associated with investing in foreign securities.
Investments in foreign securities incur higher costs
than investments in U.S. securities, including higher
costs in making securities transactions as well as
foreign government taxes which may reduce the
investment return of the Fund. In addition, foreign
investments may include additional risks associated
with currency exchange rates, less complete financial
information about individual companies, less market
liquidity and political instability.
Mid Cap Growth Portion of the Fund
The Mid Cap Growth Portion of the Fund has the
authority to invest up to 25% 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.
There are certain risks involved in investing in
securities of companies and governments of foreign
nations that are in addition to the usual risks
inherent in domestic investments. These risks include
those resulting from revaluation of currencies, future
adverse political and economic developments and the
possible imposition of currency exchange blockages or
other foreign governmental laws or restrictions,
reduced availability of public information concerning
issuers and the lack of uniform accounting, auditing
and financial reporting standards or of other
regulatory practices and requirements comparable to
those applicable to domestic companies. The yield of
the Mid Cap Growth Portion of the Fund may be
adversely affected by fluctuations in value of one or
more foreign currencies relative to the U.S. dollar.
Moreover, securities of many foreign companies and
their markets may be less liquid and their prices more
volatile than those of securities of comparable
domestic companies. In addition, with respect to
certain foreign countries, there is the possibility of
expropriation, nationalization, confiscatory taxation
and limitations on the use or removal of Funds or
other assets of the Fund, including the withholding of
dividends. Foreign securities may be subject to
foreign government taxes that could reduce the yield
on such securities. Because the Fund may invest in
securities denominated or quoted in currencies other
than the U.S. dollar, changes in foreign currency
exchange rates may adversely affect the value of
portfolio securities and the appreciation or
depreciation of investments. Investment in foreign
securities also may result in higher expenses due to
the cost of converting foreign currency to U.S.
dollars, the payment of fixed brokerage commissions on
foreign exchanges, which generally are higher than
commissions on domestic exchanges, the expense of
maintaining securities with foreign custodians, and
the imposition of transfer taxes or transaction
charges associated with foreign exchanges. 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 Mid Cap Growth
Portion of 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. These securities may not necessarily be
denominated in the same currency as the securities
into which they may be converted. In addition, the
Mid Cap Growth Portion of the Fund may invest in
securities into which they may be converted. The Mid
Cap Growth Portion of the Fund also may invest in
securities denominated in European Currency Units
(ECUs). An ECU is a "basket" consisting of a
specified amount of currencies of certain of the
twelve member states of the European Community. In
addition, the Fund may invest in securities
denominated in other currency "baskets."
Small Cap Growth Portion of the Fund
Small Cap Growth Portion of the Fund has the authority
to invest up to 10% of its assets in foreign
securities "EDRs" and GDRs and 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
Small Cap Growth Portion of 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 PORTFOLIO SECURITIES
Small Cap Growth Portion of the Fund
Consistent with applicable regulatory requirements and
for cash management purposes, the Small Cap Growth
Portion of the Fund may lend securities from its
portfolio to brokers, dealers and other financial
organizations. The Small Cap Growth Portion of 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 Small Cap
Growth Portion of 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
Small Cap Growth Portion of 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."
Large-Cap Growth and Mid-Cap Growth Portions of the
Fund
Consistent with applicable regulatory requirements,
the Large-Cap Growth Portion and the Mid-Cap Growth
Portion of the Fund may each lend portfolio securities
to brokers, dealers and other financial organizations
that meet capital and other credit requirements or
other criteria established by the Board. The Fund
will not lend portfolio securities to affiliates of
the Adviser unless they have applied for and received
specific authority to do so from the SEC. Loans of
portfolio securities will be collateralized by cash,
letters of credit or U.S. Government Securities, which
are maintained at all times in an amount equal to at
least 102% of the current market value of the loaned
securities. Any gain or loss in the market price of
the securities loaned that might occur during the term
of the loan would be for the account of the Fund.
From time to time, the Fund may return a part of the
interest earned from the investment of collateral
received for securities loaned to the borrower and/or
a third party that is unaffiliated with the Fund and
that is acting as a "finder."
By lending its securities, the Fund can increase its
income by continuing to receive interest and any
dividends on the loaned securities as well as by
either investing the collateral received for
securities loaned 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. Although the generation of income is not
the primary investment goal of the Fund, income
received could be used to pay the Fund's expenses and
would increase an investor's total return. The Large-
Cap Growth Portion and the Mid-Cap Growth Portion of
the Fund will adhere to the following conditions
whenever its portfolio securities are loaned: (i) the
Fund must receive at least 102% cash collateral or
equivalent securities of the type discussed in the
preceding paragraph from the borrower; (ii) the
borrower must increase such collateral whenever the
market value of the securities rises above the level
of such collateral; (iii) the Fund must be able to
terminate the loan at any time; (iv) the Fund must
receive reasonable interest on the loan, as well as
any dividends, interest or other distributions on the
loaned securities and any increase in market value;
(v) the Fund may pay only reasonable custodian fees in
connection with the loan; and (vi) voting rights on
the loaned securities may pass to the borrower,
provided, however, that if a material event adversely
affecting the investment occurs, the Board must
terminate the loan and regain the right to vote the
securities. Loan agreements involve certain risks in
the event of default or insolvency of the other party
including possible delays or restrictions upon a
Fund's ability to recover the loaned securities or
dispose of the collateral for the loan.
REPURCHASE AGREEMENTS
The Fund may agree to purchase securities from a bank
or recognized securities dealer and simultaneously
commit to resell the securities to the bank or dealer
at an agreed-upon date and price reflecting a market
rate of interest unrelated to the coupon rate or
maturity of the purchased securities ("repurchase
agreements"). The Fund would maintain custody of the
underlying securities prior to their repurchase; thus,
the obligation of the bank or dealer to pay the
repurchase price on the date agreed to would be, in
effect, secured by such securities. If the value of
such securities were less than the repurchase price,
plus interest, the other party to the agreement would
be required to provide additional collateral so that
at all times the collateral is at least 102% of the
repurchase price plus accrued interest. Default by or
bankruptcy of a seller would expose the Fund to
possible loss because of adverse market action,
expenses and/or delays in connection with the
disposition of the underlying obligations. The
financial institutions with which the Fund may enter
into repurchase agreements will be banks and non-bank
dealers of U.S. Government securities that are listed
on the Federal Reserve Bank of New York's list of
reporting dealers, if such banks and non-bank dealers
are deemed creditworthy by the Fund's manager. The
manager will continue to monitor creditworthiness of
the seller under a repurchase agreement, and will
require the seller to maintain during the term of the
agreement the value of the securities subject to the
agreement to equal at least 102% of the repurchase
price (including accrued interest). In addition, the
manager will require that the value of this
collateral, after transaction costs (including loss of
interest) reasonably expected to be incurred on a
default, be equal to 102% or greater than the
repurchase price (including accrued premium) provided
in the repurchase agreement or the daily amortization
of the difference between the purchase price and the
repurchase price specified in the repurchase
agreement. The manager will mark-to-market daily the
value of the securities. Repurchase agreements are
considered to be loans by the Fund under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS
Small Cap Growth Portion and Mid Cap Growth Portions
of the Fund
The Small Cap Growth and Mid Cap Growth Portion of 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.
Each Portion currently intends to invest not more than
33% of its net assets in reverse repurchase
agreements.
WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS
Small Cap Growth Portion of the Fund
In order to secure what the Manager considers to be an
advantageous price or yield, the Small Cap Growth
Portion of 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).
Mid Cap Growth and Large Cap Growth Portions of the
Fund
The Mid Cap Growth and Large Cap Growth Portions of
the Fund may purchase securities on a "when-issued"
basis, for delayed delivery (i.e., payment or delivery
occur beyond the normal settlement date at a stated
price and yield) or on a forward commitment basis.
The Fund does not intend to engage in these
transactions for speculative purposes, but only in
furtherance of its investment goal. These
transactions occur when securities are purchased or
sold by the Fund with payment and delivery taking
place in the future to secure what is considered an
advantageous yield and price to the Fund at the time
of entering into the transaction. The payment
obligation and the interest rate that will be received
on when-issued securities are fixed at the time the
buyer enters into the commitment. Due to fluctuations
in the value of securities purchased or sold on a
when-issued, delayed-delivery basis or forward
commitment basis, the prices obtained on such
securities may be higher or lower than the prices
available in the market on the dates when the
investments are actually delivered to the buyers.
When the Fund agrees to purchase when-issued or
delayed-delivery securities, its Fund will set aside
cash or liquid securities equal to the amount of the
commitment in a segregated account on the Fund's
books. Normally, the Fund will set aside portfolio
securities to satisfy a purchase commitment, and in
such a case the Fund may be required subsequently to
place additional assets in the segregated account in
order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. The
assets contained in the segregated account will be
marked-to-market daily. It may be expected that the
Fund's net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such
purchase commitments than when it sets aside cash.
When the Fund engages in when-issued or delayed-
delivery transactions, it relies on the other party to
consummate the trade. Failure of the seller to do so
may result in the Fund's incurring a loss or missing
an opportunity to obtain a price considered to be
advantageous.
MONEY MARKET INSTRUMENTS
Small Cap Growth Portion of the Fund
As stated in the Prospectus, the Small Cap Growth
Portion of 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.
Mid Cap Growth Portion of the Fund
The Mid Cap Growth Portion of the Fund may invest for
temporary defensive purposes in short-term instruments
including corporate and government bonds and notes and
money market instruments. Short-term instruments in
which the Fund may invest include obligations of banks
having at least $1 billion in assets (including
certificates of deposit, time deposits and bankers'
acceptances of domestic or foreign banks, domestic
savings and loan associations and similar
institutions); commercial paper rated no lower than A-
2 by Standard & Poor's Ratings Group or Prime-2 by
Moody's Investors Service, Inc. or the equivalent from
another nationally recognized statistical rating
organization or, if unrated, of an issuer having an
outstanding, unsecured debt issue then rated within
the two highest rating categories; and repurchase
agreements with respect to any of the foregoing
entered into with banks and non-bank dealers approved
by the Trust's Board of Directors. 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.
Large Cap Growth Portion of the Fund
The Large Cap Growth Portion of the Fund may invest
for temporary defensive purposes in corporate and
government bonds and notes and money market
instruments. Money market instruments include:
obligations issued or guaranteed by the United States
government, its agencies or instrumentalities ("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.
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.
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."
Over-the-counter options in which the Fund may invest
differ from exchange traded options in that they are
two-party contracts, with price and other terms
negotiated between buyer and seller, and generally do
not have as much market liquidity as exchange-traded
options. The Fund may be required to treat as
illiquid over-the-counter options purchased and
securities being used to cover certain written over-
the-counter options.
Large Cap Growth and Mid Cap Growth Portion of the
Fund
The fund may purchase put and call options in
anticipation of declines in the value of portfolio
securities or increases in the value of securities to
be acquired. In the event that the expected changes
occur, the fund may be able to offset the resulting
adverse effect on its portfolio, in whole or in part,
through the options purchased. The risk assumed by
the fund in connection with such transactions is
limited to the amount of the premium and related
transaction costs associated with the option, although
the fund may be required to forfeit such amounts in
the event that the prices of securities underlying the
options do not move in the direction or to the extent
anticipated.
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 transaction. 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
Small Cap Growth Portion of the Fund
As described generally above, the Small Cap Growth
Portion of 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.
Mid Cap Growth and Large Cap Growth Portions of the
Fund
As described generally above, the Mid Cap Growth and
Large Cap Growth Portions of the Fund may invest in
stock index futures contracts and options on futures
contracts traded on a domestic exchange or board of
trade. Futures contracts provide for the future sale
by one party and purchase by another party of a
specified amount of a specific security at a specified
future time and at a specified price. The primary
purpose of entering into a futures contract by the
Fund is to protect the Fund from fluctuations in the
value of securities without actually buying or selling
the securities. The Fund may enter into futures
contracts and options on futures to seek higher
investment returns when a futures contract is priced
more attractively than stocks comprising a benchmark
index, to facilitate trading or to reduce transaction
costs. The Fund will enter into futures contracts and
options only on futures contracts that are traded on a
domestic exchange and board of trade. Assets
committed to futures contracts will be segregated at
the Fund's custodian to the extent required by law.
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 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 the manager 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 that 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.
EQUITY SECURITIES
Mid Cap Growth and Large Cap Growth Portion of the
Fund
Mid Cap Growth and Large Cap Growth Portion of the
Fund will normally invest at least 65% of its assets
in equity securities, including primarily common
stocks and, to a lesser extent, securities convertible
into common stock and rights to subscribe for common
stock. Common stocks represent an equity (ownership)
interest in a corporation. Although equity securities
have a history of long-term growth in value, their
prices fluctuate based on changes in a company's
financial condition and on overall market and economic
conditions.
CONVERTIBLE SECURITIES
Mid Cap Growth Portion of the Fund
Convertible securities in which the Mid Cap Growth
Portion of the Fund may invest, including both
convertible debt and convertible preferred stock, may
be converted at either a stated price or stated rate
into underlying shares of common stock. Because of
this feature, convertible securities enable an
investor to benefit from increases in the market price
of the underlying common stock. Convertible
securities provide higher yields than the underlying
equity securities, but generally offer lower yields
than non-convertible securities of similar quality.
Like bonds, the value of convertible securities
fluctuates in relation to changes in interest rates
and, in addition, also fluctuates in relation to the
underlying common stock.
DEBT SECURITIES
Mid Cap Growth Portion of the Fund
Debt securities in which the Mid Cap Growth Portion of
the Fund may invest include notes, bills, commercial
paper, obligations issued or guaranteed by the
government or any of its political subdivisions,
agencies or instrumentalities, and certificates of
deposit. Debt securities represent money borrowed
that obligate the issuer (e.g., a corporation,
municipality, government, government agency) to repay
the borrowed amount at maturity (when the obligation
is due and payable) and usually to pay the holder
interest at specific times.
All debt securities are subject to market risk and
credit risk. Market risk relates to market-induced
changes in a security's value, usually as a result of
changes in interest rates. The value of the Fund's
investments in debt securities will change as the
general levels of interest rates fluctuate. During
periods of falling interest rates, the value of the
Fund's debt securities will generally rise.
Conversely, during periods of rising interest rates,
the value of the Fund's debt securities will generally
decline. Credit risk relates to the ability of the
issuer to make payments of principal and interest.
The Fund has no restrictions with respect to the
maturities or duration of the debt securities it
holds. The Fund's investment in fixed income
securities with longer terms to maturity or greater
duration are subject to greater volatility than the
Fund's shorter-term securities.
U.S. GOVERNMENT SECURITIES
Mid Cap Growth Portion of the Fund
The Mid Cap Growth Portion of the Fund may invest in
U.S. Government securities. Generally, these
securities include U.S. Treasury obligations and
obligations issued or guaranteed by U.S. Government
agencies, instrumentalities or sponsored enterprises.
U.S. Government securities also include Treasury
receipts and other stripped U.S. Government
securities, where the interest and principal
components of stripped U.S. Government securities are
traded independently. The Fund may also invest in
zero coupon U.S. Treasury securities and in zero
coupon securities issued by financial institutions,
which represent a proportionate interest in underlying
U.S. Treasury securities. A zero coupon security pays
no interest to its holder during its life and its
value consists of the difference between its face
value at maturity and its cost. The market values of
zero coupon securities generally are more volatile
than the market prices of securities that pay interest
periodically.
ILLIQUID SECURITIES
Mid Cap Growth and Large Cap Growth Portions of the
Fund
The Mid Cap Growth and Large Cap Growth Portions of
the Fund each may invest up to an aggregate amount
equal to 10% of its net assets in illiquid securities,
which term includes securities subject to contractual
or other restrictions on resale and other instruments
that lack readily available markets.
MASTER/FEEDER FUND STRUCTURE
The Board of Directors has the discretion to retain
the current distribution arrangement for the Fund
while investing in a master fund in a master/feeder
fund structure. A master/feeder fund structure is one
in which a fund (a "feeder fund"), instead of
investing directly in a portfolio of securities,
invests most or all of its investment assets in a
separate registered investment company (the "master
fund") with substantially the same investment
objective and policies as the feeder fund. Such a
structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or
distribution channels at the feeder fund level. Based
on the premise that certain of the expenses of
operating an investment portfolio are relatively
fixed, a larger investment portfolio may eventually
achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to
convert to a feeder fund by selling all of its
investments, which involves brokerage and other
transaction costs and realization of a taxable gain or
loss, or by contributing its assets to the master fund
and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable
gain or loss.
INVESTMENT RESTRICTIONS
The investment restrictions numbered 1 through 7 below
and the Fund's investment objective have been adopted
by the Company as fundamental policies of the Fund.
Under the 1940 Act, a fundamental policy may not be
changed with respect to a fund without the vote of a
majority of the outstanding voting securities of the
fund. Majority is defined in the 1940 Act as the
lesser of (a) 67% or more of the shares present at a
fund meeting, if the holders of more than 50% of the
outstanding shares of the fund are present or
represented by proxy, or (b) more than 50% of
outstanding shares. The remaining restrictions may be
changed by a vote of a majority of the Company's Board
of Directors at any time.
Under the investment restrictions adopted by the
Company with respect to the Fund: the Fund will not
1. Invest more than 25% of its total assets in
securities, the issuers of which conduct their
business activities in the same industry. For
purposes of this limitation, securities of the U.S.
government (including its agencies and
instrumentalities) and securities of state or
municipal governments and their political subdivisions
are not considered to be issued by members of any
industry.
2. 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 331/3% 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.
3. 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
4. Make loans. This restriction does not apply to:
(a) the purchase of debt obligations in which the Fund
may invest consistent with its investment objectives
and policies; (b) repurchase agreements; and (c) loans
of its portfolio securities, to the fullest extent
permitted under the 1940 Act.
5. 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.
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 otherwise acquire any illiquid
security except as permitted under the 1940 Act for
open-end investment companies, which currently permits
up to 15% of the Fund's net assets to be invested in
illiquid securities.
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.
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 1940 Act, is
indicated by an asterisk.
Paul R. Ades, Director (Age 59). Partner in the law
firm of Murov & Ades. His address is 272 South
Wellwood Avenue, P.O. Box 504, Lindenhurst, New York
11757.
Herbert Barg, Director (Age 75). Private investor. His
address is 273 Montgomery Avenue, Bala Cynwyd,
Pennsylvania 19004.
Dwight B. Crane, Director (Age 61). Professor,
Graduate School of Business Administration, Harvard
University. His address is Graduate School of Business
Administration, Harvard University, Boston,
Massachusetts 02163.
Frank G. Hubbard, Director (Age 62). Vice President,
S&S Industries; Former Corporate Vice President,
Materials Management and Marketing Services of Huls
America, Inc. His address is 80 Centennial Avenue
P.O. Box 456, Piscataway, New Jersey 08855-0456.
*Heath B. McLendon, Chairman of the Board, President
and Chief Executive Officer (Age 66). Managing
Director of Salomon Smith Barney Inc. ("Salomon Smith
Barney"); Director and President of SSB Citi Fund
Management LLC and Travelers Investment Adviser, Inc.
("TIA"); and formerly Chairman of the Board of Smith
Barney Strategy Advisers Inc. Mr. McLendon is a
director of 71 investment companies associated with
Citigroup Inc. ("Citigroup"). His address is 7 World
Trade Center, New York, New York 10048.
Jerome Miller, Director (Age 60). Retired, Former
President, Asset Management Group of Shearson Lehman
Brothers. His address is 27 Hemlock Road, Manhasset,
New York, NY 11030.
Ken Miller, Director (Age 57). President of Young
Stuff Apparel Group, Inc. His address is 1411
Broadway, New York, New York 10018.
Lewis E. Daidone, Senior Vice President and Treasurer
(Age 42). Managing Director of Salomon Smith Barney;
Director and Senior Vice President of SSB Citi and
TIA; Senior Vice President and Treasurer of 61
investment companies associated with Citigroup. His
address is 388 Greenwich Street, New York, New York
10013.
Alan Blake, Vice President and Investment Officer (Age
48). Managing Director of Salomon Smith Barney;
Investment Officer of SSB Citi. His address is 7
World Trade Center, New York, New York 10048.
Lawrence Weissman, Vice President and Investment
Officer (Age 37). Managing Director of Salomon Smith
Barney; Investment Officer of SSB Citi; prior to 1998,
portfolio manager at Neuberger & Berman, LLC; prior to
that he was a portfolio manager at TIAA-CREFF. 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 46). Director of Salomon
Smith Barney; from 1997-1998 Managing Director of AMT
Capital Services Inc.; prior to 1997 Partner with
Ernst & Young LLP; Controller or Assistant Treasurer
of 43 investment companies associated with Citigroup.
His address is 388 Greenwich Street, New York, New
York 10013.
Christina T. Sydor, Secretary (Age 49). Managing
Director of Salomon Smith Barney; General Counsel and
Secretary of SSB Citi and TIA; Secretary of 61
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. During the calendar year ended
December 31, 1999 such expenses totaled $18,574. For
the calendar year ended December 31, 1999, the
Directors of the Company were paid the following
compensation:
Name of Person
Aggregate
Compensation
from Company
FYE 12/31/99
Total Pension
or Retirement
Benefits
Accrued as
part of Fund
Expenses
Compensation
from Company
and Fund
Complex Paid
to Directors
Calendar Year
Ending
12/31/99
Number of
Funds for
Which
Director
Serves Within
Fund Complex
Paul R. Ades
$28,369
$0
$56,238
5
Herbert Barg
28,369
0
114,288
16
Dwight B. Crane
26,297
0
155,363
23
Frank G. Hubbard
28,269
0
56,138
5
Heath B. McLendon
0
0
0
71
Jerome Miller
26,197
0
51,613
5
Ken Miller
24,847
0
47,188
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 (successor to SSBC Fund Management Inc.)
serves as investment manager to the Fund pursuant to
an investment management agreement (the "Investment
Management Agreement") with the Fund which was
approved by the Board of Directors, including a
majority of directors who are not "interested persons"
of the Fund 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. Subject to the
supervision and direction of the Company's Board of
Directors, the Manager manages the Fund's portfolio in
accordance with the Fund's stated investment objective
and policies, makes investment decisions for the Fund,
places orders to purchase and sell securities, and
employs professional portfolio managers and securities
analysts who provide research services to the Fund.
The Manager pays the salary of any officer and
employee who is employed by both it and the Fund. The
Manager bears all expenses in connection with the
performance of its services. The Manager also: (a)
assists in supervising all aspects of the Fund's
operations except those it performs under its
investment advisory agreement; b) supplies the Fund
with office facilities (which may be in SSB Citi's own
offices), statistical and research data, data
processing services, clerical, accounting and
bookkeeping services, including, but not limited to,
the calculation of (i) the net asset value of shares
of the Fund, (ii) applicable Deferred Sales Charges
and similar fees and charges and (iii) distribution
fees, internal auditing and legal services, internal
executive and administrative services, and stationary
and office supplies; and (c) prepares reports to
shareholders of the Fund, tax returns and reports to
and filings with the SEC and state blue sky
authorities.
SSB Citi (through its predecessor entities) has been
in the investment counseling business since 1968 and
renders investment advice to a wide variety of
individual, institutional and investment company
clients that had aggregate assets under management as
of December 31, 1999 in excess of $183 billion.
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.
Code of Ethics
Pursuant to Rule 17j-1 of the 1940 Act, the fund, the
investment adviser and principal underwriter have
adopted codes of ethics that permit personnel to
invest in securities for their own accounts, including
securities that may be purchased or held by the fund.
All personnel must place the interests of clients
first and avoid activities, interests and
relationships that might interfere with the duty to
make decisions in the best interests of the clients.
All personal securities transactions by employees must
adhere to the requirements of the codes and must be
conducted in such a manner as to avoid any actual or
potential conflict of interest, the appearance of such
a conflict, or the abuse of an employee's position of
trust and responsibility.
A copy of the Fund's code of ethics is on file with
the Securities and Exchange Commission.
Counsel and Auditors
Willkie Farr & Gallagher serves as counsel to the
Company. The Directors who are not "interested
persons" of the Company have selected Stroock &
Stroock & Lavan LLP to serve as their legal counsel.
KPMG LLP, independent accountants, 757 Third Avenue,
New York, New York 10022, serve as auditors of the
Fund and will render an opinion on the Fund's
financial statements annually beginning with the
fiscal period ending April 30, 2000.
Custodian and Transfer Agent
PNC Bank, National Association ("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.
Smith Barney Private Trust Company (the "transfer
agent") located at 388 Greenwich Street, New York, New
York 10013, serves as the transfer agent and
shareholder services agent of the Fund.
PFPC Global Fund Services (the "sub-transfer agent"),
located at P.O. Box 9699, Providence Rhode Island
02940-9699, serves as the Fund's sub-transfer agent to
render certain shareholder record-keeping and
accounting services functions.
Distributor
CFBDS, Inc., located at 20 Milk Street, Boston,
Massachusetts 02109-5408 serves as the Fund's
distributor pursuant to a written agreement with the
Company dated October 8, 1998 (the "Distribution
Agreement") which was approved by the Company's Board
of Directors, including a majority of the independent
directors, on July 15, 1998.
When payment is made by the investor before the
settlement date, unless otherwise noted by the
investor, the funds will be held as a free credit
balance in the investor's brokerage account and
Salomon Smith Barney may benefit from the temporary
use of the funds. The Company's Board of Directors
has been advised of the benefits to Salomon Smith
Barney resulting from these settlement procedures and
will take such benefits into consideration when
reviewing the Investment Management and Distribution
Agreements for continuance.
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.
Under its terms, the Plan continues from year to year,
provided such continuance is approved annually by vote
of the Board of Directors, including a majority of the
directors who are not interested persons of the Fund
and who have no direct or indirect financial interest
in the operation of the Plan or in the Distribution
Agreement (the "independent directors"). The Plan may
not be amended to increase the amount of the service
and distribution fees without shareholder approval,
and all amendments of the Plan also must be approved
by the directors including all of the independent
directors in the manner described above. The Plan may
be terminated with respect to a Class at any time,
without penalty, by vote of a majority of the
independent directors or, with respect to the Fund, by
vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act).
Pursuant to the Plan, Salomon Smith Barney will
provide the Board of Directors with periodic reports
of amounts expended under the Plan and the purpose for
which such expenditures were made.
Portfolio Transactions
The Manager arranges for the purchase and sale of the
Fund's securities and selects brokers and dealers
(including Salomon Smith Barney) which in its best
judgment provide prompt and reliable execution at
favorable prices and reasonable commission rates. The
Manager may select brokers and dealers that provide it
with research services and may cause the Fund to pay
such brokers and dealers commissions which exceed
those other brokers and dealers may have charged, if
it views the commissions as reasonable in relation to
the value of the brokerage and/or research services.
In selecting a broker, including Salomon Smith Barney,
for a transaction, the primary consideration is prompt
and effective execution of orders at the most
favorable prices. Subject to that primary
consideration, dealers may be selected for research,
statistical or other services to enable the Manager to
supplement its own research and analysis.
Decisions to buy and sell securities for the Fund are
made by the Manager, subject to the overall
supervision and review of the Company's Board of
Directors. Portfolio securities transactions for the
Fund are effected by or under the supervision of the
Manager.
Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. There is generally
no stated commission in the case of securities traded
in the over-the-counter market, but the price of those
securities includes an undisclosed commission or mark-
up. Over-the-counter purchases and sales are
transacted directly with principal market makers
except in those cases in which better prices and
executions may be obtained elsewhere. The cost of
securities purchased from underwriters includes an
underwriting commission or concession, and the prices
at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down.
In executing portfolio transactions and selecting
brokers or dealers, it is the Fund's policy to seek
the best overall terms available. The Manager, in
seeking the most favorable price and execution,
considers all factors it deems relevant, including,
for example, the price, the size of the transaction,
the reputation, experience and financial stability of
the broker-dealer involved and the quality of service
rendered by the broker-dealer in other transactions.
The Manager receives research, statistical and
quotation services from several broker-dealers with
which it places the Fund's portfolio transactions. It
is possible that certain of the services received
primarily will benefit one or more other accounts for
which the Manager exercises investment discretion.
Conversely, the Fund may be the primary beneficiary of
services received as a result of portfolio
transactions effected for other accounts. The
Manager's fee under the management agreement is not
reduced by reason of its receiving such brokerage and
research services. The Company's Board of Directors,
in its discretion, may authorize the Manager to cause
the Fund to pay a broker that provides brokerage and
research services to the Manager a commission in
excess of that which another qualified broker would
have charged for effecting the same transaction.
Salomon Smith Barney will not participate in
commissions from brokerage given by the Fund to other
brokers or dealers and will not receive any reciprocal
brokerage business resulting therefrom.
In accordance with Section 17(e) of the 1940 Act and
Rule 17e-1 thereunder, the Company's Board of
Directors has determined that any portfolio
transaction for the Fund may be executed through
Salomon Smith Barney or an affiliate of Salomon Smith
Barney if, in the Manager's judgment, the use of
Salomon Smith Barney or an affiliate is likely to
result in price and execution at least as favorable as
those of other qualified brokers and if, in the
transaction, Salomon Smith Barney or the affiliate
charges the Fund a commission rate consistent with
those charged by Salomon Smith Barney or an affiliate
to comparable unaffiliated customers in similar
transactions. In addition, under SEC rules, Salomon
Smith Barney may directly execute such transactions
for the Fund on the floor of any national securities
exchange, provided: (a) the Board of Directors has
expressly authorized Salomon Smith Barney to effect
such transactions; and (b) Salomon Smith Barney
annually advises the Fund of the aggregate
compensation it earned on such transactions.
Even though investment decisions for the Fund are made
independently from those of the other accounts managed
by the Manager, 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 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. 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.
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.
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 100%. The rate of turnover will not be a
limiting factor, however, when the Fund deems it
desirable to sell or purchase securities.
The Manager will rebalance the allocation of value and
growth securities in the Fund's portfolio at the end
of each quarter and at any time in which the
percentage of the Fund's portfolio invested in either
value or growth securities equals or exceeds 55% of
the Fund's total assets invested in both value and
growth securities for a period of more than 10 days.
As a result, when securities in either the value or
growth style portion of the Fund's portfolio have
underperformed the securities in the portion of the
portfolio devoted to the other style, the Manager will
rebalance the portfolio to increase the Fund's assets
allocated to the style that underperformed, and
decrease the assets allocated to the style that
outperformed, the other style. The Manager will also
monitor the Fund's portfolio to ensure that no more
than 25% of the Fund's assets are concentrated in the
securities of companies in the same industry and that
the Fund complies with its other investment policies.
The Manager may cause the Fund to sell or purchase
securities to ensure compliance with the Fund's
investment policies.
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:
Amount
of
Investme
nt
Sales Charge
as a %
of
Transaction
Sales
Charge as a
% 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
Provisions" 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 1.00% 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 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 the sub-transfer
agent are not subject to a maintenance fee.
Investors in Class A, Class B and Class L shares may
open an account in the Fund by making an initial
investment of at least $1,000 for each account, or
$250 for an IRA or a Self-Employed Retirement Plan, in
the Fund. Investors in Class Y shares may open an
account by making an initial investment of
$15,000,000. Subsequent investments of at least $50
may be made for all 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. There are no minimum
investment requirements for Class A shares for
employees of 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 the sub-transfer agent. Share certificates
are issued only upon a shareholder's written request
to the sub-transfer agent.
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 the sub-transfer agent
is authorized through preauthorized transfers of at
least $25 on a monthly basis or at least $50 on a
quarterly basis to charge the shareholder's account
held with a bank or other financial institution on a
monthly or quarterly basis as indicated by the
shareholder, to provide for systematic additions to
the shareholder's fund account. A shareholder who has
insufficient funds to complete the transfer will be
charged a fee of up to $25 by Salomon Smith Barney or
the sub-transfer agent. The Systematic Investment
Plan also authorizes Salomon Smith Barney to apply
cash held in the shareholder's Salomon Smith Barney
brokerage account or redeem the shareholder's shares
of a Smith Barney money market fund to make additions
to the account. Additional information is available
from the 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 (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 or proceeds from a
sale of a UIT sponsored by Salomon Smith Barney;
(i) purchases by investors participating in a Salomon
Smith Barney fee-based arrangement; and (j) purchases
of Class A shares by Section 403(b) or Section 401(a)
or (k) accounts associated with Copeland Retirement
Programs. In order to obtain such discounts, the
purchaser must provide sufficient information 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 other Smith Barney Mutual Funds that
are offered with a sales charge as currently listed
under "Exchange Privilege" then held by such person
and applying the sales charge applicable to such
aggregate. In order to obtain such discount, the
purchaser must provide sufficient 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 option of the
investor, up to 90 days before such date. Please
contact a Salomon Smith Barney Financial Consultant or
the transfer agent to obtain a Letter of Intent
application.
Letter of Intent - Class Y Shares. A Letter of Intent
may also be used as a way for investors to meet the
minimum investment requirement for Class Y shares
(except purchases of Class Y shares by Smith Barney
Concert Allocation Series Inc., for which there is no
minimum purchase amount). Such investors must make an
initial minimum purchase of $5,000,000 in Class Y
shares of 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 the transfer agent 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.
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
owned by the shareholders as the total number of his
or her Class B shares converting at the time bears to
the total number of outstanding Class B shares (other
than Class B Dividend Shares) owned by the
shareholder.
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) redemptions
of shares within 12 months following the death or
disability of the shareholder; (c) redemptions of
shares made in connection with qualified distributions
from retirement plans or IRAs upon the attainment of
age 591/2; (d) involuntary redemptions; and
(e) 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 the transfer agent in the case of all
other shareholders) of the shareholder's status or
holdings, as the case may be.
Volume Discounts
The schedule of sales charges on Class A shares
described in the prospectus applies to purchases made
by any "purchaser," which is defined to include the
following: (a) an individual; (b) an individual's
spouse and his or her children purchasing shares for
their own account; (c) a Director or other fiduciary
purchasing shares for a single trust estate or single
fiduciary account; and (d) a Director or other
professional fiduciary (including a bank, or an
investment adviser registered with the SEC under the
Investment Advisers Act of 1940, as amended)
purchasing shares of the fund for one or more trust
estates or fiduciary accounts. Purchasers who wish to
combine purchase orders to take advantage of volume
discounts on Class A shares should contact a Salomon
Smith Barney Financial Consultant.
Determination of Public Offering Price
The Fund offers its shares to current shareholders of
the Fund on a continuous basis. The public offering
price for a Class A, Class B and Class Y share of the
Fund is equal to the net asset value per share at the
time of purchase, plus for Class A shares an initial
sales charge based on the aggregate amount of the
investment. The public offering price for Class A
share purchases, including applicable rights of
accumulation, equaling or exceeding $500,000 is equal
to the net asset value per share at the time of
purchase and no sales charge is imposed at the time of
purchase. The public offering price for a Class L
share includes a 1.00% initial sales charge. A
Deferred Sales Charge is imposed on certain
redemptions of Class B shares, and on Class L shares
and Class A shares (purchased in amounts exceeding
$500,000) redeemed within one year of purchase.
REDEMPTION OF SHARES
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.
If the shares to be redeemed were issued in
certificate form, the certificates must be endorsed
for transfer (or be accompanied by an endorsed stock
power) and must be submitted to the sub-transfer agent
together with the redemption request. Any signature
appearing on a share certificate, stock power or
written redemption request in excess of $10,000 must
be guaranteed by an eligible guarantor institution
such as a domestic bank, savings and loan institution,
domestic credit union, member bank of the Federal
Reserve System or member firm of a national securities
exchange. Written redemption requests of $10,000 or
less do not require a signature guarantee unless more
than one such redemption request is made in any 10-day
period or the redemption proceeds are to be sent to an
address other than the address of record. Unless
otherwise directed, redemption proceeds will be mailed
to an investor's address of record. The transfer
agent may require additional supporting documents for
redemptions made by corporations, executors,
administrators, trustees or guardians. A redemption
request will not be deemed properly received until the
transfer agent receives all required documents in
proper form.
If a shareholder holds shares in more than one Class,
any request for redemption must specify the Class
being redeemed. In the event of a failure to specify
which Class, or if the investor owns fewer shares of
the Class than specified, the redemption request will
be delayed until the transfer agent receives further
instructions from Salomon Smith Barney, or if the
shareholder's account is not with Salomon Smith
Barney, from the shareholder directly. The redemption
proceeds will be remitted on or before the third
business day following receipt of proper tender,
except on any days on which the NYSE is closed or as
permitted under the 1940 Act, in extraordinary
circumstances. Generally, if the redemption proceeds
are remitted to a Salomon Smith Barney brokerage
account, these funds will not be invested for the
shareholder's benefit without specific instruction and
Salomon Smith Barney will benefit from the use of
temporarily uninvested funds. Redemption proceeds for
shares purchased by check, other than a certified or
official bank check, will be remitted upon clearance
of the check, which may take up to fifteen days.
Distributions in Kind
If the Board of Directors of the Fund 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.
Additional Information Regarding Telephone Redemption
And Exchange Program
Neither the Fund nor its agents will be liable for
following instructions communicated by telephone that
are reasonably believed to be genuine. The Fund and
its agents will employ procedures designed to verify
the identity of the caller and legitimacy of
instructions (for example, a shareholder's name and
account number will be required and phone calls may be
recorded). The Fund reserves the right to suspend,
modify or discontinue the telephone redemption and
exchange program or to impose a charge for this
service at any time following at least seven (7) days'
prior notice to shareholders.
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 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. Any applicable Deferred Sales
Charge will not be waived on amounts withdrawn by
shareholders that exceed 1.00% per month of the value
of a shareholder's shares at the time the Withdrawal
Plan commences. (With respect to Withdrawal Plans in
effect prior to November 7, 1994, any applicable
Deferred Sales Charge will be waived on amounts
withdrawn that do not exceed 2.00% per month of the
value of the shareholder's shares that are subject to
a Deferred Sales Charge). 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 may
reduce the shareholder's investment and ultimately
exhaust it. Withdrawal payments should not be
considered as income from investment in the Fund.
Furthermore, as it generally would not be advantageous
to a shareholder to make additional investments in the
Fund at the same time he or she is participating in
the Withdrawal Plan, purchases by such shareholder in
amounts of less than $5,000 ordinarily will not be
permitted. All dividends and distributions on shares
in the Withdrawal Plan are reinvested automatically at
net asset value in additional shares of the Fund.
Shareholders who wish to participate in the Withdrawal
Plan and who hold their shares in certificate form
must deposit their share certificates with the sub-
transfer agent as agent for Withdrawal Plan members.
For additional information, shareholders should
contact a Salomon Smith Barney Financial Consultant or
their Financial Consultant, Dealer Representative. A
shareholder who purchases shares directly through the
sub-transfer agent may continue to do so and
applications for participation in the Withdrawal Plan
must be received by the sub-transfer agent no later
than the eighth day of the month to be eligible for
participation beginning with that month's withdrawal.
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 Company'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.
Additional Information Regarding the Exchange
Privilege. Although the exchange privilege is an
important benefit, excessive exchange transactions can
be detrimental to the Fund's performance and its
shareholders. The Manager may determine that a
pattern of frequent exchanges is excessive and
contrary to the best interests of the Fund's other
shareholders. In this event, the Fund may, at its
discretion, decide to limit additional purchases
and/or exchanges by a shareholder. Upon such a
determination, the Fund will provide notice in writing
or by telephone to the shareholder at least 15 days
prior to suspending the exchange privilege and during
the 15 day period the shareholder will be required to
(a) redeem his or her shares in the Fund or (b) remain
invested in the Fund or exchange into any of the funds
of the Smith Barney Mutual funds ordinarily available,
which position the shareholder would be expected to
maintain for a significant period of time. All
relevant factors will be considered in determining
what constitutes an abusive pattern of exchanges.
PERFORMANCE DATA
From time to time, the Company may advertise the
Fund's total return and average annual total return in
advertisements and/or other types of sales literature.
These figures are computed separately for Class A,
Class B, Class L and Class Y shares of the Fund.
These figures are based on historical earnings and are
not intended to indicate future performance. Total
return is computed for a specified period of time
assuming deduction of the maximum sales charge, if
any, from the initial amount invested and reinvestment
of all income dividends and capital gain distributions
on the reinvestment dates at prices calculated as
stated in this prospectus, then dividing the value of
the investment at the end of the period so calculated
by the initial amount invested and subtracting 100%.
The standard average annual total return, as
prescribed by the SEC is derived from this total
return, which provides the ending redeemable value.
Such standard total return information may also be
accompanied with nonstandard total return information
for differing periods computed in the same manner but
without annualizing the total return or taking sales
charges into account. The Company may also include
comparative performance information in advertising or
marketing the Fund's shares. Such performance
information may include data from Lipper Analytical
Services, Inc. and other financial publications.
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.
The ERV assumes complete redemption of the
hypothetical investment at the end of the measuring
period. The Fund's net investment income changes in
response to fluctuations in interest rates and the
expenses of the Fund.
Aggregate Total Return
The Fund's "aggregate total return," as described
below, represents the cumulative change in the value
of an investment in the Fund for the specified period
and is computed by the following formula:
ERV - P
P
Where: P = a hypothetical initial
payment of $10,000.
ERV = Ending Redeemable Value
of a hypothetical
$10,000 investment made
at the beginning of the
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.
The ERV assumes complete redemption of the
hypothetical investment at the end of the measuring
period.
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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions
The Fund's policy is to distribute its net investment
income and net realized capital gains, if any,
annually. The Fund may also pay additional dividends
shortly before December 31 from certain amounts of
undistributed ordinary income and capital gains
realized, in order to avoid a Federal excise tax
liability.
If a shareholder does not otherwise instruct,
dividends and capital gains distributions will be
reinvested automatically in additional shares of the
same Class at net asset value, subject to no sales
charge or Deferred Sales Charge. A shareholder may
change the option at any time by notifying his Salomon
Smith Barney Financial Consultant or Dealer
Representative. A shareholder whose account is held
directly at the sub-transfer agent should notify the
sub-transfer agent in writing, requesting a change to
this reinvest option.
The per share dividends on Class B and Class L shares
of the Fund may be lower than the per share dividends
on Class A and Class Y shares principally as a result
of the distribution fee applicable with respect to
Class B and Class L shares. The per share dividends on
Class A shares of the Fund may be lower than the per
share dividends on Class Y shares principally as a
result of the service fee applicable to Class A
shares. Distributions of capital gains, if any, will
be in the same amount for Class A, Class B, Class L
and Class Y shares.
Taxes
The following is a summary of the material United
States federal income tax considerations regarding the
purchase, ownership and disposition of shares of the
Fund. Each prospective shareholder is urged to
consult his own tax adviser with respect to the
specific federal, state, local and foreign tax
consequences of investing in a fund. The summary is
based on the laws in effect on the date of this SAI,
which are subject to change.
The Fund and Its Investments
The Fund intends to qualify to be treated as a
regulated investment company each taxable year under
the Code. To so qualify, the Fund must, among other
things: (a) derive at least 90% of its gross income in
each taxable year from dividends, interest, payments
with respect to securities loans and gains from the
sale or other disposition of stock or securities or
foreign currencies, or other income (including, but
not limited to, gains from options, futures or forward
contracts) derived with respect to its business of
investing in such stock, securities or currencies; and
(b) diversify its holdings so that, at the end of each
quarter of the Fund's taxable year, (i) at least 50%
of the market value of the Fund's assets is
represented by cash, securities of other regulated
investment companies, United States government
securities and other securities, with such other
securities limited, in respect of any one issuer, to
an amount not greater than 5% of the Fund's assets and
not greater than 10% of the outstanding voting
securities of such issuer and (ii) not more than 25%
of the value of its assets is invested in the
securities (other than United States government
securities or securities of other regulated investment
companies) of any one issuer or any two or more
issuers that the Fund controls and are determined to
be engaged in the same or similar trades or businesses
or related trades or businesses.
As a regulated investment company, the Fund will not
be subject to United States federal income tax on its
net investment income (i.e., income other than its net
realized long- and short-term capital gains) and its
net realized long- and short-term capital gains, if
any, that it distributes to its shareholders, provided
an amount equal to at least 90% of its investment
company taxable income (i.e., 90% of its taxable
income minus the excess, if any, of its net realized
long-term capital gains over its net realized short-
term capital losses (including any capital loss
carryovers), plus or minus certain other adjustments
as specified in the Code) and 90% of its net tax-
exempt income for the taxable year is distributed in
compliance with the Code's timing and other
requirements but will be subject to tax at regular
corporate rates on any taxable income or gains it does
not distribute. The Code imposes a 4% nondeductible
excise tax on the Fund to the extent it does not
distribute by the end of any calendar year at least
98% of its net investment income for that year and 98%
of the net amount of its capital gains (both long-and
short-term) for the one-year period ending, as a
general rule, on October 31 of that year. For this
purpose, however, any income or gain retained by the
Fund that is subject to corporate income tax will be
considered to have been distributed by year-end. In
addition, the minimum amounts that must be distributed
in any year to avoid the excise tax will be increased
or decreased to reflect any underdistribution or
overdistribution, as the case may be, from the
previous year. The Fund anticipates that it will pay
such dividends and will make such distributions as are
necessary in order to avoid the application of this
tax.
If, in any taxable year, the Fund fails to qualify as
a regulated investment company under the Code or fails
to meet the distribution requirement, it would be
taxed in the same manner as an ordinary corporation
and distributions to its shareholders would not be
deductible by the Fund in computing its taxable
income. In addition, in the event of a failure to
qualify, the Fund's distributions, to the extent
derived from the Fund's current or accumulated
earnings and profits would constitute dividends
(eligible for the corporate dividends-received
deduction) which are taxable to shareholders as
ordinary income, even though those distributions might
otherwise (at least in part) have been treated in the
shareholders' hands as long-term capital gains. If
the Fund fails to qualify as a regulated investment
company in any year, it must pay out its earnings and
profits accumulated in that year in order to qualify
again as a regulated investment company. In addition,
if the Fund failed to qualify as a regulated
investment company for a period greater than one
taxable year, the Fund may be required to recognize
any net built-in gains (the excess of the aggregate
gains, including items of income, over aggregate
losses that would have been realized if it had been
liquidated) in order to qualify as a regulated
investment company in a subsequent year.
The Fund's transactions in foreign currencies, forward
contracts, options and futures contracts (including
options and futures contracts on foreign currencies)
will be subject to special provisions of the Code
(including provisions relating to "hedging
transactions" and "straddles") that, among other
things, may affect the character of gains and losses
realized by the Fund (i.e., may affect whether gains
or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer Fund
losses. These rules could therefore affect the
character, amount and timing of distributions to
shareholders. These provisions also (a) will require
the Fund to mark-to-market certain types of the
positions in its portfolio (i.e., treat them as if
they were closed out) and (b) may cause the Fund to
recognize income without receiving cash with which to
pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for
avoiding income and excise taxes. The Fund will
monitor its transactions, will make the appropriate
tax elections and will make the appropriate entries in
its books and records when it acquires any foreign
currency, forward contract, option, futures contract
or hedged investment in order to mitigate the effect
of these rules and prevent disqualification of the
Fund as a regulated investment company.
The Fund's investment in Section 1256 contracts, such
as regulated futures contracts, most forward currency
forward contracts traded in the interbank market and
options on most stock indices, are subject to special
tax rules. All section 1256 contracts held by the
Fund at the end of its taxable year are required to be
marked to their market value, and any unrealized gain
or loss on those positions will be included in the
Fund's income as if each position had been sold for
its fair market value at the end of the taxable year.
The resulting gain or loss will be combined with any
gain or loss realized by the Fund from positions in
section 1256 contracts closed during the taxable year.
Provided such positions were held as capital assets
and were not part of a "hedging transaction" nor part
of a "straddle," 60% of the resulting net gain or loss
will be treated as long-term capital gain or loss, and
40% of such net gain or loss will be treated as short-
term capital gain or loss, regardless of the period of
time the positions were actually held by the Fund.
Foreign Investments. Dividends or other income
(including, in some cases, capital gains) received by
the Fund from investments in foreign securities may be
subject to withholding and other taxes imposed by
foreign countries. Tax conventions between certain
countries and the United States may reduce or
eliminate such taxes in some cases. The Fund will not
be eligible to elect to treat any foreign taxes paid
by it as paid by its shareholders, who therefore will
not be entitled to credits for such taxes on their own
tax returns. Foreign taxes paid by the Fund will
reduce the return from the Fund's investments.
Passive Foreign Investment Companies. If the Fund
purchases shares in certain foreign investment
entities, called "passive foreign investment
companies" (a "PFIC"), it may be subject to United
States federal income tax on a portion of any "excess
distribution" or gain from the disposition of such
shares even if such income is distributed as a taxable
dividend by the Fund to its shareholders. Additional
charges in the nature of interest may be imposed on
the Fund in respect of deferred taxes arising from
such distributions or gains. If the Fund were to
invest in a PFIC and elected to treat the PFIC as a
"qualified electing fund" under the Code, in lieu of
the foregoing requirements, the Fund might be required
to include in income each year a portion of the
ordinary earnings and net capital gains of the
qualified electing fund, even if not distributed to
the Fund, and such amounts would be subject to the 90%
and excise tax distribution requirements described
above. In order to make this election, the Fund would
be required to obtain certain annual information from
the passive foreign investment companies in which it
invests, which may be difficult or not possible to
obtain.
Recently, legislation was enacted that provides a
mark-to-market election for regulated investment
companies effective for taxable years beginning after
December 31, 1997. This election would result in the
Fund being treated as if it had sold and repurchased
all of the PFIC stock at the end of each year. In
this case, the Fund would report gains as ordinary
income and would deduct losses as ordinary losses to
the extent of previously recognized gains. The
election, once made, would be effective for all
subsequent taxable years of the Fund, unless revoked
with the consent of the IRS. By making the election,
the Fund could potentially ameliorate the adverse tax
consequences with respect to its ownership of shares
in a PFIC, but in any particular year may be required
to recognize income in excess of the distributions it
receives from PFICs and its proceeds from dispositions
of PFIC company stock. The Fund may have to
distribute this "phantom" income and gain to satisfy
its distribution requirement and to avoid imposition
of the 4% excise tax. The Fund will make the
appropriate tax elections, if possible, and take any
additional steps that are necessary to mitigate the
effect of these rules.
Taxation of United States Shareholders
Dividends and Distributions. Any dividend declared by
the Fund in October, November or December of any
calendar year and payable to shareholders of record on
a specified date in such a month shall be deemed to
have been received by each shareholder on December 31
of such calendar year and to have been paid by the
Fund not later than such December 31, provided such
dividend is actually paid by the Fund during January
of the following calendar year. The Fund intends to
distribute annually to its shareholders substantially
all of its investment company taxable income, and any
net realized long-term capital gains in excess of net
realized short-term capital losses (including any
capital loss carryovers). The Fund currently expects
to distribute any excess annually to its shareholders.
However, if the Fund retains for investment an amount
equal to all or a portion of its net long-term capital
gains in excess of its net short-term capital losses
and capital loss carryovers, it will be subject to a
corporate tax (currently at a rate of 35%) on the
amount retained. In that event, the Fund will
designate such retained amounts as undistributed
capital gains in a notice to its shareholders who (a)
will be required to include in income for United
Stares federal income tax purposes, as long-term
capital gains, their proportionate shares of the
undistributed amount, (b) will be entitled to credit
their proportionate shares of the 35% tax paid by the
Fund on the undistributed amount against their United
States federal income tax liabilities, if any, and to
claim refunds to the extent their credits exceed their
liabilities, if any, and (c) will be entitled to
increase their tax basis, for United States federal
income tax purposes, in their shares by an amount
equal to 65% of the amount of undistributed capital
gains included in the shareholder's income.
Organizations or persons not subject to federal income
tax on such capital gains will be entitled to a refund
of their pro rata share of such taxes paid by the Fund
upon filing appropriate returns or claims for refund
with the Internal Revenue Service (the "IRS").
Dividends of net investment income and distributions
of net realized short-term capital gains are taxable
to a United States shareholder as ordinary income,
whether paid in cash or in shares. Distributions of
net-long-term capital gains, if any, that the Fund
designates as capital gains dividends are taxable as
long-term capital gains, whether paid in cash or in
shares and regardless of how long a shareholder has
held shares of the Fund. Dividends and distributions
paid by the Fund attributable to dividends on stock of
U.S. corporations received by the Fund, with respect
to which the Fund meets certain holding period
requirements, will be eligible for the deduction for
dividends received by corporations. Distributions in
excess of the Fund's current and accumulated earnings
and profits will, as to each shareholder, be treated
as a tax-free return of capital to the extent of a
shareholder's basis in his shares of the Fund, and as
a capital gain thereafter (if the shareholder holds
his shares of the Fund as capital assets).
Shareholders receiving dividends or distributions in
the form of additional shares should be treated for
United States federal income tax purposes as receiving
a distribution in the amount equal to the amount of
money that the shareholders receiving cash dividends
or distributions will receive, and should have a cost
basis in the shares received equal to such amount.
Investors considering buying shares just prior to a
dividend or capital gain distribution should be aware
that, although the price of shares just purchased at
that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may
nevertheless be taxable to them. If the Fund is the
holder of record of any stock on the record date for
any dividends payable with respect to such stock, such
dividends are included in the Fund's gross income not
as of the date received but as of the later of (a) the
date such stock became ex-dividend with respect to
such dividends (i.e., the date on which a buyer of the
stock would not be entitled to receive the declared,
but unpaid, dividends) or (b) the date the Fund
acquired such stock. Accordingly, in order to satisfy
its income distribution requirements, the Fund may be
required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an
earlier year than would otherwise be the case.
Sales of Shares. Upon the sale or exchange of his
shares, a shareholder will realize a taxable gain or
loss equal to the difference between the amount
realized and his basis in his shares. Such gain or
loss will be treated as capital gain or loss, if the
shares are capital assets in the shareholder's hands,
and will be long-term capital gain or loss if the
shares are held for more than one year and short-term
capital gain or loss if the shares are held for one
year or less. Any loss realized on a sale or exchange
will be disallowed to the extent the shares disposed
of are replaced, including replacement through the
reinvesting of dividends and capital gains
distributions in the Fund, within a 61-day period
beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis
of the shares acquired will be increased to reflect
the disallowed loss. Any loss realized by a
shareholder on the sale of a Fund share held by the
shareholder for six months or less will be treated for
United States federal income tax purposes as a long-
term capital loss to the extent of any distributions
or deemed distributions of long-term capital gains
received by the shareholder with respect to such
share. If a shareholder incurs a sales charge in
acquiring shares of the Fund, disposes of those shares
within 90 days and then acquires shares in a mutual
fund for which the otherwise applicable sales charge
is reduced by reason of a reinvestment right (e.g., an
exchange privilege), the original sales charge will
not be taken into account in computing gain/loss on
the original shares to the extent the subsequent sales
charge is reduced. Instead, the disregarded portion
of the original sales charge will be added to the tax
basis in the newly acquired shares. Furthermore, the
same rule also applies to a disposition of the newly
acquired shares made within 90 days of the second
acquisition. This provision prevents a shareholder
from immediately deducting the sales charge by
shifting his or her investment in a family of mutual
funds.
Backup Withholding. The Fund may be required to
withhold, for United States federal income tax
purposes, 31% of the dividends, distributions and
redemption proceeds payable to shareholders who fail
to provide the Fund with their correct taxpayer
identification number or to make required
certifications, or who have been notified by the IRS
that they are subject to backup withholding. Certain
shareholders are exempt from backup withholding.
Backup withholding is not an additional tax and any
amount withheld may be credited against a
shareholder's United States federal income tax
liabilities.
Notices. Shareholders will be notified annually by
the Fund as to the United States federal income tax
status of the dividends, distributions and deemed
distributions attributable to undistributed capital
gains (discussed above in "Taxes - Taxation of United
States Shareholders -Dividends and Distributions")
made by the Fund to its shareholders. Furthermore,
shareholders will also receive, if appropriate,
various written notices after the close of the Fund's
taxable year regarding the United States federal
income tax status of certain dividends, distributions
and deemed distributions that were paid (or that are
treated as having been paid) by the Fund to its
shareholders during the preceding taxable year.
Other Taxation
Distributions also may be subject to additional state,
local and foreign taxes depending on each
shareholder's particular situation.
The foregoing is only a summary of certain material
tax consequences affecting the Fund and its
shareholders. Shareholders are advised to consult
their own tax advisers with respect to the particular
tax consequences to them of an investment in the Fund.
ADDITIONAL INFORMATION
The Company was incorporated on September 29, 1981
under the laws of the state of Maryland 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.
The Company offers shares of eight separate series
with a par value of $.001 per share. The Fund offers
shares currently classified into four Classes - A, B,
L and Y. Each Class of the Fund represents an
identical interest in the Fund's investment portfolio.
As a result, the Classes have the same rights,
privileges and preferences, except with respect to:
(a) the designation of each Class; (b) the effect of
the respective sales charges; if any, for each class;
(c) the distribution and/or service fees borne by each
Class pursuant to the Plan; (d) the expenses allocable
exclusively to each Class; (e) voting rights on
matters exclusively affecting a single Class; (f) the
exchange privilege of each Class; and (g) the
conversion feature of the Class B shares. The
Company's Board of Directors does not anticipate that
there will be any conflicts among the interests of the
holders of the different Classes. The directors, on
an ongoing basis, will consider whether any such
conflict exists and, if so, take appropriate action.
As permitted by Maryland law, there will normally be
no meetings of shareholders for the purpose of
electing directors unless and until such time as less
than a majority of the directors holding office have
been elected by shareholders. At that time, the
directors then in office will call a shareholders'
meeting for the election of directors. The directors
must call a meeting of shareholders for the purpose of
voting upon the question or removal of any director
when requested in writing to do so by the record
holders of not less than 10% of the outstanding shares
of the Fund. At such a meeting, a director may be
removed after the holders of record of not less than a
majority of the outstanding shares of the Fund have
declared that the director be removed either by
declaration in writing or by votes cast in person or
by proxy. Except as set forth above, the directors
shall continue to hold office and may appoint
successor directors.
As used in the Prospectus and this Statement of
Additional Information, a "vote of a majority of the
outstanding voting securities" means the affirmative
vote of the lesser of (a) more than 50% of the
outstanding shares of the Company (or the affected
series or Class) or (b) 67% or more of such shares
present at a meeting if more than 50% of the
outstanding shares of the Company (or the affected
series or Class) are represented at the meeting in
person or by proxy. A series or Class shall be deemed
to be affected by a matter unless it is clear that the
interests of each series or Class in the matter are
identical or that the matter does not affect any
interest of the series or Class. The approval of a
management agreement or any change in a fundamental
investment policy would be effectively acted upon with
respect to the Fund only if approved by a "vote of a
majority of the outstanding voting securities" of the
Fund; however, the ratification of independent
accountants, the election of directors, and the
approval of a distribution agreement that is submitted
to shareholders are not subject to the separate voting
requirements and may be effectively acted upon by a
vote of the holders of a majority of all Company
shares voting without regard to series or Class.
Annual and Semi-annual Reports. The Fund sends its
shareholders a semi-annual report and an audited
annual report, which include listings of investment
securities held by the Fund at the end of the period
covered. In an effort to reduce the Fund's printing
and mailing costs, the Fund consolidates the mailing
of its semi-annual and annual reports by household.
This consolidation means that a household having
multiple accounts with the identical address of record
will receive a single copy of each report. In
addition, the Fund also consolidates the mailing of
its Prospectus so that a shareholder having multiple
accounts (that is, individual, IRA and/or Self-
Employed Retirement Plan accounts) will receive a
single Prospectus annually. Shareholders who do not
want this consolidation to apply to their accounts
should contact their Salomon Smith Barney Financial
Consultant or the Transfer Agent.
FINANCIAL STATEMENTS
As of the date of this SAI, the Fund had not yet
commenced operations. Consequently, there are no
financial statements for the Fund at this time.
OTHER INFORMATION
In an industry where the average portfolio manager has
seven years of experience (source: ICI, 1998), the
portfolio managers of Smith Barney Mutual Funds
average 21 years in the industry and 15 years with the
firm.
Smith Barney Mutual Funds offers more than 60 mutual
funds. We understand that many investors prefer an
active role in allocating the mix of funds in their
portfolio, while others want the asset allocation
decisions to be made by experienced managers.
That's why we offer four "styles" of fund management
that can be tailored to suit each investor's unique
financial goals.
Style Pure Series
Our Style Pure Series funds stay fully invested
within their asset class and investment style,
enabling investors to make asset allocation
decisions in conjunction with their Salomon
Smith Barney Financial Consultant.
Classic Investor Series
Our Classic Investor Series funds offer a range
of equity and fixed income strategies that seek
to capture opportunities across asset classes
and investment styles using disciplined
investment approaches.
The Concert Allocation Series
As a fund of funds, investors can select a
Concert Portfolio that may help their investment
needs. As needs change, investors can easily
choose another long-term, diversified investment
from our Concert family.
Special Discipline Series
Our Special Discipline Series funds are designed
for investors who are looking beyond more
traditional market categories: from natural
resources to a roster of state-specific
municipal funds.
36
54
Smith Barney
Premier Selections Global Growth Fund
388 Greenwich Street
New York, New York 10013
1-800-451-2010
Statement of Additional
Information
May 24, 2000
This Statement of Additional Information ("SAI")
expands upon and supplements the information contained
in the current Prospectus of Smith Barney Premier
Selections Global Growth Fund consisting of the U.S.
Equity and International Equity portions (collectively
the "Fund") dated May 24, 2000, 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.
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 2
INVESTMENT RESTRICTIONS 31
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY 32
PURCHASE OF SHARES 39
REDEMPTION OF SHARES 45
VALUATION OF SHARES 46
EXCHANGE PRIVILEGE 47
PERFORMANCE DATA 48
DIVIDENDS, DISTRIBUTIONS AND TAXES 50
ADDITIONAL INFORMATION 55
FINANCIAL STATEMENTS 56
OTHER INFORMATION 57
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The prospectus discusses the Fund's investment
objective and policies. 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
associated with these investments, policies and
strategies. SSB Citi Fund Management LLC ("SSB Citi"
or the "Manager") serves as investment manager to the
Fund.
The Fund's investment objectives may be changed only
by the ''vote of a majority of the outstanding voting
securities'' as defined in the Investment Company Act
of 1940 (the ''1940 Act''). However, the Fund's
investment policies are nonfundamental, and thus may
be changed by the Board of Directors, provided such
change is not prohibited by the Fund's fundamental
investment restrictions (described under INVESTMENT
RESTRICTIONS) or applicable law, and any such change
will first be disclosed in the then current
prospectus. Refer to the "INVESTMENT PRACTICES" and
"RISK FACTORS" for further information on the Fund's
investments.
Under unusual economic or market conditions as
determined by the Manager, for defensive purposes the
Fund may depart from its principal investment
strategies and temporarily invest all or a major
portion of its assets in all types of money market and
short-term debt securities (including U.S. money
market securities). To the extent the Fund's assets
are invested for temporary defensive purposes, they
will not be invested in a manner designed to achieve
the Fund's investment objective.
US Equity Portion
The investment objective of the US Equity portion is
capital appreciation. Although the portion may
receive current income from dividends, interest and
other sources, income is only an incidental
consideration of the Fund. The portion attempts to
achieve its investment objective by investing
primarily in common stocks of companies that the
manager believes are experiencing, or have the
potential to experience, growth in earnings that
exceed the average earnings growth rate of companies
having securities included in the S&P 500. Although
the manager anticipates that the assets of the portion
ordinarily will be invested primarily in common stocks
of U.S. companies, the portion may invest in
convertible securities, preferred stocks, securities
of foreign issuers, warrants and restricted
securities. In addition, when the manager believes
that market conditions warrant, the portion may invest
for temporary defensive purposes in corporate and U.S.
government bonds and notes and money market
instruments. The portion is also authorized to borrow
in an amount of up to 5% of its total assets for
extraordinary or emergency purposes, and may borrow up
to 33 1/3% of its total assets less liabilities, for
leveraging purposes. See "Leveraging."
International Equity Portion
Under normal market conditions, the International
Equity portion invests at least 80% of its assets in
diversified equity securities consisting of dividend
and non-dividend paying common stock, preferred stock,
convertible debt and rights and warrants to obtain
such securities and may invest up to 20% of the Fund's
assets in bonds, notes and other debt securities
(consisting of securities issued in the Eurocurrency
markets or obligations of the United States or foreign
governments and their political sub-divisions) or
established non-United States issuers.
In seeking to achieve its objective, the International
Equity portion presently expects to invest its assets
primarily in common stocks of established non-United
States companies which in the opinion of the Manager
have potential for growth of capital.
Except as otherwise provided, the International Equity
portion will invest at least 80% of its assets in
companies organized or governments located in any area
of the world other than the United States, such as the
Far East (e.g., Japan, Hong Kong, Singapore,
Malaysia), Western Europe (e.g., United Kingdom,
Germany, the Netherlands, France, Italy, Switzerland),
Eastern Europe (e.g., the Czech Republic, Hungary,
Poland, and the countries of the former Soviet Union),
Central and South America (e.g., Mexico, Chile, and
Venezuela), Australia, Canada and such other areas and
countries as the Manager may determine from time to
time. Allocation of the Fund's investments will
depend upon the relative attractiveness of the
international markets and particular issuers.
Concentration of the Fund's assets in one or a few
countries or currencies will subject the Fund to
greater risks than if the Fund's assets were not
geographically concentrated.
It is expected that securities of the International
Equity portion will ordinarily be traded on a stock
exchange or other market in the country in which the
issuer is principally based, but may also be traded on
markets in other countries including, in many cases,
the United States securities exchanges and over-the-
counter markets.
To the extent that the assets of the Interntional
Equity portion are not otherwise invested as described
above, the assets may be held in cash, in any
currency, or invested in U.S. as well as foreign high
quality money market instruments and equivalents.
Each of the following investment practices is subject
to the limitations set forth under "Investment
Restrictions."
Foreign Securities (US Equity Portion) The US Equity
portion may invest up to 10% of its net assets (at
the time of investment) in foreign securities. The US
Equity portion may invest directly in foreign issuers
or invest in depositary receipts. The investments in
foreign securities of the US Equity portion may
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 risk associated with investing
in foreign securities directly. There are certain
risks involved in investing in foreign securities,
including those resulting from fluctuations in
currency exchange rates, revaluation of currencies,
future political or economic developments and the
possible imposition of currency exchange blockages or
other foreign governmental laws or restrictions,
reduced availability of public information concerning
issuers, and the fact that foreign companies are not
generally subject to uniform accounting, auditing and
financial reporting standards or to other regulatory
practices and requirements comparable to those
applicable to domestic companies. Moreover,
securities of many foreign companies may be less
liquid and their prices more volatile than securities
of comparable domestic companies. In addition, with
respect to certain foreign countries, there is the
possibility of expropriation, confiscatory taxation
and limitations on the use or removal of funds or
other assets of the Fund, including the withholding of
dividends. The 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 businesses or property are more likely.
EQUITY SECURITIES
Common Stocks (International Equity Portion). The
International Equity portion may purchase common
stocks. Common stocks are shares of a corporation or
other entity that entitle the holder to a pro rata
share of the profits of the corporation, if any,
without preference over any other shareholder or class
of shareholders, including holders of the entity's
preferred stock and other senior equity. Common stock
usually carries with it the right to vote and
frequently an exclusive right to do so.
Preferred Stocks and Convertible Securities
(International EquityPortion). The International
Equity portion may invest in convertible debt and
preferred stocks. Convertible debt securities and
preferred stock entitle the holder to acquire the
issuer's stock by exchange or purchase for a
predetermined rate. Convertible securities are
subject both to the credit and interest rate risks
associated with fixed income securities and to the
stock market risk associated with equity securities.
Warrants (US EquityPortion) Because a warrant does
not carry with it the right to dividends or voting
rights with respect to the securities that the warrant
holder is entitled to purchase, and because it does
not represent any rights to the assets of the issuer,
warrants may be considered more speculative than
certain other types of investments. Also, the value of
a warrant does not necessarily change with the value
of the underlying securities and a warrant ceases to
have value if it is not exercised prior to its
expiration date.
Warrants (International Equity Portion). The
International Equity portion may purchase warrants.
Warrants acquired by the International Equity portion
entitle it to buy common stock from the issuer at a
specified price and time. Warrants are subject to the
same market risks as stocks, but may be more volatile
in price. The Fund's investment in warrants will not
entitle it to receive dividends or exercise voting
rights and will become worthless if the warrants
cannot be profitably exercised before the expiration
dates.
REITs (International Equity Portion). The
International Equity portion may invest in shares of
real estate investment trusts (REITs), which are
pooled investment vehicles that invest in real estate
or real estate loans or interests. Investing in REITs
involves risks similar to those associated with
investing in equity securities of small capitalization
companies. REITs are dependent upon management
skills, are not diversified, and are subject to risks
of project financing, default by borrowers, self-
liquidation, and the possibility of failing to qualify
for the exemption from taxation on distributed amounts
under the Internal Revenue Code of 1986, as amended
(the "Code").
Restricted Securities (US Equity Portion) Restricted
securities are those that may not be sold publicly
without first being registered under the Securities
Act of 1933, as amended (the "1933 Act"). For that
reason, the US Equity portion may not be able to
dispose of restricted securities at a time when, or at
a price at which, it desires to do so and may have to
bear expenses associated with registering the
securities. At any one time, the Fund's aggregate
holdings of restricted securities, repurchase
agreements having a duration of more than five
business days, and securities lacking readily
available market quotations will not exceed 15% of the
Fund's total assets.
Illiquid and Restricted Securities (International
Equity Portion). The International Equity portion may
invest up to 15% of its assets in securities
(excluding those subject to Rule 144A under the
Securities Act of 1933 (the ''1933 Act'')), with
contractual or other restrictions on resale and other
instruments that are not readily marketable.
ADRs, EDRs and GDRs (Interntional Equity Portion).
The International Equity portion may also purchase
ADRs, EDRs and GDRs or other securities representing
underlying shares of foreign companies. ADRs are
publicly traded on exchanges or over-the-counter in
the United States and are issued through "sponsored"
or "unsponsored" arrangements. In a sponsored ADR
arrangement, the foreign issuer assumes the obligation
to pay some or all of the depository's transaction
fees, whereas under an unsponsored arrangement, the
foreign issuer assumes no obligation and the
depository's transaction fees are paid by the ADR
holders. In addition, less information is available
in the United States about an unsponsored ADR than
about a sponsored ADR, and the financial information
about a company may not be as reliable for an
unsponsored ADR as it is for a sponsored ADR. The
fund may invest in ADRs through both sponsored and
unsponsored arrangements.
FIXED INCOME SECURITIES
To the extent that the Fund may invest in fixed income
securities, it may invest in the securities described
below as noted.
Convertible Securities (US Equity Portion) Convertible
securities are fixed-income securities that may be
converted at either a stated price or stated rate into
underlying shares of common stock. Convertible
securities have general characteristics similar to
both fixed income and equity securities. Although to
a lesser extent than with fixed income securities
generally, the market value of convertible securities
tends to decline as interest rates increase and,
conversely, tends to increase as interest rates
decline. In addition, because of the conversion
feature, the market value of convertible securities
tends to vary with fluctuations in the market value of
the underlying common stocks and therefore also will
react to variations in the general market for equity
securities. A unique feature of convertible
securities is that as the market price of the
underlying common stock declines, convertible
securities tend to trade increasingly on a yield
basis, and so may not experience market value declines
to the same extent as the underlying common stock.
When the market price of the underlying common stock
increases, the prices of the convertible securities
tend to rise as a reflection of the value of the
underlying common stock. While no securities
investments are without risk, investments in
convertible securities generally entail less risk than
investments in common stock of the same issuer.
As fixed-income securities, convertible securities are
investments that provide for a stable stream of income
with generally higher yields than common stocks. Of
course, like all fixed-income securities, there can be
no assurance of current income because the issuers of
the convertible securities may default on their
obligations. Convertible securities, however,
generally offer lower interest or dividend yields than
non-convertible securities of similar quality because
of the potential for capital appreciation. A
convertible security, in addition to providing fixed
income, offers the potential for capital appreciation
through the conversion feature, which enables the
holder to benefit from increases in the market price
of the underlying common stock. There can be no
assurance of capital appreciation, however, because
securities prices fluctuate.
Convertible securities generally are subordinated to
other similar but nonconvertible securities of the
same issuer, although convertible bonds, as corporate
debt obligations, enjoy seniority in right of payment
to all equity securities, and convertible preferred
stock is senior to common stock, of the same issuer.
Because of the subordination feature, however,
convertible securities typically have lower ratings
than similar non-convertible securities.
Corporate Debt Obligations (International Equity
Portion). The International Equity portion may invest
in corporate debt obligations and zero coupon
securities issued by financial institutions and
corporations. Corporate debt obligations are subject
to the risk of an issuer's inability to meet principal
and interest payments on the obligations and may also
be subject to price volatility due to such factors as
market interest rates, market perception of the
creditworthiness of the issuer and general market
liquidity. Zero coupon securities are securities sold
at a discount to par value and on which interest
payments are not made during the life of the security.
U.S. Government Securities (International Equity
Portion). The U.S. Government securities in which
the Fund may invest include: bills, certificates of
indebtedness, and notes and bonds issued by the U.S.
Treasury or by agencies or instrumentalities of the
U.S. Government. Some U.S. Government securities, such
as U.S. Treasury bills and bonds, are supported by the
full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from
the U.S. Treasury; others, such as those of the
Federal National Mortgage Association, are supported
by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others,
such as those of the Student Loan Marketing
Association and the Federal Home Loan Mortgage
Corporation ("FHLMC"), are supported only by the
credit of the instrumentality. Mortgage participation
certificates issued by the FHLMC generally represent
ownership interests in a pool of fixed-rate
conventional mortgages. Timely payment of principal
and interest on these certificates is guaranteed
solely by the issuer of the certificates. Other
investments will include Government National Mortgage
Association Certificates ("GNMA Certificates"), which
are mortgage-backed securities representing part
ownership of a pool of mortgage loans on which timely
payment of interest and principal is guaranteed by the
full faith and credit of the U.S. Government. While
the U.S. Government guarantees the payment of
principal and interest on GNMA Certificates, the
market value of the securities is not guaranteed and
will fluctuate.
Sovereign Debt Obligations (Interntional Equity
Portion). The International Equity portion may
purchase sovereign debt instruments issued or
guaranteed by foreign governments or their agencies,
including debt of developing countries. Sovereign debt
may be in the form of conventional securities or other
types of debt instruments such as loans or loan
participations. Sovereign debt of developing countries
may involve a high degree of risk, and may be in
default or present the risk of default. Governmental
entities responsible for repayment of the debt may be
unable or unwilling to repay principal and interest
when due, and may require renegotiation or
rescheduling of debt payments. In addition, prospects
for repayment of principal and interest may depend on
political as well as economic factors. Although some
sovereign debt, such as Brady Bonds, is collateralized
by U.S. Government securities, repayment of principal
and interest is not guaranteed by the U.S. Government.
Loans and Other Direct Debt Instruments (International
Equity Portion). The International Equity portion may
purchase interests in amounts owed by a corporate,
governmental, or other borrower to another party.
These interests may represent amounts owed to lenders
or lending syndicates (loans and loan participations),
to suppliers of goods or services (trade claims or
other receivables), or to other parties. Direct debt
instruments involve the risk of loss in case of
default or insolvency of the borrower and may offer
less legal protection to the fund in the event of
fraud or misrepresentation. In addition, loan
participations involve a risk of insolvency of the
lending bank or other financial intermediary. Direct
debt instruments may also include standby financing
commitments that obligate the fund to supply
additional cash to the borrower on demand.
Floating and Variable Rate Income Securities
(International Equity Portion). Income securities may
provide for floating or variable rate interest or
dividend payments. The floating or variable rate may
be determined by reference to a known lending rate,
such as a bank's prime rate, a certificate of deposit
rate or the London InterBank Offered Rate (LIBOR).
Alternatively, the rate may be determined through an
auction or remarketing process. The rate also may be
indexed to changes in the values of interest rate or
securities indexes, currency exchange rates or other
commodities. The amount by which the rate paid on an
income security may increase or decrease may be
subject to periodic or lifetime caps. Floating and
variable rate income securities include securities
whose rates vary inversely with changes in market
rates of interest. Such securities may also pay a
rate of interest determined by applying a multiple to
the variable rate. The extent of increases and
decreases in the value of securities whose rates vary
inversely with changes in market rates of interest
generally will be larger than comparable changes in
the value of an equal principal amount of a fixed rate
security having similar credit quality, redemption
provisions and maturity.
Zero Coupon, Discount and Payment-in-kind Securities
(International Equity Portion). The International
Equity portion may invest in "zero coupon" and other
deep discount securities of governmental or private
issuers. Zero coupon securities generally pay no cash
interest (or dividends in the case of preferred stock)
to their holders prior to maturity. Payment-in-kind
securities allow the lender, at its option, to make
current interest payments on such securities either in
cash or in additional securities. Accordingly, such
securities usually are issued and traded at a deep
discount from their face or par value and generally
are subject to greater fluctuations of market value in
response to changing interest rates than securities of
comparable maturities and credit quality that pay cash
interest (or dividends in the case of preferred stock)
on a current basis.
Premium Securities (International Equity Portion).
The International Equity portion may invest in income
securities bearing coupon rates higher than prevailing
market rates. Such "premium" securities are typically
purchased at prices greater than the principal amounts
payable on maturity. The International Eauity portion
will not amortize the premium paid for such securities
in calculating its net investment income. As a
result, in such cases the purchase of such securities
provides a fund a higher level of investment income
distributable to shareholders on a current basis than
if the Fund purchased securities bearing current
market rates of interest. If securities purchased by
a Fund at a premium are called or sold prior to
maturity, the Fund will recognize a capital loss to
the extent the call or sale price is less than the
purchase price. Additionally, a fund will recognize a
capital loss if it holds such securities to maturity.
Yankee Bonds (International Equity Portion). The
International Equity portion may invest in U.S.
dollar-denominated bonds sold in the United States by
non-U.S. issuers ("Yankee bonds"). As compared with
bonds issued in the United States, such bond issues
normally carry a higher interest rate but are less
actively traded.
Loan Participations and Assignments (International
Equity Portion). The International Equtiy portion may
invest a portion of its assets in loan participations
("Participations"). By purchasing a Participation,
the International Equity portion acquires some or all
of the interest of a bank or other lending institution
in a loan to a corporate or government borrower. The
Participations typically will result in the
International Equity portion having a contractual
relationship only with the lender and not with the
borrower. The International Equity portion will have
the right to receive payments of principal, interest
and any fees to which it is entitled only from the
lender selling the Participation and only upon receipt
by the lender of the payments from the borrower. In
connection with purchasing Participations, the
International Equity portion generally will have no
right to enforce compliance by the borrower with the
terms of the loan agreement relating to the loan, nor
any rights of set-off against the borrower, and the
International Equity portion may not directly benefit
from any collateral supporting the loan in which it
has purchased the Participation. As a result, the
International Equity portion will assume the credit
risk of both the borrower and the lender that is
selling the Participation. In the event of the
insolvency of the lender selling a Participation, the
International Equity portion may be treated as a
general creditor of the lender and may not benefit
from any set-off between the lender and the borrower.
The International Equity portion will acquire
Participations only if the lender interpositioned
between the Fund and the borrower is determined by
management to be creditworthy.
The International Equity portion also may invest in
assignments of portions of loans from third parties
("Assignments"). When it purchases Assignments from
lenders, the Fund will acquire direct rights against
the borrower on the loan. However, since Assignments
are arranged through private negotiations between
potential assignees and assignors, the rights and
obligations acquired by the Fund as the purchaser of
an Assignment may differ from, and be more limited
than, those held by the assigning lender. The
International Equity portion may have difficulty
disposing of Assignments and Participations. The
liquidity of such securities is limited, and the Fund
anticipates that such securities could be sold only to
a limited number of institutional investors. The lack
of a liquid secondary market could have an adverse
impact on the value of such securities and on the
International Equity portion's ability to dispose of
particular Assignments or Participations when
necessary to meet the International Equity portion's
liquidity needs or in response to a specific economic
event, such as a deterioration in the creditworthiness
of the borrower. The lack of a liquid secondary
market for Assignments and Participations also may
make it more difficult for the International Equity
portion to assign a value to those securities or
purposes of valuing the International Equity portion
and calculating its net asset value.
Short-Term Investments (The Fund). In certain
circumstances the Fund may invest without limitation
in all types of short-term money market instruments,
including U.S. Government securities; certificates of
deposit, time deposits and bankers' acceptances issued
by domestic banks (including their branches located
outside the United States and subsidiaries located in
Canada), domestic branches of foreign banks, savings
and loan associations and similar institutions; high
grade commercial paper; and repurchase agreements. To
the extent the Fund is investing in short-term
investments as a temporary defensive posture, the
applicable Fund's investment objective may not be
achieved.
Commercial Paper (International Equity Portion)
Commercial paper consists of short-term (usually from
1 to 270 days) unsecured promissory notes issued by
corporations in order to finance their current
operations. A variable amount master demand note
(which is a type of commercial paper) represents a
direct borrowing arrangement involving periodically
fluctuating rates of interest under a letter agreement
between a commercial paper issuer and an institutional
lender, such as the Fund, pursuant to which the lender
may determine to invest varying amounts. Transfer of
such notes is usually restricted by the issuer, and
there is no secondary trading market for such notes.
The Fund, therefore, may not invest in a master demand
note, if as a result more than 15% of the value of the
International Equity portion's total assets would be
invested in such notes and other illiquid securities.
Commercial Bank Obligations (International Equity
Portion). For the purposes of the International
Equity portion's investment policies with respect to
bank obligations, obligations of foreign branches of
U.S. banks and of foreign banks may be general
obligations of the parent bank in addition to the
issuing bank, or may be limited by the terms of a
specific obligation and by government regulation. As
with investment in foreign securities in general,
investments in the obligations of foreign branches of
U.S. banks and of foreign banks may subject a fund to
investment risks that are different in some respects
from those of investments in obligations of domestic
issuers. Although a fund will typically acquire
obligations issued and supported by the credit of U.S.
or foreign banks having total assets at the time of
purchase in excess of U.S. $1 billion (or the
equivalent thereof), this U.S. $1 billion figure is
not a fundamental investment policy or restriction of
the Fund. For calculation purposes with respect to
the U.S. $1 billion figure, the assets of a bank will
be deemed to include the assets of its U.S. and
foreign branches.
Money Market Instruments (US Equity Portion) As
stated in the prospectus, the US Equity portion may
invest for 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.
Bank Obligations (US Equity Portion) Certificates of
deposits ("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
amount 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, among other things, generally
required to 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
governmental 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 addition, there may be less
publicly available information about a domestic branch
of a foreign bank than about a domestic bank.
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, the manager will carefully evaluate such
investments on a case-by-case basis.
Savings and loans 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 United States government. As a result, such
savings and loan associations are subject to
regulation and examination.
DERIVATIVE CONTRACTS
Options, Futures and Currencies (International Equity
Portion). The International Equity portion 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. These hedging
techniques are described in detail below.
Writing Covered Call Options (International Equity
Portion). The International Equity portion may write
(sell) covered call options for hedging purposes.
Covered call options will generally be written on
securities and currencies which, in the opinion of the
Manager, are not expected to make any major price
moves in the near future but which, over the long
term, are deemed to be attractive investments for the
International Equity portion
A call option gives the holder (buyer) the right to
purchase a security or currency at a specified price
(the exercise price) at any time until a certain date
(the expiration date). So long as the obligation of
the writer of a call option continues, he may be
assigned an exercise notice by the broker-dealer
through whom such option was sold, requiring him to
deliver the underlying security or currency against
payment of the exercise price. This obligation
terminates upon the expiration of the call option, or
such earlier time at which the writer effects a
closing purchase transaction by purchasing an option
identical to that previously sold. The Manager and
the Company believe that writing of covered call
options is less risky than writing uncovered or
"naked" options, which the International Equity
portion will not do.
Portfolio securities or currencies on which call
options may be written will be purchased solely on the
basis of investment considerations consistent with
International Equity portion's investment objective.
When writing a covered call option, the International
Equity portion's, in return for the premium, gives up
the opportunity for profit from a price increase in
the underlying security or currency above the exercise
price and retains the risk of loss should the price of
the security or currency decline. Unlike one who
owns securities or currencies not subject to an
option, the International Equity portion has no
control over when it may be required to sell the
underlying securities or currencies, since the option
may be exercised at any time prior to the option's
expiration. If a call option which the International
Equity portion has written expires, the International
Equity portion will realize a gain in the amount of
the premium; however, such gain may be offset by a
decline in the market value of the underlying security
or currency during the option period. If the call
option is exercised, the fund will realize a gain or
loss from the sale of the underlying security or
currency. The security or currency covering the call
option will be maintained in a segregated account of
the International Equity portion's custodian.
The premium the International Equity portion receives
for writing a call option is deemed to constitute the
market value of an option. The premium the
International Equity portion will receive from writing
a call option will reflect, among other things, the
current market price of the underlying security or
currency, the relationship of the exercise price to
such market price, the implied price volatility of the
underlying security or currency, and the length of the
option period. In determining whether a particular
call option should be written on a particular security
or currency, the Manager will consider the
reasonableness of the anticipated premium and the
likelihood that a liquid secondary market will exist
for those options. The premium received by the
International Equity portion for writing covered call
options will be recorded as a liability in the fund's
statement of assets and liabilities. This liability
will be adjusted daily to the option's current market
value, which will be calculated as described in
"DETERMINATION OF NET ASSET VALUE." The liability
will be extinguished upon expiration of the option or
delivery of the underlying security or currency upon
the exercise of the option. The liability with
respect to a listed option will also be extinguished
upon the purchase of an identical option in a closing
transaction.
Closing transactions will be effected in order to
realize a profit or to limit losses on an outstanding
call option, to prevent an underlying security or
currency from being called, or to permit the sale of
the underlying security or currency. Furthermore,
effecting a closing transaction will permit the fund
to write another call option on the underlying
security or currency with either a different exercise
price, expiration date or both. If the Fund desires
to sell a particular security or currency from its
portfolio on which it has written a call option or
purchases a put option, it will seek to effect a
closing transaction prior to, or concurrently with,
the sale of the security or currency. There is no
assurance that the Fund will be able to effect such
closing transactions at a favorable price. If the
International Equity portion cannot enter into such a
transaction, it may be required to hold a security or
currency that it might otherwise have sold, in which
case it would continue to be at market risk with
respect to the security or currency.
The International Equity portion will pay transaction
costs in connection with the writing of options and in
entering into closing purchase contracts. Transaction
costs relating to options activity are normally higher
than those applicable to purchases and sales of
portfolio securities.
Call options written by the International Equity
portion, will normally have expiration dates of less
than nine months from the date written. The exercise
price of the options may be below, equal to or above
the current market values of the underlying securities
or currencies at the time the options are written.
From time to time, the Fund may purchase an underlying
security or currency for delivery in accordance with
the exercise of an option, rather than delivering such
security or currency from its portfolio. In such
cases, additional costs will be incurred.
The International Equity portion will realize a profit
or loss from a closing purchase transaction if the
cost of the transaction is less or more, respectively,
than the premium received from the writing of the
option. Because increases in the market price of a
call option will generally reflect increases in the
market price of the underlying security or currency,
any loss resulting from the repurchase of a call
option is likely to be offset in whole or in part by
appreciation of the underlying security or currency
owned by the International Equity portion.
See "ADDITIONAL TAX INFORMATION" for a discussion of
federal income tax treatment of covered call options.
Purchasing Put Options (International Equity Portion).
The International Equity portion may purchase put
options. As the holder of a put option, the
International Equity portion has the right to sell the
underlying security or currency at the exercise price
at any time during the option period. The
International Equity portion may enter into closing
sale transactions with respect to such options,
exercise them or permit them to expire.
The International Equity portion may purchase a put
option on an underlying security or currency (a
"protective put") owned by the International Equity
portion as a hedging technique in order to protect
against an anticipated decline in the value of the
security or currency. Such hedge protection is
provided only during the life of the put option when
the International Equity portion, as the holder of the
put option, is able to sell the underlying security or
currency at the put exercise price regardless of any
decline in the underlying security's market price or
currency's exchange value. For example, a put option
may be purchased in order to protect unrealized
appreciation of a security or currency when the
Manager deems it desirable to continue to hold the
security or currency because of tax considerations.
The premium paid for the put option and any
transaction costs may reduce any capital gain or, in
the case of currency, ordinary income otherwise
available for distribution when the security or
currency is eventually sold.
The International Equity portion may also purchase put
options at a time when the International Equity
portion does not own the underlying security or
currency. By purchasing put options on a security or
currency it does not own, the International Equity
portion seeks to benefit from a decline in the market
price of the underlying security or currency. If the
put option is not sold when it has remaining value,
and if the market price of the underlying security or
currency remains equal to or greater than the exercise
price during the life of the put option, the
International Equity poriton will lose its entire
investment in the put option. In order for the
purchase of a put option to be profitable, the market
price of the underlying security or currency must
decline sufficiently below the exercise price to cover
the premium and transaction costs, unless the put
option is sold in a closing sale transaction.
The premium paid by the International Equity portion
when purchasing a put option will be recorded as an
asset in the International Equity's portion statement
of assets and liabilities. This asset will be
adjusted daily to the option's current market value,
as calculated by the Fund. The asset will be
extinguished upon expiration of the option or the
delivery of the underlying security or currency upon
the exercise of the option. The asset with respect to
a listed option will also be extinguished upon the
writing of an identical option in a closing
transaction.
Purchasing Call Options (International Equity
Portion). The International Equity portion may
purchase call options. As the holder of a call
option, International Equity portion has the right to
purchase the underlying security or currency at the
exercise price at any time during the option period.
The International Equity portion may enter into
closing sale transactions with respect to such
options, exercise them or permit them to expire. Call
options may be purchased by the Fund for the purpose
of acquiring the underlying security or currency for
its portfolio. Utilized in this fashion, the purchase
of call options enables the Fund to acquire the
security or currency at the exercise price of the call
option plus the premium paid. At times the net cost
of acquiring the security or currency in this manner
may be less than the cost of acquiring the security or
currency directly. This technique may also be useful
to the fund in purchasing a large block of securities
that would be more difficult to acquire by direct
market purchases. So long as it holds such a call
option rather than the underlying security or currency
itself, the International Equity portion is partially
protected from any unexpected decline in the market
price of the underlying security or currency and in
such event could allow the call option to expire,
incurring a loss only to the extent of the premium
paid for the option.
The International Equity portion may also purchase
call options on underlying securities or currencies it
owns in order to protect unrealized gains on call
options previously written by it. A call option would
be purchased for this purpose where tax considerations
make it inadvisable to realize such gains through a
closing purchase transaction. Call options may also
be purchased at times to avoid realizing losses that
would result in a reduction of the International
Equity portion's current return.
Interest Rate and Currency Futures Contracts
(International Equity Portion). The International
Equity portion may enter into interest rate or
currency futures contracts ("Futures" or "Futures
Contracts") as a hedge against changes in prevailing
levels of interest rates or currency exchange rates in
order to establish more definitely the effective
return on securities or currencies held or committed
to be acquired by the Fund. The Fund's hedging may
include holding Futures as an offset against
anticipated changes in interest or currency exchange
rates. The Interntional Equity portion may also enter
into Futures Contracts based on financial indices
including any index of U.S. Government securities,
foreign government securities or corporate debt
securities.
A Futures Contract provides for the future sale by one
party and purchase by another party of a specified
amount of a specific financial instrument or currency
for a specified price at a designated date, time and
place. The purchaser of a Futures Contract on an
index agrees to take or make delivery of an amount of
cash equal to the difference between a specified
dollar multiple of the value of the index on the
expiration date of the contract ("current contract
value") and the price at which the contract was
originally struck. No physical delivery of the debt
securities underlying the index is made. Brokerage
fees are incurred when a Futures Contract is bought or
sold, and margin deposits must be maintained at all
times that the Futures Contract is outstanding.
Although techniques other than sales and purchases of
Futures Contracts could be used to reduce the
International Equity portion's exposure to interest
rate and currency exchange rate fluctuations, the
International Equity portion may be able to hedge its
exposure more effectively and at a lower cost through
using Futures Contracts.
Although Futures Contracts typically require future
delivery of and payment for financial instruments or
currencies, Futures Contracts are usually closed out
before the delivery date. Closing out an open Futures
Contract sale or purchase is effected by entering into
an offsetting Futures Contract purchase or sale,
respectively, for the same aggregate amount of the
identical financial instrument or currency and the
same delivery date. If the offsetting purchase price
is less than the original sale price, the fund
realizes a gain; if it is more, the Fund realizes a
loss. Conversely, if the offsetting sale price is
more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a
loss. The transaction costs must also be included in
these calculations. There can be no assurance,
however, that the International Equity portion will be
able to enter into an offsetting transaction with
respect to a particular Futures Contract at a
particular time. If the International Equity portion
is not able to enter into an offsetting transaction,
the International Equity portion will continue to be
required to maintain the margin deposits of the
underlying financial instrument or currency on the
relevant delivery date. The fund intends to enter
into Futures transactions only on exchanges or boards
of trade where there appears to be a liquid secondary
market. However, there can be no assurance that such
a market will exist for a particular contract at a
particular time.
As an example of an offsetting transaction, the
contractual obligations arising from the sale of one
Futures Contract of September Treasury Bills on an
exchange may be fulfilled at any time before delivery
under the Futures Contract is required (i.e., on a
specific date in September, the "delivery month") by
the purchase of another Futures Contract of September
Treasury Bills on the same exchange. In such instance
the difference between the price at which the Futures
Contract was sold and the price paid for the
offsetting purchase, after allowance for transaction
costs, represents the profit or loss to the Fund.
Persons who trade in Futures Contracts may be broadly
classified as "hedgers" and "speculators." Hedgers,
whose business activity involves investment or other
commitment in securities or other obligations, use the
Futures markets to offset unfavorable changes in value
that may occur because of fluctuations in the value of
the securities and obligations held or committed to be
acquired by them or fluctuations in the value of the
currency in which the securities or obligations are
denominated. Debtors and other obligors may also
hedge the interest cost of their obligations. The
speculator, like the hedger, generally expects neither
to deliver nor to receive the financial instrument
underlying the Futures Contract, but, unlike the
hedger, hopes to profit from fluctuations in
prevailing interest rates or currency exchange rates.
The International Equity portion's Futures
transactions will be entered into for traditional
hedging purposes; that is, Futures Contracts will be
sold to protect against a decline in the price of
securities or currencies that the fund owns, or
Futures Contracts will be purchased to protect a fund
against an increase in the price of securities or
currencies it has committed to purchase or expects to
purchase. The International Equity portion may each
also enter into Futures transactions for non-hedging
purposes, subject to applicable law.
"Margin" with respect to Futures Contracts is the
amount of Interntional Equity portion that must be
deposited by the Fund with a broker in order to
initiate Futures trading and to maintain the
International Equity portion's open positions in
Futures Contracts. A margin deposit made when the
Futures Contract is entered into ("initial margin") is
intended to assure the International Equity portion's
performance of the Futures Contract. The margin
required for a particular Futures Contract is set by
the exchange on which the Futures Contract is traded,
and may be significantly modified from time to time by
the exchange during the term of the Futures Contract.
Futures Contracts are customarily purchased and sold
on margins, which may be 5% or less of the value of
the Futures Contract being traded.
If the price of an open Futures Contract changes (by
increase in the case of a sale or by decrease in the
case of a purchase) so that the loss on the Futures
Contract reaches a point at which the margin on
deposit does not satisfy margin requirements, the
broker will require an increase in the margin deposit
("variation margin"). If, however, the value of a
position increases because of favorable price changes
in the Futures Contract so that the margin deposit
exceeds the required margin, it is anticipated that
the broker will pay the excess to the International
Equity portion. In computing daily net asset values,
the International Equity portion will mark to market
the current value of its open Futures Contracts. The
International Equity portion expects to earn interest
income on its margin deposits.
See "ADDITIONAL TAX INFORMATION" for a discussion of
federal tax treatment of Futures Contracts.
Options on Futures Contracts (International Equity
Portion). Options on Futures Contracts are similar to
options on securities or currencies except that
options on Futures Contracts give the purchaser the
right, in return for the premium paid, to assume a
position in a Futures Contract (a long position if the
option is a call and a short position if the option is
a put), rather than to purchase or sell the Futures
Contract, at a specified exercise price at any time
during the period of the option. Upon exercise of the
option, the delivery of the Futures position by the
writer of the option to the holder of the option will
be accompanied by delivery of the accumulated balance
in the writer's Futures margin account which
represents the amount by which the market price of the
Futures Contract, at exercise, exceeds (in the case of
a call) or is less than (in the case of a put) the
exercise price of the option on the Futures Contract.
If an option is exercised on the last trading day
prior to the expiration date of the option, the
settlement will be made entirely in cash equal to the
difference between the exercise price of the option
and the closing level of the securities or currencies
upon which the Futures Contracts are based on the
expiration date. Purchasers of options who fail to
exercise their options prior to the exercise date
suffer a loss of the premium paid.
As an alternative to purchasing call and put options
on Futures, the International Equity portion may
purchase call and put options on the underlying
securities or currencies themselves (see "Purchasing
Put Options" and "Purchasing Call Options" above).
Such options would be used in a manner identical to
the use of options on Futures Contracts.
To reduce or eliminate the leverage then employed by
the Fund or to reduce or eliminate the hedge position
then currently held by the International Equity
portion, the International Equity portion may seek to
close out an option position by selling an option
covering the same securities or currency and having
the same exercise price and expiration date. The
ability to establish and close out positions on
options on Futures Contracts is subject to the
existence of a liquid market. It is not certain that
this market will exist at any specific time.
In order to assure that the International Equity
protion will not be deemed to be "commodity pools" for
purposes of the Commodity Exchange Act, regulations of
the Commodity Futures Trading Commission ("CFTC")
require that the fund enter into transactions in
Futures Contracts and options on Futures Contracts
only (i) for bona fide hedging purposes (as defined in
CFTC regulations), or (ii) for non-hedging purposes,
provided that the aggregate initial margin and
premiums on such non-hedging positions does not exceed
5% of the liquidation value of the International
Equity portion's assets.
Forward Currency Contracts, Options on Currency and
Currency Swaps (International Equity Portion). A
forward currency contract is an obligation to purchase
or sell a currency against another currency at a
future date and price as agreed upon by the parties.
The International Equity portion may either accept or
make delivery of the currency at the maturity of the
forward contract or, prior to maturity, enter into a
closing transaction involving the purchase or sale of
an offsetting contract. The International Equity
portion engages in forward currency transactions in
anticipation of, or to protect itself against,
fluctuations in exchange rates. The International
Equity portion might sell a particular foreign
currency forward, for example, when it holds bonds
denominated in that currency but anticipates, and
seeks to be protected against, a decline in the
currency against the U.S. dollar. Similarly, the
International Equity portion might sell the U.S.
dollar forward when it holds bonds denominated in U.S.
dollars but anticipates, and seeks to be protected
against, a decline in the U.S. dollar relative to
other currencies. Further, the International Equity
portion might purchase a currency forward to "lock in"
the price of securities denominated in that currency
which it anticipates purchasing.
The matching of the increase in value of a forward
contract and the decline in the U.S. dollar equivalent
value of the foreign currency denominated asset that
is the subject of the hedge generally will not be
precise. In addition, the International Equity
portion may not always be able to enter into foreign
currency forward contracts at attractive prices and
this will limit the Fund's ability to use such
contract to hedge or cross-hedge its assets. Also,
with regard to the use of cross-hedges by the
International Equity portion, there can be no
assurance that historical correlations between the
movement of certain foreign currencies relative to the
U.S. dollar will continue. Thus, at any time poor
correlation may exist between movements in the
exchange rates of the foreign currencies underlying
the cross-hedges of the International Equity portion
and the movements in the exchange rates of the foreign
currencies in which the assets of the International
Equity portion that are the subject of such cross-
hedges are denominated.
Forward contracts are traded in an interbank market
conducted directly between currency traders (usually
large commercial banks) and their customers. A
forward contract generally has no deposit requirement
and is consummated without payment of any commission.
The International Equity portion, however, may enter
into forward contracts with deposit requirements or
commissions.
A put option gives the International Equity portion,
as purchaser, the right (but not the obligation) to
sell a specified amount of currency at the exercise
price until the expiration of the option. A call
option gives the International Equity portion, as
purchaser, the right (but not the obligation) to
purchase a specified amount of currency at the
exercise price until its expiration. The
International Equity portion might purchase a currency
put option, for example, to protect itself during the
contract period against a decline in the value of a
currency in which it holds or anticipates holding
securities. If the currency's value should decline,
the loss in currency value should be offset, in whole
or in part, by an increase in the value of the put.
If the value of the currency instead should rise, any
gain to the fund would be reduced by the premium it
had paid for the put option. A currency call option
might be purchased, for example, in anticipation of,
or to protect against, a rise in the value of a
currency in which the fund anticipates purchasing
securities.
The ability of the International Equity portion to
establish and close out positions in foreign currency
options is subject to the existence of a liquid
market. There can be no assurance that a liquid
market will exist for a particular option at any
specific time. In addition, options on foreign
currencies are affected by all of those factors that
influence foreign exchange rates and investments
generally.
A position in an exchange-listed option may be closed
out only on an exchange that provides a secondary
market for identical options. Exchange markets for
options on foreign currencies exist but are relatively
new, and the ability to establish and close out
positions on the exchanges is subject to maintenance
of a liquid secondary market. Closing transactions
may be effected with respect to options traded in the
over-the-counter ("OTC") markets (currently the
primary markets for options on foreign currencies)
only by negotiating directly with the other party to
the option contract or in a secondary market for the
option if such market exists. Although the Fund
intends to purchase only those options for which there
appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist
for any particular option at any specific time. In
such event, it may not be possible to effect closing
transactions with respect to certain options, with the
result that the International Equity portion would
have to exercise those options which it has purchased
in order to realize any profit. The staff of the
Securities and Exchange Commission ("SEC") has taken
the position that, in general, purchased OTC options
and the underlying securities used to cover written
OTC options are illiquid securities. However, the
International Equity porrtionmay treat as liquid the
underlying securities used to cover written OTC
options, provided it has arrangements with certain
qualified dealers who agree that the International
Equity portion may repurchase any option it writes for
a maximum price to be calculated by a predetermined
formula. In these cases, the OTC option itself would
only be considered illiquid to the extent that the
maximum repurchase price under the formula exceeds the
intrinsic value of the option.
The International Equity portion may also enter into
currency swaps. A currency swap is an arrangement
whereby each party exchanges one currency for another
on a particular date and agrees to reverse the
exchange on a later date at a specific exchange rate.
Forward foreign currency contracts and currency swaps
are established in the interbank market conducted
directly between currency traders (usually large
commercial banks or other financial institutions) on
behalf of their customers.
Interest Rate Swaps, Caps and Floors (International
Equity Portion). Among the hedging transactions into
which the International Equity portion may enter are
interest rate swaps and the purchase or sale of
interest rate caps and floors. The International
Equity portion expects to enter into these
transactions primarily to preserve a return or spread
on a particular investment or portion of its portfolio
or to protect against any increase in the price of
securities the International Equity portion
anticipates purchasing at a later date. The
International Equity portion intends to use these
transactions as a hedge and not as a speculative
investment. The International Equity portion will not
sell interest rate caps or floors that it does not
own. Interest rate swaps involve the exchange by a
fund with another party of their respective
commitments to pay or receive interest, e.g., an
exchange of floating rate payments for fixed rate
payments. The purchase of an interest rate cap
entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest rate, to
receive payments of interest on a notional principal
amount from the party selling such interest rate cap.
The purchase of an interest rate floor entitles the
purchaser, to the extent that a specified index falls
below a predetermined interest rate, to receive
payments of interest on a notional principal amount
from the party selling such interest rate floor.
The International Equity portion may enter into
interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending on
whether it is hedging its assets or its liabilities,
and will usually enter into interest rate swaps on a
net basis, i.e., the two payment streams are netted,
with the International Equity portion receiving or
paying, as the case may be, only the net amount of the
two payments. Inasmuch as these hedging transactions
are entered into for good faith hedging purposes, the
Manager and the International Equity portion believe
such obligations do not constitute senior securities
and, accordingly will not treat them as being subject
to their borrowing restrictions. The net amount of
the excess, if any, of the obligations of the
International Equity portion over its entitlements
with respect to each interest rate swap will be
accrued on a daily basis and an amount of cash or
liquid securities having an aggregate net asset value
at least equal to the accrued excess will be
maintained in a segregated account by a custodian that
satisfies the requirements of the 1940 Act. The
International Equity portion will not enter into any
interest rate swap, cap or floor transaction unless
the unsecured senior debt or the claims-paying ability
of the other party thereto is rated in the highest
rating category of at least one nationally recognized
rating organization at the time of entering into such
transaction. If there is a default by the other party
to such a transaction, the International Equity
portion will have contractual remedies pursuant to the
agreements related to the transaction. The swap
market has grown substantially in recent years with a
large number of banks and investment banking firms
acting both as principals and as agents utilizing swap
documentation. As a result, the swap market has
become relatively liquid. Caps and floors are more
recent innovations for which standardized
documentation has not yet been developed and,
accordingly, they are less liquid than swaps.
New options and Futures Contracts and various
combinations thereof continue to be developed and the
International Equity portion may invest in any such
options and contracts as may be developed to the
extent consistent with their investment objectives and
regulatory requirements applicable to investment
companies.
OTHER PRACTICES
Repurchase Agreements (US Equity Portion) The US
Equity portion will enter into repurchase agreements
with banks which are the issuers of instruments
acceptable for purchase by the Fund and with certain
dealers on the Federal Reserve Bank of New York's list
of reporting dealers. Under the terms of a typical
repurchase agreement, the fund would acquire an
underlying obligation for a relatively short period
(usually not more than one week) subject to an
obligation of the seller to repurchase, and the Fund
to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's
holding period. This arrangement results in a fixed
rate of return that is not subject to market
fluctuations during the Fund's holding period. Under
each repurchase agreement, the selling institution
will be required to maintain the value of the
securities subject to the repurchase agreement at not
less than their repurchase price. Repurchase
agreements could involve certain risks in the event of
default or insolvency of the other party, including
possible delays or restrictions upon the ability of
the US Equity portion to dispose of the underlying
securities, the risk of a possible decline in the
value of the underlying securities during the period
in which the fund seeks to assert its rights to them,
the risk of incurring expenses associated with
asserting those rights and the risk of losing all or
part of the income from the agreement. The Manager,
acting under the supervision of the Board of
Directors, reviews on an ongoing basis to evaluate
potential risks the value of the collateral and the
creditworthiness of those banks and dealers with which
the US Equity portion enters into repurchase
agreements.
Repurchase Agreements (International Equity Portion).
The International Equity portion may enter into
repurchase agreements. The International Equity
portion may invest in repurchase agreements up to 25%
of its total assets. A repurchase agreement is a
contract under which the fund acquires a security for
a relatively short period (usually not more than one
week) subject to the obligation of the seller to
repurchase and the Fund to resell such security at a
fixed time and price (representing the Fund's cost
plus interest). It is the present intention of the
International Equity portion to enter into repurchase
agreements only upon receipt of fully adequate
collateral and only with commercial banks (whether
U.S. or foreign) and registered broker-dealers.
Repurchase agreements may also be viewed as loans made
by a fund which are collateralized primarily by the
securities subject to repurchase. The International
Equity portion bears a risk of loss in the event that
the other party to a repurchase agreement defaults on
its obligations and the International Equity portion
is delayed in or prevented from exercising its rights
to dispose of the collateral securities. Pursuant to
policies established by the Board of Directors, the
Manager monitors the creditworthiness of all issuers
with which the International Equity portion enters
into repurchase agreements.
Reverse Repurchase Agreements (International Equity
Portion) . The International Equity portion does not
currently intend to commit more than 5% of its net
assets to reverse repurchase agreements. The
InternationalEquity portion may enter into reverse
repurchase agreements with broker/dealers and other
financial institutions. Such agreements involve the
sale of fund securities with an agreement to
repurchase the securities at an agreed-upon price,
date and interest payment, are considered to be
borrowings by a fund and are subject to the borrowing
limitations set forth under "Investment Restrictions."
Since the proceeds of reverse repurchase agreements
are invested, this would introduce the speculative
factor known as "leverage." The securities purchased
with the funds obtained from the agreement and
securities collateralizing the agreement will have
maturity dates no later than the repayment date.
Generally the effect of such a transaction is that the
fund can recover all or most of the cash invested in
the International Equity portion's securities involved
during the term of the reverse repurchase agreement,
while in many cases it will be able to keep some of
the interest income associated with those securities.
Such transactions are only advantageous if the
International Equity portion has an opportunity to
earn a greater rate of interest on the cash derived
from the transaction than the interest cost of
obtaining that cash. Opportunities to realize
earnings from the use of the proceeds equal to or
greater than the interest required to be paid may not
always be available, and the Fund intends to use the
reverse repurchase technique only when the Manager
believes it will be advantageous to the International
Equity portion. The use of reverse repurchase
agreements may exaggerate any interim increase or
decrease in the value of the participating fund's
assets. The Fund's custodian bank will maintain a
separate account for the International Equity portion
with securities having a value equal to or greater
than such commitments.
Borrowing (International Equity Portion) . The Fund
may borrow up to 33% of the value of its total assets
from banks for temporary or emergency purposes, such
as to meet the redemptions of the Intenational Equity
portion..
Leveraging (US Equity Portion) The US Equity portion
may from time to time leverage its investments by
purchasing securities with borrowed money. The US
Equity portion may borrow money only from banks and in
an amount not to exceed 33 1/3% of the total value of
its assets less its liabilities. The amount of
borrowings by the US Equity portion also may be
limited by the availability and cost of credit and by
restrictions imposed by the Federal Reserve Board.
The US Equity portion is required under the Investment
Company Act of 1940, as amended (the "1940 Act") to
maintain at all times an asset coverage of 300% of the
amount of its borrowings. If, as a result of market
fluctuations or for any other reason, asset coverage
of the US Equity portion drops below 300%, the US
Equity portion must reduce its outstanding bank debt
within three business days so as to restore its asset
coverage to the 300% level.
Any gain in the value of securities purchased with
borrowed money that exceeds the interest paid on the
amount borrowed would cause the net asset value of the
shares of the US Equity portion to increase more
rapidly than otherwise would be the case. Conversely,
any decline in the value of securities purchased would
cause the net asset value of the shares of the US
Equity portion to decrease more rapidly than otherwise
would be the case. Borrowed money thus creates an
opportunity for greater capital gain but at the same
time increases exposure to capital risk. The net cost
of any borrowed money would be an expense that
otherwise would not be incurred, and this expense
could restrict or eliminate the net investment income
of the US Equity portion in any given period.
Leverage (International Equity Portion) . The
International Equity portion may borrow from banks, on
a secured or unsecured basis, up to 33% of the value
of its total assets and use the proceeds to make
additional investments. Income and appreciation from
such investments will improve the Fund's performance
if they exceed the associated borrowing costs, but
will impair a fund's performance if they are less than
the borrowing costs. This speculative factor is known
as "leverage."
Leverage creates an opportunity for increased returns
to shareholders of the International Equity portion
but, at the same time, creates special risk
considerations. For example, leverage may exaggerate
changes in the net asset value of the shares of the
International Equity portion and in the yield of the
International Equity portion. Although the principal
or stated value of such borrowings will be fixed, the
assets of athe International Equity portion may change
in value during the time the borrowing is outstanding.
Leverage will create interest expenses for the
International Equity portion which can exceed the
income from the assets retained. To the extent the
income or other gain derived from securities purchased
with borrowed funds exceeds the interest International
Equity portion will have to pay in respect thereof,
the net income of the International Equity portion or
other gain will be greater than if leverage had not
been used. Conversely, if the income or other gain
from the incremental assets is not sufficient to cover
the cost of leverage, the net income or other gain of
the International Equity portion will be less than if
leverage had not been used. If the amount of income
from the incremental securities is insufficient to
cover the cost of borrowing, securities might have to
be liquidated to obtain required funds. Depending on
market or other conditions, such liquidations could be
disadvantageous to the International Equity portion.
Lending of Portfolio Securities (US Equity Portion)
The US Equity portion has the ability to lend
securities from its portfolio to brokers, dealers and
other financial organizations. Such loans, if and when
made, will be consistent with applicable regulatory
requirements. The US Equity portion may not lend its
portfolio securities to Salomon Smith Barney or its
affiliates unless it has applied for and received
specific authority from the SEC. Loans of portfolio
securities by the US Equity portion will be
collateralized by cash, letters of credit or
securities issued or guaranteed by the United States
government, its agencies or instrumentalities ("U.S.
government securities") which will be maintained at
all times in an amount equal to at least 100% of the
current market value of the loaned securities. From
time to time, the US Equity portion may return a part
of the interest earned from the investment of
collateral received for securities loaned to the
borrower and/or a third party, which is unaffiliated
with the US Equity portion or with Salomon Smith
Barney, and which is acting as a "finder."
In lending its portfolio securities, the US Equity
portion 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 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 portfolio securities are loaned: (a) the US
Equity portion 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 US Equity
portion must be able to terminate the loan at any
time; (d) the US Equity portion 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 US Equity portion
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 Fund'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.
Securities Lending (International Equity Portion) .
The International Equity portion may lend securities
in amounts up to one-third of total assets.
International Equity Portion each may lend securities
in amounts up to 15% of total assets. The
International Equity portion may seek to increase its
net investment income by lending its securities
provided such loans are callable at any time and are
continuously secured by cash or U.S. Government
Obligations equal to no less than the market value,
determined daily, of the securities loaned. The
International Equtiy portion will receive amounts
equal to dividends or interest on the securities
loaned. It will also earn income for having made the
loan because cash collateral pursuant to these loans
will be invested in short-term money market
instruments. In connection with lending of securities
the Fund may pay reasonable finders, administrative
and custodial fees. Management will limit such
lending to not more than one-third of the value of the
total assets of International Equity portion. Where
voting or consent rights with respect to loaned
securities pass to the borrower, management will
follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of
such voting or consent rights if the issues involved
have a material effect on the investment of the
International Equity portion in the securities loaned.
Apart from lending its securities and acquiring debt
securities of a type customarily purchased by
financial institutions, the International Equity
portion will make loans to other persons.
When-Issued and Delayed Delivery Securities
(International Equity Portion). The International
Eauity portion may purchase or sell securities on a
when-issued or delayed delivery basis. When-issued or
delayed delivery transactions arise when securities
are purchased or sold by the International Equity
portion with payment and delivery taking place in the
future in order to secure what is considered to be an
advantageous price and yield to the International
Equity portion at the time of entering into the
transaction. The Chase Manhattan Bank, the Company's
custodian (the "Custodian") will maintain, in a
segregated account of the applicable fund, cash, debt
securities of any grade or equity securities, having a
value equal to or greater than the Fund's purchase
commitments, provided such securities have been
determined by the Manager to be liquid and
unencumbered, and are market to market daily, pursuant
to guidelines established by the Directors. The
Custodian will likewise segregate securities sold on a
delayed basis. The payment obligations and the
interest rates that will be received are each fixed at
the time the International Equity portion enters into
the commitment and no interest accrues to the
International Equity portion until settlement. Thus,
it is possible that the market value at the time of
settlement could be higher or lower than the purchase
price if the general level of interest rates has
changed.
Short Sales (International Equity Portion). The
International Equity portion may sell securities
"short against the box." While a short sale is the
sale of a security the International Equity portion
does not own, it is "against the box" if at all times
when the short position is open, the International
Equity portion owns an equal amount of the securities
or securities convertible into, or exchangeable
without further consideration for, securities of the
same issue as the securities sold short. The ability
to use short sales to defer recognition of gains was
substantially limited by certain "constructive sale"
tax provisions enacted in 1997.
The Articles of Incorporation of the Company permit
the Board of Directors to establish additional funds
of the Company from time to time. The investment
objectives, policies and restrictions applicable to
additional funds would be established by the Board of
Directors at the time such funds were established and
may differ from those set forth in the Prospectus and
this Statement of Additional Information.
RISK FACTORS
US Equity Portion
Certain Risk Considerations Securities of the kinds
of companies in which the US Equity portion invests
may be subject to significant price fluctuation and
above-average risk. In addition, companies achieving
an earnings growth rate higher than that of S&P 500
companies tend to reinvest their earnings rather than
distribute them. As a result, the US Equity portion
is not likely to receive significant dividend income
on its portfolio securities. Accordingly, an
investment in the should not be considered as a
complete investment program and may not be appropriate
for all investors.
Portfolio Turnover. The investment policies of the US
Equity portion may result in its experiencing a
greater portfolio turnover rate than those of
investment companies that seek to produce income or to
maintain a balanced investment position. Although the
portfolio turnover rate of the US Equity portion
cannot be predicted and will vary from year to year,
the manager expects that the Fund's annual portfolio
turnover rate may exceed 100%, but will not exceed
200%. A 100% portfolio turnover rate would occur, for
instance, if all securities in the US Equity portion
were replaced once during a period of one year. A
high rate of portfolio turnover in any year will
increase brokerage commissions paid and could result
in high amounts of realized investment gain subject to
the payment of taxes by shareholders. Any realized
short-term investment gain will be taxed to
shareholders as ordinary income.
International Equity Portion
General. Investors should realize that risk of loss
is inherent in the ownership of any securities and
that net asset value of the International Equity
portion will fluctuate, reflecting fluctuations in the
market value of its portfolio positions.
Non-diversification and Geographic Concentration. A
fund that is "non-diversified" is permitted to invest
a greater proportion of their assets in the securities
of a smaller number of issuers, and thus may be
subject to greater credit and liquidity risks with
respect to their individual portfolios than a fund
that is more broadly diversified. In addition,
concentration of a fund's assets in one or a few
countries or currencies will subject the Fund to
greater risks than if the Fund's assets were not
geographically concentrated.
Fixed Income Securities. Investments in fixed income
securities may subject the International Equity
portion to risks, including the following:
Interest Rate Risk. When interest rates decline, the
market value of fixed income securities tends to
increase. Conversely, when interest rates increase,
the market value of fixed income securities tends to
decline. The volatility of a security's market value
will differ depending upon the security's duration,
the issuer and the type of instrument.
Default Risk/Credit Risk. Investments in fixed income
securities are subject to the risk that the issuer of
the security could default on its obligations, causing
a fund to sustain losses on such investments. A
default could impact both interest and principal
payments.
Call Risk and Extension Risk. Fixed income securities
may be subject to both call risk and extension risk.
Call risk exists when the issuer may exercise its
right to pay principal on an obligation earlier than
scheduled, which would cause cash flows to be returned
earlier than expected. This typically results when
interest rates have declined and Interntional Equity
portion will suffer from having to reinvest in lower
yielding securities. Extension risk exists when the
issuer may exercise its right to pay principal on an
obligation later than scheduled, which would cause
cash flows to be returned later than expected. This
typically results when interest rates have increased,
and the International Equity portion will suffer from
the inability to invest in higher yield securities.
Below Investment Grade Fixed Income Securities.
Securities which are rated BBB by S&P or Baa by
Moody's are generally regarded as having adequate
capacity to pay interest and repay principal, but may
have some speculative characteristics. Securities
rated below Baa by Moody's or BBB by S&P may have
speculative characteristics, including the possibility
of default or bankruptcy of the issuers of such
securities, market price volatility based upon
interest rate sensitivity, questionable
creditworthiness and relative liquidity of the
secondary trading market. Because high yield bonds
have been found to be more sensitive to adverse
economic changes or individual corporate developments
and less sensitive to interest rate changes than
higher-rated investments, an economic downturn could
disrupt the market for high yield bonds and adversely
affect the value of outstanding bonds and the ability
of issuers to repay principal and interest. In
addition, in a declining interest rate market, issuers
of high yield bonds may exercise redemption or call
provisions, which may force the International Equity
portion, to the extent it owns such securities, to
replace those securities with lower yielding
securities. This could result in a decreased return.
Foreign Securities. Investments in securities of
foreign issuers involve certain risks not ordinarily
associated with investments in securities of domestic
issuers. Such risks include fluctuations in foreign
exchange rates, future political and economic
developments, and the possible imposition of exchange
controls or other foreign governmental laws or
restrictions. Since International Equity portion will
invest heavily in securities denominated or quoted in
currencies other than the U.S. dollar, changes in
foreign currency exchange rates will, to the extent
the Fund does not adequately hedge against such
fluctuations, affect the value of securities in the
International Equity portion and the unrealized
appreciation or depreciation of investments so far as
U.S. investors are concerned. In addition, with
respect to certain countries, there is the possibility
of expropriation of assets, confiscatory taxation,
political or social instability or diplomatic
developments which could adversely affect investments
in those countries.
There may be less publicly available information about
a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting,
auditing, and financial reporting standards and
requirements comparable to or as uniform as those of
U.S. companies. Foreign securities markets, while
growing in volume, have, for the most part,
substantially less volume than U.S. markets, and
securities of many foreign companies are less liquid
and their price more volatile than securities of
comparable U.S. companies. Transaction costs on
foreign securities markets are generally higher than
in the U.S. There is generally less government
supervision and regulation of exchanges, brokers and
issuers than there is in the U.S. A fund might have
greater difficulty taking appropriate legal action in
foreign courts. Dividend and interest income from
foreign securities will generally be subject to
withholding taxes by the country in which the issuer
is located and may not be recoverable by the Fund or
the investors. Capital gains are also subject to
taxation in some foreign countries.
Currency Risks. The U.S. dollar value of securities
denominated in a foreign currency will vary with
changes in currency exchange rates, which can be
volatile. Accordingly, changes in the value of the
currency in which investments of the International
Equity portion are denominated relative to the U.S.
dollar will affect the Fund's net asset value of the
International Equity portion. Exchange rates are
generally affected by the forces of supply and demand
in the international currency markets, the relative
merits of investing in different countries and the
intervention or failure to intervene of U.S. or
foreign governments and central banks. However,
currency exchange rates may fluctuate based on factors
intrinsic to a country's economy. Some emerging
market countries also may have managed currencies,
which are not free floating against the U.S. dollar.
In addition, emerging markets are subject to the risk
of restrictions upon the free conversion of their
currencies into other currencies. Any devaluations
relative to the U.S. dollar in the currencies in which
securities of the International Equity portion are
quoted would reduce the net asset value per share of
the International Equity poriton.
Special Risks of countries in the Asia Pacific Region.
Certain of the risks associated with international
investments are heightened for investments in these
countries. For example, some of the currencies of
these countries have experienced devaluations relative
to the U.S. dollar, and adjustments have been made
periodically in certain of such currencies. Certain
countries, such as Indonesia, face serious exchange
constraints. Jurisdictional disputes also exist, for
example, between South Korea and North Korea. In
addition, Hong Kong reverted to Chinese administration
on July 1, 1997. The long-term effects of this
reversion are not known at this time.
Securities of Developing/Emerging Markets Countries.
A developing or emerging markets country generally is
considered to be a country that is in the initial
stages of its industrialization cycle. Investing in
the equity markets of developing countries involves
exposure to economic structures that are generally
less diverse and mature, and to political systems that
can be expected to have less stability, than those of
developed countries. Historical experience indicates
that the markets of developing countries have been
more volatile than the markets of the more mature
economies of developed countries; however, such
markets often have provided higher rates of return to
investors.
One or more of the risks discussed above could affect
adversely the economy of a developing market or the
Fund's investments in such a market. In Eastern
Europe, for example, upon the accession to power of
Communist regimes in the past, the governments of a
number of Eastern European countries expropriated a
large amount of property. The claims of many property
owners against those of governments may remain
unsettled. There can be no assurance that any
investments that a fund might make in such emerging
markets would not be expropriated, nationalized or
otherwise confiscated at some time in the future. In
such an event, the Fund could lose its entire
investment in the market involved. Moreover, changes
in the leadership or policies of such markets could
halt the expansion or reverse the liberalization of
foreign investment policies now occurring in certain
of these markets and adversely affect existing
investment opportunities.
Many of the Fund's investments in the securities of
emerging markets may be unrated or rated below
investment grade. Securities rated below investment
grade (and comparable unrated securities) are the
equivalent of high yield, high risk bonds, commonly
known as "junk bonds." Such securities are regarded as
predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in
accordance with the terms of the obligations and
involve major risk exposure to adverse business,
financial, economic, or political conditions.
Restrictions on Foreign Investment. Some countries
prohibit or impose substantial restrictions on
investments in their capital markets, particularly
their equity markets, by foreign entities such as the
International Equity portion of the Fund As
illustrations, certain countries require governmental
approval prior to investments by foreign persons, or
limit the amount of investment by foreign persons in a
particular company, or limit the investment by foreign
persons to only a specific class of securities of a
company which may have less advantageous terms than
securities of the company available for purchase by
nationals or limit the repatriation of funds for a
period of time.
A number of countries, such as South Korea, Taiwan and
Thailand, have authorized the formation of closed-end
investment companies to facilitate indirect foreign
investment in their capital markets. In accordance
with the 1940 Act, each fund may invest up to 10% of
its total assets in securities of closed-end
investment companies. This restriction on investments
in securities of closed-end investment companies may
limit opportunities for International Equity portion
to invest indirectly in certain smaller capital
markets. Shares of certain closed-end investment
companies may at times be acquired only at market
prices representing premiums to their net asset
values. If the International Equity portion acquires
shares in closed-end investment companies,
shareholders would bear both their proportionate share
of expenses in the company (including management and
advisory fees) and, indirectly, the expenses of such
closed-end investment companies.
In some countries, banks or other financial
institutions may constitute a substantial number of
the leading companies or the companies with the most
actively traded securities. Also, the 1940 Act
restricts the Fund's investments in any equity
security of an issuer which, in its most recent fiscal
year, derived more than 15% of its revenues from
"securities related activities," as defined by the
rules thereunder. These provisions may also restrict
the Fund's investments in certain foreign banks and
other financial institutions.
Smaller capital markets, while often growing in
trading volume, have substantially less volume than
U.S. markets, and securities in many smaller capital
markets are less liquid and their prices may be more
volatile than securities of comparable U.S. companies.
Brokerage commissions, custodial services, and other
costs relating to investment in smaller capital
markets are generally more expensive than in the
United States. Such markets have different clearance
and settlement procedures, and in certain markets
there have been times when settlements have been
unable to keep pace with the volume of securities
transactions, making it difficult to conduct such
transactions. Further, satisfactory custodial
services for investment securities may not be
available in some countries having smaller capital
markets, which may result in the Fund incurring
additional costs and delays in transporting and
custodying such securities outside such countries.
Delays in settlement could result in temporary periods
when assets of a fund are uninvested and no return is
earned thereon. The inability of the International
Equtiy portion to make intended security purchases due
to settlement problems could cause the Fund to miss
attractive investment opportunities. Inability to
dispose of a portfolio security due to settlement
problems could result either in losses to the
International Equity portion due to subsequent
declines in value of the portfolio security or, if the
International Equity portion has entered into a
contract to sell the security, could result in
possible liability to the purchaser. Generally, there
is less government supervision and regulation of
exchanges, brokers and issuers in countries having
smaller capital markets than there is in the United
States.
Derivative Instruments. In accordance with its
investment policies, the International Equity portion
may invest in certain derivative instruments which are
securities or contracts that provide for payments
based on or "derived" from the performance of an
underlying asset, index or other economic benchmark.
Essentially, a derivative instrument is a financial
arrangement or a contract between two parties (and not
a true security like a stock or a bond). Transactions
in derivative instruments can be, but are not
necessarily, riskier than investments in conventional
stocks, bonds and money market instruments. A
derivative instrument is more accurately viewed as a
way of reallocating risk among different parties or
substituting one type of risk for another. Every
investment by the International Equity portion,
including an investment in conventional securities,
reflects an implicit prediction about future changes
in the value of that investment. The investment of
the International Equity portion also involves a risk
that the portfolio manager's expectations will be
wrong. Transactions in derivative instruments often
enable International Equity portion to take investment
positions that more precisely reflect the portfolio
manager's expectations concerning the future
performance of the various investments available to
the International Equity portion. Derivative
instruments can be a legitimate and often cost-
effective method of accomplishing the same investment
goals as could be achieved through other investment in
conventional securities.
Derivative contracts include options, futures
contracts, forward contracts, forward commitment and
when-issued securities transactions, forward foreign
currency exchange contracts and interest rate,
mortgage and currency swaps. The following are the
principal risks associated with derivative
instruments.
Market risk: The instrument will decline in value or
that an alternative investment would have appreciated
more, but this is no different from the risk of
investing in conventional securities.
Leverage and associated price volatility: Leverage
causes increased volatility in the price and magnifies
the impact of adverse market changes, but this risk
may be consistent with the investment objective of
even a conservative fund in order to achieve an
average portfolio volatility that is within the
expected range for that type of fund.
Credit risk: The issuer of the instrument may default
on its obligation to pay interest and principal.
Liquidity and valuation risk: Many derivative
instruments are traded in institutional markets rather
than on an exchange. Nevertheless, many derivative
instruments are actively traded and can be priced with
as much accuracy as conventional securities.
Derivative instruments that are custom designed to
meet the specialized investment needs of a relatively
narrow group of institutional investors such as the
Fund is not readily marketable and are subject to a
fund's restrictions on illiquid investments.
Correlation risk: There may be imperfect correlation
between the price of the derivative and the underlying
asset. For example, there may be price disparities
between the trading markets for the derivative
contract and the underlying asset.
Each derivative instrument purchased for International
Equity portion is reviewed and analyzed by the
portfolio manager of the International Equity portion
to assess the risk and reward of each such instrument
in relation the Fund's portfolio investment strategy.
The decision to invest in derivative instruments or
conventional securities is made by measuring the
respective instrument's ability to provide value to
the Interntional Equity portion and and the Fund's
shareholders.
Special Risks of Using Futures Contracts. The prices
of Futures Contracts are volatile and are influenced
by, among other things, actual and anticipated changes
in interest rates, which in turn are affected by
fiscal and monetary policies and national and
international political and economic events.
At best, the correlation between changes in prices of
Futures Contracts and of the securities or currencies
being hedged can be only approximate. The degree of
imperfection of correlation depends upon circumstances
such as: variations in speculative market demand for
Futures and for debt securities or currencies,
including technical influences in Futures trading; and
differences between the financial instruments being
hedged and the instruments underlying the standard
Futures Contracts available for trading, with respect
to interest rate levels, maturities, and
creditworthiness of issuers. A decision of whether,
when, and how to hedge involves skill and judgment,
and even a well-conceived hedge may be unsuccessful to
some degree because of unexpected market behavior or
interest rate trends.
Because of the low margin deposits required, Futures
trading involves an extremely high degree of leverage.
As a result, a relatively small price movement in a
Futures Contract may result in immediate and
substantial loss, as well as gain, to the investor.
For example, if at the time of purchase, 10% of the
value of the Futures Contract is deposited as margin,
a subsequent 10% decrease in the value of the Futures
Contract would result in a total loss of the margin
deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15%
decrease would result in a loss equal to 150% of the
original margin deposit, if the Futures Contract were
closed out. Thus, a purchase or sale of a Futures
Contract may result in losses in excess of the amount
invested in the Futures Contract. The International
Equity poriton, however, would presumably have
sustained comparable losses if, instead of the Futures
Contract, it had invested in the underlying financial
instrument and sold it after the decline. Where the
International Equity portion enters into Futures
transactions for non-hedging purposes, it will be
subject to greater risks and could sustain losses
which are not offset by gains on other assets of the
International Equity portion.
Furthermore, in the case of a Futures Contract
purchase, in order to be certain that International
Equity portion has sufficient assets to satisfy its
obligations under a Futures Contract, the Fund
segregates and commits to back the Futures Contract
with an amount of cash and liquid securities from the
International Equity portion equal in value to the
current value of the underlying instrument less the
margin deposit.
Most U.S. Futures exchanges limit the amount of
fluctuation permitted in Futures Contract prices
during a single trading day. The daily limit
establishes the maximum amount that the price of a
Futures Contract may vary either up or down from the
previous day's settlement price at the end of a
trading session. Once the daily limit has been
reached in a particular type of Futures Contract, no
trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement
during a particular trading day and therefore does not
limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures
Contract prices have occasionally moved to the daily
limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation
of Futures positions and subjecting some Futures
traders to substantial losses.
The Fund
Economic and Monetary Union (EMU). EMU began on
January 1, 1999 when 11 European countries adopted a
single currency -- the Euro. EMU may create new
economic opportunities for investors, such as lower
interest rates, easier cross-border mergers,
acquisitions and similar restructurings, more
efficient distribution and product packaging and
greater competition. Budgetary decisions remain in
the hands of each participating country, but are
subject to each country's commitment to avoid
"excessive deficits" and other more specific budgetary
criteria. A European Central Bank is responsible for
setting the official interest rate within the Euro
zone. EMU and the introduction of the Euro, however,
present unique risks and uncertainties for investors
in EMU-participating countries, including: (i)
monetary and economic union on this scale has never
before been attempted; (ii) there is uncertainty
whether participating countries will remain committed
to EMU in the face of changing economic conditions;
(iii) instability within EMU may increase the
volatility of European markets and may adversely
affect the prices of securities of European issuers in
the Fund's portfolios; (iv) there is uncertainty
concerning the fluctuation of the Euro relative to
non-Euro currencies during the transition period from
January 1, 1999 to December 31, 2000, and beyond; and
(v) there is no assurance that interest rate, tax and
labor regimes of EMU-participating countries will
converge over time. These and other factors may cause
market disruption and could adversely affect European
securities and currencies held by the Fund.
MASTER/FEEDER FUND STRUCTURE
The Board of Directors has the discretion to retain
the current distribution arrangement for the Fund
while investing in a master fund in a master/feeder
fund structure. A master/feeder fund structure is one
in which a fund (a "feeder fund"), instead of
investing directly in a portfolio of securities,
invests most or all of its investment assets in a
separate registered investment company (the "master
fund") with substantially the same investment
objective and policies as the feeder fund. Such a
structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or
distribution channels at the feeder fund level. Based
on the premise that certain of the expenses of
operating an investment portfolio are relatively
fixed, a larger investment portfolio may eventually
achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to
convert to a feeder fund by selling all of its
investments, which involves brokerage and other
transaction costs and realization of a taxable gain or
loss, or by contributing its assets to the master fund
and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable
gain or loss.
INVESTMENT RESTRICTIONS
The investment restrictions numbered 1 through 7 below
and the Fund's investment objective have been adopted
by the Company as fundamental policies of the Fund.
Under the 1940 Act, a fundamental policy may not be
changed with respect to a fund without the vote of a
majority of the outstanding voting securities of the
fund. Majority is defined in the 1940 Act as the
lesser of (a) 67% or more of the shares present at a
fund meeting, if the holders of more than 50% of the
outstanding shares of the fund are present or
represented by proxy, or (b) more than 50% of
outstanding shares. The remaining restrictions may be
changed by a vote of a majority of the Company's Board
of Directors at any time.
Under the investment restrictions adopted by the
Company with respect to the Fund: the Fund will not
1. Invest more than 25% of its total assets in
securities, the issuers of which conduct their
business activities in the same industry. For
purposes of this limitation, securities of the U.S.
government (including its agencies and
instrumentalities) and securities of state or
municipal governments and their political subdivisions
are not considered to be issued by members of any
industry.
2. 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 331/3% 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.
3. 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
4. Make loans. This restriction does not apply to:
(a) the purchase of debt obligations in which the Fund
may invest consistent with its investment objectives
and policies; (b) repurchase agreements; and (c) loans
of its portfolio securities, to the fullest extent
permitted under the 1940 Act.
5. 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.
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 otherwise acquire any illiquid
security except as permitted under the 1940 Act for
open-end investment companies, which currently permits
up to 15% of the Fund's net assets to be invested in
illiquid securities.
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.
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 1940 Act, is
indicated by an asterisk.
Paul R. Ades, Director (Age 59). Partner in the law
firm of Murov & Ades. His address is 272 South
Wellwood Avenue, P.O. Box 504, Lindenhurst, New York
11757.
Herbert Barg, Director (Age 75). Private investor. His
address is 273 Montgomery Avenue, Bala Cynwyd,
Pennsylvania 19004.
Dwight B. Crane, Director (Age 61). Professor,
Graduate School of Business Administration, Harvard
University. His address is Graduate School of Business
Administration, Harvard University, Boston,
Massachusetts 02163.
Frank G. Hubbard, Director (Age 62). Vice President,
S&S Industries; Former Corporate Vice President,
Materials Management and Marketing Services of Huls
America, Inc. His address is 80 Centennial Avenue
P.O. Box 456, Piscataway, New Jersey 08855-0456.
*Heath B. McLendon, Chairman of the Board, President
and Chief Executive Officer (Age 66). Managing
Director of Salomon Smith Barney Inc. ("Salomon Smith
Barney"); Director and President of SSB Citi Fund
Management LLC and Travelers Investment Adviser, Inc.
("TIA"); and formerly Chairman of the Board of Smith
Barney Strategy Advisers Inc. Mr. McLendon is a
director of 71 investment companies associated with
Citigroup Inc. ("Citigroup"). His address is 7 World
Trade Center, New York, New York 10048.
Jerome Miller, Director (Age 60). Retired, Former
President, Asset Management Group of Shearson Lehman
Brothers. His address is 27 Hemlock Road, Manhasset,
New York, NY 11030.
Ken Miller, Director (Age 57). President of Young
Stuff Apparel Group, Inc. His address is 1411
Broadway, New York, New York 10018.
Lewis E. Daidone, Senior Vice President and Treasurer
(Age 42). Managing Director of Salomon Smith Barney;
Director and Senior Vice President of SSB Citi and
TIA; Senior Vice President and Treasurer of 61
investment companies associated with Citigroup. His
address is 388 Greenwich Street, New York, New York
10013.
Jeffrey Russell, CFA, Vice President and Investment
Officer (Age 42). Managing Director of Salomon Smith
Barney; Investment Officer of SSB Citi. His address
is 7 World Trade Center, New York, New York 10048.
Richard Freeman, Vice President and Investment Officer
(Age 45). Managing Director of Salomon Smith Barney;
Investment Officer of SSB Citi. His address is 7
World Trade Center, New York, New York 10048.
Paul Brook, Controller (Age 46). Director of Salomon
Smith Barney; from 1997-1998 Managing Director of AMT
Capital Services Inc.; prior to 1997 Partner with
Ernst & Young LLP; Controller or Assistant Treasurer
of 43 investment companies associated with Citigroup.
His address is 388 Greenwich Street, New York, New
York 10013.
Christina T. Sydor, Secretary (Age 49). Managing
Director of Salomon Smith Barney; General Counsel and
Secretary of SSB Citi and TIA; Secretary of 61
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. During the calendar year ended
December 31, 1999 such expenses totaled $18,574. For
the calendar year ended December 31, 1999, the
Directors of the Company were paid the following
compensation:
Name of Person
Aggregate
Compensation
from Company
FYE 12/31/99
Total Pension
or Retirement
Benefits
Accrued as
part of Fund
Expenses
Compensation
from Company
and Fund
Complex Paid
to Directors
Calendar Year
Ending
12/31/99
Number of
Funds for
Which
Director
Serves Within
Fund Complex
Paul R. Ades
$28,369
$0
$56,238
5
Herbert Barg
28,369
0
114,288
16
Dwight B. Crane
26,297
0
155,363
23
Frank G. Hubbard
28,269
0
56,138
5
Heath B. McLendon
0
0
0
71
Jerome Miller
26,197
0
51,613
5
Ken Miller
24,847
0
47,188
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 (successor to SSBC Fund Management Inc.)
serves as investment manager to the Fund pursuant to
an investment management agreement (the "Investment
Management Agreement") with the Fund which was
approved by the Board of Directors, including a
majority of directors who are not "interested persons"
of the Fund 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. Subject to the
supervision and direction of the Company's Board of
Directors, the Manager manages the Fund's portfolio in
accordance with the Fund's stated investment objective
and policies, makes investment decisions for the Fund,
places orders to purchase and sell securities, and
employs professional portfolio managers and securities
analysts who provide research services to the Fund.
The Manager pays the salary of any officer and
employee who is employed by both it and the Fund. The
Manager bears all expenses in connection with the
performance of its services. The Manager also: (a)
assists in supervising all aspects of the Fund's
operations except those it performs under its
investment advisory agreement; b) supplies the Fund
with office facilities (which may be in SSB Citi's own
offices), statistical and research data, data
processing services, clerical, accounting and
bookkeeping services, including, but not limited to,
the calculation of (i) the net asset value of shares
of the Fund, (ii) applicable Deferred Sales Charges
and similar fees and charges and (iii) distribution
fees, internal auditing and legal services, internal
executive and administrative services, and stationary
and office supplies; and (c) prepares reports to
shareholders of the Fund, tax returns and reports to
and filings with the SEC and state blue sky
authorities.
SSB Citi (through its predecessor entities) has been
in the investment counseling business since 1968 and
renders investment advice to a wide variety of
individual, institutional and investment company
clients that had aggregate assets under management as
of December 31, 1999 in excess of $183 billion.
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.
Code of Ethics
Pursuant to Rule 17j-1 of the 1940 Act, the fund, the
investment adviser and principal underwriter have
adopted codes of ethics that permit personnel to
invest in securities for their own accounts, including
securities that may be purchased or held by the fund.
All personnel must place the interests of clients
first and avoid activities, interests and
relationships that might interfere with the duty to
make decisions in the best interests of the clients.
All personal securities transactions by employees must
adhere to the requirements of the codes and must be
conducted in such a manner as to avoid any actual or
potential conflict of interest, the appearance of such
a conflict, or the abuse of an employee's position of
trust and responsibility.
A copy of the Fund's code of ethics is on file with
the Securities and Exchange Commission.
Counsel and Auditors
Willkie Farr & Gallagher serves as counsel to the
Company. The Directors who are not "interested
persons" of the Company have selected Stroock &
Stroock & Lavan LLP to serve as their legal counsel.
KPMG LLP, independent accountants, 757 Third Avenue,
New York, New York 10022, serve as auditors of the
Fund and will render an opinion on the Fund's
financial statements annually beginning with the
fiscal period ending April 30, 2000.
Custodian and Transfer Agent
PNC Bank, National Association ("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.
Smith Barney Private Trust Company (the "transfer
agent") located at 388 Greenwich Street, New York, New
York 10013, serves as the transfer agent and
shareholder services agent of the Fund.
PFPC Global Fund Services (the "sub-transfer agent"),
located at P.O. Box 9699, Providence Rhode Island
02940-9699, serves as the Fund's sub-transfer agent to
render certain shareholder record-keeping and
accounting services functions.
Distributor
CFBDS, Inc., located at 20 Milk Street, Boston,
Massachusetts 02109-5408 serves as the Fund's
distributor pursuant to a written agreement with the
Company dated October 8, 1998 (the "Distribution
Agreement") which was approved by the Company's Board
of Directors, including a majority of the independent
directors, on July 15, 1998.
When payment is made by the investor before the
settlement date, unless otherwise noted by the
investor, the funds will be held as a free credit
balance in the investor's brokerage account and
Salomon Smith Barney may benefit from the temporary
use of the funds. The Company's Board of Directors
has been advised of the benefits to Salomon Smith
Barney resulting from these settlement procedures and
will take such benefits into consideration when
reviewing the Investment Management and Distribution
Agreements for continuance.
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.
Under its terms, the Plan continues from year to year,
provided such continuance is approved annually by vote
of the Board of Directors, including a majority of the
directors who are not interested persons of the Fund
and who have no direct or indirect financial interest
in the operation of the Plan or in the Distribution
Agreement (the "independent directors"). The Plan may
not be amended to increase the amount of the service
and distribution fees without shareholder approval,
and all amendments of the Plan also must be approved
by the directors including all of the independent
directors in the manner described above. The Plan may
be terminated with respect to a Class at any time,
without penalty, by vote of a majority of the
independent directors or, with respect to the Fund, by
vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act).
Pursuant to the Plan, Salomon Smith Barney will
provide the Board of Directors with periodic reports
of amounts expended under the Plan and the purpose for
which such expenditures were made.
Portfolio Transactions
The Manager arranges for the purchase and sale of the
Fund's securities and selects brokers and dealers
(including Salomon Smith Barney) which in its best
judgment provide prompt and reliable execution at
favorable prices and reasonable commission rates. The
Manager may select brokers and dealers that provide it
with research services and may cause the Fund to pay
such brokers and dealers commissions which exceed
those other brokers and dealers may have charged, if
it views the commissions as reasonable in relation to
the value of the brokerage and/or research services.
In selecting a broker, including Salomon Smith Barney,
for a transaction, the primary consideration is prompt
and effective execution of orders at the most
favorable prices. Subject to that primary
consideration, dealers may be selected for research,
statistical or other services to enable the Manager to
supplement its own research and analysis.
Decisions to buy and sell securities for the Fund are
made by the Manager, subject to the overall
supervision and review of the Company's Board of
Directors. Portfolio securities transactions for the
Fund are effected by or under the supervision of the
Manager.
Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. There is generally
no stated commission in the case of securities traded
in the over-the-counter market, but the price of those
securities includes an undisclosed commission or mark-
up. Over-the-counter purchases and sales are
transacted directly with principal market makers
except in those cases in which better prices and
executions may be obtained elsewhere. The cost of
securities purchased from underwriters includes an
underwriting commission or concession, and the prices
at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down.
In executing portfolio transactions and selecting
brokers or dealers, it is the Fund's policy to seek
the best overall terms available. The Manager, in
seeking the most favorable price and execution,
considers all factors it deems relevant, including,
for example, the price, the size of the transaction,
the reputation, experience and financial stability of
the broker-dealer involved and the quality of service
rendered by the broker-dealer in other transactions.
The Manager receives research, statistical and
quotation services from several broker-dealers with
which it places the Fund's portfolio transactions. It
is possible that certain of the services received
primarily will benefit one or more other accounts for
which the Manager exercises investment discretion.
Conversely, the Fund may be the primary beneficiary of
services received as a result of portfolio
transactions effected for other accounts. The
Manager's fee under the management agreement is not
reduced by reason of its receiving such brokerage and
research services. The Company's Board of Directors,
in its discretion, may authorize the Manager to cause
the Fund to pay a broker that provides brokerage and
research services to the Manager a commission in
excess of that which another qualified broker would
have charged for effecting the same transaction.
Salomon Smith Barney will not participate in
commissions from brokerage given by the Fund to other
brokers or dealers and will not receive any reciprocal
brokerage business resulting therefrom.
In accordance with Section 17(e) of the 1940 Act and
Rule 17e-1 thereunder, the Company's Board of
Directors has determined that any portfolio
transaction for the Fund may be executed through
Salomon Smith Barney or an affiliate of Salomon Smith
Barney if, in the Manager's judgment, the use of
Salomon Smith Barney or an affiliate is likely to
result in price and execution at least as favorable as
those of other qualified brokers and if, in the
transaction, Salomon Smith Barney or the affiliate
charges the Fund a commission rate consistent with
those charged by Salomon Smith Barney or an affiliate
to comparable unaffiliated customers in similar
transactions. In addition, under SEC rules, Salomon
Smith Barney may directly execute such transactions
for the Fund on the floor of any national securities
exchange, provided: (a) the Board of Directors has
expressly authorized Salomon Smith Barney to effect
such transactions; and (b) Salomon Smith Barney
annually advises the Fund of the aggregate
compensation it earned on such transactions.
Even though investment decisions for the Fund are made
independently from those of the other accounts managed
by the Manager, 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 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. 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.
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.
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 100%. The rate of turnover will not be a
limiting factor, however, when the Fund deems it
desirable to sell or purchase securities.
The Manager will rebalance the allocation of value and
growth securities in the Fund's portfolio at the end
of each quarter and at any time in which the
percentage of the Fund's portfolio invested in either
value or growth securities equals or exceeds 55% of
the Fund's total assets invested in both value and
growth securities for a period of more than 10 days.
As a result, when securities in either the value or
growth style portion of the Fund's portfolio have
underperformed the securities in the portion of the
portfolio devoted to the other style, the Manager will
rebalance the portfolio to increase the Fund's assets
allocated to the style that underperformed, and
decrease the assets allocated to the style that
outperformed, the other style. The Manager will also
monitor the Fund's portfolio to ensure that no more
than 25% of the Fund's assets are concentrated in the
securities of companies in the same industry and that
the Fund complies with its other investment policies.
The Manager may cause the Fund to sell or purchase
securities to ensure compliance with the Fund's
investment policies.
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:
Amount
of
Investme
nt
Sales Charge
as a %
of
Transaction
Sales
Charge as a
% 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
Provisions" 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 1.00% 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 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 the sub-transfer
agent are not subject to a maintenance fee.
Investors in Class A, Class B and Class L shares may
open an account in the Fund by making an initial
investment of at least $1,000 for each account, or
$250 for an IRA or a Self-Employed Retirement Plan, in
the Fund. Investors in Class Y shares may open an
account by making an initial investment of
$15,000,000. Subsequent investments of at least $50
may be made for all 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. There are no minimum
investment requirements for Class A shares for
employees of 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 the sub-transfer agent. Share certificates
are issued only upon a shareholder's written request
to the sub-transfer agent.
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 the sub-transfer agent
is authorized through preauthorized transfers of at
least $25 on a monthly basis or at least $50 on a
quarterly basis to charge the shareholder's account
held with a bank or other financial institution on a
monthly or quarterly basis as indicated by the
shareholder, to provide for systematic additions to
the shareholder's fund account. A shareholder who has
insufficient funds to complete the transfer will be
charged a fee of up to $25 by Salomon Smith Barney or
the sub-transfer agent. The Systematic Investment
Plan also authorizes Salomon Smith Barney to apply
cash held in the shareholder's Salomon Smith Barney
brokerage account or redeem the shareholder's shares
of a Smith Barney money market fund to make additions
to the account. Additional information is available
from the 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 (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 or proceeds from a
sale of a UIT sponsored by Salomon Smith Barney;
(i) purchases by investors participating in a Salomon
Smith Barney fee-based arrangement; and (j) purchases
of Class A shares by Section 403(b) or Section 401(a)
or (k) accounts associated with Copeland Retirement
Programs. In order to obtain such discounts, the
purchaser must provide sufficient information 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 other Smith Barney Mutual Funds that
are offered with a sales charge as currently listed
under "Exchange Privilege" then held by such person
and applying the sales charge applicable to such
aggregate. In order to obtain such discount, the
purchaser must provide sufficient 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 option of the
investor, up to 90 days before such date. Please
contact a Salomon Smith Barney Financial Consultant or
the transfer agent to obtain a Letter of Intent
application.
Letter of Intent - Class Y Shares. A Letter of Intent
may also be used as a way for investors to meet the
minimum investment requirement for Class Y shares
(except purchases of Class Y shares by Smith Barney
Concert Allocation Series Inc., for which there is no
minimum purchase amount). Such investors must make an
initial minimum purchase of $5,000,000 in Class Y
shares of 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 the transfer agent 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.
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
owned by the shareholders as the total number of his
or her Class B shares converting at the time bears to
the total number of outstanding Class B shares (other
than Class B Dividend Shares) owned by the
shareholder.
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) redemptions
of shares within 12 months following the death or
disability of the shareholder; (c) redemptions of
shares made in connection with qualified distributions
from retirement plans or IRAs upon the attainment of
age 591/2; (d) involuntary redemptions; and
(e) 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 the transfer agent in the case of all
other shareholders) of the shareholder's status or
holdings, as the case may be.
Volume Discounts
The schedule of sales charges on Class A shares
described in the prospectus applies to purchases made
by any "purchaser," which is defined to include the
following: (a) an individual; (b) an individual's
spouse and his or her children purchasing shares for
their own account; (c) a Director or other fiduciary
purchasing shares for a single trust estate or single
fiduciary account; and (d) a Director or other
professional fiduciary (including a bank, or an
investment adviser registered with the SEC under the
Investment Advisers Act of 1940, as amended)
purchasing shares of the fund for one or more trust
estates or fiduciary accounts. Purchasers who wish to
combine purchase orders to take advantage of volume
discounts on Class A shares should contact a Salomon
Smith Barney Financial Consultant.
Determination of Public Offering Price
The Fund offers its shares to current shareholders of
the Fund on a continuous basis. The public offering
price for a Class A, Class B and Class Y share of the
Fund is equal to the net asset value per share at the
time of purchase, plus for Class A shares an initial
sales charge based on the aggregate amount of the
investment. The public offering price for Class A
share purchases, including applicable rights of
accumulation, equaling or exceeding $500,000 is equal
to the net asset value per share at the time of
purchase and no sales charge is imposed at the time of
purchase. The public offering price for a Class L
share includes a 1.00% initial sales charge. A
Deferred Sales Charge is imposed on certain
redemptions of Class B shares, and on Class L shares
and Class A shares (purchased in amounts exceeding
$500,000) redeemed within one year of purchase.
REDEMPTION OF SHARES
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.
If the shares to be redeemed were issued in
certificate form, the certificates must be endorsed
for transfer (or be accompanied by an endorsed stock
power) and must be submitted to the sub-transfer agent
together with the redemption request. Any signature
appearing on a share certificate, stock power or
written redemption request in excess of $10,000 must
be guaranteed by an eligible guarantor institution
such as a domestic bank, savings and loan institution,
domestic credit union, member bank of the Federal
Reserve System or member firm of a national securities
exchange. Written redemption requests of $10,000 or
less do not require a signature guarantee unless more
than one such redemption request is made in any 10-day
period or the redemption proceeds are to be sent to an
address other than the address of record. Unless
otherwise directed, redemption proceeds will be mailed
to an investor's address of record. The transfer
agent may require additional supporting documents for
redemptions made by corporations, executors,
administrators, trustees or guardians. A redemption
request will not be deemed properly received until the
transfer agent receives all required documents in
proper form.
If a shareholder holds shares in more than one Class,
any request for redemption must specify the Class
being redeemed. In the event of a failure to specify
which Class, or if the investor owns fewer shares of
the Class than specified, the redemption request will
be delayed until the transfer agent receives further
instructions from Salomon Smith Barney, or if the
shareholder's account is not with Salomon Smith
Barney, from the shareholder directly. The redemption
proceeds will be remitted on or before the third
business day following receipt of proper tender,
except on any days on which the NYSE is closed or as
permitted under the 1940 Act, in extraordinary
circumstances. Generally, if the redemption proceeds
are remitted to a Salomon Smith Barney brokerage
account, these funds will not be invested for the
shareholder's benefit without specific instruction and
Salomon Smith Barney will benefit from the use of
temporarily uninvested funds. Redemption proceeds for
shares purchased by check, other than a certified or
official bank check, will be remitted upon clearance
of the check, which may take up to fifteen days.
Distributions in Kind
If the Board of Directors of the Fund 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.
Additional Information Regarding Telephone Redemption
And Exchange Program
Neither the Fund nor its agents will be liable for
following instructions communicated by telephone that
are reasonably believed to be genuine. The Fund and
its agents will employ procedures designed to verify
the identity of the caller and legitimacy of
instructions (for example, a shareholder's name and
account number will be required and phone calls may be
recorded). The Fund reserves the right to suspend,
modify or discontinue the telephone redemption and
exchange program or to impose a charge for this
service at any time following at least seven (7) days'
prior notice to shareholders.
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 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. Any applicable Deferred Sales
Charge will not be waived on amounts withdrawn by
shareholders that exceed 1.00% per month of the value
of a shareholder's shares at the time the Withdrawal
Plan commences. (With respect to Withdrawal Plans in
effect prior to November 7, 1994, any applicable
Deferred Sales Charge will be waived on amounts
withdrawn that do not exceed 2.00% per month of the
value of the shareholder's shares that are subject to
a Deferred Sales Charge). 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 may
reduce the shareholder's investment and ultimately
exhaust it. Withdrawal payments should not be
considered as income from investment in the Fund.
Furthermore, as it generally would not be advantageous
to a shareholder to make additional investments in the
Fund at the same time he or she is participating in
the Withdrawal Plan, purchases by such shareholder in
amounts of less than $5,000 ordinarily will not be
permitted. All dividends and distributions on shares
in the Withdrawal Plan are reinvested automatically at
net asset value in additional shares of the Fund.
Shareholders who wish to participate in the Withdrawal
Plan and who hold their shares in certificate form
must deposit their share certificates with the sub-
transfer agent as agent for Withdrawal Plan members.
For additional information, shareholders should
contact a Salomon Smith Barney Financial Consultant or
their Financial Consultant, Dealer Representative. A
shareholder who purchases shares directly through the
sub-transfer agent may continue to do so and
applications for participation in the Withdrawal Plan
must be received by the sub-transfer agent no later
than the eighth day of the month to be eligible for
participation beginning with that month's withdrawal.
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 Company'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.
Additional Information Regarding the Exchange
Privilege. Although the exchange privilege is an
important benefit, excessive exchange transactions can
be detrimental to the Fund's performance and its
shareholders. The Manager may determine that a
pattern of frequent exchanges is excessive and
contrary to the best interests of the Fund's other
shareholders. In this event, the Fund may, at its
discretion, decide to limit additional purchases
and/or exchanges by a shareholder. Upon such a
determination, the Fund will provide notice in writing
or by telephone to the shareholder at least 15 days
prior to suspending the exchange privilege and during
the 15 day period the shareholder will be required to
(a) redeem his or her shares in the Fund or (b) remain
invested in the Fund or exchange into any of the funds
of the Smith Barney Mutual funds ordinarily available,
which position the shareholder would be expected to
maintain for a significant period of time. All
relevant factors will be considered in determining
what constitutes an abusive pattern of exchanges.
PERFORMANCE DATA
From time to time, the Company may advertise the
Fund's total return and average annual total return in
advertisements and/or other types of sales literature.
These figures are computed separately for Class A,
Class B, Class L and Class Y shares of the Fund.
These figures are based on historical earnings and are
not intended to indicate future performance. Total
return is computed for a specified period of time
assuming deduction of the maximum sales charge, if
any, from the initial amount invested and reinvestment
of all income dividends and capital gain distributions
on the reinvestment dates at prices calculated as
stated in this prospectus, then dividing the value of
the investment at the end of the period so calculated
by the initial amount invested and subtracting 100%.
The standard average annual total return, as
prescribed by the SEC is derived from this total
return, which provides the ending redeemable value.
Such standard total return information may also be
accompanied with nonstandard total return information
for differing periods computed in the same manner but
without annualizing the total return or taking sales
charges into account. The Company may also include
comparative performance information in advertising or
marketing the Fund's shares. Such performance
information may include data from Lipper Analytical
Services, Inc. and other financial publications.
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.
The ERV assumes complete redemption of the
hypothetical investment at the end of the measuring
period. The Fund's net investment income changes in
response to fluctuations in interest rates and the
expenses of the Fund.
Aggregate Total Return
The Fund's "aggregate total return," as described
below, represents the cumulative change in the value
of an investment in the Fund for the specified period
and is computed by the following formula:
ERV - P
P
Where: P = a hypothetical initial
payment of $10,000.
ERV = Ending Redeemable Value
of a hypothetical
$10,000 investment made
at the beginning of the
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.
The ERV assumes complete redemption of the
hypothetical investment at the end of the measuring
period.
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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions
The Fund's policy is to distribute its net investment
income and net realized capital gains, if any,
annually. The Fund may also pay additional dividends
shortly before December 31 from certain amounts of
undistributed ordinary income and capital gains
realized, in order to avoid a Federal excise tax
liability.
If a shareholder does not otherwise instruct,
dividends and capital gains distributions will be
reinvested automatically in additional shares of the
same Class at net asset value, subject to no sales
charge or Deferred Sales Charge. A shareholder may
change the option at any time by notifying his Salomon
Smith Barney Financial Consultant or Dealer
Representative. A shareholder whose account is held
directly at the sub-transfer agent should notify the
sub-transfer agent in writing, requesting a change to
this reinvest option.
The per share dividends on Class B and Class L shares
of the Fund may be lower than the per share dividends
on Class A and Class Y shares principally as a result
of the distribution fee applicable with respect to
Class B and Class L shares. The per share dividends on
Class A shares of the Fund may be lower than the per
share dividends on Class Y shares principally as a
result of the service fee applicable to Class A
shares. Distributions of capital gains, if any, will
be in the same amount for Class A, Class B, Class L
and Class Y shares.
Taxes
The following is a summary of the material United
States federal income tax considerations regarding the
purchase, ownership and disposition of shares of the
Fund. Each prospective shareholder is urged to
consult his own tax adviser with respect to the
specific federal, state, local and foreign tax
consequences of investing in a fund. The summary is
based on the laws in effect on the date of this SAI,
which are subject to change.
The Fund and Its Investments
The Fund intends to qualify to be treated as a
regulated investment company each taxable year under
the Code. To so qualify, the Fund must, among other
things: (a) derive at least 90% of its gross income in
each taxable year from dividends, interest, payments
with respect to securities loans and gains from the
sale or other disposition of stock or securities or
foreign currencies, or other income (including, but
not limited to, gains from options, futures or forward
contracts) derived with respect to its business of
investing in such stock, securities or currencies; and
(b) diversify its holdings so that, at the end of each
quarter of the Fund's taxable year, (i) at least 50%
of the market value of the Fund's assets is
represented by cash, securities of other regulated
investment companies, United States government
securities and other securities, with such other
securities limited, in respect of any one issuer, to
an amount not greater than 5% of the Fund's assets and
not greater than 10% of the outstanding voting
securities of such issuer and (ii) not more than 25%
of the value of its assets is invested in the
securities (other than United States government
securities or securities of other regulated investment
companies) of any one issuer or any two or more
issuers that the Fund controls and are determined to
be engaged in the same or similar trades or businesses
or related trades or businesses.
As a regulated investment company, the Fund will not
be subject to United States federal income tax on its
net investment income (i.e., income other than its net
realized long- and short-term capital gains) and its
net realized long- and short-term capital gains, if
any, that it distributes to its shareholders, provided
an amount equal to at least 90% of its investment
company taxable income (i.e., 90% of its taxable
income minus the excess, if any, of its net realized
long-term capital gains over its net realized short-
term capital losses (including any capital loss
carryovers), plus or minus certain other adjustments
as specified in the Code) and 90% of its net tax-
exempt income for the taxable year is distributed in
compliance with the Code's timing and other
requirements but will be subject to tax at regular
corporate rates on any taxable income or gains it does
not distribute. The Code imposes a 4% nondeductible
excise tax on the Fund to the extent it does not
distribute by the end of any calendar year at least
98% of its net investment income for that year and 98%
of the net amount of its capital gains (both long-and
short-term) for the one-year period ending, as a
general rule, on October 31 of that year. For this
purpose, however, any income or gain retained by the
Fund that is subject to corporate income tax will be
considered to have been distributed by year-end. In
addition, the minimum amounts that must be distributed
in any year to avoid the excise tax will be increased
or decreased to reflect any underdistribution or
overdistribution, as the case may be, from the
previous year. The Fund anticipates that it will pay
such dividends and will make such distributions as are
necessary in order to avoid the application of this
tax.
If, in any taxable year, the Fund fails to qualify as
a regulated investment company under the Code or fails
to meet the distribution requirement, it would be
taxed in the same manner as an ordinary corporation
and distributions to its shareholders would not be
deductible by the Fund in computing its taxable
income. In addition, in the event of a failure to
qualify, the Fund's distributions, to the extent
derived from the Fund's current or accumulated
earnings and profits would constitute dividends
(eligible for the corporate dividends-received
deduction) which are taxable to shareholders as
ordinary income, even though those distributions might
otherwise (at least in part) have been treated in the
shareholders' hands as long-term capital gains. If
the Fund fails to qualify as a regulated investment
company in any year, it must pay out its earnings and
profits accumulated in that year in order to qualify
again as a regulated investment company. In addition,
if the Fund failed to qualify as a regulated
investment company for a period greater than one
taxable year, the Fund may be required to recognize
any net built-in gains (the excess of the aggregate
gains, including items of income, over aggregate
losses that would have been realized if it had been
liquidated) in order to qualify as a regulated
investment company in a subsequent year.
The Fund's transactions in foreign currencies, forward
contracts, options and futures contracts (including
options and futures contracts on foreign currencies)
will be subject to special provisions of the Code
(including provisions relating to "hedging
transactions" and "straddles") that, among other
things, may affect the character of gains and losses
realized by the Fund (i.e., may affect whether gains
or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer Fund
losses. These rules could therefore affect the
character, amount and timing of distributions to
shareholders. These provisions also (a) will require
the Fund to mark-to-market certain types of the
positions in its portfolio (i.e., treat them as if
they were closed out) and (b) may cause the Fund to
recognize income without receiving cash with which to
pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for
avoiding income and excise taxes. The Fund will
monitor its transactions, will make the appropriate
tax elections and will make the appropriate entries in
its books and records when it acquires any foreign
currency, forward contract, option, futures contract
or hedged investment in order to mitigate the effect
of these rules and prevent disqualification of the
Fund as a regulated investment company.
The Fund's investment in Section 1256 contracts, such
as regulated futures contracts, most forward currency
forward contracts traded in the interbank market and
options on most stock indices, are subject to special
tax rules. All section 1256 contracts held by the
Fund at the end of its taxable year are required to be
marked to their market value, and any unrealized gain
or loss on those positions will be included in the
Fund's income as if each position had been sold for
its fair market value at the end of the taxable year.
The resulting gain or loss will be combined with any
gain or loss realized by the Fund from positions in
section 1256 contracts closed during the taxable year.
Provided such positions were held as capital assets
and were not part of a "hedging transaction" nor part
of a "straddle," 60% of the resulting net gain or loss
will be treated as long-term capital gain or loss, and
40% of such net gain or loss will be treated as short-
term capital gain or loss, regardless of the period of
time the positions were actually held by the Fund.
Foreign Investments. Dividends or other income
(including, in some cases, capital gains) received by
the Fund from investments in foreign securities may be
subject to withholding and other taxes imposed by
foreign countries. Tax conventions between certain
countries and the United States may reduce or
eliminate such taxes in some cases. The Fund will not
be eligible to elect to treat any foreign taxes paid
by it as paid by its shareholders, who therefore will
not be entitled to credits for such taxes on their own
tax returns. Foreign taxes paid by the Fund will
reduce the return from the Fund's investments.
Passive Foreign Investment Companies. If the Fund
purchases shares in certain foreign investment
entities, called "passive foreign investment
companies" (a "PFIC"), it may be subject to United
States federal income tax on a portion of any "excess
distribution" or gain from the disposition of such
shares even if such income is distributed as a taxable
dividend by the Fund to its shareholders. Additional
charges in the nature of interest may be imposed on
the Fund in respect of deferred taxes arising from
such distributions or gains. If the Fund were to
invest in a PFIC and elected to treat the PFIC as a
"qualified electing fund" under the Code, in lieu of
the foregoing requirements, the Fund might be required
to include in income each year a portion of the
ordinary earnings and net capital gains of the
qualified electing fund, even if not distributed to
the Fund, and such amounts would be subject to the 90%
and excise tax distribution requirements described
above. In order to make this election, the Fund would
be required to obtain certain annual information from
the passive foreign investment companies in which it
invests, which may be difficult or not possible to
obtain.
Recently, legislation was enacted that provides a
mark-to-market election for regulated investment
companies effective for taxable years beginning after
December 31, 1997. This election would result in the
Fund being treated as if it had sold and repurchased
all of the PFIC stock at the end of each year. In
this case, the Fund would report gains as ordinary
income and would deduct losses as ordinary losses to
the extent of previously recognized gains. The
election, once made, would be effective for all
subsequent taxable years of the Fund, unless revoked
with the consent of the IRS. By making the election,
the Fund could potentially ameliorate the adverse tax
consequences with respect to its ownership of shares
in a PFIC, but in any particular year may be required
to recognize income in excess of the distributions it
receives from PFICs and its proceeds from dispositions
of PFIC company stock. The Fund may have to
distribute this "phantom" income and gain to satisfy
its distribution requirement and to avoid imposition
of the 4% excise tax. The Fund will make the
appropriate tax elections, if possible, and take any
additional steps that are necessary to mitigate the
effect of these rules.
Taxation of United States Shareholders
Dividends and Distributions. Any dividend declared by
the Fund in October, November or December of any
calendar year and payable to shareholders of record on
a specified date in such a month shall be deemed to
have been received by each shareholder on December 31
of such calendar year and to have been paid by the
Fund not later than such December 31, provided such
dividend is actually paid by the Fund during January
of the following calendar year. The Fund intends to
distribute annually to its shareholders substantially
all of its investment company taxable income, and any
net realized long-term capital gains in excess of net
realized short-term capital losses (including any
capital loss carryovers). The Fund currently expects
to distribute any excess annually to its shareholders.
However, if the Fund retains for investment an amount
equal to all or a portion of its net long-term capital
gains in excess of its net short-term capital losses
and capital loss carryovers, it will be subject to a
corporate tax (currently at a rate of 35%) on the
amount retained. In that event, the Fund will
designate such retained amounts as undistributed
capital gains in a notice to its shareholders who (a)
will be required to include in income for United
Stares federal income tax purposes, as long-term
capital gains, their proportionate shares of the
undistributed amount, (b) will be entitled to credit
their proportionate shares of the 35% tax paid by the
Fund on the undistributed amount against their United
States federal income tax liabilities, if any, and to
claim refunds to the extent their credits exceed their
liabilities, if any, and (c) will be entitled to
increase their tax basis, for United States federal
income tax purposes, in their shares by an amount
equal to 65% of the amount of undistributed capital
gains included in the shareholder's income.
Organizations or persons not subject to federal income
tax on such capital gains will be entitled to a refund
of their pro rata share of such taxes paid by the Fund
upon filing appropriate returns or claims for refund
with the Internal Revenue Service (the "IRS").
Dividends of net investment income and distributions
of net realized short-term capital gains are taxable
to a United States shareholder as ordinary income,
whether paid in cash or in shares. Distributions of
net-long-term capital gains, if any, that the Fund
designates as capital gains dividends are taxable as
long-term capital gains, whether paid in cash or in
shares and regardless of how long a shareholder has
held shares of the Fund. Dividends and distributions
paid by the Fund attributable to dividends on stock of
U.S. corporations received by the Fund, with respect
to which the Fund meets certain holding period
requirements, will be eligible for the deduction for
dividends received by corporations. Distributions in
excess of the Fund's current and accumulated earnings
and profits will, as to each shareholder, be treated
as a tax-free return of capital to the extent of a
shareholder's basis in his shares of the Fund, and as
a capital gain thereafter (if the shareholder holds
his shares of the Fund as capital assets).
Shareholders receiving dividends or distributions in
the form of additional shares should be treated for
United States federal income tax purposes as receiving
a distribution in the amount equal to the amount of
money that the shareholders receiving cash dividends
or distributions will receive, and should have a cost
basis in the shares received equal to such amount.
Investors considering buying shares just prior to a
dividend or capital gain distribution should be aware
that, although the price of shares just purchased at
that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may
nevertheless be taxable to them. If the Fund is the
holder of record of any stock on the record date for
any dividends payable with respect to such stock, such
dividends are included in the Fund's gross income not
as of the date received but as of the later of (a) the
date such stock became ex-dividend with respect to
such dividends (i.e., the date on which a buyer of the
stock would not be entitled to receive the declared,
but unpaid, dividends) or (b) the date the Fund
acquired such stock. Accordingly, in order to satisfy
its income distribution requirements, the Fund may be
required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an
earlier year than would otherwise be the case.
Sales of Shares. Upon the sale or exchange of his
shares, a shareholder will realize a taxable gain or
loss equal to the difference between the amount
realized and his basis in his shares. Such gain or
loss will be treated as capital gain or loss, if the
shares are capital assets in the shareholder's hands,
and will be long-term capital gain or loss if the
shares are held for more than one year and short-term
capital gain or loss if the shares are held for one
year or less. Any loss realized on a sale or exchange
will be disallowed to the extent the shares disposed
of are replaced, including replacement through the
reinvesting of dividends and capital gains
distributions in the Fund, within a 61-day period
beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis
of the shares acquired will be increased to reflect
the disallowed loss. Any loss realized by a
shareholder on the sale of a Fund share held by the
shareholder for six months or less will be treated for
United States federal income tax purposes as a long-
term capital loss to the extent of any distributions
or deemed distributions of long-term capital gains
received by the shareholder with respect to such
share. If a shareholder incurs a sales charge in
acquiring shares of the Fund, disposes of those shares
within 90 days and then acquires shares in a mutual
fund for which the otherwise applicable sales charge
is reduced by reason of a reinvestment right (e.g., an
exchange privilege), the original sales charge will
not be taken into account in computing gain/loss on
the original shares to the extent the subsequent sales
charge is reduced. Instead, the disregarded portion
of the original sales charge will be added to the tax
basis in the newly acquired shares. Furthermore, the
same rule also applies to a disposition of the newly
acquired shares made within 90 days of the second
acquisition. This provision prevents a shareholder
from immediately deducting the sales charge by
shifting his or her investment in a family of mutual
funds.
Backup Withholding. The Fund may be required to
withhold, for United States federal income tax
purposes, 31% of the dividends, distributions and
redemption proceeds payable to shareholders who fail
to provide the Fund with their correct taxpayer
identification number or to make required
certifications, or who have been notified by the IRS
that they are subject to backup withholding. Certain
shareholders are exempt from backup withholding.
Backup withholding is not an additional tax and any
amount withheld may be credited against a
shareholder's United States federal income tax
liabilities.
Notices. Shareholders will be notified annually by
the Fund as to the United States federal income tax
status of the dividends, distributions and deemed
distributions attributable to undistributed capital
gains (discussed above in "Taxes - Taxation of United
States Shareholders -Dividends and Distributions")
made by the Fund to its shareholders. Furthermore,
shareholders will also receive, if appropriate,
various written notices after the close of the Fund's
taxable year regarding the United States federal
income tax status of certain dividends, distributions
and deemed distributions that were paid (or that are
treated as having been paid) by the Fund to its
shareholders during the preceding taxable year.
Other Taxation
Distributions also may be subject to additional state,
local and foreign taxes depending on each
shareholder's particular situation.
The foregoing is only a summary of certain material
tax consequences affecting the Fund and its
shareholders. Shareholders are advised to consult
their own tax advisers with respect to the particular
tax consequences to them of an investment in the Fund.
ADDITIONAL INFORMATION
The Company was incorporated on September 29, 1981
under the laws of the state of Maryland 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.
The Company offers shares of eight separate series
with a par value of $.001 per share. The Fund offers
shares currently classified into four Classes - A, B,
L and Y. Each Class of the Fund represents an
identical interest in the Fund's investment portfolio.
As a result, the Classes have the same rights,
privileges and preferences, except with respect to:
(a) the designation of each Class; (b) the effect of
the respective sales charges; if any, for each class;
(c) the distribution and/or service fees borne by each
Class pursuant to the Plan; (d) the expenses allocable
exclusively to each Class; (e) voting rights on
matters exclusively affecting a single Class; (f) the
exchange privilege of each Class; and (g) the
conversion feature of the Class B shares. The
Company's Board of Directors does not anticipate that
there will be any conflicts among the interests of the
holders of the different Classes. The directors, on
an ongoing basis, will consider whether any such
conflict exists and, if so, take appropriate action.
As permitted by Maryland law, there will normally be
no meetings of shareholders for the purpose of
electing directors unless and until such time as less
than a majority of the directors holding office have
been elected by shareholders. At that time, the
directors then in office will call a shareholders'
meeting for the election of directors. The directors
must call a meeting of shareholders for the purpose of
voting upon the question or removal of any director
when requested in writing to do so by the record
holders of not less than 10% of the outstanding shares
of the Fund. At such a meeting, a director may be
removed after the holders of record of not less than a
majority of the outstanding shares of the Fund have
declared that the director be removed either by
declaration in writing or by votes cast in person or
by proxy. Except as set forth above, the directors
shall continue to hold office and may appoint
successor directors.
As used in the Prospectus and this Statement of
Additional Information, a "vote of a majority of the
outstanding voting securities" means the affirmative
vote of the lesser of (a) more than 50% of the
outstanding shares of the Company (or the affected
series or Class) or (b) 67% or more of such shares
present at a meeting if more than 50% of the
outstanding shares of the Company (or the affected
series or Class) are represented at the meeting in
person or by proxy. A series or Class shall be deemed
to be affected by a matter unless it is clear that the
interests of each series or Class in the matter are
identical or that the matter does not affect any
interest of the series or Class. The approval of a
management agreement or any change in a fundamental
investment policy would be effectively acted upon with
respect to the Fund only if approved by a "vote of a
majority of the outstanding voting securities" of the
Fund; however, the ratification of independent
accountants, the election of directors, and the
approval of a distribution agreement that is submitted
to shareholders are not subject to the separate voting
requirements and may be effectively acted upon by a
vote of the holders of a majority of all Company
shares voting without regard to series or Class.
Annual and Semi-annual Reports. The Fund sends its
shareholders a semi-annual report and an audited
annual report, which include listings of investment
securities held by the Fund at the end of the period
covered. In an effort to reduce the Fund's printing
and mailing costs, the Fund consolidates the mailing
of its semi-annual and annual reports by household.
This consolidation means that a household having
multiple accounts with the identical address of record
will receive a single copy of each report. In
addition, the Fund also consolidates the mailing of
its Prospectus so that a shareholder having multiple
accounts (that is, individual, IRA and/or Self-
Employed Retirement Plan accounts) will receive a
single Prospectus annually. Shareholders who do not
want this consolidation to apply to their accounts
should contact their Salomon Smith Barney Financial
Consultant or the Transfer Agent.
FINANCIAL STATEMENTS
As of the date of this SAI, the Fund had not yet
commenced operations. Consequently, there are no
financial statements for the Fund at this time.
OTHER INFORMATION
In an industry where the average portfolio manager has
seven years of experience (source: ICI, 1998), the
portfolio managers of Smith Barney Mutual Funds
average 21 years in the industry and 15 years with the
firm.
Smith Barney Mutual Funds offers more than 60 mutual
funds. We understand that many investors prefer an
active role in allocating the mix of funds in their
portfolio, while others want the asset allocation
decisions to be made by experienced managers.
That's why we offer four "styles" of fund management
that can be tailored to suit each investor's unique
financial goals.
Style Pure Series
Our Style Pure Series funds stay fully invested
within their asset class and investment style,
enabling investors to make asset allocation
decisions in conjunction with their Salomon
Smith Barney Financial Consultant.
Classic Investor Series
Our Classic Investor Series funds offer a range
of equity and fixed income strategies that seek
to capture opportunities across asset classes
and investment styles using disciplined
investment approaches.
The Concert Allocation Series
As a fund of funds, investors can select a
Concert Portfolio that may help their investment
needs. As needs change, investors can easily
choose another long-term, diversified investment
from our Concert family.
Special Discipline Series
Our Special Discipline Series funds are designed
for investors who are looking beyond more
traditional market categories: from natural
resources to a roster of state-specific
municipal funds.
36
35
PART C - OTHER INFORMATION
Item 23. Exhibits
All references are to the Registrant's registration
statement on Form N-1A (the "Registration
Statement")
as filed with the SEC on October 2, 1981(File Nos.
2-
74288 and 811-3275).
(a) Articles of Restatement dated September 17,
1993
to Registrant's Articles of Incorporation dated
September 28, 1981, Articles of Amendment dated
October 14, 1994, Articles Supplementary, Articles
of
Amendment dated October 14, 1994, Articles
Supplementary, Articles of Amendments and
Certificates
of Correction dated November 7, 1994, are
incorporated
by reference to Post-Effective Amendment No. 37 to
the
Registration Statement filed on November 7, 1994.
Articles of Amendment dated October 23, 1997 are
incorporated by reference to Post-Effective
Amendment
No. 46 filed on October 23, 1997("Post-Effective
Amendment No.46"). Articles of Amendment dated
February 27, 1998 are incorporated by reference
to Post-Effective Amendment No. 48 dated April 29,
1998.
Articles of Amendment dated June 1, 1998 are
incorporated
by reference to Post-Effective Amendment No. 49
filed on
July
16, 1998 ("Post-Effective Amendment No. 49").
(b) Registrant's By-Laws, as amended on September
30,
1992 are incorporated by reference to Post-
Effective
Amendment No. 30 to the Registration Statement
filed
on April 30, 1993.
(c) Registrant's form of stock certificate for
Smith
Barney Hansberger Global Value Fund ("Global Value
Fund") and Smith Barney Hansberger Global Value
Small
Cap Fund ("Small Cap Fund") is incorporated by
reference to Post Effective Amendment 46.
(d)(1) Investment Advisory Agreement dated July 30,
1993, between the Registrant on behalf of Smith
Barney
Investment Grade Bond Fund, Smith Barney Government
Securities Fund and Smith Barney Special Equities
Fund and Greenwich Street Advisors is incorporated
by
reference to the Registration Statement filed on
Form
N-14 on September 2, 1993, File No. 33-50153.
(d)(2) Investment Advisory Agreements on behalf of
Smith Barney Growth Opportunity Fund and Smith
Barney
Managed Growth Fund is incorporated by reference to
Post-Effective Amendment No. 40 filed on June 27,
1995. ("Post-Effective Amendment No.40")
(d)(3) Investment Management Agreements on behalf
of
Global Value Fund and Global Small Cap Fund between
Registrant and Smith Barney Mutual Funds Management
Inc. is incorporated by reference to Post-Effective
Amendment No. 46.
(d)(4) Sub-Advisory Agreement on behalf of Global
Value Fund and Global Small Cap Fund between MMC
and
Hansberger Global Investors Inc. is
incorporated by reference to Post-Effective
Amendment No. 46.
(d)(5)Investment Management Agreements on behalf of
Smith Barney Small Cap Growth Fund and Smith Barney
Small Cap Value Fund between Registrant and
Mutual Management Corp. is incorporated by
reference
To Post-Effective Amendment No. 49.
(e)(1) Distribution Agreement dated July 30, 1993,
between the Registrant and Smith Barney Shearson
Inc.
is incorporated by reference to the registration
statement filed on Form N-14 on September 2, 1993.
File 33-50153.
(e)(2) Form of Distribution Agreement between the
Registrant and PFS Distributors on behalf of Smith
Barney Investment Funds Inc. is incorporated by
reference to Post-Effective Amendment No. 40 filed
on
June 27, 1995.
(e)(3) Form of Distribution Agreement between the
Registrant and CFBDS, Inc. is incorporated by
reference
to Post-Effective Amendment No. 49.
(e)(4) Selling Group Agreement
is incorporated by reference
to Post-Effective Amendment No.56 filed on
February 26, 1999.
(f) Not Applicable.
(g)(1) Custodian Agreement with PNC Bank, National
Association is incorporated by reference to Post -
Effective Amendment No. 44 filed on April 29, 1997.
(g)(2) Custodian Agreement with Chase Manhattan
Bank
is incorporated by reference to Post-Effective
Amendment No. 46.
(h)(1) Transfer Agency and Registrar Agreement
dated
August 5, 1993 with First Data Investor Services
Group, Inc. (formerly The Shareholder Services
Group,
Inc.) is incorporated by reference to Post-
Effective
Amendment No. 31 as filed on December 22, 1993
(Post-
Effective Amendment No. 31").
(h)(2)Sub-Transfer Agency Agreement between the
Registrant and PFS Shareholders Services on behalf
of
Smith Barney Investment Funds Inc. is incorporated
by
reference to Post-Effective Amendment No. 40.
(i) Opinion of Robert A. Vegliante, Deputy General
Counsel of Smith Barney Mutual Funds Management
Inc.
filed with the Registrant's rule 24-f2 Notice
(Accession No. 000091155-97-000104) is incorporated
by
reference.
(j) Auditor's consent to be filed by amendment.
(k) Not Applicable
(l) Not Applicable
(m)(1) Amended Services and Distribution Plans
pursuant to Rule 12b-1 between the Registrant on
behalf
of Smith Barney Investment Grade Bond Fund, Smith
Barney Government Securities Fund, Smith Barney
Special
Equities Fund and Smith Barney European Fund and
Smith
Barney, Inc. ("Smith Barney") are incorporated by
reference to Post-Effective Amendment No. 37 filed
on
November 3, 1994 ("Post-Effective Amendment No.
37")
(m)(2) Form of Services and Distribution Plans
pursuant to Rule 12b-1 between the Registrant on
behalf of Smith Barney Growth Opportunity Fund and
Smith Barney Managed Growth Fund is incorporated by
reference to Post-Effective Amendment No. 40.
(m)(3) Form of Services and Distribution Plans
pursuant to Rule 12b-1 between the Registrant on
behalf of the Global Value Fund and Small Cap Fund
is
incorporated by reference to Post-Effective
Amendment
No. 46.
(m)(4) Form of Amended and Restated Shareholder
Services
and
Distribution Plan pursuant to Rule 12b-1 between
the Registrant on behalf of each of its series
is incorporated by reference to Post-Effective
Amendment
No. 49.
(n) Financial Data Schedule to be filed by
amendment.
(o) Form of Plan pursuant to Rule 18f-3 is
incorporated by
reference to Post-Effective Amendment No.50 to
Registration Statement.
(p) Code of Ethics filed herewith.
Item 24.
None.
Item 25. Indemnification
The response to this item is incorporated by
reference to Pre-Effective Amendment No. 1 to the
registration statement filed on Form N-14 on
October
8, 1993 (File No. 33-50153).
Item 26. Business and Other Connections of
Investment Adviser
Investment Adviser - - SSB Citi Fund Management LLC
("SSB Citi")
Successor to SSBC Fund Management Inc. ("SSBC")
SSBC was incorporated in December 1968 under the
laws
of the State of Delaware. On September 21, 1999,
SSBC
was converted into a Delaware Limited Liability
Company.
SSB Citi is a wholly owned subsidiary of Salomon
Smith Barney
Holdings Inc. ("Holdings") (formerly known as Smith
Barney
Holdings Inc.) which in turn is a wholly owned
subsidiary
of Citigroup Inc. ("Citigroup"). SSB Citi is
registered
as an investment adviser under the Investment
Advisers Act
of 1940 (the "Advisers Act").
The list required by this Item 26 of officers and
directors of SSB Citi together with information as
to
any other business, profession, vocation or
employment of a
substantial nature engaged in by such officers and
directors during
the past two years, is incorporated by reference to
Schedules A and D
of FORM ADV filed by SSBC pursuant to the Advisers
Act
(SEC File No. 801-8314).
Item 27. Principal Underwriters
(a) CFBDS, Inc. the Registrant's Distributor, is
also
the distributor for
CitiFundsSM International Growth & Income
Portfolio,
CitiFundsSM International Equity Portfolio,
CitiFundsSM
Large Cap
Growth
Portfolio, CitiFundsSM Intermediate Income
Portfolio,
CitiFundsSM Short-Term U.S. Government Income
Portfolio,
CitiFundsSM Emerging Asian Markets Equity
Portfolio,
CitiFundsSM U.S. Treasury Reserves, CitiFundsSM
Cash
Reserves,
CitiFundsSM Premium U.S. Treasury Reserves,
CitiFundsSM Premium Liquid Reserves, CitiFundsSM
Institutional U.S.
Treasury Reserves, CitiFundsSM Institutional Liquid
Reserves,
SM Institutional Cash Reserves, CitiFundsSM Tax
Free
Reserves,
CitiFundsSM Institutional Tax Free Reserves,
CitiFundsSM California Tax Free Reserves,
CitiFundsSM Connecticut Tax Free Reserves,
CitiFundsSM New York Tax Free Reserves, CitiFundsSM
Balanced Portfolio,
CitiFundsSM Small Cap Value Portfolio, CitiFundsSM
Growth &
Income
Portfolio,
CitiFundsSM Small Cap Growth Portfolio, CitiFundsSM
National
Tax Free Income Portfolio, CitiFundsSM New York Tax
Free
Income
Portfolio,
CitiSelect VIP Folio 200, Citiselect VIP Folio 300,
CitiSelect (VIP Folio 400, CitiSelect (VIP Folio
500,
CitiFundsSM Small Cap Growth VIP Portfolio,
CitiSelect
(Folio 200,
CitiSelect (Folio 300, CitiSelect (Folio 400, and
CitiSelect (Folio
500.
CFBDS is also the placement agent for Large Cap
Value
Portfolio,
International Portfolio, Foreign Bond Portfolio,
Intermediate Income Portfolio, Short-Term
Portfolio,
Growth & Income Portfolio, Large Cap Growth
Portfolio,
Small Cap Growth Portfolio, International Equity
Portfolio,
Balanced Portfolio, Government Income Portfolio,
Emerging
Asian Markets Equity Portfolio, Tax Free Reserves
Portfolio,
Cash Reserves Portfolio and U.S. Treasury Reserves
Portfolio.
CFBDS, Inc. is also the distributor for the
following
Smith Barney Mutual Fund registrants:
Concert Investment Series
Consulting Group Capital Markets Funds
Greenwich Street Series Fund
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Concert Allocation Series Inc.
Smith Barney Equity Funds
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.
Smith Barney Income Funds
Smith Barney Institutional Cash Management Fund,
Inc.
Smith Barney Investment Trust
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc.
Smith Barney Muni Funds
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Natural Resources Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund Inc.
Smith Barney Principal Return Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Telecommunications Trust
Smith Barney Variable Account Funds
Smith Barney World Funds, Inc.
Travelers Series Fund Inc.
And various series of unit investment trusts.
CFBDS, Inc. is also the distributor for the
following
Salomon Brothers funds;
Salomon Brothers Opportunity Fund Inc
Salomon Brothers Investors Fund Inc
Salomon Brothers Capital Fund Inc
Salomon Brothers Series Funds Inc
Salomon Brothers Institutional Series Funds Inc
Salomon Brothers Variable Series Funds Inc
The information required by this Item 27 with
respect
to each director, officer and partner of CFBDS,
Inc.
is incorporated by reference to Schedule A of Form
BD
filed by CFBDS, Inc. pursuant to the Securities
Exchange Act of 1934 (SEC File No. 8-32417).
Item 28. Location of Accounts and Records
(1) Smith Barney Investment Funds Inc.
388 Greenwich Street
New York, New York 10013
(2) SSB Citi Fund Management LLC
388 Greenwich Street
New York, New York 10013
(3) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, PA
(4) The Chase Manhattan Bank
Chase Metrotech Center
Brooklyn, New York 11245
(5) Smith Barney Private Trust Company
388 Greenwich Street
New York, New York 10013
(6) PFPC Global Fund Services
Exchange Place
Boston, Massachusetts 02109
(7) CFBDS Inc.
21 Milk Street, 5th floor
Boston, Massachusetts 02109
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Not applicable
SIGNATURES
Pursuant to the requirements of the Securities Act
of
1933, as amended, and the Investment Company Act of
1940, as amended, the Registrant, SMITH BARNEY
INVESTMENT FUNDS INC., has duly caused this
Amendment
to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly
authorized,
all in the City of New York, State of New York on
the
10th day of March, 2000.
SMITH BARNEY INVESTMENT FUNDS INC.
By: /s/ Heath B. McLendon*
Heath B. McLendon
Chief Executive Officer
WITNESS our hands on the date set forth
below.
Pursuant to the requirements of the
Securities
Act of 1933, as amended, this Post-Effective
Amendment
to the Registration Statement has been signed below
by
the following persons in the capacities and on the
dates indicated.
Signature Title
Date
/s/ Heath B. McLendon Chairman of the Board
3/10/00
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Senior Vice President
Lewis E. Daidone and Treasurer
3/10/00
(Chief Financial
and Accounting Officer)
/s/ Paul R. Ades * Director
3/10/00
Paul R. Ades
/s/ Herbert Barg* Director
3/10/00
Herbert Barg
/s/ Dwight B. Crane* Director
3/10/00
Dwight B. Crane
/s/ Frank Hubbard* Director
3/10/00
Frank Hubbard
/s/ Jerome Miller** Director
3/10/00
Jerome Miller
/s/ Ken Miller* Director
3/10/00
Ken Miller
*Signed by Heath B. McLendon, their duly authorized
attorney-in-fact, pursuant
to power of attorney dated November 3, 1994.
**Signed by Heath B. McLendon, their duly
authorized
attorney-in-fact, pursuant
to power of attorney dated April 15, 1998.
/s/ Heath B. McLendon
Heath B. McLendon
EXHIBITS
Exhibit No. Description of Exhibit
Cover
(j) Auditor's Consent+
(n) Financial Data Schedule+
(p) Code of Ethics
+ To be filed by amendment
SMITH BARNEY INVESTMENT FUNDS INC. PRIVATE
PRIVATE CODE OF ETHICS tc \l 1 "CODE OF ETHICS"
Statement of Principles
The following principles are intended to guide
in the applicability of this Code of Ethics:
1. In matters relating to an investment
company, persons covered by this Code
shall at all times place the interests of
the shareholders first;
2. All securities transactions effected for
the benefit of a person covered by this
Code shall adhere to the requirements of
this Code and shall be conducted in such a
manner as to avoid any actual or potential
conflict of interest or abuse of an
individual's position of trust and
responsibility and;
3. Any person associated with an investment
company shall not take inappropriate
advantage of their position with respect
to such investment company.
I. Applicability
This Code of Ethics ("Code") establishes rules
of conduct for "Covered Persons" (as defined herein) of
the above-named registered investment company (the
"Fund") and each investment portfolio comprising such
investment company (each a "Portfolio"), Travelers
Group Inc. ("Travelers") and any subsidiary of
Travelers which acts as an investment adviser to the
Fund (a "Covered Subsidiary") (the Fund, each
Portfolio, Travelers and Covered Subsidiaries
collectively referred to as "Covered Companies"). For
purposes of the Code, "Covered Person" shall mean:
(A) Any director, officer or employee of a
Covered Company who in the ordinary course
of his business makes, participates in or
obtains information regarding the purchase
or sale of securities for the Fund (or any
of its Portfolios) or whose functions or
duties as part of the ordinary course of
his or her business relate to the making
of any recommendation to any such Fund or
Portfolio regarding the purchase or sale
of securities (an "Advisory Person");
(B) Any director or officer of the Fund,
regardless of whether such director or
officer is an Advisory Person; and
(C) Any natural person in a control
relationship to the Fund who obtains
information concerning recommendations
made to the Fund with regard to the
purchase or sale of a security.
For purposes of this Article I, a person shall
not be deemed to be an Advisory Person or a Covered
Person simply by virtue of (i) normally assisting in
the preparation of public reports, but not receiving
information about current recommendations or trading;
or (ii) a single instance of obtaining knowledge of
current recommendations or trading activity, or
infrequently and inadvertently obtaining such
knowledge.
II. Prohibitions
The term "security" shall include all
instruments in which the Fund (or its Portfolios)
ordinarily invests except securities issued by the
Government of the United States, bankers' acceptances,
bank certificates of deposit, commercial paper and
shares of registered open-end investment companies.
The prohibitions described in this Article II shall not
apply to any person who is a Covered Person with
respect to the Fund by virtue of being a director of
such Fund, but who is not an "interested person" (as
defined in the Investment Company Act of 1940) (a "non-
interested director").
(A) No Covered Person shall purchase or sell,
directly or indirectly, any security or
write an option for a security without
first obtaining approval for such purchase
or sale from a supervisor or compliance
officer designated by Travelers or the
Fund, whichever is more appropriate under
the circumstances (the "Compliance
Coordinator"). In order to evidence this
pre-approval, the Covered Person must
complete a form (a copy of which is
attached hereto) describing the
transaction and submit the form to the
Compliance Coordinator for approval.
Included on such form shall be a
description of all factors relevant to a
conflict of interest analysis. An approved
copy of the form will be maintained by the
Compliance Coordinator.
(B) A Covered Person may not effect
transactions involving securities in which
the Fund is effecting transactions, for a
period of one business day before or after
the Fund's transaction. In the event such
a transaction occurs, it will be unwound
and the Covered Person will be obligated
to disgorge any resulting profit.
(C) A Covered Person who is a portfolio
manager of the Fund may not effect
transactions involving a security or a
related security in which the Portfolio he
or she manages is effecting transactions
for a period of seven calendar days before
and after the date of the Portfolio's
transaction. In the event such a
transaction occurs, it will be unwound and
the portfolio manager will be obligated to
absorb any resulting loss and disgorge any
resulting profit.
(D) Securities purchased by Covered Persons
must be for investment purposes rather
than for the generation of short-term
profits. Consequently, securities
purchased must be held for at least 60
days, calculated on a First In, First Out
("FIFO") basis. Covered Persons must
obtain prior approval from the supervisory
person designated by Travelers or the
Fund, whichever is more appropriate under
the circumstances (the "Designated
Supervisory Person") for the sale of a
security before the required 60-day
holding period and, to the extent that any
pre-approved sale results in profits,
those profits must be disgorged.
(E) Day trading by Covered Persons is
prohibited.
(F) Investments by Covered Persons in private
placement offerings are prohibited unless
first approved by the Designated
Supervisory Person.
(G) The purchase of new issues of corporate
securities (including initial public
offerings and hot issue syndicate
offerings) on the offering are prohibited.
(New issues of municipal debt securities
may be purchased subject to the other
requirements of this Code (e.g.,
preclearance)). This provision is not
intended to prohibit a Covered Person from
purchasing shares issued by a bank or
insurance company as a result of
demutualization, if the Covered Person is
entitled to purchase shares by virtue of
being a depositor or policyholder.
(H) Covered Persons may buy or sell derivative
instruments such as individual stock
options, options and futures on indexes
and options and futures on fixed-income
securities, and may buy or sell physical
commodities and futures and forwards on
such commodities. These transactions must
comply with all of the policies and
restrictions described in this Code,
including blackout periods and the 60-day
holding period. The 60-day holding period
does not apply to individual stock options
that are part of a hedged position where
the underlying stock has been held for
more than 60-days.
(I) Directorships by Covered Persons in any
company other than a Covered Company (or
companies related to civic, religious or
charitable activities) are prohibited
unless first approved by the Designated
Supervisory Person. Directorships on
condominium/residential co-op boards are
permitted without prior approval.
(J) No Covered Person shall recommend any
securities transaction by the Fund
without having disclosed his interest, if
any, in such securities or the issuer
thereof, including without limitation:
(1) his direct or indirect beneficial
ownership of any securities of such
issuer;
(2) any contemplated transaction by such
person in such securities;
(3) any position with such issuer or its
affiliates;
(4) any present or proposed business
relationship between such issuer or
its affiliates and such person or
any party in which such person has a
significant interest; and
(5) any factors about the transaction
that are potentially relevant to a
conflict of interest analysis.
(K) No Covered Person shall accept any gift of
more than de minimis value from any person
or entity that does business with or on
behalf of the Fund (or any of its
Portfolios).
III. Exceptions
(A) Article II, Sections (B), (C) and (J)
(blackouts and conflicts) shall not apply
to any purchase or sale, or series of
related transactions involving the same or
related securities, involving 500 or fewer
shares in the aggregate, if the issuer has
a market capitalization (outstanding
shares multiplied by the current price per
share) greater than $3 billion and is
listed on a U.S. stock exchange or NASDAQ.
Preapproval is still required.
(B) Other exceptions to Article II will be
granted only in rare circumstances, and
then only with the written approval of the
Designated Supervisory Person(s).
Exceptions may be granted only when the
Designated Supervisory Person(s) believes
that the potential for conflict is remote.
Copies of all written approvals will be
maintained and will describe the
circumstances surrounding and the
justification for granting the exception.
The Fund's Board of Directors will be
notified at least annually regarding any
exceptions that have been granted pursuant
to this provision.
IV. Exempt Transactions
The prohibitions described in Article II shall
not apply to:
(A) Purchases or sales effected in any account
over which the Covered Person has no
direct or indirect influence or control.
This exemption includes fully
discretionary managed accounts if (i) the
Covered Person receives permission from
the Designated Supervisory Person, and
(ii) there is no communication between the
Covered Person and the manager with regard
to investment decisions prior to
execution;
(B) Purchases or sales that are non-volitional
on the part of the Covered Person;
(C) Purchases that are part of an automatic
dividend reinvestment plan; and
(D) Purchases effected upon the exercise of
rights issued by an issuer pro rata to all
holders of a class of its securities, to
the extent such rights were acquired from
the issuer, and sales of such rights so
acquired.
V. Reporting
(A) In addition to the pre-approval forms
required under Article II, every Covered
Person must report certain information
about each transaction by which the
Covered Person acquired any direct or
indirect beneficial ownership of a
security as defined above, provided,
however, that:
(1) A Covered Person shall not be
required to make a report with
respect to any transaction effected
for any account over which such
person does not have any direct or
indirect influence or control; and
(2) A non-interested director of the
Fund shall be required to report a
transaction only if he or she, at
the time of that transaction, knew,
or in the ordinary course of
fulfilling his or her official
duties as a director of the Fund
should have known, that during the
15-day period immediately preceding
or after the date of the transaction
by such person, the security such
person purchased or sold is or was
purchased or sold by the Fund or was
being considered for purchase or
sale by the Fund or its investment
adviser.
(B) A Covered Person must submit the report
required by this Article V to the
Compliance Coordinator no later than 10
days after the end of the calendar quarter
in which the transaction to which the
report relates was effected. The report
may be satisfied by the submission of a
brokerage account statement or by a report
containing substantially equivalent
information if available by the 10th day
after the end of the calendar quarter. A
report must contain the following
information:
(1) The date of the transaction, the
title and the number of shares, and
the principal amount of each
security involved;
(2) The nature of the transaction (i.e.,
purchase, sale or other acquisition
or disposition);
(3) The price at which the transaction
was effected; and
(4) The name of the broker, dealer or
bank with or through whom the
transaction was effected.
(C) Copies of all monthly brokerage account
statements and transaction confirmation
statements or a report containing
substantially equivalent information of
Covered Persons, other than non-interested
directors, must be sent to and retained
by, the Compliance Coordinator. Such
monthly statements, transaction
confirmations and/or reports will be
reviewed by the Compliance Coordinator to
ensure all required pre-approvals were
obtained and the accuracy of the
information given in the quarterly reports
required by this Article V.
(D) All Covered Persons, other than non-
interested directors, upon becoming a
Covered Person as defined in this Code,
shall certify that they have:
(1) Received a copy of the Code.
(2) Read and understand the provisions
of the Code; and
(3) Agreed to serve the Fund (and its
Portfolios) in accordance with the
terms of the Code.
(E) All Covered Persons, other than non-
interested directors, are required to
annually certify that they have:
(1) Read and understand this Code;
(2) Complied with the principles of the
Code; and
(3) Disclosed or reported all personal
securities transactions which are
required by the Code to be disclosed
or reported.
Any report submitted to comply with the
requirements of this Article V may contain a statement
that the report shall not be construed as an admission
by the person making such report that he or she has any
direct or indirect beneficial ownership in the security
to which the report relates.
VI. Sanctions
Upon discovering that a Covered Person has not
complied with the requirements of this Code, the Board
of Directors of the Fund may impose on that person
whatever sanctions the Board deems appropriate.
VII. Confidentiality
All information obtained from any Covered Person
hereunder shall be kept in strict confidence, except
that reports of securities transactions hereunder will
be made available to the Securities and Exchange
Commission or any other regulatory or self-regulating
organization to the extent required by law or
regulation.
VIII. Other Laws, Rules and Statements of Policy
Nothing contained in this Code shall be
interpreted as relieving any Covered Person from acting
in accordance with the provision of any applicable law,
rule or regulation or any other statement of policy or
procedure governing the conduct of such person adopted
by Travelers and its subsidiaries.
IX. Further Information
If any person has any questions with regard to
the applicability of the provisions of this Code
generally or with regard to any securities transactions
or transactions he or she should consult the Compliance
Coordinator.
EXHIBIT A
Explanation of Beneficial Ownership
You are considered to have "beneficial
ownership" of securities if you have or share a direct
or indirect "pecuniary interest" in the securities.
You have a "pecuniary interest" in securities if
you have the opportunity, directly or indirectly, to
profit or share in any profit derived from a
transaction in the securities.
The following are examples of an indirect
pecuniary interest in securities:
1. Securities held by members of your immediate
family sharing the same household; however,
this presumption may be rebutted by
convincing evidence that profits derived from
transactions in these securities will not
provide you with any economic benefit.
"Immediate family" means any child,
stepchild, grandchild, parent, stepparent,
grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, and
includes any adoptive relationship.
2. Your interest as a general partner in
securities held by a general or limited
partnership.
3. Your interest as a manager-member in the
securities held by a limited liability
company.
You do not have an indirect pecuniary interest
in securities held by a corporation, partnership,
limited liability company or other entity in which you
hold an equity interest, unless you are a controlling
equityholder or you have or share investment control
over the securities held by the entity.
The following circumstances constitute
beneficial ownership by you of securities held by a
trust:
1. Your ownership of securities as a trustee
where either you or members of your immediate
family have a vested interest in the
principal or income of the trust.
2. Your ownership of a vested interest in a
trust.
3. Your status as a settlor of a trust, unless
the consent of all of the beneficiaries is
required in order for you to revoke the
trust.
The foregoing is a summary of the meaning of
"beneficial ownership." For purposes of the attached
Code, "beneficial ownership" shall be interpreted in
the same manner as it would be in determining whether
a person is subject to the provisions of Section 16 of
the Securities Exchange Act of 1934 and the rules and
regulations thereunder.
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