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. 77
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940,
Amendment No. 79
SMITH BARNEY INVESTMENT FUNDS INC.
(Exact name of Registrant as Specified in Charter)
7 World Trade Center, New York, New York 10048
(Address of Principal Executive Offices) (Zip Code)
(800)-451-2010
(Registrant's Telephone Number, including Area Code:)
Christina T. Sydor
7 World Trade Center, 39th Floor, New York 10048
(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
[XX] 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 PROSPECTUS FOR SMITH BARNEY PREMIER SELECTIONS
ALL CAP GROWTH AND VALUE FUND
<PAGE>
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
P R O S P E C T U S
Premier Selections
All Cap Growth
and Value Fund
Class A, B, L and Y Shares
-------------------------------
February 20, 2001
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INVESTMENT PRODUCTS: NOT FDIC INSURED . NO BANK GUARANTEE . MAY LOSE VALUE
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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>
Contents
<TABLE>
<S> <C>
Investments, risks and performance.......................................... 2
More on the fund's investments.............................................. 9
Management.................................................................. 10
Subscription offering period................................................ 11
Choosing a class of shares to buy........................................... 12
Comparing the fund's classes................................................ 13
Sales charges............................................................... 14
More about deferred sales charges........................................... 17
Buying shares............................................................... 18
Exchanging shares........................................................... 19
Redeeming shares............................................................ 20
Other things to know about share transactions............................... 22
Dividends, distributions, and taxes......................................... 23
Share price................................................................. 24
</TABLE>
The fund is a separate series of Smith Barney Investment Funds Inc., a Maryland
corporation
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
The Premier Selections All Cap Growth and Value Fund is made up of a Growth
segment and a Value segment.
Investment objective
Long-term capital growth.
Principal investment strategies
Key investments
Growth segment This segment invests primarily in common stocks of companies
that the segment manager believes are experiencing, or will experience, growth
in earnings that exceeds the average rate of earnings growth of the companies
which comprise the Russell 2500 Growth Index. This segment 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 segment's assets are invested in the securities of such companies.
Value segment This segment invests primarily in common stock and common stock
equivalents, such as preferred stocks and securities convertible into common
stocks, of companies the segment manager believes are undervalued in the mar-
ketplace. While the segment manager selects investments primarily for their
capital appreciation potential, secondary consideration is given to a company's
dividend record and the potential for an improved dividend return. This segment
of the fund generally invests in securities of large, well-known companies but
may also invest a significant portion of its assets in securities of small to
medium-size companies when the segment manager believes small companies offer
more attractive value opportunities.
Both segments
Foreign investments The fund may invest up to 25% 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
Premier Selections Funds
2
<PAGE>
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 fluctua-
tions could erase investment gains or add to investment losses.
Selection process The fund's strategy is to combine the efforts of two segment
managers and to invest in the stock selections considered most attractive in
the opinion of each segment manager. Each segment manager builds a portfolio of
stocks which he believes will offer superior long-term capital growth
potential. The target allocations are 50% to the Growth segment and 50% to the
Value segment. The amount to be invested by the fund in any particular security
will be determined by SSB Citi Fund Management LLC (the "Manager") based on the
recommendation of the segment managers.
In order to maintain approximately the target allocations of the fund's assets
among the two segment managers, the Manager will:
. Divide all daily cash inflows (purchases and reinvested distributions) and
outflows (redemptions and expense items) between the two segment managers, as
appropriate
. Rebalance the allocation of securities in the fund's portfolio at any time
the percentage of the fund's portfolio invested in either segment's securi-
ties diverges by at least 10% from the target allocation for a period of more
than 10 days
As a consequence of its efforts to maintain assets at targeted percentages, the
Manager will allocate assets and rebalance when necessary by (1) allocating
cash inflow to a segment that is below its targeted percentage or (2) by sell-
ing securities in a segment that exceeds its targeted percentage with proceeds
being reallocated to the segment that is below its targeted percentage.
Reallocations may result in early recognition of taxable gains and in addi-
tional transaction costs to the extent the sales of securities as part of these
reallocations result in higher portfolio turnover. 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.
Growth segment The Growth segment manager emphasizes individual security selec-
tion while diversifying across industries, which may help to reduce risk. The
Growth segment manager focuses primarily, but not
Smith Barney Mutual Funds
3
<PAGE>
exclusively, on companies that have passed their "start-up" phase and show pos-
itive earnings and the prospect of achieving significant profits beginning in
the two to three years after the acquisition of their stocks. When evaluating
an individual stock, the Growth segment manager considers whether the company
may benefit from:
. new technologies, products or services
. new cost reducing measures
. changes in management
. favorable changes in government regulations
Value segment The Value segment manager employees a two-step stock selection
process in its search for undervalued stocks of temporarily out of favor compa-
nies. First, the Value segment manager uses proprietary models and fundamental
research to try to identify stocks that are underpriced in the market relative
to their fundamental value. Next, the Value segment manager looks for a posi-
tive catalyst in the company's near term outlook which the Value segment man-
ager believes will accelerate earnings or improve the value of the company's
assets. The Value segment manager also emphasizes companies in those sectors of
the economy which the Value segment manager believes are undervalued relative
to other sectors.
When evaluating an individual stock, the Value segment manager looks for:
. Low market valuations measured by the Value segment manager's valuation mod-
els
. Positive changes in earnings prospects because of factors such as:
. New, improved or unique products and services
. New or rapidly expanding markets for the company's products
. New management
. Changes in the economic, financial, regulatory or political environment
particularly affecting the company
. Effective research, product development and marketing
. A business strategy not yet recognized by the marketplace
Premier Selections Funds
4
<PAGE>
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:
. U.S. stock markets decline, 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
. One segment (Value or Growth) underperforms for an extended period
. The segment 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
. Large capitalization stocks fall out of favor with investors
. Medium or small capitalization stocks fall out of favor with investors. An
investment in the fund may be more volatile and more susceptible to loss than
an investment in a fund which invests solely in large capitalization compa-
nies. Medium and small capitalization companies may have more limited product
lines, markets and financial resources than large capitalization companies.
They may have shorter operating histories and less mature businesses. While
medium capitalization companies generally have more established businesses
than small capitalization companies, the prices of medium capitalization com-
pany stocks tend to be more volatile than the prices of large capitalization
company stocks. In addition, small capitalization company stocks may be less
liquid than large capitalization company stocks.
. Key economic trends become materially unfavorable, such as rising interest
rates and levels of inflation or slowdown of economic growth
Investing in foreign securities can bring added benefits, but it may also
involve additional risks. Investors could lose money on their investment 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 segment manager's judgment about the attractiveness, value or potential
appreciation of a particular security proves to be incorrect
Smith Barney Mutual Funds
5
<PAGE>
Who may want to invest The fund may be an appropriate investment if you:
. Are seeking to participate in the long-term growth potential of the U.S.
stock market
. Are looking for an investment with potentially greater return but higher risk
than fixed income investments
. Are willing to accept the risks of the stock market
. Are looking for an investment with potentially greater return but higher risk
than a fund that invests primarily in large capitalization companies
. 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
Premier Selections Funds
6
<PAGE>
Performance
Because the fund was recently added as a series to Smith Barney Investment
Funds Inc., 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.
Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases
(as a % of offering price) 5.00% None 1.00% None
Maximum deferred sales charge (load) (as a %
of the lower of net asset value at purchase or
redemption) None* 5.00% 1.00% None
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund assets) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Management fee [ ]% [ ]% [ ]% [ ]%
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 $1,000,000 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
. 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 Funds
8
<PAGE>
More on the Fund's investments
Both Segments
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 contracts
can have a big impact on the fund's stock market, currency and interest rate
exposure. Therefore, using derivatives can disproportionately increase losses
and reduce opportunities for gains when stock prices, currency rates or inter-
est rates are changing. The fund may not fully benefit 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.
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 any type of money market instruments and
short-term debt securities or cash. 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.
Smith Barney Mutual Funds
9
<PAGE>
Management
Manager The fund's Manager is SSB Citi Fund Management LLC, an affiliate of
Salomon Smith Barney Inc. ("Salomon Smith Barney"). The Manager's address is 7
World Trade Center, New York, New York 10048. The Manager selects the fund's
segment managers and oversees the funds operations. The Manager and Salomon
Smith Barney are subsidiaries of Citigroup Inc. Citigroup businesses produce a
broad range of financial services--asset management, banking and consumer
finance, credit and charge cards, insurance, investments, investment banking
and trading--and use diverse channels to make them available to consumer and
corporate customers around the world.
Richard Freeman, CFA, investment officer of the Manager and managing director
of Salomon Smith Barney, is the segment manager responsible for the day-to-day
management of the Growth segment of the fund. Mr. Freeman has more than 24
years of securities business experience.
John G. Goode, investment officer of the Manager, managing director of Salomon
Smith Barney and Chairman and Chief Investment Officer of Davis Skaggs Invest-
ment Management, a division of the Manager, is the segment manager responsible
for the day-to-day management of the Value segment of the fund. Mr. Goode has
33 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 securities in the fund's portfolio, whenever the percentage of the
fund's portfolio invested in a segment's securities deviates by at least 10%
from a segment's target allocation for a period of more than 10 days. The Man-
ager 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.
Management fees The Manager will be paid advisory fees equal to [ ]% of the
fund's average daily net assets.
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.
In addition, the distributor may make payments for distribution and/or share-
holder servicing activities out of its past profits and other available
Premier Selections Funds
10
<PAGE>
sources. The distributor may also make payments to dealers for marketing, pro-
motional or related expenses. The amount of these payments is determined by the
distributor and may be substantial. The Manager or an affiliate may make simi-
lar payments under similar arrangements.
Transfer agent and shareholder servicing agent Citi Fiduciary Trust Company
serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). The transfer agent has entered into a sub-transfer agency
and services agreement with PFPC Global Fund Services to serve as the fund's
sub-transfer agent (the "sub-transfer agent".) The sub-transfer agent will per-
form certain functions including shareholder record keeping and accounting
services.
Subscription offering period
A broker-dealer, financial intermediary, financial institution or the distribu-
tor's financial consultants (each called a "Service Agent") will solicit
subscriptions for shares of the fund during the subscription offering period,
which is scheduled to end on March [ ], 2001. On the third business day after
the end of the subscription offering period, subscriptions for the shares will
be payable, exchanges into the fund will be permitted, shares will be issued
and the fund will commence investment operations.
The fund will suspend the offering of shares to new investors on [March 31,]
2001. This suspension, which is expected to last two weeks, may be lengthened
or shortened at the fund's discretion. During the suspension, existing share-
holders of the fund may still purchase, redeem or exchange fund shares. After
the suspension, the fund will commence a continuous offering of shares to the
public.
For more information on how to subscribe for fund shares during the subscrip-
tion offering period, please contact a Service Agent.
Smith Barney Mutual Funds
11
<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 you depends on the
amount and intended length of the investment.
. If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses
. For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well
. Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term investors
You may buy shares from:
. A Service Agent
. The fund, but only if you are investing through certain qualified plans or
Service Agents
All Classes of shares are not available through all Service Agents. You should
contact your Service Agent for further information.
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 Funds
12
<PAGE>
Comparing the funds' classes
Your Service Agent can help you decide which class meets your goals. The Serv-
ice Agent may receive different compensation depending upon which class you
choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .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
$1,000,000
or more
------------------------------------------------------------------------
Deferred sales charge 1.00% on Up to 5.00% 1.00% if None
purchases charged you redeem
of when you within 1
$1,000,000 redeem year of
or more if shares. The purchase
you redeem charge is
within 1 reduced
year of over time
purchase 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 Service Agent for the Smith Barney funds available for exchange.
Smith Barney Mutual Funds
13
<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.
The table below shows the rate of sales charge you pay, depending on the amount
you purchase.
The table below also shows the amount of broker/dealer compensation that is
paid out of the sales charge. This compensation includes commissions and other
fees which Service Agents that sell shares of a fund receive. The distributor
keeps up to approximately 10% of the sales charges imposed on Class A shares.
Service Agents also will receive the service fee payable on Class A shares at
an annual rate equal to 0.25% of the average daily net assets represented by
the Class A shares serviced by them.
<TABLE>
<CAPTION>
Broker/Dealer
commission
Sales Charge as a % of as a % of
Offering Net amount offering
Amount of purchase price (%) invested (%) price
<S> <C> <C> <C>
Less than $25,000 5.00 5.26 4.50
$25,000 but less than $50,000 4.25 4.44 3.83
$50,000 but less than $100,000 3.75 3.90 3.38
$100,000 but less than $250,000 3.25 3.36 2.93
$250,000 but less than $500,000 2.75 2.83 2.48
$500,000 but less than $1,000,000 2.00 2.04 1.80
$1,000,000 or more 0 0 up to 1.00*
</TABLE>
* The distributor pays up to 1% to a Service Agent
Investments of $1,000,000 or more You do not pay an initial sales charge when
you buy $1,000,000 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.
Premier Selections Funds
14
<PAGE>
. Accumulation privilege - lets you combine the current value of Class A shares
owned
. by you, or
. by members of your immediate family
and for which a sales charge was paid, with the amount of your next purchase
of Class A shares for purposes of calculating the initial sales charge. Cer-
tain trustees and fiduciaries may be entitled to combine accounts in deter-
mining their sales charge.
. Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney funds over a 13-month period and pay the same sales charge, if
any, as if all shares had been purchased at once. You may include purchases
on which you paid a sales charge made within 90 days before you sign the let-
ter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
. Employees of NASD members
. Investors participating in a fee-based program sponsored by certain broker-
dealers affiliated with Citigroup
. Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Service Agent is notified
1f you want to learn about additional waivers of Class A initial sales charges,
contact your Service Agent or consult the Statement of Additional Information
("SAI").
Smith Barney Mutual Funds
15
<PAGE>
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>
Service Agents selling Class B shares receive a commission of up to 4.50% of
the purchase price of the Class B shares they sell. Service Agents also receive
a service fee at an annual rate equal to 0.25% of the average daily net assets
represented by the Class B shares they are servicing.
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>
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%. If you held Class C shares of the fund and/or other
Smith Barney funds on June 12, 1998 you will not pay an initial sales charge on
Class L shares you buy before June 22, 2001.
Service Agents selling Class L shares receive a commission of up to 2.00% of
the purchase price of the Class L shares they sell. Starting in the thirteenth
month, Service Agents also receive an annual fee of up to 1.00% of the average
daily net assets represented by the Class L shares held by their clients.
Premier Selections Funds
16
<PAGE>
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 redeem shares, the fund will first redeem 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 Service Agent.
The fund's distributor receives deferred sales charges as partial compensation
for its expenses in selling shares, including the payment of compensation to
your Service Agent.
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 Service Agent or consult the SAI.
Smith Barney Mutual Funds
17
<PAGE>
Buying shares
Through a You should contact your Service Agent to open a brokerage
Service Agent account and make arrangements to buy shares.
If you do not provide the following information, your order
will be rejected:
. Class of shares being bought
. Dollar amount or number of shares being bought
Your Service Agent may charge an annual account maintenance
fee.
--------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who
funds are clients of certain Service Agents are eligible to buy
shares directly from the fund.
. Write the fund at the following address:
Smith Barney Investment Funds Inc.
(Specify fund and class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
. Enclose a check to pay for the shares. For initial pur-
chases, complete and send an account application.
. For more information, call the transfer agent at 1-800-451-
2010.
Through a You may authorize your Service Agent or the sub-transfer
systematic agent to transfer funds automatically from (i) a regular bank
investment account, (ii) cash held in a brokerage account opened with a
plan Service Agent or (iii) certain money market funds in order 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, your Service Agent or the sub-transfer agent
may charge you a fee.
For more information, contact your Service Agent or the
transfer agent or consult the SAI.
Premier Selections Funds
18
<PAGE>
Exchanging shares
Smith Barney You should contact your Service Agent to exchange into other
offers a Smith Barney funds. Be sure to read the prospectus of the
distinctive Smith Barney fund you are exchanging into. An exchange is a
family of taxable transaction.
funds
tailored to . You may exchange shares only for shares of the same class
help meet the of another Smith Barney fund. Not all Smith Barney funds
varying needs offer all classes.
of both large . Not all Smith Barney funds may be offered in your state of
and small residence. Contact your Service Agent or the transfer agent
investors for further information.
. You must meet the minimum investment amount for each fund
(except systematic investment plan exchanges).
. 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
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 with a Service Agent,
you may be eligible to exchange shares through the fund. You
must complete an authorization form to authorize telephone
transfers. If eligible, you may make telephone exchanges on
any day the New York Stock Exchange is open. Call the trans-
fer 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 brokerage account, contact your Service
Agent or write to the sub-transfer agent at the address on
the following page.
Smith Barney Mutual Funds
19
<PAGE>
Redeeming shares
Generally Contact your Service Agent 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 brokerage account with a Service Agent, 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 fund at the following address:
Smith Barney Investment Funds Inc.
(Specify fund and class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
Your written request must provide the following:
. The 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 Funds
20
<PAGE>
By telephone If you do not have a brokerage account with a Service Agent,
you may be eligible to redeem shares (except those held in
retirement plans) in amounts up to $50,000 per day through
the fund. You must complete an authorization form to autho-
rize telephone redemptions. If eligible, you may request
redemptions by telephone on any day the New York Stock
Exchange is open. Call the transfer agent at 1-800-451-2010
between 9:00 a.m. and 4:00 p.m. (Eastern time).
Your redemption proceeds can be sent by check to your address
of record or by wire or electronic transfer (ACH) to a bank
account designated on your authorization form. You must sub-
mit a new authorization form to change the bank account des-
ignated to receive wire or electronic transfers and you may
be asked to provide certain other documents. The sub-transfer
agent may charge a fee on an electronic transfer (ACH).
--------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
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 Service Agent or consult
the SAI.
Smith Barney Mutual Funds
21
<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 fund will try to confirm that any telephone exchange or redemption request
is genuine by recording calls, asking the caller to provide certain personal
identification information, 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 $50,000 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 reg-
istration
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 Funds
22
<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 ($250 for IRA accounts)
because of a redemption of fund shares, the fund may ask you to bring your
account up to the applicable minimum investment amount. If you choose not to do
so within 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.
Dividends, distributions and taxes
Dividends The fund generally pays dividends and makes capital gain distribu-
tions, if any, once a year, typically in December. The fund may pay additional
distributions and dividends at other times if necessary for the fund to avoid a
federal tax. Capital gain distributions and dividends are reinvested in addi-
tional fund shares of the same class you hold. The fund expects distributions
to be primarily from capital gain. You do not pay a sales charge on reinvested
distributions or dividends. Alternatively, you can instruct your Service Agent,
the transfer agent, or the sub-transfer agent, to have your distributions
and/or dividends paid in cash. You can change your choice at any time to be
effective as of the next distribution or dividend, except that any change given
to the transfer agent less than five days before the payment date will not be
effective until the next distribution or dividend is paid.
Smith Barney Mutual Funds
23
<PAGE>
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.
Share price
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its liabili-
ties. Net asset value is calculated separately for each class of shares. Each
fund calculates its net asset value every day the New York Stock Exchange is
open. The New York Stock Exchange is closed on certain holidays listed in the
SAI. This calculation is done when regular trading closes on the New York Stock
Exchange (normally 4 p.m. Eastern time).
The fund generally values its portfolio securities based on market prices or
quotations. The fund's currency conversions are done when the London Stock
Exchange closes. When reliable market prices or quotations are not readily
available, or when the value of a security has been materially affected by
events occurring after a foreign exchange closes, the fund may
Premier Selections Funds
24
<PAGE>
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.
International markets may be open on days when U.S. markets are closed and the
value of foreign securities owned by the fund could change on days when you can
not buy or redeem shares.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Service Agent or the fund's sub-transfer agent 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.
Service Agents must transmit all orders to buy, exchange or redeem shares to
the fund's sub-transfer agent before the sub-transfer agent's close of busi-
ness.
Smith Barney Mutual Funds
25
<PAGE>
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
Premier Selections
All Cap Growth and Value 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 significantly affected the fund's
performance during its last fiscal year or period.
The fund sends only one report to a household if more than one account has the
same address. Contact your Service Agent 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 Service
Agent, by calling the fund at 1-800-451-2010, or by writing to the fund at
Smith Barney Mutual Funds, 7 World Trade Center, 39th Floor, New York, New York
10048.
Information about the fund (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's (the "Commission") Public Reference
Room in Washington D.C. In addition, information 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 Data-
base on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing to 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.
Your Serious Money. Professionally Managed. is a service mark of Salomon Smith
Barney Inc.
(Investment Company Act file no. 811-3275)
FD [ ] 2/01
PROSPECTUS FOR SMITH BARNEY PREMIER SELECTIONS
SMALL CAP GROWTH AND VALUE FUND
<PAGE>
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
P R O S P E C T U S
Premier Selections
Small Cap Growth
and Value Fund
Class A, B, L and Y Shares
-------------------------------
February 20, 2001
--------------------------------------------------------------------------
INVESTMENT PRODUCTS: NOT FDIC INSURED . NO BANK GUARANTEE . MAY LOSE VALUE
--------------------------------------------------------------------------
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>
Contents
<TABLE>
<S> <C>
Investments, risks and performance.......................................... 2
More on the fund's investments.............................................. 7
Management.................................................................. 9
Choosing a class of shares to buy........................................... 11
Comparing the fund's classes................................................ 12
Sales charges............................................................... 13
More about deferred sales charges........................................... 16
Buying shares............................................................... 17
Exchanging shares........................................................... 18
Redeeming shares............................................................ 19
Other things to know about share transactions............................... 21
Dividends, distributions, and taxes......................................... 23
Share price................................................................. 24
</TABLE>
The fund is a separate series of Smith Barney Investment Funds Inc., a Maryland
corporation
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
The Premier Selections Small Cap Growth and Value Fund is made up of a Growth
segment and a Value segment.
Investment objective
Long-term capital growth.
Principal investment strategies
Key investments
Growth segment This segment invests primarily in common stocks and other equity
securities of smaller capitalized U.S. companies that possess a market capital-
ization within the market capitalization range of companies in the Russell 2000
Growth Index (the "Growth Index") at the time of this segment's investment. The
size of the companies in the Growth Index changes with market conditions and
the composition of the Growth Index. Equity securities include exchange-traded
and over-the-counter common stocks, preferred stocks, debt securities convert-
ible into equity securities and warrants and rights relating to equity securi-
ties.
Value Segment This segment invests primarily in common stocks and other equity
securities of smaller capitalized U.S. companies that possess a market capital-
ization within the market capitalization of companies in the Russell 2000 Value
Index (the "Value Index") at the time of this segment's investment. The size of
the companies in the Value Index changes with market conditions and the compo-
sition of the Value Index. Equity securities include exchange-traded and over-
the-counter common stocks, 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 segment
managers and to invest in the stock selections considered most attractive in
the opinion of each segment manager. Each segment manager builds a portfolio of
stocks which the segment manager believes will offer superior long-term capital
growth potential. The target allocations are 50% to the Growth segment and 50%
to the Value segment. The amount to be invested by the fund in any particular
security will be determined by SSB Citi Fund Management LLC (the "Manager")
based on the recommendation of the segment managers.
Premier Selections Funds
2
<PAGE>
In order to maintain approximately the target allocations of the fund's assets
between the two segment managers, the Manager will:
. Divide all daily cash inflows (purchases and reinvested distributions) and
outflows (redemptions and expense items) between the two segment managers, as
appropriate
. Rebalance the allocation of securities in the fund's portfolio at any time
the percentage of the fund's portfolio invested in the Growth or Value seg-
ment's securities diverges by at least 10% from the target allocation for a
period of more than 10 days
As a consequence of its efforts to maintain assets at targeted percentages, the
Manager will allocate assets and rebalance when necessary by (1) allocating
cash inflow to the portfolio segment that is below its targeted percentage, or
(2) by selling securities in a portfolio segment that exceeds its targeted per-
centage with proceeds being reallocated to the portfolio segment that is below
its targeted percentage. Reallocations may result in early recognition of tax-
able gains and in additional transaction costs to the extent the sales of secu-
rities as part of these reallocations result in higher portfolio turnover. In
addition, if one segment manager buys a security during a time frame when the
other segment manager sells it, the net position of the fund in the security
may be approximately the same as it would have been with a single segment man-
ager 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.
Growth segment The Growth segment manager focuses on small capitalization com-
panies that exhibit attractive growth characteristics. The Growth segment man-
ager selects individual stocks for investment by identifying those companies
which exhibit the most favorable growth prospects. In selecting individual com-
panies for investment, the Growth segment manager considers:
.Growth characteristics, including high historic growth rates and high fore-
casted growth of sales and profits and a high 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 segment of the fund
The Growth segment manager uses a disciplined investment process to identify
small financially sound growth companies that exhibit the potential to become
much larger and more successful. Elements of this process include fundamental
research, evaluation of key management and screening techniques.
Smith Barney Mutual Funds
3
<PAGE>
Value segment The Value segment manager emphasizes individual security selec-
tion while spreading the fund's investments among industries and sectors. The
Value segment manager uses both quantitative and fundamental methods to iden-
tify stocks of smaller capitalization companies it believes have a high proba-
bility of outperforming other stocks in the same industry or sector.
The Value segment manager uses quantitative parameters to select a universe of
smaller capitalized companies that fit the fund's general investment criteria.
In selecting individual securities from within this range, the Value segment
manager looks for "value" attributes, such as:
.Low stock price relative to earnings, book value and cash flow
.High return on invested capital
The Value segment manager also uses quantitative methods to identify catalysts
and trends that might influence the fund's industry or sector focus, or the
Value segment manager's individual security selection.
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:
. U.S. stock markets decline, 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
. The segment manager's judgment about the attractiveness, growth prospects or
potential appreciation of a particular stock proves to be incorrect
. Small capitalization stocks fall out of favor with investors. Because the
fund's assets are invested primarily in small capitalization 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 medium or large capital-
ization companies. Small capitalization companies may have more limited prod-
uct lines, markets and financial resources than medium or large
capitalization companies. They may have shorter operating histories and less
mature businesses. In addition, small capitalization company stocks may be
less liquid than medium or large capitalization company stocks.
. Key economic trends become materially unfavorable, such as rising interest
rates and levels of inflation or slowdown of economic growth
Who may want to invest The fund may be an appropriate investment if you:
. Are seeking to participate in the long-term growth potential of the U.S.
stock market
Premier Selections Funds
4
<PAGE>
. Are looking for an investment with potentially greater return but higher risk
than medium or large capitalization companies or fixed income investments
. Are willing to accept the risks of the stock market
. 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 the fund was recently added as a series to Smith Barney Investment
Funds Inc., 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.
Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases
(as a % of offering price) 5.00% None 1.00% None
Maximum deferred sales charge (load) (as a %
of the lower of net asset value at purchase or
redemption) None* 5.00% 1.00% None
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund assets) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Management fee [ ]% [ ]% [ ]% [ ]%
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 $1,000,000 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.
Premier Selections Funds
5
<PAGE>
Example
This example helps you compare the costs of investing in the fund with the
costs of investing in other mutual funds. Your actual costs may be higher or
lower. The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The fund's operating expenses remain the same
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years
<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>
Smith Barney Mutual Funds
6
<PAGE>
More on the fund's investments
Foreign investments The fund may invest up to 10% of its assets (at the time of
investment) in foreign securities. The fund may invest directly in foreign
issuers or invest in depositary receipts. The fund's investments in securities
of foreign issuers involve greater risk than investments in securities of U.S.
issuers. Because the value of a depositary receipt is dependent upon the market
price of an underlying foreign security, depositary receipts are subject to
most of the risks associated with investing in foreign securities directly.
Foreign countries generally have markets that are less liquid and more volatile
than markets in the U.S. In some foreign countries, less information is avail-
able about foreign issuers and markets because of less rigorous accounting and
regulatory standards than in the U.S. Currency fluctuations could erase invest-
ment gains or add to investment losses.
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 contracts
can have a big impact on the fund's stock market, currency and interest rate
exposure. Therefore, using derivatives can disproportionately increase losses
and reduce opportunities for gains when stock prices, currency rates or inter-
est rates are changing. The fund may not fully benefit 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.
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 any type of money market instrument and short-
term debt securities or cash. If the fund takes a temporary defensive position,
it may be unable to achieve its investment goal.
Premier Selections Funds
7
<PAGE>
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.
Smith Barney Mutual Funds
8
<PAGE>
Management
Manager The fund's Manager is SSB Citi Fund Management LLC, an affiliate of
Salomon Smith Barney Inc. ("Salomon Smith Barney"). The manager's address is 7
World Trade Center, New York, New York 10048. The Manager selects the fund's
segment managers and oversees the fund's operations. The Manager and Salomon
Smith Barney are subsidiaries of Citigroup Inc. Citigroup businesses produce a
broad range of financial services--asset management, banking and consumer
finance, credit and charge cards, insurance, investments, investment banking
and trading--and use diverse channels to make them available to consumer and
corporate customers around the world.
Peter Hable, investment officer of the Manager, managing director of Salomon
Smith Barney and President of Davis Skaggs Investment Management, a division of
the Manager, is the segment manager responsible for the day-to-day management
of the Value segment of the fund. Mr. Hable has more than 17 years of securi-
ties business experience.
[ ], CFA, investment officer of the Manager and managing director of Salo-
mon Smith Barney, is the segment manager responsible for the day-to-day manage-
ment of the Growth segment of the fund. [ ] has more than [ ] 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 securities in the fund's portfolio whenever the percentage of the
fund's portfolio invested in a segment's securities deviates by at least 10%
from a segment's target allocation for a period of more than 10 days. The Man-
ager 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.
Management fees The Manager will be paid an advisory fee equal to [ ]% of the
fund's average daily net assets.
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.
In addition, the distributor may make payments for distribution and/or share-
holder servicing activities out of its past profits and other available
Smith Barney Mutual Funds
9
<PAGE>
sources. The distributor may also make payments to dealers for marketing, pro-
motional or related expenses. The amount of these payments is determined by the
distributor and may be substantial. The Manager or an affiliate may make simi-
lar payments under similar arrangements.
Transfer agent and shareholder servicing agent Citi Fiduciary Trust Company
serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). The transfer agent has entered into a sub-transfer agency
and services agreement with PFPC Global Fund Services to serve as the fund's
sub-transfer agent (the "sub-transfer agent"). The sub-transfer agent will per-
form certain functions including shareholder record keeping and accounting
services.
Subscription offering period
A broker-dealer, financial intermediary, financial institution or the distribu-
tor's financial consultants (each called a "Service Agent") will solicit
subscriptions for shares of the fund during the subscription offering period,
which is scheduled to end on March [ ], 2001. On the third business day after
the end of the subscription offering period, subscriptions for the shares will
be payable, exchanges into the fund will be permitted, shares will be issued
and the fund will commence investment operations.
The fund will suspend the offering of shares to new investors on [March 31],
2001. This suspension, which is expected to last two weeks, may be lengthened
or shortened at the fund's discretion. During the suspension, existing share-
holders of the fund may still purchase, redeem or exchange fund shares. After
the suspension, the fund will commence a continuous offering of shares to the
public.
For more information on how to subscribe for fund shares during the subscrip-
tion offering period, please contact a Service Agent.
Premier Selections Funds
10
<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 Service Agent
. The fund, but only if you are investing through certain qualified plans or
Service Agents
All Classes of shares are not available through all Service Agents. You should
contact your Service Agent for further information.
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
11
<PAGE>
Comparing the fund's classes
Your Service Agent can help you decide which class meets your goals. The Serv-
ice Agent may receive different compensation depending upon which class you
choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .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
$1,000,000
or more
------------------------------------------------------------------------
Deferred sales charge 1.00% on Up to 5.00% 1.00% if None
purchases charged you redeem
of when you within 1
$1,000,000 redeem year of
or more if shares. The purchase
you redeem charge is
within 1 reduced
year of over time
purchase 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 Service Agent for the Smith Barney funds available for exchange.
Premier Selections Funds
12
<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.
The table below shows the rate of sales charge you pay, depending on the amount
you purchase.
The table below also shows the amount of broker/dealer compensation that is
paid out of the sales charge. This compensation includes commissions and other
fees which Service Agents that sell shares of a fund receive. The distributor
keeps up to approximately 10% of the sales charges imposed on Class A shares.
Service Agents also will receive the service fee payable on Class A shares at
an annual rate equal to 0.25% of the average daily net assets represented by
the Class A shares sold by them.
<TABLE>
<CAPTION>
Broker/Dealer
commission
Sales Charge as a % of as a % of
Offering Net amount offering
Amount of purchase price (%) invested (%) price
<S> <C> <C> <C>
Less than $25,000 5.00 5.26 4.50
$25,000 but less than $50,000 4.25 4.44 3.83
$50,000 but less than $100,000 3.75 3.90 3.38
$100,000 but less than $250,000 3.25 3.36 2.93
$250,000 but less than $500,000 2.75 2.83 2.48
$500,000 but less than $1,000,000 2.00 2.04 1.80
$1,000,000 or more 0 0 up to 1.00*
</TABLE>
* The distributor pays up to 1% to a Service Agent
Investments of $1,000,000 or more You do not pay an initial sales charge when
you buy $1,000,000 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.
Smith Barney Mutual Funds
13
<PAGE>
. Accumulation privilege - lets you combine the current value of Class A shares
owned
. by you, or
. by members of your immediate family
and for which a sales charge was paid, with the amount of your next purchase
of Class A shares for purposes of calculating the initial sales charge. Cer-
tain trustees and fiduciaries may be entitled to combine accounts in deter-
mining their sales charge.
. Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney funds over a 13-month period and pay the same sales charge, if
any, as if all shares had been purchased at once. You may include purchases
on which you paid a sales charge made within 90 days before you sign the let-
ter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
. Employees of NASD members
. Investors participating in a fee-based program sponsored by certain broker-
dealers affiliated with Citigroup
. Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Service Agent is notified
1f you want to learn about additional waivers of Class A initial sales charges,
contact your Service Agent or consult the Statement of Additional Information
("SAI").
Premier Selections Funds
14
<PAGE>
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>
Service Agents selling Class B shares receive a commission of up to 4.50% of
the purchase price of the Class B shares they sell. Service Agents also receive
a service fee at an annual rate equal to 0.25% of the average daily net assets
represented by the Class B shares they are servicing.
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>
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%. If you held Class C shares of the fund and/or other
Smith Barney funds on June 12, 1998 you will not pay an initial sales charge on
Class L shares you buy before June 22, 2001.
Service Agents selling Class L shares receive a commission of up to 2.00% of
the purchase price of the Class L shares they sell. Starting in the thirteenth
month, Service Agents also receive an annual fee of up to 1.00% of
Smith Barney Mutual Funds
15
<PAGE>
the average daily net assets represented by the Class L shares held by their
clients.
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 redeem shares, the fund will first redeem 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 Service Agent.
The fund's distributor receives deferred sales charges as partial compensation
for its expenses in selling shares, including the payment of compensation to
your Service Agent.
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
Premier Selections Funds
16
<PAGE>
If you want to learn more about additional waivers of deferred sales charges,
contact your Service Agent or consult the SAI.
Buying shares
Through a You should contact your Service Agent to open a brokerage
Service Agent account and make arrangements to buy shares.
If you do not provide the following information, your order
will be rejected:
. Class of shares being bought
. Dollar amount or number of shares being bought
Your Service Agent may charge an annual account maintenance
fee.
--------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who
funds are clients of certain Service Agents are eligible to buy
shares directly from the fund.
. Write the fund at the following address:
Smith Barney Investment Funds Inc.
(Specify fund and class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
. Enclose a check to pay for the shares. For initial pur-
chases, complete and send an account application.
. For more information, call the transfer agent at 1-800-451-
2010.
Through a You may authorize your Service Agent or the sub-transfer
systematic agent to transfer funds automatically from (i) a regular bank
investment account, (ii) cash held in a brokerage account opened with a
plan Service Agent or (iii) certain money market funds in order 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, your Service Agent or the sub-transfer agent
may charge you a fee.
For more information, contact your Service Agent or the
transfer agent or consult the SAI.
Smith Barney Mutual Funds
17
<PAGE>
Exchanging shares
Smith Barney You should contact your Service Agent to exchange into other
offers a Smith Barney funds. Be sure to read the prospectus of the
distinctive Smith Barney fund you are exchanging into. An exchange is a
family of taxable transaction.
funds
tailored to . You may exchange shares only for shares of the same class
help meet the of another Smith Barney fund. Not all Smith Barney funds
varying needs offer all classes.
of both large
and small
investors
. Not all Smith Barney funds may be offered in your state of
residence. Contact your Service Agent or the transfer agent
for further information.
. You must meet the minimum investment amount for each fund
(except systematic investment plan exchanges).
. 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
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 with a Service Agent,
you may be eligible to exchange shares through the fund. You
must complete an authorization form to authorize telephone
transfers. If eligible, you may make telephone exchanges on
any day the New York Stock Exchange is open. Call the trans-
fer 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 brokerage account, contact your Service
Agent or write to the sub-transfer agent at the address on
the following page.
Premier Selections Funds
18
<PAGE>
Redeeming shares
Generally Contact your Service Agent 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 brokerage account with a Service Agent, 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 fund at the following address:
Smith Barney Investment Funds Inc.
(Specify fund and class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
Your written request must provide the following:
. The 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
19
<PAGE>
By telephone If you do not have a brokerage account with a Service Agent,
you may be eligible to redeem shares (except those held in
retirement plans) in amounts up to $50,000 per day through
the fund. You must complete an authorization form to autho-
rize telephone redemptions. If eligible, you may request
redemptions by telephone on any day the New York Stock
Exchange is open. Call the transfer agent at 1-800-451-2010
between 9:00 a.m. and 4:00 p.m. (Eastern time).
Your redemption proceeds can be sent by check to your address
of record or by wire or electronic transfer (ACH) to a bank
account designated on your authorization form. You must sub-
mit a new authorization form to change the bank account des-
ignated to receive wire or electronic transfers and you may
be asked to provide certain other documents. The sub-transfer
agent may charge a fee on an electronic transfer (ACH).
--------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
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 Service Agent or consult
the SAI.
Premier Selections Funds
20
<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 fund will try to confirm that any telephone exchange or redemption request
is genuine by recording calls, asking the caller to provide certain personal
identification information, 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 $50,000 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 reg-
istration
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
21
<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 ($250 for IRA accounts)
because of a redemption of fund shares, the fund may ask you to bring your
account up to the applicable minimum investment amount. If you choose not to do
so within 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 Funds
22
<PAGE>
Dividends, distributions and taxes
Dividends The fund generally pays dividends and makes capital gain distribu-
tions, if any, once a year, typically in December. The fund may pay additional
distributions and dividends at other times if necessary for the fund to avoid a
federal tax. Capital gain distributions and dividends are reinvested in addi-
tional fund shares of the same class you hold. The fund expects distributions
to be primarily from capital gain. You do not pay a sales charge on reinvested
distributions or dividends. Alternatively, you can instruct your Service Agent,
the transfer agent, or the sub-transfer agent, to have your distributions
and/or dividends paid in cash. You can change your choice at any time to be
effective as of the next distribution or dividend, except that any change given
to the transfer agent less than five days before the payment date will not be
effective until the next distribution or dividend is paid.
Taxes In general, redeeming shares, exchanging shares and receiving distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually capital gain or
loss; long-term only if
shares owned more than
one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
</TABLE>
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a capital gain distribution or
a dividend because it will be taxable to you even though it may actually be a
return of a portion of your investment.
After the end of each year, the fund will provide you with information about
the distributions and dividends you received and any redemptions of shares dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer identification number and any required certifications, you may be subject
to back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special
tax rules may apply, you should consult your tax adviser about your investment
in the fund.
Smith Barney Mutual Funds
23
<PAGE>
Share price
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its 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 p.m.
Eastern time).
The fund generally values its portfolio securities based on market prices or
quotations. The fund's currency conversions are done when the London Stock
Exchange closes. When reliable market prices or quotations are not readily
available, or when the value of a security has been materially affected by
events occurring after a foreign exchange closes, the fund may price those
securities at fair value. Fair value is determined in accordance with proce-
dures approved by the fund's board. A fund that uses fair value to price secu-
rities may value those securities higher or lower than another fund using
market quotations to price the same securities.
International markets may be open on days when U.S. markets are closed and the
value of foreign securities owned by the fund could change on days when you can
not buy or redeem shares.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Service Agent or the fund's sub-transfer agent 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.
Service Agents must transmit all orders to buy, exchange or redeem shares to
the fund's sub-transfer agent before the sub-transfer agent's close of busi-
ness.
Premier Selections Funds
24
<PAGE>
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
Premier Selections
Small Cap Growth and Value 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 significantly affected the fund's
performance during its last fiscal year or period.
The fund sends only one report to a household if more than one account has the
same address. Contact your Service Agent 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 Service
Agent, by calling the fund at 1-800-451-2010, or by writing to the fund at
Smith Barney Mutual Funds, 7 World Trade Center, 39th Floor, New York, New York
10048.
Information about the fund (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's (the "Commission") Public Reference
Room in Washington D.C. In addition, information 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 Data-
base on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing to 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.
Your Serious Money. Professionally Managed. is a service mark of Salomon Smith
Barney Inc.
(Investment Company Act file no. 811-3275)
FD [ ] 2/01
PART B STATEMENT OF ADDITIONAL INFORMATION FOR SMITH
BARNEY PREMIER SELECTIONS ALL CAP GROWTH AND
VALUE FUND
Smith Barney Premier Selections All Cap Growth and
Value Fund
7 World Trade Center
New York, NY 10048
800-451-2010
Statement of Additional
Information
February 20, 2001
This Statement of Additional Information (the "SAI")
expands upon and supplements the information
contained in the current prospectus of the Smith
Barney Premier Selections All Cap Growth and Value
Fund (the "fund"), dated February 20, 2001, as
amended or supplemented from time to time, and should
be read in conjunction with the prospectus. The fund
is made up of a Growth segment ("Growth segment") and
a Value Segment ("Value segment"), each of which
represents approximately 50% of the fund's total
investable assets. Additional information about the
fund's investments is available in the fund's annual
and semi-annual reports to shareholders. The fund is
a series of Smith Barney Investment Funds Inc. (the
"company"). The prospectus and copies of the reports
may be obtained free of charge by contacting a
broker/dealer, financial intermediary, financial
institution, or a distributor's financial consultants
(each called a "Service Agent") 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
Investment Objectives and Management Policies
Directors and Officers
Purchase of Shares
Redemption of Shares
Valuation of Shares
Exchange Privilege
Performance Data
Taxes
Additional Information
Financial Statements
Other Information
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The prospectus discusses the fund's investment
objective and policies. The following discussion
supplements the description of the fund's investment
policies in its prospectus. SSB Citi Fund Management
LLC ("SSB Citi" or the "manager") serves as
investment manager and administrator to the fund.
The investment objective of the fund is long-term
capital growth. Although the fund may receive
current income from dividends, interest and other
sources, income is only an incidental consideration
of the fund. The Growth segment of the fund 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 Growth segment manager anticipates that the
assets of the fund ordinarily will be invested
primarily in common stocks of U.S. companies, the
fund 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 fund may
invest all or a portion of its assets for temporary
defensive purposes in corporate and U.S. government
bonds and notes and short-term money market
instruments. The Growth segment of the fund 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."
The Value segment of the fund attempts to achieve its
objective through investment in common stocks and
common stock equivalents, including preferred stocks
and other securities convertible into common stocks.
The Value segment also invests to a lesser extent in
bonds and other debt instruments. There is no
guarantee that the fund will achieve its investment
objective.
Certain Risk Considerations Securities of the
smaller cap companies in which the fund invests may
be subject to significant price fluctuation and
above-average risk. In addition, Growth segment
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 fund may not receive significant dividend income
on its portfolio securities.
Convertible Securities 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.
Foreign Securities The fund may invest up to 25% of
its net 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 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.
Repurchase Agreements The fund 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 fund's ability 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 fund enters into repurchase agreements.
Lending of Portfolio Securities The fund 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 fund may not
lend its portfolio securities to Salomon Smith Barney
Inc. ("Salomon Smith Barney") or its affiliates
unless it has applied for and received specific
authority from the SEC. Loans of portfolio securities
by the fund 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 fund
may return a part of the interest earned from the
investment of collateral received for securities
loaned to the borrower and/or a third party, which is
unaffiliated with the fund or with Salomon Smith
Barney, and which is acting as a "finder."
In lending its portfolio securities, the fund can
increase its income by continuing to receive interest
on the loaned securities as well as by either
investing the cash collateral in short-term
instruments or obtaining yield in the form of
interest paid by the borrower when 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 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 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.
Leveraging The Growth segment of the fund may from
time to time leverage its investments by purchasing
securities with borrowed money. The fund 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 the fund's borrowings also
may be limited by the availability and cost of credit
and by restrictions imposed by the Federal Reserve
Board.
The fund 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, the fund's
asset coverage drops below 300%, the fund 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 fund's shares 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 fund's shares 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 fund's net investment income in any
given period.
Warrants 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.
Restricted Securities 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 fund
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.
Portfolio Turnover Although the fund's portfolio
turnover rate cannot be predicted and will vary from
year to year, the manager expects that the fund's
annual portfolio turnover rate may will not exceed
100%. A 100% portfolio turnover rate would occur,
for instance, if all securities in the fund's
portfolio 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.
Money Market Instruments As stated in the
prospectus, the fund may invest for defensive
purposes in corporate and government bonds and notes
and short-term 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 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.
OPTIONS, FUTURES AND CURRENCY STRATEGIES
VALUE SEGMENT ONLY This segment of 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 manager
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 manager 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 investment 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 investment
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
investment 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
will segregate (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 with a
value equal to the aggregate amount of the fund's
commitments under forward contracts entered into with
respect to position hedges and cross-hedges. If the
value of the segregated securities declines,
additional cash or securities are segregated 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 investment 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 which has been
segregated by the fund) 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 manager's ability to
predict movements in the prices of individual debt
securities, fluctuations in the general fixed-income
markets and movements in interest rates and currency
markets, imperfect correlation between movements in
the price of currency, options, futures contracts or
options thereon and movements in the price of the
currency or security hedged or used for cover; the
fact that skills and techniques needed to trade
options, futures contracts and options thereon or to
use forward currency contracts are different from
those needed to select the securities in which the
fund invests; lack of assurance that a liquid market
will exist for any particular option, futures
contract or options thereon at any particular time
and possible need to defer or accelerate closing out
certain options, futures contracts and options
thereon in order to continue to qualify for the
beneficial tax treatment afforded "regulated
investment companies" under the Internal Revenue Code
of 1986, as amended (the "Code"). See "Dividends,
Distributions and Taxes."
Options on Securities As discussed more generally
above, the fund may engage in the writing of covered
call options. The fund may also purchase put options
and enter into closing transactions.
The principal reason for writing covered call options
on securities is to attempt to realize, through the
receipt of premiums, a greater return than would be
realized on the securities alone. In return for a
premium, the writer of a covered call option forfeits
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
the manager expects the price of the underlying
security to remain flat or decline moderately during
the option period, (b) at-the-money call options when
the manager 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 the manager 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 the
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 the manager 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 the 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 the manager 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
the manager's ability to predict correctly movements
in the direction of the stock market generally or of
a particular industry. This requires different skills
and techniques than predicting changes in the price
of individual stocks.
Futures Contracts and Options on Futures Contracts
As described generally above, the fund may invest in
stock index futures contracts and options on futures
contracts that are traded on a domestic exchange or
board of trade.
The purpose of entering into a futures contract by
the fund is to protect the fund from fluctuations in
the value of securities without actually buying or
selling the securities. For example, in the case of
stock index futures contracts, if the fund
anticipates an increase in the price of stocks 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.
Investment Restrictions
The fund has adopted the following investment
restrictions for the protection of shareholders that
cannot be changed without approval by the holders of
a majority of the outstanding shares of the fund,
defined as the lesser of (a) 67% or more of the
fund's shares present at a meeting, if the holders of
more than 50% of the outstanding shares are present
in person or by proxy or (b) more than 50% of the
fund's outstanding shares. The fund may not:
1. Invest in a manner that would cause it to fail
to be a "diversified company" under the 1940
Act and the rules, regulations and orders
thereunder.
2. Issue "senior securities" as defined in the
1940 Act and the rules, regulations and orders
thereunder, except as permitted under the 1940
Act and the rules, regulations and orders
thereunder.
3. Invest more than 25% of its total assets in
securities, the issuers of which conduct their
principal business activities in the same
industry. For purposes of this limitation,
securities of the U.S. government (including
its agencies and instrumentalities) and
securities of state or municipal governments
and their political subdivisions are not
considered to be issued by members of any
industry.
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 objective and policies; (b)
repurchase agreements and; (c) loans of its
portfolio securities, to the fullest extent
permitted under the 1940 Act.
5. 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.
6. Purchase or sell real estate, real estate
mortgages, commodities or commodity contracts,
but this restriction shall not prevent the fund
from: (a) investing in securities of issuers
engaged in the real estate business or the
business of investing in real estate (including
interests in limited partnerships owning or
otherwise engaging in the real estate business
or the business of investing in real estate)
and securities which are secured by real estate
or interests therein; (b) holding or selling
real estate received in connection with
securities it holds or held; (c) trading in
futures contracts and options on futures
contracts (including options on currencies to
the extent consistent with the funds investment
objective and policies); or (d) investing in
real estate investment trust securities.
7. Borrow money except that (a) the fund may
borrow from banks for temporary or emergency
(not leveraging) purposes, including the
meeting of redemption requests which might
otherwise require the untimely disposition of
securities, and (b) the fund may, to the extent
consistent with its investment policies, enter
into reverse repurchase agreements, forward
roll transactions and similar investment
strategies and techniques. To the extent that
it engages in transactions described in (a) and
(b), the fund will be limited so that no more
than 33-1/3% of the value of its total assets
(including the amount borrowed), valued at the
lesser of cost or market, less liabilities (not
including the amount borrowed) valued at the
time the borrowing is made, is derived from
such transactions.
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 OFFICERS
Set forth below is a list of each director and
executive officer of the fund, including a
description of principal occupation during the last 5
years, age and address of each such person.
Paul R. Ades, Director (Age 60). Partner in the law
firm of Murov & Ades. Director of 5 investment
companies associated with Citigroup Inc. His address
is 272 South Wellwood Avenue, P.O. Box 504,
Lindenhurst, New York 11757.
Herbert Barg, Director (Age 77). Private investor.
Director of 16 investment companies associated with
Citigroup Inc. His address is 273 Montgomery Avenue,
Bala Cynwyd, Pennsylvania 19004.
Dwight B. Crane, Director (Age 63). Professor,
Graduate School of Business Administration, Harvard
University; Director of 23 investment companies
associated with Citigroup Inc. His address is
Graduate School of Business Administration, Harvard
University, Boston, Massachusetts 02163.
Frank G. Hubbard, Director (Age 63). Vice President,
S&S Industries; Former Corporate Vice President,
Materials Management and Marketing Services of Huls
America, Inc.; Director of 5 investment companies
associated with Citigroup Inc. His address is 80
Centennial Avenue P.O. Box 456, Piscataway, New
Jersey 08855-0456.
*Heath B. McLendon, Chairman of the Board, President
and Chief Executive Officer (Age 67). Managing
Director of Salomon Smith Barney; Director and
President of SSB Citi and Travelers Investment
Adviser, Inc. ("TIA"); and formerly Chairman of the
Board of Smith Barney Strategy Advisers Inc. Mr.
McLendon is a director of 78 investment companies
associated with Citigroup Inc. His address is 7
World Trade Center, New York, New York 10048.
Jerome Miller, Director (Age 62). Retired, Former
President, Asset Management Group of Shearson Lehman
Brothers. Director of 5 investment companies
associated with Citigroup Inc. His address is 27
Hemlock Road, Manhasset, New York, NY 11030.
Ken Miller, Director (Age 58). President of Young
Stuff Apparel Group, Inc. Director of 5 investment
companies associated with Citigroup Inc. His address
is 1411 Broadway, New York, New York 10018.
Lewis E. Daidone, Senior Vice President and Treasurer
(Age 43). Managing Director of Salomon Smith Barney,
Director and Senior Vice President of SSB Citi and
TIA. Treasurer of 61 investment companies associated
with Citigroup. His address is 125 Broad Street, New
York, New York 10004.
Richard A. Freeman, Managing Director of Salomon
Smith Barney (Age 46). His address is 7 World Trade
Center, New York, New York 10048.
John G. Goode, Vice President and Investment Officer
(Age 56). Managing Director of Salomon Smith Barney,
President and Chief Investment Officer of Davis
Skaggs Investment Management, a division of the
Manager; Investment Officer of 3 investment companies
associated with Citigroup; His address is 1 Sansome
Street, Suite 3850, San Francisco, California 94104.
Paul Brook, Controller (Age 47). Director of Salomon
Smith Barney; Controller or Assistant Treasurer of 43
investment companies associated with Citigroup; from
1997-1998 Managing Director of AMT Capital Services
Inc.; prior to 1997 Partner with Ernst & Young LLP;
His address is 125 Broad Street, New York, New York
10004.
Christina T. Sydor, Secretary (Age 49). Managing
Director of Salomon Smith Barney; General Counsel and
Secretary of SSB Citi and TIA. Secretary of 59
investment companies associated with Citigroup. Her
address is 7 World Trade Center, New York, New York
10048.
*Designates a director that is an "interested person"
as defined in the 1940 Act. Such persons compensated
by Smith Barney and are not separately compensated by
the fund for serving as a fund officer or director.
The following table shows the compensation paid by
the fund to each person who was a director during the
fund's last fiscal year. None of the officers of the
fund received any compensation from the fund for such
period. Officers and interested directors of the
fund are compensated by Salomon Smith Barney.
Compensation Table
Name of Person
Estimated
Aggregate
Compensation
from Company
For Fiscal
Year
Ended
02/28/02
Pension or
Retirement
Benefits
Accrued as
part of
Fund
Expenses
Total
Compensation
from Company
and Fund
Complex for
Calendar Year
Ended 12/31/00
Number of
Funds for
Which Person
Serves within
Fund Complex
Paul R. Ades
0
5
Herbert Barg
0
16
Dwight B. Crane
0
22
Frank G. Hubbard
0
5
Heath B. McLendon
---
78
Jerome Miller
0
5
Ken Miller
0
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.
On January/February [ ], 2001, the directors and
officers owned in the aggregate less than 1% of the
outstanding shares of the fund.
No officer, director or employee of Salomon Smith
Barney or any parent or subsidiary receives any
compensation from the fund for serving as an officer
or director of the fund. The fund pays each director
who is not an officer, director or employee of
Salomon Smith Barney or any of its affiliates a fee
of $3,000 per annum plus $500 per meeting attended
and reimburses travel and out-of-pocket expenses.
For the calendar year ended December 31, 2000, such
expenses totaled $[ ]
Investment Manager and Administrator
SSB Citi serves as investment manager to the fund
pursuant to a written agreement (the "Advisory
Agreement"). The services provided by the manager
under the Advisory Agreement are described in the
prospectus under "Management." 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 is a wholly owned subsidiary of Citigroup
Inc. ("Citigroup").
As compensation for investment advisory services, the
fund pays the manager a fee computed daily and paid
monthly at an annual rate of 0.[ ]% of the fund's
average daily net assets.
SSB Citi also serves as administrator to the fund
pursuant to a written agreement (the "Administration
Agreement"). The services provided by SSB Citi under
the Administration Agreement are described in the
prospectus under "Management". SSB Citi pays the
salary of any officer and employee who is employed by
both it and the fund and bears all expenses in
connection with the performance eof its services.
The fund bears expenses incurred in its operation,
including: taxes, interest, brokerage fees and
commissions, if any; fees of directors who are not
officers, directors, shareholders or employees of
Salomon Smith Barney, or manager, Securities and
Exchange Commission (the "SEC") fees and state Blue
Sky qualification fees; charges of custodians;
transfer and dividend disbursing agent's fees;
certain insurance premiums; outside auditing and
legal expenses; costs of maintenance of corporate
existence; investor services (including allocated
telephone and personnel expenses); and costs of
preparation and printing of prospectuses and
statements of additional information for regulatory
purposes and for distribution to existing
shareholders, shareholders' reports and corporate
meetings.
The manager has voluntarily agreed to waive its fees
if in any fiscal year the aggregate expenses of any
Class of the following funds, exclusive of 12b-1
fees, taxes brokerage, interest and extraordinary
expenses, such as litigation costs, exceed the
indicated percentage of the fund's average net assets
for that fiscal year.
Code of Ethics. Pursuant to Rule 17j-1 under the 1940
Act, the fund, its investment adviser and principal
underwriter have adopted a code of ethics that
permits 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 code 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 SEC.
Distribution
Distributor Salomon Smith Barney, located at 388
Greenwich Street New York, N.Y. 10013, serves as the
fund's distributor on a best efforts basis pursuant
to a distribution agreement, (the "Distribution
Agreement") which was approved by the fund's board of
directors, including a majority of the independent
directors.
Services and Distribution Plan
To compensate Salomon Smith Barney for the services
it provides and for the expense it bears, the fund
has adopted a services and distribution plan (the
"Plan") pursuant to Rule 12b-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 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 net assets attributable to the
shares of the respective Class.
Under its terms, the Plans 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 director indirect
financial interested 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 material
amendments of the Plan also must be approved by the
directors and independent directors in the manner
described above. The Plan may be terminated with
respect to a Class of the fund at any time, without
penalty, by vote of a majority of the independent
directors or by vote of a majority of the outstanding
voting securities of the Class (as defined in the
1940 Act). Pursuant to the Plan, Salomon Smith
Barney will provide the fund's board of directors
with periodic reports of amounts expended under the
Plan and the purpose for which such expenditures were
made.
Auditors
KPMG LLP, 757 3rd Avenue, New York, New York 10017,
has been selected as independent auditors to examine
and report on the fund's financial statements for the
fiscal year ending February 28, 2002.
Counsel
Willkie Farr & Gallagher, 787 Seventh Avenue, New
York, New York 10019, serves as counsel to the fund.
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New
York, New York, 10038, serves as counsel to the
directors who are not "interested persons" of the
fund.
Custodian, Transfer Agent and Sub-Transfer
Agents
PFPC Trust Company (successor designated by PNC Bank,
National Association) ("custodian"), located at 8800
Tinicum Boulevard, Philadelphia, Pennsylvania, 19103,
serves as the custodian of the fund. Under its
custody agreement with the fund, the custodian holds
the fund's securities and keeps all necessary
accounts and records. For its services, the custodian
receives a monthly fee based upon the month-end
market value of securities held in custody and also
receives securities transactions charges. The assets
of the fund are held under bank custodianship in
compliance with the 1940 Act.
Citi Fiduciary Trust Company (the "transfer agent"),
located at 125 Broad Street, New York, New York
10004, serves as the fund's transfer and shareholder
services agent.
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.
PURCHASE OF SHARES
The fund offers four classes ("Classes") of shares:
Class A, Class B, Class L and Class Y. Class A
shares are sold to investors with an initial sales
charge and Class B shares are sold without an initial
sales charge but with higher ongoing expenses and a
contingent deferred sales charge ("deferred sales
charge") payable upon certain redemption's. Class L
shares are sold with a lower initial sales charge
than Class A shares but with higher ongoing expenses
and a deferred sales charge. Class Y shares are sold
without an initial sales charge and are available
only to investors investing a minimum of $15,000,000.
These alternatives are designed to provide investors
with the flexibility of selecting an investment best
suited to his or her needs based on the amount of
purchase, the length of time the investor expects to
hold the shares and other circumstances.
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.
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK
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
Broker/Dealer
Compensation
as %
Of Offering
Price
Less than
$25,000
5.00%
5.26%
4.50%
$ 25,000 -
49,999
4.25
4.44
3.83
50,000 -
99,999
3.75
3.90
3.38
100,000 -
249,999
3.25
3.36
2.93
250,000 -
499,999
2.75
2.86
2.48
500,000 -
999,000
2.00
2.04
1.80
1,000,000 or
more
-0-*
-0-*
-0-*
* Purchases of Class A shares of $1,000,000 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 Service Agents whose clients make
purchases of $1,000,000 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 a selling group may receive up to 90% of
the sales charge and may be deemed to be underwriters
of a fund as defined in the Securities Act of 1933.
The reduced sales charges shown above apply to the
aggregate of purchases of Class A shares of a fund
made at one time by "any person," which includes an
individual and his or her immediate family, or a
director 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 the fund on June 12, 1998 will not be
subject to the 1% initial sales charge.
Class Y Shares. Class Y shares are sold without an
initial sales charge or deferred sales charge and are
available only to investors investing a minimum of
$15,000,000 (except 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 Service Agent.
In addition, certain investors, including qualified
retirement plans purchasing through certain Service
Agents, may purchase shares directly from a fund.
When purchasing shares of a fund, investors must
specify which class is being purchased. Service
Agents 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 PFPC Global Fund
Services ("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 a fund by making an initial
investment of at least $1,000 for each account, 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 shareholders
purchasing shares of a fund through the Systematic
Investment Plan on a monthly basis, the minimum
initial investment requirement for Class A, Class B
and Class L shares and subsequent investment
requirement for all Classes is $25. For shareholders
purchasing shares of a fund through the Systematic
Investment Plan on a quarterly basis, the minimum
initial investment required for Class A, Class B and
Class L shares and the subsequent investment
requirement for all Classes is $50. There are no
minimum investment requirements for Class A shares
for employees of Citigroup and its subsidiaries,
including Salomon Smith Barney, unitholders who
invest distributions from a Unit Investment Trust
("UIT") sponsored by Salomon Smith Barney, and
directors/directors 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 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 Service Agent
prior to the close of regular trading on the NYSE on
any day a fund calculates its net asset value, are
priced according to the net asset value determined on
that day, provided the order is received by a fund or
the fund's agent prior to its close of business. For
shares purchased through Salomon Smith Barney or a
Service Agent 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 Service Agent.
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) purchases by a
separate account used to fund certain unregistered
variable annuity contracts; (g) investments of
distributions from or proceeds from a sale of a UIT
sponsored by Salomon Smith Barney; and (h) purchases
by investors participating in a Salomon Smith Barney
fee-based arrangement. In order to obtain such
discounts, the purchaser must provide sufficient
information at the time of purchase to permit
verification that the purchase would qualify for the
elimination of the sales charge.
Right of Accumulation Class A shares of 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 options 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
thirteen months from the date of the Letter. If a
total investment of $15,000,000 is not made within
the 13-month period, as applicable, 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 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 the shares exchanged were
initially acquired in one of the other Smith Barney
mutual funds, and fund shares being redeemed will be
considered to represent, as applicable, capital
appreciation or dividend and capital gain
distribution reinvestments in such other funds. For
Federal income tax purposes, the amount of the
deferred sales charge will reduce the gain or
increase the loss, as the case may be, on the amount
realized on redemption. The amount of any deferred
sales charge will be paid to Salomon Smith Barney.
To provide an example, assume an investor purchased
100 Class B shares of the fund at $10 per share for a
cost of $1,000. Subsequently, the investor acquired
5 additional shares of the fund through dividend
reinvestment. During the fifteenth month after the
purchase, the investor decided to redeem $500 of his
or her investment. Assuming at the time of the
redemption the net asset value had appreciated to $12
per share, the value of the investor's shares would
be $1,260 (105 shares at $12 per share). The deferred
sales charge would not be applied to the amount which
represents appreciation ($200) and the value of the
reinvested dividend shares ($60). Therefore, $240 of
the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4.00% (the applicable rate
for Class B shares) for a total deferred sales charge
of $9.60.
Waivers of Deferred Sales Charge
The deferred sales charge will be waived on: (a)
exchanges (see ''Exchange Privilege''); (b) automatic
cash withdrawals in amounts equal to or less than
1.00% per month of the value of the shareholder's
shares at the time the withdrawal plan commences (see
''Automatic Cash Withdrawal Plan'') (however,
automatic cash withdrawals in amounts equal to or
less than 2.00% per month of the value of the
shareholder's shares will be permitted for withdrawal
plans established prior to November 7, 1994); (c)
redemptions of shares within 12 months following the
death or disability of the shareholder; (d)
redemptions of shares made in connection with
qualified distributions from retirement plans or IRAs
upon the attainment of age 591/2; (e) involuntary
redemptions; and (f) redemptions of shares to effect
a combination of the fund with any investment company
by merger, acquisition of assets or otherwise. In
addition, a shareholder who has redeemed shares from
other Smith Barney mutual funds may, under certain
circumstances, reinvest all or part of the redemption
proceeds within 60 days and receive pro rata credit
for any deferred sales charge imposed on the prior
redemption.
Deferred sales charge waivers will be granted subject
to confirmation (by Salomon Smith Barney in the case
of shareholders who are also Salomon Smith Barney
clients or by the transfer agent in the case of all
other shareholders) of the shareholder's status or
holdings, as the case may be.
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 and Class L
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 by
of the same class.
For plans opened on or after March 1, 2000 that are
not plans for which Paychex Inc. or an affiliate
provides administrative services (a "Paychex Plan")
offering, Class A shares may be purchased regardless
of the amount invested.
For plans opened prior to March 1, 2000 and for
Paychex plans, the class of shares you may purchase
depends on the amount of your initial investment:
Class A Shares. Class A shares may be purchased by
plans investing at least $1million.
Class L Shares. 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 plan 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 for 5 years.
If the plan 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.
Retirement Programs Opened On or After June 21, 1996.
If, at the end of the fifth year after the date the
participating plan enrolled in the Smith Barney
401(k) Program or the ExecChoiceTM Program, a
participating plan's total Class L holdings in all
non-money market Smith Barney mutual funds equal at
least $1,000,000, the participating plan will be
offered the opportunity to exchange all of its Class
L shares shares for Class A shares of the fund. (For
participating plans that were originally established
through a Salomon Smith Barney retail brokerage
account, the five-year period will be calculated from
the date the retail brokerage account was opened.)
Such participating plans will be notified of the
pending exchange in writing within 30 days after the
fifth anniversary of the enrollment date and, unless
the exchange offer has been rejected in writing, the
exchange will occur on or about the 90th day after
the fifth anniversary date. If the participating plan
does not qualify for the five-year exchange to Class
A shares, a review of the participating plan's
holdings will be performed each quarter until either
the participating plan qualifies or the end of the
eighth year.
Retirement Programs Opened Prior to June 21, 1996.
In any year after the date a participating plan
enrolled in the Smith Barney 401(k) Program, if a
participating plan's total Class L holdings in all
non-money market Smith Barney mutual funds equal at
least $500,000 as of the calendar year-end, the
participating plan will be offered the opportunity to
exchange all of its Class L shares for Class A shares
of the fund. Such Plans will be notified in writing
within 30 days after the last business day of the
calendar year and, unless the exchange offer has been
rejected in writing, the exchange will occur on or
about the last business day of the following March.
Any participating plan in the Smith Barney 401(k) or
the ExecChoiceTM Program, whether opened before or
after June 21, 1996, that has not previously
qualified for an exchange into Class A shares will be
offered the opportunity to exchange all of its Class
L shares for Class A shares of the fund, regardless
of asset size, at the end of the eighth year after
the date the participating plan enrolled in the Smith
Barney 401(k) Program or ExecChoiceTM Program. Such
plans will be notified of the pending exchange in
writing approximately 60 days before the eighth
anniversary of the enrollment date and, unless the
exchange has been rejected in writing, the exchange
will occur on or about the eighth anniversary date.
Once an exchange has occurred, a participating plan
will not be eligible to acquire additional Class L
shares, but instead may acquire Class A shares of the
same fund. Any Class L shares not converted will
continue to be subject to the distribution fee.
Participating plans wishing to acquire shares of the
fund through the Smith Barney 401(k) Program or the
Smith Barney ExecChoiceTM Program must purchase such
shares directly from the transfer agent. For further
information regarding these Programs, investors
should contact a Salomon Smith Barney Financial
Consultant.
Retirement Programs Investing in Class B Shares:
Class B shares of a fund are not available for
purchase by participating plans opened on or after
June 21, 1996, but may continue to be purchased by
any participating plan in the Smith Barney 401 (k)
Program opened prior to such date and originally
investing in Such Class. Class B shares acquired are
subject to a deferred sales charge of 3.00% of
redemption proceeds if the participating plan
terminates within eight years of the date the
partcipating plan first enrolled in the Smith Barney
401 (k) Program.
At the end of the eighth year after the date the
participating plan enrolled in the Smith Barney 401
(k) Program, the participating plan will be offered
the opportunity to exchange all of its Class B shares
for Class A shares of the same fund. Such
participating plan will be notified of the pending
exchange in writing approximately 60 days before the
eighth anniversary of the enrollment date and, unless
the exchange has been rejected in writing, the
exchange will occur on or about the eighth
anniversary date. Once the exchange has occurred, a
participating plan will not be eligible to acquire
additional Class B shares, but instead may acquire
Class A shares of the same fund. If the
participating elects not to exchange all of its Class
B shares at that time, each Class B share held by the
participating plan will have the same conversion
feature as Class B shares held by other investors.
See "Purchase of Shares-Deferred Sales Charge
Alternatives."
No deferred sales charge is imposed on redemptions of
Class B shares to the extent that the net asset value
of the shares redeemed does not exceed the current
net asset value of the shares purchased through
reinvestment of dividends or capital gain
distributions, plus the current net asset value of
Class B shares purchased more than eight years prior
to the redemption, plus increases in the net asset
value of the shareholders Class B shares above the
purchase payments made during the preceding eight
years. Whether or not the deferred sales charge
applies to the redemption by a participating plan
depends on the number of years since the
participating plan first became enrolled in the
Smith Barney 401(k) Program, unlike the applicability
of the deferred sales charge to redemptions by other
shareholders, which depends on the number of years
since those shareholders made the purchase payment
from which the amount is being redeemed.
The deferred sales charge will be waived on
redemptions of Class B shares in connection with
lump-sum or other distributions made by a
participating plan; as a result of (a) the retirement
of an employee in the participating plan; (b) the
termination of employment of an employee in the
participating plan; (c) the death or disability or an
employee in the participating plan; (d) the
attainment of age 59 1/2 by an employee in the
participating plan; (e) hardship of an employee in
the participating plan to the extent permitted under
Section 401(k) o the Code; or (f) redemptions of
shares in connection with a loan made by the
participating plan to an employee.
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 the public on a
continuous basis. The public offering price for a
Class A, Class L (effective June 12, 1998 the former
Class C shares were renamed Class L shares) and Class
Y share of a fund is equal to the net asset value per
share at the time of purchase, plus for Class A and
Class L shares an initial sales charge based on the
aggregate amount of the investment. The public
offering price for a Class B share (and 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. A contingent deferred sales charge,
however, is imposed on certain redemptions of Class B
and Class L shares, and Class A shares when purchased
in amounts equaling or exceeding $500,000. The method
of computation of the public offering price is shown
in the fund's financial statements, incorporated by
reference in their entirety into this SAI.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date
of payment postponed (a) for any period during which
the New York Stock Exchange, Inc. ("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 net asset
value is not reasonably practicable or (c) for such
other periods as the SEC by order may permit for
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, directors 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, form 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 or more.
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, each 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 fund securities
in lieu of cash. Securities issued as a distribution
in kind may incur brokerage commissions when
shareholders subsequently sell those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal
Plan") is available to shareholders who own shares
with a value of at least $10,000 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,
the Introducing Broker or dealer in the selling
group. 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 prospectus states that the net asset value of the
fund's Classes of shares will be determined on any
date that the New York Stock Exchange ("NYSE") is
open. The NYSE is closed on the following holidays:
New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and
Christmas.
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 on the basis of the bid price at the close
of business on each day, or, if market quotations for
these securities are not readily available, at fair
value, as determined in good faith by the fund's
board of directors. Short-term obligations with
maturities of 60 days or less are valued at amortized
cost, which constitutes fair value as determined by
the fund's board of directors. Amortized cost
involve 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 fund's board of directors.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of certain 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 shareholders of the fund
who wish to exchange all or a portion of their shares
for shares of the respective Class in any of the
funds of the Smith Barney mutual fund Complex may do
so without imposition of any charge.
B. Class B shares of the fund exchanged for Class
B shares of another fund will be subject to the
higher applicable deferred sales charge of the two
funds. Upon an exchange, the new Class B shares will
be deemed to have been purchased on the same date as
the Class B shares of the fund that have been
exchanged.
C. Upon exchange, the new Class L shares will be
deemed to have been purchased on the same date as the
Class C shares of the fund that have been exchanged.
The exchange privilege enables shareholders to
acquire shares of the same Class in a fund with
different investment objectives when they believe
that a shift between funds is an appropriate
investment decision. This privilege is available to
shareholders residing in any state in which the fund
shares being acquired may legally be sold. Prior to
any exchange, the shareholder should obtain and
review a copy of the current prospectus of each fund
into which an exchange is being considered.
Prospectuses may be obtained from a 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,
subject to any applicable deferred sales charge, the
proceeds immediately invested, at a price as
described above, in shares of the fund being
acquired. Smith Barney reserves the right to reject
any exchange request. The exchange privilege may be
modified or terminated at any time after written
notice to shareholders.
Additional Information Regarding the Exchange
Privilege Although the exchange privilege is an
important benefit, excessive exchange transactions can
be detrimental to either 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, each 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.
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.
PERFORMANCE DATA
From time to time, the fund may quote yield or total
return of a Class in advertisements or in reports and
other communications to shareholders. The fund may
include comparative performance information in
advertising or marketing the fund's shares. Such
performance information may be included in the
following financial publications: Barron's, Business
Week, CDA Investment Technologies, Inc., Changing
Times, Forbes, Fortune, Institutional Investor,
Investor's Business 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. A fund's net investment income changes in
response to fluctuations in interest rates and the
expenses of the fund.
Aggregate Total Return
"Aggregate total return" figures represent the
cumulative change in the value of an investment in
the Class for the specified period and are 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 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.
Performance will vary from time to time depending
upon market conditions, the composition of the fund's
portfolio and operating expenses and the expenses
exclusively attributable to the Class. Consequently,
any given performance quotation should not be
considered representative of the Class' performance
for any specified period in the future. Because the
performance will vary, it may not provide a basis for
comparing an investment in the Class with certain
bank deposits or other investments that pay a fixed
yield for a stated period of time. Investors
comparing a Class' performance with that of other
mutual funds should give consideration to the quality
and maturity of the respective investment companies'
portfolio securities.
It is important to note that the total return figures
set forth above are based on historical earnings and
are not intended to indicate future performance. Each
Class' net investment income changes in response to
fluctuation in interest rates and the expenses of the
fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following is a summary of certain federal income
tax considerations that may affect the fund and its
shareholders. The summary is not intended as a
substitute for individual tax advice and investors
are urged to consult their own tax advisers as to the
tax consequences of an investment in the fund.
The fund has qualified and intends to continue to
qualify each year as a regulated investment company
under the Code. Provided that the fund (a) is a
regulated investment company and (b) distributes at
least 90% of its net investment income (including,
for this purpose, net realized short-term capital
gains), the fund will not be liable for federal
income taxes to the extent its net investment income
and its net realized long- and short-term capital
gains, if any, are distributed to its shareholders.
Although the fund expects to be relieved of all or
substantially all federal, state, and local income or
franchise taxes, depending upon the extent of its
activities in states and localities in which its
offices are maintained, in which its agents or
independent contractors are located, or in which it
is otherwise deemed to be conducting business, that
portion of the fund's income which is treated as
earned in any such state or locality could be subject
to state and local taxes. Any such taxes paid by the
fund would reduce the amount of income and gains
available for distribution to shareholders. All net
investment income and net capital gains earned by the
fund will be reinvested automatically in additional
shares of the same Class of the fund at net asset
value, unless the shareholder elects to receive
dividends and distributions in cash.
Gains or losses on the sales of securities by the
fund generally will be long-term capital gains or
losses if the fund has held the securities for more
than one year. Gains or losses on the sales of
securities held for not more than one year generally
will be short-term capital gains or losses. If the
fund acquires a debt security at a substantial
discount, a portion of any gain upon the sale or
redemption will be taxed as ordinary income, rather
than capital gain to the extent it reflects accrued
market discount.
Dividends of net investment income and distributions
of net realized short-term capital gains will be
taxable to shareholders as ordinary income for
federal income tax purposes, whether received in cash
or reinvested in additional shares. Dividends
received by corporate shareholders will qualify for
the dividends-received deduction only to the extent
that the fund designates the amount distributed as a
dividend and the amount so designated does not exceed
the aggregate amount of dividends received by the
fund from domestic corporations for the taxable year.
The federal dividends-received deduction for
corporate shareholders may be further reduced or
disallowed if the shares with respect to which
dividends are received are treated as debt financed
or are deemed to have been held for less than 46
days.
Foreign countries may impose withholding and other
taxes on dividends and interest paid to the fund with
respect to investments in foreign securities.
However, certain foreign countries have entered into
tax conventions with the United States to reduce or
eliminate such taxes.
Distributions of long-term capital gains will be
taxable to shareholders as such, whether paid in cash
or reinvested in additional shares and regardless of
the length of time that the shareholder has held his
or her interest in the fund. If a shareholder
receives a distribution taxable as long-term capital
gain with respect to his or her investment in the
fund and redeems or exchanges the shares before he or
she has held them for more than six months, any loss
on the redemption or exchange that is less than or
equal to the amount of the distribution will be
treated as a long-term capital loss.
If a shareholder (a) incurs a sales charge in
acquiring shares of the fund, (b) disposes of those
shares within 90 days and (c) acquires shares in a
mutual fund for which the otherwise applicable sales
charge is reduced by reason of a reinvestment right
(i.e., exchange privilege), the original sales charge
increases the shareholder's tax basis in the original
shares only to the extent the otherwise applicable
sales charge for the second acquisition is not
reduced. The portion of the original sales charge
that does not increase the shareholder's tax basis in
the original shares would be treated as incurred with
respect to the second acquisition and, as a general
rule, would increase the shareholder's tax basis in
the newly acquired shares. Furthermore, the same rule
also applies to a disposition of the newly acquired
or redeemed 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.
Investors considering buying shares of the fund on or
just prior to a record date for a taxable dividend or
capital gain distribution should be aware that,
regardless of whether the price of the fund shares to
be purchased reflects the amount of the forthcoming
dividend or distribution payment, any such payment
will be a taxable dividend or distribution payment.
If a shareholder fails to furnish a correct taxpayer
identification number, fails to report dividend and
interest income in full, or fails to certify that he
or she has provided a correct taxpayer identification
number and that he or she is not subject to such
withholding, the shareholder may be subject to a 31%
"backup withholding" tax with respect to (a) any
taxable dividends and distributions and (b) any
proceeds of any redemption of fund shares. An
individual's taxpayer identification number is his or
her social security number. The backup withholding
tax is not an additional tax and may be credited
against a shareholder's regular federal income tax
liability.
The foregoing is only a summary of certain tax
considerations generally affecting the fund and its
shareholders and is not intended as a substitute for
careful tax planning. Shareholders are urged to
consult their tax advisers with specific reference to
their own tax situations, including their state and
local tax liabilities.
TAX MATTERS: VALUE SEGMENT ONLY. The tax
consequences of options transactions entered into by
the Growth segment of the fund will vary depending on
the nature of the underlying security and whether the
"straddle" rules, discussed separately below, apply
to the transaction. When the fund writes a call or
put option on an equity or debt security, it will
receive a premium that will, subject to the "section
1256 contract" and straddle rules discussed below, be
treated as follows for tax purposes. If the option
expires unexercised, or if the fund enters into a
closing purchase transaction, the fund will realize a
gain (or loss if the cost of the closing purchase
transaction exceeds the amount of the premium)
without regard to any unrealized gain or loss on the
underlying security. Any such gain or loss will be
short-term capital gain or loss, except that any loss
on a "qualified" covered call option not treated as
part of a straddle may be treated as long-term
capital loss. If a call option written by the fund is
exercised, the fund will recognize a capital gain or
loss from the sale of the underlying security, and
will treat the premium as additional sales proceeds.
Whether the gain or loss will be long-term or short-
term will depend on the holding period of the
underlying security. If a put option written by the
fund is exercised, the amount of the premium will
reduce the tax basis of the security the fund then
purchases.
The Code imposes a special "mark-to-market" system
for taxing section 1256 contracts which include
options on nonconvertible debt securities (including
U.S. government securities). In general, gain or loss
with respect to section 1256 contracts will be taken
into account for tax purposes when actually realized
(by a closing transaction, by exercise, by taking
delivery or by other termination). In addition, any
section 1256 contracts held at the end of a taxable
year will be treated as sold at their year-end fair
market value (that is, marked-to-market), and the
resulting gain or loss will be recognized for tax
purposes. Provided section 1256 contracts are held as
capital assets and are not part of a straddle, both
the realized and unrealized year-end gain or loss
from these investment positions (including premiums
on options that expire unexercised) will be treated
as 60% long-term and 40% short-term capital gain or
loss, regardless of the period of time particular
positions are actually held by the fund.
Straddles. The Code contains rules applicable to
"straddles," that is, "offsetting positions in
actively traded personal property." Such personal
property includes section 1256 contracts or other
investment contracts. Where applicable, the straddle
rules generally override the other provisions of the
Code. In general, investment positions will be
offsetting if there is a substantial diminution in
the risk of loss from holding one position by reason
of holding one or more other positions (although
certain covered call options would not be treated as
part of a straddle). The fund is authorized to enter
into covered call and covered put positions.
Depending on what other investments are held by the
fund, at the time it enters into one of the above
transactions, the fund may create a straddle for
purposes of the Code.
If two (or more) positions constitute a straddle,
recognition of a realized loss from one position
(including a marked-to-market loss) must be deferred
to the extent of unrecognized gain in an offsetting
position. Also, long-term capital gain may be
recharacterized as short-term capital gain, or short-
term capital loss as long-term capital loss.
Furthermore, interest and other carrying charges
allocable to personal property that is part of a
straddle must be capitalized.
If the fund chooses to identify a particular
offsetting position as being one component of a
straddle, a realized loss on any component of the
straddle will be recognized no earlier than upon the
liquidation of all of the components of the straddle.
Special rules apply to "mixed" straddles (that is,
straddles consisting of a section 1256 contract and
an offsetting position that is not a section 1256
contract). If the fund makes certain elections, the
section 1256 contract components of such mixed
straddles will not be subject to the 60%/40% mark-
to-market rules. If any such election is made, the
amount, the nature (as long- or short-term) and the
timing of the recognition of the fund's gains or
losses from the affected straddle positions will be
determined under rules that will vary according to
the type of election made.
Wash Sales. "Wash sale" rules will apply to prevent
the recognition of loss with respect to a position
where an identical or substantially identical
position is or has been acquired within a prescribed
period.
The foregoing is only a summary of certain Federal
tax considerations generally affecting the fund and
its shareholders and is not intended as a substitute
for careful tax planning. Shareholders are urged to
consult their tax advisors with specific reference to
their own tax situations, including their state and
local tax liabilities.
ADDITIONAL INFORMATION
The company was incorporated on September 29, 1981
under the 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 fund offers shares of common stock currently
classified into four Classes, A, B, L, and Y. Each
Class represents an identical pro rata 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 a plan adopted by the fund pursuant
to Rule 12b-1 under the Investment Company Act of
1940, as amended (the "1940 Act"); (d) the expenses
allocable to each Class; (e) voting rights on
matters exclusively affecting a single class; (f)
the exchange privileges of each Class; and (g) the
conversion feature of shares of Class B. The fund'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.
The fund does not hold annual shareholder meetings.
There normally will be no meeting of shareholders for
the purpose of electing directors unless and until
such time as less than a majority of the directors
holding office have been elected by shareholders.
The directors will call a meeting for any purpose
upon written request of shareholders holding at least
10% of the fund's outstanding shares and the fund
will assist shareholders in calling such a meeting as
required by the 1940 Act. When matters are submitted
for shareholder vote, shareholders of each Class will
have one vote for each full share owned and a
proportionate fractional vote for any fractional
share held of that Class. Generally, shares of the
fund will be voted on a fund-wide basis on all
matters except matters affecting only the interests
of one or more of the Classes.
The fund sends its shareholders a semi-annual report
and an audited annual report, which include listings
of the investment securities held by the fund at the
end of the reporting period.
FINANCIAL STATEMENTS
As of the date of this SAI, the fund had not yet filed
an annual report.
OTHER INFORMATION
Styles of Fund Management: 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.
Classic Series - our portfolio manager driven
funds
Our Classic Series lets investors participate
in mutual funds whose investment decisions are
determined by experienced portfolio managers,
based on each fund's investment objectives and
guidelines. Classic Series funds invest across
asset classes and sectors, utilizing a range of
strategies in order to achieve their
objectives.
Index Series - funds that track the market
Our Index funds are designed to provide
investment results that track, as closely as
possible, the performance of a stock or bond
market index. This strategy distinguishes an
index fund from an "actively managed" mutual
fund. Instead of trying to outperform a market
or segment, a portfolio manager looks to an
index to determine which securities the fund
should own.
Premier Selections Series - our best ideas,
concentrated funds
We offer a series of Premier Selections funds
managed by several of our most experienced and
proven managers. This series of funds is built
on a unique strategy of combining complementary
investment management styles to create broader,
multiclass and multicap products that are
distinguished by a highly concentrated focus.
Research Series - driven by exhaustive
fundamental securities analysis
Built on a foundation of substantial buy-side
research under the direction of our Citibank
Global Asset Management (CGAM) colleagues, our
Research funds focus on well-defined
industries, sectors and trends.
Style Pure Series - our solution to funds that
stray
Our Style Pure Series funds are the building
blocks of asset allocation. The funds stay
fully invested within their asset class and
investment style, enabling you to make asset
allocation decisions in conjunction with your
financial professional.
STATEMENT OF ADDITIONAL INFORMATION FOR SMITH
BARNEY PREMIER SELECTIONS SMALL CAP GROWTH AND
VALUE FUND
Smith Barney Premier Selections Small Cap Growth and
Value Fund
7 World Trade Center
New York, New York 10048
1-800-451-2010
Statement of Additional
Information
February 20, 2001
This Statement of Additional Information ("SAI")
expands upon and supplements the information contained
in the current combined prospectus of Smith Barney
Premier Selections Small Cap Growth and Value Fund
(the "fund"), dated February 20, 2001, as amended or
supplemented from time to time, and should be read in
conjunction with the fund's prospectus. The fund is
made up of a Growth segment ("Growth segment") and a
Value Segment ("Value segment"), each of which
represents approximately 50% of the fund's total
investable assets. Additional information about the
fund's investments is available in the fund's annual
and semi-annual reports to shareholders. The fund is
a series of Smith Barney Investment Funds Inc. (the
"company"). The prospectus and copies of the reports
may be obtained from a Service Agent (as defined on
page 26) 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
INVESTMENT RESTRICTIONS
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
PURCHASE OF SHARES
REDEMPTION OF SHARES
VALUATION OF SHARES
EXCHANGE PRIVILEGE
PERFORMANCE DATA
DIVIDENDS, DISTRIBUTIONS AND TAXES
ADDITIONAL INFORMATION
FINANCIAL STATEMENTS
THER INFORMATION
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 attempts to achieve its investment objective
by investing, under normal market conditions,
substantially all of its assets in equity securities
and at least 65% of its total assets in equity
securities of smaller capitalized companies.
Companies whose capitalization falls outside the small
capitalization range after purchase continue to be
considered smaller capitalized companies for purposes
of the 65% policy. Investments in smaller capitalized
companies may offer greater opportunities for growth
of capital than larger, more established companies,
but may also involve certain risks because smaller
capitalized companies often have limited market or
financial resources and may be dependent on one or two
people for management. In addition, shares of smaller
capitalized companies have limited liquidity and more
volatility which could result in significant
fluctuations in the price of their shares.
The fund will normally invest 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.
It is the policy of the fund to be as fully invested
in equity securities as practicable at all times.
Under certain circumstances, 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. 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.
The different types of securities and investment
techniques used by the fund all involve risks of
varying degrees. For example, with respect to common
stock, there can be no assurance of capital
appreciation, and there is a risk of market decline.
With respect to debt securities, including money
market instruments, there is the risk that the issuer
of a security may not be able to meet its obligation
to make scheduled interest or principal payments.
FOREIGN SECURITIES
The fund may invest up to 10% of its total assets in
foreign securities, including both direct investments
and investments made through depository receipts. The
fund may also invest in real estate investment trusts;
purchase or sell securities on a when-issued or
delayed-delivery basis; enter into forward commitments
to purchase securities; lend portfolio securities;
purchase and sell put and call options; invest in
illiquid securities; and enter into interest rate
futures contracts, stock index futures contracts and
related options.
The fund has the authority to invest 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 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 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 fund may invest in
securities into which they may be converted. 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."
LENDING PORTFOLIO SECURITIES
Consistent with applicable regulatory requirements and
for cash management purposes, the fund may lend
securities from its portfolio to brokers, dealers and
other financial organizations. The fund may not lend
its portfolio securities to the manager or its
affiliates unless it has applied for and received
specific authority from the SEC. Loans of portfolio
securities by the fund will be collateralized by cash,
letters of credit or U.S. government securities that
are maintained at all times in an amount equal to at
least 100% of the current market value of the loaned
securities.
In lending its portfolio securities, the fund can
increase its income by continuing to receive interest
on the loaned securities as well as by either
investing the cash collateral in short-term
instruments or obtaining yield in the form of interest
paid by the borrower when U.S. government securities
are used as collateral. Requirements of the SEC, which
may be subject to future modifications, currently
provide that the following conditions must be met
whenever the Small Cap Growth Segment 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."
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
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
borrowings by the seller.
Reverse repurchase agreements create opportunities for
increased returns to the shareholders of the fund but,
at the same time, create special risk considerations.
Although the principal or stated value of such
borrowings will be fixed, the fund's assets may change
in value during the time the borrowing is outstanding.
To the extent the income or other gain derived from
securities purchased with borrowed funds exceeds the
interest or dividends the fund will have to pay in
respect thereof, the fund's net income or other gain
will be greater than if this type of investment
technique had not been used. Conversely, if the income
or other gain from the incremental assets is not
sufficient to cover this cost, the net income or other
gain of the fund will be less than if the reverse
repurchase agreement had not been used.
The fund currently intends to invest not more than 33%
of its net assets in reverse repurchase agreements.
WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS
In order to secure what the manager considers to be an
advantageous price or yield, the fund may purchase
U.S. government securities on a when-issued basis or
purchase or sell U.S. government securities for
delayed delivery. The fund will enter into such
purchase transactions for the purpose of acquiring
portfolio securities and not for the purpose of
leverage. Delivery of the securities in such cases
occurs beyond the normal settlement periods, but no
payment or delivery is made by the fund prior to the
reciprocal delivery or payment by the other party to
the transaction. In entering into a when-issued or
delayed-delivery transaction, the fund relies on the
other party to consummate the transaction and may be
disadvantaged if the other party fails to do so.
U.S. government securities normally are subject to
changes in value based upon changes, real or
anticipated, in the level of interest rates and, to a
lesser extent, the public's perception of the
creditworthiness of the issuers. In general, U.S.
government securities tend to appreciate when interest
rates decline and depreciate when interest rates rise.
Purchasing U.S. government securities on a when-issued
basis or delayed-delivery basis, therefore, can
involve the risk that the yields available in the
market when the delivery takes place may actually be
higher than those obtained in the transaction itself.
Similarly, the sale of U.S. government securities for
delayed delivery can involve the risk that the prices
available in the market when the delivery is made may
actually be higher than those obtained in the
transaction itself.
The fund will at times maintain in a segregated
account cash or liquid securities equal to the amount
of the fund's when-issued or delayed-delivery
commitments. For the purpose of determining the
adequacy of the securities in the account, the
deposited securities will be valued at market or fair
value. If the market or fair value of such securities
declines, additional cash or securities will be placed
in the account on a daily basis so the value of the
account will equal the amount of such commitments by
the fund. Placing securities rather than cash in the
account may have a leveraging effect on the fund's
assets. That is, to the extent the fund remains
substantially fully invested in securities at the time
that it has committed to purchase securities on a
when-issued basis, there will be greater fluctuation
in its net asset value than if it had set aside cash
to satisfy its purchase commitments. On the settlement
date, the fund will meet its obligations from then
available cash flow, the sale of securities held in
the separate account, the sale of other securities or,
although it normally would not expect to do so, from
the sale of the when-issued or delayed-delivery
securities themselves (which may have a greater or
lesser value than the fund's payment obligations).
MONEY MARKET INSTRUMENTS
As stated in the prospectus, the fund may invest for
temporary defensive purposes in corporate and
government bonds and notes and money market
instruments. Money market instruments in which the
fund may invest include: U.S. government securities;
certificates of deposit, time deposits and bankers'
acceptances issued by domestic banks (including their
branches located outside the United States and
subsidiaries located in Canada), domestic branches of
foreign banks, savings and loan associations and
similar institutions; high grade commercial paper; and
repurchase agreements with respect to the foregoing
types of instruments. The following is a more detailed
description of such money market instruments.
Certificates of deposit ("CDs") are short-term
negotiable obligations of commercial banks. Time
deposits ("TDs") are non-negotiable deposits
maintained in banking institutions for specified
periods of time at stated interest rates. Bankers'
acceptances are time drafts drawn on commercial banks
by borrowers usually in connection with international
transactions.
Domestic commercial banks organized under Federal law
are supervised and examined by the Comptroller of the
Currency and are required to be members of the Federal
Reserve System and to be insured by the Federal
Deposit Insurance Corporation (the "FDIC"). Domestic
banks organized under state law are supervised and
examined by state banking authorities but are members
of the Federal Reserve System only if they elect to
join. Most state banks are insured by the FDIC
(although such insurance may not be of material
benefit to the fund, depending upon the principal
amounts of CDs of each bank held by the fund) and are
subject to Federal examination and to a substantial
body of Federal law and regulation. As a result of
governmental regulations, domestic branches of
domestic banks are generally required to, among other
things, maintain specified levels of reserves, and are
subject to other supervision and regulation designed
to promote financial soundness.
Obligations of foreign branches of domestic banks,
such as CDs and TDs, may be general obligations of the
parent bank in addition to the issuing branch, or may
be limited by the terms of a specific obligation and
government regulation. Such obligations are subject to
different risks than are those of domestic banks or
domestic branches of foreign banks. These risks
include foreign economic and political developments,
foreign governmental restrictions that may adversely
affect payment of principal and interest on the
obligations, foreign exchange controls and foreign
withholding and other taxes on interest income.
Foreign branches of domestic banks are not necessarily
subject to the same or similar regulatory requirements
that apply to domestic banks, such as mandatory
reserve requirements, loan limitations, and
accounting, auditing and financial recordkeeping
requirements. In addition, less information may be
publicly available about a foreign branch of a
domestic bank than about a domestic bank. CDs issued
by wholly owned Canadian subsidiaries of domestic
banks are guaranteed as to repayment of principal and
interest (but not as to sovereign risk) by the
domestic parent bank.
Obligations of domestic branches of foreign banks may
be general obligations of the parent bank in addition
to the issuing branch, or may be limited by the terms
of a specific obligation and by governmental
regulation as well as governmental action in the
country in which the foreign bank has its head office.
A domestic branch of a foreign bank with assets in
excess of $1 billion may or may not be subject to
reserve requirements imposed by the Federal Reserve
System or by the state in which the branch is located
if the branch is licensed in that state. In addition,
branches licensed by the Comptroller of the Currency
and branches licensed by certain states ("State
Branches") may or may not be required to: (a) pledge
to the regulator by depositing assets with a
designated bank within the state, an amount of its
assets equal to 5% of its total liabilities; and (b)
maintain assets within the state in an amount equal to
a specified percentage of the aggregate amount of
liabilities of the foreign bank payable at or through
all of its agencies or branches within the state. The
deposits of State Branches may not necessarily be
insured by the FDIC.
In view of the foregoing factors associated with the
purchase of CDs and TDs issued by foreign branches of
domestic banks or by domestic branches of foreign
banks, SSB Citi will carefully evaluate such
investments on a case-by-case basis.
Savings and loan associations whose CDs may be
purchased by the fund are supervised by the Office of
Thrift Supervision and are insured by the Savings
Association Insurance Fund, which is administered by
the FDIC and is backed by the full faith and credit of
the U.S. government. As a result, such savings and
loan associations are subject to regulation and
examination.
OPTIONS, FUTURES AND CURRENCY STRATEGIES
The fund may use forward currency contracts and
certain options and futures strategies to attempt to
hedge its portfolio, i.e., reduce the overall level of
investment risk normally associated with the fund.
There can be no assurance that such efforts will
succeed.
In order to assure that the fund will not be deemed to
be a "commodity pool" for purposes of the Commodity
Exchange Act, regulations of the Commodity Futures
Trading Commission ("CFTC") require that the fund
enter into transactions in futures contracts and
options on futures only (i) for bona fide hedging
purposes (as defined in CFTC regulations), or (ii) for
non-hedging purposes, provided that the aggregate
initial margin and premiums on such non-hedging
positions do not exceed 5% of the liquidation value of
the fund's assets. To attempt to hedge against adverse
movements in exchange rates between currencies, the
fund may enter into forward currency contracts for the
purchase or sale of a specified currency at a
specified future date. Such contracts may involve the
purchase or sale of a foreign currency against the
U.S. dollar or may involve two foreign currencies. The
fund may enter into forward currency contracts either
with respect to specific transactions or with respect
to its portfolio positions. For example, when the
investment adviser anticipates making a purchase or
sale of a security, it may enter into a forward
currency contract in order to set the rate (either
relative to the U.S. dollar or another currency) at
which the currency exchange transaction related to the
purchase or sale will be made ("transaction hedging").
Further, when the investment adviser believes that a
particular currency may decline compared to the U.S.
dollar or another currency, the fund may enter into a
forward contract to sell the currency the manager
expects to decline in an amount approximating the
value of some or all of the fund's securities
denominated in that currency, or when the manager
believes that one currency may decline against a
currency in which some or all of the portfolio
securities held by the fund are denominated, it may
enter into a forward contract to buy the currency
expected to decline for a fixed amount ("position
hedging"). In this situation, the fund may, in the
alternative, enter into a forward contract to sell a
different currency for a fixed amount of the currency
expected to decline where the manager believes that
the value of the currency to be sold pursuant to the
forward contract will fall whenever there is a decline
in the value of the currency in which portfolio
securities of the fund are denominated ("cross
hedging"). The fund's custodian places (i) cash, (ii)
U.S. Government securities or (iii) equity securities
or debt securities (of any grade) in certain
currencies provided such assets are liquid,
unencumbered and marked to market daily, or other
high-quality debt securities denominated in certain
currencies in a separate account of the fund having a
value equal to the aggregate account of the fund's
commitments under forward contracts entered into with
respect to position hedges and cross-hedges. If the
value of the securities placed in a separate account
declines, additional cash or securities are placed in
the account on a daily basis so that the value of the
amount will equal the amount of the fund's commitments
with respect to such contracts.
For hedging purposes, the fund may write covered call
options and purchase put and call options on
currencies to hedge against movements in exchange
rates and on debt securities to hedge against the risk
of fluctuations in the prices of securities held by
the fund or which the manager intends to include in
its portfolio. The fund also may use interest rates
futures contracts and options thereon to hedge against
changes in the general level in interest rates.
The fund may write call options on securities and
currencies only if they are covered, and such options
must remain covered so long as the fund is obligated
as a writer. A call option written by the fund is
"covered" if the fund owns the securities or currency
underlying the option or has an absolute and immediate
right to acquire that security or currency without
additional cash consideration (or for additional cash
consideration held in a segregated account by its
custodian) upon conversion or exchange of other
securities or currencies held in its portfolio. A call
option is also covered if the fund holds on a share-
for-share basis a call on the same security or holds a
call on the same currency as the call written where
the exercise price of the call held is equal to less
than the exercise price of the call written or greater
than the exercise price of the call written if the
difference is maintained by the fund in cash, Treasury
bills or other high-grade, short-term obligations in a
segregated account with its custodian.
Although the fund 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.
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
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
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.
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.
Real Estate Investment Trusts ("REITs") The fund may
invest in REITs, which are pooled investment vehicles
that invest primarily in either real estate or real
estate related loans. The value of a REIT is affected
by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT.
REITs are dependent upon cash flow from their
investments to repay financing costs and the
management skill of the REIT's manager. REITs are
also subject to risks generally associated with
investments in real estate. The fund will indirectly
bear its proportionate share of any expenses,
including management fees, paid by a REIT in which it
invests.
CONVERTIBLE SECURITIES
Convertible Securities Convertible securities are
generally preferred securities or fixed-income
securities that are convertible into common stock at
either a stated price or stated rate. The price of
the convertible security will normally vary in some
proportion to changes in the price of the underlying
common stock because of this conversion feature. A
convertible security will normally also provide a
fixed income stream. For this reason, the convertible
security may not decline in price as rapidly as the
underlying common stock. Convertible securities rank
senior to common stocks in an issuer's capital
structure and consequently entail less risk than the
issuer's common stock. The manager will select
convertible securities to be purchased by the fund
based primarily upon its evaluation of the fundamental
investment characteristics and growth prospects of the
issuer of the security. As a fixed income security, a
convertible security tends to increase in market value
when interest rates decline and decrease in value when
interest rates rise. While convertible securities
generally offer lower interest or dividend yields than
non-convertible fixed income securities of similar
quality, their value tends to increase as the market
value of the underlying stock increases and to
decrease when the value of the underlying stock
decreases.
DEBT SECURITIES
Debt securities in which 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
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.
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. Any 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 in a manner that would cause it to fail
to be a "diversified company" under the 1940 Act
and the rules, regulations and orders
thereunder.
2. 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.
3. 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), is derived from such
transactions.
4. 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
5. Make loans. This restriction does not apply to:
(a) the purchase of debt obligations in which
the fund may invest consistent with its
investment objectives and policies; (b)
repurchase agreements; and (c) loans of its
portfolio securities, to the fullest extent
permitted under the 1940 Act.
6. 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.
7. 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.
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 60). Law firm of Paul R.
Ades PLLC. His address is Argyle Square, 181 West
Main Street, Suite C, P.O. Box 790, Babylon, New York
11702.
Herbert Barg, Director (Age 77). Private investor. His
address is 273 Montgomery Avenue, Bala Cynwyd,
Pennsylvania 19004.
Dwight B. Crane, Director (Age 63). Professor,
Graduate School of Business Administration, Harvard
University. His address is Harvard Business School,
Soldiers Field, Morgan Hall #371, Boston,
Massachusetts 02163.
Frank G. Hubbard, Director (Age 63). Vice President,
S&S Industries; Former Corporate Vice President,
Materials Management and Marketing Services of Huls
America, Inc. His address is Avatar International,
Inc., 87 Whittredge Road, Summit, New Jersey 07901.
*Heath B. McLendon, Chairman of the Board, President
and Chief Executive Officer (Age 67). Managing
Director of Salomon Smith Barney Inc. ("Salomon Smith
Barney"); Director and President of SSB Citi and
Travelers Investment Adviser, Inc. ("TIA"); and
formerly Chairman of the Board of Smith Barney
Strategy Advisers Inc. Mr. McLendon is a director of
78 investment companies associated with Citigroup Inc.
("Citigroup"). His address is 7 World Trade Center,
45th Floor, New York, New York 10048.
Jerome H. Miller, Director (Age 62). 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 58). President of Young
Stuff Apparel Group, Inc. His address is 1411
Broadway, 6th Floor, Suite 610, New York, New York
10018.
Lewis E. Daidone, Senior Vice President and Treasurer
(Age 43). 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 125 Broad Street, New York, New York 10004.
Peter Hable, Vice President and Investment Officer
(Age 42). Managing Director of Salomon Smith Barney,
President of Davis Skaggs Investment Management, a
division of Salomon Smith Barney. His address is 1
Sansome Street, Suite 3850, San Francisco, California
94104.
Paul Brook, Controller (Age 47). 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 125 Broad Street, New York, New York
10004.
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 7 World Trade Center, New York, New York
10048.
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK
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
Estimated
Aggregate
Compensation
from Company
Fiscal Year
End
2/28/02
Total Pension
or Retirement
Benefits
Accrued as
part of Fund
Expenses
Compensation
from Company
and Fund
Complex Paid
to Directors
Calendar Year
Ending
12/31/00
Number of
Funds for
Which
Director
Serves Within
Fund Complex
Paul R. Ades
$
$0
$
5
Herbert Barg
0
16
Dwight B. Crane
0
23
Frank G. Hubbard
0
5
Heath B. McLendon
0
78
Jerome Miller
0
5
Ken Miller
0
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. For the calendar year ended December 31,
2000, such expenses totaled [ ].
As of [ ], 2001, the directors and officers of the
fund as a group, owned less than 1.00% of the
outstanding common stock of the fund.
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
("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 [ ] in excess of $[ ] billion.
As compensation for investment management services,
the fund pays the manager a fee computed daily and
paid monthly at the annual rate of [ ]% 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 SEC.
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 10017, serve as auditors of the
fund and will render an opinion on the fund's
financial statements annually.
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.
Citi Fiduciary Trust Company (the "transfer agent")
located at 125 Broad Street, New York, New York 10004,
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
Salomon Smith Barney, Inc., located at 388 Greenwich
Street, New York, New York 10013 serves as the fund's
distributor pursuant to a written agreement dated June
5, 2000 (the "Distribution Agreement") which was
approved by the fund's board of directors, including a
majority of the directors who are not interested
persons of the fund (the "independent directors"), on
April 13, 2000. This Distribution Agreement replaces
the Distribution Agreement with CFBDS, Inc.
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
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 segment of the fund's portfolio have
underperformed the securities in the segment 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
General
Investors may purchase shares from a Salomon Smith
Barney Financial Consultant, or from a broker-dealer,
financial intermediary or a financial institution
(each called a "Service Agent"). In addition, certain
investors, including qualified retirement plans
purchasing through certain Service Agents, 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 Service
Agents 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 Salomon Smith Barney Financial
Consultant 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 a Service Agnet
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 Service Agent.
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
Broker/Dealer
Compensation
as %
Of Offering
Price
Less than
$25,000
5.00%
5.26%
4.50%
$ 25,000 -
49,999
4.25
4.44
3.83
50,000 -
99,999
3.75
3.90
3.38
100,000 -
249,999
3.25
3.36
2.93
250,000 -
499,999
2.75
2.86
2.48
500,000 -
999,000
2.00
2.04
1.80
1,000,000 or
more
-0-*
-0-*
-0-*
* Purchases of Class A shares of $1,000,000 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 Service
Agents whose clients make purchases of
$1,000,000 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).
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 applicable to:(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.
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, Class L, and, in
limited circumstances, Class O 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 plans opened on or after March 1, 2000 that are
not plans for which Paychex Inc. or an affiliate
provides administrative services (a "Paychex plan"),
Class A shares may be purchased regardless of the
amount invested.
For plans opened prior to March 1, 2000 and for
Paychex plans, the class of shares you may purchase
depends on the amount of your initial investment:
Class A Shares. Class A shares may be purchased by
plans investing at least $1 million.
Class L Shares. 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 plan 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 plan 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, Service Agent or the transfer
agent.
Retirement Programs Opened On or After June 21, 1996.
If, at the end of the fifth year after the date the
participating plan enrolled in the Smith Barney 401(k)
Program or ExecChoiceTM Program, a participating
plan's total Class L and/or Class O holdings in all
non-money market Smith Barney mutual funds equal at
least $1,000,000, the participating plan will be
offered the opportunity to exchange all of its Class L
and/or Class O shares for Class A shares of the fund.
(For participating plans that were originally
established through a Salomon Smith Barney retail
brokerage account, the five-year period will be
calculated from the date the retail brokerage account
was opened.) Such participating plans will be notified
of the pending exchange in writing within 30 days
after the fifth anniversary of the enrollment date
and, unless the exchange offer has been rejected in
writing, the exchange will occur on or about the 90th
day after the fifth anniversary date. If the
participating plan does not qualify for the five-year
exchange to Class A shares, a review of the
participating plan's holdings will be performed each
quarter until either the participating plan qualifies
or the end of the eighth year.
Retirement Programs Opened Prior to June 21, 1996.
In any year after the date a participating plan
enrolled in the Smith Barney 401(k) Program, if its
total Class L and/or Class O holdings in all non-money
market Smith Barney mutual funds equal at least
$500,000 as of the calendar year-end, the
participating plan will be offered the opportunity to
exchange all of its Class L and/or Class O shares for
Class A shares of the same fund. Such Plans will be
notified in writing within 30 days after the last
business day of the calendar year and, unless the
exchange offer has been rejected in writing, the
exchange will occur on or about the last business day
of the following March.
Any participating plan in the Smith Barney 401(k) or
ExecChoiceTM Program, whether opened before or after
June 21, 1996, that has not previously qualified for
an exchange into Class A shares will be offered the
opportunity to exchange all of its Class L and/or
Class O shares for Class A shares of the same fund
regardless of asset size, at the end of the eighth
year after the date the participating plan enrolled in
the Smith Barney 401(k) or ExecChoiceTM Program. Such
plans will be notified of the pending exchange in
writing approximately 60 days before the eighth
anniversary of the enrollment date and, unless the
exchange has been rejected in writing, the exchange
will occur on or about the eighth anniversary date.
Once an exchange has occurred, a participating plan
will not be eligible to acquire additional Class L
shares, but instead may acquire Class A shares of the
same fund. Any Class L and/ or Class O shares not
converted will continue to be subject to the
distribution fee.
Participating plans wishing to acquire shares of the
fund through the Smith Barney 401(k) Program or the
Smith Barney ExecChoiceTM Program must purchase such
shares directly from the transfer agent. For further
information regarding these Programs, investors should
contact a Salomon Smith Barney Financial Consultant.
Retirement Programs Investing in Class B Shares:
Class B shares of a fund are not available for
purchase by participating plans opened on or after
June 21, 1996, but may continue to be purchased by any
participating plan in the Smith Barney 401(k) Program
opened prior to such date and originally investing in
such Class. Class B shares acquired are subject to a
Deferred Sales Charge of 3.00% of redemption proceeds
if the participating plan terminates within eight
years of the date the participating plan first
enrolled in the Smith Barney 401(k) Program.
At the end of the eighth year after the date the
participating plan enrolled in the Smith Barney 401(k)
Program, the participating plan will be offered the
opportunity to exchange all of its Class B shares for
Class A shares of the same fund. Such participating
plan will be notified of the pending exchange in
writing approximately 60 days before the eighth
anniversary of the enrollment date and, unless the
exchange has been rejected in writing, the exchange
will occur on or about the eighth anniversary date.
Once the exchange has occurred, a participating plan
will not be eligible to acquire additional Class B
shares, but instead may acquire Class A shares of the
same fund. If the participating plan elects not to
exchange all of its Class B shares at that time, each
Class B share held by the participating plan will have
the same conversion feature as Class B shares held by
other investors. See "Purchase of Shares-Deferred
Sales Charge Alternatives."
No Deferred Sales Charge is imposed on redemptions of
Class B shares to the extent that the net asset value
of the shares redeemed does not exceed the current net
asset value of the shares purchased through
reinvestment of dividends or capital gain
distributions, plus the current net asset value of
Class B shares purchased more than eight years prior
to the redemption, plus increases in the net asset
value of the shareholder's Class B shares above the
purchase payments made during the preceding eight
years. Whether or not the Deferred Sales Charge
applies to the redemption by a participating plan
depends on the number of years since the participating
plan first became enrolled in the Smith Barney 401(k)
Program, unlike the applicability of the deferred
sales charge to redemptions by other shareholders,
which depends on the number of years since those
shareholders made the purchase payment from which the
amount is being redeemed.
The deferred sales charge will be waived on
redemptions of Class B shares in connection with lump-
sum or other distributions made by a participating
plan as a result of: (a) the retirement of an employee
in the participating plan; (b) the termination of
employment of an employee in the participating plan;
(c) the death or disability of an employee in the
participating plan; (d) the attainment of age 591/2 by
an employee in the participating plan; (e) hardship of
an employee in the participating plan to the extent
permitted under Section 401(k) of the Code; or (f)
redemptions of shares in connection with a loan made
by the participating plan to an employee.
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 or a Service Agent.
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 $50,000 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 $50,000 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
the fund's sub-transfer agent. 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 or a
Service Agent.
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
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, Investor's Business 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 the 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 which 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
investment company taxable income (i.e., taxable
income other than any excess of net realized long-term
capital gains over net realized short-term capital
losses ("net capital gains")) and its net capital
gains, if any, that it distributes to its
shareholders, provided an amount equal to at least 90%
of its investment company taxable income, 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 with respect to certain of its
assets (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 foreign 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 PFICs in which it invests, which may be difficult
or not possible to obtain.
The fund may also make an election that would result
in the fund being treated as if it had sold and
repurchased all of its 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 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 capital gains. 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 capital gains, 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
net capital gains included in the shareholder's
income. Organizations or persons not subject to
federal income tax on such net 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 an 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 filed
an annual report.
OTHER INFORMATION
Styles of Fund Management: 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.
Classic Series - our portfolio manager driven
funds
Our Classic Series lets investors participate in
mutual funds whose investment decisions are
determined by experienced portfolio managers,
based on each fund's investment objectives and
guidelines. Classic Series funds invest across
asset classes and sectors, utilizing a range of
strategies in order to achieve their objectives.
Index Series - funds that track the market
Our Index funds are designed to provide
investment results that track, as closely as
possible, the performance of a stock or bond
market index. This strategy distinguishes an
index fund from an "actively managed" mutual
fund. Instead of trying to outperform a market
or segment, a portfolio manager looks to an
index to determine which securities the fund
should own.
Premier Selections Series - our best ideas,
concentrated funds
We offer a series of Premier Selections funds
managed by several of our most experienced and
proven managers. This series of funds is built
on a unique strategy of combining complementary
investment management styles to create broader,
multiclass and multicap products that are
distinguished by a highly concentrated focus.
Research Series - driven by exhaustive
fundamental securities analysis
Built on a foundation of substantial buy-side
research under the direction of our Citibank
Global Asset Management (CGAM) colleagues, our
Research funds focus on well-defined industries,
sectors and trends.
Style Pure Series - our solution to funds that
stray
Our Style Pure Series funds are the building
blocks of asset allocation. The funds stay
fully invested within their asset class and
investment style, enabling you to make asset
allocation decisions in conjunction with your
financial professional.
36
59
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.
(e)(5) Form of Distribution Agreement with Salomon Smith
Barney Inc. is filed herein.
(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.
(h)(3) Form of Transfer Agency Agreement dated
October 1, 1999 between the Registrant and Citi Fiduciary
Trust Company (f/k/a Smith Barney Private Trust Company)
is filed herein.
(h)(4) Form of Sub-Transfer Agency Agreement dated
October 1, 1999 between Citi Fiduciary Trust Company
(f/k/a Smith Barney Private Trust Company) and PFPC
Global Fund Services (f/k/a First Data Investor Services
Group, Inc.) is filed herein.
(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.
(m)(5) Form of Amended and Restated Shareholder
Services and Distribution Plan pursuant to 12b-1
of Registrant is filed herein.
(n) Financial Data Schedule to be filed amendment.
(o) Form of Plan pursuant to Rule 18f-3 is incorporated by
reference to Post-Effective Amendment No.50 to
Registration Statement.
(p) Revised Code of Ethics is incorporated by reference to
Post-Effective Amendment No. 71 to the Registrant's Registration
Statement.
Item 24.
None.
Item 25. Indemnification
The response to this item is incorporated by
reference to Pre-Effective Amendment No. 1 to the
registration statement filed on Form N-14 on October
8, 1993 (File No. 33-50153).
Item 26. Business and Other Connections of Investment Adviser
Investment Adviser - - SSB Citi Fund Management LLC ("SSB Citi")
Successor to SSBC Fund Management Inc. ("SSBC")
SSB Citi was incorporated in December 1968 under the laws
of the State of Delaware. On September 21, 1999, SSB Citi
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)
Salomon Smith Barney, Inc., ("Salomon Smith Barney")
the Registrant's Distributor,
is also the distributor for the following Smith Barney
funds: Consulting Group Capital Markets Funds,
Smith Barney Investment Series,
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
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 New
Jersey Municipals Fund Inc., Smith Barney Oregon Municipals
Fund Inc., Smith Barney Principal Return Fund,
Smith Barney Sector Series Inc., Smith Barney
Small Cap Core 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.
In addition, Salomon Smith Barney is also the distributor
for Centurion Funds, Inc.
(b) The information required by
this Item 27 with respect to each director, officer and partner
of Salomon Smith Barney is incorporated by reference
to Schedule A of FORM BD filed by Salomon Smith Barney pursuant to
the Securities Exchange Act of 1934 (SEC File No. 812-8510).
(c) Not applicable.
Item 28. Location of Accounts and Records
(1) Smith Barney Investment Funds Inc.
7 World Trade Center
New York, New York 10048
(2) SSB Citi Fund Management LLC
7 World Trade Center
New York, New York 100148
(3) PFPC Trust Company
(successor by assignment from
PNC Bank, National Association)
8800 Tinicum Boulevard
Philadelphia, Pennsylvania 19153
(4) The Chase Manhattan Bank
Chase Metrotech Center
Brooklyn, New York 11245
(5) Citi Fiduciary Trust Company
125 Broad Street
New York, New York 10004
(6) PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
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., certifies that it meets all
the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b)
under the 1933 Act and 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
5th day of December, 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 12/5/00
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Senior Vice President
Lewis E. Daidone and Treasurer 12/5/00
(Chief Financial
and Accounting Officer)
/s/ Paul R. Ades * Director 12/5/00
Paul R. Ades
/s/ Herbert Barg* Director 12/5/00
Herbert Barg
/s/ Dwight B. Crane* Director 12/5/00
Dwight B. Crane
/s/ Frank Hubbard* Director 12/5/00
Frank Hubbard
/s/ Jerome Miller** Director 12/5/00
Jerome Miller
/s/ Ken Miller* Director 12/5/00
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
EXHIBIT INDEX
Exhibit No. Exhibit
(e)(5) Form of Distribution Agreement
with Salomon Smith Barney Inc.
(h)(3) Form of Transfer Agency Agreement
(h)(4) Form of Sub-Transfer Agency Agreement
(m)(5) Form of Amended and Restated Shareholder
Services and Distribution Plan
Cover
