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. 68
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940,
Amendment No. 70
SMITH BARNEY INVESTMENT FUNDS INC.
(Exact name of Registrant as Specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (Zip Code)
(800)-451-2010
(Registrant's Telephone Number, including Area Code:)
Christina T. Sydor
388 Greenwich Street, New York, New York 10013(22nd
Floor)
(Name and Address of Agent For Service)
Continuous
(Approximate Date of Proposed Public Offering)
It is proposed that this filing will become effective:
XXX immediately upon filing pursuant to Paragraph (b) of
Rule 485
On January 28, 2000 pursuant to paragraph (b) of Rule
485
60 days after filing pursuant to paragraph (a)(1) of
Rule 485
On (date) pursuant to paragraph (a)(1) of Rule 485
75 days after filing pursuant to paragraph (a)(2) of
Rule 485
On (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
This post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
Title of Securities Being Registered: Shares of Common
Stock
PART A
<PAGE>
SB Smith Barney
MF Mutual Funds
PROSPECTUS
Small Cap
Value Fund
Class A, B, L and Y Shares
------------------------------------
January 28, 2000
The Securities and Exchange Commission has not approved or
disapproved these securities or determined whether this prospectus
is accurate or complete. Any statement to the contrary is a crime.
<PAGE>
Small Cap Value Fund
Contents
<TABLE>
<S> <C>
Investments, risks and performance.......................................... 2
More on the fund's investments.............................................. 5
Management.................................................................. 6
Choosing a class of shares to buy........................................... 7
Comparing the fund's classes................................................ 8
Sales charges............................................................... 9
</TABLE>
<TABLE>
<S> <C>
More about deferred sales charges........................................... 11
Buying shares............................................................... 12
Exchanging shares........................................................... 13
Redeeming shares............................................................ 15
Other things to know about share transactions............................... 17
Smith Barney 401(k) and ExecChoice(TM) programs............................. 19
Dividends, distributions and taxes.......................................... 20
Share price................................................................. 21
Financial highlights........................................................ 22
</TABLE>
You should know: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
Investment objective
The fund seeks long-term capital growth.
Principal Investment Strategies
Key investments The fund invests primarily in common stocks and other equity
securities of smaller capitalized U.S. companies. Smaller capitalized companies
are those whose market capitalization at the time of investment is no greater
than the market capitalization of companies in the Russell 2000 Value Index.
The size of companies in the index changes with market conditions and the com-
position of the index. As of December 31, 1999, the largest market capitaliza-
tion of a company in the index was $5.74 billion. Equity securities include
exchange traded and over-the-counter common stocks and preferred shares, debt
securities convertible into equity securities and warrants and rights relating
to equity securities.
Selection process The manager emphasizes individual security selection while
spreading the fund's investments among industries and sectors. The manager uses
both quantitative and fundamental methods to identify stocks of smaller capi-
talization companies it believes have a high probability of outperforming other
stocks in the same industry or sector.
The manager uses quantitative parameters to select a universe of smaller capi-
talized companies that fit the fund's general investment criteria. In selecting
individual securities from within this range, the manager looks for "value"
attributes, such as:
.Low stock price relative to earnings, book value and cash flow
.High return on invested capital
The manager also uses quantitative methods to identify catalysts and trends
that might influence the fund's industry or sector focus, or the manager's
individual security selection.
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
.Stock prices decline generally
.Smaller capitalized companies fall out of favor with investors
.The manager's judgment about the attractiveness, value or potential apprecia-
tion of a particular stock proves to be incorrect
Small Cap Value Fund
2
<PAGE>
.A particular product or service developed by a company in which the fund
invests is unsuccessful, the company does not meet earnings expectations or
other events depress the value of the company's stock
Compared to mutual funds that focus on large capitalization companies, the
fund's share price may be more volatile because of its focus on smaller capi-
talized companies. These companies are more likely to have:
.More limited product lines
.Fewer capital resources
.Less depth of management
Further, securities of smaller capitalized companies are more likely to:
.Experience sharper swings in market values
.Be harder to sell at times and prices the manager believes appropriate
.Offer greater potential for gains and losses
Who may want to invest The fund may be an appropriate investment if you:
.Are seeking to participate in the long term growth potential of smaller capi-
talized companies
.Currently have exposure to fixed income investments and the stocks commonly
held by large capitalization oriented mutual funds and wish to broaden your
investment portfolio
.Are willing to accept the risks of the stock market and the special risks of
investing in smaller companies with limited track records
Performance
Because this fund commenced operations on February 26, 1999, the fund does not
yet have a sufficient operating history to generate 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
</TABLE>
Smith Barney Mutual Funds
3
<PAGE>
<TABLE> Annual fund operating expenses **
<CAPTION>
(expenses deducted from fund assets) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Management fee 0.75% 0.75% 0.75% 0.75%
Distribution and service (12b-1) fee 0.25% 1.00% 1.00% None
Other expenses 0.32% 0.33% 0.33% 0.32%
----- ----- ----- -----
Total annual fund operating expenses 1.32% 2.08% 2.08% 1.07%
</TABLE>
* You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
** For Class Y shares, "Other Expenses" have been based on expenses incurred by
Class A shares because no Class Y shares were outstanding for the period ended
September 30, 1999.
Example
This example helps you compare the costs of investing in the fund with the
costs of investing in other mutual funds. Your actual costs may be higher or
lower.
The example assumes:
.You invest $10,000 in the fund for the period shown
.Your investment has a 5% return each year
.You reinvest all distributions and dividends without a sales charge
.The fund's operating expenses remain the same
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A (with or without redemption) $628 $897 $1,187 $2,011
Class B (redemption at end of period) $711 $952 $1,219 $2,216
Class B (no redemption) $211 $652 $1,119 $2,216
Class L (redemption at end of period) $409 $745 $1,207 $2,486
Class L (no redemption) $309 $745 $1,207 $2,486
Class Y (with or without redemption) $109 $340 $ 590 $1,306
</TABLE>
Small Cap Value Fund
4
<PAGE>
More on the fund's investments
Derivative contracts The fund may, but need not, use derivative contracts, such
as futures and options on securities, securities indices, interest rates or
currencies, or options on these futures, for any of the following purposes:
.As a cash flow management technique
.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 securities
or indices. Even a small investment in derivative contracts can have a big
impact on a fund's stock, interest rate or currency exposure. Therefore, using
derivatives can disproportionately increase losses and reduce opportunities for
gains when interest rates, exchange rates or securities markets are changing.
The fund may not fully benefit from or may lose money on derivatives if changes
in their value do not correspond accurately to changes in the value of the
fund's holdings. The other parties to certain derivative contracts present the
same types of default risk as issuers of fixed income securities. Derivatives
can also make a fund less liquid and harder to value, especially in declining
markets.
Foreign 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.
Debt Securities The fund's policy is to be as fully invested in equity securi-
ties as practicable at all times. The fund may, however, maintain a portion of
its assets (normally not more than 10%) in U.S. government securities, money
market obligations and cash.
Defensive investing The fund may depart from its principal investment strate-
gies in response to adverse market, economic or political conditions by taking
temporary defensive positions in all types of money market and short-term debt
securities. If the fund takes a temporary defensive position, it may be unable
to achieve its investment goal.
Smith Barney Mutual Funds
5
<PAGE>
Management
Manager The fund's investment manager is SSB Citi Fund Management LLC, an
affiliate of Salomon Smith Barney Inc. The manager's address is 388 Greenwich
Street, New York, New York 10013. The manager selects the fund's investments
and oversees its operations. The manager and Salomon Smith Barney are subsidi-
aries of Citigroup Inc. Citigroup businesses produce a broad range of financial
services--asset management, banking and consumer finance, credit and charge
cards, insurance, investments, investment banking and trading--and use diverse
channels to make them available to consumer and corporate customers around the
world.
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, has been responsible for the day-to-day management of the
fund's portfolio since inception. John Goode, investment officer of the manag-
er, managing director of Salomon Smith Barney, and chief investment officer of
Davis Skaggs, assists in managing the fund's portfolio.
Management fee For its services, the manager received a fee during the fund's
last fiscal year equal to 0.75% of the fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to distrib-
ute the fund's shares. A selling group consisting of Salomon Smith Barney and
other broker-dealers sells fund shares to the public.
Distribution plans The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and serv-
ice fees. These fees are an ongoing expense and, over time, may cost you more
than other types of sales charges.
Transfer agent and shareholder servicing agent Smith Barney Private Trust Com-
pany serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement
with the transfer agent, PFPC Global Fund Services serves as the fund's sub-
transfer agent (the "sub-transfer agent") to render certain shareholder record
keeping and accounting services and functions.
Year 2000 Issue As the year 2000 began, there were few problems caused by the
inability of certain computer systems to tell the difference between the year
2000 and the year 1900 (commonly known as the "Year 2000" issue). It is still
possible that some computer systems could malfunction in the future because of
the Year 2000 issue or as a result of actions taken to address the Year 2000
issue. Fund management does not anticipate that its services or those of the
Fund's other service providers will be adversely affected, but Fund management
will continue to monitor the situation. If malfunctions related to the Year
2000 issue do arise, the Fund and its investments could be negatively affected.
Small Cap Value Fund
6
<PAGE>
Choosing a class of shares to buy
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
.If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.
.For Class B shares, all of your purchase price and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
.Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term invest-
ors.
You may buy shares from:
.A Salomon Smith Barney Financial Consultant
.An investment dealer in the selling group or a broker that clears through Sal-
omon Smith Barney--a dealer representative
.The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
Initial Additional
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
IRAs, Self Employed Retirement
Plans, Uniform Gift to Minor
Accounts $250 $15 million $50
Qualified Retirement Plans $25 $15 million $25
Simple IRAs $1 n/a $1
Monthly Systematic Investment Plans $25 n/a $25
Quarterly Systematic Investment
Plans $50 n/a $50
</TABLE>
Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k)
plans
Smith Barney Mutual Funds
7
<PAGE>
Comparing the fund's classes
Your Salomon Smith Barney Financial Consultant or dealer representative can
help you decide which class meets your goals. They may receive different com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .Initial .No initial
sales sales charge sales or
charge .Deferred charge is deferred
.You may sales charge lower than sales
qualify declines Class A charge
for reduc- over time .Deferred .Must
tion or .Converts to sales invest at
waiver of Class A charge for least $15
initial after 8 only 1 million
sales years year .Lower
charge .Higher .Does not annual
.Lower annual convert to expenses
annual expenses Class A than the
expenses than Class A .Higher other
than Class annual classes
B and expenses
Class L than Class
A
- -----------------------------------------------------------------
Initial sales Up to None 1.00% None
charge 5.00%;
reduced for
large pur-
chases and
waived for
certain
investors.
No charge
for pur-
chases of
$500,000 or
more
- -----------------------------------------------------------------
Deferred sales 1% on pur- Up to 5.00% 1% if you None
charge chases of charged when redeem
$500,000 or you redeem within 1
more if you shares. The year of
redeem charge is purchase
within 1 reduced over
year of time and
purchase there is no
deferred
sales charge
after 6 years
- -----------------------------------------------------------------
Annual 0.25% of 1% of average 1% of aver- None
distribution average daily net age daily
and service daily net assets net assets
fees assets
- -----------------------------------------------------------------
Exchangeable Class A Class B Class L Class Y
into* shares shares shares shares
of most of most Smith of most of most
Smith Barney funds Smith Smith
Barney Barney Barney
funds funds funds
- -----------------------------------------------------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
Small Cap Value Fund
8
<PAGE>
Sales charges
Class A shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge
on the fund's distributions or dividends you reinvest in additional Class A
shares.
<TABLE>
<CAPTION>
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
<S> <C> <C>
Less than $25,000 5.00 5.26
$25,000 but less than $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 3.00 3.09
$250,000 but less than $500,000 2.00 2.04
$500,000 or more -0- -0-
</TABLE>
Investments of $500,000 or more You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
Qualifying for a reduced Class A sales charge There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
.Accumulation privilege - lets you combine the current value of Class A shares
owned
.by you, or
.by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase
of Class A shares for purposes of calculating the initial sales charge. Cer-
tain trustees and fiduciaries may be entitled to combine accounts in deter-
mining their sales charge.
.Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney funds over a 13-month period and pay the same sales charge, if
any, as if all shares had been purchased at once. You may include purchases
on which you paid a sales charge within 90 days before you sign the letter.
Smith Barney Mutual Funds
9
<PAGE>
Waivers for certain Class A investors. Class A initial sales charges are waived
for certain types of investors, including:
.Employees of members of the NASD
.403(b) or 401(k) retirement plans, if certain conditions are met
.Clients of newly employed Salomon Smith Barney Financial Consultants, if cer-
tain conditions are met
.Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn about additional waivers of Class A initial sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the Statement of Additional Information ("SAI").
Class B shares
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of pur-
chase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
<TABLE>
<CAPTION>
Year after purchase 1st 2nd 3rd 4th 5th 6th through 8th
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 5% 4% 3% 2% 1% 0%
</TABLE>
Class B conversion After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
Shares issued: Shares issued: Shares issued:
At initial On reinvestment of Upon exchange from
purchase 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>
Small Cap Value Fund
10
<PAGE>
Class L shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund on June 12, 1998,
you will not pay an initial sales charge on Class L shares you buy before June
22, 2001.
Class Y shares
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 6-month period. To qualify, you
must initially invest $5,000,000.
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of pur-
chase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
.Shares exchanged for shares of another Smith Barney fund
.Shares representing reinvested distributions and dividends
.Shares no longer subject to the deferred sales charge
Each time you place a request to sell shares, the fund will first sell any
shares in your account that are not subject to a deferred sales charge and then
the shares in your account that have been held the longest.
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation
for its expenses in selling shares, including the payment of compensation to
your Salomon Smith Barney Financial Consultant or dealer representative.
Smith Barney Mutual Funds
11
<PAGE>
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
.On payments made through certain systematic withdrawal plans
.On certain distributions from a retirement plan
.For involuntary redemptions of small account balances
.For 12 months following the death or disability of a shareholder
If you want to learn about additional waivers of deferred sales charges, con-
tact your Salomon Smith Barney Financial Consultant or dealer representative or
consult the SAI.
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant or
dealer
representative
If you do not provide the following information, your order
will be rejected:
.Class of shares being bought
.Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account
no later than the third business day after you place your
order. Salomon Smith Barney or your dealer representative may
charge an annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who
fund's are clients of the selling group are eligible to buy shares
transfer directly from the fund.
agent
.Write the sub-transfer agent at the following address:
Smith Barney Investment Funds Inc.
Smith Barney Small Cap Value Fund
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 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.
Small Cap Value Fund
12
<PAGE>
- --------------------------------------------------------------------------------
Through a
systematic You may authorize Salomon Smith Barney, your dealer represen-
investment tative or the sub-transfer agent to transfer funds automati-
plan cally from a regular bank account, cash held in a Salomon
Smith Barney brokerage account or Smith Barney money market
fund to buy shares on a regular basis.
.Amounts transferred should be at least: $25 monthly or $50
quarterly
.If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer represen-
tative or the sub-transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the SAI.
Exchanging shares
Smith Barney You should contact your Salomon Smith Barney Financial Con-
offers a sultant or dealer representative to exchange into other Smith
distinctive Barney funds. Be sure to read the prospectus of the Smith
family of Barney fund you are exchanging into. An exchange is a taxable
funds transaction.
tailored to
help meet the
varying needs
of both large
and small
investors.
.You may exchange shares only for shares of the same class of
another Smith Barney fund. Not all Smith Barney funds offer
all classes.
.Not all Smith Barney funds may be offered in your state of
residence. Contact your Smith Barney Financial Consultant,
dealer representative or the sub-transfer agent.
.You must meet the minimum investment amount for each fund.
.If you hold share certificates, the sub-transfer agent must
receive the certificates endorsed for transfer or with
signed stock powers (documents transferring ownership of
certificates) before the exchange is effective.
.The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges.
- --------------------------------------------------------------------------------
Smith Barney Mutual Funds
13
<PAGE>
- --------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will continue to be mea-
sured from the date of your original purchase. If the fund
you exchange into has a higher deferred sales charge, you
will be subject to that charge. If you exchange at any time
into a fund with a lower charge, the sales charge will not be
reduced.
- --------------------------------------------------------------------------------
By telephone
If you do not have a brokerage account, you may be eligible
to exchange shares through the transfer agent. You must com-
plete an authorization form to authorize telephone transfers.
If eligible, you may make telephone exchanges on any day the
New York Stock Exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 4:00 p.m. (Eastern
time).
You can make telephone exchanges only between accounts that
have identical registrations.
- --------------------------------------------------------------------------------
By mail
If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the sub-trans-
fer agent at the address on the opposite page.
Small Cap Value Fund
14
<PAGE>
Redeeming shares
Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.
If you hold share certificates, the sub-transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However,
if you recently purchased your shares by check, your redemp-
tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
By mail
For accounts held directly at the fund, send written requests
to the sub-transfer agent at the following address:
Smith Barney Investment Funds Inc.
Smith Barney Small Cap Value Fund
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
Your written request must provide the following:
. Your account number
. The class of shares and the dollar amount or number of
shares to be redeemed
. Signatures of each owner exactly as the account is regis-
tered
- --------------------------------------------------------------------------------
Smith Barney Mutual Funds
15
<PAGE>
- --------------------------------------------------------------------------------
By telephone
If you do not have a brokerage account, you may be eligible
to redeem shares (except those held in retirement plans) in
amounts up to $10,000 per day through the transfer agent. You
must complete an authorization form to authorize telephone
redemptions. If eligible, you may request redemptions by tel-
ephone on any day the New York Stock Exchange is open. Call
the transfer agent at 1-800-451-2010 between 9:00 a.m. and
4:00 p.m. (Eastern time).
Your redemption proceeds can be sent by check to your address
of record or by wire transfer to a bank account designated on
your authorization form. You must submit a new authorization
form to change the bank account designated to receive wire
transfers and you may be asked to provide certain other docu-
ments.
- --------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans ($5,000 for retirement plans) and each automatic redemption
must be at least $50. If your shares are subject to a
deferred sales charge, the sales charge will be waived if
your automatic payments do not exceed 1% per month of the
value of your shares subject to a deferred sales charge.
The following conditions apply:
.Your shares must not be represented by certificates
.All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
Small Cap Value Fund
16
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
.Name of the fund
.Account number
.Class of shares being bought, exchanged or redeemed
.Dollar amount or number of shares being bought, exchanged or redeemed
.Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemp-
tion request is genuine by recording calls, asking the caller to provide a per-
sonal identification number for the account, sending you a written confirmation
or requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include
a signature guarantee if you:
.Are redeeming over $10,000 of shares
.Are sending signed share certificates or stock powers to the sub-transfer
agent
.Instruct the sub-transfer agent to mail the check to an address different from
the one on your account
.Changed your account registration
.Want the check paid to someone other than the account owner(s)
.Are transferring the redemption proceeds to an account with a different regis-
tration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
The fund has the right to:
.Suspend the offering of shares
.Waive or change minimum and additional investment amounts
.Reject any purchase or exchange order
.Change, revoke or suspend the exchange privilege
.Suspend telephone transactions
.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
Smith Barney Mutual Funds
17
<PAGE>
.Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other share-
holders. If so, the fund may limit additional purchases and/or exchanges by the
shareholder.
Share certificates The fund does not issue share certificates unless a written
request signed by all registered owners is made to the sub-transfer agent. If
you hold share certificates it will take longer to exchange or redeem shares.
Small Cap Value Fund
18
<PAGE>
Smith Barney 401(k) and ExecChoice(TM) programs
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoice(TM) program. The fund offers Class A and Class L shares
to participating plans as investment alternatives under the programs. You can
meet minimum investment and exchange amounts by combining the plan's invest-
ments in any of the Smith Barney 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. Once a class
of shares is chosen, all additional purchases must be of that class.
.Class A shares may be purchased by plans investing at least $1 million.
.Class L shares may be purchased by plans investing less than $1 million. Class
L shares are eligible to exchange into Class A shares not later than 8 years
after the plan joined the program. They are eligible for exchange sooner:
If the account was opened on or after June 21, 1996 and an aggregate of $1
million is invested in Smith Barney Funds Class L shares (other than money
market funds), all Class L shares are eligible for exchange after the plan
is in the program 5 years.
If the account was opened before June 21, 1996 and $500,000 in the aggre-
gate is invested in Smith Barney Funds Class L shares (other than money
market funds), all Class L shares are eligible for exchange on each Decem-
ber 31 and the exchange will occur no later than March 31 of the following
year.
For more information, call your Salomon Smith Barney Financial Consultant or
the transfer agent, or consult the SAI.
Smith Barney Mutual Funds
19
<PAGE>
Dividends, distributions and taxes
Dividends The fund generally makes capital gain distributions and pays divi-
dends, if any, once a year, typically in December. The fund may pay additional
distributions and dividends at other times if necessary for the fund to avoid a
federal tax. Capital gain distributions and dividends are reinvested in addi-
tional fund shares of the same class you hold. The fund expects distributions
to be primarily from capital gain. You do not pay a sales charge on reinvested
distributions or dividends. Alternatively, you can instruct your Salomon Smith
Barney Financial Consultant, dealer representative or the transfer agent to
have your distributions and/or dividends paid in cash. You can change your
choice at any time to be effective as of the next distribution or dividend,
except that any change given to the transfer agent less than five days before
the payment date will not be effective until the next distribution or dividend
is paid.
Taxes In general, redeeming shares, exchanging shares and receiving distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<C> <S>
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.
Small Cap Value Fund
20
<PAGE>
Share price
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its liabili-
ties. Net asset value is calculated separately for each class of shares. The
fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This calcu-
lation is done when regular trading closes on the Exchange (normally 4:00 p.m.,
Eastern time).
The fund generally values its fund securities based on market prices or quota-
tions. The fund's currency conversions are done when the London stock exchange
closes, which is 12 noon Eastern time. When reliable market prices or quota-
tions are not readily available, or when the value of a security has been mate-
rially affected by events occurring after a foreign exchange closes, the fund
may price those securities at fair value. Fair value is determined in accor-
dance with procedures approved by the fund's board. A fund that uses fair value
to price securities may value those securities higher or lower than another
fund using market quotations to price the same securities.
International markets may be open on days when U.S. markets are closed and the
value of foreign securities owned by the fund could change on days when you
cannot buy or redeem shares.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer repre-
sentative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders
to buy, exchange or redeem shares to the fund's agent before the agent's close
of business.
Smith Barney Mutual Funds
21
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance of each class since inception. Certain information reflects financial
results for a single share. Total return represents the rate that a shareholder
would have earned (or lost) on a fund share assuming reinvestment of all divi-
dends and distributions. The information in the following tables was audited by
KPMG LLP, independent accountants, whose report, along with the fund's finan-
cial statements, is included in the annual report (available upon request).
For a Class A share of capital stock outstanding throughout the period ended
September 30:
<TABLE>
<CAPTION>
1999(/1/)(/2/)
- -----------------------------------------------------
<S> <C>
Net asset value, beginning of period $ 11.40
- -----------------------------------------------------
Income from operations:
Net investment income 0.15
Net realized and unrealized gain 0.55
- -----------------------------------------------------
Total income from operations 0.70
- -----------------------------------------------------
Less distributions from:
Net investment income --
Net realized gain --
- -----------------------------------------------------
Total distributions --
- -----------------------------------------------------
Net asset value, end of year $ 12.10
- -----------------------------------------------------
Total return++ 6.14%
- -----------------------------------------------------
Net assets, end of year (000)'s $37,308
- -----------------------------------------------------
Ratios to average net assets+:
Expenses 1.32%
Net investment income 1.94
- -----------------------------------------------------
Portfolio turnover rate 7%
- -----------------------------------------------------
</TABLE>
(1)Forthe period from February 26, 1999 (inception date) to September 30,
1999.
(2)Pershare amounts have been calculated using the monthly average shares
method.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
Small Cap Value Fund
22
<PAGE>
For a Class B share of capital stock outstanding throughout the period ended
September 30:
<TABLE>
<CAPTION>
1999(/1/)(/2/)
- -----------------------------------------------------
<S> <C>
Net asset value, beginning of period $ 11.40
- -----------------------------------------------------
Income from operations:
Net investment income 0.09
Net realized and unrealized gain 0.56
- -----------------------------------------------------
Total income from operations 0.65
- -----------------------------------------------------
Less distributions from:
Net investment income --
Net realized gain --
- -----------------------------------------------------
Total distributions --
- -----------------------------------------------------
Net asset value, end of year $ 12.05
- -----------------------------------------------------
Total return++ 5.70%
- -----------------------------------------------------
Net assets, end of year (000)'s $60,620
- -----------------------------------------------------
Ratios to average net assets+:
Expenses 2.08%
Net investment income 1.19
- -----------------------------------------------------
Portfolio turnover rate 7%
- -----------------------------------------------------
</TABLE>
(1)For the period from February 26, 1999 (inception date) to September 30,
1999.
(2)Pershare amounts have been calculated using the monthly average shares
method.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
Smith Barney Mutual Funds
23
<PAGE>
For a Class L share of capital stock outstanding throughout the period ended
September 30:
<TABLE>
<CAPTION>
1999(/1/)(/2/)
- -----------------------------------------------------
<S> <C>
Net asset value, beginning of period $ 11.40
- -----------------------------------------------------
Income from operations:
Net investment income 0.09
Net realized and unrealized gain 0.56
- -----------------------------------------------------
Total income from operations 0.65
- -----------------------------------------------------
Less distributions from:
Net investment income --
Net realized gain
- -----------------------------------------------------
Total distributions --
- -----------------------------------------------------
Net asset value, end of year $ 12.05
- -----------------------------------------------------
Total return++ 5.70%
- -----------------------------------------------------
Net assets, end of year (000)'s $43,212
- -----------------------------------------------------
Ratios to average net assets+:
Expenses 2.08%
Net investment income 1.20
- -----------------------------------------------------
Portfolio turnover rate 7%
- -----------------------------------------------------
</TABLE>
(1)For the period from February 26, 1999 (inception date) to September 30,
1999.
(2)Pershare amounts have been calculated using the monthly average shares
method.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
Small Cap Value Fund
24
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
Small Cap Value Fund
An investment portfolio of Smith Barney Investment Funds Inc.
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket conditions and investment strategies that affected the fund's performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by refer-
ence into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
Information about the Fund (including the SAI) can be reviewed and copied at
the Commission's Public Reference Room in Washington, D.C. In addition, infor-
mation on the operation of the Public Reference Room may be obtained by calling
the Commission at 1-202-942-8090. Reports and other information about the Fund
are available on the EDGAR Database on the Commission's Internet site at
http://www.sec.gov. Copies of this information may be obtained for a duplicat-
ing fee by electronic request at the following E-mail address:
[email protected], or by writing the Commission's Public Reference Section,
Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not law-
fully sell its shares.
SM Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
Investment Company Act
File No. 811-03275
FDO2461 1/00
PART B
Smith Barney Small Cap Value Fund
388 Greenwich Street
New York, NY 10013
Statement of Additional Information
January 28, 2000
This Statement of Additional Information (the "SAI")
expands upon and supplements the information contained in
the current prospectus of the Smith Barney Small Cap Value
Fund dated January 28, 2000, as amended or supplemented
from time to time, and should be read in conjunction with
the prospectus. The fund is a series of Smith Barney
Investment Funds Inc. (the "Company"). Additional
information about the fund's investments is available in
the fund's annual and semi-annual reports to shareholders.
The fund's prospectus may be obtained free of charge from
your Salomon Smith Barney Financial Consultant or by
writing or calling the fund at the address or telephone
number set forth above. This SAI, although not in itself a
prospectus, is incorporated by reference into the
prospectus in its entirety.
TABLE OF CONTENTS
Investment Objectives and Management Policies 2
Directors and Officers 14
Purchase of Shares 18
Redemption of Shares 23
Valuation of Shares 25
Exchange Privilege 25 Performance Data 26
Taxes 28
Additional Information 29
Financial Statements 30
Other Information 30
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 ("SSBC" or the
"Manager") serves as investment manager and administrator
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 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 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.
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.
Foreign Securities The fund has the authority to invest up
to 10% of its assets in foreign securities. In addition to
direct investment in securities of foreign issuers, the
fund may also invest in securities of foreign issuers in
the form of sponsored and unsponsored American Depositary
Receipts (ADRs), European Depositary Receipts (EDRs),
Global Depositary Receipts (GDRs) or other similar
securities convertible into securities of foreign issuers.
These securities may not necessarily be denominated in the
same currency as the 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.
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, and the
expense of maintaining securities with foreign custodians,
and the imposition of transfer taxes or transaction charges
associated with foreign exchanges.
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.
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 obligates 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
investments in fixed income securities with longer terms to
maturity or greater duration are subject to greater
volatility than the fund's shorter-term securities.
Money Market Instruments As stated in the prospectus, the
fund may invest for defensive purposes in corporate and
government bonds and notes and money market instruments.
Short-term instruments in which the fund may invest include
obligations of banks having at least $1 billion in assets
(including certificates of deposit, time deposits and
bankers= acceptances of domestic or foreign banks, domestic
savings and loan associations and similar institutions);
commercial paper rated no lower than A-2 by Standard &
Poor's Ratings Group or Prime-2 by Moody=s Investors
Service, Inc. or the equivalent from another nationally
recognized statistical rating organization or, if unrated,
of an issuer having an outstanding, unsecured debt issue
then rated within the two highest rating categories; and
repurchase agreements with respect to any of the foregoing
entered into with banks and non-bank dealers approved by
the Company's Board of Directors.
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.
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.
Repurchase Agreements The fund may enter into repurchase
agreements in order to earn income on available cash or as
a temporary defensive measure. Under a repurchase
agreement, the fund acquires securities subject to the
seller's agreement to repurchase at a specified time and
price. If the seller becomes subject to a proceeding under
the bankruptcy laws or its assets are otherwise subject to
a stay order, the fund's right to liquidate the securities
may be restricted (during which time the value of the
securities could decline).
Lending of Portfolio Securities Consistent with applicable
Regulatory Requirements and for cash management purposes,
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 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.
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.
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.
Options, Futures and Currency Strategies The fund may use
forward currency contracts and certain options and futures
strategies to attempt to hedge its portfolio, i.e., reduce
the overall level of investment risk normally associated
with the fund. There can be no assurance that such efforts
will succeed.
In order to assure that the fund will not be deemed to be a
"commodity pool" for purposes of the Commodity Exchange
Act, regulations of the Commodity Futures Trading
Commission ("CFTC") require that the fund enter into
transactions in futures contracts and options on futures
only (i) for bona fide hedging purposes (as defined in CFTC
regulations), or (ii) for non-hedging purposes, provided
that the aggregate initial margin and premiums on such
non-hedging positions do not exceed 5% of the liquidation
value of the fund's assets. To attempt to hedge against
adverse movements in exchange rates between currencies, the
fund may enter into forward currency contracts for the
purchase or sale of a specified currency at a specified
future date. Such contracts may involve the purchase or
sale of a foreign currency against the U.S. dollar or may
involve two foreign currencies. The fund may enter into
forward currency contracts either with respect to specific
transactions or with respect to its portfolio positions.
For example, when the investment adviser anticipates making
a purchase or sale of a security, it may enter into a
forward currency contract in order to set the rate (either
relative to the U.S. dollar or another currency) at which
the currency exchange transaction related to the purchase
or sale will be made ("transaction hedging"). Further, when
the investment adviser believes that a particular currency
may decline compared to the U.S. dollar or another
currency, the fund may enter into a forward contract to
sell the currency the manager expects to decline in an
amount approximating the value of some or all of the fund's
securities denominated in that currency, or when the
manager believes that one currency may decline against a
currency in which some or all of the portfolio securities
held by the fund are denominated, it may enter into a
forward contract to buy the currency expected to decline
for a fixed amount ("position hedging"). In this situation,
the fund may, in the alternative, enter into a forward
contract to sell a different currency for a fixed amount of
the currency expected to decline where the manager believes
that the value of the currency to be sold pursuant to the
forward contract will fall whenever there is a decline in
the value of the currency in which portfolio securities of
the fund are denominated ("cross hedging"). The fund's
custodian places (i) cash, (ii) U.S. Government securities
or (iii) equity securities or debt securities (of any
grade) in certain currencies provided such assets are
liquid, unencumbered and marked to market daily, or other
high-quality debt securities denominated in certain
currencies in a separate account of the fund having a value
equal to the aggregate account of the fund's commitments
under forward contracts entered into with respect to
position hedges and cross-hedges. If the value of the
securities placed in a separate account declines,
additional cash or securities are placed in the account on
a daily basis so that the value of the amount will equal
the amount of the fund's commitments with respect to such
contracts.
For hedging purposes, the fund may write covered call
options and purchase put and call options on currencies to
hedge against movements in exchange rates and on debt
securities to hedge against the risk of fluctuations in the
prices of securities held by the fund or which the manager
intends to include in its portfolio. The fund also may use
interest rates futures contracts and options thereon to
hedge against changes in the general level in interest
rates.
The fund may write call options on securities and
currencies only if they are covered, and such options must
remain covered so long as the fund is obligated as a
writer. A call option written by the fund is "covered" if
the fund owns the securities or currency underlying the
option or has an absolute and immediate right to acquire
that security or currency without additional cash
consideration (or for additional cash consideration held in
a segregated account by its custodian) upon conversion or
exchange of other securities or currencies held in its
portfolio. A call option is also covered if the fund holds
on a share-for-share basis a call on the same security or
holds a call on the same currency as the call written where
the exercise price of the call held is equal to less than
the exercise price of the call written or greater than the
exercise price of the call written if the difference is
maintained by the fund in cash, Treasury bills or other
high-grade, short-term obligations in a segregated account
with its custodian.
Although the portfolio might not employ the use of forward
currency contracts, options and futures, the use of any of
these strategies would involve certain investment risks and
transaction costs to which it might not otherwise be
subject. These risks include: dependence on the investment
adviser's ability to predict movements in the prices of
individual debt securities, fluctuations in the general
fixed-income markets and movements in interest rates and
currency markets, imperfect correlation between movements
in the price of currency, options, futures contracts or
options thereon and movements in the price of the currency
or security hedged or used for cover; the fact that skills
and techniques needed to trade options, futures contracts
and options thereon or to use forward currency contracts
are different from those needed to select the securities in
which the fund invests; lack of assurance that a liquid
market will exist for any particular option, futures
contract or options thereon at any particular time and
possible need to defer or accelerate closing out certain
options, futures contracts and options thereon in order to
continue to qualify for the beneficial tax treatment
afforded regulated investment companies' under the Internal
Revenue Code of 1986, as amended (the "Code").
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 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 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 the manager 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 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 that it intends to purchase at a later time, the
fund could enter into contracts to purchase the stock index
(known as taking a "long" position) as a temporary
substitute for the purchase of stocks. If an increase in
the market occurs that influences the stock index as
anticipated, the value of the futures contracts increases
and thereby serves as a hedge against the fund's not
participating in a market advance. The fund then may close
out the futures contracts by entering into offsetting
futures contracts to sell the stock index (known as taking
a "short" position) as it purchases individual stocks. The
fund can accomplish similar results by buying securities
with long maturities and selling securities with short
maturities. But by using futures contracts as an investment
tool to reduce risk, given the greater liquidity in the
futures market, it may be possible to accomplish the same
result more easily and more quickly.
No consideration will be paid or received by the fund upon
the purchase or sale of a futures contract. Initially, the
fund will be required to deposit with the broker an amount
of cash or cash equivalents equal to approximately 1% to
10% of the contract amount (this amount is subject to
change by the exchange or board of trade on which the
contract is traded and brokers or members of such board of
trade may charge a higher amount). This amount is known as
"initial margin" and is in the nature of a performance bond
or good faith deposit on the contract which is returned to
the fund, upon termination of the futures contract,
assuming all contractual obligations have been satisfied.
Subsequent payments, known as "variation margin," to and
from the broker, will be made daily as the price of the
index or securities underlying the futures contract
fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as
"marking-to-market." In addition, when the fund enters into
a long position in a futures contract or an option on a
futures contract, it must deposit into a segregated account
with the fund's custodian an amount of cash or cash
equivalents equal to the total market value of the
underlying futures contract, less amounts held in the
fund's commodity brokerage account at its broker. At any
time prior to the expiration of a futures contract, the
fund may elect to close the position by taking an opposite
position, which will operate to terminate the fund's
existing position in the contract.
There are several risks in connection with the use of
futures contracts as a hedging device. Successful use of
futures contracts by the fund is subject to the ability of
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.
When-Issued Securities and Delayed Delivery Transactions
In order to secure what the manager considers to be an
advantageous price or yield, the fund may purchase U.S.
government securities on a when-issued basis or purchase or
sell U.S. government securities for delayed delivery. The
fund will enter into such purchase transactions for the
purpose of acquiring portfolio securities and not for the
purpose of leverage. Delivery of the securities in such
cases occurs beyond the normal settlement periods, but no
payment or delivery is made by the fund prior to the
reciprocal delivery or payment by the other party to the
transaction. In entering into a when-issued or
delayed-delivery transaction, the fund relies on the other
party to consummate the transaction and may be
disadvantaged if the other party fails to do so.
U.S. government securities normally are subject to changes
in value based upon changes, real or anticipated, in the
level of interest rates and, to a lesser extent, the
public's perception of the creditworthiness of the issuers.
In general, U.S. government securities tend to appreciate
when interest rates decline and depreciate when interest
rates rise. Purchasing U.S. government securities on a
when-issued basis or delayed-delivery basis, therefore, can
involve the risk that the yields available in the market
when the delivery takes place may actually be higher than
those obtained in the transaction itself. Similarly, the
sale of U.S. government securities for delayed delivery can
involve the risk that the prices available in the market
when the delivery is made may actually be higher than those
obtained in the transaction itself.
A fund will at times maintain in a segregated account at
PNC 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 that 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 that 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).
Portfolio Transactions Decisions to buy and sell
securities for the fund are made by the manager, subject to
the overall review of the Company's Board of Directors.
Although investment decisions for the fund are made
independently from those of the other accounts managed by
the manager, investments of the type that the fund may make
also may be made by those other accounts. When the fund
and one or more other accounts managed by the manager are
prepared to invest in, or desire to dispose of, the same
security, available investments or opportunities for sales
will be allocated in a manner believed by the manager to be
equitable to each. In some cases, this procedure may
adversely affect the price paid or received by the fund or
the size of the position obtained or disposed of by the
fund.
Allocation of transactions on behalf of the fund, including
their frequency, to various dealers is determined by the
manager in its best judgment and in a manner deemed fair
and reasonable to the fund's shareholders. The primary
considerations of the manager in allocating transactions
are availability of the desired security and the prompt
execution of orders in an effective manner at the most
favorable prices. Subject to these considerations, dealers
that provide supplemental investment research and
statistical or other services to the manager may receive
orders for portfolio transactions by the fund. Information
so received is in addition to, and not in lieu of, services
required to be performed by the manager, and the fees of
the manager are not reduced as a consequence of their
receipt of the supplemental information. The information
may be useful to the manager in serving both the fund and
other clients, and conversely, supplemental information
obtained by the placement of business of other clients may
be useful to the manager in carrying out its obligations to
the fund.
The fund will not purchase securities during the existence
of any underwriting or selling group relating to the
securities, of which the manager is a member, except to the
extent permitted by the SEC. Under certain circumstances,
the fund may be at a disadvantage because of this
limitation in comparison with other funds that have similar
investment objectives but that are not subject to a similar
limitation.
Even though investment decisions for the fund are made
independently from those of the other accounts managed by
the 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 sale 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.
Portfolio Turnover The fund's portfolio turnover rate (the
lesser of purchases or sales of portfolio securities during
the year, excluding purchases or sales of short-term
securities, divided by the monthly average value of
portfolio securities) is generally not expected to exceed
150%. The rate of turnover will not be a limiting factor,
however, when the fund deems it desirable to sell or
purchase securities. This policy should not result in
higher brokerage commissions to the fund, as purchases and
sales of portfolio securities are usually affected as
principal transactions. Securities may be sold in
anticipation of a rise in interest rates (market decline)
or purchased in anticipation of a decline in interest rates
(market rise) and later sold. In addition, a security may
be sold and another security of comparable quality
purchased at approximately the same time to take advantage
of what the fund believes to be a temporary disparity in
the normal yield relationship between the two securities.
These yield disparities may occur for reasons not directly
related to the investment quality of particular issues or
the general movement of interest rates, such as changes in
the overall demand for, or supply of, various types of tax-
exempt securities. For the period from February 26, 1999
(inception date) to September 30, 1999 the Fund's portfolio
turnover rate was 7%.
Investment Restrictions
The fund has adopted the following investment restrictions
for the protection of shareholders. Restrictions 1 through
7 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
remaining restrictions may be changed by the Board of
Directors at any time. 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. Borrow money except that (a) the fund may borrow
from banks for temporary or emergency (not
leveraging) purposes, including the meeting of
redemption requests which might otherwise require
the untimely disposition of securities, and (b) the
fund may, to the extent consistent with its
investment policies, enter into reverse repurchase
agreements, forward roll transactions and similar
investment strategies and techniques. To the extent
that it engages in transactions described in (a) and
(b), the fund will be limited so that no more than
33-1/3% of the value of its total assets (including
the amount borrowed), valued at the lesser of cost
or market, less liabilities (not including the
amount borrowed) valued at the time the borrowing is
made, is derived from such transactions.
5. Make loans. This restriction does not apply to: (a)
the purchase of debt obligations in which the fund
may invest consistent with its investment objective
and policies; (b) repurchase agreements and; (c)
loans of its portfolio securities, to the fullest
extent permitted under the 1940 Act.
6. Engage in the business of underwriting securities
issued by other persons, except to the extent that
the fund may technically be deemed to be an
underwriter under the Securities Act of 1933, as
amended, in disposing of portfolio securities.
7. Purchase or sell real estate, real estate mortgages,
commodities or commodity contracts, but this
restriction shall not prevent the fund from: (a)
investing in securities of issuers engaged in the
real estate business or the business of investing in
real estate (including interests in limited
partnerships owning or otherwise engaging in the
real estate business or the business of investing in
real estate) and securities which are secured by
real estate or interests therein; (b) holding or
selling real estate received in connection with
securities it holds or held; (c) trading in futures
contracts and options on futures contracts
(including options on currencies to the extent
consistent with the funds investment objective and
policies); or (d) investing in real estate
investment trust securities.
8. Purchase any securities on margin (except for such
short-term credits as are necessary for the
clearance of purchases and sales of portfolio
securities) or sell any securities short (except
"against the box"). For purposes of this
restriction, the deposit or payment by the fund of
underlying securities and other assets in escrow and
collateral agreements with respect to initial or
maintenance margin in connection with futures
contracts and related options and options on
securities, indexes or similar items is not
considered to be the purchase of a security on
margin.
9. Invest in oil, gas or other mineral exploration
programs.
10. Purchase or otherwise acquire any security if, as a
result, more than 15% of its net assets would be
invested in securities that are illiquid.
11. Invest in companies for the purpose of exercising
management or control.
12. Invest in securities of an issuer which, together
with any predecessor, has been in operation for less
than three years if, as a result, more than 5% of
the total assets of the fund would then be invested
in such securities (for purposes of this
restriction, issuers include predecessors, sponsors,
controlling persons, general guarantors and
originators of underlying assets).
Certain restrictions listed above permit the fund without
shareholder approval to engage in investment practices that
the fund does not currently pursue. The fund has no
present intention of altering its current investment
practices as otherwise described in the prospectus and this
SAI and any future change in these practices would require
Board approval. 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 Investment Company Act of 1940, as amended
(the "1940 Act"), is indicated by an asterisk.
Paul R. Ades, Director (Age 59). Partner in the law firm of
Murov & Ades. Director of 5 investment companies associated
with Citigroup Inc. His address is 272 South Wellwood
Avenue, P.O. Box 504, Lindenhurst, New York 11757.
Herbert Barg, Director (Age 76). Private investor. Director
of 16 investment companies associated with Citigroup Inc.
His address is 273 Montgomery Avenue, Bala Cynwyd,
Pennsylvania 19004.
Dwight B. Crane, Director (Age 61). Professor, Graduate
School of Business Administration, Harvard University;
Director of 22 investment companies associated with
Citigroup Inc. His address is Graduate School of Business
Administration, Harvard University, Boston, Massachusetts
02163.
Frank G. Hubbard, Director (Age 61). Vice President, S&S
Industries; Former Corporate Vice President, Materials
Management and Marketing Services of Huls America, Inc.;
Director of 5 investment companies associated with
Citigroup Inc. His address is 80 Centennial Avenue P.O. Box
456, Piscataway, New Jersey 08855-0456.
*Heath B. McLendon, Chairman of the Board, President and
Chief Executive Officer (Age 66). Managing Director of
Salomon Smith Barney Inc. ("Salomon Smith Barney");
Director and President of SSB Citi and Travelers Investment
Adviser, Inc. ("TIA"); and formerly Chairman of the Board
of Smith Barney Strategy Advisers Inc. Mr. McLendon is a
director of 64 investment companies associated with
Citigroup Inc. His address is 7 World Trade Center, New
York, New York 10048.
Jerome Miller, Director (Age 60). Retired, Former
President, Asset Management Group of Shearson Lehman
Brothers. Director of 5 investment companies associated
with Citigroup Inc. His address is 27 Hemlock Road,
Manhasset, New York, NY 11030.
Ken Miller, Director (Age 57). President of Young Stuff
Apparel Group, Inc. Director of 5 investment companies
associated with Citigroup Inc. His address is 1411
Broadway, New York, New York 10018.
Lewis E. Daidone, Senior Vice President and Treasurer (Age
42). Managing Director of Salomon Smith Barney, Director
and Senior Vice President of SSB Citi and TIA. Treasurer of
59 investment companies associated with Citigroup. His
address is 388 Greenwich Street, New York, New York 10013.
Peter Hable, Vice President and Investment Officer (Age
41). 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 45). Director of Salomon Smith
Barney; Controller or Assistant Treasurer of 43 investment
companies associated with Citigroup; from 1997-1998
Managing Director of AMT Capital Services Inc.; prior to
1997 Partner with Ernst & Young LLP; His address is 388
Greenwich Street, New York, New York 10013.
Christina T. Sydor, Secretary (Age 48). Managing Director
of Salomon Smith Barney; General Counsel and Secretary of
SSB Citi and TIA. Secretary of 59 investment companies
associated with Citigroup. Her address is 388 Greenwich
Street, New York, New York 10013.
No officer, director or employee of Salomon Smith Barney or
any parent or subsidiary receives any compensation from the
Company for serving as an officer or Director of the
Company. The Company pays each Director who is not an
officer, director or employee of Salomon Smith Barney or
any of its affiliates a fee of $22,500 per annum plus
$2,900 per meeting attended and reimburses travel and out-
of-pocket expenses. For the period ended September 30,
1999, such expenses totaled $9,443.79. For the period from
February 26, 1999 to September 30, 1999, the Directors of
the Company were paid the following compensation:
Name of Person
Aggregate
Compensation
from the Fund
Total Pension or
Retirement
Benefits Accrued
as part of Fund
Expenses
Compensation
from Fund and
Fund Complex
Paid to
Directors
Number of Funds
for Which
Director Serves
Within Fund
Complex
Paul R. Ades
$1,324
$0
$ 54,225
5
Herbert Barg
1,324
0
105,425
16
Dwight B. Crane
1,324
0
139,975
22
Frank G. Hubbard
1,324
0
54,125
5
Heath B. McLendon
- ---
- ---
- ---
64
Jerome Miller
1,324
0
44,925
5
Ken Miller
1,324
0
53,625
5
Upon attainment of age 80, Directors are required to change
to emeritus status. Directors Emeritus are entitled to
serve in emeritus status for a maximum of 10 years during
which time they are paid 50% of the annual retainer fee and
meeting fees otherwise applicable to the Fund Directors
together with reasonable out-of-pocket expenses for each
meeting attended.
Investment Manager
SSB Citi Fund Management LLC 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 (through its
predecessor entities) has been in the investment counseling
business since 1968 and renders investment advice to a wide
variety of individuals, institutional and investment
company clients that had aggregated assets under management
as of December 31, 1999 in excess of $183 billion. 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 0.75% of the fund's average daily net
assets. Since the fund's inception on February 26, 1999 to
September 30, 1999, the fund incurred $616,315 in
investment advisory fees.
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 fund, 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.
Counsel and Auditors
Wilkie 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 3rd Avenue, New
York, New York 10017, serve as auditors of the fund and
will render an opinion on the fund's financial statements
for the fiscal year ending September 30, 2000.
DISTRIBUTION
Distributor CFBDS, Inc., located at 20 Milk Street,
Boston, MA 02109-5408, serves as the fund's distributor on
a best efforts basis pursuant to a distribution agreement
dated July 22, 1999 (the "Distribution Agreement"), which
was approved by the Company's Board of Directors.
For the 1999 fiscal year, Salomon Smith Barney served as
distributor and received $883,000 in sales charges for the
sale of Class A shares, and did not reallow any portion
thereof to dealers. For the 1999 fiscal year, Salomon
Smith Barney received $407,000 in sales charges for the
sale of Class L shares, and did not reallow any portion
thereof to dealers.
For the 1999 fiscal year, Salomon Smith Barney received
from shareholders $15,000 in CDSC on the redemption of
Class A shares. For the 1999 fiscal year, Salomon Smith
Barney received from shareholders $55,000 in CDSC on the
redemption of Class B shares. For the 1999 fiscal year,
Salomon Smith Barney received from shareholders $21,000 in
CDSC on the redemption of Class L shares.
When payment is made by the investor before settlement
date, unless otherwise directed 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 investor may designate
another use for the funds prior to settlement date, such as
an investment in a money market fund (other than Smith
Barney Exchange Reserve Fund) of the Smith Barney Mutual
Funds. If the investor instructs Salomon Smith Barney to
invest the funds in a Smith Barney money market fund, the
amount of the investment will be included as part of the
average daily net assets of both the fund and the Smith
Barney money market fund, and affiliates of Salomon Smith
Barney that serve the funds in an investment advisory
capacity or administrative capacity will benefit from the
fact that they are receiving fees from both such investment
companies for managing these assets computed on the basis
of their average daily net assets. The fund'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
Advisory and Administration Agreements for continuance.
For the fiscal year ended September 30, 1999, Salomon Smith
Barney incurred distribution expenses totaling $476,696,
consisting of approximately $10,101 for advertising, $2,048
for printing and mailing prospectuses, $98,034 for support
services and overhead expenses, $249,296 to Salomon Smith
Barney to compensate financial consultants and $117,217 for
accruals for interest on the excess of Salomon Smith Barney
expenses incurred in distribution of the fund's shares over
the sum of the distribution fees and CDSC received by
Salomon Smith Barney.
Services and Distribution Plan
To compensate Salomon Smith Barney for the services it
provides and for the expenses 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.
For the fiscal year ended September 30, 1999 the fund
incurred $61,665, for Class A shares, $331,551, in Class B
shares and $243,541, in Class L shares, respectively, in
distribution plan fees.
Under its terms, the Plan continues from year to year,
provided such continuance is approved annually by vote of
the Board of Directors, including a majority of the
Directors who are not interested persons of the fund and
who have no direct or indirect financial interest in the
operation of the Plan or in the Distribution Agreement (the
"Independent Directors"). The Plan may not be amended to
increase the amount of the service and distribution fees
without shareholder approval, and all 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.
PURCHASE OF SHARES
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 Investment
Sales Charge as a %
Of Transaction
Sales Charge as a %
of Amount Invested
Dealers'
Reallowance as %
Of Offering Price
Less than $25,000
5.00%
5.26%
4.50%
$ 25,000 - 49,999
4.00%
4.17%
3.60%
50,000 - 99,999
3.50%
3.63%
3.15%
100,000 - 249,999
3.00%
3.09%
2.70%
250,000 - 499,999
2.00%
2.04%
1.80%
500,000 and over
*
*
*
* Purchases of Class A shares of $500,000 or more will be
made at net asset value without any initial sales charge,
but will be subject to a deferred sales charge of 1.00% on
redemptions made within 12 months of purchase. The
deferred sales charge on Class A shares is payable to
Salomon Smith Barney, which compensates Salomon Smith
Barney Financial Consultants and other dealers whose
clients make purchases of $500,000 or more. The deferred
sales charge is waived in the same circumstances in which
the deferred sales charge applicable to Class B and Class
L shares is waived. See "Purchase of Shares-Deferred Sales
Charge Alternatives" and "Purchase of Shares-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 Salomon Smith Barney
Financial Consultant or a Dealer Representative. In
addition, certain investors, including qualified retirement
plans purchasing through certain Dealer Representatives,
may purchase shares directly from a fund. When purchasing
shares of a fund, investors must specify which class is
being purchased. Salomon Smith Barney and Dealer
Representatives may charge their customers an annual
account maintenance fee in connection with a brokerage
account through which an investor purchases or holds
shares. Accounts held directly at 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/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 sub-transfer agent. Share
certificates are issued only upon a shareholder's written
request to 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 Dealer Representative 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
Dealer Representative purchasing through Salomon Smith
Barney, payment for shares of the fund is due on the third
business day after the trade date. In all other cases,
payment must be made with the purchase order.
Systematic Investment Plan Shareholders may make additions
to their accounts at any time by purchasing shares through
a service known as the Systematic Investment Plan. Under
the Systematic Investment Plan, Salomon Smith Barney or the
sub-transfer agent is authorized through preauthorized
transfers of at least $25 on a monthly basis or at least
$50 on a quarterly basis to charge the shareholder's
account held with a bank or other financial institution on
a monthly or quarterly basis as indicated by the
shareholder, to provide for systematic additions to the
shareholder's fund account. A shareholder who has
insufficient funds to complete the transfer will be charged
a fee of up to $25 by Salomon Smith Barney or the sub-
transfer agent. The Systematic Investment Plan also
authorizes Salomon Smith Barney to apply cash held in the
shareholder's Salomon Smith Barney brokerage account or
redeem the shareholder's shares of a Smith Barney money
market fund to make additions to the account. Additional
information is available from the fund or a Salomon Smith
Barney Financial Consultant or a Dealer Representative.
Sales Charge Waivers and Reductions
Initial Sales Charge Waivers Purchases of Class A shares
may be made at net asset value without a sales charge in
the following circumstances: (a) sales to (i) Board Members
and employees of Citigroup and its subsidiaries and any
Citigroup affiliated funds including the Smith Barney
Mutual Funds (including retired Board Members and
employees); the immediate families of such persons
(including the surviving spouse of a deceased Board Member
or employee); and to a pension, profit-sharing or other
benefit plan for such persons and (ii) employees of members
of the National Association of Securities Dealers, Inc.,
provided such sales are made upon the assurance of the
purchaser that the purchase is made for investment purposes
and that the securities will not be resold except through
redemption or repurchase; (b) offers of Class A shares to
any other investment company to effect the combination of
such company with the fund by merger, acquisition of assets
or otherwise; (c) purchases of Class A shares by any client
of a newly employed Salomon Smith Barney Financial
Consultant (for a period up to 90 days from the
commencement of the Financial Consultant's employment with
Salomon Smith Barney), on the condition the purchase of
Class A shares is made with the proceeds of the redemption
of shares of a mutual fund which (i) was sponsored by the
Financial Consultant's prior employer, (ii) was sold to the
client by the Financial Consultant and (iii) was subject to
a sales charge; (d) purchases by shareholders who have
redeemed Class A shares in the fund (or Class A shares of
another Smith Barney Mutual Fund that is offered with a
sales charge) and who wish to reinvest their redemption
proceeds in the fund, provided the reinvestment is made
within 60 calendar days of the redemption; (e) purchases by
accounts managed by registered investment advisory
subsidiaries of Citigroup; (f) 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 PFPC Global Fund Services 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.
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.
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, 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 a Class L share
includes a 1.00% initial sales charge. 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 ("CDSC"), however, is imposed on certain
redemptions of Class L shares, and Class A shares when
purchased in amounts 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 CDSC 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 CDSC 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 CDSC). 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.
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 Day
and Christmas Day.
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 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 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 CDSC 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, new Class L shares will be
deemed to have been purchased on the same date as the Class
L shares of the fund that have been exchanged.
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 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 CDSC, 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,
Investors Daily, Money, Morningstar Mutual Fund Values, The
New York Times, USA Today and The Wall Street Journal. To
the extent any advertisement or sales literature of the
fund describes the expenses or performance of any Class, it
will also disclose such information for the other Classes.
Average Annual Total Return
Average annual total return' figures are computed according
to a formula prescribed by the SEC. The formula can be
expressed as follows:
P(1 + T)n = ERV
Where P = a hypothetical initial
payment of $1,000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a
hypothetical $1,000
investment made at the
beginning of a 1-, 5- or 10-
year period at the end of the
1-, 5- or 10-year period (or
fractional portion thereof),
assuming reinvestment of all
dividends and distributions.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period. A fund's
net investment income changes in response to fluctuations
in interest rates and the expenses of the fund.
Average Annual Total Return
Class of Shares
Life of fund
Inception date
Class A
0.83%
February 26, 1999
Class B
0.70%
February 26, 1999
Class L
3.60%
February 26, 1999
Average annual total return figures calculated in
accordance with the above formula assume that the maximum
5.00% sales charge has been deducted from the investment at
the time of purchase.
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.
Aggregate Total Return
Class of Shares
Life of fund
Inception date
Class A1
6.14%
February 26, 1999
Class B2
5.70%
February 26, 1999
Class L3
5.70%
February 26, 1999
1 The aggregate total return figures do not assume the
maximum 5.00% sales charge has been deducted from the
investment at the time of purchase. If the maximum
sales charge had been deducted, the aggregate total
return for Class A shares for the same period would have
been 0.83%.
2 The aggregate total return figures do not assume the
maximum applicable CDSC has been deducted from the
investment at the time of redemption. If the maximum
CDSC had been deducted, the aggregate total return for
Class B shares for the same period would have been
0.70%.
3 The aggregate total return figures do not assume the
maximum 1.00% sales charge has been deducted from the
investment at the time of redemption. If the maximum
sales charge had been deducted, the aggregate total
return for Class L shares for the same period would have
been 3.60%.
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.
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 Company intends to qualify each year as a regulated
investment company under the Code. If the fund (a)
qualifies as a regulated investment company and
(b) distributes to its shareholders at least 90% of its net
investment income (including, for this purpose, its net
realized short-term capital gains), the fund will not be
liable for Federal income taxes to the extent that its net
investment income and its net realized long- and short-term
capital gains, if any, are distributed to its shareholders.
As described above, the fund may invest in futures
contracts and options on futures contracts that are traded
on a U.S. exchange or board of trade. As a general rule,
these investment activities will increase or decrease the
amount of long-term and short-term capital gains or losses
realized by the fund and, thus, will affect the amount of
capital gains distributed to the fund's shareholder.
For federal income tax purposes, gain or loss on the
futures and options described above (collectively referred
to as "Section 1256 Contracts") would, as a general rule,
be taxed pursuant to a special mark-to-market system.
Under the mark-to-market system, the fund may be treated as
realizing a greater or lesser amount of gains or losses
than actually realized. As a general rule, gain or loss on
Section1256 Contracts is treated as 60% long-term capital
gain or loss and 40% short-term capital losses taxable to
the fund and the amount of distributions taxable to a
shareholder. Moreover, if the fund invests in both
Section 1256 and offsetting positions in those contracts,
then the fund may not be able to receive the benefit of
certain realized losses for an indeterminate period of
time. The fund expects that its activities with respect to
Section 1256 Contracts and offsetting position in those
Contracts (1) will not cause it or its shareholders to be
treated as receiving a materially greater amount of capital
gains or distributions than actually realized or received
and (2) will permit it to use substantially all of its
losses for the fiscal years in which the losses actually
occur.
Gains or losses on the sales of stock or securities by the
fund generally will be long-term capital gains or losses if
a fund has held the stock or securities for more than one
year. Gains or losses on sales of stock or securities held
for not more than one year generally will be short-term
capital gains or losses.
Foreign countries may impose withholding and other taxes on
dividends and interest paid to the fund with respect to
investments in foreign securities. However, certain
foreign countries have entered into tax conventions with
the United States to reduce or eliminate such taxes.
Distributions of long-term capital gains will be taxable to
shareholders as such, whether paid in cash or reinvested in
additional shares and regardless of the length of time that
the shareholder has held his or her interest in the fund.
If a shareholder receives a distribution taxable as
long-term capital gain with respect to his or her
investment in the fund and redeems or exchanges the shares
before he or she has held them for more than six months,
any loss on the redemption or exchange that is less than or
equal to the amount of the distribution will be treated as
a long-term capital loss.
Any net long-term capital gains realized by the fund will
be distributed annually as described in the prospectus.
Such distributions ("capital gain dividends") will be
taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held fund shares,
and will be designated as capital gain dividends in a
written notice mailed by the fund to shareholders after the
close of the fund's prior taxable year. If a shareholder
receives a capital gain dividend with respect to any share
and if the share has been held by the shareholder for six
months or less, then any loss on the sale or exchange of
such share will be treated as a long-term capital loss to
the extent of the capital gain dividend.
Investors considering buying shares of the fund on or just
prior to a record date for a taxable dividend or capital
gain distribution should be aware that, regardless of
whether the price of the fund shares to be purchased
reflects the amount of the forthcoming dividend or
distribution payment, any such payment will be a taxable
dividend or distribution payment.
If a shareholder fails to furnish a correct taxpayer
identification number, fails 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.
ADDITIONAL INFORMATION
The Company was organized as a Maryland corporation pursuant
to Articles of incorporation dated September 29, 1981, as
amended from time to time. The fund offers shares of common
stock currently classified into four Classes, A, B, L and Y,
with a par value of $.001 per share. Each Class 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 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 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 Company 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 Company's outstanding shares and
the Company will assist shareholders in calling such a
meeting as required by the 1940 Act. When matters are
submitted for shareholders vote, shareholders of each Class
will have one vote for each full share owned and a
proportionate, fractional share vote for any fractional
share held of that Class. Generally, shares of the Company
will be voted on a Company-wide basis on all matters except
matters affecting only the interests of one fund or one
Class of shares.
The fund sends its shareholders a semi-annual report and an
audited annual report, which include a list of the
investment securities held by the fund at the end of the
reporting period. In an effort to reduce the fund's
printing and mailing costs, the Company plans to consolidate
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. Shareholders who do
not want this consolidation to apply to their accounts
should contact their Salomon Smith Barney Financial
Consultant or the Fund's Transfer Agent.
The Company was incorporated on September 29, 1981 under the
name Hutton Investment Series, Inc. The Company's corporate
name was changed on December 29, 1988, July 30, 1993 and
October 28, 1994 to SLH Investment Portfolios Inc., Smith
Barney Shearson investment Fund Inc., and Smith Barney
Investment Funds Inc., respectively.
PNC Bank, National Association, located at 17th and
Chestnut Streets, Philadelphia, Pennsylvania 19103, serves
as the custodian of the Company on behalf of the fund. Under
the custody agreement with the Company on behalf of the
fund, PNC holds the fund's portfolio securities and keeps
all necessary accounts and records. For its services, PNC
receives a monthly fee based upon the month-end market value
of securities held in custody and also receives certain
securities transaction charges. The assets of the fund are
held under bank custodianship in compliance with the 1940
Act.
Smith Barney Private Trust Company, located at 388 Greenwich
Street, New York, NY 10013 serves as the Transfer Agent and
shareholder services agent of the fund. PFPC Global Fund
Services, located at P.O Box 9699 Providence, RI 02940-9699
serves as the fund's sub-transfer agent to render certain
shareholder record keeping and accounting services
functions.
As of January 25, 2000, there are currently no shareholders
beneficially owned 5% or more of a class of shares of the
fund:
FINANCIAL STATEMENTS
The fund's Annual Report to Shareholders for the fiscal year
ended September 30, 1999 is incorporated by reference in its
entirety into this statement of additional information.
OTHER INFORMATION
In an industry where the average portfolio manager has
seven years of experience (source: ICI, 1998), the
portfolio managers of Smith Barney Mutual Funds average 21
years in the industry and 15 years with the firm.
Smith Barney Mutual Funds offers more than 60 mutual funds.
We understand that many investors prefer an active role in
allocating the mix of funds in their portfolio, while
others want the asset allocation decisions to be made by
experienced managers.
That's why we offer four "styles" of fund management that
can be tailored to suit each investor's unique financial
goals.
Style Pure Series
Our Style Pure Series funds stay fully invested
within their asset class and investment style,
enabling investors to make asset allocation
decisions in conjunction with their Salomon Smith
Barney Financial Consultant.
Classic Investor Series
Our Classic Investor Series funds offer a range of
equity and fixed income strategies that seek to
capture opportunities across asset classes and
investment styles using disciplined investment
approaches.
The Concert Allocation Series
As a fund of funds, investors can select a Concert
Portfolio that may help their investment needs. As
needs change, investors can easily choose another
long-term, diversified investment from our Concert
family.
Special Discipline Series
Our Special Discipline Series funds are designed for
investors who are looking beyond more traditional
market categories: from natural resources to a
roster of state-specific municipal funds.
36
PART C - OTHER INFORMATION
Item 23. Exhibits
All references are to the Registrant's registration
statement on Form N-1A (the "Registration Statement")
as filed with the SEC on October 2, 1981(File Nos. 2-
74288 and 811-3275).
(a) Articles of Restatement dated September 17, 1993
to Registrant's Articles of Incorporation dated
September 28, 1981, Articles of Amendment dated
October 14, 1994, Articles Supplementary, Articles of
Amendment dated October 14, 1994, Articles
Supplementary, Articles of Amendments and Certificates
of Correction dated November 7, 1994, are incorporated
by reference to Post-Effective Amendment No. 37 to the
Registration Statement filed on November 7, 1994.
Articles of Amendment dated October 23, 1997 are
incorporated by reference to Post-Effective Amendment
No. 46 filed on October 23, 1997("Post-Effective
Amendment No.46"). Articles of Amendment dated
February 27, 1998 are incorporated by reference
to Post-Effective Amendment No. 48 dated April 29, 1998.
Articles of Amendment dated June 1, 1998 are incorporated
by reference to Post-Effective Amendment No. 49 filed on
July
16, 1998 ("Post-Effective Amendment No. 49").
(b) Registrant's By-Laws, as amended on September 30,
1992 are incorporated by reference to Post-Effective
Amendment No. 30 to the Registration Statement filed
on April 30, 1993.
(c) Registrant's form of stock certificate for Smith
Barney Hansberger Global Value Fund ("Global Value
Fund") and Smith Barney Hansberger Global Value Small
Cap Fund ("Small Cap Fund") is incorporated by
reference to Post Effective Amendment 46.
(d)(1) Investment Advisory Agreement dated July 30,
1993, between the Registrant on behalf of Smith Barney
Investment Grade Bond Fund, Smith Barney Government
Securities Fund and Smith Barney Special Equities
Fund and Greenwich Street Advisors is incorporated by
reference to the Registration Statement filed on Form
N-14 on September 2, 1993, File No. 33-50153.
(d)(2) Investment Advisory Agreements on behalf of
Smith Barney Growth Opportunity Fund and Smith Barney
Managed Growth Fund is incorporated by reference to
Post-Effective Amendment No. 40 filed on June 27,
1995. ("Post-Effective Amendment No.40")
(d)(3) Investment Management Agreements on behalf of
Global Value Fund and Global Small Cap Fund between
Registrant and Smith Barney Mutual Funds Management
Inc. is incorporated by reference to Post-Effective
Amendment No. 46.
(d)(4) Sub-Advisory Agreement on behalf of Global
Value Fund and Global Small Cap Fund between MMC and
Hansberger Global Investors Inc. is
incorporated by reference to Post-Effective
Amendment No. 46.
(d)(5)Investment Management Agreements on behalf of
Smith Barney Small Cap Growth Fund and Smith Barney
Small Cap Value Fund between Registrant and
Mutual Management Corp. is incorporated by reference
To Post-Effective Amendment No. 49.
(e)(1) Distribution Agreement dated July 30, 1993,
between the Registrant and Smith Barney Shearson Inc.
is incorporated by reference to the registration
statement filed on Form N-14 on September 2, 1993.
File 33-50153.
(e)(2) Form of Distribution Agreement between the
Registrant and PFS Distributors on behalf of Smith
Barney Investment Funds Inc. is incorporated by
reference to Post-Effective Amendment No. 40 filed on
June 27, 1995.
(e)(3) Form of Distribution Agreement between the
Registrant and CFBDS, Inc. is incorporated by reference
to Post-Effective Amendment No. 49.
(e)(4) Selling Group Agreement
is incorporated by reference
to Post-Effective Amendment No.56 filed on
February 26, 1999.
(f) Not Applicable.
(g)(1) Custodian Agreement with PNC Bank, National
Association is incorporated by reference to Post -
Effective Amendment No. 44 filed on April 29, 1997.
(g)(2) Custodian Agreement with Chase Manhattan Bank
is incorporated by reference to Post-Effective
Amendment No. 46.
(h)(1) Transfer Agency and Registrar Agreement dated
August 5, 1993 with First Data Investor Services
Group, Inc. (formerly The Shareholder Services Group,
Inc.) is incorporated by reference to Post-Effective
Amendment No. 31 as filed on December 22, 1993 (Post-
Effective Amendment No. 31").
(h)(2)Sub-Transfer Agency Agreement between the
Registrant and PFS Shareholders Services on behalf of
Smith Barney Investment Funds Inc. is incorporated by
reference to Post-Effective Amendment No. 40.
(i) Opinion of Robert A. Vegliante, Deputy General
Counsel of Smith Barney Mutual Funds Management Inc.
filed with the Registrant's rule 24-f2 Notice
(Accession No. 000091155-97-000104) is incorporated by
reference.
(j) Auditor's consent filed herewith.
(k) Not Applicable
(l) Not Applicable
(m)(1) Amended Services and Distribution Plans
pursuant to Rule 12b-1 between the Registrant on behalf
of Smith Barney Investment Grade Bond Fund, Smith
Barney Government Securities Fund, Smith Barney Special
Equities Fund and Smith Barney European Fund and Smith
Barney, Inc. ("Smith Barney") are incorporated by
reference to Post-Effective Amendment No. 37 filed on
November 3, 1994 ("Post-Effective Amendment No. 37")
(m)(2) Form of Services and Distribution Plans
pursuant to Rule 12b-1 between the Registrant on
behalf of Smith Barney Growth Opportunity Fund and
Smith Barney Managed Growth Fund is incorporated by
reference to Post-Effective Amendment No. 40.
(m)(3) Form of Services and Distribution Plans
pursuant to Rule 12b-1 between the Registrant on
behalf of the Global Value Fund and Small Cap Fund is
incorporated by reference to Post-Effective Amendment
No. 46.
(m)(4) Form of Amended and Restated Shareholder Services
and
Distribution Plan pursuant to Rule 12b-1 between
the Registrant on behalf of each of its series
is incorporated by reference to Post-Effective Amendment
No. 49.
(n) Financial Data Schedule filed herewith.
(o) Form of Plan pursuant to Rule 18f-3 is incorporated by
reference to Post-Effective Amendment No.50 to
Registration Statement.
Item 24.
None.
Item 25. Indemnification
The response to this item is incorporated by
reference to Pre-Effective Amendment No. 1 to the
registration statement filed on Form N-14 on October
8, 1993 (File No. 33-50153).
Item 26. Business and Other Connections of Investment Adviser
Investment Adviser - - SSB Citi Fund Management LLC ("SSB Citi")
formerly known as SSBC Fund Management Inc. ("SSBC")
SSBC was incorporated in December 1968 under the laws
of the State of Delaware. On September 21, 1999, SSBC
was converted into a Delaware Limited Liability Company.
SSB Citi is a wholly owned subsidiary of Salomon Smith Barney
Holdings Inc. ("Holdings") (formerly known as Smith Barney
Holdings Inc.) which in turn is a wholly owned subsidiary
of Citigroup Inc. ("Citigroup"). SSB Citi is registered
as an investment adviser under the Investment Advisers Act
of 1940 (the "Advisers Act").
The list required by this Item 26 of officers and
directors of SSB Citi together with information as to
any other business, profession, vocation or employment of a
substantial nature engaged in by such officers and directors during
the past two years, is incorporated by reference to Schedules A and D
of FORM ADV filed by SSBC pursuant to the Advisers Act
(SEC File No. 801-8314).
Item 27. Principal Underwriters
(a) CFBDS, Inc. the Registrant's Distributor, is also
the distributor for
CitiFundsSM International Growth & Income Portfolio,
CitiFundsSM International Equity Portfolio, CitiFundsSM
Large Cap
Growth
Portfolio, CitiFundsSM Intermediate Income Portfolio,
CitiFundsSM Short-Term U.S. Government Income Portfolio,
CitiFundsSM Emerging Asian Markets Equity Portfolio,
CitiFundsSM U.S. Treasury Reserves, CitiFundsSM Cash
Reserves,
CitiFundsSM Premium U.S. Treasury Reserves,
CitiFundsSM Premium Liquid Reserves, CitiFundsSM
Institutional U.S.
Treasury Reserves, CitiFundsSM Institutional Liquid
Reserves,
SM Institutional Cash Reserves, CitiFundsSM Tax Free
Reserves,
CitiFundsSM Institutional Tax Free Reserves,
CitiFundsSM California Tax Free Reserves,
CitiFundsSM Connecticut Tax Free Reserves,
CitiFundsSM New York Tax Free Reserves, CitiFundsSM
Balanced Portfolio,
CitiFundsSM Small Cap Value Portfolio, CitiFundsSM Growth &
Income
Portfolio,
CitiFundsSM Small Cap Growth Portfolio, CitiFundsSM
National
Tax Free Income Portfolio, CitiFundsSM New York Tax Free
Income
Portfolio,
CitiSelect VIP Folio 200, Citiselect VIP Folio 300,
CitiSelect (VIP Folio 400, CitiSelect (VIP Folio 500,
CitiFundsSM Small Cap Growth VIP Portfolio, CitiSelect
(Folio 200,
CitiSelect (Folio 300, CitiSelect (Folio 400, and
CitiSelect (Folio
500.
CFBDS is also the placement agent for Large Cap Value
Portfolio,
International Portfolio, Foreign Bond Portfolio,
Intermediate Income Portfolio, Short-Term Portfolio,
Growth & Income Portfolio, Large Cap Growth Portfolio,
Small Cap Growth Portfolio, International Equity Portfolio,
Balanced Portfolio, Government Income Portfolio, Emerging
Asian Markets Equity Portfolio, Tax Free Reserves
Portfolio,
Cash Reserves Portfolio and U.S. Treasury Reserves
Portfolio.
CFBDS, Inc. is also the distributor for the following
Smith Barney Mutual Fund registrants:
Concert Investment Series
Consulting Group Capital Markets Funds
Greenwich Street Series Fund
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Concert Allocation Series Inc.
Smith Barney Equity Funds
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.
Smith Barney Income Funds
Smith Barney Institutional Cash Management Fund, Inc.
Smith Barney Investment Trust
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc.
Smith Barney Muni Funds
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Natural Resources Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund Inc.
Smith Barney Principal Return Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Telecommunications Trust
Smith Barney Variable Account Funds
Smith Barney World Funds, Inc.
Travelers Series Fund Inc.
And various series of unit investment trusts.
CFBDS, Inc. is also the distributor for the following
Salomon Brothers funds;
Salomon Brothers Opportunity Fund Inc
Salomon Brothers Investors Fund Inc
Salomon Brothers Capital Fund Inc
Salomon Brothers Series Funds Inc
Salomon Brothers Institutional Series Funds Inc
Salomon Brothers Variable Series Funds Inc
The information required by this Item 27 with respect
to each director, officer and partner of CFBDS, Inc.
is incorporated by reference to Schedule A of Form BD
filed by CFBDS, Inc. pursuant to the Securities
Exchange Act of 1934 (SEC File No. 8-32417).
Item 28. Location of Accounts and Records
(1) Smith Barney Investment Funds Inc.
388 Greenwich Street
New York, New York 10013
(2) SSB Citi Fund Management LLC
388 Greenwich Street
New York, New York 10013
(3) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, PA
(4) The Chase Manhattan Bank
Chase Metrotech Center
Brooklyn, New York 11245
(5) Smith Barney Private Trust Company
388 Greenwich Street
New York, New York 10013
(6) PFPC Global Services
P.O. Box 9699
Providence RI 02940-9699
(7) CFBDS Inc.
21 Milk Street, 5th floor
Boston, Massachusetts 02109
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Not applicable
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of
1940, as amended, the Registrant, SMITH BARNEY
INVESTMENT FUNDS INC., has duly caused this Amendment
to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized,
all in the City of New York, State of New York on the
28th day of January, 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 1/28/00
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Senior Vice President
Lewis E. Daidone and Treasurer 1/28/00
(Chief Financial
and Accounting Officer)
/s/ Paul R. Ades * Director 1/28/00
Paul R. Ades
/s/ Herbert Barg* Director 1/28/00
Herbert Barg
/s/ Dwight B. Crane* Director 1/28/00
Dwight B. Crane
/s/ Frank Hubbard* Director 1/28/00
Frank Hubbard
/s/ Jerome Miller** Director 1/28/00
Jerome Miller
/s/ Ken Miller* Director 1/28/00
Ken Miller
*Signed by Heath B. McLendon, their duly authorized
attorney-in-fact, pursuant
to power of attorney dated November 3, 1994.
**Signed by Heath B. McLendon, their duly authorized
attorney-in-fact, pursuant
to power of attorney dated April 15, 1998.
/s/ Heath B. McLendon
Heath B. McLendon
EXHIBITS
Exhibit No. Description of Exhibit
Cover
(j) Auditor's consent
(n) Financial Data Schedule
Independent Auditors' Consent
To the Shareholders and Board of Directors of
Smith Barney Small Cap Value Fund:
We consent to the incorporation by reference, in this
Prospectus and Statement of Additional Information, of
our report dated November 16, 1999, on the statement of
assets and liabilities for the Smith Barney Small Cap
Value Fund (the Fund) as of September 30, 1999 and the
related statements of operations , changes in net assets,
and financial highlights for the period February 26, 1999
(commencement of operations) to September 30, 1999. These
financial statements and financial highlights and our
report thereon are included in the Annual Report of the
Fund as filed on Form N-30D.
We also consent to the references to our firm under the
headings "Financial Highlights"in the Prospectus and
"Counsel and Auditors" in the Statement of Additional
Information.
K
P
M
G
L
L
P
New York, New York
January 28, 2000
Page
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