<PAGE>
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
Peachtree Growth
Fund
Class A, B, L and Y Shares
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March 13, 2000
as amended September 11, 2000
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INVESTMENT PRODUCTS . NOT FDIC INSURED . NO BANK GUARANTEE . MAY LOSE VALUE
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The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Peachtree Growth Fund
Contents
<TABLE>
<S> <C>
Investments, risks and performance.......................................... 2
More on the fund's investments.............................................. 6
Management.................................................................. 7
Choosing a class of shares to buy........................................... 8
Comparing the fund's classes................................................ 9
Sales charges............................................................... 10
More about deferred sales charges........................................... 12
Buying shares............................................................... 13
Exchanging shares........................................................... 14
Redeeming shares............................................................ 15
Other things to know about share transactions............................... 18
Dividends, distributions and taxes.......................................... 20
Share price................................................................. 21
Financial highlights........................................................ 22
</TABLE>
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
Investment objective
The fund seeks capital appreciation.
Principal investment strategies
Key investments The fund invests primarily in common stocks of companies with
medium and large market capitalizations.
To a lesser extent, the fund also may invest in common stocks of companies with
small market capitalizations and other equity securities, including exchange
traded and over-the-counter common stocks and preferred shares, debt securities
convertible into equity securities, and warrants and rights relating to equity
securities.
Selection process The manager emphasizes individual security selection, while
diversifying across industries and sectors. The manager uses a disciplined man-
agement style involving both quantitative analysis and fundamental research.
The manager uses a computer-aided quantitative model supported by its own fun-
damental qualitative research. In selecting individual securities for invest-
ment, the manager looks for the following:
.Above average potential for capital appreciation
.Strong, sustainable earnings growth
.Stocks of companies in cyclical industries that the manager believes are tem-
porarily depressed
.Experienced and effective management
.Effective research, product development and marketing
.Competitive advantages
Peachtree Growth Fund
2
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
. The stock market declines
. Companies with medium and large market capitalizations fall out of favor with
investors
. Companies in which the fund invests fail to meet earnings expectations, or
other events depress their stock prices
. The manager's judgment about the attractiveness, value or potential apprecia-
tion of a particular stock proves to be incorrect
Who may want to invest The fund may be an appropriate investment if you:
. Are seeking to participate in the long-term capital appreciation potential of
the stock market
. Are planning for a long-term goal and are willing to accept periods of market
volatility
. Are willing to accept the risks of investing in the stock market
Smith Barney Mutual Funds
3
<PAGE>
Risk return bar chart
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not neces-
sarily indicate how the fund will perform in the future. The bar chart shows
the performance of the fund's Class A shares for each of the past 4 years*.
Class B, L and Y shares would have different performance because of their dif-
ferent expenses. The performance information in the chart does not reflect
sales charges, which would reduce your return.
Total Return for Class A Shares
[GRAPH]
1996 13.96%
1997 5.18%
1998 33.13%
1999 19.88%
Calendar years ended December 31
*The fund's current management team began managing the fund in August 1997.
Quarterly returns:
Highest: 29.90% in 4th quarter 1998; Lowest: (12.26)% in 3rd quarter 1998
Risk return table
This table indicates the risks of investing in the fund by comparing the aver-
age annual total return of each class for the periods shown with that of the
Russell 1000 Growth Index, a broad-based unmanaged index of large capitaliza-
tion growth oriented common stocks and the Standard & Poor's 500 Index, a
broad-based unmanaged index of 500 widely held common stocks. This table
assumes imposition of the maximum sales charge applicable to the class, redemp-
tion of shares at the end of the period, and reinvestment of distributions and
dividends.
Average Annual Total Returns
Calendar Years Ended December 31, 1999
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since inception Inception Date
<S> <C> <C> <C> <C> <C>
A 13.90% n/a n/a 17.72% 07/03/95
B 13.88% n/a n/a 18.02% 07/03/95
L 16.45% n/a n/a 17.00% 08/08/95
Y 20.41% n/a n/a 27.23% 10/15/97
Standard & Poor's 500
Index+ 21.03% n/a n/a 26.50% *
Russell 1000 Growth
Index+ 33.16% n/a n/a 30.55% *
</TABLE>
*Index comparison begins on 07/31/95
+It is management's opinion that the Standard & Poor's 500 Index more accu-
rately reflects the current composition of the fund than the Russell 1000
Growth Index
Peachtree Growth Fund
4
<PAGE>
Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price) 5.00% None 1.00% None
Maximum deferred sales charge (load) (as a %
of the lower of net asset value at purchase or
redemption) None* 5.00% 1.00% None
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund assets)
<S> <C> <C> <C> <C>
Management fee 0.99% 0.99% 0.99% 0.99%
Distribution and service (12b-1) fee 0.25% 1.00% 1.00% None
Other expenses 0.20% 0.25% 0.57% 0.01%
----- ----- ----- -----
Total annual fund operating expenses 1.44% 2.24% 2.56% 1.00%
</TABLE>
*You may buy Class A shares in amounts of $1,000,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
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) $639 $ 933 $1,248 $2,138
Class B
(redemption at end of period) $727 $1,000 $1,300 $2,377
Class B
(no redemption) $227 $ 700 $1,200 $2,377
Class L
(redemption at end of period) $457 $ 889 $1,447 $2,966
Class L
(no redemption) $357 $ 889 $1,447 $2,966
Class Y
(with or without redemption) $102 $ 318 $ 552 $1,225
</TABLE>
Smith Barney Mutual Funds
5
<PAGE>
More on the fund's investments
Foreign securities The fund may invest in American Depository Receipts (ADRs)
and other securities quoted in U.S. dollars of foreign issuers, including those
in emerging markets. Because the fund may invest in securities of foreign
issuers, the fund carries additional risks. The value of your investment may
decline if the U.S. and/or foreign stock markets decline or an adverse event,
such as an unfavorable earnings report, depresses the value of a particular
company's stock. Prices of foreign securities may decline because of foreign
government actions, political instability or the more limited availability of
accurate information about foreign companies. These risks may be more severe
for securities of issuers in emerging markets.
Defensive investing The fund may depart from its principal investment strate-
gies in response to adverse market, economic or political conditions by taking
temporary defensive positions in all types of money market and short-term debt
securities. If the fund takes a temporary defensive position, it may be unable
to achieve its investment goal.
Peachtree Growth Fund
6
<PAGE>
Management
Manager The fund's investment manager is SSB Citi Fund Management LLC (succes-
sor to SSBC Fund Management Inc.), an affiliate of Salomon Smith Barney Inc.
The manager's address is 388 Greenwich Street, New York, New York 10013. The
manager selects the fund's investments and oversees its operations. The manager
and Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup busi-
nesses produce a broad range of financial services--asset management, banking
and consumer finance, credit and charge cards, insurance, investments, invest-
ment banking and trading--and use diverse channels to make them available to
consumer and corporate customers around the world.
Dennis A. Johnson, CFA, investment officer of the manager and president and
chief investment officer of Peachtree Asset Management, a division of the man-
ager, has been responsible for the management of the fund since August 1997.
Management fee For its services, the manager received a fee during the fund's
last fiscal year equal to 0.99% of the fund's average daily net assets.
Distribution plan The fund has adopted a Rule 12b-1 distribution plan for its
Class A, B and L shares. Under the plan, the fund pays distribution and/or
service fees. These fees are an ongoing expense and, over time, may cost you
more than other types of sales charges.
In addition, a distributor may make payments for distribution and/or share-
holder servicing activities out of its past profits and other available sourc-
es. A distributor may also make payments for marketing, promotional or related
expenses to dealers. The amount of these payments is determined by the distrib-
utor and may be substantial. The manager or an affiliate may make similar pay-
ments under similar arrangements.
Transfer agent and shareholder servicing agent Citi Fiduciary Trust Company
serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). The transfer agent has entered into sub-transfer agency and
services agreements with PFPC Global Fund Services and PFS Shareholder Services
to serve as the fund's sub-transfer agents (the "sub-transfer agents") The sub-
transfer agents will perform certain shareholder record keeping and accounting
services.
Smith Barney Mutual Funds
7
<PAGE>
Choosing a class of shares to buy
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
. If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses.
. For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
. Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term
investors.
You may buy shares from:
. A broker-dealer, financial intermediary, financial institution or a
distributor's financial consultants (each called a "Service Agent")
. The fund, but only if you are investing through certain qualified plans or
Service Agents
All classes of shares are not available through all Service Agents. You should
contact your Service Agent for further information.
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
Initial Additional
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $250 $15 million $50
Qualified Retirement Plans* $25 $15 million $25
Simple IRAs $1 n/a $1
Monthly Systematic Investment Plans $25 n/a $25
Quarterly Systematic Investment Plans $50 n/a $50
</TABLE>
*Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k)
plans
Peachtree Growth Fund
8
<PAGE>
Comparing the fund's classes
Your Service Agent can help you decide which class meets your goals. The Serv-
ice Agent may receive different compensation depending upon which class you
choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .Initial .No initial
sales sales sales or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge .Deferred .Must
tion or declines sales invest at
waiver of over time charge for least $15
initial .Converts only 1 million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than Class expenses annual classes
B and than Class expenses
Class L A than Class
A
------------------------------------------------------------------------
Initial sales charge Up to None 1.00% None
5.00%;
reduced for
large pur-
chases and
waived for
certain
investors.
No charge
for pur-
chases of
$1,000,000
or more
------------------------------------------------------------------------
Deferred sales charge 1% on pur- Up to 5% 1% if you None
chases of charged redeem
$1,000,000 when you within 1
or more if redeem year of
you redeem shares. The purchase
within 1 charge is
year of reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
------------------------------------------------------------------------
Annual distribution and 0.25% of 1% of aver- 1% of aver- None
service fees average age daily age daily
daily net net assets net assets
assets
------------------------------------------------------------------------
Exchangeable into* Class A Class B Class L Class Y
shares of shares of shares of shares of
most Smith most Smith most Smith most Smith
Barney Barney Barney Barney
funds funds funds funds
------------------------------------------------------------------------
</TABLE>
*Ask your Service Agent for the Smith Barney funds available for exchange.
Smith Barney Mutual Funds
9
<PAGE>
Sales charges
Class A shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge
on the fund's distributions or dividends you reinvest in additional Class A
shares.
The table below shows the rate of sales charge you pay, depending on the amount
you purchase.
The table below also shows the amount of broker/dealer compensation that is
paid out of the sales charge. This compensation includes commissions and other
fees Service Agents that sell shares of the fund receive. The distributors keep
up to approximately 10% of the sales charge imposed on Class A shares. Service
Agents also will receive the service fee payable on Class A shares at an annual
rate equal to 0.25% of the average daily net assets represented by the Class A
shares sold by them.
<TABLE>
<CAPTION>
Sales charge as a % of
Broker/
Dealer
Commission
Offering Net amount as % of
Amount of purchase price (%) invested (%) offering price
<S> <C> <C> <C>
Less than $25,000 5.00 5.26 4.50
$25,000 but less than $50,000 4.25 4.44 3.83
$50,000 but less than $100,000 3.75 3.90 3.38
$100,000 but less than $250,000 3.25 3.36 2.93
$250,000 but less than $500,000 2.75 2.83 2.48
$500,000 but less than $1,000,000 2.00 2.04 1.80
$1,000,000 or more - 0 - - 0 - up to 1.00*
</TABLE>
*A distributor pays up to 1.00% to a Service Agent.
Investments of $1,000,000 or more You do not pay an initial sales charge when
you buy $1,000,000 or more of Class A shares. However, if you redeem these
Class A shares within one year of purchase, you will pay a deferred sales
charge of 1%.
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.
Peachtree Growth Fund
10
<PAGE>
Accumulation privilege - lets you combine the current value of Class A shares
owned
. by you, or
. by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase
of Class A shares for purposes of calculating the initial sales charge. Cer-
tain trustees and fiduciaries may be entitled to combine accounts in deter-
mining their sales charge.
Letter of intent - lets you purchase Class A shares of the fund and other Smith
Barney funds over a 13-month period and pay the same sales charge, if any, as
if all shares had been purchased at once. You may include purchases on which
you paid a sales charge within 90 days before you sign the letter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
. Employees of NASD members
. Investors participating in a fee-based program sponsored by certain broker-
dealers affiliated with Citigroup
. Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Service Agent is notified
If you want to learn about additional waivers of Class A initial sales charges,
contact your Service agent or consult the Statement of Additional Information
("SAI").
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>
Service Agents selling Class B shares receive a commission of up to 4.50% of
the purchase price of the Class B shares they sell. Service Agents also receive
a service fee at an annual rate equal to 0.25% of the average daily net assets
represented by the Class B shares they are servicing.
Smith Barney Mutual Funds
11
<PAGE>
Class B conversion After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
Shares issued: Shares issued:
On reinvestment of Upon exchange from
Shares issued: dividends and another Smith Barney
At initial purchase distributions fund
<S> <C> <C>
Eight years after the date of purchase In same proportion On the date the
as the number of shares originally
Class B shares acquired would
converting is to have converted
total Class B into Class A
shares you own shares
(excluding shares
issued as
dividends)
</TABLE>
Class L Shares (available through certain Service Agents)
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund and/or other Smith
Barney funds on June 12, 1998, you will not pay an initial sales charge on
Class L shares you buy before June 22, 2001.
Service Agents selling Class L shares receive a commission of up to 2.00% of
the purchase price of the Class L shares they sell. Starting in the thirteenth
month, Service Agents also receive an annual fee of up to 1.00% of the average
daily net assets represented by the Class L shares held by their clients.
Class Y Shares (available through certain Service Agents)
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of pur-
chase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
Peachtree Growth Fund
12
<PAGE>
In addition, you do not pay a deferred sales charge on:
. Shares exchanged for shares of another Smith Barney fund
. Shares representing reinvested distributions and dividends
. Shares no longer subject to the deferred sales charge
Each time you place a request to redeem shares, the fund will first redeem any
shares in your account that are not subject to a deferred sales charge and then
the shares in your account that have been held the longest.
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Service Agent.
The fund's distributors receive deferred sales charges as partial compensation
for their expenses in selling shares, including the payment of compensation to
your Service Agent.
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
. On payments made through certain systematic withdrawal plans
. On certain distributions from a retirement plan
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Service Agent or consult the SAI.
Buying shares
Through a You should contact your Service Agent to open a brokerage
Service Agent account and make arrangements to buy shares.
If you do not provide the following information, your order
will be rejected:
. Class of shares being bought
. Dollar amount or number of shares being bought
Your Service Agent may charge an annual account maintenance
fee.
Smith Barney Mutual Funds
13
<PAGE>
--------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who
fund are clients of certain Service Agents are eligible to buy
shares directly from the fund.
. Write the fund at the following address:
Smith Barney Investment Funds Inc.
Peachtree Growth Fund
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
. Enclose a check to pay for the shares. For initial pur-
chases, complete and send an account application.
. For more information, call the transfer agent at 1-800-451-
2010.
--------------------------------------------------------------------------------
Through a You may authorize a Service Agent or a sub-transfer agent to
systematic transfer funds automatically from (i) a regular bank account
investment (ii) cash held in a brokerage account opened with a Service
plan Agent or (iii) certain money market funds, in order to buy
shares on a regular basis.
. Amounts transferred should be at least: $25 monthly or $50
quarterly
. If you do not have sufficient funds in your account on a
transfer date, your Service Agent or the sub-transfer agent
may charge you a fee
For more information, contact your Service Agent or the
transfer agent or consult the SAI.
Exchanging shares
Smith Barney You should contact your Service Agent to exchange into other
offers a Smith Barney funds. Be sure to read the prospectus of the
distinctive Smith Barney fund you are exchanging into. An exchange is a
family of taxable transaction.
funds
tailored to . You may exchange shares only for shares of the same class
help meet the of the another Smith Barney fund. Not all Smith Barney
varying needs funds offer all classes.
of both large
and small . Not all Smith Barney funds may be offered in your state of
investors. residence. Contact your Service Agent or the transfer agent
for further information.
Peachtree Growth Fund
14
<PAGE>
. You must meet the minimum investment amount for each fund
(except for systematic investment plan exchanges).
. If you hold share certificates, the sub-transfer agent must
receive the certificates endorsed for transfer or with
signed stock powers (documents transferring ownership of
certificates) before the exchange is effective.
. The fund may suspend or terminate your exchange privilege
if you engage in an excessive pattern of exchanges.
--------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will continue to be mea-
sured from the date of your original purchase. If the fund
you exchange into has a higher deferred sales charge, you
will be subject to that charge. If you exchange at any time
into a fund with a lower charge, the sales charge will not be
reduced.
--------------------------------------------------------------------------------
By telephone
If you do not have a brokerage account with a Service Agent,
you may be eligible to exchange shares through the fund. You
must complete an authorization form to authorize telephone
transfers. If eligible, you may make telephone exchanges on
any day the New York Stock Exchange is open. For clients of a
PFS Investments Registered Representative, call PFS Share-
holder Services at 1-800-544-5445 between 8:00 a.m. and 8:00
p.m. (Eastern time). All other shareholders should call the
transfer agent at 1-800-451-2010 between 9:00 a.m. and 4:00
p.m. (Eastern time). Requests received after the close of
regular trading on the Exchange are priced at the net asset
value next determined.
You can make telephone exchanges only between accounts that
have identical registrations.
--------------------------------------------------------------------------------
By mail
If you do not have a brokerage account, contact your Service
Agent or write to a sub-transfer agent at the address on the
following page.
Redeeming shares
Generally
Contact your Service Agent to redeem shares of the fund.
If you hold share certificates, the sub-transfer agent must
receive the certificates endorsed for transfer or
Smith Barney Mutual Funds
15
<PAGE>
with signed stock powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However,
if you recently purchased your shares by check, your redemp-
tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.
If you have a brokerage account with a Service Agent, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
--------------------------------------------------------------------------------
By mail
For accounts held directly at the fund, send written requests
to the fund at either of the following addresses:
For clients of a PFS Investments Registered Representative,
write PFS Shareholder Services at the following address:
PFS Shareholder Services
P.O. Box 105043
Atlanta, GA 30348-5043
For all other investors, send your request to PFPC Global
Fund Services at the following address:
Smith Barney Investment Funds Inc.
Peachtree Growth Fund
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
Your written request must provide the following:
. The fund and account number
. The class of shares and the dollar amount or number of
shares to be redeemed
Peachtree Growth Fund
16
<PAGE>
. Signatures of each owner exactly as the account is regis-
tered
--------------------------------------------------------------------------------
By telephone
If you do not have a brokerage account with a Service Agent,
you may be eligible to redeem shares (except those held in
retirement plans) in amounts up to $50,000 per day through
the fund. You must complete an authorization form to autho-
rize telephone redemptions. If eligible, you may request
redemptions by telephone on any day the New York Stock
Exchange is open. For clients of a PFS Investments Registered
Representative, call PFS Shareholder Services at 1-800-544-
5445 between 8:00 a.m. and 8:00 p.m. (Eastern time). All
other shareholders should call the transfer agent at 1-800-
451-2010 between 9:00 a.m. and 4:00 p.m. (Eastern time).
Requests received after the close of regular trading on the
Exchange are priced at the net asset value next determined.
Your redemption proceeds can be sent by check to your address
of record or by wire or electronic transfer (ACH) to a bank
account designated on your authorization form. You must sub-
mit a new authorization form to change the bank account des-
ignated to receive wire or electronic transfers and you may
be asked to provide certain other documents. The sub-transfer
agents may charge a fee on an electronic transfer (ACH).
--------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans ($5,000 for retirement plan accounts) and each automatic
redemption must be at least $50. If your shares are subject
to a deferred sales charge, the sales charge will be waived
if your automatic payments do not exceed 1% per month of the
value of your shares subject to a deferred sales charge.
The following conditions apply:
. Your shares must not be represented by certificates
. All dividends and distributions must be reinvested
For more information, contact your Service Agent or consult
the SAI.
Smith Barney Mutual Funds
17
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
. Name of the fund
. Account number
. Class of shares being bought, exchanged or redeemed
. Dollar amount or number of shares being bought, exchanged or redeemed
. Signature of each owner exactly as the account is registered
The fund will try to confirm that any telephone exchange or redemption request
is genuine by recording calls, asking the caller to provide certain personal
identification information, sending you a written confirmation or requiring
other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include
a signature guarantee if you:
. Are redeeming over $50,000 of shares
. Are sending signed share certificates or stock powers to the sub-transfer
agent
. Instruct the sub-transfer agent to mail the check to an address different
from the one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different reg-
istration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
The fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
Peachtree Growth Fund
18
<PAGE>
. Suspend telephone transactions
. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securi-
ties and Exchange Commission
. Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below $500 ($250 for IRA accounts)
because of a redemption of fund shares, the fund may ask you to bring your
account up to the applicable minimum investment amounts. If you choose not to
do so within 60 days, the fund may close your account and send you the redemp-
tion proceeds.
Excessive exchange transactions The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other share-
holders. If so, the fund may limit additional purchases and/or exchanges by the
shareholder.
Share certificates The fund does not issue share certificates unless a written
request signed by all registered owners is made to the sub-transfer agent. If
you hold share certificates it will take longer to exchange or redeem shares.
Smith Barney Mutual Funds
19
<PAGE>
Dividends, distributions and taxes
Dividends The fund generally pays dividends, if any, and makes capital gain
distributions once a year, typically in December. The fund may pay additional
distributions and dividends at other times if necessary for the fund to avoid a
federal tax. Capital gain distributions and dividends are reinvested in addi-
tional fund shares of the same class you hold. The fund expects distributions
to be primarily from capital gain. You do not pay a sales charge on reinvested
distributions or dividends. Alternatively, you can instruct your Service Agent,
the transfer agent or a sub-transfer agent to have your distributions and/or
dividends paid in cash. You can change your choice at any time to be effective
as of the next distribution or dividend, except that any change given to your
Service Agent, transfer agent or a sub-transfer agent less than five days
before the payment date will not be effective until the next distribution or
dividend is paid.
Taxes In general, redeeming shares, exchanging shares and receiving distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually capital gain or loss;
long-term only if shares owned
more than one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
</TABLE>
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a capital gain distribution or
a dividend, because it will be taxable to you even though it may actually be a
return of a portion of your investment.
After the end of each year, the fund will provide you with information about
the distributions and dividends you received and any redemptions of shares dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer identification number and any required certifications, you may be subject
to back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special
tax rules may apply, you should consult your tax adviser about your investment
in the fund.
Peachtree Growth 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. Fair value is determined in accordance with procedures approved by the
fund's board. A fund that uses fair value to price securities may value those
securities higher or lower than another fund using market quotations to price
the same securities.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Service Agent or the fund's sub-transfer agents before the
New York Stock Exchange closes. If the Exchange closes early, you must place
your order prior to the actual closing time. Otherwise, you will receive the
next business day's price.
Service Agents must transmit all orders to buy, exchange or redeem shares to
the fund's sub-transfer agents before the sub-stransfer agents' close of busi-
ness.
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 each year ended
December 31:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/) 1997 1996 1995(/2/)
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $17.71 $13.41 $13.80 $14.31 $13.36
-----------------------------------------------------------------------------
Income from operations:
Net investment income (loss) (0.12) (0.07) 0.03 0.01 0.03
Net realized and unrealized
gain 3.60 4.50 0.65 1.85 1.87
-----------------------------------------------------------------------------
Total income from operations 3.48 4.43 0.68 1.86 1.90
-----------------------------------------------------------------------------
Less distributions from:
Net investment income -- -- -- (0.11) (0.02)
Net realized gains (2.09) (0.13) (1.07) (2.26) (0.93)
-----------------------------------------------------------------------------
Total distributions (2.09) (0.13) (1.07) (2.37) (0.95)
-----------------------------------------------------------------------------
Net asset value, end of year $19.10 $17.71 $13.41 $13.80 $14.31
-----------------------------------------------------------------------------
Total return 19.88% 33.13% 5.18% 13.96% 14.61%(/3/)
-----------------------------------------------------------------------------
Net assets, end of year
(millions) $124 $87 $67 $72 $58
-----------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.44% 1.40% 1.67% 1.78% 1.72%(/4/)
Net investment income (loss) (0.64) (0.48) 0.22 0.13 0.46(/4/)
-----------------------------------------------------------------------------
Portfolio turnover rate 94% 93% 227% 183% 51%
-----------------------------------------------------------------------------
</TABLE>
(/1/)Per share amounts have been calculated using the monthly average shares
method.
(/2/)For the period from July 3, 1995 (inception date) to December 31, 1995.
(/3/)Not annualized.
(/4/)Annualized.
Peachtree Growth Fund
22
<PAGE>
For a Class B share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/) 1997 1996 1995(/2/)
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $17.35 $13.24 $13.74 $14.27 $13.36
-----------------------------------------------------------------------------
Income from operations:
Net investment loss (0.26) (0.19) (0.07) (0.09) (0.02)
Net realized and unrealized
gain 3.50 4.43 0.64 1.84 1.86
-----------------------------------------------------------------------------
Total income from operations 3.24 4.24 0.57 1.75 1.84
-----------------------------------------------------------------------------
Less distributions from:
Net investment income -- -- -- (0.02) --
Net realized gains (2.09) (0.13) (1.07) (2.26) (0.93)
-----------------------------------------------------------------------------
Total distributions (2.09) (0.13) (1.07) (2.28) (0.93)
-----------------------------------------------------------------------------
Net asset value, end of year $18.50 $17.35 $13.24 $13.74 $14.27
-----------------------------------------------------------------------------
Total return 18.88% 32.11% 4.40% 13.12% 14.15%(/3/)
-----------------------------------------------------------------------------
Net assets, end of year
(millions) $95 $59 $42 $43 $33
-----------------------------------------------------------------------------
Ratios to average net assets:
Expenses 2.24% 2.21% 2.42% 2.53% 2.46%(/4/)
Net investment loss (1.44) (1.29) (0.53) (0.63) (0.27)(/4/)
-----------------------------------------------------------------------------
Portfolio turnover rate 94% 93% 227% 183% 51%
-----------------------------------------------------------------------------
</TABLE>
(/1/)Per share amounts have been calculated using the monthly average shares
method.
(/2/)For the period from July 3, 1995 (inception date) to December 31, 1995.
(/3/)Not annualized.
(/4/)Annualized.
Smith Barney Mutual Funds
23
<PAGE>
For a Class L share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/)(/2/) 1997 1996 1995(/3/)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $17.41 $13.28 $13.78 $14.29 $14.05
------------------------------------------------------------------------------
Income from operations:
Net investment income
(loss) (0.32) (0.18) (0.05) (0.08) 0.01
Net realized and
unrealized gain 3.54 4.44 0.62 1.85 1.16
------------------------------------------------------------------------------
Total income from
operations 3.22 4.26 0.57 1.77 1.17
------------------------------------------------------------------------------
Less distributions from:
Net investment income -- -- -- (0.02) --
Net realized gains (2.09) (0.13) (1.07) (2.26) (0.93)
------------------------------------------------------------------------------
Total distributions (2.09) (0.13) (1.07) (2.28) (0.93)
------------------------------------------------------------------------------
Net asset value, end of
year $18.54 $17.41 $13.28 $13.78 $14.29
------------------------------------------------------------------------------
Total return 18.67% 32.17% 4.38% 13.24% 8.69%(/4/)
------------------------------------------------------------------------------
Net assets, end of year
(000)'s $644 $222 $203 $174 $88
------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses 2.56% 2.16% 2.41% 2.40% 2.29%(/5/)
Net investment income
(loss) (1.77) (1.23) (0.53) (0.48) 0.13(/5/)
------------------------------------------------------------------------------
Portfolio turnover rate 94% 93% 227% 183% 51%
------------------------------------------------------------------------------
</TABLE>
(/1/)Per share amounts have been calculated using the monthly average shares
method.
(/2/)On June 12, 1998, Class C shares were renamed Class L shares.
(/3/)For the period from August 8, 1995 (inception date) to December 31, 1995.
(/4/)Not annualized.
(/5/)Annualized.
Peachtree Growth Fund
24
<PAGE>
For a Class Y share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/) 1997(/2/)
---------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year $17.79 $13.42 $14.86
---------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) (0.04) (0.02) 0.01
Net realized and unrealized gain (loss) 3.63 4.52 (0.38)
---------------------------------------------------------------------------
Total income (loss) from operations 3.59 4.50 (0.37)
---------------------------------------------------------------------------
Less distributions from:
Net realized gains (2.09) (0.13) (1.07)
---------------------------------------------------------------------------
Total distributions (2.09) (0.13) (1.07)
---------------------------------------------------------------------------
Net asset value, end of year $19.29 $17.79 $13.42
---------------------------------------------------------------------------
Total return 20.41% 33.62% (2.25)%(/3/)
---------------------------------------------------------------------------
Net assets, end of year (millions) $228 $188 $115
---------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.00% 1.07% 1.10%(/4/)
Net investment income (loss) (0.20) (0.14) 0.62(/4/)
---------------------------------------------------------------------------
Portfolio turnover rate 94% 93% 227%
---------------------------------------------------------------------------
</TABLE>
(/1/)Per share amounts have been calculated using the monthly average shares
method.
(/2/)For the period from October 15, 1997 (inception date) to December 31,
1997.
(/3/)Not annualized.
(/4/)Annualized.
Smith Barney Mutual Funds
25
<PAGE>
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
Peachtree
Growth Fund
An investment portfolio of Smith Barney Investment Funds Inc.
Shareholder Reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket conditions and investment strategies that significantly affected the fund's
performance during its last fiscal year or period.
The fund sends only one report to a household if more than one account has the
same address. Contact your Service Agent or the transfer agent if you do not
want this policy to apply to you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by refer-
ence into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Service
Agent, by calling the fund's sub--transfer agents (PFS Shareholders Services at
1-800-544-5445 or PFPC Global Fund Services 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.
Information about the fund (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's (the "Commission") Public Reference
Room in Washington, D.C. In addition, information on the operation of the Pub-
lic Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Data-
base on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing 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.
SMYour Serious Money. Professionally Managed is a service mark of Salomon Smith
Barney Inc.
(Investment Company Act
file no. 811-03725)
(FD0970 9/00)
Smith Barney
Investment Funds Inc.
388 Greenwich Street
New York, New York 10013
800 451-2010
Statement of Additional Information
March 13, 2000, as amended April 28,
2000, as amended August 21,2000 and
as amended September 11, 2000
This Statement of Additional Information expands upon and supplements the
information contained in the current Prospectuses of Smith Barney
Investment Funds Inc. (the "Company"), for Peachtree Growth Fund dated
March 13, 2000 as amended September 11, 2000, and with respect to
Investment Grade Bond Fund and Government Securities Fund dated April 28,
2000 as amended August 16, 2000, and should be read in conjunction with
the Company's Prospectuses. The Company issues a Prospectus for each of
the investment Funds offered by the Company (the "Funds"). The Company's
Prospectuses may be obtained from a Salomon Smith Barney Financial
Consultant, or by writing or calling the Company at the address or
telephone number listed above. This Statement of Additional Information,
although not in itself a prospectus, is incorporated by reference in its
entirety into each Fund's Prospectus.
CONTENTS
For ease of reference, the same section headings are used in the
Prospectuses and this Statement of Additional Information, except where
shown below:
Directors and Executive Officers of the Company 2
Investment Objectives and Management Policies 7
Risk Factors 24
Investment Restrictions 29
Brokerage 31
Portfolio Turnover 32
Purchase of Shares 34
Redemption of Shares 39
Valuation of Shares 40
Exchange Privilege 41
Distributor 42
PFS Accounts 46
Citi Accounts 47
Determination of Net Asset Value 48
Performance Data 49
Taxes 53
Class Z shares 56
IRA and Other Prototype Retirement Plans 57
Salomon Smith Barney Retirement Programs 58
Additional Information 60
Financial Statements 60
Other Information 61
Appendix 62
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The names of the Directors and executive officers of the Company, together
with information as to their principal business occupations during the
past five years, are shown below. Each Director who is an "interested
person" of the Company, as defined in the Investment Company Act of 1940,
as amended (the "1940 Act"), is indicated by an asterisk. The address of
the "interested" directors and the executive officers of the Fund, unless
otherwise noted, is 388 Greenwich Street, New York, NY 10013.
Paul R. Ades, Director (Age 59). Partner in the law firm of Murov & Ades.
His address is 272 South Wellwood Avenue, P.O. Box 504, Lindenhurst, New
York 11757.
Herbert Barg, Director (Age 76). Private investor. His address is 273
Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
Dwight B. Crane, Director (Age 61). Professor, Graduate School of Business
Administration, Harvard University. His address is Graduate School of
Business Administration, Harvard University, Boston, Massachusetts 02163.
Frank G. Hubbard, Director (Age 61). Vice President, S&S Industries;
Former Corporate Vice President, Materials Management and Marketing
Services of Huls America, Inc. His address is 80 Centennial Avenue P.O.
Box 456, Piscataway, New Jersey 08855-0456.
*Heath B. McLendon, Chairman of the Board, President and Chief Executive
Officer (Age 66). Managing Director of Salomon Smith Barney Inc. ("Salomon
Smith Barney"); Director and President of SSB Citi Fund Management LLC
("SSB Citi"or the "Manager") and Travelers Investment Adviser, Inc.
("TIA"); and formerly Chairman of the Board of Smith Barney Strategy
Advisers Inc. Mr. McLendon is a director of 71 investment companies
associated with Citigroup Inc ("Citigroup"). His address is 7 World Trade
Center, New York, New York 10048.
Jerome Miller, Director (Age 60). Retired, Former President, Asset
Management Group of Shearson Lehman Brothers. Director of 5 investment
companies associated with Citigroup. His address is 27 Hemlock Road,
Manhasset, New York, NY 11030.
Ken Miller, Director (Age 57). President of Young Stuff Apparel Group,
Inc. His address is 1411 Broadway, New York, New York 10018.
John F. White, Director Emeritus President Emeritus of The Cooper Union
for the Advancement of Science and Art; Special Assistant to the President
of the Aspen Institute. His address is 97 Sunset Drive, Apt. A402,
Sarasota, FL 34236.
James Conroy, Vice President and Investment Officer. (Age 48) Managing
Director of Citigroup. His address is 388 Greenwich Street, New York, New
York 10013.
John G. Goode, (Age 55), Vice President and Investment Officer. Managing
Director of Salomon Smith Barney. Chairman and Chief Investment Officer
of Davis Skaggs Investment Management ("Davis Skaggs"), a division of SSB.
His address is One Sansome Street, 36th Floor, San Francisco, California
94104.
Dennis Johnson, Vice President and Investment Officer and Chief Investment
Officer of Peachtree Asset Management a division of . (Age 40)
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 61 investment companies associated with
Citigroup. His address is 125 Broad Street, New York, New York 10004.
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 125
Broad Street, New York, New York 10004.
Christina T. Sydor, Secretary (Age 48). Managing Director of Salomon Smith
Barney; General Counsel and Secretary of SSB Citi and TIA. Secretary of 61
investment companies associated with Citigroup. Her address is 388
Greenwich Street, New York, New York 10013.
As of August 16, 2000, the Directors and officers of the Company, as a
group, owned less than 1.00% of the outstanding common stock of the
Company.
As of August 16, 2000 to the best knowledge of the Funds and the Board of
Directors, no single shareholder or group (as the term is used in Section
13(d) of the Securities Act of 1934) beneficially owned more than 5% of
the outstanding shares of the Fund with the exception of the following:
Fund
Clas
s
Percent
Name
Address
Government
Securities Fund
Y
42.70%
Concert Series,
Inc.
Growth Portfolio
Attn: Beverly
Timson
PNC Bank, N.A.
200 Stevens Drive
Suite 440
Lester PA 19113-
1522
Government
Securities Fund
Y
22.12%
Concert Series,
Inc.
Balanced Portfolio
Attn: Beverly
Timson
PNC Bank, N.A.
200 Stevens Drive
Suite 440
Lester PA 19113-
1522
Government
Securities Fund
Y
12.25%
Concert Series,
Inc.
Select Growth
Portfolio
Attn: Beverly
Timson
PNC Bank, N.A.
200 Stevens Drive
Suite 440
Lester PA 19113-
1522
Government
Securities Fund
Y
9.70%
Concert Series,
Inc.
Select Balanced
Portfolio
Attn: Beverly
Timson
PNC Bank, N.A.
200 Stevens Drive
Suite 440
Lester PA 19113-
1522
Government
Securities Fund
Y
5.65%
Concert Series,
Inc.
Conservative
Portfolio
Attn: Beverly
Timson
PNC Bank, N.A.
200 Stevens Drive
Suite 440
Lester PA 19113-
1522
Fund
Clas
s
Percent
Name
Address
Government
Securities Fund
Z
100.00%
State Street Bank &
Trust Cust.
The Travelers Group
401K Savings Plan
Attn: Rick Vest
225 Franklin
Street
Boston, MA 02101
Investment Grade
Bond Fund
A
6.60%
Travelers Insurance
Company
Separate Account
QPN 401(K)-TIC
Attn: Roger Ferland
One Tower Square
Hartford CT 06183
Investment Grade
Bond Fund
B
6.36%
PFS Shareholder
Services
Attn: Jay Barnhill
3100 Breckinridge
Blvd
Duluth GA 30199
Investment Grade
Bond Fund
Y
74.04%
Concert Series,
Inc.
Growth Portfolio
Attn: Beverly
Timson
PNC Bank, N.A.
200 Stevens Drive
Suite 440
Lester PA 19113-
1522
Investment Grade
Bond Fund
Y
21.38%
Concert Series,
Inc.
Select Growth
Portfolio
Attn: Beverly
Timson
PNC Bank, N.A.
200 Stevens Drive
Suite 440
Lester PA 19113-
1522
Peachtree Growth
Fund
A
96.31%
PFS Shareholder
Services
Attn: Jay Barnhill
3100 Breckinridge
Blvd
Duluth GA 30199
Peachtree Growth
Fund
B
96.45%
PFS Shareholder
Services
Attn: Jay Barnhill
3100 Breckinridge
Blvd
Duluth GA 30199
Peachtree Growth
Fund
L
15.31%
William C Loomis
SSB IRA Rollover
Custodian
3472 Fairway
Drive
Cameron Park CA
95682-8622
Peachtree Growth
Fund
L
14.14%
Tendrich Group LTD
A Florida Limited
Partnership
1402 Devonshire
Way
Palm Beach
Gardens FL 33418-
6872
Peachtree Growth
Fund
L
6.75%
Nancy Schnee
SSB IRA Custodian
68 Pelican Place
Belleair FL
33756-1568
Fund
Clas
s
Percent
Name
Address
Peachtree Growth
Fund
L
6.80%
David Bowen Jr.
Dorothy C. Bowen JT
Ten
1074 Wildwood
Road
Waycross GA
31503-8585
Peachtree Growth
Fund
L
6.53%
Richard D. Reed
Debra A. Reed
JTWROS
16 Pickering Way
Nashua NH 03063-
1532
Peachtree Growth
Fund
Y
41.98%
Concert Series,
Inc.
Growth Portfolio
Attn: Beverly
Timson
PNC Bank, N.A.
200 Stevens Drive
Suite 440
Lester PA 19113-
1522
Peachtree Growth
Fund
Y
36.97%
Concert Series,
Inc.
High Growth
Portfolio
Attn: Beverly
Timson
PNC Bank, N.A.
200 Stevens Drive
Suite 440
Lester PA 19113-
1522
Peachtree Growth
Fund
Y
11.30%
Concert Series,
Inc.
Select Growth
Portfolio
Attn: Beverly
Timson
PNC Bank, N.A.
200 Stevens Drive
Suite 440
Lester PA 19113-
1522
Peachtree Growth
Fund
Y
7.94%
Concert Series,
Inc.
Select Growth
Portfolio
Attn: Beverly
Timson
PNC Bank, N.A.
200 Stevens Drive
Suite 440
Lester PA 19113-
1552
No officer, director or employee of Salomon Smith Barney or any parent or
subsidiary receives any compensation from the Company for serving as an
officer or Director of the Company. The Company pays each Director who is
not an officer, director or employee of Salomon Smith Barney or any of its
affiliates a fee of $22,500 per annum plus $2,900 per meeting attended and
reimburses travel and out-of-pocket expenses. During the fiscal year ended
December 31, 1999 such expenses totaled $ 18,574. For the fiscal year
ended December 31, 1999, the Directors of the Company were paid the
following compensation:
COMPENSATION TABLE
Name of
Person
Aggregate Compensation
from the Company*
Compensation from
Company and Complex
Paid to Directors
Number of Funds
for Which
Director Serves
Within Citigroup
Fund Complex
Paul Ades
$28,369
56,238
5
Herbert Barg
28,369
114,288
16
Dwight B.
Crane
26,297
155,363
22
Frank G.
Hubbard
28,269
56,138
5
Heath B.
McLendon
0
0
71
Ken Miller
24,847
47,188
5
Jerome Miller
26,197
51,613
5
*Upon attainment of age 80 Directors are required to change to emeritus
status. Directors Emeritus are entitled to serve in emeritus status for
a maximum of 10 years during which time they are paid 50% of the annual
retainer fee and meeting fees otherwise applicable to the Fund Directors
together with reasonable out-of-pocket expenses for each meeting attended.
During the Fund's last fiscal year aggregate compensation paid by the
Fund to Directors Emeritus totaled $13,179.
Investment Adviser and Administrator
SSB Citi serves as investment adviser to the Funds pursuant to separate
advisory agreements (the "Advisory Agreements"). With respect to the
Investment Grade Bond Fund and Government Securities Fund, the Advisory
Agreements were transferred to be effective November 7, 1994, from its
affiliate, Mutual Management Corp. Mutual Management Corp. (the current
successor corporation is SSB Citi) was and SSB Citi is a wholly owned
subsidiary of Salomon Smith Barney Holdings Inc. ("Holdings") (formerly
Smith Barney Holdings). Holdings is a wholly owned subsidiary of
Citigroup. As of January 31, 2000 Holdings had aggregate assets under
management in excess of $ 127.4 billion. The Advisory Agreements were most
recently approved by the Board of Directors, including a majority of the
Directors who are not "interested persons" of the Company or the
investment advisers (the "Independent Directors"), on July 22, 1999. SSB
Citi bears all expenses in connection with the performance of its
services. The services provided by SSB Citi under the Advisory Agreements
are described in the Prospectuses under "Management of the Company and the
Fund." SSB Citi provides investment advisory and management services to
investment companies affiliated with Salomon Smith Barney.
As compensation for investment advisory and administrative services
rendered to the Contrarian Fund and Peachtree Growth Fund pays a fee
computed daily and paid monthly at the annual rate of 0.85% and Peachtree
Growth Fund pays a fee computed daily and paid monthly at the annual rate
of 1.00% up to $250 million and 0.85% thereafter, of the value of their
average daily net assets.
As compensation for investment advisory services rendered to Government
Securities Fund, the Fund pays SSB Citi a fee computed daily and paid
monthly at the following annual rates of average daily net assets: 0.35%
up to $2 billion; 0.30% on the next $2 billion; 0.25% on the next $2
billion; 0.20% on the next $2 billion; and 0.15% on net assets thereafter.
As compensation for investment advisory services rendered to Investment
Grade Bond Fund, the Fund pays SSB Citi a fee computed daily and paid
monthly at the following annual rates of average daily net assets: 0.45%
up to $500 million and 0.42% on net assets thereafter.
For the fiscal years ended December 31, 1997, 1998 and 1999, the Funds
accrued advisory fees as follows:
Fund
1997
1998
1999
Investment Grade Bond Fund
$ 2,183,438
$ 2,618,948
$2,594,524
Government Securities Fund
1,900,510
2,107,128
2,376,064
Contrarian Fund
8,127,871
6,552,382
3,442,248
Concert Peachtree Growth
Fund
1,262,626
2,644,062
3,598,241
SSB Citi also serves as administrator to Investment Grade Bond Fund, and
Government Securities Fund pursuant to written agreements dated May 5,
1994 (the "Administration Agreement"), which was first approved by the
Board of Directors, including a majority of the Independent Directors, on
May 5, 1994. Under the Administration Agreement, SSB Citi oversees all
aspects of a Fund's administration. SSB Citi pays the salary of any
officer and employee who is employed by both it and the Fund and bears all
expenses in connection with the performance of its services.
As compensation for administrative services rendered to the Investment
Grade Bond Fund and Government Securities Fund, SSB Citi receives a fee
computed daily and paid monthly at the annual rate of 0.20% of the value
of the Fund's average daily net assets.
For the fiscal years ended December 31, 1997, 1998 and 1999, these Funds
paid administrative fees to SSB Citi as follows:
Fund
1997
1998
1999
Investment Grade Bond Fund
$
969,973
$1,158,123
$1,147,655
Government Securities Fund
1,086,006
1,204,073
1,357,751
Code of Ethics
Pursuant to Rule 17j-1 of the 1940 Act, the fund, the investment adviser
and principal underwriter have adopted codes of ethics that permit
personnel to invest in securities for their own accounts, including
securities that may be purchased or held by the fund. All personnel must
place the interests of clients first and avoid activities, interests and
relationships that might interfere with the duty to make decisions in the
best interests of the clients. All personal securities transactions by
employees must adhere to the requirements of the codes and must be
conducted in such a manner as to avoid any actual or potential conflict of
interest, the appearance of such a conflict, or the abuse of an employee's
position of trust and responsibility.
A copy of the fund's code of ethics is on file with the SEC.
Auditors
KPMG LLP, 757 Third Avenue, New York, New York 10017, has been selected as
the Fund's independent auditor to examine and report on the Funds'
financial statements and highlights for the fiscal year ending December
31, 2000.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The Prospectuses discuss the investment objectives of each Fund and the
policies they employ to achieve such objectives. The following discussion
supplements the description of the Funds' investment objectives and
management policies contained in the Prospectuses.The Funds may engage in
these and any other practices not prohibited by their investment
restrictions. For further information regarding the risks associated with
these practices, see "Risk Factors" below.
EQUITY SECURITIES (All Funds except Government Securities Fund except as
otherwise noted)
Common Stocks Common stocks are shares of a corporation or other entity
that entitle the holder to a pro rata share of the profits of the
corporation, if any, without preference over any other shareholder or
class of shareholders, including holders of the entity's preferred stock
and other senior equity. Common stock usually carries with it the right
to vote and frequently an exclusive right to do so.
Preferred Stocks and Convertible Securities (all Funds except Government
Securities Fund and Investment Grade Bond Fund) Convertible debt
securities and preferred stock entitle the holder to acquire the issuer's
stock by exchange or purchase for a predetermined rate. Convertible
securities are subject both to the credit and interest rate risks
associated with fixed income securities and to the stock market risk
associated with equity securities.
Warrants Warrants acquired by a Fund entitle it to buy common stock from
the issuer at a specified price and time. Warrants are subject to the
same market risks as stocks, but may be more volatile in price. A Fund's
investment in warrants will not entitle it to receive dividends or
exercise voting rights and will become worthless if the warrants cannot be
profitably exercised before the expiration dates. The Investment Grade
Bond Fund will not invest in warrants if, as a result of such investment,
the value of their investments in warrants, valued at the lower of cost or
market, exceeds 5% of the value of the Fund's net assets. Included in
this 5% limitation, but not to exceed 2% of the Fund's net assets, may be
warrants which are not listed on either the New York Stock Exchange (the
"NYSE") or the American Stock Exchange. Warrants acquired by the Fund in
units or attached to securities will be deemed to be without value for
purposes of this restriction. These limits are not Fundamental policies of
either Fund and may be changed by the Board of Directors without
shareholder approval.
REITs Real estate investment trusts ("REITs") are pooled investment
vehicles that invest in real estate or real estate loans or interests.
Investing in REITs involves risks similar to those associated with
investing in equity securities of small capitalization companies. REITs
are dependent upon management skills, are not diversified, and are subject
to risks of project financing, default by borrowers, self-liquidation, and
the possibility of failing to qualify for the exemption from taxation on
distributed amounts under the Internal Revenue Code of 1986, as amended
(the "Code").
FIXED INCOME SECURITIES (All Funds)
Corporate Debt Obligations Corporate debt obligations are subject to the
risk of an issuer's inability to meet principal and interest payments on
the obligations and may also be subject to price volatility due to such
factors as market interest rates, market perception of the
creditworthiness of the issuer and general market liquidity. Zero coupon
securities are securities sold at a discount to par value and on which
interest payments are not made during the life of the security.
U.S. Government Securities The U.S. Government securities in which the
Funds may invest include: bills, certificates of indebtedness, and notes
and bonds issued by the U.S. Treasury or by agencies or instrumentalities
of the U.S. Government. Some U.S. Government securities, such as U.S.
Treasury bills and bonds, are supported by the full faith and credit of
the U.S. Treasury; others are supported by the right of the issuer to
borrow from the U.S. Treasury; others are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations;
still others are supported only by the credit of the instrumentality.
Mortgage Related Securities (Government Securities Fund and Investment
Grade Bond Fund) These Funds may invest in mortgage-related securities,
including those representing an undivided ownership interest in a pool of
mortgage loans, e.g., GNMA, FNMA, FHLMC Certificates. Mortgage loans made
by banks, savings and loan institutions, and other lenders are often
assembled into pools, which are issued or guaranteed by an agency or
instrumentality of the U.S. Government, though not necessarily by the U.S.
Government itself. Interests in such pools are collectively referred to as
''mortgage-related securities.''
Mortgage-related securities are characterized by monthly payments to the
holder, reflecting the monthly payments made by the borrowers who received
the underlying mortgage loans. The payments to the securityholders (such
as the Funds), like the payments on the underlying loans, represent both
principal and interest. Although the underlying mortgage loans are for
specified periods of time, such as 20 or 30 years, the borrowers can, and
typically do, pay them off sooner. Thus, the securityholders frequently
receive prepayments of principal, in addition to the principal which is
part of the regular monthly payment. A borrower is more likely to prepay
a mortgage which bears a relatively high rate of interest. This means that
in times of declining interest rates, some of the Fund's higher yielding
securities might be converted to cash, and the Funds will be forced to
accept lower interest rates when that cash is used to purchase additional
securities. The increased likelihood of prepayment when interest rates
decline also limits market price appreciation of mortgage-related
securities. If a Fund buys mortgage-related securities at a premium,
mortgage foreclosures or mortgage prepayments may result in a loss to the
Fund of up to the amount of the premium paid since only timely payment of
principal and interest is guaranteed.
The Government National Mortgage Association ("GNMA") is a wholly owned
corporate instrumentality of the United States within the U.S. Department
of Housing and Urban Development. GNMA's principal programs involve its
guarantees of privately issued securities backed by pools of mortgages.
Certificates of the Government National Mortgage Association ("GNMA
Certificates") are mortgage-backed securities, which evidence an undivided
interest in a pool of mortgage loans. GNMA Certificates differ from bonds
in that principal is paid back monthly by the borrower over the term of
the loan rather than returned in a lump sum at maturity. GNMA
Certificates that the Fund purchases are the "modified pass-through" type.
"Modified pass-through" GNMA Certificates entitle the holder to receive a
share of all interest and principal payments paid and owned on the
mortgage pool net of fees paid to the "issuer" and GNMA, regardless of
whether or not the mortgagor actually makes the payment. The National
Housing Act authorizes GNMA to guarantee the timely payment of principal
and interest on securities backed by a pool of mortgages insured by the
Federal Housing Administration ("FHA") or the Farmers' Home Administration
("FMHA"), or guaranteed by the Veterans Administration ("VA"). Once a
pool of such mortgages is assembled and approved by GNMA, the GNMA
guarantee is backed by the full faith and credit of the U.S. Government.
GNMA is also empowered to borrow without limitation from the U.S.
Treasury if necessary to make any payments required under its guarantee.
The average life of a GNMA Certificate is likely to be substantially less
than the original maturity of the mortgage pools underlying the
securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of
principal investment long before maturity of the mortgages in the pool.
A Fund normally will not distribute principal payments (whether regular
or prepaid) to its shareholders. Rather, it will invest such payments in
additional mortgage-related securities of the types described above or
other U.S. Government securities. Interest received by the Fund will,
however, be distributed to shareholders. Foreclosures impose no risk to
principal investment because of the GNMA guarantee.
As prepayment rates of the individual mortgage pools vary widely, it is
not possible to predict accurately the average life of a particular issue
of GNMA Certificates. However, statistics published by the FHA indicate
that the average life of single-family dwelling mortgages with 25-to
30-year maturities, the type of mortgages backing the vast majority of
GNMA Certificates, is approximately 12 years. Therefore, it is customary
to treat GNMA Certificates as 30-year mortgage-backed securities which
prepay fully in the twelfth year.
The coupon rate of interest of GNMA Certificates is lower than the
interest rate paid on the VA-guaranteed or FHA-insured mortgages
underlying the Certificates, but only by the amount of the fees paid to
GNMA and the GNMA Certificate issuer. For the most common type of
mortgage pool, containing single-family dwelling mortgages, GNMA receives
an annual fee of 0.06 of one percent of the outstanding principal for
providing its guarantee, and the GNMA Certificate issuer is paid an annual
servicing fee of 0.44 of one percent for assembling the mortgage pool and
for passing through monthly payments of interest and principal to
Certificate holders.
The coupon rate by itself, however, does not indicate the yield which will
be earned on the GNMA Certificates for the following reasons:
1. Certificates are usually issued at a premium or discount, rather than
at par.
2. After issuance, Certificates usually trade in the secondary market at
a premium or discount.
3. Interest is paid monthly rather than semi-annually as is the case for
traditional bonds. Monthly compounding has the effect of raising the
effective yield earned on GNMA Certificates.
4. The actual yield of each GNMA Certificate is influenced by the
prepayment experience of the mortgage pool underlying the Certificate. If
mortgagors prepay their mortgages, the principal returned to Certificate
holders may be reinvested at higher or lower rates.
In quoting yields for GNMA Certificates, the customary practice is to
assume that the Certificates will have a 12 year life. Compared on this
basis, GNMA Certificates have historically yielded roughly 1/4 of 1.00%
more than high grade corporate bonds and 1/2 of 1.00% more than
U.S. Government and U.S. Government agency bonds. As the life of
individual pools may vary widely, however, the actual yield earned on any
issue of GNMA Certificates may differ significantly from the yield
estimated on the assumption of a twelve-year life.
Since the inception of the GNMA mortgage-backed securities program in
1970, the amount of GNMA Certificates outstanding has grown rapidly. The
size of the market and the active participation in the secondary market by
securities dealers and many types of investors make GNMA Certificates
highly liquid instruments. Quotes for GNMA Certificates are readily
available from securities dealers and depend on, among other things, the
level of market rates, the Certificate's coupon rate and the prepayment
experience of the pool of mortgages backing each Certificate.
The Federal Home Loan Mortgage Corporation ("FHLMC") was created in 1970
to promote development of a nationwide secondary market in conventional
residential mortgages. FHLMC issues two types of mortgage pass-through
securities, mortgage participation certificates ("PCs") and guaranteed
mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in that
each PC represents a pro rata share of all interest and principal payments
made and owed on the underlying pool. Like GNMA Certificates, PCs are
assumed to be prepaid fully in their twelfth year. FHLMC guarantees
timely monthly payment of interest of PCs and the ultimate payment of
principal.
GMCs also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semiannually and return principal once a
year in guaranteed minimum payments. The expected average life of these
securities is approximately 10 years.
The Federal National Mortgage Association ("FNMA") was established in 1938
to create a secondary market in mortgages insured by the FHA. FNMA issues
guarantee mortgage pass-through certificates ("FNMA Certificates"). FNMA
Certificates resemble GNMA Certificates in that each Certificate
represents a pro rata share of all interest and principal payments made
and owed on the underlying pool. FNMA guarantees timely payment of
interest on FNMA Certificates and the full return of principal. Like GNMA
Certificates, FNMA Certificates are assumed to be prepaid fully in their
twelfth year.
Risk of foreclosure of the underlying mortgages is greater with FHLMC and
FNMA securities because, unlike GNMA securities, FHLMC and FNMA securities
are not guaranteed by the full faith and credit of the U.S. Government.
Short-Term Investments In certain circumstances the Funds may invest
without limitation in all types of short-term money market instruments,
including U.S. Government securities; certificates of deposit, time
deposits and bankers' acceptances issued by domestic banks (including
their branches located outside the United States and subsidiaries located
in Canada), domestic branches of foreign banks, savings and loan
associations and similar institutions; high grade commercial paper; and
repurchase agreements. To the extent a Fund is investing in short-term
investments as a temporary defensive posture, the applicable Fund's
investment objective may not be achieved. Investment Grade Bond Fund may
invest in negotiable bank certificates of deposit and bankers' acceptances
issued by domestic banks (but not their foreign branches) having total
assets in excess of $1 billion.
Commercial Paper (Investment Grade Bond Fund) Commercial paper consists
of short-term (usually 1 to 270 days) unsecured promissory notes issued by
corporations in order to finance their current operations. A variable
amount master demand note (which is a type of commercial paper) represents
a direct borrowing arrangement involving periodically fluctuating rates of
interest under a letter agreement between a commercial paper issuer and an
institutional lender, such as one of the Funds pursuant to which the
lender may determine to invest varying amounts. Transfer of such notes is
usually restricted by the issuer, and there is no secondary trading market
for such notes. Each Fund therefore, may only invest in a master demand
note to the extent that the investment would not violate the Fund's limits
on restricted and illiquid securities. Investment Grade Bond Fund may
invest only in commercial paper issued by domestic corporations rated in
the highest two short-term ratings categories by a nationally recognized
ratings organization, or, if unrated, issued by a corporation that has an
outstanding debt issue rated in the highest two ratings categories by a
nationally recognized statistical ratings organization ("NRSO").
Exchange Rate-Related Securities (Government Securities Fund) The
Government Securities Fund may invest up to 5% of its net assets in U.S.
government securities for which the principal repayment at maturity, while
paid in U.S. dollars, is determined by reference to the exchange rate
between the U.S. dollar and the currency of one or more foreign countries
("Exchange Rate-Related Securities"). The interest payable on these
securities is denominated in U.S. dollars, is not subject to foreign
currency risks and, in most cases, is paid at rates higher than most other
U.S. government securities in recognition of the foreign currency risk
component of Exchange Rate-Related Securities.
Exchange Rate-Related Securities are issued in a variety of forms,
depending on the structure of the principal repayment formula. The
principal repayment formula may be structured so that the security holder
will benefit if a particular foreign currency to which the security is
linked is stable or appreciates against the U.S. dollar. In the
alternative, the principal repayment formula may be structured so that the
security holder benefits if the U.S. dollar is stable or appreciates
against the linked foreign currency. Finally, the principal repayment
formula can be a function of more than one currency and, therefore, be
designed in either of the aforementioned forms or a combination of those
forms.
Investments in Exchange Rate-Related Securities entail special risks.
There is the possibility of significant changes in rates of exchange
between the U.S. dollar and any foreign currency to which an Exchange
Rate-Related Security is linked. If currency exchange rates do not move
in the direction or to the extent anticipated at the time of purchase of
the security, the amount of principal repaid at maturity might be
significantly below the par value of the security, which might not be
offset by the interest earned by the Fund over the term of the security.
The rate of exchange between the U.S. dollar and other currencies is
determined by the forces of supply and demand in the foreign exchange
markets. These forces are affected by the international balance of
payments and other economic and financial conditions, government
intervention, speculation and other factors. The imposition or
modification of foreign exchange controls by the United States or foreign
governments or intervention by central banks also could affect exchange
rates. Finally, there is no assurance that sufficient trading interest to
create a liquid secondary market will exist for particular Exchange Rate-
Related Securities due to conditions in the debt and foreign currency
markets. Illiquidity in the forward foreign exchange market and the high
volatility of the foreign exchange market may from time to time combine to
make it difficult to sell an Exchange Rate-Related Security prior to
maturity without incurring a significant price loss.
Zero Coupon Securities (Government Securities Fund) The Government
Securities Fund may also invest in zero coupon bonds. A zero coupon bond
pays no interest in cash to its holder during its life, although interest
is accrued during that period. Its value to an investor consists of the
difference between its face value at the time of maturity and the price
for which it was acquired, which is generally an amount significantly less
than its face value (sometimes referred to as a "deep discount" price).
Because such securities usually trade at a deep discount, they will be
subject to greater fluctuations of market value in response to changing
interest rates than debt obligations of comparable maturities which make
periodic distributions of interest. On the other hand, because there are
no periodic interest payments to be reinvested prior to maturity, zero
coupon securities eliminate reinvestment risk and lock in a rate of return
to maturity.
Dollar Roll Transactions Government Securities Fund may enter into
"dollar rolls," in which the Fund sells fixed income securities and
simultaneously contracts to repurchase substantially similar (same type,
coupon and maturity) securities on a specified future date. During this
"roll" period, the Fund would forego principal and interest paid on such
securities. The Fund would be compensated by the difference between the
current sales price and the forward price for the future purchase, as well
as by the interest earned on the cash proceeds of the initial sale. Since
the Fund will receive interest on the securities in which it invests the
transaction proceeds, such transactions may involve leverage. However,
the proceeds will be invested only in U.S. Treasury obligations and the
Fund will enter into dollar roll transactions only with dealers of
sufficient creditworthiness in the judgment of the Fund's investment
adviser, such transactions do not present the risks to the Fund that are
associated with other types of leverage. Dollar roll transactions are
considered borrowings by the Fund and will be subject to the Fund's
overall borrowing limitation.
DERIVATIVE CONTRACTS
Each Fund may use certain options, futures and other strategies to attempt
to hedge its portfolio, i.e., reduce the overall level of investment risk
normally associated with the Fund. These hedging techniques are described
in detail below. Peachtree Growth Fund may invest up to 10% of its assets
in derivative contracts. As a Fundamental policy, the Peachtree Growth
Fund each may write or purchase puts, calls, straddles, spreads and any
combination thereof up to 5% of their assets (Investment Grade Bond Fund
may not engage in any of these practices). Government Securities Fund may
only purchase call options on securities to effect a closing purchase
transaction. In addition, Government Securities Fund may not purchase
puts on securities if more than 10% of its net assets would be invested in
premiums on put options. The aggregate value of the obligations
underlying puts written by Government Securities Fund will not exceed 50%
of its net assets.
Writing Covered Call Options (Government Securities Fund, Peachtree Growth
Fund) These Funds may write (sell) covered call options for hedging
purposes. Covered call options will generally be written on securities
and currencies which, in the opinion of the Manager, are not expected to
make any major price moves in the near future but which, over the long
term, are deemed to be attractive investments for the Fund.
A call option gives the holder (buyer) the right to purchase a security or
currency at a specified price (the exercise price) at any time until a
certain date (the expiration date). So long as the obligation of the
writer of a call option continues, he may be assigned an exercise notice
by the broker-dealer through whom such option was sold, requiring him to
deliver the underlying security or currency against payment of the
exercise price. This obligation terminates upon the expiration of the call
option, or such earlier time at which the writer effects a closing
purchase transaction by purchasing an option identical to that previously
sold. The Manager and the Company believe that writing covered call
options is less risky than writing uncovered or "naked" options, which the
Funds will not do.
Portfolio securities or currencies on which call options may be written
will be purchased solely on the basis of investment considerations
consistent with each Fund's investment objective. When writing a covered
call option, the Fund, in return for the premium, gives up the opportunity
for profit from a price increase in the underlying security or currency
above the exercise price and retains the risk of loss should the price of
the security or currency decline. Unlike one who owns securities or
currencies not subject to an option, the Fund has no control over when it
may be required to sell the underlying securities or currencies, since the
option may be exercised at any time prior to the option's expiration. If
a call option which the Fund has written expires, the Fund will realize a
gain in the amount of the premium; however, such gain may be offset by a
decline in the market value of the underlying security or currency during
the option period. If the call option is exercised, the Fund will realize
a gain or loss from the sale of the underlying security or currency. The
security or currency covering the call option will be maintained in a
segregated account of the Fund's custodian.
The premium the Fund receives for writing a call option is deemed to
constitute the market value of an option. The premium the Fund will
receive from writing a call option will reflect, among other things, the
current market price of the underlying security or currency, the
relationship of the exercise price to such market price, the implied price
volatility of the underlying security or currency, and the length of the
option period. In determining whether a particular call option should be
written on a particular security or currency, the Manager will consider
the reasonableness of the anticipated premium and the likelihood that a
liquid secondary market will exist for those options. The premium
received by the Fund for writing covered call options will be recorded as
a liability in the Fund's statement of assets and liabilities. This
liability will be adjusted daily to the option's current market value,
which will be calculated as described in "Determination of Net Asset
Value." The liability will be extinguished upon expiration of the option
or delivery of the underlying security or currency upon the exercise of
the option. The liability with respect to a listed option will also be
extinguished upon the purchase of an identical option in a closing
transaction.
Closing transactions will be effected in order to realize a profit or to
limit losses on an outstanding call option, to prevent an underlying
security or currency from being called, or to permit the sale of the
underlying security or currency. Furthermore, effecting a closing
transaction will permit the Fund to write another call option on the
underlying security or currency with either a different exercise price,
expiration date or both. If the Fund desires to sell a particular
security or currency from its portfolio on which it has written a call
option or purchases a put option, it will seek to effect a closing
transaction prior to, or concurrently with, the sale of the security or
currency. There is no assurance that the Fund will be able to effect such
closing transactions at a favorable price. If the Fund cannot enter into
such a transaction, it may be required to hold a security or currency that
it might otherwise have sold, in which case it would continue to be at
market risk with respect to the security or currency.
Transaction costs relating to options activity are normally higher than
those applicable to purchases and sales of portfolio securities.
The exercise price of the options may be below, equal to or above the
current market values of the underlying securities or currencies at the
time the options are written. From time to time, a Fund may purchase an
underlying security or currency for delivery in accordance with the
exercise of an option, rather than delivering such security or currency
from its portfolio. In such cases, additional costs will be incurred. A
Fund will realize a profit or loss from a closing purchase transaction if
the cost of the transaction is less or more, respectively, than the
premium received from the writing of the option. Because increases in the
market price of a call option will generally reflect increases in the
market price of the underlying security or currency, any loss resulting
from the repurchase of a call option is likely to be offset in whole or in
part by appreciation of the underlying security or currency owned by the
Fund.
Purchasing Put Options (Government Securities Fund and Peachtree Growth
Fund) These Funds may purchase put options. As the holder of a put
option, the Fund has the right to sell the underlying security or currency
at the exercise price at any time during the option period. The Fund may
enter into closing sale transactions with respect to such options,
exercise them or permit them to expire.
Each Fund may purchase a put option on an underlying security or currency
(a "protective put") owned by the Fund as a hedging technique in order to
protect against an anticipated decline in the value of the security or
currency. Such hedge protection is provided only during the life of the
put option when the Fund, as the holder of the put option, is able to sell
the underlying security or currency at the put exercise price regardless
of any decline in the underlying security's market price or currency's
exchange value. For example, a put option may be purchased in order to
protect unrealized appreciation of a security or currency when the Manager
deems it desirable to continue to hold the security or currency because of
tax considerations. The premium paid for the put option and any
transaction costs may reduce any capital gain or, in the case of currency,
ordinary income otherwise available for distribution when the security or
currency is eventually sold.
Each Fund may also purchase put options at a time when the Fund does not
own the underlying security or currency. By purchasing put options on a
security or currency it does not own, the Fund seeks to benefit from a
decline in the market price of the underlying security or currency. If
the put option is not sold when it has remaining value, and if the market
price of the underlying security or currency remains equal to or greater
than the exercise price during the life of the put option, the Fund will
lose its entire investment in the put option. In order for the purchase of
a put option to be profitable, the market price of the underlying security
or currency must decline sufficiently below the exercise price to cover
the premium and transaction costs, unless the put option is sold in a
closing sale transaction.
The premium paid by a Fund when purchasing a put option will be recorded
as an asset in the Fund's statement of assets and liabilities. This asset
will be adjusted daily to the option's current market value, as calculated
by the Fund. The asset will be extinguished upon expiration of the option
or the delivery of the underlying security or currency upon the exercise
of the option. The asset with respect to a listed option will also be
extinguished upon the writing of an identical option in a closing
transaction.
Purchasing Call Options Government Securities Fund, Peachtree Growth Fund
) Each Fund may purchase call options. As the holder of a call option,
a Fund has the right to purchase the underlying security or currency at
the exercise price at any time during the option period. The Fund may
enter into a closing sale transactions with respect to such options,
exercise them or permit them to expire. Call options may be purchased by
the Fund for the purpose of acquiring the underlying security or currency
for its portfolio. Utilized in this fashion, the purchase of call options
enables the Fund to acquire the security or currency at the exercise price
of the call option plus the premium paid. At times the net cost of
acquiring the security or currency in this manner may be less than the
cost of acquiring the security or currency directly. This technique may
also be useful to the Fund in purchasing a large block of securities that
would be more difficult to acquire by direct market purchases. So long as
it holds such a call option rather than the underlying security or
currency itself, the Fund is partially protected from any unexpected
decline in the market price of the underlying security or currency and in
such event could allow the call option to expire, incurring a loss only to
the extent of the premium paid for the option.
Each Fund may also purchase call options on underlying securities or
currencies it owns in order to protect unrealized gains on call options
previously written by it. A call option would be purchased for this
purpose where tax considerations make it inadvisable to realize such gains
through a closing purchase transaction. Call options may also be
purchased at times to avoid realizing losses that would result in a
reduction of the Fund's current return.
Futures Contracts (All Funds) Each Fund may enter into interest rate or
currency Futures Contracts ("Futures" or "Futures Contracts") as a hedge
against changes in prevailing levels of interest rates or currency
exchange rates in order to establish more definitely the effective return
on securities or currencies held or committed to be acquired by the Fund.
A Fund's hedging may include holding Futures as an offset against
anticipated changes in interest or currency exchange rates. A Fund may
also enter into Futures Contracts based on financial indices including any
index of U.S. Government securities, foreign government securities or
corporate debt securities.
A Futures Contract provides for the future sale by one party and purchase
by another party of a specified amount of a specific financial instrument
or currency for a specified price at a designated date, time and place.
The purchaser of a Futures Contract on an index agrees to take or make
delivery of an amount of cash equal to the difference between a specified
dollar multiple of the value of the index on the expiration date of the
contract ("current contract value") and the price at which the contract
was originally struck. No physical delivery of the debt securities
underlying the index is made. Brokerage fees are incurred when a Futures
Contract is bought or sold, and margin deposits must be maintained at all
times that the Futures Contract is outstanding.
Although techniques other than sales and purchases of Futures Contracts
could be used to reduce the Fund's exposure to interest rate and currency
exchange rate fluctuations, the Fund may be able to hedge its exposure
more effectively and at a lower cost through using Futures Contracts.
Although Futures Contracts typically require future delivery of and
payment for financial instruments or currencies, Futures Contracts are
usually closed out before the delivery date. Closing out an open Futures
Contract sale or purchase is effected by entering into an offsetting
Futures Contract purchase or sale, respectively, for the same aggregate
amount of the identical financial instrument or currency and the same
delivery date. If the offsetting purchase price is less than the original
sale price, the Fund realizes a gain; if it is more, the Fund realizes a
loss. Conversely, if the offsetting sale price is more than the original
purchase price, the Fund realizes a gain; if it is less, the Fund realizes
a loss. The transaction costs must also be included in these
calculations. There can be no assurance, however, that the Fund will be
able to enter into an offsetting transaction with respect to a particular
Futures Contract at a particular time. If the Fund is not able to enter
into an offsetting transaction, the Fund will continue to be required to
maintain the margin deposits of the underlying financial instrument or
currency on the relevant delivery date. The Company intends to enter into
Futures transactions only on exchanges or boards of trade where there
appears to be a liquid secondary market. However, there can be no
assurance that such a market will exist for a particular contract at a
particular time.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one Futures Contract of September Treasury Bills
on an exchange may be fulfilled at any time before delivery under the
Futures Contract is required (i.e., on a specific date in September, the
"delivery month") by the purchase of another Futures Contract of September
Treasury Bills on the same exchange. In such instance the difference
between the price at which the Futures Contract was sold and the price
paid for the offsetting purchase, after allowance for transaction costs,
represents the profit or loss to the Fund.
Persons who trade in Futures Contracts may be broadly classified as
"hedgers" and "speculators." Hedgers, whose business activity involves
investment or other commitment in securities or other obligations, use the
Futures markets to offset unfavorable changes in value that may occur
because of fluctuations in the value of the securities and obligations
held or committed to be acquired by them or fluctuations in the value of
the currency in which the securities or obligations are denominated.
Debtors and other obligors may also hedge the interest cost of their
obligations. The speculator, like the hedger, generally expects neither
to deliver nor to receive the financial instrument underlying the Futures
Contract, but, unlike the hedger, hopes to profit from fluctuations in
prevailing interest rates or currency exchange rates.
Each Fund's Futures transactions normally will be entered into for
traditional hedging purposes; that is, Futures Contracts will be sold to
protect against a decline in the price of securities or currencies the
Fund owns, or Futures Contracts will be purchased to protect a Fund
against an increase in the price of securities or currencies it has
committed to purchase or expects to purchase. The Funds may, however,
enter into Futures transactions for non-hedging purposes, subject to
applicable law.
"Margin" with respect to Futures Contracts is the amount of Funds that
must be deposited by the Fund with a broker in order to initiate Futures
trading and to maintain the Fund's open positions in Futures Contracts. A
margin deposit made when the Futures Contract is entered into ("initial
margin") is intended to assure the Fund's performance of the Futures
Contract. The margin required for a particular Futures Contract is set by
the exchange on which the Futures Contract is traded, and may be
significantly modified from time to time by the exchange during the term
of the Futures Contract. Futures Contracts are customarily purchased and
sold on margins, which may be 5% or less of the value of the Futures
Contract being traded.
If the price of an open Futures Contract changes (by increase in the case
of a sale or by decrease in the case of a purchase) so that the loss on
the Futures Contract reaches a point at which the margin on deposit does
not satisfy margin requirements, the broker will require an increase in
the margin deposit ("variation margin"). If, however, the value of a
position increases because of favorable price changes in the Futures
Contract so that the margin deposit exceeds the required margin, it is
anticipated that the broker will pay the excess to the Fund. In computing
daily net asset values, the Fund will mark to market the current value of
its open Futures Contracts. Each Fund expects to earn interest income on
its margin deposits.
Options on Futures Contracts (All Funds) Options on Futures Contracts are
similar to options on securities or currencies except that options on
Futures Contracts give the purchaser the right, in return for the premium
paid, to assume a position in a Futures Contract (a long position if the
option is a call and a short position if the option is a put), rather than
to purchase or sell the Futures Contract, at a specified exercise price at
any time during the period of the option. Upon exercise of the option,
the delivery of the Futures position by the writer of the option to the
holder of the option will be accompanied by delivery of the accumulated
balance in the writer's Futures margin account which represents the amount
by which the market price of the Futures Contract, at exercise, exceeds
(in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the Futures Contract. If an option is
exercised on the last trading day prior to the expiration date of the
option, the settlement will be made entirely in cash equal to the
difference between the exercise price of the option and the closing level
of the securities or currencies upon which the Futures Contracts are based
on the expiration date. Purchasers of options who fail to exercise their
options prior to the exercise date suffer a loss of the premium paid.
As an alternative to purchasing call and put options on Futures, each Fund
may purchase call and put options on the underlying securities or
currencies themselves (see "Purchasing Put Options" and "Purchasing Call
Options" above). Such options would be used in a manner identical to the
use of options on Futures Contracts.
To reduce or eliminate the leverage then employed by the Fund or to reduce
or eliminate the hedge position then held by the Fund, the Fund may seek
to close out an option position by selling an option covering the same
securities or currency and having the same exercise price and expiration
date. The ability to establish and close out positions on options on
Futures Contracts is subject to the existence of a liquid market. It is
not certain that this market will exist at any specific time.
In order to assure that the Funds will not be deemed to be "commodity
pools" for purposes of the Commodity Exchange Act, regulations of the
Commodity Futures Trading Commission ("CFTC") require that each Fund enter
into transactions in Futures Contracts and options on Futures Contracts
only (i) for bona fide hedging purposes (as defined in CFTC regulations),
or (ii) for non-hedging purposes, provided that the aggregate initial
margin and premiums on such non-hedging positions does not exceed 5% of
the liquidation value of the Fund's assets.
Forward Currency Contracts, Options on Currency and Currency Swaps
(Government Securities Fund, Peachtree Growth Fund) A forward currency
contract is an obligation to purchase or sell a currency against another
currency at a future date and price as agreed upon by the parties. A Fund
may either accept or make delivery of the currency at the maturity of the
forward contract or, prior to maturity, enter into a closing transaction
involving the purchase or sale of an offsetting contract. Each of these
Funds engages in forward currency transactions in anticipation of, or to
protect itself against, fluctuations in exchange rates. A Fund might sell
a particular foreign currency forward, for example, when it holds bonds
denominated in that currency but anticipates, and seeks to be protected
against, decline in the currency against the U.S. dollar. Similarly, a
Fund might sell the U.S. dollar forward when it holds bonds denominated in
U.S. dollars but anticipates, and seeks to be protected against, a decline
in the U.S. dollar relative to other currencies. Further, a Fund might
purchase a currency forward to "lock in" the price of securities
denominated in that currency which it anticipates purchasing.
The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency
denominated asset that is the subject of the hedge generally will not be
precise. In addition, a Fund may not always be able to enter into foreign
currency forward contracts at attractive prices and this will limit the
Fund's ability to use such contract to hedge or cross-hedge its assets.
Also, with regard to a Fund's use of cross-hedges, there can be no
assurance that historical correlations between the movement of certain
foreign currencies relative to the U.S. dollar will continue. Thus, at
any time poor correlation may exist between movements in the exchange
rates of the foreign currencies underlying the Fund's cross-hedges and the
movements in the exchange rates of the foreign currencies in which the
Fund's assets that are the subject of such cross-hedges are denominated.
Forward contracts are traded in an interbank market conducted directly
between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement and is
consummated without payment of any commission. Each Fund, however, may
enter into forward contracts with deposit requirements or commissions.
A put option gives a Fund, as purchaser, the right (but not the
obligation) to sell a specified amount of currency at the exercise price
until the expiration of the option. A call option gives a Fund, as
purchaser, the right (but not the obligation) to purchase a specified
amount of currency at the exercise price until its expiration. A Fund
might purchase a currency put option, for example, to protect itself
during the contract period against a decline in the value of a currency in
which it holds or anticipates holding securities. If the currency's value
should decline, the loss in currency value should be offset, in whole or
in part, by an increase in the value of the put. If the value of the
currency instead should rise, any gain to the Fund would be reduced by the
premium it had paid for the put option. A currency call option might be
purchased, for example, in anticipation of, or to protect against, a rise
in the value of a currency in which the Fund anticipates purchasing
securities.
Each Fund's ability to establish and close out positions in foreign
currency options is subject to the existence of a liquid market. There
can be no assurance that a liquid market will exist for a particular
option at any specific time. In addition, options on foreign currencies
are affected by all of those factors that influence foreign exchange rates
and investments generally.
A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. Exchange
markets for options on foreign currencies exist but are relatively new,
and the ability to establish and close out positions on the exchanges is
subject to maintenance of a liquid secondary market. Closing transactions
may be effected with respect to options traded in the over-the-counter
("OTC") markets (currently the primary markets for options on foreign
currencies) only by negotiating directly with the other party to the
option contract or in a secondary market for the option if such market
exists. Although each Fund intends to purchase only those options for
which there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular
option at any specific time. In such event, it may not be possible to
effect closing transactions with respect to certain options, with the
result that the Fund would have to exercise those options which it has
purchased in order to realize any profit. The staff of the Securities and
Exchange Commission ("SEC") has taken the position that, in general,
purchased OTC options and the underlying securities used to cover written
OTC options are illiquid securities. However, a Fund may treat as liquid
the underlying securities used to cover written OTC options, provided it
has arrangements with certain qualified dealers who agree that the Fund
may repurchase any option it writes for a maximum price to be calculated
by a predetermined formula. In these cases, the OTC option itself would
only be considered illiquid to the extent that the maximum repurchase
price under the formula exceeds the intrinsic value of the option.
A Fund may also enter into currency swaps. A currency swap is an
arrangement whereby each party exchanges one currency for another on a
particular date and agrees to reverse the exchange on a later date at a
specific exchange rate. Forward foreign currency contracts and currency
swaps are established in the interbank market conducted directly between
currency traders (usually large commercial banks or other financial
institutions) on behalf of their customers.
Interest Rate Swaps, Caps and Floors (Government Securities Fund,
Peachtree Growth Fund) Among the hedging transactions into which the
Funds may enter are interest rate swaps and the purchase or sale of
interest rate caps and floors. Each Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio or to protect against any increase
in the price of securities the Fund anticipates purchasing at a later
date. A Fund intends to use these transactions as a hedge and not as a
speculative investment. Each Fund will not sell interest rate caps or
floors that it does not own. Interest rate swaps involve the exchange by
a Fund with another party of their respective commitments to pay or
receive interest, e.g., an exchange of floating rate payments for fixed
rate payments. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined
interest rate, to receive payments of interest on a notional principal
amount from the party selling such interest rate cap. The purchase of an
interest rate floor entitles the purchaser, to the extent that a specified
index falls below a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such
interest rate floor.
A Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending on whether it is hedging
its assets or its liabilities, and will usually enter into interest rate
swaps on a net basis, i.e., the two payment streams are netted, with the
Fund receiving or paying, as the case may be, only the net amount of the
two payments. Inasmuch as these hedging transactions are entered into for
good faith hedging purposes, the Manager and the Funds believe such
obligations do not constitute senior securities and, accordingly will not
treat them as being subject to their borrowing restrictions. The net
amount of the excess, if any, of a Fund's obligations over its
entitlements with respect to each interest rate swap will be accrued on a
daily basis and an amount of cash or liquid securities having an aggregate
net asset value at least equal to the accrued excess will be maintained in
a segregated account by a custodian that satisfies the requirements of the
1940 Act. The Funds will not enter into any interest rate swap, cap or
floor transaction unless the unsecured senior debt or the claims-paying
ability of the other party thereto is rated in the highest rating category
of at least one nationally recognized rating organization at the time of
entering into such transaction. If there is a default by the other party
to such a transaction, a Fund will have contractual remedies pursuant to
the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing swap
documentation. As a result, the swap market has become relatively liquid.
Caps and floors are more recent innovations for which standardized
documentation has not yet been developed and, accordingly, they are less
liquid than swaps.
New options and Futures Contracts and various combinations thereof
continue to be developed and the Funds may invest in any such options and
contracts as may be developed to the extent consistent with their
investment objectives and regulatory requirements applicable to investment
companies.
OTHER PRACTICES
Securities of Foreign Issuers (All Funds) Peachtree Growth Fund may invest
up to 35% of its assets, and Contrarian Fund may invest up to 10% of its
assets, in securities of foreign issuers. Investments in securities of
foreign entities and securities denominated in foreign currencies involve
risks not typically involved in domestic investment, including
fluctuations in foreign exchange rates, future foreign political and
economic developments, and the possible imposition of exchange controls or
other foreign or United States governmental laws or restrictions
applicable to such investments. Since each Fund may invest in securities
denominated or quoted in currencies other than the U.S. dollar, changes in
foreign currency exchange rates may affect the value of investments in the
portfolio and the accrued income and unrealized appreciation or
depreciation of investments. Changes in foreign currency rates relative to
the U.S. dollar will affect the U.S. dollar value of the Fund's assets
denominated in that currency and the Fund's yield on such assets.
Each Fund may also purchase foreign securities in the form of American
Depositary Receipts ("ADRs"). ADRs are publicly traded on exchanges or
over-the-counter in the United States and are issued through "sponsored"
or "unsponsored" arrangements. In a sponsored ADR arrangement, the foreign
issuer assumes the obligation to pay some or all of the depositary's
transaction fees, whereas under an unsponsored arrangement, the foreign
issuer assumes no obligation and the depositary's transaction fees are
paid by the ADR holders. In addition, less information is available in the
United States about an unsponsored ADR than about a sponsored ADR, and the
financial information about a company may not be as reliable for an
unsponsored ADR as it is for a sponsored ADR. Each Fund may invest in ADRs
through both sponsored and unsponsored arrangements.
Investment Grade Bond Fund also may purchase foreign securities in the
form of Yankee obligations. Yankee obligations are dollar denominated
obligations (bonds) issued in the U.S. capital markets by foreign issuers.
Yankee obligations are subject to certain sovereign risks, such as the
risk that a foreign government might prevent dollar denominated Funds from
flowing across its border. As compared with obligations issued in the
United States, Yankee obligations normally carry a higher interest rate
but are less actively traded.
With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social
instability or diplomatic developments which could affect investment in
those countries. There may be less publicly available information about a
foreign security than about a United States security, and foreign entities
may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those of United States entities.
In addition, certain foreign investments made by the Fund may be subject
to foreign withholding taxes, which would reduce the Fund's total return
on such investments and the amounts available for distributions by the
Fund to its shareholders. Foreign financial markets, while growing in
volume, have, for the most part, substantially less volume than United
States markets, and securities of many foreign companies are less liquid
and their prices more volatile than securities of comparable domestic
companies.
The foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements
have been unable to keep pace with the volume of securities transactions
making it difficult to conduct such transactions. Delays in settlement
could result in temporary periods when assets of a Fund are not invested
and no return is earned thereon. The inability of each Fund to make
intended security purchases due to settlement problems could cause the
Fund to miss attractive investment opportunities. Inability to dispose of
portfolio securities due to settlement problems could result either in
losses to the Fund due to subsequent declines in value of the portfolio
security or, if the Fund has entered into a contract to sell the security,
could result in possible liability to the purchaser. Costs associated with
transactions in foreign securities, including custodial costs and foreign
brokerage commissions, are generally higher than with transactions in
United States securities. In addition, each Fund will incur cost in
connection with conversions between various currencies. There is generally
less government supervision and regulation of exchanges, financial
institutions and issuers in foreign countries than there are in the United
States. These risks may be intensified in the case of investments in
developing or emerging markets. In many developing markets, there is less
government supervision and regulation of business and industry practices,
stock exchanges, brokers and listed companies than in the United States.
The foreign securities markets of many of the countries in which a Fund
may invest may also be smaller, less liquid, and subject to greater price
volatility than those in the United States. Finally, in the event of a
default on any such foreign debt obligations, it may be more difficult for
a Fund to obtain or to enforce a judgment against the issuers of such
securities.
A developing country generally is considered to be a country that is in
the initial stages of its industrialization cycle. Investing in the equity
and fixed-income markets of developing countries involves exposure to
economic structures that are generally less diverse and mature, and to
political systems that can be expected to have less stability, than those
of developed countries. Historical experience indicates that the markets
of developing countries have been more volatile than the markets of the
more mature economics of developed countries; however, such markets often
have provided higher rates of return to investors.
One or more of the risks discussed above could affect adversely the
economy of a developing market or a Fund's investments in such a market.
In Eastern Europe, for example, upon the accession to power of Communist
regimes in the past, the governments of a number of Eastern European
countries expropriated a large amount of property. The claims of many
property owners against those governments were never finally settled.
There can be no assurance that any investments that the Fund might make in
such emerging markets would not be expropriated, nationalized or otherwise
confiscated at some time in the future. In such an event, the Fund could
lose its entire investment in the market involved. Moreover, changes in
the leadership or policies of such markets could halt the expansion or
reverse the liberalization of foreign investment policies now occurring in
certain of these markets and adversely affect existing investment
opportunities.
Illiquid and Restricted Securities (Peachtree Growth Fund) This Fund may
invest in restricted securities. As used herein, restricted securities are
those that have been sold in the United States without registration under
the Securities Act of 1933 and are thus subject to restrictions on resale.
Excluded from the limitation, however, are any restricted securities which
are eligible for resale pursuant to Rule 144A under the Securities Act of
1933 and which have been determined to be liquid by the Directors or by
the Manager pursuant to board-approved guidelines. The determination of
liquidity is based on the volume of reported trading in the institutional
secondary market for each security. This investment practice could have
the effect of increasing the level of illiquidity in the Fund to the
extent qualified institutional buyers become for a time uninterested in
purchasing these restricted securities. These difficulties and delays
could result in the Fund's inability to realize a favorable price upon
disposition of restricted securities, and in some cases might make
disposition of such securities at the time desired by the Fund impossible.
Since market quotations are not readily available for restricted
securities, such securities will be valued by a method that the Directors
believe accurately reflects fair value.
Peachtree Growth Fund may invest up to 10% of its assets in restricted and
illiquid securities.
Forward Commitments (Government Securities Fund, Investment Grade Bond
Fund and Peachtree Growth Fund) These Funds may purchase or sell
securities on a "when-issued" or "delayed delivery" basis ("Forward
Commitments" or "Firm Commitment Agreements"). These transactions occur
when securities are purchased or sold by a Fund with payment and delivery
taking place in the future, frequently a month or more after such
transactions. The price is fixed on the date of the commitment, and the
seller continues to accrue interest on the securities covered by the
Forward Commitment until delivery and payment take place. At the time of
settlement, the market value of the securities may be more or less than
the purchase or sale price.
A Forward Commitment sale is covered if the Fund owns or has the right to
acquire the underlying securities subject to the Forward Commitment. A
Forward Commitment sale is for cross-hedging purposes if it is not
covered, but is designed to provide a hedge against a decline in value of
a security which the Fund owns or has the right to acquire. In either
circumstance, the Fund maintains in a segregated account (which is marked
to market daily) either the security covered by the Forward Commitment or
appropriate securities as required by the 1940 Act (which may have
maturities which are longer than the term of the Forward Commitment) with
the Fund's custodian in an aggregate amount equal to the amount of its
commitment as long as the obligation to sell continues. By entering into
a Forward Commitment sale transaction, the Fund forgoes or reduces the
potential for both gain and loss in the security which is being hedged by
the Forward Commitment sale.
A Fund may either settle a Forward Commitment by taking delivery of the
securities or may either resell or repurchase a Forward Commitment on or
before the settlement date in which event the Fund may reinvest the
proceeds in another Forward Commitment. A Fund's use of Forward
Commitments may increase its overall investment exposure and thus its
potential for gain or loss. When engaging in Forward Commitments, the Fund
relies on the other party to complete the transaction; should the other
party fail to do so, the Fund might lose a purchase or sale opportunity
that could be more advantageous than alternative opportunities at the time
of the failure.
Each Fund maintains a segregated account (which is marked to market daily)
of appropriate securities as required by the 1940 Act covered by the
Forward Commitment with the Fund's custodian in an aggregate amount equal
to the amount of its commitment as long as the obligation to purchase or
sell continues. The Government Securities Fund and Investment Grade Bond
Fund will not enter into Forward Commitments for the purpose of investment
leverage.
Repurchase Agreements (All Funds) Each Fund may enter into repurchase
agreements with broker-dealers or domestic banks. The Directors will
review on a continuing basis those institutions which enter into a
repurchase agreement with a Fund. A repurchase agreement is a short-term
investment in which the purchaser (i.e., the Fund) acquires ownership of
a debt security and the seller agrees to repurchase the obligation at a
future time and set price, usually not more than seven days from the date
of purchase, thereby determining the yield during the purchaser's holding
period. Repurchase agreements are collateralized by the underlying debt
securities and may be considered to be loans under the 1940 Act. The Fund
will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of a custodian or bank
acting as agent. The seller under a repurchase agreement is required to
maintain the value of the underlying securities marked to market daily at
not less than the repurchase price. The underlying securities (normally
securities of the U.S. Government, or its agencies and instrumentalities),
may have maturity dates exceeding one year. The Fund does not bear the
risk of a decline in value of the underlying security unless the seller
defaults under its repurchase obligation. In the event of a bankruptcy or
other default of a seller of a repurchase agreement, the Fund could
experience both delays in liquidating the underlying securities and loss
including: (a) possible decline in the value of the underlying security
during the period while the Fund seeks to enforce its rights thereto,
(b) possible lack of access to income on the underlying security during
this period, and (c) expenses of enforcing its rights.
For the purpose of investing in repurchase agreements, the Manager may
aggregate the cash that certain Funds advised or subadvised by the Manager
or its affiliates would otherwise invest separately into a joint account.
The cash in the joint account is then invested in repurchase agreements
and the Funds that contributed to the joint account share pro rata in the
net revenue generated. The Manager believes that the joint account
produces efficiencies and economies of scale that may contribute to
reduced transaction costs, higher returns, higher quality investments and
greater diversity of investments for a Fund than would be available to a
Fund investing separately. The manner in which the joint account is
managed is subject to conditions set forth in an SEC exemptive order
authorizing this practice, which conditions are designed to ensure the
fair administration of the joint account and to protect the amounts in
that account.
Reverse Repurchase Agreements (All Funds) Each Fund may enter into
reverse repurchase agreements with broker/dealers and other financial
institutions. Such agreements involve the sale of portfolio securities
with an agreement to repurchase the securities at an agreed-upon price,
date and interest payment and are considered to be borrowings by the Fund
and are subject to the borrowing limitations set forth under "Investment
Restrictions." Since the proceeds of reverse repurchase agreements are
invested, this would introduce the speculative factor known as "leverage."
The securities purchased with the Funds obtained from the agreement and
securities collateralizing the agreement will have maturity dates no later
than the repayment date. Generally, the effect of such a transaction is
that the Fund can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while in many cases it will be able to keep some of the
interest income associated with those securities. Such transactions are
only advantageous if the Fund has an opportunity to earn a greater rate of
interest on the cash derived from the transaction than the interest cost
of obtaining that cash. Opportunities to realize earnings from the use of
the proceeds equal to or greater than the interest required to be paid may
not always be available, and the Fund intends to use the reverse
repurchase technique only when the Manager believes it will be
advantageous to the Fund. The use of reverse repurchase agreements may
exaggerate any interim increase or decrease in the value of the Fund's
assets. The Funds' custodian bank will maintain a separate account for
the Fund with securities having a value equal to or greater than such
commitments.
Short Sales Against the Box (All Funds) Each Fund may from time to time
make short sales of securities it owns or has the right to acquire through
conversion or exchange of other securities it owns. A short sale is
"against the box" to the extent that the Fund contemporaneously owns or
has the right to obtain at no added cost securities identical to those
sold short. In a short sale, the Fund does not immediately deliver the
securities sold and does not receive the proceeds from the sale. The Fund
is said to have a short position in the securities sold until it delivers
the securities sold, at which time it receives the proceeds of the sale.
The Fund may not make short sales or maintain a short position if to do so
would cause more than 25% of its total assets, taken at market value, to
be held as collateral for such sales.
To secure its obligation to deliver the securities sold short, the Fund
will deposit in escrow in a separate account with its custodian an equal
amount of the securities sold short or securities convertible into or
exchangeable for such securities. The Fund may close out a short position
by purchasing and delivering an equal amount of the securities sold short,
rather than by delivering securities already held by the Fund, because the
Fund may want to continue to receive interest and dividend payments on
securities in its portfolio that are convertible into the securities sold
short. However, the Fund will not purchase and deliver new securities to
satisfy its short order if such purchase and sale would cause the Fund to
derive more than 30% of its gross income from the sale of securities held
for less than three months.
Borrowing (All Funds) Each Fund may borrow up to 33% of the value of its
total assets from banks for temporary or emergency purposes, such as to
meet the Fund's redemptions.
Leverage (Government Securities Fund) The Fund may borrow from banks, on
a secured or unsecured basis, up to 25% of the value of its assets. If the
Fund borrows and uses the proceeds to make additional investments, income
and appreciation from such investments will improve its performance if
they exceed the associated borrowing costs but impair its performance if
they are less than such borrowing costs. This speculative factor is known
as "leverage." Leverage creates an opportunity for increased returns to
shareholders of the Fund but, at the same time, creates special risk
considerations. For example, leverage may exaggerate changes in the net
asset value of the Fund's shares and in the Fund's yield. Although the
principal or stated value of such borrowings will be fixed, the Fund's
assets may change in value during the time the borrowing is outstanding.
Leverage will create interest or dividend expenses for the Fund which can
exceed the income from the assets retained. To the extent the income or
other gain derived from securities purchased with borrowed Funds exceed
the interest or dividends the Fund will have to pay in respect thereof,
the Fund's net income or other gain will be greater than if leverage had
not been used. Conversely, if the income or other gain from the
incremental assets is not sufficient to cover the cost of leverage, the
net income or other gain of the Fund will be less than if leverage had not
been used. If the amount of income from the incremental securities is
insufficient to cover the cost of borrowing, securities might have to be
liquidated to obtain required Funds. Depending on market or other
conditions, such liquidations could be disadvantageous to the Fund.
The Fund is required to maintain continuous asset coverage of 300% with
respect to such borrowings, and to sell (within three days) sufficient
portfolio holdings to restore such coverage, if it should decline to less
than 300% due to market fluctuations or otherwise, even if disadvantageous
from an investment standpoint. Leveraging will exaggerate the effect of
any increase or decrease in the value of portfolio securities on the
Fund's net asset value, and money borrowed will be subject to interest
costs (which may include commitment fees and/or the cost of maintaining
minimum average balances) which may or may not exceed the interest and
option premiums received from the securities purchased with borrowed
Funds.
Lending Portfolio Securities (All Funds) Consistent with applicable
regulatory requirements each Fund has the ability to lend securities from
its portfolio to brokers, dealers and other financial organizations. A
Fund will not lend its portfolio securities to Salomon Smith Barney or its
affiliates unless it has applied for and received specific authority to do
so from the SEC. Loans of portfolio securities will be collateralized by
cash, letters of credit or U.S. government securities in an amount at
least equal to the current market value of the loaned securities. From
time to time, a Fund may return a part of the interest earned from the
investment of collateral received for securities loaned to the borrower
and/or a third party, which is unaffiliated with the Fund or with Salomon
Smith Barney, and which is acting as a "finder".
In lending its securities, a Fund can increase its income by continuing to
receive interest on the loaned securities as well as by either investing
the cash collateral in short-term instruments or obtaining yield in the
form of interest paid by the borrower when U.S. government securities are
used as collateral. Requirements of the SEC, which may be subject to
further modifications, currently provide that the following conditions
must be met whenever a Fund's portfolio securities are loaned: (a) the
Fund must receive at least 100% cash collateral or equivalent securities
from the borrower; (b) the borrower must increase such collateral whenever
the market value of the securities loaned rises above the level of such
collateral; (c) the Fund must be able to terminate the loan at any time;
(d) the Fund must receive reasonable interest on the loan, as well as an
amount equal to dividends, interest or other distributions on the loaned
securities, and any increase in market value; (e) the Fund may pay only
reasonable custodian fees in connection with the loan; and (f) voting
rights on the loaned securities may pass to the borrower; provided,
however, that if a material event adversely affecting the investment in
the loaned securities occurs, the Board of Directors must terminate the
loan and regain the right to vote the securities. The risks in lending
portfolio securities, as with other extensions of secured credit, consist
of possible delay in receiving additional collateral or in the recovery of
the securities or possible loss of rights in the collateral should the
borrower fail financially. Loans will be made to firms deemed by to be
of good standing and will not be made unless, in the judgment of , the
consideration to be earned from such loans would justify the risk.
RISK FACTORS
General Investors should realize that risk of loss is inherent in the
ownership of any securities and that each Fund's net asset value will
fluctuate, reflecting fluctuations in the market value of its portfolio
positions.
Fixed Income Securities Investments in fixed income securities may
subject the Funds to risks, including the following.
Interest Rate Risk. When interest rates decline, the market value of
fixed income securities tends to increase. Conversely, when interest rates
increase, the market value of fixed income securities tends to decline.
The volatility of a security's market value will differ depending upon
the security's duration, the issuer and the type of instrument.
Default Risk/Credit Risk. Investments in fixed income securities are
subject to the risk that the issuer of the security could default on its
obligations, causing a Fund to sustain losses on such investments. A
default could impact both interest and principal payments.
Call Risk and Extension Risk. Fixed income securities may be subject to
both call risk and extension risk. Call risk exists when the issuer may
exercise its right to pay principal on an obligation earlier than
scheduled, which would cause cash flows to be returned earlier than
expected. This typically results when interest rates have declined and a
Fund will suffer from having to reinvest in lower yielding securities.
Extension risk exists when the issuer may exercise its right to pay
principal on an obligation later than scheduled, which would cause cash
flows to be returned later than expected. This typically results when
interest rates have increased, and a Fund will suffer from the inability
to invest in higher yield securities.
Lower Rated and Below Investment Grade Fixed Income Securities Securities
which are rated BBB by S&P or Baa by Moody's are generally regarded as
having adequate capacity to pay interest and repay principal, but may have
some speculative characteristics. Securities rated below Baa by Moody's
or BBB by S&P may have speculative characteristics, including the
possibility of default or bankruptcy of the issuers of such securities,
market price volatility based upon interest rate sensitivity, questionable
creditworthiness and relative liquidity of the secondary trading market.
Because high yield bonds have been found to be more sensitive to adverse
economic changes or individual corporate developments and less sensitive
to interest rate changes than higher-rated investments, an economic
downturn could disrupt the market for high yield bonds and adversely
affect the value of outstanding bonds and the ability of issuers to repay
principal and interest. In addition, in a declining interest rate market,
issuers of high yield bonds may exercise redemption or call provisions,
which may force a Fund, to the extent it owns such securities, to replace
those securities with lower yielding securities. This could result in a
decreased return.
Subsequent to its purchase by a Fund, an issue of securities may cease to
be rated or its rating may be reduced below the minimum required for
purchase by the Fund. In addition, it is possible that Moody's, S&P and
other ratings agencies might not timely change their ratings of a
particular issue to reflect subsequent events.
Foreign Securities Investments in securities of foreign issuers involve
certain risks not ordinarily associated with investments in securities of
domestic issuers. Such risks include fluctuations in foreign exchange
rates, future political and economic developments, and the possible
imposition of exchange controls or other foreign governmental laws or
restrictions. Changes in foreign currency exchange rates will, to the
extent a Fund does not adequately hedge against such fluctuations, affect
the value of securities in its portfolio and the unrealized appreciation
or depreciation of investments so far as U.S. investors are concerned. In
addition, with respect to certain countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social
instability or diplomatic developments which could adversely affect
investments in those countries.
There may be less publicly available information about a foreign company
than about a U.S. company, and foreign companies may not be subject to
accounting, auditing, and financial reporting standards and requirements
comparable to or as uniform as those of U.S. companies. Foreign
securities markets, while growing in volume, have, for the most part,
substantially less volume than U.S. markets, and securities of many
foreign companies are less liquid and their price more volatile than
securities of comparable U.S. companies. Transaction costs on foreign
securities markets are generally higher than in the U.S. There is
generally less government supervision and regulation of exchanges, brokers
and issuers than there is in the U.S. A Fund might have greater difficulty
taking appropriate legal action in foreign courts. Dividend and interest
income from foreign securities will generally be subject to withholding
taxes by the country in which the issuer is located and may not be
recoverable by the Fund or the investors. Capital gains are also subject
to taxation in some foreign countries.
Currency Risks The U.S. dollar value of securities denominated in a
foreign currency will vary with changes in currency exchange rates, which
can be volatile. Accordingly, changes in the value of the currency in
which a Fund's investments are denominated relative to the U.S. dollar
will affect the Fund's net asset value. Exchange rates are generally
affected by the forces of supply and demand in the international currency
markets, the relative merits of investing in different countries and the
intervention or failure to intervene of U.S. or foreign governments and
central banks. However, currency exchange rates may fluctuate based on
factors intrinsic to a country's economy. Some emerging market countries
also may have managed currencies, which are not free floating against the
U.S. dollar. In addition, emerging markets are subject to the risk of
restrictions upon the free conversion of their currencies into other
currencies. Any devaluations relative to the U.S. dollar in the
currencies in which a Fund's securities are quoted would reduce the Fund's
net asset value per share.
Special Risks of Countries in the Asia Pacific Region Certain of the
risks associated with international investments are heightened for
investments in these countries. For example, some of the currencies of
these countries have experienced devaluations relative to the U.S. dollar,
and adjustments have been made periodically in certain of such currencies.
Certain countries, such as Indonesia, face serious exchange constraints.
Jurisdictional disputes also exist, for example, between South Korea and
North Korea. In addition, Hong Kong reverted to Chinese administration on
July 1, 1997. The long-term effects of this reversion are not known at
this time.
Securities of Developing/Emerging Markets Countries. A developing or
emerging markets country generally is considered to be a country that is
in the initial stages of its industrialization cycle. Investing in the
equity markets of developing countries involves exposure to economic
structures that are generally less diverse and mature, and to political
systems that can be expected to have less stability, than those of
developed countries. Historical experience indicates that the markets of
developing countries have been more volatile than the markets of the more
mature economies of developed countries; however, such markets often have
provided higher rates of return to investors.
One or more of the risks discussed above could affect adversely the
economy of a developing market or a Fund's investments in such a market.
In Eastern Europe, for example, upon the accession to power of Communist
regimes in the past, the governments of a number of Eastern European
countries expropriated a large amount of property. The claims of many
property owners against those of governments may remain unsettled. There
can be no assurance that any investments that a Fund might make in such
emerging markets would not be expropriated, nationalized or otherwise
confiscated at some time in the future. In such an event, the Fund could
lose its entire investment in the market involved. Moreover, changes in
the leadership or policies of such markets could halt the expansion or
reverse the liberalization of foreign investment policies now occurring in
certain of these markets and adversely affect existing investment
opportunities.
Many of a Fund's investments in the securities of emerging markets may be
unrated or rated below investment grade. Securities rated below investment
grade (and comparable unrated securities) are the equivalent of high
yield, high risk bonds, commonly known as "junk bonds." Such securities
are regarded as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms
of the obligations and involve major risk exposure to adverse business,
financial, economic, or political conditions.
Derivative Instruments In accordance with its investment policies, each
Fund may invest in certain derivative instruments which are securities or
contracts that provide for payments based on or "derived" from the
performance of an underlying asset, index or other economic benchmark.
Essentially, a derivative instrument is a financial arrangement or a
contract between two parties (and not a true security like a stock or a
bond). Transactions in derivative instruments can be, but are not
necessarily, riskier than investments in conventional stocks, bonds and
money market instruments. A derivative instrument is more accurately
viewed as a way of reallocating risk among different parties or
substituting one type of risk for another. Every investment by a Fund,
including an investment in conventional securities, reflects an implicit
prediction about future changes in the value of that investment. Every
Fund investment also involves a risk that the portfolio Manager's
expectations will be wrong. Transactions in derivative instruments often
enable a Fund to take investment positions that more precisely reflect the
portfolio Manager's expectations concerning the future performance of the
various investments available to the Fund. Derivative instruments can be
a legitimate and often cost-effective method of accomplishing the same
investment goals as could be achieved through other investment in
conventional securities.
Derivative contracts include options, Futures Contracts, forward
contracts, forward commitment and when-issued securities transactions,
forward foreign currency exchange contracts and interest rate, mortgage
and currency swaps. The following are the principal risks associated with
derivative instruments.
Leverage and associated price volatility: Leverage causes increased
volatility in the price and magnifies the impact of adverse market
changes, but this risk may be consistent with the investment objective of
even a conservative Fund in order to achieve an average portfolio
volatility that is within the expected range for that type of Fund.
Credit risk: The issuer of the instrument may default on its obligation
to pay interest and principal.
Liquidity and valuation risk: Many derivative instruments are traded in
institutional markets rather than on an exchange. Nevertheless, many
derivative instruments are actively traded and can be priced with as much
accuracy as conventional securities. Derivative instruments that are
custom designed to meet the specialized investment needs of a relatively
narrow group of institutional investors such as the Funds are not readily
marketable and are subject to a Fund's restrictions on illiquid
investments.
Correlation risk: There may be imperfect correlation between the price of
the derivative and the underlying asset. For example, there may be price
disparities between the trading markets for the derivative contract and
the underlying asset.
Each derivative instrument purchased for a Fund's portfolio is reviewed
and analyzed by the Fund's portfolio Manager to assess the risk and reward
of such instrument in relation the Fund's portfolio investment strategy.
The decision to invest in derivative instruments or conventional
securities is made by measuring the respective instrument's ability to
provide value to the Fund and its shareholders.
Special Risks of Using Futures Contracts and Options on Futures Contracts
The prices of Futures Contracts are volatile and are influenced by, among
other things, actual and anticipated changes in interest rates, which in
turn are affected by fiscal and monetary policies and national and
international political and economic events.
At best, the correlation between changes in prices of Futures Contracts
and of the securities or currencies being hedged can be only approximate.
The degree of imperfection of correlation depends upon circumstances such
as: variations in speculative market demand for Futures and for debt
securities or currencies, including technical influences in Futures
trading; and differences between the financial instruments being hedged
and the instruments underlying the standard Futures Contracts available
for trading, with respect to interest rate levels, maturities, and
creditworthiness of issuers. A decision of whether, when, and how to
hedge involves skill and judgment, and even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or
interest rate trends.
Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial
loss or gain, to the investor. For example, if at the time of purchase,
10% of the value of the Futures Contract is deposited as margin, a
subsequent 10% decrease in the value of the Futures Contract would result
in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease
would result in a loss equal to 150% of the original margin deposit, if
the Futures Contract were closed out. Thus, a purchase or sale of a
Futures Contract may result in losses in excess of the amount invested in
the Futures Contract. A Fund, however, would presumably have sustained
comparable losses if, instead of the Futures Contract, it had invested in
the underlying financial instrument and sold it after the decline. Where
a Fund enters into Futures transactions for non-hedging purposes, it will
be subject to greater risks and could sustain losses which are not offset
by gains on other Fund assets.
In order to be certain that each Fund has sufficient assets to satisfy its
obligations under a Futures Contract, the Fund segregates and commits to
back the Futures Contract an amount of cash and liquid securities equal in
value to the current value of the underlying instrument less the margin
deposit.
Most U.S. Futures exchanges limit the amount of fluctuation permitted in
Futures Contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a Futures Contract may
vary either up or down from the previous day's settlement price at the end
of a trading session. Once the daily limit has been reached in a
particular type of Futures Contract, no trades may be made on that day at
a price beyond that limit. The daily limit governs only price movement
during a particular trading day and therefore does not limit potential
losses, because the limit may prevent the liquidation of unfavorable
positions. Futures Contract prices have occasionally moved to the daily
limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of Futures positions and subjecting
some Futures traders to substantial losses.
As with options on debt securities, the holder of an option may terminate
his position by selling an option of the same series. There is no
guarantee that such closing transactions can be effected. The Fund will
be required to deposit initial margin and maintenance margin with respect
to put and call options on Futures Contracts described above, and, in
addition, net option premiums received will be included as initial margin
deposits.
In addition to the risks which apply to all option transactions, there are
several special risks relating to options on Futures Contracts. The
ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid secondary market.
It is not certain that this market will develop. The Fund will not
purchase options on Futures Contracts on any exchange unless and until, in
the Manager's opinion, the market for such options had developed
sufficiently that the risks in connection with options on Futures
Contracts are not greater than the risks in connection with Futures
Contracts. Compared to the use of Futures Contracts, the purchase of
options on Futures Contracts involves less potential risk to the Fund
because the maximum amount of risk is the premium paid for the options
(plus transaction costs). Writing an option on a Futures Contract
involves risks similar to those arising in the sale of Futures Contracts,
as described above.
Portfolio Turnover Each Fund may purchase or sell securities without
regard to the length of time the security has been held and thus may
experience a high rate of portfolio turnover. A 100% turnover rate would
occur, for example, if all the securities in a portfolio were replaced in
a period of one year. Under certain market conditions a Fund may
experience a high rate of portfolio turnover. The rate of portfolio
turnover is not a limiting factor when the Manager deems it desirable to
purchase or sell securities or to engage in options transactions. High
portfolio turnover involves correspondingly greater transaction costs,
including any brokerage commissions, which are borne directly by the
respective Fund and may increase the recognition of short-term, rather
than long-term, capital gains if securities are held for one year or less
and may be subject to applicable income taxes. (For further information
see "Portfolio Turnover" below).
Recent Portfolio Turnover. Investment Grade Bond Fund: Experienced a
substantial increase in portfolio turnover in fiscal 1999 as compared to
fiscal 1998 because of volatility in the marketplace as well as due to the
efforts to restructure the fund by eliminating some of the maturity in the
fund through sales of certain securities with the longest maturities. The
manager anticipates a return to lower portfolio turnover year in fiscal
year 2000 as the fund has completed its restructuring. Government
Securities Fund: Experienced a substantial reduction in portfolio
turnover in fiscal 1999 as compared to fiscal 1998 because of reduced
portfolio securities lending activity. The manager anticipates a return
to higher portfolio turnover in fiscal year 2000 due to a return to
increased securities lending.
Other Risks. In the event of a shortage of the underlying securities
deliverable on exercise of an option, the Options Clearing Corporation has
the authority to permit other, generally comparable securities to be
delivered in fulfillment of option exercise obligations. If the Options
Clearing Corporation exercises its discretionary authority to allow such
other securities to be delivered it may also adjust the exercise prices of
the affected options by setting different prices at which otherwise
ineligible securities may be delivered. As an alternative to permitting
such substitute deliveries, the Options Clearing Corporation may impose
special exercise settlement procedures.
The hours of trading for options on U.S. government securities may not
conform to the hours during which the underlying securities are traded.
To the extent that the options markets close before the markets for the
underlying securities, significant price and rate movements can take place
in the underlying markets that cannot be reflected in the options markets.
Options are traded on exchanges on only a limited number of U.S.
government securities, and exchange regulations limit the maximum number
of options which may be written or purchased by a single investor or a
group of investors acting in concert. The Company and other clients
advised by affiliates of Salomon Smith Barney may be deemed to constitute
a group for these purposes. In light of these limits, the Board of
Directors may determine at any time to restrict or terminate the public
offering of the Fund's shares (including through exchanges from the other
Funds).
Exchange markets in options on U.S. government securities are a relatively
new and untested concept. It is impossible to predict the amount of
trading interest that may exist in such options, and there can be no
assurance that viable exchange markets will develop or continue.
INVESTMENT RESTRICTIONS
The Fund's investment objectives and investment restrictions 1-7 set forth
below are Fundamental policies of each Fund (except as otherwise
indicated), i.e., they may not be changed with respect to a Fund without
a majority vote of the outstanding shares of that Fund. Investment
Restrictions 8 through 13 may be changed by the Board of Directors without
the approval of shareholders. (All other investment practices described in
the Prospectuses and this Statement of Additional Information may be
changed by the Board of Directors without the approval of shareholders.)
Unless otherwise indicated, all percentage limitations apply to each Fund
on an individual basis, and apply only at the time a transaction is
entered into. (Accordingly, if a percentage restriction is complied with
at the time of investment, a later increase or decrease in the percentage
which results from a relative change in values or from a change in the
Fund's net assets will not be considered a violation.)
Restrictions Applicable to All Funds. No Fund may:
1. Invest in a manner that would cause it to fail to be a "diversified
company" under the 1940 Act and the rules, regulations and orders
thereunder.
2. Purchase or sell real estate, real estate mortgages, commodities or
commodity contracts, but this restriction shall not prevent the Fund from
(a) investing in securities of issuers engaged in the real estate business
or the business of investing in real estate (including interests in
limited partnerships owning or otherwise engaging in the real estate
business or the business of investing in real estate) and securities which
are secured by real estate or interests therein; (b) holding or selling
real estate received in connection with securities it holds or held; (c)
trading in Futures Contracts and options on Futures Contracts (including
options on currencies to the extent consistent with the Funds' investment
objective and policies); or (d) investing in real estate investment trust
securities.
3. Make loans. This restriction does not apply to: (a) the purchase of
debt obligations in which the Fund may invest consistent with its
investment objectives and policies; (b) repurchase agreements; and (c)
loans of its portfolio securities, to the fullest extent permitted under
the 1940 Act.
4. Invest more than 25% of its total assets in securities, the issuers
of which conduct their principal business activities in the same industry.
For purposes of this limitation, securities of the U.S. government
(including its agencies and instrumentalities) and securities of state or
municipal governments and their political subdivisions are not considered
to be issued by members of any industry.
5. Issue "senior securities" as defined in the 1940 Act and the rules,
regulations and orders thereunder, except as permitted under the 1940 Act
and the rules, regulations and orders thereunder.
6. Restriction Applicable to all Funds except Government Securities
Fund. The Funds may not: Borrow money, except that (a) the Fund may
borrow from banks for temporary or emergency (not leveraging) purposes,
including the meeting of redemption requests which might otherwise require
the untimely disposition of securities, and (b) the Fund may, to the
extent consistent with its investment policies, enter into reverse
repurchase agreements, forward roll transactions and similar investment
strategies and techniques. To the extent that it engages in transactions
described in (a) and (b), the Fund will be limited so that no more than
33-1/3% 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), is derived from such transactions.
7. Restriction Applicable to all Funds except Concert Peachtree Growth
Fund and Contrarian Fund. The Funds may not: Act as an underwriter of
securities.
8. Invest in oil, gas or other mineral exploration or development
programs
9. Make investments in securities for the purpose of exercising control
over or management of the issuer;
10. Purchase any securities on margin (except for such short-term
credits as are necessary for the clearance of purchases and sales of
portfolio securities) or sell any securities short (except "against the
box"). For purposes of this restriction, the deposit or payment by the
Fund of underlying securities and other assets in escrow and collateral
agreements with respect to initial or maintenance margin in connection
with Futures Contracts and related options and options on securities,
indexes or similar items is not considered to be the purchase of a
security on margin;
11. Invest in securities of an issuer which, together with any
predecessor, has been in operation for less than three years if, as a
result, more than 5% of the total assets of the Fund would then be
invested in such securities (for purposes of this restriction, issuers
include predecessors, sponsors, controlling persons, general guarantors
and originators of underlying assets);
12. Purchase or otherwise acquire any security if, as a result, more
than 15% of its net assets would be invested in securities that are
illiquid;
13. Restrictions Applicable to all Funds except Government Securities
Fund. The Funds may not: Write, purchase or sell puts, calls, straddles,
spreads or any combinations thereof (the Contrarian Fund and the Concert
Peachtree Growth Fund each may write or purchase puts, calls, straddles,
spreads and any combination thereof up to 5% of their assets).
BROKERAGE
In selecting brokers or dealers to execute securities transactions on
behalf of a Fund, SSB Citi seeks the best overall terms available. In
assessing the best overall terms available for any transaction, will
consider the factors that it deems relevant, including the breadth of the
market in the security, the price of the security, the financial condition
and execution capability of the broker or dealer and the reasonableness of
the commission, if any, for the specific transaction and on a continuing
basis. In addition, each investment advisory agreement authorizes SSB
Citi, in selecting brokers or dealers to execute a particular transaction
and in evaluating the best overall terms available, to consider the
brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) provided to the Company, the
other Funds and other accounts over which or its affiliates exercise
investment discretion. For the fiscal year ended December 31, 1999 the
Contrarian Fund and the Concert Peachtree Growth Fund directed brokerage
transactions totaling $ 882,691,643 and $ 673,820,244, respectively, to
brokers because of research services provided. The amount of brokerage
commissions paid on such transactions for the Contrarian Fund and the
Concert Peachtree Growth Fund total $1,434,411 and $408,613, respectively.
The fees under the investment advisory agreements and the administration
agreement between the Company and SSB Citi are not reduced by reason of
their receiving such brokerage and research services. The Board of
Directors periodically will review the commissions paid by the Funds to
determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits inuring to the Company. SEC rules
require that commissions paid to Salomon Smith Barney by a Fund on
exchange transactions not exceed "usual and customary brokerage
commissions." The rules define "usual and customary" commissions to
include amounts which are "reasonable and fair compared to the commission,
fee or other remuneration received or to be received by other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on a securities exchange during a comparable period of
time." The Board of Directors, particularly the Independent Directors of
the Company (as defined in the 1940 Act), has adopted procedures for
evaluating the reasonableness of commissions paid to Salomon Smith Barney
and reviews these procedures periodically. In addition, under rules
adopted by the SEC, Salomon Smith Barney may directly execute transactions
for a Fund on the floor of any national securities exchange, provided: (a)
the Board of Directors has expressly authorized Salomon Smith Barney to
effect such transactions; and (b) Salomon Smith Barney annually advises
the Fund of the aggregate compensation it earned on such transactions.
To the extent consistent with applicable provisions of the 1940 Act and
the rules and exemptions adopted by the SEC thereunder, the Board of
Directors has determined that transactions for a Fund may be executed
through Salomon Smith Barney and other affiliated broker-dealers if, in
the judgment of SSB Citi, the use of such broker-dealer is likely to
result in price and execution at least as favorable as those of other
qualified broker-dealers, and if, in the transaction, such broker-dealer
charges the Fund a rate consistent with that charged to comparable
unaffiliated customers in similar transactions.
Portfolio securities are not purchased from or through Salomon Smith
Barney or any affiliated person of Salomon Smith Barney where such
entities are acting as principal, except pursuant to the terms and
conditions of exemptive rules or orders promulgated by the SEC. Pursuant
to conditions set forth in rules of the SEC, the Company may purchase
securities from an underwriting syndicate of which Salomon Smith Barney is
a member (but not from Salomon Smith Barney). Such conditions relate to
the price and amount of the securities purchased, the commission or spread
paid, and the quality of the issuer. The rules further require that such
purchases take place in accordance with procedures adopted and reviewed
periodically by the Board of Directors, particularly those Directors who
are not interested persons of the Company.
The Funds may use Salomon Smith Barney as a commodities broker in
connection with entering into Futures Contracts and commodity options.
Salomon Smith Barney has agreed to charge the Funds commodity commissions
at rates comparable to those charged by Salomon Smith Barney to its most
favored clients for comparable trades in comparable amounts.The following
table sets forth certain information regarding each Fund's payment of
brokerage commissions to Salomon Smith Barney:
Fiscal
Year Ended
December
31,
Contrarian
Fund
Concert
Peachtree
Growth Fund
Total Brokerage
Commissions
1997
$658,099
$891,375
1998
2,483,848
430,920
1999
1,434,411
408,613
Commissions paid to
1997
$167,712
$20,784
Salomon Smith Barney
1998
72,150
0
1999
23,145
0
% of Total Brokerage
Commissions paid to
Salomon Smith Barney
1999
1.61%
0
% of Total Transactions
Involving Commissions
paid
to Salomon Smith Barney
1999
1.09%
0
No commissions were paid by the Investment Grade Bond Fund and Government
Securities Fund.
PORTFOLIO TURNOVER
For reporting purposes, a Fund's portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities for the
fiscal year by the monthly average of the value of the portfolio
securities owned by the Fund during the fiscal year. In determining such
portfolio turnover, all securities whose maturities at the time of
acquisition were one year or less are excluded. A 100% portfolio turnover
rate would occur, for example, if all of the securities in the Fund's
investment portfolio (other than short-term money market securities) were
replaced once during the fiscal year.
Investment Grade Bond Fund will not normally engage in the trading of
securities for the purpose of realizing short-term profits, but it will
adjust its portfolio as considered advisable in view of prevailing or
anticipated market conditions. Portfolio turnover will not be a limiting
factor should SSB Citi deem it advisable to purchase or sell securities.
For the fiscal years ended December 31, 1997,1998 and 1999, the portfolio
turnover rates were as follows:
Fund
1997
1998
1999
Investment Grade Bond Fund
39%
32%
147%
Government Securities Fund
274%
334%
161%
Contrarian Fund
35%
157%
89%
Peachtree Growth Fund
227%
77%
94%
Increased portfolio turnover necessarily results in correspondingly
greater brokerage commissions which must be paid by the Fund. To the
extent portfolio trading results in realization of net short-term capital
gains, shareholders will be taxed on such gains at ordinary tax rates
(except shareholders who invest through IRAs and other retirement plans
which are not taxed currently on accumulations in their accounts).
SSB Citi manages a number of private investment accounts on a
discretionary basis and it is not bound by the recommendations of the
Salomon Smith Barney research department in managing the Funds. Although
investment decisions are made individually for each client, at times
decisions may be made to purchase or sell the same securities for one or
more of the Funds and/or for one or more of the other accounts managed by
SSB Citi. When two or more such accounts simultaneously are engaged in
the purchase or sale of the same security, transactions are allocated in
a manner considered equitable to each, with emphasis on purchasing or
selling entire orders wherever possible. In some cases, this procedure
may adversely affect the price paid or received by the Fund or the size of
the position obtained or disposed of by the Fund.
PURCHASE 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:
Government Securities Fund
and Investment Grade Bond
Fund
Peachtree Growth Fund,
Amount of
Investment
Sales
Charge as %
of
Offering
Price
Sales Charge as
% of Amount
Invested
Sales Charge as %
of
Offering Price
Sales
Charge
as
% of
Amount
Invested
Brokerag
e
Commissi
on as %
of
Offering
Price
Less than
$25,000
4.50%
4.71%
5.00%
5.26%
4.50%
$ 25,000 -
49,999
4.00
4.17
4.25
4.44
3.83
50,000 - 99,999
3.50
3.63
3.75
3.90
3.38
100,000 -
249,999
2.50
2.56
3.25
3.36
2.93
250,000 -
499,999
1.50
1.52
2.75
2.83
2.48
500,000 -
999,999
-0-
-0-
2.00 -
2.04
1.80
1,000,000 or
more
-0-
-0-
0
0
Up to
1.00
* Purchases of Class A shares of $1,000,000 or more will be made at net
asset value without any initial sales charge, but will be subject to a
deferred sales charge of 1.00% on redemptions made within 12 months of
purchase. The deferred sales charge on Class A shares is payable to
Salomon Smith Barney, which compensates Salomon Smith Barney Financial
Consultants and other dealers whose clients make purchases of $1,000,000
or more. The deferred sales charge is waived in the same circumstances
in which the deferred sales charge applicable to Class B and Class L
shares is waived. See "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).
Purchases of Class 1 Shares. Class 1 shares are offered only through PFS
Accounts, and only to Eligible Class 1 Purchasers, at the next determined
net asset value plus a sales charge, as set forth below.
Size of Investment
As % of
Net Amount
Invested
As % of
Offering
Price
Less than $25,000
7.24%
6.75%
$ 25,000 but less than
50,000
6.10%
5.75%
$ 50,000 but less than
100,000
4.44%
4.25. %
$ 100,000 but less
than 250,000
3.63%
3.50%
$ 250,000 but less than
500,000
2.56%
2.50%
$ 500,000 but less than
1,000,000
2.04%
2.00%
$ 1,000,000 but less than
2,500,000
1.01%
1.00%
$ 2,500,000 but less
than $5,000,000
.50%
.50%
$5,000,000 or more
0.25%
0.25%
Class 1 shares may be purchased at net asset value by the Primerica Plan
for Eligible Class 1 Purchasers participating in the Primerica Plan,
subject to the provisions of ERISA. Shares so purchased are purchased for
investment purposes and may not be resold except by redemption or
repurchase by or on behalf of the Primerica Plan. Class 1 Shares are also
offered at net asset value to accounts opened for shareholders by PFS
Investments Registered Representatives where the amounts invested
represent the redemption proceeds from investment companies distributed by
an entity other than the Distributor, if such redemption has occurred no
more than 60 days prior to the purchase of shares of the Trust and the
shareholder paid an initial sales charge and was not subject to a deferred
sales charge on the redeemed account. Shares are offered at net asset
value to such persons because of anticipated economies in sales efforts
and sales related expenses. The Trust may terminate, or amend the terms
of, offering shares of the Trust at net asset value to such persons at any
time. PFS may pay PFS Investment Registered Representatives through whom
purchases are made at net asset value an amount equal to 0.40% of the
amount invested if the purchase represents redemption proceeds from an
investment company distributed by an entity other than the Distributor.
Contact the Sub-Transfer Agent at (800) 544-5445 for further information
and appropriate forms.
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 your 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 PFS
Investments ("PFSI") or Citicorp Investment Services. 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, your
Service Agent or a PFSI Registered 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,
Citibank Service Agent or a PFS Registered Representative (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, Citibank
Service Agent's or a PFS Registered Representative'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 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 Citi Fiduciary Trust Company (the
"Transfer Agent") to obtain a Letter of Intent application.
Letter of Intent - Class Y Shares A Letter of Intent may also be used as
a way for investors to meet the minimum investment requirement for Class
Y shares (except purchases of Class Y shares by Smith Barney Concert
Allocation Series Inc., for which there is no minimum purchase amount).
Such investors must make an initial minimum purchase of $5,000,000 in
Class Y shares of the Fund and agree to purchase a total of $15,000,000 of
Class Y shares of the Fund within thirteen months from the date of the
Letter. If a total investment of $15,000,000 is not made within the 13-
month period, as applicable, all Class Y shares purchased to date will be
transferred to Class A shares, where they will be subject to all fees
(including a service fee of 0.25%) and expenses applicable to the Fund's
Class A shares, which may include a deferred sales charge of 1.00%. Please
contact a Salomon Smith Barney Financial Consultant or the Transfer Agent
for further information.
Deferred Sales Charge Provisions
Deferred Sales Charge Shares are: (a) Class B shares; (b) Class L shares;
and (c) Class A shares that were purchased without an initial sales charge
but are subject to a deferred sales charge. A deferred sales charge may
be imposed on certain redemptions of these shares.
Any applicable deferred sales charge will be assessed on an amount equal
to the lesser of the original cost of the shares being redeemed or their
net asset value at the time of redemption. Deferred Sales Charge Shares
that are redeemed will not be subject to a deferred sales charge to the
extent the value of such shares represents: (a) capital appreciation of
Fund assets; (b) reinvestment of dividends or capital gain distributions;
(c) with respect to Class B shares, shares redeemed more than five years
after their purchase; or (d) with respect to Class L shares and Class A
shares that are Deferred Sales Charge Shares, shares redeemed more than 12
months after their purchase.
Class L shares and Class A shares that are Deferred Sales Charge Shares
are subject to a 1.00% deferred sales charge if redeemed within 12 months
of purchase. In circumstances in which the deferred sales charge is
imposed on Class B shares, the amount of the charge will depend on the
number of years since the shareholder made the purchase payment from which
the amount is being redeemed. Solely for purposes of determining the
number of years since a purchase payment, all purchase payments made
during a month will be aggregated and deemed to have been made on the last
day of the preceding Salomon Smith Barney statement month. The following
table sets forth the rates of the charge for redemptions of Class B shares
by shareholders.
Year Since Purchase Payment Was Made
Deferred sales charge
First
5.00%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth and thereafter
0.00
Class B shares will convert automatically to Class A shares eight years
after the date on which they were purchased and thereafter will no longer
be subject to any distribution fees. There will also be converted at that
time such proportion of Class B Dividend Shares owned by the shareholders
as the total number of his or her Class B shares converting at the time
bears to the total number of outstanding Class B shares (other than Class
B Dividend Shares) owned by the shareholder.
In determining the applicability of any Deferred Sales Charge, it will be
assumed that a redemption is made first of shares representing capital
appreciation, next of shares representing the reinvestment of dividends
and capital gain distributions and finally of other shares held by the
shareholder for the longest period of time. The length of time 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
Each Fund offers its shares to the public on a continuous basis. The
public offering price for a Class A, and a 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 Deferred Sales Charge ("DSC"), 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.
Distributions in Kind
If the Board of Directors of a Fund determines that it would be
detrimental to the best interests of the remaining shareholders to make a
redemption payment wholly in cash, a 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 Dealer Representaive. 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 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 DSC, 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 a Fund's performance and its shareholders. The
Manager may determine that a pattern of frequent exchanges is excessive and
contrary to the best interests of 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.
DISTRIBUTOR
Salomon Smith Barney serves as the Company's distriburot on a best efforts
basis pursuant to a distribution agreement (the "Distribution Agreement")
dated June 5, 2000.
PFS served as one of the Company's distributors with respect to the
Peachtree Growth Fund, Investment Grade Bond Fund and Government
Securities Fund.
Salomon Smith Barney continues to sell the Funds shares as part of the
selling group.
For the fiscal year ended December 31, 1999, CFBDS and its predecessor,
Salomon Smith Barney and/or PFS Distributors, incurred the following
distribution expenses for the Funds:
Fund
Advertis
ing
Printing
and
Mailing
of
Prospectu
ses
Support
Service
s
Salomon
Smith
Barney
Financial
Consultan
ts
Interes
t
Expense
Total
Concert Peachtree
Growth
$1,775
$360
$34,335
$2,555,36
4
$84,631
$2,676,4
65
Government
Securities
82,442
5,772
979,246
821,281
18,277
1,907018
Investment Grade
Bond
114,592
15,548
1,271,2
47
1,616,493
52,698
3,070578
Distribution Arrangements
To compensate Salomon Smith Barney , PFS Investments or Citicorp
Investment Services ("CIS"). As the case may be, for the services it
provides and for the expense it bears under the Distribution Agreement,
the Company has adopted a services and distribution plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, each Fund pays
Salomon Smith Barney and, with respect to the Class A and Class B shares
of Peachtree Growth Fund and Investment Grade Bond Fund, PFS, and with
respect to Class B shares of Peachtree Growth Fund, CIS, a service fee,
accrued daily and paid monthly, calculated at the annual rate of 0.25% of
the value of each Fund's average daily net assets attributable to the
Class A, Class B and Class L shares. In addition, the Fund pays Salomon
Smith Barney, and with respect to the Class B shares of Peachtree Growth
Fund and Investment Grade Bond Fund, PFS, and with respect to Class B
shares of Peachtree Growth Fund, CIS, a distribution fee with respect to
the Class B and Class L shares primarily intended to compensate Salomon
Smith Barney PFS and/or CIS for its initial expense of paying Financial
Consultants and Registered Representatives, respectively, a commission
upon sales of those shares. Such shares' distribution fees, which are
accrued daily and paid monthly, are calculated at the annual rate of 0.75%
of the value of average daily net assets attributable to the Class B and
Class L shares with respect to Peachtree Growth Fund, and 0.50% of the
value of average daily net assets attributable to the Class B shares and
0.45% of the value of average daily net assets attributable to Class L
shares, with respect to Government Securities Fund and Investment Grade
Bond Fund.
The payments to Salomon Smith Barney Financial Consultants for selling
shares of a Class include a commission or fee paid by the investor or
Salomon Smith Barney/PFS at the time of sale and, with respect to Class A,
Class B and Class L shares, a continuing fee for servicing shareholder
accounts for as long as a shareholder remains a holder of that Class.
Salomon Smith Barney Financial Consultants or PFS Investment Registered
Representatives may receive different levels of compensation for selling
different Classes of shares.
Payments under each Plan with respect to Class B and Class L shares are
not tied exclusively to the distribution and shareholder services expenses
actually incurred and the payments may exceed distribution expenses
actually incurred. The Company's Board of Directors will evaluate the
appropriateness of each Plan and its payment terms on a continuing basis
and in so doing will consider all relevant factors, including expenses
borne by Salomon Smith Barney, amounts received under the Plan and
proceeds of the DSC.
With respect to Smith Barney Investment Grade Bond Fund and Peachtree
Growth Fund, The fees are paid to PFS Distributors, which in turn, pays
PFS Investments Inc. ("PFS Investments") to pay its PFS Investment
Registered Representatives for servicing shareholder accounts and, in the
case of Class B shares, to cover expenses primarily intended to result in
the sale of those shares. These expenses include: advertising expenses;
the cost of printing and mailing prospectuses to potential investors;
payments to and expenses of PFS Investments Registered Representatives and
other persons who provide support services in connection with the
distribution of shares; interest and/or carrying charges; and indirect and
overhead costs of PFS Investments associated with the sale of Fund shares,
including lease, utility, communications and sales promotion expenses.
PFS Investments may be deemed to be an underwriter for purposes of the
Securities Act of 1933. From time to time, PFS or its affiliates may also
pay for certain non-cash sales incentives provided to PFS Investments
Registered Representatives. Such incentives do not have any effect on the
net amount invested. In addition to the reallowances from the applicable
public offering price described above, PFS may from time to time, pay or
allow additional reallowances or promotional incentives, in the form of
cash or other compensation to PFS Investments Registered Representatives
who sell shares of the Fund.
Redemption proceeds can be sent by check to the address of record or by
wire transfer to a bank account designated on the application. A
shareholder will be charged $25 service fee for wire transfers and a
nominal service fee for transfers made directly to the shareholder's bank
by the Automated Clearing House (ACH).
Commissions on Class A Shares: For the 1997 fiscal year, the aggregate
dollar amount of commissions on Class A shares, all of which was paid to
Salomon Smith Barney, were as follows:
Class A
Name of Fund
Fiscal Year
Ended 12/31/97
Investment Grade Bond
$ 122,000
Government Securities Fund
50,000
Contrarian Fund
608,000
Concert Peachtree Growth
Fund
4,000
For the period January 1, 1998 through October 7, 1998 and for the period
October 8, 1998 through December 31, 1998, the aggregate dollar amounts of
commissions on Class A shares, were as follows:
Class A
Name of Fund
1/1/98
through
10/07/98*
10/8/98
through
12/31/98**
Fiscal Year
Ended 1999
Investment Grade Bond
239,000
75,000
$190,000
Government Securities Fund
91,000
49,000
173,000
Contrarian Fund
39,000
9,000
21,000
Concert Peachtree Growth
Fund
3,000
1,000
12,000
* The entire amount was paid to Salomon Smith Barney.
** The following amounts were paid to Salomon Smith Barney: $67,500,
$44,100, $8,100 and $900, respectively.
Commissions of Class L shares. For the period June 12, 1998 through
October 7, 1998 and for the period from October 8, 1998 through December
31, 1998, the aggregate dollar amounts of commissions on Class L shares
were as follows:
Class L
(On June 12, 1998, Class C
shares were renamed Class L
Shares)
Name of Fund
1/1/98
through
10/07/98*
10/8/98
through
12/31/98**
Fiscal Year
Ended 1999
Investment Grade Bond
$39,000
$39,000
$74,000
Government Securities Fund
7,000
10,000
62,000
Contrarian Fund
2,000
0
1,000
Concert Peachtree Growth
Fund
0
0
3,000
* The entire amount was paid to Salomon Smith Barney.
** The following amounts were paid to Salomon Smith Barney:
$35,100, $9,000, $0 and $0, respectively.
CDSC paid to Smith Barney
Class B Shares
Name of Fund
Fiscal Year Ended
12/31/97
Fiscal Year Ended
12/31/98
Fiscal Year Ended
12/31/99
Investment Grade Bond
Fund*
$ 422,000
$ 224,000
$352,000
Government Securities
Fund*
305,000
87,000
105,000
Contrarian Fund*
1,112,000
1,214,000
929,000
Concert Peachtree Growth
Fund
3,000
6,000
3,000
* For the fiscal year ended December 31, 1998, the Investment Grade
Bond Fund, Government Securities Fund and the Contrarian Fund Class
A shares paid a CDSC of $20,000, $6,000 and $2,000, respectively.
For the fiscal year ended December 31, 1999, the Investment Grade
Bond Fund, Government Securities Fund and the Contrarian Fund Class
A shares paid a CDSC of $12,000, $6,000 and $0, respectively.
Class L Shares (formerly designated as Class C shares)
Name of Fund
Fiscal Year Ended
12/31/97
Fiscal Year Ended
12/31/98
Fiscal Year Ended
12/31/99
Investment Grade Bond Fund
$ 1,000
$5,000
$12,000
Government Securities Fund
-
1,000
3,000
Contrarian Fund
9,000
3,000
0
Concert Peachtree Growth
Fund
-
0
0
Distribution Plan Fees
Class A Shares
Name of Fund
Fiscal Year Ended
12/31/97
Fiscal Year Ended
12/31/98
Fiscal Year Ended
12/31/99
Investment Grade Bond Fund
$ 508,201
$597,417
$591,545
Government Securities Fund
920,147
883,941
798,545
Contrarian Fund
581,527
445,269
211,338
Concert Peachtree Growth
Fund
175,590
179,750
251,543
Class B Shares
Name of Fund
Fiscal Year Ended
12/31/97
Fiscal Year Ended
12/31/98
Fiscal Year Ended
12/31/99
Investment Grade Bond Fund
$1,813,383
$1,886,202
$1,694,973
Government Securities Fund
326,793
690,191
595,854
Contrarian Fund
5,310,433
4,387,199
2,067,789
Concert Peachtree Growth
Fund
423,160
469,725
737,429
Class L Shares (formerly designated as Class C shares)
Name of Fund
Fiscal Year Ended
12/31/97
Fiscal Year Ended
12/31/98
Fiscal Year Ended
12/31/99
Investment Grade Bond Fund
$ 53,111
$ 91,306
$135,473
Government Securities Fund
12,112
19,664
43,960
Contrarian Fund
747,010
569,578
231,915
Concert Peachtree Growth
Fund
1,779
1,883
4,846
Under its terms, the Plan continues from year to year, provided such
continuance is approved annually by vote of the Board of Directors,
including a majority of the Independent Directors. The Plan may not be
amended to increase the amount to be spent for the services provided by
Salomon Smith Barney or PFS without shareholder approval, and all
amendments of the Plan also must be approved by the Directors in the
manner described above. The Plan may be terminated at any time, without
penalty, by vote of a majority of the Independent Directors or by a vote
of a majority of the outstanding voting securities of the Company (as
defined in the 1940 Act). Pursuant to the Plan, Salomon Smith Barney and
PFS will provide the Board of Directors periodic reports of amounts
expended under the Plan and the purpose for which such expenditures were
made.
PFS ACCOUNTS
Initial purchase of shares of the Fund must be made through a PFS
Investments Registered Representative by completing the appropriate
application. The completed application should be forwarded to the sub-
transfer agent, P.O Box 105033 Atlanta, Georgia, GA 30348-5033. Checks
drawn on foreign banks must be payable in U.S. dollars and have the
routing number of the U.S. bank encoded on the check. Subsequent
investments may be sent directly to the sub-transfer agent. In processing
applications and investments, the Transfer Agent acts as agent for the
investor and for PFS Investments and also as agent for the distributor, in
accordance with the terms of the prospectus. If the Transfer Agent ceases
to act as such, a successor company named by the Fund will act in the same
capacity so long as the account remains open.
Shares purchased will be held in the shareholder's account by the sub-
transfer agent. Share certificates are issued only upon a shareholder's
written request to the sub-transfer agent. A shareholder that has
insufficient Funds to complete any purchase will be charged a fee up to
$30.00 per returned purchase by PFS.
Investors in Class A and Class B shares may open an account by making an
initial investment of at least $1,000 for each account in each Class
(except for Systematic Investment Plan accounts), or $250 for an IRA or a
Self-Employed Retirement Plan in a Fund. Subsequent investments of at
least $50 may be made for each Class. For participants in retirement plans
qualified under Section 403(b)(7) or Section 401(a) of the Code, the
minimum initial investment requirement for Class A and Class B shares and
the subsequent investment requirement for each Class in the Fund is $25.
For the Fund's Systematic Investment Plan, the minimum initial investment
requirement for Class A and Class B shares and the subsequent investment
requirement for each Class is $25. There are no minimum investment
requirements in Class A shares for employees of Citigroup and its
subsidiaries, including Salomon Smith Barney, Directors or Trustees of any
of the Smith Barney Mutual Funds, and their spouses and children. The Fund
reserves the right to waive or change minimums, to decline any order to
purchase its shares and to suspend the offering of shares from time to
time. Purchase orders received by the Transfer Agent or sub-transfer
agent prior to the close of regular trading on the NYSE, on any day the
Fund calculates its net asset value, are priced according to the net asset
value determined on that day.
Initial purchases of Fund shares may be made by wire. The minimum
investment that can be made by wire is $10,000. Before sending the wire,
the PFS Investments Registered Representative must contact the sub-
transfer agent at (800) 665-8677 to obtain proper wire instructions. Once
an account is open, a shareholder may make additional investments by wire.
The shareholder should contact the sub-transfer agent at (800) 544-5445
to obtain proper wire instructions.
Upon completion of certain automated systems, shareholders who establish
telephone transaction authority on their account and supply bank account
information may make additions to their accounts at any time.
Shareholders should contact the sub-transfer agent at (800) 544-5445
between 8:00 a.m. and 8:00 p.m. eastern time any day that the NYSE is
open. If a shareholder does not wish to allow telephone subsequent
investments by any person in his account, he should decline the telephone
transaction option on the account application. The minimum telephone
subsequent investment is $250 and can be up to a maximum of $10,000. By
requesting a subsequent purchase by telephone, you authorize the sub-
transfer agent to transfer Funds from the bank account provided for the
amount of the purchase. A shareholder that has insufficient Funds to
complete the transfer will be charged a fee of up to $30.00 by PFS or the
sub-transfer agent. A shareholder who places a stop payment on a transfer
or the transfer is returned because the account has been closed, will also
be charged a fee of up to $30.00 by PFS or the sub-transfer agent.
Subsequent investments by telephone may not be available if the
shareholder cannot reach the sub-transfer agent whether because all
telephone lines are busy or for any other reason; in such case, a
shareholder would have to use the Fund's regular subsequent investment
procedure described above.
Redemption proceeds can be sent by check to the address of record or by
wire transfer to a bank account designated on the application. A
shareholder will be charged a $25 service fee for wire transfers and a
nominal service fee for transfers made directly to the shareholders bank
by the Automated Clearinghouse (ACH). PFSSS will process usually two to
three business days after receiving the redemption request in good order.
The shareholder may request the proceeds to be mailed by two day air
express for a $8 fee that will be deducted from the shareholders account
or by one day express for a $15 fee that will be deducted from the
shareholder's account.
Additional information regarding the sub-transfer agent's services may be
obtained by contacting the Client Services Department at (800) 544-5445.
CITI ACCOUNTS
Each Fund offers two Classes of shares to investors purchasing through
Other Accounts: Class A shares and Class B shares.
Each Service Agent has agreed to transmit to its customers who are
shareholders of the Fund appropriate prior written disclosure of any fees
that it may charge them directly. Each Service Agent is responsible for
transmitting promptly orders of its customers. Your Service agent is the
shareholder of record for the shares of the Fund you own.
For Citi Accounts, Class A and Class B shares of the Fund may be exchanged
for shares of the same class of CitiFunds Cash Reserves and the following
funds:
- Smith Barney Investment Series - Emerging Growth Fund
- Smith Barney Investment Series - Government Fund
- Smith Barney Investment Series - Growth and Income Fund
- Smith Barney Investment Series - Growth Fund
- Smith BarneyInvestment Series - International Equity Fund
- Smith Barney Investment Series - Mid Cap Fund
-Smith Barney Investment Series - Municipal Bond Fund
- Smith Barney Peachtree Growth Fund
- Smith Barney Allocation Series Inc. - Balanced Portfolio
- Smith Barney Allocation Series Inc. - Conservative Portfolio
- Smith Barney Allocation Series Inc. - Growth Portfolio
- Smith Barney Allocation Series Inc. - High Growth Portfolio
- Smith Barney Allocation Series Inc. - Income Portfolio
Each Service Agent has agreed to transmit to its customers who are
shareholders of the Fund appropriate prior written disclosure of any fees
that it may charge them directly. Each Service Agent is responsible for
transmitting promptly orders for its customers.
Shareholders may redeem or exchange Fund shares by telephone, if their
account applications so permit, by calling the Transfer Agent or, if they
are customers of a Service Agent, their Service Agent. During periods of
drastic economic or market changes or severe weather or other emergencies,
shareholders may experience difficulties implementing a telephone exchange
or redemption. In such an event, another method of instruction, such as a
written request sent via an overnight delivery service, should be
considered. The Fund, the Transfer Agent and each Service Agent will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. These procedures may include recording of the
telephone instructions and verification of a caller's identity by asking
for his or her name, address, telephone, Social Security number, and
account number. If these or other reasonable procedures are not followed,
the Fund, the Transfer Agent or the Service Agent may be liable for any
losses to a shareholder due to unauthorized or fraudulent instructions.
Otherwise, the shareholder will bear all risk of loss relating to a
redemption or exchange by telephone.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Fund normally is determined as of
the close of regular trading on the NYSE on each day that the NYSE is
open, by dividing the value of the Fund's net assets attributable to each
Class by the total number of shares of the Class outstanding. If the NYSE
closes early, the Fund accelerates the calculation of its net asset value
to the actual closing time. The NYSE is closed for the following
holidays: New Year's Day, Martin Luther King Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Securities for which market quotations are readily available are valued at
current market value or, in their absence, at fair value. Securities
traded on an exchange are valued at last sales prices on the principal
exchange on which each such security is traded, or if there were no sales
on that exchange on the valuation date, the last quoted sale, up to the
time of valuation, on the other exchanges. If instead there were no sales
on the valuation date with respect to these securities, such securities
are valued at the mean of the latest published closing bid and asked
prices. Over-the-counter securities are valued at last sales price or, if
there were no sales that day, at the mean between the bid and asked
prices. Options, Futures Contracts and options thereon that are traded on
exchanges are also valued at last sales prices as of the close of the
principal exchange on which each is listed or if there were no such sales
on the valuation date, the last quoted sale, up to the time of valuation,
on the other exchanges. In the absence of any sales on the valuation date,
valuation shall be the mean of the latest closing bid and asked prices.
Securities with a remaining maturity of 60 days or less are valued at
amortized cost where the Board of Directors has determined that amortized
cost is fair value. Premiums received from writing call and put options
will be recorded as a liability, the value of which is marked to market
daily. Any other investments of the Fund, including restricted securities
and listed securities for which there is a thin market or that trade
infrequently (i.e., securities for which prices are not readily
available), are valued at a fair value determined by the Board of
Directors in good faith. This value generally is determined as the amount
that the Fund could reasonably expect to receive from an orderly
disposition of these assets over a reasonable period of time but in no
event more than seven days. The value of any security or commodity
denominated in a currency other than U.S. dollars will be converted into
U.S. dollars at the prevailing market rate as determined by the Manager.
Foreign securities trading may not take place on all days on which the
NYSE is open. Further, trading takes place in various foreign markets on
days on which the NYSE is not open. Accordingly, the determination of the
net asset value of the Fund may not take place contemporaneously with the
determination of the prices of investments held by such Fund. Events
affecting the values of investments that occur between the time their
prices are determined and 4:00 P.M. on each day that the NYSE is open will
not be reflected in the Fund's net asset value unless the Manager, under
the supervision of the Company's Board of Directors, determines that the
particular event would materially affect net asset value. As a result, a
Fund's net asset value may be significantly affected by such trading on
days when a shareholder has no access to that Fund.
PERFORMANCE DATA
From time to time, a Fund may quote its yield or total return in
advertisements or in reports and other communications to shareholders.
The Fund may include comparative performance information in advertising or
marketing the Fund's shares. Such performance information may include the
following industry and financial publications: Barron's, Business Week,
CDA Investment Technologies, Inc., Changing Times, Forbes, Fortune,
Institutional Investor, Investors Daily, Money, Morningstar Mutual Fund
Values, The New York Times, USA Today and The Wall Street Journal. To the
extent any advertisement or sales literature of a Fund describes the
expenses or performance of a Class, it will also disclose such information
for the other Classes.
Yield
A Fund's 30-day yield figure described below is calculated according to a
formula prescribed by the SEC. The formula can be expressed as follows:
YIELD = 2[(a-b + 1)6 - 1]
cd
Where:
a =
Dividends and interest earned during the period.
b =
Expenses accrued for the period (net of reimbursement).
c =
the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d =
the maximum offering price per share on the last day
of the period.
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations purchased by the Fund at a discount or
premium, the formula generally calls for amortization of the discount or
premium; the amortization schedule will be adjusted monthly to reflect
changes in the market values of the debt obligations.
Investors should recognize that in periods of declining interest rates a
Fund's yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates, the Fund's yield will tend to be
somewhat lower. In addition, when interest rates are falling, the inflow
of net new money to the Fund from the continuous sales of its shares will
likely be invested in portfolio instruments producing lower yields than
the balance of the Fund's investments, thereby reducing the current yield
of the Fund. In periods of rising interest rates, the opposite can be
expected to occur.
The yields for the 30-day period ended January 31, 1999 for Government
Securities Fund's Class A, Class B, Class L and Class Y Shares were 4.81%,
4.53%, 4.52% and 5.38%, respectively.
The yields for the 30-day period ended January 31, 1999 for Investment
Grade Bond Fund's Class A, Class B, Class L and Class Y Shares were 5.32%,
5.08%, 5.09% and 5.92%, respectively.
Average Annual Total Return
"Average annual total return" figures, as described below, are computed
according to a formula prescribed by the SEC. The formula can be
expressed as follows:
P(1+T)n = ERV
Where:
P =
a hypothetical initial payment of $1,000.
T =
Average annual total return.
n =
Number of years.
ERV
=
Ending Redeemable Value of a hypothetical $1,000 investment
made at the beginning of a 1-, 5- or 10-year period at the
end of the 1-5- or 10- year period (or fractional portion
thereof), assuming reinvestment of all dividends and
distributions. A Class' total return figures calculated in
accordance with the above formula assume that the maximum
applicable sales charge or maximum applicable CDSC, as the
case may be, has been deducted from the hypothetical $1,000
initial investment at the time of purchase or redemption, as
applicable.
Aggregate Total Return
Aggregate total return figures, as described below, represent the
cumulative change in the value of an investment in the Class during of the
specified period and are computed by the following formula:
AGGREGATE TOTAL RETURN = ERV-P
P
Where:
P
=
a hypothetical initial payment of $1,000.
ERV =
Ending Redeemable Value of a hypothetical $10,000
investment made at the beginning of a 1-, 5- or 10-year
period (or fractional portion thereof) at the end of
the 1-5- or 10- year period (or fractional portion
thereof), assuming reinvestment of all dividends and
distributions.
The total returns below show what an investment in each the Fund would
have earned over a specified period of time (one, five or ten years or
since inception) without assuming the payment of the maximum sales load
when the investment was first made and that all distributions and
dividends by the Fund were invested on the reinvestment dates during the
period, less all recurring fees. The following chart reflects the
financial performance of the Funds through the period ended December 31,
1999 for the one, five, and ten year periods and since inception:
Total Returns
5 Year
Since
Incepti
on
Since
Clas
s
1 Year
Average
Annual
5 Year
Cumulativ
e
Average
Annual
Inception
Cumulative
Contrarian Fund
Inception: 06/30/95
A
(5.27)%
N/A
N/A
5.22%
25.81%
Inception: 06/30/95
B
(5.99)
N/A
N/A
4.44
21.62
Inception: 06/30/95
L
(5.82)
N/A
N/A
4.47
21.82
Inception: 01/31/96
Y
(4.89)
N/A
N/A
5.63
23.97
Peachtree Growth
Fund
Inception: 07/03/95
A
19.88
N/A
N/A
19.06
119.24
Inception: 07/03/95
B
18.88
N/A
N/A
18.15
111.73
Inception: 08/08/95
L
18.67
N/A
N/A
16.96
97.28
Inception: 09/15/97
Y
20.41
N/A
N/A
22.73
57.28
Investment Grade
Bond Fund
Inception:11/6/92
A
(9.09)
9.19%
55.24%
7.95
72.83
Inception: 1/4/82
B*
(9.44)
8.67
51.55
10.61
514.58
Inception: 2/26/93
L
(9.44)
8.72
51.89
6.29
51.85
Inception: 2/7/96
Y
(8.68)
N/A
N/A
4.27
17.72
Government
Securities Fund
Inception: 11/06/92
A
(4.96)
5.94
33.45
5.58
47.45
Inception: 3/20/84
B**
(5.35)
5.41
30.14
7.27
202.77
Inception: 2/4/93
L
(5.41)
5.46
30.48
4.52
35.67
Inception: 2/7/96
Y
(4.61)
N/A
N/A
4.38
18.21
* The ten average annual return was 8.28% and the ten year cumulative
total return was 121.51 % for class B shares
** The ten average annual return was 6.20% and the ten year cumulative
total return was 82.57% for class B shares
The total returns below show what an investment in each Fund would have
earned over a specified period of time (one, five or ten years or since
inception) assuming the payment of the maximum sales load when the
investment was first made and that all distributions and dividends by the
Fund were invested on the reinvestment dates during the period, less all
recurring fees. The average annual total return is derived from this
total return, which provides the ending redeemable value. The following
chart reflects the financial performance of the Funds through the period
ended December 31, 1999 for the one, and five year periods and since
inception:
Total Returns
5 Year
Since
Incepti
on
Since
Clas
s
1 Year
Average
Annual
5 Year
Cumulativ
e
Average
Annual
Inception
Cumulative
Contrarian Fund
Inception: 06/30/95
A
(10.02)
%
N/A
N/A
4.04%
19.53%
Inception: 06/30/95
B
(10.14)
N/A
N/A
4.26
20.69
Inception: 06/30/95
L
(7.62)
N/A
N/A
4.24
20.62
Inception: 01/31/96
Y
(4.89)
N/A
N/A
5.63
23.97
Peachtree Growth
Fund
Inception: 07/03/95
A
(13.90)
N/A
N/A
17.72
108.32
Inception: 07/03/95
B
13.88
N/A
N/A
18.02
110.73
Inception: 08/08/95
L
16.45
N/A
N/A
16.96
97.28
Inception: 09/15/97
Y
20.41
N/A
N/A
22.73
57.28
Investment Grade
Bond Fund
Inception: 11/6/92
A
(13.20)
8.20%
48.29%
7.26
65.05
Inception: 1/4/82
B*
(13.30)
8.53
50.55
10.61
514.58
Inception: 2/26/93
L
(11.18)
8.50
50.34
6.13
50.30
Inception: 2/7/96
Y
(8.68)
N/A
N/A
4.27
17.72
Government
Securities Fund
Inception: 11/06/92
A
(9.24)
4.97
27.47
4.90
40.82
Inception: 12/31/82
B**
(9.42)
5.25
29.16
7.27
202.77
Inception: 10/18/93
L
(7.24)
5.26
29.21
4.36
34.31
Inception: 01/31/96
Y
(4.61)
N/A
N/A
4.38
18.21
* The ten average annual return was 8.28% and the ten year cumulative
total return was 121.51 % for class B shares
** The ten average annual return was 6.20% and the ten year cumulative
total return was 82.57% for class B shares
It is important to note that the yield and total return figures set forth
above are based on historical earnings and are not intended to indicate
future performance. A Class' performance will vary from time to time
depending upon market conditions, the composition of the Fund's investment
portfolio and operating expenses and the expenses exclusively attributable
to the Class. Consequently, any given performance quotation should not be
considered representative of the Class' performance for any specified
period in the future. Because performance will vary, it may not provide
a basis for comparing an investment in the Class with certain bank
deposits or other investments that pay a fixed yield for a stated period
of time. Investors comparing the Class' performance with that of other
mutual Funds should give consideration to the quality and maturity of the
respective investment companies' portfolio securities.
TAXES
The following is a summary of the material United States federal income
tax considerations regarding the purchase, ownership and disposition of
shares of a Fund of the Company. Each prospective shareholder is urged to
consult his own tax adviser with respect to the specific federal, state,
local and foreign tax consequences of investing in a Fund. The summary is
based on the laws in effect on the date of this Statement of Additional
Information, which are subject to change.
The Funds and Their Investments
Each Fund intends to continue to qualify to be treated as a regulated
investment company each taxable year under the Internal Revenue Code of
1986, as amended (the "Code"). To so qualify, a Fund must, among other
things: (a) derive at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to securities, loans and
gains from the sale or other disposition of stock or securities or foreign
currencies, or other income (including, but not limited to, gains from
options, futures or forward contracts) derived with respect to its
business of investing in such stock, securities or currencies; and (b)
diversify its holdings so that, at the end of each quarter of a Fund's
taxable year, (i) at least 50% of the market value of a Fund's assets is
represented by cash, securities of other regulated investment companies,
United States government securities and other securities, with such other
securities limited, in respect of any one issuer, to an amount not greater
than 5% of a Fund's assets and not greater than 10% of the outstanding
voting securities of such issuer and (ii) not more than 25% of the value
of its assets is invested in the securities (other than United States
government securities or securities of other regulated investment
companies) of any one issuer or any two or more issuers that a Fund
controls and which are determined to be engaged in the same or similar
trades or businesses or related trades or businesses.
As a regulated investment company, each Fund will not be subject to United
States federal income tax on its investment company taxable income (i.e.,
income other than any excess of its net realized long-term capital gains
over its net realized short-term capital losses ("net realized capital
gains") or on its net realized capital gains, if any, that it distributes
to its shareholders, provided that an amount equal to at least 90% of the
sum of its investment company taxable income plus or minus certain other
adjustments as specified in the Code, and its net tax-exempt income for
the taxable year is distributed, but will be subject to tax at regular
corporate rates on any taxable income or gains that it does not
distribute. Furthermore, each Fund will be subject to a United States
corporate income tax with respect to such distributed amounts in any year
that it fails to qualify as a regulated investment company or fails to
meet this distribution requirement.
The Code imposes a 4% nondeductible excise tax on each Fund to the extent
a Fund does not distribute by the end of any calendar year at least 98% of
its net investment income for that year and 98% of the net amount of its
capital gains (both long-and short-term) for the one-year period ending,
as a general rule, on October 31 of that year. For this purpose, however,
any income or gain retained by a Fund that is subject to corporate income
tax will be considered to have been distributed by year-end. In addition,
the minimum amounts that must be distributed in any year to avoid the
excise tax will be increased or decreased to reflect any underdistribution
or overdistribution, as the case may be, from the previous year. Each
Fund anticipates that it will pay such dividends and will make such
distributions as are necessary in order to avoid the application of this
excise tax.
If, in any taxable year, a Fund fails to qualify as a regulated investment
company under the Code or fails to meet the distribution requirement, it
would be taxed in the same manner as an ordinary corporation and
distributions to its shareholders would not be deductible by a Fund in
computing its taxable income. In addition, in the event of a failure to
qualify, a Fund's distributions, to the extent derived from the Fund's
current or accumulated earnings and profits would constitute dividends
(eligible for the corporate dividends-received deduction) which are
taxable to shareholders as ordinary income, even though those
distributions might otherwise (at least in part) have been treated in the
shareholders' hands as long-term capital gains. If a Fund fails to
qualify as a regulated investment company in any year, it must pay out its
earnings and profits accumulated in that year in order to qualify again as
a regulated investment company. In addition, if a Fund failed to qualify
as a regulated investment company for a period greater than one taxable
year, the Fund may be required to recognize any net built-in gains (the
excess of the aggregate gains, including items of income, over aggregate
losses that would have been realized if it had been liquidated) with
respect to certain of its assets in order to qualify as a regulated
investment company in a subsequent year.
On December 31, 1999, the unused capital loss carryovers by the Investment
Grade Bond Fund were approximately $9,868,000. For Federal income tax
purposes, this amount is available to be applied against future capital
gains of the Fund that has the carryovers, if any, that is realized prior
to the expiration of the applicable carryover. The carryover expires in
2007.
On December 31, 1999, the unused capital loss carryovers by the Government
Securities Fund were approximately $75,237,000. For Federal income tax
purposes, this amount is available to be applied against future capital
gains of the Fund that has the carryovers, if any, that is realized prior
to the expiration of the applicable carryover. The carryovers expire as
follows:
December 31,
2002 2003 2007
$31,677,000 $195,000 $43,365,000
The Government Securities Fund may invest in zero coupons securities
having an original issue discount (that is, the discount represented by
the excess of the stated redemption price at maturity over the issue
price). Each year, each Fund will be required to accrue as income a
portion of this original issue discount even though the Fund will receive
no cash payment of interest with respect to these securities. In
addition, if the Fund acquires a security after its initial issuance at a
discount that resulted from fluctuations in prevailing interest rates
("market discount"), the Fund may elect to include in income each year a
portion of this market discount.
Each Fund will be required to distribute substantially all of its income
(including accrued original issue discount and recognized market discount)
in order to qualify for "pass-through" federal income tax treatment and
also in order to avoid the imposition of the 4% excise tax referred to
above. Therefore, a Fund may be required in some years to distribute an
amount greater than the total cash income the Fund actually receives. In
order to make the required distribution in such a year, a Fund may be
required to borrow or to liquidate securities. The amount of cash that a
Fund would have to distribute, and thus the degree to which securities
would need to be liquidated or borrowings made, would depend upon the
number of shareholders who chose not to have their dividends reinvested.
A Fund's transactions in options and futures, will be subject to special
provisions of the Code (including provisions relating to "hedging
transactions" and "straddles") that, among other things, may affect the
character of gains and losses realized by a Fund (i.e., may affect whether
gains or losses are ordinary or capital), accelerate recognition of income
to a Fund and defer Fund losses. These rules could therefore affect the
character, amount and timing of distributions to shareholders. These
provisions also (a) will require a Fund to mark-to-market certain types of
the positions in its Fund (i.e., treat them as if they were closed out)
and (b) may cause a Fund to recognize income without receiving cash with
which to pay dividends or make distributions in amounts necessary to
satisfy the distribution requirements for avoiding income and excise
taxes. Each Fund will monitor its transactions, will make the appropriate
tax elections and will make the appropriate entries in its books and
records when it acquires any option, Futures Contract or hedged investment
in order to mitigate the effect of these rules and prevent
disqualification of a Fund as a regulated investment company.
A Fund's investment in Section 1256 contracts, such as regulated Futures
Contracts and options on most stock indices, are subject to special tax
rules. All section 1256 contracts held by a Fund at the end of its
taxable year are required to be marked to their market value, and any
unrealized gain or loss on those positions will be included in the Fund's
taxable income as if each position had been sold for its fair market value
at the end of the taxable year. The resulting gain or loss will be
combined with any gain or loss realized by the Fund from positions in
section 1256 contracts closed during the taxable year. Provided such
positions were held as capital assets and were not part of a "hedging
transaction" nor part of a "straddle," 60% of the resulting net gain or
loss will be treated as long-term capital gain or loss, and 40% of such
net gain or loss will be treated as short-term capital gain or loss,
regardless of the period of time the positions were actually held by the
Fund.
Foreign Investments. Dividends or other income (including, in some cases,
capital gains) received by a Fund from investments in foreign securities
may be subject to withholding and other taxes imposed by foreign
countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes in some cases. A Fund will not
be eligible to elect to treat any foreign taxes it pays as paid by its
shareholders, who therefore will not be entitled to credits for such taxes
on their own tax returns. Foreign taxes paid by a Fund will reduce the
return from its investments.
Taxation of United States Shareholders
Dividends and Distributions. Any dividend declared by a Fund in October,
November or December of any calendar year and payable to shareholders of
record on a specified date in such a month shall be deemed to have been
received by each shareholder on December 31 of such calendar year and to
have been paid by a Fund not later than such December 31, provided that
such dividend is actually paid by a Fund during January of the following
calendar year. Each Fund intends to distribute annually to its
shareholders substantially all of its investment company taxable income.
Each Fund also currently expects to distribute any net realized capital
gains annually to its shareholders. However, if a Fund retains for
investment an amount equal to all or a portion of its net realized capital
gains, it will be subject to a corporate tax (currently at a rate of 35%)
on the amount retained. In that event, a Fund will designate such
retained amounts as undistributed capital gains in a notice to its
shareholders who (a) will be required to include in income for United
Stares federal income tax purposes, as long-term capital gains, their
proportionate shares of the undistributed amount, (b) will be entitled to
credit their proportionate shares of the 35% tax paid by the Fund on the
undistributed amount against their United States federal income tax
liabilities, if any, and to claim refunds to the extent their credits
exceed their liabilities, if any, and (c) will be entitled to increase
their tax basis, for United States federal income tax purposes, in their
shares by an amount equal to 65% of the amount of undistributed capital
gains included in the shareholder's income. Organizations or persons not
subject to federal income tax on such capital gains will be entitled to a
refund of their pro rata share of such taxes paid by a Fund upon filing
appropriate returns or claims for refund with the Internal Revenue Service
(the "IRS").
Dividends of net investment income and distributions of net realized
short-term capital gains are taxable to a United States shareholder as
ordinary income, whether paid in cash or in shares. Distributions of net-
long-term capital gains, if any, that a Fund designates as capital gains
dividends are taxable as long-term capital gains, whether paid in cash or
in shares and regardless of how long a shareholder has held shares of a
Fund. Dividends and distributions paid by a Fund (except for the portion
thereof, if any, attributable to dividends on stock of U.S. corporations
received by a Fund) will not qualify for the deduction for dividends
received by corporations. Distributions in excess of a Fund's current and
accumulated earnings and profits will, as to each shareholder, be treated
as a tax-free return of capital, to the extent of a shareholder's basis in
his shares of a Fund, and as a capital gain thereafter (if the shareholder
holds his shares of a Fund as capital assets).
Investors considering buying shares just prior to a dividend or capital
gain distribution should be aware that, although the price of shares
purchased at that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may nevertheless be taxable to
them.
If a Fund is the holder of record of any stock on the record date for any
dividends payable with respect to such stock, such dividends are included
in a Fund's gross income not as of the date received but as of the later
of (a) the date such stock became ex-dividend with respect to such
dividends (i.e., the date on which a buyer of the stock would not be
entitled to receive the declared, but unpaid, dividends) or (b) the date
the Fund acquired such stock. Accordingly, in order to satisfy its income
distribution requirements, a Fund may be required to pay dividends based
on anticipated earnings, and shareholders may receive dividends in an
earlier year than would otherwise be the case.
Sales of Shares. Upon the sale or exchange of his shares, a shareholder
will realize a taxable gain or loss equal to the difference between the
amount realized and his basis in his shares. Such gain or loss will be
treated as capital gain or loss, if the shares are capital assets in the
shareholder's hands, and will be long-term capital gain or loss if the
shares are held for more than one year and short-term capital gain or loss
if the shares are held for one year or less. Any loss realized on a sale
or exchange will be disallowed to the extent the shares disposed of are
replaced, including replacement through the reinvesting of dividends and
capital gains distributions in a Fund, within a 61-day period beginning 30
days before and ending 30 days after the disposition of the shares. In
such a case, the basis of the shares acquired will be increased to reflect
the disallowed loss. Any loss realized by a shareholder on the sale of a
Fund share held by the shareholder for six months or less will be treated
for United States federal income tax purposes as a long-term capital loss
to the extent of any distributions or deemed distributions of long-term
capital gains received by the shareholder with respect to such share.
Backup Withholding. Each Fund may be required to withhold, for United
States federal income tax purposes, 31% of the dividends and distributions
payable to shareholders who fail to provide a Fund with their correct
taxpayer identification number or to make required certifications, or who
have been notified by the IRS that they are subject to backup withholding.
Certain shareholders are exempt from backup withholding. Backup
withholding is not an additional tax and any amount withheld may be
credited against a shareholder's United States federal income tax
liabilities.
Notices. Shareholders will be notified annually by a Fund as to the
United States federal income tax status of the dividends, distributions
and deemed distributions attributable to undistributed capital gains
(discussed above in "Dividends and Distributions") made by a Fund to its
shareholders. Furthermore, shareholders will also receive, if
appropriate, various written notices after the close of a Fund's taxable
year regarding the United States federal income tax status of certain
dividends, distributions and deemed distributions that were paid (or that
are treated as having been paid) by a Fund to its shareholders during the
preceding taxable year.
CLASS Z SHARES
Qualified plan participants should consult their plan document or tax
advisors about the tax consequences of participating in a Qualified Plan.
In addition to the considerations described below, there may be other
federal, state, local, and/or foreign tax applications to consider.
Provided a Qualified Plan has not borrowed to finance its investment in
the Fund, it will not be taxable on the receipt of dividends and
distributions from the Fund. Qualified Plan participants should consult
their plan document or tax advisors about the tax consequences of
participating in a Qualified Plan.
Other Taxation
Distributions also may be subject to additional state, local and foreign
taxes depending on each shareholder's particular situation.
The foregoing is only a summary of certain material tax consequences
affecting the Funds and their shareholders. Shareholders are advised to
consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Funds
IRA AND OTHER PROTOTYPE RETIREMENT PLANS
Copies of the following plans with custody or trust agreements have been
approved by the Internal Revenue Service and are available from the
Company or Salomon Smith Barney; investors should consult with their own
tax or retirement planning advisors prior to the establishment of a plan.
IRA, Rollover IRA and Simplified Employee Pension - IRA
The Small Business Job Protection Act of 1996 changed the eligibility
requirements for participants in Individual Retirement Accounts ("IRAs").
Under these new provisions, if you or your spouse have earned income,
each of you may establish an IRA and make maximum annual contributions
equal to the lesser of earned income or $2,000. As a result of this
legislation, married couples where one spouse is non-working may now
contribute a total of $4,000 annually to their IRAs.
The Taxpayer Relief Act of 1997 has changed the requirements for
determining whether or not you are eligible to make a deductible IRA
contribution. Under the new rules effective beginning January 1, 1998, if
you are considered an active participant in an employer-sponsored
retirement plan, you may still be eligible for a full or partial deduction
depending upon your combined adjusted gross income ("AGI"). For married
couples filing jointly for 1998, a full deduction is permitted if your
combined AGI is $50,000 or less ($30,000 for unmarried individuals); a
partial deduction will be allowed when AGI is between $50,000-$60,000
($30,000-$40,000 for an unmarried individual); and no deduction when AGI
is above $60,000 ($40,000 for an unmarried individual). However, if you
are married and your spouse is covered by a employer-sponsored retirement
plan, but you are not, you will be eligible for a full deduction if your
combined AGI is $150,000 or less. A partial deduction is permitted if
your combined AGI is between $150,000-$160,000 and no deduction is
permitted after $160,000.
The rules applicable to so-called "Roth IRAs" differ from those described
above.
A Rollover IRA is available to defer taxes on lump sum payments and other
qualifying rollover amounts (no maximum) received from another retirement
plan.
An employer who has established a Simplified Employee Pension - IRA ("SEP-
IRA") on behalf of eligible employees may make a maximum annual
contribution to each participant's account of 15% (up to $24,000) of each
participant's compensation. Compensation is capped at $170,000 for 1999.
Paired Defined Contribution Prototype
Corporations (including Subchapter S corporations) and non-corporate
entities may purchase shares of the Company through the Salomon Smith
Barney Prototype Paired Defined Contribution Plan (the "Prototype"). The
Prototype permits adoption of profit-sharing provisions, money purchase
pension provisions, or both, to provide benefits for eligible employees
and their beneficiaries. The Prototype provides for a maximum annual tax
deductible contribution on behalf of each Participant of up to 25% of
compensation, but not to exceed $30,000 (provided that a money purchase
pension plan or both a profit-sharing plan and a money purchase pension
plan are adopted thereunder).
SALOMON SMITH BARNEY RETIREMENT PROGRAMS
You may be eligible to participate in a retirement program sponsored by
Salomon Smith Barney or one of its affiliates. The fund offers Class A and
Class L shares at net asset value to participating plans under the
programs. You can meet minimum investment and exchange amounts, if any, by
combining the plan's investments in any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and the class of
shares you may purchase depends on the amount of your initial investment
and/or the date your account is opened. Once a class of shares is chosen,
all additional purchases must be of the same class.
For plans opened on or after March 1, 2000 that are not plans for which
Paychex Inc. or an affiliate provides administrative services (a "Paychex
plan"), Class A shares may be purchased regardless of the amount invested.
For plans opened prior to March 1, 2000 and for Paychex plans, the class
of shares you may purchase depends on the amount of your initial
investment:
Class A Shares. Class A shares may be purchased by plans investing at
least $1 million.
Class L Shares. Class L shares may be purchased by plans investing less
than $1 million. Class L shares are eligible to exchange into Class A
shares not later than 8 years after the plan joined the program. They are
eligible for exchange in the following circumstances:
If the plan was opened on or after June 21, 1996 and a total of $1 million
is invested in Smith Barney Funds Class L shares (other than money market
funds), all Class L shares are eligible for exchange after the plan is in
the program for 5 years.
If the plan was opened before June 21, 1996 and a total of $500,000 is
invested in Smith Barney Funds Class L shares (other than money market
funds) on December 31 in any year, all Class L shares are eligible for
exchange on or about March 31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant
or the Transfer Agent.
Retirement Programs Opened On or After June 21, 1996. If, at the end of
the fifth year after the date the participating plan enrolled in the Smith
Barney 401(k) Program or ExecChoiceTM Program, a participating plan's total
Class L holdings in all non-money market Smith Barney Mutual Funds equal
at least $1,000,000, the participating plan will be offered the
opportunity to exchange all of its Class L shares for Class A shares of
the fund. (For participating plans that were originally established
through a Salomon Smith Barney retail brokerage account, the five-year
period will be calculated from the date the retail brokerage account was
opened.) Such participating plans will be notified of the pending exchange
in writing within 30 days after the fifth anniversary of the enrollment
date and, unless the exchange offer has been rejected in writing, the
exchange will occur on or about the 90th day after the fifth anniversary
date. If the participating plan does not qualify for the five-year
exchange to Class A shares, a review of the participating plan's holdings
will be performed each quarter until either the participating plan
qualifies or the end of the eighth year.
Retirement Programs Opened Prior to June 21, 1996. In any year after the
date a participating plan enrolled in the Smith Barney 401(k) Program, if
its total Class L holdings in all non-money market Smith Barney Mutual
Funds equal at least $500,000 as of the calendar year-end, the
participating plan will be offered the opportunity to exchange all of its
Class L shares for Class A shares of the same fund. Such Plans will be
notified in writing within 30 days after the last business day of the
calendar year and, unless the exchange offer has been rejected in writing,
the exchange will occur on or about the last business day of the following
March.
Any participating plan in the Smith Barney 401(k) or ExecChoiceTM Program,
whether opened before or after June 21, 1996, that has not previously
qualified for an exchange into Class A shares will be offered the
opportunity to exchange all of its Class L shares for Class A shares of
the same fund regardless of asset size, at the end of the eighth year
after the date the participating plan enrolled in the Smith Barney 401(k)
or ExecChoiceTM Program. Such plans will be notified of the pending
exchange in writing approximately 60 days before the eighth anniversary of
the enrollment date and, unless the exchange has been rejected in writing,
the exchange will occur on or about the eighth anniversary date. Once an
exchange has occurred, a participating plan will not be eligible to
acquire additional Class L shares, but instead may acquire Class A shares
of the same fund. Any Class L shares not converted will continue to be
subject to the distribution fee.
Participating plans wishing to acquire shares of the fund through the
Smith Barney 401(k) Program or the Smith Barney ExecChoiceTM Program must
purchase such shares directly from the Transfer Agent. For further
information regarding these Programs, investors should contact a Salomon
Smith Barney Financial Consultant.
Retirement Programs Investing in Class B Shares: Class B shares of a fund
are not available for purchase by participating plans opened on or after
June 21, 1996, but may continue to be purchased by any participating plan
in the Smith Barney 401(k) Program opened prior to such date and
originally investing in such Class. Class B shares acquired are subject to
a deferred sales charge of 3.00% of redemption proceeds if the
participating plan terminates within eight years of the date the
participating plan first enrolled in the Smith Barney 401(k) Program.
At the end of the eighth year after the date the participating plan
enrolled in the Smith Barney 401(k) Program, the participating plan will
be offered the opportunity to exchange all of its Class B shares for Class
A shares of the same fund. Such participating plan will be notified of the
pending exchange in writing approximately 60 days before the eighth
anniversary of the enrollment date and, unless the exchange has been
rejected in writing, the exchange will occur on or about the eighth
anniversary date. Once the exchange has occurred, a participating plan
will not be eligible to acquire additional Class B shares, but instead may
acquire Class A shares of the same fund. If the participating plan elects
not to exchange all of its Class B shares at that time, each Class B share
held by the participating plan will have the same conversion feature as
Class B shares held by other investors. See "Purchase, Exchange and
Redemption of Shares-Deferred Sales Charge Alternatives."
No deferred sales charge is imposed on redemptions of Class B shares to
the extent that the net asset value of the shares redeemed does not exceed
the current net asset value of the shares purchased through reinvestment
of dividends or capital gain distributions, plus the current net asset
value of Class B shares purchased more than eight years prior to the
redemption, plus increases in the net asset value of the shareholder's
Class B shares above the purchase payments made during the preceding eight
years. Whether or not the deferred sales charge applies to the redemption
by a participating plan depends on the number of years since the
participating plan first became enrolled in the Smith Barney 401(k)
Program, unlike the applicability of the deferred sales charge to
redemptions by other shareholders, which depends on the number of years
since those shareholders made the purchase payment from which the amount
is being redeemed.
The deferred sales charge will be waived on redemptions of Class B shares
in connection with lump-sum or other distributions made by a participating
plan as a result of: (a) the retirement of an employee in the
participating plan; (b) the termination of employment of an employee in
the participating plan; (c) the death or disability of an employee in the
participating plan; (d) the attainment of age 591/2 by an employee in the
participating plan; (e) hardship of an employee in the participating plan
to the extent permitted under Section 401(k) of the Code; or (f)
redemptions of shares in connection with a loan made by the participating
plan to an employee.
ADDITIONAL INFORMATION
The Company was incorporated on September 29, 1981 under the name Hutton
Investment Series Inc. The Company's corporate name was changed on
December 29, 1988, July 30, 1993 and October 28, 1994, to SLH Investment
Portfolios Inc., Smith Barney Shearson Investment Funds Inc., and Smith
Barney Investment Funds, Inc., respectively.
PNC Bank, National Association located at 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103, serves as the custodian of the Company.
Under its custody agreement with the Company, PNC Bank holds each Funds
portfolio securities and keeps all necessary accounts and records. For
its services, PNC Bank receives a monthly fee based upon the month-end
market value of securities held in custody and also receives transaction
charges. PNC bank is authorized to establish separate accounts for
foreign securities owned by the Company to be held with foreign branches
of other domestic banks as well as with certain foreign banks and
securities depositories. The assets of the Company are held under bank
custodianship in compliance with the 1940 Act.
Citi Fiduciary 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.
PFPC Global Fund Services, located at P.O. Box 9699, Providence, RI 02940-
9699, serves as one of the fund's sub-transfer agents. Under the transfer
agency agreement, the sub-transfer agent agreement, the sub-transfer agent
maintains the shareholder account records for the fund, handles certain
communications between shareholders and the fund and distributes dividends
and distributions payable by the fund. For these services, the sub-
transfer agent receives a monthly fee computed on the basis of the number
of shareholder accounts it maintains for the fund during the month, and is
reimbursed for out-of pocket expenses.
The Fund has engaged the services of PFS Shareholder Services as the sub-
transfer agent for PFS Accounts ("sub-transfer agent"). The sub-transfer
agent is located at 3100 Breckinridge Blvd, Bldg 200, Duluth, Georgia
30099-0062.
FINANCIAL STATEMENTS
The Annual Reports for each Fund for the fiscal year ended December 31,
1999 are incorporated herein by reference in their entirety (filed on
March 8, 2000; accession number 0000091155-00-000189).
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 Smith Barney Allocation Series
As a Fund of Funds, investors can select a Portfolio that may help
their investment needs. As needs change, investors can easily
choose another long-term, diversified investment from our fund
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.
APPENDIX
BOND (AND NOTE) RATINGS
Moody's Investors Service, Inc. ("Moody's")
Aaa - Bonds that are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the Fundamentally strong position
of such issues.
Aa - Bonds that are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in "Aaa" securities
or fluctuation of protective elements may be of greater amplitude or there
may be other elements present that make the long term risks appear
somewhat larger than in "Aaa" securities.
A - Bonds that are rated "A" possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present that suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds that are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa - Bonds that are rated Caa are of poor standing. These issues may be
in default or present elements of danger may exist with respect to
principal or interest.
Ca - Bonds that are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
short-comings.
C - Bonds that are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
Standard & Poor's Ratings Group ("Standard & Poors")
AAA - Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A - Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB - Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB, B and CCC - Bonds rated BB and B are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. BB
represents a lower degree of speculation than B and CCC the highest degree
of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
C - The rating C is reserved for income bonds on which no interest is
being paid.
D - Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus or a minus
sign, which is used to show relative standing within the major rating
categories, except in the AAA category.
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.
Issuers rated "Prime-1" (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well-established industries;
high rates of return on Funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection;
broad margins in earnings coverage of fixed financial charges and high
internal cash generation; well-established access to a range of financial
markets and assured sources of alternate liquidity.
Issuers rated "Prime-2" (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Standard & Poor's Ratings Group
A-1 - This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus
(+) sign designation.
A-2 - Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for
issues designated A-1.
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