<PAGE>
Pursuant to Rule 497(b) File Nos. 333-41500 811-3275
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
21 Milk Street, 5th Floor, Boston, Massachusetts 02109
August 16, 2000
Dear Shareholders:
You are being asked to vote on an Agreement and Plan of Reorganization
whereby substantially all of the assets of CitiFunds Intermediate Income
Portfolio (the "CitiFund"), a series of CitiFunds Fixed Income Trust, will be
transferred in a tax-free reorganization to the Smith Barney Government
Securities Fund (the "Smith Barney Fund"), a series of Smith Barney Investment
Funds Inc., in exchange for shares of the corresponding class of the Smith
Barney Fund.
If the Agreement and Plan of Reorganization is approved and consummated,
you will no longer be a shareholder of the CitiFund; you will become a
shareholder of the Smith Barney Fund. You will receive shares of the
corresponding class of the Smith Barney Fund with an aggregate net asset value
equal to the aggregate net asset value of your shares in the CitiFund. Of
course, you may redeem your shares of the CitiFund or the Smith Barney Fund on
any business day.
The Smith Barney Fund is advised by SSB Citi Fund Management LLC ("SSB
Citi"). The CitiFund is advised by Citibank, N.A. ("Citibank"). SSB Citi and
Citibank are subsidiaries of Citigroup Inc. Citigroup has proposed the
reorganization of the CitiFund into the Smith Barney Fund in order to
eliminate duplication in the mutual fund investment advisory operations of SSB
Citi and Citibank. SSB Citi and Citibank will pay all of the expenses that are
solely and directly related to the reorganization.
Each Fund is a "fixed income" mutual fund that pursues its investment
objective by primarily investing in fixed income securities. The Funds'
investment objectives are similar. The Smith Barney Fund generally invests
more of its assets in U.S. government securities than the CitiFund.
After carefully studying the merits of the proposal, the Board of Trustees
of CitiFunds Fixed Income Trust has determined that the reorganization of the
CitiFund with the Smith Barney Fund will benefit the CitiFund shareholders.
The Trustees of CitiFunds Fixed Income Trust believe that combining the
assets of the CitiFund with the Smith Barney Fund could result in more
efficient mutual fund operations due to economies of scale. As a result of the
reorganization, CitiFund shareholders will be part of a larger fund family
offering a wide array of mutual funds. CitiFund shareholders will be able to
exchange their shares among all of those Smith Barney funds offered by their
service agents.
The Board of Trustees of CitiFunds Fixed Income Trust believes that the
proposal set forth in the notice of meeting for your fund is important and
recommends that you read the enclosed materials carefully and then vote for the
proposal. PLEASE TAKE A MOMENT NOW TO SIGN AND RETURN YOUR PROXY CARD(s) IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. YOU MAY ALSO CAST YOUR VOTE VIA THE INTERNET, BY
TELEPHONE OR BY FACSIMILE AS DESCRIBED IN THE ENCLOSED PROXY VOTING MATERIALS.
For more information, please contact your service agent or call 1-888-347-2456.
If your account is held with Citicorp Investment Services, please call
1-800-846-5200; in New York City, you need to call 212-820-2380.
Respectfully,
/s/ Philip W. Coolidge
Philip W. Coolidge
President
<PAGE>
WE URGE YOU TO VOTE BY ONE OF THE FOLLOWING MEANS TO ENSURE A QUORUM AT THE
MEETING. YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. TO
VOTE:
By phone: Call toll-free 1-800-597-7836 and follow the automated
instructions. You will need the 14-digit control number located on
your proxy card.
By mail: Simply enclose your executed proxy card in the postage-paid
envelope found within your proxy package.
By internet: Visit https://vote.proxy-direct.com; once there, enter
the 14-digit control number located on your proxy card.
By fax: Simply fax your executed proxy card to 1-888-796-9932.
If you have any questions regarding the meeting agenda or the execution of
your proxy, please call 1-888-347-2456.
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
21 Milk Street, 5th Floor, Boston, Massachusetts 02109
Telephone: (617) 423-1679
NOTICE OF SPECIAL MEETING
OF SHAREHOLDERS
Please take notice that a Special Meeting of Shareholders of CitiFunds
Intermediate Income Portfolio (the "CitiFund"), a series of CitiFunds Fixed
Income Trust, will be held at the offices of SSB Citi Fund Management LLC, 7
World Trade Center, 4th Floor, Balcony Dining, New York, New York 10048 on
Monday, October 2, 2000 at 3:30 p.m., Eastern time, for the following
purposes:
ITEM 1. To consider and act upon a proposal to approve an Agreement and
Plan of Reorganization which provides for and contemplates: (1)
the transfer of substantially all of the assets and liabilities
of the CitiFund to the Smith Barney Government Securities Fund
(the "Smith Barney Fund"), a series of Smith Barney Investment
Funds Inc., solely in exchange for voting shares of the
corresponding class of the Smith Barney Fund; (2) the
distribution of the shares to the shareholders of the CitiFund in
liquidation of the CitiFund; and (3) the termination of the
CitiFund.
ITEM 2. To transact such other business as may properly come before the
Special Meeting of Shareholders and any adjournments thereof.
Item 1 is described in the attached Proxy Statement/Prospectus. THE BOARD
OF TRUSTEES OF CITIFUNDS FIXED INCOME TRUST RECOMMENDS THAT YOU VOTE IN FAVOR
OF ITEM 1.
Only shareholders of record on August 11, 2000 will be entitled to vote at
the Special Meeting of Shareholders and at any adjournments thereof.
Robert I. Frenkel, Secretary
August 16, 2000
YOUR VOTE IS IMPORTANT. WE WOULD APPRECIATE YOUR PROMPTLY VOTING, SIGNING AND
RETURNING THE ENCLOSED PROXY, WHICH WILL HELP AVOID THE ADDITIONAL EXPENSE OF
A SECOND SOLICITATION. THE ENCLOSED ADDRESSED ENVELOPE REQUIRES NO POSTAGE AND
IS PROVIDED FOR YOUR CONVENIENCE. YOU ALSO MAY RETURN PROXIES BY TOUCH-TONE
VOTING OVER THE TELEPHONE, BY FACSIMILE OR BY VOTING ON THE INTERNET.
<PAGE>
COMBINED PROXY STATEMENT/PROSPECTUS
August 16, 2000
Relating to the acquisition by
SMITH BARNEY GOVERNMENT SECURITIES FUND, a series of
SMITH BARNEY INVESTMENT FUNDS INC.
388 Greenwich Street
New York, NY 10013
Telephone: (800) 451-2010
of the assets of
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO, a series of
CITIFUNDS FIXED INCOME TRUST
21 Milk Street, 5th Floor
Boston, Massachusetts 02109
Telephone: (617) 423-1679
This Proxy Statement/Prospectus is furnished to shareholders of CitiFunds
Intermediate Income Portfolio (the "CitiFund"), a series of CitiFunds Fixed
Income Trust (the "CitiFunds Trust"), in connection with the solicitation of
proxies for a Special Meeting of Shareholders of the CitiFund at which
shareholders will be asked to consider and approve a proposed Agreement and
Plan of Reorganization (the "Plan") between the CitiFunds Trust, with respect
to the CitiFund, and Smith Barney Investment Funds Inc., on behalf of its
series, Smith Barney Government Securities Fund (the "Smith Barney Fund").
The Plan provides that substantially all of the assets and liabilities of
the CitiFund will be transferred to the Smith Barney Fund. In exchange for the
transfer of these assets and liabilities, the CitiFund will receive voting
shares of the corresponding class of the Smith Barney Fund. Shares of the
Smith Barney Fund so received would then be distributed to the shareholders of
the CitiFund in complete liquidation of the CitiFund, and the CitiFund would
be terminated. As a result of these reorganization transactions, each
shareholder of each class of the CitiFund would receive that number of full
and fractional shares of the corresponding class of the Smith Barney Fund
having an aggregate net asset value equal to the aggregate net asset value of
the shareholder's shares of the CitiFund held on the closing date of the
reorganization transaction (the "Reorganization").
The CitiFund and Smith Barney Fund are each a series of open-end
management investment companies. The Smith Barney Fund, like the CitiFund, is
a "fixed income" fund that pursues its investment objective by investing
primarily in fixed income securities.
This Proxy Statement/Prospectus, which should be retained for future
reference, sets forth concisely the information about the Smith Barney Fund
that a prospective investor should know before investing. For a more detailed
discussion of the investment objectives, policies, restrictions and risks of
the Smith Barney Fund, see the Prospectus for the Smith Barney Fund, dated
April 28, 2000, as supplemented from time to time, which is included herewith
and incorporated herein by reference. This Proxy Statement/Prospectus is also
accompanied by the Smith Barney Fund's annual report to shareholders for the
year ended December 31, 1999, which is incorporated herein by reference.
Additional information is set forth in the Statement of Additional Information
of the Smith Barney Fund, dated April 28, 2000, which is incorporated herein
by reference. The Prospectus and Statement of Additional Information of the
Smith Barney Fund are on file with the Securities and Exchange Commission and
are available without charge upon request by writing or calling the Smith
Barney Fund at the address or telephone number indicated above.
Additional information is set forth in (a) the Statement of Additional
Information relating to this Proxy Statement/Prospectus, dated August 16,
2000, (b) the Prospectus and Statement of Additional Information of the
CitiFund, dated March 1, 2000, and (c) the Annual Report for the fiscal year
ended October 31, 1999 and the Semi-Annual Report for the six-month period
ended April 30, 2000 relating to the CitiFund. Each of these documents is
incorporated herein by reference and is on file with the Securities and
Exchange Commission. You may obtain a copy of any of these documents without
charge upon request by writing or calling the CitiFund at the address or
telephone number indicated above.
This Proxy Statement/Prospectus is expected to be first sent to
shareholders on or about August 16, 2000.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROXY STATEMENT/
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROXY STATEMENT/
PROSPECTUS AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE CITIFUND OR THE SMITH BARNEY
FUND.
<PAGE>
TABLE OF CONTENTS
SYNOPSIS ............................................................... 7
Proposed Transaction ................................................. 7
Comparison of Investment Objectives and Policies ..................... 7
Comparison of Investment Structure of the CitiFund and the Smith
Barney Fund ........................................................ 9
Investment Advisory Services and Management Fees ..................... 9
Overall Expenses ..................................................... 10
Distribution of Shares and Other Services ............................ 11
Sales Charges, Purchase Policies, Redemption and Exchange Information 11
Dividends and Other Distributions .................................... 14
Tax Consequences ..................................................... 15
Other Merger ......................................................... 15
PRINCIPAL INVESTMENTS, RISK FACTORS AND INVESTMENT RESTRICTIONS ........ 15
Principal Investments and Risk Factors ............................... 15
Fundamental Investment Restrictions .................................. 18
Non-Fundamental Investment Restrictions .............................. 18
THE PROPOSED TRANSACTION ............................................... 19
Description of the Plan .............................................. 19
Reasons for the Proposed Transaction ................................. 19
Description of the Securities to Be Issued ........................... 20
Federal Income Tax Consequences ...................................... 21
Liquidation and Termination of the CitiFund .......................... 22
Portfolio Securities ................................................. 22
Portfolio Turnover ................................................... 22
Pro Forma Capitalization ............................................. 22
Performance .......................................................... 23
VOTING INFORMATION ..................................................... 23
General Information .................................................. 23
Quorum; Vote Required to Approve Proposal ............................ 24
Outstanding Shareholders ............................................. 24
ADDITIONAL INFORMATION ABOUT THE FUNDS ................................. 26
OTHER MATTERS .......................................................... 26
<PAGE>
SYNOPSIS
The following is a summary of certain information contained in this Proxy
Statement/Prospectus regarding the CitiFund and the Smith Barney Fund (each, a
"Fund," and collectively, the "Funds") and the proposed Reorganization. This
summary is qualified by reference to the more complete information contained
elsewhere in this Proxy Statement/Prospectus, the Prospectus of the Smith
Barney Fund, the Prospectus of the CitiFund, and the Plan, the form of which
is attached to this Proxy Statement/Prospectus as Exhibit A. Shareholders of
the CitiFund should read this entire Proxy Statement/Prospectus carefully.
PROPOSED TRANSACTION
The Board of Trustees of the CitiFunds Trust, on behalf of the CitiFund,
including the Trustees who are not "interested persons" of such Fund (as
defined in the Investment Company Act of 1940, as amended (the "1940 Act"))
(the "Non-Interested Trustees"), approved the Plan on July 13, 2000. The Plan
provides that substantially all of the assets and liabilities of the CitiFund
will be transferred to the Smith Barney Fund. The CitiFund holds its assets
through an underlying investment company (the "Underlying Portfolio"). As part
of the Reorganization, and prior to the transfer of assets to the Smith Barney
Fund, the CitiFund will receive a distribution in kind from the Underlying
Portfolio of the investment securities held by the Underlying Portfolio on its
behalf (and associated liabilities), in redemption of its interest in the
Underlying Portfolio, and those investment securities will be the assets
transferred to the Smith Barney Fund. In exchange for the transfer of those
assets and liabilities, the CitiFund will receive voting shares of the
corresponding class of the Smith Barney Fund. Shares of the Smith Barney Fund
so received will then be distributed to the shareholders of the CitiFund in
complete liquidation of the CitiFund, and the CitiFund would be terminated. As
a result of the Reorganization, each shareholder of each class of the CitiFund
will receive that number of full and fractional shares of the corresponding
class of the Smith Barney Fund having an aggregate net asset value equal to
the aggregate net asset value of the shareholder's shares of the CitiFund held
as of the close of business on the closing date of the Reorganization (the
"Closing Date"). The Closing Date is expected to be October 6, 2000 or such
later date as the parties may agree in writing.
For the reasons described below under "The Proposed Transaction -- Reasons
for the Proposed Transaction," the Board of Trustees of the CitiFunds Trust,
on behalf of the CitiFund, including a majority of the Non-Interested
Trustees, has concluded that the Reorganization is in the best interests of
the CitiFund and its shareholders and that the interests of the existing
shareholders of the CitiFund will not be diluted as a result of the
Reorganization.
Accordingly, the Trustees recommend approval of the Plan. If the Plan is
not approved, the CitiFund will continue in existence unless other action is
taken by the Trustees; such other action may include resubmission of the Plan
to shareholders, or termination and liquidation of the CitiFund.
If the Plan is approved, CitiFund shareholders who do not wish to become
shareholders of the Smith Barney Fund must redeem their shares prior to the
Closing Date.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
GOALS
The goals of the CitiFund are to generate a high level of current income
and preserve the value of its shareholders' investment. The goal of the Smith
Barney Fund is to seek high current return.
PLEASE NOTE THAT ALTHOUGH THE FUNDS' INVESTMENT OBJECTIVES ARE SIMILAR,
THERE ARE DIFFERENCES IN THE FUNDS' INVESTMENT POLICIES AND THE MANNER IN
WHICH THE FUNDS SEEK TO ACHIEVE THEIR GOALS. THESE DIFFERENCES ARE DISCUSSED
IN MORE DETAIL BELOW.
INVESTMENT POLICIES
Debt Securities. Each Fund invests primarily in debt securities. Under
normal circumstances, the CitiFund invests at least 65% of its total assets in
fixed income securities. However, the CitiFund expects that, in general,
substantially all of its assets will be invested in fixed income securities.
Both funds invest in U.S. government securities, such as U.S. Treasury
securities, obligations issued or guaranteed by U.S. government agencies or
instrumentalities and mortgage-related securities. The Smith Barney Fund
invests primarily in U.S. government securities, but also is permitted to
invest in corporate debt obligations. GENERALLY, THE SMITH BARNEY FUND INVESTS
MORE OF ITS ASSETS IN U.S. GOVERNMENT SECURITIES THAN THE CITIFUND.
INVESTMENTS IN SECURITIES OF ISSUERS THAT ARE NOT RELATED TO THE U.S.
GOVERNMENT GENERALLY INVOLVE MORE RISK THAN INVESTMENTS IN U.S. GOVERNMENT
SECURITIES.
The CitiFund invests in a broad range of fixed income securities,
including corporate securities, asset-backed securities, debt securities of
foreign governments and preferred stock of U.S. and foreign companies. Asset-
backed securities are backed by pools of assets such as automobile loans, or
credit card receivables. The CitiFund's debt securities issued by U.S.
companies must be investment grade when the Fund purchases them. Investment
grade securities are those rated Baa3 or better by Moody's Investors Service,
Inc. ("Moody's), BBB- or better by Standard and Poor's Ratings Agency
("Standard & Poor's"), or which the Fund's manager believes to be of
comparable quality.
Both Funds may invest in mortgage-related securities which generally are
backed by mortgage loans. Mortgage-related securities issued by federal
agencies or instrumentalities may be backed by the full faith and credit of
the U.S. Treasury, by the right of the issuer to borrow from the U.S.
government or only by the credit of the issuer itself.
Mortgage Dollar Rolls. Each Fund may invest in mortgage dollar rolls where
the Fund sells a mortgage-related security and simultaneously agrees to
repurchase, at a future date, another mortgage-related security with the same
interest rate and maturity date but generally backed by a different pool of
mortgages. The CitiFund invests only in covered mortgage dollar rolls, meaning
that the Fund establishes a segregated account with liquid high grade debt
securities equal in value to the securities subject to repurchase by the Fund.
Derivative Securities. Each Fund may invest in derivatives, such as
interest rate futures, options on interest rate futures and swaps, to hedge
against adverse changes in the market value of portfolio securities because of
changes in interest rates. Each Fund also may use derivatives for other, non-
hedging purposes, such as using them as substitutes for buying or selling
securities. The CitiFund may use derivatives to manage the maturity or
duration of fixed income securities. Each Fund is subject to certain
limitations imposed by the Commodity Futures Trading Commission with respect
to its investments in derivatives.
Maturity. Neither Fund is subject to restrictions on the maturity of the
Fund's individual securities. However, the CitiFund's average weighted
maturity is normally expected to be from three to ten years.
Zero Coupon Obligations. Each Fund may invest in zero coupon obligations,
which are securities sold at a discount to par value and on which interest
payments are not made during the life of the security. The CitiFund's
investments in zero-coupon obligations are limited to 15% of its total assets
(see "Principal Investments, Risk Factors and Investment Restrictions" below
for more information on the risks of zero coupon obligations).
Defensive Strategies. Each Fund may, from time to time, depart from its
principal investment strategies to attempt to respond to adverse market,
political or economic conditions, by taking temporary defensive positions in
money market and other short-term instruments. A Fund may be unable to achieve
its goals while investing defensively.
Foreign Securities. Each Fund may invest in foreign securities, including
securities of issuers in developing countries. The CitiFund may invest up to
20% of its assets in foreign securities and generally purchases U.S. dollar
denominated foreign securities (see "Principal Investments, Risk Factors and
Investment Restrictions" below for more information on the risks of foreign
securities).
SECURITY SELECTION PROCESS
Fixed Income Securities. In selecting securities to buy for the CitiFund,
Citibank, N.A. ("Citibank"), the CitiFund's investment manager, generally uses
a "top-down" approach when establishing duration and sector allocation and a
"bottom-up" approach when selecting securities to purchase for the CitiFund.
When using a "top-down" approach Citibank looks first at broad economic
factors and market conditions. Securities selection combines fundamental
credit analysis with relative value decisions. Citibank, working from an
approved list of issuers, compares the yield advantage of an issue to other
issues in its peer group. Citibank uses these same approaches when deciding
which securities to sell. Securities are sold when the CitiFund needs cash to
meet redemptions, or when Citibank believes that better opportunities exist or
that the security no longer fits within Citibank's overall strategies for
achieving the Fund's goals.
In selecting fixed income securities for the Smith Barney Fund's
portfolio, the manager focuses on identifying undervalued securities.
Specifically, the manager:
o Monitors the spreads between U.S. Treasury and government agency or
instrumentality issuers and purchases agency and instrumentality issues
that it believes will provide a yield advantage
o Determines sector and maturity weightings based on intermediate and
long-term assessments of the economic environment and relative value
factors based on interest rate outlook
o Uses research to identify sectors of the government and mortgage markets
that are inefficiently priced, and adjusts portfolio positions to take
advantage of new information
o Measures the potential impact of supply/ demand imbalances, yield curve
shifts and changing prepayment patterns to identify individual securities
that balance potential return and risk
Upon consummation of the Reorganization, SSB Citi will analyze and
evaluate the portfolio securities of the CitiFund. Based on the Smith Barney
Fund's investment objectives and policies, federal income tax considerations
and the interests of the Smith Barney Fund's shareholders (including the
former CitiFund shareholders), SSB Citi will determine whether to dispose of
or maintain investments in those securities. For more information, please see
"The Proposed Transaction -- Portfolio Securities" below.
COMPARISON OF INVESTMENT STRUCTURE OF THE CITIFUND AND THE SMITH BARNEY FUND
The CitiFund invests in securities indirectly by investing in U.S. Fixed
Income Portfolio. This Portfolio is referred to above as the Underlying
Portfolio. The Underlying Portfolio is a mutual fund with the same investment
goals and strategies as the CitiFund. The Underlying Portfolio buys, holds and
sells securities in accordance with these goals and policies. Unless otherwise
indicated, references to the CitiFund include the Underlying Portfolio.
The Smith Barney Fund invests directly in securities. This difference in
investment structure is not expected to affect in any material way CitiFunds
shareholders who receive shares of the Smith Barney Fund in the
Reorganization.
INVESTMENT ADVISORY SERVICES AND MANAGEMENT FEES
Citibank, a wholly owned subsidiary of Citigroup Inc., serves as the
investment manager of the CitiFund. SSB Citi Fund Management LLC ("SSB Citi"),
also a wholly owned subsidiary of Citigroup Inc., serves as the investment
manager of the Smith Barney Fund and will continue to serve as the investment
manager of the Smith Barney Fund after the consummation of the Reorganization.
Citigroup businesses provide a broad range of financial services and asset
management, banking and consumer finance, credit and charge cards, insurance,
investments, investment banking and trading and use diverse channels to make
them available to consumer and corporate customers around the world.
The CitiFund pays an aggregate management fee, which is accrued daily and
paid monthly, of up to 0.70% of the CitiFund's average daily net assets on an
annualized basis for the CitiFund's then-current fiscal year. This aggregate
management fee includes fees payable to Citibank for the asset management and
administrative services it provides to the CitiFund and the Underlying
Portfolio.
The management fee for the Smith Barney Fund is calculated at the annual
rate of 0.35% of that Fund's average daily net assets. The Smith Barney Fund
also pays to SSB Citi a fee for its administrative services in the amount of
0.20% of its average daily net assets. Thus, the Smith Barney Fund pays a
smaller percentage of its average daily net assets in advisory and management
fees than the CitiFund does. For a comparison of the total annual operating
expenses of the CitiFund (including the expenses of the Underlying Portfolio)
and Smith Barney Fund, please review the expense tables under "Overall
Expenses" below.
James E. Conroy, investment officer of SSB Citi and managing director of
Salomon Smith Barney, has been responsible for the day-to-day management of
the Smith Barney Fund since its inception in 1984.
OVERALL EXPENSES
After taking into account waivers and reimbursements by service providers
to the CitiFund, the total annual operating expenses for Class A and Class B
shares of the Smith Barney Fund were higher than the total annual operating
expenses of Class A and Class B shares of the CitiFund by 0.03% and 0.01%,
respectively. However, the total annual operating expenses of Class A and
Class B shares of the Smith Barney Fund were lower than those of Class A and
Class B shares of the CitiFund by 0.39% and 0.41%, respectively, if waivers
and reimbursements by the CitiFund's service providers, which can be
terminated at any time, are not taken into account.
Further information about the expenses of each class of the CitiFund and
the Smith Barney Fund for the fiscal years ended October 31, 1999 and December
31, 1999, respectively, and pro forma expenses following the proposed
Reorganization is outlined in the table below.
<TABLE>
<CAPTION>
PRO FORMA
CITIFUNDS SMITH BARNEY SMITH BARNEY
INTERMEDIATE GOVERNMENT GOVERNMENT
INCOME SECURITIES SECURITIES
PORTFOLIO FUND FUND
------------------------ ------------------------ ------------------------
SHARE CLASS CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
----------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM
YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on
Purchases 4.50% None 4.50%(3) None 4.50% None
Maximum Deferred Sales Charge (Load) None(1) 4.50%(2) None(3) 4.50%(2) None(3) 4.50%(2)
ANNUAL FUND OPERATING EXPENSES(4)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
Management Fees 0.70%(5) 0.70%(5) 0.55%(5) 0.55%(5) 0.55%(5) 0.55%(5)
Distribution (12b-1) Fees 0.25% 0.75% 0.25% 0.75% 0.25% 0.75%
Other Expenses (administrative, shareholder
servicing and other expenses) 0.37% 0.37% 0.13% 0.11% 0.13% 0.11%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.32%* 1.82%* 0.93% 1.41% 0.93% 1.41%
----------
* Because some of CitiFunds Intermediate Income Portfolio's expenses were waived or reimbursed, actual total operating
expenses with respect to Class A and B shares for the fiscal year ended October 31, 1999 were 0.90% and 1.40%,
respectively.
(1) Except for investments of $500,000 or more.
(2) Class B shares have a contingent deferred sales charge ("CDSC") which is deducted from your sale proceeds if you sell
your Class B shares within five years of your original purchase of the shares. In the first year after purchase, the CDSC
is 4.50% of the price at which you purchased your shares, or the price at which you sold your shares, whichever is less,
declining to 1.00% in the fifth year after purchase.
(3) You may buy Class A shares in amounts of $500,000 or more at net asset value (without an initial sales charge) but if you
redeem those shares within 12 months of purchase you will pay a deferred sales charge of 1.00%.
(4) CitiFunds Intermediate Income Portfolio invests in securities through an underlying mutual fund, U.S. Fixed Income
Portfolio. This table reflects the expenses of the Fund and the underlying portfolio.
(5) A combined fee for investment advisory and administrative services.
</TABLE>
This example is intended to help you compare the cost of investing in each
of the Funds. The example assumes you invest $10,000 in each Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes your investment has a 5% return each year
and that each Fund's annual operating expenses (before waivers and
reimbursements) remain the same. The expenses of the CitiFund's underlying
fund are reflected in the example. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
Class A $578 $849 $1,141 $1,969
Class B
Assuming redemption at end of period $635 $873 $1,085 $2,006
Assuming no redemption $185 $573 $ 985 $2,006
SMITH BARNEY GOVERNMENT SECURITIES FUND
Class A $541 $733 $ 942 $1,542
Class B
Assuming redemption at end of period $594 $746 $ 871 $1,560
Assuming no redemption $144 $446 $ 771 $1,560
PRO FORMA SMITH BARNEY BALANCED PORTFOLIO
Class A $541 $733 $ 942 $1,542
Class B
Assuming redemption at end of period $594 $746 $ 871 $1,560
Assuming no redemption $144 $446 $ 771 $1,560
</TABLE>
DISTRIBUTION OF SHARES AND OTHER SERVICES
DISTRIBUTOR
The distributor of the Smith Barney Fund is Salomon Smith Barney. A
selling group consisting of Salomon Smith Barney and other broker-dealers
sells shares of the Smith Barney Fund to the public. The distributor of the
CitiFund is CFBDS, Inc.
Both the CitiFund and the Smith Barney Fund have adopted Rule 12b-1
distribution plans for their Class A and B shares. Under the plans, each Fund
pays distribution and service fees. The distribution and service fees for
Class A and Class B shares of the CitiFund and the Smith Barney Fund are the
same. See "Overall Expenses" above for a comparison of the total fees for the
CitiFund and the Smith Barney Fund.
OTHER SERVICE PROVIDERS
As indicated below, the CitiFund and the Smith Barney Fund generally have
different service providers. Upon completion of the Reorganization, the Smith
Barney Fund will continue to engage its existing service providers. The types
of services provided to the Funds under these service arrangements are
generally similar.
<TABLE>
<CAPTION>
SERVICE PROVIDER CITIFUND SMITH BARNEY FUND
---------------- -------- -----------------
<S> <C> <C>
Custodian State Street Bank and Trust Company PNC Bank National Association
Auditors PricewaterhouseCoopers LLP KPMG LLP
Transfer Agent State Street Bank and Trust Company Citi Fiduciary Trust
Company
Sub-Transfer Agent N/A PFPC Global Fund Services
</TABLE>
SALES CHARGES, PURCHASE POLICIES, REDEMPTION AND EXCHANGE INFORMATION
SALES CHARGES
Class A shares of the CitiFund and the Smith Barney Fund are sold at net
asset value plus a front-end sales charge. There will be no sales load charged
to Class A shareholders of the CitiFund when they receive Class A shares of
the Smith Barney Fund in the Reorganization. See "Overall Expenses" for tables
comparing sales charges and other expenses of the Funds.
The front-end sales charge on purchases of Class A shares of the CitiFund
is the same as the front-end sales charge on purchases of Class A shares of
the Smith Barney Fund. You do not pay an initial sales charge when you buy
$500,000 or more of Class A shares of either the CitiFund or the Smith Barney
Fund, but if you redeem these Class A shares within one year of purchase you
will pay a deferred sales charge of 1%. For purposes of determining the one-
year holding period, a CitiFund shareholder will be deemed to have held the
shares of the Smith Barney Fund received in the Reorganization since the date
of the original purchase of shares of the CitiFund.
Class B shares of the CitiFund and Smith Barney Fund are sold without a
front-end sales charge, but shareholders are charged a contingent deferred
sales charge ("CDSC") if they sell their Class B shares within five years
after purchase. For each of the Funds, the rate of the CDSC goes down the
longer you hold your shares. For purposes of determining the holding period, a
CitiFund shareholder will be deemed to have held the shares of the Smith
Barney Fund received in the Reorganization since the date of the original
purchase of shares of the CitiFund (or, if the shares of the CitiFund were
received in an exchange from an earlier purchase, the date of that earlier
purchase). Shareholders of the CitiFund are subject to the same CDSC schedule
as shareholders of the Smith Barney Fund.
After 8 years, Class B shares of each Fund automatically convert into
Class A shares. For each Fund, Class A shares have lower total annual
operating expenses than Class B shares.
The CitiFund and the Smith Barney Fund have established policies,
including rights of accumulation and letter of intent privileges, waiving the
Class A initial sales charge for certain classes of investors under certain
circumstances. Shareholders who wish to make purchases of Class A shares of
the Smith Barney Fund after the Reorganization should review the Prospectus of
the Smith Barney Fund for additional information about these waivers. As
stated above, the Smith Barney Fund will not impose any initial sales charge
on the Class A shares of the Smith Barney Fund that CitiFund shareholders
receive in the Reorganization.
Each Fund has established policies waiving the Class B CDSC for certain
classes of investors under certain circumstances. Class B shareholders should
review the CDSC waiver policies of the Smith Barney Fund to determine whether
a waiver may be applicable when they redeem their Class B shares of the Smith
Barney Fund received in the Reorganization. The CDSC on Class B shares of the
Smith Barney Fund will generally be waived for 12 months following the death
or disability of a shareholder. The CDSC will also be waived on certain
distributions from a retirement plan. You should review the Prospectus and
Statement of Additional Information of the Smith Barney Fund for a more
complete description of the waiver policies that may be applicable. These
policies are generally similar to the waiver policies in effect for the
CitiFund.
PURCHASE POLICIES
You may purchase shares of each Fund at their net asset value, plus any
applicable sales charge, next determined after receipt of your purchase
request in good order. You may purchase shares of the CitiFund from the Fund's
distributor or a broker-dealer or financial institution (called a Service
Agent) that has entered into a sales or service agreement with the distributor
concerning the Fund. You may purchase shares of the Smith Barney Fund from a
Salomon Smith Barney Financial Consultant or an investment dealer in the
selling group or a broker that clears through Salomon Smith Barney (called a
dealer representative). Qualified retirement plans and certain other investors
who are clients of the selling group are eligible to buy shares directly from
the Smith Barney Fund by mailing a request to the Smith Barney Fund's sub-
transfer agent.
The CitiFund does not impose any minimum initial or subsequent investment
requirements but a Service Agent may. The Smith Barney Fund imposes initial
and additional investment amounts which vary depending on the class of shares
bought and the nature of the investment account. Upon consummation of the
Reorganization, CitiFund shareholders will be subject to these minimum amounts
if they wish to purchase additional shares of the Smith Barney Fund. These
minimum initial and additional investment amounts are set forth in the table
below:
MINIMUM MINIMUM
INITIAL ADDITIONAL
SMITH BARNEY FUND INVESTMENT INVESTMENT
----------------- ---------- ----------
General $1,000 $50
IRAs, Self Employed Retirement Plans, Uniform
Gift to Minor Accounts $ 250 $50
Qualified Retirement Plans (under Section
403(b)(7) or Section 401(a) of the Internal
Revenue Code, including 401(k) plans) $ 25 $25
Simple IRAs $ 1 $ 1
Monthly Systematic Investment Plans $ 25 $25
Quarterly Systematic Investment Plans $ 50 $50
REDEMPTIONS
Shares of each Fund are redeemable on any business day at a price equal to
the net asset value of the shares the next time it is calculated after receipt
of your redemption request in good order. The table below compares the
redemption procedures and policies of the CitiFund and the Smith Barney Fund,
which are generally similar.
<TABLE>
<CAPTION>
REDEMPTION PROCEDURES
AND POLICIES CITIFUND SMITH BARNEY FUND
---------------------------- -------------------------------------------- --------------------------------------------
<S> <C> <C>
Through an Appropriate To redeem shares, you may contact the Fund's To redeem shares, you may contact a Salomon
Contact Person transfer agent, or if you hold shares Smith Barney Financial Consultant or dealer
through a Service Agent, your Service Agent. representative, or for accounts held
directly with the Smith Barney Fund, the
sub-transfer agent.
By Mail You may send written redemption requests to For accounts held directly at the Fund, you
the Fund's transfer agent or, if you hold may send written redemption requests to the
your shares through a Service Agent, your sub-transfer agent.
Service Agent.
By Telephone You may make redemption requests by You may be eligible to redeem shares (except
telephone if your application permits. those held in retirement plans) by telephone
in amounts up to $10,000 per day through the
transfer agent.
Systematic Withdrawal Plan You can arrange for automatic withdrawal of You can arrange for the automatic redemption
a specified dollar amount from your account of a portion of your shares on a monthly or
on a regular basis (no more frequently than quarterly basis. To qualify, you must own
monthly). To qualify, you must have at least shares of at least $10,000 ($5,000 for
$10,000 in your account and each withdrawal retirement plan accounts) and each automatic
must be at least $100. If your shares are redemption must be at least $50. If your
subject to a CDSC, you may only withdraw up shares are subject to a CDSC, the sales
to 10% of the value of your account in any charge will be waived if your automatic
year, but you will not be subject to a CDSC payments do not exceed 1% per month of the
on the shares withdrawn under the plan. value of your shares subject to a CDSC.
Automatic Redemptions Your account balance with the Fund may be If your account falls below $500 because of
subject to a $500 minimum. If so, the Fund redemption of Fund shares, the Fund may ask
reserves the right to close your account if you to bring your account up to the minimum
it falls below $500 because of redemptions. requirement. If your account balance is
You will have 60 days to make an additional still below $500 after 60 days, the Fund may
investment. close your account and send you the
redemption proceeds.
</TABLE>
EXCHANGES
Shareholders of the CitiFund may exchange Fund shares for shares of the
same class of certain other CitiFunds, subject to the limitations noted below.
Similarly, shareholders of the Smith Barney Fund may exchange shares for
shares of the same class of certain other Smith Barney funds. A shareholder of
the Smith Barney Fund must meet the minimum investment amount for each Smith
Barney fund (except for systematic exchanges). The CitiFund does not impose
any similar minimum investment amount for exchanges into the CitiFunds, but a
shareholder's Service Agent may.
When you exchange your Class A shares of the CitiFund, you generally are
required to pay the difference, if any, between the sales charge payable on
the shares to be acquired in the exchange and the sales charge paid in
connection with your original purchase of Class A shares. The Class A shares
of the Smith Barney Fund issued in connection with the Reorganization will not
be subject to an initial sales charge at the time of the exchange. CitiFund
shareholders who subsequently exchange the Class A shares of the Smith Barney
Fund received in connection with the Reorganization, however, will be required
to pay the difference, if any, between the sales charge applicable to the
shares to be acquired in the exchange and the sales charge originally paid.
CitiFund shareholders who purchased Fund shares prior to January 4, 1999 will
not have to pay a sales charge when they exchange those shares for shares of a
Smith Barney fund.
For exchanges for both Funds, your deferred sales charge (if any) will
continue to be measured from the date of your original purchase (which, for
CitiFund shareholders, will be deemed to be the date of original purchase of
shares of the CitiFund). For both Funds, if you exchange into another fund
that 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.
Shareholders of the CitiFunds may place exchange orders through the
transfer agent or through their Service Agent, and may place exchange orders
by telephone if their account application permits. Shareholders of the Smith
Barney Fund may place exchange orders through Salomon Smith Barney Financial
Consultants or dealer representatives or through the transfer agent or sub-
transfer agent, and may be eligible to exchange shares by telephone. Until
September 11, 2000, CitiFund shareholders may continue to exchange their
shares of the CitiFund for shares of other CitiFunds, as described above. On
and after that date, CitiFund shareholders may exchange their shares of the
CitiFund only for shares of certain Smith Barney funds, and these exchanges
will be subject to the minimum investment amounts pertaining to the applicable
Smith Barney fund or funds.
DIVIDENDS AND OTHER DISTRIBUTIONS
The CitiFund generally pays substantially all of its net income (if any)
from dividends and interest to its shareholders of record as a dividend
monthly. The Smith Barney Fund generally pays dividends from net investment
income monthly. Each Fund makes capital gains distributions, if any, once a
year, typically in December. For each Fund, capital gain distributions and
dividends are reinvested in additional shares of the same class that you hold,
unless you choose to receive your distributions and dividends in cash. The
Funds pay dividends and distribute capital gains, if any, according to the
following schedule.
<TABLE>
<CAPTION>
INCOME DIVIDEND CAPITAL GAIN
FUND DISTRIBUTIONS DISTRIBUTIONS
---- ------------- -------------
<S> <C> <C>
CitiFunds Intermediate Income Portfolio monthly annually (typically in December)
Smith Barney Government Securities Fund monthly annually (typically in December)
</TABLE>
On or immediately prior to the Closing Date of the Reorganization, the
CitiFund will distribute (in the form of one or more dividends and/or other
distributions) to its shareholders substantially all of its investment company
taxable income and realized net capital gain, if any, for the current taxable
year through the date of such distribution or dividend. Unless otherwise
requested, such distributions or dividends will be reinvested in the manner
described above. Between the Closing Date and the end of its current taxable
year, it is expected that the Smith Barney Fund will make one or more similar
distributions to its shareholders, including the former CitiFund shareholders
who receive shares of the Smith Barney Fund in the Reorganization. Because
such a distribution will generally include income and gains accumulated by the
Smith Barney Fund prior to the Closing Date, the former CitiFund shareholders
receiving such a distribution will effectively receive a return of a portion
of their capital investment in the Smith Barney Fund in the form of a taxable
dividend.
TAX CONSEQUENCES
The CitiFund and the Smith Barney Fund will each receive an opinion of
Bingham Dana LLP in connection with the Reorganization to the effect that,
based upon certain facts, assumptions and representations, (i) the
distribution of investment securities from the Underlying Portfolio in
redemption of the CitiFund's interest in the Underlying Portfolio will not
result in the recognition of gain or loss for federal income tax purposes, and
(ii) the transfer of substantially all of the assets and liabilities of the
CitiFund to the Smith Barney Fund in exchange for voting stock of the Smith
Barney Fund, followed by the distribution of such shares in complete
liquidation of the CitiFund, will constitute a reorganization within the
meaning of section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"). If the Reorganization constitutes such a reorganization, no gain
or loss will be recognized by the CitiFund or its shareholders as a direct
result of the Reorganization. See "The Proposed Transaction -- Federal Income
Tax Consequences."
OTHER MERGER
The Board of Trustees of the Smith Barney Fund has approved an Agreement
and Plan of Reorganization pursuant to which Concert Investment Series
Government Fund, a series of Concert Investment Series, a Massachusetts
business trust, is to merge with and into the Smith Barney Fund. Such other
merger will not be consummated until approved by the shareholders of Concert
Investment Series Government Fund. The consummation of the Reorganization is
in no way dependent upon the consummation of such other merger.
PRINCIPAL INVESTMENTS, RISK FACTORS, AND INVESTMENT RESTRICTIONS
PRINCIPAL INVESTMENTS AND RISK FACTORS
The investment objectives and policies and risk factors of CitiFunds
Intermediate Income Portfolio are, in many respects, similar to those of the
acquiring Smith Barney Government Securities Fund. There are, however, certain
differences. The following discussion summarizes some of the more significant
similarities and differences in the investment policies and risk factors of
each of the CitiFund and the Smith Barney Fund and is qualified in its
entirety by the Prospectuses and Statements of Additional Information of each
of the CitiFund and the Smith Barney Fund incorporated herein by reference.
<TABLE>
<CAPTION>
FUND(s) SUBJECT TO RISK PRINCIPAL INVESTMENT AND ACCOMPANYING RISK FACTOR
----------------------- -------------------------------------------------
<S> <C>
BOTH FUNDS FIXED INCOME SECURITIES:
o The prices of securities may rise or fall due to changing economic, political or
market conditions, or due to an issuer's individual situation. Some securities held by
the CitiFund may be quite volatile, meaning that their prices can change significantly
in a short time.
o Interest rates may increase, causing the prices of fixed income securities to decline,
thereby reducing the value of the Fund's portfolio. A change in interest rates also
could cause a Fund's share price to go down. Longer term obligations are usually more
sensitive to interest rate changes.
o If interest rates decline, the amount of income paid to you by a Fund as dividends may
also decline.
o Some issuers may not make payments on debt securities held by the CitiFund, causing a
loss. Or, an issuer may suffer adverse changes in its financial condition that could
lower the credit quality of a security, leading to greater volatility in the price of
the security and in shares of the Fund. A change in the quality rating of a bond or
other security can also affect the security's liquidity and make it more difficult for
the CitiFund to sell. Lower-quality debt securities are more susceptible to these
problems than higher quality obligations.
o As interest rates decline, the issuers of fixed income securities held by a Fund may
pay principal earlier than scheduled or exercise a right to call the securities,
forcing the Fund to reinvest in lower yielding securities, reducing income to the
Fund, and the Fund may lose any premium paid. A Fund would also lose the benefit of
falling interest rates on the price of the repaid bond. This is known as prepayment or
call risk.
o As interest rates increase, slower than expected principal payment may extend the
average life of fixed income securities, locking in below-market interest rates and
reducing the value of these securities. This effectively lengthens the maturities of
the affected securities, making them more sensitive to interest rate changes and the
Fund's share price more volatile. This is known as extension risk.
o The manager's judgment about interest rates or the attractiveness, value or income
potential of a particular security may prove incorrect.
o Payments of principal and interest on mortgage pools issued by instrumentalities of
the U.S. government are not guaranteed by the U.S. government. Although mortgage pools
issued by U.S. agencies are guaranteed with respect to payments of principal and
interest, this guarantee does not apply to losses resulting from declines in the
market value of these securities. The Smith Barney Fund is particularly susceptible to
this risk.
BOTH FUNDS MORTGAGE DOLLAR ROLLS:
The benefits from mortgage dollar roll transactions depend on the manager's ability to
forecast mortgage prepayment patterns on different mortgage pools. A fund may lose money
if the securities to be repurchased decline in value before the date of repurchase.
BOTH FUNDS ACTIVE AND FREQUENT TRADING:
Each Fund may engage in active and frequent trading, resulting in high portfolio
turnover. This may lead to the realization and distribution to shareholders of higher
capital gains, increasing their tax liability. Frequent trading also increases
transaction costs, which could detract from a Fund's performance.
BOTH FUNDS DERIVATIVES:
SMITH BARNEY FUND -- Each Fund may, but need not, use derivative contracts, such as interest rate futures and
SUBJECT TO CERTAIN LIMITS ON TYPES options on interest rate futures:
AND AMOUNT OF DERIVATIVES
CITIFUND -- SUBJECT TO CERTAIN o To hedge against the economic impact of adverse changes in the market value of
LIMITS ON TYPES OF DERIVATIVES portfolio securities, because of changes in interest rates or exchange rates; or
o As a substitute for buying or selling securities.
A derivative contract will obligate or entitle the Fund to deliver or receive an asset
or cash payment based on the change in value of one or more securities. Even a small
investment in derivative contracts can have a big impact on a Fund's securities market
or interest rate exposure. Therefore, using derivatives can disproportionately increase
losses and reduce opportunities for gains when interest rates or exchange rates are
changing. A Fund may not fully benefit from or may lose money on derivatives if changes
in their value do not correspond accurately to changes in the value of the Fund's
holdings. Losses would cause the Fund's share price to go down. The other parties to
certain derivative contracts present the same types of default risk as issuers of fixed
income securities. Derivatives can also make a Fund less liquid and harder to value,
especially in declining markets.
BOTH FUNDS PORTFOLIO SELECTION:
The success of each Fund's investment strategy depends in large part on the investment
process. The portfolio managers may fail to pick securities that perform well because
they are unableto predict accurately the direction of interest rates or to assess
fundamental changes affecting the credit quality of issuers of other factors. In that
case, you may lose money, or your investment may not do as well as an investment in
another fixed income fund.
BOTH FUNDS FOREIGN SECURITIES:
SMITH BARNEY FUND -- Investments in foreign securities involve risks relating to adverse political, social and
MAY INVEST WITHOUT LIMIT economic developments abroad, as well as risks resulting from the differences between the
regulations to which U.S. and foreign issuers and markets are subject. These risks may
CITIFUND -- MAY INVEST UP TO 20% OF include expropriation of assets, confiscatory taxation, withholding taxes on dividends
ITS ASSETS and interest paid on Fund investments, fluctuations in currency exchange rates, currency
exchange controls and other limitations on the use or transfer of assets by the Fund or
issuers of securities, and political or social instability. There may be rapid changes
in the value of foreign currencies or securities, causing the Fund's share price to be
volatile. Also, in certain circumstances, the Fund could realize reduced or no value in
U.S. dollars from its investments in foreign securities, causing the Fund's share price
to go down.
Each Fund may invest in issuers located in emerging, or developing, markets. All of the
risks of investing in foreign securities are heightened by investing in these markets.
The CitiFund may invest up to 20% of its assets in the securities of foreign issuers.
The CitiFund's investments in non-U.S. obligations are limited to securities rated A or
better and securities which, in the opinion of the Fund's manager, are of comparable
quality to such rated securities. By contrast, the Smith Barney Fund may invest in
foreign securities without limit. The Smith Barney Fund may therefore be subject to
greater risks from foreign securities than the CitiFund.
BOTH FUNDS ZERO COUPON OBLIGATIONS:
SMITH BARNEY FUND -- Each Fund may invest in zero coupon obligations. Zero coupon obligations pay no current
MAY INVEST WITHOUT LIMIT interest. As a result, the prices of zero coupon obligations tend to be more volatile
than those of securities that offer regular payments of interest. This makes the Fund's
CITIFUND -- MAY INVEST UP TO 15% OF net asset value more volatile. In order to pay cash distributions representing income on
ITS ASSETS zero coupon obligations, a Fund may have to sell other securities on unfavorable terms.
These sales may generate taxable gains for Fund shareholders.
The CitiFund may invest up to 15% of its assets in zero coupon obligations, whereas the
Smith Barney Fund is not subject to a similar limit. To the extent that the Smith Barney
Fund invests greater than 15% of its assets in zero coupon obligations, it may be
subject to greater risks from zero coupon securities than the CitiFund.
</TABLE>
The foregoing describes the principal investments and related risks of
each Fund. Each Fund may invest in additional types of investments and may be
subject to additional risk factors that are described in the Statement of
Additional Information of the respective Fund. Certain of these non-principal
investments and related risk factors may differ for each Fund. For example,
the CitiFund may invest in illiquid securities, but the Smith Barney Fund may
not. Certain of these transactions may subject a Fund to greater risk than a
fund that does not participate in these transactions. For a further
description of these investments and related risks, please consult the
Prospectus and Statement of Additional Information of the applicable Fund.
FUNDAMENTAL INVESTMENT RESTRICTIONS
Each Fund has adopted certain fundamental investment restrictions which
may not be changed without the affirmative vote of the holders of a majority
of the outstanding voting securities (as defined in the 1940 Act) of that
Fund. The Smith Barney Fund is subject to fundamental investment restrictions
that, in general, are similar to those of the CitiFund. These fundamental
restrictions prohibit a Fund from investing in a manner which would cause it
to fail to be a diversified investment company under the 1940 Act, from
investing more than 25% of the Fund's total assets in securities of issuers in
the same industry (with certain exceptions), from lending money (with certain
exceptions), from underwriting securities issued by other persons, from
purchasing or selling real estate, commodities or commodity contracts (with
certain exceptions), or investing in oil, gas or mineral leases (with respect
to the CitiFund only; the Smith Barney Fund is subject to a similar, non-
fundamental, restriction), or from issuing "senior securities" (as defined in
the 1940 Act) to the extent prohibited by the 1940 Act. Although these
restrictions are similar, their parameters may be different between the two
Funds.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
In addition to the fundamental restrictions described above, the Smith
Barney Fund is subject to certain non-fundamental restrictions that may be
changed at any time by that Fund's Board of Directors without shareholder
approval. These non-fundamental restrictions provide that the Smith Barney
Fund may not: (1) purchase 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"); (2)
purchase any security if as a result the Fund would then have more than 5% of
its total assets invested in securities of companies (including predecessors)
that have been in continuous operation for fewer than three years; (3) make
investments for the purpose of exercising control or management; (4) invest in
oil, gas or other mineral exploration or development programs (the CitiFund is
subject to a similar fundamental policy); or (5) purchase restricted
securities, illiquid securities or other securities that are not readily
marketable if more than 15% of the total assets of the Fund would be invested
in such securities (the CitiFund is subject to a similar non-fundamental
policy with respect to illiquid securities).
For additional information, you should consult the Prospectus and
Statement of Additional Information of the Smith Barney Fund.
As a result of these differences in fundamental restrictions, the Smith
Barney Fund may be more limited in its ability to engage in certain types of
transactions, except for borrowing, than the CitiFund. However, these
additional fundamental restrictions may also prevent the Smith Barney Fund
from engaging in transactions that would subject the Fund to additional risks.
THE PROPOSED TRANSACTION
DESCRIPTION OF THE PLAN
As described above, the Plan provides that the CitiFund will receive a
distribution of investment securities from the Underlying Portfolio and that,
immediately thereafter, substantially all of the assets and liabilities of the
CitiFund will be transferred to the Smith Barney Fund. In exchange for the
transfer of those assets and liabilities, each class of the CitiFund will
receive voting shares of the corresponding class of the Smith Barney Fund
("Reorganization Shares"). Reorganization Shares of the Smith Barney Fund
received will then be distributed to the shareholders of the CitiFund in
complete liquidation of the CitiFund, and the CitiFund would be terminated.
As a result of the Reorganization, each shareholder of each class of the
CitiFund will receive that number of full and fractional shares of the
corresponding class of the Smith Barney Fund having an aggregate net asset value
equal to the aggregate net asset value of the shareholder's shares of the
CitiFund held on the Closing Date. The Smith Barney Fund will establish an
account for each CitiFund shareholder that will reflect the number and class of
shares of the Smith Barney Fund distributed to that shareholder. The Smith
Barney Fund's shares issued in the Reorganization will be in uncertificated
form.
Until the closing of the Reorganization, shareholders of the CitiFund will,
of course, continue to be able to redeem their shares at the net asset value
next determined after receipt by the CitiFund's transfer agent of a redemption
request in proper form. Redemption requests received by the CitiFund's transfer
agent after the closing of the Reorganization will be treated as requests
received for the redemption of shares of the Smith Barney Fund.
The obligations of the CitiFund and the Smith Barney Fund under the Plan
are subject to various conditions, as stated therein. Among other things, the
Plan requires that all filings be made with, and all authority be received
from, the Securities and Exchange Commission and state securities commissions
as may be necessary in the opinion of counsel to permit the parties to carry
out the transactions contemplated by the Plan. The CitiFund and the Smith
Barney Fund are in the process of making the necessary filings.
To provide against unforeseen events, the Plan may be terminated or
amended prior to the Closing Date by action of the Trustees of the CitiFund or
the Directors of the Smith Barney Fund, notwithstanding the approval of the
Plan by the shareholders of the CitiFund. However, no amendment may be made
that materially adversely affects the interests of the CitiFund shareholders
without obtaining the approval of the CitiFund shareholders. The CitiFund and
the Smith Barney Fund may at any time waive compliance with certain of the
covenants and conditions contained in the Plan.
Citibank and SSB Citi will assume and pay all of the expenses that are
solely and directly related to the Reorganization, which are estimated to be
approximately $106,000. Shareholders have no rights of appraisal.
REASONS FOR THE PROPOSED TRANSACTION
At a meeting of the Board of Trustees of the CitiFunds Trust held on July
13, 2000, the Trustees of the CitiFund, including a majority of the Non-
Interested Trustees, on behalf of the CitiFund, considered materials
discussing the potential benefits to the CitiFund shareholders if the CitiFund
was to reorganize with and into the Smith Barney Fund. For the reasons
discussed below, the Board of Trustees of the CitiFunds Trust, including a
majority of the Non-Interested Trustees, has determined that the proposed
Reorganization is in the best interests of the CitiFund and its shareholders
and that the interests of the CitiFund shareholders will not be diluted as a
result of the proposed Reorganization.
The proposed combination of the CitiFund into the Smith Barney Fund will
allow the shareholders of the CitiFund to continue to participate in a
professionally-managed portfolio governed by similar investment objectives.
The Trustees of the CitiFunds Trust believe that the CitiFund shareholders
will benefit from the proposed Reorganization for the following reasons:
ECONOMIES OF SCALE; FEES AND EXPENSES
SSB Citi and Citibank believe that the combination of funds which have
similar investment objectives and policies into a single larger fund may
increase economic and other efficiencies for investors and may ultimately
result in a lower total annual expense ratio. Some of the fixed expenses
currently paid by the Smith Barney Fund, such as accounting, legal and
printing costs, would be spread over a larger asset base upon the combination
of the CitiFund and Smith Barney Fund. Other things being equal, shareholders
may be expected to benefit from economies of scale through lower expense
ratios and higher net income distributions over time. SSB Citi also believes
that a larger asset base could provide portfolio management benefits such as
greater diversification.
The total annual operating expenses of Class A and Class B shares of the
Smith Barney Fund are lower by 0.39% and 0.41%, respectively, than those of
the CitiFund if waivers and reimbursements by the CitiFund's service
providers, which can be terminated at any time, are not taken into account.
LARGER FAMILY OF FUNDS
The Reorganization offers CitiFund shareholders the opportunity to become
part of a larger and more diverse family of more than 60 mutual funds.
CitiFund shareholders will be able to exchange their shares among most or all
of those Smith Barney funds. In addition, the Reorganization offers CitiFund
shareholders the opportunity to invest in a family of funds that has
demonstrated the ability to attract new investors. Successful marketing and
resulting fund growth, in turn, afford investors the benefits of portfolio
diversification and economies of scale.
Due to a combination of factors, including the benefits described above,
the Board of Trustees of the CitiFunds Trust, on behalf of the CitiFund,
believes that the CitiFund and its shareholders would benefit from a tax-free
reorganization with the Smith Barney Fund. ACCORDINGLY, IT IS RECOMMENDED THAT
THE CITIFUND SHAREHOLDERS APPROVE THE REORGANIZATION WITH THE SMITH BARNEY
FUND.
The Board of Trustees of the CitiFunds Trust, on behalf of the CitiFund,
in recommending the proposed transaction, considered a number of factors,
including the following:
(a) the compatibility of the CitiFund's investment objectives, policies
and restrictions with those of the acquiring Smith Barney Fund;
(b) the benefits to CitiFund shareholders of becoming shareholders of a
larger fund family with a wide array of mutual funds;
(c) the advisory, distribution, and other servicing arrangements of the
Smith Barney Fund;
(d) the tax-free nature of the Reorganization;
(e) the lower total annual expense ratios of the Smith Barney Fund as
compared to the CitiFund before waivers and reimbursements for the
CitiFund;
(f) the terms and conditions of the Reorganization and that it should not
result in a dilution of CitiFund shareholder interests;
(g) the level of costs and expenses to the CitiFund of the proposed
Reorganization; and
(h) a variety of alternatives available to the CitiFund, including
maintaining the status quo or liquidating the CitiFund.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
The CitiFund is a diversified series of the CitiFunds Trust, a business
trust organized under the laws of the Commonwealth of Massachusetts on June
23, 1986, and is registered with the Securities and Exchange Commission as an
open-end management investment company. The Smith Barney Fund is a diversified
series of Smith Barney Investment Funds, Inc., a corporation incorporated
under the laws of the State of Maryland on September 29, 1981, and is
registered with the Securities and Exchange Commission as an open-end
management investment company.
Each Fund currently offers Class A and Class B shares, and the Smith Barney
Fund also offers Class L and Class Y shares. The Smith Barney Fund will offer
Class 1 shares upon the closing of the merger with Concert Investment Series
Government Fund. Each Class of shares represents an identical pro rata interest
in the relevant Fund's investment portfolio. As a result, the Classes of a Fund
have the same rights, privileges and preferences, except with respect to: (a)
the designation of each Class; (b) the amount of the respective sales charges,
if any, for each Class; (c) the distribution and/or service fees borne by each
Class; (d) the expenses allocable exclusively to each Class; (e) voting rights
on matters exclusively affecting a single Class; (f) the exchange privilege of
each Class; and (g) the conversion feature of the Class B Shares.
Each share of each Class of a Fund represents an interest in that Class of
the Fund that is equal to and proportionate with each other share of that
Class of the Fund. Shareholders are entitled to one vote per share (and a
proportionate fractional vote per each fractional share) held on matters on
which they are entitled to vote.
The Funds are not required to hold shareholder meetings annually, although
shareholder meetings may be called for purposes such as electing or removing
Trustees or Directors, as applicable, changing fundamental policies or
approving an investment management contract. Shareholders of each Fund have,
under certain circumstances (e.g., upon the application and submission of
certain specified documents to the Trustees or Directors, as applicable, by a
specified number of shareholders), the right to communicate with other
shareholders in connection with requesting a meeting of shareholders for the
purpose of removing one or more Trustees or Directors, as applicable. CitiFund
shareholders also have under certain circumstances the right to remove one or
more Trustees without a meeting by a declaration in writing by a specified
number of shareholders.
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is conditioned upon the receipt by each of the Smith
Barney Fund and the CitiFund of an opinion from Bingham Dana LLP,
substantially to the effect that, based upon certain facts, assumptions and
representations of the parties, for federal income tax purposes: (i) the
distribution of investment securities from the Underlying Portfolio in
redemption of the CitiFund's interest in the Underlying Portfolio will not
result in recognition of gain or loss by the CitiFund;
(ii) the transfer to the Smith Barney Fund of all or substantially all of the
assets of the CitiFund in exchange solely for Reorganization Shares and the
assumption by the Smith Barney Fund of all of the liabilities of the CitiFund,
followed by the distribution of such Reorganization Shares to the shareholders
of the CitiFund in exchange for their shares of the CitiFund in complete
liquidation of the CitiFund, will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and the Smith Barney Fund and the
CitiFund will each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code; (iii) no gain or loss will be recognized by the
CitiFund upon the transfer of the CitiFund's assets to the Smith Barney Fund
solely in exchange for the Reorganization Shares and the assumption by the
Smith Barney Fund of liabilities of the CitiFund or upon the distribution
(whether actual or constructive) of the Reorganization Shares to the
CitiFund's shareholders in exchange for their shares of the CitiFund; (iv) the
basis of the assets of the CitiFund in the hands of the Smith Barney Fund will
be the same as the basis of such assets in the hands of the CitiFund
immediately prior to the transfer, which will be determined by reference to
the basis of the CitiFund in its interests in the Underlying Portfolio; (v)
the holding period of the assets of the CitiFund in the hands of the Smith
Barney Fund will include the period during which such assets were held by the
CitiFund and the period during which such assets were held by the Underlying
Portfolio; (vi) no gain or loss will be recognized by the Smith Barney Fund
upon the receipt of the assets of the CitiFund solely in exchange for
Reorganization Shares and the assumption by the Smith Barney Fund of all of
the liabilities of the CitiFund; (vii) no gain or loss will be recognized by
the shareholders of the CitiFund upon the receipt of Reorganization Shares
solely in exchange for their shares of the CitiFund as part of the
transaction; (viii) the basis of Reorganization Shares received by the
shareholders of the CitiFund will be, in the aggregate, the same as the basis,
in the aggregate, of the shares of the CitiFund exchanged therefor; and (ix)
the holding period of Reorganization Shares received by the shareholders of
the CitiFund will include the holding period during which the shares of the
CitiFund exchanged therefor were held, provided that at the time of the
exchange the shares of the CitiFund were held as capital assets in the hands
of the shareholders of the CitiFund.
As described above, although the CitiFund will, immediately prior to or on
the Closing Date, distribute substantially all of its investment company taxable
income and net realized capital gain to its shareholders as one or more taxable
dividends, the Smith Barney Fund will not make such a distribution immediately
prior to or on the Closing Date. As a result, when the Smith Barney Fund
subsequently makes a similar distribution or distributions to its shareholders,
including the former CitiFund shareholders who receive Reorganization Shares of
the Smith Barney Fund, those former CitiFund shareholders will effectively be
receiving a return of a portion of their capital investment in the Smith Barney
Fund (on which they may have already paid taxes) in the form of a taxable
dividend.
While the Smith Barney Fund and the CitiFund are not aware of any adverse
state or local tax consequences of the proposed Reorganization, they have not
requested any ruling or opinion with respect to such consequences and
shareholders may wish to consult their own tax adviser with respect to such
matters.
LIQUIDATION AND TERMINATION OF THE CITIFUND
If the Reorganization is effected, the CitiFund will be liquidated and
terminated, and the Fund's outstanding shares will be cancelled.
PORTFOLIO SECURITIES
If the Reorganization is effected, the CitiFund will redeem its interest in
the Underlying Portfolio and will receive its proportionate share of the
portfolio securities of the Underlying Portfolio. The CitiFund will then
transfer these portfolio securities to the Smith Barney Fund. If the
Reorganization is effected, SSB Citi will analyze and evaluate the portfolio
securities of the CitiFund being transferred to the Smith Barney Fund.
Consistent with the Smith Barney Fund's investment objectives and policies, any
restrictions imposed by the Code and the best interests of the Smith Barney
Fund's shareholders (including former shareholders of the CitiFund), SSB Citi
will determine whether to maintain an investment in these portfolio securities.
Subject to market conditions, the disposition of portfolio securities may result
in a capital gain or loss. The actual tax consequences of any disposition of
portfolio securities will vary depending upon the specific securities being
sold.
PORTFOLIO TURNOVER
The portfolio turnover rate for the CitiFund and for the Underlying
Portfolio was 253% for the year ended October 31, 1999. The portfolio turnover
rate for the Smith Barney Fund as of its fiscal year ended December 31, 1999 was
161%. Active and frequent trading may result in the realization and distribution
to a Fund of higher capital gains, which could increase the tax liability for
the Fund's shareholders. Frequent trading also increases transaction costs,
which could detract from a Fund's performance.
PRO FORMA CAPITALIZATION
Because the CitiFund will be combined in the Reorganization of the
CitiFund with the Smith Barney Fund, the total capitalization of the Smith
Barney Fund after such Reorganization is expected to be greater than the
current capitalization of the CitiFund. The following table sets forth as of
June 30, 2000: (a) the capitalization of each of the CitiFund and the Smith
Barney Fund, and (b) the pro forma capitalization of the Smith Barney Fund as
adjusted to give effect to the Reorganization proposed with respect to the
Smith Barney Fund. If the Reorganization is consummated, the capitalization of
the CitiFund and the Smith Barney Fund is likely to be different at the
effective time of their Reorganization as a result of daily share purchase and
redemption activity.
Additionally, as noted above, the Board of Trustees of the Smith Barney
Fund has approved an Agreement and Plan of Reorganization pursuant to which
Concert Investment Series Government Fund, a series of Concert Investment
Series, is to merge with and into the Smith Barney Fund. Such other merger
will not be consummated until approved by the shareholders of Concert
Investment Series Government Fund. Although the consummation of the
Reorganization is in no way dependent upon the consummation of such other
merger, the table below includes the effects of the potential consummation of
such other merger.
<TABLE>
<CAPTION>
NET ASSET
TOTAL SHARES VALUE
NET ASSETS OUTSTANDING PER SHARE
---------- ----------- ---------
<S> <C> <C> <C>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
Class A $ 38,653,438 4,211,626 $9.18
Class B $ 1,685,554 183,225 $9.20
Class 1 N/A N/A N/A
CONCERT INVESTMENT SERIES GOVERNMENT FUND
Class A $ 19,279,947 2,007,327 $9.60
Class B $ 14,504,159 1,506,227 $9.63
Class 1* $131,224,333 13,623,918 $9.63
SMITH BARNEY GOVERNMENT SECURITIES FUND
Class A $269,993,291 29,755,825 $9.07
Class B $ 50,297,784 5,538,032 $9.08
Class 1 N/A N/A $9.07
PRO FORMA SMITH BARNEY GOVERNMENT SECURITIES FUND
Class A $327,926,676 36,143,188 $9.07
Class B $ 66,487,497 7,321,040 $9.08
Class 1* $131,224,333 14,467,953 $9.07
----------
* Assumes subscriptions of Class 1 shares in the Smith Barney Fund at Class A net asset value.
</TABLE>
PERFORMANCE
Performance shown below is as of December 31, 1999, and is based on
historical earnings and is not predictive of future performance. Performance
reflects reinvestment of dividends and other earnings. Performance also
reflects the highest sales charge applicable to each class of shares. For more
information about the applicable sales charges and other fund expenses, please
refer to "Overall Expenses" above.
<TABLE>
<CAPTION>
CITIFUNDS SMITH BARNEY
INTERMEDIATE INCOME PORTFOLIO GOVERNMENT SECURITIES FUND
(AS OF DECEMBER 31, 1999) (AS OF DECEMBER 31, 1999)
------------------------------------------ ---------------------------------------------
CLASS A CLASS B CLASS A CLASS B
------- ------- ------- -------
<S> <C> <C> <C> <C>
One Year (6.77)% (7.12)%(1) (9.24)% (9.42)%
Five Years 5.58% N/A 4.97% 5.25%
Ten Years N/A N/A N/A 6.20%
Life of Fund(2) 4.00% (7.12)% 4.90% 7.27%
Best Quarter(3) 6.49% (6/30/95) N/A 5.19% (9/30/98) 6.36% (9/30/91)
Worst Quarter(3) (3.21)% (3/31/94) N/A (2.89)% (3/31/96) (3.62)% (3/31/92)
----------
(1) Class B shares of the CitiFund were first offered on January 4, 1999.
(2) 6/25/93 for Class A shares of the CitiFund; 1/4/99 for Class B shares of the CitiFund; 11/6/92 for Class A shares of the Smith
Barney Fund; and 3/ 20/84 for Class B shares of the Smith Barney Fund.
(3) Best and Worst Quarter information does not include applicable sales charges. Were such charges included, the performance
figures would be lower. Additionally, such information is shown only for Class A shares of the CitiFund.
</TABLE>
VOTING INFORMATION
GENERAL INFORMATION
The Board of Trustees of the CitiFunds Trust, on behalf of the CitiFund,
is furnishing this combined Proxy Statement/Prospectus in connection with the
solicitation of proxies for a Special Meeting of Shareholders of the CitiFund
at which shareholders will be asked to consider and approve the proposed Plan.
It is expected that the solicitation of proxies will be primarily by mail.
Officers and service contractors of the CitiFund and the Smith Barney Fund may
also solicit proxies by telephone or otherwise. Shareholder Communications,
Inc. has been retained to assist in the solicitation of proxies, at a cost of
approximately $13,000. Shareholders may vote (1) by mail, by marking, signing,
dating and returning the enclosed proxy ballot(s) in the enclosed postage-paid
envelope or via facsimile, (2) by touch-tone voting over the telephone, or (3)
by voting via the internet. Any shareholder of the CitiFund giving a proxy has
the power to revoke it by submitting a written notice of revocation to the
CitiFund or by attending the Special Meeting and voting in person. All
properly executed proxies received in time for the Special Meeting will be
voted as specified in the proxy or, if no specification is made, in favor of
the proposals referred to in the Proxy Statement.
In cases where CitiFund shareholders have purchased their shares through
Service Agents, these Service Agents are the shareholders of record of the
CitiFund. At the Special Meeting, a Service Agent may, except as prohibited by
law, vote any shares of which it is the holder of record and for which it does
not receive voting instructions proportionately in accordance with the
instructions it receives for all other shares of which that Service Agent is
the holder of record.
QUORUM; VOTE REQUIRED TO APPROVE PROPOSAL
The holders of a majority of the outstanding shares entitled to vote of
the CitiFund present in person or by proxy shall constitute a quorum at any
meeting of shareholders for the transaction of business by the CitiFund. If
the quorum necessary to transact business or the vote required to approve the
Plan is not obtained at the Special Meeting, the persons named as proxies may
propose one or more adjournments of the Special Meeting in accordance with
applicable law to permit further solicitation of proxies. Any such adjournment
as to a matter will require the affirmative vote of the holders of a majority
of the CitiFund's shares present in person or by proxy at the Special Meeting.
The persons named as proxies will vote in favor of such adjournment those
proxies which they are entitled to vote in favor of that proposal and will
vote against any such adjournment those proxies to be voted against that
proposal.
For purposes of determining the presence of a quorum for transacting
business at the Special Meeting, abstentions and broker "non-votes" will be
treated as shares that are present but which have not been voted. Broker non-
votes are proxies received by the CitiFund from brokers or nominees when the
broker or nominee has neither received instructions from the beneficial owner
or other persons entitled to vote nor has discretionary power to vote on a
particular matter. Accordingly, shareholders are urged to forward their voting
instructions promptly.
The Plan must be approved by the vote of (a) 67% or more of the voting
securities of the Fund present at the Special Meeting, if the holders of more
than 50% of the outstanding voting securities of the CitiFund are present or
represented by proxy; or (b) more than 50% of the outstanding voting
securities of the CitiFund, whichever is less. Abstentions and broker non-
votes will have the effect of a "no" vote on the proposal to approve the Plan.
OUTSTANDING SHAREHOLDERS
Holders of record of the shares of the CitiFund at the close of business
on August 11, 2000 (the "Record Date"), as to any matter on which they are
entitled to vote, will be entitled to one vote per share on all business of
the Special Meeting. As of August 11, 2000, there were 4,002,586.633
outstanding Class A shares and 176,716.232 outstanding Class B shares entitled
to vote.
Listed below are the name, address and share ownership of each person
known to the CitiFund to own 5% or more of any class of shares of the CitiFund
as of August 11, 2000. The table also indicates the percentage of the Smith
Barney Fund's shares to be owned by such persons upon consummation of the
Reorganization on the basis of present holdings and commitments. The type of
ownership of each person listed below is record ownership.
PRO FORMA
PERCENTAGE
PERCENTAGE OWNERSHIP POST-
NAME AND ADDRESS OWNERSHIP REORGANIZATION
---------------- --------- --------------
Class A
Fiserv Securities, Inc. 95.42% 11.36%
Attn: Mutual Funds Dept.
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, Pa. 19103-7084
Class B
Fiserv Securities, Inc. 99.94% 3.31%
Attn: Mutual Funds Dept.
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, Pa. 19103-7084
Listed below are the name, address and share ownership of each person
known to the Smith Barney Fund to own 5% or more of any class of shares of the
Smith Barney Fund as of August 11, 2000. The table also indicates the
percentage of the Smith Barney Fund's shares to be owned by such persons upon
consummation of the Reorganization on the basis of present holdings and
commitments. The type of ownership of each person listed below is record
ownership.
PRO FORMA
PERCENTAGE
PERCENTAGE OWNERSHIP POST-
NAME AND ADDRESS OWNERSHIP REORGANIZATION
---------------- --------- --------------
Class Y
Smith Barney Concert Series, Inc.* 42.70% 42.70%
Growth Portfolio
PNC Bank, N.A.
Attn: Beverly Timson
200 Stevens Drive North, Suite 440
Lester, PA 19113-1522
(Maryland corporation)
Smith Barney Concert Series, Inc.* 22.12% 22.12%
Balanced Portfolio
PNC Bank, N.A.
Attn: Beverly Timson
200 Stevens Drive North, Suite 440
Lester, PA 19113-1522
(Maryland corporation)
Smith Barney Concert Series, Inc. 12.25% 12.25%
Select Growth Portfolio
PNC Bank, N.A.
Attn: Beverly Timson
200 Stevens Drive North, Suite 440
Lester, PA 19113-1522
Smith Barney Concert Series, Inc. 9.70% 9.70%
Select Balanced Portfolio
PNC Bank, N.A.
Attn: Beverly Timson
200 Stevens Drive North, Suite 440
Lester, PA 19113-1522
Smith Barney Concert Series, Inc. 5.65% 5.65%
Conservative Portfolio
PNC Bank, N.A.
Attn: Beverly Timson
200 Stevens Drive North, Suite 440
Lester, PA 19113-1522
* Shareholders beneficially owning more than 25% of the voting securities of a
Fund may be presumed to control that Fund.
As of August 11, 2000, the officers and Trustees of the CitiFund as a
group owned less than 1% of any class of the CitiFund's outstanding shares. As
of August 11, 2000, the officers and Directors of the Smith Barney Fund as a
group owned less than 1% of any class of the Smith Barney Fund's outstanding
shares.
ADDITIONAL INFORMATION ABOUT THE FUNDS
As noted above, additional information about the CitiFund, the Smith
Barney Fund and the Reorganization has been filed with the Securities and
Exchange Commission and may be obtained without charge by writing or calling
the CitiFund, 21 Milk Street, 5th Floor, Boston, Massachusetts 02109,
telephone number (617) 423-1679, or the Smith Barney Fund, 388 Greenwich
Street, New York, New York 10013, telephone number (800) 451-2010. Information
included in this Proxy Statement/Prospectus concerning the CitiFund was
provided by the CitiFunds Trust, on behalf of the CitiFund, and information
concerning the Smith Barney Fund was provided by Smith Barney Investment Funds
Inc., on behalf of the Smith Barney Fund.
Each Fund files reports, proxy materials and other information about the
applicable Fund with the Securities and Exchange Commission. Such reports,
proxy material and other information can be inspected and copied at the Public
Reference Room maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material can also be obtained from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington D.C.
20549 at prescribed rates or without charge from the Commission at
[email protected].
OTHER MATTERS
No Trustee is aware of any matters that will be presented for action at
the Special Meeting other than the matters set forth herein. Should any other
matters requiring a vote of shareholders arise, the proxy in the accompanying
form will confer upon the person or persons entitled to vote the shares
represented by such proxy the discretionary authority to vote the shares as to
any such other matters in accordance with their best judgment in the interest
of the CitiFund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(s) PROMPTLY. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. YOU MAY ALSO CAST YOUR
VOTE VIA THE INTERNET, BY TELEPHONE OR BY FACSIMILE.
<PAGE>
EXHIBIT A
FORM OF AGREEMENT AND
PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this day of , 2000, between CitiFunds(SM) Fixed Income Trust, a
Massachusetts business trust with its principal place of business at 21 Milk
Street, Boston, Massachusetts 02109 (the "CitiFund Trust"), on behalf of its
series, CitiFunds Intermediate Income Portfolio (the "CitiFund"), and Smith
Barney Investment Funds Inc., a Maryland corporation with its principal place
of business at 388 Greenwich Street, New York, New York 10013 (the
"Corporation"), on behalf of its series, Smith Barney Government Securities
Fund (the "Smith Barney Fund," and together with the CitiFund, the "Funds"),
and, solely for purposes of Section 10.2 below, Citibank, N.A., a national
banking association ("Citibank"), and SSB Citi Fund Management LLC, a Delaware
limited liability company ("SSB Citi").
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), with respect to the CitiFund and the
Smith Barney Fund, with which the CitiFund will reorganize, as provided herein.
The reorganization will consist of the transfer of substantially all of the
assets of the CitiFund to the Corporation, on behalf of the Smith Barney Fund,
in exchange solely for voting shares of the corresponding classes of shares of
beneficial interest ($0.001 par value per share) of the Smith Barney Fund (the
"Smith Barney Fund Shares"), the assumption by the Corporation, on behalf of the
Smith Barney Fund, of all of the liabilities of the CitiFund and the
distribution of the Smith Barney Fund Shares to the shareholders of the CitiFund
in complete liquidation of the CitiFund as provided herein, all upon the terms
and conditions hereinafter set forth in this Agreement (collectively, the
"Reorganization").
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE CITIFUND TO THE SMITH BARNEY FUND IN EXCHANGE
FOR SMITH BARNEY FUND SHARES, THE ASSUMPTION OF ALL CITIFUND LIABILITIES
AND THE LIQUIDATION OF THE CITIFUND
1.1. Subject to the terms and conditions herein set forth and on the
basis of the representations and warranties contained herein, the CitiFund
Trust, on behalf of the CitiFund, agrees to transfer to the Smith Barney Fund
substantially all of the CitiFund's assets as set forth in section 1.2, and
the Corporation, on behalf of the Smith Barney Fund, agrees in exchange
therefor (i) to deliver to the CitiFund that number of full and fractional
Class A and Class B Smith Barney Fund Shares determined by dividing the value
of the CitiFund's net assets allocated to each class, computed in the manner
and as of the time and date set forth in section 2.1, by the net asset value
of one Smith Barney Fund Share of the applicable class, computed in the manner
and as of the time and date set forth in section 2.2; and (ii) to assume all
of the liabilities of the CitiFund, as set forth in section 1.3. Such
transactions shall take place at the closing provided for in section 3.1 (the
"Closing").
1.2. The assets of the CitiFund to be acquired by the Smith Barney Fund
(collectively, "Assets") shall consist of all property and assets of every
kind and nature of the CitiFund, including, without limitation, all cash, cash
equivalents, securities, commodities, futures, claims (whether absolute or
contingent, known or unknown), receivables (including dividend, interest and
other receivables), good will and other intangible property, any deferred or
prepaid expenses, and all interests, rights, privileges and powers, other than
cash in an amount necessary to pay dividends and distributions as provided in
section 1.4 hereof and the CitiFund's rights under this Agreement.
1.3. The Smith Barney Fund shall assume all liabilities of the CitiFund,
whether accrued or contingent, existing at the Valuation Time as defined in
section 2.1. The CitiFund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date as defined in section
3.1, other than those liabilities and obligations which would otherwise be
discharged at a later date in the ordinary course of business.
1.4. On or as soon as practicable prior to the Closing Date, the CitiFund
will declare and pay to its shareholders of record one or more dividends and/
or other distributions so that it will have distributed substantially all of
its investment company taxable income (computed without regard to any
deduction for dividends paid) and realized net capital gain, if any, for the
current taxable year through the Closing Date.
1.5. Immediately after the transfer of its assets provided for in section
1.1, the CitiFund will distribute to its shareholders of record (the "CitiFund
Shareholders"), determined as of the Valuation Time as defined in section 2.1,
on a pro rata basis, the Smith Barney Fund Shares received by the CitiFund
pursuant to section 1.1 and will completely liquidate. Such distribution and
liquidation will be accomplished by the transfer of the Smith Barney Fund
Shares then credited to the account of the CitiFund on the books of the Smith
Barney Fund to open accounts on the share records of the Smith Barney Fund in
the names of the CitiFund Shareholders. The aggregate net asset value of each
class of Smith Barney Fund Shares to be so credited to CitiFund Shareholders
shall be equal to the aggregate net asset value of the corresponding class of
shares of the CitiFund (the "CitiFund Shares") owned by such shareholders as
of the Valuation Time. All issued and outstanding shares of the CitiFund will
simultaneously be cancelled on the books of the CitiFund. The Smith Barney
Fund will not issue certificates representing Smith Barney Fund Shares in
connection with such exchange.
1.6. Ownership of Smith Barney Fund Shares will be shown on the Smith
Barney Fund's books. Shares of the Smith Barney Fund will be issued in the
manner described in the Smith Barney Fund's then-current prospectus and
statement of additional information.
1.7. Any reporting responsibility of the CitiFund, including, without
limitation, the responsibility for filing of regulatory reports, tax returns
or other documents with the Securities and Exchange Commission (the
"Commission"), any state securities commission, and any federal, state or
local tax authorities or any other relevant regulatory authority, is and shall
remain the responsibility of the CitiFund.
1.8. All books and records of the CitiFund, including all books and
records required to be maintained under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules and regulations thereunder, shall be
available to the Smith Barney Fund from and after the Closing Date and shall
be turned over to the Smith Barney Fund as soon as practicable following the
Closing Date.
2. VALUATION
2.1. The value of the net assets of each class of the CitiFund shall be
computed as of the close of regular trading on the New York Stock Exchange,
Inc. ("NYSE") on the Closing Date (such time and date also being hereinafter
called the "Valuation Time"), after the declaration and payment of any
dividends and/or other distributions on that date, using the valuation
procedures described in the Smith Barney Fund's then-current prospectus and
statement of additional information.
2.2. The net asset value of a Class A Smith Barney Fund Share shall be
the net asset value of a Class A share of the Smith Barney Fund computed as of
the Valuation Time using the valuation procedures set forth in the Smith
Barney Fund's then-current prospectus and statement of additional information.
The net asset value of a Class B Smith Barney Fund Share shall be the net
asset value of a Class B share of the Smith Barney Fund computed as of the
Valuation Time using the valuation procedures set forth in the Smith Barney
Fund's then-current prospectus and statement of additional information.
2.3. The number of Class A and Class B Smith Barney Fund Shares to be
issued (including fractional shares, if any) in exchange for the Assets of the
CitiFund, less the value of the liabilities of the CitiFund assumed, shall be
determined by dividing the value of the Assets allocated to each class of the
CitiFund less the value of the liabilities allocated to that class of the
CitiFund as determined in accordance with section 2.1, by the net asset value
of a Smith Barney Fund Share of the corresponding class determined in
accordance with section 2.2.
2.4. All computations of value hereunder shall be made by or under the
direction of each Fund's investment adviser in accordance with its regular
practice and the requirements of the 1940 Act, and shall be subject to
confirmation by each Fund's Board of Trustees or Directors and independent
accountants.
3. CLOSING AND CLOSING DATE
3.1. The Closing of the Reorganization contemplated by this Agreement
shall be October 6, 2000, or such earlier or later date as the parties may
agree in writing (the "Closing Date"). All acts taking place at the Closing
shall be deemed to take place simultaneously as of 4:00 P.M., Eastern time, on
the Closing Date, unless otherwise agreed to by the parties. The Closing shall
be held at the offices of Bingham Dana LLP, 399 Park Avenue, New York, New
York, or at such other place and time as the parties may agree.
3.2. The CitiFund Trust shall furnish to the Corporation a statement of
the CitiFund's net assets, together with a list of portfolio holdings with
values as determined in section 2.1, all as of the Valuation Time, certified
by the CitiFund Trust's President (or any Vice President) and Treasurer (or
any Assistant Treasurer).
3.3. State Street Bank and Trust Company ("State Street"), as custodian for
the CitiFund, shall deliver at the Closing a certificate of an authorized
officer stating that (a) the Assets of the CitiFund have been delivered in
proper form to PNC Bank, National Association ("PNC Bank"), custodian for the
Smith Barney Fund, prior to or on the Closing Date and (b) all necessary taxes
in connection with the delivery of such Assets, including all applicable federal
and state stock transfer stamps, if any, have been paid or provision for payment
has been made. The CitiFund's portfolio securities represented by a certificate
or other written instrument shall be presented by State Street to PNC Bank for
examination no later than five business days preceding the Closing Date and
transferred and delivered by the CitiFund as of the Closing Date for the account
of the Smith Barney Fund duly endorsed in proper form for transfer in such
condition as to constitute good delivery thereof. The CitiFund's portfolio
securities and instruments deposited with a securities depository, as defined in
Rule 17f-4 under the 1940 Act, shall be delivered as of the Closing Date by book
entry in accordance with the customary practices of such depositories and State
Street. The cash to be transferred by the CitiFund shall be delivered by wire
transfer of federal funds on the Closing Date.
3.4. State Street, as transfer agent of the CitiFund, on behalf of the
CitiFund, shall deliver at the Closing a certificate of an authorized officer
stating that its records contain the names and addresses of the CitiFund
Shareholders and the number and percentage ownership (to three decimal places)
of outstanding CitiFund Shares of each class owned by each such shareholder
immediately prior to the Closing. The Smith Barney Fund shall issue and
deliver a confirmation evidencing the Smith Barney Fund Shares of each class
to be credited on the Closing Date to the CitiFund or provide evidence
satisfactory to the CitiFund that such Smith Barney Fund Shares have been
credited to the CitiFund's account on the books of the Smith Barney Fund.
3.5. In the event that immediately prior to the Valuation Time (a) the
NYSE or another primary trading market for portfolio securities of the Smith
Barney Fund or the CitiFund shall be closed to trading or trading thereupon
shall be restricted, or (b) trading or the reporting of trading on the NYSE or
elsewhere shall be disrupted so that, in the judgment of the Board of Trustees
of the CitiFund Trust or the Board of Directors of the Corporation, accurate
appraisal of the value of the net assets with respect to the Smith Barney Fund
Shares or the CitiFund Shares is impracticable, the Closing Date shall be
postponed until the first business day after the day when trading shall have
been fully resumed and reporting shall have been restored.
3.6. At the Closing, each party shall deliver to the other such bills of
sale, checks, assumption agreements, assignments, share certificates, if any,
receipts or other documents as such other party or its counsel may reasonably
request to effect the transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1. The CitiFund Trust, on behalf of itself and the CitiFund, represents
and warrants to the Corporation and the Smith Barney Fund as follows:
(a) The CitiFund Trust is a business trust duly established and
validly existing under the laws of the Commonwealth of Massachusetts with
power under its Declaration of Trust to own all of its properties and
assets and to carry on its business as it is now being conducted. The
CitiFund has been duly established as a series of the CitiFund Trust;
(b) The CitiFund Trust is registered with the Commission as an open-
end management investment company under the 1940 Act, and such
registration is in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the CitiFund
Trust, on behalf of the CitiFund, of the transactions contemplated herein,
except such as may be required under the Securities Act of 1933, as
amended (the "1933 Act"), the Securities Exchange Act of 1934 (the "1934
Act"), the 1940 Act, and state securities laws;
(d) Other than with respect to contracts entered into in connection
with the portfolio management of the CitiFund which shall terminate on or
prior to the Closing Date, the CitiFund is not, and the execution,
delivery and performance of this Agreement by the CitiFund Trust on behalf
of the CitiFund will not result, in violation of Massachusetts law or of
the CitiFund Trust's Declaration of Trust or By-Laws, or of any material
agreement, indenture, instrument, contract, lease or other undertaking
known to counsel to which the CitiFund is a party or by which it is bound,
and the execution, delivery and performance of this Agreement by the
CitiFund Trust on behalf of the CitiFund will not result in the
acceleration of any obligation, or the imposition of any penalty, under
any agreement, indenture, instrument, contract, lease, judgment or decree
to which the CitiFund is a party or by which it is bound;
(e) To the CitiFund Trust's knowledge, there is no material litigation
or administrative proceeding or investigation of or before any court or
governmental body presently pending or threatened against the CitiFund or
any properties or assets held by it. The CitiFund Trust knows of no facts
which might form the basis for the institution of such proceedings or
which would materially and adversely affect its business or the business
of the CitiFund, and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which
materially and adversely affects its or the CitiFund's business or its or
the CitiFund's ability to consummate the transactions herein contemplated;
(f) The financial statements of the CitiFund at and for the year ended
October 31, 1999 have been audited by PricewaterhouseCoopers LLP,
independent certified public accountants, and are in accordance with
generally accepted accounting principles ("GAAP") consistently applied.
The financial statements of the CitiFund at and for the six-month period
ended April 30, 2000, which are unaudited, are in accordance with GAAP
consistently applied. All of such statements (copies of which have been
furnished to the Smith Barney Fund) present fairly, in all material
respects, the financial position, results of operations, changes in net
assets and financial highlights of the CitiFund as of the dates thereof in
accordance with GAAP, and there are no known contingent liabilities of the
CitiFund required to be reflected on a statement of assets and liabilities
(including the notes thereto) in accordance with GAAP as of such dates not
disclosed therein;
(g) Since April 30, 2000, there has not been any material adverse
change in the CitiFund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by the CitiFund of indebtedness maturing more than one
year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by the Smith Barney Fund. For
purposes of this subsection (g), a decline in net asset value per share of
the CitiFund due to declines in market values of securities in the
CitiFund's portfolio, the discharge of CitiFund liabilities, or the
redemption of CitiFund Shares by CitiFund Shareholders shall not
constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the CitiFund required by law to have been filed
by such dates (including any extensions) have or shall have been filed and
are or will be correct in all material respects, and all federal and other
taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the
payment thereof, and, to the best of the CitiFund Trust's knowledge, no
such return is currently under audit and no assessment has been asserted
with respect to such returns;
(i) For each taxable year of its operation, the CitiFund has met the
requirements of Subchapter M of the Code for qualification as a regulated
investment company and has elected to be treated as such, and has been
eligible to and has computed its federal income tax under Section 852 of
the Code. At Closing, the CitiFund will have distributed all of its
investment company taxable income and net capital gain (as defined in the
Code) that has accrued up to the Closing Date;
(j) All issued and outstanding shares of the CitiFund (i) have been
offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the
1933 Act and state securities laws, (ii) are, and on the Closing Date will
be, duly and validly issued and outstanding, fully paid and non-
assessable, and (iii) will be held at the time of the Closing by the
persons and in the amounts set forth in the records of the CitiFund's
transfer agent, as provided in section 3.3. There are no outstanding
options, warrants or other rights to subscribe for or purchase any
CitiFund Shares, nor is there outstanding any security convertible into
any CitiFund Share;
(k) At the Closing Date, the CitiFund Trust, on behalf of the
CitiFund, will have good and marketable title to the CitiFund's Assets and
full right, power and authority to sell, assign, transfer and deliver such
Assets hereunder free of any liens or other encumbrances, except those
liens or encumbrances as to which Corporation, on behalf of the Smith
Barney Fund, has received notice at or prior to the Closing, and upon
delivery and payment for such Assets, the Smith Barney Fund will acquire
good and marketable title thereto, subject to no restrictions on the full
transfer thereof, except those restrictions as to which the Smith Barney
Fund has received notice and necessary documentation at or prior to the
Closing;
(l) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary
action on the part of the Trustees of the CitiFund Trust, and, subject to
the approval of the CitiFund Shareholders, this Agreement constitutes a
valid and binding obligation of the CitiFund Trust, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and other laws
relating to or affecting creditors" rights and to general principles of
equity;
(m) The information to be furnished by the CitiFund Trust for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the National Association of
Securities Dealers, Inc.), which may be necessary or appropriate in
connection with the transactions contemplated hereby, shall be accurate
and complete in all material respects and shall comply in all material
respects with federal securities and other laws and regulations applicable
thereto;
(n) The current prospectus and statement of additional information of
the CitiFund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder, and do not include any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not materially
misleading; and
(o) The proxy statement of the CitiFund to be included in the
Registration Statement referred to in section 5.6 (the "Proxy Statement"),
insofar as it relates to the CitiFund, will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements are made, not materially
misleading; provided, however, that the representations and warranties in
this section shall not apply to statements in or omissions from the Proxy
Statement and the Registration Statement made in reliance upon and in
conformity with information that was furnished or should have been
furnished by the Corporation for use therein.
4.2. The Corporation, on behalf of itself and the Smith Barney Fund,
represents and warrants to the CitiFund Trust and the CitiFund as follows:
(a) The Corporation is a corporation duly formed and validly existing
under the laws of the State of Maryland with power under its Articles of
Incorporation to own all of its properties and assets and to carry on its
business as it is now being conducted. The Smith Barney Fund has been duly
established as a series of the Corporation;
(b) The Corporation is registered with the Commission as an open-end
management investment company under the 1940 Act, and such registration is
in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the
Corporation, on behalf of the Smith Barney Fund, of the transactions
contemplated herein, except such as may be required under the 1933 Act,
the 1934 Act, the 1940 Act, and state securities laws;
(d) The Smith Barney Fund is not, and the execution, delivery and
performance of this Agreement by the Corporation on behalf of the Smith
Barney Fund will not result, in violation of Maryland law or of the
Corporation's Articles of Incorporation or By-Laws, or of any material
agreement, indenture, instrument, contract, lease or other undertaking
known to counsel to which the Smith Barney Fund is a party or by which it
is bound, and the execution, delivery and performance of this Agreement by
the Corporation on behalf of the Smith Barney Fund will not result in the
acceleration of any obligation, or the imposition of any penalty, under
any agreement, indenture, instrument, contract, lease, judgment or decree
to which the Smith Barney Fund is a party or by which it is bound;
(e) To the Corporation's knowledge, there is no material litigation or
administrative proceeding or investigation of or before any court or
governmental body presently pending or threatened against the Smith Barney
Fund or any properties or assets held by it. The Corporation knows of no
facts which might form the basis for the institution of such proceedings
or which would materially and adversely affect its business or the
business of the Smith Barney Fund, and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects its or the Smith Barney Fund's
business or its or the Smith Barney Fund's ability to consummate the
transactions herein contemplated;
(f) The financial statements of the Smith Barney Fund at and for the
year ended December 31, 1999 have been audited by KPMG LLP, independent
certified public accountants, and are in accordance with GAAP consistently
applied. All such statements (copies of which have been furnished to the
CitiFund) present fairly, in all material respects, the financial
position, results of operations, changes in net assets and financial
highlights of the Smith Barney Fund as of such date in accordance with
GAAP, and there are no known contingent liabilities of the Smith Barney
Fund required to be reflected on a statement of assets and liabilities
(including the notes thereto) in accordance with GAAP as of such date not
disclosed therein;
(g) Since December 31, 1999, there has not been any material adverse
change in the Smith Barney Fund's financial condition, assets, liabilities
or business other than changes occurring in the ordinary course of
business, or any incurrence by the Smith Barney Fund of indebtedness
maturing more than one year from the date such indebtedness was incurred
except as otherwise disclosed to and accepted in writing by the CitiFund.
For purposes of this subsection (g), a decline in net asset value per
share of the Smith Barney Fund due to declines in market values of
securities in the Smith Barney Fund's portfolio, the discharge of Smith
Barney Fund liabilities, or the redemption of Smith Barney Fund Shares by
Smith Barney Fund Shareholders shall not constitute a material adverse
change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Smith Barney Fund required by law to have
been filed by such dates (including any extensions) have or shall have
been filed and are or will be correct in all material respects, and all
federal and other taxes shown as due or required to be shown as due on
said returns and reports shall have been paid or provision shall have been
made for the payment thereof, and, to the best of the Corporation's
knowledge, no such return is currently under audit and no assessment has
been asserted with respect to such returns;
(i) For each taxable year of its operation, the Smith Barney Fund has
met the requirements of Subchapter M of the Code for qualification as a
regulated investment company and has elected to be treated as such, has
been eligible to and has computed its federal income tax under Section 852
of the Code, and will do so for the taxable year including the Closing
Date. At Closing, the Smith Barney Fund will have distributed all of its
investment company taxable income and net capital gain (as defined in the
Code) that has accrued up to the Closing Date;
(j) All issued and outstanding shares of the Smith Barney Fund (i)
have been offered and sold in every state and the District of Columbia in
compliance in all material respects with applicable registration
requirements of the 1933 Act and state securities laws, and (ii) are, and
on the Closing Date will be, duly and validly issued and outstanding,
fully paid and non-assessable. There are no outstanding options, warrants
or other rights to subscribe for or purchase any Smith Barney Fund Shares,
nor is there outstanding any security convertible into any Smith Barney
Fund Share. The Smith Barney Fund Shares to be issued and delivered to the
CitiFund for the account of the CitiFund Shareholders pursuant to the
terms of this Agreement, at the Closing Date, will have been duly
authorized and, when so issued and delivered, will be duly and validly
issued and outstanding Smith Barney Fund Shares, and will be fully paid
and non-assessable;
(k) At the Closing Date, the Corporation, on behalf of the Smith
Barney Fund, will have good and marketable title to the Smith Barney
Fund's assets, free of any liens or other encumbrances, except those liens
or encumbrances as to which the CitiFund Trust, on behalf of the CitiFund,
has received notice at or prior to the Closing;
(l) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary
action on the part of the Directors of the Corporation, and this Agreement
will constitute a valid and binding obligation of the Corporation,
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and other laws relating to or affecting creditors' rights and to general
principles of equity;
(m) The information to be furnished by the Corporation for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the National Association of
Securities Dealers, Inc.), which may be necessary or appropriate in
connection with the transactions contemplated hereby, shall be accurate
and complete in all material respects and shall comply in all material
respects with federal securities and other laws and regulations applicable
thereto;
(n) The current prospectus and statement of additional information of
the Smith Barney Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder, and do not include any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not materially
misleading; and
(o) The Proxy Statement, insofar as it relates to the Smith Barney
Fund, and the Registration Statement will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not materially
misleading; provided, however, that the representations and warranties in
this section shall not apply to statements in or omissions from the Proxy
Statement and the Registration Statement made in reliance upon and in
conformity with information that was furnished or should have been
furnished by the CitiFund Trust for use therein.
5. COVENANTS
5.1. Each Fund covenants to operate its business in the ordinary course
between the date hereof and the Closing Date, it being understood that (a)
such ordinary course of business will include (i) the declaration and payment
of customary dividends and other distributions and
(ii) such changes as are contemplated by the Funds' normal operations; and (b)
each Fund shall retain exclusive control of the composition of its portfolio
until the Closing Date.
5.2. Upon reasonable notice, the Smith Barney Fund's officers and agents
shall have reasonable access to the CitiFund's books and records necessary to
maintain current knowledge of the CitiFund and to ensure that the
representations and warranties made by the CitiFund are accurate.
5.3. The CitiFund Trust and the CitiFund covenant to call a meeting of
the shareholders of the CitiFund to consider and act upon this Agreement and
to take all other reasonable action necessary to obtain approval of the
transactions contemplated herein. Such meeting shall be scheduled for no later
than October 2, 2000 (or such other date as the parties may agree to in
writing).
5.4. The CitiFund Trust and the CitiFund covenant that the Smith Barney
Fund Shares to be issued hereunder are not being acquired for the purpose of
making any distribution thereof other than in accordance with the terms of
this Agreement.
5.5. Subject to the provisions of this Agreement, the parties hereto will
each take, or cause to be taken, all actions, and do or cause to be done, all
things reasonably necessary, proper, and/or advisable to consummate and make
effective the transactions contemplated by this Agreement.
5.6. The Corporation will file a Registration Statement on Form N-14 (the
"Registration Statement") under the 1933 Act, and the CitiFund Trust will file
the Proxy Statement contained therein, in connection with the meeting of
CitiFund Shareholders to consider approval of this Agreement and the
transactions contemplated herein, with the Commission as promptly as
practicable. The CitiFund Trust and the CitiFund will provide the Smith Barney
Fund with information relating to it that is required by the 1933 Act, the
1934 Act and the 1940 Act to be included in the Registration Statement,
including the Proxy Statement.
5.7. Each of the CitiFund Trust and the CitiFund covenants that it will,
from time to time, as and when reasonably requested by the Corporation,
execute and deliver or cause to be executed and delivered all such assignments
and other instruments, and will take or cause to be taken such further action,
as the Corporation may reasonably deem necessary or desirable in order to vest
in and confirm the Corporation's title to and possession of the Assets and
otherwise to carry out the intent and purpose of this Agreement.
5.8. Each of the Corporation and the Smith Barney Fund covenants that it
will, from time to time, as and when reasonably requested by the CitiFund
Trust, execute and deliver or cause to be executed and delivered all such
assignments, assumption agreements, releases and other instruments, and will
take or cause to be taken such further action, as the CitiFund Trust may
reasonably deem necessary or desirable in order to (i) vest and confirm the
CitiFund Trust's title to and possession of all Smith Barney Fund Shares to be
transferred to the CitiFund pursuant to this Agreement and (ii) assume the
assumed liabilities of the CitiFund.
5.9. The CitiFund Trust, the Corporation and each Fund covenant to use
all reasonable efforts to obtain the approvals and authorizations required by
the 1933 Act, the 1940 Act and such of the state securities laws as it deems
appropriate in order to consummate the transactions contemplated herein and,
in the case of the Smith Barney Fund, to continue its operations after the
Closing Date.
5.10. As soon as reasonably practicable after the Closing, the CitiFund
shall make a liquidating distribution to its shareholders consisting of the
Smith Barney Fund Shares received at the Closing.
5.11. Each of the Smith Barney Fund and the CitiFund shall use its
reasonable best efforts to fulfill or obtain the fulfillment of the conditions
precedent to effect the transactions contemplated by this Agreement as
promptly as practicable.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE CITIFUND TRUST
The obligations of the CitiFund Trust and the CitiFund to consummate the
transactions provided for herein shall be subject, at the CitiFund Trust's
election, to the performance by the Corporation and the Smith Barney Fund of
all the obligations to be performed by them hereunder on or before the Closing
Date, and, in addition thereto, the following further conditions:
6.1. All representations and warranties of the Corporation, on behalf of
itself and the Smith Barney Fund, contained in this Agreement shall be true
and correct in all material respects as of the date hereof and as of the
Closing Date, with the same force and effect as if made on and as of the
Closing Date; and there shall be (i) no pending or threatened litigation
brought by any person against the Corporation or the Smith Barney Fund, the
CitiFund Trust or the CitiFund, or the advisers, trustees or officers of any
of the foregoing, arising out of this Agreement and (ii) no facts known to the
CitiFund Trust or the CitiFund, or the Corporation or the Smith Barney Fund,
which any of such persons reasonably believes might result in such litigation.
6.2. The Corporation shall have delivered to the CitiFund Trust on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the CitiFund Trust and dated
as of the Closing Date, to the effect that the representations and warranties
of the Corporation and the Smith Barney Fund made in this Agreement are true
and correct on and as of the Closing Date and as to such other matters as the
CitiFund Trust shall reasonably request.
6.3. The CitiFund Trust shall have received on the Closing Date an
opinion of Willkie Farr & Gallagher, in a form reasonably satisfactory to the
CitiFund Trust, and dated as of the Closing Date, to the effect that:
(a) the Corporation has been duly formed and is a validly existing
Maryland corporation, and the Smith Barney Fund has been duly established
as a series of the Corporation;
(b) the Corporation, with respect to the Smith Barney Fund, has the
power as a Maryland corporation to carry on its business as presently
conducted in accordance with the description thereof in the Smith Barney
Corporation's registration statement under the 1940 Act;
(c) the Agreement has been duly authorized, executed and delivered by
the Corporation, and constitutes a valid and legally binding obligation of
the Corporation, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium,
marshaling, or other laws and rules of law affecting the enforcement
generally of creditors' rights and remedies (including such as may deny
giving effect to waivers of debtors' or guarantors' rights), and
considerations of public policy.
(d) the execution and delivery of the Agreement did not, and the
exchange of the CitiFund's assets for Smith Barney Fund Shares pursuant to
the Agreement will not, violate the Corporation's Articles of
Incorporation or By-laws; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by
the Corporation under the Federal laws of the United States or the laws of
the State of Maryland for the exchange of the CitiFund's assets for Smith
Barney Fund Shares pursuant to the Agreement have been obtained or made.
Such opinion may state that it is solely for the benefit of the CitiFund
Trust, its Trustees and its officers, and counsel may rely as to matters
governed by the laws of the State of Maryland on an opinion of Maryland
counsel. Such opinion also shall include such other matters incident to the
transaction contemplated hereby as the CitiFund Trust may reasonably request.
6.4. The Corporation and the Smith Barney Fund shall have performed all
of the covenants and complied with all of the provisions required by this
Agreement to be performed or complied with by them on or before the Closing
Date.
6.5. The Corporation, on behalf of the Smith Barney Fund, shall have
executed and delivered an assumption agreement in form reasonably satisfactory
to the CitiFund Trust pursuant to which the Corporation, on behalf of the
Smith Barney Fund, will assume all of the liabilities of the CitiFund existing
at the Valuation Time.
6.6. An endorsement to the CitiFund Trust's existing errors and omissions
and directors and officers liability insurance policy, or other evidence of
insurance, satisfactory in all respects to the CitiFund Trust's Board of
Trustees shall have been obtained at no cost to the CitiFund Trust or the
CitiFund and shall be in full force and effect.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE CORPORATION
The obligations of the Corporation and the Smith Barney Fund to consummate
the transactions provided for herein shall be subject, at the Corporation's
election, to the performance by the CitiFund Trust and the CitiFund of all of
the obligations to be performed by them hereunder on or before the Closing
Date and, in addition thereto, the following further conditions:
7.1. All representations and warranties of the CitiFund Trust, on behalf
of itself and the CitiFund, contained in this Agreement shall be true and
correct in all material respects as of the date hereof and as of the Closing
Date, with the same force and effect as if made on and as of the Closing Date;
and there shall be (i) no pending or threatened litigation brought by any
person against the CitiFund Trust or the CitiFund, the Corporation or the
Smith Barney Fund, or the advisers, trustees or officers of any of the
foregoing, arising out of this Agreement and (ii) no facts known to the
Corporation or the Smith Barney Fund, or the CitiFund Trust or the CitiFund,
which any of such persons reasonably believes might result in such litigation.
7.2. The CitiFund Trust shall have delivered to the Corporation the
statements of net assets described in section 3.2.
7.3. The CitiFund Trust shall have delivered to the Corporation on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Corporation and dated as
of the Closing Date, to the effect that the representations and warranties of
the CitiFund Trust and the CitiFund made in this Agreement are true and
correct on and as of the Closing Date and as to such other matters as the
Corporation shall reasonably request.
7.4. The Corporation shall have received on the Closing Date an opinion
of Bingham Dana LLP, in a form reasonably satisfactory to the Corporation, and
dated as of the Closing Date, to the effect that:
(a) The CitiFund Trust has been duly established as a voluntary
association with transferable shares of beneficial interest commonly
referred to as a Massachusetts business trust and is existing under the
laws of the Commonwealth of Massachusetts, and the CitiFund has been duly
designated as a series of the CitiFund Trust;
(b) The CitiFund Trust, with respect to the CitiFund, has the power as
a Massachusetts business trust to carry on its business as presently
conducted in accordance with the description thereof in the CitiFund
Trust's registration statement under the 1940 Act;
(c) the Agreement has been duly authorized, executed and delivered by
the CitiFund Trust, and constitutes a valid and legally binding obligation
of the CitiFund Trust, enforceable in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium, marshaling, or other laws and rules of law affecting the
enforcement generally of creditors' rights and remedies (including such as
may deny giving effect to waivers of debtors' or guarantors' rights), and
considerations of public policy.
(d) the execution and delivery of the Agreement did not, and the
exchange of the CitiFund's assets for Smith Barney Fund Shares pursuant to
the Agreement will not, violate the CitiFund Trust's Declaration of Trust
or By-laws; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by
the CitiFund Trust under the Federal laws of the United States or the laws
of the Commonwealth of Massachusetts for the exchange of the CitiFund's
assets for Smith Barney Fund Shares pursuant to the Agreement have been
obtained or made.
Such opinion may state that it is solely for the benefit of the Corporation,
its Directors and its officers. Such opinion also shall include such other
matters incident to the transaction contemplated hereby as the Corporation may
reasonably request.
7.5. The CitiFund Trust and the CitiFund shall have performed all of the
covenants and complied with all of the provisions required by this Agreement
to be performed or complied with by them on or before the Closing Date.
8. FURTHER CONDITIONS PRECEDENT
If any of the conditions set forth below have not been met on or before
the Closing Date, either party to this Agreement shall, at its option, not be
required to consummate the Reorganization of the Funds contemplated by this
Agreement.
8.1. This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares
of the CitiFund in accordance with the provisions of the CitiFund Trust's
Declaration of Trust and By-Laws, applicable Massachusetts law and the 1940
Act, and certified copies of the resolutions evidencing such approval shall
have been delivered to the Smith Barney Fund. Notwithstanding anything herein
to the contrary, neither party may waive the condition set forth in this
section 8.1.
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or to either party's knowledge threatened before any court or
governmental agency in which it is sought to restrain or prohibit, or obtain
material damages or other relief in connection with, this Agreement or the
transactions contemplated herein.
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Corporation and the Smith Barney Fund or the CitiFund Trust and the
CitiFund to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to obtain
any such consent, order or permit would not involve a risk of a material
adverse effect on the assets or properties of the Smith Barney Fund or the
CitiFund.
8.4. The Registration Statement shall have become effective under the
1933 Act and applicable Blue Sky provisions, and no stop orders suspending the
effectiveness thereof shall have been issued and, to the best knowledge of the
parties hereto, no investigation or proceeding for that purpose shall have
been instituted or be pending, threatened or contemplated under the 1933 Act.
8.5. The CitiFund Trust and the Corporation shall have received an order
from the Commission exempting the Reorganizations from the provisions of
Section 17(a) of the 1940 Act or a "no-action" letter from the staff of the
Commission to the effect that the staff will not recommend that the Commission
take enforcement action under Section 17(a) of the 1940 Act if the parties
hereto proceed with the transactions described herein.
8.6. The parties shall have received an opinion of Bingham Dana LLP
addressed to the CitiFund Trust, the CitiFund, the Corporation and the Smith
Barney Fund substantially to the effect that, based upon certain facts,
assumptions and representations, for Federal income tax purposes:
(i) the distribution of investment securities from the underlying mutual fund
(the "Underlying Portfolio") in which the CitiFund invests all of its
investable assets in redemption of the CitiFund's interest in the Underlying
Portfolio will not result in the recognition of gain or loss by the CitiFund;
(ii) the transfer to the Smith Barney Fund of all or substantially all of the
assets of the CitiFund in exchange solely for Smith Barney Fund Shares and the
assumption by the Smith Barney Fund of all of the liabilities of the CitiFund,
followed by the distribution of the Smith Barney Fund Shares to CitiFund
Shareholders in exchange for their shares of the CitiFund in complete
liquidation of the CitiFund, will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and the Smith Barney Fund and the
CitiFund each will be "a party to a reorganization" within the meaning of
Section 368(b) of the Code; (iii) no gain or loss will be recognized by the
CitiFund upon the transfer of the CitiFund's assets to the Smith Barney Fund
solely in exchange for the Smith Barney Fund Shares and the assumption by the
Smith Barney Fund of liabilities of the CitiFund or upon the distribution
(whether actual or constructive) of the Smith Barney Fund Shares to the
CitiFund's shareholders in exchange for their shares of the CitiFund; (iv) the
basis of the assets of the CitiFund in the hands of the Smith Barney Fund will
be the same as the basis of such assets in the hands of the CitiFund
immediately prior to the transfer, which will be determined by reference to
the basis of the CitiFund in its interest in the Underlying Portfolio; (v) the
holding period of the assets of the CitiFund in the hands of the Smith Barney
Fund will include the period during which such assets were held by the
CitiFund and the period during which such assets were held by the Underlying
Portfolio; (vi) no gain or loss will be recognized by the Smith Barney Fund
upon the receipt of the assets of the CitiFund solely in exchange for Smith
Barney Fund Shares and the assumption by the Smith Barney Fund of all of the
liabilities of the CitiFund; (vii) no gain or loss will be recognized by the
shareholders of the CitiFund upon the receipt of Smith Barney Fund Shares
solely in exchange for their shares of the CitiFund as part of the
transaction; (viii) the basis of Smith Barney Fund Shares received by the
shareholders of the CitiFund will be, in the aggregate, the same as the basis,
in the aggregate, of the shares of the CitiFund exchanged therefor; and (ix)
the holding period of Smith Barney Fund Shares received by the shareholders of
the CitiFund will include the holding period during which the shares of the
CitiFund exchanged therefor were held, provided that at the time of the
exchange the shares of the CitiFund were held as capital assets in the hands
of the shareholders of the CitiFund. The delivery of such opinion is
conditioned upon receipt by Bingham Dana LLP of representations it shall
request of each Fund. Notwithstanding anything herein to the contrary, neither
party may waive the condition set forth in this section 8.6.
9. INDEMNIFICATION
9.1. The Corporation agrees to indemnify and hold harmless the CitiFund
Trust, its Trustees and its officers from and against any and all losses,
claims, damages, liabilities or expenses (including, without limitation, the
payment of reasonable legal fees and reasonable costs of investigation) to
which any such indemnified party may become subject, insofar as any such loss,
claim, damage, liability or expense (or actions with respect thereto) arises
out of or is based on any breach by the Corporation or the Smith Barney Fund
of any of its representations, warranties, covenants or agreements set forth
in this Agreement.
9.2. The CitiFund Trust agrees to indemnify and hold harmless the
Corporation, its Directors and its officers from and against any and all
losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which any such indemnified party may become subject, insofar
as any such loss, claim, damage, liability or expense (or actions with respect
thereto) arises out of or is based on any breach by the CitiFund Trust or the
CitiFund of any of its representations, warranties, covenants or agreements
set forth in this Agreement.
10. FEES AND EXPENSES
10.1. The Corporation and the CitiFund Trust each represents and warrants
to the other that it has no obligations to pay any brokers or finders fees in
connection with the transactions provided for herein.
10.2. Expenses of the Reorganization will be borne equally by Citibank
and SSB Citi.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1. The parties agree that neither party has made any representation,
warranty or covenant not set forth herein and that this Agreement constitutes
the entire agreement between the parties.
11.2. Except as specified in the next sentence set forth in this section
11.2, the representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall not survive the consummation of the transactions contemplated
hereunder.
The covenants to be performed after the Closing and the obligations of
each of the CitiFunds Trust, on behalf of the CitiFund, and the Corporation,
on behalf of the Smith Barney Fund, in sections 9.1 and 9.2 shall survive the
Closing.
12. TERMINATION
This Agreement may be terminated and the transactions contemplated hereby
may be abandoned by either party by (i) mutual agreement of the parties, (ii)
by either party if the Closing shall not have occurred on or before January 1,
2001, unless such date is extended by mutual agreement of the parties, or
(iii) by either party if the other party shall have materially breached its
obligations under this Agreement or made a material and intentional
misrepresentation herein or in connection herewith. In the event of any such
termination, this Agreement shall become void and there shall be no liability
hereunder on the part of any party or their respective trustees or officers,
except for any such material breach or intentional misrepresentation, as to
each of which all remedies at law or in equity of the party adversely affected
shall survive.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the
CitiFund Trust and the Corporation; provided, however, that following the
meeting of CitiFund Shareholders called by the CitiFund pursuant to section
5.3 of this Agreement, no such amendment may have the effect of reducing the
number of the Smith Barney Fund Shares to be issued to the shareholders of the
CitiFund under this Agreement to the detriment of such shareholders without
their further approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provision of this Agreement shall be in writing and shall be deemed duly given
if delivered by hand (including by Federal Express or similar express courier)
or transmitted by facsimile or three days after being mailed by prepaid
registered or certified mail, return receipt requested, addressed to the
CitiFund Trust or the CitiFund, c/o CitiFunds Fixed Income Trust, 21 Milk
Street, 5th Floor, Boston, Massachusetts 02109, with a copy to Bingham Dana LLP,
150 Federal Street, Boston, Massachusetts 02110, Attention: Roger P. Joseph,
Esq., or to the Corporation or the Smith Barney Fund, c/o Smith Barney
Investment Funds Inc., 388 Greenwich Street, New York, New York 10013, with a
copy to Willkie Farr & Gallagher, 787 Seventh Avenue, New York, N.Y. 10019-6099,
Attn.: Burton M. Leibert, Esq., or to any other address that the CitiFund Trust
or the Corporation shall have last designated by notice to the other party.
15. HEADINGS; COUNTERPARTS; ASSIGNMENT; LIMITATION OF LIABILITY
15.1. The Article and section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.2. This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
15.3. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any
person, firm or corporation (including the shareholders of any Fund) any
rights or remedies under or by reason of this Agreement, other than the
parties hereto and their successor and permitted assigns. Nothing in this
section is intended to limit the rights of shareholders of the CitiFund Trust
to maintain derivative actions with respect to this Agreement, subject to and
in accordance with applicable law.
15.4. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the Commonwealth of Massachusetts, without regard
to its principles of conflicts of laws.
15.5. The CitiFund Trust is a business trust organized under
Massachusetts law and under a Declaration of Trust, to which reference is
hereby made and a copy of which, with amendments, is on file with the
Secretary of the Commonwealth of Massachusetts and elsewhere as required by
law. It is expressly acknowledged and agreed that the obligations of CitiFunds
Fixed Income Trust entered into in the name or on behalf of the CitiFund Trust
by any of its Trustees, officers, employees or agents are not made
individually, but in such capacities, that the CitiFund Trust's obligations
under this Agreement bind only that portion of the trust estate consisting of
assets of the CitiFund and not any Trustee, officer, employee, agent or
shareholder individually, and that any liability of the CitiFund Trust under
this Agreement or in connection with the transactions contemplated herein
shall be discharged only out of the assets of the CitiFund.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by its President or Vice President and attested by its
Secretary or Assistant Secretary.
Attest: CITIFUNDS FIXED INCOME TRUST
on behalf of CitiFunds Intermediate
Income Portfolio
By: -----------------------------------
Name:
Title:
Attest: SMITH BARNEY INVESTMENT FUNDS INC.
on behalf of Smith Barney Government
Securities Fund
By: -----------------------------------
Name:
Title:
Solely for purposes of Section 10.2:
CITIBANK, N.A.
By: -----------------------------------------
Name:
Title:
SSB CITI FUND MANAGEMENT LLC
By: -----------------------------------------
Name:
Title:
<PAGE>
Pursuant to Rule 497(b) File Nos. 333-41500 811-3275
PART B
STATEMENT OF ADDITIONAL INFORMATION
RELATING TO THE ACQUISITION BY
SMITH BARNEY GOVERNMENT SECURITIES FUND (THE "SMITH BARNEY FUND"), A
SERIES OF SMITH BARNEY INVESTMENT FUNDS INC. (THE "CORPORATION")
388 Greenwich Street
New York, New York 10013
(800) 451-2010
OF THE ASSETS OF
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO (THE "CITIFUND"), A
SERIES OF CITIFUNDS FIXED INCOME TRUST (THE "CITIFUNDS TRUST").
21 Milk Street, 5th Floor
Boston, Massachusetts 02109
(617) 423-1679
Dated: August 16, 2000
This Statement of Additional Information is not a prospectus. A Proxy
Statement/ Prospectus, dated August 16, 2000, relating to the above-referenced
matter may be obtained without charge by calling or writing the Smith Barney
Fund at the telephone number or address set forth above. This Statement of
Additional Information should be read in conjunction with the Proxy
Statement/Prospectus. Each of the following documents accompanies this
Statement of Additional Information and is incorporated herein by reference:
1. Statement of Additional Information for the Smith Barney Fund, dated
April 28, 2000.
2. Statement of Additional Information for the CitiFund, dated March 1,
2000.
3. Annual Report of the Smith Barney Fund for the year ended December
31, 1999.
4. Annual Report of the CitiFund for the year ended October 31, 1999
and Semi-Annual Report of the CitiFund for the six-month period
ended April 30, 2000.
TABLE OF CONTENTS
Page
General Information 2
Pro Forma Financial Statements 2
<PAGE>
GENERAL INFORMATION
This Statement of Additional Information relates to the proposed transfer
of substantially all of the assets and liabilities of the CitiFund to the
Corproation, on behalf of the Smith Barney Fund, in exchange for shares of the
corresponding class of the Smith Barney Fund (the "Reorganization"). The shares
issued by the Smith Barney Fund will have an aggregate net asset value equal to
the aggregate net asset value of the shares of the CitiFund that were
outstanding immediately before the effective time of the Reorganization.
After the transfer of substantially all of its assets and liabilities in
exchange for the Smith Barney Fund shares, the CitiFund will distribute such
shares to its shareholders in liquidation of the CitiFund. Each shareholder
owning shares of the CitiFund at the effective time of the Reorganization will
receive shares of the corresponding class from the Smith Barney Fund of equal
value, and will receive any unpaid dividends or distributions that were
declared before the effective time of the Reorganization on shares of the
CitiFund. The Smith Barney Fund will establish an account for each former
shareholder of the CitiFund reflecting the appropriate number of shares
distributed to such shareholder. These accounts will be substantially identical
to the accounts maintained by the CitiFund for each shareholder. Upon
completion of the Reorganization with respect to the CitiFund, all outstanding
shares of the CitiFund will have been redeemed and cancelled in exchange for
shares distributed by the Smith Barney Fund, and the CitiFund will wind up its
affairs and be terminated as a series of the CitiFunds Trust under
Massachusetts law.
For further information about the transaction, see the Combined Proxy
Statement/ Prospectus.
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
The following unaudited PRO FORMA information gives effect to the
proposed transfer of substantially all of the assets and liabilities of the
CitiFund and Concert Investment Series Government Fund to the Smith Barney Fund
as if such transfer had occurred as of April 30, 2000. In addition, the
pro forma combined statements have been prepared based upon the fee and expense
structure of the Smith Barney Fund. The PRO FORMA financial information should
be read in conjunction with the historical financial statements and notes
thereto of the CitiFund and the Smith Barney Fund incorporated herein by
reference in this Statement of Additional Information. The proposed transfer of
the assets and liabilities of the CitiFund to the Smith Barney Fund will be
accounted for as a tax-free reorganization.
<PAGE>
<TABLE>
<CAPTION>
CONCERT
INVESTMENT CITIFUNDS PRO FORMA
SMITH BARNEY SERIES INTERMEDIATE SMITH BARNEY
GOVERNMENT GOVERNMENT INCOME GOVERNMENT
SECURITIES FUND PORTFOLIO ADJUSTMENTS SECURITIES
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES ------------ ------------ ------------ ------------ ------------
(UNAUDITED) AS OF AS OF AS OF
4/30/00 4/30/00 4/30/00
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value $610,913,166 $169,272,131 $ 48,791,162 $ -- $828,976,459
Cash 912 75,180 -- -- 76,092
Dividends & interest receivable 2,957,853 830,220 -- -- 3,788,073
Receivable for Fund shares sold 817,824 6,182 6,001 -- 830,007
Receivable from Sub-administrator -- -- 60,396 -- 60,396
Other assets -- 83,359 -- -- 83,359
------------ ------------ ------------ ------------ ------------
TOTAL ASSETS $614,689,755 $170,267,072 $ 48,857,559 $ -- $833,814,386
------------ ------------ ------------ ------------ ------------
LIABILITIES:
Allocation of assets and liabilities of Hub (net) -- -- 6,132,873 -- 6,132,873
Payable for Fund shares redeemed -- -- 68,520 -- 68,520
Payable for securities purchased -- 200 -- -- 200
Trustees retirement plan -- 88,194 -- -- 88,194
Management fees payable 268,100 99,807 -- -- 367,907
Distribution costs payable 260,822 24,081 -- -- 284,903
Dividend payable 3,040,134 867,336 22,591 -- 3,930,061
Accrued expenses and other liabilities 77,394 251,866 59,322 -- 388,582
------------ ------------ ------------ ------------ ------------
TOTAL LIABILITIES 3,646,450 1,331,484 6,283,306 -- 11,261,240
------------ ------------ ------------ ------------ ------------
NET ASSETS $611,043,305 $168,935,588 $ 42,574,253 $ -- $822,533,146
============ ============ ============ ============ ============
NET ASSETS:
Par value of capital shares 67,860 176,700 -- -- $ 244,560
Capital paid in excess of par value 710,405,672 217,072,459 49,624,363 -- 977,102,494
Undistributed net investment income (loss) 861,552 626,760 143,118 -- 1,631,430
Accumulated net realized gain (loss) (100,191,141) (48,757,423) (5,449,486) -- (154,398,050)
Net unrealized appreciation of investments (100,638) (182,908) (1,743,742) -- (2,027,288)
------------ ------------ ------------ ------------ ------------
NET ASSETS $611,043,305 $168,935,588 $ 42,574,253 $ -- $822,533,146
============ ============ ============ ============ ============
OUTSTANDING SHARES:
-------------------
CLASS A 30,250,188 2,098,195 4,468,938 6,747,645 36,997,833
============ ============ ============ ============
CLASS B 6,111,045 1,513,046 206,477 1,814,634 7,925,679
============ ============ ============ ============
CLASS L 696,410 -- -- -- 696,410
============ ============ ============ ============
CLASS Y 24,117,467 -- -- -- 24,117,467
============ ============ ============ ============
CLASS Z 6,684,786 -- -- -- 6,684,786
============ ============ ============ ============
CLASS 1 -- 14,058,758 -- 14,933,525* 14,933,525
============ ============ ============
NET ASSET VALUE
---------------
CLASS A (and redemption price) $ 9.00 $ 9.54 $ 9.11 $ 9.00
============ ============ ============ ============
CLASS B $ 9.01 $ 9.56 $ 9.13 $ 9.01
============ ============ ============ ============
CLASS L $ 9.01 -- -- $ 9.01
============ ============ ============ ============
CLASS Y $ 9.00 -- -- $ 9.00
============ ============ ============ ============
CLASS Z $ 9.00 -- -- $ 9.00
============ ============ ============ ============
CLASS 1 -- $ 9.56 -- $ 9.00
============ ============ ============ ============
CLASS A MAXIMUM OFFERING PRICE $ 9.42 $ 9.99 $ 9.54 9.42
============ ============ ============ ============
CLASS L MAXIMUM OFFERING PRICE $ 9.10 -- -- $ 9.10
============ ============ ============ ============
CLASS 1 MAXIMUM OFFERING PRICE -- $ 10.25 -- $ 9.65
============ ============ ============ ============
(a) Due to elimination of fee waivers and decrease in expenses
* Assumes subscriptions of Class 1 shares in acquiring Fund at Class A NAV.
</TABLE>
See accompanying notes to pro forma financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONCERT
INVESTMENT CITIFUNDS PRO FORMA
SMITH BARNEY SERIES INTERMEDIATE SMITH BARNEY
GOVERNMENT GOVERNMENT INCOME GOVERNMENT
SECURITIES FUND PORTFOLIO ADJUSTMENTS SECURITIES
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED) ------------ ------------ ------------ ------------ ------------
FOR THE FOR THE FOR THE
12 MONTHS 12 MONTHS 12 MONTHS
4/30/00 4/30/00 4/30/00
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 42,290,973 $ 13,296,694 $ 3,790,530 -- $ 59,378,197
Dividends -- -- 85,321 -- 85,321
Less: Interest expense -- (12,009) -- -- (12,009)
------------ ------------ ------------ ------------ ------------
TOTAL INVESTMENT INCOME $ 42,290,973 13,284,685 3,875,851 -- 59,451,509
EXPENSES:
Allocated HUB Management Fee -- -- 198,262 (198,262)(a) --
Allocated HUB Expenses -- -- 29,926 (29,926)(a) --
Management fees 3,578,196 1,178,098 198,518 23,658 (a) 4,978,470
Distribution costs 1,315,476 218,369 153,846 -- 1,687,691
Shareholder & system servicing fees 318,057 326,927 64,360 (21,521)(b) 687,823
Shareholder communications 82,036 48,795 37,655 (64,399)(c) 104,087
Registration fees 67,048 20,828 -- (15,828)(c) 72,048
Custodian fees/Fund Accounting 37,939 16,161 38,271 (44,248)(c) 48,123
Legal and auditing fees 41,543 28,675 60,130 (70,348)(c) 60,000
Directors' fees 52,329 15,848 12,990 (21,000)(c) 60,167
Other 25,585 784 20,330 (16,000)(c) 30,699
- - - - -
Total Expenses 5,518,209 1,854,485 814,288 (457,874) 7,729,108
------------ ------------ ------------ ------------ ------------
Less: Management Fee Waivers -- -- (291,785) 291,785 --
NET EXPENSES 5,518,209 1,854,485 522,503 (166,089) 7,729,108
------------ ------------ ------------ ------------ ------------
NET INVESTMENT INCOME 36,772,764 11,430,200 3,353,348 166,089 51,722,401
============ ============ ============ ------------ ============
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net Realized Gain (Loss) From:
Security Transactions (excluding short
term securities) (55,384,865) (18,095,764) (3,305,174) -- ($76,785,803)
Futures contracts (2,894,658) (724,880) 190,117 -- (3,429,421)
Net Change in Unrealized Appreciation
of Investments 9,986,341 3,973,737 (1,100,074) -- 12,860,004
------------ ------------ ------------ ------------ ------------
Net Gain (Loss) On Investments (48,293,182) (14,846,907) (4,215,131) -- $(67,355,220)
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $(11,520,418) $ (3,416,707) $ (861,783) $ 166,089 $(15,632,819)
============ ============ ============ ------------ ============
(a) Reflects elimination of allocated Hub Expenses and recalculation of Management fees at 0.55% (0.35% advisory, 0.20% admin.)
(b) Reflects adjustment for lower T/A fees.
(c) Decrease due to duplicate services
</TABLE>
See accompanying notes to pro forma financial statements.
<PAGE>
<TABLE>
SMITH BARNEY GOVERNMENT SECURITIES FUND,
CONCERT INVESTMENT SERIES GOVERNMENT FUND &
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2000
------------------------------------------------------------------------------------------------------------------------------------
FACE AMOUNT MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
U. S. GOVERNMENT AND AGENCY OBLIGATIONS - 17.7%
------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA
SB GOVT CIS GOVT# CITI INT INC# TOTAL SECURITY SB GOVT CIS GOVT CITI INT INC SB GOVT
------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <S> <C> <C> <C> <C>
-- -- $ 1,105,000 $ 1,105,000 U.S. Treasury
Bonds, 8.125%
due 8/15/19 -- -- $ 1,327,315 $ 1,327,315
-- -- 835,000 835,000 U.S. Treasury
Bonds, 3.625%
due 4/15/28 -- -- 799,907 799,907
-- -- 526,000 526,000 U.S. Treasury
Bonds, 3.875%
due 4/15/29 -- -- 527,514 527,514
-- -- 321,000 321,000 U.S. Treasury
Bonds, 6.125%
due 8/15/29 -- -- 322,052 322,052
-- -- 22,000 22,000 U.S. Treasury
Notes, 5.500%
due 12/31/00 -- -- 22,293 22,293
-- -- 235,000 235,000 U.S. Treasury
Notes, 6.50%
due 5/31/01 -- -- 234,452 234,452
-- -- 61,000 61,000 U.S. Treasury
Notes, 5.875%
due 11/15/04 -- -- 59,584 59,584
-- -- 710,000 710,000 U.S. Treasury
Notes, 6.875%
due 5/15/06 -- -- 721,456 721,456
-- -- 926,000 926,000 U.S. Treasury
Notes, 6.625%
due 5/15/07 -- -- 932,236 932,236
-- -- 1,277,000 1,277,000 U.S. Treasury
Notes, 6.500%
due 2/15/10 -- -- 1,302,376 1,302,376
$ 98,562,000 $ 29,800,000 -- 128,362,000 U.S. Treasury
Strips, zero
Coupon, due
11/15/09 $ 53,004,672 $ 16,025,844 -- 69,030,516
7,000,000 2,500,000 -- 9,500,000 U.S. Treasury
Strips, zero
Coupon,
due 11/15/18 2,260,930 807,475 -- 3,068,405
166,000,000 50,000,000 -- 216,000,000 U.S. Treasury
Strips, zero
Coupon,
due 2/15/19 52,892,580 15,931,500 -- 68,824,080
------------------------------------------------------------------------------------------------------------------------------------
TOTAL U. S.
TREASURY
OBLIGATIONS 108,158,182 32,764,819 6,249,185 147,172,186
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ASSET - BACKED SECURITIES - 1.3%
------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA
SB GOVT CIS GOVT# CITI INT INC# TOTAL SB GOVT CIS GOVT CITI INT INC SB GOVT
------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <S> <C> <C> <C> <C>
-- -- 691,000 691,000 Aames Mortgage
Trust, 6.590%
due 6/15/24 -- -- 686,420 686,420
-- -- 1,020,000 1,020,000 Aircraft
Financial
Trust, 8.000%
due 5/15/24 -- -- 933,035 933,035
-- -- 606,000 606,000 Amresco
Residential
Securities,
6.245% due
4/25/22 -- -- 601,565 601,565
-- -- 714,000 714,000 Asset
Securitization
Corp., Series
95, due 7.384%
due 8/13/29 -- -- 697,557 697,557
-- -- 467,000 467,000 Asset
Securitization
Corp., Series
97, due 6.500%
due 2/14/41 -- -- 458,740 458,740
-- -- 650,000 650,000 First Union,
Lehman Brothers,
6.479% due
3/18/04 -- -- 636,503 636,503
-- -- 408,000 408,000 GE Capital
Mortgage
Services, Inc.,
5.905% due
10/25/13 -- -- 401,721 401,721
-- -- 404,000 404,000 GE Capital
Mortgage
Services, Inc.,
7.000% due
10/25/23 -- -- 378,973 378,973
-- -- 620,000 620,000 GMAC Commercial
Mortgage Inc.,
6.830% due
12/15/03 -- -- 616,739 616,739
-- -- 226,000 226,000 GMAC Commercial
Mortgage Inc.,
6.420% due
8/15/08 -- -- 208,440 208,440
-- -- 918,000 918,000 GMAC Commercial
Mortgage Inc.,
7.724% due
12/15/09 -- -- 917,204 917,204
-- -- 1,020,000 1,020,000 Green Tree
Financial Corp.,
8.050% due
10/15/27 -- -- 1,002,782 1,002,782
-- -- 785,000 785,000 Green Tree
Financial Corp.,
6.710% due
8/15/29 -- -- 728,969 728,969
-- -- 612,000 612,000 Green Tree
Financial Corp.,
8.410% due
12/1/30 -- -- 580,060 580,060
-- -- 294,000 294,000 IMC Home Equity
Loan Trust,
6.160% due
5/20/14 -- -- 292,523 292,523
-- -- 393,000 393,000 JP Morgan
Commercial
Mortgage
Financial,
6.373% due
1/15/30 -- -- 381,783 381,783
-- -- 318,000 318,000 Merrill Lynch
Mortgage Co.,
6.950% due
6/18/29 -- -- 313,051 313,051
-- -- 665,000 665,000 Morgan Stanley
Capital
Investment Inc.,
6.440% due
11/15/02 -- -- 653,797 653,797
-- -- 150,000 150,000 Nissan Auto
Receivables
Grantor, 6.150%
due 2/15/03 -- -- 148,390 148,390
-- -- 612,000 612,000 Nomura Asset
Securitization
Corp., 8.150%
due 3/04/20 -- -- 617,985 617,985
------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSET -
BACKED SECURITIES -- -- 11,256,237 11,256,237
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
FACE AMOUNT MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.5%
------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA
SB GOVT CIS GOVT# CITI INT INC# TOTAL SB GOVT CIS GOVT CITI INT INC SB GOVT
------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <S> <C> <C> <C> <C>
-- -- $ 510,000 $ 510,000 Asset Backed
Securitization
Corp., 6.640%
due 12/25/27 -- -- $ 462,667 $ 462,667
-- -- 110,000 110,000 CMC Securitization
Corp., Series
97, 7.000%
due 10/25/27 -- -- 109,495 109,495
-- -- 433,000 433,000 CWMBS Inc., Series 98,
6.500% due 7/25/13 -- -- 400,212 400,212
-- -- 402,000 402,000 Chase Mortgage
Financal Trust 6.500%
due 9/25/13 -- -- 371,065 371,065
-- -- 510,000 510,000 Chase Mortgage
Financal Trust,
7.250% due 2/25/30 -- -- 481,782 481,782
-- -- 796,000 796,000 Credit Suisse
First Boston Mortgage,
7.290% due 9/15/09 -- -- 772,772 772,772
-- -- 204,000 204,000 Federal Home Loan
Mortgage Corp., 6.000%
due 1/15/24 -- -- 187,935 187,935
-- -- 702,000 702,000 Federal Home Loan
Mortgage Corp., 6.250%
due 6/15/24 -- -- 662,047 662,047
-- -- 600,000 600,000 Federal National
Mortgage Association,
7.412% due 8/17/21 -- -- 591,874 591,874
-- -- 173,000 173,000 Government National
Mortgage Association ,
7.250% due 10/16/22 -- -- 172,567 172,567
-- -- 55,000 55,000 Residential Asset
Securitization Trust,
7.000% due 2/25/08 -- -- 55,324 55,324
------------------------------------------------------------------------------------------------------------------------------------
TOTAL CMO's -- -- 4,267,740 4,267,740
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DOMESTIC CORPORATIONS - 1.0%
------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA
SB GOVT CIS GOVT# CITI INT INC# TOTAL SB GOVT CIS GOVT CITI INT INC SB GOVT
------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <S> <C> <C> <C> <C>
-- -- 543,000 543,000 Abitibi Consolidated
Inc., 8.500%
due 8/1/29 -- -- 498,594 498,594
-- -- 364,000 364,000 Ahold Financial U.S.A
Inc., 6.875%
due 5/1/29 -- -- 305,473 305,473
-- -- 465,000 465,000 BB&T Corp., 6.375%
due 6/30/05 -- -- 434,320 434,320
-- -- 135,000 135,000 Conseco Inc., 6.400%
due 6/15/01 -- -- 95,594 95,594
-- -- 449,000 449,000 Dayton Hudson Corp.,
6.650% due 8/1/28 -- -- 376,485 376,485
-- -- 612,000 612,000 Delta Airlines Inc.,
8.300% due 12/15/29 -- -- 547,354 547,354
-- -- 385,000 385,000 Donaldson, Lufkin &
Jenrette, 5.875%
due 4/1/02 -- -- 370,885 370,885
-- -- 427,000 427,000 Dynegy Inc., 7.450%
due 7.15/06 -- -- 408,406 408,406
-- -- 472,000 472,000 Ford Motor Co., 7.375%
due 10/28/09 -- -- 456,496 456,496
-- -- 480,000 480,000 Knight Ridder Inc.,
6.875% due 3/15/29 -- -- 416,895 416,895
-- -- 426,000 426,000 Lehman Brothers
Holdings, Inc.,
7.75% due 1/15/05 -- -- 426,624 426,624
-- -- 444,000 444,000 Lockheed Martin
Corp., 7.950%
due 12/1/05 -- -- 434,631 434,631
-- -- 469,000 469,000 MCI Communications
Corp., 6.500%
due 4/15/10 -- -- 427,164 427,164
-- -- 479,000 479,000 Morgan Stanley
Dean Witter &
Co., 5.625%
due 1/20/04 -- -- 449,509 449,509
-- -- 416,000 416,000 National Rural
Utilities, 6.200%
due 2/1/08 -- -- 380,341 380,341
-- -- 453,000 453,000 Osprey Trust Inc.,
8.310% due 1/15/03 -- -- 449,076 449,076
-- -- 448,000 448,000 Popular North
America, Inc.,
6.875% due 6/15/01 -- -- 443,013 443,013
-- -- 460,000 460,000 Raytheon Co.,
7.900% due 3/1/03 -- -- 452,089 452,089
-- -- 439,000 439,000 St. Paul Cos Inc.,
7.875% due 4/15/05 -- -- 429,319 429,319
-- -- 493,000 493,000 Saks Inc., 8.250%
due 11/15/08 -- -- 444,626 444,626
------------------------------------------------------------------------------------------------------------------------------------
TOTAL DOMESTIC
CORPORATIONS -- -- 8,246,894 8,246,894
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
FACE AMOUNT MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
FOREIGN CORPORATIONS - 0.3%
------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA
SB GOVT CIS GOVT# CITI INT INC# TOTAL SB GOVT CIS GOVT CITI INT INC SB GOVT
------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <S> <C> <C> <C> <C>
-- -- $ 493,000 $ 493,000 Merita Bank PLC,
6.500% due 4/1/09 -- -- $ 444,389 $ 444,389
-- -- 444,000 444,000 Pemex Financial
Ltd., 9.030%
due 2/15/11 -- -- 451,993 451,993
-- -- 456,000 456,000 Quebec Providence
CDA, 7.500%
due 9/15/29 -- -- 445,841 445,841
-- -- 481,000 481,000 Telefonica de
Argentina, 9.125%
due 5/7/08 -- -- 457,368 457,368
-- -- 495,000 495,000 YPF Sociedad
Anonima, 7.250%
due 3/15/08 -- -- 477,127 477,127
------------------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN
CORPORATIONS -- -- 2,276,718 2,276,718
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
MORTGAGE - BACKED SECURITIES - 76.7%
------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA
SB GOVT CIS GOVT# CITI INT INC# TOTAL SB GOVT CIS GOVT CITI INT INC SB GOVT
------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <S> <C> <C> <C> <C>
-- -- 204,000 204,000 FHMLC, 6.000%
due TBA -- -- 185,066 185,066
-- -- 314,000 314,000 FHMLC, 6.000%
due 8/1/00 -- -- 312,180 312,180
-- -- 755,000 755,000 FHMLC, 7.500%
due TBA -- -- 737,462 737,462
-- -- 1,000 1,000 FHMLC, 8.500%
due 4/1/01 -- -- 694 694
-- -- 1,020,000 1,020,000 FNMA, 5.500%
due TBA -- -- 888,356 888,356
$ 1,482 -- -- 1,482 FNMA, 6.000%
due 8/1/04 $ 1,406 -- -- 1,406
-- -- 1,428,000 1,428,000 FNMA, 6.500%
due TBA -- -- 1,332,495 1,332,495
-- -- 1,659,000 1,659,000 FNMA, 6.500%
due 5/1/29* -- -- 1,548,637 1,548,637
-- -- 90,000 90,000 FNMA, 7.000%
due 7/1/03* -- -- 88,939 88,939
-- -- 3,489,000 3,489,000 FNMA, 7.500%
due TBA* -- -- 3,428,812 3,428,812
-- $ 2,068,729 -- 2,068,729 FNMA, 7.500%,
due 8/1/12* -- $ 2,058,385 -- 2,058,385
-- -- 1,000 1,000 FNMA, 8.000%
due 6/1/02 -- -- 871 871
-- -- 2,530,000 2,530,000 GNMA, 6.500%
due TBA -- -- 2,369,129 2,369,129
44,144,056 12,910,356 705,000 57,759,412 GNMA, 7.000%,
due 2/15/30* 42,488,654 12,426,218 680,842 55,595,714
163,498,597 39,782,088 -- 203,280,685 GNMA, 7.500%,
due 3/15/30* 160,892,430 39,147,961 -- 200,040,391
-- -- 408,000 408,000 GNMA, 8.000%
due TBA -- -- 408,893 408,893
282,896,855 82,616,983 7,000 365,520,838 GNMA, 8.000%,
due 4/15/30* 283,779,494 82,874,748 6,966 366,661,208
------------------------------------------------------------------------------------------------------------------------------------
TOTAL MORTGAGE-
BACKED SECURITIES 487,161,984 136,507,312 11,989,342 635,658,638
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
YANKEE BONDS - 0.2%
------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA
SB GOVT CIS GOVT# CITI INT INC# TOTAL SB GOVT CIS GOVT CITI INT INC SB GOVT
------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <S> <C> <C> <C> <C>
-- -- $ 445,000 $ 445,000 Corporacion
Andina de Fomento,
7.750% due 3/1/04 -- -- $ 437,587 $ 437,587
-- -- 225,000 225,000 Empresa Nacional,
7.750% due 7/15/08 -- -- 209,413 209,413
-- -- 552,000 552,000 Imperial Tobacco
Overseas, 7.125%
due 4/1/09 -- -- 482,191 482,191
-- -- 266,000 266,000 TPSA Financial,
7.750% due 12/10/08 -- -- 254,103 254,103
------------------------------------------------------------------------------------------------------------------------------------
TOTAL YANKEE BONDS -- -- 1,383,294 1,383,294
====================================================================================================================================
<CAPTION>
PREFERRED STOCK - 0.4%
------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA
SB GOVT CIS GOVT# CITI INT INC# TOTAL SB GOVT CIS GOVT CITI INT INC SB GOVT
------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <S> <C> <C> <C> <C>
-- -- 28 28 Comed Financing I -- -- 3,121,752 3,121,752
------------------------------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK -- -- 3,121,752 3,121,752
====================================================================================================================================
<CAPTION>
REPURCHASE AGREEMENT - 1.9%
------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA
SB GOVT CIS GOVT# CITI INT INC# TOTAL SB GOVT CIS GOVT CITI INT INC SB GOVT
------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <S> <C> <C> <C> <C>
Goldman Sachs
5.670% due 5/1/00;
$15,593,000 -- -- 15,593,000 Proceeds at
maturity -
$15,600,368 (Fully
collateralized by
U.S. Treasury Notes
& Bonds, 6.500% to
11.125%, due
10/31/01 to
2/15/21; Total
market value-
$15,904,860)
(Cost- $15,593,000) $ 15,593,000 -- -- 15,593,000
====================================================================================================================================
TOTAL INVESTMENTS
AT VALUE - 100% $610,913,166 $169,272,131 $48,791,162 $828,976,459
(Cost - (Cost - (Cost - (Total Cost -
$611,013,804)** $169,455,039)** $47,977,533)** $828,446,376)**
====================================================================================================================================
* Date shown represents the last in range of maturity dates of mortgage certificates owned.
** Aggregate cost for Federal income tax purposes is substantially the same.
# The fund does not anticipate to be required to sell any securities upon completion of the merger.
</TABLE>
<PAGE>
Pro Forma Footnotes of Merger Between Smith Barney Government Securities Fund,
CIS Government Fund and CitiFunds Intermediate Income Portfolio. April 30, 2000
(unaudited)
1. General
The accompanying unaudited pro forma financial statements are presented to show
the effect of the proposed acquisition of substantially all of the assets of
the CIS Government and CitiFunds Intermediate Income Portfolio ("the Acquired
Funds") by the Smith Barney Government Securities Fund ("Fund" or "Government
Fund") in exchange for shares of Government Fund and the assumption by
Government Fund of substantially all of the liabilities of the Acquired Funds
as described elsewhere in this proxy statement/prospectus.
Under the terms of the Agreements and Plans of Reorganization, the exchange of
assets of the Acquired Funds for shares of Government Fund will be treated as a
tax-free reorganization and accordingly will be accounted for as a tax-free
merger. The acquisition would be accomplished by an acquisition of the net
assets of the Acquired Funds in exchange for shares of Government Fund at net
asset value. The unaudited pro forma schedule of investments and the unaudited
pro forma statement of assets and liabilities have been prepared as though the
acquisition had been effective April 30, 2000. The unaudited pro forma
statement of operations has been prepared as though the acquisition had been
effective May 1, 1999. The unaudited pro forma financial statements are as of
the semi-annual period end of the Acquired Funds as that date is more recent
than the most recently filed financial statements for Government Fund.
The accompanying pro forma financial statements should be read in conjunction
with the financial statements and schedule of investments of the Acquired Funds
and Government Fund which are included in their respective annual reports dated
October 31, 1999 and December 31, 1999, respectively. The expense of the
reorganization, including the cost of the proxy solicitation, will be borne by
SSB Citi Fund Management LLC ("SSBC"), Government Fund's Investment Manager.
SSBC is a subsidiary of Salomon Smith Barney Holdings Inc., which in turn is a
subsidiary of Citigroup Inc.
2. Significant Accounting Policies
Government Fund, a Maryland corporation is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company.
The significant accounting policies consistently followed by Government Fund
are:
(a) securities transactions are accounted for on trade date;
(b) securities traded on national securities markets are valued at the
closing price on such markets; securities traded in the over-the-counter
market and listed securities for which no sales price was reported and
U.S. government and government agency obligations are valued at the bid
price, or in the absence of a recent bid price, at the bid equivalent
obtained from one or more of the major market makers; (c) securities
maturing within 60 days are valued at cost plus accreted discount, or
minus amortized premium, which approximates value; (d) interest income
adjusted for accretion of original issue discount, is recorded on the
accrual basis; (e) realized gains or losses on the sale of securities
are calculated by using the specific identification method; (f)
dividends and distributions to shareholders are recorded on the
ex-dividend date; (g) direct expenses are charged to each portfolio and
<PAGE>
each class; management fees and general expenses are allocated on the
basis of relative net assets; (h) the Fund intends to comply with the
applicable provisions of the Internal Revenue Code of 1986, as amended,
pertaining to regulated investment companies and to make distributions
of taxable income sufficient to relieve it from substantially all
Federal income and excise taxes; (i) the character of income and gains
to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles; and (j) estimates and assumptions are required to be made
regarding assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared. Changes in the
economic environment, financial markets and any other parameters used in
determining these estimates could cause actual results to differ.
3. Pro-Forma Adjustments
The accompanying unaudited pro forma schedule of investments and pro forma
financial statements reflect changes in shares and fund expenses as if the
merger had taken place on May 1, 1999. Adjustments were made to reduce certain
expenses for duplicated services and to reflect new investment advisory and
administration agreements as if they had been in place as of May 1, 1999.
4. Investment Advisory Agreement and Other Transactions
SSBC acts as investment advisor of Government Fund. Government Fund pays SSBC
an advisory fee calculated at the following annual rates of average daily net
assets: 0.35% up to $2 billion, 0.30% of the next $2 billion, 0.25% of the next
$2 billion and 0.15% of the remaining average daily net assets. This fee is
calculated daily and paid monthly.
Under an administration agreement, SSBC also acts as Government Fund's
administrator for which Government Fund pays a fee calculated at an annual rate
of 0.20% of the average daily net assets. This fee is also calculated daily and
paid monthly.
Under these agreements, Government Fund pays SSBC a maximum annual combined fee
of 0.55% of average net assets for both investment advisory and administration
services. Under an agreement between Citibank, N.A., a subsidiary of Citigroup
and CitiFunds Intermediate Income Portfolio, Citibank, N. A. receives a
combined annual fee of 0.75% for such services. Under an agreement between SSBC
and CIS Government Fund, SSBC receives 0.60% for such services.
Citi Fiduciary Trust Company ("CFTC"), a subsidiary of Citigroup, is Government
Fund's transfer agent. Salomon Smith Barney Inc., another subsidiary of
Citigroup, acts as Government Fund's distributor.
