AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON July 17,
2000.
SECURITIES ACT FILE NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
SMITH BARNEY INVESTMENT FUNDS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
388 GREENWICH STREET, NEW YORK, NY 10013
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(800) 451-2010
(REGISTRANT'S AREA CODE AND TELEPHONE NUMBER)
HEATH B. MCLENDON
SSB CITI FUND MANAGEMENT LLC
388 GREENWICH STREET
NEW YORK, NY 10013
(NAME AND ADDRESS OF AGENT FOR SERVICE)
WITH COPIES TO:
BURTON M. LEIBERT, ESQ.
CHRISTINA T. SYDOR, ESQ.
WILLKIE FARR & GALLAGHER
SSB CITI FUND MANAGEMENT LLC
787 SEVENTH AVENUE
388 GREENWICH STREET
NEW YORK, NY 10019-6099
NEW YORK, NY 10013
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: Registrant
proposes that the Registration Statement become effective on
August 16, 2000 pursuant to Rule 488 under the Securities Act of
1933, as amended.
TITLE OF SECURITIES BEING REGISTERED:
Shares of Common Stock ($.001 par value) of the Registrant
___________________
The Registrant has registered an indefinite amount of
securities under the Securities Act of 1933 pursuant to Section
24(f) under the Investment Company Act of 1940; accordingly, no
fee is payable herewith because of reliance upon Section 24(f).
PART A
INFORMATION REQUIRED IN THE PROXY STATEMENT/PROSPECTUS
CONCERT INVESTMENT SERIES(r)
Government Fund
388 Greenwich Street
New York, New York 10013
__________, 2000
Dear Shareholders:
You are being asked to vote on an Agreement and Plan of
Reorganization whereby all of the assets of
the Government Fund (the "Fund"), a series of Concert Investment
Series(r) ("Investment Series"), would be transferred in a tax-free
reorganization to the Government Securities Fund (the "Acquiring
Fund"), a series of Smith Barney Investment Funds Inc.
("Investment Funds"), in exchange for shares of the corresponding
class of common stock of the Acquiring Fund. If the Agreement and
Plan of Reorganization is approved and consummated, you would no
longer be a holder of shares of beneficial interests in the Fund,
but would become a shareholder of the corresponding class of
common stock of the Acquiring Fund, which has similar investment
objectives and policies to your Fund, except as described in the
Proxy Statement/Prospectus.
AFTER CAREFUL REVIEW, THE MEMBERS OF YOUR FUND'S BOARD HAVE
APPROVED THE PROPOSED REORGANIZATION. THE BOARD MEMBERS OF YOUR
FUND BELIEVE THAT THE PROPOSAL SET FORTH IN THE NOTICE OF MEETING
FOR YOUR FUND IS IMPORTANT AND RECOMMEND THAT YOU READ THE
ENCLOSED MATERIALS CAREFULLY AND THEN VOTE FOR THE PROPOSAL.
Your vote is important. PLEASE TAKE A MOMENT NOW TO SIGN
AND RETURN YOUR PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID RETURN
ENVELOPE. For more information, please call 1-800-451-2010. [If
you prefer, you can fax the proxy card to _____________, Attn.:
________, at (800) ________ or vote by telephone by calling (800)
_______ using the xx-digit control number located on your proxy
card.] The Fund may also solicit proxies from shareholders by
letter, telephone and/or telegraph. [Voting by fax or telephone
will reduce the time and costs associated with the proxy
solicitation.] When the Fund records proxies by telephone, it
will use procedures designed to (i) authenticate shareholders'
identities, (ii) allow shareholders to authorize the voting of
their shares in accordance with their instructions and
(iii) confirm that their instructions have been properly recorded.
Whichever voting method you choose, please read the full
text of the accompanying proxy statement/prospectus before you
vote.
Respectfully,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman of the Board, President and Chief Executive Officer
Concert Investment Series(r)
WE URGE YOU TO SIGN AND RETURN YOUR PROXY CARD(S) IN THE ENCLOSED
POSTAGE-PAID ENVELOPE TO ENSURE A QUORUM AT THE MEETING. YOUR
VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
CONCERT INVESTMENT SERIES(r)
Government Fund
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Please take notice that a Special Meeting of Shareholders
(the "Special Meeting") of Concert Investment Series(r) ("Investment
Series"), on behalf of its series, the Government Fund (the
"Fund"), will be held at the offices of SSB Citi Fund Management
LLC, 7 World Trade Center, New York, New York 10048, on September
25, 2000, at 9:15 a.m., Eastern time, for the following purposes:
PROPOSAL 1: To approve an Agreement and Plan of
Reorganization for the Fund;
PROPOSAL 2: To transact such other business as may
properly come before the meeting or any
adjournment(s) thereof.
The appointed proxies will vote in their discretion on any
other business as may properly come before the Special Meeting or
any adjournments thereof.
Holders of record of shares of beneficial interests in the
Fund at the close of business on August 11, 2000 are entitled to
vote at the Special Meeting and at any adjournments thereof.
If the necessary quorum to transact business or the vote
required to approve a Proposal 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 Fund'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 the Proposal and will vote
against any such adjournment those proxies to be voted against the
Proposal. For more information, please call 1-800-451-2010.
By Order of the Board of
Trustees
/s/ Christina T. Sydor
Christina T. Sydor
Secretary
________, 2000
IMPORTANT -- WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY
CARD(S) AND RETURN THE CARD(S) IN THE ENCLOSED ADDRESSED ENVELOPE
WHICH REQUIRES NO POSTAGE AND IS INTENDED FOR YOUR CONVENIENCE.
YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD(S) MAY SAVE THE
NECESSITY AND EXPENSE OF FURTHER SOLICITATIONS TO ENSURE A QUORUM
AT THE SPECIAL MEETING. IF YOU CAN ATTEND THE SPECIAL MEETING AND
WISH TO VOTE YOUR SHARES IN PERSON AT THAT TIME, YOU WILL BE ABLE
TO DO SO.
TABLE OF CONTENTS
GENERAL 1
PROPOSAL: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION 4
SYNOPSIS 4
INVESTMENT OBJECTIVE AND POLICIES OF THE ACQUIRING FUND 6
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND 8
INVESTMENT MANAGEMENT FEES AND EXPENSES 9
ANNUAL FUND OPERATING EXPENSES 10
DISTRIBUTION OF SHARES AND OTHER SERVICES 12
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION 13
DIVIDENDS AND OTHER DISTRIBUTIONS 13
TAX CONSEQUENCES 13
PRINCIPAL INVESTMENTS AND RISK FACTORS 13
THE PROPOSED TRANSACTION 17
REASONS FOR THE PROPOSED TRANSACTION 19
DESCRIPTION OF THE SECURITIES TO BE ISSUED 20
FEDERAL INCOME TAX CONSEQUENCES 22
LIQUIDATION AND TERMINATION OF SERIES 23
PORTFOLIO SECURITIES 23
PORTFOLIO TURNOVER 24
CAPITALIZATION AND PERFORMANCE 24
ADDITIONAL INFORMATION ABOUT THE FUNDS 25
ADDITIONAL INFORMATION 26
ADDITIONAL MATERIALS
The following additional materials, which have been
incorporated by reference into the Statement of Additional
Information dated ______, 2000 relating to this Prospectus/Proxy
Statement and the Reorganization, will be sent to all shareholders
of the Fund requesting a copy of such Statement of Additional
Information.
1. The Statement of Additional Information for the
Acquiring Fund, dated April 28, 2000.
2. The Statement of Additional Information for the Fund,
dated February 28, 2000.
3. Annual Report of the Fund for the year ended October
31, 1999 and the Semi-Annual Report of the Fund for
the six months ended April 30, 2000.
Merger Q&A
Concert Government Fund into Smith Barney Government Securities
Fund
July 13, 2000
The enclosed materials include a combined Prospectus/Proxy
Statement containing information you need to make a more informed
decision. However, we thought it would also be helpful for you to
have, at the start, answers to some of the important questions you
might have about the proposed reorganization.
We hope you find these explanations useful as you review your
materials before voting. For more detailed information about the
proposed reorganization, please refer to the enclosed combined
Prospectus/Proxy Statement.
What will happen to my shares if the proposed reorganization is
approved?
You will become a shareholder of the Smith Barney Government
Securities Fund on or about October 6, 2000 ("Closing Date") and
will no longer be a shareholder of the Concert Government Fund,
which will be terminated pursuant to the proposed reorganization.
You will receive shares of the Smith Barney Government Securities
Fund with a total net asset value equal to the total net asset
value of your investment in the Concert Government Fund at the
time of the transaction.
What is the key reason for this fund reorganization?
The proposed reorganization will create one single larger sized
fund and provide shareholders of Concert Government Fund with a
fund that has lower annual expenses. The proposed reorganization
is part of a broader initiative by the Funds' manager, SSB Citi
Fund Management LLC, to restructure more efficiently its mutual
fund product offerings.
Do the funds have similar investment objectives?
Yes. Both funds have similar investment objectives and policies
and pursue their objectives in a substantially similar manner. The
Concert Government Fund seeks high current return consistent with
preservation of capital and the Smith Barney Government Securities
Fund seeks high current return. James E. Conroy, the portfolio
manager of your Fund, has also been the manager of the Smith
Barney Government Securities Fund since its inception in 1984.
However, the investment practices and limitations of each Fund
(and related risk) are not identical. For additional information
regarding the differences between the two funds, please refer to
the enclosed proxy statement.
Do both Funds have the same dividend and other distribution
payment schedules?
The Concert Government Fund declares dividends from net investment
income monthly and the Smith Barney Government Securities Fund
declares dividends from net investment income periodically. Each
Fund pays distributions of net realized capital gains, if any,
annually.
What are the tax consequences of this proposed reorganization?
Subject to shareholder approval, the proposed fund reorganization
will not be a taxable event. Shareholders will not realize any
capital gain or loss as a direct result of the proposed
reorganization.
However, if the proposed reorganization is approved by the
Concert Government Fund's shareholders, then as soon as
practicable before the Closing Date, the Concert Government Fund
will pay or have paid its shareholders a cash distribution of
substantially all undistributed 2000 net investment income and
undistributed realized net capital gains. We ask that you consult
your tax advisor or other tax professional for assistance.
Will I enjoy the same privileges as a shareholder of the Smith
Barney Government Securities Fund that I currently have as a
shareholder of the Concert Government Fund?
Yes. You will continue to enjoy substantially the same shareholder
privileges such as systematic investment, automatic cash
withdrawal and dividend reinvestment as well as access to
professional service representatives.
How does the Board of Trustees recommend I vote?
The Trustees recommend that you vote FOR the reorganization.
Although no guarantees can be given, the Trustees believe the
reorganization is in the best interest of the Concert Government
Fund and its shareholders.
Why is my vote important?
Shareholders have a responsibility to vote on important matters
affecting their fund investments. No matter how many shares you
own, your vote --- and its timeliness-are also important. Please
complete and sign the enclosed proxy card today!
Please note if you sign and date your proxy card, but do not
provide voting instructions, your shares will be voted FOR the
proposal. By voting promptly, you will help us to avoid the
expense of having to re-solicit your proxy and help to keep fund
expenses down. Thank you in advance for your vote.
SUBJECT TO COMPLETION, DATED JULY 17, 2000
PROXY STATEMENT/PROSPECTUS
________, 2000
RELATING TO THE ACQUISITION BY
THE GOVERNMENT SECURITIES FUND (THE "ACQUIRING FUND"),
A SERIES OF SMITH BARNEY INVESTMENT FUNDS INC. ("INVESTMENT
FUNDS")
388 Greenwich Street
New York, New York 10013
(800) 451-2010
OF THE ASSETS OF
THE GOVERNMENT FUND (THE "FUND"),
A SERIES OF CONCERT INVESTMENT SERIES(r) ("INVESTMENT SERIES").
GENERAL
This Proxy Statement/Prospectus is furnished to holders of
shares of beneficial interests in the Fund in connection with a
proposed reorganization in which all of the
assets of the Fund would be acquired by Investment Funds, on
behalf of the Acquiring Fund, in exchange solely for voting shares
of the corresponding class of common stock of the Acquiring Fund
and the assumption by Investment Funds, on behalf of the Acquiring
Fund, of all of the stated liabilities of the Fund (collectively, the
"Reorganization"). Shares of the Acquiring Fund thereby received
would then be distributed to the shareholders of the Fund in
complete liquidation of the Fund, and the Fund would be terminated
as a series of Investment Series. As a result of the
Reorganization, each shareholder of the Fund would receive that
number of full and fractional shares of the corresponding class of
common stock of the Acquiring Fund having an aggregate net asset
value equal to the aggregate net asset value of such shareholder's
shares of beneficial interests in the Fund held as of the close of
business on the Closing Date (as defined herein) of the
Reorganization. Shareholders of the Fund are being asked to vote
on an Agreement and Plan of Reorganization pursuant to which such
transactions, as described more fully below, would be consummated.
This Proxy Statement/Prospectus, which should be retained
for future reference, sets forth concisely the information about
the Acquiring Fund that a prospective investor should know before
investing. For a more detailed discussion of the investment
objectives, policies, restrictions and risks of the Acquiring
Fund, see the prospectus for the Acquiring 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 Acquiring Fund's
annual report to shareholders for the year ended December 31,
1999, which is included herewith and incorporated herein by
reference. For a more detailed discussion of the investment
objectives, policies, restrictions and risks of the Fund, see the
prospectus for the Fund, dated February 28, 2000, the annual
report to shareholders for the year ended October 31, 1999 and the
semi-annual report to shareholders for the six months ended April
30, 2000, each of which is incorporated herein by reference and a
copy of which may be obtained without charge by writing to Smith
Barney Mutual Funds, 388 Greenwich Street, New York, New York
10013, or by calling toll-free (800) 451-2010. A Statement of
Additional Information of the Fund and the Acquiring Fund dated
__________, 2000 containing additional information about the
Reorganization and the parties thereto has been filed with the
Securities and Exchange Commission (the "SEC" or the "Commission")
and is incorporated by reference into this Proxy
Statement/Prospectus. A copy of the Statement of Additional
Information is available upon request and without charge by
writing to or calling Smith Barney Mutual Funds at the address or
phone number listed above. Shareholder inquiries regarding the
Fund or the Acquiring Fund may also be made by calling the phone
number listed above. The information contained herein concerning
the Fund has been provided by, and is included herein in reliance
upon, Investment Series, on behalf of the Fund. The information
contained herein concerning the Acquiring Fund has been provided
by, and is included herein in reliance upon, Investment Funds, on
behalf of the Acquiring Fund.
The Acquiring Fund is a diversified series of Investment
Funds, an open-end management investment company organized as a
Maryland corporation. The Fund is a diversified series of
Investment Series, an open-end management investment company
organized as a Massachusetts business trust. The investment
objective of the Acquiring Fund is to seek high current return.
The Acquiring Fund seeks to achieve its objective by investing
primarily in debt securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities that SSB Citi Fund
Management LLC, the Acquiring Fund's investment adviser ("SSB
Citi"), believes are undervalued. The investment objective of the
Fund is to seek high current return consistent with preservation
of capital. The Fund invests in government debt issued or
guaranteed by the U.S. government, its agencies or
instrumentalities that SSB Citi believes are undervalued.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES NOR PASSED UPON THE ACCURACY OR
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
PROSPECTUS/PROXY STATEMENT 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 FUNDS.
_______________________
In the description of the Proposal below, the word "fund"
is sometimes used to mean investment companies or series thereof
in general, and not the Fund whose proxy statement this is. In
addition, in this Proxy Statement/ Prospectus, for simplicity,
actions are described as being taken by either the Fund or the
Acquiring Fund (each, a "Fund," and collectively, the "Funds"),
although all actions are actually taken by Investment Series, on
behalf of the Fund, or by Investment Funds, on behalf of the
Acquiring Fund.
This Proxy Statement/Prospectus, the Notice of Special
Meeting and the proxy card(s) are first being mailed to
shareholders on or about August 21, 2000 or as soon as practicable
thereafter. Any holder of shares of beneficial interests in the
Fund giving a proxy has the power to revoke it by mail (addressed
to the Secretary at the principal executive office of Investment
Series at the address shown at the beginning of this Proxy
Statement/Prospectus) or in person at the Special Meeting by
executing a superseding proxy or by submitting a notice of
revocation to the Fund. 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 certain shareholders have purchased their shares through
service agents, these service agents are the shareholders of record of the
Fund. At the special meeting, a service agent may, as permitted by
applicable laws and regulations, 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.
The presence at any shareholders' meeting, in person or by
proxy, of the holders of shares of beneficial interests in the
Fund holding 20% of the votes of the Fund entitled to be
cast shall be necessary and sufficient to constitute a quorum for
the transaction of business. If the necessary quorum to transact
business or the vote required to approve any Proposal 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 with respect to the Proposal that did not receive the vote
necessary for its passage or to obtain a quorum. Any such
adjournment as to a matter will require the affirmative vote of
the holders of a majority of the Fund'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 Fund 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 Proposal requires the affirmative vote of the holders of
not less than a majority of the Fund's shares of beneficial
interests outstanding and entitled to vote thereon. Abstentions
and broker non-votes will have the effect of a "no" vote on the
Proposal.
Holders of record of shares of beneficial interests in the
Fund 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 [INSERT] shares of the
Fund outstanding.
To the best of knowledge of Investment Funds, as of August
11, 2000, except as set forth on ANNEX A, no person owned
beneficially more than 5% of any class of the Acquiring Fund's
outstanding shares. To the best knowledge of Investment Series,
as of August 11, 2000, no person owned beneficially more than 5% of
any class of the Fund's outstanding shares.
As of August 11, 2000, less than 1% of the outstanding shares
of the Fund and the Acquiring Fund were owned directly or
beneficially by the trustees or directors of Investment Series and
Investment Funds, respectively.
Each of Investment Series and Investment Funds provides
periodic reports to all of its shareholders which highlight
relevant information, including investment results and a review of
portfolio changes. You may receive an additional copy of the most
recent annual report for each of the Fund and the Acquiring Fund
and a copy of any more recent semi-annual report, without charge,
by calling 800-451-2010 or writing to the Fund or the Acquiring
Fund at the address shown at the beginning of this Proxy
Statement/Prospectus.
PROPOSAL: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
The governing board of each of Investment Series and
Investment Funds, including all of the Trustees or Directors, as
applicable, who are not "interested persons" of such Funds (as
defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) (the "Non-Interested Board Members"), approved on
July 17, 2000 an Agreement and Plan of Reorganization (the
"Plan"). Subject to its approval by the holders of shares of
beneficial interests in the Fund, the Plan provides for (a) the
transfer of all of the assets and all of the stated
liabilities of the Fund to Investment Funds, on behalf of the
Acquiring Fund, in exchange for shares of the corresponding class
of common stock of the Acquiring Fund and assumption by Investment
Funds, on behalf of the Acquiring Fund, of the Fund's liabilities;
(b) the distribution of such Acquiring Fund shares to the holders
of shares of beneficial interests in the Fund in complete
liquidation of the Fund and the cancellation of the Fund's
outstanding shares of beneficial interests; and (c) the
termination of the Fund as a series of Investment Series
(collectively, the "Reorganization"). As a result of the
Reorganization, each holder of shares of beneficial interests in
the Fund will become a shareholder of the corresponding class of
common stock of the Acquiring Fund and will hold, immediately
after the closing of the Reorganization (the "Closing"), that
number of full and fractional shares of the corresponding class of
common stock of the Acquiring Fund having an aggregate net asset
value equal to the aggregate net asset value of such shareholder's
shares of beneficial interests held in the Fund as of the close of
business on the Closing Date (as defined below). The Closing is
expected to occur on October 6, 2000, or on such later date as the
parties may agree in writing (the "Closing Date").
SYNOPSIS
The following is a summary of certain information contained
in this Proxy Statement/Prospectus. This summary is qualified by
reference to the more complete information contained elsewhere in
this Proxy Statement/Prospectus, the Prospectus of the Acquiring
Fund, the Prospectus of the Fund and the Plan, the form of which
is attached to this Proxy Statement/Prospectus as Exhibit A.
Holders of shares of beneficial interests in the Fund should read
this entire Proxy Statement/Prospectus carefully.
Introduction. Like your Fund, the Acquiring Fund is managed
by SSB Citi, an affiliate of Salomon Smith Barney Inc. ("Salomon
Smith Barney"), and has a substantially similar investment
objective. James E. Conroy, the portfolio manager of your Fund,
is also the portfolio manager of the Acquiring Fund. Moreover,
the distributor, custodian, transfer agent and sub-transfer agents
of each of the Fund and the Acquiring Fund are also identical.
Whereas the Fund has retained Ernst & Young LLP as its independent
auditors, the Acquiring Fund has retained KPMG LLP as its
independent auditors. If the Plan is consummated, holders of
shares of beneficial interests in the Fund will become
shareholders of the corresponding class of common stock of the
Acquiring Fund. The Reorganization has been proposed as part of a
broader initiative by SSB Citi to eliminate duplication and
possible confusion in its mutual fund product offerings.
Specifically, this Reorganization has been proposed as the Funds
have substantially similar investment objectives and policies and
the Acquiring Fund is subject to lower management fees
and a total annual expense ratio.
Holders of shares of beneficial interests in the Fund will
continue to enjoy many of the same shareholder privileges, such as
systematic investment, automatic redemption and automatic dividend
reinvestment, and access to professional service representatives
upon becoming shareholders of the Acquiring Fund. Further,
shareholders of the Acquiring Fund may exchange into the same
class of any Smith Barney Fund (provided that the Smith Barney
Fund offers the relevant class of shares), whereas holders of
shares of beneficial interests in the Fund may only exchange into
shares of certain Smith Barney Funds, Concert brand funds or,
in certain cases, Citi FundsSM Cash
Reserves. Whereas the Fund declares dividends from net investment
income monthly, the Acquiring Fund declares dividends from net
investment income periodically(which, in the past, have generally
been monthly). Each Fund pays distributions of
net realized capital gains, if any, annually. See "Dividends and
Other Distributions." It is a condition of the Reorganization
that each Fund receive an opinion of independent legal counsel
that the Reorganization will be tax-free. This means that
shareholders will not realize any capital gain or loss as a direct
result of the Reorganization.
Proposed transaction. The aggregate net asset value of each
class of voting shares of the Acquiring Fund (the "Shares") issued
in exchange for the assets and liabilities of the corresponding
class of shares of beneficial interests in the Fund will be equal
to the net asset value of that class of the Fund as of the Closing
Date. Immediately following the transfer of Shares to the Fund,
the Shares received by the Fund will be distributed pro rata to
the record holders of shares of beneficial interests of the Fund
on the Closing Date and the shares of beneficial interests of the
Fund will be cancelled.
For the reasons described below under "Reasons for the
Proposed Transaction," the Board of Investment Series, including
the Non-Interested Board Members, has concluded the following:
- the Reorganization is in the best interests of the Fund
and its holders of shares of beneficial interests; and
- the interests of the existing holders of shares of
beneficial interests of the Fund will not be diluted as a
result of the Reorganization.
Accordingly, the Board recommends approval of the Plan. If
the Plan is not approved, the Fund will continue in existence
unless other action is taken by the Board; such other action may
include resubmitting the Plan for shareholder approval and
termination and liquidation of the Fund.
Comparison of investment objectives and policies. The
investment objective of the Acquiring Fund is to seek high current
return. The Acquiring Fund seeks to achieve its objective by
investing primarily in debt securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities that SSB Citi
believes are undervalued. The Acquiring Fund may also enter into
mortgage roll transactions and use derivatives contracts, such as
interest rate futures and options on interest rate futures, as a
hedge or as a substitute for buying or selling securities.
The investment objective of the Fund is to seek high current
return consistent with preservation of capital. The Fund invests
in government debt issued or guaranteed by the U.S. government,
its agencies or instrumentalities that SSB Citi believes are
undervalued. The Fund may also purchase or sell options on U.S.
government securities and enter into interest rate futures
contracts and options on these contracts as a hedge, as a
substitute for buying and selling securities or to enhance return.
Each Fund may purchase short-term investments, money market
instruments and repurchase agreements; lend portfolio securities;
and enter into derivative transactions. Whereas the Fund may not
lend portfolio securities in excess of 10% of its assets, the
Acquiring Fund may lend its portfolio securities to the fullest
extent permitted by applicable law. Whereas the Fund may (as a
fundamental policy) invest up to 10% of its net assets in illiquid
securities, the Acquiring Fund may (as a non-fundamental policy)
invest up to 15% of its net assets in such securities.
Additionally, whereas the Fund may borrow up to 10% of its assets,
the Acquiring Fund may borrow up to 33-1/3% of its assets.
Further, the Acquiring Fund may borrow up to 25% of its assets for
purposes of leverage.
Each Fund has either identical or substantially similar
fundamental investment restrictions with respect to its
diversified status; industry concentration; purchasing or selling
real estate, real estate mortgages, commodities or commodity
contracts; and underwriting securities. Each Fund also has either
identical or substantially similar non-fundamental investment
restrictions with respect to purchasing securities on margin;
investing in oil or other mineral leases; investing in companies
for the purpose of acquiring control; and unseasoned issuers.
Investment restrictions of each Fund which are fundamental
policies may not be changed without the approval of the applicable
Fund's shareholders. The Fund's investment restrictions are
substantially similar to those of the Acquiring Fund, except as
described in this Proxy Statement/Prospectus. Investors should
refer to the respective prospectuses and statements of additional
information of the Fund and the Acquiring Fund for a fuller
description of each Fund's investment policies and restrictions.
INVESTMENT OBJECTIVE AND POLICIES OF THE ACQUIRING FUND
The Acquiring Fund seeks high current return.
Principal investment strategies
Key investments. The Acquiring Fund invests primarily in
debt securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities. These securities include U.S.
Treasury securities and mortgage-related securities. 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.
The Acquiring Fund may also enter into mortgage dollar roll
transactions 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
benefits from these transactions depend on the manager's ability
to forecast mortgage prepayment patterns on different mortgage
pools. The fund may lose money if the securities to be
repurchased decline in value before the date of repurchase.
Selection process. SSB Citi focuses on identifying
undervalued securities. Specifically, SSB Citi:
? 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
? 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
? 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
? 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
Principal risks of investing in the Acquiring Fund
Investors could lose money on their investment in the
Acquiring Fund, or the Acquiring Fund may not perform as well as
other investments, if:
? Interest rates increase, causing the prices of fixed
income securities to decline and reducing the value of
the fund's portfolio
? As interest rates decline, the issuers of mortgage-
related securities held by the fund may pay principal
earlier than scheduled or exercise a right to call the
securities, forcing the fund to reinvest in lower
yielding securities. This is known as prepayment or
call risk.
? As interest rates increase, slower than expected
principal payments may extend the average life of fixed
income securities, locking in below-market interest
rates and reducing the value of these securities. This
is known as extension risk.
? The manager's judgment about interest rates or the
attractiveness, value or income potential of a
particular security proves incorrect
? The 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 the fund's performance.
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 the 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.
Who may want to invest in the Acquiring Fund
The Acquiring Fund may be an appropriate investment if you:
? Are seeking income consistent with preservation of
capital
? Are willing to accept the interest rate risks and market
risks of investing in government bonds and mortgage-
related securities
? Prefer to invest in U.S. government securities rather
than higher yielding corporate securities
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
The Fund's investment objective is to seek high current
return consistent with preservation of capital. As further set
forth herein, the Fund and the Acquiring Fund have substantially
similar investment objectives and policies and pursue their
respective investment objectives using investment practices (and
subject to investment limitations and risks) which are also
substantially similar.
Key investments
The Fund invests primarily in government debt issued or
guaranteed by the U.S. government, its agencies or
instrumentalities. Theses securities include U.S. Treasury
securities, mortgage-related and asset-backed securities. Some
government guaranteed mortgage-related securities are backed by
the full faith and credit of the U.S. Treasury, some are supported
by the right of the issuer to borrow from the U.S. government and
some are backed only by the credit of the issuer itself.
In order to hedge against changes in interest rates, the
Fund also may purchase or sell options on U.S. government
securities and enter into interest rate futures contracts and
options on these contracts.
How the manager selects the Fund's investments
SSB Citi focuses on identifying undervalued sectors and
securities and, in doing so, employs a selection process
substantially similar to that employed by the Acquiring Fund
(described above).
Principal risks of investing in the Fund
The principal risks of investing in the Fund are virtually
identical to the principal risks of investing in the Acquiring
Fund set forth above.
Who may want to invest in the Fund
The factors which may make the Fund an appropriate
investment for you are virtually identical to the factors set
forth above with respect to the Acquiring Fund.
INVESTMENT MANAGEMENT FEES AND EXPENSES
Investment Series, on behalf of the Fund, and Investment
Funds, on behalf of the Acquiring Fund, each retain SSB Citi
pursuant to separate contracts, to manage the daily investment and
business affairs of the Fund and the Acquiring Fund, respectively,
subject to the policies established by their respective governing
boards. The expenses of each Fund are paid out of gross
investment income. Shareholders pay no direct charges or fees for
investment services.
The Acquiring Fund. SSB Citi, located at 388 Greenwich
Street, New York, New York 10013, serves as the Acquiring Fund's
investment adviser and administrator. SSB Citi selects the
Acquiring Fund's investments and oversees its operations. SSB
Citi and Salomon Smith Barney are subsidiaries of Citigroup Inc.
Citigroup businesses produce a broad range of financial services-
asset management, banking and consumer finance, credit and charge
cards, insurance, investments, investment banking and trading-and
use diverse channels to make them available to consumer and
corporate customers around the world. SSB Citi has been in the
investment counseling
business since 1968 and renders investment management and
administration services to a wide variety of individual,
institutional and investment company clients having aggregate
assets under management as of May 31, 2000 in excess of $218
billion.
Under an investment advisory agreement, the Acquiring Fund
currently pays SSB Citi a monthly fee at the annual rate of 0.35%
of the value of its average daily net assets. As administrator,
SSB Citi oversees all aspects of the Acquiring Fund's
administration and operation. For administration services
rendered to the Acquiring Fund, the Acquiring Fund currently pays
SSB Citi a fee at the annual rate of 0.20% of the value of the
Acquiring Fund's average daily net assets. For its management and
administration services, SSB Citi received an aggregate fee during
the fund's last fiscal year equal to 0.55% of the fund's average
daily net assets. The total investment management and
administration fees incurred and paid by the Acquiring Fund for
the year ended December 31, 1999 were $[INSERT].
The Acquiring Fund's total expense ratio (total annual
operating expenses as a percentage of average net assets) for each
class of its shares for the year ended December 31, 1999 is set
forth below under "Annual Fund Operating Expenses." SSB Citi
projects that if the proposed Reorganization is effected, the
expense ratio for each class of the Acquiring Fund will be
unchanged for the year ending December 31, 2000. The actual
expense ratio for the Acquiring Fund for the year ending December
31, 2000 may be higher or lower than as set forth below, depending
upon the Acquiring Fund's performance, general bond market and
economic conditions, sales and redemptions of the Acquiring Fund
shares (including redemptions by former shareholders of the Fund),
and other factors.
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 Acquiring Fund's portfolio since its
inception in 1984. Mr. Conroy's management discussion and
analysis of the Acquiring Fund's performance during the fiscal
year ended December 31, 1999 is included in the Acquiring Fund's
Annual Report to Shareholders dated December 31, 1999.
The Fund. The Fund's investment manager is SSB Citi. SSB
Citi selects the Fund's investments and oversees its operations.
For its management and administration services, SSB Citi received
a fee during the fund's last fiscal year equal to 0.60% of the
fund's average daily net assets. The total investment management
fees incurred and paid by the Fund for the year ended October 31,
1999 were $[INSERT].
James E. Conroy (described above) has been the portfolio
manager of the Fund since 1997.
The expenses of the Fund and the Acquiring Fund for the
fiscal year ended October 31, 1999 and December 31, 1999,
respectively, and pro forma expenses following the proposed
restructuring are outlined below:
ANNUAL FUND OPERATING EXPENSES
The Acquiring Fund
Class A
Class B
Class 1*
Shareholder Transaction Expenses
Maximum sales charge imposed on
purchases
(as a percentage of offering
price)
4.50%
None
6.75%
Maximum CDSC
(as a percentage of original cost
or redemption proceeds, whichever
is lower)
None**
4.50%
None
Annual Fund Operating Expenses
(as a percentage of average net
assets)
Management fees
0.55%
0.55%
0.55%
12b-1 fees
0.25
0.75
0.00
Other expenses
0.13
0.11
0.13
TOTAL FUND OPERATING EXPENSES
0.93%
1.41%
0.68%
The Fund
Class A
Class B
Class 1
Shareholder Transaction Expenses
Maximum sales charge imposed on
purchases
(as a percentage of offering
price)
4.50%
None
6.75%
Maximum CDSC
(as a percentage of original cost
or redemption proceeds, whichever
is lower)
None**
4.50%
None
Annual Fund Operating Expenses
(as a percentage of average net
assets)
Management fees
0.60%
0.60%
0.60%
12b-1 fees
0.25
1.00
0.00
Other expenses
0.40
0.34
0.29
TOTAL FUND OPERATING EXPENSES
1.25%
1.94%
.89%
The Acquiring Fund (Pro Forma)
Pro Forma
Class A
Pro Forma
Class B
Pro Forma
Class 1*
Shareholder Transaction Expenses
Maximum sales charge imposed on
purchases
(as a percentage of offering
price)
4.50%
None
6.75%
Maximum CDSC
(as a percentage of original cost
or redemption proceeds, whichever
is lower)
None**
4.50%
None
Annual Fund Operating Expenses
(as a percentage of average net
assets)
Management fees
0.55%
0.55%
0.55%
12b-1 fees
0.25
0.75
0.00
Other expenses
0.13
0.11
0.13
TOTAL FUND OPERATING EXPENSES
0.93%
1.41%
0.68%
* Class 1 Shares of the Acquiring Fund had not commenced
operations as of December 31, 1999. The amounts shown are
amounts estimated to be charged for the fiscal year ending
December 31, 2001.
** You may buy Class A Shares in amounts of $500,000 or more at
net asset value (without an initial sales charge) but if you
redeem those shares within 12 months of their purchase, you
will pay a deferred sales charge of 1.00%
Example. 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 remain the same.
Although your actual costs maybe higher or lower, based on these
assumptions your costs would be:
The Acquiring Fund.
1 year
3 years
5 years
10
years*
An Investor would pay the following
expenses on a $10,000 investment,
assuming (1) 5.00% annual return and
(2) redemption at the end of each time
period:
Class A
$541
$733
$942
$1,542
Class B
594
746
871
1,560
Class 1
740
878
1,028
1,464
An investor would pay the following
expenses on the same investment,
assuming the same annual return and no
redemption:
Class A
$541
$733
$942
$1,542
Class B
144
446
771
1,560
Class 1
740
878
1,028
1,464
The Fund
1 year
3 years
5 years
10
years*
An Investor would pay the following
expenses on a $10,000 investment,
assuming (1) 5.00% annual return and
(2) redemption at the end of each time
period:
Class A
$572
$829
$1,105
$1,893
Class B
647
909
1,147
2,085
Class 1
760
940
1,135
1,697
An investor would pay the following
expenses on the same investment,
assuming the same annual return and no
redemption:
Class A
$572
$829
$1,105
$1,893
Class B
197
609
1,047
2,085
Class 1
760
940
1,135
1,697
The Acquiring Fund (Pro Forma)
Pro
Forma
1 year
Pro
Forma
3 years
Pro
Forma
5 years
Pro
Forma
10
years*
An Investor would pay the following
expenses on a $10,000 investment,
assuming (1) 5.00% annual return and
(2) redemption at the end of each time
period:
Class A
$541
$733
$942
$1,542
Class B
594
746
871
1,560
Class 1
740
878
1,028
1,464
An investor would pay the following
expenses on the same investment,
assuming the same annual return and no
redemption:
Class A
$541
$733
$942
$1,542
Class B
144
446
771
1,560
Class 1
740
878
1,028
1,464
* Ten-year figures assume conversion of Class B shares to
Class A shares at the end of the eighth year following the
date of purchase.
This example assumes reinvestment of all dividends and
distributions. This example should not be considered a
representation of past or future expenses. Actual Fund expenses
can vary from year to year and may be higher or lower than those
shown. Please refer to each Fund's prospectus and statement of
additional information for a more detailed discussion of the fees
and expenses applicable to each class of shares of a Fund.
DISTRIBUTION OF SHARES AND OTHER SERVICES
Currently, Salomon Smith Barney (as of June 5, 2000) and PFS
Distributors Inc. ("PFS") distribute shares of each Fund as
principal underwriter and as such conducts a continuous offering
pursuant to a "best efforts" arrangement requiring Salomon Smith
Barney and PFS to take and pay for only such securities as may be
sold to the public. Prior to that time, CFBDS, Inc., located at
21 Milk Street, Boston, Massachusetts 02109-5408, acted as
distributor of each Fund's shares. Each Fund has adopted a plan
of distribution under Rule 12b-1 under the 1940 Act (the "Plan"),
pursuant to which Salomon Smith Barney and PFS, as applicable, are
paid a service fee with respect to Class A and Class B shares of
each Fund. Salomon Smith Barney and PFS, as applicable, are also
paid a distribution fee with respect to Class B shares of each
Fund at the annual rate of 0.75% in the case of the Fund and 0.50%
in the case of the Acquiring Fund of the average daily net assets
attributable to those Classes. Class B shares of each Fund that
automatically convert to Class A shares eight years after the date
of original purchase will no longer be subject to a distribution
fee. Class 1 shares of each Fund do not pay a Rule 12b-1 fee or a
distribution fee. The fees are used by Salomon Smith Barney and
PFS, as applicable, to pay their respective Financial Consultants
for servicing shareholder accounts and, in the case of Class B
shares, to cover expenses primarily intended to result in the sale
of those shares.
Payments under the Plan are not tied exclusively to the
distribution and shareholder service expenses actually incurred by
Salomon Smith Barney or PFS and the payments may exceed
distribution expenses actually incurred. Please refer to each
Fund's prospectus and statement of additional information for a
more detailed discussion of the distribution and shareholder
servicing arrangements applicable to each class of shares of a
Fund.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
The purchase, redemption and exchange procedures and
privileges with respect to the Fund are substantially similar to
those of the Acquiring Fund. However, whereas holders of shares
of beneficial interests in the Fund may only exchange into shares
of certain Concert brand funds or of Citi FundsSM Cash Reserves,
shareholders of the Acquiring Fund may exchange into the same
class of any Smith Barney Fund (provided that the Smith Barney
Fund offers the relevant class of shares). Please refer to each
Fund's prospectus and statement of additional information for a
more detailed discussion of the purchase, redemption and exchange
procedures and privileges applicable to each class of a Fund.
DIVIDENDS AND OTHER DISTRIBUTIONS
Whereas the Fund declares dividends from net investment
income monthly, the Acquiring Fund declares dividends from net
investment income periodically (which, in the past, has generally
been monthly). Each Fund pays distributions of
net realized capital gains, if any, annually. Each Fund intends
to distribute any net realized capital gains after utilization of
capital loss carryforwards, if any, in November or December to
prevent application of a federal excise tax. An additional
distribution may be made if necessary. Any dividends or capital
gains distributions declared in October, November or December with
a record date in such month and paid during the following January
will be treated by shareholders for federal income tax purposes as
if received on December 31 of the calendar year in which it is
declared. Dividends and distributions of each Fund will be
invested in additional shares of the applicable Fund at net asset
value and credited to the shareholder's account on the payment
date or, at the shareholder's election, paid in cash.
If the Plan is approved by the Fund's shareholders, then as
soon as practicable before the Closing Date, the Fund will pay or
have paid its shareholders a cash distribution of substantially
all undistributed 2000 net investment income and undistributed
realized net capital gains.
TAX CONSEQUENCES
The Fund and the Acquiring Fund will have received an
opinion of Willkie Farr & Gallagher in connection with the
Reorganization, to the effect that, based upon certain facts,
assumptions and representations, the Reorganization will
constitute a tax-free reorganization within the meaning of section
368(a)(1) of the Internal Revenue Code of 1986, as amended (the
"Code"). If the Reorganization constitutes a tax-free
reorganization, no gain or loss will be recognized by the Fund or
its shareholders as a direct result of the Reorganization. See
"Federal Income Tax Consequences."
PRINCIPAL INVESTMENTS AND RISK FACTORS
As set forth herein, the Fund and the Acquiring Fund have
substantially similar investment objectives and policies and
pursue their respective objectives in a substantially similar
manner. Accordingly, the Funds engage in investments practices
and techniques that are substantially similar. However, the
investment practices and limitations of each Fund (and the risks
related thereto) are not identical. For instance, the Acquiring
Fund may engage in leverage, is generally subject to more
restrictive limitations in connections with its use of options and
futures contracts and is generally subject to less restrictive
limitations with respect to securities lending and borrowing. The
skill of each Fund's portfolio management team in choosing
appropriate investments for the relevant Fund will determine in
large part its ability to achieve its investment objective.
A more complete description of the investment practices and
limitations of the Acquiring Fund is contained in the prospectus
and statement of additional information of the Acquiring Fund,
dated April 28, 2000, as supplemented from time to time, a copy of
which is included herewith, and in the Statement of Additional
Information of Investment Series and the Acquiring Fund dated
__________, 2000 (relating to the proposed Reorganization) which
is incorporated herein by reference. Please refer to each Fund's
prospectus and statement of additional information for a more
detailed discussion of the specific investment practices and risks
of the applicable Fund.
An investment in each of the Acquiring Fund and the Fund
includes certain risks and special considerations, such as those
described below:
Fixed Income Securities. Investments in fixed income
securities may subject a Fund to risks, including the following:
Interest Rate Risk. When interest rates decline, the
market value of fixed income securities tends to increase.
Conversely, when interest rates increase, the market value of
fixed income securities tends to decline. The volatility of a
security's market value will differ depending upon the security's
duration, the issuer and the type of instrument.
Default Risk/Credit Risk. Investments in fixed income
securities are subject to the risk that the issuer of the security
could default on its obligations, causing a Fund to sustain losses
on such investments. A default could impact both interest and
principal payments.
Call Risk and Extension Risk. Fixed income securities
may be subject to both call risk and extension risk. Call risk
exists when the issuer may exercise its right to pay principal on
an obligation earlier than scheduled, which would cause cash flows
to be returned earlier than expected. This typically results when
interest rates have declined and a Fund will suffer from having to
reinvest in lower yielding securities. Extension risk exists when
the issuer may exercise its right to pay principal on an
obligation later than scheduled, which would cause cash flows to
be returned later than expected. This typically results when
interest rates have increased, and a Fund will suffer from the
inability to invest in higher yield securities.
Lower Rated and Below Investment Grade Fixed-Income
Securities. Securities rated in the fourth highest ratings
category by an NRSRO, such as those rated BBB by S&P or Baa by
Moody's, are generally regarded as having adequate capacity to pay
interest and repay principal, but may have some speculative
characteristics. Securities rated below the fourth highest
ratings category by an NRSRO, including those rated below Baa by
Moody's or BBB by S&P, are not "investment grade," and may have
more speculative characteristics, including the possibility of
default or bankruptcy of the issuers of such securities, market
price volatility based upon interest rate sensitivity,
questionable creditworthiness and relative liquidity of the
secondary trading market. Because high yield bonds have been
found to be more sensitive to adverse economic changes or
individual corporate developments and less sensitive to interest
rate changes than higher-rated investments, an economic downturn
could disrupt the market for high yield bonds and adversely affect
the value of outstanding bonds and the ability of issuers to repay
principal and interest. In addition, in a declining interest rate
market, issuers of high yield bonds may exercise redemption or
call provisions, which may force a Fund, to the extent it owns
such securities, to replace those securities with lower yielding
securities. This could result in a decreased return.
Derivative Instruments. In accordance with its investment
policies, a Fund may invest in certain derivative instruments
which are securities or contracts that provide for payments based
on or "derived" from the performance of an underlying asset, index
or other economic benchmark. Essentially, a derivative instrument
is a financial arrangement or a contract between two parties (and
not a true security like a stock or a bond). Transactions in
derivative instruments can be, but are not necessarily, riskier
than investments in conventional stocks, bonds and money market
instruments. A derivative instrument is more accurately viewed as
a way of reallocating risk among different parties or substituting
one type of risk for another. Every investment by the Fund,
including an investment in conventional securities, reflects an
implicit prediction about future changes in the value of that
investment. Every Fund investment also involves a risk that the
portfolio manager's expectations will be wrong. Transactions in
derivative instruments often enable the Fund to take investment
positions that more precisely reflect the portfolio manager's
expectations concerning the future performance of the various
investments available to the Fund. Derivative instruments can be
a legitimate and often cost-effective method of accomplishing the
same investment goals as could be achieved through other
investment in conventional securities.
Derivative contracts include options, futures contracts,
forward contracts, forward commitment and when-issued securities
transactions, forward foreign currency exchange contracts and
interest rate, mortgage and currency swaps. The following are the
principal risks associated with derivative instruments:
Market risk: The instrument will decline in value or that
an alternative investment would have appreciated more, but this is
no different from the risk of investing in conventional
securities.
Leverage and associated price volatility: Leverage causes
increased volatility in the price and magnifies the impact of
adverse market changes, but this risk may be consistent with the
investment objective of even a conservative fund in order to
achieve an average portfolio volatility that is within the
expected range for that type of fund.
Credit risk: The issuer of the instrument may default on
its obligation to pay interest and principal.
Liquidity and valuation risk: Many derivative instruments
are traded in institutional markets rather than on an exchange.
Nevertheless, many derivative instruments are actively traded and
can be priced with as much accuracy as conventional securities.
Derivative instruments that are custom designed to meet the
specialized investment needs of a relatively narrow group of
institutional investors such as the Fund are not readily
marketable and are subject to the Fund's restrictions on illiquid
investments.
Correlation risk: There may be imperfect correlation
between the price of the derivative and the underlying asset. For
example, there may be price disparities between the trading
markets for the derivative contract and the underlying asset.
Each derivative instrument purchased for a Fund's portfolio
is reviewed and analyzed by the Fund's portfolio manager to assess
the risk and reward of each such instrument in relation the Fund's
portfolio investment strategy. The decision to invest in
derivative instruments or conventional securities is made by
measuring the respective instrument's ability to provide value to
the Fund and its shareholders.
Special Risks of Using Futures Contracts. The prices of
futures contracts are volatile and are influenced by, among other
things, actual and anticipated changes in interest rates, which in
turn are affected by fiscal and monetary policies and national and
international political and economic events.
At best, the correlation between changes in prices of
futures contracts and of the securities or currencies being hedged
can be only approximate. The degree of imperfection of
correlation depends upon circumstances such as: variations in
speculative market demand for futures and for debt securities or
currencies, including technical influences in futures trading; and
differences between the financial instruments being hedged and the
instruments underlying the standard futures contracts available
for trading, with respect to interest rate levels, maturities, and
creditworthiness of issuers. A decision of whether, when, and how
to hedge involves skill and judgment, and even a well-conceived
hedge may be unsuccessful to some degree because of unexpected
market behavior or interest rate trends.
Because of the low margin deposits required, futures
trading involves an extremely high degree of leverage. As a
result, a relatively small price movement in a futures contract
may result in immediate and substantial loss, as well as gain, to
the investor. For example, if at the time of purchase, 10% of the
value of the futures contract is deposited as margin, a subsequent
10% decrease in the value of the futures contract would result in
a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15%
decrease would result in a loss equal to 150% of the original
margin deposit, if the futures contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract. A Fund,
however, would presumably have sustained comparable losses if,
instead of the futures contract, it had invested in the underlying
financial instrument and sold it after the decline. Where the
Fund enters into futures transactions for non-hedging purposes, it
will be subject to greater risks and could sustain losses which
are not offset by gains on other Fund assets.
Furthermore, in the case of a futures contract purchase, in
order to be certain that a Fund has sufficient assets to satisfy
its obligations under a futures contract, the Fund segregates and
commits to back the futures contract an amount of cash and liquid
securities equal in value to the current value of the underlying
instrument less the margin deposit.
Most U.S. futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day.
The daily limit establishes the maximum amount that the price of a
futures contract may vary either up or down from the previous
day's settlement price at the end of a trading session. Once the
daily limit has been reached in a particular type of futures
contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a
particular trading day and therefore does not limit potential
losses, because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of
futures positions and subjecting some futures traders to
substantial losses.
As with options on debt securities, the holder of an option
may terminate his position by selling an option of the same
series. There is no guarantee that such closing transactions can
be effected. A Fund will be required to deposit initial margin
and maintenance margin with respect to put and call options on
futures contracts described above, and, in addition, net option
premiums received will be included as initial margin deposits.
In addition to the risks which apply to all option
transactions, there are several special risks relating to options
on futures contracts. The ability to establish and close out
positions on such options will be subject to the development and
maintenance of a liquid secondary market. It is not certain that
this market will develop. A Fund will not purchase options on
futures contracts on any exchange unless and until, in SSB Citi's
opinion, the market for such options had developed sufficiently
that the risks in connection with options on futures contracts are
not greater than the risks in connection with futures contracts.
Compared to the use of futures contracts, the purchase of options
on futures contracts involves less potential risk to the Fund
because the maximum amount of risk is the premium paid for the
options (plus transaction costs). Writing an option on a futures
contract involves risks similar to those arising in the sale of
futures contracts, as described above.
Defensive Investing. Each Fund may depart from its
principal investment strategies in response to adverse market,
economic or political conditions by taking temporary defensive
positions in all types of money market and short-term debt
securities. If a Fund takes a temporary defensive position, it
may be unable to achieve its investment objective.
THE PROPOSED TRANSACTION
Description of the Plan. As stated above, the Plan provides
for the transfer of all of the assets of the Fund to the Acquiring
Fund in exchange for that number of full and fractional shares of
the corresponding class of common stock of the Acquiring Fund
having an aggregate net asset value equal to the aggregate net
asset value of the holder's shares of beneficial interests in the
Fund as of the close of business on the business day preceding the
date of the Closing. The Acquiring Fund will assume all of the
liabilities of the Fund. In connection with the Closing, the Fund
will distribute the shares of the corresponding class of common
stock of the Acquiring Fund received in the exchange to the
shareholders of the Fund in complete liquidation of the Fund. The
Fund will be terminated as a series of Investment Series.
Upon completion of the Reorganization, each holder of shares
of beneficial interests in the Fund will own that number of full
and fractional shares of the corresponding class of the Acquiring
Fund having an aggregate net asset value equal to the aggregate
net asset value of such holder's shares of beneficial interests in
the Fund immediately as of the close of business on the Closing
Date. Each Fund shareholder's account with Investment Series as a
shareholder of the Acquiring Fund will be substantially similar in
all material respects to the accounts currently maintained by the
Fund's transfer agent for such shareholder. [Some of the
outstanding shares of beneficial interests of the Fund are
represented by physical certificates; however, in the interest of
economy and convenience, shares of the Fund generally are not
represented by physical certificates, and shares of the Acquiring
Fund issued to Fund shareholders similarly will be in
uncertificated form. Certificates representing shares of the Fund
will be cancelled after the Closing.]
Until the Closing, holders of shares of beneficial interests
in the Fund will, of course, continue to be able to redeem their
shares at the net asset value next determined after receipt by the
Fund's sub-transfer agent of a redemption request in proper form.
Redemption requests received by the sub-transfer agent thereafter
will be treated as requests received for the redemption of shares
of the Acquiring Fund received by the shareholder in connection
with the Reorganization.
The obligations of Investment Series, on behalf of the Fund,
and Investment Funds, on behalf of the Acquiring 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 SEC 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. Investment Series and Investment Funds are in the
process of making the necessary filings. To provide against
unforeseen events, the Plan may be terminated or amended at any
time prior to the Closing by action of the Trustees or Directors
of either Fund, notwithstanding the approval of the Plan by the
holders of shares of beneficial interests in the Fund. However,
no amendment may be made that materially adversely affects the
interests of the holders of shares of beneficial interests in the
Fund without obtaining the approval of the Fund's shareholders.
Investment Series and Investment Funds may at any time waive
compliance with certain of the covenants and conditions contained
in the Plan.
The Plan provides that the obligations of Investment Series
are not personally binding upon any of its Trustees, shareholders,
nominees, officers, agents, or employees, but binds only the
property of the Fund as provided in the Declaration of Trust of
Investment Series. Moreover, no series of Investment Series is
responsible for the obligations of Investment Series under the
Plan, and all persons must look only to the assets of the Fund to
satisfy the obligations of Investment Series under the Plan. The
execution and the delivery of the Plan have been authorized by the
Board of Trustees of Investment Series, on behalf of the Fund, and
the Plan has been signed by authorized officers of Investment
Series acting as such, and neither such authorization by such
Trustees, nor such execution and delivery by such officers, shall
be deemed to have been made by any of them individually or to
impose any liability on any of them personally. For a complete
description of the terms and conditions of the Reorganization, see
the Plan at Exhibit A.
[SSB Citi will assume and pay all of the expenses that are
solely and directly related to the Reorganization, which expenses
are estimated to be approximately $[INSERT].] Shareholders have
no rights of appraisal.
REASONS FOR THE PROPOSED TRANSACTION
At a [telephonic] meeting of the Board of Trustees of
Investment Series held on July 17, 2000, the Trustees of the Fund,
including all of the Non-Interested Board Members, were presented
with materials discussing the benefits which would accrue to the
holders of shares of beneficial interests in the Fund if the Fund
were to reorganize with and into the Acquiring Fund. For the
reasons discussed below, the Board of Trustees of Investment
Series, including all of the Non-Interested Board Members, has
determined that the proposed Reorganization is in the best
interests of the Fund and its shareholders and that the interests
of the shareholders of the Fund will not be diluted as a result of
the proposed Reorganization.
The proposed combination of the Fund and the Acquiring Fund
will allow the shareholders of the Fund to continue to participate
in a portfolio governed by substantially similar investment
objectives and policies that is professionally managed by the same
portfolio manager. The Board of Trustees of Investment Series
believes that the proposed Reorganization offers the following
benefits:
Enhanced Flexibility with Respect to Portfolio Investments.
As stated previously, the Reorganization is being proposed as part
of a broader initiative by SSB Citi to eliminate duplication and
possible confusion in its mutual fund product offerings. Having
determined that the offering of multiple funds with substantially
similar objectives and identical portfolio managers is both
repetitious and confusing, SSB Citi believes that the combination
of the Funds which have substantially similar investment
objectives and policies into a single larger fund may increase
economic and other efficiencies for investors and SSB Citi and may
ultimately result in a lower total annual expense ratio for
investors. SSB Citi also believes that a larger asset base could
provide portfolio management benefits such as greater
diversification [and the ability to command more attention from
brokers and underwriters]. In light of the foregoing, it is
anticipated that the Acquiring Fund may achieve a higher level of
return over a year's time than the Fund. As discussed in detail
herein, the management fees and total operating expenses of the
Acquiring Fund are also currently (and are projected to be
following the Closing of the Reorganization) lower than the
corresponding fees and expenses incurred by the Fund.
While past performance is not necessarily indicative of
future results, the Acquiring Fund has generally produced better
total returns than the Fund over the periods ended December 31,
1999. See "Capitalization and Performance". During each of these
periods, the Acquiring Fund has ranked in the [INSERT] of its
Lipper Category, while the Fund has ranked in the [INSERT] of its
Lipper Category. Moreover, while the Acquiring Fund has a
[INSERT] Morningstar rating, the Fund has a [INSERT] Morningstar
rating in their respective rating categories.
Lower Fees and Expenses. If the proposed transaction is
approved, holders of shares of beneficial interests in the Fund
may benefit from both lower management fees and lower total fund
expenses. See "Investment Management Fees and Expenses" and
"Annual Fund Operating Expenses".
As set forth above, as of their most recent fiscal year end,
each class of shares of the Fund had a higher management fee and
higher gross operating expenses than the corresponding class of
the Acquiring Fund. As a result of the Reorganization, holders of
shares of beneficial interests in the Fund will be investing in
the corresponding class of the Acquiring Fund with expenses that
are currently between [0.23%] and 0.53% lower than those of the
relevant class of the Fund. [If the Reorganization is approved by
shareholders of the Fund, the Acquiring Fund's net expense ratio
for each class of its shares is estimated to remain unchanged for
the year ending December 31, 2001.]
Some of the fixed expenses currently paid by the Acquiring
Fund, such as accounting, legal and printing costs, would also be
spread over a larger asset base. Other things being equal,
shareholders should benefit from economies of scale through lower
expense ratios and higher net income distributions over time.
Due to a combination of factors, including the relatively
small size of the Fund, past and prospective sales of the Fund and
current market conditions, the Trustees and management of
Investment Series believe the Fund and its holders of shares of
beneficial interests would benefit from a tax-free reorganization
with a larger fund with substantially similar investment
objectives and policies and with a lower total annual expense
ratio. Accordingly, it is recommended that the shareholders of
the Fund approve the Reorganization with the Acquiring Fund.
The Board of Trustees of Investment Series, in recommending
the proposed transaction, considered a number of factors,
including the following:
(1) the Reorganization will result in a single larger
fund, which, may increase economic and other
efficiencies (for example, eliminating one of the two
sets of prospectuses, annual reports and other
documents required for two Funds), and may result in a
lower expense ratio;
(2) a larger asset base could provide portfolio management
benefits, such as greater diversification [and the
ability to command more attention from brokers and
underwriters];
(3) the positive compatibility of the Acquiring Fund's
investment objectives, policies and restrictions with
those of the Fund;
(4) the tax-free nature of the Reorganization;
(5) the potential opportunity for higher return levels;
(6) the lower management fees and total annual expense
ratio of the Acquiring Fund;
(7) the terms and conditions of the Reorganization and
that it should not result in a dilution of Fund
shareholder interests; and
(8) the level of costs and expenses to the Fund of the
proposed Reorganization.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
General. The Fund is a diversified series of Investment
Series, a business trust organized under the laws of The
Commonwealth of Massachusetts on January 29, 1987, and is
registered with the SEC as an open-end management investment
company. The Acquiring Fund is a diversified series of Investment
Funds, a corporation incorporated under the laws of the State of
Maryland on September 29, 1981, and is registered with the SEC as
a diversified, open-end management investment company. The Fund
currently offers shares of beneficial interests classified into
three Classes, A, B, and 1. The Acquiring Fund currently offers
shares of common stock classified into four classes, A, B, L and Y
and will offer Class 1 Shares upon the closing of the
Reorganization. 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.
Voting Rights. Neither Fund is 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. In the event that shareholders of
a Fund wish to communicate with other shareholders concerning the
removal of any Trustee or Director, as applicable, such
shareholders shall be assisted in communicating with other
shareholders for the purpose of obtaining signatures to request a
meeting of shareholders, all in the manner provided in Section
16(c) of the 1940 Act as if Section 16(c) were applicable.
Board. The By-Laws of Investment Funds and of Investment
Series provide that the term of office of each Director/Trustee
shall be from the time of his or her election and qualification
until the next annual meeting of shareholders and until his or her
successor shall have been elected and shall have qualified. Any
Director/Trustee of Investment Funds or Investment Series may be
removed by the vote of at least a majority of the outstanding
shares then entitled to be cast for the election of
Directors/Trustees. Vacancies on the Boards of Investment Funds
or Investment Series may be filled by the Directors/Trustees
remaining in office. A meeting of shareholders will be required
for the purpose of electing additional Directors/Trustees whenever
fewer than a majority of the Directors/Trustees then in office
were elected by shareholders and to fill vacancies if less than
two-thirds of the Directors/Trustees then holding office have been
elected by the shareholders.
Liquidation or Termination. In the event of the liquidation
or termination of the Acquiring Fund or the Fund, the shareholders
of each Fund are entitled to receive, when and as declared by the
Directors/Trustees, the excess of the assets over the liabilities
belonging to the relevant Fund. In either case, the assets so
distributed to shareholders will be distributed among the
shareholders in proportion to the number of shares of the class
held by them and recorded on the books of the relevant Fund. The
net asset value of the classes of shares would differ due to
differences in expense ratios.
Liability of Directors/Trustees. The Articles of
Incorporation of Investment Funds and the Declaration of Trust of
Investment Series provide that the Directors/Trustees and officers
shall not be liable for monetary damages for breach of fiduciary
duty as a Director/Trustee or officer, except to the extent such
exemption is not permitted by law.
Rights of Inspection. Maryland law permits any shareholder
of the Acquiring Fund or any agent of such shareholders to inspect
and copy, during usual business hours, the By-Laws, minutes of
shareholder proceedings, annual statements of the affairs and
voting trust agreements (if any) of the Acquiring Fund on file at
its principal office. The Declaration of Trust of Investment
Series permits any shareholder of the Fund or his agent to inspect
and copy during normal business hours the By-Laws, minutes of the
proceedings of shareholders and annual financial statements of the
Fund (including a balance sheet and financial statements of
operations) on file, at its principal offices.
Shareholder Liability. Under Maryland law, shareholders of
the Acquiring Fund do not have personal liability for corporate
acts and obligations. Under Massachusetts law, shareholders of a
Massachusetts business trust could, under certain circumstances,
be held personally liable for obligations of a fund. The
Declaration of Trust for Investment Series, however, disclaims
shareholder liability for acts or obligations of the Fund and
requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by
that Fund or its Trustees. Moreover, the Declaration of Trust
provides for indemnification out of the Fund's property for all
losses and expenses of any shareholder held personally liable for
the obligations of the Fund and the Fund will be covered by
insurance which the Trustees consider adequate to cover
foreseeable tort claims. Thus, the risk of a shareholder of the
Fund incurring financial loss on account of shareholder liability
is considered by SSB Citi remote and not material, since it is
limited to circumstances in which a disclaimer is inoperative and
the Fund itself is unable to meet its obligations.
Shares of the Acquiring Fund issued to the holders of shares
of beneficial interests in the Fund pursuant to the Reorganization
will be fully paid and nonassessable when issued, transferable
without restrictions and will have no preemptive rights.
The foregoing is only a summary of certain characteristics
of the operations of Investment Series and Investment Funds. The
foregoing is not a complete description of the documents cited.
Shareholders should refer to the provisions of the corporate and
trust documents and state laws governing each Fund for a more
thorough description.
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is conditioned upon the receipt by
Investment Series, on behalf of the Fund, and by Investment Funds,
on behalf of the Acquiring Fund, of an opinion from Willkie Farr &
Gallagher, substantially to the effect that, based upon certain
facts, assumptions and representations of the parties, for federal
income tax purposes: (i) the transfer to the Acquiring Fund of
all or substantially all of the assets of the Fund in exchange
solely for Shares and the assumption by the Acquiring Fund of all
of the liabilities of the Fund, followed by the distribution of
such Shares to Fund shareholders in exchange for their shares of
beneficial interests in the Fund in complete liquidation of the
Fund, will constitute a "reorganization" within the meaning of
Section 368(a)(1) of the Code, and the Acquiring Fund and the Fund
will each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code; (ii) no gain or loss will be
recognized by the Fund upon the transfer of the Fund's assets to
the Acquiring Fund in exchange for the Acquiring Fund Shares and
the assumption by the Acquiring Fund of liabilities of the Fund or
upon the distribution (whether actual or constructive) of the
Acquiring Fund Shares to the Fund's shareholders in exchange for
their shares of beneficial interests in the Fund; (iii) the basis
of the assets of the Fund in the hands of the Acquiring Fund will
be the same as the basis of such assets of the Fund immediately
prior to the transfer; (iv) the holding period of the assets of
the Fund in the hands of the Acquiring Fund will include the
period during which such assets were held by the Fund; (v) no gain
or loss will be recognized by the Acquiring Fund upon the receipt
of the assets of the Fund in exchange for Shares and the
assumption by the Acquiring Fund of all of the liabilities of the
Fund; (vi) no gain or loss will be recognized by the holders of
beneficial interests in the Fund upon the receipt of Shares solely
in exchange for their shares of beneficial interests in the Fund
as part of the transaction; (vii) the basis of Shares received by
the holders of shares of beneficial interests in the Fund will be
the same as the basis of shares of beneficial interests in the
Fund exchanged therefor; and (viii) the holding period of Shares
received by the holders of shares of beneficial interests in the
Fund will include the holding period during which the shares of
beneficial interests in the Fund exchanged therefor were held,
provided that at the time of the exchange the shares of beneficial
interests in the Fund were held as capital assets in the hands of
the holders of shares of beneficial interests in the Fund.
While neither Investment Series nor Investment Funds is
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 SERIES
If the Reorganization is effected, the Fund will be
liquidated and terminated as a series of Investment Series, and
the Fund's outstanding shares will be cancelled.
PORTFOLIO SECURITIES
If the Reorganization is effected, SSB Citi will analyze and
evaluate the portfolio securities of the Fund being transferred to
the Acquiring Fund. Consistent with the Acquiring Fund's
investment objective and policies, any restrictions imposed by the
Code and the best interests of the Acquiring Fund's shareholders
(including former shareholders of the Fund), SSB Citi will
determine the extent and duration to which the Fund's portfolio
securities will be maintained by the Acquiring Fund. [It is
possible that there may be a significant rebalancing of the Fund
portfolio securities in connection with the Reorganization.]
Subject to market conditions at the time of any such rebalancing,
the disposition of the Fund's 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 security(ies) being sold.
PORTFOLIO TURNOVER
The portfolio turnover rate for the Acquiring Fund (i.e.,
the ratio of the lesser of annual sales or purchases to the
monthly average value of the portfolio (excluding from both the
numerator and the denominator securities with maturities at the
time of acquisition of one year or less)), for the year ended
December 31, 1999 was [161%]. The portfolio turnover rate for the
Fund for the year ended October 31, 1999 was 201%.
CAPITALIZATION AND PERFORMANCE
Pro forma capitalization (unaudited). The following table
sets forth the unaudited capitalization of each class of each of
the Acquiring Fund and the Fund as of June 30, 2000, as adjusted
giving effect to the Reorganization discussed herein:1
ACQUIRING
FUND
(Actual)
THE
FUND
(Actual)
CITIFUNDS
SERIES2
(Actual)
PRO FORMA
ADJUSTMENTS2
PRO FORMA
COMBINED
Class A
Net Assets
$269,993,
291
$19,279,94
7
$38,653,4
38
$327,926,67
6
Net Asset
Value Per
Share
$9.07
$9.60
$9.18
$9.07
Shares
Outstanding
29,755,82
5
2,007,327
4,211,626
6,387,363
36,143,188
Class B
Net Assets
$50,297,7
84
$14,504,15
9
$1,685,55
4
$66,487,497
Net Asset
Value Per
Share3
$9.08
$9.63
$9.20
$9.08
Shares
Outstanding
5,538,032
1,506,227
183,225
1,783,008
7,321,040
Class 13
Net Assets
--
$131,224,3
33
--
$131,224,33
3
Net Asset
Value Per
Share
$9.07
$9.63
--
$9.07
Shares
Outstanding
13,623,918
--
14,467,953
14,467,953
__________________
1 Assumes the Reorganization had been consummated on June 30,
2000, and is for information purposes only. No assurance
can be given as to how many shares of the Acquiring Fund
will be received by shareholders of the Fund on the date the
Reorganization takes place, and the foregoing should not be
relied upon to reflect the number of shares of the Acquiring
Fund that actually will be received on or after such date.
2 Assumes the consummation of a reorganization pursuant to
which the assets of CitiFunds Intermediate Income portfolio,
a series of CitiFunds Fixed Income Trust, are acquired by
the Acquiring Fund.
3 Assumes subscriptions of Class 1 shares in acquiring fund at
Class A NAV.
Total return is a measure of the change in value of an
investment in a fund over the period covered, which assumes that
any dividends or capital gains distributions are automatically
reinvested in shares of the fund rather than paid to the investor
in cash. The formula for total return used by a fund is
prescribed by the SEC and includes three steps: (1) adding to the
total number of shares of the fund that would be purchased by a
hypothetical $1,000 investment in the fund all additional shares
that would have been purchased if all dividends and distributions
paid or distributed during the period had been automatically
reinvested; (2) calculating the redemption value of the
hypothetical initial investment as of the end of the period by
multiplying the total number of shares owned at the end of the
period by the net asset value per share on the last trading day of
the period; and (3) dividing this account value for the
hypothetical investor by the amount of the initial investment, and
annualizing the result for periods of less than one year. Total
return may be stated with or without giving effect to any expense
limitations in effect for a fund.
The following table reflects the average annual total
returns of Class B Shares of the Acquiring Fund for the 1, 5 and
10 year and since inception periods, as applicable, ending
December 31, 1999 for each of the Fund and the Acquiring Fund:
THE FUND
THE ACQUIRING FUND
Average Annual Total Return: 1
1-year
(9.77%)
(9.42%)
5-year
N/A
5.25%
10-year
N/A
6.20%
Since Inception
2.69%
7.27%
(8/08/96)
(3/20/84)
__________________
1 The average annual total returns for other classes of each
Fund's shares would be similar to the returns of the Class B
Shares of the relevant Fund, but would differ to the extent
that the other class of shares had a higher or lower total
annual expense ratio during the relevant periods. For
example, the average annual total returns of Class 1 Shares
of the Fund, which are subject to a lower total annual
expense ratio, were as follows: 1-year: (11.16%); 5-year:
4.34%; 10-year: 5.46%; and since inception: 5.94% (4/14/87).
Class 1 Shares of the Acquiring Fund had not been issued as
of the date of this Proxy Statement/Prospectus.
ADDITIONAL INFORMATION ABOUT THE FUNDS
As noted above, additional information about Investment
Series with respect to the Fund, Investment Funds with respect to
the Acquiring Fund, and the Reorganization has been filed with the
SEC and may be obtained without charge by writing to Smith Barney
Mutual Funds, 388 Greenwich Street, New York, New York 10013, or
by calling (800) 451-2010.
Each Fund is subject to the informational requirements of
the Securities Exchange Act of 1934 and the 1940 Act, and in
accordance therewith, files reports, proxy material and other
information about the applicable Fund with the Commission.
Such reports, proxy material and other information can be
inspected and copied at the Public Reference Room ((202) 942-8090)
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]. Copies of such material can also be obtained
from Smith Barney Mutual Funds, 388 Greenwich Street, New York,
New York 10013, or by calling (800) 451-2010.
Interests of certain persons. SSB Citi and certain of the
Acquiring Fund's service providers have a financial interest in
the Reorganization arising from the fact that their respective
fees under their respective agreements with the Acquiring Fund
will increase as the amount of the Acquiring Fund's assets
increases by virtue of the Reorganization.
THE BOARD MEMBERS OF INVESTMENT SERIES RECOMMEND THAT THE
SHAREHOLDERS OF THE FUND VOTE IN FAVOR OF THIS PROPOSAL.
ADDITIONAL INFORMATION
General. The cost of preparing, printing and mailing the
enclosed proxy card(s) and Proxy Statement/Prospectus and all
other costs incurred in connection with the solicitation of
proxies, including any additional solicitation made by letter,
telephone or telegraph, will be paid by SSB Citi. In addition to
solicitation by mail, certain officers and representatives of
Investment Series, officers and employees of SSB Citi and certain
financial services firms and their representatives, who will
receive no extra compensation for their services, may solicit
proxies by telephone, telegram or personally.
When the Fund records proxies by telephone, it will use
procedures designed to (i) authenticate shareholders' identities,
(ii) allow shareholders to authorize the voting of their shares in
accordance with their instructions and (iii) confirm that their
instructions have been properly recorded.
To participate in the Special Meeting, holders of shares of
beneficial interests in the Fund may submit the proxy card
originally sent with the Proxy Statement/Prospectus or attend in
person. Any proxy given by a shareholder is revocable until voted
at the Special Meeting.
Proposals of shareholders. Shareholders wishing to submit
proposals for inclusion in a proxy statement for a shareholder
meeting subsequent to the Special Meeting, if any, should send
their written proposals to the Secretary of Investment Series, c/o
Smith Barney Mutual Funds, 388 Greenwich Street, New York, New
York 10013, within a reasonable time before the solicitation of
proxies for such meeting. The timely submission of a proposal
does not guarantee its inclusion.
Other matters to come before the special meeting. No Board
member 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
Investment Series and/or the Fund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S)
PROMPTLY. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
By order of the Board of Trustees,
/s/ Christina T. Sydor
Christina T. Sydor
Secretary
INDEX OF EXHIBITS
ANNEX: 5% Shareholders of the Acquiring Fund
Exhibit A: Form of Agreement and Plan of Reorganization
ANNEX A
5% SHAREHOLDERS OF THE ACQUIRING FUND
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement")
is made as of this ____ day of _________, 2000, between Concert
Investment Series(r) ("Investment Series"), a Massachusetts business
trust with its principal place of business at 388 Greenwich
Street, New York, New York 10013, on behalf of its series, the
Government Fund (the "Acquired Fund"), and Smith Barney Investment
Funds Inc. ("Investment Funds"), a Maryland corporation with its
principal place of business at 388 Greenwich Street, New York, New
York 10013, on behalf of its series, the Government Securities
Fund (the "Acquired Fund") and solely for purposes of Section 10.2
hereof, SSB Citi Fund Management, LLC ("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"). The reorganization (the "Reorganization") will consist
of the transfer of all of the assets of the
Acquired Fund to Investment Funds, on behalf of the Acquiring
Fund, in exchange solely for voting shares of the corresponding
class of common stock ($.001 par value per share) of the Acquiring
Fund (the "Acquiring Fund Shares"), the assumption by Investment
Funds, on behalf of the Acquiring Fund, of all of the stated liabilities
of the Acquired Fund and the distribution of the Acquiring Fund
Shares to the holders of shares of beneficial interests in the
Acquired Fund in complete liquidation of the Acquired Fund as
provided herein, all upon the terms and conditions hereinafter set
forth in this Agreement.
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 ACQUIRED FUND TO THE ACQUIRING
FUND IN EXCHANGE FOR THE ACQUIRING FUND SHARES, THE
ASSUMPTION OF ALL ACQUIRED FUND LIABILITIES AND THE
LIQUIDATION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth
and on the basis of the representations and warranties contained
herein, Investment Series, on behalf of the Acquired Fund, agrees
to transfer to Investment Funds, on behalf of the Acquiring Fund,
all of the Acquired Fund's assets as set forth in section 1.2, and
Investment Funds, on behalf of the Acquiring Fund, agrees in
exchange therefor (i) to deliver to the Acquired Fund that number
of full and fractional Acquiring Fund Shares determined by
dividing the value of the Acquired Fund's assets, computed in the
manner and as of the time and date set forth in section 2.1, by
the net asset value of one Acquiring Fund Share, computed in the
manner and as of the time and date set forth in section 2.2; and
(ii) to assume all of the stated liabilities of the Acquired Fund, 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 Acquired Fund to be acquired by the
Acquiring Fund (collectively "Assets") shall consist of all
assets, including, without limitation, all cash, cash equivalents,
securities, commodities and futures interests and dividends or
interest or other receivables that are owned by the Acquired Fund
and any deferred or prepaid expenses shown on the unaudited
statement of assets and liabilities of the Acquired Fund prepared
as of the effective time of the closing (the "Effective Time
Statement"), prepared in accordance with generally accepted
accounting principles ("GAAP") applied consistently with those of
the Acquired Fund's most recent audited balance sheet.
1.3. The Acquired Fund will endeavor to discharge all the
Acquired Fund's 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
as defined in section 3.1, the Acquired Fund 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 assets provided for
in section 1.1 (the "Liquidation Time"), Investment Series will
distribute to the Acquired Fund's shareholders of record (the
"Acquired Fund Shareholders"), determined as of the Valuation Time
(as defined herein), on a pro rata basis, the Acquiring Fund
Shares received by the Acquired Fund pursuant to section 1.1 and
will completely liquidate. Such distribution and liquidation will
be accomplished by the transfer of the Acquiring Fund Shares then
credited to the account of the Acquired Fund on the books of the
Acquiring Fund to open accounts on the share records of the
Acquiring Fund in the names of the Acquired Fund Shareholders.
The aggregate net asset value of Acquiring Fund Shares to be so
credited to Acquired Fund Shareholders shall be equal to the
aggregate net asset value of each class of the Acquired Fund
shares owned by such shareholders as of the Valuation Time (as
defined herein). All issued and outstanding shares of the
Acquired Fund will simultaneously be cancelled on the books of
Investment Series with respect to the Acquired Fund, although
share certificates representing interests in shares of the
Acquired Fund will represent a number of Acquiring Fund Shares
after the Closing Date as determined in accordance with section
2.3. The Acquiring Fund will not issue certificates representing
Acquiring Fund Shares in connection with such exchange.
1.6. Ownership of Acquiring Fund Shares will be shown on
the books of Investment Funds with respect to the Acquiring Fund.
Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's then-current prospectus and
statement of additional information.
1.7. Any reporting responsibility of the Acquired Fund
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 Acquired Fund.
1.8. All books and records of the Acquired Fund, including
all books and records required to be maintained under the 1940 Act
and the rules and regulations thereunder, shall be available to
the Acquiring Fund from and after the Closing Date and shall be
turned over to the Acquiring Fund as soon as practicable following
the closing date.
2. VALUATION
2.1. The value of the Assets shall be computed as of the
close of regular trading on The New York Stock Exchange, Inc.
("NYSE") on the Closing Date, as defined in Section 3.1 (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 set
forth in the Acquiring Fund's Articles of Incorporation, as
amended, and then-current prospectus or statement of additional
information.
2.2. The net asset value of an Acquiring Fund share shall
be the net asset value per share of each class computed as of the
Valuation Time using the valuation procedures referred to in
section 2.1.
2.3. The number of the Acquiring Fund Shares to be issued
(including fractional shares, if any) in exchange for the Assets
shall be determined by dividing the value of the Assets with
respect to shares of each class of the Acquired Fund determined in
accordance with section 2.1 by the net asset value by class of an
Acquiring Fund Share 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 respective accounting agent,
if applicable, in accordance with its regular practice and the
requirements of the 1940 Act and shall be subject to confirmation
by each Fund's respective independent accountants.
3. CLOSING AND CLOSING DATE
3.1. The Closing of the transactions contemplated by this
Agreement shall be October 6, 2000, or such 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 [Willkie Farr & Gallagher] or at
such other place and time as the parties may agree.
3.2. Investment Series, on behalf of Acquired Fund, shall
deliver to Investment Funds, on behalf of the Acquiring Fund, on
the Closing Date a schedule of assets.
3.3. PNC Bank, National Association, as custodian for the
Investment Series, shall deliver at the Closing a certificate of
an authorized officer stating that (a) the Assets shall have been
delivered in proper form to PNC Bank, National Association,
custodian for the Acquiring Fund, prior to or on the Closing Date
and (b) all necessary taxes in connection with the delivery of the
Assets, including all applicable federal and state stock transfer
stamps, if any, have been paid or provision for payment has been
made. The Acquired Fund's portfolio securities represented by a
certificate or other written instrument shall be presented by
Custodian for Acquired Fund to Custodian for Acquiring Fund for
examination no later than five business days preceding the Closing
Date and transferred and delivered by the Acquired Fund as of the
Closing Date by the Acquired Fund for the account of Acquiring
Fund duly endorsed in proper form for transfer in such condition
as to constitute good delivery thereof. The Acquired Fund'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 Custodian for
Acquiring Fund. The cash to be transferred by the Acquired Fund
shall be delivered by wire transfer of federal funds on the
Closing Date.
3.4. Citi Fiduciary Trust Company (the "Transfer Agent"),
on behalf of the Acquired Fund, shall deliver at the Closing a
certificate of an authorized officer stating that its records
contain the names and addresses of the Acquired Fund Shareholders
and the number and percentage ownership (to three decimal places)
of outstanding Acquired Fund Shares owned by each such shareholder
immediately prior to the Closing. Investment Funds, on behalf of
the Acquiring Fund, shall issue and deliver a confirmation
evidencing the Acquiring Fund Shares to be credited on the Closing
Date to the Acquired Fund or provide evidence satisfactory to the
Acquired Fund that such Acquiring Fund Shares have been credited
to the Acquired Fund's account on the books of the Acquiring Fund.
At the Closing, each party shall deliver to the other such bills
of sale, checks, 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.
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 Acquiring Fund or the Acquired Fund shall be
closed to trading or trading thereupon shall be restricted, or
(b) trading or the reporting of trading on such Exchange or
elsewhere shall be disrupted so that, in the judgment of the Board
of Directors/Trustees of either Fund, accurate appraisal of the
value of the net assets with respect to the Acquiring Fund Shares
or the Acquired Fund 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.
4. REPRESENTATIONS AND WARRANTIES
4.1. Investment Series, on behalf of the Acquired Fund,
represents and warrants to the Acquiring Fund as follows:
(a) Investment Series is a business trust duly
organized and validly existing under the laws of The
Commonwealth of Massachusetts with power under its
Declaration of Trust, as amended, to own all of its
properties and assets and to carry on its business as it is
now being conducted;
(b) Investment Series is registered with the
Commission as an open-end management investment company
under the Investment Company Act of 1940, as amended (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 Acquired Fund of the transactions
contemplated herein, except such as have been obtained under
the Securities Act of 1933, as amended (the "1933 Act"), the
Securities Exchange Act of 1934 (the "1934 Act") and the
1940 Act and such as may be required by state securities
laws;
(d) Other than with respect to contracts entered
into in connection with the portfolio management of the
Acquired Fund which shall terminate on or prior to the
Closing Date, Investment Series is not, and the execution,
delivery and performance of this Agreement by Investment
Series will not result, in violation of Massachusetts law or
of its Declaration of Trust, as amended, or By-Laws, or of
any material agreement, indenture, instrument, contract,
lease or other undertaking known to counsel to which the
Acquired Fund is a party or by which it is bound, and the
execution, delivery and performance of this Agreement by the
Acquired 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 Acquired Fund is a party or by which
it is bound;
(e) No material litigation or administrative
proceeding or investigation of or before any court or
governmental body is presently pending or to its knowledge
threatened against the Acquired Fund or any properties or
assets held by it. The Acquired Fund knows of no facts
which might form the basis for the institution of such
proceedings which would materially and adversely affect its
business 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
business or its ability to consummate the transactions
herein contemplated;
(f) The Statements of Assets and Liabilities,
including the Investment Portfolio, Operations, and Changes
in Net Assets, and the Financial Highlights of the Acquired
Fund at and for the year ended October 31, 1999, has been
audited by Ernst & Young LLP, independent certified public
accountants, and are in accordance with GAAP consistently
applied, and such statements (copies of which have been
furnished to the Acquiring Fund) present fairly, in all
material respects, the financial position, results of
operations, changes in net assets and financial highlights
of the Acquired Fund as of such date in accordance with
GAAP, and there are no known contingent liabilities of the
Acquired 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 October 31, 1999 , there has not been any
material adverse change in the Acquired Fund's financial
condition, assets, liabilities or business other than
changes occurring in the ordinary course of business, or any
incurrence by the Acquired 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 Investment Funds, on behalf of the Acquiring
Fund. For purposes of this subsection (g), a decline in net
asset value per share of the Acquired Fund due to declines
in market values of securities in the Acquired Fund's
portfolio, the discharge of Acquired Fund liabilities, or
the redemption of Acquired Fund shares by Acquired 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 Acquired
Fund required by law to have been filed by such dates
(including any extensions) 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 Acquired Fund'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
Acquired 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 have distributed all of its investment
company taxable income and net capital gain (as defined in
the Code) that has accrued through the Closing Date;
(j) All issued and outstanding shares of the
Acquired 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, (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 Transfer Agent, as
provided in section 3.3. The Acquired Fund does not have
outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquired Fund shares,
nor is there outstanding any security convertible into any
of the Acquired Fund shares;
(k) At the Closing Date, the Acquired Fund will have
good and marketable title to the Acquired Fund's assets to
be transferred to the Acquiring Fund pursuant to section 1.2
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 the Acquiring Fund has received notice at or prior
to the Closing, and upon delivery and payment for such
assets, the Acquiring Fund will acquire good and marketable
title thereto, subject to no restrictions on the full
transfer thereof, including such restrictions as might arise
under the 1933 Act and the 1940 Act, except those
restrictions as to which the Acquiring 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 Investment Series, and, subject to the approval
of the Acquired Fund Shareholders, this Agreement
constitutes a valid and binding obligation of Investment
Series, on behalf of the Acquired Fund, 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 equity principles;
(m) The information to be furnished by the Acquired
Fund 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 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; and
(n) The current prospectus and statement of
additional information of the Acquired 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 of the Acquired Fund to be
included in the Registration Statement referred to in
section 5.7 (the "Proxy Statement"), insofar as it relates
to the Acquired Fund, 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 Acquiring Fund for use therein.
4.2. Investment Funds, on behalf of the Acquiring Fund,
represents and warrants to Investment Series, on behalf of the
Acquired Fund, as follows:
(a) Investment Funds is a corporation duly organized
and validly existing under the laws of the State of Maryland
with power under its Articles of Incorporation, as amended,
to own all of its properties and assets and to carry on its
business as it is now being conducted;
(b) Investment Funds 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 Acquiring Fund of the transactions
contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may
be required by state securities laws;
(d) Investment Funds is not, and the execution,
delivery and performance of this Agreement by Investment
Funds will not result, in violation of Maryland law or of
the Investment Funds' Articles of Incorporation, as amended,
or By-Laws, or of any material agreement, indenture,
instrument, contract, lease or other undertaking known to
counsel to which the Acquiring Fund is a party or by which
it is bound, and the execution, delivery and performance of
this Agreement by the Acquiring 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 Acquiring
Fund is a party or by which it is bound;
(e) No material litigation or administrative
proceeding or investigation of or before any court or
governmental body is presently pending or to its knowledge
threatened against the Acquiring Fund or any properties or
assets held by it. The Acquiring Fund knows of no facts
which might form the basis for the institution of such
proceedings which would materially and adversely affect its
business 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
business or its ability to consummate the transactions
herein contemplated;
(f) The Statements of Assets and Liabilities,
including the Investment Portfolio, Operations, and Changes
in Net Assets, and the Financial Highlights of the Acquiring
Fund at and for the year ended December 31, 1999 has been
audited by KPMG LLP, independent certified public
accountants, and are in accordance with GAAP consistently
applied, and such statements (copies of which have been
furnished to the Acquired Fund) present fairly, in all
material respects, the financial position, results of
operations, changes in net assets and financial highlights
of the Acquiring Fund as of such date in accordance with
GAAP, and there are no known contingent liabilities of the
Acquiring 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 Acquiring Fund's financial
condition, assets, liabilities or business other than
changes occurring in the ordinary course of business, or any
incurrence by the Acquiring 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 Investment Series on behalf of the Acquired Fund.
For purposes of this subsection (g), a decline in net asset
value per share of the Acquiring Fund due to declines in
market values of securities in the Acquiring Fund's
portfolio, the discharge of Acquiring Fund liabilities, or
the redemption of Acquiring Fund shares by Acquiring 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 Acquiring
Fund required by law to have been filed by such dates
(including any extensions) 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 Acquiring Fund'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
Acquiring 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;
(j) All issued and outstanding shares of the
Acquiring 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. The Acquiring
Fund does not have outstanding any options, warrants or
other rights to subscribe for or purchase any of the
Acquiring Fund shares, nor is there outstanding any security
convertible into any of the Acquiring Fund shares;
(k) The Acquiring Fund Shares to be issued and
delivered to the Acquired Fund, for the account of the
Acquired Fund Shareholders, pursuant to the terms of this
Agreement, will at the Closing Date have been duly
authorized and, when so issued and delivered, will be duly
and validly issued and outstanding Acquiring Fund Shares,
and will be fully paid and non-assessable;
(l) At the Closing Date, the Acquiring Fund will
have good and marketable title to the Acquiring Fund's
assets, free of any liens or other encumbrances, except
those liens or encumbrances as to which the Acquired Fund
has received notice at or prior to the Closing;
(m) 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 Investment Funds and this Agreement will
constitute a valid and binding obligation of Investment
Funds on behalf of the Acquiring Fund, 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 equity principles;
(n) The information to be furnished by the Acquiring
Fund 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 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;
(o) The current prospectus and statement of
additional information of the Acquiring 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;
(p) The Proxy Statement to be included in the
Registration Statement, only insofar as it relates to the
Acquiring Fund, 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 Acquired Fund for use therein; and
(q) Investment Funds, on behalf of the Acquiring
Fund, agrees 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 may be
necessary in order to continue its operations after the
Closing Date.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1. Investment Funds, on behalf of the Acquiring Fund, and
Investment Series, on behalf of the Acquired Fund, each 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, Investment Funds' officers and
agents shall have reasonable access to the Acquired Fund's books
and records necessary to maintain current knowledge of the
Acquired Fund and to ensure that the representations and
warranties made by the Acquired Fund are accurate.
5.3. Investment Series, on behalf of the Acquired Fund,
covenants to call a meeting of the Acquired Fund Shareholders
entitled to vote thereon 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 __________, 2000 (or such
other date as the Acquired Fund and the Acquiring Fund may agree
to in writing).
5.4. Investment Series, on behalf of the Acquired Fund,
covenants that the Acquiring 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. Investment Series, on behalf of the Acquired Fund,
covenants that it will assist Investment Funds in obtaining such
information as Investment Funds reasonably requests concerning the
beneficial ownership of the Acquired Fund Shares and will provide
Investment Funds with a list of affiliates of the Acquired Fund.
5.6. Subject to the provisions of this Agreement,
Investment Funds, on behalf of the Acquiring Fund, and Investment
Series, on behalf of the Acquired Fund, 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.
5.7. Each Fund covenants to prepare the Registration
Statement on Form N-14 (the "Registration Statement"), in
compliance with the 1933 Act, the 1934 Act and the 1940 Act in
connection with the meeting of the Acquired Fund Shareholders to
consider approval of this Agreement and the transactions
contemplated herein. Investment Funds, on behalf of the Acquiring
Fund, will file the Registration Statement, including the Proxy
Statement, with the Commission. Investment Series, on behalf of
the Acquired Fund, will provide the Acquiring Fund with
information reasonably necessary for the preparation of a
prospectus, which will include the Proxy Statement referred to in
section 4.1(o), all to be included in the Registration Statement,
in compliance in all material respects with the 1933 Act, the 1934
Act and the 1940 Act.
5.8. Investment Series, on behalf of the Acquired Fund,
covenants that it will, from time to time, as and when reasonably
requested by Investment Funds, 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
Investment Funds may reasonably deem necessary or desirable in
order to vest in and confirm the Acquiring Fund's title to and
possession of all the assets and otherwise to carry out the intent
and purpose of this Agreement.
5.9. Investment Funds, on behalf of the Acquiring Fund,
covenants to use all reasonable efforts to obtain the approvals
and authorizations required by the 1933 Act and 1940 Act, and such
of the state securities laws as it deems appropriate in order to
continue its operations after the Closing Date and to consummate
the transactions contemplated herein; provided, however, that
Investment Funds may take such actions it reasonably deems
advisable after the Closing Date as circumstances change.
5.10. Investment Funds, on behalf of the Acquiring Fund,
covenants that it will, from time to time, as and when reasonably
requested by Investment Series, 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 Investment Series may
reasonably deem necessary or desirable in order to (i) vest and
confirm to the Acquired Fund title to and possession of all
Acquiring Fund shares to be transferred to Acquired Fund pursuant
to this Agreement and (ii) assume the liabilities from the
Acquired Fund.
5.11. As soon as reasonably practicable after the Closing,
the Acquired Fund shall make a liquidating distribution to its
shareholders consisting of the Acquiring Fund Shares received at
the Closing.
5.12. Investment Funds, on behalf of the Acquiring Fund, and
Investment Series, on behalf of the Acquired Fund, shall each 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 ACQUIRED FUND
The obligations of Investment Series, on behalf of the
Acquired Fund, to consummate the transactions provided for herein
shall be subject, at its election, to the performance by
Investment Funds, on behalf of the Acquiring Fund, of all the
obligations to be performed by it hereunder on or before the
Closing Date, and, in addition thereto, the following further
conditions:
6.1. All representations and warranties of Investment
Funds, with respect to the Acquiring Fund, contained in this
Agreement shall be true and correct in all material respects as of
the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, 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 (other than Acquired Fund, its
adviser or any of their affiliates) against the Acquiring Fund,
the Acquired Fund or their advisers, trustees or officers arising
out of this Agreement and (ii) no facts known to the Acquired Fund
which the Acquired Fund reasonably believes might result in such
litigation.
6.2. Investment Funds, on behalf of the Acquiring Fund,
shall have delivered to the Acquired Fund on the Closing Date a
certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquired Fund
and dated as of the Closing Date, to the effect that the
representations and warranties of Investment Funds, with respect
to the Acquiring Fund, made in this Agreement are true and correct
on and as of the Closing Date, except as they may be affected by
the transactions contemplated by this Agreement, and as to such
other matters as the Acquired Fund shall reasonably request;
6.3. Investment Series, on behalf of the Acquired Fund,
shall have received on the Closing Date an opinion of Willkie Farr
& Gallagher, in a form reasonably satisfactory to the Acquired
Fund, and dated as of the Closing Date, to the effect that:
(a) Investment Funds has been duly organized and is
a validly existing corporation;
(b) Investment Funds, with respect to the Acquiring
Fund, has the corporate power to carry on its business as
presently conducted in accordance with the description
thereof in Investment Funds' registration statement under
the 1940 Act;
(c) the Agreement has been duly authorized, executed
and delivered by Investment Funds, on behalf of the
Acquiring Fund, and constitutes a valid and legally binding
obligation of Investment Funds, on behalf of the Acquiring
Fund, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and laws of general applicability relating to or
affecting creditors' rights and to general equity
principles;
(d) the execution and delivery of the Agreement did
not, and the exchange of the Acquired Fund's assets for
Acquiring Fund Shares pursuant to the Agreement will not,
violate the Articles of Incorporation, as amended, or By-
laws of Investment Funds; and
(e) to the knowledge of such counsel, all regulatory
consents, authorizations, approvals or filings required to
be obtained or made by the Acquiring Fund under the Federal
laws of the United States or the laws of the State of
Maryland for the exchange of the Acquired Fund's assets for
Acquiring Fund Shares pursuant to the Agreement have been
obtained or made.
Such opinion may state that it is solely for the benefit of
Investment Series, its Trustees and its officers. Such counsel
may rely as to matters governed by the laws of the State of
Maryland on an opinion of Maryland counsel and/or certificates of
officers or Directors of the Acquiring Fund. Such opinion also
shall include such other matters incident to the transaction
contemplated hereby as the Acquired Fund may reasonably request.
6.4. Investment Funds, on behalf of the Acquiring 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 the Acquiring Fund on or before the Closing Date.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the
transactions provided for herein shall be subject, at its
election, to the performance by the Acquired Fund of all of the
obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following further
conditions:
7.1. All representations and warranties of Investment
Series, with respect to the Acquired Fund, contained in this
Agreement shall be true and correct in all material respects as of
the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, 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 (other than Acquiring Fund, its
adviser or any of their affiliates) against the Acquired Fund, the
Acquiring Fund or their advisers, trustees or officers arising out
of this Agreement and (ii) no facts known to the Acquiring Fund
which the Acquiring Fund reasonably believes might result in such
litigation.
7.2. Investment Series shall have delivered to the
Acquiring Fund a statement of the Acquired Fund's assets and
liabilities as of the Closing Date, certified by the Treasurer of
Investment Series;
7.3. Investment Series shall have delivered to the
Acquiring Fund on the Closing Date a certificate executed in its
name by its President or a Vice President, in a form reasonably
satisfactory to the Acquiring Fund and dated as of the Closing
Date, to the effect that the representations and warranties of
Investment Series, with respect to the Acquired Fund, made in this
Agreement are true and correct on and as of the Closing Date,
except as they may be affected by the transactions contemplated by
this Agreement, and as to such other matters as the Acquiring Fund
shall reasonably request;
7.4. Investment Funds, on behalf of the Acquiring Fund,
shall have received on the Closing Date an opinion of [Sullivan &
Worcester LLP], in a form reasonably satisfactory to the Acquiring
Fund, and dated as of the Closing Date, to the effect that:
(a) Investment Series has been duly formed and is an
existing business trust;
(b) Investment Series, with respect to the Acquired
Fund, has the corporate power to carry on its business as
presently conducted in accordance with the description
thereof in Investment Series' registration statement under
the 1940 Act;
(c) the Agreement has been duly authorized, executed
and delivered by Investment Series, on behalf of the
Acquired Fund, and constitutes a valid and legally binding
obligation of Investment Series, on behalf of the Acquired
Fund, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and laws of general applicability relating to or
affecting creditors' rights and to general equity
principles;
(d) the execution and delivery of the Agreement did
not, and the exchange of the Acquired Fund's assets for
Acquiring Fund Shares pursuant to the Agreement will not,
violate the Declaration of Trust, as amended, or By-laws of
Investment Series; and
(e) to the knowledge of such counsel, all regulatory
consents, authorizations, approvals or filings required to
be obtained or made by the Acquired Fund under the Federal
laws of the United States or the laws of The Commonwealth of
Massachusetts for the exchange of the Acquired Fund's assets
for Acquiring Fund Shares pursuant to the Agreement have
been obtained or made.
Such opinion may state that it is solely for the benefit of the
Acquiring Fund, its Directors and its officers. Such counsel may
rely as to matters governed by the laws of The Commonwealth of
Massachusetts on an opinion of Massachusetts counsel and/or
certificates of officers or Trustees of Investment Series. Such
opinion also shall include such other matters incident to the
transaction contemplated hereby, as the Acquiring Fund may
reasonably request.
7.5. Investment Series, on behalf of the Acquired 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 the Acquired Fund on or before the Closing Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING
FUND AND THE ACQUIRED FUND
If any of the conditions set forth below have not been met
on or before the Closing Date with respect to the Acquired Fund or
the Acquiring Fund, the other party to this Agreement shall, at
its option, not be required to consummate the transactions
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 beneficial interests in the
Acquired Fund in accordance with the provisions of the Declaration
of Trust, as amended, and By-Laws of Investment Series, applicable
Massachusetts law and the 1940 Act, and certified copies of the
resolutions evidencing such approval shall have been delivered to
the Acquiring Fund. Notwithstanding anything herein to the
contrary, neither the Acquiring Fund nor the Acquired Fund may
waive the conditions set forth in this section 8.1;
8.2. On the Closing Date, no action, suit or other
proceeding shall be pending or to its 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 Investment Funds or Investment
Series 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 Acquiring Fund or the Acquired Fund, provided
that either party hereto may for itself waive any of such
conditions;
8.4. The Registration Statement shall have become effective
under the 1933 Act 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; and
8.5. The parties shall have received an opinion of Willkie
Farr & Gallagher addressed to Investment Series and Investment
Funds substantially to the effect that, based upon certain facts,
assumptions and representations, for Federal income tax purposes:
(i) the transfer to the Acquiring Fund of all or substantially all
of the assets of the Acquired Fund in exchange solely for Shares
and the assumption by the Acquiring Fund of all of the liabilities
of the Acquired Fund, followed by the distribution of such Shares
to Acquired Fund shareholders in exchange for their shares of the
Acquired Fund in complete liquidation of the Acquired Fund, will
constitute a "reorganization" within the meaning of Section
368(a)(1) of the Code, and the Acquiring Fund and the Acquired
Fund will each be "a party to a reorganization" within the meaning
of Section 368(b) of the Code; (ii) no gain or loss will be
recognized by the Acquired Fund upon the transfer of the Acquired
Fund's assets to the Acquiring Fund in exchange for the Acquiring
Fund Shares and the assumption by the Acquiring Fund of
liabilities of the Acquired Fund or upon the distribution (whether
actual or constructive) of the Acquiring Fund Shares to the
Acquired Fund's shareholders in exchange for their shares of the
Acquired Fund; (iii) the basis of the assets of the Acquired Fund
in the hands of the Acquiring Fund will be the same as the basis
of such assets of the Acquired Fund immediately prior to the
transfer; (iv) the holding period of the assets of the Acquired
Fund in the hands of the Acquiring Fund will include the period
during which such assets were held by the Acquired Fund; (v) no
gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund in exchange for Shares
and the assumption by the Acquiring Fund of all of the liabilities
of the Acquired Fund; (vi) no gain or loss will be recognized by
the holders of shares of beneficial interests in the Acquired Fund
upon the receipt of Shares solely in exchange for their shares of
the Acquired Fund as part of the transaction; (vii) the basis of
Shares received by the holders of shares of beneficial interests
in the Acquired Fund will be the same as the basis of the shares
of beneficial interests in the Acquired Fund exchanged therefor;
and (viii) the holding period of Shares received by the holders of
shares of beneficial interests in the Acquired Fund will include
the holding period during which the shares of beneficial interests
in the Acquired Fund exchanged therefor were held, provided that
at the time of the exchange the shares of beneficial interests in
the Acquired Fund were held as capital assets in the hands of the
holders of shares of beneficial interests in the Acquired Fund.
The delivery of such opinion is conditioned upon receipt by
Willkie Farr & Gallagher of representations it shall request of
each of Investment Series and Investment Funds. Notwithstanding
anything herein to the contrary, neither Investment Series nor
Investment Funds may waive the condition set forth in this section
8.5.
9. INDEMNIFICATION
9.1. Investment Funds, on the behalf of the Acquiring Fund,
agrees to indemnify and hold harmless Investment Series and each
of its trustees and 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 jointly and severally Investment
Series or any of its trustees or officers 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 Acquiring Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
9.2. Investment Series, on behalf of the Acquired Fund,
agrees to indemnify and hold harmless Investment Funds and each of
its directors and 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 jointly and severally Investment
Funds or any of its trustees or officers 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 Acquired Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
10. FEES AND EXPENSES
10.1. Investment Funds, on behalf of the Acquiring Fund, and
Investment Series, on behalf of the Acquired Fund, 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 that relate to the
Acquiring Fund and the Acquired Fund will be borne by SSB Citi.]
Any such expenses which are so borne by SSB Citi will be solely
and directly related to the Reorganization.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1. Investment Funds, on behalf of the Acquiring Fund, and
Investment Series, on behalf of the Acquired Fund, 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 Investment Funds, on behalf of the
Acquiring Fund, and Investment Series, on behalf of the Acquired
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, or (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 directors 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 Investment Series and Investment Funds;
provided, however, that following the meeting of the Acquired Fund
Shareholders called by the Acquired Fund pursuant to section 5.3
of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the
Acquiring Fund Shares to be issued to the Acquired Fund
shareholders 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 provisions 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
Acquired Fund, c/o Concert Investment Series(r), Inc., 388 Greenwich
Street, New York, New York 10013, with a copy to Willkie Farr &
Gallagher, 787 Seventh Avenue, New York, New York 10019-6099,
Attn.: Burton M. Leibert, Esq., or to the Acquiring 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, New York 10019-6099, Attn.: Burton
M. Leibert, Esq., or to any other address that Investment Series
or Investment Funds 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, other than the parties hereto and
the shareholders of the Acquiring Fund and the Acquired Fund and
their respective successors and assigns, any rights or remedies
under or by reason of this Agreement.
15.4. Investment Series is organized as a Massachusetts
business trust, and references in this Agreement to Investment
Series mean and refer to the Trustees from time to time serving
under the Declarations of Trust on file with the Secretary of
State of The Commonwealth of Massachusetts, as the same may be
amended from time to time, pursuant to which Investment Series
conducts its business. It is expressly agreed that the
obligations of Investment Series hereunder shall not be binding
upon any of its Trustees, shareholders, nominees, officers,
agents, or employees of Investment Series personally, but bind
only the property of the Acquired Fund as provided in the
Declaration of Trust of Investment Series. Moreover, no series of
Investment Series other than the Acquired Fund shall be
responsible for the obligations of Investment Series hereunder,
and all persons shall look only to the assets of the Acquired Fund
to satisfy the obligations of Investment Series hereunder. The
execution and the delivery of this Agreement have been authorized
by the Board of Trustees of Investment Series, on behalf of the
Acquired Fund, and this Agreement has been signed by authorized
officers of Investment Series acting as such, and neither such
authorization by such Trustees, nor such execution and delivery by
such officers, shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally,
but shall bind only the property of the Acquired Fund as provided
in the Declaration of Trust of Investment Series.
15.5. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York,
without regard to its principles of conflicts of laws.
IN WITNESS WHEREOF, each of the parties hereto has caused
this Agreement to be executed by its President, Vice President or
in the case of SSB Citi, an authorized person and attested by its
Secretary, Assistant Secretary or in the case of SSB Citi, an
authorized person.
Attest: CONCERT INVESTMENT SERIES(r)
on behalf of the Government
Fund
By:
Name:
Title:
Attest: SMITH BARNEY INVESTMENT FUNDS
INC.
on behalf of the Government
Securities Fund
By:
Name:
Title:
Attest: SSB CITI FUND MANAGEMENT LLC
By:
Name:
Title:
THE PROSPECTUS AND ANNUAL REPORT OF THE ACQUIRING FUND
DATED APRIL 28, 2000 AND DECEMBER 31, 1999, RESPECTIVELY,
ARE INCORPORATED BY REFERENCE TO THE MOST RECENT
FILINGS THEREOF BY INVESTMENT FUNDS
PART B
INFORMATION REQUIRED IN THE STATEMENT OF ADDITIONAL INFORMATION
SUBJECT TO COMPLETION, DATED JULY 17, 2000
STATEMENT OF ADDITIONAL INFORMATION
RELATING TO THE ACQUISITION BY THE
GOVERNMENT SECURITIES FUND (THE "ACQUIRING FUND"),
A SERIES OF SMITH BARNEY INVESTMENT FUNDS, INC.
("INVESTMENT FUNDS")
388 Greenwich Street
New York, New York 10013
(800) 451-2010
OF THE ASSETS OF
GOVERNMENT FUND (THE "FUND"),
A SERIES OF SMITH BARNEY INVESTMENT SERIES(r), INC.
("INVESTMENT SERIES").
Dated: _______, 2000
This Statement of Additional Information, relating
specifically to the proposed transfer of all or substantially all
of the assets of the Fund, a series of Investment Series(r), to the
Acquiring Fund, a series of Investment Funds, in exchange for
shares of the corresponding class of common stock of the Acquiring
Fund and the assumption by the Acquiring Fund of liabilities of
the Fund, consists of this cover page and the following described
documents, each of which accompanies this Statement of Additional
Information and is incorporated herein by reference.
1. Statement of Additional Information for the Acquiring
Fund, dated April 28, 2000.
2. Statement of Additional Information for the Fund, dated
February 28, 2000.
3. Annual Report of the Acquiring Fund for the year ended
December 31, 1999.
4. Annual Report of the Fund for the year ended October 31,
1999 and the Semi-Annual Report of the Fund for the six
months ended April 30, 2000.
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement, dated ______, 2000, relating to the
above-referenced matter may be obtained without charge by calling
or writing the Acquiring Fund at the telephone number or address
set forth above. This Statement of Additional Information should
be read in conjunction with the Prospectus/Proxy Statement.
FINANCIAL STATEMENTS
The Annual Report of Investment Funds for the year ended
December 31, 1999 and the Annual Report of Investment Series for
the year ended October 31, 1999, each including audited financial
statements, notes to the financial statements and report of the
independent auditors, are incorporated by reference herein. To
obtain a copy of the Annual Reports (and, as applicable, any more
recent semi-annual report) without charge, please call 1-800-
451-2010.
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
The following tables set forth the unaudited pro forma
condensed Statement of Assets and Liabilities as of April 30,
2000, and the unaudited pro forma condensed Statement of
Operations for the twelve month period ended December 31, 1999 for
the Acquiring Fund and the Fund as adjusted giving effect to the
Reorganization.
PRO FORMA CONDENSED STATEMENT OF ASSETS AND LIABILITIES
AS OF APRIL 30, 2000 (UNAUDITED)
<PAGE>
<TABLE>
<CAPTION>
Merger of Concert Investment Series Government Fund & CitiFunds Intermediate Income Portfolio Into Smith Barney Government
Securities Fund
Smith Barney Concert Investment Series CitiFunds
Government Securities Government Fund Intermediate Income Portfolio
--------------------- --------------- -----------------------------
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>
ASSETS:
Investments, at value $ 610,913,166 $ 169,272,131 $ 48,791,162
Cash 912 75,180 -
Dividends & interest receivable 2,957,853 830,220 -
Receivable for Fund shares sold 817,824 6,182 6,001
Receivable from Sub-administrator - - 60,396
Other assets - 83,359 -
------------- ------------- -------------
Total Assets $ 614,689,755 $ 170,267,072 $ 48,857,559
------------- ------------- -------------
LIABILITIES:
Allocation of assets and liabilities of Hub (net) - 6,132,873
Payable for Fund shares redeemed - 68,520
Payable for securities purchased - 200 -
Trustees retirement plan - 88,194 -
Management fees payable 268,100 99,807 -
Distribution costs payable 260,822 24,081 -
Dividend payable 3,040,134 867,336 22,591
Accrued expenses and other liabilities 77,394 251,866 59,322
------------- ------------- -------------
Total Liabilities 3,646,450 1,331,484 6,283,306
------------- ------------- -------------
Net Assets $ 611,043,305 $ 168,935,588 $ 42,574,253
============= ============= =============
NET ASSETS:
Par value of capital shares 67,860 176,700 -
Capital paid in excess of par value 710,405,672 217,072,459 49,624,363
Undistributed net investment income (loss) 861,552 626,760 143,118
Accumulated net realized gain (loss) (100,191,141) (48,757,423) (5,449,486)
Net unrealized appreciation of investments (100,638) (182,908) (1,743,742)
------------- ------------- -------------
Net Assets $ 611,043,305 $ 168,935,588 $ 42,574,253
============= ============= =============
Outstanding Shares:
-------------------
CLASS A 30,250,188 2,098,195 4,468,938
============= ============= =============
CLASS B 6,111,045 1,513,046 206,477
============= ============= =============
CLASS L 696,410 - -
============= ============= =============
CLASS Y 24,117,467 - -
============= ============= =============
CLASS Z 6,684,786 - -
============= ============= =============
CLASS 1 - 14,058,758 -
============= ============= =============
Net Asset Value
---------------
CLASS A (and redemption price) $ 9.00 $ 9.54 $ 9.11
============= ============= =============
CLASS B $ 9.01 $ 9.56 $ 9.13
============= ============= =============
CLASS L $ 9.01 - -
============= ============= =============
CLASS Y $ 9.00 - -
============= ============= =============
CLASS Z $ 9.00 - -
============= ============= =============
CLASS 1 - $ 9.56 -
============= ============= =============
CLASS A MAXIMUM OFFERING PRICE $ 9.42 $ 9.99 $ 9.54
============= ============= =============
CLASS L MAXIMUM OFFERING PRICE $ 9.10 - -
============= ============= =============
CLASS 1 MAXIMUM OFFERING PRICE - $ 10.25 -
============= ============= =============
<CAPTION>
Pro Forma
Adjustments Combined
----------- --------
<S> <C> <C>
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES (unaudited)
ASSETS:
Investments, at value - $828,976,459
Cash - 76,092
Dividends & interest receivable - 3,788,073
Receivable for Fund shares sold - 830,007
Receivable from Sub-administrator $ (60,396) a) -
Other assets - 83,359
------------ ------------
Total Assets $ (60,396) $833,753,990
------------ ------------
LIABILITIES:
Allocation of assets and liabilities of Hub (net) - 6,132,873
Payable for Fund shares redeemed - 68,520
Payable for securities purchased - 200
Trustees retirement plan - 88,194
Management fees payable 56,785 a) 424,692
Distribution costs payable - 284,903
Dividend payable - 3,930,061
Accrued expenses and other liabilities (283,270) a) 105,312
------------ ------------
Total Liabilities (226,485) 11,034,755
------------ ------------
Net Assets $ 166,089 $822,719,235
============ ============
NET ASSETS:
Par value of capital shares - $ 244,560
Capital paid in excess of par value - 977,102,494
Undistributed net investment income (loss) 166,089 1,797,519
Accumulated net realized gain (loss) - (154,398,050)
Net unrealized appreciation of investments - (2,027,288)
------------ ------------
Net Assets $ 166,089 $822,719,235
============ ============
Outstanding Shares:
-------------------
CLASS A 6,747,645 36,997,833
CLASS B 1,814,634 7,925,679
CLASS L - 696,410
CLASS Y - 24,117,467
CLASS Z - 6,684,786
CLASS 1 14,933,525 * 14,933,525
Net Asset Value
---------------
CLASS A (and redemption price) $ 9.00
CLASS B $ 9.01
CLASS L $ 9.01
CLASS Y $ 9.00
CLASS Z $ 9.00
CLASS 1 $ 9.00
CLASS A MAXIMUM OFFERING PRICE $ 9.42
============
CLASS L MAXIMUM OFFERING PRICE $ 9.10
============
CLASS 1 MAXIMUM OFFERING PRICE $ 9.65
============
</TABLE>
a) Due to elimination of fee waivers and decrease in expenses * Assumes
subscriptions of Class 1 shares in acquiring Fund at Class A NAV.
See accompanying notes to pro forma financial statements.
<PAGE>
Merger of Concert Investment Series Government Fund & CitiFunds Intermediate
Income Portfolio Into Smith Barney Government Securities Fund
<TABLE>
<CAPTION>
Concert CitiFunds
Smith Barney Investment Intermediate
Government Series Income Pro Forma
Securities Government Fund Portfolio Adjustments Combined
----------- --------------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
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
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) -- ($7,355,220)
Increase (Decrease) in Net Assets Resulting from
Operations ($11,520,418) ($3,416,707) ($861,783) 166,089 $(15,632,819
============= ============ ============ =========== ============
</TABLE>
(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
See accompanying notes to pro forma financial statements.
<PAGE>
Merger of Concert Investment Series Government Fund & CitiFunds Intermediate
Income Portfolio Into Smith Barney Government Securities Fund
<TABLE>
<CAPTION>
Smith Barney Concert Investment Series
Government Securities Government Fund
--------------------- ---------------
<S> <C> <C> <C>
Adjustment to Management Fee Calculation:
Average Net Assets
------------------
CIS Gov't - old rate 198,020,069 0.60% (1,178,098)
CitiFunds Int. Inc. - old rate 56,574,243 0.35% (198,518)
CIS Gov't - new rate 198,020,069 0.55% 1,089,110
CitiFunds Int. Inc. - new rate 56,574,243 0.55% 311,158
------------
adjustment to Mangement fees 23,653
============
Transfer Agent Fees: (Shareholder and system servicing fees)
CIS Government T/A should not change, PFS will remain the primary T/A for the accounts from that Fund.
Average Net Assets
------------------
CitiFunds Int. Inc. - old rate (64,360)
CitiFunds Int. Inc. - new rate Class A 54,170,663 0.075% 40,628
CitiFunds Int. Inc. - new rate Class B 2,403,580 0.092% 2,211
------------
adjustment to T/A fees (21,521)
============
Adjustment to Custody Fee Calculation:
Average Net Assets
------------------
CIS Gov't - old rate 198,020,069 (16,161)
CitiFunds Int. Inc. - old rate 56,574,243 (38,271)
CIS Gov't - new rate 198,020,069 0.004% * 7,921
CitiFunds Int. Inc. - new rate 56,574,243 0.004% * 2,263
------------
adjustment to Mangement fees (44,248)
============
<CAPTION>
CitiFunds Pro Forma
Intermediate Income Portfolio Adjustments Combined
----------------------------- ----------- --------
<S> <C> <C> <C>
Adjustment to Management Fee Calculation:
CIS Gov't - old rate
CitiFunds Int. Inc. - old rate
CIS Gov't - new rate
CitiFunds Int. Inc. - new rate
Transfer Agent Fees: (Shareholder and system servicing fees)
CIS Government T/A should not change, PFS will remain the primary T/A for the accounts from that Fund.
CitiFunds Int. Inc. - old rate
CitiFunds Int. Inc. - new rate Class A
CitiFunds Int. Inc. - new rate Class B
Adjustment to Custody Fee Calculation:
CIS Gov't - old rate
CitiFunds Int. Inc. - old rate
CIS Gov't - new rate
CitiFunds Int. Inc. - new rate
</TABLE>
* assumes rate of .0035% plus allowance for transactions
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 Agreement and Plan 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 series of Investment Funds, 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 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.
SCHEDULE OF INVESTMENTS
Portfolio of Investments April 30, 2000 (Unaudited)
Smith Barney Government Securities Fund,
Concert Investment Series Government Fund &
CitiFunds Intermediate Income Portfolio
<TABLE>
<CAPTION>
Pro Forma Schedule of Investments (unaudited)
FACE AMOUNT MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
U. S. GOVERNMENT AND AGENCY OBLIGATIONS - 17.7%
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SB GOVT CIS GOVT CITI INT INC TOTAL SECURITY SB GOVT CIS GOVT
- - $ 1,105,000 $ 1,105,000 U.S. Treasury Bonds, 8.125% due 8/15/19 - -
- - 835,000 835,000 U.S. Treasury Bonds, 3.625% due 4/15/28 - -
- - 526,000 526,000 U.S. Treasury Bonds, 3.875% due 4/15/29 - -
- - 321,000 321,000 U.S. Treasury Bonds, 6.125% due 8/15/29 - -
- - 22,000 22,000 U.S. Treasury Notes, 5.500% due 12/31/00 - -
- - 235,000 235,000 U.S. Treasury Notes, 6.50% due 5/31/01 - -
- - 61,000 61,000 U.S. Treasury Notes, 5.875% due 11/15/04 - -
- - 710,000 710,000 U.S. Treasury Notes, 6.875% due 5/15/06 - -
- - 926,000 926,000 U.S. Treasury Notes, 6.625% due 5/15/07 - -
- - 1,277,000 1,277,000 U.S. Treasury Notes, 6.500% due 2/15/10 - -
$ 98,562,000 $ 29,800,000 - 128,362,000 U.S. Treasury Strips, zero Coupon, due 53,004,672 $ 16,025,844
11/15/09
7,000,000 2,500,000 - 9,500,000 U.S. Treasury Strips, zero Coupon, due 2,260,930 807,475
11/15/18
166,000,000 50,000,000 - 216,000,000 U.S. Treasury Strips, zero Coupon, due 52,892,580 15,931,500
2/15/19
------------------------------------------------------------------------------------------------------------------------------------
TOTAL U. S. TREASURY OBLIGATIONS 108,158,182 32,764,819
------------------------------------------------------------------------------------------------------------------------------------
ASSET - BACKED SECURITIES - 1.3%
------------------------------------------------------------------------------------------------------------------------------------
SB GOVT CIS GOVT CITI INT INC TOTAL SB GOVT CIS GOVT
- - 691,000 691,000 Aames Mortgage Trust, 6.590% due 6/15/24 - -
- - 1,020,000 1,020,000 Aircraft Financial Trust, 8.000% due 5/15/24 - -
- - 606,000 606,000 Amresco Residential Securities, 6.245% due - -
4/25/22
- - 714,000 714,000 Asset Securitization Corp., Series 95, due - -
7.384% due 8/13/29
- - 467,000 467,000 Asset Securitization Corp., Series 97, due - -
6.500% due 2/14/41
- - 650,000 650,000 First Union, Lehman Brothers, 6.479% due - -
3/18/04
- - 408,000 408,000 GE Capital Mortgage Services, Inc., 5.905% - -
due 10/25/13
- - 404,000 404,000 GE Capital Mortgage Services, Inc., 7.000% - -
due 10/25/23
- - 620,000 620,000 GMAC Commercial Mortgage Inc., 6.830% due - -
12/15/03
- - 226,000 226,000 GMAC Commercial Mortgage Inc., 6.420% due - -
8/15/08
- - 918,000 918,000 GMAC Commercial Mortgage Inc., 7.724% due - -
12/15/09
- - 1,020,000 1,020,000 Green Tree Financial Corp., 8.050% due - -
10/15/27
- - 785,000 785,000 Green Tree Financial Corp., 6.710% due 8/15/29 - -
- - 612,000 612,000 Green Tree Financial Corp., 8.410% due 12/1/30 - -
- - 294,000 294,000 IMC Home Equity Loan Trust, 6.160% due 5/20/14 - -
- - 393,000 393,000 JP Morgan Commercial Mortgage Financial, - -
6.373% due 1/15/30
- - 318,000 318,000 Merrill Lynch Mortgage Co., 6.950% due 6/18/29 - -
- - 665,000 665,000 Morgan Stanley Capital Investment Inc., - -
6.440% due 11/15/02
- - 150,000 150,000 Nissan Auto Receivables Grantor, 6.150% due - -
2/15/03
- - 612,000 612,000 Nomura Asset Securitization Corp., 8.150% due - -
3/04/20
------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSET - BACKED SECURITIES - -
<CAPTION>
April 30, 2000
MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
SECURITY CITI INT INC TOTAL
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Bonds, 8.125% due 8/15/19 $ 1,327,315 $ 1,327,315
U.S. Treasury Bonds, 3.625% due 4/15/28 799,907 799,907
U.S. Treasury Bonds, 3.875% due 4/15/29 527,514 527,514
U.S. Treasury Bonds, 6.125% due 8/15/29 322,052 322,052
U.S. Treasury Notes, 5.500% due 12/31/00 22,293 22,293
U.S. Treasury Notes, 6.50% due 5/31/01 234,452 234,452
U.S. Treasury Notes, 5.875% due 11/15/04 59,584 59,584
U.S. Treasury Notes, 6.875% due 5/15/06 721,456 721,456
U.S. Treasury Notes, 6.625% due 5/15/07 932,236 932,236
U.S. Treasury Notes, 6.500% due 2/15/10 1,302,376 1,302,376
U.S. Treasury Strips, zero Coupon, due - 69,030,516
11/15/09
U.S. Treasury Strips, zero Coupon, due - 3,068,405
11/15/18
U.S. Treasury Strips, zero Coupon, due 2/15/19 - 68,824,080
----------------------------------------------------------------------------------------------------
TOTAL U. S. TREASURY OBLIGATIONS 6,249,185 147,172,186
----------------------------------------------------------------------------------------------------
CITI INT INC TOTAL
----------------------------------------------------------------------------------------------------
Aames Mortgage Trust, 6.590% due 6/15/24 686,420 686,420
Aircraft Financial Trust, 8.000% due 5/15/24 933,035 933,035
Amresco Residential Securities, 6.245% due 601,565 601,565
4/25/22
Asset Securitization Corp., Series 95, due 697,557 697,557
Asset Securitization Corp., Series 97, due 458,740 458,740
First Union, Lehman Brothers, 6.479% due 636,503 636,503
3/18/04
GE Capital Mortgage Services, Inc., 5.905% 401,721 401,721
due 10/25/13
GE Capital Mortgage Services, Inc., 7.000% 378,973 378,973
due 10/25/23
GMAC Commercial Mortgage Inc., 6.830% due 616,739 616,739
12/15/03
GMAC Commercial Mortgage Inc., 6.420% due 208,440 208,440
8/15/08
GMAC Commercial Mortgage Inc., 7.724% due 917,204 917,204
12/15/09
Green Tree Financial Corp., 8.050% due 1,002,782 1,002,782
10/15/27
Green Tree Financial Corp., 6.710% due 8/15/29 728,969 728,969
Green Tree Financial Corp., 8.410% due 12/1/30 580,060 580,060
IMC Home Equity Loan Trust, 6.160% due 5/20/14 292,523 292,523
JP Morgan Commercial Mortgage Financial, 381,783 381,783
1/15/30
Merrill Lynch Mortgage Co., 6.950% due 6/18/29 313,051 313,051
Morgan Stanley Capital Investment Inc., 653,797 653,797
11/15/02
Nissan Auto Receivables Grantor, 6.150% due 148,390 148,390
2/15/03
Nomura Asset Securitization Corp., 8.150% due 617,985 617,985
3/04/20
---------------------------------------------------------------------------------------------------
TOTAL ASSET - BACKED SECURITIES 11,256,237 11,256,237
</TABLE>
Page 1
<PAGE>
Smith Barney Government Securities Fund,
Concert Investment Series Government Fund &
CitiFunds Intermediate Income Portfolio
<TABLE>
<CAPTION>
Pro Forma Schedule of Investments (unaudited)
------------------------------------------------------------------------------------------------------------------------------------
FACE AMOUNT MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.5%
------------------------------------------------------------------------------------------------------------------------------------
SB GOVT CIS GOVT CITI INT INC TOTAL SB GOVT CIS GOVT
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- - $ 510,000 $ 510,000 Asset Backed Securitization Corp., 6.640% due - -
12/25/27
- - 110,000 110,000 CMC Securitization Corp., Series 97, 7.000% - -
due 10/25/27
- - 433,000 433,000 CWMBS Inc., Series 98, 6.500% due 7/25/13 - -
- - 402,000 402,000 Chase Mortgage Financal Trust 6.500% due - -
9/25/13
- - 510,000 510,000 Chase Mortgage Financal Trust, 7.250% due - -
2/25/30
- - 796,000 796,000 Credit Suisse First Boston Mortgage, 7.290% - -
due 9/15/09
- - 204,000 204,000 Federal Home Loan Mortgage Corp., 6.000% due - -
1/15/24
- - 702,000 702,000 Federal Home Loan Mortgage Corp., 6.250% due - -
6/15/24
- - 600,000 600,000 Federal National Mortgage Association, 7.412% - -
due 8/17/21
- - 173,000 173,000 Government National Mortgage Association, - -
7.250% due 10/16/22
- - 55,000 55,000 Residential Asset Securitization Trust, 7.000% - -
due 2/25/08
------------------------------------------------------------------------------------------------------------------------------------
TOTAL CMO's - -
------------------------------------------------------------------------------------------------------------------------------------
DOMESTIC CORPORATIONS - 1.0%
------------------------------------------------------------------------------------------------------------------------------------
SB GOVT CIS GOVT CITI INT INC TOTAL SB GOVT CIS GOVT
------------------------------------------------------------------------------------------------------------------------------------
- - 543,000 543,000 Abitibi Consolidated Inc., 8.500% due 8/1/29 - -
- - 364,000 364,000 Ahold Financial U.S.A Inc., 6.875% due 5/1/29 - -
- - 465,000 465,000 BB&T Corp., 6.375% due 6/30/05 - -
- - 135,000 135,000 Conseco Inc., 6.400% due 6/15/01 - -
- - 449,000 449,000 Dayton Hudson Corp., 6.650% due 8/1/28 - -
- - 612,000 612,000 Delta Airlines Inc., 8.300% due 12/15/29 - -
- - 385,000 385,000 Donaldson, Lufkin & Jenrette, 5.875% due 4/1/02 - -
- - 427,000 427,000 Dynegy Inc., 7.450% due 7.15/06 - -
- - 472,000 472,000 Ford Motor Co., 7.375% due 10/28/09 - -
- - 480,000 480,000 Knight Ridder Inc., 6.875% due 3/15/29 - -
- - 426,000 426,000 Lehman Brothers Holdings, Inc., 7.75% due - -
1/15/05
- - 444,000 444,000 Lockheed Martin Corp., 7.950% due 12/1/05 - -
- - 469,000 469,000 MCI Communications Corp., 6.500% due 4/15/10 - -
- - 479,000 479,000 Morgan Stanley Dean Witter & Co., 5.625% due - -
1/20/04
- - 416,000 416,000 National Rural Utilities, 6.200% due 2/1/08 - -
- - 453,000 453,000 Osprey Trust Inc., 8.310% due 1/15/03 - -
- - 448,000 448,000 Popular North America, Inc., 6.875% due 6/15/01 - -
- - 460,000 460,000 Raytheon Co., 7.900% due 3/1/03 - -
- - 439,000 439,000 St. Paul Cos Inc., 7.875% due 4/15/05 - -
- - 493,000 493,000 Saks Inc., 8.250% due 11/15/08 - -
------------------------------------------------------------------------------------------------------------------------------------
TOTAL DOMESTIC CORPORATIONS - -
April 30,2000
<CAPTION>
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
CITI INT INC TOTAL
------------------------------------------------------------------------------------
<S> <C> <C>
Asset Backed Securitization Corp., 6.640% due $ 462,667 $ 462,667
12/25/27
CMC Securitization Corp., Series 97, 7.000% 109,495 109,495
due 10/25/27
CWMBS Inc., Series 98, 6.500% due 7/25/13 400,212 400,212
Chase Mortgage Financal Trust 6.500% due 371,065 371,065
9/25/13
Chase Mortgage Financal Trust, 7.250% due 481,782 481,782
2/25/30
Credit Suisse First Boston Mortgage, 7.290% 772,772 772,772
due 9/15/09
Federal Home Loan Mortgage Corp., 6.000% due 187,935 187,935
1/15/24
Federal Home Loan Mortgage Corp., 6.250% due 662,047 662,047
6/15/24
Federal National Mortgage Association, 7.412% 591,874 591,874
due 8/17/21
Government National Mortgage Association, 172,567 172,567
7.250% due 10/16/22
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
CITI INT INC TOTAL
------------------------------------------------------------------------------------
<S> <C> <C>
Residential Asset Securitization Trust, 7.000% 55,324 55,324
due 2/25/08
TOTAL CMO's 4,267,740 4,267,740
CITI INT INC TOTAL
Abitibi Consolidated Inc., 8.500% due 8/1/29 498,594 498,594
Ahold Financial U.S.A Inc., 6.875% due 5/1/29 305,473 305,473
BB&T Corp., 6.375% due 6/30/05 434,320 434,320
Conseco Inc., 6.400% due 6/15/01 95,594 95,594
Dayton Hudson Corp., 6.650% due 8/1/28 376,485 376,485
Delta Airlines Inc., 8.300% due 12/15/29 547,354 547,354
Donaldson, Lufkin & Jenrette, 5.875% due 4/1/02 370,885 370,885
Dynegy Inc., 7.450% due 7.15/06 408,406 408,406
Ford Motor Co., 7.375% due 10/28/09 456,496 456,496
Knight Ridder Inc., 6.875% due 3/15/29 416,895 416,895
Lehman Brothers Holdings, Inc., 7.75% due 426,624 426,624
1/15/05
Lockheed Martin Corp., 7.950% due 12/1/05 434,631 434,631
MCI Communications Corp., 6.500% due 4/15/10 427,164 427,164
Morgan Stanley Dean Witter & Co., 5.625% due 449,509 449,509
1/20/04
National Rural Utilities, 6.200% due 2/1/08 380,341 380,341
Osprey Trust Inc., 8.310% due 1/15/03 449,076 449,076
Popular North America, Inc., 6.875% due 6/15/01 443,013 443,013
Raytheon Co., 7.900% due 3/1/03 452,089 452,089
St. Paul Cos Inc., 7.875% due 4/15/05 429,319 429,319
Saks Inc., 8.250% due 11/15/08 444,626 444,626
TOTAL DOMESTIC CORPORATIONS 8,246,894 8,246,894
</TABLE>
Page 2
<PAGE>
Smith Barney Government Securities Fund,
Concert Investment Series Government Fund &
CitiFunds Intermediate Income Portfolio
<TABLE>
<CAPTION>
Por Forma Schedule of Investment (unaudited) April 30, 2000
FACE AMOUNT
-----------------------------------------------------------------------------------------------------------
FOREIGN CORPORATIONS - 0.3%
-----------------------------------------------------------------------------------------------------------
SB GOVT CIS GOVT CITI INT INC TOTAL
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- - $ 493,000 $ 493,000 Merita Bank PLC, 6.500% due 4/1/09
- - 444,000 444,000 Pemex Financial Ltd., 9.030% due 2/15/11
- - 456,000 456,000 Quebec Providence CDA, 7.500% due 9/15/29
- - 481,000 481,000 Telefonica de Argentina, 9.125% due 5/7/08
- - 495,000 495,000 YPF Sociedad Anonima, 7.250% due 3/15/08
-----------------------------------------------------------------------------------------------------------
TOTAL FOREIGN CORPORATIONS
-----------------------------------------------------------------------------------------------------------
MORTGAGE - BACKED SECURITIES - 76.7%
-----------------------------------------------------------------------------------------------------------
SB GOVT CIS GOVT CITI INT INC TOTAL
-----------------------------------------------------------------------------------------------------------
- - 204,000 204,000 FHMLC, 6.000% due TBA
- - 314,000 314,000 FHMLC, 6.000% due 8/1/00
- - 755,000 755,000 FHMLC, 7.500% due TBA
- - 1,000 1,000 FHMLC, 8.500% due 4/1/01
- - 1,020,000 1,020,000 FNMA, 5.500% due TBA
$ 1,482 - - 1,482 FNMA, 6.000% due 8/1/04
- - 1,428,000 1,428,000 FNMA, 6.500% due TBA
- - 1,659,000 1,659,000 FNMA, 6.500% due 5/1/29*
- - 90,000 90,000 FNMA, 7.000% due 7/1/03*
- - 3,489,000 3,489,000 FNMA, 7.500% due TBA*
- $ 2,068,729 - 2,068,729 FNMA, 7.500%, due 8/1/12*
- - 1,000 1,000 FNMA, 8.000% due 6/1/02
- - 2,530,000 2,530,000 GNMA, 6.500% due TBA
44,144,056 12,910,356 705,000 57,759,412 GNMA, 7.000%, due 2/15/30*
163,498,597 39,782,088 - 203,280,685 GNMA, 7.500%, due 3/15/30*
- - 408,000 408,000 GNMA, 8.000% due TBA
282,896,855 82,616,983 7,000 365,520,83 GNMA, 8.000%, due 4/15/30*
------------------------------------------------------------------------------------------------
<CAPTION>
------------------------------------------------------------------------------------------------
MARKET VALUE
------------------------------------------------------------------------------------------------
SB GOVT CIS GOVT CITI INT INC TOTAL
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merita Bank PLC, 6.500% due 4/1/09 - - $ 444,389 $ 444,389
Pemex Financial Ltd., 9.030% due 2/15/11 - - 451,993 451,993
Quebec Providence CDA, 7.500% due 9/15/29 - - 445,841 445,841
Telefonica de Argentina, 9.125% due 5/7/08 - - 457,368 457,368
YPF Sociedad Anonima, 7.250% due 3/15/08 - - 477,127 477,127
------------------------------------------------------------------------------------------------
TOTAL FOREIGN CORPORATIONS - - 2,276,718 2,276,718
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
SB GOVT CIS GOVT CITI INT INC TOTAL
------------------------------------------------------------------------------------------------
FHMLC, 6.000% due TBA - - 185,066 185,066
FHMLC, 6.000% due 8/1/00 - - 312,180 312,180
FHMLC, 7.500% due TBA - - 737,462 737,462
FHMLC, 8.500% due 4/1/01 - - 694 694
FNMA, 5.500% due TBA - - 888,356 888,356
FNMA, 6.000% due 8/1/04 $ 1,406 - - 1,406
FNMA, 6.500% due TBA - - 1,332,495 1,332,495
FNMA, 6.500% due 5/1/29* - - 1,548,637 1,548,637
FNMA, 7.000% due 7/1/03* - - 88,939 88,939
FNMA, 7.500% due TBA* - - 3,428,812 3,428,812
FNMA, 7.500%, due 8/1/12* - $ 2,058,385 - 2,058,385
FNMA, 8.000% due 6/1/02 - - 871 871
GNMA, 6.500% due TBA - - 2,369,129 2,369,129
GNMA, 7.000%, due 2/15/30* 42,488,654 12,426,218 680,842 55,595,714
GNMA, 7.500%, due 3/15/30* 160,892,430 39,147,961 - 200,040,391
GNMA, 8.000% due TBA - - 408,893 408,893
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 3
<PAGE>
Smith Barney Government Securities Fund,
Concert Investment Series Government Fund &
CitiFunds Intermediate Income Portfolio
<TABLE>
<CAPTION>
Pro Forma Schedule of Investments (Unaudited)
-----------------------------------------------------------------------------------------------------------------------
FACE AMOUNT
-----------------------------------------------------------------------------------------------------------------------
YANKEE BONDS - 0.2%
-----------------------------------------------------------------------------------------------------------------------
SB GOVT CIS GOVT CITI INT INC TOTAL
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- - $ 445,000 $ 445,000 Corporacion Andina de Fomento, 7.750% due 3/1/04
- - 225,000 225,000 Empresa Nacional, 7.750% due 7/15/08
- - 552,000 552,000 Imperial Tobacco Overseas, 7.125% due 4/1/09
- - 266,000 266,000 TPSA Financial, 7.750% due 12/10/08
-----------------------------------------------------------------------------------------------------------------------
TOTAL YANKEE BONDS
-----------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK - 0.4%
-----------------------------------------------------------------------------------------------------------------------
SB GOVT CIS GOVT CITI INT INC TOTAL
-----------------------------------------------------------------------------------------------------------------------
- - 28 28 Comed Financing I
-----------------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
-----------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 1.9%
-----------------------------------------------------------------------------------------------------------------------
SB GOVT CIS GOVT CITI INT INC TOTAL
-----------------------------------------------------------------------------------------------------------------------
Goldman Sachs 5.670% due 5/1/00;
$ 15,593,000 - - 15,593,00 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)
-----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS AT VALUE - 100%
(Cost -$611,013,804)** (Cost-$169,455,039)** (Cost -$47,977,533)** (Total Cost - $ 828,446,376)**
-----------------------------------------------------------------------------------------------------------------------
<CAPTION>
April 30, 2000
------------------------------------------------------------------------------------------------------------------
MARKET VALUE
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
SB GOVT CIS GOVT CITI INT INC TOTAL
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporacion Andina de Fomento, 7.750% due 3/1/04 - - $ 437,587 $ 437,587
Empresa Nacional, 7.750% due 7/15/08 - - 209,413 209,413
Imperial Tobacco Overseas, 7.125% due 4/1/09 - - 482,191 482,191
TPSA Financial, 7.750% due 12/10/08 - - 254,103 254,103
------------------------------------------------------------------------------------------------------------------
TOTAL YANKEE BONDS - - 1,383,294 1,383,294
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
SB GOVT CIS GOVT CITI INT INC TOTAL
------------------------------------------------------------------------------------------------------------------
Comed Financing I - - 3,121,752 3,121,752
------------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK - - 3,121,752 3,121,752
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
SB GOVT CIS GOVT CITI INT INC TOTAL
------------------------------------------------------------------------------------------------------------------
Goldman Sachs 5.670% due 5/1/00;
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% $ 610,913166 $169,272,131 $ 48,791,162 $ 828,976,459
(Total Cost - $ 828,446,376)**
------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
Page 4
THE ANNUAL REPORT AND STATEMENT OF ADDITIONAL INFORMATION OF THE
ACQUIRING FUND DATED DECEMBER 31, 1999 AND APRIL 28, 2000,
RESPECTIVELY, ARE INCORPORATED BY REFERENCE
TO THE MOST RECENT FILINGS THEREOF BY
INVESTMENT FUNDS
THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION, ANNUAL
REPORT AND SEMI-ANNUAL REPORT OF THE FUND DATED FEBRUARY 28,
2000, OCTOBER 31, 1999 AND APRIL 30, 2000, RESPECTIVELY,
ARE INCORPORATED BY REFERENCE TO THE MOST
RECENT FILINGS THEREOF BY CONCERT
INVESTMENT SERIES(r)
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION -- The response to this item is
incorporated by reference to Section 9 of the Agreement and Plan
of Reorganization. Reference is made to Registrant's Articles of
Restatement, dated September 17, 1993. Registrant is a named
assured on a joint insured bond pursuant to Rule 17g-1 of the
Investment Company Act of 1940. Other assureds include SSB Citi
Fund Management LLC(Registrant's Adviser) and affiliated
investment companies. The response to this item is further
incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-14 filed on October 8, 1993
(File No. 33-50153).
ITEM 16. EXHIBITS
1(a) Articles of Restatement dated September 17, 1993 to
Registrant's Articles of Incorporation dated
September 28, 1981, Articles of Amendment dated
October 14, 1994, Articles Supplementary, Articles of
Amendment dated October 14, 1994, Articles
Supplementary, Articles of Amendments and Certificates
of Correction dated November 7, 1994, are incorporated
by reference to Post-Effective Amendment No. 37 to the
Registration Statement filed on November 7, 1994.
1(b) Articles of Amendment dated October 23, 1997 are
incorporated by reference to Post-Effective Amendment
No. 46 filed on October 23, 1997 ("Post-Effective
Amendment No. 46").
1(c) Articles of Amendment dated February 27, 1998 are
incorporated by reference to Post-Effective Amendment
No. 48 dated April 29, 1998.
1(d) Articles of Amendment dated June 1, 1998 are
incorporated by reference to Post-Effective Amendment
No. 49 filed on July 16, 1998 ("Post-Effective
Amendment No. 49").
2 Registrant's By-Laws, as amended on September 30, 1992
are incorporated by reference to Post-Effective
Amendment No. 30 to the Registration Statement filed
on April 30, 1993.
3 Not applicable.
4 Form of Agreement and Plan of Reorganization is
included in Part A to the Registration Statement on
Form N-14.
5 Registrant's form of stock certificate for Smith
Barney Hansberger Global Value Fund ("Global Value
Fund") and Smith Barney Hansberger Global Value Small
Cap Fund ("Small Cap Fund") is incorporated by
reference to Post-Effective Amendment No. 46.
6(a) Investment Advisory Agreement dated July 30, 1993,
between the Registrant on behalf of Smith Barney
Investment Grade Bond Fund, Smith Barney Government
Securities Fund and Smith Barney Special Equities Fund
and Greenwich Street Advisors is incorporated by
reference to the Registration Statement filed on Form
N-14 on September 2, 1993, File No. 33-50153.
6(b) Investment Advisory Agreements on behalf of Smith
Barney Growth Opportunity Fund and Smith Barney
Managed Growth Fund is incorporated by reference to
Post-Effective Amendment No. 40 filed on June 27, 1995
("Post-Effective Amendment No. 40").
6(c) Investment Management Agreements on behalf of Global
Value Fund and Global Small Cap Fund between
Registrant and Smith Barney Mutual Funds Management
Inc. is incorporated by reference to Post-Effective
Amendment No. 46.
6(d) Sub-Advisory Agreement on behalf of Global Value Fund
and Global Small Cap Fund between MMC and Hansberger
Global Investors Inc. is incorporated by reference to
Post-Effective Amendment No. 46.
6(e) Investment Management Agreements on behalf of Smith
Barney Small Cap Growth Fund and Smith Barney Small
Cap Value Fund between Registrant and Mutual
Management Corp. is incorporated by reference to Post-
Effective Amendment No. 49.
7(a) Distribution Agreement dated July 30, 1993, between
the Registrant and Smith Barney Shearson Inc. is
incorporated by reference to the Registration
Statement filed on Form N-14 on September 2, 1993,
File 33-50153.
7(b) Form of Distribution Agreement between the Registrant
and PFS Distributors on behalf of Smith Barney
Investment Funds Inc. is incorporated by reference to
Post-Effective Amendment No. 40.
7(c) Form of Distribution Agreement between the Registrant
and CFBDS, Inc. is incorporated by reference to Post-
Effective Amendment No. 49.
7(d) Selling Group Agreement is incorporated by reference
to Post-Effective Amendment No. 56 filed on
February 26, 1999.
8 Not applicable.
9(a) Custodian Agreement with PNC Bank, National
Association is incorporated by reference to Post-
Effective Amendment No. 44 filed on April 29, 1997.
9(b) Custodian Agreement with Chase Manhattan Bank is
incorporated by reference to Post-Effective Amendment
No. 46.
10(a) Amended Services and Distribution Plans pursuant to
Rule 12b-1 between the Registrant on behalf of Smith
Barney Investment Grade Bond Fund, Smith Barney
Government Securities Fund, Smith Barney Special
Equities Fund and Smith Barney European Fund and Smith
Barney, Inc. ("Smith Barney") are incorporated by
reference to Post-Effective Amendment No. 37 filed on
November 3, 1994 ("Post-Effective Amendment No. 37").
10(b) Form of Services and Distribution Plans pursuant to
Rule 12b-1 between the Registrant on behalf of Smith
Barney Growth Opportunity Fund and Smith Barney
Managed Growth Fund is incorporated by reference to
Post-Effective Amendment No. 40.
10(c) Form of Services and Distribution Plans pursuant to
Rule 12b-1 between the Registrant on behalf of the
Global Value Fund and Small Cap Fund is incorporated
by reference to Post-Effective Amendment No. 46.
10(d) Form of Amended and Restated Shareholder Services and
Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of each of its series is
incorporated by reference to Post-Effective Amendment
No. 49.
10(e) Form of Plan pursuant to Rule 18f-3 is incorporated by
reference to Post-Effective Amendment No. 50 to
Registration Statement.
11 Opinion and consent of Counsel as to the legality of
the securities being registered is filed herewith.
12 Opinion and consent of Counsel supporting tax matters
and consequences to shareholders discussed in the
prospectus is filed herewith.
13(a) Transfer Agency and Registrar Agreement dated
August 5, 1993 with First Data Investor Services
Group, Inc. (formerly The Shareholder Services Group,
Inc.) is incorporated by reference to Post-Effective
Amendment No. 31 as filed on December 22, 1993.
13(b) Sub-Transfer Agency Agreement between the Registrant
and PFS Shareholders Services on behalf of Smith
Barney Investment Funds Inc. is incorporated by
reference to Post-Effective Amendment No. 40.
14 Auditors' Consent is filed herewith.
15 Not applicable.
16 Powers of Attorney are incorporated by reference to the
Registrant's registration statement on Form N-1A.
17(a) Form of proxy card is filed herewith.
17(b) Annual Report of Concert Investment Series(r), dated
October 31, 1999, and Semi-Annual Report dated April
30, 2000, are incorporated herein by reference.
17(c) Prospectus and statement of additional information of
Concert Investment Series(r), dated February 28, 2000,
are incorporated herein by reference.
17(d) Annual Report of Registrant, dated December 31, 1999,
is incorporated herein by reference.
17(e) Prospectus and statement of additional information of
Registrant, dated April 28, 2000, are incorporated
herein by reference.
ITEM 17. UNDERTAKINGS
(1) The undersigned registrant agrees that prior to any
public reoffering of the securities registered through the use of
a prospectus which is a part of this registration statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the securities Act [17 CFR 230.145c],
the reoffering prospectus will contain the information called for
by the applicable registration form for reofferings by persons who
may be deemed underwriters, in addition to the information called
for by the other terms of the applicable form.
(2) The undersigned registrant agrees that every
prospectus that is filed under paragraph (1) above will be filed
as a part of a n amendment to the registration statements and will
not be used until the amendment is effective, and that, in
determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for
the securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide offering
of them.
SIGNATURES
As required by the Securities Act of 1933, this registration
statement has been signed on behalf of the Registrant, in the City
of New York and State of New York on the 17th day of July, 2000.
SMITH BARNEY FUNDS, INC.
BY /s/ Heath B. McLendon
Heath B. McLendon, Chief
Executive Officer
As required by the Securities Act of 1933, this registration
statement has been signed by the following persons in the
capacities and on the date indicated.
Signatures
Title
Date
/s/ Heath B. McLendon
(Heath B. McLendon)
Director, Chairman,
President and Chief
Executive Officer
July 17,
2000
*
/s/ Lewis E. Daidone*
Lewis E. Daidone
Senior Vice President and Treasurer
(Chief Financial and Accounting Officer)
/s/ Paul R. Ades*
Paul R. Ades
Director
July 17,
2000
/s/Herbert Barg*
Herbert Barg
Director
July 17,
2000
/s/Dwight B. Crane*
Dwight B. Crane
Director
July 17,
2000
/s/ Frank Hubbard*
Frank Hubbard
Director
July 17,
2000
/s/Jerome Miller**
Jerome Miller
Director
July 17,
2000
/s/ Ken Miller*
Ken Miller
Director
July 17,
2000
*Signed by Heath B. McLendon, their duly authorized attorney-in-fact,
pursuant to power of attorney dated November 3, 1994.
** Signed by Heath B. McLendon, their duly authorized attorney-in-fact,
pursuant to power of attorney dated April 15, 1998.
EXHIBITS
(11) Opinion and consent of Counsel as to the legality of the
securities being registered
(12) Opinion and consent of Counsel supporting tax matters and
consequences to shareholders discussed in the prospectus
(14) Auditors' Consents
(17) Proxy Card
