<PAGE>
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
PROSPECTUS
Smith Barney
Group Spectrum
Fund
Class A, B, L and Y Shares
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September 14, 2000
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INVESTMENT PRODUCTS . NOT FDIC INSURED . NO BANK GUARANTEE . MAY LOSE
VALUE
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The Securities and Exchange Commission has not approved or disapproved
these
securities or determined whether this prospectus is accurate or
complete. Any
statement to the contrary is a crime.
<PAGE>
Group Spectrum Fund
Contents
<TABLE>
<S>
<C>
Investments, risks and
performance.......................................... 2
More on the fund's
investments.............................................. 5
Management.............................................................
..... 5
Subscription offering
period................................................ 8
Choosing a class of shares to
buy........................................... 8
Comparing the fund's
classes................................................ 10
Sales
charges...............................................................
11
More about deferred sales
charges........................................... 14
Buying
shares...............................................................
15
Exchanging
shares........................................................... 17
Redeeming
shares............................................................ 19
Other things to know about share
transactions............................... 21
Dividends, distributions, and
taxes......................................... 23
Share
price.................................................................
24
</TABLE>
Smith Barney
Mutual Funds
1
<PAGE>
Investments, risks and performance
Investment objective
The fund seeks capital appreciation.
Principal investment strategies
Key investments The fund seeks to outperform the S&P 500 Index by
investing at
least 80% of its assets in the common stocks that comprise the sectors
of the
S&P 500 Index that have been determined by the Smith Barney Group
Spectrum
Allocation Model (the "Allocation Model") as likely to outperform the
entire
S&P 500 Index.
The Allocation Model The Allocation Model tracks the more than 100
sectors that
comprise the S&P 500 Index and employs technical analysis of each
sector in
compiling on a weekly basis a "buy," "hold," "avoid" or "sell"
recommendation
for each such sector. The Allocation Model is a "paper portfolio" that
"buys"
and "sells" securities within sectors based on the recommendations. The
Alloca-
tion Model "buys" an entire group of stocks; it does not have the
ability to
discriminate and pick only the technically stronger looking companies
in the
sector. If a sector is downgraded during a week from "hold" to "avoid,"
and it
appears in the Allocation Model, the group of securities that comprise
that
sector is sold. If a sector is upgraded to the "buy" list, the
Allocation Model
attempts to "own" over two-times market weight in that sector. The
Allocation
Model attempts to "own" over one-times market weight in a sector on the
"hold"
list. The Allocation Model attempts to stay fully invested; cash builds
in the
Allocation Model only if there are sufficient downgrades (from "hold"
to
"avoid," for example); market timing itself plays no role in the
Allocation
Model's cash position.
Selection process The manager does not seek to select securities based
on their
individual potential to outperform the S&P 500 Index. Instead, the
manager
seeks to replicate the performance of the Allocation Model by basing
its
investment decisions on the recommendations of the Allocation Model.
Once the
Allocation Model deems a sector of the S&P 500 Index to be technically
strong-
er, the manager will purchase the securities of all companies in the
sector.
Conversely, when the Allocation Model downgrades a sector from "hold"
to
"avoid," the manager will sell the securities of each issuer within the
sector.
To the extent the recommendations of the Allocation Model or other
factors do
not permit the fund to be fully invested, the fund intends to invest in
any
type of money market instrument.
The manager will become aware of the Allocation Model's weekly sector
recommen-
dations when such recommendations are made publicly available.
Group Spectrum Fund
2
<PAGE>
Technical analysis Technical analysis generally consists of a
systematic and
analytical approach to the analysis of stock prices. Technical analysis
is not
concerned with the financial position of a company but instead relies
exclu-
sively on the use of charts and computer programs with respect to price
and
volume data in an attempt to identify trends or patterns of supply
versus
demand which are then utilized to draw conclusions as to present market
posi-
tion and possible future market action.
Principal risks of investing in the fund
Investors could lose money on their investments in the fund, or the
fund may
not perform as well as other investments, if:
. The Allocation Model's sector recommendations prove to be incorrect
. U.S. stock markets decline or perform poorly relative to other types
of
investments
. Large capitalization stocks fall out of favor with investors
. The fund is unable to achieve a high correlation with the performance
of the
Allocation Model
The activities of the manager, SSB Citi Fund Management LLC, and its
affili-
ates, such as Citigroup Inc., Citibank N.A. and Salomon Smith Barney
Inc., may
from time to time limit the fund's ability to purchase or sell
securities in
accordance with the recommendations of the Allocation Model including
stock
issued by Citigroup and certain companies doing business with Citigroup
or its
affiliates.
Sector concentration A fund that invests more than 25% of its net
assets in a
group of related industries (market sector) is subject to increased
risk. Fund
performance will largely depend upon the sector's performance, which
may differ
in direction and degree from that of the overall stock market.
Financial, eco-
nomic, business, political and other developments affecting the sector
will
have a greater effect on the fund.
Who may want to invest The fund may be an appropriate investment if
you:
. Are seeking to participate in the capital appreciation potential of
the S&P
500 Index
. Are looking for an investment with potentially greater return but
higher risk
than other equity or fixed income investments
. Are willing to accept the risks of the stock market
The investment policies employed by the fund in an attempt to
outperform the
S&P 500 Index may be considered aggressive and, accordingly, may not be
appro-
priate for all investors.
Performance
The fund is new and does not yet have the performance information that
other
Smith Barney funds show in bar and table form in this part of the
prospectus.
Smith Barney
Mutual Funds
3
<PAGE>
Fee table
This table sets forth the fees and expenses you will pay if you invest
in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class B Class L
Class Y
<S> <C> <C> <C>
<C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price) 5.00% None 1.00%
None
Maximum deferred sales charge (load) (as a %
of the lower of net asset value at purchase or
redemption) None* 5.00% 1.00%
None
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund assets)
<S> <C> <C> <C>
<C>
Management fee 0.65% 0.65% 0.65%
0.65%
Distribution and service (12b-1) fee 0.25% 1.00% 1.00%
None
Other expenses** 0.15% 0.15% 0.15%
0.05%
----- ----- -----
-----
Total annual fund operating expenses 1.05% 1.80% 1.80%
0.70%
</TABLE>
*You may buy Class A shares in amounts of $1,000,000 or more at net
asset value
(without an initial sales charge) but if you redeem those shares within
12
months of their purchase, you will pay a deferred sales charge of
1.00%.
**The amounts set forth in "Other expenses" have been estimated based
on
expenses the fund expects to incur during its fiscal year ending
September 30,
2001.
Example
This example helps you compare the costs of investing in the fund with
the
costs of investing in other mutual funds. Your actual costs may be
higher or
lower. The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The fund's operating expenses remain the same
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years
<S> <C> <C>
Class A (with or without redemption) 602 817
Class B (redemption at end of period) 683 866
Class B (no redemption) 183 566
Class L (redemption at end of period) 381 661
Class L (no redemption) 281 661
Class Y (with or without redemption) 72 224
</TABLE>
Group Spectrum Fund
4
<PAGE>
More on the fund's investments
Futures Contracts and Other Derivatives The fund may use futures
contracts and
other derivative instruments in strategies intended to simulate
investments in
the recommended sectors of the S&P 500 Index while retaining cash for
fund man-
agement purposes.
A derivative contract will obligate or entitle the fund to deliver or
receive
an asset or cash payment based on the change in value of one or more
indices or
securities. Even a small investment in derivative contracts can have a
big
impact on the fund's stock market exposure. Therefore, using
derivatives can
disproportionately increase losses and reduce opportunities for gains
when
stock prices are changing. The fund may not fully benefit from or may
lose
money on derivatives if changes in their value do not correspond
accurately to
changes in the value of the fund's holdings. The other parties to
certain
derivative contracts present the same types of credit risk as issuers
of fixed
income securities. Derivatives can also make the fund less liquid and
harder to
value, especially in declining markets. To the extent the fund engages
in over-
the-counter ("OTC") derivative transactions, the risks generally
applicable to
futures contracts and other derivatives are increased as the
responsibility for
performing all transactions with respect to OTC options rests with the
writer
and the holder of those options.
Defensive investing The fund may depart from its principal investment
strate-
gies in response to adverse market, economic or political conditions by
taking
temporary defensive positions in any type of money market instrument
and short-
term debt securities. If the fund takes a temporary defensive position,
it may
be unable to achieve its investment goal.
Master/feeder option The fund may in the future seek to achieve its
investment
objective by investing all of its net assets in another investment
company hav-
ing the same investment objective and substantially the same investment
poli-
cies and restrictions as those applicable to the fund.
Management
Manager The fund's investment manager is SSB Citi Fund Management LLC,
an
affiliate of Salomon Smith Barney Inc. The manager's address is 388
Greenwich
Street, New York, New York 10013. The manager selects the fund's
investments
and oversees its operations. The manager and Salomon Smith Barney are
subsidi-
aries of Citigroup Inc. Citigroup businesses produce a broad range of
financial
services--asset management, banking and consumer finance, credit and
charge
cards, insurance, investments, investment banking and trading--and use
diverse
channels to make them available to consumer and corporate customers
around the
world.
Smith Barney
Mutual Funds
5
<PAGE>
Management fee For its services, the manager will receive an annual
investment
management fee equal to 0.65% of the fund's average daily net assets.
Distribution plan The fund has adopted a Rule 12b-1 distribution plan
for its
Class A, B and L shares. Under the plan, the fund pays distribution
and/or
service fees. These fees are an ongoing expense and, over time, may
cost you
more than other types of sales charges.
In addition, the distributor may make payments for distribution and/or
share-
holder servicing activities out of its past profits and other available
sourc-
es. The distributor may also make payments for marketing, promotional
or
related expenses to dealers. The amount of these payments is determined
by the
distributor and may be substantial. The manager or an affiliate may
make simi-
lar payments under similar arrangements.
Transfer agent and shareholder servicing agent Citi Fiduciary Trust
Company
serves as the fund's transfer agent and shareholder servicing agent
(the
"transfer agent"). The transfer agent has entered into a sub-transfer
agency
and services agreement with PFPC Global Fund Services to serve as the
fund's
sub-transfer agent (the "sub-transfer agent"). The transfer sub-agent
will per-
form certain functions including shareholder record keeping and
accounting
services.
Additional information about the Allocation Model The Allocation Model,
intro-
duced in 1987, was created and is maintained by the Salomon Smith
Barney Tech-
nical Research Department.
The chart on the next page reflects historical information regarding
the Allo-
cation Model. The Allocation Model is not maintained for the purpose of
manag-
ing any account or investment company such as the fund. The number of
sectors
in the Allocation Model and the frequency of additions to and deletions
from
the Allocation Model change from year to year, and there are no targets
for
such numbers in future years. The sectors selected for the Allocation
Model
constitute only a "paper portfolio" that does not reflect actual
trading and
does not have an actual performance record. It does not represent the
return of
any fund or any other account that involves actual trading. The price
returns
would not be indicative of the returns on any fund or account because,
among
other things, they do not reflect actual prices when stocks are
purchased or
sold, transaction costs and account fees. Also, the information below
does not
reflect the impact that the manager's portfolio management decisions
and tech-
niques may have on performance. In addition, the actual performance of
the fund
may differ from that of the Allocation Model because of time delays
between
when a sector is added or removed from the list and when the stocks
that com-
prise that sector are bought or sold for the fund.
Group Spectrum Fund
6
<PAGE>
Investors should not consider this price return information as a
substitute
for, or an indication of, future performance of the fund or the
manager. Final-
ly, past returns of the Allocation Model are not representative of
future price
returns of the model.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C> <C> <C> <C>
Allocation Model Return
From
(as a %)* 1988 1989 1990 1991 1992 1993 1994 1995
1996 1997 1998 1999 Inception+
4.53 31.21 -0.23 31.18 4.87 11.84 0.09 35.62
24.95 35.31 38.38 37.19 591.22
S&P 500 Index Price
From
Return (as a %)** 1988 1989 1990 1991 1992 1993 1994 1995
1996 1997 1998 1999 Inception+
12.40 27.25 -6.56 26.31 4.46 7.06 -1.54 34.11
20.26 31.01 26.67 19.53 351.98
</TABLE>
+From 10/1/87 through 6/30/00
Past performance is not indicative of future results.
*The price returns are based only on capital appreciation or
depreciation of
the groups within the sectors that comprise the Allocation Model and
represent
the annual percentage change in the value of the Allocation Model. The
Alloca-
tion Model is priced each week using S&P group data. The results are
calculated
weekly using the current week's ending value less the prior week's
ending value
and dividing that by the prior week's ending value The results do not
reflect
the execution of actual purchases or sales, and there is no guarantee
that a
mutual fund following the Allocation Model would be able to execute
purchases
and sales at the prices used to calculate the price returns.
The price returns shown do not reflect the reinvestment of dividends,
which
would result in higher returns. They do not reflect the market impact
on the
stock prices that may occur between the time the publication is made of
addi-
tions to and deletions from the Allocation Model and the time a mutual
fund
following the Allocation Model would be able to execute purchases and
sales.
They also do not reflect transaction fees, such as commissions, fees
and inter-
est charges, or the costs of running a mutual fund, such as management
fees,
distribution fees and other expenses. Actual transactions and the
effect of
dividends, fees and costs will result in returns that differ from those
of the
Allocation Model.
**The S&P 500 Index is an unmanaged index containing common stocks of
500
industrial, transportation, utility and financial companies, regarded
as gener-
ally representative of the U.S. stock market. The S&P 500 Index
performance
numbers shown are price returns only. The price returns shown do not
reflect
the reinvestment of dividends, which would result in higher returns.
They also
do not reflect fees, brokerage commissions or other costs of investing
that are
not incurred by an index.
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500"
and
"500" are trademarks of The McGraw-Hill Companies, Inc. and have been
licensed
for use by SSB Citi Fund Management LLC. The Smith Barney Group
Spectrum Fund
is not sponsored, endorsed, sold or promoted by Standard & Poor's and
Standard
& Poor's makes no representation regarding the advisability of
investing in the
Smith Barney Group Spectrum Fund.
For additional information, please see the Statement of Additional
Information.
Smith Barney
Mutual Funds
7
<PAGE>
Subscription offering period
A broker-dealer, financial intermediary, financial institution or a
distribu-
tor's financial consultants (each called a "Service Agent") will
solicit
subscriptions for shares of the fund during the subscription offering
period,
which is scheduled to end on October 25, 2000. On the third business
day after
the end of the subscription offering period, subscriptions for the
shares will
be payable, exchanges into the fund will be permitted, shares will be
issued
and the fund will commence investment operations.
The fund will suspend the offering of shares to new investors on
October 31,
2000. This suspension, which is expected to last two weeks, may be
lengthened
or shortened at the fund's discretion. During the suspension, existing
share-
holders of the fund may still purchase, redeem or exchange fund shares.
After
the suspension, the fund will commence a continuous offering of shares
to the
public.
For more information on how to subscribe for fund shares during the
subscrip-
tion offering period, please contact a Service Agent.
Choosing a class of shares to buy
You can choose among four classes of shares: Classes A, B, L and Y.
Each class
has different sales charges and expenses, allowing you to choose the
class that
best meets your needs. Which class is more beneficial to an investor
depends on
the amount and intended length of the investment.
. If you plan to invest regularly or in large amounts, buying Class A
shares
may help you reduce sales charges and ongoing expenses.
. For Class B shares, all of your purchase amount and, for Class L
shares, more
of your purchase amount (compared to Class A shares) will be
immediately
invested. This may help offset the higher expenses of Class B and
Class L
shares, but only if the fund performs well.
. Class L shares have a shorter deferred sales charge period than Class
B
shares. However, because Class B shares convert to Class A shares,
and Class
L shares do not, Class B shares may be more attractive to long-term
invest-
ors.
You may buy shares from:
. A Service Agent
. The fund, but only if you are investing through certain qualified
plans or
Service Agents
All classes of shares are not available through all Service Agents. You
should
contact your Service Agent for further information.
Group Spectrum Fund
8
<PAGE>
Investment minimums Minimum initial and additional investment amounts
vary
depending on the class of shares you buy and the nature of your
investment
account.
<TABLE>
<CAPTION>
Initial
Additional
Classes A, B, L Class Y All
Classes
<S> <C> <C> <C>
General $1,000 $15 million
$50
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $250 $15 million
$50
Qualified Retirement Plans* $25 $15 million
$25
Simple IRAs $1 n/a
$1
Monthly Systematic Investment Plans $25 n/a
$25
Quarterly Systematic Investment Plans $50 n/a
$50
</TABLE>
* Qualified Retirement Plans are retirement plans qualified under
Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including
401(k)
plans.
Smith Barney Mutual
Funds
9
<PAGE>
Comparing the fund's classes
Your Service Agent can help you decide which class meets your goals.
The Serv-
ice Agent may receive different compensation depending upon which class
you
choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .Initial .No
initial
sales sales sales or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge .Deferred .Must
tion or declines sales invest
at
waiver of over time charge for least
$15
initial .Converts only 1 million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than Class expenses annual classes
B and than Class expenses
Class L A than Class
A
-----------------------------------------------------------------------
--
Initial sales charge Up to None 1.00% None
5.00%;
reduced
for large
purchases
and waived
for cer-
tain
investors.
No charge
for pur-
chases of
$1,000,000
or more
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--
Deferred sales charge 1% on pur- Up to 5% 1% if you None
chases of charged redeem
$1,000,000 when you within 1
or more if redeem year of
you redeem shares. purchase
within 1 The charge
year of is reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
-----------------------------------------------------------------------
--
Annual distribution and 0.25% of 1% of 1% of None
service fees average average average
daily net daily net daily net
assets assets assets
-----------------------------------------------------------------------
--
Exchangeable into* Class A Class B Class L Class Y
shares shares shares shares
of most of most of most of most
Smith Smith Smith Smith
Barney Barney Barney Barney
funds funds funds funds
-----------------------------------------------------------------------
--
</TABLE>
*Ask your Service Agent for the Smith Barney funds available for
exchange.
Group Spectrum Fund
10
<PAGE>
Sales charges
Class A shares
You buy Class A shares at the offering price, which is the net asset
value plus
a sales charge. You pay a lower sales charge as the size of your
investment
increases to certain levels called breakpoints. You do not pay a sales
charge
on the fund's distributions or dividends you reinvest in additional
Class A
shares.
The table below shows the rate of sales charge you pay, depending on
the amount
you purchase.
The table below also shows the amount of broker/dealer compensation
that is
paid out of the sales charge. This compensation includes commissions
and other
fees which Service Agents that sell shares of a fund receive. The
distributor
keeps up to approximately 10% of the sales charges imposed on Class A
shares.
Service Agents also will receive the service fee payable on Class A
shares at
an annual rate equal to 0.25% of the average daily net assets
represented by
the Class A shares sold by them.
<TABLE>
<CAPTION>
Broker/Dealer
compensation
Sales charge as a % of as % of
Offering Net amount offering
Amount of purchase price (%) Invested (%) price
<S> <C> <C> <C>
Less than $25,000 5.00 5.26 4.50
$25,000 but less than $50,000 4.25 4.44 3.83
$50,000 but less than $100,000 3.75 3.90 3.38
$100,000 but less than $250,000 3.25 3.36 2.93
$250,000 but less than $500,000 2.75 2.83 2.48
$500,000 but less than $1,000,000 2.00 2.04 1.80
$1,000,000 or more 0.00 0.00 up to 1%*
</TABLE>
* A distributor pays up to 1% to a Service Agent.
Investments of $1,000,000 or more You do not pay an initial sales
charge when
you buy $1,000,000 or more of Class A shares. However, if you redeem
these
Class A shares within one year of purchase, you will pay a deferred
sales
charge of 1%.
Qualifying for a reduced Class A sales charge There are several ways
you can
combine multiple purchases of Class A shares of Smith Barney funds to
take
advantage of the breakpoints in the sales charge schedule.
. Accumulation privilege - lets you combine the current value of Class
A shares
owned by you, or by members of your immediate family and for
Smith Barney
Mutual Funds
11
<PAGE>
which a sales charge was paid, with the amount of your next purchase
of Class
A shares for purposes of calculating the initial sales charge.
Certain trust-
ees and fiduciaries may be entitled to combine accounts in
determining their
sales charge.
. Letter of intent - lets you purchase Class A shares of the fund and
other
Smith Barney funds over a 13-month period and pay the same sales
charge, if
any, as if all shares had been purchased at once. You may include
purchases
on which you paid a sales charge within 90 days before you sign the
letter.
Waivers for certain Class A investors Class A initial sales charges are
waived
for certain types of investors, including:
. Employees of NASD members
. Investors participating in a fee-based program sponsored by certain
broker-
dealers affiliated with Citigroup
. Investors who redeemed Class A shares of a Smith Barney fund in the
past 60
days, if the investor's Service Agent is notified
If you want to learn about additional waivers of Class A initial sales
charges,
contact your Service Agent or consult the Statement of Additional
Information
("SAI").
Class B Shares
You buy Class B shares at net asset value without paying an initial
sales
charge. However, if you redeem your Class B shares within six years of
pur-
chase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
<TABLE>
<CAPTION>
Year after purchase 1st 2nd 3rd 4th 5th 6th through 8th
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 5% 4% 3% 2% 1% 0%
</TABLE>
Service Agents selling Class B shares receive a commission of up to
4.50% of
the purchase price of the Class B shares they sell. Service Agents also
receive
a service fee at an annual rate equal to 0.25% of the average daily net
assets
represented by the Class B shares they are servicing.
Group Spectrum Fund
12
<PAGE>
Class B conversion After 8 years, Class B shares automatically convert
into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as
follows:
<TABLE>
<CAPTION>
Shares issued: Shares issued: Shares
issued:
At initial purchase On reinvestment of Upon
exchange from
dividends and another
Smith
distributions Barney fund
<S> <C> <C>
Eight years after the date of purchase In same proportion On the date
the
as the number of shares
originally
Class B shares acquired
would
converting is to have
converted
total Class B into Class A
shares you own shares
(excluding shares
issued as
dividends)
</TABLE>
Class L Shares
You buy Class L shares at the offering price, which is the net asset
value plus
a sales charge of 1% (1.01% of the net amount invested). In addition,
if you
redeem your Class L shares within one year of purchase, you will pay a
deferred
sales charge of 1%. If you held Class C shares of the fund and/or other
Smith
Barney funds on June 12, 1998, you will not pay an initial sales charge
on
Class L shares you buy before June 22, 2001.
Service Agents selling Class L shares receive a commission of up to
2.00% of
the purchase price of the Class L shares they sell. Starting in the
thirteenth
month, Service Agents also receive a fee of up to 1.00% of the average
daily
net assets represented by the Class L shares held by their clients.
Class Y Shares
You buy Class Y shares at net asset value with no initial sales charge
and no
deferred sales charge when you redeem. You must meet the $15,000,000
initial
investment requirement. You can use a letter of intent to meet this
requirement
by buying Class Y shares of the fund over a 13-month period. To
qualify, you
must initially invest $5,000,000.
Smith Barney
Mutual Funds
13
<PAGE>
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time
of pur-
chase or redemption, whichever is less, and therefore you do not pay a
sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
.Shares exchanged for shares of another Smith Barney fund
.Shares representing reinvested distributions and dividends
.Shares no longer subject to the deferred sales charge
Each time you place a request to redeem shares, the fund will first
redeem any
shares in your account that are not subject to a deferred sales charge
and then
the shares in your account that have been held the longest.
If you redeemed shares of a Smith Barney fund in the past 60 days and
paid a
deferred sales charge, you may buy shares of the fund at the current
net asset
value and be credited with the amount of the deferred sales charge, if
you
notify your Service Agent.
The fund's distributors receive deferred sales charges as partial
compensation
for their expenses in selling shares, including the payment of
compensation to
your Service Agent.
Deferred sales charge waivers
The deferred sales charge for each share class will generally be
waived:
.On payments made through certain systematic withdrawal plans
.On certain distributions from a retirement plan
.For involuntary redemptions of small account balances
.For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales
charges,
contact your Service Agent or consult the SAI.
Group Spectrum Fund
14
<PAGE>
Buying shares
Through You should contact your Service Agent to open a
brokerage
a Service account and make arrangements to buy shares.
Agent
If you do not provide the following information, your
order
will be rejected:
. Class of shares being bought
. Dollar amount or number of shares being bought
Your Service Agent may charge an annual account
maintenance
fee.
-----------------------------------------------------------------------
---------
Through the Qualified retirement plans and certain other investors
who
fund are clients of certain Service Agents are eligible to
buy
shares directly from the fund.
. Write the fund at the following address:
Smith Barney Investment Funds Inc.
Smith Barney Group Spectrum Fund
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
. Enclose a check to pay for the shares. For initial
pur-
chases, complete and send an account application.
. For more information, call the transfer agent at 1-
800-451-
2010
-----------------------------------------------------------------------
---------
Smith Barney
Mutual Funds
15
<PAGE>
Through a You may authorize your Service Agent or the sub-
transfer
systematic agent to transfer funds automatically from (i) a
regular bank
investment account, (ii) cash held in a brokerage account opened
with a
plan Service Agent or (iii) certain money market funds, in
order
to buy shares on a regular basis.
.Amounts transferred should be at least: $25 monthly
or $50
quarterly
.If you do not have sufficient funds in your account
on a
transfer date, your Service Agent or the sub-
transfer agent
may charge you a fee
For more information, contact your Service Agent or
the
transfer agent or consult the SAI.
Group Spectrum Fund
16
<PAGE>
Exchanging shares
Smith Barney You should contact your Service Agent to exchange into
other
offers a Smith Barney funds. Be sure to read the prospectus of
the
distinctive Smith Barney fund you are exchanging into. An exchange
is a
family of taxable transaction.
funds
tailored to .You may exchange shares only for shares of the same
class of
help meet the another Smith Barney fund. Not all Smith Barney
funds offer
varying needs all classes.
of both large
and small .Not all Smith Barney funds may be offered in your
state of
investors. residence. Contact your Service Agent or the
transfer agent
for further information.
.You must meet the minimum investment amount for each
fund
(except for systematic investment plan exchanges).
.If you hold share certificates, the sub-transfer
agent must
receive the certificates endorsed for transfer or
with
signed stock powers (documents transferring
ownership of
certificates) before the exchange is effective.
.The fund may suspend or terminate your exchange
privilege if
you engage in an excessive pattern of exchanges
-----------------------------------------------------------------------
---------
Waiver of Your shares will not be subject to an initial sales
charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will continue to
be mea-
sured from the date of your original purchase. If the
fund
you exchange into has a higher deferred sales charge,
you
will be subject to that charge. If you exchange at any
time
into a fund with a lower charge, the sales charge will
not be
reduced.
-----------------------------------------------------------------------
---------
Smith Barney
Mutual Funds
17
<PAGE>
By telephone If you do not have a brokerage account with a Service
Agent,
you may be eligible to exchange shares through the
fund. You
must complete an authorization form to authorize
telephone
transfers. If eligible, you may make telephone
exchanges on
any day the New York Stock Exchange is open. Call the
trans-
fer agent at 1-800-451-2010 between 9:00 a.m. and 4:00
p.m.
(Eastern time). Requests received after the close of
regular
trading on the Exchange are priced at the net asset
value
next determined.
You can make telephone exchanges only between accounts
that
have identical registrations.
-----------------------------------------------------------------------
---------
By mail If you do not have a brokerage account, contact your
Service
Agent or write to the sub-transfer agent at the
address on
the following page.
Group Spectrum Fund
18
<PAGE>
Redeeming shares
Generally Contact your Service Agent to redeem shares of the
fund.
If you hold share certificates, the sub-transfer agent
must
receive the certificates endorsed for transfer or with
signed
stock powers before the redemption is effective.
If the shares are held by a fiduciary or corporation,
other
documents may be required.
Your redemption proceeds will be sent within three
business
days after your request is received in good order.
However,
if you recently purchased your shares by check, your
redemp-
tion proceeds will not be sent to you until your
original
check clears, which may take up to 15 days.
If you have a brokerage account with a Service Agent,
your
redemption proceeds will be placed in your account and
not
reinvested without your specific instruction. In other
cases,
unless you direct otherwise, your redemption proceeds
will be
paid by check mailed to your address of record.
-----------------------------------------------------------------------
---------
By mail For accounts held directly at the fund, send written
requests
to the fund at the following address:
Smith Barney Investment Funds Inc.
Smith Barney Group Spectrum Fund
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
Your written request must provide the following:
. The account number
. The class of shares and the dollar amount or number
of
shares to be redeemed
. Signatures of each owner exactly as the account is
regis-
tered
-----------------------------------------------------------------------
---------
Smith Barney
Mutual Funds
19
<PAGE>
By telephone If you do not have a brokerage account with a Service
Agent,
you may be eligible to redeem shares (except those
held in
retirement plans) in amounts up to $50,000 per day
through
the fund. You must complete an authorization form to
autho-
rize telephone redemptions. If eligible, you may
request
redemptions by telephone on any day the New York Stock
Exchange is open. Call the transfer agent at 1-800-
451-2010
between 9:00 a.m. and 4:00 p.m. (Eastern time).
Requests
received after the close of regular trading on the
Exchange
are priced at the net asset value next determined.
Your redemption proceeds can be sent by check to your
address
of record or by wire or electronic transfer (ACH) to a
bank
account designated on your authorization form. You
must sub-
mit a new authorization form to change the bank
account des-
ignated to receive wire or electronic transfers and
you may
be asked to provide certain other documents. The sub-
transfer
agent may charge a fee on an electronic transfer
(ACH).
-----------------------------------------------------------------------
---------
Automatic You can arrange for the automatic redemption of a
portion of
cash your shares on a monthly or quarterly basis. To
qualify you
withdrawal must own shares of the fund with a value of at least
$10,000
plans ($5,000 for retirement plan accounts) and each
automatic
redemption must be at least $50. If your shares are
subject
to a deferred sales charge, the sales charge will be
waived
if your automatic payments do not exceed 1% per month
of the
value of your shares subject to a deferred sales
charge.
The following conditions apply:
.Your shares must not be represented by certificates
.All dividends and distributions must be reinvested
For more information, contact your Service Agent or
consult
the SAI.
Group Spectrum Fund
20
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good
order.
This means you have provided the following information, without which
your
request will not be processed:
. Name of the fund
. Account number
. Class of shares being bought, exchanged or redeemed
. Dollar amount or number of shares being bought, exchanged or redeemed
. Signature of each owner exactly as the account is registered
The fund will try to confirm that any telephone exchange or redemption
request
is genuine by recording calls, asking the caller to provide certain
personal
identification information, sending you a written confirmation or
requiring
other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must
include
a signature guarantee if you:
. Are redeeming over $50,000 of shares
. Are sending signed share certificates or stock powers to the sub-
transfer
agent
. Instruct the sub-transfer agent to mail the check to an address
different
from the one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a
different reg-
istration
You can obtain a signature guarantee from most banks, dealers, brokers,
credit
unions and federal savings and loan institutions, but not from a notary
public.
The fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
. Suspend telephone transactions
Smith Barney
Mutual Funds
21
<PAGE>
. Suspend or postpone redemptions of shares on any day when trading on
the New
York Stock Exchange is restricted, or as otherwise permitted by the
Securi-
ties and Exchange Commission
. Pay redemption proceeds by giving you securities. You may pay
transaction
costs to dispose of the securities
Small account balances If your account falls below $500 ($250 for IRA
accounts)
because of a redemption of fund shares, the fund may ask you to bring
your
account up to the applicable minimum investment amount. If you choose
not to do
so within 60 days, the fund may close your account and send you the
redemption
proceeds.
Excessive exchange transactions The manager may determine that a
pattern of
frequent exchanges is detrimental to the fund's performance and other
share-
holders. If so, the fund may limit additional purchases and/or
exchanges by the
shareholder.
Share certificates The fund does not issue share certificates unless a
written
request signed by all registered owners is made to the sub-transfer
agent. If
you hold share certificates it will take longer to exchange or redeem
shares.
Group Spectrum Fund
22
<PAGE>
Dividends, distributions and taxes
Dividends The fund generally pays dividends, if any, and makes capital
gain
distributions once a year, typically in December. The fund may pay
additional
distributions and dividends at other times if necessary for the fund to
avoid a
federal tax. Capital gain distributions and dividends are reinvested in
addi-
tional fund shares of the same class you hold. The fund expects
distributions
to be primarily from capital gain. You do not pay a sales charge on
reinvested
distributions or dividends. Alternatively, you can instruct your
Service Agent,
the transfer agent or the sub-transfer agent to have your distributions
and/or
dividends paid in cash. You can change your choice at any time to be
effective
as of the next distribution or dividend, except that any change given
to your
Service Agent, the transfer agent or the sub-transfer agent less than
five days
before the payment date will not be effective until the next
distribution or
dividend is paid.
Taxes In general, redeeming shares, exchanging shares and receiving
distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually capital gain or
loss; long-term only if
shares owned more than one
year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
</TABLE>
Long-term capital gain distributions are taxable to you as long-term
capital
gain regardless of how long you have owned your shares. You may want to
avoid
buying shares when the fund is about to declare a capital gain
distribution or
a dividend, because it will be taxable to you even though it may
actually be a
return of a portion of your investment.
After the end of each year, the fund will provide you with information
about
the distributions and dividends you received and any redemptions of
shares dur-
ing the previous year. If you do not provide the fund with your correct
tax-
payer identification number and any required certifications, you may be
subject
to back-up withholding of 31% of your distributions, dividends, and
redemption
proceeds. Because each shareholder's circumstances are different and
special
tax rules may apply, you should consult your tax adviser about your
investment
in the fund.
23
Smith Barney
Mutual Funds
<PAGE>
Share price
You may buy, exchange or redeem shares at their net asset value, plus
any
applicable sales charge, next determined after receipt of your request
in good
order. The fund's net asset value is the value of its assets minus its
liabili-
ties. Net asset value is calculated separately for each class of
shares. The
fund calculates its net asset value every day the New York Stock
Exchange is
open. The Exchange is closed on certain holidays listed in the SAI.
This calcu-
lation is done when regular trading closes on the Exchange (normally
4:00 p.m.,
Eastern time).
The fund generally values its portfolio securities based on market
price or
quotations. Fair value is determined in accordance with procedures
approved by
the fund's board. A fund that uses fair value to price securities may
value
those securities higher or lower than another fund using market
quotations to
price the same securities.
In order to buy, redeem or exchange shares at that day's price, you
must place
your order with your Service Agent or the fund's sub-transfer agent
before the
New York Stock Exchange closes. If the Exchange closes early, you must
place
your order prior to the actual closing time. Otherwise, you will
receive the
next business day's price.
Service Agents must transmit all orders to buy, exchange or redeem
shares to
the fund's sub-transfer agent before the sub-transfer agent's close of
busi-
ness.
24
Group Spectrum Fund
<PAGE>
[LOGO OF SALOMON SMITH BARNEY]
Smith Barney Group Spectrum Fund
An investment portfolio of Smith Barney Investment Funds Inc.
Shareholder Reports Annual and semiannual reports to shareholders
provide addi-
tional information about the fund's investments. These reports discuss
the mar-
ket conditions and investment strategies that significantly affected
the fund's
performance during its last fiscal year or period.
The fund sends only one report to a household if more than one account
has the
same address. Contact your Service Agent or the transfer agent if you
do not
want this policy to apply to you.
Statement of additional information The statement of additional
information
provides more detailed information about the fund and is incorporated
by refer-
ence into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or
the
statement of additional information (without charge) by contacting your
Service
Agent, by calling the fund at 1-800-451-2010, or by writing to the fund
at
Smith Barney Mutual Funds, 388 Greenwich Street, MF2, New York, New
York 10013.
Information about the fund (including the SAI) can be reviewed and
copied at
the Securities and Exchange Commission's (the Commission") Public
Reference
Room in Washington, D.C. In addition, information on the operation of
the Pub-
lic Reference Room may be obtained by calling the Commission at 1-202-
942-8090.
Reports and other information about the fund are available on the EDGAR
Data-
base on the Commission's Internet site at http://www.sec.gov. Copies of
this
information may be obtained for a duplicating fee by electronic request
at the
following E-mail address: [email protected], or by writing the
Commission's
Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in this
prospectus, you
should not rely upon that information. Neither the fund nor the
distributor is
offering to sell shares of the fund to any person to whom the fund may
not law-
fully sell its shares.
Your Serious Money. Professionally Managed. is a service mark of
Salomon Smith
Barney Inc.
(Investment Company Act file no. 811-03725)
(FD02023 9/00)
Smith Barney
Group Spectrum Fund
388 Greenwich Street
New York, New York 10013
1-800-451-2010
Statement of Additional
Information
September 14, 2000
This Statement of Additional Information ("SAI") expands upon and
supplements the information contained in the current Prospectus of
Smith Barney Group Spectrum Fund (the "Fund") dated September 14, 2000,
as amended or supplemented from time to time, and should be read in
conjunction with the Fund's Prospectus. The Fund is a series of Smith
Barney Investment Funds Inc. (the "Company"). The Fund's Prospectus may
be obtained from a Service Agent (as defined on page 13) or by writing
or calling the Fund at the address or telephone number set forth above.
This SAI, although not in itself a prospectus, is incorporated by
reference into the Prospectus in its entirety.
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 1
INVESTMENT RESTRICTIONS 6
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY 7
PURCHASE OF SHARES 12
REDEMPTION OF SHARES 16
VALUATION OF SHARES 17
EXCHANGE PRIVILEGE 18
PERFORMANCE DATA 18
DIVIDENDS, DISTRIBUTIONS AND TAXES 20
ADDITIONAL INFORMATION 24
FINANCIAL STATEMENTS 25
OTHER INFORMATION 25
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The prospectus discusses the Fund's investment objective and policies.
This section contains supplemental information concerning the types of
securities and other instruments in which the Fund may invest, the
investment policies and portfolio strategies the Fund may utilize and
certain risks associated with these investments, policies and
strategies. SSB Citi Fund Management LLC ("SSB Citi" or the "Manager")
serves as investment manager to the Fund.
The Fund is an open-end, diversified, management investment company
whose investment objective is to seek capital appreciation.
The Fund seeks to achieve its objective by investing, under normal
circumstances, at least 80% of its total assets in the common stocks
that comprise the sectors of the S&P 500 Index that have been
determined by the Smith Barney Group Spectrum Allocation Model (the
"Allocation Model") as likely to outperform the entire S&P 500 Index.
The Allocation Model: The Allocation Model tracks the sectors that
comprise the S&P 500 Index which now number over 100 and employs
technical analysis of each sector in compiling on a weekly basis a
"buy," "hold," "avoid" or "sell" recommendation for each such sector.
The Allocation Model is a "paper portfolio" that "buys" and "sells"
securities within sectors based on the recommendations. The Allocation
Model "buys" an entire group of stocks; it does not have the ability to
discriminate and pick only the technically stronger looking sector
components. If a sector is downgraded during a week from "hold" to
"avoid," and it appears in the Allocation Model, the group of
securities that comprise that sector is sold. If a sector is upgraded
to the "buy" list, the Allocation Model attempts to "own" over two
times a market weight in that sector. The Allocation Model attempts to
"own" over one times market weight in a sector on the "hold" list. The
Allocation Model attempts to stay fully invested; cash builds in the
Allocation Model only if there are sufficient downgrades (from "hold"
to "avoid," for example); market timing itself plays no roles in the
Allocation Model's cash position.
Selection Process: The manager does not seek to select securities
based on their individual potential to outperform the S&P 500 Index.
Instead, the manager seeks to replicate the performance of the
Allocation Model by basing its investment decisions on the
recommendations of the Allocation Model. Once the Allocation Model
deems a sector of the S&P 500 Index to be technically stronger, the
manager will purchase the securities of each company in the sector.
Conversely, when the Allocation Model downgrades a sector from "hold"
to "avoid," the manager will sell the securities of each issuer within
the sector. To the extent the recommendations of the Allocation Model
or other factors do not permit the fund to be fully invested, the fund
intends to invest in any type of money market instrument.
The manager will become aware of the Allocation Model's weekly sector
recommendations when such recommendations are made publicly available.
Technical Analysis: Technical analysis generally consists of a
systematic and analytical approach to the analysis of stock prices.
Technical analysis is not concerned with the financial position of a
company but instead relies exclusively on the use of charts and
computer programs with respect to price and volume data in an attempt
to identify trends or patterns of supply versus demand which are then
utilized to draw conclusions as to present market position and possible
future market action.
Repurchase Agreements. The Fund may agree to purchase securities from
a bank or recognized securities dealer and simultaneously commit to
resell the securities to the bank or dealer at an agreed-upon date and
price reflecting a market rate of interest unrelated to the coupon rate
or maturity of the purchased securities ("repurchase agreements"). The
Fund would maintain custody of the underlying securities prior to their
repurchase; thus, the obligation of the bank or dealer to pay the
repurchase price on the date agreed to would be, in effect, secured by
such securities. If the value of such securities were less than the
repurchase price, plus interest, the other party to the agreement would
be required to provide additional collateral so that at all times the
collateral is at least 102% of the repurchase price plus accrued
interest. Default by or bankruptcy of a seller would expose the Fund
to possible loss because of adverse market action, expenses and/or
delays in connection with the disposition of the underlying
obligations. The financial institutions with which the Fund may enter
into repurchase agreements will be banks and non-bank dealers of U.S.
Government securities on the Federal Reserve Bank of New York's list of
reporting dealers, if such banks and non-bank dealers are deemed
creditworthy by the Fund's manager. The manager will continue to
monitor creditworthiness of the seller under a repurchase agreement,
and will require the seller to maintain during the term of the
agreement the value of the securities subject to the agreement to equal
at least 102% of the repurchase price (including accrued interest). In
addition, the manager will require that the value of this collateral,
after transaction costs (including loss of interest) reasonably
expected to be incurred on a default, be equal to 102% or greater than
the repurchase price (including accrued premium) provided in the
repurchase agreement or the daily amortization of the difference
between the purchase price and the repurchase price specified in the
repurchase agreement. The manager will mark-to-market daily the value
of the securities. Repurchase agreements are considered to be loans by
the Fund under the Investment Company Act of 1940, as amended ("1940
Act").
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend portfolio securities to brokers,
dealers and other financial organizations that meet capital and other
credit requirements or other criteria established by the Board. The
Fund will not lend portfolio securities to affiliates of the manager
unless they have applied for and received specific authority to do so
from the Securities and Exchange Commission ("SEC"). Loans of
portfolio securities will be collateralized by cash, letters of credit
or U.S. Government Securities, which are maintained at all times in an
amount equal to at least 102% of the current market value of the loaned
securities. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would be for the
account of the Fund. From time to time, the Fund may return a part of
the interest earned from the investment of collateral received for
securities loaned to the borrower and/or a third party that is
unaffiliated with the Fund and that is acting as a "finder."
By lending its securities, the Fund can increase its income by
continuing to receive interest and any dividends on the loaned
securities as well as by either investing the collateral received for
securities loaned in short-term instruments or obtaining yield in the
form of interest paid by the borrower when U.S. Government Securities
are used as collateral. Although the generation of income is not the
primary investment goal of the Fund, income received could be used to
pay the Fund's expenses and would increase an investor's total return.
The Fund will adhere to the following conditions whenever its portfolio
securities are loaned: (i) the Fund must receive at least 102% cash
collateral or equivalent securities of the type discussed in the
preceding paragraph from the borrower; (ii) the borrower must increase
such collateral whenever the market value of the securities rises above
the level of such collateral; (iii) the Fund must be able to terminate
the loan at any time; (iv) the Fund must receive reasonable interest on
the loan, as well as any dividends, interest or other distributions on
the loaned securities and any increase in market value; (v) the Fund
may pay only reasonable custodian fees in connection with the loan; and
(vi) voting rights on the loaned securities may pass to the borrower,
provided, however, that if a material event adversely affecting the
investment occurs, the Board must terminate the loan and regain the
right to vote the securities. Loan agreements involve certain risks in
the event of default or insolvency of the other party including
possible delays or restrictions upon a Fund's ability to recover the
loaned securities or dispose of the collateral for the loan.
Foreign Securities. The Fund may purchase common stocks of foreign
corporations represented in the S&P 500 Index (such securities are
publicly traded on securities exchanges or over-the-counter in the
United States). The Fund's investment in common stock of foreign
corporations represented in the S&P 500 Index may also be in the form
of American Depository Receipts (ADRs). ADRs are receipts typically
issued by a United States bank or trust company evidencing ownership of
the underlying securities and are designated for use in the U.S.
Securities markets.
Investing in the securities of foreign companies involves special risks
and considerations not typically associated with investing in U.S.
companies. These include differences in accounting, auditing and
financial reporting standards, the possibility of expropriation or
confiscatory taxation, adverse changes in investment or exchange
control regulations, political instability which could affect U.S.
investments in foreign countries, and potential restrictions on the
flow of international capital. Investments in foreign securities may
be affected by changes in governmental administration or economic
policy (in the United Stated and abroad) or changed circumstances in
dealings between nations. Foreign companies may be subject to less
governmental regulation than U.S. companies. Securities of foreign
companies may be more volatile than securities of U.S. companies.
Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross
domestic product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payment positions.
Money Market Instruments. The Fund may invest up to 20% of its assets
in corporate and government bonds and notes and money market
instruments. Money market instruments include: obligations issued or
guaranteed by the United States government, its agencies or
instrumentalities ("U.S. government securities"); certificates of
deposit, time deposits and bankers' acceptances issued by domestic
banks (including their branches located outside the United States and
subsidiaries located in Canada), domestic branches of foreign banks,
savings and loan associations and similar institutions; high grade
commercial paper; and repurchase agreements with respect to the
foregoing types of instruments. Certificates of deposit ("CDs") are
short-term, negotiable obligations of commercial banks. Time deposits
("TDs") are non-negotiable deposits maintained in banking institutions
for specified periods of time at stated interest rates. Bankers'
acceptances are time drafts drawn on commercial banks by borrowers,
usually in connection with international transactions.
Futures and Options. The Fund may enter into futures contracts,
options, and options on futures contracts, subject to the limitation
that the value of these futures contracts and options will not exceed
20% of the Fund's total assets. Also, the Fund will not purchase
options to the extent that more than 5% of the value of the Fund's
total assets would be invested in premiums on open put option
positions. These futures contracts and options will be used for the
following reasons: to simulate full investment in the S&P 500 Index
while retaining a cash balance for Fund management purposes, to
facilitate trading, to reduce transaction costs or to seek higher
investment returns when a futures contract is priced more attractively
than stocks comprising the S&P 500 Index. The Fund will only enter
into futures contracts and options on futures contracts that are traded
on a domestic exchange and board of trade. The Fund will not use
futures or options for speculative purposes.
A call option gives a holder the right to purchase a specific security
at a specified price referred to as the "exercise price," within a
specified period of time. A put option gives a holder the right to
sell a specific security at a specified price within a specified period
of time. The initial purchaser of a call option pays the "writer" a
premium, which is paid at the time of purchase and is retained by the
writer whether or not such option is exercised. Institutions, such as
the Fund, that sell (or "write") call options against securities held
in their investment portfolios retain the premium. The Fund may
purchase put options to hedge its portfolio against the risk of a
decline in the market value of securities held, and may purchase call
options to hedge against an increase in the price of securities it is
committed to purchase. The Fund may write put and call options along
with a long position in options to increase its ability to hedge
against a change in the market value of the securities it holds or is
committed to purchase.
Futures contracts provide for the future sale by one party and purchase
by another party of a specified amount of a specific security at a
specified future time and at a specified price. Stock index futures
contracts are based on indices that reflect the market value of common
stock of the firms included in the indices. The Fund may enter into
futures contracts to purchase securities when the manager anticipates
purchasing the underlying securities and believes prices will rise
before the purchase will be made. Assets committed to futures
contracts will be segregated at the Fund's custodian to the extent
required by law.
There are several risks accompanying the utilization of futures
contracts and options on futures contracts. First, positions in
futures contracts and options on futures contracts may be closed only
on an exchange or board of trade that furnishes a secondary market for
such contracts. While the Fund plans to utilize future contracts only
if there exists an active market for such contracts, there is no
guarantee that a liquid market will exist for the contracts at a
specified time. Furthermore, because, by definition, futures contracts
look to projected price levels in the future and not to current levels
of valuation, market circumstances may result in there being a
discrepancy between the price of the stock index future and the
movement in the stock index. The absence of a perfect price
correlation between the futures contract and its underlying stock index
could stem from investors choosing to close futures contracts by
offsetting transactions, rather than satisfying additional margin
requirements. This could result in a distortion of the relationship
between the index and futures market. In addition, because the futures
market imposes less burdensome margin requirements than the securities
market, an increased amount of participation by speculators in the
futures market could result in price fluctuations.
In view of these considerations, the Fund will comply with the
following restrictions when purchasing and selling futures contracts.
First, the Fund will not participate in futures transactions if the sum
of its initial margin deposits on open contracts will exceed 5% of the
market value of the Fund's total assets, after taking into account the
unrealized profits and losses on those contracts which it has entered.
Second, the Fund will not enter into these contracts for speculative
purposes. Third, the Fund will limit transactions in futures and
options on futures to the extent necessary to prevent the Fund from
being deemed a "commodity pool" under regulations of the Commodity
Futures Trading Commission.
No consideration will be paid or received by the Fund upon entering
into a futures contract. Initially, the Fund will be required to
deposit with the broker an amount of cash or cash equivalents equal to
approximately 1% to 10% of the contract amount (this amount is subject
to change by the board of trade on which the contract is traded and
members of such board of trade may charge a higher amount). This
amount, known as "initial margin," is in the nature of a performance
bond or good faith deposit on the contract and is returned to the Fund
upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Subsequent payments, known as
"variation margin," to and from the broker will be made daily as the
price of the index underlying the futures contract fluctuates, making
the long and short positions in the futures contract more or less
valuable, a process known as "marking-to-market." At any time prior to
expiration of a futures contract, the Fund may elect to close the
position by taking an opposite position, which will operate to
terminate the Fund's existing position in the contract.
Although the Fund intends to enter into futures contracts only if there
is an active market for such contracts, there is no assurance that an
active market will exist for the contracts at any particular time.
Most U.S. futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single
trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that limit.
It is possible that futures contract prices could move to the daily
limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses. In such event,
and in the event of adverse price movements, the Fund would be required
to make daily cash payments of variation margin, and an increase in the
value of the portion of the Fund being hedged, if any, may partially or
completely offset losses on the futures contract. As described above,
however, there is no guarantee that the price of the securities being
hedged will, in fact, correlate with the price movements in a futures
contract and thus provide an offset to losses on the futures contract.
If the Fund hedges against the possibility of a change in market
conditions adversely affecting the value of securities held in its
portfolio and market conditions move in a direction opposite to that
which has been anticipated, the Fund will lose part or all of the
benefit of the increased value of securities that it has hedged because
it will have offsetting losses in its futures positions. In addition,
in such situations, if the Fund had insufficient cash, it may have to
sell securities to meet daily variation margin requirements at a time
when it may be disadvantageous to do so. These sales of securities
may, but will not necessarily, be at increased prices that reflect the
change in interest rates, market conditions or currency values, as the
case may be.
Options on Futures Contracts. An option on a futures contract, as
contrasted with the direct investment in such a contract, gives the
purchaser the right, in return for the premium paid, to assume a
position in the underlying futures contract at a specified exercise
price at any time prior to the expiration date of the option. Upon
exercise of an option, the delivery of the futures position by the
writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin
account, which represents the amount by which the market price of the
futures contract exceeds, in the case of a call, or is less than, in
the case of put, the exercise price of the option on the futures
contract. The potential for loss related to the purchase of an option
on a futures contract is limited to the premium paid for the option
plus transaction costs. Because the value of the option is fixed at
the point of sale, there are no daily cash payments to reflect changes
in the value of the underlying contract; however, the value of the
option does change daily and that change would be reflected in the net
asset value of the Fund.
The Fund may purchase and write put and call options on futures
contracts that are traded on a U.S. exchange or board of trade as a
hedge against changes in the value of its portfolio securities, or in
anticipation of the purchase of securities, and may enter into closing
transactions with respect to such options to terminate existing
positions. There is no guarantee that such closing transactions can be
effected.
Several risks are associated with options on futures contracts. The
ability to establish and close out positions on such options will be
subject to the existence of a liquid market. In addition, the purchase
of put or call options will be based upon predictions by the manager as
to anticipated trends, which predictions could prove to be incorrect.
Even if the expectations of the manager are correct, there may be an
imperfect correlation between the change in the value of the options
and of the portfolio securities being hedged.
Stock Index Options. As described generally above, the Fund may
purchase put and call options and write call options on domestic stock
indexes listed on domestic exchanges in order to realize its investment
objective of capital appreciation or for the purpose of hedging its
portfolio. A stock index fluctuates with changes in the market values
of the stocks included in the index. Some stock index options are based
on a broad market index such as the New York Stock Exchange Composite
Index or the Canadian Market Portfolio Index, or a narrower market
index such as the Standard & Poor's 100.
Options on stock indexes are generally similar to options on stock
except that the delivery requirements are different. Instead of giving
the right to take or make delivery of stock at a specified price, an
option on a stock index gives the holder the right to receive a cash
"exercise settlement amount" equal to (a) the amount, if any, by which
the fixed exercise price of the option exceeds (in the case of a put)
or is less than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied by (b) a fixed
"index multiplier." Receipt of this cash amount will depend upon the
closing level of the stock index upon which the option is based being
greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. The amount of cash received will
be equal to such difference between the closing price of the index and
the exercise price of the option expressed in dollars or a foreign
currency, as the case may be, times a specified multiple. The writer of
the option is obligated, in return for the premium received, to make
delivery of this amount. The writer may offset its position in stock
index options prior to expiration by entering into a closing
transaction on an exchange or it may let the option expire unexercised.
The effectiveness of purchasing or writing stock index options as a
hedging technique will depend upon the extent to which price movements
in the portion of the securities portfolio of the Fund correlate with
price movements of the stock index selected. Because the value of an
index option depends upon movements in the level of the index rather
than the price of a particular stock, whether the Fund will realize a
gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market
segment, rather than movements in the price of a particular stock.
Accordingly, successful use by the Fund of options on stock indexes
will be subject to the manager's ability to predict correctly movements
in the direction of the stock market generally or of a particular
industry. This requires different skills and techniques than predicting
changes in the price of individual stocks.
OTC Options. The Fund may purchase and write OTC or dealer options.
Unlike exchange-listed options where an intermediary or clearing
corporation, such as the Clearing Corporation, assures that all
transactions in such options are properly executed, the responsibility
for performing all transactions with respect to OTC options rests
solely with the writer and the holder of those options. A listed call
option writer, for example, is obligated to deliver the underlying
securities to the clearing organization if the option is exercised, and
the clearing organization is then obligated to pay the writer the
exercise price of the option. If the Fund were to purchase a dealer
option, however, it would rely on the dealer from whom it purchased the
option to perform if the option were exercised. If the dealer fails to
honor the exercise of the option by the Fund, the Fund would lose the
premium it paid for the option and the expected benefit of the
transaction.
Exchange-traded options generally have a continuos liquid market
while OTC or dealer options do not. Consequently, the Fund will
generally be able to realize the value of a dealer option it has
purchased only by exercising it or reselling it to the dealer who
issued it. Similarly, when the Fund writes a dealer option, it
generally will able to close out the option prior to its expiration
only by entering into a closing purchase transaction with the dealer to
which the Fund originally wrote the option. Although the Fund will
seek to enter into dealer options only with dealers who will agree to
and that are expected to be capable of entering into closing
transactions with the Fund, there can be no assurance that the Fund
will be able to liquidate a dealer option at a favorable price at any
time prior to expiration. The inability to enter into a closing
transactions may result in material losses to the Fund. Until the
Fund, as a covered OTC call option writer, is able to effect a closing
purchase transaction, it will not be able to liquidate securities (or
other assets) used to cover the written option until the option expires
or is exercised. This requirement may impair the Fund's ability to
sell portfolio securities or, with respect to currency options,
currencies at a time when such sale might be advantageous.
MASTER/FEEDER FUND STRUCTURE
The Board of Directors has the discretion to retain the current
distribution arrangement for the Fund while investing in a master fund
in a master/feeder fund structure. A master/feeder fund structure is
one in which a fund (a "feeder fund"), instead of investing directly in
a portfolio of securities, invests most or all of its investment assets
in a separate registered investment company (the "master fund") with
substantially the same investment objective and policies as the feeder
fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels
at the feeder fund level. Based on the premise that certain of the
expenses of operating an investment portfolio are relatively fixed, a
larger investment portfolio may eventually achieve a lower ratio of
operating expenses to average net assets. An existing investment
company is able to convert to a feeder fund by selling all of its
investments, which involves brokerage and other transaction costs and
realization of a taxable gain or loss, or by contributing its assets to
the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
INVESTMENT RESTRICTIONS
The investment restrictions below and the Fund's investment objective
have been adopted by the Company as fundamental policies of the Fund.
Under the 1940 Act, a fundamental policy may not be changed with
respect to a fund without the vote of a majority of the outstanding
voting securities of the fund. Majority is defined in the 1940 Act as
the lesser of (a) 67% or more of the shares present at a fund meeting,
if the holders of more than 50% of the outstanding shares of the fund
are present or represented by proxy, or (b) more than 50% of
outstanding shares.
Under the investment restrictions adopted by the Company with respect
to the Fund, the Fund will not
1. Invest more than 25% of its total assets in securities, the
issuers of which conduct their business activities in the same
industry. For purposes of this limitation, securities of the U.S.
government (including its agencies and instrumentalities) and
securities of state or municipal governments and their political
subdivisions are not considered to be issued by members of any
industry.
2. Borrow money, except that (a) the Fund may borrow from banks for
temporary or emergency (not leveraging) purposes, including the meeting
of redemption requests which might otherwise require the untimely
disposition of securities, and (b) the Fund may, to the extent
consistent with its investment policies, enter into reverse repurchase
agreements, forward roll transactions and similar investment strategies
and techniques. To the extent that it engages in transactions
described in (a) and (b), the Fund will be limited so that no more than
331/3% of the value of its total assets (including the amount borrowed),
valued at the lesser of cost or market, less liabilities (not including
the amount borrowed) valued at the time the borrowing is made, is
derived from such transactions.
3. Issue "senior securities" as defined in the 1940 Act and the
rules, regulations and orders thereunder, except as permitted under the
1940 Act and the rules, regulations and orders thereunder
4. Make loans. This restriction does not apply to: (a) the purchase
of debt obligations in which the Fund may invest consistent with its
investment objectives and policies; (b) repurchase agreements; and (c)
loans of its portfolio securities, to the fullest extent permitted
under the 1940 Act.
5. Purchase or sell real estate, real estate mortgages, commodities
or commodity contracts, but this restriction shall not prevent the Fund
from (a) investing in securities of issuers engaged in the real estate
business or the business of investing in real estate (including
interests in limited partnerships owning or otherwise engaging in the
real estate business or the business of investing in real estate) and
securities which are secured by real estate or interests therein; (b)
holding or selling real estate received in connection with securities
it holds or held; (c) trading in futures contracts and options on
futures contracts (including options on currencies to the extent
consistent with the Fund's investment objective and policies); or (d)
investing in real estate investment trust securities.
6. Engage in the business of underwriting securities issued by other
persons, except to the extent that the Fund may technically be deemed
to be an underwriter under the Securities Act of 1933, as amended, in
disposing of portfolio securities.
7. Purchase or otherwise acquire any illiquid security except as
permitted under the 1940 Act for open-end investment companies, which
currently permits up to 15% of the Fund's net assets to be invested in
illiquid securities.
If any percentage restriction described above is complied with at the
time of an investment, a later increase or decrease in percentage
resulting from a change in values or assets will not constitute a
violation of such restriction.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Directors and executive officers of the Company, together with
information as to their principal business occupations during the past
five years, are shown below. Each Director who is an "interested
person" of the Fund, as defined in the 1940 Act, is indicated by an
asterisk.
Paul R. Ades, Director (Age 59). Partner in the law firm of Murov &
Ades. His address is 272 South Wellwood Avenue, P.O. Box 504,
Lindenhurst, New York 11757.
Herbert Barg, Director (Age 75). Private investor. His address is 273
Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
Dwight B. Crane, Director (Age 61). Professor, Graduate School of
Business Administration, Harvard University. His address is Graduate
School of Business Administration, Harvard University, Boston,
Massachusetts 02163.
Frank G. Hubbard, Director (Age 62). Vice President, S&S Industries;
Former Corporate Vice President, Materials Management and Marketing
Services of Huls America, Inc. His address is 80 Centennial Avenue
P.O. Box 456, Piscataway, New Jersey 08855-0456.
*Heath B. McLendon, Chairman of the Board, President and Chief
Executive Officer (Age 66). Managing Director of Salomon Smith Barney
Inc. ("Salomon Smith Barney"); Director and President of SSB Citi Fund
Management LLC ("SSB Citi") and Travelers Investment Adviser, Inc.
("TIA"); and formerly Chairman of the Board of Smith Barney Strategy
Advisers Inc. Mr. McLendon is a director of 71 investment companies
associated with Citigroup Inc. ("Citigroup"). His address is 7 World
Trade Center, New York, New York 10048.
Jerome Miller, Director (Age 60). Retired, Former President, Asset
Management Group of Shearson Lehman Brothers. His address is 27
Hemlock Road, Manhasset, New York, NY 11030.
Ken Miller, Director (Age 57). President of Young Stuff Apparel Group,
Inc. His address is 1411 Broadway, New York, New York 10018.
Lewis E. Daidone, Senior Vice President and Treasurer (Age 42).
Managing Director of Salomon Smith Barney; Director and Senior Vice
President of SSB Citi and TIA; Senior Vice President and Treasurer of
61 investment companies associated with Citigroup. His address is 125
Broad Street, New York, New York 10004.
Alan Blake, Vice President and Investment Officer (Age 35). Senior
Vice President of Salomon Smith Barney; His address is 7 World Trade
Center, New York, New York 10048.
Paul Brook, Controller (Age 46). Director of Salomon Smith Barney;
from 1997-1998 Managing Director of AMT Capital Services Inc.; prior to
1997 Partner with Ernst & Young LLP; Controller or Assistant Treasurer
of 43 investment companies associated with Citigroup. His address is
125 Broad Street, New York, New York 10014.
Christina T. Sydor, Secretary (Age 49). Managing Director of Salomon
Smith Barney; General Counsel and Secretary of SSB Citi and TIA;
Secretary of 61 investment companies associated with Citigroup. Her
address is 388 Greenwich Street, New York, New York 10013.
No officer, director or employee of Salomon Smith Barney or any parent
or subsidiary receives any compensation from the Company for serving as
an officer or Director of the Company. The Company pays each Director
who is not an officer, director or employee of Salomon Smith Barney or
any of its affiliates a fee of $22,500 per annum plus $2,900 per
meeting attended and reimburses travel and out-of-pocket expenses.
During the calendar year ended December 31, 1999 such expenses totaled
$18,574. For the calendar year ended December 31, 1999, the Directors
of the Company were paid the following compensation:
Name of Person
Aggregate
Compensation
from Company
FYE 12/31/99
Total Pension
or Retirement
Benefits
Accrued as
part of Fund
Expenses
Compensation
from Company
and Fund
Complex Paid
to Directors
Calendar Year
Ending
12/31/99
Number of
Funds for
Which
Director
Serves Within
Fund Complex
Paul R. Ades
$28,369
$0
$56,238
5
Herbert Barg
28,369
0
114,288
16
Dwight B. Crane
26,297
0
155,363
23
Frank G. Hubbard
28,269
0
56,138
5
Heath B. McLendon
0
0
0
71
Jerome Miller
26,197
0
51,613
5
Ken Miller
24,847
0
47,188
5
Upon attainment of age 80, Directors are required to change to emeritus
status. Directors Emeritus are entitled to serve in emeritus status
for a maximum of 10 years during which time they are paid 50% of the
annual retainer fee and meeting fees otherwise applicable to the Fund
Directors, together with reasonable out-of-pocket expenses for each
meeting attended.
Investment Manager - SSB Citi
SSB Citi (successor to SSBC Fund Management Inc.) serves as investment
manager to the Fund pursuant to an investment management agreement (the
"Investment Management Agreement") with the Fund which was approved by
the Board of Directors, including a majority of directors who are not
"interested persons" of the Fund or the Manager. The Manager is a
wholly owned subsidiary of Salomon Smith Barney Holdings Inc.
("Holdings"), which in turn, is a wholly owned subsidiary of Citigroup
Inc. Subject to the supervision and direction of the Company's Board of
Directors, the Manager manages the Fund's portfolio in accordance with
the Fund's stated investment objective and policies, makes investment
decisions for the Fund, places orders to purchase and sell securities,
and employs professional portfolio managers and securities analysts who
provide research services to the Fund. The Manager pays the salary of
any officer and employee who is employed by both it and the Fund. The
Manager bears all expenses in connection with the performance of its
services. The Manager also: (a) assists in supervising all aspects of
the Fund's operations except those it performs under its investment
advisory agreement; b) supplies the Fund with office facilities (which
may be in SSB Citi's own offices), statistical and research data, data
processing services, clerical, accounting and bookkeeping services,
including, but not limited to, the calculation of (i) the net asset
value of shares of the Fund, (ii) applicable Deferred Sales Charges and
similar fees and charges and (iii) distribution fees, internal auditing
and legal services, internal executive and administrative services, and
stationary and office supplies; and (c) prepares reports to
shareholders of the Fund, tax returns and reports to and filings with
the SEC and state blue sky authorities.
SSB Citi (through its predecessor entities) has been in the investment
counseling business since 1968 and renders investment advice to a wide
variety of individual, institutional and investment company clients
that had aggregate assets under management as of August 31, 2000 in
excess of $204 million.
As compensation for investment management services, the Fund pays the
Manager a fee computed daily and paid monthly at the annual rate of
0.65% of the Fund's average daily net assets.
Kevin Kopczynski, investment officer of the manager, is responsible for
the day-to-day management of the fund.
Code of Ethics
Pursuant to Rule 17j-1 of the 1940 Act, the fund, the investment
adviser and principal underwriter have adopted codes of ethics that
permit personnel to invest in securities for their own accounts,
including securities that may be purchased or held by the fund. All
personnel must place the interests of clients first and avoid
activities, interests and relationships that might interfere with the
duty to make decisions in the best interests of the clients. All
personal securities transactions by employees must adhere to the
requirements of the codes and must be conducted in such a manner as to
avoid any actual or potential conflict of interest, the appearance of
such a conflict, or the abuse of an employee's position of trust and
responsibility.
A copy of the Fund's code of ethics is on file with the Securities and
Exchange Commission.
Counsel and Auditors
Willkie Farr & Gallagher serves as counsel to the Company. The
Directors who are not "interested persons" of the Company have selected
Stroock & Stroock & Lavan LLP to serve as their legal counsel.
KPMG LLP, independent accountants, 757 Third Avenue, New York, New York
10017, serve as auditors of the Fund and will render an opinion on the
Fund's financial statements annually beginning with the fiscal period
ending April 30, 2001.
Custodian and Transfer Agent
PNC Bank, National Association ("PNC Bank"), located at 17th and
Chestnut Streets, Philadelphia, Pennsylvania 19103, serves as the
custodian of the Fund. Under its agreement with the Company on behalf
of the Fund, PNC Bank holds the Fund's portfolio securities and keeps
all necessary accounts and records. For its services, PNC Bank receives
a monthly fee based upon the month-end market value of securities held
in custody and also receives securities transaction charges. The assets
of the Fund are held under bank custodianship in compliance with the
1940 Act.
Citi Fiduciary Trust Company (the "transfer agent") located at 388
Greenwich Street, New York, New York 10013, serves as the transfer
agent and shareholder services agent of the Fund.
PFPC Global Fund Services (the "sub-transfer agent"), located at P.O.
Box 9699, Providence Rhode Island 02940-9699, serves as the Fund's sub-
transfer agent to render certain shareholder record-keeping and
accounting services functions.
Distributor
Salomon Smith Barney Inc., located at 388 Greenwich Street, New York,
New York 10013 serves as the Fund's distributor pursuant to a written
agreement with the Company dated June 5, 2000 (the "Distribution
Agreement") which was approved by the Company's Board of Directors,
including a majority of the independent directors, on April 13, 2000.
When payment is made by the investor before the settlement date, unless
otherwise noted by the investor, the funds will be held as a free
credit balance in the investor's brokerage account and Salomon Smith
Barney may benefit from the temporary use of the funds. The Company's
Board of Directors has been advised of the benefits to Salomon Smith
Barney resulting from these settlement procedures and will take such
benefits into consideration when reviewing the Investment Management
and Distribution Agreements for continuance.
Distribution Arrangements
To compensate Salomon Smith Barney for the services it provides and for
the expense it bears under the Distribution Agreement, the Fund has
adopted a services and distribution plan (the "Plan") pursuant to Rule
l2b-1 under the 1940 Act. Under the Plan, the Fund pays Salomon Smith
Barney a service fee, accrued daily and paid monthly, calculated at the
annual rate of 0.25% of the value of the Fund's average daily net
assets attributable to the Class A, Class B and Class L shares. In
addition, the Fund pays Salomon Smith Barney a distribution fee with
respect to the Class B and Class L shares primarily intended to
compensate Salomon Smith Barney for its initial expense of paying
Financial Consultants a commission upon sales of those shares. The
Class B and Class L distribution fee is calculated at the annual rate
of 0.75% of the value of the Fund's average daily net assets
attributable to the shares of the respective Class.
Under its terms, the Plan continues from year to year, provided such
continuance is approved annually by vote of the Board of Directors,
including a majority of the directors who are not interested persons of
the Fund and who have no direct or indirect financial interest in the
operation of the Plan or in the Distribution Agreement (the
"independent directors"). The Plan may not be amended to increase the
amount of the service and distribution fees without shareholder
approval, and all amendments of the Plan also must be approved by the
directors including all of the independent directors in the manner
described above. The Plan may be terminated with respect to a Class at
any time, without penalty, by vote of a majority of the independent
directors or, with respect to the Fund, by vote of a majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act).
Pursuant to the Plan, Salomon Smith Barney will provide the Board of
Directors with periodic reports of amounts expended under the Plan and
the purpose for which such expenditures were made.
Portfolio Transactions
The Manager arranges for the purchase and sale of the Fund's securities
and selects brokers and dealers (including Salomon Smith Barney) which
in its best judgment provide prompt and reliable execution at favorable
prices and reasonable commission rates. The Manager may select brokers
and dealers that provide it with research services and may cause the
Fund to pay such brokers and dealers commissions which exceed those
other brokers and dealers may have charged, if it views the commissions
as reasonable in relation to the value of the brokerage and/or research
services. In selecting a broker, including Salomon Smith Barney, for a
transaction, the primary consideration is prompt and effective
execution of orders at the most favorable prices. Subject to that
primary consideration, dealers may be selected for research,
statistical or other services to enable the Manager to supplement its
own research and analysis.
Decisions to buy and sell securities for the Fund are made by the
Manager, subject to the overall supervision and review of the Company's
Board of Directors. Portfolio securities transactions for the Fund are
effected by or under the supervision of the Manager.
Transactions on stock exchanges involve the payment of negotiated
brokerage commissions. There is generally no stated commission in the
case of securities traded in the over-the-counter market, but the price
of those securities includes an undisclosed commission or mark-up.
Over-the-counter purchases and sales are transacted directly with
principal market makers except in those cases in which better prices
and executions may be obtained elsewhere. The cost of securities
purchased from underwriters includes an underwriting commission or
concession, and the prices at which securities are purchased from and
sold to dealers include a dealer's mark-up or mark-down.
In executing portfolio transactions and selecting brokers or dealers,
it is the Fund's policy to seek the best overall terms available. The
Manager, in seeking the most favorable price and execution, considers
all factors it deems relevant, including, for example, the price, the
size of the transaction, the reputation, experience and financial
stability of the broker-dealer involved and the quality of service
rendered by the broker-dealer in other transactions. The Manager
receives research, statistical and quotation services from several
broker-dealers with which it places the Fund's portfolio transactions.
It is possible that certain of the services received primarily will
benefit one or more other accounts for which the Manager exercises
investment discretion. Conversely, the Fund may be the primary
beneficiary of services received as a result of portfolio transactions
effected for other accounts. The Manager's fee under the management
agreement is not reduced by reason of its receiving such brokerage and
research services. The Company's Board of Directors, in its discretion,
may authorize the Manager to cause the Fund to pay a broker that
provides brokerage and research services to the Manager a commission in
excess of that which another qualified broker would have charged for
effecting the same transaction. Salomon Smith Barney will not
participate in commissions from brokerage given by the Fund to other
brokers or dealers and will not receive any reciprocal brokerage
business resulting therefrom.
In accordance with Section 17(e) of the 1940 Act and Rule 17e-1
thereunder, the Company's Board of Directors has determined that any
portfolio transaction for the Fund may be executed through Salomon
Smith Barney or an affiliate of Salomon Smith Barney if, in the
Manager's judgment, the use of Salomon Smith Barney or an affiliate is
likely to result in price and execution at least as favorable as those
of other qualified brokers and if, in the transaction, Salomon Smith
Barney or the affiliate charges the Fund a commission rate consistent
with those charged by Salomon Smith Barney or an affiliate to
comparable unaffiliated customers in similar transactions. In addition,
under SEC rules, Salomon Smith Barney may directly execute such
transactions for the Fund on the floor of any national securities
exchange, provided: (a) the Board of Directors has expressly authorized
Salomon Smith Barney to effect such transactions; and (b) Salomon Smith
Barney annually advises the Fund of the aggregate compensation it
earned on such transactions.
Even though investment decisions for the Fund are made independently
from those of the other accounts managed by the Manager, investments of
the kind made by the Fund also may be made by those other accounts.
When the Fund and one or more accounts managed by the Manager are
prepared to invest in, or desire to dispose of, the same security,
available investments or opportunities for sales will be allocated in a
manner believed by the Manager to be equitable. In some cases, this
procedure may adversely affect the price paid or received by the Fund
or the size of the position obtained for or disposed of by the Fund.
The Fund will not purchase securities during the existence of any
underwriting or selling group relating to the securities, of which the
Manager is a member, except to the extent permitted by the SEC. Under
certain circumstances, the Fund may be at a disadvantage because of
this limitation in comparison with other Funds that have similar
investment objectives but that are not subject to a similar limitation.
Portfolio Turnover
The Fund's portfolio turnover rate (the lesser of purchases or sales of
portfolio securities during the year, excluding purchases or sales of
short-term securities, divided by the monthly average value of
portfolio securities) is generally not expected to exceed 100%. The
rate of turnover will not be a limiting factor, however, when the Fund
deems it desirable to sell or purchase securities.
The Manager will also monitor the Fund's portfolio to ensure that no
more than 25% of the Fund's assets are concentrated in the securities
of companies in the same industry and that the Fund complies with its
other investment policies. The Manager may cause the Fund to sell or
purchase securities to ensure compliance with the Fund's investment
policies.
PURCHASE OF SHARES
Sales Charge Alternatives
The following classes of shares are available for purchase. See the
prospectus for a discussion of factors to consider in selecting which
Class of shares to purchase.
Class A Shares. Class A shares are sold to investors at the public
offering price, which is the net asset value plus an initial sales
charge as follows:
Amount
of
Investme
nt
Sales Charge
as a %
of
Transaction
Sales
Charge as a
% of Amount
Invested
Broker
Dealers'
Commission as
% Of Offering
Price
Less than
$25,000
5.00%
5.26%
4.50%
$ 25,000 -
49,999
4.25
4.44
3.83
50,000 -
99,999
3.75
3.90
3.38
100,000 -
249,999
3.25
3.36
2.93
250,000 -
499,999
2.75
2.83
2.48
500,000 -
$1,000,000
$1,000,000 and
above
2.00
*
2.04
*
1.80
*Purchases of Class A shares of $1,000,000 or more will be made
at net asset value without any initial sales charge, but will be
subject to a Deferred Sales Charge of 1.00% on redemptions made
within 12 months of purchase. The Deferred Sales Charge on Class
A shares is payable to Salomon Smith Barney, which compensates
Salomon Smith Barney Financial Consultants and Service Agents (as
defined on page 13) whose clients make purchases of $1,000,000 or
more. The Deferred Sales Charge is waived in the same
circumstances in which the Deferred Sales Charge applicable to
Class B and Class L shares is waived. See "Deferred Sales Charge
Provisions" and "Waivers of Deferred Sales Charge."
Members of the selling group may receive up to 90% of the sales charge
and may be deemed to be underwriters of the Fund as defined in the 1933
Act. The reduced sales charges shown above apply to the aggregate of
purchases of Class A shares of the Fund made at one time by "any
person," which includes an individual and his or her immediate family,
or a trustee or other fiduciary of a single trust estate or single
fiduciary account.
Class B Shares. Class B shares are sold without an initial sales
charge but are subject to a Deferred Sales Charge payable upon certain
redemptions. See "Deferred Sales Charge Provisions" below.
Class L Shares. Class L shares are sold with an initial sales charge
of 1.00% (which is equal to 1.01% of the amount invested) and are
subject to a Deferred Sales Charge payable upon certain redemptions.
See "Deferred Sales Charge Provisions" below. Until June 22, 2001,
purchases of Class L shares by investors who were holders of Class C
shares of other Smith Barney Mutual Funds on June 12, 1998 will not be
subject to the 1.00% initial sales charge.
Class Y Shares. Class Y shares are sold without an initial sales
charge or Deferred Sales Charge and are available only to investors
investing a minimum of $15,000,000 (except purchases of Class Y shares
by Smith Barney Concert Allocation Series Inc., for which there is no
minimum purchase amount).
General
Investors may purchase shares from a (1) broker dealer, financial
intermediary, financial institution (each called a "Service Agent") or
(2) a Salomon Smith Barney Financial Consultant. In addition, certain
investors, including qualified retirement plans purchasing through
certain Service Agents, may purchase shares directly from the Fund.
When purchasing shares of the Fund, investors must specify whether the
purchase is for Class A, Class B, Class L or Class Y shares Salomon
Smith Barney and Service Agents may charge their customers an annual
account maintenance fee in connection with a brokerage account through
which an investor purchases or holds shares. Accounts held directly at
the sub-transfer agent are not subject to a maintenance fee.
Investors in Class A, Class B and Class L shares may open an account in
the Fund by making an initial investment of at least $1,000 for each
account, or $250 for an IRA or a Self-Employed Retirement Plan, in the
Fund. Investors in Class Y shares may open an account by making an
initial investment of $15,000,000. Subsequent investments of at least
$50 may be made for all Classes. For participants in retirement plans
qualified under Section 403(b)(7) or Section 401(c) of the Code, the
minimum initial investment required for Class A, Class B and Class L
shares and the subsequent investment requirement for all Classes in the
Fund is $25. There are no minimum investment requirements for Class A
shares for employees of Citigroup and its subsidiaries, including
Salomon Smith Barney, unitholders who invest distributions from a Unit
Investment Trust ("UIT") sponsored by Salomon Smith Barney, and
Directors/Trustees of any of the Smith Barney Mutual Funds, and their
spouses and children. The Fund reserves the right to waive or change
minimums, to decline any order to purchase its shares and to suspend
the offering of shares from time to time. Shares purchased will be held
in the shareholder's account by the sub-transfer agent. Share
certificates are issued only upon a shareholder's written request to
the sub-transfer agent.
Purchase orders received by the Fund or a Salomon Smith Barney
Financial Consultant prior to the close of regular trading on the New
York Stock Exchange ("NYSE"), on any day the Fund calculates its net
asset value, are priced according to the net asset value determined on
that day (the ''trade date''). Orders received by a Salomon Smith
Barney Financial Consultant prior to the close of regular trading on
the NYSE on any day the Fund calculates its net asset value, are priced
according to the net asset value determined on that day, provided the
order is received by the Fund or the Fund's agent prior to its close of
business. For shares purchased through Service Agent purchasing through
Salomon Smith Barney, payment for shares of the Fund is due on the
third business day after the trade date. In all other cases, payment
must be made with the purchase order.
Systematic Investment Plan. Shareholders may make additions to their
accounts at any time by purchasing shares through a service known as
the Systematic Investment Plan. Under the Systematic Investment Plan,
Salomon Smith Barney or the sub-transfer agent is authorized through
preauthorized transfers of at least $25 on a monthly basis or at least
$50 on a quarterly basis to charge the shareholder's account held with
a bank or other financial institution on a monthly or quarterly basis
as indicated by the shareholder, to provide for systematic additions to
the shareholder's fund account. A shareholder who has insufficient
funds to complete the transfer will be charged a fee of up to $25 by
Salomon Smith Barney or the sub-transfer agent. The Systematic
Investment Plan also authorizes Salomon Smith Barney to apply cash held
in the shareholder's Salomon Smith Barney brokerage account or redeem
the shareholder's shares of a Smith Barney money market fund to make
additions to the account. Additional information is available from the
fund; Salomon Smith Barney or a Service Agent.
Sales Charge Waivers and Reductions
Initial Sales Charge Waivers. Purchases of Class A shares may be made
at net asset value without a sales charge in the following
circumstances: (a) sales to (i) Board Members and employees of
Citigroup and its subsidiaries and any Citigroup affiliated funds
including the Smith Barney Mutual Funds (including retired Board
Members and employees); the immediate families of such persons
(including the surviving spouse of a deceased Board Member or
employee); and to a pension, profit-sharing or other benefit plan for
such persons and (ii) employees of members of the National Association
of Securities Dealers, Inc., provided such sales are made upon the
assurance of the purchaser that the purchase is made for investment
purposes and that the securities will not be resold except through
redemption or repurchase; (b) offers of Class A shares to any other
investment company to effect the combination of such company with the
Fund by merger, acquisition of assets or otherwise; (c) purchases of
Class A shares by any client of a newly employed Salomon Smith Barney
Financial Consultant (for a period up to 90 days from the commencement
of the Financial Consultant's employment with Salomon Smith Barney), on
the condition the purchase of Class A shares is made with the proceeds
of the redemption of shares of a mutual fund which (i) was sponsored by
the Salomon Smith Barney Financial Consultant's prior employer, (ii)
was sold to the client by the Salomon Smith Barney Financial Consultant
and (iii) was subject to a sales charge; (d) purchases by shareholders
who have redeemed Class A shares in the Fund (or Class A shares of
another Smith Barney Mutual Fund that is offered with a sales charge)
and who wish to reinvest their redemption proceeds in the Fund,
provided the reinvestment is made within 60 calendar days of the
redemption; (e) purchases by accounts managed by registered investment
advisory subsidiaries of Citigroup; (f) direct rollovers by plan
participants of distributions from a 401(k) plan offered to employees
of Citigroup or its subsidiaries (Note: subsequent investments will be
subject to the applicable sales charge); (g) purchases by a separate
account used to fund certain unregistered variable annuity contracts;
(h) investments of distributions from or proceeds from a sale of a UIT
sponsored by Salomon Smith Barney; (i) purchases by investors
participating in a Salomon Smith Barney fee-based arrangement; and (j)
purchases of Class A shares by Section 403(b) or Section 401(a) or (k)
accounts associated with Copeland Retirement Programs. In order to
obtain such discounts, the purchaser must provide sufficient
information at the time of purchase to permit verification that the
purchase would qualify for the elimination of the sales charge.
Right of Accumulation. Class A shares of the Fund may be purchased by
"any person" (as defined above) at a reduced sales charge or at net
asset value determined by aggregating the dollar amount of the new
purchase and the total net asset value of all Class A shares of the
Fund and of other Smith Barney Mutual Funds that are offered with a
sales charge as currently listed under "Exchange Privilege" then held
by such person and applying the sales charge applicable to such
aggregate. In order to obtain such discount, the purchaser must
provide sufficient information at the time of purchase to permit
verification that the purchase qualifies for the reduced sales charge.
The right of accumulation is subject to modification or discontinuance
at any time with respect to all shares purchased thereafter.
Letter of Intent - Class A Shares. A Letter of Intent for an amount of
$50,000 or more provides an opportunity for an investor to obtain a
reduced sales charge by aggregating investments over a 13 month period,
provided that the investor refers to such Letter when placing orders.
For purposes of a Letter of Intent, the "Amount of Investment" as
referred to in the preceding sales charge table includes (i) all Class
A shares of the Fund and other Smith Barney Mutual Funds offered with a
sales charge acquired during the term of the letter plus (ii) the value
of all Class A shares previously purchased and still owned. Each
investment made during the period receives the reduced sales charge
applicable to the total amount of the investment goal. If the goal is
not achieved within the period, the investor must pay the difference
between the sales charges applicable to the purchases made and the
charges previously paid, or an appropriate number of escrowed shares
will be redeemed. The term of the Letter will commence upon the date
the Letter is signed, or at the option of the investor, up to 90 days
before such date. Please contact a Salomon Smith Barney Financial
Consultant or the transfer agent to obtain a Letter of Intent
application.
Letter of Intent - Class Y Shares. A Letter of Intent may also be used
as a way for investors to meet the minimum investment requirement for
Class Y shares (except purchases of Class Y shares by Smith Barney
Concert Allocation Series Inc., for which there is no minimum purchase
amount). Such investors must make an initial minimum purchase of
$5,000,000 in Class Y shares of the Fund and agree to purchase a total
of $15,000,000 of Class Y shares of the Fund within 13 months from the
date of the Letter. If a total investment of $15,000,000 is not made
within the 13-month period, all Class Y shares purchased to date will
be transferred to Class A shares, where they will be subject to all
fees (including a service fee of 0.25%) and expenses applicable to the
Fund's Class A shares, which may include a Deferred Sales Charge of
1.00%. Please contact a Salomon Smith Barney Financial Consultant or
the transfer agent for further information.
Deferred Sales Charge Provisions
"Deferred Sales Charges" are: (a) Class B shares; (b) Class L shares;
and (c) Class A shares that were purchased without an initial sales
charge but are subject to a Deferred Sales Charge. A Deferred Sales
Charge may be imposed on certain redemptions of these shares.
Any applicable Deferred Sales Charge will be assessed on an amount
equal to the lesser of the original cost of the shares being redeemed
or their net asset value at the time of redemption. Deferred Sales
Charge shares that are redeemed will not be subject to a Deferred Sales
Charge to the extent that the value of such shares represents: (a)
capital appreciation of Fund assets; (b) reinvestment of dividends or
capital gain distributions; (c) with respect to Class B shares, shares
redeemed more than five years after their purchase; or (d) with respect
to Class L shares and Class A shares that are Deferred Sales Charge
shares, shares redeemed more than 12 months after their purchase.
Class L shares and Class A shares that are Deferred Sales Charge shares
are subject to a 1.00% Deferred Sales Charge if redeemed within 12
months of purchase. In circumstances in which the Deferred Sales Charge
is imposed on Class B shares, the amount of the charge will depend on
the number of years since the shareholder made the purchase payment
from which the amount is being redeemed. Solely for purposes of
determining the number of years since a purchase payment, all purchase
payments made during a month will be aggregated and deemed to have been
made on the last day of the preceding Salomon Smith Barney statement
month. The following table sets forth the rates of the charge for
redemptions of Class B shares by shareholders.
Year Since Purchase Payment Was
Made
Deferred Sales Charge
First
5.00%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth and thereafter
0.00
Class B shares will convert automatically to Class A shares eight years
after the date on which they were purchased and thereafter will no
longer be subject to any distribution fees. There will also be
converted at that time such proportion of Class B Dividend Shares owned
by the shareholders as the total number of his or her Class B shares
converting at the time bears to the total number of outstanding Class B
shares (other than Class B Dividend Shares) owned by the shareholder.
In determining the applicability of any Deferred Sales Charge, it will
be assumed that a redemption is made first of shares representing
capital appreciation, next of shares representing the reinvestment of
dividends and capital gain distributions and finally of other shares
held by the shareholder for the longest period of time. The length of
time that Deferred Sales Charge shares acquired through an exchange
have been held will be calculated from the date that the shares
exchanged were initially acquired in one of the other Smith Barney
Mutual Funds, and fund shares being redeemed will be considered to
represent, as applicable, capital appreciation or dividend and capital
gain distribution reinvestments in such other funds. For Federal
income tax purposes, the amount of the Deferred Sales Charge will
reduce the gain or increase the loss, as the case may be, on the amount
realized on redemption. The amount of any Deferred Sales Charge will
be paid to Salomon Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares
of the Fund at $10 per share for a cost of $1,000. Subsequently, the
investor acquired 5 additional shares of the Fund through dividend
reinvestment. During the fifteenth month after the purchase, the
investor decided to redeem $500 of his or her investment. Assuming at
the time of the redemption the net asset value had appreciated to $12
per share, the value of the investor's shares would be $1,260 (105
shares at $12 per share). The Deferred Sales Charge would not be
applied to the amount which represents appreciation ($200) and the
value of the reinvested dividend shares ($60). Therefore, $240 of the
$500 redemption proceeds ($500 minus $260) would be charged at a rate
of 4.00% (the applicable rate for Class B shares) for a total Deferred
Sales Charge of $9.60.
Waivers of Deferred Sales Charge
The Deferred Sales Charge will be waived on: (a) exchanges (see
"Exchange Privilege"); (b) redemptions of shares within 12 months
following the death or disability of the shareholder; (c) redemptions
of shares made in connection with qualified distributions from
retirement plans or IRAs upon the attainment of age 591/2; (d)
involuntary redemptions; and (e) redemptions of shares to effect a
combination of the Fund with any investment company by merger,
acquisition of assets or otherwise. In addition, a shareholder who has
redeemed shares from other Smith Barney Mutual Funds may, under certain
circumstances, reinvest all or part of the redemption proceeds within
60 days and receive pro rata credit for any Deferred Sales Charge
imposed on the prior redemption.
Deferred Sales Charge waivers will be granted subject to confirmation
(by Salomon Smith Barney in the case of shareholders who are also
Salomon Smith Barney clients or by the transfer agent in the case of
all other shareholders) of the shareholder's status or holdings, as the
case may be.
Volume Discounts
The schedule of sales charges on Class A shares described in the
prospectus applies to purchases made by any "purchaser," which is
defined to include the following: (a) an individual; (b) an
individual's spouse and his or her children purchasing shares for their
own account; (c) a Director or other fiduciary purchasing shares for a
single trust estate or single fiduciary account; and (d) a Director or
other professional fiduciary (including a bank, or an investment
adviser registered with the SEC under the Investment Advisers Act of
1940, as amended) purchasing shares of the fund for one or more trust
estates or fiduciary accounts. Purchasers who wish to combine purchase
orders to take advantage of volume discounts on Class A shares should
contact a Salomon Smith Barney Financial Consultant.
Determination of Public Offering Price
The Fund offers its shares to current shareholders of the Fund on a
continuous basis. The public offering price for a Class A, Class B and
Class Y share of the Fund is equal to the net asset value per share at
the time of purchase, plus for Class A shares an initial sales charge
based on the aggregate amount of the investment. The public offering
price for Class A share purchases, including applicable rights of
accumulation, equaling or exceeding $500,000 is equal to the net asset
value per share at the time of purchase and no sales charge is imposed
at the time of purchase. The public offering price for a Class L share
includes a 1.00% initial sales charge. A Deferred Sales Charge is
imposed on certain redemptions of Class B shares, and on Class L shares
and Class A shares (purchased in amounts exceeding $500,000) redeemed
within one year of purchase.
REDEMPTION OF SHARES
The right of redemption of shares of the Fund may be suspended or the
date of payment postponed (a) for any periods during which the New York
Stock Exchange, Inc. (the "NYSE") is closed (other than for customary
weekend and holiday closings), (b) when trading in the markets the Fund
normally utilizes is restricted, or an emergency exists, as determined
by the SEC, so that disposal of the Fund's investments or determination
of its net asset value is not reasonably practicable or (c) for any
other periods as the SEC by order may permit for the protection of the
Fund's shareholders.
If the shares to be redeemed were issued in certificate form, the
certificates must be endorsed for transfer (or be accompanied by an
endorsed stock power) and must be submitted to the sub-transfer agent
together with the redemption request. Any signature appearing on a
share certificate, stock power or written redemption request in excess
of $50,000 must be guaranteed by an eligible guarantor institution such
as a domestic bank, savings and loan institution, domestic credit
union, member bank of the Federal Reserve System or member firm of a
national securities exchange. Written redemption requests of $50,000
or less do not require a signature guarantee unless more than one such
redemption request is made in any 10-day period or the redemption
proceeds are to be sent to an address other than the address of record.
Unless otherwise directed, redemption proceeds will be mailed to an
investor's address of record. The transfer agent may require
additional supporting documents for redemptions made by corporations,
executors, administrators, trustees or guardians. A redemption request
will not be deemed properly received until the transfer agent receives
all required documents in proper form.
If a shareholder holds shares in more than one Class, any request for
redemption must specify the Class being redeemed. In the event of a
failure to specify which Class, or if the investor owns fewer shares of
the Class than specified, the redemption request will be delayed until
the transfer agent receives further instructions from Salomon Smith
Barney, or if the shareholder's account is not with Salomon Smith
Barney, from the shareholder directly. The redemption proceeds will be
remitted on or before the third business day following receipt of
proper tender, except on any days on which the NYSE is closed or as
permitted under the 1940 Act, in extraordinary circumstances.
Generally, if the redemption proceeds are remitted to a Salomon Smith
Barney brokerage account, these funds will not be invested for the
shareholder's benefit without specific instruction and Salomon Smith
Barney will benefit from the use of temporarily uninvested funds.
Redemption proceeds for shares purchased by check, other than a
certified or official bank check, will be remitted upon clearance of
the check, which may take up to fifteen days.
Distributions in Kind
If the Board of Directors of the Fund determines that it would be
detrimental to the best interests of the remaining shareholders to make
a redemption payment wholly in cash, the Fund may pay, in accordance
with SEC rules, any portion of a redemption in excess of the lesser of
$250,000 or 1.00% of the Fund's net assets by a distribution in kind of
portfolio securities in lieu of cash. Securities issued as a
distribution in kind may incur brokerage commissions when shareholders
subsequently sell those securities.
Additional Information Regarding Telephone Redemption And Exchange
Program
Neither the Fund nor its agents will be liable for following
instructions communicated by telephone that are reasonably believed to
be genuine. The Fund and its agents will employ procedures designed to
verify the identity of the caller and legitimacy of instructions (for
example, a shareholder's name and account number will be required and
phone calls may be recorded). The Fund reserves the right to suspend,
modify or discontinue the telephone redemption and exchange program or
to impose a charge for this service at any time following at least
seven (7) days' prior notice to shareholders.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan") is available
to shareholders who own shares with a value of at least $10,000 and who
wish to receive specific amounts of cash monthly or quarterly.
Withdrawals of at least $50 may be made under the Withdrawal Plan by
redeeming as many shares of the Fund as may be necessary to cover the
stipulated withdrawal payment. Any applicable Deferred Sales Charge
will not be waived on amounts withdrawn by shareholders that exceed
1.00% per month of the value of a shareholder's shares at the time the
Withdrawal Plan commences. (With respect to Withdrawal Plans in effect
prior to November 7, 1994, any applicable Deferred Sales Charge will be
waived on amounts withdrawn that do not exceed 2.00% per month of the
value of the shareholder's shares that are subject to a Deferred Sales
Charge). To the extent withdrawals exceed dividends, distributions and
appreciation of a shareholder's investment in the Fund, there will be a
reduction in the value of the shareholder's investment, and continued
withdrawal payments may reduce the shareholder's investment and
ultimately exhaust it. Withdrawal payments should not be considered as
income from investment in the Fund. Furthermore, as it generally would
not be advantageous to a shareholder to make additional investments in
the Fund at the same time he or she is participating in the Withdrawal
Plan, purchases by such shareholder in amounts of less than $5,000
ordinarily will not be permitted. All dividends and distributions on
shares in the Withdrawal Plan are reinvested automatically at net asset
value in additional shares of the Fund.
Shareholders who wish to participate in the Withdrawal Plan and who
hold their shares in certificate form must deposit their share
certificates with the sub-transfer agent as agent for Withdrawal Plan
members. For additional information, shareholders should contact a
Salomon Smith Barney Financial Consultant or their Financial
Consultant, Dealer Representative. A shareholder who purchases shares
directly through the sub-transfer agent may continue to do so and
applications for participation in the Withdrawal Plan must be received
by the sub-transfer agent no later than the eighth day of the month to
be eligible for participation beginning with that month's withdrawal.
VALUATION OF SHARES
The net asset value per share of the Fund's Classes is calculated on
each day, Monday through Friday, except days on which the NYSE is
closed. The NYSE currently is scheduled to be closed on New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas, and on
the preceding Friday or subsequent Monday when one of these holidays
falls on a Saturday or Sunday, respectively. Because of the differences
in distribution fees and Class-specific expenses, the per share net
asset value of each Class may differ. The following is a description of
the procedures used by the Fund in valuing its assets.
Securities listed on a national securities exchange will be valued on
the basis of the last sale on the date on which the valuation is made
or, in the absence of sales, at the mean between the closing bid and
asked prices. Over-the-counter securities will be valued at the mean
between the closing bid and asked prices on each day, or, if market
quotations for those securities are not readily available, at fair
value, as determined in good faith by the Company's Board of Directors.
Short-term obligations with maturities of 60 days or less are valued at
amortized cost, which constitutes fair value as determined by the
Company's Board of Directors. Amortized cost involves valuing an
instrument at its original cost to the Fund and thereafter assuming a
constant amortization to maturity of any discount or premium,
regardless of the effect of fluctuating interest rates on the market
value of the instrument. All other securities and other assets of the
Fund will be valued at fair value as determined in good faith by the
Company's Board of Directors.
EXCHANGE PRIVILEGE
Except as noted below and in the Prospectus, shareholders of any of the
Smith Barney Mutual Funds may exchange all or part of their shares for
shares of the same class of other Smith Barney Mutual Funds, to the
extent such shares are offered for sale in the shareholder's state of
residence, on the basis of relative net asset value per share at the
time of exchange as follows:
A. Class A and Class Y shares of the Fund may be exchanged
without a sales charge for the respective shares of any of the
Smith Barney Mutual Funds.
B. Class B shares of any fund may be exchanged without a sales
charge. Class B shares of the Fund exchanged for Class B shares
of another Smith Barney Mutual Fund will be subject to the higher
applicable Deferred Sales Charge of the two funds and, for
purposes of calculating Deferred Sales Charge rates and
conversion periods, will be deemed to have been held since the
date the shares being exchanged were deemed to be purchased.
C. Class L shares of any fund may be exchanged without a sales
charge. For purposes of Deferred Sales Charge applicability,
Class L shares of the Fund exchanged for Class L shares of
another Smith Barney Mutual Fund will be deemed to have been
owned since the date the shares being exchanged were deemed to be
purchased.
The exchange privilege enables shareholders to acquire shares of the
same Class in a fund with different investment objectives when they
believe that a shift between funds is an appropriate investment
decision. This privilege is available to shareholders residing in any
state in which fund shares being acquired may legally be sold. Prior to
any exchange, the shareholder should obtain and review a copy of the
current prospectus of each fund into which an exchange is being
considered. Prospectuses may be obtained from a Salomon Smith Barney
Financial Consultant.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the
then-current net asset value and the proceeds are immediately invested,
at a price as described above, in shares of the fund being acquired.
Salomon Smith Barney reserves the right to reject any exchange request.
The exchange privilege may be modified or terminated at any time after
written notice to shareholders.
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange
transactions can be detrimental to the Fund's performance and its
shareholders. The Manager may determine that a pattern of frequent
exchanges is excessive and contrary to the best interests of the Fund's
other shareholders. In this event, the Fund may, at its discretion,
decide to limit additional purchases and/or exchanges by a shareholder.
Upon such a determination, the Fund will provide notice in writing or
by telephone to the shareholder at least 15 days prior to suspending
the exchange privilege and during the 15 day period the shareholder
will be required to (a) redeem his or her shares in the Fund or
(b) remain invested in the Fund or exchange into any of the funds of
the Smith Barney Mutual funds ordinarily available, which position the
shareholder would be expected to maintain for a significant period of
time. All relevant factors will be considered in determining what
constitutes an abusive pattern of exchanges.
PERFORMANCE DATA
Price Return Performance Data
Investors should not consider the Salomon Smith Barney Allocation Model
("Allocation Model") price return information found in the Fund's
prospectus as a substitute for, or an indication of, future performance
of the fund or the manager. Past price returns of the Allocation Model
are not representative of future price returns of the Allocation Model.
Price returns are based only on capital appreciation or depreciation of
the groups within the sectors that comprise the Allocation Model and
represent the annual percentage change in the value of the Allocation
Model. The Allocation Model is priced each week using S&P group data.
The method used to calculate Allocation Model Return is different than
the standard SEC method of calculating performance. The results are
calculated weekly using the current week's ending value less the prior
week's ending value and dividing that by the prior week's ending value.
The results do not reflect the execution of actual purchases or sales,
and there is no guarantee that a mutual fund following the Allocation
Model would be able to execute purchases and sales at the prices used
to calculate the price returns.
The price returns shown do not reflect the reinvestment of dividends,
which would result in higher returns. They do not reflect the market
impact on the stock prices that may occur between the time the
publication is made of additions to and deletions from the Allocation
Model and the time a mutual fund following the Allocation Model would
be able to execute purchases and sales. They also do not reflect
transaction fees, such as commissions, fees and interest charges, or
the costs of running a mutual fund, such as management fees,
distribution fees and other expenses. Actual transactions and the
effect of dividends, fees and costs will result in returns that differ
from those of the Allocation Model.
Performance Data - General
[/R]
From time to time, the Company may advertise the Fund's total return
and average annual total return in advertisements and/or other types of
sales literature. These figures are computed separately for Class A,
Class B, Class L and Class Y shares of the Fund. These figures are
based on historical earnings and are not intended to indicate future
performance. Total return is computed for a specified period of time
assuming deduction of the maximum sales charge, if any, from the
initial amount invested and reinvestment of all income dividends and
capital gain distributions on the reinvestment dates at prices
calculated as stated in this prospectus, then dividing the value of the
investment at the end of the period so calculated by the initial amount
invested and subtracting 100%. The standard average annual total
return, as prescribed by the SEC is derived from this total return,
which provides the ending redeemable value. Such standard total return
information may also be accompanied with nonstandard total return
information for differing periods computed in the same manner but
without annualizing the total return or taking sales charges into
account. The Company may also include comparative performance
information in advertising or marketing the Fund's shares. Such
performance information may include data from Lipper Analytical
Services, Inc. and other financial publications.
From time to time, the Company may quote the Fund's yield or total
return in advertisements or in reports and other communications to
shareholders. The Company may include comparative performance
information in advertising or marketing the Fund's shares. Such
performance information may include the following industry and
financial publications- Barron's, Business Week, CDA Investment
Technologies, Inc., Changing Times, Forbes, Fortune, Institutional
Investor, Investors Daily, Money, Morningstar Mutual Fund Values, The
New York Times, USA Today and The Wall Street Journal. To the extent
any advertisement or sales literature of the Fund describes the
expenses or performance of any Class it will also disclose such
information for the other Classes.
Average Annual Total Return
"Average annual total return" figures are computed according to a
formula prescribed by the SEC. The formula can be expressed as follows:
P (1 + T)n = ERV
Where: P = a hypothetical initial payment of $
1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical
$1,000
investment made at the beginning of a 1-,
5- or 10-year
period at the end of the 1-, 5- or
10-year period (or
fractional portion thereof), assuming
reinvestment of all
dividends and distributions.
The ERV assumes complete redemption of the hypothetical investment at
the end of the measuring period. The Fund's net investment income
changes in response to fluctuations in interest rates and the expenses
of the Fund.
Aggregate Total Return
The Fund's "aggregate total return," as described below, represents the
cumulative change in the value of an investment in the Fund for the
specified period and is computed by the following formula:
ERV - P
P
Where: P = a hypothetical initial payment of
$10,000.
ERV = Ending Redeemable Value of a hypothetical
$10,000 investment made at the beginning
of the 1-, 5- or 10-year period at the
end of the 1-, 5- or 10-year period (or
fractional portion thereof), assuming
reinvestment of all dividends and
distributions.
The ERV assumes complete redemption of the hypothetical investment at
the end of the measuring period.
Performance will vary from time to time depending on market conditions,
the composition of the Fund's portfolio and operating expenses.
Consequently, any given performance quotation should not be considered
representative of the Fund's performance for any specified period in
the future. Because performance will vary, it may not provide a basis
for comparing an investment in the Fund with certain bank deposits or
other investments that pay a fixed yield for a stated period of time.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions
The Fund's policy is to distribute its net investment income and net
realized capital gains, if any, annually. The Fund may also pay
additional dividends shortly before December 31 from certain amounts of
undistributed ordinary income and capital gains realized, in order to
avoid a Federal excise tax liability.
If a shareholder does not otherwise instruct, dividends and capital
gains distributions will be reinvested automatically in additional
shares of the same Class at net asset value, subject to no sales charge
or Deferred Sales Charge. A shareholder may change the option at any
time by notifying his Salomon Smith Barney Financial Consultant or
Service Agent. A shareholder whose account is held directly at the
sub-transfer agent should notify the sub-transfer agent in writing,
requesting a change to this reinvest option.
The per share dividends on Class B and Class L shares of the Fund may
be lower than the per share dividends on Class A and Class Y shares
principally as a result of the distribution fee applicable with respect
to Class B and Class L shares. The per share dividends on Class A
shares of the Fund may be lower than the per share dividends on Class Y
shares principally as a result of the service fee applicable to Class A
shares. Distributions of capital gains, if any, will be in the same
amount for Class A, Class B, Class L and Class Y shares.
Taxes
The following is a summary of the material United States federal income
tax considerations regarding the purchase, ownership and disposition of
shares of the Fund. Each prospective shareholder is urged to consult
his own tax adviser with respect to the specific federal, state, local
and foreign tax consequences of investing in a fund. The summary is
based on the laws in effect on the date of this SAI, which are subject
to change.
The Fund and Its Investments
The Fund intends to qualify to be treated as a regulated investment
company each taxable year under the Code. To so qualify, the Fund
must, among other things: (a) derive at least 90% of its gross income
in each taxable year from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of stock
or securities or foreign currencies, or other income (including, but
not limited to, gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at
the end of each quarter of the Fund's taxable year, (i) at least 50% of
the market value of the Fund's assets is represented by cash,
securities of other regulated investment companies, United States
government securities and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5%
of the Fund's assets and not greater than 10% of the outstanding voting
securities of such issuer and (ii) not more than 25% of the value of
its assets is invested in the securities (other than United States
government securities or securities of other regulated investment
companies) of any one issuer or any two or more issuers that the Fund
controls and are determined to be engaged in the same or similar trades
or businesses or related trades or businesses.
As a regulated investment company, the Fund will not be subject to
United States federal income tax on its net investment income (i.e.,
income other than its net realized long- and short-term capital gains)
and its net realized long- and short-term capital gains, if any, that
it distributes to its shareholders, provided an amount equal to at
least 90% of its investment company taxable income (i.e., 90% of its
taxable income minus the excess, if any, of its net realized long-term
capital gains over its net realized short-term capital losses
(including any capital loss carryovers), plus or minus certain other
adjustments as specified in the Code) and 90% of its net tax-exempt
income for the taxable year is distributed in compliance with the
Code's timing and other requirements but will be subject to tax at
regular corporate rates on any taxable income or gains it does not
distribute. The Code imposes a 4% nondeductible excise tax on the Fund
to the extent it does not distribute by the end of any calendar year at
least 98% of its net investment income for that year and 98% of the net
amount of its capital gains (both long-and short-term) for the one-year
period ending, as a general rule, on October 31 of that year. For this
purpose, however, any income or gain retained by the Fund that is
subject to corporate income tax will be considered to have been
distributed by year-end. In addition, the minimum amounts that must be
distributed in any year to avoid the excise tax will be increased or
decreased to reflect any underdistribution or overdistribution, as the
case may be, from the previous year. The Fund anticipates that it will
pay such dividends and will make such distributions as are necessary in
order to avoid the application of this tax.
If, in any taxable year, the Fund fails to qualify as a regulated
investment company under the Code or fails to meet the distribution
requirement, it would be taxed in the same manner as an ordinary
corporation and distributions to its shareholders would not be
deductible by the Fund in computing its taxable income. In addition,
in the event of a failure to qualify, the Fund's distributions, to the
extent derived from the Fund's current or accumulated earnings and
profits would constitute dividends (eligible for the corporate
dividends-received deduction) which are taxable to shareholders as
ordinary income, even though those distributions might otherwise (at
least in part) have been treated in the shareholders' hands as long-
term capital gains. If the Fund fails to qualify as a regulated
investment company in any year, it must pay out its earnings and
profits accumulated in that year in order to qualify again as a
regulated investment company. In addition, if the Fund failed to
qualify as a regulated investment company for a period greater than one
taxable year, the Fund may be required to recognize any net built-in
gains (the excess of the aggregate gains, including items of income,
over aggregate losses that would have been realized if it had been
liquidated) in order to qualify as a regulated investment company in a
subsequent year.
The Fund's transactions in foreign currencies, forward contracts,
options and futures contracts (including options and futures contracts
on foreign currencies) will be subject to special provisions of the
Code (including provisions relating to "hedging transactions" and
"straddles") that, among other things, may affect the character of
gains and losses realized by the Fund (i.e., may affect whether gains
or losses are ordinary or capital), accelerate recognition of income to
the Fund and defer Fund losses. These rules could therefore affect the
character, amount and timing of distributions to shareholders. These
provisions also (a) will require the Fund to mark-to-market certain
types of the positions in its portfolio (i.e., treat them as if they
were closed out) and (b) may cause the Fund to recognize income without
receiving cash with which to pay dividends or make distributions in
amounts necessary to satisfy the distribution requirements for avoiding
income and excise taxes. The Fund will monitor its transactions, will
make the appropriate tax elections and will make the appropriate
entries in its books and records when it acquires any foreign currency,
forward contract, option, futures contract or hedged investment in
order to mitigate the effect of these rules and prevent
disqualification of the Fund as a regulated investment company.
The Fund's investment in Section 1256 contracts, such as regulated
futures contracts, most forward currency forward contracts traded in
the interbank market and options on most stock indices, are subject to
special tax rules. All section 1256 contracts held by the Fund at the
end of its taxable year are required to be marked to their market
value, and any unrealized gain or loss on those positions will be
included in the Fund's income as if each position had been sold for its
fair market value at the end of the taxable year. The resulting gain
or loss will be combined with any gain or loss realized by the Fund
from positions in section 1256 contracts closed during the taxable
year. Provided such positions were held as capital assets and were not
part of a "hedging transaction" nor part of a "straddle," 60% of the
resulting net gain or loss will be treated as long-term capital gain or
loss, and 40% of such net gain or loss will be treated as short-term
capital gain or loss, regardless of the period of time the positions
were actually held by the Fund.
Foreign Investments. Dividends or other income (including, in some
cases, capital gains) received by the Fund from investments in foreign
securities may be subject to withholding and other taxes imposed by
foreign countries. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes in some cases. The
Fund will not be eligible to elect to treat any foreign taxes paid by
it as paid by its shareholders, who therefore will not be entitled to
credits for such taxes on their own tax returns. Foreign taxes paid by
the Fund will reduce the return from the Fund's investments.
Passive Foreign Investment Companies. If the Fund purchases shares in
certain foreign investment entities, called "passive foreign investment
companies" (a "PFIC"), it may be subject to United States federal
income tax on a portion of any "excess distribution" or gain from the
disposition of such shares even if such income is distributed as a
taxable dividend by the Fund to its shareholders. Additional charges
in the nature of interest may be imposed on the Fund in respect of
deferred taxes arising from such distributions or gains. If the Fund
were to invest in a PFIC and elected to treat the PFIC as a "qualified
electing fund" under the Code, in lieu of the foregoing requirements,
the Fund might be required to include in income each year a portion of
the ordinary earnings and net capital gains of the qualified electing
fund, even if not distributed to the Fund, and such amounts would be
subject to the 90% and excise tax distribution requirements described
above. In order to make this election, the Fund would be required to
obtain certain annual information from the passive foreign investment
companies in which it invests, which may be difficult or not possible
to obtain.
Recently, legislation was enacted that provides a mark-to-market
election for regulated investment companies effective for taxable years
beginning after December 31, 1997. This election would result in the
Fund being treated as if it had sold and repurchased all of the PFIC
stock at the end of each year. In this case, the Fund would report
gains as ordinary income and would deduct losses as ordinary losses to
the extent of previously recognized gains. The election, once made,
would be effective for all subsequent taxable years of the Fund, unless
revoked with the consent of the IRS. By making the election, the Fund
could potentially ameliorate the adverse tax consequences with respect
to its ownership of shares in a PFIC, but in any particular year may be
required to recognize income in excess of the distributions it receives
from PFICs and its proceeds from dispositions of PFIC company stock.
The Fund may have to distribute this "phantom" income and gain to
satisfy its distribution requirement and to avoid imposition of the 4%
excise tax. The Fund will make the appropriate tax elections, if
possible, and take any additional steps that are necessary to mitigate
the effect of these rules.
Taxation of United States Shareholders
Dividends and Distributions. Any dividend declared by the Fund in
October, November or December of any calendar year and payable to
shareholders of record on a specified date in such a month shall be
deemed to have been received by each shareholder on December 31 of such
calendar year and to have been paid by the Fund not later than such
December 31, provided such dividend is actually paid by the Fund during
January of the following calendar year. The Fund intends to distribute
annually to its shareholders substantially all of its investment
company taxable income, and any net realized long-term capital gains in
excess of net realized short-term capital losses (including any capital
loss carryovers). The Fund currently expects to distribute any excess
annually to its shareholders. However, if the Fund retains for
investment an amount equal to all or a portion of its net long-term
capital gains in excess of its net short-term capital losses and
capital loss carryovers, it will be subject to a corporate tax
(currently at a rate of 35%) on the amount retained. In that event,
the Fund will designate such retained amounts as undistributed capital
gains in a notice to its shareholders who (a) will be required to
include in income for United Stares federal income tax purposes, as
long-term capital gains, their proportionate shares of the
undistributed amount, (b) will be entitled to credit their
proportionate shares of the 35% tax paid by the Fund on the
undistributed amount against their United States federal income tax
liabilities, if any, and to claim refunds to the extent their credits
exceed their liabilities, if any, and (c) will be entitled to increase
their tax basis, for United States federal income tax purposes, in
their shares by an amount equal to 65% of the amount of undistributed
capital gains included in the shareholder's income. Organizations or
persons not subject to federal income tax on such capital gains will be
entitled to a refund of their pro rata share of such taxes paid by the
Fund upon filing appropriate returns or claims for refund with the
Internal Revenue Service (the "IRS").
Dividends of net investment income and distributions of net realized
short-term capital gains are taxable to a United States shareholder as
ordinary income, whether paid in cash or in shares. Distributions of
net-long-term capital gains, if any, that the Fund designates as
capital gains dividends are taxable as long-term capital gains, whether
paid in cash or in shares and regardless of how long a shareholder has
held shares of the Fund. Dividends and distributions paid by the Fund
attributable to dividends on stock of U.S. corporations received by the
Fund, with respect to which the Fund meets certain holding period
requirements, will be eligible for the deduction for dividends received
by corporations. Distributions in excess of the Fund's current and
accumulated earnings and profits will, as to each shareholder, be
treated as a tax-free return of capital to the extent of a
shareholder's basis in his shares of the Fund, and as a capital gain
thereafter (if the shareholder holds his shares of the Fund as capital
assets). Shareholders receiving dividends or distributions in the form
of additional shares should be treated for United States federal income
tax purposes as receiving a distribution in the amount equal to the
amount of money that the shareholders receiving cash dividends or
distributions will receive, and should have a cost basis in the shares
received equal to such amount.
Investors considering buying shares just prior to a dividend or capital
gain distribution should be aware that, although the price of shares
just purchased at that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may nevertheless be taxable
to them. If the Fund is the holder of record of any stock on the record
date for any dividends payable with respect to such stock, such
dividends are included in the Fund's gross income not as of the date
received but as of the later of (a) the date such stock became ex-
dividend with respect to such dividends (i.e., the date on which a
buyer of the stock would not be entitled to receive the declared, but
unpaid, dividends) or (b) the date the Fund acquired such stock.
Accordingly, in order to satisfy its income distribution requirements,
the Fund may be required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an earlier year
than would otherwise be the case.
Sales of Shares. Upon the sale or exchange of his shares, a
shareholder will realize a taxable gain or loss equal to the difference
between the amount realized and his basis in his shares. Such gain or
loss will be treated as capital gain or loss, if the shares are capital
assets in the shareholder's hands, and will be long-term capital gain
or loss if the shares are held for more than one year and short-term
capital gain or loss if the shares are held for one year or less. Any
loss realized on a sale or exchange will be disallowed to the extent
the shares disposed of are replaced, including replacement through the
reinvesting of dividends and capital gains distributions in the Fund,
within a 61-day period beginning 30 days before and ending 30 days
after the disposition of the shares. In such a case, the basis of the
shares acquired will be increased to reflect the disallowed loss. Any
loss realized by a shareholder on the sale of a Fund share held by the
shareholder for six months or less will be treated for United States
federal income tax purposes as a long-term capital loss to the extent
of any distributions or deemed distributions of long-term capital gains
received by the shareholder with respect to such share. If a
shareholder incurs a sales charge in acquiring shares of the Fund,
disposes of those shares within 90 days and then acquires shares in a
mutual fund for which the otherwise applicable sales charge is reduced
by reason of a reinvestment right (e.g., an exchange privilege), the
original sales charge will not be taken into account in computing
gain/loss on the original shares to the extent the subsequent sales
charge is reduced. Instead, the disregarded portion of the original
sales charge will be added to the tax basis in the newly acquired
shares. Furthermore, the same rule also applies to a disposition of
the newly acquired shares made within 90 days of the second
acquisition. This provision prevents a shareholder from immediately
deducting the sales charge by shifting his or her investment in a
family of mutual funds.
Backup Withholding. The Fund may be required to withhold, for United
States federal income tax purposes, 31% of the dividends, distributions
and redemption proceeds payable to shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the IRS that they
are subject to backup withholding. Certain shareholders are exempt
from backup withholding. Backup withholding is not an additional tax
and any amount withheld may be credited against a shareholder's United
States federal income tax liabilities.
Notices. Shareholders will be notified annually by the Fund as to the
United States federal income tax status of the dividends, distributions
and deemed distributions attributable to undistributed capital gains
(discussed above in "Taxes - Taxation of United States Shareholders -
Dividends and Distributions") made by the Fund to its shareholders.
Furthermore, shareholders will also receive, if appropriate, various
written notices after the close of the Fund's taxable year regarding
the United States federal income tax status of certain dividends,
distributions and deemed distributions that were paid (or that are
treated as having been paid) by the Fund to its shareholders during the
preceding taxable year.
Other Taxation
Distributions also may be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation.
The foregoing is only a summary of certain material tax consequences
affecting the Fund and its shareholders. Shareholders are advised to
consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
ADDITIONAL INFORMATION
The Company was incorporated on September 29, 1981 under the laws of
the state of Maryland under the name Hutton Investment Series Inc. The
Company's corporate name was changed on December 29, 1988, July 30,
1993 and October 28, 1994, to SLH Investment Portfolios Inc., Smith
Barney Shearson Investment Funds Inc., and Smith Barney Investment
Funds Inc., respectively.
The Company offers shares of nine separate series with a par value of
$.001 per share. The Fund offers shares currently classified into four
Classes - A, B, L and Y. Each Class of the Fund represents an
identical interest in the Fund's investment portfolio. As a result,
the Classes have the same rights, privileges and preferences, except
with respect to: (a) the designation of each Class; (b) the effect of
the respective sales charges; if any, for each class; (c) the
distribution and/or service fees borne by each Class pursuant to the
Plan; (d) the expenses allocable exclusively to each Class; (e) voting
rights on matters exclusively affecting a single Class; (f) the
exchange privilege of each Class; and (g) the conversion feature of the
Class B shares. The Company's Board of Directors does not anticipate
that there will be any conflicts among the interests of the holders of
the different Classes. The directors, on an ongoing basis, will
consider whether any such conflict exists and, if so, take appropriate
action.
As permitted by Maryland law, there will normally be no meetings of
shareholders for the purpose of electing directors unless and until
such time as less than a majority of the directors holding office have
been elected by shareholders. At that time, the directors then in
office will call a shareholders' meeting for the election of directors.
The directors must call a meeting of shareholders for the purpose of
voting upon the question or removal of any director when requested in
writing to do so by the record holders of not less than 10% of the
outstanding shares of the Fund. At such a meeting, a director may be
removed after the holders of record of not less than a majority of the
outstanding shares of the Fund have declared that the director be
removed either by declaration in writing or by votes cast in person or
by proxy. Except as set forth above, the directors shall continue to
hold office and may appoint successor directors.
As used in the Prospectus and this Statement of Additional Information,
a "vote of a majority of the outstanding voting securities" means the
affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Company (or the affected series or Class) or (b) 67% or
more of such shares present at a meeting if more than 50% of the
outstanding shares of the Company (or the affected series or Class) are
represented at the meeting in person or by proxy. A series or Class
shall be deemed to be affected by a matter unless it is clear that the
interests of each series or Class in the matter are identical or that
the matter does not affect any interest of the series or Class. The
approval of a management agreement or any change in a fundamental
investment policy would be effectively acted upon with respect to the
Fund only if approved by a "vote of a majority of the outstanding
voting securities" of the Fund; however, the ratification of
independent accountants, the election of directors, and the approval of
a distribution agreement that is submitted to shareholders are not
subject to the separate voting requirements and may be effectively
acted upon by a vote of the holders of a majority of all Company shares
voting without regard to series or Class.
Annual and Semi-annual Reports. The Fund sends its shareholders a
semi-annual report and an audited annual report, which include listings
of investment securities held by the Fund at the end of the period
covered. In an effort to reduce the Fund's printing and mailing costs,
the Fund consolidates the mailing of its semi-annual and annual reports
by household. This consolidation means that a household having multiple
accounts with the identical address of record will receive a single
copy of each report. In addition, the Fund also consolidates the
mailing of its Prospectus so that a shareholder having multiple
accounts (that is, individual, IRA and/or Self-Employed Retirement Plan
accounts) will receive a single Prospectus annually. Shareholders who
do not want this consolidation to apply to their accounts should
contact their Salomon Smith Barney Financial Consultant or the Transfer
Agent.
Standard & Poor's Disclaimer. The Fund is not sponsored, endorsed, sold
or promoted by Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ("S&P"). S&P makes no representation or warranty,
express or implied, to the owners of the Fund or any member of the
public regarding the advisability of investing in securities generally
or in the Fund particularly or the ability of the S&P 500 Index to
track general stock market performance. S&P's only relationship to SSB
Citi is the licensing of certain trademarks and trade names of S&P and
of the S&P 500 Index which is determined, composed and calculated by
S&P without regard to SSB Citi or the Fund. S&P has no obligation to
take the needs of SSB Citi or the owners of the Fund into consideration
in determining, composing or calculating the S&P 500 Index. S&P is not
responsible for and has not participated in the determination of the
prices and amount of the Fund's shares or the timing of the issuance or
sale of the Fund's shares or in the determination or calculation of the
equation by which Fund shares are to be converted into cash. S&P has no
obligation or liability in connection with the administration,
marketing or trading of Fund shares.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY
FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE FUND,
OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE
S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT
TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST
PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
FINANCIAL STATEMENTS
As of the date of this SAI, the Fund had not yet commenced operations.
Consequently, there are no financial statements for the Fund at this
time.
OTHER INFORMATION
In an industry where the average portfolio manager has seven years of
experience (source: ICI, 1998), the portfolio managers of Smith Barney
Mutual Funds average 21 years in the industry and 15 years with the
firm.
Smith Barney Mutual Funds offers more than 60 mutual funds. We
understand that many investors prefer an active role in allocating the
mix of funds in their portfolio, while others want the asset allocation
decisions to be made by experienced managers.
That's why we offer four "styles" of fund management that can be
tailored to suit each investor's unique financial goals.
Style Pure Series
Our Style Pure Series funds stay fully invested within their
asset class and investment style, enabling investors to make
asset allocation decisions in conjunction with their Salomon
Smith Barney Financial Consultant or Service Agent.
Classic Investor Series
Our Classic Investor Series funds offer a range of equity and
fixed income strategies that seek to capture opportunities across
asset classes and investment styles using disciplined investment
approaches.
The Smith Barney Allocation Series
As a fund of funds, investors can select a Portfolio that may
help their investment needs. As needs change, investors can
easily choose another long-term, diversified investment from our
fund family.
Special Discipline Series
Our Special Discipline Series funds are designed for investors
who are looking beyond more traditional market categories: from
natural resources to a roster of state-specific municipal funds.
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