<PAGE>
[SMITH BARNEY MUTUAL FUNDS LOGO]
PROSPECTUS
GOVERNMENT
SECURITIES
FUND
CLASS A, B, L and Y SHARES
- ---------------------------------------
APRIL 28, 2000
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
GOVERNMENT SECURITIES FUND
CONTENTS
<TABLE>
<S> <C>
Investments, risks and performance......................... 2
More on the fund's investments............................. 8
Management................................................. 9
Choosing a class of shares to buy.......................... 10
Comparing the fund's classes............................... 11
Sales charges.............................................. 12
More about deferred sales charges.......................... 15
Buying shares.............................................. 16
Exchanging shares.......................................... 18
Redeeming shares........................................... 20
Other things to know about share transactions.............. 22
Salomon Smith Barney Retirement Programs................... 24
Dividends, distributions and taxes......................... 25
Share price................................................ 26
Financial highlights....................................... 27
</TABLE>
YOU SHOULD KNOW: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds 1
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INVESTMENTS, RISKS AND PERFORMANCE
INVESTMENT OBJECTIVE
The fund seeks high current return.
PRINCIPAL INVESTMENT STRATEGIES
KEY INVESTMENTS The fund invests primarily in debt securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities. These
securities include U.S. Treasury securities and mortgage-related securities.
Mortgage-related securities issued by federal agencies or instrumentalities may
be backed by the full faith and credit of the U.S. Treasury, by the right of the
issuer to borrow from the U.S. government or only by the credit of the issuer
itself.
The fund may also enter into mortgage dollar roll transactions where the fund
sells a mortgage related security and simultaneously agrees to repurchase, at a
future date, another mortgage related security with the same interest rate and
maturity date but generally backed by a different pool of mortgages. The
benefits from these transactions depend on the manager's ability to forecast
mortgage prepayment patterns on different mortgage pools. The fund may lose
money if the securities to be repurchased decline in value before the date of
repurchase.
SELECTION PROCESS The manager focuses on identifying undervalued securities.
Specifically, the manager:
- - Monitors the spreads between U.S. Treasury and government agency or
instrumentality issuers and purchases agency and instrumentality issues that
it believes will provide a yield advantage
- - Determines sector and maturity weightings based on intermediate and long-term
assessments of the economic environment and relative value factors based on
interest rate outlook
- - Uses research to identify sectors of the government and mortgage markets that
are inefficiently priced, and adjusts portfolio positions to take advantage of
new information
- - Measures the potential impact of supply/demand imbalances, yield curve shifts
and changing prepayment patterns to identify individual securities that
balance potential return and risk
2 Government Securities Fund
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PRINCIPAL RISKS OF INVESTING IN THE FUND
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
- - Interest rates increase, causing the prices of fixed income securities to
decline and reducing the value of the fund's portfolio
- - As interest rates decline, the issuers of mortgage-related securities held by
the fund may pay principal earlier than scheduled or exercise a right to call
the securities, forcing the fund to reinvest in lower yielding securities.
This is known as prepayment or call risk.
- - As interest rates increase, slower than expected principal payments may extend
the average life of fixed income securities, locking in below-market interest
rates and reducing the value of these securities. This is known as extension
risk.
- - The manager's judgment about interest rates or the attractiveness, value or
income potential of a particular security proves incorrect
- - The fund may engage in active and frequent trading, resulting in high
portfolio turnover. This may lead to the realization and distribution to
shareholders of higher capital gains, increasing their tax liability. Frequent
trading also increases transaction costs, which could detract from the fund's
performance.
Payments of principal and interest on mortgage pools issued by instrumentalities
of the U.S. government are not guaranteed by the U.S. government. Although
mortgage pools issued by U.S. agencies are guaranteed with respect to payments
of principal and interest, this guarantee does not apply to losses resulting
from declines in the market value of these securities.
WHO MAY WANT TO INVEST The fund may be an appropriate investment if you:
- - Are seeking income consistent with preservation of capital
- - Are willing to accept the interest rate risks and market risks of investing in
government bonds and mortgage-related securities
- - Prefer to invest in U.S. government securities rather than higher yielding
corporate securities
Smith Barney Mutual Funds 3
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RISK RETURN BAR CHART
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future. The bar chart
shows the performance of the fund's Class B shares for each of the past 10
years. Class A, L and Y shares have different performance because of their
different expenses. The performance information in the chart does not reflect
sales charges, which would reduce your return.
TOTAL RETURN FOR CLASS B SHARES
[RISK RETURN BAR CHART]
<TABLE>
<S> <C>
90 6.99%
91 16.28%
92 5.45%
93 10.45%
94 -3.25%
95 13.87%
96 1.42%
97 10.82%
98 7.44%
99 -5.35%
</TABLE>
CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS (past 10 years)
Highest: 6.36% in 3rd quarter 1991; Lowest: (3.62)% in 1st quarter 1992
4 Government Securities Fund
<PAGE>
RISK RETURN TABLE
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Lehman
Brothers Government Bond Index ("Lehman Index"), a broad-based unmanaged index
of all U.S. government obligations. This table assumes imposition of the maximum
sales charge applicable to the class, redemption of shares at the end of the
period, and reinvestment of distributions and dividends.
AVERAGE ANNUAL TOTAL RETURNS
CALENDAR YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
CLASS 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION INCEPTION DATE
<S> <C> <C> <C> <C> <C>
A (9.24)% 4.97% n/a 4.90% 11/06/92
B (9.42)% 5.25% 6.20% 7.27% 03/20/84
L (7.24)% 5.26% n/a 4.36% 02/04/93
Y (4.61)% n/a n/a 4.38% 02/07/96
Lehman Index (2.23)% 7.44% 7.48% 9.31% *
</TABLE>
* Index comparison begins on March 31, 1984.
Smith Barney Mutual Funds 5
<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) 4.50%* None 1.00% None
Maximum deferred sales charge
(load) (as a % of the lower of
net asset value at purchase or
redemption) None* 4.50% 1.00% None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
(EXPENSES DEDUCTED FROM FUND
ASSETS) CLASS A CLASS B CLASS L CLASS Y
<S> <C> <C> <C> <C>
Management fee 0.55% 0.55% 0.55% 0.55%
Distribution and service (12b-1)
fees 0.25% 0.75% 0.70% None
Other expenses 0.13% 0.11% 0.14% 0.04%
----- ----- ----- -----
Total annual fund operating
expenses 0.93% 1.41% 1.39% 0.59%
===== ===== ===== =====
</TABLE>
* You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
6 Government Securities Fund
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EXAMPLE
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the period shown
- - Your investment has a 5% return each year
- - You reinvest all distributions and dividends without a sales charge
- - The fund's operating expenses remain the same
NUMBER OF YEARS YOU OWN YOUR SHARES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A (with or without redemption) $541 $733 $942 $1,542
Class B (redemption at end of period) $644 $746 $871 $1,560
Class B (no redemption) $144 $446 $771 $1,560
Class L (redemption at end of period) $340 $536 $853 $1,752
Class L (no redemption) $240 $536 $853 $1,752
Class Y (with or without redemption) $ 60 $189 $329 $ 738
</TABLE>
Smith Barney Mutual Funds 7
<PAGE>
MORE ON THE FUND'S INVESTMENTS
DERIVATIVE CONTRACTS The fund may, but need not, use derivative contracts, such
as interest rate futures and options on interest rate futures, for any of the
following purposes:
- - To hedge against the economic impact of adverse changes in the market value of
portfolio securities, because of changes in interest rates
- - As a substitute for buying or selling securities
A futures contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities.
Even a small investment in derivative contracts can have a big impact on a
fund's interest rate exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains when
interest rates are changing. The fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of default risk as issuers of fixed
income securities. Derivatives can also make a fund less liquid and harder to
value, especially in declining markets.
DEFENSIVE INVESTING The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
8 Government Securities Fund
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MANAGEMENT
MANAGER The fund's investment manager is SSB Citi Fund Management LLC
(successor to SSBC Fund Management Inc.), an affiliate of Salomon Smith Barney
Inc. The manager's address is 388 Greenwich Street, New York, New York 10013.
The manager selects the fund's investments and oversees its operations. The
manager and Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup
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.
James E. Conroy, investment officer of the manager and managing director of
Salomon Smith Barney, has been responsible for the day-to-day management of the
fund since its inception in 1984.
MANAGEMENT FEE For its services, the manager received a fee during the fund's
last fiscal year equal to 0.35% of the fund's average daily net assets. In
addition, the manager received a fee for its administrative services to the fund
equal to 0.20% of the fund's average daily net assets.
DISTRIBUTOR The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker-dealers sells fund shares to the public.
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.
TRANSFER AGENT AND SHAREHOLDER SERVICING AGENT Citi Fiduciary Trust Company
serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement with
the transfer agent, PFPC Global Fund Services serves as the fund's sub-transfer
agent (the "sub-transfer agent") to render certain shareholder record keeping
and accounting services and functions.
Smith Barney Mutual Funds 9
<PAGE>
CHOOSING A CLASS OF SHARES TO BUY
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
- - If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.
- - For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
- - Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class L
shares do not, Class B shares may be more attractive to long-term investors.
You may buy shares from:
- - A Salomon Smith Barney Financial Consultant
- - An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
- - The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
INVESTMENT MINIMUMS Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
CLASSES A,
B, L CLASS Y ALL CLASSES
<S> <C> <C> <C>
General $1,000 $15 million $50
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $250 $15 million $50
Qualified Retirement Plans* $25 $15 million $25
Simple IRAs $1 n/a $ 1
Monthly Systematic Investment Plans $25 n/a $25
Quarterly Systematic Investment Plans $50 n/a $50
</TABLE>
* Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k)
plans
10 Government Securities Fund
<PAGE>
COMPARING THE FUND'S CLASSES
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They may receive different 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 sales - No initial - Initial sales - No initial or
charge sales charge charge is deferred sales
- You may - Deferred sales lower than charge
qualify for charge Class A - Must invest at
reduction or declines over - Deferred sales least $15
waiver of time charge for million
initial sales - Convert to only 1 year - Lower annual
charge Class A after - Does not expenses than
- Lower annual 8 years convert to the other
expenses than - Higher annual Class A classes
Class B and expenses than - Higher annual
Class L Class A expenses than
Class A
- ---------------------------------------------------------------------------------------------
INITIAL SALES CHARGE Up to 4.50%; None 1.00% None
reduced for
large
purchases and
waived for
certain
investors; no
charge for
purchases of
$500,000 or
more
- ---------------------------------------------------------------------------------------------
DEFERRED SALES CHARGE 1.00% on Up to 4.50% 1.00% if you None
purchases of charged when redeem within
$500,000 or you redeem 1 year of
more if you shares. The purchase
redeem within charge is
1 year of reduced over
purchase time and there
is no deferred
sales charge
after 6 years
- ---------------------------------------------------------------------------------------------
ANNUAL DISTRIBUTION 0.25% of average 0.75% of average 0.70% of average None
AND SERVICE FEES daily net daily net daily net
assets assets assets
- ---------------------------------------------------------------------------------------------
EXCHANGE PRIVILEGE* Class A shares Class B shares Class L shares Class Y shares
of most Smith of most Smith of most Smith of most Smith
Barney funds Barney funds. Barney funds Barney funds
</TABLE>
- ------------------------------------------------------------------------------
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
Smith Barney Mutual Funds 11
<PAGE>
SALES CHARGES
CLASS A SHARES
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund's distributions or dividends you reinvest in additional Class A shares.
<TABLE>
<CAPTION>
SALES CHARGE AS A % OF:
OFFERING NET AMOUNT
AMOUNT OF PURCHASE PRICE (%) INVESTED (%)
<S> <C> <C>
Less than $25,000 4.50 4.71
$25,000 but less than $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 2.50 2.56
$250,000 but less than $500,000 1.50 1.52
$500,000 or more 0.00 0.00
</TABLE>
INVESTMENTS OF $500,000 OR MORE You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
QUALIFYING FOR A REDUCED CLASS A SALES CHARGE There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Accumulation privilege -- lets you combine the current value of Class A shares
owned
- - by you, or
- - by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees 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
12 Government Securities Fund
<PAGE>
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 members of the NASD
- - Clients of newly employed Salomon Smith Barney Financial Consultants, if
certain conditions are met
- - Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn about additional waivers of Class A initial sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the Statement of Additional Information ("SAI").
CLASS B SHARES
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of purchase,
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 4.5% 4% 3% 2% 1% 0%
</TABLE>
CLASS B CONVERSION After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
SHARES ISSUED: SHARES ISSUED:
SHARES ISSUED: ON REINVESTMENT OF UPON EXCHANGE FROM
AT INITIAL DIVIDENDS AND ANOTHER SMITH BARNEY
PURCHASE DISTRIBUTIONS FUND
<S> <C> <C>
Eight years after the In same proportion as On the date the shares
date of purchase the number of Class B originally acquired
shares converting is would have converted
to total Class B into Class A shares
shares you own
(excluding shares
issued as a dividend)
</TABLE>
Smith Barney Mutual Funds 13
<PAGE>
CLASS L SHARES
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund and/or other Smith
Barney mutual funds on June 12, 1998, you will not pay an initial sales charge
on Class L shares you buy before June 22, 2001.
CLASS Y SHARES
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
14 Government Securities Fund
<PAGE>
MORE ABOUT DEFERRED SALES CHARGES
The deferred sales charge is based on the net asset value at the time of
purchase 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 Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
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 Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
Smith Barney Mutual Funds 15
<PAGE>
BUYING SHARES
<TABLE>
<C> <S>
Through a You should contact your Salomon Smith Barney
Salomon Smith Financial Consultant or dealer representative
Barney Financial to open a brokerage account and make
Consultant arrangements to buy shares.
or dealer
representative If you do not provide the following
information, your order will be rejected:
- Class of shares being bought
- Dollar amount or number of shares being
bought
You should pay for your shares through your
brokerage account no later than the third
business day after you place your order.
Salomon Smith Barney or your dealer
representative may charge an annual account
maintenance fee.
- --------------------------------------------------------------------
Through the Qualified retirement plans and certain other
fund's sub-transfer investors who are clients of a selling group
agent member are eligible to buy shares directly
from the fund.
- Write the sub-transfer agent at the
following address:
SMITH BARNEY INVESTMENT FUNDS INC.
SMITH BARNEY GOVERNMENT SECURITIES FUND
(SPECIFY CLASS OF SHARES)
C/O PFPC GLOBAL FUND SERVICES
P.O. BOX 9699
PROVIDENCE, RI 02940-9699
- Enclose a check made payable to the fund to
pay for the shares. For initial purchases,
complete and send an account application.
- For more information, call the transfer
agent at 1-800-451-2010.
</TABLE>
16 Government Securities Fund
<PAGE>
<TABLE>
<C> <S>
Through a You may authorize Salomon Smith Barney, your
systematic dealer representative or the sub-transfer
investment plan agent to transfer funds automatically from a
regular bank account, cash held in a Salomon
Smith Barney brokerage account or Smith
Barney money market fund to buy shares on a
regular basis.
- Amounts transferred should be at least: $25
monthly or $50 quarterly.
- If you do not have sufficient funds in your
account on a transfer date, Salomon Smith
Barney, your dealer representative or the
sub-transfer agent may charge you a fee.
For more information, contact your Salomon
Smith Barney Financial Consultant, dealer
representative or the transfer agent or
consult the SAI.
</TABLE>
Smith Barney Mutual Funds 17
<PAGE>
EXCHANGING SHARES
<TABLE>
<C> <S>
Smith Barney offers You should contact your Salomon Smith Barney
a distinctive Financial Consultant or dealer representative
family of funds to exchange into other Smith Barney funds. Be
tailored to help sure to read the prospectus of the Smith
meet the varying Barney fund you are exchanging into. An
needs of both exchange is a taxable transaction.
large and small
investors - You may exchange shares only for shares of
the same class of another Smith Barney fund.
Not all Smith Barney funds offer all
classes.
- Not all Smith Barney funds may be offered
in your state of residence. Contact your
Salomon Smith Barney Financial Consultant,
dealer representative or the transfer
agent.
- You must meet the minimum investment amount
for each fund (except for systematic
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
additional sales sales charge at the time of the exchange.
charges
Your deferred sales charge (if any) will
continue to be measured 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.
</TABLE>
18 Government Securities Fund
<PAGE>
<TABLE>
<C> <S>
By telephone If you do not have a brokerage account, you
may be eligible to exchange shares through
the transfer agent. 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 transfer
agent at 1-800-451- 2010 between 9:00 a.m.
and 4:00 p.m. (Eastern time).
You can make telephone exchanges only between
accounts that have identical registrations.
- --------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney
brokerage account, contact your dealer
representative or write to the sub-transfer
agent at the address on the following page.
</TABLE>
Smith Barney Mutual Funds 19
<PAGE>
REDEEMING SHARES
<TABLE>
<C> <S>
Generally Contact your Salomon Smith Barney Financial
Consultant or dealer representative to redeem
shares of the fund.
If you hold share certificates, the
sub-transfer agent must receive the
certificates endorsed for transfer or with
signed stock powers before the redemption is
effective.
If the shares are held by a fiduciary or
corporation, other documents may be required.
Your redemption proceeds will be sent within
three business days after your request is
received in good order. However, if you
recently purchased your shares by check, your
redemption proceeds will not be sent to you
until your original check clears, which may
take up to 15 days.
If you have a Salomon Smith Barney brokerage
account, your redemption proceeds will be
placed in your account and not reinvested
without your specific instruction. In other
cases, unless you direct otherwise, your
redemption proceeds will be paid by check
mailed to your address of record.
- --------------------------------------------------------------------
By mail For accounts held directly at the fund, send
written requests to the sub-transfer agent at
the following address:
SMITH BARNEY INVESTMENT FUNDS INC.
SMITH BARNEY GOVERNMENT SECURITIES FUND
(SPECIFY CLASS OF SHARES)
C/O PFPC GLOBAL FUND SERVICES
P.O. BOX 9699
PROVIDENCE, R.I. 02940-9699
Your written request must provide the
following:
- Your account number
- The class of shares and the dollar amount
or number of shares to be redeemed
- Signatures of each owner exactly as the
account is registered
- --------------------------------------------------------------------
</TABLE>
20 Government Securities Fund
<PAGE>
<TABLE>
<C> <S>
By telephone If you do not have a brokerage account, you
may be eligible to redeem shares (except
those held in retirement plans) in amounts up
to $10,000 per day through the transfer
agent. You must complete an authorization
form to authorize telephone redemptions. If
eligible, you may request redemptions by
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).
Your redemption proceeds can be sent by check
to your address of record or by wire transfer
to a bank account designated on your
authorization form. You must submit a new
authorization form to change the bank account
designated to receive wire transfers and you
may be asked to provide certain other
documents.
- --------------------------------------------------------------------
Automatic cash You can arrange for the automatic redemption
withdrawal plans of a portion of your shares on a monthly or
quarterly basis. To qualify you must own
shares of the fund with a value of at least
$10,000 ($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 Salomon
Smith Barney Financial Consultant or dealer
representative or consult the SAI.
</TABLE>
Smith Barney Mutual Funds 21
<PAGE>
OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
- - Name of the fund
- - Account number
- - Class of shares being bought, exchanged or redeemed
- - Dollar amount or number of shares being bought, exchanged or redeemed
- - Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
SIGNATURE GUARANTEES To be in good order, your redemption request must include
a signature guarantee if you:
- - Are redeeming over $10,000 of shares
- - Are sending signed share certificates or stock powers to the sub-transfer
agent
- - Instruct the sub-transfer agent to mail the check to an address different from
the one on your account
- - Changed your account registration
- - Want the check paid to someone other than the account owner(s)
- - Are transferring the redemption proceeds to an account with a different
registration
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
22 Government Securities Fund
<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 Securities
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 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
EXCESSIVE EXCHANGE TRANSACTIONS The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.
SHARE CERTIFICATES The fund does not issue share certificates unless a written
request signed by all registered owners is made to the sub-transfer agent. If
you hold share certificates it will take longer to exchange or redeem shares.
Smith Barney Mutual Funds 23
<PAGE>
SALOMON SMITH BARNEY RETIREMENT PROGRAMS
You may be eligible to participate in a retirement program sponsored by Salomon
Smith Barney or one of its affiliates. The fund offers Class A and Class L
shares at net asset value to participating plans under the programs. You can
meet minimum investment and exchange amounts, if any, by combining the plan's
investments in any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment and/or the
date your account is opened. Once a class of shares is chosen, all additional
purchases must be of the same class.
- - For plans opened on or after March 1, 2000 that are not plans for which
Paychex Inc. or an affiliate provides administrative services (a "Paychex
Plan"),
Class A shares may be purchased regardless of the amount invested.
- - For plans opened prior to March 1, 2000 and for Paychex plans,
the class of shares you may purchase depends on the amount
of your initial investment.
- Class A shares may be purchased by plans investing at least $1 million.
- Class L shares may be purchased by plans investing less than $1
million. Class L shares are eligible for exchange to Class A shares not
later than 8 years after the plan joined the program. They are eligible
for exchange in the following circumstances:
If the plan was opened on or after June 21, 1996 and a total of $1 million is
invested in Smith Barney Funds Class L shares (other than money market funds),
all Class L shares are eligible for exchange after the plan is in the program 5
years.
If the plan was opened before June 21, 1996 and a total of $500,000 is invested
in Smith Barney Funds Class L shares (other than money market funds) on December
31 in any year, all Class L shares are eligible for exchange on or about March
31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.
24 Government Securities Fund
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS The fund generally pays dividends from net investment income
periodically and makes capital gain distributions, if any, once a year,
typically in December. The fund may pay additional distributions and dividends
at other times if necessary for the fund to avoid a federal tax. Capital gain
distributions and dividends are reinvested in additional fund shares of the same
class that you hold. The fund expects distributions to be primarily from income.
You do not pay a sales charge on reinvested distributions or dividends.
Alternatively, you can instruct your Salomon Smith Barney Financial Consultant,
dealer representative or the transfer agent to have your distributions and/or
dividends paid in cash. You can change your choice at any time to be effective
as of the next distribution or dividend, except that any change given to the
transfer agent less than five days before the payment date will not be effective
until the next distribution or dividend is paid.
TAXES In general, redeeming shares, exchanging shares and receiving
distributions (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 Long-term capital gain
distributions
Short-term capital gain Ordinary income
distributions
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
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 during
the previous year. If you do not provide the fund with your correct taxpayer
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.
Smith Barney Mutual Funds 25
<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
liabilities. 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
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. When reliable market prices or quotations are not readily available,
or when the value of a security has been materially affected by events occurring
after the close of the Exchange or market on which the security is principally
traded, the fund may price those securities at fair value. 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 Salomon Smith Barney Financial Consultant or dealer
representative 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.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
26 Government Securities Fund
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less
than 5 years). Certain information reflects
financial results for a single share. Total return represents the rate that a
shareholder would have earned (or lost) on a fund share assuming reinvestment of
all dividends and distributions. The information in the following tables was
audited by KPMG LLP, independent auditors, whose report, along with the fund's
financial statements, is included in the annual report (available upon request).
FOR A CLASS A SHARE OF CAPITAL STOCK
OUTSTANDING THROUGHOUT EACH YEAR ENDED DECEMBER 31:
<TABLE>
<CAPTION>
1999(1) 1998(1) 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
Net asset value, beginning of
year $9.97 $9.75 $9.34 $9.77 $9.17
- ----------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.49 0.51 0.59 0.61 0.67
Net realized and unrealized
gain (loss) (0.98) 0.26 0.42 (0.44) 0.62
- ----------------------------------------------------------------------------
Total income (loss) from
operations (0.49) 0.77 1.01 0.17 1.29
- ----------------------------------------------------------------------------
Less distribution from:
Net investment income (0.49) (0.55) (0.60) (0.59) (0.69)
Capital (0.00)(2) -- -- (0.01) --
- ----------------------------------------------------------------------------
Total distributions (0.49) (0.55) (0.60) (0.60) (0.69)
- ----------------------------------------------------------------------------
Net asset value, end of year $8.99 $9.97 $9.75 $9.34 $9.77
- ----------------------------------------------------------------------------
Total return (4.96)% 8.12% 11.23% 1.96% 14.50%
- ----------------------------------------------------------------------------
Net assets, end of year (000)'s $288,133 $347,622 $361,124 $388,563 $453,378
- ----------------------------------------------------------------------------
Ratios to average net assets:
Other expenses 0.93% 0.92% 0.92% 0.93% 0.94%
Interest expense 0.01 0.08 0.85 0.84 0.43
Net investment income 5.21 5.15 6.24 6.16 6.70
- ----------------------------------------------------------------------------
Portfolio turnover rate 161% 334% 274% 420% 294%
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(1) Per share amounts have been calculated using the monthly
average shares method.
(2) Amount represents less than $0.01 per share.
</TABLE>
Smith Barney Mutual Funds 27
<PAGE>
FOR A CLASS B SHARE OF CAPITAL STOCK
OUTSTANDING THROUGHOUT EACH YEAR ENDED DECEMBER 31:
<TABLE>
<CAPTION>
1999(1) 1998(1) 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
Net asset value, beginning of
year $9.97 $9.79 $9.38 $9.81 $9.17
- ----------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.45 0.45 0.54 0.56 0.59
Net realized and unrealized
gain (loss) (0.97) 0.26 0.44 (0.44) 0.65
- ----------------------------------------------------------------------------
Total income (loss) from
operations (0.52) 0.71 0.98 0.12 1.24
- ----------------------------------------------------------------------------
Less distribution from:
Net investment income (0.45) (0.53) (0.57) (0.54) (0.60)
Capital (0.00)(2) -- -- (0.01) --
- ----------------------------------------------------------------------------
Total distributions (0.45) (0.53) (0.57) (0.55) (0.60)
- ----------------------------------------------------------------------------
Net asset value, end of year $9.00 $9.97 $9.79 $9.38 $9.81
- ----------------------------------------------------------------------------
Total return (5.35)% 7.44% 10.82% 1.42% 13.87%
- ----------------------------------------------------------------------------
Net assets, end of year (000)'s $65,989 $92,082 $101,273 $121,894 $158,459
- ----------------------------------------------------------------------------
Ratios to average net assets:
Other expenses 1.41% 1.43% 1.44% 1.45% 1.45%
Interest expense 0.01 0.08 0.85 0.84 0.43
Net investment income 4.72 4.64 5.73 5.64 6.19
- ----------------------------------------------------------------------------
Portfolio turnover rate 161% 334% 274% 420% 294%
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(1) Per share amounts have been calculated using the monthly
average shares method.
(2) Amount represents less than $0.01 per share.
</TABLE>
28 Government Securities Fund
<PAGE>
FOR A CLASS L(2) SHARE OF CAPITAL STOCK
OUTSTANDING THROUGHOUT EACH YEAR ENDED DECEMBER 31:
<TABLE>
<CAPTION>
1999(1) 1998(1) 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
Net asset value, beginning of
year $9.97 $9.78 $9.38 $9.81 $9.17
- ----------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.46 0.45 0.54 0.57 0.60
Net realized and unrealized
gain (loss) (0.99) 0.27 0.43 (0.44) 0.65
- ----------------------------------------------------------------------------
Total income (loss) from
operations (0.53) 0.72 0.97 0.13 1.25
- ----------------------------------------------------------------------------
Less distribution from:
Net investment income (0.45) (0.53) (0.57) (0.55) (0.61)
Capital (0.00)(3) -- -- (0.01) --
- ----------------------------------------------------------------------------
Total distributions (0.45) (0.53) (0.57) (0.56) (0.61)
- ----------------------------------------------------------------------------
Net assets value, end of year $8.99 $9.97 $9.78 $9.38 $9.81
- ----------------------------------------------------------------------------
Total return (5.41)% 7.56% 10.75% 1.47% 13.93%
- ----------------------------------------------------------------------------
Net asset, end of year (000)'s $6,611 $4,411 $2,311 $1,443 $1,039
- ----------------------------------------------------------------------------
Ratios to average net assets:
Other expenses 1.39% 1.40% 1.39% 1.38% 1.37%
Interest expense 0.01 0.08 0.85 0.84 0.43
Net investment income 4.77 4.63 5.70 5.71 6.27
- ----------------------------------------------------------------------------
Portfolio turnover rate 161% 334% 274% 420% 294%
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(1) Per share amounts have been calculated using the monthly
average shares method.
(2) On June 12, 1998, Class C shares were renamed Class L
shares.
(3) Amount represents less than $0.01 per share.
</TABLE>
Smith Barney Mutual Funds 29
<PAGE>
FOR A CLASS Y SHARE OF CAPITAL STOCK
OUTSTANDING THROUGHOUT EACH YEAR ENDED DECEMBER 31:
<TABLE>
<CAPTION>
1999(1) 1998(1) 1997 1996(2)
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
Net asset value, beginning of year $9.97 $9.76 $9.34 $9.71
- ----------------------------------------------------------------------------
Income from operations:
Net investment income 0.53 0.54 0.61 0.57
Net realized and unrealized gain
(loss) (0.98) 0.26 0.44 (0.37)
- ----------------------------------------------------------------------------
Total income (loss) from operations (0.45) 0.80 1.05 0.20
- ----------------------------------------------------------------------------
Less distribution from:
Net investment income (0.53) (0.59) (0.63) (0.56)
Net realized gains (0.00)(5) -- -- (0.01)
- ----------------------------------------------------------------------------
Total distributions (0.53) (0.59) (0.63) (0.57)
- ----------------------------------------------------------------------------
Net asset value, end of year $8.99 $9.97 $9.76 $9.34
- ----------------------------------------------------------------------------
Total return (4.61)% 8.42% 11.73% 2.30%(3)
- ----------------------------------------------------------------------------
Net assets, end of year (000)'s $213,170 $191,253 $109,909 $39,667
- ----------------------------------------------------------------------------
Ratios to average net assets:
Other expenses 0.59% 0.59% 0.58% 0.44%(4)
Interest expense 0.01 0.08 0.85 0.84(4)
Net investment income 5.57 5.43 6.46 6.49(4)
- ----------------------------------------------------------------------------
Portfolio turnover rate 161% 334% 274% 420%
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(1) Per share amounts have been calculated using the monthly
average shares method.
(2) For the period from February 7, 1996 (inception date) to
December 31, 1996.
(3) Not Annualized.
(4) Annualized.
(5) Amount represents less than $0.01 per share.
</TABLE>
30 Government Securities Fund
<PAGE>
[SALOMON SMITH BARNEY LOGO]
GOVERNMENT
SECURITIES FUND
- -- AN INVESTMENT PORTFOLIO OF
SMITH BARNEY INVESTMENT FUNDS INC.
SHAREHOLDER REPORTS Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
STATEMENT OF ADDITIONAL INFORMATION The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at WWW.SMITHBARNEY.COM
Information about the fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's (the "Commission") Public Reference Room in
Washington, D.C. In addition, information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Database
on the Commission's Internet site at HTTP:WWW.SEC.GOV. Copies of this
information may be obtained for a 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
lawfully sell its shares.
(SM)Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-03275)
FD0234 4/00
<PAGE>
[SMITH BARNEY MUTUAL FUNDS LOGO]
PROSPECTUS
GOVERNMENT
SECURITIES
FUND
CLASS Z SHARES
- ---------------------------------------
APRIL 28, 2000
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
<PAGE>
(This page intentionally left blank)
<PAGE>
GOVERNMENT SECURITIES FUND
CONTENTS
<TABLE>
<S> <C>
Investments, risks and performance......................... 2
More on the fund's investments............................. 7
Management................................................. 8
Buying, selling and exchanging Class Z shares.............. 9
Distributions, dividends and taxes......................... 10
Share price................................................ 11
Financial highlights....................................... 12
</TABLE>
YOU SHOULD KNOW: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds 1
<PAGE>
INVESTMENTS, RISKS AND PERFORMANCE
INVESTMENT OBJECTIVE
The fund seeks high current return.
PRINCIPAL INVESTMENT STRATEGIES
KEY INVESTMENTS The fund invests primarily in debt securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities. These
securities include U.S. Treasury securities and mortgage-related securities.
Mortgage-related securities issued by federal agencies or instrumentalities may
be backed by the full faith and credit of the U.S. Treasury, by the right of the
issuer to borrow from the U.S. government or only by the credit of the issuer
itself.
The fund may also enter into mortgage dollar roll transactions where the fund
sells a mortgage related security and simultaneously agrees to repurchase, at a
future date, another mortgage related security with the same interest rate and
maturity date but generally backed by a different pool of mortgages. The
benefits from these transactions depend on the manager's ability to forecast
mortgage prepayment patterns on different mortgage pools. The fund may lose
money if the securities to be repurchased decline in value before the date of
repurchase.
SELECTION PROCESS The manager focuses on identifying undervalued securities.
Specifically, the manager:
- - Monitors the spreads between U.S. Treasury and government agency or
instrumentality issuers and purchases agency and instrumentality issues that
it believes will provide a yield advantage
- - Determines sector and maturity weightings based on intermediate and long-term
assessments of the economic environment and relative value factors based on
interest rate outlook
- - Uses research to identify sectors of the government and mortgage markets that
are inefficiently priced, and adjusts portfolio positions to take advantage of
new information
- - Measures the potential impact of supply/demand imbalances, yield curve shifts
and changing prepayment patterns to identify individual securities that
balance potential return and risk
2 Government Securities Fund
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
- - Interest rates increase, causing the prices of fixed income securities to
decline and reducing the value of the fund's portfolio
- - As interest rates decline, the issuers of mortgage-related securities held by
the fund may pay principal earlier than scheduled or exercise a right to call
the securities, forcing the fund to reinvest in lower yielding securities.
This is known as prepayment or call risk
- - As interest rates increase, slower than expected principal payments may extend
the average life of fixed income securities, locking in below-market interest
rates and reducing the value of these securities. This is known as extension
risk.
- - The manager's judgment about interest rates or the attractiveness, value or
income potential of a particular security proves incorrect
- - The fund may engage in active and frequent trading, resulting in high
portfolio turnover. This may lead to the realization and distribution to
shareholders of higher capital gains, increasing their tax liability. Frequent
trading also increases transaction costs, which could detract from the fund's
performance.
Payments of principal and interest on mortgage pools issued by instrumentalities
of the U.S. government are not guaranteed by the U.S. government. Although
mortgage pools issued by U.S. agencies are guaranteed with respect to payments
of principal and interest, this guarantee does not apply to losses resulting
from declines in the market value of these securities.
WHO MAY WANT TO INVEST The fund may be an appropriate investment if you:
- - Are seeking income consistent with preservation of capital
- - Are willing to accept the interest rate risks and market risks of investing in
government bonds and mortgage-related securities
- - Prefer to invest in U.S. government securities rather than higher yielding
corporate securities
Smith Barney Mutual Funds 3
<PAGE>
RISK RETURN BAR CHART
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
The fund's Class Z shares did not commence operation until January 1999. The
fund is showing total return, quarterly returns and comparative performance of
its Class B shares (the oldest class of shares) to provide you with some
indication of the fund's historical performance. The performance information
in the chart does not reflect sales charges, which would reduce your return.
Class Z shares would have different performance because of their different
expenses.
% TOTAL RETURN: CLASS B SHARES
<TABLE>
CALENDAR YEARS ENDED DECEMBER 31
<S> <C>
90 6.99%
91 16.28%
92 5.45%
93 10.45%
94 -3.25%
95 13.87%
96 1.42%
97 10.82%
98 7.44%
99 -5.35%
</TABLE>
QUARTERLY RETURNS: (PAST 10 YEARS):
Highest: 6.36% in 3rd quarter 1991; Lowest: (3.62)% in 1st quarter 1992
4 Government Securities Fund
<PAGE>
RISK RETURN TABLE
This table indicates the risks of investing in the fund by comparing the average
annual total return of Class B shares of the fund for the periods shown to
that of the Lehman Brothers Government Bond Index ("Lehman Index"), a
broad based unmanaged index of all U.S. government obligations. This table
assumes the imposition of the maximum sales charge applicable to Class B,
redemption of shares at the end of the period and, reinvestment of
distributions and dividends.
AVERAGE ANNUAL TOTAL RETURNS
CALENDAR YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
CLASS 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION INCEPTION DATE
<S> <C> <C> <C> <C> <C>
B* (9.42)% 5.25% 6.20% 7.27% 3/20/84
Lehman Index (2.23)% 7.44% 7.48% 9.31% 3/31/84
</TABLE>
* Class Z shares were not offered during these periods. Total returns shown
above are for Class B shares, which are not offered in this prospectus.
Smith Barney Mutual Funds 5
<PAGE>
FEE TABLE
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
(EXPENSES DEDUCTED FROM FUND ASSETS)
<S> <C>
Management fee.............................................. 0.55%
Other expenses.............................................. 0.08%
-----
Total annual fund operating expenses........................ 0.63%
=====
</TABLE>
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
- - You redeem all of your shares at the end of the period
- - Your investment has a 5% return each year
- - You reinvest all distributions and dividends
- - The fund's operating expenses remain the same
<TABLE>
<CAPTION>
NUMBER OF YEARS YOU OWN YOUR SHARES
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class Z............................... $ 64 $202 $351 $ 786
</TABLE>
6 Government Securities Fund
<PAGE>
MORE ON THE FUND'S INVESTMENTS
DERIVATIVE CONTRACTS The fund may, but need not, use derivative contracts, such
as interest rate futures and options on interest rate futures, for any of the
following purposes:
- - To hedge against the economic impact of adverse changes in the market value of
portfolio securities, because of changes in interest rates
- - As a substitute for buying or selling securities
A futures contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities.
Even a small investment in derivative contracts can have a big impact on a
fund's interest rate exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains when
interest rates are changing. The fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of default risk as issuers of fixed
income securities. Derivatives can also make a fund less liquid and harder to
value, especially in declining markets.
DEFENSIVE INVESTING The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
Smith Barney Mutual Funds 7
<PAGE>
MANAGEMENT
MANAGER The fund's investment manager is SSB Citi Fund Management LLC
(successor to SSBC Fund Management Inc.), an affiliate of Salomon Smith Barney
Inc. The manager's address is 388 Greenwich Street, New York, New York 10013.
The manager selects the Fund's investments and oversees its operations. The
manager and Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup
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.
James E. Conroy, investment officer of the manager and managing director of
Salomon Smith Barney, has been responsible for the day-to-day management of the
fund since its inception in 1984.
MANAGEMENT FEE For its services, the manager received a fee during the fund's
last fiscal year equal to 0.35% of the fund's average daily net assets. In
addition, the manager received a fee for its administrative services to the fund
equal to 0.20% of the fund's average daily net assets.
DISTRIBUTOR The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares.
8 Government Securities Fund
<PAGE>
BUYING, SELLING AND EXCHANGING CLASS Z SHARES
<TABLE>
<C> <S>
Through a You may buy, sell or exchange Class Z shares
qualified only through a "qualified plan." A qualified
plan plan is a tax-exempt employee benefit or
retirement plan of Salomon Smith Barney, Inc.
or one of its affiliates.
There are no minimum investment requirements
for Class Z shares. However, the fund
reserves the right to change this policy at
any time.
- --------------------------------------------------------------------
Buying Orders to buy Class Z shares must be made in
accordance with the terms of a qualified
plan. If you are a participant in a qualified
plan, you may place an order with your plan
to buy Class Z shares at net asset value,
without any sales charge. Payment is due to
Salomon Smith Barney on settlement date,
which is the third business day after your
order is accepted. If you make payment prior
to this date, you may designate a temporary
investment (such as a money market fund of
the Smith Barney Mutual Funds) for payment
until settlement date. The fund reserves the
right to reject any order to buy shares and
to suspend the offering of shares for a
period of time.
- --------------------------------------------------------------------
Selling Qualified plans may redeem their shares on
any day on which the fund calculates its net
asset value. You should consult the terms of
your qualified plan for special redemption
provisions.
- --------------------------------------------------------------------
Exchanging You should consult your qualified plan for
information about available exchange options.
</TABLE>
Smith Barney Mutual Funds 9
<PAGE>
DISTRIBUTIONS, DIVIDENDS AND TAXES
An investment in the fund will have the following consequences for a qualified
plan as the owner of shares in the fund. Qualified plan participants should
consult their plan document or tax advisors about the tax consequences of
participating in a qualified plan.
DIVIDENDS The fund generally pays dividends from net investment income
periodically and makes capital gain distributions, if any, once a year,
typically in December. The fund may pay additional distributions and dividends
at other times if necessary for the fund to avoid a federal tax. Capital gain
distributions and dividends are reinvested in additional Class Z shares. The
fund expects distributions to be primarily from income. No sales charge is
imposed on reinvested distributions or dividends.
TAXES Provided that a qualified plan has not borrowed to finance its investment
in the fund, it will not be taxable on the receipt of dividends and
distributions from the fund.
10 Government Securities Fund
<PAGE>
SHARE PRICE
Qualified plans may buy, exchange or redeem Class Z shares of the fund at the
net asset value next determined after receipt of your request in good order. The
fund's net asset value is the value of its assets minus its liabilities. 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 calculation
is done when regular trading closes on the Exchange (normally 4:00 p.m., Eastern
time).
The fund generally values its fund securities based on market prices or
quotations. When reliable market prices or quotations are not readily available,
or when the value of a security has been materially affected by events occurring
after the close of the Exchange or market on which the security is principally
traded, the fund may price those securities at fair value. 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 that uses 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 qualified plan before the New York Stock Exchange closes.
If the Exchange closes early, you must place your order with your qualified plan
prior to the actual closing time. Otherwise, you will receive the next business
day's price.
Your qualified plan must transmit all orders to buy, exchange or redeem shares
to the fund's agent before the agent's close of business.
Smith Barney Mutual Funds 11
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
performance of each class since inception. Certain information reflects
financial results for a single share. Total return represents the rate that a
shareholder would have earned (or lost) on a fund share assuming reinvestment of
all dividends and distributions. The information in the following table was
audited by KPMG LLP, independent auditors, whose report, along with the fund's
financial statements, is included in the annual report (available upon request).
FOR A CLASS Z SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR ENDED DECEMBER 31:
<TABLE>
<CAPTION>
1999(1)(2)
<S> <C>
- ----------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $9.97
- ----------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income 0.52
Net realized and unrealized
gain (loss) (0.97)
- ----------------------------------------------------------------
Total income (loss) from Operations (0.45)
- ----------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.53)
Capital (0.00)*
- ----------------------------------------------------------------
Total distributions (0.53)
- ----------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $8.99
- ----------------------------------------------------------------
TOTAL RETURN (4.61)%++
- ----------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S) $63,009
- ----------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Other expenses 0.63%+
Interest expense 0.01+
Net investment income 5.53+
- ----------------------------------------------------------------
Portfolio Turnover Rate 161%
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(1) For the period from January 4, 1999 (inception date) to
December 31, 1999.
(2) Per share amounts have been calculated using the monthly
average shares method.
* Amount represents less than $0.01 per share.
(+) Total return is not annualized, as it may not be
representative of the total return for the year.
(++) Annualized.
</TABLE>
12 Government Securities Fund
<PAGE>
[SALOMON SMITH BARNEY LOGO]
GOVERNMENT
SECURITIES FUND
- -- AN INVESTMENT PORTFOLIO OF
SMITH BARNEY INVESTMENT FUNDS INC.
SHAREHOLDER REPORTS. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your qualified plan 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
reference into (is legally a 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
qualified plan, by calling the fund at 1-800-451-2010, or by writing to the fund
at Smith Barney Mutual Funds, 388 Greenwich Street, MF2, New York, New York
10013.
Visit our web site. Our web site is located at WWW.SMITHBARNEY.COM
Information about the fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's (the "Commission") Public Reference Room in
Washington, D.C. In addition, information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Database
on the Commission's Internet site at HTTP://WWW.SEC.GOV. Copies of this
information may be obtained for a 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
lawfully sell its shares.
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act
file no. 811-03275)
FD0234 4/00
<PAGE>
[SMITH BARNEY MUTUAL FUNDS LOGO]
PROSPECTUS
INVESTMENT
GRADE
BOND
FUND
CLASS A, B, L AND Y SHARES
- ---------------------------------------
APRIL 28, 2000
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
<PAGE>
(This page intentionally left blank)
<PAGE>
INVESTMENT GRADE BOND FUND
CONTENTS
<TABLE>
<S> <C>
Investments, risks and performance......................... 2
More on the fund's investments............................. 8
Management................................................. 9
Choosing a class of shares to buy.......................... 10
Comparing the fund's classes............................... 11
Sales charges.............................................. 12
More about deferred sales charges.......................... 15
Buying shares.............................................. 16
Exchanging shares.......................................... 18
Redeeming shares........................................... 20
Other things to know about share transactions.............. 22
Salomon Smith Barney Retirement Programs................... 24
Dividends, distributions and taxes......................... 25
Share price................................................ 26
Financial highlights....................................... 27
</TABLE>
YOU SHOULD KNOW: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds 1
<PAGE>
INVESTMENTS, RISKS AND PERFORMANCE
INVESTMENT OBJECTIVE
The fund seeks as high a level of current income as is consistent with prudent
investment management and preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES
KEY INVESTMENTS The fund invests primarily in "investment grade" fixed income
securities. These are securities rated by a national ratings organization within
one of the top four categories, or, if unrated, judged by the manager to be of
comparable credit quality. The fund also may invest in U.S. government
securities and U.S. dollar denominated fixed income securities of foreign
issuers. The fund may invest in securities having any maturity.
SELECTION PROCESS The manager emphasizes individual bond selection while
diversifying the fund's investments across a range of issues, industries and
maturity dates. In selecting individual corporate bonds for investment, the
manager:
- - Uses fundamental credit analysis to estimate the relative value and
attractiveness of various companies and bond issues
- - Identifies undervalued corporate bond issues and avoids issues that may be
subject to credit downgrades
- - Determines sector and maturity weightings based on intermediate and long-term
assessments of the economic environment and interest rate outlook
The manager monitors the fund's portfolio and makes ongoing adjustments based on
the relative values or maturities of individual corporate bonds or changes in
the creditworthiness or overall investment merits of an issue.
2 Investment Grade Bond Fund
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
- - The issuer of a security owned by the fund defaults on its obligation to pay
principal and/or interest or has its credit rating downgraded
- - Interest rates increase, causing the prices of fixed income securities to
decline, thereby reducing the value of the fund's portfolio. The fund has
greater sensitivity to changes in interest rates than a fund investing in
securities with shorter maturities
- - The manager's judgment about interest rates or the attractiveness, value or
income potential of a particular security proves incorrect
WHO MAY WANT TO INVEST The fund may be an appropriate investment if you:
- - Are seeking a high level of current income consistent with investing in high
quality, long-term corporate bonds
- - Wish to diversify your investment portfolio by adding an investment in
corporate bonds
- - Are willing to accept the risks of investing in the corporate bond market,
including credit risk and interest rate risk
Smith Barney Mutual Funds 3
<PAGE>
RISK RETURN BAR CHART
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future. The bar chart
shows the performance of the fund's Class B shares for each of the past 10
years. Class A, L and Y shares have different performance because of their
different expenses. The performance information in the chart does not reflect
sales charges, which would reduce your return.
TOTAL RETURN FOR CLASS B SHARES
[RISK RETURN BAR CHART]
<TABLE>
<S> <C>
90 2.98%
91 22.5%
92 8.36%
93 18.06%
94 -9.41%
95 34.63%
96 -0.89%
97 16.44%
98 7.72%
99 -9.44%
</TABLE>
CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS (PAST 10 YEARS)
Highest: 12.34% in 2nd quarter 1995; Lowest: (7.56)% in 1st quarter 1996
4 Investment Grade Bond Fund
<PAGE>
RISK RETURN TABLE
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Lehman
Brothers Long Term Corporate Bond Index ("Lehman Index"), a broad-based
unmanaged index of investment grade corporate bonds and the Salomon Corporate
Index 10+ ("Salomon Index"), a broad-based unmanaged index of investment grade
corporate bonds with maturities of ten years or more. This table assumes
imposition of the maximum sales charge applicable to the class, redemption of
shares at the end of the period, and reinvestment of distributions and
dividends.
AVERAGE ANNUAL TOTAL RETURNS
CALENDAR YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
CLASS 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION INCEPTION DATE
<S> <C> <C> <C> <C> <C>
A (13.20)% 8.20% n/a 7.26% 11/6/92
B (13.30)% 8.53% 8.28% 10.61% 1/4/82
L (11.18)% 8.50% n/a 6.13% 2/26/93
Y (8.68)% n/a n/a 4.27% 2/7/96
Lehman Index (5.78)% 8.79% 8.68% 12.54% *
Salomon Index (5.78)% 8.78% 8.79% 12.57% *
</TABLE>
* Index Comparison begins on January 31, 1982.
Smith Barney Mutual Funds 5
<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) 4.50%* None 1.00% None
Maximum deferred sales charge
(load) (as a % of the lower
of net asset value at
purchase or redemption) None* 4.50% 1.00% None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
(EXPENSES DEDUCTED FROM FUND ASSETS) CLASS A CLASS B CLASS L CLASS Y
<S> <C> <C> <C> <C>
Management fee 0.65% 0.65% 0.65% 0.65%
Distribution and service (12b-1)
fees 0.25% 0.75% 0.70% None
Other expenses 0.13% 0.12% 0.11% 0.03%
----- ----- ----- -----
Total annual fund operating expenses 1.03% 1.52% 1.46% 0.68%
</TABLE>
* You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
6 Investment Grade Bond Fund
<PAGE>
EXAMPLE
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the period shown
- - Your investment has a 5% return each year
- - You reinvest all distributions and dividends without a sales charge
- - The fund's operating expenses remain the same
NUMBER OF YEARS YOU OWN YOUR SHARES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A (with or without redemption) $550 $763 $993 $1,653
Class B (redemption at end of period) $605 $780 $929 $1,681
Class B (no redemption) $155 $480 $829 $1,681
Class L (redemption at end of period) $347 $557 $889 $1,829
Class L (no redemption) $247 $557 $889 $1,829
Class Y (with or without redemption) $ 69 $218 $379 $ 847
</TABLE>
Smith Barney Mutual Funds 7
<PAGE>
MORE ON THE FUND'S INVESTMENTS
DERIVATIVE CONTRACTS The fund may, but need not, use derivative contracts, such
as interest rate futures and options on interest rate futures, for any of the
following purposes:
- - To hedge against the economic impact of adverse changes in the market value of
portfolio securities, because of changes in interest rates
- - As a substitute for buying or selling securities
A futures contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities.
Even a small investment in derivative contracts can have a big impact on a
fund's interest rate exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains when
interest rates are changing. The fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of default risk as issuers of fixed
income securities. Derivatives can also make a fund less liquid and harder to
value, especially in declining markets.
FOREIGN SECURITIES The fund may invest in U.S. dollar denominated securities of
foreign issuers. To the extent the fund invests in these securities, it carries
additional risks. The value of your investment may decline if the U.S. and/or
foreign fixed-income markets decline or an adverse event, such as an unfavorable
earnings report, depresses the value of a particular issuer's securities. Prices
of foreign securities may go down because of foreign government actions,
political instability or the more limited availability of accurate information
about foreign companies.
DEFENSIVE INVESTING The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
8 Investment Grade Bond Fund
<PAGE>
MANAGEMENT
MANAGER The fund's investment manager is SSB Citi Fund Management LLC
(successor to SSBC Fund Management Inc.), an affiliate of Salomon Smith Barney
Inc. The manager's address is 388 Greenwich Street, New York, New York 10013.
The manager selects the fund's investments and oversees its operations. The
manager and Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup
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.
James E. Conroy, investment officer of the manager and managing director of
Salomon Smith Barney, has been responsible for the day-to-day management of the
fund since November, 1998.
MANAGEMENT FEE For its services, the manager received a fee during the fund's
last fiscal year equal to 0.45% of the fund's average daily net assets. In
addition, the manager received a fee for its administrative services to the fund
equal to 0.20% of the fund's average daily net assets.
DISTRIBUTOR The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker-dealers sells fund shares to the public.
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.
TRANSFER AGENT AND SHAREHOLDER SERVICING AGENT Citi Fiduciary Trust Company
serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement with
the transfer agent, PFPC Global Fund Services serves as the fund's sub-transfer
agent (the "sub-transfer agent") to render certain shareholder record keeping
and accounting services and functions.
Smith Barney Mutual Funds 9
<PAGE>
CHOOSING A CLASS OF SHARES TO BUY
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
- - If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.
- - For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
- - Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class L
shares do not, Class B shares may be more attractive to long-term investors.
You may buy shares from:
- - A Salomon Smith Barney Financial Consultant
- - An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
- - The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
INVESTMENT MINIMUMS Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
CLASSES A, B, L CLASS Y ALL CLASSES
<S> <C> <C> <C>
General $1,000 $15 million $50
IRAs, Self Employed Retirement
Plans, Uniform Gift to Minor
Accounts $250 $15 million $50
Qualified Retirement Plans* $25 $15 million $25
Simple IRAs $1 n/a $ 1
Monthly Systematic Investment Plans $25 n/a $25
Quarterly Systematic Investment
Plans $50 n/a $50
</TABLE>
*Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k) plans
10 Investment Grade Bond Fund
<PAGE>
COMPARING THE FUND'S CLASSES
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They may receive different 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 sales - No initial - Initial sales - No initial or
charge sales charge charge is deferred sales
- You may - Deferred sales lower than charge
qualify for charge Class A - Must invest at
reduction or declines over - Deferred sales least $15
waiver of time charge for million
initial sales - Converts to only 1 year - Lower annual
charge Class A after - Does not expenses than
- Lower annual 8 years convert to the other
expenses than - Higher annual Class A classes
Class B and expenses than - Higher annual
Class L Class A expenses than
Class A
- ---------------------------------------------------------------------------------------------
INITIAL SALES CHARGE Up to 4.50%; None 1.00% None
reduced for
large
purchases and
waived for
certain
investors; no
charge for
purchases of
$500,000 or
more
- ---------------------------------------------------------------------------------------------
DEFERRED SALES CHARGE 1.00% on Up to 4.50% 1.00% if you None
purchases of charged when redeem within
$500,000 or you redeem 1 year of
more if you shares. The purchase
redeem within charge is
1 year of reduced over
purchase time and there
is no deferred
sales charge
after 6 years
- ---------------------------------------------------------------------------------------------
ANNUAL DISTRIBUTION 0.25% of average 0.75% of average 0.70% of average None
AND SERVICE FEES daily net daily net daily net
assets assets assets
- ---------------------------------------------------------------------------------------------
EXCHANGE PRIVILEGE* Class A shares Class B shares Class L shares Class Y shares
of most Smith of most Smith of most Smith of most Smith
Barney funds Barney funds. Barney funds Barney funds
</TABLE>
- ------------------------------------------------------------------------------
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
Smith Barney Mutual Funds 11
<PAGE>
SALES CHARGES
CLASS A SHARES
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund's distributions or dividends you reinvest in additional Class A shares.
<TABLE>
<CAPTION>
SALES CHARGE AS A % OF:
OFFERING NET AMOUNT
AMOUNT OF PURCHASE PRICE (%) INVESTED (%)
<S> <C> <C>
Less than $25,000 4.50 4.71
$25,000 but less than $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 2.50 2.56
$250,000 but less than $500,000 1.50 1.52
$500,000 or more 0.00 0.00
</TABLE>
INVESTMENTS OF $500,000 OR MORE You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
QUALIFYING FOR A REDUCED CLASS A SALES CHARGE There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Accumulation privilege -- lets you combine the current value of Class A shares
owned
- - by you, or
- - by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
12 Investment Grade Bond Fund
<PAGE>
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 members of the NASD
- - Clients of newly employed Salomon Smith Barney Financial Consultants, if
certain conditions are met
- - Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn about additional waivers of Class A initial sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the Statement of Additional Information ("SAI").
CLASS B SHARES
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of purchase,
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 4.5% 4% 3% 2% 1% 0%
</TABLE>
CLASS B CONVERSION After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
SHARES ISSUED: SHARES ISSUED:
SHARES ISSUED: ON REINVESTMENT OF UPON EXCHANGE FROM
AT INITIAL DIVIDENDS AND ANOTHER SMITH BARNEY
PURCHASE DISTRIBUTIONS FUND
<S> <C> <C>
Eight years after the In same proportion as On the date the
date of purchase the number of Class B shares originally
shares converting is acquired would have
to total Class B converted into Class
shares you own A shares
(excluding shares
issued as a dividend)
</TABLE>
Smith Barney Mutual Funds 13
<PAGE>
CLASS L SHARES
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund and/or other Smith
Barney mutual funds on June 12, 1998, you will not pay an initial sales charge
on Class L shares you buy before June 22, 2001.
CLASS Y SHARES
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
14 Investment Grade Bond Fund
<PAGE>
MORE ABOUT DEFERRED SALES CHARGES
The deferred sales charge is based on the net asset value at the time of
purchase 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 Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
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 Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
Smith Barney Mutual Funds 15
<PAGE>
BUYING SHARES
<TABLE>
<C> <S>
Through a You should contact your Salomon Smith Barney
Salomon Smith Financial Consultant or dealer representative
Barney Financial to open a brokerage account and make
Consultant arrangements to buy shares.
or dealer
representative If you do not provide the following
information, your order will be rejected
- Class of shares being bought
- Dollar amount or number of shares being
bought
You should pay for your shares through your
brokerage account no later than the third
business day after you place your order.
Salomon Smith Barney or your dealer
representative may charge an annual account
maintenance fee.
- --------------------------------------------------------------------
Through the Qualified retirement plans and certain other
fund's sub-transfer investors who are clients of a selling group
agent member are eligible to buy shares directly
from the fund.
- Write the sub-transfer agent at the
following address:
SMITH BARNEY INVESTMENT FUNDS INC.
SMITH BARNEY INVESTMENT GRADE BOND FUND
(SPECIFY CLASS OF SHARES)
C/O PFPC GLOBAL FUND SERVICES
P.O. BOX 9699
PROVIDENCE, RI 02940-9699
- Enclose a check made payable to the fund to
pay for the shares. For initial purchases,
complete and send an account application.
- For more information, call the transfer
agent at 1-800-451-2010.
</TABLE>
16 Investment Grade Bond Fund
<PAGE>
<TABLE>
<C> <S>
Through a systematic You may authorize Salomon Smith Barney, your
investment plan dealer representative or the sub-transfer
agent to transfer funds automatically from a
regular bank account, cash held in a Salomon
Smith Barney brokerage account or Smith
Barney money market fund to buy shares on a
regular basis.
- Amounts transferred should be at least: $25
monthly or $50 quarterly.
- If you do not have sufficient funds in your
account on a transfer date, Salomon Smith
Barney, your dealer representative or the
sub-transfer agent may charge you a fee.
For more information, contact your Salomon
Smith Barney Financial Consultant, dealer
representative or the transfer agent or
consult the SAI.
</TABLE>
Smith Barney Mutual Funds 17
<PAGE>
EXCHANGING SHARES
<TABLE>
<C> <S>
Smith Barney offers You should contact your Salomon Smith Barney
a distinctive Financial Consultant or dealer representative
family of funds to exchange into other Smith Barney funds. Be
tailored to help sure to read the prospectus of the Smith
meet the varying Barney fund you are exchanging into. An
needs of both exchange is a taxable transaction.
large and small
investors - You may exchange shares only for shares of
the same class of another Smith Barney fund.
Not all Smith Barney funds offer all
classes.
- Not all Smith Barney funds may be offered
in your state of residence. Contact your
Salomon Smith Barney Financial Consultant,
dealer representative or the transfer
agent.
- You must meet the minimum investment amount
for each fund (except for systematic
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
additional sales sales charge at the time of the exchange.
charges
Your deferred sales charge (if any) will
continue to be measured 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.
</TABLE>
18 Investment Grade Bond Fund
<PAGE>
<TABLE>
<C> <S>
By telephone If you do not have a brokerage account, you
may be eligible to exchange shares through
the transfer agent. 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 transfer
agent at 1-800-451-2010 between 9:00 a.m. and
4:00 p.m. (Eastern time).
You can make telephone exchanges only between
accounts that have identical registrations.
- --------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney
brokerage account, contact your dealer
representative or write to the sub-transfer
agent at the address on the following page.
</TABLE>
Smith Barney Mutual Funds 19
<PAGE>
REDEEMING SHARES
<TABLE>
<C> <S>
Generally Contact your Salomon Smith Barney Financial
Consultant or dealer representative to redeem
shares of the fund.
If you hold share certificates, the
sub-transfer agent must receive the
certificates endorsed for transfer or with
signed stock powers before the redemption is
effective.
If the shares are held by a fiduciary or
corporation, other documents may be required.
Your redemption proceeds will be sent within
three business days after your request is
received in good order. However, if you
recently purchased your shares by check, your
redemption proceeds will not be sent to you
until your original check clears, which may
take up to 15 days.
If you have a Salomon Smith Barney brokerage
account, your redemption proceeds will be
placed in your account and not reinvested
without your specific instruction. In other
cases, unless you direct otherwise, your
redemption proceeds will be paid by check
mailed to your address of record.
- --------------------------------------------------------------------
By mail For accounts held directly at the fund, send
written requests to the sub-transfer agent at
the following address:
SMITH BARNEY INVESTMENT FUNDS INC.
SMITH BARNEY INVESTMENT GRADE BOND 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:
- Your account number
- The class of shares and the dollar amount
or number of shares to be redeemed
- Signatures of each owner exactly as the
account is registered
</TABLE>
20 Investment Grade Bond Fund
<PAGE>
<TABLE>
<C> <S>
By telephone If you do not have a brokerage account, you
may be eligible to redeem shares (except
those held in retirement plans) in amounts up
to $10,000 per day through the transfer
agent. You must complete an authorization
form to authorize telephone redemptions. If
eligible, you may request redemptions by
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).
Your redemption proceeds can be sent by check
to your address of record or by wire transfer
to a bank account designated on your
authorization form. You must submit a new
authorization form to change the bank account
designated to receive wire transfers and you
may be asked to provide certain other
documents.
- --------------------------------------------------------------------
Automatic cash You can arrange for the automatic redemption
withdrawal plans of a portion of your shares on a monthly or
quarterly basis. To qualify you must own
shares of the fund with a value of at least
$10,000 ($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 Salomon
Smith Barney Financial Consultant or dealer
representative or consult the SAI.
</TABLE>
Smith Barney Mutual Funds 21
<PAGE>
OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
- - Name of the fund
- - Account number
- - Class of shares being bought, exchanged or redeemed
- - Dollar amount or number of shares being bought, exchanged or redeemed
- - Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
SIGNATURE GUARANTEES To be in good order, your redemption request must include
a signature guarantee if you:
- - Are redeeming over $10,000 of shares
- - Are sending signed share certificates or stock powers to the sub-transfer
agent
- - Instruct the sub-transfer agent to mail the check to an address different from
the one on your account
- - Changed your account registration
- - Want the check paid to someone other than the account owner(s)
- - Are transferring the redemption proceeds to an account with a different
registration
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
22 Investment Grade Bond Fund
<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 Securities
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 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
EXCESSIVE EXCHANGE TRANSACTIONS The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.
SHARE CERTIFICATES The fund does not issue share certificates unless a written
request signed by all registered owners is made to the sub-transfer agent. If
you hold share certificates it will take longer to exchange or redeem shares.
Smith Barney Mutual Funds 23
<PAGE>
SALOMON SMITH BARNEY RETIREMENT PROGRAMS
You may be eligible to participate in a retirement program sponsored by Salomon
Smith Barney or one of its affiliates. The fund offers Class A and Class L
shares at net asset value to participating plans under the programs. You can
meet minimum investment and exchange amounts, if any, by combining the plan's
investments in any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment and/or the
date your account is opened. Once a class of shares is chosen, all additional
purchases must be of the same class.
- - For plans opened on or after March 1, 2000 that are not plans for which
Paychex Inc. or an affiliate provides administrative services, (a "Paychex
plan"),
Class A shares may be purchased regardless of the amount invested.
- - For plans opened prior to March 1, 2000 and for Paychex plans,
the class of shares you may purchase depends on the amount
of your initial investment:
- Class A shares may be purchased by plans investing at least $1 million.
- Class L shares may be purchased by plans investing less than $1 million.
Class L shares are eligible to exchange into Class A shares not later
than 8 years after the plan joined the program. They are eligible for
exchange in the following circumstances:
If the plan was opened on or after June 21, 1996 and a total of $1 million is
invested in Smith Barney Funds Class L shares (other than money market funds),
all Class L shares are eligible for exchange after the plan is in the program 5
years.
If the plan was opened before June 21, 1996 and a total of $500,000 is invested
in Smith Barney Funds Class L shares (other than money market funds) on December
31 in any year, all Class L shares are eligible for exchange on or about March
31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.
24 Investment Grade Bond Fund
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS The fund generally pays dividends from net investment income
periodically and makes capital gain distributions, if any, once a year,
typically in December. The fund may pay additional distributions and dividends
at other times if necessary for the fund to avoid a federal tax. Capital gain
distributions and dividends are reinvested in additional fund shares of the same
class that you hold. The fund expects distributions to be primarily from income.
You do not pay a sales charge on reinvested distributions or dividends.
Alternatively, you can instruct your Salomon Smith Barney Financial Consultant,
dealer representative or the transfer agent to have your distributions and/or
dividends paid in cash. You can change your choice at any time to be effective
as of the next distribution or dividend, except that any change given to the
transfer agent less than five days before the payment date will not be effective
until the next distribution or dividend is paid.
TAXES In general, redeeming shares, exchanging shares and receiving
distributions (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 Long-term capital gain
distributions
Short-term capital gain Ordinary income
distributions
Ordinary income
Dividends
</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
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 during
the previous year. If you do not provide the fund with your correct taxpayer
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.
Smith Barney Mutual Funds 25
<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
liabilities. 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
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. The fund's currency conversions are done when the London Stock
Exchange closes. When reliable market prices or quotations are not readily
available, or when the value of a security has been materially affected by
events occurring after a foreign exchange closes, the fund may price those
securities at fair value. 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.
International markets may be open on days when U.S. markets are closed and the
value of foreign securities owned by the fund could change on days when you can
not buy or redeem shares.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative 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.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
26 Investment Grade Bond Fund
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects
financial results for a single share. Total return represents the rate that a
shareholder would have earned (or lost) on a fund share assuming reinvestment of
all dividends and distributions. The information in the following tables was
audited by KPMG LLP, independent auditors, whose report, along with the fund's
financial statements, is included in the annual report (available upon request).
FOR A CLASS A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR ENDED DECEMBER 31:
<TABLE>
<CAPTION>
1999(1) 1998(1) 1997 1996 1995(1)
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Net asset value, beginning
of year $13.12 $13.19 $12.27 $13.25 $10.67
- --------------------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income 0.72 0.77 0.80 0.80 0.83
Net realized and
unrealized
gain (loss) (1.88) 0.29 1.20 (0.90) 2.80
- --------------------------------------------------------------------------------------------
Total income (loss) from
operations (1.16) 1.06 2.00 (0.10) 3.63
- --------------------------------------------------------------------------------------------
Less distribution from:
Net investment income (0.73) (0.76) (0.80) (0.76) (0.89)
Net realized gains -- (0.37) (0.28) (0.12) (0.16)
Capital (0.01) -- -- -- --
- --------------------------------------------------------------------------------------------
Total distributions (0.74) (1.13) (1.08) (0.88) (1.05)
- --------------------------------------------------------------------------------------------
Net asset value, end of
year $11.22 $13.12 $13.19 $12.27 $13.25
- --------------------------------------------------------------------------------------------
Total return (9.09)% 8.30% 17.10% (0.47)% 35.29%
- --------------------------------------------------------------------------------------------
Net assets, end of year
(millions) $211 $253 $222 $206 $226
- --------------------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses 1.03% 1.04% 1.02% 1.04% 1.11%
Net investment income 5.94 5.73 6.43 6.63 7.02
- --------------------------------------------------------------------------------------------
Portfolio turnover rate 147% 32% 39% 48% 49%
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(1) Per share amounts have been calculated using the monthly
average shares method.
</TABLE>
Smith Barney Mutual Funds 27
<PAGE>
FOR A CLASS B SHARE OF CAPITAL STOCK
OUTSTANDING THROUGHOUT EACH YEAR ENDED DECEMBER 31:
<TABLE>
<CAPTION>
1999(1) 1998(1) 1997 1996 1995(1)
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------
Net asset value, beginning of
year $13.09 $13.19 $12.29 $13.25 $10.67
- ----------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.66 0.70 0.75 0.74 0.77
Net realized and unrealized
gain (loss) (1.87) 0.29 1.18 (0.90) 2.80
- ----------------------------------------------------------------------------------
Total income (loss) from
operations (1.21) 0.99 1.93 (0.16) 3.57
- ----------------------------------------------------------------------------------
Less distribution from:
Net investment income (0.66) (0.72) (0.75) (0.68) (0.83)
Net realized gains -- (0.37) (0.28) (0.12) (0.16)
Capital (0.01) -- -- -- --
- ----------------------------------------------------------------------------------
Total distributions (0.67) (1.09) (1.03) (0.80) (0.99)
- ----------------------------------------------------------------------------------
Net asset value, end of year $11.21 $13.09 $13.19 $12.29 $13.25
- ----------------------------------------------------------------------------------
Total return (9.44)% 7.72% 16.44% (0.89)% 34.63%
- ----------------------------------------------------------------------------------
Net assets, end of year
(millions) $192 $260 $249 $258 $289
- ----------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.52% 1.53% 1.51% 1.54% 1.61%
Net investment income 5.44 5.23 5.95 6.13 6.51
- ----------------------------------------------------------------------------------
Portfolio turnover rate 147% 32% 39% 48% 49%
- ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(1) Per share amounts have been calculated using the monthly
average shares method.
</TABLE>
28 Investment Grade Bond Fund
<PAGE>
FOR A CLASS L(1) SHARE OF CAPITAL STOCK
OUTSTANDING THROUGHOUT EACH YEAR ENDED DECEMBER 31:
<TABLE>
<CAPTION>
1999(2) 1998(2) 1997 1996 1995(2)
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Net asset value, beginning of
year $13.07 $13.18 $12.30 $13.26 $10.67
- --------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.67 0.70 0.72 0.75 0.78
Net realized and unrealized
gain (loss) (1.88) 0.30 1.21 (0.90) 2.80
- --------------------------------------------------------------------------------
Total income (loss) from
operations (1.21) 1.00 1.93 (0.15) 3.58
- --------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.66) (0.74) (0.77) (0.69) (0.83)
Net realized gains -- (0.37) (0.28) (0.12) (0.16)
Capital (0.01) -- -- -- --
- --------------------------------------------------------------------------------
Total distributions (0.67) (1.11) (1.05) (0.81) (0.99)
- --------------------------------------------------------------------------------
Net asset value, end of year $11.19 $13.07 $13.18 $12.30 $13.26
- --------------------------------------------------------------------------------
Total return (9.44)% 7.83% 16.41% (0.83)% 34.74%
- --------------------------------------------------------------------------------
Net assets, end of year (000)'s $18,830 $18,671 $10,182 $6,724 $3,769
- --------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.46% 1.54% 1.49% 1.42% 1.56%
Net investment income 5.52 5.22 5.93 6.28 6.55
- --------------------------------------------------------------------------------
Portfolio turnover rate 147% 32% 39% 48% 49%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(1) On June 12, 1998, Class C shares were renamed Class L
shares.
(2) Per share amounts have been calculated using the monthly
average shares method.
</TABLE>
Smith Barney Mutual Funds 29
<PAGE>
FOR A CLASS Y SHARE OF CAPITAL STOCK
OUTSTANDING THROUGHOUT EACH YEAR ENDED DECEMBER 31:
<TABLE>
<CAPTION>
1999(1) 1998(1) 1997 1996(2)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
Net asset value, beginning of year $13.11 $13.19 $12.28 $13.03
- ------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.76 0.82 0.83 0.75
Net realized and unrealized
gain (loss) (1.87) 0.29 1.21 (0.66)
- ------------------------------------------------------------------------------
Total income from operations (1.11) 1.11 2.04 0.09
- ------------------------------------------------------------------------------
Less distribution from:
Net investment income (0.77) (0.82) (0.85) (0.72)
Net realized gains -- (0.37) (0.28) (0.12)
Capital (0.01) -- -- --
- ------------------------------------------------------------------------------
Total distributions (0.78) (1.19) (1.13) (0.84)
- ------------------------------------------------------------------------------
Net asset value, end of year $11.22 $13.11 $13.19 $12.28
- ------------------------------------------------------------------------------
Total return (8.68)% 8.66% 17.44% 1.01%(3)
- ------------------------------------------------------------------------------
Net assets, end of year (000)'s $108,657 $95,708 $69,328 $18,174
- ------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.68% 0.70% 0.69% 0.72(4)
Net investment income 6.31 6.07 6.63 7.34(4)
- ------------------------------------------------------------------------------
Portfolio turnover rate 147% 32% 39% 48%
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(1) Per share amounts have been calculated using the monthly
average shares method.
(2) For the period from February 7, 1996 (inception date) to
December 31, 1996.
(3) Not Annualized.
(4) Annualized.
</TABLE>
30 Investment Grade Bond Fund
<PAGE>
[SALOMON SMITH BARNEY LOGO]
INVESTMENT GRADE
BOND FUND
- -- AN INVESTMENT PORTFOLIO OF
SMITH BARNEY INVESTMENT FUNDS INC.
SHAREHOLDER REPORTS Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
STATEMENT OF ADDITIONAL INFORMATION The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at WWW.SMITHBARNEY.COM
Information about the fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's (the "Commission") Public Reference Room in
Washington, D.C. In addition, information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Database
on the Commission's Internet site at HTTP://WWW.SEC.GOV. Copies of this
information may be obtained for a 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
lawfully sell its shares.
(SM)Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act
file no. 811-03275)
FD0233 4/00
<PAGE>
(This page intentionally left blank)
<PAGE>
INVESTMENT GRADE BOND FUND
CONTENTS
<TABLE>
<S> <C>
Investments risks and performance.......................... 2
More on the fund's investments............................. 8
Management................................................. 9
Choosing a class of shares to buy.......................... 10
Comparing the fund's classes............................... 11
Sales charges.............................................. 12
More about deferred sales charges.......................... 15
Buying shares.............................................. 16
Exchanging shares.......................................... 17
Redeeming shares........................................... 18
Other things to know about share transactions.............. 21
Dividends, distributions and taxes......................... 23
Share price................................................ 24
Financial highlights....................................... 25
</TABLE>
YOU SHOULD KNOW: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds 1
<PAGE>
INVESTMENTS, RISKS AND PERFORMANCE
INVESTMENT OBJECTIVE
The fund seeks as high a level of current income as is consistent with prudent
investment management and preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES
KEY INVESTMENTS The fund invests primarily in "investment grade" fixed income
securities. These are securities rated by a national ratings organization within
one of the top four categories, or, if unrated, judged by the manager to be of
comparable credit quality. The fund also may invest in U.S. government
securities and U.S. dollar denominated fixed income securities of foreign
issuers. The fund may invest in securities having any maturity.
SELECTION PROCESS The manager emphasizes individual bond selection while
diversifying the fund's investments across a range of issues, industries and
maturity dates. In selecting individual corporate bonds for investment, the
manager:
- - Uses fundamental credit analysis to estimate the relative value and
attractiveness of various companies and bond issues
- - Identifies undervalued corporate bond issues and avoids issues that may be
subject to credit downgrades
- - Determines sector and maturity weightings based on intermediate and long-term
assessments of the economic environment and interest rate outlook
The manager monitors the fund's portfolio and makes ongoing adjustments based on
the relative values or maturities of individual corporate bonds or changes in
the creditworthiness or overall investment merits of an issue.
2 Investment Grade Bond Fund
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
- - The issuer of a security owned by the fund defaults on its obligation to pay
principal and/or interest or has its credit rating downgraded
- - Interest rates increase, causing the prices of fixed income securities to
decline, thereby reducing the value of the fund's portfolio.
- - The fund has greater sensitivity to changes in interest rates than a fund
investing in securities with shorter maturities
- - The manager's judgment about interest rates or the attractiveness, value or
income potential of a particular security proves incorrect
WHO MAY WANT TO INVEST The fund may be an appropriate investment if you:
- - Are seeking a high level of current income consistent with investing in high
quality, long-term corporate bonds
- - Wish to diversify your investment portfolio by adding an investment in
corporate bonds
- - Are willing to accept the risks of investing in the corporate bond market,
including credit risk and interest rate risk
Smith Barney Mutual Funds 3
<PAGE>
RISK RETURN BAR CHART
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future. The bar chart
shows the performance of the fund's Class B shares for each of the past 10
years. Class A shares have different performance because of
different expenses. The performance information in the chart does not reflect
sales charges, which would reduce your return.
TOTAL RETURN FOR CLASS B SHARES
[Risk bar chart]
<TABLE>
<S> <C>
90 2.98%
91 22.50%
92 8.36%
93 18.06%
94 -9.41%
95 34.63%
96 -0.89%
97 16.44%
98 7.72%
99 -9.44%
</TABLE>
CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS (PAST 10 YEARS):
Highest: 12.34% in 2nd quarter 1995; Lowest: (7.56)% in 1st quarter 1996;
4 Investment Grade Bond Fund
<PAGE>
RISK RETURN TABLE
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Lehman
Brothers Long Term Corporate Bond Index ("Lehman Index"), a broad-based
unmanaged index of investment grade corporate bonds and the Salomon Corporate
Index 10+ ("Salomon Index"), a broad-based unmanaged index of investment grade
corporate bonds with maturities of ten years or more. This table assumes
imposition of the maximum sales charge applicable to the class, redemption of
shares at the end of the period, and reinvestment of distributions and
dividends.
AVERAGE ANNUAL TOTAL RETURNS
CALENDAR YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
CLASS 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION INCEPTION DATE
<S> <C> <C> <C> <C> <C>
A (13.20)% 8.20% n/a 7.26% 11/6/92
B (13.30)% 8.53% 8.28% 10.61% 1/4/82
Lehman Index (5.78)% 8.79% 8.68% 12.54% *
Salomon Index (5.78)% 8.78% 8.79% 12.57% *
*Index comparison begins on January 31, 1982.
</TABLE>
Smith Barney Mutual Funds 5
<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
<S> <C> <C>
Maximum sales charge (load) imposed on purchases
(as a % of offering price) 4.50%* None
Maximum deferred sales charge (load) (as a % of
the lower of net asset value at purchase or
redemption) None* 4.50%
</TABLE>
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
(EXPENSES DEDUCTED FROM FUND ASSETS) CLASS A CLASS B
<S> <C> <C>
Management fee 0.65% 0.65%
Distribution and service (12b-1) fees 0.25% 0.75%
Other expenses 0.13% 0.12%
Total annual fund operating expenses 1.03% 1.52%
===== =====
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
6 Investment Grade Bond Fund
<PAGE>
EXAMPLE
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the period shown
- - Your investment has a 5% return each year
- - You reinvest all distributions and dividends without a sales charge
- - The fund's operating expenses remain the same
NUMBER OF YEARS YOU OWN YOUR SHARES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A(with or without redemption) $550 $763 $943 $1,653
Class B (redemption at end of period) $605 $780 $929 $1,681
Class B (no redemption) $155 $480 $829 $1,681
</TABLE>
Smith Barney Mutual Funds 7
<PAGE>
MORE ON THE FUND'S INVESTMENTS
DERIVATIVE CONTRACTS The fund may, but need not, use derivative contracts, such
as interest rate futures and options on interest rate futures, for any of the
following purposes:
- - To hedge against the economic impact of adverse changes in the market value of
portfolio securities, because of changes in interest rates
- - As a substitute for buying or selling securities
A futures contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities.
Even a small investment in derivative contracts can have a big impact on a
fund's interest rate exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains when
interest rates are changing. The fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of default risk as issuers of fixed
income securities. Derivatives can also make a fund less liquid and harder to
value, especially in declining markets.
FOREIGN SECURITIES The fund may invest in U.S. dollar denominated securities of
foreign issuers. To the extent the fund invests in these securities, it carries
additional risks. The value of your investment may decline if the U.S. and/or
foreign fixed-income markets decline or an adverse event, such as an unfavorable
earnings report, depresses the value of a particular issuer's securities. Prices
of foreign securities may go down because of foreign government actions,
political instability or the more limited availability of accurate information
about foreign companies.
DEFENSIVE INVESTING The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
8 Investment Grade Bond Fund
<PAGE>
MANAGEMENT
MANAGER The fund's investment manager is SSB Citi Fund Management LLC
(successor to SSBC Fund Management Inc.), an affiliate of Salomon Smith Barney
Inc. The manager's address is 388 Greenwich Street, New York, New York 10013.
The manager selects the fund's investments and oversees its operations. The
manager and Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup
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.
James E. Conroy, investment officer of the manager and managing director of
Salomon Smith Barney, has been responsible for the day to day management of the
fund since November, 1998.
MANAGEMENT FEE For its services, the manager received a fee during the fund's
last fiscal year equal to 0.45% of the fund's average daily net assets. In
addition, the manager received a fee for its administrative services to the fund
equal to 0.20% of the fund's average daily net assets.
DISTRIBUTOR The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. Through a selling agreement, PFS Investments Inc.
sells fund shares to the public.
DISTRIBUTION PLAN The fund has adopted a Rule 12b-1 distribution plan for its
Class A and B 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.
Smith Barney Mutual Funds 9
<PAGE>
CHOOSING A CLASS OF SHARES TO BUY
You can choose between two classes of shares: Classes A and B. 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 will be immediately invested.
This may help offset the higher expenses of Class B shares, but only if the
fund performs well.
Initial purchases of shares must be made through a PFS Investments Registered
Representative.
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 AND B BOTH CLASSES
<S> <C> <C>
General $1,000 $50
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $250 $50
Qualified Retirement Plans* $25 $25
Systematic Investment Plans $25 $25
</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
10 Investment Grade Bond Fund
<PAGE>
COMPARING THE FUND'S CLASSES
Your PFS Investments Registered Representative can help you decide which class
meets your goals. They may receive different compensation depending upon which
class you choose.
<TABLE>
<CAPTION>
CLASS A CLASS B
<S> <C> <C>
KEY FEATURES - Initial sales charge - No initial sales
- You may qualify for charge
reduction or waiver - Deferred sales
of initial sales charge declines over
charge time
- Lower annual - Converts to Class A
expenses than Class after 8 years
B - Higher annual
expenses than Class
A
- ----------------------------------------------------------------------
INITIAL SALES CHARGE Up to 4.50%; reduced None
for large purchases
and waived for
certain investors;
no charge for
purchases of
$500,000 or more
- ----------------------------------------------------------------------
DEFERRED SALES CHARGE 1.00% on purchases of Up to 4.50% charged
$500,000 or more if when you redeem
you redeem within 1 shares. The charge
year of purchase is reduced over time
and there is no
deferred sales
charge after 6 years
- ----------------------------------------------------------------------
ANNUAL DISTRIBUTION 0.25% of average daily 0.75% of average daily
AND SERVICE FEES net assets net assets
- ----------------------------------------------------------------------
EXCHANGE PRIVILEGE* Class A shares of Class B shares of
certain Smith Barney certain Smith Barney
funds funds.
</TABLE>
- ------------------------------------------------------------------------------
*Ask your PFS Investments Registered Representative for the funds available for
exchange.
Smith Barney Mutual Funds 11
<PAGE>
SALES CHARGES
CLASS A SHARES
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund's distributions or dividends you reinvest in additional Class A shares.
<TABLE>
<CAPTION>
SALES CHARGE AS A % OF:
OFFERING NET AMOUNT
AMOUNT OF PURCHASE PRICE (%) INVESTED (%)
<S> <C> <C>
Less than $25,000 4.50 4.71
$25,000 but less than $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 2.50 2.56
$250,000 but less than $500,000 1.50 1.52
$500,000 or more 0.00 0.00
</TABLE>
INVESTMENTS OF $500,000 OR MORE You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
QUALIFYING FOR A REDUCED CLASS A SALES CHARGE There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Accumulation privilege -- lets you combine the current value of Class A shares
owned
- - by you, or
- - by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
12 Investment Grade Bond Fund
<PAGE>
Letter of intent -- lets you purchase Class A shares of the fund and certain
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 members of the NASD
- - Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if your PFS Investments Registered Representative is notified
- - Participants in the Primerica Corporation Savings and Retirement Plan
- - Investors who purchase through a PFS Investments Registered Representative
with proceeds from a prior mutual fund redemption, if certain conditions are
met
If you want to learn about additional waivers of Class A initial sales charges,
contact your PFS Investments Registered Representative or consult the Statement
of Additional Information ("SAI").
Smith Barney Mutual Funds 13
<PAGE>
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 purchase,
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 4.5% 4% 3% 2% 1% 0%
</TABLE>
CLASS B CONVERSION After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
SHARES ISSUED: SHARES ISSUED:
SHARES ISSUED: ON REINVESTMENT OF UPON EXCHANGE FROM
AT INITIAL DIVIDENDS AND ANOTHER SMITH BARNEY
PURCHASE DISTRIBUTIONS FUND
<S> <C> <C>
Eight years after the In same proportion as On the date the shares
date of purchase the number of Class B originally acquired
shares converting is would have converted
to total Class B into Class A shares
shares you own
(excluding shares
issued as a dividend)
</TABLE>
14 Investment Grade Bond Fund
<PAGE>
MORE ABOUT DEFERRED SALES CHARGES
The deferred sales charge is based on the net asset value at the time of
purchase 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 PFS Investments Registered Representative.
PFS Distributors Inc., an affiliate of PFS Investments Inc., receives deferred
sales charges as partial compensation for its expenses in connection with the
sale of shares, including the payment of compensation to your PFS Investments
Registered Representative.
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 PFS Investments Registered Representative or consult the SAI.
Smith Barney Mutual Funds 15
<PAGE>
BUYING SHARES
<TABLE>
<S> <C>
Buying shares - Initial purchases of shares of each fund
by mail must be made through a PFS Investments
Registered Representative by completing the
appropriate application. The completed
application should be forwarded to the
Fund's sub-transfer agent, PFS Shareholder
Services.
- Subsequent investments may be sent by mail
directly to PFS Shareholder Services.
- The address and telephone number of PFS
Shareholder Services is: 3100 Breckinridge
Blvd., Bldg. 200, Duluth, Georgia
30099-0062; (800) 544-5445.
- You may also reach PFS Shareholder Services
by calling (800) 544-7278 for Spanish
speaking representatives or (800) 824-1721
for the TDD Line for the hearing impaired.
- Checks drawn on foreign banks must be
payable in U.S. dollars and have the routing
number of the U.S. bank encoded on the
check.
- --------------------------------------------------------------------
Buying shares Initial purchases of shares for $10,000 may
by wire be made by wire order from your bank account.
Contact PFS Shareholder Services for details.
In addition, once an account is open, you may
make additional wire orders through your PFS
Investments Registered Representative.
- --------------------------------------------------------------------
Through a You may authorize PFS Shareholder Services to
systematic transfer funds automatically from a regular
investment plan bank account, or other financial institution
to buy shares of a fund.
- Amounts transferred should be at least $25
monthly.
- If you do not have sufficient funds in your
account on a transfer date, PFS Shareholder
Services may charge you a fee.
For more information, contact your PFS
Investments Registered Representative or
consult the SAI.
</TABLE>
16 Investment Grade Bond Fund
<PAGE>
EXCHANGING SHARES
<TABLE>
<S> <C>
Smith Barney offers You should contact your PFS Investments
a distinctive Registered Representative to exchange into
family of funds other eligible Smith Barney funds. Be sure to
tailored to help read the prospectus of the Smith Barney fund
meet the varying you are exchanging into. An exchange is a
needs of both taxable transaction.
large and small
investors - You may exchange shares only for shares of
the same class of certain Smith Barney funds.
Not all Smith Barney funds offer all
classes.
- Not all Smith Barney funds may be offered
in your state of residence. Contact your PFS
Investments Registered Representative.
- You must meet the minimum investment amount
for each fund (except for systematic
exchanges).
- If you hold share certificates, PFS
Shareholder Services 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
additional sales sales charge at the time of the exchange.
charges
Your deferred sales charge (if any) will
continue to be measured from the date of your
original purchase. If the fund you exchange
into has a higher deferred sales charge, you
will be subject to that charge. If you
exchange at any time into a fund with a lower
charge, the sales charge will not be reduced.
- --------------------------------------------------------------------
By telephone You may exchange shares by telephone up to a
maximum of $500,000 if you elect telephone
transactions on your account application.
To learn more about the exchange privilege
and Smith Barney mutual funds you may be
eligible to exchange into, contact your PFS
Investments Registered Representative or
consult the SAI.
</TABLE>
Smith Barney Mutual Funds 17
<PAGE>
REDEEMING SHARES
<TABLE>
<S> <C>
Redemptions Generally, a properly completed Redemption
by mail Form with any required signature guarantee is
all that is required for a redemption. In
some cases, however, other documents may be
necessary.
You may redeem some or all of your shares by
sending a Redemption Form or other written
request in proper form to PFS Shareholder
Services, 3100 Breckinridge Blvd., Bldg. 200,
Duluth, Georgia 30099-0062. You may also
reach PFS Shareholder Services by calling
(800) 544-5445 or (800) 544-7278 for Spanish
speaking representatives or (800) 824-1721
for the TDD Line for the hearing impaired.
The written request for redemption must be in
good order. This means that you have provided
the following information. Your request will
not be processed without this information.
- Name of the fund
- Account number
- Dollar amount or number of shares to redeem
- Signature of each owner exactly as account
is registered
- Other documentation required by PFS
Shareholder Services
To be in good order, your request must
include a signature guarantee if:
- The proceeds of the redemption exceed
$50,000
- The proceeds are not paid to the record
owner(s) at the record address
- The shareholder(s) has had an address
change in the past 45 days
- The shareholder(s) is a corporation, sole
proprietor, partnership, trust or fiduciary
You can obtain a signature guarantee from
most banks, dealers, brokers, credit unions
and federal savings and loans, but not from a
notary public.
</TABLE>
18 Investment Grade Bond Fund
<PAGE>
<TABLE>
<S> <C>
In all cases, your redemption price is the
net asset value next determined after your
request is received in good order. Redemption
proceeds normally will be sent within three
days. However, if you recently purchased your
shares by check, your redemption proceeds
will not be sent to you until your original
check clears, which may take up to 15 days.
Any request that your redemption proceeds be
sent to a destination other than your bank
account or address of record must be in
writing and must include signature
guarantees.
- --------------------------------------------------------------------
Redemptions You may redeem shares by telephone if you
by telephone elect the telephone transaction option on
your account application. This is available
only for redemptions of $50,000 or less, and
the proceeds must be mailed to your address
of record. In addition, you must be able to
provide proper identification information.
You may not redeem by telephone if your
address has changed within the past 45 days
or if your shares are in certificate form.
Telephone redemption requests may be made by
calling PFS Shareholder Services at (800)
544-5445 between 8:00 a.m. and 8:00 p.m.
eastern time on any day the New York Stock
Exchange is open. Requests received after the
close of regular trading on the
Exchange are priced at the net asset
value next computed. If telephone redemptions
are not available for any reason, you may use
the Fund's regular redemption procedure
described above.
Payment of Whether you redeem by mail or telephone,
redemption your redemption proceeds can be sent by check
proceeds to your address of record or by wire transfer
to a bank account designated on your
application. You will be charged a service
fee for wire transfers and for transfers made
directly to your bank by the Automated
Clearinghouse (ACH).
- --------------------------------------------------------------------
</TABLE>
Smith Barney Mutual Funds 19
<PAGE>
<TABLE>
<S> <C>
Automatic cash You can arrange for the automatic redemption
withdrawal plan of a portion of your shares on a monthly or
quarterly basis. To qualify you must own
shares of the fund with a value of at least
$10,000 ($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 are
equal to or less than 1% per month of the
value of your shares subject to a deferred
sales charge. The following conditions apply:
- Your shares may not be represented by
certificates
- All dividends and distributions must be
reinvested
- You can establish a withdrawal plan for a
retirement account only if you are eligible
to receive distributions from the account
For more information contact your PFS Investments
Registered Representative or consult the
SAI
</TABLE>
20 Investment Grade Bond Fund
<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
SIGNATURE GUARANTEE To be in good order your redemption request must include a
signature guarantee:
- - if proceeds of the redemption exceed $50,000
- - if proceeds are not paid to the record owner at the record address
- - if shareholder has had an address change in the past 45 days
- - if shareholder is a corporation, sole proprietor, partnership, trust or
fiduciary.
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan associations, but not from a notary public.
The fund has the right to:
- - Suspend the offering of shares
- - Waive or change minimum and additional investment amounts
- - Reject any purchase or exchange order
- - Change, revoke or suspend the exchange privilege
- - Suspend telephone transactions
- - Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
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 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Smith Barney Mutual Funds 21
<PAGE>
EXCESSIVE EXCHANGE TRANSACTIONS The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. 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 PFS Shareholder Services.
If you hold share certificates it will take longer to exchange or redeem
shares.
22 Investment Grade Bond Fund
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS The fund generally pays dividends from net investment income
periodically and makes capital gain distributions, if any, once a year,
typically in December. The fund may pay additional distributions and dividends
at other times if necessary for the fund to avoid a federal tax. Capital gain
distributions and dividends are reinvested in additional fund shares of the same
class that you hold. The fund expects distributions to be primarily from income.
You do not pay a sales charge on reinvested distributions or dividends.
Alternatively, you can instruct your PFS Investments Registered Representative
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 PFS Shareholder Services 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
distributions (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 Long-term capital gain
distributions
Short-term capital gain Ordinary income
distributions
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,
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 during
the previous year. If you do not provide the fund with your correct taxpayer
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.
Smith Barney Mutual Funds 23
<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
liabilities. 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
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. The fund's currency conversions are done when the London Stock
Exchange closes. When reliable market prices or
quotations are not readily available, or when the value of a security has been
materially affected by events occurring after a foreign exchange closes, the
fund may price those securities at fair value. 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.
International markets may be open on days when U.S. markets are closed and the
value of foreign securities owned by the fund could change on days when you can
not buy or redeem shares.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with PFS Shareholder Services 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.
PFS Shareholder Services must transmit all orders to buy, exchange or redeem
shares to the fund's agent before the agent's close of business.
24 Investment Grade Bond Fund
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years. Certain information reflects
financial results for a single share. Total return represents the rate that a
shareholder would have earned (or lost) on a fund share assuming reinvestment of
all dividends and distributions. The information in the following tables was
audited by KPMG LLP, independent auditors, whose report, along with the fund's
financial statements, is included in the annual report (available upon request).
FOR A CLASS A SHARE OF CAPITAL STOCK
OUTSTANDING THROUGHOUT EACH YEAR ENDED DECEMBER 31:
<TABLE>
<CAPTION>
1999(1) 1998(1) 1997 1996 1995(1)
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Net asset value, beginning
of year $13.12 $13.19 $12.27 $13.25 $10.67
- -----------------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income 0.72 0.77 0.80 0.80 0.83
Net realized and
unrealized gain (loss) (1.88) 0.29 1.20 (0.90) 2.80
- -----------------------------------------------------------------------------------------
Total income (loss) from
operations (1.16) 1.06 2.00 (0.10) 3.63
- -----------------------------------------------------------------------------------------
Less distribution from:
Net investment income (0.73) (0.76) (0.80) (0.76) (0.89)
Net realized gains -- (0.37) (0.28) (0.12) (0.16)
Capital (0.01) -- -- -- --
- -----------------------------------------------------------------------------------------
Total distributions (0.74) (1.13) (1.08) (0.88) (1.05)
- -----------------------------------------------------------------------------------------
Net asset value, end of year $11.22 $13.12 $13.19 $12.27 $13.25
- -----------------------------------------------------------------------------------------
Total return (9.09)% 8.30% 17.10% (0.47)% 35.29%
- -----------------------------------------------------------------------------------------
Net assets, end of year
(millions) $211 $253 $222 $206 $226
- -----------------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses 1.03% 1.04% 1.02% 1.04% 1.11%
Net investment income 5.94 5.73 6.43 6.63 7.02
- -----------------------------------------------------------------------------------------
Portfolio turnover rate 147% 32% 39% 48% 49%
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) Per share amounts have been calculated using the monthly
average shares method.
</TABLE>
Smith Barney Mutual Funds 25
<PAGE>
FOR A CLASS B SHARE OF CAPITAL STOCK
OUTSTANDING THROUGHOUT EACH YEAR ENDED DECEMBER 31:
<TABLE>
<CAPTION>
1999(1) 1998(1) 1997 1996 1995(1)
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Net asset value, beginning
of year $13.09 $13.19 $12.29 $13.25 $10.67
- ----------------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income 0.66 0.70 0.75 0.74 0.77
Net realized and
unrealized gain (loss) (1.87) 0.29 1.18 (0.90) 2.80
- ----------------------------------------------------------------------------------------
Total income (loss) from
operations (1.21) 0.99 1.93 (0.16) 3.57
- ----------------------------------------------------------------------------------------
Less distribution from:
Net investment income (0.66) (0.72) (0.75) (0.68) (0.83)
Net realized gains -- (0.37) (0.28) (0.12) (0.16)
Capital (0.01) -- -- -- --
- ----------------------------------------------------------------------------------------
Total distributions (0.67) (1.09) (1.03) (0.80) (0.99)
- ----------------------------------------------------------------------------------------
Net asset value, end of
year $11.21 $13.09 $13.19 $12.29 $13.25
- ----------------------------------------------------------------------------------------
Total return (9.44)% 7.72% 16.44% (0.89)% 34.63%
- ----------------------------------------------------------------------------------------
Net assets, end of year
(millions) $192 $260 $249 $258 $289
- ----------------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses 1.52% 1.53% 1.51% 1.54% 1.61%
Net investment income 5.44 5.23 5.95 6.13 6.51
- ----------------------------------------------------------------------------------------
Portfolio turnover rate 147% 32% 39% 48% 49%
</TABLE>
<TABLE>
<C> <S>
(1) Per share amounts have been calculated using the monthly
average shares method.
</TABLE>
26 Investment Grade Bond Fund
<PAGE>
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<PAGE>
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<PAGE>
[PFS INVESTMENT INC. LOGO]
INVESTMENT GRADE
BOND FUND
- -- AN INVESTMENT PORTFOLIO OF SMITH BARNEY INVESTMENT FUNDS INC.
SHAREHOLDER REPORTS Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
STATEMENT OF ADDITIONAL INFORMATION The statement of additional information
provides more detailed information about the fund and is incorporated by
reference 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 PFS
Investments Registered Representative, by calling PFS Shareholder Services at
1-800-544-5445, or by writing to the fund at 3100 Breckinridge Boulevard,
Building 200, Duluth, Georgia 30099-0062.
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 Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Database
on the Commission's Internet site at HTTP://WWW.SEC.GOV. Copies of this
information may be obtained for a 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
lawfully sell its shares.
(Investment Company Act
file no. 811-03275)
SB-1C
PFS Investments Inc.
4.00
Smith Barney
Investment Funds Inc.
388 Greenwich Street
New York, New York 10013
800 451-2010
Statement of Additional Information
March 13, 2000, as amended April 28, 2000
This Statement of Additional Information expands upon
and supplements the information contained in the current
Prospectuses of Smith Barney Investment Funds Inc. (the
"Company"), for Concert Peachtree Growth Fund dated
March 13, 2000, and with respect to Investment Grade
Bond Fund, Government Securities Fund and Contrarian
Fund dated April 28, 2000, and should be read in
conjunction with the Company's Prospectuses. The
Company issues a Prospectus for each of the investment
Funds offered by the Company (the "Funds"). The
Company's Prospectuses may be obtained from a Salomon
Smith Barney Financial Consultant, or by writing or
calling the Company at the address or telephone number
listed above. This Statement of Additional Information,
although not in itself a prospectus, is incorporated by
reference in its entirety into each Fund's Prospectus.
CONTENTS
For ease of reference, the same section headings are
used in the Prospectuses and this Statement of
Additional Information, except where shown below:
Directors and Executive Officers of the Company 2
Investment Objectives and Management Policies 7
Risk Factors 24
Investment Restrictions 29
Brokerage 31
Portfolio Turnover 32
Purchase of Shares 34
Redemption of Shares 39
Valuation of Shares 40
Exchange Privilege 41
Distributor 42
PFS Accounts 46
Citi Accounts 47
Determination of Net Asset Value 48
Performance Data 49
Taxes 53
Class Z shares 56
IRA and Other Prototype Retirement Plans 57
Salomon Smith Barney Retirement Programs 58
Additional Information 60
Financial Statements 60
Other Information 61
Appendix 62
Smith Barney Contrarian Fund, a series of the Company,
is not selling shares while its shareholders consider
whether to merge the Fund into Smith Barney Fundamental
Value Fund Inc.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The names of the Directors and executive officers of the
Company, together with information as to their principal
business occupations during the past five years, are
shown below. Each Director who is an "interested
person" of the Company, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), is
indicated by an asterisk. The address of the
"interested" directors and the executive officers of the
Fund, unless otherwise noted, is 388 Greenwich Street,
New York, NY 10013.
Paul R. Ades, Director (Age 59). Partner in the law firm
of Murov & Ades. His address is 272 South Wellwood
Avenue, P.O. Box 504, Lindenhurst, New York 11757.
Herbert Barg, Director (Age 76). Private investor. His
address is 273 Montgomery Avenue, Bala Cynwyd,
Pennsylvania 19004.
Dwight B. Crane, Director (Age 61). Professor, Graduate
School of Business Administration, Harvard University.
His address is Graduate School of Business
Administration, Harvard University, Boston,
Massachusetts 02163.
Frank G. Hubbard, Director (Age 61). Vice President,
S&S Industries; Former Corporate Vice President,
Materials Management and Marketing Services of Huls
America, Inc. His address is 80 Centennial Avenue P.O.
Box 456, Piscataway, New Jersey 08855-0456.
*Heath B. McLendon, Chairman of the Board, President and
Chief Executive Officer (Age 66). Managing Director of
Salomon Smith Barney Inc. ("Salomon Smith Barney");
Director and President of SSB Citi Fund Management LLC
("SSB Citi"or the "Manager") and Travelers Investment
Adviser, Inc. ("TIA"); and formerly Chairman of the
Board of Smith Barney Strategy Advisers Inc. Mr.
McLendon is a director of 71 investment companies
associated with Citigroup Inc ("Citigroup"). His
address is 7 World Trade Center, New York, New York
10048.
Jerome Miller, Director (Age 60). Retired, Former
President, Asset Management Group of Shearson Lehman
Brothers. Director of 5 investment companies associated
with Citigroup Inc. His address is 27 Hemlock Road,
Manhasset, New York, NY 11030.
Ken Miller, Director (Age 57). President of Young Stuff
Apparel Group, Inc. His address is 1411 Broadway, New
York, New York 10018.
John F. White, Director Emeritus President Emeritus of
The Cooper Union for the Advancement of Science and Art;
Special Assistant to the President of the Aspen
Institute. His address is 97 Sunset Drive, Apt. A402,
Sarasota, FL 34236.
James Conroy, Vice President and Investment Officer.
(Age 48) Managing Director of Citigroup. His address
is 388 Greenwich Street, New York, New York 10013.
John G. Goode, (Age 55), Vice President and Investment
Officer. Managing Director of Salomon Smith Barney.
Chairman and Chief Investment Officer of Davis Skaggs
Investment Management ("Davis Skaggs"), a division of
SSB. His address is One Sansome Street, 36th Floor, San
Francisco, California 94104.
Dennis Johnson, Vice President and Investment Officer
and Chief Investment Officer of Peachtree Asset
Management a division of . (Age 40)
Lewis E. Daidone, Senior Vice President and Treasurer
(Age 42). Managing Director of Salomon Smith Barney,
Director and Senior Vice President of SSB Citi and TIA.
Treasurer of 61 investment companies associated with
Citigroup. His address is 388 Greenwich Street, New
York, New York 10013.
Paul Brook, Controller (Age 45). Director of Salomon
Smith Barney; Controller or Assistant Treasurer of 43
investment companies associated with Citigroup; from
1997-1998 Managing Director of AMT Capital Services
Inc.; prior to 1997 Partner with Ernst & Young LLP; His
address is 388 Greenwich Street, New York, New York
10013.
Christina T. Sydor, Secretary (Age 48). Managing
Director of Salomon Smith Barney; General Counsel and
Secretary of SSB Citi and TIA. Secretary of 61
investment companies associated with Citigroup. Her
address is 388 Greenwich Street, New York, New York
10013.
As of April 17, 2000, the Directors and officers of the
Company, as a group, owned less than 1.00% of the
outstanding common stock of the Company.
As of April 17, 2000 to the knowledge of the Funds and
the Board of Directors, no single shareholder or group
(as the term is used in Section 13(d) of the Securities
Act of 1934) beneficially owned more than 5% of the
outstanding shares of the Fund with the exception of the
following:
Fund
Clas
s
Percent
Name
Address
Government
Securities Fund
Y
41.0605
Concert Series,
Inc.
Growth Portfolio
Attn: Beverly
Timson
PNC Bank, N.A.
200 Stevens Drive
Suite 440
Lester PA 19113-
1522
Government
Securities Fund
Y
24.0280
Concert Series,
Inc.
Balanced Portfolio
Attn: Beverly
Timson
PNC Bank, N.A.
200 Stevens Drive
Suite 440
Lester PA 19113-
1522
Government
Securities Fund
Y
11.6845
Concert Series,
Inc.
Select Growth
Portfolio
Attn: Beverly
Timson
PNC Bank, N.A.
200 Stevens Drive
Suite 440
Lester PA 19113-
1522
Government
Securities Fund
Y
8.0353
Concert Series,
Inc.
Select Balanced
Portfolio
Attn: Beverly
Timson
PNC Bank, N.A.
200 Stevens Drive
Suite 440
Lester PA 19113-
1522
Government
Securities Fund
Y
6.1663
Concert Series,
Inc.
Conservative
Portfolio
Attn: Beverly
Timson
PNC Bank, N.A.
200 Stevens Drive
Suite 440
Lester PA 19113-
1522
Fund
Clas
s
Percent
Name
Address
Government
Securities Fund
Z
100.000
State Street Bank &
Trust Cust.
The Travelers Group
401K Savings Plan
Attn: Rick Vest
225 Franklin
Street
Boston, MA 02101
Investment Grade
Bond Fund
A
6.0395
Travelers Insurance
Company
Separate Account
QPN 401(K)-TIC
Attn: Roger Ferland
One Tower Square
Hartford CT 06183
Investment Grade
Bond Fund
B
6.0570
PFS Shareholder
Services
Attn: Jay Barnhill
3100 Breckinridge
Blvd
Duluth GA 30199
Investment Grade
Bond Fund
Y
75.2350
Concert Series,
Inc.
Growth Portfolio
Attn: Beverly
Timson
PNC Bank, N.A.
200 Stevens Drive
Suite 440
Lester PA 19113-
1522
Investment Grade
Bond Fund
Y
21.6387
Concert Series,
Inc.
Select Growth
Portfolio
Attn: Beverly
Timson
PNC Bank, N.A.
200 Stevens Drive
Suite 440
Lester PA 19113-
1522
Concert Peachtree
Growth Fund
A
97.6846
PFS Shareholder
Services
Attn: Jay Barnhill
3100 Breckinridge
Blvd
Duluth GA 30199
Concert Peachtree
Growth Fund
B
96.7821
PFS Shareholder
Services
Attn: Jay Barnhill
3100 Breckinridge
Blvd
Duluth GA 30199
Concert Peachtree
Growth Fund
L
15.2298
William C Loomis
SSB IRA Rollover
Custodian
3472 Fairway
Drive
Cameron Park CA
95682-8622
Concert Peachtree
Growth Fund
L
14.0658
Tendrich Group LTD
A Florida Limited
Partnership
1402 Devonshire
Way
Palm Beach
Gardens FL 33418-
6872
Concert Peachtree
Growth Fund
L
6.9409
Nancy Schnee
SSB IRA Custodian
68 Pelican Place
Belleair FL
33756-1568
Fund
Clas
s
Percent
Name
Address
Concert Peachtree
Growth Fund
L
6.7604
David Bowen Jr.
Dorothy C. Bowen JT
Ten
1074 Wildwood
Road
Waycross GA
31503-8585
Concert Peachtree
Growth Fund
L
6.3525
Richard D. Reed
Debra A. Reed
JTWROS
16 Pickering Way
Nashua NH 03063-
1532
Concert Peachtree
Growth Fund
Y
43.4136
Concert Series,
Inc.
Growth Portfolio
Attn: Beverly
Timson
PNC Bank, N.A.
200 Stevens Drive
Suite 440
Lester PA 19113-
1522
Concert Peachtree
Growth Fund
Y
36.3001
Concert Series,
Inc.
High Growth
Portfolio
Attn: Beverly
Timson
PNC Bank, N.A.
200 Stevens Drive
Suite 440
Lester PA 19113-
1522
Concert Peachtree
Growth Fund
Y
10.7209
Concert Series,
Inc.
Select Growth
Portfolio
Attn: Beverly
Timson
PNC Bank, N.A.
200 Stevens Drive
Suite 440
Lester PA 19113-
1522
No officer, director or employee of Salomon Smith Barney
or any parent or subsidiary receives any compensation
from the Company for serving as an officer or Director
of the Company. The Company pays each Director who is
not an officer, director or employee of Salomon Smith
Barney or any of its affiliates a fee of $22,500 per
annum plus $2,900 per meeting attended and reimburses
travel and out-of-pocket expenses. During the fiscal
year ended December 31, 1999 such expenses totaled $
18,574. For the fiscal year ended December 31, 1999,
the Directors of the Company were paid the following
compensation:
COMPENSATION TABLE
Name of
Person
Aggregate Compensation
from the Company*
Compensation from
Company and Complex
Paid to Directors
Number of Funds
for Which
Director Serves
Within Citigroup
Fund Complex
Paul Ades
$28,369
56,238
5
Herbert Barg
28,369
114,288
16
Dwight B.
Crane
26,297
155,363
22
Frank G.
Hubbard
28,269
56,138
5
Heath B.
McLendon
71
Ken Miller
24,847
47,188
5
Jerome Miller
26,197
51,613
5
*Upon attainment of age 80 Directors are required to
change to emeritus status. Directors Emeritus are
entitled to serve in emeritus status for a maximum of 10
years during which time they are paid 50% of the annual
retainer fee and meeting fees otherwise applicable to
the Fund Directors together with reasonable out-of-
pocket expenses for each meeting attended. During the
Fund's last fiscal year aggregate compensation paid by
the Fund to Directors Emeritus totaled $13,179.
Investment Adviser and Administrator
SSB Citi serves as investment adviser to the Funds
pursuant to separate advisory agreements (the "Advisory
Agreements"). With respect to the Investment Grade Bond
Fund and Government Securities Fund, the Advisory
Agreements were transferred to be effective November 7,
1994, from its affiliate, Mutual Management Corp.
Mutual Management Corp. (the current successor
corporation is SSB Citi) was and SSB Citi is a wholly
owned subsidiary of Salomon Smith Barney Holdings Inc.
("Holdings") (formerly Smith Barney Holdings). Holdings
is a wholly owned subsidiary of Citigroup. As of January
31, 2000 had aggregate assets under management in
excess of $ 127.4 billion. The Advisory Agreements were
most recently approved by the Board of Directors,
including a majority of the Directors who are not
"interested persons" of the Company or the investment
advisers (the "Independent Directors"), on July 22,
1999. SSB Citi bears all expenses in connection with
the performance of its services. The services provided
by SSB Citi under the Advisory Agreements are described
in the Prospectuses under "Management of the Company and
the Fund." SSB Citi provides investment advisory and
management services to investment companies affiliated
with Salomon Smith Barney.
As compensation for investment advisory and
administrative services rendered to the Contrarian Fund
and Concert Peachtree Growth Fund, Contrarian Fund pays
a fee computed daily and paid monthly at the annual
rate of 0.85% and Concert Peachtree Growth Fund pays a
fee computed daily and paid monthly at the annual rate
of 1.00% up to $250 million and 0.85% thereafter, of the
value of their average daily net assets.
As compensation for investment advisory services
rendered to Government Securities Fund, the Fund pays
SSB Citi a fee computed daily and paid monthly at the
following annual rates of average daily net assets:
0.35% up to $2 billion; 0.30% on the next $2 billion;
0.25% on the next $2 billion; 0.20% on the next $2
billion; and 0.15% on net assets thereafter.
As compensation for investment advisory services
rendered to Investment Grade Bond Fund, the Fund pays
SSB Citi a fee computed daily and paid monthly at the
following annual rates of average daily net assets:
0.45% up to $500 million and 0.42% on net assets
thereafter.
For the fiscal years ended December 31, 1997, 1998 and
1999, the Funds accrued advisory fees as follows:
Fund
1997
1998
1999
Investment Grade Bond Fund
$ 2,183,438
$ 2,618,948
$2,594,524
Government Securities Fund
1,900,510
2,107,128
2,376,064
Contrarian Fund
8,127,871
6,552,382
3,442,248
Concert Peachtree Growth
Fund
1,262,626
2,644,062
3,598,241
SSB Citi also serves as administrator to Investment
Grade Bond Fund, and Government Securities Fund pursuant
to written agreements dated May 5, 1994 (the
"Administration Agreement"), which was first approved by
the Board of Directors, including a majority of the
Independent Directors, on May 5, 1994. Under the
Administration Agreement, SSB Citi oversees all aspects
of a Fund's administration. SSB Citi pays the salary of
any officer and employee who is employed by both it and
the Fund and bears all expenses in connection with the
performance of its services.
As compensation for administrative services rendered to
the Investment Grade Bond Fund and Government Securities
Fund, SSB Citi receives a fee computed daily and paid
monthly at the annual rate of 0.20% of the value of the
Fund's average daily net assets.
For the fiscal years ended December 31, 1997, 1998 and
1999, these Funds paid administrative fees to SSB Citi
as follows:
Fund
1997
1998
1999
Investment Grade Bond Fund
$
969,973
$1,158,123
$1,147,655
Government Securities Fund
1,086,006
1,204,073
1,357,751
Code of Ethics
Pursuant to Rule 17j-1 of the 1940 Act, the fund, the
investment adviser and principal underwriter have
adopted codes of ethics that permit personnel to invest
in securities for their own accounts, including
securities that may be purchased or held by the fund.
All personnel must place the interests of clients first
and avoid activities, interests and relationships that
might interfere with the duty to make decisions in the
best interests of the clients. All personal securities
transactions by employees must adhere to the
requirements of the codes and must be conducted in such
a manner as to avoid any actual or potential conflict of
interest, the appearance of such a conflict, or the
abuse of an employee's position of trust and
responsibility.
A copy of the fund's code of ethics is on file with the
SEC.
Auditors
KPMG LLP, 757 Third Avenue, New York, New York 10017,
has been selected as the Fund's independent auditor to
examine and report on the Funds' financial statements
and highlights for the fiscal year ending December 31,
2000.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES tc \l1
"INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The Prospectuses discuss the investment objectives of
each Fund and the policies they employ to achieve such
objectives. The following discussion supplements the
description of the Funds' investment objectives and
management policies contained in the Prospectuses.The
Funds may engage in these and any other practices not
prohibited by their investment restrictions. For
further information regarding the risks associated with
these practices, see "Risk Factors" below.
EQUITY SECURITIES (All Funds except Government
Securities Fund except as otherwise noted)
Common Stocks Common stocks are shares of a
corporation or other entity that entitle the holder to
a pro rata share of the profits of the corporation, if
any, without preference over any other shareholder or
class of shareholders, including holders of the entity's
preferred stock and other senior equity. Common stock
usually carries with it the right to vote and frequently
an exclusive right to do so.
Preferred Stocks and Convertible Securities (all Funds
except Government Securities Fund and Investment Grade
Bond Fund) Convertible debt securities and preferred
stock entitle the holder to acquire the issuer's stock
by exchange or purchase for a predetermined rate.
Convertible securities are subject both to the credit
and interest rate risks associated with fixed income
securities and to the stock market risk associated with
equity securities.
Warrants Warrants acquired by a Fund entitle it to buy
common stock from the issuer at a specified price and
time. Warrants are subject to the same market risks as
stocks, but may be more volatile in price. A Fund's
investment in warrants will not entitle it to receive
dividends or exercise voting rights and will become
worthless if the warrants cannot be profitably exercised
before the expiration dates. The Investment Grade Bond
Fund will not invest in warrants if, as a result of such
investment, the value of their investments in warrants,
valued at the lower of cost or market, exceeds 5% of the
value of the Fund's net assets. Included in this 5%
limitation, but not to exceed 2% of the Fund's net
assets, may be warrants which are not listed on either
the New York Stock Exchange (the "NYSE") or the American
Stock Exchange. Warrants acquired by the Fund in units
or attached to securities will be deemed to be without
value for purposes of this restriction. These limits are
not Fundamental policies of either Fund and may be
changed by the Board of Directors without shareholder
approval.
REITs Real estate investment trusts ("REITs") are
pooled investment vehicles that invest in real estate or
real estate loans or interests. Investing in REITs
involves risks similar to those associated with
investing in equity securities of small capitalization
companies. REITs are dependent upon management skills,
are not diversified, and are subject to risks of project
financing, default by borrowers, self-liquidation, and
the possibility of failing to qualify for the exemption
from taxation on distributed amounts under the Internal
Revenue Code of 1986, as amended (the "Code").
FIXED INCOME SECURITIES (All Funds)
Corporate Debt Obligations Corporate debt obligations
are subject to the risk of an issuer's inability to meet
principal and interest payments on the obligations and
may also be subject to price volatility due to such
factors as market interest rates, market perception of
the creditworthiness of the issuer and general market
liquidity. Zero coupon securities are securities sold
at a discount to par value and on which interest
payments are not made during the life of the security.
U.S. Government Securities The U.S. Government
securities in which the Funds may invest include: bills,
certificates of indebtedness, and notes and bonds issued
by the U.S. Treasury or by agencies or instrumentalities
of the U.S. Government. Some U.S. Government securities,
such as U.S. Treasury bills and bonds, are supported by
the full faith and credit of the U.S. Treasury; others
are supported by the right of the issuer to borrow from
the U.S. Treasury; others are supported by the
discretionary authority of the U.S. Government to
purchase the agency's obligations; still others are
supported only by the credit of the instrumentality.
Mortgage Related Securities (Government Securities Fund
and Investment Grade Bond Fund) These Funds may invest
in mortgage-related securities, including those
representing an undivided ownership interest in a pool
of mortgage loans, e.g., GNMA, FNMA, FHLMC Certificates.
Mortgage loans made by banks, savings and loan
institutions, and other lenders are often assembled into
pools, which are issued or guaranteed by an agency or
instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Interests in
such pools are collectively referred to as ''mortgage-
related securities.''
Mortgage-related securities are characterized by monthly
payments to the holder, reflecting the monthly payments
made by the borrowers who received the underlying
mortgage loans. The payments to the securityholders
(such as the Funds), like the payments on the underlying
loans, represent both principal and interest. Although
the underlying mortgage loans are for specified periods
of time, such as 20 or 30 years, the borrowers can, and
typically do, pay them off sooner. Thus, the
securityholders frequently receive prepayments of
principal, in addition to the principal which is part of
the regular monthly payment. A borrower is more likely
to prepay a mortgage which bears a relatively high rate
of interest. This means that in times of declining
interest rates, some of the Fund's higher yielding
securities might be converted to cash, and the Funds
will be forced to accept lower interest rates when that
cash is used to purchase additional securities. The
increased likelihood of prepayment when interest rates
decline also limits market price appreciation of
mortgage-related securities. If a Fund buys mortgage-
related securities at a premium, mortgage foreclosures
or mortgage prepayments may result in a loss to the Fund
of up to the amount of the premium paid since only
timely payment of principal and interest is guaranteed.
The Government National Mortgage Association ("GNMA") is
a wholly owned corporate instrumentality of the United
States within the U.S. Department of Housing and Urban
Development. GNMA's principal programs involve its
guarantees of privately issued securities backed by
pools of mortgages. Certificates of the Government
National Mortgage Association ("GNMA Certificates") are
mortgage-backed securities, which evidence an undivided
interest in a pool of mortgage loans. GNMA Certificates
differ from bonds in that principal is paid back monthly
by the borrower over the term of the loan rather than
returned in a lump sum at maturity. GNMA Certificates
that the Fund purchases are the "modified pass-through"
type. "Modified pass-through" GNMA Certificates entitle
the holder to receive a share of all interest and
principal payments paid and owned on the mortgage pool
net of fees paid to the "issuer" and GNMA, regardless of
whether or not the mortgagor actually makes the payment.
The National Housing Act authorizes GNMA to guarantee
the timely payment of principal and interest on
securities backed by a pool of mortgages insured by the
Federal Housing Administration ("FHA") or the Farmers'
Home Administration ("FMHA"), or guaranteed by the
Veterans Administration ("VA"). Once a pool of such
mortgages is assembled and approved by GNMA, the GNMA
guarantee is backed by the full faith and credit of the
U.S. Government. GNMA is also empowered to borrow
without limitation from the U.S. Treasury if necessary
to make any payments required under its guarantee.
The average life of a GNMA Certificate is likely to be
substantially less than the original maturity of the
mortgage pools underlying the securities. Prepayments of
principal by mortgagors and mortgage foreclosures will
usually result in the return of the greater part of
principal investment long before maturity of the
mortgages in the pool. A Fund normally will not
distribute principal payments (whether regular or
prepaid) to its shareholders. Rather, it will invest
such payments in additional mortgage-related securities
of the types described above or other U.S. Government
securities. Interest received by the Fund will,
however, be distributed to shareholders. Foreclosures
impose no risk to principal investment because of the
GNMA guarantee.
As prepayment rates of the individual mortgage pools
vary widely, it is not possible to predict accurately
the average life of a particular issue of GNMA
Certificates. However, statistics published by the FHA
indicate that the average life of single-family dwelling
mortgages with 25-to 30-year maturities, the type of
mortgages backing the vast majority of GNMA
Certificates, is approximately 12 years. Therefore, it
is customary to treat GNMA Certificates as 30-year
mortgage-backed securities which prepay fully in the
twelfth year.
The coupon rate of interest of GNMA Certificates is
lower than the interest rate paid on the VA-guaranteed
or FHA-insured mortgages underlying the Certificates,
but only by the amount of the fees paid to GNMA and the
GNMA Certificate issuer. For the most common type of
mortgage pool, containing single-family dwelling
mortgages, GNMA receives an annual fee of 0.06 of one
percent of the outstanding principal for providing its
guarantee, and the GNMA Certificate issuer is paid an
annual servicing fee of 0.44 of one percent for
assembling the mortgage pool and for passing through
monthly payments of interest and principal to
Certificate holders.
The coupon rate by itself, however, does not indicate
the yield which will be earned on the GNMA Certificates
for the following reasons:
1. Certificates are usually issued at a premium or
discount, rather than at par.
2. After issuance, Certificates usually trade in the
secondary market at a premium or discount.
3. Interest is paid monthly rather than semi-annually
as is the case for traditional bonds. Monthly
compounding has the effect of raising the effective
yield earned on GNMA Certificates.
4. The actual yield of each GNMA Certificate is
influenced by the prepayment experience of the mortgage
pool underlying the Certificate. If mortgagors prepay
their mortgages, the principal returned to Certificate
holders may be reinvested at higher or lower rates.
In quoting yields for GNMA Certificates, the customary
practice is to assume that the Certificates will have a
12 year life. Compared on this basis, GNMA Certificates
have historically yielded roughly 1/4 of 1.00% more
than high grade corporate bonds and 1/2 of 1.00% more
than U.S. Government and U.S. Government agency bonds.
As the life of individual pools may vary widely,
however, the actual yield earned on any issue of GNMA
Certificates may differ significantly from the yield
estimated on the assumption of a twelve-year life.
Since the inception of the GNMA mortgage-backed
securities program in 1970, the amount of GNMA
Certificates outstanding has grown rapidly. The size of
the market and the active participation in the secondary
market by securities dealers and many types of investors
make GNMA Certificates highly liquid instruments. Quotes
for GNMA Certificates are readily available from
securities dealers and depend on, among other things,
the level of market rates, the Certificate's coupon rate
and the prepayment experience of the pool of mortgages
backing each Certificate.
The Federal Home Loan Mortgage Corporation ("FHLMC") was
created in 1970 to promote development of a nationwide
secondary market in conventional residential mortgages.
FHLMC issues two types of mortgage pass-through
securities, mortgage participation certificates ("PCs")
and guaranteed mortgage certificates ("GMCs"). PCs
resemble GNMA Certificates in that each PC represents a
pro rata share of all interest and principal payments
made and owed on the underlying pool. Like GNMA
Certificates, PCs are assumed to be prepaid fully in
their twelfth year. FHLMC guarantees timely monthly
payment of interest of PCs and the ultimate payment of
principal.
GMCs also represent a pro rata interest in a pool of
mortgages. However, these instruments pay interest
semiannually and return principal once a year in
guaranteed minimum payments. The expected average life
of these securities is approximately 10 years.
The Federal National Mortgage Association ("FNMA") was
established in 1938 to create a secondary market in
mortgages insured by the FHA. FNMA issues guarantee
mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA
Certificates in that each Certificate represents a pro
rata share of all interest and principal payments made
and owed on the underlying pool. FNMA guarantees timely
payment of interest on FNMA Certificates and the full
return of principal. Like GNMA Certificates, FNMA
Certificates are assumed to be prepaid fully in their
twelfth year.
Risk of foreclosure of the underlying mortgages is
greater with FHLMC and FNMA securities because, unlike
GNMA securities, FHLMC and FNMA securities are not
guaranteed by the full faith and credit of the U.S.
Government.
Short-Term Investments In certain circumstances the
Funds may invest without limitation in all types of
short-term money market instruments, including U.S.
Government securities; certificates of deposit, time
deposits and bankers' acceptances issued by domestic
banks (including their branches located outside the
United States and subsidiaries located in Canada),
domestic branches of foreign banks, savings and loan
associations and similar institutions; high grade
commercial paper; and repurchase agreements. To the
extent a Fund is investing in short-term investments as
a temporary defensive posture, the applicable Fund's
investment objective may not be achieved. Investment
Grade Bond Fund may invest in negotiable bank
certificates of deposit and bankers' acceptances issued
by domestic banks (but not their foreign branches)
having total assets in excess of $1 billion.
Commercial Paper (Investment Grade Bond Fund)
Commercial paper consists of short-term (usually 1 to
270 days) unsecured promissory notes issued by
corporations in order to finance their current
operations. A variable amount master demand note
(which is a type of commercial paper) represents a
direct borrowing arrangement involving periodically
fluctuating rates of interest under a letter agreement
between a commercial paper issuer and an institutional
lender, such as one of the Funds pursuant to which the
lender may determine to invest varying amounts.
Transfer of such notes is usually restricted by the
issuer, and there is no secondary trading market for
such notes. Each Fund therefore, may only invest in a
master demand note to the extent that the investment
would not violate the Fund's limits on restricted and
illiquid securities. Investment Grade Bond Fund may
invest only in commercial paper issued by domestic
corporations rated in the highest two short-term ratings
categories by a nationally recognized ratings
organization, or, if unrated, issued by a corporation
that has an outstanding debt issue rated in the highest
two ratings categories by a nationally recognized
statistical ratings organization ("NRSO").
Exchange Rate-Related Securities (Government Securities
Fund) The Government Securities Fund may invest up to
5% of its net assets in U.S. government securities for
which the principal repayment at maturity, while paid in
U.S. dollars, is determined by reference to the exchange
rate between the U.S. dollar and the currency of one or
more foreign countries ("Exchange Rate-Related
Securities"). The interest payable on these securities
is denominated in U.S. dollars, is not subject to
foreign currency risks and, in most cases, is paid at
rates higher than most other U.S. government securities
in recognition of the foreign currency risk component of
Exchange Rate-Related Securities.
Exchange Rate-Related Securities are issued in a variety
of forms, depending on the structure of the principal
repayment formula. The principal repayment formula may
be structured so that the security holder will benefit
if a particular foreign currency to which the security
is linked is stable or appreciates against the U.S.
dollar. In the alternative, the principal repayment
formula may be structured so that the security holder
benefits if the U.S. dollar is stable or appreciates
against the linked foreign currency. Finally, the
principal repayment formula can be a function of more
than one currency and, therefore, be designed in either
of the aforementioned forms or a combination of those
forms.
Investments in Exchange Rate-Related Securities entail
special risks. There is the possibility of significant
changes in rates of exchange between the U.S. dollar and
any foreign currency to which an Exchange Rate-Related
Security is linked. If currency exchange rates do not
move in the direction or to the extent anticipated at
the time of purchase of the security, the amount of
principal repaid at maturity might be significantly
below the par value of the security, which might not be
offset by the interest earned by the Fund over the term
of the security. The rate of exchange between the U.S.
dollar and other currencies is determined by the forces
of supply and demand in the foreign exchange markets.
These forces are affected by the international balance
of payments and other economic and financial conditions,
government intervention, speculation and other factors.
The imposition or modification of foreign exchange
controls by the United States or foreign governments or
intervention by central banks also could affect exchange
rates. Finally, there is no assurance that sufficient
trading interest to create a liquid secondary market
will exist for particular Exchange Rate-Related
Securities due to conditions in the debt and foreign
currency markets. Illiquidity in the forward foreign
exchange market and the high volatility of the foreign
exchange market may from time to time combine to make it
difficult to sell an Exchange Rate-Related Security
prior to maturity without incurring a significant price
loss.
Zero Coupon Securities (Government Securities Fund) The
Government Securities Fund may also invest in zero
coupon bonds. A zero coupon bond pays no interest in
cash to its holder during its life, although interest is
accrued during that period. Its value to an investor
consists of the difference between its face value at the
time of maturity and the price for which it was
acquired, which is generally an amount significantly
less than its face value (sometimes referred to as a
"deep discount" price). Because such securities usually
trade at a deep discount, they will be subject to
greater fluctuations of market value in response to
changing interest rates than debt obligations of
comparable maturities which make periodic distributions
of interest. On the other hand, because there are no
periodic interest payments to be reinvested prior to
maturity, zero coupon securities eliminate reinvestment
risk and lock in a rate of return to maturity.
Dollar Roll Transactions Government Securities Fund may
enter into "dollar rolls," in which the Fund sells fixed
income securities and simultaneously contracts to
repurchase substantially similar (same type, coupon and
maturity) securities on a specified future date. During
this "roll" period, the Fund would forego principal and
interest paid on such securities. The Fund would be
compensated by the difference between the current sales
price and the forward price for the future purchase, as
well as by the interest earned on the cash proceeds of
the initial sale. Since the Fund will receive interest
on the securities in which it invests the transaction
proceeds, such transactions may involve leverage.
However, the proceeds will be invested only in U.S.
Treasury obligations and the Fund will enter into dollar
roll transactions only with dealers of sufficient
creditworthiness in the judgment of the Fund's
investment adviser, such transactions do not present the
risks to the Fund that are associated with other types
of leverage. Dollar roll transactions are considered
borrowings by the Fund and will be subject to the Fund's
overall borrowing limitation.
DERIVATIVE CONTRACTS
Each Fund may use certain options, futures and other
strategies to attempt to hedge its portfolio, i.e.,
reduce the overall level of investment risk normally
associated with the Fund. These hedging techniques are
described in detail below. Each of Contrarian Fund and
Concert Peachtree Growth Fund may invest up to 10% of
its assets in derivative contracts. As a Fundamental
policy, the Contrarian Fund and the Concert Peachtree
Growth Fund each may write or purchase puts, calls,
straddles, spreads and any combination thereof up to 5%
of their assets (Investment Grade Bond Fund may not
engage in any of these practices). Government
Securities Fund may only purchase call options on
securities to effect a closing purchase transaction. In
addition, Government Securities Fund may not purchase
puts on securities if more than 10% of its net assets
would be invested in premiums on put options. The
aggregate value of the obligations underlying puts
written by Government Securities Fund will not exceed
50% of its net assets.
Writing Covered Call Options (Government Securities
Fund, Concert Peachtree Growth Fund and Contrarian Fund)
These Funds may write (sell) covered call options for
hedging purposes. Covered call options will generally
be written on securities and currencies which, in the
opinion of the Manager, are not expected to make any
major price moves in the near future but which, over the
long term, are deemed to be attractive investments for
the Fund.
A call option gives the holder (buyer) the right to
purchase a security or currency at a specified price
(the exercise price) at any time until a certain date
(the expiration date). So long as the obligation of the
writer of a call option continues, he may be assigned an
exercise notice by the broker-dealer through whom such
option was sold, requiring him to deliver the underlying
security or currency against payment of the exercise
price. This obligation terminates upon the expiration of
the call option, or such earlier time at which the
writer effects a closing purchase transaction by
purchasing an option identical to that previously sold.
The Manager and the Company believe that writing
covered call options is less risky than writing
uncovered or "naked" options, which the Funds will not
do.
Portfolio securities or currencies on which call options
may be written will be purchased solely on the basis of
investment considerations consistent with each Fund's
investment objective. When writing a covered call
option, the Fund, in return for the premium, gives up
the opportunity for profit from a price increase in the
underlying security or currency above the exercise price
and retains the risk of loss should the price of the
security or currency decline. Unlike one who owns
securities or currencies not subject to an option, the
Fund has no control over when it may be required to sell
the underlying securities or currencies, since the
option may be exercised at any time prior to the
option's expiration. If a call option which the Fund
has written expires, the Fund will realize a gain in the
amount of the premium; however, such gain may be offset
by a decline in the market value of the underlying
security or currency during the option period. If the
call option is exercised, the Fund will realize a gain
or loss from the sale of the underlying security or
currency. The security or currency covering the call
option will be maintained in a segregated account of the
Fund's custodian.
The premium the Fund receives for writing a call option
is deemed to constitute the market value of an option.
The premium the Fund will receive from writing a call
option will reflect, among other things, the current
market price of the underlying security or currency, the
relationship of the exercise price to such market price,
the implied price volatility of the underlying security
or currency, and the length of the option period. In
determining whether a particular call option should be
written on a particular security or currency, the
Manager will consider the reasonableness of the
anticipated premium and the likelihood that a liquid
secondary market will exist for those options. The
premium received by the Fund for writing covered call
options will be recorded as a liability in the Fund's
statement of assets and liabilities. This liability
will be adjusted daily to the option's current market
value, which will be calculated as described in
"Determination of Net Asset Value." The liability will
be extinguished upon expiration of the option or
delivery of the underlying security or currency upon the
exercise of the option. The liability with respect to
a listed option will also be extinguished upon the
purchase of an identical option in a closing
transaction.
Closing transactions will be effected in order to
realize a profit or to limit losses on an outstanding
call option, to prevent an underlying security or
currency from being called, or to permit the sale of the
underlying security or currency. Furthermore, effecting
a closing transaction will permit the Fund to write
another call option on the underlying security or
currency with either a different exercise price,
expiration date or both. If the Fund desires to sell a
particular security or currency from its portfolio on
which it has written a call option or purchases a put
option, it will seek to effect a closing transaction
prior to, or concurrently with, the sale of the security
or currency. There is no assurance that the Fund will
be able to effect such closing transactions at a
favorable price. If the Fund cannot enter into such a
transaction, it may be required to hold a security or
currency that it might otherwise have sold, in which
case it would continue to be at market risk with respect
to the security or currency.
Transaction costs relating to options activity are
normally higher than those applicable to purchases and
sales of portfolio securities.
The exercise price of the options may be below, equal to
or above the current market values of the underlying
securities or currencies at the time the options are
written. From time to time, a Fund may purchase an
underlying security or currency for delivery in
accordance with the exercise of an option, rather than
delivering such security or currency from its portfolio.
In such cases, additional costs will be incurred. A
Fund will realize a profit or loss from a closing
purchase transaction if the cost of the transaction is
less or more, respectively, than the premium received
from the writing of the option. Because increases in
the market price of a call option will generally reflect
increases in the market price of the underlying security
or currency, any loss resulting from the repurchase of
a call option is likely to be offset in whole or in part
by appreciation of the underlying security or currency
owned by the Fund.
Purchasing Put Options (Government Securities Fund,
(Concert Peachtree Growth Fund and Contrarian Fund)
These Funds may purchase put options. As the holder of
a put option, the Fund has the right to sell the
underlying security or currency at the exercise price at
any time during the option period. The Fund may enter
into closing sale transactions with respect to such
options, exercise them or permit them to expire.
Each Fund may purchase a put option on an underlying
security or currency (a "protective put") owned by the
Fund as a hedging technique in order to protect against
an anticipated decline in the value of the security or
currency. Such hedge protection is provided only during
the life of the put option when the Fund, as the holder
of the put option, is able to sell the underlying
security or currency at the put exercise price
regardless of any decline in the underlying security's
market price or currency's exchange value. For example,
a put option may be purchased in order to protect
unrealized appreciation of a security or currency when
the Manager deems it desirable to continue to hold the
security or currency because of tax considerations. The
premium paid for the put option and any transaction
costs may reduce any capital gain or, in the case of
currency, ordinary income otherwise available for
distribution when the security or currency is eventually
sold.
Each Fund may also purchase put options at a time when
the Fund does not own the underlying security or
currency. By purchasing put options on a security or
currency it does not own, the Fund seeks to benefit from
a decline in the market price of the underlying security
or currency. If the put option is not sold when it has
remaining value, and if the market price of the
underlying security or currency remains equal to or
greater than the exercise price during the life of the
put option, the Fund will lose its entire investment in
the put option. In order for the purchase of a put
option to be profitable, the market price of the
underlying security or currency must decline
sufficiently below the exercise price to cover the
premium and transaction costs, unless the put option is
sold in a closing sale transaction.
The premium paid by a Fund when purchasing a put option
will be recorded as an asset in the Fund's statement of
assets and liabilities. This asset will be adjusted
daily to the option's current market value, as
calculated by the Fund. The asset will be extinguished
upon expiration of the option or the delivery of the
underlying security or currency upon the exercise of the
option. The asset with respect to a listed option will
also be extinguished upon the writing of an identical
option in a closing transaction.
Purchasing Call Options Government Securities Fund,
Concert Peachtree Growth Fund and Contrarian Fund) Each
Fund may purchase call options. As the holder of a call
option, a Fund has the right to purchase the underlying
security or currency at the exercise price at any time
during the option period. The Fund may enter into a
closing sale transactions with respect to such options,
exercise them or permit them to expire. Call options
may be purchased by the Fund for the purpose of
acquiring the underlying security or currency for its
portfolio. Utilized in this fashion, the purchase of
call options enables the Fund to acquire the security or
currency at the exercise price of the call option plus
the premium paid. At times the net cost of acquiring
the security or currency in this manner may be less than
the cost of acquiring the security or currency directly.
This technique may also be useful to the Fund in
purchasing a large block of securities that would be
more difficult to acquire by direct market purchases.
So long as it holds such a call option rather than the
underlying security or currency itself, the Fund is
partially protected from any unexpected decline in the
market price of the underlying security or currency and
in such event could allow the call option to expire,
incurring a loss only to the extent of the premium paid
for the option.
Each Fund may also purchase call options on underlying
securities or currencies it owns in order to protect
unrealized gains on call options previously written by
it. A call option would be purchased for this purpose
where tax considerations make it inadvisable to realize
such gains through a closing purchase transaction. Call
options may also be purchased at times to avoid
realizing losses that would result in a reduction of the
Fund's current return.
Futures Contracts (All Funds) Each Fund may enter into
interest rate or currency Futures Contracts ("Futures"
or "Futures Contracts") as a hedge against changes in
prevailing levels of interest rates or currency exchange
rates in order to establish more definitely the
effective return on securities or currencies held or
committed to be acquired by the Fund. A Fund's hedging
may include holding Futures as an offset against
anticipated changes in interest or currency exchange
rates. A Fund may also enter into Futures Contracts
based on financial indices including any index of U.S.
Government securities, foreign government securities or
corporate debt securities.
A Futures Contract provides for the future sale by one
party and purchase by another party of a specified
amount of a specific financial instrument or currency
for a specified price at a designated date, time and
place. The purchaser of a Futures Contract on an index
agrees to take or make delivery of an amount of cash
equal to the difference between a specified dollar
multiple of the value of the index on the expiration
date of the contract ("current contract value") and the
price at which the contract was originally struck. No
physical delivery of the debt securities underlying the
index is made. Brokerage fees are incurred when a
Futures Contract is bought or sold, and margin deposits
must be maintained at all times that the Futures
Contract is outstanding.
Although techniques other than sales and purchases of
Futures Contracts could be used to reduce the Fund's
exposure to interest rate and currency exchange rate
fluctuations, the Fund may be able to hedge its exposure
more effectively and at a lower cost through using
Futures Contracts.
Although Futures Contracts typically require future
delivery of and payment for financial instruments or
currencies, Futures Contracts are usually closed out
before the delivery date. Closing out an open Futures
Contract sale or purchase is effected by entering into
an offsetting Futures Contract purchase or sale,
respectively, for the same aggregate amount of the
identical financial instrument or currency and the same
delivery date. If the offsetting purchase price is less
than the original sale price, the Fund realizes a gain;
if it is more, the Fund realizes a loss. Conversely, if
the offsetting sale price is more than the original
purchase price, the Fund realizes a gain; if it is less,
the Fund realizes a loss. The transaction costs must
also be included in these calculations. There can be no
assurance, however, that the Fund will be able to enter
into an offsetting transaction with respect to a
particular Futures Contract at a particular time. If
the Fund is not able to enter into an offsetting
transaction, the Fund will continue to be required to
maintain the margin deposits of the underlying financial
instrument or currency on the relevant delivery date.
The Company intends to enter into Futures transactions
only on exchanges or boards of trade where there appears
to be a liquid secondary market. However, there can be
no assurance that such a market will exist for a
particular contract at a particular time.
As an example of an offsetting transaction, the
contractual obligations arising from the sale of one
Futures Contract of September Treasury Bills on an
exchange may be fulfilled at any time before delivery
under the Futures Contract is required (i.e., on a
specific date in September, the "delivery month") by the
purchase of another Futures Contract of September
Treasury Bills on the same exchange. In such instance
the difference between the price at which the Futures
Contract was sold and the price paid for the offsetting
purchase, after allowance for transaction costs,
represents the profit or loss to the Fund.
Persons who trade in Futures Contracts may be broadly
classified as "hedgers" and "speculators." Hedgers,
whose business activity involves investment or other
commitment in securities or other obligations, use the
Futures markets to offset unfavorable changes in value
that may occur because of fluctuations in the value of
the securities and obligations held or committed to be
acquired by them or fluctuations in the value of the
currency in which the securities or obligations are
denominated. Debtors and other obligors may also hedge
the interest cost of their obligations. The speculator,
like the hedger, generally expects neither to deliver
nor to receive the financial instrument underlying the
Futures Contract, but, unlike the hedger, hopes to
profit from fluctuations in prevailing interest rates or
currency exchange rates.
Each Fund's Futures transactions normally will be
entered into for traditional hedging purposes; that is,
Futures Contracts will be sold to protect against a
decline in the price of securities or currencies the
Fund owns, or Futures Contracts will be purchased to
protect a Fund against an increase in the price of
securities or currencies it has committed to purchase or
expects to purchase. The Funds may, however, enter into
Futures transactions for non-hedging purposes, subject
to applicable law.
"Margin" with respect to Futures Contracts is the amount
of Funds that must be deposited by the Fund with a
broker in order to initiate Futures trading and to
maintain the Fund's open positions in Futures Contracts.
A margin deposit made when the Futures Contract is
entered into ("initial margin") is intended to assure
the Fund's performance of the Futures Contract. The
margin required for a particular Futures Contract is set
by the exchange on which the Futures Contract is traded,
and may be significantly modified from time to time by
the exchange during the term of the Futures Contract.
Futures Contracts are customarily purchased and sold on
margins, which may be 5% or less of the value of the
Futures Contract being traded.
If the price of an open Futures Contract changes (by
increase in the case of a sale or by decrease in the
case of a purchase) so that the loss on the Futures
Contract reaches a point at which the margin on deposit
does not satisfy margin requirements, the broker will
require an increase in the margin deposit ("variation
margin"). If, however, the value of a position increases
because of favorable price changes in the Futures
Contract so that the margin deposit exceeds the required
margin, it is anticipated that the broker will pay the
excess to the Fund. In computing daily net asset
values, the Fund will mark to market the current value
of its open Futures Contracts. Each Fund expects to
earn interest income on its margin deposits.
Options on Futures Contracts (All Funds) Options on
Futures Contracts are similar to options on securities
or currencies except that options on Futures Contracts
give the purchaser the right, in return for the premium
paid, to assume a position in a Futures Contract (a long
position if the option is a call and a short position if
the option is a put), rather than to purchase or sell
the Futures Contract, at a specified exercise price at
any time during the period of the option. Upon exercise
of the option, the delivery of the Futures position by
the writer of the option to the holder of the option
will be accompanied by delivery of the accumulated
balance in the writer's Futures margin account which
represents the amount by which the market price of the
Futures Contract, at exercise, exceeds (in the case of
a call) or is less than (in the case of a put) the
exercise price of the option on the Futures Contract.
If an option is exercised on the last trading day prior
to the expiration date of the option, the settlement
will be made entirely in cash equal to the difference
between the exercise price of the option and the closing
level of the securities or currencies upon which the
Futures Contracts are based on the expiration date.
Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium
paid.
As an alternative to purchasing call and put options on
Futures, each Fund may purchase call and put options on
the underlying securities or currencies themselves (see
"Purchasing Put Options" and "Purchasing Call Options"
above). Such options would be used in a manner
identical to the use of options on Futures Contracts.
To reduce or eliminate the leverage then employed by the
Fund or to reduce or eliminate the hedge position then
held by the Fund, the Fund may seek to close out an
option position by selling an option covering the same
securities or currency and having the same exercise
price and expiration date. The ability to establish and
close out positions on options on Futures Contracts is
subject to the existence of a liquid market. It is not
certain that this market will exist at any specific
time.
In order to assure that the Funds will not be deemed to
be "commodity pools" for purposes of the Commodity
Exchange Act, regulations of the Commodity Futures
Trading Commission ("CFTC") require that each Fund enter
into transactions in Futures Contracts and options on
Futures Contracts only (i) for bona fide hedging
purposes (as defined in CFTC regulations), or (ii) for
non-hedging purposes, provided that the aggregate
initial margin and premiums on such non-hedging
positions does not exceed 5% of the liquidation value of
the Fund's assets.
Forward Currency Contracts, Options on Currency and
Currency Swaps (Government Securities Fund, Concert
Peachtree Growth Fund and Contrarian Fund) A forward
currency contract is an obligation to purchase or sell
a currency against another currency at a future date and
price as agreed upon by the parties. A Fund may either
accept or make delivery of the currency at the maturity
of the forward contract or, prior to maturity, enter
into a closing transaction involving the purchase or
sale of an offsetting contract. Each of these Funds
engages in forward currency transactions in anticipation
of, or to protect itself against, fluctuations in
exchange rates. A Fund might sell a particular foreign
currency forward, for example, when it holds bonds
denominated in that currency but anticipates, and seeks
to be protected against, decline in the currency against
the U.S. dollar. Similarly, a Fund might sell the U.S.
dollar forward when it holds bonds denominated in U.S.
dollars but anticipates, and seeks to be protected
against, a decline in the U.S. dollar relative to other
currencies. Further, a Fund might purchase a currency
forward to "lock in" the price of securities denominated
in that currency which it anticipates purchasing.
The matching of the increase in value of a forward
contract and the decline in the U.S. dollar equivalent
value of the foreign currency denominated asset that is
the subject of the hedge generally will not be precise.
In addition, a Fund may not always be able to enter
into foreign currency forward contracts at attractive
prices and this will limit the Fund's ability to use
such contract to hedge or cross-hedge its assets. Also,
with regard to a Fund's use of cross-hedges, there can
be no assurance that historical correlations between the
movement of certain foreign currencies relative to the
U.S. dollar will continue. Thus, at any time poor
correlation may exist between movements in the exchange
rates of the foreign currencies underlying the Fund's
cross-hedges and the movements in the exchange rates of
the foreign currencies in which the Fund's assets that
are the subject of such cross-hedges are denominated.
Forward contracts are traded in an interbank market
conducted directly between currency traders (usually
large commercial banks) and their customers. A forward
contract generally has no deposit requirement and is
consummated without payment of any commission. Each
Fund, however, may enter into forward contracts with
deposit requirements or commissions.
A put option gives a Fund, as purchaser, the right (but
not the obligation) to sell a specified amount of
currency at the exercise price until the expiration of
the option. A call option gives a Fund, as purchaser,
the right (but not the obligation) to purchase a
specified amount of currency at the exercise price until
its expiration. A Fund might purchase a currency put
option, for example, to protect itself during the
contract period against a decline in the value of a
currency in which it holds or anticipates holding
securities. If the currency's value should decline, the
loss in currency value should be offset, in whole or in
part, by an increase in the value of the put. If the
value of the currency instead should rise, any gain to
the Fund would be reduced by the premium it had paid for
the put option. A currency call option might be
purchased, for example, in anticipation of, or to
protect against, a rise in the value of a currency in
which the Fund anticipates purchasing securities.
Each Fund's ability to establish and close out positions
in foreign currency options is subject to the existence
of a liquid market. There can be no assurance that a
liquid market will exist for a particular option at any
specific time. In addition, options on foreign
currencies are affected by all of those factors that
influence foreign exchange rates and investments
generally.
A position in an exchange-listed option may be closed
out only on an exchange that provides a secondary market
for identical options. Exchange markets for options on
foreign currencies exist but are relatively new, and the
ability to establish and close out positions on the
exchanges is subject to maintenance of a liquid
secondary market. Closing transactions may be effected
with respect to options traded in the over-the-counter
("OTC") markets (currently the primary markets for
options on foreign currencies) only by negotiating
directly with the other party to the option contract or
in a secondary market for the option if such market
exists. Although each Fund intends to purchase only
those options for which there appears to be an active
secondary market, there is no assurance that a liquid
secondary market will exist for any particular option at
any specific time. In such event, it may not be
possible to effect closing transactions with respect to
certain options, with the result that the Fund would
have to exercise those options which it has purchased in
order to realize any profit. The staff of the
Securities and Exchange Commission ("SEC") has taken the
position that, in general, purchased OTC options and the
underlying securities used to cover written OTC options
are illiquid securities. However, a Fund may treat as
liquid the underlying securities used to cover written
OTC options, provided it has arrangements with certain
qualified dealers who agree that the Fund may repurchase
any option it writes for a maximum price to be
calculated by a predetermined formula. In these cases,
the OTC option itself would only be considered illiquid
to the extent that the maximum repurchase price under
the formula exceeds the intrinsic value of the option.
A Fund may also enter into currency swaps. A currency
swap is an arrangement whereby each party exchanges one
currency for another on a particular date and agrees to
reverse the exchange on a later date at a specific
exchange rate. Forward foreign currency contracts and
currency swaps are established in the interbank market
conducted directly between currency traders (usually
large commercial banks or other financial institutions)
on behalf of their customers.
Interest Rate Swaps, Caps and Floors (Government
Securities Fund, Concert Peachtree Growth Fund and
Contrarian Fund) Among the hedging transactions into
which the Funds may enter are interest rate swaps and
the purchase or sale of interest rate caps and floors.
Each Fund expects to enter into these transactions
primarily to preserve a return or spread on a particular
investment or portion of its portfolio or to protect
against any increase in the price of securities the Fund
anticipates purchasing at a later date. A Fund intends
to use these transactions as a hedge and not as a
speculative investment. Each Fund will not sell
interest rate caps or floors that it does not own.
Interest rate swaps involve the exchange by a Fund with
another party of their respective commitments to pay or
receive interest, e.g., an exchange of floating rate
payments for fixed rate payments. The purchase of an
interest rate cap entitles the purchaser, to the extent
that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a notional
principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified
index falls below a predetermined interest rate, to
receive payments of interest on a notional principal
amount from the party selling such interest rate floor.
A Fund may enter into interest rate swaps, caps and
floors on either an asset-based or liability-based
basis, depending on whether it is hedging its assets or
its liabilities, and will usually enter into interest
rate swaps on a net basis, i.e., the two payment streams
are netted, with the Fund receiving or paying, as the
case may be, only the net amount of the two payments.
Inasmuch as these hedging transactions are entered into
for good faith hedging purposes, the Manager and the
Funds believe such obligations do not constitute senior
securities and, accordingly will not treat them as being
subject to their borrowing restrictions. The net amount
of the excess, if any, of a Fund's obligations over its
entitlements with respect to each interest rate swap
will be accrued on a daily basis and an amount of cash
or liquid securities having an aggregate net asset value
at least equal to the accrued excess will be maintained
in a segregated account by a custodian that satisfies
the requirements of the 1940 Act. The Funds will not
enter into any interest rate swap, cap or floor
transaction unless the unsecured senior debt or the
claims-paying ability of the other party thereto is
rated in the highest rating category of at least one
nationally recognized rating organization at the time of
entering into such transaction. If there is a default
by the other party to such a transaction, a Fund will
have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown
substantially in recent years with a large number of
banks and investment banking firms acting both as
principals and as agents utilizing swap documentation.
As a result, the swap market has become relatively
liquid. Caps and floors are more recent innovations for
which standardized documentation has not yet been
developed and, accordingly, they are less liquid than
swaps.
New options and Futures Contracts and various
combinations thereof continue to be developed and the
Funds may invest in any such options and contracts as
may be developed to the extent consistent with their
investment objectives and regulatory requirements
applicable to investment companies.
OTHER PRACTICES
Securities of Foreign Issuers (All Funds) Concert
Peachtree Growth Fund may invest up to 35% of its
assets, and Contrarian Fund may invest up to 10% of its
assets, in securities of foreign issuers. Investments
in securities of foreign entities and securities
denominated in foreign currencies involve risks not
typically involved in domestic investment, including
fluctuations in foreign exchange rates, future foreign
political and economic developments, and the possible
imposition of exchange controls or other foreign or
United States governmental laws or restrictions
applicable to such investments. Since each Fund may
invest in securities denominated or quoted in currencies
other than the U.S. dollar, changes in foreign currency
exchange rates may affect the value of investments in
the portfolio and the accrued income and unrealized
appreciation or depreciation of investments. Changes in
foreign currency rates relative to the U.S. dollar will
affect the U.S. dollar value of the Fund's assets
denominated in that currency and the Fund's yield on
such assets.
Each Fund may also purchase foreign securities in the
form of American Depositary Receipts ("ADRs"). ADRs are
publicly traded on exchanges or over-the-counter in the
United States and are issued through "sponsored" or
"unsponsored" arrangements. In a sponsored ADR
arrangement, the foreign issuer assumes the obligation
to pay some or all of the depositary's transaction fees,
whereas under an unsponsored arrangement, the foreign
issuer assumes no obligation and the depositary's
transaction fees are paid by the ADR holders. In
addition, less information is available in the United
States about an unsponsored ADR than about a sponsored
ADR, and the financial information about a company may
not be as reliable for an unsponsored ADR as it is for
a sponsored ADR. Each Fund may invest in ADRs through
both sponsored and unsponsored arrangements.
Investment Grade Bond Fund also may purchase foreign
securities in the form of Yankee obligations. Yankee
obligations are dollar denominated obligations (bonds)
issued in the U.S. capital markets by foreign issuers.
Yankee obligations are subject to certain sovereign
risks, such as the risk that a foreign government might
prevent dollar denominated Funds from flowing across its
border. As compared with obligations issued in the
United States, Yankee obligations normally carry a
higher interest rate but are less actively traded.
With respect to certain foreign countries, there is the
possibility of expropriation of assets, confiscatory
taxation, political or social instability or diplomatic
developments which could affect investment in those
countries. There may be less publicly available
information about a foreign security than about a United
States security, and foreign entities may not be subject
to accounting, auditing and financial reporting
standards and requirements comparable to those of United
States entities. In addition, certain foreign
investments made by the Fund may be subject to foreign
withholding taxes, which would reduce the Fund's total
return on such investments and the amounts available for
distributions by the Fund to its shareholders. Foreign
financial markets, while growing in volume, have, for
the most part, substantially less volume than United
States markets, and securities of many foreign companies
are less liquid and their prices more volatile than
securities of comparable domestic companies.
The foreign markets also have different clearance and
settlement procedures, and in certain markets there have
been times when settlements have been unable to keep
pace with the volume of securities transactions making
it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets
of a Fund are not invested and no return is earned
thereon. The inability of each Fund to make intended
security purchases due to settlement problems could
cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio
securities due to settlement problems could result
either in losses to the Fund due to subsequent declines
in value of the portfolio security or, if the Fund has
entered into a contract to sell the security, could
result in possible liability to the purchaser. Costs
associated with transactions in foreign securities,
including custodial costs and foreign brokerage
commissions, are generally higher than with transactions
in United States securities. In addition, each Fund will
incur cost in connection with conversions between
various currencies. There is generally less government
supervision and regulation of exchanges, financial
institutions and issuers in foreign countries than there
are in the United States. These risks may be intensified
in the case of investments in developing or emerging
markets. In many developing markets, there is less
government supervision and regulation of business and
industry practices, stock exchanges, brokers and listed
companies than in the United States. The foreign
securities markets of many of the countries in which a
Fund may invest may also be smaller, less liquid, and
subject to greater price volatility than those in the
United States. Finally, in the event of a default on
any such foreign debt obligations, it may be more
difficult for a Fund to obtain or to enforce a judgment
against the issuers of such securities.
A developing country generally is considered to be a
country that is in the initial stages of its
industrialization cycle. Investing in the equity and
fixed-income markets of developing countries involves
exposure to economic structures that are generally less
diverse and mature, and to political systems that can be
expected to have less stability, than those of developed
countries. Historical experience indicates that the
markets of developing countries have been more volatile
than the markets of the more mature economics of
developed countries; however, such markets often have
provided higher rates of return to investors.
One or more of the risks discussed above could affect
adversely the economy of a developing market or a Fund's
investments in such a market. In Eastern Europe, for
example, upon the accession to power of Communist
regimes in the past, the governments of a number of
Eastern European countries expropriated a large amount
of property. The claims of many property owners against
those governments were never finally settled. There can
be no assurance that any investments that the Fund might
make in such emerging markets would not be expropriated,
nationalized or otherwise confiscated at some time in
the future. In such an event, the Fund could lose its
entire investment in the market involved. Moreover,
changes in the leadership or policies of such markets
could halt the expansion or reverse the liberalization
of foreign investment policies now occurring in certain
of these markets and adversely affect existing
investment opportunities.
Illiquid and Restricted Securities (Concert Peachtree
Growth Fund and Contrarian Fund) These Funds may invest
in restricted securities. As used herein, restricted
securities are those that have been sold in the United
States without registration under the Securities Act of
1933 and are thus subject to restrictions on resale.
Excluded from the limitation, however, are any
restricted securities which are eligible for resale
pursuant to Rule 144A under the Securities Act of 1933
and which have been determined to be liquid by the
Directors or by the Manager pursuant to board-approved
guidelines. The determination of liquidity is based on
the volume of reported trading in the institutional
secondary market for each security. This investment
practice could have the effect of increasing the level
of illiquidity in each Fund to the extent qualified
institutional buyers become for a time uninterested in
purchasing these restricted securities. These
difficulties and delays could result in a Fund's
inability to realize a favorable price upon disposition
of restricted securities, and in some cases might make
disposition of such securities at the time desired by
the Fund impossible. Since market quotations are not
readily available for restricted securities, such
securities will be valued by a method that the Directors
believe accurately reflects fair value.
Concert Peachtree Growth Fund may invest up to 10% of
its assets in restricted and illiquid securities.
Contrarian Fund may invest up to 15% of its assets in
restricted and illiquid securities, but currently does
not anticipate investing more than 5% of its assets in
these securities.
Forward Commitments (Government Securities Fund,
Investment Grade Bond Fund and Concert Peachtree Growth
Fund) These Funds may purchase or sell securities on a
"when-issued" or "delayed delivery" basis ("Forward
Commitments" or "Firm Commitment Agreements"). These
transactions occur when securities are purchased or sold
by a Fund with payment and delivery taking place in the
future, frequently a month or more after such
transactions. The price is fixed on the date of the
commitment, and the seller continues to accrue interest
on the securities covered by the Forward Commitment
until delivery and payment take place. At the time of
settlement, the market value of the securities may be
more or less than the purchase or sale price.
A Forward Commitment sale is covered if the Fund owns or
has the right to acquire the underlying securities
subject to the Forward Commitment. A Forward Commitment
sale is for cross-hedging purposes if it is not covered,
but is designed to provide a hedge against a decline in
value of a security which the Fund owns or has the right
to acquire. In either circumstance, the Fund maintains
in a segregated account (which is marked to market
daily) either the security covered by the Forward
Commitment or appropriate securities as required by the
1940 Act (which may have maturities which are longer
than the term of the Forward Commitment) with the Fund's
custodian in an aggregate amount equal to the amount of
its commitment as long as the obligation to sell
continues. By entering into a Forward Commitment sale
transaction, the Fund forgoes or reduces the potential
for both gain and loss in the security which is being
hedged by the Forward Commitment sale.
A Fund may either settle a Forward Commitment by taking
delivery of the securities or may either resell or
repurchase a Forward Commitment on or before the
settlement date in which event the Fund may reinvest the
proceeds in another Forward Commitment. A Fund's use of
Forward Commitments may increase its overall investment
exposure and thus its potential for gain or loss. When
engaging in Forward Commitments, the Fund relies on the
other party to complete the transaction; should the
other party fail to do so, the Fund might lose a
purchase or sale opportunity that could be more
advantageous than alternative opportunities at the time
of the failure.
Each Fund maintains a segregated account (which is
marked to market daily) of appropriate securities as
required by the 1940 Act covered by the Forward
Commitment with the Fund's custodian in an aggregate
amount equal to the amount of its commitment as long as
the obligation to purchase or sell continues. The
Government Securities Fund and Investment Grade Bond
Fund will not enter into Forward Commitments for the
purpose of investment leverage.
Repurchase Agreements (All Funds) Each Fund may enter
into repurchase agreements with broker-dealers or
domestic banks. The Directors will review on a
continuing basis those institutions which enter into a
repurchase agreement with a Fund. A repurchase
agreement is a short-term investment in which the
purchaser (i.e., the Fund) acquires ownership of a debt
security and the seller agrees to repurchase the
obligation at a future time and set price, usually not
more than seven days from the date of purchase, thereby
determining the yield during the purchaser's holding
period. Repurchase agreements are collateralized by the
underlying debt securities and may be considered to be
loans under the 1940 Act. The Fund will make payment
for such securities only upon physical delivery or
evidence of book entry transfer to the account of a
custodian or bank acting as agent. The seller under a
repurchase agreement is required to maintain the value
of the underlying securities marked to market daily at
not less than the repurchase price. The underlying
securities (normally securities of the U.S. Government,
or its agencies and instrumentalities), may have
maturity dates exceeding one year. The Fund does not
bear the risk of a decline in value of the underlying
security unless the seller defaults under its repurchase
obligation. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the
underlying securities and loss including: (a) possible
decline in the value of the underlying security during
the period while the Fund seeks to enforce its rights
thereto, (b) possible lack of access to income on the
underlying security during this period, and (c) expenses
of enforcing its rights.
For the purpose of investing in repurchase agreements,
the Manager may aggregate the cash that certain Funds
advised or subadvised by the Manager or its affiliates
would otherwise invest separately into a joint account.
The cash in the joint account is then invested in
repurchase agreements and the Funds that contributed to
the joint account share pro rata in the net revenue
generated. The Manager believes that the joint account
produces efficiencies and economies of scale that may
contribute to reduced transaction costs, higher returns,
higher quality investments and greater diversity of
investments for a Fund than would be available to a Fund
investing separately. The manner in which the joint
account is managed is subject to conditions set forth in
an SEC exemptive order authorizing this practice, which
conditions are designed to ensure the fair
administration of the joint account and to protect the
amounts in that account.
Reverse Repurchase Agreements (All Funds) Each Fund may
enter into reverse repurchase agreements with
broker/dealers and other financial institutions. Such
agreements involve the sale of portfolio securities with
an agreement to repurchase the securities at an
agreed-upon price, date and interest payment and are
considered to be borrowings by the Fund and are subject
to the borrowing limitations set forth under "Investment
Restrictions." Since the proceeds of reverse repurchase
agreements are invested, this would introduce the
speculative factor known as "leverage." The securities
purchased with the Funds obtained from the agreement and
securities collateralizing the agreement will have
maturity dates no later than the repayment date.
Generally, the effect of such a transaction is that the
Fund can recover all or most of the cash invested in the
portfolio securities involved during the term of the
reverse repurchase agreement, while in many cases it
will be able to keep some of the interest income
associated with those securities. Such transactions are
only advantageous if the Fund has an opportunity to earn
a greater rate of interest on the cash derived from the
transaction than the interest cost of obtaining that
cash. Opportunities to realize earnings from the use of
the proceeds equal to or greater than the interest
required to be paid may not always be available, and the
Fund intends to use the reverse repurchase technique
only when the Manager believes it will be advantageous
to the Fund. The use of reverse repurchase agreements
may exaggerate any interim increase or decrease in the
value of the Fund's assets. The Funds' custodian bank
will maintain a separate account for the Fund with
securities having a value equal to or greater than such
commitments.
Short Sales Against the Box (All Funds) Each Fund may
from time to time make short sales of securities it owns
or has the right to acquire through conversion or
exchange of other securities it owns. A short sale is
"against the box" to the extent that the Fund
contemporaneously owns or has the right to obtain at no
added cost securities identical to those sold short. In
a short sale, the Fund does not immediately deliver the
securities sold and does not receive the proceeds from
the sale. The Fund is said to have a short position in
the securities sold until it delivers the securities
sold, at which time it receives the proceeds of the
sale. The Fund may not make short sales or maintain a
short position if to do so would cause more than 25% of
its total assets, taken at market value, to be held as
collateral for such sales.
To secure its obligation to deliver the securities sold
short, the Fund will deposit in escrow in a separate
account with its custodian an equal amount of the
securities sold short or securities convertible into or
exchangeable for such securities. The Fund may close out
a short position by purchasing and delivering an equal
amount of the securities sold short, rather than by
delivering securities already held by the Fund, because
the Fund may want to continue to receive interest and
dividend payments on securities in its portfolio that
are convertible into the securities sold short. However,
the Fund will not purchase and deliver new securities to
satisfy its short order if such purchase and sale would
cause the Fund to derive more than 30% of its gross
income from the sale of securities held for less than
three months.
Borrowing (All Funds) Each Fund may borrow up to 33% of
the value of its total assets from banks for temporary
or emergency purposes, such as to meet the Fund's
redemptions.
Leverage (Government Securities Fund) The Fund may
borrow from banks, on a secured or unsecured basis, up
to 25% of the value of its assets. If the Fund borrows
and uses the proceeds to make additional investments,
income and appreciation from such investments will
improve its performance if they exceed the associated
borrowing costs but impair its performance if they are
less than such borrowing costs. This speculative factor
is known as "leverage." Leverage creates an opportunity
for increased returns to shareholders of the Fund but,
at the same time, creates special risk considerations.
For example, leverage may exaggerate changes in the net
asset value of the Fund's shares and in the Fund's
yield. Although the principal or stated value of such
borrowings will be fixed, the Fund's assets may change
in value during the time the borrowing is outstanding.
Leverage will create interest or dividend expenses for
the Fund which can exceed the income from the assets
retained. To the extent the income or other gain derived
from securities purchased with borrowed Funds exceed the
interest or dividends the Fund will have to pay in
respect thereof, the Fund's net income or other gain
will be greater than if leverage had not been used.
Conversely, if the income or other gain from the
incremental assets is not sufficient to cover the cost
of leverage, the net income or other gain of the Fund
will be less than if leverage had not been used. If the
amount of income from the incremental securities is
insufficient to cover the cost of borrowing, securities
might have to be liquidated to obtain required Funds.
Depending on market or other conditions, such
liquidations could be disadvantageous to the Fund.
The Fund is required to maintain continuous asset
coverage of 300% with respect to such borrowings, and to
sell (within three days) sufficient portfolio holdings
to restore such coverage, if it should decline to less
than 300% due to market fluctuations or otherwise, even
if disadvantageous from an investment standpoint.
Leveraging will exaggerate the effect of any increase or
decrease in the value of portfolio securities on the
Fund's net asset value, and money borrowed will be
subject to interest costs (which may include commitment
fees and/or the cost of maintaining minimum average
balances) which may or may not exceed the interest and
option premiums received from the securities purchased
with borrowed Funds.
Lending Portfolio Securities (All Funds) Consistent
with applicable regulatory requirements each Fund has
the ability to lend securities from its portfolio to
brokers, dealers and other financial organizations. A
Fund will not lend its portfolio securities to Salomon
Smith Barney or its affiliates unless it has applied for
and received specific authority to do so from the SEC.
Loans of portfolio securities will be collateralized by
cash, letters of credit or U.S. government securities in
an amount at least equal to the current market value of
the loaned securities. From time to time, a Fund may
return a part of the interest earned from the investment
of collateral received for securities loaned to the
borrower and/or a third party, which is unaffiliated
with the Fund or with Salomon Smith Barney, and which is
acting as a "finder".
In lending its securities, a Fund can increase its
income by continuing to receive interest on the loaned
securities as well as by either investing the cash
collateral in short-term instruments or obtaining yield
in the form of interest paid by the borrower when U.S.
government securities are used as collateral.
Requirements of the SEC, which may be subject to further
modifications, currently provide that the following
conditions must be met whenever a Fund's portfolio
securities are loaned: (a) the Fund must receive at
least 100% cash collateral or equivalent securities from
the borrower; (b) the borrower must increase such
collateral whenever the market value of the securities
loaned rises above the level of such collateral; (c) the
Fund must be able to terminate the loan at any time; (d)
the Fund must receive reasonable interest on the loan,
as well as an amount equal to dividends, interest or
other distributions on the loaned securities, and any
increase in market value; (e) the Fund may pay only
reasonable custodian fees in connection with the loan;
and (f) voting rights on the loaned securities may pass
to the borrower; provided, however, that if a material
event adversely affecting the investment in the loaned
securities occurs, the Board of Directors must terminate
the loan and regain the right to vote the securities.
The risks in lending portfolio securities, as with
other extensions of secured credit, consist of possible
delay in receiving additional collateral or in the
recovery of the securities or possible loss of rights in
the collateral should the borrower fail financially.
Loans will be made to firms deemed by to be of good
standing and will not be made unless, in the judgment of
, the consideration to be earned from such loans would
justify the risk.
RISK FACTORS
General Investors should realize that risk of loss is
inherent in the ownership of any securities and that
each Fund's net asset value will fluctuate, reflecting
fluctuations in the market value of its portfolio
positions.
Fixed Income Securities Investments in fixed income
securities may subject the Funds to risks, including the
following.
Interest Rate Risk. When interest rates decline, the
market value of fixed income securities tends to
increase. Conversely, when interest rates increase, the
market value of fixed income securities tends to
decline. The volatility of a security's market value
will differ depending upon the security's duration, the
issuer and the type of instrument.
Default Risk/Credit Risk. Investments in fixed income
securities are subject to the risk that the issuer of
the security could default on its obligations, causing
a Fund to sustain losses on such investments. A default
could impact both interest and principal payments.
Call Risk and Extension Risk. Fixed income securities
may be subject to both call risk and extension risk.
Call risk exists when the issuer may exercise its right
to pay principal on an obligation earlier than
scheduled, which would cause cash flows to be returned
earlier than expected. This typically results when
interest rates have declined and a Fund will suffer from
having to reinvest in lower yielding securities.
Extension risk exists when the issuer may exercise its
right to pay principal on an obligation later than
scheduled, which would cause cash flows to be returned
later than expected. This typically results when
interest rates have increased, and a Fund will suffer
from the inability to invest in higher yield securities.
Lower Rated and Below Investment Grade Fixed Income
Securities Securities which are rated BBB by S&P or Baa
by Moody's are generally regarded as having adequate
capacity to pay interest and repay principal, but may
have some speculative characteristics. Securities rated
below Baa by Moody's or BBB by S&P may have speculative
characteristics, including the possibility of default or
bankruptcy of the issuers of such securities, market
price volatility based upon interest rate sensitivity,
questionable creditworthiness and relative liquidity of
the secondary trading market. Because high yield bonds
have been found to be more sensitive to adverse economic
changes or individual corporate developments and less
sensitive to interest rate changes than higher-rated
investments, an economic downturn could disrupt the
market for high yield bonds and adversely affect the
value of outstanding bonds and the ability of issuers to
repay principal and interest. In addition, in a
declining interest rate market, issuers of high yield
bonds may exercise redemption or call provisions, which
may force a Fund, to the extent it owns such securities,
to replace those securities with lower yielding
securities. This could result in a decreased return.
Subsequent to its purchase by a Fund, an issue of
securities may cease to be rated or its rating may be
reduced below the minimum required for purchase by the
Fund. In addition, it is possible that Moody's, S&P and
other ratings agencies might not timely change their
ratings of a particular issue to reflect subsequent
events.
Foreign Securities Investments in securities of foreign
issuers involve certain risks not ordinarily associated
with investments in securities of domestic issuers.
Such risks include fluctuations in foreign exchange
rates, future political and economic developments, and
the possible imposition of exchange controls or other
foreign governmental laws or restrictions. Changes in
foreign currency exchange rates will, to the extent a
Fund does not adequately hedge against such
fluctuations, affect the value of securities in its
portfolio and the unrealized appreciation or
depreciation of investments so far as U.S. investors are
concerned. In addition, with respect to certain
countries, there is the possibility of expropriation of
assets, confiscatory taxation, political or social
instability or diplomatic developments which could
adversely affect investments in those countries.
There may be less publicly available information about
a foreign company than about a U.S. company, and foreign
companies may not be subject to accounting, auditing,
and financial reporting standards and requirements
comparable to or as uniform as those of U.S. companies.
Foreign securities markets, while growing in volume,
have, for the most part, substantially less volume than
U.S. markets, and securities of many foreign companies
are less liquid and their price more volatile than
securities of comparable U.S. companies. Transaction
costs on foreign securities markets are generally higher
than in the U.S. There is generally less government
supervision and regulation of exchanges, brokers and
issuers than there is in the U.S. A Fund might have
greater difficulty taking appropriate legal action in
foreign courts. Dividend and interest income from
foreign securities will generally be subject to
withholding taxes by the country in which the issuer is
located and may not be recoverable by the Fund or the
investors. Capital gains are also subject to taxation
in some foreign countries.
Currency Risks The U.S. dollar value of securities
denominated in a foreign currency will vary with changes
in currency exchange rates, which can be volatile.
Accordingly, changes in the value of the currency in
which a Fund's investments are denominated relative to
the U.S. dollar will affect the Fund's net asset value.
Exchange rates are generally affected by the forces of
supply and demand in the international currency markets,
the relative merits of investing in different countries
and the intervention or failure to intervene of U.S. or
foreign governments and central banks. However,
currency exchange rates may fluctuate based on factors
intrinsic to a country's economy. Some emerging market
countries also may have managed currencies, which are
not free floating against the U.S. dollar. In addition,
emerging markets are subject to the risk of restrictions
upon the free conversion of their currencies into other
currencies. Any devaluations relative to the U.S.
dollar in the currencies in which a Fund's securities
are quoted would reduce the Fund's net asset value per
share.
Special Risks of Countries in the Asia Pacific Region
Certain of the risks associated with international
investments are heightened for investments in these
countries. For example, some of the currencies of these
countries have experienced devaluations relative to the
U.S. dollar, and adjustments have been made periodically
in certain of such currencies. Certain countries, such
as Indonesia, face serious exchange constraints.
Jurisdictional disputes also exist, for example, between
South Korea and North Korea. In addition, Hong Kong
reverted to Chinese administration on July 1, 1997. The
long-term effects of this reversion are not known at
this time.
Securities of Developing/Emerging Markets Countries.
A developing or emerging markets country generally is
considered to be a country that is in the initial stages
of its industrialization cycle. Investing in the equity
markets of developing countries involves exposure to
economic structures that are generally less diverse and
mature, and to political systems that can be expected to
have less stability, than those of developed countries.
Historical experience indicates that the markets of
developing countries have been more volatile than the
markets of the more mature economies of developed
countries; however, such markets often have provided
higher rates of return to investors.
One or more of the risks discussed above could affect
adversely the economy of a developing market or a Fund's
investments in such a market. In Eastern Europe, for
example, upon the accession to power of Communist
regimes in the past, the governments of a number of
Eastern European countries expropriated a large amount
of property. The claims of many property owners against
those of governments may remain unsettled. There can be
no assurance that any investments that a Fund might make
in such emerging markets would not be expropriated,
nationalized or otherwise confiscated at some time in
the future. In such an event, the Fund could lose its
entire investment in the market involved. Moreover,
changes in the leadership or policies of such markets
could halt the expansion or reverse the liberalization
of foreign investment policies now occurring in certain
of these markets and adversely affect existing
investment opportunities.
Many of a Fund's investments in the securities of
emerging markets may be unrated or rated below
investment grade. Securities rated below investment
grade (and comparable unrated securities) are the
equivalent of high yield, high risk bonds, commonly
known as "junk bonds." Such securities are regarded as
predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in
accordance with the terms of the obligations and involve
major risk exposure to adverse business, financial,
economic, or political conditions.
Derivative Instruments In accordance with its
investment policies, each Fund may invest in certain
derivative instruments which are securities or contracts
that provide for payments based on or "derived" from the
performance of an underlying asset, index or other
economic benchmark. Essentially, a derivative
instrument is a financial arrangement or a contract
between two parties (and not a true security like a
stock or a bond). Transactions in derivative instruments
can be, but are not necessarily, riskier than
investments in conventional stocks, bonds and money
market instruments. A derivative instrument is more
accurately viewed as a way of reallocating risk among
different parties or substituting one type of risk for
another. Every investment by a Fund, including an
investment in conventional securities, reflects an
implicit prediction about future changes in the value of
that investment. Every Fund investment also involves a
risk that the portfolio Manager's expectations will be
wrong. Transactions in derivative instruments often
enable a Fund to take investment positions that more
precisely reflect the portfolio Manager's expectations
concerning the future performance of the various
investments available to the Fund. Derivative
instruments can be a legitimate and often cost-effective
method of accomplishing the same investment goals as
could be achieved through other investment in
conventional securities.
Derivative contracts include options, Futures Contracts,
forward contracts, forward commitment and when-issued
securities transactions, forward foreign currency
exchange contracts and interest rate, mortgage and
currency swaps. The following are the principal risks
associated with derivative instruments.
Leverage and associated price volatility: Leverage
causes increased volatility in the price and magnifies
the impact of adverse market changes, but this risk may
be consistent with the investment objective of even a
conservative Fund in order to achieve an average
portfolio volatility that is within the expected range
for that type of Fund.
Credit risk: The issuer of the instrument may default
on its obligation to pay interest and principal.
Liquidity and valuation risk: Many derivative
instruments are traded in institutional markets rather
than on an exchange. Nevertheless, many derivative
instruments are actively traded and can be priced with
as much accuracy as conventional securities. Derivative
instruments that are custom designed to meet the
specialized investment needs of a relatively narrow
group of institutional investors such as the Funds are
not readily marketable and are subject to a Fund's
restrictions on illiquid investments.
Correlation risk: There may be imperfect correlation
between the price of the derivative and the underlying
asset. For example, there may be price disparities
between the trading markets for the derivative contract
and the underlying asset.
Each derivative instrument purchased for a Fund's
portfolio is reviewed and analyzed by the Fund's
portfolio Manager to assess the risk and reward of such
instrument in relation the Fund's portfolio investment
strategy. The decision to invest in derivative
instruments or conventional securities is made by
measuring the respective instrument's ability to provide
value to the Fund and its shareholders.
Special Risks of Using Futures Contracts and Options on
Futures Contracts The prices of Futures Contracts are
volatile and are influenced by, among other things,
actual and anticipated changes in interest rates, which
in turn are affected by fiscal and monetary policies and
national and international political and economic
events.
At best, the correlation between changes in prices of
Futures Contracts and of the securities or currencies
being hedged can be only approximate. The degree of
imperfection of correlation depends upon circumstances
such as: variations in speculative market demand for
Futures and for debt securities or currencies, including
technical influences in Futures trading; and differences
between the financial instruments being hedged and the
instruments underlying the standard Futures Contracts
available for trading, with respect to interest rate
levels, maturities, and creditworthiness of issuers. A
decision of whether, when, and how to hedge involves
skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of unexpected
market behavior or interest rate trends.
Because of the low margin deposits required, Futures
trading involves an extremely high degree of leverage.
As a result, a relatively small price movement in a
Futures Contract may result in immediate and substantial
loss or gain, to the investor. For example, if at the
time of purchase, 10% of the value of the Futures
Contract is deposited as margin, a subsequent 10%
decrease in the value of the Futures Contract would
result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were
then closed out. A 15% decrease would result in a loss
equal to 150% of the original margin deposit, if the
Futures Contract were closed out. Thus, a purchase or
sale of a Futures Contract may result in losses in
excess of the amount invested in the Futures Contract.
A Fund, however, would presumably have sustained
comparable losses if, instead of the Futures Contract,
it had invested in the underlying financial instrument
and sold it after the decline. Where a Fund enters into
Futures transactions for non-hedging purposes, it will
be subject to greater risks and could sustain losses
which are not offset by gains on other Fund assets.
In order to be certain that each Fund has sufficient
assets to satisfy its obligations under a Futures
Contract, the Fund segregates and commits to back the
Futures Contract an amount of cash and liquid securities
equal in value to the current value of the underlying
instrument less the margin deposit.
Most U.S. Futures exchanges limit the amount of
fluctuation permitted in Futures Contract prices during
a single trading day. The daily limit establishes the
maximum amount that the price of a Futures Contract may
vary either up or down from the previous day's
settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of
Futures Contract, no trades may be made on that day at
a price beyond that limit. The daily limit governs only
price movement during a particular trading day and
therefore does not limit potential losses, because the
limit may prevent the liquidation of unfavorable
positions. Futures Contract prices have occasionally
moved to the daily limit for several consecutive trading
days with little or no trading, thereby preventing
prompt liquidation of Futures positions and subjecting
some Futures traders to substantial losses.
As with options on debt securities, the holder of an
option may terminate his position by selling an option
of the same series. There is no guarantee that such
closing transactions can be effected. The Fund will be
required to deposit initial margin and maintenance
margin with respect to put and call options on Futures
Contracts described above, and, in addition, net option
premiums received will be included as initial margin
deposits.
In addition to the risks which apply to all option
transactions, there are several special risks relating
to options on Futures Contracts. The ability to
establish and close out positions on such options will
be subject to the development and maintenance of a
liquid secondary market. It is not certain that this
market will develop. The Fund will not purchase options
on Futures Contracts on any exchange unless and until,
in the Manager's opinion, the market for such options
had developed sufficiently that the risks in connection
with options on Futures Contracts are not greater than
the risks in connection with Futures Contracts.
Compared to the use of Futures Contracts, the purchase
of options on Futures Contracts involves less potential
risk to the Fund because the maximum amount of risk is
the premium paid for the options (plus transaction
costs). Writing an option on a Futures Contract
involves risks similar to those arising in the sale of
Futures Contracts, as described above.
Portfolio Turnover Each Fund may purchase or sell
securities without regard to the length of time the
security has been held and thus may experience a high
rate of portfolio turnover. A 100% turnover rate would
occur, for example, if all the securities in a portfolio
were replaced in a period of one year. Under certain
market conditions a Fund may experience a high rate of
portfolio turnover. The rate of portfolio turnover is
not a limiting factor when the Manager deems it
desirable to purchase or sell securities or to engage in
options transactions. High portfolio turnover involves
correspondingly greater transaction costs, including any
brokerage commissions, which are borne directly by the
respective Fund and may increase the recognition of
short-term, rather than long-term, capital gains if
securities are held for one year or less and may be
subject to applicable income taxes. (For further
information see "Portfolio Turnover" below).
Recent Portfolio Turnover. Investment Grade Bond Fund:
Experienced a substantial increase in portfolio
turnover in fiscal 1999 as compared to fiscal 1998
because of volatility in the marketplace as well as due
to the efforts to restructure the fund by eliminating
some of the maturity in the fund through sales of
certain securities with the longest maturities. The
manager anticipates a return to lower portfolio turnover
year in fiscal year 2000 as the fund has completed its
restructuring. Government Securities Fund: Experienced
a substantial reduction in portfolio turnover in fiscal
1999 as compared to fiscal 1998 because of reduced
portfolio securities lending activity. The manager
anticipates a return to higher portfolio turnover in
fiscal year 2000 due to a return to increased securities
lending.
Other Risks. In the event of a shortage of the
underlying securities deliverable on exercise of an
option, the Options Clearing Corporation has the
authority to permit other, generally comparable
securities to be delivered in fulfillment of option
exercise obligations. If the Options Clearing
Corporation exercises its discretionary authority to
allow such other securities to be delivered it may also
adjust the exercise prices of the affected options by
setting different prices at which otherwise ineligible
securities may be delivered. As an alternative to
permitting such substitute deliveries, the Options
Clearing Corporation may impose special exercise
settlement procedures.
The hours of trading for options on U.S. government
securities may not conform to the hours during which the
underlying securities are traded. To the extent that
the options markets close before the markets for the
underlying securities, significant price and rate
movements can take place in the underlying markets that
cannot be reflected in the options markets.
Options are traded on exchanges on only a limited number
of U.S. government securities, and exchange regulations
limit the maximum number of options which may be written
or purchased by a single investor or a group of
investors acting in concert. The Company and other
clients advised by affiliates of Salomon Smith Barney
may be deemed to constitute a group for these purposes.
In light of these limits, the Board of Directors may
determine at any time to restrict or terminate the
public offering of the Fund's shares (including through
exchanges from the other Funds).
Exchange markets in options on U.S. government
securities are a relatively new and untested concept.
It is impossible to predict the amount of trading
interest that may exist in such options, and there can
be no assurance that viable exchange markets will
develop or continue.
INVESTMENT RESTRICTIONS tc \l1 "INVESTMENT RESTRICTIONS
The Fund's investment objectives and investment
restrictions 1-7 set forth below are Fundamental
policies of each Fund (except as otherwise indicated),
i.e., they may not be changed with respect to a Fund
without a majority vote of the outstanding shares of
that Fund. Investment Restrictions 8 through 13 may be
changed by the Board of Directors without the approval
of shareholders. (All other investment practices
described in the Prospectuses and this Statement of
Additional Information may be changed by the Board of
Directors without the approval of shareholders.)
Unless otherwise indicated, all percentage limitations
apply to each Fund on an individual basis, and apply
only at the time a transaction is entered into.
(Accordingly, if a percentage restriction is complied
with at the time of investment, a later increase or
decrease in the percentage which results from a relative
change in values or from a change in the Fund's net
assets will not be considered a violation.)
Restrictions Applicable to All Funds. No Fund may:
1. Invest in a manner that would cause it to fail to
be a "diversified company" under the 1940 Act and the
rules, regulations and orders thereunder.
2. Purchase or sell real estate, real estate
mortgages, commodities or commodity contracts, but this
restriction shall not prevent the Fund from (a)
investing in securities of issuers engaged in the real
estate business or the business of investing in real
estate (including interests in limited partnerships
owning or otherwise engaging in the real estate business
or the business of investing in real estate) and
securities which are secured by real estate or interests
therein; (b) holding or selling real estate received in
connection with securities it holds or held; (c) trading
in Futures Contracts and options on Futures Contracts
(including options on currencies to the extent
consistent with the Funds' investment objective and
policies); or (d) investing in real estate investment
trust securities.
3. Make loans. This restriction does not apply to:
(a) the purchase of debt obligations in which the Fund
may invest consistent with its investment objectives and
policies; (b) repurchase agreements; and (c) loans of
its portfolio securities, to the fullest extent
permitted under the 1940 Act.
4. Invest more than 25% of its total assets in
securities, the issuers of which conduct their principal
business activities in the same industry. For purposes
of this limitation, securities of the U.S. government
(including its agencies and instrumentalities) and
securities of state or municipal governments and their
political subdivisions are not considered to be issued
by members of any industry.
5. Issue "senior securities" as defined in the 1940
Act and the rules, regulations and orders thereunder,
except as permitted under the 1940 Act and the rules,
regulations and orders thereunder.
6. Restriction Applicable to all Funds except
Government Securities Fund. The Funds may not: Borrow
money, except that (a) the Fund may borrow from banks
for temporary or emergency (not leveraging) purposes,
including the meeting of redemption requests which might
otherwise require the untimely disposition of
securities, and (b) the Fund may, to the extent
consistent with its investment policies, enter into
reverse repurchase agreements, forward roll transactions
and similar investment strategies and techniques. To the
extent that it engages in transactions described in (a)
and (b), the Fund will be limited so that no more than
33-1/3% of the value of its total assets (including the
amount borrowed), valued at the lesser of cost or
market, less liabilities (not including the amount
borrowed), is derived from such transactions.
7. Restriction Applicable to all Funds except Concert
Peachtree Growth Fund and Contrarian Fund. The Funds may
not: Act as an underwriter of securities.
8. Invest in oil, gas or other mineral exploration or
development programs
9. Make investments in securities for the purpose of
exercising control over or management of the issuer;
10. Purchase any securities on margin (except for such
short-term credits as are necessary for the clearance of
purchases and sales of portfolio securities) or sell any
securities short (except "against the box"). For
purposes of this restriction, the deposit or payment by
the Fund of underlying securities and other assets in
escrow and collateral agreements with respect to initial
or maintenance margin in connection with Futures
Contracts and related options and options on securities,
indexes or similar items is not considered to be the
purchase of a security on margin;
11. Invest in securities of an issuer which, together
with any predecessor, has been in operation for less
than three years if, as a result, more than 5% of the
total assets of the Fund would then be invested in such
securities (for purposes of this restriction, issuers
include predecessors, sponsors, controlling persons,
general guarantors and originators of underlying
assets);
12. Purchase or otherwise acquire any security if, as
a result, more than 15% of its net assets would be
invested in securities that are illiquid;
13. Restrictions Applicable to all Funds except
Government Securities Fund. The Funds may not: Write,
purchase or sell puts, calls, straddles, spreads or any
combinations thereof (the Contrarian Fund and the
Concert Peachtree Growth Fund each may write or purchase
puts, calls, straddles, spreads and any combination
thereof up to 5% of their assets).
BROKERAGE
In selecting brokers or dealers to execute securities
transactions on behalf of a Fund, SSB Citi seeks the
best overall terms available. In assessing the best
overall terms available for any transaction, will
consider the factors that it deems relevant, including
the breadth of the market in the security, the price of
the security, the financial condition and execution
capability of the broker or dealer and the
reasonableness of the commission, if any, for the
specific transaction and on a continuing basis. In
addition, each investment advisory agreement authorizes
SSB Citi, in selecting brokers or dealers to execute a
particular transaction and in evaluating the best
overall terms available, to consider the brokerage and
research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) provided
to the Company, the other Funds and other accounts over
which or its affiliates exercise investment discretion.
For the fiscal year ended December 31, 1999 the
Contrarian Fund and the Concert Peachtree Growth Fund
directed brokerage transactions totaling approximately
$ 882,691,643 and $ 673,820,244, respectively, to
brokers because of research services provided. The
amount of brokerage commissions paid on such
transactions for the Contrarian Fund and the Concert
Peachtree Growth Fund total approximately $1,434,411 and
$408,613, respectively. The fees under the investment
advisory agreements and the administration agreement
between the Company and SSB Citi are not reduced by
reason of their receiving such brokerage and research
services. The Board of Directors periodically will
review the commissions paid by the Funds to determine if
the commissions paid over representative periods of time
were reasonable in relation to the benefits inuring to
the Company. SEC rules require that commissions paid to
Salomon Smith Barney by a Fund on exchange transactions
not exceed "usual and customary brokerage commissions."
The rules define "usual and customary" commissions to
include amounts which are "reasonable and fair compared
to the commission, fee or other remuneration received or
to be received by other brokers in connection with
comparable transactions involving similar securities
being purchased or sold on a securities exchange during
a comparable period of time." The Board of Directors,
particularly the Independent Directors of the Company
(as defined in the 1940 Act), has adopted procedures for
evaluating the reasonableness of commissions paid to
Salomon Smith Barney and reviews these procedures
periodically. In addition, under rules adopted by the
SEC, Salomon Smith Barney may directly execute
transactions for a Fund on the floor of any national
securities exchange, provided: (a) the Board of
Directors has expressly authorized Salomon Smith Barney
to effect such transactions; and (b) Salomon Smith
Barney annually advises the Fund of the aggregate
compensation it earned on such transactions.
To the extent consistent with applicable provisions of
the 1940 Act and the rules and exemptions adopted by the
SEC thereunder, the Board of Directors has determined
that transactions for a Fund may be executed through
Salomon Smith Barney and other affiliated broker-dealers
if, in the judgment ofSSB Citi, the use of such broker-
dealer is likely to result in price and execution at
least as favorable as those of other qualified broker-
dealers, and if, in the transaction, such broker-dealer
charges the Fund a rate consistent with that charged to
comparable unaffiliated customers in similar
transactions.
Portfolio securities are not purchased from or through
Salomon Smith Barney or any affiliated person of
Salomon Smith Barney where such entities are acting as
principal, except pursuant to the terms and conditions
of exemptive rules or orders promulgated by the SEC.
Pursuant to conditions set forth in rules of the SEC,
the Company may purchase securities from an underwriting
syndicate of which Salomon Smith Barney is a member (but
not from Salomon Smith Barney). Such conditions relate
to the price and amount of the securities purchased, the
commission or spread paid, and the quality of the
issuer. The rules further require that such purchases
take place in accordance with procedures adopted and
reviewed periodically by the Board of Directors,
particularly those Directors who are not interested
persons of the Company.
The Funds may use Salomon Smith Barney as a commodities
broker in connection with entering into Futures
Contracts and commodity options. Salomon Smith Barney
has agreed to charge the Funds commodity commissions at
rates comparable to those charged by Salomon Smith
Barney to its most favored clients for comparable trades
in comparable amounts.The following table sets forth
certain information regarding each Fund's payment of
brokerage commissions to Salomon Smith Barney:
Fiscal
Year Ended
December
31,
Contrarian
Fund
Concert
Peachtree
Growth Fund
Total Brokerage
Commissions
1997
$
658,099
891,375
1998
2,483,848
430,920
1999
1,434,411
408,613
Commissions paid to
1997
$167,712
20,784
Salomon Smith Barney
1998
72,150
0
1999
23,145
0
% of Total Brokerage
Commissions paid to
Salomon Smith Barney
1999
1.61%
0
% of Total Transactions
Involving Commissions
paid
to Salomon Smith Barney
1999
1.09%
0
No commissions were paid by the Investment Grade Bond
Fund and Government Securities Fund.
PORTFOLIO TURNOVER
For reporting purposes, a Fund's portfolio turnover rate
is calculated by dividing the lesser of purchases or
sales of portfolio securities for the fiscal year by the
monthly average of the value of the portfolio securities
owned by the Fund during the fiscal year. In
determining such portfolio turnover, all securities
whose maturities at the time of acquisition were one
year or less are excluded. A 100% portfolio turnover
rate would occur, for example, if all of the securities
in the Fund's investment portfolio (other than short-
term money market securities) were replaced once during
the fiscal year.
Investment Grade Bond Fund will not normally engage in
the trading of securities for the purpose of realizing
short-term profits, but it will adjust its portfolio as
considered advisable in view of prevailing or
anticipated market conditions. Portfolio turnover will
not be a limiting factor should SSB Citi deem it
advisable to purchase or sell securities.
For the fiscal years ended December 31, 1997,1998 and
1999, the portfolio turnover rates were as follows:
Fund
1997
1998
1999
Investment Grade Bond Fund
39%
32%
147%
Government Securities Fund
274%
334%
161%
Contrarian Fund
35%
157%
89%
Concert Peachtree Growth
Fund
227%
77%
94%
Increased portfolio turnover necessarily results in
correspondingly greater brokerage commissions which must
be paid by the Fund. To the extent portfolio trading
results in realization of net short-term capital gains,
shareholders will be taxed on such gains at ordinary tax
rates (except shareholders who invest through IRAs and
other retirement plans which are not taxed currently on
accumulations in their accounts).
SSB Citi manages a number of private investment accounts
on a discretionary basis and it is not bound by the
recommendations of the Salomon Smith Barney research
department in managing the Funds. Although investment
decisions are made individually for each client, at
times decisions may be made to purchase or sell the same
securities for one or more of the Funds and/or for one
or more of the other accounts managed by SSB Citi. When
two or more such accounts simultaneously are engaged in
the purchase or sale of the same security, transactions
are allocated in a manner considered equitable to each,
with emphasis on purchasing or selling entire orders
wherever possible. In some cases, this procedure may
adversely affect the price paid or received by the Fund
or the size of the position obtained or disposed of by
the Fund.
PURCHASE OF SHARES
The following classes of shares are available for
purchase. See the prospectus for a discussion of
factors to consider in selecting which Class of shares
to purchase.
Class A Shares Class A shares are sold to investors at
the public offering price, which is the net asset value
plus an initial sales charge as follows:
Government Securities Fund
and Investment Grade Bond Fund
Concert Peachtree Growth
Fund,
and Contrarian Fund
Amount of
Investment
Sales Charge as
% of
Offering Price
Sales Charge as
% of Amount
Invested
Sales Charge as %
of
Offering Price
Sales
Charge as
% of
Amount
Invested
Less than
$25,000
4.50%
4.71%
5.00%
5.26%
$ 25,000 -
49,999
4.00
4.17
4.00
4.17
50,000 - 99,999
3.50
3.63
3.50
3.63
100,000 -
249,999
2.50
2.56
3.00
3.09
250,000 -
499,999
1.50
1.52
2.00
2.04
500,000 and
over
- -0-
- -0-
- -0-
- -0-
* Purchases of Class A shares of $500,000 or more will
be made at net asset value without any initial sales
charge, but will be subject to a deferred sales charge
of 1.00% on redemptions made within 12 months of
purchase. The deferred sales charge on Class A shares
is payable to Salomon Smith Barney, which compensates
Salomon Smith Barney Financial Consultants and other
dealers whose clients make purchases of $500,000 or
more. The deferred sales charge is waived in the same
circumstances in which the deferred sales charge
applicable to Class B and Class L shares is waived.
See "Purchase of Shares-Deferred Sales Charge
Alternatives" and "Purchase of Shares-Waivers of
Deferred Sales Charge."
Members of a selling group may receive up to 90% of the
sales charge and may be deemed to be underwriters of a
Fund as defined in the Securities Act of 1933. The
reduced sales charges shown above apply to the aggregate
of purchases of Class A shares of a Fund made at one
time by "any person," which includes an individual and
his or her immediate family, or a director or other
fiduciary of a single trust estate or single fiduciary
account.
Class B Shares Class B shares are sold without an
initial sales charge but are subject to a deferred sales
charge payable upon certain redemptions. See "Deferred
Sales Charge Provisions" below.
Class L Shares Class L shares are sold with an initial
sales charge of 1.00% (which is equal to 1.01% of the
amount invested) and are subject to a deferred sales
charge payable upon certain redemptions. See "Deferred
Sales Charge Provisions" below. Until June 22, 2001
purchases of Class L shares by investors who were
holders of Class C shares of the Fund on June 12, 1998
will not be subject to the 1% initial sales charge.
Class Y Shares Class Y shares are sold without an
initial sales charge or deferred sales charge and are
available only to investors investing a minimum of
$15,000,000 (except purchases of Class Y shares by Smith
Barney Concert Allocation Series Inc., for which there
is no minimum purchase amount).
General
Investors may purchase shares from a Salomon Smith
Barney Financial Consultant or a Dealer Representative.
In addition, certain investors, including qualified
retirement plans purchasing through certain Dealer
Representatives, may purchase shares directly from a
Fund. When purchasing shares of a Fund, investors must
specify which class is being purchased. Salomon Smith
Barney and Dealer Representatives may charge their
customers an annual account maintenance fee in
connection with a brokerage account through which an
investor purchases or holds shares. Accounts held
directly at PFPC Global Fund Services ("sub-transfer
agent") are not subject to a maintenance fee.
Investors in Class A, Class B and Class L shares may
open an account in a Fund by making an initial
investment of at least $1,000 for each account, in the
Fund. Investors in Class Y shares may open an account by
making an initial investment of $15,000,000. Subsequent
investments of at least $50 may be made for all Classes.
For shareholders purchasing shares of a Fund through the
Systematic Investment Plan on a monthly basis, the
minimum initial investment requirement for Class A,
Class B and Class L shares and subsequent investment
requirement for all Classes is $25. For shareholders
purchasing shares of a Fund through the Systematic
Investment Plan on a quarterly basis, the minimum
initial investment required for Class A, Class B and
Class L shares and the subsequent investment requirement
for all Classes is $50. There are no minimum investment
requirements for Class A shares for employees of
Citigroup and its subsidiaries, including Salomon Smith
Barney, unitholders who invest distributions from a Unit
Investment Trust ("UIT") sponsored by Salomon Smith
Barney, and Directors/Trustees of any of the Smith
Barney Mutual Funds, and their spouses and children.
The Fund reserves the right to waive or change minimums,
to decline any order to purchase its shares and to
suspend the offering of shares from time to time. Shares
purchased will be held in the shareholder's account by
sub-transfer agent. Share certificates are issued only
upon a shareholder's written request to sub-transfer
agent.
Purchase orders received by the Fund or a Salomon Smith
Barney Financial Consultant prior to the close of
regular trading on the NYSE, on any day the Fund
calculates its net asset value, are priced according to
the net asset value determined on that day (the "trade
date"). Orders received by a Dealer Representative
prior to the close of regular trading on the NYSE on any
day a Fund calculates its net asset value, are priced
according to the net asset value determined on that day,
provided the order is received by a Fund or the Fund's
agent prior to its close of business. For shares
purchased through Salomon Smith Barney or a Dealer
Representative purchasing through Salomon Smith Barney,
payment for shares of the Fund is due on the third
business day after the trade date. In all other cases,
payment must be made with the purchase order.
Systematic Investment Plan Shareholders may make
additions to their accounts at any time by purchasing
shares through a service known as the Systematic
Investment Plan. Under the Systematic Investment Plan,
Salomon Smith Barney or your agent is authorized through
preauthorized transfers of at least $25 on a monthly
basis or at least $50 on a quarterly basis to charge the
shareholder's account held with a bank or other
financial institution on a monthly or quarterly basis as
indicated by the shareholder, to provide for systematic
additions to the shareholder's Fund account. A
shareholder who has insufficient Funds to complete the
transfer will be charged a fee of up to $25 by Salomon
Smith Barney or PFS Investments ("PFSI") or Citicorp
Investment Services. The Systematic Investment Plan
also authorizes Salomon Smith Barney to apply cash held
in the shareholder's Salomon Smith Barney brokerage
account or redeem the shareholder's shares of a Smith
Barney money market Fund to make additions to the
account. Additional information is available from the
Fund or a Salomon Smith Barney Financial Consultant or
a Dealer Representative, your Service Agent or a PFSI
Registered Representative.
Sales Charge Waivers and Reductions
Initial Sales Charge Waivers Purchases of Class A
shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales to (i)
Board Members and employees of Citigroup and its
subsidiaries and any Citigroup affiliated Funds
including the Smith Barney Mutual Funds (including
retired Board Members and employees); the immediate
families of such persons (including the surviving spouse
of a deceased Board Member or employee); and to a
pension, profit-sharing or other benefit plan for such
persons and (ii) employees of members of the National
Association of Securities Dealers, Inc., provided such
sales are made upon the assurance of the purchaser that
the purchase is made for investment purposes and that
the securities will not be resold except through
redemption or repurchase; (b) offers of Class A shares
to any other investment company to effect the
combination of such company with the Fund by merger,
acquisition of assets or otherwise; (c) purchases of
Class A shares by any client of a newly employed Salomon
Smith Barney Financial Consultant, Citibank Service
Agent or a PFS Registered Representative (for a period
up to 90 days from the commencement of the Financial
Consultant's employment with Salomon Smith Barney), on
the condition the purchase of Class A shares is made
with the proceeds of the redemption of shares of a
mutual Fund which (i) was sponsored by the Financial
Consultant's, Citibank Service Agent's or a PFS
Registered Representative's prior employer, (ii) was
sold to the client by the Financial Consultant and
(iii) was subject to a sales charge; (d) purchases by
shareholders who have redeemed Class A shares in the
Fund (or Class A shares of another Smith Barney Mutual
Fund that is offered with a sales charge) and who wish
to reinvest their redemption proceeds in the Fund,
provided the reinvestment is made within 60 calendar
days of the redemption; (e) purchases by accounts
managed by registered investment advisory subsidiaries
of Citigroup; (f) purchases by a separate account used
to Fund certain unregistered variable annuity contracts;
(g) investments of distributions from or proceeds from
a sale of a UIT sponsored by Salomon Smith Barney; and
(h) purchases by investors participating in a Salomon
Smith Barney fee-based arrangement. In order to obtain
such discounts, the purchaser must provide sufficient
information at the time of purchase to permit
verification that the purchase would qualify for the
elimination of the sales charge.
Right of Accumulation Class A shares of the Fund may be
purchased by "any person" (as defined above) at a
reduced sales charge or at net asset value determined by
aggregating the dollar amount of the new purchase and
the total net asset value of all Class A shares of the
Fund and of other Smith Barney Mutual Funds that are
offered with a sales charge as currently listed under
"Exchange Privilege" then held by such person and
applying the sales charge applicable to such aggregate.
In order to obtain such discount, the purchaser must
provide sufficient information at the time of purchase
to permit verification that the purchase qualifies for
the reduced sales charge. The right of accumulation is
subject to modification or discontinuance at any time
with respect to all shares purchased thereafter.
Letter of Intent - Class A Shares A Letter of Intent
for an amount of $50,000 or more provides an opportunity
for an investor to obtain a reduced sales charge by
aggregating investments over a 13 month period, provided
the investor refers to such Letter when placing orders.
For purposes of a Letter of Intent, the Amount of
Investment as referred to in the preceding sales charge
table includes (i) all Class A shares of the Fund and
other Smith Barney Mutual Funds offered with a sales
charge acquired during the term of the letter plus (ii)
the value of all Class A shares previously purchased and
still owned. Each investment made during the period
receives the reduced sales charge applicable to the
total amount of the investment goal. If the goal is not
achieved within the period, the investor must pay the
difference between the sales charges applicable to the
purchases made and the charges previously paid, or an
appropriate number of escrowed shares will be redeemed.
The term of the Letter will commence upon the date the
Letter is signed, or at the options of the investor, up
to 90 days before such date. Please contact a Salomon
Smith Barney Financial Consultant or Citi Fiduciary
Trust Company (the "Transfer Agent") to obtain a Letter
of Intent application.
Letter of Intent - Class Y Shares A Letter of Intent
may also be used as a way for investors to meet the
minimum investment requirement for Class Y shares
(except purchases of Class Y shares by Smith Barney
Concert Allocation Series Inc., for which there is no
minimum purchase amount). Such investors must make an
initial minimum purchase of $5,000,000 in Class Y shares
of the Fund and agree to purchase a total of $15,000,000
of Class Y shares of the Fund within thirteen months
from the date of the Letter. If a total investment of
$15,000,000 is not made within the 13-month period, as
applicable, all Class Y shares purchased to date will be
transferred to Class A shares, where they will be
subject to all fees (including a service fee of 0.25%)
and expenses applicable to the Fund's Class A shares,
which may include a deferred sales charge of 1.00%.
Please contact a Salomon Smith Barney Financial
Consultant or the Transfer Agent for further
information.
Deferred Sales Charge Provisions
Deferred Sales Charge Shares are: (a) Class B shares;
(b) Class L shares; and (c) Class A shares that were
purchased without an initial sales charge but are
subject to a deferred sales charge. A deferred sales
charge may be imposed on certain redemptions of these
shares.
Any applicable deferred sales charge will be assessed on
an amount equal to the lesser of the original cost of
the shares being redeemed or their net asset value at
the time of redemption. Deferred Sales Charge Shares
that are redeemed will not be subject to a deferred
sales charge to the extent the value of such shares
represents: (a) capital appreciation of Fund assets; (b)
reinvestment of dividends or capital gain distributions;
(c) with respect to Class B shares, shares redeemed more
than five years after their purchase; or (d) with
respect to Class L shares and Class A shares that are
Deferred Sales Charge Shares, shares redeemed more than
12 months after their purchase.
Class L shares and Class A shares that are Deferred
Sales Charge Shares are subject to a 1.00% deferred
sales charge if redeemed within 12 months of purchase.
In circumstances in which the deferred sales charge is
imposed on Class B shares, the amount of the charge will
depend on the number of years since the shareholder made
the purchase payment from which the amount is being
redeemed. Solely for purposes of determining the number
of years since a purchase payment, all purchase payments
made during a month will be aggregated and deemed to
have been made on the last day of the preceding Salomon
Smith Barney statement month. The following table sets
forth the rates of the charge for redemptions of Class
B shares by shareholders.
Year Since Purchase Payment Was Made
Deferred sales charge
First
5.00%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth and thereafter
0.00
Class B shares will convert automatically to Class A
shares eight years after the date on which they were
purchased and thereafter will no longer be subject to
any distribution fees. There will also be converted at
that time such proportion of Class B Dividend Shares
owned by the shareholders as the total number of his or
her Class B shares converting at the time bears to the
total number of outstanding Class B shares (other than
Class B Dividend Shares) owned by the shareholder.
In determining the applicability of any Deferred Sales
Charge, it will be assumed that a redemption is made
first of shares representing capital appreciation, next
of shares representing the reinvestment of dividends and
capital gain distributions and finally of other shares
held by the shareholder for the longest period of time.
The length of time Deferred Sales Charge Shares acquired
through an exchange have been held will be calculated
from the date the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds,
and Fund shares being redeemed will be considered to
represent, as applicable, capital appreciation or
dividend and capital gain distribution reinvestments in
such other Funds. For Federal income tax purposes, the
amount of the deferred sales charge will reduce the gain
or increase the loss, as the case may be, on the amount
realized on redemption. The amount of any deferred sales
charge will be paid to Salomon Smith Barney.
To provide an example, assume an investor purchased 100
Class B shares of the Fund at $10 per share for a cost
of $1,000. Subsequently, the investor acquired 5
additional shares of the Fund through dividend
reinvestment. During the fifteenth month after the
purchase, the investor decided to redeem $500 of his or
her investment. Assuming at the time of the redemption
the net asset value had appreciated to $12 per share,
the value of the investor's shares would be $1,260 (105
shares at $12 per share). The deferred sales charge
would not be applied to the amount which represents
appreciation ($200) and the value of the reinvested
dividend shares ($60). Therefore, $240 of the $500
redemption proceeds ($500 minus $260) would be charged
at a rate of 4.00% (the applicable rate for Class B
shares) for a total deferred sales charge of $9.60.
Waivers of Deferred Sales Charge
The deferred sales charge will be waived on: (a)
exchanges (see "Exchange Privilege"); (b) automatic cash
withdrawals in amounts equal to or less than 1.00% per
month of the value of the shareholder's shares at the
time the withdrawal plan commences (see "Automatic Cash
Withdrawal Plan") (however, automatic cash withdrawals
in amounts equal to or less than 2.00% per month of the
value of the shareholder's shares will be permitted for
withdrawal plans established prior to November 7, 1994);
(c) redemptions of shares within 12 months following the
death or disability of the shareholder; (d) redemptions
of shares made in connection with qualified
distributions from retirement plans or IRAs upon the
attainment of age 591/2; (e) involuntary redemptions; and
(f) redemptions of shares to effect a combination of the
Fund with any investment company by merger, acquisition
of assets or otherwise. In addition, a shareholder who
has redeemed shares from other Smith Barney Mutual Funds
may, under certain circumstances, reinvest all or part
of the redemption proceeds within 60 days and receive
pro rata credit for any deferred sales charge imposed on
the prior redemption.
Deferred sales charge waivers will be granted subject to
confirmation (by Salomon Smith Barney in the case of
shareholders who are also Salomon Smith Barney clients
or by the Transfer Agent in the case of all other
shareholders) of the shareholder's status or holdings,
as the case may be.
Volume Discounts
The schedule of sales charges on Class A shares
described in the prospectus applies to purchases made by
any purchaser, which is defined to include the
following: (a) an individual; (b) an individual's spouse
and his or her children purchasing shares for their own
account; (c) a director or other fiduciary purchasing
shares for a single trust estate or single fiduciary
account; and (d) a director or other professional
fiduciary (including a bank, or an investment adviser
registered with the SEC under the Investment Advisers
Act of 1940, as amended) purchasing shares of the Fund
for one or more trust estates or fiduciary accounts.
Purchasers who wish to combine purchase orders to take
advantage of volume discounts on Class A shares should
contact a Salomon Smith Barney Financial Consultant.
Determination of Public Offering Price
Each Fund offers its shares to the public on a
continuous basis. The public offering price for a Class
A, and a Class Y share of the Fund is equal to the net
asset value per share at the time of purchase, plus for
Class A shares an initial sales charge based on the
aggregate amount of the investment. The public offering
price for a Class L share includes a 1.00% initial sales
charge. Class A share purchases, including applicable
rights of accumulation, equaling or exceeding $500,000
is equal to the net asset value per share at the time of
purchase and no sales charge is imposed at the time of
purchase. A Deferred Sales Charge ("DSC"), however, is
imposed on certain redemptions of Class L shares, and
Class A shares when purchased in amounts exceeding
$500,000. The method of computation of the public
offering price is shown in the Fund's financial
statements, incorporated by reference in their entirety
into this SAI.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of
payment postponed (a) for any period during which The
New York Stock Exchange, Inc. ("NYSE") is closed (other
than for customary weekend and holiday closings), (b)
when trading in the markets the Fund normally utilizes
is restricted, or an emergency exists, as determined by
the SEC, so that disposal of the Fund's investments or
determination of net asset value is not reasonably
practicable or (c) for such other periods as the SEC by
order may permit for protection of the Fund's
shareholders.
If the shares to be redeemed were issued in certificate
form, the certificates must be endorsed for transfer (or
be accompanied by an endorsed stock power) and must be
submitted to the sub-transfer agent together with the
redemption request. Any signature appearing on a share
certificate, stock power or written redemption request
in excess of $10,000 must be guaranteed by an eligible
guarantor institution such as a domestic bank, savings
and loan institution, domestic credit union, member bank
of the federal Reserve System or member firm of a
national securities exchange. Written redemption
requests of $10,000 or less do not require a signature
guarantee unless more than one such redemption request
is made in any 10-day period or the redemption proceeds
are to be sent to an address other than the address of
record. Unless otherwise directed, redemption proceeds
will be mailed to an investor's address of record. The
Transfer Agent may require additional supporting
documents for redemptions made by corporations,
executors, administrators, directors or guardians. A
redemption request will not be deemed properly received
until the Transfer Agent receives all required documents
in proper form.
If a shareholder holds shares in more than one Class,
any request for redemption must specify the Class being
redeemed. In the event of a failure to specify which
Class, or if the investor owns fewer shares of the Class
than specified, the redemption request will be delayed
until the Transfer Agent receives further instructions
from Salomon Smith Barney, or if the shareholder's
account is not with Salomon Smith Barney, form the
shareholder directly. The redemption proceeds will be
remitted on or before the third business day following
receipt of proper tender, except on any days on which
the NYSE is closed or as permitted under the 1940 Act,
in extraordinary circumstances. Generally, if the
redemption proceeds are remitted to a Salomon Smith
Barney brokerage account, these Funds will not be
invested for the shareholder's benefit without specific
instruction and Salomon Smith Barney will benefit from
the use of temporarily uninvested Funds. Redemption
proceeds for shares purchased by check, other than a
certified or official bank check, will be remitted upon
clearance of the check, which may take up to fifteen
days.
Distributions in Kind
If the Board of Directors of a Fund determines that it
would be detrimental to the best interests of the
remaining shareholders to make a redemption payment
wholly in cash, a Fund may pay, in accordance with SEC
rules, any portion of a redemption in excess of the
lesser of $250,000 or 1.00% of the Fund's net assets by
a distribution in kind of Fund securities in lieu of
cash. Securities issued as a distribution in kind may
incur brokerage commissions when shareholders
subsequently sell those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal
Plan") is available to shareholders who own shares with
a value of at least $10,000 and who wish to receive
specific amounts of cash monthly or quarterly.
Withdrawals of at least $50 may be made under the
Withdrawal Plan by redeeming as many shares of the Fund
as may be necessary to cover the stipulated withdrawal
payment. Any applicable CDSC will not be waived on
amounts withdrawn by shareholders that exceed 1.00% per
month of the value of a shareholder's shares at the time
the Withdrawal Plan commences. (With respect to
Withdrawal Plans in effect prior to November 7, 1994,
any applicable CDSC will be waived on amounts withdrawn
that do not exceed 2.00% per month of the value of the
shareholder's shares that are subject to a CDSC). To the
extent withdrawals exceed dividends, distributions and
appreciation of a shareholder's investment in the Fund,
there will be a reduction in the value of the
shareholder's investment, and continued withdrawal
payments may reduce the shareholder's investment and
ultimately exhaust it. Withdrawal payments should not be
considered as income from investment in the Fund.
Furthermore, as it generally would not be advantageous
to a shareholder to make additional investments in the
Fund at the same time he or she is participating in the
Withdrawal Plan, purchases by such shareholder in
amounts of less than $5,000 ordinarily will not be
permitted.
Shareholders who wish to participate in the Withdrawal
Plan and who hold their shares in certificate form must
deposit their share certificates with the sub-transfer
agent as agent for Withdrawal Plan members. For
additional information, shareholders should contact a
Salomon Smith Barney Financial Consultant or their
Dealer Representaive. A shareholder who purchases shares
directly through the sub-transfer agent may continue to
do so and applications for participation in the
Withdrawal Plan must be received by the sub-transfer
agent no later than the eighth day of the month to be
eligible for participation beginning with that month's
withdrawal.
VALUATION OF SHARES
The prospectus states that the net asset value of the
Fund's Classes of shares will be determined on any date
that the NYSE is open. The NYSE is closed on the
following holidays: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Securities listed on a national securities exchange will
be valued on the basis of the last sale on the date on
which the valuation is made or, in the absence of sales,
at the mean between the closing bid and asked prices.
Over-the-counter securities will be valued on the basis
of the bid price at the close of business on each day,
or, if market quotations for these securities are not
readily available, at fair value, as determined in good
faith by the Fund's Board of Directors. Short-term
obligations with maturities of 60 days or less are
valued at amortized cost, which constitutes fair value
as determined by the Fund's Board of Directors.
Amortized cost involves valuing an instrument at its
original cost to the Fund and thereafter assuming a
constant amortization to maturity of any discount or
premium, regardless of the effect of fluctuating
interest rates on the market value of the instrument.
All other securities and other assets of the Fund will
be valued at fair value as determined in good faith by
the Fund's Board of Directors.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of certain Smith
Barney Mutual Funds may exchange all or part of their
shares for shares of the same class of other Smith
Barney Mutual Funds, to the extent such shares are
offered for sale in the shareholder's state of
residence, on the basis of relative net asset value per
share at the time of exchange as follows:
A. Class A and Class Y shareholders of the Fund
who wish to exchange all or a portion of their shares
for shares of the respective Class in any of the Funds
of the Smith Barney Mutual Fund Complex may do so
without imposition of any charge.
B. Class B shares of the Fund exchanged for
Class B shares of another Fund will be subject to the
higher applicable CDSC of the two Funds. Upon an
exchange, the new Class B shares will be deemed to have
been purchased on the same date as the Class B shares of
the Fund that have been exchanged.
C. Upon exchange, new Class L shares will be
deemed to have been purchased on the same date as the
Class L shares of the Fund that have been exchanged.
The exchange privilege enables shareholders to acquire
shares of the same Class in a Fund with different
investment objectives when they believe that a shift
between Funds is an appropriate investment decision.
This privilege is available to shareholders residing in
any state in which the Fund shares being acquired may
legally be sold. Prior to any exchange, the shareholder
should obtain and review a copy of the current
prospectus of each Fund into which an exchange is being
considered. Prospectuses may be obtained from a Smith
Barney Financial Consultant.
Upon receipt of proper instructions and all necessary
supporting documents, shares submitted for exchange are
redeemed at the then-current net asset value and,
subject to any applicable DSC, the proceeds immediately
invested, at a price as described above, in shares of
the Fund being acquired. Smith Barney reserves the right
to reject any exchange request. The exchange privilege
may be modified or terminated at any time after written
notice to shareholders.
Additional Information Regarding the Exchange Privilege
Although the exchange privilege is an important
benefit, excessive exchange transactions can be
detrimental to a Fund's performance and its
shareholders. The Manager may determine that a pattern
of frequent exchanges is excessive and contrary to the
best interests of the Fund's other shareholders. In
this event, each Fund may, at its discretion, decide to
limit additional purchases and/or exchanges by a
shareholder. Upon such a determination, the Fund will
provide notice in writing or by telephone to the
shareholder at least 15 days prior to suspending the
exchange privilege and during the 15 day period the
shareholder will be required to (a) redeem his or her
shares in the Fund or (b) remain invested in the Fund or
exchange into any of the Funds of the Smith Barney
Mutual Funds ordinarily available, which position the
shareholder would be expected to maintain for a
significant period of time. All relevant factors will
be considered in determining what constitutes an abusive
pattern of exchanges.
Additional Information Regarding Telephone Redemption
and Exchange Program.
Neither the Fund nor its agents will be liable for
following instructions communicated by telephone that
are reasonably believed to be genuine. The Fund and its
agents will employ procedures designed to verify the
identity of the caller and legitimacy of instructions
(for example, a shareholder's name and account number
will be required and phone calls may be recorded). The
Fund reserves the right to suspend, modify or
discontinue the telephone redemption and exchange
program or to impose a charge for this service at any
time following at least seven (7) days prior notice to
shareholders.
DISTRIBUTOR
CFBDS serves as the Company's distributor on a best
efforts basis pursuant to a distribution agreement (the
"Distribution Agreement") dated October 8, 1998 which
was most recently approved by the Company's Board of
Directors on July 22, 1999. Prior to October 8, 1998,
Salomon Smith Barney served as one of the Company's
distributor.
Prior to October 8, 1998, PFS served as one of the
Company's distributors with respect to the Concert
Peachtree Growth Fund and Investment Grade Bond Fund.
Salomon Smith Barney continues to sell the Funds shares
as part of the selling group.
For the fiscal year ended December 31, 1999, CFBDS and
its predecessor, Salomon Smith Barney and/or PFS
Distributors, incurred the following distribution
expenses for the Funds:
Fund
Advertis
ing
Printing
and
Mailing
of
Prospectu
ses
Support
Service
s
Salomon
Smith
Barney
Financial
Consultan
ts
Interes
t
Expense
Total
Concert Peachtree
Growth
$1,775
$360
$34,335
$2,555,36
4
$84,631
2,676,46
5
Government
Securities
82,442
5,772
979,246
821,281
18,277
1,907018
Contrarian
48,368
15,389
753,089
(399,142)
(25,523
)
392,181
Investment Grade
Bond
114,592
15,548
1,271,2
47
1,616,493
52,698
3,070578
Distribution Arrangements
To compensate Salomon Smith Barney , PFS Investments or
Citicorp Investment Services ("CIS"). As the case may
be, for the services it provides and for the expense it
bears under the Distribution Agreement, the Company has
adopted a services and distribution plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. Under the
Plan, each Fund pays Salomon Smith Barney and, with
respect to the Class A and Class B shares of Concert
Peachtree Growth Fund and Investment Grade Bond Fund,
PFS, and with respect to Class B shares of Concert
Peachtree Growth Fund, CIS, a service fee, accrued daily
and paid monthly, calculated at the annual rate of 0.25%
of the value of each Fund's average daily net assets
attributable to the Class A, Class B and Class L shares.
In addition, the Fund pays Salomon Smith Barney, and
with respect to the Class B shares of Concert Peachtree
Growth Fund and Investment Grade Bond Fund, PFS, and
with respect to Class B shares of Concert Peachtree
Growth Fund, CIS, a distribution fee with respect to the
Class B and Class L shares primarily intended to
compensate Salomon Smith Barney PFS and/or CIS for its
initial expense of paying Financial Consultants and
Registered Representatives, respectively, a commission
upon sales of those shares. Such shares' distribution
fees, which are accrued daily and paid monthly, are
calculated at the annual rate of 0.75% of the value of
average daily net assets attributable to the Class B and
Class L shares with respect to Contrarian Fund and
Concert Peachtree Growth Fund, and 0.50% of the value of
average daily net assets attributable to the Class B
shares and 0.45% of the value of average daily net
assets attributable to Class L shares, with respect to
Government Securities Fund and Investment Grade Bond
Fund.
The payments to Salomon Smith Barney Financial
Consultants for selling shares of a Class include a
commission or fee paid by the investor or Salomon Smith
Barney/PFS at the time of sale and, with respect to
Class A, Class B and Class L shares, a continuing fee
for servicing shareholder accounts for as long as a
shareholder remains a holder of that Class. Salomon
Smith Barney Financial Consultants or PFS Investment
Registered Representatives may receive different levels
of compensation for selling different Classes of shares.
Payments under each Plan with respect to Class B and
Class L shares are not tied exclusively to the
distribution and shareholder services expenses actually
incurred and the payments may exceed distribution
expenses actually incurred. The Company's Board of
Directors will evaluate the appropriateness of each Plan
and its payment terms on a continuing basis and in so
doing will consider all relevant factors, including
expenses borne by Salomon Smith Barney, amounts received
under the Plan and proceeds of the DSC.
With respect to Smith Barney Investment Grade Bond Fund
and Concert Peachtree Growth Fund, The fees are paid to
PFS Distributors, which in turn, pays PFS Investments
Inc. ("PFS Investments") to pay its PFS Investment
Registered Representatives for servicing shareholder
accounts and, in the case of Class B shares, to cover
expenses primarily intended to result in the sale of
those shares. These expenses include: advertising
expenses; the cost of printing and mailing prospectuses
to potential investors; payments to and expenses of PFS
Investments Registered Representatives and other persons
who provide support services in connection with the
distribution of shares; interest and/or carrying
charges; and indirect and overhead costs of PFS
Investments associated with the sale of Fund shares,
including lease, utility, communications and sales
promotion expenses.
PFS Investments may be deemed to be an underwriter for
purposes of the Securities Act of 1933. From time to
time, PFS or its affiliates may also pay for certain
non-cash sales incentives provided to PFS Investments
Registered Representatives. Such incentives do not have
any effect on the net amount invested. In addition to
the reallowances from the applicable public offering
price described above, PFS may from time to time, pay or
allow additional reallowances or promotional incentives,
in the form of cash or other compensation to PFS
Investments Registered Representatives who sell shares
of the Fund.
Redemption proceeds can be sent by check to the address
of record or by wire transfer to a bank account
designated on the application. A shareholder will be
charged $25 service fee for wire transfers and a nominal
service fee for transfers made directly to the
shareholder's bank by the Automated Clearing House
(ACH).
Commissions on Class A Shares: For the 1997 fiscal
year, the aggregate dollar amount of commissions on
Class A shares, all of which was paid to Salomon Smith
Barney, were as follows:
Class A
Name of Fund
Fiscal Year
Ended 12/31/97
Investment Grade Bond
$ 122,000
Government Securities Fund
50,000
Contrarian Fund
608,000
Concert Peachtree Growth
Fund
4,000
For the period January 1, 1998 through October 7, 1998
and for the period October 8, 1998 through December 31,
1998, the aggregate dollar amounts of commissions on
Class A shares, were as follows:
Class A
Name of Fund
1/1/98
through
10/07/98*
10/8/98
through
12/31/98**
1999
Investment Grade Bond
239,000
75,000
$190,000
Government Securities Fund
91,000
49,000
173,000
Contrarian Fund
39,000
9,000
21,000
Concert Peachtree Growth
Fund
3,000
1,000
12,000
* The entire amount was paid to Salomon Smith
Barney.
** The following amounts were paid to Salomon Smith
Barney: $67,500, $44,100, $8,100 and $900,
respectively.
Commissions of Class L shares. For the period June 12,
1998 through October 7, 1998 and for the period from
October 8, 1998 through December 31, 1998, the aggregate
dollar amounts of commission on Class L share were as
follows:
Class L
(On June 12, 1998, Class C
shares were renamed Class L
Shares)
Name of Fund
1/1/98
through
10/07/98*
10/8/98
through
12/31/98**
1999
Investment Grade Bond
$39,000
$39,000
$74,000
Government Securities Fund
7,000
10,000
62,000
Contrarian Fund
2,000
0
1,000
Concert Peachtree Growth
Fund
0
0
3,000
* The entire amount was paid to Salomon
Smith Barney.
** The following amounts were paid to
Salomon Smith Barney: $35,100, $9,000, $0 and $0,
respectively.
DSC paid to Smith Barney
Class B Shares
Name of Fund
Fiscal Year Ended
12/31/97
Fiscal Year Ended
12/31/98
Fiscal Year Ended
12/31/99
Investment Grade Bond
Fund*
$ 422,000
$ 224,000
$352,000
Government Securities
Fund*
305,000
87,000
105,000
Contrarian Fund*
1,112,000
1,214,000
929,000
Concert Peachtree Growth
Fund
3,000
6,000
3,000
* For the fiscal year ended December 31, 1998, the
Investment Grade Bond Fund, Government Securities
Fund and the Contrarian Fund Class A shares paid
a CDSC of $20,000, $6,000 and $2,000,
respectively. For the fiscal year ended December
31, 1999, the Investment Grade Bond Fund,
Government Securities Fund and the Contrarian
Fund Class A shares paid a CDSC of $12,000,
$6,000 and $0, respectively.
Class L Shares (formerly designated as Class C shares)
Name of Fund
Fiscal Year Ended
12/31/97
Fiscal Year Ended
12/31/98
Fiscal Year Ended
12/31/99
Investment Grade Bond Fund
$ 1,000
$5,000
$12,000
Government Securities Fund
- -
1,000
3,000
Contrarian Fund
9,000
3,000
0
Concert Peachtree Growth
Fund
- -
0
0
Distribution Plan Fees
Class A Shares
Name of Fund
Fiscal Year Ended
12/31/97
Fiscal Year Ended
12/31/98
Fiscal Year Ended
12/31/99
Investment Grade Bond Fund
$ 508,201
$597,417
$591,545
Government Securities Fund
920,147
883,941
798,545
Contrarian Fund
581,527
445,269
211,338
Concert Peachtree Growth
Fund
175,590
179,750
251,543
Class B Shares
Name of Fund
Fiscal Year Ended
12/31/97
Fiscal Year Ended
12/31/98
Fiscal Year Ended
12/31/99
Investment Grade Bond Fund
$1,813,383
$1,886,202
$1,694,973
Government Securities Fund
326,793
690,191
595,854
Contrarian Fund
5,310,433
4,387,199
2,067,789
Concert Peachtree Growth
Fund
423,160
469,725
737,429
Class L Shares (formerly designated as Class C shares)
Name of Fund
Fiscal Year Ended
12/31/97
Fiscal Year Ended
12/31/98
Fiscal Year Ended
12/31/99
Investment Grade Bond Fund
$ 53,111
$ 91,306
$135,473
Government Securities Fund
12,112
19,664
43,960
Contrarian Fund
747,010
569,578
231,915
Concert Peachtree Growth
Fund
1,779
1,883
4,846
Under its terms, the Plan continues from year to year,
provided such continuance is approved annually by vote
of the Board of Directors, including a majority of the
Independent Directors. The Plan may not be amended to
increase the amount to be spent for the services
provided by Salomon Smith Barney or PFS without
shareholder approval, and all amendments of the Plan
also must be approved by the Directors in the manner
described above. The Plan may be terminated at any time,
without penalty, by vote of a majority of the
Independent Directors or by a vote of a majority of the
outstanding voting securities of the Company (as defined
in the 1940 Act). Pursuant to the Plan, Salomon Smith
Barney and PFS will provide the Board of Directors
periodic reports of amounts expended under the Plan and
the purpose for which such expenditures were made.
PFS ACCOUNTS
Initial purchase of shares of the Fund must be made
through a PFS Investments Registered Representative by
completing the appropriate application. The completed
application should be forwarded to the sub-transfer
agent, P.O Box 105033 Atlanta, Georgia, GA 30348-5033.
Checks drawn on foreign banks must be payable in U.S.
dollars and have the routing number of the U.S. bank
encoded on the check. Subsequent investments may be sent
directly to the sub-transfer agent. In processing
applications and investments, the Transfer Agent acts as
agent for the investor and for PFS Investments and also
as agent for the distributor, in accordance with the
terms of the prospectus. If the Transfer Agent ceases to
act as such, a successor company named by the Fund will
act in the same capacity so long as the account remains
open.
Shares purchased will be held in the shareholder's
account by the sub-transfer agent. Share certificates
are issued only upon a shareholder's written request to
the sub-transfer agent. A shareholder that has
insufficient Funds to complete any purchase will be
charged a fee up to $30.00 per returned purchase by PFS.
Investors in Class A and Class B shares may open an
account by making an initial investment of at least
$1,000 for each account in each Class (except for
Systematic Investment Plan accounts), or $250 for an IRA
or a Self-Employed Retirement Plan in a Fund. Subsequent
investments of at least $50 may be made for each Class.
For participants in retirement plans qualified under
Section 403(b)(7) or Section 401(a) of the Code, the
minimum initial investment requirement for Class A and
Class B shares and the subsequent investment requirement
for each Class in the Fund is $25. For the Fund's
Systematic Investment Plan, the minimum initial
investment requirement for Class A and Class B shares
and the subsequent investment requirement for each Class
is $25. There are no minimum investment requirements in
Class A shares for employees of Citigroup and its
subsidiaries, including Salomon Smith Barney, Directors
or Trustees of any of the Smith Barney Mutual Funds, and
their spouses and children. The Fund reserves the right
to waive or change minimums, to decline any order to
purchase its shares and to suspend the offering of
shares from time to time. Purchase orders received by
the Transfer Agent or sub-transfer agent prior to the
close of regular trading on the NYSE, on any day the
Fund calculates its net asset value, are priced
according to the net asset value determined on that day.
Initial purchases of Fund shares may be made by wire.
The minimum investment that can be made by wire is
$10,000. Before sending the wire, the PFS Investments
Registered Representative must contact the sub-transfer
agent at (800) 665-8677 to obtain proper wire
instructions. Once an account is open, a shareholder
may make additional investments by wire. The
shareholder should contact the sub-transfer agent at
(800) 544-5445 to obtain proper wire instructions.
Upon completion of certain automated systems,
shareholders who establish telephone transaction
authority on their account and supply bank account
information may make additions to their accounts at any
time. Shareholders should contact the sub-transfer
agent at (800) 544-5445 between 8:00 a.m. and 8:00 p.m.
eastern time any day that the NYSE is open. If a
shareholder does not wish to allow telephone subsequent
investments by any person in his account, he should
decline the telephone transaction option on the account
application. The minimum telephone subsequent investment
is $250 and can be up to a maximum of $10,000. By
requesting a subsequent purchase by telephone, you
authorize the sub-transfer agent to transfer Funds from
the bank account provided for the amount of the
purchase. A shareholder that has insufficient Funds to
complete the transfer will be charged a fee of up to
$30.00 by PFS or the sub-transfer agent. A shareholder
who places a stop payment on a transfer or the transfer
is returned because the account has been closed, will
also be charged a fee of up to $30.00 by PFS or the sub-
transfer agent. Subsequent investments by telephone may
not be available if the shareholder cannot reach the
sub-transfer agent whether because all telephone lines
are busy or for any other reason; in such case, a
shareholder would have to use the Fund's regular
subsequent investment procedure described above.
Redemption proceeds can be sent by check to the address
of record or by wire transfer to a bank account
designated on the application. A shareholder will be
charged a $25 service fee for wire transfers and a
nominal service fee for transfers made directly to the
shareholders bank by the Automated Clearinghouse (ACH).
PFSSS will process usually two to three business days
after receiving the redemption request in good order.
The shareholder may request the proceeds to be mailed by
two day air express for a $8 fee that will be deducted
from the shareholders account or by one day express for
a $15 fee that will be deducted from the shareholder's
account.
Additional information regarding the sub-transfer
agent's services may be obtained by contacting the
Client Services Department at (800) 544-5445.
CITI ACCOUNTS
Each Fund offers two Classes of shares to investors
purchasing through Other Accounts: Class A shares and
Class B shares.
Each Service Agent has agreed to transmit to its
customers who are shareholders of the Fund appropriate
prior written disclosure of any fees that it may charge
them directly. Each Service Agent is responsible for
transmitting promptly orders of its customers. Your
Service agent is the shareholder of record for the
shares of the Fund you own.
For Citi Accounts, Class A and Class B shares of the
Fund may be exchanged for shares of the same class of
CitiFunds Cash Reserves and the following funds:
Concert Investment Series - Emerging Growth Fund
Concert Investment Series - Government Fund
Concert Investment Series - Growth and Income Fund
Concert Investment Series - Growth Fund
Concert Investment Series - International Equity
Fund
Concert Investment Series - Mid Cap Fund
Concert Investment Series - Municipal Bond Fund
Concert Peachtree Growth Fund
Smith Barney Concert Allocation Series Inc. -
Balanced Portfolio
Smith Barney Concert Allocation Series Inc. -
Conservative Portfolio
Smith Barney Concert Allocation Series Inc. -
Growth Portfolio
Smith Barney Concert Allocation Series Inc. - High
Growth Portfolio
Smith Barney Concert Allocation Series Inc. -
Income Portfolio
Each Service Agent has agreed to transmit to its
customers who are shareholders of the Fund appropriate
prior written disclosure of any fees that it may charge
them directly. Each Service Agent is responsible for
transmitting promptly orders for its customers.
Shareholders may redeem or exchange Fund shares by
telephone, if their account applications so permit, by
calling the Transfer Agent or, if they are customers of
a Service Agent, their Service Agent. During periods of
drastic economic or market changes or severe weather or
other emergencies, shareholders may experience
difficulties implementing a telephone exchange or
redemption. In such an event, another method of
instruction, such as a written request sent via an
overnight delivery service, should be considered. The
Fund, the Transfer Agent and each Service Agent will
employ reasonable procedures to confirm that
instructions communicated by telephone are genuine.
These procedures may include recording of the telephone
instructions and verification of a caller's identity by
asking for his or her name, address, telephone, Social
Security number, and account number. If these or other
reasonable procedures are not followed, the Fund, the
Transfer Agent or the Service Agent may be liable for
any losses to a shareholder due to unauthorized or
fraudulent instructions. Otherwise, the shareholder will
bear all risk of loss relating to a redemption or
exchange by telephone.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Fund normally is
determined as of the close of regular trading on the
NYSE on each day that the NYSE is open, by dividing the
value of the Fund's net assets attributable to each
Class by the total number of shares of the Class
outstanding. If the NYSE closes early, the Fund
accelerates the calculation of its net asset value to
the actual closing time. The NYSE is closed for the
following holidays: New Year's Day, Martin Luther King
Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Securities for which market quotations are readily
available are valued at current market value or, in
their absence, at fair value. Securities traded on an
exchange are valued at last sales prices on the
principal exchange on which each such security is
traded, or if there were no sales on that exchange on
the valuation date, the last quoted sale, up to the time
of valuation, on the other exchanges. If instead there
were no sales on the valuation date with respect to
these securities, such securities are valued at the mean
of the latest published closing bid and asked prices.
Over-the-counter securities are valued at last sales
price or, if there were no sales that day, at the mean
between the bid and asked prices. Options, Futures
Contracts and options thereon that are traded on
exchanges are also valued at last sales prices as of the
close of the principal exchange on which each is listed
or if there were no such sales on the valuation date,
the last quoted sale, up to the time of valuation, on
the other exchanges. In the absence of any sales on the
valuation date, valuation shall be the mean of the
latest closing bid and asked prices. Securities with a
remaining maturity of 60 days or less are valued at
amortized cost where the Board of Directors has
determined that amortized cost is fair value. Premiums
received from writing call and put options will be
recorded as a liability, the value of which is marked to
market daily. Any other investments of the Fund,
including restricted securities and listed securities
for which there is a thin market or that trade
infrequently (i.e., securities for which prices are not
readily available), are valued at a fair value
determined by the Board of Directors in good faith. This
value generally is determined as the amount that the
Fund could reasonably expect to receive from an orderly
disposition of these assets over a reasonable period of
time but in no event more than seven days. The value of
any security or commodity denominated in a currency
other than U.S. dollars will be converted into U.S.
dollars at the prevailing market rate as determined by
the Manager.
Foreign securities trading may not take place on all
days on which the NYSE is open. Further, trading takes
place in various foreign markets on days on which the
NYSE is not open. Accordingly, the determination of the
net asset value of the Fund may not take place
contemporaneously with the determination of the prices
of investments held by such Fund. Events affecting the
values of investments that occur between the time their
prices are determined and 4:00 P.M. on each day that the
NYSE is open will not be reflected in the Fund's net
asset value unless the Manager, under the supervision of
the Company's Board of Directors, determines that the
particular event would materially affect net asset
value. As a result, a Fund's net asset value may be
significantly affected by such trading on days when a
shareholder has no access to that Fund.
PERFORMANCE DATA
From time to time, a Fund may quote its yield or total
return in advertisements or in reports and other
communications to shareholders. The Fund may include
comparative performance information in advertising or
marketing the Fund's shares. Such performance
information may include the following industry and
financial publications: Barron's, Business Week, CDA
Investment Technologies, Inc., Changing Times, Forbes,
Fortune, Institutional Investor, Investors Daily, Money,
Morningstar Mutual Fund Values, The New York Times, USA
Today and The Wall Street Journal. To the extent any
advertisement or sales literature of a Fund describes
the expenses or performance of a Class, it will also
disclose such information for the other Classes.
Yield
A Fund's 30-day yield figure described below is
calculated according to a formula prescribed by the SEC.
The formula can be expressed as follows:
YIELD = 2[(a-b + 1)6 - 1]
cd
Where:
a =
Dividends and interest earned during the period.
b =
Expenses accrued for the period (net of reimbursement).
c =
the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d =
the maximum offering price per share on the last day
of the period.
For the purpose of determining the interest earned
(variable "a" in the formula) on debt obligations
purchased by the Fund at a discount or premium, the
formula generally calls for amortization of the discount
or premium; the amortization schedule will be adjusted
monthly to reflect changes in the market values of the
debt obligations.
Investors should recognize that in periods of declining
interest rates a Fund's yield will tend to be somewhat
higher than prevailing market rates, and in periods of
rising interest rates, the Fund's yield will tend to be
somewhat lower. In addition, when interest rates are
falling, the inflow of net new money to the Fund from
the continuous sales of its shares will likely be
invested in portfolio instruments producing lower yields
than the balance of the Fund's investments, thereby
reducing the current yield of the Fund. In periods of
rising interest rates, the opposite can be expected to
occur.
The yields for the 30-day period ended January 31, 1999
for Government Securities Fund's Class A, Class B, Class
L and Class Y Shares were 4.81%, 4.53%, 4.52% and 5.38%,
respectively.
The yields for the 30-day period ended January 31, 1999
for Investment Grade Bond Fund's Class A, Class B, Class
L and Class Y Shares were 5.32%, 5.08%, 5.09% and 5.92%,
respectively.
Average Annual Total Return
"Average annual total return" figures, as described
below, are computed according to a formula prescribed by
the SEC. The formula can be expressed as follows:
P(1+T)n = ERV
Where:
P =
a hypothetical initial payment of $1,000.
T =
Average annual total return.
n =
Number of years.
ERV
=
Ending Redeemable Value of a hypothetical $1,000 investment
made at the beginning of a 1-, 5- or 10-year period at the
end of the 1-5- or 10- year period (or fractional portion
thereof), assuming reinvestment of all dividends and
distributions. A Class' total return figures calculated in
accordance with the above formula assume that the maximum
applicable sales charge or maximum applicable CDSC, as the
case may be, has been deducted from the hypothetical $1,000
initial investment at the time of purchase or redemption, as
applicable.
Aggregate Total Return
Aggregate total return figures, as described below,
represent the cumulative change in the value of an
investment in the Class during of the specified period
and are computed by the following formula:
AGGREGATE TOTAL RETURN = ERV-P
P
Where:
P
=
a hypothetical initial payment of $1,000.
ERV =
Ending Redeemable Value of a hypothetical $10,000
investment made at the beginning of a 1-, 5- or 10-year
period (or fractional portion thereof) at the end of
the 1-5- or 10- year period (or fractional portion
thereof), assuming reinvestment of all dividends and
distributions.
The total returns below show what an investment in each
the Fund would have earned over a specified period of
time (one, five or ten years or since inception) without
assuming the payment of the maximum sales load when the
investment was first made and that all distributions and
dividends by the Fund were invested on the reinvestment
dates during the period, less all recurring fees. The
following chart reflects the financial performance of
the Funds through the period ended December 31, 1999 for
the one, five, and ten year periods and since inception:
Total Returns
5 Year
Since
Incepti
on
Since
Clas
s
1 Year
Average
Annual
5 Year
Cumulativ
e
Average
Annual
Inception
Cumulative
Contrarian Fund
Inception: 06/30/95
A
(5.27)%
N/A
N/A
5.22%
25.81%
Inception: 06/30/95
B
(5.99)
N/A
N/A
4.44
21.62
Inception: 06/30/95
L
(5.82)
N/A
N/A
4.47
21.82
Inception: 01/31/96
Y
(4.89)
N/A
N/A
5.63
23.97
Concert Peachtree
Fund
Inception: 07/03/95
A
19.88
N/A
N/A
19.06
119.24
Inception: 07/03/95
B
18.88
N/A
N/A
18.15
111.73
Inception: 08/08/95
L
18.67
N/A
N/A
16.96
97.28
Inception: 09/15/97
Y
20.41
N/A
N/A
22.73
57.28
Investment Grade
Bond Fund
Inception:11/6/92
A
(9.09)
9.19%
55.24%
7.95
72.83
Inception: 1/4/82
B*
(9.44)
8.67
51.55
10.61
514.58
Inception: 2/26/93
L
(9.44)
8.72
51.89
6.29
51.85
Inception: 2/7/96
Y
(8.68)
N/A
N/A
4.27
17.72
Government
Securities Fund
Inception: 11/06/92
A
(4.96)
5.94
33.45
5.58
47.45
Inception: 3/20/84
B**
(5.35)
5.41
30.14
7.27
202.77
Inception: 2/4/93
L
(5.41)
5.46
30.48
4.52
35.67
Inception: 2/7/96
Y
(4.61)
N/A
N/A
4.38
18.21
* The ten average annual return was 8.28% and the
ten year cumulative total return was 121.51 % for class
B shares
** The ten average annual return was 6.20% and the
ten year cumulative total return was 82.57% for class B
shares
The total returns below show what an investment in each
Fund would have earned over a specified period of time
(one, five or ten years or since inception) assuming the
payment of the maximum sales load when the investment
was first made and that all distributions and dividends
by the Fund were invested on the reinvestment dates
during the period, less all recurring fees. The average
annual total return is derived from this total return,
which provides the ending redeemable value. The
following chart reflects the financial performance of
the Funds through the period ended December 31, 1999 for
the one, and five year periods and since inception:
Total Returns
5 Year
Since
Incepti
on
Since
Clas
s
1 Year
Average
Annual
5 Year
Cumulativ
e
Average
Annual
Inception
Cumulative
Contrarian Fund
Inception: 06/30/95
A
(10.02)
%
N/A
N/A
4.04%
19.53%
Inception: 06/30/95
B
(10.14)
N/A
N/A
4.26
20.69
Inception: 06/30/95
L
(7.62)
N/A
N/A
4.24
20.62
Inception: 01/31/96
Y
(4.89)
N/A
N/A
5.63
23.97
Concert Peachtree
Fund
Inception: 07/03/95
A
(13.90)
N/A
N/A
17.72
108.32
Inception: 07/03/95
B
13.88
N/A
N/A
18.02
110.73
Inception: 08/08/95
L
16.45
N/A
N/A
16.96
97.28
Inception: 09/15/97
Y
20.41
N/A
N/A
22.73
57.28
Investment Grade
Bond Fund
Inception: 11/6/92
A
(13.20)
8.20%
48.29%
7.26
65.05
Inception: 1/4/82
B*
(13.30)
8.53
50.55
10.61
514.58
Inception: 2/26/93
L
(11.18)
8.50
50.34
6.13
50.30
Inception: 2/7/96
Y
(8.68)
N/A
N/A
4.27
17.72
Government
Securities Fund
Inception: 11/06/92
A
(9.24)
4.97
27.47
4.90
40.82
Inception: 12/31/82
B**
(9.42)
5.25
29.16
7.27
202.77
Inception: 10/18/93
L
(7.24)
5.26
29.21
4.36
34.31
Inception: 01/31/96
Y
(4.61)
N/A
N/A
4.38
18.21
* The ten average annual return was 8.28% and the
ten year cumulative total return was 121.51 % for class
B shares
** The ten average annual return was 6.20% and the
ten year cumulative total return was 82.57% for class B
shares
It is important to note that the yield and total return
figures set forth above are based on historical earnings
and are not intended to indicate future performance. A
Class' performance will vary from time to time depending
upon market conditions, the composition of the Fund's
investment portfolio and operating expenses and the
expenses exclusively attributable to the Class.
Consequently, any given performance quotation should not
be considered representative of the Class' performance
for any specified period in the future. Because
performance will vary, it may not provide a basis for
comparing an investment in the Class with certain bank
deposits or other investments that pay a fixed yield for
a stated period of time. Investors comparing the Class'
performance with that of other mutual Funds should give
consideration to the quality and maturity of the
respective investment companies' portfolio securities.
TAXES
The following is a summary of the material United States
federal income tax considerations regarding the
purchase, ownership and disposition of shares of a Fund
of the Company. Each prospective shareholder is urged
to consult his own tax adviser with respect to the
specific federal, state, local and foreign tax
consequences of investing in a Fund. The summary is
based on the laws in effect on the date of this
Statement of Additional Information, which are subject
to change.
The Funds and Their Investments
Each Fund intends to continue to qualify to be treated
as a regulated investment company each taxable year
under the Internal Revenue Code of 1986, as amended (the
"Code"). To so qualify, a Fund must, among other
things: (a) derive at least 90% of its gross income in
each taxable year from dividends, interest, payments
with respect to securities, loans and gains from the
sale or other disposition of stock or securities or
foreign currencies, or other income (including, but not
limited to, gains from options, futures or forward
contracts) derived with respect to its business of
investing in such stock, securities or currencies; and
(b) diversify its holdings so that, at the end of each
quarter of a Fund's taxable year, (i) at least 50% of
the market value of a Fund's assets is represented by
cash, securities of other regulated investment
companies, United States government securities and other
securities, with such other securities limited, in
respect of any one issuer, to an amount not greater than
5% of a Fund's assets and not greater than 10% of the
outstanding voting securities of such issuer and (ii)
not more than 25% of the value of its assets is invested
in the securities (other than United States government
securities or securities of other regulated investment
companies) of any one issuer or any two or more issuers
that a Fund controls and which are determined to be
engaged in the same or similar trades or businesses or
related trades or businesses.
As a regulated investment company, each Fund will not be
subject to United States federal income tax on its
investment company taxable income (i.e., income other
than any excess of its net realized long-term capital
gains over its net realized short-term capital losses
("net realized capital gains") or on its net realized
capital gains, if any, that it distributes to its
shareholders, provided that an amount equal to at least
90% of the sum of its investment company taxable income
plus or minus certain other adjustments as specified in
the Code, and its net tax-exempt income for the taxable
year is distributed, but will be subject to tax at
regular corporate rates on any taxable income or gains
that it does not distribute. Furthermore, each Fund
will be subject to a United States corporate income tax
with respect to such distributed amounts in any year
that it fails to qualify as a regulated investment
company or fails to meet this distribution requirement.
The Code imposes a 4% nondeductible excise tax on each
Fund to the extent a Fund does not distribute by the end
of any calendar year at least 98% of its net investment
income for that year and 98% of the net amount of its
capital gains (both long-and short-term) for the one-
year period ending, as a general rule, on October 31 of
that year. For this purpose, however, any income or
gain retained by a Fund that is subject to corporate
income tax will be considered to have been distributed
by year-end. In addition, the minimum amounts that must
be distributed in any year to avoid the excise tax will
be increased or decreased to reflect any
underdistribution or overdistribution, as the case may
be, from the previous year. Each Fund anticipates that
it will pay such dividends and will make such
distributions as are necessary in order to avoid the
application of this excise tax.
If, in any taxable year, a Fund fails to qualify as a
regulated investment company under the Code or fails to
meet the distribution requirement, it would be taxed in
the same manner as an ordinary corporation and
distributions to its shareholders would not be
deductible by a Fund in computing its taxable income.
In addition, in the event of a failure to qualify, a
Fund's distributions, to the extent derived from the
Fund's current or accumulated earnings and profits would
constitute dividends (eligible for the corporate
dividends-received deduction) which are taxable to
shareholders as ordinary income, even though those
distributions might otherwise (at least in part) have
been treated in the shareholders' hands as long-term
capital gains. If a Fund fails to qualify as a
regulated investment company in any year, it must pay
out its earnings and profits accumulated in that year in
order to qualify again as a regulated investment
company. In addition, if a Fund failed to qualify as a
regulated investment company for a period greater than
one taxable year, the Fund may be required to recognize
any net built-in gains (the excess of the aggregate
gains, including items of income, over aggregate losses
that would have been realized if it had been liquidated)
with respect to certain of its assets in order to
qualify as a regulated investment company in a
subsequent year.
On December 31, 1999, the unused capital loss carryovers
by the Investment Grade Bond Fund were approximately
$9,868,000. For Federal income tax purposes, this
amount is available to be applied against future capital
gains of the Fund that has the carryovers, if any, that
is realized prior to the expiration of the applicable
carryover. The carryover expires in 2007.
On December 31, 1999, the unused capital loss carryovers
by the Government Securities Fund were approximately
$75,237,000. For Federal income tax purposes, this
amount is available to be applied against future capital
gains of the Fund that has the carryovers, if any, that
is realized prior to the expiration of the applicable
carryover. The carryovers expire as follows:
December 31,
2002 2003 2007
$31,677,000 $195,000
$43,365,000
The Government Securities Fund may invest in zero
coupons securities having an original issue discount
(that is, the discount represented by the excess of the
stated redemption price at maturity over the issue
price). Each year, each Fund will be required to accrue
as income a portion of this original issue discount even
though the Fund will receive no cash payment of interest
with respect to these securities. In addition, if the
Fund acquires a security after its initial issuance at
a discount that resulted from fluctuations in prevailing
interest rates ("market discount"), the Fund may elect
to include in income each year a portion of this market
discount.
Each Fund will be required to distribute substantially
all of its income (including accrued original issue
discount and recognized market discount) in order to
qualify for "pass-through" federal income tax treatment
and also in order to avoid the imposition of the 4%
excise tax referred to above. Therefore, a Fund may be
required in some years to distribute an amount greater
than the total cash income the Fund actually receives.
In order to make the required distribution in such a
year, a Fund may be required to borrow or to liquidate
securities. The amount of cash that a Fund would have
to distribute, and thus the degree to which securities
would need to be liquidated or borrowings made, would
depend upon the number of shareholders who chose not to
have their dividends reinvested.
A Fund's transactions in options and futures, will be
subject to special provisions of the Code (including
provisions relating to "hedging transactions" and
"straddles") that, among other things, may affect the
character of gains and losses realized by a Fund (i.e.,
may affect whether gains or losses are ordinary or
capital), accelerate recognition of income to a Fund and
defer Fund losses. These rules could therefore affect
the character, amount and timing of distributions to
shareholders. These provisions also (a) will require a
Fund to mark-to-market certain types of the positions in
its Fund (i.e., treat them as if they were closed out)
and (b) may cause a Fund to recognize income without
receiving cash with which to pay dividends or make
distributions in amounts necessary to satisfy the
distribution requirements for avoiding income and excise
taxes. Each Fund will monitor its transactions, will
make the appropriate tax elections and will make the
appropriate entries in its books and records when it
acquires any option, Futures Contract or hedged
investment in order to mitigate the effect of these
rules and prevent disqualification of a Fund as a
regulated investment company.
A Fund's investment in Section 1256 contracts, such as
regulated Futures Contracts and options on most stock
indices, are subject to special tax rules. All section
1256 contracts held by a Fund at the end of its taxable
year are required to be marked to their market value,
and any unrealized gain or loss on those positions will
be included in the Fund's taxable income as if each
position had been sold for its fair market value at the
end of the taxable year. The resulting gain or loss
will be combined with any gain or loss realized by the
Fund from positions in section 1256 contracts closed
during the taxable year. Provided such positions were
held as capital assets and were not part of a "hedging
transaction" nor part of a "straddle," 60% of the
resulting net gain or loss will be treated as long-term
capital gain or loss, and 40% of such net gain or loss
will be treated as short-term capital gain or loss,
regardless of the period of time the positions were
actually held by the Fund.
Foreign Investments. Dividends or other income
(including, in some cases, capital gains) received by a
Fund from investments in foreign securities may be
subject to withholding and other taxes imposed by
foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate
such taxes in some cases. A Fund will not be eligible
to elect to treat any foreign taxes it pays as paid by
its shareholders, who therefore will not be entitled to
credits for such taxes on their own tax returns.
Foreign taxes paid by a Fund will reduce the return from
its investments.
Taxation of United States Shareholders
Dividends and Distributions. Any dividend declared by
a Fund in October, November or December of any calendar
year and payable to shareholders of record on a
specified date in such a month shall be deemed to have
been received by each shareholder on December 31 of such
calendar year and to have been paid by a Fund not later
than such December 31, provided that such dividend is
actually paid by a Fund during January of the following
calendar year. Each Fund intends to distribute annually
to its shareholders substantially all of its investment
company taxable income. Each Fund also currently
expects to distribute any net realized capital gains
annually to its shareholders. However, if a Fund
retains for investment an amount equal to all or a
portion of its net realized capital gains, it will be
subject to a corporate tax (currently at a rate of 35%)
on the amount retained. In that event, a Fund will
designate such retained amounts as undistributed capital
gains in a notice to its shareholders who (a) will be
required to include in income for United Stares federal
income tax purposes, as long-term capital gains, their
proportionate shares of the undistributed amount, (b)
will be entitled to credit their proportionate shares of
the 35% tax paid by the Fund on the undistributed amount
against their United States federal income tax
liabilities, if any, and to claim refunds to the extent
their credits exceed their liabilities, if any, and (c)
will be entitled to increase their tax basis, for United
States federal income tax purposes, in their shares by
an amount equal to 65% of the amount of undistributed
capital gains included in the shareholder's income.
Organizations or persons not subject to federal income
tax on such capital gains will be entitled to a refund
of their pro rata share of such taxes paid by a Fund
upon filing appropriate returns or claims for refund
with the Internal Revenue Service (the "IRS").
Dividends of net investment income and distributions of
net realized short-term capital gains are taxable to a
United States shareholder as ordinary income, whether
paid in cash or in shares. Distributions of net-long-
term capital gains, if any, that a Fund designates as
capital gains dividends are taxable as long-term capital
gains, whether paid in cash or in shares and regardless
of how long a shareholder has held shares of a Fund.
Dividends and distributions paid by a Fund (except for
the portion thereof, if any, attributable to dividends
on stock of U.S. corporations received by a Fund) will
not qualify for the deduction for dividends received by
corporations. Distributions in excess of a Fund's
current and accumulated earnings and profits will, as to
each shareholder, be treated as a tax-free return of
capital, to the extent of a shareholder's basis in his
shares of a Fund, and as a capital gain thereafter (if
the shareholder holds his shares of a Fund as capital
assets).
Investors considering buying shares just prior to a
dividend or capital gain distribution should be aware
that, although the price of shares purchased at that
time may reflect the amount of the forthcoming
distribution, such dividend or distribution may
nevertheless be taxable to them.
If a Fund is the holder of record of any stock on the
record date for any dividends payable with respect to
such stock, such dividends are included in a Fund's
gross income not as of the date received but as of the
later of (a) the date such stock became ex-dividend with
respect to such dividends (i.e., the date on which a
buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date the
Fund acquired such stock. Accordingly, in order to
satisfy its income distribution requirements, a Fund may
be required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an
earlier year than would otherwise be the case.
Sales of Shares. Upon the sale or exchange of his
shares, a shareholder will realize a taxable gain or
loss equal to the difference between the amount realized
and his basis in his shares. Such gain or loss will be
treated as capital gain or loss, if the shares are
capital assets in the shareholder's hands, and will be
long-term capital gain or loss if the shares are held
for more than one year and short-term capital gain or
loss if the shares are held for one year or less. Any
loss realized on a sale or exchange will be disallowed
to the extent the shares disposed of are replaced,
including replacement through the reinvesting of
dividends and capital gains distributions in a Fund,
within a 61-day period beginning 30 days before and
ending 30 days after the disposition of the shares. In
such a case, the basis of the shares acquired will be
increased to reflect the disallowed loss. Any loss
realized by a shareholder on the sale of a Fund share
held by the shareholder for six months or less will be
treated for United States federal income tax purposes as
a long-term capital loss to the extent of any
distributions or deemed distributions of long-term
capital gains received by the shareholder with respect
to such share.
Backup Withholding. Each Fund may be required to
withhold, for United States federal income tax purposes,
31% of the dividends and distributions payable to
shareholders who fail to provide a Fund with their
correct taxpayer identification number or to make
required certifications, or who have been notified by
the IRS that they are subject to backup withholding.
Certain shareholders are exempt from backup withholding.
Backup withholding is not an additional tax and any
amount withheld may be credited against a shareholder's
United States federal income tax liabilities.
Notices. Shareholders will be notified annually by a
Fund as to the United States federal income tax status
of the dividends, distributions and deemed distributions
attributable to undistributed capital gains (discussed
above in "Dividends and Distributions") made by a Fund
to its shareholders. Furthermore, shareholders will
also receive, if appropriate, various written notices
after the close of a Fund's taxable year regarding the
United States federal income tax status of certain
dividends, distributions and deemed distributions that
were paid (or that are treated as having been paid) by
a Fund to its shareholders during the preceding taxable
year.
CLASS Z SHARES
Qualified plan participants should consult their plan
document or tax advisors about the tax consequences of
participating in a Qualified Plan. In addition to the
considerations described below, there may be other
federal, state, local, and/or foreign tax applications
to consider. Provided a Qualified Plan has not borrowed
to finance its investment in the Fund, it will not be
taxable on the receipt of dividends and distributions
from the Fund. Qualified Plan participants should
consult their plan document or tax advisors about the
tax consequences of participating in a Qualified Plan.
Other Taxation
Distributions also may be subject to additional state,
local and foreign taxes depending on each shareholder's
particular situation.
The foregoing is only a summary of certain material tax
consequences affecting the Funds and their shareholders.
Shareholders are advised to consult their own tax
advisers with respect to the particular tax consequences
to them of an investment in the Funds
IRA AND OTHER PROTOTYPE RETIREMENT PLANS tc \l1 "IRA AND
OTHER PROTOTYPE RETIREMENT PLANS
Copies of the following plans with custody or trust
agreements have been approved by the Internal Revenue
Service and are available from the Company or Salomon
Smith Barney; investors should consult with their own
tax or retirement planning advisors prior to the
establishment of a plan.
IRA, Rollover IRA and Simplified Employee Pension - IRA
The Small Business Job Protection Act of 1996 changed
the eligibility requirements for participants in
Individual Retirement Accounts ("IRAs"). Under these
new provisions, if you or your spouse have earned
income, each of you may establish an IRA and make
maximum annual contributions equal to the lesser of
earned income or $2,000. As a result of this
legislation, married couples where one spouse is non-
working may now contribute a total of $4,000 annually to
their IRAs.
The Taxpayer Relief Act of 1997 has changed the
requirements for determining whether or not you are
eligible to make a deductible IRA contribution. Under
the new rules effective beginning January 1, 1998, if
you are considered an active participant in an employer-
sponsored retirement plan, you may still be eligible for
a full or partial deduction depending upon your combined
adjusted gross income ("AGI"). For married couples
filing jointly for 1998, a full deduction is permitted
if your combined AGI is $50,000 or less ($30,000 for
unmarried individuals); a partial deduction will be
allowed when AGI is between $50,000-$60,000 ($30,000-
$40,000 for an unmarried individual); and no deduction
when AGI is above $60,000 ($40,000 for an unmarried
individual). However, if you are married and your
spouse is covered by a employer-sponsored retirement
plan, but you are not, you will be eligible for a full
deduction if your combined AGI is $150,000 or less. A
partial deduction is permitted if your combined AGI is
between $150,000-$160,000 and no deduction is permitted
after $160,000.
The rules applicable to so-called "Roth IRAs" differ
from those described above.
A Rollover IRA is available to defer taxes on lump sum
payments and other qualifying rollover amounts (no
maximum) received from another retirement plan.
An employer who has established a Simplified Employee
Pension - IRA ("SEP-IRA") on behalf of eligible
employees may make a maximum annual contribution to each
participant's account of 15% (up to $24,000) of each
participant's compensation. Compensation is capped at
$160,000 for 1998.
Paired Defined Contribution Prototype
Corporations (including Subchapter S corporations) and
non-corporate entities may purchase shares of the
Company through the Salomon Smith Barney Prototype
Paired Defined Contribution Plan (the "Prototype"). The
Prototype permits adoption of profit-sharing provisions,
money purchase pension provisions, or both, to provide
benefits for eligible employees and their beneficiaries.
The Prototype provides for a maximum annual tax
deductible contribution on behalf of each Participant of
up to 25% of compensation, but not to exceed $30,000
(provided that a money purchase pension plan or both a
profit-sharing plan and a money purchase pension plan
are adopted thereunder).
SALOMON SMITH BARNEY RETIREMENT PROGRAMS
You may be eligible to participate in a retirement
program sponsored by Salomon Smith Barney or one of its
affiliates. The fund offers Class A and Class L shares
at net asset value to participating plans under the
programs. You can meet minimum investment and exchange
amounts, if any, by combining the plan's investments in
any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares
and the class of shares you may purchase depends on the
amount of your initial investment and/or the date your
account is opened. Once a class of shares is chosen, all
additional purchases must be of the same class.
For plans opened on or after March 1, 2000 that are not
plans for which Paychex Inc. or an affiliate provides
administrative services (a "Paychex plan"), Class A
shares may be purchased regardless of the amount
invested.
For plans opened prior to March 1, 2000 and for Paychex
plans, the class of shares you may purchase depends on
the amount of your initial investment:
Class A Shares. Class A shares may be purchased by plans
investing at least $1 million.
Class L Shares. Class L shares may be purchased by
plans investing less than $1 million. Class L shares
are eligible to exchange into Class A shares not later
than 8 years after the plan joined the program. They are
eligible for exchange in the following circumstances:
If the plan was opened on or after June 21, 1996 and a
total of $1 million is invested in Smith Barney Funds
Class L shares (other than money market funds), all
Class L shares are eligible for exchange after the plan
is in the program for 5 years.
If the plan was opened before June 21, 1996 and a total
of $500,000 is invested in Smith Barney Funds Class L
shares (other than money market funds) on December 31 in
any year, all Class L shares are eligible for exchange
on or about March 31 of the following year.
For more information, call your Salomon Smith Barney
Financial Consultant or the Transfer Agent.
Retirement Programs Opened On or After June 21, 1996.
If, at the end of the fifth year after the date the
participating plan enrolled in the Smith Barney 401(k)
Program or ExecChoiceTM Program, a participating plan's
total Class L holdings in all non-money market Smith
Barney Mutual Funds equal at least $1,000,000, the
participating plan will be offered the opportunity to
exchange all of its Class L shares for Class A shares of
the fund. (For participating plans that were originally
established through a Salomon Smith Barney retail
brokerage account, the five-year period will be
calculated from the date the retail brokerage account
was opened.) Such participating plans will be notified
of the pending exchange in writing within 30 days after
the fifth anniversary of the enrollment date and, unless
the exchange offer has been rejected in writing, the
exchange will occur on or about the 90th day after the
fifth anniversary date. If the participating plan does
not qualify for the five-year exchange to Class A
shares, a review of the participating plan's holdings
will be performed each quarter until either the
participating plan qualifies or the end of the eighth
year.
Retirement Programs Opened Prior to June 21, 1996. In
any year after the date a participating plan enrolled in
the Smith Barney 401(k) Program, if its total Class L
holdings in all non-money market Smith Barney Mutual
Funds equal at least $500,000 as of the calendar year-
end, the participating plan will be offered the
opportunity to exchange all of its Class L shares for
Class A shares of the same fund. Such Plans will be
notified in writing within 30 days after the last
business day of the calendar year and, unless the
exchange offer has been rejected in writing, the
exchange will occur on or about the last business day of
the following March.
Any participating plan in the Smith Barney 401(k) or
ExecChoiceTM Program, whether opened before or after
June 21, 1996, that has not previously qualified for an
exchange into Class A shares will be offered the
opportunity to exchange all of its Class L shares for
Class A shares of the same fund regardless of asset
size, at the end of the eighth year after the date the
participating plan enrolled in the Smith Barney 401(k)
or ExecChoiceTM Program. Such plans will be notified of
the pending exchange in writing approximately 60 days
before the eighth anniversary of the enrollment date
and, unless the exchange has been rejected in writing,
the exchange will occur on or about the eighth
anniversary date. Once an exchange has occurred, a
participating plan will not be eligible to acquire
additional Class L shares, but instead may acquire Class
A shares of the same fund. Any Class L shares not
converted will continue to be subject to the
distribution fee.
Participating plans wishing to acquire shares of the
fund through the Smith Barney 401(k) Program or the
Smith Barney ExecChoiceTM Program must purchase such
shares directly from the Transfer Agent. For further
information regarding these Programs, investors should
contact a Salomon Smith Barney Financial Consultant.
Retirement Programs Investing in Class B Shares: Class
B shares of a fund are not available for purchase by
participating plans opened on or after June 21, 1996,
but may continue to be purchased by any participating
plan in the Smith Barney 401(k) Program opened prior to
such date and originally investing in such Class. Class
B shares acquired are subject to a deferred sales charge
of 3.00% of redemption proceeds if the participating
plan terminates within eight years of the date the
participating plan first enrolled in the Smith Barney
401(k) Program.
At the end of the eighth year after the date the
participating plan enrolled in the Smith Barney 401(k)
Program, the participating plan will be offered the
opportunity to exchange all of its Class B shares for
Class A shares of the same fund. Such participating plan
will be notified of the pending exchange in writing
approximately 60 days before the eighth anniversary of
the enrollment date and, unless the exchange has been
rejected in writing, the exchange will occur on or about
the eighth anniversary date. Once the exchange has
occurred, a participating plan will not be eligible to
acquire additional Class B shares, but instead may
acquire Class A shares of the same fund. If the
participating plan elects not to exchange all of its
Class B shares at that time, each Class B share held by
the participating plan will have the same conversion
feature as Class B shares held by other investors. See
"Purchase, Exchange and Redemption of Shares-Deferred
Sales Charge Alternatives."
No deferred sales charge is imposed on redemptions of
Class B shares to the extent that the net asset value of
the shares redeemed does not exceed the current net
asset value of the shares purchased through reinvestment
of dividends or capital gain distributions, plus the
current net asset value of Class B shares purchased more
than eight years prior to the redemption, plus increases
in the net asset value of the shareholder's Class B
shares above the purchase payments made during the
preceding eight years. Whether or not the deferred sales
charge applies to the redemption by a participating plan
depends on the number of years since the participating
plan first became enrolled in the Smith Barney 401(k)
Program, unlike the applicability of the deferred sales
charge to redemptions by other shareholders, which
depends on the number of years since those shareholders
made the purchase payment from which the amount is being
redeemed.
The deferred sales charge will be waived on redemptions
of Class B shares in connection with lump-sum or other
distributions made by a participating plan as a result
of: (a) the retirement of an employee in the
participating plan; (b) the termination of employment of
an employee in the participating plan; (c) the death or
disability of an employee in the participating plan; (d)
the attainment of age 591/2 by an employee in the
participating plan; (e) hardship of an employee in the
participating plan to the extent permitted under Section
401(k) of the Code; or (f) redemptions of shares in
connection with a loan made by the participating plan to
an employee.
ADDITIONAL INFORMATION tc \l1 "ADDITIONAL INFORMATION
The Company was incorporated on September 29, 1981 under
the name Hutton Investment Series Inc. The Company's
corporate name was changed on December 29, 1988, July
30, 1993 and October 28, 1994, to SLH Investment
Portfolios Inc., Smith Barney Shearson Investment Funds
Inc., and Smith Barney Investment Funds, Inc.,
respectively.
PNC Bank, National Association located at 17th and
Chestnut Streets, Philadelphia, Pennsylvania 19103,
serves as the custodian of the Company. Under its
custody agreement with the Company, PNC Bank holds each
Funds portfolio securities and keeps all necessary
accounts and records. For its services, PNC Bank
receives a monthly fee based upon the month-end market
value of securities held in custody and also receives
transaction charges. PNC bank is authorized to
establish separate accounts for foreign securities owned
by the Company to be held with foreign branches of other
domestic banks as well as with certain foreign banks and
securities depositories. The assets of the Company are
held under bank custodianship in compliance with the
1940 Act.
Citi Fiduciary Trust Company, located at 388 Greenwich
Street, New York, NY 10013 serves as the Transfer Agent
and shareholder services agent of the Fund. PFPC Global
Fund Services, located at P.O Box 9699 Providence, RI
02940-9699 serves as the Fund's sub-transfer agent to
render certain shareholder record keeping and accounting
services functions.
The Fund has engaged the services of PFS Shareholder
Services as the sub-transfer agent for PFS Accounts
("sub-transfer agent"). The sub-transfer agent is
located at 3100 Breckinridge Blvd, Bldg 200, Duluth,
Georgia 30099-0062.
FINANCIAL STATEMENTS tc \l1 "FINANCIAL STATEMENTS
The Annual Reports for each Fund for the fiscal year
ended December 31, 1999 are incorporated herein by
reference in their entirety (filed on March 8, 2000;
accession number 0000091155-00-000189).
OTHER INFORMATION
In an industry where the average portfolio Manager has
seven years of experience (source: ICI, 1998), the
portfolio Managers of Smith Barney Mutual Funds average
21 years in the industry and 15 years with the firm.
Smith Barney Mutual Funds offers more than 60 mutual
Funds. We understand that many investors prefer an
active role in allocating the mix of Funds in their
portfolio, while others want the asset allocation
decisions to be made by experienced Managers.
That's why we offer four "styles" of Fund management
that can be tailored to suit each investor's unique
financial goals.
Style Pure Series
Our Style Pure Series Funds stay fully invested
within their asset class and investment style,
enabling investors to make asset allocation
decisions in conjunction with their Salomon Smith
Barney Financial Consultant.
Classic Investor Series
Our Classic Investor Series Funds offer a range
of equity and fixed income strategies that seek
to capture opportunities across asset classes and
investment styles using disciplined investment
approaches.
The Concert Allocation Series
As a Fund of Funds, investors can select a
Concert Portfolio that may help their investment
needs. As needs change, investors can easily
choose another long-term, diversified investment
from our Concert family.
Special Discipline Series
Our Special Discipline Series Funds are designed
for investors who are looking beyond more
traditional market categories: from natural
resources to a roster of state-specific municipal
Funds.
APPENDIX tc \l1 "APPENDIX
BOND (AND NOTE) RATINGS
Moody's Investors Service, Inc. ("Moody's")
Aaa - Bonds that are rated "Aaa" are judged to be of the
best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by
an exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the Fundamentally strong position of
such issues.
Aa - Bonds that are rated "Aa" are judged to be of high
quality by all standards. Together with the "Aaa" group
they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa"
securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements
present that make the long term risks appear somewhat
larger than in "Aaa" securities.
A - Bonds that are rated "A" possess many favorable
investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to
principal and interest are considered adequate but
elements may be present that suggest a susceptibility to
impairment sometime in the future.
Baa - Bonds that are rated "Baa" are considered as
medium grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
Ba - Bonds that are rated Ba are judged to have
speculative elements; their future cannot be considered
as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in
this class.
B - Bonds that are rated B generally lack
characteristics of desirable investments. Assurance of
interest and principal payments or of maintenance of
other terms of the contract over any long period of time
may be small.
Caa - Bonds that are rated Caa are of poor standing.
These issues may be in default or present elements of
danger may exist with respect to principal or interest.
Ca - Bonds that are rated Ca represent obligations which
are speculative in a high degree. Such issues are often
in default or have other marked short-comings.
C - Bonds that are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real
investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 in
each generic rating classification from Aa through B.
The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its
generic rating category.
Standard & Poor's Ratings Group ("Standard & Poors")
AAA - Debt rated "AAA" has the highest rating assigned
by Standard & Poor's. Capacity to pay interest and
repay principal is extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay
interest and repay principal and differs from the
highest rated issues only in small degree.
A - Debt rated "A" has a strong capacity to pay interest
and repay principal although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in
higher rated categories.
BBB - Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas
it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category
than in higher rated categories.
BB, B and CCC - Bonds rated BB and B are regarded, on
balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB
represents a lower degree of speculation than B and CCC
the highest degree of speculation. While such bonds
will likely have some quality and protective
characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse
conditions.
C - The rating C is reserved for income bonds on which
no interest is being paid.
D - Bonds rated D are in default, and payment of
interest and/or repayment of principal is in arrears.
S&P's letter ratings may be modified by the addition of
a plus or a minus sign, which is used to show relative
standing within the major rating categories, except in
the AAA category.
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.
Issuers rated "Prime-1" (or related supporting
institutions) have a superior capacity for repayment of
short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following
characteristics: leading market positions in well-
established industries; high rates of return on Funds
employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection;
broad margins in earnings coverage of fixed financial
charges and high internal cash generation; well-
established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated "Prime-2" (or related supporting
institutions) have a strong capacity for repayment of
short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above
but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still
appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
Standard & Poor's Ratings Group
A-1 - This designation indicates that the degree of
safety regarding timely payment is either overwhelming
or very strong. Those issues determined to possess
overwhelming safety characteristics will be denoted with
a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this
designation is strong. However, the relative degree of
safety is not as high as for issues designated A-1.
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