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[LOGO] Smith Barney Mutual Funds
PROSPECTUS
Premier
Selections Fund
Class A, B, L and Y Shares
------------------------------------
July 16, 1999
as amended
March 6, 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.
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Premier Selections Fund
Contents
<TABLE>
<S> <C>
Investments, risks and performance.......................................... 2
More on the fund's investments.............................................. 7
Management.................................................................. 8
Choosing a class of shares to buy........................................... 10
Comparing the fund's classes................................................ 11
Sales charges............................................................... 12
More about deferred sales charges........................................... 14
Buying shares............................................................... 15
Exchanging shares........................................................... 16
Redeeming shares............................................................ 18
Other things to know about share transactions............................... 20
Salomon Smith Barney Retirement Programs.................................... 22
Dividends, distributions, and taxes......................................... 23
Share price................................................................. 24
</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.
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Investments, risks and performance
Investment objective
Long-term capital growth.
Principal investment strategies
Key investments The fund invests primarily in companies with large market capi-
talizations--those with total market capitalizations of $5 billion or more at
the time of investment. The fund's holdings will be comprised of stocks of
approximately 40 companies.
There can be no assurance that the fund will achieve its investment objective.
Selection process The fund's strategy is to combine the efforts of two
portfolio managers with different styles (value and growth) and to invest in
the most attractive stock selections in the opinion of each portfolio manager.
Each portfolio manager builds a portfolio of stocks which he or she believes
will offer superior long-term capital growth potential. Each portfolio manager
may select up to 20 stocks. In connection with the execution of purchases and
sales, each portfolio manager may hold temporarily more or fewer than 20
securities. The size of the fund's position in any particular security will be
determined by SSB Citi Fund Management LLC (successor to SSBC Fund Management
Inc.) (the "Manager") based on the recommendation of the portfolio managers.
In order to maintain an approximately equal division of all of the fund's
assets between the two portfolio managers, the Manager will:
.Divide all daily cash inflows (purchases and reinvested distributions) and
outflows (redemptions and expense items) between the two portfolio managers
.Rebalance the assets available for investment by each portfolio manager quar-
terly to take account of market fluctuations in order to maintain the approx-
imately equal allocation
.Rebalance the allocation of value and growth securities in the fund's portfo-
lio at any time in which the percentage of the fund's portfolio invested in
either value or growth securities equals or exceeds 55% of the fund's total
assets invested in both value and growth securities for a period of more than
10 days
As a consequence of the rebalancing of assets described above, the Manager will
reallocate assets from the better performing investment style to the other.
Reallocations may result in early recognition of taxable gains and in
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additional transaction costs to the extent that the sales of securities as part
of these reallocations result in higher portfolio turnover. In addition, if one
portfolio manager buys a security during a time frame when the other portfolio
manager sells it, the net position of the fund in the security may be approxi-
mately the same as it would have been with a single portfolio manager and no
such sale and purchase. The Manager will consider these costs in determining
the allocation and reallocation of assets. Where possible, in these instances,
the Manager will seek to avoid transaction costs.
Growth Style The portfolio manager emphasizes individual security selection.
The portfolio manager attempts to identify established large capitalization
companies with the highest growth potential. The portfolio manager then ana-
lyzes each company in detail, focusing on its management, strategy and competi-
tive market position. Finally, the portfolio manager attempts to identify the
most attractively priced securities among the growth companies identified.
In selecting individual companies for investment, the portfolio manager consid-
ers:
.Above average growth prospects
.Technological innovation
.Industry dominance
.Competitive products and services
.Global scope
.Long term operating history
.Strong cash flow
.High return on equity
.Strong financial condition
.Experienced and effective management
Value Style The portfolio manager employs a two-step stock selection process in
the search for undervalued stocks of established, well recognized but temporar-
ily out of favor companies. First, the portfolio manager uses proprietary mod-
els and fundamental research to identify stocks that are underpriced in the
market relative to their estimated value. Next, the portfolio manager looks for
a positive catalyst in the company's near term outlook which the portfolio man-
ager believes will accelerate earnings and positively change the market's view
of the company's prospects.
In selecting individual companies for investment, the portfolio manager looks
for:
.Low market valuations measured by the portfolio manager's valuation models
.Above market dividend paying ability and established dividend records
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.Positive changes in earnings prospects because of factors such as:
.New management
.New product development or a change in competitive position
.A new business strategy not yet recognized by the marketplace
.Regulatory changes favoring the company
.Improving returns on invested capital and cash flow
.Liquidity
Principal risks of investing in the fund
Investors could lose money on their investments in the fund, or the fund may
not perform as well as other investments, if:
.U.S. stock markets go down, or perform poorly relative to other types of
investments
.An adverse company specific event, such as an unfavorable earnings report,
negatively affects the stock price of a company in which the fund invests
.Large capitalization stocks fall out of favor with investors
.The portfolio manager's judgment about the attractiveness, growth prospects or
potential appreciation of a particular stock proves to be incorrect
.One style (value or growth) underperforms for an extended period, while the
fund's process allocates and reallocates assets to be managed by investing in
this style
The fund is non-diversified, which means that the fund may invest more than 5%
of its assets in the securities of any one issuer. Investing in a non-diversi-
fied fund, particularly a fund which may invest in the securities of only
approximately 40 companies, may entail greater risk than is normally associated
with more widely diversified funds.
Who may want to invest The fund may be an appropriate investment if you:
.Are seeking to participate in the long-term growth potential of the U.S. stock
market
.Are looking for an investment with potentially greater return but higher risk
than fixed income investments
.Are willing to accept the risks of the stock market
.Wish to invest indirectly in selected large companies
Performance
Because this fund was added as a series to Smith Barney Investment Funds Inc.
in July 1999, the fund does not yet have a sufficient operating history to gen-
erate the performance information which other Smith Barney funds show in bar
and table form in this location of the prospectus.
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Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares. Annual fund operating expense figures are based on estimated expenses
for the fiscal period ending April 30, 2000.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases
(as a % of offering price) 5.00% None 1.00% None
Maximum deferred sales charge (load) (as a %
of the lower of net asset value at purchase or
redemption) None* 5.00% 1.00% None
Annual fund operating expenses
<CAPTION>
Expenses deducted from fund assets Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Management fee 0.75% 0.75% 0.75% 0.75%
Distribution and service (12b-1) fees 0.25% 1.00% 1.00% None
Other expenses** 0.20% 0.20% 0.20% 0.20%
----- ----- ----- -----
Total annual fund operating expenses 1.20% 1.95% 1.95% 0.95%
</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%.
**The amounts set forth in "Other expenses" have been estimated based on
expenses the fund expects to incur during its first full fiscal year.
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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
<S> <C> <C>
Class A (with or without redemption) $616 $862
Class B (redemption at end of period) $698 $912
Class B (no redemption) $198 $612
Class L (redemption at end of period) $396 $706
Class L (no redemption) $296 $706
Class Y (with or without redemption) $ 97 $303
</TABLE>
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More on the fund's investments
Other investments While the fund intends to be substantially fully invested in
equity securities of large capitalization companies, the fund may invest a por-
tion of its assets in equity securities of companies with total market capital-
izations below $5 billion and in money market instruments and/or cash to pay
expenses and meet redemption requests.
The fund may also invest up to 10% of its assets (at the time of investment) in
foreign securities. The fund may invest directly in foreign issuers or invest
in depositary receipts. The fund's investments in foreign securities may
involve greater risk than investments in securities of U.S. issuers. Because
the value of a depositary receipt is dependent upon the market price of an
underlying foreign security, depositary receipts are subject to most of the
risks associated with investing in foreign securities directly. Foreign coun-
tries generally have markets that are less liquid and more volatile than mar-
kets in the U.S. In some foreign countries, less information is available about
foreign issuers and markets because of less rigorous accounting and regulatory
standards than in the U.S. Currency fluctuations could erase investment gains
or add to investment losses.
Defensive investing The fund may depart from its principal investment strate-
gies in response to adverse market, economic or political conditions by taking
temporary defensive positions in all types of money market and short-term debt
securities. If the fund takes a temporary defensive position, it may be unable
to achieve its investment goal.
Master/feeder option The fund may in the future seek to achieve its investment
objective by investing all of its net assets in another investment company hav-
ing the same investment objective and substantially the same investment poli-
cies and restrictions as those applicable to the fund.
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Management
Manager The fund's Manager is SSB Citi Fund Management LLC, an affiliate of
Salomon Smith Barney Inc. The Manager's address is 388 Greenwich Street, New
York, New York 10013. The Manager selects the fund's investments and oversees
its operations. The Manager and Salomon Smith Barney are subsidiaries of
Citigroup Inc. Citigroup businesses produce a broad range of financial servic-
es--asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading--and use diverse chan-
nels to make them available to consumer and corporate customers around the
world.
Alan Blake, investment officer of the Manager and managing director of Salomon
Smith Barney, is the portfolio manager responsible for the day-to-day manage-
ment of the fund's growth style investments. Mr. Blake has more than 20 years
of securities business experience.
Frances A. Root, investment officer of the Manager and managing director of
Salomon Smith Barney, is the portfolio manager responsible for the day- to-day
management of the fund's value style investments. Ms. Root has 19 years of
securities business experience.
The Manager will monitor the fund's investments to ensure that the fund
complies with its investment policies. The Manager will rebalance the alloca-
tion of value and growth securities in the fund's portfolio at the end of each
quarter and at any time in which the percentage of the fund's portfolio
invested in either value or growth securities equals or exceeds 55% of the
fund's total assets invested in both value and growth securities for a period
of more than 10 days. The Manager will also monitor the fund's portfolio to
ensure that no more than 25% of the fund's assets are concentrated in the secu-
rities of companies in the same industry.
Management fees The Manager will be paid an advisory fee equal to 0.75% of the
fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to distrib-
ute 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.
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Transfer agent and shareholder servicing agent Smith Barney Private Trust Com-
pany 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 rec-
ord-keeping and accounting services and functions.
Smith Barney Mutual Funds
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Choosing a class of shares to buy
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
.If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.
.For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
.Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term invest-
ors.
You may buy shares from:
.A Salomon Smith Barney Financial Consultant
.An investment dealer in the selling group or a broker that clears through Sal-
omon 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
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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 com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .Initial .No initial
sales sales sales or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge .Deferred .Must
tion or declines sales invest at
waiver of over time charge for least $15
initial .Converts only 1 million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than Class expenses annual classes
B and than Class expenses
Class L A than Class
A
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Initial sales charge Up to None 1.00% None
5.00%;
reduced for
large pur-
chases and
waived for
certain
investors.
No charge
for pur-
chases of
$500,000 or
more
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Deferred sales charge 1.00% on Up to 5.00% 1.00% if None
purchases charged you redeem
of $500,000 when you within 1
or more if redeem year of
you redeem shares. The purchase
within 1 charge is
year of reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
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Annual distribution and 0.25% of 1.00% of 1.00% of None
service fees average average average
daily net daily net daily net
assets assets assets
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Exchange privilege* Class A Class B Class L Class Y
shares of shares of shares of shares of
most Smith most Smith most Smith most Smith
Barney Barney Barney Barney
funds funds funds funds
- ------------------------------------------------------------------------
</TABLE>
*Ask your 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
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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 5.00 5.26
$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 3.00 3.09
$250,000 but less than $500,000 2.00 2.04
$500,000 or more -0- -0-
</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
1.00%.
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. Cer-
tain trustees and fiduciaries may be entitled to combine accounts in deter-
mining their sales charge.
.Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney funds over a 13-month period and pay the same sales
Premier Selections Fund
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charge, if any, as if all shares had been purchased at once. You may include
purchases on which you paid a sales charge made 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
.403(b) or 401(k) retirement plans, if certain conditions are met
.Clients of newly employed Salomon Smith Barney Financial Consultants, if cer-
tain 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 pur-
chase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
<TABLE>
<CAPTION>
6th through
Year after purchase 1st 2nd 3rd 4th 5th 8th
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 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:
At initial purchase On reinvestment of Upon exchange from
dividends and another Smith
distributions Barney fund
<S> <C> <C>
Eight years after the date of purchase In same proportion On the date the
as the number of shares originally
Class B shares acquired would
converting is to have converted
total Class B into Class A
shares you own shares
(excluding shares
issued as a
dividend)
</TABLE>
Smith Barney Mutual Funds
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Class L shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1.00% (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 1.00%. Until June 22, 2001, purchases of Class L shares by
investors who were holders of Class C shares of other Smith Barney mutual funds
on June 12, 1998 will not be subject to the 1.00% initial sales charge.
Class Y shares
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of pur-
chase or redemption, whichever is less, and therefore, you do not pay a sales
charge on amounts representing appreciation or depreciation.
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 sell shares, the fund will first sell 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.
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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.
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant or If you do not provide the following information, your order
dealer will be rejected
representative
.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 investors who
fund's sub- are clients of the selling group are eligible to buy shares
transfer directly from the fund.
agent
.Write the sub-transfer agent at the following address:
Smith Barney Investment Funds Inc. Premier Selections
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.
Smith Barney Mutual Funds
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Through a You may authorize Salomon Smith Barney, your dealer represen-
systematic tative or the sub-transfer agent to transfer funds automati-
investment cally from a regular bank account, cash held in a Salomon
plan 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 represen-
tative 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.
Exchanging shares
Smith Barney You should contact your Salomon Smith Barney Financial Con-
offers a sultant or dealer representative to exchange into other Smith
distinctive Barney funds. Be sure to read the prospectus of the Smith
family of Barney fund you are exchanging into. An exchange is a taxable
funds transaction.
tailored to
help meet the .You may exchange shares only for shares of the same class of
varying needs another Smith Barney fund. Not all Smith Barney funds offer
of both large all classes.
and small .Not all Smith Barney funds may be offered in your state of
investors residence. Contact your Salomon Smith Barney Financial Con-
sultant, dealer representative or the transfer agent for
further information.
.You must meet the minimum investment amount for each fund.
.If you hold share certificates, the 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.
Premier Selections Fund
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Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will continue to be mea-
sured from the date of your original purchase. If the fund
you exchange into has a higher deferred sales charge, you
will be subject to that charge. If you exchange at any time
into a fund with a lower charge, the sales charge will not be
reduced.
- --------------------------------------------------------------------------------
By telephone If you do not have a brokerage account, you may be eligible
to exchange shares through the transfer agent. You must com-
plete 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-trans-
fer agent at the address on the next page.
Smith Barney Mutual Funds
17
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Redeeming shares
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 redemp-
tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.
If you have a 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. Premier Selections 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 regis-
tered
Premier Selections Fund
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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 tel-
ephone 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 docu-
ments.
- --------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans ($5,000 for retirement plan accounts) and each automatic
redemption must be at least $50. If your shares are subject
to a deferred sales charge, the sales charge will be waived
if your automatic payments do not exceed 1% per month of the
value of your shares subject to a deferred sales charge.
The following conditions apply:
.Your shares must not be represented by certificates
.All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
Smith Barney Mutual Funds
19
<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 redemp-
tion request is genuine by recording calls, asking the caller to provide a per-
sonal 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 regis-
tration
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
Premier Selections Fund
20
<PAGE>
.Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securi-
ties and Exchange Commission
.Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below $500 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 share-
holders. If so, the fund may limit additional purchases and/or exchanges by the
shareholder.
Share certificates The fund does not issue share certificates unless a written
request signed by all registered owners is made to the sub-transfer agent. If
you hold share certificates it will take longer to exchange or redeem shares.
Smith Barney Mutual Funds
21
<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 part of the Paychex
offering, Class A shares may be purchased regardless of the amount invested.
.For plans opened prior to March 1, 2000 and for plans that are part of the
Paychex offering, 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 Decem-
ber 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.
Premier Selections Fund
22
<PAGE>
Dividends, distributions and taxes
Dividends The fund pays dividends, if any, from its net investment income and
makes capital gain distributions once a year, typically in December. The fund
may pay additional distributions and dividends at other times if necessary for
the fund to avoid a federal tax. Capital gain distributions and dividends are
reinvested in additional fund shares of the same class you hold. The fund
expects distributions to be primarily from capital gains. 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 distribu-
tion 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 distri-
bution or dividend is paid.
Taxes In general, redeeming shares, exchanging shares and receiving distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually capital gain or
loss; long-term only if
shares owned more than
one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
</TABLE>
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a capital gain distribution or
a dividend, because it will be taxable to you even though it may actually be a
return of a portion of your investment.
After the end of each year, the fund will provide you with information about
the distributions and dividends you received and any redemptions of shares dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer identification number and any required certifications, you may be subject
to back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special
tax rules may apply, you should consult your tax adviser about your investment
in the fund.
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 a request in good
order. The fund's net asset value is the value of its assets minus its liabili-
ties. Net asset value is calculated separately for each class of shares. The
fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This calcu-
lation is done when regular trading closes on the Exchange (normally 4:00 p.m.,
Eastern time).
The fund generally values its fund securities based on market prices or quota-
tions. The fund's currency conversions are done when the London stock exchange
closes, which is 12 noon Eastern time. When reliable market prices or quota-
tions are not readily available, or when the value of a security has been mate-
rially affected by events occurring after a foreign exchange closes, the fund
may price those securities at fair value. Fair value is determined in accor-
dance 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
cannot 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 repre-
sentative before the New York Stock Exchange closes. If the New York Stock
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.
Premier Selections Fund
24
<PAGE>
[LOGO ofSalomonSmithBarney]
Premier Selections Fund
A series of Smith Barney Investment Funds Inc.
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket conditions and investment strategies that 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 refer-
ence into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your 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 Data-
base on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not law-
fully sell its shares.
SMSalomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-3275)
FD01678 3/00
Smith Barney
Premier Selections Fund
388 Greenwich Street
New York, New York 10013
1-800-451-2010
Statement of Additional
Information
July 16, 1999
amended as of March 6, 2000
This Statement of Additional Information ("SAI")
expands upon and supplements the information contained
in the current Prospectus of Smith Barney Premier
Selections Fund (the "Fund") dated July 16, 1999, as
amended or supplemented from time to time, and should
be read in conjunction with the Fund's Prospectus. The
Fund is a series of Smith Barney Investment Funds Inc.
(the "Company"). The Fund's Prospectus may be obtained
from a Salomon Smith Barney Financial Consultant or by
writing or calling the Fund at the address or
telephone number set forth above. This SAI, although
not in itself a prospectus, is incorporated by
reference into the Prospectus in its entirety.
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 2
INVESTMENT RESTRICTIONS 13
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY 14
PURCHASE OF SHARES 20
REDEMPTION OF SHARES 26
VALUATION OF SHARES 28
EXCHANGE PRIVILEGE 28
PERFORMANCE DATA 29
DIVIDENDS, DISTRIBUTIONS AND TAXES 31
ADDITIONAL INFORMATION 36
FINANCIAL STATEMENTS 38
OTHER INFORMATION 38
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The prospectus discusses the Fund's investment
objective and policies. This section contains
supplemental information concerning the types of
securities and other instruments in which the Fund may
invest, the investment policies and portfolio
strategies the Fund may utilize and certain risks
associated with these investments, policies and
strategies. SSB Citi Fund Management LLC ("SSB Citi"
or the "Manager") serves as investment manager to the
Fund.
The Fund normally invests at least 65% of its total
assets in equity securities of large capitalization
companies that are significant factors in their
industries, usually global in scope and have a long-
term history of performance. The Fund does have the
flexibility, however, to invest the balance in
companies with smaller market capitalizations. The
Fund defines large market capitalization companies as
those with market capitalization of $5 billion or more
at the time of the Fund's investment. Companies whose
capitalization falls below this level after purchase
will continue to be considered large capitalization
companies for purposes of the 65% policy.
Under normal market conditions, the majority of the
Fund's portfolio will consist of common stock, but it
also may contain money market instruments for cash
management purposes. The Fund reserves the right, as
a defensive measure, to hold money market securities,
including repurchase agreements or cash, in such
proportions as, in the opinion of management,
prevailing market or economic conditions warrant.
Equity Securities. The Fund will normally invest at
least 65% of its assets in equity securities,
including primarily common stocks and, to a lesser
extent, securities convertible into common stock and
rights to subscribe for common stock. Common stocks
represent an equity (ownership) interest in a
corporation. Although equity securities have a
history of long-term growth in value, their prices
fluctuate based on changes in a company's financial
condition and on overall market and economic
conditions.
When-Issued Securities and Delayed-Delivery
Transactions. The Fund may purchase securities on a
"when-issued" basis, for delayed delivery (i.e.,
payment or delivery occur beyond the normal settlement
date at a stated price and yield) or on a forward
commitment basis. The Fund does not intend to engage
in these transactions for speculative purposes, but
only in furtherance of its investment goal. These
transactions occur when securities are purchased or
sold by the Fund with payment and delivery taking
place in the future to secure what is considered an
advantageous yield and price to the Fund at the time
of entering into the transaction. The payment
obligation and the interest rate that will be received
on when-issued securities are fixed at the time the
buyer enters into the commitment. Because of
fluctuations in the value of securities purchased or
sold on a when-issued, delayed-delivery or forward
commitment basis, the prices obtained on such
securities may be higher or lower than the prices
available in the market on the dates when the
investments are actually delivered to the buyers.
When the Fund agrees to purchase when-issued, delayed-
delivery or forward commitment securities, the Fund
will set aside cash or liquid securities equal to the
amount of the commitment in a segregated account on
the Fund's books. Normally, the custodian will set
aside portfolio securities to satisfy a purchase
commitment, and in such a case the Fund may be
required subsequently to place additional assets in
the segregated account in order to ensure that the
value of the account remains equal to the amount of
the Fund's commitment. The assets contained in the
segregated account will be marked-to-market daily. It
may be expected that the Fund's net assets will
fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase
commitments than when it sets aside cash. When the
Fund engages in when-issued or delayed-delivery
transactions, it relies on the other party to
consummate the trade. Failure of the seller to do so
may result in the Fund's incurring a loss or missing
an opportunity to obtain a price considered to be
advantageous.
Foreign Securities. The Fund may invest in securities
of foreign issuers. Such investments involve certain
risks not ordinarily associated with investments in
securities of domestic issuers. Such risks include
currency exchange control regulations and costs, the
possibility of expropriation, seizure, or
nationalization of foreign deposits, less liquidity
and volume and more volatility in foreign securities
markets and the impact of political, social, economic
or diplomatic developments or the adoption of other
foreign government restrictions that might adversely
affect the payment of principal and interest on or
market value of securities. If it should become
necessary, the Fund might encounter greater
difficulties in invoking legal processes abroad than
would be the case in the United States. In addition,
there may be less publicly available information about
a non-U.S. company, and non-U.S. companies are not
generally subject to uniform accounting and financial
reporting standards, practices and requirements
comparable to those applicable to U.S. companies.
Furthermore, some of these securities may be subject
to foreign brokerage and withholding taxes.
The Fund may also invest in securities of foreign
issuers in the form of American Depository Receipts
("ADRs"), European Depository Receipts ("EDRs") or
similar securities representing interests in the
common stock of foreign issuers. Management intends
to limit the Fund's investment in these types of
securities to 10% of the Fund's net assets. ADRs are
receipts, typically issued by a U.S. bank or trust
company, which evidence ownership of underlying
securities issued by a foreign corporation. EDRs are
receipts issued in Europe which evidence a similar
ownership arrangement. Generally, ADRs, in registered
form, are designed for use in the U.S. securities
markets and EDRs are designed for use in European
securities markets. The underlying securities are not
always denominated in the same currency as the ADRs or
EDRs. Although investment in the form of ADRs or EDRs
facilitates trading in foreign securities, it does not
mitigate the risks associated with investing in
foreign securities. However, by investing in ADRs or
EDRs rather than directly in foreign issuers' stock,
the Portfolio can avoid currency risks during the
settlement period for either purchases or sales. In
general, there is a large, liquid market in the United
States for many ADRs and EDRs. The information
available for ADRs and EDRs is subject to the
accounting, auditing and financial reporting standards
of the domestic market or exchange on which they are
traded, which standards are more uniform and more
exacting that those to which many foreign issuers may
be subject.
Investments in foreign securities incur higher costs
than investments in U.S. securities, including higher
costs in making securities transactions as well as
foreign government taxes which may reduce the
investment return of the Fund. In addition, foreign
investments may include additional risks associated
with currency exchange rates, less complete financial
information about individual companies, less market
liquidity and political instability.
Money Market Instruments. The Fund may invest for
temporary defensive purposes in short-term corporate
and government bonds and notes and money market
instruments. Money market instruments include:
obligations issued or guaranteed by the United States
government, its agencies or instrumentalities ("U.S.
government securities"); certificates of deposit, time
deposits and bankers' acceptances issued by domestic
banks (including their branches located outside the
United States and subsidiaries located in Canada),
domestic branches of foreign banks, savings and loan
associations and similar institutions; high grade
commercial paper; and repurchase agreements with
respect to the foregoing types of instruments.
Certificates of deposit ("CDs") are short-term,
negotiable obligations of commercial banks. Time
deposits ("TDs") are non-negotiable deposits
maintained in banking institutions for specified
periods of time at stated interest rates. Bankers'
acceptances are time drafts drawn on commercial banks
by borrowers, usually in connection with international
transactions.
Repurchase Agreements. The Fund may agree to purchase
securities from a bank or recognized securities dealer
and simultaneously commit to resell the securities to
the bank or dealer at an agreed-upon date and price
reflecting a market rate of interest unrelated to the
coupon rate or maturity of the purchased securities
("repurchase agreements"). The Fund would maintain
custody of the underlying securities prior to their
repurchase; thus, the obligation of the bank or dealer
to pay the repurchase price on the date agreed to
would be, in effect, secured by such securities. If
the value of such securities were less than the
repurchase price, plus interest, the other party to
the agreement would be required to provide additional
collateral so that at all times the collateral is at
least 102% of the repurchase price plus accrued
interest. Default by or bankruptcy of a seller would
expose the Fund to possible loss because of adverse
market action, expenses and/or delays in connection
with the disposition of the underlying obligations.
The financial institutions with which the Fund may
enter into repurchase agreements will be banks and
non-bank dealers of U.S. Government securities on the
Federal Reserve Bank of New York's list of reporting
dealers, if such banks and non-bank dealers are deemed
creditworthy by the Fund's Manager. The Manager will
continue to monitor creditworthiness of the seller
under a repurchase agreement, and will require the
seller to maintain during the term of the agreement
the value of the securities subject to the agreement
to equal at least 102% of the repurchase price
(including accrued interest). In addition, the
Manager will require that the value of this
collateral, after transaction costs (including loss of
interest) reasonably expected to be incurred on a
default, be equal to 102% or greater than the
repurchase price (including accrued premium) provided
in the repurchase agreement or the daily amortization
of the difference between the purchase price and the
repurchase price specified in the repurchase
agreement. The Manager will mark-to-market daily the
value of the securities. Repurchase agreements are
considered to be loans by the Fund under the
Investment Company Act of 1940, as amended (the "1940
Act").
Reverse Repurchase Agreements. The Fund may enter
into reverse repurchase agreements which involve the
sale of Fund securities with an agreement to
repurchase the securities at an agreed-upon price,
date and interest payment and have the characteristics
of borrowing. Since the proceeds of borrowings under
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 Fund's custodian bank will maintain a
separate amount for the Fund with securities having a
value equal to or greater than such commitments.
Lending of Portfolio Securities. Consistent with
applicable regulatory requirements, the Fund may lend
portfolio securities to brokers, dealers and other
financial organizations that meet capital and other
credit requirements or other criteria established by
the Board. The Fund will not lend portfolio
securities to affiliates of the Manager unless they
have applied for and received specific authority to do
so from the Securities and Exchange Commission
("SEC"). Loans of portfolio securities will be
collateralized by cash, letters of credit or U.S.
Government Securities, which are maintained at all
times in an amount equal to at least 102% of the
current market value of the loaned securities. Any
gain or loss in the market price of the securities
loaned that might occur during the term of the loan
would be for the account of the Fund. From time to
time, the Fund may return a part of the interest
earned from the investment of collateral received for
securities loaned to the borrower and/or a third party
that is unaffiliated with the Fund and that is acting
as a "finder."
By lending its securities, the Fund can increase its
income by continuing to receive interest and any
dividends on the loaned securities as well as by
either investing the collateral received for
securities loaned in short-term instruments or
obtaining yield in the form of interest paid by the
borrower when U.S. Government Securities are used as
collateral. Although the generation of income is not
the primary investment goal of the Fund, income
received could be used to pay the Fund's expenses and
would increase an investor's total return. The Fund
will adhere to the following conditions whenever its
portfolio securities are loaned: (i) the Fund must
receive at least 102% cash collateral or equivalent
securities of the type discussed in the preceding
paragraph from the borrower; (ii) the borrower must
increase such collateral whenever the market value of
the securities rises above the level of such
collateral; (iii) the Fund must be able to terminate
the loan at any time; (iv) the Fund must receive
reasonable interest on the loan, as well as any
dividends, interest or other distributions on the
loaned securities and any increase in market value;
(v) the Fund may pay only reasonable custodian fees in
connection with the loan; and (vi) voting rights on
the loaned securities may pass to the borrower,
provided, however, that if a material event adversely
affecting the investment occurs, the Board must
terminate the loan and regain the right to vote the
securities. Loan agreements involve certain risks in
the event of default or insolvency of the other party
including possible delays or restrictions upon a
Fund's ability to recover the loaned securities or
dispose of the collateral for the loan.
Illiquid Securities. The Fund may invest up to an
aggregate amount of 15% of its net assets in illiquid
securities, which term includes securities subject to
contractual or other restrictions on resale and other
instruments that lack readily available markets.
Non-Diversified Classification. The Fund is
classified as a non-diversified fund under the 1940
Act which means the Fund is not limited by the Act in
the proportion of its assets it may invest in the
obligations of a single issuer. The Fund intends to
conduct its operations, however, so as to qualify as a
"regulated investment company" for purposes of the
Internal Revenue Code of 1986, as amended (the
"Code"), which will relieve the Fund of any liability
for Federal income tax to the extent its earnings are
distributed to shareholders. To qualify as a
regulated investment company, the Fund will, among
other things, limit its investments so that, at the
close of each quarter of the taxable year (a) not more
than 25% of the market value of the Fund's total
assets will be invested in the securities of a single
issuer and (b) with respect to 50% of the market value
of its total assets, not more than 5% of the market
value of its total assets will be invested in the
securities of a single issuer and the Fund will not
own more than 10% of the outstanding voting securities
of a single issuer.
Master/feeder fund structure. The Board of Directors
has the discretion to retain the current distribution
arrangement for the Fund while investing in a master
fund in a master/feeder fund structure. A
master/feeder fund structure is one in which a fund (a
"feeder fund"), instead of investing directly in a
portfolio of securities, invests most or all of its
investment assets in a separate registered investment
company (the "master fund") with substantially the
same investment objective and policies as the feeder
fund. Such a structure permits the pooling of assets
of two or more feeder funds, preserving separate
identities or distribution channels at the feeder fund
level. Based on the premise that certain of the
expenses of operating an investment portfolio are
relatively fixed, a larger investment portfolio may
eventually achieve a lower ratio of operating expenses
to average net assets. An existing investment company
is able to convert to a feeder fund by selling all of
its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or
loss, or by contributing its assets to the master fund
and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable
gain or loss.
Options, Futures and Currency Strategies. The Fund
may use forward currency contracts and certain options
and futures strategies to attempt to hedge its
portfolio, i.e., reduce the overall level of
investment risk normally associated with the Fund.
There can be no assurance that such efforts will
succeed.
In order to assure that the Fund will not be deemed to
be a "commodity pool" for purposes of the Commodity
Exchange Act, regulations of the Commodity Futures
Trading Commission ("CFTC") require that the Fund
enter into transactions in futures contracts and
options on futures only (i) for bona fide hedging
purposes (as defined in CFTC regulations), or (ii) for
non-hedging purposes, provided the aggregate initial
margin and premiums on such non-hedging positions do
not exceed 5% of the liquidation value of the Fund's
assets. To attempt to hedge against adverse movements
in exchange rates between currencies, the Fund may
enter into forward currency contracts for the purchase
or sale of a specified currency at a specified future
date. Such contracts may involve the purchase or sale
of a foreign currency against the U.S. dollar or may
involve two foreign currencies. The Fund may enter
into forward currency contracts either with respect to
specific transactions or with respect to its portfolio
positions. For example, when the Manager anticipates
making a purchase or sale of a security, it may enter
into a forward currency contract in order to set the
rate (either relative to the U.S. dollar or another
currency) at which the currency exchange transaction
related to the purchase or sale will be made
("transaction hedging"). Further, when the Manager
believes a particular currency may decline compared to
the U.S. dollar or another currency, the Fund may
enter into a forward contract to sell the currency the
Manager expects to decline in an amount approximating
the value of some or all of the Fund's securities
denominated in that currency, or when the Manager
believes one currency may decline against a currency
in which some or all of the portfolio securities held
by the Fund are denominated, it may enter into a
forward contract to buy the currency expected to
decline for a fixed amount ("position hedging"). In
this situation, the Fund may, in the alternative,
enter into a forward contract to sell a different
currency for a fixed amount of the currency expected
to decline where the Manager believes the value of the
currency to be sold pursuant to the forward contract
will fall whenever there is a decline in the value of
the currency in which portfolio securities of the Fund
are denominated ("cross hedging"). The Fund places
(i) cash, (ii) U.S. Government securities or (iii)
equity securities or debt securities (of any grade) in
certain currencies provided such assets are liquid,
unencumbered and marked to market daily, or other
high-quality debt securities denominated in certain
currencies in a separate account of the Fund having a
value equal to the aggregate amount of the Fund's
commitments under forward contracts entered into with
respect to position hedges and cross-hedges. If the
value of the securities placed in a separate account
declines, additional cash or securities are placed in
the account on a daily basis so that the value of the
account will equal the amount of the Fund's
commitments with respect to such contracts.
For hedging purposes, the Fund may write covered call
options and purchase put and call options on
currencies to hedge against movements in exchange
rates and on debt securities to hedge against the risk
of fluctuations in the prices of securities held by
the Fund or which the Manager intends to include in
its portfolio. The Fund also may use interest rates
futures contracts and options thereon to hedge against
changes in the general level in interest rates.
The Fund may write call options on securities and
currencies only if they are covered, and such options
must remain covered so long as the Fund is obligated
as a writer. A call option written by the Fund is
"covered" if the Fund owns the securities or currency
underlying the option or has an absolute and immediate
right to acquire that security or currency without
additional cash consideration (or for additional cash
consideration held in a segregated account on the
Fund's books) upon conversion or exchange of other
securities or currencies held in its portfolio. A
call option is also covered if the Fund holds on a
share-for-share basis a call on the same security or
holds a call on the same currency as the call written
where the exercise price of the call held is equal to
less than the exercise price of the call written or
greater than the exercise price of the call written if
the difference is maintained by the Fund in cash,
Treasury bills or other high-grade, short-term
obligations in a segregated account on the Fund's
books.
The Fund may purchase put and call options in
anticipation of declines in the value of portfolio
securities or increases in the value of securities to
be acquired. If the expected changes occur, the Fund
may be able to offset the resulting adverse effect on
its portfolio, in whole or in part, through the
options purchased. The risk assumed by the Fund in
connection with such transactions is limited to the
amount of the premium and related transaction costs
associated with the option, although the Fund may lose
such amounts if the prices of securities underlying
the options do not move in the direction or to the
extent anticipated.
Although the portfolio may use forward currency
contracts, options and futures, the use of any of
these strategies would involve certain investment
risks and transaction costs. These risks include:
dependence on the Manager's ability to predict
movements in the prices of individual debt securities,
fluctuations in the general fixed-income markets and
movements in interest rates and currency markets,
imperfect correlation between movements in the price
of currency, options, futures contracts or options
thereon and movements in the price of the currency or
security hedged or used for cover; the fact that
skills and techniques needed to trade options, futures
contracts and options thereon or to use forward
currency contracts are different from those needed to
select the securities in which the Fund invests; lack
of assurance that a liquid market will exist for any
particular option, futures contract or option thereon
at any particular time.
Over-the-counter options in which the Fund may invest
differ from exchange traded options in that they are
two-party contracts, with price and other terms
negotiated between buyer and seller, and generally do
not have as much market liquidity as exchange-traded
options. The Fund may be required to treat as
illiquid over-the-counter options purchased and
securities being used to cover certain written over-
the-counter options.
Options on Securities. As discussed more generally
above, the Fund may engage in writing covered call
options. The Fund may also purchase put options and
enter into closing transactions. The principal reason
for writing covered call options on securities is to
attempt to realize, through the receipt of premiums, a
greater return than would be realized on the
securities alone. In return for a premium, the writer
of a covered call option forgoes the right to any
appreciation in the value of the underlying security
above the strike price for the life of the option (or
until a closing purchase transaction can be effected).
Nevertheless, the call writer retains the risk of a
decline in the price of the underlying security.
Similarly, the principal reason for writing covered
put options is to realize income in the form of
premiums. The writer of a covered put option accepts
the risk of a decline in the price of the underlying
security. The size of the premiums the Fund may
receive may be adversely affected as new or existing
institutions, including other investment companies,
engage in or increase their option-writing activities.
Options written by the Fund will normally have
expiration dates between one and six months from the
date written. The exercise price of the options may be
below, equal to, or above the current market values of
the underlying securities when the options are
written. In the case of call options, these exercise
prices are referred to as "in-the-money," "at-the-
money" and "out-of-the-money," respectively.
The Fund may write (a) in-the-money call options when
the Manager expects the price of the underlying
security to remain flat or decline moderately during
the option period, (b) at-the-money call options when
the Manager expects the price of the underlying
security to remain flat or advance moderately during
the option period and (c) out-of-the-money call
options when the Manager expects that the price of the
security may increase but not above a price equal to
the sum of the exercise price plus the premiums
received from writing the call option. In any of the
preceding situations, if the market price of the
underlying security declines and the security is sold
at this lower price, the amount of any realized loss
will be offset wholly or in part by the premium
received. Out-of-the-money, at-the-money and in-the-
money put options (the reverse of call options as to
the relation of exercise price to market price) may be
utilized in the same market environments as such call
options are used in equivalent transactions.
So long as the obligation of the Fund as the writer of
an option continues, the Fund may be assigned an
exercise notice by the broker-dealer through which the
option was sold, requiring it to deliver, in the case
of a call, or take delivery of, in the case of a put,
the underlying security against payment of the
exercise price. This obligation terminates when the
option expires or the Fund effects a closing purchase
transaction. The Fund can no longer effect a closing
purchase transaction with respect to an option once it
has been assigned an exercise notice. To secure its
obligation to deliver the underlying security when it
writes a call option, or to pay for the underlying
security when it writes a put option, the Fund will be
required to deposit in escrow the underlying security
or other assets in accordance with the rules of the
Options Clearing Corporation ("Clearing Corporation")
or similar clearing corporation and the securities
exchange on which the option is written.
An option position may be closed out only where there
exists a secondary market for an option of the same
series on a recognized securities exchange or in the
over-the-counter market. The Fund expects to write
options only on national securities exchanges or in
the over-the-counter market. The Fund may purchase
put options issued by the Clearing Corporation or in
the over-the-counter market.
The Fund may realize a profit or loss upon entering
into a closing transaction. In cases in which the Fund
has written an option, it will realize a profit if the
cost of the closing purchase transaction is less than
the premium received upon writing the original option
and will incur a loss if the cost of the closing
purchase transaction exceeds the premium received upon
writing the original option. Similarly, when the Fund
has purchased an option and engages in a closing sale
transaction, whether it recognizes a profit or loss
will depend upon whether the amount received in the
closing sale transaction is more or less than the
premium the Fund initially paid for the original
option plus the related transaction costs.
Although the Fund generally will purchase or write
only those options for which the Manager believes
there is an active secondary market so as to
facilitate closing transactions, there is no assurance
that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist
for any particular option or at any particular time,
and for some options no such secondary market may
exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past,
for example, higher than anticipated trading activity
or order flow, or other unforeseen events, have at
times rendered certain of the facilities of the
Clearing Corporation and national securities exchanges
inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on
certain types of orders or trading halts or
suspensions in one or more options. There can be no
assurance that similar events, or events that may
otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it
might not be possible to effect closing transactions
in particular options. If, as a covered call option
writer, the Fund is unable to effect a closing
purchase transaction in a secondary market, it will
not be able to sell the underlying security until the
option expires or it delivers the underlying security
upon exercise.
Securities exchanges generally have established
limitations governing the maximum number of calls and
puts of each class which may be held or written, or
exercised within certain periods, by an investor or
group of investors acting in concert (regardless of
whether the options are written on the same or
different securities exchanges or are held, written or
exercised in one or more accounts or through one or
more brokers). It is possible that the Fund and other
clients of the Manager and certain of their affiliates
may be considered to be such a group. A securities
exchange may order the liquidation of positions found
to be in violation of these limits, and it may impose
certain other sanctions.
In the case of options written by the Fund that are
deemed covered by virtue of the Fund's holding
convertible or exchangeable preferred stock or debt
securities, the time required to convert or exchange
and obtain physical delivery of the underlying common
stocks with respect to which the Fund has written
options may exceed the time within which the Fund must
make delivery in accordance with an exercise notice.
In these instances, the Fund may purchase or
temporarily borrow the underlying securities for
purposes of physical delivery. By so doing, the Fund
will not bear any market risk because the Fund will
have the absolute right to receive from the issuer of
the underlying security an equal number of shares to
replace the borrowed stock, but the Fund may incur
additional transaction costs or interest expenses in
connection with any such purchase or borrowing.
Although the Manager will attempt to take appropriate
measures to minimize the risks relating to the Fund's
writing of call options and purchasing of put and call
options, there can be no assurance that the Fund will
succeed in its option-writing program.
Stock Index Options. As described generally above,
the Fund may purchase put and call options and write
call options on domestic stock indexes listed on
domestic exchanges in order to realize its investment
objective of long-term capital growth or for the
purpose of hedging its portfolio. A stock index
fluctuates with changes in the market values of the
stocks included in the index. Some stock index options
are based on a broad market index such as the New York
Stock Exchange Composite Index or the Canadian Market
Portfolio Index, or a narrower market index such as
the Standard & Poor's 100. Indexes also are based on
an industry or market segment such as the American
Stock Exchange Oil and Gas Index or the Computer and
Business Equipment Index.
Options on stock indexes are generally similar to
options on stock except that the delivery requirements
are different. Instead of giving the right to take or
make delivery of stock at a specified price, an option
on a stock index gives the holder the right to receive
a cash "exercise settlement amount" equal to (a) the
amount, if any, by which the fixed exercise price of
the option exceeds (in the case of a put) or is less
than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied
by (b) a fixed "index multiplier." Receipt of this
cash amount will depend upon the closing level of the
stock index upon which the option is based being
greater than, in the case of a call, or less than, in
the case of a put, the exercise price of the option.
The amount of cash received will be equal to such
difference between the closing price of the index and
the exercise price of the option expressed in dollars
or a foreign currency, as the case may be, times a
specified multiple. The writer of the option is
obligated, in return for the premium received, to make
delivery of this amount. The writer may offset its
position in stock index options prior to expiration by
entering into a closing transaction on an exchange or
it may let the option expire unexercised.
The effectiveness of purchasing or writing stock index
options as a hedging technique will depend upon the
extent to which price movements in the portion of the
securities portfolio of the Fund correlate with price
movements of the stock index selected. Because the
value of an index option depends upon movements in the
level of the index rather than the price of a
particular stock, whether the Fund will realize a gain
or loss from the purchase or writing of options on an
index depends upon movements in the level of stock
prices in the stock market generally or, in the case
of certain indexes, in an industry or market segment,
rather than movements in the price of a particular
stock. Accordingly, successful use by the Fund of
options on stock indexes will be subject to the
Manager's ability to predict correctly movements in
the direction of the stock market generally or of a
particular industry. This requires different skills
and techniques than predicting changes in the price of
individual stocks.
Futures Contracts and Options on Futures Contracts.
As described generally above, the Fund may invest in
stock index futures contracts and options on futures
contracts traded on a domestic exchange or board of
trade. Futures contracts provide for the future sale
by one party and purchase by another party of a
specified amount of a specific security at a specified
future time and at a specified price. The primary
purpose of entering into a futures contract by the
Fund is to protect the Fund from fluctuations in the
value of securities without actually buying or selling
the securities. The Fund may enter into futures
contracts and options on futures to seek higher
investment returns when a futures contract is priced
more attractively than stocks comprising a benchmark
index, to facilitate trading or to reduce transaction
costs. The Fund will enter into futures contracts and
options only on futures contracts that are traded on a
domestic exchange or board of trade. Assets committed
to futures contracts will be segregated on the Fund's
books to the extent required by law.
The purpose of entering into a futures contract by the
Fund is to protect the Fund from fluctuations in the
value of securities without actually buying or selling
the securities. For example, in the case of stock
index futures contracts, if the Fund anticipates an
increase in the price of stocks it intends to purchase
at a later time, the Fund could enter into contracts
to purchase the stock index (known as taking a "long"
position) as a temporary substitute for the purchase
of stocks. If an increase in the market occurs that
influences the stock index as anticipated, the value
of the futures contracts increases and thereby serves
as a hedge against the Fund's not participating in a
market advance. The Fund then may close out the
futures contracts by entering into offsetting futures
contracts to sell the stock index (known as taking a
"short" position) as it purchases individual stocks.
The Fund can accomplish similar results by buying
securities with long maturities and selling securities
with short maturities. But by using futures contracts
as an investment tool to reduce risk, given the
greater liquidity in the futures market, it may be
possible to accomplish the same result more easily and
more quickly.
No consideration will be paid or received by the Fund
upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with
the broker an amount of cash or cash equivalents equal
to approximately 1% to 10% of the contract amount
(this amount is subject to change by the exchange or
board of trade on which the contract is traded and
brokers or members of such board of trade may charge a
higher amount). This amount is known as "initial
margin" and is in the nature of a performance bond or
good faith deposit on the contract which is returned
to the Fund, upon termination of the futures contract,
assuming all contractual obligations have been
satisfied. Subsequent payments, known as "variation
margin," to and from the broker, will be made daily as
the price of the index or securities underlying the
futures contract fluctuates, making the long and short
positions in the futures contract more or less
valuable, a process known as "marking-to-market." In
addition, when the Fund enters into a long position in
a futures contract or an option on a futures contract,
it must deposit into a segregated account with the
Fund's custodian an amount of cash or cash equivalents
equal to the total market value of the underlying
futures contract, less amounts held in the Fund's
commodity brokerage account at its broker. At any time
prior to the expiration of a futures contract, the
Fund may elect to close the position by taking an
opposite position, which will operate to terminate the
Fund's existing position in the contract.
There are several risks in connection with the use of
futures contracts as a hedging device. Successful use
of futures contracts by the Fund is subject to the
ability of the Manager to predict correctly movements
in the stock market or in the direction of interest
rates. These predictions involve skills and techniques
that may be different from those involved in the
management of investments in securities. In addition,
there can be no assurance that there will be a perfect
correlation between movements in the price of the
securities underlying the futures contract and
movements in the price of the securities that are the
subject of the hedge. A decision of whether, when and
how to hedge involves the exercise of skill and
judgment, and even a well-conceived hedge may be
unsuccessful to some degree because of market behavior
or unexpected trends in market behavior or interest
rates.
Positions in futures contracts may be closed out only
on the exchange on which they were entered into (or
through a linked exchange) and no secondary market
exists for those contracts. In addition, although the
Fund intends to enter into futures contracts only if
there is an active market for the contracts, there is
no assurance that an active market will exist for the
contracts at any particular time. Most futures
exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices
during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may
be made that day at a price beyond that limit. It is
possible that futures contract prices could move to
the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt
liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event,
and in the event of adverse price movements, the Fund
would be required to make daily cash payments of
variation margin; in such circumstances, an increase
in the value of the portion of the portfolio being
hedged, if any, may partially or completely offset
losses on the futures contract. As described above,
however, no assurance can be given that the price of
the securities being hedged will correlate with the
price movements in a futures contract and thus provide
an offset to losses on the futures contract.
INVESTMENT RESTRICTIONS
The investment restrictions numbered 1 through 7 below
and the Fund's investment objective have been adopted
by the Company as fundamental policies of the Fund.
Under the 1940 Act, a fundamental policy may not be
changed with respect to a fund without the vote of a
majority of the outstanding voting securities of the
fund. Majority is defined in the 1940 Act as the
lesser of (a) 67% or more of the shares present at a
fund meeting, if the holders of more than 50% of the
outstanding shares of the fund are present or
represented by proxy, or (b) more than 50% of
outstanding shares. The remaining restrictions may be
changed by a vote of a majority of the Company's Board
of Directors at any time.
Under the investment restrictions adopted by the
Company with respect to the Fund: the Fund will not
1. Invest more than 25% of its total assets in
securities, the issuers of which conduct their
business activities in the same industry. For
purposes of this limitation, securities of the U.S.
government (including its agencies and
instrumentalities) and securities of state or
municipal governments and their political subdivisions
are not considered to be issued by members of any
industry.
2. Borrow money, except that (a) the Fund may
borrow from banks for temporary or emergency (not
leveraging) purposes, including the meeting of
redemption requests which might otherwise require the
untimely disposition of securities, and (b) the Fund
may, to the extent consistent with its investment
policies, enter into reverse repurchase agreements,
forward roll transactions and similar investment
strategies and techniques. To the extent that it
engages in transactions described in (a) and (b), the
Fund will be limited so that no more than 331/3% of
the value of its total assets (including the amount
borrowed), valued at the lesser of cost or market,
less liabilities (not including the amount borrowed)
valued at the time the borrowing is made, is derived
from such transactions.
3. Issue "senior securities" as defined in the 1940
Act and the rules, regulations and orders thereunder,
except as permitted under the 1940 Act and the rules,
regulations and orders thereunder
4. Make loans. This restriction does not apply to:
(a) the purchase of debt obligations in which the Fund
may invest consistent with its investment objectives
and policies; (b) repurchase agreements; and (c) loans
of its portfolio securities, to the fullest extent
permitted under the 1940 Act.
5. Purchase or sell real estate, real estate
mortgages, commodities or commodity contracts, but
this restriction shall not prevent the Fund from (a)
investing in securities of issuers engaged in the real
estate business or the business of investing in real
estate (including interests in limited partnerships
owning or otherwise engaging in the real estate
business or the business of investing in real estate)
and securities which are secured by real estate or
interests therein; (b) holding or selling real estate
received in connection with securities it holds or
held; (c) trading in futures contracts and options
on futures contracts (including options on currencies
to the extent consistent with the Fund's investment
objective and policies); or (d) investing in real
estate investment trust securities.
6. Engage in the business of underwriting
securities issued by other persons, except to the
extent that the Fund may technically be deemed to be
an underwriter under the Securities Act of 1933, as
amended, in disposing of portfolio securities.
7. Purchase or otherwise acquire any illiquid
security except as permitted under the 1940 Act for
open-end investment companies, which currently permits
up to 15% of the Fund's net assets to be invested in
illiquid securities.
If any percentage restriction described above is
complied with at the time of an investment, a later
increase or decrease in percentage resulting from a
change in values or assets will not constitute a
violation of such restriction.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Directors and executive officers of the Company,
together with information as to their principal
business occupations during the past five years, are
shown below. Each Director who is an "interested
person" of the Fund, as defined in the 1940 Act, is
indicated by an asterisk.
Paul R. Ades, Director (Age 59). Partner in the law
firm of Murov & Ades. His address is 272 South
Wellwood Avenue, P.O. Box 504, Lindenhurst, New York
11757.
Herbert Barg, Director (Age 75). Private investor. His
address is 273 Montgomery Avenue, Bala Cynwyd,
Pennsylvania 19004.
Dwight B. Crane, Director (Age 61). Professor,
Graduate School of Business Administration, Harvard
University. His address is Graduate School of Business
Administration, Harvard University, Boston,
Massachusetts 02163.
Frank G. Hubbard, Director (Age 62). Vice President,
S&S Industries; Former Corporate Vice President,
Materials Management and Marketing Services of Huls
America, Inc. His address is 80 Centennial Avenue
P.O. Box 456, Piscataway, New Jersey 08855-0456.
*Heath B. McLendon, Chairman of the Board, President
and Chief Executive Officer (Age 66). Managing
Director of Salomon Smith Barney Inc. ("Salomon Smith
Barney"); Director and President of SSB Citi Fund
Management LLC and Travelers Investment Adviser, Inc.
("TIA"); and formerly Chairman of the Board of Smith
Barney Strategy Advisers Inc. Mr. McLendon is a
director of 71 investment companies associated with
Citigroup Inc. ("Citigroup"). His address is 7 World
Trade Center, New York, New York 10048.
Jerome Miller, Director (Age 60). Retired, Former
President, Asset Management Group of Shearson Lehman
Brothers. His address is 27 Hemlock Road, Manhasset,
New York, NY 11030.
Ken Miller, Director (Age 57). President of Young
Stuff Apparel Group, Inc. His address is 1411
Broadway, New York, New York 10018.
Lewis E. Daidone, Senior Vice President and Treasurer
(Age 42). Managing Director of Salomon Smith Barney;
Director and Senior Vice President of SSB Citi and
TIA; Senior Vice President and Treasurer of 61
investment companies associated with Citigroup. His
address is 388 Greenwich Street, New York, New York
10013.
Alan Blake, Vice President and Investment Officer (Age
48). Managing Director of Salomon Smith Barney;
Investment Officer of SSB Citi. His address is 7
World Trade Center, New York, New York 10048.
Frances A. Root, Vice President and Investment Officer
(Age 40). Managing Director of Salomon Smith Barney;
Investment Officer of SSB Citi. Her address is 7
World Trade Center, New York, New York 10048.
Paul Brook, Controller (Age 46). Director of Salomon
Smith Barney; from 1997-1998 Managing Director of AMT
Capital Services Inc.; prior to 1997 Partner with
Ernst & Young LLP; Controller or Assistant Treasurer
of 43 investment companies associated with Citigroup.
His address is 388 Greenwich Street, New York, New
York 10013.
Christina T. Sydor, Secretary (Age 49). Managing
Director of Salomon Smith Barney; General Counsel and
Secretary of SSB Citi and TIA; Secretary of 61
investment companies associated with Citigroup. Her
address is 388 Greenwich Street, New York, New York
10013.
No officer, director or employee of Salomon Smith
Barney or any parent or subsidiary receives any
compensation from the Company for serving as an
officer or Director of the Company. The Company pays
each Director who is not an officer, director or
employee of Salomon Smith Barney or any of its
affiliates a fee of $22,500 per annum plus $2,900 per
meeting attended and reimburses travel and out-of-
pocket expenses. During the calendar year ended
December 31, 1999 such expenses totaled $18,574. For
the calendar year ended December 31, 1999, the
Directors of the Company were paid the following
compensation:
Name of Person
Aggregate
Compensation
from Company
FYE 12/31/99
Total Pension
or Retirement
Benefits
Accrued as
part of Fund
Expenses
Compensation
from Company
and Fund
Complex Paid
to Directors
Calendar Year
Ending
12/31/99
Number of
Funds for
Which
Director
Serves Within
Fund Complex
Paul R. Ades
$28,369
$0
$56,238
5
Herbert Barg
28,369
0
114,288
16
Dwight B. Crane
26,297
0
155,363
23
Frank G. Hubbard
28,269
0
56,138
5
Heath B. McLendon
0
0
0
71
Jerome Miller
26,197
0
51,613
5
Ken Miller
24,847
0
47,188
5
Upon attainment of age 80, Directors are required to
change to emeritus status. Directors Emeritus are
entitled to serve in emeritus status for a maximum of
10 years during which time they are paid 50% of the
annual retainer fee and meeting fees otherwise
applicable to the Fund Directors, together with
reasonable out-of-pocket expenses for each meeting
attended.
Investment Manager - SSB Citi
SSB Citi (successor to SSBC Fund Management Inc.)
serves as investment manager to the Fund pursuant to
an investment management agreement (the "Investment
Management Agreement") with the Fund which was
approved by the Board of Directors, including a
majority of directors who are not "interested persons"
of the Fund or the Manager. The Manager is a wholly
owned subsidiary of Salomon Smith Barney Holdings Inc.
("Holdings"), which in turn, is a wholly owned
subsidiary of Citigroup Inc. Subject to the
supervision and direction of the Company's Board of
Directors, the Manager manages the Fund's portfolio in
accordance with the Fund's stated investment objective
and policies, makes investment decisions for the Fund,
places orders to purchase and sell securities, and
employs professional portfolio managers and securities
analysts who provide research services to the Fund.
The Manager pays the salary of any officer and
employee who is employed by both it and the Fund. The
Manager bears all expenses in connection with the
performance of its services. The Manager also: (a)
assists in supervising all aspects of the Fund's
operations except those it performs under its
investment advisory agreement; b) supplies the Fund
with office facilities (which may be in SSB Citi's own
offices), statistical and research data, data
processing services, clerical, accounting and
bookkeeping services, including, but not limited to,
the calculation of (i) the net asset value of shares
of the Fund, (ii) applicable Deferred Sales Charges
and similar fees and charges and (iii) distribution
fees, internal auditing and legal services, internal
executive and administrative services, and stationary
and office supplies; and (c) prepares reports to
shareholders of the Fund, tax returns and reports to
and filings with the SEC and state blue sky
authorities.
SSB Citi (through its predecessor entities) has been
in the investment counseling business since 1968 and
renders investment advice to a wide variety of
individual, institutional and investment company
clients that had aggregate assets under management as
of December 31, 1999 in excess of $183 billion.
As compensation for investment management services,
the Fund pays the Manager a fee computed daily and
paid monthly at the annual rate of 0.75% of the Fund's
average daily net assets.
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.
Counsel and Auditors
Willkie Farr & Gallagher serves as counsel to the
Company. The Directors who are not "interested
persons" of the Company have selected Stroock &
Stroock & Lavan LLP to serve as their legal counsel.
KPMG LLP, independent accountants, 757 Third Avenue,
New York, New York 10022, serve as auditors of the
Fund and will render an opinion on the Fund's
financial statements annually beginning with the
fiscal period ending April 30, 2000.
Custodian and Transfer Agent
PNC Bank, National Association ("PNC Bank"), located
at 17th and Chestnut Streets, Philadelphia,
Pennsylvania 19103, serves as the custodian of the
Fund. Under its agreement with the Company on behalf
of the Fund, PNC Bank holds the Fund's portfolio
securities and keeps all necessary accounts and
records. For its services, PNC Bank receives a monthly
fee based upon the month-end market value of
securities held in custody and also receives
securities transaction charges. The assets of the Fund
are held under bank custodianship in compliance with
the 1940 Act.
Smith Barney Private Trust Company (the "transfer
agent") located at 388 Greenwich Street, New York, New
York 10013, serves as the transfer agent and
shareholder services agent of the Fund.
PFPC Global Fund Services (the "sub-transfer agent"),
located at P.O. Box 9699, Providence Rhode Island
02940-9699, serves as the Fund's sub-transfer agent to
render certain shareholder record-keeping and
accounting services functions.
Distributor
CFBDS, Inc., located at 20 Milk Street, Boston,
Massachusetts 02109-5408 serves as the Fund's
distributor pursuant to a written agreement with the
Company dated October 8, 1998 (the "Distribution
Agreement") which was approved by the Company's Board
of Directors, including a majority of the independent
directors, on July 15, 1998.
When payment is made by the investor before the
settlement date, unless otherwise noted by the
investor, the funds will be held as a free credit
balance in the investor's brokerage account and
Salomon Smith Barney may benefit from the temporary
use of the funds. The Company's Board of Directors
has been advised of the benefits to Salomon Smith
Barney resulting from these settlement procedures and
will take such benefits into consideration when
reviewing the Investment Management and Distribution
Agreements for continuance.
Distribution Arrangements
To compensate Salomon Smith Barney for the services it
provides and for the expense it bears under the
Distribution Agreement, the Fund has adopted a
services and distribution plan (the "Plan") pursuant
to Rule l2b-1 under the 1940 Act. Under the Plan, the
Fund pays Salomon Smith Barney a service fee, accrued
daily and paid monthly, calculated at the annual rate
of 0.25% of the value of the Fund's average daily net
assets attributable to the Class A, Class B and Class
L shares. In addition, the Fund pays Salomon Smith
Barney a distribution fee with respect to the Class B
and Class L shares primarily intended to compensate
Salomon Smith Barney for its initial expense of paying
Financial Consultants a commission upon sales of those
shares. The Class B and Class L distribution fee is
calculated at the annual rate of 0.75% of the value of
the Fund's average daily net assets attributable to
the shares of the respective Class.
Under its terms, the Plan continues from year to year,
provided such continuance is approved annually by vote
of the Board of Directors, including a majority of the
directors who are not interested persons of the Fund
and who have no direct or indirect financial interest
in the operation of the Plan or in the Distribution
Agreement (the "independent directors"). The Plan may
not be amended to increase the amount of the service
and distribution fees without shareholder approval,
and all amendments of the Plan also must be approved
by the directors including all of the independent
directors in the manner described above. The Plan may
be terminated with respect to a Class at any time,
without penalty, by vote of a majority of the
independent directors or, with respect to the Fund, by
vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act).
Pursuant to the Plan, Salomon Smith Barney will
provide the Board of Directors with periodic reports
of amounts expended under the Plan and the purpose for
which such expenditures were made.
Portfolio Transactions
The Manager arranges for the purchase and sale of the
Fund's securities and selects brokers and dealers
(including Salomon Smith Barney) which in its best
judgment provide prompt and reliable execution at
favorable prices and reasonable commission rates. The
Manager may select brokers and dealers that provide it
with research services and may cause the Fund to pay
such brokers and dealers commissions which exceed
those other brokers and dealers may have charged, if
it views the commissions as reasonable in relation to
the value of the brokerage and/or research services.
In selecting a broker, including Salomon Smith Barney,
for a transaction, the primary consideration is prompt
and effective execution of orders at the most
favorable prices. Subject to that primary
consideration, dealers may be selected for research,
statistical or other services to enable the Manager to
supplement its own research and analysis.
Decisions to buy and sell securities for the Fund are
made by the Manager, subject to the overall
supervision and review of the Company's Board of
Directors. Portfolio securities transactions for the
Fund are effected by or under the supervision of the
Manager.
Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. There is generally
no stated commission in the case of securities traded
in the over-the-counter market, but the price of those
securities includes an undisclosed commission or mark-
up. Over-the-counter purchases and sales are
transacted directly with principal market makers
except in those cases in which better prices and
executions may be obtained elsewhere. The cost of
securities purchased from underwriters includes an
underwriting commission or concession, and the prices
at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down.
In executing portfolio transactions and selecting
brokers or dealers, it is the Fund's policy to seek
the best overall terms available. The Manager, in
seeking the most favorable price and execution,
considers all factors it deems relevant, including,
for example, the price, the size of the transaction,
the reputation, experience and financial stability of
the broker-dealer involved and the quality of service
rendered by the broker-dealer in other transactions.
The Manager receives research, statistical and
quotation services from several broker-dealers with
which it places the Fund's portfolio transactions. It
is possible that certain of the services received
primarily will benefit one or more other accounts for
which the Manager exercises investment discretion.
Conversely, the Fund may be the primary beneficiary of
services received as a result of portfolio
transactions effected for other accounts. The
Manager's fee under the management agreement is not
reduced by reason of its receiving such brokerage and
research services. The Company's Board of Directors,
in its discretion, may authorize the Manager to cause
the Fund to pay a broker that provides brokerage and
research services to the Manager a commission in
excess of that which another qualified broker would
have charged for effecting the same transaction.
Salomon Smith Barney will not participate in
commissions from brokerage given by the Fund to other
brokers or dealers and will not receive any reciprocal
brokerage business resulting therefrom.
In accordance with Section 17(e) of the 1940 Act and
Rule 17e-1 thereunder, the Company's Board of
Directors has determined that any portfolio
transaction for the Fund may be executed through
Salomon Smith Barney or an affiliate of Salomon Smith
Barney if, in the Manager's judgment, the use of
Salomon Smith Barney or an affiliate is likely to
result in price and execution at least as favorable as
those of other qualified brokers and if, in the
transaction, Salomon Smith Barney or the affiliate
charges the Fund a commission rate consistent with
those charged by Salomon Smith Barney or an affiliate
to comparable unaffiliated customers in similar
transactions. In addition, under SEC rules, Salomon
Smith Barney may directly execute such transactions
for the Fund on the floor of any national securities
exchange, provided: (a) the Board of Directors has
expressly authorized Salomon Smith Barney to effect
such transactions; and (b) Salomon Smith Barney
annually advises the Fund of the aggregate
compensation it earned on such transactions.
Even though investment decisions for the Fund are made
independently from those of the other accounts managed
by the Manager, investments of the kind made by the
Fund also may be made by those other accounts. When
the Fund and one or more accounts managed by the
Manager are prepared to invest in, or desire to
dispose of, the same security, available investments
or opportunities for sales will be allocated in a
manner believed by the Manager to be equitable. In
some cases, this procedure may adversely affect the
price paid or received by the Fund or the size of the
position obtained for or disposed of by the Fund.
The Fund will not purchase securities during the
existence of any underwriting or selling group
relating to the securities, of which the Manager is a
member, except to the extent permitted by the SEC.
Under certain circumstances, the Fund may be at a
disadvantage because of this limitation in comparison
with other Funds that have similar investment
objectives but that are not subject to a similar
limitation.
Portfolio Turnover
The Fund's portfolio turnover rate (the lesser of
purchases or sales of portfolio securities during the
year, excluding purchases or sales of short-term
securities, divided by the monthly average value of
portfolio securities) is generally not expected to
exceed 100%. The rate of turnover will not be a
limiting factor, however, when the Fund deems it
desirable to sell or purchase securities.
The Manager will rebalance the allocation of value and
growth securities in the Fund's portfolio at the end
of each quarter and at any time in which the
percentage of the Fund's portfolio invested in either
value or growth securities equals or exceeds 55% of
the Fund's total assets invested in both value and
growth securities for a period of more than 10 days.
As a result, when securities in either the value or
growth style portion of the Fund's portfolio have
underperformed the securities in the portion of the
portfolio devoted to the other style, the Manager will
rebalance the portfolio to increase the Fund's assets
allocated to the style that underperformed, and
decrease the assets allocated to the style that
outperformed, the other style. The Manager will also
monitor the Fund's portfolio to ensure that no more
than 25% of the Fund's assets are concentrated in the
securities of companies in the same industry and that
the Fund complies with its other investment policies.
The Manager may cause the Fund to sell or purchase
securities to ensure compliance with the Fund's
investment policies.
PURCHASE OF SHARES
Sales Charge Alternatives
The following classes of shares are available for
purchase. See the prospectus for a discussion of
factors to consider in selecting which Class of shares
to purchase.
Class A Shares. Class A shares are sold to investors
at the public offering price, which is the net asset
value plus an initial sales charge as follows:
Amount
of
Investme
nt
Sales Charge
as a %
of
Transaction
Sales
Charge as a
% of Amount
Invested
Dealers'
Reallowance as
%
Of Offering
Price
Less than
$25,000
5.00%
5.26%
4.50%
$ 25,000 -
49,999
4.00
4.17
3.60
50,000 -
99,999
3.50
3.63
3.15
100,000 -
249,999
3.00
3.09
2.70
250,000 -
499,999
2.00
2.04
1.80
500,000 and
over
*
*
*
* 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 "Deferred Sales Charge
Provisions" and "Waivers of Deferred Sales
Charge."
Members of the selling group may receive up to 90% of
the sales charge and may be deemed to be underwriters
of the Fund as defined in the 1933 Act. The reduced
sales charges shown above apply to the aggregate of
purchases of Class A shares of the Fund made at one
time by "any person," which includes an individual and
his or her immediate family, or a trustee or other
fiduciary of a single trust estate or single fiduciary
account.
Class B Shares. Class B shares are sold without an
initial sales charge but are subject to a Deferred
Sales Charge payable upon certain redemptions. See
"Deferred Sales Charge Provisions" below.
Class L Shares. Class L shares are sold with an
initial sales charge of 1.00% (which is equal to 1.01%
of the amount invested) and are subject to a Deferred
Sales Charge payable upon certain redemptions. See
"Deferred Sales Charge Provisions" below. Until June
22, 2001, purchases of Class L shares by investors who
were holders of Class C shares of other Smith Barney
Mutual Funds on June 12, 1998 will not be subject to
the 1.00% initial sales charge.
Class Y Shares. Class Y shares are sold without an
initial sales charge or Deferred Sales Charge and are
available only to investors investing a minimum of
$15,000,000 (except purchases of Class Y shares by
Smith Barney Concert Allocation Series Inc., for which
there is no minimum purchase amount).
General
Investors may purchase shares from a Salomon Smith
Barney Financial Consultant or a broker that clears
through Salomon Smith Barney ("Dealer
Representative"). In addition, certain investors,
including qualified retirement plans purchasing
through certain Dealer Representatives, may purchase
shares directly from the Fund. When purchasing shares
of the Fund, investors must specify whether the
purchase is for Class A, Class B, Class L or Class Y
shares. Salomon Smith Barney and 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 the sub-transfer
agent are not subject to a maintenance fee.
Investors in Class A, Class B and Class L shares may
open an account in the Fund by making an initial
investment of at least $1,000 for each account, or
$250 for an IRA or a Self-Employed Retirement Plan, in
the Fund. Investors in Class Y shares may open an
account by making an initial investment of
$15,000,000. Subsequent investments of at least $50
may be made for all Classes. For participants in
retirement plans qualified under Section 403(b)(7) or
Section 401(c) of the Code, the minimum initial
investment required for Class A, Class B and Class L
shares and the subsequent investment requirement for
all Classes in the Fund is $25. There are no minimum
investment requirements for Class A shares for
employees of Citigroup and its subsidiaries, including
Salomon Smith Barney, unitholders who invest
distributions from a Unit Investment Trust ("UIT")
sponsored by Salomon Smith Barney, and
Directors/Trustees of any of the Smith Barney Mutual
Funds, and their spouses and children. The Fund
reserves the right to waive or change minimums, to
decline any order to purchase its shares and to
suspend the offering of shares from time to time.
Shares purchased will be held in the shareholder's
account by the sub-transfer agent. Share certificates
are issued only upon a shareholder's written request
to the sub-transfer agent.
Purchase orders received by the Fund or a Salomon
Smith Barney Financial Consultant prior to the close
of regular trading on the New York Stock Exchange
("NYSE"), on any day the Fund calculates its net asset
value, are priced according to the net asset value
determined on that day (the ''trade date''). Orders
received by a Dealer Representative prior to the close
of regular trading on the NYSE on any day the Fund
calculates its net asset value, are priced according
to the net asset value determined on that day,
provided the order is received by the Fund or the
Fund's agent prior to its close of business. For
shares purchased through 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 the sub-transfer agent
is authorized through preauthorized transfers of at
least $25 on a monthly basis or at least $50 on a
quarterly basis to charge the shareholder's account
held with a bank or other financial institution on a
monthly or quarterly basis as indicated by the
shareholder, to provide for systematic additions to
the shareholder's fund account. A shareholder who has
insufficient funds to complete the transfer will be
charged a fee of up to $25 by Salomon Smith Barney or
the sub-transfer agent. The Systematic Investment
Plan also authorizes Salomon Smith Barney to apply
cash held in the shareholder's Salomon Smith Barney
brokerage account or redeem the shareholder's shares
of a Smith Barney money market fund to make additions
to the account. Additional information is available
from the fund or a Salomon Smith Barney Financial
Consultant or a Dealer 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 (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 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) direct
rollovers by plan participants of distributions from a
401(k) plan offered to employees of Citigroup or its
subsidiaries (Note: subsequent investments will be
subject to the applicable sales charge); (g) purchases
by a separate account used to fund certain
unregistered variable annuity contracts; (h)
investments of distributions from or proceeds from a
sale of a UIT sponsored by Salomon Smith Barney;
(i) purchases by investors participating in a Salomon
Smith Barney fee-based arrangement; and (j) purchases
of Class A shares by Section 403(b) or Section 401(a)
or (k) accounts associated with Copeland Retirement
Programs. In order to obtain such discounts, the
purchaser must provide sufficient information at the
time of purchase to permit verification that the
purchase would qualify for the elimination of the
sales charge.
Right of Accumulation. Class A shares of the Fund may
be purchased by "any person" (as defined above) at a
reduced sales charge or at net asset value determined
by aggregating the dollar amount of the new purchase
and the total net asset value of all Class A shares of
the Fund and of other Smith Barney Mutual Funds that
are offered with a sales charge as currently listed
under "Exchange Privilege" then held by such person
and applying the sales charge applicable to such
aggregate. In order to obtain such discount, the
purchaser must provide sufficient information at the
time of purchase to permit verification that the
purchase qualifies for the reduced sales charge. The
right of accumulation is subject to modification or
discontinuance at any time with respect to all shares
purchased thereafter.
Letter of Intent - Class A Shares. A Letter of Intent
for an amount of $50,000 or more provides an
opportunity for an investor to obtain a reduced sales
charge by aggregating investments over a 13 month
period, provided that the investor refers to such
Letter when placing orders. For purposes of a Letter
of Intent, the "Amount of Investment" as referred to
in the preceding sales charge table includes (i) all
Class A shares of the Fund and other Smith Barney
Mutual Funds offered with a sales charge acquired
during the term of the letter plus (ii) the value of
all Class A shares previously purchased and still
owned. Each investment made during the period
receives the reduced sales charge applicable to the
total amount of the investment goal. If the goal is
not achieved within the period, the investor must pay
the difference between the sales charges applicable to
the purchases made and the charges previously paid, or
an appropriate number of escrowed shares will be
redeemed. The term of the Letter will commence upon
the date the Letter is signed, or at the option of the
investor, up to 90 days before such date. Please
contact a Salomon Smith Barney Financial Consultant or
the transfer agent to obtain a Letter of Intent
application.
Letter of Intent - Class Y Shares. A Letter of Intent
may also be used as a way for investors to meet the
minimum investment requirement for Class Y shares
(except purchases of Class Y shares by Smith Barney
Concert Allocation Series Inc., for which there is no
minimum purchase amount). Such investors must make an
initial minimum purchase of $5,000,000 in Class Y
shares of the Fund and agree to purchase a total of
$15,000,000 of Class Y shares of the Fund within 13
months from the date of the Letter. If a total
investment of $15,000,000 is not made within the 13-
month period, all Class Y shares purchased to date
will be transferred to Class A shares, where they will
be subject to all fees (including a service fee of
0.25%) and expenses applicable to the Fund's Class A
shares, which may include a Deferred Sales Charge of
1.00%. Please contact a Salomon Smith Barney Financial
Consultant or the transfer agent for further
information.
Deferred Sales Charge Provisions
"Deferred Sales 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 that the value of
such shares represents: (a) capital appreciation of
Fund assets; (b) reinvestment of dividends or capital
gain distributions; (c) with respect to Class B
shares, shares redeemed more than five years after
their purchase; or (d) with respect to Class L shares
and Class A shares that are Deferred Sales Charge
shares, shares redeemed more than 12 months after
their purchase.
Class L shares and Class A shares that are Deferred
Sales Charge shares are subject to a 1.00% Deferred
Sales Charge if redeemed within 12 months of purchase.
In circumstances in which the Deferred Sales Charge is
imposed on Class B shares, the amount of the charge
will depend on the number of years since the
shareholder made the purchase payment from which the
amount is being redeemed. Solely for purposes of
determining the number of years since a purchase
payment, all purchase payments made during a month
will be aggregated and deemed to have been made on the
last day of the preceding Salomon Smith Barney
statement month. The following table sets forth the
rates of the charge for redemptions of Class B shares
by shareholders.
Year Since Purchase Payment Was
Made
Deferred Sales Charge
First
5.00%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth and thereafter
0.00
Class B shares will convert automatically to Class A
shares eight years after the date on which they were
purchased and thereafter will no longer be subject to
any distribution fees. There will also be converted at
that time such proportion of Class B Dividend Shares
owned by the shareholders as the total number of his
or her Class B shares converting at the time bears to
the total number of outstanding Class B shares (other
than Class B Dividend Shares) owned by the
shareholder.
In determining the applicability of any Deferred Sales
Charge, it will be assumed that a redemption is made
first of shares representing capital appreciation,
next of shares representing the reinvestment of
dividends and capital gain distributions and finally
of other shares held by the shareholder for the
longest period of time. The length of time that
Deferred Sales Charge shares acquired through an
exchange have been held will be calculated from the
date that the shares exchanged were initially acquired
in one of the other Smith Barney Mutual Funds, and
fund shares being redeemed will be considered to
represent, as applicable, capital appreciation or
dividend and capital gain distribution reinvestments
in such other funds. For Federal income tax purposes,
the amount of the Deferred Sales Charge will reduce
the gain or increase the loss, as the case may be, on
the amount realized on redemption. The amount of any
Deferred Sales Charge will be paid to Salomon Smith
Barney.
To provide an example, assume an investor purchased
100 Class B shares of the Fund at $10 per share for a
cost of $1,000. Subsequently, the investor acquired 5
additional shares of the Fund through dividend
reinvestment. During the fifteenth month after the
purchase, the investor decided to redeem $500 of his
or her investment. Assuming at the time of the
redemption the net asset value had appreciated to $12
per share, the value of the investor's shares would be
$1,260 (105 shares at $12 per share). The Deferred
Sales Charge would not be applied to the amount which
represents appreciation ($200) and the value of the
reinvested dividend shares ($60). Therefore, $240 of
the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4.00% (the applicable rate for
Class B shares) for a total Deferred Sales Charge of
$9.60.
Waivers of Deferred Sales Charge
The Deferred Sales Charge will be waived on: (a)
exchanges (see "Exchange Privilege"); (b) redemptions
of shares within 12 months following the death or
disability of the shareholder; (c) redemptions of
shares made in connection with qualified distributions
from retirement plans or IRAs upon the attainment of
age 591/2; (d) involuntary redemptions; and
(e) redemptions of shares to effect a combination of
the Fund with any investment company by merger,
acquisition of assets or otherwise. In addition, a
shareholder who has redeemed shares from other Smith
Barney Mutual Funds may, under certain circumstances,
reinvest all or part of the redemption proceeds within
60 days and receive pro rata credit for any Deferred
Sales Charge imposed on the prior redemption.
Deferred Sales Charge waivers will be granted subject
to confirmation (by Salomon Smith Barney in the case
of shareholders who are also Salomon Smith Barney
clients or by the transfer agent in the case of all
other shareholders) of the shareholder's status or
holdings, as the case may be.
Volume Discounts
The schedule of sales charges on Class A shares
described in the prospectus applies to purchases made
by any "purchaser," which is defined to include the
following: (a) an individual; (b) an individual's
spouse and his or her children purchasing shares for
their own account; (c) a Director or other fiduciary
purchasing shares for a single trust estate or single
fiduciary account; and (d) a Director or other
professional fiduciary (including a bank, or an
investment adviser registered with the SEC under the
Investment Advisers Act of 1940, as amended)
purchasing shares of the fund for one or more trust
estates or fiduciary accounts. Purchasers who wish to
combine purchase orders to take advantage of volume
discounts on Class A shares should contact a Salomon
Smith Barney Financial Consultant.
Determination of Public Offering Price
The Fund offers its shares to current shareholders of
the Fund on a continuous basis. The public offering
price for a Class A, Class B and Class Y share of the
Fund is equal to the net asset value per share at the
time of purchase, plus for Class A shares an initial
sales charge based on the aggregate amount of the
investment. The public offering price for Class A
share purchases, including applicable rights of
accumulation, equaling or exceeding $500,000 is equal
to the net asset value per share at the time of
purchase and no sales charge is imposed at the time of
purchase. The public offering price for a Class L
share includes a 1.00% initial sales charge. A
Deferred Sales Charge is imposed on certain
redemptions of Class B shares, and on Class L shares
and Class A shares (purchased in amounts exceeding
$500,000) redeemed within one year of purchase.
REDEMPTION OF SHARES
The right of redemption of shares of the Fund may be
suspended or the date of payment postponed (a) for any
periods during which the New York Stock Exchange, Inc.
(the "NYSE") is closed (other than for customary
weekend and holiday closings), (b) when trading in the
markets the Fund normally utilizes is restricted, or
an emergency exists, as determined by the SEC, so that
disposal of the Fund's investments or determination of
its net asset value is not reasonably practicable or
(c) for any other periods as the SEC by order may
permit for the protection of the Fund's shareholders.
If the shares to be redeemed were issued in
certificate form, the certificates must be endorsed
for transfer (or be accompanied by an endorsed stock
power) and must be submitted to the sub-transfer agent
together with the redemption request. Any signature
appearing on a share certificate, stock power or
written redemption request in excess of $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, trustees or guardians. A redemption
request will not be deemed properly received until the
transfer agent receives all required documents in
proper form.
If a shareholder holds shares in more than one Class,
any request for redemption must specify the Class
being redeemed. In the event of a failure to specify
which Class, or if the investor owns fewer shares of
the Class than specified, the redemption request will
be delayed until the transfer agent receives further
instructions from Salomon Smith Barney, or if the
shareholder's account is not with Salomon Smith
Barney, from the shareholder directly. The redemption
proceeds will be remitted on or before the third
business day following receipt of proper tender,
except on any days on which the NYSE is closed or as
permitted under the 1940 Act, in extraordinary
circumstances. Generally, if the redemption proceeds
are remitted to a Salomon Smith Barney brokerage
account, these funds will not be invested for the
shareholder's benefit without specific instruction and
Salomon Smith Barney will benefit from the use of
temporarily uninvested funds. Redemption proceeds for
shares purchased by check, other than a certified or
official bank check, will be remitted upon clearance
of the check, which may take up to fifteen days.
Distributions in Kind
If the Board of Directors of the Fund determines that
it would be detrimental to the best interests of the
remaining shareholders to make a redemption payment
wholly in cash, the Fund may pay, in accordance with
SEC rules, any portion of a redemption in excess of
the lesser of $250,000 or 1.00% of the Fund's net
assets by a distribution in kind of portfolio
securities in lieu of cash. Securities issued as a
distribution in kind may incur brokerage commissions
when shareholders subsequently sell those securities.
Additional Information Regarding Telephone Redemption
And Exchange Program
Neither the Fund nor its agents will be liable for
following instructions communicated by telephone that
are reasonably believed to be genuine. The Fund and
its agents will employ procedures designed to verify
the identity of the caller and legitimacy of
instructions (for example, a shareholder's name and
account number will be required and phone calls may be
recorded). The Fund reserves the right to suspend,
modify or discontinue the telephone redemption and
exchange program or to impose a charge for this
service at any time following at least seven (7) days'
prior notice to shareholders.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal
Plan") is available to shareholders who own shares
with a value of at least $10,000 and who wish to
receive specific amounts of cash monthly or quarterly.
Withdrawals of at least $50 may be made under the
Withdrawal Plan by redeeming as many shares of the
Fund as may be necessary to cover the stipulated
withdrawal payment. Any applicable Deferred Sales
Charge will not be waived on amounts withdrawn by
shareholders that exceed 1.00% per month of the value
of a shareholder's shares at the time the Withdrawal
Plan commences. (With respect to Withdrawal Plans in
effect prior to November 7, 1994, any applicable
Deferred Sales Charge will be waived on amounts
withdrawn that do not exceed 2.00% per month of the
value of the shareholder's shares that are subject to
a Deferred Sales Charge). To the extent withdrawals
exceed dividends, distributions and appreciation of a
shareholder's investment in the Fund, there will be a
reduction in the value of the shareholder's
investment, and continued withdrawal payments may
reduce the shareholder's investment and ultimately
exhaust it. Withdrawal payments should not be
considered as income from investment in the Fund.
Furthermore, as it generally would not be advantageous
to a shareholder to make additional investments in the
Fund at the same time he or she is participating in
the Withdrawal Plan, purchases by such shareholder in
amounts of less than $5,000 ordinarily will not be
permitted. All dividends and distributions on shares
in the Withdrawal Plan are reinvested automatically at
net asset value in additional shares of the Fund.
Shareholders who wish to participate in the Withdrawal
Plan and who hold their shares in certificate form
must deposit their share certificates with the sub-
transfer agent as agent for Withdrawal Plan members.
For additional information, shareholders should
contact a Salomon Smith Barney Financial Consultant or
their Financial Consultant, Dealer Representative. A
shareholder who purchases shares directly through the
sub-transfer agent may continue to do so and
applications for participation in the Withdrawal Plan
must be received by the sub-transfer agent no later
than the eighth day of the month to be eligible for
participation beginning with that month's withdrawal.
VALUATION OF SHARES
The net asset value per share of the Fund's Classes is
calculated on each day, Monday through Friday, except
days on which the NYSE is closed. The NYSE currently
is scheduled to be closed on New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas, and on the preceding
Friday or subsequent Monday when one of these holidays
falls on a Saturday or Sunday, respectively. Because
of the differences in distribution fees and
Class-specific expenses, the per share net asset value
of each Class may differ. The following is a
description of the procedures used by the Fund in
valuing its assets.
Securities listed on a national securities exchange
will be valued on the basis of the last sale on the
date on which the valuation is made or, in the absence
of sales, at the mean between the closing bid and
asked prices. Over-the-counter securities will be
valued at the mean between the closing bid and asked
prices on each day, or, if market quotations for those
securities are not readily available, at fair value,
as determined in good faith by the Company's Board of
Directors. Short-term obligations with maturities of
60 days or less are valued at amortized cost, which
constitutes fair value as determined by the Company's
Board of Directors. Amortized cost involves valuing an
instrument at its original cost to the Fund and
thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the
effect of fluctuating interest rates on the market
value of the instrument. All other securities and
other assets of the Fund will be valued at fair value
as determined in good faith by the Company's Board of
Directors.
EXCHANGE PRIVILEGE
Except as noted below and in the Prospectus,
shareholders of any of the Smith Barney Mutual Funds
may exchange all or part of their shares for shares of
the same class of other Smith Barney Mutual Funds, to
the extent such shares are offered for sale in the
shareholder's state of residence, on the basis of
relative net asset value per share at the time of
exchange as follows:
A. Class A and Class Y shares of the Fund may be
exchanged without a sales charge for the
respective shares of any of the Smith Barney
Mutual Funds.
B. Class B shares of any fund may be exchanged
without a sales charge. Class B shares of the
Fund exchanged for Class B shares of another
Smith Barney Mutual Fund will be subject to the
higher applicable Deferred Sales Charge of the
two funds and, for purposes of calculating
Deferred Sales Charge rates and conversion
periods, will be deemed to have been held since
the date the shares being exchanged were deemed
to be purchased.
C. Class L shares of any fund may be exchanged
without a sales charge. For purposes of Deferred
Sales Charge applicability, Class L shares of
the Fund exchanged for Class L shares of another
Smith Barney Mutual Fund will be deemed to have
been owned since the date the shares being
exchanged were deemed to be purchased.
The exchange privilege enables shareholders to acquire
shares of the same Class in a fund with different
investment objectives when they believe that a shift
between funds is an appropriate investment decision.
This privilege is available to shareholders residing
in any state in which fund shares being acquired may
legally be sold. Prior to any exchange, the
shareholder should obtain and review a copy of the
current prospectus of each fund into which an exchange
is being considered. Prospectuses may be obtained from
a Salomon Smith Barney Financial Consultant.
Upon receipt of proper instructions and all necessary
supporting documents, shares submitted for exchange
are redeemed at the then-current net asset value and
the proceeds are immediately invested, at a price as
described above, in shares of the fund being acquired.
Salomon Smith Barney reserves the right to reject any
exchange request. The exchange privilege may be
modified or terminated at any time after written
notice to shareholders.
Additional Information Regarding the Exchange
Privilege. Although the exchange privilege is an
important benefit, excessive exchange transactions can
be detrimental to the Fund's performance and its
shareholders. The Manager may determine that a
pattern of frequent exchanges is excessive and
contrary to the best interests of the Fund's other
shareholders. In this event, the Fund may, at its
discretion, decide to limit additional purchases
and/or exchanges by a shareholder. Upon such a
determination, the Fund will provide notice in writing
or by telephone to the shareholder at least 15 days
prior to suspending the exchange privilege and during
the 15 day period the shareholder will be required to
(a) redeem his or her shares in the Fund or (b) remain
invested in the Fund or exchange into any of the funds
of the Smith Barney Mutual funds ordinarily available,
which position the shareholder would be expected to
maintain for a significant period of time. All
relevant factors will be considered in determining
what constitutes an abusive pattern of exchanges.
PERFORMANCE DATA
From time to time, the Company may advertise the
Fund's total return and average annual total return in
advertisements and/or other types of sales literature.
These figures are computed separately for Class A,
Class B, Class L and Class Y shares of the Fund.
These figures are based on historical earnings and are
not intended to indicate future performance. Total
return is computed for a specified period of time
assuming deduction of the maximum sales charge, if
any, from the initial amount invested and reinvestment
of all income dividends and capital gain distributions
on the reinvestment dates at prices calculated as
stated in this prospectus, then dividing the value of
the investment at the end of the period so calculated
by the initial amount invested and subtracting 100%.
The standard average annual total return, as
prescribed by the SEC is derived from this total
return, which provides the ending redeemable value.
Such standard total return information may also be
accompanied with nonstandard total return information
for differing periods computed in the same manner but
without annualizing the total return or taking sales
charges into account. The Company may also include
comparative performance information in advertising or
marketing the Fund's shares. Such performance
information may include data from Lipper Analytical
Services, Inc. and other financial publications.
From time to time, the Company may quote the Fund's
yield or total return in advertisements or in reports
and other communications to shareholders. The Company
may include comparative performance information in
advertising or marketing the Fund's shares. Such
performance information may include the following
industry and financial publications- Barron's,
Business Week, CDA Investment Technologies, Inc.,
Changing Times, Forbes, Fortune, Institutional
Investor, Investors Daily, Money, Morningstar Mutual
Fund Values, The New York Times, USA Today and The
Wall Street Journal. To the extent any advertisement
or sales literature of the Fund describes the expenses
or performance of any Class it will also disclose such
information for the other Classes.
Average Annual Total Return
"Average annual total return" figures are computed
according to a formula prescribed by the SEC. The
formula can be expressed as follows:
P (1 + T)n = ERV
Where: P = a hypothetical initial
payment of $ 1,000.
T = average annual total
return.
n = number of years.
ERV = Ending Redeemable Value
of a hypothetical $1,000
investment made at the
beginning of a 1-, 5- or 10-year
period at the end of the
1-, 5- or 10-year period (or
fractional portion
thereof), assuming reinvestment of all
dividends and
distributions.
The ERV assumes complete redemption of the
hypothetical investment at the end of the measuring
period. The Fund's net investment income changes in
response to fluctuations in interest rates and the
expenses of the Fund.
Aggregate Total Return
The Fund's "aggregate total return," as described
below, represents the cumulative change in the value
of an investment in the Fund for the specified period
and is computed by the following formula:
ERV - P
P
Where: P = a hypothetical initial
payment of $10,000.
ERV = Ending Redeemable Value
of a hypothetical
$10,000 investment made
at the beginning of the
1-, 5- or 10-year period
at the end of the 1-, 5-
or 10-year period (or
fractional portion
thereof), assuming
reinvestment of all
dividends and
distributions.
The ERV assumes complete redemption of the
hypothetical investment at the end of the measuring
period.
Performance will vary from time to time depending on
market conditions, the composition of the Fund's
portfolio and operating expenses. Consequently, any
given performance quotation should not be considered
representative of the Fund's performance for any
specified period in the future. Because performance
will vary, it may not provide a basis for comparing an
investment in the Fund with certain bank deposits or
other investments that pay a fixed yield for a stated
period of time.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions
The Fund's policy is to distribute its net investment
income and net realized capital gains, if any,
annually. The Fund may also pay additional dividends
shortly before December 31 from certain amounts of
undistributed ordinary income and capital gains
realized, in order to avoid a Federal excise tax
liability.
If a shareholder does not otherwise instruct,
dividends and capital gains distributions will be
reinvested automatically in additional shares of the
same Class at net asset value, subject to no sales
charge or Deferred Sales Charge. A shareholder may
change the option at any time by notifying his Salomon
Smith Barney Financial Consultant or Dealer
Representative. A shareholder whose account is held
directly at the sub-transfer agent should notify the
sub-transfer agent in writing, requesting a change to
this reinvest option.
The per share dividends on Class B and Class L shares
of the Fund may be lower than the per share dividends
on Class A and Class Y shares principally as a result
of the distribution fee applicable with respect to
Class B and Class L shares. The per share dividends on
Class A shares of the Fund may be lower than the per
share dividends on Class Y shares principally as a
result of the service fee applicable to Class A
shares. Distributions of capital gains, if any, will
be in the same amount for Class A, Class B, Class L
and Class Y shares.
Taxes
The following is a summary of the material United
States federal income tax considerations regarding the
purchase, ownership and disposition of shares of the
Fund. Each prospective shareholder is urged to
consult his own tax adviser with respect to the
specific federal, state, local and foreign tax
consequences of investing in a fund. The summary is
based on the laws in effect on the date of this SAI,
which are subject to change.
The Fund and Its Investments
The Fund intends to qualify to be treated as a
regulated investment company each taxable year under
the Code. To so qualify, the Fund must, among other
things: (a) derive at least 90% of its gross income in
each taxable year from dividends, interest, payments
with respect to securities loans and gains from the
sale or other disposition of stock or securities or
foreign currencies, or other income (including, but
not limited to, gains from options, futures or forward
contracts) derived with respect to its business of
investing in such stock, securities or currencies; and
(b) diversify its holdings so that, at the end of each
quarter of the Fund's taxable year, (i) at least 50%
of the market value of the Fund's assets is
represented by cash, securities of other regulated
investment companies, United States government
securities and other securities, with such other
securities limited, in respect of any one issuer, to
an amount not greater than 5% of the Fund's assets and
not greater than 10% of the outstanding voting
securities of such issuer and (ii) not more than 25%
of the value of its assets is invested in the
securities (other than United States government
securities or securities of other regulated investment
companies) of any one issuer or any two or more
issuers that the Fund controls and are determined to
be engaged in the same or similar trades or businesses
or related trades or businesses.
As a regulated investment company, the Fund will not
be subject to United States federal income tax on its
net investment income (i.e., income other than its net
realized long- and short-term capital gains) and its
net realized long- and short-term capital gains, if
any, that it distributes to its shareholders, provided
an amount equal to at least 90% of its investment
company taxable income (i.e., 90% of its taxable
income minus the excess, if any, of its net realized
long-term capital gains over its net realized short-
term capital losses (including any capital loss
carryovers), plus or minus certain other adjustments
as specified in the Code) and 90% of its net tax-
exempt income for the taxable year is distributed in
compliance with the Code's timing and other
requirements but will be subject to tax at regular
corporate rates on any taxable income or gains it does
not distribute. The Code imposes a 4% nondeductible
excise tax on the Fund to the extent it does not
distribute by the end of any calendar year at least
98% of its net investment income for that year and 98%
of the net amount of its capital gains (both long-and
short-term) for the one-year period ending, as a
general rule, on October 31 of that year. For this
purpose, however, any income or gain retained by the
Fund that is subject to corporate income tax will be
considered to have been distributed by year-end. In
addition, the minimum amounts that must be distributed
in any year to avoid the excise tax will be increased
or decreased to reflect any underdistribution or
overdistribution, as the case may be, from the
previous year. The Fund anticipates that it will pay
such dividends and will make such distributions as are
necessary in order to avoid the application of this
tax.
If, in any taxable year, the Fund fails to qualify as
a regulated investment company under the Code or fails
to meet the distribution requirement, it would be
taxed in the same manner as an ordinary corporation
and distributions to its shareholders would not be
deductible by the Fund in computing its taxable
income. In addition, in the event of a failure to
qualify, the Fund's distributions, to the extent
derived from the Fund's current or accumulated
earnings and profits would constitute dividends
(eligible for the corporate dividends-received
deduction) which are taxable to shareholders as
ordinary income, even though those distributions might
otherwise (at least in part) have been treated in the
shareholders' hands as long-term capital gains. If
the Fund fails to qualify as a regulated investment
company in any year, it must pay out its earnings and
profits accumulated in that year in order to qualify
again as a regulated investment company. In addition,
if the Fund failed to qualify as a regulated
investment company for a period greater than one
taxable year, the Fund may be required to recognize
any net built-in gains (the excess of the aggregate
gains, including items of income, over aggregate
losses that would have been realized if it had been
liquidated) in order to qualify as a regulated
investment company in a subsequent year.
The Fund's transactions in foreign currencies, forward
contracts, options and futures contracts (including
options and futures contracts on foreign currencies)
will be subject to special provisions of the Code
(including provisions relating to "hedging
transactions" and "straddles") that, among other
things, may affect the character of gains and losses
realized by the Fund (i.e., may affect whether gains
or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer Fund
losses. These rules could therefore affect the
character, amount and timing of distributions to
shareholders. These provisions also (a) will require
the Fund to mark-to-market certain types of the
positions in its portfolio (i.e., treat them as if
they were closed out) and (b) may cause the Fund to
recognize income without receiving cash with which to
pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for
avoiding income and excise taxes. The Fund will
monitor its transactions, will make the appropriate
tax elections and will make the appropriate entries in
its books and records when it acquires any foreign
currency, forward contract, option, futures contract
or hedged investment in order to mitigate the effect
of these rules and prevent disqualification of the
Fund as a regulated investment company.
The Fund's investment in Section 1256 contracts, such
as regulated futures contracts, most forward currency
forward contracts traded in the interbank market and
options on most stock indices, are subject to special
tax rules. All section 1256 contracts held by the
Fund at the end of its taxable year are required to be
marked to their market value, and any unrealized gain
or loss on those positions will be included in the
Fund's income as if each position had been sold for
its fair market value at the end of the taxable year.
The resulting gain or loss will be combined with any
gain or loss realized by the Fund from positions in
section 1256 contracts closed during the taxable year.
Provided such positions were held as capital assets
and were not part of a "hedging transaction" nor part
of a "straddle," 60% of the resulting net gain or loss
will be treated as long-term capital gain or loss, and
40% of such net gain or loss will be treated as short-
term capital gain or loss, regardless of the period of
time the positions were actually held by the Fund.
Foreign Investments. Dividends or other income
(including, in some cases, capital gains) received by
the Fund from investments in foreign securities may be
subject to withholding and other taxes imposed by
foreign countries. Tax conventions between certain
countries and the United States may reduce or
eliminate such taxes in some cases. The Fund will not
be eligible to elect to treat any foreign taxes paid
by it as paid by its shareholders, who therefore will
not be entitled to credits for such taxes on their own
tax returns. Foreign taxes paid by the Fund will
reduce the return from the Fund's investments.
Passive Foreign Investment Companies. If the Fund
purchases shares in certain foreign investment
entities, called "passive foreign investment
companies" (a "PFIC"), it may be subject to United
States federal income tax on a portion of any "excess
distribution" or gain from the disposition of such
shares even if such income is distributed as a taxable
dividend by the Fund to its shareholders. Additional
charges in the nature of interest may be imposed on
the Fund in respect of deferred taxes arising from
such distributions or gains. If the Fund were to
invest in a PFIC and elected to treat the PFIC as a
"qualified electing fund" under the Code, in lieu of
the foregoing requirements, the Fund might be required
to include in income each year a portion of the
ordinary earnings and net capital gains of the
qualified electing fund, even if not distributed to
the Fund, and such amounts would be subject to the 90%
and excise tax distribution requirements described
above. In order to make this election, the Fund would
be required to obtain certain annual information from
the passive foreign investment companies in which it
invests, which may be difficult or not possible to
obtain.
Recently, legislation was enacted that provides a
mark-to-market election for regulated investment
companies effective for taxable years beginning after
December 31, 1997. This election would result in the
Fund being treated as if it had sold and repurchased
all of the PFIC stock at the end of each year. In
this case, the Fund would report gains as ordinary
income and would deduct losses as ordinary losses to
the extent of previously recognized gains. The
election, once made, would be effective for all
subsequent taxable years of the Fund, unless revoked
with the consent of the IRS. By making the election,
the Fund could potentially ameliorate the adverse tax
consequences with respect to its ownership of shares
in a PFIC, but in any particular year may be required
to recognize income in excess of the distributions it
receives from PFICs and its proceeds from dispositions
of PFIC company stock. The Fund may have to
distribute this "phantom" income and gain to satisfy
its distribution requirement and to avoid imposition
of the 4% excise tax. The Fund will make the
appropriate tax elections, if possible, and take any
additional steps that are necessary to mitigate the
effect of these rules.
Taxation of United States Shareholders
Dividends and Distributions. Any dividend declared by
the Fund in October, November or December of any
calendar year and payable to shareholders of record on
a specified date in such a month shall be deemed to
have been received by each shareholder on December 31
of such calendar year and to have been paid by the
Fund not later than such December 31, provided such
dividend is actually paid by the Fund during January
of the following calendar year. The Fund intends to
distribute annually to its shareholders substantially
all of its investment company taxable income, and any
net realized long-term capital gains in excess of net
realized short-term capital losses (including any
capital loss carryovers). The Fund currently expects
to distribute any excess annually to its shareholders.
However, if the Fund retains for investment an amount
equal to all or a portion of its net long-term capital
gains in excess of its net short-term capital losses
and capital loss carryovers, it will be subject to a
corporate tax (currently at a rate of 35%) on the
amount retained. In that event, the Fund will
designate such retained amounts as undistributed
capital gains in a notice to its shareholders who (a)
will be required to include in income for United
Stares federal income tax purposes, as long-term
capital gains, their proportionate shares of the
undistributed amount, (b) will be entitled to credit
their proportionate shares of the 35% tax paid by the
Fund on the undistributed amount against their United
States federal income tax liabilities, if any, and to
claim refunds to the extent their credits exceed their
liabilities, if any, and (c) will be entitled to
increase their tax basis, for United States federal
income tax purposes, in their shares by an amount
equal to 65% of the amount of undistributed capital
gains included in the shareholder's income.
Organizations or persons not subject to federal income
tax on such capital gains will be entitled to a refund
of their pro rata share of such taxes paid by the Fund
upon filing appropriate returns or claims for refund
with the Internal Revenue Service (the "IRS").
Dividends of net investment income and distributions
of net realized short-term capital gains are taxable
to a United States shareholder as ordinary income,
whether paid in cash or in shares. Distributions of
net-long-term capital gains, if any, that the Fund
designates as capital gains dividends are taxable as
long-term capital gains, whether paid in cash or in
shares and regardless of how long a shareholder has
held shares of the Fund. Dividends and distributions
paid by the Fund attributable to dividends on stock of
U.S. corporations received by the Fund, with respect
to which the Fund meets certain holding period
requirements, will be eligible for the deduction for
dividends received by corporations. Distributions in
excess of the Fund's current and accumulated earnings
and profits will, as to each shareholder, be treated
as a tax-free return of capital to the extent of a
shareholder's basis in his shares of the Fund, and as
a capital gain thereafter (if the shareholder holds
his shares of the Fund as capital assets).
Shareholders receiving dividends or distributions in
the form of additional shares should be treated for
United States federal income tax purposes as receiving
a distribution in the amount equal to the amount of
money that the shareholders receiving cash dividends
or distributions will receive, and should have a cost
basis in the shares received equal to such amount.
Investors considering buying shares just prior to a
dividend or capital gain distribution should be aware
that, although the price of shares just purchased at
that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may
nevertheless be taxable to them. If the Fund is the
holder of record of any stock on the record date for
any dividends payable with respect to such stock, such
dividends are included in the Fund's gross income not
as of the date received but as of the later of (a) the
date such stock became ex-dividend with respect to
such dividends (i.e., the date on which a buyer of the
stock would not be entitled to receive the declared,
but unpaid, dividends) or (b) the date the Fund
acquired such stock. Accordingly, in order to satisfy
its income distribution requirements, the Fund may be
required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an
earlier year than would otherwise be the case.
Sales of Shares. Upon the sale or exchange of his
shares, a shareholder will realize a taxable gain or
loss equal to the difference between the amount
realized and his basis in his shares. Such gain or
loss will be treated as capital gain or loss, if the
shares are capital assets in the shareholder's hands,
and will be long-term capital gain or loss if the
shares are held for more than one year and short-term
capital gain or loss if the shares are held for one
year or less. Any loss realized on a sale or exchange
will be disallowed to the extent the shares disposed
of are replaced, including replacement through the
reinvesting of dividends and capital gains
distributions in the Fund, within a 61-day period
beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis
of the shares acquired will be increased to reflect
the disallowed loss. Any loss realized by a
shareholder on the sale of a Fund share held by the
shareholder for six months or less will be treated for
United States federal income tax purposes as a long-
term capital loss to the extent of any distributions
or deemed distributions of long-term capital gains
received by the shareholder with respect to such
share. If a shareholder incurs a sales charge in
acquiring shares of the Fund, disposes of those shares
within 90 days and then acquires shares in a mutual
fund for which the otherwise applicable sales charge
is reduced by reason of a reinvestment right (e.g., an
exchange privilege), the original sales charge will
not be taken into account in computing gain/loss on
the original shares to the extent the subsequent sales
charge is reduced. Instead, the disregarded portion
of the original sales charge will be added to the tax
basis in the newly acquired shares. Furthermore, the
same rule also applies to a disposition of the newly
acquired shares made within 90 days of the second
acquisition. This provision prevents a shareholder
from immediately deducting the sales charge by
shifting his or her investment in a family of mutual
funds.
Backup Withholding. The Fund may be required to
withhold, for United States federal income tax
purposes, 31% of the dividends, distributions and
redemption proceeds payable to shareholders who fail
to provide the Fund with their correct taxpayer
identification number or to make required
certifications, or who have been notified by the IRS
that they are subject to backup withholding. Certain
shareholders are exempt from backup withholding.
Backup withholding is not an additional tax and any
amount withheld may be credited against a
shareholder's United States federal income tax
liabilities.
Notices. Shareholders will be notified annually by
the Fund as to the United States federal income tax
status of the dividends, distributions and deemed
distributions attributable to undistributed capital
gains (discussed above in "Taxes - Taxation of United
States Shareholders -Dividends and Distributions")
made by the Fund to its shareholders. Furthermore,
shareholders will also receive, if appropriate,
various written notices after the close of the Fund's
taxable year regarding the United States federal
income tax status of certain dividends, distributions
and deemed distributions that were paid (or that are
treated as having been paid) by the Fund to its
shareholders during the preceding taxable year.
Other Taxation
Distributions also may be subject to additional state,
local and foreign taxes depending on each
shareholder's particular situation.
The foregoing is only a summary of certain material
tax consequences affecting the Fund and its
shareholders. Shareholders are advised to consult
their own tax advisers with respect to the particular
tax consequences to them of an investment in the Fund.
ADDITIONAL INFORMATION
The Company was incorporated on September 29, 1981
under the laws of the state of Maryland under the name
Hutton Investment Series Inc. The Company's corporate
name was changed on December 29, 1988, July 30, 1993
and October 28, 1994, to SLH Investment Portfolios
Inc., Smith Barney Shearson Investment Funds Inc., and
Smith Barney Investment Funds Inc., respectively.
The Company offers shares of eight separate series
with a par value of $.001 per share. The Fund offers
shares currently classified into four Classes - A, B,
L and Y. Each Class of the Fund represents an
identical interest in the Fund's investment portfolio.
As a result, the Classes have the same rights,
privileges and preferences, except with respect to:
(a) the designation of each Class; (b) the effect of
the respective sales charges; if any, for each class;
(c) the distribution and/or service fees borne by each
Class pursuant to the Plan; (d) the expenses allocable
exclusively to each Class; (e) voting rights on
matters exclusively affecting a single Class; (f) the
exchange privilege of each Class; and (g) the
conversion feature of the Class B shares. The
Company's Board of Directors does not anticipate that
there will be any conflicts among the interests of the
holders of the different Classes. The directors, on
an ongoing basis, will consider whether any such
conflict exists and, if so, take appropriate action.
As permitted by Maryland law, there will normally be
no meetings of shareholders for the purpose of
electing directors unless and until such time as less
than a majority of the directors holding office have
been elected by shareholders. At that time, the
directors then in office will call a shareholders'
meeting for the election of directors. The directors
must call a meeting of shareholders for the purpose of
voting upon the question or removal of any director
when requested in writing to do so by the record
holders of not less than 10% of the outstanding shares
of the Fund. At such a meeting, a director may be
removed after the holders of record of not less than a
majority of the outstanding shares of the Fund have
declared that the director be removed either by
declaration in writing or by votes cast in person or
by proxy. Except as set forth above, the directors
shall continue to hold office and may appoint
successor directors.
As used in the Prospectus and this Statement of
Additional Information, a "vote of a majority of the
outstanding voting securities" means the affirmative
vote of the lesser of (a) more than 50% of the
outstanding shares of the Company (or the affected
series or Class) or (b) 67% or more of such shares
present at a meeting if more than 50% of the
outstanding shares of the Company (or the affected
series or Class) are represented at the meeting in
person or by proxy. A series or Class shall be deemed
to be affected by a matter unless it is clear that the
interests of each series or Class in the matter are
identical or that the matter does not affect any
interest of the series or Class. The approval of a
management agreement or any change in a fundamental
investment policy would be effectively acted upon with
respect to the Fund only if approved by a "vote of a
majority of the outstanding voting securities" of the
Fund; however, the ratification of independent
accountants, the election of directors, and the
approval of a distribution agreement that is submitted
to shareholders are not subject to the separate voting
requirements and may be effectively acted upon by a
vote of the holders of a majority of all Company
shares voting without regard to series or Class.
Annual and Semi-annual Reports. The Fund sends its
shareholders a semi-annual report and an audited
annual report, which include listings of investment
securities held by the Fund at the end of the period
covered. In an effort to reduce the Fund's printing
and mailing costs, the Fund consolidates the mailing
of its semi-annual and annual reports by household.
This consolidation means that a household having
multiple accounts with the identical address of record
will receive a single copy of each report. In
addition, the Fund also consolidates the mailing of
its Prospectus so that a shareholder having multiple
accounts (that is, individual, IRA and/or Self-
Employed Retirement Plan accounts) will receive a
single Prospectus annually. Shareholders who do not
want this consolidation to apply to their accounts
should contact their Salomon Smith Barney Financial
Consultant or the Transfer Agent.
FINANCIAL STATEMENTS
As of the date of this SAI, the Fund had not yet
commenced operations. Consequently, there are no
financial statements for the Fund at this time.
OTHER INFORMATION
In an industry where the average portfolio manager has
seven years of experience (source: ICI, 1998), the
portfolio managers of Smith Barney Mutual Funds
average 21 years in the industry and 15 years with the
firm.
Smith Barney Mutual Funds offers more than 60 mutual
funds. We understand that many investors prefer an
active role in allocating the mix of funds in their
portfolio, while others want the asset allocation
decisions to be made by experienced managers.
That's why we offer four "styles" of fund management
that can be tailored to suit each investor's unique
financial goals.
Style Pure Series
Our Style Pure Series funds stay fully invested
within their asset class and investment style,
enabling investors to make asset allocation
decisions in conjunction with their Salomon
Smith Barney Financial Consultant.
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.
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