Registration No. 2-74288
811-3275
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
[ ] Pre-Effective Amendment No.
[X] Post-Effective Amendment No. 75
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940,
Amendment No. 77
SMITH BARNEY INVESTMENT FUNDS INC.
(Exact name of Registrant as Specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (Zip Code)
(800)-451-2010
(Registrant's Telephone Number, including Area Code:)
Christina T. Sydor
388 Greenwich Street, New York, New York 10013(22nd
Floor)
(Name and Address of Agent For Service)
Continuous
(Approximate Date of Proposed Public Offering)
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to Paragraph (b) of
Rule 485
[xxx] On August 28, 2000 pursuant to paragraph (b) of Rule
485
[ ] 60 days after filing pursuant to paragraph (a)(1) of
Rule 485
On (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of
Rule 485
[ ] On (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
Title of Securities Being Registered: Shares of Common
Stock
PART A
<PAGE>
[SB]SMITH BARNEY
[MF]MUTUAL FUNDS
Your Serious Money. Professionally Managed./SM/
[LOGO]Hansberger
Global Investors, Inc.
P R O S P E C T U S
Smith Barney
Hansberger
Global Small Cap
Value Fund
Class A, B, L and Y Shares
-----------------------------------------------------------------
August 28, 2000
The Securities and Exchange Commission has not approved or
disapproved these securities or determined whether this prospectus
is accurate or complete. Any statement to the contrary is a crime.
<PAGE>
Smith Barney Hansberger
Global Small Cap Value Fund
Contents
<TABLE>
<S> <C>
Investments, risks and performance.......................................... 2
More on the fund's investments.............................................. 8
Management.................................................................. 9
Choosing a class of shares to buy........................................... 11
Comparing the fund's classes................................................ 12
Sales charges............................................................... 13
More about deferred sales charges........................................... 16
Buying shares............................................................... 17
Exchanging shares........................................................... 18
Redeeming shares............................................................ 19
Other things to know about share transactions............................... 21
Dividends, distributions and taxes.......................................... 23
Share price................................................................. 24
Financial highlights........................................................ 25
</TABLE>
You should know: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
Investment objective
The fund seeks long-term capital growth.
Principal investment strategies
Key investments The fund invests primarily in common stocks and other equity
securities of U.S. and foreign companies, including those of emerging market
issuers, with relatively small market capitalizations. These are market capi-
talizations of $1.4 billion or less at the time of investment. Equity securi-
ties include exchange traded and over-the-counter common stocks and preferred
shares, debt securities convertible into equity securities and warrants and
rights relating to equity securities. The fund may purchase foreign securities
in the form of sponsored and unsponsored American Depositary Receipts (ADRs),
European Depositary Receipts (EDRs), Global Depositary Receipts (GDRs) or other
securities representing underlying shares of foreign companies.
Selection process The subadviser uses a "bottom-up" approach to security selec-
tion, focusing primarily on identifying individual securities that meet the
fund's value criteria. The fund seeks to invest in companies with low share
prices relative to their earnings, cash flow and/or net asset value.
First, the subadviser uses fundamental analysis to identify a universe of secu-
rities of small capitalization companies the subadviser believes are underval-
ued. Specifically, the subadviser uses proprietary valuation screens, internal
and external research sources and other fundamental analysis to identify these
undervalued securities. The subadviser considers companies in various indus-
tries and sectors, and searches a wide variety of countries and regions.
Once the subadviser has identified a range of securities that appear underval-
ued, the subadviser further analyzes each security to determine whether it
meets the fund's strict value criteria. For each security, the subadviser con-
siders economic and other fundamental factors, including:
.Sales and earnings growth
.New product development
.Cash flow
.Track record and structure of management
The subadviser will consider a security for investment in the fund only if it
meets the fund's strict value criteria.
Global Small Cap Value Fund
2
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
.U.S. or foreign stock prices decline
.Adverse governmental action or political, economic or market instability
affects a foreign country or region, which risks may be greater in emerging
markets as described below
.Small capitalization or foreign companies fall out of favor with investors
.The currency in which a security is priced declines in value relative to the
U.S. dollar
.The manager's judgment about the attractiveness, value or potential apprecia-
tion of a particular stock proves to be incorrect
.A particular product or service developed by a company in which the fund
invests is unsuccessful, the company does not meet earnings expectations or
other events depress the value of the company's stock
Many foreign countries in which the fund invests have markets that are less
liquid and more volatile than markets 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 fluctua-
tions could erase investment gains or add to investment losses.
Emerging markets investments involve greater risks than investing in more
developed countries. Political or economic instability, lack of market liquid-
ity and government actions such as currency controls or seizure of private
business or property may be more likely in emerging markets. Accordingly, the
prices of securities of emerging market companies and the relative prices of
emerging market currencies can be more volatile than those of developed coun-
tries.
Compared to mutual funds that focus on large capitalization companies, the
fund's share price may be more volatile because of its focus on smaller capi-
talized companies. These companies are more likely to have:
.More limited product lines
.Fewer capital resources
.Less depth of management
Further, securities of small capitalization companies are more likely to:
.Experience sharper swings in market values
.Be harder to sell at times and prices the manager believes appropriate
.Offer greater potential for gains and losses
Smith Barney Mutual Funds
3
<PAGE>
Who may want to invest The fund may be an appropriate investment if you:
.Are seeking to invest for long-term capital appreciation in the global market
.Currently have exposure to domestic equity investments or fixed income invest-
ments and wish to broaden your investment portfolio
.Are willing to accept the risks of the stock market and the special risks of
investing in foreign markets, including emerging markets, and small capital-
ization companies
Global Small Cap Value Fund
4
<PAGE>
Risk return bar chart
This bar chart indicates the risks of investing in the fund by showing the
fund's performance. Past performance does not necessarily indicate how the fund
will perform in the future. The bar chart shows the performance of the fund's
Class A shares for the past two years. Class B, L and Y shares would have dif-
ferent performance because of their different expenses. The performance infor-
mation in the chart does not reflect sales charges, which would reduce your
return.
Total Return for Class A Shares
[BAR GRAPH]
1998 (14.67)%
1999 30%
Calendar year ended December 31
Quarterly returns:
Highest: 11.49% in 2nd quarter 1999; Lowest: (21.87)% in 3rd quarter 1998 Year
to date: (12.17)% through June 30, 2000
Risk return table
This table indicates the risks of investing in the fund by comparing the aver-
age annual total return of each class for the periods shown with that of the
Smith Barney World EMI Index--Small Cap, an unmanaged index of global common
stocks of small capitalization companies. This table assumes imposition of the
maximum sales charge applicable to the class, redemption of shares at the end
of the period, and reinvestment of distributions and dividends.
Average Annual Total Returns
Calendar Years Ended December 31, 1999
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since inception Inception date
<S> <C> <C> <C> <C> <C>
A (4.69)% n/a n/a (9.55)% 12/18/97
B (5.50) n/a n/a (9.30) 12/18/97
L (2.74) n/a n/a (8.51) 12/18/97
Y 0.81 n/a n/a (9.50) 3/10/98
Smith Barney World
EMI Index--Small Cap 22.34 n/a n/a 13.84 *
</TABLE>
* Index comparison begins on 12/31/97.
Smith Barney Mutual Funds
5
<PAGE>
Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases
(as a % of offering price) 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** 1.05% 1.05% 1.05% 1.05%
Distribution and service (12b-1) fees 0.25% 1.00% 1.00% None
Other expenses 1.34% 1.38% 1.62% 1.05%
----- ----- ----- -----
Total annual fund operating expenses 2.64% 3.43% 3.67% 2.10%
</TABLE>
*You may buy Class A shares in amounts of $1,000,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
**Management has agreed to waive a portion of its Management fee for all clas-
ses. Currently such waiver is equal to .225%. Management may discontinue or
modify this Management fee waiver at any time.
Global Small Cap Value Fund
6
<PAGE>
Example
This example helps you compare the costs of investing in the fund with the
costs of investing in other mutual funds. Your actual costs may be higher or
lower. The example assumes:
.You invest $10,000 in the fund for the period shown
.You redeem all of your shares at the end of the period
.Your investment has a 5% return each year
.You reinvest all distributions and dividends without a sales charge
.The fund's operating expenses remain the same
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A (with or without redemption) $732 $1,214 $1,721 $3,109
Class B (redemption at end of period) $824 $1,289 $1,778 $3,329
Class B (no redemption) $324 $ 989 $1,678 $3,329
Class L (redemption at end of period) $544 $1,149 $1,875 $3,792
Class L (no redemption) $444 $1,149 $1,875 $3,792
Class Y (with or without redemption) $191 $ 591 $1,016 $2,201
</TABLE>
Smith Barney Mutual Funds
7
<PAGE>
More on the fund's investments
More on foreign investing Investing in foreign issuers may involve unique
risks. Some of these risks do not apply to larger more developed countries.
However, these risks may be more pronounced to the extent the fund invests in
emerging market countries or significantly in any one country.
.Information about foreign issuers or markets may be limited because of less
rigorous disclosure and accounting standards or regulatory practices.
.Many foreign markets are smaller, less liquid and more volatile than U.S. mar-
kets. In a changing market, the adviser may not be able to sell the fund's
portfolio securities in amounts and at prices it considers reasonable.
.The U.S. dollar may appreciate against foreign currencies, or a foreign gov-
ernment may impose restrictions on currency conversion or trading.
.The economy of foreign countries may grow at a slower rate than expected or
may experience a downturn or recession.
.Economic, political and social developments may adversely affect foreign secu-
rities markets.
.Foreign withholding taxes may reduce the fund's return.
Derivative contracts The fund may, but need not, use derivative contracts, such
as futures and options on securities, securities indices, interest rates or
currencies, or options on these futures, to hedge against the economic impact
of adverse changes in the market value of portfolio securities, because of
changes in stock market prices, interest rates or currencies. A derivative con-
tract will obligate or entitle a fund to deliver or receive an asset or cash
payment based on the change in value of one or more securities or indices. Even
a small investment in derivative contracts can have a big impact on a fund's
stock, interest rate or currency exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains. The fund
may not fully benefit from or may lose money on derivatives if changes in their
value do not correspond accurately to changes in the value of the fund's hold-
ings. The other parties to certain derivative contracts present the same types
of default risk as issuers of fixed income securities. Derivatives can also
make a fund less liquid and harder to value, especially in declining markets.
The fund may invest in equity "swaps," which are derivative contracts that
allow the fund to exchange domestically traded shares of securities for local
shares of foreign securities.
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.
Global Small Cap Value Fund
8
<PAGE>
Management
Manager The fund's investment manager is SSB Citi Fund Management LLC (succes-
sor to SSBC Fund Management Inc.), an affiliate of Salomon Smith Barney Inc.
The manager's address is 388 Greenwich Street, New York, New York 10013. The
manager oversees the fund's investment operations and those of the subadviser.
The manager and Salomon Smith Barney are subsidiaries of Citigroup Inc.
Citigroup businesses produce a broad range of financial services--asset manage-
ment, banking and consumer finance, credit and charge cards, insurance, invest-
ments, investment banking and trading--and use diverse channels to make them
available to consumer and corporate customers around the world.
The fund's subadviser, Hansberger Global Investors, Inc., is located at 515
East Las Olas Boulevard, Suite 1300, Fort Lauderdale, Florida 33301. Hansberger
Global Investors, Inc. is a wholly-owned subsidiary of Hansberger Group, Inc.
As of August 15, 2000, the subadviser has approximately $3.4 billion under man-
agement. Aurcole L. W. Foong, John C. Fenley, Stephen W. Ho, David M. Wu, and
Vladimir Tyurenkov are responsible for the day-to-day management of the fund's
portfolio. Mr. Foong has been a research analyst and portfolio manager for the
subadviser since 1997. Prior to that time, he was a director of Peregrine Asset
Management. Mr. Fenley, CFA, has been an analyst and portfolio manager with the
subadviser since 1997. Prior thereto, he managed the Institutional Investment
Department for Sun Trust Bank, South Florida. Mr. Ho joined the subadviser in
1999 as a research analyst. Prior to that time he worked for American Interna-
tional Group in New York and Asia where he managed institutional and investment
company portfolios. Mr. Wu joined the subadviser as a research analyst in 1995.
Prior to joining the subadviser, he was an editor at Business Asia, an Econo-
mist Group publication. Mr. Tyurenkov has been managing director of the
subadviser since 1995. Prior thereto, he spent several years working for the
Russian government and working extensively on the Pepperdine University Russian
Conversion and Privatization Program.
Management fee For its services, the manager received a fee during the fund's
last fiscal year equal to 0.83% of the fund's average daily net assets.
Distributor The fund has entered into an agreement with Salomon Smith Barney,
Inc. to distribute the fund's shares.
The distributor may make payments for distribution and/or shareholder servicing
activities out of its past profits and other available sources. The distributor
may also make payments for marketing, promotional or related expenses to deal-
ers. The amount of these payments is determined by the distributor and may be
substantial. SSB Citi or an affiliate may make similar payments under similar
arrangements.
Smith Barney Mutual Funds
9
<PAGE>
Distribution plans The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and serv-
ice fees. These fees are an ongoing expense and, over time, may cost you more
than other types of sales charges.
Transfer agent and shareholder servicing agent Citi Fiduciary Trust Company
serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). The transfer agent has entered into a sub-transfer agency
and services agreement with PFPC Global Fund Services to serve as the fund's
sub-transfer agent (the "sub-transfer agent"). The sub-transfer agent will per-
form certain functions including shareholder record keeping and accounting
services.
Global Small Cap Value Fund
10
<PAGE>
Choosing a class of shares to buy
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
.If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.
.For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
.Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term invest-
ors.
You may buy shares from:
.A broker-dealer, financial intermediary, financial institution or a distribu-
tor's financial consultants (each called a "Service Agent")
.The fund, but only if you are investing through certain qualified plans or
Service Agents
All Classes of shares are not available through all Service Agents. You should
contact your Service Agent for further information.
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
Initial Additional
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $250 $15 million $50
Qualified Retirement Plans* $25 $15 million $25
Simple IRAs $1 n/a $1
Monthly Systematic Investment Plans $25 n/a $25
Quarterly Systematic Investment Plans $50 n/a $50
</TABLE>
*Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k)
plans.
Smith Barney Mutual Funds
11
<PAGE>
Comparing the fund's classes
Your Service Agent can help you decide which class meets your goals. The Serv-
ice Agent may receive different compensation depending upon which class you
choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .Initial .No initial
sales sales sales or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge .Deferred .Must
tion or declines sales invest at
waiver of over time charge for least $15
initial .Converts only 1 million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than Class expenses annual classes
B and than Class expenses
Class L A than Class
A
------------------------------------------------------------------------
Initial sales charge Up to None 1.00% None
5.00%;
reduced for
large pur-
chases and
waived for
certain
investors.
No charge
for pur-
chases of
$1,000,000
or more
------------------------------------------------------------------------
Deferred sales charge 1.00% on Up to 5.00% 1.00% if None
purchases charged you redeem
of when you within 1
$1,000,000 redeem year of
or more if shares. The purchase
you redeem charge is
within 1 reduced
year of over time
purchase and there
is no
deferred
sales
charge
after 6
years
------------------------------------------------------------------------
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
------------------------------------------------------------------------
Exchangeable into* 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 Service Agent for the Smith Barney funds available for exchange.
Global Small Cap Value Fund
12
<PAGE>
Sales charges
Class A shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge
on the fund's distributions or dividends you reinvest in additional Class A
shares.
The table below shows the rate of sales charge you pay, depending on the amount
you purchase.
The table below also shows the amount of broker/dealer compensation that is
paid out of the sales charge. This compensation includes commissions and other
fees Service Agents that sell shares of the Fund receive. The distributor keeps
up to approximately 10% of the sales charges imposed on Class A shares. Service
Agents also will receive the service fee payable on Class A shares at an annual
rate equal to 0.25% of the average daily net assets represented by the Class A
shares sold by them.
<TABLE>
<CAPTION>
Sales Charge as a % of
Broker/Dealer
commission
Net as % of
Offering amount offering
Amount of purchase price (%) invested (%) price
<S> <C> <C> <C>
Less than $25,000 5.00 5.26 4.50
$25,000 but less than $50,000 4.25 4.44 3.83
$50,000 but less than $100,000 3.75 3.90 3.38
$100,000 but less than $250,000 3.25 3.36 2.93
$250,000 but less than $500,000 2.75 2.83 2.48
$500,000 but less than $1,000,000 2.00 2.04 1.80
$1,000,000 or more -0- -0- up to 1.00
</TABLE>
Investments of $1,000,000 or more You do not pay an initial sales charge when
you buy $1,000,000 or more of Class A shares. However, if you redeem these
Class A shares within one year of purchase, you will pay a deferred sales
charge of 1%.
Qualifying for a reduced Class A sales charge There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Smith Barney Mutual Funds
13
<PAGE>
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 charge, if any, as
if all shares had been purchased at once. You may include purchases on which
you paid a sales charge within 90 days before you sign the letter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
.Employees of NASD members
.Investors participating in a fee-based program sponsored by certainbroker-
dealers affiliated with Citigroup
.Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Service Agent is notified
If you want to learn about additional waivers of Class A initial sales charges,
contact your Service Agent or consult the Statement of Additional Information
("SAI").
Global Small Cap Value Fund
14
<PAGE>
Class B shares
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of pur-
chase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
<TABLE>
<CAPTION>
Year after purchase 1st 2nd 3rd 4th 5th 6th through 8th
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 5% 4% 3% 2% 1% 0%
</TABLE>
Service Agents selling Class B shares receive a commission of up to 4.50% of
the purchase price of the Class B shares they sell, except for sales exempt
from the deferred sales charge. Service Agents also receive a service fee at an
annual rate equal to 0.25% of the average daily net assets represented by the
Class B shares they are servicing.
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:
At initial Shares issued: Upon exchange from
purchase On reinvestment of another Smith
dividends and Barney
distributions 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>
Class L shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund and/or other Smith
Barney funds on June 12, 1998, you will not pay an initial sales charge on
Class L shares you buy before June 22, 2001.
Service Agents selling Class L shares receive commission of up to 2.00% of the
purchase price of the Class L shares they sell.
Smith Barney Mutual Funds
15
<PAGE>
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. Therefore, you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
.Shares exchanged for shares of another Smith Barney fund
.Shares representing reinvested distributions and dividends
.Shares no longer subject to the deferred sales charge
Each time you place a request to redeem shares, the fund will first redeem any
shares in your account that are not subject to a deferred sales charge and then
the shares in your account that have been held the longest.
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Service Agent.
The fund's distributor receives deferred sales charges as partial compensation
for its expenses in selling shares, including the payment of compensation to
your Service Agent.
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
.On payments made through certain systematic withdrawal plans
.On certain distributions from a retirement plan
.For involuntary redemptions of small account balances
.For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Service Agent or consult the SAI.
Global Small Cap Value Fund
16
<PAGE>
Buying shares
Through a You should contact your Service Agent to open a brokerage
Service Agent account and make arrangements to buy shares.
If you do not provide the following information, your order
will be rejected:
.Class of shares being bought
.Dollar amount or number of shares being bought
Your Service Agent may charge an annual account maintenance
fee.
--------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who
fund are clients of certain Service Agents are eligible to buy
shares directly from the fund.
.Write the fund at the following address:
Smith Barney Investment Funds Inc.
Smith Barney Hansberger Global Small Cap Value Fund
(Specify class of shares)
c/o PFPC Global Fund Services.
P.O. Box 9699
Providence, RI 02940-9699
.Enclose a check to pay for the shares. For initial
purchases, complete and send an account application.
.For more information, call the transfer agent at 1-800-451-
2010.
--------------------------------------------------------------------------------
Through a
systematic You may authorize your Service Agent or the sub-transfer
investment agent to transfer funds automatically from (i) a regular bank
plan account, (ii) cash held in a brokerage account opened with a
Service Agent or (iii) certain money market funds, in order
to buy shares on a regular basis.
.Amounts transferred should be at least: $25 monthly or $50
quarterly
.If you do not have sufficient funds in your account on a
transfer date, your Service Agent or the sub-transfer agent
may charge you a fee
For more information, contact your Service Agent or the
transfer agent or consult the SAI.
Smith Barney Mutual Funds
17
<PAGE>
Exchanging shares
Smith Barney
offers a You should contact your Service Agent to exchange into other
distinctive Smith Barney funds. Be sure to read the prospectus of the
family of Smith Barney fund you are exchanging into. An exchange is a
funds taxable transaction.
tailored to
help meet the
varying needs
of both large
and small
investors.
.You may exchange shares only for shares of the same class of
another Smith Barney fund. Not all Smith Barney funds offer
all classes.
.Not all Smith Barney funds may be offered in your state of
residence. Contact your Service Agent or the transfer agent
for further information.
.You must meet the minimum investment amount for each fund
(except for systematic investment plan exchanges).
.If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with
signed stock powers (documents transferring ownership of
certificates) before the exchange is effective.
.The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges.
--------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will continue to be mea-
sured from the date of your original purchase. If the fund
you exchange into has a higher deferred sales charge, you
will be subject to that charge. If you exchange at any time
into a fund with a lower charge, the sales charge will not be
reduced.
--------------------------------------------------------------------------------
By telephone
If you do not have a brokerage account with a Service Agent,
you may be eligible to exchange shares through the fund. You
must complete an authorization form to authorize telephone
transfers. If eligible, you may make telephone exchanges on
any day the New York Stock Exchange is open. Call the trans-
fer agent at 1-800-451-2010 between 9:00 a.m. and 4:00 p.m.
(Eastern time).
You can make telephone exchanges only between accounts that
have identical registrations.
--------------------------------------------------------------------------------
By mail
If you do not have a brokerage account, contact your Service
Agent or write to the sub-transfer agent at the address on
the following page.
Global Small Cap Value Fund
18
<PAGE>
Redeeming shares
Generally
Contact your Service Agent to redeem shares of the fund.
If you hold share certificates, the sub-transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However,
if you recently purchased your shares by check, your redemp-
tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.
If you have a brokerage account with a Service Agent, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
--------------------------------------------------------------------------------
By mail
For accounts held directly at the fund, send written requests
to the fund at the following address:
Smith Barney Investment Funds Inc.
Smith Barney Hansberger Global Small Cap Value Fund
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
Your written request must provide the following:
.The fund and account number
.The class of shares and the dollar amount or number of
shares to be redeemed
.Signatures of each owner exactly as the account is regis-
tered
Smith Barney Mutual Funds
19
<PAGE>
By telephone
If you do not have a brokerage account with a Service Agent,
you may be eligible to redeem shares through the fund. 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 or electronic transfer (ACH) to a bank
account designated on your authorization form. You must sub-
mit a new authorization form to change the bank account des-
ignated to receive wire or electronic transfers and you may
be asked to provide certain other documents. The sub-transfer
agent may charge a fee on an electronic transfer (ACH).
--------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans ($5,000 for retirement plan accounts) and each automatic
redemption must be at least $50. If your shares are subject
to a deferred sales charge, the sales charge will be waived
if your automatic payments do not exceed 1% per month of the
value of your shares subject to a deferred sales charge.
The following conditions apply:
.Your shares must not be represented by certificates
.All dividends and distributions must be reinvested
For more information, contact your Service Agent or consult
the SAI.
Global Small Cap Value Fund
20
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
.Name of the fund
.Account number
.Class of shares being bought, exchanged or redeemed
.Dollar amount or number of shares being bought, exchanged or redeemed
.Signature of each owner exactly as the account is registered
The fund will try to confirm that any telephone exchange or redemption request
is genuine by recording calls, asking the caller to provide certain personal
identification information, sending you a written confirmation or requiring
other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include
a signature guarantee if you:
.Are redeeming over $50,000 of shares
.Are sending signed share certificates or stock powers to the sub-transfer
agent
.Instruct the sub-transfer agent to mail the check to an address different from
the one on your account
.Changed your account registration
.Want the check paid to someone other than the account owner(s)
.Are transferring the redemption proceeds to an account with a different 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
Smith Barney Mutual Funds
21
<PAGE>
.Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securi-
ties and Exchange Commission
.Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below $500 ($250 for IRA accounts)
because of a redemption of fund shares, the fund may ask you to bring your
account up to the applicable minimum investment amounts. If you choose not to
do so within 60 days, the fund may close your account and send you the redemp-
tion 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.
Global Small Cap Value Fund
22
<PAGE>
Dividends, distributions and taxes
Dividends The fund generally makes capital gain distributions and pays divi-
dends, if any, once a year, typically in December. The fund may pay additional
distributions and dividends at other times if necessary for the fund to avoid a
federal tax. Capital gain distributions and dividends are reinvested in addi-
tional fund shares of the same class you hold. The fund expects distributions
to be primarily from capital gain. You do not pay a sales charge on reinvested
distributions or dividends. Alternatively, you can instruct your Service Agent,
the transfer agent or the sub-transfer agent to have your distributions and/or
dividends paid in cash. You can change your choice at any time to be effective
as of the next distribution or dividend, except that any change given to the
transfer agent less than five days before the payment date will not be effec-
tive until the next distribution or dividend is paid.
Taxes In general, redeeming shares, exchanging shares and receiving distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually capital gain or loss;
long-term only if shares owned
more than one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
</TABLE>
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a capital gain distribution or
a dividend, because it will be taxable to you even though it may actually be a
return of a portion of your investment.
After the end of each year, the fund will provide you with information about
the distributions and dividends you received and any redemptions of shares dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer identification number and any required certifications, you may be subject
to back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special
tax rules may apply, you should consult your tax adviser about your investment
in the fund.
Smith Barney Mutual Funds
23
<PAGE>
Share price
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its 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. When reliable market prices or quotations are not readily available, or
when the value of a security has been materially affected by events occurring
after a foreign exchange closes, the fund may price those securities at fair
value. Fair value is determined in accordance with procedures approved by the
fund's board. A fund that uses fair value to price securities may value those
securities higher or lower than another fund using market quotations to price
the same securities.
International markets may be open on days when U.S. markets are closed, and the
value of foreign securities owned by the fund could change on days when you
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 Service Agent or the fund's sub-transfer agent 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.
Service Agents must transmit all orders to buy, exchange or redeem shares to
the fund's sub-transfer agent before the sub-transfer agent's close of busi-
ness.
Global Small Cap Value Fund
24
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance of each class since inception. Certain information reflects financial
results for a single share. Total return represents the rate that a shareholder
would have earned (or lost) on a fund share assuming reinvestment of all divi-
dends and distributions. The information in the following tables was audited by
KPMG LLP, independent accountants, whose report, along with the fund's finan-
cial statements, is included in the annual report (available upon request).
For a Class A share of capital stock outstanding throughout each full year
ended April 30, except where noted:
<TABLE>
<CAPTION>
2000(/1/) 1999(1) 1998(/2/)
--------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year $10.19 $12.37 $11.40
--------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(3) 0.02 0.11 0.05
Net realized and unrealized gain (loss) (1.65) (2.10) 0.93
--------------------------------------------------------------------------
Total income (loss) from operations (1.63) (1.99) 0.98
--------------------------------------------------------------------------
Less distributions from:
Net investment income (0.05) (0.16) (0.01)
Net realized gains (0.00)* (0.03) --
--------------------------------------------------------------------------
Total distributions (0.05) (0.19) (0.01)
--------------------------------------------------------------------------
Net asset value, end of year $8.51 $10.19 $12.37
--------------------------------------------------------------------------
Total return (16.06)% (15.95)% 8.64%++
--------------------------------------------------------------------------
Net assets, end of year (000)'s $2,827 $5,414 $9,296
--------------------------------------------------------------------------
Ratios to average net assets:
Expenses(3) 2.41% 1.92% 1.95%+
Net investment income 0.22 1.06 1.28+
--------------------------------------------------------------------------
Portfolio turnover rate 60% 27% 2%
--------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method.
(/2/) For the period from December 19,1997 (inception date) to April 30, 1998.
(/3/) The Manager waived all or a portion of its fees for the two years ended
April 30, 2000 and the period ended April 30, 1998 and a portion of its
fees for the year ended April 30, 1999. In addition, the Manager reim-
bursed the Portfolio for $17,302 in expenses for the period ended April
30, 1998. If such fees were not waived and expenses not reimbursed,the
per share effect on net investment income and the expense ratios would
have been as follows:.
<TABLE>
<CAPTION>
Expense Ratios
Net Investment Income Without Fee Waivers
Per Share Decreases and Reimbursement
2000 1999 1998(/2/) 2000 1999 1998(/2/)
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$0.02 $0.04 $0.05 2.64% 2.33% 3.25%+
------------------------------------------------------
</TABLE>
* Amount represents less than $0.01 per share.
++Total returns are not annualized, as it may not be representative of the
total return for the year.
+ Annualized
Smith Barney Mutual Funds
25
<PAGE>
For a Class B share of capital stock outstanding throughout each full year
ended April 30, except where noted:
<TABLE>
<CAPTION>
2000(/1/) 1999(/1/) 1998(/2/)
----------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year $10.16 $12.34 $ 11.40
----------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss)(/3/) (0.06) 0.03 0.02
Net realized and unrealized gain (loss) (1.64) (2.09) 0.93
----------------------------------------------------------------------------
Total income (loss) from operations (1.70) (2.06) 0.95
----------------------------------------------------------------------------
Less distributions from:
Net investment income -- (0.09) (0.01)
Net realized gains -- (0.03) --
Capital (0.00)* -- --
----------------------------------------------------------------------------
Total distributions (0.00)* (0.12) (0.01)
----------------------------------------------------------------------------
Net asset value, end of year $8.46 $10.16 $ 12.34
----------------------------------------------------------------------------
Total return (16.73)% (16.61)% 8.38%++
----------------------------------------------------------------------------
Net assets, end of year (000)'s $3,915 $7,819 $11,606
----------------------------------------------------------------------------
Ratios to average net assets:
Expenses(/3/) 3.21% 2.74% 2.68%+
Net investment income (loss) (0.61) 0.27 0.58+
----------------------------------------------------------------------------
Portfolio turnover rate 60% 27% 2%
----------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method.
(/2/) For the period from December 19, 1997 (inception date) to April 30, 1998.
(/3/) The Manager waived all of its fees for the two years ended April 30, 2000
and the period ended April 30, 1998 and a portion of its fees for the
year ended April 30, 1999. In addition, the Manager reimbursed the Port-
folio for $17,302 in expenses for the period ended April 30, 1998. If
such fees were not waived and expenses not reimbursed, the per share
effect on net investment income and the expensed ratios would have been
as follows:
<TABLE>
<CAPTION>
Expense Ratios
Net Investment Income Without Fee Waivers
Per Share Decreases and Reimbursement
2000 1999 1998(/2/) 2000 1999 1998(/2/)
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class B $0.02 $0.04 $0.04 3.43% 3.14% 3.96%+
-------------------------------------------------------------
</TABLE>
* Amount represents less than $0.01 per share.
++Total returns are not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
Global Small Cap Value Fund
26
<PAGE>
For a Class L(/1/) share of capital stock outstanding throughout each full
year ended April 30, except where noted:
<TABLE>
<CAPTION>
2000(/1/) 1999(/2/) 1998(/3/)
---------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year $10.14 $12.34 $11.40
---------------------------------------------------------------------------
Income (loss) from operations:
Net investment income loss(/4/) (0.08) 0.02 0.02
Net realized and unrealized gain (loss) (1.64) (2.10) 0.93
---------------------------------------------------------------------------
Total income (loss) from operations (1.72) (2.08) 0.95
---------------------------------------------------------------------------
Less distributions from:
Net investment income -- (0.09) (0.01)
Net realized gains -- (0.03) --
Capital (0.00)* -- --
---------------------------------------------------------------------------
Total distributions (0.00)* (0.12) (0.01)
---------------------------------------------------------------------------
Net asset value, end of year $8.42 $10.14 $12.34
---------------------------------------------------------------------------
Total return (16.96)% (16.77)% 8.38%++
---------------------------------------------------------------------------
Net assets, end of year (000)'s $ 906 $1,626 $2,682
---------------------------------------------------------------------------
Ratio to average net assets:
Expenses(/4/) 3.45% 2.83% 2.71%+
Net investment income (loss) (0.85) 0.19 0.58+
---------------------------------------------------------------------------
Portfolio turnover rate 60% 27% 2%
---------------------------------------------------------------------------
</TABLE>
(/1/) On June 12, 1998, Class C shares were renamed Class L shares.
(/2/) Per share amounts have been calculated using the monthly average shares
method.
(/3/) For the period from December 19, 1997 (inception date) to April 30, 1998.
(/4/) The Manager waived part of its fees for the two years ended April 30,
2000 and the period ended April 30, 1998, and a portion of its fees for
the year ended April 30, 1999. In addition, the Manager reimbursed the
Portfolio for $17,302 in expenses for the period ended April 30, 1998. If
such fees were not waived, and expenses not reimbursed, the per share
effect on net investment income and the expense ratios would have been as
follows:
<TABLE>
<CAPTION>
Expenses Ratios
Net Investment Income Without Fee Waivers
Per Share Decreases and Reimbursement
2000 1999 1998(/3/) 2000 1999 1998(/3/)
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$0.02 $0.04 $0.04 3.67% 3.24% 4.02%+
------------------------------------------------------
</TABLE>
* Amount represents less than $0.01 per share.
++Total returns are not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
Smith Barney Mutual Funds
27
<PAGE>
For a Class Y share of capital stock outstanding throughout each full year
ended April 30, except where noted:
<TABLE>
<CAPTION>
2000(/1/) 1999(/1/) 1998(/2/)
---------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year $10.22 $12.37 $11.74
---------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(/3/) 0.06 0.16 0.00*
Net realized and unrealized gain (loss) (1.69) (2.09) 0.63
---------------------------------------------------------------------------
Total income (loss) from operations (1.63) (1.93) 0.63
---------------------------------------------------------------------------
Less distributions from:
Net investment income (0.08) (0.19) --
Net realized gain -- (0.03) --
Capital (0.00)* -- --
---------------------------------------------------------------------------
Total distributions (0.08) (0.22) --
---------------------------------------------------------------------------
Net asset value, end of year $8.51 $10.22 $12.37
---------------------------------------------------------------------------
Total return (16.05)% (15.49)% 5.37%++
---------------------------------------------------------------------------
Net assets, end of year (000)'s $3,520 $2,481 $234
---------------------------------------------------------------------------
Ratio to average net assets:
Expenses(/3/) 1.88% 1.23% 1.73%+
Net investment income 0.65 1.71 2.42+
---------------------------------------------------------------------------
Portfolio turnover rate 60% 27% 2%
---------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method.
(/2/) For the period from March 10, 1998 (inception date) to April 30, 1998.
(/3/) The Manager waived part of its fees for the two years ended April 30,
2000 and the period ended April 30, 1998, and a portion of its fees for
the year ended April 30, 1999. In addition, the Manager reimbursed the
Portfolio for $17,302 in expenses for the period ended April 30, 1998. If
such fees were not waived, and expenses not reimbursed, the per share
effect on net investment income and the expense ratios would have been as
follows:
<TABLE>
<CAPTION>
Expense Ratios
Net Investment Income Without Fee Waivers
Per Share Decreases and Reimbursement
2000 1999 1998(/2/) 2000 1999 1998(/2/)
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class Y $0.02 $0.04 $0.00* 2.10% 1.64% 3.05%+
-------------------------------------------------------------
</TABLE>
* Amount represents less than $0.01 per share.
++Total returns are not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
Global Small Cap Value Fund
28
<PAGE>
(This page is intentionally left blank.)
<PAGE>
[SB] Smith Barney
[MF] Mutual Funds
Your Serious Money. Professionally Managed./SM/
Smith Barney
Hansberger
Global Small Cap Value Fund
An investment portfolio of Smith Barney Investment Funds Inc.
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket conditions and investment strategies that significantly affected the
fund's performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Service Agent or the transfer agent if you do not
want this policy to apply to you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by refer-
ence into (is legally part of) this prospectus during its last fiscal year
or period.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Service
Agent, by calling the fund at 1-800-451-2010, or by writing to the fund at
Smith Barney Mutual Funds, 388 Greenwich Street, MF2, New York, New York 10013.
Information about the Fund (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's Public Reference Room in Washington,
D.C. In addition, information on the operation of the Public Reference Room may
be obtained by calling the Commission at 1-202-942-8090. Reports and other
information about the Fund are available on the EDGAR Database on the Commis-
sion's Internet site at http://www.seg.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.
(Investment Company Act file
no. 811-03275)
[FD01336 8/99]
<PAGE>
[SB]SMITH BARNEY
[MF]MUTUAL FUNDS
Your Serious Money. Professionally Managed./SM/
[LOGO]Hansberger
Global Investors, Inc.
P R O S P E C T U S
Smith Barney
Hansberger
Global Small Cap
Value Fund
Class A, B, L, and Y Shares
-----------------------------------------------------------------
August 28, 2000,
The Securities and Exchange Commission has not approved the
fund's shares as an investment or determined whether this prospectus
is accurate or complete. Any statement to the contrary is a crime.
<PAGE>
Smith Barney Hansberger
Global Value Fund
Contents
<TABLE>
<S> <C>
Investments, risks and performance.......................................... 2
More on the fund's investments.............................................. 6
Management.................................................................. 7
Choosing a class of shares to buy........................................... 9
Comparing the fund's classes................................................ 10
Sales charges............................................................... 11
More about deferred sales charges........................................... 14
Buying shares............................................................... 15
Exchanging shares........................................................... 16
Redeeming shares............................................................ 18
Other things to know about share transactions............................... 20
Dividends, distributions and taxes.......................................... 22
Share price................................................................. 23
Financial highlights........................................................ 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.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
Investment objective
The fund seeks long-term capital growth.
Principal investment strategies
Key investments The fund invests primarily in common stocks and other equity
securities of U.S. and foreign companies, including those of emerging market
issuers. Equity securities include exchange traded and over-the-counter common
stocks and preferred shares, debt securities convertible into equity securities
and warrants and rights relating to equity securities. The fund may purchase
foreign securities in the form of sponsored and unsponsored American Depositary
Receipts (ADRs), European Depositary Receipts (EDRs), Global Depositary
Receipts (GDRs) or other securities representing underlying shares of foreign
companies.
Selection process The subadviser uses a "bottom-up" approach to security selec-
tion, focusing primarily on identifying individual securities that meet the
fund's value criteria. The fund seeks to invest in companies with low share
prices relative to their earnings, cash flow and/or net asset value.
First, the subadviser uses fundamental analysis to identify a universe of secu-
rities of companies the subadviser believes are undervalued. Specifically, the
subadviser uses proprietary valuation screens, internal and external research
sources and other fundamental analysis to identify these undervalued securi-
ties. The subadviser considers companies in various industries and sectors, and
searches a wide variety of countries and regions.
Once the subadviser has identified a range of securities that appear underval-
ued, the subadviser further analyzes each security to determine whether it
meets the fund's strict value criteria. For each security, the subadviser con-
siders economic and other fundamental factors, including:
. Sales and earnings growth
. New product development
. Cash flow
. Track record and structure of management
The subadviser will consider a security for investment in the fund only if it
meets the fund's strict value criteria.
Global Value Fund
2
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
. U.S. or foreign stock prices decline
. Adverse governmental action or political, economic or market instability
affects a foreign country or region, which risks may be greater in emerging
markets as described below.
. Foreign companies fall out of favor with investors
. The currency in which a security is priced declines in value relative to the
U.S. dollar
. The manager's judgment about the attractiveness, value or potential apprecia-
tion of a particular stock proves to be incorrect
Many foreign countries in which the fund invests have markets that are less
liquid and more volatile than markets 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 fluctua-
tions could erase investment gains or add to investment losses.
Emerging markets investments involve greater risks than investing in more
developed countries. Political or economic instability, lack of market liquid-
ity and government actions such as currency controls or seizure of private
business or property may be more likely in emerging markets. Accordingly, the
prices of securities of emerging market companies and the relative prices of
emerging market currencies can be more volatile than those of developed coun-
tries.
Who may want to invest The fund may be an appropriate investment if you:
. Are seeking to invest for long-term capital appreciation in the global market
. Currently have exposure to domestic equity investments or fixed income
investments and wish to broaden your investment portfolio
. Are willing to accept the risks of the stock market and the special risks of
investing in foreign markets, including emerging markets
Smith Barney Mutual Funds
3
<PAGE>
Risk return bar chart
This bar chart indicates the risks of investing in the fund by showing the
fund's performance. Past performance does not necessarily indicate how the fund
will perform in the future. The bar chart shows the performance of the fund's
Class A shares for the past two years. Class B, L and Y shares would have dif-
ferent performance because of their different expenses. The performance infor-
mation in the chart does not reflect sales charges, which would reduce your
return.
Total Return for Class A Shares
98 99
------- ------
(7.78)% 33.99%
Calendar year ended December 31
Quarterly returns:
Highest: 17.33% in 2nd quarter 1999; Lowest: (20.07)% in 3rd quarter 1998
Year to date: (6.46)% through June 30, 2000
Risk return table
This table indicates the risks of investing in the fund by comparing the aver-
age annual total return of each class for the periods shown with that of the
MSCI All Country World Free Index, an unmanaged index of global common stocks.
This table assumes imposition of the maximum sales charge applicable to the
class, redemption of shares at the end of the period, and reinvestment of dis-
tributions and dividends.
Average Annual Total Returns
Calendar Years Ended December 31, 1998
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since Inception Inception Date
<S> <C> <C> <C> <C> <C>
A 27.34 n/a n/a 9.04 12/19/97
B 28.02 n/a n/a 9.68 12/19/97
L 30.64 n/a n/a 10.45 12/19/97
Y 34.57 n/a n/a 7.96 3/10/99
MSCI All Country World
Free Index 26.82 n/a n/a 24.37 *
</TABLE>
* Index comparison begins on 12/31/97.
Global Value Fund
4
<PAGE>
Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price) 5.00% None 1.00% None
Maximum deferred sales charge (load) (as a %
of the lower of net asset value at purchase or
redemption) None* 5.00% 1.00% None
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund assets) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Management fee 0.95% 0.95% 0.95% 0.95%
Distribution and service (12b-1) fees 0.25% 1.00% 1.00% None
Other expenses 0.22% 0.24% 0.26% 0.11%
----- ----- ----- -----
Total annual fund operating expenses 1.42% 2.19% 2.21% 1.06%
===== ===== ===== =====
</TABLE>
*You may buy Class A shares in amounts of $1,000,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
Example
This example helps you compare the costs of investing in the fund with the
costs of investing in other mutual funds. Your actual costs may be higher or
lower. The example assumes:
.You invest $10,000 in the fund for the period shown
.You redeem all of your shares at the end of the period
.Your investment has a 5% return each year
.You reinvest all distributions and dividends without a sales charge
.The fund's operating expenses remain the same
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A (with or without redemption) $637 $927 $1,238 $2,117
Class B (redemption at end of period) $722 $985 $1,275 $2,329
Class B (no redemption) $222 $685 $1,175 $2,329
Class L (redemption at end of period) $422 $784 $1,273 $2,619
Class L (no redemption) $322 $784 $1,273 $2,619
Class Y (with or without redemption) $108 $337 $ 585 $1,294
</TABLE>
Smith Barney Mutual Funds
5
<PAGE>
More on the fund's investments
More on foreign investing Investing in foreign issuers may involve unique
risks. Some of these risks do not apply to larger more developed countries.
However, these risks may be more pronounced to the extent the fund invests in
emerging market countries or significantly in any one country.
. Information about foreign issuers or markets may be limited because of less
rigorous disclosure and accounting standards or regulatory practices.
. Many foreign markets are smaller, less liquid and more volatile than U.S.
markets. In a changing market, the adviser may not be able to sell the fund's
portfolio securities in amounts and at prices it considers reasonable.
. The U.S. dollar may appreciate against foreign currencies, or a foreign gov-
ernment may impose restrictions on currency conversion or trading.
. The economy of a foreign country may grow at a slower rate than expected or
may experience a downturn or recession.
. Economic, political and social developments may adversely affect foreign
securities markets.
. Foreign withholding taxes may reduce the fund's return.
Derivative contracts The fund may, but need not, use derivative contracts, such
as futures and options on securities, securities indices, interest rates or
currencies, or options on these futures, to hedge against the economic impact
of adverse changes in the market value of portfolio securities, because of
changes in stock market prices, interest rates or currencies. A derivative con-
tract will obligate or entitle a fund to deliver or receive an asset or cash
payment based on the change in value of one or more securities or indices. Even
a small investment in derivative contracts can have a big impact on a fund's
stock, interest rate or currency exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains. The fund
may not fully benefit from or may lose money on derivatives if changes in their
value do not correspond accurately to changes in the value of the fund's hold-
ings. The other parties to certain derivative contracts present the same types
of default risk as issuers of fixed income securities. Derivatives can also
make a fund less liquid and harder to value, especially in declining markets.
The fund may invest in equity "swaps," which are derivative contracts that
allow the fund to exchange domestically traded shares of securities for local
shares of foreign securities.
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.
Global Value Fund
6
<PAGE>
Management
Manager The fund's investment manager is SSB CitiFund Management LLC (successor
to SSBC Fund Management Inc.), an affiliate of Salomon Smith Barney Inc. The
manager's address is 388 Greenwich Street, New York, New York 10013. The man-
ager oversees the fund's investment operations and those of the subadviser. The
manager and Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup
businesses produce a broad range of financial services--asset management, bank-
ing and consumer finance, credit and charge cards, insurance, investments,
investment banking and trading--and use diverse channels to make them available
to consumer and corporate customers around the world.
The fund's subadviser, Hansberger Global Investors, Inc., is located at 515
East Las Olas Boulevard., Suite 1300, Fort Lauderdale, Florida 33301.
Hansberger Global Investors, Inc. is a wholly-owned subsidiary of Hansberger
Group, Inc. As of August 15, 2000, the subadviser had approximately $3.4 bil-
lion under management. Thomas L. Hansberger, Ronald W. Holt, Francisco J.
Alzuru, and Charles F. Gulden are responsible for the day-to-day management of
the fund's portfolio. Mr. Hansberger has been the chairman and chief executive
officer of the subadviser since its inception. Prior thereto, he served as
chairman, president, and chief executive officer of Templeton Worldwide, Inc.,
where he also was director of research and an officer, director, or primary
portfolio manager for several Templeton mutual funds. Mr. Holt has been a
research analyst for the subadviser since 1997. Prior to that time, Mr. Holt
was a vice president in the corporate and institutional client group of Merrill
Lynch. Mr. Alzuru has been a portfolio manager and research analyst for the
subadviser since 1994. Prior thereto, he worked at Vestcorp Partners as their
Latin American analyst. Mr. Gulden has been a managing director of the
subadviser since 1996. Prior to that time, he was vice president and director
of Templeton Worldwide, Inc.
Management fee For its services, the manager received a fee during the fund's
last fiscal year equal to 0.95% of the fund's average daily net assets.
Distributor The fund has entered into an agreement with Salomon Smith Barney
Inc. to distribute the fund's shares.
Distribution plans The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and serv-
ice fees. These fees are an ongoing expense and, over time, may cost you more
than other types of sales charges.
The distributor may make payments for distribution and/or shareholder servicing
activities out of its past profits and other available sources. The
Smith Barney Mutual Funds
7
<PAGE>
distributor may also make payments for marketing, promotional or related
expenses to dealers. The amount of these payments is determined by the distrib-
utor and may be substantial. SSB Citi or an affiliate may make similar payments
under similar arrangements.
Transfer agent and shareholder servicing agent Citi Fiduciary Trust Company
serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). The transfer agent has entered into a sub-transfer agency
and services agreement with PFPC Global Fund Services to serve as the fund's
sub-transfer agent (the "sub-transfer agent"). The sub-transfer agent will per-
form certain functions including shareholder record keeping and accounting
services.
Global Value Fund
8
<PAGE>
Choosing a class of shares to buy
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
. If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses.
. For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
. Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term invest-
ors.
You may buy shares from:
. A broker-dealer, financial intermediary, financial institution or a
distributor's financial consultants (each called a "Service Agent").
. The fund, but only if you are investing through certain qualified plans or
Service Agents.
All Classes of shares are not available through all Service Agents. You should
contact your Service Agent for further information.
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> <C>
General $1,000 $15 million $50
IRAs, Self Employed Retirement
Plans, Uniform Gift to Minor
Accounts $ 250 $15 million $50
Qualified Retirement Plans* $ 25 $15 million $25
Simple IRAs $ 1 n/a $ 1
Monthly Systematic Investment
Plans $ 25 n/a $25
Quarterly Systematic Investment
Plans $ 50 n/a $50
</TABLE>
*Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k)
plans.
Smith Barney Mutual Funds
9
<PAGE>
Comparing the fund's classes
Your Service Agent can help you decide which class meets your goals. The Serv-
ice Agent may receive different compensation depending upon which class you
choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .Initial .No initial
sales sales sales or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge de- .Deferred .Must
tion or clines sales invest at
waiver of over time charge for least $15
initial .Converts only 1 million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than Class expenses annual classes
B and than Class expenses
Class L A than Class
A
------------------------------------------------------------------------
Initial sales charge Up to None 1.00% None
5.00%;
reduced for
large pur-
chases and
waived for
certain
investors.
No charge
for pur-
chases of
$1,000,000
or more
------------------------------------------------------------------------
Deferred sales charge 1.00% on Up to 5.00% 1.00% if None
purchases charged you redeem
of when you within 1
$1,000,000 redeem year of
or more if shares. The purchase
you redeem charge is
within 1 reduced
year of over time
purchase and there
is no
deferred
sales
charge
after 6
years
------------------------------------------------------------------------
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
------------------------------------------------------------------------
Exchangeable into* Class A Class B Class L Class Y
shares shares shares shares
of most of most of most of most
Smith Bar- Smith Bar- Smith Bar- Smith Bar-
ney funds ney funds ney funds ney funds
------------------------------------------------------------------------
</TABLE>
*Ask your Service Agent for the Smith Barney funds available for exchange.
Global Value Fund
10
<PAGE>
Sales charges
Class A shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge
on the fund's distributions or dividends you reinvest in additional Class A
shares.
The table below shows the rate of sales charge you pay, depending on the amount
you purchase.
The table below also shows the amount of broker/dealer compensation that is
paid out of the sales charge. This compensation includes commissions and other
fees Service Agents that sell shares of the Fund receive. The distributor keeps
up to approximately 10% of the sales charges imposed on Class A shares. Service
Agents also will receive the service fee payable on Class A shares at an annual
rate equal to 0.25% of the average daily net assets represented by the Class A
shares sold by them.
<TABLE>
<CAPTION>
Sales Charge as a % of
Broker/Dealers
Commission
Offering Net amount as % of
Amount of purchase price (%) invested (%) Offering Price
<S> <C> <C> <C>
Less than $25,000 5.00 5.26 4.50
$25,000 but less than $50,000 4.25 4.44 3.83
$50,000 but less than $100,000 3.75 3.90 3.38
$100,000 but less than $250,000 3.25 3.36 2.93
$250,000 but less than $500,000 2.75 2.83 2.48
$500,000 but less than $1,000,000 2.00 2.04 1.80
$1,000,000 or more -0- -0- up to 1.00
</TABLE>
Investments of $1,000,000 or more You do not pay an initial sales charge when
you buy $1,000,000 or more of Class A shares. However, if you redeem these
Class A shares within one year of purchase, you will pay a deferred sales
charge of 1%.
Qualifying for a reduced Class A sales charge There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Smith Barney Mutual Funds
11
<PAGE>
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 charge, if any, as
if all shares had been purchased at once. You may include purchases on which
you paid a sales charge within 90 days before you sign the letter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
. Employees of NASD members
. Investors participating in a fee-based program sponsored by certain broker-
dealers affiliated with Citigroup
. Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Service Agent is notified
If you want to learn about additional waivers of Class A initial sales charges,
contact your Service Agent or consult the Statement of Additional Information
("SAI").
Global Value Fund
12
<PAGE>
Class B shares
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of 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>
Service Agents selling Class B shares receive commissions of up to 4.50% of the
purchase price of the Class B shares they sell, except for sales exempt from
the deferred sales charge. Service Agents also receive a service fee at an
annual rate equal to 0.25% of the average daily net assets represented by the
Class B shares they are servicing.
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: On Upon exchange from
Shares issued: At initial reinvestment of another
purchase dividends and distributions Smith Barney fund
<S> <C> <C>
Eight years after the date of In same proportion On the date the
purchase 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 divi-
dend)
</TABLE>
Class L shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund and/or other Smith
Barney Funds on June 12, 1998, you will not pay an initial sales charge on
Class L shares you buy before June 22, 2001.
Service Agents selling Class L shares receive commission of up to 2.00% of the
purchase price of the Class L shares they sell.
Smith Barney Mutual Funds
13
<PAGE>
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. Therefore, you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
. Shares exchanged for shares of another Smith Barney fund
. Shares representing reinvested distributions and dividends
. Shares no longer subject to the deferred sales charge
Each time you place a request to redeem shares, the fund will first redeem any
shares in your account that are not subject to a deferred sales charge and then
the shares in your account that have been held the longest.
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Service Agent.
The fund's distributor receives deferred sales charges as partial compensation
for its expenses in selling shares, including the payment of compensation to
your Service Agent.
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
. On payments made through certain systematic withdrawal plans
. On certain distributions from a retirement plan
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Service Agent or consult the SAI.
Global Value Fund
14
<PAGE>
Buying shares
Through a You should contact your Service Agent to open a brokerage
Service Agent account and make arrangements to buy shares.
If you do not provide the following information, your order
will be rejected:
. Class of shares being bought
. Dollar amount or number of shares being bought
Your Service Agent may charge an annual account maintenance
fee.
--------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who
fund are clients of certain Service Agents are eligible to buy
shares directly from the fund.
. Write the fund at the following address:
Smith Barney Investment Funds Inc.
Smith Barney Hansberger Global Value Fund
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
. Enclose a check to pay for the shares. For initial pur-
chases, complete and send an account application.
. For more information, call the transfer agent at 1-800-451-
2010.
--------------------------------------------------------------------------------
Through a
systematic You may authorize your Service Agent or the sub-transfer
investment agent to transfer funds automatically from (i) a regular bank
plan account, (ii) cash held in a brokerage account opened with a
Service Agent or (iii) certain money market funds, in order
to buy shares on a regular basis.
. Amounts transferred should be at least: $25 monthly or $50
quarterly
Smith Barney Mutual Funds
15
<PAGE>
. 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 Service Agent or the
transfer agent or consult the SAI.
Exchanging shares
Smith Barney
offers a You should contact your Service Agent to exchange into other
distinctive Smith Barney funds. Be sure to read the prospectus of the
family of Smith Barney fund you are exchanging into. An exchange is a
funds taxable transaction.
tailored to
help meet the
varying needs
of both large
and small
investors.
. You may exchange shares only for shares of the same class
of another Smith Barney fund. Not all Smith Barney funds
offer all classes.
. Not all Smith Barney funds may be offered in your state of
residence. Contact your Service Agent or the transfer agent
for further information.
. You must meet the minimum investment amount for each fund.
(except for systematic investment plan exchanges).
. If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with
signed stock powers (documents transferring ownership of
certificates) before the exchange is effective.
. The fund may suspend or terminate your exchange privilege
if you engage in an excessive pattern of exchanges.
--------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will continue to be mea-
sured from the date of your original purchase. If the fund
you exchange into has a higher deferred sales charge, you
will be subject to that charge. If you exchange at any time
into a fund with a lower charge, the sales charge will not be
reduced.
Global Value Fund
16
<PAGE>
By telephone
If you do not have a brokerage account with a Service Agent,
you may be eligible to exchange shares through the fund. You
must complete an authorization form to authorize telephone
transfers. If eligible, you may make telephone exchanges on
any day the New York Stock Exchange is open. Call the trans-
fer agent at 1-800-451-2010 between 9:00 a.m. and 4:00 p.m.
(Eastern time).
You can make telephone exchanges only between accounts that
have identical registrations.
--------------------------------------------------------------------------------
By mail
If you do not have a brokerage account, contact your Service
Agent or write to the sub-transfer agent at the address on
the following page.
Smith Barney Mutual Funds
17
<PAGE>
Redeeming shares
Generally
Contact your Service Agent to redeem shares of the fund.
If you hold share certificates, the sub-transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However,
if you recently purchased your shares by check, your redemp-
tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.
If you have a brokerage account with a Service Agent, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
--------------------------------------------------------------------------------
By mail
For accounts held directly at the fund, send written requests
to the fund at the following address:
Smith Barney Investment Funds Inc.
Smith Barney Hansberger Global Value Fund
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
Your written request must provide the following:
. The fund and 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
Global Value Fund
18
<PAGE>
By telephone
If you do not have a brokerage account with a Service Agent,
you may be eligible to redeem shares through the fund. 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 or electronic transfer (ACH) to a bank
account designated on your authorization form. You must sub-
mit a new authorization form to change the bank account des-
ignated to receive wire or electronic transfers and you may
be asked to provide certain other documents. The sub-transfer
agent may charge a fee on an electronic transfer (ACH).
--------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans ($5,000 for retirement plan accounts) and each automatic
redemption must be at least $50. If your shares are subject
to a deferred sales charge, the sales charge will be waived
if your automatic payments do not exceed 1% per month of the
value of your shares subject to a deferred sales charge.
The following conditions apply:
. Your shares must not be represented by certificates
. All dividends and distributions must be reinvested
For more information, contact your Service Agent or consult
the SAI.
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 fund will try to confirm that any telephone exchange or redemption request
is genuine by recording calls, asking the caller to provide certain personal
identification information, sending you a written confirmation or requiring
other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include
a signature guarantee if you:
. Are redeeming over $50,000 of shares
. Are sending signed share certificates or stock powers to the sub-transfer
agent
. Instruct the sub-transfer agent to mail the check to an address different
from the one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different reg-
istration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
The fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
. Suspend telephone transactions
Global Value 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 ($250 for IRA accounts)
because of a redemption of fund shares, the fund may ask you to bring your
account up to the applicable minimum investment amounts. If you choose not to
do so within 60 days, the fund may close your account and send you the redemp-
tion 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>
Dividends, distributions and taxes
Dividends The fund generally makes capital gain distributions and pays divi-
dends, if any, once a year, typically in December. The fund may pay additional
distributions and dividends at other times if necessary for the fund to avoid a
federal tax. Capital gain distributions and dividends are reinvested in addi-
tional fund shares of the same class you hold. The fund expects distributions
to be primarily from capital gain. You do not pay a sales charge on reinvested
distributions or dividends. Alternatively, you can instruct your Service Agent,
the transfer agent or the sub-transfer agent, to have your distributions and/or
dividends paid in cash. You can change your choice at any time to be effective
as of the next distribution or dividend, except that any change given to the
transfer agent less than five days before the payment date will not be effec-
tive until the next distribution or dividend is paid.
Taxes In general, redeeming shares, exchanging shares and receiving distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually capital gain
or loss; long-term
only if shares owned
more than one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
</TABLE>
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a capital gain distribution or
a dividend, because it will be taxable to you even though it may actually be a
return of a portion of your investment.
After the end of each year, the fund will provide you with information about
the distributions and dividends you received and any redemptions of shares dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer identification number and any required certifications, you may be subject
to back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special
tax rules may apply, you should consult your tax adviser about your investment
in the fund.
Smith Barney Mutual Funds
22
<PAGE>
Share price
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its liabili-
ties. Net asset value is calculated separately for each class of shares. The
fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This calcu-
lation is done when regular trading closes on the Exchange (normally 4:00 p.m.,
Eastern time).
The fund generally values its fund securities based on market prices or quota-
tions. The fund's currency conversions are done when the London stock exchange
closes. When reliable market prices or quotations are not readily available, or
when the value of a security has been materially affected by events occurring
after a foreign exchange closes, the fund may price those securities at fair
value. Fair value is determined in accordance with procedures approved by the
fund's board. A fund that uses fair value to price securities may value those
securities higher or lower than another fund using market quotations to price
the same securities.
International markets may be open on days when U.S. markets are closed, and the
value of foreign securities owned by the fund could change on days when you
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 Service Agent or the fund's sub-transfer agent 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.
Service Agents must transmit all orders to buy, exchange or redeem shares to
the fund's sub-transfer agent before the sub-transfer agent's close of busi-
ness.
Global Value Fund
23
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance of each class since inception. Certain information reflects financial
results for a single share. Total return represents the rate that a shareholder
would have earned (or lost) on a fund share assuming reinvestment of all divi-
dends and distributions. The information in the following tables was audited by
KPMG LLP, independent accountants, whose report, along with the fund's finan-
cial statements, is included in the annual report (available upon request).
For a Class A share of capital stock outstanding throughout each full year
ended April 30, except where noted:
<TABLE>
<CAPTION>
Class A
2000(/1/) 1999(/1/) 1998(/2/)
---------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $12.00 $12.99 $11.40
---------------------------------------------------------------------------
Income From Operations:
Net investment income(/3/) 0.06 0.37 0.05
Net realized and unrealized gain (loss) 1.11 (1.24) 1.56
---------------------------------------------------------------------------
Total income (loss) From operations 1.17 (0.87) 1.61
---------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.03) (0.12) (0.02)
---------------------------------------------------------------------------
Total Distributions (0.03) (0.12) (0.02)
---------------------------------------------------------------------------
Net Asset Value, End of Year $13.14 $12.00 $12.99
---------------------------------------------------------------------------
Total Return 9.75% (6.56)% 14.13%++
---------------------------------------------------------------------------
Net Assets, End of Year (000)'s $18,339 $16,974 $27,478
---------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(/3/) 1.42% 1.55% 1.71%+
Net investment income 0.48 3.42 1.25+
---------------------------------------------------------------------------
Portfolio Turnover Rate 50% 28% 1%
---------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method.
(/2/) For the period from December 19, 1997 (inception date) to April 30, 1998.
(/3/) The Manager waived part of its fees for the period ended April 30, 1998.
If such fees were not waived, the per share effect on net investment
income and the expense ratios would have been as follows:
<TABLE>
<CAPTION>
Net Investment Income Expense Ratios
Per Share Decreases Without Fee Waivers+
<S> <C> <C>
1998 $0.01 2.09%
------------------------------------------------
</TABLE>
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
Smith Barney Mutual Funds
24
<PAGE>
For a Class B share of capital stock outstanding throughout each full year
ended April 30, except where noted:
<TABLE>
<CAPTION>
2000(/1/) 1999(/1/) 1998(/2/)
---------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year $11.97 $12.96 $11.40
---------------------------------------------------------------------------
Income from operations:
Net investment income (loss)(/3/) (0.04) 0.29 0.02
Net realized and unrealized gain (loss) 1.10 (1.24) 1.56
---------------------------------------------------------------------------
Total income (loss) from operations 1.06 (0.95) 1.58
---------------------------------------------------------------------------
Less distributions from:
Net investment income -- (0.04) (0.02)
---------------------------------------------------------------------------
Total distributions -- (0.04) (0.02)
---------------------------------------------------------------------------
Net asset value, end of year $13.03 $11.97 $12.96
---------------------------------------------------------------------------
Total return 8.86% (7.27)% 13.87%++
---------------------------------------------------------------------------
Net assets, end of year (000)'s $32,024 $33,316 $45,526
---------------------------------------------------------------------------
Ratio to average net assets:
Expenses(/3/) 2.19% 2.30% 2.48%+
Net investment income (loss) (0.32) 2.66 0.52+
---------------------------------------------------------------------------
Portfolio turnover rate 50% 28% 1%
---------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method.
(/2/) For the period from December 19, 1997 (inception date) to April 30, 1998.
(/3/) The Manager waived part of its fees for the period ended April 30, 1998.
If such fees were not waived, the per share effect on net investment
income and the expense ratios would have been as follows:
<TABLE>
<CAPTION>
Net Investment Income Expense Ratios
Per Share Decreases Without Fee Waivers+
<S> <C> <C>
1998 $0.01 2.87%
------------------------------------------------
</TABLE>
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
Global Value Fund
25
<PAGE>
For a Class L(/1/) share of capital stock outstanding throughout each full
year ended April 30, except where noted:
<TABLE>
<CAPTION>
2000(/2/) 1999(/1/)(/2/) 1998(/3/)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year $11.97 $12.96 $11.40
--------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(/4/) (0.04) 0.29 0.02
Net realized and unrealized gain (loss) 1.09 (1.24) 1.56
--------------------------------------------------------------------------------
Total income (loss) from operations 1.05 (0.95) 1.58
--------------------------------------------------------------------------------
Less distributions from:
Net investment income -- (0.04) (0.02)
--------------------------------------------------------------------------------
Total distributions -- (0.04) (0.02)
--------------------------------------------------------------------------------
Net asset value, end of year $13.02 $11.97 $12.96
--------------------------------------------------------------------------------
Total return 8.77% (7.27)% 13.87%++
--------------------------------------------------------------------------------
Net assets, end of year (000)'s $8,886 $8,725 $11,060
--------------------------------------------------------------------------------
Ratio to average net assets:
Expenses(/4/) 2.21% 2.30% 2.49%+
Net investment income (0.34)% 2.67 0.42+
--------------------------------------------------------------------------------
Portfolio turnover rate 50% 28% 1%
--------------------------------------------------------------------------------
</TABLE>
(/1/)On June 12, 1998, Class C shares were renamed Class L shares.
(/2/)Per share amounts have been calculated using the monthly average shares
method.
(/3/)For the period from December 19, 1997 (inception date) to April 30, 1998.
(/4/)The Manager waived part of its fees for the periods ended April 30, 1998.
If such fees were not waived, the per share effect on net investment
income and the expense ratios would have been as follows:
<TABLE>
<CAPTION>
Net Investment Income Expense Ratios
Per Share Decreases Without Fee Waivers+
<S> <C> <C>
1998 $0.01 2.88%
------------------------------------------------
</TABLE>
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
Smith Barney Mutual Funds
26
<PAGE>
For a Class Y share of capital stock outstanding throughout each full year
ended April 30, except where noted:
<TABLE>
<CAPTION>
2000(/1/) 1999(/1/) 1998(/2/)
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $12.03 $13.00 $12.44
-----------------------------------------------------------------------------
Income (loss) From operations:
Net investment income(/3/) 0.11 0.40 0.00*
Net realized and unrealized gain (loss) 1.10 (1.22) 0.56
-----------------------------------------------------------------------------
Total income (loss) From operations 1.21 (0.82) 0.56
-----------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.08) (0.15) --
-----------------------------------------------------------------------------
Total Distributions (0.08) (0.15) --
-----------------------------------------------------------------------------
Net Asset Value, End of Year $13.16 $12.03 $13.00
-----------------------------------------------------------------------------
Total Return 10.07% (6.17)% 4.50%++
-----------------------------------------------------------------------------
Net Assets, End of Year (000s) $185,122 $159,574 $56,414
-----------------------------------------------------------------------------
Ratio to Average Net Assets:
Expenses(/3/) 1.06% 1.10% 1.47%+
Net investment income 0.81 3.73 1.83+
-----------------------------------------------------------------------------
Portfolio Turnover Rate 50% 28% 1%
-----------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method.
(/2/) For the period from March 10, 1998 (inception date) to April 30, 1998.
(/3/) The Manager waived part of its fees for the periods ended April 30, 1998.
If such fees were not waived, the per share effect on net investment
income and the expense ratios would have been as follows:
<TABLE>
<CAPTION>
Net Investment Income Expense Ratios
Per Share Decreases Without Fee Waivers+
<S> <C> <C>
1998 $0.00* 1.85%
--------------------------------------------------
</TABLE>
* Amount represents less than $0.01 per share.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
Global Value Fund
27
<PAGE>
(This page is intentionally left blank.)
<PAGE>
[SB] Smith Barney
[MF] Mutual Funds
Your Serious Money. Professionally Managed./SM/
Smith Barney
Hansberger
Global Value Fund
An investment portfolio of Smith Barney Investment Funds Inc.
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket conditions and investment strategies that significantly affected the
fund's performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Service Agent or the transfer agent if you do not
want this policy to apply to you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by refer-
ence into (is legally part of) this prospectus during its last fiscal year
or period.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Service
Agent by calling the fund at 1-800-451-2010, or by writing to the fund at Smith
Barney Mutual Funds, 388 Greenwich Street, MF2, New York, New York 10013.
Information about the Fund (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's (the "Commission") Public Reference
Room in Washington D.C. In addition, information on the operation of the 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.
(Investment Company Act file
no. 811-03275)
FD01337 8/99
<PAGE>
[SB]SMITH BARNEY
[MF]MUTUAL FUNDS
Your Serious Money. Professionally Managed./SM/
P R O S P E C T U S
Premier Selections
All Cap Growth
Fund
Global Growth
Fund
Large Cap Fund
Class A, B, L and Y Shares
-----------------------------------------------------------------
August 28, 2000
The Securities and Exchange Commission has not approved or
disapproved these securities or determined whether this prospectus
is accurate or complete. Any statement to the contrary is a crime.
<PAGE>
Contents
<TABLE>
<S> <C>
All Cap Growth Fund......................................................... 2
Investments, risks and performance........................................ 2
More on the fund's investments............................................ 9
Global Growth Fund.......................................................... 10
Investments, risks and performance........................................ 10
More on the fund's investments............................................ 16
Large Cap Fund.............................................................. 18
Investments, risks and performance........................................ 18
More on the fund's investment............................................. 23
Management.................................................................. 24
Choosing a class of shares to buy........................................... 26
Comparing the funds' classes................................................ 27
Sales charges............................................................... 28
More about deferred sales charges........................................... 31
Buying shares............................................................... 32
Exchanging shares........................................................... 33
Redeeming shares............................................................ 34
Other things to know about share transactions............................... 36
Dividends, distributions, and taxes......................................... 37
Share price................................................................. 38
Financial highlights........................................................ 40
</TABLE>
All three funds are separate series of Smith Barney Investment Funds Inc., a
Maryland corporation
You should know: An investment in a fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds
1
<PAGE>
Premier Selections All Cap Growth Fund
Investments, risks and performance
The Premier Selections All Cap Growth Fund is made up of a Large Cap Growth
segment, Mid Cap Growth segment and a Small Cap Growth segment (collectively
the "All Cap Growth Fund").
Investment objective
Long-term capital growth.
Principal investment strategies
Key investments
Large Cap Growth segment This segment invests primarily in equity securities of
companies with large market capitalizations. Large capitalization companies are
those whose market capitalization is within the market capitalization range of
companies in the Russell 1000 Growth Index (the "Index") at the time of this
segment's investment. The size of the companies in the Index changes with mar-
ket conditions and the size of the Index. Equity securities include U.S.
exchange-traded and over-the-counter common stocks, debt securities convertible
into equity securities, and warrants and rights relating to equity securities.
Mid Cap Growth segment This segment invests primarily in equity securities of
medium sized companies. Medium sized companies are those whose market capital-
ization is within the market capitalization range of companies in the S&P 400
MidCap Index at the time of this segment's investment. The size of the compa-
nies in the Index changes with market conditions and the composition of the
Index. Equity securities include exchange traded and over-the-counter common
stocks, preferred stocks, debt securities convertible into equity securities
and warrants and rights relating to equity securities.
Small Cap Growth segment This segment invests primarily in equity securities of
companies that possess a market capitalization within the market capitalization
range of companies in the Russell 2000 Growth Index (the "Index") at the time
of this segment's investment. The size of the companies in the Index changes
with market conditions and the composition of the Index. Equity securities
include exchange-traded and over-the-counter common stocks, preferred stocks,
debt securities convertible into equity securities and warrants and rights
relating to equity securities.
All segments
Foreign investments The All Cap Growth Fund may invest up to 25% of its assets
(at the time of investment) in foreign securities. The All Cap Growth
Premier Selections Funds
2
<PAGE>
Fund may invest directly in foreign issuers or invest in depositary receipts.
The All Cap Growth Fund's investments in securities of foreign issuers 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 associ-
ated with investing in foreign securities directly. Foreign countries generally
have markets that are less liquid and more volatile than markets 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 invest-
ment losses.
Selection process The All Cap Growth Fund's strategy is to combine the efforts
of three segment managers and to invest in the stock selections considered most
attractive in the opinion of each segment manager. Each segment manager builds
a portfolio of stocks which he believes will offer superior long-term capital
growth potential. The target allocations are 40% to the Large Cap Growth
segment and 30% to each of the Mid Cap and Small Cap Growth segments. In
connection with the execution of purchases and sales, each segment may hold
temporarily more or fewer assets than represented by its designated segment of
the All Cap Growth Fund's assets. The amount to be invested by the All Cap
Growth Fund in any particular security will be determined by SSB Citi Fund
Management LLC (the "Manager") based on the recommendation of the segment
managers.
In order to maintain approximately the target allocations of the All Cap Growth
Fund's assets among the three segment managers, the Manager will:
. Divide all daily cash inflows (purchases and reinvested distributions) and
outflows (redemptions and expense items) among the three segment managers
. Rebalance the allocation of securities in the All Cap Growth Fund's portfolio
at any time the percentage of the All Cap Growth Fund's portfolio invested in
any of Large Cap, Mid Cap or Small Cap Growth segment's securities diverges
by at least 10% from the target allocation for a period of more than 10 days
As a consequence of its efforts to maintain assets at targeted percentages, the
Manager will allocate assets and rebalance when necessary by (1) allocating
cash inflow to portfolio segments that are below their targeted percentages, or
(2) by selling securities in a portfolio segment that exceeds its targeted per-
centage with proceeds being reallocated to a portfolio segment that is below
its targeted percentage. Reallocations may result in early rec -
Smith Barney Mutual Funds
3
<PAGE>
ognition of taxable gains and in additional transaction costs to the extent the
sales of securities as part of these reallocations result in higher portfolio
turnover. In addition, if one segment manager buys a security during a time
frame when the other segment manager sells it, the net position of the All Cap
Growth Fund in the security may be approximately the same as it would have been
with a single segment 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.
Large Cap Growth segment The Large Cap Growth segment manager emphasizes indi-
vidual security selection while diversifying this segment of the All Cap Growth
Fund's investments across industries, which may help to reduce risk. The Large
Cap Growth segment manager attempts to identify established large capitaliza-
tion companies with the highest growth potential. The Large Cap Growth segment
manager then analyzes each company in detail, ranking its management, strategy
and competitive market position. Finally, the Large Cap Growth segment manager
attempts to identify the best values available among the growth companies iden-
tified.
In selecting individual companies for investment, the Large Cap Growth segment
manager considers:
. Favorable earnings prospects
. Technological innovation
. Industry dominance
. Competitive products and services
. Global scope
. Long term operating history
. Consistent and sustainable long-term growth in dividends and earnings per
share
. Strong cash flow
. High return on equity
. Strong financial condition
. Experienced and effective management
Mid Cap Growth segment The Mid Cap Growth segment manager focuses on medium
capitalization companies that exhibit attractive growth characteristics. The
Mid Cap Growth segment manager selects individual "growth" stocks for invest-
ment in two ways: by identifying those companies which exhibit the most favora-
ble growth prospects and by identifying those companies in the Mid Cap Growth
segment's size range which have favorable valuations relative to their growth
characteristics. This strategy is commonly known as "growth at a reasonable
price" and offers investors style
Premier Selections Funds
4
<PAGE>
diversification. In selecting individual companies for investment, the Mid Cap
Growth segment manager considers:
. Growth characteristics, including high historic growth rates and high rela-
tive growth compared with companies in the same industry or sector
. Increasing profits and sales
. Competitive advantages that could be more fully exploited by a company
. Skilled management committed to long-term growth
. Potential for a long-term investment by this segment of the All Cap Growth
Fund
The Mid Cap Growth segment manager uses fundamental research to find stocks
with strong growth potential and also uses quantitative analysis to determine
whether these stocks are relatively undervalued or overvalued compared to
stocks with similar fundamental characteristics. The Mid Cap Growth segment
manager's valuations determine whether and when this segment of the All Cap
Growth Fund will purchase or sell the stocks it identifies through fundamental
research.
Small Cap Growth segment The Small Cap Growth segment manager focuses on small
capitalization companies that exhibit attractive growth characteristics. The
Small Cap Growth segment manager selects individual stocks for investment by
identifying those companies which exhibit the most favorable growth prospects.
In selecting individual companies for investment, the Small Cap Growth segment
manager considers:
. Growth characteristics, including high historic growth rates and high fore-
casted growth of sales and profits and a high return on equity
. Innovative companies at the cutting edge of positive and dynamic demographic
and economic trends
. Products and services that give the company a competitive advantage
. Skilled management committed to long-term growth
. Potential for a long-term investment by this segment of the All Cap Growth
Fund
The Small Cap Growth segment manager uses a disciplined investment process to
identify small financially sound growth companies that exhibit the potential to
become much larger and more successful. Elements of this process include funda-
mental research, evaluation of key management and screening techniques.
Smith Barney Mutual Funds
5
<PAGE>
Principal risks of investing in the All Cap Growth Fund
Investors could lose money on their investments in the All Cap Growth Fund, or
the All Cap Growth Fund may not perform as well as other investments, if:
. U.S. stock markets decline, 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 All Cap Growth
Fund invests
. Large capitalization stock falls out of favor with investors
. The segment manager's judgement about the attractiveness, growth prospects or
potential appreciation of a particular stock proves to be incorrect
. Medium or small capitalization stocks fall out of favor with investors.
Because 30% of the All Cap Growth Fund's assets are invested primarily in
medium capitalization companies and 30% of the All Cap Growth Fund's assets
are invested primarily in small cap companies, an investment in the All Cap
Growth Fund may be more volatile and more susceptible to loss than an invest-
ment in a fund which invests primarily in large capitalization companies.
Medium and small capitalization companies may have more limited product
lines, markets and financial resources than large capitalization companies.
They may have shorter operating histories and less mature businesses. While
medium capitalization companies generally have more established businesses
than small capitalization companies, the prices of medium capitalization com-
pany stocks tend to be more volatile than the prices of large capitalization
company stocks. In addition, small capitalization company stocks may be less
liquid than large capitalization company stocks.
. Key economic trends become materially unfavorable, such as rising interest
rates and levels of inflation or slowdown of economic growth
Who may want to invest The All Cap Growth 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
. Are looking for an investment with potentially greater return but higher risk
than a fund that invests primarily in large cap companies
. Are seeking to participate in the long-term potential of small capitalization
growth companies
. Are willing to accept the special risks and potential long-term rewards of
investing in smaller companies with limited track records
. Are seeking diversification
Premier Selections Funds
6
<PAGE>
Performance
Because All Cap Growth Fund was added as a series to Smith Barney Investment
Funds Inc. this year, All Cap Growth Fund does not yet have a sufficient oper-
ating history to generate the performance information which other Smith Barney
funds show in bar and table form in this location of the prospectus.
Fee table
This table sets forth the fees and expenses you will pay if you invest in All
Cap Growth Fund shares. Annual All Cap Growth Fund operating expense figures
are based on estimated expenses for the fiscal period ending April 30, 2001.
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 All Cap Growth 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% 0.10%
----- ----- ----- -----
Total annual All Cap Growth Fund operating
expenses 1.20% 1.95% 1.95% 0.85%
</TABLE>
*You may buy Class A shares in amounts of $1,000,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
**The amounts set forth in "Other expenses" have been estimated based on
expenses the All Cap Growth Fund expects to incur during its first full fiscal
year.
Smith Barney Mutual Funds
7
<PAGE>
Example
This example helps you compare the costs of investing in the All Cap Growth
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 All Cap Growth Fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The All Cap Growth 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) $ 87 $ 27
</TABLE>
Premier Selections Funds
8
<PAGE>
More on the All Cap Growth Fund's investments
All Segments
Derivatives and hedging techniques The All Cap Growth Fund may, but need not,
use derivative contracts, such as futures and options on securities, securities
indices or currencies; options on these futures; forward currency contracts;
and interest rate or currency swaps for any of the following purposes:
. To hedge against the economic impact of adverse changes in the market value
of its securities, because of changes in stock market prices, currency
exchange rates or interest rates.
. As a substitute for buying or selling securities.
A derivative contract will obligate or entitle the All Cap Growth Fund to
deliver or receive an asset or cash payment based on the change in value of one
or more securities, currencies or indices. Even a small investment in deriva-
tive contracts can have a big impact on the All Cap Growth Fund's stock market,
currency and interest rate exposure. Therefore, using derivatives can dispro-
portionately increase losses and reduce opportunities for gains when stock
prices, currency rates or interest rates are changing. The All Cap Growth Fund
may not fully benefit from or may lose money on derivatives if changes in their
value do not correspond accurately to changes in the value of the All Cap
Growth Fund's holdings.
The other parties to certain derivative contracts present the same types of
credit risk as issuers of fixed income securities. Derivatives can also make
the All Cap Growth Fund less liquid and harder to value, especially in declin-
ing markets.
Defensive Investing The All Cap Growth Fund may depart from its principal
investment strategies in response to adverse market, economic or political con-
ditions by taking temporary defensive positions in all types of money market
instruments and short debt securities or cash. If the All Cap Growth Fund takes
a temporary defensive position, it may be unable to achieve its investment
goal.
Master/feeder option The All Cap Growth Fund may in the future seek to achieve
its investment objective by investing all of its net assets in another invest-
ment company having the same investment objective and substantially the same
investment policies and restrictions as those applicable to the All Cap Growth
Fund. Shareholders of the All Cap Growth Fund will be given at least 30 days
prior notice of any such investment.
Smith Barney Mutual Funds
9
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Investments, risks and performance
The Premier Selections Global Growth Fund is made up of a U.S. Equity segment
and an International Equity segment (collectively the "Global Growth Fund").
Investment objective
Long term capital growth.
Principal investment strategies
Key investments
U.S. Equity segment This segment invests primarily in common stocks of compa-
nies that the segment manager believes are experiencing, or will experience,
growth in earnings that exceeds the average rate of earnings growth of the com-
panies which comprise the Russell 2500 Growth Index. This segment of the Global
Growth Fund may invest in the securities of large, well-known companies which
offer prospects of long-term earnings growth. However, because higher earnings
growth rates are often achieved by small to medium-sized companies, a signifi-
cant portion of this segment's assets are invested in the securities of such
companies.
International Equity segment This segment invests primarily in equity securi-
ties of foreign companies. Equity securities include exchange traded and over-
the-counter common stocks and preferred shares, debt securities convertible
into equity securities, and warrants and rights relating to equity securities.
The Global Growth Fund may invest up to 15% of its assets (at the time of
investment) in issuers located or doing business in emerging markets. Emerging
market investments offer the potential of significant gains but also involve
greater risks than investing in more developed countries. Political or economic
instability, lack of market liquidity and government actions such as currency
controls or seizure of private businesses or property are more likely in emerg-
ing markets.
Selection process The Global Growth Fund's strategy is to combine the efforts
of two segment managers and to invest in the stock selections considered most
attractive in the opinion of each segment manager. Each segment manager builds
a portfolio of stocks which he believes will offer superior long-term capital
growth potential. The target allocations are 50% to the U.S. Equity segment and
50% to the International Equity segment. In connection with the execution of
purchases and sales, each segment may hold temporarily more or fewer assets
than represented by one-half of the Global Growth Fund's assets. The amount to
be invested by the Global Growth Fund in any particular security will be deter-
mined by the Manager based on the recommendation of the segment managers.
Smith Barney Mutual Funds
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In order to maintain an approximately equal division of all of the Global
Growth Fund's assets between the two segment managers, the Manager will:
. Divide all daily cash inflows (purchases and reinvested distributions) and
outflows (redemptions and expense items) between the two segment managers
. Rebalance the allocation of securities in the Global Growth Fund's portfolio
whenever the percentage of the Global Growth Fund's portfolio invested in
either the U.S. or International Equity segment's securities equals or
exceeds 60% of the Global Growth Fund's total assets invested in either seg-
ment for a period of more than 10 days
As a consequence of its efforts to maintain assets at targeted percentages, the
Manager will allocate assets and rebalance when necessary by (1) allocating
cash inflow to the portfolio segment that is below its targeted percentage, or
(2) by selling securities in the portfolio segment that exceeds its targeted
percentage with proceeds being reallocated to the portfolio segment that is
below its targeted percentage. Reallocations may result in early recognition of
taxable gains and in additional transaction costs to the extent the sales of
securities as part of these reallocations result in higher portfolio turnover.
In addition, if one segment manager buys a security during a time frame when
the other segment manager sells it, the net position of the Global Growth Fund
in the security may be approximately the same as it would have been with a sin-
gle segment 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.
U.S. Equity segment The U.S. Equity segment manager emphasizes individual secu-
rity selection while diversifying across industries, which may help to reduce
risk. The U.S. Equity segment manager focuses primarily, but not exclusively,
on companies that have passed their "start-up" phase and show positive earnings
and the prospect of achieving significant profits beginning in the two to three
years after this acquisition of their stocks. When evaluating an individual
stock, the U.S. Equity segment manager considers whether the company may bene-
fit from:
. new technologies, products or services
. new cost reducing measures
. changes in management
. favorable changes in government regulations
Smith Barney Mutual Funds
11
<PAGE>
International Equity segment The International Equity segment manager empha-
sizes individual security selection while diversifying across regions and coun-
tries which can help to reduce risk. While the International Equity segment
manager selects investments primarily for their capital appreciation potential,
some investments have an income component as well. Companies may have large-,
mid- or small-size market capitalizations and may operate in any market sector.
Market conditions around the world change constantly as does the location of
potential investment opportunities. Depending on the International Equity seg-
ment manager's assessment of overseas potential for long-term growth, this seg-
ment's emphasis among foreign markets (including emerging markets) and types of
issuers may vary.
In selecting individual companies for investment, the International Equity seg-
ment manager looks for the following:
. Above average earnings growth
. High relative return on invested capital
. Experienced and effective management
. Effective research, product development and marketing
. Competitive advantages
. Strong financial condition or stable or improving credit quality
By spreading the International Equity segment of the Global Growth Fund's
investments across many international markets, the International Equity segment
manager seeks to reduce volatility compared to an investment in a single
region. Unlike global mutual funds which may allocate a substantial segment of
assets to the U.S. markets, this portion of the Global Growth Fund invests sub-
stantially all of its assets in countries outside of the U.S.
In allocating assets among countries and regions, the economic and political
factors the segment manager evaluates include:
. Low or decelerating inflation which creates a favorable environment for secu-
rities markets
. Stable governments with policies that encourage economic growth, equity
investment and development of securities markets
. Currency stability
. The range of individual investment opportunities
Premier Selections Funds
12
<PAGE>
Principal risks of investing in the Global Growth Fund
Investors could lose money on their investments, if:
. Stock prices decline generally
. Small or medium capitalization companies fall out of favor with investors
. The segment manager's judgment about the attractiveness, growth prospects or
potential appreciation of a particular stock proves to be incorrect
. A particular product or service developed by a company in which the Global
Growth Fund invests is unsuccessful, the company does not meet earnings
expectations or other events depress the value of the company's stock
Compared to mutual funds that focus only on large capitalization companies, the
Global Growth Fund's share price may be more volatile because it invests a sig-
nificant portion of its assets in small and medium capitalization companies.
Compared to large capitalization companies, small and medium capitalization
companies are likely to have:
. More limited product lines
. Fewer capital resources
. More limited management depth
Further, securities of small and medium capitalization companies are more
likely to:
. Experience sharper swings in market values
. Be harder to sell at times and at prices the segment manager believes
appropriate
. Offer greater potential for gains and losses
Investing in foreign securities can bring added benefits, but it may also
involve additional risks. Investors could lose money on their investment if:
. Foreign securities prices decline
. Adverse governmental action or political, economic or market instability
affects a foreign country or region
. The currency in which a security is priced declines in value relative to the
U.S. dollar
. The segment manager's judgment about the attractiveness, value or potential
appreciation of a particular security proves to be incorrect
Smith Barney Mutual Funds
13
<PAGE>
Who may want to invest The Global Growth Fund may be an appropriate investment
if you:
. Are seeking to participate in the long-term growth potential of small and
medium capitalization companies and in the long-term growth potential of
international markets
. Currently have exposure to the stocks commonly held by large capitalization
and value oriented mutual funds and wish to broaden your investment portfolio
. Are willing to accept the risks of the stock market and the special risks and
potential long-term rewards of investing in smaller companies with more lim-
ited track records and in foreign securities, including emerging market secu-
rities
Performance
Because Global Growth Fund was added as a series to Smith Barney Investment
Funds Inc. this year, Global Growth Fund does not yet have a sufficient operat-
ing history to generate the performance information which other Smith Barney
funds show in bar and table form in this location of the prospectus.
Fee table
This table sets forth the fees and expenses you will pay if you invest in
Global Growth Fund shares. Annual Global Growth Fund operating expense figures
are based on estimated expenses for the fiscal period ending April 30, 2001.
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
</TABLE>
*You may buy Class A shares in amounts of $1,000,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
Premier Selections Funds
14
<PAGE>
Annual Global Growth Fund operating expenses
<TABLE>
<CAPTION>
(expenses deducted from fund assets) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Management fee 0.80% 0.80% 0.80% 0.80%
Distribution and service (12b-1) fees 0.25% 1.00% 1.00% None
Other expenses** 0.25% 0.25% 0.25% 0.15%
----- ----- ----- -----
Total annual Global Growth Fund operating
expenses 1.30% 2.05% 2.05% 0.95%
</TABLE>
**The amounts set forth in "Other expenses" have been estimated based on
expenses the Global Growth Fund expects to incur during its first full fiscal
year.
Example
This example helps you compare the costs of investing in the Global Growth 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 Global Growth Fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The Global Growth 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) $626 $891
Class B (redemption at end of period) $708 $943
Class B (no redemption) $208 $643
Class L (redemption at end of period) $406 $736
Class L (no redemption) $306 $736
Class Y (with or without redemption) $ 97 $303
</TABLE>
Smith Barney Mutual Funds
15
<PAGE>
More on the Global Growth Fund's investments
International Equity segment
Currency transactions The Global Growth Fund may enter into transactions to buy
or sell currencies at a future date, which may be a few days or a number of
months. The Global Growth Fund may enter into these forward currency contracts
to:
. Settle transactions in securities quoted in foreign currencies
. Attempt to protect against the economic impact of adverse changes in the
value of the U.S. dollar.
. Hedge currencies
The Global Growth Fund may not fully benefit from or may lose money on forward
currency transactions if changes in currency rates do not occur as anticipated
or do not correspond accurately to changes in the value of the Global Growth
Fund's holdings.
Debt securities This segment may invest up to 20% of its assets in debt securi-
ties of foreign corporate and governmental issuers as well as U.S. Government
securities and money market obligations of U.S. issuers. The Global Growth Fund
may invest in all types of debt securities of any maturity or credit quality.
These securities may be denominated in U.S. dollars or other currencies and may
pay fixed or variable rates of interest. The value of debt securities will go
down if interest rates go up, or the credit rating of the security is down-
graded or the issuer defaults on its obligation to pay principal or interest.
These risks are greater for debt securities rated below investment grade.
Both segments
Derivatives and hedging techniques The Global Growth Fund may, but need not,
use derivative contracts, such as futures and options on securities, securities
indices or currencies; options on these futures; forward currency contracts;
and interest rate or currency swaps for any of the following purposes:
. To hedge against the economic impact of adverse changes in the market value
of its securities, because of changes in stock market prices, currency
exchange rates or interest rates.
. As a substitute for buying or selling securities.
A derivative contract will obligate or entitle the Global Growth Fund to
deliver or receive an asset or cash payment based on the change in value of
Premier Selections Funds
16
<PAGE>
one or more securities, currencies or indices. Even a small investment in
derivative contracts can have a big impact on the Global Growth Fund's stock
market, currency and interest rate exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains when
stock prices, currency rates or interest rates are changing. The Global Growth
Fund may not fully benefit from or may lose money on derivatives if changes in
their value do not correspond accurately to changes in the value of the Global
Growth Fund's holdings.
Defensive investing The Global Growth Fund may depart from its principal
investment strategies in response to adverse market, economic or political con-
ditions by taking temporary defensive positions in all types of money market
and short-term debt securities or cash. If the Global Growth Fund takes a tem-
porary defensive position, it may be unable to achieve its investment goal.
Master/feeder option The Global Growth Fund may in the future seek to achieve
its investment objective by investing all of its net assets in another invest-
ment company having the same investment objective and substantially the same
investment policies and restrictions as those applicable to the Global Growth
Fund.
Smith Barney Mutual Funds
17
<PAGE>
Premier Selections Large Cap Fund
Investments, risks and performance
The Premier Selections Large Cap Fund is made up of a Growth and Value segments
(collectively the "Large Cap Fund").
Investment objective
Long-term capital growth.
Principal investment strategies
Key investments The Large Cap Fund invests primarily in companies with large
market capitalizations--those with total market capitalizations of $5 billion
or more at the time of investment. The Large Cap Fund's holdings will be com-
prised of stocks of approximately 40 companies.
There can be no assurance that the fund will achieve its investment objective.
Selection process The Large Cap Fund's strategy is to combine the efforts of
two segment managers with different styles (Value and Growth) and to invest in
the stock selections considered most attractive in the opinion of each segment
manager. Each segment manager builds a portfolio of stocks which he or she
believes will offer superior long-term capital growth potential. Each segment
manager may select up to 20 stocks. In connection with the execution of
purchases and sales, each segment may hold temporarily more or fewer than 20
securities. The size of the Large Cap Fund's position in any particular
security will be determined by the Manager based on the recommendation of the
segment managers.
In order to maintain an approximately equal division of all of the Large Cap
Fund's assets between the two segment managers, the Manager will:
. Divide all daily cash inflows (purchases and reinvested distributions) and
outflows (redemptions and expense items) between the two segment managers
. Rebalance the assets available for investment by each segment 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 segment securities in the Large
Cap Fund's portfolio at any time in which the percentage of the Large Cap
Fund's portfolio invested in either the Value or Growth segment's securities
equals or exceeds 55% of the Large Cap Fund's total assets invested in both
Value and Growth segment securities for a period of more than 10 days
Premier Selections Funds
18
<PAGE>
As a consequence of the rebalancing of assets described above, the Manager will
reallocate assets from the better performing segment to the other.
Reallocations may result in early recognition of taxable gains and in addi-
tional transaction costs to the extent that the sales of securities as part of
these reallocations result in higher portfolio turnover. In addition, if one
segment manager buys a security during a time frame when the other segment man-
ager 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 segment 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 Segment The segment manager emphasizes individual security selection.
The segment manager attempts to identify established large capitalization com-
panies with the highest growth potential. The segment manager then analyzes
each company in detail, focusing on its management, strategy and competitive
market position. Finally, the segment manager attempts to identify the most
attractively priced securities among the growth companies identified.
In selecting individual companies for investment, the segment 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 Segment The segment 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 segment manager uses proprietary models
and fundamental research to identify stocks that are underpriced in the market
relative to their estimated value. Next, the segment manager looks for a posi-
tive catalyst in the company's near term outlook which the segment manager
believes will accelerate earnings and positively change the market's view of
the company's prospects.
Smith Barney Mutual Funds
19
<PAGE>
In selecting individual companies for investment, the segment manager employs a
consistent focus on undervalued companies with identified positive catalysts.
. Segment manager looks to control risk with a systematic selection of stocks
with a focus on:
. low volatility of returns
. demonstrated financial strength
. Quantitative value criteria
. low valuation
. liquidity
. dividend paying ability (dividend yield at or higher than S&P 500 or three
year average free cash flow yield at or higher than S&P 500
. improving returns on invested capital and cash flow
. Positive internal or external change in earnings prospects because of factors
such as:
. new management
. new product development or change in competitive position
. regulatory changes favoring company
. restructuring
. new business strategy not yet recognized by the marketplace.
Principal risks of investing in the Large Cap 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 Large Cap Fund
invests
. Large capitalization stocks fall out of favor with investors
. The segment manager's judgment about the attractiveness, growth prospects or
potential appreciation of a particular stock proves to be incorrect
. One segment (Value or Growth) underperforms for an extended period, while the
Large Cap Fund's process allocates and reallocates assets to be managed by
investing in this segment
The Large Cap Fund is non-diversified, which means that the Large Cap Fund may
invest more than 5% of its assets in the securities of any one issuer. Invest-
ing in a non-diversified 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.
Premier Selections Funds
20
<PAGE>
Who may want to invest The Large Cap 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 capitalization companies
Performance
Because Large Cap Fund was recently added as a series to Smith Barney Invest-
ment Funds Inc., Large Cap Fund does not yet have a sufficient operating his-
tory to generate the performance information which other Smith Barney funds
show in bar and table form in this location of the prospectus.
Fee table
This table sets forth the fees and expenses you will pay if you invest in Large
Cap fund shares. Annual fund operating expense figures are based on estimated
expenses for the fiscal period ending April 30, 2001.
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 Large Cap 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 0.17% 0.19% 0.18% 0.17%
----- ----- ----- -----
Total annual Large Cap Fund operating expenses 1.17% 1.94% 1.93% 0.92%
</TABLE>
*You may buy Class A shares in amounts of $1,000,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
Smith Barney Mutual Funds
21
<PAGE>
Example
This example helps you compare the costs of investing in the Large Cap 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 Large Cap 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) $613 $853
Class B (redemption at end of period) $697 $909
Class B (no redemption) $197 $609
Class L (redemption at end of period) $394 $700
Class L (no redemption) $294 $700
Class Y (with or without redemption) $ 97 $293
</TABLE>
Premier Selections Funds
22
<PAGE>
More on the Large Cap Fund's investments
Other investments While the Large Cap Fund intends to be substantially fully
invested in equity securities of large capitalization companies, the Large Cap
Fund may invest a portion of its assets in equity securities of companies with
total market capitalizations below $5 billion and in money market instruments
and/or cash to pay expenses and meet redemption requests.
The Large Cap Fund may also invest up to 10% of its assets (at the time of
investment) in foreign securities. The Large Cap Fund may invest directly in
foreign issuers or invest in depositary receipts. The Large Cap Fund's invest-
ments in foreign securities may involve greater risk than investments in secu-
rities 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 securi-
ties directly. Foreign countries generally have markets that are less liquid
and more volatile than markets in the U.S. In some foreign countries, less
information is available about foreign issuers and markets because of less rig-
orous accounting and regulatory standards than in the U.S. Currency fluctua-
tions could erase investment gains or add to investment losses.
Defensive investing The Large Cap Fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-
term debt securities or cash. If the Large Cap Fund takes a temporary defensive
position, it may be unable to achieve its investment goal.
Master/feeder option The Large Cap Fund may in the future seek to achieve its
investment objective by investing all of its net assets in another investment
company having the same investment objective and substantially the same invest-
ment policies and restrictions as those applicable to the Large Cap Fund.
Shareholders of the Large Cap Fund will be given at least 30 days prior notice
of any such investment.
Smith Barney Mutual Funds
23
<PAGE>
Management
The Large Cap Fund, All Cap Growth Fund and Global Growth Fund are sometimes
referred to individually as a "Fund" and collectively as the "Funds".
Manager The funds' 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 funds' segment managers and
oversees the funds operations. The Manager and Salomon Smith Barney are subsid-
iaries of Citigroup Inc. Citigroup businesses produce a broad range of finan-
cial services--asset management, banking and consumer finance, credit and
charge cards, insurance, investments, investment banking and trading--and use
diverse channels to make them available to consumer and corporate customers
around the world.
Alan Blake, investment officer of the Manager and managing director of Salomon
Smith Barney, is the segment manager responsible for the day-to-day management
of the Large Cap Growth segment of the All Cap Growth Fund and the Large Cap
Fund's Growth segment. Mr. Blake has more than 20 years of securities business
experience.
Lawrence Weissman, investment officer of the Manager and managing director of
Salomon Smith Barney, is the segment manager responsible for the day- to-day
management of the Mid Cap Growth segment of the All Cap Growth Fund. Mr.
Weissman has more than 14 years of securities business experience.
Timothy Woods, CFA, investment officer of the Manager and managing director of
Salomon Smith Barney, is the segment manager responsible for the day-to-day
management of the Small Cap Growth segment of the All Cap Growth Fund. Mr.
Woods has more than 15 years of securities business experience.
Richard Freeman, CFA, investment officer of the Manager and managing director
of Salomon Smith Barney, is the segment manager responsible for the day-to-day
management of the US Equity segment of the Global Growth Fund. Mr. Freeman has
more than 24 years of securities business experience.
Jeffrey Russell, CFA, investment officer of the Manager and managing director
of Salomon Smith Barney, is the segment manager responsible for the day-to-day
management of the International Equity segment of the Global Growth Fund. Mr.
Russell has 18 years of securities business experience.
Premier Selections Funds
24
<PAGE>
Frances A. Root, investment officer of the Manager and managing director of
Salomon Smith Barney, is the segment manager responsible for the day-to-day
management of the Large Cap Fund's Value segment. Ms. Root has 19 years of
securities business experience.
The Manager will monitor each fund's investments to ensure that each fund
complies with its investment policies. The Manager will rebalance the alloca-
tion of securities in the All Cap Growth and Global Growth Fund's portfolio,
respectively, at any time in which the percentage of each Fund's portfolio
invested in a segment's securities deviates by at least 10% from a segment's
target allocation for a period of more than 10 days. The Manager will rebalance
the Large Cap Fund's allocation of securities at any time in which the percent-
age of the Fund's portfolio invested in either value or growth segments securi-
ties equal or exceeds 55% or the Fund's total assets invested in both the Value
and Growth securities for a period of more than 10 days. The Manager will also
monitor each 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.
Management fees The Manager will be paid advisory fees equal to 0.75% of the
All Cap Growth Fund's average daily net assets, equal to 0.80% of the Global
Growth Fund's average daily net assets and equal to 0.75% of Large Cap Fund's
average daily net assets.
Distributor Each fund has entered into an agreement with Salomon Smith Barney
Inc. to distribute the funds' shares.
Distribution plan Each fund has adopted a Rule 12b-1 distribution plan for its
Class A, B and L shares. Under the plan, each 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.
The distributor may make payments for distribution and/or shareholder servicing
activities out of its past profits and other available sources. The distributor
may also make payments for marketing, promotional or related expenses to deal-
ers. The amount of these payments is determined by the distributor and may be
substantial. SSB Citi or an affiliate may make similar payments under similar
arrangements.
Transfer agent and shareholder servicing agent Citi Fiduciary Trust Company
serves as each fund's transfer agent and shareholder servicing agent (the
"transfer agent"). The transfer agent has entered into a sub-transfer agency
and services agreement with the transfer agent, PFPC Global Fund Services to
serve as each fund's sub-transfer agent (the "sub-transfer agent") The sub-
transfer agent will perform certain functions including shareholder record
keeping and accounting services.
Smith Barney Mutual Funds
25
<PAGE>
Choosing a class of shares to buy
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
. If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses.
. For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if a 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 broker-dealer, financial intermediary, financial institution or a
distributor's financial consultants (each called a "Service Agent")
. A fund, but only if you are investing through certain qualified plans or
Service Agents
All Classes of shares are not available through all Service Agents. You should
contact your Service Agent for further information.
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
Premier Selections Funds
26
<PAGE>
Comparing the funds' classes
Your Service Agent can help you decide which class meets your goals. The Serv-
ice Agent may receive different compensation depending upon which class you
choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .Initial .No initial
sales sales sales or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge .Deferred .Must
tion or declines sales invest at
waiver of over time charge for least $15
initial .Converts only 1 million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than Class expenses annual classes
B and than Class expenses
Class L A than Class
A
------------------------------------------------------------------------
Initial sales charge Up to None 1.00% None
5.00%;
reduced for
large pur-
chases and
waived for
certain
investors.
No charge
for pur-
chases of
$1,000,000
or more
------------------------------------------------------------------------
Deferred sales charge 1.00% on Up to 5.00% 1.00% if None
purchases charged you redeem
of when you within 1
$1,000,000 redeem year of
or more if shares. The purchase
you redeem charge is
within 1 reduced
year of over time
purchase and there
is no
deferred
sales
charge
after 6
years
------------------------------------------------------------------------
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
------------------------------------------------------------------------
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 Service Agent for the Smith Barney funds available for exchange.
Smith Barney Mutual Funds
27
<PAGE>
Sales charges
Class A shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge
on each fund's distributions or dividends you reinvest in additional Class A
shares.
The table below shows the rate of sales charge you pay, depending on the amount
you purchase.
The table below also shows the amount of broker/dealer compensation that is
paid out of the sales charge. This compensation includes commissions and other
fees Service Agents that sell shares of the Fund receive. The distributor keeps
up to approximately 10% of the sales charges imposed on Class A shares. Service
Agents also will receive the service fee payable on Class A shares at an annual
rate equal to 0.25% of the average daily net assets represented by the Class A
shares sold by them.
<TABLE>
<CAPTION>
Broker/Dealer
commission
Sales Charge as a % of as a % of
Offering Net amount offering
Amount of purchase price (%) invested (%) price
<S> <C> <C> <C>
Less than $25,000 5.00 5.26 4.50
$25,000 but less than $50,000 4.25 4.44 3.83
$50,000 but less than $100,000 3.75 3.90 3.38
$100,000 but less than $250,000 3.25 3.36 2.93
$250,000 but less than $500,000 2.75 2.83 2.48
$500,000 but less than $1,000,000 2.00 2.04 1.80
$1,000,000 or more 0 0 up to 1.00
</TABLE>
Investments of $1,000,000 or more You do not pay an initial sales charge when
you buy $1,000,000 or more of Class A shares. However, if you redeem these
Class A shares within one year of purchase, you will pay a deferred sales
charge of 1.00%.
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.
Premier Selections Funds
28
<PAGE>
. 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 funds and other
Smith Barney funds over a 13-month period and pay the same sales charge, if
any, as if all shares had been purchased at once. You may include purchases
on which you paid a sales charge made within 90 days before you sign the let-
ter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
. Employees of NASD members
. Investors participating in a fee-based program sponsored by certain broker-
dealers affiliated with Citigroup
. Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Service Agent is notified
1f you want to learn about additional waivers of Class A initial sales charges,
contact your Service Agent or consult the Statement of Additional Information
("SAI").
Smith Barney Mutual Funds
29
<PAGE>
Class B shares
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of 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>
Service Agents selling Class B shares receive a commission of up to 4.50% of
the purchase price of the Class B shares they sell, except for sales exempt
from the deferred sales charge. Service Agents also receive a service fee at an
annual rate equal to 0.25% of the average daily net assets represented by the
Class B shares they are servicing.
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>
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.
Service Agents selling Class L shares receive commission of up to 2.00% of the
purchase price of the Class L shares they sell.
Premier Selections Funds
30
<PAGE>
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 a 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 redeem shares, a fund will first redeem any
shares in your account that are not subject to a deferred sales charge and then
the shares in your account that have been held the longest.
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of a fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Service Agent.
The fund's distributor receives deferred sales charges as partial compensation
for its expenses in selling shares, including the payment of compensation to
your Service Agent.
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
. On payments made through certain systematic withdrawal plans
. On certain distributions from a retirement plan
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
Smith Barney Mutual Funds
31
<PAGE>
Buying shares
Through a You should contact your Service Agent to open a brokerage
Service Agent account and make arrangements to buy shares.
If you do not provide the following information, your order
will be rejected
. Class of shares being bought
. Dollar amount or number of shares being bought
Your Service Agent may charge an annual account maintenance
fee.
--------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who
funds are clients of certain Service Agents are eligible to buy
shares directly from a fund.
. Write the sub-transfer agent at the following address:
Smith Barney Investment Funds Inc.
(Specify fund and class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
. Enclose a check to pay for the shares. For initial pur-
chases, complete and send an account application.
. For more information, call the transfer agent at 1-800-451-
2010.
Through a
systematic You may authorize your Service Agent or the sub-transfer
investment agent to transfer funds automatically from (i) a regular bank
plan account, (ii) cash held in a brokerage account opened with a
Service Agent or certain money market funds in order to buy
shares on a regular basis.
. Amounts transferred should be at least: $25 monthly or $50
quarterly.
. If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer represen-
tative or the sub-transfer agent may charge you a fee.
For more information, contact your Service Agent or the
transfer agent or consult the SAI.
Premier Selections Funds
32
<PAGE>
Exchanging shares
Smith Barney
offers a You should contact your Service Agent to exchange into other
distinctive Smith Barney funds. Be sure to read the prospectus of the
family of Smith Barney fund you are exchanging into. An exchange is a
funds taxable transaction.
tailored to
help meet the . You may exchange shares only for shares of the same class
varying needs of another Smith Barney fund. Not all Smith Barney funds
of both large offer all classes.
and small
investors
. Not all Smith Barney funds may be offered in your state of
residence. Contact your Service Agent or the transfer agent
for further information.
. You must meet the minimum investment amount for each fund
with which you exchange (except systematic investment plan
exchanges).
. 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.
. A fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges.
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will continue to be mea-
sured from the date of your original purchase. If the fund
you exchange into has a higher deferred sales charge, you
will be subject to that charge. If you exchange at any time
into a fund with a lower charge, the sales charge will not be
reduced.
--------------------------------------------------------------------------------
By telephone
If you do not have a brokerage account with a Service Agent,
you may be eligible to exchange shares through the fund. You
must complete an authorization form to authorize telephone
transfers. If eligible, you may make telephone exchanges on
any day the New York Stock Exchange is open. Call the trans-
fer agent at 1-800-451-2010 between 9:00 a.m. and 4:00 p.m.
(Eastern time).
You can make telephone exchanges only between accounts that
have identical registrations.
--------------------------------------------------------------------------------
By mail
If you do not have a brokerage account, contact your Service
Agent or write to the sub-transfer agent at the address on
the following page.
Smith Barney Mutual Funds
33
<PAGE>
Redeeming shares
Generally
Contact your Service Agent to redeem shares of a fund.
If you hold share certificates, the sub-transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However,
if you recently purchased your shares by check, your redemp-
tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.
If you have a brokerage account with a Service Agent, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
--------------------------------------------------------------------------------
By mail
For accounts held directly at a fund, send written requests
to the fund at the following address:
Smith Barney Investment Funds Inc.
(Specify fund and class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
Your written request must provide the following:
. The fund and 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 Funds
34
<PAGE>
By telephone
If you do not have a brokerage account with a Service Agent,
you may be eligible to redeem shares through the fund. 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 or electronic transfer (ACH) to a bank
account designated on your authorization form. You must sub-
mit a new authorization form to change the bank account des-
ignated to receive wire or electronic transfers and you may
be asked to provide certain other documents. The sub-transfer
agent may charge a fee on an electronic transfer (ACH).
--------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans ($5,000 for retirement plan accounts) and each automatic
redemption must be at least $50. If your shares are subject
to a deferred sales charge, the sales charge will be waived
if your automatic payments do not exceed 1% per month of the
value of your shares subject to a deferred sales charge.
The following conditions apply:
. Your shares must not be represented by certificates
. All dividends and distributions must be reinvested
For more information, contact your Service Agent or consult
the SAI.
Smith Barney Mutual Funds
35
<PAGE>
(This page is intentionally left blank.)
<PAGE>
[SB]Smith Barney
[MF]Mutual Fund
Your Serious Money. Professionally Managed./SM/
Premier Selections
All Cap Growth Fund
Global Growth Fund
Large Cap Fund
Each a series of Smith Barney Investment Funds Inc.
Shareholder reports Annual and semiannual reports to shareholders provide
additional information about each fund's investments. These reports discuss
the market conditions and investment strategies that significantly affected
a fund's performance during its last fiscal year end or period.
Each fund sends only one report to a household if more than one account has
the same address. Contact your Service Agent or the transfer agent if you do
not want this policy to apply to you.
Statement of additional information The statement of additional information
provides more detailed information about each fund and is incorporated by ref-
erence into (is legally part of) this prospectus.
You can make inquiries about a fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Serv-
ice Agent by calling the funds at 1-800-451-2010, or by writing to the fund at
Smith Barney Mutual Funds, 388 Greenwich Street, MF2, New York, New York
10013.
Information about the funds (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's (the "Commission") Public Reference
Room in Washington D.C. In addition, information on the operation of the Pub-
lic Reference Room may be obtained by calling the Commission at 1-202-942-
8090. Reports and other information about the funds are available on the EDGAR
Database on the Commission's Internet site at http://www.sec.gov. Copies of
this information may be obtained for a duplicating fee by electronic request
at the following E-mail address: [email protected], or by writing the Commis-
sion's Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about a fund that is not in this prospectus, you
should not rely upon that information. Neither the funds nor the distributor
is offering to sell shares of the funds to any person to whom the funds may
not lawfully sell their shares.
SMSalomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-3275)
FD 01889 8/00
PART B
Smith Barney
Investment Funds Inc.
388 Greenwich Street
New York, New York 10013
800-451-2010
Statement of Additional Information
August 28, 2000
This Statement of Additional Information expands upon and supplements
the information contained in the current prospectuses each dated August
28, 2000, as amended or supplemented from time to time, of Smith Barney
Hansberger Global Value Fund ("Global Value Fund") and Smith Barney
Hansberger Global Small Cap Value Fund ("Global Small Cap Value Fund")
(each a "Fund" and collectively the "Funds"), each a separate series of
Smith Barney Investment Funds Inc. (the "Company"), and should be read
in conjunction with the Funds' prospectuses. Each Fund's prospectus may
be obtained from a Salomon Smith Barney Financial Consultant, or by
writing or calling the Company at the address or telephone number listed
above. This Statement of Additional Information, although not in itself
a prospectus, is incorporated by reference into the Funds' prospectuses
in its entirety.
CONTENTS
Directors and Executive Officers of the Funds 2
Investment Objectives and Management Policies 4
Additional Risk Factors 18
Investment Restrictions 24
Brokerage and Portfolio Transactions 25
Purchase of Shares 29
Redemption of Shares 35
Exchange Privilege 37
Distributor 38 Valuation of Shares 39
Performance Data 41
Dividends and Distributions 45
Taxes 45
Minimum Account Size 47
Financial Statements 47
Additional Information 47
Other Information 48
Appendix A-1
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The names of the Directors and executive officers of the Company,
together with information as to their principal business occupations
during the past five years, are shown below. Each Director who is an
"interested person" of the Company, as defined in the Investment Company
Act of 1940, as amended (the "1940 Act"), is indicated by an asterisk.
Paul R. Ades, Director (Age 59). Law firm of Paul R. Ades PLLC. His
address is Argyle Square, 181 West Main Street, Suite C, P.O. Box 790,
Babylon, New York 11702.
Herbert Barg, Director (Age 77). Private investor. His address is 273
Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
Dwight B. Crane, Director (Age 62). Professor, Graduate School of
Business Administration, Harvard University. His address is Harvard
Business School, Soldiers Field, Morgan Hall #371, 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 Avatar International,
Inc., 87 Whittredge Road, Summit, New Jersey 07901.
*Heath B. McLendon, Chairman of the Board, President and Chief Executive
Officer (Age 67). Managing Director of Salomon Smith Barney Inc.
("Salomon Smith Barney"); Director and President of SSB Citi Fund
Management LLC ("SSB Citi") and Travelers Investment Adviser, Inc.
("TIA"); and formerly Chairman of the Board of Smith Barney Strategy
Advisers Inc. Mr. McLendon is a director of 78 investment companies
associated with Citigroup Inc. ("Citigroup"). His address is 7 World
Trade Center, 45th Floor, New York, New York 10048.
Jerome H. Miller, Director (Age 61). 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, 6th Floor, Suite 610, New York, New
York 10018.
Lewis E. Daidone, Senior Vice President and Treasurer (Age 42). Managing
Director of Salomon Smith Barney; Director and Senior Vice President of
SSB Citi and TIA; Senior Vice President and Treasurer of 61 investment
companies associated with Citigroup. His address is 125 Broad Street,
New York, New York 10004.
Paul Brook, Controller (Age 46). Director of Salomon Smith Barney; from
1997-1998 Managing Director of AMT Capital Services Inc.; prior to 1997
Partner with Ernst & Young LLP; Controller or Assistant Treasurer of 43
investment companies associated with Citigroup. His address is 125 Broad
Street, New York, New York 10004.
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.
Each Director also serves as a director, trustee and/or general partner
of certain other mutual funds for which Smith Barney serves as
distributor. As of August 8, 2000, the Directors and officers of the
Company, as a group, owned less than 1.00% of the outstanding common
stock of the Company.
As of August 8, 2000 to the best of the knowledge of the Funds and the
Board of Directors, no single shareholder or group (as the term is used
in Section 13(d) of the Securities Exchange Act of 1934) beneficially
owned more than 5% of the outstanding shares with the exception of the
following:
Fund
Clas
s
Percent
Name
Address
Global Small Cap
Value Fund
A
25.1843
Philip S. Zettler
1079 Country Club
Circle
Birmingham AL 35244-
1483
Global Small Cap
Value Fund
A
8.4120
British Motor Car
Dist Ltd
Attn: Jeff Quale
901 Van Ness Avenue
San Francisco CA
94109-6911
Global Small Cap
Value Fund
A
5.0311
Kent S. Daft Inc.
Profit Sharing Plan &
Trust
10425 Fair Oaks Blvd
#203
Fair Oaks, CA 95628-
7559
Global Value Fund
A
21.9031
RSM, LP
A Limited Partnership
17 Westover Road
Slingerlands NY 12159-
3648
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 $16,000 per annum plus $2,500 per meeting
attended and reimburses travel and out-of-pocket expenses which
expenses, for the fiscal year ended April 30, 2000, totaled $18,574.09.
For the fiscal year ended April 30, 2000, the Directors of the Company
were paid the following compensation:
Name of Person
Aggregate
Compensation
from Funds*
Total Pension
or Retirement
Benefits
Accrued as
part of Fund
Expenses
Compensation
from Funds
and Fund
Complex Paid
to Directors
Number of
Funds for
Which
Director
Serves Within
Fund Complex
Paul R. Ades
$4,827
0
$54,238
5
Herbert Barg
4,827
0
114,288
16
Dwight B. Crane
4,827
0
155,363
23
Frank G. Hubbard
4,827
0
56,138
5
Heath B. McLendon
0
0
0
78
Jerome Miller
4,805
0
51,613
5
Ken Miller
4,102
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 and Sub-Adviser. SSB Citi serves as investment
adviser to the Funds pursuant to separate investment management
agreements (the "Management Agreements"). SSB Citi is an affiliate of
Salomon Smith Barney and an indirect, wholly owned subsidiary of
Citigroup. Hansberger Global Investors, Inc. ("Hansberger, a wholly-
owned subsidiary of Hansberger Group, Inc. serves as sub-adviser to the
Funds pursuant to separate sub-advisory agreements (the "Sub-Advisory
Agreements"). The Management Agreements and the Sub-Advisory Agreements
were most recently approved by the Board of Directors, including a
majority of the Directors who are not "interested persons" of the
Company or the investment advisers (the "Independent Directors"), and by
shareholders of the respective Funds on July 22, 1999. SSB Citi
provides investment advisory and management services to investment
companies affiliated with Salomon Smith Barney.
As compensation for investment management services rendered to Global
Value Fund and Global Small Cap Value Fund, each Fund pays SSB Citi a
fee computed daily and paid monthly at the annual rates of 0.95% and
1.05%, respectively, of the value of their average daily net assets. As
compensation for sub-advisory services rendered to Global Value Fund and
Global Small Cap Value Fund, SSB Citi pays Hansberger a fee, computed
daily and paid monthly, at the annual rates of 0.50% and 0.60%,
respectively, of the value of the respective Fund's average daily net
assets. SSB Citi and Hansberger bear all expenses in connection with the
performance of their services. For the year ended April 30, 2000 SSB
Citi waived a portion of its management fee for the Global Small Cap
Value Fund in the amount of $32,619.
Code of Ethics
Pursuant to Rule 17j-1 of the 1940 Act, the Fund, the investment adviser
and principal underwriter have adopted codes of ethics that permit
personnel to invest in securities for their own accounts, including
securities that may be purchased or held by the Fund. All personnel
must place the interests of clients first and avoid activities,
interests and relationships that might interfere with the duty to make
decisions in the best interests of the clients. All personal securities
transactions by employees must adhere to the requirements of the codes
and must be conducted in such a manner as to avoid any actual or
potential conflict of interest, the appearance of such a conflict, or
the abuse of an employee's position of trust and responsibility.
A copy of the Fund's Code of Ethics is on file with the Securities and
Exchange Commission ("SEC").
Counsel and Auditors. Willkie Farr & Gallagher serves as counsel to the
Company. The Independent Directors have selected Stroock & Stroock &
Lavan LLP as their legal counsel. KPMG LLP, 757 Third Avenue, New York,
New York 10017, has been selected as each Fund's independent auditor to
examine and report on the Fund's financial statements and highlights for
the fiscal year ending April 30, 2001.
Custodian ChaseManhattan Bank, located at Chase Metrotech Center,
Brooklyn NY 11245, serves as the custodian of the Company. Under its
custody agreement with the Company, Chase holds the Company's fund
securities and keeps all necessary accounts and records. For its
services, Chase receives a monthly fee based upon the month-end market
value of securities held in custody and also receives transaction
charges. Chase bank is authorized to establish separate accounts for
foreign securities owned by the Company to be held with foreign branches
of other domestic banks as well as with certain foreign banks and
securities depositories. The assets of the Company are held under bank
custodianship in compliance with the 1940 Act.
Transfer Agent Citi Fiduciary Trust Company (the "Transfer Agent")
located at 125 Broad Street, New York, New York 10004, serves as the
transfer agent and shareholder services agent of the Fund.
Sub-Transfer Agent 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 service functions.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
Each of the following investment policies, strategies and techniques is
subject to the limitations set forth under "Investment Restrictions."
Except as described under " Investment Restrictions," the investment
policies described in the prospectuses and in this statement of
additional information are not fundamental and the Board of Directors may
change such policies without shareholder approval.
General. Each Fund's investment objective is long-term capital growth.
Global Value Fund seeks to achieve this objective by investing primarily
in equity securities of U.S. and foreign issuers which, in the opinion
of SSB Citi and Hansberger, are undervalued. Global Small Cap Value
Fund seeks to achieve this objective by investing primarily in equity
securities of U.S. and foreign issuers with relatively small market
capitalizations (share price times number of equity securities
outstanding) which, in the opinion of SSB Citi and Hansberger, are
undervalued. For each Fund, income will be an incidental consideration.
In making investment decisions for the Funds, Hansberger relies heavily
on a fundamental analysis of securities with a long-term investment
perspective. Hansberger's valuation methods focus on a company's share
price in relation to earnings, dividends, assets, sales and a variety of
other criteria. Both Funds seek to invest in companies whose securities
are trading at the greatest discount to future earnings, cash flow
and/or net asset value, and Hansberger utilizes proprietary valuation
screens, internal and external research sources and other fundamental
analysis to identify those securities that appear to be undervalued.
Once undervalued securities are identified, Hansberger analyzes each
security, concentrating on a variety of fundamental issues, including
sales growth, cash flow, new product development, management structure
and other economic factors. This fundamental analysis results in a list
of securities meeting a strict value discipline, which are reviewed by
Hansberger for inclusion in each Fund's portfolio.
Hansberger seeks to increase the scope and effectiveness of this
fundamental investment approach by extending the search for value into
many countries around the world. This global search provides Hansberger
with more diverse opportunities and flexibility to shift portfolio
investments not only from company to company and industry to industry,
but also country to country, in search of undervalued securities.
Under normal market conditions, the Global Small Cap Value Fund will
invest at least 65% of the value of its total assets in companies with
individual market capitalizations of $1.4 billion U.S. dollars or less
(at the time of purchase). Under normal market conditions each Fund
will invest its assets in at least three countries, which may include
the United States.
Although the Funds generally invest in common stocks, they may also
invest in preferred stocks and certain debt securities, rated or
unrated, such as convertible bonds and bonds selling at a discount, when
Hansberger believes the potential for appreciation will equal or exceed
that available from investments in common stock. Each fund may also
invest in warrants or rights to subscribe to or purchase such
securities, and sponsored or unsponsored American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary
Receipts ("GDRs") and other depository receipts (collectively,
"Depositary Receipts"). Each fund may also lend its portfolio
securities and borrow money for investment purposes (i.e., "leverage"
its portfolio). In addition, each Fund may invest in closed-end
investment companies holding foreign securities, and enter into
transactions in options on securities, securities indices and foreign
currencies, forward foreign currency contracts, and futures contracts
and related options. When deemed appropriate by SSB Citi or Hansberger,
each Fund may invest cash balances in repurchase agreements and other
money market investments to maintain liquidity in an amount sufficient
to meet expenses or for day-to day operating purposes. Whenever, in the
judgment of Hansberger, market or economic conditions warrant, a Fund
may adopt a temporary defensive position and may invest without limit in
money market securities denominated in U.S. dollars or in the currency
of any foreign country, as described below.
See "Additional Risk Factors" below for more information on the special
risks involved with investing in foreign securities.
Repurchase Agreements. Each Fund may enter into repurchase agreements.
A repurchase agreement is a contract under which a Fund acquires a
security for a relatively short period (usually not more than one week)
subject to the obligation of the seller to repurchase and the Fund to
resell such security at a fixed time and price (representing the Fund's
cost plus interest). It is each Fund's present intention to enter into
repurchase agreements only upon receipt of fully adequate collateral and
only with commercial banks (whether U.S. or foreign) and registered
broker-dealers. Repurchase agreements may also be viewed as loans made
by a Fund which are collateralized primarily by the securities subject to
repurchase. A Fund bears a risk of loss in the event that the other
party to a repurchase agreement defaults on its obligations and the Fund
is delayed or prevented from exercising its rights to dispose of the
collateral securities. Pursuant to policies established by the Board of
Directors, SSB Citi and Hansberger monitor the creditworthiness of all
issuers with which each Fund enters into repurchase agreements.
Reverse Repurchase Agreements. Each Fund currently does not intend to
commit more than 5% of its Fund's net assets to reverse repurchase
agreements. The Fund may enter into reverse repurchase agreements with
broker/dealers and other financial institutions. Such agreements involve
the sale of Fund securities with an agreement to repurchase the
securities at an agreed-upon price, date and interest payment and are
considered to be borrowings by a Fund and are subject to the borrowing
limitations set forth under "Investment Restrictions." Since the
proceeds of reverse repurchase agreements are invested, this would
introduce the speculative factor known as "leverage." The securities
purchased with the funds obtained from the agreement and securities
collateralizing the agreement will have maturity dates no later than the
repayment date. 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 SSB Citi and Hansberger believe 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 participating Fund's
assets. The Fund's custodian bank will maintain a separate account for
the Fund with securities having a value equal to or greater than such
commitments.
Securities Lending. Each Fund is authorized to lend up to 33 1/3% of the
total market value of its portfolio securities to brokers, dealers,
domestic and foreign banks or other financial institutions for the
purpose of increasing its net investment income. Any loan of securities
must be callable at any time and are continuously secured by cash or U.S.
Government Obligations equal to no less than the market value, determined
daily, of the securities loaned. There may, however, be risks of delay
in recovery of the securities or even loss of rights in the collateral
should the borrowers of the securities fail financially. Apart from
lending its securities and acquiring debt securities of a type
customarily purchased by financial institutions, no Fund will make loans
to other persons.
Each Fund will receive amounts equal to dividends or interest on the
securities loaned. It will also earn income for having made the loan
because cash collateral pursuant to these loans will be invested in
short-term money market instruments. In connection with lending of
securities the Fund may pay reasonable finders, administrative and
custodial fees. Where voting or consent rights with respect to loaned
securities pass to the borrower, management will follow the policy of
calling the loan, in whole or in part as may be appropriate, to permit
the exercise of such voting or consent rights if the issues involved have
a material effect on the Fund's investment in the securities loaned.
Commercial Bank Obligations. For the purposes of each Fund's investment
policies with respect to bank obligations, obligations of foreign
branches of U.S. banks and of foreign banks may be general obligations of
the parent bank in addition to the issuing bank, or may be limited by the
terms of a specific obligation and by government regulation. As with
investment in non-U.S. securities in general, investments in the
obligations of foreign branches of U.S. banks and of foreign banks may
subject the Funds to investment risks that are different in some respects
from those of investments in obligations of domestic issuers. Although a
Fund will typically acquire obligations issued and supported by the
credit of U.S. or foreign banks having total assets at the time of
purchase in excess of U.S. $1 billion (or the equivalent thereof), this
is not a fundamental investment policy or restriction of the Fund. For
calculation purposes with respect to the U.S. $1 billion figure, the
assets of a bank will be deemed to include the assets of its U.S. and
non-U.S. branches.
When-Issued and Delayed Delivery Securities. Each Fund may purchase
securities on a when-issued or delayed delivery basis. The price of debt
obligations purchased on a when-issued basis is fixed at the time a Fund
commits to purchase, but delivery and payment for the securities
("settlement") takes place at a later date. The price of these
securities may be expressed in yield terms. A Fund will enter into these
transactions in order to lock in the yield (price) available at the time
of commitment. Between purchase and settlement, a Fund assumes the
ownership risk of the when-issued securities, including the risk of
fluctuations in the securities market value due to, among other factors,
a change in the general level of interest rates. However, no interest
accrues to the Fund during this period.
Commercial Paper. Commercial paper consists of short-term (usually from
1 to 270 days) unsecured promissory notes issued by corporations in order
to finance their current operations. A variable amount master demand
note (which is a type of commercial paper) represents a direct borrowing
arrangement involving periodically fluctuating rates of interest under a
letter agreement between a commercial paper issuer and an institutional
lender, such as one of the Funds, pursuant to which the lender may
determine to invest varying amounts. Transfer of such notes is usually
restricted by the issuer, and there is no secondary trading market for
such notes. Each Fund, therefore, may not invest in a master demand
note, if as a result more than 15% of the value of the Fund's total
assets would be invested in such notes and other illiquid securities.
Temporary Investments. Each Fund may make money market investments
pending other investments or settlement for liquidity, or in adverse
market conditions. These money market investments include obligations
of the U.S. Government and its agencies and instrumentalities,
obligations or foreign sovereignties, other debt securities, commercial
paper including bank obligations, certificates of deposit (including
Eurodollar certificates of deposit) and repurchase agreements.
For temporary defensive purposes, during periods in which SSB Citi or
Hansberger believes changes in economic, financial or political
conditions make it advisable, each Fund may reduce its holdings in
equity and other securities and may invest up to 100% of its assets in
certain short-term (less than twelve months to maturity) and medium-term
(not greater than five years to maturity) debt securities and in cash
(U.S. dollars, foreign currencies, multicurrency units). These short-
term and medium-term debt securities consist of (a) obligations of
governments, agencies or instrumentalities of any member state of the
Organization for Economic Cooperation and Development ("OECD"), (b) bank
deposits and bank obligations (including certificates of deposit, time
deposits and banker's acceptances) of banks organized under the laws of
any member state of the OECD, denominated in any currency: (c) floating
rate securities and other instruments denominated in any currency issued
by international development agencies: (d) finance company and corporate
commercial paper and other short-term corporate debt obligations of
corporations organized under the laws of any member state of the OECD
meeting the Fund's credit quality standards: and (e) repurchase
agreements with banks and broker-dealers covering any of the foregoing
securities. The short-term and medium-term debt securities in which a
Fund may invest for temporary defensive purposes will be those that SSB
Citi and Hansberger believe to be of high quality, i.e., subject to
relatively low risk of loss of interest or principal. There is
currently no rating system for debt securities in most emerging
countries. If rated, these securities will be rated in one of the three
highest rating categories by rating services such as Moody's Investors
Services, Inc. or Standard & Poor's Ratings Group (i.e., rated at least
A).
Non-Publicly Traded Securities. Each Fund may invest in securities that
are neither listed on a stock exchange nor traded over the counter,
including privately placed securities. These securities may present a
higher degree of business and financial risk, which can result in
substantial losses. In the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities.
Although these securities may be resold in privately negotiated
transactions, the prices realized from these sales could be less than
those originally paid by the Fund or less than what the Fund may
consider the fair value of such securities. Further, companies whose
securities are not publicly traded may not be subject to disclosure and
other investor protection requirements that might apply if their
securities were publicly traded. If such securities are required to be
registered under the securities laws of one or more jurisdictions before
being resold, the Fund may be required to bear the costs of
registration. A Fund may not invest more than 15% of its net assets in
illiquid securities, including securities for which there is no readily
available secondary market. A Fund may invest in securities that can be
offered and sold to qualified institutional buyers under Rule 144A under
the Securities Act of 1933 Act ("Rule 144A Securities"). The Board of
Directors has delegated to SSB Citi and Hansberger, subject to the
Board's supervision, the daily function of determining and monitoring
the liquidity of Rule 144A Securities. Rule 144A Securities held by the
Fund which have been determined to be liquid will not be subject to the
15% limitation described above. However, Rule 144A Securities may
become illiquid if qualified institutional buyers are not interested in
acquiring them.
Short Sales. Each Fund may sell securities short "against the box", that
is, sell a security that the Fund owns or has the right to acquire, for
delivery at a specified date in the future.
Depositary Receipts (including ADRs, EDRs and GDRs). Each Fund may
purchase ADRs, EDRs, GDRs and other depositary receipts or other
securities representing underlying shares of foreign companies.
Depositary Receipts are typically issued by a financial institution
("depository") and evidence ownership interests in a security or a pool
of securities ("underlying securities") that have been deposited with
the depository. ADRs are publicly traded on exchanges or over-the-counter
in the United States and are issued through "sponsored" or "unsponsored"
arrangements. In a sponsored ADR arrangement, the foreign issuer assumes
the obligation to pay some or all of the depository's transaction fees,
whereas under an unsponsored arrangement, the foreign issuer assumes no
such obligation and the depository's transaction fees are paid by the ADR
holders. In addition, less information is available in the United States
about an unsponsored ADR than about a sponsored ADR, and the financial
information about a company may not be as reliable for an unsponsored ADR
as it is for a sponsored ADR. The Funds may invest in ADRs through both
sponsored and unsponsored arrangements.
The depository for ADRs is typically a U.S. financial institution and
the underlying securities are issued by a foreign issuer. For other
Depositary Receipts, the depository may be a foreign or a U.S. entity,
and the underlying securities may have a foreign or a U.S. issuer. For
purposes of a Fund's investment policies, investments in Depositary
Receipts will be deemed to be investments in the underlying securities.
Thus, a Depositary Receipt representing ownership of common stock will
be treated as common stock.
Real Estate Investment Trusts ("REITs"). Each Fund may invest up to 10%
of its assets in Real Estate Investment Trusts. REITs are pooled
investment vehicles that invest primarily in either real estate or real
estate related loans. The value of a REIT is affected by changes in the
value of the properties owned by the REIT or securing mortgage loans
held by the REIT. A REIT is dependent upon cash flow from its
investments to repay financing costs and the ability of the REIT's
manager. REITs are also subject to risks generally associated with
investments in real estate.
Borrowing. Each Fund may borrow money from U.S.-regulated banks in an
amount not to exceed 33 1/3% of the value of the Fund's total assets
(including the amount borrowed) valued at market less liabilities other
than the borrowing. If a Fund borrows and uses the proceeds to make
additional investments, income and appreciation from such investments
will improve its performance if they exceed the associated borrowing
costs but impair its performance if they are less than such borrowing
costs. This speculative factor is known as "leverage."
Leverage creates an opportunity for increased returns to shareholders of
a Fund but, at the same time, creates special risk considerations. For
example, leverage may exaggerate changes in the net asset value of the
Fund's shares and in the Fund's yield. Although the principal or stated
value of such borrowings will be fixed, the Fund's assets may change in
value during the time the borrowing is outstanding. Leverage will
create interest or dividend expenses for the Fund which can exceed the
income from the assets retained. To the extent the income or other gain
derived from securities purchased with borrowed funds exceeds the
interest or dividends the Fund will have to pay in respect thereof, the
Fund's net income or other gain will be greater than if leverage had not
been used. Conversely, if the income or other gain from the incremental
assets is not sufficient to cover the cost of leverage, the net income
or other gain of the Fund will be less than if leverage had not been
used. If the amount of income from the incremental securities is
insufficient to cover the cost of borrowing, securities might have to be
liquidated to obtain required funds. Depending on market or other
conditions, such liquidations could be disadvantageous to the Fund.
Other Investment Companies. Some emerging countries have laws and
regulations that preclude direct foreign investment in the securities of
companies located there. However, indirect foreign investment in the
securities of companies listed and traded on the stock exchanges in
these countries is permitted by certain emerging countries through
specifically authorized investment funds. Each Fund may invest in these
investment funds, as well as other closed-end investment companies up to
10% of its assets, as permitted by the 1940 Act.
Forward Roll Transactions. In order to enhance current income, each
Fund may enter into forward roll transactions. In a forward roll
transaction, a Fund sells a security to a financial institution, such as
a bank or broker-dealer, and simultaneously agrees to repurchase a
similar security from the institution at a later date at an agreed-upon
price. During the period between the sale and repurchase, the Fund will
not be entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in short-term
instruments, particularly repurchase agreements, and the income from
these investments, together with any additional fee income received on
the sale will generate income for the Fund exceeding the yield on the
securities sold. Forward roll transactions involve the risk that the
market value of the securities sold by the Fund may decline below the
repurchase price of those securities. At the time the Fund enters into
forward roll transactions, it will place in a segregated account on the
books of the Fund, or with The Chase Manhattan Bank ("Chase'), cash or
liquid assets having a value equal to the repurchase price (including
accrued interest) and will subsequently monitor the account to insure
that such equivalent value is maintained.
Forward Foreign Currency Exchange Contracts and Options on Foreign
Currencies. Each Fund may enter into forward foreign currency exchange
contracts ("forward contracts"), providing for the purchase of or sale
of an amount of a specified currency at a future date. A Fund may use
forward contracts to protect against a foreign currency's decline
against the U.S. dollar between the trade date and settlement date for a
securities transaction, or to lock in the U.S. dollar value of dividends
declared on securities it holds, or generally to protect the U.S. dollar
value of the securities it holds against exchange rate fluctuations. A
Fund may also use forward contracts to protect against fluctuating
exchange rates and exchange control regulations. Forward contracts may
limit the Fund's losses due to exchange rate fluctuation, but they will
also limit any gains that the Fund might otherwise have realized. A
Fund may also enter into foreign currency futures contracts ("currency
futures").
Except where segregated accounts are not required by the 1940 Act, when
a Fund enters into a forward contract or currency future, it will place
in a segregated account maintained on the books of the Fund, or with
Chase, cash or liquid securities in an amount equal to the value of the
Fund's total assets committed to consummation of forward contracts and
currency futures. If the value of these segregated securities declines,
additional cash or securities will be placed in the account on a daily
basis so that the account value is at least equal to the Fund's
commitments to such contracts.
A Fund may purchase put and call options and write covered put and call
options on foreign currencies for the purpose of protecting against
declines in the U.S. dollar value of foreign currency denominated
portfolio securities and against increases in the U.S. dollar cost of
such securities to be acquired. As in the case of other kinds of
options, however, the writing of an option on a foreign currency
constitutes only a partial hedge, up to the amount of the premium
received, and the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on a foreign currency may constitute an
effective hedge against fluctuations in exchange rates although, in the
event of rate movements adverse to the Fund's position, it may forfeit
the entire amount of the premium plus related transaction costs.
Options on foreign currencies to be written or purchased by the Fund are
traded on U.S. and foreign exchanges or over-the-counter.
Option Transactions. In addition to options on currencies described
above, each Fund may seek to hedge all or a portion of its investments
through options on other securities in which it may invest. Options
which each Fund may purchase or sell will be traded on a recognized
securities or futures exchange or over the counter ("OTC"). Options
markets in emerging countries are currently limited and the nature of
the strategies adopted by Hansberger and the extent to which those
strategies are used will depend on the development of such markets.
The primary risks associated with the use of options on securities are
(i) imperfect correlation between the change in market value of the
securities a Fund holds and the prices of options relating to the
securities purchased or sold by the Fund; and (ii) possible lack of a
liquid secondary market for an option. Options not traded on an
exchange (OTC options) are generally considered illiquid and may be
difficult to value. Hansberger believes that the Fund will minimize its
risk of being unable to close out an option contract by transacting in
options only if there appears to be a liquid secondary market for those
options.
Writing Covered Call Options. Each Fund may write (sell) covered call
options for hedging purposes. Covered call options will generally be
written on securities and currencies which, in the opinion of the
subadviser, are not expected to make any major price moves in the near
future but which, over the long term, are deemed to be attractive
investments for the Fund.
A call option gives the holder (buyer) the right to purchase a security
or currency at a specified price (the exercise price) at any time until a
certain date (the expiration date). So long as the obligation of the
writer of a call option continues, he may be assigned an exercise notice
by the broker-dealer through whom such option was sold, requiring him to
deliver the underlying security or currency against payment of the
exercise price. This obligation terminates upon the expiration of the
call option, or such earlier time at which the writer effects a closing
purchase transaction by purchasing an option identical to that previously
sold. A call is "covered" if the Fund (i) owns the securities underlying
the option or securities convertible or exchangeable (without the
payment of any consideration) into the securities underlying the option,
(ii) maintains in a segregated account on the Fund's books, or with
Chase, the Fund's custodian, cash or on the Fund's books, or liquid
securities provided such securities have been determined by SSB Citi and
Hansberger to be unencumbered pursuant to guidelines established by the
Board of Directors ("eligible segregated assets") with a value
sufficient to meet the Fund's obligations under the call, or (iii) owns
an offsetting call option.
Fund securities or currencies on which call options may be written will
be purchased solely on the basis of investment considerations consistent
with each Fund's investment objective. When writing a covered call
option, the Fund, in return for the premium, gives up the opportunity for
profit from a price increase in the underlying security or currency above
the exercise price and retains the risk of loss should the price of the
security or currency decline. Unlike one who owns securities or
currencies not subject to an option, the Fund has no control over when it
may be required to sell the underlying securities or currencies, since
the option may be exercised at any time prior to the option's expiration.
If a call option which the Fund has written expires, the Fund will
realize a gain in the amount of the premium; however, such gain may be
offset by a decline in the market value of the underlying security or
currency during the option period. If the call option is exercised, the
Fund will realize a gain or loss from the sale of the underlying security
or currency. The security or currency covering the call option will be
maintained in a segregated account of the Fund's custodian. The Fund
does not consider a security or currency covered by a call option to be
"pledged" as that term is used in the Fund's policy which limits the
pledging or mortgaging of its assets.
The premium the Fund receives for writing a call option is deemed to
constitute the market value of an option. The premium the Fund will
receive from writing a call option will reflect, among other things, the
current market price of the underlying security or currency, the
relationship of the exercise price to such market price, the implied
price volatility of the underlying security or currency, and the length
of the option period. In determining whether a particular call option
should be written on a particular security or currency, Hansberger will
consider the reasonableness of the anticipated premium and the likelihood
that a liquid secondary market will exist for those options. The premium
received by the Fund for writing covered call options will be recorded as
a liability in the Fund's statement of assets and liabilities. This
liability will be adjusted daily to the option's current market value,
which will be calculated as described in "Determination of Net Asset
Value" in the Prospectus. The liability will be extinguished upon
expiration of the option or delivery of the underlying security or
currency upon the exercise of the option. The liability with respect to
a listed option will also be extinguished upon the purchase of an
identical option in a closing transaction.
Closing transactions will be effected in order to realize a profit or to
limit losses on an outstanding call option, to prevent an underlying
security or currency from being called, or to permit the sale of the
underlying security or currency. Furthermore, effecting a closing
transaction will permit the Fund to write another call option on the
underlying security or currency with either a different exercise price,
expiration date or both. If the Fund desires to sell a particular
security or currency from its Fund on which it has written a call option
or purchases a put option, it will seek to effect a closing transaction
prior to, or concurrently with, the sale of the security or currency.
There is no assurance that the Fund will be able to effect such closing
transactions at a favorable price. If the Fund cannot enter into such a
transaction, it may be required to hold a security or currency that it
might otherwise have sold, in which case it would continue to be at
market risk with respect to the security or currency.
Each Fund will pay transaction costs in connection with the writing of
options and in entering into closing purchase contracts. Transaction
costs relating to options activity are normally higher than those
applicable to purchases and sales of Fund securities.
Call options written by each Fund will normally have expiration dates of
less than nine 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 or currencies at the time the options are written.
From time to time, the Fund may purchase an underlying security or
currency for delivery in accordance with the exercise of an option,
rather than delivering such security or currency from its Fund. In such
cases, additional costs will be incurred.
Each Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more, respectively,
than the premium received from the writing of the option. Because
increases in the market price of a call option will generally reflect
increases in the market price of the underlying security or currency, any
loss resulting from the repurchase of a call option is likely to be
offset in whole or in part by appreciation of the underlying security or
currency owned by the Fund.
Writing Put Options. Each Fund may also write (i.e., sell) covered put
options. The writer of a put incurs an obligation to buy the security
underlying the option from the put's purchaser at the exercise price at
any time on or before the termination date, at the purchaser's election
(certain options the Fund writes will be exercisable by the purchaser
only on a specific date). Generally, a put is "covered" if the Fund
maintains eligible segregated assets equal to the exercise price of the
option or if the Fund holds a put on the same underlying security with a
similar or higher exercise price.
Purchasing Put Options. Each Fund may purchase put options. As the
holder of a put option, the Fund has the right to sell the underlying
security or currency at the exercise price at any time during the option
period. The Fund may enter into closing sale transactions with respect
to such options, exercise them or permit them to expire.
Each Fund may purchase a put option on an underlying security or currency
(a "protective put") owned by the Fund as a hedging technique in order to
protect against an anticipated decline in the value of the security or
currency. Such hedge protection is provided only during the life of the
put option when the Fund, as the holder of the put option, is able to
sell the underlying security or currency at the put exercise price
regardless of any decline in the underlying security's market price or
currency's exchange value. The premium paid for the put option and any
transaction costs would reduce any capital gain otherwise available for
distribution when the security or currency is eventually sold.
Each Fund may also purchase put options at a time when the Fund does not
own the underlying security or currency. By purchasing put options on a
security or currency it does not own, the Fund seeks to benefit from a
decline in the market price of the underlying security or currency. If
the put option is not sold when it has remaining value, and if the market
price of the underlying security or currency remains equal to or greater
than the exercise price during the life of the put option, the Fund will
lose its entire investment in the put option. In order for the purchase
of a put option to be profitable, the market price of the underlying
security or currency must decline sufficiently below the exercise price
to cover the premium and transaction costs, unless the put option is sold
in a closing sale transaction.
The premium paid by a Fund when purchasing a put option will be recorded
as an asset in the Fund's statement of assets and liabilities. This
asset will be adjusted daily to the option's current market value, which
will be calculated as described in "Determination of Net Asset Value" in
the Prospectus. The asset will be extinguished upon expiration of the
option or the delivery of the underlying security or currency upon the
exercise of the option. The asset with respect to a listed option will
also be extinguished upon the writing of an identical option in a closing
transaction.
Purchasing Call Options. Each Fund may purchase call options. As the
holder of a call option, a Fund has the right to purchase the underlying
security or currency at the exercise price at any time during the option
period. The Fund may enter into closing sale transactions with respect
to such options, exercise them or permit them to expire. Call options
may be purchased by the Fund for the purpose of acquiring the underlying
security or currency for its Fund. Utilized in this fashion, the
purchase of call options enables the Fund to acquire the security or
currency at the exercise price of the call option plus the premium paid.
At times the net cost of acquiring the security or currency in this
manner may be less than the cost of acquiring the security or currency
directly. This technique may also be useful to the Fund in purchasing a
large block of securities that would be more difficult to acquire by
direct market purchases. So long as it holds such a call option rather
than the underlying security or currency itself, the Fund is partially
protected from any unexpected decline in the market price of the
underlying security or currency and in such event could allow the call
option to expire, incurring a loss only to the extent of the premium paid
for the option.
Each Fund may also purchase call options on underlying securities or
currencies it owns in order to protect unrealized gains on call options
previously written by it. A call option would be purchased for this
purpose where tax considerations make it inadvisable to realize such
gains through a closing purchase transaction. Call options may also be
purchased at times to avoid realizing losses that would result in a
reduction of the Fund's current return.
Futures Contracts and Related Options. Each Fund may buy and sell
financial futures contracts, stock and bond index futures contracts,
interest rate futures contracts, foreign currency futures contracts
(collectively, "Futures Contracts") and options on Futures Contracts for
hedging purposes only. A Futures Contract is an agreement between two
parties to buy or sell a specified debt security at a set price on a
future date. An index futures contract is an agreement to take or make
delivery of an amount of cash based on the difference between the value
of the index at the beginning and at the end of the contract period. A
futures contract on a foreign currency is an agreement to buy or sell a
specified amount of a currency for a set price on a future date. Each
Fund may enter into Futures Contracts as a hedge against changes in
prevailing levels of interest rates, currency exchange rates, securities
indices or individual securities, in order to establish more definitely
the effective return on securities or currencies held or committed to be
acquired by the Fund. A Fund may enter into Futures Contracts based on
financial indices including any index of U.S. Government securities,
foreign government securities or corporate debt securities.
A Futures Contract provides for the future sale by one party and purchase
by another party of a specified amount of a specific financial instrument
or currency for a specified price at a designated date, time and place.
The purchaser of a Futures Contract on an index agrees to take or make
delivery of an amount of cash equal to the difference between a specified
dollar multiple of the value of the index on the expiration date of the
contract ("current contract value") and the price at which the contract
was originally struck. No physical delivery of the debt securities
underlying the index is made. Brokerage fees are incurred when a Futures
Contract is bought or sold, and margin deposits must be maintained at all
times that the Futures Contract is outstanding.
Although techniques other than sales and purchases of Futures Contracts
could be used to reduce the Fund's exposure to interest rate and currency
exchange rate fluctuations, the Fund may be able to hedge its exposure
more effectively and at a lower cost through using Futures Contracts.
Although Futures Contracts typically require future delivery of and
payment for financial instruments or currencies, Futures Contracts are
usually closed out before the delivery date. Closing out an open Futures
Contract sale or purchase is effected by entering into an offsetting
Futures Contract purchase or sale, respectively, for the same aggregate
amount of the identical financial instrument or currency and the same
delivery date. If the offsetting purchase price is less than the
original sale price, the Fund realizes a gain; if it is more, the Fund
realizes a loss. Conversely, if the offsetting sale price is more than
the original purchase price, the Fund realizes a gain; if it is less, the
Fund realizes a loss. The transaction costs must also be included in
these calculations. There can be no assurance, however, that the Fund
will be able to enter into an offsetting transaction with respect to a
particular Futures Contract at a particular time. If the Fund is not
able to enter into an offsetting transaction, the Fund will continue to
be required to maintain the margin deposits of the underlying financial
instrument or currency on the relevant delivery date. The Fund intends
to enter into Futures transactions only on exchanges or boards of trade
where there appears to be a liquid secondary market. However, there can
be no assurance that such a market will exist for a particular contract
at a particular time.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one Futures Contract of September Treasury Bills
on an exchange may be fulfilled at any time before delivery under the
Futures Contract is required (i.e., on a specific date in September, the
"delivery month") by the purchase of another Futures Contract of
September Treasury Bills on the same exchange. In such instance the
difference between the price at which the Futures Contract was sold and
the price paid for the offsetting purchase, after allowance for
transaction costs, represents the profit or loss to the Fund.
Persons who trade in Futures Contracts may be broadly classified as
"hedgers" and "speculators." Hedgers, whose business activity involves
investment or other commitment in securities or other obligations, use
the Futures markets to offset unfavorable changes in value that may occur
because of fluctuations in the value of the securities and obligations
held or committed to be acquired by them or fluctuations in the value of
the currency in which the securities or obligations are denominated.
Debtors and other obligors may also hedge the interest cost of their
obligations. The speculator, like the hedger, generally expects neither
to deliver nor to receive the financial instrument underlying the Futures
Contract, but, unlike the hedger, hopes to profit from fluctuations in
prevailing interest rates or currency exchange rates.
Each Fund's Futures transactions will be entered into for traditional
hedging purposes; that is, Futures Contracts will be sold to protect
against a decline in the price of securities or currencies that a Fund
owns, or Futures Contracts will be purchased to protect a Fund against an
increase in the price of securities or currencies it has committed to
purchase or expects to purchase.
"Margin" with respect to Futures Contracts is the amount of money that
must be deposited by the Fund with a broker in order to initiate Futures
trading and to maintain the Fund's open positions in Futures Contracts.
A margin deposit made when the Futures Contract is entered into ("initial
margin") is intended to assure the Fund's performance of the Futures
Contract. The margin required for a particular Futures Contract is set
by the exchange on which the Futures Contract is traded, and may be
significantly modified from time to time by the exchange during the term
of the Futures Contract. As the value of the security, index or
currency fluctuates, either party to the contract is required to make
additional margin payments, known as "variation margin," to cover any
additional obligation it may have under the contract. In addition, when
a Fund enters into a Futures Contract, it will segregate assets or
"cover" its position in accordance with the 1940 Act. With respect to
positions in futures and related options that do not constitute "bona
fide hedging" positions as defined in regulations of the Commodity
Futures Trading Commission, a Fund will not enter into a futures
contract or related option contract if, immediately thereafter, the
aggregate initial margin deposits relating to such positions plus
premiums paid by it for open futures option positions, less the amount
by which any such options are "in-the-money," would exceed 5% of the
Fund's total assets. The value of the underlying securities on which
Futures Contracts will be written at any one time will not exceed 25% of
the total assets of the Fund.
If the price of an open Futures Contract changes (by increase in the case
of a sale or by decrease in the case of a purchase) so that the loss on
the Futures Contract reaches a point at which the margin on deposit does
not satisfy margin requirements, the broker will require an increase in
the margin deposit ("variation margin"). If, however, the value of a
position increases because of favorable price changes in the Futures
Contract so that the margin deposit exceeds the required margin, it is
anticipated that the broker will pay the excess to the Fund. In
computing daily net asset values, the Fund will mark to market the
current value of its open Futures Contracts. Each Fund expects to earn
interest income on its margin deposits.
See "Additional Risk Factors" below for more information on the special
risks associated with Futures Contracts.
Options on Futures Contracts. Options on Futures Contracts are similar
to options on securities or currencies except that options on Futures
Contracts give the purchaser the right, in return for the premium paid,
to assume a position in a Futures Contract (a long position if the option
is a call and a short position if the option is a put), rather than to
purchase or sell the Futures Contract, at a specified exercise price at
any time during the period of the option. Upon exercise of the option,
the delivery of the Futures position by the writer of the option to the
holder of the option will be accompanied by delivery of the accumulated
balance in the writer's Futures margin account which represents the
amount by which the market price of the Futures Contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put)
the exercise price of the option on the Futures Contract. If an option
is exercised on the last trading day prior to the expiration date of the
option, the settlement will be made entirely in cash equal to the
difference between the exercise price of the option and the closing level
of the securities or currencies upon which the Futures Contracts are
based on the expiration date. Purchasers of options who fail to exercise
their options prior to the exercise date suffer a loss of the premium
paid.
As an alternative to purchasing call and put options on Futures, each
Fund may purchase call and put options on the underlying securities or
currencies themselves (see "Purchasing Put Options" and "Purchasing Call
Options" above). Such options would be used in a manner identical to the
use of options on Futures Contracts.
To reduce or eliminate the leverage then employed by the Fund or to
reduce or eliminate the hedge position then currently held by the Fund,
the Fund may seek to close out an option position by selling an option
covering the same securities or currency and having the same exercise
price and expiration date. The ability to establish and close out
positions on options on Futures Contracts is subject to the existence of
a liquid market. It is not certain that this market will exist at any
specific time.
In order to assure that the Funds will not be deemed to be "commodity
pools" for purposes of the Commodity Exchange Act, regulations of the
Commodity Futures Trading Commission ("CFTC") require that each Fund
enter into transactions in Futures Contracts and options on Futures
Contracts only (i) for bona fide hedging purposes (as defined in CFTC
regulations), or (ii) for non-hedging purposes, provided that the
aggregate initial margin and premiums on such non-hedging positions does
not exceed 5% of the liquidation value of the Fund's assets. The Funds
will enter into transactions in Futures Contracts and options on Futures
Contracts only for hedging purposes.
Supplementary Description of Interest Rate Futures Contracts and Related
Options. Currently, Futures Contracts can be purchased and sold on such
securities as U.S. Treasury bonds, U.S. Treasury notes, GNMAs and U.S.
Treasury bills. Unlike when the Fund purchases or sells a security, no
price is paid or received by the Fund upon the purchase or sales of a
Futures Contract. The Fund will initially be required to deposit with
the custodian or the broker an amount of "initial margin" of cash or U.S.
Treasury bills. The nature of initial margin in futures transactions is
different from that of margin in security transactions in that futures
contract initial margin does not involve the borrowing of funds by the
customer to finance the transaction. Rather, the initial margin 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, called maintenance margin, to and from the broker, will be made
on a daily basis as the price of the underlying debt security fluctuates,
making the long and short positions in the futures contract more or less
valuable, a process known as "marking-to-market." For example, when the
Fund has purchased a futures contract and the price of the underlying
debt security has risen, that position will have increased in value and
the Fund will receive from the broker a maintenance margin payment equal
to that increase in value. Conversely, when the Fund has purchased a
futures contract and the price of the underlying debt security has
declined, the position would be less valuable and the Fund would be
required to make a maintenance margin payment to the broker. At any time
prior to expiration of the futures contract, the Fund may elect to close
the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final
determination of maintenance margin is then made, additional cash is
required to be paid by or released to the Fund, and the Fund realizes a
loss or a gain.
While futures contracts based on debt securities do provide for the
delivery and acceptance of securities, such deliveries and acceptances
are very seldom made. Generally, the futures contract is terminated by
entering into an offsetting transaction. An offsetting transaction for
a futures contract sale is effected by the Fund entering into a futures
contract purchase for the same aggregate amount of the specific type of
financial instrument and same delivery date. If the price in the sale
exceeds the price in the offsetting purchase, the Fund pays the
difference and realizes the loss. Similarly, the closing out of a
futures contract purchase is effected by the Fund entering into a
futures contract sale. If the offsetting sale price exceeds the
purchase price, the Fund realizes a gain, and if the purchase price
exceeds the offsetting price, the Fund realizes a loss.
Forward Currency Contracts and Options on Currency. A forward currency
contract is an obligation to purchase or sell a currency against another
currency at a future date and price as agreed upon by the parties. A
Fund may either accept or make delivery of the currency at the maturity
of the forward contract or, prior to maturity, enter into a closing
transaction involving the purchase or sale of an offsetting contract.
Each Fund may engage in forward currency transactions in anticipation of,
or to protect itself against, fluctuations in exchange rates. A Fund
might sell a particular foreign currency forward, for example, when it
holds bonds denominated in that currency but anticipates, and seeks to be
protected against, decline in the currency against the U.S. dollar.
Similarly, a Fund might sell the U.S. dollar forward when it holds bonds
denominated in U.S. dollars but anticipates, and seeks to be protected
against, a decline in the U.S. dollar relative to other currencies.
Further, a Fund might purchase a currency forward to "lock in" the price
of securities denominated in that currency which it anticipates
purchasing.
The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency
denominated asset that is the subject of the hedge generally will not be
precise. In addition, a Fund may not always be able to enter into
foreign currency forward contracts at attractive prices and this will
limit the Fund's ability to use such contracts to hedge or cross-hedge
its assets. Also, with regard to a Fund's use of cross-hedges, there can
be no assurance that historical correlations between the movement of
certain foreign currencies relative to the U.S. dollar will continue.
Thus, at any time poor correlation may exist between movements in the
exchange rates of the foreign currencies underlying the Fund's cross-
hedges and the movements in the exchange rates of the foreign currencies
in which the Fund's assets that are the subject of such cross-hedges are
denominated.
Forward contracts are traded in an interbank market conducted directly
between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement and
is consummated without payment of any commission. Each Fund, however,
may enter into forward contracts with deposit requirements or
commissions.
A put option gives a Fund, as purchaser, the right (but not the
obligation) to sell a specified amount of currency at the exercise price
until the expiration of the option. A call option gives a Fund, as
purchaser, the right (but not the obligation) to purchase a specified
amount of currency at the exercise price until its expiration. A Fund
might purchase a currency put option, for example, to protect itself
during the contract period against a decline in the value of a currency
in which it holds or anticipates holding securities. If the currency's
value should decline, the loss in currency value should be offset, in
whole or in part, by an increase in the value of the put. If the value
of the currency instead should rise, any gain to the Fund would be
reduced by the premium it had paid for the put option. A currency call
option might be purchased, for example, in anticipation of, or to protect
against, a rise in the value of a currency in which the Fund anticipates
purchasing securities.
Each Fund's ability to establish and close out positions in foreign
currency options is subject to the existence of a liquid market. There
can be no assurance that a liquid market will exist for a particular
option at any specific time. In addition, options on foreign currencies
are affected by all of those factors that influence foreign exchange
rates and investments generally.
A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options.
Exchange markets for options on foreign currencies exist but are
relatively new, and the ability to establish and close out positions on
the exchanges is subject to maintenance of a liquid secondary market.
Closing transactions may be effected with respect to options traded in
the OTC markets (currently the primary markets for options on foreign
currencies) only by negotiating directly with the other party to the
option contract or in a secondary market for the option if such market
exists. Although each Fund intends to purchase only those options for
which there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular
option at any specific time. In such event, it may not be possible to
effect closing transactions with respect to certain options, with the
result that the Fund would have to exercise those options which it has
purchased in order to realize any profit. The staff of the SEC has taken
the position that, in general, purchased OTC options and the underlying
securities used to cover written OTC options are illiquid securities.
However, a Fund may treat as liquid the underlying securities used to
cover written OTC options, provided it has arrangements with certain
qualified dealers who agree that the Fund may repurchase any option it
writes for a maximum price to be calculated by a predetermined formula.
In these cases, the OTC option itself would only be considered illiquid
to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option.
Interest Rate Swaps, Caps and Floors. Among the hedging transactions
into which the Funds may enter are interest rate swaps and the purchase
or sale of interest rate caps and floors. Each Fund expects to enter
into these transactions primarily to preserve a return or spread on a
particular investment or portion of its investment or to protect against
any increase in the price of securities the Fund anticipates purchasing
at a later date. Each Fund intends to use these transactions as a hedge
and not as a speculative investment. Each Fund will not sell interest
rate caps or floors that it does not own. Interest rate swaps involve
the exchange by a Fund with another party of their respective commitments
to pay or receive interest, e.g., an exchange of floating rate payments
for fixed rate payments. The purchase of an interest rate cap entitles
the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a
notional principal amount from the party selling such interest rate cap.
The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate,
to receive payments of interest on a notional principal amount from the
party selling such interest rate floor.
A Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending on whether it is hedging
its assets or its liabilities, and will usually enter into interest rate
swaps on a net basis, i.e., the two payment streams are netted, with the
Fund receiving or paying, as the case may be, only the net amount of the
two payments. Inasmuch as these hedging transactions are entered into
for good faith hedging purposes, the investment adviser and the Funds
believe such obligations do not constitute senior securities and,
accordingly will not treat them as being subject to its borrowing
restrictions. The net amount of the excess, if any, of a Fund's
obligations over its entitlement with respect to each interest rate swap
will be accrued on a daily basis and an amount of cash or liquid
securities having an aggregate net asset value at least equal to the
accrued excess will be maintained in a segregated account by a custodian
that satisfies the requirements of the 1940 Act. The Funds will not
enter into any interest rate swap, cap or floor transaction unless the
unsecured senior debt or the claims-paying ability of the other party
thereto is rated in the highest rating category of at least one U.S.
nationally recognized statistical rating organization at the time of
entering into such transaction. If there is a default by the other party
to such a transaction, a Fund will have contractual remedies pursuant to
the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing swap
documentation. As a result, the swap market has become relatively
liquid. Caps and floors are more recent innovations for which
standardized documentation has not yet been developed and, accordingly,
they are less liquid than swaps.
New options and Futures Contracts and various combinations thereof
continue to be developed and the Funds may invest in any such options and
contracts as may be developed to the extent consistent with its
investment objective and regulatory requirements applicable to investment
companies.
Equity Swaps. The Funds may enter into swaps based upon the value of
various single equity securities, baskets or indices. A swap is a
separate contract that does not require ownership of the underlying
stock. In a swap, a Fund will agree with a swap dealer to make payments
based upon changes in the value of a security. A Fund can take either
position in the swap; that is, the Fund may be the party that receives a
payment following an increase in value and pays following a decrease or
vice versa. In some cases, a Fund also may be required to make (or
receive) dividend payments consistent with the underlying security or
make (or receive) additional payments on the effective date and/or
termination date of the swap. One example of a situation in which a
Fund may use an equity swap is to mimic some of the benefits of
ownership of "local shares" in a country in which the Fund, as a
foreigner, is prohibited from owning local shares. The terms of the
swaps actually entered by the Fund are negotiated between the parties
and may vary significantly.
Sovereign Debt. Each Fund may invest in sovereign debt, which may trade
at a substantial discount from face value. Each Fund may hold and trade
sovereign debt of emerging market countries in appropriate circumstances
and to participate in debt conversion programs. Emerging country
Sovereign Debt involves a high degree of risk, is generally lower-quality
debt, and is considered speculative in nature. The issuer or
governmental authorities that control sovereign debt repayment
("sovereign debtors") may be unable or unwilling to repay principal or
interest when due in accordance with the terms of the debt. A sovereign
debtor's willingness or ability to repay principal and interest due in a
timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative
size of the debt service burden to the economy as a whole, the sovereign
debtor's policy towards the International Monetary Fund (the "IMF") and
the political constraints to which the sovereign debtor may be subject.
Sovereign debtors may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce
principal and interest arrearage on their debt. The commitment of these
third parties to make such disbursements may be conditioned on the
sovereign debtor's implementation of economic reforms or economic
performance and the timely service of the debtor's obligations. The
sovereign debtor's failure to meet these conditions may cause these third
parties to cancel their commitments to provide funds to the sovereign
debtor, which may further impair the debtor's ability or willingness to
timely service its debts.
Brady Bonds. Each Fund may invest in Brady Bonds as part of its
investment in Sovereign Debt of countries that have restructured or are
in the process of restructuring their Sovereign Debt pursuant to the
Brady Plan (discussed below).
Brady Bonds are issued under the framework of the Brady Plan, an
initiative announced by former U.S. Treasury Secretary Nicholas F. Brady
in 1989 as a mechanism for debtor nations to restructure their
outstanding external indebtedness. The Brady Plan contemplates, among
other things, the debtor nation's adoption of certain economic reforms
and the exchange of commercial bank debt for newly issued bonds. In
restructuring its external debt under the Brady Plan framework, a debtor
nation negotiates with its existing bank lenders as well as the World
Bank or IMF. The World Bank or IMF supports the restructuring by
providing funds pursuant to loan agreements or other arrangements that
enable the debtor nation to collateralize the new Brady Bonds or to
replenish reserves used to reduce outstanding bank debt. Under these
loan agreements or other arrangements with the World Bank or IMF, debtor
nations have been required to agree to implement certain domestic
monetary and fiscal reforms. The Brady Plan sets forth only general
guiding principles for economic reform and debt reduction, emphasizing
that solutions must be negotiated on a case-by-case basis between debtor
nations and their creditors.
Agreements implemented under the Brady Plan are designed to achieve debt
and debt-service reduction through specific options negotiated by a
debtor nation with its creditors. As a result, each country offers
different financial packages. Options have included the exchange of
outstanding commercial bank debt for bonds issued at 100% of face value
of such debt, bonds issued at a discount of face value of such debt, and
bonds bearing an interest rate that increases over time and the
advancement of the new money for bonds. The principal of certain Brady
Bonds has been collateralized by U.S. Treasury zero coupon bonds with a
maturity equal to the final maturity of the Brady Bonds. Collateral
purchases are financed by the IMF, World Bank and the debtor nation's
reserves. Interest payments may also be collateralized in part in
various ways.
Brady Bonds are often viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final
maturity; (ii) the collateralized interest payments; (iii) the
uncollateralized interest payment; and (iv) any uncollateralized
interest and principal at maturity (these uncollateralized amounts
constitute the " residual risk"). In light of the residual risk of
Brady Bonds and, among other factors, the history of defaults with
respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds can viewed as
speculative.
ADDITIONAL RISK FACTORS
Risks associated with the Funds and their investment strategies are
described in the prospectuses and in the above discussion of the Funds'
investment objectives and management policies. The following additional
risk factors are intended to supplement the risks described in the
prospectuses and other parts of this SAI.
General. Investors should realize that risk of loss is inherent in the
ownership of any securities and that each Fund's net asset value will
fluctuate, reflecting fluctuations in the market value of its portfolio
positions.
Below Investment Grade Fixed Income Securities. Securities which are
rated BBB by Standard & Poor's Ratings Group ("S&P') or Baa by Moody's
Investor Services, Inc. ("Moody's") are generally regarded as having
adequate capacity to pay interest and repay principal, but may have some
speculative characteristics. Securities rated below Baa by Moody's or
BBB by S&P may have speculative characteristics, including the increased
possibility of default or bankruptcy of the issuers of such securities,
market price volatility based upon interest rate sensitivity,
questionable creditworthiness and relative liquidity of the secondary
trading market. Because high yield bonds have been found to be more
sensitive to adverse economic changes or individual corporate
developments and less sensitive to interest rate changes than higher-
rated investments, an economic downturn could disrupt the market for
high yield bonds and adversely affect the value of outstanding bonds and
the ability of issuers to repay principal and interest. In addition, in
a declining interest rate market, issuers of high yield bonds may
exercise redemption or call provisions, which may force a Fund, to the
extent it owns such securities, to replace those securities with lower
yielding securities. This could result in a decreased return.
Foreign Securities. Investments in securities of foreign issuers
involve certain risks not ordinarily associated with investments in
securities of domestic issuers. Such risks include fluctuations in
foreign exchange rates, future political and economic developments, and
the possible imposition of exchange controls or other foreign
governmental laws or restrictions. Since each Fund will invest heavily
in securities denominated or quoted in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the value
of securities in its portfolio and the unrealized appreciation or
depreciation of investments so far as U.S. investors are concerned. In
addition, with respect to certain countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social
instability or diplomatic developments which could adversely affect
investments in those countries.
There may be less publicly available information about a foreign company
than about a U.S. company, and foreign companies may not be subject to
accounting, auditing, and financial reporting standards and requirements
comparable to or as uniform as those of U.S. companies. Foreign
securities markets, while growing in volume, have, for the most part,
substantially less volume than U.S. markets, and securities of many
foreign companies are less liquid and their price more volatile than
securities of comparable U.S. companies. Transaction costs on foreign
securities markets are generally higher than in the U.S. There is
generally less government supervision and regulation of exchanges,
brokers and issuers than there is in the U.S. A Fund might have greater
difficulty taking appropriate legal action in foreign courts. Dividend
and interest income from foreign securities will generally be subject to
withholding taxes by the country in which the issuer is located and may
not be recoverable by the Fund or the investors. Capital gains are also
subject to taxation in some foreign countries.
Currency Risks. The U.S. dollar value of securities denominated in a
foreign currency will vary with changes in currency exchange rates,
which can be volatile. Accordingly, changes in the value of the
currency in which a Fund's investments are denominated relative to the
U.S. dollar will affect the Fund's net asset value. Exchange rates are
generally affected by the forces of supply and demand in the
international currency markets, the relative merits of investing in
different countries and the intervention or failure to intervene of U.S.
or foreign governments and central banks. However, currency exchange
rates may fluctuate based on factors intrinsic to a country's economy.
Some emerging market countries also may have managed currencies, which
are not free floating against the U.S. dollar. In addition, emerging
markets are subject to the risk of restrictions upon the free conversion
of their currencies into other currencies. Any devaluations relative to
the U.S. dollar in the currencies in which a Fund's securities are
quoted would reduce the Fund's net asset value per share.
Special Risks of Countries in the Asia Pacific Region. Certain of the
risks associated with international investments are heightened for
investments in these countries. For example, some of the currencies of
these countries have experienced devaluations relative to the U.S.
dollar, and adjustments have been made periodically in certain of such
currencies. Certain countries, such as Indonesia, face serious exchange
constraints. Jurisdictional disputes also exist, for example, between
South Korea and North Korea. In addition, Hong Kong reverted to Chinese
administration on July 1, 1997. The long-term effects of this reversion
are not known at this time.
Securities of Developing/Emerging Markets Countries. A developing or
emerging markets country generally is considered to be a country that is
in the initial stages of its industrialization cycle. Investing in the
equity markets of developing countries involves exposure to economic
structures that are generally less diverse and mature, and to political
systems that can be expected to have less stability, than those of
developed countries. Historical experience indicates that the markets of
developing countries have been more volatile than the markets of the
more mature economies of developed countries; however, such markets
often have provided higher rates of return to investors. The emerging
market countries in which the Funds invest have markets that are less
liquid than markets in the U.S. In changing markets the Fund may not be
able to sell desired amounts of securities at reasonable prices. Less
information is available about these issuers and markets because of less
rigorous accounting and regulatory standards than in the U.S.
One or more of the risks discussed above could affect adversely the
economy of a developing market or a Fund's investments in such a market.
In Eastern Europe, for example, upon the accession to power of Communist
regimes in the past, the governments of a number of Eastern European
countries expropriated a large amount of property. The claims of many
property owners against those of governments may remain unsettled.
There can be no assurance that any investments that a Fund might make in
such emerging markets would not be expropriated, nationalized or
otherwise confiscated at some time in the future. In such an event, the
Fund could lose its entire investment in the market involved. Moreover,
changes in the leadership or policies of such markets could halt the
expansion or reverse the liberalization of foreign investment policies
now occurring in certain of these markets and adversely affect existing
investment opportunities.
Many of a Fund's investments in the securities of emerging markets may
be unrated or rated below investment grade. Securities rated below
investment grade (and comparable unrated securities) are the equivalent
of high yield, high risk bonds, commonly known as "junk bonds." Such
securities are regarded as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with
the terms of the obligations and involve major risk exposure to adverse
business, financial, economic, or political conditions.
Fixed Income Securities. Investments in fixed income securities may
subject the Funds to risks, including the following.
Interest Rate Risk. When interest rates decline, the market value of
fixed income securities tends to increase. Conversely, when interest
rates increase, the market value of fixed income securities tends to
decline. The volatility of a security's market value will differ
depending upon the security's duration, the issuer and the type of
instrument.
Default Risk/Credit Risk. Investments in fixed income securities are
subject to the risk that the issuer of the security could default on its
obligations, causing a Fund to sustain losses on such investments. A
default could impact both interest and principal payments.
Call Risk and Extension Risk. Fixed income securities may be subject to
both call risk and extension risk. Call risk exists when the issuer may
exercise its right to pay principal on an obligation earlier than
scheduled, which would cause cash flows to be returned earlier than
expected. This typically results when interest rates have declined and
a Fund will suffer from having to reinvest in lower yielding securities.
Extension risk exists when the issuer may exercise its right to pay
principal on an obligation later than scheduled, which would cause cash
flows to be returned later than expected. This typically results when
interest rates have increased, and a Fund will suffer from the inability
to invest in higher yield securities.
Securities of Small Capitalization Companies. Investing in smaller
capitalization stocks can involve greater risk than is customarily
associated with investing in stocks of larger, more established
companies. For example, smaller capitalization companies often have
limited product lines, markets, or financial resources, may be dependent
for management on one or a few key persons, and can be more susceptible
to losses. Also, their securities may be thinly traded (and therefore
have to be sold at a discount from current prices or sold in small lots
over an extended period of time), may be followed by fewer investment
research analysts and may be subject to wider price swings and thus may
create a greater chance of loss than securities of larger capitalization
companies. Transaction costs in stocks of smaller capitalization
companies may be higher than those of larger capitalization companies.
Derivative Instruments. In accordance with its investment policies,
each Fund may invest in certain derivative instruments which are
securities or contracts that provide for payments based on or "derived"
from the performance of an underlying asset, index or other economic
benchmark. Essentially, a derivative instrument is a financial
arrangement or a contract between two parties (and not a true security
like a stock or a bond). Transactions in derivative instruments can be,
but are not necessarily, riskier than investments in conventional
stocks, bonds and money market instruments. A derivative instrument is
more accurately viewed as a way of reallocating risk among different
parties or substituting one type of risk for another. Every investment
by a Fund, including an investment in conventional securities, reflects
an implicit prediction about future changes in the value of that
investment. Every Fund investment also involves a risk that the
portfolio manager's expectations will be wrong. Transactions in
derivative instruments often enable a Fund to take investment positions
that more precisely reflect the portfolio manager's expectations
concerning the future performance of the various investments available
to the Fund. Derivative instruments can be a legitimate and often cost-
effective method of accomplishing the same investment goals as could be
achieved through other investment in conventional securities.
Derivative contracts include options, futures contracts, forward
contracts, forward commitment and when-issued securities transactions,
forward foreign currency exchange contracts and interest rate, mortgage
and currency swaps. The following are the principal risks associated
with derivative instruments:
Market risk: The instrument will decline in value or that an
alternative investment would have appreciated more, but this is no
different from the risk of investing in conventional securities.
Leverage and associated price volatility: Leverage causes increased
volatility in the price and magnifies the impact of adverse market
changes, but this risk may be consistent with the investment objective
of even a conservative fund in order to achieve an average portfolio
volatility that is within the expected range for that type of fund.
Credit risk: The issuer of the instrument may default on its obligation
to pay interest and principal.
Liquidity and valuation risk: Many derivative instruments are traded in
institutional markets rather than on an exchange. Nevertheless, many
derivative instruments are actively traded and can be priced with as
much accuracy as conventional securities. Derivative instruments that
are custom designed to meet the specialized investment needs of a
relatively narrow group of institutional investors such as the Funds are
not readily marketable and are subject to a Fund's restrictions on
illiquid investments.
Correlation risk: There may be imperfect correlation between the price
of the derivative and the underlying asset. For example, there may be
price disparities between the trading markets for the derivative
contract and the underlying asset.
Each derivative instrument purchased for a Fund's portfolio is reviewed
and analyzed by the Fund's portfolio manager to assess the risk and
reward of each such instrument in relation the Fund's portfolio
investment strategy. The decision to invest in derivative instruments
or conventional securities is made by measuring the respective
instrument's ability to provide value to the Fund and its shareholders.
Special Risks of Using Futures Contracts. The prices of futures
contracts are volatile and are influenced by, among other things, actual
and anticipated changes in interest rates, which in turn are affected by
fiscal and monetary policies and national and international political
and economic events.
At best, the correlation between changes in prices of futures contracts
and of the securities or currencies being hedged can be only
approximate. The degree of imperfection of correlation depends upon
circumstances such as: variations in speculative market demand for
futures and for debt securities or currencies, including technical
influences in futures trading; and differences between the financial
instruments being hedged and the instruments underlying the standard
futures contracts available for trading, with respect to interest rate
levels, maturities, and creditworthiness of issuers. A decision of
whether, when, and how to hedge involves skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior or interest rate trends.
To compensate for the imperfect correlation of movements in the price of
debt securities being hedged and movements in the prices of the futures
contracts, a Fund may buy or sell futures contracts in a greater dollar
amount of the securities being hedged if the historical volatility of
the prices of such securities has been greater than the historical
volatility of the futures contracts. Conversely, a Fund may buy or sell
fewer futures contracts if the historical volatility of the price of the
securities being hedged is less than the historical volatility of the
futures contracts. It is also possible that, where a Fund has sold
futures to hedge its portfolio against a decline in the market, the
market may advance and the value of securities held in that Fund's
portfolio may decline. If this occurred, the Fund would lose money on
the futures contracts and also experience a decline in value in its
portfolio securities. However, while this could occur for a very brief
period or to a very small degree, over time the value of a diversified
portfolio will tend to move in the same direction as the futures
contracts. Where futures are purchased to hedge against a possible
increase in prices of securities before a Fund is able to invest its
cash (or cash equivalents) in U.S. government securities (or options) in
an orderly fashion, it is possible that the market may decline instead;
if the Fund then concludes not to invest in U.S. government securities
or options at that time because of concern as to possible further market
decline or for other reasons, the Fund will realize a loss on the
futures contract that is not offset by a reduction in the price of
securities purchased.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small
price movement in a futures contract may result in immediate and
substantial loss, as well as gain, to the Fund. For example, if at the
time of purchase, 10% of the value of the futures contract is deposited
as margin, a subsequent 10% decrease in the value of the futures
contract would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then closed
out. A 15% decrease would result in a loss equal to 150% of the
original margin deposit, if the futures contract were closed out. Thus,
a purchase or sale of a futures contract may result in losses in excess
of the amount invested in the futures contract. A Fund, however, would
presumably have sustained comparable losses if, instead of the futures
contract, it had invested in the underlying financial instrument and
sold it after the decline. Where a Fund enters into futures
transactions for non-hedging purposes, it will be subject to greater
risks and could sustain losses which are not offset by gains on other of
the Fund's assets.
Furthermore, in the case of a futures contract purchase, in order to be
certain that each Fund has sufficient assets to satisfy its obligations
under a futures contract, each Fund will segregate and commit to back
the futures contract with an amount of cash and liquid securities equal
in value to the current value of the underlying instrument less the
margin deposit.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures
contracts and the portion of the portfolio being hedged, the market
prices of futures contracts may be affected by certain factors. First,
all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts though offsetting
transactions which could distort the normal relationship between the
debt securities and futures markets; second, from the point of view of
speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also
cause temporary price distortions. Due to the possibility of price
distortion in the futures market and because of the imperfect
correlation between movements in the debt securities and movements in
the prices of futures contracts, a correct forecast of interest rate
trends by the investment advisor or sub-advisor may still not result in
a successful hedging transaction over a very short time frame.
Positions in futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market for such futures.
Although each Fund intends to purchase or sell futures only on exchanges
or boards of trade where there appears to be an active secondary market,
there is no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular contract or at any
particular time. In such event, it may not be possible to close a
futures position, and in the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation
margin. However, in the event that the futures contracts have been used
to hedge portfolio securities, such securities will not be sold until
the futures contracts can be terminated. In such circumstances, an
increase in the price of the securities, if any, may partially or
completely offset losses on the futures contracts. However, as
described above, there is no guarantee that the price of the securities
will, in fact, correlate with the price movements of the futures
contracts and thus provide an offset to losses on futures contracts.
Successful use of futures contracts by the Fund is also subject to the
investment adviser's and/or sub-advisor's ability to predict correctly
movements in the direction of interest rates and other factors affecting
markets of debt securities. For example, if the Fund has hedged against
the possibility of an increase in interest rates which would adversely
affect debt securities held in its portfolio and prices of such
securities increase instead, the Fund will lose part or all of the
benefit of the increased value of its securities which it has hedged
because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Fund has insufficient cash, it may
have to sell securities to meet daily variation margin requirements.
Such sale of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Fund may have to
sell securities at a time when it may be disadvantageous to do so.
Most U.S. Futures Exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the
end of a trading session. Once the daily limit has been reached in a
particular type of futures contract, no additional trades may be made on
that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not
limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved
to the daily limit for several consecutive trading days with little or
no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
In addition to the risks which apply to all options transactions, there
are several special risks relating to options on futures contracts. The
ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid secondary market.
It is not certain that this market will develop. The Funds will not
purchase options on futures contracts on any exchange unless and until,
in the investment advisor's opinion (and/or sub-advisor's opinion), the
market for such options has developed sufficiently that the risks in
connection with options on futures contracts are not greater than the
risks in connection with futures contracts. Compared to the use of
futures contracts, the purchase of options on futures contracts involves
less potential risk to the Funds because the maximum amount of risk is
the premium paid for the options (plus transaction costs). However,
there may be circumstances when the use of an option on a futures
contract would result in a loss to a Fund when the use of a futures
contract would not, such as when there is no movement in the prices of
debt securities. Writing an option on a futures contract involves risks
similar to those arising in the sale of futures contracts, as described
above.
Economic and Monetary Union (EMU). EMU began in January, 1999, when 11
European countries adopted a single currency - the euro. For
participating countries, EMU means sharing a single currency and single
official interest rate and adhering to agreed upon limits on government
borrowing. Budgetary decisions remain in the hands of each
participating country, but are subject to each country's commitment to
avoid "excessive deficits" and other more specific budgetary criteria.
A European Central Bank is responsible for setting the official interest
rate to maintain price stability within the euro zone. EMU is driven by
the expectation of a number of economic benefits, including lower
transaction costs, reduced exchange risk, greater competition, and a
broadening and deepening of European financial markets. However, there
are a number of significant risks associated with EMU. Monetary and
economic union on this scale has never been attempted before. There is
a significant degree of uncertainty as to whether participating
countries will remain committed to EMU in the face of changing economic
conditions. This uncertainty may increase the volatility of European
markets and may adversely affect the prices of securities of European
issuers in the Funds' portfolios.
Portfolio Turnover. Each Fund may purchase or sell securities without
regard to the length of time the security has been held and thus may
experience a high rate of portfolio turnover. A 100% turnover rate would
occur, for example, if all the securities in a portfolio were replaced
in a period of one year. Under certain market conditions, the Funds may
experience a high rate of portfolio turnover. This may occur, for
example, if a Fund writes a substantial number of covered call options
and the market prices of the underlying securities appreciate. The rate
of portfolio turnover is not a limiting factor when the manager deems it
desirable to purchase or sell securities or to engage in options
transactions.
INVESTMENT RESTRICTIONS
The Company has adopted the following investment restrictions with
respect to each Fund. Restrictions 1 through 8 cannot be changed for a
Fund without approval by the holders of a majority of the outstanding
shares of the respective Fund, defined as the lesser of (a) 67% or more
of the Fund's shares present at a meeting, if the holders of more than
50% of the outstanding shares are present in person or by proxy or (b)
more than 50% of the Fund's outstanding shares. The remaining
restrictions may be changed by the Board of Directors at any tim
(subject to applicable regulatory provisions). Each Fund may not:
1. Deviate from the definition of a "diversified company" as defined
in 1940 Act.
2. Issue senior securities as defined in the 1940 Act and any rules
and orders thereunder, except as permitted under the 1940 Act.
3. Invest more than 25% of its total assets in securities, the
issuers of which conduct their principal business activities in
the same industry. For purposes of this limitation, U.S. or
foreign government securities and securities of state or
municipal governments and their political subdivisions are not
considered to be issued by members of any industry.
4. The Fund will not 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.
5. The Fund will not 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 U.S.
Securities Act of 1933, as amended (the "1933 Act"), in disposing
of portfolio securities.
6. The Fund will not purchase or sell real estate, real estate
mortgages, commodities or commodity contracts, but this
restriction shall not prevent the Fund from (a) investing in and
selling securities of issuers engaged in the real estate business
and securities which are secured by real estate or interests
therein; (b) holding or selling real estate received in connection
with securities it holds; (c) trading in futures contracts and
option on futures contracts or (d) investing in or purchasing real
estate investment trust securities.
7. The Fund will not purchase any securities on margin (except for
such short-term credits as are necessary for the clearance of
purchases and sales of portfolio securities) or sell any
securities short (except against the box). For purposes of this
restriction, the deposit or payment by the Fund of underlying
securities and other assets in escrow and collateral agreements
with respect to initial or maintenance margin in connection with
futures contracts and related options and options on securities,
indexes or similar items is not considered to be the purchase of a
security on margin.
8. The Fund will not borrow money, except that (a) the Fund may
borrow from banks in an amount not exceeding 33 1/3% of the value
of the Fund's total assets (including the amount borrowed) valued
at market less liabilities (not including the amount borrowed) 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.
9. The Fund will not purchase or otherwise acquire any security if,
as a result, more than 15% of its net assets would be invested in
securities that are illiquid.
10. Invest in companies for the purpose of exercising management or
control.
11. Invest in securities of other investment companies, except as part
of a merger, consolidation, or acquisition of assets or as
permitted by Section 12d-1(A) through (E) the 1940 Act.
BROKERAGE AND PORTFOLIO TRANSACTIONS
Hansberger is responsible for allocating the Funds' brokerage. Twice a
year, Hansberger, through a committee of its securities analysts, will
consider the amount and nature of research and research services provided
by brokers, as well as the extent to which such services are relied upon,
and attempt to allocate a portion of the brokerage business of the Funds
and other advisory clients on the basis of that consideration. In
addition, brokers may suggest a level of business they would like to
receive in order to continue to provide such services. The actual
brokerage business received by a broker may be more or less than the
suggested allocations, depending upon the Hansberger's evaluation of all
applicable considerations. Orders may be directed to any broker
including, to the extent and in the manner permitted by applicable law,
Salomon Smith Barney . No Fund will deal with Salomon Smith Barney in
any transaction in which Salomon Smith Barney acts as principal.
The Funds attempt to obtain the most favorable execution of each Fund's
transaction, that is, the best combination of net price and prompt
reliable execution. In the opinion of Hansberger; however, it is not
possible to determine in advance that any particular broker will actually
be able to effect the most favorable execution because, in the context of
a constantly changing market, order execution involves judgments as to
price, commission rates, volume, the direction of the market and the
likelihood of future change. In making its decision as to which broker
or brokers are most likely to provide the most favorable execution,
Hansberger takes into account the relevant circumstances. These include,
in varying degrees, the size of the order, the importance of prompt
execution, the breadth and trends of the market in the particular
security, anticipated commission rates, the broker's familiarity with
such security including its contacts with possible buyers and sellers and
its level of activity in the security, the possibility of a block
transaction and the general record of the broker for prompt, competent
and reliable service in all aspects of order processing, execution and
settlement.
Commissions are negotiated and take into account several factors which
typically include, but are not limited to, the difficulty involved in
execution of a transaction, the time it took to conclude, the extent of
the broker's commitment of its own capital, if any, and the price
received. Anticipated commission rates are an important consideration in
all trades and are weighed along with the other relevant factors
affecting order execution set forth above. In allocating brokerage among
those brokers who are believed to be capable of providing equally
favorable execution, the Funds take into consideration the fact that a
particular broker may, in addition to execution capability, provide other
services to the Funds such as research and statistical information. It
is not possible to place a dollar value on such services nor does their
availability reduce Hansberger's expenses in a determinable amount.
These various services may, however, be useful to Hansberger in
connection with its services rendered to other advisory clients and not
all such services may be used in connection with the Funds.
Fund transactions and brokerage
Hansberger is responsible for decisions to buy and sell securities for
each Fund and for the placement of a Fund's investment business and the
negotiation of the commissions to be paid on such transactions. It is
the policy of Hansberger to seek the best execution at the best security
price available with respect to each transaction, in light of the
overall quality of brokerage and research services provided to
Hansberger or the Fund. In over-the-counter transactions, orders are
placed directly with a principal market maker unless it is believed that
better price and execution can be obtained using a broker. In
determining the abilities of a broker or dealer to obtain best
execution, Hansberger considers relevant factors including: the ability
and willingness of the broker or dealer to facilitate the Fund's
portfolio transaction by participating therein for its own account;
speed, efficiency and confidentiality; familiarity with the market for a
particular security; and the reputation and perceived soundness of the
broker. The best price to a Fund means the best net price without regard
to the mix between purchase or sale price and commissions, if any. In
selecting broker- dealers and in negotiating commissions, Hansberger
considers a variety of factors, including best price and execution, the
full range of brokerage services provided by the broker, as well as its
capital strength and stability, and the quality of the research and
research services provided by the broker. Consistent with the foregoing
primary considerations, the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD") and such other policies as the
Directors may determine, Hansberger may consider sales of shares of the
Funds as a factor in the selection of broker-dealers to execute the
Funds' portfolio transactions. However, since shares of the Funds are
not marketed through intermediary brokers or dealers, it is not the
Funds' practice to allocate brokerage or principal business on the basis
of sales of shares which may be made through such firms.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment adviser, under certain circumstances, to cause an
account to pay a broker or dealer a commission for effecting a
transaction in excess of the amount of commission another broker or
dealer would have charged for effecting the transaction in recognition
of the value of the brokerage and research services provided by the
broker or dealer. Brokerage and research services include (a)
furnishing advice as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; (b) furnishing
analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing
functions incidental thereto (such as clearance, settlement, and
custody).
In carrying out the provisions of the Sub-Advisory Agreement, Hansberger
may cause a Fund to pay, to a broker that provides brokerage and
research services to Hansberger, a commission for effecting a securities
transaction in excess of the amount another broker would have charged
for effecting the transaction. Hansberger believes it is important to
its investment decision-making process to have access to independent
research. The Sub-Advisory Agreements provide that such higher
commissions will not be paid by a Fund unless Hansberger determines in
good faith that such amount of commission is reasonable in relation to
the value of the brokerage or research services provided by such broker
or dealer, viewed in terms of either that particular transaction or
Hansberger's overall responsibilities with respect to the accounts as to
which it exercises investment discretion.
Generally, research services provided by brokers may include information
on the economy, industries, groups of securities, individual companies,
statistical information, accounting and tax law interpretations,
political developments, legal developments affecting portfolio
securities, technical market action, pricing and appraisal services,
credit analysis, risk measurement analysis, performance analysis, and
analysis of corporate responsibility issues. Such research services are
primarily in the form of written reports, telephone contacts, and
personal meetings with security analysts. In addition, such research
services may be provided in the form of access to various computer-
generated data, computer hardware and software, and meetings arranged
with corporate and industry spokespersons, economists, academicians, and
government representatives. In some cases, research services are
generated by third parties but are provided to Hansberger by or through
brokers. Such brokers may pay for all or a portion of computer hardware
and software costs relating to the pricing of securities.
Where Hansberger itself receives both administrative benefits and
research and brokerage services from the services provided by brokers,
it makes a good faith allocation between the administrative benefits and
the research and brokerage services, and will pay for any administrative
benefits with cash. In making good faith allocations of costs between
administrative benefits and research and brokerage services, a conflict
of interest may exist by reason of Hansberger's allocation of the costs
of such benefits and services between those that primarily benefit
Hansberger and those that primarily benefit the Funds and other advisory
clients.
From time to time, Hansberger may purchase securities for a Fund in a
fixed price offering. In these situations, the seller may be a member
of the selling group that will, in addition to selling the securities to
the Funds and other advisory clients, provide Hansberger with research.
The NASD has adopted rules expressly permitting these types of
arrangements under certain circumstances. Generally, the seller will
provide research "credits" in these situations at a rate that is higher
than the rate available for typical secondary market transactions.
These arrangements may not fall within the safe harbor of Section 28(e).
Twice a year, Hansberger, through a committee of its securities
analysts, will consider the amount and nature of research and research
services provided by brokers, as well as the extent to which such
services are relied upon, and attempt to allocate a portion of the
brokerage business of the Funds and other advisory clients on the basis
of that consideration. In addition, brokers may suggest a level of
business they would like to receive in order to continue to provide such
services. The actual brokerage business received by a broker may be
more or less than the suggested allocations, depending upon Hansberger's
evaluation of all applicable considerations.
Hansberger may direct the purchase of securities on behalf of each Fund
and other advisory clients in secondary market transactions, in public
offerings directly from an underwriter, or in privately negotiated
transactions with an issuer. When Hansberger believes the circumstances
so warrant, securities purchased in public offerings may be resold
shortly after acquisition in the immediate aftermarket for the security
in order to take advantage of price appreciation from the public
offering price or for other reasons. Short-term trading of securities
acquired in public offerings, or otherwise, may result in higher
portfolio turnover and associated brokerage expenses.
Hansberger is responsible for selecting brokers in connection with
foreign securities transactions. The fixed commissions paid in
connection with most foreign stock transactions are usually higher than
negotiated commissions on U.S. stock transactions. Foreign stock
exchanges and brokers are subject to less government supervision and
regulation as compared with the U.S. exchanges and brokers. In
addition, foreign security settlements may in some instances be subject
to delays and related administrative uncertainties.
Hansberger places portfolio transactions for other advisory accounts,
including other mutual funds managed by Hansberger. Research services
furnished by firms through which each Fund effects its securities
transactions may be used by Hansberger in servicing all of its accounts;
not all of such services may be used by Hansberger in connection with
each Fund. In the opinion of Hansberger, it is not possible to measure
separately the benefits from research services to each of the accounts
(including the Funds) managed by Hansberger. Because the volume and
nature of the trading activities of the accounts are not uniform, the
amount of commissions in excess of those charged by another broker paid
by each account for brokerage and research services will vary. However,
in the opinion of Hansberger, such costs to each Fund will not be
disproportionate to the benefits received by it on a continuing basis.
If purchase or sale of securities consistent with the investment
policies of the Funds and one or more of these other clients served by
Hansberger is considered at or about the same time, transactions in such
securities will be allocated among the Funds and such other clients
pursuant to guidelines deemed fair and reasonable by Hansberger.
Generally, under those guidelines, the Funds and other participating
clients will be allocated at least $25,000 of the relevant security,
with any remaining shares allocated on a pro rata basis. In the event
that there are not enough securities available to allocate each
participating client $25,000 worth of the security, Hansberger will use
a random allocation procedure, randomly selecting one participating
client to commence allocation.
The board of directors of the Funds has adopted certain policies and
procedures incorporating the standard of Rule 17e-1 issued by the SEC
under the 1940 Act which requires that the commissions paid to Smith
Barney must be "reasonable and fair compared to the commission fee or
other remuneration received or to be received by other brokers in
connection with comparable transactions involving similar securities
during a comparable period of time." The Rule and the policy and
procedures also contain review requirements and require SSB Citi and
Hansberger to furnish reports to the board of directors and to maintain
records in connection with such reviews.
The following table sets forth certain information regarding each Fund's
payment of brokerage commissions to Salomon Smith Barney:
Period
Ended
April 30,
Global
Small Cap
Value Fund
Global
Value
Fund
Total Brokerage
Commissions
2000
$64,485
$601,379
1999
$34,500
$712,982
1998
$68,021
$248,109
Commissions paid to
Salomon Smith Barney
2000
$8,283
$43,572
1999
$12,576
$25,314
1998
$6,139
$4,302
% of Total Brokerage
Commissions paid to
Salomon Smith Barney
2000
12.65%
7.25%
1999
19.26%
3.55%
1998
9.03%
1.73%
% of Total
Transactions
Involving
Commissions paid to
Salomon Smith Barney
2000
11.42%
9.40%
1999
18.66%
5.36%
____________________
_
1998
8.77
1.68
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:
Sales Charge
Amount of
Investment
% of Offering
Price
% of Amount
Invested
Dealers'
Reallowance as %
of Offering Price
Less than $25,000
5.00
5.26
4.50
$25,000 - 49,999
4.25
4.44
3.83
50,000 - 99,999
3.75
3.90
3.38
100,000-249,999
3.25
3.36
2.93
250,000-499,999
2.75
2.86
2.48
500,000 - 999,999
2.00
2.04
1.80
1,000,000 and
over
-0-*
-0-*
-0-*
* Purchases of Class A shares of $1,000,000 or more will be made at
net asset value without any initial sales charge, but will be
subject to a deferred sales charge ("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 Smith
Barney, which compensates Salomon Smith Barney Financial
Consultants and other dealers whose clients make purchases of
$1,000,000 or more. The Deferred Sales Charge is waived in the
same circumstances in which the Deferred Sales Charge applicable
to Class B and Class L shares is waived. See "Deferred Sales
Charge Alternatives" 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 Funds 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 a
Fund on June 12, 1998 will not be subject to the 1% initial sales
charge.
Class Y Shares. Class Y shares are sold without an initial sales charge
or Deferred Sales Charge and are available only to investors investing a
minimum of $15,000,000 except for 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 a Fund. When purchasing shares of a 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 Transfer Agent
are not subject to a maintenance fee.
Investors in Class A, Class B and Class L shares may open an account in
a Fund by making an initial investment of at least $1,000 for each
account, or $250 for an IRA or a Self-Employed Retirement Plan, in a
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 Internal
Revenue Service Code of 1986, as amended ("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 a Fund is $25.
For shareholders purchasing shares of a Fund through the Systematic
Investment Plan on a monthly basis, the minimum initial investment
requirement for Class A, Class B and Class L shares and subsequent
investment requirement for all Classes is $25. For shareholders
purchasing shares of a Fund through the Systematic Investment Plan on a
quarterly basis, the minimum initial investment required for Class A,
Class B and Class L shares and the subsequent investment requirement for
all Classes is $50. There are no minimum investment requirements for
Class A shares for employees of Citigroup and its subsidiaries,
including Salomon Smith Barney, unitholders who invest distributions
from, or proceeds from a sale of, 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 Funds
reserve the right to waive or change minimums, to decline any order to
purchase their 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 a 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 a Fund calculates its net asset value, are
priced according to the net asset value determined on that day (the
''trade date''). Orders received by a Dealer Representative prior to
the close of regular trading on the NYSE on any day a Fund calculates
its net asset value, are priced according to the net asset value
determined on that day, provided the order is received by a Fund or the
Fund's agent prior to its close of business. For shares purchased
through Salomon Smith Barney or a Dealer Representative purchasing
through Salomon Smith Barney, payment for shares of the Fund is due on
the third business day after the trade date. In all other cases, payment
must be made with the purchase order.
Systematic Investment Plan. Shareholders may make additions to their
accounts at any time by purchasing shares through a service known as the
Systematic Investment Plan. Under the Systematic Investment Plan,
Salomon Smith Barney or 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
Funds 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 a 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 a 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 a 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 or a 401(k) plan enrolled in the Smith Barney 401(k)
Program (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 a UIT sponsored by Salomon Smith Barney;
(i) purchases by investors participating in a Salomon Smith Barney fee-
based arrangement; and (j) purchases 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 Funds 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
Funds and of most other Smith Barney Mutual Funds that are offered with
a sales charge 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 Funds and other Smith Barney Mutual Funds offered with a
sales charge acquired during the term of the letter plus (ii) the value
of all Class A shares previously purchased and still owned. Each
investment made during the period receives the reduced sales charge
applicable to the total amount of the investment goal. If the goal is
not achieved within the period, the investor must pay the difference
between the sales charges applicable to the purchases made and the
charges previously paid, or an appropriate number of escrowed shares
will be redeemed. The term of the Letter will commence upon the date
the Letter is signed, or at the options of the investor, up to 90 days
before such date. Please contact a Salomon Smith Barney Financial
Consultant or the transfer 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 Investors must make an initial minimum purchase of $5,000,000 in
Class Y shares of a Fund and agree to purchase a total of $15,000,000 of
Class Y shares of a 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 a Fund's Class A
shares, which may include a Deferred Sales Charge of 1.00%. Please
contact a Salomon Smith Barney Financial Consultant or the transfer
agent for further information.
Deferred Sales Charge Provisions
''Deferred Sales Charges are: applicable to: (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, except in the case of Class B shares
held under the Smith Barney 401(k) Program, as described below. See
''Purchase of Shares-Smith Barney 401(k) and ExecChoiceTM Programs.''
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 (Class B shares
that were acquired through the reinvestment of dividends and
distributions) owned by the shareholder 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.
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 a Fund at $10 per share for a cost of $1,000. Subsequently, the
investor acquired 5 additional shares of a Fund through dividend
reinvestment. During the fifteenth month after the purchase, the
investor decided to redeem $500 of his or her investment. Assuming at
the time of the redemption the net asset value had appreciated to $12
per share, the value of the investor's shares would be $1,260 (105
shares at $12 per share). The Deferred Sales Charge would not be applied
to the amount which represents appreciation ($200) and the value of the
reinvested dividend shares ($60). Therefore, $240 of the $500
redemption proceeds ($500 minus $260) would be charged at a rate of
4.00% (the applicable rate for Class B shares) for a total Deferred
Sales Charge of $9.60.
Waivers of Deferred Sales Charge
The Deferred Sales Charge will be waived on: (a) exchanges (see
''Exchange Privilege''); (b) automatic cash withdrawals in amounts equal
to or less than 1.00% per month of the value of the shareholder's shares
at the time the withdrawal plan commences (see ''Automatic Cash
Withdrawal Plan'') (provided, however, that automatic cash withdrawals
in amounts equal to or less than 2.00% per month of the value of the
shareholder's shares will be permitted for withdrawal plans that were
established prior to November 7, 1994); (c) redemptions of shares within
12 months following the death or disability of the shareholder; (d)
redemptions of shares made in connection with qualified distributions
from retirement plans or IRAs upon the attainment of age 591/2; (e)
involuntary redemptions; and (f) redemptions of shares to effect a
combination of the Funds 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.
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 Funds offer Class A
and Class L shares at net asset value to participating plans under the
programs. You can meet minimum investment and exchange amounts, if any,
by combining the plan's investments in any of the Smith Barney mutual
funds.
There are no sales charges when you buy or sell shares and the Class of
shares you may purchase depends on the amount of your initial investment
and/or the date your account is opened. Once a Class of shares is
chosen, all additional purchases must be of the same Class.
For plans opened on or after March 1, 2000 that are not plans for which
Paychex Inc. or an affiliate provides administrative services (a
"Paychex plan"), Class A shares may be purchased regardless of the
amount invested.
For plans opened prior to March 1, 2000 and for Paychex plans, the Class
of shares you may purchase depends on the amount of your initial
investment:
Class A Shares. Class A shares may be purchased by plans investing at
least $1 million.
Class L Shares. Class L shares may be purchased by plans investing less
than $1 million. Class L shares are eligible to exchange into Class A
shares not later than 8 years after the plan joined the program. They
are eligible for exchange in the following circumstances:
If the plan was opened on or after June 21, 1996 and a total of $1
million is invested in Smith Barney Funds Class L shares (other than
money market funds), all Class L shares are eligible for exchange after
the plan is in the program 5 years.
If the plan was opened before June 21, 1996 and a total of $500,000 is
invested in Smith Barney Funds Class L shares (other than money market
funds) on December 31 in any year, all Class L shares are eligible for
exchange on or about March 31 of the following year.
For more information, call your Salomon Smith Barney Financial
Consultant or the transfer agent.
Retirement Programs Opened On or After June 21, 1996. If, at the end
of the fifth year after the date the participating plan enrolled in the
Smith Barney 401(k) Program or ExecChoiceTM Program, a participating
plan's total Class L holdings in all non-money market Smith Barney
Mutual Funds equal at least $1,000,000, the participating plan will be
offered the opportunity to exchange all of its Class L shares for Class
A shares of a Fund. (For participating plans that were originally
established through a Salomon Smith Barney retail brokerage account, the
five-year period will be calculated from the date the retail brokerage
account was opened.) Such participating plans will be notified of the
pending exchange in writing within 30 days after the fifth anniversary
of the enrollment date and, unless the exchange offer has been rejected
in writing, the exchange will occur on or about the 90th day after the
fifth anniversary date. If the participating plan does not qualify for
the five-year exchange to Class A shares, a review of the participating
plan's holdings will be performed each quarter until either the
participating plan qualifies or the end of the eighth year.
Retirement Programs Opened Prior to June 21, 1996. In any year after
the date a participating plan enrolled in the Smith Barney 401(k)
Program, if its total Class L holdings in all non-money market Smith
Barney Mutual Funds equal at least $500,000 as of the calendar year-end,
the participating plan will be offered the opportunity to exchange all
of its Class L shares for Class A shares of the same Fund. Such Plans
will be notified in writing within 30 days after the last business day
of the calendar year and, unless the exchange offer has been rejected in
writing, the exchange will occur on or about the last business day of
the following March.
Any participating plan in the Smith Barney 401(k) or ExecChoiceTM
Program, whether opened before or after June 21, 1996, that has not
previously qualified for an exchange into Class A shares will be offered
the opportunity to exchange all of its Class L O shares for Class A
shares of the same Fund regardless of asset size, at the end of the
eighth year after the date the participating plan enrolled in the Smith
Barney 401(k) or ExecChoiceTM Program. Such plans will be notified of
the pending exchange in writing approximately 60 days before the eighth
anniversary of the enrollment date and, unless the exchange has been
rejected in writing, the exchange will occur on or about the eighth
anniversary date. Once an exchange has occurred, a participating plan
will not be eligible to acquire additional Class L shares, but instead
may acquire Class A shares of the same Fund. Any Class L shares not
converted will continue to be subject to the distribution fee.
Participating plans wishing to acquire shares of a Fund through the
Smith Barney 401(k) Program or the Smith Barney ExecChoiceTM Program
must purchase such shares directly from the transfer agent. For further
information regarding these Programs, investors should contact a Salomon
Smith Barney Financial Consultant.
Retirement Programs Investing in Class B Shares: Class B shares of a
Fund are not available for purchase by participating plans opened on or
after June 21, 1996, but may continue to be purchased by any
participating plan in the Smith Barney 401(k) Program opened prior to
such date and originally investing in such Class. Class B shares
acquired are subject to a Deferred Sales Charge of 3.00% of redemption
proceeds if the participating plan terminates within eight years of the
date the participating plan first enrolled in the Smith Barney 401(k)
Program.
At the end of the eighth year after the date the participating plan
enrolled in the Smith Barney 401(k) Program, the participating plan will
be offered the opportunity to exchange all of its Class B shares for
Class A shares of the same Fund. Such participating plan will be
notified of the pending exchange in writing approximately 60 days before
the eighth anniversary of the enrollment date and, unless the exchange
has been rejected in writing, the exchange will occur on or about the
eighth anniversary date. Once the exchange has occurred, a participating
plan will not be eligible to acquire additional Class B shares, but
instead may acquire Class A shares of the same Fund. If the
participating plan elects not to exchange all of its Class B shares at
that time, each Class B share held by the participating plan will have
the same conversion feature as Class B shares held by other investors.
See "Purchase of Shares-Deferred Sales Charge Alternatives."
No Deferred Sales Charge is imposed on redemptions of Class B shares to
the extent that the net asset value of the shares redeemed does not
exceed the current net asset value of the shares purchased through
reinvestment of dividends or capital gain distributions, plus the
current net asset value of Class B shares purchased more than eight
years prior to the redemption, plus increases in the net asset value of
the shareholder's Class B shares above the purchase payments made during
the preceding eight years. Whether or not the Deferred Sales Charge
applies to the redemption by a participating plan depends on the number
of years since the participating plan first became enrolled in the Smith
Barney 401(k) Program, unlike the applicability of the Deferred Sales
Charge to redemptions by other shareholders, which depends on the number
of years since those shareholders made the purchase payment from which
the amount is being redeemed.
The Deferred Sales Charge will be waived on redemptions of Class B
shares in connection with lump-sum or other distributions made by a
participating plan as a result of: (a) the retirement of an employee in
the participating plan; (b) the termination of employment of an employee
in the participating plan; (c) the death or disability of an employee in
the participating plan; (d) the attainment of age 591/2 by an employee in
the participating plan; (e) hardship of an employee in the participating
plan to the extent permitted under Section 401(k) of the Code; or (f)
redemptions of shares in connection with a loan made by the
participating plan to an employee.
REDEMPTION OF SHARES
General. Each Fund is required to redeem the shares tendered to it, as
described below, at a redemption price equal to their net asset value
per share next determined after receipt of a written request in proper
form at no charge other than any applicable Deferred Sales Charge.
Redemption requests received after the close of regular trading on the
NYSE are priced at the net asset value next determined.
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 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 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 or more.
Shares held by Salomon Smith Barney as custodian must be redeemed by
submitting a written request to a Salomon Smith Barney Financial
Consultant. Shares other than those held by Salomon Smith Barney as
custodian may be redeemed through an investor's Financial Consultant,
Introducing Broker or dealer in the selling group or by submitting a
written request for redemption to:
Smith Barney Hansberger Value Fund or Smith Barney Hansberger
Small Cap
Value Fund (please specify)
Class A, B, L or Y (please specify)
c/o PFPC Global Fund Services
P.O. Box 9699,
Providence Rhode Island 02940-9699.
A written redemption request must (a) state the name of the Fund for
which you are redeeming shares, (b) state the Class and number or dollar
amount of shares to be redeemed, (c) identify the shareholder' s account
number and (d) be signed by each registered owner exactly as the shares
are registered. 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 Transfer Agent
together with the redemption request. Any signature appearing on a
share certificate, stock power or written redemption request in excess
of $2,000 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 $2,000 or less do
not require a signature guarantee unless more than one such redemption
request is made in any 10-day period. 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 Citi
Fiduciary receives all required documents in proper form.
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 ($5,000 for retirement plan accounts) 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 a 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. To the extent withdrawals exceed dividends,
distributions and appreciation of a shareholder's investment in a 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 that he or she is participating
in the Withdrawal Plan, purchases by such shareholders in amounts of
less than $5,000 will not ordinarily be permitted. The withdrawal plan
will be carried over on exchanges between funds or Classes of a 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 Transfer Agent as agent for Withdrawal Plan members. All
dividends and distributions on shares in the Withdrawal Plan are
automatically reinvested at net asset value in additional shares of the
Company. Withdrawal Plans should be set up with a Salomon Smith Barney
Financial Consultant. 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 no later than the eighth day of the month to be eligible for
participation beginning with that month's withdrawal. For further
information regarding the automatic cash withdrawal plan, shareholders
should contact a Salomon Smith Barney Financial Consultant.
Telephone Redemption And Exchange Program. Shareholders who do not have
a Salomon Smith Barney brokerage account may be eligible to redeem and
exchange Fund shares by telephone. To determine if a shareholder is
entitled to participate in this program, he or she should contact the
Transfer Agent at 1-800-451-2010. Once eligibility is confirmed, the
shareholder must complete and return a Telephone/Wire Authorization
Form, along with a signature guarantee that will be provided by the
Transfer Agent upon request. (Alternatively, an investor may authorize
telephone redemptions on the new account application with the
applicant's signature guarantee when making his/her initial investment
in a Fund.)
Redemptions. Redemption requests of up to $10,000 of any Class or
Classes of a Fund's shares may be made by eligible shareholders by
calling the Transfer Agent at 1-800-451-2010. Such requests may be made
between 9:00 a.m. and 4:00 p.m. (New York City time) on any day the NYSE
is open. Redemption requests received after the close of regular
trading on the NYSE are priced at the net asset value next determined.
Redemptions of shares (i) by retirement plans or (ii) for which
certificates have been issued are not permitted under this program.
A shareholder will have the option of having the redemption proceeds
mailed to his/her address of record or wired to a bank account
predesignated by the shareholder. Generally, redemption proceeds will
be mailed or wired, as the case may be, on the next business day
following the redemption request. In order to use the wire procedures,
the bank receiving the proceeds must be a member of the Federal Reserve
System or have a correspondent relationship with a member bank. Each
Fund reserves the right to charge shareholders a nominal fee for each
wire redemption. Such charges, if any, will be assessed against the
shareholder's account from which shares were redeemed. In order to
change the bank account designated to receive redemption proceeds, a
shareholder must complete a new Telephone/Wire Authorization Form and,
for the protection of the shareholder's assets, will be required to
provide a signature guarantee and certain other documentation.
Exchanges. Eligible shareholders may make exchanges by telephone if the
account registration of shares of the fund being acquired is identical
to the registration of the shares of the fund exchanged. Such exchange
requests may be made by calling the Transfer Agent at 1-800-451-2010
between 9:00 a.m. and 4:00 p.m. (New York City time) on any day on which
the NYSE is open. Exchange requests received after the close of regular
trading on the NYSE are processed at the net asset value next
determined.
Additional Information regarding Telephone Redemption and Exchange
Program. Neither a Fund nor its agents will be liable for following
instructions communicated by telephone that are reasonably believed to
be genuine. Each 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). Each 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.
The right of redemption may be suspended or the date of payment
postponed (a) for any period during which the NYSE is closed (other than
for customary weekend and holiday closings), (b) when trading in markets
a Fund normally utilizes is restricted, or an emergency as determined by
the SEC exists, so that disposal of the Fund's investments or
determination of net asset value is not reasonably practicable or (c)
for such other periods as the SEC by order may permit for the protection
of the Fund's shareholders.
Distributions in Kind. If the board of directors of the Company
determines that it would be detrimental to the best interests of the
remaining shareholders of a Fund to make a redemption payment wholly in
cash, the Fund may pay, in accordance with the SEC rules, any portion of
a redemption in excess of the lesser of $250,000 or 1% of the Fund's net
assets by a distribution in kind of portfolio securities in lieu of
cash. Shareholders should expect to incur brokerage costs when
subsequently selling shares redeemed in kind.
EXCHANGE PRIVILEGE
General. Except as noted below, shareholders of any fund of the Smith
Barney Mutual Funds may exchange all or part of their shares for shares
of the same Class of other funds of the Smith Barney mutual funds, to
the extent such shares are offered for sale in the shareholder's state
of residence and provided your registered representative or your
investment dealer is authorized to distribute shares of the fund, on the
basis of relative net asset value per share at the time of exchange.
Class B shares of any fund may be exchanged without a Deferred Sales
Charge. Class B shares of the Fund exchanged for Class B shares of
another fund will be subject to the higher applicable Deferred Sales
Charge of the two funds and, for the 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. Exchanges of Class A, Class B and Class L shares are subject
to minimum investment requirements and all shares are subject to the
other requirements of the fund into which exchanges are made.
The exchange privilege enables shareholders to acquire shares of the
same Class in a fund with different investment objectives when they
believe that a shift between funds is an appropriate investment
decision. This privilege is available to shareholders residing in any
state in which the fund shares being acquired may legally be sold.
Prior to any exchange, the shareholder should obtain and review a copy
of the current prospectus of each fund into which an exchange is being
considered. Prospectuses may be obtained from a 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, subject to any applicable Deferred Sales
Charge, 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.
Class B Exchanges. In the event a Class B shareholder wishes to
exchange all or a portion of his or her shares into any of the funds
imposing a higher Deferred Sales Charge than that imposed by the Funds,
the exchanged Class B shares will be subject to the higher applicable
Deferred Sales Charge. Upon an exchange, the new Class B shares will be
deemed to have been purchased on the same date as the Class B shares of
the Fund that have been exchanged.
Class L Exchanges. Upon an exchange, the new Class L shares will be
deemed to have been purchased on the same date as the Class L shares of
the Fund that have been exchanged.
Class A and Class Y Exchanges. Class A and Class Y shareholders of a
Fund who wish to exchange all or a portion of their shares for shares of
the respective Class in any of the funds identified above may do so
without imposition of any charge.
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange
transactions can be detrimental to a Fund' s performance and its
shareholders. SSB Citi 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, SSB Citi will notify Salomon Smith
Barney and Salomon Smith Barney may, at its discretion, decide to limit
additional purchases and/or exchanges by the shareholder. Upon such a
determination, Salomon Smith Barney 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 listed above, 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.
Certain shareholders may be able to exchange shares by telephone. See
"Redemption of Shares-Telephone Redemption and Exchange Program" .
Exchanges will be processed at the net asset value next determined.
Redemption procedures discussed below are also applicable for exchanging
shares, and exchanges will be made upon receipt of all supporting
documents in proper form. If the account registration of the shares of
the fund being acquired is identical to the registration of the shares
of the fund exchanged, no signature guarantee is required. A capital
gain or loss for tax purposes will be realized upon the exchange,
depending upon the cost or other basis of shares redeemed. Before
exchanging shares, investors should read the current prospectus
describing the shares to be acquired. The Company reserves the right to
modify or discontinue exchange privileges upon 60 days' prior notice to
shareholders.
DISTRIBUTOR
Salomon Smith Barney, Inc., located at 388 Greenwich Street, New York,
New York 10013 serves as the Funds' distributor pursuant to a written
agreement dated June 5, 2000 (the "Distribution Agreement") which was
approved by the Funds' Board of Directors, including a majority of the
independent Directors, on April 13, 2000. This Distribution Agreement
replaces the Distribution Agreement with CFBDS, Inc.
When payment is made by the investor before the settlement date, unless
otherwise directed 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 investor
may designate another use for the funds prior to settlement date, such
as investment in a money market fund (other than Salomon Smith Barney
Exchange Reserve Fund) of the Smith Barney Mutual Funds. If the
investor instructs Salomon Smith Barney to invest the funds in a Smith
Barney money market fund, the amount of the investment will be included
as part of the average daily net assets of both the Company and the
money market fund, and affiliates of Salomon Smith Barney that serve the
funds in an investment advisory capacity will benefit from the fact that
they are receiving fees from both such investment companies for managing
these assets computed on the basis of their average daily net assets.
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 Management and
Distribution Agreements for continuance.
Class A share sales charges paid to Salomon Smith Barney:
Name of Fund
For The Fiscal Year
Ended April 30, 1999
For the Fiscal Year
Ended April 30, 2000
Global Value Fund
$52,000
$27,000
Global Small Cap
Value Fund
18,000
3,000
Class L share sales charges paid to Salomon Smith Barney:
Name of Fund
For The Fiscal Year
Ended April 30, 1999
For the Fiscal Year
Ended April 30, 2000
Global Value Fund
$16,000
$12,000
Global Small Cap
Value Fund
2,000
2,000
Class B share Deferred Sales Charge paid to Salomon Smith Barney:
Name of Fund
For The Fiscal Year
Ended April 30, 1999
For the Fiscal Year
Ended April 30, 2000
Global Value Fund
$170,000
$144,000
Global Small Cap
Value Fund
44,000
50,000
Class L share Deferred Sales Charge paid to Salomon Smith Barney:
Name of Fund
For The Fiscal Year
Ended April 30, 1999
For The Fiscal Year
Ended April 30, 2000
Global Value Fund
$7,000
$1,000
Global Small Cap
Value Fund
4,000
-
Distribution Arrangements
To compensate Salomon Smith Barney for the services it provides and for
the expense it bears under the Distribution Agreement, the Company has
adopted a services and distribution plan (the "Plan") pursuant to Rule
12b-1 under the 1940 Act. Under the Plan, each Fund pays Salomon Smith
Barney a service fee, accrued daily and paid monthly, calculated at the
annual rate of 0.25% of the value of each Fund's average daily net
assets attributable to the Class A, Class B and Class L shares. In
addition, the Fund pays Salomon Smith Barney 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 its
Financial Consultants a commission upon sales of those shares. Such
shares' distribution fees, which are accrued daily and paid monthly, are
calculated at the annual rate of 0.75% of the value of average daily net
assets attributable to the Class B and Class L shares.
Under its terms, the Plan continues from year to year, provided such
continuance is approved annually by vote of the board of directors,
including a majority of the Independent Directors. The Plan may not be
amended to increase the amount to be spent for the services provided by
Salomon Smith Barney without shareholder approval, and all amendments of
the Plan also must be approved by the directors in the manner described
above. The Plan may be terminated at any time, without penalty, by vote
of a majority of the Independent Directors or by vote of a majority of
the outstanding voting securities of the Company (as defined in the 1940
Act). Pursuant to the Plan, Salomon Smith Barney will provide the board
of directors periodic reports of amounts expended under the Plan and the
purpose for which such expenditures were made.
Total Service and Distribution Plan fees incurred by the Funds for the
period ended April 30, 1999 and the fiscal year ended April 30, 2000
were:
1999
Name Of Fund
Class A Shares
Class B
Shares
Class L Shares
Global Value Fund
$51,299
$362,453
$94,361
Global Small Cap
Value Fund
18,295
91,799
20,348
2000
Name Of Fund
Class A Shares
Class B
Shares
Class L Shares
Global Value Fund
$41,479
$344,384
$90,313
Global Small Cap
Value Fund
10,598
62,122
13,229
For the fiscal year ended April 30, 2000, CFBDS and its predecessor,
Salomon Smith Barney, incurred distribution expenses for the Global
Value Fund totalling $223,217 consisting of $14,070 for advertising,
$2,816 for printing and mailing of Prospectuses, $134,650 for support
services, $71,555 to Salomon Smith Barney Financial Consultants, and
$1,126 in accruals for interest on the excess of Smith Barney expenses
incurred in distributing the Funds' shares over the sum of the
distribution fees and Deferred Sales Charge received by CFBDS and
Salomon Smith Barney from the Fund.
For the fiscal year ended April 30, 2000, CFBDS and its predecessor,
Salomon Smith Barney, incurred distribution expenses for the Global
Small Cap Value Fund totaling $16,558 consisting of $2,677 for
advertising, $586 for printing and mailing of Prospectuses, $27,793 for
support services, $(13,320) to Salomon Smith Barney Financial
Consultants, and $(1,178) in accruals for interest on the excess of
Smith Barney expenses incurred in distributing the Funds' shares over
the sum of the distribution fees and Deferred Sales Charge received by
CFBDS and Salomon Smith Barney from the Fund.
VALUATION OF SHARES
Each Fund's net asset value per share is determined as of the close of
regular trading on the NYSE on each day that the NYSE is open, by
dividing the value of the Fund's net assets attributable to each Class
by the total number of shares of the Class outstanding. Each Class' net
asset value per share 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, President's Day, Good Friday,
Martin Luther King Jr. Day, 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
Funds in valuing its assets.
Generally, each Fund's investments are valued at market value, or, in
the absence of a market value with respect to any securities, at fair
value. Securities listed on an exchange are valued on the basis of the
last sale prior to the time the valuation is made. If there has been no
sale since the immediately previous valuation, then the current bid
price is used. Quotations are taken from the exchange where the
security is primarily traded. Portfolio securities which are primarily
traded on foreign exchanges may be valued with the assistance of a
pricing service and are generally valued at the preceding closing values
of such securities on their respective exchange, except that when an
occurrence subsequent to the time a foreign security is valued is likely
to have changed such value, then the fair value of those securities will
be determined by consideration of, other factors by or under the
direction of the board of directors. Over-the-counter securities are
valued on the basis of the bid price at the close of business on each
day. Unlisted foreign securities are valued at the mean between the
last available bid and offer price prior to the time of valuation. Any
assets or liabilities initially expressed in terms of foreign currencies
will be converted into U.S. dollar values at the mean between the bid
and offered quotations of such currencies against U.S. dollars as last
quoted by any recognized dealer. Securities for which market quotations
are not readily available are valued at fair value. Notwithstanding the
above, bonds and other fixed-income securities are valued by using
market quotations and may be valued on the basis of prices provided by a
pricing service approved by the board of directors.
A security which is listed or traded on more than one exchange is valued
at the quotation on the exchange determined to be the primary market for
such security. All assets and liabilities initially expressed in
foreign currency values will be converted into U.S. dollar values at the
mean between the bid and offered quotations of such currencies against
U.S. dollars as last quoted by any recognized dealer. If such quotations
are not available, the rate of exchange will be determined in good faith
by the board of directors. In carrying out the board of directors'
valuation policies, SSB Citi, as administrator, may consult with an
independent pricing service.
Debt securities of U.S. issuers (other than U.S. government securities
and short-term investments) are valued by SSB Citi, as administrator,
after consultation with a pricing service approved by the board of
directors. When, in the judgment of the pricing service, quoted bid
prices for investments are readily available and are representative of
the bid side of the market, these investments are valued at the mean
between the quoted bid prices and asked prices. Investments for which,
in the judgment of the pricing service, there are not readily obtainable
market quotations are carried at fair value as determine by the pricing
service. The procedures of the pricing service are reviewed
periodically by the officers of the Company under the general
supervision and responsibility of the board of directors.
PERFORMANCE DATA
From time to time, a Fund may quote its yield, average annual total
return or total return in advertisements or in reports and other
communications to shareholders. The Fund may include comparative
performance information in advertising or marketing the Fund's shares
Such performance information may include data from Lipper Analytical
Services, Inc., Morningstar, Inc. and other financial publications, and
may be included in various industry and financial publications, such as:
Barron's, Business Week, CDA Investment Technologies, Inc., Changing
Times, Forbes, Fortune, Institutional Investor, Investor's Business
Daily, Money, Morningstar Mutual Fund Values, The New York Times, USA
Today and The Wall Street Journal. To the extent any advertisement or
sales literature of a Fund describes the expenses or performance of a
Class, it will also disclose such information for the other Classes.
Yield. A Fund's 30-day yield figure described below is calculated
according to a formula prescribed by the SEC. The formula can be
expressed as follows:
YIELD = 2[(a-b/cd + 1)6 - 1]
Where:
a =
Dividends and interest earned during the period.
b =
Expenses accrued for the period (net of
reimbursement).
c =
The average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d =
The maximum offering price per share on the last day
of the period.
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations purchased by the Fund at a discount or
premium, the formula generally calls for amortization of the discount or
premium; the amortization schedule will be adjusted monthly to reflect
changes in the market values of the debt obligations.
Investors should recognize that in periods of declining interest rates a
Fund's yield will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates, a Fund's yield will tend
to be somewhat lower. In addition, when interest rates are falling, the
inflow of net new money to a Fund from the continuous sales of its
shares will likely be invested in portfolio instruments producing lower
yields than the balance of the Fund's investments, thereby reducing the
current yield of the Fund. In periods of rising interest rates, the
opposite can be expected to occur.
Average Annual Total Return. "Average annual total return" figures, as
described below, are computed according to a formula prescribed by the
SEC. The formula can be expressed as follows:
P(1+T)n = ERV
Where:
P =
a hypothetical initial payment of $1,000.
T =
Average annual total return.
n =
Number of years.
ERV =
Ending Redeemable Value of a hypothetical
$1,000 investment made at the beginning of a 1-
, 5- or 10-year period at the end of the 1-, 5-
or 10- year period (or fractional portion
thereof), assuming reinvestment of all
dividends and distributions. A Class' total
return figures calculated in accordance with
the above formula assume that the maximum
applicable sales charge or maximum applicable
Deferred Sales Charge, as the case may be, has
been deducted from the hypothetical $1,000
initial investment at the time of purchase or
redemption, as applicable.
Aggregate Total Return. Aggregate total return, as described below,
represents the cumulative change in the value of an investment in the
Class for the specified period and are computed by the following
formula:
AGGREGATE TOTAL RETURN = ERV-P
P
Where:
P =
a hypothetical initial payment of $1,000.
ERV =
Ending Redeemable Value of a hypothetical
$10,000 investment made at the beginning of a
1-, 5- or 10-year period (a fractional portion
thereof) at the end of the 1-, 5- or 10- year
period (or fractional portion thereof),
assuming reinvestment of all dividends and
distributions.
The total returns below show what an investment in a Fund would have
earned over a specified period of time (one, five or ten years or since
inception) without assuming the payment of the maximum sales load when
the investment was first made and that all distributions and dividends
by a Fund were invested on the reinvestment dates during the period,
less all recurring fees. The following chart reflects the financial
performance of the Funds through the period ended April 30, 2000 for the
one year period and since inception:
Total Returns
Since
Incepti
on
Since
Clas
s
1 Year
Average
Annual
Inception
Cumulative
Global Value Fund
Inception: 12/19/97
A
9.75%
6.88%
17.04%
Inception: 12/19/97
B
8.86
6.07
14.94
Inception: 12/19/97
L
8.77
6.03
14.85
Inception: 3/10/98
Y
10.07
3.28
7.15
Global Small Cap Value
Fund
Inception: 12/19/97
A
(16.06)
(10.64)
(23.35)
Inception: 12/19/97
B
(16.73)
(11.33)
(24.74)
Inception: 12/19/97
L
(16.96)
(11.51)
(25.10)
Inception: 3/10/98
Y
(16.05)
(12.91)
(25.63)
The total returns below show what an investment in a Fund would have
earned over a specified period of time (one, five or ten years or since
inception) assuming the payment of the maximum sales load when the
investment was first made and that all distributions and dividends by
the Fund were invested on the reinvestment dates during the period, less
all recurring fees. The average annual total return is derived from
this total return, which provides the ending redeemable value. The
following chart reflects the financial performance of the Funds through
the period ended April 30, 2000 for the one year period and since
inception:
Total Returns
Since
Incepti
on
Since
Clas
s
1 Year
Average
Annual
Inception
Cumulative
Global Value Fund
Inception:
A
4.28%
4.59%
11.19%
Inception:
B
3.86
4.89
11.94
Inception:
L
6.69
5.56
13.66
Inception:
Y
10.07
3.28
7.15
Global Small Cap Value
Fund
Inception:
A
(20.28)
(12.55)
(27.18)
Inception:
B
(20.90)
(12.45)
(26.97)
Inception:
L
(18.60)
(11.90)
(25.88)
Inception:
Y
(16.05)
(12.91)
(25.63)
It is important to note that the yield and total return formulas set
forth above are based on historical earnings and are not intended to
indicate future performance. A Class' performance will vary from time
to time depending upon market conditions, the composition of the Fund's
investment portfolio and operating expenses and the expenses exclusively
attributable to the Class. Consequently, any given performance
quotation should not be considered representative of the Class'
performance for any specified period in the future. Because performance
will vary, it may not provide a basis for comparing an investment in the
Class with certain bank deposits or other investments that pay a fixed
yield for a stated period of time. Investors comparing the Class'
performance with that of other mutual funds should give consideration to
the quality and maturity of the respective investment companies'
portfolio securities.
Current Dividend Return. Each Fund calculates current dividend return
for each Class by annualizing the most recent monthly distribution and
dividing by the net asset value or the maximum public offering price
(including sales charge) on the last day of the period for which current
dividend return is presented. The current dividend return for each
Class may vary from time to time depending on market conditions, the
composition of its investment portfolio and operating expenses. These
factors and possible differences in the methods used in calculating
current dividend return should be considered when comparing a Class'
current return to yields published for other investment companies and
other investment vehicles. Each Fund may also include comparative
performance information in advertising or marketing its shares.
Performance Information. Performance information may be useful in
evaluating a Fund and for providing a basis for comparison with other
financial alternatives. Since the performance of the Fund changes in
response to fluctuations in market conditions, interest rates and Fund
expenses, no performance quotation should be considered a representation
as to the Fund's performance for any future period.
A Fund may from time to time compare its investment results with the
following:
(1) The Consumer Price Index, which is a measure of the
average change in prices over time in a fixed market basket
of goods and services (e.g., food, clothing, shelter, fuels,
transportation fares, charges for doctors' and dentists'
services, prescription medicines, and other goods and
services that people buy for day-to-day living).
(2) Data and mutual fund rankings published or prepared by
Lipper Analytical Services, Inc., which ranks mutual funds by
overall performance, investment objectives and assets.
(3) Dow Jones Industrial Average which is a price-weighted
average of 30 actively traded stocks of highly reputable
companies prepared by Dow Jones & Co.
(4) Financial News Composite Index.
(5) Morgan Stanley Capital International World Indices,
including, among others, the Morgan Stanley Capital
International Europe, Australia, Far East Index ("EAFE
Index"). The EAFE Index is an unmanaged index of more than
800 companies of Europe, Australia and the Far East.
(6) Data and comparative performance rankings published or
prepared by CDA Investment Technologies, Inc.
(7) Data and comparative performance rankings published or
prepared by Wiesenberger Investment Company Service.
Indices prepared by the research departments of such financial
organizations as Salomon Brothers, Inc., Merrill Lynch, Bear Stearns &
Co., Inc., Morgan Stanley, and Ibbottson Associates may be used, as well
as information provided by the Federal Reserve Board. In addition,
performance rankings and ratings reported periodically in national
financial publications, including but not limited to Money Magazine,
Forbes, Business Week, The Wall Street Journal and Barron's may also be
used.
DIVIDENDS AND DISTRIBUTIONS
Each Fund's policy is to distribute substantially all its investment
income (that is, its income other than its net realized capital gains)
and net realized capital gains, if any, once a year, normally at the end
of the year in which earned or at the beginning of the next year.
If a shareholder does not otherwise instruct, dividends and capital gain
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. In order to avoid the application of a 4.00%
non-deductible excise tax on certain undistributed amounts of ordinary
income and capital gains, a Fund may make an additional distribution
shortly before December 31 in each year of any undistributed ordinary
income or capital gains and expects to pay any other dividends and
distributions necessary to avoid the application of this tax.
The per share dividends on Class B and Class L shares of a 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 a 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 summary addresses the principal United States income tax
considerations regarding the purchase, ownership and disposition of
shares in a Fund.
General. Each Fund intends to qualify and elect to be treated for each
taxable year as a "regulated investment company" under Sections 851-855
of the Code. To so qualify, a Fund must, among other things, (i) derive
at least 90% of its gross income in each taxable year from dividends,
interest, proceeds from loans of stock and securities, gains from the
sale or other disposition of stock, securities or foreign currency, or
certain other income (including but not limited to gains from options,
Futures and forward contracts) derived from its business of investing in
stock, securities or currency; and (ii) diversify its holdings so that,
at the end of each quarter of its taxable year, the following two
conditions are met: (a) at least 50% of the market value of the Fund's
total assets is represented by cash, U.S. Government securities,
securities of other regulated investment companies 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 more than 10% of
the outstanding voting securities of such issuer; and (b) not more than
25% of the value of the Fund's assets is invested in securities (other
than U.S. government securities or securities of other regulated
investment companies) of any one issuer or any two or more issuers that
theFund controls and which are determined to be engage in the same or
similar trades or business or related trades or businesses. The
diversification requirements described above may limit a Fund's ability
to engage in hedging transactions by writing or buying options or by
entering into Futures or forward contracts.
Foreign currency gains that are not directly related to a Fund's
principal business of investing in stock or securities, or options or
forward contracts thereon, might be excluded by regulations from income
that counts toward the 90% gross income requirement described above.
As a regulated investment company, each Fund will not be subject to U.S.
federal income tax on net investment income and net long-term capital
gains distributed to shareholders if, as is intended, the Fund
distributes at least 90% of its ordinary income and net short-term and
long-term capital gains to the Fund's shareholders each year.
Each Fund, however, will generally be subject to a nondeductible excise
tax of 4% to the extent that it does not meet certain minimum
distribution requirements as of the end of each calendar year. Each Fund
intends to make timely distributions of its income (including any net
capital gains) in compliance with these requirements. As a result, it is
anticipated that each Fund will not be subject to the excise tax.
For federal income tax purposes, dividends declared by each Fund in
October, November or December as of a record date in such month and which
are actually paid in January of the following year will be treated as if
they were paid on December 31. These dividends will be taxable to
shareholders in the year declared, and not in the year in which
shareholders actually receive the dividend.
Gains or losses that a Fund recognizes upon the sale or other disposition
of stock or securities will be treated as long-term capital gains or
losses if the securities have been held by it for more than one year,
except in certain cases where the Fund sells the stock or security short
or acquires a put or writes a call thereon. Other gains or losses on the
sale of stock or securities will be short-term capital gains or losses.
Gains and losses on the sale, lapse or other termination of options on
stock or securities will generally be treated as gains and losses from
the sale of stock or securities. If an option written for a Fund lapses
or is terminated through a closing transaction the Fund may realize a
short-term capital gain or loss, depending on whether the premium income
is greater or less than the amount paid in the closing transaction. If a
Fund sells stock or securities pursuant to the exercise of a call option
written by it, the Fund will add the premium received to the sale price
of the stock or securities delivered in determining the amount of gain or
loss on the sale.
At April 30, 2000, the Global Value Fund and the Global Small Cap Value
Fund had approximately $5,113,800 and $1,311,500 of unused capital loss
carryforwards, respectively. For federal income tax purposes, these
amounts are available to be applied against future realized capital
gains, if any. The carryovers expire as follows:
Fund
April 30,
2007
April 30,
2008
Total
Global Value
$2,964,000
$2,149,800
$5,113,800
Global Small Cap Value
721,300
590,200
1,311,500
Under the Code, gains or losses attributable to foreign currency
contracts, or to fluctuations in exchange rates between the time a Fund
accrues income or receivables or expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects
such income or pays such liabilities, are treated as ordinary income or
ordinary loss. Similarly, gains or losses on the disposition of debt
securities held by the Fund denominated in foreign currency, to the
extent attributable to fluctuations in exchange rates between the
acquisition and disposition dates, are also treated as ordinary income or
loss.
Forward currency contracts, options and Futures contracts entered into by
a Fund may create "straddles" for federal income tax purposes and this
may affect the character and timing of gains or losses realized by the
Fund on such contracts or options or on the underlying securities.
Certain options, Futures and foreign currency contracts held by a Fund at
the end of each fiscal year will be required to be "marked to market" for
federal income tax purposes; that is, treated as having been sold at
market value. Sixty percent of any capital gain or loss recognized on
these deemed sales and on actual dispositions will be treated as long-
term capital gain or loss, and the remainder will be treated as short-
term capital gain or loss regardless of how long the Fund has held such
options or contracts.
If a Fund purchases shares in certain foreign investment entities,
referred to as "passive foreign investment companies," the Fund itself
may be subject to U.S. federal income tax and an additional charge in the
nature of interest on a portion of any "excess distribution" from such
company or gain from the disposition of such shares, even if the
distribution or gain is distributed by the Fund to its shareholders in a
manner that satisfies the requirements described above. If the Fund were
able and elected to treat a passive foreign investment company as a
"qualified electing fund," in lieu of the treatment described above, the
Fund would be required each year to include in income, and distribute to
shareholders in accordance with the distribution requirements described
above, the Fund's pro rata share of the ordinary earnings and net capital
gains of the company, whether or not actually received by the Fund.
Redemption of Shares. Any gain or loss realized on the redemption or
exchange of Fund shares by a shareholder who holds such shares as a
capital asset will be treated as long-term capital gain or loss if the
shares have been held for more than one year, and otherwise as short-
term capital gain or loss.
However, any loss realized by a shareholder upon the redemption or
exchange of Fund shares held six months or less will be treated as long-
term capital loss to the extent of any long-term capital gain
distributions received by the shareholder with respect to such shares.
Additionally, any loss realized on a redemption or exchange of Fund
shares will be disallowed to the extent the shares disposed of are
replaced within a period of 61 days beginning 30 days before and ending
30 days after such disposition, such as pursuant to reinvestment of
dividends in Fund shares.
Backup Witholding. A Fund may be required to withold, 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 to Shareholders. Statements as to the tax status of each
shareholder's dividends and distributions will be mailed annually. Each
shareholder also will receive, if appropriate, various written notices
after the close of a Fund's prior taxable year as to the federal income
tax status of his or her dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Shareholders should
consult their own tax advisors about the status of a Fund's dividends
and distributions for state and local tax liabilities.
MINIMUM ACCOUNT SIZE
Each Fund reserves the right to involuntarily liquidate any
shareholder's account in the Fund if the aggregate net asset value of
the shares held in the Fund account is less than $500. (If a
shareholder has more than one account in the Fund, each account must
satisfy the minimum account size). A Fund, however, will not redeem
shares based solely on market reductions in net asset value. Before the
Fund exercises such right, shareholders will receive written notice and
will be permitted 60 days to bring accounts up to the minimum to avoid
involuntary liquidation.
FINANCIAL STATEMENTS
Each Fund's annual report for the fiscal year ended April 30, 2000,
including the Funds' audited financial statements, as filed with the
Securities and Exchange Commission (Accession number 00000950130-00-
003779) is incorporated by reference, in its entirety, into this
statement of additional information.
ADDITIONAL INFORMATION
The Company was incorporated on September 29, 1981 under the name Hutton
Investment Series Inc. The Company's corporate name was changed on
December 29, 1988, July 30, 1993 and October 28, 1994, to SLH Investment
Portfolios Inc., Smith Barney Shearson Investment Funds Inc., and Smith
Barney Investment Funds Inc. respectively.
OTHER INFORMATION
In an industry where the average portfolio manager has seven years of
experience (source: ICI, 1998), the portfolio managers of Smith Barney
Mutual Funds average 21 years in the industry and 15 years with the
firm.
Smith Barney Mutual Funds offers more than 60 mutual funds. We
understand that many investors prefer an active role in allocating the
mix of funds in their portfolio, while others want the asset allocation
decisions to be made by experienced managers.
That's why we offer four "styles" of fund management that can be
tailored to suit each investor's unique financial goals.
Style Pure Series
Our Style Pure Series funds stay fully invested within their asset
class and investment style, enabling investors to make asset
allocation decisions in conjunction with their Salomon Smith
Barney Financial Consultant.
Classic Investor Series
Our Classic Investor Series funds offer a range of equity and
fixed income strategies that seek to capture opportunities across
asset classes and investment styles using disciplined investment
approaches.
The Concert Allocation Series
As a fund of funds, investors can select a Concert Portfolio that
may help their investment needs. As needs change, investors can
easily choose another long-term, diversified investment from our
Concert family.
Special Discipline Series
Our Special Discipline Series funds are designed for investors who
are looking beyond more traditional market categories: from
natural resources to a roster of state-specific municipal funds.
APPENDIX
BOND (AND NOTE) RATINGS
Moody's Investors Service, Inc. ("Moody's")
Aaa - Bonds that are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by
a large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds that are rated "Aa" are judged to be of high quality by
all standards. Together with the "Aaa" group they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present that make the long term
risks appear somewhat larger than in "Aaa" securities.
A - Bonds that are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate
but elements may be present that suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds that are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
therefor not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa - Bonds that are rated Caa are of poor standing. These issues
may be in default or present elements of danger may exist with respect to
principal or interest.
Ca - Bonds that are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked short-comings.
C - Bonds that are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B. The modifier 1 indicates that
the security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
Standard & Poor's Ratings Group ("S&P")
AAA - Debt rated "AAA" has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small
degree.
A - Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB - Debt rated "BBB" is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB, B and CCC - Bonds rated BB and B are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. BB
represents a lower degree if speculation than B and CCC the highest
degree of speculation. While such bonds will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C - The rating C is reserved for income bonds on which no interest
is being paid.
D - Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus or a
minus sign, which is used to show relative standing within the major
rating categories, except in the AAA category.
COMMERCIAL PAPER RATINGS
Moody's
Issuers rated "Prime-1" (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well-established industries;
high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection;
broad margins in earnings coverage of fixed financial charges and high
internal cash generation; well-established access to a range of financial
markets and assured sources of alternate liquidity.
Issuers rated "Prime-2" (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound,
will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
S&P
A-1 - This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics will be denoted
with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for
issues designated A-1.
2
G:\Fund Accounting\Legal\FUNDS\SLIV\2000\Secdocs\hans(sai00).doc
Smith Barney
Premier Selections Large Cap Fund
388 Greenwich Street
New York, New York 10013
1-800-451-2010
Statement of Additional
Information
August 28, 2000
This Statement of Additional Information ("SAI") expands upon and
supplements the information contained in the current Prospectus of
Smith Barney Premier Selections Large Cap Fund (the "Fund") dated
August 28, 2000 as amended or supplemented from time to time, and
should be read in conjunction with the Fund's Prospectus. The
Fund is a series of Smith Barney Investment Funds Inc. (the
"Company"). The Fund's Prospectus may be obtained from a 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 21
REDEMPTION OF SHARES 30
VALUATION OF SHARES 32
EXCHANGE PRIVILEGE 32
PERFORMANCE DATA 33
DIVIDENDS, DISTRIBUTIONS AND TAXES 36
ADDITIONAL INFORMATION 42
FINANCIAL STATEMENTS 43
OTHER INFORMATION 43
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, delayed-delivery or forward commitment
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 Fund 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 segment 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. Any 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) 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). Law firm of Paul R. Ades PLLC.
His address is Argyle Square, 181 West Main Street, Suite C, P.O.
Box 790, Babylon, New York 11702.
Herbert Barg, Director (Age 77). Private investor. His address is
273 Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
Dwight B. Crane, Director (Age 62). Professor, Graduate School of
Business Administration, Harvard University. His address is
Harvard Business School, Soldiers Field, Morgan Hall #371, 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
Avatar International, Inc., 87 Whittredge Road, Summit, New Jersey
07901.
*Heath B. McLendon, Chairman of the Board, President and Chief
Executive Officer (Age 67). Managing Director of Salomon Smith
Barney Inc. ("Salomon Smith Barney"); Director and President of
SSB Citi and Travelers Investment Adviser, Inc. ("TIA"); and
formerly Chairman of the Board of Smith Barney Strategy Advisers
Inc. Mr. McLendon is a director of 78 investment companies
associated with Citigroup Inc. ("Citigroup"). His address is 7
World Trade Center, 45th Floor, New York, New York 10048.
Jerome H. Miller, Director (Age 61). 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, 6th Floor, Suite 610,
New York, New York 10018.
Lewis E. Daidone, Senior Vice President and Treasurer (Age 42).
Managing Director of Salomon Smith Barney; Director and Senior
Vice President of SSB Citi and TIA; Senior Vice President and
Treasurer of 61 investment companies associated with Citigroup.
His address is 125 Broad Street, New York, New York 10004.
Alan Blake, Vice President and Investment Officer (Age 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 125 Broad Street, New York, New York
10004.
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
Fiscal Year
End
4/30/00
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
$4,817
$0
$56,238
5
Herbert Barg
4,817
0
114,288
16
Dwight B. Crane
4,817
0
155,363
23
Frank G. Hubbard
4,817
0
56,138
5
Heath B. McLendon
0
0
0
78
Jerome Miller
4,806
0
51,613
5
Ken Miller
4,454
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.
As of August 1, 2000, the Directors and Officers of the fund as a
group, owned less than 1.00% of the outstanding common stock of
the fund.
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 ("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 July 31, 2000 in excess of $189.5 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.
For the fiscal year ended April 30, 2000 the Fund incurred
$3,809,875 in management fees.
Code of Ethics
Pursuant to Rule 17j-1 of the 1940 Act, the Fund, the investment
adviser and principal underwriter have adopted codes of ethics
that permit personnel to invest in securities for their own
accounts, including securities that may be purchased or held by
the Fund. All personnel must place the interests of clients first
and avoid activities, interests and relationships that might
interfere with the duty to make decisions in the best interests of
the clients. All personal securities transactions by employees
must adhere to the requirements of the codes and must be conducted
in such a manner as to avoid any actual or potential conflict of
interest, the appearance of such a conflict, or the abuse of an
employee's position of trust and responsibility.
A copy of the Fund's Code of Ethics is on file with the SEC.
Counsel and Auditors
Willkie Farr & Gallagher serves as counsel to the Company. The
Directors who are not "interested persons" of the Company have
selected Stroock & Stroock & Lavan LLP to serve as their legal
counsel.
KPMG LLP, independent accountants, 757 Third Avenue, New York, New
York 10017, serve as auditors of the Fund and has been selected to
render an opinion on the Fund's financial statements annually
beginning with the fiscal period ending April 30, 2001.
Custodian and Transfer Agent
PNC Bank, National Association ("PNC Bank"), located at 17th and
Chestnut Streets, Philadelphia, Pennsylvania 19103, serves as the
custodian of the Fund. Under its agreement with the Company on
behalf of the Fund, PNC Bank holds the Fund's portfolio securities
and keeps all necessary accounts and records. For its services,
PNC Bank receives a monthly fee based upon the month-end market
value of securities held in custody and also receives securities
transaction charges. The assets of the Fund are held under bank
custodianship in compliance with the 1940 Act.
Citi Fiduciary Trust Company (the "transfer agent") located at 125
Broad Street, New York, New York 10004, serves as the transfer
agent and shareholder services agent of the Fund.
PFPC Global Fund Services (the "sub-transfer agent"), located at
P.O. Box 9699, Providence Rhode Island 02940-9699, serves as the
Fund's sub-transfer agent to render certain shareholder record-
keeping and accounting services functions.
Distributor
Salomon Smith Barney, Inc., located at 388 Greenwich Street, New
York, New York 10013 serves as the Fund's distributor pursuant to
a written agreement dated June 5, 2000 (the "Distribution
Agreement") which was approved by the Fund's Board of Directors,
including a majority of the Independent Directors, on April 13,
2000. This Distribution Agreement replaces the Distribution
Agreement with CFBDS, Inc.
For the fiscal year ended April 30, 2000, Salomon Smith Barney and
CFBDS received $4,151,000 in sales charges from the sale of Class
A shares. For the fiscal year ended April 30, 2000, Salomon Smith
Barney and CFBDS received $2,675,000 in sales charges from the
sale of Class L shares. For the fiscal year ended April 30, 2000,
Salomon Smith Barney received $45,000 in contingent Deferred Sales
Charges on redemptions of the fund's Class A shares. For the
fiscal year ended April 30, 2000 Salomon Smith Barney received
$598,000 in Deferred Sales Charges on redemptions of the fund's
Class B shares. For the fiscal year ended April 30, 2000, Salomon
Smith Barney received $170,000 in Deferred Sales Charges on
redemptions of the fund's Class L shares.
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.
For the fiscal year ended April 30, 2000, Salomon Smith Barney
incurred distribution expenses totalling $24,315,717, consisting
of $913,597 for advertising, $18,844 for printing and making of
prospectuses, $3,949,611 for support services, $18,490,842 to
Salomon Smith Barney Financial Consultants, and $942,823 for
accruals for interest on the excess of Salomon Smith Barney
expenses incurred in distributing the Fund's shares over the sum
of the distributions fees and Deferred Sales Charge received by
Salomon Smith Barney from the Fund.
The following service and distribution fees were incurred by the
Fund pursuant to a Distribution Plan during the periods indicated:
Distribution Plan Fees
Fiscal Year
Ended
4/30/00
Class A
$ 284,783
Class B
$ 2,254,543
Class L
$ 1,686,340
Under its terms, the Distribution Plan continues from year to
year, provided such continuance is approved annually by vote of
the Board of Directors, including a majority of the Independent
Directors who have no direct or indirect financial interest in the
operation of the Plan. 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. For the fiscal year ended April
30, 2000, the Fund paid total brokerage commissions of $733,623.
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. For the fiscal year ended April 30, 2000,
the Fund paid $14,174 in commissions on brokerage transactions
directed to brokers because of research provided.
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. For the fiscal year ended April 30, 2000,
the fund paid $8,835 in brokerage commissions to Salomon Smith
Barney.
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 segment of the
Fund's portfolio have underperformed the securities in the segment
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
4.25
4.44
3.83
50,000 -
99,999
3.75
3.90
3.38
100,000 -
249,999
3.25
3.36
2.93
250,000 -
499,999
2.75
2.86
2.48
500,000 -
999,999
2.00
2.04
1.80
1,000,000 or
more
-0-
-0-
-0-
* Purchases of Class A shares of $1,000,000 or more will be
made at net asset value without any initial sales charge,
but will be subject to a Deferred Sales Charge of 1.00% on
redemptions made within 12 months of purchase. The Deferred
Sales Charge on Class A shares is payable to Salomon Smith
Barney, which compensates Salomon Smith Barney Financial
Consultants and other dealers whose clients make purchases
of $1,000,000 or more. The Deferred Sales Charge is waived
in the same circumstances in which the Deferred Sales Charge
applicable to Class B and Class L shares is waived. See
"Deferred Sales Charge Provisions" and "Waivers of Deferred
Sales Charge."
Members of the selling group may receive up to 90% of the sales
charge and may be deemed to be underwriters of the Fund as defined
in the 1933 Act. The reduced sales charges shown above apply to
the aggregate of purchases of Class A shares of the Fund made at
one time by "any person," which includes an individual and his or
her immediate family, or a trustee or other fiduciary of a single
trust estate or single fiduciary account.
Class B Shares. Class B shares are sold without an initial sales
charge but are subject to a Deferred Sales Charge payable upon
certain redemptions. See "Deferred Sales Charge Provisions"
below.
Class L Shares. Class L shares are sold with an initial sales
charge of 1.00% (which is equal to 1.01% of the amount invested)
and are subject to a Deferred Sales Charge payable upon certain
redemptions. See "Deferred Sales Charge Provisions" below. Until
June 22, 2001, purchases of Class L shares by investors who were
holders of Class C shares of other Smith Barney Mutual Funds on
June 12, 1998 will not be subject to the 1.00% initial sales
charge.
Class Y Shares. Class Y shares are sold without an initial sales
charge or Deferred Sales Charge and are available only to
investors investing a minimum of $15,000,000 (except purchases of
Class Y shares by Smith Barney Concert Allocation Series Inc., for
which there is no minimum purchase amount).
General
Investors may purchase shares from a 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, or proceeds from a sale of, 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.
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, Class L,
and, in limited circumstances, Class O shares at net asset value
to participating plans under the programs. You can meet minimum
investment and exchange amounts, if any, by combining the plan's
investments in any of the Smith Barney Mutual Funds.
There are no sales charges when you buy or sell shares and the
class of shares you may purchase depends on the amount of your
initial investment and/or the date your account is opened. Once a
class of shares is chosen, all additional purchases must be of the
same class.
For plans opened on or after March 1, 2000 that are not plans for
which Paychex Inc. or an affiliate provides administrative
services (a "Paychex plan"), Class A shares may be purchased
regardless of the amount invested.
For plans opened prior to March 1, 2000 and for Paychex plans, the
class of shares you may purchase depends on the amount of your
initial investment:
Class A Shares. Class A shares may be purchased by plans investing
at least $1 million.
Class L Shares. Class L shares may be purchased by plans
investing less than $1 million. Class L shares are eligible to
exchange into Class A shares not later than 8 years after the plan
joined the program. They are eligible for exchange in the
following circumstances:
If the plan was opened on or after June 21, 1996 and a total of $1
million is invested in Smith Barney Funds Class L shares (other
than money market funds), all Class L shares are eligible for
exchange after the plan is in the program 5 years.
If the plan was opened before June 21, 1996 and a total of
$500,000 is invested in Smith Barney Funds Class L shares (other
than money market funds) on December 31 in any year, all Class L
shares are eligible for exchange on or about March 31 of the
following year.
For more information, call your Salomon Smith Barney Financial
Consultant or the transfer agent.
Retirement Programs Opened On or After June 21, 1996. If, at the
end of the fifth year after the date the participating plan
enrolled in the Smith Barney 401(k) Program or ExecChoiceTM
Program, a participating plan's total Class L and/or Class O
holdings in all non-money market Smith Barney Mutual Funds equal
at least $1,000,000, the participating plan will be offered the
opportunity to exchange all of its Class L and/or Class O shares
for Class A shares of the Fund. (For participating plans that were
originally established through a Salomon Smith Barney retail
brokerage account, the five-year period will be calculated from
the date the retail brokerage account was opened.) Such
participating plans will be notified of the pending exchange in
writing within 30 days after the fifth anniversary of the
enrollment date and, unless the exchange offer has been rejected
in writing, the exchange will occur on or about the 90th day after
the fifth anniversary date. If the participating plan does not
qualify for the five-year exchange to Class A shares, a review of
the participating plan's holdings will be performed each quarter
until either the participating plan qualifies or the end of the
eighth year.
Retirement Programs Opened Prior to June 21, 1996. In any year
after the date a participating plan enrolled in the Smith Barney
401(k) Program, if its total Class L and/or Class O holdings in
all non-money market Smith Barney Mutual Funds equal at least
$500,000 as of the calendar year-end, the participating plan will
be offered the opportunity to exchange all of its Class L and/or
Class O shares for Class A shares of the same fund. Such Plans
will be notified in writing within 30 days after the last business
day of the calendar year and, unless the exchange offer has been
rejected in writing, the exchange will occur on or about the last
business day of the following March.
Any participating plan in the Smith Barney 401(k) or ExecChoiceTM
Program, whether opened before or after June 21, 1996, that has
not previously qualified for an exchange into Class A shares will
be offered the opportunity to exchange all of its Class L and/or
Class O shares for Class A shares of the same fund regardless of
asset size, at the end of the eighth year after the date the
participating plan enrolled in the Smith Barney 401(k) or
ExecChoiceTM Program. Such plans will be notified of the pending
exchange in writing approximately 60 days before the eighth
anniversary of the enrollment date and, unless the exchange has
been rejected in writing, the exchange will occur on or about the
eighth anniversary date. Once an exchange has occurred, a
participating plan will not be eligible to acquire additional
Class L shares, but instead may acquire Class A shares of the same
fund. Any Class L and/ or Class O shares not converted will
continue to be subject to the distribution fee.
Participating plans wishing to acquire shares of the Fund through
the Smith Barney 401(k) Program or the Smith Barney ExecChoiceTM
Program must purchase such shares directly from the transfer
agent. For further information regarding these Programs, investors
should contact a Salomon Smith Barney Financial Consultant.
Retirement Programs Investing in Class B Shares: Class B shares
of a Fund are not available for purchase by participating plans
opened on or after June 21, 1996, but may continue to be purchased
by any participating plan in the Smith Barney 401(k) Program
opened prior to such date and originally investing in such Class.
Class B shares acquired are subject to a deferred sales charge of
3.00% of redemption proceeds if the participating plan terminates
within eight years of the date the participating plan first
enrolled in the Smith Barney 401(k) Program.
At the end of the eighth year after the date the participating
plan enrolled in the Smith Barney 401(k) Program, the
participating plan will be offered the opportunity to exchange all
of its Class B shares for Class A shares of the same Fund. Such
participating plan will be notified of the pending exchange in
writing approximately 60 days before the eighth anniversary of the
enrollment date and, unless the exchange has been rejected in
writing, the exchange will occur on or about the eighth
anniversary date. Once the exchange has occurred, a participating
plan will not be eligible to acquire additional Class B shares,
but instead may acquire Class A shares of the same Fund. If the
participating plan elects not to exchange all of its Class B
shares at that time, each Class B share held by the participating
plan will have the same conversion feature as Class B shares held
by other investors. See "Purchase of Shares-Deferred Sales Charge
Alternatives."
No Deferred Sales Charge is imposed on redemptions of Class B
shares to the extent that the net asset value of the shares
redeemed does not exceed the current net asset value of the shares
purchased through reinvestment of dividends or capital gain
distributions, plus the current net asset value of Class B shares
purchased more than eight years prior to the redemption, plus
increases in the net asset value of the shareholder's Class B
shares above the purchase payments made during the preceding eight
years. Whether or not the Deferred Sales Charge applies to the
redemption by a participating plan depends on the number of years
since the participating plan first became enrolled in the Smith
Barney 401(k) Program, unlike the applicability of the Deferred
Sales Charge to redemptions by other shareholders, which depends
on the number of years since those shareholders made the purchase
payment from which the amount is being redeemed.
The Deferred Sales Charge will be waived on redemptions of Class B
shares in connection with lump-sum or other distributions made by
a participating plan as a result of: (a) the retirement of an
employee in the participating plan; (b) the termination of
employment of an employee in the participating plan; (c) the death
or disability of an employee in the participating plan; (d) the
attainment of age 591/2 by an employee in the participating plan;
(e) hardship of an employee in the participating plan to the
extent permitted under Section 401(k) of the Code; or (f)
redemptions of shares in connection with a loan made by the
participating plan to an employee.
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
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 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, Investor's Business 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.
The Fund's average annual total return for Class A shares assuming
the maximum applicable sales charge was as follows for the periods
indicated (reflecting the waiver of the Fund's investment advisory
and administration fees and reimbursement of expenses):
2.83 % per annum during the period from the Fund's
commencement of operations on August 31, 1999 through
April 30, 2000.
Class A's average annual total return assumes that the maximum
applicable sales charge assessed by the Fund has been deducted
from the hypothetical investment. Had the maximum 4.00% sales
charge not been deducted, Class A's average annual total return
would have been 8.25% for the same period.
The Fund's average annual total return for Class B shares assuming
the maximum applicable Deferred Sales Charge was as follows for
the periods indicated (reflecting the waiver of the Fund's
investment advisory and administration fees and reimbursement of
expenses):
2.72% per annum during the period from the Fund's
commencement of operations on August 31, 1999 through
April 30, 2000.
Had the maximum applicable Deferred Sales Charge not been deducted
at the time of redemption, Class B's average annual total return
would have been 7.72% for the same period.
The Fund's average annual total return for Class L shares assuming
the maximum applicable Deferred Sales Charge was as follows for
the periods indicated (reflecting the waiver of the Fund's
investment advisory and administration fees and reimbursement of
expenses):
5.60% per annum during the period from the Fund's
commencement of operations on August 31, 1999 through
April 30, 2000.
Had the maximum applicable Deferred Sales Charge not been deducted
at the time of redemption, Class L's average annual total return
would have been 7.72% for the same period.
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.
The Fund's aggregate total return for Class A shares was as
follows for the periods indicated (reflecting the waiver of the
Fund's investment advisory and administration fees and
reimbursement of expenses):
2.83% for the period from the Fund's commencement of
operations on August 31, 1999 through April 30, 2000.
Class A's aggregate total return assumes that the maximum
applicable sales charge or maximum applicable Deferred Sales
Charge has been deducted from the investment. If the maximum
sales charge had not been deducted at the time of purchase, Class
A's aggregate total return for the same period would have been
8.25%
The Fund's aggregate total return for Class B shares was as
follows for the periods indicated (reflecting the waiver of the
Fund's investment advisory and administration fees and
reimbursement of expenses):
2.72% for the period from commencement of operations
on August 31, 1999 through April 30, 2000.
If the maximum applicable Deferred Sales Charge had not been
deducted at the time of redemption, Class B's aggregate total
return for the same period would have been 7.72%.
The Fund's aggregate total return for Class L shares was as
follows for the period indicated (reflecting the waiver of the
Fund's investment advisory and administration fees and
reimbursement of expenses):
5.60% for the period from commencement of operations
on August 31, 1999 through April 30, 2000.
If the maximum applicable Deferred Sales Charge had not been
deducted at the time of redemption, Class L's aggregate total
return for the same period would have been 7.72%
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 the 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 which 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 investment company taxable
income (i.e., taxable income other than any excess of net realized
long-term capital gains over net realized short-term capital
losses ("net capital gains")) and its net gains, if any, that it
distributes to its shareholders, provided an amount equal to at
least 90% of its investment company taxable income 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 with respect to certain of its assets (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 foreign 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 PFICs in
which it invests, which may be difficult or not possible to
obtain.
The Fund may also make an election that would result in the Fund
being treated as if it had sold and repurchased all of its 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 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 capital
gains. 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 capital
gains, 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 net capital gains included in the shareholder's
income. Organizations or persons not subject to federal income
tax on such net 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 an 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
The Fund's annual report for the fiscal year ended April 30, 2000
was filed on June 29, 2000, Accession Number 0000950130-00-003667,
and is incorporated in its entirety by reference.
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.
36
24
legal\funds\sliv\2000\secdocs\premierselectionslcfundsai
legal\funds\sliv\2000\secdocs\premierselectionslcfundsai
Smith Barney
Premier Selections All Cap Growth Fund
388 Greenwich Street
New York, New York 10013
1-800-451-2010
Statement of Additional
Information
August 28, 2000
This Statement of Additional Information ("SAI") expands upon and
supplements the information contained in the current Prospectus of
Smith Barney Premier Selections All Cap Growth Fund consisting of
the Large Cap Growth, Mid Cap Growth and Small Cap Growth segments
(collectively the "Fund") dated August 28, 2000, as amended or
supplemented from time to time, and should be read in conjunction
with the Fund's Prospectus. The Fund is a series of Smith Barney
Investment Funds Inc. (the "Company"). The Fund's Prospectus may
be obtained from a 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 21
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY 23
PURCHASE OF SHARES 29
REDEMPTION OF SHARES 37
VALUATION OF SHARES 39
EXCHANGE PRIVILEGE 40
PERFORMANCE DATA 41
DIVIDENDS, DISTRIBUTIONS AND TAXES 43
ADDITIONAL INFORMATION 48
FINANCIAL STATEMENTS 49
OTHER INFORMATION 49
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.
Mid Cap Growth Segment of the Fund
The Fund is an open-end, diversified, management investment
company whose investment objective is to seek long-term growth of
capital by investing, under normal market conditions, at least 65%
of its total assets in equity securities of medium-sized
companies. Medium sized companies are those whose market
capitalization is within the market capitalization range of
companies in the S&P Mid Cap Index ("Index") at the time of
investment. The size of the companies in the Index changes with
market conditions and the composition of the Index. As of January
29, 1999, the largest market capitalization of a company in the
Index was $11.4 billion and the smallest market capitalization was
$240 million. Investing in medium-capitalization stocks may
involve greater risk than investing in large capitalization stocks
since they can be subject to more abrupt or erratic movements.
However, they tend to involve less risk than stocks of small
capitalization companies.
The Fund normally invests in all types of equity securities,
including common stocks, preferred stocks, securities that are
convertible into common or preferred stocks, such as warrants and
convertible bonds, and depository receipts for those securities.
The Fund may maintain a portion of its assets, which will usually
not exceed 10%, in U.S. Government securities, money market
obligations, and in cash to provide for payment of the Fund's
expenses and to meet redemption requests. It is the policy of the
Fund to be as fully invested in equity securities as practicable
at all times.
Large Cap Growth Segment of the Fund
The Fund normally invests at least 65% of its total assets in
equity securities of large capitalization companies that are
dominant in their industries, 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 other 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
capitalizations 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.
FOREIGN SECURITIES
Large Cap Growth Segment of the Fund
The Large Cap Growth segment of the Fund may 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.
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.
Mid Cap Growth Segment of the Fund
The Mid Cap Growth Segment of the Fund has the authority to invest
up to 25% of its assets in foreign securities (including European
Depository Receipts ("EDRs") and Global Depository Receipts
("GDRs")) and American Depository Receipts ("ADRs") or other
securities representing underlying shares of foreign companies.
EDRs are receipts issued in Europe which evidence ownership of
underlying securities issued by a foreign corporations. ADRs are
receipts typically issued by an American bank or trust company
which evidence a similar ownership arrangement. Generally, ADRs
which are issued in registered form, are designed for use in the
United States securities markets and EDRs, which are issued in
bearer form, are designed for use in European securities markets.
GDRs are tradeable both in the U.S. and Europe and are designed
for use throughout the world.
There are certain risks involved in investing in securities of
companies and governments of foreign nations that are in addition
to the usual risks inherent in domestic investments. These risks
include those resulting from revaluation of currencies, future
adverse political and economic developments and the possible
imposition of currency exchange blockages or other foreign
governmental laws or restrictions, reduced availability of public
information concerning issuers and the lack of uniform accounting,
auditing and financial reporting standards or of other regulatory
practices and requirements comparable to those applicable to
domestic companies. The yield of the Mid Cap Growth Segment of
the Fund may be adversely affected by fluctuations in value of one
or more foreign currencies relative to the U.S. dollar. Moreover,
securities of many foreign companies and their markets may be less
liquid and their prices more volatile than those of securities of
comparable domestic companies. In addition, with respect to
certain foreign countries, there is the possibility of
expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of Funds or other assets of the
Fund, including the withholding of dividends. Foreign securities
may be subject to foreign government taxes that could reduce the
yield on such securities. Because the Fund may invest in
securities denominated or quoted in currencies other than the U.S.
dollar, changes in foreign currency exchange rates may adversely
affect the value of portfolio securities and the appreciation or
depreciation of investments. Investment in foreign securities
also may result in higher expenses due to the cost of converting
foreign currency to U.S. dollars, the payment of fixed brokerage
commissions on foreign exchanges, which generally are higher than
commissions on domestic exchanges, the expense of maintaining
securities with foreign custodians, and the imposition of transfer
taxes or transaction charges associated with foreign exchanges.
Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of
gross domestic product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payment positions. The
Mid Cap Growth Segment of the Fund may invest in securities of
foreign governments (or agencies or subdivisions thereof), and
therefore many, if not all, of the foregoing considerations apply
to such investments as well. These securities may not necessarily
be denominated in the same currency as the securities into which
they may be converted. In addition, the Mid Cap Growth Segment of
the Fund may invest in securities into which they may be
converted. The Mid Cap Growth Segment of the Fund also may invest
in securities denominated in European Currency Units (ECUs). An
ECU is a "basket" consisting of a specified amount of currencies
of certain of the twelve member states of the European Community.
In addition, the Fund may invest in securities denominated in
other currency "baskets."
Small Cap Growth Segment of the Fund
Small Cap Growth Segment of the Fund has the authority to invest
up to 10% of its assets in foreign securities "EDRs" and GDRs and
ADRs or other securities representing underlying shares of foreign
companies. EDRs are receipts issued in Europe which evidence
ownership of underlying securities issued by a foreign
corporations. ADRs are receipts typically issued by an American
bank or trust company which evidence a similar ownership
arrangement. Generally, ADRs which are issued in registered form,
are designed for use in the United States securities markets and
EDRs, which are issued in bearer form, are designed for use in
European securities markets. GDRs are tradeable both in the U.S.
and Europe and are designed for use throughout the world.
Investing in the securities of foreign companies involves special
risks and considerations not typically associated with investing
in U.S. companies. These include differences in accounting,
auditing and financial reporting standards, generally higher
commission rates on foreign portfolio transactions, the
possibility of expropriation or confiscatory taxation, adverse
changes in investment or exchange control regulations, political
instability which could affect U.S. investments in foreign
countries, and potential restrictions on the flow of international
capital. Additionally, foreign securities often trade with less
frequency and volume than domestic securities and therefore may
exhibit greater price volatility. Many of the foreign securities
held by the Fund will not be registered with, nor will the issuers
thereof be subject to the reporting requirements of, the
Securities and Exchange Commission. Accordingly, there may be less
publicly available information about the securities and about the
foreign company issuing them than is available about a domestic
company and its securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of
payment positions. The risks of investing in foreign securities
are greater for securities of emerging market issuers because
political or economic instability, lack of market liquidity and
negative government actions like currency controls or seizure of
private business or property are more likely. The Small Cap Growth
Segment of the Fund may invest in securities of foreign
governments (or agencies or subdivisions thereof), and therefore
many, if not all, of the foregoing considerations apply to such
investments as well.
LENDING PORTFOLIO SECURITIES
Small Cap Growth Segment of the Fund
Consistent with applicable regulatory requirements and for cash
management purposes, the Small Cap Growth Segment of the Fund may
lend securities from its portfolio to brokers, dealers and other
financial organizations. The Small Cap Growth Segment of the Fund
may not lend its portfolio securities to the Manager or its
affiliates unless it has applied for and received specific
authority from the SEC. Loans of portfolio securities by the Fund
will be collateralized by cash, letters of credit or U.S.
government securities that are maintained at all times in an
amount equal to at least 100% of the current market value of the
loaned securities.
In lending its portfolio securities, The Small Cap Growth Segment
of the Fund can increase its income by continuing to receive
interest on the loaned securities as well as by either investing
the cash collateral in short-term instruments or obtaining yield
in the form of interest paid by the borrower when U.S. government
securities are used as collateral. Requirements of the SEC, which
may be subject to future modifications, currently provide that the
following conditions must be met whenever the Small Cap Growth
Segment of the Fund's portfolio securities are loaned: (a) the
Fund must receive at least 100% cash collateral or equivalent
securities from the borrower; (b) the borrower must increase such
collateral whenever the market value of the securities rises above
the level of such collateral; (c) the Fund must be able to
terminate the loan at any time; (d) the Fund must receive
reasonable interest on the loan, as well as an amount equal to any
dividends, interest or other distributions on the loaned
securities, and any increase in market value; (e) the Fund may pay
only reasonable custodian fees in connection with the loan; and
(f) voting rights on the loaned securities may pass to the
borrower; however, if a material event adversely affecting the
investment occurs, the Company's Board of Directors must terminate
the loan and regain the right to vote the securities. The risks in
lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional
collateral or in the recovery of the securities or possible loss
of rights in the collateral should the borrower fail financially.
Loans will be made to firms deemed by the Manager to be of good
standing and will not be made unless, in the judgment of the
Manager, the consideration to be earned from such loans would
justify the risk. From time to time, the Fund may return a part of
the interest earned from the investment of collateral received for
securities loaned to: (a) the borrower; and/or (b) a third party,
which is unaffiliated with the Fund, the Manager and which is
acting as a "finder."
Large-Cap Growth and Mid-Cap Growth Segments of the Fund
Consistent with applicable regulatory requirements, the Large-Cap
Growth Segment and the Mid-Cap Growth Segment of the Fund may each
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 Adviser unless they have
applied for and received specific authority to do so from the SEC.
Loans of portfolio securities will be collateralized by cash,
letters of credit or U.S. Government Securities, 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 Large-Cap Growth Segment
and the Mid-Cap Growth Segment of 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.
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 that are listed 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 1940 Act.
REVERSE REPURCHASE AGREEMENTS
Small Cap Growth Segment and Mid Cap Growth Segments of the Fund
The Small Cap Growth and Mid Cap Growth Segments of the Fund may
enter into reverse repurchase agreements. A reverse repurchase
agreement involves the sale of a money market instrument by the
Fund and its agreement to repurchase the instrument at a specified
time and price. The Fund will maintain a segregated account
consisting of U.S. government securities or cash or cash
equivalents to cover its obligations under reverse repurchase
agreements with broker-dealers and other financial institutions.
The Fund will invest the proceeds in other money market
instruments or repurchase agreements maturing not later than the
expiration of the reverse repurchase agreement. Under the
Investment Company Act of 1940, as amended, reverse repurchase
agreements may be considered borrowings by the seller.
Reverse repurchase agreements create opportunities for increased
returns to the shareholders of the Fund but, at the same time,
create special risk considerations. Although the principal or
stated value of such borrowings will be fixed, the Fund's assets
may change in value during the time the borrowing is outstanding.
To the extent the income or other gain derived from securities
purchased with borrowed funds exceeds the interest or dividends
the Fund will have to pay in respect thereof, the Fund's net
income or other gain will be greater than if this type of
investment technique had not been used. Conversely, if the income
or other gain from the incremental assets is not sufficient to
cover this cost, the net income or other gain of the Fund will be
less than if the reverse repurchase agreement had not been used.
Each Segment currently intends to invest not more than 33% of its
net assets in reverse repurchase agreements.
WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS
Small Cap Growth Segment of the Fund
In order to secure what the Manager considers to be an
advantageous price or yield, the Small Cap Growth Segment of the
Fund may purchase U.S. government securities on a when-issued
basis or purchase or sell U.S. government securities for delayed
delivery. The Fund will enter into such purchase transactions for
the purpose of acquiring portfolio securities and not for the
purpose of leverage. Delivery of the securities in such cases
occurs beyond the normal settlement periods, but no payment or
delivery is made by the Fund prior to the reciprocal delivery or
payment by the other party to the transaction. In entering into a
when-issued or delayed-delivery transaction, the Fund relies on
the other party to consummate the transaction and may be
disadvantaged if the other party fails to do so.
U.S. government securities normally are subject to changes in
value based upon changes, real or anticipated, in the level of
interest rates and, to a lesser extent, the public's perception of
the creditworthiness of the issuers. In general, U.S. government
securities tend to appreciate when interest rates decline and
depreciate when interest rates rise. Purchasing U.S. government
securities on a when-issued basis or delayed-delivery basis,
therefore, can involve the risk that the yields available in the
market when the delivery takes place may actually be higher than
those obtained in the transaction itself. Similarly, the sale of
U.S. government securities for delayed delivery can involve the
risk that the prices available in the market when the delivery is
made may actually be higher than those obtained in the transaction
itself.
The Fund will at times maintain in a segregated account cash or
liquid securities equal to the amount of the Fund's when-issued or
delayed-delivery commitments. For the purpose of determining the
adequacy of the securities in the account, the deposited
securities will be valued at market or fair value. If the market
or fair value of such securities declines, additional cash or
securities will be placed in the account on a daily basis so the
value of the account will equal the amount of such commitments by
the Fund. Placing securities rather than cash in the account may
have a leveraging effect on the Fund's assets. That is, to the
extent the Fund remains substantially fully invested in securities
at the time that it has committed to purchase securities on a
when-issued basis, there will be greater fluctuation in its net
asset value than if it had set aside cash to satisfy its purchase
commitments. On the settlement date, the Fund will meet its
obligations from then available cash flow, the sale of securities
held in the separate account, the sale of other securities or,
although it normally would not expect to do so, from the sale of
the when-issued or delayed-delivery securities themselves (which
may have a greater or lesser value than the Fund's payment
obligations).
Mid Cap Growth and Large Cap Growth Segments of the Fund
The Mid Cap Growth and Large Cap Growth Segments of 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. Due to fluctuations in the value of
securities purchased or sold on a when-issued, delayed-delivery
basis 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 or delayed-delivery
securities, its 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 Fund 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.
MONEY MARKET INSTRUMENTS
Small Cap Growth Segment of the Fund
As stated in the Prospectus, the Small Cap Growth Segment of the
Fund may invest for temporary defensive purposes in corporate and
government bonds and notes and money market instruments. Money
market instruments in which the Fund may invest include: 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. The following is a more detailed
description of such money market 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.
Domestic commercial banks organized under Federal law are
supervised and examined by the Comptroller of the Currency and are
required to be members of the Federal Reserve System and to be
insured by the Federal Deposit Insurance Corporation (the "FDIC").
Domestic banks organized under state law are supervised and
examined by state banking authorities but are members of the
Federal Reserve System only if they elect to join. Most state
banks are insured by the FDIC (although such insurance may not be
of material benefit to the Fund, depending upon the principal
amounts of CDs of each bank held by the Fund) and are subject to
Federal examination and to a substantial body of Federal law and
regulation. As a result of governmental regulations, domestic
branches of domestic banks are generally required to, among other
things, maintain specified levels of reserves, and are subject to
other supervision and regulation designed to promote financial
soundness.
Obligations of foreign branches of domestic banks, such as CDs and
TDs, may be general obligations of the parent bank in addition to
the issuing branch, or may be limited by the terms of a specific
obligation and government regulation. Such obligations are subject
to different risks than are those of domestic banks or domestic
branches of foreign banks. These risks include foreign economic
and political developments, foreign governmental restrictions that
may adversely affect payment of principal and interest on the
obligations, foreign exchange controls and foreign withholding and
other taxes on interest income. Foreign branches of domestic banks
are not necessarily subject to the same or similar regulatory
requirements that apply to domestic banks, such as mandatory
reserve requirements, loan limitations, and accounting, auditing
and financial recordkeeping requirements. In addition, less
information may be publicly available about a foreign branch of a
domestic bank than about a domestic bank. CDs issued by wholly
owned Canadian subsidiaries of domestic banks are guaranteed as to
repayment of principal and interest (but not as to sovereign risk)
by the domestic parent bank.
Obligations of domestic branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch,
or may be limited by the terms of a specific obligation and by
governmental regulation as well as governmental action in the
country in which the foreign bank has its head office. A domestic
branch of a foreign bank with assets in excess of $1 billion may
or may not be subject to reserve requirements imposed by the
Federal Reserve System or by the state in which the branch is
located if the branch is licensed in that state. In addition,
branches licensed by the Comptroller of the Currency and branches
licensed by certain states ("State Branches") may or may not be
required to: (a) pledge to the regulator by depositing assets with
a designated bank within the state, an amount of its assets equal
to 5% of its total liabilities; and (b) maintain assets within the
state in an amount equal to a specified percentage of the
aggregate amount of liabilities of the foreign bank payable at or
through all of its agencies or branches within the state. The
deposits of State Branches may not necessarily be insured by the
FDIC.
In view of the foregoing factors associated with the purchase of
CDs and TDs issued by foreign branches of domestic banks or by
domestic branches of foreign banks, SSB Citi will carefully
evaluate such investments on a case-by-case basis.
Savings and loan associations whose CDs may be purchased by the
Fund are supervised by the Office of Thrift Supervision and are
insured by the Savings Association Insurance Fund, which is
administered by the FDIC and is backed by the full faith and
credit of the U.S. government. As a result, such savings and loan
associations are subject to regulation and examination.
Mid Cap Growth Segment of the Fund
The Mid Cap Growth Segment of the Fund may invest for temporary
defensive purposes in short-term instruments including corporate
and government bonds and notes and money market instruments.
Short-term instruments in which the Fund may invest include
obligations of banks having at least $1 billion in assets
(including certificates of deposit, time deposits and bankers'
acceptances of domestic or foreign banks, domestic savings and
loan associations and similar institutions); commercial paper
rated no lower than A-2 by Standard & Poor's Ratings Group or
Prime-2 by Moody's Investors Service, Inc. or the equivalent from
another nationally recognized statistical rating organization or,
if unrated, of an issuer having an outstanding, unsecured debt
issue then rated within the two highest rating categories; and
repurchase agreements with respect to any of the foregoing entered
into with banks and non-bank dealers approved by the Trust's Board
of Directors. 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.
Large Cap Growth Segment of the Fund
The Large Cap Growth Segment of the Fund may invest for temporary
defensive purposes in corporate and government bonds and notes and
money market instruments. Money market instruments include:
obligations issued or guaranteed by the United States government,
its agencies or instrumentalities ("U.S. government securities");
certificates of deposit, time deposits and bankers' acceptances
issued by domestic banks (including their branches located outside
the United States and subsidiaries located in Canada), domestic
branches of foreign banks, savings and loan associations and
similar institutions; high grade commercial paper; and repurchase
agreements with respect to the foregoing types of instruments.
Certificates of deposit ("CDs") are short-term, negotiable
obligations of commercial banks. Time deposits ("TDs") are non-
negotiable deposits maintained in banking institutions for
specified periods of time at stated interest rates. Bankers'
acceptances are time drafts drawn on commercial banks by
borrowers, usually in connection with international transactions.
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 that 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 investment adviser 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 investment adviser
believes that 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 that 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 that 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's custodian 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 account 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 amount 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 by its custodian) 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
with its custodian.
Although the Fund might not employ the use of forward currency
contracts, options and futures, the use of any of these strategies
would involve certain investment risks and transaction costs to
which it might not otherwise be subject. These risks include:
dependence on the investment adviser'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 options thereon at any
particular time and possible need to defer or accelerate closing
out certain options, futures contracts and options thereon in
order to continue to qualify for the beneficial tax treatment
afforded "regulated investment companies" under the Internal
Revenue Code of 1986, as amended (the "Code"). See "Dividends,
Distributions and Taxes."
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.
Large Cap Growth and Mid Cap Growth Segment of the Fund
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. In the event that 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 be required to forfeit such amounts in the
event that the prices of securities underlying the options do not
move in the direction or to the extent anticipated.
OPTIONS ON SECURITIES
As discussed more generally above, the Fund may engage in the
writing of 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 at the times 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 SSB Citi
expects the price of the underlying security to remain flat or
decline moderately during the option period, (b) at-the-money call
options when SSB Citi 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 SSB Citi 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 a 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 SSB Citi 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 SSB Citi 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 a 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 SSB Citi 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
capital appreciation or for the purpose of hedging its portfolio.
A stock index fluctuates with changes in the market values of the
stocks included in the index. Some stock index options are based
on a broad market index such as the New York Stock Exchange
Composite Index or the Canadian Market Portfolio Index, or a
narrower market index such as the Standard & Poor's 100. 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 SSB Citi'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
Small Cap Growth Segment of the Fund
As described generally above, the Small Cap Growth Segment of the
Fund may invest in stock index futures contracts and options on
futures contracts that are traded on a domestic exchange or board
of trade.
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 that 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.
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 SSB Citi 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
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.
Mid Cap Growth and Large Cap Growth Segments of the Fund
As described generally above, the Mid Cap Growth and Large Cap
Growth Segments of 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 and board of trade. Assets committed to futures
contracts will be segregated at the Fund's custodian 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.
EQUITY SECURITIES
Mid Cap Growth and Large Cap Growth Segment of the Fund
Mid Cap Growth and Large Cap Growth Segment of 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.
CONVERTIBLE SECURITIES
Mid Cap Growth Segment of the Fund
Convertible securities in which the Mid Cap Growth Segment of the
Fund may invest, including both convertible debt and convertible
preferred stock, may be converted at either a stated price or
stated rate into underlying shares of common stock. Because of
this feature, convertible securities enable an investor to benefit
from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying
equity securities, but generally offer lower yields than non-
convertible securities of similar quality. Like bonds, the value
of convertible securities fluctuates in relation to changes in
interest rates and, in addition, also fluctuates in relation to
the underlying common stock.
DEBT SECURITIES
Mid Cap Growth Segment of the Fund
Debt securities in which the Mid Cap Growth Segment of the Fund
may invest include notes, bills, commercial paper, obligations
issued or guaranteed by the government or any of its political
subdivisions, agencies or instrumentalities, and certificates of
deposit. Debt securities represent money borrowed that obligate
the issuer (e.g., a corporation, municipality, government,
government agency) to repay the borrowed amount at maturity (when
the obligation is due and payable) and usually to pay the holder
interest at specific times.
All debt securities are subject to market risk and credit risk.
Market risk relates to market-induced changes in a security's
value, usually as a result of changes in interest rates. The
value of the Fund's investments in debt securities will change as
the general levels of interest rates fluctuate. During periods of
falling interest rates, the value of the Fund's debt securities
will generally rise. Conversely, during periods of rising
interest rates, the value of the Fund's debt securities will
generally decline. Credit risk relates to the ability of the
issuer to make payments of principal and interest. The Fund has
no restrictions with respect to the maturities or duration of the
debt securities it holds. The Fund's investment in fixed income
securities with longer terms to maturity or greater duration are
subject to greater volatility than the Fund's shorter-term
securities.
U.S. GOVERNMENT SECURITIES
Mid Cap Growth Segment of the Fund
The Mid Cap Growth Segment of the Fund may invest in U.S.
Government securities. Generally, these securities include U.S.
Treasury obligations and obligations issued or guaranteed by U.S.
Government agencies, instrumentalities or sponsored enterprises.
U.S. Government securities also include Treasury receipts and
other stripped U.S. Government securities, where the interest and
principal components of stripped U.S. Government securities are
traded independently. The Fund may also invest in zero coupon
U.S. Treasury securities and in zero coupon securities issued by
financial institutions, which represent a proportionate interest
in underlying U.S. Treasury securities. A zero coupon security
pays no interest to its holder during its life and its value
consists of the difference between its face value at maturity and
its cost. The market values of zero coupon securities generally
are more volatile than the market prices of securities that pay
interest periodically.
ILLIQUID SECURITIES
Mid Cap Growth and Large Cap Growth Segments of the Fund
The Mid Cap Growth and Large Cap Growth Segments of the Fund each
may invest up to an aggregate amount equal to 10% 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.
MASTER/FEEDER FUND STRUCTURE
The Board of Directors has the discretion to retain the current
distribution arrangement for the Fund while investing in a master
fund in a master/feeder fund structure. A master/feeder fund
structure is one in which a fund (a "feeder fund"), instead of
investing directly in a portfolio of securities, invests most or
all of its investment assets in a separate registered investment
company (the "master fund") with substantially the same investment
objective and policies as the feeder fund. Such a structure
permits the pooling of assets of two or more feeder funds,
preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the
expenses of operating an investment portfolio are relatively
fixed, a larger investment portfolio may eventually achieve a
lower ratio of operating expenses to average net assets. An
existing investment company is able to convert to a feeder fund by
selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by
contributing its assets to the master fund and avoiding
transaction costs and, if proper procedures are followed, the
realization of taxable gain or loss.
INVESTMENT RESTRICTIONS
The investment restrictions 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. Any 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), 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). Law firm of Paul R. Ades PLLC.
His address is Argyle Square, 181 West Main Street, Suite C, P.O.
Box 790, Babylon, New York 11702.
Herbert Barg, Director (Age 77). Private investor. His address is
273 Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
Dwight B. Crane, Director (Age 62). Professor, Graduate School of
Business Administration, Harvard University. His address is
Harvard Business School, Soldiers Field, Morgan Hall #371, 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
Avatar International, Inc., 87 Whittredge Road, Summit, New Jersey
07901.
*Heath B. McLendon, Chairman of the Board, President and Chief
Executive Officer (Age 67). 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 78 investment
companies associated with Citigroup Inc. ("Citigroup"). His
address is 7 World Trade Center, 45th Floor, New York, New York
10048.
Jerome H. Miller, Director (Age 61). 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, 6th Floor, Suite 610,
New York, New York 10018.
Lewis E. Daidone, Senior Vice President and Treasurer (Age 42).
Managing Director of Salomon Smith Barney; Director and Senior
Vice President of SSB Citi and TIA; Senior Vice President and
Treasurer of 61 investment companies associated with Citigroup.
His address is 125 Broad Street, New York, New York 10004.
Alan Blake, Vice President and Investment Officer (Age 48).
Managing Director of Salomon Smith Barney; Investment Officer of
SSB Citi. His address is 7 World Trade Center, New York, New York
10048.
Lawrence Weissman, Vice President and Investment Officer (Age 37).
Managing Director of Salomon Smith Barney; Investment Officer of
SSB Citi; prior to 1998, portfolio manager at Neuberger & Berman,
LLC; prior to that he was a portfolio manager at TIAA-CREFF. His
address is 388 Greenwich Street, New York, New York 10013.
Timothy Woods, CFA, Vice President and Investment Officer (Age
38). Managing Director of Salomon Smith Barney; prior to July
1999, Principal at Bankers Trust Company and manager of the Small-
Mid Cap Growth Team. His address is 388 Greenwich Street, New
York, New York 10013.
Paul Brook, Controller (Age 46). Director of Salomon Smith
Barney; from 1997-1998 Managing Director of AMT Capital Services
Inc.; prior to 1997 Partner with Ernst & Young LLP; Controller or
Assistant Treasurer of 43 investment companies associated with
Citigroup. His address is 125 Broad Street, New York, New York
10004.
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
Fiscal Year
End
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
78
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.
As of August 1, 2000, the Directors and Officers of the Fund as a
group, owned less than 1.00% of the outstanding common stock of
the Fund.
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 ("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 July 31, 2000 in excess of $189 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.
A copy of the Fund's code of ethics is on file with the SEC.
Counsel and Auditors
Willkie Farr & Gallagher serves as counsel to the Company. The
Directors who are not "interested persons" of the Company have
selected Stroock & Stroock & Lavan LLP to serve as their legal
counsel.
KPMG LLP, independent accountants, 757 Third Avenue, New York, New
York 10017, serve as auditors of the Fund and will render an
opinion on the Fund's financial statements annually.
Custodian and Transfer Agent
PNC Bank, National Association ("PNC Bank"), located at 17th and
Chestnut Streets, Philadelphia, Pennsylvania 19103, serves as the
custodian of the Fund. Under its agreement with the Company on
behalf of the Fund, PNC Bank holds the Fund's portfolio securities
and keeps all necessary accounts and records. For its services,
PNC Bank receives a monthly fee based upon the month-end market
value of securities held in custody and also receives securities
transaction charges. The assets of the Fund are held under bank
custodianship in compliance with the 1940 Act.
Citi Fiduciary Trust Company (the "transfer agent") located at 125
Broad Street, New York, New York 10004, serves as the transfer
agent and shareholder services agent of the Fund.
PFPC Global Fund Services (the "sub-transfer agent"), located at
P.O. Box 9699, Providence Rhode Island 02940-9699, serves as the
Fund's sub-transfer agent to render certain shareholder record-
keeping and accounting services functions.
Distributor
Salomon Smith Barney, Inc., located at 388 Greenwich Street, New
York, New York 10013 serves as the Fund's distributor pursuant to
a written agreement dated June 5, 2000 (the "Distribution
Agreement") which was approved by the Fund's Board of Directors,
including a majority of the Directors who are not interested
persons of the Fund (the "Independent Directors"), on April 13,
2000. This Distribution Agreement replaces the Distribution
Agreement with CFBDS, Inc.
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 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 segment of the
Fund's portfolio have underperformed the securities in the segment
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
4.25
4.44
3.83
50,000 -
99,999
3.75
3.90
3.38
100,000 -
249,999
3.25
3.36
2.93
250,000 -
499,999
2.75
2.86
2.48
500,000 -
999,000
2.00
2.04
1.80
1,000,000 or more -0-*
-0-* -0-*
* Purchases of Class A shares of $1,000,000 or more will be
made at net asset value without any initial sales charge,
but will be subject to a Deferred Sales Charge of 1.00% on
redemptions made within 12 months of purchase. The Deferred
Sales Charge on Class A shares is payable to Salomon Smith
Barney, which compensates Salomon Smith Barney Financial
Consultants and other dealers whose clients make purchases
of $1,000,000 or more. The Deferred Sales Charge is waived
in the same circumstances in which the Deferred Sales Charge
applicable to Class B and Class L shares is waived. See
"Deferred Sales Charge Provisions" and "Waivers of Deferred
Sales Charge."
Members of the selling group may receive up to 90% of the sales
charge and may be deemed to be underwriters of the Fund as defined
in the 1933 Act. The reduced sales charges shown above apply to
the aggregate of purchases of Class A shares of the Fund made at
one time by "any person," which includes an individual and his or
her immediate family, or a trustee or other fiduciary of a single
trust estate or single fiduciary account.
Class B Shares. Class B shares are sold without an initial sales
charge but are subject to a Deferred Sales Charge payable upon
certain redemptions. See "Deferred Sales Charge Provisions"
below.
Class L Shares. Class L shares are sold with an initial sales
charge of 1.00% (which is equal to 1.01% of the amount invested)
and are subject to a Deferred Sales Charge payable upon certain
redemptions. See "Deferred Sales Charge Provisions" below. Until
June 22, 2001, purchases of Class L shares by investors who were
holders of Class C shares of other Smith Barney Mutual Funds on
June 12, 1998 will not be subject to the 1.00% initial sales
charge.
Class Y Shares. Class Y shares are sold without an initial sales
charge or Deferred Sales Charge and are available only to
investors investing a minimum of $15,000,000 (except purchases of
Class Y shares by Smith Barney Concert Allocation Series Inc., for
which there is no minimum purchase amount).
General
Investors may purchase shares from a 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 Charges are applicable to:(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.
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, Class L,
and, in limited circumstances, Class O shares at net asset value
to participating plans under the programs. You can meet minimum
investment and exchange amounts, if any, by combining the plan's
investments in any of the Smith Barney Mutual Funds.
There are no sales charges when you buy or sell shares and the
class of shares you may purchase depends on the amount of your
initial investment and/or the date your account is opened. Once a
class of shares is chosen, all additional purchases must be of the
same class.
For plans opened on or after March 1, 2000 that are not plans for
which Paychex Inc. or an affiliate provides administrative
services (a "Paychex plan"), Class A shares may be purchased
regardless of the amount invested.
For plans opened prior to March 1, 2000 and for Paychex plans, the
class of shares you may purchase depends on the amount of your
initial investment:
Class A Shares. Class A shares may be purchased by plans investing
at least $1 million.
Class L Shares. Class L shares may be purchased by plans
investing less than $1 million. Class L shares are eligible to
exchange into Class A shares not later than 8 years after the plan
joined the program. They are eligible for exchange in the
following circumstances:
If the plan was opened on or after June 21, 1996 and a total of $1
million is invested in Smith Barney Funds Class L shares (other
than money market funds), all Class L shares are eligible for
exchange after the plan is in the program 5 years.
If the plan was opened before June 21, 1996 and a total of
$500,000 is invested in Smith Barney Funds Class L shares (other
than money market funds) on December 31 in any year, all Class L
shares are eligible for exchange on or about March 31 of the
following year.
For more information, call your Salomon Smith Barney Financial
Consultant or the transfer agent.
Retirement Programs Opened On or After June 21, 1996. If, at the
end of the fifth year after the date the participating plan
enrolled in the Smith Barney 401(k) Program or ExecChoiceTM
Program, a participating plan's total Class L and/or Class O
holdings in all non-money market Smith Barney Mutual Funds equal
at least $1,000,000, the participating plan will be offered the
opportunity to exchange all of its Class L and/or Class O shares
for Class A shares of the Fund. (For participating plans that were
originally established through a Salomon Smith Barney retail
brokerage account, the five-year period will be calculated from
the date the retail brokerage account was opened.) Such
participating plans will be notified of the pending exchange in
writing within 30 days after the fifth anniversary of the
enrollment date and, unless the exchange offer has been rejected
in writing, the exchange will occur on or about the 90th day after
the fifth anniversary date. If the participating plan does not
qualify for the five-year exchange to Class A shares, a review of
the participating plan's holdings will be performed each quarter
until either the participating plan qualifies or the end of the
eighth year.
Retirement Programs Opened Prior to June 21, 1996. In any year
after the date a participating plan enrolled in the Smith Barney
401(k) Program, if its total Class L and/or Class O holdings in
all non-money market Smith Barney Mutual Funds equal at least
$500,000 as of the calendar year-end, the participating plan will
be offered the opportunity to exchange all of its Class L and/or
Class O shares for Class A shares of the same fund. Such Plans
will be notified in writing within 30 days after the last business
day of the calendar year and, unless the exchange offer has been
rejected in writing, the exchange will occur on or about the last
business day of the following March.
Any participating plan in the Smith Barney 401(k) or ExecChoiceTM
Program, whether opened before or after June 21, 1996, that has
not previously qualified for an exchange into Class A shares will
be offered the opportunity to exchange all of its Class L and/or
Class O shares for Class A shares of the same fund regardless of
asset size, at the end of the eighth year after the date the
participating plan enrolled in the Smith Barney 401(k) or
ExecChoiceTM Program. Such plans will be notified of the pending
exchange in writing approximately 60 days before the eighth
anniversary of the enrollment date and, unless the exchange has
been rejected in writing, the exchange will occur on or about the
eighth anniversary date. Once an exchange has occurred, a
participating plan will not be eligible to acquire additional
Class L shares, but instead may acquire Class A shares of the same
fund. Any Class L and/ or Class O shares not converted will
continue to be subject to the distribution fee.
Participating plans wishing to acquire shares of the Fund through
the Smith Barney 401(k) Program or the Smith Barney ExecChoiceTM
Program must purchase such shares directly from the transfer
agent. For further information regarding these Programs, investors
should contact a Salomon Smith Barney Financial Consultant.
Retirement Programs Investing in Class B Shares: Class B shares
of a fund are not available for purchase by participating plans
opened on or after June 21, 1996, but may continue to be purchased
by any participating plan in the Smith Barney 401(k) Program
opened prior to such date and originally investing in such Class.
Class B shares acquired are subject to a Deferred Sales Charge of
3.00% of redemption proceeds if the participating plan terminates
within eight years of the date the participating plan first
enrolled in the Smith Barney 401(k) Program.
At the end of the eighth year after the date the participating
plan enrolled in the Smith Barney 401(k) Program, the
participating plan will be offered the opportunity to exchange all
of its Class B shares for Class A shares of the same fund. Such
participating plan will be notified of the pending exchange in
writing approximately 60 days before the eighth anniversary of the
enrollment date and, unless the exchange has been rejected in
writing, the exchange will occur on or about the eighth
anniversary date. Once the exchange has occurred, a participating
plan will not be eligible to acquire additional Class B shares,
but instead may acquire Class A shares of the same fund. If the
participating plan elects not to exchange all of its Class B
shares at that time, each Class B share held by the participating
plan will have the same conversion feature as Class B shares held
by other investors. See "Purchase of Shares-Deferred Sales Charge
Alternatives."
No Deferred Sales Charge is imposed on redemptions of Class B
shares to the extent that the net asset value of the shares
redeemed does not exceed the current net asset value of the shares
purchased through reinvestment of dividends or capital gain
distributions, plus the current net asset value of Class B shares
purchased more than eight years prior to the redemption, plus
increases in the net asset value of the shareholder's Class B
shares above the purchase payments made during the preceding eight
years. Whether or not the Deferred Sales Charge applies to the
redemption by a participating plan depends on the number of years
since the participating plan first became enrolled in the Smith
Barney 401(k) Program, unlike the applicability of the Deferred
Sales Charge to redemptions by other shareholders, which depends
on the number of years since those shareholders made the purchase
payment from which the amount is being redeemed.
The Deferred Sales Charge will be waived on redemptions of Class B
shares in connection with lump-sum or other distributions made by
a participating plan as a result of: (a) the retirement of an
employee in the participating plan; (b) the termination of
employment of an employee in the participating plan; (c) the death
or disability of an employee in the participating plan; (d) the
attainment of age 591/2 by an employee in the participating plan;
(e) hardship of an employee in the participating plan to the
extent permitted under Section 401(k) of the Code; or (f)
redemptions of shares in connection with a loan made by the
participating plan to an employee.
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 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, Investor's Business 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 the 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 which 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 investment company taxable
income (i.e., taxable income other than any excess of net realized
long-term capital gains over net realized short-term capital
losses ("net capital gains")) and its net capital gains, if any,
that it distributes to its shareholders, provided an amount equal
to at least 90% of its investment company taxable income, 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 with respect to certain of its assets (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 foreign 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 PFICs in
which it invests, which may be difficult or not possible to
obtain.
The Fund may also make an election that would result in the Fund
being treated as if it had sold and repurchased all of its 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 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 capital
gains. 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 capital
gains, 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 net capital gains included in the shareholder's
income. Organizations or persons not subject to federal income
tax on such net 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 an 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 filed an annual
report.
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.
36
50
legal\funds\sliv\2000\secdocs\premierselectionsallcapgrowthfundsai
legal\funds\sliv\2000\secdocs\premierselectionsallcapgrowthfundsai
Smith Barney
Premier Selections Global Growth Fund
388 Greenwich Street
New York, New York 10013
1-800-451-2010
Statement of Additional
Information
August 28, 2000
This Statement of Additional Information ("SAI") expands upon and
supplements the information contained in the current Prospectus of
Smith Barney Premier Selections Global Growth Fund consisting of
the U.S. Equity and International Equity segments (collectively
the "Fund") dated August 28, 2000, as amended or supplemented from
time to time, and should be read in conjunction with the Fund's
Prospectus. The Fund is a series of Smith Barney Investment Funds
Inc. (the "Company"). The Fund's Prospectus may be obtained from a
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 31
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY 32
PURCHASE OF SHARES 39
REDEMPTION OF SHARES 48
VALUATION OF SHARES 50
EXCHANGE PRIVILEGE 50
PERFORMANCE DATA 51
DIVIDENDS, DISTRIBUTIONS AND TAXES 53
ADDITIONAL INFORMATION 58
FINANCIAL STATEMENTS 60
OTHER INFORMATION 60
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's investment objectives may be changed only by the ''vote
of a majority of the outstanding voting securities'' as defined in
the Investment Company Act of 1940 (the ''1940 Act''). However,
the Fund's investment policies are nonfundamental, and thus may be
changed by the Board of Directors, provided such change is not
prohibited by the Fund's fundamental investment restrictions
(described under Investment Restrictions) or applicable law, and
any such change will first be disclosed in the then current
prospectus. Refer to the "Investment Practices" and "Risk
Factors" for further information on the Fund's investments.
Under unusual economic or market conditions as determined by the
Manager, for defensive purposes the Fund may depart from its
principal investment strategies and temporarily invest all or a
major portion of its assets in all types of money market and
short-term debt securities (including U.S. money market
securities). To the extent the Fund's assets are invested for
temporary defensive purposes, they will not be invested in a
manner designed to achieve the Fund's investment objective.
US Equity Segment
The investment objective of the US Equity segment is capital
appreciation. Although the segment may receive current income
from dividends, interest and other sources, income is only an
incidental consideration of the Fund. The segment attempts to
achieve its investment objective by investing primarily in common
stocks of companies that the Manager believes are experiencing, or
have the potential to experience, growth in earnings that exceed
the average earnings growth rate of companies having securities
included in the S&P 500. Although the Manager anticipates that
the assets of the segment ordinarily will be invested primarily in
common stocks of U.S. companies, the segment may invest in
convertible securities, preferred stocks, securities of foreign
issuers, warrants and restricted securities. In addition, when
the Manager believes that market conditions warrant, the segment
may invest for temporary defensive purposes in corporate and U.S.
government bonds and notes and money market instruments. The
segment is also authorized to borrow in an amount of up to 5% of
its total assets for extraordinary or emergency purposes, and may
borrow up to 33 1/3% of its total assets less liabilities, for
leveraging purposes. See "Leveraging."
International Equity Segment
Under normal market conditions, the International Equity segment
invests at least 80% of its assets in diversified equity
securities consisting of dividend and non-dividend paying common
stock, preferred stock, convertible debt and rights and warrants
to obtain such securities and may invest up to 20% of the Fund's
assets in bonds, notes and other debt securities (consisting of
securities issued in the Eurocurrency markets or obligations of
the United States or foreign governments and their political sub-
divisions) or established non-United States issuers.
In seeking to achieve its objective, the International Equity
segment presently expects to invest its assets primarily in common
stocks of established non-United States companies which in the
opinion of the Manager have potential for growth of capital.
Except as otherwise provided, the International Equity segment
will invest at least 80% of its assets in companies organized or
governments located in any area of the world other than the United
States, such as the Far East (e.g., Japan, Hong Kong, Singapore,
Malaysia), Western Europe (e.g., United Kingdom, Germany, the
Netherlands, France, Italy, Switzerland), Eastern Europe (e.g.,
the Czech Republic, Hungary, Poland, and the countries of the
former Soviet Union), Central and South America (e.g., Mexico,
Chile, and Venezuela), Australia, Canada and such other areas and
countries as the Manager may determine from time to time.
Allocation of the Fund's investments will depend upon the relative
attractiveness of the international markets and particular
issuers. Concentration of the Fund's assets in one or a few
countries or currencies will subject the Fund to greater risks
than if the Fund's assets were not geographically concentrated.
It is expected that securities of the International Equity segment
will ordinarily be traded on a stock exchange or other market in
the country in which the issuer is principally based, but may also
be traded on markets in other countries including, in many cases,
the United States securities exchanges and over-the-counter
markets.
To the extent that the assets of the Interntional Equity segment
are not otherwise invested as described above, the assets may be
held in cash, in any currency, or invested in U.S. as well as
foreign high quality money market instruments and equivalents.
Each of the following investment practices is subject to the
limitations set forth under "Investment Restrictions."
Foreign Securities (US Equity Segment) The US Equity segment may
invest up to 10% of its net assets (at the time of investment) in
foreign securities. The US Equity segment may invest directly in
foreign issuers or invest in depositary receipts. The
investments in foreign securities of the US Equity segment 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 risk associated
with investing in foreign securities directly. There are certain
risks involved in investing in foreign securities, including those
resulting from fluctuations in currency exchange rates,
revaluation of currencies, future political or economic
developments and the possible imposition of currency exchange
blockages or other foreign governmental laws or restrictions,
reduced availability of public information concerning issuers, and
the fact that foreign companies are not generally subject to
uniform accounting, auditing and financial reporting standards or
to other regulatory practices and requirements comparable to those
applicable to domestic companies. Moreover, securities of many
foreign companies may be less liquid and their prices more
volatile than securities of comparable domestic companies. In
addition, with respect to certain foreign countries, there is the
possibility of expropriation, confiscatory taxation and
limitations on the use or removal of funds or other assets of the
Fund, including the withholding of dividends. The risks of
investing in foreign securities are greater for securities of
emerging market issuers because political or economic instability,
lack of market liquidity, and negative government actions like
currency controls or seizure of private businesses or property are
more likely.
EQUITY SECURITIES
Common Stocks (International Equity Segment). The International
Equity segment may purchase common stocks. Common stocks are
shares of a corporation or other entity that entitle the holder to
a pro rata share of the profits of the corporation, if any,
without preference over any other shareholder or class of
shareholders, including holders of the entity's preferred stock
and other senior equity. Common stock usually carries with it the
right to vote and frequently an exclusive right to do so.
Preferred Stocks and Convertible Securities (International
EquitySegment). The International Equity segment may invest in
convertible debt and preferred stocks. Convertible debt
securities and preferred stock entitle the holder to acquire the
issuer's stock by exchange or purchase for a predetermined rate.
Convertible securities are subject both to the credit and interest
rate risks associated with fixed income securities and to the
stock market risk associated with equity securities.
Warrants (US EquitySegment) Because a warrant does not carry with
it the right to dividends or voting rights with respect to the
securities that the warrant holder is entitled to purchase, and
because it does not represent any rights to the assets of the
issuer, warrants may be considered more speculative than certain
other types of investments. Also, the value of a warrant does not
necessarily change with the value of the underlying securities and
a warrant ceases to have value if it is not exercised prior to its
expiration date.
Warrants (International Equity Segment). The International Equity
segment may purchase warrants. Warrants acquired by the
International Equity segment entitle it to buy common stock from
the issuer at a specified price and time. Warrants are subject to
the same market risks as stocks, but may be more volatile in
price. The Fund's investment in warrants will not entitle it to
receive dividends or exercise voting rights and will become
worthless if the warrants cannot be profitably exercised before
the expiration dates.
REITs (International Equity Segment). The International Equity
segment may invest in shares of real estate investment trusts
(REITs), which are pooled investment vehicles that invest in real
estate or real estate loans or interests. Investing in REITs
involves risks similar to those associated with investing in
equity securities of small capitalization companies. REITs are
dependent upon management skills, are not diversified, and are
subject to risks of project financing, default by borrowers, self-
liquidation, and the possibility of failing to qualify for the
exemption from taxation on distributed amounts under the Internal
Revenue Code of 1986, as amended (the "Code").
Restricted Securities (US Equity Segment) Restricted securities
are those that may not be sold publicly without first being
registered under the Securities Act of 1933, as amended (the "1933
Act"). For that reason, the US Equity segment may not be able to
dispose of restricted securities at a time when, or at a price at
which, it desires to do so and may have to bear expenses
associated with registering the securities. At any one time, the
Fund's aggregate holdings of restricted securities, repurchase
agreements having a duration of more than five business days, and
securities lacking readily available market quotations will not
exceed 15% of the Fund's total assets.
Illiquid and Restricted Securities (International Equity Segment).
The International Equity segment may invest up to 15% of its
assets in securities (excluding those subject to Rule 144A under
the Securities Act of 1933 (the ''1933 Act'')), with contractual
or other restrictions on resale and other instruments that are not
readily marketable.
ADRs, EDRs and GDRs (Interntional Equity Segment). The
International Equity segment may also purchase ADRs, EDRs and GDRs
or other securities representing underlying shares of foreign
companies. ADRs are publicly traded on exchanges or over-the-
counter in the United States and are issued through "sponsored" or
"unsponsored" arrangements. In a sponsored ADR arrangement, the
foreign issuer assumes the obligation to pay some or all of the
depository's transaction fees, whereas under an unsponsored
arrangement, the foreign issuer assumes no obligation and the
depository's transaction fees are paid by the ADR holders. In
addition, less information is available in the United States about
an unsponsored ADR than about a sponsored ADR, and the financial
information about a company may not be as reliable for an
unsponsored ADR as it is for a sponsored ADR. The fund may invest
in ADRs through both sponsored and unsponsored arrangements.
FIXED INCOME SECURITIES
To the extent that the Fund may invest in fixed income securities,
it may invest in the securities described below as noted.
Convertible Securities (US Equity Segment) Convertible securities
are fixed-income securities that may be converted at either a
stated price or stated rate into underlying shares of common
stock. Convertible securities have general characteristics
similar to both fixed income and equity securities. Although to a
lesser extent than with fixed income securities generally, the
market value of convertible securities tends to decline as
interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion
feature, the market value of convertible securities tends to vary
with fluctuations in the market value of the underlying common
stocks and therefore also will react to variations in the general
market for equity securities. A unique feature of convertible
securities is that as the market price of the underlying common
stock declines, convertible securities tend to trade increasingly
on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the
market price of the underlying common stock increases, the prices
of the convertible securities tend to rise as a reflection of the
value of the underlying common stock. While no securities
investments are without risk, investments in convertible
securities generally entail less risk than investments in common
stock of the same issuer.
As fixed-income securities, convertible securities are investments
that provide for a stable stream of income with generally higher
yields than common stocks. Of course, like all fixed-income
securities, there can be no assurance of current income because
the issuers of the convertible securities may default on their
obligations. Convertible securities, however, generally offer
lower interest or dividend yields than non-convertible securities
of similar quality because of the potential for capital
appreciation. A convertible security, in addition to providing
fixed income, offers the potential for capital appreciation
through the conversion feature, which enables the holder to
benefit from increases in the market price of the underlying
common stock. There can be no assurance of capital appreciation,
however, because securities prices fluctuate.
Convertible securities generally are subordinated to other similar
but nonconvertible securities of the same issuer, although
convertible bonds, as corporate debt obligations, enjoy seniority
in right of payment to all equity securities, and convertible
preferred stock is senior to common stock, of the same issuer.
Because of the subordination feature, however, convertible
securities typically have lower ratings than similar non-
convertible securities.
Corporate Debt Obligations (International Equity Segment). The
International Equity segment may invest in corporate debt
obligations and zero coupon securities issued by financial
institutions and corporations. Corporate debt obligations are
subject to the risk of an issuer's inability to meet principal and
interest payments on the obligations and may also be subject to
price volatility due to such factors as market interest rates,
market perception of the creditworthiness of the issuer and
general market liquidity. Zero coupon securities are securities
sold at a discount to par value and on which interest payments are
not made during the life of the security.
U.S. Government Securities (International Equity Segment). The
U.S. Government securities in which the Fund may invest include:
bills, certificates of indebtedness, and notes and bonds issued by
the U.S. Treasury or by agencies or instrumentalities of the U.S.
Government. Some U.S. Government securities, such as U.S. Treasury
bills and bonds, are supported by the full faith and credit of the
U.S. Treasury; others are supported by the right of the issuer to
borrow from the U.S. Treasury; others, such as those of the
Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Student
Loan Marketing Association and the Federal Home Loan Mortgage
Corporation ("FHLMC"), are supported only by the credit of the
instrumentality. Mortgage participation certificates issued by the
FHLMC generally represent ownership interests in a pool of fixed-
rate conventional mortgages. Timely payment of principal and
interest on these certificates is guaranteed solely by the issuer
of the certificates. Other investments will include Government
National Mortgage Association Certificates ("GNMA Certificates"),
which are mortgage-backed securities representing part ownership
of a pool of mortgage loans on which timely payment of interest
and principal is guaranteed by the full faith and credit of the
U.S. Government. While the U.S. Government guarantees the payment
of principal and interest on GNMA Certificates, the market value
of the securities is not guaranteed and will fluctuate.
Sovereign Debt Obligations (Interntional Equity Segment). The
International Equity segment may purchase sovereign debt
instruments issued or guaranteed by foreign governments or their
agencies, including debt of developing countries. Sovereign debt
may be in the form of conventional securities or other types of
debt instruments such as loans or loan participations. Sovereign
debt of developing countries may involve a high degree of risk,
and may be in default or present the risk of default.
Governmental entities responsible for repayment of the debt may be
unable or unwilling to repay principal and interest when due, and
may require renegotiation or rescheduling of debt payments. In
addition, prospects for repayment of principal and interest may
depend on political as well as economic factors. Although some
sovereign debt, such as Brady Bonds, is collateralized by U.S.
Government securities, repayment of principal and interest is not
guaranteed by the U.S. Government.
Loans and Other Direct Debt Instruments (International Equity
Segment). The International Equity segment may purchase interests
in amounts owed by a corporate, governmental, or other borrower to
another party. These interests may represent amounts owed to
lenders or lending syndicates (loans and loan participations), to
suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments
involve the risk of loss in case of default or insolvency of the
borrower and may offer less legal protection to the Fund in the
event of fraud or misrepresentation. In addition, loan
participations involve a risk of insolvency of the lending bank or
other financial intermediary. Direct debt instruments may also
include standby financing commitments that obligate the Fund to
supply additional cash to the borrower on demand.
Floating and Variable Rate Income Securities (International Equity
Segment). Income securities may provide for floating or variable
rate interest or dividend payments. The floating or variable rate
may be determined by reference to a known lending rate, such as a
bank's prime rate, a certificate of deposit rate or the London
InterBank Offered Rate (LIBOR). Alternatively, the rate may be
determined through an auction or remarketing process. The rate
also may be indexed to changes in the values of interest rate or
securities indexes, currency exchange rates or other commodities.
The amount by which the rate paid on an income security may
increase or decrease may be subject to periodic or lifetime caps.
Floating and variable rate income securities include securities
whose rates vary inversely with changes in market rates of
interest. Such securities may also pay a rate of interest
determined by applying a multiple to the variable rate. The
extent of increases and decreases in the value of securities whose
rates vary inversely with changes in market rates of interest
generally will be larger than comparable changes in the value of
an equal principal amount of a fixed rate security having similar
credit quality, redemption provisions and maturity.
Zero Coupon, Discount and Payment-in-kind Securities
(International Equity Segment). The International Equity segment
may invest in "zero coupon" and other deep discount securities of
governmental or private issuers. Zero coupon securities generally
pay no cash interest (or dividends in the case of preferred stock)
to their holders prior to maturity. Payment-in-kind securities
allow the lender, at its option, to make current interest payments
on such securities either in cash or in additional securities.
Accordingly, such securities usually are issued and traded at a
deep discount from their face or par value and generally are
subject to greater fluctuations of market value in response to
changing interest rates than securities of comparable maturities
and credit quality that pay cash interest (or dividends in the
case of preferred stock) on a current basis.
Premium Securities (International Equity Segment). The
International Equity segment may invest in income securities
bearing coupon rates higher than prevailing market rates. Such
"premium" securities are typically purchased at prices greater
than the principal amounts payable on maturity. The International
Equity segment will not amortize the premium paid for such
securities in calculating its net investment income. As a result,
in such cases the purchase of such securities provides a fund a
higher level of investment income distributable to shareholders on
a current basis than if the Fund purchased securities bearing
current market rates of interest. If securities purchased by a
Fund at a premium are called or sold prior to maturity, the Fund
will recognize a capital loss to the extent the call or sale price
is less than the purchase price. Additionally, a fund will
recognize a capital loss if it holds such securities to maturity.
Yankee Bonds (International Equity Segment). The International
Equity segment may invest in U.S. dollar-denominated bonds sold in
the United States by non-U.S. issuers ("Yankee bonds"). As
compared with bonds issued in the United States, such bond issues
normally carry a higher interest rate but are less actively
traded.
Loan Participations and Assignments (International Equity
Segment). The International Equtiy segment may invest a segment of
its assets in loan participations ("Participations"). By
purchasing a Participation, the International Equity segment
acquires some or all of the interest of a bank or other lending
institution in a loan to a corporate or government borrower. The
Participations typically will result in the International Equity
segment having a contractual relationship only with the lender and
not with the borrower. The International Equity segment will have
the right to receive payments of principal, interest and any fees
to which it is entitled only from the lender selling the
Participation and only upon receipt by the lender of the payments
from the borrower. In connection with purchasing Participations,
the International Equity segment generally will have no right to
enforce compliance by the borrower with the terms of the loan
agreement relating to the loan, nor any rights of set-off against
the borrower, and the International Equity segment may not
directly benefit from any collateral supporting the loan in which
it has purchased the Participation. As a result, the
International Equity segment will assume the credit risk of both
the borrower and the lender that is selling the Participation. In
the event of the insolvency of the lender selling a Participation,
the International Equity segment may be treated as a general
creditor of the lender and may not benefit from any set-off
between the lender and the borrower. The International Equity
segment will acquire Participations only if the lender
interpositioned between the Fund and the borrower is determined by
management to be creditworthy.
The International Equity segment also may invest in assignments of
segments of loans from third parties ("Assignments"). When it
purchases Assignments from lenders, the Fund will acquire direct
rights against the borrower on the loan. However, since
Assignments are arranged through private negotiations between
potential assignees and assignors, the rights and obligations
acquired by the Fund as the purchaser of an Assignment may differ
from, and be more limited than, those held by the assigning
lender. The International Equity segment may have difficulty
disposing of Assignments and Participations. The liquidity of
such securities is limited, and the Fund anticipates that such
securities could be sold only to a limited number of institutional
investors. The lack of a liquid secondary market could have an
adverse impact on the value of such securities and on the
International Equity segment's ability to dispose of particular
Assignments or Participations when necessary to meet the
International Equity segment's liquidity needs or in response to a
specific economic event, such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary
market for Assignments and Participations also may make it more
difficult for the International Equity segment to assign a value
to those securities or purposes of valuing the International
Equity segment and calculating its net asset value.
Short-Term Investments (The Fund). In certain circumstances the
Fund may invest without limitation in all types of short-term
money market instruments, including U.S. Government securities;
certificates of deposit, time deposits and bankers' acceptances
issued by domestic banks (including their branches located outside
the United States and subsidiaries located in Canada), domestic
branches of foreign banks, savings and loan associations and
similar institutions; high grade commercial paper; and repurchase
agreements. To the extent the Fund is investing in short-term
investments as a temporary defensive posture, the applicable
Fund's investment objective may not be achieved.
Commercial Paper (International Equity Segment) Commercial paper
consists of short-term (usually from 1 to 270 days) unsecured
promissory notes issued by corporations in order to finance their
current operations. A variable amount master demand note (which
is a type of commercial paper) represents a direct borrowing
arrangement involving periodically fluctuating rates of interest
under a letter agreement between a commercial paper issuer and an
institutional lender, such as the Fund, pursuant to which the
lender may determine to invest varying amounts. Transfer of such
notes is usually restricted by the issuer, and there is no
secondary trading market for such notes. The Fund, therefore, may
not invest in a master demand note, if as a result more than 15%
of the value of the International Equity segment's total assets
would be invested in such notes and other illiquid securities.
Commercial Bank Obligations (International Equity Segment). For
the purposes of the International Equity segment's investment
policies with respect to bank obligations, obligations of foreign
branches of U.S. banks and of foreign banks may be general
obligations of the parent bank in addition to the issuing bank, or
may be limited by the terms of a specific obligation and by
government regulation. As with investment in foreign securities
in general, investments in the obligations of foreign branches of
U.S. banks and of foreign banks may subject a fund to investment
risks that are different in some respects from those of
investments in obligations of domestic issuers. Although a fund
will typically acquire obligations issued and supported by the
credit of U.S. or foreign banks having total assets at the time of
purchase in excess of U.S. $1 billion (or the equivalent thereof),
this U.S. $1 billion figure is not a fundamental investment policy
or restriction of the Fund. For calculation purposes with respect
to the U.S. $1 billion figure, the assets of a bank will be deemed
to include the assets of its U.S. and foreign branches.
Money Market Instruments (US Equity Segment) As stated in the
prospectus, the US Equity segment may invest for defensive
purposes in corporate and government bonds and notes and money
market instruments. Money market instruments in which the Fund
may invest include: 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. The following is a
more detailed description of such money market instruments.
Bank Obligations (US Equity Segment) Certificates of deposits
("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.
Domestic commercial banks organized under federal law are
supervised and examined by the Comptroller of the Currency and are
required to be members of the Federal Reserve System and to be
insured by the Federal Deposit Insurance Corporation (the "FDIC").
Domestic banks organized under state law are supervised and
examined by state banking authorities but are members of the
Federal Reserve System only if they elect to join. Most state
banks are insured by the FDIC (although such insurance may not be
of material benefit to the Fund, depending upon the principal
amount of CDs of each bank held by the Fund) and are subject to
federal examination and to a substantial body of federal law and
regulation. As a result of governmental regulations, domestic
branches of domestic banks are, among other things, generally
required to maintain specified levels of reserves, and are subject
to other supervision and regulation designed to promote financial
soundness.
Obligations of foreign branches of domestic banks, such as CDs and
TDs, may be general obligations of the parent bank in addition to
the issuing branch, or may be limited by the terms of a specific
obligation and governmental regulation. Such obligations are
subject to different risks than are those of domestic banks or
domestic branches of foreign banks. These risks include foreign
economic and political developments, foreign governmental
restrictions that may adversely affect payment of principal and
interest on the obligations, foreign exchange controls and foreign
withholding and other taxes on interest income. Foreign branches
of domestic banks are not necessarily subject to the same or
similar regulatory requirements that apply to domestic banks, such
as mandatory reserve requirements, loan limitations, and
accounting, auditing and financial recordkeeping requirements. In
addition, less information may be publicly available about a
foreign branch of a domestic bank than about a domestic bank. CDs
issued by wholly owned Canadian subsidiaries of domestic banks are
guaranteed as to repayment of principal and interest (but not as
to sovereign risk) by the domestic parent bank.
Obligations of domestic branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch,
or may be limited by the terms of a specific obligation and by
governmental regulation as well as governmental action in the
country in which the foreign bank has its head office. A domestic
branch of a foreign bank with assets in excess of $1 billion may
or may not be subject to reserve requirements imposed by the
Federal Reserve System or by the state in which the branch is
located if the branch is licensed in that state. In addition,
branches licensed by the Comptroller of the Currency and branches
licensed by certain states ("State Branches") may or may not be
required to: (a) pledge to the regulator by depositing assets with
a designated bank within the state, an amount of its assets equal
to 5% of its total liabilities; and (b) maintain assets within the
state in an amount equal to a specified percentage of the
aggregate amount of liabilities of the foreign bank payable at or
through all of its agencies or branches within the state. The
deposits of State Branches may not necessarily be insured by the
FDIC. In addition, there may be less publicly available
information about a domestic branch of a foreign bank than about a
domestic bank.
In view of the foregoing factors associated with the purchase of
CDs and TDs issued by foreign branches of domestic banks or by
domestic branches of foreign banks, the Manager will carefully
evaluate such investments on a case-by-case basis.
Savings and loans associations whose CDs may be purchased by the
Fund are supervised by the Office of Thrift Supervision and are
insured by the Savings Association Insurance Fund which is
administered by the FDIC and is backed by the full faith and
credit of the United States government. As a result, such savings
and loan associations are subject to regulation and examination.
DERIVATIVE CONTRACTS
Options, Futures and Currencies (International Equity Segment).
The International Equity segment 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. These hedging techniques
are described in detail below.
Writing Covered Call Options (International Equity Segment). The
International Equity segment may write (sell) covered call options
for hedging purposes. Covered call options will generally be
written on securities and currencies which, in the opinion of the
Manager, are not expected to make any major price moves in the
near future but which, over the long term, are deemed to be
attractive investments for the International Equity segment
A call option gives the holder (buyer) the right to purchase a
security or currency at a specified price (the exercise price) at
any time until a certain date (the expiration date). So long as
the obligation of the writer of a call option continues, he may be
assigned an exercise notice by the broker-dealer through whom such
option was sold, requiring him to deliver the underlying security
or currency against payment of the exercise price. This
obligation terminates upon the expiration of the call option, or
such earlier time at which the writer effects a closing purchase
transaction by purchasing an option identical to that previously
sold. The Manager and the Company believe that writing of covered
call options is less risky than writing uncovered or "naked"
options, which the International Equity segment will not do.
Portfolio securities or currencies on which call options may be
written will be purchased solely on the basis of investment
considerations consistent with International Equity segment's
investment objective. When writing a covered call option, the
International Equity segment's, in return for the premium, gives
up the opportunity for profit from a price increase in the
underlying security or currency above the exercise price and
retains the risk of loss should the price of the security or
currency decline. Unlike one who owns securities or currencies
not subject to an option, the International Equity segment has no
control over when it may be required to sell the underlying
securities or currencies, since the option may be exercised at any
time prior to the option's expiration. If a call option which the
International Equity segment has written expires, the
International Equity segment will realize a gain in the amount of
the premium; however, such gain may be offset by a decline in the
market value of the underlying security or currency during the
option period. If the call option is exercised, the Fund will
realize a gain or loss from the sale of the underlying security or
currency. The security or currency covering the call option will
be maintained in a segregated account of the International Equity
segment's custodian.
The premium the International Equity segment receives for writing
a call option is deemed to constitute the market value of an
option. The premium the International Equity segment will receive
from writing a call option will reflect, among other things, the
current market price of the underlying security or currency, the
relationship of the exercise price to such market price, the
implied price volatility of the underlying security or currency,
and the length of the option period. In determining whether a
particular call option should be written on a particular security
or currency, the Manager will consider the reasonableness of the
anticipated premium and the likelihood that a liquid secondary
market will exist for those options. The premium received by the
International Equity segment for writing covered call options will
be recorded as a liability in the Fund's statement of assets and
liabilities. This liability will be adjusted daily to the
option's current market value, which will be calculated as
described in "DETERMINATION OF NET ASSET VALUE." The liability
will be extinguished upon expiration of the option or delivery of
the underlying security or currency upon the exercise of the
option. The liability with respect to a listed option will also
be extinguished upon the purchase of an identical option in a
closing transaction.
Closing transactions will be effected in order to realize a profit
or to limit losses on an outstanding call option, to prevent an
underlying security or currency from being called, or to permit
the sale of the underlying security or currency. Furthermore,
effecting a closing transaction will permit the Fund to write
another call option on the underlying security or currency with
either a different exercise price, expiration date or both. If
the Fund desires to sell a particular security or currency from
its portfolio on which it has written a call option or purchases a
put option, it will seek to effect a closing transaction prior to,
or concurrently with, the sale of the security or currency. There
is no assurance that the Fund will be able to effect such closing
transactions at a favorable price. If the International Equity
segment cannot enter into such a transaction, it may be required
to hold a security or currency that it might otherwise have sold,
in which case it would continue to be at market risk with respect
to the security or currency.
The International Equity segment will pay transaction costs in
connection with the writing of options and in entering into
closing purchase contracts. Transaction costs relating to options
activity are normally higher than those applicable to purchases
and sales of portfolio securities.
Call options written by the International Equity segment, will
normally have expiration dates of less than nine 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 or currencies at the time the options are written.
From time to time, the Fund may purchase an underlying security or
currency for delivery in accordance with the exercise of an
option, rather than delivering such security or currency from its
portfolio. In such cases, additional costs will be incurred.
The International Equity segment will realize a profit or loss
from a closing purchase transaction if the cost of the transaction
is less or more, respectively, than the premium received from the
writing of the option. Because increases in the market price of a
call option will generally reflect increases in the market price
of the underlying security or currency, any loss resulting from
the repurchase of a call option is likely to be offset in whole or
in part by appreciation of the underlying security or currency
owned by the International Equity segment.
See "Additional Tax Information" for a discussion of federal
income tax treatment of covered call options.
Purchasing Put Options (International Equity Segment). The
International Equity segment may purchase put options. As the
holder of a put option, the International Equity segment has the
right to sell the underlying security or currency at the exercise
price at any time during the option period. The International
Equity segment may enter into closing sale transactions with
respect to such options, exercise them or permit them to expire.
The International Equity segment may purchase a put option on an
underlying security or currency (a "protective put") owned by the
International Equity segment as a hedging technique in order to
protect against an anticipated decline in the value of the
security or currency. Such hedge protection is provided only
during the life of the put option when the International Equity
segment, as the holder of the put option, is able to sell the
underlying security or currency at the put exercise price
regardless of any decline in the underlying security's market
price or currency's exchange value. For example, a put option may
be purchased in order to protect unrealized appreciation of a
security or currency when the Manager deems it desirable to
continue to hold the security or currency because of tax
considerations. The premium paid for the put option and any
transaction costs may reduce any capital gain or, in the case of
currency, ordinary income otherwise available for distribution
when the security or currency is eventually sold.
The International Equity segment may also purchase put options at
a time when the International Equity segment does not own the
underlying security or currency. By purchasing put options on a
security or currency it does not own, the International Equity
segment seeks to benefit from a decline in the market price of the
underlying security or currency. If the put option is not sold
when it has remaining value, and if the market price of the
underlying security or currency remains equal to or greater than
the exercise price during the life of the put option, the
International Equity poriton will lose its entire investment in
the put option. In order for the purchase of a put option to be
profitable, the market price of the underlying security or
currency must decline sufficiently below the exercise price to
cover the premium and transaction costs, unless the put option is
sold in a closing sale transaction.
The premium paid by the International Equity segment when
purchasing a put option will be recorded as an asset in the
International Equity's segment statement of assets and
liabilities. This asset will be adjusted daily to the option's
current market value, as calculated by the Fund. The asset will
be extinguished upon expiration of the option or the delivery of
the underlying security or currency upon the exercise of the
option. The asset with respect to a listed option will also be
extinguished upon the writing of an identical option in a closing
transaction.
Purchasing Call Options (International Equity Segment). The
International Equity segment may purchase call options. As the
holder of a call option, International Equity segment has the
right to purchase the underlying security or currency at the
exercise price at any time during the option period. The
International Equity segment may enter into closing sale
transactions with respect to such options, exercise them or permit
them to expire. Call options may be purchased by the Fund for the
purpose of acquiring the underlying security or currency for its
portfolio. Utilized in this fashion, the purchase of call options
enables the Fund to acquire the security or currency at the
exercise price of the call option plus the premium paid. At times
the net cost of acquiring the security or currency in this manner
may be less than the cost of acquiring the security or currency
directly. This technique may also be useful to the Fund in
purchasing a large block of securities that would be more
difficult to acquire by direct market purchases. So long as it
holds such a call option rather than the underlying security or
currency itself, the International Equity segment is partially
protected from any unexpected decline in the market price of the
underlying security or currency and in such event could allow the
call option to expire, incurring a loss only to the extent of the
premium paid for the option.
The International Equity segment may also purchase call options on
underlying securities or currencies it owns in order to protect
unrealized gains on call options previously written by it. A call
option would be purchased for this purpose where tax
considerations make it inadvisable to realize such gains through a
closing purchase transaction. Call options may also be purchased
at times to avoid realizing losses that would result in a
reduction of the International Equity segment's current return.
Interest Rate and Currency Futures Contracts (International Equity
Segment). The International Equity segment may enter into interest
rate or currency futures contracts ("Futures" or "Futures
Contracts") as a hedge against changes in prevailing levels of
interest rates or currency exchange rates in order to establish
more definitely the effective return on securities or currencies
held or committed to be acquired by the Fund. The Fund's hedging
may include holding Futures as an offset against anticipated
changes in interest or currency exchange rates. The Interntional
Equity segment may also enter into Futures Contracts based on
financial indices including any index of U.S. Government
securities, foreign government securities or corporate debt
securities.
A Futures Contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific
financial instrument or currency for a specified price at a
designated date, time and place. The purchaser of a Futures
Contract on an index agrees to take or make delivery of an amount
of cash equal to the difference between a specified dollar
multiple of the value of the index on the expiration date of the
contract ("current contract value") and the price at which the
contract was originally struck. No physical delivery of the debt
securities underlying the index is made. Brokerage fees are
incurred when a Futures Contract is bought or sold, and margin
deposits must be maintained at all times that the Futures Contract
is outstanding.
Although techniques other than sales and purchases of Futures
Contracts could be used to reduce the International Equity
segment's exposure to interest rate and currency exchange rate
fluctuations, the International Equity segment may be able to
hedge its exposure more effectively and at a lower cost through
using Futures Contracts.
Although Futures Contracts typically require future delivery of
and payment for financial instruments or currencies, Futures
Contracts are usually closed out before the delivery date.
Closing out an open Futures Contract sale or purchase is effected
by entering into an offsetting Futures Contract purchase or sale,
respectively, for the same aggregate amount of the identical
financial instrument or currency and the same delivery date. If
the offsetting purchase price is less than the original sale
price, the Fund realizes a gain; if it is more, the Fund realizes
a loss. Conversely, if the offsetting sale price is more than the
original purchase price, the Fund realizes a gain; if it is less,
the Fund realizes a loss. The transaction costs must also be
included in these calculations. There can be no assurance,
however, that the International Equity segment will be able to
enter into an offsetting transaction with respect to a particular
Futures Contract at a particular time. If the International
Equity segment is not able to enter into an offsetting
transaction, the International Equity segment will continue to be
required to maintain the margin deposits of the underlying
financial instrument or currency on the relevant delivery date.
The Fund intends to enter into Futures transactions only on
exchanges or boards of trade where there appears to be a liquid
secondary market. However, there can be no assurance that such a
market will exist for a particular contract at a particular time.
As an example of an offsetting transaction, the contractual
obligations arising from the sale of one Futures Contract of
September Treasury Bills on an exchange may be fulfilled at any
time before delivery under the Futures Contract is required (i.e.,
on a specific date in September, the "delivery month") by the
purchase of another Futures Contract of September Treasury Bills
on the same exchange. In such instance the difference between the
price at which the Futures Contract was sold and the price paid
for the offsetting purchase, after allowance for transaction
costs, represents the profit or loss to the Fund.
Persons who trade in Futures Contracts may be broadly classified
as "hedgers" and "speculators." Hedgers, whose business activity
involves investment or other commitment in securities or other
obligations, use the Futures markets to offset unfavorable changes
in value that may occur because of fluctuations in the value of
the securities and obligations held or committed to be acquired by
them or fluctuations in the value of the currency in which the
securities or obligations are denominated. Debtors and other
obligors may also hedge the interest cost of their obligations.
The speculator, like the hedger, generally expects neither to
deliver nor to receive the financial instrument underlying the
Futures Contract, but, unlike the hedger, hopes to profit from
fluctuations in prevailing interest rates or currency exchange
rates.
The International Equity segment's Futures transactions will be
entered into for traditional hedging purposes; that is, Futures
Contracts will be sold to protect against a decline in the price
of securities or currencies that the Fund owns, or Futures
Contracts will be purchased to protect a fund against an increase
in the price of securities or currencies it has committed to
purchase or expects to purchase. The International Equity segment
may each also enter into Futures transactions for non-hedging
purposes, subject to applicable law.
"Margin" with respect to Futures Contracts is the amount of
International Equity segment that must be deposited by the Fund
with a broker in order to initiate Futures trading and to maintain
the International Equity segment's open positions in Futures
Contracts. A margin deposit made when the Futures Contract is
entered into ("initial margin") is intended to assure the
International Equity segment's performance of the Futures
Contract. The margin required for a particular Futures Contract
is set by the exchange on which the Futures Contract is traded,
and may be significantly modified from time to time by the
exchange during the term of the Futures Contract. Futures
Contracts are customarily purchased and sold on margins, which may
be 5% or less of the value of the Futures Contract being traded.
If the price of an open Futures Contract changes (by increase in
the case of a sale or by decrease in the case of a purchase) so
that the loss on the Futures Contract reaches a point at which the
margin on deposit does not satisfy margin requirements, the broker
will require an increase in the margin deposit ("variation
margin"). If, however, the value of a position increases because
of favorable price changes in the Futures Contract so that the
margin deposit exceeds the required margin, it is anticipated that
the broker will pay the excess to the International Equity
segment. In computing daily net asset values, the International
Equity segment will mark to market the current value of its open
Futures Contracts. The International Equity segment expects to
earn interest income on its margin deposits.
See "Additional Tax Information" for a discussion of federal tax
treatment of Futures Contracts.
Options on Futures Contracts (International Equity Segment).
Options on Futures Contracts are similar to options on securities
or currencies except that options on Futures Contracts give the
purchaser the right, in return for the premium paid, to assume a
position in a Futures Contract (a long position if the option is a
call and a short position if the option is a put), rather than to
purchase or sell the Futures Contract, at a specified exercise
price at any time during the period of the option. Upon exercise
of the option, the delivery of the Futures position by the writer
of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's Futures margin
account which represents the amount by which the market price of
the Futures Contract, at exercise, exceeds (in the case of a call)
or is less than (in the case of a put) the exercise price of the
option on the Futures Contract. If an option is exercised on the
last trading day prior to the expiration date of the option, the
settlement will be made entirely in cash equal to the difference
between the exercise price of the option and the closing level of
the securities or currencies upon which the Futures Contracts are
based on the expiration date. Purchasers of options who fail to
exercise their options prior to the exercise date suffer a loss of
the premium paid.
As an alternative to purchasing call and put options on Futures,
the International Equity segment may purchase call and put options
on the underlying securities or currencies themselves (see
"Purchasing Put Options" and "Purchasing Call Options" above).
Such options would be used in a manner identical to the use of
options on Futures Contracts.
To reduce or eliminate the leverage then employed by the Fund or
to reduce or eliminate the hedge position then currently held by
the International Equity segment, the International Equity segment
may seek to close out an option position by selling an option
covering the same securities or currency and having the same
exercise price and expiration date. The ability to establish and
close out positions on options on Futures Contracts is subject to
the existence of a liquid market. It is not certain that this
market will exist at any specific time.
In order to assure that the International Equity portion will not
be deemed to be "commodity pools" for purposes of the Commodity
Exchange Act, regulations of the Commodity Futures Trading
Commission ("CFTC") require that the Fund enter into transactions
in Futures Contracts and options on Futures Contracts only (i) for
bona fide hedging purposes (as defined in CFTC regulations), or
(ii) for non-hedging purposes, provided that the aggregate initial
margin and premiums on such non-hedging positions does not exceed
5% of the liquidation value of the International Equity segment's
assets.
Forward Currency Contracts, Options on Currency and Currency Swaps
(International Equity Segment). A forward currency contract is an
obligation to purchase or sell a currency against another currency
at a future date and price as agreed upon by the parties. The
International Equity segment may either accept or make delivery of
the currency at the maturity of the forward contract or, prior to
maturity, enter into a closing transaction involving the purchase
or sale of an offsetting contract. The International Equity
segment engages in forward currency transactions in anticipation
of, or to protect itself against, fluctuations in exchange rates.
The International Equity segment might sell a particular foreign
currency forward, for example, when it holds bonds denominated in
that currency but anticipates, and seeks to be protected against,
a decline in the currency against the U.S. dollar. Similarly, the
International Equity segment might sell the U.S. dollar forward
when it holds bonds denominated in U.S. dollars but anticipates,
and seeks to be protected against, a decline in the U.S. dollar
relative to other currencies. Further, the International Equity
segment might purchase a currency forward to "lock in" the price
of securities denominated in that currency which it anticipates
purchasing.
The matching of the increase in value of a forward contract and
the decline in the U.S. dollar equivalent value of the foreign
currency denominated asset that is the subject of the hedge
generally will not be precise. In addition, the International
Equity segment may not always be able to enter into foreign
currency forward contracts at attractive prices and this will
limit the Fund's ability to use such contract to hedge or cross-
hedge its assets. Also, with regard to the use of cross-hedges by
the International Equity segment, there can be no assurance that
historical correlations between the movement of certain foreign
currencies relative to the U.S. dollar will continue. Thus, at
any time poor correlation may exist between movements in the
exchange rates of the foreign currencies underlying the cross-
hedges of the International Equity segment and the movements in
the exchange rates of the foreign currencies in which the assets
of the International Equity segment that are the subject of such
cross-hedges are denominated.
Forward contracts are traded in an interbank market conducted
directly between currency traders (usually large commercial banks)
and their customers. A forward contract generally has no deposit
requirement and is consummated without payment of any commission.
The International Equity segment, however, may enter into forward
contracts with deposit requirements or commissions.
A put option gives the International Equity segment, as purchaser,
the right (but not the obligation) to sell a specified amount of
currency at the exercise price until the expiration of the option.
A call option gives the International Equity segment, as
purchaser, the right (but not the obligation) to purchase a
specified amount of currency at the exercise price until its
expiration. The International Equity segment might purchase a
currency put option, for example, to protect itself during the
contract period against a decline in the value of a currency in
which it holds or anticipates holding securities. If the
currency's value should decline, the loss in currency value should
be offset, in whole or in part, by an increase in the value of the
put. If the value of the currency instead should rise, any gain
to the Fund would be reduced by the premium it had paid for the
put option. A currency call option might be purchased, for
example, in anticipation of, or to protect against, a rise in the
value of a currency in which the Fund anticipates purchasing
securities.
The ability of the International Equity segment to establish and
close out positions in foreign currency options is subject to the
existence of a liquid market. There can be no assurance that a
liquid market will exist for a particular option at any specific
time. In addition, options on foreign currencies are affected by
all of those factors that influence foreign exchange rates and
investments generally.
A position in an exchange-listed option may be closed out only on
an exchange that provides a secondary market for identical
options. Exchange markets for options on foreign currencies exist
but are relatively new, and the ability to establish and close out
positions on the exchanges is subject to maintenance of a liquid
secondary market. Closing transactions may be effected with
respect to options traded in the over-the-counter ("OTC") markets
(currently the primary markets for options on foreign currencies)
only by negotiating directly with the other party to the option
contract or in a secondary market for the option if such market
exists. Although the Fund intends to purchase only those options
for which there appears to be an active secondary market, there is
no assurance that a liquid secondary market will exist for any
particular option at any specific time. In such event, it may not
be possible to effect closing transactions with respect to certain
options, with the result that the International Equity segment
would have to exercise those options which it has purchased in
order to realize any profit. The staff of the Securities and
Exchange Commission ("SEC") has taken the position that, in
general, purchased OTC options and the underlying securities used
to cover written OTC options are illiquid securities. However,
the International Equity portion may treat as liquid the
underlying securities used to cover written OTC options, provided
it has arrangements with certain qualified dealers who agree that
the International Equity segment may repurchase any option it
writes for a maximum price to be calculated by a predetermined
formula. In these cases, the OTC option itself would only be
considered illiquid to the extent that the maximum repurchase
price under the formula exceeds the intrinsic value of the option.
The International Equity segment may also enter into currency
swaps. A currency swap is an arrangement whereby each party
exchanges one currency for another on a particular date and agrees
to reverse the exchange on a later date at a specific exchange
rate. Forward foreign currency contracts and currency swaps are
established in the interbank market conducted directly between
currency traders (usually large commercial banks or other
financial institutions) on behalf of their customers.
Interest Rate Swaps, Caps and Floors (International Equity
Segment). Among the hedging transactions into which the
International Equity segment may enter are interest rate swaps and
the purchase or sale of interest rate caps and floors. The
International Equity segment expects to enter into these
transactions primarily to preserve a return or spread on a
particular investment or segment of its portfolio or to protect
against any increase in the price of securities the International
Equity segment anticipates purchasing at a later date. The
International Equity segment intends to use these transactions as
a hedge and not as a speculative investment. The International
Equity segment will not sell interest rate caps or floors that it
does not own. Interest rate swaps involve the exchange by a fund
with another party of their respective commitments to pay or
receive interest, e.g., an exchange of floating rate payments for
fixed rate payments. The purchase of an interest rate cap
entitles the purchaser, to the extent that a specified index
exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling
such interest rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified index falls
below a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling
such interest rate floor.
The International Equity segment may enter into interest rate
swaps, caps and floors on either an asset-based or liability-based
basis, depending on whether it is hedging its assets or its
liabilities, and will usually enter into interest rate swaps on a
net basis, i.e., the two payment streams are netted, with the
International Equity segment receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these
hedging transactions are entered into for good faith hedging
purposes, the Manager and the International Equity segment believe
such obligations do not constitute senior securities and,
accordingly will not treat them as being subject to their
borrowing restrictions. The net amount of the excess, if any, of
the obligations of the International Equity segment over its
entitlements with respect to each interest rate swap will be
accrued on a daily basis and an amount of cash or liquid
securities having an aggregate net asset value at least equal to
the accrued excess will be maintained in a segregated account by a
custodian that satisfies the requirements of the 1940 Act. The
International Equity segment will not enter into any interest rate
swap, cap or floor transaction unless the unsecured senior debt or
the claims-paying ability of the other party thereto is rated in
the highest rating category of at least one nationally recognized
rating organization at the time of entering into such transaction.
If there is a default by the other party to such a transaction,
the International Equity segment will have contractual remedies
pursuant to the agreements related to the transaction. The swap
market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals
and as agents utilizing swap documentation. As a result, the swap
market has become relatively liquid. Caps and floors are more
recent innovations for which standardized documentation has not
yet been developed and, accordingly, they are less liquid than
swaps.
New options and Futures Contracts and various combinations thereof
continue to be developed and the International Equity segment may
invest in any such options and contracts as may be developed to
the extent consistent with their investment objectives and
regulatory requirements applicable to investment companies.
OTHER PRACTICES
Repurchase Agreements (US Equity Segment) The US Equity segment
will enter into repurchase agreements with banks which are the
issuers of instruments acceptable for purchase by the Fund and
with certain dealers on the Federal Reserve Bank of New York's
list of reporting dealers. Under the terms of a typical
repurchase agreement, the Fund would acquire an underlying
obligation for a relatively short period (usually not more than
one week) subject to an obligation of the seller to repurchase,
and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding
period. This arrangement results in a fixed rate of return that
is not subject to market fluctuations during the Fund's holding
period. Under each repurchase agreement, the selling institution
will be required to maintain the value of the securities subject
to the repurchase agreement at not less than their repurchase
price. Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party, including
possible delays or restrictions upon the ability of the US Equity
segment to dispose of the underlying securities, the risk of a
possible decline in the value of the underlying securities during
the period in which the Fund seeks to assert its rights to them,
the risk of incurring expenses associated with asserting those
rights and the risk of losing all or part of the income from the
agreement. The Manager, acting under the supervision of the Board
of Directors, reviews on an ongoing basis to evaluate potential
risks the value of the collateral and the creditworthiness of
those banks and dealers with which the US Equity segment enters
into repurchase agreements.
Repurchase Agreements (International Equity Segment). The
International Equity segment may enter into repurchase agreements.
The International Equity segment may invest in repurchase
agreements up to 25% of its total assets. A repurchase agreement
is a contract under which the Fund acquires a security for a
relatively short period (usually not more than one week) subject
to the obligation of the seller to repurchase and the Fund to
resell such security at a fixed time and price (representing the
Fund's cost plus interest). It is the present intention of the
International Equity segment to enter into repurchase agreements
only upon receipt of fully adequate collateral and only with
commercial banks (whether U.S. or foreign) and registered broker-
dealers. Repurchase agreements may also be viewed as loans made
by a fund which are collateralized primarily by the securities
subject to repurchase. The International Equity segment bears a
risk of loss in the event that the other party to a repurchase
agreement defaults on its obligations and the International Equity
segment is delayed in or prevented from exercising its rights to
dispose of the collateral securities. Pursuant to policies
established by the Board of Directors, the Manager monitors the
creditworthiness of all issuers with which the International
Equity segment enters into repurchase agreements.
Reverse Repurchase Agreements (International Equity Segment) .
The International Equity segment does not currently intend to
commit more than 5% of its net assets to reverse repurchase
agreements. The Internationa Equity segment may enter into reverse
repurchase agreements with broker/dealers and other financial
institutions. Such agreements involve the sale of fund securities
with an agreement to repurchase the securities at an agreed-upon
price, date and interest payment, are considered to be borrowings
by a fund and are subject to the borrowing limitations set forth
under "Investment Restrictions." Since the proceeds of reverse
repurchase agreements are invested, this would introduce the
speculative factor known as "leverage." The securities purchased
with the funds obtained from the agreement and securities
collateralizing the agreement will have maturity dates no later
than the repayment date. Generally the effect of such a
transaction is that the Fund can recover all or most of the cash
invested in the International Equity segment's 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 International Equity segment 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 International Equity segment. The
use of reverse repurchase agreements may exaggerate any interim
increase or decrease in the value of the participating fund's
assets. The Fund's custodian bank will maintain a separate
account for the International Equity segment with securities
having a value equal to or greater than such commitments.
Borrowing (International Equity Segment) . The Fund may borrow up
to 33% of the value of its total assets from banks for temporary
or emergency purposes, such as to meet the redemptions of the
International Equity segment.
Leveraging (US Equity Segment) The US Equity segment may from time
to time leverage its investments by purchasing securities with
borrowed money. The US Equity segment may borrow money only from
banks and in an amount not to exceed 33 1/3% of the total value of
its assets less its liabilities. The amount of borrowings by the
US Equity segment also may be limited by the availability and cost
of credit and by restrictions imposed by the Federal Reserve
Board.
The US Equity segment is required under the Investment Company Act
of 1940, as amended (the "1940 Act") to maintain at all times an
asset coverage of 300% of the amount of its borrowings. If, as a
result of market fluctuations or for any other reason, asset
coverage of the US Equity segment drops below 300%, the US Equity
segment must reduce its outstanding bank debt within three
business days so as to restore its asset coverage to the 300%
level.
Any gain in the value of securities purchased with borrowed money
that exceeds the interest paid on the amount borrowed would cause
the net asset value of the shares of the US Equity segment to
increase more rapidly than otherwise would be the case.
Conversely, any decline in the value of securities purchased would
cause the net asset value of the shares of the US Equity segment
to decrease more rapidly than otherwise would be the case.
Borrowed money thus creates an opportunity for greater capital
gain but at the same time increases exposure to capital risk. The
net cost of any borrowed money would be an expense that otherwise
would not be incurred, and this expense could restrict or
eliminate the net investment income of the US Equity segment in
any given period.
Leverage (International Equity Segment) . The International
Equity segment may borrow from banks, on a secured or unsecured
basis, up to 33% of the value of its total assets and use the
proceeds to make additional investments. Income and appreciation
from such investments will improve the Fund's performance if they
exceed the associated borrowing costs, but will impair a fund's
performance if they are less than the borrowing costs. This
speculative factor is known as "leverage."
Leverage creates an opportunity for increased returns to
shareholders of the International Equity segment but, at the same
time, creates special risk considerations. For example, leverage
may exaggerate changes in the net asset value of the shares of the
International Equity segment and in the yield of the International
Equity segment. Although the principal or stated value of such
borrowings will be fixed, the assets of athe International Equity
segment may change in value during the time the borrowing is
outstanding. Leverage will create interest expenses for the
International Equity segment which can exceed the income from the
assets retained. To the extent the income or other gain derived
from securities purchased with borrowed funds exceeds the interest
International Equity segment will have to pay in respect thereof,
the net income of the International Equity segment or other gain
will be greater than if leverage had not been used. Conversely,
if the income or other gain from the incremental assets is not
sufficient to cover the cost of leverage, the net income or other
gain of the International Equity segment will be less than if
leverage had not been used. If the amount of income from the
incremental securities is insufficient to cover the cost of
borrowing, securities might have to be liquidated to obtain
required funds. Depending on market or other conditions, such
liquidations could be disadvantageous to the International Equity
segment.
Lending of Portfolio Securities (US Equity Segment) The US Equity
segment has the ability to lend securities from its portfolio to
brokers, dealers and other financial organizations. Such loans, if
and when made, will be consistent with applicable regulatory
requirements. The US Equity segment may not lend its portfolio
securities to Salomon Smith Barney or its affiliates unless it has
applied for and received specific authority from the SEC. Loans of
portfolio securities by the US Equity segment will be
collateralized by cash, letters of credit or securities issued or
guaranteed by the United States government, its agencies or
instrumentalities ("U.S. government securities") which will be
maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. From time to time,
the US Equity segment may return a part of the interest earned
from the investment of collateral received for securities loaned
to the borrower and/or a third party, which is unaffiliated with
the US Equity segment or with Salomon Smith Barney, and which is
acting as a "finder."
In lending its portfolio securities, the US Equity segment can
increase its income by continuing to receive interest on the
loaned securities as well as by either investing the cash
collateral in short-term instruments or obtaining yield in the
form of interest paid by the borrower when government securities
are used as collateral. Requirements of the SEC, which may be
subject to future modifications, currently provide that the
following conditions must be met whenever portfolio securities are
loaned: (a) the US Equity segment must receive at least 100% cash
collateral or equivalent securities from the borrower; (b) the
borrower must increase such collateral whenever the market value
of the securities rises above the level of such collateral; (c)
the US Equity segment must be able to terminate the loan at any
time; (d) the US Equity segment must receive reasonable interest
on the loan, as well as an amount equal to any dividends, interest
or other distributions on the loaned securities, and any increase
in market value; (e) the US Equity segment may pay only reasonable
custodian fees in connection with the loan; and (f) voting rights
on the loaned securities may pass to the borrower; however, if a
material event adversely affecting the investment occurs, the
Fund's Board of Directors must terminate the loan and regain the
right to vote the securities. The risks in lending portfolio
securities, as with other extensions of secured credit, consist of
possible delay in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the
collateral should the borrower fail financially. Loans will be
made to firms deemed by the Manager to be of good standing and
will not be made unless, in the judgment of the Manager the
consideration to be earned from such loans would justify the risk.
Securities Lending (International Equity Segment) . The
International Equity segment may lend securities in amounts up to
one-third of total assets. International Equity Segment each may
lend securities in amounts up to 15% of total assets. The
International Equity segment may seek to increase its net
investment income by lending its securities provided such loans
are callable at any time and are continuously secured by cash or
U.S. Government Obligations equal to no less than the market
value, determined daily, of the securities loaned. The
International Equtiy segment will receive amounts equal to
dividends or interest on the securities loaned. It will also earn
income for having made the loan because cash collateral pursuant
to these loans will be invested in short-term money market
instruments. In connection with lending of securities the Fund
may pay reasonable finders, administrative and custodial fees.
Management will limit such lending to not more than one-third of
the value of the total assets of International Equity segment.
Where voting or consent rights with respect to loaned securities
pass to the borrower, management will follow the policy of calling
the loan, in whole or in part as may be appropriate, to permit the
exercise of such voting or consent rights if the issues involved
have a material effect on the investment of the International
Equity segment in the securities loaned. Apart from lending its
securities and acquiring debt securities of a type customarily
purchased by financial institutions, the International Equity
segment will make loans to other persons.
When-Issued and Delayed Delivery Securities (International Equity
Segment). The International Equity segment may purchase or sell
securities on a when-issued or delayed delivery basis. When-
issued or delayed delivery transactions arise when securities are
purchased or sold by the International Equity segment with payment
and delivery taking place in the future in order to secure what is
considered to be an advantageous price and yield to the
International Equity segment at the time of entering into the
transaction. The Chase Manhattan Bank, the Company's custodian
(the "Custodian") will maintain, in a segregated account of the
applicable fund, cash, debt securities of any grade or equity
securities, having a value equal to or greater than the Fund's
purchase commitments, provided such securities have been
determined by the Manager to be liquid and unencumbered, and are
mark to market daily, pursuant to guidelines established by the
Directors. The Custodian will likewise segregate securities sold
on a delayed basis. The payment obligations and the interest
rates that will be received are each fixed at the time the
International Equity segment enters into the commitment and no
interest accrues to the International Equity segment until
settlement. Thus, it is possible that the market value at the
time of settlement could be higher or lower than the purchase
price if the general level of interest rates has changed.
Short Sales (International Equity Segment). The International
Equity segment may sell securities "short against the box." While
a short sale is the sale of a security the International Equity
segment does not own, it is "against the box" if at all times when
the short position is open, the International Equity segment owns
an equal amount of the securities or securities convertible into,
or exchangeable without further consideration for, securities of
the same issue as the securities sold short. The ability to use
short sales to defer recognition of gains was substantially
limited by certain "constructive sale" tax provisions enacted in
1997.
The Articles of Incorporation of the Company permit the Board of
Directors to establish additional funds of the Company from time
to time. The investment objectives, policies and restrictions
applicable to additional funds would be established by the Board
of Directors at the time such funds were established and may
differ from those set forth in the Prospectus and this Statement
of Additional Information.
RISK FACTORS
US Equity Segment
Certain Risk Considerations Securities of the kinds of companies
in which the US Equity segment invests may be subject to
significant price fluctuation and above-average risk. In
addition, companies achieving an earnings growth rate higher than
that of S&P 500 companies tend to reinvest their earnings rather
than distribute them. As a result, the US Equity segment is not
likely to receive significant dividend income on its portfolio
securities. Accordingly, an investment in the should not be
considered as a complete investment program and may not be
appropriate for all investors.
Portfolio Turnover. The investment policies of the US Equity
segment may result in its experiencing a greater portfolio
turnover rate than those of investment companies that seek to
produce income or to maintain a balanced investment position.
Although the portfolio turnover rate of the US Equity segment
cannot be predicted and will vary from year to year, the Manager
expects that the Fund's annual portfolio turnover rate may exceed
100%, but will not exceed 200%. A 100% portfolio turnover rate
would occur, for instance, if all securities in the US Equity
segment were replaced once during a period of one year. A high
rate of portfolio turnover in any year will increase brokerage
commissions paid and could result in high amounts of realized
investment gain subject to the payment of taxes by shareholders.
Any realized short-term investment gain will be taxed to
shareholders as ordinary income.
International Equity Segment
General. Investors should realize that risk of loss is inherent
in the ownership of any securities and that net asset value of the
International Equity segment will fluctuate, reflecting
fluctuations in the market value of its portfolio positions.
Non-diversification and Geographic Concentration. A fund that is
"non-diversified" is permitted to invest a greater proportion of
their assets in the securities of a smaller number of issuers, and
thus may be subject to greater credit and liquidity risks with
respect to their individual portfolios than a fund that is more
broadly diversified. In addition, concentration of a fund's
assets in one or a few countries or currencies will subject the
Fund to greater risks than if the Fund's assets were not
geographically concentrated.
Fixed Income Securities. Investments in fixed income securities
may subject the International Equity segment to risks, including
the following:
Interest Rate Risk. When interest rates decline, the market value
of fixed income securities tends to increase. Conversely, when
interest rates increase, the market value of fixed income
securities tends to decline. The volatility of a security's
market value will differ depending upon the security's duration,
the issuer and the type of instrument.
Default Risk/Credit Risk. Investments in fixed income securities
are subject to the risk that the issuer of the security could
default on its obligations, causing a fund to sustain losses on
such investments. A default could impact both interest and
principal payments.
Call Risk and Extension Risk. Fixed income securities may be
subject to both call risk and extension risk. Call risk exists
when the issuer may exercise its right to pay principal on an
obligation earlier than scheduled, which would cause cash flows to
be returned earlier than expected. This typically results when
interest rates have declined and Interntional Equity segment will
suffer from having to reinvest in lower yielding securities.
Extension risk exists when the issuer may exercise its right to
pay principal on an obligation later than scheduled, which would
cause cash flows to be returned later than expected. This
typically results when interest rates have increased, and the
International Equity segment will suffer from the inability to
invest in higher yield securities.
Below Investment Grade Fixed Income Securities. Securities which
are rated BBB by S&P or Baa by Moody's are generally regarded as
having adequate capacity to pay interest and repay principal, but
may have some speculative characteristics. Securities rated below
Baa by Moody's or BBB by S&P may have speculative characteristics,
including the possibility of default or bankruptcy of the issuers
of such securities, market price volatility based upon interest
rate sensitivity, questionable creditworthiness and relative
liquidity of the secondary trading market. Because high yield
bonds have been found to be more sensitive to adverse economic
changes or individual corporate developments and less sensitive to
interest rate changes than higher-rated investments, an economic
downturn could disrupt the market for high yield bonds and
adversely affect the value of outstanding bonds and the ability of
issuers to repay principal and interest. In addition, in a
declining interest rate market, issuers of high yield bonds may
exercise redemption or call provisions, which may force the
International Equity segment, to the extent it owns such
securities, to replace those securities with lower yielding
securities. This could result in a decreased return.
Foreign Securities. Investments in securities of foreign issuers
involve certain risks not ordinarily associated with investments
in securities of domestic issuers. Such risks include
fluctuations in foreign exchange rates, future political and
economic developments, and the possible imposition of exchange
controls or other foreign governmental laws or restrictions.
Since International Equity segment will invest heavily in
securities denominated or quoted in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will, to the
extent the Fund does not adequately hedge against such
fluctuations, affect the value of securities in the International
Equity segment and the unrealized appreciation or depreciation of
investments so far as U.S. investors are concerned. In addition,
with respect to certain countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or
social instability or diplomatic developments which could
adversely affect investments in those countries.
There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not
be subject to accounting, auditing, and financial reporting
standards and requirements comparable to or as uniform as those of
U.S. companies. Foreign securities markets, while growing in
volume, have, for the most part, substantially less volume than
U.S. markets, and securities of many foreign companies are less
liquid and their price more volatile than securities of comparable
U.S. companies. Transaction costs on foreign securities markets
are generally higher than in the U.S. There is generally less
government supervision and regulation of exchanges, brokers and
issuers than there is in the U.S. A fund might have greater
difficulty taking appropriate legal action in foreign courts.
Dividend and interest income from foreign securities will
generally be subject to withholding taxes by the country in which
the issuer is located and may not be recoverable by the Fund or
the investors. Capital gains are also subject to taxation in some
foreign countries.
Currency Risks. The U.S. dollar value of securities denominated
in a foreign currency will vary with changes in currency exchange
rates, which can be volatile. Accordingly, changes in the value
of the currency in which investments of the International Equity
segment are denominated relative to the U.S. dollar will affect
the Fund's net asset value of the International Equity segment.
Exchange rates are generally affected by the forces of supply and
demand in the international currency markets, the relative merits
of investing in different countries and the intervention or
failure to intervene of U.S. or foreign governments and central
banks. However, currency exchange rates may fluctuate based on
factors intrinsic to a country's economy. Some emerging market
countries also may have managed currencies, which are not free
floating against the U.S. dollar. In addition, emerging markets
are subject to the risk of restrictions upon the free conversion
of their currencies into other currencies. Any devaluations
relative to the U.S. dollar in the currencies in which securities
of the International Equity segment are quoted would reduce the
net asset value per share of the International Equity poriton.
Special Risks of countries in the Asia Pacific Region. Certain of
the risks associated with international investments are heightened
for investments in these countries. For example, some of the
currencies of these countries have experienced devaluations
relative to the U.S. dollar, and adjustments have been made
periodically in certain of such currencies. Certain countries,
such as Indonesia, face serious exchange constraints.
Jurisdictional disputes also exist, for example, between South
Korea and North Korea. In addition, Hong Kong reverted to Chinese
administration on July 1, 1997. The long-term effects of this
reversion are not known at this time.
Securities of Developing/Emerging Markets Countries. A
developing or emerging markets country generally is considered to
be a country that is in the initial stages of its
industrialization cycle. Investing in the equity markets of
developing countries involves exposure to economic structures that
are generally less diverse and mature, and to political systems
that can be expected to have less stability, than those of
developed countries. Historical experience indicates that the
markets of developing countries have been more volatile than the
markets of the more mature economies of developed countries;
however, such markets often have provided higher rates of return
to investors.
One or more of the risks discussed above could affect adversely
the economy of a developing market or the Fund's investments in
such a market. In Eastern Europe, for example, upon the accession
to power of Communist regimes in the past, the governments of a
number of Eastern European countries expropriated a large amount
of property. The claims of many property owners against those of
governments may remain unsettled. There can be no assurance that
any investments that a fund might make in such emerging markets
would not be expropriated, nationalized or otherwise confiscated
at some time in the future. In such an event, the Fund could lose
its entire investment in the market involved. Moreover, changes
in the leadership or policies of such markets could halt the
expansion or reverse the liberalization of foreign investment
policies now occurring in certain of these markets and adversely
affect existing investment opportunities.
Many of the Fund's investments in the securities of emerging
markets may be unrated or rated below investment grade. Securities
rated below investment grade (and comparable unrated securities)
are the equivalent of high yield, high risk bonds, commonly known
as "junk bonds." Such securities are regarded as predominantly
speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the
obligations and involve major risk exposure to adverse business,
financial, economic, or political conditions.
Restrictions on Foreign Investment. Some countries prohibit or
impose substantial restrictions on investments in their capital
markets, particularly their equity markets, by foreign entities
such as the International Equity segment of the Fund As
illustrations, certain countries require governmental approval
prior to investments by foreign persons, or limit the amount of
investment by foreign persons in a particular company, or limit
the investment by foreign persons to only a specific class of
securities of a company which may have less advantageous terms
than securities of the company available for purchase by nationals
or limit the repatriation of funds for a period of time.
A number of countries, such as South Korea, Taiwan and Thailand,
have authorized the formation of closed-end investment companies
to facilitate indirect foreign investment in their capital
markets. In accordance with the 1940 Act, each fund may invest up
to 10% of its total assets in securities of closed-end investment
companies. This restriction on investments in securities of
closed-end investment companies may limit opportunities for
International Equity segment to invest indirectly in certain
smaller capital markets. Shares of certain closed-end investment
companies may at times be acquired only at market prices
representing premiums to their net asset values. If the
International Equity segment acquires shares in closed-end
investment companies, shareholders would bear both their
proportionate share of expenses in the company (including
management and advisory fees) and, indirectly, the expenses of
such closed-end investment companies.
In some countries, banks or other financial institutions may
constitute a substantial number of the leading companies or the
companies with the most actively traded securities. Also, the
1940 Act restricts the Fund's investments in any equity security
of an issuer which, in its most recent fiscal year, derived more
than 15% of its revenues from "securities related activities," as
defined by the rules thereunder. These provisions may also
restrict the Fund's investments in certain foreign banks and other
financial institutions.
Smaller capital markets, while often growing in trading volume,
have substantially less volume than U.S. markets, and securities
in many smaller capital markets are less liquid and their prices
may be more volatile than securities of comparable U.S. companies.
Brokerage commissions, custodial services, and other costs
relating to investment in smaller capital markets are generally
more expensive than in the United States. Such markets have
different clearance and settlement procedures, and in certain
markets there have been times when settlements have been unable to
keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Further, satisfactory
custodial services for investment securities may not be available
in some countries having smaller capital markets, which may result
in the Fund incurring additional costs and delays in transporting
and custodying such securities outside such countries. Delays in
settlement could result in temporary periods when assets of a fund
are uninvested and no return is earned thereon. The inability of
the International Equity segment to make intended security
purchases due to settlement problems could cause the Fund to miss
attractive investment opportunities. Inability to dispose of a
portfolio security due to settlement problems could result either
in losses to the International Equity segment due to subsequent
declines in value of the portfolio security or, if the
International Equity segment has entered into a contract to sell
the security, could result in possible liability to the purchaser.
Generally, there is less government supervision and regulation of
exchanges, brokers and issuers in countries having smaller capital
markets than there is in the United States.
Derivative Instruments. In accordance with its investment
policies, the International Equity segment may invest in certain
derivative instruments which are securities or contracts that
provide for payments based on or "derived" from the performance of
an underlying asset, index or other economic benchmark.
Essentially, a derivative instrument is a financial arrangement or
a contract between two parties (and not a true security like a
stock or a bond). Transactions in derivative instruments can be,
but are not necessarily, riskier than investments in conventional
stocks, bonds and money market instruments. A derivative
instrument is more accurately viewed as a way of reallocating risk
among different parties or substituting one type of risk for
another. Every investment by the International Equity segment,
including an investment in conventional securities, reflects an
implicit prediction about future changes in the value of that
investment. The investment of the International Equity segment
also involves a risk that the portfolio Manager's expectations
will be wrong. Transactions in derivative instruments often
enable International Equity segment to take investment positions
that more precisely reflect the portfolio Manager's expectations
concerning the future performance of the various investments
available to the International Equity segment. Derivative
instruments can be a legitimate and often cost-effective method of
accomplishing the same investment goals as could be achieved
through other investment in conventional securities.
Derivative contracts include options, futures contracts, forward
contracts, forward commitment and when-issued securities
transactions, forward foreign currency exchange contracts and
interest rate, mortgage and currency swaps. The following are the
principal risks associated with derivative instruments.
Market risk: The instrument will decline in value or that an
alternative investment would have appreciated more, but this is no
different from the risk of investing in conventional securities.
Leverage and associated price volatility: Leverage causes
increased volatility in the price and magnifies the impact of
adverse market changes, but this risk may be consistent with the
investment objective of even a conservative fund in order to
achieve an average portfolio volatility that is within the
expected range for that type of fund.
Credit risk: The issuer of the instrument may default on its
obligation to pay interest and principal.
Liquidity and valuation risk: Many derivative instruments are
traded in institutional markets rather than on an exchange.
Nevertheless, many derivative instruments are actively traded and
can be priced with as much accuracy as conventional securities.
Derivative instruments that are custom designed to meet the
specialized investment needs of a relatively narrow group of
institutional investors such as the Fund is not readily marketable
and are subject to a fund's restrictions on illiquid investments.
Correlation risk: There may be imperfect correlation between the
price of the derivative and the underlying asset. For example,
there may be price disparities between the trading markets for the
derivative contract and the underlying asset.
Each derivative instrument purchased for International Equity
segment is reviewed and analyzed by the portfolio manager of the
International Equity segment to assess the risk and reward of each
such instrument in relation the Fund's portfolio investment
strategy. The decision to invest in derivative instruments or
conventional securities is made by measuring the respective
instrument's ability to provide value to the Interntional Equity
segment and and the Fund's shareholders.
Special Risks of Using Futures Contracts. The prices of Futures
Contracts are volatile and are influenced by, among other things,
actual and anticipated changes in interest rates, which in turn
are affected by fiscal and monetary policies and national and
international political and economic events.
At best, the correlation between changes in prices of Futures
Contracts and of the securities or currencies being hedged can be
only approximate. The degree of imperfection of correlation
depends upon circumstances such as: variations in speculative
market demand for Futures and for debt securities or currencies,
including technical influences in Futures trading; and differences
between the financial instruments being hedged and the instruments
underlying the standard Futures Contracts available for trading,
with respect to interest rate levels, maturities, and
creditworthiness of issuers. A decision of whether, when, and how
to hedge involves skill and judgment, and even a well-conceived
hedge may be unsuccessful to some degree because of unexpected
market behavior or interest rate trends.
Because of the low margin deposits required, Futures trading
involves an extremely high degree of leverage. As a result, a
relatively small price movement in a Futures Contract may result
in immediate and substantial loss, as well as gain, to the
investor. For example, if at the time of purchase, 10% of the
value of the Futures Contract is deposited as margin, a subsequent
10% decrease in the value of the Futures Contract would result in
a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15%
decrease would result in a loss equal to 150% of the original
margin deposit, if the Futures Contract were closed out. Thus, a
purchase or sale of a Futures Contract may result in losses in
excess of the amount invested in the Futures Contract. The
International Equity poriton, however, would presumably have
sustained comparable losses if, instead of the Futures Contract,
it had invested in the underlying financial instrument and sold it
after the decline. Where the International Equity segment enters
into Futures transactions for non-hedging purposes, it will be
subject to greater risks and could sustain losses which are not
offset by gains on other assets of the International Equity
segment.
Furthermore, in the case of a Futures Contract purchase, in order
to be certain that International Equity segment has sufficient
assets to satisfy its obligations under a Futures Contract, the
Fund segregates and commits to back the Futures Contract with an
amount of cash and liquid securities from the International Equity
segment equal in value to the current value of the underlying
instrument less the margin deposit.
Most U.S. Futures exchanges limit the amount of fluctuation
permitted in Futures Contract prices during a single trading day.
The daily limit establishes the maximum amount that the price of a
Futures Contract may vary either up or down from the previous
day's settlement price at the end of a trading session. Once the
daily limit has been reached in a particular type of Futures
Contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a
particular trading day and therefore does not limit potential
losses, because the limit may prevent the liquidation of
unfavorable positions. Futures Contract prices have occasionally
moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of
Futures positions and subjecting some Futures traders to
substantial losses.
The Fund
Economic and Monetary Union (EMU). EMU began on January 1, 1999
when 11 European countries adopted a single currency -- the Euro.
EMU may create new economic opportunities for investors, such as
lower interest rates, easier cross-border mergers, acquisitions
and similar restructurings, more efficient distribution and
product packaging and greater competition. Budgetary decisions
remain in the hands of each participating country, but are subject
to each country's commitment to avoid "excessive deficits" and
other more specific budgetary criteria. A European Central Bank
is responsible for setting the official interest rate within the
Euro zone. EMU and the introduction of the Euro, however, present
unique risks and uncertainties for investors in EMU-participating
countries, including: (i) monetary and economic union on this
scale has never before been attempted; (ii) there is uncertainty
whether participating countries will remain committed to EMU in
the face of changing economic conditions; (iii) instability within
EMU may increase the volatility of European markets and may
adversely affect the prices of securities of European issuers in
the Fund's portfolios; (iv) there is uncertainty concerning the
fluctuation of the Euro relative to non-Euro currencies during the
transition period from January 1, 1999 to December 31, 2000, and
beyond; and (v) there is no assurance that interest rate, tax and
labor regimes of EMU-participating countries will converge over
time. These and other factors may cause market disruption and
could adversely affect European securities and currencies held by
the Fund.
MASTER/FEEDER FUND STRUCTURE
The Board of Directors has the discretion to retain the current
distribution arrangement for the Fund while investing in a master
fund in a master/feeder fund structure. A master/feeder fund
structure is one in which a fund (a "feeder fund"), instead of
investing directly in a portfolio of securities, invests most or
all of its investment assets in a separate registered investment
company (the "master fund") with substantially the same investment
objective and policies as the feeder fund. Such a structure
permits the pooling of assets of two or more feeder funds,
preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the
expenses of operating an investment portfolio are relatively
fixed, a larger investment portfolio may eventually achieve a
lower ratio of operating expenses to average net assets. An
existing investment company is able to convert to a feeder fund by
selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by
contributing its assets to the master fund and avoiding
transaction costs and, if proper procedures are followed, the
realization of taxable gain or loss.
INVESTMENT RESTRICTIONS
The investment restrictions 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. Any 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), 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). Law firm of Paul R & Ades, PLLC.
His address is Argyle Square, 181 West Main Street, Suite C, P.O.
Box 790, Babylon, New York 11702.
Herbert Barg, Director (Age 77). Private investor. His address is
273 Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
Dwight B. Crane, Director (Age 62). Professor, Graduate School of
Business Administration, Harvard University. His address is
Harvard Business School, Soldiers Field, Morgan Hall #371, 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
Avatar International, Inc., 87 Whittredge Road, Summit, New Jersey
07901.
*Heath B. McLendon, Chairman of the Board, President and Chief
Executive Officer (Age 67). Managing Director of Salomon Smith
Barney Inc. ("Salomon Smith Barney"); Director and President of
SSB Citi and Travelers Investment Adviser, Inc. ("TIA"); and
formerly Chairman of the Board of Smith Barney Strategy Advisers
Inc. Mr. McLendon is a director of 78 investment companies
associated with Citigroup Inc. ("Citigroup"). His address is 7
World Trade Center, 45th Floor, New York, New York 10048.
Jerome H. Miller, Director (Age 61). 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, 6th Floor, Suite 610,
New York, New York 10018.
Lewis E. Daidone, Senior Vice President and Treasurer (Age 42).
Managing Director of Salomon Smith Barney; Director and Senior
Vice President of SSB Citi and TIA; Senior Vice President and
Treasurer of 61 investment companies associated with Citigroup.
His address is 125 Broad Street, New York, New York 10004.
Jeffrey Russell, CFA, Vice President and Investment Officer (Age
42). Managing Director of Salomon Smith Barney; Investment
Officer of SSB Citi. His address is 7 World Trade Center, New
York, New York 10048.
Richard Freeman, Vice President and Investment Officer (Age 45).
Managing Director of Salomon Smith Barney; Investment Officer of
SSB Citi. His address is 7 World Trade Center, New York, New York
10048.
Paul Brook, Controller (Age 46). Director of Salomon Smith
Barney; from 1997-1998 Managing Director of AMT Capital Services
Inc.; prior to 1997 Partner with Ernst & Young LLP; Controller or
Assistant Treasurer of 43 investment companies associated with
Citigroup. His address is 125 Broad Street, New York, New York
10004.
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
Fiscal Year
End
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
78
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.
As of August 1, 2000, the Directors and Officers of the Fund as a
group, owned less than 1.00% of the outstanding common stock of
the Fund.
As of August 1, 2000, the following shareholders beneficially
owned 5% or more of a class of shares of the Fund:
Class A
GKN Automotive Inc. Pension Plan
Attn. Jon Giannangeli
3300 University Drive
Auburn Hills, Michigan 48326-2389
owned 87,719.938 shares (5.5256%)
International Flavors & Fragrances Inc. Pension Plan
Doug Wetmore VP and CFO
521 West 57th Street
New York, New York 10019-2901
owned 87,719.938 shares (5.5256%)
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 ("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.
A copy of the Fund's code of ethics is on file with the SEC.
Counsel and Auditors
Willkie Farr & Gallagher serves as counsel to the Company. The
Directors who are not "interested persons" of the Company have
selected Stroock & Stroock & Lavan LLP to serve as their legal
counsel.
KPMG LLP, independent accountants, 757 Third Avenue, New York, New
York 10017, serve as auditors of the Fund and will render an
opinion on the Fund's financial statements annually beginning with
the fiscal period ending April 30, 2001.
Custodian and Transfer Agent
PNC Bank, National Association ("PNC Bank"), located at 17th and
Chestnut Streets, Philadelphia, Pennsylvania 19103, serves as the
custodian of the Fund. Under its agreement with the Company on
behalf of the Fund, PNC Bank holds the Fund's portfolio securities
and keeps all necessary accounts and records. For its services,
PNC Bank receives a monthly fee based upon the month-end market
value of securities held in custody and also receives securities
transaction charges. The assets of the Fund are held under bank
custodianship in compliance with the 1940 Act.
Citi Fiduciary Trust Company (the "transfer agent") located at 125
Broad Street, New York, New York 10004, serves as the transfer
agent and shareholder services agent of the Fund.
PFPC Global Fund Services (the "sub-transfer agent"), located at
P.O. Box 9699, Providence Rhode Island 02940-9699, serves as the
Fund's sub-transfer agent to render certain shareholder record-
keeping and accounting services functions.
Distributor
Salomon Smith Barney, Inc., located at 388 Greenwich Street, New
York, New York 10013 serves as the Fund 's distributor pursuant to
a written agreement dated June 5, 2000 (the "Distribution
Agreement") which was approved by the Fund 's Board of Directors,
including a majority of the Directors who are not interested
persons of the Fund (the "Independent Directors"), on April 13,
2000. This Distribution Agreement replaces the Distribution
Agreement with CFBDS, Inc.
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 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 segment of the
Fund's portfolio have underperformed the securities in the segment
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
4.25
4.44
3.830
50,000 -
99,999
3.75
3.90
3.38
100,000 -
249,999
3.25
3.36
2.93
250,000 -
499,999
2.75
2.86
2.48
500,000 -
999,000
2.00
2.04
1.80
1,000,000 or
more
-0-*
-0-*
-0-*
* Purchases of Class A shares of $1,000,000 or more will be
made at net asset value without any initial sales charge,
but will be subject to a Deferred Sales Charge of 1.00% on
redemptions made within 12 months of purchase. The Deferred
Sales Charge on Class A shares is payable to Salomon Smith
Barney, which compensates Salomon Smith Barney Financial
Consultants and other dealers whose clients make purchases
of $1,000,000 or more. The Deferred Sales Charge is waived
in the same circumstances in which the Deferred Sales Charge
applicable to Class B and Class L shares is waived. See
"Deferred Sales Charge Provisions" and "Waivers of Deferred
Sales Charge."
Members of the selling group may receive up to 90% of the sales
charge and may be deemed to be underwriters of the Fund as defined
in the 1933 Act. The reduced sales charges shown above apply to
the aggregate of purchases of Class A shares of the Fund made at
one time by "any person," which includes an individual and his or
her immediate family, or a trustee or other fiduciary of a single
trust estate or single fiduciary account.
Class B Shares. Class B shares are sold without an initial sales
charge but are subject to a Deferred Sales Charge payable upon
certain redemptions. See "Deferred Sales Charge Provisions"
below.
Class L Shares. Class L shares are sold with an initial sales
charge of 1.00% (which is equal to 1.01% of the amount invested)
and are subject to a Deferred Sales Charge payable upon certain
redemptions. See "Deferred Sales Charge Provisions" below. Until
June 22, 2001, purchases of Class L shares by investors who were
holders of Class C shares of other Smith Barney Mutual Funds on
June 12, 1998 will not be subject to the 1.00% initial sales
charge.
Class Y Shares. Class Y shares are sold without an initial sales
charge or Deferred Sales Charge and are available only to
investors investing a minimum of $15,000,000 (except purchases of
Class Y shares by Smith Barney Concert Allocation Series Inc., for
which there is no minimum purchase amount).
General
Investors may purchase shares from a 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, or proceeds from a sale of, 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 Charges are: applicable to:(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.
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, Class L,
and, in limited circumstances, Class O shares at net asset value
to participating plans under the programs. You can meet minimum
investment and exchange amounts, if any, by combining the plan's
investments in any of the Smith Barney Mutual Funds.
There are no sales charges when you buy or sell shares and the
class of shares you may purchase depends on the amount of your
initial investment and/or the date your account is opened. Once a
class of shares is chosen, all additional purchases must be of the
same class.
For plans opened on or after March 1, 2000 that are not plans for
which Paychex Inc. or an affiliate provides administrative
services (a "Paychex plan"), Class A shares may be purchased
regardless of the amount invested.
For plans opened prior to March 1, 2000 and for Paychex plans, the
class of shares you may purchase depends on the amount of your
initial investment:
Class A Shares. Class A shares may be purchased by plans investing
at least $1 million.
Class L Shares. Class L shares may be purchased by plans
investing less than $1 million. Class L shares are eligible to
exchange into Class A shares not later than 8 years after the plan
joined the program. They are eligible for exchange in the
following circumstances:
If the plan was opened on or after June 21, 1996 and a total of $1
million is invested in Smith Barney Funds Class L shares (other
than money market funds), all Class L shares are eligible for
exchange after the plan is in the program 5 years.
If the plan was opened before June 21, 1996 and a total of
$500,000 is invested in Smith Barney Funds Class L shares (other
than money market funds) on December 31 in any year, all Class L
shares are eligible for exchange on or about March 31 of the
following year.
For more information, call your Salomon Smith Barney Financial
Consultant or the transfer agent.
Retirement Programs Opened On or After June 21, 1996. If, at the
end of the fifth year after the date the participating plan
enrolled in the Smith Barney 401(k) Program or ExecChoiceTM
Program, a participating plan's total Class L and/or Class O
holdings in all non-money market Smith Barney Mutual Funds equal
at least $1,000,000, the participating plan will be offered the
opportunity to exchange all of its Class L and/or Class O shares
for Class A shares of the Fund. (For participating plans that were
originally established through a Salomon Smith Barney retail
brokerage account, the five-year period will be calculated from
the date the retail brokerage account was opened.) Such
participating plans will be notified of the pending exchange in
writing within 30 days after the fifth anniversary of the
enrollment date and, unless the exchange offer has been rejected
in writing, the exchange will occur on or about the 90th day after
the fifth anniversary date. If the participating plan does not
qualify for the five-year exchange to Class A shares, a review of
the participating plan's holdings will be performed each quarter
until either the participating plan qualifies or the end of the
eighth year.
Retirement Programs Opened Prior to June 21, 1996. In any year
after the date a participating plan enrolled in the Smith Barney
401(k) Program, if its total Class L and/or Class O holdings in
all non-money market Smith Barney Mutual Funds equal at least
$500,000 as of the calendar year-end, the participating plan will
be offered the opportunity to exchange all of its Class L and/or
Class O shares for Class A shares of the same fund. Such Plans
will be notified in writing within 30 days after the last business
day of the calendar year and, unless the exchange offer has been
rejected in writing, the exchange will occur on or about the last
business day of the following March.
Any participating plan in the Smith Barney 401(k) or ExecChoiceTM
Program, whether opened before or after June 21, 1996, that has
not previously qualified for an exchange into Class A shares will
be offered the opportunity to exchange all of its Class L and/or
Class O shares for Class A shares of the same fund regardless of
asset size, at the end of the eighth year after the date the
participating plan enrolled in the Smith Barney 401(k) or
ExecChoiceTM Program. Such plans will be notified of the pending
exchange in writing approximately 60 days before the eighth
anniversary of the enrollment date and, unless the exchange has
been rejected in writing, the exchange will occur on or about the
eighth anniversary date. Once an exchange has occurred, a
participating plan will not be eligible to acquire additional
Class L shares, but instead may acquire Class A shares of the same
fund. Any Class L and/ or Class O shares not converted will
continue to be subject to the distribution fee.
Participating plans wishing to acquire shares of the Fund through
the Smith Barney 401(k) Program or the Smith Barney ExecChoiceTM
Program must purchase such shares directly from the transfer
agent. For further information regarding these Programs, investors
should contact a Salomon Smith Barney Financial Consultant.
Retirement Programs Investing in Class B Shares: Class B shares
of a fund are not available for purchase by participating plans
opened on or after June 21, 1996, but may continue to be purchased
by any participating plan in the Smith Barney 401(k) Program
opened prior to such date and originally investing in such Class.
Class B shares acquired are subject to a Deferred Sales Charge of
3.00% of redemption proceeds if the participating plan terminates
within eight years of the date the participating plan first
enrolled in the Smith Barney 401(k) Program.
At the end of the eighth year after the date the participating
plan enrolled in the Smith Barney 401(k) Program, the
participating plan will be offered the opportunity to exchange all
of its Class B shares for Class A shares of the same fund. Such
participating plan will be notified of the pending exchange in
writing approximately 60 days before the eighth anniversary of the
enrollment date and, unless the exchange has been rejected in
writing, the exchange will occur on or about the eighth
anniversary date. Once the exchange has occurred, a participating
plan will not be eligible to acquire additional Class B shares,
but instead may acquire Class A shares of the same fund. If the
participating plan elects not to exchange all of its Class B
shares at that time, each Class B share held by the participating
plan will have the same conversion feature as Class B shares held
by other investors. See "Purchase of Shares-Deferred Sales Charge
Alternatives."
No Deferred Sales Charge is imposed on redemptions of Class B
shares to the extent that the net asset value of the shares
redeemed does not exceed the current net asset value of the shares
purchased through reinvestment of dividends or capital gain
distributions, plus the current net asset value of Class B shares
purchased more than eight years prior to the redemption, plus
increases in the net asset value of the shareholder's Class B
shares above the purchase payments made during the preceding eight
years. Whether or not the Deferred Sales Charge applies to the
redemption by a participating plan depends on the number of years
since the participating plan first became enrolled in the Smith
Barney 401(k) Program, unlike the applicability of the Deferred
Sales Charge to redemptions by other shareholders, which depends
on the number of years since those shareholders made the purchase
payment from which the amount is being redeemed.
The Deferred Sales Charge will be waived on redemptions of Class B
shares in connection with lump-sum or other distributions made by
a participating plan as a result of: (a) the retirement of an
employee in the participating plan; (b) the termination of
employment of an employee in the participating plan; (c) the death
or disability of an employee in the participating plan; (d) the
attainment of age 591/2 by an employee in the participating plan;
(e) hardship of an employee in the participating plan to the
extent permitted under Section 401(k) of the Code; or (f)
redemptions of shares in connection with a loan made by the
participating plan to an employee.
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 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, Investor's Business 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 the 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 which 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 investment company taxable
income (i.e., taxable income other than any excess of net realized
long-term capital gains over net realized short-term capital
losses ("net capital gains")) and its net capital gains, if any,
that it distributes to its shareholders, provided an amount equal
to at least 90% of its investment company taxable income, 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 with respect to certain of its assets (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 foreign 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 PFICs in
which it invests, which may be difficult or not possible to
obtain.
The Fund may also make an election that would result in the Fund
being treated as if it had sold and repurchased all of its 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 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 capital
gains. 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 capital
gains, 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 net capital gains included in the shareholder's
income. Organizations or persons not subject to federal income
tax on such net 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 an 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 file an annual
report.
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.
36
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legal\funds\sliv\2000\secdocs\premierselectionsglobalgrowthfundsai
PART C - OTHER INFORMATION
Item 23. Exhibits
All references are to the Registrant's registration
statement on Form N-1A (the "Registration Statement")
as filed with the SEC on October 2, 1981(File Nos. 2-
74288 and 811-3275).
(a) Articles of Restatement dated September 17, 1993
to Registrant's Articles of Incorporation dated
September 28, 1981, Articles of Amendment dated
October 14, 1994, Articles Supplementary, Articles of
Amendment dated October 14, 1994, Articles
Supplementary, Articles of Amendments and Certificates
of Correction dated November 7, 1994, are incorporated
by reference to Post-Effective Amendment No. 37 to the
Registration Statement filed on November 7, 1994.
Articles of Amendment dated October 23, 1997 are
incorporated by reference to Post-Effective Amendment
No. 46 filed on October 23, 1997("Post-Effective
Amendment No.46"). Articles of Amendment dated
February 27, 1998 are incorporated by reference
to Post-Effective Amendment No. 48 dated April 29, 1998.
Articles of Amendment dated June 1, 1998 are incorporated
by reference to Post-Effective Amendment No. 49 filed on
July
16, 1998 ("Post-Effective Amendment No. 49").
(b) Registrant's By-Laws, as amended on September 30,
1992 are incorporated by reference to Post-Effective
Amendment No. 30 to the Registration Statement filed
on April 30, 1993.
(c) Registrant's form of stock certificate for Smith
Barney Hansberger Global Value Fund ("Global Value
Fund") and Smith Barney Hansberger Global Value Small
Cap Fund ("Small Cap Fund") is incorporated by
reference to Post Effective Amendment 46.
(d)(1) Investment Advisory Agreement dated July 30,
1993, between the Registrant on behalf of Smith Barney
Investment Grade Bond Fund, Smith Barney Government
Securities Fund and Smith Barney Special Equities
Fund and Greenwich Street Advisors is incorporated by
reference to the Registration Statement filed on Form
N-14 on September 2, 1993, File No. 33-50153.
(d)(2) Investment Advisory Agreements on behalf of
Smith Barney Growth Opportunity Fund and Smith Barney
Managed Growth Fund is incorporated by reference to
Post-Effective Amendment No. 40 filed on June 27,
1995. ("Post-Effective Amendment No.40")
(d)(3) Investment Management Agreements on behalf of
Global Value Fund and Global Small Cap Fund between
Registrant and Smith Barney Mutual Funds Management
Inc. is incorporated by reference to Post-Effective
Amendment No. 46.
(d)(4) Sub-Advisory Agreement on behalf of Global
Value Fund and Global Small Cap Fund between MMC and
Hansberger Global Investors Inc. is
incorporated by reference to Post-Effective
Amendment No. 46.
(d)(5)Investment Management Agreements on behalf of
Smith Barney Small Cap Growth Fund and Smith Barney
Small Cap Value Fund between Registrant and
Mutual Management Corp. is incorporated by reference
To Post-Effective Amendment No. 49.
(e)(1) Distribution Agreement dated July 30, 1993,
between the Registrant and Smith Barney Shearson Inc.
is incorporated by reference to the registration
statement filed on Form N-14 on September 2, 1993.
File 33-50153.
(e)(2) Form of Distribution Agreement between the
Registrant and PFS Distributors on behalf of Smith
Barney Investment Funds Inc. is incorporated by
reference to Post-Effective Amendment No. 40 filed on
June 27, 1995.
(e)(3) Form of Distribution Agreement between the
Registrant and CFBDS, Inc. is incorporated by reference
to Post-Effective Amendment No. 49.
(e)(4) Selling Group Agreement
is incorporated by reference
to Post-Effective Amendment No.56 filed on
February 26, 1999.
(e)5 Form of Distribution Agreement with Salomon Smith Barney Inc. is filed
herewith
(f) Not Applicable.
(g)(1) Custodian Agreement with PNC Bank, National
Association is incorporated by reference to Post -
Effective Amendment No. 44 filed on April 29, 1997.
(g)(2) Custodian Agreement with Chase Manhattan Bank
is incorporated by reference to Post-Effective
Amendment No. 46.
(h)(1) Transfer Agency and Registrar Agreement dated
August 5, 1993 with First Data Investor Services
Group, Inc. (formerly The Shareholder Services Group,
Inc.) is incorporated by reference to Post-Effective
Amendment No. 31 as filed on December 22, 1993 (Post-
Effective Amendment No. 31").
(h)(2)Sub-Transfer Agency Agreement between the
Registrant and PFS Shareholders Services on behalf of
Smith Barney Investment Funds Inc. is incorporated by
reference to Post-Effective Amendment No. 40.
(h)(3) Transfer Agency Agreement dated October 1, 1999 between the Registrant
and Smith Barney Private Trust Company is filed herewith.
(h)(4) Sub-Transfer Agency Agreement dated October 1, 1999 between the First
Data Investor Services Group Inc. and Smith Barney Private Trust Company is
filed herewith.
(i) Opinion of Robert A. Vegliante, Deputy General
Counsel of Smith Barney Mutual Funds Management Inc.
filed with the Registrant's rule 24-f2 Notice
(Accession No. 000091155-97-000104) is incorporated by
reference.
(j) Consent of KPMG LLP is filed herein.
(k) Not Applicable
(l) Not Applicable
(m)(1) Amended Services and Distribution Plans
pursuant to Rule 12b-1 between the Registrant on behalf
of Smith Barney Investment Grade Bond Fund, Smith
Barney Government Securities Fund, Smith Barney Special
Equities Fund and Smith Barney European Fund and Smith
Barney, Inc. ("Smith Barney") are incorporated by
reference to Post-Effective Amendment No. 37 filed on
November 3, 1994 ("Post-Effective Amendment No. 37")
(m)(2) Form of Services and Distribution Plans
pursuant to Rule 12b-1 between the Registrant on
behalf of Smith Barney Growth Opportunity Fund and
Smith Barney Managed Growth Fund is incorporated by
reference to Post-Effective Amendment No. 40.
(m)(3) Form of Services and Distribution Plans
pursuant to Rule 12b-1 between the Registrant on
behalf of the Global Value Fund and Small Cap Fund is
incorporated by reference to Post-Effective Amendment
No. 46.
(m)(4) Form of Amended and Restated Shareholder Services
and
Distribution Plan pursuant to Rule 12b-1 between
the Registrant on behalf of each of its series
is incorporated by reference to Post-Effective Amendment
No. 49.
(n) Financial Data Schedule is filed herein.
(o) Form of Plan pursuant to Rule 18f-3 is incorporated by
reference to Post-Effective Amendment No.50 to
Registration Statement.
(p) Revised Code of Ethics is incorporated by reference to
Post-Effective Amendment No. 71 to the Registrant's Registration
Statement.
Item 24.
None.
Item 25. Indemnification
The response to this item is incorporated by
reference to Pre-Effective Amendment No. 1 to the
registration statement filed on Form N-14 on October
8, 1993 (File No. 33-50153).
Item 26. Business and Other Connections of Investment Adviser
Investment Adviser - - SSB Citi Fund Management LLC ("SSB Citi")
Successor to SSBC Fund Management Inc. ("SSBC")
SSB Citi was incorporated in December 1968 under the laws
of the State of Delaware. On September 21, 1999, SSB Citi
was converted into a Delaware Limited Liability Company.
SSB Citi is a wholly owned subsidiary of Salomon Smith Barney
Holdings Inc. ("Holdings") (formerly known as Smith Barney
Holdings Inc.) which in turn is a wholly owned subsidiary
of Citigroup Inc. ("Citigroup"). SSB Citi is registered
as an investment adviser under the Investment Advisers Act
of 1940 (the "Advisers Act").
The list required by this Item 26 of officers and
directors of SSB Citi together with information as to
any other business, profession, vocation or employment of a
substantial nature engaged in by such officers and directors during
the past two years, is incorporated by reference to Schedules A and D
of FORM ADV filed by SSBC pursuant to the Advisers Act
(SEC File No. 801-8314).
Item 27. Principal Underwriters
(a)
Salomon Smith Barney, Inc., ("Salomon Smith Barney")
the Registrant's Distributor,
is also the distributor for the following Smith Barney
funds: Consulting Group Capital Markets Funds,
Concert Investment Series,
Greenwich Street Series Fund, Smith Barney
Adjustable Rate Government Income Fund, Smith Barney
Aggressive Growth Fund Inc., Smith Barney Appreciation Fund
Inc., Smith Barney Arizona Municipals Fund Inc., Smith
Barney California Municipals Fund Inc., Smith Barney Concert
Allocation Series Inc., Smith Barney Equity Funds, Smith
Barney Fundamental Value Fund Inc., Smith Barney Funds,
Inc., Smith Barney Income Funds, Smith Barney Institutional
Cash Management Fund, Inc., Smith Barney Investment Trust,
Smith Barney Managed Governments Fund Inc., Smith Barney Managed
Municipals Fund Inc.,Smith Barney Massachusetts Municipals Fund,
Smith Barney Money Funds, Inc., Smith Barney Muni Funds, Smith
Barney Municipal Money Market Fund, Inc., Smith Barney New
Jersey Municipals Fund Inc., Smith Barney Oregon Municipals
Fund Inc., Smith Barney Principal Return Fund,
Smith Barney Sector Series Inc., Smith Barney
Small Cap Blend Fund, Inc., Smith Barney Telecommunications
Trust, Smith Barney Variable Account Funds, Smith Barney
World Funds, Inc., Travelers Series Fund Inc., and various
series of unit investment trusts.
(b) The information required by
this Item 27 with respect to each director, officer and partner
of Salomon Smith Barney is incorporated by reference
to Schedule A of FORM BD filed by Salomon Smith Barney pursuant to
the Securities Exchange Act of 1934 (SEC File No. 812-8510).
(c) Not applicable.
Item 28. Location of Accounts and Records
(1) Smith Barney Investment Funds Inc.
388 Greenwich Street
New York, New York 10013
and
125 Broad Street
New York, NY 10004
(2) SSB Citi Fund Management LLC
388 Greenwich Street
New York, New York 10013
(3) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, PA
(4) The Chase Manhattan Bank
Chase Metrotech Center
Brooklyn, New York 11245
(5) Citi Fiduciary Trust Company
125 Broad Street
New York, New York 10004
(6) PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Not applicable
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of
1940, as amended, the Registrant, SMITH BARNEY
INVESTMENT FUNDS INC., certifies that it meets all
the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b)
under the 1933 Act and has duly caused this Amendment
to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized,
all in the City of New York, State of New York on the
25th day of August, 2000.
SMITH BARNEY INVESTMENT FUNDS INC.
By: /s/ Heath B. McLendon*
Heath B. McLendon
Chief Executive Officer
WITNESS our hands on the date set forth below.
Pursuant to the requirements of the Securities
Act of 1933, as amended, this Post-Effective Amendment
to the Registration Statement has been signed below by
the following persons in the capacities and on the
dates indicated.
Signature Title Date
/s/ Heath B. McLendon Chairman of the Board 8/25/00
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Senior Vice President
Lewis E. Daidone and Treasurer 8/25/00
(Chief Financial
and Accounting Officer)
/s/ Paul R. Ades * Director 8/25/00
Paul R. Ades
/s/ Herbert Barg* Director 8/25/00
Herbert Barg
/s/ Dwight B. Crane* Director 8/25/00
Dwight B. Crane
/s/ Frank Hubbard* Director 8/25/00
Frank Hubbard
/s/ Jerome Miller** Director 8/25/00
Jerome Miller
/s/ Ken Miller* Director 8/25/00
Ken Miller
*Signed by Heath B. McLendon, their duly authorized
attorney-in-fact, pursuant
to power of attorney dated November 3, 1994.
**Signed by Heath B. McLendon, their duly authorized
attorney-in-fact, pursuant
to power of attorney dated April 15, 1998.
/s/ Heath B. McLendon
Heath B. McLendon
EXHIBIT INDEX
j. Consent of Independent Auditors
n. Financial Data Schedules
