<PAGE>
As filed with the Securities and Exchange Commission on December 29, 2000
File Nos. 2-90519
811-4007
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 35
and
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
AMENDMENT NO. 36
CITIFUNDS TRUST II
(Exact Name of Registrant as Specified in Charter)
388 Greenwich Street, New York, NY 10013
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (800) 451-2010
Robert I. Frenkel, 7 World Trade Center, New York, New York 10048
(Name and Address of Agent for Service)
Copy to:
Roger P. Joseph, Bingham Dana LLP, 150 Federal Street,
Boston, Massachusetts 02110
It is proposed that this filing will become effective (check appropriate
box):
[ ] immediately upon filing pursuant to paragraph (b).
[ ] on (date) pursuant to paragraph (b).
[ ] 60 days after filing pursuant to paragraph (a)(1).
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485.
[x] 75 days after filing pursuant to paragraph (a)(2).
[ ] 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.
* This filing relates solely to shares of the Trust's series Smith Barney
Research Fund and Global Research Fund.
<PAGE>
[LOGO] Smith Barney
Mutual Funds
Your Serious Money. Professionally Managed.(SM)
PROSPECTUS
Research
Fund
CLASS A, B, L AND Y SHARES
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INVESTMENT PRODUCTS: NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
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The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
RESEARCH FUND
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CONTENTS
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Investments, risks and performance ................................... 2
More on the fund's investments ....................................... 6
Management ........................................................... 8
Subscription offering period ......................................... 9
Choosing a class of shares to buy .................................... 10
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 ........................ 22
Dividends, distributions and taxes ................................... 24
Share price .......................................................... 25
Financial highlights ................................................. 26
<PAGE>
Investments, risks and performance
INVESTMENT OBJECTIVE
The fund seeks long-term capital growth.
PRINCIPAL INVESTMENT STRATEGIES
Key investments Under normal market conditions, the fund will invest primarily
in common stocks and related securities, such as preferred stocks, convertible
securities and depositary receipts. The fund may invest in companies of any
size, and the fund's investments may include securities traded on securities
exchanges or in the over-the-counter markets. The fund also may invest up to -
% of its assets in foreign securities.
Selection process The fund focuses on companies that the fund's manager
believes have favorable prospects for long-term growth, attractive valuations
based on current and expected earnings or cash flow, dominant or growing
market share and superior management. [A committee of investment research
analysts selects portfolio securities for the fund. This committee includes
investment analysts employed by the manager or its affiliates. Each analyst on
the committee is assigned to a particular industry. The committee allocates
the fund's assets among these various industries. Individual analysts then
select what they view as the securities best suited to achieve the fund's
investment objective within their assigned industry responsibility.]
<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:
[] Key economic trends become materially unfavorable, such as rising interest
rates and levels of inflation or a slowdown of economic growth
[] Stock prices decline generally
[] An adverse company specific event, such as an unfavorable earnings report,
negatively affects the stock price of a company in which the fund invests
[] The manager's judgement about the attractiveness, growth prospects, or
potential appreciation of a particular stock proves to be incorrect
[] Small or medium capitalization companies fall out of favor with investors.
The fund's growth-oriented investment style may increase the risks of
investing in the fund. Growth securities typically are quite sensitive to
market movements because their market prices tend to reflect future
expectations. When it appears those expectations will not be met, the prices
of growth securities typically fall. Growth securities may also be more
volatile than other investments because they generally do not pay dividends.
The fund may underperform certain other stock funds (those emphasizing value
stocks, for example) during periods when growth stocks are out of favor.
See page for more information about the risks of investing in the fund.
Who may want to invest The fund may be an appropriate investment if:
[] You are seeking to participate in the long- term growth potential of the U.S.
stock market
[] You are looking for an investment with potentially greater return but higher
risk than fixed income investments
[] You are prepared to accept daily share price fluctuations and possible losses
[] Your investment horizon is longer term -- typically at least five years
<PAGE>
PERFORMANCE
The fund is new and does not yet have the performance information that other
Smith Barney funds show in bar and table form in this part of the prospectus.
FEE TABLE
This table sets forth the fees and expenses you may pay if you invest in fund
shares.
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SHAREHOLDER FEES
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(FEES PAID DIRECTLY FROM
YOUR INVESTMENT) CLASS A CLASS B CLASS L CLASS Y
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
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ANNUAL FUND OPERATING EXPENSES
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(EXPENSES DEDUCTED FROM
FUND ASSETS) CLASS A CLASS B CLASS L CLASS Y
Management fee 0.85% 0.85% 0.85% 0.85%
Distribution and service
(12b-1) fees 0.25% 1.00% 1.00% None
Other expenses** 0.30% 0.30% 0.30% 0.30%
Total annual fund
operating expenses 1.40% 2.15% 2.15% 1.15%
*You may buy Class A shares in amounts of $1,000,000 or more at net asset
value (without an initial sales charge) but if you redeem those shares within
12 months of their purchase, you will pay a deferred sales charge of 1.00%.
**The amounts set forth in "Other expenses" have been estimated based on
expenses the fund expects to incur during its fiscal year ending ------, 2001.
EXAMPLE
This example helps you compare the costs of investing in the fund with the
costs of investing in other mutual funds. Your actual costs may be higher or
lower. The example assumes:
[] You invest $10,000 in the fund for the periods shown
[] Your investment has a 5% return each year
[] You reinvest all distributions and dividends without a sales charge
[] The fund's operating expenses remain the same
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NUMBER OF YEARS YOU OWN YOUR SHARES
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1 YEAR 3 YEARS
Class A
(with or without redemption) $ $
Class B
(redemption at end of period) $ $
Class B
(no redemption) $ $
Class L
(redemption at end of period) $ $
Class L
(no redemption) $ $
Class Y
(with or without redemption) $ $
<PAGE>
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MORE ON THE FUND'S INVESTMENTS
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Derivatives The 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
[] To enhance returns
[] As a substitute for buying or selling securities
[] As a cash flow management technique
A derivative contract will obligate or entitle the fund to deliver or receive
an asset or cash payment based on the change in value of one or more
securities, currencies or indices. Even a small investment in derivative
contracts can have a big impact on the 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 fund may not
fully benefit from or may lose money on derivatives if changes in their value
do not correspond accurately to changes in the value of the fund's holdings.
The other parties to certain derivative contracts present the same types of
credit risk as issuers of fixed income securities. Derivatives can also make
the fund less liquid and harder to value, especially in markets.
Foreign investments The fund may invest in foreign securities, including the
securities of emerging market issuers. The fund may invest directly in foreign
issuers or invest in depositary receipts.
The fund's investments in securities of foreign issuers involve greater risk
than investments in securities of U.S. issuers. These risks may include
expropriation of assets, confiscatory taxation, withholding taxes on dividends
and interest paid on fund investments, currency exchange controls and other
limitations on the use or transfer of fund assets and political or social
instability. The Fund could also lose money if the currency in which a
security is priced declines in value relative to the U.S. dollar. 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. Foreign markets may offer less protection to investors. Enforcing
legal rights may be difficult, costly and slow. There may be special problems
enforcing claims against foreign governments. Many foreign countries the fund
invests in have markets that are less liquid and more volatile than markets in
the U.S. In addition, there is the possibility of governmental controls on
currency exchanges or governmental intervention in currency markets. Controls
or intervention could limit or prevent the fund from realizing value in U.S.
dollars from its investment in foreign securities. Economic and Monetary Union
and the introduction of a single European currency, which began on January 1,
1999, may increase uncertainties relating to investment in European markets.
Because the value of a depositary receipt is dependent upon the market price
of an underlying foreign security, depositary receipts are subject to most of
the risks associated with investing in foreign securities directly.
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.
Small Cap securities The fund may also invest in common stocks and other
securities issued by small companies that have market capitalizations below
the top 1,000 stocks of the equity market. The securities of smaller
capitalized companies may have more risks than those of larger, more seasoned
companies. They may be particularly susceptible to market downturns and their
prices may be more volatile, causing the fund's share price to be volatile.
Debt securities While the fund expects to invest mainly in equity securities,
the fund may also invest in debt securities to a limited extent. The fund's
debt securities must be investment grade when the fund purchases them. Less
than 5% of the fund's assets may be invested in debt securities rated Baa by
Moody's or BBB by Standard & Poors. Generally, the value of these debt
securities will decline if interest rates rise, the credit rating of the
security is downgraded or the issuer defaults on its obligation to pay
principal or interest.
Convertible securities Convertible securities, which are debt securities that
may be converted into stock, are subject to the market risks of stocks as well
as the risks of debt securities.
Cash management The fund may hold cash pending investment, and may invest in
money market instruments, repurchase agreements and reverse repurchase
agreements for cash management purposes.
Portfolio turnover The fund may engage in active and frequent trading to
achieve its principal investment strategies. This may lead to the realization
and distribution to shareholders of higher capital gains, which would increase
their tax liability. Frequent trading also increases transaction costs, which
could detract from the fund's performance.
Investment Structure The fund has reserved the right to invest in securities
through an underlying mutual fund having the same goals and strategies.
Shareholders will be given at least 30 days prior written notice before any
such change in investment structure is implemented.
Defensive investing The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market instruments.
If the fund takes a temporary defensive position, it may be unable to achieve
its investment goal.
The fund may also use other strategies and invest in other securities that are
described, along with their risks, in the Statement of Additional Information
("SAI"). However, the fund may not use all of the strategies and techniques or
invest in all of the types of securities described in this Prospectus or in
the SAI. Also note that there are many other factors that could adversely
affect your investment and that could prevent the fund from achieving its
goals, which are not described here.
The fund's goals and strategies may be changed without shareholder approval.
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MANAGEMENT
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Manager The fund's investment manager is SSB Citi Fund Management LLC, an
affiliate of Salomon Smith Barney, Inc. The manager's address is 388 Greenwich
Street, New York, New York 10013. The manager selects the fund's investments
and oversees its operations. The manager and Salomon Smith Barney are
subsidiaries of Citigroup Inc. Citigroup businesses produce a broad range of
financial services -- asset management, banking and consumer finance, credit
and charge cards, insurance, investments, investment banking and trading --
and use diverse channels to make them available to consumer and corporate
customers around the world.
[Insert Identity and Background of Portfolio Manager]
Management fee For its services, the manager will receive an annual investment
management fee equal to 0.85% of the fund's average daily net assets.
Distribution plans The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under the plan, the fund pays distribution and/or
service fees. These fees are an ongoing expense and, over time, may cost you
more than other types of sales charges.
In addition, the distributor may make payments for distribution and/or
shareholder servicing activities out of its past profits and other available
sources. A distributor may also make payments for marketing, promotional or
related expenses to dealers. The amount of these payments is determined by the
distributor and may be substantial. The manager or an affiliate may make
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 sub-transfer agency and
services agreements with PFPC Global Fund Services and PFS Shareholder
Services to serve as the fund's sub-transfer agents (the "sub-transfer
agents"). The sub-transfer agents will perform certain functions including
shareholder record keeping and accounting services.
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SUBSCRIPTION OFFERING PERIOD
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A broker-dealer, financial intermediary, financial institution or a
distributor's financial consultants (each called a "Service Agent") will
solicit subscriptions for shares of the fund during the subscription offering
period, which is scheduled to end on , 2001. On the third business
day after the end of the subscription offering period, subscriptions for the
shares will be payable, exchanges into the fund will be permitted, shares will
be issued and the fund will commence investment operations.
The fund will suspend the offering of shares to new investors on ,
2001. This suspension, which is expected to last two weeks, may be lengthened
or shortened at the fund's discretion. During the suspension, existing
shareholders of the fund may still purchase, redeem or exchange fund shares.
After the suspension, the fund will commence a continuous offering of shares
to the public.
For more information on how to subscribe for fund shares during the
subscription offering period, please contact a Service Agent.
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CHOOSING A CLASS OF SHARES TO BUY
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You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class
that best meets your needs. Which class is more beneficial to an investor
depends on the amount and intended length of the investment.
[] If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses
[] For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well
[] Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term
investors.
You may buy shares from:
[] Service Agents.
[] 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
consult 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
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CLASSES A, B, L CLASS Y ALL CLASSES
<S> <C> <C> <C>
General $1,000 $15 million $50
IRA, 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
<PAGE>
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COMPARING THE FUND'S CLASSES
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Your Service Agent can help you decide which class meets your goals. The
Service Agent may receive different compensation depending upon which class
you choose.
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CLASS A CLASS B CLASS L CLASS Y
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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 charge [] Deferred [] Must
reduction declines sales invest at
or waiver over time charge for least $15
of 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 expenses
Class L Class A than Class A
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INITIAL SALES Up to None 1.00% None
CHARGE 5.00%;
reduced
for large
purchases
and waived
for
certain
investors.
No charge
for
purchases
of
$1,000,000
or more
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DEFERRED SALES 1.00% on Up to 1.00% if None
CHARGE purchases 5.00% you redeem
of charged within 1
$1,000,000 when you year of
or more if redeem purchase
you redeem shares.
within 1 The charge
year of is reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
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ANNUAL 0.25% of 1.00% of 1.00% of None
DISTRIBUTION average average average
AND SERVICE daily daily daily
FEES net assets net assets net assets
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EXCHANGEABLE Class A Class B Class L Class Y
INTO* shares shares shares shares
of most of most of most of most
Smith Smith Smith Smith
Barney Barney Barney Barney
funds funds funds funds
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* Ask your Service Agent for the Smith Barney funds available for exchange.
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SALES CHARGES
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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 that you pay, depending on the
amount that 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 that Service Agents that sell shares of the Fund receive. The
distributors keep up to approximately 10% of the sales charge 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/
SALES CHARGE AS A % OF DEALER
------------------------------- COMMISSION
OFFERING NET AMOUNT AS A % 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 1.00%.
Qualifying for a reduced Class A sales charge There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Accumulation privilege -- lets you combine the current value of Class A shares
owned
[] by you, or
[] by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase
of Class A shares for purposes of calculating the initial sales charge.
Certain trustees and fiduciaries may be entitled to combine accounts in
determining their sales charge.
Letter of intent -- lets you purchase Class A shares of the fund and other
Smith Barney funds over a 13-month period and pay the same sales 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 the same number of 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 SAI.
CLASS B SHARES
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of
purchase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
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YEAR AFTER PURCHASE 1ST 2ND 3RD 4TH 5TH 6TH THROUGH 8TH
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Deferred sales charge 5% 4% 3% 2% 1% 0%
Service Agents selling Class B shares receive a commission of up to 4.50% of
the purchase price of the Class B shares that 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 that they have sold.
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:
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SHARES ISSUED
SHARES ISSUED ON REINVESTMENT OF SHARES ISSUED
AT INITIAL DIVIDENDS AND UPON EXCHANGE FROM ANOTHER
PURCHASE DISTRIBUTIONS SMITH BARNEY FUND
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Eight years In same proportion as the number On the date the shares
after the of Class B shares converting is originally acquired would
date of to total Class B shares you own have converted into Class A
purchase (excluding shares issued as shares
dividends)
CLASS L SHARES (AVAILABLE THROUGH CERTAIN SERVICE AGENTS)
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%. If you held Class C shares of any Smith Barney
fund on June 12, 1998, you will not pay an initial sales charge on Class L
shares of the fund you may buy before June 22, 2001.
Service Agents selling Class L shares receive a commission of up to 2.00% of
the purchase price of the Class L shares that they sell. Starting in the 13th
month after purchase, Service Agents also will receive an annual fee of up to
1.00% of the average daily net assets represented by the Class L shares that
they have sold.
CLASS Y SHARES (AVAILABLE THROUGH CERTAIN SERVICE GOALS)
You buy Class Y shares at net asset value with no initial sales charge and
there is 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.
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MORE ABOUT DEFERRED SALES CHARGES
-------------------------------------------------------------------------------
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less. Therefore, you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
[] Shares exchanged for shares of another Smith Barney fund
[] Shares representing reinvested distributions and dividends
[] Shares no longer subject to the deferred sales charge
Each time you place a request to redeem shares, the fund will first redeem any
shares in your account that are not subject to a deferred sales charge and
then the shares in your account that have been held the longest.
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Service Agent.
The fund's distributors receive deferred sales charges as partial compensation
for their expenses in selling shares, including the payment of compensation to
your Service Agent.
DEFERRED SALES CHARGE WAIVERS
The deferred sales charge for each share class will generally be waived:
[] On payments made through certain systematic withdrawal plans
[] On certain distributions from a retirement plan
[] For involuntary redemptions of small account balances
[] For 12 months following the death or disability of a shareholder
If you want to learn about additional waivers of deferred sales charges,
contact your Service Agent or consult the SAI.
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BUYING SHARES
-------------------------------------------------------------------------------
Through a Service Agent You should contact your Service Agent to open a
brokerage 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 fund Qualified retirement plans and certain other
investors who are clients of certain Service Agents
are eligible to buy shares directly from the fund.
[] Write to the fund at the following
address:
SMITH BARNEY RESEARCH 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-
investment plan transfer agent to transfer funds automatically from
(i) a regular bank 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.
-------------------------------------------------------------------------------
EXCHANGING SHARES
-------------------------------------------------------------------------------
Smith Barney offers a You should contact your Service Agent to exchange
distinctive family of into other Smith Barney funds. Be sure to read the
funds tailored to help prospectus of the Smith Barney fund you are
meet the varying needs exchanging into. An exchange is a taxable
of both large and small transaction.
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
sub-transfer agent must receive the
certificates endorsed for transfer or with
signed stock powers (documents
transferring ownership of
certificates) before the exchange is
effective
[] The fund may suspend or terminate your
exchange privilege if you engage in an
excessive pattern of exchanges
--------------------------------------------------------------------------------
Waiver of additional Your shares will not be subject to an initial sales
sales charges charge at the time of the exchange.
Your deferred sales charge (if any) will continue to
be measured from the date of your original purchase.
If the fund you exchange into has a higher deferred
sales charge, you will be subject to that charge. If
you exchange at any time into a fund with a lower
charge, the sales charge will not be reduced.
--------------------------------------------------------------------------------
By telephone 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. For clients of a PFS
Investments Registered Representative, call PFS
Shareholder Services at 1-800-544-5445 between 8:00
a.m. and 8:00 p.m. (Eastern time). All other
shareholders should call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 4:00 p.m.
(Eastern time). Requests received after the close of
regular trading on the Exchange are priced at the net
asset value next determined.
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 a sub-transfer agent at the
address on the following 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
exchange is effective.
If the shares are held by a fiduciary or corporation,
other documents may be required.
Your redemption proceeds will normally be sent within
three business days after your request is received in
good order, but in any event within seven days.
However, if you recently purchased your shares by
check, your redemption proceeds will not be sent to
you until your original check clears, which may take
up to 15 days.
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 either of the following
addresses.
For clients of a PFS Investment Registered
Representative, write PFS Shareholder Services at the
following address:
PFS SHAREHOLDER SERVICES
P.O. BOX 105043
ATLANTA, GA 30348-5043
For all other investors, send your request to PFPC
Global Fund Services at the following address:
SMITH BARNEY RESEARCH 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 registered
--------------------------------------------------------------------------------
By telephone If you do not have a brokerage account with a Service
Agent, you may be eligible to redeem shares (except
those held in retirement plans) in amounts up to
$50,000 per day through the fund. You must complete
an authorization form to authorize telephone
redemptions. If eligible, you may request redemptions
by telephone on any day the New York Stock Exchange
is open. For clients of a PFS Investments Registered
Representative, call PFS Shareholder Services at
1-800-544-5445 between 8:00 a.m. and 8:00 p.m.
(Eastern time). All other shareholders should call
the transfer agent at 1-800-451-2010 between 9:00
a.m. and 4:00 p.m. (Eastern time). Requests received
after the close of regular trading on the Exchange
are priced at the net asset value next determined.
Your redemption proceeds can be sent by check to your
address of record or by wire or electronic transfer
(ACH) to a bank account designated on your
authorization form. You must submit a new
authorization form to change the bank account
designated 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 cash You can arrange for the automatic redemption of a
withdrawal plans portion of your shares on a monthly or quarterly
basis. To qualify you must own shares of the fund
with a value of at least $10,000 ($5,000 for
retirement plan accounts) and each automatic
redemption must be at least $50. If your shares are
subject to a deferred sales charge, the sales charge
will be waived if your automatic payments do not
exceed 1.00% 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.
-------------------------------------------------------------------------------
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
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary
public.
The fund has the right to:
[] Suspend the offering of shares
[] Waive or change minimum and additional investment amounts
[] Reject any purchase or exchange order
[] Change, revoke or suspend the exchange privilege
[] Suspend telephone transactions
[] Suspend or postpone redemptions of shares on any day when trading on the
New York Stock Exchange is restricted, or as otherwise permitted by the
Securities and Exchange Commission
[] Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below $500 ($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 redemption proceeds.
Excessive exchange transactions The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges
by the shareholder.
Share certificates The fund does not issue share certificates unless a written
request signed by all registered owners is made to the sub-transfer agent. If
you hold share certificates it will take longer to exchange or redeem shares.
-------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
-------------------------------------------------------------------------------
Dividends The fund generally pays dividends and makes capital gain
distributions, if any, once a year, typically in December. The fund may pay
additional distributions and dividends at other times if necessary for the
fund to avoid a federal tax. The fund expects distributions to be primarily
from capital gains. You do not pay a sales charge on reinvested distributions
or dividends. Capital gain distributions and dividends are reinvested in
additional fund shares of the same class you hold. Alternatively, you can
instruct your Service Agent, the transfer agent or the sub-transfer agent to
have your distributions and/or dividends paid in cash. You can change your
choice at any time to be effective as of the next distribution or dividend,
except that any change given to your Service Agent, the transfer agent or sub-
transfer agent less than five days before the payment date will not be
effective until the next distribution or dividend is paid.
Taxes In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
TRANSACTION FEDERAL TAX STATUS
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
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 during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special tax
rules may apply, you should consult your tax adviser about your investment in
the fund.
-------------------------------------------------------------------------------
SHARE PRICE
-------------------------------------------------------------------------------
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of
shares. The fund calculates its net asset value every day the New York Stock
Exchange is open. The Exchange is closed on certain holidays listed in the
SAI. This calculation is done when regular trading closes on the Exchange
(normally 4:00 p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. When reliable market prices or quotations are not readily
available, 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 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
business.
<PAGE>
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
No financial highlights are provided because the fund is new and does not have
any financial performance as of the date of this prospectus.
<PAGE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
[LOGO] Smith Barney
Mutual Funds
Your Serious Money, Professionally Managed.(SM)
RESEARCH FUND
SHAREHOLDER REPORTS Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that significantly affected the
fund's performance during its last fiscal year or period.
STATEMENT OF ADDITIONAL INFORMATION
The statement of additional information provides more detailed information
about the fund and is incorporated by reference into (is legally part of) this
prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your
Service Agent, by calling the Fund's sub-transfer agents (PFS Shareholder
Services at 1-800-544-5445 or PFPC Global Fund Services 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
Commission's Internet site at HTTP://WWW.SEC.GOV. Copies of this information
may be obtained for a duplicating fee by electronic request at the following
E-mail address: [email protected], or by writing the Commission's Public
Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in this prospectus,
you should not rely upon that information. Neither the fund nor the
distributor is offering to sell shares of the fund to any person to whom the
fund may not lawfully sell its shares.
Your Serious Money. Professionally Managed is a service mark of Salomon Smith
Barney Inc.
(Investment Company Act file no. 811-4007)
--------
<PAGE>
[LOGO] Smith Barney
Mutual Funds
Your Serious Money. Professionally Managed.(SM)
PROSPECTUS
Global
Research
Fund
CLASS A, B, L AND Y SHARES
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
INVESTMENT PRODUCTS: NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
-------------------------------------------------------------------------------
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>
GLOBAL RESEARCH FUND
-------------------------------------------------------------------------------
CONTENTS
-------------------------------------------------------------------------------
Investments, risks and performance .................................... 2
More on the fund's investments ........................................ 8
Management ............................................................ 10
Subscription offering period .......................................... 11
Choosing a class of shares to buy ..................................... 11
Comparing the fund's classes .......................................... 13
Sales charges ......................................................... 14
More about deferred sales charges ..................................... 17
Buying shares ......................................................... 18
Exchanging shares ..................................................... 19
Redeeming shares ...................................................... 20
Other things to know about share transactions ......................... 23
Dividends, distributions and taxes .................................... 25
Share price ........................................................... 26
<PAGE>
-------------------------------------------------------------------------------
Investments, risks and performance
-------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The fund seeks capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
KEY INVESTMENTS The fund invests, under normal market conditions, at least 65%
of its total assets in common stocks and related securities, such as preferred
stocks, convertible securities and depositary receipts, of foreign companies.
The fund focuses on foreign companies (including emerging market issuers) that
the manager believes have favorable growth prospects and attractive valuations
based on current and expected earnings or cash flow. The fund does not
emphasize any particular country and, under normal market conditions, will be
invested in companies located in at least three countries in addition to the
United States. Equity securities may be listed on a securities exchange or
traded in the over-the-counter markets.
A company is deemed to be located in a particular country if the company (a) is
organized under the laws of, and maintains a principal office in the country,
(b) has its principal securities trading market in the country, (c) derives 50%
or more of its total revenues from goods or services performed in the country,
or (d) has 50% or more of its assets in the country.
The fund may engage in active and frequent trading to achieve its principal
investment strategies.
SELECTION PROCESS [A committee of global equity research analysts selects
portfolio securities for the fund. This committee includes investment analysts
employed by the manager or its affiliates. Each analyst on the committee is
assigned to a particular geographic region or industry. The committee allocates
the fund's assets among these various geographic regions and industries.
Individual analysts then select what they view as the securities best suited to
achieve the fund's investment objective within their assigned regional or
industry responsibility.]
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investing in foreign issuers may involve unique risks. Some of these risks may
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. Investors could lose money on their
investment in the fund, or the fund may not perform as well as other
investments, if:
[] Foreign securities prices decline generally or stock prices in emerging
markets countries decline
[] Adverse governmental action or poltical, social, 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 manager's judgment about the attractiveness, value or potential
appreciation of a particular security proves to be incorrect
[] The economies of foreign countries grow at a slower rate than expected or
experience a downturn or recession
In addition, foreign investing involves the following risks:
[] Many foreign countries the fund invests in have markets that are smaller,
less liquid and more volatile than markets in the U.S. In a changing market
the manager may not be able to sell the fund's portfolio securities in
amounts and at prices it considers reasonable
[] 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.
[] Foreign equity securities may trade at price- earnings multiples that are
higher than those of comparable U.S. companies, and that may not be
sustainable. As a result, there may be rapid changes in the value of foreign
securities
[] Enforcing legal rights may be difficult, costly and slow and there may be
special problems enforcing claims against foreign governments
[] Some foreign currency values may be volatile and there is the possibility of
governmental controls on currency exchanges or governmental intervention in
currency markets which may prevent the fund from realizing value in U.S.
dollars from its investment in foreign securities
[] There may be other governmental or non- governmental actions resulting in
expropriations of assets, confiscatory taxation, and limitations on the use
or transfer of assets by the fund or the issuers of securities
Because the value of a depositary receipt is dependent upon the market price of
an underlying foreign security, depositary receipts are subject to most of the
risks associated with investing in foreign securities directly.
Economic and Monetary Union (EMU) and the introduction of a single European
currency (the Euro), which began on January 1, 1999, may increase uncertainties
relating to investment in European markets. Among other things, EMU entails
sharing a single currency and official interest rate and adhering to limits on
government borrowing by participating countries. EMU is driven by the
expectation of economic benefits; however, there are significant risks
associated with EMU. Monetary and economic union on this scale has not been
attempted before, and there is uncertainty whether participating countries will
remain committed to EMU in the face of changing economic conditions. The
consequences of the Euro conversion for foreign exchange rates, interest rates
and the value of the European securities are presently unclear. As of the date
of this prospectus, the Euro has depreciated significantly in relation to other
currencies. However it is expected that Euro exchange rates will continue to
fluctuate.
[To the extent that the fund enters into forward foreign currency transactions,
it may not fully benefit from or may lose money on the transactions if changes
in currency rates do not occur as anticipated or do not correspond accurately to
changes in the value of the fund's holdings, or if the counterparty defaults.
Such transactions may also prevent the fund from realizing profits on favorable
movements in exchange rates. The fund's ability to use currency exchange
contracts successfully depends on a number of factors, including the contracts
being available at prices that are not too costly, the availability of liquid
markets, and the ability of the manager to accurately predict the direction of
changes in currency exchange rates.]
See page for more information about the risks of investing in the fund.
WHO MAY WANT TO INVEST The fund may be an appropriate investment if:
[] You are seeking to participate in the long- term growth potential of
international markets
[] You currently have exposure to U.S. stock markets and wish to diversify your
investment portfolio by adding non-U.S. stocks that may not move in tandem
with U.S. stocks
[] You are comfortable with the risks of the stock market and the special risks
of investing in foreign securities, including emerging market securities
[] You are prepared to accept daily share price fluctuations and possible losses
PERFORMANCE
The fund is new and does not yet have the performance information that other
Smith Barney funds show in bar and table form in this part of the prospectus.
<PAGE>
FEE TABLE
This table sets forth the fees and expenses you may pay if you invest in fund
shares.
-------------------------------------------------------------------------------
SHAREHOLDER FEES
-------------------------------------------------------------------------------
(FEES PAID DIRECTLY FROM
YOUR INVESTMENT) CLASS A CLASS B CLASS L CLASS Y
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
-------------------------------------------------------------------------------
(EXPENSES DEDUCTED FROM
FUND ASSETS) CLASS A CLASS B CLASS L CLASS Y
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** 0.30% 0.30% 0.30% 0.30%
Total annual fund
operating expenses 1.50% 2.25% 2.25% 1.25%
* You may buy Class A shares in amounts of $1,000,000 or more at net asset
value (without an initial sales charge) but if you redeem those shares within
12 months of their purchase, you will pay a deferred sales charge of 1.00%.
** The amounts set forth in "Other expenses" have been estimated based on
expenses the fund expects to incur during its fiscal year ending ,
2001.
<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 periods shown
[] Your investment has a 5% return each year
[] You reinvest all distributions and dividends without a sales charge
[] The fund's operating expenses remain the same
-------------------------------------------------------------------------------
NUMBER OF YEARS YOU OWN YOUR SHARES
-------------------------------------------------------------------------------
1 YEAR 3 YEARS
Class A
(with or without redemption) $ $
Class B
(redemption at end of period) $ $
Class B
(no redemption) $ $
Class L
(redemption at end of period) $ $
Class L
(no redemption) $ $
Class Y
(with or without redemption) $ $
<PAGE>
-------------------------------------------------------------------------------
MORE ON THE FUND'S INVESTMENTS
-------------------------------------------------------------------------------
Derivatives The 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 fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities,
currencies or indices. If the fund invests in derivatives, even a small
investment in derivative contracts can have a big impact on the fund's stock and
currency rate exposure. Therefore, using derivatives can disproportionately
increase losses and reduce opportunities for gains when stock prices or currency
rates are changing. The fund may not fully benefit from or may lose money on
derivatives if changes in their value do not correspond accurately to changes in
the value of the fund's holdings. Derivatives can also make a fund less liquid
and harder to value, especially in declining markets, and the counterparty may
fail to honor contract terms. Derivatives may not be available on terms that
make economic sense (for example, they may be too costly).
SMALL CAP SECURITIES The fund may also invest in common stocks and other
securities issued by small companies. The securities of smaller capitalized
companies may have more risks than those of larger, more seasoned companies.
They may be particularly susceptible to market downturns and their prices may be
more volatile, causing the fund's share price to be volatile.
DEBT SECURITIES While the fund expects to invest mainly in equity securities,
the fund may also invest in debt securities to a limited extent. The fund's debt
securities must be investment grade when the fund purchases them. Less than 5%
of the fund's assets may be invested in debt securities rated Baa by Moody's or
BBB by Standard & Poor's or of comparable quality. Generally, the value of these
debt securities will decline if interest rates rise, the credit rating of the
security is downgraded or the issuer defaults on its obligation to pay principal
or interest.
OVER-THE COUNTER RISK Over-the-counter ("OTC") transactions involve risks in
addition to those incurred by transactions in securities traded on exchanges.
OTC-listed companies may have limited product lines, markets or financial
resources. Many OTC stocks trade less frequently and in smaller volume than
exchange-listed stocks. The value of these stocks may be more volatile than
exchange-listed stocks, and the fund may experience difficulty in purchasing
or selling these securities at a fair price.
GEOGRAPHIC CONCENTRATION The fund may invest a substantial amount of its
assets in issuers located in a single country or a limited number of
countries. If the fund concentrates its investments in this manner, it assumes
the risk that economic, political and social conditions in those countries
will have a significant impact on its investment performance. The fund's
investment performance may also be more volatile if it concentrates its
investments in certain countries, especially emerging market countries.
CONVERTIBLE SECURITIES Convertible securities, which are debt securities that
may be converted into stock, are subject to the market risks of stocks as well
as the risks of debt securities.
CASH MANAGEMENT The fund may hold cash pending investment, and may invest in
money market instruments, repurchase agreements and reverse repurchase
agreements for cash management purposes.
IMPACT OF HIGH PORTFOLIO TURNOVER The fund may engage in active and frequent
trading to achieve its principal investment strategies. This may lead to the
realization and distribution to shareholders of higher capital gains, which
would increase their tax liability. Frequent trading also increases
transaction costs, which could detract from the fund's performance.
INVESTMENT STRUCTURE The fund has reserved the right to invest in securities
through an underlying mutual fund having the same goals and strategies.
Shareholders will be given at least 30 days prior written notice before any
such change in investment structure is implemented.
DEFENSIVE INVESTING The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market instruments.
If the fund takes a temporary defensive position, it may be unable to achieve
its investment goal.
The fund may also use other strategies and invest in other securities that are
described, along with their risks, in the Statement of Additional Information
("SAI"). However, the fund may not use all of the strategies and techniques or
invest in all of the types of securities described in this Prospectus or in
the SAI. Also note that there are many other factors that could adversely
affect your investment and that could prevent the fund from achieving its
goals, which are not described here.
The fund's goals and strategies may be changed without shareholder approval.
-------------------------------------------------------------------------------
MANAGEMENT
-------------------------------------------------------------------------------
MANAGER The Fund's investment manager is SSB Citi Fund Management LLC, an
affiliate of Salomon Smith Barney Inc. The manager's address is 388 Greenwich
Street, New York, New York 10013. The manager selects the fund's investments
and oversees its operations. The manager and Salomon Smith Barney are
subsidiaries of Citigroup Inc. Citigroup businesses produce a broad range of
financial services--asset management, banking and consumer finance, credit and
charge cards, insurance, investments, investment banking and trading--and use
diverse channels to make them available to consumer and corporate customers
around the world.
[insert bio of portfolio manager].
MANAGEMENT FEE For its services, the manager will receive an annual investment
management fee equal to 0.95% of the fund's average daily net assets.
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/or
service fees. These fees are an ongoing expense and, over time, may cost you
more than other types of sales charges.
In addition, a distributor may make payments for distribution and/or
shareholder servicing activities out of its past profits and other available
sources. A distributor may also make payments for marketing, promotional or
related expenses to dealers. The amount of these payments is determined by the
distributor and may be substantial. The manager or an affiliate may make
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 sub-transfer agency and
services agreements with PFPC Global Fund Services and PFS Shareholder
Services to serve as the fund's sub-transfer agents (the "sub-transfer
agents"). The sub-transfer agents will perform certain functions including
shareholder record keeping and accounting services.
SUBSCRIPTION OFFERING PERIOD A broker-dealer, financial intermediary,
financial institution or a distributor's financial consultants (each called a
"Service Agent") will solicit subscription for shares of the fund during the
subscription offering period, which is scheduled to end on , 2001.
On the third business day after the end of the subscription offering period,
subscriptions for the shares will be payable, exchanges into the fund will be
permitted, shares will be issued and the fund will commence investment
operations.
The fund will suspend the offering of shares to new investors on ,
2001. This suspension, which is expected to last two weeks, may be lengthened
or shortened at the fund's discretion. During the suspension, existing
shareholders of the fund may still purchase, redeem or exchange fund shares.
After the suspension, the fund will commence a continuous offering of shares
to the public.
For more information on how to subscribe for fund shares during the
subscription offering period, please contact a service agent.
-------------------------------------------------------------------------------
CHOOSING A CLASS OF SHARES TO BUY
-------------------------------------------------------------------------------
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class
that best meets your needs. Which class is more beneficial to an investor
depends on the amount and intended length of the investment.
[] If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses
[] For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well
[] Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term investors
You may buy shares from:
[] Service Agents
[] The fund, but only if you are investing through certain qualified plans of
Service Agents
All classes of shares are not available through all Service Agents. You should
consult 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.
-------------------------------------------------------------------------------
INITIAL ADDITIONAL
-------------------------------------------------------------------------------
CLASSES A, B, L CLASS Y ALL CLASSES
General $1,000 $15 million $50
IRA, 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
* 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
<PAGE>
-------------------------------------------------------------------------------
COMPARING THE FUND'S CLASSES
-------------------------------------------------------------------------------
Your Service Agent can help you decide which class meets your goals. The
Service Agent may receive different compensation depending upon which class
you choose.
-------------------------------------------------------------------------------
CLASS A CLASS B CLASS L CLASS Y
-------------------------------------------------------------------------------
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 charge [] Deferred [] Must
reduction declines sales invest at
or waiver over time charge for least $15
of 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 expenses
Class L Class A than Class A
------------------------------------------------------------------------------
INITIAL SALES Up to None 1.00% None
CHARGE 5.00%;
reduced
for large
purchases
and waived
for
certain
investors.
No charge
for
purchases
of
$1,000,000
or more
------------------------------------------------------------------------------
DEFERRED SALES 1.00% on Up to 1.00% if None
CHARGE purchases 5.00% you redeem
of charged within 1
$1,000,000 when you year of
or more if redeem purchase
you redeem shares.
within 1 The charge
year of is reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
------------------------------------------------------------------------------
ANNUAL 0.25% of 1.00% of 1.00% of None
DISTRIBUTION average average average
AND SERVICE daily daily daily
FEES net assets net assets net assets
------------------------------------------------------------------------------
EXCHANGEABLE Class A Class B Class L Class Y
INTO* shares shares shares shares
of most of most of most of most
Smith Smith Smith Smith
Barney Barney Barney Barney
funds funds funds funds
------------------------------------------------------------------------------
* Ask your Service Agent for the Smith Barney funds available for exchange.
-------------------------------------------------------------------------------
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 that you pay, depending on the
amount that 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 that Service Agents that sell shares of the Fund receive. The
distributors keep up to approximately 10% of the sales charge 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.
BROKER/
SALES CHARGE AS A % OF DEALER
------------------------------ COMMISSION
OFFERING NET AMOUNT AS A % OF
AMOUNT OF PURCHASE PRICE (%) INVESTED (%) OFFERING PRICE
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
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.
Accumulation privilege -- lets you combine the current value of Class A shares
owned
[] by you, or
[] by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase
of Class A shares for purposes of calculating the initial sales charge.
Certain trustees and fiduciaries may be entitled to combine accounts in
determining their sales charge.
LETTER OF INTENT -- lets you purchase Class A shares of the fund and other
Smith Barney funds over a 13-month period and pay the same sales 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 the same number of 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 SAI.
CLASS B SHARES
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of
purchase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
YEAR AFTER PURCHASE 1ST 2ND 3RD 4TH 5TH 6TH THROUGH 8TH
Deferred sales charge 5% 4% 3% 2% 1% 0%
Service Agents selling Class B shares receive a commission of up to 4.50% of
the purchase price of the Class B shares that 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 that they have sold.
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:
SHARES ISSUED
SHARES ISSUED ON REINVESTMENT OF SHARES ISSUED
AT INITIAL DIVIDENDS AND UPON EXCHANGE FROM ANOTHER
PURCHASE DISTRIBUTIONS SMITH BARNEY FUND
Eight years In same proportion as the number On the date the shares
after the of Class B shares converting is originally acquired would
date of to total Class B shares you own have converted into Class A
purchase (excluding shares issued as shares
dividends)
CLASS L SHARES (AVAILABLE THROUGH CERTAIN SERVICE AGENTS)
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%. If you held Class C shares of any Smith Barney
fund on June 12, 1998, you will not pay an initial sales charge on Class L
shares of the fund you may buy before June 22, 2001.
Service Agents selling Class L shares receive a commission of up to 2.00% of
the purchase price of the Class L shares that they sell. Starting in the 13th
month after purchase, Service Agents also will receive an annual fee of up to
1.00% of the average daily net assets represented by the Class L shares that
they have sold.
CLASS Y SHARES (AVAILABLE THROUGH CERTAIN SERVICE AGENTS)
You buy Class Y shares at net asset value with no initial sales charge and
there is 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
purchase 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 distributors receive deferred sales charges as partial compensation
for their expenses in selling shares, including the payment of compensation to
your Service Agent.
DEFERRED SALES CHARGE WAIVERS
The deferred sales charge for each share class will generally be waived:
[] On payments made through certain systematic withdrawal plans
[] On certain distributions from a retirement plan
[] For involuntary redemptions of small account balances
[] For 12 months following the death or disability of a shareholder
If you want to learn about additional waivers of deferred sales charges,
contact your Service Agent or consult the SAI.
<PAGE>
-------------------------------------------------------------------------------
BUYING SHARES
-------------------------------------------------------------------------------
Through a Service Agent You should contact your Service Agent to open a
brokerage 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 fund Qualified retirement plans and certain other
investors who are clients of certain Service Agents
are eligible to buy shares directly from the fund.
[] Write to the fund at the following address:
SMITH BARNEY GLOBAL RESEARCH 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-
investment plan transfer agent to transfer funds automatically from
(i) a regular bank 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.
<PAGE>
-------------------------------------------------------------------------------
EXCHANGING SHARES
-------------------------------------------------------------------------------
Smith Barney offers a You should contact your Service Agent to exchange
distinctive family of into other Smith Barney funds. Be sure to read the
funds tailored to help prospectus of the Smith Barney fund you are
meet the varying needs exchanging into. An exchange is a taxable
of both large and small transaction.
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 sub-transfer
agent must receive the certificates endorsed for
transfer or with signed stock powers (documents
transferring ownership of certificates) before the
exchange is effective
[] The fund may suspend or terminate your exchange
privilege if you engage in an excessive pattern of
exchanges
--------------------------------------------------------------------------------
Waiver of additional Your shares will not be subject to an initial sales
sales charges charge at the time of the exchange.
Your deferred sales charge (if any) will continue to
be measured from the date of your original purchase.
If the fund you exchange into has a higher deferred
sales charge, you will be subject to that charge. If
you exchange at any time into a fund with a lower
charge, the sales charge will not be reduced.
-------------------------------------------------------------------------------
By telephone 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. For clients of a PFS
Investments Registered Representative, call PFS
Shareholder Services at 1-800-544-5445 between 8:00
a.m. and 8:00 p.m. (Eastern Time). All other
shareholders should call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 4:00 p.m.
(Eastern time). Requests received after the close of
regular trading on the Exchange are priced at the net
asset value next determined.
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 a sub-transfer agent at the
address on the following 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
exchange is effective.
If the shares are held by a fiduciary or corporation,
other documents may be required.
Your redemption proceeds will normally be sent within
three business days after your request is received in
good order, but in any event within seven days.
However, if you recently purchased your shares by
check, your redemption proceeds will not be sent to
you until your original check clears, which may take
up to 15 days.
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 either of the following
addresses:
For clients of a PFS Investments Registered
Representative, write PFS Shareholder Services at the
following address:
PFS SHAREHOLDER SERVICES
P.O. BOX 105043
ATLANTA, GA 30348-5043
SMITH BARNEY GLOBAL RESEARCH 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
registered
--------------------------------------------------------------------------------
By telephone If you do not have a brokerage account with a Service
Agent, you may be eligible to redeem shares (except
those held in retirement plans) in amounts up to
$50,000 per day through the fund. You must complete
an authorization form to authorize telephone
redemptions. If eligible, you may request redemptions
by telephone on any day the New York Stock Exchange
is open. For clients of a PFS Investments Registered
Representative, call PFS Shareholder Services at
1-800-544-5445 between 8:00 a.m. and 8:00 p.m.
(Eastern time). All other shareholders should call
the transfer agent at 1-800-451-2010 between 9:00
a.m. and 4:00 p.m. (Eastern time). Requests received
after the close of regular trading on the Exchange
are priced at the net asset value next determined.
Your redemption proceeds can be sent by check to your
address of record or by wire or electronic transfer
(ACH) to a bank account designated on your
authorization form. You must submit a new
authorization form to change the bank account
designated 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 cash You can arrange for the automatic redemption of a
withdrawal plans portion of your shares on a monthly or quarterly
basis. To qualify you must own shares of the fund
with a value of at least $10,000 ($5,000 for
retirement plan accounts) and each automatic
redemption must be at least $50. If your shares are
subject to a deferred sales charge, the sales charge
will be waived if your automatic payments do not
exceed 1.00% 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.
<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
[] Are sending signed share certificates or stock powers to the sub-transfer
agent
[] Instruct the sub-transfer agent to mail the check to an address different
from the one on your account
[] Changed your account registration
[] Want the check paid to someone other than the account owner(s)
[] Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary
public.
The fund has the right to:
[] Suspend the offering of shares
[] Waive or change minimum and additional investment amounts
[] Reject any purchase or exchange order
[] Change, revoke or suspend the exchange privilege
[] Suspend telephone transactions
[] Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the
Securities and Exchange Commission
[] Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
SMALL ACCOUNT BALANCES If your account falls below $500 ($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 redemption proceeds.
EXCESSIVE EXCHANGE TRANSACTIONS The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges
by the shareholder.
SHARE CERTIFICATES The fund does not issue share certificates unless a written
request signed by all registered owners is made to the sub-transfer agent. If
you hold share certificates it will take longer to exchange or redeem shares.
<PAGE>
-------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
-------------------------------------------------------------------------------
DIVIDENDS The fund generally pays dividends and makes capital gain
distributions, if any, once a year, typically in December. The fund may pay
additional distributions and dividends at other times if necessary for the
fund to avoid a federal tax. The fund expects distributions to be primarily
from capital gains. You do not pay a sales charge on reinvested distributions
or dividends. Capital gain distributions and dividends are reinvested in
additional fund shares of the same class you hold. Alternatively, you can
instruct your Service Agent, the transfer agent or the sub-transfer agent to
have your distributions and/or dividends paid in cash. You can change your
choice at any time to be effective as of the next distribution or dividend,
except that any change given to your Service Agent, the transfer agent or sub-
transfer agent less than five days before the payment date will not be
effective until the next distribution or dividend is paid.
TAXES In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
TRANSACTION FEDERAL TAX STATUS
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
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 during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each share holder's circumstances are different and special
tax rules may apply, you should consult your tax adviser about your investment
in the fund.
<PAGE>
-------------------------------------------------------------------------------
SHARE PRICE
-------------------------------------------------------------------------------
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of
shares. The fund calculates its net asset value every day the New York Stock
Exchange is open. The Exchange is closed on certain holidays listed in the
SAI. This calculation is done when regular trading closes on the Exchange
(normally 4:00 p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. When reliable market prices or quotations are not readily
available, 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 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
business.
<PAGE>
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
No financial highlights are provided because the fund is new and does not have
any financial performance as of the date of this prospectus.
<PAGE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
[LOGO] Smith Barney
Mutual Funds
Your Serious Money, Professionally Managed.(SM)
GLOBAL RESEARCH FUND
SHAREHOLDER REPORTS Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that significantly affected the
fund's performance during its last fiscal year or period.
STATEMENT OF ADDITIONAL INFORMATION
The statement of additional information provides more detailed information
about the fund and is incorporated by reference into (is legally part of) this
prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your
Service Agent, by calling the fund's sub-transfer agents (PFS Shareholder
Services at 1-800-544-5445 or PFPC Global Fund Services 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
Commission's Internet site at http://www.sec.gov. Copies of this information may
be obtained for a duplicating fee by electronic request at the following E-mail
address: [email protected], or by writing the Commission's Public Reference
Section, Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
Your Serious Money. Professionally
Managed.(sm) is a service mark of
Salomon Smith Barney Inc.
(Investment Company Act file no. 811-4007)
<PAGE>
Statement of
Additional Information
, 2001
SMITH BARNEY(SM) RESEARCH FUND
SMITH BARNEY(SM) GLOBAL RESEARCH FUND
(Members of the Smith Barney(SM) Family of Funds)
Smith Barney Research Fund and Smith Barney Global Research Fund (the
"funds") are series of CitiFunds Trust II (the "trust"). The trust is an open-
end management investment company which was organized as a business trust
under the laws of the Commonwealth of Massachusetts on April 13, 1984. The
address and telephone number of the trust are 388 Greenwich Street, New York,
New York 10013, (800) 451-2010.
TABLE OF CONTENTS PAGE
1. The Trust ............................................................ 2
2. Investment Objectives and Policies ................................... 2
3. Description of Permitted Investments and Investment Practices ........ 2
4. Investment Restrictions .............................................. 17
5. Performance Information and Advertising .............................. 18
6. Determination of Net Asset Value; Valuation of Securities ............ 19
7. Additional Information on the Purchase and Sale of Fund Shares and
Shareholder Programs ............................................... 20
8. Management ........................................................... 30
9. Portfolio Transactions ............................................... 35
10. Description of Shares, Voting Rights and Liabilities ................. 36
11. Tax Matters .......................................................... 37
12. Financial Statements ................................................. 39
This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the
funds' separate Prospectuses, dated , 2001, by which shares of
the funds are offered. This Statement of Additional Information should be read
in conjunction with the applicable Prospectus. An investor may obtain copies
of each fund's Prospectus without charge by calling 1-800-451-2010.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY
AN EFFECTIVE PROSPECTUS.
<PAGE>
1. THE TRUST
CitiFunds Trust II is an open-end management investment company organized
as a business trust under the laws of the Commonwealth of Massachusetts on
April 13, 1984. The trust was called Landmark Funds II until its name was
changed effective January 7, 1998. This Statement of Additional Information
describes shares of Smith Barney Research Fund (the "Research Fund") and Smith
Barney Global Research Fund (the "Global Research Fund"), each of which is a
separate series of the trust. References in this Statement of Additional
Information to the "Prospectus" of a fund are to the applicable fund's
Prospectus, dated , 2001.
Each fund is a diversified fund. Under the 1940 Act, a diversified
management investment company must invest at least 75% of its assets in cash
and cash items, U.S. Government securities, investment company securities and
other securities limited as to any one issuer to not more than 5% of the total
assets of the investment company and not more than 10% of the voting
securities of the issuer.
Each Fund offers four classes of shares, referred to as Class A, Class B,
Class L and Class Y shares.
At the date of this Statement of Additional Information, the funds, like
most mutual funds, invest directly in securities. In the future, however, one
or both of the funds may convert to a master/feeder investment structure. In
the master/feeder investment structure, a fund, instead of investing directly
in securities, would invest in a mutual fund with the same investment goals
and policies as the fund's. The underlying mutual fund, referred to as a
portfolio, would buy, hold and sell securities in accordance with these
policies. Of course, there could be no assurance that a fund or its portfolio
would achieve their goals.
If a fund invests using the master/feeder structure, all references in
this Statement of Additional Information to a fund include that fund's
underlying portfolio unless the context otherwise requires.
SSB Citi Fund Management LLC (the "manager") is the manager of each fund.
The manager manages the investments of the funds from day to day in accordance
with each fund's investment objective and policies. The selection of
investments for the funds and the way they are managed depend on the
conditions and trends in the economy and the financial marketplaces.
The board of trustees of the trust provides broad supervision over the
affairs of the funds. Shares of the funds are continuously sold by Salomon
Smith Barney Inc., and PFS Distributors, Inc., the funds' distributors (the
"distributors").
2. INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Research Fund is long-term capital growth.
The investment objective of the Global Research Fund is capital appreciation.
Each fund's Prospectus contains a discussion of the principal investment
strategies of the fund and the principal risks of investing in the fund. The
following supplements the information contained in each fund's Prospectus
concerning the investment policies and techniques of each fund.
The policies described herein and those described below under "Description
of Permitted Investments and Investment Practices" are not fundamental and may
be changed without shareholder approval.
3. DESCRIPTION OF PERMITTED INVESTMENTS
AND INVESTMENT PRACTICES
A fund may, but need not, invest in all of the investments and utilize all
of the investment techniques described below and in the fund's Prospectus. The
selection of investments and the utilization of investment techniques depend
on, among other things, the manager's investment strategies for the funds,
conditions and trends in the economy and financial markets and investments
being available on terms that, in the manager's opinion, make economic sense.
OPTIONS
The funds may write covered call and put options and purchase call and put
options on securities for hedging and non-hedging purposes. Call and put
options written by a fund may be covered in the manner set forth below, or a
fund will segregate cash or liquid securities equal to the value of the
securities underlying the option.
A call option written by a fund is "covered" if the fund owns the security
underlying the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration held in a segregated account) upon conversion or exchange of
other securities held in its portfolio. A call option is also covered if the
fund holds a call on the same security and in the same principal amount as the
call written where the exercise price of the call held (a) is equal to or less
than the exercise price of the call written or (b) is greater than the
exercise price of the call written if the difference is maintained by the fund
in cash or liquid securities in a segregated account. A put option written by
a fund is "covered" if the fund maintains cash or liquid securities with a
value equal to the exercise price in a segregated account, or else holds a put
on the same security and in the same principal amount as the put written where
the exercise price of the put held is equal to or greater than the exercise
price of the put written or where the exercise price of the put held is less
than the exercise price of the put written if the difference is maintained by
the fund in cash or liquid securities in a segregated account. Put and call
options written by a fund may also be covered in such other manner as may be
in accordance with the requirements of the exchange on which, or the
counterparty with which, the option is traded, and applicable laws and
regulations. Even if the fund's obligation is covered, it is subject to the
risk of the full change in value of the underlying security from the time the
option is written until exercise. Covering an option does not protect the fund
from risk of loss.
When a fund writes a call option, the fund, in return for a fee, or
"premium", agrees to sell a security at the exercise price, if the holder
exercises the right to purchase prior to the expiration date of the call
option. If the fund holds the security in question, the fund gives up some or
all of the opportunity to profit from the increase in the market price of the
security during the life of the option. The fund retains the risk of loss
should the price of the security decline. If the option expires unexercised,
the fund realizes a gain equal to the premium, which may be offset by a
decline in price of the underlying security. If the option is exercised, the
fund realizes a gain or loss equal to the difference between the fund's cost
for the underlying security and the proceeds of sale (exercise price minus
commissions) plus the amount of the premium.
A fund may terminate a call option it has written before it expires by
entering into a closing purchase transaction. A fund may enter into closing
purchase transactions in order to free itself to sell the underlying security
or to write another call on the security, realize a profit on a previously
written call option, or protect a security from being called in an unexpected
market rise. Any profits from closing a purchase transaction may be offset by
a decline in the value of the underlying security. Conversely, because
increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, if the fund holds
the underlying security any loss resulting from a closing purchase transaction
is likely to be offset in whole or in part by unrealized appreciation of the
underlying security. If the fund does not hold the underlying security, the
fund's loss could be unlimited.
A fund may write put options in an attempt to enhance its current return.
Such option transactions may also be used as a limited form of hedging against
an increase in the price of securities that a fund plans to purchase. A put
option written by the fund gives the holder the right to sell, and, in return
for a premium, obligates the fund to buy, a security at the exercise price at
any time before the expiration date.
In addition to the receipt of premiums and the potential gains from
terminating such options in closing purchase transactions, a fund may also
receive a return on the cash and debt securities maintained to cover the
exercise price of the option. By writing a put option, the fund assumes the
risk that it may be required to purchase the underlying security for an
exercise price higher than its then current market value, resulting in a loss
to the fund, unless the security later appreciates in value. A fund may
terminate a put option it has written before it expires by a closing purchase
transaction. Any loss from this transaction may be partially or entirely
offset by the premium received on the terminated option.
Each fund may purchase options for hedging purposes or to increase the
fund's return. When put options are purchased as a hedge against a decline in
the value of portfolio securities, the put options may be purchased at or
about the same time that the fund purchases the underlying security or at a
later time. If such decline occurs, the put options will permit a fund to sell
the securities at the exercise price, or to close out the options at a profit.
By using put options in this way, the fund will reduce any profit it might
otherwise have realized in the underlying security by the amount of the
premium paid for the put option and by transaction costs. Similarly, when put
options are used for non-hedging purposes, the fund may make a profit when the
price of the underlying security or instrument falls below the strike price.
If the price of the underlying security or instrument does not fall
sufficiently, the options may expire unexercised and the fund would lose the
premiums it paid for the option. If the price of the underlying security or
instrument falls sufficiently and the option is exercised, the amount of any
resulting profit will be offset by the amount of premium paid.
Each fund may purchase call options to hedge against an increase in the
price of securities that the fund anticipates purchasing in the future. If
such increase occurs, the call option will permit the fund to purchase the
securities at the exercise price, or to close out the options at a profit. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by the fund upon exercise of the option, and, unless
the price of the underlying security rises sufficiently, the option may expire
worthless to the fund and the premium would be lost.
Call options may also be purchased in order to increase a fund's return at
a time when the call is expected to increase in value due to anticipated
appreciation of the underlying security. Prior to its expiration, a call
option may be sold by a fund in closing sale transactions, which are sales by
the fund, prior to the exercise of options that it has purchased, of options
of the same series. Profit or loss from the sale will depend upon whether the
amount received is more or less than the premium paid for the option plus the
related transaction costs. The purchase of call options on securities that a
fund owns, when a fund is substantially fully invested, is a form of leverage,
up to the amount of the premium and related transaction costs, and involves
risks of loss and of increased volatility.
Each fund may write (sell) call and put options and purchase call and put
options on securities indices. The delivery requirements of options on
securities indices differ from options on securities. Unlike a securities
option, which contemplates the right to take or make delivery of securities at
a specified price, an option on a securities index gives the holder the right
to receive a cash "exercise settlement amount" equal to (1) 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 (2) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the securities 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 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 securities index options prior to expiration by entering into a closing
transaction on an exchange or it may allow the option to expire unexercised.
Each fund may cover call options on securities indices by owning
securities whose price changes, in the opinion of the manager or a subadviser,
are expected to be similar to those of the underlying index, or by having an
absolute and immediate right to acquire such securities without additional
cash consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other securities in
its portfolio. Where a fund covers a call option on a securities index through
ownership of securities, such securities may not match the composition of the
index and, in that event, the fund will not be fully covered and could be
subject to risk of loss in the event of adverse changes in the value of the
index. A fund may also cover call options on securities indices by holding a
call on the same index and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less than the
exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the fund in cash or
liquid securities in a segregated account. A fund may cover put options on
securities indices by maintaining cash or liquid securities with a value equal
to the exercise price in a segregated account or by holding a put on the same
securities index and in the same principal amount as the put written where the
exercise price of the put held is equal to or greater than the exercise price
of the put written or where the exercise price of the put held is less than
the exercise price of the put written if the difference is maintained by the
fund in cash or liquid securities in a segregated account. Put and call
options on securities indices may also be covered in such other manner as may
be in accordance with the rules of the exchange on which, or the counterparty
with which, the option is traded, and applicable laws and regulations.
Investors should be aware that although a fund will only write call or put
options on securities indices that are covered, covering an option does not
protect the fund from risk of loss.
A fund will receive a premium from writing a put or call option, which
increases the fund's gross income in the event the option expires unexercised
or is closed out at a profit. If the value of an index on which a fund has
written a call option falls or remains the same, the fund will realize a
profit in the form of the premium received (less transaction costs) that could
offset all or a portion of any decline in the value of the securities it owns.
If the value of the index rises, however, the fund will realize a loss in its
call option position, which will reduce the benefit of any unrealized
appreciation in the fund's stock investments. By writing a put option, a fund
assumes the risk of a decline in the index. To the extent that the price
changes of securities owned by a fund correlate with changes in the value of
the index, writing covered put options on indices will increase the fund's
losses in the event of a market decline, although such losses will be offset
in part by the premium received for writing the option.
Each fund may purchase put options on securities indices when the
portfolio managers believe that there may be a decline in the prices of the
securities covered by the index. The fund will realize a gain if the put
option appreciates in excess of the premium paid for the option. If the option
does not increase in value, the fund's loss will be limited to the premium
paid for the option plus related transaction costs.
A fund may purchase call options on securities indices to take advantage
of an anticipated broad market advance, or an advance in an industry or market
segment. A fund will bear the risk of losing all or a portion of the premium
paid if the value of the index does not rise. The purchase of call options on
securities indices when a fund is substantially fully invested is a form of
leverage, up to the amount of the premium and related transaction costs, and
involves risks of loss and of increased volatility.
Securities index options are subject to position and exercise limits and
other regulations imposed by the exchange on which they are traded. The
ability of a fund to engage in closing purchase transactions with respect to
securities index options depends on the existence of a liquid secondary
market. However, no such secondary market may exist, or the market may cease
to exist at some future date, for some options. No assurance can be given that
a closing purchase transaction can be effected when the portfolio managers
desire that a fund engage in such a transaction.
Because the value of an index option depends upon movements in the level
of the index rather than the price of a particular security, whether a fund
realizes a gain or loss from purchasing or writing options on an index depends
upon movements in the level of prices in the market generally or, in the case
of certain indices, in an industry or market segment, rather than movements in
the price of a particular security. As a result, successful use by a fund of
options on securities indices is subject to the portfolio managers' ability to
predict correctly movements in the direction of the market generally or of a
particular industry. This ability contemplates different skills and techniques
from those used in predicting changes in the price of individual securities.
When a fund purchases or writes securities index options as a hedging
technique, the fund's success will depend upon the extent to which price
movements in the portion of a securities portfolio being hedged correlate with
price movements of the securities index selected.
A fund's purchase or sale of securities index options in an attempt to
enhance performance involves speculation and may be very risky and cause
losses, which, in the case of call options written, are potentially unlimited.
The funds may purchase over-the-counter ("OTC") or dealer options or sell
covered OTC options. Unlike exchange-listed options where an intermediary or
clearing corporation assures that all transactions are properly executed, the
responsibility for performing all transactions with respect to OTC options
rests solely with the writer and the holder of those options. A listed call
option writer, for example, is obligated to deliver the underlying stock to
the clearing organization if the option is exercised, and the clearing
organization is then obligated to pay the writer the exercise price of the
option. If a fund were to purchase a dealer option, however, it would rely on
the dealer from whom it purchased the option to perform if the option were
exercised. If the dealer fails to honor the exercise of the option by the
fund, the fund would lose the premium it paid for the option and the expected
benefit of the transaction.
Listed options may have a liquid market while dealer options have none.
Consequently, a fund will generally be able to realize the value of a dealer
option it has purchased only by exercising it or reselling it to the dealer
who issued it. Similarly, when a fund writes a dealer option, it generally
will be able to close out the option prior to the expiration only by entering
into a closing purchase transaction with the dealer to which the fund
originally sold the option. Although the funds will seek to enter into dealer
options only with dealers who will agree to and that are expected to be
capable of entering into closing transactions with the funds, there can be no
assurance that a fund will be able to liquidate a dealer option at a favorable
price at any time prior to expiration. The inability to enter into a closing
transaction may result in material losses to a fund. Until a fund, as an OTC
call option writer, is able to effect a closing purchase transaction, it will
not be able to liquidate securities (or other assets) used to cover the
written option until the option expires or is exercised. This requirement may
impair a fund's ability to sell portfolio securities or, with respect to
currency options, currencies at a time when such sale might be advantageous.
In the event of insolvency of the other party, the fund may be unable to
liquidate a dealer option.
Each fund may purchase and write options on foreign currencies as more
fully described in "Foreign Currency Exchange Transactions" below. Each of the
funds may also purchase or write call options on futures contracts as more
fully described in "Options on Futures Contracts" below.
The use of options by the funds may involve leveraging. Leveraging adds
increased risks to a fund, because the fund's losses may be out of proportion
to the amount invested in the instrument--a relatively small investment may
lead to much greater losses.
FUTURES CONTRACTS
Each fund may enter into stock index futures contracts for hedging
purposes and for nonhedging purposes.
A futures contract is an agreement between two parties for the purchase or
sale for future delivery of securities or for the payment or acceptance of a
cash settlement based upon changes in the value of the securities or of an
index of securities. A "sale" of a futures contract means the acquisition of a
contractual obligation to deliver the securities called for by the contract at
a specified price, or to make or accept the cash settlement called for by the
contract, on a specified date. A "purchase" of a futures contract means the
acquisition of a contractual obligation to acquire the securities called for
by the contract at a specified price, or to make or accept the cash settlement
called for by the contract, on a specified date. Futures contracts in the
United States have been designed by exchanges which have been designated
"contract markets" by the Commodity Futures Trading Commission ("CFTC") and
must be executed through a futures commission merchant, or brokerage firm,
which is a member of the relevant contract market. Futures contracts trade on
these markets, and the exchanges, through their clearing organizations,
guarantee that the contracts will be performed as between the clearing members
of the exchange. Futures contracts may also be traded on markets outside the
U.S.
Although futures on individual equity securities are not available in
United States markets, futures contracts on individual equity securities may
be available in foreign markets, and may be purchased or sold by the funds.
Each fund may buy and sell stock index futures contracts to attempt to
increase investment return, to gain stock market exposure while holding cash
available for investments and redemptions, or to protect against a decline in
the stock market.
A stock index futures contract is a contract to buy or sell units of a
stock index at a specified future date at the price agreed upon when the
contract is made. A unit is the current value of the stock index.
The following example illustrates generally the manner in which index
futures contracts operate. The Standard & Poor's 100 Stock Index (the "S&P 100
Index") is composed of 100 selected common stocks, most of which are listed on
the New York Stock Exchange. The S&P 100 Index assigns relative weightings to
the common stocks included in the Index, and the Index fluctuates with changes
in the market values of those common stocks. In the case of the S&P 100 Index,
contracts are to buy or sell 100 units. Thus, if the value of the S&P 100
Index were $180, one contract would be worth $18,000 (100 units x $180). The
stock index futures contract specifies that no delivery of the actual stocks
making up the index will take place. Instead, settlement in cash must occur
upon the termination of the contract, with the settlement being the difference
between the contract price and the actual level of the stock index at the
expiration of the contract. For example, if a fund enters into a futures
contract to buy 100 units of the S&P 100 Index at a specified future date at a
contract price of $180 and the S&P 100 Index is at $184 on that future date,
the fund will gain $400 (100 units x gain of $4) reduced by transaction costs.
If the fund enters into a futures contract to sell 100 units of the stock
index at a specified future date at a contract price of $180 and the S&P 100
Index is at $182 on that future date, the fund will lose $200 (100 units x
loss of $2) increased by transaction costs.
Positions in index futures may be closed out only on an exchange or board
of trade which provides a secondary market for such futures.
The ordinary spreads between prices in the cash and futures markets, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit
and variation margin requirements. Rather than meeting additional variation
margin requirements, investors may close out futures contracts through
offsetting transactions which could distort the normal relationship between
the cash and futures markets. Second, there is the potential that the
liquidity of the futures market may be lacking. Prior to expiration, a futures
contract may be terminated only by entering into a closing purchase or sale
transaction, which requires a secondary market on the contract market on which
the futures contract was originally entered into. There can be no assurance
that a liquid secondary market will exist for any particular futures contract
at any specific time. In that event, it may not be possible to close out a
position held by the fund, which could require the fund to purchase or sell
the instrument underlying the futures contract or to meet ongoing variation
margin requirements. The inability to close out futures positions also could
have an adverse impact on the ability effectively to use futures transactions
for hedging or other purposes.
The liquidity of a secondary market in a futures contract may be adversely
affected by "daily price fluctuation limits" established by the exchanges,
which limit the amount of fluctuation in the price of a futures contract
during a single trading day and prohibit trading beyond such limits once they
have been reached. Each contract market on which futures contracts are traded
has established a number of limitations governing the maximum number of
positions which may be held by a trader, whether acting alone or in concert
with others. The trading of futures contracts also is subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Investments in futures contracts also entail the risk that if the
portfolio managers' investment judgment about the general direction of
interest rates, equity markets, or other economic factors is incorrect, the
fund's overall performance may be poorer than if any such contract had not
been entered into. For example, if a fund entered into a stock index futures
contract in the belief that the prices of the stocks comprising the index
would increase, and prices decreased instead, the fund would have both losses
in its portfolio securities as well as in its futures positions.
CFTC regulations require compliance with certain limitations in order to
assure that a fund is not deemed to be a "commodity pool" under such
regulations. In particular, CFTC regulations prohibit a fund from purchasing
or selling futures contracts (other than for bona fide hedging transactions)
if, immediately thereafter, the sum of the amount of initial margin required
to establish that fund's non-hedging futures positions would exceed 5% of that
fund's net assets. These limitations apply only to instruments regulated by
the CFTC, and may not apply to all of the funds' transactions in futures
contracts.
Each fund will comply with this CFTC requirement, if applicable. In
addition, an amount of cash or liquid securities will be maintained by the
fund in a segregated account so that the amount so segregated, plus the
applicable margin held on deposit, will be approximately equal to the amount
necessary to satisfy the fund's obligations under the futures contract, or the
fund will otherwise "cover" its positions in accordance with applicable
policies and regulations.
The use of futures contracts potentially exposes a fund to the effects of
"leveraging," which occurs when futures are used so that the fund's exposure
to the market is greater than it would have been if the fund had invested
directly in the underlying securities. "Leveraging" increases a fund's
potential for both gain and loss.
OPTIONS ON FUTURES CONTRACTS
The funds may purchase and write options to buy or sell futures contracts
in which the funds may invest. These investment strategies may be used for
hedging purposes and for non-hedging purposes, subject to applicable law.
An option on a futures contract provides the holder with the right to
enter into a "long" position in the underlying futures contract, in the case
of a call option, or a "short" position in the underlying futures contract, in
the case of a put option, at a fixed exercise price up to a stated expiration
date or, in the case of certain options, on such date. Upon exercise of the
option by the holder, the contract market clearinghouse establishes a
corresponding short position for the writer of the option, in the case of a
call option, or a corresponding long position in the case of a put option. In
the event that an option is exercised, the parties will be subject to all the
risks associated with the trading of futures contracts, such as payment of
initial and variation margin deposits. In addition, the writer of an option on
a futures contract, unlike the holder, is subject to initial and variation
margin requirements on the option position.
A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or
sale transaction, subject to the availability of a liquid secondary market,
which is the purchase or sale of an option of the same series (i.e., the same
exercise price and expiration date) as the option previously purchased or
sold. The difference between the premiums paid and received represents the
trader's profits or loss on the transaction.
Options on futures contracts that are written or purchased by a fund on
U.S. exchanges are traded on the same contract market as the underlying
futures contract, and, like futures contracts, are subject to regulation by
the CFTC and the performance guarantee of the exchange clearinghouse. In
addition, options on futures contracts may be traded on foreign exchanges.
A fund may cover the writing of call options on futures contracts (a)
through purchases of the underlying futures contract, (b) through ownership of
the instrument, or instruments included in the index underlying the futures
contract, or (c) through the holding of a call on the same futures contract
and in the same principal amount as the call written where the exercise price
of the call held (i) is equal to or less than the exercise price of the call
written or (ii) is greater than the exercise price of the call written if the
difference is maintained by the funds in cash or securities in a segregated
account. A fund may cover the writing of put options on futures contracts (a)
through sales of the underlying futures contract, (b) through segregation of
cash or liquid securities in an amount equal to the value of the security or
index underlying the futures contract, (c) through the holding of a put on the
same futures contract and in the same principal amount as the put written
where the exercise price of the put held is equal to or greater than the
exercise price of the put written or where the exercise price of the put held
is less than the exercise price of the put written if the difference is
maintained by the funds in cash or liquid securities in a segregated account.
Put and call options on futures contracts may also be covered in such other
manner as may be in accordance with the rules of the exchange on which the
option is traded and applicable laws and regulations. Upon the exercise of a
call option on a futures contract written by a fund, the fund will be required
to sell the underlying futures contract which, if the fund has covered its
obligation through the purchase of such contract, will serve to liquidate its
futures position. Similarly, where a put option on a futures contract written
by a fund is exercised, the fund will be required to purchase the underlying
futures contract which, if the fund has covered its obligation through the
sale of such contract, will close out its futures position.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities deliverable on exercise of
the futures contract. A fund will receive an option premium when it writes the
call, and, if the price of the futures contract at expiration of the option is
below the option exercise price, the fund will retain the full amount of this
option premium, which provides a partial hedge against any decline that may
have occurred in the fund's security holdings. Similarly, the writing of a put
option on a futures contract constitutes a partial hedge against increasing
prices of the securities deliverable upon exercise of the futures contract. If
a fund writes an option on a futures contract and that option is exercised,
the fund may incur a loss, which loss will be reduced by the amount of the
option premium received, less related transaction costs. A fund's ability to
hedge effectively through transactions in options on futures contracts depends
on, among other factors, the degree of correlation between changes in the
value of securities held by the fund and changes in the value of its futures
positions. This correlation cannot be expected to be exact, and a fund bears a
risk that the value of the futures contract being hedged will not move in the
same amount, or even in the same direction, as the hedging instrument. Thus it
may be possible for a fund to incur a loss on both the hedging instrument and
the futures contract being hedged.
The funds may purchase options on futures contracts for hedging purposes
instead of purchasing or selling the underlying futures contracts. For
example, where a decrease in the value of portfolio securities is anticipated
as a result of a projected market-wide decline or changes in interest or
exchange rates, the fund could, in lieu of selling futures contracts, purchase
put options thereon. In the event that such decrease occurs, it may be offset,
in whole or part, by a profit on the option. Conversely, where it is projected
that the value of securities to be acquired by a fund will increase prior to
acquisition, due to a market advance or changes in interest or exchange rates,
the fund could purchase call options on futures contracts, rather than
purchasing the underlying futures contracts.
The funds may also purchase options on futures contracts for non-hedging
purposes, in order to take advantage of projected market advances or declines
or changes in interest rates or exchange rates. For example, a fund can buy a
call option on a futures contract when the portfolio managers believe that the
underlying futures contract will rise. If prices do rise, the fund could
exercise the option and acquire the underlying futures contract at the strike
price or the fund could offset the long call position with a sale and realize
a profit. Or, a fund can sell a call option if the portfolio managers believe
that futures prices will decline. If prices decline, the call will likely not
be exercised and the fund would profit. However, if the underlying futures
contract should rise, the buyer of the option would likely exercise the call
against the fund and acquire the underlying futures position at the strike
price; the fund's loss in this case could be unlimited.
The funds' use of options on futures contracts may involve leveraging.
Leveraging adds increased risks to a fund, because the fund's losses may be
out of proportion to the amount invested in the instrument -- a relatively
small investment may lead to much greater losses.
REPURCHASE AGREEMENTS
Each fund may invest in repurchase agreements collateralized by securities
in which that fund may otherwise invest. Repurchase agreements are agreements
by which a fund purchases a security and simultaneously commits to resell that
security to the seller (which is usually a member bank of the U.S. Federal
Reserve System or a member firm of the New York Stock Exchange (or a
subsidiary thereof)) at an agreed-upon date within a number of days
(frequently overnight and usually not more than seven days) from the date of
purchase. The resale price reflects the purchase price plus an agreed-upon
market rate of interest which is unrelated to the coupon rate or maturity of
the purchased security. A repurchase agreement involves the obligation of the
seller to pay the agreed upon price, which obligation is in effect secured by
the value of the underlying security, usually U.S. Government or Government
agency issues. Under the 1940 Act, repurchase agreements may be considered to
be loans by the buyer. A fund's risk is limited to the ability of the seller
to pay the agreed-upon amount on the delivery date. If the seller defaults,
the underlying security constitutes collateral for the seller's obligation to
pay although a fund may incur certain costs in liquidating this collateral and
in certain cases may not be permitted to liquidate this collateral. All
repurchase agreements entered into by a fund are fully collateralized, with
such collateral being marked to market daily. In the event of the bankruptcy
of the other party to a repurchase agreement, a fund could experience delays
in recovering the resale price. To the extent that, in the meantime, the value
of the securities purchased has decreased, the fund could experience a loss.
REVERSE REPURCHASE AGREEMENTS
Each fund may enter into reverse repurchase agreements. Reverse repurchase
agreements involve the sale of securities held by the fund and the agreement
by the fund to repurchase the securities at an agreed-upon price, date and
interest payment. When a fund enters into reverse repurchase transactions,
securities of a dollar amount equal in value to the securities subject to the
agreement will be segregated. The segregation of assets could impair the
fund's ability to meet its current obligations or impede investment management
if a large portion of the fund's assets are involved. Reverse repurchase
agreements are considered to be a form of borrowing by the fund. In the event
of the bankruptcy of the other party to a reverse repurchase agreement, a fund
could experience delays in recovering the securities sold. To the extent that,
in the meantime, the value of the securities sold has increased, the fund
could experience a loss.
SECURITIES OF NON-U.S. ISSUERS
The Research Fund may, and the Global Research Fund will, invest in
securities of non-U.S. issuers. Investing in securities issued by foreign
governments or by companies whose principal business activities are outside
the United States may involve significant risks not present in U.S.
investments. For example, the value of such securities fluctuates based on the
relative strength of the U.S. dollar. In addition, there is generally less
publicly available information about non-U.S. issuers, particularly those not
subject to the disclosure and reporting requirements of the U.S. securities
laws. Non-U.S. issuers are generally not bound by uniform accounting, auditing
and financial reporting requirements comparable to those applicable to U.S.
issuers. Investments in securities of non-U.S. issuers also involve the risk
of possible adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitation on the removal of funds or
other assets of a fund, political or financial instability or diplomatic and
other developments which would affect such investments. Further, economies of
other countries or areas of the world may differ favorably or unfavorably from
the economy of the U.S.
It is anticipated that in most cases the best available market for
securities of non-U.S. issuers would be on exchanges or in over-the-counter
markets located outside the U.S. Non-U.S. securities markets, while growing in
volume and sophistication, are generally not as developed as those in the
U.S., and securities of some non-U.S. issuers (particularly those located in
developing countries) may be less liquid and more volatile than securities of
comparable U.S. companies. Prices at which a fund may acquire securities may
be attracted by trading by persons with material non-public information and by
securities transactions by brokers in anticipation of transactions by a fund.
Non-U.S. securities trading practices, including those involving securities
settlement where a fund's assets may be released prior to receipt of payments,
may expose the funds to increased risk in the event of a failed trade or the
insolvency of a non-U.S. broker-dealer. In addition, non-U.S. brokerage
commissions are generally higher than commissions on securities traded in the
U.S. and may be non-negotiable. In general, there is less overall governmental
supervision and regulation of non-U.S. securities exchanges, brokers and
listed companies than in the U.S.
Investments in closed-end investment companies which primarily hold
securities of non-U.S. issuers may entail the risk that the market value of
such investments may be substantially less than their net asset value and that
there would be duplication of investment management and other fees and
expenses.
American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs") and other forms of depositary
receipts for securities of non-U.S. issuers provide an alternative method for
the funds to make non-U.S. investments. These securities are not usually
denominated in the same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are designed for use in U.S.
securities markets and EDRs and GDRs, in bearer form, are designed for use in
European and global securities markets. ADRs are receipts typically issued by
a U.S. bank or trust company evidencing ownership of the underlying
securities. EDRs and GDRs are European and global receipts, respectively,
evidencing a similar arrangement.
ADRs, EDRs, and GDRs may be issued pursuant to sponsored or unsponsored
programs. In sponsored programs, an issuer has made arrangements to have its
securities traded in the form of depositary receipts. In unsponsored programs,
the issuer may not be directly involved in the creation of the program.
Although regulatory requirements with respect to sponsored and unsponsored
programs are generally similar, in some cases it may be easier to obtain
financial information from an issuer that has participated in the creation of
a sponsored program. Accordingly, there may be less information available
regarding issuers of securities underlying unsponsored programs and there may
not be a correlation between such information and the market value of the
depositary receipts.
The funds may invest in securities of non-U.S. issuers that impose
restrictions on transfer within the U.S. or to U.S. persons. Although
securities subject to such transfer restrictions may be marketable abroad,
they may be less liquid than securities of non-U.S. issuers of the same class
that are not subject to such restrictions.
The risks described above, including the risks of nationalization or
expropriation of assets, are typically increased to the extent that a fund
invests in issuers located in less developed and developing nations, whose
securities markets are sometimes referred to as "emerging securities markets."
Investments in securities located in such countries are speculative and
subject to certain special risks. Political and economic structures in many of
these countries may be in their infancy and developing rapidly, and such
countries may lack the social, political and economic stability characteristic
of more developed countries. Certain of these countries have in the past
failed to recognize private property rights and have at times nationalized and
expropriated the assets of private companies.
In addition, unanticipated political or social developments may affect the
value of a fund's investments in these countries and the availability to the
fund of additional investments in these countries. The small size, limited
trading volume and relative inexperience of the securities markets in these
countries may make the fund's investment in such countries illiquid and more
volatile than investments in more developed countries, and the fund may be
required to establish special custodial or other arrangements before making
investments in these countries. There may be little financial or accounting
information available with respect to issuers located in these countries, and
it may be difficult as a result to assess the value or prospects of an
investment in such issuers.
EURO CONVERSION
The funds may invest in securities of issuers in European countries.
Certain European countries have joined the European Economic and Monetary
Union (EMU). Each EMU participant's currency began a conversion into a single
European currency, called the euro, on January 1, 1999, to be completed by
July 1, 2002. The consequences of the euro conversion for foreign exchange
rates, interest rates and the value of European securities held by the funds
are presently unclear. As of the date of this Statement of Additional
Information, the Euro has depreciated significantly in relation to other
currencies. However, it is expected that Euro exchange rates will continue to
fluctuate. European financial markets, and therefore, the funds, could be
adversely affected if the euro conversion does not continue as planned or if a
participating country chooses to withdraw from the EMU. The funds could also
be adversely affected if the computing, accounting and trading systems used by
its service providers are not capable of processing transactions related to
the euro. These issues may negatively affect the operations of the companies
in which the funds invest as well.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because each fund may buy and sell securities denominated in currencies
other than the U.S. dollar, and receive interest, dividends and sale proceeds
in currencies other than the U.S. dollar, the funds may, but are not obligated
to, engage in foreign currency exchange transactions as an attempt to protect
against uncertainty in the level of future foreign currency exchange rates or
as an attempt to enhance performance. (Although the funds' assets are valued
daily in terms of U.S. dollars, neither fund intends to convert the fund's
holdings of other currencies into U.S. dollars on a daily basis.) Neither fund
currently intends to speculate in currency exchange rates or forward
contracts.
The funds may enter into foreign currency exchange transactions to convert
U.S. currency to non-U.S. currency and non-U.S. currency to U.S. currency, as
well as convert one non-U.S. currency to another non-U.S. currency. A fund
either enters into these transactions on a spot (i.e., cash) basis at the spot
rate prevailing in the currency exchange markets, or uses forward contracts to
purchase or sell non-U.S. currencies.
The funds may convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency conversion. Although
currency exchange dealers do not charge a fee for conversion, they do realize
a profit based on the difference (the "spread") between the prices at which
they are buying and selling various currencies. Thus, a dealer may offer to
sell a currency at one rate, while offering a lesser rate of exchange should a
fund desire to resell that currency to the dealer.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract, agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
fees or commissions are charged at any stage for trades. A fund may enter into
forward contracts for hedging and non-hedging purposes, including transactions
entered into for the purposes of profiting from anticipated changes in foreign
currency exchange rates.
Forward contracts are traded over-the-counter and not on organized
commodities or securities exchanges. As a result, such contracts operate in a
manner distinct from exchange-traded instruments, and their use involves
certain risks beyond those associated with transactions in the futures and
options contracts described herein.
When a fund enters into a contract for the purchase or sale of a security
denominated in a non-U.S. currency, it may desire to "lock in" the U.S. dollar
price of the security. By entering into a forward contract for the purchase or
sale, for a fixed amount of U.S. dollars, of the amount of non-U.S. currency
involved in the underlying security transaction, the fund may be able to
protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the non-U.S. currency during the
period between the date the security is purchased or sold and the date on
which payment is made or received.
When the manager believe that the currency of a particular country may
suffer a substantial decline against the U.S. dollar, a fund may enter into a
forward contract to sell the non-U.S. currency, for a fixed amount of U.S.
dollars. If a fund owns securities in that currency, the portfolio managers
may enter into a contract to sell the non-U.S. currency in an amount
approximating the value of some or all of the fund's securities denominated in
such non-U.S. currency. The precise matching of the forward contract amounts
and the value of the securities involved is not generally possible since the
future value of such securities in non-U.S. currencies changes as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures.
At the maturity of a forward contract, a fund will either deliver the non-
U.S. currency, or terminate its contractual obligation to deliver the non-U.S.
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
non-U.S. currency. If a fund engages in an offsetting transaction, the fund
will incur a gain or a loss (as described below) to the extent that there has
been movement in forward contract prices. If a fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
non-U.S. currency. Should forward prices decline during the period between the
date a fund enters into a forward contract for the sale of the non-U.S.
currency and the date it enters into an offsetting contract for the purchase
of such currency, the fund will realize a gain to the extent the selling price
of the currency exceeds the purchase price of the currency. Should forward
prices increase, the fund will suffer a loss to the extent that the purchase
price of the currency exceeds the selling price of the currency.
Where a fund enters into a forward contract with respect to securities it
holds denominated in the non-U.S. currency, it is impossible to forecast with
precision the market value of a fund's securities at the expiration of a
forward contract. Accordingly, it may be necessary for a fund to purchase
additional non-U.S. currency on the spot market if the market value of the
security is less than the amount of non-U.S. currency the fund is obligated to
deliver and if a decision is made to sell the security and make delivery of
such currency. Conversely, it may be necessary to sell on the spot market some
of the non-U.S. currency received upon the sale of the security if its market
value exceeds the amount of such currency the fund is obligated to deliver.
When a fund enters into a forward contract for non-hedging purposes, there
is a greater potential for profit but also a greater potential for loss. For
example, a fund may purchase a given foreign currency through a forward
contract if the value of such currency is expected to rise relative to the
U.S. dollar or another foreign currency. Conversely, a fund may sell the
currency through a forward contract if the value of the currency is expected
to decline against the dollar or another foreign currency. The fund will
profit if the anticipated movements in foreign currency exchange rates occur,
which will increase gross income. Where exchange rates do not move in the
direction or the extent anticipated, however, the fund may sustain losses
which will reduce its gross income. Such transactions should be considered
speculative and could involve significant risk of loss.
Each fund has established procedures consistent with policies of the SEC
concerning forward contracts. Those policies currently require that an amount
of a fund's assets equal to the amount of the purchase be held aside or
segregated to be used to pay for the commitment or that the fund otherwise
covers its position in accordance with applicable regulations and policies.
Each fund may purchase put options on a currency in an attempt to protect
against currency rate fluctuations or to seek to enhance gains. When a fund
purchases a put option on a currency, the fund will have the right to sell the
currency for a fixed amount in U.S. dollars, or other currency. Conversely,
where a rise in the value of one currency is projected against another, the
fund may purchase call options on the currency, giving it the right to
purchase the currency for a fixed amount of U.S. dollars or another currency.
Each fund may purchase put or call options on currencies, even if the fund
does not currently hold or intend to purchase securities denominated in such
currencies.
The purchase of such options could offset, at least partially the effects
of adverse movements in exchange rates. However, the benefit to the fund from
purchases of currency options will be reduced by the amount of the premium and
related transaction costs. In addition, where currency exchange rates do not
move in the direction or to the extent anticipated, the fund could sustain
losses on transactions in foreign currency options.
The funds may write options on currencies for hedging purposes or
otherwise in an attempt to achieve their investment objectives. For example,
where a fund anticipates a decline in the value of the U.S. dollar value of a
foreign security due to adverse fluctuations in exchange rates it could,
instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be
exercised, and the diminution in value of the security held by the fund may be
offset by the amount of the premium received. If the expected decline does not
occur, the fund may be required to sell foreign currencies at disadvantageous
exchange rates, thereby incurring losses. A fund could also write call options
on a currency, even if it does not own any securities denominated in that
currency, in an attempt to enhance gains. In that case, if the expected
decline does not occur, the fund would be required to purchase the currency
and sell it at a loss, which may not be offset by the premium received. The
losses in this case could be unlimited.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the cost of a foreign security to be acquired because
of an increase in the U.S. dollar value of the currency in which the
underlying security is primarily traded, a fund could write a put option on
the relevant currency which, if rates move in the manner projected, will
expire unexercised and allow the fund to hedge such increased cost up to the
amount of the premium. However, the writing of a currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may
be exercised and the fund would be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium.
Through the writing of options on currencies, a fund also may be required to
forgo all or a portion of the benefits which might otherwise have been
obtained from favorable movements in exchange rates. A fund could also write
put options on a currency, even if it does not own, or intend to purchase, any
securities denominated in that currency. In that case, if the expected
increase does not occur, the fund would be required to purchase the currency
at a price that is greater than the current exchange rate for the currency,
and the losses in this case could exceed the amount of premium received for
writing the options, and could be unlimited.
Options on foreign currencies are traded on U.S. or foreign exchanges or
in the over-the-counter market. Each fund may enter into transactions in
options on foreign currencies that are traded in the over-the-counter market.
These transactions are not afforded the protections provided to traders on
organized exchanges or those regulated by the CFTC. In particular, over-the-
counter options are not cleared and guaranteed by a clearing corporation,
thereby increasing the risk of counterparty default. In addition, there may
not be a liquid market on these options, which may prevent a fund from
liquidating open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market conditions.
The purchase and sale of foreign currency options are subject to the risks
of the availability of a liquid secondary market and counterparty risk, as
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible interventions by governmental authorities and the effects of other
political and economic events. In addition, the value of a fund's positions in
foreign currency options could be adversely affected by (1) other complex
foreign political and economic factors, (2) lesser availability of data on
which to make trading decisions than in the United States, (3) delays in the
fund's ability to act upon economic events occurring in foreign markets during
non-business hours in the United States, and (4) imposition of different
exercise and settlement terms and procedures and margin requirements than in
the United States.
In addition, because foreign currency transactions occurring in the
interbank market generally involve substantially larger amounts than those
that may be involved in the use of foreign currency options, the funds may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last-sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock
market. To the extent that the U.S. options markets, or other markets used by
the funds are closed while the markets for the underlying currencies remain
open, significant price and rate movements may take place in the underlying
markets that may not be reflected in the U.S. or other markets used by the
funds.
Put and call options on non-U.S. currencies written by a fund will be
covered by segregation of cash and liquid securities in an amount sufficient
to discharge the fund's obligations with respect to the option, by acquisition
of the non-U.S. currency or of a right to acquire such currency (in the case
of a call option) or the acquisition of a right to dispose of the currency (in
the case of a put option), or in such other manner as may be in accordance
with the requirements of any exchange on which, or the counterparty with
which, the option is traded and applicable laws and regulations.
Each fund may engage in proxy hedges and cross hedges. For example, in a
proxy hedge, a fund, having purchased a security, would sell a currency whose
value is believed to be closely linked to the currency in which the security
is denominated. Interest rates prevailing in the country whose currency was
sold might be expected to be closer to those in the U.S. and lower than those
of securities denominated in the currency of the original holding. This type
of hedging entails greater risk than a direct hedge because it is dependent on
a stable relationship between the two currencies paired as proxies and the
relationships can be very unstable at times. A fund may enter into a cross
hedge if a particular currency is expected to decrease against another
currency. For example, the fund would sell the currency expected to decrease
and purchase a currency which is expected to increase against the currency
sold in an attempt to protect against declines in value of the fund's holdings
denominated in the currency sold.
Investing in ADRs and other depositary receipts presents many of the same
risks regarding currency exchange rates as investing directly in securities
traded in currencies other than the U.S. dollar. Because the securities
underlying ADRs are traded primarily in non-U.S. currencies, changes in
currency exchange rates will affect the value of these receipts. For example,
a decline in the U.S. dollar value of another currency in which securities are
primarily traded will reduce the U.S. dollar value of such securities, even if
their value in the other non-U.S. currency remains constant, and thus will
reduce the value of the receipts covering such securities. A fund may employ
any of the above described foreign currency hedging techniques to protect the
value of its assets invested in depositary receipts.
Of course, a fund is not required to enter into the transactions described
above and does not do so unless deemed appropriate by the portfolio managers.
It should be realized that under certain circumstances, the funds may not be
able to hedge against a decline in the value of a currency, even if the
portfolio managers deem it appropriate to try to do so, because doing so would
be too costly. Transactions entered into to protect the value of a fund's
securities against a decline in the value of a currency (even when successful)
do not eliminate fluctuations in the underlying prices of the securities.
Additionally, although hedging transactions may tend to minimize the risk of
loss due to a decline in the value of the hedged currency, they also tend to
limit any potential gain which might result should the value of such currency
increase.
Investors should also be aware of the increased risk to a fund and its
investors when it enters into foreign currency exchange transactions for non-
hedging purposes. Non-hedging transactions in such instruments involve greater
risks and may result in losses which are not offset by increases in the value
of a fund's other assets. Although a fund is required to segregate assets or
otherwise cover certain types of transactions, this does not protect the fund
against risk of loss. Furthermore, the funds' use of foreign currency exchange
transactions may involve leveraging. Leveraging adds increased risks to a
fund, because the fund's losses may be out of proportion to the amount
invested in the instrument--a relatively small investment may lead to much
greater losses.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements and in order to
generate income, each fund may lend its securities to broker-dealers and other
institutional borrowers. Such loans will usually be made only to member banks
of the U.S. Federal Reserve System and to member firms of the New York Stock
Exchange (and subsidiaries thereof). Loans of securities would be secured
continuously by collateral in cash, cash equivalents or U.S. Treasury
obligations maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The cash collateral would be invested
in high quality short-term instruments. Either party has the right to
terminate a loan at any time on customary industry settlement notice (which
will not usually exceed three business days). During the existence of a loan,
a fund would continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned and with respect to cash
collateral would also receive compensation based on investment of the
collateral (subject to a rebate payable to the borrower). Where the borrower
provides a fund with collateral consisting of U.S. Treasury obligations, the
borrower is also obligated to pay the fund a fee for use of the borrowed
securities. The fund would not, however, have the right to vote any securities
having voting rights during the existence of the loan, but would call the loan
in anticipation of an important vote to be taken among holders of the
securities or of the giving or withholding of their consent on a material
matter affecting the investment. As with other extensions of credit, there are
risks of delay in recovery or even loss of rights in the collateral should the
borrower fail financially. However, the loans would be made only to entities
deemed by the portfolio managers to be of good standing, and when, in the
judgment of the portfolio managers, the consideration which can be earned
currently from loans of this type justifies the attendant risk. In addition, a
fund could suffer loss if the borrower terminates the loan and the fund is
forced to liquidate investments in order to return the cash collateral to the
buyer. The portfolio managers will make loans only when, in the judgment of
the portfolio managers, the consideration which can be earned currently from
loans of this type justifies the attendant risk. If the portfolio managers
determine to make loans, it is not intended that the value of the securities
loaned by a fund would exceed 30% of the market value of its total assets.
WHEN-ISSUED SECURITIES
Each fund may purchase securities on a "when-issued" or on a "forward
delivery" basis, meaning that delivery of the securities will occur beyond
customary settlement time. It is expected that, under normal circumstances,
the applicable fund would take delivery of such securities, but the fund may
sell them before the settlement date. In general, the fund does not pay for
the securities until received and does not start earning interest until the
contractual settlement date. When a fund commits to purchase a security on a
"when-issued" or on a "forward delivery" basis, it sets up procedures
consistent with SEC policies. Since those policies currently require that an
amount of a fund's assets equal to the amount of the purchase be held aside or
segregated to be used to pay for the commitment, each fund expects always to
have cash or liquid securities sufficient to cover any commitments or to limit
any potential risk. However, even though the funds intend to adhere to the
provisions of SEC policies, purchases of securities on such bases may involve
more risk than other types of purchases. The when-issued securities are
subject to market fluctuation, and no interest accrues on the security to the
purchaser during this period. The payment obligation and the interest rate
that will be received on the securities are each fixed at the time the
purchaser enters into the commitment. Purchasing obligations on a when-issued
basis is a form of leveraging and can involve a risk that the yields available
in the market when the delivery takes place may actually be higher than those
obtained in the transaction itself. In that case, there could be an unrealized
loss at the time of delivery. An increase in the percentage of a fund's assets
committed to the purchase of securities on a "when-issued" basis may increase
the volatility of its net asset value.
CONVERTIBLE SECURITIES
The funds may invest in convertible securities. A convertible security is
a fixed-income security (a bond or preferred stock) which may be converted at
a stated price within a specified period of time into a certain quantity of
common stock or other equity securities of the same or a different issuer.
Convertible securities rank senior to common stock in a corporation's capital
structure but are usually subordinated to similar non-convertible securities.
While providing a fixed-income stream (generally higher in yield than the
income derivable from common stock but lower than that afforded by a similar
non-convertible security), a convertible security also affords an investor the
opportunity, through its conversion feature, to participate in the capital
appreciation attendant upon a market price advance in the convertible
security's underlying common stock.
In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security)
or its "conversion value" (i.e., its value upon conversion into its underlying
stock). As a fixed-income security, a convertible security tends to increase
in market value when interest rates decline and tends to decrease in value
when interest rates rise. However, the price of a convertible security is also
influenced by the market value of the security's underlying common stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of
the underlying stock declines. While no securities investment is without some
risk, investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
RULE 144A SECURITIES
Consistent with applicable investment restrictions, each fund may purchase
securities that are not registered under the Securities Act of 1933, as
amended (the "Securities Act"), but can be offered and sold to "qualified
institutional buyers" under Rule 144A under the Securities Act ("Rule 144A
securities"). However, neither fund will invest more than 15% of its net
assets (taken at market value) in illiquid investments, which includes
securities for which there is no readily available market, securities subject
to contractual restrictions on resale and Rule 144A securities, unless, in the
case of Rule 144A securities, the board of trustees of the trust determines,
based on the trading markets for the specific Rule 144A security, that it is
liquid. The trustees have adopted guidelines and, subject to oversight by the
trustees, have delegated to the manager or to a subadviser the daily function
of determining and monitoring liquidity of Rule 144A securities.
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS
Each fund may invest up to 15% of its net assets in securities for which
there is no readily available market. These illiquid securities may include
privately placed restricted securities for which no institutional market
exists. The absence of a trading market can make it difficult to ascertain a
market value for illiquid investments. Disposing of illiquid investments may
involve time-consuming negotiation and legal expenses, and it may be difficult
or impossible for a fund to sell them promptly at an acceptable price.
BANK OBLIGATIONS
The funds may invest in bank obligations, i.e., certificates of deposit,
time deposits including Eurodollar time deposits, and bankers' acceptances and
other short-term debt obligations issued by domestic banks, foreign
subsidiaries or foreign branches of domestic banks, domestic and foreign
branches of foreign banks, domestic savings and loan associations and other
banking institutions. A bankers' acceptance is a bill of exchange or time
draft drawn on and accepted by a commercial bank. It is used by corporations
to finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less. A certificate of deposit is a
negotiable interest-bearing instrument with a specific maturity. Certificates
of deposit are issued by banks and savings and loan institutions in exchange
for the deposit of funds and normally can be traded in the secondary market
prior to maturity. A time deposit is a non-negotiable receipt issued by a bank
in exchange for the deposit of funds. Like a certificate of deposit, it earns
a specified rate of interest over a definite period of time; however, it
cannot be traded in the secondary market. Time deposits with a withdrawal
penalty are considered to be illiquid securities.
COMMERCIAL PAPER
Each fund may invest in commercial paper, which is unsecured debt of
corporations usually maturing in 270 days or less from its date of issuance.
OTHER INVESTMENT COMPANIES
Subject to applicable statutory and regulatory limitations, assets of each
fund may be invested in shares of other investment companies. Each fund may
invest up to 5% of its assets in closed-end investment companies as permitted
by applicable law.
SECURITIES RATED BAA OR BBB
Each fund may purchase securities rated Baa by Moody's or BBB by S&P and
securities of comparable quality, which may have poor protection of payment of
principal and interest. These securities are often considered to be
speculative and involve greater risk of default or price changes than
securities assigned a higher quality rating. The market prices of these
securities may fluctuate more than higher-rated securities and may decline
significantly in periods of general economic difficulty which may follow
periods of rising interest rates.
ADDITIONAL DISCLOSURE REGARDING DERIVATIVES
Transactions in options may be entered into on U.S. exchanges regulated by
the SEC, in the over-the-counter market and on foreign exchanges, while
forward contracts may be entered into only in the over-the-counter market.
Futures contracts and options on futures contracts may be entered into on U.S.
exchanges regulated by the CFTC and on foreign exchanges. The securities
underlying options and futures contracts traded by a fund may include domestic
as well as foreign securities. Investors should recognize that transactions
involving foreign securities or foreign currencies, and transactions entered
into in foreign countries, may involve considerations and risks not typically
associated with investing in U.S. markets.
Transactions in options, futures contracts, options on futures contracts
and forward contracts entered into for non-hedging purposes involve greater
risk and could result in losses which are not offset by gains on other
portfolio assets. For example, a fund may sell futures contracts on an index
of securities in order to profit from any anticipated decline in the value of
the securities comprising the underlying index. In such instances, any losses
on the futures transactions will not be offset by gains on any portfolio
securities comprising such index, as might occur in connection with a hedging
transaction.
The use of certain derivatives, such as futures, forward contracts, and
written options may involve leverage for the funds because they create an
obligation, or indebtedness, to someone other than the funds' investors and
enable a fund to participate in gains and losses on an amount that exceeds its
initial investment. If a fund writes a stock put option, for example, it makes
no initial investment, but instead receives a premium in an amount equal to a
fraction of the price of the underlying stock. In return, the fund is
obligated to purchase the underlying stock at a fixed price, thereby being
subject to losses on the full stock price.
Likewise, if a fund purchases a futures contract, it makes an initial
margin payment that is typically a small percentage of the contract's price.
However, because of the purchase, the fund will participate in gains or losses
on the full contract price.
Other types of derivatives provide the economic equivalent of leverage
because they display heightened price sensitivity to market fluctuations, such
as changes in stock prices or interest rates. These derivatives magnify a
fund's gain or loss from an investment in much the same way that incurring
indebtedness does. For example, if a fund purchases a stock call option, the
fund pays a premium in an amount equal to a fraction of the stock price, and
in return, the fund participates in gains on the full stock price. If there
were no gains, the fund generally would lose the entire initial premium.
Options, futures contracts, options on futures contracts, forward
contracts and swaps may be used alone or in combinations in order to create
synthetic exposure to securities in which a fund otherwise invests.
The use of derivatives may increase the amount of taxable income of a fund
and may affect the amount, timing and character of a fund's income for tax
purposes, as more fully discussed herein in the section entitled "Tax
Matters."
ADDITIONAL INFORMATION
At times, a substantial portion of a fund's assets may be invested in
securities as to which the fund, by itself or together with other funds and
accounts managed by the manager and its affiliates, holds all or a major
portion. Although the manager generally considers such securities to be liquid
because of the availability of an institutional market for such securities, it
is possible that, under adverse market or economic conditions or in the event
of adverse changes in the financial condition of the issuer, the fund could
find it more difficult to sell these securities when it believes it advisable
to do so or may be able to sell the securities only at prices lower than if
they were more widely held. Under these circumstances, it may also be more
difficult to determine the fair value of such securities for purposes of
computing the fund's net asset value. In order to enforce its rights in the
event of a default under such securities, the fund may be required to
participate in various legal proceedings or take possession of and manage
assets securing the issuer's obligations on such securities. This could
increase the fund's operating expenses and adversely affect the fund's net
asset value. In addition, the fund's intention to qualify as a "regulated
investment company" under the Internal Revenue Code may limit the extent to
which the fund may exercise its rights by taking possession of such assets.
DEFENSIVE STRATEGIES
Each fund may, from time to time, take temporary defensive positions that
are inconsistent with the fund's principal investment strategies in attempting
to respond to adverse market, political or other conditions. When doing so,
the funds may invest without limit in high quality money market and other
short-term instruments, and may not be pursuing their investment goals.
4. INVESTMENT RESTRICTIONS
The trust, on behalf of the funds, has adopted the following policies
which may not be changed with respect to any fund without approval by holders
of a majority of the outstanding voting securities of that fund, which as used
in this Statement of Additional Information means the vote of the lesser of
(i) 67% or more of the outstanding voting securities of the fund present at a
meeting at which the holders of more than 50% of the outstanding voting
securities of the fund are present or represented by proxy, or (ii) more than
50% of the outstanding voting securities of the fund. The term "voting
securities" as used in this paragraph has the same meaning as in the 1940 Act.
None of the funds may:
(1) Borrow money, if such borrowing is prohibited by the 1940 Act or
the rules and regulations promulgated thereunder.
(2) Make loans to other persons except if such loans are prohibited by
the 1940 Act or the rules and regulations promulgated thereunder.
(3) Underwrite securities issued by other persons, except that all or
any portion of the assets of the fund may be invested in one or more
investment companies, to the extent not prohibited by the 1940 Act, the
rules and regulations thereunder, and exemptive orders granted under such
Act, and except insofar as the fund may technically be deemed an
underwriter under the Securities Act in selling a security.
(4) Purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests
therein), interests in oil, gas or mineral leases, commodities or
commodity contracts in the ordinary course of business (the foregoing
shall not be deemed to preclude the fund from purchasing or selling
futures contracts or options thereon, and each fund reserves the freedom
of action to hold and to sell real estate acquired as a result of the
ownership of securities by the fund).
(5) Issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act or the
rules and regulations promulgated thereunder.
For purposes of restriction (1) above, covered mortgage dollar rolls and
arrangements with respect to securities lending are not treated as borrowing.
For purposes of restriction (7) above, the funds also may purchase and sell
securities issued by companies that invest or deal in real estate or real
estate investment trusts.
If a percentage or rating restriction on investment or utilization of
assets set forth above or referred to in the applicable Prospectus is adhered
to at the time an investment is made or assets are so utilized, a later change
in percentage resulting from changes in the value of the securities or a later
change in the rating of the securities held for a fund or portfolio will not
be considered a violation of policy.
5. PERFORMANCE INFORMATION AND ADVERTISING
From time to time the funds may advertise their total returns and average
annual total returns 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 a 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 the 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 funds may also include comparative performance information
in advertising or marketing its shares. Such performance information may
include data from Lipper Analytical Services, Inc. and other financial
publications.
From time to time, a fund may quote its average annual total return or
total return in advertisements or in reports and other communications to
shareholders. A fund may include comparative performance information in
advertising or marketing its 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 the funds describes the expenses or performance of any class it
will also disclose such information for the other classes.
AVERAGE ANNUAL TOTAL RETURN
A fund's "average annual total return," as described below, is 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 a 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. A fund's net investment income changes in
response to fluctuations in interest rates and the expenses of the fund.
In computing total rates of return and yield quotations, all fund expenses
are included. However, fees that may be charged directly to a shareholder by
that shareholder's service agent are not included. Of course, any such fees
will reduce the shareholder's net return on investment.
For advertising and sales purposes, the funds will generally use the
performance of Class A shares. Class A shares are sold at net asset value plus
a current maximum sales charge of 5.00%. Performance will typically include
this maximum sales charge for the purposes of calculating performance figures.
AGGREGATE TOTAL RETURN
The funds' "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
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 upon market conditions,
the composition of the fund's 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'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 class with
certain bank deposits or other investments that pay a fixed yield for a stated
period of time. Investors comparing a class's performance with that of other
mutual funds should give consideration to the quality and maturity of the
respective investment companies' portfolio securities.
* * *
The funds are newly offered and do not have performance information as of
the date of this Statement of Additional Information.
6. DETERMINATION OF NET ASSET VALUE; VALUATION OF SECURITIES
The net asset value per share of each fund is determined for each class on
each day during which the New York Stock Exchange is open for trading
("business day"). As of the date of this Statement of Additional Information,
the Exchange is open for trading every weekday except for the following
holidays (or the days on which they are observed): New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day. This determination is made
once each day as of the close of regular trading on the Exchange (normally
4:00 p.m. Eastern time) by adding the market value of all securities and other
assets attributable to the class (including its interest in its corresponding
portfolio), then subtracting the liabilities attributable to the class, and
then dividing the result by the number of outstanding shares of the class. The
net asset value per share is effective for orders received and accepted by the
transfer agent prior to its calculation.
For purposes of calculating net asset value per share, all assets and
liabilities initially expressed in non-U.S. currencies will be converted into
U.S. dollars at the prevailing market rates or if there are no market rates,
at fair value, at the time of valuation. Equity securities are valued at the
last sale price on the exchange on which they are primarily traded or on the
NASDAQ system for unlisted national market issues, or at the last quoted bid
price for securities in which there were no sales during the day or for
unlisted securities not reported on the NASDAQ system. Securities listed on a
non-U.S. exchange are valued at the last quoted sale price available before
the time when net assets are valued. Bonds and other fixed income securities
(other than short-term obligations) are valued on the basis of valuations
furnished by a pricing service, use of which has been approved by the board of
trustees of the trust. In making such valuations, the pricing service utilizes
both dealer-supplied valuations and electronic data processing techniques that
take into account appropriate factors such as institutional-size trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data, without exclusive
reliance upon quoted prices or exchange or over-the- counter prices, since
such valuations are believed to reflect more accurately the fair value of such
securities. Short-term obligations (maturing in 60 days or less) are valued at
amortized cost, which constitutes fair value as determined by the board of
trustees of the trust. Futures contracts are normally valued at the settlement
price on the exchange on which they are traded. Securities for which there are
no such valuations are valued at fair value as determined in good faith by or
at the direction of the board of trustees of the trust.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of regular trading on the New
York Stock Exchange. Trading may also take place on days on which the Exchange
is closed and on which it is not possible to purchase or redeem shares of the
funds. If events materially affecting the value of non-U.S. securities occur
between the time when the exchange on which they are traded closes and the
time when a fund's net asset value is calculated, such securities may be
valued at fair value in accordance with procedures established by and under
the general supervision of the board of trustees of the trust.
Interest income on long-term obligations held for a fund is determined on
the basis of interest accrued plus amortization of "original issue discount"
(generally, the difference between issue price and stated redemption price at
maturity) and premiums (generally, the excess of purchase price over stated
redemption price at maturity). Interest income on short-term obligations is
determined on the basis of interest accrued less amortization of any premiums.
7. ADDITIONAL INFORMATION ON THE PURCHASE AND SALE OF
FUND SHARES AND SHAREHOLDER PROGRAMS
As described in the Prospectus, the funds provide you with alternative
ways of purchasing shares based upon your individual investment needs.
Each class of shares of a fund represents an interest in the same
portfolio of investments. Each class is identical in all respects except that
each class bears its own class expenses, including distribution and service
fees, and each class has exclusive voting rights with respect to any
distribution or service plan applicable to its shares. As a result of the
differences in the expenses borne by each class of shares, net income per
share, dividends per share and net asset value per share will vary for each
class of shares. There are no conversion, preemptive or other subscription
rights, except that Class B shares automatically convert to Class A shares in
eight years, and Class Y shares bought under a letter of intent may convert
into Class A shares, each as more fully described below. In addition, shares
held in a Salomon Smith Barney Retirement Program may have special exchange
rights.
Shareholders of each class will share expenses proportionately for
services that are received equally by all shareholders. A particular class of
shares will bear only those expenses that are directly attributable to that
class, where the type or amount of services received by a class varies from
one class to another. The expenses that may be borne by specific classes of
shares may include (i) transfer agency fees attributable to a specific class
of shares, (ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses and proxy
statements to current shareholders of a specific class of shares, (iii)
Securities and Exchange Commission ("SEC") and state securities registration
fees incurred by a specific class, (iv) the expense of administrative
personnel and services required to support the shareholders of a specific
class of shares, (v) litigation or other legal expenses relating to a specific
class of shares, (vi) accounting expenses relating to a specific class of
shares and (vii) any additional incremental expenses subsequently identified
and determined to be properly allocated to one or more classes of shares.
The following classes of shares are available for purchase. See the
Prospectus for a discussion of factors to consider in selecting which class of
shares to purchase and for applicable service/distribution fees.
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.
Each fund receives the entire net asset value of all Class A shares that
are sold. The distributors retain the full applicable sales charge from which
it pays the uniform reallowances shown in the table below.
BROKER/DEALER
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE COMMISSION
AMOUNT OF AS A % OF AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT OFFERING PRICE
--------- -------- --------- --------
<S> <C> <C> <C>
Less than $25,000 ................................ 5.00% 5.26% 4.50%
$25,000 to less than $50,000 ..................... 4.25% 4.44% 3.83%
$50,000 to less than $100,000 .................... 3.75% 3.90% 3.38%
$100,000 to less than $250,000 ................... 3.25% 3.36% 2.93%
$250,000 to less than $500,000 ................... 2.75% 2.83% 2.48%
$500,000 or more but less than $1,000,000 2.00% 2.04% 1.80%
$1,000,000 or more ............................... --0--* --0--* up to 1.00%
</TABLE>
----------
* 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 certain broker-
dealers, financial intermediaries, financial institutions or a distributor's
financial consultants (each called a "service agent") 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."
Service agents may receive up to 90% of the sales charge and may be deemed
to be underwriters of each 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.
The initial sales charge on Class A shares may be waived in certain
circumstances. See "Sales Charge Waivers and Reductions" below for more
information about waivers of initial sales charge on Class A shares.
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.
Commissions will be paid to service agents that sell Class B shares in the
amount of 4.50% of the purchase price of Class B shares sold by these
entities. These commissions are not paid on exchanges from other Smith Barney
mutual funds or on sales of Class B shares to investors exempt from the CDSC.
Service agents that sell Class B shares will also receive a portion of the
service fee payable under the Class B Service Plan at an annual rate equal to
0.25% of the average daily net assets represented by the Class B shares sold
by them.
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.
Service agents selling Class L shares receive a commission of up to 2.00%
of the purchase price of the Class L shares they sell. Starting in the 13th
month after purchase, service agents also will receive an annual fee of up to
1.00% of the average daily net assets represented by the Class L shares that
they have sold. 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 another Smith Barney mutual fund 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 Allocation Series Inc.,
for which there is no minimum purchase amount).
GENERAL
Investors may purchase shares from a service agent that has entered into a
sales or service agreement with a distributor concerning the fund. In
addition, certain investors, including qualified retirement plans which are
customers of certain service agents, may be eligible to purchase shares
directly from the fund. When purchasing shares of a fund, investors must
specify the fund's name and whether the purchase is for Class A, Class B,
Class L or Class Y shares. Service agents may charge their customers an annual
account maintenance fee in connection with a brokerage account through which
an investor purchases or holds shares. Accounts held directly with the
subtransfer 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 (i) $1,000 for each account,
(ii) $250 for an IRA, or a Self- Employed Retirement Plan, or Uniform Gift to
Minor account, (iii) $25 for a Qualified Retirement Plan (a plan qualified
under Section 403(b)(7) or Section 401(a) of the Internal Revenue Code,
including 401(K) plans) and (iv) $1 for Simple IRA in a fund. The minimum
initial investments required for Systematic Investment Plans are discussed
below under "Systematic Investment Plans". Investors in Class Y shares may
open an account by making an initial investment of $15,000,000. Subsequent
investments of at least (i) $50 may be made for all classes for each account,
IRA, Self-Employed Retirement Plan, or Uniform Gift to Minor account, (ii) $25
for a Qualified Retirement Plan and (iii) $1 for a Simple IRA. 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 Citigroup affiliated funds, including
the Smith Barney mutual funds, and their spouses and children. Each 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 service
agent. Share certificates are only issued upon a written request by the
shareholder of record to the sub-transfer agent.
Purchase orders received by a fund 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 service agent prior to the
close of regular trading on the NYSE on any day the fund calculates its net
asset value, are priced according to the net asset value determined on that
day, provided the order is received by the fund or the fund's agent prior to
its close of business. For shares purchased through a service agent, payment
for shares of a fund is due on the third business day after the trade date. In
all other cases, payment must be made with the purchase order.
From time to time, one of the funds' distributor or the manager, at its
expense, may provide additional commissions, compensation or promotional
incentives ("concessions") to dealers that sell or arrange for the sale of
shares of the funds. Such concessions provided by one of the funds'
distributor or the manager may include financial assistance to dealers in
connection with pre-approved conferences or seminars, sales or training
programs for invited registered representatives and other employees, payment
for travel expenses, including lodging, incurred by registered representatives
and other employees for such seminars or training programs, seminars for the
public, advertising and sales campaigns regarding the funds, and/or other
dealer-sponsored events. From time to time one of the funds' distributor or
the manager may make expense reimbursements for special training of a dealer's
registered representatives and other employees in group meetings or to help
pay the expenses of sales contests. Other concessions may be offered to the
extent not prohibited by state laws or any self-regulatory agency, such as the
NASD.
SYSTEMATIC INVESTMENT PLAN
Class A, Class B and Class L 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, a service
agent 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 its service agent or the sub-transfer agent. The
Systematic Investment Plan also authorizes a service agent to apply cash held
in the shareholder's brokerage account opened with the service agent or redeem
the shareholder's shares of certain money market funds to make additions to
the account. Additional information is available from the funds or the
investor's service agent.
SALES CHARGE WAIVERS AND REDUCTIONS
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without a
sales charge in the following circumstances: (a) sales to (i) board
members and employees of Citigroup and its subsidiaries and any Citigroup
affiliated funds including the Smith Barney mutual funds (including
retired board members and employees); the immediate families of such
persons (including the surviving spouse of a deceased board member or
employee); and to a pension, profit-sharing or other benefit plan for such
persons and (ii) employees of members of the National Association of
Securities Dealers, Inc., provided such sales are made upon the assurance
of the purchaser that the purchase is made for investment purposes and
that the securities will not be resold except through redemption or
repurchase; (b) offers of Class A shares to any other investment company
to effect the combination of such company with a fund by merger,
acquisition of assets or otherwise; (c) purchases of Class A shares by any
client of financial consultants or other registered representatives who
recently joined a broker-dealer affiliated with Citigroup that has a sales
agreement with a distributor concerning a fund, if certain conditions are
met; (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 the fund, provided the reinvestment is made within 60 calendar
days of the redemption; (e) purchases by accounts managed by certain
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 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 certain
Citigroup affiliates, including 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 a fund may be purchased 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, 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 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. Additional information is available from the funds or the
investor's service agent.
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 a 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 your service agent 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 of Smith Barney 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
converted 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 your service agent or the transfer agent for further information.
DEFERRED SALES CHARGE PROVISIONS
"Deferred Sales Charge Shares" 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 six
years or later since 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 account 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 "Salomon Smith Barney
Retirement Programs -- Retirement Programs Investing in Class B Shares."
YEAR SINCE PURCHASE PAYMENT WAS MADE DEFERRED SALES CHARGE
------------------------------------ ---------------------
1st 5%
2nd 4%
3rd 3%
4th 2%
5th 1%
6th and thereafter None
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 the higher Class B share 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
or CitiFunds 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 the fund's distributors.
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 five additional shares of the fund through dividend
reinvestment. During the fifteenth month after the purchase, the investor
decided to redeem $500 of his or her investment. Assuming at the time of
the redemption the net asset value had appreciated to $12 per share, the
value of the investor's shares would be $1,260 (105 shares at $12 per
share). The Deferred Sales Charge would not be applied to the amount which
represents appreciation ($200) and the value of the reinvested dividend
shares ($60). Therefore, $240 of the $500 redemption proceeds ($500 minus
$260) would be charged at a rate of 4.00% (the applicable rate for Class B
shares) for a total Deferred Sales Charge of $9.60.
WAIVERS OF DEFERRED SALES CHARGE
The Deferred Sales Charge will be waived on: (a) exchanges (see
"Exchange Privilege"); (b) automatic cash withdrawals in amounts equal to
or less than 1.00% per month of the value of the shareholder's shares at
the time the withdrawal plan commences (see "Redemption of Shares --
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 59 1/2; (e)
involuntary redemptions; and (f) redemptions of shares to effect a
combination of the fund with any investment company by merger, acquisition
of assets or otherwise. In addition, a shareholder who has redeemed shares
from other Smith Barney mutual funds may, under certain circumstances,
reinvest all or part of the redemption proceeds within 60 days and receive
pro rata credit for any Deferred Sales Charge imposed on the prior
redemption.
Deferred Sales Charge waivers will be granted subject to confirmation
(by service agents in the case of shareholders who hold shares through a
service agent or by the sub-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. Each fund offers Class A and
Class L shares at net asset value to participating plans under the programs.
You can meet minimum investment and exchange amounts, if any, by combining the
plan's investments in any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and the class of
shares you may purchase depends on the amount of your initial investment and/
or the date your account is opened. Once a class of shares is chosen, all
additional purchases must be of the same class.
For plans opened on or after March 1, 2000 that are not plans for which
Paychex Inc. or an affiliate provides administration 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:
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 ExecChoice(TM) Program, a participating plan 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 the ExecChoice(TM)
Program, whether opened before or after June 21, 1996, that has not previously
qualified for an exchange into Class A shares will be offered the opportunity
to exchange all of its Class L shares for Class A shares of the same fund,
regardless of asset size, at the end of the eighth year after the date the
participating plan enrolled in the Smith Barney 401(k) Program or ExecChoice
(TM) 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 without a sales
charge. Any Class L shares not exchanged 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 ExecChoice(TM) Program must purchase
such shares directly from the transfer agent. For further information
regarding these Programs, investors should contact your service agent or the
transfer agent.
For more information, call your service agent or the transfer agent.
REDEMPTION OF SHARES
General. Each fund is required to redeem the shares tendered to it, as
described below, at a redemption price equal to the 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 the shareholder's service agent, or if the
shareholder's account is not with a service agent, 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.
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 service agent, or by submitting a written
request for redemption to:
Smith Barney Research Fund or Smith Barney Global Research 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 sub-transfer agent together with the redemption
request. Any signature appearing on a share certificate, stock power or
written redemption request in excess of $50,000 must be guaranteed by an
eligible guarantor institution such as a domestic bank, savings and loan
institution, domestic credit union, member bank of the Federal Reserve System
or member firm of a national securities exchange. Written redemption requests
of $50,000 or less do not require a signature guarantee unless more than one
such redemption request is made in any 10-day period. A signature guarantee
may also be required however, if (i) the sub-transfer agent is instructed to
mail the redemption proceeds to an address different than the address on the
account, (ii) the account registration information has changed, (iii) the
redemption proceeds are paid to someone other than the account owner(s) or
(iv) the redemption proceeds are transferred to an acount with a different
registration. 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.
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 subject to
a Deferred Sales Charge at the time the Withdrawal Plan commences. To the
extent that 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 will reduce the
shareholder's investment, and may ultimately exhaust it. Withdrawal payments
should not be considered as income from investment in a 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 shareholders in amounts of less than $5,000
ordinarily will not 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 of the fund in certificate form must first deposit their share
certificates with the sub-transfer agent as agent for Withdrawal Plan members.
All dividends and distributions on shares in the Withdrawal Plan are
reinvested automatically at net asset value in additional shares of the fund
involved. A shareholder who purchases shares directly through a fund 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.
For additional information, shareholders should contact their service agent or
a fund's sub-transfer agent.
Telephone Redemption And Exchange Program. Shareholders who do not have a
brokerage account with a service agent 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 to 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 $50,000 of any class or classes
of a fund's shares may be made by eligible shareholders by calling PFS
Shareholder Services at 1-800-544-5445, for clients of a PFS Investments
registered representatives, between 8:00 a.m. and 8:00 p.m. (New York City
time) or the transfer agent at 1-800-451-2010, for all other shareholders,
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. The transfer agent 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 requied 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 PFS Shareholder Services at 1-800-544-5445, for clients of
a PFS Investments registered representatives, between 8:00 a.m. and 8:00 p.m.
(New York City time) or the transfer agent at 1-800-451-2010, for all other
shareholders, 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 trustees of the trust 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 1.00% 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 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 and provided your
service agent is authorized to distribute shares of the fund, on the basis of
relative net asset value per share at the time of exchange.
Exchanges of Class A, Class B, Class L and Class Y 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 in any Smith Barney mutual
fund to acquire shares of the same class in a fund with different investment
objectives when they believe 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 your service agent.
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. The Fund 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. Class B shares of any fund may be exchanged for other
Class B shares without a Deferred Sales Charge. 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 another fund 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. The manager may determine that a pattern of frequent exchanges
is excessive and contrary to the best interests of a 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.
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 above 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.
This exchange privilege may be modified or terminated at any time, and is
available only in those jurisdictions where such exchanges legally may be
made. Before making any exchange, shareholders should contact the transfer
agent or, if they hold Fund shares through service agents or PFS Investments
registered representatives, their service agents or registered representative
to obtain more information and prospectuses of the funds to be acquired
through the exchange. An exchange is treated as a sale of the shares exchanged
and could result in taxable gain or loss to the shareholder making the
exchange.
DETERMINATION OF PUBLIC OFFERING PRICE
The funds offer their shares to the public on a continuous basis. The
public offering price for a Class A, Class B, Class L and Class Y share of a
fund is equal to the net asset value per share at the time of purchase, plus
the applicable initial sales charge for Class A and Class L shares. A Deferred
Sales Charge, however, is imposed on certain redemptions of Class A, Class B
and Class L shares.
8. MANAGEMENT
Each fund is supervised by the board of trustees of the trust. A majority
of the trustees are not affiliated with the manager.
The trustees and officers of the trust, their ages and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Asterisks indicate that those trustees and
officers are "interested persons" (as defined in the 1940 Act) of the trust.
Unless otherwise indicated below, the address of each trustee and officer is
388 Greenwich Street, New York, New York.
TRUSTEES
RILEY C. GILLEY; 74 -- Vice President and General Counsel, Corporate Property
Investors (November 1988 to December 1991); Partner, Breed, Abbott & Morgan
(Attorneys) (retired, December 1987).
DIANA R. HARRINGTON; 60 -- Professor, Babson College (since 1994); Trustee,
The Highland Family of Funds (March 1997 to March 1998).
SUSAN B. KERLEY; 49 -- President, Global Research Associates, Inc. (Investment
Research) (since September 1990); Trustee, Mainstay Institutional Funds (since
December 1990).
HEATH B. MCLENDON*; 67 -- Chairman, President, and Chief Executive Officer of
SSB Citi Fund Management LLC (formerly known as SSBC Fund Management Inc.)
(since March 1996); Managing Director of Salomon Smith Barney (since August
1993); President of Travelers Investment Adviser, Inc.; Chairman or Co-
Chairman of the Board of seventy-one investment companies associated with
Salomon Smith Barney. His address is 7 World Trade Center, New York, New York.
C. OSCAR MORONG, JR.; 65 -- Chairman of the board of trustees of the trust and
the portfolio trust; Managing Director, Morong Capital Management (since
February 1993); Director, Indonesia Fund (since 1990); Trustee, MAS Funds
(since 1993).
E. KIRBY WARREN; 66 -- Professor of Management, Graduate School of Business,
Columbia University (since 1987).
OFFICERS OF THE TRUST
HEATH B. McLENDON*; 67 -- President of the trust; Chairman, President, and
Chief Executive Officer of SSB Citi (since March 1996); Managing Director of
Salomon Smith Barney (since August 1993); President of Travelers Investment
Adviser, Inc. ("TIA"); Chairman or Co-Chairman of the Board of seventy-one
investment companies associated with Salomon Smith Barney. His address is 7
World Trade Center, New York, New York 10048.
LEWIS E. DAIDONE*; 43 -- Senior Vice President and Treasurer of the trust;
Managing Director of Salomon Smith Barney; Chief Financial Officer of the
Smith Barney mutual funds; Treasurer and Senior Vice President or Executive
Vice President of sixty-one investment companies associated with Citigroup;
Director and Senior Vice President of SSB Citi and TIA. His address is 125
Broad Street, New York, New York 10004.
IRVING DAVID*; 40 -- Controller of the trust; Director of Salomon Smith
Barney; formerly Assistant Treasurer of First Investment Management Company.
Controller or Assistant Treasurer of fifty-three investment companies
associated with Citigroup. His address is 125 Broad Street, New York, New York
10004.
FRANCES GUGGINO*; 43 - Assistant Controller of the trust; Vice President of
Citibank, N.A. since February, 1991.
PAUL BROOK*; 47 - Assistant Controller of the trust; Director of Salomon Smith
Barney; Controller or Assistant Treasurer of forty-three investment companies
associated with Citigroup; from 1997-1998 Managing Director of AMT Capital
Services Inc.; prior to 1997 Partner with Ernst & Young LLP. His address is
125 Broad Street, New York, New York 10004.
ANTHONY PACE*; 35 -- Assistant Treasurer of the trust. Mr. Pace is Vice
President - Mutual Fund Administration for Salomon Smith Barney Inc. Since
1986, when he joined the company as a Fund Accountant, Mr. Pace has been
responsible for accounts payable, financial reporting and performance of
mutual funds and other investment products.
MARIANNE MOTLEY*; 41 -- Assistant Treasurer of the trust. Ms. Motley is
Director - Mutual Fund Administration for Salomon Smith Barney Inc. Since
1994, when she joined the company as a Vice President, Ms. Motley has been
responsible for accounts payable, financial reporting and performance of
mutual funds and other investment products.
ROBERT I. FRENKEL, ESQ.*; 46 -- Secretary of the trust Mr. Frenkel is a
Managing Director and General Counsel - Global Mutual Funds for SSB Citi Asset
Management Group. Since 1994, when he joined Citibank as a Vice President and
Division Counsel, he has been responsible for legal affairs relating to mutual
funds and other investment products.
THOMAS C. MANDIA, ESQ.*; 38 -- Assistant Secretary of the trust. Mr. Mandia is
a Vice President and Associate General Counsel for SSB Citi Asset Management
Group. Since 1992, he has been responsible for legal affairs relating to
mutual funds and other investment products.
ROSEMARY D. EMMENS, ESQ.*; 31 -- Assistant Secretary of the trust. Ms. Emmens
has been a Vice President and Associate General Counsel of SSB Citi Asset
Management Group since 1998, where she has been responsible for legal affairs
relating to mutual funds and other investment products. Before joining
Citibank, Ms. Emmens was Counsel at The Dreyfus Corporation since 1995.
HARRIS GOLDBLAT, ESQ.*; 31 -- Assistant Secretary of the trust. Mr. Goldblat
has been an Associate General Counsel at SSB Citi Asset Management Group since
April 2000, where he has been responsible for legal affairs relating to mutual
funds and other investment products. From June 1997 to March 2000, he was an
associate at the law firm of Stroock & Stroock & Lavan LLP, New York City, and
from September 1996 to May 1997, he was an associate at the law firm of Sills
Cummis Radin Tischman Epstein & Gross, Newark, NJ. From August 1995 to
September 1996, Mr. Goldblat served as a law clerk to the Honorable James M.
Havey, P.J.A.D., in New Jersey.
The trustees and officers of the trusts also hold comparable positions
with certain other funds for which Salomon Smith Barney Inc., PFS
Distributors, Inc. or their affiliates serve as the distributor or
administrator.
The following table shows trustee compensation for the fiscal year ended
October 31, 2000:
<TABLE>
<CAPTION>
TOTAL
PENSION OR ESTIMATED COMPENSATION
RETIREMENT ANNUAL FROM TRUST AND
AGGREGATE BENEFITS BENEFITS FUND COMPLEX
COMPENSATION ACCRUED AS PART UPON PAID TO
TRUSTEE FROM REGISTRANT OF FUND EXPENSES RETIREMENT TRUSTEES(1)
------- --------------- ---------------- ---------- -----------
<S> <C> <C> <C> <C>
Riley C. Gilley ...................... $5,539 None None $5,539
Diana R. Harrington .................. $6,882 None None $6,882
Susan B. Kerley ...................... $6,806 None None $6,806
Heath B. McLendon .................... $ 0 None None $ 0
C. Oscar Morong, Jr. ................. $8,508 None None $8,508
E. Kirby Warren ...................... $6,845 None None $6,845
William S. Woods, Jr. (2) ............ $6,693 None None $6,693
</TABLE>
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(1) Messrs. Gilley, McLendon, Morong, Warren and Woods and Mses. Harrington and
Kerley earned total compensation from the trust and the CitiFunds complex of
$70,500, $0, $93,500, $68,250, $44,250, $67,500, and $66,000, respectively
for the fiscal year ended October 31, 2000. Messrs. Gilley, McLendon, Morong
and Warren, and Mses. Harrington and Kerley are trustees of 31, 19, 29, 29,
26 and 26 funds and portfolios, respectively, in the family of open-end
registered investment companies advised or managed by the manager.
(2) Effective December 31, 1999, Mr. Woods became a trustee emeritus of the
trust. Per the terms of the trust's Trustee Emeritus Plan, Mr. Woods
serves the board of trustees in an advisory capacity. As a trustee
emeritus, Mr. Woods is paid 50% of the annual retainer fee and meeting
fees otherwise applicable to trustees, together with reasonable out-of-
pocket expenses for each meeting attended.
As of the date of this Statement of Additional Information, there are no
shareholders of the funds.
The Declaration of Trust of the trust provides that the trust will
indemnify its trustees and officers against liabilities and expenses incurred
in connection with litigation in which they may be involved because of their
offices with the trust, unless, as to liability to the trust or its investors,
it is finally adjudicated that they engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in their
offices, or unless with respect to any other matter it is finally adjudicated
that they did not act in good faith in the reasonable belief that their
actions were in the best interests of the trust or such portfolio trust, as
the case may be. In the case of settlement, such indemnification will not be
provided unless it has been determined by a court or other body approving the
settlement or other disposition, or by a reasonable determination, based upon
a review of readily available facts, by vote of a majority of disinterested
trustees of the trust, or in a written opinion of independent counsel, that
such officers or trustees have not engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of their duties.
CODE OF ETHICS
The trust, the manager and the distributors each have adopted a code of
ethics pursuant to Rule 17j-1 under the Investment Company Act of 1940, as
amended. Each code of ethics permits personnel subject to such code to invest
in securities, including securities that may be purchased or held by a fund.
However, the Codes of Ethics contain provisions and requirements designed to
identify and address certain conflicts of interest between personal investment
activities and the interests of the funds. Of course, there can be no
assurance that the Codes of Ethics will be effective in identifying and
addressing all conflicts of interests relating to personal securities
transactions.
MANAGER
The manager manages the assets of each fund and provides certain
administrative services to the funds pursuant to separate management
agreements (the "Management Agreements"). Subject to such policies as the
board of trustees of the trust may determine, the manager manages the
securities of each fund and makes investment decisions for each fund. The
manager furnishes at its own expense all services, facilities and personnel
necessary in connection with managing each fund investments and effecting
securities transactions for each fund. The Management Agreements with the
trust provides that the manager may delegate the daily management of the
securities of each fund to one or more subadvisers.
Unless otherwise terminated, each Management Agreement with the trust
relating to a fund will continue in effect indefinitely as long as such
continuance is specifically approved at least annually by the board of
trustees of the trust or by a vote of a majority of the outstanding voting
securities of the fund, and, by a majority of the trustees of the trust who
are not parties to the Management Agreement or interested persons of any such
party, at a meeting called for the purpose of voting on the Management
Agreement.
The manager provides the funds with general office facilities and
supervises the overall administration of the funds, including, among other
responsibilities, the negotiation of contracts and fees with, and the
monitoring of performance and billings of, the funds' independent contractors
and agents; the preparation and filing of all documents required for
compliance by the funds with applicable laws and regulations; and arranging
for the maintenance of books and records of the funds. Trustees, officers, and
investors in the trust are or may be or may become interested in the manager,
as directors, officers, employees, or otherwise and directors, officers and
employees of the manager are or may become similarly interested in the trust.
The Management Agreements provide that the manager may render services to
others. Each Management Agreement is terminable without penalty on not more
than 60 days' nor less than 30 days' written notice by the trust, when
authorized either by a vote of a majority of the outstanding voting securities
of the applicable fund or by a vote of a majority of the board of trustees of
the trust, or by the manager on not more than 60 days' nor less than 30 days'
written notice, and will automatically terminate in the event of its
assignment. Each Management Agreement with the trust provides that neither the
manager nor its personnel shall be liable for any error of judgment or mistake
of law or for any omission in the administration or management of the trust or
the performance of its duties under the Management Agreement, except for
willful misfeasance, bad faith or gross negligence or reckless disregard of
its or their obligations and duties under the Management Agreement with the
trust.
The Prospectus for each fund contains a description of the fees payable to
the manager for services under the Management Agreement. [These fees are
higher than the management fees paid by most mutual funds. The manager may
reimburse any fund or portfolio or waive all or a portion of its management
fees.]
The Research Fund and the Global Research Fund pay aggregate management
fees of 0.85% and 0.95%, respectively, which are accrued daily and paid monthly
and are based on the applicable fund's average daily net assets on an
annualized basis for the fiscal year.
The administrator may retain a sub-administrator.
DISTRIBUTORS
Salomon Smith Barney, Inc., located at 388 Greenwich Street, New York, New
York 10013 and PFS Distributors, Inc., located at 3120 Breckinridge Blvd.,
Duluth, Georgia 30099 serve as the funds' distributors pursuant to written
agreements dated September 5, 2000 (the "Distribution Agreements") each of
which was approved by the funds' board of trustees, including a majority of
the independent trustees, on , 2001.
When payment is made by an investor who has a brokerage account with a
service agent, 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 the service agent 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 the service agent 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 funds 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 funds' board of trustees 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.
The Distribution Agreements are terminable with or without cause, without
penalty, on 60 days' notice by the board of trustees of the trust or by vote
of holders of a majority of the relevant fund's outstanding voting securities,
or on 90 days' notice by Salomon Smith Barney. Unless otherwise terminated,
each Distribution Agreement shall continue for successive annual periods so
long as such continuance is specifically approved at least annually by (a) the
trust's board of trustees, or (b) by a vote of a majority (as defined in the
1940 Act) of the relevant fund's outstanding voting securities, provided that
in either event the continuance is also approved by a majority of the board
members of the relevant trust who are not interested persons (as defined in
the 1940 Act) of any party to the Distribution Agreement, by vote cast in
person at a meeting called for the purpose of voting on such approval. The
Distribution Agreements will terminate automatically in the event of their
assignment, as defined in the 1940 Act and the rules and regulations
thereunder.
Class A, Class B and Class L shares of each fund has a Service Plan (each,
a "Service Plan") adopted in accordance with Rule 12b-1 under the 1940 Act.
Under the Plans, a fund may pay monthly fees at an annual rate not to exceed
0.25% of the average daily net assets of the fund attributable to that class
in the case of the Plans relating to Class A shares, and not to exceed 1.00%
of the average daily net assets of the fund attributable to that class in the
case of the plans relating to Class B shares and Class L Shares. Such fees may
be used to make payments to the distributors for distribution services, to
service agents in respect of the sale of shares of the funds, and to other
parties in respect of the sale of shares of the funds, and to make payments
for advertising, marketing or other promotional activity, and payments for
preparation, printing, and distribution of prospectuses, statements of
additional information and reports for recipients other than regulators and
existing shareholders. The funds also may make payments to the distributors,
service agents and others for providing personal service or the maintenance of
shareholder accounts. The amounts paid by the distributors to each recipient
may vary based upon certain factors, including, among other things, the levels
of sales of fund shares and/or shareholder services provided. Recipients may
receive different compensation for sales for Class A and Class B shares.
The Service Plans with respect to Class A and Class L shares also provides
that the distributors, and service agents may receive the sales charge paid by
Class A and Class L investors, respectively, as partial compensation for their
services in connection with the sale of shares. The Service Plan with respect
to Class B and Class L shares provides that the distributors, and service
agents may receive all or a portion of the Deferred Sales Charges paid by
Class B and Class L investors, respectively.
The Service Plans permit the funds to pay fees to the distributors,
service agents and others as compensation for their services, not as
reimbursement for specific expenses incurred. Thus, even if their expenses
exceed the fees provided for by the applicable Plan, the fund will not be
obligated to pay more than those fees and, if their expenses are less than the
fees paid to them, they will realize a profit. Each fund will pay the fees to
the distributors and others until the applicable Plan or Distribution
Agreement is terminated or not renewed. In that event, a distributor's or
other recipient's expenses in excess of fees received or accrued through the
termination date will be the distributor's or other recipient's sole
responsibility and not obligations of the fund. In their annual consideration
of the continuation of the Service Plans for each fund, the trustees will
review the Service Plans and the expenses for each fund separately.
Each Service Plan continues in effect if such continuance is specifically
approved at least annually by a vote of both a majority of the trust's
trustees and a majority of the trust's trustees who are not "interested
persons" of the trust and who have no direct or indirect financial interest in
the operation of the Service Plan or in any agreement related to the Plan (for
purposes of this paragraph "qualified trustees"). Each Service Plan requires
that the trust and the distributors provide to the board of trustees, and the
board of trustees review, at least quarterly, a written report of the amounts
expended (and the purposes therefor) under the Service Plan. Each Service Plan
further provides that the selection and nomination of the qualified trustees
is committed to the discretion of such qualified trustees then in office. A
Service Plan may be terminated with respect to any class of a fund at any time
by a vote of a majority of the trust's qualified trustees or by a vote of a
majority of the outstanding voting securities of that class. A Service Plan
may not be amended to increase materially the amount of a class's permitted
expenses thereunder without the approval of a majority of the outstanding
securities of that class and may not be materially amended in any case without
a vote of a majority of both the trustees and qualified trustees. The
distributors will preserve copies of any plan, agreement or report made
pursuant to the Service Plans for a period of not less than six years, and for
the first two years the distributors will preserve such copies in an easily
accessible place.
As contemplated by the Service Plans, the distributors acts as the agent
of the trust in connection with the offering of shares of the funds pursuant
to the Distribution Agreements. The Prospectus contains a description of fees
payable to the distributors under the Distribution Agreements.
The distributors may enter into agreements with service agents and may pay
compensation to such service agents for accounts for which the service agents
are holders of record. The distributors may make payments for distribution
and/or shareholder servicing activities out of its past profits and other
available sources. The distributors may also make payments for marketing,
promotional or related expenses to dealers. The amount of these payments are
determined by the distributors and may vary. The manager or its affiliates may
make similar payments under similar arrangements.
EXPENSES
In addition to amounts payable under the Management Agreements and the
Service Plans, each fund is responsible for its own expenses, including, among
other things, the costs of securities transactions, the compensation of
trustees that are not affiliated with the manager or the fund's distributors,
government fees, taxes, accounting and legal fees, expenses of communication
with shareholders, interest expense, and insurance premiums. The Prospectus
for each fund contains more information about the expenses of each fund.
TRANSFER AGENT
The trust has entered into a Transfer Agency and Services Agreement
pursuant to which Citi Fiduciary Trust Company, an affiliate of Salomon Smith
Barney ("Citi Fiduciary"), acts as transfer agent for each fund. Under the
Transfer Agency and Service Agreement, Citi Fiduciary maintains the
shareholder account records for the funds, handles certain communications
between shareholders and the funds and distributes dividends and distributions
payable by the funds. For these services, Citi Fiduciary receives a monthly
fee computed on the basis of the number of shareholder accounts it maintains
for a fund during the month and is reimbursed for out-of-pocket expenses.
PFPC Global Fund Services ("PFPC"), acts as sub-transfer agent pursuant to
an agreement with Citi Fiduciary. Under the sub-transfer agency agreement, the
sub-transfer agent maintains the shareholder account records for the funds,
handles certain communications between shareholders and the funds, and
distributes dividends and distributions payable by the funds. For these
services, the sub-transfer agent receives a monthly fee computed on the basis
of the number of shareholder accounts it maintains for the funds during the
month, and is reimbursed for out-of-pocket expenses.
The principal place of business of Citi Fiduciary is 388 Greenwich Street,
New York, New York 10013. The principal place of business of PFPC is P.O. Box
9699, Providence, Rhode Island 02940-9699.
CUSTODIAN
The trust also has entered into a Custodian Agreement and a Fund
Accounting Agreement with State Street Bank and Trust Company ("State
Street"), pursuant to which custodial and fund accounting services,
respectively, are provided for each fund. Among other things, State Street
calculates the daily net asset value for the funds. Securities may be held by
a sub-custodian bank approved by the trustees.
The principal business address of State Street is 225 Franklin Street,
Boston, Massachusetts 02110.
AUDITORS
[PricewaterhouseCoopers LLP] are the independent accountants for the
trust, providing audit services and assistance and consultation with respect
to the preparation of filings with the SEC. The address of
[PricewaterhouseCoopers LLP is 160 Federal Street, Boston, Massachusetts
02110.]
COUNSEL
Bingham Dana LLP, 150 Federal Street, Boston, MA 02110, acts as counsel
for the funds.
9. PORTFOLIO TRANSACTIONS
The manager trades securities for a fund if it believes that a transaction
net of costs (including custodian charges) will help achieve the fund's
investment objective. Changes in the fund's investments are made without
regard to the length of time a security has been held, or whether a sale would
result in the recognition of a profit or loss. Therefore, the rate of turnover
is not a limiting factor when changes are appropriate. Specific decisions to
purchase or sell securities for each fund are made by a portfolio manager who
is an employee of the manager and who is appointed and supervised by its
senior officers. The portfolio manager may serve other clients of the manager
in a similar capacity.
In connection with the selection of brokers or dealers and the placing of
portfolio securities transactions, brokers or dealers may be selected who also
provide brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) to a fund and/or the other
accounts over which the manager or its affiliates exercise investment
discretion. The manager is authorized to pay a broker or dealer who provides
such brokerage and research services a commission for executing a portfolio
transaction for a fund which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if the
manager determines in good faith that such amount of commission is reasonable
in relation to the value of the brokerage and research services provided by
such broker or dealer. This determination may be viewed in terms of either
that particular transaction or the overall responsibilities which the manager
or its affiliates have with respect to accounts over which they exercise
investment discretion. The trustees of the trust periodically review the
commissions paid by a fund to determine if the commissions paid over
representative periods of time were reasonable in relation to the benefits to
a fund.
The management fees that a fund pays to the manager will not be reduced as
a consequence of the manager's receipt of brokerage and research services.
While such services are not expected to reduce the expenses of the manager,
the manager would, through the use of the services, avoid the additional
expenses which would be incurred if it should attempt to develop comparable
information through its own staff or obtain such services independently.
In certain instances there may be securities that are suitable as an
investment for a fund as well as for one or more of the manager's other
clients. Investment decisions for a fund and other clients are made with a
view to achieving their respective investment objectives. It may develop that
a particular security is bought or sold for only one client even though it
might be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling the same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives
of more than one client. When two or more clients are simultaneously engaged
in the purchase or sale of the same security, the securities are allocated
among clients in a manner believed to be equitable to each. It is recognized
that in some cases this system could adversely affect the price of or the size
of the position obtainable in a security for a fund. When purchases or sales
of the same security for a fund and for other portfolios managed by the
manager occur contemporaneously, the purchase or sale orders may be aggregated
in order to obtain any price advantages available to large volume purchases or
sales.
Because the funds are newly offered, they have not paid brokerage
commissions as of the date of this Statement of Additional Information.
10. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The trust's Declaration of Trust permits the trustees to issue an
unlimited number of full and fractional shares of beneficial interest (without
par value) of each series and to divide or combine the shares of any series
into a greater or lesser number of shares of that series without thereby
changing the proportionate beneficial interests in that series and to divide
such series into classes. The trust has reserved the right to create and issue
additional series and classes of shares. Each share of each class represents
an equal proportionate interest in the fund with each other share of that
class. Shares of each series of the trust participate equally in the earnings,
dividends and distribution of net assets of the particular series upon
liquidation or dissolution (except for any differences between classes of
shares of a series). Shares of each series are entitled to vote separately to
approve advisory agreements or changes in investment policy, and shares of a
class are entitled to vote separately to approve any distribution or service
agreements relating to that class, but shares of all series may vote together
in the election or selection of trustees and accountants for the trust. In
matters affecting only a particular series or class, only shares of that
particular series or class are entitled to vote.
Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the trust do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the trust may elect all of the trustees of the trust if
they choose to do so and in such event the other shareholders in the trust
would not be able to elect any trustee. The trust is not required and has no
present intention of holding, annual meetings of shareholders but the trust
will hold special meetings of a fund's shareholders when in the judgment of
the trust's trustees it is necessary or desirable to submit matters for a
shareholder vote. Shareholders have, under certain circumstances (e.g., upon
the application and submission of certain specified documents to the trustees
by a specified number of shareholders), the right to communicate with other
shareholders in connection with requesting a meeting of shareholders for the
purpose of removing one or more trustees. Shareholders also have under certain
circumstances the right to remove one or more trustees without a meeting by a
declaration in writing by a specified number of shareholders. No material
amendment may be made to the trust's Declaration of Trust without the
affirmative vote of the holders of a majority of the outstanding shares of
each series affected by the amendment. (See "Investment Restrictions.")
At any meeting of shareholders of any fund, a service agent may vote any
shares of which it is the holder of record and for which it does not receive
voting instructions proportionately in accordance with the instructions it
receives for all other shares of which that service agent is the holder of
record.
The trust may enter into a merger or consolidation, or sell all or
substantially all of its assets (or all or substantially all of the assets
belonging to any series of the trust), if approved by a vote of the holders of
two-thirds of the trust's outstanding shares, voting as a single class, or of
the affected series of the trust, as the case may be, except that if the
trustees of the trust recommend such sale of assets, merger or consolidation,
the approval by vote of the holders of a majority of the trust's or the
affected series' outstanding shares would be sufficient. The trust or any
series of the trust, as the case may be, may be terminated (i) by a vote of a
majority of the outstanding voting securities of the trust or the affected
series or (ii) by the trustees by written notice to the shareholders of the
trust or the affected series. If not so terminated, the trust will continue
indefinitely.
The fund's transfer agent maintains a share register for shareholders of
record. The funds do not issue share certificates unless a written request
signed by all registered owners is made to the sub-transfer agent.
The trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business
trust may, under certain circumstances, be held personally liable as partners
for its obligations and liabilities. However, the Declaration of Trust of the
trust contains an express disclaimer of shareholder liability for acts or
obligations of the trust and provides for indemnification and reimbursement of
expenses out of trust property for any shareholder held personally liable for
the obligations of the trust. The Declaration of Trust also provides that the
trust may maintain appropriate insurance (e.g., fidelity bonding and errors
and omissions insurance) for the protection of the trust, its shareholders,
trustees, officers, employees and agents covering possible tort and other
liabilities. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the trust itself was unable to meet its
obligations.
The trust's Declaration of Trust further provides that obligations of the
trust are not binding upon the trustees individually but only upon the
property of the trust and that the trustees will not be liable for any action
or failure to act, but nothing in the Declaration of Trust protects a trustee
against any liability to which he or she would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her office.
11. TAX MATTERS
TAXATION OF THE FUNDS
FEDERAL TAXES. Each fund has elected to be treated, and intends to qualify
each year, as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), by meeting all
applicable requirements of Subchapter M, including requirements as to the
nature of the fund's gross income, the amount of fund distributions, and the
composition of the fund's portfolio assets. Provided all such requirements are
met, no U.S. federal or excise taxes generally will be required to be paid by
a fund. If any fund should fail to qualify as a "regulated investment company"
for any year, the fund would incur a regular corporate federal income tax upon
its taxable income and fund distributions would generally be taxable as
ordinary income to shareholders. The trust believes its funds will not be
required to pay any U.S. federal income or excise taxes on their income.
FOREIGN TAXES. Investment income and gains received by a fund from non-
U.S. securities may be subject to non-U.S. taxes. The U.S. has entered into
tax treaties with many other countries that may entitle a fund to a reduced
rate of tax or an exemption from tax on such income. Each fund intends to
qualify for treaty reduced rates where applicable. It is not possible,
however, to determine a fund's effective rate of non-U.S. tax in advance since
the amount of the fund's assets to be invested within various countries is not
known.
If a fund holds more than 50% of its assets in foreign stock and
securities at the close of its taxable year, the fund may elect to "pass
through" to the fund's shareholders foreign income taxes paid. If a fund so
elects, shareholders will be required to treat their pro rata portion of the
foreign income taxes paid by the fund as part of the amounts distributed to
them by the fund and thus includable in their gross income for federal income
tax purposes. Shareholders who itemize deductions would then be allowed to
claim a deduction or credit (but not both) on their federal income tax returns
for such amounts, subject to certain limitations. Shareholders who do not
itemize deductions would (subject to such limitations) be able to claim a
credit but not a deduction. No deduction for such amounts will be permitted to
individuals in computing their alternative minimum tax liability. If a fund
does not qualify or elect to "pass through" to its shareholders foreign income
taxes paid by it, shareholders will not be able to claim any deduction or
credit for any part of the foreign taxes paid by the fund.
TAXATION OF SHAREHOLDERS
TAXATION OF DISTRIBUTIONS. Shareholders of a fund will generally have to
pay federal income taxes and any state or local taxes on the dividends and
capital gain distributions they receive from the fund. Dividends from ordinary
income and any distributions from net short-term capital gains are taxable to
shareholders as ordinary income for federal income tax purposes, whether the
distributions are made in cash or in additional shares. Distributions of net
capital gains (i.e., the excess of net long-term capital gains over net short-
term capital losses), whether made in cash or in additional shares, are
taxable to shareholders as long-term capital gains without regard to the
length of time the shareholders have held their shares. Any fund dividend that
is declared in October, November, or December of any calendar year, that is
payable to shareholders of record in such a month, and that is paid the
following January, will be treated as if received by the shareholders on
December 31 of the year in which the dividend is declared.
Any fund distribution will have the effect of reducing the per share net
asset value of shares in the fund by the amount of the distribution.
Shareholders purchasing shares shortly before the record date of any
distribution may thus pay the full price for the shares and then effectively
receive a portion of the purchase price back as a taxable distribution.
DIVIDENDS-RECEIVED DEDUCTION. The portion of each fund's ordinary income
dividends attributable to dividends received in respect to equity securities
of U.S. issuers is normally eligible for the dividends received deduction for
corporations subject to U.S. federal income taxes. Availability of the
deduction for particular shareholders is subject to certain limitations, and
deducted amounts may be subject to the alternative minimum tax and result in
certain basis adjustments.
WITHHOLDING TAX PAYMENTS FOR NON-U.S. PERSONS. Each fund will withhold tax
payments at a rate of 30% (or any lower applicable tax treaty rate) on taxable
dividends and other payments subject to withholding taxes that are made to
persons who are not citizens or residents of the U.S. Distributions received
from a fund by non-U.S. persons also may be subject to tax under the laws of
their own jurisdiction.
BACKUP WITHHOLDING. The account application asks each new shareholder to
certify that the shareholder's Social Security or taxpayer identification
number is correct and that the shareholder is not subject to 31% backup
withholding for failing to report income to the IRS. Each fund may be required
to withhold (and pay over to the IRS for the shareholder's credit) tax at the
rate of 31% on certain distributions and redemption proceeds paid to
shareholders who fail to provide this information or who otherwise violate IRS
regulations.
DISPOSITION OF SHARES. In general, any gain or loss realized upon a
taxable disposition of shares of a fund by a shareholder that holds such
shares as a capital asset will be treated as a long-term capital gain or loss
if the shares have been held for more than twelve months and otherwise as a
short-term capital gain or loss. However, any loss realized upon a disposition
of shares in a fund held for six months or less will be treated as a long-term
capital loss to the extent of any distributions of net capital gain made with
respect to those shares. Any loss realized upon a disposition of shares may
also be disallowed under rules relating to wash sales. Gain may be increased
(or loss reduced) upon a redemption of Class A fund shares held for 90 days or
less followed by any purchase of shares of a fund or another of the Smith
Barney mutual funds, including purchases by exchange or by reinvestment,
without payment of a sales charge which would otherwise apply because of any
sales charge paid on the original purchase of the Class A fund shares.
EFFECTS OF CERTAIN INVESTMENTS AND TRANSACTIONS
CERTAIN DEBT INVESTMENTS. Any investment by a fund in zero coupon bonds,
deferred interest bonds, payment-in-kind bonds, certain stripped securities,
and certain securities purchased at a market discount will cause the fund to
recognize income prior to the receipt of cash payments with respect to those
securities. In order to distribute this income and avoid a tax on the fund, a
fund may be required to liquidate portfolio securities that it might otherwise
have continued to hold, potentially resulting in additional taxable gain or
loss to the fund. An investment by a fund in residual interests of a CMO that
has elected to be treated as a real estate mortgage investment conduit, or
"REMIC," can create complex tax problems, especially if the fund has state or
local governments or other tax-exempt organizations as shareholders.
OPTIONS, ETC. Each fund's transactions in options, futures contracts and
forward contracts will be subject to special tax rules that may affect the
amount, timing and character of fund income and distributions to shareholders.
For example, certain positions held by each fund on the last business day of
each taxable year will be marked to market (i.e., treated as if closed out) on
that day, and any gain or loss associated with the positions will be treated
as 60% long-term and 40% short-term capital gain or loss. Certain positions
held by a fund that substantially diminish its risk of loss with respect to
other positions in its portfolio may constitute "straddles," and may be
subject to special tax rules that would cause deferral of fund losses,
adjustments in the holding periods of fund securities, and conversion of
short-term into long-term capital losses. Certain tax elections exist for
straddles that may alter the effects of these rules. Each fund will limit its
activities in options, futures contracts and forward contracts to the extent
necessary to meet the requirements of Subchapter M of the Code.
FOREIGN INVESTMENTS. The funds may make non-U.S. investments. Special tax
considerations apply with respect to such investments. Foreign exchange gains
and losses realized by a fund will generally be treated as ordinary income and
loss. Use of non-U.S. currencies for non-hedging purposes and investment by a
fund in certain "passive foreign investment companies" may have to be limited
in order to avoid a tax on a fund. A fund may elect to mark to market any
investments in "passive foreign investment companies" on the last day of each
taxable year. This election may cause the fund to recognize ordinary income
prior to the receipt of cash payments with respect to those investments; in
order to distribute this income and avoid a tax on the fund, the fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold potentially resulting in additional taxable gain or loss to
the fund.
12. FINANCIAL STATEMENTS
The funds are newly-offered and have not issued financial statements as of
the date of this Statement of Additional Information.
<PAGE>
SMITH BARNEY RESEARCH FUND
SMITH BARNEY GLOBAL RESEARCH FUND
INVESTMENT MANAGER
SSB Citi Fund Management LLC
388 Greenwich Street, New York, NY 10013
DISTRIBUTORS
Salomon Smith Barney Inc.
388 Greenwich Street, New York, NY 10013
PFS Distributors, Inc.
3120 Breckinridge Blvd.
Duluth, Georgia 30099
TRANSFER AGENT
Citi Fiduciary Trust Company
388 Greenwich Street, New York, NY 10013
SUB-TRANSFER AGENT
PFPC Global Fund Services
P.O. Box 9699, Providence, RI 02940-9699
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
AUDITORS
[PricewaterhouseCoopers LLP
160 Federal Street, Boston, MA 02110]
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
<PAGE>
PART C
Item 23. Exhibits.
* a(1) Amended and Restated Declaration of Trust of the
Registrant
******, a(2) Amendments to Amended and Restated Declaration of Trust
**********
and herewith
********** a(3) Form of Amended and Restated Designation of Classes of
the Registrant
a(4) Form of Amended and Restated Establishment and
Designation of Series of the Registrant
**** b(1) Amended and Restated By-Laws of the Registrant
**** b(2) Amendments to Amended and Restated By-Laws of the
Registrant
*** d(1) Management Agreement between the Registrant and
Citibank, N.A., as manager to Smith Barney Small Cap
Growth Opportunities Fund
****** d(2) Management Agreement between the Registrant and
Citibank, N.A., as manager to CitiFunds Small Cap Value
Portfolio
*** d(3) Management Agreement between the Registrant and
Citibank, N.A., as manager to Smith Barney Diversified
Large Cap Growth Fund
****** d(4) Management Agreement between the Registrant and
Citibank, N.A., as manager to CitiFunds Growth & Income
Portfolio
d(5) Form of Management Agreement between the Registrant and
SSB Citi Fund Management LLC, as manager to the Smith
Barney Research Fund and Smith Barney Global Research
Fund.
******* e(1) Amended and Restated Distribution Agreement between the
Registrant and CFBDS, Inc. ("CFBDS"), as distributor
with respect to Class A shares of CitiFunds Small Cap
Value Portfolio and CitiFunds Growth & Income Portfolio
******* e(2) Distribution Agreement between the Registrant and
CFBDS, as distributor with respect to Class B shares of
CitiFunds Small Cap Value Portfolio and CitiFunds Growth
& Income Portfolio
*********** e(3) Distribution Agreement between the Registrant and
and herewith Salomon Smith Barney Inc., as distributor with respect
to Class A, Class B, Class L and Class Y shares of Smith
Barney Small Cap Growth Opportunities Fund, Smith
Barney Diversified Large Cap Growth Fund, Smith Barney
Research Fund and Smith Barney Global Research Fund
** g(1) Custodian Contract between the Registrant and State
Street Bank and Trust Company ("State Street"), as
custodian
g(2) Form of Letter Agreement adding Smith Barney Research
Fund and Smith Barney Global Research Fund to the
Custodian Contract between the Registrant and State
Street
******** h(1) Services Agreement between Citibank, N.A. and CFBDS
**** h(2) Transfer Agency and Services Agreement between the
Registrant with respect to its series CitiFunds Small
Cap Value Portfolio and CitiFunds Growth & Income
Portfolio and State Street, as transfer agent
****** h(3) Letter Agreement adding CitiFunds Small Cap Value
Portfolio and CitiFunds Growth & Income Portfolio to the
Transfer Agency and Service Agreement between the
Registrant and State Street
** h(4) Accounting Services Agreement between the Registrant
and State Street, as fund accounting agent
***** h(5) Letter Agreement adding CitiFunds Small Cap Value
Portfolio and CitiFunds Growth & Income Portfolio to the
Accounting Services Agreement between the Registrant and
State Street
h(6) Form of Letter Agreement adding Smith Barney Research
Fund and Smith Barney Global Research Fund to the
Transfer Agency and Services Agreement between the
Registrant and Citi Fiduciary Trust Company, as transfer
agent
********** h(7) Sub-Transfer Agency and Services Agreement between the
Registrant and PFPC Global Fund Services with respect to
its Series Smith Barney Small Cap Growth Opportunities
Fund and Smith Barney Research Large Cap Growth Fund
h(8) Form of Letter Agreement adding Smith Barney Research
Fund and Smith Barney Global Research Fund to the
Sub-Transfer Agency and Services Agreement between the
Registrant and PFPC Global Fund Services
***** i Opinion and consent of counsel
*********** m(1) Amended and Restated Service Plan of the Registrant
for Class A shares of the series of the Registrant
*********** m(2) Service Plan of the Registrant for Class B shares of
Series of the Registrant
*********** m(3) Service Plan of the Registrant for Class L shares of
Smith Barney Small Cap Growth Opportunities Fund and
Smith Barney Diversified Large Cap Growth Fund
******* o Multiple Class Plan of the Registrant
****, ******** p(1) Powers of Attorney for the Registrant
and ***********
*****, ******** p(2) Powers of Attorney for Asset Allocation Portfolios
********* p(3) Powers of Attorney for The Premium Portfolios
and ***********
********** q(1) Code of Ethics of Registrant and the Manager
********** q(2) Code of Ethics of CFBDS
*********** q(3) Code of Ethics of Salomon Smith Barney Inc.
---------------------
* Incorporated herein by reference to Post-Effective Amendment No. 17
to the Registrant's Registration Statement on Form N-1A (File No.
2-90519) as filed with the Securities and Exchange Commission on
February 28, 1997.
** Incorporated herein by reference to Post-Effective Amendment No. 19
to the Registrant's Registration Statement on Form N-1A (File No.
2-90519) as filed with the Securities and Exchange Commission on
October 24, 1997.
*** Incorporated herein by reference to Post-Effective Amendment No. 20
to the Registrant's Registration Statement on Form N-1A (File No.
2-90519) as filed with the Securities and Exchange Commission on
November 3, 1997.
**** Incorporated herein by reference to Post-Effective Amendment No. 24
to the Registrant's Registration Statement on Form N-1A (File No.
2-90519) as filed with the Securities and Exchange Commission on
June 29, 1998.
***** Incorporated herein by reference to Post-Effective Amendment No. 27
to the Registrant's Registration Statement on Form N-1A (File No.
2-90519) as filed with the Securities and Exchange Commission on
December 16, 1998.
****** Incorporated herein by reference to Post-Effective Amendment No. 28
to the Registrant's Registration Statement on Form N-1A (File No.
2-90519) as filed with the Securities and Exchange Commission on
December 21, 1998.
******* Incorporated herein by reference to Post-Effective Amendment No. 29
to the Registrant's Registration Statement on Form N-1A (File No.
2-90519) as filed with the Securities and Exchange Commission on
March 1, 1999.
******** Incorporated herein by reference to Post-Effective Amendment No. 30
to the Registrant's Registration Statement on Form N-1A (File No.
2-90519) as filed with the Securities and Exchange Commission on
December 29, 1999.
********* Incorporated herein by reference to Post-Effective Amendment No. 31
to the Registrant's Registration Statement on Form N-1A (File No.
2-90519) as filed with the Securities and Exchange Commission on
February 28, 2000.
********** Incorporated herein by reference to Post-Effective Amendment No. 32
to the Registrant's Registration Statement on Form N-1A (File No.
2-90519) as filed with the Securities and Exchange Commission on
June 16, 2000.
*********** Incorporated herein by reference to Post-Effective Amendment No. 34
to the Registrant's Registration Statement on Form N-1A (File No.
2-90519) as filed with the Securities and Exchange Commission on
December 29, 2000.
Item 24. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 25. Indemnification.
Reference is hereby made to (a) Article V of the Registrant's
Declaration of Trust, filed as an Exhibit to Post-Effective Amendment No. 17 to
its Registration Statement on Form N-1A; (b) Section 6 of the Distribution
Agreements between the Registrant and CFBDS, filed as Exhibits to Post-Effective
Amendment No. 29 to its Registration Statement on Form N-1A; (c) Section 6 of
the Distribution Agreements between the Registrant and Salomon Smith Barney
Inc., filed as Exhibits to this Post-Effective Amendment No. 34 to its
Registration Statement on Form N-1A; and (d) undertaking of the Registrant
regarding indemnification set forth in its Registration Statement on Form N-1A.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
Item 26. Business and Other Connections of Investment Adviser.
Citibank, N.A. ("Citibank") is a commercial bank offering a wide range
of banking and investment services to customers across the United States and
around the world. Citibank is a wholly-owned subsidiary of Citicorp, which is,
in turn, a wholly-owned subsidiary of Citigroup Inc. Citibank also serves as
investment adviser to the following registered investment companies (or series
thereof): Asset Allocation Portfolios (Large Cap Value Portfolio, Small Cap
Value Portfolio, International Portfolio, Foreign Bond Portfolio), The Premium
Portfolios (U.S. Fixed Income Portfolio, Balanced Portfolio, Large Cap Growth
Portfolio, International Equity Portfolio, Government Income Portfolio, Small
Cap Growth Portfolio and High Yield Portfolio), Tax Free Reserves Portfolio,
U.S. Treasury Reserves Portfolio, Cash Reserves Portfolio, CitiFunds(SM) Tax
Free Income Trust (CitiFunds(SM) New York Tax Free Income Portfolio, Citi(SM)
National Tax Free Income Portfolio and Citi(SM) California Tax Free Income
Portfolio), CitiFunds(SM) Multi-State Tax Free Trust (Citi(SM) California Tax
Free Reserves, Citi(SM) New York Tax Free Reserves and CitiFunds(SM) Connecticut
Tax Free Reserves), CitiFunds(SM) Institutional Trust (CitiFunds(SM)
Institutional Cash Reserves) and Variable Annuity Portfolios (CitiSelect(R) VIP
Folio 200 Conservative, CitiSelect(R) VIP Folio 300 Balanced, CitiSelect(R) VIP
Folio 400 Growth, CitiSelect(R) VIP Folio 500 Growth Plus and CitiFunds(SM)
Small Cap Growth VIP Portfolio). Citibank and its affiliates manage assets in
excess of $351 billion worldwide. The principal place of business of Citibank is
located at 399 Park Avenue, New York, New York 10043.
Victor J. Menezes is the Chairman and a Director of Citibank. William
R. Rhodes and H. Onno Ruding are Vice Chairmen and Directors of Citibank. The
other Directors of Citibank are Paul J. Collins, Vice Chairman of Citigroup Inc.
and Robert I. Lipp, Chairman and Chief Executive Officer of The Travelers
Insurance Group Inc. and of Travelers Property Casualty Corp.
The following persons have the affiliations indicated:
Paul J. Collins Director, Kimberly-Clark Corporation
Director, Nokia Corporation
Robert I. Lipp Chairman, Chief Executive Officer and President, Travelers
Property Casualty Corp.
William R. Rhodes Director, Private Export Funding Corporation
Director, Conoco, Inc.
H. Onno Ruding Supervisory Director, Amsterdamsch Trustees Cantoor B.V.
Director, Pechiney S.A.
Advisory Director, Unilever NV and Unilever PLC
Director, Corning Incorporated
Manager - SSB Citi Fund Management LLC (successor to SSBC Fund
Management Inc.) ("SSB Citi") (formerly known as Mutual Management Corp.)
SSB Citi was incorporated in December 1968 under the laws of the State
of Delaware and converted to a Delaware limited liability company in 1999. SSB
Citi is a wholly owned subsidiary of Salomon Smith Barney Holdings Inc.,
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 "1940 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 SSB Citi pursuant to the Investment Advisers Act of 1940 Act
(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: Smith Barney International Large Cap Fund, Smith Barney Investment
Series, Consulting Group Capital Markets Funds, 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
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 Funds
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 Core 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.
In addition, Salomon Smith Barney is also the distributor for the
Centurion Funds, Inc. and the following CitiFunds funds: Citi(SM) FORTUNE 500
Index Fund, Citi(SM) FORTUNE e-50 Index Fund, Citi(SM) Nasdaq-100 Index Fund,
Citi(SM) Small Cap Index Fund, Citi(SM) U.S. 1000 Fund, Citi(SM) Technology
Index Fund, Citi(SM) U.S. Bond Index Fund, Citi(SM) Global Titans Index Fund,
Citi(SM) Financial Services Index Fund, and Citi(SM) Health Sciences Index Fund.
(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.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
NAME ADDRESS
Salomon Smith Barney, Inc. 388 Greenwich Street
(distributor) New York, NY 10013
PFS Distributors, Inc. 3120 Breckinridge Blvd.
(distributor) Duluth, GA 30099
State Street Bank and Trust Company 1776 Heritage Drive
(transfer agent, custodian and fund North Quincy, MA 02171
accounting agent)
Citibank, N.A. 153 East 53rd Street
(manager) New York, NY 10043
SSB Citi Fund Management LLC 388 Greenwich Street
(manager) New York, NY 10013
Item 29. Management Services.
Not applicable.
Item 30. Undertakings.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and State of New York
on the 29th day of December, 2000.
CITIFUNDS TRUST II,
on behalf of Smith Barney Research
Fund and Smith Barney Global
Research Fund
By: Thomas C. Mandia
----------------------------
Thomas C. Mandia
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities indicated below on December 29, 2000.
Signature Title
--------- -----
Irving David* Controller
----------------------
Irving David
Riley C. Gilley* Trustee
----------------------
Riley C. Gilley
Diana R. Harrington* Trustee
----------------------
Diana R. Harrington
Susan B. Kerley* Trustee
----------------------
Susan B. Kerley
Heath B. McLendon* President, Trustee
----------------------
Heath B. McLendon
C. Oscar Morong, Jr.* Trustee
----------------------
C. Oscar Morong, Jr.
E. Kirby Warren* Trustee
----------------------
E. Kirby Warren
*By: Thomas C. Mandia
----------------------------
Thomas C. Mandia
Executed by Thomas C. Mandia
on behalf of those indicated
pursuant to Powers of Attorney.
<PAGE>
EXHIBIT INDEX
a(3) Form of Amended and Restated Designation of Classes of the Registrant
a(4) Form of Amended and Restated Establishment and Designation of Series
of the Registrant
d(5) Form of Management Agreement between the Registrant and SSB Citi Fund
Management LLC, as manager to the Smith Barney Research Fund and Smith
Barney Global Research Fund
e(3) Distribution Agreement between the Registrant and Salomon Smith Barney
Inc., as distributor with respect to the Class A, Class B, Class L and
Class Y shares of the Smith Barney Small Cap Growth Opportunities
Funds, Smith Barney Diversified Large Cap Growth Fund, Smith Barney
Research Fund and Smith Barney Global Research Fund
g(2) Form of Letter Agreement adding Smith Barney Research Fund and Smith
Barney Global Research Fund to the Custodian Contract between the
Registrant and State Street, as custodian
h(6) Form of Letter Agreement adding Smith Barney Research Fund and Smith
Barney Global Research Fund to the Transfer Agency and Services
Agreement between the Registrant and Citi Fiduciary Trust Company
h(8) Form of Letter Agreement adding Smith Barney Research Fund and Smith
Barney Global Research Fund to the Sub-Transfer Agency and Services
Agreement between the Registrant and PFPC Global Fund Services
