As filed with the Securities and Exchange Commission on July 19, 2000.
File Nos. 333-____
811-4254
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
SMITH BARNEY INCOME FUNDS
(Exact Name of Registrant as Specified in Charter)
388 Greenwich Street
New York, NY 10013
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, Including Area Code: 800-451-2010
HEATH B. McLENDON
SSB CITI FUND MANAGEMENT LLC
388 GREENWICH STREET
NEW YORK, NEW YORK 10013
(Name and Address of Agent for Service)
WITH COPIES TO
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Robert I. Frenkel, Esq. Christina T. Sydor, Esq. Roger P. Joseph,Esq. Burton M. Leibert,Esq.
SSB Citi Fund SSB Citi Fund Bingham Dana LLP Willkie Farr &
Management LLC Management LLC 150 Federal Street Gallagher
388 Greenwich Street 388 Greenwich Street Boston, MA 02110 787 Seventh Avenue
New York, NY 10013 New York, NY 10013 New York, NY 10019
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: as soon as practicable after the
Registration Statement becomes effective under the Securities Act of 1933
Title of Securities Being Registered:
Shares of Beneficial Interest ($0.001 par value) of the Registrant
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The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Section 24(f) under the Investment Company
Act of 1940; accordingly, no fee is payable herewith because of reliance upon
Section 24(f).
The Registrant shall file an amendment which specifically states that this
filing shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or the filing shall become effective on such date
as the Commission, acting pursuant to Section 8(a), may determine.
<PAGE>
CITISELECT FOLIO 200 CONSERVATIVE
CITISELECT FOLIO 300 BALANCED
21 Milk Street, 5th Floor, Boston, Massachusetts 02109
August 16, 2000
Dear Shareholders:
You are being asked to vote on an Agreement and Plan of Reorganization
whereby substantially all of the assets of CitiSelect Folio 200 Conservative
and CitiSelect Folio 300 Balanced (each, a "CitiSelect Portfolio" and together,
the "CitiSelect Portfolios"), each a series of CitiFunds Trust I, will be
transferred in tax-free reorganizations to Smith Barney Balanced Fund (the
"Smith Barney Fund"), a series of Smith Barney Income Funds, in exchange for
shares of the corresponding class of the Smith Barney Fund.
If the Agreement and Plan of Reorganization is approved and consummated,
you will no longer be a shareholder of your CitiSelect Portfolio; you will
become a shareholder of the Smith Barney Fund. You will receive shares of the
corresponding class of the Smith Barney Fund with an aggregate net asset value
equal to the aggregate net asset value of your shares in the CitiSelect
Portfolio.
The Smith Barney Fund is advised by SSB Citi Fund Management LLC ("SSB
Citi"). SSB Citi, like Citibank, N.A. ("Citibank"), the adviser of the
CitiSelect Portfolios, is a subsidiary of Citigroup Inc. Citigroup has proposed
the reorganization of each CitiSelect Portfolio into the Smith Barney Fund in
order to eliminate duplication in the mutual fund investment advisory
operations of SSB Citi and Citibank.
After carefully studying the merits of the proposal, the Board of Trustees
of the CitiFunds Trust I has determined that the reorganization of each
CitiSelect Portfolio with the Smith Barney Fund will benefit the shareholders
of that CitiSelect Portfolio.
The Smith Barney Fund will offer CitiSelect shareholders a mutual fund
with investment objectives and policies that are similar to those of the
CitiSelect Portfolios. The Trustees of CitiFunds Trust I believe that combining
the assets of the CitiSelect Portfolios with the Smith Barney Fund could result
in more efficient mutual fund operations due to economies of scale without
substantially changing the investment profile of the CitiSelect Portfolios. As
a result of the reorganization, CitiSelect shareholders will be part of a
larger fund family offering a wide array of mutual funds, and will be able to
exchange their shares among most or all of those Smith Barney funds.
The Board of Trustees of CitiFunds Trust I believes that the proposal set
forth in the notice of meeting for your fund is important and recommends that
you read the enclosed materials carefully and then vote for the proposal.
PLEASE TAKE A MOMENT NOW TO SIGN AND RETURN YOUR PROXY CARD(S) IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. YOU MAY ALSO CAST YOUR VOTE VIA THE INTERNET OR BY
TELEPHONE AS DESCRIBED IN THE ENCLOSED PROXY VOTING MATERIALS. For more
<PAGE>
information, please contact your service agent or call 1-800-625-4554. If your
account is held with Citicorp Investment Services, please call 1-800-846-5200;
in New York City, you need to call 212-820-2380.
Respectfully,
Philip W. Coolidge
President
WE URGE YOU TO SIGN AND RETURN YOUR PROXY CARD(S) IN THE ENCLOSED
POSTAGE-PAID ENVELOPE, OR CAST YOUR VOTE VIA THE INTERNET OR BY TELEPHONE, TO
ENSURE A QUORUM AT THE MEETING. YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER
OF SHARES YOU OWN.
<PAGE>
CITISELECT FOLIO 200 CONSERVATIVE
CITISELECT FOLIO 300 BALANCED
21 Milk Street, 5th Floor
Boston, Massachusetts 02109
Telephone: (617) 423-1679
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Please take notice that a Special Meeting of Shareholders of CitiSelect
Folio 200 Conservative and CitiSelect Folio 300 Balanced (each, a "CitiSelect
Portfolio" and together, the "CitiSelect Portfolios"), each a series of
CitiFunds Trust I, will be held at the offices of SSB Citi Fund Management LLC,
7 World Trade Center, 4th Floor, Balcony Dining, New York, New York 10048, on
Monday, October 2, 2000 at 3:00 p.m., Eastern time, for the following purposes:
ITEM 1. To consider and act upon a proposal to approve an Agreement and
Plan of Reorganization which provides for and contemplates: (1)
the transfer of substantially all of the assets and liabilities
of each CitiSelect Portfolio to Smith Barney Balanced Fund (the
"Smith Barney Fund"), a series of Smith Barney Income Funds,
solely in exchange for voting shares of the corresponding class
of the Smith Barney Fund; (2) the distribution of the shares to
the shareholders of the CitiSelect Portfolios in liquidation of
each CitiSelect Portfolio; and (3) the termination of each
CitiSelect Portfolio.
ITEM 2. To transact such other business as may properly come before the
Special Meeting of Shareholders and any adjournments thereof.
Item 1 is described in the attached Proxy Statement/Prospectus. THE BOARD
OF TRUSTEES OF THE CITIFUNDS TRUST I RECOMMENDS THAT YOU VOTE IN FAVOR OF ITEM
1.
Only shareholders of record on August 11, 2000 will be entitled to vote at
the Special Meeting of Shareholders and at any adjournments thereof.
Robert I. Frenkel, Secretary
August 16, 2000
YOUR VOTE IS IMPORTANT. WE WOULD APPRECIATE YOUR PROMPTLY VOTING, SIGNING
AND RETURNING THE ENCLOSED PROXY, WHICH WILL HELP AVOID THE ADDITIONAL EXPENSE
OF A SECOND SOLICITATION. THE ENCLOSED ADDRESSED ENVELOPE REQUIRES NO POSTAGE
AND IS PROVIDED FOR YOUR CONVENIENCE. YOU ALSO MAY RETURN PROXIES BY TOUCHTONE
VOTING OVER THE TELEPHONE OR BY VOTING ON THE INTERNET.
<PAGE>
COMBINED PROXY STATEMENT/PROSPECTUS
August 16, 2000
Relating to the acquisition by
SMITH BARNEY BALANCED FUND, a series of
SMITH BARNEY INCOME FUNDS
388 Greenwich Street
New York, NY 10013
Telephone: (800) 451-2010
of the assets of
CITISELECT FOLIO 200 CONSERVATIVE and
CITISELECT FOLIO 300 BALANCED, each a series of
CITIFUNDS TRUST I
21 Milk Street, 5th Floor
Boston, Massachusetts 02109
Telephone: (617) 423-1679
This Proxy Statement/Prospectus is furnished to shareholders of CitiSelect
Folio 200 Conservative and CitiSelect Folio 300 Balanced (each, a "CitiSelect
Portfolio" and together, the "CitiSelect Portfolios"), each a series of
CitiFunds Trust I (the "CitiFunds Trust"), in connection with the solicitation
of proxies for a Special Meeting of Shareholders of the CitiSelect Portfolios
at which shareholders will be asked to consider and approve a proposed
Agreement and Plan of Reorganization (the "Plan") between CitiFunds Trust, with
respect to each CitiSelect Portfolio, and Smith Barney Income Funds, on behalf
of its series, Smith Barney Balanced Fund (the "Smith Barney Fund").
The Plan provides that substantially all of the assets and liabilities of
each CitiSelect Portfolio will be transferred to the Smith Barney Fund. In
exchange for the transfer of these assets and liabilities, each CitiSelect
Portfolio will receive voting shares of the corresponding class of the Smith
Barney Fund. Shares of the Smith Barney Fund so received will then be
distributed to the shareholders of the CitiSelect Portfolios in complete
liquidation of the CitiSelect Portfolios, and each CitiSelect Portfolio will be
terminated. As a result of these reorganization transactions, each shareholder
of each class of the CitiSelect Portfolios will receive that number of full and
fractional shares of the corresponding class of the Smith Barney Fund having an
aggregate net asset value equal to the aggregate net asset value of the
shareholder's shares of the CitiSelect Portfolio held on the closing date of
the reorganization transaction (the "Reorganization").
The CitiSelect Portfolios and Smith Barney Fund are each a series of
open-end management investment companies. The investment objectives and
policies of the Smith Barney Fund are similar to those of the CitiSelect
Portfolios except as set forth herein. The Smith Barney Fund is a "balanced"
mutual fund that pursues its investment objective by investing in a mix of
equity and fixed income securities. The CitiSelect Portfolios are asset
allocation funds that, like the Smith Barney Fund, pursue their investment
objectives by investing in a mix of equity and fixed income securities.
This Proxy Statement/Prospectus, which should be retained for future
reference, sets forth concisely the information about the Smith Barney Fund
that a prospective investor should know before investing. This Proxy
Statement/Prospectus is also accompanied by the Smith Barney Fund's annual
report to shareholders for the year ended July 31, 1999 and semi-annual report
<PAGE>
to shareholders for the six month period ended January 31, 2000, each of which
is incorporated herein by reference. For a more detailed discussion of the
investment objectives, policies, restrictions and risks of the Smith Barney
Fund, see the Prospectus for the Smith Barney Fund, dated November 28, 1999, as
supplemented from time to time, which is incorporated herein by reference.
Additional information is set forth in the Statement of Additional Information
of the Smith Barney Fund, dated November 28, 1999, which is incorporated herein
by reference. The Prospectus and Statement of Additional Information of the
Smith Barney Fund are on file with the Securities and Exchange Commission and
are available without charge upon request by writing or calling the Smith
Barney Fund at the address or telephone number indicated above.
Additional information is set forth in (a) the Statement of Additional
Information relating to this Proxy Statement/Prospectus, dated August 16, 2000,
(b) the Prospectus and Statement of Additional Information of the CitiSelect
Portfolios, dated March 1, 2000, and (c) the Annual Report for the fiscal year
ended October 31, 1999 and the Semi-Annual Report for the six-month period
ended April 30, 2000 relating to the CitiSelect Portfolios. Each of these
documents is incorporated herein by reference and is on file with the
Securities and Exchange Commission. You may obtain a copy of any of these
documents without charge upon request by writing or calling the CitiSelect
Portfolios at the address or telephone number indicated above.
This Proxy Statement/Prospectus is expected to be first sent to
shareholders on or about August 16, 2000.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROXY
STATEMENT/PROSPECTUS AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY
REFERENCE AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE CITISELECT PORTFOLIOS OR
THE SMITH BARNEY FUND.
<PAGE>
TABLE OF CONTENTS
SYNOPSIS................................................................
Proposed Transaction................................................
Comparison of Investment Objectives and Policies....................
Comparison of Investment Structure of the
CitiSelect Portfolios and Smith Barney Fund.....................
Investment Advisory Services and Management Fees....................
Overall Expenses....................................................
Distribution of Shares and Other Services...........................
Sales Charges, Purchase Policies,
Redemption and Exchange Information.............................
Dividends and Other Distributions...................................
Tax Consequences....................................................
Other Mergers.......................................................
PRINCIPAL INVESTMENTS, RISK FACTORS AND INVESTMENT RESTRICTIONS
Principal Investments and Risk Factors..............................
Fundamental Investment Restrictions.................................
THE PROPOSED TRANSACTION................................................
Description of the Plan.............................................
Reasons for the Proposed Transaction................................
Description of the Securities to be Issued..........................
Federal Income Tax Consequences.....................................
Liquidation and Termination of the CitiSelect Portfolios............
Portfolio Securities................................................
Portfolio Turnover..................................................
Pro Forma Capitalization............................................
Performance.........................................................
VOTING INFORMATION......................................................
General Information.................................................
Quorum; Vote Required to Approve Proposal...........................
Outstanding Shareholders............................................
ADDITIONAL INFORMATION ABOUT THE FUNDS..................................
OTHER MATTERS...........................................................
<PAGE>
SYNOPSIS
The following is a summary of certain information contained in this Proxy
Statement/Prospectus regarding the CitiSelect Portfolios and the Smith Barney
Fund (each, a "Fund," and collectively, the "Funds") and the proposed
Reorganization. This summary is qualified by reference to the more complete
information contained elsewhere in this Proxy Statement/Prospectus, the
Prospectus of the Smith Barney Fund, the Prospectus of the CitiSelect
Portfolios and the Plan, the form of which is attached to this Proxy
Statement/Prospectus as Exhibit A. Shareholders of the CitiSelect Portfolios
should read this entire Proxy Statement/Prospectus carefully.
Proposed Transaction
The Board of Trustees of the CitiFunds Trust, on behalf of the CitiSelect
Portfolios, including a majority of the Trustees who are not "interested
persons" of such Funds (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) (the "Non-Interested Trustees"), approved the Plan on
July 13, 2000. The Plan provides that substantially all of the assets and
liabilities of CitiSelect Folio 200 Conservative and CitiSelect Folio 300
Balanced will be transferred to the Smith Barney Fund. Each of the CitiSelect
Portfolios holds its assets through several underlying investment companies
(the "Underlying Portfolios"). As part of the Reorganization, and prior to
the transfer of assets to the Smith Barney Fund, each CitiSelect Portfolio will
receive a distribution in kind from the applicable Underlying Portfolio of the
investment securities held by the Underlying Portfolio on its behalf (and
associated liabilities), and those investment securities will be the assets
transferrred to the Smith Barney Fund. In exchange for the transfer of those
assets and liabilities, each CitiSelect Portfolio will receive voting shares
of the corresponding class of the Smith Barney Fund. Shares of the Smith Barney
Fund so received will then be distributed to the shareholders of the CitiSelect
Portfolios in complete liquidation of the CitiSelect Portfolios, and each
CitiSelect Portfolio will be terminated. As a result of the Reorganization,
each shareholder of each class of the CitiSelect Portfolios will receive that
number of full and fractional shares of the corresponding class of the Smith
Barney Fund having an aggregate net asset value equal to the aggregate net
asset value of the shareholder's shares of the CitiSelect Portfolios held as
of the close of business on the closing date of the Reorganization (the
"Closing Date"). The Closing Date is expected to be on or after October 6, 2000
or such later date as the parties may agree in writing.
For the reasons described below under "The Proposed Transaction - Reasons
for the Proposed Transaction," the Board of Trustees of the CitiFunds Trust, on
behalf of the CitiSelect Portfolios, including a majority of the NonInterested
Trustees, has concluded that the Reorganization is in the best interests of the
CitiSelect Portfolios and their shareholders and that the interests of the
existing shareholders of the CitiSelect Portfolios will not be diluted as a
result of the Reorganization.
Accordingly, the Trustees recommend approval of the Plan. If the Plan is
not approved, the CitiSelect Portfolios will continue in existence unless other
action is taken by the Trustees; such other action may include resubmission of
the Plan to shareholders, maintaining the status quo or termination and
liquidation of one or both CitiSelect Portfolios.
Comparison of Investment Objectives and Policies
Goals
The goal of CitiSelect Folio 200 Conservative is as high a total return
over time as is consistent with a primary emphasis on fixed income securities
and a secondary emphasis on equity securities. The goal of CitiSelect Folio 300
Balanced is as high a total return over time as is consistent with a balanced
emphasis on equity and fixed income securities.
The goal of the Smith Barney Fund is current income and long-term capital
appreciation.
<PAGE>
Investment Policies
Asset Allocation. Each CitiSelect Portfolio is a diversified asset
allocation fund that invests in a mix of equity and debt securities. Citibank,
N.A. ("Citibank"), the Funds' investment manager, allocates the assets of each
Fund to offer a specified level of return and a corresponding amount of risk.
Citibank generally allocates between 60% and 80% of the assets of CitiSelect
Folio 200 Conservative to fixed income securities and up to 40% of the Fund's
assets to equity securities. CitiSelect Folio 300 Balanced is designed to offer
the potential for higher returns and a corresponding larger amount of risk than
CitiSelect Folio 200 Conservative. Accordingly, Citibank generally allocates a
smaller portion of the assets of CitiSelect 300 Balanced to fixed income
investments, typically between 40% and 60%, and a larger portion of that Fund's
assets to equity investments, typically up to 60%. Cash flows into or out of
the Funds, or changes in market valuations, however, may produce different
results. Citibank monitors the Funds' asset mixes daily and conducts quarterly
reviews to determine whether to rebalance the Funds' investments.
Citibank may further allocate the Funds' equity securities among large cap
securities, small cap securities and international securities, and the Funds'
fixed income securities among U.S. and foreign government and corporate bonds
and between high yield (or junk) bonds and investment grade securities.
Citibank is not required to allocate the Fund's assets among all of these types
of equity and fixed income securities at all times.
The Smith Barney Fund also invests in a mix of equity and fixed income
securities. The Fund invests a minimum of 50% and a maximum of 70% of its total
assets in equity securities, and a minimum of 30% and a maximum of 50% of its
total assets in fixed income securities. Within these ranges, the Smith Barney
Fund normally invests approximately 60% of its assets in equity securities and
40% in fixed income securities. These percentages may vary based on the outlook
of SSB Citi Fund Management LLC, the Smith Barney Fund's investment manager
("SSB Citi"). The Smith Barney Fund invests in equity securities in a broad
range of companies, industries and sectors. Generally, the equity portion of
the Fund is comprised primarily of the stocks of mid-to-large capitalization
companies. However, the Fund may also invest in smaller-capitalization
companies if they otherwise meet the Fund's investment criteria.
Equity Securities. The CitiSelect Portfolios' equity securities may
include common stocks, preferred stocks, securities convertible into common
stocks and warrants. Citibank may allocate the Funds' equity securities among
large cap issuers, small cap issuers and international issuers. These further
allocations are intended to maximize returns while managing overall volatility.
The Smith Barney Fund invests primarily in common stocks, but it may also
invest in preferred stocks, warrants and securities convertible into common
stocks. The Smith Barney Fund's equity securities consist of a broad range of
companies, industries and sectors.
Debt Securities. Each Fund's fixed income securities may include bonds and
short-term notes issued by the U.S. government (or its agencies and
instrumentalities), corporate bonds and short-term notes, mortgage-backed
securities, asset-backed securities and repurchase agreements. Citibank may
allocate the CitiSelect Portfolios' fixed income securities among U.S. and
foreign government and corporate bonds and between high yield (or junk) bonds
and investment grade securities. These further allocations are intended to
maximize returns while managing overall volatility of the CitiSelect
Portfolios. The Smith Barney Fund may not invest more than 25% of its total
assets in junk bonds; similarly, neither CitiSelect Portfolio anticipates
investing more than 25% of its total assets in junk bonds. Junk bonds may
subject the Funds to higher risks, as discussed under "Principal Investments,
Risk Factors and Investment Restrictions" below.
<PAGE>
Neither the CitiSelect Portfolios nor the Smith Barney Fund are subject to
restrictions on the maturity of the individual securities in which the Funds
may invest. The Smith Barney Fund normally expects to maintain an average
portfolio maturity for the fixed income portion of its portfolio of between 5
and 15 years.
Derivative Securities. Each Fund may invest in derivative securities,
including options on securities and foreign currencies, stock index options,
forward currency contracts, interest rate and foreign currency futures
contracts, stock index futures contracts and options on futures contracts (see
"Principal Investments, Risk Factors and Investment Restrictions" below for
more information on the risks of derivatives). The CitiSelect Portfolios also
may invest in swap agreements, including interest rate and currency swaps,
equity swaps and other types of available swap agreements including caps,
collars and floors. The Smith Barney Fund may invest in certain types of
derivative securities only for hedging purposes, and may invest in derivatives
to generate income only in limited circumstances. The CitiSelect Portfolios may
invest in these same derivative securities for hedging and non-hedging
purposes, to enhance potential gains, to generate income, and also to manage
the maturity or duration of fixed income securities. Each of the Funds is
subject to certain limitations imposed by the Commodity Futures Trading
Commission with respect to their investments in derivatives.
Foreign Securities. Each Fund may invest without limit in foreign
securities. The CitiSelect Portfolios emphasize securities included in the MSCI
EAFE Index, which contains securities of companies located in Europe, Australia
and the Far East. These Funds also may invest in emerging market equity
securities. The Smith Barney Fund may not invest in securities issued by
issuers in developing countries (see "Principal Investments, Risk Factors and
Investment Restrictions" below for more information on the risks of foreign
securities).
Security Selection Process
Citibank allocates the CitiSelect Portfolios' investments among different
types of securities and investment styles so that the Funds may benefit from
investment cycles when securities with particular characteristics, or those
selected based on a particular investment style, outperform other securities in
the same asset class. To implement this strategy, Citibank employs multiple
subadvisers with expertise managing specific types of securities or managing in
a particular style.
Equity Securities. Citibank allocates the CitiSelect Portfolios' equity
investments among different investment styles. These styles include investing
in "growth" stocks (i.e., those issued by companies with seasoned management
teams, track records of above-average performance and strong earnings growth)
and investing in "value" stocks (i.e., those that appear undervalued or priced
below their true worth).
In selecting equity investments for the Smith Barney Fund, SSB Citi
attempts to identify securities with favorable valuations relative to their
growth characteristics. This strategy is commonly known as "growth at a
reasonable price". Because this strategy combines both growth and value
investing, it offers style diversification within a single mutual fund.
Fixed Income Securities. Citibank may diversify the fixed income
securities of the CitiSelect Portfolios among U.S. and non-U.S. investment
grade corporate debt obligations, securities issued by the U.S. government and
its agencies and instrumentalities, investment grade debt securities issued by
foreign governments, and U.S. and non-U.S. high yield debt securities. There is
no requirement that the CitiSelect Portfolios invest in each type of fixed
income security. The Funds may invest in securities with all maturities,
including longterm bonds (10+ years), intermediate notes (3 to 10 years) and
short-term notes (1 to 3 years).
<PAGE>
In selecting individual fixed income securities for the Smith Barney
Fund's portfolio, SSB Citi primarily focuses on the relative yields of
securities having various maturities. SSB Citi looks for favorable sector and
maturity weightings based on interest rate outlook, stable or improving credit
quality, and low price relative to credit and interest rate characteristics.
The Smith Barney Fund normally expects to maintain an average portfolio
maturity for the fixed income portion of its portfolio of between 5 and 15
years.
Comparison of Investment Structure of the CitiSelect Portfolios and the Smith
Barney Fund
Each CitiSelect Portfolio invests in securities indirectly by investing in
several underlying mutual funds or portfolios. Each portfolio invests in a
particular type of security, such as large cap value securities, large cap
growth securities, small cap growth securities, small cap value securities,
international equity securities, high yield debt securities, U.S. fixed income
securities and foreign bonds. Each portfolio is a mutual fund with its own
investment goals and policies. Each portfolio buys, holds and sells securities
in accordance with these goals and policies. Unless otherwise indicated,
references to the CitiSelect Portfolios include their underlying portfolios.
The Smith Barney Fund invests directly in securities. This difference in
investment structure is not expected to affect in any material way CitiSelect
shareholders who receive shares of the Smith Barney Fund in the Reorganization.
Investment Advisory Services and Management Fees
Citibank, a wholly-owned subsidiary of Citigroup Inc., serves as the
investment manager of the CitiSelect Portfolios. SSB Citi, also a wholly-owned
subsidiary of Citigroup Inc., serves as the investment manager of the Smith
Barney Fund and will continue to serve as the investment manager of the Smith
Barney Fund after the consummation of the Reorganization. Citigroup businesses
provide a broad range of financial services and 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.
Citibank, N.A. also serves as investment manager of each of the underlying
portfolios in which the CitiSelect Portfolios invest. In addition, Citibank
employs the following subadvisers to manage the following classes of
securities:
CLASS OF SECURITIES SUBADVISER
large cap value securities SSB Citi
(the manager of the Smith Barney Fund)
small cap value securities Franklin Advisory Services LLC
international equity securities Hotchkis and Wiley
high-yield debt securities Salomon Brothers Asset Management Inc.
(an affiliate of Citigroup Inc.)
foreign fixed income securities Salomon Brothers Asset Management Limited
(an affiliate of Citigroup Inc.)
Each CitiSelect Portfolio pays an aggregate management fee, which is
accrued daily and paid monthly, of 0.75% of that Fund's average daily net
assets on an annualized basis for the Fund's then-current fiscal year. These
aggregate management fees include fees payable to Citibank for the asset
<PAGE>
management and administrative services Citibank provides the CitiSelect
Portfolios and their underlying funds and fees payable to the subadvisers for
their advisory services to the underlying funds.
The management fee for the Smith Barney Fund is calculated at the annual
rate of 0.45% of that Fund's average daily net assets. The Smith Barney Fund
also pays to SSB Citi a fee for its administrative services in the amount of
0.20% of its average daily net assets. Thus, the Smith Barney Fund pays a
smaller percentage of its average daily net assets in advisory and management
fees than does either CitiSelect Portfolio. For a comparison of the total
annual operating expenses of the CitiSelect Portfolios and Smith Barney Fund
(which includes the expenses of the CitiSelect Portfolios' underlying funds)
please review the expense tables under "Overall Expenses" below.
Chad Graves is responsible for the day-to-day management of the equity
portion of the Smith Barney Fund's portfolio, and James Conroy and John Bianchi
are responsible for the day-to-day management of the fixed income portion.
Messrs. Graves, Conroy and Bianchi are investment officers of SSB Citi and vice
presidents of Salomon Smith Barney.
Overall Expenses
The total annual operating expenses as a percentage of average net assets
for Class A and Class B shares of the Smith Barney Fund, as determined for the
Fund's most recent fiscal year, were lower than the total annual operating
expenses of the Class A and Class B shares of each CitiSelect Portfolio for its
most recent fiscal year.
Further information about the expenses of each class of the CitiSelect
Portfolios and the Smith Barney Fund for the fiscal years ended October 31,
1999 and July 31, 1999, respectively, and pro forma expenses following the
proposed Reorganization is outlined in the table below. @
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SHAREHOLDER FEES
FEES PAID DIRECTLY FROM CITISELECT SMITH BARNEY PRO FORMA
YOUR INVESTMENT FOLIO 200 BALANCED SMITH BARNEY
CONSERVATIVE FUND BALANCED FUND
SHARE CLASS Class A Class B Class A Class B Class A Class B
Maximum Sales Charge (Load)
Imposed on Purchases 4.50% None 5.00% None 5.00% None
Maximum Deferred Sales Charge
(Load) None1 4.50%2 None3 5.00%2 None3 5.00%2
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ANNUAL FUND
OPERATING EXPENSES4
EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS
Management Fees 0.75%5 0.75%5 0.65%5 0.65%5 0.65%5 0.65%5
Distribution (12b-1) Fees 0.50% 0.75% 0.25% 0.75% 0.25% 0.75%
Other Expenses (administrative,
shareholder servicing and
other expenses) 0.25% 0.25% 0.18% 0.16% 0.18% 0.16%
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.50% 1.75% 1.08% 1.56% 1.08% 1.56%
-------------------------------------------------------------------------------------------------
</TABLE>
1 Except for investments of $500,000 or more.
2 Class B shares have a contingent deferred sales charge ("CDSC") which is
<PAGE>
deducted from your sale proceeds if you sell your Class B shares within five
years of your original purchase of the shares. In the first year after
purchase, the CDSC of the Smith Barney Fund and the CitiSelect Portfolio are
5.00% and 4.50%, respectively, of the price at which you purchased your
shares, or the price at which you sold your shares, whichever is less,
declining to 1.00% in the fifth year after purchase.
3 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 purchase you will pay a deferred sales charge of 1.00%.
4 The CitiSelect Portfolio invests in multiple underlying mutual funds. This
table reflects the expenses of the Fund and the underlying funds in which it
invests.
5 A combined fee for investment advisory and administrative services.
<PAGE>
This example is intended to help you compare the cost of investing in each
of the Funds. The example assumes you invest $10,000 in each Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes your investment has a 5% return each year and
that each Fund's annual operating expenses (before waivers and reimbursements)
remain the same. The expenses of the CitiSelect Portfolio's underlying funds
are reflected in the example. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
-------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------------------------------
CITISELECT FOLIO 200 CONSERVATIVE
-------------------------------------------------------------------------------
Class A $596 $903 $1,232 $2,160
-------------------------------------------------------------------------------
Class B
-------------------------------------------------------------------------------
Assuming redemption at end of period $628 $851 $1,049 $1,996
-------------------------------------------------------------------------------
Assuming no redemption $178 $551 $949 $1,996
-------------------------------------------------------------------------------
SMITH BARNEY BALANCED FUND
-------------------------------------------------------------------------------
Class A $605 $826 $1,066 $1,751
-------------------------------------------------------------------------------
Class B
-------------------------------------------------------------------------------
Assuming redemption at end of period $659 $793 $950 $1,728
-------------------------------------------------------------------------------
Assuming no redemption $159 $493 $850 $1,728
-------------------------------------------------------------------------------
PRO FORMA SMITH BARNEY BALANCED
PORTFOLIO
-------------------------------------------------------------------------------
Class A $605 $826 $1,066 $1,751
-------------------------------------------------------------------------------
Class B
-------------------------------------------------------------------------------
Assuming redemption at end of period $659 $793 $950 $1,728
-------------------------------------------------------------------------------
Assuming no redemption $159 $493 $850 $1,728
-------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM CITISELECT FOLIO SMITH BARNEY PRO FORMA
YOUR INVESTMENT FOLIO 300 BALANCED SMITH BARNEY
BALANCED FUND FUND BALANCED FUND
SHARE CLASS Class A Class B Class A Class B Class A Class B
Maximum Sales Charge (Load)
Imposed on Purchases 4.50% None 5.00% None 5.00% None
Maximum Deferred Sales
Charge (Load) None1 4.50%2 None3 5.00%2 None3 5.00%2
-------------------------------------------------------------------------------------------------
ANNUAL FUND
OPERATING EXPENSES4
EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS
Management Fees 0.75%5 0.75%5 0.65%5 0.65%5 0.65%5 0.65%5
Distribution (12b-1) Fees 0.50% 0.75% 0.25% 0.75% 0.25% 0.75%
Other Expenses (administrative,
shareholder servicing and
other expenses) 0.25% 0.25% 0.18% 0.16% 0.18% 0.16%
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.50% 1.75% 1.08% 1.56% 1.08% 1.56%
-------------------------------------------------------------------------------------------------
</TABLE>
-------------------------------------------------------------------------------
1 Except for investments of $500,000 or more.
2 Class B shares have a CDSC which is deducted from your sale proceeds if you
sell your Class B shares within five years of your original purchase of the
shares. In the first year after purchase, the CDSC of the Smith Barney Fund
and the CitiSelect Portfolio are 5.00% and 4.50%, respectively, of the price
at which you purchased your shares, or the price at which you sold your
shares, whichever is less, declining to 1.00% in the fifth year after
purchase. The CDSC of the CitiSelect Portfolio in the first year after
purchase is 4.50% of the price at which you purchased your shares, or the
price at which you sold your shares, whichever is less, also declining to
1.00% in the fifth year after purchase.
3 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 purchase you will pay a deferred sales charge of 1.00%.
4 The CitiSelect Portfolio invests in multiple underlying mutual funds. This
table reflects the expenses of the Fund and the underlying funds in which it
invests.
5 A combined fee for investment advisory and administrative services.
-------------------------------------------------------------------------------
<PAGE>
This example is intended to help you compare the cost of investing in each
of the Funds. The example assumes you invest $10,000 in each Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes your investment has a 5% return each year and
that each Fund's annual operating expenses (before waivers and reimbursements)
remain the same. The expenses of the CitiSelect Portfolio's underlying funds
are reflected in the example. Although your actual costs may be higher or
lower, based on these assumptions your costs would be: @
-------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------------------------------
CITISELECT FOLIO 300 BALANCED
-------------------------------------------------------------------------------
Class A $596 $903 $1,232 $2,160
-------------------------------------------------------------------------------
Class B
-------------------------------------------------------------------------------
Assuming redemption at end of period $628 $851 $1,049 $1,997
-------------------------------------------------------------------------------
Assuming no redemption $178 $551 $949 $1,997
-------------------------------------------------------------------------------
SMITH BARNEY BALANCED FUND
-------------------------------------------------------------------------------
Class A $605 $826 $1,066 $1,751
-------------------------------------------------------------------------------
Class B
-------------------------------------------------------------------------------
Assuming redemption at end of period $659 $793 $950 $1,728
-------------------------------------------------------------------------------
Assuming no redemption $159 $493 $850 $1,728
-------------------------------------------------------------------------------
PRO FORMA SMITH BARNEY BALANCED
PORTFOLIO
-------------------------------------------------------------------------------
Class A $605 $826 $1,066 $1,751
-------------------------------------------------------------------------------
Class B
-------------------------------------------------------------------------------
Assuming redemption at end of period $659 $793 $950 $1,728
-------------------------------------------------------------------------------
Assuming no redemption $159 $493 $850 $1,728
-------------------------------------------------------------------------------
Distribution of Shares and Other Services
Distributor
The distributor of the CitiSelect Portfolios is CFBDS, Inc. The
distributor of the Smith Barney Fund is Salomon Smith Barney Inc. A selling
group consisting of Salomon Smith Barney and other broker-dealers sells shares
of the Smith Barney Fund to the public.
Both the CitiSelect Portfolios and the Smith Barney Fund have adopted Rule
12b-1 distribution plans for their Class A and B shares. Under the plans, each
Fund pays distribution and service fees. The Class A shares of the Smith Barney
Fund pay distribution and service fees that are lower than those of the Class A
shares of the CitiSelect Portfolios. The Class B shares of each Fund pay the
same distribution and service fees. See "Overall Expenses" above for a
comparison of the total fees for the CitiSelect Portfolios and the Smith Barney
Fund.
Other Service Providers
As indicated below, the CitiSelect Portfolios and the Smith Barney Fund
generally have different service providers. Upon completion of the
Reorganization, the Smith Barney Fund will continue to engage its existing
service providers. In all cases, the types of services provided to the Funds
under these service arrangements are substantially similar.
<PAGE>
-------------------------------------------------------------------------------
SERVICE PROVIDER CITISELECT PORTFOLIOS SMITH BARNEY FUND
-------------------------------------------------------------------------------
Custodian State Street Bank and Trust PNC Bank National
Company Association
-------------------------------------------------------------------------------
Auditors PricewaterhouseCoopers LLP KPMG LLP
-------------------------------------------------------------------------------
Transfer Agent State Street Bank and Trust Citi Fiduciary Trust
Company Company
-------------------------------------------------------------------------------
Sub-Transfer Agent N/A PFPC Global Fund Services
-------------------------------------------------------------------------------
Sales Charges, Purchase Policies, Redemption and Exchange Information
Sales Charges
Class A shares of the CitiSelect Portfolios and the Smith Barney Fund are
sold at net asset value plus a front-end sales charge. There will be no sales
load charged to Class A shareholders of the CitiSelect Portfolios on the Class
A shares of the Smith Barney Fund they receive in the Reorganization. See
"Overall Expenses" for tables comparing sales charges and other expenses of the
Funds.
The front-end sales charge on purchases of Class A shares of the
CitiSelect Portfolios is lower than the front-end sales charge on purchases of
Class A shares of the Smith Barney Fund. You do not pay an initial sales charge
when you buy $500,000 or more of Class A shares of the CitiSelect Portfolios or
$1,000,000 or more of Class A shares of the Smith Barney Fund, but if you
redeem these Class A shares within one year of purchase you will pay a deferred
sales charge of 1%. For purposes of determining the one-year holding period, a
CitiSelect shareholder will be deemed to have held the shares of the Smith
Barney Fund received in the Reorganization since the date of the shareholder's
original purchase of shares of the CitiSelect Portfolio.
Class B shares of the CitiSelect Portfolios and Smith Barney Fund are sold
without a front-end sales charge, but shareholders are charged a contingent
deferred sales charge ("CDSC") when they sell their Class B shares within five
years after purchase. For each of the Funds, the rate of the CDSC decreases the
longer you hold your shares. For purposes of determining the holding period, a
CitiSelect shareholder will be deemed to have held the shares of the Smith
Barney Fund received in the Reorganization since the date of the shareholder's
original purchase of shares of the CitiSelect Portfolio (or, if the shares of
the CitiSelect Portfolios were received in an exchange from an original
purchase, the earlier date of that earlier purchase). You may compare the CDSC
of each CitiSelect Portfolio and the Smith Barney Fund in the expense tables
under "Overall Expenses" above.
Shareholders of the CitiSelect Portfolios are currently subject to a 4.50%
CDSC if they redeem their shares during the first year after purchase.
Shareholders of the Smith Barney Fund generally are subject to a higher CDSC of
5.00% if they redeem their shares during the first year after purchase.
However, former CitiSelect shareholders will continue to be subject to the
4.50% CDSC if they redeem their shares during the first year after purchase
provided that those shareholders notify their Salomon Smith Barney Financial
Consultant or dealer representative that they are entitled to the lower CDSC.
For the second year after purchase and subsequent years, Class B shareholders
of the CitiSelect Portfolios will be subject to the same CDSC schedule as Class
B shareholders of the Smith Barney Fund.
After 8 years, Class B shares of each Fund automatically convert into
Class A shares. For each Fund, Class A shares have lower total annual operating
expenses than Class B shares.
<PAGE>
The CitiSelect Portfolios and the Smith Barney Fund have established
policies, including rights of accumulation and letter of intent privileges,
waiving the Class A initial sales charge for certain classes of investors under
certain circumstances. CitiSelect shareholders who wish to make purchases of
Class A shares of the Smith Barney Fund after the Reorganization should review
the Prospectus of the Smith Barney Fund for additional information about these
waivers. As noted above, the Smith Barney Fund will not impose any initial
sales charge on the Class A shares of the Smith Barney Fund that CitiSelect
shareholders receive in the Reorganization.
The CitiSelect Portfolios and the Smith Barney Fund also have established
policies waiving the Class B CDSC for certain classes of investors under
certain circumstances. Upon the consummation of the Reorganization, Class B
shareholders should review the CDSC waiver policies of the Smith Barney Fund to
determine whether a waiver may be applicable when they redeem their Class B
shares of the Smith Barney Fund received in the Reorganization. The CDSC on
Class B shares of the Smith Barney Fund will generally be waived for 12 months
following the death or disability of a shareholder. The CDSC will also be
waived on certain distributions from a retirement plan. You should review the
Prospectus and Statement of Additional Information of the Smith Barney Fund for
a more complete description of the waiver policies that may be applicable.
These policies are generally similar to the waiver policies in effect for the
CitiSelect Portfolios.
Purchase Policies
You may purchase shares of each Fund at their net asset value, plus any
applicable sales charge, next determined after receipt of your purchase request
in good order. You may purchase shares of the CitiSelect Portfolios from the
Funds' distributor or a broker-dealer or financial institution (called a
Service Agent) that has entered into a sales or service agreement with the
distributor concerning the CitiSelect Portfolios. You may purchase shares of
the Smith Barney Fund from a Salomon Smith Barney Financial Consultant or an
investment dealer in the selling group or a broker that clears through Salomon
Smith Barney (called a dealer representative). Qualified retirement plans and
certain other investors who are clients of the selling group are eligible to
buy shares directly from the Smith Barney Fund by mailing a request to the
Smith Barney Fund's sub-transfer agent.
The CitiSelect Portfolios do not impose any minimum initial or subsequent
investment requirements but a Service Agent may. The Smith Barney Fund imposes
initial and additional investment amounts, which vary depending on the class of
shares bought and the nature of the investment account. Upon consummation of
the Reorganization, CitiSelect shareholders will be subject to these minimum
amounts if they wish to purchase additional shares of the Smith Barney Fund.
These minimum initial and additional investment amounts are set forth in the
table below:
MINIMUM INITIAL MINIMUM ADDITIONAL
SMITH BARNEY FUND INVESTMENT INVESTMENT
-------------------------------------------------------------------------------
General $1,000 $50
-------------------------------------------------------------------------------
IRAs, Self Employed Retirement Plans, $250 $50
Plans, Uniform Gift to Minor Accounts
-------------------------------------------------------------------------------
Qualified Retirement Plans (under $25 $25
Section 403(b)(7) or Section 401(a)
of the Internal Revenue Code, including
401(k) plans)
-------------------------------------------------------------------------------
Simple IRAs $1 $1
-------------------------------------------------------------------------------
Monthly Systematic Investment Plans $25 $25
-------------------------------------------------------------------------------
Quarterly Systematic Investment
Plans $50 $50
-------------------------------------------------------------------------------
Redemptions
Shares of the CitiSelect Portfolios and the Smith Barney Fund are
redeemable on any business day at a price equal to the net asset value of the
shares the next time it is calculated after receipt of your redemption request
in good order. The table below compares the redemption procedures and policies
of the CitiSelect Portfolios and the Smith Barney Fund, which are generally
similar.
<TABLE>
<CAPTION>
<S> <C> <C>
---------------------------------------------------------------------------------------
REDEMPTION CITISELECT PORTFOLIOS SMITH BARNEY FUND
PROCEDURES
AND POlICIES
---------------------------------------------------------------------------------------
Through an To redeem shares, you may To redeem shares, you may
Appropriate Contact contact a Fund's transfer contact a Salomon Smith Barney
Person agent, or for a shareholder Financial Consultant or dealer
that holds shares through a representative, or for
Service Agent, the Service accounts held directly with
Agent. the Smith Barney Fund, the
sub-transfer agent.
By Mail You may send written For accounts held directly at
redemption requests to the the Fund, you may send written
Fund's transfer agent or, if redemption requests to the
you hold your shares through sub-transfer agent.
a Service Agent, you Service
Agent.
By Telephone You may make redemption You may be eligible to redeem
requests by telephone if your shares (except those held in
application permits. retirement plans) in amounts
up to $10,000 per day through
the transfer agent.
---------------------------------------------------------------------------------------
Systematic You must have at least You can arrange for the
Withdrawal Plan $10,000 in your account to automatic redemption of a
participate in this program. portion of your shares on a
If your shares are subject to monthly or quarterly basis.
a CDSC, you may only withdraw To qualify, you must own
up to 10% of the value of shares of at least $10,000
your account in any year, but ($5,000 for retirement plan
you will not be subject to a accounts) and each automatic
CDSC on the shares withdrawn redemption must be at least
under the Plan. You must $50. If your shares are
have at least $100 withdrawn subject to a deferred sales
per automatic withdrawal. charge, the sales charge will
be waived if your
automatic payments do
not exceed 1% per
month of the value of
your shares subject
to a deferred sales
charge.
---------------------------------------------------------------------------------------
Automatic Your account balance with a If your account falls below
Redemptions Fund may be subject to a $500 $500 because of redemption of
<PAGE>
minimum. If so, a Fund Fund shares, the Fund may ask
reserves the right to close you to bring your account up
your account if it falls to the minimum requirement.
below $500 because of If your account balance is
redemptions. You will have still below $500 after 60
60 days to make an additional days, the Fund may close your
investment. account and send you the
redemption proceeds.
---------------------------------------------------------------------------------------
</TABLE>
Exchanges
Shareholders of the CitiSelect Portfolios may exchange Fund shares for
shares of the same class of certain other CitiSelect Portfolios, subject to the
limitation noted below. Shareholders of the Smith Barney Fund may exchange
shares for shares of the same class of certain other Smith Barney funds. A
shareholder of the Smith Barney Fund must meet the minimum investment amount
for each Smith Barney fund. The CitiSelect Portfolios do not impose any similar
minimum investment amount for exchanges into the CitiSelect Portfolios, but a
shareholder's Service Agent may.
When you exchange your Class A shares of the CitiSelect Portfolios, you
generally are required to pay the difference, if any, between the sales charge
payable on the shares to be acquired in the exchange and the sales charge paid
in connection with your original purchase of Class A shares. The Class A shares
of the Smith Barney Fund issued in connection with the Reorganization will not
be subject to an initial sales charge at the time of any exchange.
For exchanges for each Fund, your deferred sales charge (if any) will
continue to be measured from the date of your original purchase (which, for
CitiSelect shareholders, will be deemed to be the date of original purchase of
shares of the applicable CitiSelect Portfolio). For both Funds, if you exchange
into another fund that 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.
Shareholders of the CitiSelect Portfolios may place exchange orders
through the transfer agent or through their Service Agent, and may place
exchange orders by telephone if their account application permits. Shareholders
of the Smith Barney Fund may place exchange orders through Salomon Smith Barney
Financial Consultants or dealer representatives or through the transfer agent
or sub-transfer agent, and may be eligible to exchange shares by telephone.
Until September 11, 2000, CitiSelect shareholders may continue to exchange
their shares of the CitiSelect Portfolios for shares of other CitiFunds, as
described above. On and after that date, CitiSelect shareholders may exchange
their shares of the CitiSelect Portfolios only for shares of certain Smith
Barney funds, and these exchanges will be subject to the minimum investment
amounts pertaining to the applicable Smith Barney fund or funds.
<PAGE>
Dividends and Other Distributions
The CitiSelect Portfolios and the Smith Barney Fund have similar policies
relating to dividend and capital gain distributions to shareholders, except
that the Smith Barney Fund generally makes capital gain distributions once a
year, typically in December, rather than semi-annually. For each Fund, capital
gain distributions and dividends are reinvested in additional shares of the
same class that you hold, unless you choose to receive your distributions and
dividends in cash. The Funds pay dividends and distribute capital gains, if
any, according to the following schedule.
<TABLE>
<CAPTION>
<S> <C> <C>
----------------------------------------------------------------------------------------
INCOME DIVIDEND CAPITAL GAIN
FUND DISTRIBUTIONS DISTRIBUTIONS
----------------------------------------------------------------------------------------
CitiSelect Folio 200 quarterly (during the annually (in December)
Conservative months of March, June,
September and December)
----------------------------------------------------------------------------------------
CitiSelect Folio 300 Balanced quarterly (during the annually (in December)
months of March, June,
September and December)
----------------------------------------------------------------------------------------
Smith Barney Balanced Fund quarterly annually (typically in
Fund December)
----------------------------------------------------------------------------------------
</TABLE>
On or immediately prior to the Closing Date of the Reorganization, each of
the CitiSelect Portfolios will distribute (in the form of one or more dividends
and/or other distributions) to its shareholders substantially all of its
investment company taxable income and realized net capital gain, if any, for
the current taxable year through the date of such distribution or dividend.
Unless otherwise requested, such distributions or dividends will be reinvested
in the manner described above. Between the Closing Date and the end of its
current taxable year, it is expected that the Smith Barney Fund will make one
or more similar distributions to its shareholders, including the former
CitiSelect shareholders who receive shares of the Smith Barney Fund in the
Reorganization. Because such a distribution will generally include income and
gains accumulated by the Smith Barney Fund prior to the Closing Date, the
former CitiSelect shareholders receiving such a distribution will effectively
receive a return of a portion of their capital investment in the Smith Barney
Fund in the form of a taxable dividend.
Tax Consequences
The CitiSelect Portfolios and the Smith Barney Fund will each receive an
opinion of Bingham Dana LLP in connection with the Reorganization to the effect
that, based upon certain facts, assumptions and representations, (i) the
distribution of investment securities from each Underlying Portfolio in
redemption of the applicable CitiSelect Portfolio's interest in the Underlying
Portfolio will not result in the recognition of gain or loss for federal income
tax purposes, and (ii) the transfer of substantially all of the assets and
liabilities of each CitiSelect Portfolio to the Smith Barney Fund in exchange
for voting stock of the Smith Barney Fund, followed by the distribution of such
shares in complete liquidation of the CitiSelect Portfolio, will constitute a
reorganization within the meaning of section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). If the Reorganization constitutes such a
reorganization, no gain or loss will be recognized by the CitiSelect Portfolios
or their shareholders as a direct result of the Reorganization. See "The
Proposed Transaction--Federal Income Tax Consequences."
Other Mergers
The Board of Trustees of the Smith Barney Trust has approved an Agreement
and Plan of Reorganization pursuant to which CitiFunds Balanced Portfolio, a
series of the CitiFunds Trust, is to merge with and into the Smith Barney Fund.
This other merger will not be consummated until approved by the shareholders of
the CitiFunds Balanced Portfolio. The consummation of the Reorganization is in
no way dependent upon the consummation of this other merger.
<PAGE>
PRINCIPAL INVESTMENTS, RISK FACTORS, AND INVESTMENT RESTRICTIONS
Principal Investments and Risk Factors
The investment objectives and policies and risk factors of CitiSelect
Portfolios are, in many respects, similar to those of the acquiring Smith
Barney Balanced Fund. There are, however, certain differences. The following
discussion summarizes some of the more significant similarities and differences
in the investment policies and risk factors of each of the CitiSelect
Portfolios and the Smith Barney Fund and is qualified in its entirety by the
Prospectuses and Statements of Additional Information of each of the CitiSelect
Portfolios and the Smith Barney Fund incorporated herein by reference.
<PAGE>
-------------------------------------------------------------------------------
FUND(S) SUBJECT TO RISK PRINCIPAL INVESTMENT AND ACCOMPANYING RISK FACTOR
-------------------------------------------------------------------------------
CITISELECT PORTFOLIOS ASSET ALLOCATION:
Each CitiSelect Portfolio invests in a mix of
equity and fixed income securities (each of these
types of securities is referred to as an asset
class). Citibank may further allocate the Funds'
equity securities among large cap issuers, small
cap issuers and international issuers and its
fixed income securities among U.S. and foreign
investment grade and high-yield bonds. The
CitiSelect Portfolios' investment strategies
depend largely on the investment manager's skill
in both identifying the long term performance and
relationships between asset classes and in
assessing accurately the growth potential or
credit quality of companies in which the Funds
invest, in predicting accurately the direction of
interest rates or the maturity of certain debt
obligations, and other factors. The investment
manager may not appropriately allocate a Funds'
assets between equity and fixed income
securities, or among different types of equity
and fixed income securities.
Citibank may change the Funds' asset allocations
from time to time in response to market
conditions and other factors. No approval by the
Trustees of the CitiSelect Portfolio is required.
-------------------------------------------------------------------------------
ALL FUNDS MARKET RISK:
The prices of securities will rise or fall due to
changing economic, political or market
conditions, or due to the company's individual
situation. Some securities held by a Fund may be
quite volatile, meaning that their prices can
change significantly in a short time.
-------------------------------------------------------------------------------
ALL FUNDS GROWTH AND VALUE INVESTING:
In selecting equity investments for the
CitiSelect Portfolios, Citibank employs both
growth and value investing strategies. Growth
securities are typically sensitive to market
movements because their market prices tend to
reflect future expectations. When it appears that
those expectations will not be met, the prices of
growth securities typically fall. An investment
in growth securities may underperform certain
other stock investments, such as value stocks,
during periods when growth stocks are out of
favor.
Value investing involves selecting stocks that
are inexpensive compared to other companies with
similar earnings or assets. However, value stocks
may continue to be inexpensive for long periods
of time, and may never realize their potential. A
security may not achieve its expected value
because the circumstances causing it to be
-------------------------------------------------------------------------------
<PAGE>
-------------------------------------------------------------------------------
underpriced may stay the same or worsen. Value
stocks may underperform certain other stock
investments, such as growth stocks, during
periods when value stocks are out of favor.
In selecting equity investments for the Smith
Barney Fund, SSB Citi attempts to identify
securities with favorable valuations relative to
their growth characteristics. This strategy is
commonly known as "growth at a reasonable price."
Because this strategy combines both growth and
value investing, it offers style diversification
within a single mutual fund. This strategy is
also subject to the same risks as both growth
investing and value investing.
To the extent that the Funds invest varying
proportions of their assets in growth or value
securities, they may perform differently when one
style or the other is out of favor due to the
differences in the investment styles they
emphasize.
-------------------------------------------------------------------------------
ALL FUNDS PORTFOLIO SELECTION:
The success of each Fund's investment strategy
depends in large part on its portfolio managers.
In selecting equity securities, a Fund's
portfolio managers may not be correct in
identifying securities of companies that perform
well based on a "growth" or "value" strategy. In
selecting fixed income securities, the portfolio
managers may be unable to predict accurately the
direction of interest rates or the maturity of
certain debt obligations, or to assess accurately
credit quality and other factors. Alternatively,
the portfolio managers may not appropriately
allocate a Fund's assets between equity and fixed
income securities. In that case, you may lose
money, or your investment may not do as well as
an investment in another mutual fund with a
similar investment focus.
-------------------------------------------------------------------------------
ALL FUNDS SMALL CAPITALIZATION ISSUERS:
Each Fund may invest in small capitalization
companies. Investing in small companies involves
unique risks. Compared to large companies, small
companies, and the market for their common
stocks, are likely to:
o Be more sensitive to changes in the economy,
earnings results and investor expectations.
o Have more limited product lines and capital
resources.
o Experience sharper swings in market values.
o Be harder to sell at the times and prices
the Fund thinks appropriate.
-------------------------------------------------------------------------------
<PAGE>
-------------------------------------------------------------------------------
ALL FUNDS INTEREST-RATE RISK:
In general, the prices of debt securities rise
when interest rates fall, and fall when interest
rates rise. Longer-term obligations are usually
more sensitive to interest rate changes. A change
in interest rates could cause a Fund's share
price to go down.
-------------------------------------------------------------------------------
ALL FUNDS CREDIT RISK:
Some issuers may not make payments on debt
securities held by a Fund. Or, an issuer's
financial condition may deteriorate, leading to
greater volatility in the price of the security
and making the security more difficult for the
Fund to sell. Lower-quality debt securities are
more susceptible to this risk than higher-quality
debt securities. As noted below, each Fund may
invest in lower-quality debt securities known as
"junk bonds." To the extent that the a Fund's
assets are invested in lower-quality debt
securities, that Fund may be subject to greater
risk.
-------------------------------------------------------------------------------
ALL FUNDS JUNK BONDS:
Each Fund may invest in debt securities of any
grade, including junk bonds. Junk bonds are
considered to be speculative investments and
involve greater risks than higher-quality
securities. The value of junk bonds will usually
fall substantially if the issuer defaults or goes
bankrupt. Even anticipation of defaults by
certain issuers, or the perception of economic or
financial weakness, may cause the market for junk
bonds to fall. The price of a junk bond may
therefore fluctuate drastically due to bad news
about the issuer or the economy in general. Lower
quality debt securities, especially junk bonds,
may be less liquid and may be more difficult for
the Fund to value and sell. The Fund may incur
additional expenses if an issuer defaults and the
Fund tries to recover some of its losses in a
bankruptcy or other similar proceeding.
-------------------------------------------------------------------------------
ALL FUNDS FOREIGN SECURITIES:
SMITH BARNEY FUND - MAY Investments in foreign securities involve risks
NOT INVEST IN EMERGING relating to political, social and economic
MARKETS developments abroad, as well as risks resulting
from the differences between the regulations to
which U.S. and foreign issuers and markets are
CITISELECT PORTFOLIOS - MAY subject. These risks may include expropriation
INVEST IN EMERGING of assets, confiscatory taxation, withholding
MARKETS taxes on dividends and interest paid on Fund
investments, fluctuations in currency exchange
rates, currency exchange controls and other
limitations on the use or transfer of assets by a
Fund or issuers of securities, and political or
social instability. There may be rapid changes in
the value of foreign currencies or securities,
<PAGE>
-------------------------------------------------------------------------------
causing a Fund's share price to be volatile. In
addition, in certain circumstances, a Fund could
realize reduced or no value in U.S. dollars from
its investments in foreign securities, causing
the Fund's share price to go down. Finally, there
is generally less information about non-U.S.
issuers or markets available because of less
rigorous disclosure and accounting standards or
regulatory practices.
The CitiSelect Portfolios may invest in issuers
located in emerging, or developing, markets. All
of the risks of investing in foreign securities
are heightened by investing in these markets. The
Smith Barney Fund does not invest in emerging
markets. The Smith Barney Fund is therefore not
subject to the additional risks of emerging
markets securities.
-------------------------------------------------------------------------------
ALL FUNDS PREPAYMENT AND EXTENSION RISK:
The issuers of debt securities held by the Funds
may be able to call a bond or prepay principal
due on the securities, particularly during
periods of declining interest rates. The Funds
may not be able to reinvest that principal at
attractive rates, and the Funds may lose any
premium paid. On the other hand, rising interest
rates may cause prepayments to occur at slower
than expected rates. This makes securities more
sensitive to interest rate changes.
-------------------------------------------------------------------------------
ALL FUNDS CONVERTIBLE SECURITIES:
The CitiSelect Portfolios and the Smith Barney
Fund may invest in convertible securities.
Convertible securities, which are debt securities
that may be converted into stock, are subject to
the market risk of stocks, and, like other debt
securities, are also subject to interest rate
risk and the credit risk of their issuers. Call
provisions may allow the issuer to repay the debt
before it matures.
-------------------------------------------------------------------------------
ALL FUNDS DERIVATIVES:
SMITH BARNEY FUND - Each Fund may invest in derivative securities,
SUBJECT TO CERTAIN LIMITS including options on securities, stock index
ON TYPES AND AMOUNT OF options,forward currency contracts, interest
rate futures contracts, stock DERIVATIVES index
futures contracts and options on futures
contracts:
CITISELECT PORTFOLIOS - MAY o To hedge against the economic impact of
INVEST IN ADDITIONAL adverse changes in the market value of
TYPES OF DERIVATIVES portfolio securities, because of changes in
WITHOUT LIMIT AND FOR interest rates or exchange rates; or
BROADER, NON-HEDGING
PURPOSES o As a substitute for buying or selling
securities.
A derivative contract will obligate or entitle a
Fund to deliver or receive an asset or cash
payment based on the change in value of one or
more securities, currencies or indices.
The Funds' use of derivatives may involve
leveraging. Under leveraging, a relatively small
investment may produce substantial losses or
gains for a Fund, well beyond the Fund's initial
-------------------------------------------------------------------------------
<PAGE>
-------------------------------------------------------------------------------
investment. Using derivatives can
disproportionately increase losses and reduce
opportunities for gains when interest rates,
exchange rates or securities markets are
changing. A Fund may not fully benefit from or
may lose money on derivatives if changes in their
value do not correspond accurately to changes in
the value of the Fund's holdings.
The other parties to certain derivative contracts
present the same types of default risk as issuers
of fixed income securities. Derivatives can also
make a fund less liquid and harder to value,
especially in declining markets.
As described above, the Smith Barney Fund is
subject to certain limitations on its use of
derivatives. In contrast, the CitiSelect
Portfolios have more flexibility with respect to
their types and amounts of derivatives in which
it can invest. In certain circumstances, the
CitiSelect Portfolios may be subject to higher
risk than the Smith Barney Fund because they are
not as limited with respect to derivative
investments.
-------------------------------------------------------------------------------
ALL FUNDS SHORT SALES:
The Funds may engage in short sales. A short sale
occurs when a Fund's portfolio manager,
anticipating that the price of a security will
decline, enters into an agreement to sell the
security even though the Fund does not own it.
The Fund will then borrow the same security from
a broker or other institution in order to
complete the sale. The Fund must later purchase
the security in order to return the security
borrowed. If the portfolio manager has predicted
accurately, the price at which the Fund buys the
security will be less than the price at which the
Fund earlier sold the security, creating a profit
for the Fund. However, if the price of the
security goes up during this period, the Fund
will be forced to buy the security for more than
its sale price, causing a loss to the Fund.
Losses from short sales may be unlimited.
The Smith Barney Fund may only maintain a short
position to the extent of 5% of its net assets.
The CitiSelect Portfolios are not subject to this
restriction. To the extent that a CitiSelect
Portfolio maintains a short position in excess of
5% of its assets, it may be subject
to more risk.
-------------------------------------------------------------------------------
ALL FUNDS PORTFOLIO TURNOVER:
The Funds may engage in active and frequent
trading to achieve their principal investment
strategies. Although the portfolio managers of
the Funds attempt to minimize portfolio turnover,
from time to time a Fund's annual portfolio
turnover rate may exceed 100%. Active and
frequent trading may result in the realization
and distribution to a Fund of higher capital
-------------------------------------------------------------------------------
<PAGE>
-------------------------------------------------------------------------------
gains, which could increase the tax liability for
the Fund's shareholders. Frequent trading also
increases transaction costs, which could detract
from a Fund's performance. For a comparison of
the historical portfolio turnover rates of the
Funds, see "The Proposed Transaction - Portfolio
Turnover" below.
-------------------------------------------------------------------------------
ALL FUNDS DEFENSIVE STRATEGIES:
The Funds may, from time to time, take temporary
defensive positions that are inconsistent with
the Funds' 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 or other short-term instruments, and
may not be pursuing their investment goals.
-------------------------------------------------------------------------------
The foregoing describes the principal investments and related risks of
each Fund. Each Fund may invest in additional types of investments and may be
subject to additional risk factors that are described in the Statement of
Additional Information of that Fund. Certain of these non-principal investments
and related risk factors may differ for each Fund. For example, the Smith
Barney Fund may lend its portfolio securities, provided that the value of the
securities loaned by the Fund does not exceed 20% of the market value of its
total assets. The securities loans of the each CitiSelect Portfolio may not
exceed 30% of the Fund's total assets. In addition, the Smith Barney Fund may
not invest in securities of issuers from developing markets, while the
CitiSelect Portfolios may do so without limit. For a description of these
investments and related risks, please consult the Prospectus and Statement of
Additional Information of the applicable Fund.
Fundamental Investment Restrictions
Each Fund has adopted certain fundamental investment restrictions which
may not be changed without the affirmative vote of the holders of a majority of
the outstanding voting securities (as defined in the 1940 Act) of that Fund.
The Smith Barney Fund is subject to fundamental investment restrictions that,
in general, are similar to those of the CitiSelect Portfolios. These
fundamental restrictions limit the amounts that a Fund may borrow and prohibit
the Fund from investing in a manner that would cause it to fail to be a
diversified investment company under the 1940 Act, from investing more than 25%
of the Fund's total assets in securities of issuers in the same industry (with
certain exceptions), from lending money (with certain exceptions), from
underwriting securities issued by other persons, from purchasing or selling
real estate, commodities or commodity contracts (with certain exceptions), from
investing in oil, gas or other mineral exploration or development programs
(with respect to the Smith Barney Fund only) or investing in oil, gas or
mineral leases (with respect to the CitiSelect Portfolios only), or from
issuing "senior securities" (as defined in the 1940 Act) to the extent
prohibited by the 1940 Act.
Although these restrictions are similar, their parameters may be different
among the Funds. With respect to the fundamental limitation on borrowing
described above, neither CitiSelect Portfolio may purchase securities at any
time at which its borrowings exceed 5% of the total assets of the Fund; the
Smith Barney Fund is not similarly restricted. In addition, the Smith Barney
Fund may invest, as an exception to the prohibition from purchasing or selling
real estate, commodities, or commodity contracts, in gold bullion and coins or
receipts for gold. The CitiSelect Portfolios currently does not make these
types of investments.
As a result of these differences in fundamental restrictions, the Smith
Barney Fund may be more limited in its ability to engage in certain types of
<PAGE>
transactions than the CitiSelect Portfolios. However, these additional
fundamental restrictions may also prevent the Smith Barney Fund from engaging
in transactions that would subject the Fund to additional risks.
Non-Fundamental Investment Restrictions
In addition to the fundamental restrictions described above, the Smith
Barney Fund is subject to certain non-fundamental restrictions that may be
changed at any time by that Fund's Board of Directors without shareholder
approval. These non-fundamental restrictions provide that the Smith Barney Fund
may not: (1) write or sell puts, calls, straddles, spreads or combinations
thereof, except as permitted under the Fund's investment objective and
policies; (2) purchase any security if as a result the Fund would then have
more than 5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three
years; (3) make investments for the purpose of exercising control or
management; (4) purchase or retain securities of any company if, to the
knowledge of the trust of which the Fund is a series, any of the trust's
officers or trustees or any officer or director of SSB Citi individually owns
more than 1/2 of 1% of the outstanding securities of such company and together
they own beneficially more than 5% of the securities; (5) invest in warrants
other than those acquired by the Fund as part of a unit or attached to
securities at the time of purchase (except as permitted under the Fund's
investment objective and policies) if, as a result, the investments (valued at
the lower of cost or market) would exceed 5% of the value of the Fund's net
assets; (6) invest more than 2% of the Fund's net assets in warrants not listed
on a recognized U.S. or foreign stock exchange; (7) purchase in excess of 5% of
the voting securities of a public utility or public utility holding company, so
as to become a public utility holding company as defined in the Public Utility
Holding Company Act of 1935, as amended; or (8) purchase restricted securities,
illiquid securities or other securities that are not readily marketable if more
than 15% of the total assets of the Fund would be invested in such securities
(each of the CitiSelect Portfolios is subject to a similar non-fundamental
restriction with respect to illiquid securities).
For additional information, you should consult the Prospectus and
Statement of Additional Information of the Smith Barney Fund.
THE PROPOSED TRANSACTION
Description of the Plan
As described above, the Plan provides that each of the CitiSelect
Portfolios will receive a distribution of investment securities from the
applicable Underlying Portfolios and that, immediately thereafter, substantially
all of the assets and liabilities of each CitiSelect Portfolio will be
transferred to the Smith Barney Fund. In exchange for the transfer of those
assets and liabilities, each class of the CitiSelect Portfolios will receive
voting shares of the corresponding class of the Smith Barney Fund
("Reorganization Shares"). Reorganization Shares of the Smith Barney Fund so
received will then be distributed to the shareholders of the CitiSelect
Portfolios in complete liquidation of the CitiSelect Portfolios, and each
CitiSelect Portfolio will be terminated.
As a result of the Reorganization, each shareholder of each class of the
CitiSelect Portfolios will receive that number of full and fractional shares of
the corresponding class of the Smith Barney Fund having an aggregate net asset
value equal to the aggregate net asset value of the shareholder's shares of the
CitiSelect Portfolios held on the Closing Date. The Smith Barney Fund will
establish an account for each CitiSelect shareholder that will reflect the
number and class of shares of the Smith Barney Fund distributed to that
shareholder. The Smith Barney Fund's shares issued in the Reorganization will
be in uncertificated form.
Until the closing of the Reorganization, shareholders of the CitiSelect
Portfolios will, of course, continue to be able to redeem their shares at the
<PAGE>
net asset value next determined after receipt by the CitiSelect Portfolios'
transfer agent of a redemption request in proper form. Redemption requests
received by the CitiSelect Portfolios' transfer agent after the closing of the
Reorganization will be treated as requests received for the redemption of
shares of the Smith Barney Fund.
The obligations of the CitiSelect Portfolios and the Smith Barney Fund
under the Plan are subject to various conditions, as stated therein. Among
other things, the Plan requires that all filings be made with, and all
authority be received from, the Securities and Exchange Commission and state
securities commissions as may be necessary in the opinion of counsel to permit
the parties to carry out the transactions contemplated by the Plan. The
CitiSelect Portfolios and the Smith Barney Fund are in the process of making
the necessary filings. The Reorganization is also subject to the receipt of any
necessary exemptive relief or non-action assurances requested from the
Securities and Exchange Commission or its staff with respect to Section 17(a)
of the 1940 Act.
To provide against unforeseen events, the Plan may be terminated or
amended prior to the Closing Date by action of the Trustees of either the
CitiSelect Portfolios or the Smith Barney Fund, notwithstanding the approval of
the Plan by the shareholders of the CitiSelect Portfolios. However, no
amendment may be made that materially adversely affects the interests of the
CitiSelect shareholders without obtaining the approval of the CitiSelect
shareholders. The CitiSelect Portfolios and the Smith Barney Fund may at any
time waive compliance with certain of the covenants and conditions contained in
the Plan. The Plan provides that in the event the Plan is approved with respect
to one but not both of the CitiSelect Portfolios, the failure of one CitiSelect
Portfolio to consummate the transactions contemplated by the Plan shall not
affect the consummation or validity of the Plan with respect to the other
CitiSelect Portfolio.
Citibank and SSB Citi will assume and pay all of the expenses that are
solely and directly related to the Reorganization, which are estimated to be
approximately $94,000 with respect to CitiSelect Folio 200 Conservative and
$110,000 with respect to CitiSelect Folio 300 Balanced. Shareholders have no
rights of appraisal.
Reasons for the Proposed Transaction
At a meeting of the Board of Trustees of the CitiFunds Trust held on July
13, 2000, the Trustees of the CitiFunds Trust, including a majority of the
Non-Interested Trustees, on behalf of the CitiSelect Portfolios, considered
materials discussing the potential benefits to the CitiSelect shareholders if
the CitiSelect Portfolios were to reorganize with and into the Smith Barney
Fund. For the reasons discussed below, the Board of Trustees of the CitiFunds
Trust, including a majority of the Non-Interested Trustees, has determined that
the proposed Reorganization is in the best interests of the CitiSelect
Portfolios and their shareholders and that the interests of the CitiSelect
shareholders will not be diluted as a result of the proposed Reorganization.
The proposed combination of the CitiSelect Portfolios into the Smith
Barney Fund will allow the shareholders of the CitiSelect Portfolios to
continue to participate in a professionally-managed portfolio governed by
similar investment objectives and policies. The Trustees of the CitiFunds Trust
believe that CitiSelect Portfolios will benefit from the proposed
Reorganization for the following reasons:
Economies of Scale; Fees and Expenses
Having determined that the offering of multiple funds with substantially
similar objectives and identical portfolio managers is both repetitious and
confusing, SSB Citi and Citibank believe that the combination of the CitiSelect
Portfolios and the Smith Barney Fund which have substantially similar
<PAGE>
investment objectives and policies into a single larger fund may increase
economic and other efficiencies for investors and may ultimately result in a
lower total annual expense ratios. Some of the fixed expenses currently paid by
the Smith Barney Fund, such as accounting, legal and printing costs, would be
spread over a larger asset base upon the combination of the CitiSelect
Portfolios and Smith Barney Fund. Other things being equal, shareholders may be
expected to benefit from economies of scale through lower expense ratios and
higher net income distributions over time. SSB Citi also believes that a larger
asset base could provide portfolio management benefits such as greater
diversification.
In addition, CitiSelect shareholders will benefit from the lower total
annual operating expenses of the Smith Barney Portfolios (as determined for
each Fund's most recent fiscal year end). The total annual operating expenses
for Class A and Class B shares of the Smith Barney Fund are lower than the
total annual operating expenses of Class A and Class B shares of the CitiSelect
Portfolios.
Larger Family of Funds
The Reorganization offers CitiSelect Portfolios shareholders the
opportunity to become part of a larger and more diverse family of more than 60
mutual funds. CitiSelect shareholders will be able to exchange their shares
among most or all of those Smith Barney funds. In addition, the Reorganization
offers CitiSelect shareholders the opportunity to invest in a family of funds
that has demonstrated the ability to attract new investors. Successful
marketing and resulting fund growth, in turn, may afford investors the benefits
of portfolio diversification and economies of scale.
Performance Results
While past performance is not necessarily indicative of future results,
the Smith Barney Fund generally has higher total returns than the CitiSelect
Portfolios. For more information about performance, see "The Proposed
Transaction - Performance" below.
Due to a combination of factors, including the benefits described above,
the Board of Trustees of the CitiFunds Trust, on behalf of the CitiSelect
Portfolios, believes that each CitiSelect Portfolio and its shareholders would
benefit from a tax-free reorganization with the Smith Barney Fund. ACCORDINGLY,
IT IS RECOMMENDED THAT THE CITISELECT SHAREHOLDERS APPROVE THE REORGANIZATION
WITH THE SMITH BARNEY FUND.
The Board of Trustees of the CitiFunds Trust, on behalf of the CitiSelect
Portfolios, in recommending the proposed transaction, considered a number of
factors, including the following:
(a) the compatibility of the CitiSelect Portfolios' investment
objectives, policies and restrictions with those of the acquiring
Smith Barney Fund;
(b) the benefits to CitiSelect shareholders of becoming shareholders of a
larger fund family with a wide array of mutual funds;
(c) the advisory, distribution, and other servicing arrangements of the
Smith Barney Fund;
(d) the tax-free nature of the Reorganization;
(e) the total lower annual expense ratios of the Smith Barney Fund as
compared to the CitiSelect Portfolios;
<PAGE>
(f) the terms and conditions of the Reorganization and that it should not
result in a dilution of CitiSelect shareholder interests;
(g) the level of costs and expenses to the CitiSelect Portfolios of the
proposed Reorganization; and
(h) a variety of alternatives available to the CitiSelect Portfolios
including maintaining the status quo or liquidating the CitiSelect
Portfolios.
Description of the Securities to Be Issued
Each CitiSelect Portfolio is a diversified series of the CitiFunds Trust,
which was organized as a business trust under the laws of the Commonwealth of
Massachusetts on April 13, 1984 and is registered with the Securities and
Exchange Commission as an open-end management investment company. The Smith
Barney Fund is a diversified series of Smith Barney Income Funds (the "Smith
Barney Trust"), which was organized as an unincorporated business trust under
the laws of the Commonwealth of Massachusetts pursuant to a master trust
agreement dated March 12, 1985, as amended from time to time, and is registered
with the Securities and Exchange Commission as an open-end management
investment company.
Each Fund currently offers Class A and Class B shares, and the Smith
Barney Fund also offers Class L, Class O and Class Y shares. Each share of each
class of a Fund represents an interest in that class of the Fund that is equal
to and proportionate with each other share of that class of the Fund. Each
class of shares of each Fund has identical voting, dividend, liquidation and
other rights (other than conversion) on the same terms and conditions except
that expenses related to the distribution of each class of shares are borne
solely by each class and each class of shares has exclusive voting rights with
respect to the provisions of the Rule 12b-1 distribution plan that pertains to
a particular class. Shareholders are entitled to one vote per share held on
matters on which they are entitled to vote.
The CitiFunds Trust is not required to hold annual meetings of
shareholders but the CitiFunds Trust will hold special meetings of shareholders
when in the judgment of the Trustees it is necessary or desirable to submit
matters for a shareholder vote. The Smith Barney Trust is also not required to
hold annual meetings of shareholders but meetings of shareholders may be called
by the Trustees from time to time for the purpose of taking action upon any
matter requiring the vote or authority of the shareholders as provided in the
master trust agreement or upon any other matter deemed by the Trustees to be
necessary or desirable.
Shareholders of the CitiFunds Trust 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. The
Trustees of the Smith Barney Trust must promptly call and give notice of a
meeting of shareholders for the purpose of voting upon removal of any Trustee
of the Smith Barney Trust when requested to do so in writing by shareholders
holding not less than 10% of the shares then outstanding.
Federal Income Tax Consequences
The Reorganization is conditioned upon the receipt by each of the Smith
Barney Fund and the CitiSelect Portfolios of an opinion from Bingham Dana LLP,
substantially to the effect that, based upon certain facts, assumptions and
<PAGE>
representations of the parties, for federal income tax purposes: (i) the
distribution of investment securities from each Underlying Portfolio in
redemption of the applicable CitiSelect Portfolio's interest in the Underlying
Portfolio will not result in the recognition of gain or loss; (ii) the
transfer to the Smith Barney Fund of all or substantially all of the assets of
each CitiSelect Portfolio in exchange solely for Reorganization Shares and the
assumption by the Smith Barney Fund of all of the liabilities of the CitiSelect
Portfolios, followed by the distribution of such Reorganization Shares to the
shareholders of the CitiSelect Portfolios in exchange for their shares of the
CitiSelect Portfolios in complete liquidation of the CitiSelect Portfolios,
will constitute a "reorganization" within the meaning of Section 368(a)of
the Code, and the Smith Barney Fund and the CitiSelect Portfolios will each be
"a party to a reorganization" within the meaning of Section 368(b) of the Code;
(iii) no gain or loss will be recognized by the CitiSelect Portfolios upon the
transfer of the CitiSelect Portfolios' assets to the Smith Barney Fund solely
in exchange for the Reorganization Shares and the assumption by the Smith
Barney Fund of liabilities of the CitiSelect Portfolios or upon the
distribution (whether actual or constructive) of the Reorganization Shares to
the CitiSelect shareholders in exchange for their shares of the CitiSelect
Portfolios; (iv) the basis of the assets of the CitiSelect Portfolios in the
hands of the Smith Barney Fund will be the same as the basis of such assets in
the hands of the CitiSelect Portfolios immediately prior to the transfer; (v)
the holding period of the assets of the CitiSelect Portfolios in the hands of
the Smith Barney Fund will include the period during which such assets were
held by the CitiSelect Portfolios; (vi) no gain or loss will be recognized by
the Smith Barney Fund upon the receipt of the assets of the CitiSelect
Portfolios solely in exchange for Reorganization Shares and the assumption by
the Smith Barney Fund of all of the liabilities of the CitiSelect Portfolios;
(vii) no gain or loss will be recognized by the shareholders of the CitiSelect
Portfolios upon the receipt of Reorganization Shares solely in exchange for
their shares of the CitiSelect Portfolios as part of the transaction; (viii) the
basis of Reorganization Shares received by the shareholders of the CitiSelect
Portfolios will be, in the aggregate, the same as the basis, in the aggregate,
of the shares of the CitiSelect Portfolios exchanged therefor; and (ix) the
holding period of Reorganization Shares received by the shareholders of the
CitiSelect Portfolios will include the holding period during which the shares
of the CitiSelect Portfolios exchanged therefor were held, provided that at the
time of the exchange the shares of the CitiSelect Portfolios were held as
capital assets in the hands of the shareholders of the CitiSelect Portfolios.
As described above, although each CitiSelect Portfolio will, immediately
prior to the Closing Date, distribute substantially all of its investment
company taxable income and net realized capital gain to its shareholders as one
or more taxable dividends, the Smith Barney Fund will not make such a
distribution immediately prior to the Closing Date. As a result, when the Smith
Barney Fund subsequently makes a similar distribution or distributions to its
shareholders, including the former CitiSelect shareholders who receive
Reorganization Shares of the Smith Barney Fund, those former CitiSelect
shareholders will effectively be receiving a return of a portion of their
capital invesmtent in the Smith Barney Fund (on which they may have already paid
taxes) in the form of a taxable distribution.
While the Smith Barney Fund is not aware of any adverse state or local tax
consequences of the proposed Reorganization, the Fund has not requested any
ruling or opinion with respect to such consequences and shareholders may wish
to consult their own tax adviser with respect to such matters.
Liquidation and Termination of the CitiSelect Portfolios
If the Reorganization is effected, the CitiSelect Portfolios will be
liquidated and terminated, and the Funds' outstanding shares will be cancelled.
Portfolio Securities
If the Reorganization is effected, each CitiSelect Portfolio will redeem
its interest in its underlying funds and will receive its proportionate share
of the portfolio securities of these underlying funds. Each CitiSelect
Portfolio will then transfer these portfolio securities to the Smith Barney
Fund. If the Reorganization is effected, SSB Citi will analyze and evaluate the
portfolio securities of the CitiSelect Portfolios being transferred to the
Smith Barney Fund. Consistent with the Smith Barney Fund's investment
objectives and policies, any restrictions imposed by the Code and the best
interests of the Smith Barney Fund's shareholders (including former
shareholders of the CitiSelect Portfolios), SSB Citi will determine whether to
maintain an investment in these portfolio securities. Subject to market
conditions, the disposition of portfolio securities may result in a capital
gain or loss. The actual tax consequences of any disposition of portfolio
securities will vary depending upon the specific securities being sold.
<PAGE>
Portfolio Turnover
The portfolio turnover rates of the underlying funds of the CitiSelect
Portfolios have ranged from 26% to 646% for its fiscal year ended October 31,
1999. The portfolio turnover rate for the Smith Barney Fund for its fiscal year
ended July 31, 1999 was 60%. Active and frequent trading may result in the
realization and distribution to a Fund of higher capital gains, which could
increase the tax liability for the Fund's shareholders. Frequent trading also
increases transaction costs, which could detract from a Fund's performance.
Pro Forma Capitalization
Because the CitiSelect Portfolios will be combined in the Reorganization
of the CitiSelect Portfolios with the Smith Barney Fund, the total
capitalization of the Smith Barney Fund after such Reorganization is expected
to be greater than the current capitalization of the CitiSelect Portfolios. The
following table sets forth as of June 30, 2000: (a) the capitalization of each
of the CitiSelect Portfolios and the Smith Barney Fund, and (b) the pro forma
capitalization of the Smith Barney Fund as adjusted to give effect to the
Reorganization proposed with respect to the Smith Barney Fund. If the
Reorganization is consummated, the capitalization of the CitiSelect Portfolios
and the Smith Barney Fund is likely to be different at the effective time of
their Reorganization as a result of daily share purchase and redemption
activity.
Additionally, as noted above, the Board of Trustees of the Smith Barney
Fund has approved an Agreement and Plan of Reorganization pursuant to which
CitiFunds Balanced Portfolio, which is a series of the CitiFunds Trust, is to
merge with and into the Smith Barney Fund. This other merger will not be
consummated until approved by the shareholders of the CitiFunds Balanced
Portfolio. Although the consummation of the Reorganization is in no way
dependent upon the consummation of this other merger, the table below includes
the effects of the potential consummation of the other merger.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SHARES NET ASSET VALUE
TOTAL NET ASSETS OUTSTANDING PER SHARE
---------------------------------------------------------------------------------------
CITISELECT FOLIO 200
CONSERVATIVE
Class A $53,031,831 5,201,288 $10.20
Class B $566,481 55,494 $10.21
Class L N/A N/A N/A
Class O N/A N/A N/a
CITISELECT FOLIO 300
BALANCED
Class A $92,795,681 8,907,924 $10.42
Class B $878,690 84,456 $10.40
Class L N/A N/A N/A
Class O N/A N/A N/a
CITIFUNDS BALANCED
PORTFOLIO
Class A $170,174,790 13,392,394 $12.71
Class B $1,718,656 134,144 $12.81
Class L N/A N/A N/A
Class O N/A N/A N/A
<PAGE>
SMITH BARNEY BALANCED FUND
Class A $412,707,815 28,127,372 $14.67
Class B $374,649,371 25,619,418 $14.62
Class L $14,293,377 976,523 $14.64
Class O $5,672,904 387,657 $14.63
PRO FORMA SMITH BARNEY
BALANCED FUND
Class A $728,710,117 49,668,088 $14.67
Class B $377,813,198 25,835,822 $14.62
Class L $14,293,377 976,523 $14.64
Class O $5,672,904 387,657 $14.63
---------------------------------------------------------------------------------------
</TABLE>
Performance
Performance shown below is as of December 31, 1999 and based on historical
earnings and is not predictive of future performance. Performance reflects
reinvestment of dividends and other earnings, but does not reflect any
applicable sales charges.
The information below is for the Class A shares of the Funds. The total
returns for the Class B shares of each Fund would be lower than the returns of
the Class A shares of such Fund, because Class B shares have a higher total
annual expense ratio. In addition, the information below does not reflect
applicable sales charges. The sales charges applicable to the Class A
(front-end load) and Class B (CDSC) shares of the Smith Barney Fund are the
same as those applicable to the CitiSelect Portfolios, with the following
exceptions: the front-end load for purchases of Class A shares in amounts less
than $25,000 and in amounts greater than $100,000 and the CDSC payable in the
first year after purchase applicable to shares of the Smith Barney Fund are
higher than those applicable to the CitiSelect Portfolios. For more information
about the applicable sales charges and other Fund expenses, please refer to
"Overall Expenses" above.
Prior to June 1998, the Smith Barney Fund was a utilities-sector fund
rather than a balanced fund and it had different investment goals, policies and
strategies and different portfolio managers. The following table shows the
total returns of Class A shares of each Fund for the calendar years indicated.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CITISELECT FOLIO 200 CITISELECT FOLIO 300 SMITH BARNEY FUND
CONSERVATIVE BALANCED
---------------------------------------------------------------------
Year Ended:
12/31/99 0.97% 4.27% 11.70%
12/31/98 6.94% 6.59% 12.19%
12/31/97 8.03% 9.86% 20.83%
Best Quarter 6.71% (6/97) 8.71% (12/98) 14.45% (12/98)
Worst Quarter (4.27)% (9/98) (7.51)% (9/98) (7.51)% (9/98)
</TABLE>
VOTING INFORMATION
General Information
The Board of Trustees of the CitiFunds Trust, on behalf of the CitiSelect
Portfolios, is furnishing this combined Proxy Statement/Prospectus in
connection with the solicitation of proxies for a Special Meeting of
Shareholders of the CitiSelect Portfolios at which shareholders will be asked
to consider and approve the proposed Plan with respect to the CitiSelect
Portfolio of which such shareholder own shares. It is expected that the
solicitation of proxies will be primarily by mail. Officers and service
contractors of the CitiSelect Portfolios and Smith Barney Fund may also solicit
proxies by telephone or otherwise. Georgeson Shareholder Communications, Inc.
has been retained to assist in the solicitation of proxies, at a cost of
approximately $7,000 with respect to CitiSelect Folio 200 Conservative and
approximately $14,000 with respect to CitiSelect Folio 300 Balanced.
Shareholders may vote (1) by mail, by marking, signing, dating and returning
the enclosed proxy ballot(s) in the enclosed postage-paid envelope, (2) by
touch-tone voting over the telephone, or (3) by voting via the internet. Any
shareholder of the CitiSelect Portfolios giving a proxy has the power to revoke
it by submitting a written notice of revocation to the CitiSelect Portfolios or
by attending the Special Meeting and voting in person. All properly executed
proxies received in time for the Special Meeting will be voted as specified in
the proxy or, if no specification is made, in favor of the proposals referred
to in the Proxy Statement.
In cases where CitiSelect shareholders have purchased their shares through
Service Agents, these Service Agents are the shareholders of record of the
CitiSelect Portfolios. At the Special Meeting, 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.
Quorum; Vote Required to Approve Proposal
The holders of a majority of the outstanding shares entitled to vote of a
CitiSelect Portfolio present in person or by proxy shall constitute a quorum at
any meeting of shareholders for the transaction of business by that Fund. A
shareholder vote may be taken with respect to one or both CitiSelect Portfolio
on some or all matters if a quorum is present and sufficient votes have been
received for approval with respect to such CitiSelect Portfolio.
If the necessary quorum to transact business or the vote required to
approve the Plan with respect to either CitiSelect Portfolio is not obtained at
<PAGE>
the Special Meeting, the persons named as proxies may propose one or more
adjournments of the Special Meeting in accordance with applicable law to permit
further solicitation of proxies with respect to the CitiSelect Portfolio that
did not receive the vote necessary for approval of the Plan or did not obtain a
quorum. Any such adjournment as to a matter will require the affirmative vote
of the holders of a majority of the CitiSelect Portfolio's shares present in
person or by proxy at the Special Meeting. The persons named as proxies will
vote in favor of such adjournment those proxies which they are entitled to vote
in favor of that proposal and will vote against any such adjournment those
proxies to be voted against that proposal.
For purposes of determining the presence of a quorum for transacting
business at the Special Meeting, abstentions and broker "non-votes" will be
treated as shares that are present but which have not been voted. Broker
non-votes are proxies received by a CitiSelect Portfolio from brokers or
nominees when the broker or nominee has neither received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter. Accordingly, shareholders are urged to forward
their voting instructions promptly.
With respect to each CitiSelect Portfolio, the Plan must be approved by
the vote of (a) 67% or more of the voting securities of the Fund present at the
Special Meeting, if the holders of more than 50% of the outstanding voting
securities of the Fund are present or represented by proxy; or (b) more than
50% of the outstanding voting securities of the Fund, whichever is less.
Abstentions and broker non-votes will have the effect of a "no" vote on the
proposal to approve the Plan. The Plan provides that in the event the Plan is
approved with respect to one but not both of the CitiSelect Portfolios, the
failure of one CitiSelect Portfolio to consummate the transactions contemplated
by the Plan shall not affect the consummation or validity of the Plan with
respect to the other CitiSelect Portfolio.
Outstanding Shareholders
Holders of record of the shares of the CitiSelect Portfolios at the close
of business on August 11, 2000 (the "Record Date"), as to any matter on which
they are entitled to vote, will be entitled to one vote per share on all
business of the Special Meeting. As of August 11, 2000, there were ________
outstanding Class A shares and ________ outstanding Class B shares of
CitiSelect Folio 200 Conservative entitled to vote and ________ outstanding
Class A shares and ________ outstanding Class B shares of CitiSelect Folio 300
Balanced entitled to vote.
Listed below are the name, address and share ownership of each person
known to the CitiSelect Portfolios to own 5% or more of any class of shares of
the CitiSelect Folio 200 Conservative or CitiSelect Folio 300 Balanced as of
_________ __, 2000. The table also indicates the percentage of the Smith Barney
Fund's shares to be owned by such persons upon consummation of the
Reorganization on the basis of present holdings and commitments. The type of
ownership of each person listed below is record ownership.
PRO FORMA
PERCENTAGE
PERCENTAGE OWNERSHIP
NAME AND ADDRESS OWNERSHIP POST-REORGANIZATION
------------------------------------------------------------------
<PAGE>
Listed below are the name, address and share ownership of each person
known to the Smith Barney Fund to own 5% or more of any class of shares of the
Smith Barney Fund as of _________ __, 2000. The table also indicates the
percentage of the Smith Barney Fund's shares to be owned by such persons upon
consummation of the Reorganization on the basis of present holdings and
commitments. The type of ownership of each person listed below is record
ownership.
PRO FORMA
PERCENTAGE
PERCENTAGE OWNERSHIP
NAME AND ADDRESS OWNERSHIP POST-REORGANIZATION
------------------------------------------------------------------
[**If any shareholder beneficially owns more than 25% of the voting
securities of a Fund, note that the shareholder may be presumed to control that
Fund and provide jurisdiction of organization and list all parent companies, if
applicable.**]
As of _________ __, 2000, the officers and Trustees of the CitiFunds Trust
as a group owned less than 1% of any class of either CitiSelect Portfolio's
outstanding shares. As of _________ __, 2000, the officers and Trustees of the
Smith Barney Trust as a group owned less than 1% of any class of the Smith
Barney Fund's outstanding shares.
ADDITIONAL INFORMATION ABOUT THE FUNDS
As noted above, additional information about the CitiSelect Portfolios,
the Smith Barney Fund and the Reorganization has been filed with the Securities
and Exchange Commission and may be obtained without charge by writing or
calling the CitiSelect Portfolios, 21 Milk Street, 5th Floor, Boston,
Massachusetts 02109, telephone number (617) 423-1679, or the Smith Barney Fund,
388 Greenwich Street, New York, New York 10013, telephone number (800)
451-2010. Information included in this Proxy Statement/Prospectus concerning
the CitiSelect Portfolios was provided by the CitiFunds Trust, on behalf of the
CitiSelect Portfolios, and information concerning the Smith Barney Fund was
provided by Smith Barney Income Funds, on behalf of the Smith Barney Fund.
Each Fund files reports, proxy materials and other information about the
applicable Fund with the Securities and Exchange Commission. Such reports,
proxy material and other information can be inspected and copied at the Public
Reference Room maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material can also be obtained from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington D.C.
20549 at prescribed rates or without charge from the Commission at
[email protected].
OTHER MATTERS
No Trustee is aware of any matters that will be presented for action at
the Special Meeting other than the matters set forth herein. Should any other
matters requiring a vote of shareholders arise, the proxy in the accompanying
form will confer upon the person or persons entitled to vote the shares
represented by such proxy the discretionary authority to vote the shares as to
any such other matters in accordance with their best judgment in the interest
of the CitiSelect Portfolios.
<PAGE>
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) PROMPTLY. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. YOU MAY ALSO CAST YOUR VOTE
VIA THE INTERNET OR BY TELEPHONE.
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this ____ day of ___________________, 2000, between CitiFundsSM Trust I, a
Massachusetts business trust with its principal place of business at 21 Milk
Street, Boston, Massachusetts 02109 (the "CitiFund Trust"), on behalf of its
series, CitiSelect Folio 200 Conservative and CitiSelect Folio 300 Balanced
(each a "CitiSelect Portfolio," and together, the "CitiSelect Portfolios"), and
Smith Barney Income Funds, a Massachusetts business trust with its principal
place of business at 388 Greenwich Street, New York, New York 10013 (the "Smith
Barney Trust"), on behalf of its series, Smith Barney Balanced Fund (the "Smith
Barney Fund," and together with the CitiSelect Portfolios, the "Funds"), and,
solely for purposes of Section 10.2 below, Citibank, N.A., a national banking
association ("Citibank"), and SSB Citi Fund Management LLC, a Delaware limited
liability company ("SSB Citi").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), with respect to the
CitiSelect Portfolios and the Smith Barney Fund, with which each CitiSelect
Portfolio will reorganize, as provided herein. Each reorganization will consist
of the transfer of substantially all of the assets of a CitiSelect Portfolio to
the Smith Barney Trust, on behalf of the Smith Barney Fund, in exchange solely
for voting shares of the corresponding classes of shares of beneficial interest
($0.001 par value per share) of the Smith Barney Fund (the "Smith Barney Fund
Shares"), the assumption by the Smith Barney Trust, on behalf of the Smith
Barney Fund, of all of the liabilities of the CitiSelect Portfolio and the
distribution of the Smith Barney Fund Shares to the shareholders of the
CitiSelect Portfolio in complete liquidation of the CitiSelect Portfolio as
provided herein, all upon the terms and conditions hereinafter set forth in
this Agreement (collectively, the "Reorganizations").
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF EACH CITISELECT PORTFOLIO TO THE SMITH BARNEY
FUND IN EXCHANGE FOR SMITH BARNEY FUND SHARES, THE ASSUMPTION OF ALL
LIABILITIES OF THE CITISELECT PORTFOLIOS AND THE LIQUIDATION OF THE
CITISELECT PORTFOLIOS
1.1. Subject to the terms and conditions herein set forth and on the
basis of the representations and warranties contained herein, the CitiFund
Trust, on behalf of the CitiSelect Portfolios, agrees to transfer to the Smith
Barney Fund substantially all of the CitiSelect Portfolios' assets as set forth
in section 1.2, and the Smith Barney Trust, on behalf of the Smith Barney Fund,
agrees in exchange therefor (i) to deliver to the CitiSelect Portfolios that
number of full and fractional Class A and Class B Smith Barney Fund Shares
determined by dividing the value of the CitiSelect Portfolios' net assets
allocated to each class, computed in the manner and as of the time and date set
forth in section 2.1, by the net asset value of one Smith Barney Fund Share of
the applicable class, computed in the manner and as of the time and date set
forth in section 2.2; and (ii) to assume all of the liabilities of the
CitiSelect Portfolios, as set forth in section 1.3. Such transactions shall
take place at the closing provided for in section 3.1 (the "Closing").
1.2. The assets of the CitiSelect Portfolios to be acquired by the
Smith Barney Fund (collectively, "Assets") shall consist of all property and
<PAGE>
assets of every kind and nature of the CitiSelect Portfolios, including,
without limitation, all cash, cash equivalents, securities, commodities,
futures, claims (whether absolute or contingent, known or unknown), receivables
(including dividend, interest and other receivables), good will and other
intangible property, any deferred or prepaid expenses, and all interests,
rights, privileges and powers, other than cash in an amount necessary to pay
dividends and distributions as provided in section 1.4 hereof and the
CitiSelect Portfolios' rights under this Agreement.
1.3. The Smith Barney Fund shall assume all liabilities of each
CitiSelect Portfolio, whether accrued or contingent, existing at the Valuation
Time as defined in section 2.1. Each CitiSelect Portfolio will endeavor to
discharge all of its known liabilities and obligations prior to the Closing
Date as defined in section 3.1, other than those liabilities and obligations
which would otherwise be discharged at a later date in the ordinary course of
business.
1.4. On or as soon as practicable prior to the Closing Date, each of
the CitiSelect Portfolios will declare and pay to its shareholders of record
one or more dividends and/or other distributions so that it will have
distributed substantially all of its investment company taxable income
(computed without regard to any deduction for dividends paid) and realized net
capital gain, if any, for the current taxable year through the Closing Date.
1.5. Immediately after the transfer of its assets provided for in
section 1.1, the CitiSelect Portfolios will distribute to their shareholders of
record (the "CitiSelect Shareholders"), determined as of the Valuation Time as
defined in section 2.1, on a pro rata basis, the Smith Barney Fund Shares
received by the CitiSelect Portfolios pursuant to section 1.1 and will
completely liquidate. Such distribution and liquidation will be accomplished by
the transfer of the Smith Barney Fund Shares then credited to the account of
the CitiSelect Portfolios on the books of the Smith Barney Fund to open
accounts on the share records of the Smith Barney Fund in the names of the
CitiSelect Shareholders. The aggregate net asset value of each class of Smith
Barney Fund Shares to be so credited to CitiSelect Shareholders shall be equal
to the aggregate net asset value of the corresponding class of shares of the
CitiSelect Portfolios (the "CitiSelect Shares") owned by such shareholders as
of the Valuation Time. All issued and outstanding shares of the CitiSelect
Portfolios will simultaneously be cancelled on the books of the CitiSelect
Portfolios. The Smith Barney Fund will not issue certificates representing
Smith Barney Fund Shares in connection with such exchange.
1.6. Ownership of Smith Barney Fund Shares will be shown on the Smith
Barney Fund's books. Shares of the Smith Barney Fund will be issued in the
manner described in the Smith Barney Fund's then-current prospectus and
statement of additional information.
1.7. Any reporting responsibility of the CitiSelect Portfolios,
including, without limitation, the responsibility for filing of regulatory
reports, tax returns or other documents with the Securities and Exchange
Commission (the "Commission"), any state securities commission, and any
federal, state or local tax authorities or any other relevant regulatory
authority, is and shall remain the responsibility of the CitiSelect Portfolios.
1.8. All books and records of the CitiSelect Portfolios, including all
books and records required to be maintained under the Investment Company Act of
1940, as amended (the "1940 Act"), and the rules and regulations thereunder,
shall be available to the Smith Barney Fund from and after the Closing Date and
shall be turned over to the Smith Barney Fund as soon as practicable following
the Closing Date.
<PAGE>
2. VALUATION
2.1. The value of the net assets of each class of the CitiSelect
Portfolios shall be computed as of the close of regular trading on the New York
Stock Exchange, Inc. ("NYSE") on the Closing Date (such time and date also
being hereinafter called the "Valuation Time"), after the declaration and
payment of any dividends and/or other distributions on that date, using the
valuation procedures described in the Smith Barney Fund's then-current
prospectus and statement of additional information.
2.2. The net asset value of a Class A Smith Barney Fund Share shall be
the net asset value of a Class A share of the Smith Barney Fund computed as of
the Valuation Time using the valuation procedures set forth in the Smith Barney
Fund's then-current prospectus and statement of additional information. The net
asset value of a Class B Smith Barney Fund Share shall be the net asset value
of a Class B share of the Smith Barney Fund computed as of the Valuation Time
using the valuation procedures set forth in the Smith Barney Fund's
then-current prospectus and statement of additional information.
2.3. The number of Class A and Class B Smith Barney Fund Shares to be
issued (including fractional shares, if any) in exchange for the Assets of each
CitiSelect Portfolio, less the value of the liabilities of that CitiSelect
Portfolio assumed, shall be determined by dividing the value of the Assets
allocated to each class of the CitiSelect Portfolio less the value of the
liabilities allocated to that class of the CitiSelect Portfolio as determined
in accordance with section 2.1, by the net asset value of a Smith Barney Fund
Share of the corresponding class determined in accordance with section 2.2.
2.4. All computations of value hereunder shall be made by or under the
direction of each Fund's investment adviser in accordance with its regular
practice and the requirements of the 1940 Act, and shall be subject to
confirmation by each Fund's Board of Trustees and independent accountants.
3. CLOSING AND CLOSING DATE
3.1. The Closing of each Reorganization contemplated by this Agreement
shall be ______________, 2000, or such earlier or later date as the parties may
agree in writing (the "Closing Date"). All acts taking place at the Closing
shall be deemed to take place simultaneously as of 4:00 P.M., Eastern time, on
the Closing Date, unless otherwise agreed to by the parties. The Closing shall
be held at the [**New York offices of Bingham Dana LLP**] or at such other
place and time as the parties may agree.
3.2. The CitiFund Trust shall furnish to the Smith Barney Trust a
statement of each CitiSelect Portfolio's net assets, together with a list of
portfolio holdings with values as determined in section 2.1, all as of the
Valuation Time, certified by the CitiFund Trust's President (or any Vice
President) and Treasurer (or any Assistant Treasurer).
3.3. State Street Bank and Trust Company ("State Street"), as custodian
for the CitiSelect Portfolios, shall deliver at the Closing a certificate of an
authorized officer stating that (a) the Assets of the CitiSelect Portfolios
have been delivered in proper form to PNC Bank, National Association ("PNC
Bank"), custodian for the Smith Barney Fund, prior to or on the Closing Date
and (b) all necessary taxes in connection with the delivery of such Assets,
including all applicable federal and state stock transfer stamps, if any, have
been paid or provision for payment has been made. The portfolio securities of
the CitiSelect Portfolios represented by a certificate or other written
<PAGE>
instrument shall be presented by State Street to PNC Bank for examination no
later than five business days preceding the Closing Date and transferred and
delivered by the CitiSelect Portfolios as of the Closing Date for the account
of the Smith Barney Fund duly endorsed in proper form for transfer in such
condition as to constitute good delivery thereof. The CitiSelect portfolio
securities and instruments deposited with a securities depository, as defined
in Rule 17f4 under the 1940 Act, shall be delivered as of the Closing Date by
book entry in accordance with the customary practices of such depositories and
State Street. The cash to be transferred by the CitiSelect Portfolios shall be
delivered by wire transfer of federal funds on the Closing Date.
3.4. State Street, as transfer agent of the CitiSelect Portfolios, on
behalf of the CitiSelect Portfolios, shall deliver at the Closing a certificate
of an authorized officer stating that its records contain the names and
addresses of the CitiSelect Shareholders and the number and percentage
ownership (to three decimal places) of outstanding CitiSelect Shares of each
class owned by each such shareholder immediately prior to the Closing. The
Smith Barney Fund shall issue and deliver a confirmation evidencing the Smith
Barney Fund Shares of each class to be credited on the Closing Date to the
CitiSelect Portfolios or provide evidence satisfactory to the CitiSelect
Portfolios that such Smith Barney Fund Shares have been credited to the
CitiSelect Portfolios' accounts on the books of the Smith Barney Fund.
3.5. In the event that immediately prior to the Valuation Time (a) the
NYSE or another primary trading market for portfolio securities of the Smith
Barney Fund or the CitiSelect Portfolios shall be closed to trading or trading
thereupon shall be restricted, or (b) trading or the reporting of trading on
the NYSE or elsewhere shall be disrupted so that, in the judgment of the Board
of Trustees of the CitiFund Trust or the Smith Barney Trust, accurate appraisal
of the value of the net assets with respect to the Smith Barney Fund Shares or
the CitiSelect Shares is impracticable, the Closing Date shall be postponed
until the first business day after the day when trading shall have been fully
resumed and reporting shall have been restored.
3.6. At the Closing, each party shall deliver to the other such bills
of sale, checks, assumption agreements, assignments, share certificates, if
any, receipts or other documents as such other party or its counsel may
reasonably request to effect the transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1. The CitiFund Trust, on behalf of itself and each CitiSelect
Portfolio, represents and warrants to the Smith Barney Trust and the Smith
Barney Fund as follows:
(a) The CitiFund Trust is a business trust duly established and
validly existing under the laws of the Commonwealth of Massachusetts
with power under its Declaration of Trust to own all of its properties
and assets and to carry on its business as it is now being conducted.
Each CitiSelect Portfolio has been duly established as a series of the
CitiFund Trust;
(b) The CitiFund Trust is registered with the Commission as an
openend management investment company under the 1940 Act, and such
registration is in full force and effect;
(c) No consent, approval, authorization, or order of any court
or governmental authority is required for the consummation by the
CitiFund Trust, on behalf of the CitiSelect Portfolios, of the
transactions contemplated herein, except such as may be required under
<PAGE>
the Securities Act of 1933, as amended (the "1933 Act"), the Securities
Exchange Act of 1934 (the "1934 Act"), the 1940 Act, and state
securities laws;
(d) Other than with respect to contracts entered into in
connection with the portfolio management of the CitiSelect Portfolios
which shall terminate on or prior to the Closing Date, the CitiSelect
Portfolios are not, and the execution, delivery and performance of this
Agreement by the CitiFund Trust on behalf of the CitiSelect Portfolios
will not result, in violation of Massachusetts law or of the CitiFund
Trust's Declaration of Trust or By-Laws, or of any material agreement,
indenture, instrument, contract, lease or other undertaking known to
counsel to which either CitiSelect Portfolio is a party or by which it
is bound, and the execution, delivery and performance of this Agreement
by the CitiFund Trust on behalf of the CitiSelect Portfolios will not
result in the acceleration of any obligation, or the imposition of any
penalty, under any agreement, indenture, instrument, contract, lease,
judgment or decree to which either CitiSelect Portfolio is a party or
by which it is bound;
(e) To the CitiFund Trust's knowledge, there is no material
litigation or administrative proceeding or investigation of or before
any court or governmental body presently pending or threatened against
either CitiSelect Portfolio or any properties or assets held by it. The
CitiFund Trust knows of no facts which might form the basis for the
institution of such proceedings or which would materially and adversely
affect its business or the business of the CitiSelect Portfolios, and
is not a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and
adversely affects its or the CitiSelect Portfolios' business or its or
the CitiSelect Portfolios' ability to consummate the transactions
herein contemplated;
(f) The financial statements of the CitiSelect Portfolios at and
for the year ended October 31, 1999 have been audited by
PricewaterhouseCoopers LLP, independent certified public accountants,
and are in accordance with generally accepted accounting principles
("GAAP") consistently applied. The financial statements of the
CitiSelect Portfolios at and for the six-month period ended April 30,
2000, which are unaudited, are in accordance with GAAP consistently
applied. All of such statements (copies of which have been furnished to
the Smith Barney Fund) present fairly, in all material respects, the
financial position, results of operations, changes in net assets and
financial highlights of the CitiSelect Portfolios as of the dates
thereof in accordance with GAAP, and there are no known contingent
liabilities of either CitiSelect Portfolio required to be reflected on
a statement of assets and liabilities (including the notes thereto) in
accordance with GAAP as of such dates not disclosed therein;
(g) Since April 30, 2000, there has not been any material
adverse change in either CitiSelect Portfolio's financial condition,
assets, liabilities or business other than changes occurring in the
ordinary course of business, or any incurrence by either CitiSelect
Portfolio of indebtedness maturing more than one year from the date
such indebtedness was incurred except as otherwise disclosed to and
accepted in writing by the Smith Barney Fund. For purposes of this
subsection (g), a decline in net asset value per share of a CitiSelect
Portfolio due to declines in market values of securities in the
CitiSelect Portfolio's portfolio, the discharge of CitiSelect Portfolio
liabilities, or the redemption of CitiSelect Shares by CitiSelect
Shareholders shall not constitute a material adverse change;
<PAGE>
(h) At the date hereof and at the Closing Date, all federal and
other tax returns and reports of the CitiSelect Portfolios required by
law to have been filed by such dates (including any extensions) have or
shall have been filed and are or will be correct in all material
respects, and all federal and other taxes shown as due or required to
be shown as due on said returns and reports shall have been paid or
provision shall have been made for the payment thereof, and, to the
best of the CitiFund Trust's knowledge, no such return is currently
under audit and no assessment has been asserted with respect to such
returns;
(i) For each taxable year of its operation, the CitiSelect
Portfolios have met the requirements of Subchapter M of the Code for
qualification as a regulated investment company and have elected to be
treated as such, and have been eligible to and have computed their
federal income tax under Section 852 of the Code. At Closing, each
CitiSelect Portfolio will have distributed all of its investment
company taxable income and net capital gain (as defined in the Code)
that has accrued up to the Closing Date;
(j) All issued and outstanding shares of the CitiSelect
Portfolios (i) have been offered and sold in every state and the
District of Columbia in compliance in all material respects with
applicable registration requirements of the 1933 Act and state
securities laws, (ii) are, and on the Closing Date will be, duly and
validly issued and outstanding, fully paid and non-assessable, and (iii)
will be held at the time of the Closing by the persons and in the
amounts set forth in the records of the CitiSelect Portfolios' transfer
agent, as provided in section 3.3. There are no outstanding options,
warrants or other rights to subscribe for or purchase any CitiSelect
Shares, nor is there outstanding any security convertible into any
CitiSelect Share;
(k) At the Closing Date, the CitiFund Trust, on behalf of each
CitiSelect Portfolio, will have good and marketable title to such
CitiSelect Portfolio's Assets and full right, power and authority to
sell, assign, transfer and deliver such Assets hereunder free of any
liens or other encumbrances, except those liens or encumbrances as to
which the Smith Barney Trust, on behalf of the Smith Barney Fund, has
received notice at or prior to the Closing, and upon delivery and
payment for such Assets, the Smith Barney Fund will acquire good and
marketable title thereto, subject to no restrictions on the full
transfer thereof, except those restrictions as to which the Smith
Barney Fund has received notice and necessary documentation at or prior
to the Closing;
(l) The execution, delivery and performance of this Agreement
will have been duly authorized prior to the Closing Date by all
necessary action on the part of the Trustees of the CitiFund Trust,
and, subject to the approval of the CitiSelect Shareholders, this
Agreement constitutes a valid and binding obligation of the CitiFund
Trust, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general principles of equity;
(m) The information to be furnished by the CitiFund Trust for
use in applications for orders, registration statements or proxy
materials or for use in any other document filed or to be filed with
any federal, state or local regulatory authority (including the
National Association of Securities Dealers, Inc.), which may be
necessary or appropriate in connection with the transactions
<PAGE>
contemplated hereby, shall be accurate and complete in all material
respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto;
(n) The current combined prospectus and statement of additional
information of the CitiSelect Portfolios conform in all material
respects to the applicable requirements of the 1933 Act and the 1940
Act and the rules and regulations of the Commission thereunder, and do
not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they
were made, not materially misleading; and
(o) The combined proxy statement of the CitiSelect Portfolios to
be included in the Registration Statement referred to in section 5.6
(the "Proxy Statement"), insofar as it relates to the CitiSelect
Portfolios, will, on the effective date of the Registration Statement
and on the Closing Date, not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which such statements are made, not materially misleading;
provided, however, that the representations and warranties in this
section shall not apply to statements in or omissions from the Proxy
Statement and the Registration Statement made in reliance upon and in
conformity with information that was furnished or should have been
furnished by the Smith Barney Trust for use therein.
4.2. The Smith Barney Trust, on behalf of itself and the Smith Barney
Fund, represents and warrants to the CitiFund Trust and the CitiSelect
Portfolios as follows:
(a) The Smith Barney Trust is a business trust duly established
and validly existing under the laws of the Commonwealth of
Massachusetts with power under its Declaration of Trust to own all of
its properties and assets and to carry on its business as it is now
being conducted. The Smith Barney Fund has been duly established as a
series of the Smith Barney Trust;
(b) The Smith Barney Trust is registered with the Commission as
an openend management investment company under the 1940 Act, and such
registration is in full force and effect;
(c) No consent, approval, authorization, or order of any court
or governmental authority is required for the consummation by the Smith
Barney Trust, on behalf of the Smith Barney Fund, of the transactions
contemplated herein, except such as may be required under the 1933 Act,
the 1934 Act, the 1940 Act, and state securities laws;
(d) The Smith Barney Fund is not, and the execution, delivery
and performance of this Agreement by the Smith Barney Trust on behalf
of the Smith Barney Fund will not result, in violation of Massachusetts
law or of the Smith Barney Trust's Declaration of Trust or By-Laws, or
of any material agreement, indenture, instrument, contract, lease or
other undertaking known to counsel to which the Smith Barney Fund is a
party or by which it is bound, and the execution, delivery and
performance of this Agreement by the Smith Barney Trust on behalf of
the Smith Barney Fund will not result in the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
indenture, instrument, contract, lease, judgment or decree to which the
Smith Barney Fund is a party or by which it is bound;
<PAGE>
(e) To the Smith Barney Trust's knowledge, there is no material
litigation or administrative proceeding or investigation of or before
any court or governmental body presently pending or threatened against
the Smith Barney Fund or any properties or assets held by it. The Smith
Barney Trust knows of no facts which might form the basis for the
institution of such proceedings or which would materially and adversely
affect its business or the business of the Smith Barney Fund, and is
not a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and
adversely affects its or the Smith Barney Fund's business or its or the
Smith Barney Fund's ability to consummate the transactions herein
contemplated;
(f) The financial statements of the Smith Barney Fund at and for
the year ended July 31, 1999 have been audited by KPMG LLP, independent
certified public accountants, and are in accordance with GAAP
consistently applied. The financial statements of the Smith Barney Fund
at and for the six-month period ended January 31, 2000, which are
unaudited, are in accordance with GAAP consistently applied. All such
statements (copies of which have been furnished to the CitiSelect
Portfolios) present fairly, in all material respects, the financial
position, results of operations, changes in net assets and financial
highlights of the Smith Barney Fund as of such date in accordance with
GAAP, and there are no known contingent liabilities of the Smith Barney
Fund required to be reflected on a statement of assets and liabilities
(including the notes thereto) in accordance with GAAP as of such date
not disclosed therein;
(g) Since January 31, 2000, there has not been any material
adverse change in the Smith Barney Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary
course of business, or any incurrence by the Smith Barney Fund of
indebtedness maturing more than one year from the date such
indebtedness was incurred except as otherwise disclosed to and accepted
in writing by the CitiSelect Portfolios. For purposes of this
subsection (g), a decline in net asset value per share of the Smith
Barney Fund due to declines in market values of securities in the Smith
Barney Fund's portfolio, the discharge of Smith Barney Fund
liabilities, or the redemption of Smith Barney Fund Shares by Smith
Barney Fund Shareholders shall not constitute a material adverse
change;
(h) At the date hereof and at the Closing Date, all federal and
other tax returns and reports of the Smith Barney Fund required by law
to have been filed by such dates (including any extensions) have or
shall have been filed and are or will be correct in all material
respects, and all federal and other taxes shown as due or required to
be shown as due on said returns and reports shall have been paid or
provision shall have been made for the payment thereof, and, to the
best of the Smith Barney Trust's knowledge, no such return is currently
under audit and no assessment has been asserted with respect to such
returns;
(i) For each taxable year of its operation, the Smith Barney
Fund has met the requirements of Subchapter M of the Code for
qualification as a regulated investment company and has elected to be
treated as such, has been eligible to and has computed its federal
income tax under Section 852 of the Code, and will do so for the
taxable year including the Closing Date. At Closing, the Smith Barney
Fund will have distributed all of its investment company taxable income
and net capital gain (as defined in the Code) that has accrued up to
the Closing Date;
<PAGE>
(j) All issued and outstanding shares of the Smith Barney Fund
(i) have been offered and sold in every state and the District of
Columbia in compliance in all material respects with applicable
registration requirements of the 1933 Act and state securities laws,
and (ii) are, and on the Closing Date will be, duly and validly issued
and outstanding, fully paid and non-assessable. There are no outstanding
options, warrants or other rights to subscribe for or purchase any
Smith Barney Fund Shares, nor is there outstanding any security
convertible into any Smith Barney Fund Share. The Smith Barney Fund
Shares to be issued and delivered to the CitiSelect Portfolios for the
account of the CitiSelect Shareholders pursuant to the terms of this
Agreement, at the Closing Date, will have been duly authorized and,
when so issued and delivered, will be duly and validly issued and
outstanding Smith Barney Fund Shares, and will be fully paid and
non-assessable;
(k) At the Closing Date, the Smith Barney Trust, on behalf of
the Smith Barney Fund, will have good and marketable title to the Smith
Barney Fund's assets, free of any liens or other encumbrances, except
those liens or encumbrances as to which the CitiFund Trust, on behalf
of the CitiSelect Portfolios, has received notice at or prior to the
Closing;
(l) The execution, delivery and performance of this Agreement
will have been duly authorized prior to the Closing Date by all
necessary action on the part of the Trustees of the Smith Barney Trust,
and this Agreement will constitute a valid and binding obligation of
the Smith Barney Trust, enforceable in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general principles of equity;
(m) The information to be furnished by the Smith Barney Trust
for use in applications for orders, registration statements or proxy
materials or for use in any other document filed or to be filed with
any federal, state or local regulatory authority (including the
National Association of Securities Dealers, Inc.), which may be
necessary or appropriate in connection with the transactions
contemplated hereby, shall be accurate and complete in all material
respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto;
(n) The current prospectus and statement of additional
information of the Smith Barney Fund conform in all material respects
to the applicable requirements of the 1933 Act and the 1940 Act and the
rules and regulations of the Commission thereunder, and do not include
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading; and
(o) The Proxy Statement, insofar as it relates to the Smith
Barney Fund, and the Registration Statement will, on the effective date
of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were
made, not materially misleading; provided, however, that the
representations and warranties in this section shall not apply to
<PAGE>
statements in or omissions from the Proxy Statement and the
Registration Statement made in reliance upon and in conformity with
information that was furnished or should have been furnished by the
CitiFund Trust for use therein.
5. COVENANTS
5.1. Each Fund covenants to operate its business in the ordinary course
between the date hereof and the Closing Date, it being understood that (a) such
ordinary course of business will include (i) the declaration and payment of
customary dividends and other distributions and (ii) such changes as are
contemplated by the Funds' normal operations; and (b) each Fund shall retain
exclusive control of the composition of its portfolio until the Closing Date.
5.2. Upon reasonable notice, the Smith Barney Fund's officers and
agents shall have reasonable access to the CitiSelect Portfolios' books and
records necessary to maintain current knowledge of the CitiSelect Portfolios
and to ensure that the representations and warranties made by the CitiSelect
Portfolios are accurate.
5.3. The CitiFund Trust and the CitiSelect Portfolios covenant to call a
meeting of the shareholders of the CitiSelect Portfolios to consider and act
upon this Agreement and to take all other reasonable action necessary to obtain
approval of the transactions contemplated herein. Such meeting shall be
scheduled for no later than _____________, 2000 (or such other date as the
parties may agree to in writing).
5.4. The CitiFund Trust and the CitiSelect Portfolios covenant that the
Smith Barney Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.5. Subject to the provisions of this Agreement, the parties hereto
will each take, or cause to be taken, all actions, and do or cause to be done,
all things reasonably necessary, proper, and/or advisable to consummate and
make effective the transactions contemplated by this Agreement.
5.6. The Smith Barney Trust will file a Registration Statement on Form
N14 (the "Registration Statement") under the 1933 Act, and the CitiFund Trust
will file the Proxy Statement contained therein, in connection with the meeting
of CitiSelect Shareholders to consider approval of this Agreement and the
transactions contemplated herein, with the Commission as promptly as
practicable. The CitiFund Trust and the CitiSelect Portfolios will provide the
Smith Barney Fund with information relating to it that is required by the 1933
Act, the 1934 Act and the 1940 Act to be included in the Registration
Statement, including the Proxy Statement.
5.7. The CitiFund Trust and each CitiSelect Portfolio covenants that it
will, from time to time, as and when reasonably requested by the Smith Barney
Trust, execute and deliver or cause to be executed and delivered all such
assignments and other instruments, and will take or cause to be taken such
further action, as the Smith Barney Trust may reasonably deem necessary or
desirable in order to vest in and confirm the Smith Barney Trust's title to and
possession of the Assets and otherwise to carry out the intent and purpose of
this Agreement.
5.8. Each of the Smith Barney Trust and the Smith Barney Fund covenants
that it will, from time to time, as and when reasonably requested by the
CitiFund Trust, execute and deliver or cause to be executed and delivered all
such assignments, assumption agreements, releases and other instruments, and
<PAGE>
will take or cause to be taken such further action, as the CitiFund Trust may
reasonably deem necessary or desirable in order to (i) vest and confirm to the
CitiFund Trust's title to and possession of all Smith Barney Fund Shares to be
transferred to the CitiSelect Portfolios pursuant to this Agreement and (ii)
assume the assumed liabilities of the CitiSelect Portfolios.
5.9. The CitiFund Trust, the Smith Barney Trust and each Fund covenant
to use all reasonable efforts to obtain the approvals and authorizations
required by the 1933 Act, the 1940 Act and such of the state securities laws as
it deems appropriate in order to consummate the transactions contemplated
herein and, in the case of the Smith Barney Fund, to continue its operations
after the Closing Date.
5.10. As soon as reasonably practicable after the Closing, each
CitiSelect Portfolio shall make a liquidating distribution to its shareholders
consisting of the Smith Barney Fund Shares received at the Closing.
5.11. Each of the Smith Barney Fund and the CitiSelect Portfolios shall
use its reasonable best efforts to fulfill or obtain the fulfillment of the
conditions precedent to effect the transactions contemplated by this Agreement
as promptly as practicable.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE CITIFUND TRUST
The obligations of the CitiFund Trust and the CitiSelect Portfolios to
consummate the transactions provided for herein shall be subject, at the
CitiFund Trust's election, to the performance by the Smith Barney Trust and the
Smith Barney Fund of all the obligations to be performed by them hereunder on
or before the Closing Date, and, in addition thereto, the following further
conditions:
6.1. All representations and warranties of the Smith Barney Trust, on
behalf of itself and the Smith Barney Fund, contained in this Agreement shall
be true and correct in all material respects as of the date hereof and as of
the Closing Date, with the same force and effect as if made on and as of the
Closing Date; and there shall be (i) no pending or threatened litigation
brought by any person against the Smith Barney Trust or the Smith Barney Fund,
the CitiFund Trust or the CitiSelect Portfolios, or the advisers, trustees or
officers of any of the foregoing, arising out of this Agreement and (ii) no
facts known to the CitiFund Trust or the CitiSelect Portfolios, or the Smith
Barney Trust or the Smith Barney Fund, which any of such persons reasonably
believes might result in such litigation.
6.2. The Smith Barney Trust shall have delivered to the CitiFund Trust
on the Closing Date a certificate executed in its name by its President or a
Vice President, in a form reasonably satisfactory to the CitiFund Trust and
dated as of the Closing Date, to the effect that the representations and
warranties of the Smith Barney Trust and the Smith Barney Fund made in this
Agreement are true and correct on and as of the Closing Date and as to such
other matters as the CitiFund Trust shall reasonably request.
6.3. The CitiFund Trust shall have received on the Closing Date an
opinion of Willkie Farr & Gallagher, in a form reasonably satisfactory to the
CitiFund Trust, and dated as of the Closing Date, to the effect that:
(a) The Smith Barney Trust has been established as a voluntary
association with transferable shares of beneficial interest commonly
referred to as a Massachusetts business trust, and is existing under
the laws of the Commonwealth of Massachusetts, and the Smith Barney
Fund has been duly designated as a series of the Smith Barney Trust;
<PAGE>
(b) The Smith Barney Trust, with respect to the Smith Barney
Fund, has the power as a Massachusetts business trust to carry on its
business as presently conducted in accordance with the description
thereof in the Smith Barney Trust's registration statement under the
1940 Act;
(c) the Agreement has been duly authorized, executed and
delivered by the Smith Barney Trust, and constitutes a valid and
legally binding obligation of the Smith Barney Trust, enforceable in
accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium, marshaling, or other
laws and rules of law affecting the enforcement generally of creditors'
rights and remedies (including such as may deny giving effect to
waivers of debtors' or guarantors' rights), and considerations of
public policy.
(d) the execution and delivery of the Agreement did not, and the
exchange of the CitiSelect Portfolios' assets for Smith Barney Fund
Shares pursuant to the Agreement will not, violate the Smith Barney
Trust's Declaration of Trust or By-laws; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by
the Smith Barney Trust under the Federal laws of the United States or
the laws of the Commonwealth of Massachusetts for the exchange of the
CitiSelect Portfolios' assets for Smith Barney Fund Shares pursuant to
the Agreement have been obtained or made.
Such opinion may state that it is solely for the benefit of the CitiFund Trust,
its Trustees and its officers, and counsel may rely as to matters governed by
the laws of the Commonwealth of Massachusetts on an opinion of Massachusetts
counsel. Such opinion also shall include such other matters incident to the
transaction contemplated hereby as the CitiFund Trust may reasonably request.
6.4. The Smith Barney Trust and the Smith Barney Fund shall have
performed all of the covenants and complied with all of the provisions required
by this Agreement to be performed or complied with by them on or before the
Closing Date.
6.5. The Smith Barney Trust, on behalf of the Smith Barney Fund, shall
have executed and delivered an assumption agreement in form reasonably
satisfactory to the CitiFund Trust pursuant to which the Smith Barney Trust, on
behalf of the Smith Barney Fund, will assume all of the liabilities of the
CitiSelect Portfolios existing at the Valuation Time.
6.6. An endorsement to the CitiFund Trust's existing errors and omissions,
and directors and officers liability insurance policy, or other evidence of
insurance, satisfactory in all respects to the CitiFund Trust's Board of
Trustees shall have been obtained at no cost to the CitiFund Trust or the
CitiSelect Portfolios and shall be in full force and effect.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SMITH BARNEY TRUST
The obligations of the Smith Barney Trust and the Smith Barney Fund to
consummate the transactions provided for herein shall be subject, at the Smith
Barney Trust's election, to the performance by the CitiFund Trust and the
<PAGE>
CitiSelect Portfolios of all of the obligations to be performed by them
hereunder on or before the Closing Date and, in addition thereto, the following
further conditions:
7.1. All representations and warranties of the CitiFund Trust, on
behalf of itself and the CitiSelect Portfolios, contained in this Agreement
shall be true and correct in all material respects as of the date hereof and as
of the Closing Date, with the same force and effect as if made on and as of the
Closing Date; and there shall be (i) no pending or threatened litigation
brought by any person against the CitiFund Trust or the CitiSelect Portfolios,
the Smith Barney Trust or the Smith Barney Fund or the advisers, trustees or
officers of any of the foregoing, arising out of this Agreement and (ii) no
facts known to the Smith Barney Trust or the Smith Barney Fund, or the CitiFund
Trust or the CitiSelect Portfolios, which any of such persons reasonably
believes might result in such litigation.
7.2. The CitiFund Trust shall have delivered to the Smith Barney Trust
the statements of net assets described in section 3.2.
7.3. The CitiFund Trust shall have delivered to the Smith Barney Trust
on the Closing Date a certificate executed in its name by its President or a
Vice President, in a form reasonably satisfactory to the Smith Barney Trust and
dated as of the Closing Date, to the effect that the representations and
warranties of the CitiFund Trust and the CitiSelect Portfolios made in this
Agreement are true and correct on and as of the Closing Date and as to such
other matters as the Smith Barney Trust shall reasonably request.
7.4. The Smith Barney Trust shall have received on the Closing Date an
opinion of Bingham Dana LLP, in a form reasonably satisfactory to the Smith
Barney Trust, and dated as of the Closing Date, to the effect that:
(a) the CitiFund Trust has been established as a voluntary
association with transferable shares of beneficial interest commonly
referred to as a Massachusetts business trust, and is existing under
the laws of the Commonwealth of Massachusetts, and each CitiSelect
Portfolio has been duly designated as a series of the CitiFund Trust;
(b) the CitiFund Trust, with respect to the CitiSelect
Portfolios, has the power as a Massachusetts business trust to carry on
their business as presently conducted in accordance with the
description thereof in the CitiFund Trust's registration statement
under the 1940 Act;
(c) the Agreement has been duly authorized, executed and
delivered by the CitiFund Trust, and constitutes a valid and legally
binding obligation of the CitiFund Trust, enforceable in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium, marshaling, or other laws and
rules of law affecting the enforcement generally of creditors' rights
and remedies (including such as may deny giving effect to waivers of
debtors' or guarantors' rights), and considerations of public policy.
(d) the execution and delivery of the Agreement did not, and the
exchange of the CitiSelect Portfolios' assets for Smith Barney Fund
Shares pursuant to the Agreement will not, violate the CitiFund Trust's
Declaration of Trust or By-laws; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by
<PAGE>
the CitiFund Trust under the Federal laws of the United States or the
laws of the Commonwealth of Massachusetts for the exchange of the
CitiSelect Portfolios' assets for Smith Barney Fund Shares pursuant to
the Agreement have been obtained or made.
Such opinion may state that it is solely for the benefit of the Smith Barney
Trust, its Trustees and its officers. Such opinion also shall include such
other matters incident to the transaction contemplated hereby as the Smith
Barney Trust may reasonably request.
7.5. The CitiFund Trust and the CitiSelect Portfolios shall have
performed all of the covenants and complied with all of the provisions required
by this Agreement to be performed or complied with by them on or before the
Closing Date.
8. FURTHER CONDITIONS PRECEDENT
If any of the conditions set forth below have not been met on or before
the Closing Date with respect to a CitiSelect Portfolio or the Smith Barney
Fund, the other party to this Agreement shall, at its option, not be required
to consummate the applicable Reorganization of the Funds contemplated by this
Agreement. Neither Reorganization is contingent upon the closing of the other
Reorganization, and the failure to be consummated of one Reorganization shall
not, without more, excuse the consummation of the other Reorganization.
8.1. This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
each CitiSelect Portfolio in accordance with the provisions of the CitiFund
Trust's Declaration of Trust and By-Laws, applicable Massachusetts law and the
1940 Act, and certified copies of the resolutions evidencing such approval
shall have been delivered to the Smith Barney Fund. Notwithstanding anything
herein to the contrary, neither party may waive the condition set forth in this
section 8.1.
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or to either party's knowledge threatened before any court or
governmental agency in which it is sought to restrain or prohibit, or obtain
material damages or other relief in connection with, this Agreement or the
transactions contemplated herein.
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Smith Barney Trust and the Smith Barney Fund or the CitiFund Trust and the
CitiSelect Portfolios to permit consummation, in all material respects, of the
transactions contemplated hereby shall have been obtained, except where failure
to obtain any such consent, order or permit would not involve a risk of a
material adverse effect on the assets or properties of the Smith Barney Fund or
the CitiSelect Portfolios.
8.4. The Registration Statement shall have become effective under the
1933 Act and applicable Blue Sky provisions, and no stop orders suspending the
effectiveness thereof shall have been issued and, to the best knowledge of the
parties hereto, no investigation or proceeding for that purpose shall have been
instituted or be pending, threatened or contemplated under the 1933 Act.
8.5. The CitiFund Trust and the Smith Barney Trust shall have received
an order from the Commission exempting the Reorganizations from the provisions
of Section 17(a) of the 1940 Act or a "no-action" letter from the staff of the
<PAGE>
Commission to the effect that the staff will not recommend that the Commission
take enforcement action under Section 17(a) of the 1940 Act if the parties were
to proceed with the transaction described herein.
8.6. The parties shall have received an opinion of Bingham Dana LLP
addressed to the CitiFund Trust, the CitiSelect Portfolios, the Smith Barney
Trust and the Smith Barney Fund substantially to the effect that, based upon
certain facts, assumptions and representations, for Federal income tax
purposes: (i) the transfer to the Smith Barney Fund of all or substantially all
of the assets of each CitiSelect Portfolio in exchange solely for Smith Barney
Fund Shares and the assumption by the Smith Barney Fund of all of the
liabilities of the CitiSelect Portfolios, followed by the distribution of the
Smith Barney Fund Shares to CitiSelect Shareholders in exchange for their
shares of the CitiSelect Portfolios in complete liquidation of each CitiSelect
Portfolio, will constitute a "reorganization" within the meaning of Section
368(a)(1) of the Code, and the Smith Barney Fund and the CitiSelect Portfolios
will each be "a party to a reorganization" within the meaning of Section 368(b)
of the Code; (ii) no gain or loss will be recognized by the CitiSelect
Portfolios upon the transfer of the CitiSelect Portfolios' assets to the Smith
Barney Fund solely in exchange for the Smith Barney Fund Shares and the
assumption by the Smith Barney Fund of liabilities of the CitiSelect Portfolios
or upon the distribution (whether actual or constructive) of the Smith Barney
Fund Shares to the CitiSelect Portfolio's shareholders in exchange for their
shares of the CitiSelect Portfolios; (iii) the basis of the assets of the
CitiSelect Portfolios in the hands of the Smith Barney Fund will be the same as
the basis of such assets in the hands of the CitiSelect Portfolios immediately
prior to the transfer; (iv) the holding period of the assets of the CitiSelect
Portfolios in the hands of the Smith Barney Fund will include the period during
which such assets were held by the CitiSelect Portfolios; (v) no gain or loss
will be recognized by the Smith Barney Fund upon the receipt of the assets of
the CitiSelect Portfolios solely in exchange for Smith Barney Fund Shares and
the assumption by the Smith Barney Fund of all of the liabilities of the
CitiSelect Portfolios; (vi) no gain or loss will be recognized by the
shareholders of the CitiSelect Portfolios upon the receipt of Smith Barney Fund
Shares solely in exchange for their shares of the CitiSelect Portfolios as part
of the transaction; (vii) the basis of Smith Barney Fund Shares received by the
shareholders of the CitiSelect Portfolios will be, in the aggregate, the same
as the basis, in the aggregate, of the shares of the CitiSelect Portfolios
exchanged therefor; and (viii) the holding period of Smith Barney Fund Shares
received by the shareholders of the CitiSelect Portfolios will include the
holding period during which the shares of the CitiSelect Portfolios exchanged
therefor were held, provided that at the time of the exchange the shares of the
CitiSelect Portfolios were held as capital assets in the hands of the
shareholders of the CitiSelect Portfolios. The delivery of such opinion is
conditioned upon receipt by Bingham Dana LLP of representations it shall
request of each Fund. Notwithstanding anything herein to the contrary, neither
party may waive the condition set forth in this section 8.6.
9. INDEMNIFICATION
9.1. The Smith Barney Trust agrees to indemnify and hold harmless the
CitiFund Trust, its Trustees and its officers from and against any and all
losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which any such indemnified party may become subject, insofar
as any such loss, claim, damage, liability or expense (or actions with respect
thereto) arises out of or is based on any breach by the Smith Barney Trust or
the Smith Barney Fund of any of its representations, warranties, covenants or
agreements set forth in this Agreement.
9.2. The CitiFund Trust agrees to indemnify and hold harmless the Smith
Barney Trust, its Trustees and its officers from and against any and all
<PAGE>
losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which any such indemnified party may become subject, insofar
as any such loss, claim, damage, liability or expense (or actions with respect
thereto) arises out of or is based on any breach by the CitiFund Trust or the
CitiSelect Portfolios of any of its representations, warranties, covenants or
agreements set forth in this Agreement.
10. FEES AND EXPENSES
10.1. The Smith Barney Trust and the CitiFund Trust each represents and
warrants to the other that it has no obligations to pay any brokers or finders
fees in connection with the transactions provided for herein.
10.2. Expenses of each Reorganization will be borne equally by Citibank
and SSB Citi.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1. The parties agree that neither party has made any representation,
warranty or covenant not set forth herein and that this Agreement constitutes
the entire agreement between the parties.
11.2. Except as specified in the next sentence set forth in this
section 11.2, the representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall not survive the consummation of the transactions contemplated
hereunder.
The covenants to be performed after the Closing and the obligations of
each of the CitiFunds Trust, on behalf of each of the CitiSelect Portfolios,
and the Smith Barney Trust, on behalf of the Smith Barney Fund, in sections
9.1 and 9.2 shall survive the Closing.
12. TERMINATION
This Agreement may be terminated and the transactions contemplated
hereby may be abandoned by either party by (i) mutual agreement of the parties,
(ii) by either party if the Closing shall not have occurred on or before
January 1, 2001, unless such date is extended by mutual agreement of the
parties, or (iii) by either party if the other party shall have materially
breached its obligations under this Agreement or made a material and
intentional misrepresentation herein or in connection herewith. In the event of
any such termination, this Agreement shall become void and there shall be no
liability hereunder on the part of any party or their respective trustees or
officers, except for any such material breach or intentional misrepresentation,
as to each of which all remedies at law or in equity of the party adversely
affected shall survive.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of the
CitiFund Trust and the Smith Barney Trust; provided, however, that following
the meeting of CitiSelect Shareholders called by the CitiSelect Portfolios
pursuant to section 5.3 of this Agreement, no such amendment may have the
effect of reducing the number of the Smith Barney Fund Shares to be issued to
the shareholders of either CitiSelect Portfolio under this Agreement to the
detriment of such shareholders without their further approval.
<PAGE>
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provision of this Agreement shall be in writing and shall be deemed duly given
if delivered by hand (including by Federal Express or similar express courier)
or transmitted by facsimile or three days after being mailed by prepaid
registered or certified mail, return receipt requested, addressed to the
CitiFund Trust or the CitiSelect Portfolios, c/o CitiFunds Trust I, 21 Milk
Street, 5th Floor, Boston, Massachusetts 02109, with a copy to Bingham Dana
LLP, 150 Federal Street, Boston, Massachusetts 02110, Attention: Roger P.
Joseph, Esq., or to the Smith Barney Trust or the Smith Barney Fund, c/o Smith
Barney Income Funds, 388 Greenwich Street, New York, New York 10013, with a
copy to Willkie Farr & Gallagher, 787 Seventh Avenue, New York, N.Y.
10019-6099, Attn.: Burton M. Leibert, Esq., or to any other address that the
CitiFund Trust or the Smith Barney Trust shall have last designated by notice
to the other party.
15. HEADINGS; COUNTERPARTS; ASSIGNMENT; LIMITATION OF LIABILITY
15.1. The Article and section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.2. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.
15.3. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation (including the shareholders of any Fund) any rights or
remedies under or by reason of this Agreement, other than the parties hereto
and their successor and permitted assigns. Nothing in this section is intended
to limit the rights of shareholders of the CitiFund Trust to maintain
derivative actions with respect to this Agreement, subject to and in accordance
with applicable law.
15.4. This Agreement shall be governed by, and construed and enforced
in accordance with, the laws of the Commonwealth of Massachusetts, without
regard to its principles of conflicts of laws.
15.5 The CitiFund Trust is a business trust organized under
Massachusetts law and under a Declaration of Trust, to which reference is
hereby made and a copy of which, with amendments, is on file with the Secretary
of the Commonwealth of Massachusetts and elsewhere as required by law. It is
expressly acknowledged and agreed that the obligations of CitiFunds Trust I
entered into the name or on behalf of the CitiFund Trust by any of its
Trustees, officers, employees or agents are not made individually, but in such
capacities, that the CitiFund Trust's obligations under this Agreement bind
only that portion of the trust estate consisting of assets of the CitiSelect
Portfolios and not any Trustee, officer, employee, agent or shareholder
individually, and that any liability of the CitiFund Trust under this Agreement
or in connection with the transactions contemplated herein shall be discharged
only out of the assets of the CitiSelect Portfolios.
15.6 The Smith Barney Trust is a business trust organized under
Massachusetts law and under a Declaration of Trust, to which reference is
hereby made and a copy of which, with amendments, is on file with the Secretary
<PAGE>
of the Commonwealth of Massachusetts and elsewhere as required by law. It is
expressly acknowledged and agreed that the obligations of Smith Barney Income
Funds entered into the name or on behalf of the Smith Barney Trust by any of
its Trustees, officers, employees or agents are not made individually, but in
such capacities, that the Smith Barney Trust's obligations under this Agreement
bind only that portion of the trust estate consisting of assets of the Smith
Barney Fund and not any Trustee, officer, employee, agent or shareholder
individually, and that any liability of the Smith Barney Trust under this
Agreement or in connection with the transactions contemplated herein shall be
discharged only out of the assets of the Smith Barney Fund.
[Signatures follow]
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its President or Vice President and attested by its
Secretary or Assistant Secretary.
Attest: CITIFUNDS TRUST I
on behalf of CitiSelect Folio 200 Conservative
and CitiSelect Folio 300 Balanced
By:__________________________________________
Name:
Title:
Attest: SMITH BARNEY INCOME FUNDS
on behalf of Smith Barney Balanced Fund
By:__________________________________________
Name:
Title:
Solely for purposes of Section 10.2:
CITIBANK, N.A.
By:_________________________________
Name:
Title:
SSB CITI FUND MANAGEMENT LLC
By:_________________________________
Name:
Title:
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
RELATING TO THE ACQUISITION BY
SMITH BARNEY BALANCED FUND (THE "SMITH BARNEY FUND"), A
SERIES OF SMITH BARNEY INCOME FUNDS
388 Greenwich Street
New York, New York 10013
(800) 451-2010
OF THE ASSETS OF
CITISELECTFOLIO 200 CONSERVATIVE AND CITISELECT FOLIO 300
BALANCED (THE "CITISELECT PORTFOLIOS"), EACH A SERIES OF
CITIFUNDS TRUST I ("CITIFUNDS TRUST").
21 Milk Street
5th Floor
Boston, MA 02109
(617) 423-1679
Dated: August 16, 2000
This Statement of Additional Information is not a prospectus. A Proxy
Statement/ Prospectus, dated August 16, 2000, relating to the above-referenced
matter may be obtained without charge by calling or writing the Smith Barney
Fund at the telephone number or address set forth above. This Statement of
Additional Information should be read in conjunction with the Proxy
Statement/Prospectus. Each of the following documents accompanies this
Statement of Additional Information and is incorporated herein by reference:
1. Prospectus and Statement of Additional Information for the Smith
Barney Fund, dated November 28, 1999.
2. Prospectus and Statement of Additional Information for the CitiSelect
Portfolios, dated March 1, 2000.
3. Annual Report of the Smith Barney Fund for the year ended July 31,
1999 and Semi-Annual Report for the Smith Barney Fund for the
six-month period ended January 31, 2000.
4. Annual Report of the CitiSelect Portfolios for the year ended October
31, 1999 and Semi-Annual Report of the CitiSelect Portfolios for the
six-month period ended April 30, 2000.
<PAGE>
TABLE OF CONTENTS
Page
General Information.........................................................__
Pro Forma Financial Statements..............................................__
GENERAL INFORMATION
This Statement of Additional Information relates to the proposed transfer
of substantially all of the assets and liabilities of the CitiSelect Portfolios
to Smith Barney Income Funds, on behalf of the Smith Barney Fund, in exchange
for shares of the corresponding class of the Smith Barney Fund (the
"Reorganization"). The shares issued by the Smith Barney Fund will have an
aggregate net asset value equal to the aggregate net asset value of the shares
of the CitiSelect Portfolios that were outstanding immediately before the
effective time of the Reorganization.
After the transfer of substantially all of its assets and liabilities in
exchange for the Smith Barney Fund shares, the CitiSelect Portfolios will
distribute such shares to their shareholders in liquidation of the CitiSelect
Portfolios. Each shareholder owning shares of the CitiSelect Portfolios at the
effective time of the Reorganization will receive shares of the corresponding
class from the Smith Barney Fund of equal value, and will receive any unpaid
dividends or distributions that were declared before the effective time of the
Reorganization on shares of the CitiSelect Portfolios. The Smith Barney Fund
will establish an account for each former shareholder of the CitiSelect
Portfolios reflecting the appropriate number of shares distributed to such
shareholder. These accounts will be substantially identical to the accounts
maintained by the CitiSelect Portfolios for each shareholder. Upon completion
of the Reorganization with respect to the CitiSelect Portfolios, all
outstanding shares of the CitiSelect Portfolios will have been redeemed and
cancelled in exchange for shares distributed by the Smith Barney Fund, and the
CitiSelect Portfolios will wind up their affairs and be terminated as a series
of the CitiFunds Trust under Massachusetts law.
For further information about the transaction, see the Combined Proxy
Statement/Prospectus.
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
The following unaudited PRO FORMA information gives effect to the proposed
transfer of substantially all of the assets and liabilities of the CitiSelect
Portfolios, as well as CitiFunds Balanced Portfolio (which may also merger into
the Smith Barney Fund) to the Smith Barney Fund as if such transfer had
occurred as of April 30, 2000. In addition, the pro-forma combined statements
have been prepared based upon the fee and expense structure of the Smith Barney
Fund. The PRO FORMA financial information should be read in conjunction with
the historical financial statements and notes thereto of the CitiSelect
Portfolios and the Smith Barney Fund incorporated herein by reference in this
Statement of Additional Information. The proposed transfer of the assets and
liabilities of the CitiSelect Portfolios to the Smith Barney Fund will be
accounted for as a tax-free reorganization.
<PAGE>
<TABLE>
MERGER OF CITIFUNDS BALANCED, CITISELECT 200, CITISELECT 300 INTO SMITH BARNEY BALANCED
<CAPTION>
SMITH BARNEY CITIFUNDS CITISELECT CITISELECT PRO FORMA
BALANCED BALANCED 200 300 ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------ ---------- --------------
PRO FORMA STATEMENT OF ASSETS AND
LIABILITIES (UNAUDITED) AS OF AS OF AS OF AS OF
4/30/00 4/30/00 4/30/00 4/30/00
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value $833,740,699 $199,351,143 $72,568,854 $126,701,182 -- $1,232,361,878
Cash 808 -- -- -- -- 808
Dividends & interest receivable 6,437,475 -- -- -- -- 6,437,475
Receivable for Fund shares sold 176,836 2,266 1,194 2,006 -- 182,302
Receivable for securities sold 4,106,451 -- -- -- -- 4,106,451
Receivable for tax reclaims 11,133 31,734 43,471 152,894 -- 239,232
Receivable for open forward foreign
currency contracts 808,276 -- -- -- -- 808,276
------------ ------------ ----------- ------------ ---------- --------------
TOTAL ASSETS $845,281,678 $199,385,143 $72,613,519 $126,856,082 -- $1,244,136,422
------------ ------------ ----------- ------------ ---------- --------------
LIABILITIES:
Allocation of assets and liabilities of
Hubs (net) 18,360,688 12,988,610 21,400,841 (436,963) d 52,313,176
Payable for Fund shares redeemed 11,854 521,438 224,647 852,046 -- 1,609,985
Payable for securities purchased 10,019,891 -- -- -- -- 10,019,891
Management fees payable 266,507 -- 6,660 13,671 (833,911) a,g (547,073)
Administration fees payable 118,144 -- -- -- 937,331 b 1,055,475
Distribution costs payable 453,902 -- -- -- (708,904) c (255,002)
Accrued expenses and other liabilities 401,028 135,563 84,659 289,195 (27,518) d,e,f 882,927
Payable for open forward foreign
currency contracts 257,982 -- -- -- -- 257,982
------------ ------------ ----------- ------------ ---------- --------------
TOTAL LIABILITIES 11,529,308 19,017,689 13,304,576 22,555,753 (1,069,965) 65,337,361
------------ ------------ ----------- ------------ ---------- --------------
NET ASSETS $833,752,370 $180,367,454 $59,308,943 $104,300,329 $1,069,965 $1,178,799,061
------------ ------------ ----------- ------------ ---------- --------------
NET ASSETS:
Par value of capital shares 56,748 -- -- -- -- 56,748
Capital paid in excess of par value 670,641,848 186,784,631 59,424,744 99,880,141 -- 1,016,731,364
Undistributed net investment income
(loss) 6,429,275 714,567 560,950 854,185 1,069,965 9,628,942
Accumulated net realized gain (loss) 22,701,144 (2,710,559) (3,121,643) (12,581,676) -- 4,287,266
Net unrealized appreciation
(depreciation) of investments 133,923,355 (4,421,185) 2,444,892 16,147,679 -- 148,094,741
------------ ------------ ----------- ------------ ---------- --------------
NET ASSETS $833,752,370 $180,367,454 $59,308,943 $104,300,329 $1,069,965 $1,178,799,061
============ ============ =========== ============ ========== ==============
<PAGE>
OUTSTANDING SHARES:
CLASS A 26,687,714 13,899,397 5,748,896 9,976,963 (6,475,488) 49,837,482
============ ============ =========== ============
CLASS B 28,712,849 135,786 62,650 84,162 (60,307) 28,935,140
============ ============ =========== ============
CLASS L 952,830 -- -- -- 0 952,830
============ ============ =========== ============
CLASS O 394,608 -- -- -- 0 394,608
============ ============ =========== ============
NET ASSET VALUE
CLASS A (and redemption price) $14.72 $12.85 $10.21 $10.37 $14.73
============ ============ =========== ============ ==============
CLASS B $14.67 $12.91 $10.18 $10.34 $14.68
============ ============ =========== ============ ==============
CLASS L $14.68 $ 0.00 $ 0.00 $ 0.00 $14.69
============ ============ =========== ============ ==============
CLASS O $14.68 $ 0.00 $ 0.00 $ 0.00 $14.69
============ ============ =========== ============ ==============
CLASS A MAXIMUM OFFERING PRICE $15.49 $13.53 $10.69 $10.86 $15.50
============ ============ =========== ============ ==============
CLASS L MAXIMUM OFFERING PRICE $14.83 $ 0.00 $ 0.00 $ 0.00 $14.84
============ ============ =========== ============ ==============
See accompanying notes to unaudited pro forma financial statements.
</TABLE>
<PAGE>
<TABLE>
MERGER OF CITIFUNDS BALANCED, CITISELECT 200, CITISELECT 300 INTO SMITH BARNEY BALANCED
SMITH BARNEY CITIFUNDS CITISELECT CITISELECT PRO FORMA
BALANCED BALANCED 200 300 ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------ ---------- --------------
<CAPTION>
PRO FORMA STATEMENT OF OPERATIONS FOR THE FOR THE FOR THE FOR THE
(UNAUDITED) 12 MONTHS 12 MONTHS 12 MONTHS 12 MONTHS
ENDED ENDED ENDED ENDED
4/30/00 4/30/00 4/30/00 4/30/00
INVESTMENT INCOME:
<S> <C> <C> <C> <C> <C> <C>
Interest $ 30,905,024 $ 4,783,976 $ 5,169,469 $ 6,217,947 -- $ 47,076,416
Dividends 6,931,434 1,847,168 453,637 1,208,381 -- 10,440,620
Less: Foreign withholding tax (327,078) -- -- -- -- (327,078)
------------ ------------ ----------- ------------ ---------- --------------
TOTAL INVESTMENT INCOME $ 37,509,380 6,631,144 5,623,106 7,426,328 -- 57,189,958
EXPENSES:
Allocated HUB Management Expenes -- 818,702 420,092 1,039,830 -- 2,278,624
Allocated HUB Expenes -- 110,502 200,184 126,277 (436,963) d --
Management fees 3,926,843 476,507 208,411 259,397 (1,113,944) a 3,757,214
Distribution costs 4,865,921 548,613 503,141 846,907 (708,904) c 6,055,678
Administration fees 1,745,263 -- -- -- 937,331 b 2,682,594
Shareholder servicing agent 903,138 26,175 63,576 96,323 375,329 e 1,464,541
Shareholder communications 248,100 92,362 47,820 45,847 (111,607) d 322,522
Registration fees 246,437 -- -- -- -- 246,437
Custodian fees/Fund Accounting 60,111 36,328 29,229 26,140 (75,294) d 76,514
Legal and auditing fees 54,326 91,961 69,615 70,820 (195,221) d 91,501
Directors' fees 16,490 21,055 8,046 9,398 (30,725) d 24,264
Pricing Fees 23,610 -- -- -- 10,000 f 33,610
Other (48,634) 53,711 28,627 16,159 -- 49,863
------------ ------------ ----------- ------------ ---------- --------------
Total Expenses 12,041,605 2,275,916 1,578,741 2,537,098 (1,349,998) 17,083,362
Less: Management Fee Waivers -- (206,077) (73,956) -- 280,033 g --
------------ ------------ ----------- ------------ ---------- --------------
NET EXPENSES 12,041,605 2,069,839 1,504,785 2,537,098 (1,069,965) 17,083,362
------------ ------------ ----------- ------------ ---------- --------------
NET INVESTMENT INCOME 25,467,775 4,561,305 4,118,321 4,889,230 1,069,965 40,106,596
------------ ------------ ----------- ------------ ---------- --------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain (Loss) From:
Security Transactions (excluding
short term securities) 22,364,760 (5,024,320) (328,246) 5,806,867 -- $ 22,819,061
Options written 0 0 0 0 --
Options purchased 0 0 0 0 --
Foreign currency transactions 301,466 0 0 0 301,466
Net Change in Unrealized Appreciation
of Investments 13,956,059 (8,788,984) (3,715,335) (4,491,924) -- (3,040,184)
------------ ------------ ----------- ------------ ---------- --------------
Net Gain (Loss) On Investments 36,622,285 (13,813,304) (4,043,581) 1,314,943 0 20,080,343
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 62,090,060 ($ 9,251,999) $ 74,740 $ 6,204,173 $1,069,965 $ 60,186,939
============ ============ =========== ============ ========== ==============
(a) Reflects adjustment for lower managament fee of SB Balanced Fund.
(b) Reflects adjustment for SB Balanced Fund administration fee of 0.20%.
(c) Reflects adjustment for lower distribution costs of SB Balanced Fund.
(d) Reflects adjustment due to duplicate services.
(e) Reflects adjustment to transfer agent fees based on rates of SB Balanced Fund.
(f) Reflects adjustment for volume increase.
(g) Reflects adjustment to eliminate management fee waiver.
See accompanying notes to unaudited pro forma financial statements.
</TABLE>
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS SMITH BARNEY CITIFUNDS CITISELECT 200 CITISELECT 300
April 30, 2000 Balanced Fund Balanced Portfolio
<CAPTION>
COMBINED
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE VALUE
------ ----- ------ ----- ------ ----- ------ ----- -----
ISSUER
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DOMESTIC COMMON STOCKS
Broadcasting -- 1.53%
CBS Corp. * 220,000 12,925,000 -- -- -- -- -- -- 12,925,000
Infinity
Broadcasting
Corp.* 175,000 5,939,063 -- -- -- -- -- -- 5,939,063
----------- -------------
-- 18,864,063 -- -- -- -- -- -- 18,864,063
----------- -------------
AIRLINES -- 0.86%
Southwest Airlines
Co. 47,000 10,561,813 -- -- -- -- -- -- 10,561,813
----------- -------------
CAPITAL GOODS/PRODUCER
MANUFACTURER -- 4.58%
American Power
Conversion Corp. * -- -- -- -- 300 10,594 700 24,719 35,313
Applied Power, Inc. -- -- -- -- 438 12,549 1,644 47,059 59,609
Alliant Techsystems,
Inc. * -- -- -- -- 182 12,700 684 47,623 60,323
Aptargroup, Inc. -- -- -- -- 944 26,899 3,539 100,873 127,772
Cleco Corp. -- -- -- -- 483 16,640 1,812 62,401 79,041
Deere & Co.* 216,000 8,721,000 -- -- -- -- -- -- 8,721,000
Emerson Electronics
Co. -- -- 46,382 2,545,214 2,315 127,016 4,985 273,574 2,945,804
Flextronics
International -- -- -- -- 364 25,560 1,364 95,849 121,409
General Electric Co. 95,000 14,938,750 12,882 2,025,651 643 101,088 1,385 217,728 17,283,218
Honeywell, Inc. -- -- 47,033 2,633,863 2,347 131,440 5,055 283,102 3,048,406
Illinois Tool Works,
Inc. 135,000 8,648,438 -- -- -- -- -- -- 8,648,438
Mettler Toledo
International, Inc.* -- -- -- -- 720 24,840 2,700 93,150 117,990
National Instruments
Corp. * -- -- -- -- 672 32,760 2,520 122,850 155,610
Newport Corp. -- -- -- -- 118 14,363 444 53,863 68,226
Shaw Group Inc. * -- -- -- -- 746 26,515 2,796 99,433 125,948
Tyco International
Ltd. 260,000 11,943,750 -- -- 984 45,203 2,296 105,473 12,094,425
United Technologies
Corp. -- -- 36,439 2,266,034 1,818 113,084 3,917 243,566 2,622,684
Verticalnet Inc.* -- -- -- -- 336 18,144 1,260 68,040 86,184
----------- ----------- ----------- ----------- -------------
-- 44,251,938 -- 9,470,762 -- 739,396 -- 1,939,303 56,401,400
----------- ----------- ----------- ----------- -------------
CHEMICALS -- 0.28%
Praxair Inc. 78,000 3,466,125 -- -- -- -- -- -- 3,466,125
----------- -------------
COMPUTER SOFTWARE -- 1.89%
America Online
Inc.* 110,000 6,579,375 -- -- 1,416 84,695 3,304 197,621 6,861,690
Microsoft Corp.* -- -- -- -- 2,680 186,902 6,252 436,105 623,007
National Instruments
Corp.* -- -- -- -- 228 11,115 532 25,935 37,050
Oracle Corp.* 172,000 13,749,250 -- -- 1,842 147,245 4,298 343,571 14,240,066
Progress Software
Corp.* 75,000 1,500,000 -- -- -- -- -- -- 1,500,000
Yahoo Inc.* 156 20,319 364 47,411 67,730
- ----------- ----------- ----------- -------------
21,828,625 450,275 1,050,643 23,329,543
----------- ----------- ----------- -------------
COMPUTER &
TELECOMMUNICATIONS
EQUIPMENT -- 5.74%
Cisco Systems
Inc. * 297,000 20,590,453 -- -- 4,037 279,905 9,421 653,113 21,523,471
Compaq Computer
Corp. 100,000 2,925,000 -- -- -- -- -- -- 2,925,000
Dell Computer
Corp.* 55,000 2,756,875 -- -- -- -- -- -- 2,756,875
Electronic Data
Systems Corp. 99,000 6,806,250 -- -- -- -- -- -- 6,806,250
EMC Corp. * 147,000 20,423,813 -- -- 727 100,952 1,695 235,555 20,760,320
International
Business Machines
Corp. -- -- -- -- 1,540 171,858 3,592 401,002 572,860
Lexmark
International
Group Inc. * -- -- -- -- 138 16,284 322 37,996 54,280
Network Appliance
Inc. * -- -- -- -- 318 23,512 742 54,862 78,374
Nortel Networks
Corp -- -- -- -- 936 106,002 2,184 247,338 353,340
Qualcomm Inc. * -- -- -- -- 528 57,255 1,232 133,595 190,850
SCI Systems Inc. * -- -- -- -- 216 11,502 504 26,838 38,340
Sun Microsystems
Inc. * 155,000 14,250,313 -- -- 1,188 109,222 2,772 254,851 14,614,386
Tellabs Inc. * -- -- -- -- 378 20,719 882 48,345 69,064
----------- ----------- ----------- -------------
67,752,704 897,211 2,093,493 70,743,408
----------- ----------- ----------- -------------
COMMERCIAL SERVICES -- 0.10%
Aeroflex Inc. * -- -- -- -- 365 13,589 1,368 50,958 64,547
Akamai Technologies
Inc. * -- -- -- -- 48 4,711 179 17,667 22,378
Art Technology
Group Inc. * -- -- -- -- 240 14,580 900 54,675 69,255
Automatic Data
Processing Inc. -- -- -- -- 426 22,924 994 53,490 76,414
Broadvision Inc. * -- -- -- -- 486 21,371 1,824 80,142 101,513
Clarus Corp. * -- -- -- -- 136 5,466 510 20,496 25,961
Cylink Corp. * -- -- -- -- 698 9,984 2,616 37,441 47,426
Concord Inc. * -- -- -- -- 504 11,277 1,176 26,313 37,590
Illinois Tool Works
Inc. -- -- -- -- 324 20,756 756 48,431 69,188
Interpublic Group
of Companies Inc. -- -- -- -- 358 14,662 834 34,210 48,872
PayChex Inc. 192 10,104 448 23,576 33,680
Reynolds & Reynolds
Co. -- -- -- -- 2,325 55,219 9,719 230,814 286,033
Source Information
Management Co. * -- -- -- -- 1,418 20,913 5,317 78,425 99,339
Time Warner Inc. -- -- -- -- 636 57,200 1,484 133,467 190,668
----------- ----------- -------------
282,756 890,106 1,172,863
----------- ----------- -------------
COMMUNICATION
EQUIPMENT &
SERVICES -- 4.50%
AT&T Corp. 140,000 6,536,250 67,001 3,128,091 3,344 156,104 7,202 336,225 10,156,670
AT&T Wireless
Group* 99,000 3,149,438 -- -- -- -- -- -- 3,149,438
Alltel Corp. -- -- 24,748 1,648,802 1,235 82,282 2,660 177,223 1,908,307
Bell Atlantic Corp. -- -- 29,124 1,725,591 1,453 86,114 3,130 185,476 1,997,181
Bellsourth Corp. -- -- 39,596 1,927,830 1,976 96,207 4,256 207,214 2,231,251
GTE Corp. 78,000 5,284,500 -- -- -- -- -- -- 5,284,500
MCI Worldcom Inc.* 215,500 9,791,781 -- -- -- -- -- -- 9,791,781
SBC Communications,
Inc. 276,638 12,120,202 72,159 3,161,444 3,601 157,769 7,756 339,810 15,779,224
SBC Communications,
Inc. -- -- -- -- 2,022 88,589 4,718 206,707 295,296
Sprint Corp. -- -- 36,470 2,242,905 1,820 111,930 3,920 241,080 2,595,915
Sprint Corp. -- -- -- -- 564 31,020 1,316 72,380 103,400
Time Warner Telecom
Inc., Class A
Shares* 37,350 2,044,912 -- -- -- -- -- -- 2,044,912
World Access Inc. 7,462 117,534 -- -- -- -- -- -- 117,534
----------- ----------- ----------- ----------- -------------
39,044,617 13,834,663 810,014 1,766,114 55,455,408
----------- ----------- ----------- ----------- -------------
CONGLOMERATES -- 0.36%
General Dynamics
Corp. -- -- -- -- 962 56,277 2,072 121,212 177,489
General Electric
Co. -- -- -- -- 8,512 1,338,575 18,334 2,883,084 4,221,659
----------- ----------- -------------
1,394,852 3,004,296 4,399,148
----------- ----------- -------------
CONSUMER CYCLICALS -- 0.23%
McGraw Hill
Companies, Inc. -- -- 46,369 2,434,373 2,314 121,485 4,984 261,660 2,817,518
----------- ----------- ----------- -------------
CONSUMER DURABLE GOODS -- 1.32%
Black & Decker
Corp 120,000 5,047,500 -- -- -- -- -- -- 5,047,500
D.R. Horton Inc. -- -- -- -- 4,125 53,367 17,243 223,075 276,442
Engle Homes Inc. -- -- -- -- 1,410 13,483 5,894 56,359 69,842
Flexsteel
Industries Inc. -- -- -- -- 1,370 18,153 5,727 75,877 94,030
Ford Motor Co. 75,000 4,101,563 4,101,563
General Motors
Corp. 70,000 6,553,750 -- -- -- -- -- -- 6,553,750
La-Z-Boy Inc. -- -- -- -- 1,745 27,375 7,294 114,426 141,801
----------- ----------- ----------- -------------
15,702,813 112,378 469,738 16,284,928
----------- ----------- ----------- -------------
CONSUMER NON-DURABLES -- 2.57%
Block Drug Inc. -- -- -- -- 375 10,688 1,568 44,674 55,361
Colgate-Palmolive
Co. 228,000 13,024,500 -- -- -- -- -- -- 13,024,500
Dimon Inc. -- -- -- -- 6,750 16,031 28,215 67,011 83,042
Kimberly Clark
Corp. 159,000 9,231,938 -- -- -- -- -- -- 9,231,938
Newell Rubbermaid,
Inc. 70,000 1,763,125 -- -- -- -- -- -- 1,763,125
Pepsico Inc. -- -- -- -- 4,888 179,329 10,528 386,246 565,575
Proctor & Gamble
Co. 100,000 5,962,500 -- -- -- -- -- -- 5,962,500
Standard Commercial
Corp. -- -- -- -- 15,345 46,994 64,142 196,435 243,429
Timberland Co.* -- -- -- -- 500 34,688 2,090 144,994 179,681
Tropical
Sportswear
International
Corp.* -- -- -- -- 2,290 40,361 9,572 168,710 209,071
Wolverine World
Wide Inc. -- -- -- -- 6,145 73,740 25,686 308,233 381,973
----------- ----------- ----------- -------------
29,982,063 401,830 1,316,302 31,700,196
----------- ----------- ----------- -------------
CONSUMER SERVICES -- 0.10%
Aztar Corp.* -- -- -- -- 3,780 45,124 15,800 188,617 233,741
Beringer Wine
Estate
Holdings * -- -- -- -- 300 10,832 1,124 40,619 51,451
Callaway Golf Co. -- -- -- -- 723 12,023 2,712 45,087 57,110
Catalina Marketing
Corp. * -- -- -- -- 406 41,116 1,523 154,183 195,299
Emmis
Communications
Corp. * -- -- -- -- 336 14,280 1,260 53,550 67,830
Ethan Allen
Interiors, Inc. -- -- -- -- 392 10,462 1,470 39,231 49,692
Harley Davidson Inc. -- -- -- -- 1,612 64,178 3,472 138,229 202,407
Hispanic
Broadcasting
Corp. * -- -- -- -- 206 20,811 772 78,040 98,851
Houghton Mifflin
Co. -- -- -- -- 298 12,369 1,116 46,384 58,753
National
Information
Consortium,
Inc. * -- -- -- -- 160 1,975 599 7,407 9,383
PF Changes China
Bistro Inc. * -- -- -- -- 362 12,656 1,356 47,460 60,116
Scholastic Corp. * -- -- -- -- 208 9,711 780 36,416 46,127
Westwood One,
Inc. * -- -- -- -- 331 11,723 1,243 43,961 55,684
XM Satellite Radio
Holdings Inc. * -- -- -- -- 202 5,809 756 21,782 27,591
----------- ----------- -------------
273,067 940,968 1,214,035
----------- ----------- -------------
CONSUMER STAPLES -- 0.63%
Kimberly-Clark
Corp. -- -- 58,756 3,411,507 2,932 170,248 6,315 366,688 3,948,443
PepsiCo, Inc. -- -- 90,198 3,309,144 4,501 165,140 9,695 355,685 3,829,969
----------- ----------- ----------- -------------
6,720,651 335,388 722,373 7,778,412
----------- ----------- ----------- -------------
ENERGY -- 3.84%
BP Amoco plc ADR 107,252 5,469,852 63,927 3,260,262 3,190 162,700 6,871 350,431 9,243,245
Chevron Corp. 37,512 3,193,209 1,872 159,354 4,032 343,224 3,695,787
Coastal Corp. 152,000 7,628,500 -- -- -- -- -- -- 7,628,500
Conoco Inc., Class A -- -- 80,390 1,914,294 4,012 95,531 8,641 205,759 2,215,584
El Paso Energy Corp 86,000 3,655,000 26,050 1,107,125 1,300 55,250 2,800 119,000 4,936,375
Enron Corp. 35,000 2,439,063 2,439,063
Exxon Corp. 45,796 3,557,769 2,285 177,547 4,922 382,409 4,117,725
Halliburton Co. 127,000 5,611,812 38,658 1,708,209 1,929 85,247 4,155 183,608 7,588,876
Schlumberger Ltd. 72,000 5,512,500 -- -- -- -- -- -- 5,512,500
----------- ----------- ----------- ----------- -------------
30,316,727 14,740,868 735,629 1,584,431 47,377,655
----------- ----------- ----------- ----------- -------------
ENERGY MINERALS -- 0.09%
Cal Dive
Internationl,
Inc. * -- -- -- -- 832 41,392 3,120 155,220 196,612
Coflexip ADR -- -- -- -- 499 25,334 1,872 95,004 120,338
Hanover Compressor
Co. * -- -- -- -- 474 27,587 1,776 103,452 131,039
Nuevo Energy Co.* -- -- -- -- 2,030 35,525 8,485 148,495 184,020
Precision Drilling
Corp. * -- -- -- -- 803 25,702 3,012 96,384 122,086
R & B Falcon
Corp. * -- -- -- -- 3,309 68,658 12,408 257,466 326,124
----------- ----------- -------------
224,199 856,021 1,080,219
----------- ----------- -------------
ELECTRONIC TECHNICAL
SERVICES -- 0.80%
Ancor
Communications,
Inc. * -- -- -- -- 320 9,660 1,200 36,225 45,885
CTS Corp. -- -- -- -- 195 12,310 732 46,162 58,472
C-Cube
Microsystems,
Inc. * -- -- -- -- 550 35,353 2,063 132,573 167,926
Concentric Network
Corp. * -- -- -- -- 250 10,858 936 40,716 51,574
Convergys Corp* 152,000 6,688,000 -- -- 6,688,000
Diebold Inc. -- -- -- -- 2,150 62,081 8,987 259,500 321,581
ESCO Electronics
Corp.* -- -- -- -- 1,535 25,040 6,416 104,666 129,706
E Piphany Inc. * -- -- -- -- 118 7,822 444 29,332 37,154
Emulex Corp. * -- -- -- -- 338 15,333 1,267 57,499 72,832
Intertrust
Technologies
Corp. * -- -- -- -- 147 3,386 552 12,696 16,082
Iona Technologies
Plc.*ADR -- -- -- -- 230 13,090 864 49,086 62,176
MMC Networks Inc. * -- -- -- -- 598 15,858 2,244 59,466 75,324
Macromedia, Inc. * -- -- -- -- 608 52,854 2,278 198,203 251,058
Macrovision Corp. * -- -- -- -- 298 14,545 1,116 54,544 69,090
Methode
Electronics
inc -- -- -- -- 1,133 47,206 4,248 177,022 224,228
Mercury
Interactive
Corp. * -- -- -- -- 836 75,226 3,134 282,096 357,322
Network Appliance,
Inc. * -- -- -- -- 253 18,691 948 70,093 88,784
Power One Inc. * -- -- -- -- 230 15,725 864 58,968 74,693
Powerwave
Technologies,
Inc. * -- -- -- -- 266 55,261 996 207,230 262,492
Remedy Corp. * -- -- -- -- 448 23,800 1,680 89,250 113,050
Sandisk Corp. * -- -- -- -- 349 31,959 1,308 119,846 151,804
Sawtek Inc. * -- -- -- -- 323 15,453 1,212 57,949 73,402
Semtech Corp. * -- -- -- -- 410 27,930 1,536 104,736 132,666
Silicon Storage
Technology Inc.* -- -- -- -- 160 15,600 600 58,500 74,100
Spacehab Inc.* -- -- -- -- 3,805 19,501 15,905 81,513 101,013
Usinternet Working
Inc. * -- -- -- -- 296 7,363 1,110 27,611 34,974
WatchGuard
Tecnologies
Inc. * -- -- -- -- 134 6,476 504 24,287 30,763
Wink Communications
Inc. * -- -- -- -- 362 7,142 1,356 26,781 33,923
---------- ----------- ----------- -------------
6,688,000 645,521 2,466,549 9,800,070
---------- ----------- ----------- -------------
FINANCE -- 10.07%
Acceptance
Insurance
Co.* -- -- -- -- 2,665 11,826 11,140 49,432 61,258
American Express
Co. 60,000 9,003,750 -- -- 1,534 230,196 3,304 495,806 9,729,752
American
International
Group,
Inc. 118,750 13,025,391 -- -- -- -- -- -- 13,025,391
American National
Insurance Co. -- -- -- -- 1,390 71,759 5,810 299,952 371,710
Associates First
Capital Corp. 247,000 5,480,312 -- -- -- -- -- -- 5,480,312
Bank of America
Corp. -- -- 55,434 2,716,286 2,766 135,554 5,958 291,962 3,143,801
Bank of New York 90,000 3,695,625 -- -- 3,695 151,710 7,958 326,759 4,174,093
Bisys Group, Inc. * -- -- -- -- 423 26,466 1,586 99,249 125,716
Charles Schwab
Corp. 200,000 8,900,000 -- -- 2,106 93,717 4,536 201,852 9,195,569
Chase Manhattan
Corp. 268,000 19,312,750 38,294 2,759,525 1,911 137,711 4,116 296,609 22,506,596
Chubb Corp. -- -- 46,369 2,950,228 2,314 147,228 4,984 317,107 3,414,563
Chittenden Corp. -- -- -- -- 845 22,440 3,168 84,150 106,590
Cullen Frost
Bankers, Inc. -- -- -- -- 1,045 25,801 3,919 96,755 122,557
Federal Home Loan
Mortgage Corp. 169,000 7,763,437 -- -- 1,664 77,071 3,584 165,998 8,006,506
Federal National
Mortgage
Association -- -- -- -- 2,574 157,047 5,544 338,255 495,302
Fleet Boston
Financial Corp. 124,362 4,407,078 -- -- -- -- -- -- 4,407,078
Hartford Financial
Services Group -- -- 58,248 3,039,807 2,907 151,699 6,261 326,736 3,518,241
Harleysville Group
Inc -- -- -- -- 2,925 46,983 12,227 196,388 243,371
J.P. Morgan & Co. 25,000 3,209,375 -- -- -- -- -- -- 3,209,375
Marsh & McLennan
Company Inc. 53,000 5,223,813 -- -- 520 51,253 1,120 110,390 5,385,456
Marsh & McLennan
Company Inc. -- -- -- 3,382,751 1,713 168,813 3,689 363,597 3,915,161
Matrix Bancorp * -- -- -- -- 2,645 19,838 11,056 82,921 102,758
MBNA Corp. -- -- -- -- 3,536 93,925 7,616 202,300 296,225
Mellon Bank Corp. -- -- 100,501 3,228,591 5,015 161,120 10,802 347,027 3,736,738
Merrill Lynch &
Co, Inc -- -- 23,393 2,384,613 1,167 119,002 2,514 256,312 2,759,926
Morgan Stanley Dean
Witter & Co. -- -- -- -- 2,548 195,559 5,488 421,204 616,763
Northern Trust
Corp. -- -- -- -- 2,002 128,378 4,312 276,507 404,885
Peoples Heritage
Financial Group -- -- -- -- 1,449 18,933 5,435 71,000 89,933
PBOC Holdings Inc.* -- -- -- -- 2,730 23,888 11,411 99,850 123,737
PMI Group Inc. -- -- -- -- 793 38,387 3,313 160,456 198,843
Penn-America Group
Inc -- -- -- -- 3,165 28,287 13,230 118,240 146,528
Presidential Life
Corp -- -- -- -- 7,410 117,981 30,974 493,161 611,142
Professionals Group
Inc.* -- -- -- -- 4,906 86,775 20,507 362,719 449,494
Reinsurance Group
of America Inc. -- -- -- -- 130 3,234 543 13,517 16,751
Stancorp Financial
Group Inc. -- -- -- -- 945 27,523 3,950 115,047 142,570
S1 Corp. * -- -- -- -- 128 6,952 480 26,070 33,022
SEI Investments Co. -- -- -- -- 195 23,302 732 87,383 110,685
State Street Corp. 107,000 10,365,625 -- -- -- -- -- -- 10,365,625
U.S. Trust Corp. -- -- -- -- 125 19,253 469 72,198 91,451
West America
Bancorporation -- -- -- -- 240 6,015 900 22,556 28,571
XL Capital Ltd.,
Class A Shares 65,000 3,095,625 -- -- -- -- -- -- 3,095,625
----------- ----------- ----------- ----------- -------------
93,482,781 20,461,801 2,825,623 7,289,465 124,059,670
----------- ----------- ----------- ----------- -------------
HEALTHCARE -- 6.01%
Abbott Labs -- -- -- -- 4,524 173,891 9,744 374,535 548,426
Affymetrix Inc.* -- -- -- -- 51 6,915 192 25,932 32,847
Alpharma, Inc. -- -- -- -- 384 14,832 1,440 55,620 70,452
Amgen Inc. * 226,000 12,656,000 -- -- 3,406 190,736 7,336 410,816 13,257,552
American Home
Products Corp. -- -- 51,006 2,865,894 2,545 143,020 5,482 308,042 3,316,956
Andrx Corp. * -- -- -- -- 253 12,940 948 48,526 61,466
Apria Healthcare
Group, Inc. * -- -- -- -- 1,040 14,495 3,900 54,356 68,851
Bristol-Myers
Squibb Co. 77,000 4,037,687 50,146 2,629,544 2,503 131,225 5,390 282,638 7,081,094
Biogen Inc. * -- -- -- -- 884 51,990 1,904 111,979 163,969
Cardinal Health
Inc. -- -- -- -- 1,066 58,697 2,296 126,423 185,120
Corixa Corp. * -- -- -- -- 448 13,776 1,680 51,660 65,436
Curagen Corp. * -- -- -- -- 134 3,578 504 13,419 16,997
Eli Lilly & Co. -- -- -- -- 2,200 170,057 4,738 366,276 536,332
Enzon Inc. * -- -- -- -- 342 12,754 1,284 47,829 60,583
Gilead Sciences,
Inc. * -- -- -- -- 333 18,034 1,248 67,626 85,660
Genset SA.*ADR -- -- -- -- 336 9,576 1,260 35,910 45,486
Idec
Pharmaceuticals
Corp. * -- -- -- -- 214 13,722 804 51,456 65,178
Incyte
Pharmaceuticals
Inc. * -- -- -- -- 118 9,117 444 34,188 43,305
Johnson & Johnson 95,000 7,837,500 -- -- 4,412 364,007 9,503 784,014 8,985,521
Lifepoint
Hospitals Inc. * -- -- -- -- 592 10,138 2,220 38,018 48,156
Medarex Inc. * -- -- -- -- 125 6,614 468 24,804 31,418
Medimmune, Inc. * 203,000 10,543,313 -- -- 96 15,405 361 57,769 10,616,488
Medtronic Inc. -- -- -- -- 4,420 238,233 9,520 513,117 751,349
Merck & Co., Inc. 270,000 18,765,000 -- -- -- -- -- -- 18,765,000
Millennium
Pharmaceuticals * -- -- -- -- 336 26,675 1,260 100,032 126,707
Nanogen Inc. * -- -- -- -- 147 3,597 552 13,489 17,087
Pharmacyclics * -- -- -- -- 202 9,148 756 34,303 43,451
Pfizer Inc. -- -- -- -- 11,440 481,910 24,640 1,037,960 1,519,870
Pharmacia & Upjohn,
Inc. -- -- 62,520 3,122,093 3,120 155,805 6,720 335,580 3,613,478
Schering-Plough
Corp. 54,000 2,176,875 -- -- 4,737 190,968 10,203 411,317 2,779,160
Shire
Pharmaceuticals
Group Pl. ADR -- -- -- -- 657 26,425 2,462 99,092 125,517
Transkaryotic
Therapies Inc. * -- -- -- -- 96 2,874 360 10,778 13,652
Triad Hospitals
Inc. * -- -- -- -- 397 6,820 1,488 25,575 32,395
Warner Lambert Co. -- -- -- -- 2,410 274,255 5,190 590,702 864,957
----------- ----------- ----------- ----------- -------------
56,016,375 8,617,530 2,862,228 6,543,781 74,039,915
----------- ----------- ----------- ----------- -------------
HEALTH TECHNOLOGY -- 0.03%
Skyepharma PLC -- -- -- -- 639 10,218 2,670 42,713 52,931
West Pharmaceutical
Services Inc. -- -- -- -- 2,540 62,071 10,617 259,458 321,529
-------------
-- -- -- -- -- 72,290 -- 302,171 374,460
----------- ----------- -------------
INDUSTRIAL SERVICES -- 0.11%
Atwood Oceanics Inc. -- -- -- -- 820 49,713 3,428 207,798 257,511
ENSCO International Inc. -- -- -- -- 1,825 60,567 7,629 253,171 313,738
Gentex Corp. * -- -- -- -- 413 13,313 1,548 49,923 63,236
Harmonic, Inc. * -- -- -- -- 115 8,503 432 31,887 40,390
R&B Falcon Corp.* -- -- -- -- 2,655 55,091 11,098 230,281 285,373
Rowan Companies Inc.* -- -- -- -- 1,920 53,640 8,026 224,215 277,855
Santa Fe
International
Corp. -- -- -- -- 985 33,859 4,117 141,532 175,392
----------- ----------- -------------
274,686 1,138,808 1,413,494
----------- ----------- -------------
LEISURE -- 0.35%
The Walt Disney
Co. 100,000 4,331,250 -- -- -- -- -- -- 4,331,250
----------- -------------
NON-ENERGY MINERALS -- 0.04%
LTV Corp. -- -- -- -- 15,865 56,519 66,316 236,250 292,769
Lone Star
Technologies
Inc.* -- -- -- -- 940 43,358 3,929 181,234 224,592
----------- ----------- -------------
99,877 417,484 517,361
----------- ----------- -------------
PROCESS INDUSTRIES -- 0.05%
Lancaster Colony
Corp. -- -- -- -- 2,100 55,125 8,778 230,423 285,548
RPM Inc. -- -- -- -- 3,860 39,083 16,135 163,365 202,447
Tuscarora Inc. -- -- -- -- 1,535 19,475 6,416 81,407 100,882
----------- ----------- -------------
113,683 475,194 588,877
----------- ----------- -------------
PRODUCER MANUFACTURING -- 0.26%
Baldor Electric Co. -- -- -- -- 2,045 37,960 8,548 158,674 196,634
Circor
International
Inc. -- -- -- -- 1,078 12,324 4,504 51,514 63,838
Commonwealth
Industries Inc. -- -- -- -- 3,980 29,850 16,636 124,773 154,623
Graco Inc. -- -- -- -- 250 8,469 1,045 35,399 43,868
JLG Industries Inc. -- -- -- -- 10,430 99,085 43,597 414,175 513,260
Kaydon Corp. -- -- -- -- 2,025 47,334 8,465 197,858 245,192
Myers Industries
Inc. -- -- -- -- 4,257 59,591 17,792 249,090 308,681
Patrick Industries
Inc. -- -- -- -- 1,760 13,090 7,357 54,716 67,806
Superior
Industries
International
Inc. -- -- -- -- 1,650 53,109 6,897 221,997 275,106
Teleflex Inc. -- -- -- -- 1,880 64,978 7,858 271,606 336,583
Timken Co. -- -- -- -- 4,555 84,268 19,040 352,238 436,506
Tower Automotive
Inc.* -- -- -- -- 3,540 55,313 14,797 231,206 286,519
Watts Industries
Inc -- -- -- -- 2,595 34,708 10,847 145,080 179,788
Woodhead Industries -- -- -- -- 490 8,208 2,048 34,307 42,515
----------- ----------- -------------
608,286 2,542,635 3,150,921
----------- ----------- -------------
RETAIL -- 2.15%
Bed Bath & Beyond Inc. * -- -- -- -- 1,511 55,420 3,254 119,366 174,787
Circuit City
Stores, Inc. 40,000 2,352,500 -- -- -- -- -- -- 2,352,500
Cost Plus, Inc. * -- -- -- -- 766 23,423 2,874 87,837 111,260
GAP Inc. -- -- -- -- 3,276 120,393 7,056 259,308 379,701
Home Depot -- -- -- -- 5,941 333,067 12,796 717,376 1,050,443
Kohl's Corp. * -- -- -- -- 2,392 114,816 5,152 247,296 362,112
Linens N Things,
Inc. * -- -- -- -- 650 20,066 2,437 75,249 95,315
Lowes Co. Inc. 203,000 10,048,500 -- -- 1,482 73,359 3,192 158,004 10,279,863
O'Reilly
Automotive, Inc. * -- -- -- -- 1,568 21,168 5,880 79,380 100,548
Office Depot Inc. 100,000 1,056,250 -- -- -- -- -- -- 1,056,250
Schultz Sav-O
Stores Inc. -- -- -- -- 4,278 48,657 17,880 203,384 252,041
Staples, Inc.* 404,500 7,710,781 -- -- -- -- -- -- 7,710,781
Syms Corp.* -- -- -- -- 5,100 20,400 21,318 85,272 105,672
WalGreen Co. -- -- -- -- 3,354 94,331 7,224 203,175 297,506
Wal-Mart Stores Inc. -- -- -- -- 12,121 671,211 26,107 1,445,686 2,116,898
Zale Corp. * -- -- -- -- 541 22,308 2,028 83,655 105,963
---------- ----------- ----------- -------------
21,168,031 1,618,620 3,764,988 26,551,639
---------- ----------- ----------- -------------
RAW & INTERMEDIATE MATERIALS -- 1.08%
Alcoa Inc. 58,000 3,762,750 39,961 2,592,450 1,994 129,374 4,295 278,651 6,763,225
Dow Chemical Co. -- -- 15,461 1,747,056 772 87,185 1,662 187,783 2,022,025
E. I. du Pont
de Nemours & Co. -- -- 31,738 1,505,585 1,584 75,135 3,411 161,829 1,742,548
International Paper
Co. -- -- 64,422 2,367,496 3,215 118,148 6,924 254,472 2,740,115
----------- ----------- ----------- ----------- -------------
3,762,750 8,212,587 409,841 882,735 13,267,913
----------- ----------- ----------- ----------- -------------
SEMI-CONDUCTORS -- 2.89%
Applied Materials
Inc. * -- -- -- -- 2,327 236,918 5,012 510,284 747,202
Alpha Industries
Inc. * -- -- -- -- 448 23,296 1,680 87,360 110,656
Amkor Technology,
Inc. * -- -- -- -- 899 55,020 3,372 206,324 261,344
Anadigics Inc. * -- -- -- -- 323 24,321 1,212 91,203 115,524
Cree Inc. * -- -- -- -- 51 7,450 192 27,936 35,386
Cypress
Semiconductor
Corp. * -- -- -- -- 480 24,930 1,800 93,488 118,418
Dallas Semiconductor
Corp. -- -- -- -- 1,040 44,655 2,240 96,180 140,835
Emcore Corp. * -- -- -- -- 419 36,327 1,570 136,225 172,552
Intel Corp. 140,000 17,753,750 -- -- 8,934 1,132,892 19,242 2,440,075 21,326,718
Linear Technologies
Corp. -- -- -- -- 1,352 77,233 2,912 166,348 243,581
Micrel Inc. * -- -- -- -- 364 31,486 784 67,816 99,302
Micrel Inc. * -- -- -- -- 480 41,520 1,800 155,700 197,220
Microchip
Technology * 30,000 1,861,875 -- -- 374 23,191 1,401 86,964 1,972,030
Motorola Inc. 65,000 7,739,062 -- -- -- -- -- -- 7,739,062
Novellus Systems,
Inc. * -- -- -- -- 441 29,417 1,654 110,314 139,732
Qlogic Corp. * -- -- -- -- 546 54,771 1,176 117,967 172,738
Texas Instruments
Inc. -- -- -- -- 2,418 393,832 5,208 848,253 1,242,085
Transwitch Corp. * -- -- -- -- 445 39,170 1,668 146,888 186,058
Triquint
Semiconductor
Inc. * -- -- -- -- 346 35,532 1,296 133,245 168,777
Varian Inc. * -- -- -- -- 1,046 38,063 3,924 142,736 180,798
Xilinx Inc. * -- -- -- -- 871 63,801 1,876 137,417 201,218
----------- ----------- ----------- -------------
27,354,687 2,413,823 5,802,725 35,571,235
----------- ----------- ----------- -------------
SOFTWARE -- 0.03%
Active Software * -- -- -- -- 269 10,836 1,008 40,635 51,471
Activision, Inc. * -- -- -- -- 2,218 13,860 8,316 51,975 65,835
Bindview Dev
Corp. * -- -- -- -- 602 4,850 2,256 18,189 23,039
HNC Software * -- -- -- -- 134 6,653 504 24,948 31,601
Manugistics Group
Inc. * -- -- -- -- 355 15,207 1,332 57,026 72,233
Microstrategy,
Inc. * -- -- -- -- 224 5,796 840 21,735 27,531
Virata Corp. * -- -- -- -- 64 8,016 240 30,060 38,076
----------- ----------- -------------
65,218 244,568 309,786
----------- ----------- -------------
TECHNOLOGY -- 1.24%
Idex Corp. -- -- -- -- 509 15,900 1,908 59,625 75,525
Nextel Partners
Inc. * -- -- -- -- 257 5,629 962 21,107 26,736
Pitney Bowes Inc. -- -- 72,159 2,949,479 3,601 147,191 7,756 317,027 3,413,696
Solectron Corp.* 80,000 3,745,000 -- -- -- -- -- -- 3,745,000
Ultrak Inc.* -- -- -- -- 6,000 54,000 25,080 225,720 279,720
Western Wireless
Corp. * -- -- -- -- 642 31,879 2,406 119,548 151,428
Xerox Corp. 231,000 6,107,062 47,932 1,267,202 2,392 63,239 5,152 136,206 7,573,709
----------- ----------- ----------- ----------- -------------
9,852,062 4,216,681 317,838 879,233 15,265,813
----------- ----------- ----------- ----------- -------------
TELECOMMUNICATIONS -- 0.31%
ATMI Inc * -- -- -- -- 269 10,349 1,008 38,808 49,157
Covad
Communications
Group, Inc. * -- -- -- -- 436 12,093 1,634 45,348 57,441
Digital Lightwave
Inc. * -- -- -- -- 90 6,138 336 23,016 29,154
Digital Microware
Corp. * -- -- -- -- 714 26,359 2,676 98,845 125,203
Dobson
Communications
Corp. * -- -- -- -- 416 10,660 1,560 39,975 50,635
Exar Corp. * -- -- -- -- 227 18,215 852 68,306 86,521
Exodus
Communications,
Inc. * -- -- -- -- 112 9,905 420 37,144 47,049
Intermedia
Communications,
Inc.* 33,000 1,344,750 -- -- -- -- -- -- 1,344,750
MGC Communications
Inc.* 25,000 1,225,000 -- -- -- -- -- -- 1,225,000
P C Telephone Inc. * -- -- -- -- 109 3,645 408 13,668 17,313
Pinnicle Holdings,
Inc. * -- -- -- -- 951 53,419 3,565 200,320 253,738
Powertel, Inc. * -- -- -- -- 211 14,203 792 53,262 67,465
Remic Inc. * -- -- -- -- 782 29,682 2,934 111,309 140,991
Research in Motion
Ltd. * -- -- -- -- 106 4,507 398 16,901 21,408
Tele 1 Europe
Holding AB, ADR* 18,026 279,403 -- -- -- -- -- -- 279,403
----------- ----------- ----------- -------------
2,849,153 199,174 746,902 3,795,228
----------- ----------- ----------- -------------
TRANSPORTATION -- 0.70%
Atlantic Coast
Airlines
Holdings * -- -- -- -- 1,280 38,240 5,350 159,843 198,083
CH Robinson
Worldwide -- -- -- -- 288 14,400 1,080 54,000 68,400
EGL Inc. * -- -- -- -- 207 4,743 775 17,787 22,530
Kenan Transport Co. -- -- -- -- 2,760 55,200 11,537 230,736 285,936
Midwest Express
Holdings Inc.* -- -- -- -- 1,050 26,578 4,389 111,096 137,675
Motor Cargo
Industries Inc.* -- -- -- -- 2,655 12,113 11,098 50,634 62,748
Tidewater Inc. -- -- -- -- 1,315 39,121 5,497 163,527 202,648
Union Pacific Corp. -- -- 41,232 1,736,895 2,058 86,678 4,432 186,691 2,010,265
United Parcel
Service,
Class B Shares 85,100 5,659,150 -- -- -- -- -- -- 5,659,150
----------- ----------- ----------- ----------- -------------
5,659,150 1,736,895 277,074 974,315 8,647,434
----------- ----------- ----------- ----------- -------------
UTILITIES -- 2.29%
AES Corp. 154,000 13,850,375 -- -- -- -- -- -- 13,850,375
Duke Energy Co. -- -- 52,103 2,995,900 2,600 149,507 5,600 322,016 3,467,424
Unicom Corp. -- -- 71,950 2,860,016 3,591 142,726 7,734 307,411 3,310,153
Williams Companies
Inc. 100,000 3,731,250 88,752 3,311,572 4,429 165,261 9,540 355,946 7,564,029
----------- ----------- ----------- ----------- -------------
17,581,625 9,167,489 457,495 985,373 28,191,981
----------- ----------- ----------- ----------- -------------
TOTAL COMMON
STOCK -- 57.01% 530,517,352 99,614,300 20,039,755 52,352,374 702,523,781
=========== ========== ========== ========== ===========
Identified Cost 382,026,540 104,966,823 12,884,149 37,138,052 537,015,564
<PAGE>
INTERNATIONAL COMMON STOCKS
ISSUER
COMMON STOCKS
AUSTRIA -- 0.01%
Boehler-Uddeholm -- -- -- -- 848 33,052 2,757 107,420 140,472
----------- ----------- -------------
AUSTRALIA -- 0.02%
Australia & New
Zealand Banking
Group -- -- -- -- 9,509 65,752 30,905 213,695 279,447
----------- ----------- -------------
CANADA -- 0.03%
Manulife Financial
Corp -- -- -- -- 5,113 80,275 16,618 260,895 341,170
----------- ----------- -------------
FINLAND -- 0.01%
UPM-Kymmene Oy -- -- -- -- 1,465 37,957 4,761 123,361 161,318
----------- ----------- -------------
FRANCE -- 0.13%
Aventis -- -- -- -- 1,592 87,557 5,174 284,560 372,117
BIC -- -- -- -- 1,146 45,627 3,724 148,288 193,915
BQE National Paris -- -- -- -- 1,098 88,717 3,568 288,329 377,046
Pernod-Ricard -- -- -- -- 899 40,661 2,922 132,148 172,809
Total Fina Elf -- -- -- -- 659 99,997 2,142 324,989 424,985
----------- ----------- -------------
362,558 1,178,314 1,540,872
----------- ----------- -------------
GERMANY -- 0.06%
Depfadeutsche
Pfandbriefban -- -- -- -- 23 2,351 76 7,640 9,990
Draegerwerk -- -- -- -- 3,943 34,050 12,813 110,662 144,712
Dyckerhoff -- -- -- -- 1,591 34,712 5,171 112,813 147,525
SGL Carbon * -- -- -- -- 293 22,632 952 73,554 96,186
Veba -- -- -- -- 1,217 61,070 3,955 198,476 259,546
Vossloh -- -- -- -- 1,830 27,947 5,947 90,827 118,774
----------- ----------- -------------
182,761 593,972 776,733
----------- ----------- -------------
GREAT BRITAIN -- 0.39%
Allied Domecq -- -- -- -- 9,732 47,652 31,628 154,868 202,519
Allied Zurich -- -- -- -- 3,052 30,360 9,918 98,669 129,029
BAA -- -- -- -- 11,845 76,903 38,496 249,935 326,838
British Aerospace -- -- -- -- 15,743 96,821 51,166 314,669 411,491
British American
Tobacco -- -- -- -- 7,101 44,226 23,079 143,733 187,959
British
Telecommunications -- -- -- -- 2,962 53,035 9,627 172,363 225,398
CGU -- -- -- -- 2,877 41,248 9,349 134,056 175,304
Celltech Group -- -- -- -- 2,480 40,927 8,060 133,013 173,940
Cookson Group -- -- -- -- 15,580 45,846 50,635 149,000 194,846
Hanson -- -- -- -- 10,894 79,803 35,405 259,360 339,163
Lex Service -- -- -- -- 5,572 35,267 18,110 114,619 149,886
Lloyds TSB Group -- -- -- -- 3,254 31,763 10,575 103,231 134,994
Reckitt & Colman -- -- -- -- 4,982 51,256 16,193 166,582 217,838
Reed International -- -- -- -- 8,843 61,544 28,740 200,019 261,563
Royal Bank -- -- -- -- 3,276 51,109 10,647 166,105 217,215
Safeway -- -- -- -- 8,010 27,000 26,032 87,749 114,749
TI Group -- -- -- -- 10,338 56,173 33,598 182,564 238,737
Tomkins -- -- -- -- 15,326 47,068 49,811 152,973 200,041
Unilever -- -- -- -- 9,937 59,720 32,295 194,089 253,809
United News & Media -- -- -- -- 5,218 67,836 16,958 220,467 288,303
Williams -- -- -- -- 12,701 71,636 41,279 232,816 304,452
----------- ----------- -------------
1,117,194 3,630,881 4,748,075
----------- ----------- -------------
HONG KONG -- 0.06%
Henderson Land
Development -- -- -- -- 8,528 37,334 27,716 121,337 158,671
Hong Kong Electric -- -- -- -- 20,280 63,398 65,910 206,043 269,441
New World
Development Co. -- -- -- -- 22,609 30,623 73,480 99,524 130,146
South China
Morning Post -- -- -- -- 36,165 38,537 117,537 125,245 163,782
----------- ----------- -------------
169,892 552,148 722,040
----------- ----------- -------------
IRELAND -- 0.05%
Allied Irish Banks -- -- -- -- 6,348 63,364 20,631 205,932 269,296
Greencore Group -- -- -- -- 14,485 40,164 47,077 130,532 170,696
Jefferson Smurfit
Group -- -- -- -- 16,576 36,165 53,870 117,537 153,702
----------- ----------- -------------
139,693 454,001 593,693
----------- ----------- -------------
ITALY -- 0.03%
Telecom Italia SPA -- -- -- -- 5,824 81,431 18,928 264,650 346,081
----------- ----------- -------------
JAPAN -- 0.14%
Canon Inc. -- -- -- -- 1,716 78,480 5,577 255,061 333,541
Circle Japan Co. -- -- -- -- 993 38,711 3,228 125,811 164,522
Komatsu -- -- -- -- 14,196 68,342 46,137 222,110 290,452
Nintendo Co. -- -- -- -- 681 113,518 2,214 368,932 482,450
Promise Co. -- -- -- -- 702 56,867 2,282 184,818 241,685
Sanyo Shipan Financial -- -- -- -- 1,430 43,688 4,648 141,987 185,676
Yodogawa Steel Works -- -- -- -- 3,380 8,668 10,985 28,171 36,838
----------- ----------- -------------
408,274 1,326,890 1,735,164
----------- ----------- -------------
NETHERLANDS -- 0.77%
ABN-Amro Holdings -- -- -- -- 1,641 33,795 5,334 109,833 143,627
Akzo Nobel -- -- -- -- 1,594 65,262 5,181 212,102 277,364
ING Groep -- -- -- -- 1,099 59,947 3,571 194,829 254,776
KPN -- -- -- -- 661 66,635 2,149 216,563 283,198
Philips Electronics 182,200 8,130,675 -- -- 1,824 81,347 5,926 264,378 8,476,400
----------- ----------- ----------- -------------
8,130,675 306,986 997,704 9,435,365
----------- ----------- ----------- -------------
NEW ZEALAND -- 0.03% ----------- ----------- -------------
Telecom Corp. -- -- -- -- 19,759 83,474 64,215 271,291 354,766
----------- ----------- -------------
PORTUGAL -- 0.02%
Portugal ----------- ----------- -------------
Telecommunications -- -- -- -- 5,922 66,056 19,246 214,681 280,737
----------- ----------- -------------
SINGAPORE -- 0.06%
Creative Technology
Ltd -- -- -- -- 3,587 98,204 11,659 319,164 417,369
United Overseas Bank -- -- -- -- 10,868 75,786 35,321 246,305 322,091
----------- ----------- -------------
173,991 565,470 739,460
----------- ----------- -------------
SPAIN -- 0.04%
Respol -- -- -- -- 3,052 62,425 9,919 202,883 265,308
Telefonica S.A.* -- -- -- -- 3,029 67,400 9,843 219,051 286,452
----------- ----------- -------------
129,826 421,934 551,760
----------- ----------- -------------
SWEDEN -- 0.02%
Electrolux AB -- -- -- -- 2,357 39,829 7,661 129,445 169,275
Getinge Industrier -- -- -- -- 3,487 32,283 11,334 104,921 137,204
----------- ----------- -------------
72,113 234,366 306,479
----------- ----------- -------------
SWITZERLAND -- 0.07%
Forbo Holdings -- -- -- -- 28 10,109 91 32,854 42,963
Geberit -- -- -- -- 223 72,242 724 234,787 307,030
Novartis -- -- -- -- 44 61,452 143 199,718 261,170
Schweizerische
Industrie-
Gesellschaft
Holding -- -- -- -- 67 33,490 217 108,841 142,330
Sulzer -- -- -- -- 44 28,062 142 91,203 119,265
----------- ----------- -------------
205,355 667,403 872,758
----------- ----------- -------------
Total International
Common Stocks -- 1.94% 8,130,675 3,716,639 12,079,076 23,926,390
=========== =========== =========== =============
Identified Cost 3,386,293 3,542,541 11,513,259 18,442,093
<PAGE>
WARRANTS
INTERNET SERVICES -- 0.05%
Cybernet Internet
Service,
Expire 7/1/09^ 505 53,025 -- -- -- -- -- -- 53,025
SplitRock Service,
Expire 7/15/08 1,950 445,073 -- -- -- -- -- -- 445,073
Wam!Net Inc.,
Expire 3/1/05 5,490 63,821 -- -- -- -- -- -- 63,821
----------- -------------
561,919 561,919
----------- -------------
TELECOMMUNICATIONS -- 0.09%
Versatel
Telecommunications,
Expire 5/15/08 1,655 885,425 -- -- -- -- -- -- 885,425
Airgate PCS Inc.,
Expire 10/01/09 995 176,613 -- -- -- -- -- -- 176,613
----------- -------------
1,062,038 1,062,038
----------- -------------
----------- -------------
Total Warrants 1,623,957 1,623,957
----------- -------------
Identified Cost 289,354 289,354
=========== =============
PRINCIPAL PRINCIPAL
ISSUER AMOUNT VALUE AMOUNT VALUE
-----------------------------------------------------------------------------------------------------------------------------------
AEROSPACE -- 0.30%
Dunlop Stand Aero Holdings
11.875% due
5/15/09 575,000 566,375 -- -- -- -- -- -- 566,375
Hexcel Corp. +
9.75% due
1/15/09 -- -- -- -- 238,000 199,920 317,000 266,280 466,200
Raytheon Co.
6.450% due
8/15/02 2,500,000 2,425,000 -- -- -- -- -- -- 2,425,000
Sequa Corp.
9.00% due 8/01/09 -- -- -- -- 102,340 94,920 136,310 126,428 221,348
----------- ----------- ----------- -------------
2,991,375 294,840 392,708 3,678,923
----------- ----------- ----------- -------------
AUTOMOTIVE -- 0.41%
Collins & Aikman
Products
11.500% due
4/15/06 1,600,000 1,576,000 -- -- -- -- -- -- 1,576,000
Dura Operating Corp.
Series B,
9.000% due 5/1/09 170,000 152,150 -- -- -- -- -- -- 152,150
Ford Motor Co.
7.400% due
11/1/46 2,500,000 2,306,250 -- -- -- -- -- -- 2,306,250
J.L. French
Automotive
Castings +
11.50% due
6/01/09 -- -- -- -- 238,000 229,670 317,000 305,905 535,575
Lear Corp. +
8.11% due 5/15/09 -- -- -- -- 119,000 106,099 158,500 141,316 247,415
Tenneco Automotive
Inc. 11.625%
due 10/15/09^ 295,000 296,475 -- -- -- -- -- -- 96,475
----------- ----------- ----------- -------------
4,330,875 335,769 447,221 5,113,865
----------- ----------- ----------- -------------
BROADCASTING -- 0.25%
AMFM Operating Inc.
12.625% due
10/31/06 791,000 907,673 -- -- -- -- -- -- 907,673
Capstar Broadcasting
step bond to yield
11.002% due
2/1/09 260,000 230,100 -- -- -- -- -- -- 230,100
Diamond Holding Inc.
10.000% due
2/1/08 1,160,000 1,764,675 -- -- -- -- -- -- 1,764,675
Young Broadcasting
Corp. 11.750%
due 11/15/04 160,000 161,200 -- -- -- -- -- -- 161,200
----------- -------------
3,063,648 3,063,648
----------- -------------
CABLE & OTHER MEDIA -- 2.00%
Adelphia
Communications
9.875% due 3/1/07 415,000 401,512 -- -- -- -- -- -- 401,512
8.375% due
11/15/17 505,000 397,687 -- -- -- -- -- -- 397,687
Cable & Wireless
Communications
6.750%
due 12/1/08 2,500,000 2,471,875 -- -- -- -- -- -- 2,471,875
Cable Satisfaction
International
12.750% due 3/1/10 260,000 249,600 -- -- -- -- -- -- 249,600
Century
Commuications
Zero Coupon due
1/15/08 20,000 8,450 -- -- -- -- -- -- 8,450
CSC Holdings Inc. +
9.875% due 2/15/13 -- -- -- -- 119,000 120,785 158,500 160,878 281,663
10.500% due
5/15/16 1,695,000 1,839,075 -- -- -- -- -- -- 1,839,075
Charter
Communications
Holdings +
10.000% due
4/1/09^ 230,000 222,525 -- -- -- -- -- -- 222,525
step bond to
yield
11.713% due
11/5/10 2,490,000 1,375,725 -- -- -- -- -- -- 1,375,725
9.92% due 4/01/11 -- -- -- -- 416,500 229,075 554,750 305,113 534,188
Federal Mogul Corp.
7.50% due 1/15/09 -- -- -- -- 119,000 90,679 158,500 120,779 211,458
Frontiervision
Holdings LP
11.875% due 9/15/07 -- -- -- -- 535,500 472,579 713,250 629,443 1,102,022
Heafner JH Inc.
10.00% due
05/15/08 -- -- -- -- 327,250 261,800 435,875 348,700 610,500
NTL Inc. +
Zero Coupon due
4/01/08 -- -- -- -- 476,000 301,070 634,000 401,005 702,075
11.500% due
10/1/08 2,025,000 2,065,500 -- -- -- -- -- -- 2,065,500
Owens Illinois
Inc. 7.50% due
5/15/10 -- -- -- -- 119,000 104,005 158,500 138,527 242,532
Roger Cablesystems
Ltd. 11.000%
due 12/1/15 1,760,000 1,980,000 -- -- -- -- -- -- 1,980,000
Telewest plc
Zero Coupon
due 10/01/07 -- -- -- -- 202,300 190,668 269,450 253,957 444,624
Telewest
Communications
11.250% due
11/1/08 1,500,000 1,545,000 -- -- -- -- -- -- 1,545,000
Zero Coupon due
04/15/09 -- -- -- -- 89,250 50,426 118,875 67,164 117,591
United
International
Holdings step
bond to yield
11.515% due
2/15/08 6,950,000 4,552,250 -- -- -- -- -- -- 4,552,250
United Pan Europe
Communications
step bond to
yield 12.500%
due 8/1/09 6,600,000 3,267,000 -- -- -- -- -- -- 3,267,000
----------- ----------- ----------- -------------
20,376,199 1,821,087 2,425,565 24,622,851
----------- ----------- ----------- -------------
CAPITAL GOODS/ BUILDING PRODUCTS -- 0.16%
Columbus McKinnon
Corp. 8.500%
due 4/1/08 1,335,000 1,188,150 -- -- -- -- -- -- 1,188,150
Jordan Industries
Inc. - Series D
10.375%
due 8/01/07 -- -- -- -- 267,750 249,008 356,625 331,661 580,669
Packard Bioscience
Inc. - Series B
9.375%
due 3/01/07 -- -- -- -- 119,000 107,100 158,500 142,650 249,750
----------- ----------- ----------- -------------
1,188,150 356,108 474,311 2,018,569
----------- ----------- ----------- -------------
CHEMICALS -- 0.33%
Huntsman ICI
Chemicals
zero coupon
due 12/31/09^ 5,165,000 1,652,800 -- -- -- -- -- -- 1,652,800
10.125%
due 7/1/09^ 1,000,000 1,005,000 -- -- -- -- -- -- 1,005,000
Lyondell Chemical
Co. 9.875%
due 5/01/07 -- -- -- -- 119,000 116,918 158,500 155,726 272,644
Radnor Holdings
Corp. 10.00%
due 12/01/03 -- -- -- -- 59,500 52,360 79,250 69,740 122,100
Terra Industries
Inc. 10.500%
due 6/15/05 670,000 492,450 -- -- -- -- -- -- 492,450
Zeneca Specialty
Chemical PLC
11.000% due 7/1/09^ 550,000 561,000 -- -- -- -- -- -- 561,000
----------- ----------- ----------- -------------
3,711,250 169,278 225,466 4,105,994
----------- ----------- ----------- -------------
CONSUMER PRODUCTS/TOBACCO -- 0.75%
Black & Decker
6.625%
due 11/15/00 3,000,000 2,985,000 -- -- -- -- -- -- 2,985,000
French Fragrances
Inc. 10.375%
due 5/15/07 -- -- -- -- 183,260 175,013 244,090 233,106 408,119
Global Crossing
Holdings Ltd
9.50%
due 11/15/09 255,000 249,900 -- -- 29,750 29,006 39,625 38,634 317,541
Home Interiors Gifts Inc.
10.125% due 6/01/08 -- -- -- -- 168,980 133,494 225,070 177,805 311,300
Mail Well Corp.
8.75% due 12/15/08 -- -- -- -- 238,000 207,060 317,000 275,790 482,850
Proctor & Gamble
Corp
6.875% due 9/15/09 2,000,000 1,932,500 -- -- -- -- -- -- 1,932,500
Revlon Consumer
Products Corp.
9.00% due 11/01/06 -- -- -- -- 238,000 171,360 317,000 228,240 399,600
8.625% due 2/01/08 -- -- -- -- 119,000 57,715 158,500 76,873 134,588
Simmons Co.
10.25% due 3/15/09 -- -- -- -- 29,750 25,064 39,625 33,384 58,448
Triarc Consumer
Products Group +
10.25% due 2/15/09 -- -- -- -- 238,000 220,150 317,000 293,225 513,375
Tropical Sportswear
International Inc.
Series A, 11.000%
due 6/15/08 265,000 250,425 -- -- -- -- -- -- 250,425
United Industries
Corp. +
9.875% due 4/01/09 -- -- -- -- 238,000 167,790 317,000 223,485 391,275
United
International
Holdings Inc.
10.75% due 2/15/08 -- -- -- -- 476,000 314,160 634,000 418,440 732,600
Windmere-Durable
Holdings Inc.
10.00% due 7/31/08 -- -- -- -- 119,000 114,835 158,500 152,953 267,788
----------- ----------- ----------- -------------
5,417,825 1,615,648 2,151,935 9,185,408
----------- ----------- ----------- -------------
CONTAINERS/PACKAGING -- 0.42%
Huntsman Packaging
Corp
9.125% due 10/1/07 1,000,000 1,045,000 -- -- -- -- -- -- 1,045,000
Stone Container
Finance
11.500%
due 8/15/06^ 1,610,000 1,670,375 -- -- -- -- -- -- 1,670,375
Sweetheart Cup Co.
10.500%
due 9/1/03 930,000 860,250 -- -- -- -- -- -- 860,250
Tekni-Plex, Inc.
11.250% due 4/1/07 1,480,000 1,531,800 -- -- -- -- -- -- 1,531,800
9.250% due 3/1/08 45,000 43,425 -- -- -- -- -- -- 43,425
----------- -------------
5,150,850 5,150,850
----------- -------------
DIVERSIFIED MANUFACTURING -- 0.42%
Blount Inc.
13.000%
due 8/1/09^ 580,000 571,300 -- -- -- -- -- -- 571,300
Celestica
International Inc.
10.500%
due 12/31/06 1,000,000 1,042,500 -- -- -- -- -- -- 1,042,500
FMC Corp.
7.000%
due 5/15/08 2,500,000 2,287,500 -- -- -- -- -- -- 2,287,500
Park Ohio
Industries Inc.
9.250%
due 12/1/07 1,500,000 1,320,000 -- -- -- -- -- -- 1,320,000
----------- -------------
5,221,300 5,221,300
----------- -------------
ENERGY -- 1.14%
Belco Oil & Gas
Corp
10.500% due 4/1/06 350,000 355,250 -- -- -- -- -- -- 355,250
8.875% due 9/15/07 635,000 587,375 -- -- -- -- -- -- 587,375
Bellwether
Exploration Co.
10.875%
due 4/01/07 -- -- -- -- 113,050 101,745 150,575 135,518 237,263
Canadian Forest
Oil Ltd
8.75% due 9/15/07 930,000 871,875 -- -- 238,000 222,530 317,000 296,395 1,390,800
Clark USA Inc.
10.875%
due 12/1/05 1,210,000 647,350 -- -- -- -- -- -- 647,350
Enron Corp.
6.450%
due 11/15/01 1,500,000 1,477,500 -- -- -- -- -- -- 1,477,500
Forest Oil Corp.
10.500%
due 1/15/06 790,000 805,800 -- -- -- -- -- -- 805,800
Key Energy
Services Inc.
14.00% due 1/15/09 -- -- -- -- 71,400 78,005 95,100 103,897 181,901
Leviathan Gas
Pipelines
10.375% due 6/1/09 400,000 407,500 -- -- -- -- -- -- 407,500
Lomak Petroleum Inc.
8.75% due 1/15/07 -- -- -- -- 119,000 102,043 158,500 135,914 237,956
Nuevo Energy Co.
9.500% due 6/1/08 980,000 967,750 -- -- -- -- -- -- 967,750
Parker Drilling Co.
9.750%
due 11/15/06 780,000 737,100 -- -- -- -- -- -- 737,100
Polaroid Corp.
11.50% due 2/15/06 1,075,000 1,091,125 -- -- 59,500 60,839 79,250 81,033 1,232,997
Pride International
Inc
10.000%
due 6/1/09 1,595,000 1,606,963 -- -- -- -- -- -- 1,606,963
R & B Falcon Corp.
12.250%
due 3/15/06 1,000,000 1,085,000 -- -- -- -- -- -- 1,085,000
RBF Finance Co.
11.375%
due 3/15/09 900,000 963,000 -- -- -- -- -- -- 963,000
Synder Oil Corp.
8.75% due 6/15/07 -- -- -- -- 59,500 58,905 79,250 78,458 137,363
Western Gas
Resources +
10.00% due 6/15/09 -- -- -- -- 238,000 240,380 317,000 320,170 560,550
Vintage Petroleum
9.750% due 6/30/09 445,000 449,450 -- -- -- -- -- -- 449,450
----------- ----------- ----------- -------------
12,053,038 864,446 1,151,384 14,068,867
----------- ----------- ----------- -------------
FINANCIAL -- 3.08%
American General
Finance Corp.
5.875% due 7/15/01 2,000,000 1,965,000 -- -- -- -- -- -- 1,965,000
Amresco Inc.
10.000%
due 3/15/04 600,000 399,000 -- -- -- -- -- -- 399,000
9.875% due 3/15/05 2,265,000 1,506,225 -- -- -- -- -- -- 1,506,225
Associates
Corp., NA
5.750%
due 10/15/03 2,790,000 2,636,550 -- -- -- -- -- -- 2,636,550
AT&T Capital Corp.
6.250% due 5/15/01 2,500,000 2,478,125 -- -- -- -- -- -- 2,478,125
Avis Rent A
Car Inc. +
11.00% due 5/01/09 95,000 99,512 -- -- 238,000 248,115 317,000 330,473 678,100
Contifinancial
Corp.
8.375% due 8/15/03 -- -- -- -- 476,000 47,600 634,000 63,400 111,000
Countrywide Home
Loan
7.200% due
10/30/0 62,525,000 2,401,906 -- -- -- -- -- -- 2,401,906
Derby Cycle Corp.
Lyon Investments
10.00% due 5/15/08 -- -- -- -- 119,000 72,888 158,500 97,081 169,969
Donaldson, Lufkin
& Jenrette
6.375% due 5/26/00 2,000,000 1,999,600 -- -- -- -- -- -- 1,999,600
6.170% due 7/15/03 2,500,000 2,387,500 -- -- -- -- -- -- 2,387,500
General Electric
Capital Corp.
7.000% due 2/3/03 2,000,000 1,980,000 -- -- -- -- -- -- 1,980,000
Household Finance
Corp.
6.750% due 6/1/00 2,000,000 1,999,980 -- -- -- -- -- -- 1,999,980
International Lease
Finance Corp.
5.950% due 6/1/01 2,500,000 2,465,625 -- -- -- -- -- -- 2,465,625
Madison River
Capital^
13.250% due 3/1/10 535,000 505,575 -- -- -- -- -- -- 505,575
Mass Mutual Life
7.625%
due 11/15/23 2,000,000 1,922,500 -- -- -- -- -- -- 1,922,500
NationsBank Corp.
6.500% due 8/15/03 2,500,000 2,418,750 -- -- -- -- -- -- 2,418,750
Nations Rent Inc.
10.375%
due 12/15/08 75,000 54,375 -- -- -- -- -- -- 54,375
Ocwen Asset
Investment
11.500% due 7/1/05 900,000 706,500 -- -- -- -- -- -- 706,500
Ocwen Capital
Trust I
10.875% due 8/1/27 1,250,000 706,250 -- -- -- -- -- -- 706,250
Plains Resources
Inc. +
10.25% due 3/15/06 -- -- -- -- 102,340 98,374 136,310 131,028 229,402
Private Export
Funding Corp.
7.010% due 4/30/04 1,000,000 993,750 -- -- -- -- -- -- 993,750
6.670% due 9/15/09 2,500,000 2,400,000 -- -- -- -- -- -- 2,400,000
St. Paul Cos., Inc.
7.875% due 4/15/05 1,000,000 983,750 -- -- -- -- -- -- 983,750
SunAmerica Inc.
6.580% due 1/15/02 1,300,000 1,283,750 -- -- -- -- -- -- 1,283,750
Transamerica
Financial Corp.
6.750% due 6/1/00 2,000,000 1,999,900 -- -- -- -- -- -- 1,999,900
United
Rentals, Inc.
9.000% due 4/1/09 250,000 222,500 -- -- -- -- -- -- 222,500
9.250% due 1/15/09 420,000 381,150 -- -- -- -- -- -- 381,150
----------- ----------- ----------- -------------
36,897,773 466,977 621,982 37,986,731
----------- ----------- ----------- -------------
FOOD/BEVERAGE/BOTTLING -- 1.08%
Agrilink Foods Inc.
11.875%
due 11/1/08 185,000 164,650 -- -- -- -- -- -- 164,650
B & G Foods
Indications Corp.
9.625% due 8/01/07 -- -- -- -- 238,000 186,830 317,000 248,845 435,675
Conagra Inc.
5.500%
due 10/15/02 2,265,000 2,151,750 -- -- -- -- -- -- 2,151,750
Carrols Corp.
9.500% due 12/1/08 1,945,000 1,658,113 -- -- -- -- -- -- 1,658,113
Coca-Cola
Enterprises
6.750% due 1/15/38 2,500,000 2,121,875 -- -- -- -- -- -- 2,121,875
Diageo PLC
8.625% due 8/15/01 2,400,000 2,436,000 -- -- -- -- -- -- 2,436,000
Imperial Holly
9.750%
due 12/15/07 1,495,000 306,475 -- -- -- -- -- -- 306,475
International
Home Foods
10.375%
due 11/1/06 530,000 524,700 -- -- -- -- -- -- 524,700
Premier
International
Foods PLC
12.000%
due 9/1/09 490,000 465,500 -- -- -- -- -- -- 465,500
Quaker Oats
7.440% due 3/2/26 1,000,000 921,250 -- -- -- -- -- -- 921,250
SC International
Services
Inc., Series B
9.250% due 9/1/07 985,000 901,275 -- -- -- -- -- -- 901,275
Triarc Consumer
Beverage
10.250%
due 2/15/09^ 1,315,000 1,242,675 -- -- -- -- -- -- 1,242,675
----------- ----------- ----------- -------------
12,894,263 186,830 248,845 13,329,938
----------- ----------- ----------- -------------
GAMING -- 0.30%
Circus Circus
Enterprises
7.625% due 7/15/13 205,000 164,000 -- -- -- -- -- -- 164,000
Harvey Casinos
Resorts
10.625% due 6/1/06 515,000 525,300 -- -- -- -- -- -- 525,300
Hollywood Casino
Shreveport
13.000% due 8/1/06^ 245,000 259,700 -- -- -- -- -- -- 259,700
Hollywood Casino
Corp.
11.250% due 5/1/07 155,000 158,100 -- -- -- -- -- -- 158,100
Jazz Casino Co.
5.867%
due 11/15/09 570,000 180,262 -- -- -- -- -- -- 180,262
Majestic Star
Casino LLC. +
10.875%
due 7/01/06 -- -- -- -- 238,000 221,340 317,000 294,810 516,150
Sun International
Ltd
9.00% due 3/15/07 220,000 198,550 -- -- 238,000 214,795 317,000 286,093 699,438
8.625%
due 12/15/07 445,000 398,275 -- -- -- -- -- -- 398,275
Venetian Casino Co.
12.250%
due 11/15/04 250,000 245,000 -- -- -- -- -- -- 245,000
Waterford Gaming
Finance Corp.,
LLC +
9.50% due 3/15/10 -- -- -- -- 233,478 222,971 310,977 296,983 519,955
----------- ----------- ----------- -------------
2,129,187 659,106 877,886 3,666,179
----------- ----------- ----------- -------------
HEALTHCARE -- 0.66%
Alaris Medical
Systems Inc.
9.75% due 12/01/06 -- -- -- -- 89,250 71,400 118,875 95,100 166,500
Columbia/HCA
Healthcare
zero coupon
due 6/1/02 2,500,000 2,055,350 -- -- -- -- -- -- 2,055,350
Frensenuis Medical
Care Capital Trust
9.00% due 12/01/06 4,200 395,850 -- -- 238,000 223,720 317,000 297,980 917,550
Hangar Orthopedic
Group
11.250%
due 6/15/09 590,000 469,050 -- -- -- -- -- -- 469,050
Harrahs
Operations Inc.
7.875%
due 12/15/05 -- -- -- -- 53,550 49,802 71,325 66,332 116,134
ICN Pharmaceuticals
Inc.
9.250% due 8/15/05 2,205,000 2,155,387 -- -- -- -- -- -- 2,155,387
King Pharmaceutical
Inc.
10.750%
due 2/15/09 415,000 425,375 -- -- -- -- -- -- 425,375
Magellan Health
Services
9.000% due 2/15/08 2,825,000 1,878,625 -- -- -- -- -- -- 1,878,625
----------- ----------- ----------- -------------
7,379,637 344,922 459,412 8,183,971
----------- ----------- ----------- -------------
HOUSING RELATED -- 0.38%
Amatek Industries
12.000%
due 2/15/08 555,000 518,925 -- -- -- -- -- -- 518,925
American Plumbing
& Mechanical
11.625%
due 10/15/08 390,000 346,125 -- -- -- -- -- -- 346,125
Atrium Cos., Inc.
Series B, 10.500%
due 5/1/09 580,000 542,300 -- -- -- -- -- -- 542,300
CB Richards Ellis
Services Inc.
8.875% due 6/01/06 -- -- -- -- 238,000 208,250 317,000 277,375 485,625
Falcon Products
Inc., Series B
11.375%
due 6/15/09 610,000 573,400 -- -- -- -- -- -- 573,400
Integrated
Electrical
Services
9.375% due 2/1/09 745,000 584,825 -- -- -- -- -- -- 584,825
Nortek Inc.
9.250% due 3/15/07 1,045,000 979,688 -- -- -- -- -- -- 979,688
9.125% due 9/1/07 60,000 55,800 -- -- -- -- -- -- 55,800
Orius Capital Corp.
12.750%
due 2/1/10^ 640,000 649,600 -- -- -- -- -- -- 649,600
----------- ----------- ----------- -------------
4,250,663 208,250 277,375 4,736,288
----------- ----------- ----------- -------------
INTERNET SERVICES -- 0.69%
Cybernet Internet
Services
14.000% due 7/1/09 505,000 391,375 -- -- -- -- -- -- 391,375
Exodus
Communications
10.750%
due 12/15/09^ 1,155,000 1,157,888 -- -- -- -- -- -- 1,157,888
Globix Corp.
12.500%
due 2/1/10^ 130,000 115,050 -- -- -- -- -- -- 115,050
Rhythms
Netconnections
14.000%
due 2/15/10^ 665,000 591,850 -- -- -- -- -- -- 591,850
Splitrock
Services Inc.
11.750%
due 7/15/08 1,950,000 2,076,750 -- -- -- -- -- -- 2,076,750
Verio Inc.
10.375% due 4/1/05 695,000 668,937 -- -- -- -- -- -- 668,937
11.250%
due 12/1/08 1,915,000 1,895,850 -- -- -- -- -- -- 1,895,850
10.625%
due 11/15/09^ 1,010,000 972,125 -- -- -- -- -- -- 972,125
Wam!Net Inc.
step bond to
yield 13.724%
due 3/1/05 1,225,000 679,875 -- -- -- -- -- -- 679,875
----------- -------------
8,549,700 8,549,700
----------- -------------
LODGING LEISURE -- 1.12%
Carnival Corp.
6.150% due 4/15/08 2,500,000 2,234,375 -- -- -- -- -- -- 2,234,375
Courtyard by
Marriott,
Series B
10.750% due 2/1/08 1,915,000 1,886,275 -- -- -- -- -- -- 1,886,275
Hasbro Inc.
6.600% due 7/15/28 2,000,000 1,657,500 -- -- -- -- -- -- 1,657,500
HMH Properties
Inc. - Series C
8.45% due 12/01/08 50,000 44,875 -- -- 238,000 212,415 317,000 282,923 540,213
Intrawest Corp.
9.750% due 8/15/08 555,000 532,800 -- -- -- -- -- -- 532,800
10.500% due 2/1/10 1,040,000 1,032,200 -- -- -- -- -- -- 1,032,200
LTV Corp. +
11.75%
due 11/15/09 -- -- -- -- 119,000 117,215 158,500 156,123 273,338
Moll Industries Inc.
10.50% due 6/01/08 -- -- -- -- 178,500 57,120 237,750 76,080 133,200
Premier Parks Inc.
step bond to yield
10.819% due 4/1/08 560,000 371,700 -- -- -- -- -- -- 371,700
Psinet Inc.
10.500%
due 12/1/06^ 420,000 370,650 -- -- -- -- -- -- 370,650
11.500%
due 11/01/08 2,500,000 2,237,500 -- -- 89,250 80,325 118,875 106,988 2,424,813
11.000%
due 8/1/09 1,205,000 1,066,425 -- -- -- -- -- -- 1,066,425
SFX Entertainment
Inc.
9.125% due 2/1/08 1,250,000 1,256,250 -- -- -- -- -- -- 1,256,250
----------- ----------- ----------- -------------
12,690,550 467,075 622,113 13,779,738
----------- ----------- ----------- -------------
METALS/MINING/STEEL -- 0.27%
AEI Holding
10.500%
due 12/15/05^ 1,100,000 170,500 -- -- -- -- -- -- 170,500
Kaiser Aluminum &
Chemicals
Series B, 10.875%
due 10/15/06 250,000 240,000 -- -- -- -- -- -- 240,000
Series D, 10.875%
due 10/15/06 220,000 211,200 -- -- -- -- -- -- 211,200
12.750% due 2/1/03 890,000 845,500 -- -- -- -- -- -- 845,500
P&L Coal Holdings
Corp.
8.875% due 5/15/08 -- -- -- -- 119,000 107,100 158,500 142,650 249,750
Russel Metals Inc.
10.000% due 6/1/09 685,000 698,700 -- -- -- -- -- -- 698,700
WCI Steel Inc.,
Series B
10.000%
due 12/1/04 755,000 747,450 -- -- -- -- -- -- 747,450
WHX Corp.
10.500%
due 4/15/05 225,000 209,813 -- -- -- -- -- -- 209,813
----------- ----------- ----------- -------------
3,123,163 107,100 142,650 3,372,913
----------- ----------- ----------- -------------
PAPER/FOREST PRODUCTS -- 0.34%
Ainsworth Lumber
12.500%
due 7/15/07 865,000 908,250 -- -- -- -- -- -- 908,250
Doman Industries
Ltd
8.750% due 3/15/04 150,000 132,750 -- -- -- -- -- -- 132,750
Millar Western
Forest
9.875% due 5/15/08 585,000 568,912 -- -- -- -- -- -- 568,912
Repap New
Brunswick
10.625%
due 4/15/05 235,000 222,663 -- -- -- -- -- -- 222,663
Riverwood
International
10.625% due 8/1/07 625,000 628,125 -- -- -- -- -- -- 628,125
10.875% due 4/1/08 1,250,000 1,206,250 -- -- -- -- -- -- 1,206,250
Tembec Finance
Corp.
9.875% due 9/30/05 220,000 226,600 -- -- 119,000 120,190 158,500 160,085 506,875
----------- ----------- ----------- -------------
3,893,550 120,190 160,085 4,173,825
----------- ----------- ----------- -------------
PUBLISHING/PRINTING -- 0.30%
Garden State
Newspapers
8.625% due 7/1/11 485,000 424,375 -- -- -- -- -- -- 424,375
Hollinger
International
Publishing Inc.
9.25% due 3/15/07 -- -- -- -- 238,000 229,670 317,000 305,905 535,575
Merrill Corp.
12.000% due 5/1/09 505,000 482,275 -- -- -- -- -- -- 482,275
News America
Holdings
7.750% due 2/1/24 2,500,000 2,212,500 -- -- -- -- -- -- 2,212,500
----------- ----------- ----------- -------------
3,119,150 229,670 305,905 3,654,725
----------- ----------- ----------- -------------
RETAIL -- 0.63%
Acetex
9.75% due 10/01/03 -- -- -- -- 59,500 54,145 79,250 72,118 126,263
Advance Stores Inc.
10.25% due 4/15/08 1,260,000 1,008,000 -- -- 208,250 165,559 277,375 220,513 1,394,072
Ames Department
Stores
10.000% due
4/15/06 1,455,000 1,353,150 -- -- -- -- -- -- 1,353,150
Cole National
Group Inc.
8.625% due 8/15/07 -- -- -- -- 119,000 82,408 158,500 109,761 192,169
Finlay Fine
Jewelry Corp.
8.375% due 5/01/08 -- -- -- -- 238,000 214,200 317,000 285,300 499,500
Home Depot, Inc.
6.500%
due 9/15/04 2,500,000 2,418,750 -- -- -- -- -- -- 2,418,750
J.C. Penney Co.,
Inc.
7.250% due 4/1/02 500,000 472,500 -- -- -- -- -- -- 472,500
Key Plastics
Inc.++
10.25% due 3/15/07 -- -- -- -- 119,000 4,760 158,500 6,340 11,100
Kmart Corp.
12.500% due 3/1/05 850,000 949,875 -- -- -- -- -- -- 949,875
Stater Brothers
Holding
10.750%
due 8/15/06 395,000 394,012 -- -- -- -- -- -- 394,012
----------- ----------- ----------- -------------
6,596,287 521,071 694,032 7,811,390
----------- ----------- ----------- -------------
SEMICONDUCTORS -- 0.16%
Fairchild
Semiconductor
10.125%
due 3/15/07 2,000,000 1,995,000 -- -- -- -- -- -- 1,995,000
-----------
SERVICES/OTHER -- 0.63
Allied Waste North
American Inc. +
10.00% due 8/01/09 2,460,000 1,678,950 -- -- 238,000 163,625 317,000 217,938 2,060,513
Buhrmann US Inc.
12.250%
due 11/1/09 505,000 520,150 -- -- -- -- -- -- 520,150
Integrated
Electrical
Service +
9.375% due 2/01/09 -- -- -- -- 140,420 109,528 187,030 145,883 255,411
Intertek Financial
PLC 10.250%
due 11/1/06 750,000 630,000 -- -- -- -- -- -- 630,000
IT Group Inc.
11.250%
due 4/1/09 795,000 719,475 -- -- -- -- -- -- 719,475
Metal Management
Inc.
10.000%
due 5/15/08 330,000 239,250 -- -- -- -- -- -- 239,250
Pierce Leahy
Command Co.
8.125% due 5/15/08 -- -- -- -- 119,000 102,638 158,500 136,706 239,344
Safety Kleen
Services Inc.
9.25% due 6/01/08 -- -- -- -- 238,000 26,775 317,000 35,663 62,438
URS Corp.
12.250% due 5/1/09 745,000 756,175 -- -- -- -- -- -- 756,175
USA Waste Services
6.500%
due 12/15/02 2,500,000 2,303,125 -- -- -- -- -- -- 2,303,125
----------- ----------- ----------- -------------
6,847,125 402,565 536,190 7,785,880
----------- ----------- ----------- -------------
TELECOMMUNICATIONS -- 3.44%
Airgate PCS Inc.
step bond yield
16.049%
due 10/1/09 1,315,000 762,700 -- -- -- -- -- -- 762,700
Alamosa PCS
Holdings Inc.
step bond yield
12.726%
due 2/15/10 320,000 168,000 -- -- -- -- -- -- 168,000
Call-Net
Enterprises Inc.
9.375% due 5/15/09 455,000 311,675 -- -- -- -- -- -- 311,675
Centennial
Cellular
10.750%
due 12/15/08 1,355,000 1,355,000 -- -- -- -- -- -- 1,355,000
Crown Castle
International
Corp. step bond
yield 11.057%
due 5/15/11 2,305,000 1,394,525 -- -- -- -- -- -- 1,394,525
Dobson/Sygnet
Communications
12.250%
due 12/15/08 505,000 527,725 -- -- -- -- -- -- 527,725
Esprit Telecom
Group PLC
11.500%
due 12/15/097 1,500,000 1,312,500 -- -- -- -- -- -- 1,312,500
10.875%
due 6/15/08 750,000 626,250 -- -- -- -- -- -- 626,250
Energis plc +
9.75% due 6/15/09 -- -- -- -- 238,000 235,620 317,000 313,830 549,450
Focal
Communication
Corp., Series B
step bond to yield
12.978%
due 2/15/08 510,000 334,050 -- -- -- -- -- -- 334,050
11.875% due 1/15/10^ 405,000 407,531 -- -- -- -- -- -- 407,531
GT Group Telecom
step bond to
yield 13.25%
due 2/1/10^ 740,000 395,900 -- -- -- -- -- -- 395,900
Hermes Europe
Railtel BV
11.500%
due 8/15/07 2,250,000 2,036,250 -- -- -- -- -- -- 2,036,250
10.375%
due 1/15/09 350,000 302,750 -- -- -- -- -- -- 302,750
Intermedia
Communications
Inc. +
9.50% due 3/01/09 -- -- -- -- 238,000 226,100 317,000 301,150 527,250
Jazz PLC
13.250%
due 12/15/09^ 1,000,000 922,694 -- -- -- -- -- -- 922,694
KMC Telecom
Holdings Inc.
step bond to
yield 15.834%
due 2/15/08 450,000 223,313 -- -- -- -- -- -- 223,313
13.500%
due 5/15/09 935,000 836,825 -- -- -- -- -- -- 836,825
Leap Wireless
International
Inc. +
12.50%
due 4/15/10 -- -- -- -- 59,500 57,418 79,250 76,476 133,894
Level 3
Communications
step bond to
yield 12.875%
due 12/1/08 2,750,000 1,436,875 -- -- -- -- -- -- 1,436,875
11.250%
due 3/15/10 1,700,000 1,479,500 -- -- -- -- -- -- 1,479,500
Microcell
Telecommunication,
series B step
bond to yield
11.843%
due 6/1/06 475,000 431,063 -- -- -- -- -- -- 431,063
step bond to
yield 11.785%
due 6/1/09 985,000 635,325 -- -- -- -- -- -- 635,325
Millicom
International
Cellular
step bond to
yield 14.382%
due 6/1/06 1,835,000 1,550,575 -- -- -- -- -- -- 1,550,575
Nextel
Communications
Inc.
Zero Coupon
due 10/31/07 -- -- -- -- 357,000 255,255 475,500 339,983 595,238
9.375% due 11/15/09 265,000 254,400 -- -- -- -- -- -- 254,400
step bond to
yield 10.988%
due 9/15/07 1,135,000 865,438 -- -- -- -- -- -- 865,438
step bond to
yield 10.743%
due 2/15/08 1,635,000 1,158,806 -- -- -- -- -- -- 1,158,806
Nextlink
Communications
12.500%
due 4/15/06 2,400,000 2,520,000 -- -- -- -- -- -- 2,520,000
10.750% due 6/1/09 1,285,000 1,268,937 -- -- -- -- -- -- 1,268,937
step bond to
yield 12.053%
due 6/1/09 2,030,000 1,197,700 -- -- -- -- -- -- 1,197,700
step bond to
yield 12.125%
due 12/1/09 1,380,000 765,900 -- -- -- -- -- -- 765,900
Omnipoint Corp.,
Series A 11.625%
due 8/15/06 500,000 532,500 -- -- -- -- -- -- 532,500
Orange plc +
9.00% due 6/01/09 -- -- -- -- 238,000 236,810 317,000 315,415 552,225
Price
Communications
Wireless Inc. -
Series B 9.125%
due 12/15/06 -- -- -- -- 178,500 176,269 237,750 234,778 411,047
Primus Telecomm
Group
11.750% due 8/1/04 2,000,000 1,880,000 -- -- -- -- -- -- 1,880,000
Rogers Cantel
9.375% due 6/01/08 -- -- -- -- 238,000 236,810 317,000 315,415 552,225
Spectrasite
Holdings Inc.
step bond to
yield 11.250%
due 4/15/09 495,000 274,725 -- -- -- -- -- -- 274,725
Tele 1 Europe B.V.
13.000%
due 5/15/09 490,000 504,700 -- -- -- -- -- -- 504,700
13.000%
due 5/15/09 500,000 480,712 -- -- -- -- -- -- 480,712
Telephone and Data
Systems
7.000% due 8/1/06 2,500,000 2,362,500 -- -- -- -- -- -- 2,362,500
Telesystem
International
Wireless
Series B, step
bond to yield
13.345%
due 6/30/07 935,000 593,725 -- -- -- -- -- -- 593,725
Series C, step
bond to yield
12.706%
due 11/1/07 1,080,000 588,600 -- -- -- -- -- -- 588,600
Triton PCS Inc.
step bond to
yield 11.564%
due 5/1/08 1,000,000 722,500 -- -- -- -- -- -- 722,500
Versatel Telecom BV
13.250%
due 05/15/08 1,655,000 1,688,100 -- -- -- -- -- -- 1,688,100
Viatel Inc.
11.250%
due 4/15/08 1,065,000 974,475 -- -- -- -- -- -- 974,475
Voicestream Wirless
Co
step bond to
yield 11.875%
due 11/15/09 720,000 446,400 -- -- -- -- -- -- 446,400
Winstar
Communications
Inc
12.750%
due 4/15/10 370,000 355,200 -- -- -- -- -- -- 355,200
World Access Inc.,
Series B
13.250%
due 1/15/08 2,375,000 2,161,250 -- -- -- -- -- -- 2,161,250
----------- ----------- ----------- -------------
39,047,594 1,424,281 1,897,047 42,368,922
----------- ----------- ----------- -------------
TRANSPORTATION -- 0.78%
Continental
Airlines Inc.
8.00% due 12/15/05 -- -- -- -- 238,000 210,435 317,000 280,285 490,720
6.900% due 1/2/18 2,140,973 1,964,728 -- -- -- -- -- -- 1,964,728
Holt Group Inc. +
9.75% due 1/15/06 -- -- -- -- 238,000 107,100 317,000 142,650 249,750
ICG Holdings Inc.
Zero Coupon
due 5/01/06 -- -- -- -- 119,000 95,200 158,500 126,800 222,000
step bond to yield
12.932%
due 9/15/05 705,000 669,750 -- -- -- -- -- -- 669,750
step bond to yield
12.644%
due 5/1/06 595,000 478,975 -- -- -- -- -- -- 478,975
Norfolk Southern
Corp
7.875% due 2/15/04 3,000,000 3,015,000 -- -- -- -- -- -- 3,015,000
Oglebay Norton Co.
10.000% due 2/1/09 615,000 568,875 -- -- -- -- -- -- 568,875
Union Pacific Co.
7.875% due 2/15/02 2,000,000 1,990,000 -- -- -- -- -- -- 1,990,000
----------- ----------- ----------- -------------
8,687,328 412,735 549,735 9,649,798
----------- ----------- ----------- -------------
UTILITIES -- 0.48%
AES Corp.
10.250%
due 7/15/06 1,345,000 1,328,188 -- -- -- -- -- -- 1,328,188
9.500% due 6/1/09 1,635,000 1,610,475 -- -- -- -- -- -- 1,610,475
Azurix Corp. +
10.75% due 2/15/10 -- -- -- -- 119,000 119,595 158,500 159,293 278,888
Calpine Corp.
7.875% due 4/01/08 -- -- -- -- 238,000 224,018 317,000 298,376 522,394
10.500%
due 5/15/06 2,000,000 2,115,000 -- -- -- -- -- -- 2,115,000
Laidlaw +
6.65% due 10/01/04 -- -- -- -- 59,500 22,610 79,250 30,115 52,725
----------- ----------- ----------- -------------
5,053,663 366,223 487,784 5,907,669
----------- ----------- ----------- -------------
MORTGAGE OBLIGATIONS -- 0.26%
MORTGAGE BACKED
SECURITIES/PASSTHROUGHS
Airplane Trust
10.875%
due 3/15/19 2,750,744 2,308,865 -- -- 476,000 394,621 634,000 525,609 3,229,095
----------- ----------- ----------- -------------
TOTAL HIGH YIELD
BONDS -- 20.81% 228,968,008 -- -- -- 11,768,790 -- 15,675,238 256,412,036
----------- ---------- ----------- -------------
Identified Cost -- 245,686,014 -- -- -- 13,882,475 -- 18,490,524 278,059,013
US FIXED INCOME PRINCIPAL
PRINCIPAL PRINCIPAL AMOUNT
ISSUER AMOUNT VALUE AMOUNT VALUE (000'S OMITTED) VALUE
--------------------------------
ASSET BACKED SECURITIES -- 2.80%
Aames Mortgage
Trust 6.59%
due 6/15/24 -- -- 1,314,932 1,305,544 386,346 383,588 420,236 417,236 2,106,367
Aircraft Financial
Trust, 8.000%
due 5/15/24 -- -- 1,940,000 1,774,596 570,000 521,402 620,000 567,139 2,863,136
Amresco Residential
Securities, 6.245%
due 4/25/22 -- -- 1,153,524 1,144,153 338,922 336,169 368,652 365,657 1,845,979
Asset
Securitization
Corp., Series 95,
7.384% due 8/13/29 -- -- 1,358,000 1,326,725 399,000 389,811 434,000 424,005 2,140,541
Asset
Securitization
Corp., Series 97,
6.500% due 2/14/41 -- -- 888,908 872,505 261,174 256,355 284,084 278,842 1,407,701
First Union, Lehman
Brothers,
6.479% due 3/18/04 -- -- 1,236,944 1,210,603 363,432 355,693 395,312 386,894 1,953,190
GE Capital Mortgage
Services, Inc., -- -- 776,000 764,057 228,000 224,491 248,000 244,183 1,232,732
5.905%
due 10/25/13
7.000%
due 10/25/23 -- -- 767,852 720,792 225,606 211,779 245,396 230,356 1,162,927
GMAC Commercial
Mortgage Inc. -- -- 430,680 396,445 126,540 116,481 137,640 126,699 639,626
6.420% due 8/15/08
6.73% due 12/15/03 -- -- 1,178,356 1,173,014 346,218 344,648 376,588 374,881 1,892,543
7.724%
due 12/15/09 -- -- 1,746,000 1,744,485 513,000 512,555 558,000 557,516 2,814,556
Green Tree Financial
Corp -- -- 1,493,800 1,386,471 438,900 407,365 477,400 443,099 2,236,935
6.710% due 8/15/29
8.05% due 10/15/27 -- -- 1,940,000 1,907,253 570,000 560,378 620,000 609,534 3,077,166
8.41% due 12/1/30 -- -- 1,164,000 1,103,251 342,000 324,151 372,000 352,585 1,779,987
IMC Home Equity
Loan Trust, 6.16%
due 5/20/14 -- -- 559,108 556,368 164,274 163,469 178,684 177,808 897,645
JP Morgan
Commercial
Mortgage
Financial Corp.,
6.373% due 1/15/30 -- -- 747,676 726,136 219,678 213,349 238,948 232,064 1,171,549
Merrill Lynch
Mortgage Co.,
6.950%
due 6/18/29 -- -- 604,504 595,412 177,612 174,941 193,192 190,286 960,638
Morgan Stanley
Capital Investment
Inc., 6.44%
due 11/15/02 -- -- 1,265,656 1,243,497 371,868 365,357 404,488 397,406 2,006,260
Nissan Auto
Receivables
Grantor,
6.15% due 2/15/03 -- -- 284,404 282,232 83,562 82,924 90,892 90,198 455,354
Nomura Asset
Securitization
Corp.,
8.15% due 3/4/20 -- -- 1,164,000 1,175,384 342,000 345,345 372,000 375,638 1,896,367
----------- ----------- ----------- -------------
21,408,922 6,290,250 6,842,026 34,541,198
----------- ----------- ----------- -------------
FOREIGN CORPORATIONS -- 0.57%
Merita Bank PLC,
6.50% due 4/1/09 -- -- 937,020 845,211 275,310 248,335 299,460 270,119 1,363,665
Pemex Financial
Ltd., 9.03%
due 2/15/11 -- -- 843,900 859,673 247,950 252,584 269,700 274,741 1,386,998
Quebec Providence
CDA, 7.50%
due 9/15/29 -- -- 867,180 847,972 254,790 249,146 277,140 271,001 1,368,120
Telefonica de
Argentina, 9.125%
due 5/7/08 -- -- 915,680 869,896 269,040 255,588 292,640 278,008 1,403,492
YPF Sociedad
Anonima, 7.25%
due 3/15/03 -- -- 940,900 907,477 276,450 266,630 300,700 290,019 1,464,126
----------- ----------- ----------- -------------
4,330,229 1,272,284 1,383,887 6,986,400
----------- ----------- ----------- -------------
DOMESTIC CORPORATIONS -- 2.05%
Abitibi
Consolidated Inc.,
8.50%
due 8/1/29 -- -- 1,032,080 948,306 303,240 278,626 329,840 303,067 1,529,999
Ahold Financial
U.S.A Inc.,
6.875% due 5/1/29 -- -- 692,580 580,999 203,490 170,706 221,340 185,680 937,384
BB&T Corp., 6.375%
due 6/30/05 -- -- 884,640 826,059 259,920 242,708 282,720 263,998 1,332,765
Conseco Inc., 6.40%
due 6/15/01 -- -- 256,080 181,817 75,240 53,420 81,840 58,106 293,344
Dayton Hudson
Corp., 6.65%
due 8/1/28 -- -- 853,600 716,059 250,800 210,389 272,800 228,844 1,155,292
Delta Airlines
Inc., 8.30%
due 12/15/29 -- -- 1,164,000 1,041,047 342,000 305,875 372,000 332,706 1,679,627
Donaldson, Lufkin
& Jenrette,
5.875% due 4/1/02 -- -- 731,380 705,409 214,890 207,259 233,740 225,440 1,138,108
Dynegy Inc., 7.45%
due 7/15/06 -- -- 812,860 776,771 238,830 228,227 259,780 248,247 1,253,244
Ford Motor Co.,
7.375%
due 10/28/09 -- -- 898,220 868,237 263,910 255,101 287,060 277,478 1,400,816
Knight Ridder Inc.,
6.875% due 3/15/29 -- -- 913,740 792,917 268,470 232,971 292,020 253,407 1,279,294
Lehman Brothers
Holdings, Inc.,
7.75% due 1/15/05 -- -- 810,920 811,423 238,260 238,408 259,160 259,321 1,309,151
Lockheed Martin
Corp., 7.95%
due 12/1/05 -- -- 843,900 826,651 247,950 242,882 269,700 264,187 1,333,720
MCI Communications
Corp., 6.50%
due 4/15/10 -- -- 892,400 812,450 262,200 238,710 285,200 259,649 1,310,808
Morgan Stanley
Dean Witter & Co.,
5.625% due 1/20/04 -- -- 911,800 854,949 267,900 251,196 291,400 273,231 1,379,377
National Rural
Utilities, 6.20%
due 2/1/08 -- -- 791,520 723,394 232,560 212,544 252,960 231,188 1,167,125
Osprey Trust Inc.,
8.31% due 1/15/03 -- -- 861,360 854,125 253,080 250,954 275,280 272,968 1,378,046
Popular North
America, Inc.,
6.875% due 6/15/01 -- -- 851,660 842,592 250,230 247,566 272,180 269,282 1,359,440
Raytheon Co., 7.90%
due 3/1/03 -- -- 874,940 859,856 257,070 252,638 279,620 274,799 1,387,294
St. Paul Cos Inc.,
7.875% due 4/15/05 -- -- 834,200 816,548 245,100 239,914 266,600 260,959 1,317,421
Saks Inc., 8.25%
due 11/15/08 -- -- 937,020 845,661 275,310 248,467 299,460 270,263 1,364,391
----------- ----------- ----------- -------------
15,685,270 4,608,559 5,012,818 25,306,647
----------- ----------- ----------- -------------
MORTGAGE OBLIGATIONS
COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.06%
Asset Backed
Securitization
Corp.,
6.64% due 12/25/27 -- -- 970,000 879,974 285,000 258,549 310,000 281,229 1,419,752
CMC Securitization
Corp., Series 97,
7.00% due 10/25/27 -- -- 209,908 208,255 61,674 61,188 67,084 66,556 335,999
CWMBS Inc., Series
98, 6.50%
due 7/25/13 -- -- 823,336 761,187 241,908 223,648 263,128 243,266 1,228,101
Chase Mortgage
Financal Trust,
6.50% due 9/25/13 -- -- 764,360 705,751 224,580 207,360 244,280 225,549 1,138,660
Chase Mortgage
Financal Trust,
7.25% due 2/25/30 -- -- 970,000 916,330 285,000 269,231 310,000 292,848 1,478,409
Credit Suisse First
Boston Mortgage,
7.29% due 9/15/09 -- -- 1,513,200 1,469,782 444,600 431,843 483,600 469,724 2,371,350
Federal Home Loan
Mortgage Corp. -- -- 388,000 357,445 114,000 105,023 124,000 114,235 576,703
6.00% due 1/15/24
6.25% due 6/15/24 -- -- 1,334,720 1,259,188 392,160 369,968 426,560 402,421 2,031,577
Federal National
Mortgage
Association,
7.412% due 8/17/21 -- -- 1,141,108 1,125,721 335,274 330,753 364,684 359,767 1,816,241
Government National
Mortgage
Association, 7.25%
due 10/16/22 -- -- 329,024 328,215 96,672 96,434 105,152 104,894 529,543
Residential Asset
Securitization
Trust, 7.00%
due 2/25/08 -- -- 105,536 105,224 31,008 30,916 33,728 33,628 169,769
----------- ----------- ----------- -------------
8,117,074 2,384,914 2,594,116 13,096,104
----------- ----------- ----------- -------------
MORTGAGE BACKED SECURITIES/PASSTHROUGHS -- 0.70%
Federal Home Loan
Mortgage Corp.
5.750% due 7/15/03 5,000,000 4,790,650 -- -- -- -- -- -- 4,790,650
6.00% due TBA -- -- 388,000 351,989 114,000 103,419 124,000 112,491 567,900
6.00% due 8/1/00 -- -- 597,908 593,755 175,674 174,454 191,084 189,757 957,965
7.50% due TBA -- -- 1,435,600 1,402,624 421,800 412,111 458,800 448,261 2,262,997
8.50% due 4/1/01 -- -- 1,164 1,320 1,000 388 1,000 422 2,129
----------- ----------- ----------- ----------- -------------
4,790,650 2,349,688 690,372 750,931 8,581,641
----------- ----------- ----------- ----------- -------------
Federal National
Mortgage
Association -- 2.21%
4.625%
due 10/15/01 5,000,000 4,841,550 -- -- -- -- -- -- 4,841,550
5.50% due TBA -- -- 1,940,000 1,689,619 570,000 496,434 620,000 539,981 2,726,035
6.50% due TBA -- -- 2,716,000 2,534,354 798,000 744,630 868,000 809,948 4,088,932
6.50% due 4/1/29 -- -- 1,481,384 1,383,684 435,252 406,546 473,432 442,208 2,232,438
6.50% due 5/1/29 -- -- 1,673,832 1,561,762 491,796 458,868 534,936 499,120 2,519,751
7.00% due 6/1/03 -- -- 65,184 64,529 19,152 18,960 20,832 20,623 104,112
7.00% due 7/1/03 -- -- 105,924 104,628 31,122 30,741 33,852 33,438 168,807
7.50% due TBA -- -- 2,211,600 2,193,642 649,800 644,524 706,800 701,061 3,539,226
7.50% due TBA -- -- 4,423,200 4,327,825 1,299,600 1,271,577 1,413,600 1,383,119 6,982,522
8.00% due 6/1/02 -- -- 1,552 1,657 1,000 487 1,000 530 2,674
----------- ----------- ----------- ----------- -------------
4,841,550 13,861,700 4,072,768 4,430,028 27,206,046
----------- ----------- ----------- ----------- -------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 1.68%
6.50% due TBA -- -- 4,811,200 4,505,990 1,413,600 1,323,925 1,537,600 1,440,059 7,269,973
7.00% due 2/15/24 -- -- 1,341,316 1,294,935 394,098 380,471 428,668 413,845 2,089,251
8.00% due TBA -- -- 776,000 777,698 228,000 228,499 248,000 248,543 1,254,739
8.00% due 12/15/07 -- -- 13,192 13,248 3,876 3,893 4,216 4,234 21,375
8.00% due 6/1/27
(TBA) 5,000,000 5,015,600 -- -- -- -- -- -- 5,015,600
8.00% due 2/15/30 4,992,976 5,008,554 -- -- -- -- -- -- 5,008,554
----------- ----------- ----------- ----------- -------------
10,024,154 6,591,871 1,936,787 2,106,680 20,659,491
----------- ----------- ----------- ----------- -------------
TOTAL MORTGAGE
OBLIGATIONS -- 5.64% 19,656,354 30,920,333 9,084,840 9,881,756 69,543,282
----------- ----------- ----------- ----------- -------------
YANKEE BONDS -- 0.34%
Corporacion Andina
de Fomento,
7.75% due 3/1/04 -- -- 845,840 832,273 248,520 244,534 270,320 265,984 1,342,791
Empresa Nacional,
7.75% due 7/15/08 -- -- 428,740 398,295 125,970 117,025 137,020 127,290 642,610
Imperial Tobacco
Overseas, 7.125%
due 4/1/09 -- -- 1,049,540 917,109 308,370 269,460 335,420 293,097 1,479,666
TPSA Financial,
7.75% due 12/10/08 -- -- 506,340 483,294 148,770 141,999 161,820 154,455 779,747
----------- ----------- ----------- -------------
2,630,971 773,017 840,826 4,244,814
----------- ----------- ----------- -------------
UNITED STATES GOVERNMENT AND
OTHER GOVERNMENT OBLIGATIONS
UNITED STATES TREASURY BONDS -- 2.28%
8.125% due 8/15/19 -- -- 2,101,020 2,524,501 617,310 741,735 671,460 806,799 4,073,036
7.875% due 2/15/21 2,500,000 2,962,275 -- -- -- -- -- -- 2,962,275
6.25% due 8/15/23 16,000,000 16,017,600 -- -- -- -- -- -- 16,017,600
3.625% due 4/15/28 -- -- 1,587,308 1,521,391 466,374 447,007 507,284 486,218 2,454,615
3.875% due 4/15/29 -- -- 1,001,040 1,003,310 294,120 294,787 319,920 320,646 1,618,743
6.125% due 8/15/29 -- -- 611,100 612,530 179,550 179,970 195,300 195,757 988,257
----------- ----------- ----------- ----------- -------------
18,979,875 5,661,732 1,663,499 1,809,420 28,114,526
----------- ----------- ----------- ----------- -------------
UNITED STATES TREASURY NOTES -- 1.81%
5.50% due 12/31/00 -- -- 42,680 42,400 12,540 12,458 13,640 13,550 68,408
6.50% due 5/31/01 -- -- 446,200 445,919 131,100 131,017 142,600 142,510 719,446
6.25% due 2/15/03 2,500,000 2,476,450 -- -- -- -- -- -- 2,476,450
5.875% due
11/15/04 -- -- 116,400 113,326 34,200 33,297 37,200 36,218 182,840
6.500% due 8/15/05 6,700,000 6,687,270 -- -- -- -- -- -- 6,687,270
6.875% due 5/15/06 -- -- 1,350,240 1,372,181 396,720 403,167 431,520 438,532 2,213,880
6.625% due 5/15/07 -- -- 1,761,520 1,773,075 517,560 520,955 562,960 566,653 2,860,684
6.50% due 2/15/10 3,000,000 3,060,540 2,428,880 2,477,069 713,640 727,799 776,240 791,641 7,057,048
----------- ----------- ----------- ----------- -------------
12,224,260 6,223,970 1,828,692 1,989,104 22,266,026
----------- ----------- ----------- ----------- -------------
TOTAL UNITED STATES
GOVERNMENT & OTHER
GOVERNMENT
OBLIGATIONS -- 5.68% 50,860,489 11,885,703 3,492,191 3,798,523 70,036,906
----------- ----------- ----------- ----------- -------------
TOTAL FIXED
INCOME -- 34.08% 279,828,497 86,861,426 25,521,141 27,759,837 419,970,901
----------- ----------- ----------- ----------- -------------
PREFERRED STOCK -- 0.32%
California Federal
Preferred
Capital Corp. 600 13,350 -- -- -- -- -- -- 13,350
Comed Financing I -- -- -- 3,121,752 15,732 355,880 17,112 387,097 3,864,729
Dobson
Communications 250 25,656 -- -- -- -- -- -- 25,656
----------- ----------- ----------- ----------- -------------
39,006 3,121,752 355,880 387,097 3,903,735
----------- ----------- ----------- ----------- -------------
Total US Fixed
Securities -- 34.40% 279,867,503 89,983,178 25,877,020 28,146,934 423,874,636
----------- ----------- ----------- ----------- -------------
Identified Cost 297,891,399 91,251,385 26,810,974 29,162,814 445,116,572
FOREIGN BONDS PRINCIPAL PRINCIPAL
ISSUER CURRENCY AMOUNT VALUE AMOUNT VALUE
---------------------------- --------------------------------------------
FIXED INCOME
CANADA -- 0.07%
Canadian Government Bonds
1.90%
due 3/23/09 JPY -- -- -- -- 33,294,000 313,737 59,334,000 559,118 872,855
----------- ----------- -------------
DENMARK -- 0.17%
Commerzbank AG
13.75%
due 1/18/02 PLN -- -- -- -- 1,790,000 381,226 3,190,000 679,392 1,060,617
Nykredit
5.00%
due 10/01/29 DKK -- -- -- -- 363,012 38,878 646,932 69,285 108,163
Oester
Kontrollbank
1.80%
due 3/22/10 JPY -- -- -- -- 28,461,000 264,084 50,721,000 470,630 734,714
Unikredit
Realkred
5.00%
due 10/01/29 DKK -- -- -- -- 445,352 47,686 793,672 84,982 132,667
----------- ----------- -------------
731,874 1,304,289 2,036,162
----------- ----------- -------------
FINLAND -- 0.00%
Finnish Export Credit Corp.
6.625%
due 5/15/00 USD -- -- -- -- 21,480 21,480 38,280 38,280 59,760
----------- -----------
FRANCE -- 0.09%
Government of
France O.A.T.
3.00%
due 7/25/09 EURO -- -- -- -- 172,927 149,049 308,177 265,623 414,672
5.50%
due 4/25/29 EURO -- -- -- -- 291,770 258,803 519,970 461,218 720,021
----------- ----------- -------------
407,851 726,841 1,134,693
----------- ----------- -------------
GREAT BRITAIN -- 0.41%
Abbey National
Treasury Services
6.25%
due 6/30/00 USD -- -- -- -- 78,223 78,168 139,403 139,305 217,474
8.50%
due 7/17/00 USD -- -- -- -- 179,000 179,428 319,000 319,762 499,190
7.95%
due 10/26/29 USD 2,000,000 1,954,212 1,954,212
European Investment
Bank
7.00%
due 12/08/03 GBP -- -- -- -- 537,000 841,977 957,000 1,500,506 2,342,483
----------- ----------- ----------- -------------
1,954,212 1,099,573 1,959,574 5,013,359
----------- ----------- ----------- -------------
GERMANY -- 0.16%
Bundesrepublik
Deutschland
4.25%
due 11/26/04 EURO -- -- -- -- 737,480 650,766 1,314,280 1,159,746 1,810,512
Republic of
Germany
5.625%
due 1/04/28 EURO -- -- -- -- 42,960 38,656 76,560 68,891 107,547
----------- ----------- -------------
689,423 1,228,636 1,918,059
----------- ----------- -------------
GREECE -- 0.04%
Republic of Greece
10.18%
due 6/17/03 GRD -- -- -- -- 11,599,200 32,428 20,671,200 57,791 90,219
10.24%
due 10/23/03 GRD -- -- -- -- 52,626,000 148,265 93,786,000 264,227 412,492
----------- ----------- -------------
180,693 322,018 502,711
----------- ----------- -------------
ITALY -- 0.00%
SCCR Limited
3.50%
due 5/15/00 EURO -- -- -- -- 35,800,000 16,806 63,800,000 29,951 46,757
----------- ----------- -------------
JAPAN -- 0.32%
Government of Japan
4.10%
due 6/21/04 JPY -- -- -- -- 32,578,000 339,428 58,058,000 604,902 944,330
International Bank
Reconstruction
and Development
4.75%
due 12/20/04 JPY -- -- -- -- 59,070,000 640,711 105,270,000 1,141,826 1,782,537
Nippon Telephone
and Telegraph
2.50%
due 7/25/07 JPY -- -- -- -- 42,960,000 421,228 76,560,000 750,680 1,171,908
----------- ----------- -------------
1,401,367 2,497,408 3,898,775
----------- ----------- -------------
NETHERLANDS -- 0.08%
Bank Netherlands
Gemeenten
6.00%
due 5/12/00 USD -- -- -- -- 67,125 67,135 119,625 119,643 186,778
Kingdom of
Netherlands
6.00%
due 1/15/06 EURO -- -- -- -- 289,980 273,507 516,780 487,422 760,929
----------- ----------- -------------
340,642 607,065 947,707
----------- ----------- -------------
PORTUGAL -- 0.04%
Republic of Portugal
6.50%
due 5/08/00 USD -- -- -- -- 179,000 179,036 319,000 319,064 498,100
----------- ----------- -------------
SPAIN -- 0.03%
Government of Spain
6.00%
due 1/31/29 EURO -- -- -- -- 122,791 114,554 218,828 204,149 318,702
----------- ----------- -------------
UNITED STATES -- 0.24%
Bank One Auto
Grantor Trust
6.27%
due 11/20/03 USD -- -- -- -- 30,779 30,644 54,851 54,612 85,256
Chase Manhattan
Grantor Trust
6.61%
due 9/15/02 USD -- -- -- -- 21,531 21,470 38,371 38,262 59,733
Federal National
Mortgage
Association
7.25%
due 1/15/10 USD -- -- -- -- 46,540 46,402 82,940 82,694 129,096
Government National
Mortgage
Association
6.125%
due 4/20/25 USD -- -- -- -- 81,878 82,544 145,916 147,103 229,646
6.75%
due 9/20/25 USD -- -- -- -- 78,036 78,671 139,070 140,201 218,871
6.75%
due 9/20/26 USD -- -- -- -- 44,177 44,335 78,729 79,010 123,344
7.125%
due 12/20/25 USD -- -- -- -- 20,969 21,143 37,370 37,679 58,822
7.125%
due 11/20/26 USD -- -- -- -- 135,679 136,761 241,798 243,725 380,485
Inter American
Development Bank
7.375%
due 1/15/10 USD -- -- -- -- 44,750 44,943 79,750 80,094 125,037
KFW International
Finance
5.875%
due 6/28/00 USD -- -- -- -- 32,220 32,178 57,420 57,345 89,523
United States
Treasury
Inflationary
Index Notes
6.50%
due 2/28/02 USD -- -- -- -- 544,160 542,119 969,760 966,123 1,508,243
----------- ----------- -------------
1,081,209 1,926,848 3,008,057
----------- ----------- -------------
TOTAL FOREIGN
BONDS -- 1.64% 1,954,212 6,578,244 11,723,240 20,255,696
----------- ----------- ----------- -------------
IDENTIFIED COST 2,093,620 7,034,047 12,542,665 21,670,332
Total Long Term
Investments -- 97.35% 822,093,699 189,597,478 67,980,449 119,976,862 1,199,648,488
----------- ----------- ----------- ----------- -------------
Identified Cost 685,687,206 196,218,208 64,154,186 108,847,314 1,054,906,914
----------- ----------- ----------- ----------- -------------
SHORT TERM -- 2.65%
First Union
National
Bank -- -- -- -- -- 708,422 -- 1,525,832 2,234,254
First Union
National
Bank -- -- -- -- -- 135,392 -- 507,720 643,112
First Home Loan
Bank -- -- -- -- -- 27,100 -- 113,278 140,378
First Union
National
Bank -- -- -- -- -- 367,308 -- 654,588 1,021,896
Deutche Australia -- -- -- -- -- 356,610 -- 635,523 992,133
First Home Loan
Bank -- -- -- -- -- 127,806 -- 170,229 298,035
First Union
National
Bank -- -- -- 9,488,928 -- 2,787,984 -- 3,032,544 15,309,456
Goldman Sachs 11,647,000 11,647,000 -- -- -- -- -- -- 11,647,000
US T Bill -- -- -- 264,737 -- 77,783 -- 84,607 427,127
----------- ----------- ----------- ----------- -------------
11,647,000 9,753,665 4,588,405 6,724,320 32,713,390
----------- ----------- ----------- ----------- -------------
Total Investments -- 100.00% 833,740,699 199,351,143 72,568,854 126,701,182 1,232,361,878
----------- ----------- ----------- ----------- -------------
Identified Cost 697,334,206 205,971,873 68,742,591 115,571,634 1,087,620,305
</TABLE>
<PAGE>
Pro Forma Footnotes of Merger Between Smith Barney Balanced Fund and CitiFunds
Balanced Fund, CitiSelect 200 Fund and CitiSelect 300 Fund April 30, 2000
(unaudited)
1. General
The accompanying unaudited pro forma financial statements are presented to show
the effect of the proposed acquisition of substantially all of the assets of
the CitiFunds Balanced Fund, the CitiSelect 200 Fund and the CitiSelect 300
Fund ("the Acquired Funds") by the Smith Barney Balanced Fund ("Fund" or
"Balanced Fund") in exchange for shares of Balanced Fund and the assumption by
Balanced Fund of substantially all of the liabilities of the Acquired Funds as
described elsewhere in this proxy statement/prospectus.
Under the terms of the Agreement and Plan of Reorganization, the exchange of
assets of the Acquired Funds for shares of the Balanced Fund will be treated as
a tax-free reorganization and accordingly will be accounted for as a tax-free
merger. The acquisition would be accomplished by an acquisition of the net
assets of the Acquired Funds in exchange for shares of Balanced Fund at net
asset value. The unaudited pro forma schedule of investments and the unaudited
pro forma statement of assets and liabilities have been prepared as though the
acquisition had been effective on April 30, 2000. The unaudited pro forma
statement of operations has been prepared as though the acquisition had been
effective May 1, 1999. The unaudited pro forma financial statements are as of
the semi-annual period end of the Acquired Funds as that date is more recent
than the most recently filed financial statements for Balanced Fund.
The accompanying pro forma financial statements should be read in conjunction
with the financial statements and schedule of investments of the Acquired Funds
and Balanced Fund which are included in their respective annual reports dated
October 31, 1999 and July 31, 1999, respectively. The expense of the
reorganization, including the cost of the proxy solicitation, will be borne by
SSB Citi Fund Management LLC ("SSBC"), Balanced Fund's Investment Manager. SSBC
is a subsidiary of Salomon Smith Barney Holdings Inc., which in turn is a
subsidiary of Citigroup Inc.
2. Significant Accounting Policies
Balanced Fund, a separate investment fund of the Smith Barney Income Funds, a
Massachusetts business trust, is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management investment company.
The significant accounting policies consistently followed by Balanced Fund are:
(a) security transactions are accounted for on trade date; (b) securities
traded on national securities markets are valued at the closing price
on such markets; securities for which no sales price were reported
and U.S. government and agency obligations are valued at bid price,
or in the absence of a recent bid price, at the bid equivalent
obtained from one or more of the major market makers; (c) securities
maturing within 60 days are valued at cost plus accreted discount, or
minus amortized premium, which approximates value; (d) dividend
income is recorded on ex-dividend date and interest income is
recorded on an accrual basis; (e) gains or losses on the sale of
securities are recorded on the identified cost basis; (f) direct
expenses are charged to each class; management fees and general fund
expenses are allocated on the basis of relative net assets of each
class; (g) dividends and distributions to shareholders are recorded
<PAGE>
on the ex-dividend date; (h) the character of income and gains to be
distributed is determined in accordance with income tax regulations
which may differ from generally accepted accounting principles; (i)
the Fund intends to comply with the applicable provisions of the
Internal Revenue Code of 1986, as amended, pertaining to regulated
investment companies and to make distributions of taxable income
sufficient to relieve it from substantially all Federal income and
excise taxes; and (j) estimates and assumptions are required to be
made regarding assets, liabilities and changes in net assets
resulting from operations when financial statements are prepared.
Changes in the economic environment, financial markets and any other
parameters used in determining these estimates could cause actual
results to differ.
In addition, the Fund may enter into forward exchange contracts in
order to hedge against foreign currency risk. These contracts are
marked to market daily by recognizing the difference between the
contract exchange rate and the current market rate as an unrealized
gain or loss. Realized gains or losses are recognized when contracts
are settled. The Fund from time to time may also enter into options
and/or futures contracts to hedge market risk.
3. Pro-Forma Adjustments
The accompanying unaudited pro forma portfolio of investments and pro forma
financial statements reflect changes in shares and fund expenses as if the
merger had taken place on May 1, 1999. Adjustments were made to certain
expenses to reflect the merged entities' operations, and to reflect new
investment advisory and administration agreements as if they had been in place
as of May 1, 1999.
4. Investment Advisory Agreement and Other Transactions
SSBC acts as investment advisor of Balanced Fund. Balanced Fund pays SSBC an
advisory fee calculated at an annual rate of 0.45%. This fee is calculated
daily and paid monthly.
Under an administration agreement, SSBC also acts as Balanced Fund's
administrator for which Balanced Fund pays a fee calculated at an annual rate
of 0.20% of the average daily net assets. This fee is also calculated daily and
paid monthly.
Under these agreements, Balanced Fund pays SSBC a maximum annual combined fee
of 0.65% of average net assets for both investment advisory and administration
services. Under the agreements between Citibank, N. A., a subsidiary of
Citigroup, and the Acquired Funds, Citibank, N. A. receives a combined annual
fee of 0.75% for such services from CitiSelect 200 Fund and CitiSelect 300
Fund, and .70% for such services from CitiFunds Balanced.
Citi Fiduciary Trust Company ("CFTC"), a subsidiary of Citigroup, is Balanced
Fund's transfer agent. Salomon Smith Barney Inc., another subsidiary of
Citigroup, acts as Balanced Fund's distributor.
<PAGE>
PART C: OTHER INFORMATION
ITEM 15. INDEMNIFICATION
The response to this item is incorporated by reference to section 9 of the
Agreement and Plan of Reorganization and Post-Effective Amendment No. 2 to the
Registrant Statement filed on Form N-1A with the SEC on March 13, 1985 (the
"Registration Statement").
ITEM 16. EXHIBITS
(1)(a) Amendment No. 1 to the Registrant's Master Trust Agreement
dated July 30, 1993 and First Amended and Restated Master Trust
Agreement dated November 5, 1993 are incorporated by reference to
Post-Effective Amendment No. 36 to the Registration Statement.
(1)(b) Amendment to the Registrant's Amended and Restated Master
Trust Agreement dated June 12, 1998 is incorporated by reference
to Post-Effective Amendment No. 52 to the Registration Statement.
(2) Registrant's By-Laws are incorporated by reference to the
Registration Statement.
(3) Not Applicable.
(4) Form of Agreement and Plan of Reorganization is filed herewith as
Exhibit A.
(5) Not Applicable.
(6)(a) Transfer of Investment Advisory Agreements between the
Registrant and Smith Barney Mutual Funds Management with respect
to Smith Barney Diversified Strategic Income Fund, Smith Barney
Balanced Fund (formerly Smith Barney Utilities Fund), Smith
Barney Convertible Fund, Smith Barney High Income Fund, Smith
Barney Municipal High Income Fund (formerly Smith Barney
Tax-Exempt Income Fund) and Smith Barney Exchange Reserve Fund
are incorporated by reference to Post-Effective Amendment No. 40
to the Registration Statement.
(6)(b) Form of Transfer and Assumption of Advisory Agreement is
incorporated by reference to Post-Effective Amendment No. 53 to
the Registration Statement.
(7)(a) Form of Distribution Agreement between the Registrant and Salomon
Smith Barney Inc. is filed herewith.
(7)(b) Selling Group Agreement is incorporated by reference to
Post-Effective Amendment No. 54 to the Registration Statement.
(8) Not Applicable.
<PAGE>
(9)(a) Custodian Agreement between the Registrant and PNC Bank, National
Association is incorporated by reference to Post-Effective
Amendment No. 41 to the Registration Statement.
(9)(b) Form of Custodian Agreement between the Registrant and
Chase Manhattan Bank is incorporated by reference to
Post-Effective Amendment No. 43 to the Registration Statement.
(10)(a) Services and Distribution Plans pursuant to Rule 12b-1
between the Registrant on behalf of Smith Barney Diversified
Strategic Income Fund, Smith Barney Balanced Fund (formerly Smith
Barney Utilities Fund), Smith Barney Convertible Fund, Smith
Barney High Income Fund, Smith Barney Municipal High Income Fund
(formerly Smith Barney Tax-Exempt Income Fund) and Smith Barney
Exchange Reserve Fund and Salomon Smith Barney Inc. are
incorporated by reference to Post-Effective Amendment No. 40 to
the Registration Statement.
(10)(b) Form of Amended Service and Distribution Plan pursuant to Rule
12b-1 between the Registrant and Salomon Smith Barney Inc. is
incorporated by reference to Post-Effective Amendment No. 52 to
the Registration Statement.
(10)(c) Amended Plan pursuant to Rule 18f-3(d) is incorporated by
reference to Post-Effective Amendment No. 52 to the Registration
Statement.
(11) Opinion and Consent of Willkie Farr & Gallagher is filed herewith.
(12) Opinion of Bingham Dana LLP supporting the tax matters and
consequences to shareholders discussed in the prospectus will be
filed by amendment.
13)(a) Administration Agreement between the Registrant and
Mutual Management Corp. is incorporated by reference to
Post-Effective Amendment No. 40 to the Registration Statement.
(13)(b) Transfer Agency and Registrar Agreement between the Registrant
and First Data Investor Services Group, Inc. (formerly The
Shareholder Services Group, Inc.) is incorporated by reference to
Post-Effective Amendment No. 40 to the Registration Statement.
(14) Consent of Independent Public Accountants is filed herewith.
(15) Not Applicable.
(16) Not Applicable.
(17)(a) Forms of proxy cards are filed herewith.
(17)(b) Annual Report of the CitiSelect Portfolios (File Nos. 2-90518 and
811-4006) filed on December 29, 1999.
<PAGE>
(17)(c) Semi-Annual Report of the CitiSelect Portfolios (File Nos.
2-90518 and 811-4006) filed on June 23, 2000.
(17)(d) Prospectus and statement of additional information of the
CitiSelect Portfolios (File Nos. 2-90518 and 811-4006) filed on
March 30, 2000.
(17)(e) Annual Report of Registrant, dated March1, 2000, is incorporated
herein by reference.
(17)(f) Semi-Annual Report of Registrant, January 31, 2000, is
incorporated herein by reference.
(17)(g) Prospectus and statement of additional information of Registrant,
dated November 28, 1999, are incorporated herein by reference.
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act [17 C.F.R.
230.145c], the reoffering prospectus will contain the information called for by
the applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering of them.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, this Registration Statement has been signed on behalf of the
Registrant in the City of New York and the State of New York on the 13th day of
July, 2000.
SMITH BARNEY INCOME FUNDS
By: /s/ Heath B. McLendon
--------------------------
Heath B. McLendon
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacity on the date indicated.
/s/ Heath B. McLendon Chairman of the Board, July 13, 2000
------------------------- President and Chief
Heath B. McLendon Executive Officer
/s/ Lewis E. Daidone Senior Vice President, July 13, 2000
------------------------- Treasurer, Chief Financial
Lewis E. Daidone and Accounting Officer
/s/ Lee Abraham* Trustee July 13, 2000
-------------------------
Lee Abraham
/s/ Allan J. Bloostein* Trustee July 13, 2000
-------------------------
Allan J. Bloostein
/s/ Richard E. Hanson* Trustee July 13, 2000
-------------------------
Richard E. Hanson
/s/ Jane F. Dasher** Trustee July 13, 2000
-------------------------
Jane F. Dasher
/s/ Donald R. Foley** Trustee July 13, 2000
-------------------------
Donald R. Foley
/s/ Paul Hardin** Trustee July 13, 2000
-------------------------
Paul Hardin
/s/ Roderick Rasmussen** Trustee July 13, 2000
Roderick Rasmussen
/s/ John P. Toolan** Trustee July 13, 2000
-------------------------
John P. Toolan
*, **By: /s/ Heath B. McLendon
---------------------
Heath B. McLendon
Executed by Heath B. McLendon, Attorney-in-Fact on behalf of those
indicated, pursuant to Powers of Attorney dated September 4, 1996 and
May 20, 1999, respectively.
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
(7)(a) Form of Distribution Agreement between the Registrant and Salomon
Smith Barney Inc.
(11) Opinion and Consent of Willkie Farr & Gallagher is filed herewith.
(14) Consent of Independent Public Accountants
(17)(a) Forms of proxy cards
