As filed with the Securities and Exchange Commission on July 14, 2000.
File Nos. 333-____
811-4254
--------------------------------------------------------------------------------
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
</TABLE>
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 Interests ($.001 par value) of the Registrant
-------------------------------------------------------------------------------
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).
It is proposed that this filing will become effective on _________ __, 2000
pursuant to Rule 488 under the Securities Act of 1933.
<PAGE>
CITISELECT FOLIO 400 GROWTH
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 400 Growth (the
"CitiSelect Portfolio"), a series of CitiFunds Trust I, will be transferred in
a tax-free reorganization to Smith Barney Premium Total Return Fund (the "Smith
Barney Fund"), in exchange for shares of the Smith Barney Fund, a series of
Smith Barney Income Funds.
If the Agreement and Plan of Reorganization is approved and consummated,
you will no longer be a shareholder of the 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 of the CitiSelect
Portfolio.
The Smith Barney Fund is advised by SSB Citi Fund Management LLC ("SSB
Citi"). SSB Citi, like Citibank, N.A., the adviser of the CitiSelect Portfolio,
is a subsidiary of Citigroup Inc. Citigroup has proposed the reorganization of
the 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 CitiSelect Portfolio has determined that the reorganization of
the CitiSelect Portfolio with the Smith Barney Fund will benefit the
shareholders of the CitiSelect Portfolio.
The Board of Trustees of the CitiSelect Portfolio 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
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 will need to call 212-820-2380.
Respectfully,
Philip W. Coolidge
President
<PAGE>
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 400 GROWTH
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 400 Growth (the "CitiSelect Portfolio"), 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 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 that provides for and
contemplates: (1) the transfer of substantially all of the
assets and liabilities of the CitiSelect Portfolio to Smith
Barney Premium Total Return 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 Portfolio in liquidation of
the CitiSelect Portfolio; and (3) the termination of the
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 CITISELECT PORTFOLIO 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 PREMIUM TOTAL RETURN 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 400 GROWTH, 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 400 Growth (the "CitiSelect Portfolio"), 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 Portfolio at which
shareholders will be asked to consider and approve a proposed Agreement and
Plan of Reorganization (the "Plan") between the CitiFunds Trust, on behalf of
the CitiSelect Portfolio, and Smith Barney Income Funds, on behalf of its
series, Smith Barney Premium Total Return Fund (the "Smith Barney Fund").
The Plan provides that substantially all of the assets and liabilities of
the CitiSelect Portfolio will be transferred to the Smith Barney Fund. In
exchange for the transfer of these assets and liabilities, the CitiSelect
Portfolio will receive voting shares of the Smith Barney Fund. Shares of the
Smith Barney Fund so received will then be distributed to the shareholders of
the CitiSelect Portfolio in complete liquidation of the CitiSelect Portfolio,
and the CitiSelect Portfolio will be terminated. As a result of these
reorganization transactions, each shareholder of each class of the CitiSelect
Portfolio 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 Portfolio and Smith Barney Fund are each a series of
open-end management investment companies. The investment objective of the
CitiSelect Portfolio is as high a total return over time as is consistent with
a primary emphasis on equity securities and a secondary emphasis on fixed
income securities. The investment objective of the Smith Barney Fund is total
return, meaning a combination of income and long-term capital appreciation.
Both Funds invest 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. 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
April 28, 2000, as supplemented from time to time, which is included herewith
and incorporated herein by reference. This Proxy Statement/Prospectus is also
<PAGE>
accompanied by the Smith Barney Fund's Annual Report to shareholders for the
year ended December 31, 1999, which is incorporated herein by reference.
Additional information is set forth in the Statement of Additional Information
of the Smith Barney Fund, dated April 28, 2000, which is incorporated herein by
reference. The Statement of Additional Information is on file with the
Securities and Exchange Commission and is 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
Portfolio, 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 Portfolio. 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
Portfolio 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 PORTFOLIO OR THE
SMITH BARNEY FUND.
<PAGE>
TABLE OF CONTENTS
SYNOPSIS....................................................
Proposed Transaction.....................................
Comparison of Investment Objectives and Policies.........
Comparison of Investment Structure of
CitiSelect Portfolio 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.........................................
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 CitiSelect Portfolio......
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 Portfolio 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
Portfolio, and the Plan, the form of which is attached to this Proxy Statement/
Prospectus as Exhibit A. Shareholders of the CitiSelect Portfolio should read
this entire Proxy Statement/Prospectus carefully.
Proposed Transaction
The Board of Trustees of the CitiFunds Trust, on behalf of the CitiSelect
Portfolio, including the Trustees who are not "interested persons" of such Fund
(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 the CitiSelect
Portfolio will be transferred to the Smith Barney Fund. The CitiSelect Portfolio
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, the CitiSelect Portfolio will
receive a distribution in kind from the applicable Underlying Portfolios of the
investment securities held by the Underlying Portfolios on its behalf (and
associated liabilities), and those investment securities will be the assets
transferred to the Smith Barney Fund. In exchange for the transfer of those
assets and liabilities, the CitiSelect Portfolio will receive voting shares of
the Smith Barney Fund. Shares of the Smith Barney Fund so received will then be
distributed to the shareholders of the CitiSelect Portfolio in complete
liquidation of the CitiSelect Portfolio, and the CitiSelect Portfolio will be
terminated. As a result of the Reorganization, each shareholder of each class of
the CitiSelect Portfolio 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 as of the close of business on the
closing date of the Reorganization (the "Closing Date"). The Closing Date
is expected to be October 6, 2000 or such later dateas 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 CitiSelect
Portfolio, including the Non-Interested Trustees, has concluded that the
Reorganization is in the best interests of the CitiSelect Portfolio and its
shareholders and that the interests of the existing shareholders of the
CitiSelect Portfolio 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 Portfolio 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 the CitiSelect Portfolio.
Comparison of Investment Objectives and Policies
Investment Objectives
The investment objective of the CitiSelect Portfolio is as high a total
return over time as is consistent with a primary emphasis on equity securities
and a secondary emphasis on fixed income securities. This investment objective
may be changed by the Fund's Trustees without shareholder approval.
The investment objective of the Smith Barney Fund is total return, that
is, a combination of income and long-term capital appreciation. This investment
objective may not be changed without shareholder approval.
<PAGE>
Investment Policies
Asset Allocation. The CitiSelect Portfolio is a diversified asset
allocation fund that invests in a mix of equity and debt securities. Citibank,
N.A. ("Citibank"), the Fund's investment manager, generally allocates between
60% and 80% of the Fund's assets to equity securities and up to 40% of the
Fund's assets to fixed income securities. However, cash flows into or out of
the Fund, or changes in market valuations, may produce different results.
Citibank monitors the Fund's asset mix daily and conducts quarterly reviews to
determine whether to rebalance the Fund's investments.
Citibank may further allocate the Fund's equity securities among large
cap securities, small cap securities and international securities, and the
Fund's 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 is not an asset allocation fund. The Smith Barney
Fund invests in a mix of equity and fixed income securities in an attempt to
produce a pattern of total return that moves with the Standard & Poor's 500
Index, while generating high income.
Equity Securities. The CitiSelect Portfolio's equity securities may
include common stocks, preferred stocks, securities convertible into common
stocks and warrants. Citibank may allocate the Fund's 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's equity securities may include common stocks
traded on an exchange or in the over-the-counter market, preferred stocks,
warrants, rights, convertible securities, trust certificates, limited
partnership interests, equity-linked debt securities, depository receipts, real
estate investment trusts and other equity participations.
Debt Securities. The CitiSelect Portfolio'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 Fund's 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. The CitiSelect Portfolio does not
anticipate investing more than 25% of its total assets in junk bonds. Junk
bonds may subject the CitiSelect Portfolio to higher risks, as discussed under
"Principal Investments, Risk Factors and Investment Restrictions" below.
The Smith Barney Fund's investments in fixed income securities may
include bonds, notes (including structured notes), mortgage-related and
asset-backed securities, convertible securities, preferred stocks and money
market instruments. The Smith Barney Fund may also invest in junk bonds.
Foreign Securities. The CitiSelect Portfolio may invest without limit in
foreign securities. The Fund emphasizes equity securities included in the MSCI
EAFE Index, which contains securities of companies located in Europe, Australia
and the Far East. The Fund also may invest in emerging market equity
securities.
<PAGE>
The Smith Barney Fund also may invest without limit in foreign
securities, including depositary receipts (see "Principal Investments, Risk
Factors and Investment Restrictions" below for more information on the risks of
foreign securities).
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 Funds 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.
Each Fund may invest in 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. The Smith Barney Fund may
be limited, however, in its ability to invest in certain types of derivatives
for non-hedging purposes. The CitiSelect Portfolio is not similarly restricted.
Each Fund is subject to certain limitations imposed by the Commodity Futures
Trading Commission with respect to their investments in derivatives.
Security Selection Process
Citibank allocates the CitiSelect Portfolio's investments among different
types of securities and investment styles so that the Fund 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.
In selecting investments for the Smith Barney Fund, the Funds investment
manager, SSB Citi Fund Management LLC ("SSB Citi"), and its subadviser, Salomon
Brothers Asset Management Inc. ("SBAM"), employ fundamental research and due
diligence to assess various factors relating to issuers of securities.
Equity Securities. Citibank allocates the CitiSelect Portfolio's 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 and
SBAM assess a company's growth potential, stock price, potential appreciation
and valuation. The Smith Barney Fund also assesses a company's future capital
needs, competitive environment and management ability.
Fixed Income Securities. Citibank may diversify the fixed income
securities of the CitiSelect Portfolio 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 Portfolio invests in
each type of fixed income security. The Fund may invest in securities with
all maturities, including long bonds (10+ years), intermediate notes (3 to 10
years) and short-term notes (1 to 3 years).
In selecting individual fixed income securities for the Smith Barney
Fund's portfolio, SSB Citi and SBAM assess an issuer's credit quality, taking
<PAGE>
into account financial condition and profitability, and potential for change in
bond rating and industry outlook. The Smith Barney Fund may invest in fixed
income securities with all maturities.
Comparison of Investment Structure of CitiSelect Portfolio and Smith Barney
Fund
The 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 Portfolio include its 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, N.A., a wholly owned subsidiary of Citigroup Inc., serves as
the investment manager of the CitiSelect Portfolio. SSB Citi Fund Management
LLC ("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 funds in which the CitiSelect Portfolio invests. 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. and the
subadviser to the Smith Barney Fund)
foreign fixed income securities Salomon Brothers Asset Management Limited
(an affiliate of Citigroup Inc.)
Salomon Brothers Asset Management Inc., subadviser to the CitiSelect Portfolio
with respect to high-yield debt securities, also serves as subadviser to the
Smith Barney Fund.
The CitiSelect Portfolio pays an aggregate management fee, which is
accrued daily and paid monthly, of 0.75% of the Fund's average daily net assets
on an annualized basis for the Fund's then-current fiscal year. The aggregate
<PAGE>
management fee includes fees payable to Citibank for the asset management and
administrative services it provides to the CitiSelect Portfolio and its
underlying funds and fees payable to the subadvisers for their advisory
services to the underlying funds.
The Smith Barney Fund pays an aggregate management fee calculated at the
annual rate of 0.55% of the Fund's average daily net assets. The aggregate
management fee includes fees payable to the Fund's subadviser for its
investment advisory services to Fund. 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. For a comparison of the total annual operating
expenses of the CitiSelect Portfolio (which includes the expenses of the
underlying funds) and the Smith Barney Fund, please review the expense tables
under "Overall Expenses" below.
Ross Margolies, a Managing Director of SBAM and senior portfolio manager
for SBAM U.S. equity, is responsible for the day-to-day operations of the Smith
Barney Fund and will continue to be responsible for the day-to-day operations
of the Fund after consummation of the Reorganization. Mr. Margolies has over 18
years of investment management experience.
Overall Expenses
The total annual fund operating expenses as a percentage of average net
assets for the Class A and Class B shares of the Smith Barney Fund are lower
than the total annual fund operating expenses of the Class A and Class B shares
of the CitiSelect Portfolio. Further information about the expenses of each
class of the CitiSelect Portfolio and each class of the Smith Barney Fund for
the fiscal years ended October 31, 1999 and December 31, 1999, respectively,
and pro forma expenses following the proposed Reorganization is outlined in the
tables below.
<PAGE>
--------------------------------------------------------------------------------
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM CITISELECT SMITH BARNEY PRO FORMA
YOUR INVESTMENT PORTFOLIO FUND SMITH BARNEY
FUND
SHARE CLASS Class A Class B Class A Class B Class A Class B
Maximum Sales Charge (Load)
Imposed on Purchases 5.00% None 5.00% None 5.00% None
Maximum Deferred Sales
Charge (Load) None1 5.00%2 None3 5.00%2 None3 5.00%2
--------------------------------------------------------------------------------
ANNUAL FUND
OPERATING EXPENSES(4)
EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS
Management Fees 0.75% 0.75% 0.75% 0.75% 0.75% 0.75%
Distribution (12b-1) Fees 0.50% 1.00% 0.25% 0.75% 0.25% 0.75%
Other Expenses (administrative,
shareholder servicing and 0.25% 0.25% 0.12% 0.13% 0.12% 0.13%
other expenses)
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.50% 2.00% 1.12% 1.63% 1.12% 1.63%
--------------------------------------------------------------------------------
1 Except for investment of $500,000 or more.
2 Class B shares have a contingent deferred sales charge ("CDSC") that 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 is 5.00% 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.
--------------------------------------------------------------------------------
<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 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 PORTFOLIO
--------------------------------------------------------------------------------
Class A $645 $950 $1,278 $2,201
--------------------------------------------------------------------------------
Class B
--------------------------------------------------------------------------------
Assuming redemption at end of period $703 $927 $1,178 $2,199
--------------------------------------------------------------------------------
Assuming no redemption $203 $627 $1,078 $2,199
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SMITH BARNEY FUND
--------------------------------------------------------------------------------
Class A $608 $838 $1,086 $1,795
--------------------------------------------------------------------------------
Class B
--------------------------------------------------------------------------------
Assuming redemption at end of period $666 $814 $987 $1,797
--------------------------------------------------------------------------------
Assuming no redemption $166 $514 $887 $1,797
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PRO FORMA SMITH BARNEY FUND
--------------------------------------------------------------------------------
Class A $608 $838 $1,086 $1,795
--------------------------------------------------------------------------------
Class B
--------------------------------------------------------------------------------
Assuming redemption at end of period $666 $814 $987 $1,797
--------------------------------------------------------------------------------
Assuming no redemption $166 $514 $887 $1,797
--------------------------------------------------------------------------------
Distribution of Shares and Other Services
Distributor
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. The distributor of the
CitiSelect Portfolio is CFBDS, Inc.
Each of the Funds has adopted Rule 12b-1 distribution plans for their
Class A and Class B shares. Under the plans, the Funds pay distribution and
service fees. The distribution and service fees for Class A and Class B shares
of the Smith Barney Fund are lower than the distribution and service fees for
Class A and Class B shares of the CitiSelect Portfolio. See "Overall Expenses"
above for a comparison of these fees for the CitiSelect Portfolio and the Smith
Barney Fund.
Other Service Providers
As indicated below, the CitiSelect Portfolio 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>
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SERVICE PROVIDER CITISELECT PORTFOLIO SMITH BARNEY FUND
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Custodian State Street Bank and PNC Bank National
Trust Company Association
---------------------------------------------------------------------------
Auditors PricewaterhouseCoopers KPMG LLP
LLP
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Transfer Agent State Street Bank and Citi Fiduciary Trust
Trust Company Company
---------------------------------------------------------------------------
Sub-Transfer Agent N/A PFPC Global Fund
Services
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Sales Charges, Purchase Policies, Redemption and Exchange Information
Sales Charges
Class A shares of the CitiSelect Portfolio and the Smith Barney Fund are
sold at net asset value plus a front-end sales charge. There will be no
front-end sales load charged to Class A shareholders of the CitiSelect
Portfolio on the Class A shares of the Smith Barney Fund that 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 less than $25,000 of Class A
shares of the CitiSelect Portfolio is the same as the front-end sales charge on
such purchases of Class A shares of the Smith Barney Fund; with respect to
purchases in larger amounts, the sales charge applicable to Class A shares of
the Smith Barney Fund is higher than that of the CitiSelect Portfolio. You do
not pay an initial sales charge when you buy $500,000 or more of Class A shares
of the CitiSelect Portfolio 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 original purchase of shares of the
CitiSelect Portfolio.
Class B shares of the CitiSelect Portfolio and the 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 of purchase. For each of the Funds, the rate of the CDSC goes
down 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 original
purchase of shares of the CitiSelect Portfolio (or, if the shares of the
CitiSelect Portfolio were received in an exchange from an earlier purchase, the
date of that earlier purchase). Shareholders of the CitiSelect Portfolio are
subject to the same contingent deferred sales charge schedule as 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.
The CitiSelect Portfolio 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
<PAGE>
the Prospectus of the Smith Barney Fund for additional information about these
waivers. As stated 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 Portfolio and the Smith Barney Fund have established
policies waiving the Class B contingent deferred sales charge for certain
classes of investors under certain circumstances. 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 Portfolio.
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 Portfolio from the
Fund's 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 Fund. 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 Portfolio does not impose any minimum initial or
subsequent investment requirements but a Service Agent may. The Smith Barney
Fund imposes initial and additional investment amounts that 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
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General $1,000 $50
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IRAs, Self Employed Retirement $250 $50
Plans, Uniform Gift to Minor Accounts
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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
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Quarterly Systematic Investment $50 $50
Plans
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<PAGE>
Redemptions
Shares of each 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 Portfolio and the Smith
Barney Fund, which are generally similar.
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REDEMPTION CITISELECT PORTFOLIO SMITH BARNEY FUND
PROCEDURES AND
POLICIES
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Through an To redeem shares, you may To redeem shares, you may
Appropriate Contact contact the Fund's contact a Salomon Smith
Person transfer agent, or for a Barney Financial
shareholder that holds Consultant or dealer
shares through a Service representative, or for
Agent, the Service Agent. accounts held directly
with the Smith Barney
Fund, the sub-transfer
agent.
By Mail You may send written For accounts held directly at
redemption requests to the Fund, you may send written
the Fund's transfer agent redemption requests to the sub-
or, if you hold your transfer agent.
shares through a Service
Agent, your Service Agent.
By Telephone You may make redemption You may be eligible to
requests by telephone if redeem shares (except
your application permits. those held in retirement
plans) in amounts up to
$10,000 per day through
the transfer agent.
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Systematic You can arrange to for You can arrange for the
Withdrawal Plan automatic withdrawal of a automatic redemption of a
specified dollar amount portion of your shares on
from your account on a a monthly or quarterly
regular basis (no more basis. To qualify, you
frequently than must own shares of at
monthly). To qualify, least $10,000 ($5,000 for
you must have at least retirement plan accounts)
$10,000 in your account and each automatic
to participate in this redemption must be at
program and each least $50. If your
withdrawal must be at shares are subject to a
least $100. If your deferred sales charge,
shares are subject to a the sales charge will be
CDSC, you may only waived if your automatic
withdraw up to 10% of the payments do not exceed 1%
value of your account in per month of the value of
any year, but you will your shares subject to a
not be subject to a CDSC deferred sales charge.
on the shares withdrawn
under the plan.
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Automatic Your account balance with If your account falls
Redemptions a Fund may be subject to below $500 because of
a $500 minimum. If so, redemption of Fund
the Fund reserves the shares, the Fund may ask
right to close your you to bring your account
account if it falls below up to the minimum
---------------------------------------------------------------------------
<PAGE>
---------------------------------------------------------------------------
$500 because of requirement. If your
redemptions. You will account balance is still
have 60 days to make an below $500 after 60 days,
additional investment. the Fund may close your
account and send you the
redemption proceeds.
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Exchanges
Shareholders of the CitiSelect Portfolio may exchange Fund shares for
shares of the same class of certain other CitiFunds, subject to the limitation
noted below. Similarly, shareholders of the Smith Barney Fund may exchange
shares only 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 (except systematic exchanges). The CitiSelect
Portfolio does not impose any similar minimum investment amount for exchanges
into the CitiFunds, but a shareholder's Service Agent may.
When you exchange your Class A shares of the CitiSelect Portfolio, you
generally will be 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
the exchange. CitiSelect shareholders who subsequently exchange the Class A
shares of the Smith Barney Fund received in connection with the Reorganization,
however, will be required to pay the difference, if any, between the sales
charge applicable to the shares acquired in the exchange and the sales charge
they originally paid. CitiSelect shareholders who purchased Fund shares prior
to January 4, 1999 will not have to pay a sales charge when they exchange into
a Smith Barney fund.
For exchanges for both Funds, 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 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 Portfolio 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 Portfolio for shares of other CitiFunds, as
described above. On and after that date, CitiSelect shareholders may exchange
their shares of the CitiSelect Portfolio 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.
Dividends and Other Distributions
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
<PAGE>
your distributions and dividends in cash. The Funds pay dividends and
distribute capital gains, if any, according to the following schedule.
---------------------------------------------------------------------------
INCOME DIVIDEND
FUND DISTRIBUTIONS CAPITAL GAIN DISTRIBUTIONS
---------------------------------------------------------------------------
CitiSelect Portfolio annually (in December) annually (in December)
---------------------------------------------------------------------------
Smith Barney Fund monthly semi-annually (typically in
June and December)
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On or immediately prior to the Closing Date of the Reorganization, the
CitiSelect Portfolio 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 Portfolio and the Smith Barney Fund each will 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 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 the CitiSelect Portfolio to the Smith Barney Fund in exchange
for voting stock of the Smith Barney Fund, followed by the distribution of
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 Portfolio
or its shareholders as a direct result of the Reorganization. See "The Proposed
Transaction--FederalIncome Tax Consequences."
PRINCIPAL INVESTMENTS, RISK FACTORS, AND INVESTMENT RESTRICTIONS
Principal Investments and Risk Factors
The investment objectives and policies and risk factors of each of the
CitiSelect Portfolio are, in many respects, similar to those of the Smith
Barney 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 Portfolio and
the Smith Barney Fund and is qualified in its entirety by the Prospectuses and
Statements of Additional Information of the CitiSelect Portfolio and the Smith
Barney Fund incorporated herein by reference.
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FUNDS SUBJECT TO RISK PRINCIPAL INVESTMENT AND ACCOMPANYING RISK FACTOR
---------------------------------------------------------------------------
CITISELECT PORTFOLIO ASSET ALLOCATION:
The CitiSelect Portfolio invests in a mix of equity and
fixed income securities (each of these types of
<PAGE>
securities is referred to as an asset class). Citibank
may further allocate the Fund's 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 Portfolio's investment strategy depends
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 Fund invests, 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 Fund's assets between
equity and fixed income securities, or among different
types of equity and fixed income securities.
Citibank may change the Fund's 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.
---------------------------------------------------------------------------
BOTH 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.
---------------------------------------------------------------------------
BOTH FUNDS GROWTH INVESTING:
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 during periods when growth stocks are out of
favor.
---------------------------------------------------------------------------
BOTH FUNDS VALUE INVESTING:
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 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.
---------------------------------------------------------------------------
<PAGE>
---------------------------------------------------------------------------
BOTH FUNDS PORTFOLIO SELECTION:
The success of each Fund's investment strategy depends
in large part on the Fund's portfolio managers. The
portfolio managers may fail to pick securities that
perform well because they are unable to assess
accurately economic factors. In that case, you may lose
money, or your investment may not do as well as an
investment in a mutual fund with a similar investment
strategy.
---------------------------------------------------------------------------
BOTH FUNDS SMALL CAPITALIZATION ISSUERS:
Both Funds may invest in securities of small
capitalization companies. Investing in small companies
involves additional 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.
---------------------------------------------------------------------------
BOTH 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.
---------------------------------------------------------------------------
BOTH 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 a Fund's assets are invested in
lower-quality debt securities, that Fund may be subject
to greater risk.
---------------------------------------------------------------------------
BOTH 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
---------------------------------------------------------------------------
<PAGE>
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
BOTH FUNDS FOREIGN SECURITIES:
Each Fund may invest in foreign securities.
Investing in non-U.S. issuers involves additional
risks compared to investing in the securities of
U.S. issuers. These risks are more pronounced to
the extent a fund invests in issuers in emerging
markets. These risks may include:
o Less information about non-U.S. issuers or
markets may be available because of less
rigorous disclosure and accounting standards or
regulatory practices.
o Many non-U.S. markets are smaller, less
liquid and more volatile than U.S. markets. In
a changing market, the adviser may not be able
to sell the fund's portfolio securities in
amounts and at prices the adviser considers
reasonable.
o The U.S. dollar may appreciate against
non-U.S. currencies or a foreign government may
impose restrictions on currency conversion or
trading.
o The economies of non-U.S. countries may grow
at a slower rate than expected or may
experience a downturn or recession.
o Economic, political and social developments
may adversely affect the securities markets.
o Foreign governmental obligations may involve the risk
of debt moratorium, repudiation or renegotiation and
the fund may be unable to enforce its rights against
the issuers.
---------------------------------------------------------------------------
BOTH 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.
---------------------------------------------------------------------------
<PAGE>
---------------------------------------------------------------------------
BOTH FUNDS CONVERTIBLE SECURITIES:
Both Funds 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.
---------------------------------------------------------------------------
BOTH FUNDS DERIVATIVES:
Both Funds may, but need not, use derivative contracts,
such as futures and options on securities, securities
indices or currencies; options on these futures; forward
currency contracts; and interest rate or currency swaps
for any of the following purposes:
o To hedge against the economic impact of adverse
changes in the market value of its securities,
because of changes in stock market prices, currency
exchange rates or interest rates.
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 investment. Using derivatives
can disproportionately increase losses and reduce
opportunities for gains when stock prices, currency
rates or interest rates are changing. The Fund may not
fully benefit from or may lose money on derivatives if
changes in their value do not correspond accurately to
changes in the value of the Fund's holdings.
The other parties to certain derivative contracts
present the same types of credit risk as issuers of
fixed income securities. Derivatives can also make a
Fund less liquid and harder to value, especially in
declining markets.
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BOTH FUNDS SHORT SALES:
Each Fund may engage in short sales, which are
transactions in which the Fund sells a security it does
not own in anticipation of a decline in the market value
of that security. To complete such a transaction, the
Fund must borrow the security to make delivery to the
buyer. 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
---------------------------------------------------------------------------
<PAGE>
---------------------------------------------------------------------------
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 not engage in short sales
except those "against the box," which generally involve
less risk. The CitiSelect Portfolio is not subject to
this restriction. To the extent that the CitiSelect
Portfolio engages in short sales that are not "against
the box," it may be subject to more risk.
---------------------------------------------------------------------------
BOTH FUNDS PORTFOLIO TURNOVER:
Each Fund may engage in active and frequent trading to
achieve its principal investment strategies. Although
the portfolio manager of the Funds attempts to minimize
portfolio turnover, from time to time the Funds' annual
portfolio turnover rate may exceed 100%. 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. For a comparison of the historical
portfolio turnover rates of the Funds, see "The Proposed
Transaction - Portfolio Turnover" below.
---------------------------------------------------------------------------
BOTH 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, whereas the
CitiSelect Portfolio may engage in short sales, the Smith Barney Fund may
engage in short sales only "against the box," which generally involve less
risk. In addition, 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 CitiSelect Portfolio's
securities loans may not exceed 30% of the Fund's total assets. For a further
description of these investments and related risks, please consult the
Statement of Additional Information of the applicable Fund.
Fundamental Investment Restrictions
Each Fund has adopted certain fundamental investment limitations that 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
fundamental investment restrictions of the Funds are, in general, similar.
These fundamental restrictions limit the amounts that the Funds may borrow and
<PAGE>
prohibit the Funds 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 investing in oil, gas or mineral interests,
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), or from issuing "senior
securities" (as defined in the 1940 Act) to the extent prohibited by the 1940
Act.
Although these restrictions are similar, the parameters may be different
between the two Funds. For example, the CitiSelect Portfolio may not purchase
any securities at any time at which borrowings exceed 5% of the total assets of
the Fund, taken at market value, but the Smith Barney Fund is not subject to a
similar restriction.
Non-Fundamental 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) purchase securities on margin (except for such short-term credits
as are necessary for the clearance of purchases and sales of portfolio
securities) or sell any securities short (except "against the box"); (2) write
or sell puts, calls, straddles, spreads or combinations thereof, except as
permitted under the Fund's investment objective and policies; (3) 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; (4) make investments
for the purpose of exercising control or management; (5) purchase or retain
securities of any company if, to the knowledge of the Fund, any officer or
director of the Fund or SSB Citi owns beneficially more than 1/2 of 1% of the
outstanding securities of such issuer and together they own beneficially more
than 5% of the securities; (6) purchase warrants if, thereafter, more than 5%
of the value of the Fund's net assets would consist of such warrants, but
warrants attached to other securities or acquired in units by the Fund are not
subject to this restriction; or (7) purchase restricted securities, illiquid
securities and other securities with contractual or other restrictions on
resale and other instruments that are not readily marketable if such
investments exceed 10% of the value of the Fund's total assets. For additional
information, you should consult the Statement of Additional Information of the
Smith Barney Fund.
THE PROPOSED TRANSACTION
Description of the Plan
As described above, the Plan provides that the CitiSelect Portfolio will
receive a distribution of investment securities from the applicable Underlying
Portfolios and that, immediately thereafter, substantially all of the
assets and liabilities of the 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 Portfolio will receive voting shares
of the corresponding class of shares 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 Portfolio in complete
liquidation of the CitiSelect Portfolio, and the CitiSelect Portfolio will be
terminated.
As a result of the Reorganization, each shareholder of each class of the
CitiSelect Portfolio will receive that number of full and fractional shares of
the corresponding class of the Smith Barney Fund having an aggregate net asset
<PAGE>
value equal to the aggregate net asset value of the shareholder's shares of the
CitiSelect Portfolio 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
Portfolio will, of course, continue to be able to redeem their shares at the
net asset value next determined after receipt by the CitiSelect Portfolio's
transfer agent of a redemption request in proper form. Redemption requests
received by the 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 Portfolio 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 Portfolio 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 no-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 or Directors, as
applicable, of either the CitiSelect Portfolio or the Smith Barney Fund,
notwithstanding the approval of the Plan by the shareholders of the CitiSelect
Portfolio. However, no amendment may be made that materially adversely affects
the interests of the CitiSelect shareholders without obtaining the approval of
the shareholders of the CitiSelect Portfolio. The CitiSelect Portfolio and the
Smith Barney Fund may at any time waive compliance with certain of the
covenants and conditions contained in the Plan.
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 $119,000. Shareholders have no rights of appraisal.
Reasons for the Proposed Transaction
At a meeting of the Board of Trustees of the CitiSelect Portfolio held on
July 13, 2000, the Trustees of the CitiSelect Portfolio, including a majority
of the Non-Interested Trustees, considered materials discussing the potential
benefits to the shareholders of the CitiSelect Portfolio if the CitiSelect
Portfolio were to reorganize with and into the Smith Barney Fund. For the
reasons discussed below, the Board of Trustees of CitiSelect Portfolio,
including a majority of the Non-Interested Trustees, has determined that the
proposed Reorganization is in the best interests of the CitiSelect Portfolio
and their respective 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 Portfolio into the Smith
Barney Fund will allow the shareholders of the CitiSelect Portfolio to continue
to participate in a professionally managed portfolio governed by similar
investment objectives and policies. The Trustees of the CitiSelect Portfolio
believe that CitiSelect shareholders will benefit from the proposed
Reorganization for the following reasons:
<PAGE>
Larger Family of Funds
The Reorganization offers CitiSelect shareholders the opportunity to
become part of a larger and more diverse family of more than sixty 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.
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 Funds
which have substantially similar investment objectives and policies into a
single larger fund may increase economic and other efficiencies for investors
and SSB Citi and may ultimately result in a lower total expense ratio. 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 Portfolio and Smith Barney Fund. Other things
being equal, shareholders may 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 and the ability to command more attention from
brokers and underwriters.
In addition, shareholders of CitiSelect Portfolio will benefit from the
lower total annual operating expenses of Class A and Class B shares of the
Smith Barney Fund (as determined for each Fund's most recent fiscal year end).
Due to a combination of factors, including the benefits described above,
the Board of Trustees of the CitiFunds Trust, on behalf of the CitiSelect
Portfolio, believes that the CitiSelect Portfolio and its shareholders would
benefit from a tax-free reorganization with the Smith Barney Fund. ACCORDINGLY,
IT IS RECOMMENDED THAT THE SHAREHOLDERS OF THE CITISELECT PORTFOLIO APPROVE THE
REORGANIZATION WITH THE SMITH BARNEY FUND.
The Board of Trustees of the CitiFunds Trust, on behalf of the CitiSelect
Portfolio, in recommending the proposed transaction, considered a number of
factors, including the following:
(a) the compatibility of the CitiSelect Portfolio's investment
objectives, policies and restrictions with those of the 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 annual expense ratios of the Smith Barney Fund as
compared to the CitiSelect Portfolio;
<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 Portfolio of the
proposed Reorganization; and
(h) a variety of alternatives available to the CitiSelect Portfolio
including maintaining the status quo or liquidating the CitiSelect
Portfolio.
Description of the Securities to Be Issued
The CitiSelect Portfolio is a diversified series of CitiFunds Trust I
(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 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.
<PAGE>
Federal Income Tax Consequences
The Reorganization is conditioned upon the receipt by the Smith Barney
Fund and the CitiSelect Portfolio of an opinion from Bingham Dana LLP,
substantially to the effect that, based upon certain facts, assumptions and
representations of the parties, for federal income tax purposes: (i) the
distribution of investment securities from each Underlying Portfolio in
redemption of the CitiSelect Portfolio's interest in the Underlying Portfolio
will not result in the recognition of any gain or loss; (ii) the
transfer to the Smith Barney Fund of all or substantially all of the assets of
the CitiSelect Portfolio in exchange solely for Reorganization Shares and the
assumption by the Smith Barney Fund of all of the liabilities of the CitiSelect
Portfolio, followed by the distribution of such Reorganization Shares to the
shareholders of the CitiSelect Portfolio in exchange for their shares of the
CitiSelect Portfolio in complete liquidation of the CitiSelect Portfolio, will
constitute a "reorganization" within the meaning of Section 368(a) of the
Code, and the Smith Barney Fund and the CitiSelect Portfolio 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 Portfolio upon the
transfer of the CitiSelect Portfolio's 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 Portfolio or upon the distribution
(whether actual or constructive) of the Reorganization Shares to the CitiSelect
Portfolio's shareholders in exchange for their shares of the CitiSelect
Portfolio; (iv) the basis of the assets of the CitiSelect Portfolio in the
hands of the Smith Barney Fund will be the same as the basis of such assets in
the hands of the CitiSelect Portfolio immediately prior to the transfer; (v)
the holding period of the assets of the CitiSelect Portfolio in the hands of
the Smith Barney Fund will include the period during which such assets were
held by the CitiSelect Portfolio; (vi) no gain or loss will be recognized by the
Smith Barney Fund upon the receipt of the assets of the CitiSelect Portfolio
solely in exchange for Reorganization Shares and the assumption by the Smith
Barney Fund of all of the liabilities of the CitiSelect Portfolio; (vii) no gain
or loss will be recognized by the shareholders of the CitiSelect Portfolio upon
the receipt of Reorganization Shares solely in exchange for their shares of the
CitiSelect Portfolio as part of the transaction; (viii) the basis of
Reorganization Shares received by the shareholders of the CitiSelect Portfolio
will be, in the aggregate, the same as the basis, in the aggregate, of the
shares of the CitiSelect Portfolio exchanged therefor; and (ix) the holding
period of Reorganization Shares received by the shareholders of the CitiSelect
Portfolio will include the holding period during which the shares of the
CitiSelect Portfolio exchanged therefor were held, provided that at the time of
the exchange the shares of the CitiSelect Portfolio were held as capital assets
in the hands of the shareholders of the CitiSelect Portfolio.
As described above, although the CitiSelect Portfolio will, immediately
prior to or on 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 or on 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 investment in the Smith Barney Fund (on which they may have already
paid taxes) in the form of a taxable dividend.
While the Smith Barney Fund is not aware of any adverse state or local
tax consequences of the proposed Reorganization, they have 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 CitiSelect Portfolio
If the Reorganization is effected, the CitiSelect Portfolio will be
liquidated and terminated, and the Fund's outstanding shares will be cancelled.
Portfolio Securities
If the Reorganization is effected, the CitiSelect Portfolio will redeem
its interest in its underlying funds and will receive its proportionate share
of the portfolio securities of these underlying funds. The 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
<PAGE>
securities of the CitiSelect Portfolio 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 Portfolio), 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.
Portfolio Turnover
The portfolio turnover rate for the CitiSelect Portfolio for its fiscal
year ended October 31, 1999 was 29%. The turnover rates of the underlying funds
of the CitiSelect Portfolio have ranged from 26% to 646% during the year ended
October 31, 1999. The portfolio turnover rate for the Smith Barney Fund for its
fiscal year ended December 31, 1999 was 93%. For a discussion of the risks
relating to portfolio turnover, see "Principal Investments and Risk Factors."
Pro Forma Capitalization
Because the CitiSelect Portfolio will be combined in the Reorganization
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 Portfolio. The following table sets forth as
of June 30, 2000: (a) the capitalization of the CitiSelect Portfolio 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 Portfolio 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. Due to the net asset value of the CitiSelect
Portfolio being less than ten percent of the Smith Barney Fund's value, pro
forma financial statements are not required to be and have not been prepared
for inclusion in the Statement of Additional Information filed in connection
with the Reorganization.
SHARES NET ASSET VALUE
TOTAL NET ASSETS OUTSTANDING PER SHARE
---------------------------------------------------------------------------
CITISELECT PORTFOLIO
Class A $108,005,016 9,971,233 $10.83
Class B $554,306 51,591 $10.74
SMITH BARNEY FUND
Class A $635,533,264 35,457,676 $17.92
Class B $1,341,515,808 75,399,481 $17.79
PRO FORMA SMITH
BARNEY FUND
Class A $743,538,280 41,484,742 $17.92
Class B $1,342,070,114 75,430,639 $17.79
---------------------------------------------------------------------------
<PAGE>
Performance
Performance shown below is as of December 1, 1999 and is based on
historical earnings and is not predictive of future performance. Performance
reflects reinvestment of dividends and other earnings. Performance also
reflects the highest sales charge applicable to each class of shares. For more
information about the applicable sales charges and other fund expenses, please
refer to "Overall Expenses" above. The table below shows the average annual
total returns for each Fund over each period indicated.
SMITH BARNEY
CITISELECT FOLIO PREMIUM TOTAL
400 GROWTH RETURN FUND
Class A Class B Class A Class B
One Year 2.07% 0.96%1 0.08% 0.63%
Five Years n/a n/a 14.47% 14.97%
Ten Years n/a n/a n/a 13.09%
Since Inception2 7.23% 0.96% 12.70% 12.96%
1 Class B shares of the CitiSelect Portfolio were first offered on January 4,
1999.
2 With respect to the CitiSelect Portfolio, June 17, 1996 (Class A shares)
and January 4, 1999 (Class B shares); with respect to the Smith Barney Fund,
November 6, 1992 (Class A shares) and September 16, 1985 (Class B shares).
VOTING INFORMATION
General Information
The Board of Trustees of the CitiSelect Portfolio is furnishing this
combined Proxy Statement/Prospectus in connection with the solicitation of
proxies for a Special Meeting of Shareholders of the CitiSelect Portfolio at
which shareholders will be asked to consider and approve the proposed Plan. It
is expected that the solicitation of proxies will be primarily by mail.
Officers and service contractors of the CitiSelect Portfolio 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 $19,000. 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 Portfolio
giving a proxy has the power to revoke it by submitting a written notice of
revocation to the CitiSelect Portfolio 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 the CitiSelect shareholders have purchased their shares
through Service Agents, these Service Agents are the shareholders of record
of the CitiSelect Portfolio. 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.
<PAGE>
Quorum; Vote Required to Approve Proposal
The holders of a majority of the outstanding shares entitled to vote of
the CitiSelect Portfolio present in person or by proxy shall constitute a
quorum at any meeting of shareholders for the transaction of business by the
CitiSelect Portfolio. If the necessary quorum to transact business or the vote
required to approve the Plan is not obtained at 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. 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 that 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 that have not been voted. Broker
non-votes are proxies received by the 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.
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 CitiSelect Portfolio are
present or represented by proxy; or (b) more than 50% of the outstanding voting
securities of the CitiSelect Portfolio, whichever is less. Abstentions and
broker non-votes will have the effect of a "no" vote on the proposal to approve
the Plan.
Outstanding Shareholders
Holders of record of the shares of the CitiSelect Portfolio 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 entitled to
vote.
The table below shows the name, address and share ownership of each
person known to the CitiSelect Portfolio to own 5% or more of any class of
shares of the CitiSelect Portfolio as of August 11, 2000. The table also
indicates the percentage of the CitiSelect Portfolio's shares to be owned by
such persons upon consummation of the Reorganization on the basis of present
holdings and commitments.
PRO FORMA
PERCENTAGE
PERCENTAGE OWNERSHIP
NAME AND ADDRESS OWNERSHIP POST-REORGANIZATION
----------------------------------------------------------
<PAGE>
The table below shows 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 August 11, 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.**]
As of August 11, 2000, the officers and Trustees of the CitiSelect
Portfolio as a group owned less than 1% of any class of the CitiSelect
Portfolio's outstanding shares. As of August 11, 2000, the officers and
Trustees of Smith Barney Income Funds 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 Portfolio,
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 Portfolio, 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 Portfolio was provided by the CitiFunds Trust, on behalf of the
CitiSelect Portfolio, and information concerning the Smith Barney Fund was
provided by the Smith Barney Trust, 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
<PAGE>
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 Portfolio.
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
FORM OF 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 400 Growth (the "CitiSelect Portfolio"), 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 Premium Total Return Fund (the
"Smith Barney Fund," and together with the CitiSelect Portfolio, 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 Portfolio and the Smith Barney Fund, with which the CitiSelect
Portfolio will reorganize, as provided herein. The reorganization will consist
of the transfer of substantially all of the assets of the 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 "Reorganization").
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 THE CITISELECT PORTFOLIO TO THE SMITH BARNEY FUND
IN EXCHANGE FOR SMITH BARNEY FUND SHARES, THE ASSUMPTION OF ALL
CITISELECT PORTFOLIO LIABILITIES AND THE LIQUIDATION OF THE CITISELECT
PORTFOLIO
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 Portfolio, agrees to transfer to the Smith
Barney Fund substantially all of the CitiSelect Portfolio's 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 Portfolio that
number of full and fractional Class A and Class B Smith Barney Fund Shares
determined by dividing the value of the CitiSelect Portfolio's 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 Portfolio, 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 Portfolio to be acquired by the Smith
Barney Fund (collectively, "Assets") shall consist of all property and assets
<PAGE>
of every kind and nature of the CitiSelect Portfolio, 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 Portfolio's rights under this Agreement.
1.3. The Smith Barney Fund shall assume all liabilities of the
CitiSelect Portfolio, whether accrued or contingent, existing at the Valuation
Time as defined in section 2.1. The 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, the
CitiSelect Portfolio 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 Portfolio will distribute to its 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 Portfolio 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 Portfolio 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 CitiSelect
Portfolio (the "CitiSelect Shares") owned by such shareholders as of the
Valuation Time. All issued and outstanding shares of the CitiSelect Portfolio
will simultaneously be cancelled on the books of the CitiSelect Portfolio. 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 Portfolio,
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 Portfolio.
1.8. All books and records of the CitiSelect Portfolio, 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
Portfolio 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 the
CitiSelect Portfolio, less the value of the liabilities of the 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 the 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 the 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 Portfolio, shall deliver at the Closing a certificate of an
authorized officer stating that (a) the Assets of the CitiSelect Portfolio 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 CitiSelect Portfolio's portfolio
securities represented by a certificate or other written instrument shall be
<PAGE>
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 Portfolio 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's 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 Portfolio shall be
delivered by wire transfer of federal funds on the Closing Date.
3.4. State Street, as transfer agent of the CitiSelect Portfolio, on
behalf of the CitiSelect Portfolio, 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 Portfolio or provide evidence satisfactory to the CitiSelect
Portfolio that such Smith Barney Fund Shares have been credited to the
CitiSelect Portfolio's account 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 Portfolio 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 the 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.
The 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 Portfolio, 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 Portfolio
which shall terminate on or prior to the Closing Date, the CitiSelect
Portfolio is not, and the execution, delivery and performance of this
Agreement by the CitiFund Trust on behalf of the CitiSelect Portfolio
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 the 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 Portfolio 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 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
the 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 Portfolio, 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 Portfolio's business or its or
the CitiSelect Portfolio's ability to consummate the transactions
herein contemplated;
(f) The financial statements of the CitiSelect Portfolio 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 Portfolio 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 Portfolio as of the dates
thereof in accordance with GAAP, and there are no known contingent
liabilities of the 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 the CitiSelect Portfolio's financial condition,
assets, liabilities or business other than changes occurring in the
ordinary course of business, or any incurrence by the 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 the
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 Portfolio 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
Portfolio 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, and has been eligible to and has computed its federal
income tax under Section 852 of the Code. At Closing, the 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
Portfolio (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 Portfolio's 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 the
CitiSelect Portfolio, will have good and marketable title to the
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 prospectus and statement of additional
information of the CitiSelect Portfolio 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 of the CitiSelect Portfolio to be
included in the Registration Statement referred to in section 5.6 (the
"Proxy Statement"), insofar as it relates to the CitiSelect Portfolio,
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
Portfolio 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
Portfolio) 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 Portfolio. 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 Portfolio 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 Portfolio, 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 Portfolio's books and
records necessary to maintain current knowledge of the CitiSelect Portfolio and
to ensure that the representations and warranties made by the CitiSelect
Portfolio are accurate.
5.3. The CitiFund Trust and the CitiSelect Portfolio covenant to call a
meeting of the shareholders of the CitiSelect Portfolio 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 Portfolio 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 Portfolio 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. Each of the CitiFund Trust and the 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 Portfolio pursuant to this Agreement and (ii)
assume the assumed liabilities of the CitiSelect Portfolio.
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, the
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 Portfolio 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 Portfolio 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 Portfolio, 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 Portfolio, 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 duly 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 Portfolio's 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 Portfolio's 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio, 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 Portfolio,
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 Portfolio, 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 Portfolio 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 duly 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 CitiSelect Portfolio
has been duly designated as a series of the CitiFund Trust;
(b) the CitiFund Trust, with respect to the CitiSelect
Portfolio, has the power as a Massachusetts business trust to carry on
its 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 Portfolio's 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 Portfolio's 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 Portfolio 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, either party to this Agreement shall, at its option, not be
required to consummate the Reorganization of the Funds contemplated by this
Agreement.
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
the 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 Portfolio 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 Portfolio.
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
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
hereto proceed with the transactions described herein.
8.6. The parties shall have received an opinion of Bingham Dana LLP
addressed to the CitiFund Trust, the CitiSelect Portfolio, the Smith Barney
<PAGE>
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 the 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 Portfolio, followed by the distribution of the
Smith Barney Fund Shares to CitiSelect Shareholders in exchange for their
shares of the CitiSelect Portfolio in complete liquidation of the 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 Portfolio
each will 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
Portfolio upon the transfer of the CitiSelect Portfolio's 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 Portfolio
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 Portfolio; (iii) the basis of the assets of the
CitiSelect Portfolio in the hands of the Smith Barney Fund will be the same as
the basis of such assets in the hands of the CitiSelect Portfolio immediately
prior to the transfer; (iv) the holding period of the assets of the CitiSelect
Portfolio in the hands of the Smith Barney Fund will include the period during
which such assets were held by the CitiSelect Portfolio; (v) no gain or loss
will be recognized by the Smith Barney Fund upon the receipt of the assets of
the CitiSelect Portfolio solely in exchange for Smith Barney Fund Shares and
the assumption by the Smith Barney Fund of all of the liabilities of the
CitiSelect Portfolio; (vi) no gain or loss will be recognized by the
shareholders of the CitiSelect Portfolio upon the receipt of Smith Barney Fund
Shares solely in exchange for their shares of the CitiSelect Portfolio as part
of the transaction; (vii) the basis of Smith Barney Fund Shares received by the
shareholders of the CitiSelect Portfolio will be, in the aggregate, the same as
the basis, in the aggregate, of the shares of the CitiSelect Portfolio
exchanged therefor; and (viii) the holding period of Smith Barney Fund Shares
received by the shareholders of the CitiSelect Portfolio will include the
holding period during which the shares of the CitiSelect Portfolio exchanged
therefor were held, provided that at the time of the exchange the shares of the
CitiSelect Portfolio were held as capital assets in the hands of the
shareholders of the CitiSelect Portfolio. 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 8.5.
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
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
<PAGE>
thereto) arises out of or is based on any breach by the CitiFund Trust or the
CitiSelect Portfolio 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 the 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 the CitiSelect Portfolio, and the
Smith Barney Trust, on behalf of the Smith Barney Fund, in sections 11.1 and
11.2 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 Portfolio
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 the CitiSelect Portfolio under this Agreement to the
detriment of such shareholders without their further approval.
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)
<PAGE>
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 Portfolio, 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
Portfolio 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 Portfolio.
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
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
<PAGE>
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 400 Growth
By:_______________________________
Name:
Title:
Attest: SMITH BARNEY INCOME FUNDS
on behalf of Smith Barney Premium Total
Return Fund
By:_______________________________
Name:
Title:
Solely for purposes of Section 10.2:
CITIBANK, N.A.
By:_______________________________
Name:
Title:
SSB CITIFUND MANAGEMENT LLC
By:_______________________________
Name:
Title:
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
RELATING TO THE ACQUISITION BY
SMITH BARNEY PREMIUM TOTAL RETURN FUND INC.
(THE "SMITH BARNEY FUND"),
A SERIES OF SMITH BARNEY INCOME FUNDS
("SMITH BARNEY TRUST")
388 Greenwich Street
New York, New York 10013
(800) 451-2010
OF THE ASSETS OF
CITISELECT FOLIO 400 GROWTH
(THE "CITISELECT PORTFOLIO"),
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 April 28, 2000.
2. Prospectus and Statement of Additional Information for the
CitiSelect Portfolio, dated March 1, 2000.
3. Annual Report of the Smith Barney Fund for the year ended December
31, 1999.
4. Annual Report of the CitiSelect Portfolio for the year ended
October 31, 1999 and Semi-Annual Report of the CitiSelect Portfolio
for the six-month period ended April 30, 2000.
<PAGE>
GENERAL INFORMATION
This Statement of Additional Information relates to the proposed transfer
of substantially all of the assets and liabilities of the CitiSelect Portfolio
to the Smith Barney Trust, on behalf of Smith Barney Fund, in exchange for
shares 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 Portfolio 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 Portfolio will
distribute such shares to its shareholders in liquidation of the CitiSelect
Portfolio. Each shareholder owning shares of the CitiSelect Portfolio 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 Portfolio. The Smith Barney Fund
will establish an account for each former shareholder of the CitiSelect
Portfolio reflecting the appropriate number of shares distributed to such
shareholder. These accounts will be substantially identical to the accounts
maintained by the CitiSelect Portfolio for each shareholder. Upon completion of
the Reorganization with respect to the CitiSelect Portfolio, all outstanding
shares of the CitiSelect Portfolio will have been redeemed and cancelled in
exchange for shares distributed by the Smith Barney Fund, and the CitiSelect
Portfolio will wind up its affairs and be terminated as a series of the
CitiFunds Trust under Massachusetts law.
Due to the net asset value of the CitiSelect Portfolio being less than
ten percent of the Smith Barney Fund's value, pro forma financial statements
are not required to be and have not been prepared for inclusion in this
Statement of Additional Information.
For further information about the transaction, see the Combined Proxy
Statement/Prospectus.
<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 to 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) Investment Advisory Agreement between the Registrant and
Smith Barney Strategy Advisers Inc. with respect to Smith
Barney Premium Total Return Fund is incorporated by
reference to Post-Effective Amendment No. 41 to the
Registration Statement.
6(b) Sub-Investment Advisory Agreement among the Registrant,
Smith Barney Strategy Advisers, Inc. and Boston Partners
Asset Management, L.P. with respect to Smith Barney
Premium Total Return Fund is incorporated by reference to
Post-Effective Amendment No. 41 to the Registration
Statement.
6(c) Form of Transfer and Assumption of Advisory Agreement is
incorporated by reference to Post-Effective Amendment No.
53 to the Registration Statement.
6(d) Sub-Investment Advisory Agreement between the Registrant
and Salomon Brothers Asset Management Inc. with respect to
Smith Barney Premium Total Return Fund is incorporated by
reference to Post-Effective Amendment No. 54 to the
Registration Statement.
7(a) Form of Distribution Agreement between the Registrant and
Salomon Smith Barney, Inc. is filed herewith.
<PAGE>
7(b) Selling Group Agreement is incorporated by reference to
Post-Effective Amendment No. 54 to the Registration
Statement.
8 Not Applicable.
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.
<PAGE>
17(a) Form of proxy card is filed herewith.
17(b) Annual Report of the CitiSelect Portfolio (File Nos. 2-90518 and
811-4006) filed on December 29, 1999.
17(c) Semi-Annual Report of the CitiSelect Portfolio (File Nos. 2-90518
and 811-4006) filed on June 23, 2000.
17(d) Prospectus and statement of additional information of the
CitiSelect Portfolio (File Nos. 2-90518 and 811-4006) filed on
March 30, 2000.
17(e) Annual Report of the Registrant, dated December 31, 1999, is
incorporated by reference to the Annual Report filed on March 2,
2000.
(17)(f) Prospectus and statement of additional information of the
Registrant, dated April 28, 2000, are incorporated herein by
reference to the filing made pursuant to Rule 497 on May 2, 2000.
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/ Jane F. Dasher** Trustee July 13, 2000
-------------------------
Jane F. Dasher
/s/ Donald R. Foley** Trustee July 13, 2000
-------------------------
Donald R. Foley
/s/ Richard E. Hanson* Trustee July 13, 2000
-------------------------
Richard E. Hanson
/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
11 Opinion and Consent of Willkie Farr & Gallagher
14 Consent of Independent Public Accountants
17(a) Form of proxy card
