<PAGE>
Pursuant to Rule 497(b) File Nos. 333-41522 811-4254
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. Of course, you may redeem your shares of the CitiSelect Portfolio
or the Smith Barney Fund on any business day.
The Smith Barney Fund is advised by SSB Citi Fund Management LLC ("SSB
Citi"). The CitiSelect Portfolio is advised by Citibank, N.A. ("Citibank").
SSB Citi and Citibank are subsidiaries 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. SSB Citi and Citibank will pay all of the
expenses that are solely and directly related to the reorganization.
After carefully studying the merits of the proposal, the Board of Trustees
of CitiFunds Trust I has determined that the reorganization of the CitiSelect
Portfolio with the Smith Barney Fund will benefit the shareholders of the
CitiSelect Portfolio.
The Trustees of CitiFunds Trust I believe that combining the assets of the
CitiSelect Portfolio with the Smith Barney Fund could result in more efficient
mutual fund operations due to economies of scale. As a result of the
reorganization, CitiSelect shareholders will be part of a larger fund family
offering a wide array of mutual funds, and will be able to exchange their
shares among all of those Smith Barney funds offered by their service agents.
The Board of Trustees of CitiFunds Trust I believes that the proposal set
forth in the notice of meeting for your fund is important and recommends that
you read the enclosed materials carefully and then vote for the proposal.
PLEASE TAKE A MOMENT NOW TO SIGN AND RETURN YOUR PROXY CARD(s) IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. YOU MAY ALSO CAST YOUR VOTE VIA THE INTERNET, BY
TELEPHONE OR BY FACSIMILE AS DESCRIBED IN THE ENCLOSED PROXY VOTING MATERIALS.
For more information, please contact your service agent or call
1-888-347-2456. 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,
/s/ Philip W. Coolidge
Philip W. Coolidge
President
<PAGE>
WE URGE YOU TO VOTE BY ONE OF THE FOLLOWING MEANS TO ENSURE A QUORUM AT THE
MEETING. YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. TO
VOTE:
By phone: Call toll-free 1-800-597-7836 and follow the automated
instructions. You will need the 14-digit control number located on
your proxy card.
By mail: Simply enclose your executed proxy card in the postage-paid
envelope found within your proxy package.
By internet: Visit https://vote.proxy-direct.com; once there, enter
the 14-digit control number located on your proxy card.
By fax: Simply fax your executed proxy card to 1-888-796-9932.
If you have any questions regarding the meeting agenda or the execution of
your proxy, please call 1-888-347-2456.
<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 TOUCH-TONE
VOTING OVER THE TELEPHONE, BY FACSIMILE 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
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 ............................................................... 6
Proposed Transaction ................................................. 6
Comparison of Investment Objectives and Policies ..................... 6
Comparison of Investment Structure of the CitiFund Portfolio and
Smith Barney Fund .................................................. 8
Investment Advisory Services and Management Fees ..................... 9
Overall Expenses ..................................................... 9
Distribution of Shares and Other Services ............................ 11
Sales Charges, Purchase Policies, Redemption and Exchange Information 11
Dividends and Other Distributions .................................... 14
Tax Consequences ..................................................... 14
PRINCIPAL INVESTMENTS, RISK FACTORS AND INVESTMENT RESTRICTIONS ........ 15
Principal Investments and Risk Factors ............................... 15
Fundamental Investment Restrictions .................................. 19
Non-Fundamental Investment Restrictions .............................. 19
THE PROPOSED TRANSACTION ............................................... 19
Description of the Plan .............................................. 19
Reasons for the Proposed Transaction ................................. 20
Description of the Securities to Be Issued ........................... 21
Federal Income Tax Consequences ...................................... 22
Liquidation and Termination of the CitiFund .......................... 22
Portfolio Securities ................................................. 23
Portfolio Turnover ................................................... 23
Pro Forma Capitalization ............................................. 23
Performance .......................................................... 23
VOTING INFORMATION ..................................................... 24
General Information .................................................. 24
Quorum; Vote Required to Approve Proposal ............................ 24
Outstanding Shareholders ............................................. 25
ADDITIONAL INFORMATION ABOUT THE FUNDS ................................. 26
OTHER MATTERS .......................................................... 26
<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), in redemption of its interests in the Underlying
Portfolios, 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 date as the parties may agree in writing.
For the reasons described below under "The Proposed Transaction -- Reasons
for the Proposed Transaction," the Board of Trustees of the 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 or termination and liquidation of the CitiSelect
Portfolio.
If the Plan is approved, CitiSelect shareholders who do not wish to become
shareholders of the Smith Barney Fund must redeem their shares prior to the
Closing Date.
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.
PLEASE NOTE THAT ALTHOUGH THE FUNDS' INVESTMENT OBJECTIVES ARE SIMILAR,
THERE ARE DIFFERENCES IN THE FUNDS' INVESTMENT POLICIES AND THE MANNER IN WHICH
THE FUNDS SEEK TO ACHIEVE THEIR GOALS. THESE DIFFERENCES ARE DISCUSSED IN MORE
DETAIL BELOW.
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.
To the extent that the Smith Barney Fund invests more of its assets in
equity securities than the CitiSelect Portfolio does, the Smith Barney Fund
would be subject to more of the risks associated with equity investing (see
"Principal Investments, Risk Factors and Investment Restrictions" below for more
information on the risks of investing in equity securities).
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,
Australasia and the Far East. The Fund also may invest in emerging market equity
securities.
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. Each Fund is subject to certain limitations
imposed by the Commodity Futures Trading Commission with respect to its
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 Fund's 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-term 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 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.
Upon consummation of the Reorganization, SSB Citi will analyze and evaluate
the portfolio securities of the CitiSelect Portfolio. Based on the Smith Barney
Fund's investment objectives and policies, federal income tax considerations and
the interests of the Smith Barney Fund's shareholders (including the former
CitiSelect shareholders), SSB Citi will determine whether to dispose of or
maintain investments in those securities. For more information, please see "The
Proposed Transaction -- Portfolio Securities" below.
COMPARISON OF INVESTMENT STRUCTURE OF CITISELECT PORTFOLIO AND SMITH BARNEY
FUND
The CitiSelect Portfolio invests in securities indirectly by investing in
the several Underlying Portfolios. Each Underlying 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 Underlying Portfolio is a mutual fund with
its own investment goals and policies. Each Underlying Portfolio buys, holds and
sells securities in accordance with these goals and policies. Unless otherwise
indicated, references to the CitiSelect Portfolio include the Underlying
Portfolios.
The Smith Barney Fund invests directly in securities. This difference in
investment structure is not expected to affect in any material way CitiSelect
shareholders who receive shares of the Smith Barney Fund in the Reorganization.
INVESTMENT ADVISORY SERVICES AND MANAGEMENT FEES
Citibank, a wholly owned subsidiary of Citigroup Inc., serves as the
investment manager of the CitiSelect Portfolio. 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 also serves as investment manager of each of the Underlying
Portfolios 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
management fee includes fees payable to Citibank for the asset management and
administrative services it provides to the CitiSelect Portfolio and the
Underlying Portfolios and fees payable to the subadvisers for their advisory
services to the Underlying Portfolios.
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 (including the expenses of the Underlying Portfolios) 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 by 0.38% and 0.37%, respectively. 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.
<TABLE>
<CAPTION>
CITISELECT PRO FORMA
PORTFOLIO SMITH BARNEY FUND SMITH BARNEY FUND
------------------------ ------------------------ ------------------------
SHARE CLASS CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
----------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on
Purchases 5.00% None 5.00% None 5.00% None
Maximum Deferred Sales Charge (Load) None(1) 5.00%(2) None(3) 5.00%(2) None(3) 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 other expenses) 0.25% 0.25% 0.12% 0.13% 0.12% 0.13%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.50% 2.00% 1.12% 1.63% 1.12% 1.63%
(1) Except for investments 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.
</TABLE>
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:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
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
</TABLE>
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. The types of services provided to the Funds under these
service arrangements are generally similar.
<TABLE>
<CAPTION>
SERVICE PROVIDER CITISELECT PORTFOLIO SMITH BARNEY FUND
---------------- -------------------- -----------------
<S> <C> <C>
Custodian State Street Bank and Trust Company PNC Bank National Association
Auditors PricewaterhouseCoopers LLP KPMG LLP
Transfer Agent State Street Bank and Trust Company Citi Fiduciary Trust Company
Sub-Transfer Agent N/A PFPC Global Fund Services
</TABLE>
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
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 MINIMUM
INITIAL ADDITIONAL
SMITH BARNEY FUND INVESTMENT INVESTMENT
----------------- ---------- ----------
General $1,000 $50
IRAs, Self Employed Retirement Plans, Uniform
Gift to Minor Accounts $250 $50
Qualified Retirement Plans (under Section
403(b)(7) or Section 401(a) of the Internal
Revenue Code, including 401(k) plans) $25 $25
Simple IRAs $1 $1
Monthly Systematic Investment Plans $25 $25
Quarterly Systematic Investment Plans $50 $50
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.
<TABLE>
<CAPTION>
REDEMPTION PROCEDURES
AND POLICIES CITISELECT PORTFOLIO SMITH BARNEY FUND
---------------------------- -------------------------------------------- --------------------------------------------
<S> <C> <C>
Through an Appropriate To redeem shares, you may contact the Fund's To redeem shares, you may contact a Salomon
Contact Person transfer agent, or if you hold shares Smith Barney Financial Consultant or dealer
through a Service Agent, your Service Agent. representative, or for accounts held
directly with the Smith Barney Fund, the
sub-transfer agent.
By Mail You may send written redemption requests to For accounts held directly at the Fund, you
the Fund's transfer agent or, if you hold may send written redemption requests to the
your shares through a Service Agent, your sub-transfer agent.
Service Agent.
By Telephone You may make redemption requests by You may be eligible to redeem shares (except
telephone if your application permits. those held in retirement plans) by telephone
in amounts up to $10,000 per day through the
transfer agent.
Systematic Withdrawal Plan You can arrange to for automatic withdrawal You can arrange for the automatic redemption
of a specified dollar amount from your of a portion of your shares on a monthly or
account on a regular basis (no more quarterly basis. To qualify, you must own
frequently than monthly). To qualify, you shares of at least $10,000 ($5,000 for
must have at least $10,000 in your account retirement plan accounts) and each automatic
and each withdrawal must be at least $100. redemption must be at least $50. If your
If your shares are subject to a CDSC, you shares are subject to a CDSC, the sales
may only withdraw up to 10% of the value of charge will be waived if your automatic
your account in any year, but you will not payments do not exceed 1% per month of the
be subject to a CDSC on the shares withdrawn value of your shares subject to a CDSC.
under the plan.
Automatic Redemptions Your account balance with a Fund may be If your account falls below $500 because of
subject to a $500 minimum. If so, the Fund redemption of Fund shares, the Fund may ask
reserves the right to close your account if you to bring your account up to the minimum
it falls below $500 because of redemptions. requirement. If your account balance is
You will have 60 days to make an additional still below $500 after 60 days, the Fund may
investment. close your account and send you the
redemption proceeds.
</TABLE>
EXCHANGES
Shareholders of the CitiSelect Portfolio may exchange Fund shares for shares
of the same class of the other CitiSelect Portfolios and 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 those shares for shares
of 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 your distributions and dividends in cash. The Funds pay dividends and
distribute capital gains, if any, according to the following schedule.
<TABLE>
<CAPTION>
FUND INCOME DIVIDEND DISTRIBUTIONS CAPITAL GAIN DISTRIBUTIONS
---- ----------------------------- --------------------------
<S> <C> <C>
CitiSelect Portfolio annually (in December) annually (in December)
Smith Barney Fund monthly semi-annually (typically in June and December)
</TABLE>
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 will each receive an
opinion of Bingham Dana LLP in connection with the Reorganization to the effect
that, based upon certain facts, assumptions and representations, (i) the
distribution of investment securities from each Underlying Portfolio in
redemption of the 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 such
shares in complete liquidation of the CitiSelect Portfolio, will constitute a
reorganization within the meaning of section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"). If the Reorganization constitutes such a
reorganization, no gain or loss will be recognized by the CitiSelect Portfolio
or its shareholders as a direct result of the Reorganization. See "The Proposed
Transaction--Federal Income Tax Consequences."
PRINCIPAL INVESTMENTS, RISK FACTORS, AND INVESTMENT RESTRICTIONS
PRINCIPAL INVESTMENTS AND RISK FACTORS
The investment objectives and policies and risk factors 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.
<TABLE>
<CAPTION>
FUNDS SUBJECT TO RISK PRINCIPAL INVESTMENT AND ACCOMPANYING RISK FACTOR
--------------------- -------------------------------------------------
<S> <C>
CITISELECT PORTFOLIO ASSET ALLOCATION:
The CitiSelect Portfolio invests in a mix of equity and fixed income securities (each of
these types of securities is referred to as an asset class). Citibank may further
allocate the 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.
To the extent that the Smith Barney Fund invests more of its assets in equity securities
than the CitiSelect Portfolio does, the Smith Barney Fund would be subject to more of the
risks associated with equity investing.
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.
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 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.
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.
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 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.
</TABLE>
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
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 Trustees 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
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.
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 CitiFunds Trust held on July
13, 2000, the Trustees of the CitiFunds Trust, including a majority of the
Non-Interested Trustees, on behalf of the CitiSelect Portfolio, 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 the CitiFunds Trust, including a majority of the Non-Interested
Trustees, has determined that the proposed Reorganization is in the best
interests of the CitiSelect Portfolio and its 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. The Trustees of the CitiSelect Portfolio believe that the CitiSelect
shareholders will benefit from the proposed Reorganization for the following
reasons:
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
SSB Citi and Citibank believe that the combination of funds which have
similar investment objectives and policies into a single larger fund may
increase economic and other efficiencies for investors and may ultimately result
in a lower total 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.
In addition, shareholders of the 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;
(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, 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.
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 recognition
of gain or loss by the CitiSelect Portfolio; (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, which will be determined by
reference to the basis of the CitiSelect Portfolio in its interests in the
Underlying Portfolios; (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 and the period during
which such assets were held by the Underlying Portfolios; (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 Portfolio shareholders who
receive Reorganization Shares of the Smith Barney Fund, those former CitiSelect
Portfolio 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 and the CitiSelect Portfolio are 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 the Underlying Portfolios and will receive its proportionate share
of the portfolio securities of these Underlying Portfolios. 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 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 Underlying Portfolios 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.
NET ASSET
TOTAL SHARES VALUE
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
PERFORMANCE
Performance shown below is as of December 31, 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.
<TABLE>
<CAPTION>
SMITH BARNEY PREMIUM
CITISELECT FOLIO 400 GROWTH TOTAL RETURN FUND
------------------------------------- ----------------------------------
CLASS A CLASS B CLASS A CLASS B
------- ------- ------- -------
<S> <C> <C> <C> <C>
One Year 2.07% 0.96%(1) 0.08% 0.63%
Five Year N/A N/A 14.47% 14.97%
Ten Years N/A N/A N/A 13.09%
Since Inception(2) 7.23% 0.96% 12.70% 12.96%
Best Quarter(3) 11.99% (12/98) n/a n/a 14.90% (3/91)
Worst Quarter(3) (12.76)% (9/98) n/a n/a (12.83)% (9/90)
----------
(1) Class B shares of the CitiSelect Portfolio were first offered on January 4, 1999.
(2) With respect to the CitiSelect Portfolio, since June 17, 1996 (Class A shares) and January 4, 1999 (Class B shares);
with respect to the Smith Barney Fund, since November 6, 1992 (Class A shares) and September 16, 1985 (Class B
shares).
(3) Best and Worst Quarter information does not include applicable sales charges. Were such charges included, the
performance figures would have been lower. Additionally, such information is shown only for Class A shares of the
CitiSelect Portfolio and Class B shares of the Smith Barney Fund.
</TABLE>
When you consider the performance of the Funds, please note that
differences in performance may be attributable in part to the markets and
types of securities in which each Fund invests. For example, the CitiSelect
Portfolio is a diversified asset allocation fund that invests in both foreign
and domestic markets and in large cap and small cap equity, as well as fixed
income, securities. In recent years, investments in some of these markets and
types of securities have not performed as well as investments in U.S. large
cap equity securities.
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. 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 or via facsimile, (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 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, except as
prohibited by law, vote any shares of which it is the holder of record and for
which it does not receive voting instructions proportionately in accordance with
the instructions it receives for all other shares of which that Service Agent is
the holder of record.
QUORUM; VOTE REQUIRED TO APPROVE PROPOSAL
The holders of a majority of the outstanding shares entitled to vote of
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 9,231,472.535 outstanding
Class A shares and 50,794.884 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. The type of ownership for each person listed below is record
ownership.
PRO FORMA
PERCENTAGE
PERCENTAGE OWNERSHIP POST-
NAME AND ADDRESS OWNERSHIP REORGANIZATION
---------------- --------- --------------
Class A
Fiserv Securities, Inc. 93.86% 12.49%
Attn: Mutual Funds Dept.
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, Pa. 19103-7084
CNA Trust, Trustee 5.83% 0.78%
FBO Omnibus Participants
Reinvestment Accounts
P.O. Box 5024
Costa Mesa, CA 92628-5024
Class B
Fiserv Securities, Inc. 99.40% 0.04%
Attn: Mutual Funds Dept.
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, Pa. 19103-7084
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 POST-
NAME AND ADDRESS OWNERSHIP REORGANIZATION
---------------- --------- --------------
Class Y
Smith Barney Concert Series, Inc.*
Balanced Portfolio 58.40% 58.40%
PNC Bank, N.A.
Attn: Beverly Timson
200 Stevens Drive North, Suite 440
Lester, PA 19113-1522
(Maryland corporation)
Smith Barney Concert Series, Inc.*
Select Balanced Portfolio 26.46% 26.46%
PNC Bank, N.A.
Attn: Beverly Timson
200 Stevens Drive North, Suite 440
Lester, PA 19113-1522
(Maryland corporation)
Smith Barney Concert Series, Inc.
Conservative Portfolio 7.41% 7.41%
PNC Bank, N.A.
Attn: Beverly Timson
200 Stevens Drive North, Suite 440
Lester, PA 19113-1522
* Shareholders beneficially owning more than 25% of the voting securities of a
Fund 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
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, BY TELEPHONE OR BY FACSIMILE.
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this day of , 2000, between CitiFunds(SM) 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 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.
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 October 6, 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 offices of Bingham Dana LLP, 399 Park Avenue, New York, New York, 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
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 17f-4 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 open-end
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 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;
(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
Aets 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 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
open-end 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;
(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;
(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 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 October 2, 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 N-14
(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 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 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;
(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 CORPORATION
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
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 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
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 distribution of investment securities from the underlying mutual funds
(the "Underlying Portfolios") in which the CitiSelect Portfolio invests all of
its investable assets in redemption of the CitiSelect Portfolio's interests in
the Underlying Portfolios will not result in the recognition of gain or loss by
the CitiSelect Portfolio; (ii) 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) 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; (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 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; (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, which will be determined by reference to the basis of the CitiSelect
Portfolio in its interests in the Underlying Portfolios; (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 and the period during which such assets were held by the Underlying
Portfolios; (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 Smith Barney Fund 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
Smith Barney Fund Shares solely in exchange for their shares of the CitiSelect
Portfolio as part of the transaction; (viii) 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 (ix) 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 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 9.1 and 9.2 shall
survive the Closing.
12. TERMINATION
This Agreement may be terminated and the transactions contemplated hereby
may be abandoned by either party by (i) mutual agreement of the parties, (ii) by
either party if the Closing shall not have occurred on or before January 1,
2001, unless such date is extended by mutual agreement of the parties, or (iii)
by either party if the other party shall have materially breached its
obligations under this Agreement or made a material and intentional
misrepresentation herein or in connection herewith. In the event of any such
termination, this Agreement shall become void and there shall be no liability
hereunder on the part of any party or their respective trustees or officers,
except for any such material breach or intentional misrepresentation, as to each
of which all remedies at law or in equity of the party adversely affected shall
survive.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the
CitiFund Trust and the Smith Barney Trust; provided, however, that following the
meeting of CitiSelect Shareholders called by the CitiSelect 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)
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
in 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 in the name or on behalf of the Smith Barney Trust by any of its
Trustees, officers, employees or agents are not made individually, but in such
capacities, that the Smith Barney Trust's obligations under this Agreement bind
only that portion of the trust estate consisting of assets of the Smith Barney
Fund and not any Trustee, officer, employee, agent or shareholder individually,
and that any liability of the Smith Barney Trust under this Agreement or in
connection with the transactions contemplated herein shall be discharged only
out of the assets of the Smith Barney Fund.
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 CITI FUND MANAGEMENT LLC
By: -----------------------------------------
Name:
Title:
<PAGE>
Pursuant to Rule 497(b) File Nos: 333-41522 811-4254
STATEMENT OF ADDITIONAL INFORMATION
RELATING TO THE ACQUISITION BY
SMITH BARNEY PREMIUM TOTAL RETURN FUND (THE "SMITH BARNEY FUND"),
A SERIES OF SMITH BARNEY INCOME FUNDS (THE "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 (THE "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. Statement of Additional Information for the Smith Barney Fund, dated
April 28, 2000.
2. 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.
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.
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.
