<PAGE>
Pursuant to Rule 485(b) File Nos. 333-41728 811-4254
CITIFUNDS BALANCED PORTFOLIO
21 Milk Street, 5th Floor, Boston, Massachusetts 02109
August 16, 2000
Dear Shareholder:
You are being asked to vote on an Agreement and Plan of Reorganization
whereby substantially all of the assets of CitiFunds Balanced Portfolio (the
"CitiFund"), a series of CitiFunds Trust I, will be transferred in a tax-free
reorganization to the Smith Barney Balanced Fund (the "Smith Barney Fund"), a
series of Smith Barney Income Funds, in exchange for shares of the Smith Barney
Fund.
If the Agreement and Plan of Reorganization is approved and consummated, you
will no longer be a shareholder of the CitiFund; you will become a shareholder
of the Smith Barney Fund. You will receive shares of the corresponding class of
the Smith Barney Fund with an aggregate net asset value equal to the aggregate
net asset value of your shares in the CitiFund. Of course, you may redeem your
shares of the CitiFund or the Smith Barney Fund on any business day.
The Smith Barney Fund is advised by SSB Citi Fund Management LLC ("SSB
Citi"). The CitiFund is advised by Citibank, N.A. ("Citibank"). SSB Citi and
Citibank are subsidiaries of Citigroup Inc. SSB Citi also currently manages the
equity portion of the CitiFund as subadviser. Citigroup has proposed the
reorganization of the CitiFund 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.
Each Fund is a "balanced" mutual fund that pursues its investment
objective by investing in a mix of equity and fixed income securities. The
Smith Barney Fund's investment objectives and policies are similar to those of
the CitiFund.
After carefully studying the merits of the proposal, the Board of Trustees
of CitiFunds Trust I has determined that the reorganization of the CitiFund
with the Smith Barney Fund will benefit the CitiFund shareholders.
The Smith Barney Fund will offer CitiFund shareholders a mutual fund with
similar investment objectives and policies. The Trustees of CitiFunds Trust I
believe that combining the assets of the CitiFund with the Smith Barney Fund
could result in more efficient mutual fund operations due to economies of
scale. As a result of the reorganization, CitiFund shareholders will be part
of a larger fund family offering a wide array of mutual funds. CitiFund
shareholders 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>
CITIFUNDS BALANCED PORTFOLIO
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 CitiFunds
Balanced Portfolio (the "CitiFund"), 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 3:30
p.m., Eastern time, for the following purposes:
ITEM 1. To consider and act upon a proposal to approve an Agreement and
Plan of Reorganization which provides for and contemplates: (1)
the transfer of substantially all of the assets and liabilities
of the CitiFund to the Smith Barney Balanced Fund (the "Smith
Barney Fund"), a series of Smith Barney Income Funds, solely in
exchange for voting shares of the corresponding class of the
Smith Barney Fund; (2) the distribution of the shares to the
shareholders of the CitiFund in liquidation of the CitiFund; and
(3) the termination of the CitiFund.
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 CITIFUND 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 BALANCED FUND, a series of
SMITH BARNEY INCOME FUNDS
388 Greenwich Street
New York, NY 10013
Telephone: (800) 451-2010
of the assets of
CITIFUNDS BALANCED PORTFOLIO, 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 CitiFunds
Balanced Portfolio (the "CitiFund"), a series of CitiFunds Trust I (the
"CitiFunds Trust") in connection with the solicitation of proxies for a Special
Meeting of Shareholders of the CitiFund 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 CitiFund, and Smith Barney
Income Funds, on behalf of its series, Smith Barney Balanced Fund (the "Smith
Barney Fund").
The Plan provides that substantially all of the assets and liabilities of
the CitiFund will be transferred to the Smith Barney Fund. In exchange for the
transfer of these assets and liabilities, the CitiFund will receive voting
shares of the Smith Barney Fund. Shares of the Smith Barney Fund so received
would then be distributed to the shareholders of the CitiFund in complete
liquidation of the CitiFund, and the CitiFund would be terminated. As a result
of these reorganization transactions, each shareholder of each class of the
CitiFund would 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
CitiFund held on the closing date of the reorganization transaction (the
"Reorganization").
The CitiFund and Smith Barney Fund are each a series of open-end
management investment companies. The Smith Barney Fund, like the CitiFund, is
a "balanced" fund that pursues its investment objective by investing in a mix
of equity and fixed income securities. The Smith Barney Fund has investment
objectives and policies similar to those of the CitiFund, except as set forth
herein.
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
November 28, 1999, 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 July 31, 1999 and semi-annual report to shareholders for
the six-month period ended January 31, 2000, each of which is incorporated
herein by reference. Additional information is set forth in the Statement of
Additional Information of the Smith Barney Fund, dated November 28, 1999,
which is incorporated herein by reference. The Prospectus and Statement of
Additional Information of the Smith Barney Fund are on file with the
Securities and Exchange Commission and are available without charge upon
request by writing or calling the Smith Barney Fund at the address or
telephone number indicated above.
Additional information is set forth in (a) the Statement of Additional
Information relating to this Proxy Statement/Prospectus, dated August 16,
2000, (b) the Prospectus and Statement of Additional Information of the
CitiFund, 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 CitiFund. 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 CitiFund 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 CITIFUND 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 and Smith Barney Fund 8
Investment Advisory Services and Management Fees ........................ 8
Overall Expenses ........................................................ 9
Distribution of Shares and Other Services ............................... 10
Sales Charges, Purchase Policies, Redemption and Exchange Information ... 11
Dividends and Other Distributions ....................................... 14
Tax Consequences ........................................................ 14
Other Mergers ........................................................... 14
PRINCIPAL INVESTMENTS, RISK FACTORS AND INVESTMENT RESTRICTIONS ........... 14
Principal Investments and Risk Factors .................................. 14
Fundamental Investment Restrictions ..................................... 18
Non-Fundamental Investment Restrictions ................................. 18
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 ......................................... 21
Liquidation and Termination of the CitiFund ............................. 22
Portfolio Securities .................................................... 22
Portfolio Turnover ...................................................... 22
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 CitiFund 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 CitiFund, and the Plan, the form of which
is attached to this Proxy Statement/Prospectus as Exhibit A. Shareholders of
the CitiFund should read this entire Proxy Statement/Prospectus carefully.
PROPOSED TRANSACTION
The Board of Trustees of CitiFunds Trust I (the "CitiFunds Trust") on behalf
of the CitiFund, 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
CitiFund will be transferred to the Smith Barney Fund. The CitiFund holds its
assets through two underlying investment companies (the "Underlying
Portfolios"). As part of the reorganization, and prior to the transfer of assets
to the Smith Barney Fund, the CitiFund will receive a distribution in kind from
each Underlying Portfolio of the investment securities held by the Underlying
Portfolio 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 CitiFund 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 CitiFund in complete liquidation of the
CitiFund, and the CitiFund would be terminated. As a result of the
Reorganization, each shareholder of each class of the CitiFund 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 CitiFund 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 CitiFund, including
the Non-Interested Trustees, has concluded that the Reorganization is in the
best interests of the CitiFund and its shareholders and that the interests of
the existing shareholders of the CitiFund 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 CitiFund 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 CitiFund.
If the Plan is approved, CitiFund 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
GOALS
The goals of the CitiFund are to provide high current income by investing
in a broad range of securities, to preserve capital, and to provide growth
potential with reduced risk. The goal of the Smith Barney Fund is to provide
current income and long-term capital appreciation.
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. Under normal circumstances, approximately 60% of the
CitiFund's total assets is invested in equity securities of large cap issuers
(meaning issuers having market capitalizations within the top 1,000 stocks in
the equity market), and at least 25% of the Fund's total assets is invested in
fixed income investments. The Fund's blend of stocks and bonds may shift from
time to time to take advantage of a strong market or based on the outlook for
risk and return as determined by Citibank, N.A. ("Citibank"), the CitiFund's
investment manager.
The Smith Barney Fund invests a minimum of 50% and a maximum of 70% of its
total assets in equity securities and a minimum of 30% and a maximum of 50% of
its total assets in fixed income securities. Within these ranges, the Smith
Barney Fund normally invests approximately 60% of its assets in equity
securities and 40% in fixed income securities. These percentages may vary based
on the outlook of SSB Citi Fund Management LLC, the Smith Barney Fund's
investment manager ("SSB Citi"). The Smith Barney Fund invests in equity
securities in a broad range of companies, industries and sectors. Generally, the
equity portion of the Fund will be comprised primarily of mid-to-large
capitalization companies. However, the Fund may also invest in smaller-
capitalization companies if they otherwise meet the Fund's investment criteria.
Equity Securities. Each Fund's equity securities consist primarily of
common stocks. Each Fund also may invest in preferred stocks, warrants, and
securities convertible into common stocks.
Debt Securities. Each Fund's fixed income securities include securities
issued by the U.S. government (or its agencies and instrumentalities),
corporate securities, mortgage-backed securities, and asset-backed securities.
The CitiFund's long-term non-convertible debt securities must be investment
grade (meaning securities rated Baa or better by Moody's Investors Service
("Moody's") or BBB or better by Standard & Poor's Rating Service ("Standard &
Poor's")) when the Fund purchases them. The CitiFund limits its debt
securities that are rated Baa by Moody's or BBB by Standard & Poor's to less
than 5% of its assets. Convertible securities in the CitiFund's equity
portfolio are not required to be investment grade securities.
The Smith Barney Fund may invest up to 25% of its total assets in fixed
income securities rated below investment grade. These securities are commonly
known as "junk bonds" because they are rated in the lower rating categories by
a nationally recognized statistical rating organization or, if unrated, are
deemed by SSB Citi to be of similar credit quality. Junk bonds may subject
this Fund to higher risks, as discussed under "Principal Investments, Risk
Factors and Investment Restrictions" below.
Neither Fund is subject to restrictions on the maturity of the Fund's
individual securities. The Smith Barney Fund normally expects to maintain an
average portfolio maturity for the fixed income portion of its portfolio of
between five and 15 years.
Zero Coupon Obligations. Each Fund may invest in zero coupon obligations,
such as zero coupon bonds issued by companies and securities representing
future principal and interest installments on debt obligations of the U.S. and
foreign governments. The CitiFund's investments in zero-coupon obligations are
limited to 15% of its total assets (see "Principal Investments, Risk Factors
and Investment Restrictions" below for more information on the risks of zero
coupon obligations).
Derivative Securities. Each Fund may invest in derivative securities,
including options on securities, stock index options, forward currency
contracts, interest rate 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 CitiFund also may purchase call options on securities,
purchase and write put and call options on a foreign currency, invest in swap
agreements, and invest in interest-only securities ("IOs") and principal-only
securities ("POs") (each a type of collateralized mortgage obligation ("CMO")).
The Smith Barney Fund is subject to certain limits on the amount of its assets
that may be invested in options, futures contracts and options on futures
contracts and on the amount of its assets that may be committed to premiums on
options and margin deposits on futures contracts (see the Statement of
Additional Information of the Smith Barney Fund for a description of these
limitations). The Smith Barney Fund may invest in certain types of derivative
securities only for hedging purposes. The CitiFund may invest in these same
derivative securities for both hedging purposes and to generate income, although
the Fund currently invests in these derivatives only for hedging purposes. Each
Fund is subject to certain limitations imposed by the Commodity Futures Trading
Commission with respect to its investments in derivatives.
Foreign Securities. The CitiFund may invest up to 25% of its assets in
foreign equity and debt securities including depositary receipts (meaning
receipts representing the right to receive securities of foreign issuers
deposited in a U.S. bank or a local branch of a foreign bank). The CitiFund's
foreign securities may be issued by issuers in developing countries. The Smith
Barney Fund may invest without limit in foreign equity and debt securities,
including depositary receipts, but may not invest in securities issued by
issuers in developing countries (see "Principal Investments, Risk Factors and
Investment Restrictions" below for more information on the risks of foreign
securities).
SECURITY SELECTION PROCESS
Equity Securities. In selecting equity investments for the CitiFund, the
portfolio managers use a value-oriented approach. Citibank looks for securities
that it believes are currently undervalued relative to the company's cash flow,
potential earnings prospects, growth rate and/or dividend paying ability. In
selecting equity investments for the Smith Barney Fund, SSB Citi attempts to
identify securities with favorable valuations relative to their growth
characteristics. This strategy is commonly known as "growth at a reasonable
price". Because this strategy combines both growth and value investing, it
offers style diversification within a single mutual fund.
Fixed Income Securities. In selecting securities to buy for the fixed income
portion of the CitiFund's portfolio, the portfolio managers combine a "top-down"
economic view with a "bottom-up" sector and company view. Citibank first reviews
the Fund's duration and yield curve relative to the Fund's fixed income
benchmark. Citibank next determines the sector weighting of the portfolio.
Citibank then looks at individual companies within those sectors or industries
and selects individual securities based on their relative value. In selecting
individual fixed income securities for the Smith Barney Fund's portfolio, SSB
Citi primarily focuses on the relative yields of securities and at various
maturities. SSB Citi looks for favorable sector and maturity weightings based on
interest rate outlook, stable or improving credit quality, and low price
relative to credit and interest rate characteristics. The Smith Barney Fund
normally expects to maintain an average portfolio maturity of between 5 and 15
years for the fixed income portion of its portfolio.
Upon consummation of the Reorganization, SSB Citi will analyze and evaluate
the portfolio securities of the CitiFund. 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 CitiFund
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 THE CITIFUND AND THE SMITH BARNEY FUND
The CitiFund invests in securities indirectly by investing in two underlying
mutual funds, Large Cap Value Portfolio (which invests in equity securities) and
U.S. Fixed Income Portfolio (which invests in fixed income and money market
securities). These Portfolios are referred to above as the Underlying
Portfolios. 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 CitiFund 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 CitiFunds
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 CitiFund. 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. SSB Citi (the investment manager of the Smith Barney Fund) serves as
subadviser to Large Cap Value Portfolio, one of the two Underlying Portfolios.
The CitiFund pays an aggregate management fee, which is accrued daily and paid
monthly, of up to 0.70% of the CitiFund's average daily net assets on an
annualized basis for the CitiFund's then-current fiscal year. This aggregate
management fee includes fees payable to Citibank for the asset management and
administrative services it provides to the CitiFund and its Underlying
Portfolios and fees payable to SSB Citi for its sub-advisory services to Large
Cap Value Portfolio.
The management fee for the Smith Barney Fund is calculated at the annual
rate of 0.45% of that Fund's average daily net assets. The Smith Barney Fund
also pays to SSB Citi a fee for its administrative services in the amount of
0.20% of its average daily net assets. Thus, the Smith Barney Fund pays a
smaller percentage of its average daily net assets in advisory and management
fees than the CitiFund does. For a comparison of the total annual operating
expenses of the CitiFund (including the expenses of the Underlying Portfolios)
and Smith Barney Fund, please review the expense tables under "Overall
Expenses" below.
Chad Graves is responsible for the day-to-day management of the equity
portion of the Smith Barney Fund's portfolio, and James Conroy and John
Bianchi are responsible for the day-to-day management of the fixed income
portion. Messrs. Graves, Conroy and Bianchi are investment officers of SSB
Citi and vice presidents of Salomon Smith Barney.
OVERALL EXPENSES
After taking into account waivers and reimbursements by service providers
to the CitiFund, the total annual operating expenses for Class A shares of the
Smith Barney Fund were 0.06% higher than the total annual operating expenses
of Class A shares of the CitiFund. However, the total annual operating
expenses of Class A shares of the Smith Barney Fund were 0.08% lower than
those of the CitiFund if waivers and reimbursements by the CitiFund's service
providers, which can be terminated at any time, are not taken into account.
The total annual operating expenses for Class B shares of the Smith Barney
Fund, as determined for the Fund's most recent fiscal year, were 0.21% lower
than the total annual operating expenses of the Class B shares of the CitiFund
for its most recent fiscal year after giving effect to waivers and
reimbursements by the CitiFund's service providers (or 0.35% lower in the
absence of such waivers and reimbursements, which may be terminated at any
time).
Further information about the expenses of each class of the CitiFund and
the Smith Barney Fund for the fiscal years ended October 31, 1999 and July 31,
1999, respectively, and pro forma expenses following the proposed
Reorganization is outlined in the table below.
<TABLE>
<CAPTION>
CITIFUNDS PRO FORMA
BALANCED SMITH BARNEY SMITH BARNEY
PORTFOLIO BALANCED FUND BALANCED 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 0.70%(5) 0.70%(5) 0.65%(5) 0.65%(5) 0.65%(5) 0.65%(5)
Distribution (12b-1) Fees 0.25% 1.00% 0.25% 0.75% 0.25% 0.75%
Other Expenses (administrative,
shareholder servicing and other
expenses) 0.21% 0.21% 0.18% 0.16% 0.18% 0.16%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.16%* 1.91%* 1.08% 1.56% 1.08% 1.56%
* Because some of CitiFunds Balanced Portfolio's expenses were waived or reimbursed, actual total operating expenses
with respect to Class A and B shares for the fiscal year ended October 31, 1999 were 1.02% and 1.77%, respectively.
(1) Except for investments of $500,000 or more.
(2) Class B shares have a contingent deferred sales charge ("CDSC") which is deducted from your sale proceeds if you
sell your Class B shares within five years of your original purchase of the shares. In the first year after
purchase, the CDSC 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) CitiFunds Balanced Portfolio invests in securities through two underlying mutual funds, Large Cap Value Portfolio
and U.S. Fixed Income Portfolio. This table reflects the expenses of the fund and the two underlying portfolios.
(5) A combined fee for investment advisory and administrative services.
</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 the CitiFund'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>
CITIFUNDS BALANCED PORTFOLIO
Class A $612 $850 $1,106 $1,839
Class B
Assuming redemption at end of period $694 $900 $1,132 $2,038
Assuming no redemption $194 $600 $1,032 $2,038
SMITH BARNEY BALANCED FUND
Class A $605 $826 $1,066 $1,751
Class B
Assuming redemption at end of period $659 $793 $ 950 $1,728
Assuming no redemption $159 $493 $ 850 $1,728
PRO FORMA SMITH BARNEY BALANCED PORTFOLIO
Class A $605 $826 $1,066 $1,751
Class B
Assuming redemption at end of period $659 $793 $ 950 $1,728
Assuming no redemption $159 $493 $ 850 $1,728
</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
CitiFund is CFBDS, Inc.
Both the CitiFund and the Smith Barney Fund have adopted Rule 12b-1
distribution plans for their Class A and B shares. Under the plans, each Fund
pays distribution and service fees. The distribution and service fees for
Class A shares of the CitiFund and the Smith Barney Fund are the same. The
Class B shares of the Smith Barney Fund pay distribution and service fees that
are 0.25% lower than the distribution and service fees paid by the Class B
shares of the CitiFund. See "Overall Expenses" above for a comparison of the
total fees for the CitiFund and the Smith Barney Fund.
OTHER SERVICE PROVIDERS
The CitiFund and 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 CITIFUND 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 CitiFund and the Smith Barney Fund are sold at net
asset value plus a front-end sales charge. There will be no sales load charged
to Class A shareholders of the CitiFund when they receive Class A shares of
the Smith Barney Fund 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 CitiFund 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 CitiFund. You do not pay an
initial sales charge when you buy $500,000 or more of Class A shares of the
CitiFund 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 CitiFund 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 CitiFund.
Class B shares of the CitiFund and Smith Barney Fund are sold without a
front-end sales charge, but shareholders are charged a contingent deferred
sales charge (CDSC) if they sell their Class B shares within five years after
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 CitiFund
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 CitiFund (or, if the shares of the CitiFund were received in an
exchange from an earlier purchase, the date of that earlier purchase).
Shareholders of the CitiFund 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 CitiFund 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. 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 CitiFund shareholders
receive in the Reorganization.
Each Fund has 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 CitiFund.
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 CitiFund 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 CitiFund 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 which vary depending on the class of shares
bought and the nature of the investment account. Upon consummation of the
Reorganization, CitiFund 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 CitiFund and the Smith Barney Fund,
which are generally similar.
<TABLE>
<CAPTION>
REDEMPTION PROCEDURES
AND POLICIES CITIFUND SMITH BARNEY FUND
--------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
Through an Appropriate To redeem shares, you may contact the To redeem shares, you may contact a
Contact Person Fund's transfer agent, or if you hold Salomon Smith Barney Financial
shares through a Service Agent, your Consultant or dealer representative,
Service Agent. or for accounts held directly with
the Smith Barney Fund, the sub-
transfer agent.
By Mail You may send written redemption For accounts held directly at the
requests to the Fund's transfer agent Fund, you may send written redemption
or, if you hold your shares through a requests to the sub-transfer agent.
Service Agent, your Service Agent.
By Telephone You may make redemption requests by You may be eligible to redeem shares
telephone if your application (except those held in retirement
permits. plans) by telephone in amounts up to
$10,000 per day through the transfer
agent.
Systematic Withdrawal Plan You can arrange to for automatic You can arrange for the automatic
withdrawal of a specified dollar redemption of a portion of your
amount from your account on a regular shares on a monthly or quarterly
basis (no more frequently than basis. To qualify, you must own
monthly). To qualify, you must have shares of at least $10,000 ($5,000
at least $10,000 in your account and for retirement plan accounts) and
each withdrawal must be at least each automatic redemption must be at
$100. If your shares are subject to a least $50. If your shares are subject
CDSC, you may only withdraw up to 10% to a CDSC, the sales charge will be
of the value of your account in any waived if your automatic payments do
year, but you will not be subject to not exceed 1% per month of the value
a CDSC on the shares withdrawn under of your shares subject to a CDSC.
the plan.
Automatic Redemptions Your account balance with the Fund If your account falls below $500
may be subject to a $500 minimum. If because of redemption of Fund shares,
so, the Fund reserves the right to the Fund may ask you to bring your
close your account if it falls below account up to the minimum
$500 because of redemptions. You will requirement. If your account balance
have 60 days to make an additional is still below $500 after 60 days,
investment. the Fund may close your account and
send you the redemption proceeds.
</TABLE>
EXCHANGES
Shareholders of the CitiFund may exchange Fund shares for shares of the
same class of certain other CitiFunds, subject to the limitation noted below.
Similarly, shareholders of the Smith Barney Fund may exchange shares for
shares of the same class of certain other Smith Barney funds. A shareholder of
the Smith Barney Fund must meet the minimum investment amount for each Smith
Barney fund. The CitiFund 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 CitiFund, you generally are
required to pay the difference, if any, between the sales charge payable on
the shares to be acquired in the exchange and the sales charge paid in
connection with your original purchase of Class A shares. The Class A shares
of the Smith Barney Fund issued in connection with the Reorganization will not
be subject to an initial sales charge. CitiFund 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. CitiFund 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
CitiFund shareholders, will be deemed to be the date of original purchase of
shares of the CitiFund). 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 CitiFunds 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, CitiFund shareholders may continue to exchange their
shares of the CitiFund for shares of other CitiFunds, as described above. On
and after that date, CitiFund shareholders may exchange their shares of the
CitiFund 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
The CitiFund and the Smith Barney Fund have similar policies relating to
dividend and capital gain distributions to shareholders, except that the Smith
Barney Fund generally makes capital gain distributions once a year, typically
in December, rather than semi-annually. For each Fund, capital gain
distributions and dividends are reinvested in additional shares of the same
class that you hold, unless you choose to receive your distributions and
dividends in cash. The Funds pay dividends and distribute capital gains, if
any, according to the following schedule.
<TABLE>
<CAPTION>
INCOME DIVIDEND CAPITAL GAIN
FUND DISTRIBUTIONS DISTRIBUTIONS
---- ------------- -------------
<S> <C> <C>
CitiFunds Balanced Portfolio quarterly (at the end of March, June, semi-annually
September and December)
Smith Barney Balanced Fund quarterly annually (typically in December)
</TABLE>
On or immediately prior to the Closing Date of the Reorganization, the
CitiFund 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 CitiFund 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 CitiFund 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 CitiFund 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 CitiFund'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
CitiFund 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 CitiFund, 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 CitiFund or its shareholders as a direct
result of the Reorganization. See "The Proposed Transaction--Federal Income
Tax Consequences."
OTHER MERGERS
The Board of Trustees of the Smith Barney Fund has approved an Agreement
and Plan of Reorganization pursuant to which each of CitiSelect Folio 200
Conservative and CitiSelect Folio 300 Balanced, each of which is a series of
the CitiFunds Trust, are to merge with and into the Smith Barney Fund. Neither
of these other mergers will be consummated until approved by the shareholders
of the applicable CitiSelect Folio. The consummation of the Reorganization is
in no way dependent upon the consummation of either such other merger.
PRINCIPAL INVESTMENTS, RISK FACTORS, AND INVESTMENT RESTRICTIONS
PRINCIPAL INVESTMENTS AND RISK FACTORS
The investment objectives and policies and risk factors of CitiFunds
Balanced Portfolio are, in many respects, similar to those of the acquiring
Smith Barney Balanced Fund. There are, however, certain differences. The
following discussion summarizes some of the more significant similarities and
differences in the investment policies and risk factors of each of the
CitiFund and the Smith Barney Fund and is qualified in its entirety by the
Prospectuses and Statements of Additional Information of each of the CitiFund
and the Smith Barney Fund incorporated herein by reference.
<TABLE>
<CAPTION>
FUND(s) SUBJECT TO RISK PRINCIPAL INVESTMENT AND ACCOMPANYING RISK FACTOR
----------------------- -------------------------------------------------
<S> <C>
BOTH FUNDS EQUITY SECURITIES:
o The stock market may decline generally, thereby reducing the value of the equity
portion of the Fund.
o Companies in which the Fund invests may fail to meet earnings expectations, fall out
of favor with investors, or other events may depress the prices of their securities.
BOTH FUNDS FIXED INCOME SECURITIES:
o Interest rates may increase, causing the prices of fixed income securities to decline,
thereby reducing the value of the fixed income portion of the Fund.
o The issuer of a fixed income security owned by the Fund may default on its obligation
to pay principal and/or interest or may have its credit rating downgraded. The Smith
Barney Fund, unlike the CitiFund, may invest in junk bonds which are generally subject
to a higher risk of default (see risk factor describing "Junk Bonds" below).
o As interest rates decline, the issuers of fixed income securities held by the Fund may
pay principal earlier than scheduled or exercise a right to call the securities,
forcing the Fund to reinvest in lower yielding securities. This is known as prepayment
or call risk.
o As interest rates rise above the coupon rate on one or more fixed income securities
held by the Fund, the issuers of these securities may extend the effective maturity
date, causing increased price sensitivity. This is known as extension risk.
SMITH BARNEY FUND JUNK BONDS:
Below-investment-grade bonds, which are commonly known as "junk bonds," are speculative
and their issuers may have diminished capacity to pay principal and interest. These
securities have a higher risk of default, tend to be less liquid, and may be more
difficult to value. Changes in economic conditions or other circumstances are likely to
weaken the capacity of issuers of these securities to make principal and interest
payments. The Smith Barney Fund may be subject to higher risks because of its investments
in junk bonds. The CitiFund may not invest in long-term non-convertible debt securities
unless they are investment-grade at the time of purchase.
BOTH FUNDS DERIVATIVES:
SMITH BARNEY FUND -- SUBJECT TO Each Fund may, but need not, use derivative contracts, such as options on securities,
CERTAIN LIMITS ON TYPES AND interest rate futures and options on interest rate futures:
AMOUNT OF DERIVATIVES
CITIFUND -- MAY INVEST IN ADDITIONAL o To hedge against the economic impact of adverse changes in the market value of
TYPES OF DERIVATIVES WITHOUT LIMIT portfolio securities, because of changes in interest rates or exchange rates; or
AND FOR NON-HEDGING PURPOSES
o As a substitute for buying or selling securities.
A derivative contract will obligate or entitle the Fund to deliver or receive an asset
or cash payment based on the change in value of one or more indices or securities. Even
a small investment in derivative contracts can have a big impact on a Fund's securities
market or interest rate exposure. Therefore, using derivatives can disproportionately
increase losses and reduce opportunities for gains when interest rates, exchange rates
or securities markets 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 default risk as issuers of fixed income securities.
Derivatives can also make a fund less liquid and harder to value, especially in
declining markets.
As described above, the Smith Barney Fund is subject to certain limitations on its use
of derivatives. In contrast, the CitiFund has fewer restrictions with respect to the
types and amounts of derivatives in which it can invest. Consequently, in certain
circumstances, the CitiFund may be subject to higher risk than the Smith Barney Fund
because it is not as restricted with respect to its derivative investments.
SMITH BARNEY FUND -- GROWTH AND VALUE INVESTING:
GROWTH AND VALUE INVESTING An investment in growth securities may underperform certain other stock investments
during periods when growth stocks are out of favor. Similarly, value stocks may
underperform certain other stock investments, such as growth stocks, during periods when
CITIFUND -- VALUE INVESTING value stocks are out of favor.
As described above, in selecting equity investments for the Smith Barney Fund, SSB Citi
attempts to identify securities with favorable valuations relative to their growth
characteristics. This strategy is commonly known as "growth at a reasonable price."
Because this strategy combines both growth and value investing, it offers style
diversification within a single mutual fund. In selecting equity investments for the
CitiFund, the portfolio managers use a value-oriented approach and evaluate securities
using fundamental analysis. The Smith Barney Fund and the CitiFund may perform
differently when one style or the other is out of favor due to the differences in their
investment style.
BOTH FUNDS PORTFOLIO SELECTION:
The success of each Fund's investment strategy depends in large part on the portfolio
managers. In selecting equity securities, the portfolio managers may not be correct in
identifying securities of companies that perform well based on a "growth" or "value"
strategy. In selecting fixed income securities, the portfolio managers may be unable to
predict accurately the direction of interest rates or the maturity of certain debt
obligations, or to assess accurately credit quality and other factors. Also, the
portfolio managers may not appropriately allocate a Fund's assets between equity and
fixed income securities. In that case, you may lose money, or your investment may not do
as well as an investment in another balanced mutual fund.
BOTH FUNDS CONVERTIBLE SECURITIES:
Convertible securities, which are debt securities that may be converted into stock, are
subject to the market risk of stocks, and, like other debt securities, are also subject
to interest rate risk and the credit risk of their issuers. Call provisions may allow the
issuer to repay the debt before it matures.
BOTH FUNDS THINLY TRADED SECURITIES:
Securities that are thinly traded can be difficult to sell at reasonable prices or within
a short time-frame. A Fund could have difficulty in selling thinly traded securities if,
for example, it needed to sell securities to meet redemption requests. Also, if there is
no established market price for thinly traded securities, an accurate valuation of these
securities may be difficult.
BOTH FUNDS FOREIGN SECURITIES:
SMITH BARNEY FUND -- Investments in foreign securities involve risks relating to political, social and
MAY INVEST IN FOREIGN SECURITIES economic developments abroad, as well as risks resulting from the differences between the
WITHOUT LIMIT, BUT MAY NOT INVEST IN regulations to which U.S. and foreign issuers and markets are subject. These risks may
EMERGING MARKETS include expropriation of assets, confiscatory taxation, withholding taxes on dividends
and interest paid on Fund investments, fluctuations in currency exchange rates, currency
CITIFUND -- exchange controls and other limitations on the use or transfer of assets by the Fund or
MAY INVEST UP TO 25% OF ITS ASSETS IN issuers of securities, and political or social instability. There may be rapid changes in
FOREIGN SECURITIES, AND MAY INVEST IN the value of foreign currencies or securities, causing the Fund's share price to be
EMERGING MARKETS volatile. Also, in certain circumstances, the Fund could realize reduced or no value in
U.S. dollars from its investments in foreign securities, causing the Fund's share price
to go down.
The CitiFund may invest up to 25% of its assets in foreign equity and debt securities
including depositary receipts. By contrast, the Smith Barney Fund may invest in foreign
securities without limit. The Smith Barney Fund may therefore be subject to greater risks
from foreign securities than the CitiFund.
The CitiFund may invest in issuers located in emerging, or developing, markets. All of
the risks of investing in foreign securities are heightened by investing in these
markets. The Smith Barney Fund may not invest in emerging markets. The Smith Barney Fund
is therefore not subject to the additional risks of emerging markets securities.
BOTH FUNDS ZERO COUPON OBLIGATIONS:
SMITH BARNEY FUND -- Each Fund may invest in zero coupon obligations. Zero coupon obligations pay no current
MAY INVEST WITHOUT LIMIT interest. As a result, the prices of zero coupon obligations tend to be more volatile
than those of securities that offer regular payments of interest. This makes the Fund's
CITIFUND -- net asset value more volatile. In order to pay cash distributions representing income on
MAY INVEST UP TO 15% OF ITS ASSETS zero coupon obligations, the Fund may have to sell other securities on unfavorable terms.
These sales may generate taxable gains for Fund shareholders.
The CitiFund may invest up to 15% of its assets in zero coupon obligations, whereas the
Smith Barney Fund is not subject to a similar limit. The Smith Barney Fund may therefore
be subject to greater risks from zero coupon securities than the CitiFund.
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 the respective Fund. Certain of these non-principal
investments and related risk factors may differ for each Fund. For example,
the Smith Barney Fund may engage in short sales and invest in real estate
investment trusts, whereas the CitiFund does not participate in these
transactions (except that the CitiFund may engage in short sales "against the
box," which generally involve less risk than short sales). The CitiFund may
invest in closed-end investment companies and may lend its portfolio
securities, provided that the value of the securities loaned by the Fund does
not exceed 30% of the market value of its total assets. By contrast, the Smith
Barney Fund does not invest in closed-end investment companies and its
securities loans may not exceed 20% of the Fund's total assets taken at value.
Certain of these transactions may subject a Fund to greater risk than a fund
that does not participate in these transactions. For a further description of
these investments and related risks, please consult the Prospectus and
Statement of Additional Information of the applicable Fund.
FUNDAMENTAL INVESTMENT RESTRICTIONS
Each Fund has adopted certain fundamental investment restrictions which
may not be changed without the affirmative vote of the holders of a majority
of the outstanding voting securities (as defined in the 1940 Act) of that
Fund. The Smith Barney Fund is subject to fundamental investment restrictions
that, in general, are similar to those of the CitiFund. These fundamental
restrictions limit the amounts that a Fund may borrow and prohibit the Fund
from investing in a manner which would cause it to fail to be a diversified
investment company under the 1940 Act, from investing more than 25% of the
Fund's total assets in securities of issuers in the same industry (with
certain exceptions), from lending money (with certain exceptions), from
underwriting securities issued by other persons, from purchasing or selling
real estate, commodities or commodity contracts (with certain exceptions),
from investing in oil, gas or other mineral exploration or development
programs (with respect to the Smith Barney Fund only) or investing in oil, gas
or mineral leases (with respect to the CitiFund only), or from issuing "senior
securities" (as defined in the 1940 Act) to the extent prohibited by the 1940
Act.
Although these restrictions are similar, their parameters may be different
between the two Funds. With respect to the fundamental limitation on borrowing
described above, the Smith Barney Fund may only borrow money from banks for
temporary or emergency (not leveraging) purposes, whereas the CitiFund may
borrow money in other circumstances provided that such borrowing is not
specifically prohibited by the 1940 Act or the rules and regulations
promulgated thereunder. In addition, the Smith Barney Fund may invest, as an
exception to the prohibition from purchasing or selling real estate,
commodities, or commodity contracts, in gold bullion and coins or receipts for
gold. The CitiFund may not make these types of investments.
In addition, the Smith Barney Fund may not 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" and except that the Fund may make short sales or
maintain a short position to the extent of 5% of its net assets).
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) write or sell puts, calls, straddles, spreads or
combinations thereof, except as permitted under the Fund's investment
objective and policies; (2) purchase any security if as a result the Fund
would then have more than 5% of its total assets invested in securities of
companies (including predecessors) that have been in continuous operation for
fewer than three years; (3) make investments for the purpose of exercising
control or management; (4) purchase or retain securities of any company if, to
the knowledge of the trust of which the Fund is a series, any of the trust's
officers or trustees or any officer or director of SSB Citi individually owns
more than 1/2 of 1% of the outstanding securities of such company and
together they own beneficially more than 5% of the securities; (5) invest in
warrants other than those acquired by the Fund as part of a unit or attached
to securities at the time of purchase (except as permitted under the Fund's
investment objective and policies) if, as a result, the investments (valued at
the lower of cost or market) would exceed 5% of the value of the Fund's net
assets; (6) invest more than 2% of the Fund's net assets in warrants not
listed on a recognized U.S. or foreign stock exchange; (7) purchase in excess
of 5% of the voting securities of a public utility or public utility holding
company, so as to become a public utility holding company as defined in the
Public Utility Holding Company Act of 1935, as amended; or (8) purchase
restricted securities, illiquid securities or other securities that are not
readily marketable if more than 15% of the total assets of the Fund would be
invested in such securities (the CitiFund is subject to a similar non-
fundamental restriction with respect to its investments in illiquid
securities).
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 CitiFund will receive a
distribution of investment securities from each Underlying Portfolio and that,
immediately thereafter, substantially all of the assets and liabilities of the
CitiFund will be transferred to the Smith Barney Fund. In exchange for the
transfer of those assets and liabilities, each class of the CitiFund will
receive voting shares of the corresponding class of the Smith Barney Fund
("Reorganization Shares"). Reorganization Shares of the Smith Barney Fund
received will then be distributed to the shareholders of the CitiFund in
complete liquidation of the CitiFund, and the CitiFund would be terminated.
As a result of the Reorganization, each shareholder of each class of the
CitiFund 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 CitiFund held on the Closing Date. The Smith Barney Fund will establish an
account for each CitiFund 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 CitiFund
will, of course, continue to be able to redeem their shares at the net asset
value next determined after receipt by the CitiFund's transfer agent of a
redemption request in proper form. Redemption requests received by the
CitiFund's 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 CitiFund 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 CitiFund 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 of either the
CitiFund or the Smith Barney Fund, notwithstanding the approval of the Plan by
the shareholders of the CitiFund. However, no amendment may be made that
materially adversely affects the interests of the CitiFund shareholders
without obtaining the approval of the CitiFund shareholders. The CitiFund 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 $160,000. 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, considered materials discussing the potential
benefits to the CitiFund shareholders if the CitiFund was 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 CitiFund and its shareholders and that the interests of the
CitiFund shareholders will not be diluted as a result of the proposed
Reorganization.
The proposed combination of the CitiFund into the Smith Barney Fund will
allow the shareholders of the CitiFund to continue to participate in a
professionally-managed portfolio governed by similar investment objectives and
policies. The Trustees of the CitiFunds Trust believe that the CitiFund
shareholders will benefit from the proposed Reorganization because the Smith
Barney Fund offers the following benefits:
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 CitiFund
and Smith Barney Fund. Other things being equal, shareholders may be expected
to benefit from economies of scale through lower expense ratios and higher net
income distributions over time. SSB Citi also believes that a larger asset
base could provide portfolio-management benefits such as greater
diversification.
In addition, Class B shareholders of the CitiFund will benefit from the
lower total annual operating expenses of Class B shares of the Smith Barney
Fund (as determined for each Fund's most recent fiscal year). After taking
into account waivers and reimbursements by service providers to the CitiFund,
the total annual operating expenses for Class A shares of the Smith Barney
Fund are higher than the total annual operating expenses of Class A shares of
the CitiFund. For the Funds' most recent fiscal years, in the absence of such
waivers and reimbursements, the CitiFund's Class A expenses would have been
higher by 0.08%. The total annual operating expenses of Class A shares of the
Smith Barney Fund are lower than those of the CitiFund if waivers and
reimbursements by the CitiFund's service providers, which can be terminated at
any time, are not taken into account.
LARGER FAMILY OF FUNDS
The Reorganization offers CitiFund shareholders the opportunity to become
part of a larger and more diverse family of more than sixty mutual funds.
CitiFund shareholders will be able to exchange their shares among most or all
of those Smith Barney funds. In addition, the Reorganization offers CitiFund
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, afford investors the benefits of portfolio
diversification and economies of scale.
Due to a combination of factors, including the benefits described above,
the Board of Trustees of the CitiFunds Trust, on behalf of the CitiFund,
believes that the CitiFund and its shareholders would benefit from a tax-free
reorganization with the Smith Barney Fund. ACCORDINGLY, IT IS RECOMMENDED THAT
THE CITIFUND SHAREHOLDERS APPROVE THE REORGANIZATION WITH THE SMITH BARNEY
FUND.
The Board of Trustees of the CitiFunds Trust, on behalf of the CitiFund,
in recommending the proposed transaction, considered a number of factors,
including the following:
(a) the positive compatibility of the CitiFund's investment objectives,
policies and restrictions with those of the acquiring Smith Barney Fund;
(b) the benefits to CitiFund 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 CitiFund;
(f) the terms and conditions of the Reorganization and that it should not
result in a dilution of CitiFund shareholder interests;
(g) the level of costs and expenses to the CitiFund of the proposed
Reorganization; and
(h) a variety of alternatives available to the CitiFund, including
maintaining the status quo or liquidating the CitiFund.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
The CitiFund is a diversified series of the CitiFunds Trust, which was
organized as a business trust under the laws of the Commonwealth of
Massachusetts on April 13, 1984 and is registered with the Securities and
Exchange Commission as an open-end management investment company. The Smith
Barney Fund is a diversified series of Smith Barney Income Funds (the "Smith
Barney Trust"), which was organized as an unincorporated business trust under
the laws of the Commonwealth of Massachusetts pursuant to a master trust
agreement dated March 12, 1985, as amended from time to time, and is
registered with the Securities and Exchange Commission as an open-end
management investment company.
Each Fund currently offers shares classified into Class A and Class B, and
the Smith Barney Fund also offers Class L, Class O and Class Y shares. Each
share of each class of a Fund represents an interest in that class of the Fund
that is equal to and proportionate with each other share of that class of the
Fund. Each class of shares of each Fund has identical voting, dividend,
liquidation and other rights (other than conversion) on the same terms and
conditions except that expenses related to the distribution of each class of
shares are borne solely by each class and each class of shares has exclusive
voting rights with respect to the provisions of the Rule 12b-1 distribution
plan that pertains to a particular class. Shareholders are entitled to one
vote per share held on matters on which they are entitled to vote.
The CitiFunds Trust is not required to hold annual meetings of shareholders
but the CitiFunds Trust will hold special meetings of shareholders when in the
judgment of the Trustees it is necessary or desirable to submit matters for a
shareholder vote. The Smith Barney Trust is also not required to hold annual
meetings of shareholders but meetings of shareholders may be called by the
Trustees from time to time for the purpose of taking action upon any matter
requiring the vote or authority of the shareholders or upon any other matter
deemed by the Trustees to be necessary or desirable.
Shareholders of the CitiFunds Trust have, under certain circumstances (e.g.,
upon the application and submission of certain specified documents to the
Trustees by a specified number of shareholders), the right to communicate with
other shareholders in connection with requesting a meeting of shareholders for
the purpose of removing one or more Trustees. Shareholders also have under
certain circumstances the right to remove one or more Trustees without a meeting
by a declaration in writing by a specified number of shareholders. The Trustees
of the Smith Barney Trust must promptly call and give notice of a meeting of
shareholders for the purpose of voting upon removal of any Trustee of the Smith
Barney Trust when requested to do so in writing by shareholders holding not less
than 10% of the shares then outstanding.
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is conditioned upon the receipt by each of the Smith
Barney Fund and the CitiFund 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 CitiFund's interest in the Underlying Portfolio will not
result in the recognition of loss or gain by the CitiFund, (ii) the transfer
to the Smith Barney Fund of all or substantially all of the assets of the
CitiFund in exchange solely for Reorganization Shares and the assumption by
the Smith Barney Fund of all of the liabilities of the CitiFund, followed by
the distribution of such Reorganization Shares to the shareholders of the
CitiFund in exchange for their shares of the CitiFund in complete liquidation
of the CitiFund, will constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and the Smith Barney Fund and the CitiFund 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 CitiFund upon the
transfer of the CitiFund'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 CitiFund or upon the distribution (whether actual or
constructive) of the Reorganization Shares to the CitiFund's shareholders in
exchange for their shares of the CitiFund; (iv) the basis of the assets of the
CitiFund in the hands of the Smith Barney Fund will be the same as the basis
of such assets in the hands of the CitiFund immediately prior to the transfer,
which will be determined by reference to the basis of the CitiFund in its
interests in the Underlying Portfolios; (v) the holding period of the assets
of the CitiFund in the hands of the Smith Barney Fund will include the period
during which such assets were held by the CitiFund 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
CitiFund solely in exchange for Reorganization Shares and the assumption by
the Smith Barney Fund of all of the liabilities of the CitiFund; (vii) no gain
or loss will be recognized by the shareholders of the CitiFund upon the
receipt of Reorganization Shares solely in exchange for their shares of the
CitiFund as part of the transaction; (viii) the basis of Reorganization Shares
received by the shareholders of the CitiFund will be, in the aggregate, the
same as the basis, in the aggregate, of the shares of the CitiFund exchanged
therefor; and (ix) the holding period of Reorganization Shares received by the
shareholders of the CitiFund will include the holding period during which the
shares of the CitiFund exchanged therefor were held, provided that at the time
of the exchange the shares of the CitiFund were held as capital assets in the
hands of the shareholders of the CitiFund.
As described above, although the CitiFund 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 CitiFund shareholders who receive the Reorganization Shares
of the Smith Barney Fund, those former CitiFund 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 CitiFund 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 THE CITIFUND
If the Reorganization is effected, the CitiFund will be liquidated and
terminated, and the Fund's outstanding shares will be cancelled.
PORTFOLIO SECURITIES
If the Reorganization is effected, the CitiFund will redeem its interest in
the Underlying Portfolios and will receive its proportionate share of the
portfolio securities of these Underlying Portfolios. The CitiFund 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 CitiFund 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 CitiFund), 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 rates of Large Cap Value Portfolio and U.S. Fixed
Income Portfolio, the Underlying Portfolios in which the CitiFund invests all
of its investable assets, were 74% and 26%, respectively, for the year ended
October 31, 1999. The portfolio turnover rate for the Smith Barney Fund for
its fiscal year ended July 31, 1999 was 60%. Active and frequent trading may
result in the realization and distribution to a Fund of higher capital gains,
which could increase the tax liability for the Fund's shareholders. Frequent
trading also increases transaction costs, which could detract from a Fund's
performance.
PRO FORMA CAPITALIZATION
Because the CitiFund will be combined in the Reorganization of the
CitiFund 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 CitiFund. The following table sets forth as of
June 30, 2000: (a) the capitalization of each of the CitiFund 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 CitiFund and the Smith Barney Fund is likely to be different at the
effective time of their Reorganization as a result of daily share purchase and
redemption activity.
Additionally, as noted above, the Board of Trustees of the Smith Barney
Fund has approved an Agreement and Plan of Reorganization pursuant to which
each of CitiSelect Folio 200 Conservative and CitiSelect Folio 300 Balanced,
each of which is a series of the CitiFunds Trust, are to merge with and into
the Smith Barney Fund. Neither such other merger will be consummated until
approved by the shareholders of the applicable CitiSelect Folio. Although the
consummation of the Reorganization is in no way dependent upon the
consummation of either such other merger, the table below includes the effects
of the potential consummation of each such other merger.
<TABLE>
<CAPTION>
NET ASSET
TOTAL SHARES VALUE
NET ASSETS OUTSTANDING PER SHARE
---------- ----------- ---------
<S> <C> <C> <C>
CITIFUNDS BALANCED PORTFOLIO
Class A $170,174,790 13,392,394 $12.71
Class B $ 1,718,656 134,144 $12.81
Class L N/A N/A N/A
Class O N/A N/A N/A
CITISELECT FOLIO 200 CONSERVATIVE
Class A $ 53,031,831 5,201,288 $10.20
Class B $ 566,481 55,494 $10.21
Class L N/A N/A N/A
Class O N/A N/A N/A
CITISELECT FOLIO 300 BALANCED
Class A $ 92,795,681 8,907,924 $10.42
Class B $ 878,690 84,456 $10.40
Class L N/A N/A N/A
Class O N/A N/A N/A
SMITH BARNEY BALANCED FUND
Class A $412,707,815 28,127,372 $14.67
Class B $374,649,371 25,619,418 $14.62
Class L $ 14,293,377 976,523 $14.64
Class O $ 5,672,904 387,657 $14.63
PRO FORMA SMITH BARNEY BALANCED FUND
Class A $728,710,117 49,668,088 $14.67
Class B $377,813,198 25,835,822 $14.62
Class L $ 14,293,377 976,523 $14.64
Class O $ 5,672,904 387,657 $14.63
</TABLE>
PERFORMANCE
Performance shown below is as of December 31, 1999 and 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. Prior to June 1998, the Smith Barney Fund
was a utilities-sector fund rather than a balanced fund and it had different
investment goals, policies and strategies and different portfolio managers.
The table below shows the average annual total return for each fund over each
period indicated.
<TABLE>
<CAPTION>
CITIFUNDS SMITH BARNEY
BALANCED PORTFOLIO BALANCED FUND
---------------------------------- ----------------------------------
CLASS A CLASS B CLASS A CLASS B
------- ------- ------- -------
<S> <C> <C> <C> <C>
One Year (2.68)% (3.61)%(1) 6.15% 6.15%
Five Year 10.85% n/a 14.15% 14.67%
Life of Fund(2) 10.99% (3.61)% 10.48% 11.15%
Best Quarter(3) 12.34% (6/97) n/a 14.45% (12/98) 14.37% (12/98)
Worst Quarter(3) (8.61)% (9/98) n/a (7.51)% (9/98) (7.64)% (9/98)
------------
(1) Class B shares of the CitiFund were first offered on January 4, 1999.
(2) With respect to the CitiFund, since October 19, 1990 (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 March 28, 1988 (Class B shares).
(3) Best and Worst Quarter information does not include applicable sales charges. Were such charges included, the
performance figures would be lower. Additionally, such information is shown for Class A shares of the CitiFund only.
</TABLE>
VOTING INFORMATION
GENERAL INFORMATION
The Board of Trustees of the CitiFund is furnishing this combined Proxy
Statement/Prospectus in connection with the solicitation of proxies for a
Special Meeting of Shareholders of the CitiFund 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 CitiFund and the 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 $39,000.
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 CitiFund giving a proxy has the power to revoke it by
submitting a written notice of revocation to the CitiFund 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 CitiFund shareholders have purchased their shares through
Service Agents, these Service Agents are the shareholders of record of the
CitiFund. 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 CitiFund present in person or by proxy shall constitute a quorum at any
meeting of shareholders for the transaction of business by the CitiFund. If
the quorum necessary 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 CitiFund's shares present in person or by proxy at the Special Meeting.
The persons named as proxies will vote in favor of such adjournment those
proxies which they are entitled to vote in favor of that proposal and will
vote against any such adjournment those proxies to be voted against that
proposal.
For purposes of determining the presence of a quorum for transacting
business at the Special Meeting, abstentions and broker "non-votes" will be
treated as shares that are present but which have not been voted. Broker non-
votes are proxies received by the CitiFund 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 CitiFund are present or
represented by proxy; or (b) more than 50% of the outstanding voting
securities of the CitiFund, 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 CitiFund 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 13,076,503.243
outstanding Class A shares and 118,676.426 outstanding Class B shares entitled
to vote.
Listed below are the name, address and share ownership of each person
known to the CitiFund to own 5% or more of any class of shares of the CitiFund
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 A
Fiserv Securities, Inc. 98.35% 26.52%
Attn: Mutual Funds Dept.
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, Pa. 19103-7084
Class B
Fiserv Securities, Inc. 99.86% 0.47%
Attn: Mutual Funds Dept.
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, Pa. 19103-7084
Listed below are the name, address and share ownership of each person
known to the Smith Barney Fund to own 5% or more of any class of shares of the
Smith Barney Fund as of 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 O
ABC Appliance Utica Inc. 5.19% 5.19%
Emp. Profit Shrg. Plan Dtd. 12/01/75
D.Todd, D. Dion, M. Celusnak, Trustees
48825 Van Dyke
Utica, MI 48317-2564
As of August 11, 2000, the officers and Trustees of the CitiFund as a
group owned less than 1% of any class of the CitiFund's outstanding shares. As
of August 11, 2000, the officers and Trustees of the Smith Barney Fund 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 CitiFund, 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 CitiFund, 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 CitiFund was
provided by the CitiFunds Trusts, on behalf of the CitiFund, and information
concerning the Smith Barney Fund was provided by Smith Barney Income Funds, on
behalf of the Smith Barney Fund.
Each Fund files reports, proxy materials and other information about the
applicable Fund with the Securities and Exchange Commission. Such reports,
proxy material and other information can be inspected and copied at the Public
Reference Room maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material can also be obtained from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington D.C.
20549 at prescribed rates or without charge from the Commission at
[email protected].
OTHER MATTERS
No Trustee is aware of any matters that will be presented for action at
the Special Meeting other than the matters set forth herein. Should any other
matters requiring a vote of shareholders arise, the proxy in the accompanying
form will confer upon the person or persons entitled to vote the shares
represented by such proxy the discretionary authority to vote the shares as to
any such other matters in accordance with their best judgment in the interest
of the CitiFund.
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
FORM OF 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, CitiFunds
Balanced Portfolio (the "CitiFund"), and Smith Barney Income Funds, a
Massachusetts business trust with its principal place of business at 388
Greenwich Street, New York, New York 10013 (the "Smith Barney Trust"), on
behalf of its series, Smith Barney Balanced Fund (the "Smith Barney Fund," and
together with the CitiFund, 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
CitiFund and the Smith Barney Fund, with which the CitiFund will reorganize,
as provided herein. The reorganization will consist of the transfer of
substantially all of the assets of the CitiFund 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 CitiFund and the distribution of the Smith
Barney Fund Shares to the shareholders of the CitiFund in complete liquidation
of the CitiFund 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 CITIFUND TO THE SMITH BARNEY FUND IN EXCHANGE
FOR SMITH BARNEY FUND SHARES, THE ASSUMPTION OF ALL CITIFUND LIABILITIES
AND THE LIQUIDATION OF THE CITIFUND
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 CitiFund, agrees to transfer to the Smith Barney Fund
substantially all of the CitiFund'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 CitiFund that number of full and fractional Class
A and Class B Smith Barney Fund Shares determined by dividing the value of the
CitiFund'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 CitiFund, 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 CitiFund to be acquired by the Smith Barney Fund
(collectively, "Assets") shall consist of all property and assets of every kind
and nature of the CitiFund, 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 CitiFund's rights under this Agreement.
1.3. The Smith Barney Fund shall assume all liabilities of the CitiFund,
whether accrued or contingent, existing at the Valuation Time as defined in
section 2.1. The CitiFund 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 CitiFund
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 CitiFund will distribute to its shareholders of record (the "CitiFund
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 CitiFund
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 CitiFund 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 CitiFund Shareholders. The aggregate net asset value of each class of
Smith Barney Fund Shares to be so credited to CitiFund Shareholders shall be
equal to the aggregate net asset value of the corresponding class of CitiFund
shares owned by such shareholders as of the Valuation Time. All issued and
outstanding shares of the CitiFund will simultaneously be cancelled on the books
of the CitiFund. 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 CitiFund, 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 CitiFund.
1.8. All books and records of the CitiFund, 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 CitiFund 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
CitiFund, less the value of the liabilities of the CitiFund assumed, shall be
determined by dividing the value of the Assets allocated to each class of the
CitiFund less the value of the liabilities allocated to that class of the
CitiFund 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 CitiFund'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 CitiFund, shall deliver at the Closing a certificate of an authorized
officer stating that (a) the Assets of the CitiFund 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 CitiFund'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 CitiFund 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 CitiFund'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 CitiFund shall be delivered by wire
transfer of federal funds on the Closing Date.
3.4. State Street, as transfer agent of the CitiFund, on behalf of the
CitiFund, shall deliver at the Closing a certificate of an authorized officer
stating that its records contain the names and addresses of the CitiFund
Shareholders and the number and percentage ownership (to three decimal places)
of outstanding CitiFund 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 CitiFund or provide evidence satisfactory to
the CitiFund that such Smith Barney Fund Shares have been credited to the
CitiFund'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 CitiFund 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 CitiFund 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 CitiFund, 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
CitiFund 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 CitiFund, 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 CitiFund which shall terminate on or
prior to the Closing Date, the CitiFund is not, and the execution,
delivery and performance of this Agreement by the CitiFund Trust on behalf
of the CitiFund 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 CitiFund 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 CitiFund 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 CitiFund 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 CitiFund 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 CitiFund, 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 CitiFund's business or its or
the CitiFund's ability to consummate the transactions herein contemplated;
(f) The financial statements of the CitiFund 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 CitiFund 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 CitiFund as of the dates thereof in
accordance with GAAP, and there are no known contingent liabilities of the
CitiFund 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 CitiFund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by the CitiFund 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 CitiFund due to declines in market values of securities in the
CitiFund's portfolio, the discharge of CitiFund liabilities, or the
redemption of CitiFund Shares by CitiFund 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 CitiFund 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 CitiFund 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 CitiFund 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 CitiFund (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 CitiFund's
transfer agent, as provided in section 3.3. There are no outstanding
options, warrants or other rights to subscribe for or purchase any
CitiFund Shares, nor is there outstanding any security convertible into
any CitiFund Share;
(k) At the Closing Date, the CitiFund Trust, on behalf of the
CitiFund, will have good and marketable title to the CitiFund's Assets and
full right, power and authority to sell, assign, transfer and deliver such
Assets hereunder free of any liens or other encumbrances, except those
liens or encumbrances as to which the Smith Barney Trust, on behalf of the
Smith Barney Fund, has received notice at or prior to the Closing, and
upon delivery and payment for such Assets, the Smith Barney Fund will
acquire good and marketable title thereto, subject to no restrictions on
the full transfer thereof, except those restrictions as to which the Smith
Barney Fund has received notice and necessary documentation at or prior to
the Closing;
(l) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary
action on the part of the Trustees of the CitiFund Trust, and, subject to
the approval of the CitiFund 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 CitiFund 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 CitiFund to be included in the
Registration Statement referred to in section 5.6 (the "Proxy Statement"),
insofar as it relates to the CitiFund, 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 CitiFund 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 CitiFund) 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 CitiFund. 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 CitiFund for
the account of the CitiFund 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 CitiFund, 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 CitiFund's books and records necessary to
maintain current knowledge of the CitiFund and to ensure that the
representations and warranties made by the CitiFund are accurate.
5.3. The CitiFund Trust and the CitiFund covenant to call a meeting of the
shareholders of the CitiFund 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 CitiFund 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
CitiFund Shareholders to consider approval of this Agreement and the
transactions contemplated herein, with the Commission as promptly as
practicable. The CitiFund Trust and the CitiFund 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 CitiFund 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 CitiFund pursuant to this Agreement and (ii) assume the
assumed liabilities of the CitiFund.
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 CitiFund
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 CitiFund 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 CitiFund 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 CitiFund, 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 CitiFund, 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 CitiFund'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 CitiFund'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 CitiFund 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
CitiFund and shall be in full force and effect.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SMITH BARNEY TRUST
The obligations of the Smith Barney Trust and the Smith Barney Fund to
consummate the transactions provided for herein shall be subject, at the Smith
Barney Trust's election, to the performance by the CitiFund Trust and the
CitiFund 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 CitiFund, 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 CitiFund, 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 CitiFund, 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 CitiFund 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 CitiFund has been duly
designated as a series of the CitiFund Trust;
(b) the CitiFund Trust, with respect to the CitiFund, 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 CitiFund'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 CitiFund'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 CitiFund 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
CitiFund 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
CitiFund 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 CitiFund.
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 CitiFund, 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 CitiFund invests all of its investable
assets in redemption of the CitiFund's interests in the Underlying Portfolios
will not result in the recognition of gain or loss by the CitiFund; (ii) the
transfer to the Smith Barney Fund of all or substantially all of the assets of
the CitiFund in exchange solely for Smith Barney Fund Shares and the assumption
by the Smith Barney Fund of all of the liabilities of the CitiFund, followed by
the distribution of the Smith Barney Fund Shares to CitiFund shareholders in
exchange for their shares of the CitiFund in complete liquidation of the
CitiFund, will constitute a "reorganization" within the meaning of Section
368(a) of the Code, and the Smith Barney Fund and the CitiFund 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 CitiFund upon the transfer of
the CitiFund'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 CitiFund or upon the distribution (whether actual or constructive) of the
Smith Barney Fund Shares to the CitiFund's shareholders in exchange for their
shares of the CitiFund; (iv) the basis of the assets of the CitiFund in the
hands of the Smith Barney Fund will be the same as the basis of such assets in
the hands of the CitiFund immediately prior to the transfer, which will be
determined by reference to the basis of the CitiFund in its interests in the
Underlying Portfolios; (v) the holding period of the assets of the CitiFund in
the hands of the Smith Barney Fund will include the period during which such
assets were held by the CitiFund 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 CitiFund solely in
exchange for Smith Barney Fund Shares and the assumption by the Smith Barney
Fund of all of the liabilities of the CitiFund; (vii) no gain or loss will be
recognized by the shareholders of the CitiFund upon the receipt of Smith Barney
Fund Shares solely in exchange for their shares of the CitiFund as part of the
transaction; (viii) the basis of Smith Barney Fund Shares received by the
shareholders of the CitiFund will be, in the aggregate, the same as the basis,
in the aggregate, of the shares of the CitiFund exchanged therefor; and (ix) the
holding period of Smith Barney Fund Shares received by the shareholders of the
CitiFund will include the holding period during which the shares of the CitiFund
exchanged therefor were held, provided that at the time of the exchange the
shares of the CitiFund were held as capital assets in the hands of the
shareholders of the CitiFund. The delivery of such opinion is conditioned upon
receipt by Bingham Dana LLP of representations it shall request of each Fund.
Notwithstanding anything herein to the contrary, neither party may waive the
condition set forth in this section 8.6.
9. INDEMNIFICATION
9.1. The Smith Barney Trust agrees to indemnify and hold harmless the
CitiFund Trust, its Trustees and its officers from and against any and all
losses, claims, damages, liabilities or expenses (including, without limitation,
the payment of reasonable legal fees and reasonable costs of investigation) to
which any such indemnified party may become subject, insofar as any such loss,
claim, damage, liability or expense (or actions with respect thereto) arises out
of or is based on any breach by the Smith Barney Trust or the Smith Barney Fund
of any of its representations, warranties, covenants or agreements set forth in
this Agreement.
9.2. The CitiFund Trust agrees to indemnify and hold harmless the Smith
Barney Trust, its Trustees and its officers from and against any and all 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 CitiFund 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 CitiFund, 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 CitiFund Shareholders called by the CitiFund 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 CitiFund
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 CitiFund, 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 CitiFund 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 CitiFund.
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 CitiFunds Balanced
Portfolio
By: -------------------------------
Name:
Title:
Attest: SMITH BARNEY INCOME FUNDS
on behalf of Smith Barney
Balanced Fund
By: ---------------------------
Name:
Title:
Solely for purposes of Section 10.2:
CITIBANK, N.A.
By: -----------------------------------------
Name:
Title:
SSB CITI FUND MANAGEMENT LLC
By: -----------------------------------------
Name:
Title:
<PAGE>
Pursuant to Rule 497(b) File Nos. 333-41728 811-4254
PART B
STATEMENT OF ADDITIONAL INFORMATION
RELATING TO THE ACQUISITION BY
SMITH BARNEY BALANCED FUND (THE "SMITH BARNEY FUND"), A SERIES OF SMITH BARNEY
INCOME FUNDS (THE "SMITH BARNEY TRUST")
388 Greenwich Street
New York, New York 10013
(800) 451-2010
OF THE ASSETS OF
CITIFUNDS BALANCED PORTFOLIO
(THE "CITIFUND"), 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
November 28, 1999.
2. Statement of Additional Information for the CitiFund, dated March 1,
2000.
3. Annual Report of the Smith Barney Fund for the year ended July 31,
1999 and Semi-Annual Report for the Smith Barney Fund for the
six-month period ended January 31, 2000.
4. Annual Report of the CitiFund for the year ended October 31, 1999 and
Semi-Annual Report of the CitiFund for the six-month period ended
April 30, 2000.
<PAGE>
TABLE OF CONTENTS
Page
General Information......................................................... 2
Pro Forma Financial Statements.............................................. 2
GENERAL INFORMATION
This Statement of Additional Information relates to the proposed transfer
of substantially all of the assets and liabilities of the CitiFund to the Smith
Barney Trust, on behalf of the Smith Barney Fund, in exchange for shares of the
corresponding class of the Smith Barney Fund (the "Reorganization"). The shares
issued by the Smith Barney Fund will have an aggregate net asset value equal to
the aggregate net asset value of the shares of the CitiFund 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 CitiFund will distribute such
shares to their shareholders in liquidation of the CitiFund. Each shareholder
owning shares of the CitiFund 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 CitiFund. The
Smith Barney Fund will establish an account for each former shareholder of the
CitiFund reflecting the appropriate number of shares distributed to such
shareholder. These accounts will be substantially identical to the accounts
maintained by the CitiFund for each shareholder. Upon completion of the
Reorganization with respect to the CitiFund, all outstanding shares of the
CitiFund will have been redeemed and cancelled in exchange for shares
distributed by the Smith Barney Fund, and the CitiFund will wind up its affairs
and be terminated as a series of the CitiFunds Trust.
For further information about the transaction, see the Combined Proxy
Statement/Prospectus.
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
The following unaudited PRO FORMA information gives effect to the proposed
transfer of substantially all of the assets and liabilities of the CitiFund, as
well as CitiSelect Folio 200 Conservative and CitiSelect 300 Balanced (each of
which which may also merger into the Smith Barney Fund) to the Smith Barney Fund
as if such transfers had occurred as of April 30, 2000. In addition, the pro
forma combined statements have been prepared based upon the fee and expense
structure of the Smith Barney Fund. The PRO FORMA financial information should
be read in conjunction with the historical financial statements and notes
thereto of the CittiFund and the Smith Barney Fund incorporated herein by
reference in this Statement of Additional Information. The proposed transfer of
the assets and liabilities of the CitiFund to the Smith Barney Fund will be
accounted for as a tax-free reorganization.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
SMITH BARNEY CITIFUNDS CITISELECT CITISELECT SMITH BARNEY
BALANCED BALANCED FOLIO 200 FOLIO 300 ADJUSTMENTS BALANCED
------------ ------------ ----------- ------------ ---------- --------------
PRO FORMA STATEMENT OF ASSETS AND
LIABILITIES (UNAUDITED) AS OF AS OF AS OF AS OF
4/30/00 4/30/00 4/30/00 4/30/00
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value $833,740,699 $199,351,143 $72,568,854 $126,701,182 -- $1,232,361,878
Cash 808 -- -- -- -- 808
Dividends & interest receivable 6,437,475 -- -- -- -- 6,437,475
Receivable for Fund shares sold 176,836 2,266 1,194 2,006 -- 182,302
Receivable for securities sold 4,106,451 -- -- -- -- 4,106,451
Receivable for tax reclaims 11,133 31,734 43,471 152,894 -- 239,232
Receivable for open forward foreign
currency contracts 808,276 -- -- -- -- 808,276
------------ ------------ ----------- ------------ ---------- --------------
TOTAL ASSETS $845,281,678 $199,385,143 $72,613,519 $126,856,082 -- $1,244,136,422
------------ ------------ ----------- ------------ ---------- --------------
LIABILITIES:
Allocation of assets and liabilities of
Hubs (net) 18,360,688 12,988,610 21,400,841 -- 52,750,139
Payable for Fund shares redeemed 11,854 521,438 224,647 852,046 -- 1,609,985
Payable for securities purchased 10,019,891 -- -- -- -- 10,019,891
Management fees payable 266,507 -- 6,660 13,671 -- 286,838
Administration fees payable 118,144 -- -- -- -- 118,144
Distribution costs payable 453,902 -- -- -- -- 453,902
Accrued expenses and other liabilities 401,028 135,563 84,659 289,195 -- 910,445
Payable for open forward foreign
currency contracts 257,982 -- -- -- -- 257,982
------------ ------------ ----------- ------------ ---------- --------------
TOTAL LIABILITIES 11,529,308 19,017,689 13,304,576 22,555,753 -- 66,407,326
------------ ------------ ----------- ------------ ---------- --------------
NET ASSETS $833,752,370 $180,367,454 $59,308,943 $104,300,329 -- $1,177,729,096
------------ ------------ ----------- ------------ ---------- --------------
NET ASSETS:
Par value of capital shares 56,748 -- -- -- -- 56,748
Capital paid in excess of par value 670,641,848 186,784,631 59,424,744 99,880,141 -- 1,016,731,364
Undistributed net investment income
(loss) 6,429,275 714,567 560,950 854,185 -- 8,558,977
Accumulated net realized gain (loss) 22,701,144 (2,710,559) (3,121,643) (12,581,676) -- 4,287,266
Net unrealized appreciation
(depreciation) of investments 133,923,355 (4,421,185) 2,444,892 16,147,679 -- 148,094,741
------------ ------------ ----------- ------------ ---------- --------------
NET ASSETS $833,752,370 $180,367,454 $59,308,943 $104,300,329 -- $1,177,729,096
============ ============ =========== ============ ========== ==============
<PAGE>
OUTSTANDING SHARES:
CLASS A 26,687,714 13,899,397 5,748,896 9,976,963 (6,475,488) 49,837,482
============ ============ =========== ============
CLASS B 28,712,849 135,786 62,650 84,162 (60,307) 28,935,140
============ ============ =========== ============
CLASS L 952,830 -- -- -- 0 952,830
============ ============ =========== ============
CLASS O 394,608 -- -- -- 0 394,608
============ ============ =========== ============
NET ASSET VALUE
CLASS A (and redemption price) $14.72 $12.85 $10.21 $10.37 $14.72
============ ============ =========== ============ ==============
CLASS B $14.67 $12.91 $10.18 $10.34 $14.62
============ ============ =========== ============ ==============
CLASS L $14.68 $ 0.00 $ 0.00 $ 0.00 $14.68
============ ============ =========== ============ ==============
CLASS O $14.68 $ 0.00 $ 0.00 $ 0.00 $14.68
============ ============ =========== ============ ==============
CLASS A MAXIMUM OFFERING PRICE $15.49 $13.53 $10.69 $10.86 $15.49
============ ============ =========== ============ ==============
CLASS L MAXIMUM OFFERING PRICE $14.83 $ 0.00 $ 0.00 $ 0.00 $14.83
============ ============ =========== ============ ==============
See accompanying notes to unaudited pro forma financial statements.
</TABLE>
<PAGE>
<TABLE>
MERGER OF CITIFUNDS BALANCED, CITISELECT 200, CITISELECT 300 INTO SMITH BARNEY BALANCED
PRO FORMA
SMITH BARNEY CITIFUNDS CITISELECT CITISELECT SMITH BARNEY
BALANCED BALANCED FOLIO 200 FOLIO 300 ADJUSTMENTS BALANCED
------------ ------------ ----------- ------------ ---------- --------------
<CAPTION>
PRO FORMA STATEMENT OF OPERATIONS FOR THE FOR THE FOR THE FOR THE
(UNAUDITED) 12 MONTHS 12 MONTHS 12 MONTHS 12 MONTHS
ENDED ENDED ENDED ENDED
4/30/00 4/30/00 4/30/00 4/30/00
INVESTMENT INCOME:
<S> <C> <C> <C> <C> <C> <C>
Interest $ 30,905,024 $ 4,783,976 $ 5,169,469 $ 6,217,947 -- $ 47,076,416
Dividends 6,931,434 1,847,168 453,637 1,208,381 -- 10,440,620
Less: Foreign withholding tax (327,078) -- -- -- -- (327,078)
------------ ------------ ----------- ------------ ---------- --------------
TOTAL INVESTMENT INCOME $ 37,509,380 6,631,144 5,623,106 7,426,328 -- 57,189,958
EXPENSES:
Allocated HUB Management Expenes -- 818,702 420,092 1,039,830 -- 2,278,624
Allocated HUB Expenes -- 110,502 200,184 126,277 (436,963) d --
Management fees 3,926,843 476,507 208,411 259,397 (1,113,944) a 3,757,214
Distribution costs 4,865,921 548,613 503,141 846,907 (708,904) c 6,055,678
Administration fees 1,745,263 -- -- -- 937,331 b 2,682,594
Shareholder servicing agent 903,138 26,175 63,576 96,323 375,329 e 1,464,541
Shareholder communications 248,100 92,362 47,820 45,847 (111,607) d 322,522
Registration fees 246,437 -- -- -- -- 246,437
Custodian fees/Fund Accounting 60,111 36,328 29,229 26,140 (75,294) d 76,514
Legal and auditing fees 54,326 91,961 69,615 70,820 (195,221) d 91,501
Directors' fees 16,490 21,055 8,046 9,398 (30,725) d 24,264
Pricing Fees 23,610 -- -- -- 10,000 f 33,610
Other (48,634) 53,711 28,627 16,159 -- 49,863
------------ ------------ ----------- ------------ ---------- --------------
Total Expenses 12,041,605 2,275,916 1,578,741 2,537,098 (1,349,998) 17,083,362
Less: Management Fee Waivers -- (206,077) (73,956) -- 280,033 g --
------------ ------------ ----------- ------------ ---------- --------------
NET EXPENSES 12,041,605 2,069,839 1,504,785 2,537,098 (1,069,965) 17,083,362
------------ ------------ ----------- ------------ ---------- --------------
NET INVESTMENT INCOME 25,467,775 4,561,305 4,118,321 4,889,230 1,069,965 40,106,596
------------ ------------ ----------- ------------ ---------- --------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain (Loss) From:
Security Transactions (excluding
short term securities) 22,364,760 (5,024,320) (328,246) 5,806,867 -- $ 22,819,061
Options written 0 0 0 0 --
Options purchased 0 0 0 0 --
Foreign currency transactions 301,466 0 0 0 301,466
Net Change in Unrealized Appreciation
of Investments 13,956,059 (8,788,984) (3,715,335) (4,491,924) -- (3,040,184)
------------ ------------ ----------- ------------ ---------- --------------
Net Gain (Loss) On Investments 36,622,285 (13,813,304) (4,043,581) 1,314,943 0 20,080,343
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 62,090,060 ($ 9,251,999) $ 74,740 $ 6,204,173 $1,069,965 $ 60,186,939
============ ============ =========== ============ ========== ==============
(a) Reflects adjustment for lower managament fee of SB Balanced Fund.
(b) Reflects adjustment for SB Balanced Fund administration fee of 0.20%.
(c) Reflects adjustment for lower distribution costs of SB Balanced Fund.
(d) Reflects adjustment due to duplicate services.
(e) Reflects adjustment to transfer agent fees based on rates of SB Balanced Fund.
(f) Reflects adjustment for volume increase.
(g) Reflects adjustment to eliminate management fee waiver.
See accompanying notes to unaudited pro forma financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SMITH
PORTFOLIO OF INVESTMENTS SMITH BARNEY CITIFUNDS CITISELECT FOLIO 200# CITISELECT FOLIO 300# BARNEY
April 30, 2000 Balanced Fund Balanced Portfolio# BALANCED
FUND
COMBINED
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE VALUE
------ ----- ------ ----- ------ ----- ------ ----- -----
ISSUER
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DOMESTIC COMMON STOCKS
Broadcasting -- 1.53%
CBS Corp. * 220,000 12,925,000 -- -- -- -- -- -- 12,925,000
Infinity
Broadcasting
Corp.* 175,000 5,939,063 -- -- -- -- -- -- 5,939,063
----------- -------------
-- 18,864,063 -- -- -- -- -- -- 18,864,063
----------- -------------
AIRLINES -- 0.86%
Southwest Airlines
Co. 47,000 10,561,813 -- -- -- -- -- -- 10,561,813
----------- -------------
CAPITAL GOODS/PRODUCER
MANUFACTURER -- 4.58%
American Power
Conversion Corp. * -- -- -- -- 300 10,594 700 24,719 35,313
Applied Power, Inc. -- -- -- -- 438 12,549 1,644 47,059 59,609
Alliant Techsystems,
Inc. * -- -- -- -- 182 12,700 684 47,623 60,323
Aptargroup, Inc. -- -- -- -- 944 26,899 3,539 100,873 127,772
Cleco Corp. -- -- -- -- 483 16,640 1,812 62,401 79,041
Deere & Co.* 216,000 8,721,000 -- -- -- -- -- -- 8,721,000
Emerson Electronics
Co. -- -- 46,382 2,545,214 2,315 127,016 4,985 273,574 2,945,804
Flextronics
International -- -- -- -- 364 25,560 1,364 95,849 121,409
General Electric Co. 95,000 14,938,750 12,882 2,025,651 643 101,088 1,385 217,728 17,283,218
Honeywell, Inc. -- -- 47,033 2,633,863 2,347 131,440 5,055 283,102 3,048,406
Illinois Tool Works,
Inc. 135,000 8,648,438 -- -- -- -- -- -- 8,648,438
Mettler Toledo
International, Inc.* -- -- -- -- 720 24,840 2,700 93,150 117,990
National Instruments
Corp. * -- -- -- -- 672 32,760 2,520 122,850 155,610
Newport Corp. -- -- -- -- 118 14,363 444 53,863 68,226
Shaw Group Inc. * -- -- -- -- 746 26,515 2,796 99,433 125,948
Tyco International
Ltd. 260,000 11,943,750 -- -- 984 45,203 2,296 105,473 12,094,425
United Technologies
Corp. -- -- 36,439 2,266,034 1,818 113,084 3,917 243,566 2,622,684
Verticalnet Inc.* -- -- -- -- 336 18,144 1,260 68,040 86,184
----------- ----------- ----------- ----------- -------------
-- 44,251,938 -- 9,470,762 -- 739,396 -- 1,939,303 56,401,400
----------- ----------- ----------- ----------- -------------
CHEMICALS -- 0.28%
Praxair Inc. 78,000 3,466,125 -- -- -- -- -- -- 3,466,125
----------- -------------
COMPUTER SOFTWARE -- 1.89%
America Online
Inc.* 110,000 6,579,375 -- -- 1,416 84,695 3,304 197,621 6,861,690
Microsoft Corp.* -- -- -- -- 2,680 186,902 6,252 436,105 623,007
National Instruments
Corp.* -- -- -- -- 228 11,115 532 25,935 37,050
Oracle Corp.* 172,000 13,749,250 -- -- 1,842 147,245 4,298 343,571 14,240,066
Progress Software
Corp.* 75,000 1,500,000 -- -- -- -- -- -- 1,500,000
Yahoo Inc.* 156 20,319 364 47,411 67,730
- ----------- ----------- ----------- -------------
21,828,625 450,275 1,050,643 23,329,543
----------- ----------- ----------- -------------
COMPUTER &
TELECOMMUNICATIONS
EQUIPMENT -- 5.74%
Cisco Systems
Inc. * 297,000 20,590,453 -- -- 4,037 279,905 9,421 653,113 21,523,471
Compaq Computer
Corp. 100,000 2,925,000 -- -- -- -- -- -- 2,925,000
Dell Computer
Corp.* 55,000 2,756,875 -- -- -- -- -- -- 2,756,875
Electronic Data
Systems Corp. 99,000 6,806,250 -- -- -- -- -- -- 6,806,250
EMC Corp. * 147,000 20,423,813 -- -- 727 100,952 1,695 235,555 20,760,320
International
Business Machines
Corp. -- -- -- -- 1,540 171,858 3,592 401,002 572,860
Lexmark
International
Group Inc. * -- -- -- -- 138 16,284 322 37,996 54,280
Network Appliance
Inc. * -- -- -- -- 318 23,512 742 54,862 78,374
Nortel Networks
Corp -- -- -- -- 936 106,002 2,184 247,338 353,340
Qualcomm Inc. * -- -- -- -- 528 57,255 1,232 133,595 190,850
SCI Systems Inc. * -- -- -- -- 216 11,502 504 26,838 38,340
Sun Microsystems
Inc. * 155,000 14,250,313 -- -- 1,188 109,222 2,772 254,851 14,614,386
Tellabs Inc. * -- -- -- -- 378 20,719 882 48,345 69,064
----------- ----------- ----------- -------------
67,752,704 897,211 2,093,493 70,743,408
----------- ----------- ----------- -------------
COMMERCIAL SERVICES -- 0.10%
Aeroflex Inc. * -- -- -- -- 365 13,589 1,368 50,958 64,547
Akamai Technologies
Inc. * -- -- -- -- 48 4,711 179 17,667 22,378
Art Technology
Group Inc. * -- -- -- -- 240 14,580 900 54,675 69,255
Automatic Data
Processing Inc. -- -- -- -- 426 22,924 994 53,490 76,414
Broadvision Inc. * -- -- -- -- 486 21,371 1,824 80,142 101,513
Clarus Corp. * -- -- -- -- 136 5,466 510 20,496 25,961
Cylink Corp. * -- -- -- -- 698 9,984 2,616 37,441 47,426
Concord Inc. * -- -- -- -- 504 11,277 1,176 26,313 37,590
Illinois Tool Works
Inc. -- -- -- -- 324 20,756 756 48,431 69,188
Interpublic Group
of Companies Inc. -- -- -- -- 358 14,662 834 34,210 48,872
PayChex Inc. 192 10,104 448 23,576 33,680
Reynolds & Reynolds
Co. -- -- -- -- 2,325 55,219 9,719 230,814 286,033
Source Information
Management Co. * -- -- -- -- 1,418 20,913 5,317 78,425 99,339
Time Warner Inc. -- -- -- -- 636 57,200 1,484 133,467 190,668
----------- ----------- -------------
282,756 890,106 1,172,863
----------- ----------- -------------
COMMUNICATION
EQUIPMENT &
SERVICES -- 4.50%
AT&T Corp. 140,000 6,536,250 67,001 3,128,091 3,344 156,104 7,202 336,225 10,156,670
AT&T Wireless
Group* 99,000 3,149,438 -- -- -- -- -- -- 3,149,438
Alltel Corp. -- -- 24,748 1,648,802 1,235 82,282 2,660 177,223 1,908,307
Bell Atlantic Corp. -- -- 29,124 1,725,591 1,453 86,114 3,130 185,476 1,997,181
Bellsourth Corp. -- -- 39,596 1,927,830 1,976 96,207 4,256 207,214 2,231,251
GTE Corp. 78,000 5,284,500 -- -- -- -- -- -- 5,284,500
MCI Worldcom Inc.* 215,500 9,791,781 -- -- -- -- -- -- 9,791,781
SBC Communications,
Inc. 276,638 12,120,202 72,159 3,161,444 3,601 157,769 7,756 339,810 15,779,224
SBC Communications,
Inc. -- -- -- -- 2,022 88,589 4,718 206,707 295,296
Sprint Corp. -- -- 36,470 2,242,905 1,820 111,930 3,920 241,080 2,595,915
Sprint Corp. -- -- -- -- 564 31,020 1,316 72,380 103,400
Time Warner Telecom
Inc., Class A
Shares* 37,350 2,044,912 -- -- -- -- -- -- 2,044,912
World Access Inc. 7,462 117,534 -- -- -- -- -- -- 117,534
----------- ----------- ----------- ----------- -------------
39,044,617 13,834,663 810,014 1,766,114 55,455,408
----------- ----------- ----------- ----------- -------------
CONGLOMERATES -- 0.36%
General Dynamics
Corp. -- -- -- -- 962 56,277 2,072 121,212 177,489
General Electric
Co. -- -- -- -- 8,512 1,338,575 18,334 2,883,084 4,221,659
----------- ----------- -------------
1,394,852 3,004,296 4,399,148
----------- ----------- -------------
CONSUMER CYCLICALS -- 0.23%
McGraw Hill
Companies, Inc. -- -- 46,369 2,434,373 2,314 121,485 4,984 261,660 2,817,518
----------- ----------- ----------- -------------
CONSUMER DURABLE GOODS -- 1.32%
Black & Decker
Corp 120,000 5,047,500 -- -- -- -- -- -- 5,047,500
D.R. Horton Inc. -- -- -- -- 4,125 53,367 17,243 223,075 276,442
Engle Homes Inc. -- -- -- -- 1,410 13,483 5,894 56,359 69,842
Flexsteel
Industries Inc. -- -- -- -- 1,370 18,153 5,727 75,877 94,030
Ford Motor Co. 75,000 4,101,563 4,101,563
General Motors
Corp. 70,000 6,553,750 -- -- -- -- -- -- 6,553,750
La-Z-Boy Inc. -- -- -- -- 1,745 27,375 7,294 114,426 141,801
----------- ----------- ----------- -------------
15,702,813 112,378 469,738 16,284,928
----------- ----------- ----------- -------------
CONSUMER NON-DURABLES -- 2.57%
Block Drug Inc. -- -- -- -- 375 10,688 1,568 44,674 55,361
Colgate-Palmolive
Co. 228,000 13,024,500 -- -- -- -- -- -- 13,024,500
Dimon Inc. -- -- -- -- 6,750 16,031 28,215 67,011 83,042
Kimberly Clark
Corp. 159,000 9,231,938 -- -- -- -- -- -- 9,231,938
Newell Rubbermaid,
Inc. 70,000 1,763,125 -- -- -- -- -- -- 1,763,125
Pepsico Inc. -- -- -- -- 4,888 179,329 10,528 386,246 565,575
Proctor & Gamble
Co. 100,000 5,962,500 -- -- -- -- -- -- 5,962,500
Standard Commercial
Corp. -- -- -- -- 15,345 46,994 64,142 196,435 243,429
Timberland Co.* -- -- -- -- 500 34,688 2,090 144,994 179,681
Tropical
Sportswear
International
Corp.* -- -- -- -- 2,290 40,361 9,572 168,710 209,071
Wolverine World
Wide Inc. -- -- -- -- 6,145 73,740 25,686 308,233 381,973
----------- ----------- ----------- -------------
29,982,063 401,830 1,316,302 31,700,196
----------- ----------- ----------- -------------
CONSUMER SERVICES -- 0.10%
Aztar Corp.* -- -- -- -- 3,780 45,124 15,800 188,617 233,741
Beringer Wine
Estate
Holdings * -- -- -- -- 300 10,832 1,124 40,619 51,451
Callaway Golf Co. -- -- -- -- 723 12,023 2,712 45,087 57,110
Catalina Marketing
Corp. * -- -- -- -- 406 41,116 1,523 154,183 195,299
Emmis
Communications
Corp. * -- -- -- -- 336 14,280 1,260 53,550 67,830
Ethan Allen
Interiors, Inc. -- -- -- -- 392 10,462 1,470 39,231 49,692
Harley Davidson Inc. -- -- -- -- 1,612 64,178 3,472 138,229 202,407
Hispanic
Broadcasting
Corp. * -- -- -- -- 206 20,811 772 78,040 98,851
Houghton Mifflin
Co. -- -- -- -- 298 12,369 1,116 46,384 58,753
National
Information
Consortium,
Inc. * -- -- -- -- 160 1,975 599 7,407 9,383
PF Changes China
Bistro Inc. * -- -- -- -- 362 12,656 1,356 47,460 60,116
Scholastic Corp. * -- -- -- -- 208 9,711 780 36,416 46,127
Westwood One,
Inc. * -- -- -- -- 331 11,723 1,243 43,961 55,684
XM Satellite Radio
Holdings Inc. * -- -- -- -- 202 5,809 756 21,782 27,591
----------- ----------- -------------
273,067 940,968 1,214,035
----------- ----------- -------------
CONSUMER STAPLES -- 0.63%
Kimberly-Clark
Corp. -- -- 58,756 3,411,507 2,932 170,248 6,315 366,688 3,948,443
PepsiCo, Inc. -- -- 90,198 3,309,144 4,501 165,140 9,695 355,685 3,829,969
----------- ----------- ----------- -------------
6,720,651 335,388 722,373 7,778,412
----------- ----------- ----------- -------------
ENERGY -- 3.84%
BP Amoco plc ADR 107,252 5,469,852 63,927 3,260,262 3,190 162,700 6,871 350,431 9,243,245
Chevron Corp. 37,512 3,193,209 1,872 159,354 4,032 343,224 3,695,787
Coastal Corp. 152,000 7,628,500 -- -- -- -- -- -- 7,628,500
Conoco Inc., Class A -- -- 80,390 1,914,294 4,012 95,531 8,641 205,759 2,215,584
El Paso Energy Corp 86,000 3,655,000 26,050 1,107,125 1,300 55,250 2,800 119,000 4,936,375
Enron Corp. 35,000 2,439,063 2,439,063
Exxon Corp. 45,796 3,557,769 2,285 177,547 4,922 382,409 4,117,725
Halliburton Co. 127,000 5,611,812 38,658 1,708,209 1,929 85,247 4,155 183,608 7,588,876
Schlumberger Ltd. 72,000 5,512,500 -- -- -- -- -- -- 5,512,500
----------- ----------- ----------- ----------- -------------
30,316,727 14,740,868 735,629 1,584,431 47,377,655
----------- ----------- ----------- ----------- -------------
ENERGY MINERALS -- 0.09%
Cal Dive
Internationl,
Inc. * -- -- -- -- 832 41,392 3,120 155,220 196,612
Coflexip ADR -- -- -- -- 499 25,334 1,872 95,004 120,338
Hanover Compressor
Co. * -- -- -- -- 474 27,587 1,776 103,452 131,039
Nuevo Energy Co.* -- -- -- -- 2,030 35,525 8,485 148,495 184,020
Precision Drilling
Corp. * -- -- -- -- 803 25,702 3,012 96,384 122,086
R & B Falcon
Corp. * -- -- -- -- 3,309 68,658 12,408 257,466 326,124
----------- ----------- -------------
224,199 856,021 1,080,219
----------- ----------- -------------
ELECTRONIC TECHNICAL
SERVICES -- 0.80%
Ancor
Communications,
Inc. * -- -- -- -- 320 9,660 1,200 36,225 45,885
CTS Corp. -- -- -- -- 195 12,310 732 46,162 58,472
C-Cube
Microsystems,
Inc. * -- -- -- -- 550 35,353 2,063 132,573 167,926
Concentric Network
Corp. * -- -- -- -- 250 10,858 936 40,716 51,574
Convergys Corp* 152,000 6,688,000 -- -- 6,688,000
Diebold Inc. -- -- -- -- 2,150 62,081 8,987 259,500 321,581
ESCO Electronics
Corp.* -- -- -- -- 1,535 25,040 6,416 104,666 129,706
E Piphany Inc. * -- -- -- -- 118 7,822 444 29,332 37,154
Emulex Corp. * -- -- -- -- 338 15,333 1,267 57,499 72,832
Intertrust
Technologies
Corp. * -- -- -- -- 147 3,386 552 12,696 16,082
Iona Technologies
Plc.*ADR -- -- -- -- 230 13,090 864 49,086 62,176
MMC Networks Inc. * -- -- -- -- 598 15,858 2,244 59,466 75,324
Macromedia, Inc. * -- -- -- -- 608 52,854 2,278 198,203 251,058
Macrovision Corp. * -- -- -- -- 298 14,545 1,116 54,544 69,090
Methode
Electronics
inc -- -- -- -- 1,133 47,206 4,248 177,022 224,228
Mercury
Interactive
Corp. * -- -- -- -- 836 75,226 3,134 282,096 357,322
Network Appliance,
Inc. * -- -- -- -- 253 18,691 948 70,093 88,784
Power One Inc. * -- -- -- -- 230 15,725 864 58,968 74,693
Powerwave
Technologies,
Inc. * -- -- -- -- 266 55,261 996 207,230 262,492
Remedy Corp. * -- -- -- -- 448 23,800 1,680 89,250 113,050
Sandisk Corp. * -- -- -- -- 349 31,959 1,308 119,846 151,804
Sawtek Inc. * -- -- -- -- 323 15,453 1,212 57,949 73,402
Semtech Corp. * -- -- -- -- 410 27,930 1,536 104,736 132,666
Silicon Storage
Technology Inc.* -- -- -- -- 160 15,600 600 58,500 74,100
Spacehab Inc.* -- -- -- -- 3,805 19,501 15,905 81,513 101,013
Usinternet Working
Inc. * -- -- -- -- 296 7,363 1,110 27,611 34,974
WatchGuard
Tecnologies
Inc. * -- -- -- -- 134 6,476 504 24,287 30,763
Wink Communications
Inc. * -- -- -- -- 362 7,142 1,356 26,781 33,923
---------- ----------- ----------- -------------
6,688,000 645,521 2,466,549 9,800,070
---------- ----------- ----------- -------------
FINANCE -- 10.07%
Acceptance
Insurance
Co.* -- -- -- -- 2,665 11,826 11,140 49,432 61,258
American Express
Co. 60,000 9,003,750 -- -- 1,534 230,196 3,304 495,806 9,729,752
American
International
Group,
Inc. 118,750 13,025,391 -- -- -- -- -- -- 13,025,391
American National
Insurance Co. -- -- -- -- 1,390 71,759 5,810 299,952 371,710
Associates First
Capital Corp. 247,000 5,480,312 -- -- -- -- -- -- 5,480,312
Bank of America
Corp. -- -- 55,434 2,716,286 2,766 135,554 5,958 291,962 3,143,801
Bank of New York 90,000 3,695,625 -- -- 3,695 151,710 7,958 326,759 4,174,093
Bisys Group, Inc. * -- -- -- -- 423 26,466 1,586 99,249 125,716
Charles Schwab
Corp. 200,000 8,900,000 -- -- 2,106 93,717 4,536 201,852 9,195,569
Chase Manhattan
Corp. 268,000 19,312,750 38,294 2,759,525 1,911 137,711 4,116 296,609 22,506,596
Chubb Corp. -- -- 46,369 2,950,228 2,314 147,228 4,984 317,107 3,414,563
Chittenden Corp. -- -- -- -- 845 22,440 3,168 84,150 106,590
Cullen Frost
Bankers, Inc. -- -- -- -- 1,045 25,801 3,919 96,755 122,557
Federal Home Loan
Mortgage Corp. 169,000 7,763,437 -- -- 1,664 77,071 3,584 165,998 8,006,506
Federal National
Mortgage
Association -- -- -- -- 2,574 157,047 5,544 338,255 495,302
Fleet Boston
Financial Corp. 124,362 4,407,078 -- -- -- -- -- -- 4,407,078
Hartford Financial
Services Group -- -- 58,248 3,039,807 2,907 151,699 6,261 326,736 3,518,241
Harleysville Group
Inc -- -- -- -- 2,925 46,983 12,227 196,388 243,371
J.P. Morgan & Co. 25,000 3,209,375 -- -- -- -- -- -- 3,209,375
Marsh & McLennan
Company Inc. 53,000 5,223,813 -- -- 520 51,253 1,120 110,390 5,385,456
Marsh & McLennan
Company Inc. -- -- -- 3,382,751 1,713 168,813 3,689 363,597 3,915,161
Matrix Bancorp * -- -- -- -- 2,645 19,838 11,056 82,921 102,758
MBNA Corp. -- -- -- -- 3,536 93,925 7,616 202,300 296,225
Mellon Bank Corp. -- -- 100,501 3,228,591 5,015 161,120 10,802 347,027 3,736,738
Merrill Lynch &
Co, Inc -- -- 23,393 2,384,613 1,167 119,002 2,514 256,312 2,759,926
Morgan Stanley Dean
Witter & Co. -- -- -- -- 2,548 195,559 5,488 421,204 616,763
Northern Trust
Corp. -- -- -- -- 2,002 128,378 4,312 276,507 404,885
Peoples Heritage
Financial Group -- -- -- -- 1,449 18,933 5,435 71,000 89,933
PBOC Holdings Inc.* -- -- -- -- 2,730 23,888 11,411 99,850 123,737
PMI Group Inc. -- -- -- -- 793 38,387 3,313 160,456 198,843
Penn-America Group
Inc -- -- -- -- 3,165 28,287 13,230 118,240 146,528
Presidential Life
Corp -- -- -- -- 7,410 117,981 30,974 493,161 611,142
Professionals Group
Inc.* -- -- -- -- 4,906 86,775 20,507 362,719 449,494
Reinsurance Group
of America Inc. -- -- -- -- 130 3,234 543 13,517 16,751
Stancorp Financial
Group Inc. -- -- -- -- 945 27,523 3,950 115,047 142,570
S1 Corp. * -- -- -- -- 128 6,952 480 26,070 33,022
SEI Investments Co. -- -- -- -- 195 23,302 732 87,383 110,685
State Street Corp. 107,000 10,365,625 -- -- -- -- -- -- 10,365,625
U.S. Trust Corp. -- -- -- -- 125 19,253 469 72,198 91,451
West America
Bancorporation -- -- -- -- 240 6,015 900 22,556 28,571
XL Capital Ltd.,
Class A Shares 65,000 3,095,625 -- -- -- -- -- -- 3,095,625
----------- ----------- ----------- ----------- -------------
93,482,781 20,461,801 2,825,623 7,289,465 124,059,670
----------- ----------- ----------- ----------- -------------
HEALTHCARE -- 6.01%
Abbott Labs -- -- -- -- 4,524 173,891 9,744 374,535 548,426
Affymetrix Inc.* -- -- -- -- 51 6,915 192 25,932 32,847
Alpharma, Inc. -- -- -- -- 384 14,832 1,440 55,620 70,452
Amgen Inc. * 226,000 12,656,000 -- -- 3,406 190,736 7,336 410,816 13,257,552
American Home
Products Corp. -- -- 51,006 2,865,894 2,545 143,020 5,482 308,042 3,316,956
Andrx Corp. * -- -- -- -- 253 12,940 948 48,526 61,466
Apria Healthcare
Group, Inc. * -- -- -- -- 1,040 14,495 3,900 54,356 68,851
Bristol-Myers
Squibb Co. 77,000 4,037,687 50,146 2,629,544 2,503 131,225 5,390 282,638 7,081,094
Biogen Inc. * -- -- -- -- 884 51,990 1,904 111,979 163,969
Cardinal Health
Inc. -- -- -- -- 1,066 58,697 2,296 126,423 185,120
Corixa Corp. * -- -- -- -- 448 13,776 1,680 51,660 65,436
Curagen Corp. * -- -- -- -- 134 3,578 504 13,419 16,997
Eli Lilly & Co. -- -- -- -- 2,200 170,057 4,738 366,276 536,332
Enzon Inc. * -- -- -- -- 342 12,754 1,284 47,829 60,583
Gilead Sciences,
Inc. * -- -- -- -- 333 18,034 1,248 67,626 85,660
Genset SA.*ADR -- -- -- -- 336 9,576 1,260 35,910 45,486
Idec
Pharmaceuticals
Corp. * -- -- -- -- 214 13,722 804 51,456 65,178
Incyte
Pharmaceuticals
Inc. * -- -- -- -- 118 9,117 444 34,188 43,305
Johnson & Johnson 95,000 7,837,500 -- -- 4,412 364,007 9,503 784,014 8,985,521
Lifepoint
Hospitals Inc. * -- -- -- -- 592 10,138 2,220 38,018 48,156
Medarex Inc. * -- -- -- -- 125 6,614 468 24,804 31,418
Medimmune, Inc. * 203,000 10,543,313 -- -- 96 15,405 361 57,769 10,616,488
Medtronic Inc. -- -- -- -- 4,420 238,233 9,520 513,117 751,349
Merck & Co., Inc. 270,000 18,765,000 -- -- -- -- -- -- 18,765,000
Millennium
Pharmaceuticals * -- -- -- -- 336 26,675 1,260 100,032 126,707
Nanogen Inc. * -- -- -- -- 147 3,597 552 13,489 17,087
Pharmacyclics * -- -- -- -- 202 9,148 756 34,303 43,451
Pfizer Inc. -- -- -- -- 11,440 481,910 24,640 1,037,960 1,519,870
Pharmacia & Upjohn,
Inc. -- -- 62,520 3,122,093 3,120 155,805 6,720 335,580 3,613,478
Schering-Plough
Corp. 54,000 2,176,875 -- -- 4,737 190,968 10,203 411,317 2,779,160
Shire
Pharmaceuticals
Group Pl. ADR -- -- -- -- 657 26,425 2,462 99,092 125,517
Transkaryotic
Therapies Inc. * -- -- -- -- 96 2,874 360 10,778 13,652
Triad Hospitals
Inc. * -- -- -- -- 397 6,820 1,488 25,575 32,395
Warner Lambert Co. -- -- -- -- 2,410 274,255 5,190 590,702 864,957
----------- ----------- ----------- ----------- -------------
56,016,375 8,617,530 2,862,228 6,543,781 74,039,915
----------- ----------- ----------- ----------- -------------
HEALTH TECHNOLOGY -- 0.03%
Skyepharma PLC -- -- -- -- 639 10,218 2,670 42,713 52,931
West Pharmaceutical
Services Inc. -- -- -- -- 2,540 62,071 10,617 259,458 321,529
-------------
-- -- -- -- -- 72,290 -- 302,171 374,460
----------- ----------- -------------
INDUSTRIAL SERVICES -- 0.11%
Atwood Oceanics Inc. -- -- -- -- 820 49,713 3,428 207,798 257,511
ENSCO International Inc. -- -- -- -- 1,825 60,567 7,629 253,171 313,738
Gentex Corp. * -- -- -- -- 413 13,313 1,548 49,923 63,236
Harmonic, Inc. * -- -- -- -- 115 8,503 432 31,887 40,390
R&B Falcon Corp.* -- -- -- -- 2,655 55,091 11,098 230,281 285,373
Rowan Companies Inc.* -- -- -- -- 1,920 53,640 8,026 224,215 277,855
Santa Fe
International
Corp. -- -- -- -- 985 33,859 4,117 141,532 175,392
----------- ----------- -------------
274,686 1,138,808 1,413,494
----------- ----------- -------------
LEISURE -- 0.35%
The Walt Disney
Co. 100,000 4,331,250 -- -- -- -- -- -- 4,331,250
----------- -------------
NON-ENERGY MINERALS -- 0.04%
LTV Corp. -- -- -- -- 15,865 56,519 66,316 236,250 292,769
Lone Star
Technologies
Inc.* -- -- -- -- 940 43,358 3,929 181,234 224,592
----------- ----------- -------------
99,877 417,484 517,361
----------- ----------- -------------
PROCESS INDUSTRIES -- 0.05%
Lancaster Colony
Corp. -- -- -- -- 2,100 55,125 8,778 230,423 285,548
RPM Inc. -- -- -- -- 3,860 39,083 16,135 163,365 202,447
Tuscarora Inc. -- -- -- -- 1,535 19,475 6,416 81,407 100,882
----------- ----------- -------------
113,683 475,194 588,877
----------- ----------- -------------
PRODUCER MANUFACTURING -- 0.26%
Baldor Electric Co. -- -- -- -- 2,045 37,960 8,548 158,674 196,634
Circor
International
Inc. -- -- -- -- 1,078 12,324 4,504 51,514 63,838
Commonwealth
Industries Inc. -- -- -- -- 3,980 29,850 16,636 124,773 154,623
Graco Inc. -- -- -- -- 250 8,469 1,045 35,399 43,868
JLG Industries Inc. -- -- -- -- 10,430 99,085 43,597 414,175 513,260
Kaydon Corp. -- -- -- -- 2,025 47,334 8,465 197,858 245,192
Myers Industries
Inc. -- -- -- -- 4,257 59,591 17,792 249,090 308,681
Patrick Industries
Inc. -- -- -- -- 1,760 13,090 7,357 54,716 67,806
Superior
Industries
International
Inc. -- -- -- -- 1,650 53,109 6,897 221,997 275,106
Teleflex Inc. -- -- -- -- 1,880 64,978 7,858 271,606 336,583
Timken Co. -- -- -- -- 4,555 84,268 19,040 352,238 436,506
Tower Automotive
Inc.* -- -- -- -- 3,540 55,313 14,797 231,206 286,519
Watts Industries
Inc -- -- -- -- 2,595 34,708 10,847 145,080 179,788
Woodhead Industries -- -- -- -- 490 8,208 2,048 34,307 42,515
----------- ----------- -------------
608,286 2,542,635 3,150,921
----------- ----------- -------------
RETAIL -- 2.15%
Bed Bath & Beyond Inc. * -- -- -- -- 1,511 55,420 3,254 119,366 174,787
Circuit City
Stores, Inc. 40,000 2,352,500 -- -- -- -- -- -- 2,352,500
Cost Plus, Inc. * -- -- -- -- 766 23,423 2,874 87,837 111,260
GAP Inc. -- -- -- -- 3,276 120,393 7,056 259,308 379,701
Home Depot -- -- -- -- 5,941 333,067 12,796 717,376 1,050,443
Kohl's Corp. * -- -- -- -- 2,392 114,816 5,152 247,296 362,112
Linens N Things,
Inc. * -- -- -- -- 650 20,066 2,437 75,249 95,315
Lowes Co. Inc. 203,000 10,048,500 -- -- 1,482 73,359 3,192 158,004 10,279,863
O'Reilly
Automotive, Inc. * -- -- -- -- 1,568 21,168 5,880 79,380 100,548
Office Depot Inc. 100,000 1,056,250 -- -- -- -- -- -- 1,056,250
Schultz Sav-O
Stores Inc. -- -- -- -- 4,278 48,657 17,880 203,384 252,041
Staples, Inc.* 404,500 7,710,781 -- -- -- -- -- -- 7,710,781
Syms Corp.* -- -- -- -- 5,100 20,400 21,318 85,272 105,672
WalGreen Co. -- -- -- -- 3,354 94,331 7,224 203,175 297,506
Wal-Mart Stores Inc. -- -- -- -- 12,121 671,211 26,107 1,445,686 2,116,898
Zale Corp. * -- -- -- -- 541 22,308 2,028 83,655 105,963
---------- ----------- ----------- -------------
21,168,031 1,618,620 3,764,988 26,551,639
---------- ----------- ----------- -------------
RAW & INTERMEDIATE MATERIALS -- 1.08%
Alcoa Inc. 58,000 3,762,750 39,961 2,592,450 1,994 129,374 4,295 278,651 6,763,225
Dow Chemical Co. -- -- 15,461 1,747,056 772 87,185 1,662 187,783 2,022,025
E. I. du Pont
de Nemours & Co. -- -- 31,738 1,505,585 1,584 75,135 3,411 161,829 1,742,548
International Paper
Co. -- -- 64,422 2,367,496 3,215 118,148 6,924 254,472 2,740,115
----------- ----------- ----------- ----------- -------------
3,762,750 8,212,587 409,841 882,735 13,267,913
----------- ----------- ----------- ----------- -------------
SEMI-CONDUCTORS -- 2.89%
Applied Materials
Inc. * -- -- -- -- 2,327 236,918 5,012 510,284 747,202
Alpha Industries
Inc. * -- -- -- -- 448 23,296 1,680 87,360 110,656
Amkor Technology,
Inc. * -- -- -- -- 899 55,020 3,372 206,324 261,344
Anadigics Inc. * -- -- -- -- 323 24,321 1,212 91,203 115,524
Cree Inc. * -- -- -- -- 51 7,450 192 27,936 35,386
Cypress
Semiconductor
Corp. * -- -- -- -- 480 24,930 1,800 93,488 118,418
Dallas Semiconductor
Corp. -- -- -- -- 1,040 44,655 2,240 96,180 140,835
Emcore Corp. * -- -- -- -- 419 36,327 1,570 136,225 172,552
Intel Corp. 140,000 17,753,750 -- -- 8,934 1,132,892 19,242 2,440,075 21,326,718
Linear Technologies
Corp. -- -- -- -- 1,352 77,233 2,912 166,348 243,581
Micrel Inc. * -- -- -- -- 364 31,486 784 67,816 99,302
Micrel Inc. * -- -- -- -- 480 41,520 1,800 155,700 197,220
Microchip
Technology * 30,000 1,861,875 -- -- 374 23,191 1,401 86,964 1,972,030
Motorola Inc. 65,000 7,739,062 -- -- -- -- -- -- 7,739,062
Novellus Systems,
Inc. * -- -- -- -- 441 29,417 1,654 110,314 139,732
Qlogic Corp. * -- -- -- -- 546 54,771 1,176 117,967 172,738
Texas Instruments
Inc. -- -- -- -- 2,418 393,832 5,208 848,253 1,242,085
Transwitch Corp. * -- -- -- -- 445 39,170 1,668 146,888 186,058
Triquint
Semiconductor
Inc. * -- -- -- -- 346 35,532 1,296 133,245 168,777
Varian Inc. * -- -- -- -- 1,046 38,063 3,924 142,736 180,798
Xilinx Inc. * -- -- -- -- 871 63,801 1,876 137,417 201,218
----------- ----------- ----------- -------------
27,354,687 2,413,823 5,802,725 35,571,235
----------- ----------- ----------- -------------
SOFTWARE -- 0.03%
Active Software * -- -- -- -- 269 10,836 1,008 40,635 51,471
Activision, Inc. * -- -- -- -- 2,218 13,860 8,316 51,975 65,835
Bindview Dev
Corp. * -- -- -- -- 602 4,850 2,256 18,189 23,039
HNC Software * -- -- -- -- 134 6,653 504 24,948 31,601
Manugistics Group
Inc. * -- -- -- -- 355 15,207 1,332 57,026 72,233
Microstrategy,
Inc. * -- -- -- -- 224 5,796 840 21,735 27,531
Virata Corp. * -- -- -- -- 64 8,016 240 30,060 38,076
----------- ----------- -------------
65,218 244,568 309,786
----------- ----------- -------------
TECHNOLOGY -- 1.24%
Idex Corp. -- -- -- -- 509 15,900 1,908 59,625 75,525
Nextel Partners
Inc. * -- -- -- -- 257 5,629 962 21,107 26,736
Pitney Bowes Inc. -- -- 72,159 2,949,479 3,601 147,191 7,756 317,027 3,413,696
Solectron Corp.* 80,000 3,745,000 -- -- -- -- -- -- 3,745,000
Ultrak Inc.* -- -- -- -- 6,000 54,000 25,080 225,720 279,720
Western Wireless
Corp. * -- -- -- -- 642 31,879 2,406 119,548 151,428
Xerox Corp. 231,000 6,107,062 47,932 1,267,202 2,392 63,239 5,152 136,206 7,573,709
----------- ----------- ----------- ----------- -------------
9,852,062 4,216,681 317,838 879,233 15,265,813
----------- ----------- ----------- ----------- -------------
TELECOMMUNICATIONS -- 0.31%
ATMI Inc * -- -- -- -- 269 10,349 1,008 38,808 49,157
Covad
Communications
Group, Inc. * -- -- -- -- 436 12,093 1,634 45,348 57,441
Digital Lightwave
Inc. * -- -- -- -- 90 6,138 336 23,016 29,154
Digital Microware
Corp. * -- -- -- -- 714 26,359 2,676 98,845 125,203
Dobson
Communications
Corp. * -- -- -- -- 416 10,660 1,560 39,975 50,635
Exar Corp. * -- -- -- -- 227 18,215 852 68,306 86,521
Exodus
Communications,
Inc. * -- -- -- -- 112 9,905 420 37,144 47,049
Intermedia
Communications,
Inc.* 33,000 1,344,750 -- -- -- -- -- -- 1,344,750
MGC Communications
Inc.* 25,000 1,225,000 -- -- -- -- -- -- 1,225,000
P C Telephone Inc. * -- -- -- -- 109 3,645 408 13,668 17,313
Pinnicle Holdings,
Inc. * -- -- -- -- 951 53,419 3,565 200,320 253,738
Powertel, Inc. * -- -- -- -- 211 14,203 792 53,262 67,465
Remic Inc. * -- -- -- -- 782 29,682 2,934 111,309 140,991
Research in Motion
Ltd. * -- -- -- -- 106 4,507 398 16,901 21,408
Tele 1 Europe
Holding AB, ADR* 18,026 279,403 -- -- -- -- -- -- 279,403
----------- ----------- ----------- -------------
2,849,153 199,174 746,902 3,795,228
----------- ----------- ----------- -------------
TRANSPORTATION -- 0.70%
Atlantic Coast
Airlines
Holdings * -- -- -- -- 1,280 38,240 5,350 159,843 198,083
CH Robinson
Worldwide -- -- -- -- 288 14,400 1,080 54,000 68,400
EGL Inc. * -- -- -- -- 207 4,743 775 17,787 22,530
Kenan Transport Co. -- -- -- -- 2,760 55,200 11,537 230,736 285,936
Midwest Express
Holdings Inc.* -- -- -- -- 1,050 26,578 4,389 111,096 137,675
Motor Cargo
Industries Inc.* -- -- -- -- 2,655 12,113 11,098 50,634 62,748
Tidewater Inc. -- -- -- -- 1,315 39,121 5,497 163,527 202,648
Union Pacific Corp. -- -- 41,232 1,736,895 2,058 86,678 4,432 186,691 2,010,265
United Parcel
Service,
Class B Shares 85,100 5,659,150 -- -- -- -- -- -- 5,659,150
----------- ----------- ----------- ----------- -------------
5,659,150 1,736,895 277,074 974,315 8,647,434
----------- ----------- ----------- ----------- -------------
UTILITIES -- 2.29%
AES Corp. 154,000 13,850,375 -- -- -- -- -- -- 13,850,375
Duke Energy Co. -- -- 52,103 2,995,900 2,600 149,507 5,600 322,016 3,467,424
Unicom Corp. -- -- 71,950 2,860,016 3,591 142,726 7,734 307,411 3,310,153
Williams Companies
Inc. 100,000 3,731,250 88,752 3,311,572 4,429 165,261 9,540 355,946 7,564,029
----------- ----------- ----------- ----------- -------------
17,581,625 9,167,489 457,495 985,373 28,191,981
----------- ----------- ----------- ----------- -------------
TOTAL COMMON
STOCK -- 57.01% 530,517,352 99,614,300 20,039,755 52,352,374 702,523,781
=========== ========== ========== ========== ===========
Identified Cost 382,026,540 104,966,823 12,884,149 37,138,052 537,015,564
<PAGE>
INTERNATIONAL COMMON STOCKS
ISSUER
COMMON STOCKS
AUSTRIA -- 0.01%
Boehler-Uddeholm -- -- -- -- 848 33,052 2,757 107,420 140,472
----------- ----------- -------------
AUSTRALIA -- 0.02%
Australia & New
Zealand Banking
Group -- -- -- -- 9,509 65,752 30,905 213,695 279,447
----------- ----------- -------------
CANADA -- 0.03%
Manulife Financial
Corp -- -- -- -- 5,113 80,275 16,618 260,895 341,170
----------- ----------- -------------
FINLAND -- 0.01%
UPM-Kymmene Oy -- -- -- -- 1,465 37,957 4,761 123,361 161,318
----------- ----------- -------------
FRANCE -- 0.13%
Aventis -- -- -- -- 1,592 87,557 5,174 284,560 372,117
BIC -- -- -- -- 1,146 45,627 3,724 148,288 193,915
BQE National Paris -- -- -- -- 1,098 88,717 3,568 288,329 377,046
Pernod-Ricard -- -- -- -- 899 40,661 2,922 132,148 172,809
Total Fina Elf -- -- -- -- 659 99,997 2,142 324,989 424,985
----------- ----------- -------------
362,558 1,178,314 1,540,872
----------- ----------- -------------
GERMANY -- 0.06%
Depfadeutsche
Pfandbriefban -- -- -- -- 23 2,351 76 7,640 9,990
Draegerwerk -- -- -- -- 3,943 34,050 12,813 110,662 144,712
Dyckerhoff -- -- -- -- 1,591 34,712 5,171 112,813 147,525
SGL Carbon * -- -- -- -- 293 22,632 952 73,554 96,186
Veba -- -- -- -- 1,217 61,070 3,955 198,476 259,546
Vossloh -- -- -- -- 1,830 27,947 5,947 90,827 118,774
----------- ----------- -------------
182,761 593,972 776,733
----------- ----------- -------------
GREAT BRITAIN -- 0.39%
Allied Domecq -- -- -- -- 9,732 47,652 31,628 154,868 202,519
Allied Zurich -- -- -- -- 3,052 30,360 9,918 98,669 129,029
BAA -- -- -- -- 11,845 76,903 38,496 249,935 326,838
British Aerospace -- -- -- -- 15,743 96,821 51,166 314,669 411,491
British American
Tobacco -- -- -- -- 7,101 44,226 23,079 143,733 187,959
British
Telecommunications -- -- -- -- 2,962 53,035 9,627 172,363 225,398
CGU -- -- -- -- 2,877 41,248 9,349 134,056 175,304
Celltech Group -- -- -- -- 2,480 40,927 8,060 133,013 173,940
Cookson Group -- -- -- -- 15,580 45,846 50,635 149,000 194,846
Hanson -- -- -- -- 10,894 79,803 35,405 259,360 339,163
Lex Service -- -- -- -- 5,572 35,267 18,110 114,619 149,886
Lloyds TSB Group -- -- -- -- 3,254 31,763 10,575 103,231 134,994
Reckitt & Colman -- -- -- -- 4,982 51,256 16,193 166,582 217,838
Reed International -- -- -- -- 8,843 61,544 28,740 200,019 261,563
Royal Bank -- -- -- -- 3,276 51,109 10,647 166,105 217,215
Safeway -- -- -- -- 8,010 27,000 26,032 87,749 114,749
TI Group -- -- -- -- 10,338 56,173 33,598 182,564 238,737
Tomkins -- -- -- -- 15,326 47,068 49,811 152,973 200,041
Unilever -- -- -- -- 9,937 59,720 32,295 194,089 253,809
United News & Media -- -- -- -- 5,218 67,836 16,958 220,467 288,303
Williams -- -- -- -- 12,701 71,636 41,279 232,816 304,452
----------- ----------- -------------
1,117,194 3,630,881 4,748,075
----------- ----------- -------------
HONG KONG -- 0.06%
Henderson Land
Development -- -- -- -- 8,528 37,334 27,716 121,337 158,671
Hong Kong Electric -- -- -- -- 20,280 63,398 65,910 206,043 269,441
New World
Development Co. -- -- -- -- 22,609 30,623 73,480 99,524 130,146
South China
Morning Post -- -- -- -- 36,165 38,537 117,537 125,245 163,782
----------- ----------- -------------
169,892 552,148 722,040
----------- ----------- -------------
IRELAND -- 0.05%
Allied Irish Banks -- -- -- -- 6,348 63,364 20,631 205,932 269,296
Greencore Group -- -- -- -- 14,485 40,164 47,077 130,532 170,696
Jefferson Smurfit
Group -- -- -- -- 16,576 36,165 53,870 117,537 153,702
----------- ----------- -------------
139,693 454,001 593,693
----------- ----------- -------------
ITALY -- 0.03%
Telecom Italia SPA -- -- -- -- 5,824 81,431 18,928 264,650 346,081
----------- ----------- -------------
JAPAN -- 0.14%
Canon Inc. -- -- -- -- 1,716 78,480 5,577 255,061 333,541
Circle Japan Co. -- -- -- -- 993 38,711 3,228 125,811 164,522
Komatsu -- -- -- -- 14,196 68,342 46,137 222,110 290,452
Nintendo Co. -- -- -- -- 681 113,518 2,214 368,932 482,450
Promise Co. -- -- -- -- 702 56,867 2,282 184,818 241,685
Sanyo Shipan Financial -- -- -- -- 1,430 43,688 4,648 141,987 185,676
Yodogawa Steel Works -- -- -- -- 3,380 8,668 10,985 28,171 36,838
----------- ----------- -------------
408,274 1,326,890 1,735,164
----------- ----------- -------------
NETHERLANDS -- 0.77%
ABN-Amro Holdings -- -- -- -- 1,641 33,795 5,334 109,833 143,627
Akzo Nobel -- -- -- -- 1,594 65,262 5,181 212,102 277,364
ING Groep -- -- -- -- 1,099 59,947 3,571 194,829 254,776
KPN -- -- -- -- 661 66,635 2,149 216,563 283,198
Philips Electronics 182,200 8,130,675 -- -- 1,824 81,347 5,926 264,378 8,476,400
----------- ----------- ----------- -------------
8,130,675 306,986 997,704 9,435,365
----------- ----------- ----------- -------------
NEW ZEALAND -- 0.03% ----------- ----------- -------------
Telecom Corp. -- -- -- -- 19,759 83,474 64,215 271,291 354,766
----------- ----------- -------------
PORTUGAL -- 0.02%
Portugal ----------- ----------- -------------
Telecommunications -- -- -- -- 5,922 66,056 19,246 214,681 280,737
----------- ----------- -------------
SINGAPORE -- 0.06%
Creative Technology
Ltd -- -- -- -- 3,587 98,204 11,659 319,164 417,369
United Overseas Bank -- -- -- -- 10,868 75,786 35,321 246,305 322,091
----------- ----------- -------------
173,991 565,470 739,460
----------- ----------- -------------
SPAIN -- 0.04%
Respol -- -- -- -- 3,052 62,425 9,919 202,883 265,308
Telefonica S.A.* -- -- -- -- 3,029 67,400 9,843 219,051 286,452
----------- ----------- -------------
129,826 421,934 551,760
----------- ----------- -------------
SWEDEN -- 0.02%
Electrolux AB -- -- -- -- 2,357 39,829 7,661 129,445 169,275
Getinge Industrier -- -- -- -- 3,487 32,283 11,334 104,921 137,204
----------- ----------- -------------
72,113 234,366 306,479
----------- ----------- -------------
SWITZERLAND -- 0.07%
Forbo Holdings -- -- -- -- 28 10,109 91 32,854 42,963
Geberit -- -- -- -- 223 72,242 724 234,787 307,030
Novartis -- -- -- -- 44 61,452 143 199,718 261,170
Schweizerische
Industrie-
Gesellschaft
Holding -- -- -- -- 67 33,490 217 108,841 142,330
Sulzer -- -- -- -- 44 28,062 142 91,203 119,265
----------- ----------- -------------
205,355 667,403 872,758
----------- ----------- -------------
Total International
Common Stocks -- 1.94% 8,130,675 3,716,639 12,079,076 23,926,390
=========== =========== =========== =============
Identified Cost 3,386,293 3,542,541 11,513,259 18,442,093
<PAGE>
WARRANTS
INTERNET SERVICES -- 0.05%
Cybernet Internet
Service,
Expire 7/1/09^ 505 53,025 -- -- -- -- -- -- 53,025
SplitRock Service,
Expire 7/15/08 1,950 445,073 -- -- -- -- -- -- 445,073
Wam!Net Inc.,
Expire 3/1/05 5,490 63,821 -- -- -- -- -- -- 63,821
----------- -------------
561,919 561,919
----------- -------------
TELECOMMUNICATIONS -- 0.09%
Versatel
Telecommunications,
Expire 5/15/08 1,655 885,425 -- -- -- -- -- -- 885,425
Airgate PCS Inc.,
Expire 10/01/09 995 176,613 -- -- -- -- -- -- 176,613
----------- -------------
1,062,038 1,062,038
----------- -------------
----------- -------------
Total Warrants 1,623,957 1,623,957
----------- -------------
Identified Cost 289,354 289,354
=========== =============
PRINCIPAL PRINCIPAL
ISSUER AMOUNT VALUE AMOUNT VALUE
-----------------------------------------------------------------------------------------------------------------------------------
AEROSPACE -- 0.30%
Dunlop Stand Aero Holdings
11.875% due
5/15/09 575,000 566,375 -- -- -- -- -- -- 566,375
Hexcel Corp. +
9.75% due
1/15/09 -- -- -- -- 238,000 199,920 317,000 266,280 466,200
Raytheon Co.
6.450% due
8/15/02 2,500,000 2,425,000 -- -- -- -- -- -- 2,425,000
Sequa Corp.
9.00% due 8/01/09 -- -- -- -- 102,340 94,920 136,310 126,428 221,348
----------- ----------- ----------- -------------
2,991,375 294,840 392,708 3,678,923
----------- ----------- ----------- -------------
AUTOMOTIVE -- 0.41%
Collins & Aikman
Products
11.500% due
4/15/06 1,600,000 1,576,000 -- -- -- -- -- -- 1,576,000
Dura Operating Corp.
Series B,
9.000% due 5/1/09 170,000 152,150 -- -- -- -- -- -- 152,150
Ford Motor Co.
7.400% due
11/1/46 2,500,000 2,306,250 -- -- -- -- -- -- 2,306,250
J.L. French
Automotive
Castings +
11.50% due
6/01/09 -- -- -- -- 238,000 229,670 317,000 305,905 535,575
Lear Corp. +
8.11% due 5/15/09 -- -- -- -- 119,000 106,099 158,500 141,316 247,415
Tenneco Automotive
Inc. 11.625%
due 10/15/09+ 295,000 296,475 -- -- -- -- -- -- 96,475
----------- ----------- ----------- -------------
4,330,875 335,769 447,221 5,113,865
----------- ----------- ----------- -------------
BROADCASTING -- 0.25%
AMFM Operating Inc.
12.625% due
10/31/06 791,000 907,673 -- -- -- -- -- -- 907,673
Capstar Broadcasting
step bond to yield
11.002% due
2/1/09 260,000 230,100 -- -- -- -- -- -- 230,100
Diamond Holding Inc.
10.000% due
2/1/08 1,160,000 1,764,675 -- -- -- -- -- -- 1,764,675
Young Broadcasting
Corp. 11.750%
due 11/15/04 160,000 161,200 -- -- -- -- -- -- 161,200
----------- -------------
3,063,648 3,063,648
----------- -------------
CABLE & OTHER MEDIA -- 2.00%
Adelphia
Communications
9.875% due 3/1/07 415,000 401,512 -- -- -- -- -- -- 401,512
8.375% due
11/15/17 505,000 397,687 -- -- -- -- -- -- 397,687
Cable & Wireless
Communications
6.750%
due 12/1/08 2,500,000 2,471,875 -- -- -- -- -- -- 2,471,875
Cable Satisfaction
International
12.750% due 3/1/10 260,000 249,600 -- -- -- -- -- -- 249,600
Century
Commuications
Zero Coupon due
1/15/08 20,000 8,450 -- -- -- -- -- -- 8,450
CSC Holdings Inc. +
9.875% due 2/15/13 -- -- -- -- 119,000 120,785 158,500 160,878 281,663
10.500% due
5/15/16 1,695,000 1,839,075 -- -- -- -- -- -- 1,839,075
Charter
Communications
Holdings +
10.000% due
4/1/09+ 230,000 222,525 -- -- -- -- -- -- 222,525
step bond to
yield
11.713% due
11/5/10+ 2,490,000 1,375,725 -- -- -- -- -- -- 1,375,725
9.92% due 4/01/11 -- -- -- -- 416,500 229,075 554,750 305,113 534,188
Federal Mogul Corp.
7.50% due 1/15/09 -- -- -- -- 119,000 90,679 158,500 120,779 211,458
Frontiervision
Holdings LP
11.875% due 9/15/07 -- -- -- -- 535,500 472,579 713,250 629,443 1,102,022
Heafner JH Inc.
10.00% due
05/15/08 -- -- -- -- 327,250 261,800 435,875 348,700 610,500
NTL Inc. +
Zero Coupon due
4/01/08 -- -- -- -- 476,000 301,070 634,000 401,005 702,075
11.500% due
10/1/08 2,025,000 2,065,500 -- -- -- -- -- -- 2,065,500
Owens Illinois
Inc. 7.50% due
5/15/10 -- -- -- -- 119,000 104,005 158,500 138,527 242,532
Roger Cablesystems
Ltd. 11.000%
due 12/1/15 1,760,000 1,980,000 -- -- -- -- -- -- 1,980,000
Telewest plc
Zero Coupon
due 10/01/07 -- -- -- -- 202,300 190,668 269,450 253,957 444,624
Telewest
Communications
11.250% due
11/1/08 1,500,000 1,545,000 -- -- -- -- -- -- 1,545,000
Zero Coupon due
04/15/09 -- -- -- -- 89,250 50,426 118,875 67,164 117,591
United
International
Holdings step
bond to yield
11.515% due
2/15/08 6,950,000 4,552,250 -- -- -- -- -- -- 4,552,250
United Pan Europe
Communications
step bond to
yield 12.500%
due 8/1/09 6,600,000 3,267,000 -- -- -- -- -- -- 3,267,000
----------- ----------- ----------- -------------
20,376,199 1,821,087 2,425,565 24,622,851
----------- ----------- ----------- -------------
CAPITAL GOODS/BUILDING PRODUCTS -- 0.16%
Columbus McKinnon
Corp. 8.500%
due 4/1/08 1,335,000 1,188,150 -- -- -- -- -- -- 1,188,150
Jordan Industries
Inc. - Series D
10.375%
due 8/01/07 -- -- -- -- 267,750 249,008 356,625 331,661 580,669
Packard Bioscience
Inc. - Series B
9.375%
due 3/01/07 -- -- -- -- 119,000 107,100 158,500 142,650 249,750
----------- ----------- ----------- -------------
1,188,150 356,108 474,311 2,018,569
----------- ----------- ----------- -------------
CHEMICALS -- 0.33%
Huntsman ICI
Chemicals
zero coupon
due 12/31/09+ 5,165,000 1,652,800 -- -- -- -- -- -- 1,652,800
10.125%
due 7/1/09+ 1,000,000 1,005,000 -- -- -- -- -- -- 1,005,000
Lyondell Chemical
Co. 9.875%
due 5/01/07 -- -- -- -- 119,000 116,918 158,500 155,726 272,644
Radnor Holdings
Corp. 10.00%
due 12/01/03 -- -- -- -- 59,500 52,360 79,250 69,740 122,100
Terra Industries
Inc. 10.500%
due 6/15/05 670,000 492,450 -- -- -- -- -- -- 492,450
Zeneca Specialty
Chemical PLC
11.000% due 7/1/09+ 550,000 561,000 -- -- -- -- -- -- 561,000
----------- ----------- ----------- -------------
3,711,250 169,278 225,466 4,105,994
----------- ----------- ----------- -------------
CONSUMER PRODUCTS/TOBACCO -- 0.75%
Black & Decker
6.625%
due 11/15/00 3,000,000 2,985,000 -- -- -- -- -- -- 2,985,000
French Fragrances
Inc. 10.375%
due 5/15/07 -- -- -- -- 183,260 175,013 244,090 233,106 408,119
Global Crossing
Holdings Ltd
9.50%
due 11/15/09 255,000 249,900 -- -- 29,750 29,006 39,625 38,634 317,541
Home Interiors Gifts Inc.
10.125% due 6/01/08 -- -- -- -- 168,980 133,494 225,070 177,805 311,300
Mail Well Corp.
8.75% due 12/15/08 -- -- -- -- 238,000 207,060 317,000 275,790 482,850
Proctor & Gamble
Corp
6.875% due 9/15/09 2,000,000 1,932,500 -- -- -- -- -- -- 1,932,500
Revlon Consumer
Products Corp.
9.00% due 11/01/06 -- -- -- -- 238,000 171,360 317,000 228,240 399,600
8.625% due 2/01/08 -- -- -- -- 119,000 57,715 158,500 76,873 134,588
Simmons Co.
10.25% due 3/15/09 -- -- -- -- 29,750 25,064 39,625 33,384 58,448
Triarc Consumer
Products Group +
10.25% due 2/15/09 -- -- -- -- 238,000 220,150 317,000 293,225 513,375
Tropical Sportswear
International Inc.
Series A, 11.000%
due 6/15/08 265,000 250,425 -- -- -- -- -- -- 250,425
United Industries
Corp. +
9.875% due 4/01/09 -- -- -- -- 238,000 167,790 317,000 223,485 391,275
United
International
Holdings Inc.
10.75% due 2/15/08 -- -- -- -- 476,000 314,160 634,000 418,440 732,600
Windmere-Durable
Holdings Inc.
10.00% due 7/31/08 -- -- -- -- 119,000 114,835 158,500 152,953 267,788
----------- ----------- ----------- -------------
5,417,825 1,615,648 2,151,935 9,185,408
----------- ----------- ----------- -------------
CONTAINERS/PACKAGING -- 0.42%
Huntsman Packaging
Corp
9.125% due 10/1/07 1,000,000 1,045,000 -- -- -- -- -- -- 1,045,000
Stone Container
Finance
11.500%
due 8/15/06+ 1,610,000 1,670,375 -- -- -- -- -- -- 1,670,375
Sweetheart Cup Co.
10.500%
due 9/1/03 930,000 860,250 -- -- -- -- -- -- 860,250
Tekni-Plex, Inc.
11.250% due 4/1/07 1,480,000 1,531,800 -- -- -- -- -- -- 1,531,800
9.250% due 3/1/08 45,000 43,425 -- -- -- -- -- -- 43,425
----------- -------------
5,150,850 5,150,850
----------- -------------
DIVERSIFIED MANUFACTURING -- 0.42%
Blount Inc.
13.000%
due 8/1/09+ 580,000 571,300 -- -- -- -- -- -- 571,300
Celestica
International Inc.
10.500%
due 12/31/06 1,000,000 1,042,500 -- -- -- -- -- -- 1,042,500
FMC Corp.
7.000%
due 5/15/08 2,500,000 2,287,500 -- -- -- -- -- -- 2,287,500
Park Ohio
Industries Inc.
9.250%
due 12/1/07 1,500,000 1,320,000 -- -- -- -- -- -- 1,320,000
----------- -------------
5,221,300 5,221,300
----------- -------------
ENERGY -- 1.14%
Belco Oil & Gas
Corp
10.500% due 4/1/06 350,000 355,250 -- -- -- -- -- -- 355,250
8.875% due 9/15/07 635,000 587,375 -- -- -- -- -- -- 587,375
Bellwether
Exploration Co.
10.875%
due 4/01/07 -- -- -- -- 113,050 101,745 150,575 135,518 237,263
Canadian Forest
Oil Ltd
8.75% due 9/15/07 930,000 871,875 -- -- 238,000 222,530 317,000 296,395 1,390,800
Clark USA Inc.
10.875%
due 12/1/05 1,210,000 647,350 -- -- -- -- -- -- 647,350
Enron Corp.
6.450%
due 11/15/01 1,500,000 1,477,500 -- -- -- -- -- -- 1,477,500
Forest Oil Corp.
10.500%
due 1/15/06 790,000 805,800 -- -- -- -- -- -- 805,800
Key Energy
Services Inc.
14.00% due 1/15/09 -- -- -- -- 71,400 78,005 95,100 103,897 181,901
Leviathan Gas
Pipelines
10.375% due 6/1/09 400,000 407,500 -- -- -- -- -- -- 407,500
Lomak Petroleum Inc.
8.75% due 1/15/07 -- -- -- -- 119,000 102,043 158,500 135,914 237,956
Nuevo Energy Co.
9.500% due 6/1/08 980,000 967,750 -- -- -- -- -- -- 967,750
Parker Drilling Co.
9.750%
due 11/15/06 780,000 737,100 -- -- -- -- -- -- 737,100
Polaroid Corp.
11.50% due 2/15/06 1,075,000 1,091,125 -- -- 59,500 60,839 79,250 81,033 1,232,997
Pride International
Inc
10.000%
due 6/1/09 1,595,000 1,606,963 -- -- -- -- -- -- 1,606,963
R & B Falcon Corp.
12.250%
due 3/15/06 1,000,000 1,085,000 -- -- -- -- -- -- 1,085,000
RBF Finance Co.
11.375%
due 3/15/09 900,000 963,000 -- -- -- -- -- -- 963,000
Synder Oil Corp.
8.75% due 6/15/07 -- -- -- -- 59,500 58,905 79,250 78,458 137,363
Western Gas
Resources +
10.00% due 6/15/09 -- -- -- -- 238,000 240,380 317,000 320,170 560,550
Vintage Petroleum
9.750% due 6/30/09 445,000 449,450 -- -- -- -- -- -- 449,450
----------- ----------- ----------- -------------
12,053,038 864,446 1,151,384 14,068,867
----------- ----------- ----------- -------------
FINANCIAL -- 3.08%
American General
Finance Corp.
5.875% due 7/15/01 2,000,000 1,965,000 -- -- -- -- -- -- 1,965,000
Amresco Inc.
10.000%
due 3/15/04 600,000 399,000 -- -- -- -- -- -- 399,000
9.875% due 3/15/05 2,265,000 1,506,225 -- -- -- -- -- -- 1,506,225
Associates
Corp., NA
5.750%
due 10/15/03 2,790,000 2,636,550 -- -- -- -- -- -- 2,636,550
AT&T Capital Corp.
6.250% due 5/15/01 2,500,000 2,478,125 -- -- -- -- -- -- 2,478,125
Avis Rent A
Car Inc. +
11.00% due 5/01/09 95,000 99,512 -- -- 238,000 248,115 317,000 330,473 678,100
Contifinancial
Corp.
8.375% due 8/15/03 -- -- -- -- 476,000 47,600 634,000 63,400 111,000
Countrywide Home
Loan
7.200% due
10/30/0 62,525,000 2,401,906 -- -- -- -- -- -- 2,401,906
Derby Cycle Corp.
Lyon Investments
10.00% due 5/15/08 -- -- -- -- 119,000 72,888 158,500 97,081 169,969
Donaldson, Lufkin
& Jenrette
6.375% due 5/26/00 2,000,000 1,999,600 -- -- -- -- -- -- 1,999,600
6.170% due 7/15/03 2,500,000 2,387,500 -- -- -- -- -- -- 2,387,500
General Electric
Capital Corp.
7.000% due 2/3/03 2,000,000 1,980,000 -- -- -- -- -- -- 1,980,000
Household Finance
Corp.
6.750% due 6/1/00 2,000,000 1,999,980 -- -- -- -- -- -- 1,999,980
International Lease
Finance Corp.
5.950% due 6/1/01 2,500,000 2,465,625 -- -- -- -- -- -- 2,465,625
Madison River
Capital+
13.250% due 3/1/10 535,000 505,575 -- -- -- -- -- -- 505,575
Mass Mutual Life
7.625%
due 11/15/23 2,000,000 1,922,500 -- -- -- -- -- -- 1,922,500
NationsBank Corp.
6.500% due 8/15/03 2,500,000 2,418,750 -- -- -- -- -- -- 2,418,750
Nations Rent Inc.
10.375%
due 12/15/08 75,000 54,375 -- -- -- -- -- -- 54,375
Ocwen Asset
Investment
11.500% due 7/1/05 900,000 706,500 -- -- -- -- -- -- 706,500
Ocwen Capital
Trust I
10.875% due 8/1/27 1,250,000 706,250 -- -- -- -- -- -- 706,250
Plains Resources
Inc. +
10.25% due 3/15/06 -- -- -- -- 102,340 98,374 136,310 131,028 229,402
Private Export
Funding Corp.
7.010% due 4/30/04 1,000,000 993,750 -- -- -- -- -- -- 993,750
6.670% due 9/15/09 2,500,000 2,400,000 -- -- -- -- -- -- 2,400,000
St. Paul Cos., Inc.
7.875% due 4/15/05 1,000,000 983,750 -- -- -- -- -- -- 983,750
SunAmerica Inc.
6.580% due 1/15/02 1,300,000 1,283,750 -- -- -- -- -- -- 1,283,750
Transamerica
Financial Corp.
6.750% due 6/1/00 2,000,000 1,999,900 -- -- -- -- -- -- 1,999,900
United
Rentals, Inc.
9.000% due 4/1/09 250,000 222,500 -- -- -- -- -- -- 222,500
9.250% due 1/15/09 420,000 381,150 -- -- -- -- -- -- 381,150
----------- ----------- ----------- -------------
36,897,773 466,977 621,982 37,986,731
----------- ----------- ----------- -------------
FOOD/BEVERAGE/BOTTLING -- 1.08%
Agrilink Foods Inc.
11.875%
due 11/1/08 185,000 164,650 -- -- -- -- -- -- 164,650
B & G Foods
Indications Corp.
9.625% due 8/01/07 -- -- -- -- 238,000 186,830 317,000 248,845 435,675
Conagra Inc.
5.500%
due 10/15/02 2,265,000 2,151,750 -- -- -- -- -- -- 2,151,750
Carrols Corp.
9.500% due 12/1/08 1,945,000 1,658,113 -- -- -- -- -- -- 1,658,113
Coca-Cola
Enterprises
6.750% due 1/15/38 2,500,000 2,121,875 -- -- -- -- -- -- 2,121,875
Diageo PLC
8.625% due 8/15/01 2,400,000 2,436,000 -- -- -- -- -- -- 2,436,000
Imperial Holly
9.750%
due 12/15/07 1,495,000 306,475 -- -- -- -- -- -- 306,475
International
Home Foods
10.375%
due 11/1/06 530,000 524,700 -- -- -- -- -- -- 524,700
Premier
International
Foods PLC
12.000%
due 9/1/09 490,000 465,500 -- -- -- -- -- -- 465,500
Quaker Oats
7.440% due 3/2/26 1,000,000 921,250 -- -- -- -- -- -- 921,250
SC International
Services
Inc., Series B
9.250% due 9/1/07 985,000 901,275 -- -- -- -- -- -- 901,275
Triarc Consumer
Beverage
10.250%
due 2/15/09+ 1,315,000 1,242,675 -- -- -- -- -- -- 1,242,675
----------- ----------- ----------- -------------
12,894,263 186,830 248,845 13,329,938
----------- ----------- ----------- -------------
GAMING -- 0.30%
Circus Circus
Enterprises
7.625% due 7/15/13 205,000 164,000 -- -- -- -- -- -- 164,000
Harvey Casinos
Resorts
10.625% due 6/1/06 515,000 525,300 -- -- -- -- -- -- 525,300
Hollywood Casino
Shreveport
13.000% due 8/1/06^ 245,000 259,700 -- -- -- -- -- -- 259,700
Hollywood Casino
Corp.
11.250% due 5/1/07 155,000 158,100 -- -- -- -- -- -- 158,100
Jazz Casino Co.
5.867%
due 11/15/09 570,000 180,262 -- -- -- -- -- -- 180,262
Majestic Star
Casino LLC. +
10.875%
due 7/01/06 -- -- -- -- 238,000 221,340 317,000 294,810 516,150
Sun International
Ltd
9.00% due 3/15/07 220,000 198,550 -- -- 238,000 214,795 317,000 286,093 699,438
8.625%
due 12/15/07 445,000 398,275 -- -- -- -- -- -- 398,275
Venetian Casino Co.
12.250%
due 11/15/04 250,000 245,000 -- -- -- -- -- -- 245,000
Waterford Gaming
Finance Corp.,
LLC +
9.50% due 3/15/10 -- -- -- -- 233,478 222,971 310,977 296,983 519,955
----------- ----------- ----------- -------------
2,129,187 659,106 877,886 3,666,179
----------- ----------- ----------- -------------
HEALTHCARE -- 0.66%
Alaris Medical
Systems Inc.
9.75% due 12/01/06 -- -- -- -- 89,250 71,400 118,875 95,100 166,500
Columbia/HCA
Healthcare
zero coupon
due 6/1/02 2,500,000 2,055,350 -- -- -- -- -- -- 2,055,350
Frensenuis Medical
Care Capital Trust
9.00% due 12/01/06 4,200 395,850 -- -- 238,000 223,720 317,000 297,980 917,550
Hangar Orthopedic
Group
11.250%
due 6/15/09 590,000 469,050 -- -- -- -- -- -- 469,050
Harrahs
Operations Inc.
7.875%
due 12/15/05 -- -- -- -- 53,550 49,802 71,325 66,332 116,134
ICN Pharmaceuticals
Inc.
9.250% due 8/15/05 2,205,000 2,155,387 -- -- -- -- -- -- 2,155,387
King Pharmaceutical
Inc.
10.750%
due 2/15/09 415,000 425,375 -- -- -- -- -- -- 425,375
Magellan Health
Services
9.000% due 2/15/08 2,825,000 1,878,625 -- -- -- -- -- -- 1,878,625
----------- ----------- ----------- -------------
7,379,637 344,922 459,412 8,183,971
----------- ----------- ----------- -------------
HOUSING RELATED -- 0.38%
Amatek Industries
12.000%
due 2/15/08 555,000 518,925 -- -- -- -- -- -- 518,925
American Plumbing
& Mechanical
11.625%
due 10/15/08 390,000 346,125 -- -- -- -- -- -- 346,125
Atrium Cos., Inc.
Series B, 10.500%
due 5/1/09 580,000 542,300 -- -- -- -- -- -- 542,300
CB Richards Ellis
Services Inc.
8.875% due 6/01/06 -- -- -- -- 238,000 208,250 317,000 277,375 485,625
Falcon Products
Inc., Series B
11.375%
due 6/15/09 610,000 573,400 -- -- -- -- -- -- 573,400
Integrated
Electrical
Services
9.375% due 2/1/09 745,000 584,825 -- -- -- -- -- -- 584,825
Nortek Inc.
9.250% due 3/15/07 1,045,000 979,688 -- -- -- -- -- -- 979,688
9.125% due 9/1/07 60,000 55,800 -- -- -- -- -- -- 55,800
Orius Capital Corp.
12.750%
due 2/1/10+ 640,000 649,600 -- -- -- -- -- -- 649,600
----------- ----------- ----------- -------------
4,250,663 208,250 277,375 4,736,288
----------- ----------- ----------- -------------
INTERNET SERVICES -- 0.69%
Cybernet Internet
Services
14.000% due 7/1/09 505,000 391,375 -- -- -- -- -- -- 391,375
Exodus
Communications
10.750%
due 12/15/09+ 1,155,000 1,157,888 -- -- -- -- -- -- 1,157,888
Globix Corp.
12.500%
due 2/1/10+ 130,000 115,050 -- -- -- -- -- -- 115,050
Rhythms
Netconnections
14.000%
due 2/15/10+ 665,000 591,850 -- -- -- -- -- -- 591,850
Splitrock
Services Inc.
11.750%
due 7/15/08 1,950,000 2,076,750 -- -- -- -- -- -- 2,076,750
Verio Inc.
10.375% due 4/1/05 695,000 668,937 -- -- -- -- -- -- 668,937
11.250%
due 12/1/08 1,915,000 1,895,850 -- -- -- -- -- -- 1,895,850
10.625%
due 11/15/09+ 1,010,000 972,125 -- -- -- -- -- -- 972,125
Wam!Net Inc.
step bond to
yield 13.724%
due 3/1/05 1,225,000 679,875 -- -- -- -- -- -- 679,875
----------- -------------
8,549,700 8,549,700
----------- -------------
LODGING LEISURE -- 1.12%
Carnival Corp.
6.150% due 4/15/08 2,500,000 2,234,375 -- -- -- -- -- -- 2,234,375
Courtyard by
Marriott,
Series B
10.750% due 2/1/08 1,915,000 1,886,275 -- -- -- -- -- -- 1,886,275
Hasbro Inc.
6.600% due 7/15/28 2,000,000 1,657,500 -- -- -- -- -- -- 1,657,500
HMH Properties
Inc. - Series C
8.45% due 12/01/08 50,000 44,875 -- -- 238,000 212,415 317,000 282,923 540,213
Intrawest Corp.
9.750% due 8/15/08 555,000 532,800 -- -- -- -- -- -- 532,800
10.500% due 2/1/10 1,040,000 1,032,200 -- -- -- -- -- -- 1,032,200
LTV Corp. +
11.75%
due 11/15/09 -- -- -- -- 119,000 117,215 158,500 156,123 273,338
Moll Industries Inc.
10.50% due 6/01/08 -- -- -- -- 178,500 57,120 237,750 76,080 133,200
Premier Parks Inc.
step bond to yield
10.819% due 4/1/08 560,000 371,700 -- -- -- -- -- -- 371,700
Psinet Inc.
10.500%
due 12/1/06+ 420,000 370,650 -- -- -- -- -- -- 370,650
11.500%
due 11/01/08 2,500,000 2,237,500 -- -- 89,250 80,325 118,875 106,988 2,424,813
11.000%
due 8/1/09 1,205,000 1,066,425 -- -- -- -- -- -- 1,066,425
SFX Entertainment
Inc.
9.125% due 2/1/08 1,250,000 1,256,250 -- -- -- -- -- -- 1,256,250
----------- ----------- ----------- -------------
12,690,550 467,075 622,113 13,779,738
----------- ----------- ----------- -------------
METALS/MINING/STEEL -- 0.27%
AEI Holding
10.500%
due 12/15/05+ 1,100,000 170,500 -- -- -- -- -- -- 170,500
Kaiser Aluminum &
Chemicals
Series B, 10.875%
due 10/15/06 250,000 240,000 -- -- -- -- -- -- 240,000
Series D, 10.875%
due 10/15/06 220,000 211,200 -- -- -- -- -- -- 211,200
12.750% due 2/1/03 890,000 845,500 -- -- -- -- -- -- 845,500
P&L Coal Holdings
Corp.
8.875% due 5/15/08 -- -- -- -- 119,000 107,100 158,500 142,650 249,750
Russel Metals Inc.
10.000% due 6/1/09 685,000 698,700 -- -- -- -- -- -- 698,700
WCI Steel Inc.,
Series B
10.000%
due 12/1/04 755,000 747,450 -- -- -- -- -- -- 747,450
WHX Corp.
10.500%
due 4/15/05 225,000 209,813 -- -- -- -- -- -- 209,813
----------- ----------- ----------- -------------
3,123,163 107,100 142,650 3,372,913
----------- ----------- ----------- -------------
PAPER/FOREST PRODUCTS -- 0.34%
Ainsworth Lumber
12.500%
due 7/15/07 865,000 908,250 -- -- -- -- -- -- 908,250
Doman Industries
Ltd
8.750% due 3/15/04 150,000 132,750 -- -- -- -- -- -- 132,750
Millar Western
Forest
9.875% due 5/15/08 585,000 568,912 -- -- -- -- -- -- 568,912
Repap New
Brunswick
10.625%
due 4/15/05 235,000 222,663 -- -- -- -- -- -- 222,663
Riverwood
International
10.625% due 8/1/07 625,000 628,125 -- -- -- -- -- -- 628,125
10.875% due 4/1/08 1,250,000 1,206,250 -- -- -- -- -- -- 1,206,250
Tembec Finance
Corp.
9.875% due 9/30/05 220,000 226,600 -- -- 119,000 120,190 158,500 160,085 506,875
----------- ----------- ----------- -------------
3,893,550 120,190 160,085 4,173,825
----------- ----------- ----------- -------------
PUBLISHING/PRINTING -- 0.30%
Garden State
Newspapers
8.625% due 7/1/11 485,000 424,375 -- -- -- -- -- -- 424,375
Hollinger
International
Publishing Inc.
9.25% due 3/15/07 -- -- -- -- 238,000 229,670 317,000 305,905 535,575
Merrill Corp.
12.000% due 5/1/09 505,000 482,275 -- -- -- -- -- -- 482,275
News America
Holdings
7.750% due 2/1/24 2,500,000 2,212,500 -- -- -- -- -- -- 2,212,500
----------- ----------- ----------- -------------
3,119,150 229,670 305,905 3,654,725
----------- ----------- ----------- -------------
RETAIL -- 0.63%
Acetex
9.75% due 10/01/03 -- -- -- -- 59,500 54,145 79,250 72,118 126,263
Advance Stores Inc.
10.25% due 4/15/08 1,260,000 1,008,000 -- -- 208,250 165,559 277,375 220,513 1,394,072
Ames Department
Stores
10.000% due
4/15/06 1,455,000 1,353,150 -- -- -- -- -- -- 1,353,150
Cole National
Group Inc.
8.625% due 8/15/07 -- -- -- -- 119,000 82,408 158,500 109,761 192,169
Finlay Fine
Jewelry Corp.
8.375% due 5/01/08 -- -- -- -- 238,000 214,200 317,000 285,300 499,500
Home Depot, Inc.
6.500%
due 9/15/04 2,500,000 2,418,750 -- -- -- -- -- -- 2,418,750
J.C. Penney Co.,
Inc.
7.250% due 4/1/02 500,000 472,500 -- -- -- -- -- -- 472,500
Key Plastics
Inc.++
10.25% due 3/15/07 -- -- -- -- 119,000 4,760 158,500 6,340 11,100
Kmart Corp.
12.500% due 3/1/05 850,000 949,875 -- -- -- -- -- -- 949,875
Stater Brothers
Holding
10.750%
due 8/15/06 395,000 394,012 -- -- -- -- -- -- 394,012
----------- ----------- ----------- -------------
6,596,287 521,071 694,032 7,811,390
----------- ----------- ----------- -------------
SEMICONDUCTORS -- 0.16%
Fairchild
Semiconductor
10.125%
due 3/15/07 2,000,000 1,995,000 -- -- -- -- -- -- 1,995,000
-----------
SERVICES/OTHER -- 0.63
Allied Waste North
American Inc. +
10.00% due 8/01/09 2,460,000 1,678,950 -- -- 238,000 163,625 317,000 217,938 2,060,513
Buhrmann US Inc.
12.250%
due 11/1/09 505,000 520,150 -- -- -- -- -- -- 520,150
Integrated
Electrical
Service +
9.375% due 2/01/09 -- -- -- -- 140,420 109,528 187,030 145,883 255,411
Intertek Financial
PLC 10.250%
due 11/1/06 750,000 630,000 -- -- -- -- -- -- 630,000
IT Group Inc.
11.250%
due 4/1/09 795,000 719,475 -- -- -- -- -- -- 719,475
Metal Management
Inc.
10.000%
due 5/15/08 330,000 239,250 -- -- -- -- -- -- 239,250
Pierce Leahy
Command Co.
8.125% due 5/15/08 -- -- -- -- 119,000 102,638 158,500 136,706 239,344
Safety Kleen
Services Inc.
9.25% due 6/01/08 -- -- -- -- 238,000 26,775 317,000 35,663 62,438
URS Corp.
12.250% due 5/1/09 745,000 756,175 -- -- -- -- -- -- 756,175
USA Waste Services
6.500%
due 12/15/02 2,500,000 2,303,125 -- -- -- -- -- -- 2,303,125
----------- ----------- ----------- -------------
6,847,125 402,565 536,190 7,785,880
----------- ----------- ----------- -------------
TELECOMMUNICATIONS -- 3.44%
Airgate PCS Inc.
step bond yield
16.049%
due 10/1/09 1,315,000 762,700 -- -- -- -- -- -- 762,700
Alamosa PCS
Holdings Inc.
step bond yield
12.726%
due 2/15/10 320,000 168,000 -- -- -- -- -- -- 168,000
Call-Net
Enterprises Inc.
9.375% due 5/15/09 455,000 311,675 -- -- -- -- -- -- 311,675
Centennial
Cellular
10.750%
due 12/15/08 1,355,000 1,355,000 -- -- -- -- -- -- 1,355,000
Crown Castle
International
Corp. step bond
yield 11.057%
due 5/15/11 2,305,000 1,394,525 -- -- -- -- -- -- 1,394,525
Dobson/Sygnet
Communications
12.250%
due 12/15/08 505,000 527,725 -- -- -- -- -- -- 527,725
Esprit Telecom
Group PLC
11.500%
due 12/15/097 1,500,000 1,312,500 -- -- -- -- -- -- 1,312,500
10.875%
due 6/15/08 750,000 626,250 -- -- -- -- -- -- 626,250
Energis plc +
9.75% due 6/15/09 -- -- -- -- 238,000 235,620 317,000 313,830 549,450
Focal
Communication
Corp., Series B
step bond to yield
12.978%
due 2/15/08 510,000 334,050 -- -- -- -- -- -- 334,050
11.875% due 1/15/10+ 405,000 407,531 -- -- -- -- -- -- 407,531
GT Group Telecom
step bond to
yield 13.25%
due 2/1/10+ 740,000 395,900 -- -- -- -- -- -- 395,900
Hermes Europe
Railtel BV
11.500%
due 8/15/07 2,250,000 2,036,250 -- -- -- -- -- -- 2,036,250
10.375%
due 1/15/09 350,000 302,750 -- -- -- -- -- -- 302,750
Intermedia
Communications
Inc. +
9.50% due 3/01/09 -- -- -- -- 238,000 226,100 317,000 301,150 527,250
Jazz PLC
13.250%
due 12/15/09+ 1,000,000 922,694 -- -- -- -- -- -- 922,694
KMC Telecom
Holdings Inc.
step bond to
yield 15.834%
due 2/15/08 450,000 223,313 -- -- -- -- -- -- 223,313
13.500%
due 5/15/09 935,000 836,825 -- -- -- -- -- -- 836,825
Leap Wireless
International
Inc. +
12.50%
due 4/15/10 -- -- -- -- 59,500 57,418 79,250 76,476 133,894
Level 3
Communications
step bond to
yield 12.875%
due 12/1/08 2,750,000 1,436,875 -- -- -- -- -- -- 1,436,875
11.250%
due 3/15/10 1,700,000 1,479,500 -- -- -- -- -- -- 1,479,500
Microcell
Telecommunication,
series B step
bond to yield
11.843%
due 6/1/06 475,000 431,063 -- -- -- -- -- -- 431,063
step bond to
yield 11.785%
due 6/1/09 985,000 635,325 -- -- -- -- -- -- 635,325
Millicom
International
Cellular
step bond to
yield 14.382%
due 6/1/06 1,835,000 1,550,575 -- -- -- -- -- -- 1,550,575
Nextel
Communications
Inc.
Zero Coupon
due 10/31/07 -- -- -- -- 357,000 255,255 475,500 339,983 595,238
9.375% due 11/15/09 265,000 254,400 -- -- -- -- -- -- 254,400
step bond to
yield 10.988%
due 9/15/07 1,135,000 865,438 -- -- -- -- -- -- 865,438
step bond to
yield 10.743%
due 2/15/08 1,635,000 1,158,806 -- -- -- -- -- -- 1,158,806
Nextlink
Communications
12.500%
due 4/15/06 2,400,000 2,520,000 -- -- -- -- -- -- 2,520,000
10.750% due 6/1/09 1,285,000 1,268,937 -- -- -- -- -- -- 1,268,937
step bond to
yield 12.053%
due 6/1/09 2,030,000 1,197,700 -- -- -- -- -- -- 1,197,700
step bond to
yield 12.125%
due 12/1/09 1,380,000 765,900 -- -- -- -- -- -- 765,900
Omnipoint Corp.,
Series A 11.625%
due 8/15/06 500,000 532,500 -- -- -- -- -- -- 532,500
Orange plc +
9.00% due 6/01/09 -- -- -- -- 238,000 236,810 317,000 315,415 552,225
Price
Communications
Wireless Inc. -
Series B 9.125%
due 12/15/06 -- -- -- -- 178,500 176,269 237,750 234,778 411,047
Primus Telecomm
Group
11.750% due 8/1/04 2,000,000 1,880,000 -- -- -- -- -- -- 1,880,000
Rogers Cantel
9.375% due 6/01/08 -- -- -- -- 238,000 236,810 317,000 315,415 552,225
Spectrasite
Holdings Inc.
step bond to
yield 11.250%
due 4/15/09 495,000 274,725 -- -- -- -- -- -- 274,725
Tele 1 Europe B.V.
13.000%
due 5/15/09 490,000 504,700 -- -- -- -- -- -- 504,700
13.000%
due 5/15/09 500,000 480,712 -- -- -- -- -- -- 480,712
Telephone and Data
Systems
7.000% due 8/1/06 2,500,000 2,362,500 -- -- -- -- -- -- 2,362,500
Telesystem
International
Wireless
Series B, step
bond to yield
13.345%
due 6/30/07 935,000 593,725 -- -- -- -- -- -- 593,725
Series C, step
bond to yield
12.706%
due 11/1/07 1,080,000 588,600 -- -- -- -- -- -- 588,600
Triton PCS Inc.
step bond to
yield 11.564%
due 5/1/08 1,000,000 722,500 -- -- -- -- -- -- 722,500
Versatel Telecom BV
13.250%
due 05/15/08 1,655,000 1,688,100 -- -- -- -- -- -- 1,688,100
Viatel Inc.
11.250%
due 4/15/08 1,065,000 974,475 -- -- -- -- -- -- 974,475
Voicestream Wirless
Co
step bond to
yield 11.875%
due 11/15/09 720,000 446,400 -- -- -- -- -- -- 446,400
Winstar
Communications
Inc
12.750%
due 4/15/10 370,000 355,200 -- -- -- -- -- -- 355,200
World Access Inc.,
Series B
13.250%
due 1/15/08 2,375,000 2,161,250 -- -- -- -- -- -- 2,161,250
----------- ----------- ----------- -------------
39,047,594 1,424,281 1,897,047 42,368,922
----------- ----------- ----------- -------------
TRANSPORTATION -- 0.78%
Continental
Airlines Inc.
8.00% due 12/15/05 -- -- -- -- 238,000 210,435 317,000 280,285 490,720
6.900% due 1/2/18 2,140,973 1,964,728 -- -- -- -- -- -- 1,964,728
Holt Group Inc. +
9.75% due 1/15/06 -- -- -- -- 238,000 107,100 317,000 142,650 249,750
ICG Holdings Inc.
Zero Coupon
due 5/01/06 -- -- -- -- 119,000 95,200 158,500 126,800 222,000
step bond to yield
12.932%
due 9/15/05 705,000 669,750 -- -- -- -- -- -- 669,750
step bond to yield
12.644%
due 5/1/06 595,000 478,975 -- -- -- -- -- -- 478,975
Norfolk Southern
Corp
7.875% due 2/15/04 3,000,000 3,015,000 -- -- -- -- -- -- 3,015,000
Oglebay Norton Co.
10.000% due 2/1/09 615,000 568,875 -- -- -- -- -- -- 568,875
Union Pacific Co.
7.875% due 2/15/02 2,000,000 1,990,000 -- -- -- -- -- -- 1,990,000
----------- ----------- ----------- -------------
8,687,328 412,735 549,735 9,649,798
----------- ----------- ----------- -------------
UTILITIES -- 0.48%
AES Corp.
10.250%
due 7/15/06 1,345,000 1,328,188 -- -- -- -- -- -- 1,328,188
9.500% due 6/1/09 1,635,000 1,610,475 -- -- -- -- -- -- 1,610,475
Azurix Corp. +
10.75% due 2/15/10 -- -- -- -- 119,000 119,595 158,500 159,293 278,888
Calpine Corp.
7.875% due 4/01/08 -- -- -- -- 238,000 224,018 317,000 298,376 522,394
10.500%
due 5/15/06 2,000,000 2,115,000 -- -- -- -- -- -- 2,115,000
Laidlaw +
6.65% due 10/01/04 -- -- -- -- 59,500 22,610 79,250 30,115 52,725
----------- ----------- ----------- -------------
5,053,663 366,223 487,784 5,907,669
----------- ----------- ----------- -------------
MORTGAGE OBLIGATIONS -- 0.26%
MORTGAGE BACKED
SECURITIES/PASSTHROUGHS
Airplane Trust
10.875%
due 3/15/19 2,750,744 2,308,865 -- -- 476,000 394,621 634,000 525,609 3,229,095
----------- ----------- ----------- -------------
TOTAL HIGH YIELD
BONDS -- 20.81% 228,968,008 -- -- -- 11,768,790 -- 15,675,238 256,412,036
----------- ---------- ----------- -------------
Identified Cost -- 245,686,014 -- -- -- 13,882,475 -- 18,490,524 278,059,013
US FIXED INCOME PRINCIPAL
PRINCIPAL PRINCIPAL AMOUNT
ISSUER AMOUNT VALUE AMOUNT VALUE (000'S OMITTED) VALUE
--------------------------------
ASSET BACKED SECURITIES -- 2.80%
Aames Mortgage
Trust 6.59%
due 6/15/24 -- -- 1,314,932 1,305,544 386,346 383,588 420,236 417,236 2,106,367
Aircraft Financial
Trust, 8.000%
due 5/15/24 -- -- 1,940,000 1,774,596 570,000 521,402 620,000 567,139 2,863,136
Amresco Residential
Securities, 6.245%
due 4/25/22 -- -- 1,153,524 1,144,153 338,922 336,169 368,652 365,657 1,845,979
Asset
Securitization
Corp., Series 95,
7.384% due 8/13/29 -- -- 1,358,000 1,326,725 399,000 389,811 434,000 424,005 2,140,541
Asset
Securitization
Corp., Series 97,
6.500% due 2/14/41 -- -- 888,908 872,505 261,174 256,355 284,084 278,842 1,407,701
First Union, Lehman
Brothers,
6.479% due 3/18/04 -- -- 1,236,944 1,210,603 363,432 355,693 395,312 386,894 1,953,190
GE Capital Mortgage
Services, Inc., -- -- 776,000 764,057 228,000 224,491 248,000 244,183 1,232,732
5.905%
due 10/25/13
7.000%
due 10/25/23 -- -- 767,852 720,792 225,606 211,779 245,396 230,356 1,162,927
GMAC Commercial
Mortgage Inc. -- -- 430,680 396,445 126,540 116,481 137,640 126,699 639,626
6.420% due 8/15/08
6.73% due 12/15/03 -- -- 1,178,356 1,173,014 346,218 344,648 376,588 374,881 1,892,543
7.724%
due 12/15/09 -- -- 1,746,000 1,744,485 513,000 512,555 558,000 557,516 2,814,556
Green Tree Financial
Corp -- -- 1,493,800 1,386,471 438,900 407,365 477,400 443,099 2,236,935
6.710% due 8/15/29
8.05% due 10/15/27 -- -- 1,940,000 1,907,253 570,000 560,378 620,000 609,534 3,077,166
8.41% due 12/1/30 -- -- 1,164,000 1,103,251 342,000 324,151 372,000 352,585 1,779,987
IMC Home Equity
Loan Trust, 6.16%
due 5/20/14 -- -- 559,108 556,368 164,274 163,469 178,684 177,808 897,645
JP Morgan
Commercial
Mortgage
Financial Corp.,
6.373% due 1/15/30 -- -- 747,676 726,136 219,678 213,349 238,948 232,064 1,171,549
Merrill Lynch
Mortgage Co.,
6.950%
due 6/18/29 -- -- 604,504 595,412 177,612 174,941 193,192 190,286 960,638
Morgan Stanley
Capital Investment
Inc., 6.44%
due 11/15/02 -- -- 1,265,656 1,243,497 371,868 365,357 404,488 397,406 2,006,260
Nissan Auto
Receivables
Grantor,
6.15% due 2/15/03 -- -- 284,404 282,232 83,562 82,924 90,892 90,198 455,354
Nomura Asset
Securitization
Corp.,
8.15% due 3/4/20 -- -- 1,164,000 1,175,384 342,000 345,345 372,000 375,638 1,896,367
----------- ----------- ----------- -------------
21,408,922 6,290,250 6,842,026 34,541,198
----------- ----------- ----------- -------------
FOREIGN CORPORATIONS -- 0.57%
Merita Bank PLC,
6.50% due 4/1/09 -- -- 937,020 845,211 275,310 248,335 299,460 270,119 1,363,665
Pemex Financial
Ltd., 9.03%
due 2/15/11 -- -- 843,900 859,673 247,950 252,584 269,700 274,741 1,386,998
Quebec Providence
CDA, 7.50%
due 9/15/29 -- -- 867,180 847,972 254,790 249,146 277,140 271,001 1,368,120
Telefonica de
Argentina, 9.125%
due 5/7/08 -- -- 915,680 869,896 269,040 255,588 292,640 278,008 1,403,492
YPF Sociedad
Anonima, 7.25%
due 3/15/03 -- -- 940,900 907,477 276,450 266,630 300,700 290,019 1,464,126
----------- ----------- ----------- -------------
4,330,229 1,272,284 1,383,887 6,986,400
----------- ----------- ----------- -------------
DOMESTIC CORPORATIONS -- 2.05%
Abitibi
Consolidated Inc.,
8.50%
due 8/1/29 -- -- 1,032,080 948,306 303,240 278,626 329,840 303,067 1,529,999
Ahold Financial
U.S.A Inc.,
6.875% due 5/1/29 -- -- 692,580 580,999 203,490 170,706 221,340 185,680 937,384
BB&T Corp., 6.375%
due 6/30/05 -- -- 884,640 826,059 259,920 242,708 282,720 263,998 1,332,765
Conseco Inc., 6.40%
due 6/15/01 -- -- 256,080 181,817 75,240 53,420 81,840 58,106 293,344
Dayton Hudson
Corp., 6.65%
due 8/1/28 -- -- 853,600 716,059 250,800 210,389 272,800 228,844 1,155,292
Delta Airlines
Inc., 8.30%
due 12/15/29 -- -- 1,164,000 1,041,047 342,000 305,875 372,000 332,706 1,679,627
Donaldson, Lufkin
& Jenrette,
5.875% due 4/1/02 -- -- 731,380 705,409 214,890 207,259 233,740 225,440 1,138,108
Dynegy Inc., 7.45%
due 7/15/06 -- -- 812,860 776,771 238,830 228,227 259,780 248,247 1,253,244
Ford Motor Co.,
7.375%
due 10/28/09 -- -- 898,220 868,237 263,910 255,101 287,060 277,478 1,400,816
Knight Ridder Inc.,
6.875% due 3/15/29 -- -- 913,740 792,917 268,470 232,971 292,020 253,407 1,279,294
Lehman Brothers
Holdings, Inc.,
7.75% due 1/15/05 -- -- 810,920 811,423 238,260 238,408 259,160 259,321 1,309,151
Lockheed Martin
Corp., 7.95%
due 12/1/05 -- -- 843,900 826,651 247,950 242,882 269,700 264,187 1,333,720
MCI Communications
Corp., 6.50%
due 4/15/10 -- -- 892,400 812,450 262,200 238,710 285,200 259,649 1,310,808
Morgan Stanley
Dean Witter & Co.,
5.625% due 1/20/04 -- -- 911,800 854,949 267,900 251,196 291,400 273,231 1,379,377
National Rural
Utilities, 6.20%
due 2/1/08 -- -- 791,520 723,394 232,560 212,544 252,960 231,188 1,167,125
Osprey Trust Inc.,
8.31% due 1/15/03 -- -- 861,360 854,125 253,080 250,954 275,280 272,968 1,378,046
Popular North
America, Inc.,
6.875% due 6/15/01 -- -- 851,660 842,592 250,230 247,566 272,180 269,282 1,359,440
Raytheon Co., 7.90%
due 3/1/03 -- -- 874,940 859,856 257,070 252,638 279,620 274,799 1,387,294
St. Paul Cos Inc.,
7.875% due 4/15/05 -- -- 834,200 816,548 245,100 239,914 266,600 260,959 1,317,421
Saks Inc., 8.25%
due 11/15/08 -- -- 937,020 845,661 275,310 248,467 299,460 270,263 1,364,391
----------- ----------- ----------- -------------
15,685,270 4,608,559 5,012,818 25,306,647
----------- ----------- ----------- -------------
MORTGAGE OBLIGATIONS
COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.06%
Asset Backed
Securitization
Corp.,
6.64% due 12/25/27 -- -- 970,000 879,974 285,000 258,549 310,000 281,229 1,419,752
CMC Securitization
Corp., Series 97,
7.00% due 10/25/27 -- -- 209,908 208,255 61,674 61,188 67,084 66,556 335,999
CWMBS Inc., Series
98, 6.50%
due 7/25/13 -- -- 823,336 761,187 241,908 223,648 263,128 243,266 1,228,101
Chase Mortgage
Financal Trust,
6.50% due 9/25/13 -- -- 764,360 705,751 224,580 207,360 244,280 225,549 1,138,660
Chase Mortgage
Financal Trust,
7.25% due 2/25/30 -- -- 970,000 916,330 285,000 269,231 310,000 292,848 1,478,409
Credit Suisse First
Boston Mortgage,
7.29% due 9/15/09 -- -- 1,513,200 1,469,782 444,600 431,843 483,600 469,724 2,371,350
Federal Home Loan
Mortgage Corp. -- -- 388,000 357,445 114,000 105,023 124,000 114,235 576,703
6.00% due 1/15/24
6.25% due 6/15/24 -- -- 1,334,720 1,259,188 392,160 369,968 426,560 402,421 2,031,577
Federal National
Mortgage
Association,
7.412% due 8/17/21 -- -- 1,141,108 1,125,721 335,274 330,753 364,684 359,767 1,816,241
Government National
Mortgage
Association, 7.25%
due 10/16/22 -- -- 329,024 328,215 96,672 96,434 105,152 104,894 529,543
Residential Asset
Securitization
Trust, 7.00%
due 2/25/08 -- -- 105,536 105,224 31,008 30,916 33,728 33,628 169,769
----------- ----------- ----------- -------------
8,117,074 2,384,914 2,594,116 13,096,104
----------- ----------- ----------- -------------
MORTGAGE BACKED SECURITIES/PASSTHROUGHS -- 0.70%
Federal Home Loan
Mortgage Corp.
5.750% due 7/15/03 5,000,000 4,790,650 -- -- -- -- -- -- 4,790,650
6.00% due TBA -- -- 388,000 351,989 114,000 103,419 124,000 112,491 567,900
6.00% due 8/1/00 -- -- 597,908 593,755 175,674 174,454 191,084 189,757 957,965
7.50% due TBA -- -- 1,435,600 1,402,624 421,800 412,111 458,800 448,261 2,262,997
8.50% due 4/1/01 -- -- 1,164 1,320 1,000 388 1,000 422 2,129
----------- ----------- ----------- ----------- -------------
4,790,650 2,349,688 690,372 750,931 8,581,641
----------- ----------- ----------- ----------- -------------
Federal National
Mortgage
Association -- 2.21%
4.625%
due 10/15/01 5,000,000 4,841,550 -- -- -- -- -- -- 4,841,550
5.50% due TBA -- -- 1,940,000 1,689,619 570,000 496,434 620,000 539,981 2,726,035
6.50% due TBA -- -- 2,716,000 2,534,354 798,000 744,630 868,000 809,948 4,088,932
6.50% due 4/1/29 -- -- 1,481,384 1,383,684 435,252 406,546 473,432 442,208 2,232,438
6.50% due 5/1/29 -- -- 1,673,832 1,561,762 491,796 458,868 534,936 499,120 2,519,751
7.00% due 6/1/03 -- -- 65,184 64,529 19,152 18,960 20,832 20,623 104,112
7.00% due 7/1/03 -- -- 105,924 104,628 31,122 30,741 33,852 33,438 168,807
7.50% due TBA -- -- 2,211,600 2,193,642 649,800 644,524 706,800 701,061 3,539,226
7.50% due TBA -- -- 4,423,200 4,327,825 1,299,600 1,271,577 1,413,600 1,383,119 6,982,522
8.00% due 6/1/02 -- -- 1,552 1,657 1,000 487 1,000 530 2,674
----------- ----------- ----------- ----------- -------------
4,841,550 13,861,700 4,072,768 4,430,028 27,206,046
----------- ----------- ----------- ----------- -------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 1.68%
6.50% due TBA -- -- 4,811,200 4,505,990 1,413,600 1,323,925 1,537,600 1,440,059 7,269,973
7.00% due 2/15/24 -- -- 1,341,316 1,294,935 394,098 380,471 428,668 413,845 2,089,251
8.00% due TBA -- -- 776,000 777,698 228,000 228,499 248,000 248,543 1,254,739
8.00% due 12/15/07 -- -- 13,192 13,248 3,876 3,893 4,216 4,234 21,375
8.00% due 6/1/27
(TBA) 5,000,000 5,015,600 -- -- -- -- -- -- 5,015,600
8.00% due 2/15/30 4,992,976 5,008,554 -- -- -- -- -- -- 5,008,554
----------- ----------- ----------- ----------- -------------
10,024,154 6,591,871 1,936,787 2,106,680 20,659,491
----------- ----------- ----------- ----------- -------------
TOTAL MORTGAGE
OBLIGATIONS -- 5.64% 19,656,354 30,920,333 9,084,840 9,881,756 69,543,282
----------- ----------- ----------- ----------- -------------
YANKEE BONDS -- 0.34%
Corporacion Andina
de Fomento,
7.75% due 3/1/04 -- -- 845,840 832,273 248,520 244,534 270,320 265,984 1,342,791
Empresa Nacional,
7.75% due 7/15/08 -- -- 428,740 398,295 125,970 117,025 137,020 127,290 642,610
Imperial Tobacco
Overseas, 7.125%
due 4/1/09 -- -- 1,049,540 917,109 308,370 269,460 335,420 293,097 1,479,666
TPSA Financial,
7.75% due 12/10/08 -- -- 506,340 483,294 148,770 141,999 161,820 154,455 779,747
----------- ----------- ----------- -------------
2,630,971 773,017 840,826 4,244,814
----------- ----------- ----------- -------------
UNITED STATES GOVERNMENT AND
OTHER GOVERNMENT OBLIGATIONS
UNITED STATES TREASURY BONDS -- 2.28%
8.125% due 8/15/19 -- -- 2,101,020 2,524,501 617,310 741,735 671,460 806,799 4,073,036
7.875% due 2/15/21 2,500,000 2,962,275 -- -- -- -- -- -- 2,962,275
6.25% due 8/15/23 16,000,000 16,017,600 -- -- -- -- -- -- 16,017,600
3.625% due 4/15/28 -- -- 1,587,308 1,521,391 466,374 447,007 507,284 486,218 2,454,615
3.875% due 4/15/29 -- -- 1,001,040 1,003,310 294,120 294,787 319,920 320,646 1,618,743
6.125% due 8/15/29 -- -- 611,100 612,530 179,550 179,970 195,300 195,757 988,257
----------- ----------- ----------- ----------- -------------
18,979,875 5,661,732 1,663,499 1,809,420 28,114,526
----------- ----------- ----------- ----------- -------------
UNITED STATES TREASURY NOTES -- 1.81%
5.50% due 12/31/00 -- -- 42,680 42,400 12,540 12,458 13,640 13,550 68,408
6.50% due 5/31/01 -- -- 446,200 445,919 131,100 131,017 142,600 142,510 719,446
6.25% due 2/15/03 2,500,000 2,476,450 -- -- -- -- -- -- 2,476,450
5.875% due
11/15/04 -- -- 116,400 113,326 34,200 33,297 37,200 36,218 182,840
6.500% due 8/15/05 6,700,000 6,687,270 -- -- -- -- -- -- 6,687,270
6.875% due 5/15/06 -- -- 1,350,240 1,372,181 396,720 403,167 431,520 438,532 2,213,880
6.625% due 5/15/07 -- -- 1,761,520 1,773,075 517,560 520,955 562,960 566,653 2,860,684
6.50% due 2/15/10 3,000,000 3,060,540 2,428,880 2,477,069 713,640 727,799 776,240 791,641 7,057,048
----------- ----------- ----------- ----------- -------------
12,224,260 6,223,970 1,828,692 1,989,104 22,266,026
----------- ----------- ----------- ----------- -------------
TOTAL UNITED STATES
GOVERNMENT & OTHER
GOVERNMENT
OBLIGATIONS -- 5.68% 50,860,489 11,885,703 3,492,191 3,798,523 70,036,906
----------- ----------- ----------- ----------- -------------
TOTAL FIXED
INCOME -- 34.08% 279,828,497 86,861,426 25,521,141 27,759,837 419,970,901
----------- ----------- ----------- ----------- -------------
PREFERRED STOCK -- 0.32%
California Federal
Preferred
Capital Corp. 600 13,350 -- -- -- -- -- -- 13,350
Comed Financing I -- -- -- 3,121,752 15,732 355,880 17,112 387,097 3,864,729
Dobson
Communications 250 25,656 -- -- -- -- -- -- 25,656
----------- ----------- ----------- ----------- -------------
39,006 3,121,752 355,880 387,097 3,903,735
----------- ----------- ----------- ----------- -------------
Total US Fixed
Securities -- 34.40% 279,867,503 89,983,178 25,877,020 28,146,934 423,874,636
----------- ----------- ----------- ----------- -------------
Identified Cost 297,891,399 91,251,385 26,810,974 29,162,814 445,116,572
FOREIGN BONDS PRINCIPAL PRINCIPAL
ISSUER CURRENCY AMOUNT VALUE AMOUNT VALUE
---------------------------- --------------------------------------------
FIXED INCOME
CANADA -- 0.07%
Canadian Government Bonds
1.90%
due 3/23/09 JPY -- -- -- -- 33,294,000 313,737 59,334,000 559,118 872,855
----------- ----------- -------------
DENMARK -- 0.17%
Commerzbank AG
13.75%
due 1/18/02 PLN -- -- -- -- 1,790,000 381,226 3,190,000 679,392 1,060,617
Nykredit
5.00%
due 10/01/29 DKK -- -- -- -- 363,012 38,878 646,932 69,285 108,163
Oester
Kontrollbank
1.80%
due 3/22/10 JPY -- -- -- -- 28,461,000 264,084 50,721,000 470,630 734,714
Unikredit
Realkred
5.00%
due 10/01/29 DKK -- -- -- -- 445,352 47,686 793,672 84,982 132,667
----------- ----------- -------------
731,874 1,304,289 2,036,162
----------- ----------- -------------
FINLAND -- 0.00%
Finnish Export Credit Corp.
6.625%
due 5/15/00 USD -- -- -- -- 21,480 21,480 38,280 38,280 59,760
----------- -----------
FRANCE -- 0.09%
Government of
France O.A.T.
3.00%
due 7/25/09 EURO -- -- -- -- 172,927 149,049 308,177 265,623 414,672
5.50%
due 4/25/29 EURO -- -- -- -- 291,770 258,803 519,970 461,218 720,021
----------- ----------- -------------
407,851 726,841 1,134,693
----------- ----------- -------------
GREAT BRITAIN -- 0.41%
Abbey National
Treasury Services
6.25%
due 6/30/00 USD -- -- -- -- 78,223 78,168 139,403 139,305 217,474
8.50%
due 7/17/00 USD -- -- -- -- 179,000 179,428 319,000 319,762 499,190
7.95%
due 10/26/29 USD 2,000,000 1,954,212 1,954,212
European Investment
Bank
7.00%
due 12/08/03 GBP -- -- -- -- 537,000 841,977 957,000 1,500,506 2,342,483
----------- ----------- ----------- -------------
1,954,212 1,099,573 1,959,574 5,013,359
----------- ----------- ----------- -------------
GERMANY -- 0.16%
Bundesrepublik
Deutschland
4.25%
due 11/26/04 EURO -- -- -- -- 737,480 650,766 1,314,280 1,159,746 1,810,512
Republic of
Germany
5.625%
due 1/04/28 EURO -- -- -- -- 42,960 38,656 76,560 68,891 107,547
----------- ----------- -------------
689,423 1,228,636 1,918,059
----------- ----------- -------------
GREECE -- 0.04%
Republic of Greece
10.18%
due 6/17/03 GRD -- -- -- -- 11,599,200 32,428 20,671,200 57,791 90,219
10.24%
due 10/23/03 GRD -- -- -- -- 52,626,000 148,265 93,786,000 264,227 412,492
----------- ----------- -------------
180,693 322,018 502,711
----------- ----------- -------------
ITALY -- 0.00%
SCCR Limited
3.50%
due 5/15/00 EURO -- -- -- -- 35,800,000 16,806 63,800,000 29,951 46,757
----------- ----------- -------------
JAPAN -- 0.32%
Government of Japan
4.10%
due 6/21/04 JPY -- -- -- -- 32,578,000 339,428 58,058,000 604,902 944,330
International Bank
Reconstruction
and Development
4.75%
due 12/20/04 JPY -- -- -- -- 59,070,000 640,711 105,270,000 1,141,826 1,782,537
Nippon Telephone
and Telegraph
2.50%
due 7/25/07 JPY -- -- -- -- 42,960,000 421,228 76,560,000 750,680 1,171,908
----------- ----------- -------------
1,401,367 2,497,408 3,898,775
----------- ----------- -------------
NETHERLANDS -- 0.08%
Bank Netherlands
Gemeenten
6.00%
due 5/12/00 USD -- -- -- -- 67,125 67,135 119,625 119,643 186,778
Kingdom of
Netherlands
6.00%
due 1/15/06 EURO -- -- -- -- 289,980 273,507 516,780 487,422 760,929
----------- ----------- -------------
340,642 607,065 947,707
----------- ----------- -------------
PORTUGAL -- 0.04%
Republic of Portugal
6.50%
due 5/08/00 USD -- -- -- -- 179,000 179,036 319,000 319,064 498,100
----------- ----------- -------------
SPAIN -- 0.03%
Government of Spain
6.00%
due 1/31/29 EURO -- -- -- -- 122,791 114,554 218,828 204,149 318,702
----------- ----------- -------------
UNITED STATES -- 0.24%
Bank One Auto
Grantor Trust
6.27%
due 11/20/03 USD -- -- -- -- 30,779 30,644 54,851 54,612 85,256
Chase Manhattan
Grantor Trust
6.61%
due 9/15/02 USD -- -- -- -- 21,531 21,470 38,371 38,262 59,733
Federal National
Mortgage
Association
7.25%
due 1/15/10 USD -- -- -- -- 46,540 46,402 82,940 82,694 129,096
Government National
Mortgage
Association
6.125%
due 4/20/25 USD -- -- -- -- 81,878 82,544 145,916 147,103 229,646
6.75%
due 9/20/25 USD -- -- -- -- 78,036 78,671 139,070 140,201 218,871
6.75%
due 9/20/26 USD -- -- -- -- 44,177 44,335 78,729 79,010 123,344
7.125%
due 12/20/25 USD -- -- -- -- 20,969 21,143 37,370 37,679 58,822
7.125%
due 11/20/26 USD -- -- -- -- 135,679 136,761 241,798 243,725 380,485
Inter American
Development Bank
7.375%
due 1/15/10 USD -- -- -- -- 44,750 44,943 79,750 80,094 125,037
KFW International
Finance
5.875%
due 6/28/00 USD -- -- -- -- 32,220 32,178 57,420 57,345 89,523
United States
Treasury
Inflationary
Index Notes
6.50%
due 2/28/02 USD -- -- -- -- 544,160 542,119 969,760 966,123 1,508,243
----------- ----------- -------------
1,081,209 1,926,848 3,008,057
----------- ----------- -------------
TOTAL FOREIGN
BONDS -- 1.64% 1,954,212 6,578,244 11,723,240 20,255,696
----------- ----------- ----------- -------------
IDENTIFIED COST 2,093,620 7,034,047 12,542,665 21,670,332
Total Long Term
Investments -- 97.35% 822,093,699 189,597,478 67,980,449 119,976,862 1,199,648,488
----------- ----------- ----------- ----------- -------------
Identified Cost 685,687,206 196,218,208 64,154,186 108,847,314 1,054,906,914
----------- ----------- ----------- ----------- -------------
SHORT TERM -- 2.65%
First Union
National
Bank -- -- -- -- -- 708,422 -- 1,525,832 2,234,254
First Union
National
Bank -- -- -- -- -- 135,392 -- 507,720 643,112
First Home Loan
Bank -- -- -- -- -- 27,100 -- 113,278 140,378
First Union
National
Bank -- -- -- -- -- 367,308 -- 654,588 1,021,896
Deutche Australia -- -- -- -- -- 356,610 -- 635,523 992,133
First Home Loan
Bank -- -- -- -- -- 127,806 -- 170,229 298,035
First Union
National
Bank -- -- -- 9,488,928 -- 2,787,984 -- 3,032,544 15,309,456
Goldman Sachs 11,647,000 11,647,000 -- -- -- -- -- -- 11,647,000
US T Bill -- -- -- 264,737 -- 77,783 -- 84,607 427,127
----------- ----------- ----------- ----------- -------------
11,647,000 9,753,665 4,588,405 6,724,320 32,713,390
----------- ----------- ----------- ----------- -------------
Total Investments -- 100.00% 833,740,699 199,351,143 72,568,854 126,701,182 1,232,361,878
----------- ----------- ----------- ----------- -------------
Identified Cost 697,334,206 205,971,873 68,742,591 115,571,634 1,087,620,305
* Non-income producing
+ Security is exempt from registration under rule 144A
++ Security is in default
# The fund does not anticipate to be required to sell any securities upon completion of the merger
</TABLE>
<PAGE>
Pro Forma Footnotes of Mergers Between Smith Barney Balanced Fund and CitiFunds
Balanced Portfolio, CitiSelect Folio 200 Conservative and CitiSelect Folio 300
Balanced April 30, 2000 (unaudited)
1. General
The accompanying unaudited pro forma financial statements are presented to show
the effect of the proposed acquisition of substantially all of the assets of the
CitiFunds Balanced Portfolio, CitiSelect Folio 200 Conservative and CitiSelect
Folio 300 Balanced ("the Acquired Funds") by the Smith Barney Balanced Fund
("Fund" or "Balanced Fund") in exchange for shares of Balanced Fund and the
assumption by Balanced Fund of substantially all of the liabilities of the
Acquired Funds as described elsewhere in this proxy statement/prospectus.
Under the terms of the Agreements and Plans of Reorganization, the exchange of
assets of the Acquired Funds for shares of the Balanced Fund will be treated as
a tax-free reorganization and accordingly will be accounted for as a tax-free
merger. The acquisition would be accomplished by an acquisition of the net
assets of the Acquired Funds in exchange for shares of Balanced Fund at net
asset value. The unaudited pro forma schedule of investments and the unaudited
pro forma statement of assets and liabilities have been prepared as though the
acquisition had been effective on April 30, 2000. The unaudited pro forma
statement of operations has been prepared as though the acquisition had been
effective May 1, 1999. The unaudited pro forma financial statements are as of
the semi-annual period end of the Acquired Funds as that date is more recent
than the most recently filed financial statements for Balanced Fund.
The accompanying pro forma financial statements should be read in conjunction
with the financial statements and schedule of investments of the Acquired Funds
and Balanced Fund which are included in their respective annual reports dated
October 31, 1999 and July 31, 1999, respectively. The expense of the
reorganization, including the cost of the proxy solicitation, will be borne by
SSB Citi Fund Management LLC ("SSBC"), Balanced Fund's Investment Manager. SSBC
is a subsidiary of Salomon Smith Barney Holdings Inc., which in turn is a
subsidiary of Citigroup Inc.
2. Significant Accounting Policies
Balanced Fund, a separate investment fund of the Smith Barney Income Funds, a
Massachusetts business trust, is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management investment company.
The significant accounting policies consistently followed by Balanced Fund are:
(a) security transactions are accounted for on trade date; (b) securities
traded on national securities markets are valued at the closing price
on such markets; securities for which no sales price were reported
and U.S. government and agency obligations are valued at bid price,
or in the absence of a recent bid price, at the bid equivalent
obtained from one or more of the major market makers; (c) securities
maturing within 60 days are valued at cost plus accreted discount, or
minus amortized premium, which approximates value; (d) dividend
income is recorded on ex-dividend date and interest income is
recorded on an accrual basis; (e) gains or losses on the sale of
securities are recorded on the identified cost basis; (f) direct
expenses are charged to each class; management fees and general fund
expenses are allocated on the basis of relative net assets of each
class; (g) dividends and distributions to shareholders are recorded
<PAGE>
on the ex-dividend date; (h) the character of income and gains to be
distributed is determined in accordance with income tax regulations
which may differ from generally accepted accounting principles; (i)
the Fund intends to comply with the applicable provisions of the
Internal Revenue Code of 1986, as amended, pertaining to regulated
investment companies and to make distributions of taxable income
sufficient to relieve it from substantially all Federal income and
excise taxes; and (j) estimates and assumptions are required to be
made regarding assets, liabilities and changes in net assets
resulting from operations when financial statements are prepared.
Changes in the economic environment, financial markets and any other
parameters used in determining these estimates could cause actual
results to differ.
In addition, the Fund may enter into forward exchange contracts in
order to hedge against foreign currency risk. These contracts are
marked to market daily by recognizing the difference between the
contract exchange rate and the current market rate as an unrealized
gain or loss. Realized gains or losses are recognized when contracts
are settled. The Fund from time to time may also enter into options
and/or futures contracts to hedge market risk.
3. Pro Forma Adjustments
The accompanying unaudited pro forma portfolio of investments and pro forma
financial statements reflect changes in shares and fund expenses as if the
merger had taken place on May 1, 1999. Adjustments were made to certain
expenses to reflect the merged entities' operations, and to reflect new
investment advisory and administration agreements as if they had been in place
as of May 1, 1999.
4. Investment Advisory Agreement and Other Transactions
SSBC acts as investment advisor of Balanced Fund. Balanced Fund pays SSBC an
advisory fee calculated at an annual rate of 0.45%. This fee is calculated
daily and paid monthly.
Under an administration agreement, SSBC also acts as Balanced Fund's
administrator for which Balanced Fund pays a fee calculated at an annual rate
of 0.20% of the average daily net assets. This fee is also calculated daily and
paid monthly.
Under these agreements, Balanced Fund pays SSBC a maximum annual combined fee of
0.65% of average net assets for both investment advisory and administration
services. Under the agreements between Citibank, N. A., a subsidiary of
Citigroup, and the Acquired Funds, Citibank, N. A. receives a combined annual
fee of 0.75% for such services from CitiSelect Folio 200 Conservative and
CitiSelect Folio 300 Balanced, and 0.70% for such services from CitiFunds
Balanced Portfolio.
Citi Fiduciary Trust Company ("CFTC"), a subsidiary of Citigroup, is Balanced
Fund's transfer agent. Salomon Smith Barney Inc., another subsidiary of
Citigroup, acts as Balanced Fund's distributor.
