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Prospectus
SMITH BARNEY
Small
Cap Blend
Fund, Inc.
April 30, 1998
Prospectus begins on page one
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
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Prospectus April 30, 1998
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Smith Barney Small Cap Blend Fund, Inc.
388 Greenwich Street
New York, New York 10013
1-800-451-2010
Smith Barney Small Cap Blend Fund, Inc., formerly known as Smith Barney
Disciplined Small Cap Fund, Inc. (the "Fund") is an open-end diversified
management investment company that seeks long term capital appreciation by
investing primarily in the common stocks of companies with relatively small
market capitalizations. In order to provide consistent relative performance, the
Fund will hold a portfolio that is comparable to the Russell 2500 Stock Index, a
broad based index of the smaller cap segment of the U.S. stock market in terms
of overall risk, economic sector weightings and market capitalization. By
linking its investment strategy to the Russell 2500 Stock Index, the Fund will
provide diversified exposure to the universe of stocks that comprise the lowest
25% of market capitalization of publicly traded companies in the U.S. with
market values greater than $100 million. The adviser to the Fund will select
stocks based on a disciplined quantitative screening process that seeks a
combination of attractive relative value and earnings growth.
This Prospectus sets forth concisely certain information about the Fund
including sales charges, distribution and service fees and expenses, that
prospective investors will find helpful in making an investment decision.
Investors are encouraged to read this Prospectus carefully and retain it for
future reference.
Additional information about the Fund is contained in a Statement of
Additional Information dated April 30, 1998, as amended or supplemented from
time to time, that is available upon request and without charge by calling or
writing the Fund at the telephone number or address set forth above or by
contacting a Smith Barney Financial Consultant. The Statement of Additional
Information ("SAI") has been filed with the Securities and Exchange Commission
(the "SEC") and is incorporated by reference into this Prospectus in its
entirety.
Smith Barney Inc.
Distributor
Travelers Investment Management Company
Investment Adviser
Mutual Management Corp.
Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
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Table of Contents
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Prospectus Summary 3
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Financial Highlights 9
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Investment Objective and Management Policies 11
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Valuation of Shares 15
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Dividends, Distributions and Taxes 15
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Purchase of Shares 16
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Exchange Privilege 26
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Redemption of Shares 29
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Minimum Account Size 31
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Performance 32
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Management of the Fund 32
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Distributor 34
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Additional Information 35
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No person has been authorized to give any information or to make any
representation in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the Fund or
Smith Barney Inc. (the "Distributor"). This Prospectus does not constitute an
offer by the Fund or the Distributor to sell or a solicitation of an offer to
buy any of the securities offered hereby in any jurisdiction to any person to
whom it is unlawful to make such offer or solicitation in such jurisdiction.
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2
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Prospectus Summary
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The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the SAI. Cross references in this
summary are to headings in the Prospectus. See "Table of Contents."
Investment Objective The Fund is an open-end management investment company
that seeks long term capital appreciation by investing primarily in the common
stocks of companies with relatively small market capitalizations. In order to
provide consistent relative performance, the Fund will hold a portfolio that is
comparable to the Russell 2500 Stock Index, a broad based index of the smaller
cap segment of the U. S. stock market in terms of overall risk, economic sector
weightings and market capitalization. By linking its investment strategy to the
Russell 2500 Stock Index, the Fund will provide diversified exposure to the
universe of stocks that comprise the lowest 25% of market capitalization of
publicly traded companies in the U.S. with market values greater than $100
million. The adviser to the Fund will select stocks based on a disciplined
quantitative screening process that seeks a combination of attractive relative
value and earnings growth. See "Investment Objective and Management Policies."
Alternative Purchase Arrangements The Fund offers several classes of
shares ("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three classes of shares: Class A shares, Class B shares and Class C
shares, which differ principally in terms of sales charges and rate of expenses
to which they are subject. A fourth Class of shares, Class Y shares, is offered
only to investors meeting an initial investment minimum of $15,000,000. See
"Purchase of Shares" and "Redemption of Shares."
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.00% and are subject to an annual service fee of 0.25% of
the average daily net assets of the Class. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares of $500,000
or more will be made at net asset value with no initial sales charge, but will
be subject to a contingent deferred sales charge ("CDSC") of 1.00% on
redemptions made within 12 months of purchase. See "Prospectus Summary --
Reduced or No Initial Sales Charge."
Class B Shares. Class B shares are offered at net asset value subject to a
maximum CDSC of 5.00% of redemption proceeds, declining by 1.00% each year after
the date of purchase to zero. This CDSC may be waived for certain redemptions.
Class B shares are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the average daily net asset value of the Class. The
Class B shares' distribution fee may cause that Class to have higher expenses
and pay lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will convert
automatically to Class A shares, based on relative net asset value, eight years
after the date of the
3
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Prospectus Summary (continued)
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original purchase. Upon conversion, these shares will no longer be subject to an
annual distribution fee. In addition, a certain portion of Class B shares that
have been acquired through the reinvestment of dividends and distributions
("Class B Dividend Shares") will be converted at that time. See "Purchase of
Shares -- Deferred Sales Charge Alternatives."
Class C Shares. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the average daily net asset value of the Class C
shares,
and investors pay a CDSC of 1.00% if they redeem Class C shares within 12 months
of purchase. The CDSC may be waived for certain redemptions. The Class C shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A shares. Purchases of Fund shares, which when combined
with current holdings of Class C shares of the Fund equal or exceed $500,000 in
the aggregate, should be made in Class A shares at net asset value with no sales
charge, and will be subject to a CDSC of 1.00% on redemptions made within 12
months of purchase.
Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $15,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.
In deciding which Class of Fund shares to purchase, investors should
consider the following factors, as well as any other relevant facts and
circumstances:
Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his or
her investment. Shareholders who are planning to establish a program of regular
investment may wish to consider Class A shares; as the investment accumulates
share holders may qualify for reduced sales charges and the shares are subject
to lower ongoing expenses over the term of the investment. As an alternative,
Class B and Class C shares are sold without any initial sales charge so the
entire purchase price is immediately invested in the Fund. Any investment return
on these additional invested amounts may partially or wholly offset the higher
annual expenses of these Classes. Because the Fund's future return cannot be
predicted, however, there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
con version rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class B
shares, they do not have a conversion feature, and therefore, are subject to an
ongoing distribution fee. Thus, Class B shares may be more attractive than Class
C shares to investors with longer term investment outlooks.
Reduced or No Initial Sales Charge. The initial sales charge on Class A
shares may be waived for certain eligible purchasers, and the entire purchase
price will be immediately invested in the Fund. In addition, Class A share
purchases of $500,000
4
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Prospectus Summary (continued)
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or more will be made at net asset value with no initial sales charge, but will
be subject to a CDSC of 1.00% on redemptions made within 12 months of purchase.
The $500,000 investment may be met by adding the purchase to the net asset value
of all Class A shares offered with a sales charge held in funds sponsored by
Smith Barney listed under "Exchange Privilege." Class A share purchases also may
be eligible for a reduced initial sales charge. See "Purchase of Shares."
Because the ongoing expenses of Class A shares may be lower than those for Class
B and Class C shares, purchasers eligible to purchase Class A shares at net
asset value or at a reduced sales charge should consider doing so.
Smith Barney Financial Consultants may receive different compensation for
selling different Classes of shares. Investors should understand that the
purpose of the CDSC on the Class B and Class C shares is the same as that of the
initial sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Fund" for a complete
description of the sales charges and service and distribution fees for each
class of shares and "Valuation of Shares," "Dividends, Distributions and Taxes"
and "Exchange Privilege" for other differences between the Classes of shares.
Smith Barney 401(k) and ExecChoice(TM) Programs Investors may be eligible
to participate in the Smith Barney 401(k) Program, which is generally designed
to assist plan sponsors in the creation and operation of retirement plans under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), as
well as other types of participant directed, tax-qualified employee benefit
plans. Investors may also be eligible to participate in the Smith Barney
ExecChoice(TM) Program. Class A and Class C shares are available without a sales
charge as investment alternatives under both of these programs. See "Purchase of
Shares -- Smith Barney 401(k) and ExecChoice(TM) Programs."
Purchase of Shares Shares may be purchased through a brokerage account
maintained by Smith Barney. Shares may also be purchased through a broker that
clears securities transactions through Smith Barney on a fully disclosed basis
(an "Introducing Broker") or an investment dealer in the selling group. In
addition, certain investors, including qualified retirement plans and certain
other institutional investors, may purchase shares directly from the Fund
through the Fund's transfer agent, First Data Investor Services Group, Inc.
("First Data"). See "Purchase of Shares."
Investment Minimums Investors in Class A, Class B and Class C shares may
open an account by making an initial investment of at least $1,000 for each
account, or $250 for an individual retirement account ("IRA") or a Self-Employed
Retirement Plan. Investors in Class Y shares may open an account for an initial
investment of $15,000,000. Subsequent investments of at least $50 may be made
for all Classes. For participants in retirement plans qualified under Section
403(b)(7) or
5
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Prospectus Summary (continued)
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Section 401(a) of the Code, the minimum initial investment requirement for Class
A, Class B and Class C shares and the subsequent investment requirement for all
Classes of shares is $25. The minimum investment requirements for purchases of
Fund shares through the Systematic Investment Plan are described below. See
"Purchase of Shares."
Systematic Investment Plan The Fund offers shareholders a Systematic
Investment Plan under which they may authorize the automatic placement of a
purchase order each month or quarter for Fund shares. The minimum initial
investment requirement for Class A, Class B and Class C shares and the
subsequent investment requirement for all Classes for shareholders purchasing
shares through the Systematic Investment Plan on a monthly basis is $25 and on a
quarterly basis is $50. See "Purchase of Shares."
Redemption of Shares Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."
Management of the Fund The Travelers Investment Management Company (the
"Adviser") serves as the Fund's investment adviser. The Adviser provides
advisory and management services to certain investment companies affiliated with
Smith Barney Inc. ("Smith Barney"). The Adviser is a wholly owned subsidiary of
Salomon Smith Barney Holdings Inc. ("Holdings"). Holdings is a wholly owned
subsidiary of Travelers Group Inc. ("Travelers"), a diversified financial
services holding company engaged, through its subsidiaries, principally in four
business segments:Investment Services, Consumer Finance Services,
Life Insurance
Services and Property & Casualty Insurance Services. See "Management of the
Fund."
Mutual Management Corp., ("MMC"), formerly known as Smith Barney Mutual
Funds Management Inc., serves as the Fund's administrator. MMC is also a wholly
owned subsidiary of Holdings. MMC provides investment advisory and
administration services to investment companies affiliated with Smith Barney.
See "Management of the Fund".
Exchange Privilege Shares of a Class may be exchanged for shares of the
same Class of certain other funds of the Smith Barney Mutual Funds at the
respective net asset values next determined. See "Exchange Privilege."
Valuation of Shares Net asset value of the classes of the Fund for the
prior day
generally is quoted daily in the financial section of most newspapers and is
also available from a Smith Barney Financial Consultant. See "Valuation of
Shares."
Dividends and Distributions Dividends from net investment income and
distributions of net realized capital gains, if any, are declared and paid
annually. See "Dividends, Distributions and Taxes."
6
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Prospectus Summary (continued)
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Reinvestment of Dividends Dividends and distributions paid on shares of a
Class will be reinvested automatically, unless otherwise specified by an
investor, in additional shares of the same Class at current net asset value.
Shares acquired by dividend and distribution reinvestments will not be subject
to any sales charge or CDSC. Class B shares acquired through dividend and
distribution reinvestments will become eligible for conversion to Class A shares
on a pro rata basis. See "Dividends, Distributions and Taxes."
Risk Factors and Special Considerations There can be no assurance that the
Fund's investment objective will be achieved. The value of the Fund's
investments, and thus the net asset value of the Fund's shares, will fluctuate
in response to changes in market and economic conditions, as well as the
financial condition and prospects of issuers in which the Fund invests. See
"Investment Objective and Management Policies."
The Fund's Expenses The following expense table lists the costs and
expenses an investor will incur either directly or indirectly as a shareholder
of the Fund, based on the maximum sales charge or maximum CDSC that may be
incurred at the time of purchase or redemption and the Fund's operating expenses
for the fiscal year ended December 31, 1997:
Small Cap Blend Fund, Inc Class A Class B Class C Class Y
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Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) ..... 5.00%* None None None
Maximum Redemption Fee or CDSC (as a
percentage of original cost or redemption
proceeds, whichever is lower) ........... None 5.00% 1.00% None
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
Management fees ........................... 0.75% 0.75% 0.75% 0.75%
12b-1 fees** .............................. 0.25 1.00 1.00 --
Other expenses ............................ 0.21 0.24 0.25 0.36
Total Portfolio Operating Expenses .......... 1.21% 1.99% 2.00% 1.11%
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*Purchases of Class A shares of $500,000 or more will be made at net asset
value with no sales charge, but will be subject to a CDSC of 1.00% on
redemptions made within 12 months of purchase.
**Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee. Class C shares do not have a conversion
feature and, therefore, are subject to an ongoing distribution fee. As a result,
long-term shareholders of Class C shares may pay more than the economic
equivalent of the maximum front-end sales charge permitted by the National
Association of Securities Dealers, Inc.
Class A shares of the Fund purchased through the Smith Barney AssetOneSM
Program will be subject to an annual asset-based fee, payable quarterly, in lieu
of the initial sales charge. The fee will vary to a maximum of 1.50%, depending
on the amount of assets held through the Program. For more information, please
call your Smith Barney Financial Consultant.
7
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Prospectus Summary (continued)
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The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Fund shares and investors may
actually pay lower or no charges, depending on the amount purchased and, in the
case of Class B, Class C and certain Class A shares, the length of time the
shares are held and whether the shares are held through the Smith Barney 401(k)
or ExecChoice(TM) Programs. See "Purchase of Shares" and "Redemption of Shares."
Smith Barney receives an annual 12b-1 service fee of up to 0.25% of
average daily net asset value of Class A shares. Smith Barney also receives with
respect to Class B and Class C shares an annual 12b-1 fee of 1.00% of the
average daily net asset value of the respective Classes, consisting of a 0.75%
distribution fee and a 0.25% service fee. "Other expenses" in the above table
include fees for shareholder services, custodial fees, legal and accounting
fees, printing costs and registration fees.
Example
The following example is intended to assist an investor in understanding
the various costs that an investor in the Fund will bear directly or indirectly.
The example assumes payment by the Fund of operating expenses at the levels set
forth in the table above. See "Purchase of Shares," "Redemption of Shares" and
"Management of the Fund."
1 Year 3 Years 5 Years 10 Years*
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An investor would pay the following
expenses on a $1,000 investment,
assuming (1) 5.00% annual return and
(2) redemption at the end of each
time period:
Class A..................... $62 $86 $113 $189
Class B..................... 70 92 117 212
Class C..................... 30 63 108 233
Class Y..................... 11 35 61 135
An investor would pay the following
expenses on the same investment,
assuming the same annual return and
no redemption:
Class A..................... $62 $86 $113 $189
Class B..................... 20 62 107 212
Class C..................... 20 63 108 233
Class Y..................... 11 35 61 135
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* Ten-year figures assume conversion of Class B shares to Class A shares at
the end of the eighth year following the date of purchase.
The example also provides a means for the investor to compare expense
levels of funds with different fee structures over varying investment periods.
To facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Fund's actual return will vary and may be
greater or less than 5.00%. This example should not be considered a
representation of past or future expenses and actual expenses may be greater or
ess than those shown.
8
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Financial Highlights
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The following information since inception until December 31, 1997 has been
audited by KPMG Peat Marwick LLP, independent auditors, whose report thereon
appears in the Fund's annual report dated December 31, 1997. Prior to June 23,
1997, the Fund was a closed-end fund. Closed-end funds are not subject to the
same legal requirements as open-end funds, especially with respect to liquidity
requirements. The total returns noted for each year may have been different if
the Fund had been an open-end fund from inception. The information set out below
should be read in conjunction with the financial statements and related notes
that also appear in the Fund's Annual Report to Shareholders, which is
incorporated by reference into the SAI.
For a share of each class of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
<C>
Class A Shares(1)
Small Cap Blend Fund, Inc 1997 1996 1995
1994 1993
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===============
Net Asset Value, Beginning of Year $ 12.30 $ 12.15 $ 11.78 $
12.50 $ 11.49
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Income (Loss) From Operations:
Net investment income 0.04 0.05 0.11
0.05 0.01
Net realized and unrealized gain (loss) 3.23 2.14 2.31
(0.63) 1.01
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Total Income (Loss) From Operations 3.27 2.19 2.42
(0.58) 1.02
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Less Distributions From:
Net investment income (0.04) (0.04) (0.11)
(0.05) (0.01)
Net realized gains (1.98) (2.00) (1.94)
(0.09) --
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Total Distributions (2.02) (2.04) (2.05)
(0.14) (0.01)
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Redemption Fee(2) 0.13 -- -- -
- - --
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Net Asset Value, End of Year $ 13.68 $ 12.30 $ 12.15 $
11.78 $ 12.50
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Total Return 28.25% 20.56% 18.90%
(4.36)% 8.90%
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Net Assets, End of Year (000s) $46,036 $52,911 $52,546
$51,641 $54,809
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Ratios to Average Net Assets:
Expenses 1.21% 1.21% 1.22%
1.22% 1.24%
Net investment income 0.24 0.43 0.84
0.43 0.08
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Portfolio Turnover Rate 140% 151% 177%
45% 87%
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Average commissions per share
paid on equity transactions(3) $ 0.05 $ 0.05 $ 0.05 -
- - --
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===============
</TABLE>
(1) The Fund operated as a closed-end investment company until June 23, 1997.
As of that date all existing shares were converted to Class A shares. The
Fund's total returns while it was a closed-end fund are based on net asset
value.
(2) Amount relates to a redemption fee that was in effect through December 31,
1997.
(3) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
9
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Financial Highlights (continued)
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For a share of each class of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Class B Shares Class C Shares Class Y
Shares
------------------------------------------
- ----
<S> <C> <C> <C>
Small Cap Blend Fund, Inc 1997(1) 1997(2)
1997(3)
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===
Net Asset Value, Beginning of Year $ 13.34 $ 13.24 $
13.87
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- ---
Income (Loss) From Operations:
Net investment loss (0.01) (0.01)
(0.01)
Net realized and unrealized gain (loss) 2.18 2.27
(0.21)
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- ---
Total Income (Loss) From Operations 2.17 2.26
(0.20)
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- ---
Less Distributions From:
Net investment income (0.01) (0.01)
(0.04)
Net realized gains (1.98) (1.98) --
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- ---
Total Distributions (1.99) (1.99)
(0.04)
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- ---
Net Asset Value, End of Year $ 13.52 $ 13.51 $
13.63
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- ---
Total Return++ 16.73% 17.53%
(1.42)%
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- ---
Net Assets, End of Year (000s) $ 12,685 $ 2,974 $
104,503
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- ---
Ratios to Average Net Assets:+
Expenses 1.99% 2.00%
1.11%
Net investment (loss) income (0.26) (0.26)
0.58
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- ---
Portfolio Turnover Rate 140% 140%
140%
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- ---
Average commissions per share
paid on equity transactions $ 0.05 $ 0.05 $
0.05
================================================================================
===
</TABLE>
(1) For the period from June 25, 1997 (inception date) to December 31, 1997.
(2) For the period from June 24, 1997 (inception date) to December 31, 1997.
(3) For the period from October 17, 1997 (inception date) to December 31,
1997.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized
10
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Investment Objective and Management Policies
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Smith Barney Small Cap Blend Fund, Inc. (the "Fund") is an open-end
diversified management investment company that seeks long term capital
appreciation by investing primarily (at least 65% of its total assets) in the
common stocks of U.S. companies with relatively small market capitalizations at
the time of investment. Companies with relatively small market capitalization
are defined as those which fall in the lowest 20% of market capitalization of
publicly traded companies in the U.S. with market values above $100 million. The
Adviser will select stocks based on a disciplined quantitative screening
process.
In order to provide consistent relative performance, the Fund will hold a
portfolio that is comparable to the Russell 2500 Stock Index in terms of overall
risk, economic sector weightings, and market capitalization. The Russell 2500 is
a broad based index of the smaller cap segment of the U.S. stock market. By
linking its investment strategy to the Russell 2500 Stock Index, the Fund will
provide diversified exposure to the universe of stocks that comprise the lowest
25% of market capitalization of publicly traded companies in the U.S. with
market values of greater than $100 million. However, the Fund is not an index
fund and is not limited to investing in the stocks that comprise the Russell
2500 Stock Index. Over time, the Fund is expected to exhibit performance
volatility that is similar to that of the Russell 2500 Stock Index. Of course,
there can be no assurance that the Fund's total return, before or after
expenses, will match or exceed that of the Russell 2500 Stock index.
The Fund will employ an active investment strategy that focuses primarily
on individual stock selection. In selecting individual stocks for the Fund's
portfolio, the Adviser will apply a number of computerized investment models to
identify stocks that have a high probability of outperforming their respective
industry/sector peer groups within the Russell 2500. These investment models
incorporate a diverse set of valuation, earnings and relative price variables to
produce a comprehensive appraisal profile on every stock in the universe of
securities described above. Stocks that are determined to be attractive based on
a combination of quantitative and fundamental criteria will be overweighted
relative to the benchmark index. In selecting stocks, the Adviser seeks to
identify companies that exhibit growth and/or value attributes. When selecting
stocks with growth potential, the Adviser will evaluate the specific financial
characteristics of the issuer such as historical and forecasted earnings growth,
sales growth, profitability and return on equity. When selecting stocks with
value characteristics, the Adviser will typically be looking at companies that
are perhaps growing more slowly but whose valuation may be below average
relative to earnings and/or assets. Therefore, the Fund is designed to produce
investment results that reflect a blend of investment styles sometimes referred
to as "growth" and "value" styles.
While securities selected through the Fund's active investment strategy
have the potential to outperform the securities represented in the Russell 2500,
they may in fact be more volatile or have a lower return than the benchmark
index. Although equity
11
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Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
securities have historically demonstrated long-term growth in value, their
prices fluctuate based on changes in a company's financial condition and general
economic conditions. This is especially true in the case of smaller companies.
Under normal market conditions, the Fund will seek to maintain full
exposure to the stock market. In order to provide normal liquidity, the Fund
may
invest in certain short-term money market instruments and may establish a
position in exchange-traded stock index futures contracts for the purpose of
gaining short-term equity exposure.
Further information about the Fund's investment policies, including a list
of those restrictions on its investment activities that cannot be changed
without shareholder approval, appears in the SAI.
Investment Policies and Strategies
Short-Term Investments. The short-term money market instruments in which
the Fund may invest include: U.S. government securities, certificates of
deposit, time deposits, and bankers' acceptances issued by domestic banks
(including their branches located outside the United States and subsidiaries
located in Canada), domestic branches of foreign banks, savings and loan
associations and similar institutions, high-grade commercial paper, and
repurchase agreements with respect to such instruments.
Repurchase Agreements. The Fund may enter into repurchase agreements with
banks which are the issuers of instruments acceptable for purchase by the Fund
and with certain dealers on the Federal Reserve Bank of New York's list of
reporting dealers. Under the terms of a typical repurchase agreement, the Fund
would acquire an underlying obligation for a relatively short period (usually
not more than one week) subject to an obligation of the seller to repurchase,
and the Fund to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Fund's holding period. This arrangement results
in a fixed rate of return that is not subject to market fluctuations during the
Fund's holding period.
Stock Index Futures Contracts. The Fund may use exchange-traded stock
index futures contracts as a hedge to protect against changes in stock prices. A
stock index futures contract is a contractual obligation to buy or sell a
specified index of stocks at a future date for a fixed price. Stock index
futures may also be used to hedge cash inflows to gain market exposure until the
cash is invested in specific common stocks. The Fund will not purchase or sell
futures contracts for which the aggregate initial margin exceeds five percent
(5%) of the fair market value of assets, after taking into account unrealized
profits and losses an any such contracts which it is entered into. When a
futures contract is purchased, the Fund will set aside, in an identifiable
manner, an amount of cash and cash equivalents equal to the total market value
of the futures contract, less the amount of the initial margin.
12
<PAGE>
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
All stock index futures will be traded on exchanges that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure that
its futures transactions meet CFTC standards, the Fund will enter into futures
contracts for hedging purposes only. The Fund expects that risk management
transactions involving futures contracts will not impact more than twenty
percent (20%) of its assets at any one time.
Real Estate Investment Trust Securities. The Fund may invest in Real
Estate Investment Trusts ("REITs"). REITs are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependent upon cash
flow from their investments to repay financing costs and the ability of the
REIT's manager. REITs are also subject to risks generally associated with
investments in real estate.
Lending of Portfolio Securities. From time to time, the Fund may lend its
portfolio securities to brokers, dealers and other financial organizations.
These loans may not exceed 33 1/3% of the Fund's total assets taken at value.
Loans of portfolio securities by the Fund will be collateralized by cash,
letters of credit or obligations of the United States government or its agencies
and instrumentalities ("U.S. government securities") which are maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. By lending its portfolio securities, the Fund will seek to
generate income by continuing to receive interest on loaned securities, by
investing the cash collateral in short-term instruments or by obtaining yield in
the form of interest paid by the borrower when U.S. government securities are
used as collateral. The risks in lending portfolio securities, as with other
extensions of secured credit, consist of possible delays in receiving additional
collateral or in the recovery of the securities or possible loss if the borrower
fails financially.
Illiquid Securities. The Fund may invest up to 15% of its net assets in
illiquid securities. Illiquid securities are those securities that are not
readily marketable, including restricted securities and repurchase obligations
maturing in more than seven days. Certain restricted securities that may be
resold to institutional investors pursuant to Rule 144A under the Securities Act
of 1933 and Section 4(2) commercial paper may be determined liquid under
guidelines adopted by the Fund's Board of Directors.
Certain Risk Considerations. There can be no assurance that the Fund's
investment objective will be achieved. The Fund is expected to remain fully
invested in common stocks to the extent practicable, and is therefore subject to
the general risk of the stock market. The Fund will invest in stocks of smaller
companies that may individually exhibit more price volatility than the broad
market averages. Moreover, the Fund will invest in stocks of smaller,
growth-oriented companies
13
<PAGE>
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
that tend to reinvest earnings rather than pay dividends. As a result, dividend
income is not expected to be a significant component of the Fund's total return.
The Fund will make investments in stocks that may at times have limited market
liquidity and whose purchase or sale would result in above average transaction
costs. Another factor that would increase the fundamental risk of investing in
smaller companies is the lack of publicly available information due to their
relatively short operating record as public companies. The Fund is suitable for
investors who have a long term investment horizon and wish to broaden their
common stock investments through an actively managed fund that specializes in
stocks with smaller market capitalizations. The Fund may not be appropriate for
all investors.
Year 2000. The investment management services provided to the Fund by the
Adviser and MMC, and the services provided to shareholders by Smith Barney, the
Fund's Distributor, depend on the smooth functioning of their computer systems.
Many computer software systems in use today cannot recognize the year 2000, but
revert to 1900 or some other date, due to the manner in which dates were encoded
and calculated. That failure could have a negative impact on the Fund's
operations, including the handling of securities trades, pricing and account
services. The Adviser, MMC and Smith Barney have advised the Fund that they have
been reviewing all of their computer systems and actively working on necessary
changes to their systems to prepare for the year 2000 and expect that their
systems will be compliant before that date. In addition, MMC has been advised by
the Fund's custodian, transfer agent and accounting service agent that they are
also in the process of modifying their systems with the same goal. There can,
however, be no assurance that the Adviser, MMC, Smith Barney or any other
service provider will be successful, or that interaction with other
non-complying computer systems will not impair Fund services at that time.
Portfolio Transactions. Portfolio securities transactions on behalf of the
Fund are placed by the Adviser with a number of brokers and dealers, including
Smith Barney. Smith Barney has advised the Fund that in transactions with the
Fund, Smith Barney charges a commission rate at least as favorable as the rate
Smith Barney charges its comparable unaffiliated customers in similar
transactions.
The Fund intends generally to purchase securities for long-term capital
appreciation. The Fund's annual portfolio turnover rate is not expected to
exceed 150%. The Fund's portfolio turnover rate will vary from year to year.
Short-term gains realized from portfolio transactions are taxable to
shareholders as ordinary income. In addition, higher portfolio turnover rates
may result in corresponding increases in brokerage commissions. The Adviser
considers these effects when evaluating the anticipated benefits of short-term
investing.
14
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Valuation of Shares
- --------------------------------------------------------------------------------
The Fund's net asset value per share is determined as of the close of
regular trading on the NYSE on each day that the NYSE is open, by dividing the
value of the Fund's net assets attributable to each Class by the total number of
shares of the Class outstanding.
Generally, the Fund's investments are valued at market value, or in the
absence of market value with respect to any securities, at fair value as
determined by or under the direction of the Fund's Board of Directors.
Short-term investments that mature in 60 days or less are valued at amortized
cost whenever the Directors determine that amortized cost approximates reflects
fair value of those investments.
- --------------------------------------------------------------------------------
Dividends, Distributions and Taxes
- --------------------------------------------------------------------------------
Dividends and Distributions
The Fund declares and pays income dividends at least annually on shares of
the Fund and makes annual distributions of capital gains, if any, on such
shares.
If a shareholder does not otherwise instruct, dividends and capital gain
distributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC.
Income dividends and capital gain distributions that are invested are
credited to shareholders' accounts in additional shares at the net asset value
as of the close of business on the payment date. A shareholder may change the
option at any time by notifying his or her Smith Barney Financial Consultant.
Accounts held directly by First Data should notify First Data in writing at
least five business days prior to the payment date to permit the change to be
entered in the shareholder's account.
The per share dividends on Class B and Class C shares of the Fund may be
lower than the per share dividends on Class A and Class Y shares principally as
a result of the distribution fee applicable with respect to Class B and Class C
shares. The per share dividends on Class A shares of the Fund may be lower than
the per share dividends on Class Y shares principally as a result of the service
fee applicable to Class A shares. Distributions of capital gains, if any, will
be in the same amount for Class A, Class B, Class C and Class Y shares.
Taxes
The Fund has qualified and intends to qualify each year as a regulated
investment company under Sub chapter M of the Internal Revenue Code of 1986 as
amended to be relieved of Federal income tax on that part of its net investment
income and realized capital gains which it pays out to its shareholders. To
continue to qualify, the Fund must meet certain tests, including distributing at
least 90% of its investment company taxable income. The following discussion
assumes that the Fund will continue to so qualify.
15
<PAGE>
- --------------------------------------------------------------------------------
Dividends, Distributions and Taxes (continued)
- --------------------------------------------------------------------------------
Dividends from net investment income and distributions of realized
short-term capital gains on the sale of securities, whether paid in cash or
automatically invested in additional shares of the Fund, are taxable to
shareholders as ordinary income. A portion of the Fund's dividends from
investment income may qualify for the dividends received deduction for
corporations.
Dividends and distributions declared by the Fund may also be subject to state
and local taxes. Distributions out of net long-term capital gains (i.e., net
long-term capital gains in excess of net short-term capital losses) are taxable
to shareholders as long-term capital gains regardless of how long the
shareholder held his or her shares. Information as to the tax status of
dividends paid or deemed paid in each calendar year will be mailed to
shareholders as early in the succeeding year as practical but not later than
January 31.
The Fund is required to withhold and remit to the U.S. Treasury 31% of
dividends, distributions and redemption proceeds to shareholders who fail to
provide a correct taxpayer identification number (the Social Security number in
the case of an individual) or to make the required certifications, or who have
been notified by the Internal Revenue Service that they are subject to backup
withholding and who are not otherwise exempt. The 31% withholding tax is not an
additional tax, but is creditable against a shareholder's federal income tax
liability.
Prior to investing in shares of the Fund, investors should consult with
their tax advisors concerning the federal, state and local tax consequences of
such an investment.
- --------------------------------------------------------------------------------
Purchase of Shares
- --------------------------------------------------------------------------------
General
The Fund offers four classes of shares. Class A shares are sold to
investors with an initial sales charge and Class B and Class C shares are sold
without an initial sales charge but are subject to a CDSC payable upon certain
redemptions. Class Y shares are sold without an initial sales charge or CDSC and
are available only to investors investing a minimum of $15,000,000 (except for
purchases of Class Y shares by Smith Barney Concert Allocation Series Inc., for
which there is no minimum purchase amount). See "Prospectus Summary --
Alternative Purchase Arrangements" for a discussion of factors to consider in
selecting which Class of shares to purchase.
16
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
Purchases of Fund shares must be made through a brokerage account
maintained with Smith Barney, an Introducing Broker or an investment dealer in
the selling group. In addition, certain investors, including qualified
retirement plans and certain other institutional investors, may purchase shares
directly from the Fund through First Data. When purchasing shares of the Fund,
investors must specify whether the purchase is for Class A, Class B, Class C or
Class Y shares. Smith Barney and other broker/dealers may charge their customers
an annual account maintenance fee in connection with a brokerage account through
which an investor purchases or holds shares. Accounts held directly at First
Data are not subject to a maintenance fee.
Investors in Class A, Class B and Class C shares may open an account by
making an initial investment of at least $1,000 for each account, or $250 for an
IRA or a Self-Employed Retirement Plan, in the Fund. Investors in Class Y shares
may open an account by making an initial investment of $15,000,000. Subsequent
investments of at least $50 may be made for all Classes. For participants in
retirement plans qualified under Section 403(b)(7) or Section 401(a) of the
Code, the minimum initial investment requirement for Class A, Class B and Class
C shares and the subsequent investment requirement for all Classes in the Fund
is $25. For shareholders purchasing shares of the Fund through the Systematic
Investment Plan on a monthly basis, the minimum initial investment requirement
for Class A, Class B and Class C shares and the subsequent investment
requirement for all Classes is $25. For share holders purchasing shares of the
Fund through the Systematic Investment Plan on a quarterly basis, the minimum
initial investment requirement for Class A, Class B and Class C shares and the
subsequent investment requirement for all Classes is $50. There are no minimum
investment requirements in Class A shares for employees of Travelers and its
subsidiaries, including Smith Barney, Directors or Trustees of any of the Smith
Barney Mutual Funds or other funds affiliated with Travelers, and their
immediate family. The Fund reserves the right to waive or change minimums, to
decline any order to purchase its shares and to suspend the offering of shares
from time to time. Shares purchased will be held in the shareholder's account by
the Fund's transfer agent, First Data. Share certificates are issued only upon a
shareholder's written request to First Data.
Purchase orders received by the Fund or Smith Barney prior to the close of
regular trading on the NYSE, on any day the Fund calculates its net asset value,
are priced according to the net asset value determined on that day (the "trade
date"). Orders received by dealers or introducing brokers prior to the close of
regular trading on the NYSE on any day the Fund calculates its net asset value,
are priced according to the net asset value determined on that day, provided the
order is received by the Fund or Smith Barney prior to Smith Barney's close of
business. For shares purchased through Smith Barney or Introducing Brokers
purchasing through Smith Barney, payment for Fund shares is due on the third
business day (the "settlement date") after the trade date. In all other cases,
payment must be made with the purchase order.
17
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
Systematic Investment Plan
Shareholders may make additions to their accounts at any time by
purchasing shares through a service known as the Systematic Investment Plan.
Under the Systematic Investment Plan, Smith Barney or First Data is authorized
through pre authorized transfers of at least $25 on a monthly basis or at least
$50 on a quarterly basis to charge the regular bank account or other financial
institution indicated by the shareholder to provide systematic additions to the
shareholder's Fund account. A shareholder who has insufficient funds to complete
the transfer will be charged a fee of up to $25 by Smith Barney or First Data.
The Systematic Investment Plan also authorizes Smith Barney to apply cash held
in the shareholder's Smith Barney brokerage account or redeem the shareholder's
shares of a Smith Barney money market fund to make additions to the account.
Additional information is available from the Fund or a Smith Barney Financial
Consultant.
Initial Sales Charge Alternative Class A Shares
The sales charges applicable to purchases of Class A shares of the Fund
are as follows:
Dealers'
Sales Charge Sales Charge Reallowance
% of as % of as % of
Amount of Investment Offering Price Amount Invested Offering Price
- --------------------------------------------------------------------------------
Less than $ 25,000 5.00% 5.26% 4.50%
$ 25,000 - 49,999 4.00 4.17 3.60
50,000 - 99,999 3.50 3.63 3.15
100,000 - 249,999 3.00 3.09 2.70
250,000 - 499,999 2.00 2.04 1.80
500,000 and over * * *
================================================================================
*Purchases of Class A shares of $500,000 or more will be made at net asset value
without any initial sales charge, but will be subject to a CDSC of 1.00% on
redemptions made within 12 months of purchase. The CDSC on Class A shares is
payable to Smith Barney, which compensates Smith Barney Financial Consultants
and other dealers whose clients make purchases of $500,000 or more. The CDSC is
waived in the same circumstances in which the CDSC applicable to Class B and
Class C shares is waived. See "Deferred Sales Charge Alternatives" and "Waivers
of CDSC."
Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of the Fund as defined in the Securities Act of
1933, as amended.
The reduced sales charges shown above apply to the aggregate of purchases
of Class A shares of the Fund made at one time by "any person," which includes
an individual and his or her immediate family, or a trustee or other fiduciary
of a single trust estate or single fiduciary account.
18
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
Initial Sales Charge Waivers
Purchases of Class A shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales to (i) Board Members and
employees of Travelers and its subsidiaries, the Smith Barney Mutual
Funds or other Travelers-affiliated funds (including retired Board Members and
employees), and members of the immediate families of such persons
(including the
surviving
spouse of a deceased Board Member or employee);and to a pension, profit-sharing
or other benefit plan for such persons and (ii) employees of members of the
National Association of Securities Dealers, Inc., provided such sales are made
upon the assurance of the purchaser that the purchase is made for investment
purposes and that the securities will not be resold except through redemption or
repurchase; (b) offers of Class A shares to any other investment company to
effect the combination of such company with the Fund by merger, acquisition of
assets or otherwise; (c) purchases of Class A shares by any client of a newly
employed Smith Barney Financial Consultant (for a period up to 90 days from the
commencement of the Financial Consultant's employment with Smith Barney), on the
condition the purchase of Class A shares is made with the proceeds of the
redemption of shares of a mutual fund which (i) was sponsored by the Financial
Consultant's prior employer, (ii) was sold to the client by the Financial
Consultant and (iii) was subject to a sales charge; (d) purchases by
shareholders who have redeemed Class A shares in the Fund (or Class A shares of
another fund of the Smith Barney Mutual Funds that are sold with a maximum 5.00%
sales charge) and who wish to reinvest their redemption proceeds in the Fund,
provided the reinvestment is made within 60 calendar days of the redemption; (e)
purchases by accounts managed by registered investment advisory subsidiaries of
Travelers; (f) purchases of Class A shares by Section 403(b) or Section 401(a)
or (k) accounts associated with Copeland Retirement Programs; (g) direct
rollovers by plan participants of distributions from a 401(k) plan offered to
employees of Travelers or its subsidiaries or a 401(k) plan enrolled in the
Smith Barney 401(k) Program (Note: subsequent investments will be subject to the
applicable sales charge); (h) purchases by separate accounts used to fund
certain unregistered variable annuity contracts; and (i) purchases by investors
participating in a Smith Barney fee-based arrangement. In order to obtain such
discounts, the purchaser must provide sufficient information at the time of
purchase to permit verification that the purchase would qualify for the
elimination of the sales charge.
Right of Accumulation
Class A shares of the Fund may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by aggregating
the dollar amount of the new purchase and the total net asset value of all Class
A shares of the Fund and of funds sponsored by Smith Barney which are offered
with a sales charge listed under "Exchange Privilege" then held by such person
and applying the sales charge applicable to such aggregate. In order to obtain
such discount, the
19
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
purchaser must provide sufficient information at the time of purchase to permit
verification that the purchase qualifies for the reduced sales charge. The right
of accumulation is subject to modification or discontinuance at any time with
respect to all shares purchased thereafter.
Group Purchases
Upon completion of certain automated systems, a reduced sales charge or
purchase at net asset value will also be available to employees (and partners)
of the same employer purchasing as a group, provided each participant makes the
mini mum initial investment required. The sales charge applicable to purchases
by each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative -- Class A Shares," and will be based
upon the aggregate sales of Class A shares of Smith Barney Mutual Funds offered
with a sales charge to, and share holdings of, all members of the group. To be
eligible for such reduced sales charges or to purchase at net asset value, all
purchases must be pursuant to an employer or partnership-sanctioned plan meeting
certain requirements. One such requirement is that the plan must be open to
specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions, IRAs or
investments pursuant to retirement plans under Sections 401 or 408 of the Code.
Smith Barney may also offer a reduced sales charge or net asset value purchase
for aggregating related fiduciary accounts under such conditions that Smith
Barney will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class A shares
at the reduced sales charge applicable to the group as a whole. The sales charge
is based upon the aggregate dollar value of Class A shares offered with a sales
charge that have been previously purchased and are still owned by the group,
plus the amount of the current purchase. A "qualified group" is one which (a)
has been in existence for more than six months, (b) has a purpose other than
acquiring Fund shares at a discount and (c) satisfies uniform criteria which
enable Smith Barney to realize economies of scale in its costs of distributing
shares. A qualified group must have more than 10 members, must be available to
arrange for group meetings between representatives of the Fund and the members,
and must agree to include sales and other materials related to the Fund in its
publications and mailings to members at no cost to Smith Barney. In order to
obtain such reduced sales charge or to purchase at net asset value, the
purchaser must provide sufficient information at the time of purchase to permit
verification that the purchase qualifies for the reduced sales charge. Approval
of group purchase reduced sales charge plans is subject to the discretion of
Smith Barney.
Letter of Intent
Class A Shares. A Letter of Intent for amounts of $50,000 or more provides
an opportunity for an investor to obtain a reduced sales charge by aggregating
20
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
investments over a 13 month period, provided that the investor refers to such
Letter when placing orders. For purposes of a Letter of Intent, the "Amount of
Investment" as referred to in the preceding sales charge table includes
purchases of all Class A shares of the Fund and other funds of the Smith Barney
Mutual Funds offered with a sales charge over the 13 month period based on the
total amount of intended purchases plus the value of all Class A shares
previously purchased and still owned. An alternative is to compute the 13 month
period starting up to 90 days before the date of execution of a Letter of
Intent. Each investment made during the period receives the reduced sales charge
applicable to the total amount of the investment goal. If the goal is not
achieved within the period, the investor must pay the difference between the
sales charges applicable to the purchases made and the charges previously paid,
or an appropriate number of escrowed shares will be redeemed. Please contact a
Smith Barney Financial Consultant or First Data to obtain a Letter of Intent
application.
Class Y Shares. A Letter of Intent may also be used as a way for investors
to meet the minimum investment requirement for Class Y shares. Such investors
must make an initial minimum purchase of $5,000,000 in Class Y shares of the
Fund and agree to purchase a total of $15,000,000 of Class Y shares of the Fund
within thirteen months from the date of the Letter. If a total investment
of $15,000,000 is not made within the thirteen-month period, all Class Y shares
purchased to date will be transferred to Class A shares, where they will be
subject to all fees (including a service fee of 0.25%) and expenses applicable
to the Fund's Class A shares, which may include a CDSC of 1.00%. Please contact
a Smith Barney Financial Consultant or First Data for further information.
Deferred Sales Charge Alternatives
CDSC Shares are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the Fund. A CDSC, however, may be imposed on certain
redemptions of these shares. "CDSC Shares" are: (a) Class B shares; (b) Class C
shares; and (c) Class A shares that were purchased without an initial sales
charge but subject to a CDSC.
Any applicable CDSC will be assessed on an amount equal to the lesser of
the original cost of the shares being redeemed or their net asset value at the
time of redemption. CDSC Shares that are redeemed will not be subject to a CDSC
to the extent that the value of such shares represents: (a) capital appreciation
of Fund assets; (b) rein vestment of dividends or capital gain distributions;
(c) with respect to Class B shares, shares redeemed more than five years after
their purchase; or (d) with respect to Class C shares and Class A shares that
are CDSC shares, shares redeemed more than 12 months after their purchase.
Class C shares and Class A shares that are CDSC Shares are subject to a
1.00% CDSC if redeemed within 12 months of purchase. In circumstances in which
21
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
the CDSC is imposed on Class B shares, the amount of the charge will depend on
the number of years since the shareholder made the purchase payment from which
the amount is being redeemed. Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during a month will
be aggregated and deemed to have been made on the last day of the preceding
Smith Barney statement month. The following table sets forth the rates of the
charge for redemptions of Class B shares by shareholders, except in the case of
Class B shares held under the Smith Barney 401(k) Program, as described below.
See "Purchase of Shares --Smith Barney 401(k) and ExecChoice(TM) Programs."
Year Since Purchase
Payment Was Made CDSC
- --------------------------------------------------------------------------------
First 5.00%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth and thereafter 0.00
================================================================================
Class B shares will convert automatically to Class A shares eight years
after the date on which they were purchased and thereafter will no longer be
subject to distribution fees. There will also be converted at that time such
proportion of Class B Dividend Shares owned by the shareholder as the total
number of his or her Class B shares converting at the time bears to the total
number of outstanding Class B shares (other than Class B Dividend Shares) owned
by the shareholder. See "Prospectus Summary -- Alternative Purchase Arrangements
- -- Class B Shares Conversion Feature."
In determining the applicability of any CDSC, it will be assumed that a
redemption is made first of shares representing capital appreciation, next of
shares representing the reinvestment of dividends and capital gain distributions
and finally of other shares held by the shareholder for the longest period of
time. The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and Fund shares being
redeemed will be considered to represent, as applicable, capital appreciation or
dividend and capital gain distribution reinvestments in such other funds. For
Federal income tax purposes, the amount of the CDSC will reduce the gain or
increase the loss, as the case may be, on the amount realized on redemption. The
amount of any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares at
$10 per share for a cost of $1,000. Subsequently, the investor acquired 5
additional shares through dividend reinvestment. During the fifteenth month
after the purchase, the investor decided to redeem $500 of his or her
investment. Assuming at
22
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
the time of the redemption the net asset value had appreciated to $12 per share,
the value of the investor's shares would be $1,260 (105 shares at $12 per
share). The CDSC would not be applied to the amount which represents
appreciation ($200) and the value of the reinvested dividend shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would be
charged at a rate of 4.00% (the applicable rate for Class B shares) for a total
deferred sales charge of $9.60.
Waivers of CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
(see "Automatic Cash Withdrawal Plan") (provided, however, that automatic cash
withdrawals in amounts equal to or less than 2.00% per month of the value of the
shareholder's shares will be permitted for withdrawal plans that were
established prior to November 7, 1994); (c) redemptions of shares within twelve
months following the death or disability of the shareholder; (d) redemption of
shares made in connection with qualified distributions from retirement plans or
IRAs upon the attainment of age 59 1/2; (e) involuntary redemptions; and (f)
redemptions of shares to effect a combination of the Fund with any investment
company by merger, acquisition of assets or otherwise. In addition, a
shareholder who has redeemed shares from other funds of the Smith Barney Mutual
Funds may, under certain circumstances, reinvest all or part of the redemption
proceeds within 60 days and receive pro rata credit for any CDSC imposed on the
prior redemption.
CDSC waivers will be granted subject to confirmation (by Smith Barney in
the case of shareholders who are also Smith Barney clients or by First Data in
the case of all other shareholders) of the shareholder's status or holdings, as
the case may be.
Smith Barney 401(k) and ExecChoice(TM) Programs
Investors may be eligible to participate in the Smith Barney 401(k)
Program or the Smith Barney ExecChoice(TM) Program. To the extent applicable,
the same terms and conditions, which are outlined below, are offered to all
plans participating ("Participating Plans") in these programs.
The Fund offers to Participating Plans Class A and Class C shares as
investment alternatives under the Smith Barney 401(k) and ExecChoice(TM)
Programs. Class A and Class C shares acquired through the Participating Plans
are subject to the same service and/or distribution fees as the Class A and
Class C shares acquired by other investors; however, they are not subject to any
initial sales charge or CDSC. Once a Participating Plan has made an initial
investment in the Fund, all of its subsequent investments in the Fund must be in
the same Class of shares, except as otherwise described below.
Class A Shares. Class A shares of the Fund are offered without any sales
23
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
charge or CDSC to any Participating Plan that purchases $1,000,000 or more of
Class A shares of one or more funds of the Smith Barney Mutual Funds.
Class C Shares. Class C shares of the Fund are offered without any sales
charge or CDSC to any Participating Plan that purchases less than $1,000,000 of
Class C shares of one or more funds of the Smith Barney Mutual Funds.
401(k) and ExecChoice(TM) Plans Opened On or After June 21, 1996. If, at
the end of the fifth year after the date the Participating Plan enrolled in the
Smith Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program, a
Participating Plan's total Class C holdings in all non-money market Smith Barney
Mutual Funds equal at least $1,000,000, the Participating Plan will be offered
the opportunity to exchange all of its Class C shares for Class A shares. (For
Participating Plans that were originally established through a Smith
Barney retail brokerage account, the five-year period will be calculated from
the date the retail brokerage account was opened.) Such Participating Plans will
be notified of the pending exchange in writing within 30 days after the fifth
anniversary of the enrollment date and, unless the exchange offer has been
rejected in writing, the exchange will occur on or about the 90th day after the
fifth anniversary date. If the Participating Plan does not qualify for the
five-year exchange to Class A shares, a review of the Participating Plan's
holdings will be performed each quarter until either the Participating Plan
qualifies or the end of the eighth year.
401(k) Plans Opened Prior to June 21, 1996. In any year after the date a
Participating Plan enrolled in the Smith Barney 401(k) Program, if its total
Class C holdings in all non-money market Smith Barney Mutual Funds equal at
least $500,000 as of the calendar year-end, the Participating Plan will be
offered the opportunity to exchange all of its Class C shares for Class A
shares. Such Plans will be notified in writing within 30 days after the
last business day of the calendar year and, unless the exchange offer has been
rejected in writing, the exchange will occur on or about the last business day
of the following March.
Any Participating Plan in the Smith Barney 401(k) or ExecChoice(TM)
Program, whether opened before or after June 21, 1996, that has not previously
qualified for an exchange into Class A shares will be offered the opportunity to
exchange all of its Class C shares for Class A shares regardless of
asset size, at the end of the eighth year after the date the Participating Plan
enrolled in the Smith Barney 401(k) or ExecChoice(TM) Program. Such Plans will
be notified of the pending exchange in writing approximately 60 days before the
eighth anniversary of the enrollment date and, unless the exchange has been
rejected in writing, the exchange will occur on or about the eighth anniversary
date. Once an exchange has occurred, a Participating Plan will not be eligible
to acquire additional Class C shares of the Fund but instead may acquire Class A
shares of the Fund. Any Class C shares not converted will continue to be subject
to the distribution fee.
Participating Plans wishing to acquire shares of the Fund through the
Smith
24
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program must purchase
such shares directly from the Transfer Agent. For further information regarding
these Programs, investors should contact a Smith Barney Financial Consultant.
Existing 401(k) Plans Investing in Class B Shares. Class B shares of the
Fund are not available for purchase by Participating Plans opened on or after
June 21, 1996, but may be purchased by any Participating Plan in the Smith
Barney 401(k) Program opened prior to such date and originally investing in such
Class. Class B shares acquired are subject to a CDSC of 3.00% of redemption
proceeds if the Participating Plan terminates within eight years of the date the
Participating Plan first enrolled in the Smith Barney 401(k) Program.
At the end of the eighth year after the date the Participating Plan
enrolled in the Smith Barney 401(k) Program, the Participating Plan will be
offered the opportunity to exchange all of its Class B shares for Class A
shares. Such Participating Plan will be notified of the pending exchange in
writing approximately 60 days before the eighth anniversary of the enrollment
date and, unless the exchange has been rejected in writing, the exchange will
occur on or about the eighth anniversary date. Once the exchange has occurred, a
Participating Plan will not be eligible to acquire additional Class B shares of
the Fund but instead may acquire Class A shares of the Fund. If the
Participating Plan elects not to exchange all of its Class B shares at that
time, each Class B share held by the Participating Plan will have the same
conversion feature as Class B shares held by other investors. See "Purchase of
Shares -- Deferred Sales Charge Alternatives."
No CDSC is imposed on redemptions of Class B shares to the extent that the
net asset value of the shares redeemed does not exceed the current net asset
value of the shares purchased through reinvestment of dividends or capital gain
distributions, plus the current net asset value of Class B shares purchased more
than eight years prior to the redemption, plus increases in the net asset value
of the shareholder's Class B shares above the purchase payments made during the
preceding eight years. Whether or not the CDSC applies to the redemption by a
Participating Plan depends on the number of years since the Participating Plan
first became enrolled in the Smith Barney 401(k) Program, unlike the
applicability of the CDSC to redemptions by other shareholders, which depends on
the number of years since those share holders made the purchase payment from
which the amount is being redeemed.
The CDSC will be waived on redemptions of Class B shares in connection
with lump-sum or other distributions made by a Participating Plan as a result
of: (a) the retirement of an employee in the Participating Plan; (b) the
termination of employment of an employee in the Participating Plan; (c) the
death or disability of an employee in the Participating Plan; (d) the attainment
of age 591/2 by an employee in the Participating Plan; (e) hardship of an
employee in the Participating Plan to the extent permitted under Section 401(k)
of the Code; or (f) redemptions of shares in connection with a loan made by the
Participating Plan to an employee.
25
<PAGE>
- --------------------------------------------------------------------------------
Exchange Privilege
- --------------------------------------------------------------------------------
Except as otherwise noted below, shares of each Class may be exchanged for
shares of the same Class in the following funds of the Smith Barney Mutual
Funds, to the extent shares are offered for sale in the shareholder's state of
residence. Ex changes of Class A, Class B and Class C shares are subject to
minimum investment requirements and all shares are subject to the other
requirements of the fund into which exchanges are made.
Fund Name
Growth Funds
Concert Peachtree Growth Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Large Cap Blend Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney Managed Growth Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Special Equities Fund
Growth and Income Funds
Concert Social awareness Fund
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Large Cap Value Fund
Smith Barney Premium Total Return Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
** Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
+++ Smith Barney Funds, Inc. -- Short-Term U.S. Treasury Securities Fund
Smith Barney Funds, Inc. -- U.S. Government Securities Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney Total Return Bond Fund
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
* Smith Barney Intermediate Maturity California Municipals Fund
* Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
26
<PAGE>
- --------------------------------------------------------------------------------
Exchange Privilege (continued)
- --------------------------------------------------------------------------------
Smith Barney Muni Funds -- Florida Portfolio
Smith Barney Muni Funds -- Georgia Portfolio
* Smith Barney Muni Funds -- Limited Term Portfolio
Smith Barney Muni Funds -- National Portfolio
Smith Barney Muni Funds -- New York Portfolio
Smith Barney Muni Funds -- Pennsylvania Portfolio
Smith Barney Municipal High Income Fund
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Global -- International Funds
Smith Barney Hansberger Global Small Cap Value Fund
Smith Barney Hansberger Global Value Fund
Smith Barney World Funds, Inc. -- Emerging Markets Portfolio
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
Smith Barney World Funds, Inc. -- International Balanced Portfolio
Smith Barney World Funds, Inc. -- International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
Smith Barney Concert Allocation Series Inc.
Smith Barney Concert Allocation Series Inc. -- Balanced Portfolio
Smith Barney Concert Allocation Series Inc. -- Conservative Portfolio
Smith Barney Concert Allocation Series Inc. -- Global Portfolio
Smith Barney Concert Allocation Series Inc. -- Growth Portfolio
Smith Barney Concert Allocation Series Inc. -- High Growth Portfolio
Smith Barney Concert Allocation Series Inc. -- Income Portfolio
Money Market Funds
+ Smith Barney Exchange Reserve Fund
++ Smith Barney Money Funds, Inc. -- Cash Portfolio
++ Smith Barney Money Funds, Inc. -- Government Portfolio
*** Smith Barney Money Funds, Inc. -- Retirement Portfolio
+++ Smith Barney Municipal Money Market Fund, Inc.
+++ Smith Barney Muni Funds -- California Money Market Portfolio
+++ Smith Barney Muni Funds -- New York Money Market Portfolio
================================================================================
* Available for exchange with Class A, Class C and Class Y shares of the
Fund.
** Available for exchange with Class A and Class B shares of the Fund. In
addition, shareholders who own Class C shares of the Fund through the
Smith Barney 401(k) Program may exchange those shares for Class C shares
of this fund.
*** Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class C shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund. In
addition, participating plans opened prior to June 21, 1996 and investing
in Class C shares may exchange Fund shares for Class C shares of this
fund.
+++ Available for exchange with Class A and Class Y shares of the Fund.
27
<PAGE>
- --------------------------------------------------------------------------------
Exchange Privilege (continued)
- --------------------------------------------------------------------------------
Class B Exchanges. In the event a Class B shareholder wishes to exchange
all or a portion of his or her shares in any of the funds imposing a CDSC higher
than that imposed by the Fund, the exchanged Class B shares will be subject to
the higher applicable CDSC. Upon an exchange, the new Class B shares will be
deemed to have been purchased on the same date as the Class B shares of the Fund
that have been exchanged.
Class C Exchanges. Upon an exchange, the new Class C shares will be deemed
to have been purchased on the same date as the Class C shares of the Fund that
have been exchanged.
Class A and Class Y Exchanges. Class A and Class Y shareholders of the
Fund who wish to ex change all or a portion of their shares for shares of the
respective Class in any of the funds identified above may do so without
imposition of any charge.
Additional Information Regarding the Exchange Privilege. Although the ex
change privilege is an important benefit, excessive exchange transactions can be
detrimental to the Fund's performance and its shareholders. The Manager may
determine that a pattern of frequent exchanges is excessive and contrary to the
best interests of the Fund's other shareholders. In this event, the Fund may, at
its discretion, decide to limit additional purchases and/or exchanges by the
shareholder. Upon such a determination, the Fund will provide notice in writing
or by telephone to the share holder at least 15 days prior to suspending the
exchange privilege and during the 15 day period the shareholder will be required
to (a) re deem his or her shares in the Fund or (b) remain invested in the Fund
or exchange into any of the funds of the Smith Barney Mutual Funds ordinarily
available, which position the shareholder would be expected to maintain for a
significant period of time. All relevant factors will be considered in
determining what constitutes an abusive pattern of exchanges.
Certain shareholders may be able to exchange shares by telephone. See
"Redemption of Shares -- Telephone Redemption and Exchange Program." Exchanges
will be processed at the net asset value next determined. Redemption procedures
discussed below are also applicable for exchanging shares, and exchanges will be
made upon receipt of all supporting documents in proper form. If the account
registration of the shares of the fund being acquired is identical to the
registration of the shares of the fund ex changed, no signature guarantee is
required. A capital gain or loss for tax purposes will be realized upon the
exchange, depending upon the cost or other basis of shares redeemed. Before
exchanging shares, investors should read the current prospectus describing the
shares to be acquired. The Fund reserves the right to modify or discontinue
exchange privileges upon 60 days' prior notice to shareholders.
28
<PAGE>
- --------------------------------------------------------------------------------
Redemption of Shares
- --------------------------------------------------------------------------------
The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to their net asset value per share
next determined after receipt of a written request in proper form at no charge
other than any applicable CDSC. Redemption requests received after the close of
regular trading on the NYSE are priced at the net asset value next determined.
If a share holder holds shares in more than one Class, any request for
redemption must specify the Class being redeemed. In the event of a failure to
specify which Class, or if the investor owns fewer shares of the Class than
specified, the redemption request will be delayed until the Fund's transfer
agent receives further instructions from Smith Barney, or if the shareholder's
account is not with Smith Barney, from the shareholder directly. The redemption
proceeds will be remitted on or before the third business day following receipt
of proper tender, except on any days on which the NYSE is closed or as permitted
under the 1940 Act in extraordinary circumstances. Generally, if the redemption
proceeds are remitted to a Smith Barney brokerage account, these funds will not
be invested for the shareholder's benefit without specific instruction and Smith
Barney will benefit from the use of temporarily uninvested funds. Redemption
proceeds for shares purchased by check, other than a certified or official bank
check, will be remitted upon clearance of the check, which may take up to ten
days or more.
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's
Financial Consultant, Introducing Broker or dealer in the selling group or by
submitting a written request for redemption to:
Smith Barney Small Cap Blend Fund, Inc.
Class A, B, C or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account number
and (c) be signed by each registered owner exactly as the shares are registered.
If the shares to be redeemed were issued in certificate form, the certificates
must be endorsed for transfer (or be accompanied by an endorsed stock power) and
must be submitted to First Data together with the redemption request. Any
signature appearing on a share certificate, stock power or written redemption
request in excess of $10,000 must be guaranteed by an eligible guarantor
institution, such as a domestic bank, savings and loan institution, domestic
credit union, member bank of the Federal Reserve System or member firm of a
national securities exchange. Written redemption requests of $10,000 or less do
not require a signature guarantee unless more than one such redemption request
is made in any 10-day period or the
29
<PAGE>
- --------------------------------------------------------------------------------
Redemption of Shares (continued)
- --------------------------------------------------------------------------------
redemption proceeds are to be sent to an address other than the address of
record. Unless otherwise directed, redemption proceeds will be mailed to an
investor's address of record. First Data may require additional supporting
documents for redemptions made by corporations, executors, administrators,
trustees or guardians. A redemption request will not be deemed properly received
until First Data receives all required documents in proper form.
Automatic Cash Withdrawal Plan
The Fund offers shareholders an automatic cash withdrawal plan, under
which shareholders who own shares with a value of at least $10,000 may elect to
receive cash payments of at least $50 monthly or quarterly. Retirement plan ac
counts are eligible for automatic cash withdrawal plans only where the share
holder is eligible to receive qualified distributions and has an account value
of at least $5,000. The withdrawal plan will be carried over on exchanges
between funds or Classes of the Fund. Any applicable CDSC will not be waived on
amounts withdrawn by a shareholder that exceed 1.00% per month of the value of
the share holder's shares subject to the CDSC at the time the withdrawal plan
commences. (With respect to withdrawal plans in effect prior to November 7,
1994, any applicable CDSC will be waived on amounts withdrawn that do not exceed
2.00% per month of the value of the shareholder's shares subject to the CDSC.)
For further information regarding the automatic cash withdrawal plan,
shareholders should contact a Smith Barney Financial Consultant.
Telephone Redemption and Exchange Program
Shareholders who do not have a Smith Barney brokerage account may be
eligible to redeem and exchange Fund shares by telephone. To determine if a
shareholder is entitled to participate in this program, he or she should contact
First Data at 1-800-451-2010. Once eligibility is confirmed, the shareholder
must complete and return a Telephone/Wire Authorization Form, along with a
signature guarantee, that will be provided by First Data upon request.
(Alternatively, an investor may authorize telephone redemptions on the new
account application with the applicant's signature guarantee when making his/her
initial investment in the Fund.)
Redemptions. Redemption requests of up to $10,000 of any class or classes
of the Fund's shares, may be made by eligible shareholders by calling First Data
at 1-800-451-2010. Such requests may be made between 9:00 a.m. and 4:00 p.m.
(New York City time) on any day the NYSE is open. Redemption requests received
after the close of regular trading on the NYSE are priced at the net asset value
next determined. Redemptions of shares (i) by retirement plans or (ii) for which
certificates have been issued are not permitted under this program.
30
<PAGE>
- --------------------------------------------------------------------------------
Redemption of Shares (continued)
- --------------------------------------------------------------------------------
A shareholder will have the option of having the redemption proceeds
mailed to his/her address of record or wired to a bank account predesignated by
the shareholder. Generally, redemption proceeds will be mailed or wired, as the
case may be, on the next business day following the redemption request. In order
to use the wire procedures, the bank receiving the proceeds must be a member of
the Federal Reserve System or have a correspondent relationship with a member
bank. The Fund reserves the right to charge shareholders a nominal fee for each
wire redemption. Such charges, if any, will be assessed against the
shareholder's account from which shares were redeemed. In order to change the
bank account designated to receive redemption proceeds, a shareholder must
complete a new Telephone/Wire Authorization Form and, for the protection of the
shareholder's assets, will be required to provide a signature guarantee and
certain other documentation.
Exchanges. Eligible shareholders may make exchanges by telephone if the
account registration of the shares of the fund being acquired is identical to
the registration of the shares of the fund exchanged. Such exchange requests may
be made by calling First Data at 1-800-451-2010 between 9:00 a.m. and 4:00 p.m.
(New York City time) on any day on which the NYSE is open.
Additional Information regarding Telephone Redemption and Exchange
Program. Neither the Fund nor its agents will be liable for following
instructions communicated by telephone that are reasonably believed to be
genuine. The Fund and its agents will employ procedures designed to verify the
identity of the caller and legitimacy of instructions (for example, a
shareholder's name and account number will be required and phone calls may be
recorded). The Fund reserves the right to suspend, modify or discontinue the
telephone redemption and exchange program or to impose a charge for this service
at any time following at least seven (7) days prior notice to shareholders.
- --------------------------------------------------------------------------------
Minimum Account Size
- --------------------------------------------------------------------------------
The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
this Fund, each account must satisfy the minimum account size.) The Fund,
however, will not redeem shares based solely on market reductions in net asset
value. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid involuntary liquidation.
31
<PAGE>
- --------------------------------------------------------------------------------
Performance
- --------------------------------------------------------------------------------
From time to time the Fund may advertise the its total return and average
annual total return in advertisements. In addition, in other types of sales
literature the Fund may include its current dividend return. These figures are
computed separately for Class A, Class B, Class C and Class Y shares of the
Fund. These figures are based on historical earnings and are not intended to
indicate future performance. Total return is computed for a specified period of
time assuming deduction of the maximum sales charge from the initial amount
invested and reinvestment of all income dividends and capital gain distributions
on the reinvestment dates at prices calculated as stated in this Prospectus,
then dividing the value of the investment at the end of the period so calculated
by the initial amount invested and subtracting 100%. The standard average annual
total return, as prescribed by the SEC, is derived from this total return, which
provides the ending redeemable value. Such standard total return information may
also be accompanied with nonstandard total return information for differing
periods computed in the same manner but without annualizing the total return or
taking sales charges into account. The Fund calculates current dividend return
for each Class by dividing the current dividend by the net asset value or the
maximum public offering price (including sales charge) on the last day of the
period for which current dividend return is presented. The current dividend
return for each Class may vary from time to time depending on market conditions,
the composition of the investment portfolio and operating expenses. These
factors and possible differences in the methods used in calculating current
dividend return should be considered when comparing a Class' current return to
yields published for other investment companies and other investment vehicles.
The Fund may also include compartive performance information in advertising or
marketing its shares. Such performance information may include data from Lipper
Analytical Services, Inc. and other financial publications.
- --------------------------------------------------------------------------------
Management of the Fund
- --------------------------------------------------------------------------------
Board of Directors
Overall responsibility for management and supervision of the Fund rests
with the Fund's Board of Directors. The Board of Directors approves all
significant agreements between the Fund and the companies that furnish services
to the Fund, including agreements with the Fund's distributor, investment
manager, custodian and transfer agent. The day-to-day operations of the Fund are
delegated to the Fund's investment adviser and administrator. The Statement of
Additional Information contains background information regarding each Director
and executive officer of the Fund.
Adviser
The Adviser, located at One Tower Square, Hartford, CT 06183-2030 serves
as the Fund's investment adviser and manages the day-to-day operations of the
Fund
32
<PAGE>
- --------------------------------------------------------------------------------
Management of the Fund (continued)
- --------------------------------------------------------------------------------
pursuant to an advisory agreement entered into by the Adviser and the Fund. The
Adviser, a registered investment adviser since 1971, has been in the investment
counseling business since 1967 and renders investment advice to a number of
institutional accounts as well as various registered investment companies and
insurance company separate accounts that had total assets under management as of
March 31, 1998 of approximately $2.6 billion. Subject to the supervision and
direction of the Fund's Board of Directors, the Adviser manages the Fund in
accordance with the Fund's stated investment objective and policies, makes
investment decisions for the Fund, places orders to purchase and sell securities
and employs professional portfolio managers and securities analysts who provide
research services to the Fund.
Investment advisory fees are computed daily and paid monthly at the annual
rate of 0.65% of the Fund's average daily net assets.
On April 6, 1998, Travelers announced that it had entered into a Merger
Agreement with Citicorp. The transacition, which is expected to be completed
during the third quarter of 1998, is subject to various regulatory approvals,
including approval by the Federal Reserve Board. The transaction is also subject
to approval by the stockholders of each of the Travelers and Citicorp. Upon
consummation of the merger, the surviving corporation would be a bank holding
company subject to regulation under the Bank Holding Company Act of 1956 (the
"BHCA"), the requirements of the Glass-Steagall Act and certain other laws and
regulations. Although the effects of the merger of Travelers and Citicorp and
compliance with the requirements of the BHCA and the Glass-Steagall Act are
still under review, the Manager does not believe that its compliance with
applicable law following the merger of Travelers and Citicorp will have a
material adverse effect on its ability to continue to provide the Fund with the
same level of investment advisory services that it currently receives.
[/R]
Portfolio Management
Sandip Bhagat, President of the Adviser, is primarily responsible for the
day-to-day investment management of the Fund, including making all investment
decisions.
Management's discussion and analysis, and additional performance
information regarding the Fund during the fiscal year ended December 31, 1997,
are included in the Annual Report dated December 31, 1997. A copy of the Annual
Report may be obtained upon request and without charge from a Smith Barney
Financial Consultant or by writing or calling the Fund at the address or phone
number listed on page one of this Prospectus.
Administrator
MMC, located at 388 Greenwich Street, New York, New York 10013, serves as
the Fund's administrator and oversees all aspects of the Fund's administration
33
<PAGE>
- --------------------------------------------------------------------------------
Management of the Fund (continued)
- --------------------------------------------------------------------------------
and operation. Administration fees are computed daily and paid monthly at the
annual rate of 0.10% of the Fund's average daily net assets.
- --------------------------------------------------------------------------------
Distributor
- --------------------------------------------------------------------------------
Smith Barney distributes shares of the Fund as principal underwriter and
as such conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be sold
to the public. Pursuant to a plan of distribution adopted by the Fund under Rule
12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid a service fee with
respect to Class A,at the annual rate of up to 0.25% of net asset value
atributable to such Class, and with respect to Class B and
Class C shares of the
Fund at the annual rate of 0.25% of the average daily net asset values
attributable to these Classes. Smith Barney is also paid a
distribution fee with
respect to Class B and Class C shares at the annual rate of 0.75% of
the average
daily net assets attributable to these Classes. Class B shares that
automatically convert to Class A shares eight years after the date of original
purchase will no longer be subject to a distribution fee. The fees are used by
Smith Barney to pay its Financial Consultants for servicing shareholder
accounts
and, in the case of Class B and Class C shares, to cover expenses primarily
intended to result in the sale of those shares. These expenses include:
advertising expenses; the cost of printing and mailing prospectuses to
potential
investors; payments to and expenses of Smith Barney Financial Consultants and
other persons who provide support services in connection with the distribution
of shares; interest and/or carrying charges; and indirect and overhead costs of
Smith Barney associated with the sale of Fund shares, including lease, utility,
communications and sales promotion expenses.
The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C shares, a
continuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.
Payments under the Plan are not tied exclusively to the distribution and
shareholder services expenses actually incurred by Smith Barney and the payments
may exceed distribution expenses actually incurred. The Fund's Board of
Directors will evaluate the appropriateness of the Plan and its payment terms on
a continuing basis and in so doing will consider all relevant factors, including
expenses borne by Smith Barney, amounts received under the Plan and proceeds of
the CDSC.
34
<PAGE>
- --------------------------------------------------------------------------------
Additional Information
- --------------------------------------------------------------------------------
The Fund, an open-end management investment company, was incorporated in
Maryland on October 4, 1989 as a non-diversified, closed-end management
investment company and converted to open-end diversified status on June 23, 1997
pursuant to shareholder approval on April 18, 1997 and Securities and Exchange
Commission declaration of effectiveness on June 23, 1997. The Fund has
authorized capital stock of 100,000,000 shares per class with a par value of
$.001 per share. The Board of Directors has authorized the issuance of four
classes of shares, and may authorize the issuance of additional classes of
shares in the future. Class A, Class B, Class C and Class Y shares of the Fund
represent interests in the assets of the Fund and have identical voting,
dividend, liquidation and other rights 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 provisions of the Fund's Rule 12b-1 distribution plan which pertains
to a particular Class. As described under "Distribution" in the SAI, the Fund
ordinarily will not hold meetings of shareholders annually; however,
shareholders have the right to call a meeting upon a vote of 10% of the Fund's
outstanding shares for the purpose of voting to remove directors, and the Fund
will assist shareholders in calling such a meeting as required by the 1940 Act.
Shares do not have cumulative voting rights or preemptive rights and are fully
paid, transfer able and nonassessable when issued for payment as described in
this Prospectus.
PNC Bank, N.A. located at 17th and Chestnut Streets, Philadelphia,
Pennsylvania 19103, serves as custodian of the Fund's investments.
First Data, located at Exchange Place, Boston, Massachusetts 02109, serves
as the Fund's transfer agent.
The Fund sends its shareholders a semi-annual report and an audited annual
report, which include listings of the investment securities held by the Fund at
the end of the period covered. In an effort to reduce the Fund's printing and
mailing costs, the Fund plans to consolidate the mailing of its semi-annual and
annual reports by house hold. This consolidation means that a household having
multiple accounts with the identical address of record will receive a single
copy of each report. Shareholders who do not want this consolidation to apply to
their account should contact their Smith Barney Financial Consultant or the
Fund's transfer agent.
35
<PAGE>
[LOGO] Smith Barney
A Member of TravelorsGroup [LOGO]
Smith Barney
Small
Cap Blend
Fund, Inc.
April 30, 1998
388 Greenwich Street
New York, New York 10013
1-800-451-2010
FD 01305 4/98
Smith Barney
SMALL CAP BLEND FUND, INC.
388 Greenwich Street
New York, New York 10013
800-451-2010
Statement of Additional
Information
April 30,
1998
This Statement of Additional Information (the SAI) expands upon and
supplements the information contained in the current Prospectus of Smith
Barney Small Cap Blend Fund, Inc. (formerly Smith Barney Disciplined Small
Cap Fund, Inc.) (the Fund), dated April 30, 1998, as amended or supplemented
from time to time, and should be read in conjunction with the Funds
Prospectus. The Funds Prospectus may be obtained from any Smith Barney
Financial Consultant, or by writing or calling the Fund at the address or
telephone number set forth above. This SAI, although not in itself a
prospectus, is incorporated by reference into the Prospectus in its entirety.
Table of Contents
For ease of reference, the same section headings are used in both the
Prospectus and this SAI except where shown below:
Management of the Fund 1
Investment Objective and Management Policies 5
Purchase of Shares 10
Redemption of Shares 10
Distribution 11
Valuation of Shares 12
Exchange
Privilege.................................................................
.............. 12
Performance Data (See in the Prospectus Performance) 13
Taxes (See in the Prospectus Dividends, Distributions and Taxes)
16
Additional Information. 17
Financial Statements.. 18
MANAGEMENT OF THE FUND
The executive officers of the Fund are employees of certain of the
organizations that provide services to the Fund. These organizations are as
follows:
Name Service
Smith Barney Inc.
(Smith Barney) Distributor
Travelers Investment Management Company
(TIMCO) Investment Adviser
Mutual Management Corp. (formerly Smith Barney
Mutual Funds Management Inc.) (MMC) Administrator
PNC Bank, National Association (PNC) Custodian
First Data Investor Services Group, Inc. (First Data).....
Transfer Agent
These organizations and the functions they perform for the Fund are
discussed in the Prospectus and in this SAI.
Directors and Executive Officers of the Fund
The Directors and executive officers of the Fund, together with
information
as to their principal business occupations during the past five years, are
shown below. Each Director who is an interested person of the Fund, as
defined in the Investment Company Act of 1940, as amended (the 1940 Act), is
indicated by an asterisk. The address of each Director who is an interested
person and each executive officer is 388 Greenwich Street, New York, NY
10013.
DIRECTORS AND OFFICERS
DONALD R. FOLEY, Director
Retired; 3668 Freshwater Drive, Jupiter, Florida 33477. Director of ten
investment companies associated with Smith Barney. Formerly Vice President
of Edwin Bird Wilson, Incorporated (advertising); 76.
PAUL HARDIN, Director
Professor of Law at University of North Carolina at Chapel Hill, 12083
Morehead, Chapel Hill, North Carolina 27514, Director of twelve investment
companies associated with Smith Barney; Director of The Summit
Bancorporation; Formerly, Chancellor of the University of North Carolina at
Chapel Hill, University of North Carolina; 66.
*HEATH B. McLENDON, Chairman of the Board, President and Chief Executive
Officer
Managing Director of Smith Barney; Director of forty-two investment companies
associated with Smith Barney; Director and President of MMC and Travelers
Investment Adviser, Inc. (TIA); Director of Chairman of the Board of Smith
Barney Strategy Advisors Inc.; Prior to July 1993, Senior Executive Vice
President of Shearson Lehman Brothers Inc.; Vice Chairman of Shearson Asset
Management; 64.
*BRUCE D. SARGENT, Director
Managing Director of Smith Barney, and Vice President and Director of MMC,
Smith Barney Funds, Inc., and Smith Barney World Funds, Inc.; 54.
RODERICK C. RASMUSSEN, Director
Investment Counselor; 9 Cadence Court, Morristown, New Jersey 07960.
Director of ten investment companies associated with Smith Barney. Formerly
Vice President of Dresdner and Company Inc. (investment counselors); 71.
JOHN P. TOOLAN, Director
Retired; 13 Chadwell Place, Morristown, New Jersey 07960. Director of ten
investment companies associated with Smith Barney. Formerly, Director and
Chairman of Smith Barney Trust Company, Director of Smith Barney Holdings
Inc. and the Manager and Senior Executive Vice President, Director and Member
of the Executive Committee of Smith Barney; 67.
LEWIS E. DAIDONE, Senior Vice President and Treasurer
Managing Director of Smith Barney; Senior Vice President and Treasurer of
forty-two investment companies associated with Smith Barney; Director and
Senior Vice President of the Manager and TIA; 40.
THOMAS M. REYNOLDS, Controller and Assistant Secretary
Director of Smith Barney and Controller and Assistant Controller of certain
other investment companies associated with Smith Barney ; 38.
CHRISTINA T. SYDOR, Secretary
Managing Director of Smith Barney; Secretary of forty-two investment companies
associated with Smith Barney; Secretary and General Counsel of the Manager and
TIA; 47.
As of April 8, 1998, the Directors and Officers of the Fund owned in the
aggregate less than 1% of the outstanding shares of the Fund. No officer,
director or employee of Smith Barney or any parent or subsidiary receives any
compensation from the Fund for serving as an officer or Director of the Fund.
The Fund pays each Director who is not an officer, director or employee of
Smith Barney or any of its affiliates a fee of $42,000 per annum plus $100
per meeting attended and reimburses them for travel and out-of-pocket
expenses. For the Funds fiscal year ended December 31, 1997, such fees and
expenses totaled $14,080.
For the fiscal year ended December 31, 1997, the Directors of the Fund
were paid the following compensation:
COMPENSATION TABLE
Name of Person
Aggregate
Compensation
from the Fund
Pension or
Retirement
Benefits
Accrued as
Part of Funds
Expenses
Total
Compensation
from Fund
Complex
Total Number
of Funds for
Which Person
Serves within
Fund Complex
Joseph H.
Fleiss**+
$724
$0
$54,900
10
Donald R. Foley**
824
0
55,400
10
Paul Hardin
849
0
73,000
12
Francis P.
Martin**
649
0
53,000
10
Heath B.
McLendon*
0
0
0
42
Bruce Sargent*
0
0
0
3
Roderick C.
Rasmussen
849
0
55,400
10
John P. Toolan**
849
0
55,400
10
________________________________________
* Designates a director who is an interested person of the Fund.
** Pursuant to a deferred compensation plan, the indicated persons elected to
defer the following amounts of their compensation from the Fund: Joseph H.
Fleiss: $25, Donald R. Foley: $24, Francis P. Martin: $649 and John P.
Toolan: $849, and the following amounts of their total compensation from the
Fund Complex: Joseph H. Fleiss: $21,000, Donald R. Foley: $21,000, Francis
P. Martin: $53,000 and John P. Toolan: $55,400
+ Effective January 1, 1998, Mr. Fleiss became a Director Emeritus. Upon
attainment of age 72 the Funds current Directors may elect to change to
emeritus status. Any directors elected or appointed to the Board of
Directors in the future will be required to change to emeritus status upon
attainment of age 80. Directors Emeritus are entitled to serve in emeritus
status for a maximum of 10 years during which time they are paid 50% of the
annual retainer fee and meeting fees otherwise applicable to the Funds
directors, together with reasonable out-of-pocket expenses for each meeting
attended. During the Funds last fiscal year aggregate compensation from the
Fund to Emeritus Directors totaled $324.
Investment Adviser -TIMCO
TIMCO serves as investment adviser to the Fund pursuant to a written
agreement (the Advisory Agreement). The services provided by TIMCO under the
Advisory Agreement are described in the Prospectus under Management of the
Fund. TIMCO bears all of the expenses of its employees and overhead in
connection with its duties under the Advisory Agreement. TIMCO is a wholly
owned subsidiary of Salomon Smith Barney Holdings Inc. (Holdings), which is
in turn a wholly owned subsidiary of Travelers Group Inc. (Travelers).
As compensation for investment advisory services, the Fund pays TIMCO a
fee
computed daily and paid monthly at the annual rate of 0.65% of the value of
the Funds average daily net assets. For the 1997, 1996 and 1995 fiscal years,
the Fund paid $439,687, $416,000 and $418,000, respectively, in investment
advisory fees.
The Investment Advisory Agreement provides that except for the expenses
specifically assumed by TIMCO, the Fund bears expenses incurred in its
operation, including: fees of the directors not affiliated with the Adviser
or its affiliates and board meeting expenses; fees of the Adviser and of
Mutual Management Corp. (or any successor) as the Administrator; interest
charges; taxes; charges and expenses of the Funds legal counsel and
independent accountants, and of the transfer agent, registrar and dividend
disbursing agent of the Fund; expenses of issue, repurchase or redemption of
Shares; expenses of printing and mailing stockholder reports, notices, proxy
statements and reports to governmental offices; brokerage and other expenses
connected with the execution, recording and settlement of portfolio security
transactions; expenses connected with negotiating, effecting purchases or
sales or registering privately issued portfolio securities; fees and expenses
of the Funds custodians for all services to the Fund, including safekeeping
of funds and securities and maintaining required books and accounts; expenses
of fidelity bonding and other insurance premiums; expenses of stockholders
meetings; filing fees and expenses related to the registration and
qualification of the Funds shares and the Fund under federal and state
securities laws and maintaining such registrations and qualifications
(including the printing of the Funds registration statements and
prospectuses); and its other business and operating expenses.
Administrator
MMC serves as administrator to the Fund pursuant to a written agreement
(the Administration Agreement). The services provided by MMC under the
Administration Agreement are described in the Prospectus under Management of
the Fund. MMC pays the salary of any officer and employee who is employed by
both it and the Fund and bears all expenses in connection with the
performance of its services. As compensation for administration services
rendered to the Fund, MMC receives a fee at the annual rate of 0.10% of the
value of the Funds average daily net assets. For the 1997, 1996 and 1995
fiscal years, the Fund paid MMC $102,195, $138,000 and $139,000,
respectively, in administration fees.
Counsel and Auditors
Sullivan & Cromwell serves as counsel to the Fund. The Directors who are
not interested persons of the Fund have selected Sullivan & Cromwell as
their legal counsel.
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 10154, has been
selected as the Funds independent auditor to examine and report on the Funds
financial statements and highlights for the fiscal year ending December 31,
1998.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Prospectus discusses the Funds investment objective and the policies
it
employs to achieve its objective. The following discussion supplements the
description of the Funds investment objective and management policies in the
Prospectus.
Lending of Portfolio Securities
As stated in the Prospectus, the Fund has the ability to lend securities
from its portfolio to brokers, dealers and other financial organizations.
The Fund may not lend its portfolio securities to Smith Barney or its
affiliates unless it has applied for and received specific authority from the
SEC. Loans of portfolio securities by the Fund will be collateralized by
cash, letters of credit or securities issued or guaranteed by the United
States government, its agencies or instrumentalitys (U.S. government
securities) which will be maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities. From time to
time, the Fund may return a part of the interest earned from the investment
of collateral received for securities loaned to the borrower and/or a third
party, which is unaffiliated with the Fund or with Smith Barney, and which is
acting as a finder.
In lending its portfolio securities, the Fund can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term instruments or obtaining yield in
the form of interest paid by the borrower when government securities are used
as collateral. Requirements of the SEC, which may be subject to future
modifications, currently provide that the following conditions must be met
whenever portfolio securities are loaned: (a) the Fund must receive at least
100% cash collateral or equivalent securities from the borrower; (b) the
borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (c) the Fund must be
able to terminate the loan at any time; (d) the Fund must receive reasonable
interest on the loan, as well as an amount equal to any dividends, interest
or other distributions on the loaned securities, and any increase in market
value; (e) the Fund may pay only reasonable custodian fees in connection with
the loan; and (f) voting rights on the loaned securities may pass to the
borrower; however, if a material event adversely affecting the investment
occurs, the Funds Board of Directors must terminate the loan and regain the
right to vote the securities. The risks in lending portfolio securities, as
with other extensions of secured credit, consist of possible delay in
receiving additional collateral or in the recovery of the securities or
possible loss of rights in the collateral should the borrower fail
financially.
Short Term Instruments
As stated in the Prospectus, the Fund may invest in short term and money
market instruments. Money market instruments in which the Fund may invest
include: U.S. government securities; certificates of deposit, time deposits
and bankers acceptances issued by domestic banks (including their branches
located outside the United States and subsidiaries located in Canada),
domestic branches of foreign banks, savings and loan associations and similar
institutions; high grade commercial paper; and repurchase agreements with
respect to the foregoing types of instruments. The following is a more
detailed description of such money market instruments.
Bank Obligations. Certificates of deposits (CDs) are short-term,
negotiable
obligations of commercial banks. Time deposits (TDs) are non-negotiable
deposits maintained in banking institutions for specified periods of time at
stated interest rates. Bankers acceptances are time drafts drawn on
commercial banks by borrowers, usually in connection with international
transactions.
Domestic commercial banks organized under Federal law are supervised and
examined by the Comptroller of the Currency and are required to be members of
the Federal Reserve System and to be insured by the Federal Deposit Insurance
Corporation (the FDIC). Domestic banks organized under state law are
supervised and examined by state banking authorities but are members of the
Federal Reserve System only if they elect to join. Most state banks are
insured by the FDIC (although such insurance may not be of material benefit
to the Fund, depending upon the principal amount of CDs of each bank held by
the Fund) and are subject to Federal examination and to a substantial body of
Federal law and regulation. As a result of governmental regulations, domestic
branches of domestic banks are, among other things, generally required to
maintain specified levels of reserves, and are subject to other supervision
and regulation designed to promote financial soundness.
Obligations of foreign branches of domestic banks, such as CDs and TDs,
may
be general obligations of the parent bank in addition to the issuing branch,
or may be limited by the terms of a specific obligation and governmental
regulation. Such obligations are subject to different risks than are those of
domestic banks or domestic branches of foreign banks. These risks include
foreign economic and political developments, foreign governmental
restrictions that may adversely affect payment of principal and interest on
the obligations, foreign exchange controls and foreign withholding and other
taxes on interest income. Foreign branches of domestic banks are not
necessarily subject to the same or similar regulatory requirements that apply
to domestic banks, such as mandatory reserve requirements, loan limitations,
and accounting, auditing and financial recordkeeping requirements. In
addition, less information may be publicly available about a foreign branch
of a domestic bank than about a domestic bank. CDs issued by wholly owned
Canadian subsidiaries of domestic banks are guaranteed as to repayment of
principal and interest (but not as to sovereign risk) by the domestic parent
bank.
Obligations of domestic branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by governmental regulation
as well as governmental action in the country in which the foreign bank has
its head office. A domestic branch of a foreign bank with assets in excess of
$1 billion may or may not be subject to reserve requirements imposed by the
Federal Reserve System or by the state in which the branch is located if the
branch is licensed in that state. In addition, branches licensed by the
Comptroller of the Currency and branches licensed by certain states (State
Branches) may or may not be required to: (a) pledge to the regulator by
depositing assets with a designated bank within the state, an amount of its
assets equal to 5% of its total liabilities; and (b) maintain assets within
the state in an amount equal to a specified percentage of the aggregate
amount of liabilities of the foreign bank payable at or through all of its
agencies or branches within the state. The deposits of State Branches may not
necessarily be insured by the FDIC. In addition, there may be less publicly
available information about a domestic branch of a foreign bank than about a
domestic bank.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks or by domestic branches of
foreign banks, TIMCO will carefully evaluate such investments on a case-by-
case basis.
Savings and loans associations whose CDs may be purchased by the Fund are
supervised by the Office of Thrift Supervision and are insured by the Savings
Association Insurance Fund which is administered by the FDIC and is backed by
the full faith and credit of the United States government. As a result, such
savings and loan associations are subject to regulation and examination.
Investment Restrictions
The Fund is subject to certain restrictions and policies that are
fundamental, which may not be changed without a vote of a majority of the
outstanding voting securities of the Fund, as defined under the Investment
Company Act of 1940, as amended (the Act) and Rule 18f-2 thereunder (see
Voting). The Fund is subject to other restrictions and policies that are
non-fundamental and which may be changed by the Funds Board of Directors
without shareholder approval, subject to any applicable disclosure
requirements.
Fundamental Policies. Without the approval of a majority of its outstanding
voting securities, the Fund may not:
1. invest in a manner that would cause it to fail to be a diversified
company under the 1940 Act and the rules, regulations and orders
thereunder;
2. issue senior securities as defined in the 1940 Act and the rules,
regulations and orders thereunder, except as permitted under the 1940
Act and the rules, regulations and orders thereunder;
3. invest more than 25% of its total assets in securities, the issuers of
which conduct their principal business activities in the same industry.
For purposes of this limitation, securities of the U.S. government
(including its agencies and instrumentalities) and securities of state
or municipal governments and their political subdivisions are not
considered to be issued by members of any industry;
4. borrow money, except that (a) the Fund may borrow from banks for
temporary or emergency (not leveraging) purposes, including the meeting
of redemption requests which might otherwise require the untimely
disposition of securities, and (b) the Fund may, to the extent
consistent with its investment policies, enter into reverse repurchase
agreements, forward roll transactions and similar investment strategies
and techniques. To the extent that it engages in transactions described
in (a) and (b), the Fund will be limited so that no more than 33 1/3%
of the value of its total assets (including the amount borrowed),
valued at the lesser of cost or market, less liabilities (not including
the amount borrowed) valued at the time the borrowing is made, is
derived from such transactions;
5. make loans. This restriction does not apply to: (a) the purchase of
debt obligations in which the Fund may invest consistent with its
investment objective and policies; (b) repurchase agreements; and (c)
loans of its portfolio securities, to the fullest extent permitted
under the 1940 Act;
6. engage in the business of underwriting securities issued by other
persons, except to the extent that the Fund may technically be deemed
to be an underwriter under the Securities Act of 1933, as amended, in
disposing of portfolio securities; and
7. purchase or sell real estate, real estate mortgages, commodities or
commodity contracts, but this restriction shall not prevent the Fund
from (a) investing in securities of issuers engaged in the real estate
business or the business of investing in real estate (including
interests in limited partnerships owning or otherwise engaging in the
real estate business or the business of investing in real estate) and
securities which are secured by real estate or interests therein; (b)
holding or selling real estate received in connection with securities
it holds or held; (c) trading in futures contracts and options on
futures contracts (including options on currencies to the extent
consistent with the Funds investment objective and policies); or (d)
investing in real estate investment trust securities.
Non-fundamental Policies. As a non-fundamental policy, the Fund may not:
1. purchase any 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). For
purposes of this restriction, the deposit or payment by the Fund of
underlying securities and other assets in escrow and collateral
agreements with respect to initial or maintenance margin in connection
with futures contracts and related options and options on securities,
indexes or similar items is not considered to be the purchase of a
security on margin;
2. purchase or otherwise acquire any security if, as a result, more than
15% of its net assets would invested in securities that are illiquid;
and
3. invest in any company for the purpose of exercising control of
management.
The Fund has adopted a non-fundamental investment policy prohibiting
it
from investing in other registered open-end management investment companies
and registered unit investment trusts in reliance upon the provisions of
subparagraphs (G) or (F) of Section 12(d)(1) of the 1940 Act. The foregoing
investment policy does not restrict the Fund from (i) acquiring securities of
other registered investment companies in connection with a merger,
consolidation, reorganization, or acquisition of assets, or (ii) purchasing
the securities of registered closed-end investment companies, to the extent
permissible under Section 12(d) (1) (G) of the 1940 Act.
Certain restrictions listed above permit the Fund without shareholder
approval to engage in investment practices that the Fund does not currently
pursue. The Fund has no present intention of altering its current investment
practices as otherwise described in the Prospectus and this Statement of
Additional Information and any future change in these practices would require
Board approval. If any percentage restriction described above is complied
with at the time of an investment, a later increase or decrease in percentage
resulting from a change in values or assets will not constitute a violation
of such restriction.
Portfolio Turnover
The Funds investment policies may result in its experiencing a greater
portfolio turnover rate than those of investment companies that seek to
produce income or to maintain a balanced investment position. The Funds
portfolio turnover rate cannot be predicted and will vary from year to year,
yet TIMCO expects that the Funds annual portfolio turnover rate may exceed
100%. A 100% portfolio turnover rate would occur, for instance, if all
securities were replaced once during a period of one year. A high rate of
portfolio turnover in any year will increase brokerage commissions paid and
could result in high amounts of realized investment gain subject to the
payment of taxes by shareholders. Any realized short-term investment gain
will be taxed to shareholders as ordinary income. For the 1997, 1996 and 1995
fiscal years, the Funds portfolio turnover rates were 140%, 151%, and 177%,
respectively.
Portfolio Transactions and Brokerage
Decisions to buy and sell securities for the Fund are made by TIMCO,
subject to the overall supervision and review of the Funds Board of
Directors. Portfolio securities transactions for the Fund are effected by or
under the supervision of TIMCO.
Transactions on stock exchanges involve the payment of negotiated
brokerage
commissions. There is generally no stated commission in the case of
securities traded in the over-the-counter markets, but the price of those
securities includes an undisclosed commission or mark-up. The cost of
securities purchased from underwriters includes an underwriting commission or
concession, and the prices at which securities are purchased from and sold to
dealers include a dealers mark-up or mark-down. For the 1997, 1996 and 1995
fiscal years, the Fund paid $358,528, $176,000 and $155,000, respectively, in
brokerage commissions.
In executing portfolio transactions and selecting brokers or dealers, it
is
the Funds policy to seek the best overall terms available. The Advisory
Agreement between the Fund and TIMCO provides that, in assessing the best
overall terms available for any transaction, TIMCO shall consider the factors
it deems relevant, including the breadth of the market in the security, the
price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, for
the specific transaction and on a continuing basis. In addition, the Advisory
Agreement authorizes TIMCO, in selecting brokers or dealers to execute a
particular transaction and in evaluating the best overall terms available, to
consider the brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934) provided to the Fund
and/or other accounts over which TIMCO or an affiliate exercises investment
discretion.
The Funds Board of Directors will periodically review the commissions paid
by the Fund to determine if the commissions paid over representative periods
of time were reasonable in relation to the benefits inuring to the Fund. It
is possible that certain of the services received will primarily benefit one
or more other accounts for which investment discretion is exercised.
Conversely, the Fund may be the primary beneficiary of services received as a
result of portfolio transactions effected for other accounts. TIMCOs fee
under the Advisory Agreement is not reduced by reason of TIMCOs receiving
such brokerage and research services.
The Funds Board of Directors has determined that any portfolio transaction
for the Fund may be executed through Smith Barney and other affiliated
broker-dealers if, in TIMCOs judgment, the use of an affiliated broker-dealer
is likely to result in price and execution at least as favorable as those of
other qualified brokers, and if, in the transaction, the affiliated broker-
dealer charges the Fund a commission rate consistent with that charged by it
to comparable unaffiliated customers in similar transactions. In addition,
under SEC rules, the affiliated broker-dealer may directly execute such
transactions for the Fund on the floor of any national securities exchange,
provided (a) the Board of Directors has expressly authorized the affiliated
broker-dealer to effect such transactions and (b) the affiliated broker-
dealer annually advises the Fund of the aggregate compensation it earned on
such transactions. An affiliated broker-dealer will not participate in
commissions from brokerage given by the Fund to other brokers or dealers and
will not receive any reciprocal brokerage business resulting therefrom. Over-
the-counter purchases and sales are transacted directly with principal market
makers except in those cases in which better prices and executions may be
obtained elsewhere. For the 1997, 1996 and 1995 fiscal years, the Fund paid
$9,374, $7,375, and $32,635, respectively, in brokerage commissions to Smith
Barney. For the 1997 fiscal year, Smith Barney received 2.6% of the brokerage
commissions paid by the Fund and effected 2.5% of the total dollar amount of
transactions for the Fund involving the payment of brokerage commissions.
Even though investment decisions for the Fund are made independently from
those of the other accounts managed by TIMCO, investments of the kind made by
the Fund also may be made by those other accounts. When the Fund and one or
more accounts managed by TIMCO are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for
sales will be allocated in a manner believed by TIMCO to be equitable. In
some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained for or disposed of by the Fund.
PURCHASE OF SHARES
Volume Discounts
The schedule of sales charges on Class A shares described in the
Prospectus
applies to purchases made by any purchaser, which is defined to include the
following: (a) an individual; (b) an individuals spouse and his or her
children purchasing shares for his or her own account; (c) a trustee or other
fiduciary purchasing shares for a single trust estate or single fiduciary
account; (d) a pension, profit-sharing or other employee benefit plan
qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the Code), and qualified employee benefit plans of employers who are
affiliated persons of each other within the meaning of the 1940 Act; (e) tax-
exempt organizations enumerated in Section 501(c)(3) or (13) of the Code; and
(f) a trustee or other professional fiduciary (including a bank, or an
investment adviser registered with the SEC under the Investment Advisers Act
of 1940, as amended) purchasing shares of the Fund for one or more trust
estates or fiduciary accounts. Purchasers who wish to combine purchase orders
to take advantage of volume discounts should contact a Smith Barney Financial
Consultant.
Combined Right of Accumulation
Reduced sales charges, in accordance with the schedule in the Prospectus,
apply to any purchase of Class A shares if the aggregate investment in Class
A shares of the Fund and in Class A shares of other funds of the Smith Barney
Mutual Funds that are offered with a sales charge, including the purchase
being made, of any purchaser is $25,000 or more. The reduced sales charge is
subject to confirmation of the shareholders holdings through a check of
appropriate records. The Fund reserves the right to terminate or amend the
combined right of accumulation at any time after written notice to
shareholders. For further information regarding the right of accumulation,
shareholders should contact a Smith Barney Financial Consultant.
Determination of Public Offering Price
The Fund offers its shares to the public on a continuous basis. The public
offering price for a Class A and Class Y share of the Fund is equal to the
net asset value per share at the time of purchase, plus for Class A shares an
initial sales charge based on the aggregate amount of the investment. The
public offering price for a Class B and Class C share (and Class A share
purchases, including applicable rights of accumulation, equaling or exceeding
$500,000), is equal to the net asset value per share at the time of purchase
and no sales charge is imposed at the time of purchase. A contingent deferred
sales charge (CDSC), however, is imposed on certain redemptions of Class B
and Class C shares, and of Class A shares when purchased in amounts equaling
or exceeding $500,000. The method of computation of the public offering price
is shown in the Funds financial statements incorporated by reference in their
entirety into this SAI.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of payment postponed
(a) for any period during which the NYSE is closed (other than for customary
weekend or holiday closings), (b) when trading in markets the Fund normally
utilizes is restricted, or an emergency exists, as determined by the SEC, so
that disposal of the Funds investments or determination of net asset value is
not reasonably practicable or (c) for such other periods as the SEC by order
may permit for the protection of the Funds shareholders.
Distributions in Kind
If the Board of Directors of the Fund determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund
to make a redemption payment wholly in cash, the Fund may pay, in accordance
with SEC rules, any portion of a redemption in excess of the lesser of
$250,000 or 1% of the Funds net assets by distribution in kind of portfolio
securities in lieu of cash. Securities issued as a distribution in kind may
incur brokerage commissions when shareholders subsequently sell those
securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the Withdrawal Plan) is available to
shareholders who own shares with a value of at least $10,000 ($5,000 for
retirement plan accounts) and who wish to receive specific amounts of cash
monthly or quarterly. Withdrawals of at least $100 may be made under the
Withdrawal Plan by redeeming as many shares of the Fund as may be necessary
to cover the stipulated withdrawal payment. Any applicable CDSC will not be
waived on amounts withdrawn by shareholders that exceed 1.00% per month of
the value of a shareholders shares at the time the Withdrawal Plan commences.
(With respect to Withdrawal Plans in effect prior to November 7, 1994 any
applicable CDSC will be waived on amounts withdrawn that do not exceed 2.00%
per month of the value of a shareholders shares at the time the Withdrawal
Plan commences.) To the extent withdrawals exceed dividends, distributions
and appreciation of a shareholders investment in the Fund, there will be a
reduction in the value of the shareholders investment and continued
withdrawal payments will reduce the shareholders investment and ultimately
may exhaust it. Withdrawal payments should not be considered as income from
investment in the Fund. Furthermore, as it generally would not be
advantageous to a shareholder to make additional investments in the Fund at
the same time that he or she is participating in the Withdrawal Plan,
purchases by such shareholders in amounts of less than $5,000 ordinarily will
not be permitted.
Shareholders who wish to participate in the Withdrawal Plan and who hold
their shares in certificate form must deposit their share certificates with
First Data as agent for Withdrawal Plan members. All dividends and
distributions on shares in the Withdrawal Plan are reinvested automatically
at net asset value in additional shares of the Fund. A shareholder who
purchases shares directly through First Data may continue to do so and
applications for participation in the Withdrawal Plan must be received by
First Data no later than the eighth day of the month to be eligible for
participation beginning with that months withdrawal. For additional
information, shareholders should contact a Smith Barney Financial Consultant.
DISTRIBUTION
To compensate Smith Barney for the services it provides and for the
expense
it bears under the Distribution Agreement, the Fund has adopted a services
and distribution plan (the Plan) pursuant to Rule 12b-1 under the 1940 Act.
See Distribution in the Prospectus. Under the Plan, the Fund pays Smith
Barney a service fee, accrued daily and paid monthly, calculated at the
annual rate of 0.25% of the value of the Funds average daily net assets
attributable to the Class A, Class B and Class C shares. In addition, the
Fund pays Smith Barney a distribution fee with respect to Class B and Class C
shares primarily intended to compensate Smith Barney for its initial expense
of paying Financial Consultants a commission upon sales of those shares. The
Class B and Class C distribution fee is calculated at the annual rate of
0.75% of the value of the Funds average net asset values attributable to the
shares of the respective Class.
For the fiscal year 1997, aggregate sales commissions of approximately
$608,000, were paid to Smith Barney by the purchasers of Fund shares. A
contingent deferred sales charge (CDSC) may be imposed on certain redemptions
of Class A, Class B shares and Class C shares. The amount of the CDSC will
depend on the number of years since the shareholder made the purchase payment
from which the amount is being redeemed. For Class B shares, the maximum
CDSC is 5.00% of redemption proceeds, declining by 1.00% each year after the
date of purchase to zero. A CDSC of 1.00% is imposed on redemptions of Class
A which when combined with Class A shares offered with a sales charge
currently held by an investor equal or exceed $500,000 in the aggregate and
Class C shares if such redemptions occur within 12 months from the date such
investment was made. Any sales charge imposed on redemptions is paid to the
distributor of the fund shares.
Under its terms, the Plan continues from year to year, provided such
continuance is approved annually by vote of the Board of Directors, including
a majority of the Directors who are not interested persons of the Fund and
who have no direct or indirect financial interest in the operation of the
Plan or in the Distribution Agreement (the Independent Directors). The Plan
may not be amended to increase the amount of the service and distribution
fees without shareholder approval, and all material amendments of the Plan
also must be approved by the Directors and Independent Directors in the
manner described above. The Plan may be terminated with respect to a Class of
the Fund at any time, without penalty, by vote of a majority of the
Independent Directors or by vote of a majority of the outstanding voting
securities of the Class (as defined in the 1940 Act). Pursuant to the Plan,
Smith Barney will provide the Funds Board of Directors with periodic reports
of amounts expended under the Plan and the purpose for which such
expenditures were made.
VALUATION OF SHARES
Each Class net asset value per share is calculated on each day, Monday
through Friday, except days on which the NYSE is closed. The NYSE currently
is scheduled to be closed on New Years Day, Martin Luther King Jr. Day,
Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas, and on the preceding Friday or subsequent Monday
when one of these holidays falls on a Saturday or Sunday, respectively.
Because of the differences in distribution fees and Class-specific expenses,
the per share net asset value of each Class may differ. The following is a
description of the procedures used by the Fund in valuing its assets.
Securities listed on a national securities exchange will be valued on the
basis of the last sale on the date on which the valuation is made or, in the
absence of sales, at the mean between the closing bid and asked prices. Over-
the-counter securities will be valued on the basis of the bid price at the
close of business on each day, or, if market quotations for those securities
are not readily available, at fair value, as determined in good faith by the
Funds Board of Directors. Short-term obligations with maturities of 60 days
or less are valued at amortized cost, when it approximates market value.
Amortized cost involves valuing an instrument at its original cost to the
Fund and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the effect of fluctuating interest rates
on the market value of the instrument. All other securities and other assets
of the Fund will be valued at fair value as determined in good faith by the
Funds Board of Directors.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any fund of the Smith Barney
Mutual Funds may exchange all or part of their shares for shares of the same
class of other funds of the Smith Barney Mutual Funds, to the extent such
shares are offered for sale in the shareholders state of residence, on the
basis of relative net asset value per share at the time of exchange, except
that Class B shares of the Fund exchanged for Class B shares of another fund
will be subject to the higher applicable CDSC of the two funds and, for
purposes of calculating CDSC rates and conversion periods, will be deemed to
have been held since the date the shares being exchanged were deemed to be
purchased.
The exchange privilege enables shareholders to acquire shares of the same
Class in a fund with different investment objectives when they believe that a
shift between funds is an appropriate investment decision. This privilege is
available to shareholders residing in any state in which the fund shares
being acquired may legally be sold. Prior to any exchange, the shareholder
should obtain and review a copy of the current prospectus of each fund into
which an exchange is being considered. Prospectuses may be obtained from a
Smith Barney Financial Consultant.
Upon receipt of proper instructions and all necessary supporting
documents,
shares submitted for exchange are redeemed at the next determined net asset
value and, the proceeds are immediately invested, at a price as described
above, in shares of the fund being acquired. Smith Barney reserves the right
to reject any exchange request. The exchange privilege may be modified or
terminated at any time after written notice to shareholders.
IRA and other Prototype Retirement Plans
Copies of the following plans with custody or trust agreements have been
approved by the Internal Revenue Service and are available from the Fund or
Smith Barney; investors should consult with their own tax or retirement
planning advisors prior to the establishment of a plan.
IRA, Rollover IRA and Simplified Employee Pension - IRA
The Small Business Job Protection Act of 1996 changed the eligibility
requirements for participants in Individual Retirement Accounts (IRAs).
Under these new provisions, if you or your spouse have earned income, each of
you may establish an IRA and make maximum annual contributions equal to the
lesser of earned income or $2,000. As a result of this legislation, married
couples where one spouse is non-working may now contribute a total of $4,000
annually to their IRAs.
The Taxpayer Relief Act of 1997 has changed the requirements for
determining whether or not you are eligible to make a deductible IRA
contribution. Under the new rules effective January 1, 1998, if you are
considered an active participant in an employer-sponsored retirement plan,
you may still be eligible for a full or partial deduction depending upon your
combined adjusted gross income (AGI). For married couples filing jointly, a
full deduction is permitted if your combined AGI is $50,000 or less (30,000
for unmarried individuals); a partial deduction will be allowed when AGI is
between $50,000-$60,000 (30,000-$40,000 for an unmarried individual); an no
deduction when AGI is $60,000 ($40,000 for an unmarried individual).
However, if you are married and your spouse is covered by a employer-
sponsored retirement plan, but you are not, you will be eligible for a full
deduction if your combined AGI is $150,000 or less. A partial deduction is
permitted if your combined AGI is between $150,000-$160,000 and no deduction
is permitted after $160,000.
A Rollover IRA is available to defer taxes on lump sum payments and
other qualifying rollover amounts (no maximum) received from another
retirement plan.
An employer who has established a Simplified Employee Pension - IRA
(SEP-IRA) on behalf of eligible employees may make a maximum annual
contribution to each participants account of 15% (up to $24,000) of each
participants compensation. Compensation is capped at $160,000 for 1998.
PERFORMANCE DATA
From time to time, the Fund may quote total return of the Classes in
advertisements or in reports and other communications to shareholders. The
Fund may include comparative performance information in advertising or
marketing the Funds shares. Such performance information may include data
from the following industry and financial publications: Barrons, Business
Week, CDA Investment Technologies, Inc., Changing Times, Forbes, Fortune,
Institutional Investor, Investors Daily, Money, Morningstar Mutual Fund
Values, The New York Times, USA Today and The Wall Street Journal. To the
extent any advertisement or sales literature of the Fund describes the
expenses or performance of Class A, Class B, Class C or Class Y, it will also
disclose such information for the other Classes.
Average Annual Total Return
Average annual total return figures are computed according to a formula
prescribed by the SEC. The formula can be expressed as follows:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical $1,000
investment made at the beginning of a 1-, 5-, or 10-year
period at the end of the 1-, 5-, or 10-year period (or
fractional portion thereof), assuming reinvestment of
all dividends and distributions.
Class As average annual total return was as follows for the periods
indicated:
21.81% for the one-year period January 1, 1997 through December 31, 1997.
13.60% for the five-year period January 1, 1993 through December 31, 1997.
10.83% for the period from commencement of operations (January 23, 1990)
through December 31, 1997.
Class Bs average annual total return was as follows for the period
indicated:
11.73% for the period from commencement of operations June 25, 1997
(inception date) through December 1, 1997.
Class Cs average annual total return was as follows for the period
indicated:
16.53% for the period from June 24, 1997 (inception date) through December
31, 1997.
Class Ys average annual total return was as follows for the period
indicated:
(1.42)% for the period from October 17, 1997 (inception date) through
December 31, l997.
Average annual total return figures calculated in accordance with the
above formula assume that the maximum 5.00% sales charge or maximum
applicable CDSC, as the case may be, has been deducted from the hypothetical
investment. If the maximum 5.00% sales charge had not been deducted at the
time of purchase, Class As average annual total return for the same periods
would have been 28.25%, 14.77% and 11.56%, respectively. If the maximum CDSC
had not been deducted at the time of purchase, Class Bs average annual total
return from commencement of operations (June 25, 1997) would have been
16.73%. If the maximum CDSC had not been deducted at the time of purchase,
Class Cs average annual total return from commencement of operations (June
24, 1997) would have been 17.53%. If the maximum CDSC had not been deducted
at the time of purchase, Class Ys average from commencement of operations
(October 17, 1997) would have been (1.42%).
Aggregate Total Return
Aggregate total return figures represent the cumulative change in the
value
of an investment in the Class for the specified period and are computed by
the following formula:
ERV-P
P
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical $10,000
investment made at the beginning of the 1-, 5-, or 10-
year period at the end of the 1-, 5-, or 10-year period
(or fractional portion thereof), assuming reinvestment
of all dividends and distributions.
Class As aggregate total return was as follows for the period
indicated:
138.36% for the period from January 23, 1990 through December 31, 1997.
Class Bs aggregate total return was as follows for the period
indicated:
16.73% for the period from June 25, 1997 through December 31, 1997.
Class Cs aggregate total return was as follows for the period
indicated:
17.53% for the period from June 24, 1997 through December 31, 1997.
Class Ys average annual total return was as follows for the period
indicated:
(1.42)% for the period from October 17, 1997 through December 31, l997.
Class A aggregate total return figures assume that the maximum 5.00%
sales charge has not been deducted from the investment at the time of
purchase. If the maximum 5.00% sales charge had been deducted at the time of
purchase, Class As aggregate total return for the same period would have been
126.35%.
Class B aggregate total return figures assume that the maximum
applicable CDSC has not been deducted from the investment at the time of
purchase. If the maximum 5.00% CDSC had been deducted at the time of
purchase, Class Bs aggregate total return for the same period would have been
11.73%.
Class C aggregate total return figures assume that the maximum
applicable CDSC has not been deducted from the investment at the time of
purchase. If the maximum 1% CDSC had been deducted at the time of purchase,
Class Cs aggregate total return for the same period would have been 16.53%.
Class Y aggregate total return figures assume that the maximum
applicable CDSC has not been deducted from the investment at the time of
purchase. If the maximum 1% CDSC had been deducted at the time of purchase,
Class Ys aggregate total return for the same period would have been (1.42%).
Performance will vary from time to time depending upon market conditions,
the composition of the Funds portfolio, operating expenses and the expenses
exclusively attributable to the Class. Consequently, any given performance
quotation should not be considered representative of the Class performance
for any specified period in the future. Because performance will vary, it may
not provide a basis for comparing an investment in the Class with certain
bank deposits or other investments that pay a fixed yield for a stated period
of time. Investors comparing the Class performance with that of other mutual
funds should give consideration to the quality and maturity of the respective
investment companies portfolio securities.
It is important to note that the total return figures set forth above are
based on historical earnings and are not intended to indicate future
performance.
TAXES
The following is a summary of certain Federal income tax considerations
that may affect the Fund and its shareholders. The summary is not intended as
a substitute for individual tax advice and investors are urged to consult
their own tax advisors as to the tax consequences of an investment in the
Fund.
The Fund has qualified and intends to continue to qualify each year as a
regulated investment company under the Code. Provided that the Fund (a) is a
regulated investment company and (b) distributes at least 90% of its net
investment income (including, for this purpose, net realized short-term
capital gains), the Fund will not be liable for Federal income taxes to the
extent its net investment income and its net realized long- and short-term
capital gains, if any, are distributed to its shareholders. Although the
Fund expects to be relieved of all or substantially all Federal, state, and
local income or franchise taxes, depending upon the extent of its activities
in states and localities in which its offices are maintained, in which its
agents or independent contractors are located, or in which it is otherwise
deemed to be conducting business, that portion of the Funds income which is
treated as earned in any such state or locality could be subject to state and
local taxes. Any such taxes paid by the Fund would reduce the amount of
income and gains available for distribution to shareholders.
Gains or losses on the sales of securities by the Fund generally will be
long-term capital gains or losses if the Fund has held the securities for
more than one year. Gains or losses on the sales of securities held for not
more than one year generally will be short-term capital gains or losses.
Dividends of net investment income and distributions of net realized
short-
term capital gains will be taxable to shareholders as ordinary income for
Federal income tax purposes, whether received in cash or reinvested in
additional shares. Dividends received by corporate shareholders will qualify
for the dividends-received deduction only to the extent that the Fund
designates the amount distributed as a dividend and the amount so designated
does not exceed the aggregate amount of dividends received by the Fund from
domestic corporations for the taxable year. The Federal dividends-received
deduction for corporate shareholders may be further reduced or disallowed if
the shares with respect to which dividends are received are treated as debt
financed or are deemed to have been held for less than 46 days.
Distributions of long-term capital gains will be taxable to shareholders
as
such, whether paid in cash or reinvested in additional shares and regardless
of the length of time that the shareholder has held his or her interest in
the Fund (for individuals, the maximum tax rate for long-term capital gains
is 28%, or 20% if the shares have been held for more than 18 months). If a
shareholder receives a distribution taxable as long-term capital gain with
respect to his or her investment in the Fund and redeems or exchanges the
shares before he or she has held them for more than six months, any loss on
the redemption or exchange that is less than or equal to the amount of the
distribution will be treated as a long-term capital loss.
Investors considering buying shares of the Fund on or just prior to a
record date for a taxable dividend or capital gain distribution should be
aware that, regardless of whether the price of the Fund shares to be
purchased reflects the amount of the forthcoming dividend or distribution
payment, any such payment will be a taxable dividend or distribution payment.
If a shareholder fails to furnish a correct taxpayer identification
number,
fails to report dividend and interest income in full, or fails to certify
that he or she has provided a correct taxpayer identification number and that
he or she is not subject to such withholding, the shareholder may be subject
to a 31% backup withholding tax with respect to (a) any taxable dividends and
distributions and (b) any proceeds of any redemption of Fund shares. An
individuals taxpayer identification number is his or her social security
number. The backup withholding tax is not an additional tax and may be
credited against a shareholders regular Federal income tax liability.
The foregoing is only a summary of certain tax considerations generally
affecting the Fund and its shareholders and is not intended as a substitute
for careful tax planning. Shareholders are urged to consult their tax
advisors with specific reference to their own tax situations, including their
state and local tax liabilities.
ADDITIONAL INFORMATION
The Fund, an open-end management investment company, was incorporated on
October 4, 1989 in Maryland under the name The Inefficient-Market Fund Inc.
(the Fund) as a non-diversified closed-end management investment company and
converted to open-end diversified status on June 23, 1997 pursuant to
shareholder approval rendered on April 18, 1997 and Securities and Exchange
Declaration of Effectiveness issued on June 23, 1997.
PNC Bank is located at 17th Chestnut Street, Philadelphia, PA 19103, and
serves as the custodian of the Fund. Under its agreement with the Fund, PNC
Bank holds the Funds portfolio securities and keeps all necessary accounts
and records. For its services, PNC Bank receives a monthly fee based upon the
month-end market value of securities held in custody and also receives
securities transaction charges. PNC Bank is authorized to establish separate
accounts for foreign securities owned by the Fund to be held with foreign
branches of other domestic banks as well as with certain foreign banks and
securities depositories. The assets of the Fund are held under bank
custodianship in compliance with the 1940 Act.
First Data is located at Exchange Place, Boston, MA 02109, and serves as
the Funds transfer agent. Under the transfer agency agreement, First Data
maintains the shareholder account records for the Fund, handles certain
communications between shareholders and the Fund and distributes dividends
and distributions payable by the Fund. For these services, First Data
receives a monthly fee computed on the basis of the number of shareholder
accounts it maintains for the Fund during the month and is reimbursed for
out-of-pocket expenses.
FINANCIAL STATEMENTS
The Funds Annual Report for the fiscal year ended December 31, 1997 is
incorporated herein by reference in its entirety.
Smith Barney
Small Cap Blend
Fund, Inc.
Statement of
Additional
Information
April 30, 1998
Smith Barney
Small Cap Blend Fund, Inc.
388 Greenwich Street
New York, NY 10013
SMITH BARNEY
A Member of Travelers Group
15
