As filed with the Securities and Exchange Commission on February 22, 1999
Securities Act Registration No. 333-25499
Investment Company Act Registration No. 811-5928
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 3 [X]
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 3 [X]
___________________________________________________________
Smith Barney Small Cap Blend Fund, Inc.
(a Maryland Corporation)
(Exact Name of Registrant as Specified in Charter)
388 Greenwich Street
New York, New York 10013
(Address of Principal Executive Offices)
(212) 816-6474
(Registrants Telephone Number, including Area Code)
Christina T. Sydor, Secretary
Smith Barney Small Cap Blend Fund, Inc.
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
_____________________
Copies to:
Burton M. Leibert, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
_______________
Approximate Date of Proposed Public Offering: Continuous.
It is proposed that this filing will become effective (check appropriate
box):
[ ] Immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] On (date) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[X] On April 30, 1999 pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of rule 485
[ ] On (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post effective amendment.
Title of Securities Being Registered: Shares of Common Stock
SMITH BARNEY SMALL CAP BLEND FUND, INC.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following pages and documents
Front Cover
Contents Page
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
PART A PROSPECTUS
-------------------
[Logo]
Smith Barney Mutual
Funds
Investing for your
future.
Every day.
-------------------
PROSPECTUS SMITH BARNEY
MUTUAL FUNDS
- --------------------------------------------------------------------------------
April 30, 1999 Small Cap Blend Fund, Inc.
Class A, B, L and Y Shares
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
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Contents
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Fund goal and strategies......................................4
Risks, performance and expenses...............................5
More on the fund's investments................................8
Management....................................................9
Choosing a class of shares to buy............................10
Comparing the fund's classes.................................11
Sales charges................................................12
More about deferred sales charges............................15
Buying shares................................................16
Exchanging shares............................................17
Redeeming shares.............................................18
Other things to know about
share transactions.........................................20
Smith Barney 401(k) and
ExecChoice(TM) programs....................................22
Dividends, distributions and
taxes......................................................23
Share price..................................................24
Financial highlights.........................................24
You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
Small Cap Blend Fund -3-
<PAGE>
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Fund goal and strategies
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Investment objective
The fund seeks long-term capital appreciation.
Key investments
The fund invests primarily in common stocks of U.S. companies with relatively
small market capitalizations at the time of investment. These are companies with
market capitalizations in excess $100 million and in the lowest 20% of publicly
traded U.S. companies. The fund will hold a portfolio that is generally
comparable to, but not the same as, the Russell 2000 Stock Index in terms of
economic sector weightings and market capitalization. The Russell 2000 Stock
Index is a broad-based index of the smaller capitalization segment of the U.S.
stock market.
Selection process
The manager employs an active investment strategy that focuses primarily on
individual stock selection and remains diversified across several industries and
sectors. The manager uses quantitative analysis to identify stocks that possess
attractive growth or value characteristics. This style of stock selection, which
blends in similar proportions both the growth and value disciplines of
investing, is commonly known as "growth at a reasonable price." Quantitative
methods are also used to control portfolio risk related to broad macroeconomic
factors such as interest rate changes.
In selecting stocks based on growth characteristics, the manager generally looks
for companies with:
o Above average earnings growth
o A pattern of reported earnings that exceeds market expectations
o Rising earnings estimates over the next several quarters
o High relative return based on invested capital
In selecting stocks with value characteristics, the manager looks for companies
whose stock price is undervalued relative to their earnings, sale or book
values. The timing of buy and sell decisions is based on recent price trends.
- -4-
<PAGE>
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Risks, performance and expenses
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Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
o Stock prices decline generally
o Small capitalization companies fall out of favor with investors
o Stock prices of smaller, newer companies decline further and more abruptly
than those of larger, more established companies in response to negative stock
market movements
o The manager's judgment about the attractiveness, value or potential
appreciation of a particular stock proves to be incorrect
o A particular product or service developed by a company in which the fund
invests is unsuccessful, the company does not meet earnings expectations or
other events depress the value of the company's stock
Compared to mutual funds that focus on large capitalization companies, the
fund's share price may be more volatile because of its focus on small
capitalization companies.
Compared to large companies, small capitalization companies, and the markets for
their common stocks, are more likely to have:
o More limited product lines
o Fewer capital resources
o More limited management depth
Further, securities of small capitalization companies are more likely to:
o Experience sharper swings in market values
o Be harder to sell at times and prices the manager believes appropriate
o Offer greater potential for gains and losses
Who may want to invest
The fund may be an appropriate investment if you:
o Are seeking to participate in the long term growth potential of small
capitalization companies
o Currently have exposure to fixed income investments and the stocks commonly
held by large capitalization oriented mutual funds and wish to broaden your
investment portfolio
o Are willing to accept the risks of the stock market and the special risks and
potential long-term rewards of investing in smaller companies with limited track
records
Small Cap Blend Fund -5-
<PAGE>
Total return
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
[The following table was depicted as a bar chart in the printed material]
Calender Years Total Return
ended December 31 Class A Shares
93 8.00%
94 -4.36%
95 18.90%
96 20.56%
97 28.25%
The bar chart shows the performance of the fund's Class A shares for each of the
past 6 years. Class B, L and Y shares would have different performance because
of their different expenses. The performance information in the chart does not
reflect sales charges, which would reduce your return.
Quarterly returns: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___ quarter
199X
Comparative performance
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Russell
2000 Stock Index, a broad-based unmanaged index of common stocks of smaller
capitalization
companies. This table assumes imposition of the maximum sales charge applicable
to the class, redemption of shares at the end of the period, and reinvestment of
distributions and dividends.
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Average Annual Total Returns
Calendar Years Ended December 31, 1998
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Class Inception Date 1 year 5 years 10 years Since inception
A 11/06/92 % % n/a %
B [xx/xx/97] % % % %
L 10/18/93 % % n/a %
Y 01/31/96 % n/a n/a %
Russell 2000 Index * % % % %
Prior to June 23, 1997, the fund was a non-diversified, closed-end fund, and was
not subject to the cash flow fluctuations, or the diversification and liquidity
requirements of a diversified open-end fund. The fund's past performance may
have been different if it had been a diversified open-end fund since inception.
*Index comparison begins on __________
- -6-
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
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Shareholder fees
(paid directly from your investment) Class A Class B Class L Class Y
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Maximum sales charge on purchases (as a % 5.00% None 1.00% None
of offering price)
Maximum deferred sales charge on None* 5.00% 1.00% None
redemptions (as a % of the lower of
net asset value at purchase or
redemption)
Annual fund operating expenses (paid by
the fund as a % of net assets)
Management fee 0.75% 0.75% 0.75% 0.75%
Distribution and service (12b-1) fees 0.25% 1.00% 1.00% None
Other expenses
---- ---- ---- ----
Total annual fund operating expenses
==== ==== ==== ====
* You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase, you will pay a deferred sales charge of 1.00%.
Example
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
o You invest $10,000 in the fund for the period shown
o Your investment has a 5% return each year
o You reinvest all distributions and dividends without a sales charge
o The fund's operating expenses remain the same
- --------------------------------------------------------------------------------
Number of years you own your shares 1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class A (with or without redemption) $ $ $ $
Class B (redemption at end of period) $ $ $ $
Class B (no redemption) $ $ $ $
Class L (redemption at end of period) $ $ $ $
Class L (no redemption) $ $ $ $
Class Y (with or without redemption) $ $ $ $
Small Cap Blend Fund -7-
<PAGE>
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More on the fund's investments
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Derivative contracts. The fund may, but need not, use derivative contracts, such
as futures and options on securities or securities indices, or options on these
futures for any of the following purposes:
o To hedge against the economic impact of adverse changes in the market value of
portfolio securities, because of changes in stock market prices
o As a substitute for buying or selling securities
A derivative contract will obligate or entitle a fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities or
indices. Even a small investment in derivative contracts can have a big impact
on a fund's stock exposure. Therefore, using derivatives can disproportionately
increase losses and reduce opportunities for gains. The fund may not fully
benefit from or may lose money on derivatives if changes in their value do not
correspond accurately to changes in the value of the fund's holdings. The other
parties to certain derivative contracts present the same types of default risk
as issuers of fixed income securities. Derivatives can also make a fund less
liquid and harder to value, especially in declining markets.
Defensive investing. The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
Risk of high portfolio turnover. The fund may engage in active and frequent
trading, resulting in high portfolio turnover. This may lead to the realization
and distribution to shareholders of higher capital gains, increasing their tax
liability. Frequent trading also increases transaction costs, which could
detract from the fund's performance.
Investment Goal. The fund's investment goal is not fundamental and may be
changed without shareholder approval by the fund's board of trustees.
- -8-
<PAGE>
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Management
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Manager. The fund's investment manager is Travelers Investment Management
Company, an affiliate of Salomon Smith Barney Inc. The manager's address is One
Tower Square, Hartford, CT 06183-2030. The manager selects the fund's
investments and oversees its operations. The manager and Salomon Smith Barney
are subsidiaries of Citigroup Inc. Citigroup businesses produce a broad range of
financial services -- asset management, banking and consumer finance, credit and
charge cards, insurance, investments, investment banking and trading -- and use
diverse channels to make them available to consumer and corporate customers
around the world. The fund's
administrator is SSBC Fund Management Inc., an affiliate of Salomon Smith Barney
Inc. The administrator oversees all aspects of the fund's administration and
operation.
Sandip Bhagat, president of the manager, has been responsible for the day to day
management of the fund since ____________.
Management fee. For its services, the manager received a fee during the fund's
last fiscal year equal to 0.65% of the fund's average daily net assets. In
addition, the administrator received a fee for its administrative services to
the fund equal to 0.10% of the fund's average daily net assets.
Distributor. The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker-dealers sells fund shares to the public.
Distribution plans. The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and service
fees. These fees are an ongoing expense and, over time, may cost you more than
other types of sales charges.
Year 2000 issue. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
the efforts of the fund (limited to requesting and receiving reports from its
service providers) or its service providers to correct the problem will be
successful.
Small Cap Blend Fund -9-
<PAGE>
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Choosing a class of shares to buy
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You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
o If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.
o For Class B shares, all of your purchase price and, for Class L shares, more
of your purchase amount (compared to Class A shares), will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
o Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class L
shares do not, Class B shares may be more attractive to long-term investors.
You may buy shares from:
o A Salomon Smith Barney Financial Consultant
o An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
o The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums. Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
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Initial Additional
----------------------------- -----------
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Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
IRAs, Self Employed $250 $15 million $50
Retirement Plans, Uniform Gift to Minor Accounts
Qualified Retirement Plans* $25 $15 million $25
Simple IRAs $1 n/a $1
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Monthly Systematic Investment Plans $25 n/a $25
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Quarterly Systematic Investment Plans $50 n/a $50
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</TABLE>
*Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k) plans
- -10-
<PAGE>
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Comparing the fund's classes
- --------------------------------------------------------------------------------
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They may receive different compensation
depending upon which class you choose.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Class A Class B Class L Class Y
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Key o Initial sales charge o No initial sales o Initial sales o No initial or
features o You may qualify charge charge is lower deferred sales charge
for reduction or o Deferred sales than Class A o Must invest at least
waiver of initial charge declines o Deferred sales $15 million
sales charge over time charge for only 1 o Lower annual
o Lower annual o Converts to year expenses than the
expenses than Class Class A after 8 o Does not other classes
B and Class L years convert to
o Higher annual Class A
expenses than o Higher annual
Class A expenses than
Class A
Initial sales Up to 5.00%; None 1.00% None
charge reduced or waived
for large purchases
and certain
investors. No
charge for
purchases of
$500,000 or more
Deferred 1% on purchases of Up to 5.00% 1% if you redeem None
sales charge $500,000 or more if charged when you within 1 year of
you redeem within redeem shares. purchase
1 year of purchase The charge is
reduced over time
and there is no
deferred sales
charge after 6 years
Annual 0.25% of average 1% of average 1% of average None
distribution daily net assets daily net assets daily net assets
and service
fees
Exchange- Class A shares of Class B shares of Class L shares of Class Y shares of
able into* most Smith Barney most Smith Barney most Smith most Smith Barney
funds funds Barney funds
funds
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
Small Cap Blend Fund -11-
<PAGE>
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Sales charge: Class A shares
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You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund's distributions or dividends you reinvest in additional Class A shares.
- --------------------------------------------------------------------------------
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
- --------------------------------------------------------------------------------
Less than $25,000 5.00 5.26
$25,000 but less than $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 3.00 3.09
$250,000 but less than $500,000 2.00 2.04
$500,000 or more -0- -0-
- --------------------------------------------------------------------------------
Investments of $500,000 or more. You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
Qualifying for a reduced Class A sales charge. There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Accumulation privilege - lets you combine the current value of Class A shares
owned
o by you, or
o by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
- -12-
<PAGE>
Letter of intent - lets you purchase Class A shares of the fund and other Smith
Barney funds over a 13-month period and pay the same sales charge, if any, as if
all shares had been purchased at once. You may include purchases on which you
paid a sales charge within 90 days before you sign the letter.
Waivers for certain Class A investors. Class A initial sales charges are waived
for certain types of investors, including:
o Employees of members of the NASD
o 403(b) or 401(k) retirement plans, if certain conditions are met
o Clients of newly employed Salomon Smith Barney Financial Consultants, if
certain conditions are met
o Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn more about the requirements for reductions or waivers of
Class A initial sales charges, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the Statement of Additional
Information ("SAI").
Small Cap Blend Fund -13-
<PAGE>
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Sales charge: Class B shares
- --------------------------------------------------------------------------------
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of purchase,
you will pay a deferred sales charge. The deferred sales charge decreases as the
number of years since your purchase increases.
- --------------------------------------------------------------------------------
6th and
Year after purchase 1st 2nd 3rd 4th 5th over
- --------------------------------------------------------------------------------
Deferred sales charge 5% 4% 3% 2% 1% 0%
- --------------------------------------------------------------------------------
Class B conversion. After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
- --------------------------------------------------------------------------------
Shares issued: Shares issued: Shares issued:
At initial On reinvestment of Upon exchange from
purchase dividends and another Smith Barney
distributions fund
- --------------------------------------------------------------------------------
Eight years after the In same proportion as the On the date the shares
date of purchase number of Class B shares originally acquired would
converting is to total have converted into Class A
Class B shares you own shares
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Sales charge: Class L shares
- --------------------------------------------------------------------------------
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund on June 12, 1998, you
will not pay an initial sales charge on Class L shares you buy before June 22,
2001.
- --------------------------------------------------------------------------------
Sales charge: Class Y shares
- --------------------------------------------------------------------------------
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 6-month period. To qualify, you must
initially invest $5,000,000.
- -14-
<PAGE>
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More about deferred sales charges
- --------------------------------------------------------------------------------
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
o Shares exchanged for shares of another Smith Barney fund
o Shares representing reinvested distributions and dividends
o Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
o On payments made through certain systematic withdrawal plans
o On certain distributions from a retirement plan
o For involuntary redemptions of small account balances
o For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
Small Cap Blend Fund -15-
<PAGE>
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Buying shares
- --------------------------------------------------------------------------------
Through a Salomon Smith Barney Financial Consultant or dealer representative
You should contact your Salomon Smith Barney Financial Consultant or dealer
representative to open a brokerage account and make arrangements to buy shares.
If you do not provide the following information, your order will be rejected
o Class of shares being bought
o Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account no later than the
third business day after you place your order. Salomon Smith Barney or your
dealer representative may charge an annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the fund's transfer agent
Qualified retirement plans and certain other investors who are clients of the
selling group are eligible to buy shares directly from the fund.
o Write the transfer agent at the following address:
Smith Barney Mutual Funds
Smith Barney Small Cap Blend Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
o Enclose a check to pay for the shares. For initial purchases, complete and
send an account application.
o For more information, call the transfer agent at 1-800-451-2010
- --------------------------------------------------------------------------------
Through a systematic investment plan
You may authorize Salomon Smith Barney, your dealer representative or the
transfer agent to transfer funds automatically from a regular bank account, cash
held in a Salomon Smith Barney brokerage account or Smith Barney money market
fund to buy shares on a regular basis.
o Amounts transferred should be at least: $25 monthly or $50 quarterly
o If you do not have sufficient funds in your account on a transfer date,
Salomon Smith Barney, your dealer representative or the transfer agent may
charge you a fee
For more information, contact your Salomon Smith Barney Financial Consultant,
dealer representative or the transfer agent or consult the SAI.
- -16-
<PAGE>
- --------------------------------------------------------------------------------
Exchanging shares
- --------------------------------------------------------------------------------
Smith Barney offers a distinctive family of funds tailored to help meet
the varying needs of both large and small investors.
You should contact your Salomon Smith Barney Financial Consultant or dealer
representative to exchange into other Smith Barney mutual funds. Be sure to read
the prospectus of the Smith Barney mutual fund you are exchanging into. An
exchange is a taxable transaction.
o You may exchange shares only for shares of the same class of another Smith
Barney fund. Not all Smith Barney funds offer Class A, B, L and Y shares.
o Not all Smith Barney funds may be offered in your state of residence. Contact
your Smith Barney Financial Consultant, dealer representative or the transfer
agent.
o You must meet the minimum investment amount for each fund
o If you hold share certificates, the transfer agent must receive the
certificates endorsed for transfer or with signed stock powers (a document that
transfers ownership of the certificate) before the exchange is effective.
o The fund may suspend or terminate your exchange privilege if you engage in an
excessive pattern of exchanges
- --------------------------------------------------------------------------------
Waiver of additional sales charges
Your shares will not be subject to an initial sales charge at the time of the
exchange.
Your deferred sales charge (if any) will continue to be measured from the date
of your original purchase. If the fund you exchange into has a higher deferred
sales charge, you will be subject to that charge. If you exchange at any time
into a fund with a lower charge, the sales charge will not be reduced.
- --------------------------------------------------------------------------------
By telephone
If you do not have a brokerage account, you may be eligible to exchange shares
through the transfer agent. You must complete an authorization form to authorize
telephone transfers. If eligible, you may make telephone exchanges on any day
the New York Stock Exchange is open. Call the transfer agent at 1-800-451-2010
between 9:00 a.m. and 5:00 p.m. (Eastern time). Requests received after the
close of regular trading on the Exchange are priced at the net asset value next
determined.
You can make telephone exchanges only between accounts that have identical
registrations.
- --------------------------------------------------------------------------------
By mail
If you do not have a Salomon Smith Barney brokerage account, contact your dealer
representative or write to the transfer agent at the address on the opposite
page.
Small Cap Blend Fund -17-
<PAGE>
- --------------------------------------------------------------------------------
Redeeming shares
- --------------------------------------------------------------------------------
Generally
Contact your Salomon Smith Barney Financial Consultant or dealer representative
to redeem shares of the fund.
If you hold share certificates, the transfer agent must receive the certificates
endorsed for transfer or with signed stock powers before the redemption is
effective.
If the shares are held by a fiduciary or corporation, other documents may be
required.
Your redemption proceeds will be sent within three business days after your
request is received in good order. However, if you recently purchased your
shares by check, your redemption proceeds will not be sent to you until your
original check clears, which may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your redemption proceeds
will be placed in your account and not reinvested without your specific
instruction. In other cases, unless you direct otherwise, your redemption
proceeds will be paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
By mail
For accounts held directly at the fund, send written requests to the transfer
agent at the following address:
Smith Barney Mutual Funds
Smith Barney Small Cap Blend Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
o Your account number
o The class of shares and the dollar amount or number of shares to be redeemed
o Signatures of each owner exactly as the account is registered
- -18-
<PAGE>
By telephone
If you do not have a brokerage account, you may be eligible to redeem shares
(except those held in retirement plans) in amounts up to $10,000 per day through
the transfer agent. You must complete an authorization form to authorize
telephone redemptions. If eligible, you may request redemptions by telephone on
any day the New York Stock Exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern time). Requests received
after the close of regular trading on the Exchange are priced at the net asset
value next determined.
Your redemption proceeds can be sent by check to your address of record or by
wire transfer to a bank account designated on your authorization form. You may
be charged a fee for wire transfers. You must submit a new authorization form to
change the bank account designated to receive wire transfers and you may be
asked to provide certain other documents.
- --------------------------------------------------------------------------------
Automatic cash withdrawal plans
You can arrange for the automatic redemption of a portion of your shares on a
monthly or quarterly basis. To qualify you must own shares of the fund with a
value of at least $10,000 and each automatic redemption must be at least $50. If
your shares are subject to a deferred sales charge, the sales charge will be
waived if your automatic payments do not exceed 1% per month of the value of
your shares subject to a deferred sales charge.
The following conditions apply:
o Your shares must not be represented by certificates
o All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney Financial Consultant or
dealer representative or consult the SAI.
Small Cap Blend Fund -19-
<PAGE>
- --------------------------------------------------------------------------------
Other things to know about share transactions
- --------------------------------------------------------------------------------
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed.
o Name of the fund
o Account number
o Class of shares being bought, exchanged or redeemed
o Dollar amount or number of shares being bought, exchanged or redeemed
o Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
Signature guarantees. To be in good order, your redemption request must include
a signature guarantee if you:
o Are redeeming (together with other requests submitted in the previous 10 days)
over $10,000 of shares
o Are sending signed share certificates or stock powers to the transfer agent
o Instruct the transfer agent to mail the check to an address different from the
one on your account
o Changed your account registration
o Want the check paid to someone other than the account owner(s)
o Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
- -20-
<PAGE>
The fund has the right to:
o Suspend the offering of shares
o Waive or change minimum and additional investment amounts
o Reject any purchase or exchange order
o Change, revoke or suspend the exchange privilege
o Suspend telephone transactions
o Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission
o Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances. If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions. The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.
Share certificates. The fund does not issue share certificates unless a written
request is made to the transfer agent. If you hold share certificates it will
take longer to exchange or redeem shares.
Small Cap Blend Fund -21-
<PAGE>
- --------------------------------------------------------------------------------
Smith Barney 401(k) and ExecChoice(TM) programs
- --------------------------------------------------------------------------------
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoice(TM) program. The fund offers Class A and Class L shares
to participating plans as investment alternatives under the programs. You can
meet minimum investment and exchange amounts by combining the plan's investments
in any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment. Once a class
of shares is chosen, all additional purchases must be of the same class.
o Class A shares may be purchased by plans investing at least $1 million.
o Class L shares may be purchased by plans investing less than $1 million. Class
L shares are eligible to exchange into Class A shares not later than 8 years
after the plan joined the program. They are eligible for exchange sooner in the
following circumstances:
If the account was opened on or after June 21, 1996 and a total of $1
million is invested in Smith Barney Funds Class L and Class O shares
(other than money market funds), all Class L shares are eligible for
exchange after the plan is in the program 5 years.
If the account was opened before June 21, 1996 and a total of $500,000 is
invested in Smith Barney Funds Class L and Class O shares (other than
money market funds) on December 31 in any year, all Class L shares are
eligible for exchange on or about March 31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.
- -22-
<PAGE>
- --------------------------------------------------------------------------------
Dividends, distributions and taxes
- --------------------------------------------------------------------------------
Dividends. The fund generally makes capital gain distributions and pays
dividends, if any, once a year, typically in December. The fund may pay
additional distributions and dividends at other times if necessary for the fund
to avoid a federal tax. Capital gain distributions and dividends are reinvested
in additional fund shares of the same class you hold. The fund expects
distributions to be primarily from capital gain. You do not pay a sales charge
on reinvested distributions or dividends. Alternatively, you can instruct your
Salomon Smith Barney Financial Consultant, dealer representative or the transfer
agent to have your distributions and/or dividends paid in cash. You can change
your choice at any time to be effective as of the next distribution or dividend,
except that any change given to the transfer agent less than five days before
the payment date will not be effective until the next distribution or dividend
is paid.
Taxes. In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
- --------------------------------------------------------------------------------
Transaction Federal tax status
- --------------------------------------------------------------------------------
Redemption or exchange of shares Usually capital gain or loss;
long-term only if shares owned
more than one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
- --------------------------------------------------------------------------------
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a capital gain distribution or a
dividend, because it will be taxable to you even though it may actually be a
return of a portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special tax
rules may apply, you should consult your tax adviser about your investment in
the fund.
Small Cap Blend Fund -23-
<PAGE>
- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. The fund's currency conversions are done when the London stock
exchange closes, which is 12 noon Eastern time. When reliable market prices are
not readily available, or when value of a security has been materially affected
by events occurring after a
foreign exchange closes, the fund may price those securities at fair value. Fair
value is determined in accordance with procedures approved by the fund's board.
A fund that uses fair value to price securities may value those securities
higher or lower than another fund using market quotations to price the same
securities.
International markets may be open on days when U.S. markets are closed and the
value of foreign securities owned by the fund could change on days when you
cannot buy or redeem shares.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
- --------------------------------------------------------------------------------
Financial highlights
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG LLP, independent
accountants, whose report, along with the fund's financial statements, are
included in the annual report (available upon request).
- -24-
<PAGE>
For a Class A share(1) of capital stock outstanding throughout each year ended
December 31, 1998:
- --------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
Net asset value, beginning of
year $12.30 $12.15 $11.78 $12.50
- --------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income
Net realized and 0.04 0.05 0.11 0.05
unrealized gain (loss) 3.23 2.14 2.31 (0.63)
- --------------------------------------------------------------------------------
Total income (loss) from
operations 3.27 2.19 2.42 (0.58)
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.08) (0.04) (0.14) (0.09)
Net realized gain (1.94) (2.00) (1.91) (0.05)
- --------------------------------------------------------------------------------
Total distributions (2.02) (2.04) (2.05) (0.14)
- --------------------------------------------------------------------------------
Redemption fee(2) 0.13 -- -- --
- --------------------------------------------------------------------------------
Net asset value, end of year $13.68 $12.30 $12.15 $11.78
- --------------------------------------------------------------------------------
Total return 28.25% 20.56% 18.90% (4.36)%
- --------------------------------------------------------------------------------
Net assets, end of year (000's) $46,036 $52,911 $52,546 $51,641
- --------------------------------------------------------------------------------
Ratios to average net assets
Expenses 1.21% 1.21% 1.22% 1.22%
Net investment income 0.24 0.43 0.84 0.43
- --------------------------------------------------------------------------------
Portfolio turnover rate 140% 151% 177% 45%
- --------------------------------------------------------------------------------
(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 from June 23, 1997
through December 31, 1997.
Small Cap Blend Fund -25-
<PAGE>
For a share of each other class of capital stock outstanding throughout each
year ended December 31, 1998:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Class B Shares Class L Shares Class Y Shares
-------------- -------------- --------------
1998 1997(1) 1998 1997(2) 1998 1997(3)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of $ $13.34 $ $13.24 $ $13.87
year
- ------------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment loss (0.01) (0.01) (0.01)
Net realized and unrealized
gain 2.18 2.27 (0.21)
(loss)
- ------------------------------------------------------------------------------------------------------------
Total income (loss) from 2.17 2.26 (0.20)
operations
- ------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.01) (0.01) (0.04)
Net realized gains (1.98) (1.98) --
- ------------------------------------------------------------------------------------------------------------
Total distributions (1.99) (1.99) (0.04)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of year $13.52 $13.51 $13.63
- ------------------------------------------------------------------------------------------------------------
Total returns(4) 16.73% 17.53% (1.42)%
- ------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's) $12,685 $2,974 $104,503
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets(5)
Expenses 1.99% 2.00% 1.11%
Net investment (loss) income (0.26) (0.26) 0.58
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 140% 140% 140%
- ------------------------------------------------------------------------------------------------------------
</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.
(4) Not annualized.
(5) Annualized.
- -26-
<PAGE>
SALOMON SMITH BARNEY(SM)
a member of citigroup [Symbol]
Small Cap Blend Fund
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information. The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. You can get copies of these materials for a
fee by writing to the Public Reference Section of the Commission, Washington,
D.C. 20549-6009. Information about the public reference room may be obtained by
calling 1-800-SEC-0330. You can get the same information free from the
Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(SM) Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-06290)
[FD00000 2/99]
PART B STATEMENT OF ADDITIONAL INFORMATION
Smith Barney
SMALL CAP BLEND FUND, INC.
388 Greenwich Street
New York, New York 10013
800-451-2010
Statement of Additional
Information
April 30,
1999
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, 1999, as amended or
supplemented from time to time, and should be read in conjunction with the
Fund's Prospectus. The Fund's 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 2
Investment Objective and Management Policies 5
Purchase, Exchange and Redemption of Shares 17
Distribution 28
Determination of Net Asset Value 29
IRA and Other Prototype Retirement Plans 30
Performance Data 31
Taxes 34
Additional Information 39
Financial Statements 40
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
CFBDS, Inc.
("CFBDS'') Distributor
Citigroup Investment Management Company
("TIMCO") Investment Adviser
SSBC Fund Management Inc. (formerly
Mutual Management Corp.) ("SSBC") 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.
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); 77.
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; 67.
*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 SSBC and
Citigroup 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; 65.
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); 72.
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 SSBC and Senior Executive Vice President, Director and Member of
the Executive Committee of Smith Barney; 68.
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 SSBC and TIA; 41.
PAUL BROOK, Controller and Assistant Secretary
Director of Salomon Smith Barney and Controller or Assistant Controller of
certain other investment companies associated with Salomon Smith Barney
since 1998; Managing Director of AMT Capital Services Inc. from 1997-1998;
Partner with Ernst & Young LLP prior to 1997; 45.
CHRISTINA T. SYDOR, Secretary
Managing Director of Smith Barney; Secretary of forty-two investment
companies associated with Smith Barney; Secretary and General Counsel of
SSBC and TIA; 48.
As of December 31, 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 Fund's fiscal year ended
December 31, 1998, such fees and expenses totaled $______.
For the fiscal year ended December 31, 1998, 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 Fund's
Expenses
Total
Compensation
from Fund
Complex
Total Number
of Funds for
Which Person
Serves within
Fund Complex
Joseph H.
Fleiss**+
$
$0
[10]
Donald R. Foley**
0
[10]
Paul Hardin
0
[12]
Francis P.
Martin**
0
[10]
Heath B.
McLendon*
0
[42]
Bruce Sargent*
0
[3]
Roderick C.
Rasmussen
0
[10]
John P. Toolan**
0
[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: $__, Donald R. Foley: $__, Francis P.
Martin: $___ and John P. Toolan: $___, and the following amounts of
their total compensation from the Fund Complex: Joseph H. Fleiss:
$______, Donald R. Foley: $______, Francis P. Martin: $______ and
John P. Toolan: $______
+ Effective January 1, 1998, Mr. Fleiss became a Director
Emeritus. Upon attainment of age 72 the Fund's 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 Fund's directors,
together with reasonable out-of-pocket expenses for each meeting
attended. During the Fund's last fiscal year aggregate
compensation from the Fund to Emeritus Directors totaled $___.
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." 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 Citigroup Inc. ("Citigroup").
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 Fund's average daily net assets. For the
1998, 1997 and 1996 fiscal years, the Fund paid $_______, $439,687
and $416,000, 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 SSBC Fund Management Inc. (or
any successor) as the Administrator; interest charges; taxes;
charges and expenses of the Fund's 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 Fund's 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 stockholder's meetings; filing fees
and expenses related to the registration and qualification of the
Fund's 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
SSBC serves as administrator to the Fund pursuant to a written
agreement (the "Administration Agreement"). The services provided
by SSBC under the Administration Agreement are described in the
Prospectus under "Management of the Fund." SSBC 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, SSBC receives a fee at the annual rate of 0.10% of the
value of the Fund's average daily net assets. For the 1998, 1997
and 1996 fiscal years, the Fund paid SSBC $_______, $102,195 and
$138,000, respectively, in administration fees.
Counsel and Auditors
Willkie Farr & Gallagher 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 LLP, 345 Park Avenue, New York, New York 10154, has been
selected as the Fund's independent auditor to examine and report on
the Fund's financial statements and highlights for the fiscal year
ending December 31, 1999.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Prospectus discusses the Fund's investment objective and the
policies it employs to achieve its objective. The following
discussion supplements the description of the Fund's investment
objective and management policies in the Prospectus.
Small Capitalization Companies. The fund may invest in securities
of companies with market capitalization or estimated revenues of
less than $500 million at the time of initial investment. Small
companies may (i) be subject to more volatile market movements than
securities of larger, more established companies; (ii) have limited
product lines, markets or financial resources; and (iii) depend
upon a limited or less experienced management group. The
securities of small companies may be traded only on the over-the-
counter market or on a regional securities exchange and may not be
traded daily or in the volume typical of trading on a national
securities exchange. Disposition by the Fund of small company
securities in order to meet redemptions may require the Fund to
sell these securities at a discount from market prices, over a
longer period of time or during periods when disposition is not
desirable.
Preferred Stocks and Convertible Securities. The fund may invest
in convertible debt and preferred stocks. Convertible debt
securities and preferred stock entitle the holder to acquire the
issuer's stock by exchange or purchase for a predetermined rate.
Convertible securities are subject both to the credit and interest
rate risks associated with fixed income securities and to the stock
market risk associated with equity securities.
Warrants. Warrants acquired by the fund entitle it to buy common
stock from the issuer at a specified price and time. Warrants are
subject to the same market risks as stocks, but may be more
volatile in price. The fund's investment in warrants will not
entitle it to receive dividends or exercise voting rights and will
become worthless if the warrants cannot be profitably exercised
before the expiration dates.
REITs. The fund may invest in shares of real estate investment
trusts (REITs), which are pooled investment vehicles that invest in
real estate or real estate loans or interests. Investing in REITs
involves risks similar to those associated with investing in equity
securities of small capitalization companies. REITs are dependent
upon management skills, are not diversified, and are subject to
risks of project financing, default by borrowers, self-liquidation,
and the possibility of failing to qualify for the exemption from
taxation on distributed amounts under the Internal Revenue Code of
1986, as amended (the "Code").
Illiquid and Restricted Securities. The fund may invest up to 15%
of its assets in securities (excluding those subject to Rule 144A
under the Securities Act of 1933, as amended (the ''1933 Act'')),
with contractual or other restrictions on resale and other
instruments that are not readily marketable, including (a)
repurchase agreements with maturities greater than seven days, (b)
time deposits maturing from two business days through seven
calendar days, (c) to the extent that a liquid secondary market
does not exist for the instruments, futures contracts and options
on those contracts and (d) other securities that are subject to
restrictions on resale that the investment adviser has determined
are not liquid under guidelines established by the fund's Board of
Directors.
ADRs. The fund may purchase ADRs or other securities representing
underlying shares of foreign companies. ADRs are publicly traded
on exchanges or over-the-counter in the United States and are
issued through "sponsored" or "unsponsored" arrangements. In a
sponsored ADR arrangement, the foreign issuer assumes the
obligation to pay some or all of the depository's transaction fees,
whereas under an unsponsored arrangement, the foreign issuer
assumes no obligation and the depository's transaction fees are
paid by the ADR holders. In addition, less information is
available in the United States about an unsponsored ADR than about
a sponsored ADR, and the financial information about a company may
not be as reliable for an unsponsored ADR as it is for a sponsored
ADR. The fund may invest in ADRs through both sponsored and
unsponsored arrangements.
Repurchase Agreements. The fund may enter into repurchase
agreements. A repurchase agreement is a contract under which the
fund acquires a security for a relatively short period (usually not
more than one week) subject to the obligation of the seller to
repurchase and the fund to resell such security at a fixed time and
price (representing the fund's cost plus interest). It is the
fund's present intention to enter into repurchase agreements only
upon receipt of fully adequate collateral and only with commercial
banks (whether U.S. or foreign) and registered broker-dealers.
Repurchase agreements may also be viewed as loans made by the fund
which are collateralized primarily by the securities subject to
repurchase. The fund bears a risk of loss in the event that the
other party to a repurchase agreement defaults on its obligations
and the fund is delayed in or prevented from exercising its rights
to dispose of the collateral securities. Pursuant to policies
established by the fund's Board of Trustees, the investment adviser
monitors the creditworthiness of all issuers with which the fund
enters into repurchase agreements.
Reverse Repurchase Agreements. The fund may enter into reverse
repurchase agreements with broker/dealers and other financial
institutions. Such agreements involve the sale of fund securities
with an agreement to repurchase the securities at an agreed-upon
price, date and interest payment, are considered to be borrowings
by the fund and are subject to the borrowing limitations set forth
under "Investment Restrictions." Since the proceeds of reverse
repurchase agreements are invested, this would introduce the
speculative factor known as "leverage." The securities purchased
with the funds obtained from the agreement and securities
collateralizing the agreement will have maturity dates no later
than the repayment date. Generally the effect of such a
transaction is that the fund can recover all or most of the cash
invested in the portfolio securities involved during the term of
the reverse repurchase agreement, while in many cases it will be
able to keep some of the interest income associated with those
securities. Such transactions are only advantageous if the fund
has an opportunity to earn a greater rate of interest on the cash
derived from the transaction than the interest cost of obtaining
that cash. Opportunities to realize earnings from the use of the
proceeds equal to or greater than the interest required to be paid
may not always be available, and the fund intends to use the
reverse repurchase technique only when the investment adviser
believes it will be advantageous to the fund. The use of reverse
repurchase agreements may exaggerate any interim increase or
decrease in the value of the fund's assets. The fund or its
custodian bank will maintain a separate account for the fund with
securities having a value equal to or greater than such
commitments.
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
instrumentality's ("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 Fund's 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.
Derivative Contracts
Writing Covered Call Options. The fund may write (sell) covered
call options for hedging purposes. Covered call options will
generally be written on securities and currencies which, in the
opinion of the investment adviser, are not expected to make any
major price moves in the near future but which, over the long term,
are deemed to be attractive investments for the fund.
A call option gives the holder (buyer) the right to purchase a
security or currency at a specified price (the exercise price) at
any time until a certain date (the expiration date). So long as
the obligation of the writer of a call option continues, he may be
assigned an exercise notice by the broker-dealer through whom such
option was sold, requiring him to deliver the underlying security
or currency against payment of the exercise price. This obligation
terminates upon the expiration of the call option, or such earlier
time at which the writer effects a closing purchase transaction by
purchasing an option identical to that previously sold. The
investment adviser and the Fund believe that writing of covered
call options is less risky than writing uncovered or "naked"
options, which the fund will not do.
Portfolio securities or currencies on which call options may be
written will be purchased solely on the basis of investment
considerations consistent with the fund's investment objective.
When writing a covered call option, the fund, in return for the
premium, gives up the opportunity for profit from a price increase
in the underlying security or currency above the exercise price and
retains the risk of loss should the price of the security or
currency decline. Unlike one who owns securities or currencies
not subject to an option, the fund has no control over when it may
be required to sell the underlying securities or currencies, since
the option may be exercised at any time prior to the option's
expiration. If a call option which the fund has written expires,
the fund will realize a gain in the amount of the premium; however,
such gain may be offset by a decline in the market value of the
underlying security or currency during the option period. If the
call option is exercised, the fund will realize a gain or loss from
the sale of the underlying security or currency. The security or
currency covering the call option will be maintained in a
segregated account of the fund's custodian.
The premium the fund receives for writing a call option is deemed
to constitute the market value of an option. The premium the fund
will receive from writing a call option will reflect, among other
things, the current market price of the underlying security or
currency, the relationship of the exercise price to such market
price, the implied price volatility of the underlying security or
currency, and the length of the option period. In determining
whether a particular call option should be written on a particular
security or currency, the investment adviser will consider the
reasonableness of the anticipated premium and the likelihood that
a liquid secondary market will exist for those options. The
premium received by the fund for writing covered call options will
be recorded as a liability in the fund's statement of assets and
liabilities. This liability will be adjusted daily to the option's
current market value, which will be calculated as described in
"Determination of Net Asset Value." The liability will be
extinguished upon expiration of the option or delivery of the
underlying security or currency upon the exercise of the option.
The liability with respect to a listed option will also be
extinguished upon the purchase of an identical option in a closing
transaction.
Closing transactions will be effected in order to realize a profit
or to limit losses on an outstanding call option, to prevent an
underlying security or currency from being called, or to permit the
sale of the underlying security or currency. Furthermore,
effecting a closing transaction will permit the fund to write
another call option on the underlying security or currency with
either a different exercise price, expiration date or both. If the
fund desires to sell a particular security or currency from its
portfolio on which it has written a call option or purchases a put
option, it will seek to effect a closing transaction prior to, or
concurrently with, the sale of the security or currency. There is
no assurance that the fund will be able to effect such closing
transactions at a favorable price. If the fund cannot enter into
such a transaction, it may be required to hold a security or
currency that it might otherwise have sold, in which case it would
continue to be at market risk with respect to the security or
currency.
The fund will pay transaction costs in connection with the writing
of options and in entering into closing purchase contracts.
Transaction costs relating to options activity are normally higher
than those applicable to purchases and sales of portfolio
securities.
The exercise price of the options may be below, equal to or above
the current market values of the underlying securities or
currencies at the time the options are written. From time to time,
the fund may purchase an underlying security or currency for
delivery in accordance with the exercise of an option, rather than
delivering such security or currency from its portfolio. In such
cases, additional costs will be incurred.
The fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more,
respectively, than the premium received from the writing of the
option. Because increases in the market price of a call option
will generally reflect increases in the market price of the
underlying security or currency, any loss resulting from the
repurchase of a call option is likely to be offset in whole or in
part by appreciation of the underlying security or currency owned
by the fund.
Purchasing Put Options. The fund may purchase put options. As the
holder of a put option, the fund has the right to sell the
underlying security or currency at the exercise price at any time
during the option period. The fund may enter into closing sale
transactions with respect to such options, exercise them or permit
them to expire.
The fund may purchase a put option on an underlying security or
currency (a "protective put") owned by the fund as a hedging
technique in order to protect against an anticipated decline in the
value of the security or currency. Such hedge protection is
provided only during the life of the put option when the fund, as
the holder of the put option, is able to sell the underlying
security or currency at the put exercise price regardless of any
decline in the underlying security's market price or currency's
exchange value. For example, a put option may be purchased in
order to protect unrealized appreciation of a security or currency
when the investment adviser deems it desirable to continue to hold
the security or currency because of tax considerations. The
premium paid for the put option and any transaction costs may
reduce any capital gain or, in the case of currency, ordinary
income otherwise available for distribution when the security or
currency is eventually sold.
The fund may also purchase put options at a time when the fund does
not own the underlying security or currency. By purchasing put
options on a security or currency it does not own, the fund seeks
to benefit from a decline in the market price of the underlying
security or currency. If the put option is not sold when it has
remaining value, and if the market price of the underlying security
or currency remains equal to or greater than the exercise price
during the life of the put option, the fund will lose its entire
investment in the put option. In order for the purchase of a put
option to be profitable, the market price of the underlying
security or currency must decline sufficiently below the exercise
price to cover the premium and transaction costs, unless the put
option is sold in a closing sale transaction.
The premium paid by the fund when purchasing a put option will be
recorded as an asset in the fund's statement of assets and
liabilities. This asset will be adjusted daily to the option's
current market value, as calculated by the fund. The asset will be
extinguished upon expiration of the option or the delivery of the
underlying security or currency upon the exercise of the option.
The asset with respect to a listed option will also be
extinguished upon the writing of an identical option in a closing
transaction.
Purchasing Call Options. The fund may purchase call options. As
the holder of a call option, the fund has the right to purchase the
underlying security or currency at the exercise price at any time
during the option period. The fund may enter into closing sale
transactions with respect to such options, exercise them or permit
them to expire. Call options may be purchased by the fund for the
purpose of acquiring the underlying security or currency for its
portfolio. Utilized in this fashion, the purchase of call options
enables the fund to acquire the security or currency at the
exercise price of the call option plus the premium paid. At times
the net cost of acquiring the security or currency in this manner
may be less than the cost of acquiring the security or currency
directly. This technique may also be useful to the fund in
purchasing a large block of securities that would be more difficult
to acquire by direct market purchases. So long as it holds such a
call option rather than the underlying security or currency itself,
the fund is partially protected from any unexpected decline in the
market price of the underlying security or currency and in such
event could allow the call option to expire, incurring a loss only
to the extent of the premium paid for the option.
The fund may also purchase call options on underlying securities or
currencies it owns in order to protect unrealized gains on call
options previously written by it. A call option would be purchased
for this purpose where tax considerations make it inadvisable to
realize such gains through a closing purchase transaction. Call
options may also be purchased at times to avoid realizing losses
that would result in a reduction of the fund's current return.
Index Futures Contracts. The fund may enter into futures
contracts based on financial indices including any index of U.S.
Government securities, foreign government securities or corporate
debt securities.
A futures contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific
financial instrument or currency for a specified price at a
designated date, time and place. The purchaser of a futures
contract on an index agrees to take or make delivery of an amount
of cash equal to the difference between a specified dollar multiple
of the value of the index on the expiration date of the contract
("current contract value") and the price at which the contract was
originally struck. No physical delivery of the debt securities
underlying the index is made. Brokerage fees are incurred when a
futures contract is bought or sold, and margin deposits must be
maintained at all times that the futures contract is outstanding.
Futures contracts are usually closed out before the delivery date.
Closing out an open futures contract sale or purchase is effected
by entering into an offsetting futures contract purchase or sale,
respectively, for the same aggregate amount of the identical
financial instrument and the same delivery date. If the offsetting
purchase price is less than the original sale price, the fund
realizes a gain; if it is more, the fund realizes a loss.
Conversely, if the offsetting sale price is more than the original
purchase price, the fund realizes a gain; if it is less, the fund
realizes a loss. The transaction costs must also be included in
these calculations. There can be no assurance, however, that the
fund will be able to enter into an offsetting transaction with
respect to a particular futures contract at a particular time. If
the fund is not able to enter into an offsetting transaction, the
fund will continue to be required to maintain the margin deposits
of the underlying financial instrument or currency on the relevant
delivery date. The Fund intends to enter into futures transactions
only on exchanges or boards of trade where there appears to be a
liquid secondary market. However, there can be no assurance that
such a market will exist for a particular contract at a particular
time.
Persons who trade in futures contracts may be broadly classified as
"hedgers" and "speculators." Hedgers, whose business activity
involves investment or other commitment in securities or other
obligations, use the Futures markets to offset unfavorable changes
in value that may occur because of fluctuations in the value of the
securities and obligations held or committed to be acquired by them
or fluctuations in the value of the currency in which the
securities or obligations are denominated. Debtors and other
obligors may also hedge the interest cost of their obligations.
The speculator, like the hedger, generally expects neither to
deliver nor to receive the financial instrument underlying the
futures contract, but, unlike the hedger, hopes to profit from
fluctuations in prevailing interest rates or currency exchange
rates.
The fund's futures transactions will be entered into for
traditional hedging purposes; that is, futures contracts will be
sold to protect against a decline in the price of securities that
the fund owns, or futures contracts will be purchased to protect
the fund against an increase in the price of securities it has
committed to purchase or expects to purchase.
"Margin" with respect to futures contracts is the amount of funds
that must be deposited by the fund with a broker in order to
initiate Futures trading and to maintain the fund's open positions
in futures contracts. A margin deposit made when the futures
contract is entered into ("initial margin") is intended to assure
the fund's performance of the futures contract. The margin
required for a particular futures contract is set by the exchange
on which the futures contract is traded, and may be significantly
modified from time to time by the exchange during the term of the
futures contract. Futures contracts are customarily purchased and
sold on margins, which may be 5% or less of the value of the
futures contract being traded.
If the price of an open futures contract changes (by increase in
the case of a sale or by decrease in the case of a purchase) so
that the loss on the futures contract reaches a point at which the
margin on deposit does not satisfy margin requirements, the broker
will require an increase in the margin deposit ("variation
margin"). If, however, the value of a position increases because
of favorable price changes in the futures contract so that the
margin deposit exceeds the required margin, it is anticipated that
the broker will pay the excess to the fund. In computing daily net
asset values, the fund will mark to market the current value of its
open futures contracts. The fund expects to earn interest income
on its margin deposits.
Options on Futures Contracts. Options on futures contracts are
similar to options on securities or currencies except that options
on futures contracts give the purchaser the right, in return for
the premium paid, to assume a position in a futures contract (a
long position if the option is a call and a short position if the
option is a put), rather than to purchase or sell the futures
contract, at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the delivery of
the Futures position by the writer of the option to the holder of
the option will be accompanied by delivery of the accumulated
balance in the writer's Futures margin account which represents the
amount by which the market price of the futures contract, at
exercise, exceeds (in the case of a call) or is less than (in the
case of a put) the exercise price of the option on the futures
contract. If an option is exercised on the last trading day prior
to the expiration date of the option, the settlement will be made
entirely in cash equal to the difference between the exercise price
of the option and the closing level of the securities or currencies
upon which the futures contracts are based on the expiration date.
Purchasers of options who fail to exercise their options prior to
the exercise date suffer a loss of the premium paid.
As an alternative to purchasing call and put options on Futures,
the fund may purchase call and put options on the underlying
securities or currencies themselves (see "Purchasing Put Options"
and "Purchasing Call Options" above). Such options would be used
in a manner identical to the use of options on futures contracts.
To reduce or eliminate the leverage then employed by the fund or to
reduce or eliminate the hedge position then currently held by the
fund, the fund may seek to close out an option position by selling
an option covering the same securities or currency and having the
same exercise price and expiration date. The ability to establish
and close out positions on options on futures contracts is subject
to the existence of a liquid market. It is not certain that this
market will exist at any specific time.
In order to assure that the fund will not be deemed to be
"commodity pools" for purposes of the Commodity Exchange Act,
regulations of the Commodity Futures Trading Commission ("CFTC")
require that the fund enter into transactions in futures contracts
and options on futures contracts only (i) for bona fide hedging
purposes (as defined in CFTC regulations), or (ii) for non-hedging
purposes, provided that the aggregate initial margin and premiums
on such non-hedging positions does not exceed 5% of the liquidation
value of the fund's assets. The fund will enter into transactions
in futures contracts and options on futures contracts only for
hedging purposes.
New options and futures contracts and various combinations thereof
continue to be developed and the fund may invest in any such
options and contracts as may be developed to the extent consistent
with their investment objectives and regulatory requirements
applicable to investment companies.
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
"1940 Act") and Rule 18f-2 thereunder. The Fund is subject to
other restrictions and policies that are "non-fundamental" and
which may be changed by the Fund's 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 Fund's 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 Fund's portfolio turnover rate cannot be predicted
and will vary from year to year, yet TIMCO expects that the Fund's
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 1998, 1997 and 1996 fiscal years, the Fund's portfolio
turnover rates were ___%, 140% and 151%, 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 Fund's
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 dealer's mark-up or mark-down. For the 1998, 1997 and 1996 fiscal
years, the Fund paid $_______, $358,528 and $176,000, respectively,
in brokerage commissions.
In executing portfolio transactions and selecting brokers or
dealers, it is the Fund's 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 Fund's 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.
TIMCO's fee under the Advisory Agreement is not reduced by reason
of TIMCO's receiving such brokerage and research services.
The Fund's Board of Directors has determined that any portfolio
transaction for the Fund may be executed through Salomon Smith
Barney and other affiliated broker-dealers if, in TIMCO's 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 1998, 1997 and 1996 fiscal years, the Fund paid
$_____, $9,374 and $7,375, respectively, in brokerage commissions
to Salomon Smith Barney. For the 1998 fiscal year, Salomon 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, EXCHANGE AND REDEMPTION OF SHARES
Purchase of Shares
General. The fund offers four Classes of shares. Class A and Class
L shares are sold to investors with an initial sales charge. Class
B shares are sold without an initial sales charge but are subject
to a CDSC payable upon certain redemptions. Class L shares are also
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. See the
Prospectus for a discussion of factors to consider in selecting a
Class of shares to purchase.
Purchases of shares of the fund must be made through a brokerage
account maintained with Salomon 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 the transfer agent. When purchasing shares of the fund,
investors must specify whether the purchase is for Class A, Class
B, Class L or Class Y shares. Salomon 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 the transfer agent are not subject to a maintenance fee.
Investors in Class A, Class B and Class L 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 and subsequent investment
requirement for Class A, Class B and Class L 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 L shares and
the subsequent investment requirement for all Classes is $25. For
shareholders 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 L shares and
the subsequent investment requirement for all Classes is $50.
There are no minimum investment requirements in Class A shares for
employees of Citigroup and its subsidiaries, including Salomon
Smith Barney, Directors or Trustees of any of the Smith Barney
Mutual Funds, and their spouses and children. 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
transfer agent. Share certificates are issued only upon a
shareholder's written request to the transfer agent.
Purchase orders received by the Fund or Salomon 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's agent
prior to he agent's close of business. For shares purchased through
Salomon Smith Barney and Introducing Brokers purchasing through
Salomon Smith Barney, payment for shares of the fund is due on the
third business day after the trade date. In all other cases,
payment must be made with the purchase order.
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, Salomon Smith Barney or the transfer agent is
authorized through preauthorized 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 Salomon Smith Barney or the transfer agent. The Systematic
Investment Plan also authorizes Salomon Smith Barney to apply cash
held in the shareholder's Salomon 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 Salomon 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:
Amount of
Investment
Sales Charge
as % of
Offering
Price
Sales Charge as
% of Amount Invested
Less than $25,000
5.00%
5.26%
$ 25,000 - 49,999
4.00
4.17
50,000 - 99,999
3.50
3.63
100,000 - 249,999
3.00
3.09
250,000 - 499,999
2.00
2.04
500,000 and over
- -0-
- -0-
* 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 Salomon
Smith Barney, which compensates Salomon 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 L 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 1933 Act.
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.
Initial Sales Charge Alternative - Class L Shares. For purchases
of Class L shares, there is a sales charge of 1% of the offering
price (1.01% of the net amount invested).
Initial Sales Charge Waivers for Class A Shares. 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 Citigroup and its subsidiaries and any of
the Smith Barney Mutual Funds (including retired Board Members and
employees); 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 Salomon Smith Barney
Financial Consultant (for a period up to 90 days from the
commencement of the Financial Consultant's employment with Salomon
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
offered with a sales charge) and who wish to reinvest their
redemption proceeds in the same fund, provided the reinvestment is
made within 60 calendar days of the redemption; (e) purchases by
accounts managed by registered investment advisory subsidiaries of
Citigroup; (f) direct rollovers by plan participants of
distributions from a 401(k) plan offered to employees of Citigroup
or its subsidiaries or a 401(k) plan enrolled in the Salomon Smith
Barney 401(k) Program (Note: subsequent investments will be subject
to the applicable sales charge); (g) purchases by separate accounts
used to fund certain unregistered variable annuity contracts; and
(h) purchases by investors participating in a Salomon 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 Salomon 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 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.
Letter of Intent. 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 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 Salomon Smith Barney Financial Consultant or the
transfer agent to obtain a Letter of Intent application.
A Letter of Intent may also be used as a way for investors to meet
the minimum investment requirement for Class Y shares. The
investor 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 same fund within 13 months
from the date of the Letter. If a total investment of $15,000,000
is not made within the 13-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 Salomon Smith Barney Financial
Consultant or the transfer agent 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 L 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) reinvestment 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 L shares
and Class A shares that are CDSC Shares, shares redeemed more than
12 months after their purchase.
Class L 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 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 Salomon 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 Salomon Smith Barney 401(k) Program, as
described below. See ''Purchase of Shares-Smith Barney 401(k) and
ExecChoiceTM 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 any 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.
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 redemption.
The amount of any CDSC will be paid to Salomon Smith Barney.
To provide an example, assume an investor purchased 100 Class B
shares of the fund at $10 per share for a cost of $1,000.
Subsequently, the investor acquired 5 additional shares of the fund
through dividend reinvestment. During the fifteenth month after
the purchase, the investor decided to redeem $500 of his or her
investment. Assuming at 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)
redemptions of shares made in connection with qualified
distributions from retirement plans or IRAs upon the attainment of
age 591/2; (e) involuntary redemptions; and (f) redemptions of shares
to effect the combination of the fund with any other 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 Salomon
Smith Barney in the case of shareholders who are also Salomon Smith
Barney clients or by the transfer agent in the case of all other
shareholders) of the shareholder's status or holdings, as the case
may be.
Smith Barney 401(k) and ExecChoiceTM Programs. Investors may be
eligible to participate in the Smith Barney 401(k) Program or the
Smith Barney ExecChoiceTM 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 L shares
as investment alternatives under the Smith Barney 401(k) and
ExecChoiceTM Programs. Class A and Class L shares acquired through
the Participating Plans are subject to the same service and/or
distribution fees as the Class A and Class L 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 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 L Shares. Class L 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 L shares of one or more funds of the
Smith Barney Mutual Funds.
401(k) and ExecChoiceTM 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 ExecChoiceTM
Program, a Participating Plan's total Class L 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 L shares for Class A shares of the fund. (For
Participating Plans that were originally established through a
Salomon 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 L 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 L shares for Class A
shares of the same fund. 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 ExecChoiceTM
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 L shares for
Class A shares of the same fund 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 ExecChoiceTM 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 L shares, but instead may
acquire Class A shares of the same fund. Any Class L shares not
converted will continue to be subject to the distribution fee.
Participating Plans wishing to acquire shares of the fund through
the Smith Barney 401(k) Program or the Smith Barney ExecChoiceTM
Program must purchase such shares directly from the transfer agent.
For further information regarding these Programs, investors should
contact a Salomon 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 continue to 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 of the fund. 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, but instead may acquire Class A shares
of the same 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 shareholders 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.
Exchange Privilege
As your needs change, you may wish to reposition your investments.
With Smith Barney Mutual Funds, you have the ability to exchange
your shares of most Smith Barney mutual funds for those of others
within the family.
Except as otherwise noted below, shares of each Class of the fund
may be exchanged for shares of the same Class of certain Smith
Barney Mutual Funds, to the extent shares are offered for sale in
the shareholder's state of residence. Exchanges of Class A, Class
B and Class L shares are subject to minimum investment requirements
and all shares are subject to the other requirements of the fund
into which exchanges are made.
Class B Exchanges. In the event a Class B shareholder wishes to
exchange all or a portion of his or her shares in any fund imposing
a higher CDSC 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 L Exchanges. Upon an exchange, the new Class L shares will
be deemed to have been purchased on the same date as the Class L
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 exchange 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 exchange privilege is an important benefit, excessive exchange
transactions can be detrimental to the fund's performance and its
shareholders. The investment adviser 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 shareholder
at least 15 days prior to suspending the exchange privilege and
during the 15 day period the shareholder will be required to (a)
redeem 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 Redemptions 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 exchanged, no
signature guarantee is required. An exchange involves a taxable
redemption of shares, subject to the tax treatment described in
"TAXES" below, followed by a purchase of shares of a different
fund. 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.
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 shareholder 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 transfer agent receives further instructions from
Salomon Smith Barney, or if the shareholder's account is not with
Salomon 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 Salomon Smith Barney brokerage account, these
funds will not be invested for the shareholder's benefit without
specific instruction and Salomon 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 Salomon Smith Barney as custodian must be redeemed
by submitting a written request to a Salomon Smith Barney Financial
Consultant. Shares other than those held by Salomon 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, L 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 the transfer agent together with
the redemption request. Any signature appearing on a share
certificate, stock power or written redemption request in excess of
$2,000 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 $2,000 or less do not require a signature guarantee unless more
than one such redemption request is made in any 10-day period.
Redemption proceeds will be mailed to an investor's address of
record. The transfer agent 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 the transfer agent 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
accounts are eligible for automatic cash withdrawal plans only
where the shareholder 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 shareholder'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 Salomon Smith Barney Financial
Consultant.
Telephone Redemption and Exchange Program. Shareholders who do not
have a brokerage account may be eligible to redeem and exchange
shares by telephone. To determine if a shareholder is entitled to
participate in this program, he or she should contact the transfer
agent 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
the transfer agent 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 shares of the fund may be made by eligible shareholders
by calling the transfer agent at 1-800-451-2010. Such requests may
be made between 9:00 a.m. and 5:00 p.m. (New York City time) on any
day the NYSE is open. Redemptions of shares (i) by retirement
plans or (ii) for which certificates have been issued are not
permitted under this program.
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 the
transfer agent at 1-800-451-2010 between 9:00 a.m. and 5:00 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 any of 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.
Redemptions in Kind. In conformity with applicable rules of the
SEC, redemptions may be paid in portfolio securities, in cash or
any combination of both, as the Board of Directors may deem
advisable; however, payments shall be made wholly in cash unless
the Board of Directors believes that economic conditions exist that
would make such a practice detrimental to the best interests of the
Fund and its remaining shareholders. If a redemption is paid in
portfolio securities, such securities will be valued in accordance
with the procedures described under "Determination of Net Asset
Value" in the Prospectus and a shareholder would incur brokerage
expenses if these securities were then converted to cash.
DISTRIBUTION
CFBDS, 20 Milk Street, Boston, MA 02109-5408, distributes shares of
the fund as principal underwriter and as such conducts a continuous
offering pursuant to a ''best efforts'' arrangement requiring CFBDS
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 (a ''Plan''), CFBDS is paid a
service fee with respect to Class A, Class B and Class L shares of
the fund at the annual rate of 0.25% of the average daily net
assets attributable to these Classes. CFBDS is also paid a
distribution fee with respect to Class B and Class L 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
CFBDS to pay its Financial Consultants for servicing shareholder
accounts and, in the case of Class B and Class L 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 Salomon 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 CFBDS associated with the sale of
fund shares, including lease, utility, communications and sales
promotion expenses.
The payments to Salomon Smith Barney Financial Consultants for
selling shares of a Class include a commission or fee paid by the
investor or CFBDS at the time of sale and, with respect to Class A,
Class B and Class L shares, a continuing fee for servicing
shareholder accounts for as long as a shareholder remains a holder
of that Class. Salomon Smith Barney Financial Consultants may
receive different levels of compensation for selling different
Classes of shares.
Payments under each Plan with respect to Class B and Class L shares
are not tied exclusively to the distribution and shareholder
services expenses actually incurred by Salomon Smith Barney and the
payments may exceed distribution expenses actually incurred. The
fund's Board of Directors will evaluate the appropriateness of each
Plan and its payment terms on a continuing basis and in so doing
will consider all relevant factors, including expenses borne by
CFBDS, amounts received under the Plan and proceeds of the CDSC.
Prior to October 8, 1998 Salomon Smith Barney served as principal
underwriter of the fund's shares under the fund's prior 12b-1
distribution plans (the "Prior Plans"). The prior plans were
substantially similar to the Plans. For the year ended December
31, 1998, the fees which have been accrued and/or paid to Salomon
Smith Barney under the Prior Plans or CFBDS under the Plans
pursuant to Rule 12b-1 for the fund were $________ for Class A
shares, $________ for Class B shares and $________ for Class L
shares. The distribution expenses for 1998 included compensation of
financial consultants and printing costs of prospectuses and
marketing materials. Pursuant to the Plans, CFBDS incurs the
expenses of distributing the Company's Class A, Class B and Class
L shares.
During the fiscal years 1996 and 1997 aggregate sales commissions
of $___________ and $___________, respectively, were paid to
Salomon Smith Barney by the purchasers of shares. During the
fiscal year 1998 aggregate sales commissions of
$___________________ were paid by the purchasers of shares
($______________ to Salomon Smith Barney and ____________ to
CFBDS).
A contingent deferred sales charge ("CDSC") may be imposed on
certain redemptions of Class A, Class B shares and Class L shares.
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% is imposed on redemptions of Class L shares.
A CDSC of 1.00% is also imposed on redemptions of Class A shares
that were purchased without an initial sales charge but subject to
a CDSC 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 shares.
CFBDS will pay for the printing, at printer's overrun cost, of
prospectuses and periodic reports after they have been prepared,
set in type and mailed to shareholders, and will also pay the cost
of distributing such copies used in connection with the offering to
prospective investors and will also pay for supplementary sales
literature and other promotional costs. Such expenses incurred by
CFBDS are distribution expenses within the meaning of the Plans and
may be paid from amounts received by CFBDS from the Company under
the Plans.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the fund normally 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. If the NYSE closes early, the fund accelerates
the calculation of its net asset value to the actual closing time.
The NYSE is closed for the following holidays: New Year's Day,
Martin Luther King Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Securities for which market quotations are readily available are
valued at current market value or, in their absence, at fair value.
Securities traded on an exchange are valued at last sales prices on
the principal exchange on which each such security is traded, or if
there were no sales on that exchange on the valuation date, the
last quoted sale, up to the time of valuation, on the other
exchanges. If instead there were no sales on the valuation date
with respect to these securities, such securities are valued at the
mean of the latest published closing bid and asked prices. Over-
the-counter securities are valued at last sales price or, if there
were no sales that day, at the mean between the bid and asked
prices. Options, futures contracts and options thereon that are
traded on exchanges are also valued at last sales prices as of the
close of the principal exchange on which each is listed or if there
were no such sales on the valuation date, the last quoted sale, up
to the time of valuation, on the other exchanges. In the absence of
any sales on the valuation date, valuation shall be the mean of the
latest closing bid and asked prices. Securities with a remaining
maturity of 60 days or less are valued at amortized cost where the
Board of Directors has determined that amortized cost is fair
value. Premiums received on the sale of call options will be
included in the fund's net assets, and current market value of such
options sold by the fund will be subtracted from the fund's net
assets. Any other investments of the fund, including restricted
securities and listed securities for which there is a thin market
or that trade infrequently (i.e., securities for which prices are
not readily available), are valued at a fair value determined by
the Board of Directors in good faith. This value generally is
determined as the amount that the fund could reasonably expect to
receive from an orderly disposition of these assets over a
reasonable period of time but in no event more than seven days. The
value of any security or commodity denominated in a currency other
than U.S. dollars will be converted into U.S. dollars at the
prevailing market rate as determined by the investment adviser.
Foreign securities trading may not take place on all days on which
the NYSE is open. Further, trading takes place in various foreign
markets on days on which the NYSE is not open. Accordingly, the
determination of the net asset value of the fund may not take place
contemporaneously with the determination of the prices of
investments held by such fund. Events affecting the values of
investments that occur between the time their prices are determined
and 4:00 P.M. on each day that the NYSE is open will not be
reflected in the fund's net asset value unless the investment
adviser, under the supervision of the Company's Board of Directors,
determines that the particular event would materially affect net
asset value. As a result, the fund's net asset value may be
significantly affected by such trading on days when a shareholder
has no access to that fund.
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 Salomon 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 beginning 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 for 1998,
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); and no deduction when AGI is above
$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.
The rules applicable to so-called "Roth IRAs" differ from those
described above.
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 participant's account of 15% (up to
$24,000) of each participant's compensation. Compensation is
capped at $160,000 for 1998.
Paired Defined Contribution Prototype
Corporations (including Subchapter S corporations) and non-
corporate entities may purchase shares of the Fund through the
Salomon Smith Barney Prototype Paired Defined Contribution Plan
(the "Prototype"). The Prototype permits adoption of profit-
sharing provisions, money purchase pension provisions, or both, to
provide benefits for eligible employees and their beneficiaries.
The Prototype provides for a maximum annual tax deductible
contribution on behalf of each Participant of up to 25% of
compensation, but not to exceed $30,000 (provided that a money
purchase pension plan or both a profit-sharing plan and a money
purchase pension plan are adopted thereunder).
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 Fund's shares. Such
performance information may include data from the following
industry and financial publications: Barron's, 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 L 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 A's average annual total return was as follows for the
periods indicated:
_____% for the one-year period January 1, 1998 through
December 31, 1998.
_____% for the five-year period January 1, 1994 through
December 31, 1998.
_____% for the period from commencement of operations
(January 23, 1990) through December 31, 1998.
Class B's average annual total return was as follows for the period
indicated:
_____% for the one-year period January 1, 1998 through
December 31, 1998.
_____% for the period from commencement of operations June
25, 1997 (inception date) through December 1, 1998.
Class L's average annual total return was as follows for the period
indicated:
_____% for the one-year period January 1, 1998 through
December 31, 1998.
_____% for the period from June 24, 1997 (inception date)
through December 31, 1998.
Class Y's average annual total return was as follows for the period
indicated:
_____% for the one-year period January 1, 1998 through
December 31, 1998.
(1.42)% for the period from October 17, 1997 (inception date)
through December 31, l998.
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 A's average annual
total return for the same periods would have been _____%, _____%
and _____%, respectively. If the maximum CDSC had not been
deducted at the time of redemption, Class B's average annual total
return for the same periods would have been _____% and _____%,
respectively. If the maximum CDSC had not been deducted at the
time of redemption, Class C's average annual total return for the
same periods would have been _____% and _____%, respectively. If
the maximum CDSC had not been deducted at the time of redemption,
Class Y's average annual total returns for the same periods would
have been _____% and _____%, respectively.
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 A's aggregate total return was as follows for the period
indicated:
______% for the period from January 23, 1990 through December
31, 1998.
Class B's aggregate total return was as follows for the period
indicated:
_____% for the period from June 25, 1997 through December 31,
1998.
Class L's aggregate total return was as follows for the period
indicated:
_____% for the period from June 24, 1997 through December 31,
1998.
Class Y's average annual total return was as follows for the period
indicated:
(____)% for the period from October 17, 1997 through December
31, l998.
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 A's aggregate total return
for the same period would have been ______%.
Class B aggregate total return figures assume that the maximum
applicable CDSC has not been deducted from the investment at the
time of redemption. If the maximum 5.00% CDSC had been deducted at
the time of redemption, Class B's aggregate total return for the
same period would have been _____%.
Class L aggregate total return figures assume that the maximum
applicable CDSC has not been deducted from the investment at the
time of redemption. If the maximum 1% CDSC had been deducted at the
time of redemption, Class L's aggregate total return for the same
period would have been _____%.
Class Y aggregate total return figures assume that the maximum
applicable CDSC has not been deducted from the investment at the
time of redemption. If the maximum 1% CDSC had been deducted at the
time of redemption, Class Y's aggregate total return for the same
period would have been (____%).
Performance will vary from time to time depending upon market
conditions, the composition of the Fund's 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.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is a summary of the material United States
federal income tax considerations regarding the purchase, ownership
and disposition of shares of a fund. Each prospective shareholder
is urged to consult his own tax adviser with respect to the
specific federal, state, local and foreign tax consequences of
investing in a fund. The summary is based on the laws in effect on
the date of this Statement of Additional Information, which are
subject to change.
The Fund and Its Investments
The fund intends to continue to qualify to be treated as a
regulated investment company each taxable year under the Internal
Revenue Code of 1986, as amended (the "Code"). To so qualify, the
fund must, among other things: (a) derive at least 90% of its gross
income in each taxable year from dividends, interest, payments with
respect to securities, loans and gains from the sale or other
disposition of stock or securities or foreign currencies, or other
income (including, but not limited to, gains from options, futures
or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies; and (b)
diversify its holdings so that, at the end of each quarter of the
fund's taxable year, (i) at least 50% of the market value of the
fund's assets is represented by cash, securities of other regulated
investment companies, United States government securities and other
securities, with such other securities limited, in respect of any
one issuer, to an amount not greater than 5% of the fund's assets
and not greater than 10% of the outstanding voting securities of
such issuer and (ii) not more than 25% of the value of its assets
is invested in the securities (other than United States government
securities or securities of other regulated investment companies)
of any one issuer or any two or more issuers that the fund controls
and are determined to be engaged in the same or similar trades or
businesses or related trades or businesses. The fund expects that
all of its foreign currency gains will be directly related to its
principal business of investing in stocks and securities.
As a regulated investment company, the fund will not be
subject to United States federal income tax on its net investment
income (i.e., income other than its net realized long- and short-
term capital gains) and its net realized long- and short-term
capital gains, if any, that it distributes to its shareholders,
provided that an amount equal to at least 90% of the sum of its
investment company taxable income (i.e., 90% of its taxable income
minus the excess, if any, of its net realized long-term capital
gains over its net realized short-term capital losses (including
any capital loss carryovers), plus or minus certain other
adjustments as specified in the Code) and its net tax-exempt income
for the taxable year is distributed in compliance with the Code's
timing and other requirements but will be subject to tax at regular
corporate rates on any taxable income or gains that it does not
distribute. Furthermore, the fund will be subject to a United
States corporate income tax with respect to such distributed
amounts in any year that it fails to qualify as a regulated
investment company or fails to meet this distribution requirement.
The Code imposes a 4% nondeductible excise tax on the fund to
the extent it does not distribute by the end of any calendar year
at least 98% of its net investment income for that year and 98% of
the net amount of its capital gains (both long-and short-term) for
the one-year period ending, as a general rule, on October 31 of
that year. For this purpose, however, any income or gain retained
by the fund that is subject to corporate income tax will be
considered to have been distributed by year-end. In addition, the
minimum amounts that must be distributed in any year to avoid the
excise tax will be increased or decreased to reflect any
underdistribution or overdistribution, as the case may be, from the
previous year. The fund anticipates that it will pay such
dividends and will make such distributions as are necessary in
order to avoid the application of this tax.
If, in any taxable year, the fund fails to qualify as a
regulated investment company under the Code or fails to meet the
distribution requirement, it would be taxed in the same manner as
an ordinary corporation and distributions to its shareholders would
not be deductible by the fund in computing its taxable income. In
addition, in the event of a failure to qualify, the fund's
distributions, to the extent derived from the fund's current or
accumulated earnings and profits would constitute dividends
(eligible for the corporate dividends-received deduction) which are
taxable to shareholders as ordinary income, even though those
distributions might otherwise (at least in part) have been treated
in the shareholders' hands as long-term capital gains. If the fund
fails to qualify as a regulated investment company in any year, it
must pay out its earnings and profits accumulated in that year in
order to qualify again as a regulated investment company. In
addition, if the fund failed to qualify as a regulated investment
company for a period greater than one taxable year, the fund may be
required to recognize any net built-in gains (the excess of the
aggregate gains, including items of income, over aggregate losses
that would have been realized if it had been liquidated) in order
to qualify as a regulated investment company in a subsequent year.
The fund's transactions in foreign currencies, forward
contracts, options and futures contracts (including options and
futures contracts on foreign currencies) will be subject to special
provisions of the Code (including provisions relating to "hedging
transactions" and "straddles") that, among other things, may affect
the character of gains and losses realized by the fund (i.e., may
affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the fund and defer fund losses. These
rules could therefore affect the character, amount and timing of
distributions to shareholders. These provisions also (a) will
require the fund to mark-to-market certain types of the positions
in its portfolio (i.e., treat them as if they were closed out) and
(b) may cause the fund to recognize income without receiving cash
with which to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for avoiding
income and excise taxes. The fund will monitor its transactions,
will make the appropriate tax elections and will make the
appropriate entries in its books and records when it acquires any
foreign currency, forward contract, option, futures contract or
hedged investment in order to mitigate the effect of these rules
and prevent disqualification of the fund as a regulated investment
company.
The fund's investment in Section 1256 contracts, such as
regulated futures contracts, most forward currency forward
contracts traded in the interbank market and options on most stock
indices, are subject to special tax rules. All section 1256
contracts held by the fund at the end of its taxable year are
required to be marked to their market value, and any unrealized
gain or loss on those positions will be included in the fund's
income as if each position had been sold for its fair market value
at the end of the taxable year. The resulting gain or loss will be
combined with any gain or loss realized by the fund from positions
in section 1256 contracts closed during the taxable year. Provided
such positions were held as capital assets and were not part of a
"hedging transaction" nor part of a "straddle," 60% of the
resulting net gain or loss will be treated as long-term capital
gain or loss, and 40% of such net gain or loss will be treated as
short-term capital gain or loss, regardless of the period of time
the positions were actually held by the fund.
Foreign Investments. Dividends or other income (including,
in some cases, capital gains) received by the fund from investments
in foreign securities may be subject to withholding and other
taxes imposed by foreign countries. Tax conventions between
certain countries and the United States may reduce or eliminate
such taxes in some cases. The fund will not be eligible to elect
to treat any foreign taxes paid by it as paid by its shareholders,
who therefore will not be entitled to credits for such taxes on
their own tax returns. Foreign taxes paid by the fund will reduce
the return from the fund's investments.
Passive Foreign Investment Companies. If the fund purchases
shares in certain foreign investment entities, called "passive
foreign investment companies" (a "PFIC"), it may be subject to
United States federal income tax on a portion of any "excess
distribution" or gain from the disposition of such shares even if
such income is distributed as a taxable dividend by the fund to its
shareholders. Additional charges in the nature of interest may be
imposed on the fund in respect of deferred taxes arising from such
distributions or gains. If the fund were to invest in a PFIC and
elected to treat the PFIC as a "qualified electing fund" under the
Code, in lieu of the foregoing requirements, the fund might be
required to include in income each year a portion of the ordinary
earnings and net capital gains of the qualified electing fund, even
if not distributed to the fund, and such amounts would be subject
to the 90% and excise tax distribution requirements described
above. In order to make this election, the fund would be required
to obtain certain annual information from the passive foreign
investment companies in which it invests, which may be difficult or
not possible to obtain.
Recently, legislation was enacted that provides a mark-to-
market election for regulated investment companies effective for
taxable years beginning after December 31, 1997. This election
would result in the fund being treated as if it had sold and
repurchased all of the PFIC stock at the end of each year. In this
case, the fund would report gains as ordinary income and would
deduct losses as ordinary losses to the extent of previously
recognized gains. The election, once made, would be effective for
all subsequent taxable years of the fund, unless revoked with the
consent of the IRS. By making the election, the fund could
potentially ameliorate the adverse tax consequences with respect to
its ownership of shares in a PFIC, but in any particular year may
be required to recognize income in excess of the distributions it
receives from PFICs and its proceeds from dispositions of PFIC
company stock. The fund may have to distribute this "phantom"
income and gain to satisfy its distribution requirement and to
avoid imposition of the 4% excise tax. The fund will make the
appropriate tax elections, if possible, and take any additional
steps that are necessary to mitigate the effect of these rules.
Taxation of United States Shareholders
Dividends and Distributions. Any dividend declared by the
fund in October, November or December of any calendar year and
payable to shareholders of record on a specified date in such a
month shall be deemed to have been received by each shareholder on
December 31 of such calendar year and to have been paid by the fund
not later than such December 31, provided that such dividend is
actually paid by the fund during January of the following calendar
year. The fund intends to distribute annually to its shareholders
substantially all of its investment company taxable income, and any
net realized long-term capital gains in excess of net realized
short-term capital losses (including any capital loss carryovers).
The fund currently expects to distribute any excess annually to
its shareholders. However, if the fund retains for investment an
amount equal to all or a portion of its net long-term capital gains
in excess of its net short-term capital losses and capital loss
carryovers, it will be subject to a corporate tax (currently at a
rate of 35%) on the amount retained. In that event, the fund will
designate such retained amounts as undistributed capital gains in
a notice to its shareholders who (a) will be required to include in
income for United Stares federal income tax purposes, as long-term
capital gains, their proportionate shares of the undistributed
amount, (b) will be entitled to credit their proportionate shares
of the 35% tax paid by the fund on the undistributed amount against
their United States federal income tax liabilities, if any, and to
claim refunds to the extent their credits exceed their liabilities,
if any, and (c) will be entitled to increase their tax basis, for
United States federal income tax purposes, in their shares by an
amount equal to 65% of the amount of undistributed capital gains
included in the shareholder's income. Organizations or persons not
subject to federal income tax on such capital gains will be
entitled to a refund of their pro rata share of such taxes paid by
the fund upon filing appropriate returns or claims for refund with
the Internal Revenue Service (the "IRS").
Dividends of net investment income and distributions of net
realized short-term capital gains are taxable to a United States
shareholder as ordinary income, whether paid in cash or in shares.
Distributions of net-long-term capital gains, if any, that the
fund designates as capital gains dividends are taxable as long-term
capital gains, whether paid in cash or in shares and regardless of
how long a shareholder has held shares of the fund. Dividends and
distributions paid by the fund attributable to dividends on stock
of U.S. corporations received by the fund, with respect to which
the fund meets certain holding period requirements, will be
eligible for the deduction for dividends received by corporations.
Distributions in excess of the fund's current and accumulated
earnings and profits will, as to each shareholder, be treated as a
tax-free return of capital to the extent of a shareholder's basis
in his shares of the fund, and as a capital gain thereafter (if the
shareholder holds his shares of the fund as capital assets).
Shareholders receiving dividends or distributions in the form
of additional shares should be treated for United States federal
income tax purposes as receiving a distribution in the amount equal
to the amount of money that the shareholders receiving cash
dividends or distributions will receive, and should have a cost
basis in the shares received equal to such amount.
Investors considering buying shares just prior to a dividend
or capital gain distribution should be aware that, although the
price of shares just purchased at that time may reflect the amount
of the forthcoming distribution, such dividend or distribution may
nevertheless be taxable to them.
If the fund is the holder of record of any stock on the
record date for any dividends payable with respect to such stock,
such dividends are included in the fund's gross income not as of
the date received but as of the later of (a) the date such stock
became ex-dividend with respect to such dividends (i.e., the date
on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date the fund acquired
such stock. Accordingly, in order to satisfy its income
distribution requirements, the fund may be required to pay
dividends based on anticipated earnings, and shareholders may
receive dividends in an earlier year than would otherwise be the
case.
Sales of Shares. Upon the sale or exchange of his shares, a
shareholder will realize a taxable gain or loss equal to the
difference between the amount realized and his basis in his shares.
Such gain or loss will be treated as capital gain or loss, if the
shares are capital assets in the shareholder's hands, and will be
long-term capital gain or loss if the shares are held for more than
one year and short-term capital gain or loss if the shares are held
for one year or less. Any loss realized on a sale or exchange will
be disallowed to the extent the shares disposed of are replaced,
including replacement through the reinvesting of dividends and
capital gains distributions in the fund, within a 61-day period
beginning 30 days before and ending 30 days after the disposition
of the shares. In such a case, the basis of the shares acquired
will be increased to reflect the disallowed loss. Any loss
realized by a shareholder on the sale of a fund share held by the
shareholder for six months or less will be treated for United
States federal income tax purposes as a long-term capital loss to
the extent of any distributions or deemed distributions of long-
term capital gains received by the shareholder with respect to such
share.
If a shareholder incurs a sales charge in acquiring shares of
the fund, disposes of those shares within 90 days and then acquires
shares in a mutual fund for which the otherwise applicable sales
charge is reduced by reason of a reinvestment right (e.g., an
exchange privilege), the original sales charge will not be taken
into account in computing gain/loss on the original shares to the
extent the subsequent sales charge is reduced. Instead, the
disregarded portion of the original sales charge will be added to
the tax basis in the newly acquired shares. Furthermore, the same
rule also applies to a disposition of the newly acquired shares
made within 90 days of the second acquisition. This provision
prevents a shareholder from immediately deducting the sales charge
by shifting his or her investment in a family of mutual funds.
Backup Withholding. The fund may be required to withhold,
for United States federal income tax purposes, 31% of the
dividends, distributions and redemption proceeds payable to
shareholders who fail to provide the fund with their correct
taxpayer identification number or to make required certifications,
or who have been notified by the IRS that they are subject to
backup withholding. Certain shareholders are exempt from backup
withholding. Backup withholding is not an additional tax and any
amount withheld may be credited against a shareholder's United
States federal income tax liabilities.
Notices. Shareholders will be notified annually by the fund
as to the United States federal income tax status of the dividends,
distributions and deemed distributions attributable to
undistributed capital gains (discussed above in "Dividends and
Distributions") made by the fund to its shareholders. Furthermore,
shareholders will also receive, if appropriate, various written
notices after the close of the fund's taxable year regarding the
United States federal income tax status of certain dividends,
distributions and deemed distributions that were paid (or that are
treated as having been paid) by the fund to its shareholders during
the preceding taxable year.
Other Taxation
Distributions also may be subject to additional state, local
and foreign taxes depending on each shareholder's particular
situation.
The foregoing is only a summary of certain material tax
consequences affecting the fund and its shareholders. Shareholders
are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the fund.
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 Fund's 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 Fund's 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 Fund's Annual Report for the fiscal year ended December 31,
1998, will be subsequently filed and incorporated herein by
reference in its entirety.
Smith Barney
Small Cap Blend
Fund, Inc.
Statement of
Additional
Information
April 30, 1999
Smith Barney
Small Cap Blend Fund, Inc.
388 Greenwich Street
New York, NY 10013
SMITH BARNEY
A Member of
Citigroup
PART C
OTHER INFORMATION
Item 23. Exhibits
(a)(1) Amended and Restated Articles of Incorporation dated June 16, 1997 are
incorporated by reference to Pre-Effective Amendment No. 1.
(2) Articles of Amendment dated June 12, 1998 filed herewith.
(b)Registrants By-Laws are incorporated by reference to Pre-Effective
Amendment No. 1
(c) Registrants form of Stock Certificate for Class A is incorporated by
reference to Pre-Effective Amendment No. 1
(d) Investment Advisory Agreement dated June 23, 1997, between the Registrant
and Travelers Investment Management Company is incorporated by reference to
Pre-Effective Amendment No. 1.
(e)(1) Form of Distribution Agreement between the Registrant and Smith Barney
Inc., is incorporated by reference to Pre-Effective Amendment No. 1.
(2) Form of Distribution Agreement filed herewith.
(f) Not applicable.
(g) Form of Custodian Services Agreement between the Registrant and PNC Bank,
National Association is incorporated by reference to Pre-Effective Amendment
No. 1.
(h)(1) Form of Transfer Agency Agreement between the Registrant and First
Data Investor Services Group, Inc. is incorporated by reference to Pre-Effective
Amendment No. 1.
(2) Amended Administration Agreement dated June 23, 1997, between the
Registrant and Mutual Management Corp. (f/k/a Smith Barney Mutual Funds
Management Inc.,) is incorporated by reference to Pre-Effective Amendment No.
1.
(i) Opinion of Sullivan and Cromwell dated June 13, 1997 is incorporated by
reference to Pre-Effective Amendment No. 1.
(j) Consent of Independent Accountants is filed herewith
(k) Not applicable.
(l) Not applicable
(m)(1) Services and Distribution plan pursuant to Rule 12b-1 is incorporated by
reference to Pre-Effective Amendment No. 1.
(2) Form of Amended and Restated Shareholder Services and Distribution Plan
filed herewith.
(n) Financial Data Schedule to be filed by amendment
(o)(1) Form of Rule 18f-3 Plan of the Registrant is incorporated by reference to
the Pre-Effective Amendment No. 1.
(2) Form of Amended and Restated Rule 18f-3 Multiple Class Plan filed herewith.
Item 24. Persons Controlled by or Under Common Control with Registrant
The Registrant is not controlled directly or indirectly by any person.
Information regarding the Registrants institutional manager is set forth
under the caption Management of the Fund in the Prospectus included in
Part A of this Registration Statement on Form N-1A.
Item 25. Indemnification
Reference is made to Article IX of Registrants Articles of Incorporation for
a complete statement of its terms.
Item 26. Business and other Connections of the Investment Adviser.
Travelers Investment Management Company (TIMCO) (the Adviser) serves
as the investment adviser for the Fund pursuant to a written agreement dated
June 23, 1997 (the Advisory Agreement). TIMCO was incorporated on August 31,
1967 under the laws of the State of Connecticut. TIMCO is a wholly owned
subsidiary of Salomon Smith Barney Holdings Inc. (Holdings) which in turn
is a wholly owned subsidiary of Citigroup Inc. TIMCO is registered as an
investment adviser under the Investment Advisers Act of 1940 (the Advisers
Act) since 1971 and has, through its predecessors, been in the investment
counseling business since 1967. The list required by this Item 26 of
officers and directors of TIMCO together with information as to any other
business, profession, vocation or employment of a substantial nature engaged
in by such officers and directors during the past two fiscal years, is
incorporated by reference to Schedules A and D of FORM ADV filed by SBA
pursuant to the
Advisers Act (SEC File No. 801-07212).
Item 27. Principal Underwriters
(a) CFBDS, Inc., ("CFBDS") the Registrant's Distributor, is also
the distributor for the following Smith Barney funds: Concert
Investment Series, Consulting Group Capital Markets Funds,
Greenwich Street Series Fund, Smith Barney Adjustable Rate
Government Income Fund, Smith Barney Aggressive Growth Fund Inc.,
Smith Barney Appreciation Fund Inc., Smith Barney Arizona
Municipals Fund Inc., Smith Barney California Municipals Fund
Inc., Smith Barney Concert Allocation Series Inc., Smith Barney
Equity Funds, Smith Barney Fundamental Value Fund Inc., Smith
Barney Funds, Inc., Smith Barney Income Funds, Smith Barney
Institutional Cash Management Fund, Inc., Smith Barney Investment
Funds Inc., Smith Barney Investment Trust, Smith Barney Managed
Governments Fund Inc., Smith Barney Managed Municipals Fund Inc.,
Smith Barney Massachusetts Municipals Fund, Smith Barney Money
Funds, Inc., Smith Barney Muni Funds, Smith Barney Municipal Money
Market Fund, Inc., Smith Barney New Jersey Municipals Fund Inc.,
Smith Barney Oregon Municipals Fund Inc., Smith Barney Principal
Return Fund, Smith Barney Small Cap Blend Fund, Inc., Smith Barney
Telecommunications Trust, Smith Barney Variable Account Funds,
Smith Barney World Funds, Inc., Travelers Series Fund Inc., and
various series of unit investment trusts.
CFBDS also serves as the distributor for the following funds: The
Travelers Fund UL for Variable Annuities, The Travelers Fund VA for
Variable Annuities, The Travelers Fund BD for Variable Annuities, The
Travelers Fund BD II for Variable Annuities, The Travelers Fund BD
III for Variable Annuities, The Travelers Fund BD IV for Variable
Annuities, The Travelers Fund ABD for Variable Annuities, The
Travelers Fund ABD II for Variable Annuities, The Travelers Separate
Account PF for Variable Annuities, The Travelers Separate Account PF
II for Variable Annuities, The Travelers Separate Account QP for
Variable Annuities, The Travelers Separate Account TM for Variable
Annuities, The Travelers Separate Account TM II for Variable
Annuities, The Travelers Separate Account Five for Variable
Annuities, The Travelers Separate Account Six for Variable Annuities,
The Travelers Separate Account Seven for Variable Annuities, The
Travelers Separate Account Eight for Variable Annuities, The
Travelers Fund UL for Variable Annuities, The Travelers Fund UL II
for Variable Annuities, The Travelers Variable Life Insurance
Separate Account One, The Travelers Variable Life Insurance Separate
Account Two, The Travelers Variable Life Insurance Separate Account
Three, The Travelers Variable Life Insurance Separate Account Four,
The Travelers Separate Account MGA, The Travelers Separate Account
MGA II, The Travelers Growth and Income Stock Account for Variable
Annuities, The Travelers Quality Bond Account for Variable Annuities,
The Travelers Money Market Account for Variable Annuities, The
Travelers Timed Growth and Income Stock Account for Variable
Annuities, The Travelers Timed Short-Term Bond Account for Variable
Annuities, The Travelers Timed Aggressive Stock Account for Variable
Annuities, The Travelers Timed Bond Account for Variable Annuities.
In addition, CFBDS, the Registrant's Distributor, is also the
distributor for CitiFunds Multi-State Tax Free Trust, CitiFunds
Premium Trust, CitiFunds Institutional Trust, CitiFunds Tax Free
Reserves, CitiFunds Trust I, CitiFunds Trust II, CitiFunds Trust III,
CitiFunds International Trust, CitiFunds Fixed Income Trust,
CitiSelect VIP Folio 200, CitiSelect VIP Folio 300, CitiSelect VIP
Folio 400, CitiSelect VIP Folio 500, CitiFunds Small Cap Growth VIP
Portfolio. CFBDS is also the placement agent for Large Cap Value
Portfolio, Small Cap Value Portfolio, International Portfolio,
Foreign Bond Portfolio, Intermediate Income Portfolio, Short-Term
Portfolio, Growth & Income Portfolio, U.S. Fixed Income Portfolio,
Large Cap Growth Portfolio, Small Cap Growth Portfolio, International
Equity Portfolio, Balanced Portfolio, Government Income Portfolio,
Tax Free Reserves Portfolio, Cash Reserves Portfolio and U.S.
Treasury Reserves Portfolio.
In addition, CFBDS is also the distributor for the following Salomon
Brothers funds: Salomon Brothers Opportunity Fund Inc., Salomon
Brothers Investors Fund Inc., Salomon Brothers Capital Fund Inc.,
Salomon Brothers Series Funds Inc., Salomon Brothers Institutional
Series Funds Inc., Salomon Brothers Variable Series Funds Inc.
In addition, CFBDS is also the distributor for the Centurion Funds,
Inc.
(b) The information required by this Item 27 with respect to each
director and officer of CFBDS is incorporated by reference to
Schedule A of Form BD filed by CFBDS pursuant to the Securities and
Exchange Act of 1934 (File No. 8-32417).
Item 28. Location of Accounts and Records
All accounts, books and other documents of Registrant are maintained at the
offices of:
(1) TIMCO
One Tower Square
Hartford, Connecticut 06183
(Records relating to its function as Registrants investment
adviser)
(2) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103
(Records relating to its function as Registrants custodian)
(3) First Data Investor Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
(Records relating to its function as Registrants transfer agent)
Item 29. Management Services
Not applicable.
Item 30. Undertakings
The Registrant hereby undertakes to furnish to each person to whom a
Prospectus of any series of the Registrant is delivered a copy of the
Registrants latest annual report, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant, Smith Barney
Disciplined Small Cap Fund, Inc., has duly caused this Post-Effective
Amendment No. 3 to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York, State of
New York on the 22nd day of February, 1999.
SMITH BARNEY SMALL CAP BLEND FUND, INC.
By: /s/ Heath B. McLendon
Heath B. McLendon
President
As required by the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/Heath B. McLendon President, Chairman of the Board and 02/22/99
Heath B. McLendon Chief Executive Officer
/s/Lewis E. Daidone Senior Vice President and Treasurer 02/22/99
Lewis E. Daidone Chief Financial and Accounting Officer
/s/ Donald R. Foley* Director 02/22/99
Donald R. Foley
/s/ Paul Hardin* Director 02/22/99
Paul Hardin
/s/ Roderick C. Rasmussen* Director 02/22/99
Roderick C. Rasmussen
/s/ John P. Toolan* Director 02/22/99
John P. Toolan
*By : /s/ Heath B. McLendon
Heath B. McLendon
Attorney-in-Fact, pursuant to Power of Attorney previously filed.
EXHIBIT INDEX
(a)(2) Articles of Amendment
(e)(2) Form of Distribution Agreement
(j) Consent of Independent Accountants
(m)(2) Form of Amended and Restated Shareholder Services and Distribution Plan
(o)(2) Form of Amended and Restated Rule 18f-3 Multiple Class Plan
SMITH BARNEY SMALL CAP BLEND FUND, INC.
ARTICLES OF AMENDMENT
Smith Barney Small Cap Blend Fund, Inc., a Maryland corporation,
having its principal office in Baltimore City, Maryland (hereinafter
called the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended to
provide as follows:
The name and designation of the Class C shares of the Corporation
is hereby changed to the Class L shares.
SECOND: The amendment does not change the outstanding capital
stock of the Corporation or the aggregate par value thereof.
THIRD: The foregoing amendment to the Charter of the Corporation
has been approved by the Board of Directors and is limited to a change
expressly permitted by Section 2-605 of the Maryland General
Corporation Law.
FOURTH: The Corporation is registered as an open-end management
investment company under the Investment Company Act of 1940.
FIFTH: The amendment to the Charter of the Corporation effected
hereby shall become effective at 9:00 a.m. on June 12, 1998.
IN WITNESS WHEREOF, the Corporation has caused these presents to
be signed in its name and on its behalf by its President and witnessed
by its Secretary on this ___ day of June, 1998.
SMITH BARNEY SMALL CAP BLEND
FUND, INC.
By:________________________
Name: Heath B. McLendon
Title: President
ATTEST:
_________________________
Name: Christina T. Sydor
Title: Secretary
THE UNDERSIGNED, the President of Smith Barney Small Cap
Blend Fund, Inc., who executed on behalf of the Corporation the
foregoing Articles of Amendment of which this certificate is made a
part, hereby acknowledges in the name and on behalf of the Corporation
the foregoing Articles of Amendment to be the corporate act of the
Corporation and hereby certifies to the best of his knowledge,
information and belief the matters and facts set forth herein with
respect to the authorization and approval thereof are true in all
material respects under the penalties of perjury.
__________________________
Name: Heath B. McLendon
Title: President
(Footnote continued from previous page)
(Footnote continued to next page)
- - 2 -
u:/legal/funds/#imf/orgdocs/cham698.doc
SMITH BARNEY SMALL CAP BLEND FUND, INC.
FORM OF
DISTRIBUTION AGREEMENT
October 8, 1998
CFBDS, Inc.
21 Milk Street
Boston, MA 02109
Dear Sirs:
This is to confirm that, in consideration of the agreements
hereinafter contained, the above-named investment company (the "Fund")
has agreed that you shall be, for the period of this Agreement, the non-
exclusive principal underwriter and distributor of shares of the Fund
and each Series of the Fund set forth on Exhibit A hereto, as such
Exhibit may be revised from time to time (each, including any shares of
the Fund not designated by series, a "Series"). For purposes of this
Agreement, the term "Shares" shall mean shares of the each Series, or
one or more Series, as the context may require.
1. Services as Principal Underwriter and Distributor
1.1 You will act as agent for the distribution of Shares
covered by, and in accordance with, the registration statement,
prospectus and statement of additional information then in effect under
the Securities Act of 1933, as amended (the "1933 Act"), and the
Investment Company Act of 1940, as amended (the "1940 Act"), and will
transmit or cause to be transmitted promptly any orders received by you
or those with whom you have sales or servicing agreements for purchase
or redemption of Shares to the Transfer and Dividend Disbursing Agent
for the Fund of which the Fund has notified you in writing.
1.2 You agree to use your best efforts to solicit orders
for the sale of Shares. It is contemplated that you will enter into
sales or servicing agreements with registered securities brokers and
banks and into servicing agreements with financial institutions and
other industry professionals, such as investment advisers, accountants
and estate planning firms. In entering into such agreements, you will
act only on your own behalf as principal underwriter and distributor.
You will not be responsible for making any distribution plan or service
fee payments pursuant to any plans the Fund may adopt or agreements it
may enter into.
1.3 You shall act as the non-exclusive principal
underwriter and distributor of Shares in compliance with all applicable
laws, rules, and regulations, including, without limitation, all rules
and regulations made or adopted from time to time by the Securities and
Exchange Commission (the "SEC") pursuant to the 1933 Act or the 1940
Act or by any securities association registered under the Securities
Exchange Act of 1934, as amended.
1.4 Whenever in their judgment such action is warranted for
any reason, including, without limitation, market, economic or political
conditions, the Fund's officers may decline to accept any orders for, or
make any sales of, any Shares until such time as those officers deem it
advisable to accept such orders and to make such sales and the Fund
shall advise you promptly of such determination.
2. Duties of the Fund
2.1 The Fund agrees to pay all costs and expenses in
connection with the registration of Shares under the 1933 Act, and all
expenses in connection with maintaining facilities for the issue and
transfer of Shares and for supplying information, prices and other data
to be furnished by the Fund hereunder, and all expenses in connection
with the preparation and printing of the Fund's prospectuses and
statements of additional information for regulatory purposes and for
distribution to shareholders; provided however, that nothing contained
herein shall be deemed to require the Fund to pay any costs of
advertising or marketing the sale of Shares.
2.2 The Fund agrees to execute any and all documents and to
furnish any and all information and otherwise to take any other actions
that may be reasonably necessary in the discretion of the Fund's
officers in connection with the qualification of Shares for sale in such
states and other U.S. jurisdictions as the Fund may approve and
designate to you from time to time, and the Fund agrees to pay all
expenses that may be incurred in connection with such qualification.
You shall pay all expenses connected with your own qualification as a
securities broker or dealer under state or Federal laws and, except as
otherwise specifically provided in this Agreement, all other expenses
incurred by you in connection with the sale of Shares as contemplated in
this Agreement.
2.3 The Fund shall furnish you from time to time, for use
in connection with the sale of Shares, such information reports with
respect to the Fund or any relevant Series and the Shares as you may
reasonably request, all of which shall be signed by one or more of the
Fund's duly authorized officers; and the Fund warrants that the
statements contained in any such reports, when so signed by the Fund's
officers, shall be true and correct. The Fund also shall furnish you
upon request with (a) the reports of the annual audits of the financial
statements of the Fund for each Series made by independent certified
public accountants retained by the Fund for such purpose; (b) semi-
annual unaudited financial statements pertaining to each Series; (c)
quarterly earnings statements prepared by the Fund for any Series; (d) a
monthly itemized list of the securities in each Series' portfolio; (e)
monthly balance sheets as soon as practicable after the end of each
month; (f) the current net asset value and offering price per share
for each Series on each day such net asset value is computed and (g)
from time to time such additional information regarding the financial
condition of each Series of the Fund as you may reasonably request.
3. Representations and Warranties
The Fund represents to you that all registration statements,
prospectuses and statements of additional information filed by the Fund
with the SEC under the 1933 Act and the 1940 Act with respect to the
Shares have been prepared in conformity with the requirements of said
Acts and the rules and regulations of the SEC thereunder. As used in
this Agreement, the terms "registration statement", "prospectus" and
"statement of additional information" shall mean any registration
statement, prospectus and statement of additional information filed by
the Fund with the SEC and any amendments and supplements thereto filed
by the Fund with the SEC. The Fund represents and warrants to you that
any such registration statement, prospectus and statement of additional
information, when such registration statement becomes effective and as
such prospectus and statement of additional information are amended and
supplemented, includes at the time of such effectiveness, amendment or
supplement all statements required to be contained therein in
conformance with the 1933 Act, the 1940 Act and the rules and
regulations of the SEC; that all statements of material fact contained
in any registration statement, prospectus or statement of additional
information will be true and correct when such registration statement
becomes effective; and that neither any registration statement nor any
prospectus or statement of additional information when such registration
statement becomes effective will include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading to a
purchaser of the Fund's Shares. The Fund may, but shall not be
obligated to, propose from time to time such amendment or amendments to
any registration statement and such supplement or supplements to any
prospectus or statement of additional information as, in the light of
future developments, may, in the opinion of the Fund, be necessary or
advisable. If the Fund shall not propose such amendment or amendments
and/or supplement or supplements within fifteen days after receipt by
the Fund of a written request from you to do so, you may, at your
option, terminate this Agreement or decline to make offers of the Fund's
Shares until such amendments are made. The Fund shall not file any
amendment to any registration statement or supplement to any prospectus
or statement of additional information without giving you reasonable
notice thereof in advance; provided, however, that nothing contained in
this Agreement shall in any way limit the Fund's right to file at any
time such amendments to any registration statement and/or supplements to
any prospectus or statement of additional information, of whatever
character, as the Fund may deem advisable, such right being in all
respects absolute and unconditional.
4. Indemnification
4.1 The Fund authorizes you to use any prospectus or
statement of additional information furnished by the Fund from time to
time, in connection with the sale of Shares. The Fund agrees to
indemnify, defend and hold you, your several officers and directors, and
any person who controls you within the meaning of Section 15 of the 1933
Act, free and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or
defending such claims, demands or liabilities and any such counsel fees
incurred in connection therewith) which you, your officers and
directors, or any such controlling person, may incur under the 1933 Act
or under common law or otherwise, arising out of or based upon any
untrue statement, or alleged untrue statement, of a material fact
contained in any registration statement, any prospectus or any statement
of additional information or arising out of or based upon any omission,
or alleged omission, to state a material fact required to be stated in
any registration statement, any prospectus or any statement of
additional information or necessary to make the statements in any of
them not misleading; provided, however, that the Fund's agreement to
indemnify you, your officers or directors, and any such controlling
person shall not be deemed to cover any claims, demands, liabilities or
expenses arising out of any statements or representations made by you or
your representatives or agents other than such statements and
representations as are contained in any prospectus or statement of
additional information and in such financial and other statements as are
furnished to you pursuant to paragraph 2.3 of this Agreement; and
further provided that the Fund's agreement to indemnify you and the
Fund's representations and warranties herein before set forth in
paragraph 3 of this Agreement shall not be deemed to cover any liability
to the Fund or its shareholders to which you would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of your duties, or by reason of your reckless disregard of
your obligations and duties under this Agreement. The Fund's agreement
to indemnify you, your officers and directors, and any such controlling
person, as aforesaid, is expressly conditioned upon the Fund's being
notified of any action brought against you, your officers or directors,
or any such controlling person, such notification to be given by letter
or by telegram addressed to the Fund at its principal office in New
York, New York and sent to the Fund by the person against whom such
action is brought, within ten days after the summons or other first
legal process shall have been served. The failure so to notify the Fund
of any such action shall not relieve the Fund from any liability that
the Fund may have to the person against whom such action is brought by
reason of any such untrue, or alleged untrue, statement or omission, or
alleged omission, otherwise than on account of the Fund's indemnity
agreement contained in this paragraph 4.1. The Fund will be entitled to
assume the defense of any suit brought to enforce any such claim, demand
or liability, but, in such case, such defense shall be conducted by
counsel of good standing chosen by the Fund. In the event the Fund
elects to assume the defense of any such suit and retains counsel of
good standing, the defendant or defendants in such suit shall bear the
fees and expenses of any additional counsel retained by any of them; but
if the Fund does not elect to assume the defense of any such suit, the
Fund will reimburse you, your officers and directors, or the controlling
person or persons named as defendant or defendants in such suit, for the
reasonable fees and expenses of any counsel retained by you or them.
The Fund's indemnification agreement contained in this paragraph 4.1 and
the Fund's representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation
made by or on behalf of you, your officers and directors, or any
controlling person, and shall survive the delivery of any of the Fund's
Shares. This agreement of indemnity will inure exclusively to your
benefit, to the benefit of your several officers and directors, and
their respective estates, and to the benefit of the controlling persons
and their successors. The Fund agrees to notify you promptly of the
commencement of any litigation or proceedings against the Fund or any of
its officers or Board members in connection with the issuance and sale
of any of the Fund's Shares.
4.2 You agree to indemnify, defend and hold the Fund, its
several officers and Board members, and any person who controls the Fund
within the meaning of Section 15 of the 1933 Act, free and harmless from
and against any and all claims, demands, liabilities and expenses
(including the costs of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith)
that the Fund, its officers or Board members or any such controlling
person may incur under the 1933 Act, or under common law or otherwise,
but only to the extent that such liability or expense incurred by the
Fund, its officers or Board members, or such controlling person
resulting from such claims or demands shall arise out of or be based
upon any untrue, or alleged untrue, statement of a material fact
contained in information furnished in writing by you to the Fund and
used in the answers to any of the items of the registration statement or
in the corresponding statements made in the prospectus or statement of
additional information, or shall arise out of or be based upon any
omission, or alleged omission, to state a material fact in connection
with such information furnished in writing by you to the Fund and
required to be stated in such answers or necessary to make such
information not misleading. Your agreement to indemnify the Fund, its
officers or Board members, and any such controlling person, as
aforesaid, is expressly conditioned upon your being notified of any
action
brought against the Fund, its officers or Board members, or any such
controlling person, such notification to be given by letter or telegram
addressed to you at your principal office in Boston, Massachusetts and
sent to you by the person against whom such action is brought, within
ten days after the summons or other first legal process shall have been
served. You shall have the right to control the defense of such action,
with counsel of your own choosing, satisfactory to the Fund, if such
action is based solely upon such alleged misstatement or omission on
your part or with the Fund's consent, and in any event the Fund, its
officers or Board members or such controlling person shall each have the
right to participate in the defense or preparation of the defense of any
such action with counsel of its own choosing reasonably acceptable to
you but shall not have the right to settle any such action without your
consent, which will not be unreasonably withheld. The failure to so
notify you of any such action shall not relieve you from any liability
that you may have to the Fund, its officers or Board members, or to such
controlling person by reason of any such untrue, or alleged untrue,
statement or omission, or alleged omission, otherwise than on account of
your indemnity agreement contained in this paragraph 4.2. You agree to
notify the Fund promptly of the commencement of any litigation or
proceedings against you or any of your officers or directors in
connection with the issuance and sale of any of the Fund's Shares.
5. Effectiveness of Registration
No Shares shall be offered by either you or the Fund under any of
the provisions of this Agreement and no orders for the purchase or sale
of such Shares under this Agreement shall be accepted by the Fund if and
so long as the effectiveness of the registration statement then in
effect or any necessary amendments thereto shall be suspended under any
of the provisions of the 1933 Act, or if and so long as a current
prospectus as required by Section 5(b) (2) of the 1933 Act is not on
file with the SEC; provided, however, that nothing contained in this
paragraph 5 shall in any way restrict or have any application to or
bearing upon the Fund's obligation to repurchase its Shares from any
shareholder in accordance with the provisions of the Fund's prospectus,
statement of additional information or charter documents, as amended
from time to time.
6. Offering Price
Shares of any class of any Series of the Fund offered for sale by
you shall be offered for sale at a price per share (the "offering
price") equal to (a) their net asset value (determined in the manner
set forth in the Fund's charter documents and the then-current
prospectus and statement of additional information) plus (b) a sales
charge, if applicable, which shall be the percentage of the offering
price of such Shares as set forth in the Fund's then-current prospectus
relating to such Series. In addition to or in lieu of any sales charge
applicable at the time of sale, Shares of any class of any Series of the
Fund offered for sale by you may be subject to a contingent deferred
sales charge as set forth in the Fund's then-current prospectus and
statement of additional information. You shall be entitled to receive
any sales charge levied at the time of sale in respect of the Shares
without remitting any portion to the Fund. Any payments to a broker or
dealer through whom you sell Shares shall be governed by a separate
agreement between you and such broker or dealer and the Fund's then-
current prospectus and statement of additional information. Any
payments to any provider of services to you shall be governed by a
separate agreement between you and such service provider.
7. Notice to You
The Fund agrees to advise you immediately in writing:
(a) of any request by the SEC for
amendments to the registration statement,
prospectus or statement of additional
information then in effect or for additional
information;
(b) in the event of the issuance by
the SEC of any stop order suspending the
effectiveness of the registration statement,
prospectus or statement of additional
information then in effect or the initiation
of any proceeding for that purpose;
(c) of the happening of any event that
makes untrue any statement of a material fact
made in the registration statement,
prospectus or statement of additional
information then in effect or that requires
the making of a change in such registration
statement, prospectus or statement of
additional information in order to make the
statements therein not misleading; and
(d) of all actions of the SEC with
respect to any amendment to the registration
statement, or any supplement to the
prospectus or statement of additional
information which may from time to time be
filed with the SEC.
8. Term of the Agreement
This Agreement shall become effective on the date hereof, shall
have an initial term of one year from the date hereof, and shall
continue for successive annual periods thereafter so long as such
continuance is specifically approved at least annually by (a) the Fund's
Board or (b) by a vote of a majority (as defined in the 1940 Act) of the
Fund's outstanding voting securities, provided that in either event the
continuance is also approved by a majority of the Board members of the
Fund who are not interested persons (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for
the purpose of voting on such approval. This Agreement is terminable
with or without cause, without penalty, on 60 days' notice by the Fund's
Board or by vote of holders of a majority of the relevant Series
outstanding voting securities, or on 90 days' notice by you. This
Agreement will also terminate automatically, as to the relevant Series,
in the event of its assignment (as defined in the 1940 Act and the rules
and regulations thereunder).
9. Arbitration
Any claim, controversy, dispute or deadlock arising under
this Agreement (collectively, a "Dispute") shall be settled by
arbitration administered under the rules of the American Arbitration
Association ("AAA") in New York, New York. Any arbitration and award
of the arbitrators, or a majority of them, shall be final and the
judgment upon the award rendered may be entered in any state or federal
court having jurisdiction. No punitive damages are to be awarded.
10. Miscellaneous
So long as you act as a principal underwriter and distributor of
Shares, you shall not perform any services for any entity other than
investment companies advised or administered by Citigroup Inc. or its
subsidiaries. The Fund recognizes that the persons employed by you to
assist in the performance of your duties under this Agreement may not
devote their full time to such service and nothing contained in this
Agreement shall be deemed to limit or restrict the persons employed by
you or any of your affiliates right to engage in and devote time and
attention to other businesses or to render services of whatever kind or
nature, provided, however, that in conducting such business or rendering
such services your employees and affiliates would take reasonable steps
to assure that the other parties involved are put on notice as to the
legal entity with which they are dealing. This Agreement and the terms
and conditions set forth herein shall be governed by, and construed in
accordance with, the laws of the State of New York without giving effect
to its conflict of interest principles.
11. Limitation of Liability (Massachusetts business trusts
only)
The Fund and you agree that the obligations of the Fund under this
Agreement shall not be binding upon any of the Trustees, shareholders,
nominees, officers, employees or agents, whether past, present or
future, of the Fund, individually, but are binding only upon the assets
and property of the Fund, as provided in the Master Trust Agreement.
The execution and delivery of this Agreement have been authorized by the
Trustees and signed by an authorized officer of the Fund, acting as
such, and neither such authorization by such Trustees nor such execution
and delivery by such officer shall be deemed to have been made by any of
them individually or to impose any liability on any of them personally,
but shall bind only the trust property of the Fund as provided in its
Master Trust Agreement.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance of this Agreement by signing and returning to
us the enclosed copy, whereupon this Agreement will become binding on
you.
Very truly yours,
SMITH BARNEY SMALL CAP BLEND FUND,
INC.
By: _____________________
Authorized Officer
Accepted:
CFBDS, INC.
By: __________________________
Authorized Officer
EXHIBIT A
Smith Barney Small Cap Blend Fund, Inc.
Legal/funds/scbf/misc/distrib
Page: 3
10
Independent Auditors' Consent
To the Shareholders and Board of Directors of
Smith Barney Small Cap Blend Fund Inc.:
We consent to the use of our report dated February 10, 1998, with
respect to the Smith Barney Small Cap Blend Fund Inc., incorporated
herein by reference and to the references to our Firm under the
headings "Financial Highlights" in the Prospectus and "Counsel and
Auditors" in the Statement of Additional Information.
KPMG LLP
New York, New York
February 18, 1999
U:\LEGAL\FUNDS\Scbf\MISC\Consent.doc
FORM OF
AMENDED AND RESTATED
SHAREHOLDER SERVICES AND DISTRIBUTION PLAN
This Amended and Restated Shareholder Services and Distribution
Plan (the "Plan") is adopted in accordance with Rule 12b-1 (the
"Rule") under the Investment Company Act of 1940, as amended (the
"1940 Act"), by [Name of Fund], a [business trust organized under the
laws of the Commonwealth of Massachusetts (the "Trust") on behalf of
its sub-trust] / [a corporation organized under the laws of the State
of Maryland (the "Fund")], subject to the following terms and
conditions:
Section 1. Annual Fee.
(a) Service Fee for Class A shares. The [Trust/Fund] will pay to
Smith Barney Inc., a corporation organized under the laws of
the State of Delaware ("Smith Barney"), a service fee under
the Plan at an annual rate of [ %] of the average daily
net assets of the Fund attributable to the Class A shares
sold and not redeemed (the "Class A Service Fee").
(b) Service Fee for Class B shares. The [Trust/Fund] will pay to
Smith Barney a service fee under the Plan at the annual rate
of [ %] of the average daily net assets of the Fund
attributable to the Class B shares sold and not redeemed
(the "Class B Service Fee").
(c) Distribution Fee for Class B shares. In addition to the
Class B Service Fee, the [Trust/Fund] will pay Smith Barney
a distribution fee under the Plan at the annual rate of [
%] of the average daily net assets of the Fund attributable
to the Class B shares sold and not redeemed (the "Class B
Distribution Fee").
(d) Service Fee for Class L shares. The [Trust/Fund] will pay
to Smith Barney a service fee under the plan at the annual
rate of [ %] of the average daily net assets of the Fund
attributable to the Class L shares sold and not redeemed
(the "Class L Service Fee").
(e) Distribution Fee for Class L shares. In addition to the
Class L Service Fee, the [Trust/Fund] will pay Smith Barney
a distribution fee under the Plan at the annual rate of [
%] of the average daily net assets of the Fund attributable
to the Class L shares sold and not redeemed (the "Class L
Distribution Fee").
(f) Payment of Fees. The Service Fees and Distribution Fees will
be calculated daily and paid monthly by the [Trust/Fund]
with respect to the foregoing classes of the Fund's shares
(each a "Class" and together, the "Classes") at the annual
rates indicated above.
Section 2. Expenses Covered by the Plan.
With respect to expenses incurred by each Class, its respective
Service Fee and/or Distribution Fee may be used by Smith Barney for:
(a) costs of printing and distributing the [Trust's/Fund's]
prospectuses, statements of additional information and reports to
prospective investors in the [Trust/Fund]; (b) costs involved in
preparing, printing and distributing sales literature pertaining to
the [Trust/Fund]; (c) an allocation of overhead and other branch
office distribution-related expenses of Smith Barney; (d) payments
made to, and expenses of, Smith Barney's financial consultants and
other persons who provide support services to [Trust/Fund]
shareholders in connection with the distribution of the
[Trust's/Fund's] shares, including but not limited to, office space
and equipment, telephone facilities, answering routine inquires
regarding the [Trust/Fund] and its operation, processing shareholder
transactions, forwarding and collecting proxy material, changing
dividend payment elections and providing any other shareholder
services not otherwise provided by the [Trust's/Fund's] transfer
agent; and (e) accruals for interest on the amount of the foregoing
expenses that exceed the Distribution Fee for that Class and, in the
case of Class B and Class L shares, any contingent deferred sales
charges received by Smith Barney; provided, however, that (i) the
Distribution Fee for a particular Class may be used by Smith Barney
only to cover expenses primarily intended to result in the sale of
shares of that Class, including, without limitation, payments to the
financial consultants of Smith Barney and other persons as
compensation for the sale of the shares, and (ii) the Service Fees
are intended to be used by Smith Barney primarily to pay its
financial consultants for servicing shareholder accounts, including a
continuing fee to each such financial consultant, which fee shall
begin to accrue immediately after the sale of such shares.
Section 3. Approval by Shareholders
The Plan will not take effect, and no fees will be payable in
accordance with Section 1 of
the Plan, with respect to a Class until the Plan has been approved by
a vote of at least a majority
of the outstanding voting securities of the Class. The Plan will be
deemed to have been approved
with respect to a Class so long as a majority of the outstanding
voting securities of the Class votes
for the approval of the Plan, notwithstanding that: (a) the Plan has
not been approved by a majority of the outstanding voting securities
of any other Class, or (b) the Plan has not been
approved by a majority of the outstanding voting securities of the
[Trust/Fund].
Section 4. Approval by [Trustees/Directors.]
Neither the Plan nor any related agreements will take effect until
approved by a majority vote of both (a) the Board of
[Trustees/Directors] and (b) those [Trustees/Directors] who are not
interested persons of the [Trust/Fund] and who have no direct or
indirect financial interest in the operation of the Plan or in any
agreements related to it (the "Qualified [Trustees/Directors]"), cast
in person at a meeting called for the purpose of voting on the Plan
and the related agreements.
Section 5. Continuance of the Plan.
The Plan will continue in effect with respect to each Class until
[ , 1999] and thereafter for successive twelve-month periods with
respect to each Class; provided, however, that such continuance is
specifically approved at least annually by the [Trustees/Directors]
of the [Trust/Fund] and by a majority of the Qualified
[Trustees/Directors].
Section 6. Termination.
The Plan may be terminated at any time with respect to a Class (i)
by the [Trust/Fund] without the payment of any penalty, by the vote
of a majority of the outstanding voting securities of such Class or
(ii) by a majority vote of the Qualified [Trustees/Directors]. The
Plan may remain in effect with respect to a particular Class even if
the Plan has been terminated in accordance with this Section 6 with
respect to any other Class.
Section 7. Amendments.
The Plan may not be amended with respect to any Class so as to
increase materially the amounts of the fees described in Section 1
above, unless the amendment is approved by a vote of holders of at
least a majority of the outstanding voting securities of that Class.
No material amendment to the Plan may be made unless approved by the
[Trust's/Fund's] Board of [Trustees/Directors] in the manner
described in Section 4 above.
Section 8. Selection of Certain [Trustees/Directors].
While the Plan is in effect, the selection and nomination of the
[Trust's/Fund's] [Trustees/Directors] who are not interested persons
of the [Trust/Fund] will be committed to the discretion of the
[Trustees/Directors] then in office who are not interested persons of
the [Trust/Fund].
Section 9. Written Reports
In each year during which the Plan remains in effect, any person
authorized to direct the disposition of monies paid or payable by the
Fund pursuant to the Plan or any related agreement will prepare and
furnish to the [Trust's/Fund's] Board of [Trustees/Directors] and the
Board will review, at least quarterly, written reports complying with
the requirements of the Rule, which set out the amounts expended
under the Plan and the purposes for which those expenditures were
made.
Section 10. Preservation of Materials.
The [Trust/Fund] will preserve copies of the Plan, any agreement
relating to the Plan and any report made pursuant to Section 9 above,
for a period of not less than six years (the first two years in an
easily accessible place) from the date of the Plan, agreement or
report.
Section 11. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and "majority
of the outstanding voting securities" will be deemed to have the same
meaning that those terms have under the rules and regulations under
the 1940 Act, subject to any exemption that may be granted to the
[Trust/Fund] under the 1940 Act, by the Securities and Exchange
Commission.
Section 12. Limitation of Liability. (Massachusetts business
trusts only)
The obligations of the Trust under this Agreement shall not be
binding upon any of the Trustees, shareholders, nominees, officers,
employees or agents, whether past, present or future, of the Trust,
individually, but are binding only upon the assets and property of
the Trust, as provided in the Master Trust Agreement. The execution
of this Plan has been authorized by the Trustees and signed by an
authorized officer of the Trust, acting as such, and neither such
authorization by such Trustees nor such execution by such officer
shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only
the trust property of the Trust as provided in its Master Trust
Agreement.
IN WITNESS WHEREOF, the Fund has executed the Plan as of July
_____, 1998.
[NAME OF TRUST/FUND] On behalf of
By:
____________________________________
Heath B. McLendon
Chairman of the Board
g:\legal\general\forms\agreemts\dist12b1\12b1Plan
Rule 18f-3 (d) Multiple Class Plan for Smith Barney Mutual Funds
Introduction
This plan (the "Plan") is adopted pursuant to Rule 18f-3 (d) of
the Investment Company Act of 1940, as amended (the "1940 Act").
The purpose of the Plan is to restate the existing arrangements
previously approved by the Boards of Directors and Trustees of
certain of the open-end investment companies set forth on Schedule
A (the "Funds" and each a "Fund") under the Funds' existing order of
exemption (Investment Company Act Release Nos. 20042 (January 28,
1994) (notice) and 20090 (February 23, 1994)). Shares of the
Funds are distributed pursuant to a system (the "Multiple Class
System") in which each class of shares (a "Class") of a Fund
represents a pro rata interest in the same portfolio of
investments of the Fund and differs only to the extent outlined
below.
I. Distribution Arrangements and Service Fees
One or more Classes of shares of the Funds are offered for
purchase by investors with the following sales load structure. In
addition, pursuant to Rule 12b-1 under the 1940 Act (the "Rule"),
the Funds have each adopted a plan (the "Services and Distribution
Plan") under which shares of the Classes are subject to the
services and distribution fees described below.
1. Class A Shares
Class A shares are offered with a front-end sales load and under
the Services and Distribution Plan are subject to a service fee of
up to 0.25% of average daily net assets. In addition, the Funds
are permitted to assess a contingent deferred sales charge
("CDSC") on certain redemptions of Class A shares sold pursuant to
a complete waiver of front-end sales loads applicable to large
purchases, if the shares are redeemed within one year of the date
of purchase. This waiver applies to sales of Class A shares where
the amount of purchase is equal to or exceeds $500,000 although
this amount may be changed in the future.
2. Class B Shares
Class B shares are offered without a front-end sales load, but are
subject to a five-year declining CDSC and under the Services and
Distribution Plan are subject to a service fee at an annual rate
of up to 0.25% of average daily net assets and a distribution fee
at an annual rate of up to 0.75% of average daily net assets.
3. Class D Shares
Class D shares are offered without a front-end sales load, CDSC,
service fee or distribution fee.
4. Class L Shares
Class L shares are offered with a front-end load, are subject to a
one-year CDSC and under the Services and Distribution Plan are
subject to a service fee at an annual rate of up to 0.25% of
average daily net assets and a distribution fee at an annual rate
of up to 0.75% of average daily net assets. Unlike Class B
shares, Class L shares do not have the conversion feature as
discussed below and accordingly, these shares are subject to a
distribution fee for an indefinite period of time. The Funds
reserve the right to impose these fees at such higher rates as may
be determined.
5. Class I Shares
Class I shares are offered without a front-end sales load, but are
subject under the Services and Distribution Plan to a service fee
at an annual rate of up to 0.25% of average daily net assets.
6. Class O Shares
Class O shares are offered without a front-end load, but are
subject to a one-year CDSC and under the Services and Distribution
Plan are subject to a service fee at an annual rate of up to 0.25%
of average daily net assets and a distribution fee at an annual
rate of up to 0.50% of average daily net assets. Unlike Class B
shares, Class O shares do not have the conversion feature as
discussed below and accordingly, these shares are subject to a
distribution fee for an indefinite period of time. The Funds
reserve the right to impose these fees at such higher rates as may
be determined.
Effective June 28, 1999, Class O shares will be offered with a
front-end load and will continue to be subject to a one year CDSC,
a service fee at an annual rate of up to 0.25% of average daily
net assets and a distribution fee at an annual rate of up to 0.50%
of average daily net assets.
7. Class Y Shares
Class Y shares are offered without imposition of either a sales
charge or a service or distribution fee for investments where the
amount of purchase is equal to or exceeds a specific amount as
specified in each Fund's prospectus.
8. Class Z Shares
Class Z shares are offered without imposition of either a sales
charge or a service or distribution fee for purchase (i) by
employee benefit and retirement plans of Salomon Smith Barney Inc.
("Salomon Smith Barney") and its affiliates, (ii) by certain unit
investment trusts sponsored by Salomon Smith Barney and its affiliates,
and (iii) although not currently authorized by the governing boards of
the
Funds, when and if authorized, (x) by employees of Salomon Smith Barney
and
its affiliates and (y) by directors, general partners or trustees of any
investment company listed on Schedule A and, for each of (x) and (y),
their
spouses and minor children.
9. Additional Classes of Shares
The Boards of Directors and Trustees of the Funds have the
authority to create additional classes, or change existing
Classes, from time to time, in accordance with Rule 18f-3 of the
1940 Act.
II. Expense Allocations
Under the Multiple Class System, all expenses incurred by a Fund
are allocated among the various Classes of shares based on the net
assets of the Fund attributable to each Class, except that each
Class's net asset value and expenses reflect the expenses
associated with that Class under the Fund's Services and
Distribution Plan, including any costs associated with obtaining
shareholder approval of the Services and Distribution Plan (or an
amendment thereto) and any expenses specific to that Class. Such
expenses are limited to the following:
(i) transfer agency fees as identified by the transfer
agent as being attributable to a specific Class;
(ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders;
(iii) Blue Sky registration fees incurred by a Class of
shares;
(iv) Securities and Exchange Commission registration fees
incurred by a Class of shares;
(v) the expense of administrative personnel and services
as required to support the shareholders of a specific Class;
(vi) litigation or other legal expenses relating solely to
one Class of shares; and
(vii) fees of members of the governing boards of the funds
incurred as a result of issues relating to one Class of shares.
Pursuant to the Multiple Class System, expenses of a Fund
allocated to a particular Class of shares of that Fund are borne
on a pro rata basis by each outstanding share of that Class.
III. Conversion Rights of Class B Shares
All Class B shares of each Fund will automatically convert to
Class A shares after a certain holding period, expected to be, in
most cases, approximately eight years but may be shorter. Upon
the expiration of the holding period, Class B shares (except those
purchases through the reinvestment of dividends and other
distributions paid in respect of Class B shares) will
automatically convert to Class A shares of the Fund at the
relative net asset value of each of the Classes, and will, as a
result, thereafter be subject to the lower fee under the Services
and Distribution Plan. For purposes of calculating the holding
period required for conversion, newly created Class B shares
issued after the date of implementation of the Multiple Class
System are deemed to have been issued on (i) the date on which the
issuance of the Class B shares occurred or (ii) for Class B shares
obtained through an exchange, or a series of exchanges, the date
on which the issuance of the original Class B shares occurred.
Shares purchased through the reinvestment of dividends and other
distributions paid in respect of Class B shares are also Class B
shares. However, for purposes of conversion to Class A, all Class
B shares in a shareholder's Fund account that were purchased
through the reinvestment of dividends and other distributions paid
in respect of Class B shares (and that have not converted to Class
A shares as provided in the following sentence) are considered to
be held in a separate sub-account. Each time any Class B shares
in the shareholder's Fund account (other than those in the sub-
account referred to in the preceding
sentence) convert to Class A, a pro rata portion of the Class B
shares then in the sub-account also converts to Class A. The
portion is determined by the ratio that the shareholder's Class B
shares converting to Class A bears to the shareholder's total
Class B shares not acquired through dividends and distributions.
The conversion of Class B shares to Class A shares is subject to
the continuing availability of a ruling of the Internal Revenue
Service that payment of different dividends on Class A and Class B
shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Internal Revenue
Code of 1986, as amended (the "Code"), and the continuing
availability of an opinion of counsel to the effect that the
conversion of shares does not constitute a taxable event under the
Code. The conversion of Class B shares to Class A shares may be
suspended if this opinion is no longer available, In the event
that conversion of Class B shares does not occur, Class B shares
would continue to be subject to the distribution fee and any
incrementally higher transfer agency costs attending the Class B
shares for an indefinite period.
IV. Exchange Privileges
Shareholders of a Fund may exchange their shares at net asset
value for shares of the same Class in certain other of the Smith
Barney Mutual Funds as set forth in the prospectus for such Fund.
Funds only permit exchanges into shares of money market funds
having a plan under the Rule if, as permitted by paragraph (b) (5)
of Rule 11a-3 under the 1940 Act, either (i) the time period
during which the shares of the money market funds are held is
included in the calculations of the CDSC or (ii) the time period
is not included but the amount of the CDSC is reduced by the
amount of any payments made under a plan adopted pursuant to the
Rule by the money market funds with respects to those shares.
Currently, the Funds include the time period during which shares
of the money market fund are held in the CDSC period. The
exchange privileges applicable to all Classes of shares must
comply with Rule 11a-3 under the 1940 Act.
Smith Barney Sponsored Investment Companies
Operating under Rule 18f-3 - Schedule A
(as of October 31, 1998)
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund
Smith Barney Concert Allocation Series Inc.
Conservative Portfolio
Balanced Portfolio
Global Portfolio
Growth Portfolio
Income Portfolio
High Growth Portfolio
Smith Barney Equity Funds -
Concert Social Awareness Fund
Smith Barney Large Cap Blend Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. -
Large Cap Value Fund
Short-Term High Grade Bond Fund
U.S. Government Securities Fund
Smith Barney Income Funds -
Smith Barney Balanced Fund
Smith Barney Convertible Fund
Smith Barney Diversified Strategic Income Fund
Smith Barney Exchange Reserve Fund
Smith Barney High Income Fund
Smith Barney Municipal High Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Total Return Bond Fund
Smith Barney Investment Trust -
Smith Barney Intermediate Maturity California Municipals Fund
Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney S&P 500 Index Fund
Smith Barney Mid Cap Blend Fund
Smith Barney Investment Funds Inc. -
Concert Peachtree Growth Fund
Smith Barney Contrarian Fund
Smith Barney Government Securities Fund
Smith Barney Hansberger Global Small Cap Value Fund
Smith Barney Hansberger Global Value Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Special Equities Fund
Smith Barney Institutional Cash Management Fund, Inc.
Cash Portfolio
Government Portfolio
Municipal Portfolio
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc. -
Cash Portfolio
Government Portfolio
Retirement Portfolio
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Muni Funds -
California Money Market Portfolio
Florida Portfolio
Georgia Portfolio
Limited Term Portfolio
National Portfolio
New York Portfolio
New York Money Market
Pennsylvania Portfolio
Smith Barney Natural Resources Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Telecommunications Trust -
Smith Barney Telecommunications Income Fund
Smith Barney World Funds, Inc. -
International Equity Portfolio
International Balanced Portfolio
European Portfolio
Pacific Portfolio
Global Government Bond Portfolio
Emerging Markets Portfolio
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