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,
amended as of September 24,
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 6
Purchase, Exchange and Redemption of Shares 17
Distribution 28
Determination of Net Asset Value 30
IRA and Other Prototype Retirement Plans 30
Performance Data 31
Additional Information Concerning Taxes 34
Additional Information 39
Financial Statements 41
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
Travelers 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.
LEE ABRAHAM, Director
Retired; formerly Chairman and Chief Executive Officer of Associated
Merchandising Corporation, a major retail merchandising and sourcing
organization; His address is 106 Barnes Road, Stamford, Connecticut 06902;
71.
ALLAN J. BLOOSTEIN, Director.
President of Allan J. Bloostein Associates, a consulting firm; Director of
CVS Corporation, a drug store chain, and Taubman Centers Inc., a real
estate development company; Retired Vice Chairman and Director of The May
Department Stores Company; His address is 27 West 67th Street, New York,
New York 10023; 69.
JANE DASHER, Director
Investment Officer, Korsant Partners, 283 Greenwich Avenue, Greenwich,
Connecticut 06830; Director of seven investment companies associated with
Citigroup Inc. ("Citigroup"); Prior to 1997 Independent Financial
Consultant; from 1975 to 1987 held various positions with Philip Morris
Companies, Inc. including Director of Financial Services, Treasurers
Department; 49.
DONALD R. FOLEY, Director
Retired; 3668 Freshwater Drive, Jupiter, Florida 33477. Director of
twelve investment companies associated with Citigroup. Formerly Vice
President of Edwin Bird Wilson, Incorporated (advertising); 76.
RICHARD E. HANSON, Jr., Director
Head of School, New Atlanta Jewish Community High School, Atlanta,
Georgia, since September 1996; formerly Headmaster, The Peck School,
Morristown, New Jersey; prior to July 1, 1994, Headmaster, Lawrence County
Day School-Woodmere Academy, Woodmere, New York; His address is 58 Ivy
Chase, Atlanta, GA 30342; 58.
PAUL HARDIN, Director
Professor of Law at University of North Carolina at Chapel Hill, 12083
Morehead, Chapel Hill, North Carolina 27514, Director of 14 investment
companies associated with Citigroup; Director of The Summit
Bancorporation; Formerly, Chancellor of the University of North Carolina
at Chapel Hill, University of North Carolina; 68.
*HEATH B. McLENDON, Chairman of the Board, President and Chief Executive
Officer
Managing Director of Smith Barney; Director of 64 investment companies
associated with Citigroup; Director and President of SSBC and Travelers
Investment Adviser, Inc. ("TIA"); Director of Chairman of the Board of
Smith Barney Strategy Advisors Inc.; Prior to July 1993, Senior Executive
Vice President of Shearson Lehman Brothers Inc.; Vice Chairman of Shearson
Asset Management; 66.
RODERICK C. RASMUSSEN, Director
Investment Counselor; 9 Cadence Court, Morristown, New Jersey 07960.
Director of twelve investment companies associated with Citigroup.
Formerly Vice President of Dresdner and Company Inc. (investment
counselors); 73.
JOHN P. TOOLAN, Director
Retired; 13 Chadwell Place, Morristown, New Jersey 07960. Director of
twelve investment companies associated with Citigroup. Formerly, Director
and Chairman of Smith Barney Trust Company, Director of Salomon Smith
Barney Holdings Inc. ("Holdings") and SSBC and Senior Executive Vice
President, Director and Member of the Executive Committee of Smith Barney;
68.
SANDIP BHAGAT, Vice President
President of TIMCO, Vice President of certain other investment companies
affiliated with Citigroup, 39.
LEWIS E. DAIDONE, Senior Vice President and Treasurer
Managing Director of Salomon Smith Barney; Senior Vice President and
Treasurer of 59 investment companies associated with Citigroup; Director
and Senior Vice President of SSBC and TIA; 41.
PAUL BROOK, Controller
Director of Salomon Smith Barney and Controller or Assistant Treasurer of
43 investment companies associated with Citigroup 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 Salomon Smith Barney; Secretary of 59 investment
companies associated with Citigroup; Secretary and General Counsel of SSBC
and TIA; 48.
As of April 21, 1999, 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 $13,732.
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
Served within
Fund Complex
Lee Abraham++
$0
$0
$47,750
11
Allan J.
Bloostein++
$0
$0
$90,500
18
Jane F. Dasher++
$0
$0
$0
11
Joseph H. Fleiss+
$333.26
$0.00
$32,943.00
10
Donald R. Foley**
$847.10
$0.00
$57,100.00
10
Paul Hardin
$647.09
$0.00
$71,400.00
12
Richard E.
Hanson++
N/A
$0
$47,950
11
Heath B.
McLendon*
- --
- --
- --
64
Bruce Sargent*#
- --
- --
- --
3
Roderick C.
Rasmussen
$847.09
$0.00
$57,100.00
10
John P. Toolan**
$747.09
$0.00
$54,700.00
10
________________________________________
* Designates a director who is an "interested person" of the fund.
++ Elected as of April 19, 1999, therefore no compensation was paid by
the fund through December 31, 1998.
#Effective October 8, 1998, Mr. Sargent resigned from the fund's
Board of Directors.
** Pursuant to a deferred compensation plan, the indicated persons
elected to defer the following amounts of their compensation from
the fund: Donald R. Foley: $73.55 and John P. Toolan: $747.09, and
the following amounts of their total compensation from the fund
Complex: Donald R. Foley: $21,000.00 and John P. Toolan:
$54,700.00. During the fund's most recent fiscal year ended
December 31, 1998, the estate of a deceased director was paid his
previously deferred compensation, which totaled $2,058.45 from the
fund and $171,147.72 from the fund Complex.
+ 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 (other than Mr.
Fleiss who is covered in the above table) totaled $106.44.
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
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 $1,321,762,
$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 (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." 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 $203,348, $102,195 and $138,000,
respectively, in administration fees.
SSBC, formerly Mutual Management Corp., 388 Greenwich Street, New
York, NY 10013 was incorporated on March 12, 1968 and renders
investment management advice to investment companies with aggregate
assets under management in excess of $114 billion as of March 31,
1999. SSBC is an affiliate of Salomon Smith Barney. SSBC and
Salomon Smith Barney are subsidiaries of Citigroup Inc., a
financial services company that uses diverse channels to offer a
broad range of financial services to consumer and corporate
customers around the world. Among these businesses are Citibank,
Commercial Credit, Primerica Financial Services, Salomon Smith
Barney, SSB Citi Asset Management, Travelers Life & Annuity, and
Travelers Property Casualty.
Auditors
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.
Foreign Securities. The fund may invest up to 10% of its assets in
securities of foreign issuers, including securities denominated in
foreign currencies. These investments involve certain risks not
ordinarily associated with investments in securities of domestic
issuers. These risks include differences in accounting, auditing
and financial reporting standards, generally higher commission
rates on foreign portfolio transactions, the possibility of
expropriation or confiscatory taxation, adverse changes in
investment or exchange control regulations, political instability
which could affect U.S. investments in foreign countries and
potential restrictions on the flow of international capital.
Additionally, dividends or interest payable on foreign securities,
and in some cases capital gains, may be subject to foreign
withholding or other foreign taxes. Foreign securities often
trade with less frequency and volume than domestic securities and
therefore may exhibit greater price volatility. Changes in foreign
exchange rates will affect the value of those securities which are
denominated or quoted in currencies other than U.S. dollars.
Certain of the foreign securities held by the fund may not be
registered with, nor will the issuers thereof be subject to the
reporting requirements of, the SEC. Accordingly, there may be less
publicly available information about the securities and the foreign
company or government issuing them than is available about a
domestic company or government entity. Moreover, individual
foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate
of inflation, capital reinvestment, resource self-sufficiency and
balance of payment positions.
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 Salomon Smith Barney or its
affiliates unless it has applied for and received specific
authority from the Securities and Exchange Commission ("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 Salomon 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 129%, 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 $778,402, $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
$51,249, $9,374 and $7,375, respectively, in brokerage commissions
to Salomon Smith Barney. For the 1998 fiscal year, Salomon Smith
Barney received 7.2% of the brokerage commissions paid by the fund
and effected 6.5% 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 contingent deferred sales charge ("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, unitholders who invest distributions form a UIT
sponsored by 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 New York Stock Exchange
("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; (h)
investments of distributions from or proceeds from a sale of a UIT
sponsored by Salomon Smith Barney; (i) purchases by investors
participating in a Salomon Smith Barney fee-based arrangement; and
(j) purchases of Class A shares by Section 403(b) or Section 401(a)
or (k) accounts associated with Copeland Retirement Programs. 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
"Additional Information Concerning 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
$10,000 must be guaranteed by an eligible guarantor institution,
such as a domestic bank, savings and loan institution, domestic
credit union, member bank of the Federal Reserve System or member
firm of a national securities exchange. Written redemption requests
of $10,000 or less do not require a signature guarantee unless more
than one such redemption request is made in any 10-day period.
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, Inc. ("CFBDS") located at 20 Milk Street, Boston,
Massachusetts 02109-5408 serves as the trust's distributor on a
best efforts basis pursuant to a distribution agreement dated
October 8, 1998 (the "Distribution Agreement"). Prior to the
merger of Travelers Group, Inc. and Citicorp Inc. on October 8,
1998, Salomon Smith Barney served as the fund's distributor.
To compensate Salomon Smith Barney for the service it provides and
for the expense it bears under the Distribution Agreement, the fund
has adopted a services and distribution plan (the "Plan") pursuant
to Rule 12b-1 under the 1940 Act. Under the Plan, the fund pays
Salomon Smith Barney a service fee, accrued daily and paid monthly,
calculated at the annual rate of 0.25% of the value of the fund's
average daily net assets attributable to the Class A, Class B and
Class L shares. In addition, the fund pays Salomon Smith Barney a
distribution fee with respect to Class B and Class L shares
calculated at the annual rate of 0.75% of the value of the fund's
average daily net assets attributable those shares primarily
intended to compensate Salomon Smith Barney for its initial expense
of paying Financial Consultants a commission upon sales of those
shares. 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.
For the year ended December 31, 1998, the fees which have been
accrued and/or paid to Salomon Smith Barney pursuant to Rule 12b-1
for the fund were $107,818 for Class A shares, $193,723 for Class
B shares and $47,398 for Class L shares. The distribution expenses
for 1998 included compensation of financial consultants and
printing costs of prospectuses and marketing materials.
Commissions on Class A Shares. For the 1996 and 1997 fiscal years,
the aggregate dollar amounts of commissions on Class A shares, all
of which were paid to Salomon Smith Barney, were $0 (prior to June
23, 1997, the fund was a closed-end investment company and thus had
no sales charges) and $173,000, respectively. For the period
January 1, 1998 through October 7, 1998 and for the period October
8, 1998 through December 31, 1998, the aggregate dollar amounts of
commissions on Class A shares are as follows:
01/01/98 through 10/08/98 through
10/07/98 12/31/98
Class A shares $136,000* $35,000**
*The entire amount was paid to Salomon Smith Barney.
**The following amount was paid to Salomon Smith Barney:
$31,500.00. .
Commissions on Class L Shares. For the period June 12, 1998
through October 7, 1998 and for the period October 8, 1998 through
December 31, 1998, the aggregate dollar amounts of commissions on
Class L shares are as follows:
06/12/98 through 10/08/98 through
10/07/98 12/31/98
Class L shares $12,000* $7,000**
(On June 12, 1998, Class C
shares were renamed Class L
shares)
*The entire amount was paid to Salomon Smith Barney.
**The following amount was paid to Salomon Smith Barney: $6,300.00.
.
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:
(6.24)% for the one-year period January 1, 1998 through
December 31, 1998.
11.38% for the five-year period January 1, 1994 through
December 31, 1998.
9.40% 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:
(6.91)% for the one-year period January 1, 1998 through
December 31, 1998.
6.73% 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:
(3.96)% for the one-year period January 1, 1998 through
December 31, 1998.
9.04% 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:
(0.80)% for the one-year period January 1, 1998 through
December 31, 1998.
(1.84)% 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 (1.31)%, 12.53%
and 10.04%, 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 (2.07)% and 9.22%,
respectively. If the maximum CDSC had not been deducted at the
time of redemption, Class L's average annual total return for the
same periods would have been (1.99)% and 9.74%, 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:
135.25% for the period from January 23, 1990 through December
31, 1998.
Class B's aggregate total return was as follows for the period
indicated:
14.32% for the period from June 25, 1997 through December 31,
1998.
Class L's aggregate total return was as follows for the period
indicated:
15.18% 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:
(2.21)% 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 123.39%.
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 10.48%.
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 14.07%.
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. 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 is located at 17th Chestnut Street, Philadelphia, PA 19103, and
serves as the custodian of the fund. Under its agreement with the
fund, PNC holds the fund's portfolio securities and keeps all
necessary accounts and records. For its services, PNC receives a
monthly fee based upon the month-end market value of securities
held in custody and also receives securities transaction charges.
PNC 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.
As of April 21, 1999, the following table contains a list of
shareholders who of record or beneficially own at least 5% of the
outstanding shares of a particular class of shares of the fund:
Class A
Holder % of shares
Charles Schwab & Co. Inc. 11.31%
101 Montgomery Street
San Francisco, CA 94104
Class Y
Holder % of shares
Smith Barney Concert Series, Inc. 65.76%
High Growth Portfolio
PNC Bank
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester, PA 19113
Smith Barney Concert Series, Inc. 20.91%
Growth Portfolio
PNC Bank
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester, PA 19113
Smith Barney Concert Series, Inc. 8.45%
Select High Growth Portfolio
PNC Bank
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester, PA 19113
FINANCIAL STATEMENTS
The fund's Annual Report for the fiscal year ended December 31,
1998, is incorporated herein by reference in its entirety. The
annual report was filed on was filed on March 15, 1999, accession
number 9115-99-000143.
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
SALOMON SMITH
BARNEY
A Member of
Citigroup
DRAFT 1/22/99
G:\Fund Accounting\Legal\FUNDS\Scbf\1999\Secdocs\0430Bsai.doc
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