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 17,
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.
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
