<PAGE>
As filed with the Securities and Exchange Commission on February 4, 1999
Registration No.
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
[_]Pre-Effective Amendment No.
[_]Post-Effective Amendment No.
----------------
SALOMON BROTHERS SERIES FUNDS INC
(Exact name of Registrant as specified in Charter)
Area Code and Telephone Number:
(800) [725-6666]
7 World Trade Center,
New York, New York 10048
(Address of principal executive offices) (Zip Code)
Christina T. Sydor, Esq.
Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013 (22nd floor)
(Name and address of agent for service)
----------------
Copy to:
Gary S. Schpero, Esq.
Simpson Thatcher & Bartlett
425 Lexington Avenue
New York, New York 10017-3954
----------------
Approximate date of proposed public offering: As soon as possible after the
effective date of this Registration Statement.
----------------
Title of securities being registered. Shares of common stock ($.001 par
value) of Salomon Brothers Small Cap Growth Fund, a series of the Registrant.
Registrant has registered an indefinite amount of securities pursuant to
Rule 24f-2 under the Investment Company Act of 1940, as amended; accordingly,
no fee is payable herewith. Registrant's Rule 24f-2 Notice for the fiscal
period ended December 31, 1998 is expected to be filed with the Securities and
Exchange Commission on February 28, 1999.
Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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<PAGE>
SALOMON BROTHERS SERIES FUNDS INC
CONTENTS OF
REGISTRATION STATEMENT
This Registration Statement contains the following pages and documents:
Front Cover
Contents Page
Cross-Reference Sheet
Letter to Shareholders
Notice of Special Meeting
Part A--Prospectus/Proxy Statement
Part B--Statement of Additional Information
Part C--Other Information
Signature Page
Exhibits
<PAGE>
SALOMON BROTHERS SERIES FUNDS INC
FORM N-14 CROSS REFERENCE SHEET
Pursuant to Rule 481(a) Under the Securities Act of 1933
<TABLE>
<CAPTION>
Prospectus/Proxy
Part A Item No. and Caption Statement Caption
--------------------------- -----------------
<C> <C> <S>
Item 1. Beginning of Registration Statement
and Outside Front Cover Page of Cover Page; Cross Reference
Prospectus............................ Sheet
Item 2. Beginning and Outside Back Cover Page
of Prospectus......................... Table of Contents
Item 3. Synopsis and Risk Factors............. Summary; Risk Factors;
Comparison of Investment
Objectives and Policies
Item 4. Information About the Transaction..... Summary; Reasons for the
Reorganization; Information
About the Reorganization;
Information on Shareholder's
Rights; Exhibit A (Agreement
and Plan of Reorganization)
Item 5. Information About the Registrant...... Cover Page; Summary;
Information About the
Reorganization; Comparison of
Investment Objectives and
Policies; Comparative
Information on Shareholder's
Rights; Additional
Information About the Small
Cap Growth Fund and Special
Equities Fund. Prospectuses
of both the Small Cap Growth
Fund and the Special Equities
Fund.
Item 6. Information About the Company Being
Acquired.............................. Summary; Information About
the Reorganization;
Comparison of Investment
Objectives and Policies;
Information on Shareholder's
Rights; Additional
Information About the Small
Cap Growth Fund and the
Special Equities Fund
Item 7. Voting Information.................... Summary; Information About
the Reorganization;
Comparative Information on
Shareholder's Rights; Voting
Information
Item 8. Interest of Certain Persons........... Financial Statements and
Experts; Legal and Experts
Matters
Item 9. Additional Information Required for
Reoffering By Persons Deemed to be
Underwriters.......................... Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Additional
Part B Item No. and Caption Information Caption
--------------------------- -----------------------
<C> <C> <S>
Item 10. Cover Page............................ Cover Page
Item 11. Table of Contents..................... Cover Page
Item 12. Additional Information About the
Registrant............................ Cover Page; Statement of
Additional Information of
Salomon Brothers Series
Funds Inc dated May 1, 1999
Item 13. Additional Information About the
Company Being Acquired................ Not Applicable
Item 14. Financial Statements.................. Annual Report of the Small
Cap Growth Fund dated
December 31, 1998; Annual
Report of the Special
Equities Fund dated December
31, 1998; Pro forma
Financial Statements
<CAPTION>
Part C Item No. and Caption Other Information Caption
--------------------------- -------------------------
<C> <C> <S>
Item 15. Indemnification....................... Incorporated by reference to
Part A caption "Comparative
Information on Shareholder's
Rights"
Item 16. Exhibits.............................. Exhibits
Item 17. Undertakings.......................... Undertakings
</TABLE>
<PAGE>
388 Greenwich Street
New York, New York 10013
March , 1999
Dear Shareholder:
I am writing to ask you for your vote on some important questions that
affect your investment in the Smith Barney Special Equities Fund ("Special
Equities Fund"). A special meeting of Special Equities Fund shareholders is
scheduled for May 14, 1999 to consider changes to the Fund. Shareholder
meetings are held by mutual fund companies periodically as important issues
arise requiring shareholder approval.
While we want you to attend your Fund's meeting, we understand that many
shareholders prefer to cast their vote by filling out and signing the enclosed
proxy. A proxy card is a ballot and when you vote your proxy, you tell us how
to vote on your behalf on important issues relating to your fund.
On January 7, 1999 the Board of Directors of Special Equities Fund approved
a proposed merger whereby Smith Barney Fund shareholders would exchange their
shares for an equivalent dollar amount of shares in the Salomon Brothers Small
Cap Growth Fund ("Small Cap Growth Fund"). The Small Cap Growth Fund has a
similar investment objective and policies as Special Equities Fund.
Pam Milunovich took over management responsibilities of the Special Equities
Fund on November 6, 1998. In addition to managing the Special Equities Fund,
Ms. Milunovich also manages the Small Cap Growth Fund. Management believes the
proposed merger would create certain efficiencies as a result of Ms.
Milunovich managing a single fund and will lead to a more focused marketing
and distribution effort and promoting asset growth.
We ask that you take a few moments to review the accompanying
prospectus/proxy statement carefully. If you do not plan to attend the
meeting, we ask that you complete the proxy card and return it as soon as
possible in the enclosed postage-paid envelope. When shareholders do not
return their proxies, their fund may have to incur the expense of follow-up
solicitations.
Your vote is important. Thank you for your time and consideration. If you
have any questions regarding this proposed merger, please contact your Salomon
Smith Barney Financial Consultant or dealer representative.
Sincerely.
/s/ Heath B. McLendon
Heath B. McLendon
Chairman
<PAGE>
SMITH BARNEY SPECIAL EQUITIES FUND
388 Greenwich Street New York, New York 10013
----------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on May , 1999
----------------------
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of Smith Barney Special Equities Fund (the "Special Equities
Fund"), will be held at 388 Greenwich Street, New York, New York on May [ ],
1999, at [ ] p.m. for the following purposes:
1. To consider and act upon the Agreement and Plan of Reorganization
(the "Plan") dated as of January [ ], 1999 providing for: (i) the
acquisition of substantially all of the assets of the Special Equities
Fund by the Salomon Brothers Small Cap Growth Fund of the Salomon Brothers
Series Funds Inc (the "Small Cap Growth Fund") in exchange for shares of
the Small Cap Growth Fund and the assumption by the Small Cap Growth Fund
of substantially all of the liabilities of the Special Equities Fund; (ii)
the distribution of such shares of the Small Cap Growth Fund to
shareholders of the Special Equities Fund in liquidation of the Special
Equities Fund; and (iii) the subsequent termination of the Special
Equities Fund.
2. To transact any other business which may properly come before the
Meeting or any adjournment thereof.
The Directors of the Special Equities Fund have approved the transaction and
have fixed the close of business on [ ],1999, as the record date for
determining shareholders of the Special Equities Fund entitled to notice of
and to vote at this Meeting or any adjournment thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND IN PERSON ARE URGED TO SIGN AND RETURN WITHOUT DELAY THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT
THEIR SHARES MAY BE REPRESENTED AT THE MEETING. INSTRUCTIONS FOR THE PROPER
EXECUTION OF PROXIES ARE SET FORTH ON THE FOLLOWING PAGE. PROXIES MAY BE
REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY THE SUBSEQUENT EXECUTION AND
SUBMISSION OF A REVISED PROXY, BY GIVING WRITTEN NOTICE OF REVOCATION TO THE
SPECIAL EQUITIES FUND
<PAGE>
AT ANY TIME BEFORE THE PROXY IS EXERCISED OR BY VOTING IN PERSON AT THE
MEETING.
By order of the Directors
Christina T. Sydor
Secretary
[ ], 1999
----------------------
YOUR PROMPT ATTENTION TO THE ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF
FURTHER SOLICITATION.
<PAGE>
PROSPECTUS/PROXY STATEMENT
Dated [ ], 1999
Acquisition Of The Assets Of
SMITH BARNEY INVESTMENT FUNDS INC.--
SPECIAL EQUITIES FUND
388 Greenwich Street
New York, New York 10013
(800) 451-2010
By And In Exchange For Shares Of
SALOMON BROTHERS SERIES FUNDS INC--
SMALL CAP GROWTH FUND
7 World Trade Center
New York, New York 10048
(800) SALOMON
This Prospectus/Proxy Statement is being furnished to shareholders of Smith
Barney Special Equities Fund (the "Special Equities Fund"), a separate series
of Smith Barney Investment Funds Inc. (the "Investment Funds"), in connection
with a proposed Agreement and Plan of Reorganization (the "Plan"), to be
submitted to shareholders for consideration at a Special Meeting of
Shareholders to be held on May [14], 1999 at [ ] p.m., New York City time, at
the offices of Salomon Smith Barney Inc., located at 388 Greenwich Street, [
]nd Floor, New York, New York, and any adjournments thereof (collectively, the
"Meeting"). The Plan provides for all of the assets of the Special Equities
Fund to be acquired by the Salomon Brothers Small Cap Growth Fund (the "Small
Cap Growth Fund"), a separate series of Salomon Brothers Series Funds Inc (the
"Series Funds"), in exchange for shares of the Small Cap Growth Fund and the
assumption by the Small Cap Growth Fund of substantially all liabilities of
the Special Equities Fund (hereinafter referred to as the "Reorganization").
(The Special Equities Fund and the Small Cap Growth Fund are herein referred
to individually as a "Fund" and collectively as the "Funds"). Following the
Reorganization, shares of the Small Cap Growth Fund will be distributed to
shareholders of the Special Equities Fund in liquidation of the Special
Equities Fund and the Special Equities Fund will be dissolved. As a result of
the proposed Reorganization, each shareholder of the Special Equities Fund
will receive that number of shares of the Small Cap Growth Fund having an
aggregate net asset value equal to the aggregate net asset value of such
shareholder's shares of the Special Equities Fund. Holders of Class A shares
in the Special Equities Fund will receive Class A shares of the Small Cap
Growth Fund, and no sales charge will be imposed on the Class A shares of the
Small Cap Growth Fund received by the Special Equities Fund Class A
shareholders. Holders of Class B and Class L shares in the Special Equities
Fund will receive Class B and Class 2 shares, respectively, of the Small Cap
Growth Fund; any contingent
1
<PAGE>
deferred sales charge ("CDSC") which is applicable to a shareholder's
investment will continue to apply, and, in calculating the applicable CDSC
payable upon the subsequent redemption of Class B, Class 2 or certain Class A
shares of the Small Cap Growth Fund, the period during which a Special
Equities Fund shareholder held the shares of the Special Equities Fund
exchanged for such Small Cap Growth Fund shares redeemed will be counted. This
transaction is being structured as a tax-free reorganization.
The Small Cap Growth Fund is an open-end diversified management investment
company whose investment objective is to seek long-term growth of capital
appreciation by investing primarily in securities of U.S. issuers with market
capitalizations of less than $1 billion at the time of initial purchase. The
Special Equities Fund is an open-end diversified investment management company
whose investment objective is to seek long-term capital appreciation. Each
Fund invests primarily, but not exclusively, in equity securities (common and
preferred stock). Salomon Brothers Asset Management Inc ("SBAM") serves as
investment manager to the Small Cap Growth Fund and Mutual Management Corp.
("MMC") serves as the investment manager of the Special Equities Fund. SBAM
and MMC are both subsidiaries of Salomon Smith Barney Holdings Inc.
("Holdings").
The investment policies of the Small Cap Growth Fund are generally similar
to those of the Special Equities Fund. However, certain differences in the
Funds' investment policies are described under "Comparison of Investment
Objectives and Policies" in this Prospectus/Proxy Statement.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely information about the Small Cap Growth Fund
that a prospective investor should know before investing. Certain relevant
documents listed below, which have been filed with the Securities and Exchange
Commission ("SEC"), are incorporated by reference. A Statement of Additional
Information dated [ ], 1999 relating to this Prospectus/Proxy Statement and
the Reorganization, has been filed with the SEC and is incorporated by
reference into this Prospectus/Proxy Statement. A copy of such Statement of
Additional Information and the Special Equities Fund Prospectus referred to
below are available upon request and without charge by writing to the Special
Equities Fund at the address listed on the cover page of this Prospectus/Proxy
Statement or by calling (800) 451-2010.
1. The Prospectus dated May 1, 1998, as supplemented on February 1, 1999
of the Small Cap Growth Fund is incorporated in its entirety by reference
and a copy is included herewith.
2. The Prospectus dated April 30, 1998, as supplemented on June 12,
1998, October 5, 1998, November 24, 1998 and January 11, 1999 of the
Special Equities Fund is incorporated in its entirety by reference.
2
<PAGE>
Also accompanying this Prospectus/Proxy Statement as Exhibit A is a copy of
the Plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Additional Materials...................................................... 5
Fee Tables................................................................ 5
Summary................................................................... 8
Risk Factors.............................................................. 13
Reasons for the Reorganization............................................ 14
Information about the Reorganization...................................... 15
Information about the Small Cap Growth Fund............................... 19
Information about the Special Equities Fund............................... 19
Comparison of Investment Objectives and Policies.......................... 20
Comparative Information on Shareholders' Rights........................... 25
Additional Information About the Small Cap Growth Fund and the Special
Equities Fund........................................................... 28
Other Business............................................................ 28
Voting Information........................................................ 28
Financial Statements...................................................... 30
Legal Matters............................................................. 30
Exhibit A: Agreement and Plan of Reorganization........................... A-1
</TABLE>
4
<PAGE>
Additional Materials
The following additional materials, which have been incorporated by
reference into the Statement of Additional Information dated [ ], 1999
relating to this Prospectus/Proxy Statement and the Reorganization, will be
sent to all shareholders requesting a copy of such Statement of Additional
Information.
1.Statement of Additional Information of Series Funds dated May 1, 1998.
2. Statement of Additional Information of Smith Barney Investment Funds Inc.
(the "Investment Funds") dated April 30, 1998
3.Annual Report of Small Cap Growth Fund dated December 31, 1998.
4.Annual Report of Special Equities Fund dated December 31, 1998.
5.Pro forma financial statements.
Fee Tables
Following are tables showing current costs and expenses of the Class A,
Class B and Class L or Class 2 shares of the Special Equities Fund and the
Small Cap Growth Fund and the pro forma costs and expenses expected to be
incurred by each such Class of the Small Cap Growth Fund after giving effect
to the Reorganization, each based on the maximum sales charge or maximum CDSC
that may be incurred at the time of purchase or redemption. These figures are
based on each Fund's operating expenses for the fiscal year ended December 31,
1998.
Class A Shares
<TABLE>
<CAPTION>
Special Small Cap
Equities Growth Pro Forma****
-------- --------- -------------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% 5.75% 5.75%
Maximum CDSC (as a percentage of original
cost or redemption proceeds, whichever is
lower) None* None* None*
- -----------------------------------------------------------------------------
Annual Operating Expenses
(as a percentage of average net assets)
Management and Administration fees .75% .85%** .75%***
12b-1 fees .25 .25 .25
Other expenses
Total Operating Expenses
</TABLE>
- -----------
* Purchases of Class A shares of the Special Equities Fund and the Small
Cap Growth Fund, which, when combined with current holdings of Class A
shares offered with a sales charge equal or exceed $500,000 and
$1,000,000, respectively, in the aggregate, will be made at net asset
value with no sales charge, but will be subject to a CDSC of 1.00% on
redemptions made within 12 months.
**As of December 31, 1998, SBAM waived a portion of its management fee and
reimbursed certain expenses. After taking into account such waiver and
reimbursements, the management and administration fee, other expense and
total operating expenses were %, % and %, respectively.
*** Reflects the reduction in the management fee of the Small Cap Growth Fund
upon completion of the Reorganization.
**** The pro forma financial figures are intended to provide shareholders with
information about the continuing impact of the Reorganization as if the
Reorganization had taken place as of December 31, 1998.
5
<PAGE>
Class B Shares
<TABLE>
<CAPTION>
Special Small Cap
Equities Growth Pro Forma*****
-------- --------- --------------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) None None None
Maximum CDSC (as a percentage of original
cost or redemption proceeds, whichever is
lower) 5.00%* 5.00%* 5.00%*
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Annual Operating Expenses
(as a percentage of average net assets)
Management fees .75% .85%** .75%****
12b-1 fees*** 1.00 1.00 1.00
Other expenses**
Total Operating Expenses**
</TABLE>
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*The CDSC applicable to Class B shares of the Special Equities Fund
declines by 1% each year after purchase to zero. The CDSC applicable to
Class B shares of the Small Cap Growth Fund and on a Pro Forma basis
decline by 1% per year in each of the second, third, fifth, sixth and
seventh years after purchase to zero.
**As of December 31, 1998, SBAM waived a portion of its management fee and
reimbursed certain expenses. After taking into account such waiver and
reimbursements, the management and administration fee, other expense and
total operating expenses were %, % and %, respectively.
*** Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee, but will be subject to a 0.25%
service fee.
**** Reflects the reduction in the management fee of the Small Cap Growth
Fund upon completion of the Reorganization.
***** The pro forma financial figures are intended to provide shareholders
with information about the continuing impact of the Reorganization as if
the Reorganization had taken place as of December 31, 1998.
Class L and 2 Shares
<TABLE>
<CAPTION>
Special Small Cap
Equities Growth Pro Forma****
-------- --------- -------------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) 1.00% 1.00% 1.00%
Maximum CDSC (as a percentage of original
cost or redemption proceeds, whichever is
lower) 1.00% 1.00% 1.00%
- -----------------------------------------------------------------------------
Annual Operating Expenses
(as a percentage of average net assets)
Management and Administration fees .75% .85%** .75%***
12b-1 fees* 1.00 1.00 1.00
Other expenses**
Total Operating Expenses**
</TABLE>
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* Class L and Class 2 shares do not have a conversion feature and,
therefore, are subject to an ongoing distribution fee. As a result, long-
term shareholders of Class L or Class 2 shares may pay more than the
economic equivalent of the maximum front-end sales charge permitted by
the National Association of Securities Dealers, Inc.
**As of December 31, 1998, SBAM waived a portion of its management fee and
reimbursed certain expenses. After taking into account such waiver and
reimbursements, the management and administration fee, other expense and
total operating expenses were %, % and %, respectively.
*** Reflects the reduction in the management fee of the Small Cap Growth Fund
upon completion of the Reorganization.
**** The pro forma financial figures are intended to provide shareholders with
information about the continuing impact of the Reorganization as if the
Reorganization had taken place as of December 31, 1998.
6
<PAGE>
Examples
The following examples are intended to assist an investor in understanding
the various costs an investor in the Funds will bear directly or indirectly.
The examples assume payment by the Funds of operating expenses at the levels
set forth in the tables above.
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5.00% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years*
------ ------- ------- ---------
<S> <C> <C> <C> <C>
Class A
Special Equities Fund..........................
Small Cap Growth Fund..........................
Pro Forma......................................
Class B
Special Equities Fund..........................
Small Cap Growth Fund..........................
Pro Forma......................................
Class L or Class 2
Special Equities Fund..........................
Small Cap Growth Fund..........................
Pro Forma......................................
</TABLE>
- -----------
* Ten-year figures assume conversion of Class B shares of Special Equities
Fund, Small Cap Growth Fund and Pro Forma to Class A shares at the end of
the eighth year, seventh year and seventh year respectively, following the
date of purchase.
An investor would pay the following expenses on the same investment,
assuming the same annual return and no redemption:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years*
------ ------- ------- ---------
<S> <C> <C> <C> <C>
Class A
Special Equities Fund..........................
Small Cap Growth Fund..........................
Pro Forma......................................
Class B
Special Equities Fund..........................
Small Cap Growth Fund..........................
Pro Forma......................................
Class L or Class 2
Special Equities Fund..........................
Small Cap Growth Fund..........................
Pro Forma......................................
</TABLE>
- -----------
* Ten-year figures assume conversion of Class B shares of Special Equities
Fund and Small Cap Growth Fund and Pro Forma to Class A shares at the end of
the eighth year, seventh year and seventh year, respectively, following the
date of purchase.
The examples also provide a means for the investor to compare expense levels
of funds with different fee structures over varying investment periods. To
facilitate
7
<PAGE>
such comparison, all funds are required to utilize a 5.00% annual return
assumption. However, the Fund's actual return will vary and may be greater or
less than 5.00%. These examples should not be considered a representation of
past or future expenses and actual expenses may be greater or less than those
shown.
Summary
This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement, the
Prospectus of the Small Cap Growth Fund dated May 1, 1998, as supplemented on
February 1, 1999, the Statement of Additional Information of the Series Funds,
dated May 1, 1998, the Prospectus of the Special Equities Fund dated April 30,
1998, as supplemented on June 12, 1998, October 5, 1998, November 24, 1998 and
January 11, 1999, the Statement of Additional Information of the Investment
Funds dated April 30, 1998 and the Plan, a copy of which is attached to this
Prospectus/Proxy Statement as Exhibit A.
Proposed Reorganization. The Plan provides for the transfer of all or
substantially all of the assets of the Special Equities Fund in exchange for
shares of the Small Cap Growth Fund and the assumption by the Small Cap Growth
Fund of substantially all liabilities of the Special Equities Fund. The Plan
also calls for the distribution of shares of the Small Cap Growth Fund to the
Special Equities Fund shareholders in liquidation of the Special Equities
Fund. As a result of the Reorganization, each shareholder of the Special
Equities Fund will become the owner of that number of full and fractional
shares of the Small Cap Growth Fund having an aggregate net asset value equal
to the aggregate net asset value of their shares of the Special Equities Fund,
as of the close of business on the date that the Special Equities Fund's
assets are exchanged for shares of the Small Cap Growth Fund. (Shareholders of
Class A, Class B and Class L shares of the Special Equities Fund will receive
Class A, Class B and Class 2 shares, respectively, of the Small Cap Growth
Fund.) See "Information About the Reorganization." The Small Cap Growth Fund
also offers Class O shares which are available only to existing Class O
shareholders of a fund in the Salomon Brothers Investment Series.
For the reasons set forth below under "Reasons for the Reorganization," the
Board of Directors of the Investment Funds, on behalf of the Special Equities
Fund, including all of the "non-interested" Directors, as that term is defined
in the Investment Company Act of 1940, as amended (the "1940 Act"), has
unanimously concluded that the Reorganization would be in the best interests
of the shareholders of the Special Equities Fund and that the interests of the
Special Equities Fund's existing shareholders will not be diluted as a result
of the transaction contemplated by the Reorganization, and therefore has
submitted the Plan for approval by the Fund's shareholders. The Board of
Directors of the Series Funds has reached similar conclusions and also
recommends approval of the Plan effecting the Reorganization.
8
<PAGE>
Approval of the Reorganization will require the affirmative vote of a
majority, as defined in the 1940 Act, of the outstanding shares of the Special
Equities Fund, which is the lesser of (i) 67% of the voting securities of the
Special Equities Fund present at the Meeting, if the holders of more than 50%
of the outstanding voting securities of the Special Equities Fund are present
or represented by proxy, or (ii) more than 50% of the outstanding shares of
the Special Equities Fund. For purposes of voting with respect to the
Reorganization, the Class A, Class B and Class L shares of the Special
Equities Fund will vote together as a single class. No vote of the
shareholders of the Small Cap Growth Fund is required. See "Voting
Information."
In addition, completion of the Reorganization is conditioned upon receipt of
an order from the Securities and Exchange Commission ("SEC") exempting the
Reorganization from certain provisions of the 1940 Act. See "Reasons for the
Reorganization."
Tax Consequences. Prior to completion of the Reorganization, the Special
Equities Fund will have received an opinion from counsel that, upon the
Reorganization and the transfer of the assets of the Special Equities Fund, no
gain or loss will be recognized by the Special Equities Fund or its
shareholders for Federal income tax purposes. The holding period and tax basis
of shares of the Small Cap Growth Fund that are received by each Special
Equities Fund shareholder will be the same as the holding period and tax basis
of the shares of the Special Equities Fund previously held by such
shareholder. In addition, the holding period and tax basis of the assets of
the Special Equities Fund in the hands of the Small Cap Growth Fund as a
result of the Reorganization will be the same as in the hands of the Special
Equities Fund immediately prior to the Reorganization.
Investment Objectives, Policies and Restrictions. The Special Equities Fund
and the Small Cap Growth Fund have generally similar investment policies and
restrictions. The Small Cap Growth Fund seeks long-term growth of capital and
the Special Equities Fund seeks long-term capital appreciation. Both Funds
invest primarily in equity securities and are both classified as diversified
investment companies.
Although the respective investment policies of the Small Cap Growth Fund and
the Special Equities Fund are generally similar, shareholders of the Special
Equities Fund should consider certain differences in such objectives and
policies. See "Information About the Small Cap Growth Fund," "Information
About the Special Equities Fund" and "Comparison of Investment Objectives and
Policies."
Fees and Expenses. The Small Cap Growth Fund pays SBAM a monthly investment
advisory fee calculated at the rate of 0.80% of the Fund's average daily net
assets, while the Special Equities Fund pays MMC a monthly investment
9
<PAGE>
advisory fee calculated at the rate of 0.55% of the Fund's average daily net
assets. In addition to the investment advisory fees, both Funds pay an
administration fee payable monthly at the rate of 0.05% and 0.20% of the Small
Cap Growth Fund's and the Special Equities Fund's respective average daily net
assets. SBAM has delegated its responsibilities for administration of the
Small Cap Growth Fund to MMC and pays MMC this administration fee. However,
SBAM has agreed to reduce its advisory fee to 0.70% of the Small Cap Growth
Fund's average daily net assets upon completion of the Reorganization so that
the overall management and administration fee payable by former Special
Equities Fund shareholders will remain at 0.75% subsequent to the
Reorganization.
The expense ratio of the Small Cap Growth Fund subsequent to the
Reorganization is expected to be equal to that of the Special Equities Fund.
See "Reasons for the Reorganization." Total Small Cap Growth Fund operating
expenses stated as a percentage of average net assets for the fiscal year
ended December 31, 1998 for Class A, Class B and Class 2 shares were [ ]%,
[ ]% and [ ]%, respectively. These figures reflect a voluntary expense cap
imposed by SBAM. See "Fee Tables" above. Total Special Equities Fund operating
expenses stated as a percentage of average net assets as of the year ended
December 31, 1998 for Class A, Class B and Class L shares were [ ]%, [ ]%
and [ ]%, respectively. Total Small Cap Growth Fund annual operating
expenses stated as a percentage of average net assets subsequent to the
Reorganization (based upon pro forma financial information as of December 31,
1998) are expected to be [ ]%, [ ]% and [ ]%, for Class A, Class B and
Class 2 shares, respectively. SBAM has agreed to waive its management fee
and/or reimburse the Small Cap Growth Fund to ensure that the expense ratios
of the Small Cap Growth Fund for one year subsequent to the Reorganization do
not exceed the expense ratios of the Special Equities Fund prior to the
Reorganization.
Each class of shares (except Class O shares of the Small Cap Growth Fund) of
both Funds are sold subject to distribution plans adopted pursuant to Rule
12b-1 under the 1940 Act. Under the plans applicable to each Fund, Salomon
Smith Barney Inc. ("Salomon Smith Barney") is paid a service fee calculated at
the annual rate of 0.25% of the value of each Fund's average daily net assets
attributable to the Fund's Class A, Class B and Class L or Class 2 shares, as
the case may be. In addition, each Fund's Class B and, where applicable, Class
L and Class 2 shares pay a distribution fee primarily intended to compensate
Salomon Smith Barney for its initial expense of paying selected dealers and
financial consultants a commission upon sales of the respective shares,
preparation of sales literature, advertising and printing and distributing
prospectuses, statements of additional information and other materials. The
distribution fees for both Funds' Class B shares and Class L or Class 2 shares
are calculated at the annual rate of 0.75% of the value of the respective
Fund's average net assets attributable to the shares of the respective class.
10
<PAGE>
Purchase and Redemption Procedures. Purchase of shares of the Special
Equities Fund must be made: (i) through a Salomon Smith Barney Financial
Consultant; (ii) through an investment dealer in the selling group or a broker
that clears securities transactions through Salomon Smith Barney (a "dealer
representative") or (iii) from the Fund, but only if investing through certain
qualified plans or certain dealer representatives. Shares of the Small Cap
Growth Fund may be purchased through First Data Investors Services Group, Inc.
("First Data"), the Fund's transfer agent or from Salomon Smith Barney or
other selected dealers. Effective March 8, 1999, the Special Equities Fund
will no longer be accepting investments. Class A shares of the Small Cap
Growth Fund and the Special Equities Fund are sold subject to a maximum
initial sales charge of 5.75% and 5.00%, respectively, of the public offering
price. Class B shares of both Funds are sold without an initial sales charge.
Class L and Class 2 shares are sold subject to a 1.00% initial sales charge.
Class B and Class L or Class 2 shares of both Funds are subject to certain
higher ongoing expenses than Class A shares and a "CDSC" payable upon certain
redemptions.
Purchases of Class A shares of the Special Equities Fund and the Small Cap
Growth Fund which, when combined with current holdings of Class A shares
offered with a sales charge equal or exceed $500,000 and $1,000,000,
respectively, may be purchased at net asset value, but are subject to a 1%
CDSC if redeemed within the first year of purchase. Otherwise, Class A shares
of both Funds may be redeemed at their next determined net asset value per
share without charge. Class B shares of both Funds may be redeemed at their
next determined net asset value per share, subject to a maximum CDSC of 5.00%
of the lower of original cost of the shares or redemption proceeds. The CDSC
applicable on redemptions of Class B shares of the Small Cap Growth Fund are
at the rates set forth in the following table:
<TABLE>
<CAPTION>
Years since purchased CDSC
- --------------------- ----
<S> <C>
First.................................................................... 5%
Second................................................................... 4%
Third.................................................................... 3%
Fourth................................................................... 3%
Fifth.................................................................... 2%
Sixth.................................................................... 1%
Seventh*................................................................. 0%
</TABLE>
- -----------
*Class B shares of the Small Cap Growth Fund received in exchange for Class B
shares of the Special Equities Fund as a result of the Reorganization, will
continue to be subject to the CDSC schedule in effect for the Special Equities
Fund at the time of purchase.
11
<PAGE>
The CDSC applicable on redemptions of Class B shares of the Special Equities
Fund are at the rates set forth in the following table:
<TABLE>
<CAPTION>
Years since purchased CDSC
- --------------------- ----
<S> <C>
First.................................................................... 5%
Second................................................................... 4%
Third.................................................................... 3%
Fourth................................................................... 2%
Fifth.................................................................... 1%
Sixth and thereafter..................................................... 0%
</TABLE>
Class B shares of either Fund will convert automatically to Class A shares
of such Fund, based on relative net asset value, seven years and eight years
after the date of the original purchase of such shares of the Small Cap Growth
Fund and the Special Equities Fund, respectively. Upon conversion, these
shares will no longer be subject to an annual distribution fee. Class B shares
of the Small Cap Growth Fund that are received in exchange for Class B shares
of the Special Equities Fund as a result of the Reorganization, will convert
to Class A shares seven years after the date of the original purchase of such
shares. In addition, a certain portion of Class B shares that have been
acquired through the reinvestment of dividends and distributions will be
converted to Class A shares of the respective Fund at that time.
Class L shares and Class 2 shares are subject to a CDSC of 1% if redeemed
within the first year after purchase.
Shares of the Small Cap Growth Fund may be redeemed through selected dealers
or by submitting a written request to First Data. Shares of the Special
Equities Fund may be redeemed through a Salomon Smith Barney Financial
Consultant, through a dealer representative or by submitting a written request
to First Data. Shareholders of both Funds who hold shares directly with the
Fund may make redemption requests by telephone. See "Redemption of Shares" in
the accompanying Prospectus of the Small Cap Growth Fund for a more detailed
discussion of redemption procedures applicable to the Small Cap Growth Fund.
Exchange Privileges. Shareholders of the Small Cap Growth Fund may exchange
all or part of their shares for shares of the same class of any other fund
comprising the Salomon Brothers Investment Series and offered in the Small Cap
Growth Fund prospectus. Shareholders of the Special Equities Fund may exchange
all or part of their shares for shares of the same class of the funds in the
Smith Barney mutual funds identified under "Exchange Privilege" in the Special
Equities Fund prospectus. Upon completion of the Reorganization, shareholders
of the Special Equities Fund who receive shares of the Small Cap Fund in
exchange for their Special Equities Fund shares will no longer be able to
exchange those shares with other funds in the Smith Barney family of funds. In
each case, exchanges are made at the applicable net asset value per share
without the imposition of any sales charge or CDSC. Any exchange will be a
taxable event for which a shareholder
12
<PAGE>
may have to recognize a gain or a loss under Federal income tax provisions.
With respect to Class A, Class B and Class L or Class 2 shares of the Funds,
the shares acquired in the exchange will be deemed to have been purchased on
the same date as the original shares that were exchanged.
Dividends. The policies regarding dividends and distributions are generally
the same for both Funds. Each Fund's policy is to declare and pay dividends of
investment income annually and to make distributions of any realized capital
gains at least annually. Unless a shareholder otherwise instructs, dividends
and capital gains distributions will be reinvested automatically in additional
shares of the same class at net asset value, subject to no sales charge or
CDSC. The distribution option currently in effect for a shareholder of the
Special Equities Fund will remain in effect after the Reorganization. After
the Reorganization, however, the former Special Equities Fund shareholders may
change their distribution option at any time by contacting a selected dealer
or First Data in writing. See "Dividends and Distributions" in the
accompanying prospectus of the Small Cap Growth Fund.
Shareholder Voting Rights. The Small Cap Growth Fund and the Special
Equities Fund are both series of open-end investment companies. The Small Cap
Growth Fund is a separate series of the Series Funds, a Maryland corporation.
The Special Equities Fund is a separate series of the Investment Funds, also a
Maryland corporation. As permitted by Maryland law, normally no meeting of
shareholders will be held for the purpose of electing directors unless and
until such time as less than a majority of the directors holding office have
been elected by shareholders. At that time, the directors in each Fund then in
office will call a shareholders' meeting for the election of directors.
Shareholders may, at any meeting called for such purpose, remove a director by
the affirmative vote of the holders of record of a majority of the votes
entitled to be cast for the election of directors. For purposes of voting on
the Reorganization, the Class A, Class B and Class L shares of the Special
Equities Fund shall vote together as a single class. See "Comparative
Information on Shareholder's Rights-Voting Rights."
Risk Factors
The Special Equities Fund invests primarily in securities of growth
companies, generally not within the S&P 500, as determined by MMC. These
companies may still be in the developmental stage and may not have reached a
fully mature stage of earnings growth. The Small Cap Growth Fund invests
primarily in the equity securities of companies with market capitalizations of
less than $1 billion at the time of purchase. Investing in smaller, newer
issuers generally involves greater risk than investing in larger, more
established issuers.
Both the Small Cap Growth Fund and the Special Equities Fund invest
primarily in common stocks. In addition, the Small Cap Growth Fund has the
13
<PAGE>
ability to invest a portion of its assets in securities of foreign issuers and
both Funds may enter into futures transactions and options. The risks
typically associated with investing in these securities are discussed under
the caption "Comparison of Investment Objectives and Policies."
Reasons for the Reorganization
The Board of Directors of the Investment Funds has determined that it is
advantageous to combine the Special Equities Fund with the Small Cap Growth
Fund. In reaching this conclusion, the Board took into account a number of
factors. The Board considered the generally similar investment objectives and
policies of the two Funds and the fact that a single portfolio manager, Pamela
Milunovich, employed by both MMC and SBAM, manages both Funds and has a strong
preference to manage a single fund. The Board also took note of how the
portfolio assets of the Special Equities Fund had been restructured since the
portfolio manager assumed responsibility. In addition, the Board considered
SBAM's and MMC's belief that certain efficiencies can be obtained by managing
the portfolios as a single fund and that the combination will have a
beneficial impact on the shareholders of the Special Equities Fund. The Board
considered the advantages to each portfolio as well as to SBAM, MMC and their
affiliates, of eliminating the unnecessary competition and duplication of
effort inherent in marketing funds having similar investment objectives and
the same portfolio manager. It is expected that the Reorganization will lead
to a more focused marketing and distribution effort, reducing potential
investor confusion and promoting asset growth. Moreover, the portfolio manager
and Salomon Smith Barney prefer that, as a result of marketing, investment and
other considerations, the combined fund be managed within the Salomon family
of funds. In particular, the Board took into account Salomon Smith Barney's
belief that in light of the portfolios' respective objectives and investment
profiles, marketing the combined fund within the Salomon Brothers family of
funds provides greater potential for long-term asset growth and efficiencies.
Finally, the Board was advised that the combination, as proposed, would be
effected as a tax-free reorganization. MMC explained to the Board that, after
the Reorganization, the shareholders would no longer be shareholders of a fund
within the Smith Barney family of funds, but would instead be part of the
Salomon Brothers family of funds which have different rights of exchange and
accumulation, and would incur, in some cases, different sales charges on
future investments, all as explained herein. After considering these
differences and the expected benefits and portfolio management efficiencies,
as well as the recommendations of MMC, the Board of Directors, on behalf of
the Special Equities Fund, including the non-interested Directors, has decided
that it is in the best interests of the Special Equities Fund and its
shareholders to combine with the Small Cap Growth Fund. The Board of Directors
has also determined that a combination of the Special Equities Fund and the
Small Cap Growth Fund would not result in a dilution of the Special Equities
Fund's shareholders' interests.
14
<PAGE>
The Board of Directors of the Series Funds considered the following factors,
among others, in approving the Reorganization and determining that it is
advantageous to acquire the assets of the Special Equities Fund: (i) the terms
and conditions of the Reorganization; (ii) the fact that the Reorganization
will be effected as a tax-free reorganization; (iii) the fact that the
acquisition of significant assets would allow the Small Cap Growth Fund to be
more efficiently managed and would allow the portfolio manager to increase the
Fund's positions in certain stocks and more broadly diversify the portfolio;
(iv) the decrease in expenses for the Small Cap Growth Fund's shareholders
expected to result from the Reorganization; and (v) the portfolio manager's
strong preference to manage a single fund. Accordingly, the Board of Directors
of the Series Funds, including a majority of the non-interested Directors, has
determined that the Reorganization is in the best interests of the Small Cap
Growth Fund's shareholders and that the interests of the Small Cap Growth
Fund's shareholders will not be diluted as a result of the Reorganization.
Information About The Reorganization
Plan of Reorganization. The following summary of the Plan is qualified in
its entirety by reference to the Plan (Exhibit A hereto). The Plan provides
that the Small Cap Growth Fund will acquire substantially all of the assets of
the Special Equities Fund in exchange for shares of the Small Cap Growth Fund
and the assumption by the Small Cap Growth Fund of substantially all
liabilities of the Special Equities Fund on [June , 1999], or such later date
as may be agreed upon by the parties (the "Closing Date"). Prior to the
Closing Date, the Special Equities Fund will endeavor to discharge all of its
known liabilities and obligations. The Small Cap Growth Fund will not assume
any liabilities or obligations of the Special Equities Fund other than those
reflected in an unaudited statement of assets and liabilities of the Special
Equities Fund prepared as of the close of regular trading on the New York
Stock Exchange, Inc. (the "NYSE") on the Closing Date. The number of full and
fractional Class A, Class B and Class 2 shares of the Small Cap Growth Fund to
be issued to the Special Equities Fund shareholders will be determined on the
basis of the Small Cap Growth Fund's and the Special Equities Fund's relative
net asset values for each class of shares, computed as of the close of regular
trading on the NYSE on the Closing Date. The net asset value per share of each
Class will be determined by dividing assets, minus liabilities, by the total
number of outstanding shares.
Both the Special Equities Fund and the Small Cap Growth Fund will utilize
the procedures set forth in the then current prospectus for each Fund to
determine the value of their respective portfolio securities. The method of
valuation employed will be consistent with Rule 22c-1 under the 1940 Act, and
with the interpretation of such rule by the SEC's Division of Investment
Management.
At or prior to the Closing Date, the Special Equities Fund will, and the
Small Cap Growth Fund may, declare a dividend or dividends which, together
with all
15
<PAGE>
previous such dividends, shall have the effect of distributing to their
respective shareholders all taxable income for the taxable year ending on or
prior to the Closing Date (computed without regard to any deduction for
dividends paid) and all of its net capital gains realized in the taxable year
ending on or prior to the Closing Date (after reductions for any capital loss
carryforward).
As soon after the Closing Date as conveniently practicable, the Special
Equities Fund will liquidate and distribute pro rata to shareholders of record
as of the close of business on the Closing Date, the full and fractional
shares of the Small Cap Growth Fund received by the Special Equities Fund.
Such liquidation and distribution will be accomplished by the establishment of
accounts in the names of the Special Equities Fund's shareholders on the share
records of the Small Cap Growth Fund's transfer agent. Each account will
represent the respective pro rata number of full and fractional shares of the
Small Cap Growth Fund due to each of the Special Equities Fund's shareholders.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan. Notwithstanding approval of the Special Equities Fund's
shareholders, the Plan may be amended or terminated at any time at or prior to
the Closing Date by the Board of Directors.
As of December 31, 1998, Salomon Brothers Holding Company Inc. ("SBHC"), the
parent company of SBAM, owned approximately [ %] in value of the aggregate
outstanding shares of the Small Cap Growth Fund. The 1940 Act generally
prohibits an "affiliated person" from selling a security or other property to
a fund or from purchasing a security from a fund, and when funds have common
affiliated persons, transfers of securities between the funds are generally
prohibited. These provisions could be deemed to prohibit the transfers
contemplated by the Plan in view of SBHC ownership of a significant number of
shares of the Small Cap Growth Fund.
The 1940 Act also provides that the SEC shall issue an order granting an
exemption from these prohibitions if, among other requirements, evidence
establishes that (1) the terms of the proposed transaction, including the
consideration paid or received, are reasonable and fair and do not involve
overreaching on the part of any person concerned, (2) the proposed transaction
is consistent with the investment policies of each fund and (3) the proposed
transaction is consistent with the general purposes of the 1940 Act. The
Funds, SBAM, MMC and SBHC have filed an application with the SEC for such an
order and the Funds believe that the applicants meet the applicable standards
for the receipt of the order, although there can be no assurance that the SEC
will issue the order. The Funds do not intend to effect the Reorganization
without receiving the order from the SEC.
Approval of the Plan will require the affirmative vote of a majority, as
defined in the 1940 Act, of the outstanding shares of the Special Equities
Fund, which is
16
<PAGE>
the lesser of: (i) 67% of the voting securities of the Special Equities Fund
present at the Meeting, if the holders of more than 50% of the outstanding
voting securities of the Special Equities Fund are present or represented by
proxy, or (ii) more than 50% of the outstanding shares of the Special Equities
Fund. If the Reorganization is not approved by shareholders of the Special
Equities Fund, the Board of Directors will consider other possible courses of
action.
Description of the Small Cap Growth Fund's Shares. Full and fractional
shares of the respective classes of shares of common stock of the Small Cap
Growth Fund will be issued to the Special Equities Fund in accordance with the
procedures detailed in the Plan and as described in the Small Cap Growth
Fund's Prospectus. Generally, the Small Cap Growth Fund does not issue share
certificates to shareholders unless a specific request is submitted to First
Data. The shares of the Small Cap Growth Fund to be issued to the Special
Equities Fund shareholders and registered on the shareholder records of First
Data will have no preemptive rights.
Federal Income Tax Consequences. For Federal income tax purposes, the
exchange of assets for shares of the Small Cap Growth Fund is intended to
qualify as a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"). As a condition to the closing
of the Reorganization, the Special Equities Fund will receive an opinion from
Willkie Farr & Gallagher, counsel to the Special Equities Fund, to the effect
that, on the basis of the existing provisions of the Code, U.S. Treasury
regulations issued thereunder, current administrative rules, pronouncements
and court decisions, for Federal income tax purposes, upon consummation of the
Reorganization, the following will apply:
(1) the Reorganization will constitute a reorganization within the
meaning of Section 368(a)(1)(C) of the Code, and the Small Cap Growth Fund
and the Special Equities Fund are each a "party to a reorganization"
within the meaning of Section 368(b) of the Code;
(2) no gain or loss will be recognized by either the Small Cap Growth
Fund or the Special Equities Fund upon the transfer of the Special
Equities Fund's assets to, and the assumption of the Special Equities
Fund's liabilities by, the Small Cap Growth Fund in exchange for the Small
Cap Growth Fund's shares, or upon the distribution of the Small Cap Growth
Fund's shares to the Special Equities Fund's shareholders in exchange for
their shares in the Special Equities Fund;
(3) no gain or loss will be recognized by shareholders of the Special
Equities Fund upon the exchange of their shares for the Small Cap Growth
Fund shares;
(4) the basis of the Small Cap Growth Fund shares received by each
Special Equities Fund shareholder pursuant to the Reorganization will be
the
17
<PAGE>
same as the basis of the Special Equities Fund shares surrendered in
exchange therefor;
(5) the holding period of the Small Cap Growth Fund shares to be
received by each Special Equities Fund shareholder will include the
holding period of the shares of the common stock of the Special Equities
Fund which are surrendered in exchange therefor (provided the Special
Equities Fund shares were held as capital assets on the date of the
Reorganization);
(6) the basis of the Special Equities Fund's assets acquired by the
Small Cap Growth Fund will be the same as the basis of such assets to the
Special Equities Fund immediately prior to the Reorganization; and
(7) the holding period of the assets of the Special Equities Fund
acquired by the Small Cap Growth Fund will include the period for which
such assets were held by the Special Equities Fund.
Shareholders of the Special Equities Fund should consult their tax advisors
regarding the effect, if any, of the proposed Reorganization in light of their
individual circumstances. Since the foregoing discussion only relates to the
Federal income tax consequences of the Reorganization, shareholders of the
Special Equities Fund should also consult their tax advisors as to state and
local tax consequences, if any, of the Reorganization.
Capitalization. The following table, which is unaudited, shows the
capitalization of the Small Cap Growth Fund and the Special Equities Fund as
of [ ], 1999 and on a pro forma basis as of that date, giving effect to the
proposed acquisition of assets at net asset value:
<TABLE>
<CAPTION>
Pro Forma
Special Small Cap for
Equities Growth Reorganization
-------- --------- --------------
(In thousands,
except per share values)
(Unaudited)
<S> <C> <C> <C>
Class A
Net Assets....................................
Net asset value per share.....................
Shares outstanding............................
Class B
Net Assets....................................
Net asset value per share.....................
Shares outstanding............................
Class L or Class 2
Net Assets....................................
Net asset value per share.....................
Shares outstanding............................
</TABLE>
18
<PAGE>
As of the Record Date, [ ], 1999, there were [ ] outstanding Class
A shares, [ ] outstanding Class B shares and [ ] outstanding Class L
shares of the Special Equities Fund and [ ] outstanding Class A shares,
[ ] outstanding Class B shares, [ ] outstanding Class 2 shares and
[ ] outstanding Class O shares of the Small Cap Growth Fund. As of the
Record Date, the officers and Directors of the Investment Funds as a group
beneficially owned less than 1% of the outstanding shares of the Special
Equities Fund. To the best knowledge of the Directors, as of the Record Date,
no shareholder or "group" (as that term is used in Section 13(d) of the
Securities Exchange Act of 1934 (the "Exchange Act")), except as set forth in
the table below, owned beneficially or of record 5% or more of a class of the
Special Equities Fund. As of the Record Date, the officers and directors of
the Series Funds as a group beneficially owned less than 1% of the outstanding
shares of the Small Cap Growth Fund. Except as set forth in the table below,
to the best knowledge of the Directors of the Series Funds, as of the Record
Date, no shareholder or "group" (as that term is used in Section 13(d) of the
Exchange Act, owned beneficially or of record more than 5% of a class of
shares of the Small Cap Growth Fund.
<TABLE>
<CAPTION>
Percentage of Class Owned of Record
or Beneficially
------------------------------------
Upon
Consummation
Name and Fund As of the of the
Address and Class Record Date Reorganization
- -------- --------- ----------- --------------
<S> <C> <C> <C>
</TABLE>
Information About The Small Cap Growth Fund
Management's discussion and analysis of Market Condition and Portfolio
Review (through December 31, 1998).
[to be inserted]
Information About The Special Equities Fund
Management's discussion and analysis of Market Condition and Portfolio
Review (through December 31, 1998).
[to be inserted]
19
<PAGE>
Comparison Of Investment Objectives And Policies
The following discussion which compares investment objectives, policies and
restrictions of the Small Cap Growth Fund to the Special Equities Fund is
based upon and qualified in its entirety by the investment objectives,
policies and restrictions sections of the Prospectuses of the Small Cap Growth
Fund and the Special Equities Fund. For a full discussion of the investment
objectives, policies and restrictions of the Small Cap Growth Fund, refer to
the Small Cap Growth Fund's Prospectus, which accompanies this
Prospectus/Proxy Statement, under the captions, "Investment Objectives and
Policies" and for a discussion of these issues as they apply to the Special
Equities Fund, refer to the Special Equities Fund's Prospectus under the
caption, "Investment Objectives and Management Policies."
Investment Objective. The investment objective of the Small Cap Growth Fund
is long-term growth of capital. The investment objective of the Special
Equities Fund is long-term capital appreciation. Both the Small Cap Growth
Fund's and the Special Equities Fund's investment objective is fundamental
and, as such, may be changed only by the "vote of a majority of the
outstanding voting securities," as defined in the 1940 Act. The investment
policies of the Small Cap Growth Fund and the Special Equities Fund are non-
fundamental and, as such, may be changed by the Board of Directors without
shareholder approval, provided such change is not prohibited by the investment
restrictions (which are set forth in the applicable Statement of Additional
Information) or applicable law, and any such change will first be disclosed in
the then current prospectus.
Primary Investments. Both the Small Cap Growth Fund and the Special Equities
Fund invest primarily in equity securities (common stock, preferred stock,
convertible bonds). The Small Cap Growth Fund invests primarily in equity
securities of small capitalization companies (less than $1 billion at the time
of purchase) which SBAM believes have favorable growth prospects and potential
for significant capital appreciation. SBAM will seek to identify companies
that either occupy a dominant position in an emerging industry or a growing
market share in larger fragmented industries. The Special Equities Fund seeks
to achieve its investment objective by investing primarily in equity
securities of growth companies, generally not within the S&P 500, as
identified by MMC. These companies may not have reached a fully mature stage
of earnings growth, since they may still be in the developmental stage, or may
be older companies which appear to be entering a new stage of more rapid
earnings progress due to factors such as management change or development of
new technology, products or markets. Since the Funds generally have similar
investment policies and are managed by the same portfolio manager, the types
of securities purchased by the Funds are similar.
Both Funds invest primarily in common stock, but each may also invest in
other types of securities, including convertible bonds, convertible preferred
stocks,
20
<PAGE>
warrants, preferred stocks and debt securities. Both Funds may also invest in
illiquid securities (up to 15% of total assets in the case of the Small Cap
Growth Fund and 10% of total assets in the case of the Special Equities Fund).
Additional Investments and Risk Factors. Each Fund has the ability to engage
in a number of specialized investment strategies and techniques designed to
enable the Fund to achieve its investment objectives, certain of which are
discussed below.
Small Cap Companies. Both Funds invest a significant portion of their assets
in securities of small capitalized companies. Investments in these companies
may involve greater risks and volatility than investments in larger companies.
Small cap companies may be at an earlier stage of development, may be subject
to greater business risks, may have limited product lines, reduced market
liquidity for, and more abrupt or erratic price movements in, the trading of
their shares. In addition, small cap companies may have difficulty
withstanding competition from larger more established companies.
Repurchase Agreements. Each Fund may engage in repurchase agreement
transactions (typically the acquisition of an underlying debt obligation for a
relatively short period (usually not more than one week) subject to an
obligation of the seller to repurchase, and the buyer to resell, the
obligation at an agreed-upon price and time) with certain member banks of the
Federal Reserve System and with certain dealers on the Federal Reserve Bank of
New York's list of reporting dealers. The value of the underlying securities
will be at least equal at all times to the total amount of the repurchase
obligation, including interest. SBAM or MMC, as the case may be, acting under
the supervision of the Board of Directors, reviews on an ongoing basis the
value of the collateral and creditworthiness of those banks and dealers with
which the Funds enter into repurchase agreements to evaluate potential risks.
In the event of default by the seller under the repurchase agreement, a Fund
could experience losses and delays in connection with the disposition of the
underlying security.
Foreign Securities and American Depository Receipts. The Small Cap Growth
Fund may invest up to 20% of its assets in equity securities of foreign
issuers. Both Funds may invest in American Depository Receipts ("ADRs") which
are U.S. dollar-denominated receipts issued generally by domestic banks,
representing the deposit with the bank of a security of a foreign issuer. ADRs
are publicly traded on exchanges or over-the-counter in the United States.
Investments in securities of foreign issuers may involve risks arising from
differences between U.S. and foreign securities markets, including less volume
and greater volatility, different trading and settlement practices and less
governmental supervision and regulation, from changes in currency exchange
rates and from economic, social and political conditions.
21
<PAGE>
Lending Portfolio Securities. Each Fund is authorized to lend its portfolio
securities to brokers, dealers and other financial institutions. The Funds'
loans of securities will be collateralized by cash, U.S. government securities
or other eligible liquid assets which are maintained in a segregated account
in an amount at least equal to the current market value of the loaned
securities. The risk associated with lending portfolio securities, as with
other extensions of credit, consists of possible loss of rights in the
collateral should the borrower fail financially.
Short Sales Against the Box. Each Fund may sell securities short if at all
times when a position is open, the Fund owns the stock or owns securities
convertible or exchangeable for securities of the same issue as the securities
sold short. Short sales of this kind are referred to as "against the box."
Futures and Options Activities. The Small Cap Growth Fund may, for hedging
purposes, purchase and sell interest rate, currency or stock or bond index
futures contracts and enter into currency forward contracts and currency
swaps; purchase and sell exchange listed and over-the-counter put and call
options on securities, currencies, futures contracts, indices and other
financial instruments. Although the Small Cap Growth Fund is authorized to use
the foregoing techniques, it is not presently anticipated that any of these
strategies will be used to a significant degree. The Special Equities Fund may
enter into transactions in futures contracts and options on futures contracts
for hedging purposes or for non-hedging purposes only if the aggregate initial
margin and premiums on such positions do not exceed 5% of the liquidation
value of the Fund's assets.
Investment Restrictions. Each Fund has adopted certain investment
restrictions for the protection of shareholders. The following restrictions
applicable to the Small Cap Growth Fund are fundamental and may not be changed
without the approval of the holders of a majority, as defined in the 1940 Act,
of the voting securities of the Fund. The Small Cap Growth Fund may not:
1. purchase securities of any issuer if the purchase would cause more
than 5% of the value of the Fund's total assets to be invested in the
securities of any one issuer (excluding securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities
and bank obligations) or cause more than 10% of the voting securities
of the issuer to be held by the Fund, except that up to 25% of the
value of the Fund's total assets may be invested without regard to
this restriction and provided that the Fund may invest all or
substantially all of its assets in another registered investment
company having substantially the same investment objective(s) and
policies and substantially the same investment restrictions as those
with respect to the Fund;
2. borrow money (including entering into reverse repurchase agreements),
except for temporary or emergency purposes and then not in excess of
10% of the value of the total assets of the Fund at the time the
borrowing
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is made, except that for the purpose of this restriction, short-term
credits necessary for settlement of securities transactions are not
considered borrowings (the Fund will not purchase additional
securities at any time its borrowings exceed 5% of total assets,
provided, however, that the Fund may increase its interest in another
registered investment company having substantially the same investment
objective(s) and policies and substantially the same investment
restrictions as those with respect to the Fund while such borrowings
are outstanding); or
3. invest more than 25% of the total assets of the Fund in the securities
of issuers having their principal activities in any particular
industry, except for obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities or by any state,
territory or any possession of the United States or any of their
authorities, agencies, instrumentalities or political subdivisions, or
with respect to repurchase agreements collateralized by any of such
obligations (for purposes of this restriction, supranational issuers
will be considered to comprise an industry as will each foreign
government that issues securities purchased by the Fund), provided,
however, that the Fund may invest all or substantially all of its
assets in another registered investment company having substantially
the same investment objective(s) and policies and substantially the
same investment restrictions as those with respect to the Fund.
For purposes of investment limitations (1) and (3) above, both the
borrower under a loan and the lender selling a loan participation will
be considered an "issuer."
4. underwrite securities of other issuers, except to the extent that the
purchase of investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities
in accordance with a Fund's investment program may be deemed to be an
underwriting;
5. purchase or sell real estate, although the Fund may purchase and sell
securities of companies which deal in real estate, may purchase and
sell marketable securities which are secured by interests in real
estate and may invest in mortgages and mortgage-backed securities;
6. purchase or sell commodities or commodity contracts except that the
Fund may engage in hedging and derivative transactions to the extent
permitted by its investment policies as stated in the Fund's
prospectus and statement of additional information;
7. make loans, except that (a) the Fund may purchase and hold debt
securities in accordance with its investment objectives and policies,
(b) the Fund may enter into repurchase agreements with respect to
portfolio securities, subject to applicable limitations of its
investment policies, (c) the Fund may lend portfolio securities with a
value not in excess of one-third of the value of its total assets,
provided that collateral arrangements
23
<PAGE>
with respect to options, forward currency and futures transactions
will not be deemed to involve loans of securities and (d) delays in
the settlement of securities transactions will not be considered
loans;
8. purchase the securities of other investment companies except as
permitted under the 1940 Act or in connection with a merger,
consolidation, acquisition or reorganization.
The following restrictions are applicable to the Special Equities Fund.
Restrictions 1-7 set forth below are fundamental and may not be changed
without the approval of the holders of a majority, as defined in the 1940 Act,
of the voting securities of the Fund. 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. 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 Fund's investment objective and policies); or (d)
investing in real estate investment trust securities;
3. make loans. This restriction does not apply to: (a) the purchase of
debt obligations in which the Fund may invest consistent with its
investment objectives and policies; (b) repurchase agreements; and (c)
loans of its portfolio securities, to the fullest extent permitted
under the 1940 Act;
4. 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;
5. 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;
6. 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
24
<PAGE>
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;
7. act as an underwriter of securities, except that the Fund may invest
up to 10% of its total assets in securities which it may not be free
to resell without registration under the Securities Act of 1933, as
amended, in which registration the Fund may technically be deemed an
underwriter for purposes of the 1933 Act;
8. invest in oil, gas or other mineral exploration or development
programs;
9. make investments in securities for the purpose of exercising control
over the management of the issuer;
10. 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;
11. invest in securities of an issuer which, together with any
predecessor, has been in operation for less than three years if, as a
result, more than 5% of the total assets of the Fund would then be
invested in such securities (for purposes of this restriction, issuers
include predecessors, sponsors, controlling persons, general
guarantors and originators of underlying assets);
12. purchase or otherwise acquire any security if, as a result, more than
15% of its net assets would be invested in securities that are
illiquid;
13. write, purchase or sell puts, calls, straddles, spreads or any
combinations thereof.
Comparative Information On Shareholders' Rights
General. The Special Equities Fund and the Small Cap Growth Fund are open-
end, management investment companies registered under the 1940 Act, which
continuously offer to sell shares at their current net asset value. The Special
Equities Fund is a series of the Investment Funds, which is a Maryland
corporation, incorporated on September 29, 1981 and is governed by its Articles
of
25
<PAGE>
Incorporation, By-laws and Board of Trustees. The Small Cap Growth Fund is a
series of the Series Funds, also a Maryland corporation, incorporated on April
17, 1990 and is governed by its Articles of Incorporation, By-laws and Board
of Directors. Each Fund is also governed by applicable state and Federal law.
The Investment Funds has an authorized capital of 10,000,000,000 shares of
common stock with a par value of $.001 per share and an aggregate par value of
$10,000,000. The Board of Directors has authorized the issuance of nine
series, each representing shares in one of nine separate portfolios and may
authorize the issuance of additional series of shares in the future. The Board
of Directors of the Series Funds has authorized the issuance of ten series of
shares, each representing shares in one of ten separate portfolios, and may
authorize the issuance of additional series of shares in the future. The
assets of each portfolio are segregated and separately managed and a
shareholder's interest is in the assets of the portfolio in which he or she
holds shares. In both the Special Equities Fund and the Small Cap Growth Fund,
Class A, Class B and Class L or Class 2 shares, as the case may be, represent
interests in the assets of the Fund and have identical voting, dividend,
liquidation, and other rights on the same terms and conditions except that
expenses related to the distribution of each class of shares are borne solely
by the respective class and each class of shares has exclusive voting rights
with respect to provisions of the respective Fund's Rule 12b-1 distribution
plan which pertains to a particular class.
Directors. The By-laws of both the Series Funds and the Investment Funds
provide that the term of office of each director shall be from the time of his
or her election until his or her successor is elected and qualifies or until
his or her earlier resignation or removal. Directors of both the Series Funds
and the Investment Funds may be removed with or without cause at any meeting
of stockholders by the affirmative vote of a majority of the votes entitled to
be cast for the election of directors. Vacancies on the Boards of either the
Investment Funds or the Series Funds may be filled by the Directors remaining
in office. A meeting of shareholders will be required for the purpose of
electing additional Directors whenever fewer than a majority of the Directors
then in office were elected by shareholders.
Voting Rights. Neither the Series Funds nor Investment Funds holds a meeting
of shareholders annually, and there normally is no meeting of shareholders
held for the purpose of electing Directors unless and until such time as less
than a majority of the Directors holding office have been elected by
shareholders. Special meetings of shareholders of the Series Funds for any
purpose may be called by a majority of shareholders or by the Board of
Directors. A meeting of shareholders of the Investment Funds, for any purpose,
must be called upon the written request of shareholders holding at least 25%
of the outstanding shares entitled to vote at such meeting. On each matter
submitted to a vote of the shareholders of either the Series Funds or the
Investment Funds, each shareholder is entitled to one vote for each whole
share owned and a proportionate, fractional vote for each fractional share
outstanding in the shareholder's name on the respective Fund's books. With
26
<PAGE>
respect to each of the Series Funds and the Investment Funds, the affirmative
vote of the majority of votes validly cast in person or by proxy at a
shareholder meeting at which a quorum is present, shall decide any questions
except when a different vote is required or permitted by any provision of the
1940 Act or other applicable law or as may otherwise be set forth in the
applicable organizational documents, or in cases where the vote is submitted
to the holders of one or more but not all portfolios or classes, a majority of
the votes cast of the particular portfolio or class affected by the matter
shall decide such matter.
Liquidation or Dissolution. In the event of the liquidation or dissolution
of the Small Cap Growth Fund or the Special Equities Fund, the shareholders of
the Funds are entitled to receive, when, and as declared by the Directors, the
excess of the assets belonging to the Funds over the liabilities belonging to
the Funds. In either case, the assets so distributed to shareholders of the
Funds will be distributed among the shareholders in proportion to the number
of shares of the Funds held by them and recorded on the books of the Funds.
Indemnification of Directors and Officers. The By-laws of the Series Funds
provides that each individual who is a present or former Director or officer
of the Series Funds who, by reason of his or her position was, is, or is
threatened to be made a party to any threatened, pending or completed action
shall be indemnified to the fullest extent permitted under the laws of the
State of Maryland, the 1940 Act and any other applicable law; provided,
however, that such indemnity shall not protect any person from any liability
arising out of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office. The By-
laws of the Investment Funds provide that each Director and officer shall be
indemnified against liabilities and expenses incurred in connection with
litigation in which they may be involved because of their positions with the
Investment Funds, to the fullest extent permitted by Maryland General
Corporation Law, except for such person's willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct
of his or her office or under any contract or agreement with the Series Funds.
Rights of Inspection. Maryland law permits any shareholder of the Series
Funds or the Investment Funds, or any agent of such shareholder to inspect and
copy during the Fund's usual business hours the Fund's By-laws, minutes of
shareholder proceedings, annual statements of the Fund's affairs and voting
trust agreements on file at its principal office.
Shareholder Liability. Under Maryland law, Series Funds' and Investment
Funds' shareholders do not have personal liability for the corporate acts and
obligations of the Small Cap Growth Fund or the Special Equities Fund,
respectively. Shares of the Small Cap Growth Fund issued to the shareholders
of the Special Equities Fund in the Reorganization will be fully paid and
nonassessable when issued, transferable without restrictions and will have no
preemptive rights.
27
<PAGE>
The foregoing is only a summary of certain information with respect to the
Small Cap Growth Fund and the Special Equities Fund. The foregoing is not a
complete description of the documents cited. Shareholders should refer to the
provisions of the corporate documents and state laws governing each Fund for a
more thorough description.
Additional Information About The Small Cap Growth Fund And The Special
Equities Fund
The Small Cap Growth Fund. Information about the Small Cap Growth Fund is
incorporated herein by reference to the Prospectus, a copy of which
accompanies this Prospectus/Proxy Statement, dated May 1, 1998, as
supplemented on February 1, 1999 and the Statement of Additional Information
dated May 1, 1998 which have been filed with the SEC. A copy of the Statement
of Additional Information is available upon request and without charge by
writing the Small Cap Growth Fund at 7 World Trade Center, New York, New York
10048 or by calling (800) 446-1013.
The Special Equities Fund. Information concerning the operation and
management of the Special Equities Fund is incorporated herein by reference to
the Prospectus dated April 30, 1998 as supplemented on June 12, 1999, October
5, 1998, November 28, 1998 and January 11, 1999 and the Statement of
Additional Information dated April 30, 1998, each of which have been filed
with the SEC. A copy of the Prospectus and the Statement of Additional
Information is available upon request and without charge by writing the
Special Equities Fund at 388 Greenwich Street, New York, New York 10013 or by
calling (800) 451-2010.
Both the Small Cap Growth Fund and the Special Equities Fund are subject to
the informational requirements of the Exchange Act and in accordance therewith
file reports and other information including proxy material, reports and
charter documents with the SEC. The SEC maintains a Web site at
http:/www.sec.gov that contains these reports and other information regarding
the Funds.
Other Business
The Directors of the Investment Funds do not intend to present any other
business at the Meeting. If, however, any other matters are properly brought
before the Meeting, the persons named in the accompanying form of proxy will
vote thereon in accordance with their judgment.
Voting Information
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Directors of the Investment Funds to
be used at the Special Meeting of Shareholders to be held at [ ] p.m. on
[May 14], 1999, at
28
<PAGE>
388 Greenwich Street, New York, New York 10013 and at any adjournments
thereof. This Prospectus/Proxy Statement, along with a Notice of the Meeting
and a proxy card, is first being mailed to shareholders of the Special
Equities Fund on or about [April 5], 1999. Only shareholders of record as of
the close of business on the Record Date will be entitled to notice of, and to
vote at, the Meeting or any adjournment thereof. The holders of a majority of
the shares of the Special Equities Fund outstanding at the close of business
on the Record Date present in person or represented by proxy will constitute a
quorum for the Meeting. For purposes of determining a quorum for transacting
business at the Meeting, abstentions and broker "non-votes" (that is, proxies
from brokers or nominees indicating that such persons have not received
instructions from the beneficial owner or other persons entitled to vote
shares on a particular matter with respect to which the brokers or nominees do
not have discretionary power) will be treated as shares that are present but
which have not been voted. For this reason, abstentions and broker non-votes
will have the effect of a "no" vote for purposes of obtaining the requisite
approval of the Plan. If the enclosed form of proxy is properly executed and
returned in time to be voted at the Meeting, the proxies named therein will
vote the shares represented by the proxy in accordance with the instructions
marked thereon. Unmarked proxies will be voted FOR the proposed Reorganization
and FOR any other matters deemed appropriate. A proxy may be revoked at any
time on or before the Meeting by written notice to the Special Equities Fund,
388 Greenwich Street, New York, New York 10013, 22nd Floor, c/o the Corporate
Secretary. Unless revoked, all valid proxies will be voted in accordance with
the specifications thereon or, in the absence of such specifications, FOR
approval of the Plan and the Reorganization contemplated thereby.
Approval of the Plan will require the affirmative vote of a majority, as
defined in the 1940 Act, of the outstanding shares of the Special Equities
Fund, which is the lesser of (i) 67% of the voting securities of the Special
Equities Fund present at the Meeting, if the holders of more than 50% of the
outstanding voting securities of the Special Equities Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding shares of the
Special Equities Fund. Shareholders of Class A, Class B and Class L shares of
the Special Equities Fund shall vote together as a single class. Shareholders
of the Special Equities Fund are entitled to one vote for each share held by
them.
Proxy solicitations will be made primarily by mail, but proxy solicitations
also may be made by telephone, telegraph or personal interviews conducted by
officers and employees of Salomon Smith Barney and its affiliates and/or by
First Data. If the Fund record votes by telephone, it will use procedures
designed to authenticate shareholders' identities, to allow shareholders to
authorize the voting of their shares in accordance with their instructions,
and to confirm that their instructions have been properly recorded. Proxies
voted by telephone may be revoked at any time before they are voted in the
same manner that proxies voted by mail may be revoked. Expenses of the
Reorganization, including the costs of the proxy
29
<PAGE>
solicitation and the preparation of enclosures to the Prospectus/Proxy
Statement, reimbursement of expenses of forwarding solicitation material to
shareholders of the Special Equities Fund and expenses incurred in connection
with the preparation of this Prospectus/Proxy Statement will be borne equally
by MMC and SBAM.
If sufficient votes to approve the Reorganization are not received by [June
], 1999, the persons named as proxies may propose one or more adjournments of
the Meeting to permit further solicitation of proxies. In determining whether
to adjourn the Meeting, the following factors may be considered: the
percentage of votes actually cast, the percentage of negative votes actually
cast, the nature of any further solicitation and the information to be
provided to shareholders with respect to the reasons for the solicitation. Any
such adjournment will require an affirmative vote by the holders of a majority
of the shares present in person or by proxy and entitled to vote at the
Meeting. The persons named as proxies will vote upon such adjournment after
consideration of the best interests of all shareholders.
The votes of the shareholders of the Small Cap Growth Fund are not being
solicited by this Prospectus/Proxy Statement.
Financial Statements
The audited statements of assets and liabilities of the Special Equities
Fund as of December 31, 1998, and the Financial Highlights for each of the
years in the three year period then ended, related statements of operations
for the year then ended and changes in net assets for the two years then
ended, have been incorporated by reference into the Statement of Additional
Information relating to this Prospectus/Proxy Statement in reliance on the
reports of KPMG, L.L.P., independent auditors for the Special Equities Fund.
The audited statements of assets and liabilities of the Small Cap Growth Fund
as of December 31, 1998, and the Financial Highlights table, related
statements of operations, changes in net assets and Financial highlights have
been incorporated by reference into the Statement of Additional Information
relating to this Prospectus/Proxy Statement in reliance on the reports of
PricewaterhouseCoopers, LLP, independent auditors for the Small Cap Growth
Fund.
Legal Matters
Certain legal matters concerning the issuance of shares of the Small Cap
Growth Fund will be passed upon by Piper & Marbury L.L.P., Charles Center
South, 36 South Charles Street, Baltimore, Maryland 21201.
THE BOARD OF DIRECTORS OF THE INVESTMENT FUNDS ON BEHALF OF THE SPECIAL
EQUITIES FUND, INCLUDING THE "NON-INTERESTED" DIRECTORS, UNANIMOUSLY RECOMMEND
APPROVAL OF THE PLAN, AND ANY UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE
CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLAN.
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APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as of
this day of February, 1999, by and between Salomon Brothers Series Funds Inc
("Series Funds"), a Maryland corporation with its principal place of business
at 7 World Trade Center, New York, New York 10048, on behalf of the Small Cap
Growth Fund (the "Small Cap Growth Fund"), an investment portfolio of Series
Funds and Smith Barney Investment Funds ("Investment Funds"), a Maryland
corporation with its principal place of business at 388 Greenwich Street, New
York, New York 10013, on behalf of the Special Equities Fund (the "Special
Equities Fund"), an investment portfolio of Investment Funds.
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a)(1)(C) of the United
States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the transfer of all or
substantially all of the assets of the Special Equities Fund in exchange for
shares of common stock of the Small Cap Growth Fund (collectively, the "Small
Cap Growth Fund Shares" and each, a "Small Cap Growth Fund Share") and the
assumption by the Small Cap Growth Fund of certain scheduled liabilities of
the Special Equities Fund and the distribution, after the Closing Date herein
referred to, of Small Cap Growth Fund Shares to the shareholders of the
Special Equities Fund in liquidation of the Special Equities Fund and the
termination of the Special Equities Fund, all upon the terms and conditions
hereinafter set forth in this Agreement.
Whereas, Series Funds and Investment Funds are registered investment
companies of the management type and the Special Equities Fund owns securities
that generally are assets of the character in which the Small Cap Growth Fund
is permitted to invest;
Whereas, Series Funds and Investment Funds are authorized to issue shares of
common stock;
Whereas, the Directors of Investment Funds have determined that the exchange
of all or substantially all of the assets and certain of the liabilities of
the Special Equities Fund for Small Cap Growth Fund Shares and the assumption
of such liabilities by Series Funds on behalf of the Small Cap Growth Fund is
in the best interests of the Special Equities Fund's shareholders and that the
interests of the existing shareholders of the Special Equities Fund would not
be diluted as a result of this transaction;
Whereas, the Board of Directors of Series Funds has determined that the
exchange of all or substantially all of the assets of the Special Equities
Fund for
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Small Cap Growth Fund Shares is in the best interests of the Small Cap Growth
Fund's shareholders and that the interests of the existing shareholders of the
Small Cap Growth Fund would not be diluted as a result of this transaction;
Now, Therefore, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE SPECIAL EQUITIES FUND IN EXCHANGE FOR THE SMALL
CAP GROWTH FUND SHARES AND ASSUMPTION OF THE SPECIAL EQUITIES FUND'S SCHEDULED
LIABILITIES AND LIQUIDATION AND TERMINATION OF THE SPECIAL EQUITIES FUND
1.1. Subject to the terms and conditions herein set forth and on the
basis of the representations and warranties contained herein, Investment
Funds, on behalf of the Special Equities Fund agrees to transfer the
Special Equities Fund's assets as set forth in paragraph 1.2 to Series
Funds on behalf of the Small Cap Growth Fund, and Series Funds on behalf
of the Small Cap Growth Fund agrees in exchange therefor: (i) to deliver
to the Special Equities Fund the number of Class A Small Cap Growth Fund
Shares, including fractional Class A Small Cap Growth Fund Shares,
determined by dividing the value of the Special Equities Fund's net assets
attributable to its Class A shares, computed in the manner and as of the
time and date set forth in paragraph 2.1, by the net asset value of one
Class A Special Equities Fund Share, computed in the manner and as of the
time and date set forth in paragraph 2.2; (ii) to deliver to the Special
Equities Fund the number of Class B Small Cap Growth Fund Shares,
including fractional Class B Small Cap Growth Fund Shares, determined by
dividing the value of the Special Equities Fund's net assets attributable
to its Class B shares, computed in the manner and as of the time and date
set forth in paragraph 2.1, by the net asset value of one Class B Small
Cap Growth Fund Share, computed in the manner and as of the time and date
set forth in paragraph 2.2; (iii) to deliver to the Special Equities Fund
the number of Class 2 Small Cap Growth Fund Shares, including fractional
Class 2 Special Equities Fund Shares, determined by dividing the value of
the Special Equities Fund's net assets attributable to its Class L shares,
computed in the manner and as of the time and date set forth in paragraph
2.1, by the net asset value of one Class 2 Small Cap Growth Fund Share,
computed in the manner and as of the time and date set forth in paragraph
2.2; and (iv) to assume certain scheduled liabilities of the Special
Equities Fund, as set forth in paragraph 1.3. Such transactions shall take
place at the closing provided for in paragraph 3.1 (the "Closing").
1.2. (a) The assets of the Special Equities Fund to be acquired by
Series Funds on behalf of the Small Cap Growth Fund shall consist of all
or substantially all of its property, including, without limitation, all
cash,
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<PAGE>
securities and dividends or interest receivables which are owned by the
Special Equities Fund and any deferred or prepaid expenses shown as an
asset on the books of the Special Equities Fund on the closing date
provided in paragraph 3.1 (the "Closing Date").
(b) The Special Equities Fund has provided the Small Cap Growth Fund
with a list of all of the Special Equities Fund's assets as of the date of
execution of this Agreement. The Special Equities Fund reserves the right
to sell any of the securities but will not, without the prior approval of
the Small Cap Growth Fund, acquire any additional securities other than
securities of the type in which the Small Cap Growth Fund is permitted to
invest. The Small Cap Growth Fund will, within a reasonable time prior to
the Closing Date, furnish the Special Equities Fund with a statement of
the Small Cap Growth Fund's investment objectives, policies and
restrictions and a list of the securities, if any, on the Special Equities
Fund's list referred to in the first sentence of this paragraph which do
not conform to the Small Cap Growth Fund's investment objectives, policies
and restrictions. In the event that the Special Equities Fund holds any
investments which the Small Cap Growth Fund may not hold, the Special
Equities Fund will dispose of such securities prior to the Closing Date.
In addition, if it is determined that the portfolios of the Special
Equities Fund and the Small Cap Growth Fund, when aggregated, would
contain investments exceeding certain percentage limitations imposed upon
the Small Cap Growth Fund with respect to such investments, the Special
Equities Fund, if requested by the Small Cap Growth Fund, will dispose of
and/or reinvest a sufficient amount of such investments as may be
necessary to avoid violating such limitations as of the Closing Date.
1.3. Investment Funds, on behalf of the Special Equities Fund will
endeavor to discharge all the Special Equities Fund's known liabilities
and obligations prior to the Closing Date. Series Funds on behalf of the
Small Cap Growth Fund shall assume all liabilities, expenses, costs,
charges and reserves reflected on an unaudited Statement of Assets and
Liabilities of the Special Equities Fund prepared as of the Valuation Date
(as defined in paragraph 2.1), in accordance with generally accepted
accounting principles consistently applied from the prior audited period.
Series Funds on behalf of the Small Cap Growth Fund shall assume only
those liabilities of the Special Equities Fund reflected in that unaudited
Statement of Assets and Liabilities and shall not assume any other
liabilities, whether absolute or contingent, not reflected therein.
1.4. As provided in paragraph 3.4, as soon after the Closing Date as is
conveniently practicable (the "Liquidation Date"), the Special Equities
Fund will liquidate and distribute pro rata to the Special Equities Fund's
shareholders of record determined as of the close of business on the
Closing Date (the "Special Equities Fund Shareholders"), the Small Cap
Growth Fund Shares it receives pursuant to paragraph 1.1. Shareholders of
Class A,
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Class B and Class L shares of the Special Equities Fund shall receive
Class A, Class B and Class 2 shares, respectively, of the Small Cap Growth
Fund. Such liquidation and distribution will be accomplished by the
transfer of the Small Cap Growth Fund Shares then credited to the account
of the Special Equities Fund on the books of the Special Equities Fund to
open accounts on the share records of the Small Cap Growth Fund in the
name of the Special Equities Fund's shareholders and representing the
respective pro rata number of the Small Cap Growth Fund Shares due such
shareholders. All issued and outstanding shares of the Special Equities
Fund will simultaneously be canceled on the books of the Special Equities
Fund, although share certificates representing interests in the Special
Equities Fund will represent a number of Small Cap Growth Fund Shares
after the Closing Date as determined in accordance with paragraph 1.1. The
Small Cap Growth Fund shall not issue certificates representing the Small
Cap Growth Fund Shares in connection with such exchange.
1.5. Ownership of Small Cap Growth Fund Shares will be shown on the
books of the Small Cap Growth Fund's transfer agent. Small Cap Growth Fund
Shares will be issued in the manner described in the Small Cap Growth
Fund's current prospectus and statement of additional information.
1.6. Any transfer taxes payable upon issuance of the Small Cap Growth
Fund Shares in a name other than the registered holder of the Small Cap
Growth Fund Shares on the books of Small Cap Growth Fund as of that time
shall, as a condition of such issuance and transfer, be paid by the person
to whom such Small Cap Growth Fund Shares are to be issued and
transferred.
1.7. Any reporting responsibility of the Special Equities Fund is and
shall remain the responsibility of the Special Equities Fund up to and
including the Closing Date and such later dates on which the Special
Equities Fund is terminated and deregistered.
2. VALUATION
2.1. The value of the Special Equities Fund's assets to be acquired by
the Small Cap Growth Fund hereunder shall be the value of such assets
computed as of the close of regular trading on the New York Stock
Exchange, Inc. (the "NYSE") on the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures
set forth in the Special Equities Fund's then current prospectus or
statement of additional information.
2.2. The net asset value of Small Cap Growth Fund Shares shall be the
net asset value per share computed as of the close of regular trading on
the NYSE on the Valuation Date, using the valuation procedures set forth
in the Small Cap Growth Fund's then current prospectus or statement of
additional information.
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2.3. All computations of value shall be made by Mutual Management Corp.
in accordance with its regular practice as pricing agent for the Special
Equities Fund and the Small Cap Growth Fund.
3. CLOSING AND CLOSING DATE
3.1. The Closing Date shall be [June ], 1999, or such later date as the
parties may agree to in writing. All acts taking place at the Closing
shall be deemed to take place simultaneously as of the close of business
on the Closing Date unless otherwise provided. The Closing shall be held
as of 5:00 p.m. at the offices of Salomon Smith Barney Inc., 388 Greenwich
Street, New York, New York 10013, or at such other time and/or place as
the parties may agree.
3.2. In the event that on the Valuation Date (a) the NYSE or another
primary trading market for portfolio securities of the Special Equities
Fund or the Small Cap Growth Fund shall be closed to trading or trading
thereon shall be restricted or (b) trading or the reporting of trading on
the NYSE or elsewhere shall be disrupted so that accurate appraisal of the
value of the net assets of the Special Equities Fund or the Small Cap
Growth Fund is impracticable, the Closing Date shall be postponed until
the first business day after the day when trading shall have been fully
resumed and reporting shall have been restored.
3.3. The Special Equities Fund shall deliver at the Closing a list of
the names and addresses of the Special Equities Fund's shareholders and
the number and percentage ownership of outstanding shares owned by each
such shareholder immediately prior to the Closing, certified on behalf of
the Special Equities Fund by its President. The Small Cap Growth Fund
shall issue and deliver a confirmation evidencing the Small Cap Growth
Fund Shares to be credited to the Special Equities Fund's account on the
Closing Date to the Secretary of the Special Equities Fund, or provide
evidence satisfactory to the Special Equities Fund that such Small Cap
Growth Fund Shares have been credited to the Special Equities Fund's
account on the books of the Small Cap Growth Fund. At the Closing, each
party shall deliver to the other such bills of sale, checks, assignments,
share certificates, if any, receipts or other documents as such other
party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1. Investment Funds and the Special Equities Fund represent and
warrant to Series Funds and the Small Cap Growth Fund as follows:
(a) Investment Funds is a corporation, duly organized, validly
existing and in good standing under the laws of the State of
Maryland;
(b) Investment Funds is a registered investment company classified
as a management company of the open-end type, and its registration
with the Securities and Exchange Commission (the "Commission") as an
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investment company under the Investment Company Act of 1940, as
amended (the "1940 Act") is in full force and effect;
(c) Investment Funds is not, and the execution, delivery and
performance of this Agreement will not result, in a material
violation of its Articles of Incorporation or By-laws or of any
agreement, indenture, instrument, contract, lease or other
undertaking to which the Special Equities Fund is a party or by which
it is bound;
(d) Investment Funds has no material contracts or other commitments
(other than this Agreement) which will be terminated with liability
to the Special Equities Fund prior to the Closing Date;
(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is
presently pending or to its knowledge threatened against Investment
Funds or the Special Equities Fund or any of the Special Equities
Fund's properties or assets, except as previously disclosed to the
Small Cap Growth Fund. The Special Equities Fund knows of no facts
which might form the basis for the institution of such proceedings
and is not party to or subject to the provisions of any order, decree
or judgment of any court or governmental body which materially and
adversely affects its business or its ability to consummate the
transactions herein contemplated;
(f) The Statements of Assets and Liabilities of the Special
Equities Fund as of December 31, 1998 have been audited by KPMG LLP,
independent certified public accountants, and are in accordance with
generally accepted accounting principles consistently applied, and
such statements (copies of which have been furnished to the Small Cap
Growth Fund) fairly reflect the financial condition of the Special
Equities Fund as of such date, and there are no known contingent
liabilities of the Special Equities Fund as of such date not
disclosed therein;
(g) The Special Equities Fund will file its final federal and other
tax returns for the period ending on the Closing Date in accordance
with the Code. At the Closing Date, all federal and other tax returns
and reports of the Special Equities Fund required by law then to have
been filed prior to the Closing Date shall have been filed, and all
federal and other taxes shown as due on such returns shall have been
paid so far as due, or provision shall have been made for the payment
thereof and, to the best of the Special Equities Fund's knowledge, no
such return is currently under audit and no assessment has been
asserted with respect to such returns;
(h) For the most recent fiscal year of its operation, the Special
Equities Fund has met the requirements of Subchapter M of the Code
for qualification and treatment as a regulated investment company;
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(i) All issued and outstanding shares of the Special Equities Fund
are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable. All of the issued and
outstanding shares of the Special Equities Fund will, at the time of
Closing, be held by the persons and in the amounts set forth in the
records of the transfer agent as provided in paragraph 3.4. The
Special Equities Fund does not have outstanding any options, warrants
or other rights to subscribe for or purchase any shares of the
Special Equities Fund, nor is there outstanding any security
convertible into any shares of the Special Equities Fund;
(j) At the Closing Date, the Special Equities Fund will have good
and marketable title to its assets to be transferred to the Small Cap
Growth Fund pursuant to paragraph 1.2 and full right, power and
authority to sell, assign, transfer and deliver such assets hereunder
and, upon delivery and payment for such assets, the Small Cap Growth
Fund will acquire good and marketable title thereto, subject to no
restrictions on the full transfer thereof, including such
restrictions as might arise under the Securities Act of 1933, as
amended (the "1933 Act"), other than as disclosed to the Small Cap
Growth Fund;
(k) The execution, delivery and performance of this Agreement has
been duly authorized by all necessary action on the part of
Investment Funds' Board of Directors, and subject to the approval of
the Special Equities Fund's shareholders, this Agreement, assuming
due authorization, execution and delivery by the Small Cap Growth
Fund, will constitute a valid and binding obligation of the Special
Equities Fund, enforceable in accordance with its terms, subject as
to enforcement, to bankruptcy, insolvency, reorganization, moratorium
and other laws relating to or affecting creditors' rights and to
general equity principles;
(l) The information to be furnished by the Special Equities Fund
for use in no-action letters, applications for exemptive orders,
registration statements, proxy materials and other documents which
may be necessary in connection with the transactions contemplated
hereby shall be accurate and complete in all material respects and
shall comply in all material respects with federal securities and
other laws and regulations thereunder applicable thereto; and
(m) The proxy statement of the Special Equities Fund (the "Proxy
Statement") to be included in the Registration Statement referred to
in paragraph 5.7 (other than information therein that relates to the
Small Cap Growth Fund) will, on the effective date of the
Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein
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or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not materially
misleading.
4.2. Series Funds and the Small Cap Growth Fund represent and warrant to
Investment Funds and the Special Equities Fund as follows:
(a) The Small Cap Growth Fund is a portfolio of Series Funds, which
is a corporation, duly organized, validly existing and in good
standing under the laws of the State of Maryland;
(b) Series Funds is a registered investment company classified as a
management company of the open-end type and its registration with the
Commission as an investment company under the 1940 Act is in full
force and effect;
(c) The current prospectus of the Small Cap Growth Fund and the
statement of additional information of Series Funds conform in all
material respects to the applicable requirements of the 1933 Act and
the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading;
(d) At the Closing Date, Series Funds will have good and marketable
title to the Small Cap Growth Fund's assets;
(e) Series Funds is not, and the execution, delivery and
performance of this Agreement on behalf of the Small Cap Growth Fund
will not result, in a material violation of its Articles of
Incorporation or By-laws or of any agreement, indenture, instrument,
contract, lease or other undertaking with respect to the Small Cap
Growth Fund to which Series Funds is a party or by which it is bound;
(f) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is
presently pending or threatened against Series Funds with respect to
the Small Cap Growth Fund or any of the Small Cap Growth Fund's
properties or assets, except as previously disclosed in writing to
the Special Equities Fund. Series Funds and the Small Cap Growth Fund
know of no facts which might form the basis for the institution of
such proceedings and neither Series Funds nor the Small Cap Growth
Fund is a party to or subject to the provisions of any order, decree
or judgment of any court or governmental body which materially and
adversely affects the Small Cap Growth Fund's business or Series
Funds' ability on behalf of the Small Cap Growth Fund to consummate
the transactions contemplated herein;
(g) At the Closing Date, all federal and other tax returns and
reports of Small Cap Growth Fund required by law then to have been
filed by
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such dates shall have been filed, and all federal and other taxes
shown as due on said returns and reports shall have been paid so far
as due, or provision shall have been made for the payment thereof
and, to the best of the Small Cap Growth Fund's knowledge, no such
return is currently under audit and no assessment has been asserted
with respect to such returns;
(h) For the most recent fiscal year of its operation, the Small Cap
Growth Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company and the
Small Cap Growth Fund intends to do so in the future;
(i) At the date hereof, all issued and outstanding shares of the
Small Cap Growth Fund are, and at the Closing Date will be, duly and
validly issued and outstanding, fully paid and non-assessable, with
no personal liability attaching to the ownership thereof. The Small
Cap Growth Fund does not have outstanding any options, warrants or
other rights to subscribe for or purchase any shares of the Small Cap
Growth Fund, nor is there outstanding any security convertible into
shares of the Small Cap Growth Fund;
(j) The execution, delivery and performance of this Agreement has
been duly authorized by all necessary action, if any, on the part of
Series Funds' Board of Directors and assuming due authorization,
execution and delivery by Investment Funds, this Agreement
constitutes a valid and binding obligation of Series Funds on behalf
of the Small Cap Growth Fund, enforceable in accordance with its
terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(k) The Small Cap Growth Fund Shares to be issued and delivered to
the Special Equities Fund, for the account of the Special Equities
Fund Shareholders, pursuant to the terms of this Agreement, will at
the Closing Date have been duly authorized and, when so issued and
delivered, will be duly and validly issued Small Cap Growth Fund
Shares, and will be fully paid and non-assessable with no personal
liability attaching to the ownership thereof;
(l) The information to be furnished by the Small Cap Growth Fund
for use in no-action letters, applications for exemptive orders,
registration statements, proxy materials and other documents which
may be necessary in connection with the transactions contemplated
hereby shall be accurate and complete in all material respects and
shall comply in all material respects with federal securities and
other laws and regulations applicable thereto;
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(m) The Proxy Statement to be included in the Registration
Statement (only insofar as it relates to the Small Cap Growth Fund
and Series Funds) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which such statements were made, not
materially misleading; and
(n) Series Funds, on behalf of the Small Cap Growth Fund, agrees to
use all reasonable efforts to obtain the approvals and authorizations
required by the 1933 Act, the 1940 Act and such of the state Blue Sky
or securities laws as it may deem appropriate in order to continue
the Small Cap Growth Fund's operations after the Closing Date.
5. COVENANTS OF INVESTMENT FUNDS, THE SPECIAL EQUITIES FUND, THE SMALL CAP
GROWTH FUND AND SERIES FUNDS
5.1. Series Funds on behalf of the Small Cap Growth Fund and Investment
Funds on behalf of the Special Equities Fund each will operate its
business in the ordinary course between the date hereof and the Closing
Date. It is understood that such ordinary course of business will include
the declaration and payment of customary dividends and distributions and
any other dividends and distributions deemed advisable, in each case
payable either in cash or in additional shares.
5.2. Investment Funds on behalf of the Special Equities Fund will call a
meeting of its shareholders to consider and act upon this Agreement and to
take all other action necessary to obtain approval of the transactions
contemplated herein.
5.3. Investment Funds on behalf of the Special Equities Fund covenants
that the Small Cap Growth Fund Shares to be issued hereunder are not being
acquired for the purpose of making any distribution thereof other than in
accordance with the terms of this Agreement.
5.4. The Special Equities Fund will assist the Small Cap Growth Fund in
obtaining such information as the Small Cap Growth Fund reasonably
requests concerning the beneficial ownership of the Special Equities
Fund's shares.
5.5. Subject to the provisions of this Agreement, Investment Funds on
behalf of the Special Equities Fund and Series Funds on behalf of the
Small Cap Growth Fund, each will take, or cause to be taken, all action,
and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated
by this Agreement.
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5.6. As promptly as practicable, but in any case within sixty days after
the Closing Date, the Special Equities Fund shall furnish the Small Cap
Growth Fund, in such form as is reasonably satisfactory to the Small Cap
Growth Fund, a statement of the earnings and profits of the Special
Equities Fund for federal income tax purposes which will be carried over
to the Small Cap Growth Fund as a result of Section 381 of the Code, and
which will be certified by the President and Treasurer of the Special
Equities Fund.
5.7. The Special Equities Fund will provide the Small Cap Growth Fund
with information reasonably necessary for the preparation of a prospectus
(the "Prospectus") which will include the Proxy Statement, referred to in
paragraph 4.1(m), all to be included in a Registration Statement on Form
N-14 of Series Funds (the "Registration Statement"), in compliance with
the 1933 Act, the Securities Exchange Act of 1934 (the "1934 Act") and the
1940 Act in connection with the meeting of the Special Equities Fund's
shareholders to consider approval of this Agreement and the transactions
contemplated herein.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF INVESTMENT FUNDS IN RESPECT OF THE
SPECIAL EQUITIES FUND
The obligations of Investment Funds and the Special Equities Fund to
consummate the transactions provided for herein shall be subject, at its
election, to the performance by Series Funds and the Small Cap Growth Fund of
all of the obligations to be performed by them hereunder on or before the
Closing Date and, in addition thereto, the following further conditions:
6.1. All representations and warranties of Series Funds and the Small
Cap Growth Fund contained in this Agreement shall be true and correct in
all material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Agreement, as of the
Closing Date with the same force and effect as if made on and as of the
Closing Date;
6.2. Series Funds on behalf of the Small Cap Growth Fund shall have
delivered to Investment Funds a certificate executed in its name by its
President or Vice President and its Treasurer or Assistant Treasurer, in a
form reasonably satisfactory to Investment Funds and dated as of the
Closing Date, to the effect that the representations and warranties of
Series Funds and the Small Cap Growth Fund made in this Agreement are true
and correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement; and
6.3. Investment Funds shall have received on the Closing Date a
favorable opinion from Simpson Thatcher & Bartlett, counsel to the Small
Cap Growth Fund, dated as of the Closing Date, in a form reasonably
satisfactory to Christina T. Sydor, Esq., Secretary of Investment Funds,
covering the following points:
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That (a) Series Funds has been duly organized and is validly
existing as a corporation under the laws of the State of Maryland;
(b) Series Funds is an open-end investment company of the management
type registered under the 1940 Act; (c) the Small Cap Growth Fund is
a series of the Series Funds; (d) this Agreement, the reorganization
provided for hereunder and the execution of this Agreement have been
duly authorized, and executed and delivered by the Series Funds, and
this Agreement is a legal, valid, binding and enforceable obligation
of the Series Funds with respect to the Small Cap Growth Fund,
subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors rights generally, general
equitable principals (whether considered in a proceeding in equity or
at law), and an implied covenant of good faith and fair dealing
executed and delivered by Series Funds and is a valid and binding
obligation of Series Funds with respect to the Small Cap Growth Fund
enforceable in accordance with its terms against the assets of the
Small Cap Growth Fund; and (e) the Small Cap Growth Fund Shares to be
issued to the Special Equities Fund for distribution to its
shareholders pursuant to this Agreement have been, to the extent of
the number of Small Cap Growth Fund Shares of the pertinent class
authorized to be issued by the Small Cap Growth Fund in the Articles
of Incorporation of Series Funds and then unissued, duly authorized
and, subject to the receipt by Series Funds of consideration equal to
the net asset value thereof (but in no event less than the par value
thereof), such Small Cap Growth Fund Shares, when issued in
accordance with this Agreement, will be validly issued and fully paid
and non-assessable. Such opinion may state that it is solely for the
benefit of Investment Funds and the Special Equities Fund, its
Directors and its officers. Such counsel may rely, as to matters
governed by the laws of the State of Maryland, on an opinion of
Maryland counsel.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF SERIES FUNDS IN RESPECT OF THE
SMALL CAP GROWTH FUND
The obligations of Series Funds on behalf of the Small Cap Growth Fund to
complete the transactions provided for herein shall be subject, at its
election, to the performance by Investment Funds and the Special Equities Fund
of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1. All representations and warranties of Investment Funds and the
Special Equities Fund contained in this Agreement shall be true and
correct in all material respects as of the date hereof and, except as they
may be affected by the transactions contemplated by this Agreement, as of
the Closing Date with the same force and effect as if made on and as of
the Closing Date;
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7.2. The Special Equities Fund shall have delivered to the Small Cap
Growth Fund a statement of the Special Equities Fund's assets and
liabilities, together with a list of the Special Equities Fund's portfolio
securities showing the tax costs of such securities by lot and the holding
periods of such securities, as of the Closing Date, certified by the
Treasurer or Assistant Treasurer of the Special Equities Fund;
7.3. Investment Funds shall have delivered to the Small Cap Growth Fund
on the Closing Date a certificate executed in its name by its President or
Vice President and its Treasurer or Assistant Treasurer, in form and
substance satisfactory to the Small Cap Growth Fund and dated as of the
Closing Date, to the effect that the representations and warranties of
Investment Funds and the Special Equities Fund made in this Agreement are
true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement; and
7.4. The Small Cap Growth Fund shall have received on the Closing Date a
favorable opinion of Willkie Farr & Gallagher, counsel to the Special
Equities Fund, in a form satisfactory to Christina T. Sydor, Esq.,
Secretary of the Small Cap Growth Fund, covering the following points:
That (a) Investment Funds is duly organized and validly existing
under the laws of the State of Maryland; (b) Investment Funds is an
open-end management investment company registered under the 1940 Act;
(c) the Special Equities Fund is a series of the Investment Funds;
and (d) this Agreement, the reorganization provided for hereunder and
the execution of this Agreement have been duly authorized and
approved by all requisite action of Investment Funds, and this
Agreement has been duly executed and delivered by Investment Funds
and is a valid and binding obligation of Investment Funds and the
Special Equities Fund enforceable in accordance with its terms
against the assets of the Special Equities Fund. Such opinion may
state that it is solely for the benefit of Series Funds, its
Directors and its officers. Such counsel may rely, as to matters
governed by the laws of the State of Maryland, on an opinion of
Maryland counsel.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF INVESTMENT FUNDS, THE
SPECIAL EQUITIES FUND, THE SMALL CAP GROWTH FUND AND SERIES FUNDS
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to Series Funds on behalf of the Small Cap Growth
Fund, or Investment Funds on behalf of the Special Equities Fund, the other
party to this Agreement shall, at its option, not be required to consummate
the transactions contemplated by this Agreement:
8.1. This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding
shares
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of the Special Equities Fund in accordance with the provisions of
Investment Funds's Articles of Incorporation and By-laws and certified
copies of the votes evidencing such approval shall have been delivered to
the Small Cap Growth Fund. Notwithstanding anything herein to the
contrary, neither Series Funds on behalf of the Small Cap Growth Fund nor
Investment Funds on behalf of the Special Equities Fund may waive the
conditions set forth in this paragraph 8.1;
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection
with, this Agreement or the transactions contemplated herein;
8.3. All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including
those of the Commission and of state Blue Sky and securities authorities,
including "no-action" positions of and exemptive orders from such federal
and state authorities) deemed necessary by the Special Equities Fund or
the Small Cap Growth Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been
obtained, except where failure to obtain any such consent, order or permit
would not involve a risk of a material adverse effect on the assets or
properties of the Special Equities Fund or the Small Cap Growth Fund,
provided that either party hereto may for itself waive any of such
conditions;
8.4. The Registration Statement shall have become effective under the
1933 Act and no stop orders suspending the effectiveness thereof shall
have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or
be pending, threatened or contemplated under the 1933 Act;
8.5. The Special Equities Fund shall have declared and paid a dividend
or dividends on the outstanding shares of the Special Equities Fund,
which, together with all previous such dividends, shall have the effect of
distributing to the shareholders of the Special Equities Fund all of the
investment company taxable income and exempt-interest income of the
Special Equities Fund for all taxable years ending on or prior to the
Closing Date. The dividend declared and paid by the Special Equities Fund
shall also include all of such fund's net capital gain realized in all
taxable years ending on or prior to the Closing Date (after reduction for
any capital loss carryforward);
8.6. The parties shall have received a favorable opinion of Willkie Farr
& Gallagher, addressed to Series Funds in respect of the Small Cap Growth
Fund and Investment Funds in respect of the Special Equities Fund and
satisfactory to Christina T. Sydor, Esq., as Secretary of the Special
Equities Fund and the Small Cap Growth Fund, substantially to the effect
that for federal income tax purposes:
(a) the transfer of all or substantially all of the Special
Equities Fund's assets in exchange for the Small Cap Growth Fund
Shares and
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the assumption by the Small Cap Growth Fund of certain scheduled
liabilities of the Special Equities Fund will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the
Code, and the Special Equities Fund and the Small Cap Growth Fund are
each a "party to a reorganization" within the meaning of Section
368(b) of the Code; (b) no gain or loss will be recognized by the
Small Cap Growth Fund upon the receipt of the assets of the Special
Equities Fund in exchange for the Small Cap Growth Fund Shares and
the assumption by the Small Cap Growth Fund of certain scheduled
liabilities of the Special Equities Fund; (c) no gain or loss will be
recognized by the Special Equities Fund upon the transfer of the
Special Equities Fund's assets to the Small Cap Growth Fund in
exchange for the Small Cap Growth Fund Shares and the assumption by
the Small Cap Growth Fund of certain scheduled liabilities of the
Special Equities Fund or upon the distribution (whether actual or
constructive) of the Small Cap Growth Fund Shares to the Special
Equities Fund's shareholders; (d) no gain or loss will be recognized
by shareholders of the Special Equities Fund upon the exchange of
their Special Equities Fund shares for the Small Cap Growth Fund
Shares and the assumption by the Small Cap Growth Fund of certain
scheduled liabilities of the Special Equities Fund; (e) the aggregate
tax basis for the Small Cap Growth Fund Shares received by each of
the Special Equities Fund's shareholders pursuant to the
Reorganization will be the same as the aggregate tax basis of the
Special Equities Fund Shares held by such shareholder immediately
prior to the Reorganization, and the holding period of the Small Cap
Growth Fund Shares to be received by each Special Equities Fund
shareholder will include the period during which the Special Equities
Fund Shares exchanged therefor were held by such shareholder
(provided that the Special Equities Fund Shares were held as capital
assets on the date of the Reorganization); and (f) the tax basis of
the Special Equities Fund's assets acquired by Small Cap Growth Fund
will be the same as the tax basis of such assets to the Special
Equities Fund immediately prior to the Reorganization, and the
holding period of the assets of the Special Equities Fund in the
hands of the Small Cap Growth Fund will include the period during
which those assets were held by the Special Equities Fund.
Notwithstanding anything herein to the contrary, neither Series Funds on
behalf of the Small Cap Growth Fund nor Investment Funds on behalf of the
Special Equities Fund may waive the conditions set forth in this paragraph
8.6.
9. BROKERAGE FEES AND EXPENSES
Series Funds on behalf of the Small Cap Growth Fund represents and warrants
to Investment Funds and the Special Equities Fund, and Investment Funds on
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behalf of the Special Equities Fund hereby represents and warrants to Series
Funds on behalf of the Small Cap Growth Fund, that there are no brokers or
finders entitled to receive any payments in connection with the transactions
provided for herein.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1. The parties hereto agree that no party has made any
representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
10.2. The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
hereunder.
11. TERMINATION
11.1. This Agreement may be terminated at any time prior to the Closing
Date by: (1) the mutual agreement of Investment Funds on behalf of the
Special Equities Fund and Series Funds on behalf of the Small Cap Growth
Fund; (2) Investment Funds in respect of the Special Equities Fund in the
event that Series Funds in respect of the Small Cap Growth Fund shall, or
Series Funds in respect of the Small Cap Growth Fund in the event that
Investment Funds or the Special Equities Fund shall, materially breach any
representation, warranty or agreement contained herein to be performed at
or prior to the Closing Date; or (3) a condition herein expressed to be
precedent to the obligations of the terminating party has not been met and
it reasonably appears that it will not or cannot be met.
11.2. In the event of any such termination, there shall be no liability
for damages on the part of either Investment Funds on behalf of the
Special Equities Fund or Series Funds on behalf of the Small Cap Growth
Fund or their respective Directors or officers to the other party.
12. AMENDMENTS; WAIVERS
12.1. This Agreement may be amended, modified or supplemented in such
manner as may be mutually agreed upon in writing by the authorized
officers of Investment Funds and Series Funds; provided, however, that
following the meeting of the Special Equities Fund shareholders called by
the Special Equities Fund pursuant to paragraph 5.2 of this Agreement, no
such amendment may have the effect of changing the provisions for
determining the number of the Small Cap Growth Fund Shares to be issued to
the Special Equities Fund's shareholders under this Agreement to the
detriment of such shareholders without their further approval.
12.2. At any time prior to the Closing Date either party hereto may by
written instrument signed by it (i) waive any inaccuracies in the
A-16
<PAGE>
representations and warranties made to it contained herein and (ii) waive
compliance with any of the covenants or conditions made for its benefit
contained herein.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to Investment Funds, 388
Greenwich Street, 22nd Floor, New York, New York 10013, Attention: Heath B.
McLendon; or to Series Funds, 388 Greenwich Street, 22nd Floor, New York, New
York 10013, Attention: Heath B. McLendon.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
14.1 The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by
any party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or
give any person, firm, corporation or other entity, other than the parties
hereto and their respective successors and assigns, any rights or remedies
under or by reason of this Agreement.
A-17
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its Chairman of the Board, President or Vice President and
attested by its Secretary or Assistant Secretary.
Attest: SALOMON BROTHERS SERIES FUNDS INC
on behalf of the SMALL CAP GROWTH FUND
/s/ Christina T. Sydor By: /s/ Heath B. McLendon
- ---------------------------- ----------------------------
Name: Christina T. Sydor Name: Heath B. McLendon
Title: Secretary Title: President
Attest: SMITH BARNEY INVESTMENT FUNDS INC.
on behalf of the SPECIAL EQUITIES FUND
/s/ Christina T. Sydor By: /s/ Heath B. McLendon
- ---------------------------- ----------------------------
Name: Christina T. Sydor Name: Heath B. McLendon
Title: Secretary Title: President
A-18
<PAGE>
PROSPECTUS OF SALOMON BROTHERS SMALL CAP GROWTH FUND DATED MAY 1, 1998 IS
INCORPORATED BY REFERENCE TO POST EFFECTIVE AMENDMENT NO. 28 TO THE SERIES
FUNDS REGISTRATION STATEMENT ON FORM N-1A FILED ON APRIL 30, 1998.; SUPPLEMENT
TO PROSPECTUS DATED FEBRUARY 1, 1999 IS INCORPORATED BY REFERENCE TO RULE
497(e) FILING. REFERENCE NOS 33-34423 and 811-06087.
1
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Dated , 1999
Acquisition Of The Assets Of
SMITH BARNEY SPECIAL EQUITIES FUND
a separate series of
SMITH BARNEY INVESTMENT FUNDS
388 Greenwich Street
New York, New York 10013
(800) 451-2010
By And In Exchange For Shares Of
SALOMON BROTHERS SMALL CAP GROWTH FUND
a separate series of
SALOMON BROTHERS SERIES FUNDS INC
7 World Trade Center
New York, New York 10048
(800) SALOMON
This Statement of Additional Information, relating specifically to the
proposed transfer of all or substantially all of the assets of Smith Barney
Special Equities Fund (the "Special Equities Fund"), a series of Smith Barney
Investment Funds Inc. ("Investment Funds") to Salomon Brothers Small Cap
Growth Fund ("Small Cap Growth Fund"), a series of Salomon Brothers Series
Funds Inc ("Series Funds") in exchange for shares of the Small Cap Growth Fund
and the assumption by the Series Funds on behalf of Special Equities Fund of
certain scheduled liabilities of the Small Cap Growth Fund, consists of this
cover page and the following described documents, each of which accompanies
this Statement of Additional Information and is incorporated herein by
reference.
1. Statement of Additional Information of the Series Funds dated May 1, 1999.
2. Annual Report of Small Cap Growth Fund for the period ended December 31,
1998.
3. Annual Report of Special Equities Fund for the fiscal year ended December
31, 1998.
4. Pro forma financial statements.
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement, dated , 1999, relating to the above-
referenced matter may be obtained without charge by calling or writing Small
Cap Growth Fund at the telephone numbers or addresses set forth above. This
Statement of Additional Information should be read in conjunction with the
Prospectus/Proxy Statement dated , 1999.
The date of this Statement of Additional Information is , 1999.
2
<PAGE>
STATEMENT OF ADDDITIONAL INFORMATION
OF
SALOMON BROTHERS SERIES FUNDS INC
----------------------
Dated May 1, 1998
is incorporated by reference to Post Effective Amendment No. 28
to the Series Funds Registration Statement on Form N-1A
filed on April 30, 1998.
Reference Numbers 33-34423 and 811-[06087]
----------------------
3
<PAGE>
ANNUAL REPORT
OF
SALOMON BROTHERS SMALL CAP GROWTH FUND
----------------------
For the fiscal year ended December 31, 1998
will be filed by amendment.
----------------------
4
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION OF
SMITH BARNEY SPECIAL EQUITIES FUND
----------------------
Dated April 30, 1998 is Incorporated by Reference
to Post Effective Amendment No. 48
to the Investment Funds Registration Statement
on Form N-1A Filed on April 29, 1998.
Reference Nos 2-74288 and 811-3275
----------------------
5
<PAGE>
ANNUAL REPORT
OF
SMITH BARNEY SPECIAL EQUITIES FUND
----------------------
For the fiscal year ended December 31, 1998
will be filed by amendment.
----------------------
6
<PAGE>
SERIES FUNDS PART C
Part C: Other Information
Item 15. Indemnification*
The response to this item is incorporated by reference to "Liability of
Directors" under the caption "Comparative Information On Shareholders' Rights"
in Part A of this Registration Statement.
Item 16. Exhibits
<TABLE>
<C> <S>
(1) Articles of Incorporation and all amendments*
(2) Bylaws*
(3) Not Applicable
(4) Agreement and Plan of Reorganization**
(5) Not Applicable
(6) Management Agreements*
(7) Distribution Agreement**
(8) Not applicable
(9) Custodian Agreement*
(10) Rule 12b-1 Plan*
(11) Opinion and consent of Piper & Marbury LLP***
Opinion and consent of Willkie Farr & Gallagher with respect to tax
(12) matters***
(13) Not Applicable
(14)(a) Consent of PricewaterhouseCoopers LLP***
(14)(b) Consent of KPMG LLP**
(15) Not Applicable
(16) Power of Attorney**
(17) Form of Proxy Card **
</TABLE>
- --------
* Incorporated herein by reference to Registration Statement of Series Funds
Inc on Form N-1A, file numbers 2-33-34423 and 811-06087.
** Filed herewith
*** To be filed by amendment
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public reoffering of
the securities registered through the use of a prospectus which is a part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933,
the reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new registration statement
for the securities offered therein, and the offering of the securities at that
time shall be deemed to be the initial bona fide offering of them.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant, SALOMON
BROTHERS SERIES FUNDS INC, has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, all in the
City of New York, State of New York on the 4th day of February, 1999.
SALOMON BROTHERS SERIES FUNDS INC
/s/ Heath B. McLendon
By: _________________________________
Heath B. McLendon
Chief Executive Officer
KNOW ALL MEN BY THESE PRRESENTS, that each person whose signature appears
below constitutes and appoints Heath B. McLendon, Robert A. Vegliante and
Christina T. Sydor and each and any one of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
As required by the Securities Act of 1933, this Registration has been signed
by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Heath B. McLendon Chairman of the Board February 4, 1999
______________________________________ (Chief Executive Officer)
Heath B. McLendon
/s/ Lewis E. Daidone Executive Vice President February 4, 1999
______________________________________ and Treasurer
Lewis E. Daidone
/s/ Charles F. Barber Director February 4, 1999
______________________________________
Charles F. Barber
/s/ Carol L. Colman Director February 4, 1999
______________________________________
Carol L. Colman
/s/ Daniel Cronin Director February 4, 1999
______________________________________
</TABLE> Daniel Cronin
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S> <C>
(4) Agreement and Plan of Reorganization (included as Exhibit A to
Registrant's Prospectus/Proxy Statement contained in Part A of
this Registration Statement).
(7) Distribution Agreement dated September 1, 1998 between Salomon
Brothers Series Funds Inc and CFBDS, Inc.
(14b) Consent of KPMG L.L.P.
(17) Form of Proxy Card.
</TABLE>
- --------
<PAGE>
Exhibit 99.7
SALOMON BROTHERS SERIES FUNDS INC
DISTRIBUTION AGREEMENT
September 1, 1998
CFBDS, Inc.
21 Milk Street
Boston, MA 02109
Dear Sirs:
This is to confirm that, in consideration of the agreements hereinafter
contained, the above-named investment company (the "Fund") has agreed that you
shall be, for the period of this Agreement, the non-exclusive principal
underwriter and distributor of shares of the Fund and each Series of the Fund
set forth on Exhibit A hereto, as such Exhibit may be revised from time to time
(each, including any shares of the Fund not designated by series, a "Series").
For purposes of this Agreement, the term "Shares" shall mean shares of the each
Series, or one or more Series, as the context may require.
1. Services as Principal Underwriter and Distributor
-------------------------------------------------
1.1 You will act as agent for the distribution of Shares covered by, and
in accordance with, the registration statement, prospectus and statement of
additional information then in effect under the Securities Act of 1933, as
amended (the "1933 Act"), and the Investment Company Act of 1940, as amended
(the "1940 Act"), and will transmit or cause to be transmitted promptly any
orders received by you or those with whom you have sales or servicing agreements
for purchase or redemption of Shares to the Transfer and Dividend Disbursing
Agent for the Fund of which the Fund has notified you in writing.
1.2 You agree to use your best efforts to solicit orders for the sale of
Shares. It is contemplated that you will enter into sales or servicing
agreements with registered securities brokers and banks and into servicing
agreements with financial institutions and other industry professionals, such as
investment advisers, accountants and estate planning firms. In entering into
such agreements, you will act only on your own behalf as principal underwriter
and distributor. You will not be responsible for making any distribution plan
or service fee payments pursuant to any plans the Fund may adopt or agreements
it may enter into.
1.3 You shall act as the non-exclusive principal underwriter and
distributor of Shares in compliance with all applicable laws, rules, and
regulations, including, without limitation, all rules and regulations made or
adopted from time to time by the Securities and Exchange Commission (the "SEC")
pursuant to the 1933 Act or the 1940 Act or by any securities association
registered under the Securities Exchange Act of 1934, as amended.
<PAGE>
1.4 Whenever in their judgment such action is warranted for any reason,
including, without limitation, market, economic or political conditions, the
Fund's officers may decline to accept any orders for, or make any sales of, any
Shares until such time as those officers deem it advisable to accept such orders
and to make such sales and the Fund shall advise you promptly of such
determination.
2. Duties of the Fund
------------------
2.1 The Fund agrees to pay all costs and expenses in connection with
the registration of Shares under the 1933 Act, and all expenses in connection
with maintaining facilities for the issue and transfer of Shares and for
supplying information, prices and other data to be furnished by the Fund
hereunder, and all expenses in connection with the preparation and printing of
the Fund's prospectuses and statements of additional information for regulatory
purposes and for distribution to shareholders; provided however, that nothing
contained herein shall be deemed to require the Fund to pay any costs of
advertising or marketing the sale of Shares.
2.2 The Fund agrees to execute any and all documents and to furnish any
and all information and otherwise to take any other actions that may be
reasonably necessary in the discretion of the Fund's officers in connection with
the qualification of Shares for sale in such states and other U.S. jurisdictions
as the Fund may approve and designate to you from time to time, and the Fund
agrees to pay all expenses that may be incurred in connection with such
qualification. You shall pay all expenses connected with your own qualification
as a securities broker or dealer under state or Federal laws and, except as
otherwise specifically provided in this Agreement, all other expenses incurred
by you in connection with the sale of Shares as contemplated in this Agreement.
2.3 The Fund shall furnish you from time to time, for use in connection
with the sale of Shares, such information reports with respect to the Fund or
any relevant Series and the Shares as you may reasonably request, all of which
shall be signed by one or more of the Fund's duly authorized officers; and the
Fund warrants that the statements contained in any such reports, when so signed
by the Fund's officers, shall be true and correct. The Fund also shall furnish
you upon request with (a) the reports of the annual audits of the financial
statements of the Fund for each Series made by independent certified public
accountants retained by the Fund for such purpose; (b) semi-annual unaudited
financial statements pertaining to each Series; (c) quarterly earnings
statements prepared by the Fund for any Series; (d) a monthly itemized list of
the securities in each Series' portfolio; (e) monthly balance sheets as soon as
practicable after the end of each month; (f) the current net asset value and
offering price per share for each Series on each day such net asset value is
computed; and (g) from time to time such additional information regarding the
financial condition of each Series of the Fund as you may reasonably request.
3. Representations and Warranties
------------------------------
The Fund represents to you that all registration statements, prospectuses
and statements of additional information filed by the Fund with the SEC under
the 1933 Act and the 1940 Act with respect to the Shares have been prepared in
conformity with the requirements of said Acts and the rules and regulations of
the SEC thereunder. As used in this Agreement, the terms "registration
statement", "prospectus" and "statement of additional information" shall mean
any registration statement, prospectus and statement of additional information
filed by the Fund with
2
<PAGE>
the SEC and any amendments and supplements thereto filed by the Fund with the
SEC. The Fund represents and warrants to you that any such registration
statement, prospectus and statement of additional information, when such
registration statement becomes effective and as such prospectus and statement of
additional information are amended and supplemented, includes at the time of
such effectiveness, amendment or supplement all statements required to be
contained therein in conformance with the 1933 Act, the 1940 Act and the rules
and regulations of the SEC; that all statements of material fact contained in
any registration statement, prospectus or statement of additional information
will be true and correct when such registration statement becomes effective; and
that neither any registration statement nor any prospectus or statement of
additional information when such registration statement becomes effective will
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading to a purchaser of the Fund's Shares. The Fund may, but shall not be
obligated to, propose from time to time such amendment or amendments to any
registration statement and such supplement or supplements to any prospectus or
statement of additional information as, in the light of future developments,
may, in the opinion of the Fund, be necessary or advisable. If the Fund shall
not propose such amendment or amendments and/or supplement or supplements within
fifteen days after receipt by the Fund of a written request from you to do so,
you may, at your option, terminate this Agreement or decline to make offers of
the Fund's Shares until such amendments are made. The Fund shall not file any
amendment to any registration statement or supplement to any prospectus or
statement of additional information without giving you reasonable notice thereof
in advance; provided, however, that nothing contained in this Agreement shall in
any way limit the Fund's right to file at any time such amendments to any
registration statement and/or supplements to any prospectus or statement of
additional information, of whatever character, as the Fund may deem advisable,
such right being in all respects absolute and unconditional.
4. Indemnification
---------------
4.1 The Fund authorizes you to use any prospectus or statement of
additional information furnished by the Fund from time to time, in connection
with the sale of Shares. The Fund agrees to indemnify, defend and hold you,
your several officers and directors, and any person who controls you within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any such
counsel fees incurred in connection therewith) which you, your officers and
directors, or any such controlling person, may incur under the 1933 Act or under
common law or otherwise, arising out of or based upon any untrue statement, or
alleged untrue statement, of a material fact contained in any registration
statement, any prospectus or any statement of additional information or arising
out of or based upon any omission, or alleged omission, to state a material fact
required to be stated in any registration statement, any prospectus or any
statement of additional information or necessary to make the statements in any
of them not misleading; provided, however, that the Fund's agreement to
indemnify you, your officers or directors, and any such controlling person shall
not be deemed to cover any claims, demands, liabilities or expenses arising out
of any statements or representations made by you or your representatives or
agents other than such statements and representations as are contained in any
prospectus or statement of additional information and in such financial and
other statements as are furnished to you pursuant to paragraph 2.3 of this
Agreement; and further provided that the Fund's agreement to indemnify you and
the Fund's representations and warranties herein before set forth in paragraph 3
of this Agreement shall not
3
<PAGE>
be deemed to cover any liability to the Fund or its shareholders to which you
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of your duties, or by reason of your reckless
disregard of your obligations and duties under this Agreement. The Fund's
agreement to indemnify you, your officers and directors, and any such
controlling person, as aforesaid, is expressly conditioned upon the Fund's being
notified of any action brought against you, your officers or directors, or any
such controlling person, such notification to be given by letter or by telegram
addressed to the Fund at its principal office in New York, New York and sent to
the Fund by the person against whom such action is brought, within ten days
after the summons or other first legal process shall have been served. The
failure so to notify the Fund of any such action shall not relieve the Fund from
any liability that the Fund may have to the person against whom such action is
brought by reason of any such untrue, or alleged untrue, statement or omission,
or alleged omission, otherwise than on account of the Fund's indemnity agreement
contained in this paragraph 4.1. The Fund will be entitled to assume the defense
of any suit brought to enforce any such claim, demand or liability, but, in such
case, such defense shall be conducted by counsel of good standing chosen by the
Fund. In the event the Fund elects to assume the defense of any such suit and
retains counsel of good standing, the defendant or defendants in such suit shall
bear the fees and expenses of any additional counsel retained by any of them;
but if the Fund does not elect to assume the defense of any such suit, the Fund
will reimburse you, your officers and directors, or the controlling person or
persons named as defendant or defendants in such suit, for the reasonable fees
and expenses of any counsel retained by you or them. The Fund's indemnification
agreement contained in this paragraph 4.1 and the Fund's representations and
warranties in this Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of you, your officers and
directors, or any controlling person, and shall survive the delivery of any of
the Fund's Shares. This agreement of indemnity will inure exclusively to your
benefit, to the benefit of your several officers and directors, and their
respective estates, and to the benefit of the controlling persons and their
successors. The Fund agrees to notify you promptly of the commencement of any
litigation or proceedings against the Fund or any of its officers or Board
members in connection with the issuance and sale of any of the Fund's Shares.
4.2 You agree to indemnify, defend and hold the Fund, its several officers
and Board members, and any person who controls the Fund within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the costs of investigating
or defending such claims, demands or liabilities and any counsel fees incurred
in connection therewith) that the Fund, its officers or Board members or any
such controlling person may incur under the 1933 Act, or under common law or
otherwise, but only to the extent that such liability or expense incurred by the
Fund, its officers or Board members, or such controlling person resulting from
such claims or demands shall arise out of or be based upon any untrue, or
alleged untrue, statement of a material fact contained in information furnished
in writing by you to the Fund and used in the answers to any of the items of the
registration statement or in the corresponding statements made in the prospectus
or statement of additional information, or shall arise out of or be based upon
any omission, or alleged omission, to state a material fact in connection with
such information furnished in writing by you to the Fund and required to be
stated in such answers or necessary to make such information not misleading.
Your agreement to indemnify the Fund, its officers or Board members, and any
such controlling person, as aforesaid, is expressly conditioned upon your being
notified of any action brought against the Fund, its officers or Board members,
or any such controlling person, such notification to be given by letter or
telegram addressed to you at your principal office in Boston, Massachusetts and
sent to you by the person against whom such
4
<PAGE>
action is brought, within ten days after the summons or other first legal
process shall have been served. You shall have the right to control the defense
of such action, with counsel of your own choosing, satisfactory to the Fund, if
such action is based solely upon such alleged misstatement or omission on your
part or with the Fund's consent, and in any other event the Fund, its officers
or Board members or such controlling person shall each have the right to
participate in the defense or preparation of the defense of any such action with
counsel of its own choosing reasonably acceptable to you but shall not have the
right to settle any such action without your consent, which will not be
unreasonably withheld. The failure to so notify you of any such action shall not
relieve you from any liability that you may have to the Fund, its officers or
Board members, or to such controlling person by reason of any such untrue, or
alleged untrue, statement or omission, or alleged omission, otherwise than on
account of your indemnity agreement contained in this paragraph 4.2. You agree
to notify the Fund promptly of the commencement of any litigation or proceedings
against you or any of your officers or directors in connection with the issuance
and sale of any of the Fund's Shares.
5. Effectiveness of Registration
-----------------------------
No Shares shall be offered by either you or the Fund under any of the
provisions of this Agreement and no orders for the purchase or sale of such
Shares under this Agreement shall be accepted by the Fund if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the 1933
Act, or if and so long as a current prospectus as required by Section 5(b) (2)
of the 1933 Act is not on file with the SEC; provided, however, that nothing
contained in this paragraph 5 shall in any way restrict or have any application
to or bearing upon the Fund's obligation to repurchase its Shares from any
shareholder in accordance with the provisions of the Fund's prospectus,
statement of additional information or charter documents, as amended from time
to time.
6. Offering Price
--------------
Shares of any class of any Series of the Fund offered for sale by you shall
be offered for sale at a price per share (the "offering price") equal to (a)
their net asset value (determined in the manner set forth in the Fund's charter
documents and the then-current prospectus and statement of additional
information) plus (b) a sales charge, if applicable, which shall be the
percentage of the offering price of such Shares as set forth in the Fund's then-
current prospectus relating to such Series. In addition to or in lieu of any
sales charge applicable at the time of sale, Shares of any class of any Series
of the Fund offered for sale by you may be subject to a contingent deferred
sales charge as set forth in the Fund's then-current prospectus and statement of
additional information. You shall be entitled to receive any sales charge
levied at the time of sale in respect of the Shares without remitting any
portion to the Fund. Any payments to a broker or dealer through whom you sell
Shares shall be governed by a separate agreement between you and such broker or
dealer and the Fund's then-current prospectus and statement of additional
information. Any payments to any provider of services to you shall be governed
by a separate agreement between you and such service provider.
7. Notice to You
-------------
The Fund agrees to advise you immediately in writing:
5
<PAGE>
(a) of any request by the SEC for amendments to the registration
statement, prospectus or statement of additional information then in effect
or for additional information;
(b) in the event of the issuance by the SEC of any stop order suspending
the effectiveness of the registration statement, prospectus or statement of
additional information then in effect or the initiation of any proceeding
for that purpose;
(c) of the happening of any event that makes untrue any statement of a
material fact made in the registration statement, prospectus or statement
of additional information then in effect or that requires the making of a
change in such registration statement, prospectus or statement of
additional
information in order to make the statements therein not misleading; and
(d) of all actions of the SEC with respect to any amendment to the
registration statement, or any supplement to the prospectus or statement of
additional information which may from time to time be filed with the SEC.
8. Term of the Agreement
---------------------
This Agreement shall become effective on the date hereof, shall have an
initial term of one year from the date hereof, and shall continue for successive
annual periods thereafter so long as such continuance is specifically approved
at least annually by (a) the Fund's Board or (b) by a vote of a majority (as
defined in the 1940 Act) of the Fund's outstanding voting securities, provided
that in either event the continuance is also approved by a majority of the Board
members of the Fund who are not interested persons (as defined in the 1940 Act)
of any party to this Agreement, by vote cast in person at a meeting called for
the purpose of voting on such approval. This Agreement is terminable with or
without cause, without penalty, on 60 days' notice by the Fund's Board or by
vote of holders of a majority of the relevant Series outstanding voting
securities, or on 90 days' notice by you. This Agreement will also terminate
automatically, as to the relevant Series, in the event of its assignment (as
defined in the 1940 Act and the rules and regulations thereunder).
9. Arbitration
Any claim, controversy, dispute or deadlock arising under this Agreement
(collectively, a "Dispute") shall be settled by arbitration administered under
the rules of the American Arbitration Association ("AAA") in New York, New York.
Any arbitration and award of the arbitrators, or a majority of them, shall be
final and the judgment upon the award rendered may be entered in any state or
federal court having jurisdiction. No punitive damages are to be awarded.
10. Miscellaneous
So long as you act as a principal underwriter and distributor of Shares,
you shall not perform any services for any entity other than investment
companies advised or administered by Citigroup Inc. or its subsidiaries. The
Fund recognizes that the persons employed by you to assist in the performance of
your duties under this Agreement may not devote their full time to such service
and nothing contained in this Agreement shall be deemed to limit or restrict the
6
<PAGE>
persons employed by you or any of your affiliates right to engage in and devote
time and attention to other businesses or to render services of whatever kind or
nature, provided, however, that in conducting such business or rendering such
services your employees and affiliates would take reasonable steps to assure
that the other parties involved are put on notice as to the legal entity with
which they are dealing. This Agreement and the terms and conditions set forth
herein shall be governed by, and construed in accordance with, the laws of the
State of New York without giving effect to its conflict of interest principles.
If the foregoing is in accordance with your understanding, kindly indicate
your acceptance of this Agreement by signing and returning to us the enclosed
copy, whereupon this Agreement will become binding on you.
Very truly yours,
Salomon Brothers Series Funds Inc
By: _____________________
Accepted:
CFBDS, INC.
By: __________________________
Authorized Officer
7
<PAGE>
EXHIBIT A
---------
Salomon Brothers Cash Management Fund
Salomon Brothers New York Municipal Money Market Fund
Salomon Brothers National Intermediate Municipal Fund
Salomon Brothers U.S. Government Income Fund
Salomon Brothers High Yield Bond Fund
Salomon Brothers Total Return Fund
Salomon Brothers Small Cap Growth Fund
Salomon Brothers Asia Growth Fund
Salomon Brothers Strategic Bond Fund
Salomon Brothers Institutional Money Market Fund
<PAGE>
Exhibit 99.14b
INDEPENDENT AUDITORS' CONSENT
To the Shareholders and Board of Directors of
Smith Barney Special Equities Fund:
We consent to the references to our firm, with respect to the Smith Barney
Special Equities Fund, under the headings "Financial Statements" and
"Representation and Warranties" in the Prospectus/Proxy Statement included in
this Registration Statement on Form N-14 for Salomon Brothers Series Funds Inc.
KPMG LLP
New York, New York
February 2, 1999
<PAGE>
VOTE THIS VOTING INSTRUCTION CARD TODAY! YOUR PROMPT RESPONSE WILL SAVE THE
EXPENSE OF ADDITIONAL MAILINGS
(Please detach at perforation before mailing)
................................................................................
SMITH BARNEY SPECIAL EQUITIES FUND
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned holder of shares of Smith Barney Special Equities Fund,
hereby apppoints Heath B. McLendon, Christina T. Sydor and Lewis E. Daidone
attorneys and proxies for the undersigned with full powers of substitution and
revocation, to represent the undersigned and to vote on behalf of the
undersigned all shares of the Special Equities Fund that the undersigned is
entitled to vote at the Special Meeting of Shareholders of the Special Equities
Fund to be held at the offices of the Special Equities Fund, 388 Greenwich
Street, 26th Floor, New York, New York on [May ,] 1999 at .m., and any
adjournment or adjournments thereof. The undersigned hereby acknowledges
receipt of the Notice of Special Meeting and Prospectus/Proxy Statement dated [
], 1999 and hereby instructs said attorneys and proxies to vote said shares
as indicated herein. In their discretion, the proxies are authorized to vote
upon such other business as may properly come before the Special Meeting. A
majority of the proxies present and acting at the Special Meeting in person or
by substitute (or, if only one shall be so present, then that one) shall have
and may exercise all of the power and authority of said proxies hereunder. The
undersigned hereby revokes any proxy previously given.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
(continued on reverse side)
<PAGE>
Please indicate your vote by an "X" in the appropriate box below. This proxy,
if properly executed, will be voted in the manner directed by the undersigned
shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR APPROVAL OF
THE PROPOSAL.
FOR [_] AGAINST [_] ABSTAIN [_]
To approve or dissapprove the Agreement and Plan of Reorganization dated as
of [ ], 1999 providing for (i) the acquisition of all or substantially all
of the assets of Smith Barney Special Equities Fund (the "Special Equities
Fund") in exchange for shares of Salomon Brothers Small Cap Growth Fund (the
"Small Cap Growth Fund") and the assumption by the Salomon Brothers Series
Funds Inc, on behalf of the Small Cap Growth Fund of substantially all of the
liabilities of the Special Equities Fund, (ii) the distribution to shareholders
of the Special Equities Fund of such shares of the Small Cap Growth Fund in
liquidation of the Special Equities Fund and (iii) the subsequent termination
of the Special Equities Fund.
Note: Please sign exactly as your name appears on this Proxy. If joint
owners, EITHER may sign this Proxy. When signing as attorney, executor,
administrator, trustee, guardian or corporate officer, please give your full
title.
Date: ____________________________
______________________________
Signature(s) Title(s), (if
applicable)
