P R O S P E C T U S
LOGO Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
PROSPECTUS JUNE
30, 1998
Smith Barney
Mid Cap Blend Fund
388 Greenwich Street
New York, New York 10013
1-800-451-2010
Smith Barney Mid Cap Blend Fund (the "Fund") is a mutual fund that
seeks
long-term growth of capital by investing, under normal market
conditions, at
least 65% of its total assets in the equity securities of medium-sized
compa-
nies with market capitalizations between $1 billion and $5 billion at
the time
of investment.
The Fund is one of a number of funds, each having distinct investment
objec-
tives and policies making up the Smith Barney Investment Trust (the
"Trust").
The Trust is an open-end management investment company commonly
referred to as
a mutual fund.
The initial subscription period for shares is scheduled to end on
August 26,
1998, (the "Subscription Period"). After the expiration of the
Subscription
Period or a limited continuous offering period, the Fund will suspend
the
offering of shares to the public. A continuous offering of shares is
expected
to commence on or about September 21, 1998. See "Purchase of Shares."
This Prospectus sets forth concisely certain information about the
Fund,
including sales charges, distribution and service fees and expenses,
that pro-
spective investors will find helpful in making an investment decision.
Invest-
ors are encouraged to read this Prospectus carefully and retain it for
future
reference.
Shares of the other Funds offered by the Trust are described in
separate pro-
spectuses that may be obtained by calling the Trust at 1-800-451-2010.
Additional information about the Fund is contained in a Statement of
Addi-
tional Information, (the "SAI") dated June 30, 1998, as amended or
supplemented
from time to time, that is available upon request and without charge by
calling
or writing the Fund at the telephone number or address set forth above
or by
contacting a Smith Barney Financial Consultant. The SAI has been filed
with the
Securities and Exchange Commission (the "SEC") and is incorporated by
reference
into this Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
MUTUAL MANAGEMENT CORP.
Investment Manager
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS
A CRIMINAL OFFENSE.
1
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 9
- -------------------------------------------------
VALUATION OF SHARES 11
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 11
- -------------------------------------------------
PURCHASE OF SHARES 13
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EXCHANGE PRIVILEGE 23
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REDEMPTION OF SHARES 26
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MINIMUM ACCOUNT SIZE 28
- -------------------------------------------------
PERFORMANCE 29
- -------------------------------------------------
MANAGEMENT OF THE TRUST AND THE FUND 29
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DISTRIBUTOR 30
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ADDITIONAL INFORMATION 31
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APPENDIX A A-1
</TABLE>
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No person has been authorized to give any information or to make any
repre-
sentations in connection with this offering other than those contained
in this
Prospectus and, if given or made, such other information or
representations
must not be relied upon as having been authorized by the Fund or the
distribu-
tor. This Prospectus does not constitute an offer by the Fund or the
distribu-
tor to sell or a solicitation of an offer to buy any of the securities
offered
hereby in any jurisdiction to any person to whom it is unlawful to make
such
offer or solicitation in such jurisdiction.
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2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed
information
appearing elsewhere in this Prospectus and in the SAI. Cross references
in this
summary are to headings in this Prospectus. See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end, diversified, management
invest-
ment company whose investment objective is to seek long-term growth of
capital
by investing, under normal market conditions, at least 65% of its total
assets
in the equity securities of medium-sized companies with market
capitalizations
of between $1 billion and $5 billion at the time of investment. See
"Investment
Objective and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several classes of
shares
("Classes") to investors designed to provide them with the flexibility
of
selecting an investment best suited to their needs. The general public
is
offered three classes of shares: Class A shares, Class B shares and
Class L
shares, which differ principally in terms of sales charges and rates of
expenses to which they are subject. A fourth Class of shares, Class Y
shares,
is offered only to investors meeting an initial investment minimum of
$15,000,000. See "Purchase of Shares" and "Redemption of Shares."
Class A Shares. Class A shares are sold at net asset value plus an
initial
sales charge of up to 5.00% and are subject to an annual service fee of
0.25%
of the average daily net assets of the Class. The initial sales charge
may be
reduced or waived for certain purchases. Purchases of Class A shares of
$500,000 or more will be made at net asset value with no initial sales
charge,
but will be subject to a contingent deferred sales charge ("CDSC") of
1.00% on
redemptions made within 12 months of purchase. See "Prospectus Summary-
- -Reduced
or No Initial Sales Charge."
Class B Shares. Class B shares are offered at net asset value subject
to a
maximum CDSC of 5.00% of redemption proceeds, declining by 1.00% each
year
after the date of purchase to zero. This CDSC may be waived for certain
redemp-
tions. Class B shares are subject to an annual service fee of 0.25% and
an
annual distribution fee of 0.75% of the average daily net assets of the
Class.
The Class B shares' distribution fee may cause that Class to have
higher
expenses and pay lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will convert
automatically
to Class A shares, based on relative net asset value, eight years after
the
date of the original purchase. Upon conversion, these shares will no
longer be
subject to an annual distribution fee. In addition, a certain portion
of Class
B shares that have been acquired through the reinvestment of dividends
and dis-
tributions ("Class B Dividend Shares") will be converted at that time.
See
"Purchase of Shares--Deferred Sales Charge Alternatives."
3
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Class L Shares. Class L shares are sold at net asset value plus an
initial
sales charge of 1.00%. They are subject to an annual service fee of
0.25% and
an annual distribution fee of 0.75% of the average daily net assets of
the
Class, and investors pay a CDSC of 1.00% if they redeem Class L shares
within
12 months of purchase. The CDSC may be waived for certain redemptions.
The
Class L shares' distribution fee may cause that Class to have higher
expenses
and pay lower dividends than Class A shares. Purchases of Fund shares,
which
when combined with current holdings of Class L shares of the Fund equal
or
exceed $500,000 in the aggregate, should be made in Class A shares at
net
asset value with no sales charge, and will be subject to a CDSC of
1.00% on
redemptions made within 12 months of purchase.
Class Y Shares. Class Y shares are available only to investors
meeting an
initial investment minimum of $15,000,000. Class Y shares are sold at
net
asset value with no initial sales charge or CDSC. They are not subject
to any
service or distribution fees.
In deciding which Class of Fund shares to purchase, investors should
con-
sider the following factors, as well as any other relevant facts and
circum-
stances:
Intended Holding Period. The decision as to which Class of shares is
more
beneficial to an investor depends on the amount and intended duration
of his
or her investment. Shareholders who are planning to establish a program
of
regular investment may wish to consider Class A shares; as the
investment
accumulates, shareholders may qualify for reduced sales charges and the
shares
are subject to lower ongoing expenses over the term of the investment.
As an
alternative, Class B shares are sold without any initial sales charge
so the
entire purchase price is immediately invested in the Fund. Any
investment
return on these additional invested amounts may partially or wholly
offset the
higher annual expenses of this Class. Because the Fund's future return
cannot
be predicted, however, there can be no assurance that this would be the
case.
Finally, Class L shares which have a lower upfront sales charge but are
sub-
ject to higher distribution fees than Class A shares, are suitable for
invest-
ors who are not investing or intending to invest an amount which would
receive
a substantive sales charge discount and who have a short-term or
undetermined
time frame.
Finally, investors should consider the effect of the CDSC period and
any
conversion rights of the Classes in the context of their own investment
time
frame. For example, while Class L shares have a shorter CDSC period
than Class
B shares, they do not have a conversion feature and therefore are
subject to
an ongoing distribution fee. Thus, Class B shares may be more
attractive than
Class L shares to investors with longer term investment outlooks.
Reduced or No Initial Sales Charge. The initial sales charge on Class
A
shares may be waived for certain eligible purchasers, and the entire
purchase
price will be immediately invested in the Fund. In addition, Class A
share
purchases of $500,000
4
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
or more will be made at net asset value with no initial sales charge,
but will
be subject to a CDSC of 1.00% on redemptions made within 12 months of
purchase.
The $500,000 investment may be met by adding the purchase to the net
asset
value of all Class A shares offered with a sales charge held in funds
sponsored
by Smith Barney Inc. ("Smith Barney") listed under "Exchange
Privilege." Class
A share purchases may also be eligible for a reduced initial sales
charge. See
"Purchase of Shares." Because the ongoing expenses of Class A shares
may be
lower than those for Class B and Class L shares, purchasers eligible to
pur-
chase Class A shares at net asset value or at a reduced sales charge
should
consider doing so.
Smith Barney Financial Consultants may receive different compensation
for
selling different Classes of shares. Investors should understand that
the pur-
pose of the CDSC on the Class B and Class L shares is the same as that
of an
initial sales charge.
See "Purchase of Shares" and "Management of the Fund" for a complete
descrip-
tion of the sales charges and service and distribution fees for each
Class of
shares and "Valuation of Shares," "Dividends, Distributions and Taxes"
and
"Exchange Privilege" for other differences between the Classes of
shares.
SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS Investors may be
eligible to
participate in the Smith Barney 401(k) Program, which is generally
designed to
assist plan sponsors in the creation and operation of retirement plans
under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code"),
as well as other types of participant directed, tax-qualified employee
benefit
plans. Other investors may be eligible to participate in the Smith
Barney
ExecChoice(TM) Program. Class A and Class L shares are available as
investment
alternatives under both of these programs. See "Purchase of Shares--
Smith Bar-
ney 401(k) and ExecChoice(TM) Programs."
PURCHASE OF SHARES Shares may be purchased through a brokerage account
main-
tained by Smith Barney during the Initial Subscription Period. During
the con-
tinuous offering period, shares may also be purchased through a
brokerage
account maintained with Smith Barney, a broker that clears securities
transac-
tions through Smith Barney on a fully disclosed basis (an "Introducing
Broker")
or an investment dealer in the selling group. In addition, certain
investors,
including qualified retirement plans and certain institutional
investors, may
purchase shares directly from the Fund through the Fund's transfer
agent, First
Data Investors Services Group, Inc. ("First Data" or "Transfer Agent").
See
"Purchase of Shares." The initial subscription period for shares is
scheduled
to end on August 26, 1998, (the "Subscription Period"). After the
expiration of
the Subscription Period or a limited continuous offering period, the
Fund will
suspend the offering of shares to the public. A continuous offering of
shares
is expected to commence on or about September 21, 1998. See "Purchase
of
Shares."
5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
INVESTMENT MINIMUMS Investors in Class A, Class B and Class L shares
may open
an account by making an initial investment of at least $1,000 for each
account, or $250 for an individual retirement account ("IRA") or a
Self-
Employed Retirement Plan. Investors in Class Y shares may open an
account for
an initial investment of $15,000,000. Subsequent investments of at
least $50
may be made for all Classes. For participants in retirement plans
qualified
under Section 403(b)(7) or Section 401(a) of the Code, the minimum
initial
investment requirement for Class A, Class B and Class L shares and the
subse-
quent investment requirement for all Classes of shares is $25. The
minimum
investment requirements for purchases of Fund shares through the
Systematic
Investment Plan are described below. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN During the continuous offering period, the
Fund
offers shareholders a Systematic Investment Plan under which they may
autho-
rize the automatic placement of a purchase order each month or quarter
for
Fund shares. The minimum initial investment requirement for Class A,
Class B
and Class L shares and the subsequent investment requirement for all
Classes
for shareholders purchasing shares through the Systematic Investment
Plan on a
monthly basis is $25 and on a quarterly basis is $50. See "Purchase of
Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York
Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares"
and
"Redemption of Shares."
MANAGEMENT OF THE FUND Mutual Management Corp. ("MMC" or the
"Manager"),
formerly known as Smith Barney Mutual Funds Management Inc., serves as
the
Fund's investment manager. The Manager is a wholly owned subsidiary of
Salomon
Smith Barney Holdings Inc, ("Holdings") formerly known as Smith Barney
Holdings. Holdings is a wholly owned subsidiary of Travelers Group Inc.
("Travelers"), a diversified financial services holding company
engaged,
through its subsidiaries, principally in four business segments:
Investment
Services including Asset Management, Consumer Finance Services, Life
Insurance
Services and Property & Casualty Insurance Services. See "Management of
the
Trust and the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the
same
Class of certain other funds of the Smith Barney Mutual Funds at the
respec-
tive net asset values next determined. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Fund for the prior day
generally is
quoted daily in the financial section of most newspapers and is also
available
from Smith Barney Financial Consultants. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income and
distribu-
tions of net realized capital gains, if any, are declared and paid
annually.
See "Dividends, Distributions and Taxes."
6
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of
a
Class will be reinvested automatically, unless otherwise specified by
an
investor, in additional shares of the same Class at current net asset
value.
Shares acquired by dividend and distribution reinvestments will not be
subject
to any sales charge or CDSC. Class B shares acquired through dividend
and dis-
tribution reinvestments will become eligible for conversion to Class A
shares
on a pro rata basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that
the
Fund's investment objective will be achieved. The value of the Fund's
invest-
ments, and thus the net asset value of the Fund's shares, will
fluctuate in
response to changes in market and economic conditions, as well as the
finan-
cial condition and prospects of issuers in which the Fund invests. The
Fund
may invest in foreign securities, though management intends to limit
such
investments to 10% of the Fund's assets. Foreign investments may
include addi-
tional risks associated with currency exchange rates, less complete
financial
information about individual companies, less market liquidity and
political
instability. See "Investment Objective and Management Policies."
THE FUND'S EXPENSES The following expense table lists the costs and
expenses
an investor will incur either directly or indirectly as a shareholder
of the
Fund, based on the maximum sales charge or maximum CDSC that may be
incurred
at the time of purchase or redemption and the Fund's estimated
operating
expenses:
<TABLE>
<CAPTION>
SMITH BARNEY
MID CAP BLEND FUND CLASS A CLASS B CLASS L
CLASS Y
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- --------
<S> <C> <C> <C>
<C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% None 1.00%
None
Maximum CDSC (as a percentage of original
cost or redemption proceeds, whichever is
lower) None* 5.00% 1.00%
None
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- --------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.75% 0.75% 0.75%
0.75%
12b-1 fees** 0.25 1.00 1.00
None
Other expenses*** 0.15 0.15 0.15
0.07
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TOTAL FUND OPERATING EXPENSES 1.15% 1.90% 1.90%
0.82%
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- --------
</TABLE>
* Purchases of Class A shares of $500,000 or more will be made at
net asset
value with no sales charge, but will be subject to a CDSC of 1.00%
on
redemptions made within 12 months of purchase.
** Upon conversion of Class B shares to Class A shares, such shares
will no
longer be subject to a distribution fee. Class L 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 shares may pay
more
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers
("NASD").
*** "Other Expenses" have been estimated based on expenses the Fund
expects
to incur during its fiscal year ending November 30, 1998.
7
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
The sales charge and CDSC set forth in the above table are the
maximum
charges imposed on purchases or redemptions of Fund shares and
investors may
actually pay lower or no charges, depending on the amount purchased
and, in the
case of Class B, Class L and certain Class A shares, the length of time
the
shares are held and whether the shares are held through the Smith
Barney 401(k)
and ExecChoice(TM) Programs. See "Purchase of Shares" and "Redemption
of
Shares." Smith Barney receives an annual 12b-1 service fee of 0.25% of
the
value of average daily net assets of Class A shares. For Class B and
Class L
shares, Smith Barney receives an annual 12b-1 fee of 1.00% of the value
of
average daily net assets of each respective Class, consisting of a
0.75% dis-
tribution fee and a 0.25% service fee. "Other expenses" in the above
table
include fees for shareholder services, custodial fees, legal and
accounting
fees, printing costs and registration fees.
EXAMPLE
The following example is intended to assist an investor in
understanding the
various costs that an investor in the Fund will bear directly or
indirectly.
The example assumes payment by the Fund of operating expenses at the
levels set
forth in the table above. See "Purchase of Shares," "Redemption of
Shares" and
"Management of the Trust and the Fund."
<TABLE>
<CAPTION>
SMITH BARNEY
MID CAP BLEND FUND 1 YEAR
3 YEARS
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- -------
<S> <C>
<C>
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5.00% annual return and (2) redemp-
tion at the end of each time period:
Class A.................................................... $61
$85
Class B.................................................... 69
90
Class L.................................................... 39
60
Class Y.................................................... 8
26
An investor would pay the following expenses on the same
investment, assuming the same annual return and no redemp-
tion:
Class A.................................................... $61
$85
Class B.................................................... 19
60
Class L.................................................... 29
60
Class Y.................................................... 8
26
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</TABLE>
The example also provides a means for the investor to compare expense
levels
of funds with different fee structures over varying investment periods.
To
facilitate such comparison, all funds are required to utilize a 5.00%
annual
return assumption. However, the Fund's actual return will vary and may
be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTA-
TION OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE
SHOWN.
8
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Fund's investment objective is long-term growth of capital. This
invest-
ment objective may not be changed without the approval of the holders
of a
majority of the Fund's outstanding shares. There can be no assurance
that the
Fund's investment objective will be achieved.
The Fund attempts to achieve its investment objective by investing,
under
normal market conditions, substantially all of its assets in equity
securities
and at least 65% of its total assets in equity securities of medium-
sized com-
panies with market capitalizations of between $1 billion and $5 billion
at the
time of investment. Companies whose capitalization falls outside this
range
after purchase continue to be considered medium-sized companies for
purposes of
the 65% policy. Investing in medium-capitalization stocks may involve
greater
risk than investing in large capitalization stocks since they can be
subject to
more abrupt or erratic movements. However, they tend to involve less
risk than
stocks of small capitalization companies.
In selecting the Fund's equity investments, the Manager seeks to
identify
companies that exhibit growth and/or value attributes. When selecting
stocks
with growth potential, the Manager will evaluate the specific financial
charac-
teristics of the issuer such as historical and forecasted earnings
growth,
sales growth, profitability and return on equity. When selecting stocks
with
value characteristics, the Manager will typically be looking at
companies that
are perhaps growing more slowly but whose valuation may be below
average rela-
tive to earnings and/or assets. In addition, the Manager will utilize
an active
quantitative investment strategy for a portion of the Fund. This
portion will
provide added diversification and, in addition, will select securities
using a
proprietary technique that are believed to have a high probability of
outperforming their respective industry or sector. In identifying these
securi-
ties, the Fund's portfolio manager is supported by a quantitatively
oriented
investment team.
The Fund will normally invest in all types of equity securities,
including
common stocks, preferred stocks, securities that are convertible into
common or
preferred stocks, such as warrants and convertible bonds, and
depository
receipts for those securities. The Fund may maintain a portion of its
assets,
which will usually not exceed 10%, in U.S. Government securities, money
market
obligations, and in cash to provide for payment of the Fund's expenses
and to
meet redemption requests. It is the policy of the Fund to be as fully
invested
in equity securities as practicable at all times. The Fund reserves the
right,
as a defensive measure, to hold money market securities, including
repurchase
agreements or cash, in such proportions as, in the opinion of
management, pre-
vailing market or economic
conditions warrant.
Consistent with its investment objective and policies described
above, the
Fund may invest up to 25% of its total assets in foreign securities,
including
both
9
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
direct investments and investments made through depository receipts.
The Fund
may also invest in real estate investment trusts; purchase or sell
securities
on a when-issued or delayed-delivery basis; enter into forward
commitments to
purchase securities; lend portfolio securities; purchase and sell put
and call
options; and enter into interest rate futures contracts, stock index
futures
contracts and related options.
The different types of securities and investment techniques used by
the Fund
all involve risks of varying degrees. For example, with respect to
common
stock, there can be no assurance of capital appreciation, and there is
a risk
of market decline. With respect to debt securities, including money
market
instruments, there is the risk that the issuer of a security may not be
able to
meet its obligation to make scheduled interest or principal payments.
See
Appendix A for a more complete discussion of certain of these
securities and
investment techniques and the associated risks.
PORTFOLIO TRANSACTIONS AND TURNOVER
Transactions on behalf of the Fund are allocated to various brokers
and deal-
ers by the Manager in its best judgment. The primary consideration is
prompt
and effective execution of orders at the most favorable price. Subject
to that
primary consideration, brokers and dealers, including Smith Barney, may
be
selected for research, statistical or other services to enable the
Manager to
supplement its own research and analysis with the views and information
of
other securities firms.
The Fund cannot accurately predict its portfolio turnover rate, but
antici-
pates that its annual turnover will not exceed 100%. An annual turnover
rate of
100% would occur if all of the securities held by the Fund were
replaced once
during a period of one year. The Manager will not consider turnover
rate a lim-
iting factor in making investment decisions consistent with the Fund's
invest-
ment objective and policies.
Year 2000. The investment management services provided to the Fund by
the
Manager and the services provided to shareholders by Smith Barney, the
Fund's
Distributor, depend on the smooth functioning of their computer
systems. Many
computer software systems in use today cannot recognize the year 2000,
but
revert to 1900 or some other date, due to the manner in which dates
were
encoded and calculated. That failure could have a negative impact on
the Fund's
operations, including the handling of securities trades, pricing and
account
services. The Manager and Smith Barney have advised the Fund that they
have
been reviewing all of their computer systems and actively working on
necessary
changes to their systems to prepare for the year 2000 and expect that
their
systems will be compliant before that date. In addition, the Manager
has been
advised by the Fund's custodian, transfer agent and accounting service
agent
that they are also in the process of modify-
10
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
ing their systems with the same goal. There can, however, be no
assurance that
the Manager, Smith Barney or any other service provider will be
successful, or
that interaction with other non-complying computer systems will not
impair
Fund services at that time.
VALUATION OF SHARES
The Fund's net asset value per share is determined as of the close of
regu-
lar trading on the NYSE on each day that the NYSE is open, by dividing
the
value of the Fund's net assets attributable to each Class by the total
number
of shares of the Class outstanding.
Generally, the Fund's investments are valued at market value or, in
the
absence of a market value with respect to any securities, at fair value
as
determined by or under the direction of the Trust's Board of Trustees.
Short-
term investments that mature in 60 days or less are valued at amortized
cost.
Amortized cost involves valuing an investment at its cost initially
and,
thereafter, assuming a constant amortization to maturity of any
discount or
premium, regardless of the impact of fluctuating interest rates on the
market
value of the instrument. Further information regarding the Fund's
valuation
policies is contained in the SAI.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute dividends from net investment
income and,
net realized capital gains, if any, annually. The Fund may also pay
additional
dividends shortly before December 31 from certain amounts of
undistributed
ordinary income and capital gains realized, in order to avoid a Federal
excise
tax liability. If a shareholder does not otherwise instruct, dividends
and
capital gain distributions will be reinvested automatically in
additional
shares of the same Class at net asset value, with no additional sales
charge
or CDSC. A shareholder may change the option at any time by notifying
his or
her Smith Barney Financial Consultant or their financial consultant,
Introduc-
ing Broker or dealer in the selling group. Shareholders whose accounts
are
held directly by First Data should notify First Data in writing,
requesting a
change to this reinvest option.
The per share amounts of dividends from net investment income on
Classes B
and L may be lower than that of Classes A and Y, mainly as a result of
the
distribution fees applicable to Class B and L shares. Similarly, the
per share
amounts of dividends from net investment income on Class A shares may
be lower
than that of Class Y, as a result of the service fee attributable to
Class A
shares. Capital gain distributions, if any, will be the same amount
across all
Classes of Fund shares (A, B, L and Y).
11
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
TAXES
The following is a summary of the material federal tax considerations
affect-
ing the Fund and Fund shareholders. Please refer to the SAI for further
discus-
sion. In addition to the considerations described below and in the SAI,
there
may be other federal, state, local, and/or foreign tax implications to
consid-
er. Because taxes are a complex matter, prospective shareholders are
urged to
consult their tax advisors for more detailed information with respect
to the
tax consequences of any investment.
The Fund intends to qualify, so long as such qualification is in the
best
interests of its shareholders, under Subchapter M of the Internal
Revenue Code
(the "Code") for tax treatment as a regulated investment company. The
Fund will
be treated as a separate entity of the Trust for Federal Income Tax
purposes.
The Fund intends to qualify under Subchapter M of the Internal Revenue
Code
(the "Code") for tax treatment as a regulated investment company. In
each tax-
able year that the Fund qualifies, the Fund will pay no federal income
tax on
its net investment company taxable income and long-term capital gain
that is
distributed to shareholders.
Dividends paid from net investment income and net realized short-term
securi-
ties gain, are subject to federal income tax as ordinary income.
Distributions,
if any, from net realized long-term securities gains, derived from the
sale of
securities held by the Fund for more than one year, are taxable as
long-term
capital gains, regardless of the length of time a shareholder has owned
Fund
shares.
Shareholders are required to pay tax on all taxable distributions,
even if
those distributions are automatically reinvested in additional Fund
shares. A
portion of the dividends paid by the Fund may qualify for the corporate
divi-
dends received deduction. Dividends consisting of interest from U.S.
government
securities may be exempt from state and local income taxes. The Fund
will
inform shareholders of the source and tax status of all distributions
promptly
after the close of each calendar year.
A shareholder's gain or loss on the disposition of Fund shares
(whether by
redemption, sale or exchange), generally will be a long-term or short-
term gain
or loss depending on the length of time the shares had been owned at
disposi-
tion. Losses realized by a shareholder on the disposition of Fund
shares owned
for six months or less will be treated as a long-term capital loss to
the
extent a capital gain dividend had been distributed on such shares.
The Fund is required to withhold ("backup withholding") 31% of all
taxable
dividends, capital gain distributions, and the proceeds of any
redemption,
regardless of whether gain or loss is realized upon the redemption, for
share-
holders who do not provide the Fund with a correct taxpayer
identification num-
ber (social security
12
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
or employer identification number). Withholding from taxable dividends
and cap-
ital gain distributions also is required for shareholders who otherwise
are
subject to backup withholding. Any tax withheld as a result of backup
withhold-
ing does not constitute an additional tax, and may be claimed as a
credit on
the shareholder's federal income tax return.
PURCHASE OF SHARES
GENERAL
The Fund currently offers four Classes of shares. Class A shares are
sold to
investors with an initial sales charge and Class B shares are sold
without an
initial sales charge but are subject to a CDSC payable upon certain
redemp-
tions. Class L shares are sold to investors with an initial sales
charge and
are subject to a CDSC payable upon certain redemptions. Class Y shares
are sold
without an initial sales charge or CDSC and are available only to
investors
investing a minimum of $15,000,000 (except, for purchases of Class Y
shares by
Smith Barney Concert Allocation Series, Inc. for which there is no
minimum pur-
chase amount). See "Prospectus Summary--Alternative Purchase
Arrangements" for
a discussion of factors to consider in selecting which Class of shares
to pur-
chase.
INITIAL SUBSCRIPTION PERIOD
Smith Barney, the Fund's distributor, will solicit subscriptions for
shares
of the Fund during the Subscription Period. Subscriptions for shares
must be
made through a brokerage account maintained with Smith Barney or an
Introducing
Broker. Shares of the Fund subscribed for during the Subscription
Period for
which Smith Barney accepts purchase orders will be issued and sold by
the Fund
on the third business day after the end of the Subscription Period (the
"Pur-
chase Date"). Also on the Purchase Date, shareholders of other funds of
the
Smith Barney Mutual Funds will be able to exchange shares of such funds
for
shares of the Fund. On the Purchase Date, Smith Barney will notify the
Fund of
the aggregate number of shares for which it has received and accepted
subscriptions, and the Fund will issue shares for such subscriptions
and com-
mence operations.
The Fund is offering its Class A shares to the public at a maximum
purchase
price per share of $12.00, which equals the Class A share initial net
asset
value per share of $11.40 plus the maximum sales charge set forth below
under
"Continuous Offerings". The Fund is offering its Class B, Class L and
Class Y
shares to the public at each Class' respective initial net asset value
per
share of $11.40.
The Fund and Smith Barney may in their discretion determine to
withdraw the
offering without notice for any reason before the end of the
Subscription Peri-
od. The Fund also reserves the right to refuse any order in whole or in
part.
13
<PAGE>
PURCHASE OF SHARES (CONTINUED)
CONTINUOUS OFFERINGS
Smith Barney will suspend the offering of shares to the public
immediately
after the expiration of the Subscription Period or within three weeks
thereaf-
ter. During the three-week period, Smith Barney will commence a limited
con-
tinuous offering of shares to the public. Once Smith Barney suspends
the
offering of shares to the public (the "Closing Period"), it is expected
to do
so for 30 days. This period may be lengthened or shortened in the
absolute
discretion of Smith Barney. During the Closing Period, the Fund will
invest
the proceeds from its Subscription Period and its continuous offering,
if any,
and existing shareholders of the Fund may request redemptions, purchase
addi-
tional shares and exchange shares of the Fund for shares of certain
other
funds of the Smith Barney Mutual Funds. See "Exchange Privilege."
Immediately
after the expiration of the Closing Period, Smith Barney expects to
commence a
continuous offering of shares of the Fund.
During the continuous offering, shares may be purchased through a
brokerage
account maintained with Smith Barney. Shares may also be purchased
through an
Introducing Broker or an investment dealer in the selling group. In
addition,
certain investors, including qualified retirement plans and certain
other
institutional investors, may purchase shares directly from the Fund
through
First Data. When purchasing shares of the Fund, investors must specify
whether
the purchase is for Class A, Class B, Class L or Class Y shares. Smith
Barney
and other broker/dealers may charge their customers an annual account
mainte-
nance fee in connection with a brokerage account through which an
investor
purchases or holds shares. Accounts held directly at First Data are not
sub-
ject to a maintenance fee.
Investors in Class A, Class B and Class L shares may open an account
by mak-
ing an initial investment of at least $1,000 for each account, or $250
for an
IRA or a Self-Employed Retirement Plan, in the Fund. Investors in Class
Y
shares may open an account by making an initial investment of
$15,000,000.
Subsequent investments of at least $50 may be made for all Classes. For
par-
ticipants in retirement plans qualified under Section 403(b)(7) or
Section
401(a) of the Code, the minimum initial investment requirement for
Class A,
Class B and Class L shares and the subsequent investment requirement
for all
Classes in the Fund is $25. For shareholders purchasing shares of the
Fund
through the Systematic Investment Plan on a monthly basis, the minimum
initial
investment requirement for Class A, Class B and Class L shares and the
subse-
quent investment requirement for all Classes is $25. For shareholders
purchas-
ing shares of the Fund through the Systematic Investment Plan on a
quarterly
basis, the minimum initial investment requirement for Class A, Class B
and
Class L shares and the subsequent investment requirement for all
Classes is
$50. There are no minimum investment requirements for Class A shares
purchased
by employees of Travelers and its subsidiaries, including Smith Barney,
Direc-
tors or Trustees of any of the Smith Barney Mutual Funds, and their
14
<PAGE>
PURCHASE OF SHARES (CONTINUED)
immediate family. The Fund reserves the right to waive or change
minimums, to
decline any order to purchase its shares and to suspend the offering of
shares
from time to time. Shares purchased will be held in the shareholder's
account
by the Fund's transfer agent. Share certificates are issued only upon a
share-
holder's written request to the Transfer Agent.
Purchase orders received by the Fund or Smith Barney prior to the
close of
regular trading on the NYSE on any day the Fund calculates its net
asset value
are priced according to the net asset value determined on that day (the
"trade
date"). Orders received by dealers or Introducing Brokers prior to the
close of
regular trading on the NYSE on any day the Fund calculates its net
asset value,
are priced according to the net asset value determined on that day,
provided
the order is received by the Fund or Smith Barney prior to Smith
Barney's close
of business. For shares purchased through Smith Barney or Introducing
Brokers
purchasing through Smith Barney, payment for Fund shares is due on the
third
business day (the "settlement date") after the trade date. In all other
cases,
payments must be made with the purchase order.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by
purchasing
shares through a service known as the Systematic Investment Plan. Under
the
Systematic Investment Plan, Smith Barney or the Transfer Agent is
authorized,
through preauthorized transfers of at least $25 on a monthly basis or
at least
$50 on a quarterly basis to charge the regular bank account or other
financial
institution indicated by the shareholder to provide systematic
additions to the
shareholder's Fund account. A shareholder who has insufficient funds to
com-
plete the transfer will be charged a fee of up to $25 by Smith Barney
or the
Transfer Agent. The Systematic Investment Plan also authorizes Smith
Barney to
apply cash held in the shareholder's Smith Barney brokerage account or
redeem
the shareholder's shares of a Smith Barney money market fund to make
additions
to the account. Additional information is available from the Fund or a
Smith
Barney Financial Consultant.
15
<PAGE>
PURCHASE OF SHARES (CONTINUED)
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the
Fund are
as follows:
<TABLE>
<CAPTION>
SALES CHARGE
------------------------------ DEALERS'
% OF % OF REALLOWANCE AS
% OF
AMOUNT OF INVESTMENT OFFERING PRICE AMOUNT INVESTED OFFERING
PRICE
- -----------------------------------------------------------------------
- ----
<S> <C> <C> <C>
Less than $ 25,000 5.00% 5.26% 4.50%
$ 25,000 - 49,999 4.00 4.17 3.60
50,000 - 99,999 3.50 3.63 3.15
100,000 - 249,999 3.00 3.09 2.70
250,000 - 499,999 2.00 2.04 1.80
500,000 and over * * *
- -----------------------------------------------------------------------
- ----
</TABLE>
* Purchases of Class A shares of $500,000 or more will be made at net
asset
value without any initial sales charge but will be subject to a CDSC
of 1.00%
on redemptions made within 12 months of purchase. The CDSC on Class A
shares
is payable to Smith Barney, which compensates Smith Barney Financial
Consultants and other dealers whose clients make purchases of
$500,000 or
more. The CDSC is waived in the same circumstances in which the CDSC
applicable to Class B and Class L shares is waived. See "Deferred
Sales
Charge Alternatives" and "Waivers of CDSC."
Members of the selling group may receive up to 90% of the sales
charge and
may be deemed to be underwriters of the Fund as defined in the
Securities Act
of 1933, as amended.
The reduced sales charges shown above apply to the aggregate of
purchases of
Class A shares of the Fund made at one time by "any person," which
includes an
individual and his or her immediate family, or a trustee or other
fiduciary of
a single trust estate or single fiduciary account.
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without a
sales
charge in the following circumstances: (a) sales to (i) Board members
and
employees of Travelers and its subsidiaries and of any of the Smith
Barney
Mutual Funds (including retired Board members and employees); the
immediate
families of such persons (including the surviving spouse of a deceased
Board
Member or employee); and to a pension, profit-sharing or other benefit
plan for
such persons and (ii) employees of members of the NASD, provided such
sales are
made upon the assurance of the purchaser that the purchase is made for
invest-
ment purposes and that the securities will not be resold except through
redemp-
tion or repurchase; (b) offers of Class A shares to any other
investment com-
pany to effect the combination of such company with the Fund by merger,
acqui-
sition of assets or otherwise; (c) purchases of Class A shares by any
client of
a newly employed Smith Barney Financial Consultant (for a period up to
90 days
from the commencement of the Financial Consultant's employment with
Smith Bar-
ney), on the condition the pur-
16
<PAGE>
PURCHASE OF SHARES (CONTINUED)
chase of Class A shares is made with the proceeds of the redemption of
shares
of a mutual fund which (i) was sponsored by the Financial Consultant's
prior
employer, (ii) was sold to the client by the Financial Consultant and
(iii) was
subject to a sales charge; (d) purchases by shareholders who have
redeemed
Class A shares in the Fund or Class A shares of another fund of the
Smith Bar-
ney Mutual Funds that are offered with a sales charge, and who wish to
reinvest
their redemption proceeds in the Fund, provided the reinvestment is
made within
60 calendar days of the redemption; (e) purchases by accounts managed
by regis-
tered investment advisory subsidiaries of Travelers; (f) direct
rollovers by
plan participants of distributions from a 401(k) plan offered to
employees of
Travelers or its subsidiaries or a 401(k) plan enrolled in the Smith
Barney
401(k) Program (Note: subsequent investments will be subject to the
applicable
sales charge); (g) purchases by separate accounts used to fund certain
unregis-
tered variable annuity contracts; (h) purchases by investors
participating
in a Smith Barney fee-based arrangement; and (i) purchases of Class A
shares by Section 403(b) or Section 401 (a) or (k) acounts associated
with Copeland Retirement Programs. . In order to obtain such discounts,
the
purchaser must provide sufficient information at the time of purchase
to permit
verification that the purchase would qualify for the elimination of the
sales
charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person" (as
defined
above) at a reduced sales charge or at net asset value determined by
aggregat-
ing the dollar amount of the new purchase and the total net asset value
of all
Class A shares of the Fund and of funds sponsored by Smith Barney which
are
offered with a sales charge listed under "Exchange Privilege" then held
by such
person and applying the sales charge applicable to such aggregate. In
order to
obtain such discount, the purchaser must provide sufficient information
at the
time of purchase to permit verification that the purchase qualifies for
the
reduced sales charge. The right of accumulation is subject to
modification or
discontinuance at any time with respect to all shares purchased
thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales charge
or pur-
chase at net asset value will also be available to employees (and
partners) of
the same employer purchasing as a group, provided each participant
makes the
minimum initial investment required. The sales charge applicable to
purchases
by each member of such a group will be determined by the table set
forth above
under "Initial Sales Charge Alternative--Class A Shares," and will be
based
upon the aggregate sales of Class A shares of the Smith Barney Mutual
Funds
offered with a sales charge to, and share holdings of, all members of
the
group. To be eligible for such reduced sales charges or to purchase at
net
asset value, all purchases must be pursuant to an employer- or
partnership-
sanctioned plan meeting certain requirements. One such requirement is
that the
plan must be open to specified partners or
17
<PAGE>
PURCHASE OF SHARES (CONTINUED)
employees of the employer and its subsidiaries, if any. Such plan may,
but is
not required to, provide for payroll deductions, IRAs or investments
pursuant
to retirement plans under Sections 401 or 408 of the Code. Smith Barney
may
also offer a reduced sales charge or net asset value purchase for
aggregating
related fiduciary accounts under such conditions that Smith Barney will
realize
economies of sales efforts and sales related expenses. An individual
who is a
member of a qualified group may also purchase Class A shares at the
reduced
sales charge applicable to the group as a whole. The sales charge is
based upon
the aggregate dollar value of Class A shares offered with a sales
charge that
have been previously purchased and are still owned by the group, plus
the
amount of the current purchase. A "qualified group" is one which (a)
has been
in existence for more than six months, (b) has a purpose other than
acquiring
Fund shares at a discount and (c) satisfies uniform criteria which
enable Smith
Barney to realize economies of scale in its costs of distributing
shares. A
qualified group must have more than 10 members, must be available to
arrange
for group meetings between representatives of the Fund and the members,
and
must agree to include sales and other materials related to the Fund in
its pub-
lications and mailings to members at no cost to Smith Barney. In order
to
obtain such reduced sales charge or to purchase at net asset value, the
pur-
chaser must provide sufficient information at the time of purchase to
permit
verification that the purchase qualifies for the reduced sales charge.
Approval
of group purchase reduced sales charge plans is subject to the
discretion of
Smith Barney.
LETTER OF INTENT
Class A Shares. A Letter of Intent for amounts of $50,000 or more
provides an
opportunity for an investor to obtain a reduced sales charge by
aggregating
investments over a 13 month period, provided that the investor refers
to such
Letter when placing orders. For purposes of a Letter of Intent, the
"Amount of
Investment" as referred to in the preceding sales charge table includes
pur-
chases of all Class A shares of the Fund and other Smith Barney Mutual
Funds
offered with a sales charge over the 13 month period based on the total
amount
of intended purchases plus the value of all Class A shares previously
purchased
and still owned. An alternative is to compute the 13 month period
starting up
to 90 days before the date of execution of a Letter of Intent. Each
investment
made during the period receives the reduced sales charge applicable to
the
total amount of the investment goal. If the goal is not achieved within
the
period, the investor must pay the difference between the sales charges
applica-
ble to the purchases made and the charges previously paid, or an
appropriate
number of escrowed shares will be redeemed. Please contact a Smith
Barney
Financial Consultant or First Data to obtain a Letter of Intent
application.
Class Y Shares. A Letter of Intent may also be used as a way for
investors to
meet the minimum investment requirement for Class Y shares. Such
investors must
18
<PAGE>
PURCHASE OF SHARES (CONTINUED)
make an initial minimum purchase of $5,000,000 in Class Y shares of the
Fund
and agree to purchase a total of $15,000,000 of Class Y shares of the
Fund
within thirteen (13) months from the date of the Letter. If a total
investment
of $15,000,000 is not made within the thirteen-month period, all Class
Y shares
purchased to date will be transferred to Class A shares, where they
will be
subject to all fees (including a service fee of 0.25%) and expenses
applicable
to the Fund's Class A shares, which may include a CDSC of 1.00%. The
Fund
expects that such transfer will not be subject to Federal income taxes.
Please
contact a Smith Barney Financial Consultant or First Data for further
informa-
tion.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at the net asset value next determined without
an ini-
tial sales charge so that the full amount of an investor's purchase
payment may
be immediately invested in the Fund. A CDSC, however, may be imposed on
certain
redemptions of these shares. CDSC Shares are: (a) Class B shares; (b)
Class L
shares; and (c) Class A shares that were purchased without an initial
sales
charge but subject to a CDSC.
Any applicable CDSC will be assessed on an amount equal to the lesser
of the
cost of the shares being redeemed or their net asset value at the time
of
redemption. CDSC Shares that are redeemed will not be subject to a CDSC
to the
extent that the value of such shares represents: (a) capital
appreciation of
Fund assets; (b) reinvestment of dividends or capital gain
distributions; (c)
with respect to Class B shares, shares redeemed more than five years
after
their purchase; or (d) with respect to Class L shares and Class A
shares that
are CDSC Shares, shares redeemed more than 12 months after their
purchase.
Class L shares and Class A shares that are CDSC Shares are subject to
a 1.00%
CDSC if redeemed within 12 months of purchase. In circumstances in
which the
CDSC is imposed on Class B shares, the amount of the charge will depend
on the
number of years since the shareholder made the purchase payment from
which the
amount is being redeemed. Solely for purposes of determining the number
of
years since a purchase payment, all purchase payments made during a
month will
be aggregated and deemed to have been made on the last day of the
preceding
Smith Barney statement month. The following table sets forth the rates
of the
charge for redemptions of Class B shares by shareholders, except in the
case of
Class B shares held under the Smith Barney 401(k) Program, as described
below.
See "Purchase of Shares--Smith Barney 401(k) and ExecChoice(TM)
Programs."
19
<PAGE>
PURCHASE OF SHARES (CONTINUED)
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
- ---------------------------------
<S> <C>
First 5.00%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth and thereafter 0.00
- ---------------------------------
</TABLE>
Class B shares will convert automatically to Class A shares eight
years
after the date on which they were purchased and thereafter will no
longer be
subject to any distribution fees. There also will be converted at that
time
such proportion of Class B Dividend Shares owned by the shareholder as
the
total number of his or her Class B shares converting at the time bears
to the
total number of outstanding Class B shares (other than Class B Dividend
Shares) owned by the shareholder. See "Prospectus Summary--Alternative
Pur-
chase Arrangements--Class B Shares Conversion Feature." The length of
time
that CDSC Shares acquired through an exchange have been held will be
calcu-
lated from the date that the shares exchanged were initially acquired
in one
of the other applicable Smith Barney Mutual Funds, and Fund shares
being
redeemed will be considered to represent, as applicable, capital
appreciation
or dividend and capital gain distribution reinvestments in such other
funds.
For Federal income tax purposes, the amount of the CDSC will reduce the
gain
or increase the loss, as the case may be, on the amount realized on
redemp-
tion. The amount of any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased 100 Class B
shares at
$10 per share for a cost of $1,000. Subsequently, the investor acquired
5
additional shares through dividend reinvestment. During the fifteenth
month
after the purchase, the investor decided to redeem $500 of his or her
invest-
ment. Assuming at the time of the redemption the net asset value had
appreci-
ated to $12 per share, the value of the investor's shares would be
$1,260 (105
shares at $12 per share). The CDSC would not be applied to the amount
which
represents appreciation ($200) and the value of the reinvested dividend
shares
($60). Therefore, $240 of the $500 redemption proceeds ($500 minus
$260) would
be charged at a rate of 4.00% (the applicable rate for Class B shares)
for a
total deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege");
(b)
automatic cash withdrawals in amounts equal to or less than 1.00% per
month of
the value of the shareholder's shares at the time the withdrawal plan
com-
mences (see "Automatic Cash Withdrawal Plan") (provided, however, that
auto-
matic cash withdrawals in amounts equal to or less than 2.00% per month
of the
value of the shareholder's shares will be permitted for withdrawal
plans that
were established prior to November 7, 1994); (c) redemptions of shares
within
12 months following
20
<PAGE>
PURCHASE OF SHARES (CONTINUED)
the death or disability of the shareholder; (d) redemptions of shares
made in
connection with qualified distributions from retirement plans or IRAs
upon the
attainment of age 59 1/2; (e) involuntary redemptions; and (f)
redemptions of
shares to effect a combination of the Fund with any investment company
by
merger, acquisition of assets or otherwise. In addition, a shareholder
who has
redeemed shares from other Smith Barney Mutual Funds may, under certain
cir-
cumstances, reinvest all or part of the redemption proceeds within 60
days and
receive pro rata credit for any CDSC imposed on the prior redemption.
CDSC waivers will be granted subject to confirmation (by Smith Barney
in the
case of shareholders who are also Smith Barney clients or by the
Transfer
Agent in the case of all other shareholders) of the shareholder's
status or
holdings, as the case may be.
SMITH BARNEY 401(K) PROGRAM AND EXECCHOICE(TM) PROGRAMS
Investors may be eligible to participate in the Smith Barney 401(k)
Program
or the Smith Barney ExecChoice(TM) Program. To the extent applicable,
the same
terms and conditions, which are outlined below, are offered to all
plans par-
ticipating ("Participating Plans") in these programs.
Each Fund offers to Participating Plans Class A and Class L shares as
investment alternatives under the Smith Barney 401(k) and
ExecChoice(TM) Pro-
grams. Class A and Class L shares acquired through the Participating
Plans are
subject to the same service and/or distribution fees as the Class A and
Class
L shares acquired by other investors; however, they are not subject to
any
initial sales charge or CDSC. Once a Participating Plan has made an
initial
investment in a Fund, all of its subsequent investments in the Fund
must be in
the same Class of shares, except as otherwise described below.
Class A Shares. Class A shares of a Fund are offered without any
sales
charge or CDSC to any Participating Plan that purchases $1,000,000 or
more of
Class A shares of one or more funds of the Smith Barney Mutual Funds.
Class L Shares. Class L shares of a Fund are offered without any
sales
charge or CDSC to any Participating Plan that purchases less than
$1,000,000
of Class L shares of one or more funds of the Smith Barney Mutual
Funds.
401(k) and ExecChoice(TM) Plans Opened On or After June 21, 1996. At
the end
of the fifth year after the date the Participating Plan enrolled in the
Smith
Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program, if
its total
Class L holdings in all non-money market Smith Barney Mutual Funds
equal at
least $1,000,000, it will be offered the opportunity to exchange all of
its
Class L shares for Class A shares of a Fund. (For Participating Plans
that
were originally established through a Smith Barney retail brokerage
account,
the five year period will be
21
<PAGE>
PURCHASE OF SHARES (CONTINUED)
calculated from the date the retail brokerage account was opened.) Such
Partic-
ipating Plans will be notified of the pending exchange in writing
within 30
days after the fifth anniversary of the enrollment date and, unless the
exchange offer has been rejected in writing, the exchange will occur on
or
about the 90th day after the fifth anniversary date. If the
Participating Plan
does not qualify for the five year exchange to Class A shares, a review
of the
Participating Plan's holdings will be performed each quarter until
either the
Participating Plan qualifies or the end of the eighth year.
401(k) Plans Opened Prior to June 21, 1996. In any year after the
date a Par-
ticipating Plan enrolled in the Smith Barney 401(k) Program, if its
total Class
L holdings in all non-money market Smith Barney Mutual Funds equal at
least
$500,000 as of the calendar year-end, the Participating Plan will be
offered
the opportunity to exchange all of its Class L shares for Class A
shares of a
Fund. Such Plans will be notified in writing within 30 days after the
last
business day of the calendar year and, unless the exchange offer has
been
rejected in writing, the exchange will occur on or about the last
business day
of the following March.
Any Participating Plan in the Smith Barney 401(k) Program that has
not previ-
ously qualified for an exchange into Class A shares will be offered the
oppor-
tunity to exchange all of its Class L shares for Class A shares of a
Fund,
regardless of asset size, at the end of the eighth year after the date
the Par-
ticipating Plan enrolled in the Smith Barney 401(k) Program. Such Plans
will be
notified of the pending exchange in writing approximately 60 days
before the
eighth anniversary of the enrollment date and, unless the exchange has
been
rejected in writing, the exchange will occur on or about the eighth
anniversary
date. Once an exchange has occurred, a Participating Plan will not be
eligible
to acquire additional Class L shares of the Fund but instead may
acquire Class
A shares of the Fund. Any Class L shares not converted will continue to
be sub-
ject to the distribution fee.
Participating Plans wishing to acquire shares of a Fund through the
Smith
Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program must
purchase
such shares directly from the Transfer Agent. For further information
regarding
these Programs, investors should contact a Smith Barney Financial
Consultant.
22
<PAGE>
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class may be
exchanged at the
net asset value next determined for shares of the same Class in the
following
Smith Barney Mutual Funds, to the extent shares are offered for sale in
the
shareholder's state of residence. Exchanges of Class A, Class B and
Class L
shares are subject to minimum investment requirements and all shares
are sub-
ject to the other requirements of the fund into which exchanges are
made.
FUND NAME
Growth Funds
Concert Peachtree Growth Fund
Concert Social Awareness Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Balanced Fund
Smith Barney Contrarian Fund
Smith Barney Convertible Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.--Large Cap Value Fund
Smith Barney Large Cap Blend Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Premium Total Return Fund
Smith Barney Small Cap Blend Fund
Smith Barney Special Equities Fund
Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
+++Smith Barney Funds, Inc.--Short-Term U.S. Treasury Securities
Fund
Smith Barney Funds, Inc.--U.S. Government Securities Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney Total Return Bond Fund
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
*Smith Barney Intermediate Maturity California Municipals Fund
*Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Municipal High Income Fund
23
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Muni Funds--Florida Portfolio
Smith Barney Muni Funds--Georgia Portfolio
*Smith Barney Muni Funds--Limited Term Portfolio
Smith Barney Muni Funds--National Portfolio
Smith Barney Muni Funds--New York Portfolio
Smith Barney Muni Funds--Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Global-International Funds
Smith Barney Hansberger Global Small Cap Value Fund
Smith Barney Hansberger Global Value Fund
Smith Barney World Funds, Inc.--Emerging Markets Portfolio
Smith Barney World Funds, Inc.--European Portfolio
Smith Barney World Funds, Inc.--Global Government Bond Portfolio
Smith Barney World Funds, Inc.--International Balanced Portfolio
Smith Barney World Funds, Inc.--International Equity Portfolio
Smith Barney World Funds, Inc.--Pacific Portfolio
Smith Barney Concert Allocation Series Inc.
Smith Barney Concert Allocation Series Inc.--Balanced Portfolio
Smith Barney Concert Allocation Series Inc.--Conservative Portfolio
Smith Barney Concert Allocation Series Inc.--Global Portfolio
Smith Barney Concert Allocation Series Inc.--Growth Portfolio
Smith Barney Concert Allocation Series Inc.--High Growth Portfolio
Smith Barney Concert Allocation Series Inc.--Income Portfolio
Money Market Funds
+Smith Barney Exchange Reserve Fund
++Smith Barney Money Funds, Inc.--Cash Portfolio
++Smith Barney Money Funds, Inc.--Government Portfolio
***Smith Barney Money Funds, Inc.--Retirement Portfolio
+++Smith Barney Municipal Money Market Fund, Inc.
+++Smith Barney Muni Funds--California Money Market Portfolio
+++Smith Barney Muni Funds--New York Money Market Portfolio
- -----------------------------------------------------------------------
- ---------
* Available for exchange with Class A, Class L and Class Y shares of
the
Fund.
** Available for exchange with Class A and Class B shares of the Fund.
***Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class L shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund.
In
addition, shareholders who own Class L shares of the Fund through
the Smith
Barney 401(k) and ExecChoice(TM) Programs may exchange those shares
for
Class L shares of this Fund.
+++Available for exchange with Class A and Class Y shares of the Fund.
24
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Class B Exchanges. In the event a Class B shareholder wishes to
exchange all
or a portion of his or her shares in any of the funds imposing a CDSC
higher
than that imposed by the Fund, the exchanged Class B shares will be
subject to
the higher applicable CDSC. Upon an exchange, the new Class B shares
will be
deemed to have been purchased on the same date as the Class B shares of
the
fund that have been exchanged.
Class L Exchanges. Upon an exchange, the new Class L shares will be
deemed
to have been purchased on the same date as the Class L shares of the
Fund that
have been exchanged.
Class A and Class Y Exchanges. Class A and Class Y shareholders of
the Fund
who wish to exchange all or a portion of their shares for shares of the
respective Class in any of the funds identified above may do so without
impo-
sition of any charge.
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange
transactions
can be detrimental to the Fund's performance and its shareholders. The
Manager
may determine that a pattern of frequent exchanges is excessive and
contrary
to the best interests of the Fund's other shareholders. In this event,
the
Fund may, at its discretion, decide to limit additional purchases
and/or
exchanges by a shareholder. Upon such a determination, the Fund will
provide
notice in writing or by telephone to the shareholder at least 15 days
prior to
suspending the exchange privilege and during the 15 day period the
shareholder
will be required to (a) redeem his or her shares in the Fund or (b)
remain
invested in the Fund or exchange into any of the funds of the Smith
Barney
Mutual Funds ordinarily available, which position the shareholder would
be
expected to maintain for a significant period of time. All relevant
factors
will be considered in determining what constitutes an abusive pattern
of
exchanges.
Certain shareholders may be able to exchange shares by telephone. See
"Re-
demption of Shares--Telephone Redemption and Exchange Program."
Exchanges will
be processed at the net asset value next determined. Redemption
procedures
discussed below are also applicable for exchanging shares, and
exchanges will
be made upon receipt of all supporting documents in proper form. If the
account registration of the shares of the fund being acquired is
identical to
the registration of the shares of the fund exchanged, no signature
guarantee
is required.
A capital gain or loss for tax purposes will be realized upon the
exchange,
depending upon the cost or other basis of shares redeemed. Before
exchanging
shares, investors should read the current prospectus describing the
shares to
be acquired. The Fund reserves the right to modify or discontinue
exchange
privileges upon 60 days' prior notice to shareholders.
25
<PAGE>
REDEMPTION OF SHARES
The Fund is required to redeem shares tendered to it, as described
below, at
a redemption price equal to their net asset value per share next
determined
after receipt of a written request in proper form at no charge other
than any
applicable CDSC. Redemption requests received after the close of
regular trad-
ing on the NYSE are priced at the net asset value next determined.
If a shareholder holds shares in more than one Class, any request for
redemp-
tion must specify the Class being redeemed. In the event of a failure
to spec-
ify which Class, or if the investor owns fewer shares of the Class than
speci-
fied, the redemption request will be delayed until the Transfer Agent
receives
further instructions from Smith Barney, or if the shareholder's account
is not
with Smith Barney, from the shareholder directly. The redemption
proceeds will
be remitted on or before the third business day following receipt of
proper
tender, except on any days on which the NYSE is closed or as permitted
under
the Investment Company Act of 1940, as amended (the "1940 Act"), in
extraordi-
nary circumstances. Generally, if the redemption proceeds are remitted
to a
Smith Barney brokerage account, these funds will not be invested for
the share-
holder's benefit without specific instruction and Smith Barney will
benefit
from the use of temporarily uninvested funds. Redemption proceeds for
shares
purchased by check, other than a certified or official bank check, will
be
remitted upon clearance of the check, which may take up to ten days or
more.
Shares held by Smith Barney as custodian must be redeemed by
submitting a
written request to a Smith Barney Financial Consultant. Shares other
than those
held by Smith Barney as custodian may be redeemed through an investor's
Finan-
cial Consultant, Introducing Broker or dealer in the selling group or
by sub-
mitting a written request for redemption to:
Smith Barney Mid Cap Blend Fund
Class A, B, L or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
A written redemption request must (a) state the Class and number or
dollar
amount of shares to be redeemed, (b) identify the shareholder's account
number
and (c) be signed by each registered owner exactly as the shares are
regis-
tered. If the shares to be redeemed were issued in certificate form,
the cer-
tificates must be endorsed for transfer (or be accompanied by an
endorsed stock
power) and must be submitted to First Data together with the redemption
request. Any signature appearing on a share certificate, stock power or
written
redemption request in excess of $10,000 must be guaranteed by an
eligible guar-
antor institution such as a domestic bank, savings and loan
institution, domes-
tic credit union, member bank of the Fed-
26
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
eral Reserve System or member firm of a national securities exchange.
Written
redemption requests of $10,000 or less do not require a signature
guarantee
unless more than one such redemption request is made in any 10-day
period or
the redemption proceeds are to be sent to an address other than the
address of
record. Unless otherwise directed, redemption proceeds will be mailed
to an
investor's address of record. First Data may require additional
supporting
documents for redemptions made by corporations, executors,
administrators,
trustees or guardians. A redemption request will not be deemed properly
received until First Data receives all required documents in proper
form.
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
Shareholders who do not have a Smith Barney brokerage account may be
eligi-
ble to redeem and exchange Fund shares by telephone. To determine if a
share-
holder is entitled to participate in this program, he or she should
contact
First Data at 1-800-451-2010. Once eligibility is confirmed, the
shareholder
must complete and return a Telephone/Wire Authorization Form, including
a sig-
nature guarantee, that will be provided by First Data upon request.
(Alterna-
tively, an investor may authorize telephone redemptions on the new
account
application with a signature guarantee when making his/her initial
investment
in the Fund.)
Redemptions. Redemption requests of up to $10,000 of any class or
classes of
the Fund's shares may be made by eligible shareholders by calling First
Data
at 1-800-451-2010. Such requests may be made between 9:00 a.m. and 4:00
p.m.
(New York City time) on any day the NYSE is open. Redemption requests
received
after the close of regular trading on the NYSE are priced at the net
asset
value next determined. Redemptions of shares (i) by retirement plans or
(ii)
for which certificates have been issued are not permitted under this
program.
A shareholder will have the option of having the redemption proceeds
mailed
to his/her address of record or wired to a bank account predesignated
by the
shareholder. Generally, redemption proceeds will be mailed or wired, as
the
case may be, on the next business day following the redemption request.
In
order to use the wire procedures, the bank receiving the proceeds must
be a
member of the Federal Reserve System or have a correspondent
relationship with
a member bank. The Fund reserves the right to charge shareholders a
nominal
fee for each wire redemption. Such charges, if any, will be assessed
against
the shareholder's account from which shares were redeemed. In order to
change
the bank account designated to receive redemption proceeds, a
shareholder must
complete a new Telephone/Wire Authorization Form and, for the
protection of
the shareholder's assets, will be required to provide a signature
guarantee
and certain other documentation.
Exchanges. Eligible shareholders may make exchanges by telephone if
the
account registration of the shares of the fund being acquired is
identical to
the
27
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
registration of the shares of the fund exchanged. Such exchange
requests may
be made by calling First Data at 1-800-451-2010 between 9:00 a.m. and
4:00
p.m. (New York City time) on any day the NYSE is open. Exchange
requests
received after the close of regular trading on the NYSE are priced at
the net
asset value next determined.
Additional Information Regarding Telephone Redemption and Exchange
Program. Neither the Fund nor its agents will be liable for following
instruc-
tions communicated by telephone that are reasonably believed to be
genuine.
The Fund and its agents will employ procedures designed to verify the
identity
of the caller and legitimacy of instructions (for example, a
shareholder's
name and account number will be required and phone calls may be
recorded). The
Fund reserves the right to suspend, modify or discontinue the telephone
redemption and exchange program or to impose a charge for this service
at any
time following at least seven (7) days' prior notice to shareholders.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under
which
shareholders who own shares with a value of at least $10,000 may elect
to
receive cash payments of at least $50 monthly or quarterly. Retirement
plan
accounts are eligible for automatic cash withdrawal plans only where
the
shareholder is eligible to receive qualified distributions and has an
account
value of at least $5,000. The withdrawal plan will be carried over on
exchanges between funds or Classes of the Fund. Any applicable CDSC
will not
be waived on amounts withdrawn by a shareholder that exceed 1.00% per
month of
the value of the shareholder's shares subject to the CDSC at the time
the
withdrawal plan commences. (With respect to withdrawal plans in effect
prior
to November 7, 1994, any applicable CDSC will be waived on amounts
withdrawn
that do not exceed 2.00% per month of the shareholder's shares subject
to the
CDSC.) For further information regarding the automatic cash withdrawal
plan,
shareholders should contact a Smith Barney Financial Consultant or
their
financial consultant, Introducing Broker or dealer in the selling
group.
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any
shareholder's
account in the Fund if the aggregate net asset value of the shares held
in the
Fund account is less than $500. (If a shareholder has more than one
account in
the Fund, each account must satisfy the minimum account size.) The
Fund, how-
ever, will not redeem shares based solely on market reductions in net
asset
value. Before the Fund exercises such right, shareholders will receive
written
notice and will be permitted 60 days to bring accounts up to the
minimum to
avoid involuntary liquidation.
28
<PAGE>
PERFORMANCE
From time to time the Fund may advertise its total return and average
annual
total return in advertisements and/or other types of sales literature.
These
figures are computed separately for Class A, Class B, Class L and Class
Y
shares of the Fund. These figures are based on historical earnings and
are not
intended to indicate future performance. Total return is computed for a
speci-
fied period of time assuming deduction of the maximum sales charge, if
any,
from the initial amount invested and reinvestment of all income
dividends and
capital gain distributions on the reinvestment dates at prices
calculated as
stated in this Prospectus, then dividing the value of the investment at
the end
of the period so calculated by the initial amount invested and
subtracting
100%. The standard average annual total return, as prescribed by the
SEC is
derived from this total return, which provides the ending redeemable
value.
Such standard total return information may also be accompanied with
nonstandard
total return information for differing periods computed in the same
manner but
without annualizing the total return or taking sales charges into
account. The
Fund may also include comparative performance information in
advertising or
marketing its shares. Such performance information may include data
from Lipper
Analytical Services, Inc. and other financial publications.
MANAGEMENT OF THE TRUST AND THE FUND
BOARD OF TRUSTEES
Overall responsibility for the management and supervision of the
Trust rests
with the Trust's Board of Trustees. The Trustees approve all
significant agree-
ments between the Trust and the persons and companies that furnish
services to
the Fund, including agreements with the Fund's distributor, investment
manager,
custodian and transfer agent. The day-to-day operations of the Fund are
dele-
gated to the Fund's investment manager. The SAI contains background
information
regarding each Trustee of the Trust and executive officers of the Fund.
INVESTMENT MANAGER--MMC
The Fund's investment manager, MMC, is a registered investment
adviser whose
principal executive offices are located at 388 Greenwich Street, New
York, New
York 10013. MMC was incorporated in March, 1968 under the laws of
Delaware and
renders investment advice to a wide variety of individual,
institutional and
investment company clients that had aggregate assets under management
as of May
31, 1998 in excess of $98 billion.
Subject to the supervision and direction of the Trust's Board of
Trustees,
the Manager manages the Fund's portfolio in accordance with the Fund's
stated
invest-
ment objective and policies, makes investment decisions for the Fund,
places
orders to purchase and sell securities, and employs professional
portfolio man-
agers and
29
<PAGE>
MANAGEMENT OF THE TRUST AND THE FUND (CONTINUED)
securities analysts who provide research services to the Fund. For
investment
management services rendered, the Fund pays the Manager a monthly fee
at the
annual rate of 0.75% of the value of the Fund's average daily net
assets.
PORTFOLIO MANAGEMENT
Lawrence Weissman, Vice President and Investment Officer of the Fund,
is the
portfolio manager and manages the day-to-day operations of the Fund,
including
making all investment decisions.
On April 6, 1998, Travelers announced that it had entered into a
Merger
Agreement with Citicorp. The transaction, which is expected to be
completed
during the third quarter of 1998, is subject to various regulatory
approvals,
including approval by the Federal Reserve Board. The transaction is
also sub-
ject to approval by the stockholders of each of Travelers and Citicorp.
Upon
consummation of the merger, the surviving corporation would be a bank
holding
company subject to regulation under the Bank Holding Company Act of
1956 (the
"BHCA"), the requirements of the Glass-Steagall Act and certain other
laws and
regulations. Although the effects of the merger of Travelers and
Citicorp and
compliance with the requirements of BHCA and the Class-Steagall Act are
still
under review, the Manager does not believe that its compliance with
applicable
laws following the merger of Travelers and Citicorp will have a
material
adverse effect on its ability to continue to provide the Fund with the
same
level of investment advisory services that it currently receives.
DISTRIBUTOR
Smith Barney distributes shares of the Fund as principal underwriter
and as
such conducts a continuous offering pursuant to a "best efforts"
arrangement
requiring Smith Barney to take and pay for only such securities as may
be sold
to the public. Pursuant to a plan of distribution adopted by the Fund
under
Rule 12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid an
annual
service fee with respect to Class A, Class B and Class L shares of the
Fund at
the annual rate of 0.25% of the average daily net assets of the
respective
Class. Smith Barney is also paid an annual distribution fee with
respect to
Class B and Class L shares at the annual rate of 0.75% of the average
daily net
assets attributable to those Classes. Class B shares which
automatically con-
vert to Class A shares eight years after the date of original purchase
will no
longer be subject to distribution fees. The fees are used by Smith
Barney to
pay its Financial Consultants for servicing shareholder accounts and,
in the
case of Class B and Class L shares, to cover expenses primarily
intended to
result in the sale of those shares. These expenses include:
advertising; the
cost of printing and mailing prospectuses to potential investors;
payments to
and expenses of Smith Barney Financial Consultants and other persons
who pro-
30
<PAGE>
DISTRIBUTOR (CONTINUED)
vide support services in connection with the distribution of shares;
interest
and/or carrying charges; and indirect and overhead costs of Smith
Barney asso-
ciated with the sale of Fund shares, including lease, utility,
communications
and sales promotion expenses.
The payments to Smith Barney Financial Consultants for selling shares
of a
Class include a commission or fee paid by the investor or Smith Barney
at the
time of sale and, with respect to Class A, Class B and Class L shares,
a con-
tinuing fee for servicing shareholder accounts for as long as a
shareholder
remains a holder of that Class. Smith Barney Financial Consultants may
receive
different levels of compensation for selling different Classes of
shares.
Payments under the Plan are not tied exclusively to the distribution
and
shareholder service expenses actually incurred by Smith Barney and the
payments
may exceed distribution expenses actually incurred. The Fund's Board of
Direc-
tors will evaluate the appropriateness of the Plan and its payment
terms on a
continuing basis and in so doing will consider all relevant factors,
including
expenses borne by Smith Barney, amounts received under the Plan and
proceeds of
the CDSC.
ADDITIONAL INFORMATION
The Trust was organized on October 17, 1991 under the laws of the
Common-
wealth of Massachusetts and is a business entity commonly known as a
"Massachu-
setts business trust." The Trust offers shares of beneficial interest
of sepa-
rate funds with a par value of $.001 per share. The Fund offers shares
of bene-
ficial interest currently classified into five Classes--A, B, L, Y and
Z. Each
Class of the Fund represents an identical interest in the Fund's
investment
portfolio. As a result, the Classes have the same rights, privileges
and pref-
erences, except with respect to: (a) the designation of each Class; (b)
the
effect of the respective sales charges if any, for each Class; (c) the
distri-
bution and/or service fees borne by each Class pursuant to the Plan;
(d) the
expenses allocable exclusively to each Class; (e) voting rights on
matters
exclusively affecting a single Class; (f) the exchange privilege of
each Class;
and (g) the conversion feature of the Class B shares. The Trust's Board
of
Trustees does not anticipate that there will be any conflicts among the
inter-
ests of the holders of the different Classes. The Trustees, on an
ongoing
basis, will consider whether any such conflict exists and, if so, take
appro-
priate action.
The Fund does not hold annual shareholder meetings. There normally
will be no
meetings of shareholders for the purpose of electing Trustees unless
and until
such time as less than a majority of the Trustees holding office have
been
elected by shareholders, at which time the Trustees then in office will
call a
shareholders' meeting for the election of Trustees. Shareholders of
record of
no less than two-
31
<PAGE>
ADDITIONAL INFORMATION (CONTINUED)
thirds of the outstanding shares of the Trust may remove a Trustee
through a
declaration in writing or by vote cast in person or by proxy at a
meeting
called for that purpose. The Trustees will call a meeting for any
purpose upon
written request of shareholders holding at least 10% of the Trust's
outstanding
shares and the Trust will assist shareholders in calling such a meeting
as
required by the 1940 Act.
When matters are submitted for shareholder vote, shareholders of each
Class
will have one vote for each full share owned and a proportionate,
fractional
vote for any fractional share held of that Class. Generally, shares of
the Fund
will be voted on a Fund-wide basis on all matters except matters
affecting only
the interests of one Class, in which case only shares of the affected
Class
would be entitled to vote.
PNC Bank, National Association, located at 17th and Chestnut Streets,
Phila-
delphia, Pennsylvania 19103, serves as custodian of the Fund's
investments.
First Data, located at Exchange Place, Boston, Massachusetts 02109,
serves as
the Fund's transfer agent.
The Fund sends its shareholders a semi-annual report and an audited
annual
report, which include listings of the investment securities held by the
Fund at
the end of the reporting period. In an effort to reduce the Fund's
printing and
mailing costs, the Fund plans to consolidate the mailing of its semi-
annual and
annual reports by household. This consolidation means that a household
having
multiple accounts with the identical address of record will receive a
single
copy of each report. Shareholders who do not want this consolidation to
apply
to their accounts should contact their Smith Barney Financial
Consultant or the
Fund's Transfer Agent.
32
<PAGE>
APPENDIX A
Convertible Securities. Convertible securities are generally
preferred secu-
rities or fixed-income securities that are convertible into common
stock at
either a stated price or stated rate. The price of the convertible
security
will normally vary in some proportion to changes in the price of the
underlying
common stock because of this conversion feature. A convertible security
will
normally also provide a fixed income stream. For this reason, the
convertible
security may not decline in price as rapidly as the underlying common
stock.
Convertible securities rank senior to common stocks in an issuer's
capital
structure and consequently entail less risk than the issuer's common
stock. The
Manager will select convertible securities to be purchased by the Fund
based
primarily upon its evaluation of the fundamental investment
characteristics and
growth prospects of the issuer of the security. As a fixed income
security, a
convertible security tends to increase in market value when interest
rates
decline and decrease in value when interest rates rise. While
convertible secu-
rities generally offer lower interest or dividend yields than non-
convertible
fixed income securities of similar quality, their value tends to
increase as
the market value of the underlying stock increases and to decrease when
the
value of the underlying stock decreases.
Foreign Securities. In addition to direct investment in securities of
foreign
issuers, the Fund may also invest in securities of foreign issuers in
the form
of sponsored and unsponsored American Depositary Receipts (ADRs),
European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs) or other
similar
securities convertible into securities of foreign issuers. These
securities may
not necessarily be denominated in the same currency as the securities
into
which they may be converted. The Fund also may invest in securities
denominated
in European Currency Units (ECUs). An ECU is a "basket" consisting of a
speci-
fied amount of currencies of certain of the twelve member states of the
Euro-
pean Community. In addition, the Fund may invest in securities
denominated in
other currency "baskets."
There are certain risks involved in investing in securities of
companies and
governments of foreign nations that are in addition to the usual risks
inherent
in domestic investments. These risks include those resulting from
revaluation
of currencies, future adverse political and economic developments and
the pos-
sible imposition of currency exchange blockages or other foreign
governmental
laws or restrictions, reduced availability of public information
concerning
issuers and the lack of uniform accounting, auditing and financial
reporting
standards or of other regulatory practices and requirements comparable
to those
applicable to domestic companies. The yield of the Fund may be
adversely
affected by fluctuations in value of one or more foreign currencies
relative to
the U.S. dollar. Moreover, securities of many foreign companies and
their mar-
kets may be less liquid and their prices more volatile than those of
securities
of comparable domestic companies. In addition, with
A-1
<PAGE>
APPENDIX A (CONTINUED)
respect to certain foreign countries, there is the possibility of
expropria-
tion, nationalization, confiscatory taxation and limitations on the use
or
removal of funds or other assets of the Fund, including the withholding
of div-
idends. Foreign securities may be subject to foreign government taxes
that
could reduce the yield on such securities. Because the Fund may invest
in secu-
rities denominated or quoted in currencies other than the U.S. dollar,
changes
in foreign currency exchange rates may adversely affect the value of
portfolio
securities and the appreciation or depreciation of investments.
Investment in
foreign securities also may result in higher expenses due to the cost
of con-
verting foreign currency to U.S. dollars, the payment of fixed
brokerage com-
missions on foreign exchanges, which generally are higher than
commissions on
domestic exchanges, and the expense of maintaining securities with
foreign cus-
todians, and the imposition of transfer taxes or transaction charges
associated
with foreign exchanges.
Real Estate Investment Trusts ("REITS"). The Fund may invest in
REITS, which
are pooled investment vehicles that invest primarily in either real
estate or
real estate related loans. The value of a REIT is affected by changes
in the
value of the properties owned by the REIT or securing mortgage loans
held by
the REIT. REITs are dependent upon cash flow from their investments to
repay
financing costs and the ability of the REIT's manager. REITs are also
subject
to risks generally associated with investments in real estate. The Fund
will
indirectly bear its proportionate share of any expenses, including
management
fees, paid by a REIT in which it invests.
Debt Securities. Debt securities in which the Fund may invest include
notes,
bills, commercial paper, obligations issued or guaranteed by the
government or
any of its political subdivisions, agencies or instrumentalities, and
certificates of deposit. Debt securities represent money borrowed that
obligates the issuer (e.g., a corporation, municipality, government,
government
agency) to repay the borrowed amount at maturity (when the obligation
is due
and payable) and usually to pay the holder interest at specific times.
All debt securities are subject to market risk and credit risk.
Market risk
relates to market-induced changes in a security's value, usually as a
result of
changes in interest rates. The value of the Fund's investments in debt
securi-
ties will change as the general levels of interest rates fluctuate.
During
periods of falling interest rates, the value of the Fund's debt
securities will
generally rise. Conversely, during periods of rising interest rates,
the value
of the Fund's debt securities will generally decline. Credit risk
relates to
the ability of the issuer to make payments of principal and interest.
The Fund
has no restrictions with respect to the maturities or duration of the
debt
securities it holds. The Fund's investments in fixed income securities
with
longer terms to maturity or greater duration are subject to greater
volatility
than the Fund's shorter-term securities.
A-2
<PAGE>
APPENDIX A (CONTINUED)
Money Market Instruments. Short-term instruments in which the Fund
may invest
include obligations of banks having at least $1 billion in assets
(including
certificates of deposit, time deposits and bankers' acceptances of
domestic or
foreign banks, domestic savings and loan associations and similar
institu-
tions); commercial paper rated no lower than A-2 by Standard & Poor's
Ratings
Group or Prime-2 by Moody's Investors Service, Inc. or the equivalent
from
another nationally recognized statistical rating organization or, if
unrated,
of an issuer having an outstanding, unsecured debt issue then rated
within the
two highest rating categories; and repurchase agreements with respect
to any of
the foregoing entered into with banks and non-bank dealers approved by
the
Trust's Board of Trustees.
U.S. Government Securities. The Fund may invest in U.S. Government
securi-
ties. Generally, these securities include U.S. Treasury obligations and
obliga-
tions issued or guaranteed by U.S. Government agencies,
instrumentalities or
sponsored enterprises. U.S. Government securities also include Treasury
receipts and other stripped U.S. Government securities, where the
interest and
principal components of stripped U.S. Government securities are traded
indepen-
dently. The Fund may also invest in zero coupon U.S. Treasury
securities and in
zero coupon securities issued by financial institutions, which
represent a pro-
portionate interest in underlying U.S. Treasury securities. A zero
coupon secu-
rity pays no interest to its holder during its life and its value
consists of
the difference between its face value at maturity and its cost. The
market val-
ues of zero coupon securities generally are more volatile than the
market
prices of securities that pay interest periodically.
Repurchase Agreements. The Fund may enter into repurchase agreements
in order
to earn income on available cash or as a temporary defensive measure.
Under a
repurchase agreement, the Fund acquires securities subject to the
seller's
agreement to repurchase at a specified time and price. If the seller
becomes
subject to a proceeding under the bankruptcy laws or its assets are
otherwise
subject to a stay order, the Fund's right to liquidate the securities
may be
restricted (during which time the value of the securities could
decline). As
discussed in the SAI, the Fund has adopted certain procedures intended
to mini-
mize the risks of investing in repurchase agreements.
Reverse Repurchase Agreements. In order to generate additional
income, the
Fund may engage in reverse repurchase agreement transactions with
banks, bro-
ker-dealers and other financial intermediaries. Reverse repurchase
agreements
are the same as repurchase agreements except that, in this instance,
the Fund
would assume the role of seller/borrower in the transaction. The Fund
will
maintain a segregated account consisting of assets determined to be
liquid by
the Manager that at all times have a value equal to its obligations
under
reverse repurchase agreements. The Fund will invest the proceeds in
other money
market instruments or repurchase agreements maturing not later than the
expira-
tion of the reverse repur-
A-3
<PAGE>
APPENDIX A (CONTINUED)
chase agreement. Reverse repurchase agreements involve the risk that
the mar-
ket value of the securities sold by the Fund may decline below the
repurchase
price of the securities.
When-Issued, Delayed-Delivery and Forward Commitment Transactions.
The Fund
may purchase securities on a when-issued basis, may purchase and sell
securi-
ties for delayed delivery and may make contracts to purchase securities
for a
fixed price at a future date beyond normal settlement time (forward
commit-
ments). When-issued transactions, delayed delivery purchases and
forward com-
mitments involve a risk of loss if the value of the securities declines
prior
to the settlement date, which risk is in addition to the risk of
decline in
the value of the Fund's other assets. Typically, no income accrues on
securi-
ties the Fund has committed to purchase prior to the time delivery of
the
securities is made, although the Fund may earn income on securities it
has
deposited in a segregated account.
Lending of Securities. Consistent with applicable regulatory
requirements,
the Fund may seek to increase its income by lending portfolio
securities to
entities deemed creditworthy by the Manager. Such loans will usually be
made
to brokers, dealers and other financial organizations, and would be
required
to be secured continuously by collateral in cash, letters of credit or
U.S.
government securities, which are maintained at all times in an amount
equal to
the current market value of the loaned securities. Any gain or loss in
the
market price of the securities loaned that might occur during the term
of the
loan would be for the account of the Fund. The risks in lending
portfolio
securities, as with other extensions of secured credit, consist of
possible
delay in receiving additional collateral or in the recovery of the
securities
or possible loss of rights in the collateral should the borrower fail
finan-
cially. Loans will be made to firms deemed by the Manager to be of good
stand-
ing and will not be made unless, in the judgment of Manager the
consideration
to be earned from such loans would justify the risk.
Options on Securities, Securities Indexes and Currencies. The Fund
may write
(sell) covered put and call options on securities, securities indexes
and cur-
rencies ("Options") and purchase put and call Options that are traded
on for-
eign or U.S. securities exchanges and over the counter. The Fund will
write
such Options for the purpose of increasing its return and/or protecting
the
value of its portfolio. In particular, where the Fund writes an Option
that
expires unexercised or is closed out by the Fund at a profit, it will
retain
the premium paid for the Option, which will increase its gross income
and will
offset in part the reduced value of a portfolio security in connection
with
which the Option may have been written or the increased cost of
portfolio
securities to be acquired. However, the writing of Options constitutes
only a
partial hedge, up to the amount of the premium, less any transaction
costs. In
contrast, if the price of the security underlying the Option
A-4
<PAGE>
APPENDIX A (CONTINUED)
moves adversely to the Fund's position, the Option may be exercised and
the
Fund will be required to purchase or sell the security at a
disadvantageous
price, resulting in losses that may only be partially offset by the
amount of
the premium. The Fund may also write combinations of put and call
Options on
the same security, known as "straddles." Such transactions generate
additional
premium income but also present increased risk.
The Fund may purchase put and call Options in anticipation of
declines in the
value of portfolio securities or increases in the value of securities
to be
acquired. In the event that the expected changes occur, the Fund may be
able to
offset the resulting adverse effect on its portfolio, in whole or in
part,
through the Options purchased. The risk assumed by the Fund in
connection with
such transactions is limited to the amount of the premium and related
transac-
tion costs associated with the Option, although the Fund may be
required to
forfeit such amounts in the event that the prices of securities
underlying the
Options do not move in the direction or to the extent anticipated.
Over-the-counter options in which the Fund may invest differ from
traded
options in that they are two-party contracts, with price and other
terms nego-
tiated between buyer and seller, and generally do not have as much
market
liquidity as exchange-traded options. The Fund may be required to treat
as
illiquid over-the-counter options purchased and securities being used
to cover
certain written over-the-counter options.
Futures Contracts and Options on Futures Contracts. The Fund may
enter into
transactions in futures contracts and options on futures only (i) for
bona fide
hedging purposes (as defined in Commodities Futures Trading Commission
regula-
tions), or (ii) for non-hedging purposes, provided that the aggregate
initial
margin and premiums on such non-hedging positions do not exceed 5% of
the liq-
uidation value of the Fund's assets.
Futures contracts provide for the future sale by one party and
purchase by
another party of a specified amount of a specific security at a
specified
future time and at a specified price. The primary purpose of entering
into a
futures contract by the Fund is to protect the Fund from fluctuations
in the
value of securities without actually buying or selling the securities.
The Fund
may enter into futures contracts and options on futures to seek higher
invest-
ment returns when a futures contract is priced more attractively than
stocks
comprising a benchmark index, to facilitate trading or to reduce
transaction
costs. The Fund will only enter into futures contracts and options on
futures
contracts that are traded on a domestic exchange and board of trade.
Assets
committed to futures contracts will be segregated at the Fund's
custodian to
the extent required by law.
A-5
<PAGE>
APPENDIX A (CONTINUED)
Among the several risks accompanying the utilization of futures
contracts and
options on futures contracts are: First, the successful use of futures
and
options is dependent upon the ability of the Manager to predict
correctly move-
ments in the stock market or in the direction of interest rates. These
predic-
tions involve skills and techniques that may be different from those
involved
in the management of investments in securities. If the prices of the
underlying
commodities move in an unanticipated manner, the Fund may lose the
expected
benefit of these futures or options transactions and may incur losses.
Second,
positions in futures contracts and options on futures contracts may
only be
closed out by entering into offsetting transactions on the exchange
where the
position was entered into (or through a linked exchange), and as a
result of
daily price fluctuations limits there can be no assurance the
offsetting trans-
action could be entered into at an advantageous price at a particular
time.
Consequently, the Fund may realize a loss on a futures contract or
option that
is not offset by an increase in the value of its portfolio securities
that are
being hedged or the Fund may not be able to close a futures or options
position
without incurring a loss in the event of adverse price movements.
A-6
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<PAGE>
SMITH BARNEY
------------------------
- -------
A Member of Travelers
Group LOGO
SMITH BARNEY
MID CAP
BLEND
FUND INC.
388
Greenwich Street
New York, New
York 10013
FD 01499
6/98
Smith Barney
Mid Cap Blend Fund
388 Greenwich Street
New York, New York 10013
1-800-451-2010
Statement of Additional
Information
June 30, 1998
This Statement of Additional Information (SAI) expands upon and supplements
the information contained in the current Prospectus of Smith Barney Mid Cap
Blend Fund (the Fund) dated June 30, 1998, as amended or supplemented from
time to time, and should be read in conjunction with the Funds Prospectus.
The Fund is a sub-trust of Smith Barney Investment Trust (the Trust). The
Funds Prospectus may be obtained from a Smith Barney Financial Consultant or
by writing or calling the Fund at the address or telephone number set forth
above. This SAI, although not in itself a prospectus, is incorporated by
reference into the Prospectus in its entirety.
CONTENTS
For ease of reference, the same section headings are used in both the
Prospectus and this SAI, except where shown below:
Management of the Fund 1
Investment Objective and Management Policies 4
Purchase of Shares 14
Redemption of Shares 15
Distributor 16
Valuation of Shares 17
Exchange Privilege 17
Performance Data (See in the Prospectus Performance) 18
Taxes (See in the Prospectus Dividends, Distributions and Taxes)
19
Additional Information 20
MANAGEMENT OF THE FUND
The executive officers of the Fund are employees of certain of the
organizations that provide services to the Fund. These organizations are the
following:
Smith Barney Inc. (Smith Barney or the Distributor) Distributor
Mutual Management Corp. (MMC or the Manager) Investment Manager
PNC Bank, National Association (PNC or the Custodian) Custodian
First Data Investor Services Group, Inc.,
(First Data or the Transfer Agent) Transfer Agent
These organizations and the functions they perform for the Fund are discussed
in the Prospectus and in this
SAI.
Trustees and Executive Officers of the Fund
The Trustees and executive officers of the Fund, together with information as
to their principal business occupations during the past five years, are shown
below. Each Trustee who is an interested person of the Fund, as defined in
the Investment Company Act of 1940, as amended (the 1940 Act), is indicated
by an asterisk.
Herbert Barg, Trustee (Age 74). Private Investor. His address is 273
Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
*Alfred J. Bianchetti, Trustee (Age 74). Retired; formerly Senior
Consultant to Dean Witter Reynolds Inc. His address is 19 Circle End Drive,
Ramsey, New Jersey 07466.
Martin Brody, Trustee (Age 76). Consultant, HMK Associates; Retired
Vice Chairman of the Board of Restaurant Associates Corp. His address is c/o
HMK Associates, 30 Columbia Turnpike, Florham Park, New Jersey 07932.
Dwight B. Crane, Trustee (Age 59). Professor, Harvard Business School.
His address is c/o Harvard Business School, Soldiers Field Road, Boston,
Massachusetts 02163.
Burt N. Dorsett, Trustee (Age 66). Managing Partner of Dorsett McCabe
Management. Inc., an investment counseling firm; Director of Research
Corporation Technologies, Inc., a nonprofit patent clearing and licensing
firm. His address is 201 East 62nd Street, New York, New York 10021.
Elliot S. Jaffe, Trustee (Age 71). Chairman of the Board and President
of The Dress Barn, Inc. His address is 30 Dunnigan Drive, Suffern, New York
10901.
Stephen E. Kaufman, Trustee (Age 65). Attorney. His address is 277 Park
Avenue, New York, New York 10172.
Joseph J. McCann, Trustee (Age 67). Financial Consultant; Retired
Financial Executive, Ryan Homes, Inc. His address is 200 Oak Park Place,
Pittsburgh, Pennsylvania 15243.
*Heath B. McLendon, Chairman of the Board and Investment Officer (Age
64). Managing Director of Smith Barney, Chairman of the Board of Smith Barney
Strategy Advisers Inc. and President of MMC and Travelers Investment Adviser,
Inc. (TIA); prior to July 1993, Senior Executive Vice President of Shearson
Lehman Brothers Inc., Vice Chairman of Shearson Asset Management. Mr.
McLendon is Chairman of the Board of 42 Smith Barney Mutual Funds. His
address is 388 Greenwich Street, New York, New York 10013.
Cornelius C. Rose, Jr., Trustee (Age 63). President, Cornelius C. Rose
Associates, Inc., financial consultants, and Chairman and Director of
Performance Learning Systems, an educational consultant. His address is Fair
Oaks, Enfield, New Hampshire 03748.
Lewis E. Daidone, Senior Vice President and Treasurer (Age 40).
Managing Director of Smith Barney, Chief Financial Officer of the Smith
Barney Mutual Funds; Director and Senior Vice President of MMC and TIA. His
address is 388 Greenwich Street, New York, New York 10013.
Christina T. Sydor, Secretary (Age 46). Managing Director of Smith
Barney; General Counsel and Secretary of MMC and TIA. Her address is 388
Greenwich Street, New York, New York 10013.
No officer, director or employee of Smith Barney or any parent or subsidiary
of Smith Barney receives any compensation from the Fund for serving as an
officer or Trustee of the Fund. The Trust pays each Trustee who is not an
officer, director or employee of Smith Barney or any of their affiliates a
fee of $4,000 per annum plus $500 per meeting attended. All Trustees are
reimbursed for travel and out-of-pocket expenses incurred to attend such
meetings.
For the calendar year ended November 30, 1997, the Trustees of the Fund were
paid the following
compensation.
Name of Person
Aggregate
Compensation
from Fund
Total Pension
or Retirement
Benefits
Accrued as
part of Fund
Expenses
Compensation
from Fund and
Fund Complex
Paid to
Directors
Number of
Funds for
Which
Director
Serves Within
Fund Complex
Herbert Berg
$0
$0
$105,175
18
Alfred Bianchetti
0
0
51,000
13
Martin Brody
0
0
124,286
21
Dwight B. Crane
0
0
140,375
24
Burt N. Dorsett*
0
0
47,400
13
Elliot S. Jaffe
0
0
51,100
13
Stephen E.
Kaufman
0
0
92,336
15
Joseph J. McCann
0
0
52,700
13
Heath B. McLendon
- -
- -
- -
42
Cornelius C.
Rose, Jr.
0
0
51,400
13
* Designates an interested Trustee.
# Upon attainment of age 80, Fund Trustees are required to change to
emeritus status. Trustees Emeritus are entitled to serve in emeritus status
for a maximum of 10 years, during which time they are paid 50% of the annual
retainer fee and meeting fees otherwise applicable to Fund Trustees,
together with reasonable out-of-pocket expenses for each meeting attended.
During the Funds last fiscal year, aggregate compensation paid by the Fund
to Trustees achieving emeritus status totaled $11,423.
Investment Manager - MMC
MMC serves as investment manager to the Fund pursuant to an investment
management agreement (the Investment Management Agreement) with the Trust
which was approved by the Board of Trustees, including a majority of Trustees
who are not interested persons of the Trust or the Manager. The Manager is a
wholly owned subsidiary of Salomon Smith Barney Holdings Inc. (Holdings),
which in turn, is a wholly owned subsidiary of Travelers Group Inc.
(Travelers). The services provided by the Manager under the Investment
Management Agreement are described in the prospectus under Management of the
Trust and the Fund. The Manager pays the salary of any officer and employee
who is employed by both it and the Trust. The Manager bears all expenses in
connection with the performance of its services.
As compensation for investment management services, the Fund pays the Manager
a fee computed daily and paid monthly at the annual rate of 0.75% of the
Funds average daily net assets.
Counsel and Auditors
Willkie Farr & Gallagher serves as counsel to the Trust. The Trustees who are
not interested persons of the Fund have selected Stroock & Stroock & Lavan
LLP to serve as their legal counsel.
KPMG Peat Marwick LLP, independent accountants, 345 Park Avenue, New York,
New York 10154, serve as auditors of the Trust and will render an opinion on
the Trusts financial statements annually beginning with the fiscal period
ending November 30, 1998.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Prospectus discusses the Funds investment objective and the policies it
employs to achieve its objective. This section contains supplemental
information concerning the types of securities and other instruments in which
the Fund may invest, the investment policies and portfolio strategies that
the Fund may utilize and certain risks attendant to such investments,
policies and strategies.
Foreign Securities and American Depository Receipts
The Fund has the authority to invest up to 25% of its assets in foreign
securities (including European Depository Receipts (EDRs) and Global
Depository Receipts (GDRs)) and American Depository Receipts (ADRs) or other
securities representing underlying shares of foreign companies. EDRs are
receipts issued in Europe which evidence ownership of underlying securities
issued by a foreign corporations. ADRs are receipts typically issued by an
American bank or trust company which evidence a similar ownership
arrangement. Generally, ADRs which are issued in registered form, are
designed for use in the United States securities markets and EDRs, which are
issued in bearer form, are designed for use in European securities markets.
GDRs are tradeable both in the U.S. and Europe and are designed for use
throughout the world.
Investing in the securities of foreign companies involves special risks and
considerations not typically associated with investing in U.S. companies.
These include differences in accounting, auditing and financial reporting
standards, generally higher commission rates on foreign portfolio
transactions, the possibility of expropriation or confiscatory taxation,
adverse changes in investment or exchange control regulations, political
instability which could affect U.S. investments in foreign countries, and
potential restrictions on the flow of international capital. Additionally,
foreign securities often trade with less frequency and volume than domestic
securities and therefore may exhibit greater price volatility. Many of the
foreign securities held by the Fund will not be registered with, nor will the
issuers thereof be subject to the reporting requirements of, the SEC.
Accordingly, there may be less publicly available information about the
securities and about the foreign company issuing them than is available about
a domestic company and its securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross domestic product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payment positions. The Fund may
invest in securities of foreign governments (or agencies or subdivisions
thereof), and therefore many, if not all, of the foregoing considerations
apply to such investments as well.
Lending of Portfolio Securities
Consistent with applicable regulatory requirements, the Fund may lend
securities from its portfolio to brokers, dealers and other financial
organizations. The Fund may not lend its portfolio securities to the
Investment Adviser or the Administrator or their affiliates unless they have
applied for and received specific authority from the SEC. Loans of portfolio
securities by the Fund will be collateralized by cash, letters of credit or
U.S. government securities that are maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities.
In lending its portfolio securities, the Fund can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term instruments or obtaining yield in
the form of interest paid by the borrower when U.S. government securities are
used as collateral. Requirements of the SEC, which may be subject to future
modifications, currently provide that the following conditions must be met
whenever the Funds portfolio securities are loaned: (a) the Fund must receive
at least 100% cash collateral or equivalent securities from the borrower; (b)
the borrower must increase such collatera
whenever the market value of the securities rises above the level of such
collateral; (c) the Fund must be able to terminate the loan at any time; (d)
the Fund must receive reasonable interest on the loan, as well as an amount
equal to any dividends, interest or other distributions on the loaned
securities, and any increase in market value; (e) the Fund may pay only
reasonable custodian fees in connection with the loan; and (f) voting rights
on the loaned securities may pass to the borrower; however, if a material
event adversely affecting the investment occurs, the Trusts Board of Trustees
must terminate the loan and regain the right to vote the securities. The
risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral or in
the recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. Loans will be made to firms deemed by
the Investment Adviser to be of good standing and will not be made unless, in
the judgment of the Investment Adviser, the consideration to be earned from
such loans would justify the risk. From time to time, the Fund may return a
part of the interest earned from the investment of collateral received for
securities loaned to: (a) the borrower; and/or (b) a third party, which is
unaffiliated with the Fund, the Investment Adviser or Administrator and which
is acting as a finder.
Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements. A reverse repurchase
agreement involves the sale of a money market instrument by the Fund and its
agreement to repurchase the instrument at a specified time and price. The
Fund will maintain a segregated account consisting of U.S. government
securities or cash or cash equivalents to cover its obligations under reverse
repurchase agreements with broker-dealers and other financial institutions.
The Fund will invest the proceeds in other money market instruments or
repurchase agreements maturing not later than the expiration of the reverse
repurchase agreement. Under the Investment Company Act of 1940, as amended,
reverse repurchase agreements may be considered borrowing by the seller.
Reverse repurchase agreements create opportunities for increased returns to
the shareholders of the Fund but, at the same time, create special risk
considerations. Although the principal or stated value of such borrowings
will be fixed, the Funds assets may change in value during the time the
borrowing is outstanding. To the extent the income or other gain derived from
securities purchased with borrowed funds exceeds the interest or dividends
the Fund will have to pay in respect thereof, the Funds net income or other
gain will be greater than if this type of leverage had not been used.
Conversely, if the income or other gain from the incremental assets is not
sufficient to cover this cost, the net income or other gain of the Fund will
be less than if the reverse repurchase agreement had not been used.
The Fund currently intends to invest not more than 33% of its net assets in
reverse repurchase agreements.
When-Issued Securities and Delayed Delivery Transactions
In order to secure what the Manager considers to be an advantageous price or
yield, the Fund may purchase U.S. government securities on a when-issued
basis or purchase or sell U.S. government securities for delayed delivery.
The Fund will enter into such purchase transactions for the purpose of
acquiring portfolio securities and not for the purpose of leverage. Delivery
of the securities in such cases occurs beyond the normal settlement periods,
but no payment or delivery is made by the Fund prior to the reciprocal
delivery or payment by the other party to the transaction. In entering into a
when-issued or delayed-delivery transaction, the Fund relies on the other
party to consummate the transaction and may be disadvantaged if the other
party fails to do so.
U.S. government securities normally are subject to changes in value based
upon changes, real or anticipated, in the level of interest rates and, to a
lesser extent, the publics perception of the creditworthiness of the issuers.
In general, U.S. government securities tend to appreciate when interest rates
decline and depreciate when interest rates rise. Purchasing U.S. government
securities on a when-issued basis or delayed-delivery basis, therefore, can
involve the risk that the yields available in the market when the delivery
takes place may
actually be higher than those obtained in the transaction itself. Similarly,
the sale of U.S. government securities for delayed delivery can involve the
risk that the prices available in the market when the delivery is made may
actually be higher than those obtained in the transaction itself.
The Fund will at times maintain in a segregated account at PNC cash or liquid
securities equal to the amount of the Funds when-issued or delayed-delivery
commitments. For the purpose of determining the adequacy of the securities in
the account, the deposited securities will be valued at market or fair value.
If the market or fair value of such securities declines, additional cash or
securities will be placed in the account on a daily basis so that the value
of the account will equal the amount of such commitments by the Fund. Placing
securities rather than cash in the account may have a leveraging effect on
the Funds assets. That is, to the extent that the Fund remains substantially
fully invested in securities at the time that it has committed to purchase
securities on a when-issued basis, there will be greater fluctuation in its
net asset value than if it had set aside cash to satisfy its purchase
commitments. On the settlement date, the Fund will meet its obligations from
then available cash flow, the sale of securities held in the separate
account, the sale of other securities or, although it normally would not
expect to do so, from the sale of the when-issued or delayed-delivery
securities themselves (which may have a greater or lesser value than the
Funds payment obligations).
Money Market Instruments
As stated in the Prospectus, the Fund may invest for temporary defensive
purposes in corporate and government bonds and notes and money market
instruments. Money market instruments in which the Fund may invest include:
U.S. government securities; certificates of deposit, time deposits and
bankers acceptances issued by domestic banks (including their branches
located outside the United States and subsidiaries located in Canada),
domestic branches of foreign banks, savings and loan associations and similar
institutions; high grade commercial paper; and repurchase agreements with
respect to the foregoing types of instruments. The following is a more
detailed description of such money market instruments.
Certificates of deposit (CDs) are short-term negotiable obligations of
commercial banks. Time deposits (TDs) are non-negotiable deposits maintained
in banking institutions for specified periods of time at stated interest
rates. Bankers acceptances are time drafts drawn on commercial banks by
borrowers usually in connection with international transactions.
Domestic commercial banks organized under Federal law are supervised and
examined by the Comptroller of the Currency and are required to be members of
the Federal Reserve System and to be insured by the Federal Deposit Insurance
Corporation (the FDIC). Domestic banks organized under state law are
supervised and examined by state banking authorities but are members of the
Federal Reserve System only if they elect to join. Most state banks are
insured by the FDIC (although such insurance may not be of material benefit
to the Fund, depending upon the principal amounts of CDs of each bank held by
the Fund) and are subject to Federal examination and to a substantial body of
Federal law and regulation. As a result of governmental regulations, domestic
branches of domestic banks are generally required to, among other things,
maintain specified levels of reserves, and are subject to other supervision
and regulation designed to promote financial soundness.
Obligations of foreign branches of domestic banks, such as CDs and TDs, may
be general obligations of the parent bank in addition to the issuing branch,
or may be limited by the terms of a specific obligation and government
regulation. Such obligations are subject to different risks than are those of
domestic banks or domestic branches of foreign banks. These risks include
foreign economic and political developments, foreign governmental
restrictions that may adversely affect payment of principal and interest on
the obligations, foreign exchange controls and foreign withholding and other
taxes on interest income. Foreign branches of domestic banks are not
necessarily subject to the same or similar regulatory requirements that apply
to domestic banks, such as mandatory reserve requirements, loan limitations,
and accounting, auditing and financial recordkeeping requirements. In
addition, less information may be publicly available about a foreign branch
of a domestic bank than about a domestic bank. CDs issued by wholly owned
Canadian subsidiaries of
domestic banks are guaranteed as to repayment of principal and interest (but
not as to sovereign risk) by the domestic parent bank.
Obligations of domestic branches of foreign banks may be general obligations
of the parent bank in addition to the issuing branch, or may be limited by
the terms of a specific obligation and by governmental regulation as well as
governmental action in the country in which the foreign bank has its head
office. A domestic branch of a foreign bank with assets in excess of $1
billion may or may not be subject to reserve requirements imposed by the
Federal Reserve System or by the state in which the branch is located if the
branch is licensed in that state. In addition, branches licensed by the
Comptroller of the Currency and branches licensed by certain states (State
Branches) may or may not be required to: (a) pledge to the regulator by
depositing assets with a designated bank within the state, an amount of its
assets equal to 5% of its total liabilities; and (b) maintain assets within
the state in an amount equal to a specified percentage of the aggregate
amount of liabilities of the foreign bank payable at or through all of its
agencies or branches within the state. The deposits of State Branches may not
necessarily be insured by the FDIC. In addition, there may be less publicly
available information about a domestic branch of a foreign bank than about a
domestic bank.
In view of the foregoing factors associated with the purchase of CDs and TDs
issued by foreign branches of domestic banks or by domestic branches of
foreign banks, MMC will carefully evaluate such investments on a case-by-case
basis.
Savings and loan associations whose CDs may be purchased by the Fund are
supervised by the Office of Thrift Supervision and are insured by the Savings
Association Insurance Fund, which is administered by the FDIC and is backed
by the full faith and credit of the U.S. government. As a result, such
savings and loan associations are subject to regulation and examination.
Options, Futures and Currency Strategies
The Fund may use forward currency contracts and certain options and futures
strategies to attempt to hedge its portfolio, i.e., reduce the overall level
of investment risk normally associated with the Fund. There can be no
assurance that such efforts will succeed.
In order to assure that the Fund will not be deemed to be a commodity pool
for purposes of the Commodity Exchange Act, regulations of the Commodity
Futures Trading Commission (CFTC) require that the Fund enter into
transactions in futures contracts and options on futures only (i) for bona
fide hedging purposes (as defined in CFTC regulations), or (ii) for
non-hedging purposes, provided that the aggregate initial margin and premiums
on such non-hedging positions do not exceed 5% of the liquidation value of
the Funds assets. To attempt to hedge against adverse movements in exchange
rates between currencies, the Fund may enter into forward currency contracts
for the purchase or sale of a specified currency at a specified future date.
Such contracts may involve the purchase or sale of a foreign currency against
the U.S. dollar or may involve two foreign currencies. The Fund may enter
into forward currency contracts either with respect to specific transactions
or with respect to its portfolio positions. For example, when the investment
adviser anticipates making a purchase or sale of a security, it may enter
into a forward currency contract in order to set the rate (either relative to
the U.S. dollar or another currency) at which the currency exchange
transaction related to the purchase or sale will be made (transaction
hedging). Further, when the investment adviser believes that a particular
currency may decline compared to the U.S. dollar or another currency, the
Fund may enter into a forward contract to sell the currency the investment
adviser expects to decline in an amount approximating the value of some or
all of the Funds securities denominated in that currency, or when the
investment adviser believes that one currency may decline against a currency
in which some or all of the portfolio securities held by the Fund are
denominated, it may enter into a forward contract to buy the currency
expected to decline for a fixed amount (position hedging). In this situation,
the Fund may, in the alternative, enter into a forward contract to sell a
different currency for a fixed amount of the currency expected to decline
where the investment manager believes that the value of the currency to be
sold pursuant to the forward contract will fall whenever there is a decline
in the value of the currency inwhich portfolio securities of the Fund are
denominated (cross hedging). The Funds custodian places (i) cash, (ii) U.S.
Government securities or (iii) equity securities or debt securities (of any
grade) in certain currencies provided such assets are liquid, unencumbered
and marked to market daily, or other high-quality debt securities denominated
in certain currencies in a separate account of the Fund having a value equal
to the aggregate account of the Funds commitments under forward contracts
entered into with respect to position hedges and cross-hedges. If the value
of the securities placed in a separate account declines, additional cash or
securities are placed in the account on a daily basis so that the value of
the amount will equal the amount of the Funds commitments with respect to
such contracts.
For hedging purposes, the Fund may write covered call options and purchase
put and call options on currencies to hedge against movements in exchange
rates and on debt securities to hedge against the risk of fluctuations in the
prices of securities held by the Fund or which the investment adviser intends
to include in its portfolio. The Fund also may use interest rates futures
contracts and options thereon to hedge against changes in the general level
in interest rates.
The Fund may write call options on securities and currencies only if they are
covered, and such options must remain covered so long as the Fund is
obligated as a writer. A call option written by the Fund is covered if the
Fund owns the securities or currency underlying the option or has an absolute
and immediate right to acquire that security or currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other securities or
currencies held in its portfolio. A call option is also covered if the Fund
holds on a share-for-share basis a call on the same security or holds a call
on the same currency as the call written where the exercise price of the call
held is equal to less than the exercise price of the call written or greater
than the exercise price of the call written if the difference is maintained
by the Fund in cash, Treasury bills or other high-grade, short-term
obligations in a segregated account with its custodian.
Although the portfolio might not employ the use of forward currency
contracts, options and futures, the use of any of these strategies would
involve certain investment risks and transaction costs to which it might not
otherwise be subject. These risks include: dependence on the investment
advisers ability to predict movements in the prices of individual debt
securities, fluctuations in the general fixed-income markets and movements in
interest rates and currency markets, imperfect correlation between movements
in the price of currency, options, futures contracts or options thereon and
movements in the price of the currency or security hedged or used for cover;
the fact that skills and techniques needed to trade options, futures
contracts and options thereon or to use forward currency contracts are
different from those needed to select the securities in which the Fund
invests; lack of assurance that a liquid market will exist for any particular
option, futures contract or options thereon at any particular time and
possible need to defer or accelerate closing out certain options, futures
contracts and options thereon in order to continue to qualify for the
beneficial tax treatment afforded regulated investment companies under the
Internal Revenue Code of 1986, as amended (the Code). See Dividends,
Distributions and Taxes.
Options on Securities
As discussed more generally above, the Fund may engage in the writing of
covered call options. The Fund may also purchase put options and enter into
closing transactions.
The principal reason for writing covered call options on securities is to
attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, the
writer of a covered call option forfeits the right to any appreciation in the
value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected).
Nevertheless, the call writer retains the risk of a decline in the price of
the underlying security. Similarly, the principal reason for writing covered
put options is to realize income in the form of premiums. The writer of a
covered put option accepts the risk of a decline in the price of the
underlying security. The size of the premiums the Fund may receive may be
adversely affected as new or existing institutions, including other
investment companies, engage in or increase their option-writing activities.
Options written by the Fund will normally have expiration dates between one
and six months from the date written. The exercise price of the options may
be below, equal to, or above the current market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as in-the-money, at-the-money and
out-of-the-money, respectively.
The Fund may write (a) in-the-money call options when MMC expects the price
of the underlying security to remain flat or decline moderately during the
option period, (b) at-the-money call options when MMC expects the price of
the underlying security to remain flat or advance moderately during the
option period and (c) out-of-the-money call options when MMC expects that the
price of the security may increase but not above a price equal to the sum of
the exercise price plus the premiums received from writing the call option.
In any of the preceding situations, if the market price of the underlying
security declines and the security is sold at this lower price, the amount of
any realized loss will be offset wholly or in part by the premium received.
Out-of-the-money, at-the-money and in-the-money put options (the reverse of
call options as to the relation of exercise price to market price) may be
utilized in the same market environments as such call options are used in
equivalent transactions.
So long as the obligation of the Fund as the writer of an option continues,
the Fund may be assigned an exercise notice by the broker-dealer through
which the option was sold, requiring it to deliver, in the case of a call, or
take delivery of, in the case of a put, the underlying security against
payment of the exercise price. This obligation terminates when the option
expires or the Fund effects a closing purchase transaction. The Fund can no
longer effect a closing purchase transaction with respect to an option once
it has been assigned an exercise notice. To secure its obligation to deliver
the underlying security when it writes a call option, or to pay for the
underlying security when it writes a put option, the Fund will be required to
deposit in escrow the underlying security or other assets in accordance with
the rules of the Options Clearing Corporation (Clearing Corporation) or
similar clearing corporation and the securities exchange on which the option
is written.
An option position may be closed out only where there exists a secondary
market for an option of the same series on a recognized securities exchange
or in the over-the-counter market. The Fund expects to write options only on
national securities exchanges or in the over-the-counter market. The Fund may
purchase put options issued by the Clearing Corporation or in the
over-the-counter market.
The Fund may realize a profit or loss upon entering into a closing
transaction. In cases in which the Fund has written an option, it will
realize a profit if the cost of the closing purchase transaction is less than
the premium received upon writing the original option and will incur a loss
if the cost of the closing purchase transaction exceeds the premium received
upon writing the original option. Similarly, when the Fund has purchased an
option and engages in a closing sale transaction, whether it recognizes a
profit or loss will depend upon whether the amount received in the closing
sale transaction is more or less than the premium the Fund initially paid for
the original option plus the related transaction costs.
Although the Fund generally will purchase or write only those options for
which MMC believes there is an active secondary market so as to facilitate
closing transactions, there is no assurance that sufficient trading interest
to create a liquid secondary market on a securities exchange will exist for
any particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may cease
to exist for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow, or other unforeseen events, have
at times rendered certain of the facilities of the Clearing Corporation and
national securities exchanges inadequate and resulted in the institution of
special procedures, such as trading rotations, restrictions on certain types
of orders or trading halts or suspensions in one or more options. There can
be no assurance that similar events, or events that may otherwise interfere
with
the timely execution of customers orders, will not recur. In such event, it
might not be possible to effect closing transactions in particular options.
If, as a covered call option writer, the Fund is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise.
Securities exchanges generally have established limitations governing the
maximum number of calls and puts of each class which may be held or written,
or exercised within certain periods, by an investor or group of investors
acting in concert (regardless of whether the options are written on the same
or different securities exchanges or are held, written or exercised in one or
more accounts or through one or more brokers). It is possible that the Fund
and other clients of MMC and certain of their affiliates may be considered to
be such a group. A securities exchange may order the liquidation of positions
found to be in violation of these limits, and it may impose certain other
sanctions.
In the case of options written by the Fund that are deemed covered by virtue
of the Funds holding convertible or exchangeable preferred stock or debt
securities, the time required to convert or exchange and obtain physical
delivery of the underlying common stocks with respect to which the Fund has
written options may exceed the time within which the Fund must make delivery
in accordance with an exercise notice. In these instances, the Fund may
purchase or temporarily borrow the underlying securities for purposes of
physical delivery. By so doing, the Fund will not bear any market risk
because the Fund will have the absolute right to receive from the issuer of
the underlying security an equal number of shares to replace the borrowed
stock, but the Fund may incur additional transaction costs or interest
expenses in connection with any such purchase or borrowing.
Although MMC will attempt to take appropriate measures to minimize the risks
relating to the Funds writing of call options and purchasing of put and call
options, there can be no assurance that the Fund will succeed in its
option-writing program.
Stock Index Options
As described generally above, the Fund may purchase put and call options and
write call options on domestic stock indexes listed on domestic exchanges in
order to realize its investment objective of capital appreciation or for the
purpose of hedging its portfolio. A stock index fluctuates with changes in
the market values of the stocks included in the index. Some stock index
options are based on a broad market index such as the New York Stock Exchange
Composite Index or the Canadian Market Portfolio Index, or a narrower market
index such as the Standard & Poors 100. Indexes also are based on an industry
or market segment such as the American Stock Exchange Oil and Gas Index or
the Computer and Business Equipment Index.
Options on stock indexes are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right to
take or make delivery of stock at a specified price, an option on a stock
index gives the holder the right to receive a cash exercise settlement amount
equal to (a) the amount, if any, by which the fixed exercise price of the
option exceeds (in the case of a put) or is less than (in the case of a call)
the closing value of the underlying index on the date of exercise, multiplied
by (b) a fixed index multiplier. Receipt of this cash amount will depend upon
the closing level of the stock index upon which the option is based being
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. The amount of cash received will be equal to
such difference between the closing price of the index and the exercise price
of the option expressed in dollars or a foreign currency, as the case may be,
times a specified multiple. The writer of the option is obligated, in return
for the premium received, to make delivery of this amount. The writer may
offset its position in stock index options prior to expiration by entering
into a closing transaction on an exchange or it may let the option expire
unexercised.
The effectiveness of purchasing or writing stock index options as a hedging
technique will depend upon the extent to which price movements in the portion
of the securities portfolio of the Fund correlate with pric
movements of the stock index selected. Because the value of an index option
depends upon movements in the level of the index rather than the price of a
particular stock, whether the Fund will realize a gain or loss from the
purchase or writing of options on an index depends upon movements in the
level of stock prices in the stock market generally or, in the case of
certain indexes, in an industry or market segment, rather than movements in
the price of a particular stock. Accordingly, successful use by the Fund of
options on stock indexes will be subject to MMCs ability to predict correctly
movements in the direction of the stock market generally or of a particular
industry. This requires different skills and techniques than predicting
changes in the price of individual stocks.
Futures Contracts and Options on Futures Contracts
As described generally above, the Fund may invest in stock index futures
contracts and options on futures contracts that are traded on a domestic
exchange or board of trade.
The purpose of entering into a futures contract by the Fund is to protect the
Fund from fluctuations in the value of securities without actually buying or
selling the securities. For example, in the case of stock index futures
contracts, if the Fund anticipates an increase in the price of stocks that it
intends to purchase at a later time, the Fund could enter into contracts to
purchase the stock index (known as taking a long position) as a temporary
substitute for the purchase of stocks. If an increase in the market occurs
that influences the stock index as anticipated, the value of the futures
contracts increases and thereby serves as a hedge against the Funds not
participating in a market advance. The Fund then may close out the futures
contracts by entering into offsetting futures contracts to sell the stock
index (known as taking a short position) as it purchases individual stocks.
The Fund can accomplish similar results by buying securities with long
maturities and selling securities with short maturities. But by using futures
contracts as an investment tool to reduce risk, given the greater liquidity
in the futures market, it may be possible to accomplish the same result more
easily and more quickly.
No consideration will be paid or received by the Fund upon the purchase or
sale of a futures contract. Initially, the Fund will be required to deposit
with the broker an amount of cash or cash equivalents equal to approximately
1% to 10% of the contract amount (this amount is subject to change by the
exchange or board of trade on which the contract is traded and brokers or
members of such board of trade may charge a higher amount). This amount is
known as initial margin and is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund, upon termination
of the futures contract, assuming all contractual obligations have been
satisfied. Subsequent payments, known as variation margin, to and from the
broker, will be made daily as the price of the index or securities underlying
the futures contract fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as marking-to-market.
In addition, when the Fund enters into a long position in a futures contract
or an option on a futures contract, it must deposit into a segregated account
with the Funds custodian an amount of cash or cash equivalents equal to the
total market value of the underlying futures contract, less amounts held in
the Funds commodity brokerage account at its broker. At any time prior to the
expiration of a futures contract, the Fund may elect to close the position by
taking an opposite position, which will operate to terminate the Funds
existing position in the contract.
There are several risks in connection with the use of futures contracts as a
hedging device. Successful use of futures contracts by the Fund is subject to
the ability of MMC to predict correctly movements in the stock market or in
the direction of interest rates. These predictions involve skills and
techniques that may be different from those involved in the management of
investments in securities. In addition, there can be no assurance that there
will be a perfect correlation between movements in the price of the
securities underlying the futures contract and movements in the price of the
securities that are the subject of the hedge. A decision of whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected trends in market behavior or interest rates.
Positions in futures contracts may be closed out only on the exchange on
which they were entered into (or through a linked exchange) and no secondary
market exists for those contracts. In addition, although the Fund intends to
enter into futures contracts only if there is an active market for the
contracts, there is no assurance that an active market will exist for the
contracts at any particular time. Most futures exchanges and boards of trade
limit the amount of fluctuation permitted in futures contract prices during a
single trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that limit. It is
possible that futures contract prices could move to the daily limit for
several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, and in the event of
adverse price movements, the Fund would be required to make daily cash
payments of variation margin; in such circumstances, an increase in the value
of the portion of the portfolio being hedged, if any, may partially or
completely offset losses on the futures contract. As described above,
however, no assurance can be given that the price of the securities being
hedged will correlate with the price movements in a futures contract and thus
provide an offset to losses on the futures contract.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions for the protection
of shareholders. Restrictions I through 7 below cannot be changed without
approval by the holders of a majority of the outstanding shares of the Fund,
defined as the lesser of (a) 67% or more of the Funds shares present at a
meeting, if the holders of more than 50% of the outstanding shares are
present in person or by proxy or (b) more than 50% of the Funds outstanding
shares. The remaining restrictions may be changed by the Funds Board of
Trustees at any time. In accordance with these restrictions, the Fund will
not:
1. Invest in a manner that would cause it to fail to be a diversified
company under the 1940 Act and the rules, regulations and orders thereunder.
2. Issue senior securities as defined in the 1940 Act, and the rules,
regulations and orders thereunder, except as permitted under the 1940 Act and
the rules, regulations and orders thereunder.
3. Invest more than 25% of its total assets in securities, the issuers
of which conduct their principal business activities in the same industry.
For purposes of this limitation, securities of the U.S. government (including
its agencies and instumentalities) and securities of state or municipal
governments and their political subdivisions are not considered to be issued
by members of any industry.
4. Borrow money, except that (a) the Fund may borrow from banks for
temporary or emergency (not leveraging) purposes, including the meeting of
redemption requests which might otherwise require the untimely disposition of
securities, and (b) the Fund may, to the extent consistent with its
investment policies, enter into reverse repurchase agreements, forward roll
transactions and similar investment strategies and techniques. To the extent
that it engages in transactions described in (a) and (b), the Fund will be
limited so that no more than 33 1/3% of the value of its total assets
(including the amount borrowed), valued at the lesser of cost or market, less
liabilities (not including the amount borrowed) valued at the time the
borrowing is made, is derived from such transactions.
5. Make loans. This restriction does not apply to: (a) the purchase of
debt obligations in which the Fund may invest consistent with its investment
objective and policies; (b) repurchase agreements; and (c) loans of its
portfolio securities, to the fullest extent permitted under the 1940 Act.
6. Engage in the business of underwriting securities issued by other
persons, except to the extent that the Fund may technically be deemed to be
an underwriter under the Securities Act of 1933, as amended, in disposing of
portfolio securities.
7. Purchase or sell real estate, real estate mortgages, commodities or
commodity contracts, but this restriction shall not prevent the Fund from:
(a) investing in securities of issuers engaged in the real estate business or
the business of investing in real estate (including interests in limited
partnerships owning or otherwise engaging in the real estate business or the
business of investing in real estate) and securities which are secured by
real estate or interests therein; (b) holding or selling real estate received
in connection with securities it holds or held; (c) trading in futures
contracts and options on futures contracts (including options on currencies
to the extent consistent with the Funds investment objective and policies);
or (d) investing in real estate investment trust securities.
8. 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.
9. Invest in oil, gas or other mineral exploration or development
programs.
10. 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.
11. Invest for the purpose of exercising control of management.
If any percentage restriction described above is complied with at the time of
an investment, a later increase or decrease in percentage resulting from a
change in values or assets will not constitute a violation of such
restriction.
Portfolio Turnover
While the Funds portfolio turnover rate (the lesser of purchases or sales of
portfolio securities during the year, excluding purchases or sales of
short-term securities, divided by the monthly average value of portfolio
securities) is generally not expected to exceed 100%, it has in the past
exceeded 100%. The rate of turnover will not be a limiting factor, however,
when the Fund deems it desirable to sell or purchase securities. This policy
should not result in higher brokerage commissions to the Fund, as purchases
and sales of portfolio securities are usually effected as principal
transactions. Securities may be sold in anticipation of a rise in interest
rates (market decline) or purchased in anticipation of a decline in interest
rates (market rise) and later sold. In addition, a security may be sold and
another security of comparable quality purchased at approximately the same
time to take advantage of what the Fund believes to be a temporary disparity
in the normal yield relationship between the two securities. These yield
disparities may occur for reasons not directly related to the investment
quality of particular issues or the general movement of interest rates, such
as changes in the overall demand for, or supply of, various types of
tax-exempt securities.
Portfolio Transactions
Decisions to buy and sell securities for the Fund are made by the Manager,
subject to the overall review of the Trusts Board of Trustees. Although
investment decisions for the Fund are made independently from those of the
other accounts managed by the Manager, investments of the type that the Fund
may make also may be made by those other accounts. When the Fund and one or
more other accounts managed by the Manager are prepared to invest in, or
desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the Manager
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained
or disposed of by the Fund. The Trust has paid no brokerage commissions since
its commencement of operations.
Allocation of transactions on behalf of the Fund, including their frequency,
to various dealers is determined by the Manager in its best judgment and in a
manner deemed fair and reasonable to the Funds shareholders. The primary
considerations of the Manager in allocating transactions are availability of
the desired security and the prompt execution of orders in an effective
manner at the most favorable prices. Subject to these considerations, dealers
that provide supplemental investment research and statistical or other
services to the Manager may receive orders for portfolio transactions by the
Fund. Information so received is in addition to, and not in lieu of, services
required to be performed by the Manager, and the fees of the Manager are not
reduced as a consequence of their receipt of the supplemental information.
The information may be useful to the Manager in serving both the Fund and
other clients, and conversely, supplemental information obtained by the
placement of business of other clients may be useful to the Manager in
carrying out its obligations to the Fund.
The Fund will not purchase securities during the existence of any
underwriting or selling group relating to the securities, of which the
Manager is a member, except to the extent permitted by the SEC. Under certain
circumstances, the Fund may be at a disadvantage because of this limitation
in comparison with other funds that have similar investment objectives but
that are not subject to a similar limitation.
Even though investment decisions for the Fund are made independently from
those of the other accounts managed by the Investment Adviser, investments of
the kind made by the Fund also may be made by those other accounts. When the
Fund and one or more accounts managed by the Investment Adviser are prepared
to invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner believed
by the Investment Adviser to be equitable. In some cases, this procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtained for or disposed of by the Fund.
PURCHASE OF SHARES
Volume Discounts
The schedules of sales charges described in the Prospectus apply to purchases
of shares of the Fund made by any purchaser, which term is defined to include
the following: (a) an individual; (b) an individuals spouse and his or her
children purchasing shares for his or her own account; (c) a trustee or other
fiduciary purchasing shares for a single trust estate or single fiduciary
account; (d) a pension, profit-sharing or other employee benefit plan
qualified under Section 401(a) of the Code and qualified employee benefit
plans of employers who are affiliated persons of each other within the
meaning of the 1940 Act; (e) tax-exempt organizations enumerated in Section
501(c)(3) or (13) of the Code; or (f) any other organized group of persons,
provided that the organization has been in existence for at least six months
and was organized for a purpose other than the purchase of investment company
securities at a discount. Purchasers who wish to combine purchase orders to
take advantage of volume discounts should contact a Smith Barney Financial
Consultant.
Combined Right of Accumulation
Reduced sales charges, in accordance with the schedules in the Prospectus,
apply to any purchase of shares of a Fund by any purchaser (as defined
above). The reduced sales charge is subject to confirmation of the
shareholders holdings through a check of appropriate records. The Trust
reserves the right to terminate or amend the combined right of accumulation
at any time after written notice to shareholders. For further information
regarding the right of accumulation, shareholders should contact a Smith
Barney Financial Consultant.
Determination of Public Offering Price
The Fund offers its shares to the public on a continuous basis. The public
offering price for a Class A and Class Y share of a Fund is equal to the net
asset value per share at the time of purchase, plus for Class A shares an
initial sales charge based on the aggregate amount of the investment. The
public offering price for a Class L share (and Class A share purchases,
including applicable rights of accumulation, equaling or exceeding $500,000)
is equal to the net asset value per share at the time of purchase and no
sales charge is imposed at the time of purchase. A contingent deferred sales
charge (CDSC), however, is imposed on certain redemptions of Class L shares,
and Class A shares when purchased in amounts exceeding $500,000. The method
of computation of the public offering price is shown in each Funds financial
statements, incorporated by reference in their entirety into this SAI.
REDEMPTION OF SHARES
Detailed information on how to redeem shares of the Fund is included in the
Prospectus. The right of redemption of shares of the Fund may be suspended or
the date of payment postponed (a) for any periods during which the New York
Stock Exchange, Inc. (the NYSE) is closed (other than for customary weekend
and holiday closings), (b) when trading in the markets the Fund normally
utilizes is restricted, or an emergency exists, as determined by the SEC, so
that disposal of the Funds investments or determination of its net asset
value is not reasonably practicable or (c) for any other periods as the SEC
by order may permit for the protection of the Funds shareholders.
Distributions in Kind
If the Board of Trustees of the Trust determines that it would be detrimental
to the best interests of the remaining shareholders to make a redemption
payment wholly in cash, the Fund may pay, in accordance with SEC rules, any
portion of a redemption in excess of the lesser of $250,000 or 1.00% of the
Funds net assets by a distribution in kind of portfolio securities in lieu of
cash. Securities issued as a distribution in kind may incur brokerage
commissions when shareholders subsequently sell those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the Withdrawal Plan) is available to
shareholders who own shares with a value of at least $10,000 ($5,000 for
retirement plan accounts) and who wish to receive specific amounts of cash
monthly or quarterly. Withdrawals of at least $50 may be made under the
Withdrawal Plan by redeeming as many shares of the Fund as may be necessary
to cover the stipulated withdrawal payment. To the extent withdrawals exceed
dividends, distributions and appreciation of a shareholders investment in the
Fund, there will be a reduction in the value of the shareholders investment
and continued withdrawal payments will reduce the shareholders investment and
ultimately may exhaust it. Withdrawal payments should not be considered as
income from investment in the Fund. Furthermore, as it generally would not be
advantageous to a shareholder to make additional investments in the Fund at
the same time he or she is participating in the Withdrawal Plan, purchases by
such shareholders in amounts of less than $5,000 ordinarily will not be
permitted.
Shareholders who wish to participate in the Withdrawal Plan and who hold
their shares in certificate form must deposit their share certificates with
First Data as agent for Withdrawal Plan members. All dividends and
distributions on shares in the Withdrawal Plan are reinvested automatically
at net asset value in additional shares of the Fund. Withdrawal Plans should
be set up with a Smith Barney Financial Consultant. Applications for
participation in the Withdrawal Plan must be received by First Data no later
than the eighth day of the month to be eligible for participation beginning
with that months withdrawal. For additional information, shareholders should
contact a Financial Consultant.
DISTRIBUTOR
Smith Barney serves as the Trusts distributor on a best efforts basis
pursuant to a written agreement (the Distribution Agreement), which was
approved by the Trusts Board of Trustees.
When payment is made by the investor before the settlement date, unless
otherwise requested in writing by the investor, the funds will be held as a
free credit balance in the investors brokerage account and Smith Barney may
benefit from the temporary use of the funds. The investor may designate
another use for the funds prior to settlement date, such as an investment in
a money market fund (other than Smith Barney Exchange Reserve Fund) of the
Smith Barney Mutual Funds. If the investor instructs Smith Barney to invest
the funds in a Smith Barney money market fund, the amount of the investment
will be included as part of the average daily net assets of both the Fund and
the money market fund, and affiliates of Smith Barney that serve the funds in
an investment advisory or administrative capacity will benefit from the fact
that they are receiving fees from both such investment companies for managing
these assets, computed on the basis of their average daily net assets. The
Trusts Board of Trustees has been advised of the benefits to Smith Barney
resulting from these settlement procedures and will take such benefits into
consideration when reviewing the Investment Management and Distribution
Agreements for continuance.
Under its terms, the Plan continues from year to year, provided such
continuance is approved annually by vote of the Board of Trustees, including
a majority of the Trustees who are not interested persons of the Trust and
who have no direct or indirect financial interest in the operation of the
Plan or in the Distribution Agreement (the Independent Trustees). The Plan
may not be amended to increase the amount of the service and distribution
fees without shareholder approval, and all amendments of the Plan also must
be approved by the Trustees including all of the Independent Trustees in the
manner described above. The Plan may be terminated with respect to a Class at
any time, without penalty, by vote of a majority of the Independent Trustees
or, with respect to any Fund, by vote of a majority of the outstanding voting
securities of a Fund (as defined in the 1940 Act). Pursuant to the Plan,
Smith Barney will provide the Board of Trustees with periodic reports of
amounts expended under the Plan and the purpose for which such expenditures
were made.
Distribution Arrangements
To compensate Smith Barney for the services it provides and for the expense
it bears under the Distribution Agreement, the Fund has adopted a services
and distribution plan (the Plan) pursuant to Rule l2b-1 under the 1940 Act.
Under the Plan, the Fund pays Smith Barney a service fee, accrued daily and
paid monthly, calculated at the annual rate of 0.25% of the value of the
Funds average daily net assets attributable to the Class A, Class B and Class
L shares. In addition, the Fund pays Smith Barney a distribution fee with
respect to the Class B and Class L shares primarily intended to compensate
Smith Barney for its initial expense of paying Financial Consultants a
commission upon sales of those shares. The Class B and Class L distribution
fee is calculated at the annual rate of 0.75% of the value of the Funds
average daily net assets attributable to the shares of the respective Class.
VALUATION OF SHARES
The net asset value per share of the Funds Classes is calculated on each day,
Monday through Friday, except days on which the NYSE is closed. The NYSE
currently is scheduled to be closed on New Years Day, Martin Luther King, Jr.
Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas, and on the preceding Friday or subsequent Monday
when one of these holidays falls on a Saturday or Sunday, respectively.
Because of the differences in distribution fees and Class-specific expenses,
the per share net asset value of each Class may differ. The following is a
description of the procedures used by the Trust in valuing its assets.
Securities listed on a national securities exchange will be valued on the
basis of the last sale on the date on which the valuation is made or, in the
absence of sales, at the mean between the closing bid and asked prices.
Over-the-counter securities will be valued at the mean between the closing
bid and asked prices on each day, or, if market quotations for those
securities are not readily available, at fair value, as determined in good
faith by the Funds Board of Trustees. Short-term obligations with maturities
of 60 days or less are valued at amortized cost, which constitutes fair value
as determined by the Funds Board of Trustees. Amortized cost involves valuing
an instrument at its original cost to the Fund and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of
the effect of fluctuating interest rates on the market value of the
instrument. All other securities and other assets of the Fund will be valued
at fair value as determined in good faith by the Funds Board of Trustees.
EXCHANGE PRIVILEGE
Except as noted below and in the Prospectus, shareholders of any of the Smith
Barney Mutual Funds may exchange all or part of their shares for shares of
the same class of other Smith Barney Mutual Funds, to the extent such shares
are offered for sale in the shareholders state of residence, on the basis of
relative net asset value per share at the time of exchange as follows:
A. Class A and Class Y shares of the Fund may be exchanged without a
sales charge for the respective shares of any of the Smith Barney
Mutual Funds.
B. Class B shares of any fund may be exchanged without a sales charge.
Class B shares of the Fund exchanged for Class B shares of another
Smith Barney Mutual Fund will be subject to the higher applicable CDSC
of the two funds and, for purposes of calculating CDSC rates and
conversion periods, will be deemed to have been held since the date the
shares being exchanged were deemed to be purchased.
C. Class L shares of any fund may be exchanged without a sales charge.
For purposes of CDSC applicability, Class L shares of the Fund
exchanged for Class C shares of another Smith Barney Mutual Fund will
be deemed to have been owned since the date the shares being exchanged
were deemed to be purchased.
The exchange privilege enables shareholders to acquire shares of the same
Class in a fund with different investment objectives when they believe that a
shift between funds is an appropriate investment decision. This privilege is
available to shareholders residing in any state in which the fund shares
being acquired may legally be sold. Prior to any exchange, the shareholder
should obtain and review a copy of the current prospectus of each fund into
which an exchange is being considered. Prospectuses may be obtained from a
Smith Barney Financial Consultant.
Upon receipt of proper instructions and all necessary supporting documents,
shares submitted for exchange are redeemed at the then-current net asset
value and the proceeds are immediately invested, at a price as described
above, in shares of the fund being acquired. Smith Barney reserves the right
to reject any exchange request. The exchange privilege may be modified or
terminated at any time after written notice to shareholders.
PERFORMANCE DATA
From time to time, the Trust may quote a Funds yield or total return in
advertisements or in reports and other communications to shareholders. The
Trust may include comparative performance information in advertising or
marketing the Funds shares. Such performance information may include the
following industry and financial publications- Barrons, Business Week, CDA
Investment Technologies, Inc., Changing Times, Forbes, Fortune, Institutional
Investor, Investors Daily, Money, Morningstar Mutual Fund Values, The New
York Times, USA Today and The Wall Street Journal. To the extent any
advertisement or sales literature of a Fund describes the expenses or
performance of any Class it will also disclose such information for the other
Classes.
Average Annual Total Return
Average annual total return figures are computed according to a formula
prescribed by the SEC. The formula can be expressed as follows:
P (1 + T)n = ERV
Where: P = a hypothetical initial payment of $ 1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical
$1,000 investment made
at the beginning of a 1-, 5- or 10-year period
at the end of the 1-, 5- or
10-year period (or fractional portion thereof),
assuming reinvestment
of all dividends and distributions.
Aggregate Total Return
Aggregate total return figures represent the cumulative change in the value
of an investment in the Fund for the specified period and are computed by the
following formula:
ERV-P
P
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical $
10,000 investment made
at the beginning of a l-, 5- or 10-year period
at the end of the 1-, 5- or
10-year period (or fractional portion thereof),
assuming reinvestment
of all dividends and distributions.
Performance will vary from time to time depending on market conditions, the
composition of the Funds portfolio and operating expenses. Consequently, any
given performance quotation should not be considered representative of the
Funds performance for any specified period in the future. Because performance
will vary, it may not provide a basis for comparing an investment in the Fund
with certain bank deposits or other investments that pay a fixed yield for a
stated period of time.
TAXES
The following is a summary of certain Federal income tax considerations that
may affect the Fund and its shareholders. The summary is not intended as a
substitute for individual tax advice and investors are urged to consult their
own tax advisors as to the tax consequences of an investment in the Fund.
The Trust intends to qualify each year as a regulated investment company
under the Code. If the Fund (a) qualifies as a regulated investment company
and (b) distributes to its shareholders at least 90% of its net investment
income (including, for this purpose, its net realized short-term capital
gains), the Fund will not be liable for Federal income taxes to the extent
that its net investment income and its net realized long- and short term
capital gains, if any, are distributed to its shareholders.
As described above, the Fund may invest in futures contracts and options on
futures contracts that are traded on a U.S. exchange or board of trade. As a
general rule, these investment activities will increase or decrease the
amount of long-term and short-term capital gains or losses realized by the
Fund and, thus, will affect the amount of capital gains distributed to the
Funds shareholder.
For federal income tax purposes, gain or loss on the futures and options
described above (collectively referred to as Section 1256 Contracts) would,
as a general rule, be taxed pursuant to a special mark-to-market system.
Under the mark-to-market system, the Fund may be treated as realizing a
greater or lesser amount of gains or losses than actually realized. As a
general rule, gain or loss on Section 1256 Contracts is treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss, and
as a result, the mark-to market will generally affect the amount of capital
gains or losses taxable to the Fund and the amount of distributions taxable
to a shareholder. Moreover, if the Fund invests in both Section 1256 and
offsetting positions in those contracts, then the Fund may not be able to
receive the benefit of certain realized losses for an indeterminate period of
time. The Fund expects that its activities with respect to Section 1256
Contracts and offsetting position in those Contracts (1) will not cause it or
its shareholders to be treated as receiving a materially greater amount of
capital gains or distributions than actually realized or received and (2)
will permit it to use substantially all of its losses for the fiscal years in
which the losses actually occur.
Gains or losses on the sales of stock or securities by the Fund generally
will be long-term capital gains or losses if the Fund has held the stock or
securities for more than one year. Gains or losses on sales of stock or
securities held for not more than one year generally will be short-term
capital gains or losses.
Foreign countries may impose withholding and other taxes on dividends and
interest paid to the Fund with respect to investments in foreign securities.
However, certain foreign countries have entered into tax conventions with the
United States to reduce or eliminate such taxes. Distributions of long-term
capital gains will be taxable to shareholders as such, whether paid in cash
or reinvested in additional shares and regardless of the length of time that
the shareholder has held his or her interest in the Fund. If a shareholder
receives a distribution taxable as long-term capital gain with respect to his
or her investment in the Fund and redeems or exchanges the shares before he
or she has held them for more than six months, any loss on the redemption or
exchange that is less than or equal to the amount of the distribution will be
treated as a long-term capital loss.
Any net long-term capital gains realized by the Fund will be distributed
annually as described in the Prospectus. Such distributions (capital gain
dividends) will be taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held Fund shares, and will be
designated as capital gain dividends in a written notice mailed by the Fund
to shareholders after the close of the Funds prior taxable year. If a
shareholder receives a capital gain dividend with respect to any share and if
the share has been held by the shareholder for six months or less, then any
loss on the sale or exchange of such share will be treated as a long-term
capital loss to the extent of the capital gain dividend.
Investors considering buying shares of the Fund on or just prior to a record
date for a taxable dividend or capital gain distribution should be aware
that, regardless of whether the price of the Fund shares to be purchased
reflects the amount of the forthcoming dividend or distribution payment, any
such payment will be a taxable dividend or distribution payment.
If a shareholder fails to furnish a correct taxpayer identification number,
fails fully to report dividend and interest income, or fails to certify that
he or she has provided a correct taxpayer identification number and that he
or she is not subject to backup withholding, then the shareholder may be
subject to a 31% backup withholding tax with respect to (a) any taxable
dividends and distributions and (b) the proceeds of any redemptions of Fund
shares. An individuals taxpayer identification number is his or her social
security number. The backup withholding tax is not an additional tax and may
be credited against a shareholders regular Federal income tax liability.
The foregoing is only a summary of certain tax considerations generally
affecting the Fund and its shareholders and is not intended as a substitute
for careful tax planning. Shareholders are urged to consult their tax
advisors with specific reference to their own tax situations, including their
state and local tax liabilities.
ADDITIONAL INFORMATION
The Trust was organized as an unincorporated business trust on October 17,
1991 under the name Shearson Lehman Brothers Intermediate-Term Trust. On
November 20, 1991, July 30, 1993, October 14, 1994 and August 16, 1995, the
Trusts name was changed to Shearson Lehman Brothers Income Trust, Smith
Barney Shearson Income Trust, Smith Barney Income Trust and Smith Barney
Investment Trust, respectively.
PNC Bank, located at 17th and Chestnut Streets, Philadelphia, Pennsylvania
19103, serves as the custodian of the Fund. Under its agreement with the
Trust on behalf of the Fund, PNC Bank holds the Funds portfolio securities
and keeps all necessary accounts and records. For its services, PNC Bank
receives a monthly fee based upon the month-end market value of securities
held in custody and also receives securities transaction charges. The assets
of the Fund are held under bank custodianship in compliance with the 1940
Act.
First Data, located at Exchange Place, Boston, Massachusetts 02109, serves as
the Trusts transfer agent. Under the transfer agency agreement, First Data
maintains the shareholder account records for the Trust, handles certain
communications between shareholders and the Trust and distributes dividends
and distributions payable by the Trust. For these services, First Data
receives a monthly fee computed on the basis of the number of shareholder
accounts it maintains for the Trust during the month and is reimbursed for
out-of-pocket expenses.
Smith Barney
Mid Cap Blend Fund
Statement of
Additional Information
June 30, 1998
Smith Barney
Mid Cap Blend Fund
388 Greenwich Street
New York, New York 100 13
SMITH BARNEY
A Member of Travelers Group
Mid Cap Blend Fund.doc
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