As filed with the Securities and Exchange Commission
on April 15, 1998
Securities Act Registration No. 33 -43446
Investment Company Act Registration No. 811-
6444
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 19 [X]
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 19
__________________ [ ]
Smith Barney Investment Trust
(a Massachusetts Business Trust)
(Exact Name of Registrant as Specified in Charter)
388 Greenwich Street
New York, New York 10013
(Address of Principal Executive Offices)
(212) 816-6474
(Registrants Telephone Number, including Area Code)
Christina T. Sydor, Secretary
Smith Barney Investment Trust
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
_____________________
Copies to:
Burton M. Leibert, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
_______________
Approximate Date of Proposed Public Offering:
Continuous.
It is proposed that this filing will become effective
(check appropriate
box):
[] Immediately upon filing pursuant to [ ]
On (date) pursuant to
paragraph (b)
paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to [ ]
On (date) pursuant to
paragraph (a)(1) paragraph (a)(1)
[X] 75 days after filing pursuant to [ ]
On (date) pursuant to
paragraph (a)(2) paragraph (a)(2) of
rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates
a new effective date for a previously filed
post effective amendment.
Title of Securities Being Registered: Shares of
Beneficial Interest
SMITH BARNEY INVESTMENT TRUST
FORM N-1A
CONTENTS OF REGISTRATION STATEMENT
Front Cover
Contents Page
Cross Reference Sheet
Part A:
PROSPECTUS
<PAGE>
SMITH BARNEY
Mid Cap
Blend
Fund
JUNE , 1998
PROSPECTUS BEGINS ON PAGE ONE
LOGO
P R O S P E C T U S
<PAGE>
PROSPECTUS JUNE , 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 of 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 schedules to end on July ,
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 August , 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 , 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
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 9
- -------------------------------------------------
VALUATION OF SHARES 11
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DIVIDENDS, DISTRIBUTIONS AND TAXES 11
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PURCHASE OF SHARES 12
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EXCHANGE PRIVILEGE 23
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REDEMPTION OF SHARES 27
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MINIMUM ACCOUNT SIZE 29
- -------------------------------------------------
PERFORMANCE 30
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MANAGEMENT OF THE TRUST AND THE FUND 30
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DISTRIBUTOR 31
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ADDITIONAL INFORMATION 32
- -------------------------------------------------
APPENDIX A 34
</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 Invest-
ment 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 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 these Classes. Because the Funds future return cannot be
predicted, however, there can be no assurance that this would be the case.
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 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
4
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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 the
initial sales charge on the Class A shares.
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 Funds 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 July , 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 August , 1998. See Purchase of Shares.
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
5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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 require ment 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
Funds 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
Funds investment objective will be achieved. The value of the Funds invest-
ments, and thus the net asset value of the Funds 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 Funds 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 FUNDS 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 Funds estimated operating
expenses:
<TABLE>
<CAPTION>
SMITH BARNEY
MID CAP BLEND FUND CLASS A CLASS B CLASS L CLASS Y
- -------------------------------------------------------------------------------
<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
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.15% 1.90% 1.90% 0.82%
- -------------------------------------------------------------------------------
</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 NASD.
*** Other Expenses have been estimated based on expenses the Fund has
incurred during its fiscal year ended November 30, 1997.
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 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment, assuming (1) 5.00%
annual return and (2) redemption at the end
of each time period:
Class A...................................
Class B...................................
Class L...................................
Class Y...................................
An investor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
Class A...................................
Class B...................................
Class L...................................
Class Y...................................
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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 Funds 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 Funds 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 Funds outstanding shares. There can be no assurance that the
Funds 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 companies 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-capitaliz
In selecting the Funds equity investments, MMC seeks to identify companies
that exhibit growth and/or value attributes. When selecting stocks with growth
potential, MMC will evaluate the specific financial characteristics of the
issuer such as historical and forecasted earnings growth, sales growth, profit-
ability and return on equity.
When selecting stocks with value characteristics,
MMC will typically be looking at companies that are perhaps
growing more slowly but whose valuation may be below average
relative to earnings and/or assets. In addition, MMC will utilize an
active quantitative investment strategy in a portion of the Fund.
This portion willll provide added diversification and, in addition,
will select securities using a proprietary technique that
are believed to have a high probability of outperfo
sector. In identifying these securities,
the Funds portfolio manager is supported by a
quantitatively oriented investment
using a proprietary technique that are believed to have a
high probability of outperformsector. In identifying these
securities, the Funds 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 Funds 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,
prevailing market or economic conditions warr
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 MMC in its best judgment. The primary consideration is prompt and effec-
tive 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 MMC 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. MMC will not consider turnover rate a limiting
factor in making investment decisions consistent with the Funds investment
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 Funds
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 Funds
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 Funds custodian, trans-
10
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
fer agent and accounting service agent that they are also in the process of
modifying their systems with the same goal. There can, however, be no assur-
ance that the Manager, Smith Barney or any other service provider will be suc-
cessful, or that interaction with other non-complying computer systems will
not impair Fund services at that time.
VALUATION OF SHARES
The Funds 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 Funds net assets attributable to each Class by the total number of shares
of the Class outstanding.
Generally, the Funds 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 Trusts 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 Funds valuation
policies is contained in the SAI.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Funds policy is to distribute substantially all its net investment
income (that is, its income other than its net realized capital gains) and net
realized capital gains, if any, once a year, normally at the end of the year
in which earned or at the beginning of the next year.
If a shareholder does not otherwise instruct, dividends and capital gains
distributions will be reinvested automatically in additional shares of the
same Class at net asset value, subject to no sales charge or CDSC. In order to
avoid the application of a 4.00% nondeductible excise tax on certain undis-
tributed amounts of ordinary income and capital gains, the Fund may make an
additional distribution, shortly before December 31 in each year, of any
undistributed ordinary income or capital gains and expects to pay any other
dividends and distributions necessary to avoid the application of this tax.
The per share dividends on Class B and Class L shares of the Fund may be
lower than the per share dividends on Class A and Class Y shares principally
as a result of the distribution fee applicable with respect to Class B and
Class L shares.
11
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
The per share dividends on Class A shares of the Fund may be lower than the per
share dividends on Class Y shares principally as a result of the service fee
applicable to Class A shares. Distributions of capital gains, if any, will be
in the same amount for Class A, Class B, Class L and Class Y shares.
TAXES
The Fund intends to qualify each year as a regulated investment company under
the Code. Dividends paid from net investment income and distributions of net
realized short-term capital gains will be taxable to shareholders as ordinary
income, regardless of how long shareholders have held their Fund shares and
whether such dividends and distributions are received in cash or reinvested in
additional Fund shares. Distributions of net realized long-term capital gains
will be taxable to shareholders as long-term capital gains, regardless of how
long shareholders have held Fund shares and whether such distributions are
received in cash or are reinvested in additional Fund shares. Furthermore, as a
general rule, a shareholders gain or loss on a sale or redemption of Fund
shares will be a long-term capital gain or loss if the shareholder has held the
shares for more than one year and will be a short-term capital gain or loss if
the shareholder has held the shares for one year or less. Some of the Funds
dividends declared from net investment income may qualify for the Federal divi-
dends-received deduction for corporations.
Statements as to the tax status of each shareholders dividends and distribu-
tions will be mailed annually. Each shareholder also will receive, if appropri-
ate, various written notices after the close of the Funds prior taxable year
as to the Federal income tax status of his or her dividends and distributions
which were received from the Fund during the Funds prior taxable year. Share-
holders should consult their own tax advisors regarding specific questions as
to the Federal and local tax consequences of investing in the Fund.
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.
12
<PAGE>
PURCHASE OF SHARES (CONTINUED)
INITIAL SUBSCRIPTION PERIOD
Smith Barney, the Funds 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-
merce operations.
The Fund is offering its Class A shares to the public at a maximum purchase
price per share of $12.50, which equals the Class A share initial net asset
value per share of $11.88 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 $11.88.
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.
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 contin-
uous 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 additional 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,
13
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Class B, Class C or Class Y shares. Smith Barney and other broker/dealers may
charge their customers an annul account maintenance fee in connection with a
brokerage account through which an investor purchases or holds shares. Accounts
held directly at First Data are not subject 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
14
<PAGE>
PURCHASE OF SHARES (CONTINUED)
open an account by making an initial investment of $15,000,000. Subsequent
investments of at least $50 may be made for all Classes. For participants in
retirement plans qualified under Section 403(b)(7) or Section 401(a) of the
Code, the minimum initial investment requirement for Class A, Class B and
Class L shares and the subsequent investment requirement for all Classes in
the Fund is $25. For shareholders purchasing shares of the Fund through the
Systematic Investment Plan on a monthly basis, the minimum initial investment
requirement for Class A, Class B and Class L shares and the subsequent invest-
ment requirement for all Classes is $25. For shareholders purchasing shares of
the Fund through the Systematic Investment Plan on a quarterly basis, the min-
imum 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 purchases by employees of
Travelers and its subsidiaries, including Smith Barney, Directors or Trustees,
of any of the Smith Barney Mutual Funds, and their immediate family. The Fund
reserves the right to waive or change minimums, to decline any order to pur-
chase its shares and to suspend the offering of shares from time to time.
Shares purchased will be held in the shareholders account by the Funds
transfer agent. Share certificates are issued only upon a shareholders writ-
ten 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
Barneys 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 shareholders Fund account. A shareholder who has insufficient funds to
complete 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 Bar-
ney to apply cash held in the sharehold-
15
<PAGE>
PURCHASE OF SHARES (CONTINUED)
ers Smith Barney brokerage account or redeem the shareholders 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.
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;
16
<PAGE>
PURCHASE OF SHARES (CONTINUED)
(b) offers of Class A shares to any other investment company to effect the com-
bination of such company with the Fund by merger, acquisition of assets or oth-
erwise; (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 Consultants employment with Smith Barney), on the condition
the purchase of Class A shares is made with the proceeds of the redemption of
shares of a mutual fund which (i) was sponsored by the Financial Consultants
prior employer, (ii) was sold to the client by the Financial Consultant and
(iii) was subject to a sales charge; (d) purchases by shareholders who have
redeemed Class A shares in the Fund or Class A shares of another fund of the
Smith Barney Mutual Funds that are offered with a sales charge, and who wish to
reinvest their redemption proceeds in the Fund, provided the reinvestment is
made within 60 calendar days of the redemption; (e) purchases by accounts man-
aged by registered 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 unregistered variable annuity contracts; and (h) purchases by investors
participating in a Smith Barney fee-based arrangement. In order to obtain such
discounts, the purchaser must provide sufficient information at the time of
purchase to permit verification that the purchase would qualify for the elimi-
nation 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
17
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 eli-
gible for such reduced sales charges or to purchase at net asset value, all
purchases must be pursuant to an employer- or partnership-sanctioned plan meet-
ing certain requirements. One such requirement is that the plan must be open to
specified partners or 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 crite-
ria 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 publications 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 purchaser 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 discre-
tion 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 previ-
18
<PAGE>
PURCHASE OF SHARES (CONTINUED)
ously 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
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 Funds 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 investors 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
19
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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.
<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 investors 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 shareholders shares at the time the withdrawal plan com-
mences (see Automatic Cash Withdrawal Plan) (provided, however, that auto-
matic cash
20
<PAGE>
PURCHASE OF SHARES (CONTINUED)
withdrawals in amounts equal to or less than 2.00% per month of the value of
the shareholders shares will be permitted for withdrawal plans that were
established prior to November 7, 1994); (c) redemptions of shares within 12
months following the death or disability of the shareholder; (d) redemptions
of shares made in connection with qualified distributions from retirement
plans or IRAs upon the attainment of age 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 circumstances, reinvest all or part of the redemption pro-
ceeds 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 shareholders 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
21
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 calculated from the date the retail brokerage account was
opened.) Such Participating Plans will be notified of the pending exchange in
writing within 30 days after the fifth anniversary of the enrollment date and,
unless the exchange offer has been rejected in writing, the exchange will occur
on or about the 90th day after the fifth anniversary date. If the Participating
Plan does not qualify for the five year exchange to Class A shares, a review of
the Participating Plans 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.
Existing 401(k) Plans Investing in Class B Shares. Class B shares of the
Smith Barney Mutual Funds are not available for purchase by Participating Plans
opened on or after June 21, 1996, but may continue to be purchased by any Par-
ticipating Plan in the Smith Barney 401(k) Program opened prior to such date
and originally investing in such Class. Class B shares acquired are subject to
a CDSC of 3.00% of redemption proceeds, if the Participating Plan terminates
within eight years of the date the Participating Plan first enrolled in the
Smith Barney 401(k) Program.
22
<PAGE>
PURCHASE OF SHARES (CONTINUED)
At the end of the eighth year after the date the Participating Plan enrolled
in the Smith Barney 401(k) Program, the Participating Plan will be offered the
opportunity to exchange all of its Class B shares for Class A shares of the
Fund. Such Participating Plan will be notified of the pending exchange in writ-
ing approximately 60 days before the eighth anniversary of the enrollment date
and, unless the exchange has been rejected in writing, the exchange will occur
on or about the eighth anniversary date. Once the exchange has occurred, a Par-
ticipating Plan will not be eligible to acquire additional Class B shares of
the Fund but instead may acquire Class A shares of the Fund. If the Participat-
ing Plan elects not to exchange all of its Class B shares at that time, each
Class B share held by the Participating Plan will have the same conversion fea-
ture as Class B shares held by other investors. See Purchase of Shares--
Deferred Sales Charge Alternatives.
No CDSC is imposed on redemptions of Class B shares to the extent that the
net asset value of the shares redeemed does not exceed the current net asset
value of the shares purchased through reinvestment of dividends or capital gain
distributions, plus the current net asset value of Class B shares purchased
more than eight years prior to the redemption, plus increases in the net asset
value of the shareholders Class B shares above the purchase payments made dur-
ing the preceding eight years. Whether or not the CDSC applies to the redemp-
tion by a Participating Plan depends on the number of years since the Partici-
pating Plan first became enrolled in the Smith Barney 401(k) Program, unlike
the applicability of the CDSC to redemptions by other shareholders, which
depends on the number of years since those shareholders made the purchase pay-
ment from which the amount is being redeemed.
The CDSC will be waived on redemptions of Class B shares in connection with
lump-sum or other distributions made by a Participating Plan as a result of:
(a) the retirement of an employee in the Participating Plan; (b) the termina-
tion of employment of an employee in the Participating Plan; (c) the death or
disability of an employee in the Participating Plan; (d) the attainment of age
59 1/2 by an employee in the Participating Plan; (e) hardship of an employee in
the Participating Plan to the extent permitted under Section 401(k) of the
Code; or (f) redemptions of shares in connection with a loan made by the Par-
ticipating Plan to an employee.
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
shareholders state of residence. Exchanges of Class A, Class B and Class L
shares are
23
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
subject to minimum investment requirements and all shares are subject to the
other requirements of the fund into which exchanges are made.
FUND NAME
Growth Funds
Concert Peachtree Growth Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Special Equities Fund
Growth and Income Funds
Concert Social Awareness Fund
Smith Barney Convertible Fund
Smith Barney Funds, Inc.--Large Cap Value Fund
Smith Barney Large Cap Blend Fund
Smith Barney Premium Total Return Fund
Smith Barney Utilities 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 Muni Funds--Florida Portfolio
Smith Barney Muni Funds--Georgia Portfolio
*Smith Barney Muni Funds--Limited Term Portfolio
24
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
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 Municipal High Income Fund
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income 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.--Growth Portfolio
Smith Barney Concert Allocation Series Inc.--Global 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. In
addition, Participating Plans opened prior to June 21, 1996 and investing
in Class L shares of the Fund may exchange Fund shares for Class C shares
of this Fund.
***Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class C 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.
25
<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 Funds performance and its shareholders. The Manager
may determine that a pattern of frequent exchanges is excessive and contrary
to the best interests of the Funds 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.
26
<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 shareholders 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-
holders 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 investors 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 shareholders 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-
27
<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
investors 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 Funds 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 shareholders 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 shareholders 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
28
<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 shareholders
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 shareholders 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 shareholders shares subject to the
CDSC.) For further information regarding the automatic cash withdrawal plan,
shareholders should contact a Smith Barney Financial Consultant.
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any shareholders
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.
29
<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 Trusts 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 Funds distributor, investment manager,
custodian and transfer agent. The day-to-day operations of the Fund are dele-
gated to the Funds investment manager. The SAI contains background information
regarding each Trustee of the Trust and executive officers of the Fund.
INVESTMENT MANAGER--MMC
MMC, located at 388 Greenwich Street, New York, New York 10013, serves as the
Funds investment manager pursuant to an investment management agreement
approved by the Trusts Board of Trustees. The Manager (through predecessor
entities) has been in the investment counseling business since 1934 and is a
registered investment adviser. The Manager renders investment advice to invest-
ment companies that had aggregate assets under management as of March 31, 1998
in excess of $100.5 billion.
Subject to the supervision and direction of the Trusts Board of Trustees,
the Manager manages the Funds portfolio in accordance with the Funds stated
investment objective and policies, makes investment decisions for the Fund,
places orders to purchase and sell securities, and employs professional
portfolio managers and
30
<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 Funds average daily net assets.
PORTFOLIO MANAGEMENT
, 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.
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-
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
31
<PAGE>
DISTRIBUTOR (CONTINUED)
exceed distribution expenses actually incurred. The Funds Board of Directors
will evaluate the appropriateness of the Plan and its payment terms on a con-
tinuing 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 Funds 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 Trusts 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-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
Trusts 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 Funds investments.
32
<PAGE>
ADDITIONAL INFORMATION (CONTINUED)
First Data, located at Exchange Place, Boston, Massachusetts 02109, serves as
the Funds 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 Funds 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
Funds Transfer Agent.
33
<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 under-
lying common stock because of this conversion feature. A convertible security
will normally also provide a fixed income stream. For this reason, the con-
vertible security may not decline in price as rapidly as the underlying common
stock. Convertible securities rank senior to common stocks in an issuers cap-
ital structure and consequently entail less risk than the issuers common
stock. MMC will select convertible securities to be purchased by the Fund
based primarily upon its evaluation of the fundamental investment characteris-
tics and growth prospects of the issuer of the security. As a fixed income
security, a convertible security tends to increase in market value when inter-
est rates decline and decrease in value when interest rates rise. While con-
vertible securities 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 for-
eign issuers, the Fund may also invest in securities of foreign issuers in the
form of sponsored and unsponsored American Depositary Receipts (ADRs), Euro-
pean Depositary Receipts (EDRs), Global Depositary Receipts (GDRs) or other
similar securities convertible into securities of foreign issuers. These secu-
rities may not necessarily be denominated in the same currency as the securi-
ties 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 specified amount of currencies of certain of the twelve member states of
the European Community. In addition, the Fund may invest in securities denomi-
nated 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 inher-
ent in domestic investments. These risks include those resulting from revalua-
tion of currencies, future adverse political and economical developments and
the possible imposition of currency exchange blockages or other foreign gov-
ernmental 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 compara-
ble 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 markets may be less liquid and their prices more volatile than those
of securities of comparable domestic companies. In addition, with
34
<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 REITs 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 s
All debt securities are subject to market risk and credit risk. Market risk
relates to market-induced changes in a securitys value, usually as a result of
changes in interest rates. The value of the Funds 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 Funds debt securities will
generally rise. Conversely, during periods of rising interest rates, the value
of the Funds 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 Funds investments in fixed income securities with
longer terms to maturity or greater duration are subject to greater volatility
than the Funds shorter-term securities.
35
<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 & Poors Ratings
Group (S&P) or Prime-2 by Moodys Investors Service, Inc. (Moodys) or the
equivalent from another nationally recognized statistical rating organization
(NRSRO) 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 Trusts 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 sellers
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 Funds 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
36
<PAGE>
APPENDIX A (CONTINUED)
assume the role of seller/borrower in the transaction. The Fund will maintain
a segregated account consisting of assets determined to be liquid by MMC that
at all times are in an amount equal to its obligations under reverse repur-
chase agreements. 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. Reverse repurchase agreements involve the
risk that the market 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 Funds 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 MMC. 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 gains 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 currencies ("Options") and
purchase put and call Options that are traded on foreign 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 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 transaction 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 negotiated 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 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 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 investment
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.
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 Investment Adviser 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. 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 transaction 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.
38
<PAGE>
SMITH BARNEY
---------------------------------
A Member of TravelersGroup [LOGO]
SMITH BARNEY
MID CAP
BLEND FUND INC.
388 Greenwich Street
New York, New York 10013
FD 6/98
Part B:
STATEMENT OF ADDITIONAL INFORMATION
Smith Barney
Mid Cap Blend Fund
388 Greenwich Street
New York, New York 10013
1-800-451-2010
Statement of Additional
Information
June , 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 , 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
........................................................
...............................
Investment Objective and Management Policies
...................................................
Purchase of Shares
........................................................
........................................
Redemption of Shares
........................................................
...................................
Distributor
........................................................
.....................................................
Valuation of Shares
........................................................
.......................................
Performance Data (See in the Prospectus Performance)
...................................
Taxes (See in the Prospectus Dividends, Distributions
and Taxes) ..................
Additional Information
.........................................................
.................................
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.
James J. Crisona, Director Emeritus.
Attorney; formerly Justice of the Supreme Court
of the State of New York. His address is 118
East 60th Street, New York, New York 10022
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.
Total
Pension or Compensation Number of
Retirement from Fund Funds for
Aggregate Benefits Accrued and Fund Which Director
Compensation as part of Complex Serves Within
Name of Person from Fund Fund Expenses Paid to Directors Fund Complex
Herbert Barg $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
James J. Crisona*** 0 0
20,575 12
* 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. Mr.
Crisona is a Trustee Emeritus and as such may
attend meetings but has no voting rights.
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 collateral whenever the market
value of the securities rises above the level
of such collateral; (c) the Fund must be able
to terminate the loan at any time; (d) the Fund
must receive reasonable interest on the loan,
as well as an amount equal to any dividends,
interest or other distributions on the loaned
securities, and any increase in market value;
(e) the Fund may pay only reasonable custodian
fees in connection with the loan; and (f)
voting rights on the loaned securities may pass
to the borrower; however, if a material event
adversely affecting the investment occurs, the
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
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 on Securities
The Fund may engage in the writing of covered
call options. The Fund may also purchase put
options and enter into closing transactions.
The Fund may write call options on securities
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
underlying the option or has an absolute and
immediate right to acquire that security
without additional cash consideration (or for
additional cash consideration held in a
segregated account by its custodian) upon
conversion or exchange of other securities 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 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.
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 price 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.
Currency Strategies
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 in which 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.
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.
Although the Fund 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.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment
restrictions for the protection of
shareholders. Restrictions 1 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. Purchase the securities of any other
open-end investment company, except through a
purchase on the open market involving no
commission or profit to a sponsor or dealer
(other than the customary stock exchange or
over-the-counter brokerage commission) and
except as part of a merger, consolidation or
acquisition of assets.
12. 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 C 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 C
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 12b-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 shares of the Fund may be
exchanged without a sales charge for
Class A 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 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.
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 , 1998
Smith Barney
Mid Cap Blend Fund
388 Greenwich Street
New York, New York 10013
SMITH BARNEY
A Member of Travelers Group
39
Part C: Other Information
SMITH BARNEY INVESTMENT TRUST
FORM N-1A
CROSS-REFERENCE SHEET
PURSUANT TO RULE 495(b)
Part A Item No.
Prospectus Caption
1. Cover Page
Cover Page
2. Synopsis
Prospectus Summary
3. Financial Highlights
Financial Highlights
4. General Description of
Registrant
Cover Page; Prospectus Summary;
Investment Objective and Management Policies;
Additional Information - Appendix A
5. Management of the Fund
Management of the Trust and the
Fund; Distributor; Additional
Information; Annual Report
6. Capital Stock and Other
Securities
Investment Objective and
Management Policies; Dividends,
Distributions and Taxes;
Additional Information - Appendix A
7. Purchase of Securities Being
Offered
Purchase of Shares; Valuation of
Shares; Exchange Privilege;
Redemption of Shares; Minimum
Account Size; Distributor;
Additional Information
8. Redemption or Repurchase
Purchase of Shares; Redemption of
Shares; Exchange Privilege
9. Pending Legal Proceedings
Not applicable
Part B Item No.
Statement of Additional
Information Caption
10. Cover Page
Cover Page
11. Table of Contents
Table of Contents
12. General Information and
History
Distributor; Additional
Information
13. Investment Objective and
Policies
Investment Objectives and
Management Policies
14. Management of the Fund
Management of the Trust and the
Funds; Distributor
15. Control Persons and Principal
Holders of Securities
Management of the Trust and the
Funds
16. Investment Advisory and Other
Services
Management of the Trust and the
Funds; Distributor
17. Brokerage Allocation and Other
Services
Investment Objectives and
Management Policies; Distributor
18. Capital Stock and Other
Securities
Investment Objectives and
Management Policies; Purchase of
Shares; Redemption of Shares;
Taxes
19. Purchase, Redemption and
Pricing of Securities Being Offered
Purchase of Shares; Redemption of
Shares; Valuation of Shares;
Distributor; Exchange Privilege
20. Tax Status
Taxes
21. Underwriters
Distributor
22. Calculation of Performance
Data
Performance Data
23. Financial Statements
Financial Statements
PART A
PROSPECTUS
PART B
STATEMENT OF ADDITIONAL INFORMATION
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Smith Barney Intermediate Maturity California
Municipals Fund, Smith Barney Intermediate Maturity
New York Municipals Fund and Smith Barney Large
Capitalization Growth Fund Annual Reports for the
fiscal year ended November 30, 1997 were filed on
January 30, 1998 as Accession Number 91155-98-000062.
Included in Part C:
Consent of Independent Accountants is to be
filed by Amendment.
(b) Exhibits
Unless otherwise noted, all references are to
the Registrants
Registration Statement on Form N-1A (the Registration
Statement) as filed with the Securities and Exchange
Commission (SEC) on October 21, 1991 (File Nos.
33-43446 and 811-6444).
(1)(a) Registrants Master Trust Agreement dated
October 17, 1991 and Amendments to the Master Trust
Agreement dated November 21, 1991 and July 30,1993,
respectively, are incorporated by reference to Post-
Effective Amendment No. 4 to the Registration
Statement filed on January 28, 1994 (Post-Effective
Amendment No. 4).
(b) Amendments to the Master Trust Agreement
dated October 14, 1994 and November 7, 1994,
respectively, are incorporated by reference to the
Registration Statement filed on Form N-14 on January
6, 1995 (the N-14).
(c) Amendments to the Master Trust Agreement
dated July 20, 1995 and August 10, 1995 are
incorporated by reference to Post-Effective Amendment
No. 9 to the Registration Statement filed on August
29, 1995 (Post-Effective Amendment No. 9).
(d) Amended and Restated Master Trust Agreement
dated February 28, 1998 is incorporated by reference
to Post Effective Amendment No. 18 to the
Registration Statement filed on March 30, 1998 (Post-
Effective Amemendment No, 18).
(2) Registrants by-laws are incorporated by
reference to the
Registration Statement.
(3) Not Applicable.
(4) (a) Registrants form of stock certificate
for Smith Barney
S&P 500 Index Fund is incorporated by reference to
Post-Effective Amendment No. 16 to the Registration
Statement filed on December 29, 1997.
(4) (b) Registrants form of stock certificate
for Smith Barney
Large Capitalization Growth Fund is incorporated by
reference to Post-
Effective Amendment No.17 to the Registration
Statement filed on February 20, 1998 (Post-Effective
Amendment No. 17).
(4) (c) Registrants form of stock certificate for
Smith Barney Mid Cap Blend Fund is to be filed by
amendment.
(5)(a) Investment Advisory Agreement between
the Registrant and
Greenwich Street Advisors dated July 30, 1993 is
incorporated by reference to Post-Effective Amendment
No. 3 to the Registration Statement filed on December
1, 1993 (Post-Effective Amendment No. 3).
(b) Transfer of Investment Advisory Agreement
dated November 7, 1994 between the Registrant on
behalf of Smith Barney Intermediate Maturity
California Municipals Fund, Greenwich Street Advisors
and Mutual Management Corp. is incorporated by
reference to the N-14.
(c) Form of Transfer of Investment Advisory
Agreement for Smith Barney Limited Maturity
Municipals Fund, Smith Barney Intermediate Maturity
New York Municipals Fund and Smith Barney Limited
Maturity Treasury Fund is incorporated by reference
to Post-Effective Amendment No. 6 to the Registration
Statement filed on January 27, 1995 (Post-Effective
Amendment No. 6).
(d) Form of Investment Advisory Agreement
between the Registrant on behalf of Smith Barney S&P
500 Index Fund and Travelers Investment
Management Company dated December 11, 1997 is
incorporated by reference to Post Effective Amendment
No. 15 to the Registration Statement
filed on December 12, 1997.
(e) Form of Investment Management Agreement
between the Registrant on behalf of Smith Barney
Large Capitalization Growth Fund and Mutual
Management Corp. (f/k/a Smith Barney Mutual Funds
Management Inc.) is incorporated by reference to
Post-Effective Amendment No. 17 to the Registration
Statement filed on February 20,1998 (Post-Effective
Amendment No. 17)
(f) Form of Investment Management Agreement
between Smith Barney Mid Cap Blend Fund and Mutual
Management Corp (f/k/a Smith Barney Mutual Funds
Management Inc.) is incorporated by reference to
Post-Effective Amendment No. 17 to the Registration
Statement filed on February 20,1998 (Post-Effective
Amendment No. 17)
(6)(a) Distribution Agreement between the
Registrant and Smith Barney Shearson Inc. dated July
30, 1993 is incorporated by reference to Post-
Effective Amendment No. 3.
(b) Form of Distribution Agreement between the
Registrant on behalf of Smith Barney S&P 500 Index
Fund and PFS Distributors is incorporated by
reference to Post-Effective Amendment No. 10.
(7) Not Applicable.
(8) Form of Custody Agreement with PNC Bank,
National Association, is incorporated by reference to
Post-Effective Amendment No. 9.
(9)(a) Administration Agreement between the
Registrant on behalf of Smith Barney Intermediate
Maturity California Municipals Fund and Smith Barney
Advisers, Inc. (SBA) is incorporated by reference to
the N-14.
(b) Form of Administration Agreement between
the Registrant on behalf of Smith Barney Limited
Maturity Municipals Fund and Smith Barney
Intermediate Maturity New York Municipals Fund and
SBA is incorporated by reference to Post-Effective
Amendment No. 6.
(c) Form of Administration Agreement between
the Registrant on behalf of Smith Barney S&P 500
Index Fund and Mutual Management Corp. is
incorporated by reference to Post Effective Amendment
No. 15.
(d) Transfer Agency Agreement with First Data
Investor Services
Group, Inc. (formerly known as The Shareholder
Services Group Inc.)
is incorporated by reference to Post-Effective
Amendment No. 3.
(e) Form of Sub-Transfer Agency Agreement
between the Registrant on behalf of Smith Barney S&P
500 Index Fund and PFS Shareholder Services is
incorporated by reference to Post-Effective Amendment
No. 10.
(10) Opinion of counsel regarding legality of
shares being
registered is incorporated by reference to Pre-
Effective Amendment No. 1 to the Registration
Statement filed on December 6, 1991.
(11) Consent of Independent Accountants is to
be filed by Amendment.
(12) Not Applicable.
(13) Purchase Agreement between the Registrant
and Shearson Lehman Brothers Inc. is incorporated by
reference to Pre-Effective Amendment No. 1.
(14) Not Applicable.
(15)(a) Amended Service and Distribution Plan
pursuant to Rule 12b-1 between the Registrant on
behalf of Smith Barney Intermediate Maturity
California Municipals Fund and Smith Barney Inc. is
incorporated by reference to the N-14.
(b) Form of Amended Service and Distribution
Plan pursuant to Rule 12b-1 between the Registrant on
behalf of Smith Barney Limited Maturity Municipals
Fund and Smith Barney Intermediate Maturity New York
Municipals Fund and Smith Barney Inc. is incorporated
by reference to Post-Effective Amendment No. 6.
(c) Form of Shareholder Services and
Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of Smith Barney S&P 500 Index
Fund is incorporated by reference to Post Effective
Amendment No. 15.
(d) Form of Service and Distribution Plan
pursuant to Rule 12b-1
between the Registrant on behalf of the Fund and
Smith Barney
Large Capitalization Growth Fund is incorporated by
reference to Post
Effective Amendment No. 17 to the Registration
Statement filed on
February 20, 1998 (Post-Effective Amendment No.
17).
(e) Form of Service and Distribution Plan
pursuant to Rule 12b-1
between the Registrant on behalf of the Fund and
Smith Barney
Large Capitalization Growth Fund is incorporated by
reference to Post
Effective Amendment No. 17 to the Registration
Statement filed on
February 20, 1998 (Post-Effective Amendment No.
17).
(16) Performance Data is incorporated by
reference to Post-Effective Amendment No. 2 to the
Registration Statement filed on April 1, 1993.
(17) Financial Data Schedule is to be filed by
Amendment.
(18) Plan adopted pursuant to Rule 18f-3(d) of
the Investment Company Act of 1940, as amended, is
incorporated by reference to Post-Effective Amendment
No. 10.
Item 25. Persons Controlled by or under Common
Control with Registrant
None
Item 26. Number of Holders of Securities
(1) (2)
Title of Class
Beneficial Interest par value Number of Record
Holders
$0.001 per share as of April 13, 1998
Intermediate Maturity California Class A 457
Municipals Fund Class C 78
Class Y 3
Intermediate Maturity New York Class A
1094
Municipals Fund Class C
63
Smith Barney S&P 500 Class A 875
Index Fund Class D 0
Large Capitalization Growth Fund Class A
10,332
Class B
22,451
Class C
4,484
Class Y
6
Item 27. Indemnification
The response to this item is incorporated by
reference to Pre-Effective Amendment No. 1.
Item 28(a). Business and Other Connections of
Investment Adviser
Investment Adviser and Administrator - Mutual
Management Corp. (f/k/a Smith Barney Mutual Funds
Management Inc.), formerly known as Smith Barney
Advisers, Inc., was incorporated in December 1968
under the laws of the State of Delaware. MMC is a
wholly owned subsidiary of Smith Barney Holdings Inc.
(formerly known as Smith Barney Shearson Holdings
Inc.), which in turn is a wholly owned subsidiary of
Travelers Group Inc. (Travelers). MMC is
registered as an investment adviser under the
Investment Advisers Act of 1940 (the Advisers Act)
and has, through its predecessors, been in the
investment counseling business since 1934. MMC
serves as the Investment Adviser and Administrator
for Smith Barney Intermediate Maturity California
Fund and Smith Barney Intermediate Maturity New York
Fund and Investment Manager for Smith Barney Large
Capitalization Growth Fund.
The list required by this Item 28 of the officers and
directors of MMC
together with information as to any other business,
profession, vocation or employment of a substantial
nature engaged in by such officer and directors
during the past two fiscal years, is incorporated by
reference to Schedules A and D of FORM ADV filed by
MMC pursuant to the Advisers Act (SEC File No. 801-
8314).
Investment Adviser - Travelers Investment Management
Company. (TIMCO). TIMCO serves as the investment
adviser for S&P 500 Index Fund pursuant to a written
agreement (the Advisory Agreement). TIMCO was
incorporated on August 31, 1967 under the laws of the
State of Connecticut. TIMCO is a wholly owned
subsidiary of Salomon Smith Barney Holdings Inc.
(formerly known as Smith Barney Holdings Inc.), which
in turn is a wholly owned subsidiary of Travelers
Group Inc. (Travelers).
TIMCO is registered as an investment adviser under
the Investment Advisers Act of 1940 (the Advisers
Act) since 1971 and has, through its predecessors,
been in the investment counseling business since
1967.
The list required by this Item 28 of the officers
and directors of TIMCO together with information as
to any other business, profession, vocation or
employment of a substantial nature engaged in by such
officers and directors during the past two fiscal
years, is incorporated by reference to Schedules A
and D of FORM ADV filed by SBA pursuant to the
Advisers Act (SEC File No.801-07212.
Item 29. Principal Underwriters
Smith Barney Inc. (Smith Barney) currently acts as
a distributor for Concert Allocation Series; Concert
Investment Series; Consulting Group Capital Markets
Funds; Global Horizons Investment Series (Cayman
Islands); Greenwich Street California Municipal Fund
Inc.; Greenwich Street Municipal Fund Inc.; Greenwich
Street Series Fund; High Income Opportunity Fund
Inc.; The Italy Fund Inc.; Managed High Income
Portfolio Inc.; Managed Municipals Portfolio II Inc.;
Managed Municipals Portfolio Inc.; Municipal High
Income Fund Inc.; Puerto Rico Daily Liquidity Fund
Inc.; Smith Barney Adjustable Rate Government Income
Fund; Smith Barney Aggressive Growth Fund Inc.; Smith
Barney Appreciation Fund Inc.; Smith Barney Arizona
Municipals Fund Inc.; Smith Barney California
Municipals Fund Inc.; Smith Barney Concert Allocation
Series Inc.; Smith Barney Small Cap Blend Fund, Inc.;
Smith Barney Equity Funds; Smith Barney Fundamental
Value Fund Inc.; Smith Barney Funds, Inc.; Smith
Barney Income Funds; Smith Barney Income Trust; Smith
Barney Institutional Cash Management Fund, Inc.;
Smith Barney Intermediate Municipal Fund, Inc.; Smith
Barney Investment Funds Inc.; Smith Barney Investment
Trust; Smith Barney Managed Governments Fund Inc.;
Smith Barney Managed Municipals Fund Inc.; Smith
Barney Massachusetts Municipals Fund; Smith Barney
Money Funds, Inc.; Smith Barney Muni Funds; Smith
Barney Municipal Fund, Inc.; Smith Barney Municipal
Money Market Fund, Inc.; Smith Barney Natural
Resources Fund Inc.; Smith Barney New Jersey
Municipals Fund Inc.; Smith Barney Oregon Municipals
Fund Inc.; Smith Barney Principal Return Fund; Smith
Barney Telecommunications Trust; Smith Barney
Variable Account Funds; Smith Barney World Funds,
Inc.; Smith Barney Worldwide Special Fund N.V.
(Netherlands Antilles); Travelers Series Fund Inc.;
The USA High Yield Fund N.V.; Worldwide Securities
Limited (Bermuda); Zenix Income Fund Inc. and
various series of unit investment trusts.
Smith Barney is wholly owned subsidiary of Salomon
Smith Barney Holdings Inc. (formerly known as Smith
Barney Holdings Inc.)
The information required by this Item 29 with respect
to each director,
officer and partner of Smith Barney is incorporated
by reference to Schedule A of FORM BD filed by Smith
Barney pursuant to the Securities Exchange Act of
1934 (SEC File No. 812-8510).
Item 30. Location of Accounts and Records
(1) Smith Barney Investment Trust
388 Greenwich Street
New York, New York 10013
(2) Mutual Management Corp. (f/k/a Smith
Barney Mutual Funds
Management Inc.)
388 Greenwich Street
New York, New York 10013
(Records relating to its function as
investment adviser to certain of the
Funds and administrator to all of the
Funds)
(3) Travelers Investment Management Company
One Tower Square
Hartford, CT 06183-2030
(Records relating to its function as investment
adviser to Smith
Barney S&P 500 Index Fund)
(4) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, PA 19103
(Records relating to its function as custodian)
(5) First Data Investor Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
(Records relating to its function as
Transfer Agent and Dividend Paying Agent)
Item 31. Management Services
Not Applicable
Item 32. Undertakings
(a) The Registrant hereby undertakes to
furnish to each person
to whom a prospectus of the Registrant is delivered,
a copy of the
Registrants latest annual report, upon request and
without charge.
485 (b) Certification
The Registrant hereby certifies that it meets
all requirements for effectiveness pursuant to Rule
485(b) under the Securities Act of 1933, as amended.
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, and the Investment Company Act of 1940,
the Registrant, SMITH BARNEY INVESTMENT TRUST, has
duly caused this registration statement to be signed
on its behalf by the undersigned, thereto duly
authorized in the City of New York, in the State of
New York on the 15th day of April, 1998.
SMITH
BARNEY
INVESTMENT
TRUST
/s/Heath B.
McLendon
Heath B.
McLendon, Chief
Executive
Officer
Pursuant to the requirements of the Securities
Act of 1933, this
registration statement has been signed below by the
following persons in the
capacities and on the date indicated.
Signature Title Date
/s/Heath B. McLendon Chairman of the Board
4/15/98
Heath B. McLendon (Chief Executive Officer)
/s/Lewis E. Daidone Treasurer
4/15/98
Lewis E. Daidone (Chief Financial and
Accounting Officer)
/s/Herbert Barg* Trustee
4/15/98
Herbert Barg
/s/Alfred J. Bianchetti* Trustee
4/15/98 Alfred J. Bianchetti
/s/Martin Brody* Trustee
4/15/98
Martin Brody
/s/Dwight B. Crane* Trustee
4/15/98
Dwight B. Crane
/s/Burt N. Dorsett* Trustee
4/15/98
Burt N. Dorsett
/s/Elliot S. Jaffe* Trustee
4/15/98
Elliot S. Jaffe
/s/Stephen E. Kaufman*Trustee
4/15/98
Stephen E. Kaufman
/s/Joseph J. McCann* Trustee
4/15/98
Joseph J. McCann
/s/Cornelius C. Rose, Jr.* Trustee
4/15/98
Cornelius C. Rose, Jr.
_____________________________________________________
________________
* Signed by Heath B. McLendon, their duly authorized
attorney-in-fact,
pursuant to power
of attorney dated January 27, 1995.
/s/ Heath B. McLendon
Heath B. McLendon
