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. 23 [X]
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 23
__________________ [ ]
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)
_____________________
Approximate Date of Proposed Public Offering:
Continuous.
It is proposed that this filing will become effective
(check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] On (date) pursuant to paragraph (b)
of Rule 485
XXX 60 days after filing pursuant to paragraph (a)(1) of Rule 485
On (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
of rule 485
[ ] On (date) pursuant to 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
PART A
<PAGE>
[Logo]
Smith Barney Mutual Funds
Investing for your future.
Every day.
PROSPECTUS SMITH BARNEY
MUTUAL FUNDS
March 30, 1999 Intermediate Maturity California Municipals Fund
Class A, L and Y Shares
The Securities and Exchange Commission has not approved the fund's shares as an
investment or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
<S> <C> <C>
Fund goal and strategies..................... 4
Risks, performance and expenses..............
Smith Barney Mutual More on the fund's investments............... 8
Funds offers a distinctive
family of fund choices Management................................... 9
tailored to help meet the
varying needs of large and Choosing a class of shares to buy............ 10
small investors.
Currently, Smith Barney Comparing the fund's classes................. 11
Mutual Funds offers more
than 60 individual funds Sales charges................................ 12
with assets of more than
$xx billion. More about deferred sales charges............ 15
Buying shares................................ 16
Exchanging shares............................ 17
Redeeming shares............................. 18
Other things to know about
share transactions........................... 20
Dividends, distributions and
taxes........................................ 22
Share price.................................. 23
Financial highlights......................... 24
</TABLE>
YOU SHOULD KNOW:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
1
<PAGE>
FUND GOAL AND STRATEGIES
INVESTMENT OBJECTIVE
The fund seeks to provide California investors with as high a level of current
income exempt from federal income taxes and California state personal income
taxes as is consistent with the preservation of principal.
KEY INVESTMENTS
The fund invests primarily in "California municipal securities," which are debt
obligations issued by the State of California and its political subdivisions,
agencies and public authorities (together with certain other governmental
issuers such as Puerto Rico, the Virgin Islands and Guam). The interest on
these bonds is exempt from federal income tax and California personal income
tax. As a result, the interest rate on these bonds normally is lower than it
would be if the bonds were subject to taxation. The fund maintains an average
portfolio maturity of between three and ten years. The fund can invest up to
20% of its assets in unrated securities that the manager determines are
comparable to securities rated investment grade.
SELECTION PROCESS
The manager selects securities primarily by identifying undervalued sectors and
individual securities, while also selecting securities that it believes will
benefit from changes in market conditions. In selecting individual securities,
the manager:
. Uses fundamental credit analysis to estimate the relative value and
attractiveness of various securities and sectors and to exploit
opportunities in the municipal bond market
. Trades between general obligation and revenue bonds and among various
revenue bond sectors, such as housing, hospital and industrial development,
based on their apparent relative values
. Identifies individual securities with the most potential for added value,
such as those involving unusual situations, new issuers, the potential for
credit upgrades, unique structural characteristics or innovative features
. Considers a security's maturity in light of the outlook for the issuer and
its sector and interest rates
2
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RISKS, PERFORMANCE AND EXPENSES
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investing in California municipal securities can bring added benefits, but it
may also involve additional risks. Investors could lose money on their
investment in the fund, or the fund may not perform as well as other
investments, if any of the following occurs:
. Interest rates rise, causing the value of the fund's portfolio to decline
. The issuer of a security owned by the fund defaults on its obligation to
pay principal and/or interest or has its credit rating downgraded
. California municipal securities fall out of favor with investors. The fund
will suffer more than a national municipal fund from adverse events
affecting California municipal issuers
. Unfavorable legislation affects the tax-exempt status of municipal bonds
. The manager's judgment about the attractiveness, value or income potential
of a particular security proves to be incorrect
It is possible that some of the fund's income distributions may be, and
distributions of the fund's gains generally will be, subject to federal and
California state taxation. The fund may realize taxable gains on the sale of
its securities or on transactions in derivative contracts. Some of the fund's
income may be subject to the federal alternative minimum tax. In addition,
distributions of the fund's income and gains will be taxable to investors in
states other than California.
The fund is classified as "non-diversified," which means it may invest a larger
percentage of its assets in one issuer than a diversified fund. To the extent
the fund concentrates its assets in a particular issuer, the fund will be more
susceptible to negative events affecting that issuer.
WHO MAY WANT TO INVEST
The fund may be an appropriate investment if you are a California taxpayer:
. In a high federal tax bracket seeking income that is exempt from California
and federal taxation
. Currently have exposure to other asset classes and are seeking to broaden
your investment portfolio
. Are willing to accept the risks of municipal securities, including the
risks of concentrating in a single state
3
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TOTAL RETURN
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
[CHART APPEARS HERE]
This bar chart shows the performance of the fund's Class A shares for each of
the past seven years. Class L and Y shares would have different performance
because of their different expenses. The performance information in the chart
does not reflect sales charges, which would reduce your return.
QUARTERLY RETURNS: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___
quarter 199X
COMPARATIVE PERFORMANCE
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown to that of the Lehman
Brothers Municipal Bond Index (the "Lehman Index"), an unmanaged index of
municipal bonds and the Lipper California Municipal Fund Average (the "Lipper
Funds Average"), an average composed of the fund's peer group of mutual funds.
This table assumes imposition of the maximum sales charge applicable to the
class, redemption of shares at the end of the period, and reinvestment of
distributions and dividends.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS -- Calendar Years Ended December 31, 1998
Class Inception 1 year 5 years 10 years Since
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------
A 12/31/91
- -------------------------------------------------------------------------
L 11/8/94 n/a
- -------------------------------------------------------------------------
Y 9/8/95 n/a n/a
- -------------------------------------------------------------------------
Lehman Index n/a
</TABLE>
4
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FEES AND EXPENSES
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
<TABLE>
<CAPTION>
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SHAREHOLDER FEES
(paid directly from your investment) Class A Class L Class Y
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge on purchases (as a % of offering 2.00% 1.00% None
price)
Maximum deferred sales charge on redemptions (as a % None* 1.00% None
of the lower of net asset value at purchase or
redemption)
ANNUAL FUND OPERATING EXPENSES
(paid by the fund as a % of fund net assets)
Management fees** 0.30% 0.30% 0.30%
Distribution and service (12b-1) fee 0.15% 0.35% None
Other expenses ---- ---- ----
Total annual fund operating expenses ---- ---- ----
</TABLE>
* You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase, you will pay a deferred sales charge of 1.00%.
** Management fee rates shown above have not been reduced to reflect waivers
currently in effect. The actual management fee rate for the last fiscal year was
___% of each class' average daily net assets, and the fund's total annual
operating expenses were ___% for Class A and ___% for Class L.
EXAMPLE
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The fund's operating expenses remain the same
<TABLE>
<CAPTION>
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NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A $ $ $ $
Class L (redemption at end of period) $ $ $ $
Class L (no redemption) $ $ $ $
Class Y $ $ $ $
</TABLE>
5
<PAGE>
MORE ON THE FUND'S INVESTMENTS
CALIFORNIA MUNICIPAL SECURITIES. The California municipal securities in which
the fund invests include general obligation bonds, revenue bonds and notes, and
municipal leases. These securities may pay interest at fixed, variable or
floating rates. The fund may also hold zero coupon securities which pay no
interest during the life of the obligation but trade at prices below their
stated maturity value.
The fund normally invests in intermediate-term municipal securities, which are
securities that have remaining maturities at the time of purchase of three to
ten years. The fund normally maintains an average portfolio maturity of between
three and ten years.
DEFENSIVE INVESTING. The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
6
<PAGE>
MANAGEMENT
THE MANAGER. The fund's investment adviser and administrator (the manager) is
SSBC Fund Management Inc., an affiliate of Salomon Smith Barney Inc. The
manager's address is 388 Greenwich Street, New York, New York 10013. The manager
selects the fund's investments and oversees its operations. The adviser and
Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup businesses
produce a broad range of financial services -- asset management, banking and
consumer finance, credit and charge cards, insurance, investments, investment
banking and trading -- and use diverse channels to make them available to
consumer and corporate customers around the world. Among these businesses are
Citibank, Commercial Credit, Primerica Financial Services, Salomon Smith Barney,
SSBC Asset Management, Travelers Life & Annuity and Travelers Property Casualty.
Joseph P. Deane, investment officer of SSBC Fund Management Inc. and senior vice
president and managing director of Salomon Smith Barney, has been responsible
for the day to day management of the fund since its inception in 1991. David T.
Fare, investment officer of SSBC Fund Management Inc. and vice president of
Salomon Smith Barney, currently shares the responsibility for the day to day
management of the fund, joining Mr. Deane in 1998. Mr. Deane and Mr. Fare have
29 and 12 years, respectively, of investment management experience.
MANAGEMENT FEE. During the fiscal year ended November 30, 1998, the manager
received a management fee and administrative fee equal to __% and __%,
respectively, of the fund's average daily net assets.
DISTRIBUTOR. The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker dealers sells fund shares to the public.
DISTRIBUTION PLANS. The fund has adopted Rule 12b-1 distribution plans for its
Class A and L shares. Under each plan, the fund pays distribution and service
fees. These fees are an ongoing expense and, over time, may cost you more than
other types of sales charges.
YEAR 2000 ISSUE. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by its other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
that the efforts of the fund (limited to requesting and receiving reports from
its service providers) or its service providers to correct the problem will be
successful.
7
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CHOOSING A CLASS OF SHARES TO BUY
You can choose among three classes of shares: Classes A, L and Y. Each class has
different sales charges and expenses, allowing you to choose the class that best
meets your needs. Which class is more beneficial to an investor depends on the
amount and intended length of the investment.
. If you establish a program of regular investment, you may wish to consider
Class A shares; as the investment accumulates, you may qualify for reduced sales
charges and the shares are subject to lower ongoing expenses.
. Class L shares are sold with a lower initial sales charge than Class A
shares, which may also help to offset the higher annual expenses of this class.
Because the fund's future return cannot be predicted, however, there can be no
assurance that this would be the case for either class.
You may buy shares from:
. A Salomon Smith Barney Financial Consultant
. An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
. The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
INVESTMENT MINIMUMS. Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
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Initial Additional
------- ----------
Classes A, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
Monthly Systematic Investment Plans $ 25 n/a $25
Quarterly Systematic Investment Plans $ 50 n/a $50
Uniform Gift to Minor Accounts $ 250 $15 million $50
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</TABLE>
8
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COMPARING THE FUND'S CLASSES
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. Your Salomon Smith Barney Financial
Consultant or dealer representative may receive different compensation depending
upon which class you choose.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS L CLASS Y
<S> <C> <C> <C>
KEY . Initial sales charge . Initial sales charge is lower . No initial or deferred
FEATURES . You may qualify for than Class A sales charge
reduction or waiver of . Deferred sales charge . Minimum investment of at
initial sales charge for 1 year least $15 million
. Lower annual expenses . Higher annual expenses . Lower annual expenses
than Class L than Class A than the other classes
INITIAL SALES Up to 2.00%; reduced or waived for 1.00% None
CHARGE large purchases and certain
investors. No charge for
purchases of $500,000 or more
DEFERRED 1% on purchases of $500,000 1% if you redeem within 1 None
SALES CHARGE or more if you redeem year of purchase
within 1 year of purchase
ANNUAL 0.15% of average daily net assets 0.35% of average daily net assets None
DISTRIBUTION
AND SERVICE FEES
EXCHANGE- Class A shares of most Class L shares of most Class Y shares of most
able into* Smith Barney mutual funds Smith Barney mutual funds Smith Barney mutual funds
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
9
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SALES CHARGE: CLASS A SHARES
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You do not pay a sales charge on investments of $500,000 or
more, or on the fund's distributions or dividends you reinvest in additional
Class A shares.
<TABLE>
<CAPTION>
SALES CHARGE AS A % OF
OFFERING NET AMOUNT
AMOUNT OF PURCHASE PRICE (%) INVESTED (%)
<S> <C> <C>
Less than $500,000 2.00 2.04
----------------------------------------------
$500,000 or more -0- -0-
----------------------------------------------
</TABLE>
INVESTMENTS OF $500,000 OR MORE. You do not pay an initial sales charge when
you buy $500,000 or more of Class A shares. However, if you redeem these Class
A shares within one year of purchase, you will pay a deferred sales charge of
1%.
QUALIFYING FOR A REDUCED CLASS A SALES CHARGE. There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Accumulation privilege - lets you combine the current value of Class A shares
owned
. by you, or
. by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
Letter of intent - lets you purchase Class A shares of the fund and other Smith
Barney mutual funds over a 13-month period and pay the same sales charge, if
any, as if all shares had been purchased at once. You may include purchases on
which you paid a sales charge within 90 days before you sign the letter.
10
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WAIVERS FOR CERTAIN CLASS A INVESTORS. Class A initial sales charges are waived
for certain types of investors, including:
. Employees of members of the NASD
. Clients of newly employed Salomon Smith Barney Financial Consultants if
certain conditions are met
. Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn more about the requirements for reductions or waivers of
Class A initial sales charges, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the SAI.
SALES CHARGE: CLASS L SHARES
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class L shares of the fund on June 12, 1998,
you will not pay an initial sales charge on Class L shares you buy before June
22, 2001.
SALES CHARGE: CLASS Y SHARES
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
11
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MORE ABOUT DEFERRED SALES CHARGES
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
. Shares exchanged for shares of another Smith Barney mutual fund
. Shares representing reinvested distributions and dividends
. Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund and be credited with the
amount of the deferred sales charge, if you notify your Salomon Smith Barney
Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
DEFERRED SALES CHARGE WAIVERS
The deferred sales charge for each share class will generally be waived:
. On payments made through certain systematic withdrawal plans
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
12
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BUYING SHARES
- --------------------------------------------------------------------------------
Through a Salomon Smith Barney Financial Consultant or dealer representative
You should contact your Salomon Smith Barney Financial Consultant or dealer
representative to open a brokerage account and make arrangements to buy shares.
If you do not provide the following information, your order will be rejected
. Class of shares being bought
. Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account no later than the
third business day after you place your order. Salomon Smith Barney or your
dealer representative may charge an annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the fund's transfer agent
Certain other investors who are clients of the selling group are eligible to buy
shares directly from the fund.
. Write the transfer agent at the following address:
Smith Barney Investment Trust
Intermediate Maturity California Municipals Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
. Enclose a check to pay for the shares. For initial purchases, complete and
send an account application.
. For more information, call the transfer agent at 1-800-451-2010
- --------------------------------------------------------------------------------
Systematic investment plan
You may authorize Salomon Smith Barney, your dealer representative or the
transfer agent to transfer funds automatically from a regular bank account, cash
held in a Salomon Smith Barney brokerage account or Smith Barney money market
fund to buy shares on a regular basis.
. Amounts transferred should be at least: $25 monthly or $50 quarterly
. If you do not have sufficient funds in your account on a transfer date,
Salomon Smith Barney, your dealer representative or the transfer agent may
charge you a fee
For more information, contact your Salomon Smith Barney Financial Consultant,
your dealer representative or the transfer agent or consult the SAI.
13
<PAGE>
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EXCHANGING SHARES
- --------------------------------------------------------------------------------
Smith Barney offers a distinctive family of mutual funds tailored to help meet
the varying needs of both large and small investors
You should contact your Salomon Smith Barney Financial Consultant or dealer
representative to exchange into other Smith Barney mutual funds. Be sure to read
the prospectus of the Smith Barney mutual fund you are exchanging into. An
exchange is a taxable transaction.
. You may exchange shares only for shares of the same class of another Smith
Barney mutual fund. Not all Smith Barney funds offer all classes.
. Not all Smith Barney funds may be offered in your state of residence.
Contact your Smith Barney Financial Consultant, dealer representative or the
transfer agent.
. You must meet the minimum investment amount for each fund
. If you hold share certificates, the transfer agent must receive the
certificates endorsed for transfer or with signed stock powers before the
exchange is effective.
. The fund may suspend or terminate your exchange privilege if you engage in
an excessive pattern of exchanges
- --------------------------------------------------------------------------------
Waiver of additional sales charges
Your shares will not be subject to an initial sales charge at the time of the
exchange.
Your deferred sales charge (if any) will continue to be measured from the date
of your original purchase. If the fund you exchange into has a higher deferred
sales charge, you will be subject to that charge. If you exchange at any time to
a fund with a lower charge, the sales charge will not be reduced.
- --------------------------------------------------------------------------------
By telephone
If you do not have a brokerage account, you may be eligible to exchange shares
through the transfer agent. You must complete an authorization form to authorize
telephone transfers. If eligible, you may make telephone exchanges on any day
the New York Stock Exchange is open. Call the transfer agent at 1-800-451-2010
between 9:00 a.m. and 4:00 p.m. (Eastern time). Requests received after the
close of regular trading on the Exchange are priced at the net asset value next
determined.
You can make telephone exchanges only between accounts that have identical
registrations.
- --------------------------------------------------------------------------------
By mail
If you do not have a Salomon Smith Barney brokerage account, contact your dealer
representative or write to the transfer agent at the address on the opposite
page.
14
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REDEEMING SHARES
- --------------------------------------------------------------------------------
Generally
Contact your Salomon Smith Barney Financial Consultant or dealer representative
to redeem shares of the fund.
If you hold share certificates, the transfer agent must receive the certificates
endorsed for transfer or with signed stock powers before the redemption is
effective.
If the shares are held by a fiduciary or corporation, other documents may be
required.
Your redemption proceeds will be sent within three business days after your
request is received in good order. However, if you recently purchased your
shares by check, your redemption proceeds will not be sent to you until your
original check clears.
If you have a Salomon Smith Barney brokerage account, your redemption proceeds
will be placed in your account and not reinvested without your specific
instruction. In other cases, unless you direct otherwise, your redemption
proceeds will be paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
By mail
For accounts held directly at the fund, send written requests to the transfer
agent at the following address:
Smith Barney Investment Trust
Intermediate Maturity California Municipals Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
. Your account number
. The class of shares and the dollar amount or number of shares to be redeemed
. Signatures of each owner exactly as the account is registered
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
By telephone
If you do not have a brokerage account, you may be eligible to redeem shares in
amounts up to $10,000 per day through the transfer agent. You must complete an
authorization form to authorize telephone redemptions. If eligible, you may
request redemptions by telephone on any day the New York Stock Exchange is open.
Call the transfer agent at 1-800-451-2010 between 9:00 a.m. and 4:00 p.m.
(Eastern time). Requests received after the close of regular trading on the
Exchange are priced at the net asset value next determined.
Your redemption proceeds can be sent by check to your address of record or by
wire transfer to a bank account designated on your authorization form. You may
be charged a fee for wire transfers. You must submit a new authorization form to
change the bank account designated to receive wire transfers and you may be
asked to provide certain other documents.
- --------------------------------------------------------------------------------
Automatic cash withdrawal plans
You can arrange for the automatic redemption of a portion of your shares on a
monthly or quarterly basis. To qualify you must own shares of the fund with a
value of at least $10,000 and each automatic redemption must be at least $50. If
your shares are subject to a deferred sales charge, the sales charge will be
waived if your automatic payments do not exceed 1% per month of the value of
your shares subject to a deferred sales charge.
The following conditions apply:
. Your shares must not be represented by certificates
. All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney Financial Consultant or
dealer representative or consult the SAI.
16
<PAGE>
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OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
When you buy, exchange or redeem shares, your request must be in good order.
This means that you have provided the following information without which your
request will not be processed.
. Name of the fund
. Account number
. Class of shares being bought, exchanged or redeemed
. Dollar amount or number of shares being bought, exchanged or
redeemed
. Signature of each owner exactly as account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
SIGNATURE GUARANTEES. To be in good order, your redemption request must include
a signature guarantee if you:
. Are redeeming (together with other requests submitted in the previous 10
days) over $10,000 of shares
. Are sending signed share certificates or stock powers to the transfer agent
. Instruct the transfer agent to mail the check to an address different from
the one on your account
. Change your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loans, but not from a notary public.
The fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
17
<PAGE>
. Suspend telephone transactions
. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission
SMALL ACCOUNT BALANCES. If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
EXCESSIVE EXCHANGE TRANSACTIONS. The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.
SHARE CERTIFICATES. The fund does not issue share certificates unless a written
request is made to the transfer agent. If you hold share certificates it will
take longer to exchange or redeem shares.
18
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTIONS, DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS. The fund pays dividends each month from its net investment income.
The fund generally makes capital gain distributions, if any, once a year,
typically in December. The fund may pay additional distributions and dividends
at other times if necessary for the fund to avoid a federal tax. Capital gain
distributions and dividends are reinvested in additional fund shares of the same
class you hold. The fund expects distributions to be primarily from income.
You do not pay a sales charge on reinvested distributions or dividends.
Alternatively, you can instruct your Salomon Smith Barney Financial Consultant,
dealer representative or the transfer agent to have your distributions and/or
dividends paid in cash. You can change your choice at any time to be effective
as of the next distribution or dividend, except that any change given to the
transfer agent less than five days before the payment date will not be effective
until the next distribution or dividend is paid.
TAXES. The following table describes the tax consequences of certain fund
transactions.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
TRANSACTION FEDERAL TAX STATUS CALIFORNIA TAX STATUS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Redemption or exchange Usually capital gain or loss; long- Usually capital gain or loss
of shares term only if shares owned
more than one year
- ---------------------------------------------------------------------------------------------------------
Long-term capital gain Taxable gain Taxable gain
distributions
- ---------------------------------------------------------------------------------------------------------
Short-term capital gain Ordinary income Ordinary income
distributions
- ---------------------------------------------------------------------------------------------------------
Dividends Exempt if from interest on tax- Exempt if from interest on
exempt securities, otherwise California municipal securities,
ordinary income otherwise ordinary income
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Any taxable dividends and capital gain distributions are taxable whether
received in cash or reinvested in fund shares. Long-term capital gain
distributions are taxable to you as long-term capital gain regardless of how
long you have owned your shares. You may want to avoid buying shares when the
fund is about to declare a capital gain distribution or a taxable dividend,
because it will be taxable to you even though it may actually be a return of a
portion of your investment. After the end of each year, the fund will provide
you with information about the distributions and dividends you received and any
redemptions of shares during the previous year. If you do not provide the fund
with your correct taxpayer identification number and any required
certifications, you may be subject to back-up withholding of 31% of your
distributions, taxable dividends, and redemption proceeds. Because each
shareholder's circumstances are different and special tax rules may apply, you
should consult your tax adviser about your investment in the fund.
19
<PAGE>
SHARE PRICE
You may buy, exchange or redeem shares at their net asset value, adjusted for
any applicable sales charge, next determined after receipt of your request in
good order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. This calculation is done when regular trading closes on the Exchange
(normally 4:00 p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. When market prices are not available, or when the manager believes
they are unreliable, the fund may price these securities at fair value. Fair
value is determined in accordance with procedures approved by the fund's board.
A fund that uses fair value to price securities may value those securities
higher or lower than another fund using market quotations to price the same
securities.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
20
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on an investment in a class assuming reinvestment of all dividends and
distributions. The information in the following tables, except for the fiscal
year ended November 30, 1994 which was audited by other auditors, was audited by
KPMG Peat Marwick LLP, independent accountants, whose report, along with the
fund's financial statements, are included in the annual report (available upon
request).
FOR A CLASS A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR
ENDED NOVEMBER 30:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 8.55 $ 8.53 $ 7.80 $ 8.50
- -----------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(1) 0.40 0.40 0.40 0.39
Net realized and unrealized gain (loss) 0.11 0.02 0.73 (0.69)
- -----------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM OPERATIONS 0.51 0.42 1.13 (0.30)
- -----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.40) (0.40) (0.40) (0.39)
Net realized gains -- -- -- (0.01)
- -----------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.40) (0.40) (0.40) (0.40)
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 8.66 $ 8.55 $ 8.53 $ 7.80
- -----------------------------------------------------------------------------------------------
TOTAL RETURN(2) 6.13% 5.05% 14.84% (3.65)%(3)
- -----------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000)'S $25,630 $24,537 $26,211 $25,359
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(1) 0.75% 0.77% 0.75% 0.75%(4)
Net investment income 4.65 4.69 4.89 4.73(4)
- -----------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 9% 15% 8% 39%
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) The adviser and administrator waived all or part of their fees for the
three years ended November 30, 1997. In addition, the investment adviser
reimbursed the Fund for $75,189 in expenses for the year ended November 30,
1996. If such fees had not been waived and expenses had not been
reimbursed, the per share effect on net investment income and the expense
ratios would have been as follows:
<TABLE>
<CAPTION>
Per Share Decreases to Expense Ratios Without Fee
Net Investment Income Waivers and Reimbursements
----------------------------------------------------------
1997 1996 1995 1994 1997 1996 1995 1994
----- ----- ----- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $0.03 $0.07 $0.03 $0.04 1.12% 1.54% 1.16% 1.24%
</TABLE>
(2) Total return does not reflect any applicable sales load on contingent
deferred sales charge.
(3) Not annualized.
(4) Annualized.
21
<PAGE>
FOR A CLASS L SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR
ENDED NOVEMBER 30:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
1998 1997 1996 1995 1994(1)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 8.54 $ 8.52 $ 7.80 $ 7.76
- ---------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income(2) 0.38 0.38 0.38 0.01
Net realized and unrealized gain 0.11 0.02 0.72 0.05(3)
TOTAL INCOME FROM OPERATIONS 0.49 0.40 1.10 0.06
- ---------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.38) (0.38) (0.38) (0.02)
TOTAL DISTRIBUTIONS (0.38) (0.38) (0.38) (0.02)
- ---------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 8.65 $ 8.54 $ 8.52 $ 7.80
- ---------------------------------------------------------------------------------
TOTAL RETURN(4) 5.92% 4.84% 14.36% 0.72%(5)
- ---------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000)'S $3,419 $2,607 $2,254 $ 45
- ---------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(2) 0.96% 0.98% 0.98% 0.95%(6)
Net investment income 4.44 4.48 4.54 4.53(6)
- ---------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 9% 15% 8% 39%
- ---------------------------------------------------------------------------------
</TABLE>
(1) For the period from November 8, 1994 (inception date) to November 30, 1994.
(2) The adviser and administrator waived all or part of their fees for the three
years ended November 30, 1997 and the period ended November 30, 1994. In
addition, the investment adviser reimbursed the fund for $75,189 in expenses
for the year ended November 30, 1996. If such fees had not been waived and
expenses had not been reimbursed, the per share effect on net investment
income and the expense ratios would have been as follows:
<TABLE>
<CAPTION>
Per Share Decreases to Expense Ratios Without Fee
Net Investment Income Waivers and Reimbursements
----------------------------------------------------------------
1997 1996 1995 1994 1997 1996 1995 1994
----- ----- ----- -------- ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class L $0.03 $0.07 $0.03 $0.00(7) 1.33% 1.75% 1.39% 1.44%(6)
</TABLE>
(3) The amount in this caption for each share outstanding throughout the period
may not accord with the change in aggregate gains and losses in the
portfolio securities for the period because of the timing of purchases and
withdrawals of shares in relation to the fluctuating market values of the
portfolio.
(4) Total return does not reflect any applicable sales load or contingent
deferred sales charge.
(5) Not annualized.
(6) Annualized.
(7) Amount represents less than $0.01 per share.
22
<PAGE>
FOR A CLASS Y SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR
ENDED NOVEMBER 30:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
1998 1997 1996 1995 (1)
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 8.56 $ 8.54 $ 8.39
- ---------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income(2) 0.41 0.41 0.09
Net realized and unrealized gain 0.11 0.02 0.15
- ---------------------------------------------------------------------------
TOTAL INCOME FROM OPERATIONS 0.52 0.43 0.24
- ---------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.42) (0.41) (0.09)
- ---------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.42) (0.41) (0.09)
- ---------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 8.66 $ 8.56 $ 8.54
- ---------------------------------------------------------------------------
TOTAL RETURN 6.20% 5.22% 2.92%(3)
- ---------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000)'S $ 292 $ 274 $ 261
- ---------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(2) 0.56% 0.59% 0.58%(4)
Net investment income 4.84 4.87 4.74(4)
- ---------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 9% 15% 8%
- ---------------------------------------------------------------------------
</TABLE>
(1) For the period from September 8, 1995 (inception date) to November 30, 1995.
(2) The adviser and administrator waived all or part of their fees for the two
years ended November 30, 1997 and the period ended November 30, 1995. In
addition, the investment adviser reimbursed the fund for $75,189 in expenses
for the year ended November 30, 1996. If such fees had not been waived and
expenses had not been reimbursed, the per share effect on net investment
income and the expense ratios would have been as follows:
<TABLE>
<CAPTION>
Per Share Decrease to Net Expense Ratios Without Fee
Investment Income Waivers and Reimbursements
-----------------------------------------------------------
1997 1996 1995 1997 1996 1995
------- ------- ------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Class Y $0.03 $0.07 $0.03 0.94% 1.36% 0.99%(4)
</TABLE>
(3) Not annualized.
(4) Annualized.
23
<PAGE>
SALOMON SMITH BARNEY (SM)
A MEMBER OF CITIGROUP [SYMBOL]
INTERMEDIATE MATURITY CALIFORNIA MUNICIPALS FUND
- -- an investment portfolio of Smith Barney Investment Trust
SHAREHOLDER REPORTS. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
STATEMENT OF ADDITIONAL INFORMATION. The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally a part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
VISIT OUR WEB SITE. Our web site is located at www.smithbarney.com
You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. The Commission charges a fee for this
service. Information about the public reference room may be obtained by calling
1-800-SEC-0330. You can get the same reports and information free from the
Commission's Internet web site -- www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-06444)
--------------------------
[LOGO]
Smith Barney Mutual Funds
Investing for your future.
Every day.
--------------------------
PROSPECTUS SMITH BARNEY
MUTUAL FUNDS
- --------------------------------------------------------------------------------
March 30, 1999 Intermediate Maturity
New York Municipals Fund
Class A, L and Y Shares
The Securities and Exchange Commission has not approved the fund's shares as an
investment or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Contents
Smith Barney Mutual Funds offers a distinctive family of fund choices tailored
to help meet the varying needs of large and small investors. Currently, Smith
Barney Mutual Funds offers more than 60 individual funds with assets of more
than $xx billion.
Fund goal and strategies......................................4
Risks, performance and expenses...............................
More on the fund's investments................................8
Management....................................................9
Choosing a class of shares to buy............................10
Comparing the fund's classes.................................11
Sales charges................................................12
More about deferred sales charges............................14
Buying shares................................................15
Exchanging shares............................................16
Redeeming shares.............................................17
Other things to know about
share transactions.........................................19
Dividends, distributions and
taxes......................................................21
Share price..................................................22
Financial highlights.........................................23
You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
Intermediate Maturity New York Municipals Fund -3-
<PAGE>
- --------------------------------------------------------------------------------
Fund goal and strategies
- --------------------------------------------------------------------------------
Investment objective
The fund seeks to provide New York investors with as high a level of current
income exempt from federal income taxes and New York state and New York City
personal income taxes as is consistent with the preservation of principal.
Key investments
The fund invests primarily in "New York municipal securities," which are debt
obligations issued by the State of New York and its political subdivisions,
agencies and public authorities (together with certain other governmental
issuers such as Puerto Rico, the Virgin Islands and Guam). The interest on these
bonds is exempt from federal income tax and New York state and New York City
personal income tax. As a result, the interest rate on these bonds normally is
lower than it would be if the bonds were subject to taxation. The fund maintains
an average portfolio maturity of between three and ten years. The fund can
invest up to 20% of its assets in unrated securities that the manager determines
are comparable to securities rated investment grade.
Selection process
The manager selects securities primarily by identifying undervalued sectors and
individual securities, while also selecting securities that it believes will
benefit from changes in market conditions. In selecting individual securities,
the manager:
o Uses fundamental credit analysis to estimate the relative value and
attractiveness of various securities and sectors and to exploit
opportunities in the municipal bond market
o Trades between general obligation and revenue bonds and among various
revenue bond sectors, such as housing, hospital and industrial
development, based on their apparent relative values
o Identifies individual securities with the most potential for added value,
such as those involving unusual situations, new issuers, the potential for
credit upgrades, unique structural characteristics or innovative features
o Considers a security's maturity in light of the outlook for the issuer and
its sector and interest rates
- -4-
<PAGE>
- --------------------------------------------------------------------------------
Risks, performance and expenses
- --------------------------------------------------------------------------------
Principal risks of investing in the fund
Investing in New York municipal securities can bring added benefits, but it may
also involve additional risks. Investors could lose money on their investment in
the fund, or the fund may not perform as well as other investments, if any of
the following occurs:
o Interest rates rise, causing the value of the fund's portfolio to decline
o The issuer of a security owned by the fund defaults on its obligation to
pay principal and/or interest or has its credit rating downgraded
o New York municipal securities fall out of favor with investors. The fund
may suffer more than a national fund from adverse events affecting New
York municipal issuers
o Unfavorable legislation affects the tax-exempt status of municipal bonds
o The manager's judgment about the attractiveness, value or income potential
of a particular security proves to be incorrect
It is possible that some of the fund's income distributions may be, and
distributions of the fund's gains generally will be, subject to federal, New
York state and New York City taxation. The fund may realize taxable capital
gains on the sale of its securities or on transactions in derivative contracts.
Some of the fund's income may be subject to the federal alternative minimum tax.
In addition, distributions of the fund's income and gains will be taxable to
investors in states other than New York.
The fund is classified as "non-diversified," which means it may invest a larger
percentage of its assets in one issuer than a diversified fund. To the extent
the fund concentrates its assets in a particular issuer, the fund will be more
susceptible to negative events affecting that issuer.
Who may want to invest
The fund may be an appropriate investment if you are a New York taxpayer:
o In a high federal tax bracket seeking income that is exempt from New York
and federal taxation
o Currently have exposure to other asset classes and are seeking to broaden
your investment portfolio
o Are willing to accept the risks of municipal securities, including the
risks of concentrating in a single state
Intermediate Maturity New York Municipals Fund -5-
<PAGE>
Total return
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
[GRAPHIC OMITTED]
This bar chart shows the performance of the fund's Class A shares for each of
the past seven years. Class L and Y shares would have different performance
because of their different expenses. The performance information in the chart
does not reflect sales charges, which would reduce your return.
Quarterly returns: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___ quarter
199X
Comparative performance. This table indicates the risks of investing in the fund
by comparing the average annual total return of each class for the periods shown
to that of the Lehman Brothers Municipal Bond Index (the "Lehman Index"), an
unmanaged index of municipal bonds and the Lipper New York Intermediate Maturity
Municipal Fund Average (the "Lipper Funds Average"), an average composed of the
fund's peer group of mutual funds. This table assumes imposition of the maximum
sales charge applicable to the class, redemption of shares at the end of the
period, and reinvestment of distributions and dividends.
- --------------------------------------------------------------------------------
Average Annual Total Returns -- Calendar Years Ended December 31, 1998
- --------------------------------------------------------------------------------
Inception Since
Class Date 1 year 5 years 10 years inception
- --------------------------------------------------------------------------------
A 12/31/91
- --------------------------------------------------------------------------------
L 12/5/94 n/a
- --------------------------------------------------------------------------------
Y [xx/xx/xx]* n/a n/a n/a
- --------------------------------------------------------------------------------
Lehman Index n/a
- --------------------------------------------------------------------------------
* [As of [ ], 1998, the fund had not issued any Class Y shares.]
- -6-
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Shareholder fees
(paid directly from your investment) Class A Class L Class Y
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge on purchases (as a % of offering 2.00% 1.00% None
price)
- -------------------------------------------------------------------------------------------------------
Maximum deferred sales charge on redemptions (as a % None* 1.00% None
of the lower of net asset value at purchase or
redemption)
- -------------------------------------------------------------------------------------------------------
Annual fund operating expenses
(paid by the fund as a % of fund net assets)
- -------------------------------------------------------------------------------------------------------
Management fees** 0.30% 0.30% 0.30%
- -------------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fee 0.15% 0.35% None
- -------------------------------------------------------------------------------------------------------
Other expenses
---- ---- ----
- -------------------------------------------------------------------------------------------------------
Total annual fund operating expenses
==== ==== ====
- -------------------------------------------------------------------------------------------------------
</TABLE>
* You may buy Class A shares in amounts of $500,000 or more at net asset
value (without an initial charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
** Management fee rates shown above have not been reduced to reflect waivers
currently in effect. The actual management fee rate for the last fiscal
year was ___% of each class' average daily net assets, and the fund's
total annual operating expenses were ___% for Class A and ___% for Class
L.
Example
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
o You invest $10,000 in the fund for the period shown
o Your investment has a 5% return each year
o You reinvest all distributions and dividends without a sales charge
o The fund's operating expenses remain the same
- --------------------------------------------------------------------------------
Number of years you own your shares 1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class A $ $ $ $
- --------------------------------------------------------------------------------
Class L (redemption at end of period) $ $ $ $
- --------------------------------------------------------------------------------
Class L (no redemption) $ $ $ $
- --------------------------------------------------------------------------------
Class Y $ $ $ $
- --------------------------------------------------------------------------------
Intermediate Maturity New York Municipals Fund -7-
<PAGE>
- --------------------------------------------------------------------------------
More on the fund's investments
- --------------------------------------------------------------------------------
New York municipal securities. The New York municipal securities in which the
fund invests include general obligation bonds, revenue bonds and notes, and
municipal leases. These securities may pay interest at fixed, variable or
floating rates. The fund may also hold zero coupon securities which pay no
interest during the life of the obligation but trade at prices below their
stated maturity value.
The fund normally maintains an average portfolio maturity of between three and
ten years. The fund normally focuses on securities that have remaining
maturities at the time of purchase of three to twenty years. However, the fund
may invest in individual securities of any maturity.
Derivatives and hedging techniques. The fund may, but need not, use derivative
contracts, such as futures and options on futures, to hedge against adverse
changes in the market value of its securities or in interest rates. The fund
restricts its use of futures or options on futures to those that are either
based on an index of municipal securities or relate to debt securities which the
manager believes are correlated in price to the municipal securities held or to
be purchased by the fund.
A derivative contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities or
indices. Even a small investment in derivative contracts can have a big impact
on the interest rate exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains when
securities prices or interest rates are changing. The fund may not fully benefit
from or may lose money on derivatives if changes in their value do not
correspond accurately to changes in the value of the fund's holdings. The other
parties to certain derivative contracts present the same types of default risk
as issuers of fixed income securities. Derivatives can also make the fund less
liquid and harder to value, especially in declining markets.
Defensive investing. The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
- -8-
<PAGE>
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
The manager. The fund's investment adviser and administrator (the manager) is
SSBC Fund Management Inc., an affiliate of Salomon Smith Barney Inc. The
manager's address is 388 Greenwich Street, New York, New York 10013. The manager
selects the fund's investments and oversees its operations. The manager and
Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup businesses
produce a broad range of financial services -- asset management, banking and
consumer finance, credit and charge cards, insurance, investments, investment
banking and trading -- and use diverse channels to make them available to
consumer and corporate customers around the world. Among these businesses are
Citibank, Commercial Credit, Primerica Financial Services, Salomon Smith Barney,
SSBC Asset Management, Travelers Life & Annuity and Travelers Property Casualty.
Peter Coffey, investment officer of SSBC Fund Management Inc. and managing
director of Salomon Smith Barney, has been responsible for the day to day
management of the fund since its inception in 1991. Mr. Coffey has 30 years of
investment management experience.
Management fees. During the fiscal year ended November 30, 1998, the manager
received a management fee and administrative fee equal to __% and __%,
respectively, of the fund's average daily net assets.
Distributor. The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker dealers sells fund shares to the public.
Distribution plans. The fund has adopted Rule 12b-1 distribution plans for its
Class A and L shares. Under each plan, the fund pays distribution and service
fees. These fees are an ongoing expense and, over time, may cost you more than
other types of sales charges.
Year 2000 issue. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
the efforts of the fund (limited to requesting and receiving reports from its
service providers) or its service providers to correct the problem will be
successful.
Intermediate Maturity New York Municipals Fund -9-
<PAGE>
- --------------------------------------------------------------------------------
Choosing a class of shares to buy
- --------------------------------------------------------------------------------
You can choose among three classes of shares: Classes A, L and Y. Each class has
different sales charges and expenses, allowing you to choose the class that best
meets your needs. Which class is more beneficial to an investor depends on the
amount and intended length of the investment.
o If you establish a program of regular investment, you may wish to consider
Class A shares; as the investment accumulates, you may qualify for reduced
sales charges and the shares are subject to lower ongoing expenses.
o Class L shares are sold with a lower initial sales charge than Class A
shares, which may also help to offset the higher annual expenses of this
class. Because the fund's future return cannot be predicted, however,
there can be no assurance that this would be the case for either class.
You may buy shares from:
o A Salomon Smith Barney Financial Consultant
o An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
o The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums. Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
- --------------------------------------------------------------------------------
Initial Additional
---------------------------- -----------
- --------------------------------------------------------------------------------
Classes A, L Class Y All Classes
- --------------------------------------------------------------------------------
General $1,000 $15 million $50
- --------------------------------------------------------------------------------
Monthly Systematic Investment Plans $25 n/a $25
- --------------------------------------------------------------------------------
Quarterly Systematic Investment Plans $50 n/a $50
- --------------------------------------------------------------------------------
Uniform Gift to Minor Accounts $250 $15 million $50
- --------------------------------------------------------------------------------
- -10-
<PAGE>
- --------------------------------------------------------------------------------
Comparing the fund's classes
- --------------------------------------------------------------------------------
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. Your Salomon Smith Barney Financial
Consultant or dealer representative may receive different compensation depending
upon which class you choose.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Class A Class L Class Y
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Key features o Initial sales charge o Initial sales charge is o No initial or deferred
o You may qualify for lower than Class A sales charge
reduction or waiver of o Deferred sales charge for o Minimum investment of
initial sales charge 1 year at least $15 million
o Lower annual expenses o Higher annual expenses o Lower annual expenses
than Class L than Class A than the other classes
- --------------------------------------------------------------------------------------------------------
Initial sales Up to 2.00%; reduced or 1.00% None
charge waived for large purchases
and certain investors. No
charge for purchases of
$500,000 or more
- --------------------------------------------------------------------------------------------------------
Deferred 1% on purchases of $500,000 1% if you redeem within 1 None
sales charge or more if you redeem year of purchase
within 1 year of purchase
- --------------------------------------------------------------------------------------------------------
Annual 0.15% of average daily net 0.35% of average daily net None
distribution assets assets
and service
fees
- --------------------------------------------------------------------------------------------------------
Exchange- Class A shares of most Class L shares of most Class Y shares of most
able into* Smith Barney mutual funds Smith Barney mutual funds Smith Barney mutual funds
- --------------------------------------------------------------------------------------------------------
</TABLE>
* Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
Intermediate Maturity New York Municipals Fund -11-
<PAGE>
- --------------------------------------------------------------------------------
Sales charge: Class A shares
- --------------------------------------------------------------------------------
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You do not pay a sales charge on investments of $500,000 or
more, or on the fund's distributions or dividends you reinvest in additional
Class A shares.
- --------------------------------------------------------------------------------
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
- --------------------------------------------------------------------------------
Less than $500,000 2.00 2.04
- --------------------------------------------------------------------------------
$500,000 or more -0- -0-
- --------------------------------------------------------------------------------
Investments of $500,000 or more. You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
Qualifying for a reduced Class A sales charge. There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Accumulation privilege - lets you combine the current value of Class A shares
owned
o by you, or
o by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
Letter of intent - lets you purchase Class A shares of the fund and other Smith
Barney mutual funds over a 13-month period and pay the same sales charge, if
any, as if all shares had been purchased at once. You may include purchases on
which you paid a sales charge within 90 days before you sign the letter.
- -12-
<PAGE>
Waivers for certain Class A investors. Class A initial sales charges are waived
for certain types of investors, including:
o Employees of members of the NASD
o Clients of newly employed Salomon Smith Barney Financial Consultants if
certain conditions are met
o Investors who redeemed Class A shares of a Smith Barney fund in the past
60 days, if the investor's Salomon Smith Barney Financial Consultant or
dealer representative is notified
If you want to learn more about the requirements for reductions or waivers of
Class A initial sales charges, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the SAI.
- --------------------------------------------------------------------------------
Sales charge: Class L shares
- --------------------------------------------------------------------------------
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class L shares of the fund on June 12, 1998, you
will not pay an initial sales charge on Class L shares you buy before June 22,
2001.
- --------------------------------------------------------------------------------
Sales charge: Class Y shares
- --------------------------------------------------------------------------------
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
Intermediate Maturity New York Municipals Fund -13-
<PAGE>
- --------------------------------------------------------------------------------
More about deferred sales charges
- --------------------------------------------------------------------------------
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
o Shares exchanged for another Smith Barney mutual fund
o Shares representing reinvested distributions and dividends
o Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund and be credited with the
amount of the deferred sales charge, if you notify your Salomon Smith Barney
Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
o On payments made through certain systematic withdrawal plans
o For involuntary redemptions of small account balances
o For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
- -14-
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Through a Salomon Smith Barney Financial Consultant or dealer representative
You should contact your Salomon Smith Barney Financial Consultant or dealer
representative to open a brokerage account and make arrangements to buy shares.
If you do not provide the following information, your order will be rejected
o Class of shares being bought
o Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account no later than the
third business day after you place your order. Salomon Smith Barney or your
dealer representative may charge an annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the fund's transfer agent
Certain other investors who are clients of the selling group are eligible to buy
shares directly from the fund.
o Write the transfer agent at the following address:
Smith Barney Investment Trust
Intermediate Maturity New York Municipals Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
o Enclose a check to pay for the shares. For initial purchases, complete and
send an account application.
o For more information, call the transfer agent at 1-800-451-2010
- --------------------------------------------------------------------------------
Systematic investment plan
You may authorize Salomon Smith Barney, your dealer representative or the
transfer agent to transfer funds automatically from a regular bank account, cash
held in a Salomon Smith Barney brokerage account or Smith Barney money market
fund to buy shares on a regular basis.
o Amounts transferred should be at least: $25 monthly or $50 quarterly
o If you do not have sufficient funds in your account on a transfer date,
Salomon Smith Barney, your dealer representative or the transfer agent may
charge you a fee
For more information, contact your Salomon Smith Barney Financial Consultant,
your dealer representative or the transfer agent or consult the SAI.
Intermediate Maturity New York Municipals Fund -15-
<PAGE>
- --------------------------------------------------------------------------------
Exchanging shares
- --------------------------------------------------------------------------------
Smith Barney offers a distinctive family of mutual funds tailored to help meet
the varying needs of both large and small investors
You should contact your Salomon Smith Barney Financial Consultant or dealer
representative to exchange into other Smith Barney mutual funds. Be sure to read
the prospectus of the Smith Barney mutual fund you are exchanging into. An
exchange is a taxable transaction.
o You may exchange shares only for shares of the same class of another Smith
Barney mutual fund. Not all Smith Barney funds offer all classes.
o Not all Smith Barney funds may be offered in your state of residence.
Contact your Smith Barney Financial Consultant, dealer representative or
the transfer agent.
o You must meet the minimum investment amount for each fund
o If you hold share certificates, the transfer agent must receive the
certificates endorsed for transfer or with signed stock powers before the
exchange is effective
o The fund may suspend or terminate your exchange privilege if you engage in
an excessive pattern of exchanges
- --------------------------------------------------------------------------------
Waiver of additional sales charges
Your shares will not be subject to an initial sales charge at the time of the
exchange.
Your deferred sales charge (if any) will continue to be measured from the date
of your original purchase. If the fund you exchange into has a higher deferred
sales charge, you will be subject to that charge. If you exchange at any time
into a fund with a lower charge, the sales charge will not be reduced.
- --------------------------------------------------------------------------------
By telephone
If you do not have a brokerage account, you may be eligible to exchange shares
through the transfer agent. You must complete an authorization form to authorize
telephone transfers. If eligible, you may make telephone exchanges on any day
the New York Stock Exchange is open. Call the transfer agent at 1-800-451-2010
between 9:00 a.m. and 4:00 p.m. (Eastern time). Requests received after the
close of regular trading on the Exchange are priced at the net asset value next
determined.
You can make telephone exchanges only between accounts that have identical
registrations.
- --------------------------------------------------------------------------------
- -16-
<PAGE>
- --------------------------------------------------------------------------------
By mail
If you do not have a Salomon Smith Barney brokerage account, contact your dealer
representative or write to the transfer agent at the address on the opposite
page.
- --------------------------------------------------------------------------------
Redeeming shares
- --------------------------------------------------------------------------------
Generally
Contact your Salomon Smith Barney Financial Consultant or dealer representative
to redeem shares of the fund.
If you hold share certificates, the transfer agent must receive the certificates
endorsed for transfer or with signed stock powers before the redemption is
effective.
If the shares are held by a fiduciary or corporation, other documents may be
required.
Your redemption proceeds will be sent within three business days after your
request is received in good order. However, if you recently purchased your
shares by check, your redemption proceeds will not be sent to you until your
original check clears.
If you have a Salomon Smith Barney brokerage account, your redemption proceeds
will be placed in your account and not reinvested without your specific
instruction. In other cases, unless you direct otherwise, your redemption
proceeds will be paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
Intermediate Maturity New York Municipals Fund -17-
<PAGE>
- --------------------------------------------------------------------------------
By mail
For accounts held directly at the fund, send written requests to the transfer
agent at the following address:
Smith Barney Investment Trust
Intermediate Maturity New York Municipals Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
o Your account number
o The class of shares and the dollar amount or number of shares to be
redeemed
o Signatures of each owner exactly as the account is registered
- --------------------------------------------------------------------------------
By telephone
If you do not have a brokerage account, you may be eligible to redeem shares in
amounts up to $10,000 per day through the transfer agent. You must complete an
authorization form to authorize telephone redemptions. If eligible, you may
request redemptions by telephone on any day the New York Stock Exchange is open.
Call the transfer agent at 1-800-451-2010 between 9:00 a.m. and 4:00 p.m.
(Eastern time). Requests received after the close of regular trading on the
Exchange are priced at the net asset value next determined.
Your redemption proceeds can be sent by check to your address of record or by
wire transfer to a bank account designated on your authorization form. You may
be charged a fee for wire transfers. You must submit a new authorization form to
change the bank account designated to receive wire transfers and you may be
asked to provide certain other documents.
- -18-
<PAGE>
- --------------------------------------------------------------------------------
Automatic cash withdrawal plans
You can arrange for the automatic redemption of a portion of your shares on a
monthly or quarterly basis. To qualify you must own shares of the fund with a
value of at least $10,000 and each automatic redemption must be at least $50. If
your shares are subject to a deferred sales charge, the sales charge will be
waived if your automatic payments do not exceed 1% per month of the value of
your shares subject to a deferred sales charge.
The following conditions apply:
o Your shares must not be represented by certificates
o All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney Financial Consultant or
dealer representative or consult the SAI.
- --------------------------------------------------------------------------------
Other things to know about share transactions
- --------------------------------------------------------------------------------
When you buy, exchange or redeem shares, your request must be in good order.
This means that you have provided the following information without which your
request will not be processed.
o Name of the fund
o Account number
o Class of shares being bought, exchanged or redeemed
o Dollar amount or number of shares being bought, exchanged or
redeemed
o Signature of each owner exactly as account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
Signature guarantees. To be in good order, your redemption must include a
signature guarantee if you:
o Are redeeming (together with other requests submitted in the previous 10
days) over $10,000 of shares
o Are sending signed share certificates or stock powers to the transfer
agent
o Instruct the transfer agent to mail the check to an address different from
the one on your account
o Change your account registration
Intermediate Maturity New York Municipals Fund -19-
<PAGE>
o Want the check paid to someone other than the account owner(s)
o Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loans, but not from a notary public.
The fund has the right to:
o Suspend the offering of shares
o Waive or change minimum and additional investment amounts
o Reject any purchase or exchange order
o Changed, revoke or suspend the exchange privilege
o Suspend telephone transactions
o Suspend or postpone redemptions of shares on any day when trading on the
New York Stock Exchange is restricted, or as otherwise permitted by the
Securities and Exchange Commission
Small account balances. If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions. The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.
Share certificates. The fund does not issue share certificates unless a written
request is made to the transfer agent. If you hold share certificates it will
take longer to exchange or redeem shares.
- -20-
<PAGE>
- --------------------------------------------------------------------------------
Distributions, dividends and taxes
- --------------------------------------------------------------------------------
Dividends. The fund pays dividends each month from its net investment income.
The fund generally makes capital gain distributions, if any, once a year,
typically in December. The fund may pay additional distributions and dividends
at other times if necessary for the fund to avoid a federal tax. Capital gain
distributions and dividends are reinvested in additional fund shares of the same
class you hold. The fund expects distributions to be primarily from income. You
do not pay a sales charge on reinvested distributions or dividends.
Alternatively, you can instruct your Salomon Smith Barney Financial Consultant,
dealer representative or the transfer agent to have your distributions and/or
dividends paid in cash. You can change your choice at any time to be effective
as of the next distribution or dividend, except that any change given to the
transfer agent less than five days before the payment date will not be effective
until the next distribution or dividend is paid.
Taxes. The following table describes the tax consequences of certain fund
transactions.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Transaction Federal tax status New York tax status
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Redemption or exchange Usually capital gain or loss; long- Usually capital gain or loss
of shares term only if shares owned more
than one year
- ----------------------------------------------------------------------------------------------------
Long-term capital gain Taxable gain Taxable gain
distributions
- ----------------------------------------------------------------------------------------------------
Short-term capital gain Ordinary income Ordinary income
distributions
- ----------------------------------------------------------------------------------------------------
Dividends Exempt if from interest on tax- Exempt if from interest on New
exempt securities, otherwise York municipal securities,
ordinary income otherwise ordinary income
- ----------------------------------------------------------------------------------------------------
</TABLE>
Any taxable dividends and capital gain distributions are taxable whether
received in cash or reinvested in fund shares. Long-term capital gain
distributions are taxable to you as long-term capital gain regardless of how
long you have owned your shares. You may want to avoid buying shares when the
fund is about to declare a capital gain distribution or a taxable dividend,
because it will be taxable to you even though it may actually be a return of a
portion of your investment.
Intermediate Maturity New York Municipals Fund -21-
<PAGE>
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, taxable dividends, and
redemption proceeds. Because each shareholder's circumstances are different and
special tax rules may apply, you should consult your tax adviser about your
investment in the fund.
- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------
You may buy, exchange or redeem shares at net asset value, adjusted for any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. This calculation is done when regular trading closes on the Exchange
(normally 4:00 p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. When market prices are not available, or when the manager believes
they are unreliable, the fund may price these securities at fair value. Fair
value is determined in accordance with procedures approved by the fund's board.
A fund that uses fair value to price securities may value those securities
higher or lower than another fund using market quotations to price the same
securities.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
- -22-
<PAGE>
- --------------------------------------------------------------------------------
Financial highlights
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on an investment in a class assuming reinvestment of all dividends and
distributions. The information in the following tables, except for the fiscal
year ended November 30, 1994 which was audited by other auditors, was audited by
KPMG Peat Marwick LLP, independent accountants, whose report, along with the
fund's financial statements, are included in the annual report (available upon
request).
For a Class A share of beneficial interest outstanding throughout each year
ended November 30:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $8.47 $8.48 $7.80 $8.54
- ---------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(1) 0.41 0.41 0.41 0.40
Net realized and unrealized gain (loss) 0.10 (0.01) 0.68 (0.72)
- ---------------------------------------------------------------------------------------------------
Total income (loss) from operations 0.51 0.40 1.09 (0.32)
- ---------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.41) (0.41) (0.41) (0.40)
Net realized gains -- -- -- (0.02)
- ---------------------------------------------------------------------------------------------------
Total distributions (0.41) (0.41) (0.41) (0.42)
- ---------------------------------------------------------------------------------------------------
Net asset value, end of year $8.57 $8.47 $8.48 $7.80
- ---------------------------------------------------------------------------------------------------
Total return(2) 6.23% 4.85% 14.31% (3.97)%
- ---------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $47,759 $49,355 $52,568 $62,090
- ---------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(1) 0.67% 0.66% 0.65% 0.65%
Net investment income 4.83 4.86 5.01 4.77
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate 52% 67% -- 68%
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) The adviser has waived all or part of its fees for the three years ended
November 30, 1997. If such fees had not been waived, the per share
decreases in net investment income and the expense ratios would have been
as follows:
<TABLE>
<CAPTION>
Per Share Decrease Expense Ratios
in Net Investement Income Without Fee Waivers
1997 1996 1995 1994 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $0.03 $0.04 $0.03 $0.03 0.98% 1.08% 0.97% 0.98%
</TABLE>
(2) Total return does not reflect any applicable sales load or deferred sales
charge.
Intermediate Maturity New York Municipals Fund -23-
<PAGE>
For a Class L share of beneficial interest outstanding throughout each year
ended November 30:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1998 1997 1996 1995(1)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year $ 8.47 $ 8.48 $ 7.87
- ------------------------------------------------------------------------------------------
Income from operations:
Net investment income(2) 0.39 0.39 0.38
Net realized and unrealized gain 0.10 (0.01) 0.61
(loss)
- ------------------------------------------------------------------------------------------
Total income from operations 0.49 0.38 0.99
- ------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.39) (0.39) (0.38)
- ------------------------------------------------------------------------------------------
Total distributions (0.39) (0.39) (0.38)
- ------------------------------------------------------------------------------------------
Net asset value, end of year $ 8.57 $ 8.47 $ 8.48
- ------------------------------------------------------------------------------------------
Total return(3) 6.00% 4.64% 13.01%(4)
- ------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $2,283 $1,192 $ 393
- ------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(2) 0.89% 0.88% 0.86%(5)
Net investment income 4.61 4.64 4.74(5)
- ------------------------------------------------------------------------------------------
Portfolio turnover rate 52% 67% --
- ------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from December 5, 1994 (inception date) to November 30,
1995.
(2) The adviser has waived a part of its fees for the two year period ended
November 30, 1997 and for the period ended November 30, 1995. If such fees
had not been waived, the per share effect on net investment income and the
expense ratios would have been as follows:
Per Share Decrease Expense Ratios
in Net Investement Income Without Fee Waivers
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
Class L $0.03 $0.02 $0.03 $1.20 1.30%(5) 1.19%(5)
(3) Total return does not reflect any applicable sales load or deferred sales
charge.
(4) Not annualized.
(5) Annualized.
- -24-
<PAGE>
SALOMON SMITH BARNEY(SM)
a member of citigroup [Symbol]
Intermediate Maturity New York Municipals Fund
- -- an investment portfolio of Smith Barney Investment Trust
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information. The statement of additional information
provides more detailed information about the fund. It is incorporated by
reference into (is legally a part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. The Commission charges a fee for this
service. Information about the public reference room may be obtained by calling
1-800-SEC-0330. You can get the same reports and information free from the
Commission's Internet web site -- www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-06444)
- --------------------------------
[Logo]
Smith Barney Mutual Funds
Investing for your future.
Every day.
- --------------------------------
PROSPECTUS SMITH BARNEY
MUTUAL FUNDS
- --------------------------------------------------------------------------------
March 30, 1999 S&P 500 INDEX FUND
Class A and D Shares
The Securities and Exchange Commission has not approved the fund's shares as an
investment or determined whether this prospectus is accurate or complete. Any
statement to the contrary is crime.
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Fund goal and strategies.............................
Risks, performance and expenses......................
More on the fund's investments.......................
Management...........................................
Smith Barney Choosing a class of shares to buy....................
Mutual Funds
offers a distinctive Comparing the fund's classes.........................
family of fund
choices tailored to Buying shares........................................
help meet the
varying needs of Exchanging shares....................................
large and small
investors. Redeeming shares.....................................
Currently, Smith
Barney Mutual Other things to know about
Funds offers more share transactions...................................
than 50
individual funds Smith Barney 401(k) and
with assets of ExecChoice(TM) programs..............................
more than $xx
billion. Dividends, distributions and
taxes................................................
Share price..........................................
Financial highlights.................................
</TABLE>
You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
1
<PAGE>
FUND GOAL AND STRATEGIES
INVESTMENT OBJECTIVE
The fund seeks to provide investment results that, before expenses, correspond
to the price and yield performance of the S&P 500 Index. The fund will hold a
broadly diversified portfolio of common stocks that is comparable to the S&P 500
Index in terms of economic sector weightings, market capitalization and
liquidity.
KEY INVESTMENTS
The fund invests at least 80% of its assets in common stocks included in the S&P
500 Index. The fund holds stocks of substantially all of the companies which
comprise the S&P 500 Index, including those companies which are headquartered
outside the U.S. The fund also enters into repurchase agreements, lends
portfolio securities and uses certain types of derivative instruments to help
implement its objective.
SELECTION PROCESS
The manager manages the fund as a "pure" index fund. This means that the
manager does not evaluate individual companies to identify attractive investment
candidates. Instead, the manager attempts to mirror the composition of the S&P
500 Index as closely as possible by adjusting the fund's portfolio daily to
reflect the companies included in the index and their weightings. The fund does
not mirror the index exactly because, unlike the index, the fund must maintain a
portion of its assets in cash and liquid securities to meet redemption requests
and pay the fund's expenses.
The S&P 500 Index is one of the mostly widely used benchmarks of U.S. equity
performance. The index consists of 500 stocks chosen for market capitalization,
liquidity and industry group representation. The index is market-value-
weighted, so the larger of the 500 companies have a bigger impact on the
performance of the index. The index is also unmanaged and does not have to
maintain liquidity to meet redemption requests or pay expenses.
2
<PAGE>
RISKS, PERFORMANCE AND EXPENSES
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investors could lose money on their investments in the fund, or the fund may not
perform as well as other investments, because of the following:
. The S&P 500 Index goes down, or performs poorly relative to other U.S.
equity indexes or individual stocks
. An adverse company specific event, such as an unfavorable earnings report,
negatively affects the stock price of one of the larger companies in the S&P 500
Index
. The stocks of companies which comprise the S&P 500 Index fall out of favor
with investors
Because the fund is managed as an index fund, it will not ordinarily sell a
portfolio security because of the security's poor performance. The fund
normally buys or sells a portfolio security only to reflect additions or
deletions of stocks that comprise the S&P 500 Index or to adjust their relative
weightings. Although the manager seeks to replicate the performance of the S&P
500 Index, the fund may underperform the index even before deducting expenses
because the fund must maintain a portion of its assets in liquid short-term debt
securities which historically have generated significantly lower returns than
common stocks.
WHO MAY WANT TO INVEST
The fund may be an appropriate investment if you:
. Are seeking to participate in the long term growth potential of U.S. large
capitalization stocks
. Are seeking an investment which tracks the performance of the S&P 500 Index
. Are looking for an investment with potentially greater return but higher
risk than a fund that invests primarily in fixed income securities
. Are willing to accept the risks of the stock market
3
<PAGE>
TOTAL RETURN
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
[BAR CHART APPEARS HERE]
This bar chart shows the performance of the fund's Class A shares for the past
year. Class D shares would have different performance because of their
different expenses. The performance information in the chart does not reflect
sales charges, which would reduce your return.
QUARTERLY RETURNS: Highest: xx% in ___ quarter 1998; Lowest: xx% in ___
quarter 1998
COMPARATIVE PERFORMANCE
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown to that of the S&P 500
Index, an unmanaged index of U.S. stocks. This table assumes imposition of the
maximum sales charge applicable to the class, redemption of shares at the end of
the period, and reinvestment of distributions and dividends.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
Calendar Years Ended December 31, 1998
<S> <C> <C> <C> <C> <C>
Class Inception 1 year 5 years 10 years Since inception
A [x/x/97] n/a n/a
D [x/x/97] n/a n/a
S&P 500 Index n/a
</TABLE>
4
<PAGE>
FEES AND EXPENSES
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(paid directly from your investment) Class A Class D
<S> <C> <C>
Maximum sales charge on purchases None None
Maximum deferred sales charge on redemptions None None
ANNUAL FUND OPERATING EXPENSES (paid by the fund as a
% of fund net assets)
Management fees .25% .25%
Distribution and service (12b-1) fee .20% None
Other expenses --- ---
Total annual fund operating expenses --- ---
</TABLE>
EXAMPLE
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
. You invest $10,000 in the fund for the period shown
. You redeem all shares at the end of the period
. Your investment has a 5% return each year
. The fund's operating expenses remain the same
<TABLE>
<CAPTION>
NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A $ $ $ $
Class D $ $ $ $
</TABLE>
5
<PAGE>
More on the fund's investments
DERIVATIVES. The fund may, but is not required to, use futures and options on
securities and securities indexes, and options on these futures, for any of the
following purposes:
. to simulate full investment in the S&P 500 Index while maintaining sufficient
liquidity to satisfy daily redemption requests and operating expenses
. to facilitate trading in the securities of companies that comprise the index
. to reduce transaction costs
. to seek higher investment returns when a contract is priced more attractively
than the stocks that comprise the index
The fund may not invest more than 20% of its assets in derivative contracts or
more than 5% of its assets in open purchased put options.
A derivative contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities or
indexes. Even a small investment in derivative contracts can have a big impact
on the fund's stock market exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains when stock
prices are changing. The fund may not fully benefit from or may lose money on
derivatives if changes in their value do not correspond accurately to changes in
the value of the fund's holdings.
The other parties to certain derivative contracts present the same types of
credit risk as issuers of fixed income securities. Derivatives can also make
the fund less liquid and harder to value, especially in declining markets.
MONEY MARKET INSTRUMENTS. The fund may temporarily maintain up to 20% of its
assets in money market instruments. The fund invests in money market
instruments under the following circumstances:
. pending investment of proceeds of the sale of shares of the fund
. pending settlement of purchases of securities by the fund
. to maintain liquidity to meet anticipated redemptions
6
<PAGE>
FOREIGN INVESTMENTS. The fund may purchase common stocks and American
Depositary Receipts (ADRs) of the foreign companies included in the S&P 500
Index. These securities are publicly traded on U.S. securities exchanges or
over-the-counter markets. ADRs are U.S. dollar denominated securities which
represent an interest in an underlying foreign security.
Foreign countries generally have markets that are less liquid and more volatile
than markets in the U.S. In some foreign countries, there is also less
information available about foreign issuers and markets because of less rigorous
accounting and regulatory standards than in the U.S. Currency fluctuations
could erase investment gains or add to investment losses. Because the value of
an ADR is dependent upon the market price of an underlying foreign security,
ADRs are subject to most of the risks associated with foreign investing.
7
<PAGE>
MANAGEMENT
THE MANAGER AND ADMINISTRATOR. The fund's investment adviser (the manager) is
The Travelers Investment Management Company (TIMCO). The manager selects the
fund's investments and oversees its operations. The Manager's address is One
Tower Square, Hartford, Connecticut 06183-2030. The fund's administrator is SSBC
Fund Management Inc. (SSBC). SSBC's address is 388 Greenwich Street, New York,
New York 10013. The manager, administrator and Salomon Smith Barney are
subsidiaries of Citigroup Inc. Citigroup businesses produce a broad range of
financial services -- asset management, banking and consumer finance, credit and
charge cards, insurance, investments, investment banking and trading -- and use
diverse channels to make them available to consumer and corporate customers
around the world. Among these businesses are Citibank, Commercial Credit,
Primerica Financial Services, Salomon Smith Barney, SSBC Asset Management,
Travelers Life & Annuity, and Travelers Property Casualty.
Sandip Bhagat, president and chief investment officer of TIMCO, and John Lau,
portfolio manager for TIMCO, have been responsible for the day to day management
of the fund since its inception. Messrs. Bhagat and Lau have more than 11 and 4
years, respectively, of investment management experience.
MANAGEMENT AND ADMINISTRATION FEES. For its services, the manager and the
administrator received a fee during the fund's last fiscal year equal on an
annual basis to 0.15% and 0.10%, respectively, of the fund's average daily net
assets.
DISTRIBUTOR. The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith
Barney and other broker dealers sells fund shares to the public.
DISTRIBUTION PLANS. The fund has adopted a Rule 12b-1 distribution plan for its
Class A shares. Under the plan, Class A shares pay a service fee. The fee in
Class A shares is an ongoing expense and, over time, it increases the cost of
your investment and may cost you more than other types of sales charges.
YEAR 2000 ISSUE. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
the efforts of the fund
8
<PAGE>
(limited to requesting and receiving reports from its service providers) or its
service providers to correct the problem will be successful.
CHOOSING A CLASS OF SHARES TO BUY
You may purchase Class A shares which are sold at net asset value with no
initial or deferred sales charge. Class A shares are subject to an ongoing
service fee.
You may purchase Class D shares only if you are participating in certain
investment programs which charge a fee for participation, including the Smith
Barney 401(k) Platform program. Class D shares are also offered to tax-exempt
employee benefit and retirement plans of Salomon Smith Barney and its
affiliates. For more information about these programs, please contact a Salomon
Smith Barney Financial Consultant.
You may buy shares from:
. A Salomon Smith Barney Financial Consultant
. An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
. The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
INVESTMENT MINIMUMS. Minimum initial and additional investment amounts vary
depending on the nature of your investment account.
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
----------- --------------
<S> <C> <C>
General $1,000 $50
Individual Retirement Accounts, $ 250 $50
Self Employed Retirement Plans,
Uniform Gift to Minor Accounts
Qualified Retirement Plans $ 25 $25
Simple IRAs $ 1 $ 1
Monthly Systematic Investment Plans $ 25 $25
Quarterly Systematic Investment Plans $ 50 $50
</TABLE>
Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k) plans
9
<PAGE>
BUYING SHARES
Through a You should contact your Salomon Smith Barney Financial Consultant
Salomon or dealer representative to open a brokerage account and make
Smith arrangements to buy shares.
Barney
Financial . Class of shares being bought
Consultant . Dollar amount or number of shares being bought
or dealeR
represen- You should pay for your shares through your brokerage account no
tative Later than the third business day after you place your order.
Your Salomon Smith Barney Financial Consultant or dealer
representative may charge an annual account maintenance fee.
- -------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who are
Fund's clients of the selling group are eligible to buy shares directly
Transfer from the fund.
agent
. Write the transfer agent at the following address:
Smith Barney Investment Trust
S&P 500 Index Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
. Enclose a check to pay for the shares. For initial purchases,
complete and send an account application
. For more information, call the transfer agent at 1-800-451-
2010
- -------------------------------------------------------------------------------
Systematic You may authorize Salomon Smith Barney, the dealer representative
investment or the transfer agent to transfer funds automatically from a
plan regular bank account, cash held in a Salomon Smith Barney
brokerage account or Smith Barney money market fund to buy shares
on a regular basis.
. Amounts transferred should be at least: $25 monthly or $50
quarterly
. If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer representative
or the transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney Financial
Consultant, dealer representative or the transfer agent or
consult the SAI.
10
<PAGE>
EXCHANGING SHARES
You may exchange fund shares only for shares of other classes
of another Smith Barney Mutual Fund if you are participating
in certain fee based advisory programs or employer-sponsored
retirement plans. Please contact your Salomon Smith Barney
Financial Consultant for more information.
REDEEMING SHARES
Generally Contact your Salomon Smith Barney Financial Consultant or dealer
representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must receive
the certificates endorsed for transfer or with signed stock
powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business days
after your request is received in good order. However, if you
recently purchased your shares by check, your redemption
proceeds will not be sent to you until your original check
clears.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
11
<PAGE>
By mail For accounts held directly at the fund, send written requests to
the transfer agent at the following address:
Smith Barney Investment Trust
S&P 500 Index Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
. The account number
. The class of shares and the dollar amount or number of shares
to be redeemed
. Signatures of each owner exactly as account is registered
By telephone If you do not have a brokerage account, you may be eligible to
redeem shares (except those held in retirement plans) in amounts
up to $10,000 per day through the transfer agent. You must
complete an authorization form to authorize telephone
redemptions. If eligible, you may request redemptions by
telephone on any day the New York Stock Exchange is open. Call
the transfer agent at 1-800-451-2010 between 9:00 a.m. and 4:00
p.m. (Eastern time). Requests received after the close of
regular trading on the Exchange are priced at the net asset
value next determined.
Your redemption proceeds can be sent by check to your address of
record or by wire transfer to a bank account designated on your
authorization form. You may be charged a fee for wire transfers.
You must submit a new authorization form to change the bank
account designated to receive wire transfers and you may be
asked to provide certain other documents.
- --------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans and each automatic redemption must be at least $50.
The following conditions apply:
. Your shares must not be represented by certificates
. All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
12
<PAGE>
OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS
When you buy, exchange or redeem shares, your request must be in good order.
This means that you have provided the following information without which your
request will not be processed.
. Name of the fund
. Account number
. Class of shares being bought, exchanged or redeemed
. Dollar amount or number of shares being bought, exchanged or redeemed
. Signature of each owner exactly as account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
SIGNATURE GUARANTEES. To be in good order, your redemption request must include
a signature guarantee if you:
. Are redeeming (together with other requests submitted in the previous 10
days) over $10,000 of shares
. Are sending signed share certificates or stock powers to the transfer agent
. Instruct the transfer agent to mail the check to an address different from
the one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loans, but not from a notary public.
13
<PAGE>
The fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
. Suspend telephone transactions
. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission
SMALL ACCOUNT BALANCES. If your account falls below $500 because of a
redemption of fund shares, the fund may ask you to bring your account up to
$500. If your account is still below $500 after 60 days, the fund may close your
account and send you the redemption proceeds.
EXCESSIVE EXCHANGE TRANSACTIONS. The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
a shareholder.
SHARE CERTIFICATES. The fund does not issue share certificates unless a written
request is made to the transfer agent. If you hold share certificates it will
take longer to exchange or redeem shares.
14
<PAGE>
SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoice program. The fund offers Class A shares to participating
plans as an investment alternative under the programs. You can meet minimum
investment and exchange amounts by combining the plan's investments in any of
the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares.
For more information, call your Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.
15
<PAGE>
DISTRIBUTIONS, DIVIDENDS AND TAXES
DIVIDENDS. The fund generally makes capital gain distributions and pays
dividends, if any, once a year, typically in December. The fund may pay
additional distributions and dividends at other times if necessary for the fund
to avoid a federal tax. Capital gain distributions and dividends are reinvested
in additional fund shares of the same class you hold. The fund expects
distribution to be primarily from capital gains. Alternatively, you can
instruct your Salomon Smith Barney Financial Consultant, dealer representative
or the transfer agent to have your distributions and/or dividends paid in cash.
You can change your choice at any time to be effective as of the next
distribution or dividend, except that any change given to the transfer agent
less than five days before the payment date will not be effective until the next
distribution or dividend is paid.
TAXES. In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
- --------------------------------------------------------------------------------
TRANSACTION FEDERAL TAX STATUS
Redemption or exchange of shares Usually capital gain or loss; long-term
only if shares owned more than one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
- --------------------------------------------------------------------------------
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a long-term capital gain
distribution or a dividend, because it will be taxable to you even though it may
actually be a return of a portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special
tax rules may apply, you should consult your tax adviser about your investment
in the fund.
16
<PAGE>
SHARE PRICE
You may buy, exchange or redeem shares at their net asset value next determined
after receipt of your request in good order. The fund's net asset value is the
value of its assets minus its liabilities. Net asset value is calculated
separately for each class of shares. The fund calculates its net asset value
every day the New York Stock Exchange is open. This calculation is done when
regular trading closes on the Exchange (normally 4:00 p.m., Eastern time).
The fund generally values its portfolio securities based on market prices or
quotations. When market prices are not available, or when the manager believes
that they are unreliable, the fund may price those securities at fair value.
Fair value is determined in accordance with procedures approved by the fund's
board. A fund that uses fair value to price securities may value those
securities higher or lower than another fund using market quotations to price
the same securities.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
"S&P 500/(R)/" is a trademark of The McGraw-Hill Companies, Inc. and has been
licensed for use by Mutual Management Corp. The fund is not sponsored,
endorsed, sold or promoted by Standard & Poor's and Standard & Poor's makes no
representation regarding the advisability of investing in the fund. Please see
the SAI for further disclosure.
17
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG Peat Marwick LLP,
independent accountants, whose report, along with the fund's financial
statements, are included in the annual report (available upon request).
FOR A CLASS A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
1998 1997(1)
- -----------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ $
- -----------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(loss)
Net realized and unrealized gain (loss)
- -----------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM OPERATIONS
- -----------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income
Net realized gains
- -----------------------------------------------------------------------
TOTAL DISTRIBUTIONS
- -----------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ $
- -----------------------------------------------------------------------
TOTAL RETURN(2) % %
- -----------------------------------------------------------------------
NET ASSETS, END OF YEAR (000)'S
- -----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (3)
Net investment income (loss) (3)
- -----------------------------------------------------------------------
PORTFOLIO TURNOVER RATE
- -----------------------------------------------------------------------
</TABLE>
(1) For the period from __________________ (inception date) to November 30,
1997.
(2) Total return does not reflect any applicable sales loads or contingent
deferred sales charges.
(3) Not annualized.
FOR A CLASS D SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
1998 1997(1)
- -----------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ $
- -----------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (loss)
Net realized and unrealized gain (loss)
- -----------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
- -----------------------------------------------------------------------
<S> <C>
TOTAL INCOME (LOSS) FROM OPERATIONS
- -----------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income
Net realized gains
- -----------------------------------------------------------------------
TOTAL DISTRIBUTIONS
- -----------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ $
- -----------------------------------------------------------------------
TOTAL RETURN(2) % %
- -----------------------------------------------------------------------
NET ASSETS, END OF YEAR (000)'S
- -----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (3)
Net investment income (loss) (3)
- -----------------------------------------------------------------------
PORTFOLIO TURNOVER RATE % %
- -----------------------------------------------------------------------
</TABLE>
(1) For the period from ________________ (inception date) to November 30, 1997.
(2) Total return does not reflect any applicable sales loads or contingent
deferred sales charges.
(3) Annualized
19
<PAGE>
SALOMON SMITH BARNEY(TM)
A MEMBER OF CITIGROUP [SYMBOL]
S&P 500 INDEX FUND
- -- an investment portfolio of Smith Barney Investment Trust
SHAREHOLDER REPORTS. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
STATEMENT OF ADDITIONAL INFORMATION. The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is a legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
VISIT OUR WEB SITE. Our web site is located at (www.smithbarney.com).
You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. The Commission charges a fee for this
service. Information about the public reference room may be obtained by calling
1-800-SEC-0330. You can get the same reports and information free from the
Commission's Internet web site -- www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(TM)Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-06444)
<PAGE>
Draft 1/22/98
- ---------------------------
[Logo]
Smith Barney Mutual Funds
Investing for your future.
Every day.
- ---------------------------
PROSPECTUS SMITH BARNEY
MUTUAL FUNDS
- --------------------------------------------------------------------------------
March 30, 1999 LARGE CAPITALIZATION GROWTH FUND
Class A, B, L and Y Shares
The Securities and Exchange Commission has not approved the fund's shares as an
investment or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
CONTENTS
<TABLE>
<S> <C>
Fund goal and strategies..............................
Risks, performance and expenses.......................
More on the fund's investments........................
Management............................................
Smith Barney Choosing a class of shares to buy.....................
Mutual Funds
offers a distinctive Comparing the fund's classes..........................
family of fund
choices tailored to Sales charges.........................................
help meet the
varying needs of More about deferred sales charges.....................
large and small
investors. Buying shares.........................................
Currently, Smith
Barney Mutual Exchanging shares.....................................
Funds offers more
than 50 Redeeming shares......................................
individual funds
with assets of Other things to know about
more than $xx share transactions...................................
billion.
Smith Barney 401(k) and
ExecChoice(TM) program................................
Dividends, distributions and
taxes................................................
Share price...........................................
Financial highlights..................................
</TABLE>
You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
1
<PAGE>
FUND GOAL AND STRATEGIES
INVESTMENT OBJECTIVE
The fund seeks long-term growth of capital.
KEY INVESTMENTS
The fund invests primarily in equity securities of companies with large market
capitalizations. Large capitalization companies are those with total market
capitalizations of $5 billion or more at the time of investment. Equity
securities include U.S. exchange traded and over-the-counter common stocks, debt
securities convertible into equity securities, and warrants and rights relating
to equity securities.
SELECTION PROCESS
The manager emphasizes individual security selection while diversifying the
fund's investments across industries, which may help to reduce risk. The manager
attempts to identify established large capitalization companies with the highest
growth potential. The manager then analyzes each company in detail, ranking its
management, strategy and competitive market position. Finally, the manager
attempts to identify the best values available among the growth companies
identified.
In selecting individual companies for investment, the manager looks for:
. Favorable earnings prospects
. Technological innovation
. Industry dominance
. Competitive products and services
. Global scope
. Long term history of performance
. Consistent and sustainable long-term growth in dividends and earnings per
share
. Strong cash flow
. High return on equity
. Strong financial condition
. Experienced and effective management
2
<PAGE>
RISKS, PERFORMANCE AND EXPENSES
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investors could lose money on their investments in the fund, or the fund may not
perform as well as other investments, because of the following:
. U.S. stock markets go down, or perform poorly relative to other types of
investments
. An adverse company specific event, such as an unfavorable earnings report,
negatively affects the stock price of a company in which the fund invests
. Large capitalization stocks fall out of favor with investors
. The manager's judgment about the attractiveness, growth prospects or
potential appreciation of a particular stock proves to be incorrect
WHO MAY WANT TO INVEST
The fund may be an appropriate investment if you:
. Are seeking to participate in the long term growth potential of the U.S.
stock market
. Are looking for an investment with potentially greater return but higher risk
than fixed income investments
. Are willing to accept the risks of the stock market
3
<PAGE>
TOTAL RETURN
The bar chart below shows changes in the fund's performance from year to year.
Past performance does not necessarily indicate how the fund will perform in the
future.
[BAR CHART APPEARS HERE]
This bar chart shows the performance of the fund's Class A shares for the past
year. Class B, L and Y shares would have different performance because of their
different expenses. The performance information in the chart does not reflect
sales charges, which would reduce your return.
QUARTERLY RETURNS: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___
quarter 199X
COMPARATIVE PERFORMANCE
This table compares the average annual total return of each class for the
periods shown to that of the S&P 500 Composite Index, an unmanaged market
capitalization-weighted measure of 500 widely held common stocks. This table
assumes the imposition of the maximum sales charge applicable to the class, the
redemption of shares at the end of the period, and the reinvestment of
distributions and dividends.
<TABLE>
<CAPTION>
Average Annual Total Returns
Calendar Years Ended December 31, 1998
Class Inception Date 1 year Since inception
<S> <C> <C> <C>
A 8/29/97
B 8/29/97
L 8/29/97
Y 10/15/97
S&P 500 n/a
</TABLE>
4
<PAGE>
FEES AND EXPENSES
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A CLASS B CLASS L CLASS Y
<S> <C> <C> <C> <C>
Maximum sales charge on purchases (as a % of offering 5.00% None 1.00% None
price)
Maximum deferred sales charge on redemptions (as a % None* 5.00% 1.00% None
of the lower of net asset value at purchase or
redemption)
ANNUAL FUND OPERATING EXPENSES
(paid by the fund as a % of fund net assets)
Management fee 0.75% 0.75% 0.75% 0.75%
Distribution and service (12b-1) fee 0.25% 1.00% 1.00% None
Other expenses ----- ----- ----- -----
Total annual fund operating expenses ===== ===== ===== =====
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase, you will pay a deferred sales charge of 1.00%.
EXAMPLE
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The fund's operating expenses remain the same
<TABLE>
<CAPTION>
NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A $ $ $ $
Class B (redemption at end of period) $ $ $ $
Class B (no redemption) $ $ $ $
Class L (redemption at end of period) $ $ $ $
Class L (no redemption) $ $ $ $
Class Y $ $ $ $
</TABLE>
5
<PAGE>
MORE ON THE FUND'S INVESTMENTS
OTHER INVESTMENTS. The fund may invest up to 35% of its assets in equity
securities of companies with total market capitalizations below $5 billion
(i.e., medium or small capitalization companies). The fund may invest up to 10%
of its net assets in the securities of foreign issuers in the form of depositary
receipts representing an interest in those securities.
Because the value of a depositary receipt is dependent upon the market price of
an underlying foreign security, depositary receipts are subject to most of the
risks associated with investing in foreign securities directly. Foreign
countries generally have markets that are less liquid and more volatile than
markets in the U.S. In some foreign countries, less information is available
about foreign issuers and markets because of less rigorous accounting and
regulatory standards than in the U.S. Currency fluctuations could erase
investment gains or add to investment losses.
SHORT-TERM INVESTMENTS. While the fund intends to invest substantially all of
its assets in equity securities, the fund may maintain up to 35% of its assets
in money market instruments and/or cash to pay expenses and meet redemption
requests. Generally, the value of these fixed income obligations will go down
if interest rates go up, the issuer of the security has its credit rating
downgraded or the issuer defaults on its obligation to pay principal or
interest.
DEFENSIVE INVESTING. The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market instruments.
If the fund takes a temporary defensive position, it may be unable to achieve
its investment goal.
MANAGEMENT
MANAGER. The fund's investment manager is SSBC Fund Management Inc. The
manager's address is 388 Greenwich Street, New York, New York 10013. The
manager selects the fund's investments and oversees its operations. The manager
and Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup
businesses produce a broad range of financial services -- asset management,
banking and consumer finance, credit and charge cards, insurance, investments,
investment banking and trading -- and use diverse channels to make them
available to consumer and corporate customers around the world. Among these
businesses are Citibank, Commercial Credit, Primerica Financial Services,
Salomon Smith
6
<PAGE>
Barney, SSBC Asset Management, Travelers Life & Annuity, and Travelers Property
Casualty.
Alan Blake, investment officer of SSBC Fund Management Inc. and managing
director of Salomon Smith Barney, has been responsible for the day to day
management of the fund since its inception. Mr. Blake has more than [?] years
of investment management experience.
MANAGEMENT FEE. For its services, the manager received a fee during the fund's
last fiscal year equal on an annual basis to 0.75% of the fund's average daily
net assets.
DISTRIBUTOR. The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith
Barney and other broker dealers sell fund shares to the public.
DISTRIBUTION PLANS. The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and
service fees. These fees are an ongoing expense and, over time, they increase
the cost of your investment and may cost you more than other types of sales
charges.
YEAR 2000 ISSUE. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
the efforts of the fund (limited to requesting and receiving reports from its
service providers) or its service providers to correct the problem will be
successful.
7
<PAGE>
CHOOSING A CLASS OF SHARES TO BUY
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
. If you establish a program of regular investment, you may wish to consider
Class A shares; as the investment accumulates, you may qualify for reduced sales
charges and the shares are subject to lower ongoing expenses.
. Class B shares are sold without any initial sales charge so the entire price
is immediately invested in the fund, which may partially or wholly offset the
higher annual expenses of this Class. Class L shares are sold with a lower
initial sales charge than Class A shares, which may also help to offset the
higher annual expenses of this class. Because the fund's future return cannot
be predicted, however, there can be no assurance that this would be the case for
either class.
. Consider the effect of the deferred sales charge period and any conversion
rights in the context of your investment time frame. For example, while Class L
shares have a shorter deferred sales charge 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 long term investment outlooks.
You may buy shares from:
. A Salomon Smith Barney Financial Consultant
. An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
. The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
INVESTMENT MINIMUMS. Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
8
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
INITIAL ADDITIONAL
---------------------------- ----------------------
CLASSES A, B, L CLASS Y ALL CLASSES
<S> <C> <C> <C>
General $1,000 $15 million $50
Individual Retirement Accounts, $ 250 $15 million $50
Self Employed Retirement Plans,
Uniform Gift to Minor Accounts
Qualified Retirement Plans $ 25 $15 million $25
Simple IRAs $ 1 n/a $ 1
Monthly Systematic Investment Plans $ 25 n/a $25
Quarterly Systematic Investment Plans $ 50 n/a $50
- ------------------------------------------------------------------------------------------------
</TABLE>
Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k) plans
9
<PAGE>
COMPARING THE FUND'S CLASSES
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. Your Salomon Smith Barney Financial
Consultant or dealer representative may receive different compensation depending
upon which class you choose.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS L CLASS Y
<S> <C> <C> <C> <C>
KEY .Initial sales charge . No initial sales . Initial sales . No initial or
FEATURES .You may qualify charge charge is lower deferred sales
for reduction or . Deferred sales than Class A charge
waiver of initial charge declines . Deferred sales . Must invest at
sales charge over time charge for only least $15 million
. Lower annual . Converts to year . Lower annual
expenses than Class Class A . Does not convert expenses than the
B and Class L . Higher annual to Class A other classes
expenses than . Higher annual
Class A expenses than
Class A
INITIAL SALES Up to 5.00%; None 1.00% None
CHARGE reduced or waived
for large purchases
and certain
investors. No
charge for
purchases of
$500,000 or more.
DEFERRED 1% on purchases of Up to 5% charged 1% if you redeem None
SALES CHARGE $500,000 or more if when you redeem within 1 year of
you redeem within shares. The charge purchase
1 year of purchase is reduced over
time and there is
no deferred sales
charge after 6 years
ANNUAL 0.25% of average 1% of average 1% of average None
DISTRIBUTION daily net assets daily net assets daily net assets
AND SERVICE
FEES
EXCHANGE Class A shares of Class B shares of Class L shares of Class Y shares of
PRIVILEGE* most Smith Barney most Smith Barney most Smith Barney most Smith Barney
mutual funds mutual funds. mutual funds mutual funds
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant, dealer representative or
visit the web site for the Smith Barney funds available for exchange.
10
<PAGE>
SALES CHARGE: CLASS A SHARES
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge
on the fund's distributions or dividends you reinvest in additional Class A
shares.
<TABLE>
<CAPTION>
- -----------------------------------------------------
SALES CHARGE AS A % OF
OFFERING NET AMOUNT
AMOUNT OF PURCHASE PRICE (%) INVESTED (%)
<S> <C> <C>
Less than $25,000 5.00 5.26
$25,000 but less than 4.00 4.17
$50,000
$50,000 but less than 3.50 3.63
$100,000
$100,000 but less than 3.00 3.09
$250,000
$250,000 but less than 2.00 2.04
$500,000
$500,000 or more -0- -0-
- -----------------------------------------------------
</TABLE>
INVESTMENTS OF $500,000 OR MORE. You do not pay an initial sales charge when
you buy $500,000 or more of Class A shares. However, if you redeem these Class
A shares within one year of purchase, you will pay a deferred sales charge of
1%.
QUALIFYING FOR A REDUCED CLASS A SALES CHARGE. There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Accumulation privilege - lets you combine the current value of Class A shares
owned
. by you, or
. by members of your immediate family,
11
<PAGE>
and for which a sales charge was paid, with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
Letter of intent - lets you purchase Class A shares of the fund and other Smith
Barney mutual funds over a 13-month period and pay the same sales charge, if
any, as if all shares had been purchased at once. You may include purchases on
which you paid a sales charge within 90 days before you sign the letter.
WAIVERS FOR CERTAIN CLASS A INVESTORS. Class A initial sales charges are waived
for certain types of investors, including:
. Employees of members of the NASD.
. 403(b) or 401(k) retirement plans, if certain conditions are met
. Clients of newly employed Salomon Smith Barney Financial Consultants if
certain conditions are met
. Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn more about the requirements for reductions or waivers of
Class A initial sales charges, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the SAI.
12
<PAGE>
SALES CHARGE: CLASS B SHARES
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of
purchase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
6th and
Year after purchase 1st 2nd 3rd 4th 5th over
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 5% 4% 3% 2% 1% 0%
- ---------------------------------------------------------------------
</TABLE>
CLASS B CONVERSION. After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
SHARES ISSUED: SHARES ISSUED: SHARES ISSUED:
AT INITIAL ON REINVESTMENT OF UPON EXCHANGE FROM
PURCHASE DIVIDENDS AND ANOTHER SMITH BARNEY
DISTRIBUTIONS MUTUAL FUND
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Eight years after the In same proportion that the On the date the shares
date of purchase number of Class B shares originally acquired would
converting is to total Class B have converted into Class A
shares you own shares
- ------------------------------------------------------------------------------------------
</TABLE>
SALES CHARGE: CLASS L SHARES
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund on June 12, 1998,
you will not pay an initial sales charge on Class L shares you buy before June
22, 2001.
SALES CHARGE: CLASS Y SHARES
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can also use a letter of intent to meet this
requirement by buying Class Y shares over a 6-month period. To qualify, you
must initially invest $5,000,000.
13
<PAGE>
MORE ABOUT DEFERRED SALES CHARGES
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
. Shares exchanged for shares of another Smith Barney mutual fund
. Shares representing reinvested distributions and dividends
. Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund and be credited with the
amount of the deferred sales charge, if you notify your Salomon Smith Barney
Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
DEFERRED SALES CHARGE WAIVERS
The deferred sales charge for each share class will generally be waived:
. On payments made through certain systematic withdrawal plans
. On certain distributions from a retirement plan
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
14
<PAGE>
BUYING SHARES
Through a You should contact your Salomon Smith Barney Financial Consultant
Salomon or dealer representative to open a brokerage account and make
Smith arrangements to buy shares.
Barney
Financial If you do not provide the following information, your order will
Consultant be rejected
or dealer
represen-
tative . Class of shares being bought
. Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account no
later than the third business day after you place your order.
Your Salomon Smith Barney Financial Consultant or dealer
representative may charge an annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who are
fund's clients of the selling group are eligible to buy shares directly
transfer from the fund.
agent
. Write the transfer agent at the following address:
Smith Barney Investment Trust
Large Capitalization Growth Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
. Enclose a check to pay for the shares. For initial purchases,
complete and send an account application
. For more information, call the transfer agent at
1-800-451-2010
- --------------------------------------------------------------------------------
15
<PAGE>
Systematic You may authorize Salomon Smith Barney, your dealer
investment representative or the transfer agent to automatically transfer
plan funds from a regular bank account, cash held in a Salomon Smith
Barney brokerage account or Smith Barney money market fund to buy
shares on a regular basis.
. Amounts transferred should be at least: $25 monthly or $50
quarterly
. If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer representative
or the transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney Financial
Consultant, dealer representative or the transfer agent or
consult the SAI.
EXCHANGING SHARES
Smith You should contact your Salomon Smith Barney Financial Consultant
Barney or dealer representative to exchange into other Smith Barney
offers a mutual funds. Be sure to read the prospectus of the Smith Barney
distinctive mutual fund you are exchanging into. An exchange is a taxable
family of transaction.
mutual
funds . You may exchange shares only for shares of the same class of
tailored to another Smith Barney mutual fund. Not all Smith Barney funds
help meet offer all classes.
the varying
needs of . Not all Smith Barney funds may be offered in your state of
both large residence. Contact your Smith Barney Financial Consultant,
and small dealer representative or the transfer agent.
investors.
. You must meet the minimum investment amount for each fund
. If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers before the exchange is effective.
. The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges
- --------------------------------------------------------------------------------
16
<PAGE>
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales
charges Your deferred sales charge (if any) will continue to be measured
from the date of your original purchase. If the fund you exchange
into has a higher deferred sales charge, you will be subject to
that charge. if you exchange at any time into a fund with a lower
charge, the sales charge will not be reduced.
- --------------------------------------------------------------------------------
By If you do not have a brokerage account, you may be eligible to
telephone exchange shares through the transfer agent. You must complete an
authorization form to authorize telephone transfers. If eligible,
you may make telephone exchanges on any day the New York Stock
Exchange is open. Call the transfer agent at 1-800-451-2010
between 9:00 a.m. and 4:00 p.m. (Eastern time). Requests received
after the close of regular trading on the exchange are priced at
the net asset value next determined.
You can make telephone exchanges only between accounts that have
identical registrations.
- --------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer agent
at the address on the opposite page.
17
<PAGE>
REDEEMING SHARES
Generally Contact your Salomon Smith Barney Financial Consultant or dealer
representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must receive
the certificates endorsed for transfer or with signed stock
powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business days
after your request is received in good order. However, if you
recently purchased your shares by check, your redemption
proceeds will not be sent to you until your original check
clears.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
----------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests to
the transfer agent at the following address:
Smith Barney Investment Trust
Large Capitalization Growth Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
. Your account number
. The class of shares and the dollar amount or number of
shares to be redeemed
. Signatures of each owner exactly as the account is
registered
18
<PAGE>
By telephone If you do not have a brokerage account, you may be eligible to
redeem shares (except these held in retirement plans) in amounts
up to $10,000 per day through the transfer agent. You must
complete an authorization form to authorize telephone
redemptions. If eligible, you may request redemptions by
telephone on any day the New York Stock Exchange is open. Call
the transfer agent at 1-800-451-2010 between 9:00 a.m. and 4:00
p.m. (Eastern time). Requests received after the close of
regular trading on the Exchange are priced at the net asset
value next determined.
Your redemption proceeds can be sent by check to your address of
record or by wire transfer to a bank account designated on your
authorization form. You may be charged a fee for wire transfers.
You must submit a new authorization form to change the bank
account designated to receive wire transfers and you may be
asked to provide certain other documents.
- --------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you must
withdrawal own shares of the fund with a value of at least $10,000 and each
plans automatic redemption must be at least $50. If your shares are
subject to a deferred sales charge, the sales charge will be
waived if your automatic payments are equal to or less than 1%
per month of the value of your shares subject to a deferred
sales charge.
The following conditions apply:
. Your shares must not be represented by certificates
. All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
19
<PAGE>
OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS
When you buy, exchange or redeem shares, your request must be in good order.
This means that you have provided the following information without which your
request will not be processed.
. Name of the fund
. Account number
. Class of shares being bought, exchanged or redeemed
. Dollar amount or number of shares being bought, exchanged or
redeemed
. Signature of each owner exactly as account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
Signature guarantees. To be in good order, your redemption request must include
a signature guarantee if you:
. Are redeeming (together with other requests submitted in the previous 10
days) over $10,000 of shares
. Are sending signed share certificates or stock powers to the transfer agent
. Instruct the transfer agent to mail the check to an address different from
the one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loans, but not from a notary public.
20
<PAGE>
The fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
. Suspend telephone transactions
. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission
Small account balances. If your account falls below $500 because of a
redemption of fund shares, the fund may ask you to bring your account up to
$500. If your account is still below $500 after 60 days, the fund may close
your account and send you the redemption proceeds.
Excessive exchange transactions. The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges
by the shareholder.
Share certificates. The fund does not issue share certificates unless a written
request is made to the transfer agent. If you hold share certificates it will
take longer to exchange or redeem shares.
21
<PAGE>
SMITH BARNEY 401(k) AND EXECCHOICE(TM) PROGRAMS
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoice(TM) program. The fund offers Class A and Class L shares
to participating plans as investment alternatives under the programs. You can
meet minimum investment and exchange amounts by combining the plan's investments
in any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment. Once a class
of shares is chosen, all additional purchases must be of that class.
. Class A shares may be purchased by plans investing at least $1 million.
. Class L shares may be purchased by plans investing less than $1 million.
Class L shares are eligible for exchange to Class A shares not later than 8
years after the plan joined the program. They are eligible for conversion
sooner:
If the account was opened on or after June 21, 1996 and an aggregate of $1
million is invested in Smith Barney Funds Class L shares (other than money
market funds), all Class L shares are eligible for exchange after the plan
is in the program 5 years.
If the account was opened before June 21, 1996 and $500,000 in the aggregate
is invested in Smith Barney Funds Class L shares (other than money market
funds), all Class L shares are eligible for exchange on each December 31 and
the exchange will occur no later than March 31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.
22
<PAGE>
DISTRIBUTIONS, DIVIDENDS AND TAXES
DIVIDENDS. The fund generally makes capital gain distributions and pays
dividends, if any, once a year, typically in December. The fund may pay
additional distributions and dividends at other times if necessary for the fund
to avoid a federal tax. Capital gain distributions and dividends are reinvested
in additional fund shares of the same class you hold. The fund expects
distributions to be primarily from capital gains. You do not pay a sales charge
on reinvested distributions or dividends. Alternatively, you can instruct your
Salomon Smith Barney Financial Consultant, dealer representative or the transfer
agent to have your distributions and/or dividends paid in cash. You can change
your choice at any time to be effective as of the next distribution or dividend,
except that any change given to the transfer agent less than five days before
the payment date will not be effective until the next distribution or dividend
is paid.
TAXES. In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
- ------------------------------------------------------------------------------
Transaction Federal tax status
Redemption or exchange of shares Usually capital gain or loss; long-
term only if shares owned more than
one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
- --------------------------------------------------------------------------------
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a long-term capital gain
distribution or a dividend, because it will be taxable to you even though it may
actually be a return of a portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special
tax rules may apply, you should consult your tax adviser about your investment
in the fund.
23
<PAGE>
SHARE PRICE
You may buy, exchange or redeem shares at their net asset value, adjusted for
any applicable sales charge, next determined after receipt of your request in
good order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. This calculation is done when regular trading closes on the Exchange
(normally 4:00 p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. When market prices are not available, or when the manager believes
they are unreliable, the fund may price those securities at fair value. Fair
value is determined in accordance with procedures approved by the fund's board.
A fund that uses fair value to price securities may value those securities
higher or lower than another fund using market quotations to price the same
securities.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
24
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG Peat Marwick LLP,
independent accountants, whose report, along with the fund's financial
statements, are included in the annual report (available upon request).
For a Class A share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997(1)
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 11.88
- --------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss)
Net realized and unrealized gain (loss) 0.01
0.39
- --------------------------------------------------------------------------------
Total income (loss) from operations 0.40
- --------------------------------------------------------------------------------
Less distributions
Net investment income ___
Net realized gains ___
- --------------------------------------------------------------------------------
Total distributions ___
- --------------------------------------------------------------------------------
Net asset value, end of year $ 12.28
- --------------------------------------------------------------------------------
Total return(4) 3.37%(3)
- --------------------------------------------------------------------------------
Net assets, end of year (000)'s $111,063
- --------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.15%(3)
Net investment income (loss) 0.38(3)
- --------------------------------------------------------------------------------
Portfolio turnover rate 1%
- --------------------------------------------------------------------------------
</TABLE>
(1) For the period August 29, 1997 (inception date) to November 30, 1997.
(2) Not annualized.
(3) Annualized.
(4) Total return does not reflect any applicable sales loads or deferred sales
charges.
25
<PAGE>
For a Class B share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997(1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year $ 11.88
- --------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) (0.01)
Net realized and unrealized gain (loss) 0.39
- --------------------------------------------------------------------------------
Total income (loss) from operations 0.38
- --------------------------------------------------------------------------------
Less distributions from:
Net investment income(4) ___
Net realized gains ___
- --------------------------------------------------------------------------------
Total distributions ___
- --------------------------------------------------------------------------------
Net asset value, end of year $ 12.26
- --------------------------------------------------------------------------------
Total return(4) 3.20%(3)
- --------------------------------------------------------------------------------
Net assets, end of year (000)'s $179,598
- --------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.90%(3)
Net investment income (loss) (0.37)(3)
- --------------------------------------------------------------------------------
Portfolio turnover rate 1%
- --------------------------------------------------------------------------------
</TABLE>
(1) For the period August 29, 1997 (inception date) to November 30, 1997.
(2) Not annualized.
(3) Annualized.
(4) Total return does not reflect any applicable sales loads or deferred sales
charges.
26
<PAGE>
For a Class L share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997(1)
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 11.88
- --------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) (0.01)
Net realized and unrealized gain (loss) 0.39
- --------------------------------------------------------------------------------
Total income (loss) from operations 0.38
- --------------------------------------------------------------------------------
Less distributions from:
Net investment income ___
Net realized gains ___
- --------------------------------------------------------------------------------
Total distributions ___
- --------------------------------------------------------------------------------
Net assets value, end of year $ 12.26
- --------------------------------------------------------------------------------
Total return(4) 3.20%(3)
- --------------------------------------------------------------------------------
Net assets, end of year (000)'s $37,224
- --------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.90%(3)
Net investment income (loss) (0.38)(3)
- --------------------------------------------------------------------------------
Portfolio turnover rate 1%
- --------------------------------------------------------------------------------
</TABLE>
(1) For the period August 29, 1997 (inception date) to November 30, 1997.
(2) Not annualized.
(3) Annualized.
(4) Total return does not reflect any applicable sales loads or deferred sales
charges.
27
<PAGE>
For a Class Y share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997(1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year $ 12.66
- --------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) 0.01
Net realized and unrealized gain (loss) (0.37)
- --------------------------------------------------------------------------------
Total income (loss) from operations 0.37
- --------------------------------------------------------------------------------
Less distributions from:
Net investment income ___
Net realized gains ___
- --------------------------------------------------------------------------------
Total distributions ___
- --------------------------------------------------------------------------------
Net asset value, end of year $ 12.29
- --------------------------------------------------------------------------------
Total return(4) (2.92)%(3)
- --------------------------------------------------------------------------------
Net assets, end of year (000)'s $84,758
- --------------------------------------------------------------------------------
Ratio to average net assets:
Expenses 0.82%(3)
Net investment income (loss) 0.54(3)
- --------------------------------------------------------------------------------
Portfolio turnover rate 1%
- --------------------------------------------------------------------------------
</TABLE>
(1) For the period August 29, 1997 (inception date) to November 30, 1997.
(2) Not annualized.
(3) Annualized.
(4) Total return does not reflect any applicable sales loads or deferred sales
charges.
28
<PAGE>
SALOMON SMITH BARNEY(TM)
A MEMBER OF CITIGROUP [SYMBOL]
LARGE CAPITALIZATION GROWTH FUND
- -- an investment portfolio of Smith Barney Investment Trust
SHAREHOLDER REPORTS. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
STATEMENT OF ADDITIONAL INFORMATION. The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally a part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
VISIT OUR WEB SITE. Our web site is located at www.smithbarney.com.
You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. The Commission charges a fee for this
service. Information about the public reference room may be obtained by calling
1-800-SEC-0330. You can get the same reports and information free from the
Commission's Internet web site -- www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(TM)Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-06444)
<PAGE>
Draft 1/22/98
- ---------------------------
[Logo]
Smith Barney Mutual Funds
Investing for your future.
Every day.
- ---------------------------
PROSPECTUS SMITH BARNEY
MUTUAL FUNDS
- --------------------------------------------------------------------------------
March 30, 1999 MID CAP BLEND FUND
Class A, B, L and Y Shares
The Securities and Exchange Commission has not approved the fund's shares as an
investment or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Fund goal and strategies..........................
Risks, performance and expenses...................
More on the fund's investments....................
Management........................................
Smith Barney Choosing a class of shares to buy.................
Mutual Funds
offers a distinctive Comparing the fund's classes......................
family of fund
choices tailored to Sales charges.....................................
help meet the
varying needs of More about deferred sales charges.................
large and small
investors. Buying shares.....................................
Currently, Smith
Barney Mutual Exchanging shares.................................
Funds offers more
than 60 Redeeming shares..................................
individual funds
with assets of Other things to know about
more than $xx share transactions...............................
billion.
Smith Barney 401(k) and
ExecChoice/TM/ programs..........................
Dividends, distributions and
taxes............................................
Share price.......................................
Financial highlights..............................
</TABLE>
You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
1
<PAGE>
FUND GOAL AND STRATEGIES
INVESTMENT OBJECTIVE
The fund seeks long-term growth of capital.
KEY INVESTMENTS
The fund invests primarily in equity securities of medium sized companies.
Medium sized companies are those whose market capityalization is within
the market capitalization range of companies in the S&P MidCap Index
(the "Index") at the time of the fund's investment. The size of the
companies in the Index changes with market conditions and the composition
of the Index. As of January 29, 1999, the largest market capitalization of
a company in the Index was $11.4 billion and the smallest market
capitalization was $0.24 billion. Equity securities include exchange traded
and over-the-counter common stocks, preferred stocks, debt securities
convertible into equity securities and warrants and rights relating to
equity securities. The fund may also invest up to 25% of its assets in
securities of foreign issuers both directly and through depositary receipts
for those securities.
SELECTION PROCESS
The manager focuses on medium capitalization companies that exhibit attractive
growth characteristics. The manager selects individual "growth" stocks for
investment in two ways: by identifying those companies which exhibit the most
favorable growth prospects and by identifying those companies which have
favorable valuations relative to their growth characteristics. This strategy is
commonly known as "growth at a reasonable price" and offers investors style
diversification within a single mutual fund. In selecting individual companies
for investment, the manager looks for:
. Growth characteristics, including high historic growth rates and high relative
growth compared with companies in the same industry or sector
. Value characteristics, including low price/earnings ratios and other
statistics indicating that a security is undervalued
. Increasing profits and sales
. Competitive advantages that could be more fully exploited by a company
. Skilled management that is committed to long-term growth
. Potential for a long-term investment by the fund
The manager uses fundamental research to find stocks with strong growth
potential and also uses quantitative analysis to determine whether these stocks
are relatively undervalued or overvalued compared to stocks with similar
fundamental characteristics. The manager's quantitative valuations determine
whether and when the fund will purchase or sell the stocks that it identifies
through fundamental research.
2
<PAGE>
RISKS, PERFORMANCE AND EXPENSES
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, because of the following:
. U.S. stock markets go down, or perform poorly relative to other types of
investments
. An adverse company specific event, such as an unfavorable earnings report,
negatively affects the stock price of a company in which the fund invests
. Medium capitalization stocks fall out of favor with investors
. The manager's judgment about the attractiveness, growth prospects, value or
potential appreciation of a particular stock proves to be incorrect
Because the fund invests primarily in medium capitalization companies, an
investment in the fund may be more volatile and more susceptible to loss than an
investment in a fund which invests primarily in large capitalization companies.
Medium capitalization companies may have more limited product lines, markets and
financial resources than large capitalization companies. They may have shorter
operating histories and more erratic businesses, although they generally have
more established businesses than small capitalization companies. The prices of
medium capitalization company stocks tend to be more volatile than the prices of
large capitalization company stocks.
WHO MAY WANT TO INVEST
The fund may be an appropriate investment if you:
. Are seeking to participate in the long term growth potential of the U.S. stock
market
. Are looking for an investment with potentially greater return but higher risk
than a fund that invests primarily in large cap companies
. Are willing to accept the risks of the stock market
3
<PAGE>
FEES AND EXPENSES
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge on purchases (as a % of offering 5.00% None 1.00% None
price)
Maximum deferred sales charge on redemptions (as a % None* 5.00% 1.00% None
of the lower of net asset value at purchase or
redemption)
ANNUAL FUND OPERATING EXPENSES
(paid by the fund as a % of fund net assets)
Management fee 0.75% 0.75% 0.75% 0.75%
Distribution and service (12b-1) fee 0.25% 1.00% 1.00% None
Other expenses ____ ____ ____ ____
Total annual fund operating expenses ____ ____ ____ ____
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase, you will pay a deferred sales charge of 1.00%.
EXAMPLE
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The fund's operating expenses remain the same
<TABLE>
<CAPTION>
NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A $ $ $ $
Class B (redemption at end of period) $ $ $ $
Class B (no redemption) $ $ $ $
Class L (redemption at end of period) $ $ $ $
Class L (no redemption) $ $ $ $
Class Y $ $ $ $
</TABLE>
4
<PAGE>
MORE ON THE FUND'S INVESTMENTS
SECONDARY INVESTMENT PRACTICES. The fund may invest up to 35% of its assets in
equity securities of companies with market capitalizations outside of the $1
billion to $[12] billion range (i.e., small or large capitalization companies).
FOREIGN INVESTMENTS. The fund's investments in securities of foreign issuers
involve greater risk than investments in securities of U.S. issuers. Many
foreign countries the fund invests in have markets that are less liquid and more
volatile than markets in the U.S. In some foreign countries, less information
is available about foreign issuers and markets because of less rigorous
accounting and regulatory standards than in the U.S. Currency fluctuations
could erase investment gains or add to investment losses. The risks of
investing in foreign securities are greater for securities of emerging market
issuers because political or economic instability, lack of market liquidity, and
negative government actions like currency controls or seizure of private
businesses or property are more likely.
SHORT-TERM DEBT SECURITIES. While the fund intends to be substantially fully
invested in equity securities, the fund may maintain up to 35% of its assets in
money market instruments and/or cash to pay expenses and meet redemption
requests. Generally, the value of these fixed income obligations will go down
if interest rates go up, the issuer of the security has its credit rating
downgraded or the issuer defaults on its obligation to pay principal or
interest.
DERIVATIVES AND HEDGING TECHNIQUES. The fund may, but need not, use derivative
contracts, such as futures and options on securities, securities indices or
currencies; options on these futures; forward currency contracts; and interest
rate or currency swaps for any of the following purposes:
. To hedge against the economic impact of adverse changes in the market value of
its securities, because of changes in stock market prices, currency exchange
rates or interest rates.
. As a substitute for buying or selling securities
. To enhance return
A derivative contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities,
currencies or indices. Even a small investment in derivative contracts can have
a big impact on the fund's stock market, currency and interest rate exposure.
Therefore, using derivatives can disproportionately
5
<PAGE>
increase losses and reduce opportunities for gains when stock prices, currency
rates or interest rates are changing. The fund may not fully benefit from or may
lose money on derivatives if changes in their value do not correspond accurately
to changes in the value of the fund's holdings.
The other parties to certain derivative contracts present the same types of
credit risk as issuers of fixed income securities. Derivatives can also make the
fund less liquid and harder to value, especially in declining markets.
DEFENSIVE INVESTING. The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market instruments.
If the fund takes a temporary defensive position, it may be unable to achieve
its investment goal.
6
<PAGE>
MANAGEMENT
THE MANAGER. The fund's investment manager is SSBC Fund Management Inc. The
manager's address is 388 Greenwich Street, New York, New York 10013. The manager
selects the fund's investments and oversees its operations. The manager and
Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup businesses
produce a broad range of financial services -- asset management, banking and
consumer finance, credit and charge cards, insurance, investments, investment
banking and trading -- and use diverse channels to make them available to
consumer and corporate customers around the world. Among these businesses are
Citibank, Commercial Credit, Primerica Financial Services, Salomon Smith Barney,
SSBC Asset Management, Travelers Life & Annuity, and Travelers Property
Casualty.
Lawrence Weissman, investment officer of SSBC Fund Management Inc. and managing
director of Salomon Smith Barney, has been responsible for the day to day
management of the fund since its inception. Mr. Weissman has more than [ ] years
of investment management experience.
MANAGEMENT FEE. For its services, the manager received a fee during the fund's
last fiscal year equal on an annual basis to 0.75% of the fund's average daily
net assets.
DISTRIBUTOR. The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker dealers sells fund shares to the publiC.
DISTRIBUTION PLANS. The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and service
fees. These fees are an ongoing expense and, over time, they increase the cost
of your investment and may cost you more than other types of sales charges.
YEAR 2000 ISSUE. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
the efforts of the fund (limited to requesting and receiving reports from its
service providers) or its service providers to correct the problem will be
successful.
7
<PAGE>
CHOOSING A CLASS OF SHARES TO BUY
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
. If you establish a program of regular investment, you may wish to consider
Class A shares; as the investment accumulates, you may qualify for reduced sales
charges and the shares are subject to lower ongoing expenses.
. Class B shares are sold without any initial sales charge so the entire price
is immediately invested in the fund, which may partially or wholly offset the
higher annual expenses of this Class. Class L shares are sold with a lower
initial sales charge than Class A shares, which may also help to offset the
higher annual expenses of this class. Because the fund's future return cannot be
predicted, however, there can be no assurance that this would be the case for
either class.
. Consider the effect of the deferred sales charge period and any conversion
rights in the context of your investment time frame. For example, while Class L
shares have a shorter deferred sales charge 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 long term investment outlooks.
You may buy shares from:
. A Salomon Smith Barney Financial Consultant
. An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
. The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
INVESTMENT MINIMUMS. Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
8
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
INITIAL ADDITIONAL
------------------------ ----------
CLASSES A, B, L CLASS Y ALL CLASSES
<S> <C> <C> <C>
General $1,000 $15 $50
million
Individual Retirement Accounts, $ 250 $15 $50
Self Employed Retirement Plans, million
Uniform Gift to Minor Accounts
Qualified Retirement Plans $ 25 $15 $25
million
Simple IRAs $ 1 n/a $ 1
Monthly Systematic Investment $ 25 n/a $25
Plans
Quarterly Systematic Investment $ 50 n/a $50
Plans
- --------------------------------------------------------------------------------
</TABLE>
Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k) plans
9
<PAGE>
COMPARING THE FUND'S CLASSES
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. Your Salomon Smith Barney Financial
Consultant or dealer representative may receive different compensation depending
upon which class you choose.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS L CLASS Y
<S> <C> <C> <C> <C>
Key .Initial sales charge . No initial sales . Initial sales . No initial or
features .You may qualify charge charge is lower deferred sales
for reduction or . Deferred sales than Class A charge
waiver of initial charge declines . Deferred sales . Must invest at
sales charge over time charge for only 1 least $15 million
. Lower annual . Converts to year . Lower annual
expenses than Class Class A after 8 . Does not convert expenses than the
B and Class L years to Class A other classes
. Higher annual . Higher annual
expenses than expenses than Class
Class A A
Initial sales Up to 5.00%; None 1.00% None
charge reduced or waived
for large purchases
and certain
investors. No
charge for
purchases of
$500,000 or more
Deferred 1% on purchases of Up to 5% charged 1% if you redeem None
sales charge $500,000 or more if when you redeem within 1 year of
you redeem within shares. The charge purchase
1 year of purchase is reduced over
time and there is
no deferred sales
charge after 6 years
Annual 0.25% of average 1% of average 1% of average daily None
Distribution daily net assets daily net assets net assets
and service
fees
Exchange-able into* Class A shares of Class B shares of Class L shares of Class Y shares of
most Smith Barney most Smith Barney most Smith Barney most Smith Barney
mutual funds mutual funds mutual funds mutual funds
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
10
<PAGE>
SALES CHARGE: CLASS A SHARES
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge
on the fund's distributions or dividends you reinvest in additional Class A
shares.
<TABLE>
<CAPTION>
- ----------------------------------------------------
SALES CHARGE AS A % OF
OFFERING NET AMOUNT
AMOUNT OF PURCHASE PRICE (%) INVESTED (%)
<S> <C> <C>
Less than $25,000 5.00 5.26
$25,000 but less than 4.00 4.17
$50,000
$50,000 but less than 3.50 3.63
$100,000
$100,000 but less than 3.00 3.09
$250,000
$250,000 but less than 2.00 2.04
$500,000
$500,000 or more -0- -0-
- ----------------------------------------------------
</TABLE>
INVESTMENTS OF $500,000 OR MORE. You do not pay an initial sales charge when
you buy $500,000 or more of Class A shares. However, if you redeem these Class
A shares within one year of purchase, you will pay a deferred sales charge of
1%.
QUALIFYING FOR A REDUCED CLASS A SALES CHARGE. There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Accumulation privilege - lets you combine the current value of Class A shares
owned
. by you, or
. by members of your immediate family,
11
<PAGE>
and for which a sales charge was paid, with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
Letter of intent - lets you purchase Class A shares of the fund and other Smith
Barney mutual funds over a 13-month period and pay the same sales charge, if
any, as if all shares had been purchased at once. You may include purchases on
which you paid a sales charge within 90 days before you sign the letter.
WAIVERS FOR CERTAIN CLASS A INVESTORS. Class A initial sales charges are waived
for certain types of investors, including:
. Employees of members of the NASD.
. 403(b) or 401(k) retirement plans, if certain conditions are met
. Clients of newly employed Salomon Smith Barney Financial Consultants if
certain conditions are met
. Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn more about the requirements for reductions or waivers of
Class A initial sales charges, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the SAI.
12
<PAGE>
SALES CHARGE: CLASS B SHARES
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of purchase,
you will pay a deferred sales charge. The deferred sales charge decreases as the
number of years since your purchase increases.
- ------------------------------------------------------------------
6th and
Year after purchase 1st 2nd 3rd 4th 5th over
- ------------------------------------------------------------------
Deferred sales charge 5% 4% 3% 2% 1% 0%
- ------------------------------------------------------------------
CLASS B CONVERSION. After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
SHARES ISSUED: SHARES ISSUED: SHARES ISSUED:
AT INITIAL ON REINVESTMENT OF UPON EXCHANGE FROM
PURCHASE DIVIDENDS AND ANOTHER SMITH BARNEY
DISTRIBUTIONS MUTUAL FUND
- ------------------------------------------------------------------------------------
<S> <C> <C>
Eight years after the In same proportion that the On the date the shares
date of purchase number of Class B shares originally acquired would
converting is to total Class B have converted into Class A
shares you own shares
- ------------------------------------------------------------------------------------
</TABLE>
SALES CHARGE: CLASS L SHARES
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund on June 12, 1998, you
will not pay an initial sales charge on Class L shares you buy before June 22,
2001.
SALES CHARGE: CLASS Y SHARES
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 6-month period. To qualify, you must
initially invest $5,000,000.
13
<PAGE>
MORE ABOUT DEFERRED SALES CHARGES
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
. Shares exchanged for shares of another Smith Barney mutual fund
. Shares representing reinvested distributions and dividends
. Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund and be credited with the
amount of the deferred sales charge, if you notify your Salomon Smith Barney
Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
DEFERRED SALES CHARGE WAIVERS
The deferred sales charge for each share class will generally be waived:
. On payments made through certain systematic withdrawal plans
. On certain distributions from a retirement plan
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
14
<PAGE>
BUYING SHARES
Through a You should contact your Salomon Smith Barney Financial
Salomon Consultant or dealer representative to open a brokerage account
Smith and make arrangements to buy shares.
Barney
Financial If you do not provide the following information, your order will
Consultant be rejected
or dealer
represen- . Class of shares being bought
tative . Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account no
later than the third business day after you place your order.
salomon smith barney or your dealer representative may charge an
annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who are
fund's clients of the selling group are eligible to buy shares directly
consultant from the fund.
transfer
agent
. Write the transfer agent at the following address:
Smith Barney Investment Trust
Mid Cap Blend Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
. Enclose a check to pay for the shares. For initial purchases,
complete and send an account application
. For more information, call the transfer agent at 1-800-451-
2010
- --------------------------------------------------------------------------------
Systematic You may authorize Salomon Smith Barney, the dealer
Investment representative or the transfer agent to transfer funds
Plan automatically from a regular bank account, cash held in a
Salomon Smith Barney brokerage account or Smith Barney money
market fund to buy shares on a regular basis.
. Amounts transferred should be at least: $25 monthly or $50
quarterly
. If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer representative
or the transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the SAI.
15
<PAGE>
EXCHANGING SHARES
Smith You should contact your Salomon Smith Barney Financial
Barney Consultant or dealer representative to exchange into other
offers a Smith Barney mutual funds. Be sure to read the prospectus of
distinctive the Smith Barney mutual fund you are exchanging into. An
family of exchange is a taxable transaction.
mutual
funds . You may exchange shares only for shares of the same class of
tailored to another Smith Barney mutual fund. Not all smith barney
help meet funds offer ll classes.
the varying
needs of . Not all Smith Barney funds may be offered in your state of
both large residence. Contact your Smith Barney Financial Consultant,
and small dealer representative or the transfer agent.
investors
. You must meet the minimum investment amount for each fund
. If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers before the exchange is effective.
. The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges
- --------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales
charges Your deferred sales charge (if any) will continue to be measured
from the date of your original purchase. If the fund you
exchange into has a higher deferred sales charge, you will be
subject to that charge. If you exchange at any time into a fund
with a lower charge, the sales charge will not be reduced.
- --------------------------------------------------------------------------------
By If you do not have a brokerage account, you may be eligible to
Telephone exchange shares through the transfer agent. You must complete an
if eligible, you may make telephone exchanges on any day the new
york stock exchange is open. Call the transfer agent at 1-800-
451-2010 between 9:00 a.m. and 4:00 p.m. (Eastern time).
Requests received after the close of regular trading on the
exchnage are priced at the net asset value next determined.
You can make telephone exchanges only between accounts that have
identical registrations.
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer
agent at the address on the opposite page.
REDEEMING SHARES
Generally Contact your Salomon Smith Barney Financial Consultant or dealer
representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must receive
the certificates endorsed for transfer or with signed stock
powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business days
after your request is received in good order. However, if you
recently purchased your shares by check, your redemption
proceeds will not be sent to you until your original check
clears.
If you have a Salomon Smith Barney Brokerage Account, Your
Redemption Proceeds Will Be Placed In Your Account And Not
Reinvested Without Your Specific Instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
-----------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written
requests to the transfer agent at the following address:
Smith Barney Investment Trust
Mid Cap Blend Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
. Your account number
. The class of shares and the dollar amount or number of shares
to be redeemed
. Signatures of each owner exactly as the account is registered
By If you do not have a brokerage account, you may be eligible to
telephone redeem shares (except those held in retirement plans) in amounts
up to $10,000 per day through the transfer agent. You must
complete an authorization form to authorize telephone redemptions.
If eligible, you may request redemptions by telephone on any day
the New York Stock Exchange is open. Call the transfer agent at 1-
800-451-2010 between 9:00 a.m. and 4:00 p.m. (Eastern time).
Requests received after the close of regular trading on the
Exchnage are priced at the net asset value next determined.
Your redemption proceeds can be sent by check to your address of
record or by wire transfer to a bank account designated on your
authorization form. You may be charged a fee for wire transfers.
You must submit a new authorization form to change the bank
account designated to receive wire transfers and you may be asked
to provide certain other documents.
- --------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of your
cash shares on a monthly or quarterly basis. To qualify you must own
withdrawal shares of the fund with a value of at least $10,000 and each
plans automatic redemption must be at least $50. If your shares are
subject to a deferred sales charge, the sales charge will be
waived if your automatic payments do not exceed 1% per month of
the value of your shares subject to a deferred sales charge.
The following conditions apply:
. Your shares must not be represented by certificates
. All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the SAI.
18
<PAGE>
OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS
When you buy, exchange or redeem shares, your request must be in good order.
This means that you have provided the following information without which your
request will not be processed.
. Name of the fund
. Account number
. Class of shares being bought, exchanged or redeemed
. Dollar amount or number of shares being bought, exchanged
or redeemed
. Signature of each owner exactly as account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
Signature guarantees. To be in good order, your redemption request must include
a signature guarantee if you:
. Are redeeming (together with other requests submitted in the previous 10
days) over $10,000 of shares
. Are sending signed share certificates or stock powers to the transfer agent
. Instruct the transfer agent to mail the check to an address different from
the one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loans, but not from a notary public.
The fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
19
<PAGE>
. Suspend telephone transactions
. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission
Small account balances. If your account falls below $500 because of a
redemption of fund shares, the fund may ask you to bring your account up to
$500. If your account is still below $500 after 60 days, the fund may close
your account and send you the redemption proceeds.
Excessive exchange transactions. The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges
by the shareholder.
Share certificates. The fund does not issue share certificates unless a written
request is made to the transfer agent. If you hold share certificates it will
take longer to exchange or redeem shares.
20
<PAGE>
SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoiceJ program. The fund offers Class A and Class L shares to
participating plans as investment alternatives under the programs. You can meet
minimum investment and exchange amounts by combining the plan's investments in
any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment. Once a class
of shares is chosen, all additional purchases must be of that class.
. Class A shares may be purchased by plans investing at least $1 million.
. Class L shares may be purchased by plans investing less than $1 million.
Class L shares are eligible for exchange into Class A shares not later than 8
years after the plan joined the program. They are eligible for conversion
sooner:
If the account was opened on or after June 21, 1996 and an aggregate of
$1 million is invested in Smith Barney Funds Class L shares (other than
money market funds), all Class L shares are eligible for exchange after
the plan is in the program 5 years.
If the account was opened before June 21, 1996 and $500,000 in the
aggregate is invested in Smith Barney Funds Class L shares (other than
money market funds), all Class L shares are eligible for exchange on each
December 31 and the exchange will occur no later than March 31 of the
following year.
For more information, call your Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.
21
<PAGE>
DISTRIBUTIONS, DIVIDENDS AND TAXES
Dividends. The fund generally makes capital gain distributions and pays
dividends, if any, once a year, typically in December. The fund may pay
additional distributions and dividends at other times if necessary for the fund
to avoid a federal tax. Capital gain distributions and dividends are reinvested
in additional fund shares of the same class you hold. The fund expects
distributions to be primarily from capital gains. You do not pay a sales charge
on reinvested distributions or dividends. Alternatively, you can instruct your
Salomon Smith Barney Financial Consultant, dealer representative or the transfer
agent to have your distributions and/or dividends paid in cash. You can change
your choice at any time to be effective as of the next distribution or dividend,
except that any change given to the transfer agent less than five days before
the payment date will not be effective until the next distribution or dividend
is paid.
Taxes. In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
- --------------------------------------------------------------------------------
TRANSACTION FEDERAL TAX STATUS
Redemption or exchange of shares Usually capital gain or loss; long-term
only if shares owned more than one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
- --------------------------------------------------------------------------------
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a long-term capital gain
distribution or a dividend, because it will be taxable to you even though it may
actually be a return of a portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special
tax rules may apply, you should consult your tax adviser about your investment
in the fund.
22
<PAGE>
SHARE PRICE
You may buy, exchange or redeem shares at their net asset value, adjusted for
any applicable sales charge, next determined after receipt of your request in
good order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. This calculation is done when regular trading closes on the Exchange
(normally 4:00 p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. The fund's currency conversions are done when the London stock
exchange closes, which is 12 noon Eastern time. When market prices are not
available, or when the manager believes they are unreliable or that the value of
a security has been materially affected by events occurring after a foreign
exchange closes, the fund may price those securities at fair value. Fair value
is determined in accordance with procedures approved by the fund's board. A
fund that uses fair value to price securities may value those securities higher
or lower than another fund using market quotations to price the same securities.
International markets may be open on days when U.S. markets are closed and the
value of foreign securities owned by the fund could change on days when you
cannot buy or redeem shares.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
23
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG Peat Marwick LLP,
independent accountants, whose report, along with the fund's financial
statements, are included in the annual report (available upon request).
For a Class A share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
1998 (1)
- ---------------------------------------------------------------
<S> <C>
Net asset value, beginning of year $
- ---------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss)
Net realized and unrealized gain (loss)
- ---------------------------------------------------------------
Total income (loss) from operations
- ---------------------------------------------------------------
Less distributions from:
Net investment income
Net realized gains
- ---------------------------------------------------------------
Total distributions
- ---------------------------------------------------------------
Net asset value, end of year $
- ---------------------------------------------------------------
Total return(2) %
- ---------------------------------------------------------------
Net assets, end of year (000)'s
- ---------------------------------------------------------------
Ratios to average net assets:
Expenses
Net investment income (loss)
- ---------------------------------------------------------------
Portfolio turnover rate
- ---------------------------------------------------------------
</TABLE>
(1) For the period from __________________ (inception date) to June 30, 1998.
(2) Total return does not reflect any applicable sales loads or contingent
deferred sales charges.
(3) Not annualized.
24
<PAGE>
For a Class B share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
1998 (1)
- ---------------------------------------------------------------
<S> <C>
Net asset value, beginning of year $
- ---------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss)
Net realized and unrealized gain (loss)
- ---------------------------------------------------------------
Total income (loss) from operations
- ---------------------------------------------------------------
Less distributions from:
Net investment income
Net realized gains
- ---------------------------------------------------------------
Total distributions
- ---------------------------------------------------------------
Net asset value, end of year $
- ---------------------------------------------------------------
Total return(2) %
- ---------------------------------------------------------------
Net assets, end of year (000)'s
- ---------------------------------------------------------------
Ratios to average net assets:
Expenses
Net investment income (loss)
- ---------------------------------------------------------------
Portfolio turnover rate %
- ---------------------------------------------------------------
</TABLE>
(1) For the period from ________________ (inception date) to June 30, 1998.
(2) Total return does not reflect any applicable sales loads or contingent
deferred sales charges.
(3) Annualized
25
<PAGE>
For a Class L share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
1998 (1)
- -------------------------------------------------------------
<S> <C>
Net asset value, beginning of year $
- -------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss)
Net realized and unrealized gain (loss)
- -------------------------------------------------------------
Total income (loss) from operations
- -------------------------------------------------------------
Less distributions from:
Net investment income
Net realized gains
- -------------------------------------------------------------
Total distributions
- -------------------------------------------------------------
Net assets value, end of year $
- -------------------------------------------------------------
Total return(2) %
- -------------------------------------------------------------
Net assets, end of year (000)'s
- -------------------------------------------------------------
Ratios to average net assets:
Expenses
Net investment income (loss)
- -------------------------------------------------------------
Portfolio turnover rate
- -------------------------------------------------------------
</TABLE>
(1) For the period from ________________ (inception date) to June 30, 1998.
(2) Total return does not reflect any applicable sales loads or contingent
deferred sales charges
(3) Annualized.
26
<PAGE>
For a Class Y share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
1998 (1)
- -----------------------------------------------------------
<S> <C>
Net asset value, beginning of year $
- -----------------------------------------------------------
Income (loss) from operations:
Net investment income (loss)
Net realized and unrealized gain (loss)
- -----------------------------------------------------------
Total income (loss) from operations
- -----------------------------------------------------------
Less distributions from:
Net investment income
Net realized gains
- -----------------------------------------------------------
Total distributions
- -----------------------------------------------------------
Net asset value, end of year $
- -----------------------------------------------------------
Total return %
- -----------------------------------------------------------
Net assets, end of year (000)'s
- -----------------------------------------------------------
Ratios to average net assets:
Expenses
Net investment income (loss)
- -----------------------------------------------------------
Portofolio turnover rate
- -----------------------------------------------------------
</TABLE>
(1) For the period from ________________ (inception date) to June 30, 1998.
(2) Annualized.
27
<PAGE>
SALOMON SMITH BARNEY/TM/
A MEMBER OF CITIGROUP [SYMBOL]
MID CAP BLEND FUND
- -- an investment portfolio of Smith Barney Investment Trust
SHAREHOLDER REPORTS. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
STATEMENT OF ADDITIONAL INFORMATION. The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally a part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
VISIT OUR WEB SITE. Our web site is located at www.smithbarney.com.
You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. The Commission charges a fee for this
service. Information about the public reference room may be obtained by calling
1-800-SEC-0330. You can get the same reports and information free from the
Commission's Internet web site -- www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
/TM/Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
<PAGE>
----------------------------
[Logo]
Smith Barney Mutual Funds
Investing for your future.
Every day.
Everyday.
----------------------------
Prospectus Smith Barney
Mutual Funds
March 30, 1999 Large Capitalization Growth Fund
Class Z Shares
The Securities and Exchange Commission has not approved the fund's shares as an
investment or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
The Class Z shares described in this prospectus are offered exclusively for sale
to tax-exempt employee benefit and retirement plans of
Salomon Smith Barney Inc. or any of its affiliates.
<PAGE>
Contents
Smith Barney Mutual Funds offers a distinctive family of fund choices tailored
to help meet the varying needs of large and small investors. Currently, Smith
Barney Mutual Funds offers more than 60 individual funds with assets of more
than $xx billion.
Fund goal and strategies 4
More on the fund's investments 8
Management 9
Buying, selling and redeeming Class Z shares 10
Dividends, distributions and taxes 11
Share price 12
Financial highlights 13
You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
Large Capitalization Growth Fund - Class Z Shares.
-1-
<PAGE>
Fund goal and strategies
Investment objective
The fund seeks long-term growth of capital.
Key investments
The fund invests primarily in equity securities of companies with large market
capitalizations. Large capitalization companies are those with total market
capitalizations of $5 billion or more at the time of investment. Equity
securities include U.S. exchange traded and over-the-counter common stocks, debt
securities convertible into equity securities, and warrants and rights relating
to equity securities.
Selection process
The manager emphasizes individual security selection while diversifying the
fund's investments across industries, which may help to reduce risk. The
manager attempts to identify established large capitalization companies with the
highest growth potential. The manager then analyzes each company in detail,
ranking its management, strategy and competitive market position. Finally, the
manager attempts to identify the best values available among the growth
companies identified.
In selecting individual companies for investment, the manager looks for:
o Favorable earnings prospects
o Technological innovation
o Industry dominance
o Competitive products and services
o Global scope
o Long term history of profitability
o Consistent and sustainable long-term growth in dividends and earnings per
share
o Strong cash flow
o High return on equity
o Strong financial condition
o Experienced and effective management
-2-
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investments in the fund, or the fund may not
perform as well as other investments, because of the following:
o U.S. stock markets go down, or perform poorly relative to other types of
investments
o An adverse company specific event, such as an unfavorable earnings report,
negatively affects the stock price of a company in which the fund invests
o Large capitalization stocks fall out of favor with investors
o The manager's judgment about the attractiveness, growth prospects or
potential appreciation of a particular stock proves to be incorrect
Who may want to invest
The fund may be an appropriate investment if you:
o Are seeking to participate in the long term growth potential of the U.S.
stock market
o Are looking for an investment with potentially greater return but higher risk
than fixed income investments
o Are willing to accept the risks of the stock market
Large Capitalization Growth Fund - Class Z Shares
-3-
<PAGE>
Total return
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
[BAR GRAPH]
- ----------------------------------
% TOTAL RETURN CLASS A SHARES
5.0% 5.0% 5.0%
95 96 97 98
Calendar years ended December 31
- ----------------------------------
The bar chart shows the performance of the fund's Class Z shares since inception
on _________________.
Quarterly returns: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___
quarter 199X
Comparative performance
This table indicates the risks of investing in the fund by comparing the average
annual total return of Class Z shares for the periods shown to that of the S&P
500 Composite Index, an unmanaged market capitalization-weighted measure of 500
widely held common stocks. This table assumes the reinvestment of distributions
and dividends.
- -------------------------------------------------------------------------------
Average Annual Total Returns
Calendar Years Ended December 31, 1998
- -------------------------------------------------------------------------------
Inception 1 year 5 years 10 years Since inception
Date
- -------------------------------------------------------------------------------
Class Z 11/12/98
S&P 500 n/a
Index
-4-
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Annual fund operating expenses
(paid by the fund as a % of fund net assets)
Management fee 0.75%
Other expenses
Total annual fund operating expenses
Example
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
o You invest $10,000 in the fund for the period shown
o Your investment has a 5% return each year
o You reinvest all distributions and dividends
o The fund's operating expenses remain the same
Number of years you own your shares 1 year 3 years 5 years 10 years
Class Z $ $ $ $
Large Capitalization Growth Fund -- Class Z Shares
-5-
<PAGE>
More on the fund's investments
Other investments. The fund may invest up to 35% of its assets in equity
securities of companies with total market capitalizations below $5 billion
(i.e., medium or small capitalization companies). The fund may invest up to 10%
of its net assets in the securities of foreign issuers in the form of depositary
receipts representing an interest in those securities.
Because the value of a depositary receipt is dependent upon the market price of
an underlying foreign security, depositary receipts are subject to most of the
risks associated with investing in foreign securities directly. Foreign
countries generally have markets that are less liquid and more volatile than
markets in the U.S. In some foreign countries, less information is available
about foreign issuers and markets because of less rigorous accounting and
regulatory standards than in the U.S. Currency fluctuations could erase
investment gains or add to investment losses.
Short-term investments. While the fund intends to invest substantially all of
its assets in equity securities, the fund may maintain up to 35% of its assets
in money market instruments and/or cash to pay expenses and meet redemption
requests. Generally, the value of these fixed income obligations will go down
if interest rates go up, the credit rating of the security is
downgraded or the issuer defaults on its obligation to pay principal or
interest.
Defensive investing. The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market instruments.
If the fund takes a temporary defensive position, it may be unable to achieve
its investment goal.
Management
Manager. The fund's investment manager is SSBC Fund Management Inc. The
manager's address is 388 Greenwich Street, New York, New York 10013. The
manager selects the fund's investments and oversees its operations. The manager
and Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup
businesses produce a broad range of financial services -- asset management,
banking and consumer finance, credit and charge cards, insurance, investments,
investment banking and trading -- and use diverse channels to make them
available to consumer and corporate customers around the world. Among these
businesses are Citibank, Commercial Credit, Primerica Financial Services,
Salomon Smith Barney, SSBC Asset Management, Travelers Life & Annuity, and
Travelers Property Casualty.
Alan Blake, investment officer of SSBC Fund Management Inc. and managing
director of Salomon Smith Barney, has been responsible for the day to day
management of the fund's portfolio since its inception.
Mr. Blake has more than [?] years
of investment management experience.
Management fee. For its services, the manager received a fee during the fund's
last fiscal year equal on an annual basis to 0.75% of the fund's average daily
net assets.
Distributor. The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith
Barney and other broker dealers sell fund shares to the public.
Year 2000 issue. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
the efforts of the fund (limited to requesting and receiving reports from its
service providers) or its service providers to correct the problem will be
successful.
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Buying, selling and exchanging Class Z shares
Through a qualified plan
You may buy, sell or exchange Class Z shares only through a "qualified plan." A
qualified plan is a tax-exempt employee benefit or retirement plan of Salomon
Smith Barney, Inc. or one of its affiliates.
There are no minimum investment requirements for Class Z shares. However, the
fund reserves the right to change this policy at any time.
Buying
Orders to buy Class Z shares must be made in accordance with the terms of a
qualified plan. If you are a participant in a qualified plan, you may place an
order with your plan to buy Class Z shares at net asset value, without any sales
charge. Payment is due to Salomon Smith Barney on settlement date, which is the
third business day after your order is accepted. If you make payment prior to
this date, you may designate a temporary investment (such as a money market fund
of the Smith Barney Mutual Funds) for payment until settlement date. The fund
reserves the right to reject any order to buy shares and to suspend the offering
of shares for a period of time.
Selling
Qualified plans may redeem their shares on any day on which the fund calculates
its net asset value. You should consult the terms of your qualified plan for
special redemption provisions.
Exchanging
You should consult your qualified plan for information about available exchange
options.
Distributions, dividends and taxes
An investment in the fund will have the following consequences for a
qualified plan as the owner of shares in the fund. Qualified plan
participants should consult their plan document or tax advisors about the
tax consequences of participating in a qualified plan.
Dividends. The fund generally makes capital gain distributions and pays
dividends, if any, once a year, typically in December. The fund may pay
additional distributions and dividends at other times if necessary for the
fund to avoid a federal tax. Capital gain distributions and dividends are
reinvested in addition Class Z shares. The fund expects distributions to
be primarily from capital gains. No sales charge is imposed on reinvested
distributions or dividends. Alternatively, a qualified plan can instruct
its Salomon Smith Barney Financial Consultant, dealer representative or
the transfer agent to have distributions and/or dividends paid in cash.
It can change that choice at any time to be effective as of the next
distribution or dividend, except that any change given to the transfer
agent less than five days before the payment date will not be effective
until the next distribution or dividend is paid.
Taxes. Provided that a qualified plan has not borrowed to finance its
investment in the fund, it will not be taxable on the receipt of dividends
and distributions from the fund.
Dividends and interest received by the fund from investing in foreign
securities may give rise to withholding and other taxes imposed by foreign
countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. The fund's foreign tax
payments will reduce the amount of its dividends and distributions.
Because each shareholder's circumstances are different and special tax rules may
apply, you should consult with your tax adviser about your investment in the
fund.
Share price
Qualified plans may buy, exchange or redeem Class Z shares of the fund at the
net asset value next determined after receipt of your request in good order.
The fund's net asset value is the value of its assets minus its liabilities.
Net asset value is calculated separately for each class of shares. The fund
calculates its net asset value every day the New York Stock Exchange is open.
This calculation is done when regular trading closes on the Exchange (normally
4:00 p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. When market prices are not available, or when the manager believes
they are unreliable, the fund may price those securities at fair value. Fair
value is determined in accordance with procedures approved by the fund's board.
A fund that uses fair value to price securities may value those securities
higher or lower than another fund using market quotations to price the same
securities.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Your qualified plan must transmit all orders to buy, exchange or redeem shares
to the fund's agent before the agent's close of business.
Financial highlights
The financial highlights table is intended to help you understand the
performance of Class Z shares since inception. Certain information reflects
financial results for a single share. Total return represents the rate that a
shareholder would have earned (or lost) on a fund share assuming reinvestment of
all dividends and distributions. The information in the following tables was
audited by KPMG LLP, independent accountants, whose report, along
with the fund's financial statements, are included in the annual report
(available upon request).
For a Class Z share of capital stock outstanding throughout each year:
Large Capitalization Growth Fund -- Class Z Shares -
---------------------------------------
1998(1)
---------------------------------------
Net asset value, beginning of year
---------------------------------------
Income (loss) from operations:
---------------------------------------
Net investment income (loss)
---------------------------------------
Net realized and unrealized gain (loss)
---------------------------------------
Total income (loss) from operations
---------------------------------------
Less distributions from:
Net investment income
Net realized gains
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---------------------------------------
Total distributions
---------------------------------------
Net asset value, end of year
---------------------------------------
Total return(4)
---------------------------------------
Net assets, end of year (000)'s
---------------------------------------
Ratios to average net assets:
Expenses
---------------------------------------
Net investment income (loss)
---------------------------------------
Portfolio turnover rate
---------------------------------------
(1) For the period November 12, 1998 (inception date) to November 30, 1998.
(2) Not annualized.
(3) Annualized.
(4) Total return does not reflect any applicable sales loads or deferred sales
charges.
Large Capitalization Growth Fund -- Class Z Shares
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<PAGE>
Salomon Smith Barney
a member of citigroup [Symbol]
Large Capitalization Growth Fund
- -- an investment portfolio of Smith Barney Investment Trust
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your qualified plan or the transfer agent if you do not
want this policy to apply to you.
Statement of additional information. The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally a part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your
qualified plan, [by calling the fund at 1-800-451-2010, or by writing to the
fund at Smith Barney Mutual Funds, 388 Greenwich Street, MF2, New York, New York
10013].
Visit our web site. Our web site is located at www.smithbarney.com
You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. The Commission charges a fee for this
service. Information about the public reference room may be obtained by calling
1-800-SEC-0330. You can get the same information free from the Commission's
Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
PART B
Smith Barney Intermediate Maturity California Municipal Fund
Smith Barney Intermediate Maturity New York Municipal Fund
SMITH BARNEY INVESTMENT TRUST
388 Greenwich Street
New York, New York 10013
(800) 451-2010
Statement Of Additional
Information
March 30, 1999
This Statement of Additional Information ("SAI") is meant to be read in
conjunction with the prospectuses of the Smith Barney Intermediate
Maturity California Municipals Fund (the "California Fund") and the Smith
Barney Intermediate Maturity New York Municipals Fund (the "New York
Fund") dated March 30, 1999, and is incorporated by reference in it
entirety into the Prospectuses. Additional information about each fund's
investments is available in each fund's annual and semi-annual reports to
shareholders which are incorporated herein by reference. The prospectuses
and copies of the reports may be obtained free of charge by contacting a
Salomon Smith Barney Financial Consultant, or by writing or calling
Salomon Smith Barney at the address or telephone number above. The funds
are separate investment series of Smith Barney Investment Trust (the
"trust").
TABLE OF CONTENTS
Investment Objectives and Management Policies the New York Fund &
California Fund
Management of the Trust and the Funds
Purchase of Shares
Redemption of Shares
Distributor
Valuation of Shares
Exchange Privilege
Performance Data
Taxes
Additional Information
Financial Statements
Appendix
Investment Objectives And Management Policies For the New York Fund and
California Fund
The prospectuses discuss the investment objective of each fund and the
principal policies employed to achieve those objectives. Supplemental
information is set out below concerning the types of securities and other
instruments in which the funds may invest, the investment policies and
strategies that the funds may utilize and certain risks attendant to those
investments, policies and strategies. SSBC Fund Management Inc. ("SSBS"
or the "manager") serves as investment manager to each fund.
California Fund
Under normal market conditions, the California Fund attempts to invest
100% of its assets in a portfolio of investment grade debt obligations
issued by or on behalf of the State of California and other states,
territories and possessions of the United States, the District of Columbia
and their respective authorities, agencies, instrumentalities and
political subdivisions ("Municipal Obligations"). For purposes of this
SAI, debt obligations issued by the State of California and its political
subdivisions, agencies and public authorities (together with certain other
governmental issuers such as the Commonwealth of Puerto Rico), the
interest from which debt obligations is, in the opinion of bond counsel to
the issuer, excluded from gross income for Federal income tax purposes and
exempt from California State personal income tax, are defined as
"California Exempt Obligations." Collectively, California Exempt
Obligations and New York Exempt Obligation (defined below) are referred to
generally in this SAI as "Exempt Obligations." The fund will operate
subject to a fundamental investment policy providing that, under normal
market conditions, the fund will invest at least 80% of its net assets in
California Exempt Obligations rated investment grade. Up to 20% of the
fund's total assets may be invested in unrated securities that are deemed
by the manager to be of a quality comparable to investment grade. The
fund will not invest in California Exempt Obligations that are rated lower
than investment grade at the time of purchase.
New York Fund
Under normal market conditions, the New York Fund attempts to invest 100%
in a portfolio of investment grade debt obligations issued by or on behalf
of the State of New York and other states, territories and possessions of
the United States, the District of Columbia and their respective
authorities, agencies, instrumentalities and political subdivisions
("Municipal Obligations"). For purposes of this SAI, debt obligations
issued by the State of New York and its political subdivisions, agencies
and public authorities (together with certain other governmental issuers
such as the Commonwealth of Puerto Rico), the interest from which debt
obligations is, in the opinion of bond counsel to the issuer, excluded
from gross income for Federal income tax purposes and exempt from New York
State personal income tax are defined as "New York Exempt Obligations."
Collectively, California Exempt Obligations and New York Exempt
Obligations are referred to generally in this SAI as "Exempt Obligations."
The fund will operate subject to a fundamental investment policy providing
that, under normal market conditions, the fund will invest at least 80% of
its net assets in New York Exempt Obligations. Up to 20% of the fund's
total assets may be invested in unrated securities that are deemed by the
manager to be of a quality comparable to investment grade. The fund will
not invest in New York Exempt Obligations that are rated lower than Baa by
Moody's, BBB by S&P or BBB by Fitch, at the time of purchase.
Debt Securities Rating Criteria. Exempt Obligations rated no lower than
Baa, MIG 3 or Prime-1 by Moody's Investors Service, Inc. ("Moody's"), BBB,
SP-2 or A-1 by Standard & Poor's Ratings Group ("S&P") or BBB or F-1 by
Fitch IBCA, Inc. ("Fitch") are considered investment grade securities.
Although Exempt Obligations rated Baa by Moody's, BBB by S&P or BBB by
Fitch are considered to be investment grade, they may be viewed as being
subject to greater risks than other investment grade securities. Although
Exempt Obligations rated Baa by Moody's, BBB by S&P or BBB by Fitch are
considered to be investment grade, they may be viewed as being subject to
greater risks than other investment grade securities. Exempt Obligations
rated Baa by Moody's, for example, are considered medium grade obligations
that lack outstanding investment characteristics and have speculative
characteristics as well. Exempt Obligations rated BBB by S&P are regarded
as having an adequate capacity to pay principal and interest. Exempt
Obligations rated BBB by Fitch are deemed to be subject to a higher
likelihood that their rating will fall below investment grade than higher
rated bonds.
The ratings of Moody's, S&P and Fitch represent their opinions as to the
quality of the Exempt Obligations that they undertake to rate; the ratings
are relative and subjective and are not absolute standards of quality.
The manager's judgment as to credit quality of an Exempt Obligation, thus,
may differ from that suggested by the ratings published by a rating
service. See Appendix for a description of such organization's ratings.
The policies of the funds as to ratings of portfolio investments will
apply only at the time of the purchase of a security, and neither fund
will be required to dispose of a security in the event Moody's, S&P or
Fitch downgrades its assessment of the credit characteristics of the
security's issuer. In addition, to the extent that ratings change as a
result of changes in rating organizations or their rating systems or as a
result of a corporate restructuring of Moody's, S&P or Fitch, the manager
will attempt to use comparable ratings as standards for each fund's
investments.
Maturity of Obligations Held By The Funds. The manager believes that each
fund may offer an attractive investment opportunity for investors seeking
a higher effective tax yield than a tax-exempt money market fund or a tax-
exempt short-term bond fund and less fluctuation in net asset value than a
longer term tax-exempt bond fund. Each fund normally invests in
intermediate maturity securities; the weighted average maturity of each
fund's portfolio will normally be not less than three nor more than 10
years. The maximum remaining maturity of the securities in which the
California Fund and New York Fund normally invest will be no greater than
10 years and 20 years, respectively.
Exempt Obligations. Exempt Obligations are classified as general
obligation bonds, revenue bonds and notes. General obligation bonds are
secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue bonds are payable from
the revenue derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise or other specific
revenue source, but not from the general taxing power. Notes are short-
term obligations of issuing municipalities or agencies and are sold in
anticipation of a bond sale, collection of taxes or receipt of other
revenues. Exempt Obligations bear fixed, floating and variable rates of
interest, and variations exist in the security of Exempt Obligations, both
within a particular classification and between classifications.
The yields on, and values of, Exempt Obligations depend on a variety of
factors, including general economic and monetary conditions, conditions in
the Exempt Obligation markets, size of a particular offering, maturity of
the obligation and rating of the issue. Consequently, Exempt Obligations
with the same maturity, coupon and rating may have different yields or
values, whereas obligations of the same maturity and coupon with different
ratings may have the same yield or value.
Issuers of Exempt Obligations may be subject to the provisions of
bankruptcy, insolvency and other laws, such as the Federal Bankruptcy
Reform Act of 1978, affecting the rights and remedies of creditors. In
addition, the obligations of those issuers may become subject to laws
enacted in the future by Congress, state legislatures or referenda
extending the time for payment of principal and/or interest, or imposing
other constraints upon enforcement of the obligations or upon the ability
of municipalities to levy taxes. The possibility also exists that, as a
result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of, and interest on, its
obligations may be materially affected.
Private Activity Bonds. Each fund may invest without limit in Exempt
Obligations that are "private activity bonds," as defined in the Internal
Revenue Code of 1986, as amended (the "Code"), which are in most cases
revenue bonds. Private activity bonds generally do not carry the pledge
of the credit of the issuing municipality, but are guaranteed by the
corporate entity on whose behalf they are issued. Interest income on
certain types of private activity bonds issued after August 7, 1986 to
finance non-governmental activities is a specific tax preference item for
purposes of the Federal individual and corporate alternative minimum
taxes. Individual and corporate shareholders may be subject to a federal
alternative minimum tax to the extent the fund's dividends are derived
from interest on these bonds. Dividends derived from interest income on
Exempt Obligations are a "current earnings" adjustment item for purposes
of the Federal corporate alternative minimum tax. See "Taxes." Private
activity bonds held by a fund will be included in the term Exempt
Obligations for purposes of determining compliance with the fund's policy
of investing at least 80% of its total assets in Exempt Obligations.
Related Instruments. The fund may invest without limit in Exempt
Obligations that are repayable out of revenues generated from economically
related projects or facilities or debt obligations whose issuers are
located in the same state. Sizable investments in these obligations could
involve an increased risk to the fund should any of the related projects
or facilities experience financial difficulties.
U.S. Government Securities. Each fund may invest in debt obligations of
varying maturities issued or guaranteed by the United States government,
its agencies or instrumentalities ("U.S. Government Securities"). Direct
obligations of the U.S. Treasury include a variety of securities that
differ in their interest rates, maturities and dates of issuance. U.S.
Government Securities also include securities issued or guaranteed by the
Federal Housing Administration, Farmers Home Loan Administration,
Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association ("GNMA"), General Services
Administration, Central Bank for Cooperatives, Federal Farm Credit Banks,
Federal Home Loan Banks, Federal Home Loan Mortgage Corporation ("FHLMC"),
Federal Intermediate Credit Banks, Federal Land Banks, Federal National
Mortgage Association ("FNMA"), Maritime Administration, Tennessee Valley
Authority, District of Columbia Armory Board and Student Loan Marketing
Association. A fund may also invest in instruments that are supported by
the right of the issuer to borrow from the U.S. Treasury and instruments
that are supported by the credit of the instrumentality. Because the U.S.
government is not obligated by law to provide support to an
instrumentality it sponsors, a fund will invest in obligations issued by
such an instrumentality only if the Adviser determines that the credit
risk with respect to the instrumentality does not make its securities
unsuitable for investment by the fund.
Municipal Obligations. The fund invests principally in debt obligations,
issued by, or on behalf of, states, territories and possessions of the
United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities or multistate agencies or
authorities, the interest from which debt obigations is, in the opinion
of bond counsel to the issuer, excluded from gross income for Federal
income tax purposes ("Municipal Obligations"). Municipal Obligations are
debt obligations issued to obtain funds for various public purposes,
including construction of a wide range of public facilities, refunding of
outstanding obligations, payment of general operating expenses and
extensions of loans to public institutions and facilities. Private
activity bonds issued by or on behalf of public authorities to finance
privately operated facilities are considered to be Municipal Obligations
if the interest paid on them qualifies as excluded from gross income (but
not necessarily from alternative minimum taxable income) for Federal
income tax purposes in the opinion of bond counsel to the issuer.
Municipal Obligations may be issued to finance life care facilities, which
are an alternative form of long-term housing for the elderly that offer
residents the independence of a condominium life-style and, if needed, the
comprehensive care of nursing home services. Bonds to finance these
facilities have been issued by various state industrial development
authorities. Because the bonds are secured only by the revenues of each
facility and not by state or local government tax payments, they are
subject to a wide variety of risks, including a drop in occupancy levels,
the difficulty of maintaining adequate financial reserves to secure
estimated actuarial liabilities, the possibility of regulatory cost
restrictions applied to health care delivery and competition from
alternative health care or conventional housing facilities.
Municipal Leases. Each fund may invest without limit in "municipal
leases." Municipal leases may take the form of a lease or an installment
purchase contract issued by state or local government authorities to
obtain funds to acquire a wide variety of equipment and facilities such as
fire and sanitation vehicles, computer equipment and other capital assets.
Interest payments on qualifying municipal leases are exempt from Federal
income taxes and state income taxes within the state of issuance.
Although lease obligations do not constitute general obligations of the
municipality for which the municipality's taxing power is pledged, a lease
obligation is ordinarily backed by the municipality's covenant to budget
for, appropriate and make the payments due under the lease obligation.
However, certain lease obligations contain "non-appropriation" clauses
which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated
for such purpose on a yearly basis. In addition to the "non-
appropriation" risk, these securities represent a relatively new type of
financing that has not yet developed the depth of marketability associated
with more conventional bonds. Although "non-appropriation" lease
obligations are often secured by the underlying property, disposition of
the property in the event of foreclosure might prove difficult. Each fund
may invest in municipal leases without non-appropriation clauses only when
the municipality is required to continue the lease under all circumstances
except bankruptcy. There is no limitation on the percentage of a fund's
assets that may be invested in municipal lease obligations. In evaluating
municipal lease obligations, the manager will consider such factors as it
deems appropriate, which my include: (a) whether the lease can be
canceled; (b) the ability of the lease obligee to direct the sale of the
underlying assets; (c) the general creditworthiness of the lease obligor;
(d) the likelihood that the municipality will discontinue appropriating
funding for the leased property in the event such property is no longer
considered essential by the municipality; (e) the legal recourse of the
lease obligee in the event of such a failure to appropriate funding; (f)
whether the security is backed by a credit enhancement such as insurance;
and (g) any limitations which are imposed on the lease obligor's ability
to utilize substitute property or services other than those covered by the
lease obligation.
Municipal leases that a fund may acquire will be both rated and unrated.
Rated leases include those rated investment grade at the time of
investment or those issued by issuers whose senior debt is rated
investment grade at the time of investment. Each fund may acquire unrated
issues that the manager deems to be comparable in quality to rated issues
in which the fund is authorized to invest. A determination that an
unrated lease obligation is comparable in quality to a rated lease
obligation will be subject to oversight and approval by the trust's board
of trustees.
Municipal leases held by a fund will be considered illiquid securities
unless the trust's bard of trustees determines on an ongoing basis that
the leases are readily marketable. An unrated municipal lease with a non-
appropriation risk that is backed by an irrevocable bank letter of credit
or an insurance policy issued by a bank or insurer deemed by the manager
to be of high quality and minimal credit risk, will not be deemed to be
illiquid solely because the underlying municipal lease is unrated, if the
manager determines that the lease is readily marketable because it is
backed by the letter of credit or insurance policy.
Zero Coupon Securities. Each fund may invest up to 10% of its assets in
zero coupon Exempt Obligations. Zero coupon Exempt Obligations are
generally divided into two categories: pure zero obligations, which are
those that pay no interest for their entire life and zero/fixed
obligations, which pay no interest for some initial period and thereafter
pay interest currently. In the case of a pure zero obligation, the failure
to pay interest currently may result from the obligation's having no
stated interest rate, in which case the obligation pays only principal at
maturity and is issued at a discount from its stated principal amount. A
pure zero obligation may, in the alternative, carry a stated interest
rate, but provide that no interest is payable until maturity. The value to
the investor of a zero coupon Exempt Obligation consists of the economic
accretion either of the difference between the purchase price and the
nominal principal amount (if no interest is stated to accrue) or of
accrued, unpaid interest during the Exempt Obligation's life or payment
deferral period.
Custodial Receipts. Each fund may acquire custodial receipts or
certificates under-written by securities dealers or banks that evidence
ownership of future interest payments, principal payments, or both, on
certain Exempt Obligations. The underwriter of these certificates or
receipts typically purchases Exempt Obligations and deposits the
obligations in an irrevocable trust or custodial account with a custodian
bank, which then issues receipts or certificates evidencing ownership of
the periodic unmatured coupon payments and the final principal payment on
the obligations. Custodial receipts evidencing specific coupon or
principal payments have the same general attributes as zero coupon Exempt
Obligations described above. Although under the terms of a custodial
receipt a fund would typically be authorized to assert its rights directly
against the issuer of the underlying obligations, the fund could be
required to assert through the custodian bank those rights as may exist
against the underlying issuer. Thus, if the underlying issuer fails to
pay principal and/or interest when due, the fund may be subject to delays,
expenses and risks that are greater than those that would have been
involved if the fund had purchased a direct obligation of the issuer. In
addition, if the trust or custodial account in which the underlying
security has been deposited is determined to be an association taxable as
a corporation, instead of a non-taxable entity, the yield on the
underlying security would be reduced in recognition of any taxes paid.
Exempt Obligation Components. Each fund may invest in Exempt Obligations,
the interest rate on which has been divided by the issuer into two
different and variable components, which together result in a fixed
interest rate. Typically, the first of the components (the "Auction
Component") pays an interest rate that is reset periodically through an
auction process; whereas the second of the components (the "Residual
Component") pays a residual interest rate based on the difference between
the total interest paid by the issuer on the Exempt Obligation and the
auction rate paid on the Auction Component. Each fund may purchase both
Auction and Residual Components.
Because the interest rate paid to holders of Residual Components is
generally determined by subtracting from a fixed amount the interest rate
paid to the holders of Auction Components, the interest rate paid to
Residual Component holders will decrease as the Auction Component's rate
increases and increase as the Auction Component's rate decreases.
Moreover, the magnitude of the increases and decreases in market value of
Residual Components may be larger than comparable changes in the market
value of an equal principal amount of a fixed rate Exempt Obligation
having similar credit quality, redemption provisions and maturity.
Floating and Variable Rate Instruments. Each fund may purchase floating
and variable rate demand notes and bonds, which are Exempt Obligations
normally having a stated maturity in excess of one year, but which permit
their holder to demand payment of principal at any time, or at specified
intervals. The maturity of a floating or variable rate demand note or
bond will be deemed shortened by virtue of a demand feature.
The issuer of floating and variable rate demand obligations normally has a
corresponding right, after a given period, to prepay at its discretion the
outstanding principal amount of the obligations plus accrued interest upon
a specified number of days' notice to the holders of these obligations.
The interest rate on a floating rate demand obligation is based on a known
lending rate, such as a bank's prime rate, and is adjusted automatically
each time that rate is adjusted. The interest rate on a variable rate
demand obligation is adjusted automatically at specified intervals.
Frequently, floating and variable rate obligations are secured by letters
of credit or other credit support arrangements provided by banks. Use of
letters of credit or other credit support arrangements will not adversely
affect the tax-exempt status of these obligations. Because they are
direct lending arrangements between the lender and borrower, floating and
variable rate obligations generally will not be traded. In addition,
generally no secondary market exists for these obligations, although their
holders may demand payment at face value. For these reasons, when
floating and variable rate obligations held by a fund are not secured by
letters of credit or other credit support arrangements, the fund's rights
to demand payment is dependent on the ability of the borrower to pay
principal and interest on demand. The manager, on behalf of the fund,
will consider on an ongoing basis the creditworthiness of the issuers of
floating and variable rate demand obligations held by the fund.
Participation Interests. Each fund may purchase from financial
institutions tax-exempt participation interests in Exempt Obligations. A
participation interest gives the fund an undivided interest in the Exempt
Obligation in the proportion that the fund's participation interest bears
to the total amount of the Exempt Obligation. These instruments may have
floating or variable rates of interest. If the participation interest is
unrated, it will be backed by an irrevocable letter of credit or guarantee
of a bank that the trust's board of trustees has determined meets certain
quality standards, or the payment obligation otherwise will be
collateralized by obligations of the United States government or its
agencies and instrumentalities ("U.S. government securities"). The fund
will have the right, with respect to certain participation interests, to
demand payment, on a specified number of days' notice, for all or any part
of the fund's interest in the Exempt Obligation, plus accrued interest.
Each fund intends to exercise its right with respect to these instruments
to demand payment only upon a default under the terms of the Exempt
Obligation or to maintain or improve the quality of its investment
portfolio.
Taxable Investments. Under normal conditions, each fund may hold up to
20% of its total assets in cash or money market instruments, including
taxable money market instruments (collectively, "Taxable Investments").
In addition, the manager believes that if market conditions warrant, a
fund may take a temporary defensive posture and invest without limitation
in short-term Exempt Obligations and Taxable Investments. To the extent,
a fund holds Taxable Investments and, under certain market conditions,
certain floating and variable rate demand obligations or Auction
Components, the fund may not achieve its investment objective.
Money market instruments in which the fund may invest include: U.S.
government securities; tax-exempt notes of municipal issuers rated, at the
time of purchase, no lower than MIG 1 by Moody's, SP-1 by S&P of F-1 by
Fitch or, if not rated, by issuers having outstanding, unsecured debt then
rated within the three highest rating categories; bank obligations
(including certificates of deposit, time deposits and bankers acceptances
of domestic banks, domestic savings and loan associations and similar
institutions); commercial paper rated no lower than P-1 by Moody's, A-1 by
S&P of F-1 by Fitch or the equivalent from another major rating service
or, if unrated of an issuer having an outstanding, unsecured debt issue
then rated within the three highest rating categories; and repurchase
agreements. At no time will the funds' investments in bank obligations,
including time deposits, exceed 25% of the value of each fund's assets.
U.S. government securities in which the funds may invest include direct
obligations of the United States and obligations issued by U.S. government
agencies and instrumentalities. Included among direct obligations of the
United States are Treasury Bills, Treasury Notes and Treasury Bonds, which
differ principally in terms of their maturities. Included among the
securities issued by U.S. government agencies and instrumentalities are:
securities that are supported by the full faith and credit of the United
States (such as Government National Mortgager Association certificates);
securities that are supported by the right of the issuer to borrow from
the United States Treasury (such as securities of Federal Home Loan
Banks); and securities that are supported by the credit of the
instrumentality (such as Federal National Mortgage Association and Federal
Home Loan Mortgage Corporation bonds).
INVESTMENT TECHNIQUES
The fund may employ, among others, the investment techniques described
below, which may give rise to taxable income:
Financial Futures and Options Transactions. To hedge against a decline in
the value of Municipal Bonds it owns or an increase in the price of
Municipal Bonds it proposes to purchase, each fund may enter into
financial futures contracts and invest in options on financial futures
contracts that are traded on a domestic exchange or board of trade. The
futures contracts or options on futures contracts that may be entered into
by the fund will be restricted to those that are either based on an index
of Municipal Bonds or relate to debt securities the prices of which are
anticipated by the manager to correlate with the prices of the Municipal
Bonds owned or to be purchased by a fund.
In entering into a financial futures contract, a fund will be required to
deposit with the broker through which it undertakes the transaction an
amount of cash or cash equivalents equal to approximately 5% of the
contract amount. This amount, which is known as "initial margin," is
subject to change by the exchange or board of trade on which the contract
is traded, and members of the exchange or board of trade may charge a
higher amount. Initial margin is in the nature of a performance bond or
good faith deposit on the contract that is returned to the fund upon
termination of the futures contract, assuming all contractual obligations
have been satisfied. In accordance with a process known as "marking-to
market," 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. 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 fund's existing position in the contract.
A financial futures contract provides for the future sale by one party and
the purchase by the other party of a certain amount of a specified
property at a specified price, date, time and place. Unlike the direct
investment in a futures contract, an option on a financial futures
contract gives the purchaser the right, in return for the premium paid, to
assume a position in the financial futures contract at a specified
exercise price at the any time prior to the expiration date of the option.
Upon exercise of an option, the delivery of the futures position by the
writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin
account, which represents the amount by which the market price of the
futures contract exceeds, in the case of a call, or is less than, in the
case of a put, the exercise price of the option on the futures contract.
The potential loss related to the purchase of an option on financial
futures contracts is limited to the premium paid for the option (plus
transaction costs). The value of the option may change daily and that
change would be reflected in the net asset value of the fund.
Regulations of the Commodity Futures Trading Commission applicable to each
fund require that a fund's transactions in financial futures contracts and
options on financial futures contracts be engaged in for bona fide hedging
purposes, or if a fund enters into futures contracts for speculative
purposes, that the aggregate initial margin deposits and premiums paid by
the fund will not exceed 5% of the market value of its assets. In
addition, the fund will, with respect to its purchases of financial
futures contracts, establish a segregated account consisting of cash or
cash equivalents in an amount equal to the total market value of the
futures contracts, less the amount of initial margin on deposit for the
contracts. Each fund's ability to trade in financial futures contracts
and options on financial futures contracts may be limited to some extent
by the requirements of the Internal Revenue Code of 1986, as amended (the
"Code"), applicable to a regulated investment company that are described
below under "Taxes."
Although each fund intends to enter into financial futures contracts and
options on financial futures contracts that are traded on a domestic
exchange or board of trade only if an active market will exist for them at
any particular time. If closing a futures position in anticipation of
adverse price movements is not possible, the fund would be required to
make daily cash payments of variation margin. In those circumstances, an
increase in the value of the portion of the fund's investments being
hedged, if any, may offset partially or completely losses on the futures
contract. No assurance can be given, however, 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 or option on the futures contract. In addition, in light of the
risk of an imperfect correlation between securities held by the fund that
are the subject of a hedging transaction and the futures or options used
as a hedging device, the hedge may not be fully effective because, for
example, losses on the securities held by the fund may be in excess of
gains on the futures contract or losses on the futures contract may be in
excess of gains on the securities held by the fund that were the subject
of the hedge. In an effort to compensate for the imperfect correlation of
movements in the price of the securities being hedged and movements in the
price of futures contracts, each fund may enter into financial futures
contracts or options on financial futures contracts in a greater or lesser
dollar amount than the dollar amount of the securities being hedged if the
historical volatility of the futures contract has been less or greater
than that of the securities. This "over hedging" or "under hedging" may
adversely affect a fund's net investment results if market movements are
not as anticipated when the hedge is established.
If a fund has hedged against the possibility of an increase in interest
rates adversely affecting the value of securities it holds and rates
decrease instead, the fund will lose part or all of the benefit of the
increased value of securities that it has hedged because it will have
offsetting losses in its futures or options positions. In addition, in
those situations, if the fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements on the futures
contracts at a time when it may be disadvantageous to do so. These sales
of securities may, but will not necessarily, be at increased prices that
reflect the decline in interest rates.
When-Issued Securities and Delayed-Delivery Transactions. Each Fund may
purchase securities on a "when-issued" basis or for delayed delivery
(i.e., payment or delivery occur beyond the normal settlement date at a
stated price and yield). Each Fund does not intend to engage in these
transactions for speculative purposes, but only in furtherance of its
investment goal. These transactions occur when securities are purchased
or sold by a Fund with payment and delivery taking place in the future to
secure what is considered an advantageous yield and price to a Fund at the
time of entering into the transaction. The payment obligation and the
interest rate that will be received on when-issued securities are fixed at
the time the buyer enters into the commitment. Due to fluctuations in the
value of securities purchased or sold on a when-issued or delayed-delivery
basis, the prices obtained on such securities may be higher or lower than
the prices available in the market on the dates when the investments are
actually delivered to the buyers.
When a Fund agrees to purchase when-issued or delayed-delivery securities,
its custodian will set aside cash or liquid securities equal to the amount
of the commitment in a segregated account. Normally, the custodian will
set aside portfolio securities to satisfy a purchase commitment, and in
such a case a Fund may be required subsequently to place additional assets
in the segregated account in order to ensure that the value of the account
remains equal to the amount of the Fund's commitment. The assets
contained in the segregated account will be marked-to-market daily. It
may be expected that a Fund's net assets will fluctuate to a greater
degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. When a Fund engages in
when-issued or delayed-delivery transactions, it relies on the other party
to consummate the trade. Failure of the seller to do so may result in a
Fund's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
Stand-by Commitments. Each fund may acquire "stand-by commitments" with
respect to Exempt Obligations held in its portfolio. Under a stand-by
commitment, a broker, dealer or bank is obligated to repurchase at the
fund's option specified securities at a specified price and, in this way,
stand-by commitment, therefore, is subject to the ability of the seller to
make payment on demand. A fund will acquire stand-by commitments solely
to facilitate portfolio liquidity and does not intend to exercise the
rights afforded by the commitments for trading purposes. Each fund
anticipates that stand-by commitments will be available from brokers,
dealers and banks without the payment of any direct or indirect
consideration. Each fund may pay for stand-by commitments if payment is
deemed necessary, thus increasing to a degree the cost of the underlying
Exempt Obligations and similarly decreasing the security's yield to the
funds.
Illiquid Securities. Each fund may invest up to 10% of its net assets in
illiquid securities, which term includes securities subject to contractual
or other restrictions on resale and other instruments that lack readily
available markets. In addition, up to 5% of the value of each fund's
assets may be invested in securities of entities that have been in
continuous operation for fewer than three years.
Repurchase Agreements. Each Fund may agree to purchase securities from a
bank or recognized securities dealer and simultaneously commit to resell
the securities to the bank or dealer at an agreed-upon date and price
reflecting a market rate of interest unrelated to the coupon rate or
maturity of the purchased securities ("repurchase agreements"). A Fund
would maintain custody of the underlying securities prior to their
repurchase; thus, the obligation of the bank or dealer to pay the
repurchase price on the date agreed to would be, in effect, secured by
such securities. If the value of such securities were less than the
repurchase price, plus interest, the other party to the agreement would be
required to provide additional collateral so that at all times the
collateral is at least 102% of the repurchase price plus accrued interest.
Default by or bankruptcy of a seller would expose a Fund to possible loss
because of adverse market action, expenses and/or delays in connection
with the disposition of the underlying obligations. The financial
institutions with which a Fund may enter into repurchase agreements will
be banks and non-bank dealers of U.S. Government securities that are
listed on the Federal Reserve Bank of New York's list of reporting
dealers, if such banks and non-bank dealers are deemed creditworthy by the
Fund's Adviser. The Adviser will continue to monitor creditworthiness of
the seller under a repurchase agreement, and will require the seller to
maintain during the term of the agreement the value of the securities
subject to the agreement to equal at least 102% of the repurchase price
(including accrued interest). In addition, the Adviser will require that
the value of this collateral, after transaction costs (including loss of
interest) reasonably expected to be incurred on a default, be equal to
102% or greater than the repurchase price (including accrued premium)
provided in the repurchase agreement or the daily amortization of the
difference between the purchase price and the repurchase price specified
in the repurchase agreement. The Adviser will mark-to-market daily the
value of the securities. Repurchase agreements are considered to be loans
by a Fund under the 1940 Act.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investment in the funds involves risk factors and special considerations,
such as those described below:
Exempt Obligations. Even though Exempt Obligations are interest-bearing
investments that promise a stable stream of income, their prices are
inversely affected by changes in interest rates and, therefore, are
subject to the risk of market price fluctuations. The values of Exempt
Obligations with longer remaining maturities typically fluctuate more than
those of similarly rated Exempt Obligations with shorter remaining
maturities such as each fund intends to hold. The values of fixed-income
securities also may be affected by changes in the credit rating or
financial condition of the issuing entities.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest in them from Federal income taxes (and, with respect
to Exempt Obligations, to the exemption of interest on them from
California or New York, as applicable, state personal income taxes) as
rendered by bond counsel to the respective issuers at the time of
issuance. Neither the funds nor the manager will review the proceedings
relating to the issuance of Exempt Obligations or the basis for opinions
of counsel.
Potential Legislation. In past years, the United States government has
enacted various laws that have restricted or diminished the income tax
exemption on various types of Municipal Obligations and may enact other
similar laws in the future. If any such laws are enacted that would
reduce the availability of Exempt Obligations for investment by the funds
so as to affect a fund's shareholders adversely, the trust will reevaluate
each fund's investment objective and policies and might submit possible
changes in a fund's structure to shareholders for their consideration. If
legislation were enacted that would treat a type of Exempt Obligation as
taxable for Federal income tax purposes, the fund would treat the security
as a permissible Taxable Investment within the applicable limits set forth
in this prospectus.
Unrated Securities. Each fund may invest in unrated securities that the
manager determines to be of comparable quality to the rated securities in
which the fund may invest. Dealers may not maintain daily markets in
unrated securities and retail secondary markets for many of such
securities may not exist. As a result, a fund's ability to sell these
securities when the manager deems it appropriate may be diminished.
Municipal Leases. Municipal leases in which the fund may invest have
special risks not normally associated with Municipal Obligations. These
obligations frequently contain non-appropriation clauses that provide that
the governmental issuer of the obligation need not make future payments
under the lease of contract unless money is appropriated for that purpose
by a legislative body annually or on another periodic basis. Municipal
leases have additional risks because they represent a type of financing
that has not yet developed the depth of marketability generally associated
with other Municipal Obligations. Moreover, although a municipal lease
will be secured by financed equipment or facilities, the disposition of
the equipment or facilities in the event of foreclosure might prove
difficult. In addition, in certain instances the tax-exempt status of the
municipal lease will not be subject to the legal opinion of a nationally
recognized bond counsel, although in all cases a fund will require that a
municipal lease purchased by the fund be covered by a legal opinion to the
effect that, as of each effective date of the municipal lease, the lease
is the valid and binding of the government issuer.
Municipal leases are also subject to the risk of non-payment. The ability
of issues of municipal leases to make timely lease payments may be
adversely impacted in general economic downturns and as relative
governmental cost burdens are allocated and reallocated among Federal,
state and local governmental units. Such non-payments would result in a
reduction of income to a fund, and could result in a reduction in the
value of the municipal lease experiencing non-payment and a decrease in
the net asset value of the fund. Issuers of municipal securities might
seek protection under the bankruptcy laws. In the event of bankruptcy of
such an issuer, a fund could experience delays and limitations with
respect to the collection of principal and interest on such municipal
leases and the fund may not, in all circumstances, be able to collect all
principal and interest to which it is entitled. To enforce its rights in
the event of a default in the lease payments, each fund may take
possession of and manage the assets securing the issuer's obligations on
such securities, which may increase the fund's operating expenses and
adversely affect the net asset value of the fund. Any income derived from
the fund's ownership or operation of such assets may not be tax-exempt.
In addition, each fund's intention to qualify as a "regulated investment
company" under the Code may limit the extent to which the fund may
exercise its rights by taking possession of such assets, because as a
regulated investment company the fund is subject to certain limitations on
its investments and on the nature of its income.
Non-Publicly Traded Securities. As suggested above, each fund may, from
time to time, invest a portion of its assets in non-publicly traded Exempt
Obligations. Non-publicly traded securities may be less liquid than
publicly traded securities. Although non-publicly traded securities may
be resold in privately negotiated transactions, the prices realized from
these sales could be less than those originally paid by the fund.
When-Issued and Delayed-Delivery Transactions. Securities purchased on a
when-issued or delayed-delivery basis may expose a fund to risk because
the securities may experience fluctuations in value prior to their
delivery. Purchasing securities on a when-issued or delayed-delivery
basis can involve the additional risk that the yield available in the
market when the delivery takes place may be higher than that obtained in
the transaction itself.
Non-Diversified Classification. Each fund is classified as a non-
diversified fund under the Investment Company Act of 1940, as amended (the
"1940 Act") which means that the fund is not limited by the Act in the
proportion of its assets that it may invest in the obligations of a single
issuer. Each fund intends to conduct its operations, however, so as to
qualify as a "regulated investment company" for purposes of the Internal
Revenue Code of 1986, as amended (the "Code"), which will relieve the fund
of any liability for Federal income tax and California or New York State
franchise tax, as applicable, to the extent that its earnings are
distributed to shareholders. To qualify as a regulated investment
company, the fund will, among other things, limit its investments so that,
at the close of each quarter of the taxable year (a) not more than 25% of
the market value of the fund's total assets will be invested in the
securities of a single issuer and (b) with respect to 50% of the market
value of its total assets, not more than 5% of the market value of its
total assets will be invested in the securities of a single issuer and the
fund will not own more than 10% of the outstanding voting securities of a
single issuer.
As a result of the funds' non-classified status, an investment in either
fund may present greater risks to investors than an investment in a
diversified fund. The investment return on a non-diversified fund
typically is dependent upon the performance of a smaller number of
securities relative to the number of securities held in a diversified
fund. Each fund's assumption of large positions in the obligations of a
small number of issuers will affect the value of its portfolio to a
greater extent than that of a diversified fund in the event of changes in
the financial condition, or in the market's assessment, of the issuers.
Portfolio Transactions And Turnover. Each fund's portfolio securities
ordinarily are purchased from and sold to parties acting as either
principal or agent. Newly issued securities ordinarily are purchased
directly from the issuer or from an underwriter; other purchases and sales
usually are placed with those dealers from which it appears that the best
price or execution will be obtained. Usually no brokerage commissions, as
such, are paid by the funds for purchases and sales undertaken through
principal transactions, although the price paid usually includes an
undisclosed compensation to the dealer acting as agent.
Special Considerations Relating to Exempt Obligations.
The payment of principal and interest on most securities purchased by
either fund will depend on the ability of the issuers to meet their
obligations. A fund's portfolio will be affected by general changes in
interest rates, which will result in increases or decreases in the value
of the obligations held by a fund. The market value of the obligations in
the fund's portfolio can be expected to vary inversely to changes in
prevailing interest rates. [SB: Update as necessary] During 1996, the
ratings of California general obligations bond was upgraded. S&P Ratings
Group upgraded its rating to A+; the same rating has been assigned to such
debt by Fitch. Moody's has assigned such debt an A1 rating. Certain
substantial issuers of New York Exempt Obligations (including issuers
whose obligations may be acquired by the New York Fund) have experienced
serious financial difficulties in recent years. These difficulties have
at times jeopardized the credit standing and impaired the borrowing
abilities of all New York issuers and have generally contributed to higher
interest costs for their borrowing and fewer markets for their outstanding
debt obligations. In recent years, several different issuers of municipal
securities of New York State and its agencies and instrumentalities and of
New York City have been downgraded by S&P and Moody's. On July 10, 1995,
S&P downgraded its rating of New York City's $23 billion of outstanding
general obligation bonds to "BBB+" from "A-", citing the City's chronic
structural budget problems and weak economic outlook. S&P stated that New
York City's reliance on one-time revenue measures to close annual budget
gaps, a dependence on unrealized labor savings, overly optimistic
estimates of revenues and state and federal aid and City's continued high
debt levels also contributed to its decision to lower the ratings. On the
other hand, strong demand for New York Exempt Obligations has more
recently had the effect of permitting New York Exempt Obligations to be
issued with yield relatively lower, and after issuance, to trade in the
market at prices relatively higher, than comparably rated municipal
obligations issued by other jurisdictions. Moody's rating of City bonds
were revised in November 1981 from B (in effect since 1977) to Bal, in
November 1983 to Baa, in December 1985 to Baal, in 1988 to A and again in
February 1991 to Baal. On July 17, 1997, Moody's changed its outlook on
City bonds to positive from stable. Since July 8, 1997, Fitch has rated
City bonds A.
Investors should be aware that certain California or New York
constitutional amendments, legislative measures, executive orders,
administrative regulations and voter initiatives could result in certain
adverse consequences affecting Exempt Obligations. For instance, certain
provisions of the California or New York Constitution and statutes that
limit the taxing and spending authority of California, or New York,
governmental entities may impair the ability of the issuers of some Exempt
Obligations to maintain debt service on their obligations. Other measures
affecting the taxing or spending authority of California, or New York, or
their political sub-divisions may be approved or enacted in the future.
In seeking to achieve its objective, each fund may invest without limit in
Municipal Obligations which are private activity bonds. Moreover,
although each fund does not currently intend to do so on a regular basis,
each fund may invest more than 20% of its assets in Municipal Obligations
which are repayable out of revenue streams generated from economically
related projects or facilities, if such investment is deemed necessary or
appropriate by the manager. To the extent a fund's assets are
concentrated in Municipal Obligations payable from revenues from
economically related projects or facilities, if a fund's assets are
concentrated in Municipal Obligations payable from revenues on
economically related projects and facilities, the fund will be subject to
the particular risks presented by such projects to a greater extent than
it would be if the fund's assets were not so concentrated.
Special Considerations Relating To California Exempt Obligations
Some of the significant financial considerations relating to the
California Fund's investments in California Exempt Obligations are
summarized below. This summary information is derived principally from
official statements and prospectuses relating to securities offerings of
the State of California and various local agencies in California,
available as of the date of this SAI and does not purport to be a complete
description of any of the considerations mentioned herein. It is also
based on the disclosure statement filed in the County of Orange bankruptcy
case. The accuracy and completeness of the information contained in such
official statements and disclosure statement has not been independently
verified.
Risk Factors
[SB: Update with 1998 information]
Beginning in the 1990-91 fiscal year, California faced the worst economic,
fiscal and budget conditions since the 1930s. Construction, manufacturing
(especially aerospace), exports and financial services, among others, were
severely affected. Job losses were the worst of any post-war recession
and have been estimated to exceed 800,000.
The recession seriously affected State tax revenues. It also caused
increased expenditures for health and welfare programs. The State has
also faced a structural imbalance in its budget with the largest programs
supported by the General Fund K-12 schools and community colleges, health,
welfare and corrections - growing at rates higher than the growth rates for
the principal revenue sources of the General Fund. (The General Fund, the
State's main operating fund, consists of revenues which are not required
to be credited to any other fund.) The State experienced recurring budget
deficits. The State Controller reported that expenditures exceeded
revenues for the four of the six fiscal years ending with 1992-93, and
were essentially equal in 1993-94. According to the Department of
Finance, the State suffered a continuing budget deficit of approximately
$2.8 billion in the Special Fund for Economic Uncertainties. (Special
Funds account for revenues obtained from specific revenue sources, and
which are legally restricted to expenditures for specified purposes.) The
1993-94 Budget Act incorporated a Deficit Reduction Plan to repay this
deficit over two years. The original budget for 1993-94 reflected
revenues which exceeded expenditures by approximately $2.8 billion. As a
result of continuing recession, the excess of revenues over expenditures
for the 1993-94 fiscal year was less than $300 million. The accumulated
budget deficit at June 30, 1994 was not able to be retired by June 30,
1995 as planned. When the economy failed to recover sufficiently in 1993-
94, a second two-year plan was implemented in 1994-95. The accumulated
budget deficits over the past several years, together with expenditures
for school funding which have not been reflected in the budget, and the
reduction of available internal borrowable funds, have combined to
significantly deplete the State's cash resources to pay its ongoing
expenses. In order to meet its cash needs, the State has had to rely for
several years on a series of external borrowings, including borrowings
past the end of a fiscal year. At the end of its 1995-96 fiscal year,
however, the State did not borrow moneys into "1995-96 Budget" the
subsequent fiscal year.
Since the severe recession, California's economy has been recovering.
Employment has grown by over 500,000 in 1994 and 1995, and the precession
level of total employment is expected to be matched by early 1996. The
strongest growth has been in export-related industries, business services,
electronics, entertainment and tourism, all of which have offset the
recession-related losses which were heaviest in aerospace and defense-
related industries (accounting for approximately two-thirds of the job
losses), finance and insurance. Residential housing construction, with
new permits for under 100,000 annual new units issued in 1994 and 1995, is
weaker than in previous recoveries, but has been growing slowly since
1993.
Sectors which are now contributing to California's recovery include
construction and related manufacturing, wholesale and retail trade,
transportation and several service industries such as amusements and
recreation, business services, and management consulting. Electronics is
showing modest growth and the rate of decline in aerospace manufacturing
is slowly diminishing. As a result of these factors, average 1994 non-
farm employment exceeded expectations and grew beyond 1993 levels.
Many California counties continue to be under severe fiscal stress. Such
stress has impacted smaller, rural counties and larger urban counties such
as Los Angeles, and Orange County which declared bankruptcy in 1994.
Orange County has implemented significant reductions in services and
personnel, and continues to face fiscal constraints in the aftermath of
its bankruptcy. However, California has experienced recent economic
expansion, with growth in employment and in early 1998 the state recorded
its lowest unemployment rate since 1990. There can be no assurance this
growth trend will continue.
1995-96 Budget
The state began the 1995-96 Fiscal Year with strengthening revenues based
on an improving economy and the smallest nominal "budget gap" to be closed
in many years.
The 1995-96 Budget Act, signed by the Governor on August 3, 1995, projects
General Fund revenues and transfers of $44.1 billion, about $2.2 billion
higher than projected revenues in 1994-95. The Budget Act projects
Special Fund revenues of $12.7 billion, an increase from $12.1 billion
projected in 1994-95.
The Department of Finance released updated projections for the 1995-96
fiscal year in May, 1996, estimating that revenues and transfers to be
$46.1 billion, approximately $2 billion over the original fiscal year
estimate. Expenditures also increased, to an estimated $45.4 billion, as
a result of the requirement to expend revenues for schools under
Proposition 98, and, among other things, failure of the federal government
to budget new aid for illegal immigrant costs which had been counted on to
allow reductions in costs.
The principal features of the Budget Act were the following:
1. Proposition 98 funding for schools and community colleges will
increase by about $1 billion (General Fund) and $1.2 billion total
above revised 1994-95 levels. Because of higher than projected
revenues in 1994-95, an additional $543 million in appropriated to the
1994-95 Proposition 98 entitlement. A significant component of this
amount is block grant of about $54 per pupil for any one-time purpose.
Per-pupil expenditures are projected to increase by another $126 in
1995-96 to $4,435. A full 2.7% cost of living allowance is funded for
the first time in several years. The budget comprise anticipated a
settlement of the CTA v. Gould litigation.
2. Cuts in health and welfare costs totaling about $900 million, some
of which would require federal legislative approval.
3. A 3.5% increase in funding for the University of California ($90
million General Fund) and the California State University system ($24
million General Fund), with no increase in student fees.
4. The updated Budget assumes receipt of $494 million in new federal
aid for costs of illegal immigrants, in excess of federal government
commitments.
5. General Fund support for the Department of Corrections is increased
by about 8 percent over 1994-95, reflecting estimates of increased
prison population. This amount is less than was proposed in the 1995
Governor's Budget.
1996-97 Budget
The 1996-97 Budget Act was signed by the Governor on July 15, 1996, and
projected General Fund revenues and transfers of approximately $47.64
billion and General Fund expenditures of approximately $47.25 billion.
The Governor vetoed abut $82 million of appropriations (both General Fund
and Special Fund) and the State has implemented its regular cash flow
borrowing program with the issuance of $3.0 billion of Revenue
Anticipation Notes to mature on or before June 30, 1997. The 1996-97
Budget Act appropriated a budget reserve in the Special Fund for Economic
Uncertainties of $305 million, as of June 30, 1997.
The Budget Act contained General Fund appropriations totaling $47.251
billion, a 4.0 percent increase over the final estimated 1995-96
expenditures. Special Fund expenditures are budgeted at $12.6 billion.
The following were the principal features of the 1996-97 Budget Act:
1. Proposition 98 funding for schools and community colleges will
increase by about $1.6 billion (General Fund) and $1.65 billion total
above revised 1995-96 level periods. Almost half of this money was
budgeted to fund class-size reduction in kindergarten and grades 1-3.
2. Proposed cuts in health and welfare totaling $660 million. All of
these cuts require federal law changes (including welfare reform),
federal waivers, or federal budget appropriations in order to be
achieved. The 1996-97 Budget Act assumes approval/action by October,
1996, with the savings to be achieved beginning in November, 1996. The
1996-97 Budget Act was based on continuation of previously approved
assistance levels for Aid to Families with Dependent Children and other
health and welfare programs, which had been reduced in prior years,
including suspension of State authorized cost of living increases.
3. A 4.9 percent increase in funding for the University of California
($130 million General Fund) and the California State University system
($101 million General Fund), with no increases in student fees,
maintaining the second year of the Governor's four-year "Compact" with
the State's higher education units.
4. General Fund support for the Department of Corrections was increased
by about 7 percent over the prior year, reflecting estimates of
increased prison population.
5. With respect to aid to local governments, the principal new programs
included in the 1996-97 Budget Act are $100 million in grants to cities
and counties for law enforcement purposes, and budgeted $50 million for
competitive grants to local governments for programs to combat juvenile
crime.
The 1996-97 Budget Act did not contain any tax increases. As noted, there
was a reduction in corporate taxes. In addition, the Legislature approved
another one-year suspension of the Renters Tax Credit, saving $520 million
in expenditures.
1997-98 Budget
On January 9, 1997, the Governor announced his proposed 1997-98 State
budget detailing plans to cut welfare, increase education spending and
provide certain tax cuts to businesses and banks. The total spending plan
in the amount of approximately $66.6 billion represents an increase of
approximately 4% from the 1996-97 State Budget, with an increase in the
State's General Fund to approximately $50.3 billion. The Governor
announced a proposal to restructure the State's welfare system, placing
strict time limits on the provisions of assistance and introducing
penalties, and included a plan to increase spending for elementary and
secondary schools.
On August 11, 1997, the State Legislature approved a 1997-98 State Budget
of approximately $68 billion which included approximately $32 billion for
public schools, an increase of approximately $4 billion over the prior
year. The Budget also included approximately $100 million for local law
enforcement and approximately $75 million in spending to subsidize
hospitals that care for large numbers of uninsured patients, as well as
approximately $40 million for legal immigrants and an increase of
approximately $223 million in welfare spending, including job training.
The education portion of the State Budget approved by the Legislature for
1997-98 included approximately $850 million to expand the class-size
reduction program and full statutory funding of the Revenue Limit COLA
comprising a 2.65% COLA, consistent with the May Revision, Revenue Limit
Equalization is as funded in the amount of approximately $261 million for
the school district revenue limit equalization for 1996-97.
The final State Budget was signed by the Governor on August 18, 1997 after
using his line-item veto authority to veto, with reservation until an
acceptable school testing bill is passed, a significant amount of
education funding from the State Budget approved by the Legislature.
Vetoes which would be restored if a testing bill acceptable to the
Governor is passed include approximately $955,000 in Department of
Education spending, and approximately $900 million in local assistance.
Vetoes not relating to the testing issue, but which need legislation in
order to restore the vetoed funds, included more than $20 million in
Department of Education spending. The final State Budget also provided
approximately $377 million for child care programs administered by the
Department of Education and the Department of social Services,
approximately $160 million for welfare-to-work programs, approximately $25
million in adult education funding and approximately $50 million in
California community colleges, approximately $100 million to cities and
counties to enhance local law enforcement, approximately $55 million in
federal funds to local government for the construction of detention
facilities and approximately $1.2 billion in deferred general fund
contributions to the Public Employees Retirement System. The final State
Budget did not include the Governor's proposed 10% tax cut for bank and
corporations.
Proposed 1998-99 Budget
In 1997, California experienced employment growth exceeding 3 percent -
approximately 400,000 new jobs - and income rose by more than 7 percent.
The State's unemployment rate fell during 1997 to a low of 5.8% in
November. In fiscal year 1996-97, the State General Fund collections grew
by over 6 percent to reach $49.2 billion, and revenue for the 1997-98 and
1998-99 fiscal years is expected to reach $52.9 billion and $55.4 billion
respectively. This represents an annual growth of $3.7 billion (7.5
percent) for 1997-98 and $2.5 billion (4.7 percent) for 1998-99.
The 1998-99 Governor's Budget provides $50 million in General Fund and
$200 million in a proposed bond issue to capitalize the Infrastructure and
Development Bank, which will provide capital to local governments to help
businesses locate and expand in California, and $3 million for the small
business loan guarantee program. The Budget also includes an Early
Childhood Development Initiative, which is designed to improve the health
and development of children from birth to age three and provides
additional funds for anti-gang programs and for the apprehension of sexual
predators. The Budget proposes an approximately $7 billion investment
plan to maintain and build the State's system of schools, water supply,
prisons, natural resources, and other Infrastructure.
In addition, the Budget includes approximately $40 billion to be devoted
to California's 999 school districts and 58 county offices of education,
resulting on estimated total per-pupil expenditures from all sources of
$6,620 in fiscal year 1997-98 and $6,749 in 1998-99. Projected state
revenues will contribute to a 7 percent increase in Proposition 98 General
Fund support for K-12 education in 1998-99. This level of resources
result in K-12 Proposition 98 per-pupil expenditures of $5,636 in 1998-99,
up from $5,114 in 1996-97 and $5,414 in 1997-98. In addition,
approximately $350 million has been allocated to lengthen the school year
to 180 days while maintaining sufficient funds for staff development days.
The State Budget included a 2.22% COLA for revenue limit, special
education, and child development in an amount of $657.4 million which
includes school district and county office of education apportionments
($470.6 million), summer school ($4.0 million), special education ($57.8
million), child development ($14.6 million), class size reduction ($33.6
million), and categorical program COLA and growth ($73.7 million);
enrollment growth funding of $564.4 million; class size reduction funding
in the amount of $547 billion for all pupils in grades K-3 at $818 per
pupil; and approximately $2 billion in state bonds for the 1998 election
and $2.0 billion for each two years thereafter in 2000, 2002 and 2004 and
an additional $135 million for deferred maintenance to be matched locally.
It cannot be predicted what actions will be taken in the future by the
State Legislature and the Governor to deal with changing State revenues
and expenditures. The State budget will be affected by national and state
economic conditions and other factors.
THE FOREGOING DISCUSSION IS BASED ON OFFICIAL STATEMENTS AND OTHER
INFORMATION PROVIDED BY THE STATE OF CALIFORNIA. THE STATE HAS INDICATED
THAT ITS DISCUSSION OF BUDGETARY INFORMATION IS BASED ON ESTIMATES AND
PROJECTIONS OF REVENUES AND EXPENDITURES FOR THE CURRENT FISCAL YEAR AND
MUST NOT BE CONSTRUED AS STATEMENTS OF FACT; THE ESTIMATES AND PROJECTIONS
ARE BASED UPON VARIOUS ASSUMPTIONS WHICH MAY BE AFFECTED BY NUMEROUS
FACTORS, INCLUDING FUTURE ECONOMIC CONDITIONS IN THE STATE AND THE NATION,
AND THERE CAN BE NO ASSURANCE THAT THE ESTIMATES WILL BE ACHIEVED.
Recent Voter Initiative
"Proposition 218" or the "Right to vote on Taxes Act" (the "Proposition")
was approved by the California electorate at the November, 1996 general
election. Officially titled "Voter Approval For Local Government Taxes,
Limitation on Fees, Assessments and Charges Initiative Constitutional
Amendment," the Act was approved by a majority of the voters voting at the
election and adds Articles XIIIC and XIIID to the California Constitution.
The Proposition, among other things, requires local government to follow
certain procedures in imposing or increasing any fee or charge as defined.
"Fee" or "charge" is defined to mean "any levy other than an ad valorem
tax, a special tax or an assessment imposed by an agency upon a parcel or
upon a person as an incident of property ownership, including user fees or
charges for a property related service."
The procedure required by the Proposition to impose or increase any fee or
charge include a public hearing upon the proposed fee or charge and the
opportunity to present written protests by the owners of the parcels
subject to the proposed fee or charge. If written protests against the
proposed fee or charge are presented by a majority of owners of the
identified parcels, the local government shall not impose the fee or
charge.
The Proposition further provides as follows:
"Except for fees or charges for sewer, water, and refuse collection
services, no property related fee or charge shall be imposed or
increased unless and until such fee or charge is submitted and approved
by a majority vote of the property owners of the property subject to
the fee or charge or, at the option of the agency, by a two thirds vote
of the electorate residing in the affected area."
Additionally, the Proposition provides, with respect to standby charges,
as follows:
"No fee or charge may be imposed for a service unless that service is
actually used by, or immediately available to, the owner of the
property in question. Fees or charges based on potential or future use
of a service are not permitted. Standby charges, whether characterized
as charges or assessments, shall be classified as assessments and shall
not be imposed without compliance with Section 4 of this Article."
The Proposition provides that beginning July 1, 1997, all fees and charges
shall comply with the Proposition's requirements.
The Proposition is silent with respect to future increases of pre-existing
fees or charges which are pledged to payment of indebtedness or
obligations previously incurred by the local government. Presumably, the
Proposition cannot preempt outstanding contractual obligations protected
by the contract impairment clause of the federal constitution. However,
with respect to any given situation or case, litigation may be the method
which will settle any question concerning the authority of a local
government to increase fees or charges outside of the strictures of the
Proposition in order to meet contractual obligations.
Proposition 218 also contains a new provision subjecting "matters of
reducing or repealing any local tax, assessments and charges" to the
initiative power. This means that no city or local agency revenue source
is safe from reduction or repeal pursuant to the initiative process.
Litigation concerning various elements of the Proposition may ultimately
ensue and clarifying legislation may be enacted.
State Appropriations Limit
The State is subject to an annual appropriations limit imposed by Article
XIIIB of the State Constitution (the "Appropriations Limit"), and is
prohibited from spending "appropriations subject to limitation" in excess
of the Appropriations Limit. Article XIIIB originally adopted in 1979,
was modified substantially by Propositions 98 and 111 in 1988 and 1990,
respectively. "Appropriations subject to limitation" are authorizations
to spend "proceeds of taxes," which consist of tax revenues and certain
other funds, including proceeds from regulatory licenses, user charges or
other fees to the extent that such proceeds exceed the reasonable cost of
providing the regulation, product or service. The Appropriations Limit is
based on the limit for the prior year, adjusted annually for certain
changes, and is tested over consecutive two-year periods. Any excess of
the aggregate proceeds of taxes received over such two-year period above
the combined Appropriation Limits for those two years is divided equally
between transfers to K-14 districts and refunds to taxpayers.
Exempted from the Appropriation Limit are debt service costs of certain
bonds, court or federally mandated costs, and, pursuant to Proposition
111, qualified capital outlay projects and appropriations or revenues
derived from any increase in gasoline taxes and motor vehicle weight fees
above January 1, 1990 levels. Some recent initiatives were structured to
create new tax revenues dedicated to specific uses and expressly exempted
from the Article XIIIB limits. The Appropriations Limit may also be
exceeded in cases of emergency arising from civil disturbance or natural
disaster declared by the Governor and approved by two-thirds of the
Legislature. If not so declared and approved, the Appropriations Limit
for the next three years must be reduced by the amount of the excess.
Article XIIIB, as amended by Proposition 98 on November 8, 1988, also
establishes a minimum level of state funding for school and community
college districts and requires that excess revenues up to a certain limit
be transferred to schools and community college districts instead of
returned to the taxpayers. Determination of the minimum level of funding
is based on several tests set forth in proposition 98. During fiscal year
1991-1992 revenues were smaller than expected, thus reducing the payment
owed to schools in 1991-92 under alternate "test" provisions. In response
to the changing revenue situation, and to fully fund the Proposition 98
guarantee in the 1991-1992 and 1992-1993 fiscal years without exceeding
it, the Legislature enacted legislation to reduce 1991-92 appropriations.
The amount budgeted to schools but which exceeded the reduced
appropriations treated as a non-Proposition 98 short-term loan in 1991-92.
As part of the 1992-93 Budget, $1.083 billion of the amount budgeted to K-
14 schools was designated to "repay" the prior year loan, thereby reducing
cash outlays in 1992-93 by that amount. To maintain per-average daily
attendance ("ADA") funding, the 1992-93 Budget included loans of $732
million to K-12 schools and $241 million to community colleges, to be
repaid from future Proposition 98 entitlements. The 1993-94 Budget also
provided new loans to $609 million to K-12 schools and $178 million to
community colleges to maintain ADA funding. These loans have been
combined with the 1992-93 fiscal year loans into one loan of $1.760
billion, to be repaid from future years' Proposition 98 entitlements, and
conditioned upon maintaining current funding levels per pupil at K-12
schools.
A Sacramento County Superior Court in California Teachers Association, et
al. v Gould, et al., ruled that the 1992-93 loans to K-12 schools and
community colleges violate Proposition 98. As part of the negotiations
leading to the 1995-96 Budget Act, an oral agreement was reached to settle
this case. The parties reached a conditional final settlement of the case
in April, 1996. The settlement required adoption of legislation
satisfactory to the parties to implement its terms, which has occurred,
and final approval by the court, which was pending in early July, 1996.
The settlement provides, among other things, that both the State and K-14
schools share in the repayment of prior years' emergency loans to schools.
Of the total $1.76 billion in loans, the State will repay $935 million by
forgiveness of the amount owed, while schools will repay $825 million.
The State share of the repayment will be reflected as expenditures above
the current Proposition 98 base circulation. The schools' share of the
repayment will count as appropriations that count toward satisfying the
Proposition 98 guarantee, or from "below" the current base. Repayments
are to be spread over the eight-year period beginning 1994-95 through
2002-03. Once the Director of Finance certifies that a settlement has
occurred, approximately $377 million in appropriations from the 1995-96
fiscal year to schools will be disbursed.
Because of the complexities of Article XIIIB, the ambiguities and possible
inconsistencies in its terms, the applicability of its exceptions and
exemptions and the impossibility of predicting future appropriations, the
trust cannot predict the impact of this or related legislation on the
bonds in the trust Portfolio. Other Constitutional amendments affecting
state and local taxes and appropriations have been proposed from time to
time. If any such initiatives are adopted, the state could be pressured
to provide addition financial assistance to local governments or
appropriate revenues as mandated by such initiatives. Propositions such a
Proposition 98 and others that may be adopted in the future, may place
increasing pressure on the State's budget over future years, potentially
reducing resources available for other State programs, especially to the
extent that the Article XIIIB spending limit would restrain the State's
ability to fund such other programs by raising taxes.
State Indebtedness
As of September 1, 1997, the State had over $17.6 billion aggregate amount
of its general obligation bonds outstanding. General obligation bond
authorizations in an aggregate amount of approximately $8.26 billion
remained unissued as of September 1, 1997. As of September 1, 1997 the
State Finance Committee had authorized the issuance of approximately $3.6
billion of general obligation commercial paper notes, but as of that date
only $1.2 billion aggregate principal amount of which was issued and
outstanding. The State also builds and acquires capital facilities
through the use of lease purchase borrowing. As of September 1, 1997, the
State had approximately $6.1 billion of outstanding General Fund-supported
Lease-Purchase Debt.
In addition to the general obligation bonds, State agencies and
authorities had approximately $20.86 billion aggregate principal amount of
revenue bonds and notes outstanding as of September 1, 1997. Revenue
bonds represent both obligations payable from State revenue-producing
enterprises and projects, which are not payable from the General Fund, and
conduit obligations payable only from various revenues paid by private
users of facilities financed by such revenue bonds. Such enterprises and
projects include transportation projects, various public works and
exposition projects, educational facilities (including the California
State University and University of California's systems), housing, health
facilities and pollution control facilities.
Litigation
The State is a party to numerous legal proceedings. In addition, the
State is involved in certain other legal proceedings that, if decided
against the State, might require the State to make significant future
expenditures or impair future revenue sources. Examples of such cases
include challenges to certain vehicle license fees and challenges to the
State's use of Public Employee Retirement System funds to offset future
State and local pension contributions. Other cases which could
significantly impact revenue or expenditures involve challenges of
payments of wages under the Fair Labor Standards Act, the method of
determining gross insurance premiums involving health insurance, property
tax challenges, challenges of transfer of moneys from State Treasury
special fund accounts to the State's General Fund pursuant to its Budget
Acts for certain fiscal years. Because of the prospective nature of these
proceedings, it is not presently possible to predict the outcome of such
litigation or estimate the potential impact on the ability of the State to
pay debt service on its obligation.
Ratings
During 1996, the ratings of California's general obligation bonds was
upgraded by the following rating agencies. Recently Standard & Poor's
Ratings Group upgraded its rating of such debt to A+; the same rating has
been assigned to such debt by Fitch Investors Service. Moody's Investors
Service has assigned such debt an A1 rating. Any explanation of the
significance of such ratings may be obtained only from the rating agency
furnishing such ratings. There is no assurance that such ratings will
continue for any given period of time or that they will not be revised
downward or withdrawn entirely if, in the judgment of the particular
rating agency, circumstances so warrant.
The trust believes the information summarized above describes some of the
more significant aspects relating to the California Trust. The sources of
such information are Preliminary Official Statements and Official
Statements relating to the State's general obligation bonds and the States
revenue anticipation notes, or obligations of other issuers located in the
State of California, or other publicly available documents. Although the
trust has not independently verified this information, it has no reason to
believe that such information is not correct in all material respects.
California Taxes -
In the opinion of LeBoeuf, Lamb, Greene & MacRae L.L.P., Los Angeles,
California, special counsel on California tax matters, under existing law:
The California Trust is not taxable as corporation for California tax
purposes. Interest on the underlying Securities owned by the California
Trust that is exempt from personal income taxes imposed by the State of
California will retain its status as interest exempt from personal income
tax imposed by the State of California.
Each Unit Holder of the California Trust will recognize gain or loss on
the sale, redemption or other disposition of Securities within the
California Trust, or on the sale or other disposition of Unit Holders
interest in the California Trust. As a result, a Unit Holder may incur
California tax liability upon the sale, redemption or other disposition of
Securities within the California Trust or upon the sale or other
disposition of his or her Units.
Special Consideration Relating to New York Exempt Obligations
[SB: Update with 1998 information].
Risk Factors. The information set forth below is derived from the
official statements and/or preliminary drafts of official statements
prepared in connection with the issuance of New York State and New York
City municipal bonds. The trust has not independently verified this
information.
Economic Trends. Over the long term, the State of New York (the "State")
and the City of New York (the "City") face serious economic problems. The
City accounts for approximately 41% of the State's population and personal
income, and the City's financial health affects the State in numerous
ways. The State historically has been one of the wealthiest states in the
nation. For decades, however, the State has grown more slowly than the
nation as a whole, gradually eroding its relative economic affluence.
Statewide, urban centers have experienced significant changes involving
migration of the more affluent to the suburbs and an influx of generally
less affluent residents. Regionally, the older Northeast cities have
suffered because of the relative success that the South and the West have
had in attracting people and business. The City has also had to face
greater competition as other major cities have developed financial and
business capabilities which make them less dependent on the specialized
services traditionally available almost exclusively in the City.
The State has for many years had a very high State and local tax burden
relative to other states. The State and its localities have used these
taxes to develop and maintain their transportation networks, public
schools and colleges, public health systems, other social services and
recreational facilities. Despite these benefits, the burden of State and
local taxation, in combination with the many other causes of regional
economic dislocation, has contributed to the decisions of some businesses
and individuals to relocate outside, or not locate within, the State.
Notwithstanding the numerous initiatives that the State and its localities
may take to encourage economic growth and achieve balanced budgets,
reductions in Federal spending could materially and adversely affect the
financial condition and budget projections of the State and its
localities.
New York City. The City, with a population of approximately 7.3 million,
is an international center of business and culture. Its non-manufacturing
economy is broadly based, with the banking and securities, life insurance,
communications, publishing, fashion design, retailing and construction
industries accounting for a significant portion of the City's total
employment earnings. Additionally, the City is the nation's leading
tourist destination. The City's manufacturing activity is conducted
primarily in apparel and printing.
The national economic downturn which began in July 1990 adversely affected
the local economy, which had been declining since late 1989. As a result,
the City experienced job losses in 1990 and 1991 and real Gross City
Product ("GCP") fell in those two years. Beginning in calendar year 1992,
the improvement in the national economy helped stabilize conditions in the
City. Employment losses moderated toward year-end and real GCP increased,
boosted by strong wage gains. After noticeable improvements in the City's
economy during calendar year 1994, economic growth slowed in calendar year
1995, and thereafter improved during calendar year 1996, reflecting
improved securities industry earnings and employment in other sectors.
The City's current four-year financial plan assumes that moderate economic
growth will continue through calendar year 2001, with moderating job
growth and wage increases.
For each of the 1981 through 1996 fiscal years, the City achieved balanced
operating results as reported in accordance with generally accepted
accounting principles ("GAAP"). The City has been required to close
substantial budget gaps between forecast revenues and forecast
expenditures in order to maintain balanced operating results. There can
be no assurance that the City will continue to maintain a balanced budget
as required by State law without additional tax or other revenue increases
or additional reductions in City services or entitlement programs, which
could adversely affect the City's economic base.
Pursuant to the New York State Financial emergency Act for the City of New
York (the "Financial Emergency Act" or the "Act"), the City prepares an
annual four-year financial plan, which is reviewed and revised on
quarterly basis and which includes the City's capital, revenue and expense
projections and outlines proposed gap-closing programs for years with
projected budget gaps. The City's current four-year financial plan
projects a surplus in the 1998 fiscal year (before discretionary
transfers) and substantial budget gaps for each of the 1999, 2000 and 2001
fiscal years. This pattern of current year surplus and projected
subsequent year budget gaps has been consistent through virtually the
entire period since 1982, during which the City has achieved balanced
operating results for each fiscal year. The City is required to submit
its financial plans to review bodies, including the New York State
Financial Control board ("Control board").
The City depends on State aid both to enable the City to balance its
budget and to meet its cash requirements. The State's 1995-96 Financial
Plan projects a balanced General Fund. There can be no assurance that
there will not be reductions in State aid to the City from amounts
currently projected or that State budgets in future fiscal years will be
adopted by the April 1 statutory deadline and that such reductions or
delays will not have adverse effects on the City's cash flow or
expenditures. In addition, the Federal Budget negotiation process could
result in a reduction in or a delay in the receipt of Federal grants which
could have additional adverse effects on the City's cash flow or revenues.
The Mayor is responsible for preparing the City's four-year financial
plan, including the City's current financial plan for the 1998 through
2001 fiscal years (the "1998-2001 Financial Plan" or "Financial Plan").
The City's projections set forth in the Financial Plan are based on
various assumptions and contingencies which are uncertain and which may
not materialize. Changes in major assumptions could significantly affect
the City's ability to balance its budget as required by State law and to
meet its annual cash flow and financing requirements. Such assumptions
and contingencies include the condition of the regional and local
economies, the impact on real estate tax revenues of the real estate
market, wage increases for City employees consistent with those assumed in
the Financial Plan, employment growth, the ability to implement proposed
reductions in City personnel and other cost reduction initiatives, the
ability of the New York City Health and Hospitals Corporation ("HHC") and
the board of Education ("BOE") to take actions to offset potential budget
shortfalls, the ability to complete revenue generating transactions,
provision of State and Federal aid and mandate relief and the impact on
City revenues and expenditures of Federal and State welfare reform and any
future legislation affecting Medicare or other entitlements. Despite
these and similar risks and uncertainties, the city has achieved balanced
operation results in each of its sixteen years.
Implementation of the Financial Plan is also dependent upon the City's
ability to market its securities successfully. The City's financing
program for fiscal years 1998 through 2001 contemplates the issuance of
$4.9 billion of general obligation bonds and $7.1 billion of bonds to be
issued by the proposed New York City Infrastructure Finance Authority
("Finance Authority") to finance City capital projects. The Finance
Authority was created as part of the City's effort to assist in keeping
the City's indebtedness within the forecast level of the constitutional
restrictions on the amount of debt the City is authorized to incur. In
addition, the City issues revenue and tax anticipation notes to finance
its seasonal working capital requirements. The success of projected
public sales of City bonds and notes, New York Municipal Water Finance
Authority ("Water Authority") bonds and Finance Authority bonds will be
subject to prevailing market conditions. The City's planned capital and
operation expenditures are dependent upon the sale of its general
obligation bonds and notes, and the Water Authority and Finance Authority
bonds. Future developments concerning the City and public discussion of
such developments, as well as prevailing market conditions, may affect the
market for outstanding City general obligation bonds and notes.
The City's operation results for the 1996 fiscal year were balanced in
accordance with GAAP, after taking into account a discretionary transfer
of $224 million, the sixteen the consecutive year of GAAP balanced
results.
The most recent quarterly modification to the City's financial plan for
the 1997 fiscal year, which was submitted to the Control board on June 10,
1997 (the "1997 Modification"), projects a balanced budget in accordance
with GAAP for the 1997 fiscal year, after taxing into account an increase
in projected tax revenues of $1.2 billion during the 1997 fiscal year and
a discretionary prepayment in the 1997 fiscal of $1.3 billion of debt
service due in the 1998 and 1999 fiscal years.
On June 10, 1997, the City submitted to the Control board the financial
Plan for the 1998 through 2001 fiscal years, which relates to the City,
BOE and the City University to New York ("CUNY") and reflects the City's
expense and capital budgets for the 1998 fiscal year, which were adopted
on June 6, 1997. The Financial Plan projects revenues and expenditures
for the 1998 fiscal year balanced in accordance with GAAP. The Financial
Plan includes increased tax revenue projections; reduced debt service
costs; the assumed restoration of Federal funding for programs, assisting
certain legal aliens; additional expenditures for textbooks, computers,
improved education programs and welfare reform, law enforcement, immigrant
naturalization, initiative proposed by the City Council and other
initiatives; and a proposed discretionary transfer to the 1998 fiscal year
of $300 million of debt service due in the 1999 fiscal year for budget
stabilization purposes. In addition, the Financial Plan reflects the
discretionary transfer to the 1997 fiscal year of $1.3 billion of debt
service due in the 1998 and 199 fiscal years, and includes actions to
eliminate a previously projected budget gap for the 1998 fiscal year.
These gap closing actions include (I) additional agency actions totaling
$621 million; (ii) the proposed sale of various assets; (iii) additional
State aid of $294 million, including a proposal that the State accelerate
a $142 million revenue sharing payment to the City from March 1999; and
(iv) entitlement savings of $128 million which would result from certain
of the reductions in Medicaid spending proposed in the Governor's 1997-
1998 Executive Budget and the State making available to the City $77
million of additional Federal block grant aid, as proposed in the
Governor's 1997-1998 Executive Budget. The Financial Plan also sets forth
projections for the 1999 through 2001 fiscal years and projects gaps of
$1.8 billion, $2.8 billion for the 1999 through 2001 fiscal years,
respectively.
The Financial Plan assumes approval by the State Legislature and the
Governor of (i) a tax reduction program proposed by the City totaling $272
million, $435 million, $465 million and $481 million in the 1998 through
2001 fiscal years, respectively, which includes a proposed elimination of
the 4% City sales tax on clothing items under $500 as of December 1, 1997,
and (ii) a proposed State tax relief program, which would reduce the City
property tax and personal income tax, and which the Financial Plan assumes
will be offset by proposed increased State aid totaling $47 million, $254
million, $472 million and $722 million in the 1998 through 2001 fiscal
years, respectively.
The Financial Plan also assumes (i) approval by the Governor and the State
Legislature of the extension of the 14% personal income tax surcharge,
which is scheduled to expire on December 31, 1999 and the extension of
which is projected to provide revenue of $166 million and $494 million in
the 2000 and 2001 fiscal years, respectively, and of the extension of the
12.5% personal income tax surcharge, which is scheduled to expire on
December 31, 1998 and the extension of which is projected to provide
revenue of $188 million, $527 million and $554 million in the 1999 through
2001 fiscal years, respectively; (ii) collection of the projected rent
payments for the City's airports, totaling $385 million, $175 million, and
$170 million in the 1999, 2000, and 2001 fiscal years, respectively, which
may depend on the successful completion of negotiation with the Port
Authority or the enforcement of the City's rights under the existing
leases through pending legal actions; and (iii) State approval of the cost
containment initiatives and State aid proposed by the City for the 1998
fiscal year, and $115 million in State aid which is assumed in the
Financial Plan but was not provided for in the Governor's 1997-1998
Executive Budget. The Financial Plan reflects the increased costs which
the City is prepared to incur as a result of welfare legislation recently
enacted by Congress. The Financial Plan provides no additional wage
increases for City employees after their contracts expire in fiscal years
2000 and 2001. In addition, the economic and financial condition of the
City may be affected by various financial, social, economic and political
factors which could have material effect on the City.
The City annually prepares a modification to its financial plan in October
or November which amends the financial plan to accommodate any revisions
to forecast revenues and expenditures and to specify any additional gap-
closing initiatives to the extent required to offset decreases in
projected revenues or increases in projected revenues or increases in
projected expenditures. The Mayor is expected to publish the first
quarter modification (the "Modification") for the 1998 fiscal year in
November. Since the preparation of the Financial Plan, the State has
adopted its budget for the 1997-1998 fiscal year. The State budget
enacted a smaller sales tax reduction than the tax reduction program
assumed by the City in the Financial Plan, which will increase projected
City sales tax revenues; provided for State aid to the City which was less
than assumed in the Financial Plan; and enacted a State funded tax relief
program which begins a year later than reflected I the Financial Plan. In
addition, the net effect of tax law changes made in the Federal Balanced
Budget Act of 1997 are expected to increase tax revenues in the 1998
fiscal year. These changes will be reflected in the Modification.
The projections for the 1998 through 2001 fiscal years reflect the costs
of the settlements with the United Federation of Teachers ("UFT") and a
coalition of unions headed by District Council 37 of the American
Federation of State, County and Municipal Employees ("District Council
37"), which together represent approximately two-thirds of the City's
workforce, and assume that the City will reach agreement with its
remaining municipal unions under terms which are generally consistent with
such settlements. The settlement provides for a wage freeze in the first
two years, followed by a cumulative effective wage increase of 11% by the
end of the five year period covered by the proposed agreements, ending in
fiscal years 2000 and 2001. Additional benefit increases would raise the
total cumulative effective increase to 13% above present costs. Costs
associated with similar settlements for all City-funded employees would
total $49 million, $459 million and $1.2 billion in the 1997, 1998 and
1999 fiscal years, respectively, and exceed $2 billion in each fiscal year
after the 1999 fiscal year. Subsequently, the City reached settlements,
through agreements to statutory impasse procedures, with bargaining units
which, together with the UFT and District Council 37, represent
approximately 86% of the City's workforce.
In 1975, Standard & Poor's suspended its A rating of City bonds. This
suspension remained in effect until March 1981, at which time the City
received an investment grade rating of BBB from Standard & Poor's. On
July 2, 1985, Standard & Poor's revised its rating of City bonds upward to
BBB+ and on November 19, 1987, to A-. On July 10, 1995, Standard & Poor's
revised its rating of City bonds downward to BBB+.
Moody's rating of City bonds were revised in November 1981 from B (in
effect since 1977) to Ba1, in November 1983 to Baa, in December 1985 to
Baa1, in May 1988 to A and again in February 1991 to Baa1. On July 17,
1997, Moody's changed its outlook on City bonds to positive from stable.
Since July 15, 1993, Fitch has rated City bonds A-. since July 8, 1997,
IBCA Limited has rated City bonds A.
New York State and its Authorities. The State's budget for the State's
1997-1998 fiscal year, commencing on April 1, 1997, was adopted by the
Legislature on August 4, 1997. Prior to adoption of the budget, the
Legislature enacted appropriations for disbursements for its 1997-1998
fiscal year considered to be necessary for State operations and other
purposes. The State Financial Plan for the 1997-1998 fiscal year was
formulated on August 11, 1997 and is based on the State's budget as
enacted by the Legislature, as well as actual results for the first
quarter of the current fiscal year. The 1997-1998 State Financial Plan is
expected to be updated in October and January. The 1997-1998 State
Financial Plan is projected to be balanced on a cash basis. Total General
Fund receipts and transfers from other funds are projected to be $35.09
billion, while total General Fund disbursements and transfers to other
funds are projected to be $34.60 billion. The adopted 1997-1998 budget
projects a year-over-year increase in General Fund disbursements of 5.2
percent. As compared to the Governor's proposed budget amended in
February 1997, the State's adopted budget for 1997-1998 increases General
fund spending by $1.7 billion, primarily due to increase for local
assistance ($1.3 billion). Resources used to fund these additional
expenditures include increased revenues projected for the 1997-1998 fiscal
year, increases resources produced in the 1996-1997 fiscal year that will
be utilized in 1997-1998, reestimates of social service, fringe benefit
and other spending, and certain non-recurring resources.
The 1997-1998 adopted budget includes multi-year tax reductions, including
a State funded property and local income tax reduction program, estate tax
relief, utility gross receipts tax reductions, permanent reduction in the
State sales tax on clothing, and elimination of assessments on medical
providers. The various elements of the State and local tax and assessment
reductions have little or no impact on the 1997-1998 Financial Plan, and
do not begin to materially affect the out-year projections until the
State's 1999-2000 fiscal year.
The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors
can be very complex, may vary from fiscal year to fiscal year, and are
frequently the result of actions taken not only by the State and its
agencies and instrumentalities, but also by entities, such as the Federal
government, that are not under the control of the State. In addition, the
State Financial Plan is based upon forecasts of national and State
economic activity. Economic forecasts have frequently failed to predict
accurately the timing and magnitude of changes in the national and the
State economics. Actual results could differ materially and adversely
from projections and those projections may be changed materially and
adversely from time to time.
The State closed projected budget gaps of $5.0 billion, $3.9 billion and
$2.3 billion for its 1995-1996, 1996-1997 and 1997-1998 fiscal years,
respectively. The 1998-1999 budget gap was projected at $1.68 billion
(before the application of any assumed efficiencies) in the out-year
projections submitted to the Legislature in February 1997. As a result of
changes made in the adopted budget, the 1998-1999 gap is now expected by
the State to be about the same or smaller than the amount previously
projected, after application of the $530 million reserve for future needs.
The Governor has indicated that he will propose to close any potential
imbalance primarily through General Fund expenditure reductions and
without increases in taxes or deferrals of scheduled tax reductions. The
revised expectations for the 1998-199 fiscal year reflect the loss of $1.4
billion in surplus resources from 1996-1997 operations that are being
utilized to finance current year spending, an incremental effect of
approximately $300 million in legislated State and local tax reductions in
the out-year and other factors.
In recent years, State actions affecting the level of receipts and
disbursements, the relative strength of the State and regional economy,
actions of the Federal government and other factors have created
structural budget gaps for the State. These gaps resulted from a
significant disparity between recurrent revenues and the costs of
maintaining or increasing the level of support for State programs. To
address a potential imbalance in any given fiscal year, the State would be
required to take actions to increase receipts and/or reduce disbursements
as it enacts the budget for that year, and under the State Constitution,
the Governor is required to propose a balanced budget each year. There
can be no assurance, however, that the Legislature will enact the
Governor's proposals or that the State's actions will be sufficient to
preserve budgetary balance in a given fiscal year or to align recurring
receipts and disbursements in future fiscal years.
Other actions taken in the 1997-1998 adopted budget add further pressure
to future State budget balance. For example, the fiscal effects of tax
reductions adopted in the 1997-1998 budget are projected to grow more
substantially beyond the 1998-1999 fiscal year. The full annual cost of
the enacted tax reduction package is estimated by the State at
approximately $4.8 billion when fully effective in State fiscal year 2001-
2002. In addition, the 1997-1998 budget included multi-year commitments
for school aid pre-kindergarten early learning programs which could add as
much as $1.4 billion in costs when fully annualized in fiscal year 2001-
2002. These spending commitments are subject to annual appropriation.
On September 11, 1997, the New York State Comptroller issued a report
which noted that the ability to deal with future budget gaps could become
a significant issue in the State's 2000-2001 fiscal year, when the cost of
tax cuts increases by $1.9 billion. The report contained projections
that, based on current economic conditions and current law for taxes and
spending, showed a gap in the 2000-2001 State fiscal year of $5.6 billion
and of $7.4 billion in the 2001-2001 State fiscal year. The report noted
that these gaps would be smaller if recurring spending reductions produce
savings in earlier years. The State Comptroller has also state that if
Wall Street earnings moderate and the State experiences a moderate
recession, the gap for the 2001-2002 State fiscal year could grow to
nearly $12 billion.
In recent years, the State has failed to adopt a budget prior to the
beginning of its fiscal year. A prolonged delay in the adoption of the
State's budget beyond the statutory April 1 deadline without interim
appropriations could delay the projected receipt by the City of State aid,
and there can be no assurance that State budgets in future fiscal years
will be adopted by the April 1 statutory deadline.
On August 28, 1997, Standard & Poor's revised its ratings on the State's
general obligation bonds from A- to A and, in addition, revised its
ratings on the State's moral obligation, lease purchase, guaranteed and
contractual obligation debt. On January 6, 1992, Moody's reduced its
ratings on outstanding limited-liability State lease purchase and
contractual obligations from A to Baa1. On February 10, 1997, Moody's
confirmed its A2 rating on the State's general obligation long-term
indebtedness.
Litigation. A number of court actions have been brought involving State
finances. The court actions in which the State is a defendant generally
involve State programs and miscellaneous tort, real property, and contract
claims. While the ultimate outcome and fiscal impact, if any, on the
State of those proceedings and claims are not currently predictable,
adverse determinations in certain of them might have a material adverse
effect upon the State's ability to maintain a balanced 1997-98 State
Financial Plan.
The claims involving the City other than routine litigation incidental to
the performance of their governmental and other functions and certain
other litigation arise out of alleged constitutional violations, torts,
breaches of contract and other violations of law and condemnation
proceedings. While the ultimate outcome and fiscal impact, if any, on the
City of those proceedings and claims are not currently predictable,
adverse determinations in certain of them might have a material adverse
effect upon the City's ability to carry out the 1998-2001 Financial Plan.
The City has estimated that its potential future liability on account of
outstanding claims against it as of June 30, 1996 amounted to
approximately $2.8 billion.
New York Taxes -
Under the income tax laws of the State and City of New York, the trust is
not an association taxable as a corporation and income received by the
trust will be treated as the income of the Holders in the same manner as
for Federal income tax purposes. Accordingly, each Holder will be
considered to have received the interest on his pro rata portion of each
Bond when interest will be exempt from New York State and City personal
income taxes except where such interest is subject to Federal income taxes
(see Taxes). A noncorporate Holder who is not a New York State resident
will not be subject to New York State or City personal income taxes on any
such gain unless such Units are attributable to a business, trade,
profession or occupation carried on in New York. A New York State (and
City) resident should determine his tax purposes. Interest income on, as
well as any gain recognized on the disposition of, a Holder's pro rata
portion of the Bonds is generally not excludable from income in computing
New York State and City corporate franchise taxes.
Investment Restrictions
The investment restrictions numbered 1 through 6 below have been adopted
by the trust as fundamental policies of the funds. Under the 1940 Act, a
fundamental policy may not be changed with respect to a fund without the
vote of a majority of the outstanding voting securities of the fund.
Majority is defined in the 1940 Act as the lesser of (a) 67% or more of
the shares present at a fund meeting, if the holders of more than 50% of
the outstanding shares of the fund are present or represented by proxy, or
(b) more than 50% of outstanding shares. The remaining restrictions may
be changed by a vote of a majority of the trust's board of trustees at any
time.
Under the investment restrictions adopted by the trust with respect to the
funds: No fund will
1. Invest more than 25% of its total assets in securities, the issuers of
which conduct their principal business activities in the same industry.
For purposes of this limitation, securities of the U.S. government
(including its agencies and instrumentalities) and securities of state
or municipal governments and their political subdivisions are not
considered to be issued by members of any industry.
2. 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.
3. 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.
4. Make loans. This restriction does not apply to: (a) the purchase of
debt obligations in which the fund may invest consistent with its
investment objectives and policies; (b) repurchase agreements; and (c)
loans of its portfolio securities, to the fullest extent permitted
under the 1940 Act.
5. 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.
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 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.
8. No fund will invest in oil, gas or other mineral leases or exploration
or development programs.
9. No fund may write or sell puts, calls, straddles, spreads or
combinations of those transactions, except as permitted under the
fund's investment objective and policies.
10. No fund will purchase a security if, as a result, the fund would
then have more than 5% of its total assets invested in securities of
issuers (including predecessors) that have been in continuous operation
for fewer than three years, except that this limitation will be deemed
to apply to the entity supplying the revenues from which the issue is
to be paid, in the case of private activity bonds purchased.
11. No fund may make investments for the purpose of exercising control
of management.
TRUSTEES AND EXECUTIVE OFFICERS OF THE TRUST
The names of the trustees of the trust and executive officers of the
fund, together with information as to their principal business
occupations, are set forth below. The executive officers of the fund are
employees of organizations that provide services to the fund. Each
Trustee who is an "interested person" of the trust, as defined in the 1940
Act, is indicated by an asterisk.
Herbert Barg (Age 75). Private Investor. His address is 273 Montgomery
Avenue, Bala Cynwyd, Pennsylvania 19004.
Alfred J. Bianchetti (Age 76). Retired; formerly Senior Consultant to
Dean Witter Reynolds Inc. His address is 19 Circle End Drive, Ramsey, New
Jersey 07466.
Martin Brody (Age 77). 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 (Age 61). Professor, Harvard Business School. His
address is c/o Harvard Business School, Soldiers Field Road, Boston,
Massachusetts 02163.
Burt N. Dorsett (Age 68). 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 (Age 72). Chairman of the Board and President of The
Dress Barn, Inc. His address is 30 Dunnigan Drive, Suffern, New York
10901.
Stephen E. Kaufman (Age 67). Attorney. His address is 277 Park Avenue,
New York, New York 10172.
Joseph J. McCann (Age 68). 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 65).
Managing Director of Salomon Smith Barney, Inc., Chairman of the Board of
Smith Barney Strategy Advisers Inc. and President of SSBC and Travelers
Investment Adviser, Inc. ("TIA"); Chairman or Co-Chariman of the Board of
59 investment companies associated with Salomon Smith Barney. His address
is 388 Greenwich Street, New York, New York 10013.
Cornelius C. Rose, Jr. (Age 65). President, Cornelius C. Rose Associates,
Inc., financial consultants, and Chairman and Director of Performance
Learning Systems, an educational consultant. His address is Meadowbrook
Village, Building 4, Apt 6, West Lebanon, New Hampshire 03784.
*Lewis E. Daidone, Senior Vice President and Treasurer (Age 41). Managing
Director of Salomon Smith Barney, Chief Financial Officer of the Smith
Barney Mutual funds; Director and Senior Vice President of SSBC and TIA.
Joseph P. Deane, Vice President and Investment Officer (Age 49).
Investment Officer of SSBC; Managing Director of Salomon Smith Barney.
Peter Coffey, Vice President and Investment Officer (Age 52). Investment
Officer of SBBC; Managing Director of Salomon Smith Barney.
*Christina T. Sydor, Secretary (Age 47), Managing Director of Salomon
Smith Barney. General Counsel and Secretary of SSBC and TIA.
* Designates an "interested person" as defined in the Investment Company
Act of 1940, as amended (the "1940 Act") whose business address is 388
Greenwich Street, New York, New York 10013. Such person is not separately
compensated for services as a fund officer or Trustee.
As of January 15, 1999, the trustees and Officers of the Fund
as a group, owned less than 1.00% of the outstanding common stock of the Fund.
No officer, director or employee of Smith Barney or any of its affiliates
receives any compensation from the trust for serving as an officer of the
funds or trustee of the trust. The trust pays each trustee who is not an
officer, director or employee of Salomon Smith Barney or any of its
affiliates a fee of $8,000 per annum plus $500 per in-person meeting and
$100 per telephonic meeting. Each trustee emeritus who is not an officer,
director or employee of Salomon Smith Barney or its affiliates receives a
fee of $4,000 per annum plus $250 per in-person meeting and $50 per
telephonic meeting. All trustees are reimbursed for travel and out-of-
pocket expenses incurred to attend such meetings.
The following table contains a list of shareholders who of record or
beneficially owned at least 5% of the outstanding shares of a particular
class of shares of a fund of the Company as of January 15, 1998.
INTERMEDIATE MATURITY CALIFORNIA MUNICIPAL FUND CLASS A
PERCENTAGE OF SHARES
George Zaki Jr.and
Veronique Zaki TTEES
The Zaki Revocable Family Trust
U/A/D 4/22/93
6025 Cielo Vista Court
Camarillo, CA 93012-8210
Owned 174,790.796(5.20%)shares
INTERMEDIATE MATURITY CALIFORNIA MUNICIPAL FUND CLASS L
PERCENTAGE OF SHARES
Monty Fine Frock
8 Skyline Drive
Woodside, CA 94062-3720
Owned 56,080.021(9.24%)shares
Donald B. McCaw and
Camilla B. McCaw
TTEE FBO Donald B and Camilla
B. McCaw REV TST DTD 6/23/93
235 Montgomery St.
San Francisco, CA 94104
Owned 40,000.488(6.59%) shares
INTERMEDIATE MATURITY CALIFORNIA MUNICIPAL FUND CLASS Y
PERCENTAGE OF SHARES
Anthony S. Wong & Mandy Tang Wong
TTEES FBO the Amp Wong
Family Trust U/A/D 12/8/89
1071 Piedmont Drive
Sacramento, CA 95822
Owned 35,408.568(100%)shares
INTERMEDIATE MATURITY CALIFORNIA MUNICIPAL FUND CLASS L
PERCENTAGE OF SHARES
Muriel S. Kessler
60 East 42nd St.
Suite 1136
New York, New York 10165
Owned 33,918.751(6.28%)shares
Lynn Kestel
1185 Park Avenue
Apt. 4F
New York,NY 10128
Owned 31,210.501 (5.78%) shares
For the fiscal year ended November 30, 1998, the trustees of the trust
were paid the following compensation:
Name of Person
Aggregate
Compensation
from
California Fund #
Aggregate
Compensation from
New York
Fund #
Total
Pension or
Retirement
Benefits
Accrued
as part of
Fund
Expenses
Compensation
from Funds
and Fund
Complex
Paid to
Trustees
Number of
Funds for
Which
Trustees
Serves
Within
Fund
Complex
Herbert Barg
$6,600
$0
18
Alfred
Bianchetti**
6,600
0
13
Martin Brody
6,000
0
21
Dwight B. Crane
6,600
0
24
Burt N. Dorsett
6,600
0
13
Elliot S. Jaffe
6,600
0
13
Stephen E.
Kaufman
6,600
0
15
Joseph J.
McCann
6,600
0
13
Heath B.
McLendon **
- -
- -
42
Cornelius C.
Rose, Jr.
6,600
0
13
** Designated 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. A Trustee Emeritus may attend
meetings but has no voting rights. During the fund's last fiscal
year, aggregate compensation paid by the fund to trustees achieving
emeritus status totaled $11,423
Investment Adviser and Administrator - SSBC
SSBC (formerly known as Mutual Management Corp.) serves as investment
adviser to each fund pursuant to an investment advisory agreement (the
"Investment Advisory 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 Citigroup Inc. ("Citigroup").
Subject to the supervision and direction of the trust's board of trustees,
the manager manages each fund's portfolio in accordance with the fund's
stated investment objective and policies, makes investment decisions for
the fund, places order to purchase an sell securities, and employs
professional portfolio managers and securities analysts who provide
research services to 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 advisory service, each fund pays the
manager a fee computed daily and paid monthly at the annual rate of 0.30%
of the fund's average daily net assets.
The funds paid the manager investment advisory fees, and the investment
manager waived fees and reimbursed expenses as follows:
For the fiscal year ended
November 30, 1996
November 30, 1997
November 30, 1998
Fund
Fees
Paid
Fees
Waived and
Expenses
Reimbursed
Fees
Paid
Fees
Waived
and
Expenses
Reimbursed
Fees
Paid
Fees Waived
and
Expenses
Reimbursed
California
Fund
$0
$128,361
$20,278
$63,087
New York
Fund
32,306
122,796
59,523
90,299
SSBC also serves as administrator to the New York and California Funds
pursuant to a written agreement (the "Administration Agreement"), which
was approved by the trustees of the trust, including a majority of
trustees who are not "interested persons" of the trust or the
administrator. The services provided by the administrator under the
Administration Agreement are described in the prospectuses under
"Management." The administrator pays the salary of any officer and
employee who is employed by both it and the trust and bears all expenses
in connection with the performance of its services.
As compensation for administrative services rendered to each fund, the
administrator receives a fee computed daily and paid monthly at the annual
rate of 0.20% of each fund's average daily net assets.
The funds paid the administrator administration fees and the Administrator
waived fees as follows:
For the fiscal year ended
November 30, 1996
November 30, 1997
November 30, 1998
Fund
Fees
Paid
Fees
Waived and
Expenses
Reimbursed
Fees
Paid
Fees
Waived
and
Expenses
Reimburse
d
Fees
Paid
Fees Waived
and
Expenses
Reimbursed
California
Fund
$0
$85,575
$13,518
$42,058
New York
Fund
10,906
92,495
33,023
66.858
The trust bears expenses incurred in its operation, including: taxes,
interest, brokerage fees and commissions, if any; fees of trustees who are
not officers, directors, shareholders or employees of Salomon Smith Barney
or MMC, Securities and Exchange Commission ("SEC") fees and state Blue Sky
qualification fees; charges of custodians; transfer and dividend
disbursing agent fees; certain insurance premiums; outside auditing and
legal expenses; costs of maintaining corporate existence; costs of
investor services (including allocated telephone and personnel expenses);
costs of preparing and printing prospectuses for regulatory purposes and
for distribution to existing shareholders; costs of shareholders' reports
and shareholder meetings; and meetings of the officers or board of
trustees of the trust.
Year 2000 - The investment management services provided to the fund by the
manager and the services provided to shareholders by Salomon Smith Barney
depend on the smooth functioning of their computer systems. Many computer
software systems in use today cannot recognize the year 2000, but revert
to 1900 or some other date, due to the manner in which dates were encoded
and calculated. That failure could have a negative impact on the fund's
operations, including the handling of securities trades, pricing and
account services. The manager and Salomon Smith Barney have advised the
fund that they have been reviewing all of their computer systems and
actively working on necessary changes to their systems to prepare for the
year 2000 and expect that their systems will be compliant before that
date. In addition, the manager has been advised by the fund's custodian,
transfer agent, distributor and accounting service agent that they are
also in the process of modifying their systems with the same goal. There
can, however, be no assurance that the manager, Salomon Smith Barney or
any other service provider will be successful, or that interaction with
other non-complying computer systems will not impair fund services at that
time.
In addition, the ability of issuers to make timely payments of interest
and principal or to continue their operations or services may be impaired
by the inadequate preparation of their computer systems for the year 2000.
This may adversely affect the market values of securities of specific
issuers or of securities generally if the inadequacy of preparation is
perceived as widespread or as affecting trading markets.
Counsel and Auditors
Willkie Farr & Gallagher serves as legal counsel to the trust. The
trustees who are not "interested persons" of the trust have selected
Stroock & Stroock & Lavan LLP as their counsel.
KPMG LLP, independent auditors, 345 Park Avenue, New York, New York 10154,
have been selected to serve as auditors of the trust and to render
opinions on the fund's financial statements for the fiscal year ended
November 30, 1998.
Portfolio Transactions
Decisions to buy and sell securities for each fund are made by the
manager, subject to the overall review of the trust's board of trustees.
Although investment decisions for each fund are made independently from
those of the other accounts managed by the manager, investments of the
type that a fund may make also may be made by those other accounts. When
a 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 a fund or the
size of the position obtained or disposed of by a fund. The trust has
paid no brokerage commissions since its commencement of operations.
Allocation of transactions on behalf of the funds, 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 a 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 a 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 a fund.
No Fund will purchase U.S. government securities or Municipal Obligations
during the existence of any underwriting or selling group relating to the
securities, of which the Adviser is a member, except to the extent
permitted by the SEC. Under certain circumstances, a 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.
Portfolio Turnover
While a fund's 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% with respect to these funds. The rate of turnover will not
be a limiting factor, however, when a fund deems it desirable to sell or
purchase securities. This policy should not result in higher brokerage
commissions to a 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.
The portfolio turnover rates are as follows:
Fund
Year Ended
11/30/98
Year Ended
11/30/97
California Fund
9%
New York Fund
52%
PURCHASE OF SHARES
Volume Discounts
The schedules of sales charges described in the Prospectuses apply to
purchases of shares of each fund made by any "purchaser," which term is
defined to include the following: (a) an individual; (b) an individual's
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) 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 Salomon Smith Barney Financial Consultant.
Right of Accumulation
Class A shares of a fund may be purchased 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, at a
reduced sales charge or at net asset value determined by aggregating the
dollar amount of the new purchase and the total net asset value of all
Class A shares of the fund and of funds sponsored by Salomon Smith Barney
which are offered with a sales charge listed under "Exchange Privilege"
below then held by such person and applying the sales charge applicable to
such aggregate. In order to obtain such discount, the purchaser must
provide sufficient information at the time of purchase to permit
verification that the purchase qualifies for the reduced sales charge.
The right of accumulation is subject to modification or discontinuance at
any time with respect to all shares purchased thereafter.
Letter of Intent
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 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 sales charge
table in the prospectus includes purchases 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 charge
applicable to the purchases made and the charges previously paid, or an
appropriate number of escrowed shares will be redeemed. Please contact a
Salomon Smith Barney Financial Consultant or 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 fund's
Class A shares, which may include a Deferred Sales Charge of 1.00%. The
fund expects that such transfer will not be subject to Federal income
taxes. Please contact a Salomon Smith Barney Financial Consultant for
First Data for further information.
Determination of Public Offering Price
Each fund offers its shares to the public on a continuous basis. The
public offering price for a Class A and Class Y share of the fund is equal
to the net asset value per share at the time of purchase, plus for Class A
shares an initial sales charge based on the aggregate amount of the
investment. The public offering price for a Class L share (and Class A
share purchases, including applicable rights of accumulation, equaling or
exceeding $500,000) is equal to the net asset value per share at the time
of purchase and no sales charge is imposed at the time of purchase. A
Deferred Sales Charge, however, is imposed on certain redemptions of Class
L shares, and Class A shares when purchased in amounts exceeding $500,000.
The method of computation of the public offering price is shown in each
fund's financial statements, incorporated by reference in their entirety
into this SAI.
REDEMPTION OF SHARES
The right of redemption of shares of either 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 fund's 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 fund's
shareholders.
If the shares to be redeemed were issued in certificate form, the
certificates must be endorsed for transfer (or be accompanied by an
endorsed stock power) and must be submitted to 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 guarantor institution such as a domestic bank,
savings and loan institution, domestic credit union, member bank of the
Federal Reserve System or member firm of a national securities exchange.
Written redemption requests of $10,000 or less do not require a signature
guarantee unless more than one such redemption request is made in any
10-day period or the redemption proceeds are to be sent to an address
other than the address of record. Unless otherwise directed, redemption
proceeds will be mailed to an investor's address of record. First Data
may require additional supporting documents for redemptions made by
corporations, executors, administrators, trustees or guardians. A
redemption request will not be deemed properly received until First Data
receives all required documents in proper form.
If a shareholder holds shares in more than one Class, any request for
redemption must specify the Class being redeemed. In the event of a
failure to specify which Class, or if the investor owns fewer shares of
the Class than specified, the redemption request will be delayed until the
Transfer Agent receives further instructions from Salomon Smith Barney, or
if the shareholder's account is not with Salomon Smith Barney, from the
shareholder directly. The redemption proceeds will be remitted on or
before the third business day following receipt of proper tender, except
on any days on which the NYSE is closed or as permitted under the 1940
Act, in extraordinary circumstances. Generally, if the redemption
proceeds are remitted to a Salomon Smith Barney brokerage account, these
funds will not be invested for the shareholder's benefit without specific
instruction and Salomon Smith Barney will benefit from the use of
temporarily uninvested funds. Redemption proceeds for shares purchased by
check, other than a certified or official bank check, will be remitted
upon clearance of the check, which may take up to ten days or more.
Distribution 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, a 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 fund's 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 of any fund who own shares of the fund with a value of at
least $10,000 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. Any applicable Deferred Sales Charge
will not be waived on amounts withdrawn by shareholders that exceed 1.00%
per month of the value of a shareholder's shares at the time the
Withdrawal Plan commences. (With respect to Withdrawal Plans in effect
prior to November 7, 1994, any applicable Deferred Sales Charge will be
waived on amounts withdrawn that do not exceed 2.00% per month of the
value of a shareholder's shares at the time the Withdrawal Plan
commences). To the extent that withdrawals exceed dividends,
distributions and appreciation of a shareholder's investment in a fund,
continued withdrawal payments will reduce the shareholder's investment,
and may ultimately exhaust it. Withdrawal payments should not be
considered as income from investment in a 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 of a fund who wish to participate in the Withdrawal Plan and
who hold their shares of the fund in certificate form must deposit their
share certificates with the Transfer Agent 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 involved. A shareholder who purchases shares directly through
the Transfer Agent may continue to do so and applications for
participation in the Withdrawal Plan must be received by the Transfer
Agent no later than the eighth day of the month to be eligible for
participation beginning with that month's withdrawal. For additional
information, shareholders should contact a Smith Barney Financial
Consultant.
DISTRIBUTOR
CFBDS, Inc. serves as the fund's distributor pursuant to a written
agreement dated October 8, 1998 (the "Distribution Agreement") which was
approved by the fund's Board of Directors, including a majority of the
Independent Directors on July 15, 1998. Prior to the merger of Travelers
Group, Inc. and Citicorp Inc. on October 8, 1998, Salomon Smith Barney
served as the fund's distributor. For the 1996, 1997 and 1998 fiscal
years, Salomon Smith Barney, received $500,000, $115,000 and __________,
respectively, in sales charges from the sale of Class A shares, and did
not reallow any portion thereof to dealers. For the fiscal years ended
October 31, 1996, 1997 and 1998, Salomon Smith Barney or its predecessor
received from shareholders $119,000, $201,000 and $_________,
respectively, in Deferred Sales Charge on the redemption of Class B and
Class L shares.
For the fiscal years ended November 30, 1996, 1997, and 1998, the
Distributor or its predecessor Shearson Lehman Brothers received
approximately the following in sales charges for the sale of each fund's
Class A shares, and did not reallow any portion thereof to dealers:
Year
Ended
11/30/98
Year
Ended
11/30/97
Year
Ended
11/30/96
Fund
California Fund
$37,000
$39,000
New York Fund
46,000
48,000
For the fiscal years ended November 30, 1996, 1997, and 1998, the
Distributor or Shearson Lehman Brothers received approximately the
following representing Deferred Sales Charge on redemption of each fund's
Class A shares:
Year
Year
Year
Ended
Ended
Ended
Fund
11/30/98
11/30/97
11/30/96
California Fund
$
$
$
New York Fund
$
1,000
2,000
For the fiscal years ended November 30, 1996, 1997, and 1998, the
Distributor or Shearson Lehman Brothers received approximately the
following representing Deferred Sales Charge on redemption of each fund's
Class L shares:
Year
Year
Year
Ended
Ended
Ended
Fund
11/30/98
11/30/97
11/30/96
California Fund
$
$ 1,000
$
New York Fund
$
* The inception dates for Class L shares of California Fund and New York
Fund are November 8, 1994 and December 5, 1994, respectively
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 investor's 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 trust's 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 Advisory, Administration and Distribution Agreements for continuance.
For the fiscal year ended November 30, 1997, Smith Barney incurred
distribution expenses totaling approximately $184,083 consisting of
approximately $16,558 for advertising, $26,243 for printing and mailing of
prospectuses, $56,767 for support services, $83,151 to Smith Barney
Financial Consultants, and $1,334 in accruals for interest on the excess
of Smith Barney expenses incurred in distribution of the funds' shares
over the sum of the distribution fees and Deferred Sales Charge received
by Smith Barney from the fund.
Distribution Arrangements for the New York and California Fund
To compensate Smith Barney for the services it provides and for the
expense it bears, the trust has adopted a services and distribution plan
(the "Plan") pursuant to Rule 12b-1 under the 1940 Act. Under the Plan,
both the New York and California Fund pays Smith Barney a service fee,
accrued daily and paid monthly, calculated at the annual rate of 0.15% of
the value of the fund's average daily net assets attributable to the
fund's Class A and Class L shares. In addition, each fund pays Smith
Barney a distribution fee with respect to the Class L shares primarily
intended to compensate Smith Barney for its initial expense of paying its
Financial Consultants a commission upon sales of those shares. The Class
L distribution fee is calculated at the annual rate of 0.20% of the value
of each fund's average net assets attributable to the shares of the Class.
The following service and distribution fees were incurred during the
periods indicated:
SERVICE FEES
California Fund:
Year Ended
11/30/98
Year Ended
11/30/97
Year Ended
11/30/96
Class A
37,151
37,644
Class L
4,112
3,583
New York Fund:
Class A
72,443
$76,380
Class L
2,468
1,171
*The inception dates for Class L of California Fund and New York Fund are
November 8, 1994 and December 5, 1994, respectively.
DISTRIBUTION FEES
California Fund:
Year Ended
11/30/98
Year Ended
11/30/97
Year Ended
11/30/96
Class L
5,484
4,778
New York Fund:
Class L
3,290
1,562
* The inception dates for Class L shares of California Fund and New York
Fund are November 8, 1994 and December 5, 1994, respectively.
For the fiscal years ended November 30, 1996, 1997 and 1998 Salomon Smith
Barney, received $125,117, $124,948 and [ ], respectively, in the
aggregate from the Plan.
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.
VALUATION OF SHARES
The net asset value per share of each fund's 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 Year's 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.
In carrying out valuation policies adopted by the trust's board of
trustees for the New York and California Fund the Administrator, may
consult with an independent pricing service (the "Pricing Service")
retained by the trust. Debt securities of domestic issuers (other than
U.S. government securities and short-term investments), including
Municipal Obligations, are valued by the Adviser after consultation with
the Pricing Service. U.S. government 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 trust's board of trustees. With
respect to other securities held by the fund, when, in the judgment of the
Pricing Service, quoted bid prices for investments are readily available
and are representative of the bid side of the market, these investments
are valued at the mean between the quoted bid prices and asked prices.
Investments for which no readily obtainable market quotations are
available, in the judgment of the Pricing Service, are carried at fair
value as determined by the Pricing Service. The procedures of the Pricing
Service are reviewed periodically by the officers of the trust under the
general supervision and responsibility of the board of trustees.
EXCHANGE PRIVILEGE
Except as noted below, 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, 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 L shares of any fund may be exchanged without a sales
charge. For purposes of Deferred Sales Charge applicability, Class
L shares of the fund exchanged for Class L 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 in any Smith Barney Mutual
Fund to acquire shares of the same Class in a fund with different
investment objectives when they believe 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, subject to any applicable Deferred Sales Charge, 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.
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange
transactions can be detrimental to either fund's performance and its
shareholders. The manager may determine that a pattern of frequent
exchanges is excessive and contrary to the best interests of the fund's
other shareholders. In this event, each 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.
ADDITIONAL INFORMATION REGARDING TELEPHONE REDEMPTION AND
EXCHANGE PROGRAM.
Neither the funds nor their agents will be liable for following
instructions communicated by telephone that are reasonably believed to be
genuine. The funds nor their agents will employ procedures designed to
verify the identity of the caller and legitimacy of instructions (for
example, a shareholder's name and account number will be required and
phone calls may be recorded). Each 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.
PERFORMANCE DATA
From time to time, the trust may quote a fund's 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 each fund's shares. Such performance information may include
the following industry and financial publications- Barron's, Business
Week, CDA Investment Technologies, Inc., Changing Times, Forbes, Fortune,
Institutional Investor, Investors Daily, Money, Morningstar Mutual Fund
Values, The New York Times, USA Today and The Wall Street Journal. To the
extent any advertisement or sales literature of a fund describes the
expenses or performance of any Class it will also disclose such
information for the other Classes.
Yield and Equivalent Taxable Yield
A fund's 30-day yield described in the Prospectuses is calculated
according to a formula prescribed by the SEC, expressed as follows:
Yield = 2[(A - B + 1)6 - 1]
CD
Where: a = Dividends and interest earned during the period
b = Expenses accrued for the period (net of
reimbursements)
c = The average daily number of shares
outstanding during the period that were
entitled to receive dividends
d = The maximum offering price per share on the
last day of the period
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by a fund at a discount
or premium, the formula generally calls for amortization of the discount
or premium; the amortization schedule will be adjusted monthly to reflect
changes in the market values of the debt obligations.
A fund's "equivalent taxable 30-day yield" for a Class is computed by
dividing that portion of the Class' 30-day yield which is tax-exempt by
one minus a stated income tax rate and adding the product to that portion,
if any, of the Class' yield that is not tax-exempt.
The yield on municipal securities is dependent upon a variety of factors,
including general economic and monetary conditions, conditions of the
municipal securities market, size of a particular offering, maturity of
the obligation offered and rating of the issue. Investors should
recognize that, in periods of declining interest rates, a fund's yield for
each Class of shares will tend to be somewhat higher than prevailing
market rates, and in periods of rising interest rates a fund's yield for
each Class of shares will tend to be somewhat lower. In addition, when
interest rates are falling, the inflow of net new money to a fund from the
continuous sale of its shares will likely be invested in portfolio
instruments producing lower yields than the balance of the fund's
portfolio, thereby reducing the current yield of the fund. In periods of
rising interest rates, the opposite can be expected to occur.
The yields for the 30-day period ended November 30, 1998 for California
Fund's Class A, Class L and Class Y shares were ____%, ____% and ____%,
respectively. The yields for the 30-day period ended November 30, 1998
for New York Fund's Class A and Class L shares were ___% and ___%,
respectively.
The equivalent taxable yields for the 30-day period ended November 30,
1998 assuming payment of Federal income taxes at the rate of 31.0%;
California income taxes at the rate of 9.3% for the California Fund
shareholders; and New York State and City income taxes at a rate of 10.5%
for the New York Fund shareholders would have been as follows: California
Fund's Class A, Class L and Class Y shares: ____%, ____% and ____%,
respectively, and New York Fund's Class A and Class L shares: ____% and
____%, respectively.
Average Annual Total Return
A fund's "average annual total return," as described below, is 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 a 1-, 5- or 10-year
period (or fractional portion thereof), assuming
reinvestment of all dividends and distributions.
The ERV assumes complete redemption of the hypothetical investment at the
end of the measuring period. A fund's net investment income changes in
response to fluctuations in interest rates and the expenses of the fund.
The following total returns assume that the maximum Class A 2.00% sales
charge has been deducted from the investment at the time of purchase and
have been restated to show the change in the maximum sales charge. The
funds' average annual total return for Class A shares were as follows:
ONE AND FIVE YEAR PERIODS
ENDED NOVEMBER 30, 1998
Fund
Total 1-Year Return
(Without Sales
Charge)
Total 5-Year Return
(Without Sales
Charge)
California Fund
New York Fund
The funds' average annual total return for Class L shares were as follows:
ONE AND FIVE YEAR PERIOD
ENDED NOVEMBER 30, 1998
Fund
Total 1-Year Return
(Without Sales
Charge)
California Fund
New York Fund
* For the period from December 5, 1994 (inception date) to November 30,
1995
PER ANNUM FOR THE PERIOD FROM
COMMENCEMENT OF OPERATIONS
(NOVEMBER 8, 1994) THROUGH NOVEMBER 30, 1998
Fund
Total 1-Year Return
(Without Sales
Charge)
California Fund
New York Fund
The funds' average annual total return for Class Y shares were as follows:
ONE YEAR PERIOD
ENDED NOVEMBER 30, 1998
Fund
Total Return
(Without Sales
Charge)
California Fund
New York Fund
* For the period from September 8, 1995 (inception date) to November
30, 1997.
** [As of November 30, 1998, no Class Y shares of New York Fund had
been sold.]
Aggregate Total Return
A fund's "aggregate total return," as described below, represents the
cumulative change in the value of an investment in the fund for the
specified period and is computed by the following formula:
ERV - P
P
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical
$10,000 investment made at the beginning of the
1-, 5- or 10-year period at the end of the 1-,
5- or 10-year period (or fractional portion
thereof), assuming reinvestment of all dividends
and distributions.
The ERV assumes complete redemption of the hypothetical investment at the
end of the measuring period.
The funds' aggregate total return for Class A shares were as follows:
ONE AND FIVE YEAR PERIODS
ENDED NOVEMBER 30, 1998
Fund
Total 1-Year Return
(Without Sales
Charge)
Total 5-Year Return
(Without Sales
Charge)
California Fund
New York Fund
PER ANNUM FOR THE PERIOD FROM
COMMENCEMENT OF OPERATIONS
(NOVEMBER 8, 1994) THROUGH NOVEMBER 30, 1998
Fund
Total 1-Year Return
(Without Sales
Charge)
California Fund
New York Fund
The fund's aggregate total return for Class L shares were as follows:
ONE YEAR PERIOD
ENDED NOVEMBER 30, 1998
Fund
Total Return
(Without Sales
Charge)
California Fund
New York Fund
* For the period from December 5, 1994 (inception date) to November 30,
1997
PER ANNUM FOR THE PERIOD FROM
COMMENCEMENT OF OPERATIONS
(NOVEMBER 8, 1994) THROUGH NOVEMBER 30, 1998
Fund
Total 1-Year Return
(Without Sales
Charge)
California Fund
New York Fund
The funds' aggregate total return for Class Y shares were as follows:
ONE YEAR PERIOD
ENDED NOVEMBER 30, 1998
Fund
Total Return
(Without Sales
Charge)
California Fund
* For the period from September 8, 1995 (inception date) to November 30,
1997.
** [As of November 30, 1997, no Class Y shares of New York Fund had been
sold.]
It is important to note that the total return figures set forth above are
based on historical earnings and are not intended to indicate future
performance. Each Class' net investment income changes in response to
fluctuations in interest rates and the expenses of the fund. Performance
will vary from time to time depends upon market conditions, the
composition of the fund's portfolio and operating expenses and the
expenses exclusively attributable to the Class. Consequently, any given
performance quotation should not be considered representative of the
Class' performance for any specified period in the future. Because
performance will vary, it may not provide a basis for comparing an
investment in the Class with certain bank deposits or other investments
that pay a fixed yield for a stated period of time. Investors comparing a
Class' performance with that of other mutual funds should give
consideration to the quality and maturity of the respective investment
companies' portfolio securities.
TAXES
The following is a summary of the material United States federal
income tax considerations regarding the purchase, ownership and
disposition of shares of a fund. Each prospective shareholder is urged to
consult his or her tax adviser with respect to the specific federal, state
and local consequences of investing in each fund. The summary is based on
the laws in effect on the date of this Statement of Additional
Information, which are subject to change.
The Funds and Its Investments
As described in the each Fund's Prospectus, each Fund is designed to
provide shareholders with current income which is excluded from gross
income for federal income tax purposes and which is exempt from California
or New York State and New York City personal income taxes. Each Fund is
not intended to constitute a balanced investment program and is not
designed for investors seeking capital gains or maximum tax-exempt income
irrespective of fluctuations in principal. Investment in each Fund would
not be suitable for tax-exempt institutions, qualified retirement plans,
H.R. 10 plans and individual retirement accounts because such investors
would not gain any additional tax benefit from the receipt of tax-exempt
income.
Each fund intends to continue to qualify to be treated as a
regulated investment company each taxable year under the Internal Revenue
Code of 1986, as amended (the "Code"). To so qualify, each fund must,
among other things: (a) derive at least 90% of its gross income in each
taxable year from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of stock or securities
or foreign currencies, or other income (including, but not limited to,
gains from options, futures or forward contracts) derived with respect to
its business of investing in such stock, securities or currencies; and (b)
diversify its holdings so that, at the end of each quarter of the fund's
taxable year, (i) at least 50% of the market value of the fund's assets is
represented by cash, securities of other regulated investment companies,
United States government securities and other securities, with such other
securities limited, in respect of any one issuer, to an amount not greater
than 5% of the fund's assets and not greater than 10% of the outstanding
voting securities of such issuer and (ii) not more than 25% of the value
of its assets is invested in the securities (other than United States
government securities or securities of other regulated investment
companies) of any one issuer or any two or more issuers that the fund
controls and are determined to be engaged in the same or similar trades or
businesses or related trades or businesses.
As a regulated investment company, each Fund will not be subject to
United States federal income tax on its net investment income (i.e.,
income other than its net realized long- and short-term capital gains) and
its net realized long- and short-term capital gains, if any, that it
distributes to its shareholders, provided that an amount equal to at least
90% of the sum of its investment company taxable income (i.e., 90% of its
taxable income minus the excess, if any, of its net realized long-term
capital gains over its net realized short-term capital losses (including
any capital loss carryovers), plus or minus certain other adjustments as
specified in the Code) and its net tax-exempt income for the taxable year
is distributed in compliance with the Code's timing and other requirements
but will be subject to tax at regular corporate rates on any taxable
income or gains that it does not distribute. Furthermore, each Fund will
be subject to a United States corporate income tax with respect to such
distributed amounts in any year that it fails to qualify as a regulated
investment company or fails to meet this distribution requirement.
The Code imposes a 4% nondeductible excise tax on each Fund to the
extent it does not distribute by the end of any calendar year at least 98%
of its net investment income for that year and 98% of the net amount of
its capital gains (both long-and short-term) for the one-year period
ending, as a general rule, on October 31 of that year. For this purpose,
however, any income or gain retained by each Fund that is subject to
corporate income tax will be considered to have been distributed by year-
end. In addition, the minimum amounts that must be distributed in any
year to avoid the excise tax will be increased or decreased to reflect any
underdistribution or overdistribution, as the case may be, from the
previous year. Each Fund anticipates that it will pay such dividends and
will make such distributions as are necessary in order to avoid the
application of this tax.
If, in any taxable year, each Fund fails to qualify as a regulated
investment company under the Code or fails to meet the distribution
requirement, it would be taxed in the same manner as an ordinary
corporation and distributions to its shareholders would not be deductible
by each Fund in computing its taxable income. In addition, in the event
of a failure to qualify, each Fund's distributions, to the extent derived
from each Fund's current or accumulated earnings and profits would
constitute dividends (eligible for the corporate dividends-received
deduction) which are taxable to shareholders as ordinary income, even
though those distributions might otherwise (at least in part) have been
treated in the shareholders' hands as tax-exempt interest. If each Fund
fails to qualify as a regulated investment company in any year, it must
pay out its earnings and profits accumulated in that year in order to
qualify again as a regulated investment company. In addition, if each
Fund failed to qualify as a regulated investment company for a period
greater than one taxable year, each Fund may be required to recognize any
net built-in gains (the excess of the aggregate gains, including items of
income, over aggregate losses that would have been realized if it had been
liquidated) in order to qualify as a regulated investment company in a
subsequent year.
Each Fund's transactions in municipal bond index and interest rate
futures contracts and options on these futures contracts (collectively
"section 1256 contracts") will be subject to special provisions of the
Code (including provisions relating to "hedging transactions" and
"straddles") that, among other things, may affect the character of gains
and losses realized by each Fund (i.e., may affect whether gains or losses
are ordinary or capital), accelerate recognition of income to each Fund
and defer fund losses. These rules could therefore affect the character,
amount and timing of distributions to shareholders. These provisions also
(a) will require each Fund to mark-to-market certain types of the
positions in its portfolio (i.e., treat them as if they were closed out)
and (b) may cause each Fund to recognize income without receiving cash
with which to pay dividends or make distributions in amounts necessary to
satisfy the distribution requirements for avoiding income and excise
taxes. Each Fund will monitor its transactions, will make the appropriate
tax elections and will make the appropriate entries in its books and
records when it engages in these transactions in order to mitigate the
effect of these rules and prevent disqualification of a fund as a
regulated investment company.
All section 1256 contracts held by each Fund at the end of its
taxable year are required to be marked to their market value, and any
unrealized gain or loss on those positions will be included in each Fund's
income as if each position had been sold for its fair market value at the
end of the taxable year. The resulting gain or loss will be combined with
any gain or loss realized by each Fund from positions in section 1256
contracts closed during the taxable year. Provided such positions were
held as capital assets and were not part of a "hedging transaction" nor
part of a "straddle," 60% of the resulting net gain or loss will be
treated as long-term capital gain or loss, and 40% of such net gain or
loss will be treated as short-term capital gain or loss, regardless of the
period of time the positions were actually held by each Fund.
Taxation of Shareholders
Because each Fund will distribute exempt-interest dividends,
interest on indebtedness incurred by a shareholder to purchase or carry
Fund shares is not deductible for Federal income tax purposes. In
addition, the indebtedness is not deductible by a shareholder of the
California Fund for California State personal income tax purposes, nor by
a New York Fund shareholder for New York State and New York City personal
income tax purposes. If a shareholder receives exempt-interest dividends
with respect to any share and if such share is held by the shareholder for
six months or less, then, for Federal income tax purposes, any loss on the
sale or exchange of such share may, to the extent of exempt-interest
dividends, be disallowed. In addition, the Code may require a
shareholder, if he or she receives exempt-interest dividends, to treat as
Federal taxable income a portion of certain otherwise non-taxable social
security and railroad retirement benefit payments. Furthermore, that
portion of any exempt-interest dividend paid by each Fund which represents
income derived from private activity bonds held by each Fund may not
retain its Federal tax-exempt status in the hands of a shareholder who is
a "substantial user" of a facility financed by such bonds or a "related
person" thereof. Moreover, some or all of each Fund's dividends may be a
specific preference item, or a component of an adjustment item, for
purposes of the Federal individual and corporate alternative minimum
taxes. In addition, the receipt of each Fund's dividends and
distributions may affect a foreign corporate shareholder's Federal "branch
profits" tax liability and the Federal or California "excess net passive
income" tax liability of a shareholder of a Subchapter S corporation.
Shareholders should consult their own tax advisors to determine whether
they are (a) substantial users with respect to a facility or related to
such users within the meaning of the Code or (b) subject tot a federal
alternative minimum tax, the Federal branch profits tax or the Federal
"excess net passive income" tax.
Each Fund does not expect to realize a significant amount of capital
gains. Net realized short-term capital gains are taxable to a United
States shareholder as ordinary income, whether paid in cash or in shares.
Distributions of net-long-term capital gains, if any, that each Fund
designates as capital gains dividends are taxable as long-term capital
gains, whether paid in cash or in shares and regardless of how long a
shareholder has held shares of each Fund.
Shareholders receiving dividends or distributions in the form of
additional shares should have a cost basis in the shares received equal to
the amount of money that the shareholders receiving cash dividends or
distributions will receive.
Upon the sale or exchange of his shares, a shareholder will realize
a taxable gain or loss equal to the difference between the amount realized
and his basis in his shares. Such gain or loss will be treated as capital
gain or loss, if the shares are capital assets in the shareholder's hands,
and will be long-term capital gain or loss if the shares are held for more
than one year and short-term capital gain or loss if the shares are held
for one year or less. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced, including
replacement through the reinvesting of dividends and capital gains
distributions in each Fund, within a 61-day period beginning 30 days
before and ending 30 days after the disposition of the shares. In such a
case, the basis of the shares acquired will be increased to reflect the
disallowed loss. Any loss realized by a shareholder on the sale of a fund
share held by the shareholder for six months or less(to the extent not
disallowed pursuant to the six-month rule described above relating to
exempt-interest dividends) will be treated for United States federal
income tax purposes as a long-term capital loss to the extent of any
distributions or deemed distributions of long-term capital gains received
by the shareholder with respect to such share.
If a shareholder incurs a sales charge in acquiring shares of a
Fund, disposes of those shares within 90 days and then acquires shares in
a mutual fund for which the otherwise applicable sales charge is reduced
by reason of a reinvestment right (e.g., an exchange privilege), the
original sales charge will not be taken into account in computing gain or
loss on the original shares to the extent the subsequent sales charge is
reduced. Instead, the disregarded portion of the original sales charge
will be added to the tax basis in the newly acquired shares. Furthermore,
the same rule also applies to a disposition of the newly acquired shares
made within 90 days of the second acquisition. This provision prevents a
shareholder from immediately deducting the sales charge by shifting his or
her investment in a family of mutual funds.
Backup Withholding. Each Fund may be required to withhold, for
United States federal income tax purposes, 31% of (a) taxable dividends
and distributions and (b) redemption proceeds payable to shareholders who
fail to provide each Fund with their correct taxpayer identification
number or to make required certifications, or who have been notified by
the IRS that they are subject to backup withholding. Certain shareholders
are exempt from backup withholding. Backup withholding is not an
additional tax and any amount withheld may be credited against a
shareholder's United States federal income tax liabilities.
Notices. Shareholders will be notified annually by a Fund as to the
United States federal income tax and California or New York State and New
York City personal income tax status of the dividends and distributions
made by a Fund to its shareholders. These statements also will designate
the amount of exempt-interest dividends that is a preference item for
purposes of the Federal individual and corporate alternative minimum
taxes. The dollar amount of dividends excluded or exempt from Federal
income taxation and California or New York State and New York City
personal income taxation and the dollar amount of dividends subject to
Federal income taxation and California or New York State and New York City
personal income taxation, if any, will vary for each shareholder depending
upon the size and duration of each shareholder's investment in a Fund. To
the extent each Fund earns taxable net investment income, it intends to
designate as taxable dividends the same percentage of each day's dividend
as its taxable net investment income bears to its total net investment
income earned on that day.
The foregoing is only a summary of certain material tax consequences
affecting each Fund and its shareholders. Shareholders are advised to
consult their own tax advisers with respect to the particular tax
consequences to them of an investment in each Fund.
ADDITIONAL INFORMATION
The trust was organized as an unincorporated Massachusetts business trust
on October 17, 1991 under the name Shearson Lehman Brothers Intermediate-
Term trust. On October 14, 1994 and August 16, 1995, the trust's name was
changed to Smith Barney Income Trust and Smith Barney Investment Trust,
respectively.
PNC Bank, National Association, located at 17th and Chestnut Streets,
Philadelphia, Pennsylvania, 19103, serves as the custodian of the fund.
Under its custody agreement with the fund, PNC holds the fund's securities
and keeps all necessary accounts and records. For its services, PNC
receives a monthly fee based upon the month-end market value of securities
held in custody and also receives securities transactions charges. The
assets of the fund are held under bank custodianship in compliance with
the 1940 Act.
First Data, is located at Exchange Place, Boston, Massachusetts 02109, and
serves as the trust's transfer agent. Under the transfer agency
agreement, the Transfer Agent 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, the Transfer Agent 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.
APPENDIX
RATINGS ON DEBT OBLIGATIONS
BOND (AND NOTES) RATINGS
Moody's Investors Service, Inc.
Aaa - Bonds that are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are protected by
a large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds that are rated "Aa" are judged to be of high quality by
all standards. Together with the "Aaa" group they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present that make the long term
risks appear somewhat larger than in "Aaa" securities.
A - Bonds that are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate
but elements may be present that suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds that are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C - Bonds which are rated C are the lowest class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
Standard & Poor's
AAA - Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small
degree.
A - Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB - Debt rated "BBB" is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB, B, CCC, CC, C - Debt rated `BB', `B', `CCC', `CC' or `C' is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms
of the obligation. `BB' indicates the lowest degree of speculation and `C'
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Plus (+) or Minus (-): The ratings from `AA' to `B' may be modified
by the addition of a plus or minus sign to show relative standing within
the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment
of debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however,
while addressing credit quality subsequent to completion of the project,
makes no comment on the likelihood of, or the risk of default upon failure
of, such completion. The investor should exercise judgment with respect to
such likelihood and risk.
L - The letter "L" indicates that the rating pertains to the
principal amount of those bonds where the underlying deposit collateral is
fully insured by the Federal Savings & Loan Insurance Corp. or the Federal
Deposit Insurance Corp.
+ - Continuance of the rating is contingent upon S&P's receipt of
closing documentation confirming investments and cash flow.
* - Continuance of the rating is contingent upon S&P's receipt of an
executed copy of the escrow agreement.
NR - Indicates no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.
Fitch IBCA, Inc.
AAA - Bonds rated AAA by Fitch have the lowest expectation of credit
risk. The obligor has an exceptionally strong capacity for timely payment
of financial commitments which is highly unlikely to be adversely affected
by foreseeable events.
AA - Bonds rated AA by Fitch have a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitment. This capacity is not significantly vulnerable to foreseeable
events.
A - Bonds rated A by Fitch are considered to have a low expectation
of credit risk. The capacity for timely payment of financial commitments
is considered to be strong, but may be more vulnerable to changes in
economic conditions and circumstances than bonds with higher ratings.
BBB - Bonds rated BBB by Fitch currently have a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to impair this capacity. This is
the lowest investment grade category assigned by Fitch.
BB - Bonds rated BB by Fitch carry the possibility of credit risk
developing, particularly as the result of adverse economic change over
time. Business or financial alternatives may, however, be available to
allow financial commitments to be met. Securities rated in this category
are not considered by Fitch to be investment grade.
B - Bonds rated B by Fitch carry significant credit risk, however, a
limited margin of safety remains. Although financial commitments are
currently being met, capacity for continued payment depends upon a
sustained, favorable business and economic environment.
CCC, CC, C - Default on bonds rated CCC,CC, and C by Fitch is a real
possibility. The capacity to meet financial commitments depends solely on
a sustained, favorable business and economic environment. Default of some
kind on bonds rated CC appears probable, a C rating indicates imminent
default.
Plus and minus signs are used by Fitch to indicate the relative
position of a credit within a rating category. Plus and minus signs
however, are not used in the AAA category.
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.
Issuers rated "Prime-1" (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment will normally be evidenced by the following
characteristics: leading market positions in well-established industries;
high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection;
broad margins in earnings coverage of fixed financial changes and high
internal cash generation; well-established access to a range of financial
markets and assured sources of alternate liquidity.
Issuers rated "Prime-2" (or related supporting institutions) have
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Standard & Poor's
A-1 - This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issuers
determined to possess overwhelming safety characteristics will be denoted
with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for
issues designated A-1.
Fitch IBCA, Inc.
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years,
including commercial paper, certificates of deposit, medium-term notes,
and municipal and investment notes.
The short-term rating places greater emphasis than a long-term rating
on the existence of liquidity necessary to meet financial commitment in a
timely manner.
Fitch's short-term ratings are as follows:
F1+ - Issues assigned this rating are regarded as having the
strongest capacity for timely payments of financial commitments. The "+"
denotes an exceptionally strong credit feature.
F1 - Issues assigned this rating are regarded as having the strongest
capacity for timely payment of financial commitments.
F2 - Issues assigned this rating have a satisfactory capacity for
timely payment of financial commitments, but the margin of safety is not
as great as in the case of the higher ratings.
F3 - The capacity for the timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction
to non investment grade.
Duff & Phelps Inc.
Duff 1+ - Indicates the highest certainty of timely payment: short-
term liquidity is clearly outstanding, and safety is just below risk-free
United States Treasury short-term obligations.
Duff 1 - Indicates a high certainty of timely payment.
Duff 2 - Indicates a good certainty of timely payment: liquidity
factors and company fundamentals are sound.
The Thomson BankWatch ("TBW")
TBW-1 - Indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.
TBW-2 - While the degree of safety regarding timely repayment of
principal and interest is strong, the relative degree of safety is not as
high as for issues rated TBW-1.
Smith Barney
Investment
Trust
SMITH BARNEY
INVESTMENT TRUST
388 Greenwich Street
New York, NY 10013
SMITH BARNEY
A Member of Travelers Group
Smith Barney S&P 500 Index Fund
SMITH BARNEY INVESTMENT TRUST
388 Greenwich Street
New York, New York 10013
(800) 451-2010
Statement of Additional
Information
March 30, 1999
This Statement of Additional Information ("SAI") is meant to be read in
conjunction with the prospectus of the Smith Barney S&P 500 Index Fund
(the "fund") dated March 30, 1999, as amended or supplemented from time to
time, and is incorporated by reference in its entirety into the
prospectus. Additional information about the fund's investments is
available in the fund's annual and semi-annual reports to shareholders
which are incorporated herein by reference. The prospectus and copies of
the reports may be obtained free of charge by contacting a Salomon Smith
Barney Financial Consultant, or by writing or calling Salomon Smith Barney
at the address or telephone number above. The fund is a separate
investment series of Smith Barney Investment Trust (the "trust").
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 1
TRUSTEES AND EXECUTIVE OFFICERS OF THE TRUST 9
PURCHASE OF SHARES 14
REDEMPTION OF SHARES 16
ADDITIONAL INFORMATION REGARDING TELEPHONE REDEMPTION
AND EXCHANGE PROGRAM 18
DISTRIBUTOR 18
VALUATION OF SHARES 19
PERFORMANCE DATA 19
TAXES 21
ADDITIONAL INFORMATI ON 23
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The prospectus discusses the fund's investment objective and policies.
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 the fund may utilize and
certain risks associated with these investments, policies and strategies.
Travelers Investment Management Company ("TIMCO" or the "manager") serves
as investment manager to the fund.
The fund seeks to achieve its objective by investing, under normal
circumstances, at least 80% of its total assets in common stocks included
in the S&P 500 Index in approximately the same weightings as the S&P 500
Index. The fund intends to invest in substantially all of the stocks that
comprise the S&P 500 Index. The fund operates as a "pure" index fund and
will not be actively managed; as such, adverse performance of a security
will ordinarily not result in the elimination of the security from the
fund's portfolio. The fund will be reviewed daily and adjusted, when
necessary, to maintain security weightings as close to those of the S&P
500 Index as possible, given the amount of assets in the fund at that
time.
Repurchase Agreements. The fund may agree to purchase securities from a
bank or recognized securities dealer and simultaneously commit to resell
the securities to the bank or dealer at an agreed-upon date and price
reflecting a market rate of interest unrelated to the coupon rate or
maturity of the purchased securities ("repurchase agreements"). The fund
would maintain custody of the underlying securities prior to their
repurchase; thus, the obligation of the bank or dealer to pay the
repurchase price on the date agreed to would be, in effect, secured by
such securities. If the value of such securities were less than the
repurchase price, plus interest, the other party to the agreement would be
required to provide additional collateral so that at all times the
collateral is at least 102% of the repurchase price plus accrued interest.
Default by or bankruptcy of a seller would expose the fund to possible
loss because of adverse market action, expenses and/or delays in
connection with the disposition of the underlying obligations. The
financial institutions with which the fund may enter into repurchase
agreements will be banks and non-bank dealers of U.S. Government
securities that are listed on the Federal Reserve Bank of New York's list
of reporting dealers, if such banks and non-bank dealers are deemed
creditworthy by the fund's manager. The manager will continue to monitor
creditworthiness of the seller under a repurchase agreement, and will
require the seller to maintain during the term of the agreement the value
of the securities subject to the agreement to equal at least 102% of the
repurchase price (including accrued interest). In addition, the manager
will require that the value of this collateral, after transaction costs
(including loss of interest) reasonably expected to be incurred on a
default, be equal to 102% or greater than the repurchase price (including
accrued premium) provided in the repurchase agreement or the daily
amortization of the difference between the purchase price and the
repurchase price specified in the repurchase agreement. The manager will
mark-to-market daily the value of the securities. Repurchase agreements
are considered to be loans by the fund under the 1940 Act.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the fund may lend portfolio securities to brokers, dealers
and other financial organizations that meet capital and other credit
requirements or other criteria established by the Board. The fund will
not lend portfolio securities to affiliates of the Adviser unless they
have applied for and received specific authority to do so from the SEC.
Loans of portfolio securities will be collateralized by cash, letters of
credit or U.S. Government Securities, which are maintained at all times in
an amount equal to at least 102% of the current market value of the loaned
securities. Any gain or loss in the market price of the securities loaned
that might occur during the term of the loan would be for the account of
the fund. From time to time, the fund may return a part of the interest
earned from the investment of collateral received for securities loaned to
the borrower and/or a third party that is unaffiliated with the fund and
that is acting as a "finder."
By lending its securities, the fund can increase its income by continuing
to receive interest and any dividends on the loaned securities as well as
by either investing the collateral received for securities loaned 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.
Although the generation of income is not the primary investment goal of
the fund, income received could be used to pay the fund's expenses and
would increase an investor's total return. The fund will adhere to the
following conditions whenever its portfolio securities are loaned:
(i) the fund must receive at least 102% cash collateral or equivalent
securities of the type discussed in the preceding paragraph from the
borrower; (ii) the borrower must increase such collateral whenever the
market value of the securities rises above the level of such collateral;
(iii) the fund must be able to terminate the loan at any time; (iv) the
fund must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities and
any increase in market value; (v) the fund may pay only reasonable
custodian fees in connection with the loan; and (vi) voting rights on the
loaned securities may pass to the borrower, provided, however, that if a
material event adversely affecting the investment occurs, the Board must
terminate the loan and regain the right to vote the securities. Loan
agreements involve certain risks in the event of default or insolvency of
the other party including possible delays or restrictions upon a Fund's
ability to recover the loaned securities or dispose of the collateral for
the loan.
Foreign Securities. The fund may purchase common stocks of foreign
corporations represented in the S&P 500 Index (such securities are
publicly traded on securities exchanges or over-the-counter in the United
States). The fund's investment in common stock of foreign corporations
represented in the S&P 500 Index may also be in the form of American
Depository Receipts (ADRs). ADRs are receipts typically issued by a
United States bank or trust company evidencing ownership of the underlying
securities and are designated for use in the U.S. Securities markets.
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, 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. Investments in foreign securities may be affected by changes in
governmental administration or economic policy (in the United Stated and
abroad) or changed circumstances in dealings between nations. Foreign
companies may be subject to less governmental regulation than U.S.
companies. Securities of foreign companies may be more volatile than
securities of U.S. companies. 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.
Money Market Instruments. The fund may invest up to 20% of its assets in
corporate and government bonds and notes and money market instruments.
Money market instruments include: obligations issued or guaranteed by the
United States government, its agencies or instrumentalities ("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.
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.
Futures and Options. The fund may enter into futures contracts, options,
and options on futures contracts, subject to the limitation that the value
of these futures contracts and options will not exceed 20% of the fund's
total assets. Also, the fund will not purchase options to the extent that
more than 5% of the value of the fund's total assets would be invested in
premiums on open put option positions. These futures contracts and
options will be used for the following reasons: to simulate full
investment in the S&P 500 Index while retaining a cash balance for fund
management purposes, to facilitate trading, to reduce transaction costs or
to seek higher investment returns when a futures contract is priced more
attractively than stocks comprising the S&P 500 Index. The fund will only
enter into futures contracts and options on futures contracts that are
traded on a domestic exchange and board of trade. The fund will not use
futures or options for speculative purposes.
A call option gives a holder the right to purchase a specific security at
a specified price referred to as the "exercise price," within a specified
period of time. A put option gives a holder the right to sell a specific
security at a specified price within a specified period of time. The
initial purchaser of a call option pays the "writer" a premium, which is
paid at the time of purchase and is retained by the writer whether or not
such option is exercised. Institutions, such as the fund, that sell (or
"write") call options against securities held in their investment
portfolios retain the premium. The fund may purchase put options to hedge
its portfolio against the risk of a decline in the market value of
securities held, and may purchase call options to hedge against an
increase in the price of securities it is committed to purchase. The fund
may write put and call options along with a long position in options to
increase its ability to hedge against a change in the market value of the
securities it holds or is committed to purchase.
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. Stock index futures contracts are
based on indices that reflect the market value of common stock of the
firms included in the indices. The fund may enter into futures contracts
to purchase securities when the manager anticipates purchasing the
underlying securities and believes that prices will rise before the
purchase will be made. Assets committed to futures contracts will be
segregated at the fund's custodian to the extent required by law.
There are several risks accompanying the utilization of futures contracts
and options on futures contracts. First, positions in futures contracts
and options on futures contracts may be closed only on an exchange or
board of trade that furnishes a secondary market for such contracts.
While the fund plans to utilize future contracts only if there exists an
active market for such contracts, there is no guarantee that a liquid
market will exist for the contracts at a specified time. Furthermore,
because, by definition, futures contracts look to projected price levels
in the future and not to current levels of valuation, market circumstances
may result in there being a discrepancy between the price of the stock
index future and the movement in the stock index. The absence of a
perfect price correlation between the futures contract and its underlying
stock index could stem from investors choosing to close futures contracts
by offsetting transactions, rather than satisfying additional margin
requirements. This could result in a distortion of the relationship
between the index and futures market. In addition, because the futures
market imposes less burdensome margin requirements than the securities
market, an increased amount of participation by speculators in the futures
market could result in price fluctuations.
In view of these considerations, the fund will comply with the following
restrictions when purchasing and selling futures contracts. First, the
fund will not participate in futures transactions if the sum of its
initial margin deposits on open contracts will exceed 5% of the market
value of the fund's total assets, after taking into account the unrealized
profits and losses on those contracts which it has entered. Second, the
fund will not enter into these contracts for speculative purposes. Third,
the fund will limit transactions in futures and options on futures to the
extent necessary to prevent the fund from being deemed a "commodity pool"
under regulations of the Commodity Futures Trading Commission.
No consideration will be paid or received by the fund upon entering into 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
board of trade on which the contract is traded and members of such board
of trade may charge a higher amount). This amount, known as "initial
margin," is in the nature of a performance bond or good faith deposit on
the contract and 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 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." At
any time prior to expiration of a futures contract, the fund may elect to
close the position by taking an opposite position, which will operate to
terminate the fund's existing position in the contract.
Although the fund intends to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active
market will exist for the contracts at any particular time. Most U.S.
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, and an increase in the value of the portion of the fund
being hedged, if any, may partially or completely offset losses on the
futures contract. As described above, however, there is no guarantee that
the price of the securities being hedged will, in fact, correlate with the
price movements in a futures contract and thus provide an offset to losses
on the futures contract.
If the fund hedges against the possibility of a change in market
conditions adversely affecting the value of securities held in its
portfolio and market conditions move in a direction opposite to that which
has been anticipated, the fund will lose part or all of the benefit of the
increased value of securities that it has hedged because it will have
offsetting losses in its futures positions. In addition, in such
situations, if the fund had insufficient cash, it may have to sell
securities to meet daily variation margin requirements at a time when it
may be disadvantageous to do so. These sales of securities may, but will
not necessarily, be at increased prices that reflect the change in
interest rates, market conditions or currency values, as the case may be.
Options on Futures Contracts. An option on a futures contract, as
contrasted with the direct investment in such a contract, gives the
purchaser the right, in return for the premium paid, to assume a position
in the underlying futures contract at a specified exercise price at any
time prior to the expiration date of the option. Upon exercise of an
option, the delivery of the futures position by the writer of the option
to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures contract
exceeds, in the case of a call, or is less than, in the case of put, the
exercise price of the option on the futures contract. The potential for
loss related to the purchase of an option on a futures contract is limited
to the premium paid for the option plus transaction costs. Because the
value of the option is fixed at the point of sale, there are no daily cash
payments to reflect changes in the value of the underlying contract;
however, the value of the option does change daily and that change would
be reflected in the net asset value of the fund.
The fund may purchase and write put and call options on futures contracts
that are traded on a U.S. exchange or board of trade as a hedge against
changes in the value of its portfolio securities, or in anticipation of
the purchase of securities, and may enter into closing transactions with
respect to such options to terminate existing positions. There is no
guarantee that such closing transactions can be effected.
Several risks are associated with options on futures contracts. The
ability to establish and close out positions on such options will be
subject to the existence of a liquid market. In addition, the purchase of
put or call options will be based upon predictions by the manager as to
anticipated trends, which predictions could prove to be incorrect. Even
if the expectations of the manager are correct, there may be an imperfect
correlation between the change in the value of the options and of the
portfolio securities being hedged.
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 & Poor's 100.
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 the manager's
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.
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 fund's
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 fund's outstanding shares. The remaining restrictions may be
changed by the fund's 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 instrumentalities) and securities
of state or municipal governments and their political subdivisions are not
considered to be issued by members of any industry.
4. Borrow money, except that (a) the fund may borrow from banks
for temporary or emergency (not leveraging) purposes, including the
meeting of redemption requests which might otherwise require the untimely
disposition of securities, and (b) the fund may, to the extent consistent
with its investment policies, enter into reverse repurchase agreements,
forward roll transactions and similar investment strategies and
techniques. To the extent that it engages in transactions described in
(a) and (b), the fund will be limited so that no more than 33 1/3% of the
value of its total assets (including the amount borrowed), valued at the
lesser of cost or market, less liabilities (not including the amount
borrowed) valued at the time the borrowing is made, is derived from such
transactions.
5. Make loans. This restriction does not apply to: (a) the
purchase of debt obligations in which the fund may invest consistent with
its investment objective and policies; (b) repurchase agreements; and (c)
loans of its portfolio securities, to the fullest extent permitted under
the 1940 Act.
6. Engage in the business of underwriting securities issued by
other persons, except to the extent that the fund may technically be
deemed to be an underwriter under the Securities Act of 1933, as amended,
in disposing of portfolio securities.
7. Purchase or sell real estate, real estate mortgages,
commodities or commodity contracts, but this restriction shall not prevent
the fund from: (a) investing in securities of issuers engaged in the real
estate business or the business of investing in real estate (including
interests in limited partnerships owning or otherwise engaging in the real
estate business or the business of investing in real estate) and
securities which are secured by real estate or interests therein; (b)
holding or selling real estate received in connection with securities it
holds or held; (c) trading in futures contracts and options on futures
contracts (including options on currencies to the extent consistent with
the funds' investment objective and policies); or (d) investing in real
estate investment trust securities.
8. Purchase any securities on margin (except for such short-term
credits as are necessary for the clearance of purchases and sales of
portfolio securities) or sell any securities short (except "against the
box"). For purposes of this restriction, the deposit or payment by the
fund of underlying securities and other assets in escrow and collateral
agreements with respect to initial or maintenance margin in connection
with futures contracts and related options and options on securities,
indexes or similar items is not considered to be the purchase of a
security on margin.
9. Invest in oil, gas or other mineral exploration or development
programs.
10. Purchase or otherwise acquire any security if, as a result,
more than 15% of its net assets would be invested in securities that are
illiquid.
11. Invest for the purpose of exercising control of management.
If any percentage restriction described above is complied with at the time
of an investment, a later increase or decrease in percentage resulting
from a change in values or assets will not constitute a violation of such
restriction.
TRUSTEES AND EXECUTIVE OFFICERS OF THE TRUST
The names of the trustees of the trust and executive officers of the fund,
together with information as to their principal business occupations, are
set forth below. The executive officers of the fund are employees of
organizations that provide services to the fund. Each Trustee who is an
"interested person" of the trust, as defined in the 1940 Act, is indicated
by an asterisk.
Herbert Barg (Age 75). Private Investor. His address is 273 Montgomery
Avenue, Bala Cynwyd, Pennsylvania 19004.
Alfred J. Bianchetti (Age 76). Retired; formerly Senior Consultant to
Dean Witter Reynolds Inc. His address is 19 Circle End Drive, Ramsey, New
Jersey 07466.
Martin Brody (Age 77). 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 (Age 61). Professor, Harvard Business School. His
address is c/o Harvard Business School, Soldiers Field Road, Boston,
Massachusetts 02163.
Burt N. Dorsett (Age 68). 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 (Age 72). Chairman of the Board and President of The
Dress Barn, Inc. His address is 30 Dunnigan Drive, Suffern, New York
10901.
Stephen E. Kaufman (Age 67). Attorney. His address is 277 Park Avenue,
New York, New York 10172.
Joseph J. McCann (Age 68). 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 65).
Managing Director of Salomon Smith Barney, Inc., Chairman of the Board of
Smith Barney Strategy Advisers Inc. and President of SSBC and Travelers
Investment Adviser, Inc. ("TIA"); Chairman or Co-Chariman of the Board of
59 investment companies associated with Salomon Smith Barney. His address
is 388 Greenwich Street, New York, New York 10013.
Cornelius C. Rose, Jr. (Age 65). President, Cornelius C. Rose Associates,
Inc., financial consultants, and Chairman and Director of Performance
Learning Systems, an educational consultant. His address is Meadowbrook
Village, Building 4, Apt 6, West Lebanon, New Hampshire 03784.
*Lewis E. Daidone, Senior Vice President and Treasurer (Age 41). Managing
Director of Salomon Smith Barney, Chief Financial Officer of the Smith
Barney Mutual funds; Director and Senior Vice President of SSBC and TIA.
Sandip Bhagat, Vice President and Investment Officer (Age 37). President
of TIMCO, prior to 1995, Senior Portfolio Manager of TIMCO. Managing
Director of Salomon Smith Barney. His address is One Tower Square,
Hartford, Connecticut, 06183-2030.
John Lau, Vice President and Investment Officer (Age 32). Portfolio
Manager of TIMCO; prior to 1995, Lead Engineer of knowledge-based
engineering projects at United Technologies, Pratt and Whitney Aircraft
Engine Division. His address is One Tower Square, Hartford, Connecticut,
06183-2030.
*Christina T. Sydor, Secretary (Age 47), Managing Director of Salomon
Smith Barney. General Counsel and Secretary of SSBC and TIA.
* Designates an "interested person" as defined in the Investment Company
Act of 1940, as amended (the "1940 Act") whose business address is 388
Greenwich Street, New York, New York 10013. Such person is not separately
compensated for services as a fund officer or Trustee.
As of January 15, 1999 the trustees and officers owned, in the aggregate,
less than 1% of the outstanding shares of the fund.
No officer, director or employee of Salomon Smith Barney or any of its
affiliates receives any compensation from the trust for serving as an
officer of the fund or trustee of the trust. The trust pays each trustee
who is not an officer, director or employee of Salomon Smith Barney or any
of its 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.
The following table contains a list of shareholders who of record or
beneficially owned at least 5% of the outstanding shares of a particular
class of shares of the fund as of January 15, 1999.
CLASS A
PERCENTAGE OF SHARES
Travelers Insurance Company
Separate Account QPN 401(k)-TIC
Travelers Insurance Company
Atn: Roger Ferland
One Tower Square
Hartford, CT 06183
Owned 350,969.342(5.75%) shares
CLASS D
PERCENTAGE OF SHARES
Smith Barney 401(k)Advisor Group
Smith Barney Corporate Trust
Two Tower Square
East Brunswick, NJ 08816
Owned 187,039.511(100%) shares
For the fiscal year ended November 30, 1998, the Trustees of the fund were
paid the following compensation:
Name of Person
Aggregate
Compensation
from fund #
Total
Pension or
Retirement
Benefits
Accrued as
part of
fund
Expenses
Compensation from fund
and fund
Complex
Paid to
Trustees
Number of
funds for
Which Trustees
Serves Within
fund Complex
Herbert Barg
$
$
$
Alfred Bianchetti*
Martin Brody
Dwight B. Crane
Burt N. Dorsett
Elliot S. Jaffe
Stephen E. Kaufman
Joseph J. McCann
Heath B. McLendon*
- -
- -
- -
Cornelius C. Rose, Jr.
_________________
* Designated 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. A Trustee Emeritus may attend
meetings but has no voting rights. During the fund's last fiscal
year, aggregate compensation paid by the fund to trustees achieving
emeritus status totaled $11,423
Investment Manager - TIMCO
TIMCO serves as investment manager to the fund pursuant to a written
agreement (the "Advisory Agreement"). The services provided by the
manager under the Advisory Agreement are described in the Prospectus under
"Management." The manager will pay the salary of any officer and employee
who is employed by both it and the fund. The manager will bear all
expenses in connection with the performance of its services. The manager
is a wholly owned subsidiary of Citigroup, Inc. ("Citigroup"). As
compensation for the manager's investment advisory services rendered to
the fund, the fund will pay a fee computed daily and paid monthly at the
annual rate of 0.15% of the fund's average daily net assets.
Administrator-SSBC
SSBC Fund Management Inc. ("SSBC") serves as administrator to the fund
pursuant to a written agreement (the "Administration Agreement"). SSBC is
a wholly owned subsidiary of Salomon Smith Barney Holdings Inc.
("Holdings"), which in turn, is a wholly owned subsidiary of Citigroup
Inc. ("Citigroup"). The services provided by the administrator under the
Administration Agreement are described in the Prospectus under
"Management." The administrator will pay the salary of any officer and
employee who is employed by both it and the fund and bears all expenses in
connection with the performance of its services.
As compensation for administrative services rendered to the fund, the
administrator will receive a fee computed daily and paid monthly at the
annual rate of 0.10% of the value of the fund's average daily net assets.
The fund bears expenses incurred in its operation, including: taxes,
interest, brokerage fees and commissions, if any; fees of Trustees who are
not officers, directors, shareholders or employees of the manager or the
administrator or their affiliates; SEC fees and state Blue Sky
qualification fees; charges of custodians; transfer and dividend
disbursing agent's fees; certain insurance premiums; outside auditing and
legal expenses; costs of maintaining corporate existence; investor
services (including allocated telephone and personnel expenses); costs of
preparation and printing of prospectuses and statements of additional
information for regulatory purposes and for distribution to existing
shareholders; costs of shareholders' reports and shareholder meetings; and
meetings of the officers or Board of Trustees of the fund.
Year 2000 - The investment management services provided to the fund by the
manager and the services provided to shareholders by Salomon Smith Barney
depend on the smooth functioning of their computer systems. Many computer
software systems in use today cannot recognize the year 2000, but revert
to 1900 or some other date, due to the manner in which dates were encoded
and calculated. That failure could have a negative impact on the fund's
operations, including the handling of securities trades, pricing and
account services. The manager and Salomon Smith Barney have advised the
fund that they have been reviewing all of their computer systems and
actively working on necessary changes to their systems to prepare for the
year 2000 and expect that their systems will be compliant before that
date. In addition, the manager has been advised by the fund's custodian,
transfer agent, distributor and accounting service agent that they are
also in the process of modifying their systems with the same goal. There
can, however, be no assurance that the manager, Salomon Smith Barney or
any other service provider will be successful, or that interaction with
other non-complying computer systems will not impair fund services at that
time.
Counsel and Auditors
Willkie Farr & Gallagher serves as legal counsel to the trust. The
trustees who are not "interested persons" of the trust have selected
Stroock & Stroock & Lavan LLP as their counsel.
KPMG LLP, independent auditors, 345 Park Avenue, New York, New York 10154,
have been selected to serve as auditors of the trust and to render
opinions on the fund's financial statements for the fiscal year ending
November 30, 1999.
Portfolio Transactions
Portfolio Transactions and Turnover. The manager arranges for the
purchase and sale of the fund's securities and selects brokers and dealers
(including Salomon Smith Barney) which in its best judgment provide prompt
and reliable execution at favorable prices and reasonable commission
rates. The manager may select brokers and dealers that provide it with
research services and may cause the fund to pay such brokers and dealers
commissions which exceed those other brokers and dealers may have charged,
if it views the commissions as reasonable in relation to the value of the
brokerage and/or research services. In selecting a broker, including
Salomon Smith Barney, for a transaction, the primary consideration is
prompt and effective execution of orders at the most favorable prices.
Subject to that primary consideration, dealers may be selected for
research statistical or other services to enable the manager to supplement
its own research and analysis.
Decisions to buy and sell securities for the fund are made by the manager,
subject to the overall supervision and review of the trust's Board of
Trustees. Portfolio securities transactions for the fund are effected by
or under the supervision of the manager.
Transactions on stock exchanges involve the payment of negotiated
brokerage commissions. There is generally no stated commission in the case
of securities traded in the over-the-counter market, but the price of
those securities includes an undisclosed commission or mark-up. Over-the-
counter purchases and sales are transacted directly with principal market
makers except in those cases in which better prices and executions may be
obtained elsewhere. The cost of securities purchased from underwriters
includes an underwriting commission or concession, and the prices at which
securities are purchased from and sold to dealers include a dealer's mark-
up or mark-down.
In executing portfolio transactions and selecting brokers or dealers, it
is the fund's policy to seek the best overall terms available. The
manager, in seeking the most favorable price and execution, considers all
factors it deems relevant, including, for example, the price, the size of
the transaction, the reputation, experience and financial stability of the
broker-dealer involved and the quality of service rendered by the broker-
dealer in other transactions. The manager receives research, statistical
and quotation services from several broker-dealers with which it places
the fund's portfolio transactions. It is possible that certain of the
services received primarily will benefit one or more other accounts for
which the manager exercises investment discretion. Conversely, the fund
may be the primary beneficiary of services received as a result of
portfolio transactions effected for other accounts. The manager's fee
under the Advisory Agreement is not reduced by reason of its receiving
such brokerage and research services. The trust's Board of Trustees, in
its discretion, may authorize the manager to cause the fund to pay a
broker that provides brokerage and research services to the manager a
commission in excess of that which another qualified broker would have
charged for effecting the same transaction. Salomon Smith Barney will not
participate in commissions from brokerage given by the fund to other
brokers or dealers and will not receive any reciprocal brokerage business
resulting therefrom.
In accordance with Section 17(e) of the 1940 Act and Rule 17e-1
thereunder, the trust's Board of Trustees has determined that any
portfolio transaction for the fund may be executed through Salomon Smith
Barney or an affiliate of Salomon Smith Barney if, in the manager's
judgment, the use of Salomon Smith Barney or an affiliate is likely to
result in price and execution at least as favorable as those of other
qualified brokers and if, in the transaction, Salomon Smith Barney or the
affiliate charges the fund a commission rate consistent with those charged
by Salomon Smith Barney or an affiliate to comparable unaffiliated
customers in similar transactions. In addition, under SEC rules Salomon
Smith Barney may directly execute such transactions for the fund on the
floor of any national securities exchange, provided: (a) the Board of
Trustees has expressly authorized Salomon Smith Barney to effect such
transactions; and (b) Salomon Smith Barney annually advises the fund of
the aggregate compensation it earned on such transactions.
Even though investment decisions for the fund are made independently from
those of the other accounts managed by the manager, 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 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. 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. The fund has paid the
following in brokerage commissions for portfolio transactions since its
commencement of operations: $______ in 1997 and $______ in 1998.
Portfolio Turnover
Although the fund generally seeks to invest for the long term, the fund
retains the right to sell securities irrespective of how long they have
been held. However, because of the "passive" investment management
approach of the fund, the portfolio turnover rate is expected to be under
50%, a generally lower turnover rate than for most other investment
companies. A portfolio turnover rate of 50% would occur if one-half of
the fund's securities were sold within one year. Ordinarily, securities
will be sold from the fund only to reflect certain administrative changes
in the S&P 500 Index (including mergers or changes in the composition of
the Index) or to accommodate cash flows into and out of the fund while
maintaining the similarity of the fund to the index. Generally, an index
fund sells securities only to respond to redemption requests or to adjust
the number of shares held to reflect a change in the fund's target index.
Because of this, the turnover rate for the fund will be relatively low.
PURCHASE OF SHARES
Detailed information about the purchase, redemption and exchange of fund
shares appears in the prospectus.
General
Investors may purchase shares from a Salomon Smith Barney Financial
Consultant or a Dealer Representative. In addition, certain investors,
including qualified retirement plans purchasing through certain Dealer
Representatives, may purchase shares directly from the fund. When
purchasing shares of the fund, investors must specify whether the purchase
is for Class A or Class D shares. Salomon Smith Barney and Dealer
Representatives may charge their customers an annual account maintenance
fee in connection with a brokerage account through which an investor
purchases or holds shares. Accounts held directly at First Data Investor
Services Group, Inc. ("First Data" or "transfer agent") are not subject to
a maintenance fee.
Investors in may open an account in the fund by making an initial
investment of at least $1,000 for each account, or $250 for an IRA or a
Self-Employed Retirement Plan, in the fund. Subsequent investments of at
least $50 may be made for all Classes. For shareholders purchasing shares
of the fund through the Systematic Investment Plan on a monthly basis, the
minimum initial investment requirement and subsequent investment
requirement for all Classes is $25. For shareholders purchasing shares of
the fund through the Systematic Investment Plan on a quarterly basis, the
minimum initial investment required for and the subsequent investment
requirement for all Classes is $50. There are no minimum investment
requirements for employees of Citigroup and its subsidiaries, including
Salomon Smith Barney, unitholders who invest distributions from a Unit
Investment Trust ("UIT") sponsored by Salomon Smith Barney, and
Directors/Trustees of any of the Smith Barney Mutual Funds, and their
spouses and children. The fund reserves the right to waive or change
minimums, to decline any order to purchase its shares and to suspend the
offering of shares from time to time. Shares purchased will be held in the
shareholder's account by First Data. Share certificates are issued only
upon a shareholder's written request to First Data.
Purchase orders received by the fund or a Salomon Smith Barney Financial
Consultant 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 a Dealer Representative 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 the fund's agent prior to its close of
business. For shares purchased through Salomon Smith Barney or a Dealer
Representative purchasing through Salomon Smith Barney, payment for shares
of the fund is due on the third business day after the trade date. In all
other cases, payment must be made with the purchase order.
Systematic Investment Plan. Shareholders may make additions to their
accounts at any time by purchasing shares through a service known as the
Systematic Investment Plan. Under the Systematic Investment Plan, Salomon
Smith Barney or First Data is authorized through preauthorized transfers
of at least $25 on a monthly basis or at least $50 on a quarterly basis to
charge the shareholder's account held with a bank or other financial
institution on a monthly or quarterly basis as indicated by the
shareholder, to provide for systematic additions to the shareholder's fund
account. A shareholder who has insufficient funds to complete the
transfer will be charged a fee of up to $25 by Salomon Smith Barney or
First Data. The Systematic Investment Plan also authorizes Salomon Smith
Barney to apply cash held in the shareholder's Salomon Smith Barney
brokerage account or redeem the shareholder's shares of a Smith Barney
money market fund to make additions to the account. Additional information
is available from the fund or a Salomon Smith Barney Financial Consultant
or a Dealer Representative.
Class D shares are offered to a limited group of investors who participate
in certain investment programs which charge a fee for participation,
including the Smith Barney 401(k) Platform program. In addition, Class D
shares are offered to tax-exempt employee benefit and retirement plans of
Salomon Smith Barney and its affiliates. For more information about these
programs, contact a Salomon Smith Barney Financial Consultant.
REDEMPTION OF SHARES
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 fund's 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 fund's shareholders.
If the shares to be redeemed were issued in certificate form, the
certificates must be endorsed for transfer (or be accompanied by an
endorsed stock power) and must be submitted to 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 guarantor institution such as a domestic bank,
savings and loan institution, domestic credit union, member bank of the
Federal Reserve System or member firm of a national securities exchange.
Written redemption requests of $10,000 or less do not require a signature
guarantee unless more than one such redemption request is made in any
10-day period or the redemption proceeds are to be sent to an address
other than the address of record. Unless otherwise directed, redemption
proceeds will be mailed to an investor's address of record. First Data
may require additional supporting documents for redemptions made by
corporations, executors, administrators, trustees or guardians. A
redemption request will not be deemed properly received until First Data
receives all required documents in proper form.
If a shareholder holds shares in more than one Class, any request for
redemption must specify the Class being redeemed. In the event of a
failure to specify which Class, or if the investor owns fewer shares of
the Class than specified, the redemption request will be delayed until the
Transfer Agent receives further instructions from Salomon Smith Barney, or
if the shareholder's account is not with Salomon Smith Barney, from the
shareholder directly. The redemption proceeds will be remitted on or
before the third business day following receipt of proper tender, except
on any days on which the NYSE is closed or as permitted under the 1940
Act, in extraordinary circumstances. Generally, if the redemption
proceeds are remitted to a Salomon Smith Barney brokerage account, these
funds will not be invested for the shareholder's benefit without specific
instruction and Salomon Smith Barney will benefit from the use of
temporarily uninvested funds. Redemption proceeds for shares purchased by
check, other than a certified or official bank check, will be remitted
upon clearance of the check, which may take up to ten days or more.
Distribution 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 fund's net assets by a distribution in kind of portfolio
securities in lieu of cash. Shareholders may incur brokerage commissions
when they subsequently sell those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan") is available to
shareholders of the fund who own shares of the fund with a value of at
least $10,000 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 that withdrawals exceed
dividends, distributions and appreciation of a shareholder's investment in
a fund, continued withdrawal payments will reduce the shareholder's
investment, and may ultimately exhaust it. Withdrawal payments should not
be considered as income from investment in a 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 of the fund who wish to participate in the Withdrawal Plan
and who hold their shares in certificate form must deposit their share
certificates with the transfer agent 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 involved. A shareholder who purchases shares directly through the
transfer agent may continue to do so and applications for participation in
the Withdrawal Plan must be received by the transfer agent no later than
the eighth day of the month to be eligible for participation beginning
with that month's withdrawal. For additional information, shareholders
should contact a Salomon Smith Barney Financial Consultant.
ADDITIONAL INFORMATION REGARDING TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
Neither the fund nor its agents will be liable for following instructions
communicated by telephone that are reasonably believed to be genuine. The
fund and its agents will employ procedures designed to verify the identity
of the caller and legitimacy of instructions (for example, a shareholder's
name and account number will be required and phone calls may be recorded).
The fund reserves the right to suspend, modify or discontinue the
telephone redemption and exchange program or to impose a charge for this
service at any time following at least seven (7) days' prior notice to
shareholders.
DISTRIBUTOR
CFBDS, Inc. serves as the fund's distributor pursuant to a written
agreement dated October 8, 1998 (the "Distribution Agreement") which was
approved by the fund's Board of Directors, including a majority of the
Independent Directors on July 15, 1998. Prior to the merger of Travelers
Group, Inc. and Citicorp Inc. on October 8, 1998, Salomon Smith Barney
served as the fund's distributor. For the 1996, 1997 and 1998 fiscal
years, Salomon Smith Barney, received $500,000, $115,000 and __________,
respectively, in sales charges from the sale of Class A shares, and did
not reallow any portion thereof to dealers. For the fiscal years ended
October 31, 1996, 1997 and 1998, Salomon Smith Barney or its predecessor
received from shareholders $119,000, $201,000 and $_________,
respectively, in Deferred Sales Charges on the redemption of Class B and
Class L shares.
When payment is made by the investor before the settlement date, unless
otherwise noted by the investor, the funds will be held as a free credit
balance in the investor's brokerage account and Salomon Smith Barney may
benefit from the temporary use of the funds. The fund's Board of
Directors has been advised of the benefits to Salomon Smith Barney
resulting from these settlement procedures and will take such benefits
into consideration when reviewing the Investment Management and
Distribution Agreements for continuance.
For the fiscal year ended October 31, 1998, Salomon Smith Barney incurred
distribution expenses totaling approximately $622,346 consisting of
approximately $32,428 for advertising, $5,345 for printing and mailing of
prospectuses, $302,634 for support services, $277,469 to Salomon Smith
Barney Financial Consultants, and $4,470 in accruals for interest on the
excess of Salomon Smith Barney expenses incurred in distributing the
fund's shares over the sum of the distribution fees and Deferred Sales
Charge received by Salomon Smith Barney from the fund.
Shareholding Servicing Arrangements
To compensate Salomon Smith Barney's Financial Consultants for the
services they provide to fund shareholders, the fund has adopted a
services plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act.
Under the Plan, the fund pays a service fee with respect to Class A shares
that is accrued daily and paid monthly, calculated at the annual rate of
0.20% of the value of the fund's average daily net assets attributable to
Class A shares. Class D shares are not subject to a service fee.
For the fiscal year ended November 30, 1998, the distributor incurred
service expenses totaling approximately $_______, consisting of
approximately $_______ to Salomon Smith Barney Financial Consultants, and
$_______ in accruals for interest on the excess of Salomon Smith Barney
expenses incurred in servicing of the funds' shares over the sum of the
service fees received by Salomon Smith Barney from the fund. For the
fiscal year ended November 30, 1998, the distributor, received $_______ in
the aggregate from the Plan.
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 (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 the
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, Salomon 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.
VALUATION OF SHARES
The net asset value per share of the fund's 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 Year's 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 fund's 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 fund's 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 fund's board of trustees.
PERFORMANCE DATA
From time to time, the fund may quote its total return in advertisements
or in reports and other communications to shareholders. The fund may
include comparative performance information in advertising or marketing
the fund's shares. Such performance information may include the following
industry and financial publications: Barron's, Business Week, CDA
Investment Technologies, Inc., Changing Times, Forbes, Fortune,
Institutional Investor, Investors Daily, Money, Morningstar Mutual Fund
Values, The New York Times, USA Today and The Wall Street Journal.
Average Annual Total Return
A fund's "average annual total return," as described below, is 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 a 1-, 5- or 10-year period
(or fractional portion thereof),
assuming reinvestment of all
dividends and distributions.
The ERV assumes complete redemption of the hypothetical investment at the
end of the measuring period. A fund's net investment income changes in
response to fluctuations in interest rates and the expenses of the fund.
Average Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Class A
N/A
Class D
N/A
_______________________
1 Class A and D commenced operations on [ ].
Aggregate Total Return
The fund's "aggregate total return," as described below, represents the
cumulative change in the value of an investment in the fund for the
specified period and is computed by the following formula:
ERV - P
P
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical $10,000
investment made at the beginning of the 1-,
5- or 10-year period at the end of the 1-,
5- or 10-year period (or fractional portion
thereof), assuming reinvestment of all
dividends and distributions.
The ERV assumes complete redemption of the hypothetical investment at the
end of the measuring period.
Aggregate Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Class A1
N/A
Class D
N/A
_______________________
1 Classes A and D commenced operations on [ ].
Performance will vary from time to time depending upon market conditions,
the composition of the fund's portfolio and operating expenses and the
expenses exclusively attributable to the Class. Consequently, any given
performance quotation should not be considered representative of the
Class' performance for any specified period in the future. Because
performance will vary, it may not provide a basis for comparing an
investment in the Class with certain bank deposits or other investments
that pay a fixed yield for a stated period of time. Investors comparing a
Class' performance with that of other mutual funds should give
consideration to the quality and maturity of the respective investment
companies' portfolio securities.
TAXES
The following is a summary of the material United States federal income
tax considerations regarding the purchase, ownership and disposition of
shares of a fund. Each prospective shareholder is urged to consult his
own tax adviser with respect to the specific federal, state, local and
foreign tax consequences of investing in a fund. The summary is based on
the laws in effect on the date of this Statement of Additional
Information, which are subject to change.
The Fund and Its Investments
The fund intends to continue to qualify to be treated as a regulated
investment company each taxable year under the Internal Revenue Code of
1986, as amended (the "Code"). To so qualify, the fund must, among other
things: (a) derive at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to securities, loans and
gains from the sale or other disposition of stock or securities or foreign
currencies, or other income (including, but not limited to, gains from
options, futures or forward contracts) derived with respect to its
business of investing in such stock, securities or currencies; and (b)
diversify its holdings so that, at the end of each quarter of the fund's
taxable year, (i) at least 50% of the market value of the fund's assets is
represented by cash, securities of other regulated investment companies,
United States government securities and other securities, with such other
securities limited, in respect of any one issuer, to an amount not greater
than 5% of the fund's assets and not greater than 10% of the outstanding
voting securities of such issuer and (ii) not more than 25% of the value
of its assets is invested in the securities (other than United States
government securities or securities of other regulated investment
companies) of any one issuer or any two or more issuers that the fund
controls and are determined to be engaged in the same or similar trades or
businesses or related trades or businesses. The fund expects that all of
its foreign currency gains will be directly related to its principal
business of investing in stocks and securities.
As a regulated investment company, the fund will not be subject to United
States federal income tax on its net investment income (i.e., income other
than its net realized long- and short-term capital gains) and its net
realized long- and short-term capital gains, if any, that it distributes
to its shareholders, provided that an amount equal to at least 90% of the
sum of its investment company taxable income (i.e., 90% of its taxable
income minus the excess, if any, of its net realized long-term capital
gains over its net realized short-term capital losses (including any
capital loss carryovers), plus or minus certain other adjustments as
specified in the Code) and its net tax-exempt income for the taxable year
is distributed in compliance with the Code's timing and other requirements
but will be subject to tax at regular corporate rates on any taxable
income or gains that it does not distribute. Furthermore, the fund will
be subject to a United States corporate income tax with respect to such
distributed amounts in any year that it fails to qualify as a regulated
investment company or fails to meet this distribution requirement.
The Code imposes a 4% nondeductible excise tax on the fund to the extent
it does not distribute by the end of any calendar year at least 98% of its
net investment income for that year and 98% of the net amount of its
capital gains (both long-and short-term) for the one-year period ending,
as a general rule, on October 31 of that year. For this purpose, however,
any income or gain retained by the fund that is subject to corporate
income tax will be considered to have been distributed by year-end. In
addition, the minimum amounts that must be distributed in any year to
avoid the excise tax will be increased or decreased to reflect any
underdistribution or overdistribution, as the case may be, from the
previous year. The fund anticipates that it will pay such dividends and
will make such distributions as are necessary in order to avoid the
application of this tax.
If, in any taxable year, the fund fails to qualify as a regulated
investment company under the Code or fails to meet the distribution
requirement, it would be taxed in the same manner as an ordinary
corporation and distributions to its shareholders would not be deductible
by the fund in computing its taxable income. In addition, in the event of
a failure to qualify, the fund's distributions, to the extent derived from
the fund's current or accumulated earnings and profits would constitute
dividends (eligible for the corporate dividends-received deduction) which
are taxable to shareholders as ordinary income, even though those
distributions might otherwise (at least in part) have been treated in the
shareholders' hands as long-term capital gains. If the fund fails to
qualify as a regulated investment company in any year, it must pay out its
earnings and profits accumulated in that year in order to qualify again as
a regulated investment company. In addition, if the fund failed to
qualify as a regulated investment company for a period greater than one
taxable year, the fund may be required to recognize any net built-in gains
(the excess of the aggregate gains, including items of income, over
aggregate losses that would have been realized if it had been liquidated)
in order to qualify as a regulated investment company in a subsequent
year.
The fund's transactions in foreign currencies, forward contracts, options
and futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code (including
provisions relating to "hedging transactions" and "straddles") that, among
other things, may affect the character of gains and losses realized by the
fund (i.e., may affect whether gains or losses are ordinary or capital),
accelerate recognition of income to the fund and defer fund losses. These
rules could therefore affect the character, amount and timing of
distributions to shareholders. These provisions also (a) will require the
fund to mark-to-market certain types of the positions in its portfolio
(i.e., treat them as if they were closed out) and (b) may cause the fund
to recognize income without receiving cash with which to pay dividends or
make distributions in amounts necessary to satisfy the distribution
requirements for avoiding income and excise taxes. The fund will monitor
its transactions, will make the appropriate tax elections and will make
the appropriate entries in its books and records when it acquires any
foreign currency, forward contract, option, futures contract or hedged
investment in order to mitigate the effect of these rules and prevent
disqualification of the fund as a regulated investment company.
The fund's investment in Section 1256 contracts, such as regulated futures
contracts, most forward currency forward contracts traded in the interbank
market and options on most stock indices, are subject to special tax
rules. All section 1256 contracts held by the fund at the end of its
taxable year are required to be marked to their market value, and any
unrealized gain or loss on those positions will be included in the fund's
income as if each position had been sold for its fair market value at the
end of the taxable year. The resulting gain or loss will be combined with
any gain or loss realized by the fund from positions in section 1256
contracts closed during the taxable year. Provided such positions were
held as capital assets and were not part of a "hedging transaction" nor
part of a "straddle," 60% of the resulting net gain or loss will be
treated as long-term capital gain or loss, and 40% of such net gain or
loss will be treated as short-term capital gain or loss, regardless of the
period of time the positions were actually held by the fund.
Foreign Investments. Dividends or other income (including, in some cases,
capital gains) received by the fund from investments in foreign securities
may be subject to withholding and other taxes imposed by foreign
countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes in some cases. The fund will
not be eligible to elect to treat any foreign taxes paid by it as paid by
its shareholders, who therefore will not be entitled to credits for such
taxes on their own tax returns. Foreign taxes paid by the fund will
reduce the return from the fund's investments.
Passive Foreign Investment Companies. If the fund purchases shares in
certain foreign investment entities, called "passive foreign investment
companies" (a "PFIC"), it may be subject to United States federal income
tax on a portion of any "excess distribution" or gain from the disposition
of such shares even if such income is distributed as a taxable dividend by
the fund to its shareholders. Additional charges in the nature of
interest may be imposed on the fund in respect of deferred taxes arising
from such distributions or gains. If the fund were to invest in a PFIC
and elected to treat the PFIC as a "qualified electing fund" under the
Code, in lieu of the foregoing requirements, the fund might be required to
include in income each year a portion of the ordinary earnings and net
capital gains of the qualified electing fund, even if not distributed to
the fund, and such amounts would be subject to the 90% and excise tax
distribution requirements described above. In order to make this
election, the fund would be required to obtain certain annual information
from the passive foreign investment companies in which it invests, which
may be difficult or not possible to obtain.
Recently, legislation was enacted that provides a mark-to-market election
for regulated investment companies effective for taxable years beginning
after December 31, 1997. This election would result in the fund being
treated as if it had sold and repurchased all of the PFIC stock at the end
of each year. In this case, the fund would report gains as ordinary
income and would deduct losses as ordinary losses to the extent of
previously recognized gains. The election, once made, would be effective
for all subsequent taxable years of the fund, unless revoked with the
consent of the IRS. By making the election, the fund could potentially
ameliorate the adverse tax consequences with respect to its ownership of
shares in a PFIC, but in any particular year may be required to recognize
income in excess of the distributions it receives from PFICs and its
proceeds from dispositions of PFIC company stock. The fund may have to
distribute this "phantom" income and gain to satisfy its distribution
requirement and to avoid imposition of the 4% excise tax. The fund will
make the appropriate tax elections, if possible, and take any additional
steps that are necessary to mitigate the effect of these rules.
Taxation of United States Shareholders
Dividends and Distributions. Any dividend declared by the fund in
October, November or December of any calendar year and payable to
shareholders of record on a specified date in such a month shall be deemed
to have been received by each shareholder on December 31 of such calendar
year and to have been paid by the fund not later than such December 31,
provided that such dividend is actually paid by the fund during January of
the following calendar year. The fund intends to distribute annually to
its shareholders substantially all of its investment company taxable
income, and any net realized long-term capital gains in excess of net
realized short-term capital losses (including any capital loss
carryovers). The fund currently expects to distribute any excess annually
to its shareholders. However, if the fund retains for investment an
amount equal to all or a portion of its net long-term capital gains in
excess of its net short-term capital losses and capital loss carryovers,
it will be subject to a corporate tax (currently at a rate of 35%) on the
amount retained. In that event, the fund will designate such retained
amounts as undistributed capital gains in a notice to its shareholders who
(a) will be required to include in income for United Stares federal income
tax purposes, as long-term capital gains, their proportionate shares of
the undistributed amount, (b) will be entitled to credit their
proportionate shares of the 35% tax paid by the fund on the undistributed
amount against their United States federal income tax liabilities, if any,
and to claim refunds to the extent their credits exceed their liabilities,
if any, and (c) will be entitled to increase their tax basis, for United
States federal income tax purposes, in their shares by an amount equal to
65% of the amount of undistributed capital gains included in the
shareholder's income. Organizations or persons not subject to federal
income tax on such capital gains will be entitled to a refund of their pro
rata share of such taxes paid by the fund upon filing appropriate returns
or claims for refund with the Internal Revenue Service (the "IRS").
Dividends of net investment income and distributions of net realized
short-term capital gains are taxable to a United States shareholder as
ordinary income, whether paid in cash or in shares. Distributions of net-
long-term capital gains, if any, that the fund designates as capital gains
dividends are taxable as long-term capital gains, whether paid in cash or
in shares and regardless of how long a shareholder has held shares of the
fund. Dividends and distributions paid by the fund attributable to
dividends on stock of U.S. corporations received by the fund, with respect
to which the fund meets certain holding period requirements, will be
eligible for the deduction for dividends received by corporations.
Distributions in excess of the fund's current and accumulated earnings and
profits will, as to each shareholder, be treated as a tax-free return of
capital to the extent of a shareholder's basis in his shares of the fund,
and as a capital gain thereafter (if the shareholder holds his shares of
the fund as capital assets).
Shareholders receiving dividends or distributions in the form of
additional shares should be treated for United States federal income tax
purposes as receiving a distribution in the amount equal to the amount of
money that the shareholders receiving cash dividends or distributions will
receive, and should have a cost basis in the shares received equal to such
amount.
Investors considering buying shares just prior to a dividend or capital
gain distribution should be aware that, although the price of shares just
purchased at that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may nevertheless be taxable to
them.
If the fund is the holder of record of any stock on the record date for
any dividends payable with respect to such stock, such dividends are
included in the fund's gross income not as of the date received but as of
the later of (a) the date such stock became ex-dividend with respect to
such dividends (i.e., the date on which a buyer of the stock would not be
entitled to receive the declared, but unpaid, dividends) or (b) the date
the fund acquired such stock. Accordingly, in order to satisfy its income
distribution requirements, the fund may be required to pay dividends based
on anticipated earnings, and shareholders may receive dividends in an
earlier year than would otherwise be the case.
Sales of Shares. Upon the sale or exchange of his shares, a shareholder
will realize a taxable gain or loss equal to the difference between the
amount realized and his basis in his shares. Such gain or loss will be
treated as capital gain or loss, if the shares are capital assets in the
shareholder's hands, and will be long-term capital gain or loss if the
shares are held for more than one year and short-term capital gain or loss
if the shares are held for one year or less. Any loss realized on a sale
or exchange will be disallowed to the extent the shares disposed of are
replaced, including replacement through the reinvesting of dividends and
capital gains distributions in the fund, within a 61-day period beginning
30 days before and ending 30 days after the disposition of the shares. In
such a case, the basis of the shares acquired will be increased to reflect
the disallowed loss. Any loss realized by a shareholder on the sale of a
fund share held by the shareholder for six months or less will be treated
for United States federal income tax purposes as a long-term capital loss
to the extent of any distributions or deemed distributions of long-term
capital gains received by the shareholder with respect to such share.
If a shareholder incurs a sales charge in acquiring shares of the fund,
disposes of those shares within 90 days and then acquires shares in a
mutual fund for which the otherwise applicable sales charge is reduced by
reason of a reinvestment right (e.g., an exchange privilege), the original
sales charge will not be taken into account in computing gain/loss on the
original shares to the extent the subsequent sales charge is reduced.
Instead, the disregarded portion of the original sales charge will be
added to the tax basis in the newly acquired shares. Furthermore, the
same rule also applies to a disposition of the newly acquired shares made
within 90 days of the second acquisition. This provision prevents a
shareholder from immediately deducting the sales charge by shifting his or
her investment in a family of mutual funds.
Backup Withholding. The fund may be required to withhold, for United
States federal income tax purposes, 31% of the dividends, distributions
and redemption proceeds payable to shareholders who fail to provide the
fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject
to backup withholding. Certain shareholders are exempt from backup
withholding. Backup withholding is not an additional tax and any amount
withheld may be credited against a shareholder's United States federal
income tax liabilities.
Notices. Shareholders will be notified annually by the fund as to the
United States federal income tax status of the dividends, distributions
and deemed distributions attributable to undistributed capital gains
(discussed above in "Dividends and Distributions") made by the fund to its
shareholders. Furthermore, shareholders will also receive, if
appropriate, various written notices after the close of the fund's taxable
year regarding the United States federal income tax status of certain
dividends, distributions and deemed distributions that were paid (or that
are treated as having been paid) by the fund to its shareholders during
the preceding taxable year.
Other Taxation
Distributions also may be subject to additional state, local and foreign
taxes depending on each shareholder's particular situation.
The foregoing is only a summary of certain material tax consequences
affecting the fund and its shareholders. Shareholders are advised to
consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the fund.
ADDITIONAL INFORMATION
The trust was organized on October 17, 1991 under the laws of the
Commonwealth of Massachusetts and is a business entity commonly known as a
"Massachusetts business trust." the trust offers shares of beneficial
interest of separate funds with a par value of $.001 per share. the fund
offers shares of beneficial interest currently classified into two Classes
- - A and D. Each class of the fund represents an identical interest in the
fund's investment portfolio. As a result, the Classes have the same
rights, privileges and preferences, except with respect to: (a) the
designation of each class; (b) the service fee borne by Class A pursuant
to the Plan; (c) the expenses allocable exclusively to each Class;
(d) voting rights on matters exclusively affecting a single Class; and
(e) the exchange privilege of each class. The trust's board of trustees
does not anticipate that there will be any conflicts among the interests
of the holders of the different Classes. The trustees, on an ongoing
basis, will consider whether any such conflict exists and, if so, take
appropriate 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 trust's outstanding
shares and the trust will assist shareholders in calling such a meeting as
required by the 1940 Act.
When matters are submitted for shareholder vote, shareholders of each
Class will have one vote for each full share owned and a proportionate,
fractional vote for any fractional share held of that Class. Generally,
shares of the fund will be voted on a fund-wide basis on all matters
except matters affecting only the interests of one Class, in which case
only shares of the affected Class would be entitled to vote.
The trust was organized as an unincorporated Massachusetts business trust
on October 17, 1991 under the name Shearson Lehman Brothers Intermediate-
Term Trust. On October 14, 1994 and August 16, 1995, the Trust's name was
changed to Smith Barney Income Trust and Smith Barney Investment Trust,
respectively.
PNC Bank, National Association ("PNC"), located at 17th and Chestnut
Streets, Philadelphia, Pennsylvania, 19103, serves as the custodian of the
fund. Under its custody agreement with the fund, PNC holds the fund's
securities and keeps all necessary accounts and records. For its services,
PNC receives a monthly fee based upon the month-end market value of
securities held in custody and also receives securities transactions
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 trust's transfer agent. Under the transfer agency agreement, the
transfer agent 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, the transfer agent 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.
"S&P 500(r)" is a trademark of The McGraw-Hill Companies, Inc. and has been
licensed for use by Salomon Smith Barney. The fund is not sponsored,
endorsed, sold or promoted by Standard & Poor's (S&P), a division of The
McGraw-Hill Companies, Inc. S&P makes no representation or warranty,
express or implied, to the shareholders of the fund or any member of the
public regarding the advisability of investing in securities generally or
in the fund particularly or the ability of the S&P 500 Index to track
general stock market performance. S&P's only relationship to Salomon
Smith Barney is the licensing of certain trademarks and trade names of S&P
and the S&P 500 Index which is determined, composed and calculated by S&P
without regard to Salomon Smith Barney or the fund. S&P has no obligation
to take the needs of Salomon Smith Barney or the shareholders of the fund
into consideration in determining, composing or calculating the S&P 500
Index. S&P is not responsible for and has not participated in the
determination of the prices and amount of the fund's shares or the timing
of the issuance or sale of the fund's shares or in the determination or
calculation of the equation by which fund shares are to be converted into
cash. S&P has no obligation or liability in connection with the
administration, marketing or trading of fund shares.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE FUND, OWNERS OF THE
FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE
S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OR
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY
LIABILITY FOR ANY SPECIAL, PUNITIVE,INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
APPENDIX B
The Smith Barney Mutual Fund Family encompasses more than 60 mutual funds,
representing approximately $87 billion of shareholder assets under
management as of September 30, 1998. This places us among the largest
mutual fund companies in the United States. Our portfolio managers
average approximately 25 years of experience in the financial field - of
which, on average, 18 have been with Smith Barney.
By building a core portfolio of mutual funds with complementary investment
styles, individuals can work toward specific goals of capital
appreciation, regular income and preservation of investment principal.
Your Salomon Smith Barney Financial Consultant can recommend and provide a
prospectus for one or more mutual funds designed to help you meet your
individual goals for education funding, retirement and changing lifestyle
needs.
Smith Barney Mutual Funds provide a broad selection of funds to suit every
investment goal, from capital appreciation to preservation of investment
principal. Our Family is divided into these main categories:
? Growth: For individuals seeking long-term capital appreciation
through investments in common stocks. Some of our growth funds also
give equal emphasis to income.
? Taxable Fixed Income: For individuals seeking current income.
? Tax-Exempt Fixed Income: For individuals seeking a tax-exempt
investment that allows them to keep more of what they earn for
current spending or future investment.
? Global/International: For individuals seeking to diversify their
portfolio to include long-term capital appreciation or income from
investments in markets around the world.
? Concert Allocation Series:
We understand that investors can be ________ in how they wish to reach
their financial goals. That's why we offer four different Series of
funds. Some investors, guided by their Financial Consultant, prefer to
take an active role in allocating their investment portfolio. For these
investors we offer the Style Pure Series. Others prefer to rely on the
asset allocation decisions of experienced portfolio managers, and may fund
solutions to their investment needs in our Classic Series. For investors
who want to explore opportunities using a narrower focus, we offer the
Specialty Series. The Concert Allocation Series allows investors to
invest in a diversified "fund of funds."
Style Pure Series Smith Barney mutual funds designated as "Style Pure"
are the basic building blocks of asset allocation. Other than maintaining
minimal cash, or under extraordinary market conditions, each of these
funds is 100% invested, 1005 of the time within its designated asset
classes and designated investment style. The Style Pure Series enables
you and your Smith Barney Financial Consultant to control your asset
allocation decisions using funds managed by experienced portfolio
managers.
Global/International Funds
Taxable Fixed Income Funds
Emerging Markets Portfolio
Adjustable Rate Government
Income Fund
European Portfolio
Government Securities Fund
Pacific Portfolio
High Income Fund
Investment Grade Bond Fund
Growth Funds
Managed Governments Fund
Large Cap Blend Fund
Short-Term High Grade Bond Fund
Large Capitalization Growth
Fund
U.S. Government Securities Fund
Large Cap Value Fund
Mid Cap Blend Fund
Tax-Exempt Fixed Income Funds
Small Cap Blend Fund
Limited Term Portfolio
Municipal High Income Fund
Classic Series The "Classic Series" lets you participate in mutual funds
whose investment decisions are determined by experienced portfolio
managers, based on each fund's investment objectives and guidelines.
Funds in the Smith Barney Classic Series invest across asset classes and
sectors, utilizing a range of strategies in order to achieve their
objectives.
Global/International Funds
Taxable Fixed Income Funds
Global Government Bond Fund
Diversified Strategic Income
Fund
Hansberger Global Small Cap
Value Fund
Total Return Bond Fund
Hansberger Global Value Fund
International Balanced
Portfolio
Tax-Exempt Fixed Income Funds
International Equity Portfolio
Managed Municipals Fund
Growth Funds
Aggressive Growth Fund
Appreciation Fund
Balanced Fund
Concert Peachtree Growth Fund
Contrarian Fund
Fundamental Value Fund
Premium Total Return Fund
Special Equities Fund
Specialty Series Mutual funds included in Smith Barney's "Specialty
Series" explore opportunities in a narrower sector of the market or by
using a narrower investment focus.
Growth Funds
State-Specific, Intermediate-
Term Tax-Exempt Fixed Income
Funds
Concert Social Awareness Fund
Intermediate Maturity
California Municipals Fund
Convertible Fund
Intermediate Maturity New York
Municipals Fund
Natural Resources Fund
S&P 500 Index Fund
State-Specific, Tax-Exempt
Fixed Income Funds
Arizona New Jersey
California New York
Florida Oregon
Georgia Pennsylvania
Massachusetts
Concert Allocation Series These "funds of funds" are designed to provide
you with targeted objectives, but at diversification levels that are
significantly greater than an investment in a single fund can provide.
Currently, available options include Global, High Growth, Growth,
Balanced, Conservative and Income Portfolios. These Portfolios'
objectives are achieved through stock and bond fund allocations that range
from 100% stocks to 10% stocks/90% bonds, allowing you to match "funds of
funds" in the Concert Allocation Series with your changing financial goals
and risk tolerance.
The Global Portfolio The Balanced
Portfolio
The High Growth Portfolio The Conservative
Portfolio
The Growth Portfolio The Income Portfolio
Help Along the Way
A professionally trained Salomon Smith Barney Financial Consultant is
ready, willing and able to serve as a reliable financial guide throughout
your financial journey. Talk with your Financial Consultant before you
invest in order to help prioritize your goals. Once you've set your
sights on clear objectives, rely on the expertise of this dedicated
professional to help you determine which investment mix may be suited to
your unique circumstances.
Your Financial Consultant knows from experience that allocating assets is
a key part of determining the long-term success of investment strategies.
As your circumstances and life style change, your Financial Consultant
will suggest adjustments to your strategy in order to keep you on the
right road and on track for achieving your financial goals.
International Investing
Whether you're a conservative or aggressive investor, just starting to
save or nearing retirement, chances are you could benefit from investing a
portion of your overall portfolio in international stocks and bonds.
Smith Barney offers a variety of international mutual funds designed to
help you gain access to:
Expanded horizons
Today, approximately 55% of the world's stock and bond opportunities are
found beyond U.S. boundaries. And non-U.S. markets represent some of the
fastest-growing economies in the world.
Potential for higher return
Taken as a whole, foreign markets have outperformed their domestic
counterparts on a long-term basis. Foreign markets do not outperform the
U.S. every quarter of every year, but they have delivered superior returns
over time.
Enhanced diversification
One of the most significant benefits of investing abroad is the potential
for reducing risk. Intentionally diversified portfolios tend to
experience less overall price volatility than portfolios invested in
single markets. Since world markets do not necessarily move in tandem
with those of the U.S., many international markets may be on the rise when
U.S. markets are down. The net result may be lower overall portfolio
volatility and potentially higher investment returns over time. In
addition, global/international mutual funds offer convenient access to
attractive opportunities not always available to U.S. investors.
Growth Investing
A growth mutual fund can offer you the benefits of professional
management, lower volatility as a result of diversification, and
affordability in terms of both initial and subsequent investments. If you
are a long-term investor, you may be best served by having a significant
portion of your assets invested in growth funds, although past performance
is not a guarantee of future results and principal value will fluctuate
with changes in the market. For younger investors, growth funds may be
one of the best ways to grow your assets and help you reach your financial
goals. Yet investing for growth is also important for older investors,
who should not underestimate the importance of offsetting the effects of
inflation and continuing to build financial resources for future needs.
Different types of investments have different rewards and risks associated
with them. For example, funds that invest in bonds as well as stocks may
be less volatile than funds investing solely in stocks. You may reduce
overall investment risk by owning funds that span different market
capitalizations and investment styles.
Tax-Exempt Investing: Helping You to Keep More of What You Earn
Tax-exempt fixed income funds, also known as "municipal bond mutual
funds," seek to provide tax-exempt income by investing in portfolios of
selected municipal bonds. Cities, states and municipalities issue
municipal bonds to finance ongoing operations and public projects. These
tax-exempt funds have remained tax-free and offer the potential to provide
shareholders with income and capital growth at levels that may equal or
exceed total returns from taxable investments on an after-tax basis.
Maturity and credit quality can be important factors in determining the
potential risks and rewards of a municipal bond investment. Longer-term
bond funds generally offer higher yields but your principal will be more
affected by interest rate changes, and therefore, are more risky.
Municipal bonds that are of lower credit quality tend to be riskier
because they are subject to credit risk; however, they generally offer
higher yields. Tax-exempt funds may be appropriate for investors in high
tax brackets. If you are risk-averse, or have shorter-term goals, an
intermediate or shorter-term investment may be more appropriate.
Investors with longer time horizons or a greater tolerance for risk may
benefit from the higher yields offered by longer-term municipal funds.
Smith Barney
S&P 500 Index Fund
Statement of additional
information
March 30,1999
SMITH BARNEY
INVESTMENT TRUST
388 Greenwich Street
New York, NY 10013
SALOMON SMITH BARNEY
A Member of Citigroup [Symbol]
Smith Barney Large Capitalization Growth Fund
SMITH BARNEY INVESTMENT TRUST
388 Greenwich Street
New York, New York 10013
(800) 451-2010
Statement of Additional
Information
March 30, 1999
This Statement of Additional Information ("SAI") is meant to be read in
conjunction with the prospectus of the Smith Barney Large Capitalization
Growth Fund (the "fund") dated March 30, 1999, as amended or supplemented
from time to time (the "Prospectus"), and is incorporated by reference
in its entirety into the prospectus. Additional information about the
fund's investments is available in the fund's annual and semi-annual
reports to shareholders which are incorporated herein by reference . The
prospectus and copies of the reports may be obtained free of charge by
contacting a Salomon Smith Barney Financial Consultant, or by writing or
calling Salomon Smith Barney at the address or telephone number above.
The fund is a separate investment series of Smith Barney Investment Trust
(the "trust").
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES 1
PURCHASE OF SHARES 17
REDEMPTION OF SHARES 22
DISTRIBUTOR 24
VALUATION OF SHARES 26
EXCHANGE PRIVILEGE 27
PERFORMANCE DATA 30
TAXES 33
ADDITIONAL INFORMATION 34
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The prospectus discusses the fund's investment objective and policies.
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 the fund may utilize and
certain risks associated with these investments, policies and strategies.
SSBC Fund Management Inc. ("SSBC" or the "manager") serves as investment
manager to the fund.
The fund normally invests at least 65% of its total assets in equity
securities of large capitalization companies that are dominant in their
industries, global in scope and have a long- term history of performance.
The fund does have the flexibility, however, to invest the balance in
companies with other market capitalizations. The fund defines large
market capitalization companies as those with market capitalization of $5
billion or more at the time of the fund's investment. Companies whose
capitalizations falls below this level after purchase will continue to be
considered large capitalization companies for purposes of the 65% policy.
Under normal market conditions, the majority of the fund's portfolio will
consist of common stock, but it also may contain money market instruments
for cash management purposes. 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 warrant.
Equity Securities. The fund will normally invest at least 65% of its
assets in equity securities, including primarily common stocks and, to a
lesser extent, securities convertible into common stock and rights to
subscribe for common stock. Common stocks represent an equity (ownership)
interest in a corporation. Although equity securities have a history of
long-term growth in value, their prices fluctuate based on changes in a
company's financial condition and on overall market and economic
conditions.
When-Issued Securities and Delayed-Delivery Transactions. The fund may
purchase securities on a "when-issued" basis, for delayed delivery (i.e.,
payment or delivery occur beyond the normal settlement date at a stated
price and yield) or on a forward commitment basis. The fund does not
intend to engage in these transactions for speculative purposes, but only
in furtherance of its investment goal. These transactions occur when
securities are purchased or sold by the fund with payment and delivery
taking place in the future to secure what is considered an advantageous
yield and price to the fund at the time of entering into the transaction.
The payment obligation and the interest rate that will be received on
when-issued securities are fixed at the time the buyer enters into the
commitment. Due to fluctuations in the value of securities purchased or
sold on a when-issued, delayed-delivery basis or forward commitment basis,
the prices obtained on such securities may be higher or lower than the
prices available in the market on the dates when the investments are
actually delivered to the buyers.
When the fund agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash or liquid securities equal
to the amount of the commitment in a segregated account. Normally, the
custodian will set aside portfolio securities to satisfy a purchase
commitment, and in such a case the fund may be required subsequently to
place additional assets in the segregated account in order to ensure that
the value of the account remains equal to the amount of the fund's
commitment. The assets contained in the segregated account will be
marked-to-market daily. It may be expected that the fund's net assets
will fluctuate to a greater degree when it sets aside portfolio securities
to cover such purchase commitments than when it sets aside cash. When the
fund engages in when-issued or delayed-delivery transactions, it relies
on the other party to consummate the trade. Failure of the seller to do
so may result in the fund's incurring a loss or missing an opportunity to
obtain a price considered to be advantageous.
Foreign Securities. The fund may invest in securities of foreign issuers
in the form of American Depository Receipts ("ADRs"), European Depository
Receipts ("EDRs") or similar securities representing interests in the
common stock for foreign issuers. Management intends to limit the fund's
investment in these types of securities to 10% of the fund's net assets.
ADRs are receipts, typically issued by a U.S. bank or trust company, which
evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. Generally, ADRs, in registered form, are designed
for use in the U.S. securities markets and EDRs are designed for use in
European securities markets. The underlying securities are not always
denominated in the same currency as the ADRs or EDRs. Although investment
in the form of ADRs or EDRs facilitates trading in foreign securities, it
does not mitigate the risks associated with investing in foreign
securities.
Investments in foreign securities incur higher costs than investments in
U.S. securities, including higher costs in making securities transactions
as well as foreign government taxes which may reduce the investment return
of the fund. In addition, foreign investments may include additional
risks associated with currency exchange rates, less complete financial
information about individual companies, less market liquidity and
political instability.
Money Market Instruments. The fund may invest for temporary defensive
purposes in corporate and government bonds and notes and money market
instruments. Money market instruments include: obligations issued or
guaranteed by the United States government, its agencies or
instrumentalities ("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.
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.
Repurchase Agreements. The fund may agree to purchase securities from a
bank or recognized securities dealer and simultaneously commit to resell
the securities to the bank or dealer at an agreed-upon date and price
reflecting a market rate of interest unrelated to the coupon rate or
maturity of the purchased securities ("repurchase agreements"). The fund
would maintain custody of the underlying securities prior to their
repurchase; thus, the obligation of the bank or dealer to pay the
repurchase price on the date agreed to would be, in effect, secured by
such securities. If the value of such securities were less than the
repurchase price, plus interest, the other party to the agreement would be
required to provide additional collateral so that at all times the
collateral is at least 102% of the repurchase price plus accrued interest.
Default by or bankruptcy of a seller would expose the fund to possible
loss because of adverse market action, expenses and/or delays in
connection with the disposition of the underlying obligations. The
financial institutions with which the fund may enter into repurchase
agreements will be banks and non-bank dealers of U.S. Government
securities that are listed on the Federal Reserve Bank of New York's list
of reporting dealers, if such banks and non-bank dealers are deemed
creditworthy by the fund's manager. The manager will continue to monitor
creditworthiness of the seller under a repurchase agreement, and will
require the seller to maintain during the term of the agreement the value
of the securities subject to the agreement to equal at least 102% of the
repurchase price (including accrued interest). In addition, the manager
will require that the value of this collateral, after transaction costs
(including loss of interest) reasonably expected to be incurred on a
default, be equal to 102% or greater than the repurchase price (including
accrued premium) provided in the repurchase agreement or the daily
amortization of the difference between the purchase price and the
repurchase price specified in the repurchase agreement. The manager will
mark-to-market daily the value of the securities. Repurchase agreements
are considered to be loans by the fund under the 1940 Act.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the fund may lend portfolio securities to brokers, dealers
and other financial organizations that meet capital and other credit
requirements or other criteria established by the Board. The fund will
not lend portfolio securities to affiliates of the Adviser unless they
have applied for and received specific authority to do so from the SEC.
Loans of portfolio securities will be collateralized by cash, letters of
credit or U.S. Government Securities, which are maintained at all times in
an amount equal to at least 102% of the current market value of the loaned
securities. Any gain or loss in the market price of the securities loaned
that might occur during the term of the loan would be for the account of
the fund. From time to time, the fund may return a part of the interest
earned from the investment of collateral received for securities loaned to
the borrower and/or a third party that is unaffiliated with the fund and
that is acting as a "finder."
By lending its securities, the fund can increase its income by continuing
to receive interest and any dividends on the loaned securities as well as
by either investing the collateral received for securities loaned 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.
Although the generation of income is not the primary investment goal of
the fund, income received could be used to pay the fund's expenses and
would increase an investor's total return. The fund will adhere to the
following conditions whenever its portfolio securities are loaned:
(i) the fund must receive at least 102% cash collateral or equivalent
securities of the type discussed in the preceding paragraph from the
borrower; (ii) the borrower must increase such collateral whenever the
market value of the securities rises above the level of such collateral;
(iii) the fund must be able to terminate the loan at any time; (iv) the
fund must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities and
any increase in market value; (v) the fund may pay only reasonable
custodian fees in connection with the loan; and (vi) voting rights on the
loaned securities may pass to the borrower, provided, however, that if a
material event adversely affecting the investment occurs, the Board must
terminate the loan and regain the right to vote the securities. Loan
agreements involve certain risks in the event of default or insolvency of
the other party including possible delays or restrictions upon a Fund's
ability to recover the loaned securities or dispose of the collateral for
the loan.
Illiquid Securities. The fund may invest up to an aggregate amount equal
to 10% of its net assets in illiquid securities, which term includes
securities subject to contractual or other restrictions on resale and
other instruments that lack readily available markets.
Options, Futures and Currency Strategies. The fund may use forward
currency contracts and certain options and futures strategies to attempt
to hedge its portfolio, i.e., reduce the overall level of investment risk
normally associated with the fund. There can be no assurance that such
efforts will succeed.
In order to assure that the fund will not be deemed to be a "commodity
pool" for purposes of the Commodity Exchange Act, regulations of the
Commodity Futures Trading Commission ("CFTC") require that the fund enter
into transactions in futures contracts and options on futures only (i) for
bona fide hedging purposes (as defined in CFTC regulations), or (ii) for
non-hedging purposes, provided that the aggregate initial margin and
premiums on such non-hedging positions do not exceed 5% of the liquidation
value of the fund's assets. To attempt to hedge against adverse movements
in exchange rates between currencies, the fund may enter into forward
currency contracts for the purchase or sale of a specified currency at a
specified future date. Such contracts may involve the purchase or sale of
a foreign currency against the U.S. dollar or may involve two foreign
currencies. The fund may enter into forward currency contracts either
with respect to specific transactions or with respect to its portfolio
positions. For example, when the manager 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 manager 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 manager expects to decline in an amount approximating the
value of some or all of the fund's securities denominated in that
currency, or when the manager 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
fund's 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 fund's 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 fund's commitments with respect to
such contracts.
For hedging purposes, the fund may write covered call options and purchase
put and call options on currencies to hedge against movements in exchange
rates and on debt securities to hedge against the risk of fluctuations in
the prices of securities held by the fund or which the manager intends to
include in its portfolio. The fund also may use interest rates futures
contracts and options thereon to hedge against changes in the general
level in interest rates.
The fund may write call options on securities and currencies only if they
are covered, and such options must remain covered so long as the fund is
obligated as a writer. A call option written by the fund is "covered" if
the fund owns the securities or currency underlying the option or has an
absolute and immediate right to acquire that security or currency without
additional cash consideration (or for additional cash consideration held
in a segregated account by its custodian) upon conversion or exchange of
other securities or currencies held in its portfolio. A call option is
also covered if the fund holds on a share-for-share basis a call on the
same security or holds a call on the same currency as the call written
where the exercise price of the call held is equal to less than the
exercise price of the call written or greater than the exercise price of
the call written if the difference is maintained by the fund in cash,
Treasury bills or other high-grade, short-term obligations in a segregated
account with its custodian.
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.
Although the portfolio might not employ the use of forward currency
contracts, options and futures, the use of any of these strategies would
involve certain investment risks and transaction costs to which it might
not otherwise be subject. These risks include: dependence on the
manager's 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").
Over-the-counter options in which the fund may invest differ from exchange
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.
Options on Securities. As discussed more generally above, the fund may
engage in the writing of covered call options. The fund may also purchase
put options and enter into closing transactions.
The principal reason for writing covered call options on securities is to
attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, the
writer of a covered call option forfeits the right to any appreciation in
the value of the underlying security above the strike price for the life
of the option (or until a closing purchase transaction can be effected).
Nevertheless, the call writer retains the risk of a decline in the price
of the underlying security. Similarly, the principal reason for writing
covered put options is to realize income in the form of premiums. The
writer of a covered put option accepts the risk of a decline in the price
of the underlying security. The size of the premiums the fund may receive
may be adversely affected as new or existing institutions, including other
investment companies, engage in or increase their option-writing
activities.
Options written by the fund will normally have expiration dates between
one and six months from the date written. The exercise price of the
options may be below, equal to, or above the current market values of the
underlying securities at the times the options are written. In the case of
call options, these exercise prices are referred to as "in-the-money,"
"at-the-money" and "out-of-the-money," respectively.
The fund may write (a) in-the-money call options when MMC expects the
price of the underlying security to remain flat or decline moderately
during the option period, (b) at-the-money call options when MMC expects
the price of the underlying security to remain flat or advance moderately
during the option period and (c) out-of-the-money call options when MMC
expects that the price of the security may increase but not above a price
equal to the sum of the exercise price plus the premiums received from
writing the call option. In any of the preceding situations, if the market
price of the underlying security declines and the security is sold at this
lower price, the amount of any realized loss will be offset wholly or in
part by the premium received. Out-of-the-money, at-the-money and in-the-
money put options (the reverse of call options as to the relation of
exercise price to market price) may be utilized in the same market
environments as such call options are used in equivalent transactions.
So long as the obligation of the fund as the writer of an option
continues, the fund may be assigned an exercise notice by the broker-
dealer through which the option was sold, requiring it to deliver, in the
case of a call, or take delivery of, in the case of a put, the underlying
security against payment of the exercise price. This obligation terminates
when the option expires or the fund effects a closing purchase
transaction. The fund can no longer effect a closing purchase transaction
with respect to an option once it has been assigned an exercise notice. To
secure its obligation to deliver the underlying security when it writes a
call option, or to pay for the underlying security when it writes a put
option, the fund will be required to deposit in escrow the underlying
security or other assets in accordance with the rules of the Options
Clearing Corporation ("Clearing Corporation") or similar clearing
corporation and the securities exchange on which the option is written.
An option position may be closed out only where there exists a secondary
market for an option of the same series on a recognized securities
exchange or in the over-the-counter market. The fund expects to write
options only on national securities exchanges or in the over-the-counter
market. The fund may purchase put options issued by the Clearing
Corporation or in the over-the-counter market.
The fund may realize a profit or loss upon entering into a closing
transaction. In cases in which the fund has written an option, it will
realize a profit if the cost of the closing purchase transaction is less
than the premium received upon writing the original option and will incur
a loss if the cost of the closing purchase transaction exceeds the premium
received upon writing the original option. Similarly, when the fund has
purchased an option and engages in a closing sale transaction, whether it
recognizes a profit or loss will depend upon whether the amount received
in the closing sale transaction is more or less than the premium the fund
initially paid for the original option plus the related transaction costs.
Although the fund generally will purchase or write only those options for
which MMC believes there is an active secondary market so as to facilitate
closing transactions, there is no assurance that sufficient trading
interest to create a liquid secondary market on a securities exchange will
exist for any particular option or at any particular time, and for some
options no such secondary market may exist. A liquid secondary market in
an option may cease to exist for a variety of reasons. In the past, for
example, higher than anticipated trading activity or order flow, or other
unforeseen events, have at times rendered certain of the facilities of the
Clearing Corporation and national securities exchanges inadequate and
resulted in the institution of special procedures, such as trading
rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution
of customers' orders, will not recur. In such event, it might not be
possible to effect closing transactions in particular options. If, as a
covered call option writer, the fund is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell
the underlying security until the option expires or it delivers the
underlying security upon exercise.
Securities exchanges generally have established limitations governing the
maximum number of calls and puts of each class which may be held or
written, or exercised within certain periods, by an investor or group of
investors acting in concert (regardless of whether the options are written
on the same or different securities exchanges or are held, written or
exercised in one or more accounts or through one or more brokers). It is
possible that the fund and other clients of MMC and certain of their
affiliates may be considered to be such a group. A securities exchange
may order the liquidation of positions found to be in violation of these
limits, and it may impose certain other sanctions.
In the case of options written by the fund that are deemed covered by
virtue of the fund's 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 fund's 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 & Poor's 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 MMC's 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. 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.
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 fund's 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 fund's custodian an amount of cash or cash equivalents
equal to the total market value of the underlying futures contract, less
amounts held in the fund's 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 fund's existing position in the contract.
There are several risks in connection with the use of futures contracts as
a hedging device. Successful use of futures contracts by the fund is
subject to the ability of MMC to predict correctly movements in the stock
market or in the direction of interest rates. These predictions involve
skills and techniques that may be different from those involved in the
management of investments in securities. In addition, there can be no
assurance that there will be a perfect correlation between movements in
the price of the securities underlying the futures contract and movements
in the price of the securities that are the subject of the hedge. A
decision of whether, when and how to hedge involves the exercise of skill
and judgment, and even a well-conceived hedge may be unsuccessful to some
degree because of market behavior or unexpected trends in market behavior
or interest rates.
Positions in futures contracts may be closed out only on the exchange on
which they were entered into (or through a linked exchange) and no
secondary market exists for those contracts. In addition, although the
fund intends to enter into futures contracts only if there is an active
market for the contracts, there is no assurance that an active market will
exist for the contracts at any particular time. Most futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a
price beyond that limit. It is possible that futures contract prices could
move to the daily limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses. In such event,
and in the event of adverse price movements, the fund would be required to
make daily cash payments of variation margin; in such circumstances, an
increase in the value of the portion of the portfolio being hedged, if
any, may partially or completely offset losses on the futures contract. As
described above, however, no assurance can be given that the price of the
securities being hedged will correlate with the price movements in a
futures contract and thus provide an offset to losses on the futures
contract.
Investment Restrictions
The investment restrictions numbered 1 through 7 below and the fund's
investment objective have been adopted by the trust as fundamental
policies of the fund. Under the 1940 Act, a fundamental policy may not be
changed with respect to a fund without the vote of a majority of the
outstanding voting securities of the fund. Majority is defined in the
1940 Act as the lesser of (a) 67% or more of the shares present at a fund
meeting, if the holders of more than 50% of the outstanding shares of the
fund are present or represented by proxy, or (b) more than 50% of
outstanding shares. The remaining restrictions may be changed by a vote
of a majority of the trust's board of trustees at any time.
Under the investment restrictions adopted by the trust with respect to the
fund: 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. Invest more than 25% of its total assets in securities, the issuers of
which conduct their business activities in the same industry. For purposes
of this limitation, securities of the U.S. government (including its
agencies and instrumentalities) and securities of state or municipal
governments and their political subdivisions are not considered to be
issued by members of any industry.
3. 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 331/3% 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.
4. 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
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 objectives and policies; (b) repurchase agreements; and (c)
loans of its portfolio securities, to the fullest extent permitted under
the 1940 Act.
6. Purchase or sell real estate, real estate mortgages, commodities or
commodity contracts, but this restriction shall not prevent the fund from
(a) investing in securities of issuers engaged in the real estate business
or the business of investing in real estate (including interests in
limited partnerships owning or otherwise engaging in the real estate
business or the business of investing in real estate) and securities which
are secured by real estate or interests therein; (b) holding or selling
real estate received in connection with securities it holds or held; (c)
trading in futures contracts and options on futures contracts (including
options on currencies to the extent consistent with the fund's investment
objective and policies); or (d) investing in real estate investment trust
securities.
7. 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.
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 leases or exploration or development
programs.
10. Write or sell puts, calls, straddles, spreads or combinations of those
transactions, except as permitted under the fund's investment objective
and policies.
11. Purchase a security if, as a result, the fund would then have more than
5% of its total assets invested in securities of issuers (including
predecessors) that have been in continuous operation for fewer than three
years.
12. Make investments for the purpose of exercising control of management.
TRUSTEES AND EXECUTIVE OFFICERS OF THE TRUST
The names of the trustees of the trust and executive officers of the fund,
together with information as to their principal business occupations, are
set forth below. The executive officers of the fund are employees of
organizations that provide services to the fund. Each Trustee who is an
"interested person" of the trust, as defined in the 1940 Act, is indicated
by an asterisk.
Herbert Barg (Age 75). Private Investor. His address is 273 Montgomery
Avenue, Bala Cynwyd, Pennsylvania 19004.
Alfred J. Bianchetti (Age 76). Retired; formerly Senior Consultant to
Dean Witter Reynolds Inc. His address is 19 Circle End Drive, Ramsey, New
Jersey 07466.
Martin Brody (Age 77). 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 (Age 61). Professor, Harvard Business School. His
address is c/o Harvard Business School, Soldiers Field Road, Boston,
Massachusetts 02163.
Burt N. Dorsett (Age 68). 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 (Age 72). Chairman of the Board and President of The
Dress Barn, Inc. His address is 30 Dunnigan Drive, Suffern, New York
10901.
Stephen E. Kaufman (Age 67). Attorney. His address is 277 Park Avenue,
New York, New York 10172.
Joseph J. McCann (Age 68). 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 65).
Managing Director of Salomon Smith Barney, Inc., Chairman of the Board of
Smith Barney Strategy Advisers Inc. and President of SSBC and Travelers
Investment Adviser, Inc. ("TIA"); Chairman or Co-Chariman of the Board of
59 investment companies associated with Salomon Smith Barney. His address
is 388 Greenwich Street, New York, New York 10013.
Cornelius C. Rose, Jr. (Age 65). President, Cornelius C. Rose Associates,
Inc., financial consultants, and Chairman and Director of Performance
Learning Systems, an educational consultant. His address is Meadowbrook
Village, Building 4, Apt 6, West Lebanon, New Hampshire 03784.
*Lewis E. Daidone, Senior Vice President and Treasurer (Age 41). Managing
Director of Salomon Smith Barney, Chief Financial Officer of the Smith
Barney Mutual funds; Director and Senior Vice President of SSBC and TIA.
Alan Blake, Vice President and Investment Officer (Age 48). Managing
Director of Salomon Smith Barney. Investment Officer of SSBC. Priro to
1998, he was with TIAA-CREFF
*Christina T. Sydor, Secretary (Age 47), Managing Director of Salomon
Smith Barney. General Counsel and Secretary of SSBC and TIA.
* Designates an "interested person" as defined in the Investment Company
Act of 1940, as amended (the "1940 Act") whose business address is 388
Greenwich Street, New York, New York 10013. Such person is not separately
compensated for services as a fund officer or Trustee.
As of January 15, 1999 the trustees and officers owned, in the aggregate,
less than 1% of the outstanding shares of each of the funds.
No officer, director or employee of Salomon Smith Barney or any of its
affiliates receives any compensation from the trust for serving as an
officer of the fund or trustee of the trust. The trust pays each trustee
who is not an officer, director or employee of Salomon Smith Barney or any
of its affiliates a fee of $8,000 per annum plus $500 per in-person
meeting and $100 per telephonic meeting. Each trustee emeritus who is not
an officer, director or employee of Salomon Smith Barney or its affiliates
receives a fee of $4,000 per annum plus $250 per in-person meeting and $50
per telephonic meeting. All trustees are reimbursed for travel and out-
of-pocket expenses incurred to attend such meetings.
The following table contains a list of shareholders who of record or
beneficially owned at least 5% of the outstanding shares of a particular
class of shares of the fund as of January 15, 1999.
CLASS Y
PERCENTAGE OF SHARES
Smith Barney Concert Series, Inc.
High Growth Portfolio
PNC Bank NA
200 Stevens Drive, Suite 440
Attn: Beverly Timson
Lester, PA 19113
Owned 4,161,337.333(54.37%) shares
Smith Barney Concert Series, Inc.
Growth Portfolio
PNC Bank NA
200 Stevens Drive, Suite 440
Attn: Beverly Timson
Lester, PA 19113
Owned 2,672,068.769(34.91%) shares
CLASS Z
PERCENTAGE OF SHARES
State Street Bank & Trust CUST
The Travelers Group 401(k)
Savings Plan
Attn: Rick Vest
225 Franklin Street
Boston, Ma 02101
Owned 1,175,532.846(100%)shares
For the fiscal year ended November 30, 1998, the Trustees of the
fund were paid the following compensation:
Name of Person
Aggregate
Compensation
from fund #
Total
Pension or
Retirement
Benefits
Accrued as
part of
fund
Expenses
Compensation from fund
and fund
Complex
Paid to
Trustees
Number of
funds for
Which Trustees
Serves Within
fund Complex
Herbert Barg
$
$
$
Alfred Bianchetti*
Martin Brody
Dwight B. Crane
Burt N. Dorsett
Elliot S. Jaffe
Stephen E. Kaufman
Joseph J. McCann
Heath B. McLendon*
- -
- -
- -
Cornelius C. Rose, Jr.
_________________
* Designated 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. A Trustee Emeritus may attend
meetings but has no voting rights. During the fund's last fiscal
year, aggregate compensation paid by the fund to trustees achieving
emeritus status totaled $11,423
Investment Manager - SSBC
SSBC (formerly known as Mutual Management Corp) 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 Citigroup Inc. ("Citigroup").
Subject to the supervision and direction of the trust's board of trustees,
the manager manages the fund's portfolio in accordance with the fund's
stated investment objective and policies, makes investment decisions for
the fund, places orders to purchase and sell securities, and employs
professional portfolio managers and securities analysts who provide
research services to 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 fund's average daily net assets.
Year 2000 - The investment management services provided to the fund by the
manager and the services provided to shareholders by Salomon Smith Barney
depend on the smooth functioning of their computer systems. Many computer
software systems in use today cannot recognize the year 2000, but revert
to 1900 or some other date, due to the manner in which dates were encoded
and calculated. That failure could have a negative impact on the fund's
operations, including the handling of securities trades, pricing and
account services. The manager and Salomon Smith Barney have advised the
fund that they have been reviewing all of their computer systems and
actively working on necessary changes to their systems to prepare for the
year 2000 and expect that their systems will be compliant before that
date. In addition, the manager has been advised by the fund's custodian,
transfer agent, distributor and accounting service agent that they are
also in the process of modifying their systems with the same goal. There
can, however, be no assurance that the manager, Salomon Smith Barney or
any other service provider will be successful, or that interaction with
other non-complying computer systems will not impair fund services at that
time.
Counsel and Auditors
Willkie Farr & Gallagher serves as legal counsel to the trust. The
trustees who are not "interested persons" of the trust have selected
Stroock & Stroock & Lavan LLP as their counsel.
KPMG LLP, independent auditors, 345 Park Avenue, New York, New York 10154,
have been selected to serve as auditors of the trust and to render
opinions on the fund's financial statements for the fiscal year ending
November 30, 1999.
Portfolio Transactions
Decisions to buy and sell securities for the fund are made by the manager,
subject to the overall review of the trust's 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.
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 fund's
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.
The Trust has paid the following in brokerage commissions for portfolio
transactions since its commencement of operations: $______ in 1997 and
$______ in 1998. Portfolio securities transactions on behalf of the fund
are placed by the manager with a number of brokers and dealers, including
Salomon Smith Barney. Salomon Smith Barney has advised the fund that in
transactions with the fund, Salomon Smith Barney charges a commission
rate at least as favorable as the rate that Salomon Smith Barney charges
its comparable unaffiliated customers in similar transactions.
Portfolio Turnover
While the fund's 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.
The portfolio turnover rate for the period ended November 30, 1998 was
__%.
PURCHASE OF SHARES
Sales Charge Alternatives
The following classes of shares are available for purchase. See the
Prospectus for a discussion of factors to consider in selecting which
Class of shares to purchase.
Class A Shares. Class A shares are sold to investors at the public
offering price, which is the net asset value plus an initial sales charge
as follows:
Amount of
Investment
Sales Charge
as a %
of
Transaction
Sales Charge
as a %
of Amount
Invested
Dealers'
Reallowance
as %
of Offering
Price
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
*
*
*
* 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 Deferred Sales Charge of 1.00% on redemptions made within 12
months of purchase. The Deferred Sales Charge on Class A shares is
payable to Salomon Smith Barney, which compensates Salomon Smith
Barney Financial Consultants and other dealers whose clients make
purchases of $500,000 or more. The Deferred Sales Charge is waived
in the same circumstances in which the Deferred Sales Charge
applicable to Class B and Class L shares is waived. See "Deferred
Sales Charge Alternatives" and "Waivers of Deferred Sales Charge."
Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of the fund as defined in the 1933 Act.
The reduced sales charges shown above apply to the aggregate of purchases
of Class A shares of the fund made at one time by "any person," which
includes an individual and his or her immediate family, or a trustee or
other fiduciary of a single trust estate or single fiduciary account.
Class B Shares. Class B shares are sold without an initial sales charge
but are subject to a Deferred Sales Charge payable upon certain
redemptions. See "Deferred Sales Charge Provisions" below.
Class L Shares. Class L shares are sold with an initial sales charge of
1.00% (which is equal to 1.01% of the amount invested) and are subject to
a Deferred Sales Charge payable upon certain redemptions. See "Deferred
Sales Charge Provisions" below. Until June 22, 2001 purchases of Class L
shares by investors who were holders of Class C shares of the fund on June
12, 1998 will not be subject to the 1% initial sales charge.
Class Y Shares. Class Y shares are sold without an initial sales charge
or Deferred Sales Charge and are available only to investors investing a
minimum of $15,000,000 (except purchases of Class Y shares by Smith Barney
Concert Allocation Series Inc., for which there is no minimum purchase
amount).
General
Investors may purchase shares from a Salomon Smith Barney Financial
Consultant or a Dealer Representative. In addition, certain investors,
including qualified retirement plans purchasing through certain Dealer
Representatives, may purchase shares directly from the fund. When
purchasing shares of the fund, investors must specify whether the purchase
is for Class A, Class B, Class L or Class Y shares. Salomon Smith Barney
and Dealer Representatives may charge their customers an annual account
maintenance fee in connection with a brokerage account through which an
investor purchases or holds shares. Accounts held directly at First Data
Investor Services Group, Inc. ("First Data" or "transfer agent") are not
subject to a maintenance fee.
Investors in Class A, Class B and Class L shares may open an account in
the fund by making an initial investment of at least $1,000 for each
account, or $250 for an IRA or a Self-Employed Retirement Plan, in the
fund. Investors in Class Y shares may open an account by making an initial
investment of $15,000,000. Subsequent investments of at least $50 may be
made for all Classes. For participants in retirement plans qualified under
Section 403(b)(7) or Section 401(c) of the Code, the minimum initial
investment required 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 subsequent
investment requirement for all Classes is $25. For shareholders
purchasing shares of the fund through the Systematic Investment Plan on a
quarterly basis, the minimum initial investment required 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 for employees of Citigroup and its subsidiaries, including
Salomon Smith Barney, unitholders who invest distributions from a Unit
Investment Trust ("UIT") sponsored by Salomon Smith Barney, and
Directors/Trustees of any of the Smith Barney Mutual Funds, and their
spouses and children. The fund reserves the right to waive or change
minimums, to decline any order to purchase its shares and to suspend the
offering of shares from time to time. Shares purchased will be held in the
shareholder's account by First Data. Share certificates are issued only
upon a shareholder's written request to First Data.
Purchase orders received by the fund or a Salomon Smith Barney Financial
Consultant 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 a Dealer Representative 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 the fund's agent prior to its close of
business. For shares purchased through Salomon Smith Barney or a Dealer
Representative purchasing through Salomon Smith Barney, payment for shares
of the fund is due on the third business day after the trade date. In all
other cases, payment must be made with the purchase order.
Systematic Investment Plan. Shareholders may make additions to their
accounts at any time by purchasing shares through a service known as the
Systematic Investment Plan. Under the Systematic Investment Plan, Salomon
Smith Barney or First Data is authorized through preauthorized transfers
of at least $25 on a monthly basis or at least $50 on a quarterly basis to
charge the shareholder's account held with a bank or other financial
institution on a monthly or quarterly basis as indicated by the
shareholder, to provide for systematic additions to the shareholder's fund
account. A shareholder who has insufficient funds to complete the
transfer will be charged a fee of up to $25 by Salomon Smith Barney or
First Data. The Systematic Investment Plan also authorizes Salomon Smith
Barney to apply cash held in the shareholder's Salomon Smith Barney
brokerage account or redeem the shareholder's shares of a Smith Barney
money market fund to make additions to the account. Additional information
is available from the fund or a Salomon Smith Barney Financial Consultant
or a Dealer Representative.
Sales Charge Waivers and Reductions
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 Citigroup and its subsidiaries
and any Citigroup affiliated funds including the Smith Barney Mutual Funds
(including retired Board Members and employees); the immediate families of
such persons (including the surviving spouse of a deceased Board Member or
employee); and to a pension, profit-sharing or other benefit plan for such
persons and (ii) employees of members of the National Association of
Securities Dealers, Inc., provided such sales are made upon the assurance
of the purchaser that the purchase is made for investment purposes and
that the securities will not be resold except through redemption or
repurchase; (b) offers of Class A shares to any other investment company
to effect the combination of such company with the fund by merger,
acquisition of assets or otherwise; (c) purchases of Class A shares by any
client of a newly employed Salomon Smith Barney Financial Consultant (for
a period up to 90 days from the commencement of the Financial Consultant's
employment with Salomon Smith Barney), on the condition the purchase of
Class A shares is made with the proceeds of the redemption of shares of a
mutual fund which (i) was sponsored by the Financial Consultant's prior
employer, (ii) was sold to the client by the Financial Consultant and
(iii) was subject to a sales charge; (d) purchases by shareholders who
have redeemed Class A shares in the fund (or Class A shares of another
Smith Barney Mutual Fund that is offered with a sales charge) and who wish
to reinvest their redemption proceeds in the fund, provided the
reinvestment is made within 60 calendar days of the redemption; (e)
purchases by accounts managed by registered investment advisory
subsidiaries of Citigroup; (f) direct rollovers by plan participants of
distributions from a 401(k) plan offered to employees of Citigroup or its
subsidiaries or a 401(k) plan enrolled in the Smith Barney 401(k) Program
(Note: subsequent investments will be subject to the applicable sales
charge); (g) purchases by a separate account used to fund certain
unregistered variable annuity contracts; (h) investments of distributions
from a UIT sponsored by Salomon Smith Barney; (i) purchases by investors
participating in a Salomon Smith Barney fee-based arrangement; and (j)
purchases of Class A shares by Section 403(b) or Section 401(a) or (k)
accounts associated with Copeland Retirement Programs. In order to obtain
such discounts, the purchaser must provide sufficient information at the
time of purchase to permit verification that the purchase would qualify
for the elimination of the sales charge.
Right of Accumulation. Class A shares of the fund may be purchased by
''any person'' (as defined above) at a reduced sales charge or at net
asset value determined by aggregating the dollar amount of the new
purchase and the total net asset value of all Class A shares of the fund
and of other Smith Barney Mutual Funds that are offered with a sales
charge as currently listed under ''Exchange Privilege'' then held by such
person and applying the sales charge applicable to such aggregate. In
order to obtain such discount, the purchaser must provide sufficient
information at the time of purchase to permit verification that the
purchase qualifies for the reduced sales charge. The right of
accumulation is subject to modification or discontinuance at any time with
respect to all shares purchased thereafter.
Letter of Intent - Class A Shares. A Letter of Intent for an amount 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 (i) all Class A shares of
the fund and other Smith Barney Mutual Funds offered with a sales charge
acquired during the term of the letter plus (ii) the value of all Class A
shares previously purchased and still owned. Each investment made during
the period receives the reduced sales charge applicable to the total
amount of the investment goal. If the goal is not achieved within the
period, the investor must pay the difference between the sales charges
applicable to the purchases made and the charges previously paid, or an
appropriate number of escrowed shares will be redeemed. The term of the
Letter will commence upon the date the Letter is signed, or at the options
of the investor, up to 90 days before such date. Please contact a Salomon
Smith Barney Financial Consultant or First Data to obtain a Letter of
Intent application.
Letter of Intent - 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 (except purchases of Class Y shares by Smith Barney Concert
Allocation Series Inc., for which there is no minimum purchase amount).
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 13 months from the date of the Letter.
If a total investment of $15,000,000 is not made within the 13-month
period, all Class Y shares purchased to date will be transferred to Class
A shares, where they will be subject to all fees (including a service fee
of 0.25%) and expenses applicable to the fund's Class A shares, which may
include a Deferred Sales Charge of 1.00%. Please contact a Salomon Smith
Barney Financial Consultant or First Data for further information.
Deferred Sales Charge Provisions
''Deferred Sales Charge Shares'' are: (a) Class B shares; (b) Class L
shares; and (c) Class A shares that were purchased without an initial
sales charge but are subject to a Deferred Sales Charge. A Deferred Sales
Charge may be imposed on certain redemptions of these shares.
Any applicable Deferred Sales Charge will be assessed on an amount equal
to the lesser of the original cost of the shares being redeemed or their
net asset value at the time of redemption. Deferred Sales Charge Shares
that are redeemed will not be subject to a Deferred Sales Charge 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 Deferred Sales Charge Shares, shares
redeemed more than 12 months after their purchase.
Class L shares and Class A shares that are Deferred Sales Charge Shares
are subject to a 1.00% Deferred Sales Charge if redeemed within 12 months
of purchase. In circumstances in which the Deferred Sales Charge is
imposed on Class B shares, the amount of the charge will depend on the
number of years since the shareholder made the purchase payment from which
the amount is being redeemed. Solely for purposes of determining the
number of years since a purchase payment, all purchase payments made
during a month will be aggregated and deemed to have been made on the last
day of the preceding Salomon Smith Barney statement month. The following
table sets forth the rates of the charge for redemptions of Class B shares
by shareholders, except in the case of Class B shares held under the Smith
Barney 401(k) Program, as described below. See ''Purchase of Shares-Smith
Barney 401(k) and ExecChoiceTM Programs.''
Year Since Purchase Payment Was
Made
Deferred Sales Charge
First
5.00%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth and thereafter
0.00
Class B shares will convert automatically to Class A shares eight years
after the date on which they were purchased and thereafter will no longer
be subject to any distribution fees. There will also be converted at that
time such proportion of Class B Dividend Shares owned by the shareholders
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.
The length of time that Deferred Sales Charge Shares acquired through an
exchange have been held will be calculated from the date that the shares
exchanged were initially acquired in one of the other Smith Barney Mutual
Funds, and fund shares being redeemed will be considered to represent, as
applicable, capital appreciation or dividend and capital gain distribution
reinvestments in such other funds. For Federal income tax purposes, the
amount of the Deferred Sales Charge will reduce the gain or increase the
loss, as the case may be, on the amount realized on redemption. The amount
of any Deferred Sales Charge will be paid to Salomon Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares of
the fund at $10 per share for a cost of $1,000. Subsequently, the
investor acquired 5 additional shares of the fund through dividend
reinvestment. During the fifteenth month after the purchase, the investor
decided to redeem $500 of his or her investment. Assuming at the time of
the redemption the net asset value had appreciated to $12 per share, the
value of the investor's shares would be $1,260 (105 shares at $12 per
share). The Deferred Sales Charge 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 Deferred Sales Charge
The Deferred Sales Charge will be waived on: (a) exchanges (see ''Exchange
Privilege''); (b) automatic cash withdrawals in amounts equal to or less
than 1.00% per month of the value of the shareholder's shares at the time
the withdrawal plan commences (see ''Automatic Cash Withdrawal Plan'')
(provided, however, that automatic cash withdrawals in amounts equal to or
less than 2.00% per month of the value of the shareholder's shares will be
permitted for withdrawal plans that were established prior to November 7,
1994); (c) redemptions of shares within 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 591/2; (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 proceeds within 60 days and receive pro rata credit for any
Deferred Sales Charge imposed on the prior redemption.
Deferred Sales Charge waivers will be granted subject to confirmation (by
Salomon Smith Barney in the case of shareholders who are also Salomon
Smith Barney clients or by First Data in the case of all other
shareholders) of the shareholder's status or holdings, as the case may be.
Smith Barney 401(k) and ExecChoiceTM Programs
Investors may be eligible to participate in the Smith Barney 401(k)
Program or the Smith Barney ExecChoiceTM Program. To the extent applicable,
the same terms and conditions, which are outlined below, are offered to
all plans participating (''Participating Plans'') in these programs.
The fund offers to Participating Plans Class A and Class L shares as
investment alternatives under the Smith Barney 401(k) and ExecChoiceTM
Programs. Class A and Class L shares acquired through the Participating
Plans are subject to the same service and/or distribution fees as the
Class A and Class L shares acquired by other investors; however, they are
not subject to any initial sales charge or Deferred Sales Charge. Once a
Participating Plan has made an initial investment in the fund, all of its
subsequent investments in the fund must be in the same Class of shares,
except as otherwise described below.
Class A Shares. Class A shares of the fund are offered without any sales
charge or Deferred Sales Charge to any Participating Plan that purchases
$1,000,000 or more of Class A shares of one or more funds of the Smith
Barney Mutual Funds.
Class L Shares. Class L shares of the fund are offered without any sales
charge or Deferred Sales Charge to any Participating Plan that purchases
less than $1,000,000 of Class L shares of one or more funds of the Smith
Barney Mutual Funds.
401(k) and ExecChoiceTM Plans Opened On or After June 21, 1996. If, at the
end of the fifth year after the date the Participating Plan enrolled in
the Smith Barney 401(k) Program or the Smith Barney ExecChoiceTM Program, a
Participating Plan's total Class L holdings in all non-money market Smith
Barney Mutual Funds equal at least $1,000,000, the Participating Plan will
be offered the opportunity to exchange all of its Class L shares for Class
A shares of the fund. For Participating Plans that were originally
established through a Salomon Smith Barney retail brokerage account, the
five-year period will be calculated from the date the retail brokerage
account was opened. Such Participating Plans will be notified of the
pending exchange in writing within 30 days after the fifth anniversary of
the enrollment date and, unless the exchange offer has been rejected in
writing, the exchange will occur on or about the 90th day after the fifth
anniversary date. If the Participating Plan does not qualify for the five-
year exchange to Class A shares, a review of the Participating Plan's
holdings will be performed each quarter until either the Participating
Plan qualifies or the end of the eighth year.
401(k) Plans Opened Prior to June 21, 1996. In any year after the date a
Participating Plan enrolled in the Smith Barney 401(k) Program, if a
Participating Plan's total Class L holdings in all non-money market Smith
Barney Mutual Funds equal at least $500,000 as of the calendar year-end,
the Participating Plan will be offered the opportunity to exchange all of
its Class L shares for Class A shares of the fund. Such Plans will be
notified in writing within 30 days after the last business day of the
calendar year and, unless the exchange offer has been rejected in writing,
the exchange will occur on or about the last business day of the following
March.
Any Participating Plan in the Smith Barney 401(k) or the Smith Barney
ExecChoiceTM Programs, whether opened before or after June 21, 1996, that
has not previously qualified for an exchange into Class A shares will be
offered the opportunity to exchange all of its Class L shares for Class A
shares of the fund, regardless of asset size, at the end of the eighth
year after the date the Participating Plan enrolled in the Smith Barney
401(k) 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 subject to the distribution fee.
Participating Plans wishing to acquire shares of the fund through the
Smith Barney 401(k) Program or the Smith Barney ExecChoiceTM Program must
purchase such shares directly from the transfer agent. For further
information regarding these Programs, investors should contact a Salomon
Smith Barney Financial Consultant.
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 the fund is equal
to the net asset value per share at the time of purchase, plus for Class A
shares an initial sales charge based on the aggregate amount of the
investment. The public offering price for a Class L share (and Class A
share purchases, including applicable rights of accumulation, equaling or
exceeding $500,000) is equal to the net asset value per share at the time
of purchase and no sales charge is imposed at the time of purchase. A
Deferred Sales Charge, however, is imposed on certain redemptions of Class
L shares, and Class A shares when purchased in amounts exceeding $500,000.
The method of computation of the public offering price is shown in each
fund's financial statements, incorporated by reference in their entirety
into this SAI.
REDEMPTION OF SHARES
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 fund's 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 fund's shareholders.
If the shares to be redeemed were issued in certificate form, the
certificates must be endorsed for transfer (or be accompanied by an
endorsed stock power) and must be submitted to 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 guarantor institution such as a domestic bank,
savings and loan institution, domestic credit union, member bank of the
Federal Reserve System or member firm of a national securities exchange.
Written redemption requests of $10,000 or less do not require a signature
guarantee unless more than one such redemption request is made in any
10-day period or the redemption proceeds are to be sent to an address
other than the address of record. Unless otherwise directed, redemption
proceeds will be mailed to an investor's address of record. First Data
may require additional supporting documents for redemptions made by
corporations, executors, administrators, trustees or guardians. A
redemption request will not be deemed properly received until First Data
receives all required documents in proper form.
If a shareholder holds shares in more than one Class, any request for
redemption must specify the Class being redeemed. In the event of a
failure to specify which Class, or if the investor owns fewer shares of
the Class than specified, the redemption request will be delayed until the
Transfer Agent receives further instructions from Salomon Smith Barney, or
if the shareholder's account is not with Salomon Smith Barney, from the
shareholder directly. The redemption proceeds will be remitted on or
before the third business day following receipt of proper tender, except
on any days on which the NYSE is closed or as permitted under the 1940
Act, in extraordinary circumstances. Generally, if the redemption
proceeds are remitted to a Salomon Smith Barney brokerage account, these
funds will not be invested for the shareholder's benefit without specific
instruction and Salomon Smith Barney will benefit from the use of
temporarily uninvested funds. Redemption proceeds for shares purchased by
check, other than a certified or official bank check, will be remitted
upon clearance of the check, which may take up to ten days or more.
Distribution 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 fund's net assets by a distribution in kind of portfolio
securities in lieu of cash. Shareholders may incur brokerage commissions
when they subsequently sell those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan") is available to
shareholders of the fund who own shares of the fund with a value of at
least $10,000 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. Any applicable Deferred Sales Charge
will not be waived on amounts withdrawn by shareholders that exceed 1.00%
per month of the value of a shareholder's shares at the time the
Withdrawal Plan commences. (With respect to Withdrawal Plans in effect
prior to November 7, 1994, any applicable Deferred Sales Charge will be
waived on amounts withdrawn that do not exceed 2.00% per month of the
value of a shareholder's shares at the time the Withdrawal Plan
commences). To the extent that withdrawals exceed dividends,
distributions and appreciation of a shareholder's investment in a fund,
continued withdrawal payments will reduce the shareholder's investment,
and may ultimately exhaust it. Withdrawal payments should not be
considered as income from investment in a 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 of a fund who wish to participate in the Withdrawal Plan and
who hold their shares of the fund in certificate form must deposit their
share certificates with the transfer agent 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 involved. A shareholder who purchases shares directly through
the transfer agent may continue to do so and applications for
participation in the Withdrawal Plan must be received by the transfer
agent no later than the eighth day of the month to be eligible for
participation beginning with that month's withdrawal. For additional
information, shareholders should contact a Salomon Smith Barney Financial
Consultant.
Waivers Of Deferred Sales Charge
The Deferred Sales Charge will be waived on: (a) exchanges (see "Exchange
Privilege" in the prospectus); (b) automatic cash withdrawals in amounts
equal to or less than 1.00% per month of the value of the shareholder's
shares at the time the withdrawal plan commences (see "Automatic Cash
Withdrawal Plan in the prospectus") (provided, however, that automatic
cash withdrawals in amounts equal to or less than 2.00% per month of the
value of the shareholder's shares will be permitted for withdrawal plans
that were established prior to November 7, 1994); (c) redemptions of
shares within 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 591/2
; (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 proceeds within 60
days and receive pro rata credit for any Deferred Sales Charge imposed on
the prior redemption. Deferred Sales Charge waivers will be granted
subject to confirmation (by Salomon Smith Barney in the case of
shareholders who are also Salomon Smith Barney clients or by the transfer
agent in the case of all other shareholders) of the shareholder's status
or holdings, as the case may be.
Additional Information Regarding Telephone Redemption And Exchange Program
Neither the fund nor its agents will be liable for following instructions
communicated by telephone that are reasonably believed to be genuine. The
fund and its agents will employ procedures designed to verify the identity
of the caller and legitimacy of instructions (for example, a shareholder's
name and account number will be required and phone calls may be recorded).
The fund reserves the right to suspend, modify or discontinue the
telephone redemption and exchange program or to impose a charge for this
service at any time following at least seven (7) days prior notice to
shareholders.
DISTRIBUTOR
Distributor. CFBDS, Inc. serves as the fund's distributor pursuant to a
written agreement dated October 8, 1998 (the "Distribution Agreement")
which was approved by the fund's Board of Directors, including a majority
of the Independent Directors on July 15, 1998. Prior to the merger of
Travelers Group, Inc. and Citicorp Inc. on October 8, 1998, Salomon Smith
Barney served as the fund's distributor. For the 1996, 1997 and 1998
fiscal years, Salomon Smith Barney, received $500,000, $115,000 and
__________, respectively, in sales charges from the sale of Class A
shares, and did not reallow any portion thereof to dealers. For the
fiscal years ended October 31, 1996, 1997 and 1998, Salomon Smith Barney
or its predecessor received from shareholders $119,000, $201,000 and
$_________, respectively, in Deferred Sales Charge on the redemption of
Class B and Class L shares.
When payment is made by the investor before the settlement date, unless
otherwise noted by the investor, the funds will be held as a free credit
balance in the investor's brokerage account and Salomon Smith Barney may
benefit from the temporary use of the funds. The fund's Board of
Directors has been advised of the benefits to Salomon Smith Barney
resulting from these settlement procedures and will take such benefits
into consideration when reviewing the Investment Management and
Distribution Agreements for continuance.
For the fiscal year ended October 31, 1998, Salomon Smith Barney incurred
distribution expenses totaling approximately $622,346 consisting of
approximately $32,428 for advertising, $5,345 for printing and mailing of
prospectuses, $302,634 for support services, $277,469 to Salomon Smith
Barney Financial Consultants, and $4,470 in accruals for interest on the
excess of Salomon Smith Barney expenses incurred in distributing the
fund's shares over the sum of the distribution fees and Deferred Sales
Charge received by Salomon Smith Barney from the fund.
Distribution Arrangements. To compensate Salomon Smith Barney for the
service it provides and for the expense it bears, the fund has adopted a
services and distribution plan (the "Plan") pursuant to Rule 12b-1 under
the 1940 Act. Under the Plan, the fund pays Salomon Smith Barney a
service fee, accrued daily and paid monthly, calculated at the annual rate
of 0.25% of the value of the fund's average daily net assets attributable
to the Class A, Class B and Class L shares. In addition, the fund pays
Salomon Smith Barney a distribution fee with respect to Class B and Class
L shares primarily intended to compensate Salomon 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 fund's average net assets
attributable to the shares of the respective Class.
The payments to Salomon Smith Barney Financial Consultants for selling
shares of a Class include a commission or fee paid by the investor or
Salomon Smith Barney at the time of sale and, with respect to Class A,
Class B and Class L shares, a continuing fee for servicing shareholder
accounts for as long as a shareholder remains a holder of that Class.
Salomon 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 Salomon Smith Barney and the payments may
exceed distribution expenses actually incurred. The fund's Board of
Directors will evaluate the appropriateness of the Plan and its payment
terms on a continuing basis and in so doing will consider all relevant
factors, including expenses borne by Smith Barney, amounts received under
the Plan and proceeds of the Deferred Sales Charge.
For the fiscal year ended November 30, 1998, the distributor received
approximately $_______ in sales charges for the sale of the fund's Class A
shares, and did not reallow any portion thereof to dealers.
For the fiscal year ended November 30, 1998, the distributor received
approximately $_______ representing Deferred Sales Charge on redemption of
the fund's Class B shares.
For the fiscal year ended November 30, 1998, the distributor received
approximately $_______ representing Deferred Sales Charge on redemption of
the fund's Class L shares.
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 investor's brokerage account and Salomon
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 Salomon Smith
Barney Exchange Reserve fund) of the Smith Barney Mutual funds. If the
investor instructs Salomon Smith Barney to invest the funds in a Salomon
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 Salomon 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 Trust's Board of Trustees has been advised
of the benefits to Salomon Smith Barney resulting from these settlement
procedures and will take such benefits into consideration when reviewing
the Investment Management and Distribution Agreements for continuance.
For the fiscal year ended November 30, 1998, the distributor incurred
distribution expenses totaling approximately $_______, consisting of
approximately $_______ for advertising, $_______ for printing and mailing
of prospectuses, $_______ for support services, $_______ to Salomon Smith
Barney Financial Consultants, and $_______ in accruals for interest on the
excess of Salomon Smith Barney expenses incurred in distribution of the
funds' shares over the sum of the distribution fees and Deferred Sales
Charge received by Salomon Smith Barney from the fund. For the fiscal
year ended November 30, 1998, the distributor, received $_______ in the
aggregate from the Plan.
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, Salomon 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.
SERVICE FEES
Year Ended
11/30/98
Class A
$
Class B
Class L
DISTRIBUTION FEES
Year Ended
11/30/98
Class B
$
Class L
VALUATION OF SHARES
The net asset value per share of the fund's 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 Year's 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 fund's 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 fund's 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 fund's board of trustees.
EXCHANGE PRIVILEGE
Except as noted below, 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, on the basis of relative net
asset value per share at the time of exchange as follows:
A. Class A and Class Y shares of the fund may be exchanged without a
sales charge for the respective shares of any of the Smith Barney
Mutual funds.
B. Class B shares of any fund may be exchanged without a sales
charge. Class B shares of the Fund exchanged for Class B shares of
another Smith Barney Mutual Fund will be subject to the higher
applicable Deferred Sales Charge of the two funds and, for purposes
of calculating Deferred Sales Charge 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 Deferred Sales Charge 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 in any Smith Barney Mutual
fund to acquire shares of the same Class in a fund with different
investment objectives when they believe 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 Salomon
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, subject to any applicable Deferred Sales Charge, the
proceeds are immediately invested, at a price as described above, in
shares of the fund being acquired. Salomon 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.
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange
transactions can be detrimental to the fund's performance and its
shareholders. The manager may determine that a pattern of frequent
exchanges is excessive and contrary to the best interests of the fund's
other shareholders. In this event, the fund may, at its discretion,
decide to limit additional purchases and/or exchanges by a shareholder.
Upon such a determination, the fund will provide notice in writing or by
telephone to the shareholder at least 15 days prior to suspending the
exchange privilege and during the 15 day period the shareholder will be
required to (a) redeem his or her shares in the fund or (b) remain
invested in the fund or exchange into any of the funds of the Smith Barney
Mutual funds ordinarily available, which position the shareholder would be
expected to maintain for a significant period of time. All relevant
factors will be considered in determining what constitutes an abusive
pattern of exchanges.
PERFORMANCE DATA
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 specified 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.
From time to time, the trust may quote a fund's 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 fund's shares. Such performance information may include
the following industry and financial publications- Barron's, Business
Week, CDA Investment Technologies, Inc., Changing Times, Forbes, Fortune,
Institutional Investor, Investors Daily, Money, Morningstar Mutual Fund
Values, The New York Times, USA Today and The Wall Street Journal. To the
extent any advertisement or sales literature of the fund describes the
expenses or performance of any Class it will also disclose such
information for the other Classes.
Average Annual Total Return
A fund's "average annual total return," as described below, is 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 a 1-, 5- or 10-
year period (or fractional portion
thereof), assuming reinvestment of all
dividends and distributions.
The ERV assumes complete redemption of the hypothetical investment at the
end of the measuring period. A fund's net investment income changes in
response to fluctuations in interest rates and the expenses of the fund.
Average Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Life
of
fund
Class A2
%
N/A
N/A
%1
Class B3
%
N/A
N/A
%1
Class L4
%
N/A
N/A
%1
Class Y5
%
N/A
N/A
%1
_______________________
1 Class A, B and L commenced operations on August 29, 1997. Class Y
commenced operations on October 15, 1997.
2 The average annual total return figure assumes that the maximum
5.00% sales charge has been deducted from the investment at the time
of purchase. If the maximum sales charge had not been deducted, the
average annual total return for Class A shares for the same period
would have been [ ]%.
3 The average annual total return figure assumes that the maximum
applicable Deferred Sales Charge has been deducted from the
investment at the time of redemption. If the maximum Deferred Sales
Charge had not been deducted, the average annual total return for
Class B shares for the same period would have been [ ]%.
4 The average annual total return figure assumes that the maximum
applicable Deferred Sales Charge has been deducted from the
investment at the time of redemption. If the maximum Deferred Sales
Charge had not been deducted, the average annual total return for
Class L shares for the same period would have been [ ]%.
5 Class Y shares do not incur sales charges nor Deferred Sales
Charges.
Aggregate Total Return
The fund's "aggregate total return," as described below, represents the
cumulative change in the value of an investment in the fund for the
specified period and is computed by the following formula:
ERV - P
P
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical $10,000
investment made at the beginning of the 1-,
5- or 10-year period at the end of the 1-,
5- or 10-year period (or fractional portion
thereof), assuming reinvestment of all
dividends and distributions.
The ERV assumes complete redemption of the hypothetical investment at the
end of the measuring period.
Aggregate Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Life
of
fund
Class A2
%
N/A
N/A
%1
Class B3
%
N/A
N/A
%1
Class L4
%
N/A
N/A
%1
Class Y5
%
N/A
N/A
%1
_______________________
1 Classes A, B and L commenced operations on August 29, 1997. Class Y
commenced operations on October 15, 1997.
2 The average annual total return figure assumes that the maximum
5.00% sales charge has been deducted from the investment at the time
of purchase. If the maximum sales charge had not been deducted, the
average annual total return for Class A shares for the same period
would have been [ ]%.
3 The average annual total return figure assumes that the maximum
applicable Deferred Sales Charge has been deducted from the
investment at the time of redemption. If the maximum Deferred Sales
Charge had not been deducted, the average annual total return for
Class B shares for the same period would have been [ ]%.
4 The average annual total return figure assumes that the maximum
applicable Deferred Sales Charge has been deducted from the
investment at the time of redemption. If the maximum Deferred Sales
Charge had not been deducted, the average annual total return for
Class L shares for the same period would have been [ ]%.
5 Class Y shares do not incur sales charges nor Deferred Sales
Charges.
Performance will vary from time to time depending upon market conditions,
the composition of the fund's portfolio and operating expenses and the
expenses exclusively attributable to the Class. Consequently, any given
performance quotation should not be considered representative of the
Class's performance for any specified period in the future. Because
performance will vary, it may not provide a basis for comparing an
investment in the Class with certain bank deposits or other investments
that pay a fixed yield for a stated period of time. Investors comparing a
Class's performance with that of other mutual funds should give
consideration to the quality and maturity of the respective investment
companies' portfolio securities.
TAXES
The following is a summary of the material United States federal income
tax considerations regarding the purchase, ownership and disposition of
shares of a fund. Each prospective shareholder is urged to consult his
own tax adviser with respect to the specific federal, state, local and
foreign tax consequences of investing in a fund. The summary is based on
the laws in effect on the date of this Statement of Additional
Information, which are subject to change.
The Fund and Its Investments
The fund intends to continue to qualify to be treated as a regulated
investment company each taxable year under the Internal Revenue Code of
1986, as amended (the "Code"). To so qualify, the fund must, among other
things: (a) derive at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to securities, loans and
gains from the sale or other disposition of stock or securities or foreign
currencies, or other income (including, but not limited to, gains from
options, futures or forward contracts) derived with respect to its
business of investing in such stock, securities or currencies; and (b)
diversify its holdings so that, at the end of each quarter of the fund's
taxable year, (i) at least 50% of the market value of the fund's assets is
represented by cash, securities of other regulated investment companies,
United States government securities and other securities, with such other
securities limited, in respect of any one issuer, to an amount not greater
than 5% of the fund's assets and not greater than 10% of the outstanding
voting securities of such issuer and (ii) not more than 25% of the value
of its assets is invested in the securities (other than United States
government securities or securities of other regulated investment
companies) of any one issuer or any two or more issuers that the fund
controls and are determined to be engaged in the same or similar trades or
businesses or related trades or businesses. The fund expects that all of
its foreign currency gains will be directly related to its principal
business of investing in stocks and securities.
As a regulated investment company, the fund will not be subject to United
States federal income tax on its net investment income (i.e., income other
than its net realized long- and short-term capital gains) and its net
realized long- and short-term capital gains, if any, that it distributes
to its shareholders, provided that an amount equal to at least 90% of the
sum of its investment company taxable income (i.e., 90% of its taxable
income minus the excess, if any, of its net realized long-term capital
gains over its net realized short-term capital losses (including any
capital loss carryovers), plus or minus certain other adjustments as
specified in the Code) and its net tax-exempt income for the taxable year
is distributed in compliance with the Code's timing and other requirements
but will be subject to tax at regular corporate rates on any taxable
income or gains that it does not distribute. Furthermore, the fund will
be subject to a United States corporate income tax with respect to such
distributed amounts in any year that it fails to qualify as a regulated
investment company or fails to meet this distribution requirement.
The Code imposes a 4% nondeductible excise tax on the fund to the extent
it does not distribute by the end of any calendar year at least 98% of its
net investment income for that year and 98% of the net amount of its
capital gains (both long-and short-term) for the one-year period ending,
as a general rule, on October 31 of that year. For this purpose, however,
any income or gain retained by the fund that is subject to corporate
income tax will be considered to have been distributed by year-end. In
addition, the minimum amounts that must be distributed in any year to
avoid the excise tax will be increased or decreased to reflect any
underdistribution or overdistribution, as the case may be, from the
previous year. The fund anticipates that it will pay such dividends and
will make such distributions as are necessary in order to avoid the
application of this tax.
If, in any taxable year, the fund fails to qualify as a regulated
investment company under the Code or fails to meet the distribution
requirement, it would be taxed in the same manner as an ordinary
corporation and distributions to its shareholders would not be deductible
by the fund in computing its taxable income. In addition, in the event of
a failure to qualify, the fund's distributions, to the extent derived from
the fund's current or accumulated earnings and profits would constitute
dividends (eligible for the corporate dividends-received deduction) which
are taxable to shareholders as ordinary income, even though those
distributions might otherwise (at least in part) have been treated in the
shareholders' hands as long-term capital gains. If the fund fails to
qualify as a regulated investment company in any year, it must pay out its
earnings and profits accumulated in that year in order to qualify again as
a regulated investment company. In addition, if the fund failed to
qualify as a regulated investment company for a period greater than one
taxable year, the fund may be required to recognize any net built-in gains
(the excess of the aggregate gains, including items of income, over
aggregate losses that would have been realized if it had been liquidated)
in order to qualify as a regulated investment company in a subsequent
year.
The fund's transactions in foreign currencies, forward contracts, options
and futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code (including
provisions relating to "hedging transactions" and "straddles") that, among
other things, may affect the character of gains and losses realized by the
fund (i.e., may affect whether gains or losses are ordinary or capital),
accelerate recognition of income to the fund and defer fund losses. These
rules could therefore affect the character, amount and timing of
distributions to shareholders. These provisions also (a) will require the
fund to mark-to-market certain types of the positions in its portfolio
(i.e., treat them as if they were closed out) and (b) may cause the fund
to recognize income without receiving cash with which to pay dividends or
make distributions in amounts necessary to satisfy the distribution
requirements for avoiding income and excise taxes. The fund will monitor
its transactions, will make the appropriate tax elections and will make
the appropriate entries in its books and records when it acquires any
foreign currency, forward contract, option, futures contract or hedged
investment in order to mitigate the effect of these rules and prevent
disqualification of the fund as a regulated investment company.
The fund's investment in Section 1256 contracts, such as regulated futures
contracts, most forward currency forward contracts traded in the interbank
market and options on most stock indices, are subject to special tax
rules. All section 1256 contracts held by the fund at the end of its
taxable year are required to be marked to their market value, and any
unrealized gain or loss on those positions will be included in the fund's
income as if each position had been sold for its fair market value at the
end of the taxable year. The resulting gain or loss will be combined with
any gain or loss realized by the fund from positions in section 1256
contracts closed during the taxable year. Provided such positions were
held as capital assets and were not part of a "hedging transaction" nor
part of a "straddle," 60% of the resulting net gain or loss will be
treated as long-term capital gain or loss, and 40% of such net gain or
loss will be treated as short-term capital gain or loss, regardless of the
period of time the positions were actually held by the fund.
Foreign Investments. Dividends or other income (including, in some cases,
capital gains) received by the fund from investments in foreign securities
may be subject to withholding and other taxes imposed by foreign
countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes in some cases. The fund will
not be eligible to elect to treat any foreign taxes paid by it as paid by
its shareholders, who therefore will not be entitled to credits for such
taxes on their own tax returns. Foreign taxes paid by the fund will
reduce the return from the fund's investments.
Passive Foreign Investment Companies. If the fund purchases shares in
certain foreign investment entities, called "passive foreign investment
companies" (a "PFIC"), it may be subject to United States federal income
tax on a portion of any "excess distribution" or gain from the disposition
of such shares even if such income is distributed as a taxable dividend by
the fund to its shareholders. Additional charges in the nature of
interest may be imposed on the fund in respect of deferred taxes arising
from such distributions or gains. If the fund were to invest in a PFIC
and elected to treat the PFIC as a "qualified electing fund" under the
Code, in lieu of the foregoing requirements, the fund might be required to
include in income each year a portion of the ordinary earnings and net
capital gains of the qualified electing fund, even if not distributed to
the fund, and such amounts would be subject to the 90% and excise tax
distribution requirements described above. In order to make this
election, the fund would be required to obtain certain annual information
from the passive foreign investment companies in which it invests, which
may be difficult or not possible to obtain.
Recently, legislation was enacted that provides a mark-to-market election
for regulated investment companies effective for taxable years beginning
after December 31, 1997. This election would result in the fund being
treated as if it had sold and repurchased all of the PFIC stock at the end
of each year. In this case, the fund would report gains as ordinary
income and would deduct losses as ordinary losses to the extent of
previously recognized gains. The election, once made, would be effective
for all subsequent taxable years of the fund, unless revoked with the
consent of the IRS. By making the election, the fund could potentially
ameliorate the adverse tax consequences with respect to its ownership of
shares in a PFIC, but in any particular year may be required to recognize
income in excess of the distributions it receives from PFICs and its
proceeds from dispositions of PFIC company stock. The fund may have to
distribute this "phantom" income and gain to satisfy its distribution
requirement and to avoid imposition of the 4% excise tax. The fund will
make the appropriate tax elections, if possible, and take any additional
steps that are necessary to mitigate the effect of these rules.
Taxation of United States Shareholders
Dividends and Distributions. Any dividend declared by the fund in
October, November or December of any calendar year and payable to
shareholders of record on a specified date in such a month shall be deemed
to have been received by each shareholder on December 31 of such calendar
year and to have been paid by the fund not later than such December 31,
provided that such dividend is actually paid by the fund during January of
the following calendar year. The fund intends to distribute annually to
its shareholders substantially all of its investment company taxable
income, and any net realized long-term capital gains in excess of net
realized short-term capital losses (including any capital loss
carryovers). The fund currently expects to distribute any excess annually
to its shareholders. However, if the fund retains for investment an
amount equal to all or a portion of its net long-term capital gains in
excess of its net short-term capital losses and capital loss carryovers,
it will be subject to a corporate tax (currently at a rate of 35%) on the
amount retained. In that event, the fund will designate such retained
amounts as undistributed capital gains in a notice to its shareholders who
(a) will be required to include in income for United Stares federal income
tax purposes, as long-term capital gains, their proportionate shares of
the undistributed amount, (b) will be entitled to credit their
proportionate shares of the 35% tax paid by the fund on the undistributed
amount against their United States federal income tax liabilities, if any,
and to claim refunds to the extent their credits exceed their liabilities,
if any, and (c) will be entitled to increase their tax basis, for United
States federal income tax purposes, in their shares by an amount equal to
65% of the amount of undistributed capital gains included in the
shareholder's income. Organizations or persons not subject to federal
income tax on such capital gains will be entitled to a refund of their pro
rata share of such taxes paid by the fund upon filing appropriate returns
or claims for refund with the Internal Revenue Service (the "IRS").
Dividends of net investment income and distributions of net realized
short-term capital gains are taxable to a United States shareholder as
ordinary income, whether paid in cash or in shares. Distributions of net-
long-term capital gains, if any, that the fund designates as capital gains
dividends are taxable as long-term capital gains, whether paid in cash or
in shares and regardless of how long a shareholder has held shares of the
fund. Dividends and distributions paid by the fund attributable to
dividends on stock of U.S. corporations received by the fund, with respect
to which the fund meets certain holding period requirements, will be
eligible for the deduction for dividends received by corporations.
Distributions in excess of the fund's current and accumulated earnings and
profits will, as to each shareholder, be treated as a tax-free return of
capital to the extent of a shareholder's basis in his shares of the fund,
and as a capital gain thereafter (if the shareholder holds his shares of
the fund as capital assets).
Shareholders receiving dividends or distributions in the form of
additional shares should be treated for United States federal income tax
purposes as receiving a distribution in the amount equal to the amount of
money that the shareholders receiving cash dividends or distributions will
receive, and should have a cost basis in the shares received equal to such
amount.
Investors considering buying shares just prior to a dividend or capital
gain distribution should be aware that, although the price of shares just
purchased at that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may nevertheless be taxable to
them.
If the fund is the holder of record of any stock on the record date for
any dividends payable with respect to such stock, such dividends are
included in the fund's gross income not as of the date received but as of
the later of (a) the date such stock became ex-dividend with respect to
such dividends (i.e., the date on which a buyer of the stock would not be
entitled to receive the declared, but unpaid, dividends) or (b) the date
the fund acquired such stock. Accordingly, in order to satisfy its income
distribution requirements, the fund may be required to pay dividends based
on anticipated earnings, and shareholders may receive dividends in an
earlier year than would otherwise be the case.
Sales of Shares. Upon the sale or exchange of his shares, a shareholder
will realize a taxable gain or loss equal to the difference between the
amount realized and his basis in his shares. Such gain or loss will be
treated as capital gain or loss, if the shares are capital assets in the
shareholder's hands, and will be long-term capital gain or loss if the
shares are held for more than one year and short-term capital gain or loss
if the shares are held for one year or less. Any loss realized on a sale
or exchange will be disallowed to the extent the shares disposed of are
replaced, including replacement through the reinvesting of dividends and
capital gains distributions in the fund, within a 61-day period beginning
30 days before and ending 30 days after the disposition of the shares. In
such a case, the basis of the shares acquired will be increased to reflect
the disallowed loss. Any loss realized by a shareholder on the sale of a
fund share held by the shareholder for six months or less will be treated
for United States federal income tax purposes as a long-term capital loss
to the extent of any distributions or deemed distributions of long-term
capital gains received by the shareholder with respect to such share.
If a shareholder incurs a sales charge in acquiring shares of the fund,
disposes of those shares within 90 days and then acquires shares in a
mutual fund for which the otherwise applicable sales charge is reduced by
reason of a reinvestment right (e.g., an exchange privilege), the original
sales charge will not be taken into account in computing gain/loss on the
original shares to the extent the subsequent sales charge is reduced.
Instead, the disregarded portion of the original sales charge will be
added to the tax basis in the newly acquired shares. Furthermore, the
same rule also applies to a disposition of the newly acquired shares made
within 90 days of the second acquisition. This provision prevents a
shareholder from immediately deducting the sales charge by shifting his or
her investment in a family of mutual funds.
Backup Withholding. The fund may be required to withhold, for United
States federal income tax purposes, 31% of the dividends, distributions
and redemption proceeds payable to shareholders who fail to provide the
fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject
to backup withholding. Certain shareholders are exempt from backup
withholding. Backup withholding is not an additional tax and any amount
withheld may be credited against a shareholder's United States federal
income tax liabilities.
Notices. Shareholders will be notified annually by the fund as to the
United States federal income tax status of the dividends, distributions
and deemed distributions attributable to undistributed capital gains
(discussed above in "Dividends and Distributions") made by the fund to its
shareholders. Furthermore, shareholders will also receive, if
appropriate, various written notices after the close of the fund's taxable
year regarding the United States federal income tax status of certain
dividends, distributions and deemed distributions that were paid (or that
are treated as having been paid) by the fund to its shareholders during
the preceding taxable year.
Other Taxation
Distributions also may be subject to additional state, local and foreign
taxes depending on each shareholder's particular situation.
The foregoing is only a summary of certain material tax consequences
affecting the fund and its shareholders. Shareholders are advised to
consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the fund.
ADDITIONAL INFORMATION
The trust was organized on October 17, 1991 under the laws of the
Commonwealth of Massachusetts and is a business entity commonly known as a
"Massachusetts business trust." the trust offers shares of beneficial
interest of separate funds with a par value of $.001 per share. the fund
offers shares of beneficial interest currently classified into four
Classes - A, B, L and Y. Each class of the fund represents an identical
interest in the fund's investment portfolio. As a result, the Classes
have the same rights, privileges and preferences, 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 distribution and/or service fees
borne by each class pursuant to the Plan; (d) the expenses allocable
exclusively to each Class; (e) voting rights on matters exclusively
affecting a single Class; (f) the exchange privilege of each class; and
(g) the conversion feature of the Class B shares. The trust's board of
trustees does not anticipate that there will be any conflicts among the
interests of the holders of the different Classes. The trustees, on an
ongoing basis, will consider whether any such conflict exists and, if so,
take appropriate 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 trust's outstanding
shares and the trust will assist shareholders in calling such a meeting as
required by the 1940 Act.
When matters are submitted for shareholder vote, shareholders of each
Class will have one vote for each full share owned and a proportionate,
fractional vote for any fractional share held of that Class. Generally,
shares of the fund will be voted on a fund-wide basis on all matters
except matters affecting only the interests of one Class, in which case
only shares of the affected Class would be entitled to vote.
The trust was organized as an unincorporated Massachusetts business trust
on October 17, 1991 under the name Shearson Lehman Brothers Intermediate-
Term Trust. On October 14, 1994 and August 16, 1995, the Trust's name was
changed to Smith Barney Income Trust and Smith Barney Investment Trust,
respectively.
PNC Bank, National Association ("PNC"), located at 17th and Chestnut
Streets, Philadelphia, Pennsylvania, 19103, serves as the custodian of the
fund. Under its custody agreement with the fund, PNC holds the fund's
securities and keeps all necessary accounts and records. For its services,
PNC receives a monthly fee based upon the month-end market value of
securities held in custody and also receives securities transactions
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 trust's transfer agent. Under the transfer agency agreement, the
transfer agent 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, the transfer agent 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.
APPENDIX B
The Smith Barney Mutual Fund Family encompasses more than 60 mutual funds,
representing approximately $87 billion of shareholder assets under
management as of September 30, 1998. This places us among the largest
mutual fund companies in the United States. Our portfolio managers
average approximately 25 years of experience in the financial field - of
which, on average, 18 have been with Smith Barney.
By building a core portfolio of mutual funds with complementary investment
styles, individuals can work toward specific goals of capital
appreciation, regular income and preservation of investment principal.
Your Salomon Smith Barney Financial Consultant can recommend and provide a
prospectus for one or more mutual funds designed to help you meet your
individual goals for education funding, retirement and changing lifestyle
needs.
Smith Barney Mutual Funds provide a broad selection of funds to suit every
investment goal, from capital appreciation to preservation of investment
principal. Our Family is divided into these main categories:
? Growth: For individuals seeking long-term capital appreciation
through investments in common stocks. Some of our growth funds also
give equal emphasis to income.
? Taxable Fixed Income: For individuals seeking current income.
? Tax-Exempt Fixed Income: For individuals seeking a tax-exempt
investment that allows them to keep more of what they earn for
current spending or future investment.
? Global/International: For individuals seeking to diversify their
portfolio to include long-term capital appreciation or income from
investments in markets around the world.
? Concert Allocation Series:
We understand that investors can be ________ in how they wish to reach
their financial goals. That's why we offer four different Series of
funds. Some investors, guided by their Financial Consultant, prefer to
take an active role in allocating their investment portfolio. For these
investors we offer the Style Pure Series. Others prefer to rely on the
asset allocation decisions of experienced portfolio managers, and may fund
solutions to their investment needs in our Classic Series. For investors
who want to explore opportunities using a narrower focus, we offer the
Specialty Series. The Concert Allocation Series allows investors to
invest in a diversified "fund of funds."
Style Pure Series Smith Barney mutual funds designated as "Style Pure"
are the basic building blocks of asset allocation. Other than maintaining
minimal cash, or under extraordinary market conditions, each of these
funds is 100% invested, 1005 of the time within its designated asset
classes and designated investment style. The Style Pure Series enables
you and your Smith Barney Financial Consultant to control your asset
allocation decisions using funds managed by experienced portfolio
managers.
Global/International Funds
Taxable Fixed Income Funds
Emerging Markets Portfolio
Adjustable Rate Government
Income Fund
European Portfolio
Government Securities Fund
Pacific Portfolio
High Income Fund
Investment Grade Bond Fund
Growth Funds
Managed Governments Fund
Large Cap Blend Fund
Short-Term High Grade Bond Fund
Large Capitalization Growth
Fund
U.S. Government Securities Fund
Large Cap Value Fund
Mid Cap Blend Fund
Tax-Exempt Fixed Income Funds
Small Cap Blend Fund
Limited Term Portfolio
Municipal High Income Fund
Classic Series The "Classic Series" lets you participate in mutual funds
whose investment decisions are determined by experienced portfolio
managers, based on each fund's investment objectives and guidelines.
Funds in the Smith Barney Classic Series invest across asset classes and
sectors, utilizing a range of strategies in order to achieve their
objectives.
Global/International Funds
Taxable Fixed Income Funds
Global Government Bond Fund
Diversified Strategic Income
Fund
Hansberger Global Small Cap
Value Fund
Total Return Bond Fund
Hansberger Global Value Fund
International Balanced
Portfolio
Tax-Exempt Fixed Income Funds
International Equity Portfolio
Managed Municipals Fund
Growth Funds
Aggressive Growth Fund
Appreciation Fund
Balanced Fund
Concert Peachtree Growth Fund
Contrarian Fund
Fundamental Value Fund
Premium Total Return Fund
Special Equities Fund
Specialty Series Mutual funds included in Smith Barney's "Specialty
Series" explore opportunities in a narrower sector of the market or by
using a narrower investment focus.
Growth Funds
State-Specific, Intermediate-
Term Tax-Exempt Fixed Income
Funds
Concert Social Awareness Fund
Intermediate Maturity
California Municipals Fund
Convertible Fund
Intermediate Maturity New York
Municipals Fund
Natural Resources Fund
S&P 500 Index Fund
State-Specific, Tax-Exempt
Fixed Income Funds
Arizona New Jersey
California New York
Florida Oregon
Georgia Pennsylvania
Massachusetts
Concert Allocation Series These "funds of funds" are designed to provide
you with targeted objectives, but at diversification levels that are
significantly greater than an investment in a single fund can provide.
Currently, available options include Global, High Growth, Growth,
Balanced, Conservative and Income Portfolios. These Portfolios'
objectives are achieved through stock and bond fund allocations that range
from 100% stocks to 10% stocks/90% bonds, allowing you to match "funds of
funds" in the Concert Allocation Series with your changing financial goals
and risk tolerance.
The Global Portfolio The Balanced
Portfolio
The High Growth Portfolio The Conservative
Portfolio
The Growth Portfolio The Income Portfolio
Help Along the Way
A professionally trained Salomon Smith Barney Financial Consultant is
ready, willing and able to serve as a reliable financial guide throughout
your financial journey. Talk with your Financial Consultant before you
invest in order to help prioritize your goals. Once you've set your
sights on clear objectives, rely on the expertise of this dedicated
professional to help you determine which investment mix may be suited to
your unique circumstances.
Your Financial Consultant knows from experience that allocating assets is
a key part of determining the long-term success of investment strategies.
As your circumstances and life style change, your Financial Consultant
will suggest adjustments to your strategy in order to keep you on the
right road and on track for achieving your financial goals.
International Investing
Whether you're a conservative or aggressive investor, just starting to
save or nearing retirement, chances are you could benefit from investing a
portion of your overall portfolio in international stocks and bonds.
Smith Barney offers a variety of international mutual funds designed to
help you gain access to:
Expanded horizons
Today, approximately 55% of the world's stock and bond opportunities are
found beyond U.S. boundaries. And non-U.S. markets represent some of the
fastest-growing economies in the world.
Potential for higher return
Taken as a whole, foreign markets have outperformed their domestic
counterparts on a long-term basis. Foreign markets do not outperform the
U.S. every quarter of every year, but they have delivered superior returns
over time.
Enhanced diversification
One of the most significant benefits of investing abroad is the potential
for reducing risk. Intentionally diversified portfolios tend to
experience less overall price volatility than portfolios invested in
single markets. Since world markets do not necessarily move in tandem
with those of the U.S., many international markets may be on the rise when
U.S. markets are down. The net result may be lower overall portfolio
volatility and potentially higher investment returns over time. In
addition, global/international mutual funds offer convenient access to
attractive opportunities not always available to U.S. investors.
Growth Investing
A growth mutual fund can offer you the benefits of professional
management, lower volatility as a result of diversification, and
affordability in terms of both initial and subsequent investments. If you
are a long-term investor, you may be best served by having a significant
portion of your assets invested in growth funds, although past performance
is not a guarantee of future results and principal value will fluctuate
with changes in the market. For younger investors, growth funds may be
one of the best ways to grow your assets and help you reach your financial
goals. Yet investing for growth is also important for older investors,
who should not underestimate the importance of offsetting the effects of
inflation and continuing to build financial resources for future needs.
Different types of investments have different rewards and risks associated
with them. For example, funds that invest in bonds as well as stocks may
be less volatile than funds investing solely in stocks. You may reduce
overall investment risk by owning funds that span different market
capitalizations and investment styles.
Tax-Exempt Investing: Helping You to Keep More of What You Earn
Tax-exempt fixed income funds, also known as "municipal bond mutual
funds," seek to provide tax-exempt income by investing in portfolios of
selected municipal bonds. Cities, states and municipalities issue
municipal bonds to finance ongoing operations and public projects. These
tax-exempt funds have remained tax-free and offer the potential to provide
shareholders with income and capital growth at levels that may equal or
exceed total returns from taxable investments on an after-tax basis.
Maturity and credit quality can be important factors in determining the
potential risks and rewards of a municipal bond investment. Longer-term
bond funds generally offer higher yields but your principal will be more
affected by interest rate changes, and therefore, are more risky.
Municipal bonds that are of lower credit quality tend to be riskier
because they are subject to credit risk; however, they generally offer
higher yields. Tax-exempt funds may be appropriate for investors in high
tax brackets. If you are risk-averse, or have shorter-term goals, an
intermediate or shorter-term investment may be more appropriate.
Investors with longer time horizons or a greater tolerance for risk may
benefit from the higher yields offered by longer-term municipal funds.
Smith Barney
Large Capitalization Growth Fund
Statement of Additional
Information
SMITH BARNEY
INVESTMENT TRUST
388 Greenwich Street
New York, NY 10013
SALOMON SMITH BARNEY
A Member of Citigroup [Symbol]
Smith Barney Mid Cap Blend Fund
SMITH BARNEY INVESTMENT TRUST
388 Greenwich Street
New York, New York 10013
(800) 451-2010
Statement of Additional
Information
March 30, 1999
This Statement of Additional Information ("SAI") is meant to be read in
conjunction with the Prospectus of the Smith Barney Mid Cap Blend Fund
(the "fund") dated March 30, 1999, as amended or supplemented from time to
time (the "Prospectus"), and is incorporated by reference in it entirety
into the Prospectus. Additional information about the fund's investments
is available in the fund's annual and semi-annual reports to shareholders
which are incorporated herein by reference. The prospectus and copies of
the reports may be obtained free of charge by contacting a Salomon Smith
Barney Financial Consultant, or by writing or calling Salomon Smith Barney
at the address or telephone number above. The fund is a separate
investment series of Smith Barney Investment Trust (the "trust").
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES 1
PURCHASE OF SHARES 20
REDEMPTION OF SHARES 24
DISTRIBUTOR 27
VALUATION OF SHARES 29
EXCHANGE PRIVILEGE 30
PERFORMANCE DATA 33
TAXES 36
ADDITIONAL INFORMATION 38
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The prospectus discusses the fund's investment objective and policies.
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 the fund may utilize and
certain risks associated with these investments, policies and strategies.
SSBC Fund Management Inc. ("SSBC" or the "manager") serves as investment
manager to the fund.
Under normal market conditions, the fund invests at least 65% of its total
assets in equity securities of medium-sized companies with market
capitalizations of between $1 billion and $[12] billion at the time of
investment. Companies whose capitalization falls outside this range after
purchase continue to be considered medium-sized companies for purposes of
the 65% policy. Investing in medium-capitalization stocks may involve
greater risk than investing in large capitalization stocks since they can
be subject to more abrupt or erratic movements. However, they tend to
involve less risk than stocks of small capitalization companies.
The fund normally invests in all types of equity securities, including
common stocks, preferred stocks, securities that are convertible into
common or preferred stocks, such as warrants and convertible bonds, and
depository receipts for those securities. The fund may maintain a portion
of its assets, which will usually not exceed 10%, in U.S. Government
securities, money market obligations, and in cash to provide for payment
of the fund's expenses and to meet redemption requests. It is the policy
of the fund to be as fully invested in equity securities as practicable at
all times.
Equity Securities. The fund will normally invest at least 65% of its
assets in equity securities, including primarily common stocks and, to a
lesser extent, securities convertible into common stock and rights to
subscribe for common stock. Common stocks represent an equity (ownership)
interest in a corporation. Although equity securities have a history of
long-term growth in value, their prices fluctuate based on changes in a
company's financial condition and on overall market and economic
conditions.
Convertible Securities. Convertible securities in which a Fund may
invest, including both convertible debt and convertible preferred stock,
may be converted at either a stated price or stated rate into underlying
shares of common stock. Because of this feature, convertible securities
enable an investor to benefit from increases in the market price of the
underlying common stock. Convertible securities provide higher yields
than the underlying equity securities, but generally offer lower yields
than non-convertible securities of similar quality. Like bonds, the value
of convertible securities fluctuates in relation to changes in interest
rates and, in addition, also fluctuates in relation to the underlying
common stock.
When-Issued Securities and Delayed-Delivery Transactions. The fund may
purchase securities on a "when-issued" basis, for delayed delivery (i.e.,
payment or delivery occur beyond the normal settlement date at a stated
price and yield) or on a forward commitment basis. The fund does not
intend to engage in these transactions for speculative purposes, but only
in furtherance of its investment goal. These transactions occur when
securities are purchased or sold by the fund with payment and delivery
taking place in the future to secure what is considered an advantageous
yield and price to the fund at the time of entering into the transaction.
The payment obligation and the interest rate that will be received on
when-issued securities are fixed at the time the buyer enters into the
commitment. Due to fluctuations in the value of securities purchased or
sold on a when-issued, delayed-delivery basis or forward commitment basis,
the prices obtained on such securities may be higher or lower than the
prices available in the market on the dates when the investments are
actually delivered to the buyers.
When the fund agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash or liquid securities equal
to the amount of the commitment in a segregated account. Normally, the
custodian will set aside portfolio securities to satisfy a purchase
commitment, and in such a case the fund may be required subsequently to
place additional assets in the segregated account in order to ensure that
the value of the account remains equal to the amount of the fund's
commitment. The assets contained in the segregated account will be
marked-to-market daily. It may be expected that the fund's net assets
will fluctuate to a greater degree when it sets aside portfolio securities
to cover such purchase commitments than when it sets aside cash. When the
fund engages in when-issued or delayed-delivery transactions, it relies
on the other party to consummate the trade. Failure of the seller to do
so may result in the fund's incurring a loss or missing an opportunity to
obtain a price considered to be advantageous.
Foreign Securities. 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.
There are certain risks involved in investing in securities of companies
and governments of foreign nations that are in addition to the usual risks
inherent in domestic investments. These risks include those resulting
from revaluation of currencies, future adverse political and economic
developments and the possible imposition of currency exchange blockages or
other foreign governmental laws or restrictions, reduced availability of
public information concerning issuers and the lack of uniform accounting,
auditing and financial reporting standards or of other regulatory
practices and requirements comparable to those applicable to domestic
companies. The yield of the fund may be adversely affected by
fluctuations in value of one or more foreign currencies relative to the
U.S. dollar. Moreover, securities of many foreign companies and their
markets may be less liquid and their prices more volatile than those of
securities of comparable domestic companies. In addition, with respect to
certain foreign countries, there is the possibility of expropriation,
nationalization, confiscatory taxation and limitations on the use or
removal of funds or other assets of the fund, including the withholding of
dividends. Foreign securities may be subject to foreign government taxes
that could reduce the yield on such securities. Because the fund may
invest in securities 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 converting foreign currency
to U.S. dollars, the payment of fixed brokerage commissions on foreign
exchanges, which generally are higher than commissions on domestic
exchanges, and the expense of maintaining securities with foreign
custodians, and the imposition of transfer taxes or transaction charges
associated with foreign exchanges. 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. These securities may
not necessarily be denominated in the same currency as the securities into
which they may be converted. In addition, the fund may invest in
securities into which they may be converted. The fund also may invest in
securities denominated in European Currency Units (ECUs). An ECU is a
"basket" consisting of a specified amount of currencies of certain of the
twelve member states of the European Community. In addition, the fund may
invest in securities denominated in other currency "baskets."
Debt Securities. Debt securities in which the fund may invest include
notes, bills, commercial paper, obligations issued or guaranteed by the
government or any of its political subdivisions, agencies or
instrumentalities, and certificates of deposit. Debt securities represent
money borrowed that obligates the issuer (e.g., a corporation,
municipality, government, government agency) to repay the borrowed amount
at maturity (when the obligation is due and payable) and usually to pay
the holder interest at specific times.
All debt securities are subject to market risk and credit risk. Market
risk relates to market-induced changes in a security's value, usually as a
result of changes in interest rates. The value of the fund's investments
in debt securities will change as the general levels of interest rates
fluctuate. During periods of falling interest rates, the value of the
fund's debt securities will generally rise. Conversely, during periods of
rising interest rates, the value of the fund's debt securities will
generally decline. Credit risk relates to the ability of the issuer to
make payments of principal and interest. The fund has no restrictions
with respect to the maturities or duration of the debt securities it
holds. The fund's investment in fixed income securities with longer terms
to maturity or greater duration are subject to greater volatility than the
fund's shorter-term securities.
Money Market Instruments. The fund may invest for temporary defensive
purposes in short-term instruments including corporate and government
bonds and notes and 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 institutions); commercial paper rated no
lower than A-2 by Standard & Poor's Ratings Group or Prime-2 by Moody's
Investors Service, Inc. or the equivalent from another nationally
recognized statistical rating organization or, if unrated, of an issuer
having an outstanding, unsecured debt issue then rated within the two
highest rating categories; and repurchase agreements with respect to any
of the foregoing entered into with banks and non-bank dealers approved by
the Trust's Board of Trustees. 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.
U.S. Government Securities. The fund may invest in U.S. Government
securities. Generally, these securities include U.S. Treasury obligations
and obligations 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 independently. The fund may also invest
in zero coupon U.S. Treasury securities and in zero coupon securities
issued by financial institutions, which represent a proportionate interest
in underlying U.S. Treasury securities. A zero coupon security 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
values of zero coupon securities generally are more volatile than the
market prices of securities that pay interest periodically.
Repurchase Agreements. The fund may agree to purchase securities from a
bank or recognized securities dealer and simultaneously commit to resell
the securities to the bank or dealer at an agreed-upon date and price
reflecting a market rate of interest unrelated to the coupon rate or
maturity of the purchased securities ("repurchase agreements"). The fund
would maintain custody of the underlying securities prior to their
repurchase; thus, the obligation of the bank or dealer to pay the
repurchase price on the date agreed to would be, in effect, secured by
such securities. If the value of such securities were less than the
repurchase price, plus interest, the other party to the agreement would be
required to provide additional collateral so that at all times the
collateral is at least 102% of the repurchase price plus accrued interest.
Default by or bankruptcy of a seller would expose the fund to possible
loss because of adverse market action, expenses and/or delays in
connection with the disposition of the underlying obligations. The
financial institutions with which the fund may enter into repurchase
agreements will be banks and non-bank dealers of U.S. Government
securities that are listed on the Federal Reserve Bank of New York's list
of reporting dealers, if such banks and non-bank dealers are deemed
creditworthy by the fund's manager. The manager will continue to monitor
creditworthiness of the seller under a repurchase agreement, and will
require the seller to maintain during the term of the agreement the value
of the securities subject to the agreement to equal at least 102% of the
repurchase price (including accrued interest). In addition, the manager
will require that the value of this collateral, after transaction costs
(including loss of interest) reasonably expected to be incurred on a
default, be equal to 102% or greater than the repurchase price (including
accrued premium) provided in the repurchase agreement or the daily
amortization of the difference between the purchase price and the
repurchase price specified in the repurchase agreement. The manager will
mark-to-market daily the value of the securities. Repurchase agreements
are considered to be loans by the fund under the 1940 Act.
Reverse Repurchase Agreements. The fund may enter into reverse repurchase
agreements with the same parties with whom it may enter into repurchase
agreements. Reverse repurchase agreements involve the sale of securities
held by the fund pursuant to its agreement to repurchase them at a
mutually agreed upon date, price and rate of interest. At the time the
fund enters into a reverse repurchase agreement, it will establish and
maintain a segregated account with an approved custodian containing cash
or liquid securities having a value not less than the repurchase price
(including accrued interest). The assets contained in the segregated
account will be marked-to-market daily and additional assets will be
placed in such account on any day in which the assets fall below the
repurchase price (plus accrued interest). The fund's liquidity and
ability to manage its assets might be affected when it sets aside cash or
portfolio securities to cover such commitments. Reverse repurchase
agreements involve the risk that the market value of the securities
retained in lieu of sale may decline below the price of the securities the
fund has sold but is obligated to repurchase. In the event the buyer of
securities under a reverse repurchase agreement files for bankruptcy or
becomes insolvent, such buyer or its trustee or receiver may receive an
extension of time to determine whether to enforce the fund's obligation to
repurchase the securities, and the fund's use of the proceeds of the
reverse repurchase agreement may effectively be restricted pending such
decision.
The fund currently intends to invest not more than 33% of its net assets
in reverse repurchase agreements.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the fund may lend portfolio securities to brokers, dealers
and other financial organizations that meet capital and other credit
requirements or other criteria established by the Board. The fund will
not lend portfolio securities to affiliates of the Adviser unless they
have applied for and received specific authority to do so from the SEC.
Loans of portfolio securities will be collateralized by cash, letters of
credit or U.S. Government Securities, which are maintained at all times in
an amount equal to at least 102% of the current market value of the loaned
securities. Any gain or loss in the market price of the securities loaned
that might occur during the term of the loan would be for the account of
the fund. From time to time, the fund may return a part of the interest
earned from the investment of collateral received for securities loaned to
the borrower and/or a third party that is unaffiliated with the fund and
that is acting as a "finder."
By lending its securities, the fund can increase its income by continuing
to receive interest and any dividends on the loaned securities as well as
by either investing the collateral received for securities loaned 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.
Although the generation of income is not the primary investment goal of
the fund, income received could be used to pay the fund's expenses and
would increase an investor's total return. The fund will adhere to the
following conditions whenever its portfolio securities are loaned:
(i) the fund must receive at least 102% cash collateral or equivalent
securities of the type discussed in the preceding paragraph from the
borrower; (ii) the borrower must increase such collateral whenever the
market value of the securities rises above the level of such collateral;
(iii) the fund must be able to terminate the loan at any time; (iv) the
fund must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities and
any increase in market value; (v) the fund may pay only reasonable
custodian fees in connection with the loan; and (vi) voting rights on the
loaned securities may pass to the borrower, provided, however, that if a
material event adversely affecting the investment occurs, the Board must
terminate the loan and regain the right to vote the securities. Loan
agreements involve certain risks in the event of default or insolvency of
the other party including possible delays or restrictions upon a Fund's
ability to recover the loaned securities or dispose of the collateral for
the loan.
Illiquid Securities. The fund may invest up to an aggregate amount equal
to 10% of its net assets in illiquid securities, which term includes
securities subject to contractual or other restrictions on resale and
other instruments that lack readily available markets.
Options, Futures and Currency Strategies. The fund may use forward
currency contracts and certain options and futures strategies to attempt
to hedge its portfolio, i.e., reduce the overall level of investment risk
normally associated with the fund. There can be no assurance that such
efforts will succeed.
In order to assure that the fund will not be deemed to be a "commodity
pool" for purposes of the Commodity Exchange Act, regulations of the
Commodity Futures Trading Commission ("CFTC") require that the fund enter
into transactions in futures contracts and options on futures only (i) for
bona fide hedging purposes (as defined in CFTC regulations), or (ii) for
non-hedging purposes, provided that the aggregate initial margin and
premiums on such non-hedging positions do not exceed 5% of the liquidation
value of the fund's assets. To attempt to hedge against adverse movements
in exchange rates between currencies, the fund may enter into forward
currency contracts for the purchase or sale of a specified currency at a
specified future date. Such contracts may involve the purchase or sale of
a foreign currency against the U.S. dollar or may involve two foreign
currencies. The fund may enter into forward currency contracts either
with respect to specific transactions or with respect to its portfolio
positions. For example, when the manager 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 manager 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 manager expects to decline in an amount approximating the
value of some or all of the fund's securities denominated in that
currency, or when the manager 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
fund's 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 fund's 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 fund's commitments with respect to
such contracts.
For hedging purposes, the fund may write covered call options and purchase
put and call options on currencies to hedge against movements in exchange
rates and on debt securities to hedge against the risk of fluctuations in
the prices of securities held by the fund or which the manager intends to
include in its portfolio. The fund also may use interest rates futures
contracts and options thereon to hedge against changes in the general
level in interest rates.
The fund may write call options on securities and currencies only if they
are covered, and such options must remain covered so long as the fund is
obligated as a writer. A call option written by the fund is "covered" if
the fund owns the securities or currency underlying the option or has an
absolute and immediate right to acquire that security or currency without
additional cash consideration (or for additional cash consideration held
in a segregated account by its custodian) upon conversion or exchange of
other securities or currencies held in its portfolio. A call option is
also covered if the fund holds on a share-for-share basis a call on the
same security or holds a call on the same currency as the call written
where the exercise price of the call held is equal to less than the
exercise price of the call written or greater than the exercise price of
the call written if the difference is maintained by the fund in cash,
Treasury bills or other high-grade, short-term obligations in a segregated
account with its custodian.
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.
Although the portfolio might not employ the use of forward currency
contracts, options and futures, the use of any of these strategies would
involve certain investment risks and transaction costs to which it might
not otherwise be subject. These risks include: dependence on the
manager's 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").
Over-the-counter options in which the fund may invest differ from exchange
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.
Options on Securities. As discussed more generally above, the fund may
engage in the writing of covered call options. The fund may also purchase
put options and enter into closing transactions.
The principal reason for writing covered call options on securities is to
attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, the
writer of a covered call option forfeits the right to any appreciation in
the value of the underlying security above the strike price for the life
of the option (or until a closing purchase transaction can be effected).
Nevertheless, the call writer retains the risk of a decline in the price
of the underlying security. Similarly, the principal reason for writing
covered put options is to realize income in the form of premiums. The
writer of a covered put option accepts the risk of a decline in the price
of the underlying security. The size of the premiums the fund may receive
may be adversely affected as new or existing institutions, including other
investment companies, engage in or increase their option-writing
activities.
Options written by the fund will normally have expiration dates between
one and six months from the date written. The exercise price of the
options may be below, equal to, or above the current market values of the
underlying securities at the times the options are written. In the case of
call options, these exercise prices are referred to as "in-the-money,"
"at-the-money" and "out-of-the-money," respectively.
The fund may write (a) in-the-money call options when MMC expects the
price of the underlying security to remain flat or decline moderately
during the option period, (b) at-the-money call options when MMC expects
the price of the underlying security to remain flat or advance moderately
during the option period and (c) out-of-the-money call options when MMC
expects that the price of the security may increase but not above a price
equal to the sum of the exercise price plus the premiums received from
writing the call option. In any of the preceding situations, if the market
price of the underlying security declines and the security is sold at this
lower price, the amount of any realized loss will be offset wholly or in
part by the premium received. Out-of-the-money, at-the-money and in-the-
money put options (the reverse of call options as to the relation of
exercise price to market price) may be utilized in the same market
environments as such call options are used in equivalent transactions.
So long as the obligation of the fund as the writer of an option
continues, the fund may be assigned an exercise notice by the broker-
dealer through which the option was sold, requiring it to deliver, in the
case of a call, or take delivery of, in the case of a put, the underlying
security against payment of the exercise price. This obligation terminates
when the option expires or the fund effects a closing purchase
transaction. The fund can no longer effect a closing purchase transaction
with respect to an option once it has been assigned an exercise notice. To
secure its obligation to deliver the underlying security when it writes a
call option, or to pay for the underlying security when it writes a put
option, the fund will be required to deposit in escrow the underlying
security or other assets in accordance with the rules of the Options
Clearing Corporation ("Clearing Corporation") or similar clearing
corporation and the securities exchange on which the option is written.
An option position may be closed out only where there exists a secondary
market for an option of the same series on a recognized securities
exchange or in the over-the-counter market. The fund expects to write
options only on national securities exchanges or in the over-the-counter
market. The fund may purchase put options issued by the Clearing
Corporation or in the over-the-counter market.
The fund may realize a profit or loss upon entering into a closing
transaction. In cases in which the fund has written an option, it will
realize a profit if the cost of the closing purchase transaction is less
than the premium received upon writing the original option and will incur
a loss if the cost of the closing purchase transaction exceeds the premium
received upon writing the original option. Similarly, when the fund has
purchased an option and engages in a closing sale transaction, whether it
recognizes a profit or loss will depend upon whether the amount received
in the closing sale transaction is more or less than the premium the fund
initially paid for the original option plus the related transaction costs.
Although the fund generally will purchase or write only those options for
which MMC believes there is an active secondary market so as to facilitate
closing transactions, there is no assurance that sufficient trading
interest to create a liquid secondary market on a securities exchange will
exist for any particular option or at any particular time, and for some
options no such secondary market may exist. A liquid secondary market in
an option may cease to exist for a variety of reasons. In the past, for
example, higher than anticipated trading activity or order flow, or other
unforeseen events, have at times rendered certain of the facilities of the
Clearing Corporation and national securities exchanges inadequate and
resulted in the institution of special procedures, such as trading
rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution
of customers' orders, will not recur. In such event, it might not be
possible to effect closing transactions in particular options. If, as a
covered call option writer, the fund is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell
the underlying security until the option expires or it delivers the
underlying security upon exercise.
Securities exchanges generally have established limitations governing the
maximum number of calls and puts of each class which may be held or
written, or exercised within certain periods, by an investor or group of
investors acting in concert (regardless of whether the options are written
on the same or different securities exchanges or are held, written or
exercised in one or more accounts or through one or more brokers). It is
possible that the fund and other clients of MMC and certain of their
affiliates may be considered to be such a group. A securities exchange
may order the liquidation of positions found to be in violation of these
limits, and it may impose certain other sanctions.
In the case of options written by the fund that are deemed covered by
virtue of the fund's 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 fund's 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 & Poor's 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 MMC's 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. 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.
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 fund's 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 fund's custodian an amount of cash or cash equivalents
equal to the total market value of the underlying futures contract, less
amounts held in the fund's 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 fund's existing position in the contract.
There are several risks in connection with the use of futures contracts as
a hedging device. Successful use of futures contracts by the fund is
subject to the ability of MMC to predict correctly movements in the stock
market or in the direction of interest rates. These predictions involve
skills and techniques that may be different from those involved in the
management of investments in securities. In addition, there can be no
assurance that there will be a perfect correlation between movements in
the price of the securities underlying the futures contract and movements
in the price of the securities that are the subject of the hedge. A
decision of whether, when and how to hedge involves the exercise of skill
and judgment, and even a well-conceived hedge may be unsuccessful to some
degree because of market behavior or unexpected trends in market behavior
or interest rates.
Positions in futures contracts may be closed out only on the exchange on
which they were entered into (or through a linked exchange) and no
secondary market exists for those contracts. In addition, although the
fund intends to enter into futures contracts only if there is an active
market for the contracts, there is no assurance that an active market will
exist for the contracts at any particular time. Most futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a
price beyond that limit. It is possible that futures contract prices could
move to the daily limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses. In such event,
and in the event of adverse price movements, the fund would be required to
make daily cash payments of variation margin; in such circumstances, an
increase in the value of the portion of the portfolio being hedged, if
any, may partially or completely offset losses on the futures contract. As
described above, however, no assurance can be given that the price of the
securities being hedged will correlate with the price movements in a
futures contract and thus provide an offset to losses on the futures
contract.
Investment Restrictions
The investment restrictions numbered 1 through 7 below and the fund's
investment objective have been adopted by the trust as fundamental
policies of the fund. Under the 1940 Act, a fundamental policy may not be
changed with respect to a fund without the vote of a majority of the
outstanding voting securities of the fund. Majority is defined in the
1940 Act as the lesser of (a) 67% or more of the shares present at a fund
meeting, if the holders of more than 50% of the outstanding shares of the
fund are present or represented by proxy, or (b) more than 50% of
outstanding shares. The remaining restrictions may be changed by a vote
of a majority of the trust's board of trustees at any time.
Under the investment restrictions adopted by the trust with respect to the
fund: 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 instrumentalities) and securities
of state or municipal governments and their political subdivisions are not
considered to be issued by members of any industry.
4. Borrow money, except that (a) the fund may borrow from banks
for temporary or emergency (not leveraging) purposes, including the
meeting of redemption requests which might otherwise require the untimely
disposition of securities, and (b) the fund may, to the extent consistent
with its investment policies, enter into reverse repurchase agreements,
forward roll transactions and similar investment strategies and
techniques. To the extent that it engages in transactions described in
(a) and (b), the fund will be limited so that no more than 33 1/3% of the
value of its total assets (including the amount borrowed), valued at the
lesser of cost or market, less liabilities (not including the amount
borrowed) valued at the time the borrowing is made, is derived from such
transactions.
5. Make loans. This restriction does not apply to: (a) the
purchase of debt obligations in which the fund may invest consistent with
its investment objective and policies; (b) repurchase agreements; and (c)
loans of its portfolio securities, to the fullest extent permitted under
the 1940 Act.
6. Engage in the business of underwriting securities issued by
other persons, except to the extent that the fund may technically be
deemed to be an underwriter under the Securities Act of 1933, as amended,
in disposing of portfolio securities.
7. Purchase or sell real estate, real estate mortgages,
commodities or commodity contracts, but this restriction shall not prevent
the fund from: (a) investing in securities of issuers engaged in the real
estate business or the business of investing in real estate (including
interests in limited partnerships owning or otherwise engaging in the real
estate business or the business of investing in real estate) and
securities which are secured by real estate or interests therein; (b)
holding or selling real estate received in connection with securities it
holds or held; (c) trading in futures contracts and options on futures
contracts (including options on currencies to the extent consistent with
the funds' investment objective and policies); or (d) investing in real
estate investment trust securities.
8. Purchase any securities on margin (except for such short-term
credits as are necessary for the clearance of purchases and sales of
portfolio securities) or sell any securities short (except "against the
box"). For purposes of this restriction, the deposit or payment by the
fund of underlying securities and other assets in escrow and collateral
agreements with respect to initial or maintenance margin in connection
with futures contracts and related options and options on securities,
indexes or similar items is not considered to be the purchase of a
security on margin.
9. Invest in oil, gas or other mineral exploration or development
programs.
10. Purchase or otherwise acquire any security if, as a result,
more than 15% of its net assets would be invested in securities that are
illiquid.
11. Invest for the purpose of exercising control of management.
TRUSTEES AND EXECUTIVE OFFICERS OF THE TRUST
The names of the trustees of the trust and executive officers of the fund,
together with information as to their principal business occupations, are
set forth below. The executive officers of the fund are employees of
organizations that provide services to the fund. Each Trustee who is an
"interested person" of the trust, as defined in the 1940 Act, is indicated
by an asterisk.
Herbert Barg (Age 75). Private Investor. His address is 273 Montgomery
Avenue, Bala Cynwyd, Pennsylvania 19004.
Alfred J. Bianchetti (Age 76). Retired; formerly Senior Consultant to
Dean Witter Reynolds Inc. His address is 19 Circle End Drive, Ramsey, New
Jersey 07466.
Martin Brody (Age 77). 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 (Age 61). Professor, Harvard Business School. His
address is c/o Harvard Business School, Soldiers Field Road, Boston,
Massachusetts 02163.
Burt N. Dorsett (Age 68). 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 (Age 72). Chairman of the Board and President of The
Dress Barn, Inc. His address is 30 Dunnigan Drive, Suffern, New York
10901.
Stephen E. Kaufman (Age 67). Attorney. His address is 277 Park Avenue,
New York, New York 10172.
Joseph J. McCann (Age 68). 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 65).
Managing Director of Salomon Smith Barney, Inc., Chairman of the Board of
Smith Barney Strategy Advisers Inc. and President of SSBC and Travelers
Investment Adviser, Inc. ("TIA"); Chairman or Co-Chariman of the Board of
59 investment companies associated with Salomon Smith Barney. His address
is 388 Greenwich Street, New York, New York 10013.
Cornelius C. Rose, Jr. (Age 65). President, Cornelius C. Rose Associates,
Inc., financial consultants, and Chairman and Director of Performance
Learning Systems, an educational consultant. His address is Meadowbrook
Village, Building 4, Apt 6, West Lebanon, New Hampshire 03784.
*Lewis E. Daidone, Senior Vice President and Treasurer (Age 41). Managing
Director of Salomon Smith Barney, Chief Financial Officer of the Smith
Barney Mutual funds; Director and Senior Vice President of SSBC and TIA.
Lawrence Weissman, Vice President and Investment Officer (Age ).
Managing Director of Salomon Smith Barney. Investment Officer of SSBC.
Priro to 1998, he was with TIAA-CREFF
*Christina T. Sydor, Secretary (Age 47), Managing Director of Salomon
Smith Barney. General Counsel and Secretary of SSBC and TIA.
* Designates an "interested person" as defined in the Investment Company
Act of 1940, as amended (the "1940 Act") whose business address is 388
Greenwich Street, New York, New York 10013. Such person is not separately
compensated for services as a fund officer or Trustee.
As of January 15, 1999 the trustees and officers owned, in the aggregate,
less than 1% of the outstanding shares of each of the funds.
No officer, director or employee of Salomon Smith Barney or any of its
affiliates receives any compensation from the trust for serving as an
officer of the fund or trustee of the trust. The trust pays each trustee
who is not an officer, director or employee of Salomon Smith Barney or any
of its affiliates a fee of $4,000 per annum plus $500 per in-person
meeting and $100 per telephonic meeting. All trustees are reimbursed for
travel and out-of-pocket expenses incurred to attend such meetings.
The following table contains a list of shareholders who of record or
beneficially owned at least 5% of the outstanding shares of a particular
class of shares of a fund as of January 15, 1999.
CLASS Y
PERCENTAGE OF SHARES
Smith Barney Concert Series, Inc.
Growth Portfolio
PNC Bank NA
200 Stevens Drive, Suite 440
Attn: Beverly Timson
Lester, PA 19113
Owned 2,981,907.611(50.22%) shares
Smith Barney Concert Series, Inc.
High Growth Portfolio
PNC Bank NA
200 Stevens Drive, Suite 440
Attn: Beverly Timson
Lester, PA 19113
Owned 2,326,088.278(39.17%) shares
Smith Barney Concert Series, Inc.
Select Growth Portfolio
PNC Bank NA
200 Stevens Drive, Suite 440
Attn: Beverly Timson
Lester, PA 19113
Owned 396,491.485(6.68%) shares
For the fiscal year ended November 30, 1998, the Trustees of the fund were
paid the following compensation:
Name of Person
Aggregate
Compensation
from fund #
Total
Pension or
Retirement
Benefits
Accrued as
part of
fund
Expenses
Compensatio
n from fund
and fund
Complex
Paid to
Trustees
Number of
funds for
Which Trustees
Serves Within
fund Complex
Herbert Barg
$
$
$
Alfred Bianchetti*
- -
- -
- -
Martin Brody
Dwight B. Crane
Burt N. Dorsett
Elliot S. Jaffe
Stephen E. Kaufman
Joseph J. McCann
Heath B. McLendon*
- -
- -
- -
Cornelius C. Rose, Jr.
_________________
* Designated 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. A Trustee Emeritus may attend
meetings but has no voting rights. During the fund's last fiscal
year, aggregate compensation paid by the fund to trustees achieving
emeritus status totaled $11,423
Investment Manager - SSBC
SSBC (formerly known as Mutual Management Corp) 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 Citigroup Inc. ("Citigroup").
Subject to the supervision and direction of the trust's board of trustees,
the manager manages the fund's portfolio in accordance with the fund's
stated investment objective and policies, makes investment decisions for
the fund, places orders to purchase and sell securities, and employs
professional portfolio managers and securities analysts who provide
research services to 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 fund's average daily net assets.
The management fee paid by the fund in fiscal year ended November 31, 1998
was $
Year 2000 - The investment management services provided to the fund by the
manager and the services provided to shareholders by Salomon Smith Barney
depend on the smooth functioning of their computer systems. Many computer
software systems in use today cannot recognize the year 2000, but revert
to 1900 or some other date, due to the manner in which dates were encoded
and calculated. That failure could have a negative impact on the fund's
operations, including the handling of securities trades, pricing and
account services. The manager and Salomon Smith Barney have advised the
fund that they have been reviewing all of their computer systems and
actively working on necessary changes to their systems to prepare for the
year 2000 and expect that their systems will be compliant before that
date. In addition, the manager has been advised by the fund's custodian,
transfer agent, distributor and accounting service agent that they are
also in the process of modifying their systems with the same goal. There
can, however, be no assurance that the manager, Salomon Smith Barney or
any other service provider will be successful, or that interaction with
other non-complying computer systems will not impair fund services at that
time.
Counsel and Auditors
Willkie Farr & Gallagher serves as legal counsel to the trust. The
trustees who are not "interested persons" of the trust have selected
Stroock & Stroock & Lavan LLP as their counsel.
KPMG LLP, independent auditors, 345 Park Avenue, New York, New York 10154,
have been selected to serve as auditors of the trust and to render
opinions on the fund's financial statements for the fiscal year ending
November 30, 1999.
Portfolio Transactions
Decisions to buy and sell securities for the fund are made by the manager,
subject to the overall review of the trust's 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.
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 fund's
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.
The Trust has paid the following in brokerage commissions for portfolio
transactions since its commencement of operations: $______ in 1998.
Portfolio securities transactions on behalf of the fund are placed by the
manager with a number of brokers and dealers, including Salomon Smith
Barney. Salomon Smith Barney has advised the fund that in transactions
with the fund, Salomon Smith Barney charges a commission rate at least as
favorable as the rate that Salomon Smith Barney charges its comparable
unaffiliated customers in similar transactions.
Portfolio Turnover
The fund's 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%. 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.
PURCHASE OF SHARES
Sales Charge Alternatives
The following classes of shares are available for purchase. See the
Prospectus for a discussion of factors to consider in selecting which
Class of shares to purchase.
Class A Shares. Class A shares are sold to investors at the public
offering price, which is the net asset value plus an initial sales charge
as follows:
Amount of
Investment
Sales Charge
as a %
of
Transaction
Sales Charge
as a %
of Amount
Invested
Dealers'
Reallowance
as %
of Offering
Price
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
*
*
*
* 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 Deferred Sales Charge of 1.00% on redemptions made within 12
months of purchase. The Deferred Sales Charge on Class A shares is
payable to Salomon Smith Barney, which compensates Salomon Smith
Barney Financial Consultants and other dealers whose clients make
purchases of $500,000 or more. The Deferred Sales Charge is waived
in the same circumstances in which the Deferred Sales Charge
applicable to Class B and Class L shares is waived. See "Deferred
Sales Charge Alternatives" and "Waivers of Deferred Sales Charge."
Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of the fund as defined in the 1933 Act.
The reduced sales charges shown above apply to the aggregate of purchases
of Class A shares of the fund made at one time by "any person," which
includes an individual and his or her immediate family, or a trustee or
other fiduciary of a single trust estate or single fiduciary account.
Class B Shares. Class B shares are sold without an initial sales charge
but are subject to a Deferred Sales Charge payable upon certain
redemptions. See "Deferred Sales Charge Provisions" below.
Class L Shares. Class L shares are sold with an initial sales charge of
1.00% (which is equal to 1.01% of the amount invested) and are subject to
a Deferred Sales Charge payable upon certain redemptions. See "Deferred
Sales Charge Provisions" below. Until June 22, 2001 purchases of Class L
shares by investors who were holders of Class C shares of the fund on June
12, 1998 will not be subject to the 1% initial sales charge.
Class Y Shares. Class Y shares are sold without an initial sales charge
or Deferred Sales Charge and are available only to investors investing a
minimum of $15,000,000 (except purchases of Class Y shares by Smith Barney
Concert Allocation Series Inc., for which there is no minimum purchase
amount).
General
Investors may purchase shares from a Salomon Smith Barney Financial
Consultant or a Dealer Representative. In addition, certain investors,
including qualified retirement plans purchasing through certain Dealer
Representatives, may purchase shares directly from the fund. When
purchasing shares of the fund, investors must specify whether the purchase
is for Class A, Class B, Class L or Class Y shares. Salomon Smith Barney
and Dealer Representatives may charge their customers an annual account
maintenance fee in connection with a brokerage account through which an
investor purchases or holds shares. Accounts held directly at First Data
Investor Services Group, Inc. ("First Data" or "transfer agent") are not
subject to a maintenance fee.
Investors in Class A, Class B and Class L shares may open an account in
the fund by making an initial investment of at least $1,000 for each
account, or $250 for an IRA or a Self-Employed Retirement Plan, in the
fund. Investors in Class Y shares may open an account by making an initial
investment of $15,000,000. Subsequent investments of at least $50 may be
made for all Classes. For participants in retirement plans qualified under
Section 403(b)(7) or Section 401(c) of the Code, the minimum initial
investment required 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 subsequent
investment requirement for all Classes is $25. For shareholders
purchasing shares of the fund through the Systematic Investment Plan on a
quarterly basis, the minimum initial investment required 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 for employees of Citigroup and its subsidiaries, including
Salomon Smith Barney, unitholders who invest distributions from a Unit
Investment Trust ("UIT") sponsored by Salomon Smith Barney, and
Directors/Trustees of any of the Smith Barney Mutual Funds, and their
spouses and children. The fund reserves the right to waive or change
minimums, to decline any order to purchase its shares and to suspend the
offering of shares from time to time. Shares purchased will be held in the
shareholder's account by First Data. Share certificates are issued only
upon a shareholder's written request to First Data.
Purchase orders received by the fund or a Salomon Smith Barney Financial
Consultant 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 a Dealer Representative 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 the fund's agent prior to its close of
business. For shares purchased through Salomon Smith Barney or a Dealer
Representative purchasing through Salomon Smith Barney, payment for shares
of the fund is due on the third business day after the trade date. In all
other cases, payment must be made with the purchase order.
Systematic Investment Plan. Shareholders may make additions to their
accounts at any time by purchasing shares through a service known as the
Systematic Investment Plan. Under the Systematic Investment Plan, Salomon
Smith Barney or First Data is authorized through preauthorized transfers
of at least $25 on a monthly basis or at least $50 on a quarterly basis to
charge the shareholder's account held with a bank or other financial
institution on a monthly or quarterly basis as indicated by the
shareholder, to provide for systematic additions to the shareholder's fund
account. A shareholder who has insufficient funds to complete the
transfer will be charged a fee of up to $25 by Salomon Smith Barney or
First Data. The Systematic Investment Plan also authorizes Salomon Smith
Barney to apply cash held in the shareholder's Salomon Smith Barney
brokerage account or redeem the shareholder's shares of a Smith Barney
money market fund to make additions to the account. Additional information
is available from the fund or a Salomon Smith Barney Financial Consultant
or a Dealer Representative.
Sales Charge Waivers and Reductions
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 Citigroup and its subsidiaries
and any Citigroup affiliated funds including the Smith Barney Mutual Funds
(including retired Board Members and employees); the immediate families of
such persons (including the surviving spouse of a deceased Board Member or
employee); and to a pension, profit-sharing or other benefit plan for such
persons and (ii) employees of members of the National Association of
Securities Dealers, Inc., provided such sales are made upon the assurance
of the purchaser that the purchase is made for investment purposes and
that the securities will not be resold except through redemption or
repurchase; (b) offers of Class A shares to any other investment company
to effect the combination of such company with the fund by merger,
acquisition of assets or otherwise; (c) purchases of Class A shares by any
client of a newly employed Salomon Smith Barney Financial Consultant (for
a period up to 90 days from the commencement of the Financial Consultant's
employment with Salomon Smith Barney), on the condition the purchase of
Class A shares is made with the proceeds of the redemption of shares of a
mutual fund which (i) was sponsored by the Financial Consultant's prior
employer, (ii) was sold to the client by the Financial Consultant and
(iii) was subject to a sales charge; (d) purchases by shareholders who
have redeemed Class A shares in the fund (or Class A shares of another
Smith Barney Mutual Fund that is offered with a sales charge) and who wish
to reinvest their redemption proceeds in the fund, provided the
reinvestment is made within 60 calendar days of the redemption; (e)
purchases by accounts managed by registered investment advisory
subsidiaries of Citigroup; (f) direct rollovers by plan participants of
distributions from a 401(k) plan offered to employees of Citigroup or its
subsidiaries or a 401(k) plan enrolled in the Smith Barney 401(k) Program
(Note: subsequent investments will be subject to the applicable sales
charge); (g) purchases by a separate account used to fund certain
unregistered variable annuity contracts; (h) investments of distributions
from a UIT sponsored by Salomon Smith Barney; (i) purchases by investors
participating in a Salomon Smith Barney fee-based arrangement; and (j)
purchases of Class A shares by Section 403(b) or Section 401(a) or (k)
accounts associated with Copeland Retirement Programs. In order to obtain
such discounts, the purchaser must provide sufficient information at the
time of purchase to permit verification that the purchase would qualify
for the elimination of the sales charge.
Right of Accumulation. Class A shares of the fund may be purchased by
''any person'' (as defined above) at a reduced sales charge or at net
asset value determined by aggregating the dollar amount of the new
purchase and the total net asset value of all Class A shares of the fund
and of other Smith Barney Mutual Funds that are offered with a sales
charge as currently listed under ''Exchange Privilege'' then held by such
person and applying the sales charge applicable to such aggregate. In
order to obtain such discount, the purchaser must provide sufficient
information at the time of purchase to permit verification that the
purchase qualifies for the reduced sales charge. The right of
accumulation is subject to modification or discontinuance at any time with
respect to all shares purchased thereafter.
Letter of Intent - Class A Shares. A Letter of Intent for an amount 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 (i) all Class A shares of
the fund and other Smith Barney Mutual Funds offered with a sales charge
acquired during the term of the letter plus (ii) the value of all Class A
shares previously purchased and still owned. Each investment made during
the period receives the reduced sales charge applicable to the total
amount of the investment goal. If the goal is not achieved within the
period, the investor must pay the difference between the sales charges
applicable to the purchases made and the charges previously paid, or an
appropriate number of escrowed shares will be redeemed. The term of the
Letter will commence upon the date the Letter is signed, or at the options
of the investor, up to 90 days before such date. Please contact a Salomon
Smith Barney Financial Consultant or First Data to obtain a Letter of
Intent application.
Letter of Intent - 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 (except purchases of Class Y shares by Smith Barney Concert
Allocation Series Inc., for which there is no minimum purchase amount).
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 13 months from the date of the Letter.
If a total investment of $15,000,000 is not made within the 13-month
period, all Class Y shares purchased to date will be transferred to Class
A shares, where they will be subject to all fees (including a service fee
of 0.25%) and expenses applicable to the fund's Class A shares, which may
include a Deferred Sales Charge of 1.00%. Please contact a Salomon Smith
Barney Financial Consultant or First Data for further information.
Deferred Sales Charge Provisions
''Deferred Sales Charge Shares'' are: (a) Class B shares; (b) Class L
shares; and (c) Class A shares that were purchased without an initial
sales charge but are subject to a Deferred Sales Charge. A Deferred Sales
Charge may be imposed on certain redemptions of these shares.
Any applicable Deferred Sales Charge will be assessed on an amount equal
to the lesser of the original cost of the shares being redeemed or their
net asset value at the time of redemption. Deferred Sales Charge Shares
that are redeemed will not be subject to a Deferred Sales Charge 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 Deferred Sales Charge Shares, shares
redeemed more than 12 months after their purchase.
Class L shares and Class A shares that are Deferred Sales Charge Shares
are subject to a 1.00% Deferred Sales Charge if redeemed within 12 months
of purchase. In circumstances in which the Deferred Sales Charge is
imposed on Class B shares, the amount of the charge will depend on the
number of years since the shareholder made the purchase payment from which
the amount is being redeemed. Solely for purposes of determining the
number of years since a purchase payment, all purchase payments made
during a month will be aggregated and deemed to have been made on the last
day of the preceding Salomon Smith Barney statement month. The following
table sets forth the rates of the charge for redemptions of Class B shares
by shareholders, except in the case of Class B shares held under the Smith
Barney 401(k) Program, as described below. See ''Purchase of Shares-Smith
Barney 401(k) and ExecChoiceTM Programs.''
Year Since Purchase Payment Was
Made
Deferred Sales Charge
First
5.00%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth and thereafter
0.00
Class B shares will convert automatically to Class A shares eight years
after the date on which they were purchased and thereafter will no longer
be subject to any distribution fees. There will also be converted at that
time such proportion of Class B Dividend Shares owned by the shareholders
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.
The length of time that Deferred Sales Charge Shares acquired through an
exchange have been held will be calculated from the date that the shares
exchanged were initially acquired in one of the other Smith Barney Mutual
Funds, and fund shares being redeemed will be considered to represent, as
applicable, capital appreciation or dividend and capital gain distribution
reinvestments in such other funds. For Federal income tax purposes, the
amount of the Deferred Sales Charge will reduce the gain or increase the
loss, as the case may be, on the amount realized on redemption. The amount
of any Deferred Sales Charge will be paid to Salomon Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares of
the fund at $10 per share for a cost of $1,000. Subsequently, the
investor acquired 5 additional shares of the fund through dividend
reinvestment. During the fifteenth month after the purchase, the investor
decided to redeem $500 of his or her investment. Assuming at the time of
the redemption the net asset value had appreciated to $12 per share, the
value of the investor's shares would be $1,260 (105 shares at $12 per
share). The Deferred Sales Charge 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 Deferred Sales Charge
The Deferred Sales Charge will be waived on: (a) exchanges (see ''Exchange
Privilege''); (b) automatic cash withdrawals in amounts equal to or less
than 1.00% per month of the value of the shareholder's shares at the time
the withdrawal plan commences (see ''Automatic Cash Withdrawal Plan'')
(provided, however, that automatic cash withdrawals in amounts equal to or
less than 2.00% per month of the value of the shareholder's shares will be
permitted for withdrawal plans that were established prior to November 7,
1994); (c) redemptions of shares within 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 591/2; (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 proceeds within 60 days and receive pro rata credit for any
Deferred Sales Charge imposed on the prior redemption.
Deferred Sales Charge waivers will be granted subject to confirmation (by
Salomon Smith Barney in the case of shareholders who are also Salomon
Smith Barney clients or by First Data in the case of all other
shareholders) of the shareholder's status or holdings, as the case may be.
Smith Barney 401(k) and ExecChoiceTM Programs
Investors may be eligible to participate in the Smith Barney 401(k)
Program or the Smith Barney ExecChoiceTM Program. To the extent applicable,
the same terms and conditions, which are outlined below, are offered to
all plans participating (''Participating Plans'') in these programs.
The fund offers to Participating Plans Class A and Class L shares as
investment alternatives under the Smith Barney 401(k) and ExecChoiceTM
Programs. Class A and Class L shares acquired through the Participating
Plans are subject to the same service and/or distribution fees as the
Class A and Class L shares acquired by other investors; however, they are
not subject to any initial sales charge or Deferred Sales Charge. Once a
Participating Plan has made an initial investment in the fund, all of its
subsequent investments in the fund must be in the same Class of shares,
except as otherwise described below.
Class A Shares. Class A shares of the fund are offered without any sales
charge or Deferred Sales Charge to any Participating Plan that purchases
$1,000,000 or more of Class A shares of one or more funds of the Smith
Barney Mutual Funds.
Class L Shares. Class L shares of the fund are offered without any sales
charge or Deferred Sales Charge to any Participating Plan that purchases
less than $1,000,000 of Class L shares of one or more funds of the Smith
Barney Mutual Funds.
401(k) and ExecChoiceTM Plans Opened On or After June 21, 1996. If, at the
end of the fifth year after the date the Participating Plan enrolled in
the Smith Barney 401(k) Program or the Smith Barney ExecChoiceTM Program, a
Participating Plan's total Class L holdings in all non-money market Smith
Barney Mutual Funds equal at least $1,000,000, the Participating Plan will
be offered the opportunity to exchange all of its Class L shares for Class
A shares of the fund. For Participating Plans that were originally
established through a Salomon Smith Barney retail brokerage account, the
five-year period will be calculated from the date the retail brokerage
account was opened. Such Participating Plans will be notified of the
pending exchange in writing within 30 days after the fifth anniversary of
the enrollment date and, unless the exchange offer has been rejected in
writing, the exchange will occur on or about the 90th day after the fifth
anniversary date. If the Participating Plan does not qualify for the five-
year exchange to Class A shares, a review of the Participating Plan's
holdings will be performed each quarter until either the Participating
Plan qualifies or the end of the eighth year.
401(k) Plans Opened Prior to June 21, 1996. In any year after the date a
Participating Plan enrolled in the Smith Barney 401(k) Program, if a
Participating Plan's total Class L holdings in all non-money market Smith
Barney Mutual Funds equal at least $500,000 as of the calendar year-end,
the Participating Plan will be offered the opportunity to exchange all of
its Class L shares for Class A shares of the fund. Such Plans will be
notified in writing within 30 days after the last business day of the
calendar year and, unless the exchange offer has been rejected in writing,
the exchange will occur on or about the last business day of the following
March.
Any Participating Plan in the Smith Barney 401(k) or the Smith Barney
ExecChoiceTM Programs, whether opened before or after June 21, 1996, that
has not previously qualified for an exchange into Class A shares will be
offered the opportunity to exchange all of its Class L shares for Class A
shares of the fund, regardless of asset size, at the end of the eighth
year after the date the Participating Plan enrolled in the Smith Barney
401(k) 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 subject to the distribution fee.
Participating Plans wishing to acquire shares of the fund through the
Smith Barney 401(k) Program or the Smith Barney ExecChoiceTM Program must
purchase such shares directly from the transfer agent. For further
information regarding these Programs, investors should contact a Salomon
Smith Barney Financial Consultant.
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 the fund is equal
to the net asset value per share at the time of purchase, plus for Class A
shares an initial sales charge based on the aggregate amount of the
investment. The public offering price for a Class L share (and Class A
share purchases, including applicable rights of accumulation, equaling or
exceeding $500,000) is equal to the net asset value per share at the time
of purchase and no sales charge is imposed at the time of purchase. A
Deferred Sales Charge, however, is imposed on certain redemptions of Class
L shares, and Class A shares when purchased in amounts exceeding $500,000.
The method of computation of the public offering price is shown in each
fund's financial statements, incorporated by reference in their entirety
into this SAI.
REDEMPTION OF SHARES
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 fund's 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 fund's shareholders.
If the shares to be redeemed were issued in certificate form, the
certificates must be endorsed for transfer (or be accompanied by an
endorsed stock power) and must be submitted to 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 guarantor institution such as a domestic bank,
savings and loan institution, domestic credit union, member bank of the
Federal Reserve System or member firm of a national securities exchange.
Written redemption requests of $10,000 or less do not require a signature
guarantee unless more than one such redemption request is made in any
10-day period or the redemption proceeds are to be sent to an address
other than the address of record. Unless otherwise directed, redemption
proceeds will be mailed to an investor's address of record. First Data
may require additional supporting documents for redemptions made by
corporations, executors, administrators, trustees or guardians. A
redemption request will not be deemed properly received until First Data
receives all required documents in proper form.
If a shareholder holds shares in more than one Class, any request for
redemption must specify the Class being redeemed. In the event of a
failure to specify which Class, or if the investor owns fewer shares of
the Class than specified, the redemption request will be delayed until the
Transfer Agent receives further instructions from Salomon Smith Barney, or
if the shareholder's account is not with Salomon Smith Barney, from the
shareholder directly. The redemption proceeds will be remitted on or
before the third business day following receipt of proper tender, except
on any days on which the NYSE is closed or as permitted under the 1940
Act, in extraordinary circumstances. Generally, if the redemption
proceeds are remitted to a Salomon Smith Barney brokerage account, these
funds will not be invested for the shareholder's benefit without specific
instruction and Salomon Smith Barney will benefit from the use of
temporarily uninvested funds. Redemption proceeds for shares purchased by
check, other than a certified or official bank check, will be remitted
upon clearance of the check, which may take up to ten days or more.
Distribution 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 fund's 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 of the fund who own shares of the fund with a value of at
least $10,000 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. Any applicable Deferred Sales Charge
will not be waived on amounts withdrawn by shareholders that exceed 1.00%
per month of the value of a shareholder's shares at the time the
Withdrawal Plan commences. (With respect to Withdrawal Plans in effect
prior to November 7, 1994, any applicable Deferred Sales Charge will be
waived on amounts withdrawn that do not exceed 2.00% per month of the
value of a shareholder's shares at the time the Withdrawal Plan
commences). To the extent that withdrawals exceed dividends,
distributions and appreciation of a shareholder's investment in a fund,
continued withdrawal payments will reduce the shareholder's investment,
and may ultimately exhaust it. Withdrawal payments should not be
considered as income from investment in a 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 of a fund who wish to participate in the Withdrawal Plan and
who hold their shares of the fund in certificate form must deposit their
share certificates with the transfer agent 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 involved. A shareholder who purchases shares directly through
the transfer agent may continue to do so and applications for
participation in the Withdrawal Plan must be received by the transfer
agent no later than the eighth day of the month to be eligible for
participation beginning with that month's withdrawal. For additional
information, shareholders should contact a Salomon Smith Barney Financial
Consultant.
WAIVERS OF Deferred Sales Charge
The Deferred Sales Charge will be waived on: (a) exchanges (see "Exchange
Privilege" in the prospectus); (b) automatic cash withdrawals in amounts
equal to or less than 1.00% per month of the value of the shareholder's
shares at the time the withdrawal plan commences (see "Automatic Cash
Withdrawal Plan in the prospectus") (provided, however, that automatic
cash withdrawals in amounts equal to or less than 2.00% per month of the
value of the shareholder's shares will be permitted for withdrawal plans
that were established prior to November 7, 1994); (c) redemptions of
shares within 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 591/2
; (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 proceeds within 60
days and receive pro rata credit for any Deferred Sales Charge imposed on
the prior redemption. Deferred Sales Charge waivers will be granted
subject to confirmation (by Salomon Smith Barney in the case of
shareholders who are also Salomon Smith Barney clients or by the transfer
agent in the case of all other shareholders) of the shareholder's status
or holdings, as the case may be.
ADDITIONAL INFORMATION REGARDING TELEPHONE REDEMPTION AND EXCHANGE
PROGRAM.
Neither the fund nor its agents will be liable for following instructions
communicated by telephone that are reasonably believed to be genuine. The
fund and its agents will employ procedures designed to verify the identity
of the caller and legitimacy of instructions (for example, a shareholder's
name and account number will be required and phone calls may be recorded).
The fund reserves the right to suspend, modify or discontinue the
telephone redemption and exchange program or to impose a charge for this
service at any time following at least seven (7) days prior notice to
shareholders.
DISTRIBUTOR
CFBDS, Inc. serves as the fund's distributor pursuant to a written
agreement dated October 8, 1998 (the "Distribution Agreement") which was
approved by the fund's Board of Directors, including a majority of the
Independent Directors on July 15, 1998. Prior to the merger of Travelers
Group, Inc. and Citicorp Inc. on October 8, 1998, Salomon Smith Barney
served as the fund's distributor. For the 1996, 1997 and 1998 fiscal
years, Salomon Smith Barney, received $500,000, $115,000 and __________,
respectively, in sales charges from the sale of Class A shares, and did
not reallow any portion thereof to dealers. For the fiscal years ended
October 31, 1996, 1997 and 1998, Salomon Smith Barney or its predecessor
received from shareholders $119,000, $201,000 and $_________,
respectively, in Deferred Sales Charge on the redemption of Class B and
Class L shares.
When payment is made by the investor before the settlement date, unless
otherwise noted by the investor, the funds will be held as a free credit
balance in the investor's brokerage account and Salomon Smith Barney may
benefit from the temporary use of the funds. The fund's Board of
Directors has been advised of the benefits to Salomon Smith Barney
resulting from these settlement procedures and will take such benefits
into consideration when reviewing the Investment Management and
Distribution Agreements for continuance.
For the fiscal year ended October 31, 1998, Salomon Smith Barney incurred
distribution expenses totaling approximately $622,346 consisting of
approximately $32,428 for advertising, $5,345 for printing and mailing of
prospectuses, $302,634 for support services, $277,469 to Salomon Smith
Barney Financial Consultants, and $4,470 in accruals for interest on the
excess of Salomon Smith Barney expenses incurred in distributing the
fund's shares over the sum of the distribution fees and Deferred Sales
Charge received by Salomon Smith Barney from the fund.
Distribution Arrangements. To compensate Salomon Smith Barney for the
service it provides and for the expense it bears, the fund has adopted a
services and distribution plan (the "Plan") pursuant to Rule 12b-1 under
the 1940 Act. Under the Plan, the fund pays Salomon Smith Barney a
service fee, accrued daily and paid monthly, calculated at the annual rate
of 0.25% of the value of the fund's average daily net assets attributable
to the Class A, Class B and Class L shares. In addition, the fund pays
Salomon Smith Barney a distribution fee with respect to Class B and Class
L shares primarily intended to compensate Salomon 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 fund's average net assets
attributable to the shares of the respective Class.
The following service and distribution fees were incurred pursuant to a
Distribution Plan during the periods indicated:
Pursuant to a plan of distribution adopted by the fund under Rule 12b-1
under the 1940 Act (the "Plan"), Salomon 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. Salomon 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 convert 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 Salomon 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 Salomon Smith Barney Financial
Consultants and other persons who provide support services in connection
with the distribution of shares; interest and/or carrying charges; and
indirect and overhead costs of Salomon Smith Barney associated with the
sale of fund shares, including lease, utility, communications and sales
promotion expenses.
The payments to Salomon Smith Barney Financial Consultants for selling
shares of a Class include a commission or fee paid by the investor or
Salomon Smith Barney at the time of sale and, with respect to Class A,
Class B and Class L shares, a continuing fee for servicing shareholder
accounts for as long as a shareholder remains a holder of that Class.
Salomon 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 Salomon Smith Barney and the payments may
exceed distribution expenses actually incurred. The fund's Board of
Directors will evaluate the appropriateness of the Plan and its payment
terms on a continuing basis and in so doing will consider all relevant
factors, including expenses borne by Smith Barney, amounts received under
the Plan and proceeds of the Deferred Sales Charge.
For the fiscal year ended November 30, 1998, the distributor received
approximately $_______ in sales charges for the sale of the fund's Class A
shares, and did not reallow any portion thereof to dealers.
For the fiscal year ended November 30, 1998, the distributor received
approximately $_______ representing Deferred Sales Charge on redemption of
the fund's Class B shares.
For the fiscal year ended November 30, 1998, the distributor received
approximately $_______ representing Deferred Sales Charge on redemption of
the fund's Class L shares.
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 investor's brokerage account and Salomon
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 Salomon Smith
Barney Exchange Reserve fund) of the Smith Barney Mutual funds. If the
investor instructs Salomon Smith Barney to invest the funds in a Salomon
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 Salomon 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 Trust's Board of Trustees has been advised
of the benefits to Salomon Smith Barney resulting from these settlement
procedures and will take such benefits into consideration when reviewing
the Investment Management and Distribution Agreements for continuance.
For the fiscal year ended November 30, 1998, the distributor incurred
distribution expenses totaling approximately $_______, consisting of
approximately $_______ for advertising, $_______ for printing and mailing
of prospectuses, $_______ for support services, $_______ to Salomon Smith
Barney Financial Consultants, and $_______ in accruals for interest on the
excess of Salomon Smith Barney expenses incurred in distribution of the
funds' shares over the sum of the distribution fees and Deferred Sales
Charge received by Salomon Smith Barney from the fund. For the fiscal
year ended November 30, 1998, the distributor, received $_______ in the
aggregate from the Plan.
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, Salomon 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.
SERVICE FEES
Year Ended
11/30/98
Class A
$
Class B
Class L
DISTRIBUTION FEES
Year Ended
11/30/98
Class B
$
Class L
VALUATION OF SHARES
The net asset value per share of the fund's 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 Year's 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 fund's 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 fund's 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 fund's board of trustees.
EXCHANGE PRIVILEGE
Except as noted below, 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, on the basis of relative net
asset value per share at the time of exchange as follows:
A. Class A and Class Y shares of the fund may be exchanged without a
sales charge for the respective shares of any of the Smith Barney
Mutual funds.
B. Class B shares of any fund may be exchanged without a sales
charge. Class B shares of the fund exchanged for Class B shares of
another Smith Barney Mutual Fund will be subject to the higher
applicable Deferred Sales Charge of the two funds and, for purposes
of calculating Deferred Sales Charge 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 Deferred Sales Charge 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 in any Smith Barney Mutual
fund to acquire shares of the same Class in a fund with different
investment objectives when they believe 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 Salomon
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, subject to any applicable Deferred Sales Charge, the
proceeds are immediately invested, at a price as described above, in
shares of the fund being acquired. Salomon 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.
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange
transactions can be detrimental to the fund's performance and its
shareholders. The manager may determine that a pattern of frequent
exchanges is excessive and contrary to the best interests of the fund's
other shareholders. In this event, the fund may, at its discretion,
decide to limit additional purchases and/or exchanges by a shareholder.
Upon such a determination, the fund will provide notice in writing or by
telephone to the shareholder at least 15 days prior to suspending the
exchange privilege and during the 15 day period the shareholder will be
required to (a) redeem his or her shares in the fund or (b) remain
invested in the fund or exchange into any of the funds of the Smith Barney
Mutual funds ordinarily available, which position the shareholder would be
expected to maintain for a significant period of time. All relevant
factors will be considered in determining what constitutes an abusive
pattern of exchanges.
PERFORMANCE DATA
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 specified 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.
From time to time, the trust may quote a fund's 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 fund's shares. Such performance information may include
the following industry and financial publications- Barron's, Business
Week, CDA Investment Technologies, Inc., Changing Times, Forbes, Fortune,
Institutional Investor, Investors Daily, Money, Morningstar Mutual Fund
Values, The New York Times, USA Today and The Wall Street Journal. To the
extent any advertisement or sales literature of the fund describes the
expenses or performance of any Class it will also disclose such
information for the other Classes.
Average Annual Total Return
A fund's "average annual total return," as described below, is 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 a 1-, 5- or 10-
year period (or fractional portion
thereof), assuming reinvestment of all
dividends and distributions.
The ERV assumes complete redemption of the hypothetical investment at the
end of the measuring period. A fund's net investment income changes in
response to fluctuations in interest rates and the expenses of the fund.
Average Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Life
of
fund
Class A2
%
N/A
N/A
%1
Class B3
%
N/A
N/A
%1
Class L4
%
N/A
N/A
%1
Class Y5
%
N/A
N/A
%1
_______________________
1 Class A, B and L commenced operations on [ ]. Class Y
commenced operations on [ ].
2 The average annual total return figure assumes that the maximum
5.00% sales charge has been deducted from the investment at the time
of purchase. If the maximum sales charge had not been deducted, the
average annual total return for Class A shares for the same period
would have been [ ]%.
3 The average annual total return figure assumes that the maximum
applicable Deferred Sales Charge has been deducted from the
investment at the time of redemption. If the maximum Deferred Sales
Charge had not been deducted, the average annual total return for
Class B shares for the same period would have been [ ]%.
4 The average annual total return figure assumes that the maximum
applicable Deferred Sales Charge has been deducted from the
investment at the time of redemption. If the maximum Deferred Sales
Charge had not been deducted, the average annual total return for
Class L shares for the same period would have been [ ]%.
5 Class Y shares do not incur sales charges nor Deferred Sales
Charges.
Aggregate Total Return
The fund's "aggregate total return," as described below, represents the
cumulative change in the value of an investment in the fund for the
specified period and is computed by the following formula:
ERV - P
P
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical $10,000
investment made at the beginning of the 1-,
5- or 10-year period at the end of the 1-,
5- or 10-year period (or fractional portion
thereof), assuming reinvestment of all
dividends and distributions.
The ERV assumes complete redemption of the hypothetical investment at the
end of the measuring period.
Aggregate Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Life
of
fund
Class A2
%
N/A
N/A
%1
Class B3
%
N/A
N/A
%1
Class L4
%
N/A
N/A
%1
Class Y5
%
N/A
N/A
%1
_______________________
1 Classes A, B and L commenced operations on [ ].
Class Y commenced operations on [ ].
2 The average annual total return figure assumes that the maximum
5.00% sales charge has been deducted from the investment at the time
of purchase. If the maximum sales charge had not been deducted, the
average annual total return for Class A shares for the same period
would have been [ ]%.
3 The average annual total return figure assumes that the maximum
applicable Deferred Sales Charge has been deducted from the
investment at the time of redemption. If the maximum Deferred Sales
Charge had not been deducted, the average annual total return for
Class B shares for the same period would have been [ ]%.
4 The average annual total return figure assumes that the maximum
applicable Deferred Sales Charge has been deducted from the
investment at the time of redemption. If the maximum Deferred Sales
Charge had not been deducted, the average annual total return for
Class L shares for the same period would have been [ ]%.
5 Class Y shares do not incur sales charges nor Deferred Sales
Charges.
Performance will vary from time to time depending upon market conditions,
the composition of the fund's portfolio and operating expenses and the
expenses exclusively attributable to the Class. Consequently, any given
performance quotation should not be considered representative of the
Class's performance for any specified period in the future. Because
performance will vary, it may not provide a basis for comparing an
investment in the Class with certain bank deposits or other investments
that pay a fixed yield for a stated period of time. Investors comparing a
Class's performance with that of other mutual funds should give
consideration to the quality and maturity of the respective investment
companies' portfolio securities.
TAXES
The following is a summary of the material United States federal income
tax considerations regarding the purchase, ownership and disposition of
shares of a fund. Each prospective shareholder is urged to consult his
own tax adviser with respect to the specific federal, state, local and
foreign tax consequences of investing in a fund. The summary is based on
the laws in effect on the date of this Statement of Additional
Information, which are subject to change.
The Fund and Its Investments
The fund intends to continue to qualify to be treated as a regulated
investment company each taxable year under the Internal Revenue Code of
1986, as amended (the "Code"). To so qualify, the fund must, among other
things: (a) derive at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to securities, loans and
gains from the sale or other disposition of stock or securities or foreign
currencies, or other income (including, but not limited to, gains from
options, futures or forward contracts) derived with respect to its
business of investing in such stock, securities or currencies; and (b)
diversify its holdings so that, at the end of each quarter of the fund's
taxable year, (i) at least 50% of the market value of the fund's assets is
represented by cash, securities of other regulated investment companies,
United States government securities and other securities, with such other
securities limited, in respect of any one issuer, to an amount not greater
than 5% of the fund's assets and not greater than 10% of the outstanding
voting securities of such issuer and (ii) not more than 25% of the value
of its assets is invested in the securities (other than United States
government securities or securities of other regulated investment
companies) of any one issuer or any two or more issuers that the fund
controls and are determined to be engaged in the same or similar trades or
businesses or related trades or businesses. The fund expects that all of
its foreign currency gains will be directly related to its principal
business of investing in stocks and securities.
As a regulated investment company, the fund will not be subject to United
States federal income tax on its net investment income (i.e., income other
than its net realized long- and short-term capital gains) and its net
realized long- and short-term capital gains, if any, that it distributes
to its shareholders, provided that an amount equal to at least 90% of the
sum of its investment company taxable income (i.e., 90% of its taxable
income minus the excess, if any, of its net realized long-term capital
gains over its net realized short-term capital losses (including any
capital loss carryovers), plus or minus certain other adjustments as
specified in the Code) and its net tax-exempt income for the taxable year
is distributed in compliance with the Code's timing and other requirements
but will be subject to tax at regular corporate rates on any taxable
income or gains that it does not distribute. Furthermore, the fund will
be subject to a United States corporate income tax with respect to such
distributed amounts in any year that it fails to qualify as a regulated
investment company or fails to meet this distribution requirement.
The Code imposes a 4% nondeductible excise tax on the fund to the extent
it does not distribute by the end of any calendar year at least 98% of its
net investment income for that year and 98% of the net amount of its
capital gains (both long-and short-term) for the one-year period ending,
as a general rule, on October 31 of that year. For this purpose, however,
any income or gain retained by the fund that is subject to corporate
income tax will be considered to have been distributed by year-end. In
addition, the minimum amounts that must be distributed in any year to
avoid the excise tax will be increased or decreased to reflect any
underdistribution or overdistribution, as the case may be, from the
previous year. The fund anticipates that it will pay such dividends and
will make such distributions as are necessary in order to avoid the
application of this tax.
If, in any taxable year, the fund fails to qualify as a regulated
investment company under the Code or fails to meet the distribution
requirement, it would be taxed in the same manner as an ordinary
corporation and distributions to its shareholders would not be deductible
by the fund in computing its taxable income. In addition, in the event of
a failure to qualify, the fund's distributions, to the extent derived from
the fund's current or accumulated earnings and profits would constitute
dividends (eligible for the corporate dividends-received deduction) which
are taxable to shareholders as ordinary income, even though those
distributions might otherwise (at least in part) have been treated in the
shareholders' hands as long-term capital gains. If the fund fails to
qualify as a regulated investment company in any year, it must pay out its
earnings and profits accumulated in that year in order to qualify again as
a regulated investment company. In addition, if the fund failed to
qualify as a regulated investment company for a period greater than one
taxable year, the fund may be required to recognize any net built-in gains
(the excess of the aggregate gains, including items of income, over
aggregate losses that would have been realized if it had been liquidated)
in order to qualify as a regulated investment company in a subsequent
year.
The fund's transactions in foreign currencies, forward contracts, options
and futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code (including
provisions relating to "hedging transactions" and "straddles") that, among
other things, may affect the character of gains and losses realized by the
fund (i.e., may affect whether gains or losses are ordinary or capital),
accelerate recognition of income to the fund and defer fund losses. These
rules could therefore affect the character, amount and timing of
distributions to shareholders. These provisions also (a) will require the
fund to mark-to-market certain types of the positions in its portfolio
(i.e., treat them as if they were closed out) and (b) may cause the fund
to recognize income without receiving cash with which to pay dividends or
make distributions in amounts necessary to satisfy the distribution
requirements for avoiding income and excise taxes. The fund will monitor
its transactions, will make the appropriate tax elections and will make
the appropriate entries in its books and records when it acquires any
foreign currency, forward contract, option, futures contract or hedged
investment in order to mitigate the effect of these rules and prevent
disqualification of the fund as a regulated investment company.
The fund's investment in Section 1256 contracts, such as regulated futures
contracts, most forward currency forward contracts traded in the interbank
market and options on most stock indices, are subject to special tax
rules. All section 1256 contracts held by the fund at the end of its
taxable year are required to be marked to their market value, and any
unrealized gain or loss on those positions will be included in the fund's
income as if each position had been sold for its fair market value at the
end of the taxable year. The resulting gain or loss will be combined with
any gain or loss realized by the fund from positions in section 1256
contracts closed during the taxable year. Provided such positions were
held as capital assets and were not part of a "hedging transaction" nor
part of a "straddle," 60% of the resulting net gain or loss will be
treated as long-term capital gain or loss, and 40% of such net gain or
loss will be treated as short-term capital gain or loss, regardless of the
period of time the positions were actually held by the fund.
Foreign Investments. Dividends or other income (including, in some cases,
capital gains) received by the fund from investments in foreign securities
may be subject to withholding and other taxes imposed by foreign
countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes in some cases. The fund will
not be eligible to elect to treat any foreign taxes paid by it as paid by
its shareholders, who therefore will not be entitled to credits for such
taxes on their own tax returns. Foreign taxes paid by the fund will
reduce the return from the fund's investments.
Passive Foreign Investment Companies. If the fund purchases shares in
certain foreign investment entities, called "passive foreign investment
companies" (a "PFIC"), it may be subject to United States federal income
tax on a portion of any "excess distribution" or gain from the disposition
of such shares even if such income is distributed as a taxable dividend by
the fund to its shareholders. Additional charges in the nature of
interest may be imposed on the fund in respect of deferred taxes arising
from such distributions or gains. If the fund were to invest in a PFIC
and elected to treat the PFIC as a "qualified electing fund" under the
Code, in lieu of the foregoing requirements, the fund might be required to
include in income each year a portion of the ordinary earnings and net
capital gains of the qualified electing fund, even if not distributed to
the fund, and such amounts would be subject to the 90% and excise tax
distribution requirements described above. In order to make this
election, the fund would be required to obtain certain annual information
from the passive foreign investment companies in which it invests, which
may be difficult or not possible to obtain.
Recently, legislation was enacted that provides a mark-to-market election
for regulated investment companies effective for taxable years beginning
after December 31, 1997. This election would result in the fund being
treated as if it had sold and repurchased all of the PFIC stock at the end
of each year. In this case, the fund would report gains as ordinary
income and would deduct losses as ordinary losses to the extent of
previously recognized gains. The election, once made, would be effective
for all subsequent taxable years of the fund, unless revoked with the
consent of the IRS. By making the election, the fund could potentially
ameliorate the adverse tax consequences with respect to its ownership of
shares in a PFIC, but in any particular year may be required to recognize
income in excess of the distributions it receives from PFICs and its
proceeds from dispositions of PFIC company stock. The fund may have to
distribute this "phantom" income and gain to satisfy its distribution
requirement and to avoid imposition of the 4% excise tax. The fund will
make the appropriate tax elections, if possible, and take any additional
steps that are necessary to mitigate the effect of these rules.
Taxation of United States Shareholders
Dividends and Distributions. Any dividend declared by the fund in
October, November or December of any calendar year and payable to
shareholders of record on a specified date in such a month shall be deemed
to have been received by each shareholder on December 31 of such calendar
year and to have been paid by the fund not later than such December 31,
provided that such dividend is actually paid by the fund during January of
the following calendar year. The fund intends to distribute annually to
its shareholders substantially all of its investment company taxable
income, and any net realized long-term capital gains in excess of net
realized short-term capital losses (including any capital loss
carryovers). The fund currently expects to distribute any excess annually
to its shareholders. However, if the fund retains for investment an
amount equal to all or a portion of its net long-term capital gains in
excess of its net short-term capital losses and capital loss carryovers,
it will be subject to a corporate tax (currently at a rate of 35%) on the
amount retained. In that event, the fund will designate such retained
amounts as undistributed capital gains in a notice to its shareholders who
(a) will be required to include in income for United Stares federal income
tax purposes, as long-term capital gains, their proportionate shares of
the undistributed amount, (b) will be entitled to credit their
proportionate shares of the 35% tax paid by the fund on the undistributed
amount against their United States federal income tax liabilities, if any,
and to claim refunds to the extent their credits exceed their liabilities,
if any, and (c) will be entitled to increase their tax basis, for United
States federal income tax purposes, in their shares by an amount equal to
65% of the amount of undistributed capital gains included in the
shareholder's income. Organizations or persons not subject to federal
income tax on such capital gains will be entitled to a refund of their pro
rata share of such taxes paid by the fund upon filing appropriate returns
or claims for refund with the Internal Revenue Service (the "IRS").
Dividends of net investment income and distributions of net realized
short-term capital gains are taxable to a United States shareholder as
ordinary income, whether paid in cash or in shares. Distributions of net-
long-term capital gains, if any, that the fund designates as capital gains
dividends are taxable as long-term capital gains, whether paid in cash or
in shares and regardless of how long a shareholder has held shares of the
fund. Dividends and distributions paid by the fund attributable to
dividends on stock of U.S. corporations received by the fund, with respect
to which the fund meets certain holding period requirements, will be
eligible for the deduction for dividends received by corporations.
Distributions in excess of the fund's current and accumulated earnings and
profits will, as to each shareholder, be treated as a tax-free return of
capital to the extent of a shareholder's basis in his shares of the fund,
and as a capital gain thereafter (if the shareholder holds his shares of
the fund as capital assets).
Shareholders receiving dividends or distributions in the form of
additional shares should be treated for United States federal income tax
purposes as receiving a distribution in the amount equal to the amount of
money that the shareholders receiving cash dividends or distributions will
receive, and should have a cost basis in the shares received equal to such
amount.
Investors considering buying shares just prior to a dividend or capital
gain distribution should be aware that, although the price of shares just
purchased at that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may nevertheless be taxable to
them.
If the fund is the holder of record of any stock on the record date for
any dividends payable with respect to such stock, such dividends are
included in the fund's gross income not as of the date received but as of
the later of (a) the date such stock became ex-dividend with respect to
such dividends (i.e., the date on which a buyer of the stock would not be
entitled to receive the declared, but unpaid, dividends) or (b) the date
the fund acquired such stock. Accordingly, in order to satisfy its income
distribution requirements, the fund may be required to pay dividends based
on anticipated earnings, and shareholders may receive dividends in an
earlier year than would otherwise be the case.
Sales of Shares. Upon the sale or exchange of his shares, a shareholder
will realize a taxable gain or loss equal to the difference between the
amount realized and his basis in his shares. Such gain or loss will be
treated as capital gain or loss, if the shares are capital assets in the
shareholder's hands, and will be long-term capital gain or loss if the
shares are held for more than one year and short-term capital gain or loss
if the shares are held for one year or less. Any loss realized on a sale
or exchange will be disallowed to the extent the shares disposed of are
replaced, including replacement through the reinvesting of dividends and
capital gains distributions in the fund, within a 61-day period beginning
30 days before and ending 30 days after the disposition of the shares. In
such a case, the basis of the shares acquired will be increased to reflect
the disallowed loss. Any loss realized by a shareholder on the sale of a
fund share held by the shareholder for six months or less will be treated
for United States federal income tax purposes as a long-term capital loss
to the extent of any distributions or deemed distributions of long-term
capital gains received by the shareholder with respect to such share.
If a shareholder incurs a sales charge in acquiring shares of the fund,
disposes of those shares within 90 days and then acquires shares in a
mutual fund for which the otherwise applicable sales charge is reduced by
reason of a reinvestment right (e.g., an exchange privilege), the original
sales charge will not be taken into account in computing gain/loss on the
original shares to the extent the subsequent sales charge is reduced.
Instead, the disregarded portion of the original sales charge will be
added to the tax basis in the newly acquired shares. Furthermore, the
same rule also applies to a disposition of the newly acquired shares made
within 90 days of the second acquisition. This provision prevents a
shareholder from immediately deducting the sales charge by shifting his or
her investment in a family of mutual funds.
Backup Withholding. The fund may be required to withhold, for United
States federal income tax purposes, 31% of the dividends, distributions
and redemption proceeds payable to shareholders who fail to provide the
fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject
to backup withholding. Certain shareholders are exempt from backup
withholding. Backup withholding is not an additional tax and any amount
withheld may be credited against a shareholder's United States federal
income tax liabilities.
Notices. Shareholders will be notified annually by the fund as to the
United States federal income tax status of the dividends, distributions
and deemed distributions attributable to undistributed capital gains
(discussed above in "Dividends and Distributions") made by the fund to its
shareholders. Furthermore, shareholders will also receive, if
appropriate, various written notices after the close of the fund's taxable
year regarding the United States federal income tax status of certain
dividends, distributions and deemed distributions that were paid (or that
are treated as having been paid) by the fund to its shareholders during
the preceding taxable year.
Other Taxation
Distributions also may be subject to additional state, local and foreign
taxes depending on each shareholder's particular situation.
The foregoing is only a summary of certain material tax consequences
affecting the fund and its shareholders. Shareholders are advised to
consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the fund.
ADDITIONAL INFORMATION
The trust was organized on October 17, 1991 under the laws of the
Commonwealth of Massachusetts and is a business entity commonly known as a
"Massachusetts business trust." the trust offers shares of beneficial
interest of separate funds with a par value of $.001 per share. the fund
offers shares of beneficial interest currently classified into four
Classes - A, B, L and Y. Each class of the fund represents an identical
interest in the fund's investment portfolio. As a result, the Classes
have the same rights, privileges and preferences, 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 distribution and/or service fees
borne by each class pursuant to the Plan; (d) the expenses allocable
exclusively to each Class; (e) voting rights on matters exclusively
affecting a single Class; (f) the exchange privilege of each class; and
(g) the conversion feature of the Class B shares. The trust's board of
trustees does not anticipate that there will be any conflicts among the
interests of the holders of the different Classes. The trustees, on an
ongoing basis, will consider whether any such conflict exists and, if so,
take appropriate 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 trust's outstanding
shares and the trust will assist shareholders in calling such a meeting as
required by the 1940 Act.
When matters are submitted for shareholder vote, shareholders of each
Class will have one vote for each full share owned and a proportionate,
fractional vote for any fractional share held of that Class. Generally,
shares of the fund will be voted on a fund-wide basis on all matters
except matters affecting only the interests of one Class, in which case
only shares of the affected Class would be entitled to vote.
The trust was organized as an unincorporated Massachusetts business trust
on October 17, 1991 under the name Shearson Lehman Brothers Intermediate-
Term Trust. On October 14, 1994 and August 16, 1995, the Trust's name was
changed Smith Barney Income Trust and Smith Barney Investment Trust,
respectively.
PNC Bank, National Association, located at 17th and Chestnut Streets,
Philadelphia, Pennsylvania, 19103, serves as the custodian of the fund.
Under its custody agreement with the fund, PNC holds the fund's securities
and keeps all necessary accounts and records. For its services, PNC
receives a monthly fee based upon the month-end market value of securities
held in custody and also receives securities transactions 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 trust's transfer agent. Under the transfer agency agreement, the
transfer agent 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, the transfer agent 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.
APPENDIX B
The Smith Barney Mutual Fund Family encompasses more than 60 mutual funds,
representing approximately $87 billion of shareholder assets under
management as of September 30, 1998. This places us among the largest
mutual fund companies in the United States. Our portfolio managers
average approximately 25 years of experience in the financial field - of
which, on average, 18 have been with Smith Barney.
By building a core portfolio of mutual funds with complementary investment
styles, individuals can work toward specific goals of capital
appreciation, regular income and preservation of investment principal.
Your Salomon Smith Barney Financial Consultant can recommend and provide a
prospectus for one or more mutual funds designed to help you meet your
individual goals for education funding, retirement and changing lifestyle
needs.
Smith Barney Mutual Funds provide a broad selection of funds to suit every
investment goal, from capital appreciation to preservation of investment
principal. Our Family is divided into these main categories:
? Growth: For individuals seeking long-term capital appreciation
through investments in common stocks. Some of our growth funds also
give equal emphasis to income.
? Taxable Fixed Income: For individuals seeking current income.
? Tax-Exempt Fixed Income: For individuals seeking a tax-exempt
investment that allows them to keep more of what they earn for
current spending or future investment.
? Global/International: For individuals seeking to diversify their
portfolio to include long-term capital appreciation or income from
investments in markets around the world.
? Concert Allocation Series:
We understand that investors can be ________ in how they wish to reach
their financial goals. That's why we offer four different Series of
funds. Some investors, guided by their Financial Consultant, prefer to
take an active role in allocating their investment portfolio. For these
investors we offer the Style Pure Series. Others prefer to rely on the
asset allocation decisions of experienced portfolio managers, and may fund
solutions to their investment needs in our Classic Series. For investors
who want to explore opportunities using a narrower focus, we offer the
Specialty Series. The Concert Allocation Series allows investors to
invest in a diversified "fund of funds."
Style Pure Series Smith Barney mutual funds designated as "Style Pure"
are the basic building blocks of asset allocation. Other than maintaining
minimal cash, or under extraordinary market conditions, each of these
funds is 100% invested, 1005 of the time within its designated asset
classes and designated investment style. The Style Pure Series enables
you and your Smith Barney Financial Consultant to control your asset
allocation decisions using funds managed by experienced portfolio
managers.
Global/International Funds
Taxable Fixed Income Funds
Emerging Markets Portfolio
Adjustable Rate Government
Income Fund
European Portfolio
Government Securities Fund
Pacific Portfolio
High Income Fund
Investment Grade Bond Fund
Growth Funds
Managed Governments Fund
Large Cap Blend Fund
Short-Term High Grade Bond Fund
Large Capitalization Growth
Fund
U.S. Government Securities Fund
Large Cap Value Fund
Mid Cap Blend Fund
Tax-Exempt Fixed Income Funds
Small Cap Blend Fund
Limited Term Portfolio
Municipal High Income Fund
Classic Series The "Classic Series" lets you participate in mutual funds
whose investment decisions are determined by experienced portfolio
managers, based on each fund's investment objectives and guidelines.
Funds in the Smith Barney Classic Series invest across asset classes and
sectors, utilizing a range of strategies in order to achieve their
objectives.
Global/International Funds
Taxable Fixed Income Funds
Global Government Bond Fund
Diversified Strategic Income
Fund
Hansberger Global Small Cap
Value Fund
Total Return Bond Fund
Hansberger Global Value Fund
International Balanced
Portfolio
Tax-Exempt Fixed Income Funds
International Equity Portfolio
Managed Municipals Fund
Growth Funds
Aggressive Growth Fund
Appreciation Fund
Balanced Fund
Concert Peachtree Growth Fund
Contrarian Fund
Fundamental Value Fund
Premium Total Return Fund
Special Equities Fund
Specialty Series Mutual funds included in Smith Barney's "Specialty
Series" explore opportunities in a narrower sector of the market or by
using a narrower investment focus.
Growth Funds
State-Specific, Intermediate-
Term Tax-Exempt Fixed Income
Funds
Concert Social Awareness Fund
Intermediate Maturity
California Municipals Fund
Convertible Fund
Intermediate Maturity New York
Municipals Fund
Natural Resources Fund
S&P 500 Index Fund
State-Specific, Tax-Exempt
Fixed Income Funds
Arizona New Jersey
California New York
Florida Oregon
Georgia Pennsylvania
Massachusetts
Concert Allocation Series These "funds of funds" are designed to provide
you with targeted objectives, but at diversification levels that are
significantly greater than an investment in a single fund can provide.
Currently, available options include Global, High Growth, Growth,
Balanced, Conservative and Income Portfolios. These Portfolios'
objectives are achieved through stock and bond fund allocations that range
from 100% stocks to 10% stocks/90% bonds, allowing you to match "funds of
funds" in the Concert Allocation Series with your changing financial goals
and risk tolerance.
The Global Portfolio The Balanced
Portfolio
The High Growth Portfolio The Conservative
Portfolio
The Growth Portfolio The Income Portfolio
Help Along the Way
A professionally trained Salomon Smith Barney Financial Consultant is
ready, willing and able to serve as a reliable financial guide throughout
your financial journey. Talk with your Financial Consultant before you
invest in order to help prioritize your goals. Once you've set your
sights on clear objectives, rely on the expertise of this dedicated
professional to help you determine which investment mix may be suited to
your unique circumstances.
Your Financial Consultant knows from experience that allocating assets is
a key part of determining the long-term success of investment strategies.
As your circumstances and life style change, your Financial Consultant
will suggest adjustments to your strategy in order to keep you on the
right road and on track for achieving your financial goals.
International Investing
Whether you're a conservative or aggressive investor, just starting to
save or nearing retirement, chances are you could benefit from investing a
portion of your overall portfolio in international stocks and bonds.
Smith Barney offers a variety of international mutual funds designed to
help you gain access to:
Expanded horizons
Today, approximately 55% of the world's stock and bond opportunities are
found beyond U.S. boundaries. And non-U.S. markets represent some of the
fastest-growing economies in the world.
Potential for higher return
Taken as a whole, foreign markets have outperformed their domestic
counterparts on a long-term basis. Foreign markets do not outperform the
U.S. every quarter of every year, but they have delivered superior returns
over time.
Enhanced diversification
One of the most significant benefits of investing abroad is the potential
for reducing risk. Intentionally diversified portfolios tend to
experience less overall price volatility than portfolios invested in
single markets. Since world markets do not necessarily move in tandem
with those of the U.S., many international markets may be on the rise when
U.S. markets are down. The net result may be lower overall portfolio
volatility and potentially higher investment returns over time. In
addition, global/international mutual funds offer convenient access to
attractive opportunities not always available to U.S. investors.
Growth Investing
A growth mutual fund can offer you the benefits of professional
management, lower volatility as a result of diversification, and
affordability in terms of both initial and subsequent investments. If you
are a long-term investor, you may be best served by having a significant
portion of your assets invested in growth funds, although past performance
is not a guarantee of future results and principal value will fluctuate
with changes in the market. For younger investors, growth funds may be
one of the best ways to grow your assets and help you reach your financial
goals. Yet investing for growth is also important for older investors,
who should not underestimate the importance of offsetting the effects of
inflation and continuing to build financial resources for future needs.
Different types of investments have different rewards and risks associated
with them. For example, funds that invest in bonds as well as stocks may
be less volatile than funds investing solely in stocks. You may reduce
overall investment risk by owning funds that span different market
capitalizations and investment styles.
Tax-Exempt Investing: Helping You to Keep More of What You Earn
Tax-exempt fixed income funds, also known as "municipal bond mutual
funds," seek to provide tax-exempt income by investing in portfolios of
selected municipal bonds. Cities, states and municipalities issue
municipal bonds to finance ongoing operations and public projects. These
tax-exempt funds have remained tax-free and offer the potential to provide
shareholders with income and capital growth at levels that may equal or
exceed total returns from taxable investments on an after-tax basis.
Maturity and credit quality can be important factors in determining the
potential risks and rewards of a municipal bond investment. Longer-term
bond funds generally offer higher yields but your principal will be more
affected by interest rate changes, and therefore, are more risky.
Municipal bonds that are of lower credit quality tend to be riskier
because they are subject to credit risk; however, they generally offer
higher yields. Tax-exempt funds may be appropriate for investors in high
tax brackets. If you are risk-averse, or have shorter-term goals, an
intermediate or shorter-term investment may be more appropriate.
Investors with longer time horizons or a greater tolerance for risk may
benefit from the higher yields offered by longer-term municipal funds.
Smith Barney
Mid Cap Blend Fund
Statement of Additional
Information
SMITH BARNEY
INVESTMENT TRUST
388 Greenwich Street
New York, NY 10013
SALOMON SMITH BARNEY
A Member of Citigroup [Symbol]
PART C
OTHER INFORMATION
Item 23. 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).
(a)(1) Registrant's 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).
(a)(2) 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).
(a)(3) 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).
(a)(4) 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 Amendment No, 18)
(a)(5) Amendment No. 1 to the First Amended and Restated
Master Trust Agreement dated June 1, 1998
is incorporated by reference to Post-Effective Amendment No.20 to the
Registration Statement filed on June 26, 1998.
(a)(6) Amendment No. 2 to the First Amended and Restated Master
Trust Agreement dated October 16, 1998 is incorporated by reference
to Post-Effective Amendment No.21 to the Registration Statement
filed on November 12, 1998.
(b) Registrant's by-laws are incorporated by
reference to the Registration Statement.
(c)(1) Registrant's 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.
(c)(2) Registrant's 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).
(c)(3) Registrant's form of stock certificate for
Smith Barney Mid Cap Blend Fund is incorporated by
reference to Post-Effective Amendment No. 22 to the
Registration Statement filed on January 28, 1999
(Post-Effective Amendment No. 22).
(d)(1) 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).
(d)(2) 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.
(d)(3) 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)(4) 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.
(d)(5) Form of Investment Management Agreement
between the Registrant on behalf of Smith Barney
Large Capitalization Growth Fund and Mutual
Management Corp.("MMC") (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)
(d)(6) Form of Investment Management Agreement
between Smith Barney Mid Cap Blend Fund and MMC.
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)(1) Distribution Agreement between the
Registrant and Smith Barney Shearson Inc. dated July
30, 1993 is incorporated by reference to Post-
Effective Amendment No. 3.
(e)(2) 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.
(e)(3) Distribution Agreement between the Registrant
and CFBDS, Inc. dated October 8, 1998 is incorporated by reference
to Post-Effective Amendment No.21 to the Registration Statement
Filed on November 12, 1998.
(f) Not Applicable.
(g) Form of Custody Agreement with PNC Bank,
National Association, is incorporated by reference to
Post-Effective Amendment No. 9.
(h)(1) 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.
(h)(2) 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.
(h)(3) 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.
(h)(4) Transfer Agency Agreement with First Data
Investor Services Group, Inc. is incorporated by reference
to Post-Effective Amendment No. 3.
(h)(5) 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.
(i) 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.
(j) Auditor's consent is incorporated by
reference to Post-Effective Amendment No. 22.
(k) Not Applicable.
(l) Purchase Agreement between the Registrant
and Shearson Lehman Brothers Inc. is incorporated by
reference to Pre-Effective Amendment No. 1.
(m)(1) 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.
(m)(2) 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.
(m)(3) 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.
(m)(4) 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).
(m)(5) 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).
(m)(6) Form of Amended and Restated
Service and Distribution Plan
pursuant to Rule 12b-1 between the Registrant on behalf
of the Funds is incorporated by
reference to Post-Effective Amendment No. 22.
(n) Financial Data Schedule is to be filed
by amendment.
(o)(1) 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.
(o)(2) Rule 18f-3(d) Multiple Class Plan of the Registrant
is incorporated by
reference to Post-Effective Amendment No. 22.
Item 24. Persons Controlled by or under Common
Control with Registrant
None
Item 25. Indemnification
The response to this item is incorporated by
reference to Pre-Effective Amendment No. 1.
Item 26(a). Business and Other Connections of
Investment Adviser
Investment Adviser and Administrator - Mutual
Management Corp.("MMC") (f/k/a Smith Barney Mutual Funds
Management Inc.), was incorporated in December 1968
under the laws of the State of Delaware. MMC is a
wholly owned subsidiary of Salomon Smith Barney Holdings Inc.
("Holdings"),(formerly known as Smith Barney Holdings
Inc.), which in turn is a wholly owned subsidiary of
Citigroup Inc. ("Citigroup"). 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 and Smith Barney Mid Cap Blend Fund.
MMC also serves as the administrator to the Smith Barney S&P 500
Index Fund.
The list required by this Item 26 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 Smith Barney 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 Holdings, which in turn is a wholly owned
subsidiary of Citigroup.
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 26 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 MMC pursuant to the
Advisers Act (SEC File No.801-07212).
Item 27. Principal Underwriters
(a) CFBDS, Inc., ("CFBDS") the Registrant's Distributor, is also
the distributor for the following Smith Barney funds: Concert
Investment Series, Consulting Group Capital Markets Funds, Greenwich
Street Series Fund, 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 Equity Funds, Smith Barney
Fundamental Value Fund Inc., Smith Barney Funds, Inc., Smith Barney
Income Funds, Smith Barney Institutional Cash Management Fund, Inc.,
Smith Barney Investment Funds Inc.,
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 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 Small Cap Blend Fund, Inc., Smith
Barney Telecommunications Trust, Smith Barney Variable Account Funds,
Smith Barney World Funds, Inc., Travelers Series Fund Inc., and
various series of unit investment trusts.
CFBDS also serves as the distributor for the following funds: The
Travelers Fund UL for Variable Annuities, The Travelers Fund VA for
Variable Annuities, The Travelers Fund BD for Variable Annuities, The
Travelers Fund BD II for Variable Annuities, The Travelers Fund BD
III for Variable Annuities, The Travelers Fund BD IV for Variable
Annuities, The Travelers Fund ABD for Variable Annuities, The
Travelers Fund ABD II for Variable Annuities, The Travelers Separate
Account PF for Variable Annuities, The Travelers Separate Account PF
II for Variable Annuities, The Travelers Separate Account QP for
Variable Annuities, The Travelers Separate Account TM for Variable
Annuities, The Travelers Separate Account TM II for Variable
Annuities, The Travelers Separate Account Five for Variable
Annuities, The Travelers Separate Account Six for Variable Annuities,
The Travelers Separate Account Seven for Variable Annuities, The
Travelers Separate Account Eight for Variable Annuities, The
Travelers Fund UL for Variable Annuities, The Travelers Fund UL II
for Variable Annuities, The Travelers Variable Life Insurance
Separate Account One, The Travelers Variable Life Insurance Separate
Account Two, The Travelers Variable Life Insurance Separate Account
Three, The Travelers Variable Life Insurance Separate Account Four,
The Travelers Separate Account MGA, The Travelers Separate Account
MGA II, The Travelers Growth and Income Stock Account for Variable
Annuities, The Travelers Quality Bond Account for Variable Annuities,
The Travelers Money Market Account for Variable Annuities, The
Travelers Timed Growth and Income Stock Account for Variable
Annuities, The Travelers Timed Short-Term Bond Account for Variable
Annuities, The Travelers Timed Aggressive Stock Account for Variable
Annuities, The Travelers Timed Bond Account for Variable Annuities.
In addition, CFBDS, the Registrant's Distributor, is also the
distributor for CitiFunds Multi-State Tax Free Trust, CitiFunds
Premium Trust, CitiFunds Institutional Trust, CitiFunds Tax Free
Reserves, CitiFunds Trust I, CitiFunds Trust II, CitiFunds Trust III,
CitiFunds International Trust, CitiFunds Fixed Income Trust,
CitiSelect VIP Folio 200, CitiSelect VIP Folio 300, CitiSelect VIP
Folio 400, CitiSelect VIP Folio 500, CitiFunds Small Cap Growth VIP
Portfolio. CFBDS is also the placement agent for Large Cap Value
Portfolio, Small Cap Value Portfolio, International Portfolio,
Foreign Bond Portfolio, Intermediate Income Portfolio, Short-Term
Portfolio, Growth & Income Portfolio, U.S. Fixed Income Portfolio,
Large Cap Growth Portfolio, Small Cap Growth Portfolio, International
Equity Portfolio, Balanced Portfolio, Government Income Portfolio,
Tax Free Reserves Portfolio, Cash Reserves Portfolio and U.S.
Treasury Reserves Portfolio.
In addition, CFBDS is also the distributor for the following Salomon
Brothers funds: Salomon Brothers Opportunity Fund Inc., Salomon
Brothers Investors Fund Inc., Salomon Brothers Capital Fund Inc.,
Salomon Brothers Series Funds Inc., Salomon Brothers Institutional
Series Funds Inc., Salomon Brothers Variable Series Funds Inc.
In addition, CFBDS is also the distributor for the Centurion Funds,
Inc.
(b) The information required by this Item 27 with respect to each
director and officer of CFBDS is incorporated by reference to
Schedule A of Form BD filed by CFBDS pursuant to the Securities and
Exchange Act of 1934 (File No. 8-32417).
(c) Not applicable.
Item 28. Location of Accounts and Records
(1) Smith Barney Investment Trust
388 Greenwich Street
New York, New York 10013
(2) Mutual Management Corp.
388 Greenwich Street
New York, New York 10013
(3) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, PA
(4) First Data Investor Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
(5) CFBDS Inc.
21 Milk Street, 5th floor
Boston, Massachusetts 02109
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Not applicable
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 11th day of February, 1999.
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 2/11/99
Heath B. McLendon (Chief Executive Officer)
and President
/s/Lewis E. Daidone Treasurer 2/11/99
Lewis E. Daidone (Chief Financial and
Accounting Officer)
/s/Herbert Barg* Trustee 2/11/99
Herbert Barg
/s/Alfred J. Bianchetti* Trustee 2/11/99
Alfred J. Bianchetti
/s/Martin Brody* Trustee 2/11/99
Martin Brody
/s/Dwight B. Crane* Trustee 2/11/99
Dwight B. Crane
/s/Burt N. Dorsett* Trustee 2/11/99
Burt N. Dorsett
/s/Elliot S. Jaffe* Trustee 2/11/99
Elliot S. Jaffe
/s/Stephen E. Kaufman* Trustee 2/11/99
Stephen E. Kaufman
/s/Joseph J. McCann* Trustee 2/11/99
Joseph J. McCann
/s/Cornelius C. Rose, Jr.* Trustee 2/11/99
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