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. 24 [X]
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 24
__________________ [ ]
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
XXX On March 30, 1999 pursuant to paragraph (b)
of Rule 485
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>
[BACKGROUND GRAPHIC]
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day./(R)/
PROSPECTUS
Intermediate
Maturity
California
Municipals Fund
Class A, L and Y Shares
________________________________________________________________________________
March 30, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Intermediate Maturity California
Municipals Fund
Contents
<TABLE>
<S> <C>
Fund goal and strategies.................................................... 2
Risks, performance and expenses............................................. 3
More on the fund's investments.............................................. 6
Management.................................................................. 7
Choosing a class of shares to buy........................................... 8
Comparing the fund's classes................................................ 9
Sales charges............................................................... 10
More about deferred sales charges........................................... 12
Buying shares............................................................... 13
Exchanging shares........................................................... 14
Redeeming shares............................................................ 16
Other things to know
about share transactions.................................................... 18
Dividends, distributions and taxes.......................................... 20
Share price................................................................. 21
Financial highlights........................................................ 22
</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.
Smith Barney Mutual Funds 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 investment grade municipal securities. These
include securities issued by the State of California and certain other munici-
pal issuers, political subdivisions, agencies and public authorities that pay
interest which is exempt from federal income and California personal income
taxes. 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 investment grade.
Selection process
The manager selects securities primarily by identifying undervalued sectors and
individual securities, while also selecting securities 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 attrac-
tiveness of various securities and sectors and to exploit opportunities in
the municipal bond market
.May trade between general obligation and revenue bonds and among various reve-
nue bond sectors, such as housing, hospital and industrial development, based
on their apparent relative values
.Considers the yields available for securities with different maturities and a
security's maturity in light of the outlook for the issuer, its sector and
interest rates
.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
2 Intermediate Maturity California Municipals Fund
<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, if:
.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 the security's credit rating is 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 distri-
butions of the fund's gains generally will be, subject to federal and Califor-
nia 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, dis-
tributions 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 fewer issuers, the fund will be more sus-
ceptible to negative events affecting those issuers.
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
Smith Barney Mutual Funds 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 neces-
sarily indicate how the fund will perform in the future.
Total Return for Class A Shares
[BAR CHART APPEARS HERE]
Calendar years ended December 31
92 93 94 95 96 97
----- ----- ----- ----- ----- ----
10.06 11.74 -9.87 20.73 4.85 7.46
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: 5.80% in 1st quarter 1995; Lowest: -4.64% in 1st quarter 1994
Comparative performance
This table indicates the risks of investing in the fund by comparing the aver-
age annual total return of each class for the periods shown to that of the Leh-
man Brothers Municipal Bond Index (the "Lehman Index"), a broad-based 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.
Average Annual Total Returns
Calendar Years Ended December 31, 1998
<TABLE>
<CAPTION>
Class Inception Date 1 year 5 years 10 years Since Inception
<S> <C> <C> <C> <C> <C>
A 12/31/91 3.66% 4.83% n/a 6.16%
L 11/08/94 3.51% n/a n/a 7.49%
Y 09/08/95 5.98% n/a n/a 6.50%
Lehman Index * 6.48% 6.22% n/a 7.44%
Lipper Funds Average * 5.54% 5.14% n/a 6.17%
*Index Comparison begins
on December 31, 1991
</TABLE>
Intermediate Maturity California Municipals Fund
4
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(paid by the fund as a % of fund net assets) Class A Class L Class Y
<S> <C> <C> <C>
Maximum sales charge on purchases
(as a % of offering price) 2.00% 1.00% None
Maximum deferred sales charge on redemptions (as a %
of the lower of net asset value at purchase or
redemption) None* 1.00% None
Annual fund operating expenses
<CAPTION>
(paid by the fund as a % of fund net assets) Class A Class L Class Y
<S> <C> <C> <C>
Management fees** 0.50% 0.50% 0.50%
Distribution and service (12b-1) fee 0.15% 0.35% None
Other expenses 0.35% 0.36% 0.32%
----- ----- -----
Total annual fund operating expenses 1.00% 1.21% 0.82%
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales 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 include a management fee of 0.30% and an
administrative fee of 0.20% and have not been reduced to reflect waivers cur-
rently in effect. The combined actual management fee and administration fee
rate for the fiscal year ended November 30, 1998 was 0.25% of each class' aver-
age daily net assets, and the fund's total annual operating expenses were 0.75%
for Class A, 0.97% for Class L and 0.57% for Class Y.
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
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A (with or without redemption) $300 $512 $741 $1,400
Class L (redemption at end of period) $322 $480 $758 $1,551
Class L (no redemption) $222 $480 $758 $1,551
Class Y (with or without redemption) $ 84 $262 $455 $1,014
</TABLE>
Smith Barney Mutual Funds 5
<PAGE>
More on the fund's investments
California municipal securities California municipal securities include debt
obligations issued by certain non-California governmental issuers such as
Puerto Rico, the Virgin Islands and Guam. The interest on California municipal
securities 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 California municipal securities in which the fund invests include general
obligation bonds, revenue bonds and notes, and municipal leases. These securi-
ties 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 obli-
gation 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 strate-
gies 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 Intermediate Maturity California Municipals Fund
<PAGE>
Management
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.
Joseph P. Deane, investment officer of the manager and senior vice president
and managing director of Salomon Smith Barney, has been responsible for the
day-to-day management of the fund's portfolio since its inception in 1991.
David T. Fare, investment officer of the manager and vice president of Salomon
Smith Barney, currently shares the responsibility for the day-to-day management
of the fund's portfolio, joining Mr. Deane in 1998. Mr. Deane and Mr. Fare have
29 and 12 years, respectively, of securities business experience.
Management fee For its services, the manager received a management fee and
administrative fee during the Fund's last fiscal year equal 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 distrib-
ute 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 cost of addressing the Year 2000 issue, if sub-
stantial, could adversely affect companies and governments that issue securi-
ties held by 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 guaran-
tee that the efforts of the fund, which are limited to requesting and receiving
reports from its service providers, or the efforts of its service providers to
correct the problem will be successful.
Smith Barney Mutual Funds 7
<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.
.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 Sal-
omon 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>
Initial Additional
Classes A, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
Monthly Systematic Investment Plan $25 n/a $25
Quarterly Systematic Investment Plan $50 n/a $50
Uniform Gift to Minor Account $250 $15 million $50
</TABLE>
8 Intermediate Maturity California Municipals Fund
<PAGE>
Comparing the fund's classes
Your Salomon Smith Barney Financial Consultant or dealer representative can
help you decide which class meets your goals. They may receive different com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class L Class Y
<S> <C> <C> <C>
Key features .Initial .Initial .No initial
sales sales or deferred
charge charge is sales
.You may lower than charge
qualify for Class A .Minimum
reduction .Deferred investment
or waiver sales of at least
of initial charge for $15 million
sales 1 year .Lower
charge .Higher annual
.Lower annual expenses
annual expenses than the
expenses than Class other clas-
than Class A ses
L
- --------------------------------------------------------
Initial sales Up to 2.00%; 1.00% None
charge reduced or
waived for
large pur-
chases and
certain
investors.
No charge
for pur-
chases of
$500,000 or
more
- --------------------------------------------------------
Deferred sales 1% on pur- 1% if you None
charge chases of redeem
$500,000 or within 1
more if you year of pur-
redeem chase
within 1
year of pur-
chase
- --------------------------------------------------------
Annual 0.15% of 0.35% of None
distribution average average
and service daily net daily net
fees assets assets
- --------------------------------------------------------
Exchange Class A Class L Class Y
Privilege* shares of shares of shares of
most Smith most Smith most Smith
Barney funds Barney funds Barney 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.
Smith Barney Mutual Funds 9
<PAGE>
Sales charges
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. Cer-
tain trustees and fiduciaries may be entitled to combine accounts in deter-
mining their sales charge.
.Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney 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 Intermediate Maturity California Municipals Fund
<PAGE>
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 cer-
tain 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 Con-
sultant or dealer representative or consult the Statement of Additional Infor-
mation: ("SAI")
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.
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.
Smith Barney Mutual Funds 11
<PAGE>
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of pur-
chase 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 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 at the current net asset
value 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 Intermediate Maturity California Municipals Fund
<PAGE>
Buying shares
Through a
Salomon Smith You should contact Salomon Smith Barney or your dealer repre-
Barney sentative to open a brokerage account and make arrangements
Financial to buy shares.
Consultant or
dealer
representative 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 Certain other investors who are clients of the selling group
fund's transfer are eligible to buy shares directly from the fund.
agent
.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 pur-
chases, complete and send an account application.
.For more information, call the transfer agent at 1-800-451-
2010
- --------------------------------------------------------------------------------
You may authorize Salomon Smith Barney, your dealer represen-
Through a tative or the transfer agent to transfer funds automatically
systematic from a regular bank account, cash held in a Salomon Smith
investment Barney brokerage account or Smith Barney money market fund to
plan 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 represen-
tative or the transfer agent may charge you a fee
For more information, contact Salomon Smith Barney
Financial Consultant, your
dealer representative or the transfer agent or consult the
SAI.
Smith Barney Mutual Funds 13
<PAGE>
Exchanging shares
Smith Barney
offers a You should contact Salomon Smith Barney or your dealer repre-
distinctive sentative to exchange into other Smith Barney mutual funds.
family of Be sure to read the prospectus of the Smith Barney mutual
mutual funds fund you are exchanging into. An exchange is a taxable trans-
tailored to action.
help meet the
varying needs
of both large
and small
investors
.You may exchange shares only for shares of the same class of
another Smith Barney fund. Not all Smith Barney funds offer
all classes.
.Not all Smith Barney funds may be offered in your state of
residence. Contact Salomon Smith Barney, your dealer repre-
sentative 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 (documents transferring ownership of
certificates) 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 mea-
sured from the date of your original purchase.
14 Intermediate Maturity California Municipals Fund
<PAGE>
- --------------------------------------------------------------------------------
By telephone
If you do not have a brokerage account, you may be eligible
to exchange shares through the transfer agent. You must com-
plete 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 5:00 p.m. (Eastern
time). Requests received after the close of regular trading
on the Exchange are priced at the net asset value next deter-
mined.
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.
15 Intermediate Maturity California Municipals Fund
<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 redemp-
tion proceeds will not be sent to you until your original
check clears which may take up to 15 days.
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
16 Intermediate Maturity California Municipals Fund
<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 5:00 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. 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.
Smith Barney Mutual Funds 17
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good order.
This means 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 the account is registered
The transfer agent will try to confirm that any telephone exchange or redemp-
tion request is genuine by recording calls, asking the caller to provide a per-
sonal 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 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 regis-
tration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loans institutions, but not from a notary pub-
lic.
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
18 Intermediate Maturity California Municipals Fund
<PAGE>
.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 Securi-
ties and Exchange Commission
.Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
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 share-
holders. 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.
Smith Barney Mutual Funds 19
<PAGE>
Dividends, distributions 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, typi-
cally 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 dis-
tributions 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. Alterna-
tively, you can instruct your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent to have your distributions and/or divi-
dends 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 effec-
tive until the next distribution or dividend is paid.
Taxes The following table describes the tax consequences of certain fund trans-
actions.
<TABLE>
<CAPTION>
California tax
Transaction Federal tax status status
<S> <C> <C>
Redemption or exchange of shares Usually capital gain Usually capital gain
or loss; long-term or loss
only if shares owned
more than one year
Long-term capital gain distributions Taxable gain Taxable gain
Short-term capital gain Ordinary income Ordinary income
distributions
Dividends Exempt if from Exempt if from
interest on tax- interest on
exempt securities, California municipal
otherwise ordinary securities,
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 distribu-
tions 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 redemp-
tions 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.
20 Intermediate Maturity California Municipals Fund
<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. The Exchange is closed on certain holidays listed in the SAI. This
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
Generally, the fund's investments are valued by an independent pricing service.
If market quotations or a valuation from the pricing service is not readily
available for a security or if a security's value has been materially affected
by events occurring after the close of the Exchange or market on which the
security is principally traded, that security may be valued by another method
that the fund's board believes accurately reflects fair value. 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. A security's
valuation may differ depending on the method used for determining value.
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 repre-
sentative before the New York Stock Exchange closes. If the 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.
Smith Barney Mutual Funds 21
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance 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 distri-
butions. 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). The information for the fiscal year ended November 30, 1994
has been audited by other auditors.
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 $8.66 $8.55 $8.53 $7.80 $8.50
- -------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(/1/) 0.39 0.40 0.40 0.40 0.39
Net realized and unrealized
gain (loss) 0.19 0.11 0.02 0.73 (0.69)
- -------------------------------------------------------------------------------
Total income (loss) from
operations 0.58 0.51 0.42 1.13 (0.30)
- -------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.39) (0.40) (0.40) (0.40) (0.39)
Net realized gains -- -- -- -- (0.01)
- -------------------------------------------------------------------------------
Total distributions (0.39) (0.40) (0.40) (0.40) (0.40)
- -------------------------------------------------------------------------------
Net asset value, end of year $8.85 $8.66 $8.55 $8.53 $7.80
- -------------------------------------------------------------------------------
Total return 6.78% 6.13% 5.05% 14.84% (3.65)%
- -------------------------------------------------------------------------------
Net assets, end of year (000)'s $28,303 $25,630 $24,537 $26,211 $25,359
- -------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(/1/) 0.75% 0.75% 0.77% 0.75% 0.75%
Net investment income 4.45 4.65 4.69 4.89 4.73
- -------------------------------------------------------------------------------
Portfolio turnover rate 8% 9% 15% 8% 39%
- -------------------------------------------------------------------------------
</TABLE>
(/1/) The investment adviser and administrator waived all or part of their fees
for each of the five years ended November 30, 1998. In addition, the
investment adviser reimbursed the Fund for $75,189 in expenses for the
year ended November 30, 1996. If such fees were not waived and expenses
were not 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
1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $0.02 $0.03 $0.07 $0.03 $0.04 1.00% 1.12% 1.54% 1.16% 1.24%
- --------------------------------------------------------------------
</TABLE>
22 Intermediate Maturity California Municipals Fund
<PAGE>
For a Class L(/1/) share of beneficial interest outstanding throughout each
year ended November 30:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994(/2/)
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $8.65 $8.54 $8.52 $7.80 $7.76
- --------------------------------------------------------------------------
Income from operations:
Net investment income(/3/) 0.37 0.38 0.38 0.38 0.01
Net realized and unrealized gain 0.19 0.11 0.02 0.72 0.05(/4/)
- --------------------------------------------------------------------------
Total income from operations 0.56 0.49 0.40 1.10 0.06
- --------------------------------------------------------------------------
Less distributions from:
Net investment income (0.37) (0.38) (0.38) (0.38) (0.02)
- --------------------------------------------------------------------------
Total distributions (0.37) (0.38) (0.38) (0.38) (0.02)
- --------------------------------------------------------------------------
Net asset value, end of year $8.84 $8.65 $8.54 $8.52 $7.80
- --------------------------------------------------------------------------
Total return 6.57% 5.92% 4.84% 14.36% 0.72%++
- --------------------------------------------------------------------------
Net assets, end of year (000)'s $5,260 $3,419 $2,607 $2,254 $45
- --------------------------------------------------------------------------
Ratios to average net assets:
Expenses(/3/) 0.97% 0.96% 0.98% 0.98% 0.95%+
Net investment income 4.22 4.44 4.48 4.54 4.53+
- --------------------------------------------------------------------------
Portfolio turnover rate 8% 9% 15% 8% 39%
- --------------------------------------------------------------------------
</TABLE>
(/1/On)June 12, 1998, class C shares were renamed Class L shares.
(/2/For)the period from November 8, 1994 (inception date) to November 30, 1994.
(/3/The)investment adviser and administrator waived all or part of their fees
for each of the four years ended November 30, 1998 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
were not waived and expenses were not 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
1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class L $0.02 $0.03 $0.07 $0.03 $0.00* 1.21% 1.33% 1.75% 1.39% 1.44%+
- ----------------------------------------------------------------------
</TABLE>
(4)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 portfo-
lio securities for the period because of the timing of purchases and with-
drawals of shares in relation to the fluctuating market values of the
portfolio.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
Smith Barney Mutual Funds 23
<PAGE>
For a Class Y share of beneficial interest outstanding throughout each
year ended November 30:
<TABLE>
<CAPTION>
Class Y Shares 1998 1997 1996 1995(1)
====================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $8.66 $8.56 $8.54 $8.39
- ------------------------------------------------------------------------------------
Income From Operations:
Net investment income (2) 0.41 0.41 0.41 0.09
Net realized and unrealized gain 0.19 0.11 0.02 0.15
- ------------------------------------------------------------------------------------
Total Income From Operations 0.60 0.52 0.43 0.24
- ------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.40) (0.42) (0.41) (0.09)
- ------------------------------------------------------------------------------------
Total Distributions (0.40) (0.42) (0.41) (0.09)
- ------------------------------------------------------------------------------------
Net Asset Value, End of Year $8.86 $8.66 $8.56 $8.54
- ------------------------------------------------------------------------------------
Total Return 7.09% 6.20% 5.22% 2.92%++
- ------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $312 $292 $274 $261
- ------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (2) 0.57% 0.56% 0.59% 0.58%+
Net investment income 4.62 4.84 4.87 4.74+
- ------------------------------------------------------------------------------------
Portfolio Turnover Rate 8% 9% 15% 8%
====================================================================================
</TABLE>
(1) For the period from September 8, 1995 (inception date) to November 30,
1995.
(2) The investment adviser and administrator waived all or part of their fees
for each of the three years ended November 30, 1998 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
were not waived and expenses were not reimbursed, the per share effect on
net investment income and the expense ratios would have been as follows:
<TABLE>
<CAPTION>
Expense Ratios
Per Share Decrease to Without Fee Waivers
Net Investment Income and Reimbursements
----------------------------- -----------------------------
1998 1997 1996 1995 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class Y $0.02 $0.03 $0.07 $0.03 0.82% 0.94% 1.36% 0.99%+
</TABLE>
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
(This page is intentionally left blank.)
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
Intermediate Maturity California Municipals Fund
An investment portfolio of Smith Barney Investment Trust
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket 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 refer-
ence 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 Ref-
erence Room in Washington, D.C. You can get copies of these materials for a fee
by writing to the Public Reference Section of The Commission, Washington, D.C.
20549-6009. 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 law-
fully sell its shares.
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act
file no. 811-06444)
FD0248 3/99
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Everyday.
PROSPECTUS
Intermediate Maturity
New York Municipals Fund
Class A, L and Y Shares
- --------------------------------------------------------------------------------
March 30, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Intermediate Maturity New York
Municipals Fund
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
Fund goal and strategies ....................... 2
Risks, performance and expenses ................ 3
More on the fund's investments ................. 6
Management ..................................... 6
Choosing a class of shares to buy .............. 8
Comparing the fund's classes ................... 9
Sales charges .................................. 10
More about deferred sales charges .............. 12
Buying shares .................................. 13
Exchanging shares .............................. 14
Redeeming shares ............................... 16
Other things to know
about share transactions ....................... 18
Dividends, distributions and taxes ............. 20
Share price .................................... 21
Financial highlights ........................... 22
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.
Smith Barney Mutual Funds 1
<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 investment grade municipal securities. These
include securities issued by the State of New York and certain other municipal
issuers, political subdivisions, agencies and public authorities that pay
interest which is exempt from federal income and New York state and New York
City personal income taxes. 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 investment grade.
Selection process
The manager selects securities primarily by identifying undervalued sectors and
individual securities, while also selecting securities 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 May trade 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 Considers the yields available for securities with different maturities
and a security's maturity in light of the outlook for the issuer, its
sector and interest rates
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
2 Intermediate Maturity New York Municipals Fund
<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, if:
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 the security's credit rating is
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 tax able 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 fewer issuers, the fund will be more
susceptible to negative events affecting those issuers.
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 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
Smith Barney Mutual Funds 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.
- --------------------------------------------------------------------------------
Total Return for Class A Shares
- --------------------------------------------------------------------------------
[The following table was originally a bar chart in the printed material.]
92 9.29%
93 10.56%
94 -3.92%
95 12.93%
96 3.75%
97 8.33%
98 5.63%
Calendar years ended December 31
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: 4.63% in 1st quarter 1995; Lowest: -4.82% in 1st quarter 1994.
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 broad-based
index of municipal bonds and the Lipper New York In ter mediate 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
- --------------------------------------------------------------------------------
Class Inception Date 1 year 5 years 10 years Since Inception
- --------------------------------------------------------------------------------
A 12/31/91 3.48% 4.76% n/a 6.28%
- --------------------------------------------------------------------------------
L 12/5/94 3.45% n/a n/a 7.20%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Lehman Index * 6.48% 6.22% n/a 7.44%
- --------------------------------------------------------------------------------
Lipper Funds
Average * 5.63% 4.86% n/a 6.20
- --------------------------------------------------------------------------------
* Index comparison begins on December 31, 1991.
================================================================================
4 Intermediate Maturity New York Municipals Fund
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
- --------------------------------------------------------------------------------
Shareholder fees
- --------------------------------------------------------------------------------
(paid directly from your investment) Class A Class L Class Y+
- --------------------------------------------------------------------------------
Maximum sales charge on purchases 2.00% 1.00% None
(as a % of offering price)
- --------------------------------------------------------------------------------
Maximum deferred sales charge on
redemptions(as a % of the lower of net
asset value at purchase or redemption) None* 1.00% None
- --------------------------------------------------------------------------------
Annual fund operating expenses
- --------------------------------------------------------------------------------
(paid by the fund as a % of fund net assets) Class A Class L Class Y
- --------------------------------------------------------------------------------
Management fees** 0.50% 0.50% 0.50%
- --------------------------------------------------------------------------------
Distribution and service (12b-1) fee 0.15% 035% None
- --------------------------------------------------------------------------------
Other expenses 0.24% 0.24% 0.24%
- --------------------------------------------------------------------------------
Total annual fund operating expenses 0.89% 1.09% 0.74%
- --------------------------------------------------------------------------------
* You may buy Class A shares in amounts of $500,000 or more at net asset
value (without an initial sales 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 include a management fee of 0.30% and an
administration fee of 0.20% and have not been reduced to reflect waivers
currently in effect. The combined actual management fee and administration
fee rate for the last fiscal year was 0.30% of each class' average daily
net assets, and the fund's total annual operating expenses were 0.70% for
Class A and 0.89% for Class L.
+ For Class Y Shares, "Other expenses" have been estimated based on expenses
incurred by Class A Shares because prior to November 30, 1998 no Class Y
shares were sold.
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 (with or without redemption) $289 $478 $683 $1,274
- --------------------------------------------------------------------------------
Class L (redemption at end of period) $310 $443 $695 $1,415
- --------------------------------------------------------------------------------
Class L (no redemption) $210 $443 $695 $1,415
- --------------------------------------------------------------------------------
Class Y (with or without redemption) $ 76 $237 $411 $ 918
Smith Barney Mutual Funds 5
<PAGE>
- --------------------------------------------------------------------------------
More on the fund's investments
- --------------------------------------------------------------------------------
New York municipal securities New York municipal securities include debt
obligations issued by certain non-New York governmental issuers such as Puerto
Rico, the Virgin Islands and Guam. The interest on New York municipal securities
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 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 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 posi tion, it may be unable
to achieve its investment goal.
6 Intermediate Maturity New York Municipals Fund
<PAGE>
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
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.
Joseph P. Deane, investment officer of the manager and a managing director of
Salomon Smith Barney, has been responsible for the day-to- day management of the
fund's portfolio since February 2, 1999. Mr. Deane has 29 years of securities
business experience.
Management fees For its services, the manager received a management fee and
administrative fee during the fund's last fiscal year equal to 0.18% and 0.12%,
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 cost of addressing the year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by 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, which are limited to requesting and receiving reports
from its service pro viders, or the efforts of its service providers to correct
the problem will be successful.
Smith Barney Mutual Funds 7
<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
- --------------------------------------------------------------------------------
8 Intermediate Maturity New York Municipals Fund
<PAGE>
- --------------------------------------------------------------------------------
Comparing the fund's classes
- --------------------------------------------------------------------------------
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They may receive different compensation
depending upon which class you choose.
Class A Class L Class Y
- --------------------------------------------------------------------------------
Key features o Initial sales o Initial sales o No initial or
charge charge is lower deferred sales
than Class A charge
o You may qualify
for reduction or o Deferred sales o Minimum investment
waiver of initial charge for 1 year of at least $15
sales charge million
o Higher annual
o Lower annual expenses than o Lower annual
expenses than Class A expenses than the
Class L other classes
- --------------------------------------------------------------------------------
Initial sales Up to 2.00%; reduced 1.00% None
charge or waived for large
purchases and
certain investors.
No charge for
purchases of
$500,000 or more
- --------------------------------------------------------------------------------
Deferred 1% on purchases of 1% if you redeem None
sales charge $500,000 or more if within 1 year of
you redeem within 1 purchase
year of purchase
- --------------------------------------------------------------------------------
Annual 0.15% of average 0.35% of average None
distribution daily net assets daily net assets
and service
fees
- --------------------------------------------------------------------------------
Exchange Class A shares of Class L shares of Class Y shares of
privilege* most Smith Barney most Smith Barney most Smith Barney
funds funds funds
- --------------------------------------------------------------------------------
* Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
Smith Barney Mutual Funds 9
<PAGE>
- --------------------------------------------------------------------------------
Sales charges
- --------------------------------------------------------------------------------
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 pur chase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in de termining
their sales charge.
Letter of intent -- lets you purchase Class A shares of the fund and other Smith
Barney 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 Intermediate Maturity New York Municipals Fund
<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 Statement of Additional
Information ("SAI").
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 addi tion, 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 and/or other
Smith Barney Mutual Funds on June 12, 1998, you
will not pay an initial sales charge on Class L shares you buy before June 22,
2001.
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.
Smith Barney Mutual Funds 11
<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 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 at the current net asset
value 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 com pen sa tion
for its expenses in selling shares, including the payment of com pen sa tion 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.
12 Intermediate Maturity New York Municipals Fund
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Through a You should contact your Salomon Smith Barney Financial
Salomon Smith Consultant or dealer representative to open a brokerage
Barney Financial account and make arrangements to buy shares.
Consultant or
dealer If you do not provide the following information, your order
representative 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 Certain other investors who are clients of the selling group
fund's transfer are eligible to buy shares directly from the fund.
agent
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.
- --------------------------------------------------------------------------------
Through a You may authorize Salomon Smith Barney, your dealer rep
systematic resentative or the transfer agent to transfer funds auto
investment plan matically 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, dealer representative or the transfer
agent or consult the SAI.
Smith Barney Mutual Funds 13
<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 in to 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 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 Salomon 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 (documents
transferring ownership of certificates) 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.
- --------------------------------------------------------------------------------
14 Intermediate Maturity New York Municipals Fund
<PAGE>
- --------------------------------------------------------------------------------
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 5:00 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.
- --------------------------------------------------------------------------------
Smith Barney Mutual Funds 15
<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 which may take up to 15 days.
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 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
- --------------------------------------------------------------------------------
16 Intermediate Maturity New York Municipals Fund
<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 5:00 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:
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.
- --------------------------------------------------------------------------------
Smith Barney Mutual Funds 17
<PAGE>
- --------------------------------------------------------------------------------
Other things to know about share transactions
- --------------------------------------------------------------------------------
When you buy, exchange or redeem shares, your request must be in good order.
This means 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 the 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:
o Are redeeming 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
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 loan institutions, but not from a notary public.
18 Intermediate Maturity New York Municipals Fund
<PAGE>
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 Change, 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
o Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities.
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.
Smith Barney Mutual Funds 19
<PAGE>
- --------------------------------------------------------------------------------
Dividends, distributions 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 Usually capital gain or loss; Usually capital gain or
exchange of shares long-term only if shares loss
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 Exempt if from interest
on tax-exempt securities, on New York municipal
otherwise ordinary income securities, 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 longterm 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, 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.
20 Intermediate Maturity New York Municipals Fund
<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 Ex change
is open. The Exchange is closed on certain holidays listed in the SAI. This
calculation is done when regular trading closes on the Ex change (normally 4:00
p.m., Eastern time).
Generally, the fund's investments are valued by an independent pricing service.
If market quotations or a valuation from the pricing service is not readily
available for a security or if a security's value has been materially affected
by events occurring after the close of the Exchange or market on which the
security is principally traded, that security may be valued by another method
that the fund's board believes accurately reflects fair value. 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. A security's
valuation may differ depending on the method used for determining value.
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 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.
Smith Barney Mutual Funds 21
<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 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).
The information for the fiscal year ended November 30, 1994 has been
Audited by other auditors. No information is present for Class Y shares
because no shares were outstanding during these fiscal years.
- --------------------------------------------------------------------------------
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 $8.57 $8.47 $8.48 $7.80 $8.54
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(1) 0.40 0.41 0.41 0.41 0.40
Net realized and unrealized gain (loss) 0.19 0.10 (0.01) 0.68 (0.72)
- ---------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations 0.59 0.51 0.40 1.09 (0.32)
- ---------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.40) (0.41) (0.41) (0.41) (0.40)
Net realized gains -- -- -- -- (0.02)
- ---------------------------------------------------------------------------------------------------------------------
Total distributions 0.40 (0.41) (0.41) (0.41) (0.42)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $8.76 $8.57 $8.47 $8.48 $7.80
- ---------------------------------------------------------------------------------------------------------------------
Total return(2) 7.01% 6.23% 4.85% 14.31% (3.97)%
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $54,624 $47,759 $49,355 $52,568 $62,090
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(1) 0.70% 0.67% 0.66% 0.65% 0.65%
Net investment income 4.59 4.83 4.86 5.01 4.77
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 53% 52% 67% -- 68%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The investment adviser has waived all or part of its fees for the five
years ended November 30, 1998. If such fees were not waived, the per share
effect on net investment income and the expense ratios would have been as
follows:
<TABLE>
<CAPTION>
Per Share Decrease Expense Ratios
in Net Investment Income Without Fee Waivers
1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $0.02 $0.03 $0.04 $0.03 $0.03 0.89% 0.98% 1.08% 0.97% 0.98%
</TABLE>
(2) Total return does not reflect any applicable sales load or deferred sales
charge.
22 Intermediate Maturity New York Municipals Fund
<PAGE>
- --------------------------------------------------------------------------------
For a Class L share of beneficial interest
outstanding throughout each year ended November 30:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Class L Shares(1) 1998 1997 1996 1995(2)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $8.57 $8.47 $8.48 $7.87
- -------------------------------------------------------------------------------------------------------
Income from operations:
Net investment income(3) 0.38 0.39 0.39 0.38
Net realized and unrealized gain (loss) 0.19 0.10 (0.01) 0.61
- -------------------------------------------------------------------------------------------------------
Total income from operations 0.57 0.49 0.38 0.99
- -------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.38) (0.39) (0.39) (0.38)
- -------------------------------------------------------------------------------------------------------
Total distributions (0.38) (0.39) (0.39) (0.38)
- -------------------------------------------------------------------------------------------------------
Net asset value, end of year $8.76 $8.57 $8.47 $8.48
- -------------------------------------------------------------------------------------------------------
Total return 6.79% 6.00% 4.64% 13.01%++
- -------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $4,247 $2,283 $1,192 $393
- -------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(3) 0.89% 0.89% 0.88% 0.86%+
Net investment income 4.38 4.61 4.64 4.74+
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate 53% 52% 67% --
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) On June 12, 1998, Class C shares were renamed Class L shares.
(2) For the period from December 5, 1994 (inception date) to November 30,
1995.
(3) The investment adviser has waived all or part of its fees for the three
years ended November 30, 1998 and for the period ended November 30, 1995.
If such fees were not 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 Investment Income Without Fee Waivers
1998 1997 1996 1995 1998 1997 1996 1995
----- ----- ----- ----- ----- ----- ----- -----
Class L $0.01 $0.03 $0.02 $0.03 1.09% 1.20% 1.30% 1.19%+
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
Smith Barney Mutual Funds 23
<PAGE>
(This page is intentionally left blank.)
24 Intermediate Maturity New York Municipals Fund
<PAGE>
Smith Barney Mutual Funds 25
<PAGE>
SALOMON SMITH BARNEY
A member of citigroup [LOGO]
Intermediate Maturity New York Municipals Fund
- -- an investment portfolio of Smith Barney Investment Trust
Shareholder reports Annual and semi annual 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 ac count 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
at1-800-451-2010, 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. You can get copies of these materials for a
fee by writing to the Public Reference Section of the Commission, Washington,
D.C. 20549-6009. 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 -- 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.
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act
file no. 811-06444)
FD 0247 3/99
<PAGE>
[BACKGROUND GRAPHIC]
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day./(R)/
PROSPECTUS
Large Capitalization Growth Fund
Class A, B, L and Y Shares
________________________________________________________________________________
March 30, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Large Capitalization Growth Fund
Contents
<TABLE>
<S> <C>
Fund goal and strategies.................................................... 2
Risks, performance and expenses............................................. 3
More on the fund's investments.............................................. 6
Management.................................................................. 7
Choosing a class of shares to buy........................................... 8
Comparing the fund's classes................................................ 9
Sales charges............................................................... 10
More about deferred sales charges........................................... 13
Buying shares............................................................... 13
Exchanging shares........................................................... 14
Redeeming shares............................................................ 16
Other things to know
about share transactions.................................................... 18
Smith Barney 401(k) and
ExecChoice(TM) programs..................................................... 20
Dividends, distributions and taxes.......................................... 21
Share price................................................................. 22
Financial highlights........................................................ 23
</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.
Smith Barney Mutual Funds 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 securi-
ties 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 man-
ager 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 compa-
nies identified.
In selecting individual companies for investment, the manager considers:
.Favorable earnings prospects
.Technological innovation
.Industry dominance
.Competitive products and services
.Global scope
.Long term operating history
.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 Large Capitalization Growth Fund
<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, if:
.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
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.
Total Return for Class # Shares
[BAR CHART APPEARS HERE]
1997 5.47%
1998 54.72%
This bar chart shows the performance of the fund's Class A shares since incep-
tion. 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.
Smith Barney Mutual Funds 3
<PAGE>
Quarterly returns:
Highest: 37.85% in 4th quarter 1998; Lowest: 2.54% in 4th quarter 1997
Comparative performance
This table compares the average annual total return of each class for the peri-
ods shown with that of the S&P 500 Composite Index, a broad-based 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.
Average Annual Total Returns
Calendar Years Ended December 31, 1998
<TABLE>
<CAPTION>
Class Inception Date 1 year Since Inception
<S> <C> <C> <C>
A 8/29/97 46.96% 38.68%
B 8/29/97 48.65 40.40
L 8/29/97 51.06 41.98
Y 10/15/97 55.32 42.69
S&P 500 * 28.60 28.38
*Index comparison
begins on August 31, 1997
</TABLE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(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 price) 5.00% None 1.00% None
Maximum deferred sales charge on redemptions
(as a % of the lower of net asset value at
purchase or redemption) None* 5.00% 1.00% None
Annual fund operating expenses
<CAPTION>
(paid-by the fund as a % of fund net assets) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
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 0.19% 0.20% 0.21% 0.08%
----- ----- ----- -----
Total annual fund operating expenses 1.19% 1.95% 1.96% 0.83%
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
4 Large Capitalization Growth Fund
<PAGE>
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
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A (with or without redemption) $615 $859 $1,122 $1,871
Class B (redemption at end of period) $698 $912 $1,152 $2,080
Class B (no redemption) $198 $612 $1,052 $2,080
Class L (redemption at end of period) $397 $709 $1,147 $2,362
Class L (no redemption) $297 $709 $1,147 $2,362
Class Y (with or without redemption) $ 85 $265 $ 460 $1,025
</TABLE>
Smith Barney Mutual Funds 5
<PAGE>
More on the fund's investments
Other investments The fund may invest up to 35% of its assets in equity securi-
ties 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 coun-
tries generally have markets that are less liquid and more volatile than mar-
kets 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 strate-
gies 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 Large Capitalization Growth Fund
<PAGE>
Management
Manager The fund's investment manager is SSBC Fund Management Inc. The manag-
er'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 con-
sumer finance, credit and charge cards, insurance, investments, investment
banking and trading--and use diverse channels to make them available to con-
sumer and corporate customers around the world.
Alan Blake, investment officer of the manager 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 20 years of securities
business 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 distrib-
ute 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 serv-
ice 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 cost of addressing the Year 2000 issue, if sub-
stantial, could adversely affect companies and governments that issue securi-
ties held by 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, which are limited to requesting and receiving reports
from its service providers, or the efforts of its service providers to correct
the problem will be successful.
Smith Barney Mutual Funds 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 plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.
.For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
.Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and
Class L shares do not, Class B shares may be more attractive to long-term
investors.
You may buy shares from:
.A Salomon Smith Barney Financial Consultant
.An investment dealer in the selling group or a broker that clears through Sal-
omon 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>
Initial Additional
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $250 $15 million $50
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
8 Large Capitalization Growth Fund
<PAGE>
Comparing the fund's classes
Your Salomon Smith Barney Financial Consultant or dealer representative can
help you decide which class meets your goals. They may receive different com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .Initial .No initial
sales sales sales or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge .Deferred .Must
tion or declines sales invest at
waiver of over time charge for least $15
initial .Converts only 1 million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than Class expenses annual classes
B and than Class expenses
Class L A than Class
A
- ------------------------------------------------------------------------
Initial sales charge Up to None 1.00% None
5.00%;
reduced or
waived for
large pur-
chases and
certain
investors.
No charge
for pur-
chases of
$500,000 or
more
- ------------------------------------------------------------------------
Deferred sales charge 1% on pur- Up to 5% 1% if you None
chases of charged redeem
$500,000 or when you within 1
more if you redeem year of
redeem shares. The purchase
within 1 charge is
year of reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
- ------------------------------------------------------------------------
Annual distribution and 0.25% of 1% of aver- 1% of aver- None
service fees average age daily age daily
daily net net assets net assets
assets
- ------------------------------------------------------------------------
Exchange Privilege* Class A Class B Class L Class Y
shares shares shares shares
of most of most of most of most
Smith Smith Smith Smith
Barney Barney Barney Barney
funds funds funds 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.
Smith Barney Mutual Funds 9
<PAGE>
Sales charges
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 $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 3.00 3.09
$250,000 but less than $500,000 2.00 2.04
$500,000 or more 0.00 0.00
</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. Cer-
tain trustees and fiduciaries may be entitled to combine accounts in deter-
mining their sales charge.
.Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney 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 made within 90 days before you sign the let-
ter.
10 Large Capitalization Growth Fund
<PAGE>
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 cer-
tain 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 Con-
sultant or dealer representative or consult the Statement of Additional Infor-
mation ("SAI").
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 pur-
chase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
<TABLE>
<CAPTION>
Year after purchase 1st 2nd 3rd 4th 5th 6th and 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:
On reinvestment of Upon exchange from
Shares issued: dividends and another Smith Barney
At initial purchase distributions fund
<S> <C> <C>
Eight years after the In same proportion On the date the
date of purchase as the number of shares originally
Class B shares con- acquired would have
verting is to total converted into Class
Class B shares you A shares
own
</TABLE>
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 and/or
other Smith Barney Mutual Funds on June 12, 1998,
you will not pay an initial sales charge on Class L shares you buy before
June 22, 2001.
Smith Barney Mutual Funds 11
<PAGE>
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.
12 Large Capitalization Growth Fund
<PAGE>
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of pur-
chase 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 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 at the current net asset
value 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.
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant or
dealer If you do not provide the following information, your order
representative 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.
- --------------------------------------------------------------------------------
Smith Barney Mutual Funds 13
<PAGE>
Through the Qualified retirement plans and certain other investors who
fund's transfer are clients of the selling group are eligible to buy shares
agent directly from the fund.
.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 pur-
chases, complete and send an account application
.For more information, call the transfer agent at 1-800-451-
2010
- --------------------------------------------------------------------------------
You may authorize Salomon Smith Barney, your dealer represen-
Through a tative or the transfer agent to automatically transfer funds
systematic from a regular bank account, cash held in a Salomon Smith
investment Barney brokerage account or Smith Barney money market fund to
plan 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 represen-
tative 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
You should contact your Salomon Smith Barney Financial Con-
Smith Barney sultant or dealer representative to exchange into other Smith
offers a Barney mutual funds. Be sure to read the prospectus of the
distinctive Smith Barney mutual fund you are exchanging into. An exchange
family of is a taxable transaction.
funds
tailored to
help meet the .You may exchange shares only for shares of the same class of
varying needs another Smith Barney fund. Not all Smith Barney funds offer
of both large all classes.
and small
investors .Not all Smith Barney funds may be offered in your state of
residence. Contact your Salomon Smith Barney Financial Con-
sultant, dealer representative or the transfer agent.
14 Large Capitalization Growth Fund
<PAGE>
.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 (documents transferring ownership of
certificates) 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 mea-
sured 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 com-
plete 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 5:00 p.m. (Eastern
time). Requests received after the close of regular trading
on the Exchange are priced at the net asset value next deter-
mined.
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 next page.
Smith Barney Mutual Funds 15
<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 redemp-
tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.
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
16 Large Capitalization Growth Fund
<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 tel-
ephone 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
5:00 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. 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.
Smith Barney Mutual Funds 17
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good order.
This means 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 the account is registered
The transfer agent will try to confirm that any telephone exchange or redemp-
tion request is genuine by recording calls, asking the caller to provide a per-
sonal 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 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 regis-
tration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, 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
.Suspend telephone transactions
18 Large Capitalization Growth Funds
<PAGE>
.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 Securi-
ties and Exchange Commission
.Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
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 share-
holders. 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.
Smith Barney Mutual Funds 19
<PAGE>
Smith Barney 401(k) and ExecChoiceTM 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 invest-
ments in any of the Smith Barney 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 the same 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 exchange sooner in
the following circumstances:
If the account was opened on or after June 21, 1996 and a total of $1 mil-
lion 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 a total of $500,000 is
invested in Smith Barney Funds, Class L shares (other than money market
funds) on December 31 in any year, all Class L shares are eligible for
exchange on or about March 31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant or
the transfer agent, or consult the SAI.
20 Large Capitalization Growth Fund
<PAGE>
Dividends, distributions and taxes
Dividends The fund generally makes capital gain distributions and pays divi-
dends, 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 addi-
tional 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 distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
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
</TABLE>
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 dis-
tribution 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 dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer 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.
Smith Barney Mutual Fund 21
<PAGE>
Share price
You may buy, exchange or redeem shares at their net asset value, plus 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 liabili-
ties. 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. The Exchange is closed on certain holidays listed in the SAI. This calcu-
lation 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 quota-
tions. When reliable market prices or quotations are not readily available, 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 repre-
sentative before the New York Stock Exchange closes. If the 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 Large Capitalization Growth Fund
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance of each class 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 A share of capital stock outstanding throughout each year
Ended November 30:
<TABLE>
<CAPTION>
1998 1997(/1/)
- ----------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year $12.28 $11.88
- ----------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) (0.04) 0.01
Net realized and unrealized gain 5.20 0.39
- ----------------------------------------------------------
Total income from operations 5.16 0.40
- ----------------------------------------------------------
Less distributions
Net investment income (0.02) --
Net realized gains (0.01) --
- ----------------------------------------------------------
Total distributions (0.03) --
- ----------------------------------------------------------
Net asset value, end of year $17.41 $12.28
- ----------------------------------------------------------
Total return 42.12% 3.37%++
- ----------------------------------------------------------
Net assets, end of year (000)'s $324,664 $111,063
- ----------------------------------------------------------
Ratios to average net assets:
Expenses 1.19% 1.15%+
Net investment income (loss) (0.38) 0.38+
- ----------------------------------------------------------
Portfolio turnover rate 14% 1%
- ----------------------------------------------------------
</TABLE>
(/1/For)the period from August 29, 1997 (inception date) to November 30, 1997.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
Smith Barney Mutual Funds 23
<PAGE>
For a Class B share of capital stock outstanding throughout each year
Ended November 30:
<TABLE>
<CAPTION>
1998(/2/) 1997(/1/)
- -----------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year $12.26 $11.88
- -----------------------------------------------------------
Income (loss) from operations:
Net investment loss (0.17) (0.01)
Net realized and unrealized gain 5.19 0.39
- -----------------------------------------------------------
Total income from operations 5.02 0.38
- -----------------------------------------------------------
Less distributions from:
Net investment income (0.01) --
Net realized gains (0.01) --
- -----------------------------------------------------------
Total distributions (0.02) --
- -----------------------------------------------------------
Net asset value, end of year $17.26 $12.26
- -----------------------------------------------------------
Total return 41.02% 3.20%++
- -----------------------------------------------------------
Net assets, end of year (000)'s $636,464 $179,598
- -----------------------------------------------------------
Ratios to average net assets:
Expenses 1.95% 1.90%+
Net investment income (loss) (1.14) (0.37)+
- -----------------------------------------------------------
Portfolio turnover rate 14% 1%
- -----------------------------------------------------------
</TABLE>
(/1/For)the period from August 29, 1997 (inception date) to November 30, 1997.
(/2/Per)share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
24 Large Capitalization Growth Fund
<PAGE>
For a Class L(/1/) share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
1998(/2/) 1997(/3/)
- -----------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year $12.26 $11.88
- -----------------------------------------------------------
Income (loss) from operations:
Net investment loss (0.17) (0.01)
Net realized and unrealized gain 5.19 0.39
- -----------------------------------------------------------
Total income from operations 5.02 0.38
- -----------------------------------------------------------
Less distributions from:
Net investment income (0.01) --
Net realized gains (0.01) --
- -----------------------------------------------------------
Total distributions (0.02) --
- -----------------------------------------------------------
Net asset value, end of year $17.26 $12.26
- -----------------------------------------------------------
Total return 41.02% 3.20%++
- -----------------------------------------------------------
Net assets, end of year (000)'s $187,741 $37,224
- -----------------------------------------------------------
Ratios to average net assets:
Expenses 1.96 1.90%+
Net investment loss (1.14) (0.38)+
- -----------------------------------------------------------
Portfolio turnover rate 14% 1%
- -----------------------------------------------------------
</TABLE>
(/1/) On June 12, 1998, Class C shares were renamed Class L shares.
(/2/) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
(/3/) For the period from August 29, 1997 (inception date) to November 30,
1997.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
Smith Barney Mutual Funds 25
<PAGE>
For a Class Y share of capital stock outstanding throughout each year
ended November 30:
<TABLE>
<CAPTION>
1998 1997(/3/)
- ------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year $12.29 $12.66
- ------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) (0.00)* 0.01
Net realized and unrealized gain (loss) 5.23 (0.38)
- ------------------------------------------------------------------
Total income (loss) from operations 5.23 (0.37)
- ------------------------------------------------------------------
Less distributions from:
Net investment income (0.02) --
Net realized gains (0.01) --
- ------------------------------------------------------------------
Total distributions (0.03) --
- ------------------------------------------------------------------
Net asset value, end of year $17.49 $12.29
- ------------------------------------------------------------------
Total return(/4/) 42.61% (2.92)%++
- ------------------------------------------------------------------
Net assets, end of year (000)'s $133,556 $84,758
- ------------------------------------------------------------------
Ratio to average net assets:
Expenses 0.83% 0.82%+
Net investment income (loss) (0.02) 0.54+
- ------------------------------------------------------------------
Portfolio turnover rate 14% 1%
- ------------------------------------------------------------------
</TABLE>
(/1/) On June 12, 1998, Class C shares were renamed Class L shares.
(/2/) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
(/3/) For the period from October 15, 1997 (inception date) to November 30,
1997.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
26 Large Capitalization Growth Fund
<PAGE>
Salomon Smith Barney
----------------------------
A member of citigroup [LOGO]
Large Capitalization Growth Fund
An investment portfolio of Smith Barney Investment Trust
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket 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 refer-
ence 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 Ref-
erence Room in Washington, D.C. You can get copies of these materials for a fee
by writing to the Public Reference Section of the Commission, Washington, D.C.
20549-6009. 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 law-
fully sell its shares.
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act
file no. 811-06444)
FD01306 3/99
<PAGE>
[LOGO OF SMITH BARNEY MUTUAL FUNDS APPEARS HERE]
PROSPECTUS
Large Capitalization Growth Fund
Class Z Shares
________________________________________________________________________________
March 30, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities 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 Bar-
ney Inc. or any of its affiliates.
<PAGE>
Large Capitalization Growth Fund
Contents
<TABLE>
<S> <C>
Fund goal and strategies.................................................... 2
Risk, performance and expenses.............................................. 3
More on the fund's investments.............................................. 5
Management.................................................................. 6
Buying, selling and exchanging Class Z shares............................... 7
Dividends, distributions and taxes.......................................... 8
Share price................................................................. 9
</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.
Smith Barney Mutual Funds 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 securi-
ties 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 man-
ager 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 compa-
nies identified.
In selecting individual companies for investment, the manager considers:
.Favorable earnings prospects
.Technological innovation
.Industry dominance
.Competitive products and services
.Global scope
.Long term operating history
.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 Large Capitalization Growth Fund--Class Z Shares
<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, if:
.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
Smith Barney Mutual Funds 3
3
<PAGE>
Performance
Because Class Z shares were offered on November 12, 1998,
Class Z shares do not yet have a
sufficient operating history to generate the performance information which
other Smith Barney funds show in bar and table form in this location of the
prospectus.
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
<TABLE>
<S> <C> <C> <C> <C>
Annual fund operating expenses*
<CAPTION>
(paid-by the fund as a % of fund net
assets)
<S> <C> <C> <C> <C>
Management fee 0.75%
Other expenses 0.15%
-----
Total annual fund operating expenses 0.90%
</TABLE>
* Annual fund operating expenses have been
estimated based on expenses the fund expects
to incur during its fiscal year
ending November 30, 1999.
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
.The fund's operating expenses remain the same
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class Z $92 $287 $498 $1,108
</TABLE>
4 Large Capitalization Growth Fund--Class Z Shares
<PAGE>
More on the fund's investments
Other investments The fund may invest up to 35% of its assets in equity securi-
ties 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 coun-
tries generally have markets that are less liquid and more volatile than mar-
kets 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 strate-
gies 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.
Smith Barney Mutual Funds 5
<PAGE>
Management
Manager The fund's investment manager is SSBC Fund Management Inc. The manag-
er'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 con-
sumer finance, credit and charge cards, insurance, investments, investment
banking and trading--and use diverse channels to make them available to con-
sumer and corporate customers around the world.
Alan Blake, investment officer of the manager 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 20 years of securities
business 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 distrib-
ute the fund's shares. A selling group consisting of Salomon Smith Barney and
other broker-dealers sells 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 cost of addressing the Year 2000 issue, if sub-
stantial, could adversely affect companies and governments that issue securi-
ties held by 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, which is limited to requesting and receiving reports
from its service providers, or the efforts of its service providers to correct
the problem will be successful.
6 Large Capitalization Growth Fund--Class Z Shares
<PAGE>
Buying, selling and exchanging Class Z shares
Through a You may buy, sell or exchange Class Z shares only through a
qualified "qualified plan." A qualified plan is a tax-exempt employee
plan 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 pro-
visions.
- --------------------------------------------------------------------------------
Exchanging You should consult your qualified plan for information about
available exchange options.
Smith Barney Mutual Funds 7
<PAGE>
Dividends, distributions 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 par-
ticipating in a qualified plan.
Dividends The fund generally makes capital gain distributions and pays divi-
dends, 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 addi-
tional Class Z shares. The fund expects distributions to be primarily from capi-
tal 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 distribu-
tions from the fund.
Dividends and interest received by the fund from investing in foreign securi-
ties 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.
8 Large Capitalization Growth Fund--Class Z Shares
<PAGE>
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.
The Exchange is closed on certain holidays listed in the SAI. This calculation
is done when regular trading closes on the Exchange (normally 4:00 p.m., East-
ern time).
The fund generally values its fund securities based on market prices or quota-
tions. When reliable market prices or quotations are not readily available, 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 repre-
sentative before the New York Stock Exchange closes. If the 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.
Smith Barney Mutual Funds 9
<PAGE>
[LOGO OF SALOMON SMITH BARNEY APPEARS HERE]
Large Capitalization Growth Fund
An investment portfolio of Smith Barney Investment Trust
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket 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 refer-
ence 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 quali-
fied 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 Ref-
erence Room in Washington, D.C. You can get copies of these materials for a fee
by writing to the Public Reference Section of the Commission, Washington, D.C.
20549-6009. Information about the public reference room may be obtained by
calling 1-800-SEC-0330. You can get the same information free from the Commis-
sion'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 law-
fully sell its shares.
(Investment Company Act
file no. 811-06444)
[FD01306 3/99]
<PAGE>
[BACKGROUND GRAPHIC]
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day./(R)/
PROSPECTUS
Mid Cap Blend Fund
Class A, B, L and Y Shares
________________________________________________________________________________
March 30, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Mid Cap Blend Fund
Contents
<TABLE>
<S> <C>
Fund goal and strategies.................................................... 2
Risks, performance and expenses............................................. 3
More on the fund's investments.............................................. 5
Management.................................................................. 7
Choosing a class of shares to buy........................................... 8
Comparing the fund's classes................................................ 9
Sales charges............................................................... 10
More about deferred sales charges........................................... 13
Buying shares............................................................... 14
Exchanging shares........................................................... 16
Redeeming shares............................................................ 18
Other things to know
about share transactions.................................................... 20
Smith Barney 401(k) and ExecChoice(TM) programs............................. 22
Dividends, distributions and taxes.......................................... 23
Share price................................................................. 24
Financial highlights........................................................ 25
</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.
Smith Barney Mutual Funds 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 capitalization is within the mar-
ket 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 secu-
rities 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 favor-
able valuations relative to their growth characteristics. This strategy is com-
monly 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 considers:
.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 statis-
tics indicating a security is undervalued
.Increasing profits and sales
.Competitive advantages that could be more fully exploited by a company
.Skilled management 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 poten-
tial and also uses quantitative analysis to determine whether these stocks are
relatively undervalued or overvalued compared to stocks with similar fundamen-
tal characteristics. The manager's quantitative valuations determine whether
and when the fund will purchase or sell the stocks it identifies through funda-
mental research.
2 Mid Cap Blend Fund
<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, if:
.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 compa-
nies. Medium capitalization companies may have more limited product lines, mar-
kets and financial resources than large capitalization companies. They may have
shorter operating histories and more erratic businesses, although they gener-
ally 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
Performance
Because this fund commenced operations on September 1, 1998,
the fund does not yet
have a sufficient operating history to generate the performance information
which other Smith Barney funds show in bar and table form in this location of
the prospectus.
Smith Barney Mutual Funds 3
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(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 price) 5.00% None 1.00% None
Maximum deferred sales charge on redemptions
(as a % of the lower of net asset value at
purchase or redemption) None** 5.00% 1.00% None
Annual fund operating expenses
<CAPTION>
(paid by the fund as a % of fund net assets) Class A Class B Class L Class Y*
<S> <C> <C> <C> <C>
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 0.27% 0.26% 0.26% 0.27%
------ ----- ----- -----
Total annual fund operating expenses 1.27% 2.01% 2.01% 1.02%
</TABLE>
*The total annual fund operating expenses for Class Y are estimated because no
shares were outstanding during the most recent fiscal period.
**You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales 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
Number of years you own your shares
<TABLE>
<CAPTION>
5
1 year 3 years years 10 years
<S> <C> <C> <C> <C>
Class A (with or without redemption) $623 $883 $1,162 $1,957
Class B (redemption at end of period) $704 $930 $1,183 $2,149
Class B (no redemption) $204 $630 $1,083 $2,149
Class L (redemption at end of period) $402 $724 $1,172 $2,414
Class L (no redemption) $302 $724 $1,172 $2,414
Class Y (with or without redemption) $104 $325 $ 563 $1,248
</TABLE>
4 Mid Cap Blend Fund
<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 the market
capitalization range of companies in the Index (i.e., small or large capital-
ization companies).
Foreign investments The fund's investments in securities of foreign issuers
involve greater risk than investments in securities of U.S. issuers. Many for-
eign 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 invest-
ing in foreign securities are greater for securities of emerging market issuers
because political or economic instability, lack of market liquidity, and nega-
tive 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 credit rating of the security is 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
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 securi-
ties, 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 increase losses
and reduce opportunities for gains when stock prices, cur-
Smith Barney Mutual Funds 5
<PAGE>
rency 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.
In Europe, Economic and Monetary Union (EMU) and the introduction of a single
currency began on January 1, 1999. There are significant political and economic
risks associated with EMU, which may increase the volatility of the Fund's
European investments and present valuation problems.
Defensive investing The fund may depart from its principal investment strate-
gies 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 Mid Cap Blend Fund
<PAGE>
Management
Manager The fund's investment manager is SSBC Fund Management Inc., an affili-
ate 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 serv-
ices--asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading--and use diverse chan-
nels to make them available to consumer and corporate customers around the
world.
Lawrence Weissman, investment officer of the manager
and managing director of Salomon
Smith Barney, has been responsible for the day-to-day management of the fund's
portfolio since the fund's inception. Mr. Weissman has more than 14 years of
securities business 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 distrib-
ute 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 serv-
ice 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 cost of addressing the Year 2000 issue, if sub-
stantial, could adversely affect companies and governments that issue securi-
ties held by 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, which are limited to requesting and receiving reports
from its service providers, or the efforts of its service providers to correct
the problem will be successful.
Smith Barney Mutual Funds 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 plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.
.For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
.Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and
Class L shares do not, Class B shares may be more attractive to long-term
investors.
You may buy shares from:
.A Salomon Smith Barney Financial Consultant
.An investment dealer in the selling group or a broker that clears through Sal-
omon 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>
Initial Additional
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $ 250 $15 million $50
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
8 Mid Cap Blend Fund
<PAGE>
Comparing the fund's classes
Your Salomon Smith Barney Financial Consultant or dealer representative can
help you decide which class meets your goals. They may receive different com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .Initial .No initial
sales sales sales or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge .Deferred .Must
tion or declines sales invest at
waiver of over time charge for least $15
initial .Converts only 1 million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than Class expenses annual classes
B and than Class expenses
Class L A than Class
A
- ------------------------------------------------------------------------
Initial sales charge Up to None 1.00% None
5.00%;
reduced or
waived for
large pur-
chases and
certain
investors.
No charge
for pur-
chases of
$500,000 or
more
- ------------------------------------------------------------------------
Deferred sales charge 1% on pur- Up to 5% 1% if you None
chases of charged redeem
$500,000 or when you within 1
more if you redeem year of
redeem shares. The purchase
within 1 charge is
year of reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
- ------------------------------------------------------------------------
Annual Distribution and 0.25% of 1% of aver- 1% of aver- None
service fees average age daily age daily
daily net net assets net assets
assets
- ------------------------------------------------------------------------
Exchange Privilege* Class A Class B Class L Class Y
shares shares shares shares
of most of most of most of most
Smith Smith Smith Smith
Barney Barney Barney Barney
funds funds funds 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.
Smith Barney Mutual Funds 9
<PAGE>
Sales charges
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 $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 3.00 3.09
$250,000 but 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. Cer-
tain trustees and fiduciaries may be entitled to combine accounts in deter-
mining their sales charge.
.Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney 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
10 Mid Cap Blend Fund
<PAGE>
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 cer-
tain 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 Con-
sultant or dealer representative or consult the Statement of Additional Infor-
mation ("SAI").
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 pur-
chase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
<TABLE>
<CAPTION>
Year after purchase 1st 2nd 3rd 4th 5th 6th and 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: Upon exchange from
On reinvestment of another Smith
Shares issued: dividends and Barney
At initial purchase distributions fund
<S> <C> <C>
Eight years after the date of purchase In same proportion On the date the
as the number of shares originally
Class B shares acquired would
converting is to have converted
total Class B into Class A
shares you own shares
</TABLE>
Smith Barney Mutual Funds 11
<PAGE>
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 other Smith Barney
Mutual Funds on June 12, 1998,
you will not pay an initial sales charge on Class L shares you buy before June
22, 2001.
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.
12 Mid Cap Blend Fund
<PAGE>
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of pur-
chase 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 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 at the current net asset
value 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.
Smith Barney Mutual Funds 13
<PAGE>
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant or
dealer If you do not provide the following information, your order
representative 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 Qualified retirement plans and certain other investors who
fund's are clients of the selling group are eligible to buy shares
consultant directly 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 pur-
chases, complete and send an account application
.For more information, call the transfer agent at 1-800-451-
2010
Through a You may authorize Salomon Smith Barney, your dealer represen-
systematic tative or the transfer agent to transfer funds automatically
Investment from a regular bank account, cash held in a Salomon Smith
Plan 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.
14 Mid Cap Blend Fund
<PAGE>
.If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer represen-
tative 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.
Smith Barney Mutual Funds 15
<PAGE>
Exchanging shares
Smith Barney
offers a You should contact Salomon Smith Barney or your dealer repre-
distinctive sentative to exchange into other Smith Barney mutual funds.
family of Be sure to read the prospectus of the Smith Barney mutual
mutual funds fund you are exchanging into. An exchange is a taxable trans-
tailored to action.
help meet the
varying needs .You may exchange shares only for shares of the same class of
of both large another Smith Barney mutual fund. Not all Smith Barney
and small funds offer all classes.
investors
.Not all Smith Barney funds may be offered in your state of
residence. Contact Salomon Smith Barney, your dealer repre-
sentative 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 (documents transferring ownership of
certificates) 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 mea-
sured 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 com-
plete 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 5:00 p.m. (Eastern
time). Requests received after the close of regular trading
on the Exchange are priced at the net asset value next deter-
mined.
16 Mid Cap Blend Fund
16
<PAGE>
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 next page.
Smith Barney Mutual Funds 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 redemp-
tion proceeds will not be sent to you until your original
check clears which may take up to 15 days.
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 Mid Cap Blend Fund
(Specify class of shares)
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 regis-
tered
18 Mid Cap Blend Fund
<PAGE>
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 tel-
ephone 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
5:00 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. 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.
Smith Barney Mutual Funds 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 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 the account is registered
The transfer agent will try to confirm that any telephone exchange or redemp-
tion request is genuine by recording calls, asking the caller to provide a per-
sonal 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 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 regis-
tration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, 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
.Suspend telephone transactions
20 Mid Cap Blend Fund
<PAGE>
.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 Securi-
ties and Exchange Commission
.Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities.
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 share-
holders. 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.
Smith Barney Mutual Funds 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 invest-
ments in any of the Smith Barney 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 the same 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 exchange sooner in
the following circumstances:
If the account was opened on or after June 21, 1996 and a total of $1 mil-
lion 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 a total of $500,000 is
invested in Smith Barney Funds, Class L shares (other than money market
funds) on December 31 in any year, all Class L shares are eligible for
exchange on or about 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 Mid Cap Blend Fund
<PAGE>
Dividends, distributions and taxes
Dividends The fund generally makes capital gain distributions and pays divi-
dends, 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 addi-
tional 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 distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
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
</TABLE>
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 dis-
tribution 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 dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer 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.
Smith Barney Mutual Funds 23
<PAGE>
Share price
You may buy, exchange or redeem shares at their net asset value, plus 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 liabili-
ties. 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. The Exchange is closed on certain holidays listed in the SAI. This calcu-
lation 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 quota-
tions. The fund's currency conversions are done when the London stock exchange
closes, which is 12 noon Eastern time. When reliable market prices or quota-
tions are not readily available, or when the value of a security has been mate-
rially affected by events occurring after a foreign exchange closes, the fund
may price those securities at fair value. Fair value is determined in accor-
dance 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 repre-
sentative before the New York Stock Exchange closes. If the Exchange
closes early, you must place your order prior to the actual closing time. Oth-
erwise, 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 Mid Cap Blend Fund
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance of each class 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). No information is pres-
ent for Class Y shares because no shares were outstanding during this fiscal
period.
For a Class A share of capital stock outstanding throughout the period ended
November 30:
<TABLE>
<CAPTION>
1998(/1/)
- ------------------------------------------------
<S> <C>
Net asset value, beginning of period $ 11.40
- ------------------------------------------------
Income from operations:
Net investment income 0.02
Net realized and unrealized gain 2.21
- ------------------------------------------------
Total income from operations 2.23
- ------------------------------------------------
Less distributions from:
Net realized gains --
- ------------------------------------------------
Total distributions --
- ------------------------------------------------
Net asset value, end of period $ 13.63
- ------------------------------------------------
Total return++ 19.56%
- ------------------------------------------------
Net assets, end of period (000)'s $36,760
- ------------------------------------------------
Ratios to average net assets+:
Expenses 1.27%
Net investment income 0.78
- ------------------------------------------------
Portfolio turnover rate 15%
- ------------------------------------------------
</TABLE>
(/1/)For the period from September 1, 1998 (inception date) to November 30,
1998.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
Smith Barney Mutual Funds 25
<PAGE>
For a Class B share of capital stock outstanding throughout the period ended
November 30:
<TABLE>
<CAPTION>
1998(/1/)
- ------------------------------------------------
<S> <C>
Net asset value, beginning of period $ 11.40
- ------------------------------------------------
Income from operations:
Net investment income 0.00*
Net realized and unrealized gain 2.20
- ------------------------------------------------
Total income from operations 2.20
- ------------------------------------------------
Less distributions from:
Net realized gains --
- ------------------------------------------------
Total distributions --
- ------------------------------------------------
Net asset value, end of period $ 13.60
- ------------------------------------------------
Total return++ 19.30%
- ------------------------------------------------
Net assets, end of period (000)'s $69,153
- ------------------------------------------------
Ratios to average net assets+:
Expenses 2.01%
Net investment income 0.02
- ------------------------------------------------
Portfolio turnover rate 15%
- ------------------------------------------------
</TABLE>
(/1/) For the period from September 1, 1998 (inception date) to November 30,
1998.
* Amount represents less than $0.01.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
26 Mid Cap Blend Fund
<PAGE>
For a Class L share of capital stock outstanding throughout the period ended
November 30:
<TABLE>
<CAPTION>
1998(/1/)
- ------------------------------------------------
<S> <C>
Net asset value, beginning of period $ 11.40
- ------------------------------------------------
Income from operations:
Net investment income 0.00*
Net realized and unrealized gain 2.20
- ------------------------------------------------
Total income from operations 2.20
- ------------------------------------------------
Less distributions from:
Net realized gains --
- ------------------------------------------------
Total distributions --
- ------------------------------------------------
Net assets value, end of period $ 13.60
- ------------------------------------------------
Total return++ 19.30%
- ------------------------------------------------
Net assets, end of period (000)'s $45,045
- ------------------------------------------------
Ratios to average net assets+:
Expenses 2.01%
Net investment income 0.03
- ------------------------------------------------
Portfolio turnover rate 15%
- ------------------------------------------------
</TABLE>
(/1/) For the period from September 1, 1998 (inception date) to November 30,
1998.
* Amount represents less than $0.01.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
Smith Barney Mutual Funds 27
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
Mid Cap Blend Fund
An investment portfolio of Smith Barney Investment Trust
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket 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 refer-
ence 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 Ref-
erence Room in Washington, D.C. You can get copies of these materials for a fee
by writing to the Public Reference Section of the Commission, Washington, D.C.
20549-6009. 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 law-
fully sell its shares.
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-06444)
[FD01499 3/99]
<PAGE>
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day./(R)/
PROSPECTUS
S&P 500 Index Fund
Class A and D Shares
________________________________________________________________________________
March 30, 1999
The Securities and Exchange Commission has not
approved or disapproved these securities or deter-
mined whether this prospectus is accurate or com-
plete. Any statement to the contrary is a crime.
<PAGE>
S&P 500 Index Fund
Contents
<TABLE>
<S> <C>
Fund goal and strategies.................................................... 2
Risks, performance and expenses............................................. 3
More on the fund's investments.............................................. 6
Management.................................................................. 8
Choosing a class of shares to buy........................................... 10
Buying shares............................................................... 11
Exchanging shares........................................................... 12
Redeeming shares............................................................ 13
Other things to know
about share transactions.................................................... 15
Smith Barney 401(k) and
ExecChoiceTM programs....................................................... 17
Dividends, distributions and taxes.......................................... 18
Share price................................................................. 19
Financial highlights........................................................ 20
</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.
Smith Barney Mutual Funds 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 headquar-
tered 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 man-
ager 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 per-
formance of the index. The index is unmanaged and does not have to maintain
liquidity to meet redemption requests or pay expenses.
2 S&P 500 Index Fund
<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, if:
. 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 nor-
mally 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 investing primarily in fixed income securities
. Are willing to accept the risks of the stock market
Performance
Because this fund commenced operations on January 5, 1998, the fund does not
yet have a sufficient operating history to generate the performance information
which other Smith Barney funds show in bar and table form in this location of
the prospectus.
Smith Barney Mutual Funds 3
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(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
<CAPTION>
(paid by the fund as a % of fund net assets) Class A Class D
<S> <C> <C>
Management fees* 0.25% 0.25%
Distribution and service (12b-1) fee 0.20 None
Other expenses 0.97 0.93
Total annual fund operating expenses 1.42% 1.18%
</TABLE>
*Management fee rates shown above include a management fee of 0.15% and an
administration fee of 0.10% and have not been reduced to reflect waivers cur-
rently in effect. The combined actual management fee and administration fee
rate for the fiscal period ended November 30, 1998 was 0.15% of each class'
average daily net assets and the fund's total annual operating expenses
were 0.59% for Class A shares and 0.36% for Class D shares.
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
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A $145 $449 $776 $1,702
Class D $ 95 $296 $515 $1,143
</TABLE>
4 S&P 500 Index Fund
<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 comprising 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 instru-
ments 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
Foreign investments. The fund may purchase common stocks and American Deposi-
tary 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.
Smith Barney Mutual Funds 5
<PAGE>
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 informa-
tion 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.
6 S&P 500 Index Fund
<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's address is 388 Greenwich Street, New York, New
York 10013. TIMCO and SSBC are affiliates of Salomon Smith Barney Inc. The man-
ager, administrator and Salomon Smith Barney are subsidiaries of Citigroup Inc.
Citigroup businesses produce a broad range of financial services--asset manage-
ment, banking and consumer finance, credit and charge cards, insurance, invest-
ments, investment banking and trading--and use diverse channels to make them
available to consumer and corporate customers around the world.
Sandip Bhagat, president and chief investment officer of TIMCO, and John Lau,
portfolio manager for TIMCO, have been responsible for the day-to-day manage-
ment of the fund's portfolio since its inception. Messrs. Bhagat and Lau have
more than 11 and 4 years, respectively, of securities business experience.
Management and administration fees. For its services, the manager received a
fee during the fund's last fiscal year equal on an annual basis to 0.15%, of
the fund's average daily net assets. The administrator waived all of its fees
during the Fund's last fiscal year.
Distributor. The fund has entered into an agreement with CFBDS, Inc. to dis-
tribute 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 for
Class A shares is 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 cost of addressing the Year 2000 issue, if sub-
stantial, could adversely affect companies and governments that issue securi-
ties held by the fund. The manager, SSBC 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
Smith Barney Mutual Funds 7
<PAGE>
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, which
are limited to requesting and receiving reports from its service providers, or
the efforts of its service providers to correct the problem will be successful.
8 S&P 500 Index Fund
<PAGE>
Choosing a class of shares to buy
You may purchase Class A shares which are sold at net asset value with no ini-
tial 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 affili-
ates. 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 Sal-
omon 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
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $ 250 $50
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
Smith Barney Mutual Funds 9
<PAGE>
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant or . Class of shares being bought
dealer . Dollar amount or number of shares being bought
representative
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.
- --------------------------------------------------------------------------------
Qualified retirement plans and certain other investors who
Through the are clients of the selling group are eligible to buy shares
fund's directly from the fund.
transfer
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 pur-
chases, complete and send an account application
. For more information, call the transfer agent at 1-800-451-
2010
- --------------------------------------------------------------------------------
You may authorize Salomon Smith Barney, the dealer represen-
Through a tative or the transfer agent to transfer funds automatically
systematic from a regular bank account, cash held in a Salomon Smith
investment Barney brokerage account or Smith Barney money market fund to
plan 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 represen-
tative or the transfer agent may charge you a fee
10 S&P 500 Index Fund
<PAGE>
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the Statement of Additional Information
("SAI").
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 Salomon Smith Barney or your
dealer for more information.
Smith Barney Mutual Funds 11
<PAGE>
Redeeming shares
Generally
Contact your Salomon Smith Barney or your dealer representa-
tive 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 (documents transferring ownership of certifi-
cates) 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 redemp-
tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.
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
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 the account is regis-
tered
- --------------------------------------------------------------------------------
12 S&P 500 Index Fund
<PAGE>
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 tel-
ephone 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
5:00 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.
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.
Smith Barney Mutual Funds 13
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good order.
This means 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 the account is registered
The transfer agent will try to confirm that any telephone exchange or redemp-
tion request is genuine by recording calls, asking the caller to provide a per-
sonal identification number for your 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 regis-
tration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan, institutions, but not from a notary pub-
lic.
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
14 S&P 500 Index Fund
<PAGE>
. 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 Securi-
ties and Exchange Commission
. Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities.
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 share-
holders. 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.
Smith Barney Mutual Funds 15
<PAGE>
Smith Barney 401(k) and ExecChoiceTM programs
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoiceTM program. The fund offers Class A shares to partici-
pating plans as an investment alternative under the programs. You can meet min-
imum investment and exchange amounts by combining the plan's investments in any
of the Smith Barney funds.
There are no sales charges when you buy or sell shares.
Class A Shares may be purchased by Plans investing at least $1 million.
For more information, call your Salomon Smith Barney Financial Consultant or
the transfer agent, or consult the SAI.
16 S&P 500 Index Fundl Funds
<PAGE>
Dividends, distributions, and taxes
Dividends The fund generally makes capital gain distributions and pays divi-
dends, 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 addi-
tional fund shares of the same class you hold. The fund expects distributions
to be primarily from capital gains. Alternatively, you can instruct your Salo-
mon 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 divi-
dend, 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 distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
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
</TABLE>
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 dis-
tribution 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 dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer 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.
Smith Barney Mutual Funds 17
<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 sepa-
rately for each class of shares. The fund calculates its net asset value every
day the New York Stock Exchange is open. The Exchange is closed on certain hol-
idays listed in the SAI. 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 reliable market prices or quotations are not readily avail-
able, the fund may price those securities at fair value. Fair value is deter-
mined 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 repre-
sentative before the New York Stock Exchange closes. If the 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 SSBC. 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 dis-
closure.
18 S&P 500 Index Fund
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance 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 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 the period ended
November 30:
<TABLE>
<CAPTION>
1998(1)
- ----------------------------------------------------
<S> <C>
Net asset value, beginning of period $10.00
- ----------------------------------------------------
Income from operations:
Net investment income(/2/) 0.05
Net realized and unrealized gain 1.93
- ----------------------------------------------------
Total income from operations 1.98
- ----------------------------------------------------
Less distributions from:
Net investment income --
- ----------------------------------------------------
Total distributions --
- ----------------------------------------------------
Net asset value, end of period $11.98
- ----------------------------------------------------
Total return++ 19.80%
- ----------------------------------------------------
Net assets, end of period (000)'s $55,187
- ----------------------------------------------------
Ratios to average net assets:+
Expenses(/2/)(/3/) 0.59%
Net investment income 1.05
- ----------------------------------------------------
Portfolio turnover rate 4%
- ----------------------------------------------------
</TABLE>
(/1/) For the period from January 5, 1998 (commencement of operations) to
November 30, 1998.
(/2/) The administrator agreed to waive all of its administrative fees for the
period ended November 30, 1998, and agreed to reimburse expenses of
$177,520. If these expenses were not reimbursed, the per share effect on
net investment income and the expense ratio would have been as follows:
<TABLE>
<CAPTION>
Per Share Decreases to Expense Ratios
Net Investment Income Without Reimbursement
Class A Class A
- -------------------------------------------------------------------------------------------
<S> <C> <C>
$0.04 $1.42%+
- -------------------------------------------------------------------------------------------
</TABLE>
(/3/) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 0.60%.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
Smith Barney Mutual Funds 19
<PAGE>
For a Class D share of capital stock outstanding throughout the period ended
November 30:
<TABLE>
<CAPTION>
1998(1)
- ---------------------------------------------------
<S> <C>
Net asset value, beginning of period $11.00
- ---------------------------------------------------
Income from operations:
Net investment income(/2/) 0.03
Net realized and unrealized gain 0.96
- ---------------------------------------------------
Total income from operations 0.99
- ---------------------------------------------------
Less distributions from:
Net investment income --
- ---------------------------------------------------
Total distributions --
- ---------------------------------------------------
Net asset value, end of period $11.99
- ---------------------------------------------------
Total return++ 9.00%
- ---------------------------------------------------
Net assets, end of period (000)'s $1,810
- ---------------------------------------------------
Ratios to average net assets:
Expenses(/2/)(/3/) 0.36
Net investment income 1.33
- ---------------------------------------------------
Portfolio turnover rate 4%
- ---------------------------------------------------
</TABLE>
(/1/) For the period from August 4, 1998 (inception date) to November 30, 1998.
(/2/) The administrator agreed to waive all of its administrative fees for the
period ended November 30, 1998, and agreed to reimburse expenses of
$177,520. If these expenses were not reimbursed, the per share effect on
net investment income and the expense ratio would have been as follows:
<TABLE>
<CAPTION>
Per Share Decreases to Expense Ratios
Net Investment Income Without Reimbursements
<S> <C>
Class D Class D
- --------------------------------------------------------------------------------
$0.02 1.18%+
- --------------------------------------------------------------------------------
</TABLE>
(/3/) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 0.60%.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized
20 S&P 500 Index Fund
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
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 perfor-
mance.
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 ref-
erence 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 Salo-
mon 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. You can get copies of these materials for a
fee by writing to the Public Reference Section of the Commission, Washington,
D.C. 20549-6009. 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 distribu-
tor 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)
FD 01362 3/99
PART B
March 30, 1999
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY INVESTMENT TRUST
Smith Barney Intermediate Maturity California Municipals Fund
Smith Barney Intermediate Maturity New York Municipals Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
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, as amended or supplemented from time to time,
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 Objective and Management Policies 2
Investment Technique.............................................9
Risk Factors and Special Considerations Relating to California
and New York Municipal Securities..................... .12
Purchase of Shares .............................................28
Determination of Net Asset Value ................................34
Investment Management and Other Services 38
Investment Restrictions.......................................... 53
Trustees and Executive Officers of the Fund 49
Investment Management and Other Services......................55
Portfolio Transactions... ..............................................60
Portfolio Turnover.................. ..................................61
Redemption of Shares 63
Valuation of Shares 65
Exchange Privilege 65
Additional Information 66
Dividends, Distributions and Taxes 72
Performance Data 77
Financial Statements ...................................................78
Appendix A............................................................A
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES FOR THE FUNDS
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. ("SSBC"
or the "manager") serves as investment adviser to each fund.
California and New York Fund
Under normal market conditions, each of the California Fund and the New
York 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 the State of New York, respectively, 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 the State of
New York, respectively, 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 and New York State personal income tax, respectively, are
defined as "California Exempt Obligations." and "New York Exempt
Obligations" Collectively, California Exempt Obligations and New York
Exempt Obligation (defined below) are referred to generally in this SAI
as "Exempt Obligations." The California fund will operate subject to a
fundamental investment policy providing that, under normal market
conditions, the California 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. The New York 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.
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 manager determines that the credit
risk with respect to the instrumentality does not make its securities
unsuitable for investment by the fund.
Municipal Obligations. Each fund invests principally in 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 board 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 on the fund's books
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,
the fund will set aside cash or liquid securities equal to the amount of
the commitment in a segregated account on the fund's books. Normally, the
fund 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 on the fund's books 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 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 a Fund under the 1940 Act.
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA AND NEW
YORK MUNICIPAL SECURITIES
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 or 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 valid and binding of the government issuer.
Municipal leases are also subject to the risk of non-payment. The ability
of issuers 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. 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.
Alternative Minimum Tax
Under current federal income tax law, (1) interest on tax-exempt municipal
securities issued after August 7, 1986 which are "specified private
activity bonds," and the proportionate share of any exempt-interest
dividend paid by a regulated investment company which receives interest
from such specified private activity bonds, will be treated as an item of
tax preference for purposes of the alternative minimum tax ("AMT") imposed
on individuals and corporations, though for regular Federal income tax
purposes such interest will remain fully tax-exempt, and (2) interest on
all tax-exempt obligations will be included in "adjusted current earnings"
of corporations for AMT purposes. Such private activity bonds ("AMT-
Subject bonds"), which include industrial development bonds and bonds
issued to finance such projects as airports, housing projects, solid waste
disposal facilities, student loan programs and water and sewage projects,
have provided, and may continue to provide, somewhat higher yields than
other comparable municipal securities.
Investors should consider that, in most instances, no state, municipality
or other governmental unit with taxing power will be obligated with
respect to AMT-Subject bonds. AMT-Subject bonds are in most cases revenue
bonds and do not generally have the pledge of the credit or the taxing
power, if any, of the issuer of such bonds. AMT-Subject bonds are
generally limited obligations of the issuer supported by payments from
private business entities and not by the full faith and credit of a state
or any governmental subdivision. Typically the obligation of the issuer
of AMT-Subject bonds is to make payments to bond holders only out of and
to the extent of, payments made by the private business entity for whose
benefit the AMT-Subject bonds were issued. Payment of the principal and
interest on such revenue bonds depends solely on the ability of the user
of the facilities financed by the bonds to meet its financial obligations
and the pledge, if any, of real and personal property so financed as
security for such payment. It is not possible to provide specific detail
on each of these obligations in which Fund assets may be invested.
Risk of Concentration In a Single State
The primary purpose of investing in a portfolio of a single state's
municipal securities is the special tax treatment accorded the state's
resident individual investors. However, payment of interest and
preservation of principal is dependent upon the continuing ability of the
state's issuers and/or obligors on state, municipal and public authority
debt obligations to meet their obligations thereunder. Investors should be
aware of certain factors that might affect the financial condition of
issuers of municipal securities, consider the greater risk of the
concentration of a fund versus the safety that comes with a less
concentrated investment portfolio and compare yields available in
portfolios of the relevant state's issues with those of more diversified
portfolios, including out-of-state issues, before making an investment
decision.
Municipal securities in which a fund's assets are invested may include
debt obligations of the municipalities and other subdivisions of the
relevant state issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as
airports, bridges, highways, schools, streets and water and sewer works.
Other purposes for which municipal securities may be issued include the
obtaining of funds to lend to public or private institutions for the
construction of facilities such as educational, hospital, housing, and
solid waste disposal facilities. The latter, including most AMT-Subject
bonds, are generally payable from private sources which, in varying
degrees, may depend on local economic conditions, but are not necessarily
affected by the ability of the state and its political subdivisions to pay
their debts. It is not possible to provide specific details on each of
these obligations in which fund assets may be invested. However, all such
securities, the payment of which is not a general obligation of an issuer
having general taxing power, must satisfy, at the time of an acquisition
by the fund, the minimum rating(s). See "Appendix A: Bond and Commercial
Paper Ratings" for a description of ratings and rating criteria. Some
municipal securities may be rated based on a "moral obligation" contract
which allows the municipality to terminate its obligation by deciding not
to make an appropriation. Generally, no legal remedy is available against
the municipality that is a party to the "moral obligation" contract in the
event of such non-appropriation.
Municipal Market Volatility Municipal securities can be significantly
affected by political changes as well as uncertainties in the municipal
market related to taxation, legislative changes, or the rights of
municipal security holders. Because many municipal securities are issued
to finance similar projects, especially those relating to education,
health care, transportation and utilities, conditions in those sectors can
affect the overall municipal market. In addition, changes in the financial
condition of an individual municipal insurer can affect the overall
municipal market.
Interest Rate Changes Debt securities have varying levels of sensitivity
to changes in interest rates. In general, the price of a debt security can
fall when interest rates rise and can rise when interest rates fall.
Securities with longer maturities can be more sensitive to interest rate
changes. In other words, the longer the maturity of a security, the
greater the impact a change in interest rates could have on the security's
price. In addition, short-term and long-term interest rates do not
necessarily move in the same amount or the same direction. Short-term
securities tend to react to changes in short-term interest rates, and
long-term securities tend to react to changes in long-term interest rates.
Issuer-Specific Changes Changes in the financial condition of an issuer,
changes in specific economic or political conditions that affect a
particular type of security or issuer, and changes in general economic or
political conditions can affect the credit quality or value of an issuer's
securities. Lower-quality debt securities (those of less than investment-
grade quality) tend to be more sensitive to these changes than higher-
quality debt securities. Entities providing credit support or a maturity-
shortening structure also can be affected by these types of changes.
Municipal securities backed by current or anticipated revenues from a
specific project or specific assets can be negatively affected by the
discontinuance of the taxation supporting the project or assets or the
inability to collect revenues for the project or from the assets. If the
Internal Revenue Service determines an issuer of a municipal security has
not complied with applicable tax requirements, interest from the security
could become taxable and the security could decline significantly in
value. In addition, if the structure of a security fails to function as
intended, interest from the security could become taxable or the security
could decline in value.
Risk Factors
The following brief summaries are included for the purpose of providing
certain information regarding the economic climate and financial condition
of the states of New York and California, and are based primarily on
information from official statements made available in connection with the
issuance of certain securities and other documents and sources and does
not purport to be complete. The trust has not undertaken to verify
independently such information and the trust assumes no responsibility for
the accuracy of such information. These summaries do not provide
information regarding most securities in which the funds are permitted to
invest and in particular do not provide specific information on the
issuers or types of municipal securities in which the fund invests or the
private business entities whose obligations support the payments on AMT-
Subject bonds in which the funds will invest. Therefore, the general risk
factors as to the credit of the state or its political subdivisions
discussed herein may not be relevant to the funds. Although revenue
obligations of a state or its political subdivisions may be payable from a
specific project or source, there can be no assurance that future economic
difficulties and the resulting impact on state and local government
finances will not adversely affect the market value of the funds or the
ability of the respective obligors to make timely payments of principal
and interest on such obligations. In addition, a number of factors may
adversely affect the ability of the issuers of municipal securities to
repay their borrowings that are unrelated to the financial or economic
condition of a state, and that, in some cases, are beyond their control.
Furthermore, issuers of municipal securities are generally not required to
provide ongoing information about their finances and operations to holders
of their debt obligations, although a number of cities, counties and other
issuers prepare annual reports.
NEW YORK FUND
The following is based on information obtained from an Official Statement
of the State of New York, dated December 15, 1998, relating to $85,000,000
Environmental Quality 1986 Variable Interest Rate General Obligation
Bonds, Series 1998G, an Official Statement of the City of New York, dated
December 15, 1998, relating to $117,035,000 Tax-Exempt and $21,835,000
Taxable General Obligation Bonds, Fiscal 1999 Series E, and the Annual
Information Statement of the State of New York dated June 26, 1998.
New York Local Government Assistance Corporation
In 1990, as part of a New York State (the "State") fiscal reform program,
legislation was enacted creating the New York Local Government Assistance
Corporation (the "LGAC"), a public benefit corporation empowered to issue
long-term obligations to fund certain payments to local governments
traditionally funded through the State's annual seasonal borrowing. The
legislation authorized LGAC to issue its bonds and notes in an amount not
in excess of $4.7 billion (exclusive of certain refunding bonds) plus
certain other amounts. Over a period of years, the issuance of these
long-term obligations, which are to be amortized over no more than 30
years, was expected to eliminate the need for continued short-term
seasonal borrowing. The legislation also dedicated revenues equal to one-
quarter of the four cent State sales and use tax to pay debt service on
these bonds. The legislation imposed a cap on the annual seasonal
borrowing of the State at $4.7 billion, less net proceeds of bonds issued
by LGAC and bonds issued to provide for capitalized interest, except in
cases where the Governor and the legislative leaders have certified the
need for additional borrowing and provided a schedule for reducing it to
the cap. If borrowing above the cap is thus permitted in any fiscal year,
it is required by law to be reduced to the cap by the fourth fiscal year
after the limit was first exceeded. This provision capping the seasonal
borrowing was included as a covenant with LGAC's bondholders in the
resolution authorizing such bonds. Issuance of the entire $4.7 billion
bond authorization as of March 31, 1996 eliminated the need for the
State's annual spring borrowing.
The impact of LGAC's borrowing is that the State is able to meet its cash
flow needs throughout the fiscal year without relying on short-term
seasonal borrowings.
Recent Developments
The national economy has maintained a robust rate of growth during the
past six quarters as the expansion, which is well into its seventh year,
continues. Since early 1992, approximately 16-1/2 million jobs have been
added nationally. The State economy has also continued to expand, but
growth remains somewhat slower than in the nation. Although the State has
added over 400,000 jobs since late 1992, employment growth in the State
has been hindered during recent years by significant cutbacks in the
computer and instrument manufacturing, utility, defense, and banking
industries. Government downsizing has also moderated these job gains.
The State Division of Budget ("DOB") forecasts that national economic
growth during both 1998 and 1999 will be slower than it was during 1997.
The financial and economic turmoil which started in Asia and has spread to
other parts of the world is expected to continue to negatively affect U.S.
trade balances throughout most of 1999. In addition, growth in domestic
consumption, which has been a major driving force behind the nation's
strong economic performance in recent years, is expected to slow in 1999
as consumer confidence retreats from historic highs and the stock market
ceases to provide large amounts of extra discretionary income.
The forecast of the State's economy shows continued expansion during the
1998 calendar year, with continued growth projected in 1998 for
employment, wages, and personal income, although the growth rates of
personal income and wages are expected to be lower than those in 1997.
The growth of personal income is projected to rise from 4.7 percent in
1997 to 5.0 percent in 1998, but then drop to 3.4 percent in 1999, in part
because growth in bonus payments is expected to moderate significantly.
Overall employment is expected to grow 2.0 percent in 1998, the strongest
growth in a decade, but is expected to drop to 1.0 percent in 1999,
reflecting the slowing growth in the national economy, continued restraint
in governmental spending, less robust profitability in the financial
sector and continued restructuring in the manufacturing, health care, and
banking sectors.
1998-99 Fiscal Year
Total receipts for the 1998-99 fiscal year are projected to reach $37.84
billion on a cash-basis. Personal income tax receipts for 1998-99 are
projected to reach $21.44 billion, nearly $3.7 billion above the amount
reported for 1997-98. This estimate reflects an anticipated slowing in
the growth of financial sector bonuses and the resultant impact on
withholding. Business tax collections, reflecting collection experience in
September and reduced expectations for profits in the balance of the year,
are expected to reach $4.79 billion, approximately $257 million below the
amount recorded for the 1997-98 fiscal year. Receipts from user taxes and
fees are expected to total $7.21 billion, an increase of approximately
$170 million above the amount reported for 1997-98. Collections from
other taxes are projected at $1.07 billion. Miscellaneous receipts are
projected to reach $1.47 billion. Transfers to the General Fund from
other funds are expected to be over $1.86 billion, including $1.54 billion
of sales tax receipts net of the debt service requirements of the LGAC.
Projected General Fund disbursements on a cash-basis are expected to total
$36.78 billion. The State projects disbursements of $25.14 billion in
grants to local governments for the year, an increase of $1.88 billion
over 1997-98. A $830 million increase in cash disbursements for school
aid over the prior year is responsible for nearly half the year-over-year
growth in this category. Other significant increases include Medicaid
($144 million), handicapped education programs ($108 million) and children
and families programs ($66 million). School aid is also the largest
program in terms of total spending in this category, with disbursements of
$9.7 billion expected in 1998-99. It is followed by Medicaid ($5.6
billion), welfare ($1.6 billion), services for children and families ($927
million) and general purpose aid to local governments ($837 million).
State operations, which account for the costs of running State agencies,
are estimated at $6.7 billion for the current fiscal year, $511 million
higher than during 1997-98. This year-to-year growth reflects the
continuing phase-in of wage increases under existing collective bargaining
agreements, the impact of binding arbitration settlements and the costs of
funding an additional payroll cycle in 1998-99. General state charges,
which account primarily for fringe benefits of State employees, are
projected to total $2.22 billion in 1998-99, a modest decrease from 1997-
98. Short- and long-term debt service is projected at $2.14 billion, an
increase of $111 million over 1997-98. For the first time, the State
plans to make a $50 million deposit to the Debt Reduction Reserve Fund.
Capital projects and all other transfers are estimated at $592 million, a
decrease of $61 million from 1997-98, reflecting the non-recurring nature
of certain items included in the prior fiscal year.
The financial plan projects a closing balance, on a cash basis, in the
General Fund of $1.7 billion. The balance consists of the $1.04 billion
reserve for future needs, $400 million in the Tax Stabilization Reserve
Fund, $100 million in the Contingency Reserve Fund (after a planned
deposit of $32 million in 1998-99), and $158 million in the Community
Projects Fund.
Total spending from all governmental funds is projected at $71.54 billion.
Spending is projected at $34.07 billion for the General Fund (excluding
transfers), $29.98 billion for the special revenue funds, $4.14 billion
for the capital projects funds, and $3.36 billion for the debt service
funds. State funds spending is estimated to total $48.58 billion.
1997-98 Fiscal Year
The State ended its 1997-98 fiscal year in balance on a cash basis, with a
General Fund cash surplus as reported by DOB of approximately $2.04
billion. The cash surplus was derived primarily from higher-than-
anticipated receipts and lower spending on welfare, Medicaid, and other
entitlement programs.
The General Fund had a closing balance of $638 million, an increase of
$205 million from the prior fiscal year. The balance is held in three
accounts within the General Fund: the Tax Stabilization Reserve Fund
("TSRF"), the Contingency Reserve Fund ("CRF") and the Community Projects
Fund ("CPF"). The TSRF closing balance was $400 million, following a
required deposit of $15 million (repaying a transfer made in 1991-92) and
an extraordinary deposit of $68 million made from the 1997-98 surplus.
The CRF closing balance was $68 million, following a $27 million deposit
from the surplus. The CPF, which finances legislative initiatives, closed
the fiscal year with a balance of $170 million, an increase of $95
million. The General Fund closing balance did not include $2.39 billion
in the tax refund reserve account, of which $521 million was made
available as a result of the LGAC financing program and was required to be
on deposit on March 31, 1998.
General Fund receipts and transfers from other funds for the 1997-98
fiscal year (including net tax refund reserve account activity) totaled
$34.55 billion, an annual increase of $1.51 billion, or 4.57 percent over
1996-97. General Fund disbursements and transfers to other funds were
$34.35 billion, an annual increase of $1.45 or 4.41 percent.
1996-97 Fiscal Year
The State ended its 1996-97 fiscal year on March 31, 1997 in balance on a
cash basis, with a 1996-97 General Fund cash surplus as reported by DOB of
approximately $1.42 billion. The cash surplus was derived primarily from
higher-than-expected receipts and lower-than-expected spending for social
services programs.
The General Fund closing fund balance was $433 million, an increase of
$146 million from the 1995-96 fiscal year. The balance included $317
million in the TSRF, after a required deposit of $15 million and an
additional deposit of $65 million in 1996-97. The TSRF can be used in the
event of any future General Fund deficit, as provided under the State
Constitution and State Finance Law. In addition, $41 million remains on
deposit in the CRF. This fund assists the State in financing any
extraordinary litigation during the fiscal year. The remaining $75
million reflects amounts then on deposit in the Community Projects Fund.
This fund was created to fund certain legislative initiatives. The
General Fund closing fund balance does not include $1.86 billion in the
tax refund reserve account, of which $521 million was made available as a
result of the LGAC financing program and was required to be on deposit as
of March 31, 1997.
General Fund receipts and transfers from other funds for the 1996-97
fiscal year totaled $33.04 billion, an increase of 0.7 percent from the
previous fiscal year (including net tax refund reserve account activity).
General Fund disbursements and transfers to other funds totaled $32.90
billion for the 1996-97 fiscal year, an increase of 0.7 percent from the
1995-96 fiscal year.
State Financial Practices: GAAP Basis
Historically, the State has accounted for, reported and budgeted its
operations on a cash basis. The State currently formulates a financial
plan on an accrual basis in conformance with generally accepted
accounting principles ("GAAP"). The State, as required by law, continues
to prepare its financial plan and financial reports on the cash basis of
accounting as well.
1998-99 Fiscal Year
On March 31, 1998, the State recorded its first ever accumulated positive
balance in its General Fund on a GAAP basis. This "accumulated surplus"
was $567 million. The improvement in the State's General Fund position is
attributable, in part, to the cash surplus recorded at the end of the
State's 1997-98 fiscal year. Much of that surplus is reserved for future
requirements, but a portion is being used to meet spending needs in 1998-
99. Thus, the State expects some deterioration in its GAAP position, but
expects to maintain a positive General Fund balance through the end of the
current fiscal year.
The 1998-99 GAAP-basis General Fund Financial Plan shows expected tax
revenues of $33.1 billion and miscellaneous revenues of $2.6 billion to
finance expenditures of $36.1 billion and net financing uses of $156
million. The General Fund accumulated surplus is projected to be $27
million at the end of 1998-99.
1997-98 Fiscal Year
The State completed its 1997-98 fiscal year with a combined Governmental
Funds operating surplus of $1.80 billion, which included an operating
surplus in the General Fund of $1.56 billion, in Capital Projects Funds of
$232 million and in Special Revenue Funds of $49 million, offset in part
by an operating deficit of $43 million in Debt Service Funds.
The State reported a General Fund operating surplus of $1.56 billion for
the 1997-98 fiscal year, as compared to an operating surplus of $1.93
billion for the 1996-97 fiscal year. As a result, the State reported an
accumulated surplus of $567 million in the General Fund for the first time
since it began reporting its operations on a GAAP-basis. The 1997-98
fiscal year operating surplus resulted in part from the higher-than-
anticipated personal income tax receipts, an increase in taxes receivable
of $681 million, an increase in other assets of $195 million and a
decrease in pension liabilities of $144 million. These gains were
partially offset by increases in payables to local governments of $270
million and tax refunds payable of $147 million.
Revenues increased $617 million (1.8 percent) over the prior fiscal year,
with increases in personal income, consumption and use, and business
taxes, and decreases reported for other taxes, federal grants and
miscellaneous revenues. Personal income taxes grew $746 million, an
increase of nearly 4.2 percent. The increase in personal income taxes
resulted from strong employment and wage growth and the strong performance
by the financial markets during 1997. Consumption and use taxes increased
$334 million, or 5.0 percent, spurred by increased consumer spending.
Business taxes grew $28 million, an increase of 0.5 percent. Other taxes
fell primarily because revenues for estate and gift taxes decreased.
Miscellaneous revenues decreased $380 million, or 12.7 percent, due to a
decline in receipts from the Medical Malpractice Insurance Association and
medical provider assessments.
Expenditures increased $137 million (0.4 percent) from the prior fiscal
year, with the largest increases occurring in education and social
services. Education expenditures grew $391 million (3.6 percent), mainly
due mainly to an increase in State support for public schools. This
growth was offset, in part, by a reduction in spending for municipal and
community colleges. Social services expenditures increased $233 million
(2.6 percent) to fund growth in these programs. Increases in other State
aid spending were offset by a decline in general purpose aid of $235
million (27.8 percent) due to statutory changes in the payment schedule.
Increases in personal and non-personal service costs were offset by a
decrease in pension contribution of $660 million, a result of the
refinancing of the State's pension amortization that occurred in 1997.
Net other financing sources decreased $841 million (68.2 percent) due to
the nonrecurring use of bond proceeds ($769 million) provided by the
Dormitory Authority of the State of New York to pay the outstanding
pension amortization liability incurred in 1997.
An operating surplus of $49 million was reported for the Special Revenue
Funds for the 1997-98 fiscal year, which increased the accumulated fund
balance to $581 million. Revenues rose by $884 million over the prior
fiscal year (3.3 percent) as a result of increases in tax and federal
grant revenues. Expenditures increased $795 million (3.3 percent) as a
result of increased costs for local assistance grants. Net other
financing uses decreased $105 million (3.3 percent).
Debt Service Funds ended the 1997-98 fiscal year with an operating deficit
of $43 million and, as a result, the accumulated fund balance declined to
$1.86 billion. Revenues increased $246 million (10.6 percent) as a result
of increases in dedicated taxes. Debt service expenditures increased $341
million (14.4 percent). Net other financing sources increased $89 million
(401.3 percent) due primarily to savings achieved through advance
refundings of outstanding bonds.
An operating surplus of $232 million was reported in the Capital Projects
Funds for the State's 1997-98 fiscal year and, as a result, the
accumulated deficit in this fund type decreased to $381 million. Revenues
increased $180 million (8.6 percent) primarily as a result of a $54
million increase in dedicated tax revenues and an increase of $101 million
in federal grants for transportation and local waste water treatment
projects. Expenditures increased $146 million (4.5 percent) primarily as a
result of increased capital construction spending for transportation and
local waste water treatment projects. Net other financing sources
increased by $100 million primarily as a result of a decrease in transfers
to certain public benefit corporations engaged in housing programs.
1996-97 Fiscal Year
The State completed its 1996-97 fiscal year with a combined Governmental
Funds operating surplus of $2.1 billion, which included an operating
surplus in the General Fund of $1.9 billion, in Capital Projects Funds of
$98 million and in the Special Revenue Funds of $65 million, offset in
part by an operating deficit of $37 million in the Debt Service Funds.
The State reported a General Funds operating surplus of $1.93 billion for
the 1996-97 fiscal year, as compared to an operating surplus of $380
million for the prior fiscal year. The 1996-97 fiscal year GAAP operating
surplus reflects several major factors, including the cash basis operating
surplus, the benefit of bond proceeds which reduced the State's pension
liability, an increase in taxes receivable of $493 million, and a
reduction in tax refund liabilities of $196 million. This was offset by
an increased payable to local governments of $244 million.
Revenues increased $1.91 billion (nearly 6.0 percent) over the prior
fiscal year with increases in all revenue categories. Personal income
taxes grew $620 million, an increase of nearly 3.6 percent, despite the
implementation of scheduled tax cuts. The increase in personal income
taxes was caused by moderate employment and wage growth and the strong
financial markets during 1996. Consumption and use taxes increased $179
million or 2.7 percent as a result of increased consumer confidence.
Business taxes grew $268 million, an increase of 5.6 percent, primarily as
a result of the strong financial markets during 1996. Other taxes
increased primarily because revenues from estate and gift taxes increased.
Miscellaneous revenues increased $743 million, a 33.1 percent increase,
because of an increase in receipts from the Medical Malpractice Insurance
Association and from medical provider assessments.
Expenditures increase $830 million (2.6 percent) from the prior fiscal
year, with the largest increase occurring in pension contributions and
State aid for education spending. Pension contribution expenditures
increased $514 million (198.2 percent) primarily because the State paid
off its 1984-85 and 1985-86 pension amortization liability. Education
expenditures grew $351 million (3.4 percent) due mainly to an increase in
spending for support for public schools and physically handicapped
children offset by a reduction in spending for municipal and community
colleges. Modest increases in other State aid spending was offset by a
decline in social services expenditures of $157 million (1.7 percent).
Social services spending continues to decline because of cost containment
strategies and declining caseloads.
Net other financing sources increased $475 million (62.6 percent) due
mainly to bond proceeds provided by the Dormitory Authority of the State
of New York to pay the outstanding pension amortization, offset by
elimination of prior year LGAC proceeds.
An operating surplus of $65 million was reported for the Special Revenue
Funds for the 1996-97 year, increasing the accumulated fund balance to
$532 million. Revenues increased $583 million over the prior fiscal year
(2.2 percent) as a result of increases in tax and lottery revenues.
Expenditures increased $384 million (1.6 percent) as a result of increased
costs for departmental operations. Net other financing uses decreased
$275 million (8.0 percent) primarily because of declines in amounts
transferred to other funds.
Debt Service Funds ended the 1996-97 fiscal year with an operating deficit
of $37 million and, as a result, the accumulated fund balance declined to
$1.90 billion. Revenues increased $102 million (4.6 percent) because of
increases in both dedicated taxes and mental hygiene patient fees. Debt
service expenditures increased $47 million (2.0 percent). Net other
financing sources decreased $277 million (92.6 percent) due primarily to
an increase in payments on advance refunds.
An operating surplus of $98 million was reported to the Capital Projects
Funds for the State's 1996-97 fiscal year and, as a result, the
accumulated fund balance decreased to a deficit of $614 million. Revenues
increased $100 million (5.0 percent) primarily because a larger share of
the real estate transfer tax was shifted to the Environmental Protection
Fund and federal grant revenues increased for transportation and local
waste water treatment projects. Expenditures decreased $359 million (10.0
percent) because of declines in capital grants for education, housing and
regional development programs and capital construction spending. Net
other financing sources decreased by $637 million as a result of a
decrease in proceeds from financing arrangements.
Economic Overview
New York is the third most populous state in the nation and has a
relatively high level of personal wealth. The State's economy is diverse,
with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small
share of the nation's farming and mining activity. The State's location
and its excellent air transport facilities and natural harbors have made
it an important link in international commerce. Travel and tourism
constitute an important part of the economy. Like the rest of the nation,
the State has a declining proportion of its workforce engaged in
manufacturing, and an increasing proportion engaged in service industries.
The services sector, which includes entertainment, personal services, such
as health care and auto repairs, and business-related services, such as
information processing, law and accounting, is the State's leading
economic sector. The service sector accounts for more than three of every
ten nonagricultural jobs in New York and has a higher proportion of total
jobs than does the rest of the nation.
Manufacturing employment continues to decline in importance in New York,
as in most other states, and New York's economy is less reliant on this
sector than is the nation. The principal manufacturing industries in
recent years produced printing and publishing materials, instruments and
related products, machinery, apparel and finished fabric products,
electronic and other electric equipment, food and related products,
chemicals and allied products, and fabricated metal products.
Wholesale and retail trade is the second largest sector in terms of
nonagricultural jobs in New York but is considerably smaller when measured
by income share. Trade consists of wholesale businesses and retail
businesses, such as department stores and eating and drinking
establishments.
New York City is the nation's leading center of banking and finance, and,
as a result, this is a far more important sector in the State than in the
nation as a whole. Although this sector accounts for under one-tenth of
all nonagricultural jobs in the State, it contributes over one-sixth of
all nonfarm labor and proprietors' income.
Farming is an important part of the economy of large regions of the State,
although it constitutes a very minor part of total State output.
Principal agricultural products of the State include milk and dairy
products, greenhouse and nursery products, apples and other fruits, and
fresh vegetables. New York ranks among the nation's leaders in the
production of these commodities.
Federal, State and local government together are the third largest sector
in terms of nonagricultural jobs, with the bulk of the employment
accounted for by local governments. Public education is the source of
nearly one-half of total state and local government employment.
The State is likely to be less affected than the nation as a whole during
an economic recession that is concentrated in manufacturing and
construction, but likely to be more affected during a recession that is
concentrated more in the service-producing section.
In the calendar years 1987 through 1997, the State's rate of economic
growth was somewhat slower than that of the nation. In particular, during
the 1990-91 recession and post-recession period, the economy of the State,
and that of the rest of the Northeast, was more heavily damaged than that
of the nation as a whole and has been slower to recover. The total
employment growth rate in the State has been below the national average
since 1987. The unemployment rate in the State dipped below the national
rate in the second half of 1981 and remained lower until 1991; since then,
it has been higher. According to data published by the U.S. Bureau of
Economic Analysis, total personal income in the State has risen more
slowly than the
national average since 1988.
State per capita personal income has historically been significantly
higher than the national average, although the ratio has varied
substantially. Because New York City (the "City") is a regional employment
center for a multi-state region, State personal income measured on a
residence basis understates the relative importance of the State to the
national economy and the size of the base to which State taxation applies.
The fiscal stability of the State is related, in part, to the fiscal
stability of its public benefit corporations (the "Authorities").
Authorities, which have responsibility for financing, constructing and
operating revenue providing public facilities, are not subject to the
constitutional restrictions on the incurrence of debt which apply to the
State itself and may issue bonds and notes within the amounts, and as
otherwise restricted by, their legislative authorizations. The State's
access to the public credit markets could be impaired, and the market
price of its outstanding debt may be materially adversely affected, if any
of its Authorities were to default on their respective obligations,
particularly those using State-supported or State-related financing
techniques. As of December 31, 1997, there were 17 Authorities that had
outstanding debt of $100 million or more, and the aggregate outstanding
debt, including refunding bonds, of all State Authorities was $84 billion,
only a portion of which constitutes State-supported or State-related debt.
Moral obligation financing generally involves the issuance of debt by an
Authority to finance a revenue-producing project or other activity. The
debt is secured by project revenues and includes statutory provisions
requiring the State, subject to appropriation by the Legislature, to make
up any deficiencies which may occur in the issuer's debt service reserve
fund. There has never been a default on any moral obligation debt of any
public authority. The State does not intend to increase statutory
authorizations for moral obligation bond programs. From 1976 through
1987, the State was called upon to appropriate and make payments totaling
$162.8 million to make up deficiencies in the debt service reserve funds
of the Housing Finance Agency pursuant to moral obligation provisions. In
the same period, the State also expended additional funds to assist the
Project Finance Agency, the New York State Urban Development Corporation
and other public authorities which had moral obligation debt outstanding.
The State has not been called upon to make any payments pursuant to any
moral obligations since the 1986-87 fiscal year and no such requirements
are anticipated during the 1998-99 fiscal year.
In addition to the moral obligation financing arrangements described
above, State law provides for the creation of State municipal assistance
corporations, which are public authorities established to aid financially
troubled localities. The Municipal Assistance Corporation For The City of
New York ("NYC MAC") was created in 1975 to provide financing assistance
to the City. To enable NYC MAC to pay debt service on its obligations,
NYC MAC receives, subject to annual appropriation by the Legislature,
receipts from the 4 percent New York State sales tax for the benefit of
the City, the State-imposed stock transfer tax and, subject to certain
prior liens, certain local assistance payments otherwise payable to the
City. The legislation creating NYC MAC also includes a moral obligation
provision. Under its enabling legislation, NYC MAC's authority to issue
moral obligation bonds and notes (other than refunding bonds and notes)
expired on December 31, 1984. In 1995, the State created the Municipal
Assistance Corporation for the City of Troy ("Troy MAC"). The bonds
issued by Troy MAC do not include the moral obligation provisions.
The State also provides for contingent contractual-obligation financing
for the Secured Hospital Program pursuant to legislation enacted in 1985.
Under this financing method, the State entered into service contracts
which obligate the State to pay debt service, subject to annual
appropriations, on bonds issued by the New York State Medical Care
Facilities Finance Agency and now included as debt of the Dormitory
Authority of the State of New York in the event there are shortfalls of
revenues from other sources. The State has never been required to make
any payments pursuant to this financing arrangement, nor does it
anticipate being required to do so during the 1998-99 fiscal year. The
legislative authorization to issue bonds under this program expired on
March 1, 1998.
Authorities' operating expenses and debt service costs are generally paid
by revenues generated by the projects financed or operated, such as tolls
charged for the use of highways, bridges or tunnels, charges for public
power, electric and gas utility services, rentals charged for housing
units, and charges for occupancy at medical care facilities. In addition,
State legislation authorizes several financing techniques for Authorities.
Also, there are statutory arrangements providing for State local
assistance payments, otherwise payable to localities, to be made under
certain circumstances to Authorities. Although the State has no
obligation to provide additional assistance to localities whose local
assistance payments have been paid to Authorities under these
arrangements, if local assistance payments are so diverted, the affected
localities could seek additional State assistance. Some Authorities also
receive moneys from State appropriations to pay for the operating costs of
certain of their programs.
The Metropolitan Transportation Authority (the "MTA") oversees the City's
subway and bus lines by its affiliates, the New York City Transit
Authority and the Manhattan and Bronx Surface Transit Operating Authority
(collectively, the "TA"). The MTA operates certain commuter rail and bus
lines in the New York metropolitan area through the MTA's subsidiaries,
the Long Island Rail Road Company, the Metro-North Commuter Railroad
Company and the Metropolitan Suburban Bus Authority. In addition, the
Staten Island Rapid Transit Operating Authority, an MTA subsidiary,
operates a rapid transit line on Staten Island. Through its affiliated-
agency, the Triborough Bridge and Tunnel Authority (the "TBTA"), the MTA
operates certain intrastate toll bridges and tunnels. Because fare
revenues are not sufficient to finance the mass transit portion of these
operations, the MTA has depended and will continue to depend on operating
support from the State, local government and TBTA, including loans, grants
and subsidies. If current revenue projections are not realized and/or
operating expenses exceed current projections, the TA or commuter
railroads may be required to seek additional state assistance, raise fares
or take other actions.
Since 1980, the State has enacted several taxes--including a surcharge on
the profits of banks, insurance corporations and general business
corporations doing business in the 12-county Metropolitan Transportation
Region served by the MTA and a special one-quarter of 1 percent regional
sales and use tax--that provide revenues for mass transit purposes,
including assistance to the MTA. In addition, since 1987, state law has
required that the proceeds of a one-quarter of 1 percent mortgage
recording tax paid on certain mortgages in the Metropolitan Transportation
Region be deposited in a special MTA fund for operating or capital
expenses. Further, in 1993, the State dedicated a portion of the State
petroleum business tax receipts to fund operating or capital assistance to
the MTA. For the 1998-99 fiscal year, total State assistance to the MTA
is estimated at approximately $1.3 billion, an increase of $133 million
over the 1997-98 fiscal year.
State legislation accompanying the 1996-97 adopted State budget authorized
the MTA, TBTA and TA to issue an aggregate of $6.5 billion in bonds to
finance a portion of the $12.17 billion MTA capital plan for the 1995
through 1999 calendar years (the "1995-99 Capital Program"). In July
1997, the Capital Program Review Board approved the 1995-99 Capital
Program (subsequently amended in August 1997), which supersedes the
overlapping portion of the MTA's 1992-96 Capital Program. The 1995-99
Capital Program is the fourth capital plan since the Legislature
authorized procedures for the adoption, approval and amendment of MTA
capital programs and is designed to upgrade the performance of the MTA's
transportation systems by investing in new rolling stock, maintaining
replacement schedules for existing assets and bringing the MTA system to a
state of good repair. The 1995-99 Capital Program assumes the issuance of
an estimated $5.2 billion in bonds under this $6.5 billion aggregate
bonding authority. The remainder of the plan is projected to be financed
through assistance from the State, the federal government, and the City of
New York, and from various other revenues generated from actions taken by
the MTA.
There can be no assurance that all the necessary governmental actions for
future capital programs will be taken, that funding sources currently
identified will not be decreased or eliminated, or that the 1995-99
Capital Program, or parts thereof, will not be delayed or reduced. Should
funding levels fall below current projections, the MTA would have to
revise its 1995-99 Capital Program accordingly. If the 1995-99 Capital
Program is delayed or reduced, ridership and fare revenues may decline,
which could, among other things, impair the MTA's ability to meet its
operating expenses without additional State assistance.
Certificates of Participation
The State also participates in the issuance of certificates of
participation ("COPs") in a pool of leases entered into by the State's
Office of General Services on behalf of several State departments and
agencies interested in acquiring operational equipment, or in certain
cases, real property. Legislation enacted in 1986 established restrictions
upon and centralized State control, through the Comptroller and the
Director of the Budget, over the issuance of COPs representing the State's
contractual obligation, subject to annual appropriation by the
Legislature and availability of money, to make installment or lease-
purchase payments for the State's acquisition of such equipment or real
property.
New York City
The fiscal health of the State may also be affected by the fiscal health
of New York City (the "City"), which continues to require significant
financial assistance from the State. State aid contributes to the City's
ability to balance its budget and meet its cash requirements. The State
may also be affected by the ability of the City and certain entities
issuing debt for the City to market their securities successfully in the
public credit markets. The City has achieved balanced operating results
from each of its fiscal years since 1981 as reported in accordance with
the then-applicable GAAP standards.
In response to the City's fiscal crisis in 1975, the State took action to
assist the City in returning to fiscal stability. Among those actions,
the State established the NYC MAC to provide financing assistance to the
City; the New York State Financial Control Board (the "Control Board") to
oversee the City's financial affairs; the Office of the State Deputy
Comptroller for the City of New York ("OSDC") to assist the Control Board
in exercising its powers and responsibilities. A "Control Period" existed
from 1975 to 1986, during which the City was subject to certain
statutorily-prescribed fiscal controls. The Control Board terminated the
Control Period in 1986 when certain statutory conditions were met. State
law requires the Control Board to reimpose a Control Period upon the
occurrence, or "substantial likelihood and imminence" of the occurrence,
of certain events, including, but not limited to, a City operating budget
deficit of more than $100 million or impaired access to the public credit
markets.
Currently, the City and its Covered Organizations (i.e., those which
receive or may receive moneys from the City directly, indirectly or
contingently) operate under a four-year financial plan (the "Financial
Plan") which the City prepares annually and periodically updates. The
City's Financial Plan summarizes its capital, revenue and expense
projections and outlines proposed gap-closing programs for years with
projected budget gaps. The City's projections set forth in the Financial
Plan are based on various assumptions and contingencies, some of which are
uncertain and may not materialize. Unforeseen developments and 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.
To successfully implement its Financial Plan, the City and certain
entities issuing debt for the benefit of the City must market their
securities successfully. The City issues securities to finance, refinance
and rehabilitate infrastructure and other capital needs, as well as for
seasonal financing needs. In 1997, the State created the New York City
Transitional Finance Authority ("TFA") to finance a portion of the City's
capital program because the City was approaching its State Constitutional
general debt limit. Without the additional financial capacity of the TFA,
projected contracts for City capital projects would have exceeded the
City's debt limit during City fiscal year 1997-98. Despite this additional
financing mechanism, the City currently projects that, if no further
action is taken, it will reach its debt limit in City fiscal year 1999-
2000. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the TFA to be
unconstitutional. On November 25, 1997, the State Supreme Court found the
legislation establishing the TFA to be constitutional and granted the
defendants' motion for summary judgment. The plaintiffs have appealed the
decision. Future developments concerning the City or entities issuing
debt for the benefit of the City, and public discussion of such
developments, as well as prevailing market conditions and securities
credit ratings, may affect the ability or cost to sell securities issued
by the City or such entities and may also affect the market for their
outstanding securities.
OSDC and Control Board Reports
The staffs of the Control Board, OSDC and the City Comptroller issue
periodic reports on the City's Financial Plans. The reports analyze the
City's forecasts of revenues and expenditures, cash flow, and debt service
requirements, as well as evaluate compliance by the City and its Covered
Organizations with the Financial Plan. Some of these reports have warned
that the City may have underestimated certain expenditures and
overestimated certain revenues and have suggested that the City may not
have adequately provided for future contingencies. Certain of these
reports have analyzed the City's future economic and social conditions and
have questioned whether the City has the capacity to generate sufficient
revenues in the future to meet the costs of its expenditure increases to
provide necessary services.
On July 20, 1998, the staff of the Control Board issued a report reviewing
the June 1998 Financial Plan. The report noted that the City is likely to
end the 1999 fiscal year in balance. However, the report identified risks
of $510 million, $291 million and $637 million for fiscal years 2000
through 2002, respectively, which, when combined with the City's projected
gaps, result in estimated gaps of $2.8 billion, $3.4 billion and $3.3
billion for fiscal years 2000 through 2002, respectively, before making
provision for any increased labor costs which may occur when the current
contracts with City employees expire in calendar year 2000. With respect
to the 1999 fiscal year, the report noted the possibility that non-
property tax receipts could be $400 million greater than forecast in the
June 1998 Financial Plan, but that gap-closing actions assumed in the June
Financial Plan totaling $402 million have not yet been specified by the
City. Finally, the report noted that because of the sensitivity of the
City's tax base to the health of the financial services sector, the City
needs to be cautious about the outlook of the securities industry.
Financing Requirements
The City requires significant amounts of financing for seasonal and
capital purposes. Since 1981, the City has fully satisfied its seasonal
financing needs in the public credit markets, repaying all short-term
obligations within their fiscal year of issuance. The City issued $500
million of short-term obligations in the 1998-99 fiscal year to finance
the its projected cash flow needs for that year. The City issued $1.075
billion of short-term obligations in fiscal year 1998 to finance the
City's projected cash flow needs for the 1998 fiscal year. The City issued
$2.4 billion of short-term obligations in fiscal year 1997. The delay in
the adoption of the States budget in certain past fiscal years has
required the City to issue short-term notes in amounts exceeding those
expected early in such fiscal years.
The City makes substantial capital expenditures to reconstruct and
rehabilitate its infrastructure and physical assets, including mass
transit facilities, sewers, streets, bridges and tunnels, and to make
capital investments that will improve productivity in City operations.
City-funded commitments, which were $344 million in 1979, are projected to
reach $4.8 billion in 1999, and City-funded expenditures, which more than
tripled between fiscal years 1980 and 1985, are forecast at $3.3 billion
in the 1999 fiscal year; total expenditures are forecast at $3.8 billion
in 1999.
In connection with the June 1998 Financial Plan, the City has outlined a
gap-closing program for the fiscal years 2000, 2001 and 2002 to eliminate
the respective $2.2 billion, $2.9 billion and $2.4 billion projected
remaining budget deficits for such fiscal years. The City has not
specified this program in detail.
The City's projected budget gaps for the 2001 and 2002 fiscal years do not
reflect the savings expected to result from the prior years programs to
close the gaps set forth in the Financial Plan. Thus, for example,
recurring savings anticipated from the actions which the City proposes to
take to balance the fiscal year 2000 budget are not taken into account in
projecting the budget gaps for the 2001 and 2002 fiscal years.
Although the City has maintained balanced budgets in each of its last
eighteen fiscal years and is projected to achieve balanced operating
results for the 1999 fiscal year, there can be no assurance that the gap-
closing actions proposed in the Financial Plan can be successfully
implemented or that the City will maintain a balanced budge in future
years without additional State aid, revenue increases or expenditure
reductions. Additional tax increases and reductions in essential City
services could adversely affect the City's economic base.
Other Localities
Certain localities outside the City have experienced financial problems
and have requested and received additional State assistance during the
last several State fiscal years. The cities of Yonkers and Troy continue
to operate under State-ordered control agencies. The potential impact on
the State of any future requests by localities for additional oversight or
financial assistance is not included in the projections of the State's
receipts and disbursements for the State's 1997-98 fiscal year.
Eighteen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted
for distressed cities, and twenty-eight municipalities received more than
$32 million in targeted unrestricted aid in the 1997-98 budget. The State
also dispersed an additional $21 million among all cities, towns and
villages after enacting a 3.97 percent increase in General Purpose State
Aid in 1997-98 and continued this increase in 1998-99.
The 1998-99 budget includes an additional $29.4 million in unrestricted
aid targeted to 57 municipalities across the State. Other assistance for
municipalities with special needs totals more than $25.6 million. Twelve
upstate cities will receive $24.2 million in one-time assistance from a
cash flow acceleration of State aid.
The appropriation and allocation of general purpose local government aid
among localities, including the City, is currently the subject of
investigation by a State commission. While the distribution on general
purpose local government aid was originally based on a statutory formula,
in recent years both the total amount appropriated and the amounts
appropriated to localities have been determined by the Legislature. A
State commission was established to study the distribution and amounts of
general purpose local government aid and recommend a new formula by June
30, 1999, which may change the way aid is allocated.
Certain Municipal Indebtedness
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1996, the total indebtedness of all
localities in the State other than the City was approximately $20.0
billion. A small portion (approximately $77.2 million) of that
indebtedness represented borrowing to finance budgetary deficits and was
issued pursuant to enabling State legislation. State law requires the
Comptroller to review and make recommendations concerning the budgets of
those local government units other than the City that are authorized by
State law to issue debt to finance deficits during the period that such
deficit financing is outstanding. Twenty-one localities had outstanding
indebtedness for deficit financing at the close of their fiscal year
ending in 1996.
Like the State, local governments must respond to changing political,
economic and financial influences over which they have little or no
control. Such changes may adversely affect the financial condition of
certain local governments. For example, the federal government may reduce
(or in some cases eliminate) federal funding of some local programs which,
in turn, may require local governments to fund these expenditures from
their own resources. It is also possible that the State, the City, or any
of their respective public authorities may suffer serious financial
difficulties that could jeopardize local access to the public credit
markets, which may adversely affect the marketability of notes and bonds
issued by localities within the State. Localities may also face
unanticipated problems resulting from certain pending litigation, judicial
decisions and long-range economic trends. Other large scale potential
problems, such as declining urban populations, increasing expenditures,
and the loss of skilled manufacturing jobs, may also adversely affect
localities and necessitate State assistance.
Litigation
The State is a defendant in legal proceedings involving State finances,
State programs and miscellaneous civil rights, tort, real property and
contract claim where the monetary damages sought are substantial,
generally in excess of $100 million. These proceedings could affect
adversely the financial condition of the State in the 1998-99 fiscal year
or thereafter.
Adverse developments in these proceedings or the initiation of new
proceedings could affect the ability of the State to maintain a balanced
1998-99 State Financial Plan. The State believes that the proposed 1998-
99 State Financial Plan includes sufficient reserves for the payment of
judgments that may be required during the 1998-99 fiscal year. There can
be no assurance, however, that an adverse decision in any of these
proceedings would not exceed the amount of all potential 1998-99 State
Financial Plan resources available for the payment of judgments, and could
therefore affect the ability of the State to maintain a balanced 1998-99
State Financial Plan.
Medicaid
In several cases, plaintiffs seek reimbursement for services provided to
Medicaid recipients who were also eligible for Medicare during the period
January 1, 1987 to June 2, 1992. Included are Matter of New York State
Radiological Society v. Wing, Appel v. Wing, E.F.S. Medical Supplies v.
Dowling, Kellogg v. Wing, Lifshitz v. Wing, New York State Podiatric
Medical Association v. Wing and New York State Psychiatric Association v.
Wing. These cases were commenced after the State's reimbursement
methodology was held invalid in New York City Health and Hospital Corp. v.
Perales. The State contends that these claims are time-barred. In a
judgment dated September 5, 1996, the Supreme Court, Albany County,
dismissed Matter of New York State Radiological Society v. Wing as time-
barred. By order dated November 26, 1997, the Appellate Division, Third
Department, affirmed that judgment. By decision dated June 9, 1998, the
Court of Appeals denied leave to appeal. The time in which to seek
further review has expired in the latter case.
Several cases, including Port Jefferson Health Care Facility et al. v.
Wing (Supreme Court, Suffolk County), challenge the constitutionality of
Public Health Law Section 2807-d, which imposes a tax on the gross
receipts that hospitals and residential health care facilities receive
from patient care services. Plaintiffs allege that the tax assessments
were not uniformly applied, in violation of federal regulations. In a
decision dated June 30, 1997, the Court held that the 1.2 percent and 3.8
percent assessments on gross receipts imposed pursuant to Public Health
Law Section 2807-d(2)(b)(ii) and Section 2807-d(2)(b)(iii), respectively,
are unconstitutional. An order entered August 27, 1997, enforced the
terms of the decision. The state appealed that order. By decision and
order dated August 31, 1998, the Appellate Division, Second Department,
affirmed that order. On September 30, 1998, the State moved for re-
argument or, in the alternative, for a certified question for the Court of
Appeals to review.
Although other litigation is pending against the State, no current
litigation involves the State's authority, as a matter of law, to contract
indebtedness, issue its obligations, or pay such indebtedness when it
matures, or affects the State's power or ability, as a matter of law, to
impose or collect significant amounts of taxes and revenues.
Year 2000
The State is currently addressing Year 2000 data processing compliance
issues. In 1996, the State created the Office of Technology ("OFT") to
help address statewide technology issues, including the Year 2000 issue.
OFT has estimated that investments of at least $140 million will be
required to bring approximately 350 State mission-critical and high-
priority computer systems not otherwise scheduled for replacement into
Year 2000 compliance. The State is planning to spend $100 million in the
1998-99 fiscal year for this purpose. The State's budget provides funding
for major systems scheduled for replacement, including the State payroll,
civil service, tax and finance and welfare management systems, for which
Year 2000 compliance is included as part of the project.
OFT is monitoring compliance on a quarterly basis and is providing
assistance and assigning resources to accelerate compliance for mission
critical systems, with most compliance testing expected to be completed by
mid-1999. There can be no guarantee, however, that all of the State's
mission-critical and high-priority computer systems will be made Year 2000
compliant in a timely manner and that there will not be an adverse effect
upon State operations or State finances as a result.
CALIFORNIA FUND
The following is based on information obtained from an Official Statement
dated December 9, 1998 relating to $600,000,000 State of California
General Obligation Bonds and the Governor's Budget Summary 1999-2000.
Limits on Spending and Taxes
Under California (the "State") constitutional amendments, the State is
subject to an annual appropriations limit. The limit may be exceeded in
cases of emergency. The State's yearly appropriations limit is based on
the limit for the prior year adjusted annually for changes in California
per capita personal income and population and any transfers of financial
responsibility of providing services to or from another unit of
government.
On November 8, 1988, voters approved Proposition 98, a combined initiative
constitutional amendment and statute, which changed State funding of
public education below the university level and the operation of the State
appropriations limit, primarily by guaranteeing local schools and
community colleges ("K-14 schools") a minimum share of General Fund
revenues. Under Proposition 98, K-14 schools are guaranteed the greater
of a fixed percentage of General Fund revenues and the prior year's
appropriation adjusted for growth.
During the recession, General Fund revenues for several years were less
than originally projected, so that the original Proposition 98
appropriations turned out to be higher than the minimum percentage
provided in the law. The Legislature responded to these developments by
designating the "extra" Proposition 98 payments in one year as a "loan"
from future years' entitlements. By implementing these actions, per-pupil
funding from Proposition 98 sources stayed almost constant at
approximately $4,200 from Fiscal Year 1991-92 to Fiscal Year 1993-94.
In 1992, a lawsuit was filed, called California Teachers' Association v.
Gould, which challenged the validity of these off-budget loans. The
settlement in this case 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 an
appropriation above the current Proposition 98 base calculation. 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 spread over the eight-year period of 1994-95
through 2001-02 to mitigate any adverse fiscal impact. The 1998-99 Budget
Act appropriated $250 million as repayment of prior years' loans to
schools, as part of the settlement in this case.
Short-Term Borrowing of California
As part of its cash management program, the State has regularly issued
short-term obligations to meet cash flow needs. Between spring 1992 and
summer 1994, the State had depended upon external borrowing, including
borrowings extending into the subsequent fiscal year, to meet its cash
needs, including repayment of maturing Notes and Warrants. The State
issued $1.7 billion of revenue anticipation notes for the 1998-99 Fiscal
Year, which notes are to mature on June 30, 1999.
The State Treasurer is working closely with the State Controller and the
Department of Finance to manage the State's cash flow on a regular basis,
with the goal of reducing the State's external cash flow borrowing. The
three offices are also working to develop programs to use commercial paper
in whole or in part for the State's cash flow borrowing needs, and for
construction period financing for both general obligation bond-funded and
lease-revenue bond-funded projects. As of March 1, 1997 the Finance
Committees had authorized the issuance of approximately $3.356 billion of
commercial paper notes, but as of that date only $367.78 million aggregate
principal amount of general obligation commercial paper notes was actually
issued and outstanding.
The State has always paid the principal of and interest on its general
obligation bonds, general obligation commercial paper, lease-purchase debt
and short-term obligations, including revenue anticipation notes and
revenue anticipation warrants when due.
1998-99 Fiscal Year Budget
When the Governor released his proposed 1998-99 Fiscal Year Budget on
January 9, 1998, he projected General Fund revenues for the 1998-99 Fiscal
Year of $55.4 billion, and proposed expenditures in the same amount.
The Legislature passed the 1998-99 Budget Bill on August 11, 1998, and the
Governor signed it on August 21, 1998. In signing the Budget Bill, the
Governor used his line-item veto power to reduce expenditures by $1.360
billion from the General Fund, and $160 million from Special Funds. Of
this total, the Governor indicated that about $250 million of vetoed funds
were "set aside" to fund programs for education. Vetoed items included
education funds, salary increases and many individual resources and
capital projects.
The 1998-99 Budget Act is based on projected General Fund revenues and
transfers of $57.0 billion (after giving effect to various tax reductions
enacted in 1997 and 1998), a 4.2% increase from revised 1997-98 figures.
Special Fund revenues were estimated at $14.3 billion.
After giving effect to the Governor's vetoes, the Budget Act provides
authority for expenditures of $57.3 billion from the General Fund (a 7.3%
increase from 1997-98), $14.7 billion from Special Funds, and $3.4 billion
from bond funds. The Budget Act projects a balance in the State's budget
reserve (the Special Fund for Economic Uncertainties or SFEU) at June 30,
1999 (but without including the "set aside" veto amount) of $1.255
billion, a little more than 2% of General Fund revenues. The Budget Act
assumes the State will carry out its normal intra-year cash flow borrowing
in the amount of $1.7 billion of revenue anticipation notes, which were
issued on October 1, 1998.
The most significant feature of the 1998-99 budget was agreement on a
total of $1.4 billion of tax cuts. The central element is a bill that
provides for a phased-in reduction of the Vehicle License Fee (VLF).
Since the VLF is currently transferred to cities and counties, the bill
provides for the General Fund to replace the lost revenues. Starting on
January 1, 1999, the VLF will be reduced by 25% at a cost to the General
Fund of approximately $500 million in the 1998-99 Fiscal Year and about $1
billion annually thereafter.
In addition to the cut in VLF, the 1998-99 budget includes both temporary
and permanent increases in the personal income tax dependent credit ($612
million General Fund cost in 1998-99, but less in future years), a
nonrefundable renters' tax credit ($133 million), and various targeted
business tax credits ($106 million).
Other significant elements of the 1998-99 Budget Act are as follows:
1. Proposition 98 funding for K-12 schools is increased by $1.7
billion in General Fund moneys over revised 1997-98 levels, about $300
million higher than the minimum Proposition 98 guaranty. An additional
$600 million was appropriated to "settle up" prior years' Proposition 98
entitlements, and was primarily devoted to one-time uses such as block
grants, deferred maintenance, and computer and laboratory equipment. The
Budget also includes $250 million as repayment of prior years' loans to
schools, as part of the settlement of California Teachers' Association v.
Gould.
2. Funding for higher education increased substantially above
the level called for in the Governor's four-year compact. General Fund
support was increased by $340 million (15.6%) for the University of
California and $267 million (14.1%) for the California State University
system. In addition, Community Colleges received a $300 million (6.6%)
increase under Proposition 98.
3. The Budget includes increased funding for health, welfare
and social services programs. A 4.9% grant increase was included in the
basic welfare grants, the first increase in those grants in 9 years.
4. Funding for the judiciary and criminal justice programs
increased by about 11% over 1997-98, primarily to reflect increased State
support for local trial courts and a rising prison population.
5. The Budget also included new funding for resources projects,
dedication of $376 million of General Fund moneys for capital outlay
projects, funding of a 3% State employee salary increase, funding of 2,000
new Department of Transportation positions to accelerate transportation
construction projects, and funding of the Infrastructure and Economic
Development Bank ($50 million).
6. The State received approximately $167 million of federal
reimbursements to offset costs related to the incarceration of
undocumented alien felons for federal fiscal year 1997. The State
anticipates receiving approximately $195 million in federal reimbursements
for federal fiscal year 1998.
After the Budget Act was signed, and prior to the close of the Legislative
session on August 31, 1998, the Legislature passed a variety of fiscal
bills. The Governor had until September 30, 1998 to sign or veto these
bills. The bills with the most significant fiscal impact that the
Governor signed include $235 million for certain water system improvements
in southern California, $243 million for the State's share of the purchase
of environmentally sensitive forest lands, $178 million for state prisons,
$160 million for housing assistance ($40 million of which was included in
the 1998-99 Budget Act and an additional $120 million reflected in
Proposition 1A), and $125 million for juvenile facilities. The Governor
also signed bills totaling $223 million for educational programs that were
part of his $250 million veto "set aside," and $32 million for local
governments fiscal relief. In addition, he signed a bill reducing by $577
million the State's obligation to contribute to the State Teachers'
Retirement System in the 1998-99 Fiscal Year.
Based solely on the legislation enacted, on a net basis, the reserve for
June 30, 1999, was reduced by $256 million. On the other hand, 1997-98
revenues have been increased by $160 million. The revised June 30, 1999,
reserve is projected to be $1,159 million or $96 million below the level
projected in the Budget Act. In November 1998, the Legislative Analyst's
Office released a report predicting that General Fund revenues for 1998-
99 would be somewhat lower, and expenditures somewhat higher, than the
Budget Act forecasts, but the net variance would be within the projected
$1.2 billion year-end reserve amount.
1995-96 through 1997-98 Fiscal Years
The State's financial condition improved markedly during the 1995-96,
1996-97 and 1997-98 fiscal years, with a combination of better than
expected revenues, slowdown in growth of social welfare programs, and
continued spending restraint based on the actions taken in earlier years.
The State's cash position also improved, and no external deficit borrowing
has occurred over the end of these three fiscal years.
The economy grew strongly during these fiscal years and, as a result, the
General Fund received substantially greater tax revenues (around $2.2
billion in 1995-96, $1.6 billion in 1996-97 and $2.2 billion in 1997-98)
than initially forecast when the related budgets were enacted. These
additional funds were largely directed to school spending as mandated by
Proposition 98, and to make up shortfalls from reduced federal health and
welfare aid in 1995-96 and 1996-97. The accumulated budget deficit from
the recession years was finally eliminated. The Department of Finance
estimates that the State's budget reserve (the SFEU) totaled $639.8
million as of June 30, 1997 and $1.782 billion at June 30, 1998.
The following were major features of the 1997-98 Budget Act:
1. For the second year in a row, the Budget contained a large
increase in funding for K-14 education under Proposition 98, reflecting
strong revenues that exceeded initial budgeted amounts. Part of the
nearly $1.75 billion of increased spending was allocated to prior fiscal
years.
2. The Budget Act reflected payment of $1.228 billion to
satisfy a court judgment in a lawsuit regarding payments to the State
pension fund, and brought funding of the State's pension contribution back
to the quarterly basis that existed prior to the deferral actions that
were invalidated by the
courts.
3. Funding from the General Fund for the University of
California and the California State University system was increased by
about 6 percent ($121 million and $107 million respectively), and there
was no increase in student fees.
4. Unlike prior years, this Budget Act did not depend on
uncertain federal budget actions. About $300 million in federal funds,
already included in the federal Fiscal Year 1997 and 1998 budgets, was
included in the Budget Act, to offset incarceration costs for illegal
aliens.
5. The Budget Act contained no tax increases, and no tax
reductions. The Renters Tax Credit was suspended for another year, saving
approximately $500 million.
Fiscal Years Prior to 1995-96
Pressures on the State's budget in the late 1980's and early 1990's were
caused by a combination of external economic conditions (including a
recession which began in 1990) and growth of the largest General Fund
programs--K-14 education, health, welfare and corrections--at rates faster
than the revenue base. During this period, expenditures exceeded revenues
in four out of six years up to 1992-93, and the State accumulated and
sustained a budget deficit approaching $2.8 billion at its peak on June
30, 1993. Between the 1991-92 and 1994-95 Fiscal Years, each budget
required multibillion dollar actions to bring projected revenues and
expenditures into balance, including significant cuts in health and
welfare program expenditures; transfers of program responsibilities and
funding from the State to local governments; transfer of about $3.6
billion in annual local property tax revenues from other local governments
to local school districts, thereby reducing State funding for schools
under Proposition 98; and revenue increases (particularly in the 1991-92
Fiscal Year), most of which were for a short duration.
Despite these budget actions, the effects of the recession led to large,
unanticipated budget deficits. By the 1993-94 Fiscal Year, the
accumulated deficit was so large that it was impractical to retire the
deficit in one year, so a two-year program was implemented, using the
issuance of revenue anticipation warrants to carry a portion of the
deficit over the end of the fiscal year. When the economy failed to
recover sufficiently in 1993-94, a second two-year plan was implemented in
1994-95, again using cross-fiscal revenue anticipation warrants to partly
finance the deficit into the 1995-96 fiscal year.
Another consequence of the accumulated budget deficits, together with
other factors such as disbursement of funds to local school districts
"borrowed" from future fiscal years and hence not shown in the annual
budget, was to significantly reduce the State's cash resources available
to pay its ongoing obligations. When the Legislature and the Governor
failed to adopt a budget for the 1992-93 Fiscal Year by July 1, 1992,
which would have allowed the State to carry out its normal annual cash
flow borrowing to replenish its cash reserves, the Controller issued
registered warrants to pay a variety of obligations representing prior
years' or continuing appropriations and mandates from court orders.
Available funds were used to make constitutionally-mandated payments, such
as debt service on bonds and warrants. Between July 1 and September 4,
1992, when the budget was adopted, the State Controller issued a total of
approximately $3.8 billion of registered warrants.
Economic Overview
California's economy is the largest among the 50 states and one of the
largest in the world. Recent economic expansion has been marked by strong
growth in high technology business services (including computer software),
construction, computers and electronic components.
As 1998 unfolded, the impact of Asia's recession on California began to
emerge. Aerospace and electronics manufacturing employment peaked in
March, and by November had lost almost 15,000 jobs, or nearly 3 percent of
the industries' workforce. Total nonfarm employment started 1998 with
annual growth above 3.5 percent, but more recently the year-to-year pace
has slowed to approximately 2.7 percent.
Overall, however, California's economy continued to expand in 1998. Non-
farm employment growth averaged 3.2 percent and personal income was up
more than 6 percent. The jobless rate was below 6 percent most of the
year. Non-residential construction activity remained quite strong, with
building permit value up almost 18 percent. Homebuilding continued on a
moderate recovery path, with permits for new houses reaching 126,000
units, a 13.5 percent increase over 1997.
Litigation
The State is currently involved in certain legal proceedings that, if
decided against the State, may require the State to make significant
future expenditures or may impair future revenue sources. Following are
significant lawsuits involving the State as of December 9, 1998:
On June 24, 1998, plaintiffs in Howard Jarvis Taxpayers Association et al.
v. Kathleen Connell filed a complaint challenging the authority of the
State Controller to make payments from the State Treasury in the absence
of a state budget. On July 21, 1998, the trial court issued a preliminary
injunction prohibiting the State Controller from paying moneys from the
State Treasury for fiscal year 1998-99, with certain limited exceptions,
in the absence of a state budget. The preliminary injunction, among other
things, prohibited the State Controller from making any payments pursuant
to any continuing appropriation.
On July 22, 1998, the State Controller asked the California Supreme Court
to immediately stay the trial court's preliminary injunction and to
overrule the order granting the preliminary injunction on the merits. On
July 29, 1998, the Supreme Court transferred the State Controller's
request to the Court of Appeal. The matters are now pending before the
Court of Appeal.
In Hayes v. Commission on State Mandates, certain local school districts
sought reimbursements for special education programs for handicapped
children. The State Board of Control, which was succeeded by the
Commission on State Mandates (COSM), decided in favor of the local school
districts. The decision was appealed by the Director of Finance in the
trial court and was remanded to the COSM for redetermination. The COSM
expanded the claim to include supplemental claims filed by seven
additional educational institutions. The potential liability to the State
has been estimated at more than $1 billion. A final consolidated decision
was expected to be issued in late 1998.
In State v. Stringfellow, the State is seeking recovery for cleanup costs
of a toxic waste site presently owned by the State. Present estimates of
the cleanup range from $300 million to $800 million.
The State is a defendant in a coordinated action involving 3,000
plaintiffs seeking recovery for damages caused by the Yuba River flood of
1986. The State's potential liability to all plaintiffs in this lawsuit
ranges from $800 million to $1.5 billion.
Year 2000
The State's reliance on information technology in every aspect of its
operations has made Year 2000 related information technology ("IT") issues
a high priority for the State. The Department of Information Technology
("DOIT"), an independent office reporting directly to the Governor, is
responsible for ensuring the State's information technology processes are
fully functional before the year 2000.
In the July Quarterly Report, the DOIT estimates total Year 2000 costs
identified by the departments under its supervision at about $239 million,
of which more than $100 million was projected to be expended in fiscal
years 1998-99 and 1999-2000. The October Quarterly Report indicated the
total costs were then estimated to be at least $290 million, and the
estimate would likely increase in the future. These costs are part of
much larger overall IT costs incurred annually by State departments and do
not include costs for remediation for embedded technology, desktop systems
and additional costs resulting from discoveries in the testing process.
For fiscal year 1998-99, the Legislature created a $20 million fund for
unanticipated Year 2000 costs, which can be increased if necessary.
Although the DOIT reports that State departments are making substantial
progress overall toward the goal of Year 2000 compliance, the task is very
large and will likely encounter unexpected difficulties. The State cannot
predict whether all mission critical systems will be ready and tested by
late 1999 or what impact failure of any particular IT system(s) or of
outside interfaces with State IT systems might have. The State
Treasurer's Office and the State Controller's Office report that they are
both on schedule to complete their Year 2000 remediation projects by
December 31, 1998, allowing full testing during 1999.
SPECIAL CONSIDERATIONS REGARDING PUERTO RICO
The following highlights some of the more significant financial trends and
problems affecting the Commonwealth of Puerto Rico (the "Commonwealth" or
"Puerto Rico"), and is based on information drawn from official statements
and prospectuses relating to the securities offerings of Puerto Rico, its
agencies and instrumentalities, as available on the date of this SAI. SSBC
has not independently verified any of the information contained in such
official statements, prospectuses, and other publicly available documents,
but is not aware of any fact that would render such information materially
inaccurate.
The economy of Puerto Rico is fully integrated with that of the United
States. In fiscal 1997, trade with the United States accounted for
approximately 88% of Puerto Rico's exports and approximately 62% of its
imports. In this regard, in fiscal 1997 Puerto Rico experienced a $2.7
billion positive adjusted merchandise trade balance.
Since fiscal 1985, personal income, both aggregate and per capita, has
increased consistently each fiscal year. In fiscal 1997, aggregate
personal income was $32.1 billion ($30.0 billion in 1992 prices) and
personal per capita income was $8,509 ($7,957 in 1992 prices). Gross
product in fiscal 1993 was $25.1 billion ($24.5 billion in 1992 prices)
and gross product in fiscal 1997 was $32.1 billion ($27.7 billion in 1992
prices). This represents an increase in gross product of 27.7% from fiscal
1993 to 1997 (13.0% in 1992 prices).
Puerto Rico's economic expansion, which has lasted over ten years,
continued throughout the five-year period from fiscal 1993 through fiscal
1997. Almost every sector of the economy participated, and record levels
of employment were achieved. Factors behind the continued expansion
included Government-sponsored economic development programs, periodic
declines in the exchange value of the U.S. dollar, increases in the level
of federal transfers, and the relatively low cost of borrowing funds
during the period.
Average employment increased from 999,000 in fiscal 1993 to 1,128,300 in
fiscal 1997. Unemployment, although at relatively low historical levels,
remains above the U.S. average. Average unemployment decreased from 16.8%
in fiscal 1993 to 13.1% in fiscal 1997.
Manufacturing is the largest sector in the economy accounting for $19.8
billion or 41.2% of gross domestic product in fiscal 1997. The
manufacturing sector employed 153,273 workers as of March 1997.
Manufacturing in Puerto Rico is now more diversified than during earlier
phases of industrial development. In the last two decades industrial
development has tended to be more capital intensive and dependent on
skilled labor. This gradual shift is best exemplified by heavy investment
in pharmaceuticals, scientific instruments, computers, microprocessors,
and electrical products over the last decade. The service sector, which
includes wholesale and retail trade and finance, insurance, real estate,
hotels and related services, and other services, ranks second in its
contribution to gross domestic product and is the sector that employs the
greatest number of people.
In fiscal 1997, the service sector generated $18.4 billion in gross
domestic product or 38.2% of the total. Employment in this sector grew
from 467,000 in fiscal 1993 to 551,000 in fiscal 1997, a cumulative
increase of 17.8%. This increase was greater than the 12.9% cumulative
growth in employment over the same period providing 48% of total
employment. The Government sector of the Commonwealth plays an important
role in the economy of the island. In fiscal year 1997, the Government
accounted for $5.2 billion of Puerto Rico's gross domestic product and
provided 10.9% of the total employment. The construction industry has
experienced real growth since fiscal 1987. In fiscal 1997, investment in
construction rose to $4.7 billion, an increase of 14.7% as compared to
$4.1 billion for fiscal 1996. Tourism also contributes significantly to
the island economy, accounting for $2.0 billion of gross domestic product
in fiscal 1997.
The present administration has developed and is implementing a new
economic development program which is based on the premise that the
private sector should provide the primary impetus for economic development
and growth. This new program, which is referred to as the New Economic
Model, promotes changing the role of the Government from one of being a
provider of most basic services to that of a facilitator for private
sector initiatives and encourages private sector investment by reducing
Government-imposed regulatory restraints.
The New Economic Model contemplates the development of initiatives that
will foster private investment in, and private management of, sectors that
are served more efficiently and effectively by the private enterprise. One
of these initiatives has been the adoption of a new tax code intended to
expand the tax base, reduce top personal and corporate tax rates, and
simplify the tax system. Another initiative is the improvement and
expansion of Puerto Rico's infrastructure to facilitate private sector
development and growth, such as the construction of the water pipeline and
cogeneration facilities described below and the construction of a light
rail system for the San Juan metropolitan area.
The New Economic Model also seeks to identify and promote areas in which
Puerto Rico can compete more effectively in the global markets. Tourism
has been identified as one such area because of its potential for job
creation and contribution to the gross product. In 1993, a new Tourism
Incentives Act and a Tourism Development Fund were implemented in order to
provide special tax incentives and financing for the development of new
hotel projects and the tourism industry. As a result of these initiatives,
new hotels have been constructed or are under construction which have
increased the number of hotel rooms on the island from 8,415 in fiscal
1992 to 10,877 at the end of fiscal 1997 and to a projected 11,972 by the
end of fiscal 1998.
The New Economic Model also seeks to reduce the size of the Government's
direct contribution to gross domestic product. As part of this goal, the
Government has transferred certain Governmental operations and sold a
number of its assets to private parties. Among these are: (i) the
Government sold the assets of the Puerto Rico Maritime Authority; (ii) the
Government executed a five-year management agreement for the operation and
management of the Aqueducts and Sewer Authority by a private company;
(iii) the Aqueducts and Sewer Authority executed a construction and
operating agreement with a private consortium for the design,
construction, and operation of an approximately 75 million gallon per day
water pipeline to the San Juan metropolitan area from the Dos Bocas
reservoir in Utuado; (iv) the Electric Power Authority executed power
purchase contracts with private power producers under which two
cogeneration plants (with a total capacity of 800 megawatts) will be
constructed; (v) the Corrections Administration entered into operating
agreements with two private companies for the operation of three new
correctional facilities; (vi) the Government entered into a definitive
agreement to sell certain assets of a pineapple juice processing business
and sold certain mango growing operations; (vii) the Government is in the
process of transferring to local sugar cane growers certain sugar
processing facilities; (viii) the Government sold two hotel properties and
is currently negotiating the sale of a complex consisting of two hotels
and a convention center; and (ix) the Government has announced its
intention to sell the Puerto Rico Telephone Company and is currently
involved in the sale process.
One of the goals of the Rossello administration is to change Puerto Rico's
public health care system from one in which the Government provides free
health services to low income individuals through public health
facilities owned and administered by the Government to one in which all
medical services are provided by the private sector and the Government
provides comprehensive health insurance coverage for qualifying (generally
low income) Puerto Rico residents. Under this new system, the Government
selects, through a bidding system, one private health insurance company in
each of several designated regions of the island and pays such insurance
company the insurance premium for each eligible beneficiary within such
region. This new health insurance system is now covering 61 municipalities
out of a total of 78 on the island. It is expected that 11 municipalities
will be added by the end of fiscal 1998 and 5 more by the end of fiscal
1999. The total cost of this program will depend on the number of
municipalities included in the program, the number of participants
receiving coverage, and the date coverage commences. As of December 31,
1997, over 1.1 million persons were participating in the program at an
estimated annual cost to Puerto Rico for fiscal 1998 of approximately $672
million. In conjunction with this program, the operation of certain public
health facilities has been transferred to private entities. The
Government's current privatization plan for health facilities provides for
the transfer of ownership of all health
facilities to private entities. The Government sold six health facilities
to private companies and is currently in negotiations with other private
companies for the sale of thirteen health facilities to such companies.
One of the factors assisting the development of the manufacturing sector
in Puerto Rico has been the federal and Commonwealth tax incentives
available, particularly those under the Puerto Rico Industrial Incentives
Program and Sections 30A and 936 of the Internal Revenue Code 1986, as
amended (the "Code").
Since 1948, Puerto Rico has promulgated various industrial incentives laws
designed to stimulate industrial investment. Under these laws, companies
engaged in manufacturing and certain other designated activities were
eligible to receive full or partial exemption from income, property, and
other taxes. The most recent of these laws is Act No. 135 of December 2,
1997 (the "1998 Tax Incentives Law").
The benefits provided by the 1998 Tax Incentives Law are available to new
companies as well as companies currently conducting tax-exempt operations
in Puerto Rico that choose to renegotiate their existing tax exemption
grant. Activities eligible for tax exemption include manufacturing,
certain services performed for markets outside Puerto Rico, the production
of energy from local renewable sources for consumption in Puerto Rico, and
laboratories for scientific and industrial research. For companies
qualifying thereunder, the 1998 Tax Incentives Law imposes income tax
rates ranging from 2% to 7%. In addition, it grants 90% exemption from
property taxes, 100% exemption from municipal license taxes during the
first eighteen months of operation and between 80% and 60% thereafter, and
100% exemption from municipal excise taxes. The 1998 Tax Incentives Law
also provides various special deductions designated to stimulate
employment and productivity, research and development, and capital
investment in Puerto Rico.
Under the 1998 Tax Incentives Law, companies are able to repatriate or
distribute their profits free of tollgate taxes. In addition, passive
income derived from designated investments will continue to be fully
exempt from income and municipal license taxes. Individual shareholders of
an exempted business will be allowed a credit against their Puerto Rico
income taxes equal to 30% of their proportionate share in the exempted
business' income tax liability. Gain from the sale or exchange of shares
of an exempted business by its shareholders during the exemption period
will be subject to a 4% income tax rate.
For many years, U.S. companies operating in Puerto Rico enjoyed a special
tax credit that was available under Section 936 of the Code. Originally,
the credit provided an effective 100% federal tax exemption for operating
and qualifying investment income from Puerto Rico sources. Amendments to
Section 936 made in 1993 (the "1993 Amendments") instituted two
alternative methods for calculating the tax credit and limited the amount
of the credit that a qualifying company could claim. These limitations are
based on a percentage of qualifying income (the "percentage of income
limitation") and on qualifying expenditures on wages and other wage
related benefits (the "economic activity limitation", also known as the
"wage credit limitation"). As a result of amendments incorporated in the
Small Business Job Protection Act of 1996 enacted by the U.S. Congress and
signed into law by President Clinton on August 20, 1996 (the "1996
Amendments"), the tax credit, as described below, is now being phased out
over a ten-year period for existing claimants and is no longer available
for corporations that established operations in Puerto Rico after October
13, 1995 (including existing Section 936 Corporations (as defined below)
to the extent substantially new operations are established in Puerto
Rico). The 1996 Amendments also moved the credit based on the economic
activity limitation to Section 30A of the Code and phased it out over 10
years. In addition, the 1996 Amendments eliminated the credit previously
available for income derived from certain qualified investments in Puerto
Rico. The Section 30A credit and the remaining Section 936 credit are
discussed below.
Section 30A. The 1996 Amendments added a new Section 30A to the Code.
Section 30A permits a "qualifying domestic corporation" ("QDC") that meets
certain gross income tests (which are similar to the 80% and 75% gross
income tests of Section 936 of the Code discussed below) to claim a credit
(the "Section 30A credit") against the federal income tax imposed on
taxable income derived from sources outside the United States from the
active conduct of a trade or business in Puerto Rico or from the sale of
substantially all the assets used in such business ("possession income").
A QDC is a U.S. corporation which (i) was actively conducting a trade or
business in Puerto Rico on October 13, 1995, (ii) had a Section 936
election in effect for its taxable year that included October 13, 1995,
(iii) does not have in effect an election to use the percentage limitation
of Section 936(a)(4)(B) of the Code, and (iv) does not add a "substantial
new line of business."
The Section 30A credit is limited to the sum of (i) 60% of qualified
possession wages as defined in the Code, which includes wages up to 85% of
the maximum earnings subject to the OASDI portion of Social Security taxes
plus an allowance for fringe benefits of 15% of qualified possession
wages, (ii) a specified percentage of depreciation deductions ranging
between 15% and 65%, based on the class life of tangible property, and
(iii) a portion of Puerto Rico income taxes paid by the QDC, up to a 9%
effective tax rate (but only if the QDC does not elect the profit-split
method for allocating income from intangible property).
A QDC electing Section 30A of the Code may compute the amount of its
active business income, eligible for the Section 30A Credit, by using
either the cost sharing formula, the profit-split formula, or the cost-
plus formula, under the same rules and guidelines prescribed for such
formulas as provided under Section 936 (see discussion below). To be
eligible for the first two formulas, the QDC must have a significant
presence in Puerto Rico.
In the case of taxable years beginning after December 31, 2001, the amount
of possession income that would qualify for the Section 30A credit would
be subject to a cap based on the QDC's possession income for an average
adjusted base period ending before October 14, 1995.
Section 30A applies only to taxable years beginning after December 31,
1995 and before January 1, 2006.
Section 936. Under Section 936 of the Code, as amended by the 1996
Amendments, and as an alternative to the Section 30A credit, U.S.
corporations that meet certain requirements and elect its application
("Section 936 Corporations") are entitled to credit against their U.S.
corporate income tax, the portion of such tax attributable to income
derived from the active conduct of a trade or business within Puerto Rico
("active business income") and from the sale or exchange of substantially
all assets used in the active conduct of such trade or business. To
qualify under Section 936 in any given taxable year, a corporation must
derive for the three-year period immediately preceding the end of such
taxable year (i) 80% or more of its gross income from sources within
Puerto Rico and (ii) 75% or more of its gross income from the active
conduct of a trade or business in Puerto Rico.
Under Section 936, a Section 936 Corporation may elect to compute its
active business income, eligible for the Section 936 credit, under one of
three formulas: (A) a cost-sharing formula, whereby it is allowed to claim
all profits attributable to manufacturing intangibles, and other functions
carried out in Puerto Rico, provided it contributes to the research and
development expenses of its affiliated group or pays certain royalties;
(B) a profit-split formula, whereby it is allowed to claim 50% of the net
income of its affiliated group from the sale of products manufactured in
Puerto Rico; or (C) a cost-plus formula, whereby it is allowed to claim a
reasonable profit on the manufacturing costs incurred in Puerto Rico. To
be eligible for the first two formulas, the Section 936 Corporation must
have a significant business presence in Puerto Rico for purposes of the
Section 936 rules.
As a result of the 1993 Amendments and the 1996 Amendments, the Section
936 credit is only available to companies that elect the percentage of
income limitation and is limited in amount to 40% of the credit allowable
prior to the 1993 Amendments, subject to a five-year phase-in period from
1994 to 1998 during which period the percentage of the allowable credit is
reduced from 60% to 40%.
In the case of taxable years beginning on or after 1998, the possession
income subject to the Section 936 credit will be subject to a cap based on
the Section 936 Corporation's possession income for an average adjusted
base period ending on October 14, 1995. The Section 936 credit is
eliminated for taxable years beginning in 2006.
Proposal to Extend the Phaseout of Section 30A. During 1997, the
Government of Puerto Rico proposed to Congress the enactment of a new
permanent federal incentive program similar to that provided under Section
30A. Such a program would provide U.S. companies a tax credit based on
qualifying wages paid and other wage-related expenses, such as fringe
benefits, as well as depreciation expenses for certain tangible assets and
research and development expenses. Under the Governor's proposal, the
credit granted to qualifying companies would continue in effect until
Puerto Rico shows, among other things, substantial economic improvements
in terms of certain economic parameters. The fiscal 1998 budget submitted
by President Clinton to Congress in February 1997 included a proposal to
modify Section 30A to (i) extend the availability of the Section 30A
credit indefinitely; (ii) make it available to companies establishing
operations in Puerto Rico after October 13, 1995; and (iii) eliminate the
income cap. Although this proposal, was not included in the final fiscal
1998 federal budget, President Clinton's fiscal 1999 budget submitted to
Congress again included these modifications to Section 30A. While the
Government of Puerto Rico plans to continue lobbying for this proposal, it
is not possible at this time to predict whether the Section 30A credit
will be so modified.
Outlook. It is not possible at this time to determine the long-term effect
on the Puerto Rico economy of the enactment of the 1996 Amendments. The
Government of Puerto Rico does not believe there will be short-term or
medium-term material adverse effects on Puerto Rico's economy as a result
of the enactment of the 1996 Amendments. The Government of Puerto Rico
further believes that during the phase-out period sufficient time exists
to implement additional incentive programs to safeguard Puerto Rico's
competitive position.
TRUSTEES OF THE TRUST AND EXECUTIVE OFFICERS OF THE FUND
Overall responsibility for management and supervision of the fund rests
with the trust's board of trustees. The trustees approve all significant
agreements between the fund and the companies that furnish services to the
fund, including agreements with the fund's distributor, investment
manager, custodian and transfer agent. The day-to-day operations of the
fund are delegated to the fund's investment adviser and administrator,
SSBC Fund Management Inc. ("SSBC" or the "manager").
The trustees of the trust and executive officers of the fund, together
with information as to their principal business occupations during the
past five years, are shown 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 fund, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), is indicated by an
asterisk. The address of the "non-interested" trustees and executive
officers of the fund is 388 Greenwich Street, New York, New York 10013.
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., 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 (Age 41) Senior Vice President and Treasurer; 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 (Age 49) Vice President and Investment Officer; Investment
Officer of SSBC; Managing Director of Salomon Smith Barney.
David T. Fare (Age 36) Vice President and Investment Officer; Investment
Officer of SSBC;
Vice President of Salomon Smith Barney.
Paul Brook (Age 45) Controller; Director of Salomon Smith Barney; from
1997-1998 Managing Director of AMT Capital Services Inc.; prior to 1997,
Partner with Ernst & Young LLP
Christina T. Sydor (Age 48) Secretary; Managing Director of Salomon Smith
Barney. General Counsel and Secretary of SSBC and TIA.
As of March 19, 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
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 $10,000 per annum plus $1000 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 $5,000 per annum plus $500 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 and for the last fiscal
year it was $13,594.
The following table contains a list of shareholders of record or who
beneficially owned at least 5% of the outstanding shares of a particular
class of shares of a fund of the Company as of March 19, 1999.
INTERMEDIATE MATURITY CALIFORNIA MUNICIPALS 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 35,650.172 (100%) shares
INTERMEDIATE MATURITY NEW YORK MUNICIPAL FUND CLASS L
PERCENTAGE OF SHARES
Muriel S. Kessler
60 East 42nd St.
Suite 1136
New York, New York 10165
Owned 34,145.712 (5.41%) shares
Lynn Kestel
1185 Park Avenue
Apt. 4F
New York, New York 10128
Owned 32,511.741 (5.15%) shares
For the fiscal year ended November 30, 1998, the trustees of the trust
were paid the following compensation:
Name of Person
Aggregate
Compensat
ion
From
Trust
Total
Pension or
Retirement
Benefits
Accrued
as part of
Trust
Expenses
Compensatio
n
from Trust
and Fund
Complex
Paid to
Trustees
Number of
Funds for
Which
Trustees
Serves
Within
Fund
Complex
Herbert Barg**
$11,600
$0
$105,425
18
Alfred
Bianchetti**
11,600
0
51,200
13
Martin Brody**
11,000
0
132,500
21
Dwight B.
Crane**
11,600
0
139,975
24
Burt N.
Dorsett**
11,600
0
51,200
13
Elliot S.
Jaffe**
11,600
0
47,550
13
Stephen E.
Kaufman**
11,600
0
96,400
15
Joseph J.
McCann**
11,600
0
51,200
13
Heath B.
McLendon *
- -
- -
- -
59
Cornelius C.
Rose, Jr.**
11,600
0
51,200
13
* Designates an "interested" trustee.
** Designates member of Audit Committee.
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. Trustees Emeritus may attend meetings
but have no voting rights.
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.
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.
INVESTMENT MANAGEMENT AND OTHER SERVICES
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. 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 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 advisory services, 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
Reimburse
d
Fees
Paid
Fees Waived
and
Expenses
Reimbursed
California
Fund
$
0
$
128,361
$
20,278
$
63,087
$47,7
59
$ 46,438
New York
Fund
32,306
122,796
59,523
90,299
98,26
4
63,179
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 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 administrator SSBC: (a) assists in supervising all aspects of the
Fund's operations except those performed by the fund's investment manager
under its investment advisory agreement; b) supplies the fund with office
facilities (which may be in SSBC's own offices), statistical and research
data, data processing services, clerical, accounting and bookkeeping
services, including, but not limited to, the calculation of (i) the net
asset value of shares of the fund, (ii) applicable contingent deferred
sales charges and similar fees and charges and (iii) distribution fees,
internal auditing and legal services, internal executive and
administrative services, and stationary and office supplies; and (c)
prepares reports to shareholders of the fund, tax returns and reports to
and filings with the SEC and state blue sky authorities.
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 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
Reimburse
d
Fees
Paid
Fees
Waived and
Expenses
Reimbursed
Fees
Paid
Fees Waived
and
Expenses
Reimbursed
California
Fund
$
0
$
85,575
$
13,518
$ 42,058
$31,8
40
$ 30,958
New York Fund
10,906
92,495
33,023
66,858
65,50
8
42,120
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 SSBC, 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 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.
Auditors
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, 1999.
Custodian and Transfer Agent
PNC Bank, National Association ("PNC" or "custodian"), 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 Investor Services Group Inc. ("First Data" or "transfer
agent"), 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.
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. Salomon Smith Barney continues to sell
the funds shares as part of the selling group.
Commissions on Class A Shares. For the 1996 and 1997 fiscal years, the
aggregate dollar amount of commissions on Class A shares, all of which was
paid to Salomon Smith Barney, is as follows:
Class A
Name of Fund
Fiscal Year
Ended
11/30/96
Fiscal Year
Ended 11/30/97
California Fund
$ 39,000
$ 37,000
New York Fund
48,000
46,000
For the period December 1, 1997 through October 7, 1998 and for the period
October 8, 1998 through November 30, 1998, the aggregate dollar amounts of
commissions on Class A shares, are as follows:
Class A
Name of Fund
12/01/97
through
10/07/98*
10/08/98
through
11/30/98**
California Fund
$ 8,000
$ 65,000
New York Fund
27,000
59,000
*The entire amount was paid to Salomon Smith Barney.
** The following amounts were paid to Salomon Smith Barney: $58,500 and
$53,100 with regard to the California Fund and the New York Fund,
respectively.
Commissions on Class L Shares. For the period June 12, 1998 through
October 7, 1998 and for the period October 8, 1998 through November 30,
1998, the aggregate dollar amounts of commission on Class L shares are as
follows:
Class L
(On June 12, 1998, Class
C shares were renamed
Class L Shares)*
Name of Fund
06/12/98
through
10/07/98*
10/08/98
through
11/30/98**
California Fund
$ 4,000
$ 8,000
New York Fund
3,000
16,000
*The entire amount was paid to Salomon Smith Barney.
** The following amounts were paid to Salomon Smith Barney: $7,200 and
14,400 with regard to the California Fund and the New York Fund,
respectively.
Deferred Sales Charges on Class A and L Shares For the 1996, 1997 and
1998 fiscal years, the following deferred sales charges were paid to
Salomon Smith Barney on redemptions of the funds' shares:
Class A
Name of Fund
Fiscal Year
Ended
11/30/96
Fiscal Year
Ended 11/30/97
Fiscal Year
Ended 11/30/98
California Fund
$0
$0
$0
New York Fund
2,000
1,000
3,000
Class L
(On June 12, 1998, Class C shares were
renamed Class L Shares)
Name of Fund
Fiscal Year
Ended
11/30/96
Fiscal Year
Ended 11/30/97
Fiscal Year
Ended 11/30/98
California Fund
$0
$ 1,000
$ 1,000
New York Fund
0
1,000
4,000
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 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 Advisory, Administration and
Distribution Agreements for continuance.
California Fund
For the fiscal year ended November 30, 1998, Salomon Smith Barney incurred
distribution expenses totaling approximately $90,984 consisting of
approximately $7,649 for advertising, $296 for printing of prospectuses,
$39,488 for support services, $42,733 to Salomon Smith Barney Financial
Consultants, and $818 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.
New York Fund
For the fiscal year ended November 30, 1998, Salomon Smith Barney incurred
distribution expenses totaling approximately $139,521 consisting of
approximately $12,196 for advertising, $196 for printing of prospectuses,
$66,418 for support services, $59,786 to Salomon Smith Barney Financial
Consultants, and $925 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.
Distribution Arrangements for the New York and California Fund
To compensate Salomon 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 Salomon 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
Salomon 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:
DISTRIBUTION PLAN FEES
California Fund:
Year Ended
11/30/98
Year Ended
11/30/97
Year Ended
11/30/96
Class A
$39,9
73
$37,151
$37,644
Class L
15,5
64
9,596
8,361
New York Fund:
Class A
76,4
71
72,443
$76,380
Class L
9,91
7
5,758
2,733
*The inception dates for Class L of California Fund and New York
Fund are November 8, 1994 and December 5, 1994, respectively.
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 Securities and Exchange Commissiomn ("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.
The trust has paid no brokerage commissions for portfolio transactions
since its commencement of operations. 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 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
8%
9%
New York Fund
53%
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 or 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 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.
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 manager 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 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. 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 the fund's performance or 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 New York Fund's yield for Class A and Class L shares for the 30-day
period ended November 30, 1998 was 3.41% and 3.26%, respectively. The
equivalent taxable yield for Class A and Class L shares for that same
period was 6.95% and 6.64%, respectively, assuming the payment of Federal
income taxes at a rate of 39.6% and New York taxes at a rate of 11.31%.
The California Fund's yield for Class A, Class L and Class Y shares for
the 30-day period ended November 30, 1998 was 3.04%, 2.87% and 3.29%,
respectively. The equivalent taxable yield for Class A, Class L and Class
Y shares for that same period was 5.95%, 5.62% and 6.44%, respectively,
assuming the payment of Federal income taxes at a rate of 39.6% and
California taxes at a rate of 9.3%.
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.
California Fund
Average Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Life
of
fund1
Class A2
4.61%
5.25%
N/A
6.24%
Class C3
5.57%
N/A
N/A
7.92%
Class L4
4.48%
N/A
N/A
7.65%
Class Y5
7.09%
N/A
N/A
6.66%
___________________
1 Class A commenced operations on December 31, 1991, Class C and L
commenced operations on November 8, 1994, and Class Y commenced
operations on September 8, 1995.
2 The average annual total return figure assumes that the maximum
2.00% 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 6.78%, 5.67% and 6.54% for one year, five years and
life of the fund periods, respectively.
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 C shares for the same period would have been 6.57% and 7.92%
for one year and life of the fund periods, respectively.
4 The average annual total return figure assumes that the maximum
applicable initial and deferred sales charges have been deducted
from the investment at the time of redemption. If the maximum
initial and deferred sales charge had not been deducted, the average
annual total return for Class L shares for the same period would
have been 6.57% and 7.92% for one year and life of the fund periods,
respectively.
5 Class Y shares do not incur sales charges nor deferred sales
charges.
New York Fund
Average Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Life
of
fund1
Class A2
4.93%
5.11%
N/A
6.32%
Class C3
5.79%
N/A
N/A
7.57%
Class L4
4.68%
N/A
N/A
7.30%
___________________
1 Class A commenced operations on December 31, 1991. Class C and L
commenced operations on December 2, 1994.
2 The average annual total return figure assumes that the maximum
2.00% 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 7.01%, 5.52% and 6.63% for one year, five years and
life of the fund periods, respectively.
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 C shares for the same period would have been 6.79% and 7.57%
for one year and life of the fund periods, respectively.
4 The average annual total return figure assumes that the maximum
applicable initial and deferred sales charges have been deducted
from the investment at the time of redemption. If the maximum
initial and deferred sales charges had not been deducted, the
average annual total return for Class L shares for the same period
would have been 6.79% and 7.57% for one year and life of the fund
periods, respectively.
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.
California Fund
Aggregate Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Life
of
fund1
Class A2
4.61%
29.15%
N/A
51.99%
Class C3
5.57%
N/A
N/A
36.31%
Class L4
4.48%
N/A
N/A
34.92%
Class Y5
7.09%
N/A
N/A
23.17%
_______________________
1 Class A commenced operations on December 31, 1991, Class C and L
commenced operations on November 8, 1994, and Class Y commenced
operations on September 8, 1995.
2 The average annual total return figure assumes that the maximum
2.00% 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 6.78%, 31.74% and 55.07% for one year, five years
and life of the fund periods, respectively.
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 C shares for the same period would have been 6.57% and 36.31%
for one year and life of the fund periods, respectively.
4 The average annual total return figure assumes that the maximum
applicable initial and deferred sales charges have been deducted
from the investment at the time of redemption. If the maximum
initial and deferred sales charges had not been deducted, the
average annual total return for Class L shares for the same period
would have been 6.57% and 36.31% for one year and life of the fund
periods, respectively.
5 Class Y shares do not incur sales charges nor deferred sales
charges.
New York Fund
Aggregate Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Life
of
fund1
Class A2
4.93%
28.28%
N/A
52.85%
Class C3
5.79%
N/A
N/A
33.86%
Class L4
4.68%
N/A
N/A
32.52%
_______________________
1 Class A commenced operations on December 31, 1991. Class C and L
commenced operations on December 2, 1994.
2 The average annual total return figure assumes that the maximum
2.00% 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 7.01%, 30.84% and 55.95% for one year, five years
and life of the fund periods, respectively.
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 C shares for the same period would have been 6.79% and 33.86%
for one year and life of the fund periods, respectively.
4 The average annual total return figure assumes that the maximum
applicable initial and deferred sales charges have been deducted
from the investment at the time of redemption. If the maximum
initial and deferred sales charges had not been deducted, the
average annual total return for Class L shares for the same period
would have been 6.79% and 33.86% for one year and life of the fund
periods, respectively.
5 Class Y shares do not incur sales charges nor deferred sales
charges.
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 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.
DIVIDENDS, DISTRIBUTION AND TAXES
Dividends and Distributions. The fund's policy is to declare and pay
exempt-interest dividends monthly. Dividends from net realized capital
gains, if any, will be distributed annually. The fund may also pay
additional dividends shortly before December 31 from certain amounts of
undistributed ordinary income and capital gains, in order to avoid a
Federal excise tax liability. If a shareholder does not otherwise
instruct, exempt-interest dividends and capital gain distributions will be
reinvested automatically in additional shares of the same Class at net
asset value, with no additional sales charge charge or deferred sales
charge.
The per share amounts of the exempt-interest dividends on Class L shares
may be lower than on Class A and Class Y shares, mainly as a result of the
distribution fees applicable to Class L shares. Similarly, the per share
amounts of exempt-interest dividends on Class A shares may be lower than
on Class A shares, as a result of the service fee attributable to Class A
shares. Capital gain distributions, if any, will be the same across all
Classes of fund shares (A, L and Y).
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 SAI, which are subject to change.
The Funds and Their 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 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 se
curities 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
apital 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 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 five separate funds with a par value of $.001 per share. The
fund may offer shares of beneficial interest currently classified into
five Classes - A, B, L ,Y and Z. Each Class of the fund represents an
identical interest in the fund's investment portfolio. As a result, the
Classes have the same rights, privileges and 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.
Under Massachusetts's law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the fund.
The Master Trust Agreement disclaims shareholder liability for acts or
obligations of the fund, however, and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered
into or executed by the fund or a trustee. The Master Trust Agreement
provides for indemnification from fund property for all losses and
expenses of any shareholder held personally liable for the obligations of
the fund. Thus, the risk of a shareholder's incurring financial loss on
account of shareholder liability is limited to circumstances in which the
fund itself would be unable to meet its obligations, a possibility which
management of the fund believes is remote. Upon payment of any liability
incurred by the fund, a shareholder paying such liability will be entitled
to reimbursement from the general assets of the fund. The trustees intend
to conduct the operation of the fund in such a way so as to avoid, as far
as possible, ultimate liability of the shareholders for liabilities of the
fund.
The Master Trust Agreement of the fund permits the trustees of the fund to
issue an unlimited number of full and fractional shares of a single class
and to divide or combine the shares into a greater or lesser number of
shares without thereby changing the proportionate beneficial interests in
the fund. Each share in the fund represents an equal proportional
interest in the fund with each other share. Shareholders of the fund are
entitled upon its liquidation to share pro rata in its net assets
available for distribution. No shareholder of the fund has any preemptive
or conversion rights. Shares of the fund are fully paid and non-
assessable.
Pursuant to the Master Trust Agreement, the fund's trustees may authorize
the creation of additional series of shares (the proceeds of which would
be invested in separate, independently managed portfolios) and additional
classes of shares within any series (which would be used to distinguish
among the rights of different categories of shareholders, as might be
required by future regulations or other unforeseen circumstances).
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.
Annual and Semi-annual Reports. The fund sends its shareholders a semi-
annual report and an audited annual report, which include listings of
investment securities held by the fund at the end of the period covered.
In an effort to reduce the fund's printing and mailing costs, the fund
consolidates the mailing of its semi-annual and annual reports by
household. This consolidation means that a household having multiple
accounts with the identical address of record will receive a single copy
of each report. In addition, the fund also consolidates the mailing of its
prospectus so that a shareholder having multiple accounts (that is,
individual, IRA and/or Self-Employed Retirement Plan accounts) will
receive a single Prospectus annually. Shareholders who do not want this
consolidation to apply to their accounts should contact their Salomon
Smith Barney Financial Consultant or the transfer agent.
FINANCIAL STATEMENTS
The fund's annual report for the fiscal year ended November 30, 1998 is
incorporated herein by reference in its entirety. The annual report was
filed on February 26, 1999, Accession Number 91155-99-102 .
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
Intermediate Maturity
California Municipal Fund
Intermediate Maturity
New York Municipal Fund
March 30, 1999
SMITH BARNEY INVESTMENT TRUST
388 Greenwich Street
New York, NY 10013
SALOMON SMITH BARNEY
A Member of Citigroup
3
A84
March 30, 1999
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY INVESTMENT TRUST
Smith Barney Large Capitalization Growth Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
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 Objective and Management Policies 2
Investment Restrictions...... ......................................11
Trustees of the Trust and Executive Officers of the Fund 13
Investment Management and Other Services 16
Portfolio Transactions... ......................................20
Portfolio Turnover.................. ...........................22
Purchase of Shares .............................................23
Redemption of Shares 30
Valuation of Shares 32
Exchange Privilege 33
Performance Data .......................................................34
Dividends, Distributions and Taxes 37
Additional Information 43
Financial Statements ...................................................44
INVESTMENT OBJECTIVE 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. Because of 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, the fund will set aside cash or liquid securities equal to the
amount of the commitment in a segregated account on the fund's books.
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 of 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 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 manager unless they
have applied for and received specific authority to do so from the
Securities and Exchange Commission ("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 of 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 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
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 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 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 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 amount 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 on the fund's books) 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 on the fund's books.
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. If 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 lose
such amounts if the prices of securities underlying the options do not
move in the direction or to the extent anticipated.
Although the portfolio may not use forward currency contracts, options and
futures, the use of any of these strategies would involve certain
investment risks and transaction costs. 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 option
thereon at any particular time.
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 writing 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 forgoes 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 when 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 the manager expects
the price of the underlying security to remain flat or decline moderately
during the option period, (b) at-the-money call options when the manager
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 the manager 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 the manager 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 the manager 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 the manager 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 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.
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 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 enter
into futures contracts and options only on futures contracts that are
traded on a domestic exchange and board of trade. Assets committed to
futures contracts will be segregated on the fund's books 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 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 the manager 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.
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 OF THE TRUST AND EXECUTIVE OFFICERS OF THE FUND
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. The address of the "non-interested" trustees and the
executive officers of the fund is 388 Greenwich Street, New York, New York
10013.
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 (Age 65). Chairman of the Board and Investment Officer;
Managing Director of Salomon Smith Barney, Inc.; President of SSBC and
Travelers Investment Adviser, Inc. ("TIA"); Chairman or Co-Chairman of the
Board of 59 investment companies associated with Salomon Smith Barney.
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 (Age 41). Senior Vice President and Treasurer; 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 (Age 48). Vice President and Investment Officer; Managing
Director of Salomon Smith Barney; Investment Officer of SSBC.
Paul Brook (Age 45). Controller; Director of Salomon Smith Barney; from
1997-1998 Managing Director of AMT Capital Services Inc.; prior to 1997
Partner with Ernst & Young LLP.
Christina T. Sydor (Age 48) Secretary; Managing Director of Salomon Smith
Barney; General Counsel and Secretary of SSBC and TIA.
As of March 19, 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
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 $10,000 per annum plus $1000 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 $5,000 per annum plus $500 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, and for the most recent
fiscal year it was $13,594.
The following table contains a list of shareholders of record or who
beneficially owned at least 5% of the outstanding shares of a particular
class of shares of the fund as of March 19, 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(54.10%) 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(34.74%) 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 1,874,939.444(100%)shares
For the fiscal year ended November 30, 1998, the Trustees of the trust
were paid the following compensation:
Name of Person
Aggregate
Compensat
ion
from
Trust
Total
Pension or
Retirement
Benefits
Accrued
As part of
Trust
Expenses
Compensation
from Trust
and Fund
Complex
Paid to
Trustees
Number of
Funds for Which DirecD
Trustee 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.**
$11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
- ---------
- -
11,600
$0
0
0
0
0
0
0
0
0
0
$105,425
51,200
132,500
139,975
51,200
47,550
96,400
51,200
- ----------
51,200
18
13
21
24
13
13
15
13
59
13
_________________
* Designated an "interested" trustee.
** Designates member of Audit Committee.
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. A trustee emeritus may attend meetings
but has no voting rights.
INVESTMENT MANAGEMENT AND OTHER SERVICES
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. 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. The
manager also: (a) assists in supervising all aspects of the Fund's
operations except those performed by the fund's investment manager under
its investment advisory agreement; b) supplies the fund with office
facilities (which may be in SSBC's own offices), statistical and research
data, data processing services, clerical, accounting and bookkeeping
services, including, but not limited to, the calculation of (i) the net
asset value of shares of the fund, (ii) applicable contingent deferred
sales charges and similar fees and charges and (iii) distribution fees,
internal auditing and legal services, internal executive and
administrative services, and stationary and office supplies; and (c)
prepares reports to shareholders of the fund, tax returns and reports to
and filings with the SEC and state blue sky authorities.
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 fees paid by the
fund in fiscal year ended November 30, 1998 and the fiscal period ended
November 30, 1997 were $5,558,989 and $620,766, respectively.
Auditors
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.
Custodian and Transfer Agent
PNC Bank, National Association ("PNC" or "custodian"), 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 Investor Services Group Inc. ("First Data" or "transfer
agent"), 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.
Distributor
CFBDS, Inc., located at 20 Milk Street, Boston, Massachusetts 02109-5408
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 Trustees, including a majority of the independent trustees
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 fiscal period ended November 30, 1997, the aggregate dollar amount
of commissions on Class A shares was $3,023,000, all of which was paid to
Salomon Smith Barney. For the period December 1, 1997 through October 7,
1998 the aggregate dollar amount of commissions on Class A shares was
$319,000, all of which was paid to Salomon Smith Barney. For the period
October 8, 1998 through November 30, 1998 the aggregate dollar amount of
commissions on Class A shares was $2,596,000, $2,336,400 of which was
paid to Salomon Smith Barney.
For the period June 12, 1998 through October 7, 1998 the aggregate dollar
amount of commissions on Class L shares was $161,000, all of which was
paid to Salomon Smith Barney. For the period October 8, 1998 through
November 30, 1998 the aggregate dollar amount of commissions on Class L
shares was $664,000, $597,600 of which was paid to Salomon Smith Barney.
For the fiscal period ended November 30, 1997 and the fiscal year ended
November 30, 1998, Salomon Smith Barney or its predecessor received from
shareholders $1,000 and $23,000, respectively, in deferred sales charges
on the redemption of Class A shares.
For the fiscal period ended November 30, 1997 and the fiscal year ended
November 30, 1998, Salomon Smith Barney or its predecessor received from
shareholders $28,000 and $547,000, respectively, in deferred sales charges
on the redemption of Class B shares.
For the fiscal period ended November 30, 1997 and the fiscal year ended
November 30, 1998, Salomon Smith Barney or its predecessor received from
shareholders $3,000 and $45,000, respectively, in deferred sales charges
on the redemption of 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 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.
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:
Distribution Plan Fees
Fiscal Year
Ended
11/30/98
Fiscal Period
Ended
11/30/97
Class A
$ 489,693
$ 64,109
Class B
$3,522,540
$404,500
Class L*
$ 842,963
$ 82,645
* Class L shares were called Class C shares until June 12, 1998.
For the fiscal year ended November 30, 1998, the distributor incurred
distribution expenses totaling $20,697,977, consisting of $714,316 for
advertising, $32,038 for printing and mailing of prospectuses, $4,369,107
for support services, $14,880,585 to Salomon Smith Barney Financial
Consultants, and $701,931 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 Salomon Smith Barney received $4,855,196 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.
PORTFOLIO TRANSACTIONS
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 management 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. For the fiscal year ended November 30, 1998, the fund
directed brokerage transactions totalling approximately $2,745,200 to
brokers because of research services provided. The amount of brokerage
commissions paid on such transactions totalled approximately $2,400.
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 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 fund has paid the following in brokerage commissions for portfolio
transactions:
Fiscal Year Ended Fiscal Period
Ended
11/30/98 11/30/97
Total Brokerage Commissions $543,185 $232,530
Total Brokerage Commissions
paid to Salomon Smith Barney $25,080 $34,620
% of Total Brokerage Commissions
paid to Salomon Smith Barney 4.62% 14.89%
% of Total Transactions involving
Commissions paid to Salomon
Smith Barney 2.90%
8.11%
During the fiscal year ended November 30, 1998 and the fiscal period ended
November 30, 1997, the total amount of commissionable transactions was
approximately $804,800,759 and $407,920,686, respectively.
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. The portfolio turnover rates were
14% for the fiscal year ended November 30, 1998 and 1% for the fiscal
period ended November 30, 1997, respectively.
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
Investme
nt
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 Provisions" 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 and/or
other Smith Barney Mutual Funds 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).
Class Z Shares. Class Z Shares are sold without an initial sales charge
or deferred sales charge and are currently offered exclusively for sale to
tax-exempt employee benefit and retirement plans of Salomon Smith Barney
or any of its affiliates ("Qualified Plans") and to certain unit
investment trusts ("UIT) sponsored by Salomon Smith Barney or any of its
affiliates.
General
Investors may purchase shares from a Salomon Smith Barney Financial
Consultant or a broker that clears through Salomon Smith Barney ("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 the transfer agent
are not subject to a maintenance fee.
Purchases of the Fund's Class Z shares must be made in accordance with the
terms of a Qualified Plan or a Salomon Smith Barney UIT. There are no
minimum investment requirements for Class Z shares; however the Fund
reserves the right to vary this policy at any time. Shareholders
acquiring Class Z shares through a Qualified Plan or a Salomon Smith
Barney UIT should consult the terms of their respective plans for
redemption provisions.
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 New York Stock
Exchange ("NYSE"), on any day the fund calculates its net asset value, are
priced according to the net asset value determined on that day (the
''trade date''). Orders received by 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 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.
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.
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.
D. Holders of Class Z shares should consult their Qualified Plans
for information about available exchange options.
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, Class Y and Class Z 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
fund1
Class A2
34.97%
N/A
N/A
30.38%
Class B3
36.02%
N/A
N/A
31.89%
Class L4
38.65%
N/A
N/A
33.78%
Class Y5
42.61%
N/A
N/A
33.49%
_______________________
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 42.12% and 35.87% for one year and life of the fund
periods, respectively.
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 41.02% and 34.85%
for one year and life of the fund periods, respectively.
4 The average annual total return figure assumes that the maximum
applicable initial and deferred sales charges have been deducted
from the investment at the time of redemption. If the maximum
initial and deferred sales charges have not been deducted, the
average annual total return for Class L shares for the same period
would have been 41.02% and 34.85% for one year and life of the fund
periods, respectively.
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
fund1
Class A2
34.97%
N/A
N/A
39.50%
Class B3
36.02%
N/A
N/A
41.53%
Class L4
38.65%
N/A
N/A
44.07%
Class Y5
42.61%
N/A
N/A
38.44%
_______________________
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 42.12% and 46.90% for one year and life of the fund
periods, respectively.
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 41.02% and 45.53%
for one year and life of the fund periods, respectively.
4 The average annual total return figure assumes that the maximum
applicable initial and deferred sales charges have been deducted
from the investment at the time of redemption. If the maximum
initial and deferred sales charges had not been deducted, the
average annual total return for Class L shares for the same period
would have been 41.02% and 45.53% for one year and life of the fund
periods, respectively.
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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions
The fund's policy is to distribute its net investment income and net
realized capital gains, if any, annually. The fund may also pay
additional dividends shortly before December 31 from certain amounts of
undistributed ordinary and capital gains realized, in order to avoid a
Federal excise tax liability.
If a shareholder does not otherwise instruct, dividends and capital gains
distributions will be reinvested automatically in additional shares of the
same Class at net asset value, subject to no sales charge or deferred
sales charge. A shareholder may change the option at any time by
notifying his Salomon Smith Barney Financial Consultant or Dealer
Representative. Shareholders whose account are held directly at First
Data should notify First Data in writing, requesting a change to this
reinvest option
The per share dividends on Class B and Class L shares of the fund may be
lower than the per share dividends on Class A and Class Y shares
principally as a result of the distribution fee applicable with respect to
Class B and Class L shares. The per share dividends on Class A shares of
the fund may be lower than the per share dividends on Class Y shares
principally as a result of the service fee applicable to Class A shares.
Distributions of capital gains, if any, will be in the same amount for
Class A, Class B, Class L and Class Y shares.
Taxes
The 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 SAI, 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.
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 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
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 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 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 "Taxes - Taxation of United States Shareholders -
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.
Class Z
Qualified plan participants should consult their plan document or tax
advisors about the tax consequences of participating in a Qualified Plan.
In addition to the considerations described below, there may be other
federal, state, local, and/or foreign tax applications to consider.
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. Qualified plan participants should consult
their plan document or tax advisors about the tax consequences of
participating in a Qualified Plan.
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 five 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.
Under Massachusetts's law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the fund.
The Master Trust Agreement disclaims shareholder liability for acts or
obligations of the fund, however, and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered
into or executed by the fund or a trustee. The Master Trust Agreement
provides for indemnification from fund property for all losses and
expenses of any shareholder held personally liable for the obligations of
the fund. Thus, the risk of a shareholder's incurring financial loss on
account of shareholder liability is limited to circumstances in which the
fund itself would be unable to meet its obligations, a possibility which
management of the fund believes is remote. Upon payment of any liability
incurred by the fund, a shareholder paying such liability will be entitled
to reimbursement from the general assets of the fund. The trustees intend
to conduct the operation of the fund in such a way so as to avoid, as far
as possible, ultimate liability of the shareholders for liabilities of the
fund.
The Master Trust Agreement of the fund permits the trustees of the fund to
issue an unlimited number of full and fractional shares of a single class
and to divide or combine the shares into a greater or lesser number of
shares without thereby changing the proportionate beneficial interests in
the fund. Each share in the fund represents an equal proportional
interest in the fund with each other share. Shareholders of the fund are
entitled upon its liquidation to share pro rata in its net assets
available for distribution. No shareholder of the fund has any preemptive
or conversion rights. Shares of the fund are fully paid and non-
assessable.
Pursuant to the Master Trust Agreement, the fund's trustees may authorize
the creation of additional series of shares (the proceeds of which would
be invested in separate, independently managed portfolios) and additional
classes of shares within any series (which would be used to distinguish
among the rights of different categories of shareholders, as might be
required by future regulations or other unforeseen circumstances).
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.
Annual and Semi-annual Reports. The fund sends its shareholders a semi-
annual report and an audited annual report, which include listings of
investment securities held by the fund at the end of the period covered.
In an effort to reduce the fund's printing and mailing costs, the fund
consolidates the mailing of its semi-annual and annual reports by
household. This consolidation means that a household having multiple
accounts with the identical address of record will receive a single copy
of each report. In addition, the fund also consolidates the mailing of its
prospectus so that a shareholder having multiple accounts (that is,
individual, IRA and/or Self-Employed Retirement Plan accounts) will
receive a single Prospectus annually. Shareholders who do not want this
consolidation to apply to their accounts should contact their Salomon
Smith Barney Financial Consultant or the transfer agent.
FINANCIAL STATEMENTS
The fund's annual report for the fiscal year ended November 30, 1998 is
incorporated herein by reference in its entirety. The annual report was
filed on February 26, 1999, Accession Number 91155-99-102.
SMITH BARNEY
INVESTMENT TRUST
Large Capitalization
Growth
Fund
March 30, 1999
SMITH BARNEY INVESTMENT TRUST
388 Greenwich Street
New York, NY 10013
SALOMON SMITH BARNEY
A Member of Citigroup [Symbol]
1
March 30, 1999
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY INVESTMENT TRUST
Smith Barney Mid Cap Blend Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
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 Objective and Management Policies 2
Investment Restrictions...... .....................................14
Trustees of the Trust and Executive Officers of the Fund 16
Investment Management and Other Services 18
Portfolio Transactions... ................................22
Portfolio Turnover.................. ......................24
Purchase of Shares .............................................24
Redemption of Shares 32
Valuation of Shares 33
Exchange Privilege 34
Performance Information 35
Dividends, Distribution and Taxes 38
Additional Information 43
Financial Statements ...................................................45
INVESTMENT OBJECTIVE 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 is an open-end, diversified, management investment company whose
investment objective is to seek long-term growth of capital by investing,
under normal market conditions, at least 65% of its total assets in equity
securities of medium-sized companies. Medium sized companies are those
whose market capitalization is within the market capitalization range of
companies in the S&P Mid Cap Index ("Index") at the time of 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 $240 million. 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. 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.
Real Estate Investment Trusts ("REITS"). The Fund may invest in REITS,
which are pooled investment vehicles that invest primarily in either real
estate or real estate related loans. The value of a REIT is affected by
changes in the value of the properties owned by the REIT or securing
mortgage loans held by the REIT. REITs are dependent upon cash flow from
their investments to repay financing costs and the ability of the REIT's
manager. REITs are also subject to risks generally associated with
investments in real estate. The Fund will indirectly bear its
proportionate share of any expenses, including management fees, paid by a
REIT in which it invests.
Convertible Securities. Convertible securities in which the 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, Delayed-Delivery and Forward Commitment 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 fund will set aside cash or liquid securities equal to the
amount of the commitment in a segregated account on the fund's books.
Normally, the fund 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, 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."
Short-Term 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 obligate 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 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. If 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 manager unless they
have applied for and received specific authority to do so from the
Securities and Exchange Commission ("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 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 on the fund's books.
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 fund might not employ the use of forward currency contracts,
options and futures, the use of any of these strategies would involve
certain investment risks and transaction costs to which it might not
otherwise be subject. These risks include: dependence on the 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 SSBC expects the
price of the underlying security to remain flat or decline moderately
during the option period, (b) at-the-money call options when SSBC 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 SSBC
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 SSBC 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 the manager 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 SSBC 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 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.
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 on the fund's books 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 on the fund's books 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 the manager 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.
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 OF THE TRUST AND EXECUTIVE OFFICERS OF THE FUND
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. The address of the "non-interested" trustees and the
executive officers of the fund is 388 Greenwich Street, New York, New York
10013.
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 (Age 65). Chairman of the Board and Investment Officer;
Managing Director of Salomon Smith Barney, Inc.; President of SSBC and
Travelers Investment Adviser, Inc. ("TIA"); Chairman or Co-Chairman 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 (Age 41). Senior Vice President and Treasurer; 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 (Age 37). Vice President and Investment Officer;
Managing Director of Salomon Smith Barney; Investment Officer of SSBC;
prior to 1998, portfolio manager at Neuberger & Berman, LLC.; prior to
that he was a portfolio manager at TIAA-CREFF
Paul Brook (Age 45). Controller; Director of Salomon Smith Barney; from
1997-1998 Managing Director of AMT Capital Services Inc.; prior to 1997
Partner with Ernst & Young LLP.
Christina T. Sydor (Age 48). Secretary; Managing Director of Salomon
Smith Barney; General Counsel and Secretary of SSBC and TIA.
As of March 19, 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
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 $10,000 per annum plus $1000 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 $5,000 per annum plus $500 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 and for the most recent
fiscal year it was $13,594.
The following table contains a list of shareholders of record or who
beneficially owned at least 5% of the outstanding shares of a particular
class of shares of a fund as of March 19, 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(49.67%) 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(38.74%) shares
Smith Barney Concert Series, Inc.
Select Growth Portfolio
PNC Bank NA
200 Stevens Drive, Suite 440
Attn: Beverly Timson
Lester, PA 19113
Owned 445,430.652(7.42%) shares
For the fiscal year ended November 30, 1998, the Trustees of the fund were
paid the following compensation:
Name of Person
Aggregate
Compensat
ion
from
trust
Total
Pension or
Retirement
Benefits
Accrued
as part of
trust
Expenses
Compensation
From trust
and Fund
Complex
Paid to
Trustees
Number of
Funds for
Which Trustee
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.**
$11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
- -----
11,600
$0
0
0
0
0
0
0
0
0
0
$105,425
51,200
132,500
139,975
51,200
47,550
96,400
51,200
- ------
51,200
18
13
21
24
13
13
15
13
59
13
* Designated an "interested" trustee.
** Designates member of Audit Committee
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. A trustee emeritus may attend meetings
but has no voting rights.
INVESTMENT MANAGEMENT AND OTHER SERVICES
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. The
manager bears all expenses in connection with the performance of its
services. The manager also: (a) assists in supervising all aspects of the
Fund's operations except those performed by the fund's investment manager
under its investment advisory agreement; b) supplies the fund with office
facilities (which may be in SSBC's own offices), statistical and research
data, data processing services, clerical, accounting and bookkeeping
services, including, but not limited to, the calculation of (i) the net
asset value of shares of the fund, (ii) applicable contingent deferred
sales charges and similar fees and charges and (iii) distribution fees,
internal auditing and legal services, internal executive and
administrative services, and stationary and office supplies; and (c)
prepares reports to shareholders of the fund, tax returns and reports to
and filings with the SEC and state blue sky authorities.
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 30, 1998 was $202,181.
Auditors
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.
Custodian and Transfer Agent
PNC Bank, National Association ("PNC" or "custodian") 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 Investor Services Group, Inc, ("First Data" or "transfer
agent") 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.
Distributor
CFBDS, Inc., located at 20 Milk Street, Boston, Massachusetts 02109-5408
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 Trustees, including a majority of the Independent trustees
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. Salomon Smith Barney continues to sell the funds
shares as part of the selling group.
For the period September 1, 1998 through October 7, 1998 the aggregate
dollar amount of commissions on Class A shares was $104,000 all of which
was paid to Salomon Smith Barney. For the period October 8, 1998 through
November 30, 1998 the aggregate dollar amount of commissions on Class A
shares was $592,000, $532,800 of which was paid to Salomon Smith Barney.
For the period September 1, 1998 through October 7, 1998 the aggregate
dollar amount of commissions on Class L shares was $58,000, all of which
was paid to Salomon Smith Barney. For the period October 8, 1998 through
November 30, 1998 the aggregate dollar amount of commissions on Class L
shares was $270,000, $243,000 of which was paid to Salomon Smith Barney.
For the fiscal period ended November 30, 1998, Salomon Smith Barney
received from shareholders $10,000 and $2,000, in deferred sales charges
on the redemption of Class B and Class L shares, respectively.
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 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.
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 period indicated:
Distribution Plan Fees
Fiscal
Period
Ended
11/30/98
Class A
$16,625
Class B
$121,87
4
Class L
$81,200
For the fiscal year ended November 30, 1998, the distributor incurred
distribution expenses totaling $4,434,938, consisting of $148,437 for
advertising, $1,995 for printing and mailing of prospectuses, $798,439 for
support services, $3,320,483 to Salomon Smith Barney Financial
Consultants, and $165,584 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 period
ended November 30, 1998, the distributor, received $219,699 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.
PORTFOLIO TRANSACTIONS
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 management 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 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 fund has paid the following in brokerage commissions for portfolio
transactions :
Fiscal Period Ended
11/30/98
Total Brokerage Commissions $133,876
Total Brokerage Commissions
paid to Salomon Smith Barney $0
% of Total Brokerage Commissions 0%
paid to Salomon Smith Barney
% of Total Transactions involving 0%
Commissions paid to Salomon
Smith Barney
During the fiscal period ended November 30, 1998, the total amount of
commissionable transactions was $133,217,263 .
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. The fund's portfolio turnover rate
for the fiscal period ended November 30, 1998 was 15%.
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
Investme
nt
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 Provisions" 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 other Smith
Barney Mutual Funds 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 broker that clears through Salomon Smith Barney ("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 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 New York Stock
Exchange ("NYSE"), on any day the fund calculates its net asset value, are
priced according to the net asset value determined on that day (the
''trade date''). Orders received by 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 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.
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.
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
fund1
Class A2
N/A
N/A
N/A
13.58%
Class B3
N/A
N/A
N/A
14.30%
Class L4
N/A
N/A
N/A
17.06%
Class Y
N/A
N/A
N/A
N/A
_______________________
1 Class A, B and L commenced operations on September 1, 1998.
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 19.56%.
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 19.30%.
4 The average annual total return figure assumes that the maximum
applicable initial and deferred sales charges have been deducted
from the investment at the time of redemption. If the maximum
initial and deferred sales charges had not been deducted, the
average annual total return for Class L shares for the same period
would have been 19.30% .
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
fund1
Class A2
N/A
N/A
N/A
13.58%
Class B3
N/A
N/A
N/A
14.30%
Class L4
N/A
N/A
N/A
17.06%
Class Y
N/A
N/A
N/A
N/A
_______________________
1 Classes A, B and L commenced operations on September 1, 1998.
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 19.56%.
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 19.30%.
4 The average annual total return figure assumes that the maximum
applicable initial and deferred sales charges have been deducted
from the investment at the time of redemption. If the maximum
initial and deferred sales charges had not been deducted, the
average annual total return for Class L shares for the same period
would have been 19.30%.
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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions.
The fund's policy is to distribute its net investment income and net
realized capital gains, if any, annually. The fund may also pay
additional dividends shortly before December 31 from certain amounts of
undistributed ordinary and capital gains realized, in order to avoid a
Federal excise tax liability.
If a shareholder does not otherwise instruct, dividends and capital gains
distributions will be reinvested automatically in additional shares of the
same Class at net asset value, subject to no sales charge or deferred
sales charge. A shareholder may change the option at any time by
notifying his Salomon Smith Barney Financial Consultant or Dealer
Representative. Shareholders whose account are held directly at First
Data should notify First Data in writing, requesting a change to this
reinvest option
The per share dividends on Class B and Class L shares of the fund may be
lower than the per share dividends on Class A and Class Y shares
principally as a result of the distribution fee applicable with respect to
Class B and Class L shares. The per share dividends on Class A shares of
the fund may be lower than the per share dividends on Class Y shares
principally as a result of the service fee applicable to Class A shares.
Distributions of capital gains, if any, will be in the same amount for
Class A, Class B, Class L and Class Y shares.
Taxes
The 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 SAI, 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..
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 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
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 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 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 "Taxes - Taxation of United States Shareholders -
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 five 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.
Under Massachusetts's law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the fund.
The Master Trust Agreement disclaims shareholder liability for acts or
obligations of the fund, however, and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered
into or executed by the fund or a trustee. The Master Trust Agreement
provides for indemnification from fund property for all losses and
expenses of any shareholder held personally liable for the obligations of
the fund. Thus, the risk of a shareholder's incurring financial loss on
account of shareholder liability is limited to circumstances in which the
fund itself would be unable to meet its obligations, a possibility which
management of the fund believes is remote. Upon payment of any liability
incurred by the fund, a shareholder paying such liability will be entitled
to reimbursement from the general assets of the fund. The trustees intend
to conduct the operation of the fund in such a way so as to avoid, as far
as possible, ultimate liability of the shareholders for liabilities of the
fund.
The Master Trust Agreement of the fund permits the trustees of the fund to
issue an unlimited number of full and fractional shares of a single class
and to divide or combine the shares into a greater or lesser number of
shares without thereby changing the proportionate beneficial interests in
the fund. Each share in the fund represents an equal proportional
interest in the fund with each other share. Shareholders of the fund are
entitled upon its liquidation to share pro rata in its net assets
available for distribution. No shareholder of the fund has any preemptive
or conversion rights. Shares of the fund are fully paid and non-
assessable.
Pursuant to the Master Trust Agreement, the fund's trustees may authorize
the creation of additional series of shares (the proceeds of which would
be invested in separate, independently managed portfolios) and additional
classes of shares within any series (which would be used to distinguish
among the rights of different categories of shareholders, as might be
required by future regulations or other unforeseen circumstances).
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.
Annual and Semi-annual Reports. The fund sends its shareholders a semi-
annual report and an audited annual report, which include listings of
investment securities held by the fund at the end of the period covered.
In an effort to reduce the fund's printing and mailing costs, the fund
consolidates the mailing of its semi-annual and annual reports by
household. This consolidation means that a household having multiple
accounts with the identical address of record will receive a single copy
of each report. In addition, the fund also consolidates the mailing of its
prospectus so that a shareholder having multiple accounts (that is,
individual, IRA and/or Self-Employed Retirement Plan accounts) will
receive a single Prospectus annually. Shareholders who do not want this
consolidation to apply to their accounts should contact their Salomon
Smith Barney Financial Consultant or the transfer agent.
FINANCIAL STATEMENTS
The fund's annual report for the fiscal year ended November 30, 1998 is
incorporated herein by reference in its entirety. The annual report was
filed on February 26, 1999, Accession Number 91155-99-102.
SMITH BARNEY
INVESTMENT TRUST
Mid Cap Blend Fund
March 30, 1999
SMITH BARNEY INVESTMENT TRUST
388 Greenwich Street
New York, NY 10013
SALOMON SMITH BARNEY
A Member of Citigroup [Symbol]
1
March 30, 1999
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY INVESTMENT TRUST
Smith Barney S&P 500 Index Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
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 (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 Objective and Management Policies 2
Investment Restrictions...... .................................... 8
Trustees of the Trust and Executive Officers of the Fund.......... 9
Investment Management and Other Services 12
Portfolio Transactions... .......................................15
Portfolio Turnover.................. ...........................17
Purchase of Shares .............................................18
Redemption of Shares 19
Valuation of Shares 21
Performance Data 21
Dividends, Distributions and Taxes 23
Additional Information 29
Financial Statements ...................................................30
INVESTMENT OBJECTIVE 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. SSBC Fund Management Inc. ("SSBC" or
the "administrator"), formerly known as Mutual Management Corp, serves as
the fund's administrator.
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 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 manager unless they
have applied for and received specific authority to do so from the
Securities and Exchange Commission ("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 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 OF THE TRUST AND EXECUTIVE OFFICERS OF THE FUND
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. The address of the "non-interested" trustees and the
executive officers of the fund is 388 Greenwich Street, New York, New York
10013.
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; Trustee 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 (Age 65). Chairman of the Board and Investment Officer;
Managing Director of Salomon Smith Barney, Inc.; 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.
Cornelius C. Rose, Jr. (Age 65). President, Cornelius C. Rose Associates,
Inc., financial consultants, and Chairman and Trustee of Performance
Learning Systems, an educational consultant. His address is Meadowbrook
Village, Building 4, Apt 6, West Lebanon, New Hampshire 03784.
Lewis E. Daidone (Age 41). Senior Vice President and Treasurer; 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, (Age 37). Vice President and Investment Officer 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 (Age 32). Vice President and Investment Officer; 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.
Paul Brook (Age 45). Controller; Director of Salomon Smith Barney; from
1997-1998 Managing Director of AMT Capital Services Inc.; prior to 1997
Partner with Ernst & Young LLP
Christina T. Sydor (Age 48). Secretary; Managing Director of Salomon Smith
Barney; General Counsel and Secretary of SSBC and TIA.
As of March 19, 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
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 $10,000 per annum plus $1000 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 $5,000 per annum plus $500 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 and for the last fiscal
year it was $13,594.
The following table contains a list of shareholders of record or who
beneficially owned at least 5% of the outstanding shares of a particular
class of shares of the fund as of March 19, 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 634,707.216(7.18%) shares
CLASS D
PERCENTAGE OF SHARES
Smith Barney 401(k)Advisor Group
Smith Barney Corporate Trust
Two Tower Square
P.O. Box 1063
East Brunswick, NJ 08816
Owned 312,984.310(100%) shares
For the fiscal year ended November 30, 1998, the Trustees of the trust
were paid the following compensation:
Name of Person
Aggregate
Compensat
ion
from
Trust
Total
Pension or
Retirement
Benefits
Accrued
As part of
Trust
Expenses
Compensation
from Trust
and Fund
Complex
Paid to
Trustees
Number of
Funds for Which DirecD
Trustee 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.**
$11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
- -----
11,600
$0
0
0
0
0
0
0
0
0
0
$105,425
51,200
132,500
139,975
51,200
47,550
96,400
51,200
- -----
51,200
18
13
21
24
13
13
15
13
59
13
_________________
* Designated an "interested" trustee.
** Designates member of Audit Committee.
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.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Manager - TIMCO
TIMCO serves as investment adviser to the 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 Citigroup Inc. ("Citigroup").
Subject to the supervision and direction of the 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. TIMCO has
been in the investment counseling business since 1967 and renders
investment advice to a wide variety of individual, institutional and
investment company clients that had aggregate assets under management as
of March 1999 in excess of $400 million.
As compensation for investment advisory services, the fund pays the
manager a fee computed daily and payable monthly at the annual rate of
0.15% of the value of the fund's average daily net assets. The management
fee paid by the fund in fiscal period ended November 30, 1998 was $36,394.
Administrator - SSBC
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 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 administrator SSBC: (a) assists in supervising all aspects of the
Fund's operations except those performed by the fund's investment manager
under its investment advisory agreement; b) supplies the fund with office
facilities (which may be in SSBC's own offices), statistical and research
data, data processing services, clerical, accounting and bookkeeping
services, including, but not limited to, the calculation of (i) the net
asset value of shares of the fund, (ii) applicable contingent deferred
sales charges and similar fees and charges and (iii) distribution fees,
internal auditing and legal services, internal executive and
administrative services, and stationary and office supplies; and (c)
prepares reports to shareholders of the fund, tax returns and reports to
and filings with the SEC and state blue sky authorities.
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 administration fee was waived by the administrator in the fiscal
period ended November 30, 1998.
The fund bears expenses incurred in its operation, including: taxes,
interest, brokerage fees and commissions, if any; fees of Trustees who are
not officers, Trustees, 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.
Auditors
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.
Custodian and Transfer Agent
PNC Bank, National Association ("PNC" or "custodian"), 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 Investor Services Group, Inc, ("First Data" or "transfer
agent") 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.
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 Trustees, including a majority of the
Independent Trustees 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.
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 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 Advisory, Administration and Distribution
Agreements for continuance.
For the fiscal period ended November 30, 1998, Salomon Smith Barney
incurred distribution expenses totaling approximately $65,086 consisting
of approximately $4,280 for advertising, $0 for printing and mailing of
prospectuses, $32,998 for support services, $27,808 to Salomon Smith
Barney Financial Consultants.
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 period ended November 30, 1998, the distributor reimbursed
Plan fees totaling $47,919.
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.
PORTFOLIO TRANSACTIONS
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 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 fund has paid the following in brokerage commissions for portfolio
transactions :
Fiscal Period Ended
11/30/98
Total Brokerage Commissions $24,665
Total Brokerage Commissions
paid to Salomon Smith Barney $0
% of Total Brokerage Commissions
paid to Salomon Smith Barney 0%
% of Total Transactions involving
Commissions paid to Salomon
Smith Barney 0%
During the fiscal period ended November 30, 1998, the total amount of
commissionable transactions was $50,746,574.
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.
The fund's portfolio turnover rate for the fiscal period ended November
30, 1998 was 4%.
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 broker that clears through Salomon Smith Barney ("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 the 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
Trustees/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 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.
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.
Aggregate Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Life
of
fund1
Class A
N/A
N/A
N/A
19.80%
Class D
N/A
N/A
N/A
9.00%
1 Class A and D commenced operations on January 5, 1998 and August 4,
1998, respectively.
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.
Average Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Life
of
fund1
Class A
N/A
N/A
N/A
19.80%
Class D
N/A
N/A
N/A
9.00%
1 Class A and D commenced operations on January 5, 1998 and August 4,
1998, respectively.
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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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 SAI, 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.
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 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
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 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 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 "Taxes- Taxation of United States Shareholders -
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 five 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 Y and Z. Each Class of the fund represents an identical
interest in the fund's investment portfolio. As a result, the Classes
have the same rights, privileges and 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.
Under Massachusetts's law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the fund.
The Master Trust Agreement disclaims shareholder liability for acts or
obligations of the fund, however, and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered
into or executed by the fund or a trustee. The Master Trust Agreement
provides for indemnification from fund property for all losses and
expenses of any shareholder held personally liable for the obligations of
the fund. Thus, the risk of a shareholder's incurring financial loss on
account of shareholder liability is limited to circumstances in which the
fund itself would be unable to meet its obligations, a possibility which
management of the fund believes is remote. Upon payment of any liability
incurred by the fund, a shareholder paying such liability will be entitled
to reimbursement from the general assets of the fund. The trustees intend
to conduct the operation of the fund in such a way so as to avoid, as far
as possible, ultimate liability of the shareholders for liabilities of the
fund.
The Master Trust Agreement of the fund permits the trustees of the fund to
issue an unlimited number of full and fractional shares of a single class
and to divide or combine the shares into a greater or lesser number of
shares without thereby changing the proportionate beneficial interests in
the fund. Each share in the fund represents an equal proportional
interest in the fund with each other share. Shareholders of the fund are
entitled upon its liquidation to share pro rata in its net assets
available for distribution. No shareholder of the fund has any preemptive
or conversion rights. Shares of the fund are fully paid and non-
assessable.
Pursuant to the Master Trust Agreement, the fund's trustees may authorize
the creation of additional series of shares (the proceeds of which would
be invested in separate, independently managed portfolios) and additional
classes of shares within any series (which would be used to distinguish
among the rights of different categories of shareholders, as might be
required by future regulations or other unforeseen circumstances).
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.
Annual and Semi-annual Reports. The fund sends its shareholders a semi-
annual report and an audited annual report, which include listings of
investment securities held by the fund at the end of the period covered.
In an effort to reduce the fund's printing and mailing costs, the fund
consolidates the mailing of its semi-annual and annual reports by
household. This consolidation means that a household having multiple
accounts with the identical address of record will receive a single copy
of each report. In addition, the fund also consolidates the mailing of its
prospectus so that a shareholder having multiple accounts (that is,
individual, IRA and/or Self-Employed Retirement Plan accounts) will
receive a single Prospectus annually. Shareholders who do not want this
consolidation to apply to their accounts should contact their Salomon
Smith Barney Financial Consultant or the transfer agent.
FINANCIAL STATEMENTS
The fund's annual report for the fiscal year ended November 30, 1998 is
incorporated herein by reference in its entirety. The annual report was
filed on February 26, 1999, Accession Number 91155-99-102.
"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.
SMITH BARNEY
INVESTMENT TRUST
S&P 500 Index Fund
March 30, 1999
SMITH BARNEY INVESTMENT TRUST
388 Greenwich Street
New York, NY 10013
SALOMON SMITH BARNEY
A Member of Citigroup [Symbol]
6
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.
(e)(4) Selling Group Agreement between CFBDS Inc. And
Salomon Smith Barney is filed herewith.
(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.
(i)(2) Legal Counsel's consent is filed herewith.
(j)(1) Auditor's consent is filed herewith.
(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 filed
herewith.
(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 - SSBC Fund Management Inc.
("SSBC") (Formerly Mutual Management Corp.),
was incorporated in December 1968
under the laws of the State of Delaware. SSBC 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"). SSBC 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. SSBC
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.
SSBC 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 SSBC 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
SSBC 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 SSBC 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) SSBC Fund Management Inc.
388 Greenwich Street
New York, New York 10013
(3) Travelers Investment Management Company
One Tower Square
Hartford, CT 06183
(For Smith Barney S&P 500 Index Fund)
(4) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, PA
(5) First Data Investor Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
(6) 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 30th day of March, 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 3/30/99
Heath B. McLendon (Chief Executive Officer)
and President
/s/Lewis E. Daidone Treasurer 3/30/99
Lewis E. Daidone (Chief Financial and
Accounting Officer)
/s/Herbert Barg* Trustee 3/30/99
Herbert Barg
/s/Alfred J. Bianchetti* Trustee 3/30/99
Alfred J. Bianchetti
/s/Martin Brody* Trustee 3/30/99
Martin Brody
/s/Dwight B. Crane* Trustee 3/30/99
Dwight B. Crane
/s/Burt N. Dorsett* Trustee 3/30/99
Burt N. Dorsett
/s/Elliot S. Jaffe* Trustee 3/30/99
Elliot S. Jaffe
/s/Stephen E. Kaufman* Trustee 3/30/99
Stephen E. Kaufman
/s/Joseph J. McCann* Trustee 3/30/99
Joseph J. McCann
/s/Cornelius C. Rose, Jr.* Trustee 3/30/99
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
SMITH BARNEY MUTUAL FUNDS
BROKER DEALER CONTRACT
CFBDS, Inc.
21 Milk Street
Boston, Massachusetts 02109
Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
We, CFBDS, Inc. ("CFBDS"), have agreements with certain investment
companies for which Mutual Management Corp. serves as investment adviser
and/or administrator (each a "Fund") pursuant to
which we act as nonexclusive principal underwriter and distributor for the
sale of shares of capital stock ("shares") of the various series of such
Funds, and as such have the right to distribute shares
for resale. Each Fund is an open-end investment company registered under
the Investment Company Act
of 1940, as amended (the "1940 Act") and the shares being offered to the
public are registered under the Securities Act of 1933, as amended
(the "1933 Act"). Each series of each Fund covered by a
Distribution Agreement from time to time is referred to in this
agreement as a "Series" and
collectively as the "Series." The term "Prospectus", as used herein,
refers to the prospectus and
related statement of additional information (the "Statement of Additional
Information") incorporated therein by reference (as amended or supplemented)
on file with the Securities and Exchange Commission at the time in question.
As a broker in the capacity of principal underwriter and distributor for the
Trust, we offer to sell to you, as a broker or dealer, shares of each Fund
upon the following terms and conditions:
1. In all sales to the public you shall act as broker for your customers
or as dealer for your own account, and in no transaction shall you have
any authority to act as agent for the Trust, for us or for any other dealer.
2. Orders received from you will be accepted through us only at the
public offering price per share (i.e. the net asset value per share plus
the applicable front-end sales charge, if any) applicable to each order,
and all orders for redemption of any shares shall be executed at the
net asset value per share less any contingent deferred sales charge, if any,
in each case as set forth in the Prospectus. You will be entitled to
receive and retain any contingent deferred sales charge amounts in partial
consideration of your payment to financial consultants of commission amounts
at the time of sale and we will obligate any other brokers with whom we
enter into similar agreements to pay
such amounts directly to you. The procedure relating to the handling of
orders shall be subject to paragraph 4 hereof and instructions which we or
the Fund shall forward from time to time to you. All orders are subject to
acceptance or rejection by the applicable Fund or us in the sole discretion of
either. The minimum initial purchase and the minimum subsequent purchase
of any shares shall be as set forth in the Prospectus pertaining to the
relevant Series.
3. You shall not place orders for any shares unless you have already
received purchase orders for those shares at the applicable public offering
price and subject to the terms hereof. You agree that you will not offer
or sell any shares except under circumstances that will result in
compliance with the applicable Federal and state securities laws, the
applicable rules and regulations thereunder and the rules and regulations
of applicable regulatory agencies or authorities and that in
connection with sales and offers to sell shares you will furnish to each
person to whom any such sale or offer is made, a copy of the Prospectus
and, upon request, the Statement of Additional Information,
and will not furnish to any person any information relating to shares
which is inconsistent in any respect with the information contained in the
Prospectus or Statement of Additional Information (as then amended or
supplemented). You shall not furnish or cause to be furnished to any person or
display or publish any information or materials relating to the shares
(including, without limitation, promotional materials and sales literature,
advertisements, press releases, announcements, statements, posters, signs or
other similar material), except such information and materials as may be
furnished to you by or on behalf of us or the Funds, and such other
information and materials as may be approved in writing by or on behalf of
us or the Funds.
4. As a broker dealer, you are hereby authorized (i) to place orders
directly with the applicable Fund or Series for shares subject to the
applicable terms and conditions governing the
placement of orders by us set forth in the Prospectus and (ii) to tender
shares directly to each Fund or its agent for redemption subject to the
applicable terms and conditions governing the redemption of
shares applicable to us set forth in the Prospectus.
5. You shall not withhold placing orders received from your customers so
as to profit yourself as a result of such withholding, e.g., by a change
in the "net asset value" from that used in determining the offering price to
your customers.
6. In determining the amount of any sales concession payable to you
hereunder, we reserve the right to exclude any sales which we reasonably
determine are not made in accordance with the terms of the Prospectus and
the provisions of this Agreement. Unless at the time of transmitting
an order we advise you or the transfer agent to the contrary, the shares
ordered will be deemed to be the total holdings of the specified investor.
7. (a) You agree that payment for orders from you for the purchase of
shares will be made in accordance with the terms of the Prospectus. On or
before the business day following the
settlement date of each purchase order for shares, you shall transfer same
day funds to an account designated by us with the transfer agent in an
amount equal to the public offering price on the date of purchase of the
shares being purchased less your sales concession, if any, with respect to such
purchase order determined in accordance with the Prospectus. If payment
for any purchase order is not received in accordance with the terms of the
Prospectus, we reserve the right, without notice, to cancel the sale and to
hold you responsible for any loss sustained as a result thereof.
(b) If any shares sold under the terms of this Agreement are sold with a
sales charge and are redeemed or are tendered for redemption within
seven (7) business days after confirmation of your purchase order for such
shares: (i) you shall forthwith refund to us the full sales concession
received by you on the sale; and (ii) we shall forthwith pay to the
applicable Series our portion of the sales charge on the sale which has
been retained by us, if any, and shall also pay to the
applicable Series the amount refunded by you.
(c) We will not be obligated to pay or cause to be paid to you any ongoing
trail commission or shareholder service fees with respect to shares of the
Series purchased through you and held by or for your customers, which you
shall collect directly from the Funds.
(d) Certificates evidencing shares shall be available only upon request.
Upon payment for shares in accordance with paragraph 7(a) above, the
transfer agent will issue and transmit to you
or your customer a confirmation statement evidencing the purchase of such
shares. Any transaction in uncertificated shares, including purchases,
transfers, redemptions and repurchases, shall be effected
and evidenced by book-entry on the records of the transfer agent.
8. No person is authorized to make any representations concerning shares
except those contained in the current Prospectus and Statement of
Additional Information and in printed information
subsequently issued by us or the Funds as information supplemental to the
Prospectus and the Statement of Additional Information. In purchasing or
offering shares pursuant to this Agreement you shall rely solely on the
representations contained in the Prospectus, the Statement of Additional
Information and the supplemental information above mentioned.
9. You agree to deliver to each purchaser making a purchase of shares
from or through you a copy of the Prospectus at or prior to the time of
offering or sale, and, upon request, the
Statement of Additional Information. You may instruct the transfer agent
to register shares purchased in your name and account as nominee for your
customers. You agree thereafter to deliver to any purchaser whose shares
you or your nominee are holding as record holder copies of the annual and
interim reports and proxy solicitation materials and any other information
and materials relating to the Trust and prepared by or on behalf of us, the
Funds or the investment adviser, custodian, transfer
agent or dividend disbursing agent for distribution to beneficial holders
of shares. The Funds shall be responsible for the costs associated with
forwarding such reports, materials and other information
and shall reimburse you in full for such costs. You further agree to make
reasonable efforts to endeavor to obtain proxies from such purchasers
whose shares you or your nominee are holding as record holder. You further
agree to obtain from each customer to whom you sell shares any taxpayer
identification number certification required under Section 3406 of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
promulgated thereunder, and to provide us or our designee
with timely written notice of any failure to obtain such taxpayer
identification number certification
in order to enable the implementation of any required backup withholding in
accordance with Section 3406 of the Code and the regulations thereunder.
Additional copies of the Prospectus, Statement of Additional Information,
annual or interim reports, proxy solicitation materials and any such other
information and materials relating to the Trust will be supplied to you in
reasonable quantities upon request.
10. (a) In accordance with the terms of the Prospectus, a reduced sales
charge may be available to customers, depending on the amount of the
investment or proposed investment. In each case where a reduced sales
charge is applicable, you agree to furnish to the transfer agent sufficient
information to permit confirmation of qualification for a reduced sales
charge, and acceptance of the purchase order is subject to such
confirmation. Reduced sales charges may be modified or terminated
at any time in the sole discretion of each Fund.
(b) You acknowledge that certain classes of investors may be entitled to
purchase shares at net asset value without a sales charge as provided in
the Prospectus and Statement of Additional Information.
(c) You agree to advise us promptly as to the amount of any and all sales
by you qualifying for a reduced sales charge or no sales charge.
(d) Exchanges (i.e., the investment of the proceeds from the liquidation
of shares of one Series in the shares of another Series, each of which is
managed by the same or an affiliated investment adviser) shall,
where available, be made in accordance with the terms of each Prospectus.
11. We and each Fund reserve the right in our discretion, without
notice, to suspend sales or withdraw the offering of any shares entirely.
Each party hereto has the right to cancel the
portions of this Agreement to which it is party upon notice to the other
parties; provided, however,
that no cancellation shall affect any party's obligations hereunder with
respect to any transactions or activities occurring prior to the effective
time of cancellation. We reserve the right to amend
this Agreement in any respect effective on notice to you.
12. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering
of shares. We shall be under no liability to you
except for lack of good faith and for obligations expressly assumed by us
herein. Nothing contained in this paragraph 12 is intended to operate as,
and the provisions of this paragraph 12 shall not in
any way whatsoever constitute a waiver by you of compliance with, any
provisions of the 1933 Act or of the rules and regulations of the
Securities and Exchange Commission issued thereunder.
13. You agree that: (a) you shall not effect any transactions
(including, without limitation, any purchases and redemptions) in any
shares registered in the name of, or beneficially
owned by, any customer unless such customer has granted you full right,
power and authority to effect such transactions on his behalf, (b) we shall
have full authority to act upon your express
instructions to sell, repurchase or exchange shares through us on behalf of
your customers under the terms and conditions provided in the Prospectus
and (c) we, the Funds, the investment adviser, the administrator, the
transfer agent and our and their respective officers, directors or trustees,
agents, employees and affiliates shall not be liable for, and shall be fully
indemnified and held harmless by you from and against, any and all claims,
demands, liabilities and expenses (including, without limitation, reasonable
attorneys' fees) which may be incurred by us or any of the foregoing
persons entitled to indemnification from you hereunder arising out of or
in connection with (i) the
execution of any transactions in shares registered in the name of, or
beneficially owned by, any customer in reliance upon any oral or written
instructions believed to be genuine and to have been given by or on behalf
of you, (ii) any statements or representations that you or your employees or
representatives make concerning the Funds that are inconsistent with the
applicable Fund's Prospectus, (iii) any written materials used by you or
your employees or representatives in connection with making
offers or sales of shares that were not furnished by us, the Funds or the
investment adviser or an affiliate thereof and (iv) any sale of shares of a
Fund where the Fund or its shares were not properly registered or qualified
for sale in any state, any U.S. territory or the District of Columbia, when we
have indicated to you that the Fund or its shares were not properly
registered or qualified. The indemnification agreement contained in this
Paragraph 13 shall survive the termination of this
Agreement.
14. You represent that: (a) you are a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"), or, if a foreign
dealer who is not eligible for membership in the NASD, that (i) you will
not make any sales of shares in, or to nationals of, the
United States of America, its territories or its possessions, and
(ii) in making any sales of shares you will comply with the NASD's Conduct
Rules and (b) you are a member in good standing of the Securities Investor
Protection Corporation ("SIPC"). You agree that you will provide us
with timely written notice of any change in your NASD or SIPC status.
15. We shall inform you as to the states or other jurisdictions in which
the Fund has advised us that shares have been qualified for sale under, or
are exempt from the requirements of, the
respective securities laws of such states, but we assume no responsibility
or obligation as to your qualification to sell shares in any jurisdiction.
16. Any claim, controversy, dispute or deadlock arising under this Agreement
(collectively, a "Dispute") shall be settled by arbitration administered under
the rules of the American Arbitration Association ("AAA") in New York,
New York. Any arbitration and award of the arbitrators, or a majority of
them, shall be final and the judgment upon the award rendered may be
entered in any state or federal court having jurisdiction. No punitive
damages are to be awarded.
17. All communications to us should be sent, postage prepaid, to 21 Milk
Street, Boston, Massachusetts 02109 Attention: Philip Coolidge.
Any notice to you shall be duly given if mailed, telegraphed or telecopied
to you at the address specified by you below. Communications regarding
placement of orders for shares should be sent, postage prepaid, to
First Data Investor Services Group,
Inc., P.O. Box 5128, Westborough, Massachusetts 01581-5128.
18. This Agreement shall be binding upon both parties hereto when signed
by us and accepted by you in the space provided below.
19. This Agreement and the terms and conditions set forth herein shall
be governed by, and construed in accordance with, the laws of the
State of New York.
CFBDS, INC.
By:
(Authorized Signature)
Accepted:
Firm Name:
Address:
Accepted By (signature):
Name (print):
Title: Date:
u:\legal\general\forms\agreemts\dist12b-1\dealerag1.doc
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our
firm under the caption "Counsel" included in the Statement of
Additional Information that is included in Post-Effective Amendment No.
23 to the Registration Statement on Form N-1A under the Securities Act
of 1933, as amended (File Nos. 33-43446 and 811-6444) of Smith Barney
Investment Trust.
/s/ Willkie Farr & Gallagher
Willkie Farr & Gallagher
March 29, 1999
New York, New York
Independent Auditors' Consent
To the Shareholders and Board of Directors of
Smith Barney Investment Trust:
We consent to the use of our reports dated January 15, 1999, with respect
to the funds listed below of Smith Barney Investment Trust, incorporated
herein by reference and to the references to our Firm
under the headings "Financial Highlights" in each fund's
Prospectus and "Counsel and Auditors" in
each fund's respective Statement of Additional Information.
Funds
S&P 500 Index Fund
Mid Cap Blend Fund
Large Capitalization Growth Fund
Intermediate Maturity California Municipals Fund
Intermediate Maturity New York Municipals Fund
KPMG LLP
New York, New York
March 26, 1999
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> SMITH BARNEY INVESTMENT TRUST
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<NAME> SMITH BARNEY LARGE CAPITALIZATION GROWTH FUND. CLASS L
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<NAME> SMITH BARNEY INVESTMENT TRUST
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> SMITH BARNEY INVESTMENT TRUST
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<NAME> SMITH BARNEY MID CAP BLEND. CLASS A
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> SMITH BARNEY INVESTMENT TRUST
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<NAME> SMITH BARNEY INVESTMENT TRUST
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> SMITH BARNEY INVESTMENT TRUST
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<NAME> INTERMEDIATE MATURITY NEW YORK MUNICIPALS FUND. CLASS A
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<TABLE> <S> <C>
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<NAME> SMITH BARNEY INVESTMENT TRUST
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<NAME> INTERMEDIATE MATURITY NEW YORK MUNICIPALS FUND. CLASS L
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000880366
<NAME> SMITH BARNEY INVESTMENT TRUST
<SERIES>
<NUMBER> 5
<NAME> SMITH BARNEY S&P 500 INDEX FUND. CLASS A
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<NAME> SMITH BARNEY INVESTMENT TRUST
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<NAME> SMITH BARNEY S&P 500 INDEX FUND. CLASS D
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