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CONCERT INVESTMENT SERIES(R)
Mid Cap Fund
388 Greenwich Street
New York, New York 10013
August 16, 2000
Dear Shareholders:
You are being asked to vote on an Agreement and Plan of Reorganization
whereby all of the assets of the Mid Cap Fund (the "Fund"), a series of
Concert Investment Series(R) ("Investment Series"), would be transferred in a
tax-free reorganization to the Smith Barney Mid Cap Core Fund (formerly, Smith
Barney Mid Cap Blend Fund) (the "Acquiring Fund"), a series of Smith Barney
Investment Trust ("Investment Trust"), in exchange for shares of the
corresponding class of shares of beneficial interests of the Acquiring Fund.
If the Agreement and Plan of Reorganization is approved and consummated, you
would no longer be a shareholder of the Fund, but would become a shareholder
of the corresponding class of the Acquiring Fund, which has similar investment
objectives and policies to your Fund, except as described in the
Prospectus/Proxy Statement.
AFTER CAREFUL REVIEW, THE MEMBERS OF YOUR FUND'S BOARD HAVE APPROVED THE
PROPOSED REORGANIZATION. THE BOARD MEMBERS OF YOUR FUND BELIEVE THAT THE
PROPOSAL SET FORTH IN THE NOTICE OF MEETING FOR YOUR FUND IS IMPORTANT AND
RECOMMEND THAT YOU READ THE ENCLOSED MATERIALS CAREFULLY AND THEN VOTE FOR THE
PROPOSAL.
Your vote is important. PLEASE TAKE A MOMENT TO SIGN AND RETURN YOUR PROXY
CARD(S) IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE. For more information,
please call 1-800-451-2010. If you prefer, you can fax the proxy card (both
sides) to (888) 796-9932 or vote by telephone by calling (800) 597-7836 using
the 14-digit control number located on your proxy card. The Fund may also
solicit proxies from shareholders by letter, telephone and/or telegraph.
Voting by fax or telephone will reduce the time and costs associated with the
proxy solicitation. When the Fund records proxies by telephone or through the
internet, it will use procedures designed to (i) authenticate shareholders'
identities, (ii) allow shareholders to authorize the voting of their shares in
accordance with their instructions and (iii) confirm that their instructions
have been properly recorded.
Whichever voting method you choose, please read the full text of the
accompanying Prospectus/Proxy Statement before you vote.
Respectfully,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman of the Board, President and Chief Executive Officer
Concert Investment Series(R)
WE URGE YOU TO SIGN AND RETURN YOUR PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID
ENVELOPE TO ENSURE A QUORUM AT THE MEETING. YOUR VOTE IS IMPORTANT REGARDLESS
OF THE NUMBER OF SHARES YOU OWN.
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CONCERT INVESTMENT SERIES(R)
Mid Cap Fund
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Please take notice that a Special Meeting of Shareholders (the "Special
Meeting") of Concert Investment Series(R) ("Investment Series"), on behalf of
its series, the Mid Cap Fund (the "Fund"), will be held at the offices of SSB
Citi Fund Management LLC, 7 World Trade Center, New York, New York 10048, on
September 25, 2000, at 9:45 a.m., Eastern time, for the following purposes:
PROPOSAL 1:To approve an Agreement and Plan of Reorganization for the Fund;
PROPOSAL 2: To transact such other business as may properly come before the
meeting or any adjournment(s) thereof.
The appointed proxies will vote in their discretion on any other business as
may properly come before the Special Meeting or any adjournments thereof.
Holders of record of shares of the Fund at the close of business on August
11, 2000 are entitled to vote at the Special Meeting and at any adjournments
thereof.
For your information, pursuant to Section 8.1 of Investment Series' By-laws,
the Board of Trustees has amended Section 1.4 thereof (relating to voting and
quorum) in order to conform such section to the corresponding provision of
Investment Series' Master Trust Agreement, as amended and restated as of the
date hereof.
If the necessary quorum to transact business or the vote required to approve
a Proposal is not obtained at the Special Meeting, the persons named as
proxies may propose one or more adjournments of the Special Meeting in
accordance with applicable law to permit further solicitation of proxies. Any
such adjournment as to a matter will require the affirmative vote of the
holders of a majority of the Fund's outstanding shares present in person or by
proxy at the Special Meeting. The persons named as proxies will vote in favor
of such adjournment those proxies which they are entitled to vote in favor of
the Proposal and will vote against any such adjournment those proxies to be
voted against the Proposal. For more information, please call 1-800-451-2010.
By Order of the Board of Trustees
Christina T. Sydor
Secretary
August 16, 2000
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IMPORTANT--WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND RETURN
THE CARD(S) IN THE ENCLOSED ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE AND
IS INTENDED FOR YOUR CONVENIENCE. YOUR PROMPT RETURN OF THE ENCLOSED PROXY
CARD(S) MAY SAVE THE NECESSITY AND EXPENSE OF FURTHER SOLICITATIONS TO ENSURE
A QUORUM AT THE SPECIAL MEETING. IF YOU CAN ATTEND THE SPECIAL MEETING AND
WISH TO VOTE YOUR SHARES IN PERSON AT THAT TIME, YOU WILL BE ABLE TO DO SO.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL..................................................................... 1
PROPOSAL: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION.................. 3
SYNOPSIS.................................................................... 4
INVESTMENT OBJECTIVE AND POLICIES OF THE ACQUIRING FUND AND THE FUND........ 6
INVESTMENT MANAGEMENT FEES AND EXPENSES..................................... 7
ANNUAL FUND OPERATING EXPENSES.............................................. 9
DISTRIBUTION OF SHARES AND OTHER SERVICES................................... 11
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION............................... 12
DIVIDENDS AND OTHER DISTRIBUTIONS........................................... 12
TAX CONSEQUENCES............................................................ 13
PRINCIPAL INVESTMENTS AND RISK FACTORS...................................... 13
THE PROPOSED TRANSACTION.................................................... 19
REASONS FOR THE PROPOSED TRANSACTION........................................ 20
DESCRIPTION OF THE SECURITIES TO BE ISSUED.................................. 22
FEDERAL INCOME TAX CONSEQUENCES............................................. 24
LIQUIDATION AND TERMINATION OF SERIES....................................... 24
PORTFOLIO SECURITIES........................................................ 25
PORTFOLIO TURNOVER.......................................................... 25
CAPITALIZATION AND PERFORMANCE.............................................. 26
ADDITIONAL INFORMATION ABOUT THE FUNDS...................................... 27
ADDITIONAL INFORMATION...................................................... 28
</TABLE>
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ADDITIONAL MATERIALS
The following additional materials, which have been incorporated by
reference into the Statement of Additional Information dated August 16, 2000
relating to this Prospectus/Proxy Statement and the Reorganization, will be
sent to all shareholders of the Fund requesting a copy of such Statement of
Additional Information.
1. The Statement of Additional Information for the Acquiring Fund, dated
March 29, 2000, as supplemented from time to time.
2. The Statement of Additional Information for the Fund, dated February 28,
2000.
3. Annual Report of the Acquiring Fund for the year ended November 30, 1999
and the Semi-Annual Report of the Acquiring Fund for the six months
ended May 31, 2000.
4. Annual Report of the Fund for the year ended October 31, 1999 and the
Semi-Annual Report of the Fund for the six months ended April 30, 2000.
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Merger Q&A
Concert Mid Cap Fund into Smith Barney Mid Cap Core Fund (formerly, Smith
Barney Mid Cap Blend Fund)
The enclosed materials include a Prospectus/Proxy Statement containing
information you need to make an informed decision. However, we thought it
would also be helpful for you to have, at the start, answers to some of the
important questions you might have about the proposed reorganization.
We hope you find these explanations useful as you review your materials
before voting. For more detailed information about the proposed
reorganization, please refer to the enclosed Prospectus/Proxy Statement.
What will happen to my shares if the proposed reorganization is approved?
You will become a shareholder of the Smith Barney Mid Cap Core Fund on or
about October 6, 2000 ("Closing Date") and will no longer be a shareholder of
the Concert Mid Cap Fund, which will be terminated pursuant to the proposed
reorganization. You will receive shares of the Smith Barney Mid Cap Core Fund
with a total net asset value equal to the total net asset value of your
investment in the Concert Mid Cap Fund at the time of the transaction.
If the reorganization is approved and you do not wish to become a
shareholder of the Smith Barney Mid Cap Core Fund, you may redeem your shares
prior to the Closing Date. Please note that any redemption will be subject to
all applicable sales charges and redemption fees, and will result in a taxable
event for federal income tax purposes.
What is the key reason for this fund reorganization?
The proposed reorganization will create one single larger sized fund and
provide shareholders of Concert Mid Cap Fund with a fund that has lower annual
expenses. The proposed reorganization is part of a broader initiative by the
Funds' manager, SSB Citi Fund Management LLC, to restructure more efficiently
its mutual fund product offerings.
As a shareholder of the Smith Barney Mid Cap Core Fund, you will be able to
exchange into the same class of shares of certain Smith Barney mutual funds
offered by the funds' distributor, provided that the Smith Barney Fund offers
the relevant class of shares.
Do the Funds have similar investment objectives?
Yes. The principal investment objective of both Concert Mid Cap Fund and
Smith Barney Mid Cap Core Fund is long-term growth of capital. Lawrence
Weissman, the portfolio manager of your Fund, has also been the portfolio
manager of the Smith Barney Mid Cap Core Fund since its inception in 1997.
In both funds, Mr. Weissman seeks to achieve long-term growth of capital by
investing primarily in the equity securities of medium-sized companies that
are in a position to provide strong growth potential and that have favorable
valuations relative to their growth characteristics. Shareholders will
continue to participate in a portfolio governed by similar investment
objectives and policies that is professionally managed by the same portfolio
manager. However, the investment practices and limitations of each Fund (and
related risks) are not identical. For additional information regarding the
differences between the two funds, please refer to the enclosed proxy
statement.
What are the tax consequences of this proposed reorganization?
Subject to shareholder approval, the proposed fund reorganization will not
be a taxable event. Shareholders will not realize any capital gain or loss as
a direct result of the proposed reorganization.
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Will I enjoy the same privileges as a shareholder of the Smith Barney Mid Cap
Core Fund that I currently have as a shareholder of the Concert Mid Cap Fund?
Yes. You will continue to enjoy many of the same shareholder privileges such
as systematic investment, automatic cash withdrawal and dividend reinvestment
as well as access to professional service representatives.
How does the Board of Trustees recommend I vote?
The Trustees recommend that you vote FOR the reorganization. Although no
guarantees can be given, the Trustees believe the reorganization is in the
best interest of the Concert Mid Cap Fund and its shareholders, and that the
interests of the shareholders would not be diluted as a result of the
reorganization.
Why is my vote important?
Shareholders have a responsibility to vote on important matters affecting
their fund investments. No matter how many shares you own, your vote--and its
timeliness--are also important. Please complete and sign the enclosed proxy
card today!
Please note if you sign and date your proxy card, but do not provide voting
instructions, your shares will be voted FOR the proposal. By voting promptly,
you will help us to avoid the expense of having to re-solicit your proxy.
Thank you in advance for your vote.
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PROSPECTUS/PROXY STATEMENT
388 Greenwich Street
New York, New York 10013
(800) 451-2010
August 16, 2000
RELATING TO THE ACQUISITION BY THE SMITH BARNEY
MID CAP CORE FUND (FORMERLY, SMITH BARNEY MID CAP BLEND FUND)
(THE "ACQUIRING FUND"),
A SERIES OF SMITH BARNEY INVESTMENT TRUST ("INVESTMENT TRUST")
OF THE ASSETS OF MID CAP FUND (THE "FUND"),
A SERIES OF CONCERT INVESTMENT SERIES(R) ("INVESTMENT SERIES").
GENERAL
This Prospectus/Proxy Statement is furnished to shareholders of the Fund in
connection with a proposed reorganization in which all of the assets of the
Fund would be acquired by Investment Trust, on behalf of the Acquiring Fund,
in exchange solely for voting shares of the corresponding class of shares of
beneficial interest of the Acquiring Fund and the assumption by the Acquiring
Fund, of all of the stated liabilities of the Fund (collectively, the
"Reorganization"). Shares of the Acquiring Fund thereby received would then be
distributed to the shareholders of the Fund in complete liquidation of the
Fund, and the Fund would be terminated as a series of Investment Series. As a
result of the Reorganization, each shareholder of the Fund would receive that
number of full and fractional shares of the corresponding class of the
Acquiring Fund having an aggregate net asset value equal to the aggregate net
asset value of such shareholder's shares of the Fund held as of the close of
business on the Closing Date (as defined herein) of the Reorganization.
Shareholders of the Fund are being asked to vote on an Agreement and Plan of
Reorganization pursuant to which such transactions, as described more fully
below, would be consummated.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Acquiring Fund that
a prospective investor should know before investing. For a more detailed
discussion of the investment objectives, policies, restrictions and risks of
the Acquiring Fund, see the prospectus for the Acquiring Fund, dated March 29,
2000, as supplemented from time to time, which is included herewith and
incorporated herein by reference. This Prospectus/Proxy Statement is also
accompanied by the Acquiring Fund's annual report to shareholders for the year
ended November 30, 1999, which is included
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS/PROXY
STATEMENT AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS.
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herewith and incorporated herein by reference. For a more detailed discussion
of the investment objectives, policies, restrictions and risks of the Fund,
see the prospectus for the Fund, dated February 28, 2000, the annual report to
shareholders for the year ended October 31, 1999 and the semi-annual report to
shareholders for the six months ended April 30, 2000, each of which is
incorporated herein by reference and a copy of which may be obtained without
charge by writing to Smith Barney Mutual Funds, 388 Greenwich Street, New
York, New York 10013, or by calling toll-free (800) 451-2010. A Statement of
Additional Information of the Fund and the Acquiring Fund dated August 16,
2000 containing additional information about the Reorganization and the
parties thereto has been filed with the Securities and Exchange Commission
(the "SEC" or the "Commission") and is incorporated by reference into this
Prospectus/Proxy Statement. A copy of the Statement of Additional Information
is available upon request and without charge by writing to or calling Smith
Barney Mutual Funds at the address or phone number listed above. Shareholder
inquiries regarding the Fund or the Acquiring Fund may also be made by calling
the phone number listed above. The information contained herein concerning the
Fund has been provided by, and is included herein in reliance upon, Investment
Series on behalf of the Fund. The information contained herein concerning the
Acquiring Fund has been provided by, and is included herein in reliance upon,
Investment Trust on behalf of the Acquiring Fund.
The Acquiring Fund is a diversified series of Investment Trust, an open-end
management investment company organized as a Massachusetts business trust. The
Fund is a diversified series of Investment Series, an open-end management
investment company also organized as a Massachusetts business trust. The
principal investment objective of both the Acquiring Fund and the Fund is
long-term growth of capital. Each Fund seeks to achieve its objective by
investing in equity securities of medium sized companies (i.e., those whose
market capitalization is within the market capitalization range of companies
in the Standard and Poor's ("S&P") MidCap Index at the time of investment).
Each Fund will, under normal circumstances, invest at least 65% of its assets
in the equity securities of medium-sized companies, and may also invest up to
35% of its assets in the equity securities of large and small capitalization
companies. Each Fund deems equity securities to include exchange traded and
over-the-counter common stocks and preferred shares, debt securities
convertible into equity securities, and warrants and rights relating to equity
securities.
----------------
In the description of the Proposal below, the word "fund" is sometimes used
to mean investment companies or series thereof in general, and not the Fund.
In addition, in this Prospectus/Proxy Statement, for simplicity, actions are
described as being taken by either the Fund or the Acquiring Fund (each, a
"Fund," and collectively, the "Funds"), although all actions are actually
taken by Investment Series on behalf of the Fund or by Investment Trust on
behalf of the Acquiring Fund, respectively.
This Prospectus/Proxy Statement, the Notice of Special Meeting and the proxy
card(s) are first being mailed to shareholders on or about August 16, 2000 or
as soon as practicable thereafter. Any shareholder of the Fund giving a proxy
has the power to revoke it by mail (addressed to the Secretary at the
principal executive office of Investment Series at the address shown at the
beginning of this Prospectus/Proxy Statement) or in person at the Special
Meeting by executing a superseding proxy or by submitting a notice of
revocation to the Fund. All properly executed proxies received in time for the
Special Meeting will be voted as specified in the proxy or, if no
specification is made, in favor of the Proposals referred to in the Proxy
Statement.
The presence at any shareholders' meeting, in person or by proxy, of the
holders of shares of the Fund holding 20% of the outstanding shares of the
Fund entitled to vote shall be necessary and sufficient to constitute a quorum
for the transaction of business. If the necessary quorum to transact business
or the vote required to
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approve any Proposal is not obtained at the Special Meeting, the persons named
as proxies may propose one or more adjournments of the Special Meeting in
accordance with applicable law to permit further solicitation of proxies with
respect to the Proposal that did not receive the vote necessary for its
passage or to obtain a quorum. Any such adjournment as to a matter will
require the affirmative vote of the holders of a majority of the Fund's
outstanding shares present in person or by proxy at the Special Meeting. The
persons named as proxies will vote in favor of such adjournment those proxies
which they are entitled to vote in favor of that Proposal and will vote
against any such adjournment those proxies to be voted against that Proposal.
For purposes of determining the presence of a quorum for transacting business
at the Special Meeting, abstentions and broker "non-votes" will be treated as
shares that are present but which have not been voted. Broker non-votes are
proxies received by the Fund from brokers or nominees when the broker or
nominee has neither received instructions from the beneficial owner or other
persons entitled to vote nor has discretionary power to vote on a particular
matter. Accordingly, shareholders are urged to forward their voting
instructions promptly.
The Proposal requires the affirmative vote of the holders of not less than a
majority of the Fund's outstanding shares of beneficial interest entitled to
vote thereon. Abstentions and broker non-votes will have the effect of a "no"
vote on the Proposal.
Holders of record of the shares of the Fund at the close of business on
August 11, 2000 (the "Record Date"), as to any matter on which they are
entitled to vote, will be entitled to one vote per share on all business of
the Special Meeting. As of August 11, 2000, there were 5,213,530.23 shares of
the Fund outstanding.
To the best of the Acquiring Fund's knowledge, as of August 11, 2000, except
as set forth in Annex A, no person owned beneficially more than 5% of any
class of the Acquiring Fund's outstanding shares. To the best of the Fund's
knowledge, as of August 11, 2000, except as set forth in Annex A, no person
owned beneficially more than 5% of any class of the Fund's outstanding shares.
As of August 11, 2000, less than 1% of the outstanding shares of each of the
Fund and the Acquiring Fund were owned directly or beneficially by the
Trustees of Investment Series or Investment Trust, respectively.
Each of the Fund and the Acquiring Fund provides periodic reports to all of
its shareholders which highlight relevant information, including investment
results and a review of portfolio changes. You may receive an additional copy
of the most recent annual report for each of the Fund and the Acquiring Fund
and a copy of any more recent semi-annual report, without charge, by calling
800-451-2010 or writing to the Fund or the Acquiring Fund at the address shown
at the beginning of this Prospectus/Proxy Statement.
PROPOSAL: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
The Board of Trustees of Investment Series on behalf of the Fund and
Investment Trust on behalf of the Acquiring Fund, including all of the
Trustees who are not "interested persons" of such Funds (as defined in the
Investment Company Act of 1940, as amended (the "1940 Act")) (the "Non-
Interested Trustees" or "Non-Interested Board Members"), approved on July 17,
2000, and July 12, 2000, respectively, an Agreement and Plan of Reorganization
(the "Plan"). Subject to its approval by the shareholders of the Fund, the
Plan provides for (a) the transfer of all of the assets and all of the stated
liabilities of the Fund to the Acquiring Fund in exchange for shares of the
corresponding class of the Acquiring Fund and assumption of the Fund's
liabilities; (b) the distribution of such Acquiring Fund shares to the
shareholders of the Fund in complete liquidation of the Fund and the
cancellation of the Fund's outstanding shares; and (c) the termination of the
Fund as a series of Investment Series (collectively, the "Reorganization"). As
a result of the Reorganization, each shareholder of
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the Fund will become a shareholder of the corresponding class of the Acquiring
Fund and will hold, immediately after the closing of the Reorganization (the
"Closing"), that number of full and fractional shares of the corresponding
class of the Acquiring Fund having an aggregate net asset value equal to the
aggregate net asset value of such shareholder's shares held in the Fund as of
the close of business on the Closing Date (as defined below). The Closing is
expected to occur on October 6, 2000, or on such later date as the parties may
agree in writing (the "Closing Date").
SYNOPSIS
The following is a summary of certain information contained in this
Prospectus/Proxy Statement. This summary is qualified by reference to the more
complete information contained elsewhere in this Prospectus/Proxy Statement,
the Prospectus of the Acquiring Fund, the Prospectus of the Fund and the Plan,
the form of which is attached to this Prospectus/Proxy Statement as Exhibit A.
Shareholders of the Fund should read this entire Prospectus/Proxy Statement
carefully.
Introduction. Like your Fund, the Acquiring Fund is managed and administered
by SSB Citi Fund Management LLC ("SSB Citi"), an affiliate of Salomon Smith
Barney Inc. ("Salomon Smith Barney") and has long-term growth of capital as
its investment objective. Lawrence Weissman, the portfolio manager of your
Fund, is also the portfolio manager of the Acquiring Fund. Moreover, the
distributor, custodian, transfer agent and sub-transfer agents of each of the
Fund and the Acquiring Fund are identical. The Fund has retained Ernst & Young
LLP as its independent auditors and the Acquiring Fund has retained KPMG LLP
as its independent auditors. If the Plan is consummated, shareholders of the
Fund will become shareholders of the corresponding class of the Acquiring
Fund. The Reorganization has been proposed as part of a broader initiative by
SSB Citi to eliminate duplication and possible confusion in its mutual fund
product offerings. Specifically, this Reorganization has been proposed as the
Funds have substantially similar investment objectives, policies and overall
risk characteristics and the Acquiring Fund is subject to a lower total annual
expense ratio.
Shareholders of the Fund will continue to enjoy many of the same shareholder
privileges, such as systematic investment, automatic cash withdrawal and
automatic dividend reinvestment, and access to professional service
representatives upon becoming shareholders of the Acquiring Fund. Further,
shareholders of the Acquiring Fund may exchange into the same class of any
Smith Barney Fund (provided that the Smith Barney Fund offers the relevant
class of shares). Shareholders of the Fund have a more limited exchange
option. Each of the Fund and the Acquiring Fund declares dividends from net
investment income and pays distributions of net realized capital gains, if
any, annually. See "Dividends and Other Distributions." It is a condition of
the Reorganization that each Fund receive an opinion of independent legal
counsel that the Reorganization will be tax-free. This means that shareholders
will not realize any capital gain or loss as a direct result of the
Reorganization.
Proposed Transaction. The aggregate net asset value of each class of voting
shares of the Acquiring Fund (the "Shares") issued in exchange for the assets
and liabilities of the corresponding class of the Fund will be equal to the
net asset value of that class of the Fund as of the Closing Date. Immediately
following the transfer of Shares to the Fund, the Shares received by the Fund
will be distributed pro rata to the shareholders of record of the Fund on the
Closing Date and the shares of the Fund will be cancelled.
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For the reasons described below under "The Proposed Transaction--Reasons for
the Proposed Transaction," the Board of Trustees of Investment Series on
behalf of the Fund, including the Non-Interested Trustees, has concluded the
following:
-- the Reorganization is in the best interests of the Fund and its
shareholders; and
-- the interests of the existing shareholders of the Fund will not be
diluted as a result of the Reorganization.
Accordingly, the Trustees recommend approval of the Plan. If the Plan is not
approved, the Fund will continue in existence unless other action is taken by
the Trustees; such other action may include resubmitting the Plan for
shareholder approval and termination and liquidation of the Fund.
Comparison of Investment Objectives and Policies. The principal investment
objective of each Fund is long-term growth of capital. Each Fund seeks to
achieve its objective by investing primarily (at least 65% of its assets under
normal circumstances) 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 MidCap Index at the time of
investment. Equity securities include exchange traded and over-the-counter
common stocks, preferred stocks, debt securities convertible into equity
securities and warrants and rights relating to equity securities. Each Fund
may also invest up to 35% of its assets in equity securities of companies with
market capitalizations smaller or larger than those of medium-sized companies
(i.e., companies considered to be small or large capitalization companies).
The Fund's investment restrictions are substantially similar to those of the
Acquiring Fund, except as described in this Prospectus/Proxy Statement.
Each Fund may invest up to 25% of its assets in foreign securities
(including those of issuers in emerging market countries) directly or in the
form of depositary receipts representing an interest in those securities.
While each Fund intends to be substantially fully invested in equity
securities, each Fund may maintain up to 10% of its assets in money market
instruments and/or cash to pay expenses and meet redemption requests. Each
Fund has adopted a non-fundamental investment policy limiting investments in
illiquid and restricted securities to 15% of net assets, but the Fund has
adopted a more restrictive informal policy limiting such investments to 10% of
net assets. Both Funds may 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 (i) to
hedge against the economic impact of adverse changes in the market value of
portfolio securities because of changes in stock market prices, currency
exchange rates or interest rates; and (ii) as a substitute for buying or
selling securities; the Fund may also engage in such activities to enhance
return. Each Fund may invest up to 35% of its assets in equity securities of
companies with market capitalizations smaller or larger than those of medium-
sized companies (i.e., companies considered to be small or large
capitalization companies). In connection with the purchase of put and call
options on foreign currencies, the Fund may not pay more than 5% of its net
assets in premiums for such options. The Acquiring Fund is subject to no such
limitation.
Each Fund may invest in real estate investment trusts ("REITS"), convertible
securities, when-issued, delayed delivery and forward commitment transactions,
debt securities, repurchase agreements and reverse repurchase agreements, and
engage in securities lending and borrowing in accordance with any 1940 Act
limitations. Both Funds may also engage in short sales against the box. With
respect to the Fund, however, no more than 25% of its assets may be held as
collateral for such short sales and the Fund may not purchase and deliver new
securities to satisfy its short order if such purchase or sale would cause the
Fund to derive more than 30% of its gross income from the sale of securities
held for less than three months.
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Each Fund has identical fundamental investment restrictions with respect to
its diversified status; issuing senior securities; underwriting securities;
industry concentration; borrowing money; purchasing or selling real estate,
real estate mortgages, commodities or commodity contracts; and making loans.
Each Fund's fundamental investment restrictions may not be changed without the
approval of the applicable Fund's shareholders. Investors should refer to the
respective prospectuses and statements of additional information of the Fund
and the Acquiring Fund for a fuller description of each Fund's investment
policies and restrictions.
INVESTMENT OBJECTIVE AND POLICIES
OF THE ACQUIRING FUND AND THE FUND
Principal Investment Strategies. As stated above, each Fund seeks long-term
growth of capital and invests primarily in equity securities of medium-sized
companies. Each Fund will invest, under normal circumstances, at least 65% of
its total assets in equity securities of medium-sized companies, and may also
invest up to 35% of its assets in equity securities of companies with market
capitalizations smaller or larger than those of medium-sized companies (i.e.,
companies considered to be small or large capitalization companies). Both
Funds deem medium-sized companies to be those whose market capitalization is
within the market capitalization range of companies in the S&P MidCap Index at
the time of investment. The Funds also deem equity securities to 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. Each 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. On behalf of the Funds, SSB Citi focuses on medium
capitalization companies that exhibit attractive growth characteristics and,
with respect to the Fund, attractive value characteristics. SSB Citi selects
individual "growth" stocks for investment in two ways: by identifying those
companies which exhibit the most favorable growth prospects and by identifying
those companies which have favorable valuations relative to their growth
characteristics. This strategy is commonly known as "growth at a reasonable
price" and offers investors style diversification within a single mutual fund.
In selecting individual companies for investment, SSB Citi 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
statistics 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; and
. Potential for a long-term investment by a Fund.
SSB Citi uses fundamental research to find stocks with strong growth
potential and also uses quantitative analysis to determine whether these
stocks are relatively undervalued or overvalued compared to stocks with
similar fundamental characteristics. SSB Citi's quantitative valuations
determine whether and when a Fund will purchase or sell the stocks it
identifies through fundamental research.
6
<PAGE>
Principal Risks of Investing in the Funds. Investors could lose money on
their investment in the Funds, or the Funds may not perform as well as other
investments, if:
. U.S. stock markets decline, 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 a Fund
invests;
. Medium capitalization stocks fall out of favor with investors; or
. SSB Citi's judgment about the attractiveness, growth prospects, value or
potential appreciation of a particular stock proves to be incorrect.
Because the Funds invest primarily in medium capitalization companies, an
investment in a Fund may be more volatile and more susceptible to loss than an
investment in a fund which invests primarily in large capitalization
companies. Medium capitalization companies may have more limited product
lines, markets and financial resources than large capitalization companies.
They may have shorter operating histories and more erratic businesses,
although they generally have more established businesses than small
capitalization companies. The prices of medium capitalization company stocks
tend to be more volatile than the prices of large capitalization company
stocks.
Who May Want to Invest in the Acquiring Fund. The Acquiring 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; or
. Are willing to accept the risks of the stock market.
INVESTMENT MANAGEMENT FEES AND EXPENSES
Investment Series, on behalf of the Fund, and Investment Trust, on behalf of
the Acquiring Fund, each retains SSB Citi pursuant to separate contracts, to
manage the daily investment and business affairs of the Fund and the Acquiring
Fund, respectively, subject to the policies established by their respective
Board of Trustees. The expenses of each Fund are paid out of gross investment
income. Shareholders pay no direct charges or fees for investment services.
The Acquiring Fund. SSB Citi, located at 388 Greenwich Street, New York, New
York 10013, serves as the Acquiring Fund's investment adviser. SSB Citi has
been in the investment counseling business since 1968 and renders investment
management and administration services to a wide variety of individual,
institutional and investment company clients having aggregate assets under
management as of May 31, 2000 in excess of $218 billion. SSB Citi 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.
7
<PAGE>
Subject to the supervision and direction of Investment Trust's Board of
Trustees, SSB Citi manages the Acquiring Fund's portfolio in accordance with
the Acquiring Fund's stated investment objective and policies, makes
investment decisions for the Acquiring Fund, places orders to purchase and
sell securities and employs professional portfolio managers and securities
analysts who provide research services to the Acquiring Fund. Under an
investment advisory agreement, the Acquiring Fund pays SSB Citi a fee computed
daily and paid monthly at the annual rate of 0.75% of the value of its average
daily net assets. The total investment management fee incurred and paid by the
Acquiring Fund for the fiscal year ended November 30, 1999 was $3,544,958.
The Acquiring Fund's total expense ratio (total annual operating expenses as
a percentage of average net assets) for each class of its shares for the year
ended November 30, 1999 is set forth below under "Annual Fund Operating
Expenses." SSB Citi projects that if the proposed Reorganization is effected,
the expense ratio for each class of the Acquiring Fund will be unchanged for
the year ending November 30, 2000. The actual expense ratio for the Acquiring
Fund for the year ending November 30, 2000 may be higher or lower than as set
forth below, depending upon the Acquiring Fund's performance, general stock
market and economic conditions, sales and redemptions of the Acquiring Fund's
shares (including redemptions by former shareholders of the Fund), and other
factors.
Lawrence Weissman, investment officer of SSB Citi and managing director of
Salomon Smith Barney, has been responsible for the day-to-day management of
the Acquiring Fund's portfolio since the Acquiring Fund's inception. Mr.
Weissman has more than 15 years of securities business experience. Mr.
Weissman's management discussion and analysis of the Acquiring Fund's
performance during the fiscal year ended November 30, 1999 is included in the
Acquiring Fund's Annual Report to Shareholders dated November 30, 1999.
The Fund. The Fund's investment manager is also SSB Citi. SSB Citi selects
the Fund's investments and oversees its operations. Under an investment
advisory agreement, the Fund pays SSB Citi a fee computed daily and paid
monthly at the annual rate of 0.75% of the Fund's average daily net assets.
SSB Citi may, from time to time, agree to waive its investment advisory fees
or any portion thereof or elect to reimburse the Fund for ordinary business
expenses in excess of an agreed upon amount. During the Fund's last fiscal
year, SSB Citi received a fee equal to 0.11% of the Fund's average daily net
assets for its management services. The total investment management fees paid
by the Fund for the fiscal year ended October 31, 1999 were $73,778. Had SSB
Citi not waived the management fee and reimbursed certain expenses in order to
cap total annual fund expenses, the gross advisory fees for the Fund would
have been $137,240 for this period.
Lawrence Weissman (described above) has been responsible for the day-to-day
management of the Fund since 1997.
The expenses of the Acquiring Fund and the Fund for the fiscal year ended
November 30, 1999 and October 31, 1999, respectively, and pro forma expenses
following the proposed restructuring are outlined below. As set forth below,
as of their most recent fiscal year end, each class of shares of the Fund has
higher gross and net operating expenses than the corresponding class of the
Acquiring Fund. As a result of the Reorganization, absent waivers and
reimbursements, shareholders of the Fund will be investing in the
corresponding class of the Acquiring Fund with expenses that are currently
significantly lower than those of the relevant class of the Fund.
8
<PAGE>
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
Smith Barney Mid Cap Core Fund Class A Class B Class 1**
------------------------------ ------- ------- ---------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases................. 5.00% None 8.50%
(as a percentage of offering price)
Maximum CDSC.............................................. None* 5.00% None
(as a percentage of original cost or redemption proceeds,
whichever is lower)
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees........................................... 0.75% 0.75% 0.75%
12b-1 fees................................................ 0.25% 1.00% None
Other expenses**.......................................... 0.16% 0.15% 0.49%
------ ------ ------
TOTAL ANNUAL FUND OPERATING EXPENSES........................ 1.16% 1.90% 1.24%
====== ====== ======
<CAPTION>
Mid Cap Fund Class A Class B Class 1
------------ ------- ------- -------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases................. 5.00% None 8.50%
(as a percentage of offering price)
Maximum CDSC.............................................. None* 5.00% None
(as a percentage of original cost or redemption proceeds,
whichever is lower)
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees........................................... 0.75% 0.75% 0.75%
12b-1 fees................................................ 0.25% 1.00% 0.00%
Other expenses............................................ 1.12% 1.13% 1.13%
------ ------ ------
TOTAL ANNUAL FUND OPERATING EXPENSES........................ 2.12% 2.88% 1.88%
------ ------ ------
EXPENSE REIMBURSEMENT***.................................... (0.64)% (0.64)% (0.64)%
------ ------ ------
NET ANNUAL OPERATING EXPENSES............................... 1.48% 2.24% 1.24%
====== ====== ======
<CAPTION>
Pro Forma Pro Forma Pro Forma
Smith Barney Mid Cap Core Fund (Pro Forma) Class A Class B Class 1**
------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases................. 5.00% None 8.50%
(as a percentage of offering price)
Maximum CDSC.............................................. None* 5.00% None
(as a percentage of original cost or redemption proceeds,
whichever is lower)
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees........................................... 0.75% 0.75% 0.75%
12b-1 fees................................................ 0.25% 1.00% None
Other expenses**.......................................... 0.16% 0.15% 0.49%
------ ------ ------
TOTAL FUND OPERATING EXPENSES............................... 1.16% 1.90% 1.24%
====== ====== ======
</TABLE>
9
<PAGE>
--------
* You may buy Class A Shares in amounts of $1 million 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%.
** Class 1 Shares of the Acquiring Fund had not commenced operations as of
November 30, 1999. "Other Expenses" for Class 1 shares have been estimated
for the first full fiscal year ending November 30, 2000.
*** SSB Citi has reimbursed the Fund a portion of its expenses for the fiscal
year ended October 31, 1999.
Example. This Example is intended to help you compare the cost of investing
in each of the Funds. The Example assumes you invest $10,000 in each Fund for
the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes your investment has a 5% return each
year and that each Fund's annual operating expenses remain the same. Although
your actual costs maybe higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
3 5
Smith Barney Mid Cap Core Fund 1 year years years 10 years*
------------------------------ ------ ----- ----- ---------
<S> <C> <C> <C> <C>
An Investor would pay the following expenses on
a $10,000 investment, assuming (1) 5.00% annual
return and (2) redemption at the end of each
time period:
Class A....................................... $ 612 $ 850 $1,106 $1,839
Class B....................................... $ 693 $ 897 $1,126 $2,031
Class 1....................................... $ 966 $1,210 N/A N/A
An Investor would pay the following expenses on
the same investment, assuming the same annual
return and no redemption:
Class A....................................... $ 612 $ 850 $1,106 $1,839
Class B....................................... $ 193 $ 597 $1,026 $2,031
Class 1....................................... $ 966 $1,210 N/A N/A
<CAPTION>
3 5
Mid Cap Fund 1 year years years 10 years*
------------ ------ ----- ----- ---------
<S> <C> <C> <C> <C>
An Investor would pay the following expenses on
a $10,000 investment, assuming (1) 5.00% annual
return and (2) redemption at the end of each
time period:
Class A....................................... $ 704 $1,131 $1,582 $2,763
Class B....................................... $ 791 $1,192 $1,618 $3,204
Class 1....................................... $1,025 $1,391 $1,780 $2,864
An Investor would pay the following expenses on
the same investment, assuming the same annual
return and no redemption:
Class A....................................... $ 704 $1,131 $1,582 $2,763
Class B....................................... $ 291 $ 892 $1,518 $3,204
Class 1....................................... $1,025 $1,391 $1,780 $2,864
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Smith Barney Mid Cap Core Fund (Pro Pro Forma Pro Forma Pro Forma Pro Forma
Forma) 1 year 3 years 5 years 10 years*
----------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
An Investor would pay the following
expenses on a $10,000 investment,
assuming (1) 5.00% annual return and
(2) redemption at the end of each time
period:
Class A.............................. $612 $ 850 $1,106 $1,839
Class B.............................. $693 $ 897 $1,126 $2,031
Class 1.............................. $966 $1,210 N/A N/A
An Investor would pay the following
expenses on the same investment,
assuming the same annual return and no
redemption:
Class A.............................. $612 $ 850 $1,106 $1,839
Class B.............................. $193 $ 597 $1,026 $2,031
Class 1.............................. $966 $1,210 N/A N/A
</TABLE>
--------
* Ten-year figures for Class B shares assume conversion of Class B shares to
Class A shares at the end of the eighth year following the date of
purchase.
The above examples assume reinvestment of all dividends and distributions.
The examples should not be considered representations of past or future
expenses. Actual Fund expenses can vary from year to year and may be higher or
lower than those shown. Please refer to each Fund's prospectus and statement
of additional information for a more detailed discussion of the fees and
expenses applicable to each class of shares of a Fund.
DISTRIBUTION OF SHARES AND OTHER SERVICES
As of June 5, 2000, Salomon Smith Barney and PFS Distributors Inc. ("PFS")
distribute shares of each Fund as principal underwriter and, as such, conduct
a continuous offering pursuant to a "best efforts" arrangement requiring
Salomon Smith Barney and PFS to take and pay for only such securities as may
be sold to the public. Prior to that time, CFBDS, Inc., located at 21 Milk
Street, Boston, Massachusetts 02109-5408, acted as distributor of each Fund's
shares. Each Fund has adopted a plan of distribution under Rule 12b-1 under
the 1940 Act (a "Plan").
With respect to the Acquiring Fund, Salomon Smith Barney and PFS are paid a
service fee for Class A and Class B shares at the annual rate of 0.25% of the
average daily net assets of the respective Class under the Plan. Salomon Smith
Barney and PFS are also paid a distribution fee with respect to Class B shares
of the Acquiring Fund at the annual rate of 0.75% of the average daily net
assets attributable to that Class. The fees are used by Salomon Smith Barney
and PFS to pay their respective financial consultants for servicing
shareholder accounts and, in the case of Class B shares, to cover expenses
primarily intended to result in the sale of those shares.
With respect to Class A shares of the Fund, the Fund pays PFS and Salomon
Smith Barney, as administrative agents for "PFS Accounts" (i.e., accounts held
by PFS Shareholder Services, Inc.) and other accounts, respectively (the
"Administrative Agents") 0.25% per annum of its average daily net assets
attributable to such class of shares as a service fee. The service fee is
intended to cover shareholder and account maintenance services provided to
Class A shareholders of the Fund by financial professionals. Class B shares of
the Fund are subject to a combined annual distribution fee and service fee at
the rate of 1.00% of the Fund's aggregate average
11
<PAGE>
daily net assets attributable to such class of shares, which fees are paid to
the Administrative Agents. Payments are made by the Fund under the Class B
Plan of 0.25% per annum, and distribution fee payments of 0.75% per annum, of
the aggregate average daily net assets attributable to Class B shares. The
distribution fee payments are used as compensation for sales and promotional
activities and marketing of the Class B shares of the Fund. These expenditures
may consist of sales commissions to financial professionals for selling Class
B shares, compensation, sales incentives and payments to sales and marketing
personnel, and the payment of expenses incurred in its sales and promotional
activities, including advertising expenditures related to the Class B shares
of the Fund and the costs of preparing and distributing promotional materials
with respect to the Class B shares.
Class 1 shares of the Funds are not subject to any distribution fees. Class
B shares of each Fund that automatically convert to Class A shares eight years
after the date of original purchase will no longer be subject to a
distribution fee.
Payments under the above Plans are not tied exclusively to the distribution
and shareholder service expenses actually incurred by Salomon Smith Barney or
PFS and the payments may exceed those expenses actually incurred by the Funds.
Please refer to each Fund's prospectus and statement of additional information
for a more detailed discussion of the distribution and shareholder servicing
arrangements applicable to each class of shares of the Funds.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
The purchase, redemption and exchange procedures and privileges with respect
to the Fund are substantially similar to those of the Acquiring Fund. However,
whereas shareholders of the Acquiring Fund may exchange into the same class of
any Smith Barney Fund (provided that the Smith Barney Fund offers the relevant
class of shares), shareholders of the Fund have a more limited exchange
option. Please refer to each Fund's prospectus and statement of additional
information for a more detailed discussion of the purchase, redemption and
exchange procedures and privileges applicable to each class of a Fund.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund declares dividends from net investment income and pays
distributions of net realized capital gains, if any, annually. Each Fund
intends to distribute any net realized capital gains after utilization of
capital loss carryforwards, if any, in November or December to prevent
application of a federal excise tax. An additional distribution may be made if
necessary. Any dividends or capital gains distributions declared in October,
November or December with a record date in such month and paid during the
following January will be treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year in which it is
declared. Dividends and distributions of each Fund will be invested in
additional shares of the applicable Fund at net asset value and credited to
the shareholder's account on the payment date or, at the shareholder's
election, paid in cash.
12
<PAGE>
If the Plan is approved by the Fund's shareholders, then as soon as
practicable before the Closing Date, the Fund will pay or have paid its
shareholders a cash distribution of substantially all undistributed 2000 net
investment income and undistributed realized net capital gains.
TAX CONSEQUENCES
The Fund and the Acquiring Fund will have received an opinion of Willkie
Farr & Gallagher in connection with the Reorganization, to the effect that,
based upon certain facts, assumptions and representations, the Reorganization
will constitute a tax-free reorganization within the meaning of section
368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"). If
the Reorganization constitutes a tax-free reorganization, no gain or loss will
be recognized by the Fund or its shareholders as a direct result of the
Reorganization. See "The Proposed Transaction--Federal Income Tax
Consequences."
PRINCIPAL INVESTMENTS AND RISK FACTORS
General. As described above, the Fund and the Acquiring Fund have
substantially similar investment objectives and policies and pursue their
respective objectives in a similar manner. Accordingly, the Funds engage in
investment practices and techniques that are substantially similar. A more
complete description of the investment practices and limitations of the
Acquiring Fund is contained in the prospectus and statement of additional
information of the Acquiring Fund, dated March 29, 2000, as supplemented from
time to time, a copy of which is included herewith, and in the Statement of
Additional Information of the Fund and the Acquiring Fund dated August 16,
2000 (relating to the proposed Reorganization) which is incorporated herein by
reference. Please refer to each Fund's prospectus and statement of additional
information for a more detailed discussion of the specific investment
practices and risks of the applicable Fund.
Because of their substantially similar investment policies, the Funds are
exposed to similar risks. The following summarizes those principal risk
factors:
Equity Securities. 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 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. Each 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 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.
Warrants. Warrants are subject to the same market risks as stocks, but may
be more volatile in price. A Fund's investments in warrants will not entitle
it to receive dividends or exercise voting rights and will become worthless if
the warrants cannot be profitably exercised before the expiration dates.
13
<PAGE>
When-Issued, Delayed-Delivery and Forward Commitment Transactions. 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 a
Fund agrees to purchase when-issued or delayed-delivery securities, it will
set aside cash or liquid securities equal to the amount of the commitment in a
segregated account on the Fund's books which 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 the Fund incurring a
loss or missing an opportunity to obtain a price considered to be
advantageous.
Foreign Securities. Investments in securities of foreign issuers involve
certain risks not ordinarily associated with investments in securities of
domestic issuers. Such risks include fluctuations in foreign exchange rates,
future political and economic developments, and the possible imposition of
exchange controls or other foreign governmental laws or restrictions. Changes
in foreign currency exchange rates will, to the extent a Fund does not
adequately hedge against such fluctuations, affect the value of securities in
its portfolio and the unrealized appreciation or depreciation of investments
so far as U.S. investors are concerned. In addition, with respect to certain
countries, there is the possibility of expropriation of assets, confiscatory
taxation, political or social instability or diplomatic developments which
could adversely affect investments in those countries.
There may be less publicly available information about a foreign security
than about a security issued by a U.S. company, and foreign entities may not
be subject to accounting, auditing and financial reporting standards and
requirements comparable to those of United States entities. In addition,
certain foreign investments made by a Fund may be subject to foreign
withholding taxes, which would reduce the Fund's total return on such
investments and the amounts available for distributions by the Fund to its
shareholders. Foreign financial markets, while growing in volume, have, for
the most part, substantially less volume than United States markets, and
securities of many foreign companies are less liquid and their prices more
volatile than securities of comparable domestic companies. Foreign markets
also have different clearance and settlement procedures, and in certain
markets there have been times when settlements have been unable to keep pace
with the volume of securities transactions making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when
assets of a Fund are not invested and no return is earned. The inability of
each Fund to make intended security purchases due to settlement problems could
cause the Fund to miss attractive investment opportunities. Inability to
dispose of portfolio securities due to settlement problems could result either
in losses to the Fund due to subsequent declines in value of the portfolio
security or, if the Fund has entered into a contract to sell the security,
could result in possible liability to the purchaser. Costs associated with
transactions in foreign securities, including custodial costs and foreign
brokerage commissions, are generally higher than with transactions in United
States securities. In addition, the Fund will incur costs in connection with
conversions between various currencies. There is generally less government
supervision and regulation of exchanges, financial institutions and issuers in
foreign countries than there is in the United States. These risks may be
intensified in the case of investments in developing or emerging markets. In
many developing markets, there is less government supervision and regulation
of business and industry practices, stock exchanges, brokers and listed
companies than in the United States. Finally, in the event of a default on any
such foreign debt obligations, it may be more difficult for the Fund to obtain
or to enforce a judgment against the issuers of such securities.
14
<PAGE>
Currency Risks. The U.S. dollar value of securities denominated in a foreign
currency will vary with changes in currency exchange rates, which can be
volatile. Accordingly, changes in the value of the currency in which the
Fund's investments are denominated relative to the U.S. dollar will affect a
Fund's net asset value. Exchange rates are generally affected by the forces of
supply and demand in the international currency markets, the relative merits
of investing in different countries and the intervention or failure to
intervene of U.S. or foreign governments and central banks. However, currency
exchange rates may fluctuate based on factors intrinsic to a country's
economy. Some emerging market countries also may have managed currencies,
which are not free floating against the U.S. dollar. In addition, emerging
markets are subject to the risk of restrictions upon the free conversion of
their currencies into other currencies. Any devaluations relative to the U.S.
dollar in the currencies in which a Fund's securities are quoted would reduce
the Fund's net asset value per share.
Securities of Developing/Emerging Markets Countries. Investing in the equity
markets of developing countries involves exposure to economic structures that
are generally less diverse and mature, and to political systems that can be
expected to have less stability, than those of developed countries. Historical
experience indicates that the markets of developing countries have been more
volatile than the markets of the more mature economies of developed countries;
however, such markets often have provided higher rates of return to investors.
One or more of the risks discussed above could affect adversely the economy
of a developing market or a Fund's investments in such a market. In Eastern
Europe, for example, upon the accession to power of Communist regimes in the
past, the governments of a number of Eastern European countries expropriated a
large amount of property. The claims of many property owners against those
governments may remain unsettled. There can be no assurance that any
investments that a Fund might make in such emerging markets would not be
expropriated, nationalized or otherwise confiscated at some time in the
future. In such an event, a Fund could lose its entire investment in the
market involved. Moreover, changes in the leadership or policies of such
markets could halt the expansion or reverse the liberalization of foreign
investment policies now occurring and adversely affect existing investment
opportunities.
Many of a Fund's investments in the securities of emerging markets may be
unrated or rated below investment grade. Securities rated below investment
grade (and comparable unrated securities) are the equivalent of high yield,
high risk bonds, commonly known as "junk bonds." Such securities are regarded
as predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligations
and involve major risk exposure to adverse business, financial, economic, or
political conditions.
Small Capitalization Companies. Small companies (those companies that have
market capitalizations in the lowest 20% of all publicly traded U.S.
companies) may (i) be subject to more volatile market movements than
securities of larger, more established companies; (ii) have limited product
lines, markets or financial resources; and (iii) depend upon a limited or less
experienced management group. The securities of small companies may be traded
only on the over-the-counter market or on a regional securities exchange and
may not be traded daily or in the volume typical of trading on a national
securities exchange. Disposition by a Fund of small company securities in
order to meet redemptions may require the Fund to sell these securities at a
discount from market prices, over a longer period of time or during periods
when disposition is not desirable.
Debt Securities. 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 a Fund's
investments in debt securities will change as the general levels of interest
rates fluctuate. During periods
15
<PAGE>
of falling interest rates, the value of a Fund's debt securities will
generally rise. Conversely, during periods of rising interest rates, the value
of a Fund's debt securities will generally decline. Credit risk relates to the
ability of the issuer to make payments of principal and interest. Additional
risks include:
Interest Rate Risk. When interest rates decline, the market value of fixed
income securities tends to increase. Conversely, when interest rates increase,
the market value of fixed income securities tends to decline. The volatility
of a security's market value will differ depending upon the security's
duration, the issuer and the type of instrument.
Default Risk/Credit Risk. Investments in fixed income securities are subject
to the risk that the issuer of the security could default on its obligations,
causing the Fund to sustain losses on such investments. A default could affect
both interest and principal payments.
Call Risk and Extension Risk. Fixed income securities may be subject to both
call risk and extension risk. Call risk exists when the issuer may exercise
its right to pay principal on an obligation earlier than scheduled, which
would cause cash flows to be returned earlier than expected. This typically
results when interest rates have declined and a Fund will suffer from having
to reinvest in lower yielding securities. Extension risk exists when the
issuer may exercise its right to pay principal on an obligation later than
scheduled, which would cause cash flows to be returned later than expected.
This typically results when interest rates have increased, and a Fund will
suffer from the inability to invest in higher yield securities.
Lower Rated and Below Investment Grade Fixed-Income Securities. Securities
rated in the fourth highest ratings category by a Nationally Recognized
Statistical Rating Organization (an "NRSRO"), such as those rated BBB by S&P
or Baa by Moody's Investors Services, Inc. ("Moody's"), are generally regarded
as having adequate capacity to pay interest and repay principal, but may have
some speculative characteristics. Securities rated below the fourth highest
ratings category by an NRSRO, including those rated below Baa by Moody's or
BBB by S&P, are not "investment grade," and may have more speculative
characteristics, including the possibility of default or bankruptcy of the
issuers of such securities, market price volatility based upon interest rate
sensitivity, questionable creditworthiness and relative liquidity of the
secondary trading market. Because high yield bonds have been found to be more
sensitive to adverse economic changes or individual corporate developments and
less sensitive to interest rate changes than higher-rated investments, an
economic downturn could disrupt the market for high yield bonds and adversely
affect the value of outstanding bonds and the ability of issuers to repay
principal and interest. In addition, in a declining interest rate market,
issuers of high yield bonds may exercise redemption or call provisions, which
may force a Fund, to the extent it owns such securities, to replace those
securities with lower yielding securities. This could result in a decreased
return.
Money Market Instruments. Each Fund may invest for temporary defensive
purposes in short-term instruments including corporate and government bonds
and notes and money market instruments. If a Fund takes a temporary defensive
position, it may be unable to achieve its investment goal.
U.S. Government Securities. Each 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 Acquiring 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.
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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 the Fund to
possible loss because of adverse market action, expenses and/or delays in
connection with the disposition of the underlying obligations.
Reverse Repurchase Agreements. Each 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 a Fund pursuant to its agreement to repurchase them at a mutually agreed
upon date, price and rate of interest. At the time a 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). A 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 a 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.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Funds may lend portfolio securities to brokers, dealers and
other financial organizations that meet capital and other credit requirements
or other criteria established by their respective Boards. A Fund will not lend
portfolio securities to affiliates of SSB Citi 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, a 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." 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. Each Fund has adopted a fundamental policy allowing it
to invest up to an aggregate amount equal to 15% 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. The Fund, however, currently operates under an informal restriction
limiting such investments to 10% of net assets. This investment practice could
have the effect of increasing the level of illiquidity in each Fund to the
extent that qualified institutional buyers become for a time uninterested in
purchasing these restricted securities. These difficulties
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and delays could result in a Fund's inability to realize a favorable price
upon disposition of restricted securities, and in some cases might make the
disposition of such securities at the time desired by the Fund impossible.
Since market quotations are not readily available for restricted securities,
such securities will be valued by a method that the Trustees believe
accurately reflects fair value.
Derivative Instruments. Transactions in derivative instruments can be, but
are not necessarily, riskier than investments in conventional stocks, bonds
and money market instruments. A derivative instrument is more accurately
viewed as a way of reallocating risk among different parties or substituting
one type of risk for another. Every investment by a Fund, including an
investment in conventional securities, reflects an implicit prediction about
future changes in the value of that investment. Every Fund investment also
involves a risk that the portfolio manager's expectations will be wrong.
Transactions in derivative instruments often enable a Fund to take investment
positions that more precisely reflect the portfolio manager's expectations
concerning the future performance of the various investments available to the
Fund. The following are the principal risks associated with derivative
instruments:
Market risk: The instrument will decline in value or that an alternative
investment would have appreciated more, but this is no different from the risk
of investing in conventional securities.
Leverage and associated price volatility: Leverage causes increased
volatility in the price and magnifies the impact of adverse market changes,
but this risk may be consistent with the investment objective of even a
conservative fund in order to achieve an average portfolio volatility that is
within the expected range for that type of fund.
Credit risk: The issuer of the instrument may default on its obligation to
pay interest and principal.
Liquidity and valuation risk: Many derivative instruments are traded in
institutional markets rather than on an exchange. Nevertheless, many
derivative instruments are actively traded and can be priced with as much
accuracy as conventional securities. Derivative instruments that are custom
designed to meet the specialized investment needs of a relatively narrow group
of institutional investors such as the Funds are not readily marketable and
are subject to a Fund's restrictions on illiquid investments.
Correlation risk: There may be imperfect correlation between the price of
the derivative and the underlying asset. For example, there may be price
disparities between the trading markets for the derivative contract and the
underlying asset. Each derivative instrument purchased for a Fund's portfolio
is reviewed and analyzed by the Fund's portfolio manager to assess the risk
and reward of each such instrument in relation to the Fund's portfolio
investment strategy. The decision to invest in derivative instruments or
conventional securities is made by measuring the respective instrument's
ability to provide value to the Fund and its shareholders.
Special Risks of Using Futures Contracts. The prices of futures contracts
are volatile and are influenced by, among other things, actual and anticipated
changes in interest rates, which in turn are affected by fiscal and monetary
policies and national and international political and economic events.
At best, the correlation between changes in prices of futures contracts and
of the securities or currencies being hedged can be only approximate. The
degree of imperfection of correlation depends upon circumstances such as:
variations in speculative market demand for futures and for debt securities or
currencies, including technical influences in futures trading; and differences
between the financial instruments being hedged and the instruments underlying
the standard futures contracts available for trading, with respect to interest
rate levels, maturities, and creditworthiness of issuers. A decision of
whether, when, and how to hedge involves skill and
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judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or interest rate trends.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss,
as well as gain, to the investor. A purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
Where a Fund enters into futures transactions for non-hedging purposes, it
will be subject to greater risks and could sustain losses which are not offset
by gains on other Fund assets.
Most U.S. futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may
prevent the liquidation of unfavorable positions. Futures contract prices have
occasionally moved 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.
Portfolio Turnover. Each Fund may purchase or sell securities without regard
to the length of time the security has been held and thus may experience a
high rate of portfolio turnover. A 100% turnover rate would occur, for
example, if all the securities in a portfolio were replaced in a period of one
year. The rate of portfolio turnover is not a limiting factor when SSB Citi
deems it desirable to purchase or sell securities or to engage in options
transactions. High portfolio turnover involves correspondingly greater
transaction costs, including any brokerage commissions, which are borne
directly by a Fund and may increase the recognition of short-term, rather than
long-term, capital gains if securities are held for one year or less and may
be subject to applicable income taxes.
THE PROPOSED TRANSACTION
Description of the Plan. As stated above, the Plan provides for the transfer
of all of the assets of the Fund to the Acquiring Fund in exchange for that
number of full and fractional shares of the corresponding class of the
Acquiring Fund having an aggregate net asset value equal to the aggregate net
asset value of the shareholder's shares held in the Fund as of the close of
business on the business day preceding the date of the Closing. The Acquiring
Fund will assume all of the stated liabilities of the Fund. In connection with
the Closing, the Fund will distribute the shares of the corresponding class of
shares of beneficial interest of the Acquiring Fund received in the exchange
to the shareholders of the Fund in complete liquidation of the Fund. The Fund
will be terminated as a series of Investment Series.
Upon completion of the Reorganization, each shareholder of the Fund will own
that number of full and fractional shares of the corresponding class of the
Acquiring Fund having an aggregate net asset value equal to the aggregate net
asset value of such shareholder's shares held in the Fund immediately as of
the close of business on the Closing Date. Each Fund shareholder's account
with the Acquiring Fund will be substantially similar in all material respects
to the accounts currently maintained by the Fund's sub-transfer agent for such
shareholder. Some of the outstanding shares of beneficial interest of the Fund
are represented by physical certificates; however, in the interest of economy
and convenience, shares of the Fund generally are not
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represented by physical certificates, and shares of the Acquiring Fund issued
to Fund shareholders similarly will be in uncertificated form. Certificates
representing shares of the Fund will be cancelled after the Closing.
Until the Closing, shareholders of the Fund will, of course, continue to be
able to redeem their shares at the net asset value next determined after
receipt by the Fund's sub-transfer agent of a redemption request in proper
form. Redemption requests received by the sub-transfer agent thereafter will
be treated as requests received for the redemption of shares of the Acquiring
Fund received by the shareholder in connection with the Reorganization.
The obligations of Investment Series, on behalf of the Fund, and Investment
Trust, on behalf of the Acquiring Fund, under the Plan are subject to various
conditions, as stated therein. Among other things, the Plan requires that all
filings be made with, and all authority be received from, the SEC and state
securities commissions as may be necessary in the opinion of counsel to permit
the parties to carry out the transactions contemplated by the Plan. The Fund
and the Acquiring Fund are in the process of making the necessary filings. To
provide against unforeseen events, the Plan may be terminated or amended at
any time prior to the Closing by action of the Trustees of either Investment
Series or Investment Trust, notwithstanding the approval of the Plan by the
shareholders of the Fund. However, no amendment may be made that materially
adversely affects the interests of the shareholders of the Fund without
obtaining the approval of the Fund's shareholders. The Fund and the Acquiring
Fund may at any time waive compliance with certain of the covenants and
conditions contained in the Plan.
The Plan provides that the obligations of Investment Series and Investment
Trust are not personally binding upon any of their Trustees, shareholders,
nominees, officers, agents, or employees, but binds only the property of the
Fund and the Acquiring Fund as provided in the Declarations of Trust of
Investment Series and Investment Trust. Moreover, no series of Investment
Series or Investment Trust is responsible for the obligations of Investment
Series or Investment Trust under the Plan, and all persons must look only to
the assets of the Fund and the Acquiring Fund to satisfy the obligations of
Investment Series and Investment Trust under the Plan. The execution and
delivery of the Plan have been authorized by the board of Trustees of the
Investment Series, on behalf of the Fund, and Investment Trust, on behalf of
the Acquiring Fund, and the Plan has been signed by authorized officers of
Investment Series and Investment Trust acting as such, and neither such
authorization by such Trustees, nor the execution and delivery by such
officers, shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally. For a complete description of
the terms and conditions of the Reorganization, see the Plan at Exhibit A.
SSB Citi will assume and pay all of the expenses that are solely and
directly related to the Reorganization, which expenses are estimated to be
approximately $115,250. Shareholders have no rights of appraisal.
REASONS FOR THE PROPOSED TRANSACTION
At a telephonic meeting of Investment Series' Board of Trustees held on July
17, 2000, the Trustees, including all of the Non-Interested Trustees, were
presented with materials discussing the benefits which would accrue to the
shareholders of the Fund if the Fund were to reorganize with and into the
Acquiring Fund. For the reasons discussed below, the Board of Trustees of
Investment Series, including all of the Non-Interested Trustees, has
determined that the proposed Reorganization is in the best interests of the
Fund and its shareholders and that the interests of the shareholders of the
Fund will not be diluted as a result of the proposed Reorganization.
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The proposed combination of the Fund and the Acquiring Fund will allow the
shareholders of the Fund to continue to participate in a portfolio governed by
similar investment objectives and policies that is professionally managed by
the same portfolio manager. The Board of Trustees of Investment Series
believes that shareholders of the Fund will benefit from the proposed
Reorganization because the Acquiring Fund offers the following benefits:
Enhanced Flexibility with Respect to Portfolio Investments. As stated
previously the Reorganization is being proposed as part of a broader
initiative by SSB Citi to eliminate duplication and possible confusion in its
mutual fund product offerings. Having determined that the offering of multiple
funds with substantially similar objectives and identical portfolio managers
is both repetitious and confusing, SSB Citi believes that the combination of
the Funds which have substantially similar investment objectives and policies
into a single larger fund may increase economic and other efficiencies for
investors and SSB Citi, and may ultimately result in a lower total annual
expense ratio for investors. SSB Citi also believes that a larger asset base
could provide portfolio management benefits such as greater diversification
and the ability to command more attention from brokers and underwriters. In
light of the foregoing, it is anticipated that the Acquiring Fund may achieve
a higher level of income over a year's time than the Fund. As discussed in
detail herein, the total operating expenses of the Acquiring Fund are also
currently (and are projected to be following the Closing of the
Reorganization) lower than the corresponding expenses incurred by the Fund.
While past performance is not necessarily indicative of future results, the
Acquiring Fund has outperformed the S&P Mid Cap Index since inception
(September 1, 1998) and for the one year period ended December 31, 1999.
Because the Fund commenced operations on March 15, 1999, however, it does not
yet have a sufficient operating history to generate performance history that
can be compared against the Acquiring Fund.
Lower Fees and Expenses. If the proposed transaction is approved,
shareholders of the Fund may benefit from lower total fund expenses. See
"Investment Management Fees and Expenses" and "Annual Fund Operating
Expenses".
As set forth above, as of their most recent fiscal year end, each class of
shares of the Fund has higher gross and net operating expenses than the
corresponding class of the Acquiring Fund. As a result of the Reorganization,
absent waivers and reimbursements, shareholders of the Fund will be investing
in the corresponding class of the Acquiring Fund with expenses that are
currently significantly lower than those of the relevant class of the Fund. If
the Reorganization is approved, the Acquiring Fund's net expense ratio for
each class of its shares is estimated to remain unchanged for the year ending
November 30, 2000. Going forward, shareholders should benefit from economies
of scale through lower expense ratios and higher net income distributions over
time since some of the fixed expenses currently paid by the Acquiring Fund,
such as accounting, legal and printing costs, would also be spread over a
larger asset base.
Due to a combination of factors, including the relatively small size of the
Fund, past and prospective sales of the Fund and current market conditions,
the Trustees and management of Investment Series believe the Fund and its
shareholders would benefit from a tax-free reorganization with a larger fund
with substantially similar investment objectives and policies and with a lower
total annual expense ratio. Accordingly, it is recommended that the
shareholders of the Fund approve the Reorganization with the Acquiring Fund.
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The Board of Trustees of Investment Series, in recommending the proposed
transaction, considered a number of factors, including the following:
(1) the Reorganization will result in a single larger fund, managed by
the same portfolio manager, which may increase economic and other
efficiencies (e.g., eliminating one of the two sets of prospectuses, annual
reports and other documents required for two Funds), and may result in a
lower expense ratio;
(2) a larger asset base could provide portfolio management benefits, such
as greater diversification and the ability to command more attention from
brokers and underwriters;
(3) the positive compatibility of the Acquiring Fund's investment
objectives, policies and restrictions with those of the Fund;
(4) the tax-free nature of the Reorganization;
(5) the potential opportunity for higher income levels and higher annual
return;
(6) the lower total annual expense ratio of the Acquiring Fund;
(7) the terms and conditions of the Reorganization and that it should not
result in a dilution of Fund shareholder interests; and
(8) the level of costs and expenses to the Fund of the proposed
Reorganization.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
General. The Fund is a diversified series of Investment Series, a business
trust organized under the laws of The Commonwealth of Massachusetts on January
29, 1987, and is registered with the SEC as an open-end management investment
company. The Acquiring Fund is a diversified series of Investment Trust, a
business trust organized under the laws of The Commonwealth of Massachusetts
on October 17, 1991, and is registered with the SEC as a diversified, open-end
management investment company. The Fund currently offers shares of beneficial
interest classified into three Classes: A, B and 1. The Acquiring Fund
currently offers shares of beneficial interest classified into four Classes:
A, B, L and Y and will offer Class 1 shares prior to the closing of the
Reorganization. Each Class of shares represents an identical pro rata interest
in the relevant Fund's investment portfolio. As a result, the Classes of each
Fund have the same rights, privileges and preferences, except with respect to:
(a) the designation of each Class; (b) the amount of the respective sales
charges, if any, for each Class; (c) the distribution and/or service fees
borne by each Class; (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.
Each share of each Class of a Fund represents an interest in that Class of
the Fund that is equal to and proportionate with each other share of that
Class of the Fund. Shareholders are entitled to one vote per share (and a
proportionate fractional vote per each fractional share) held on matters on
which they are entitled to vote.
Voting Rights. Neither Fund is required to hold shareholder meetings
annually, although shareholder meetings may be called for purposes such as
electing or removing Trustees, changing fundamental policies or approving an
investment management contract. In the event that shareholders of a Fund wish
to communicate with other shareholders concerning the removal of any Trustee,
such shareholders shall be assisted in communicating with other shareholders
for the purpose of obtaining signatures to request a meeting of shareholders,
all in the manner provided in Section 16(c) of the 1940 Act as if Section
16(c) were applicable.
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Board. The By-Laws of Investment Series provide that the term of office of
each Trustee shall be from the time of his or her election and qualification
until the next annual meeting of shareholders and until his or her successor
shall have been elected and shall have qualified. Any Trustee may be removed
by the vote of at least a majority of the outstanding shares then entitled to
be cast for the election of Trustees. The Declaration of Trust of Investment
Trust provides that the term of office of each Trustee is unlimited in
duration unless the Trustees themselves adopt a limited term. A person serving
as Trustee will continue as Trustee until the person resigns, dies or is
removed from office. Any Trustee may be removed with or without cause at any
time by the vote of either two-thirds of the number of Trustees prior to such
removal, or by a vote of not less than two-thirds of the outstanding shares
then entitled to be cast for the election of Trustees. Vacancies on the Boards
of both Funds may be filled by the Trustees remaining in office. A meeting of
shareholders will be required for the purpose of electing additional Trustees
whenever fewer than a majority of the Trustees then in office were elected by
shareholders and to fill vacancies if less than two-thirds of the Trustees
then holding office have been elected by the shareholders.
Liquidation or Termination. In the event of the liquidation or termination
of a Fund, the shareholders are entitled to receive, when and as declared by
the Trustees, the excess of the assets over the liabilities belonging to the
relevant Fund. In either case, the assets so distributed to shareholders will
be distributed among the shareholders in proportion to the number of shares of
the class held by them and recorded on the books of the relevant Fund. The net
asset value of the classes of shares would differ due to differences in
expense ratios.
Liability of Trustees. The Declaration of Trust of Investment Series
provides that the Trustees and officers shall not be liable for monetary
damages for breach of fiduciary duty as a Trustee or officer, except to the
extent such exemption is not permitted by law. This instrument also provides
that the Fund shall indemnify each Trustee and officer and make advances for
the payment of expenses relating to the matter for which indemnification is
sought, each to the fullest extent permitted by Massachusetts law and other
applicable law. The Declaration of Trust of Investment Trust provides that a
Trustee or officer of Investment Trust will be personally liable only for his
or her own willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee. This
instrument also provides that each Trustee and officer will be indemnified for
the expenses of litigation against them unless it is determined that his or
her conduct constitutes willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties.
Rights of Inspection. The Declaration of Trust of Investment Series permits
any shareholder of a Fund or his agent to inspect and copy during normal
business hours the By-Laws, minutes of the proceedings of shareholders and
annual financial statements of the Fund (including a balance sheet and
financial statements of operations) on file, at its principal offices. The
Declaration of Trust of Investment Trust provides that records of Investment
Trust shall be open to inspection by the Trust's shareholders to the same
extent as is permitted stockholders of a Massachusetts business corporation
under the Massachusetts Business Corporation Law.
Shareholder Liability. Under Massachusetts law, shareholders of a
Massachusetts business trust could, under certain circumstances, be held
personally liable for obligations of a fund. The Declarations of Trust of
Investment Trust and Investment Series, however, disclaim shareholder
liability for acts or obligations of the Funds and require that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into
or executed by that Fund or its Trustees. Moreover, the Declarations of Trust
provide for indemnification out of the Funds' property for all losses and
expenses of any shareholder held personally liable for the obligations of the
Funds. Thus, the risk of a shareholder of a Fund incurring financial loss on
account of shareholder liability is considered by SSB Citi remote and not
material, since it is limited to circumstances in which a disclaimer is
inoperative and the Fund itself is unable to meet its obligations.
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Shares of the Acquiring Fund issued to the shareholders of the Fund pursuant
to the Reorganization will be fully paid and nonassessable when issued,
transferable without restrictions and will have no preemptive rights.
The foregoing is only a summary of certain characteristics of the operations
of Investment Trust and Investment Series. The foregoing is not a complete
description of the documents cited. Shareholders should refer to the
provisions of trust documents and state laws governing each Fund for a more
thorough description.
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is conditioned upon the receipt by Investment Series, on
behalf of the Fund, and Investment Trust, on behalf of the Acquiring Fund, of
an opinion from Willkie Farr & Gallagher, substantially to the effect that,
based upon certain facts, assumptions and representations of the parties, for
federal income tax purposes: (i) the transfer to the Acquiring Fund of all or
substantially all of the assets of the Fund in exchange solely for Shares and
the assumption by the Acquiring Fund of all of the liabilities of the Fund,
followed by the distribution of such Shares to Fund shareholders in exchange
for their shares of the Fund in complete liquidation of the Fund, will
constitute a "reorganization" within the meaning of Section 368(a)(1) of the
Code, and the Acquiring Fund and the Fund will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code; (ii) no gain
or loss will be recognized by the Fund upon the transfer of the Fund's assets
to the Acquiring Fund in exchange for the Acquiring Fund Shares and the
assumption by the Acquiring Fund of liabilities of the Fund or upon the
distribution (whether actual or constructive) of the Acquiring Fund Shares to
the Fund's shareholders in exchange for their shares of the Fund; (iii) the
basis of the assets of the Fund in the hands of the Acquiring Fund will be the
same as the basis of such assets of the Fund immediately prior to the
transfer; (iv) the holding period of the assets of the Fund in the hands of
the Acquiring Fund will include the period during which such assets were held
by the Fund; (v) no gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Fund in exchange for Shares and the
assumption by the Acquiring Fund of all of the liabilities of the Fund; (vi)
no gain or loss will be recognized by the shareholders of the Fund upon the
receipt of Shares solely in exchange for their shares of the Fund as part of
the transaction; (vii) the basis of Shares received by the shareholders of the
Fund will be the same as the basis of the shares of the Fund exchanged
therefor; and (viii) the holding period of Shares received by the shareholders
of the Fund will include the holding period during which the shares of the
Fund exchanged therefor were held, provided that at the time of the exchange
the shares of the Fund were held as capital assets in the hands of the
shareholders of the Fund.
While neither Investment Series nor Investment Trust is aware of any adverse
state or local tax consequences of the proposed Reorganization, they have not
requested any ruling or opinion with respect to such consequences and
shareholders may wish to consult their own tax adviser with respect to such
matters.
LIQUIDATION AND TERMINATION OF SERIES
If the Reorganization is effected, the Fund will be liquidated and
terminated as a series of Investment Series, and the Fund's outstanding shares
will be cancelled.
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PORTFOLIO SECURITIES
If the Reorganization is effected, SSB Citi will analyze and evaluate the
portfolio securities of the Fund being transferred to the Acquiring Fund.
Consistent with the Acquiring Fund's investment objective and policies, any
restrictions imposed by the Code and the best interests of the Acquiring
Fund's shareholders (including former shareholders of the Fund), SSB Citi will
determine the extent and duration to which the Fund's portfolio securities
will be maintained by the Acquiring Fund. Currently, a significant rebalancing
of the Fund's portfolio securities in connection with the Reorganization is
not anticipated. Subject to market conditions at the time of any such
rebalancing, the disposition of the Fund's portfolio securities may result in
a capital gain or loss. The actual tax consequences of any disposition of
portfolio securities will vary depending upon the specific security(ies) being
sold.
PORTFOLIO TURNOVER
The portfolio turnover rate for the Acquiring Fund (i.e., the ratio of the
lesser of annual sales or purchases to the monthly average value of the
portfolio (excluding from both the numerator and the denominator securities
with maturities at the time of acquisition of one year or less)), for the year
ended November 30, 1999 was 61%. The portfolio turnover rate for the Fund for
the year ended October 31, 1999 was 47%.
25
<PAGE>
CAPITALIZATION AND PERFORMANCE
Pro Forma Capitalization (Unaudited). The following table sets forth the
unaudited capitalization of each class of each of the Acquiring Fund and the
Fund as of June 30, 2000 as adjusted giving effect to the Reorganization
discussed herein:(1)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Acquiring Fund The Fund Adjustments Combined
-------------- ----------- ----------- ------------
(Actual) (Actual)
<S> <C> <C> <C> <C>
Class A
Net Assets................ $213,113,314 $28,378,009 -- $241,491,323
Net Asset Value Per
Share.................... $22.68 $16.27 -- $22.68
Shares Outstanding........ 9,394,701 1,744,310 1,251,235 10,645,936
Class B
Net Assets................ $372,790,022 $46,441,097 -- $419,231,118
Net Asset Value Per
Share.................... $22.38 $16.13 -- $22.38
Shares Outstanding........ 16,660,181 2,880,010 2,075,116 18,735,297
Class L
Net Assets................ $267,290,811 -- -- $267,290,811
Net Asset Value Per
Share.................... $22.38 -- -- $22.38
Shares Outstanding........ 11,945,451 -- -- 11,945,451
Class Y
Net Assets................ $146,333,219 -- -- $146,333,219
Net Asset Value Per
Share.................... $22.79 -- -- $22.79
Shares Outstanding........ 6,422,013 -- -- 6,422,013
Class 1(2)
Net Assets................ -- $ 2,550,602 -- $ 2,550,602
Net Asset Value Per
Share.................... $22.68 $16.32 -- $22.68
Shares Outstanding........ -- 156,277 112,460 $ 112,460
</TABLE>
--------
(1) Assumes the Reorganization had been consummated on June 30, 2000, and is
for information purposes only. No assurance can be given as to how many
shares of the Acquiring Fund will be received by shareholders of the Fund
on the date the Reorganization takes place, and the foregoing should not
be relied upon to reflect the number of shares of the Acquiring Fund that
actually will be received on or after such date.
(2) Assumes subscriptions of Class 1 shares in Acquiring Fund at Class A NAV.
Due to the net asset value of the Acquired Fund being less than 10% of the
Acquiring Fund's value, pro forma statements are not required to be and have
not been prepared for inclusion in the Statement of Additional Information
filed in connection with the Reorganization.
These figures are calculated by finding the average annual compounded rates
of return for the one-, five- and ten- (or such shorter period as the relevant
class of shares has been offered) year periods that would equate the initial
amount invested to the ending redeemable value according to the following
formula: P (1 + T)n = ERV. For purposes of this formula, "P" is a hypothetical
investment of $1,000; "T" is average annual total return; "n" is number of
years; and "ERV" is the ending redeemable value of a hypothetical $1,000
payment made at the
26
<PAGE>
beginning of the one-, five- or ten-year periods (or fractional portion
thereof). Total return or "T" is computed by finding the average annual change
in the value of an initial $1,000 investment over the period and assumes that
all dividends and distributions are reinvested during the period. Investors
should note that this performance may not be representative of a Fund's total
return over longer market cycles.
The following table reflects the average annual total returns of Class A
shares of the Acquiring Fund (including sales charges) for the 1 year and
since inception periods, ending December 31, 1999. Because the Fund commenced
operations on March 15, 1999, however, it does not yet have a sufficient
operating history to generate the performance information for those periods
specified below.
<TABLE>
<CAPTION>
The Acquiring Fund
Average Annual Total Return:(1) ------------------
<S> <C>
1 year.................................................... 23.13%
5 years................................................... N/A
10 years.................................................. N/A
Since Inception........................................... 48.96%
(9/1/98)
</TABLE>
--------
(1) The average annual total returns for other classes of each Fund's shares
would be similar to the returns of the Class A Shares of the relevant
Fund, but would differ to the extent that the other class of shares had a
higher or lower total annual expense ratio during the relevant periods.
Class 1 Shares of the Acquiring Fund had not been issued as of the date of
this Prospectus/Proxy Statement.
ADDITIONAL INFORMATION ABOUT THE FUNDS
As noted above, additional information about Investment Series with respect
to the Fund, and Investment Trust with respect to the Acquiring Fund, and the
Reorganization has been filed with the SEC and may be obtained without charge
by writing to Smith Barney Mutual Funds, 388 Greenwich Street, New York, New
York 10013, or by calling (800) 451-2010.
Each Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act, and in accordance therewith, files
reports, proxy material and other information about the applicable Fund with
the Commission.
Such reports, proxy material and other information can be inspected and
copied at the Public Reference Room (202-942-8090) maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such
material can also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates or without
charge from the Commission at [email protected]. Copies of such material can
also be obtained from Smith Barney Mutual Funds, 388 Greenwich Street, New
York, New York 10013, or by calling (800) 451-2010.
27
<PAGE>
Interests of Certain Persons. SSB Citi and certain of the Acquiring Fund's
service providers have a financial interest in the Reorganization, arising
from the fact that their respective fees under their respective agreements
with the Acquiring Fund will increase as the amount of the Acquiring Fund's
assets increases; the amount of those assets will increase by virtue of the
Reorganization.
THE BOARD MEMBERS OF INVESTMENT SERIES RECOMMEND THAT THE
SHAREHOLDERS OF THE FUND VOTE IN FAVOR OF THIS PROPOSAL.
ADDITIONAL INFORMATION
General. The cost of preparing, printing and mailing the enclosed proxy
card(s) and Prospectus/Proxy Statement and all other costs incurred in
connection with the solicitation of proxies, including any additional
solicitation made by letter, telephone or telegraph, will be paid by SSB Citi.
In addition to solicitation by mail, certain officers and representatives of
Investment Series, officers and employees of SSB Citi and certain financial
services firms and their representatives, who will receive no extra
compensation for their services, may solicit proxies by telephone, telegram or
personally.
When the Fund records proxies by telephone or through the internet, it will
use procedures designed to (i) authenticate shareholders' identities, (ii)
allow shareholders to authorize the voting of their shares in accordance with
their instructions and (iii) confirm that their instructions have been
properly recorded.
To participate in the Special Meeting, the shareholder may submit the proxy
card originally sent with the Prospectus/Proxy Statement or attend in person.
Any proxy given by a shareholder is revocable until voted at the Special
Meeting.
Proposals of Shareholders. Shareholders wishing to submit proposals for
inclusion in a proxy statement for a shareholder meeting subsequent to the
Special Meeting, if any, should send their written proposals to the Secretary
of Investment Series, c/o Smith Barney Mutual Funds, 388 Greenwich Street, New
York, New York 10013, within a reasonable time before the solicitation of
proxies for such meeting. The timely submission of a proposal does not
guarantee its inclusion.
Other Matters to Come Before the Special Meeting. No Board member is aware
of any matters that will be presented for action at the Special Meeting other
than the matters set forth herein. Should any other matters requiring a vote
of shareholders arise, the proxy in the accompanying form will confer upon the
person or persons entitled to vote the shares represented by such proxy the
discretionary authority to vote the shares as to any such other matters in
accordance with their best judgment in the interest of Investment Series
and/or the Fund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) PROMPTLY. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
By order of the Board of Trustees,
Christina T. Sydor
Secretary
28
<PAGE>
INDEX OF EXHIBITS
ANNEX: 5% Shareholders
Exhibit A: Form of Agreement and Plan of Reorganization
<PAGE>
ANNEX A
5% SHAREHOLDERS
Acquiring Fund
<TABLE>
<CAPTION>
Percentage
Class Name and Address Owned
----- ---------------- ----------
<C> <S> <C>
Class Y Smith Barney 46.4326%
Concert Series, Inc.*
Growth Portfolio PNC Bank NA
ATTN: Beverly Timson
200 Stevens Drive, Suite 440
Lester, PA 19113-1522
Class Y Smith Barney 36.3906%
Concert Series, Inc.*
High Growth Portfolio PNC Bank NA
ATTN: Beverly Timson
200 Stevens Drive, Suite 440
Lester, PA 19113-1522
Class Y Smith Barney 9.6758%
Concert Series, Inc.*
Select Growth Portfolio PNC Bank NA
ATTN: Beverly Timson
200 Stevens Drive, Suite 440
Lester, PA 19113-1522
Class Y Smith Barney 6.3291%
Concert Series, Inc.*
Select High Growth Portfolio PNC Bank NA
ATTN: Beverly Timson
200 Stevens Drive, Suite 440
Lester, PA 19113-1522
</TABLE>
Acquired Fund
<TABLE>
<CAPTION>
Percentage
Class Name and Address Owned
----- ---------------- ----------
<S> <C> <C>
Class A PFS Shareholder Services* 86.4574%
ATTN: Jay Barnhill
3100 Breckinridge Boulevard
Duluth, GA 30199
Class B PFS Shareholder Services* 56.7647%
ATTN: Jay Barnhill
3100 Breckinridge Boulevard
Duluth, GA 30199
Class 1 PFS Shareholder Services* 100.0000%
ATTN: Jay Barnhill
3100 Breckinridge Boulevard
Duluth, GA 30199
</TABLE>
* Each Fund believes that these entities are not the beneficial owners of
shares held of record by them.
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 11th day of August, 2000, between Concert Investment Series(R)
("Investment Series"), a Massachusetts business trust with its principal place
of business at 388 Greenwich Street, New York, New York 10013, on behalf of
its series, the Mid Cap Fund (the "Acquired Fund"), and Smith Barney
Investment Trust ("Investment Trust"), a Massachusetts business trust with its
principal place of business at 388 Greenwich Street, New York, New York 10013,
on behalf of its series, the Smith Barney Mid Cap Core Fund (formerly, Smith
Barney Mid Cap Blend Fund) (the "Acquiring Fund"), and solely for purposes of
Section 10.2 hereof, SSB Citi Fund Management LLC ("SSB Citi").
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of all of the assets of the
Acquired Fund to the Acquiring Fund in exchange solely for voting shares of
the corresponding class of common stock ($.001 par value per share) of the
Acquiring Fund (the "Acquiring Fund Shares"), the assumption by the Acquiring
Fund of all of the stated liabilities of the Acquired Fund and the
distribution of the Acquiring Fund Shares to the shareholders of the Acquired
Fund in complete liquidation of the Acquired Fund as provided herein, all upon
the terms and conditions hereinafter set forth in this Agreement.
All representations, warranties, agreements or covenants made or undertaken
by the Acquired Fund and the Acquiring Fund in this Agreement are actually
made or undertaken by Investment Series on behalf of the Acquired Fund and
Investment Trust on behalf of the Acquiring Fund.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. Transfer of Assets of the Acquired Fund to the Acquiring Fund in Exchange
for the Acquiring Fund Shares, the Assumption of all Acquired Fund Stated
Liabilities and the Liquidation of the Acquired Fund
1.1. Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund
agrees to transfer to the Acquiring Fund all of the Acquired Fund's assets as
set forth in Section 1.2, and the Acquiring Fund agrees in exchange therefor
(i) to deliver to the Acquired Fund that number of full and fractional
Acquiring Fund Shares determined by dividing the value of the Acquired Fund's
assets, computed in the manner and as of the time and date set forth in
Section 2.1, by the net asset value of one Acquiring Fund Share, computed in
the manner and as of the time and date set forth in Section 2.2; and (ii) to
assume all of the stated liabilities of the Acquired Fund, as set forth in
Section 1.3. Such transactions shall take place at the closing provided for in
Section 3.1 (the "Closing").
1.2. The assets of the Acquired Fund to be acquired by the Acquiring Fund
(collectively "Assets") shall consist of all assets, including, without
limitation, all cash, cash equivalents, securities, commodities and futures
interests and dividends or interest or other receivables that are owned by the
Acquired Fund and any deferred or prepaid expenses shown on the unaudited
statement of assets and liabilities of the Acquired Fund prepared as of the
effective time of the closing (the "Effective Time Statement"), prepared in
accordance with generally accepted accounting principles ("GAAP") applied
consistently with those of the Acquired Fund's most recent audited balance
sheet.
A-1
<PAGE>
1.3. The Acquired Fund will endeavor to discharge all the Acquired Fund's
known liabilities and obligations prior to the Closing Date as defined in
Section 3.1, other than those liabilities and obligations which would
otherwise be discharged at a later date in the ordinary course of business.
1.4. On or as soon as practicable prior to the Closing Date as defined in
Section 3.1, the Acquired Fund will declare and pay to its shareholders of
record one or more dividends and/or other distributions so that it will have
distributed substantially all of its investment company taxable income
(computed without regard to any deduction for dividends paid) and realized net
capital gain, if any, for the current taxable year through the Closing Date.
1.5. Immediately after the transfer of assets provided for in Section 1.1
(the "Liquidation Time"), Investment Series will distribute to the Acquired
Fund's shareholders of record (the "Acquired Fund Shareholders"), determined
as of the Valuation Time (as defined herein), on a pro rata basis, the
Acquiring Fund Shares received by the Acquired Fund pursuant to Section 1.1
and the Acquired Fund will completely liquidate. Such distribution and
liquidation will be accomplished by the transfer of the Acquiring Fund Shares
then credited to the account of the Acquired Fund on the books of the
Acquiring Fund to open accounts on the share records of the Acquiring Fund in
the names of the Acquired Fund Shareholders. The aggregate net asset value of
Acquiring Fund Shares to be so credited to Acquired Fund Shareholders shall be
equal to the aggregate net asset value of each class of the Acquired Fund
shares owned by such shareholders as of the Valuation Time (as defined
herein). All issued and outstanding shares of the Acquired Fund will
simultaneously be cancelled on the books of the Acquired Fund, although share
certificates representing interests in shares of the Acquired Fund will
represent a number of Acquiring Fund Shares after the Closing Date as
determined in accordance with Section 2.3. The Acquiring Fund will not issue
certificates representing Acquiring Fund Shares in connection with such
exchange.
1.6. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's then-current prospectus and statement of
additional information.
1.7. Any reporting responsibility of the Acquired Fund including, without
limitation, the responsibility for filing of regulatory reports, tax returns,
or other documents with the Securities and Exchange Commission (the
"Commission"), any state securities commission, and any federal, state or
local tax authorities or any other relevant regulatory authority, is and shall
remain the responsibility of the Acquired Fund.
1.8. All books and records of the Acquired Fund, including all books and
records required to be maintained under the Investment Company Act of 1940, as
amended (the "1940 Act") and the rules and regulations thereunder, shall be
available to the Acquiring Fund from and after the Closing Date and shall be
turned over to the Acquiring Fund as soon as practicable following the closing
date.
2. Valuation
2.1. The value of the Assets shall be computed as of the close of regular
trading on The New York Stock Exchange, Inc. ("NYSE") on the Closing Date, as
defined in Section 3.1 (such time and date also being hereinafter called the
"Valuation Time") after the declaration and payment of any dividends and/or
other distributions on that date, using the valuation procedures set forth in
Investment Trust's Declaration of Trust, as amended, and the Acquiring Fund's
then-current prospectus or statement of additional information.
A-2
<PAGE>
2.2. The net asset value of an Acquiring Fund share shall be the net asset
value per share of each class computed as of the Valuation Time using the
valuation procedures referred to in Section 2.1.
2.3. The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Assets shall be determined by
dividing the value of the Assets with respect to shares of each class of the
Acquired Fund determined in accordance with Section 2.1 by the net asset value
by class of an Acquiring Fund Share determined in accordance with Section 2.2.
2.4. All computations of value hereunder shall be made by or under the
direction of each Fund's respective accounting agent, if applicable, in
accordance with its regular practice and the requirements of the 1940 Act and
shall be subject to confirmation by each Fund's respective independent
accountants.
3. Closing and Closing Date
3.1. The Closing of the transactions contemplated by this Agreement shall be
October 6, 2000, or such later date as the parties may agree in writing (the
"Closing Date"). All acts taking place at the Closing shall be deemed to take
place simultaneously as of 4:00 P.M., Eastern time, on the Closing Date,
unless otherwise agreed to by the parties. The Closing shall be held at the
offices of Willkie Farr & Gallagher or at such other place and time as the
parties may agree.
3.2. Acquired Fund shall deliver to Acquiring Fund on the Closing Date a
schedule of assets.
3.3. PNC Bank, National Association, as custodian for the Acquired Fund,
shall deliver at the Closing a certificate of an authorized officer stating
that (a) the Assets shall have been delivered in proper form to PNC Bank,
National Association, custodian for the Acquiring Fund, prior to or on the
Closing Date and (b) all necessary taxes in connection with the delivery of
the Assets, including all applicable federal and state stock transfer stamps,
if any, have been paid or provision for payment has been made. The Acquired
Fund's portfolio securities represented by a certificate or other written
instrument shall be presented by Custodian for Acquired Fund to Custodian for
Acquiring Fund for examination no later than five business days preceding the
Closing Date and transferred and delivered by the Acquired Fund as of the
Closing Date by the Acquired Fund for the account of Acquiring Fund duly
endorsed in proper form for transfer in such condition as to constitute good
delivery thereof. The Acquired Fund's portfolio securities and instruments
deposited with a securities depository, as defined in Rule 17f-4 under the
1940 Act, shall be delivered as of the Closing Date by book entry in
accordance with the customary practices of such depositories and Custodian for
Acquiring Fund. The cash to be transferred by the Acquired Fund shall be
delivered by wire transfer of federal funds on the Closing Date.
3.4. Citi Fiduciary Trust Company (the "Transfer Agent"), on behalf of the
Acquired Fund, shall deliver at the Closing a certificate of an authorized
officer stating that its records contain the names and addresses of the
Acquired Fund Shareholders and the number and percentage ownership (to three
decimal places) of outstanding Acquired Fund Shares owned by each such
shareholder immediately prior to the Closing. The Acquiring Fund shall issue
and deliver a confirmation evidencing the Acquiring Fund Shares to be credited
on the Closing Date to the Acquired Fund or provide evidence satisfactory to
the Acquired Fund that such Acquiring Fund Shares have been credited to the
Acquired Fund's account on the books of the Acquiring Fund. At the Closing,
each party shall deliver to the other such bills of sale, checks, assignments,
share certificates, if any, receipts or other documents as such other party or
its counsel may reasonably request to effect the transactions contemplated by
this Agreement.
A-3
<PAGE>
3.5. In the event that immediately prior to the Valuation Time (a) the NYSE
or another primary trading market for portfolio securities of the Acquiring
Fund or the Acquired Fund shall be closed to trading or trading thereupon
shall be restricted, or (b) trading or the reporting of trading on such
Exchange or elsewhere shall be disrupted so that, in the judgment of the Board
of Trustees of either Fund, accurate appraisal of the value of the net assets
with respect to the Acquiring Fund Shares or the Acquired Fund Shares is
impracticable, the Closing Date shall be postponed until the first business
day after the day when trading shall have been fully resumed and reporting
shall have been restored.
4. Representations and Warranties
4.1. Investment Series, on behalf of the Acquired Fund, represents and
warrants to Investment Trust, on behalf of the Acquiring Fund, as follows:
(a) Investment Series is a business trust duly organized and validly
existing under the laws of The Commonwealth of Massachusetts with power
under its Declaration of Trust, as amended, to own all of its properties
and assets and to carry on its business as it is now being conducted;
(b) Investment Series is registered with the Commission as an open-end
management investment company under the 1940 Act and such registration is
in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired
Fund of the transactions contemplated herein, except such as have been
obtained under the Securities Act of 1933, as amended (the "1933 Act"), the
Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act and such
as may be required by state securities laws;
(d) Other than with respect to contracts entered into in connection with
the portfolio management of the Acquired Fund which shall terminate on or
prior to the Closing Date, Investment Series is not, and the execution,
delivery and performance of this Agreement by Investment Series will not
result, in violation of Massachusetts law or of its Declaration of Trust,
as amended, or By-Laws, or of any material agreement, indenture,
instrument, contract, lease or other undertaking known to counsel to which
the Acquired Fund is a party or by which it is bound, and the execution,
delivery and performance of this Agreement by the Acquired Fund will not
result in the acceleration of any obligation, or the imposition of any
penalty, under any agreement, indenture, instrument, contract, lease,
judgment or decree to which the Acquired Fund is a party or by which it is
bound;
(e) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquired Fund or any properties or assets
held by it. The Acquired Fund knows of no facts which might form the basis
for the institution of such proceedings which would materially and
adversely affect its business and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
(f) The Statements of Assets and Liabilities, including the Investment
Portfolio, Operations, and Changes in Net Assets, and the Financial
Highlights of the Acquired Fund at and for the year ended October 31, 1999,
has been audited by Ernst & Young LLP, independent certified public
accountants, and are in accordance with GAAP consistently applied, and such
statements (copies of which have been furnished to the Acquiring Fund)
present fairly, in all material respects, the financial position, results
of operations, changes in net assets and financial highlights of the
Acquired Fund as of such date in accordance with GAAP, and there are no
known contingent liabilities of the Acquired Fund required to be reflected
on a
A-4
<PAGE>
statement of assets and liabilities (including the notes thereto) in
accordance with GAAP as of such date not disclosed therein;
(g) Since October 31, 1999, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquired Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by the Acquiring Fund. For purposes of
this subsection (g), a decline in net asset value per share of the Acquired
Fund due to declines in market values of securities in the Acquired Fund's
portfolio, the discharge of Acquired Fund liabilities, or the redemption of
Acquired Fund shares by Acquired Fund Shareholders shall not constitute a
material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other tax
returns and reports of the Acquired Fund required by law to have been filed
by such dates (including any extensions) shall have been filed and are or
will be correct in all material respects, and all federal and other taxes
shown as due or required to be shown as due on said returns and reports
shall have been paid or provision shall have been made for the payment
thereof, and, to the best of the Acquired Fund's knowledge, no such return
is currently under audit and no assessment has been asserted with respect
to such returns;
(i) For each taxable year of its operation, the Acquired Fund has met the
requirements of Subchapter M of the Code for qualification as a regulated
investment company and has elected to be treated as such, has been eligible
to and has computed its federal income tax under Section 852 of the Code,
and will have distributed all of its investment company taxable income and
net capital gain (as defined in the Code) that has accrued through the
Closing Date;
(j) All issued and outstanding shares of the Acquired Fund (i) have been
offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the
1933 Act and state securities laws, (ii) are, and on the Closing Date will
be, duly and validly issued and outstanding, fully paid and non-assessable,
and (iii) will be held at the time of the Closing by the persons and in the
amounts set forth in the records of the Transfer Agent, as provided in
Section 3.3. The Acquired Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of the Acquired
Fund shares, nor is there outstanding any security convertible into any of
the Acquired Fund shares;
(k) At the Closing Date, the Acquired Fund will have good and marketable
title to the Acquired Fund's assets to be transferred to the Acquiring Fund
pursuant to Section 1.2 and full right, power, and authority to sell,
assign, transfer and deliver such assets hereunder free of any liens or
other encumbrances, except those liens or encumbrances as to which the
Acquiring Fund has received notice at or prior to the Closing, and upon
delivery and payment for such assets, the Acquiring Fund will acquire good
and marketable title thereto, subject to no restrictions on the full
transfer thereof, including such restrictions as might arise under the 1933
Act and the 1940 Act, except those restrictions as to which the Acquiring
Fund has received notice and necessary documentation at or prior to the
Closing;
(l) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of the Trustees of Investment Series, and, subject to the approval
of the Acquired Fund Shareholders, this Agreement constitutes a valid and
binding obligation of Investment Series, on behalf of the Acquired Fund,
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other laws relating to or affecting creditors' rights and to general equity
principles;
A-5
<PAGE>
(m) The information to be furnished by the Acquired Fund for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the National Association of
Securities Dealers, Inc.), which may be necessary in connection with the
transactions contemplated hereby, shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto; and
(n) The current prospectus and statement of additional information of the
Acquired Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading; and
(o) The proxy statement of the Acquired Fund to be included in the
Registration Statement referred to in Section 5.7 (the "Proxy Statement"),
insofar as it relates to the Acquired Fund, will, on the effective date of
the Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements are made, not materially
misleading; provided, however, that the representations and warranties in
this Section shall not apply to statements in or omissions from the Proxy
Statement and the Registration Statement made in reliance upon and in
conformity with information that was furnished or should have been
furnished by the Acquiring Fund for use therein.
4.2. Investment Trust, on behalf of the Acquiring Fund, represents and
warrants to Investment Series, on behalf of the Acquired Fund, as follows:
(a) Investment Trust is a voluntary association of the type commonly
referred to as a Massachusetts business trust with transferable shares duly
organized and validly existing under the laws of The Commonwealth of
Massachusetts with power under its Declaration of Trust, as amended, to own
all of its properties and assets and to carry on its business as it is now
being conducted;
(b) Investment Trust is registered with the Commission as an open-end
management investment company under the 1940 Act, and such registration is
in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring
Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as may
be required by state securities laws;
(d) Investment Trust is not, and the execution, delivery and performance
of this Agreement by Investment Trust will not result, in violation of
Massachusetts law or of its Declaration of Trust, as amended, or By-Laws,
or of any material agreement, indenture, instrument, contract, lease or
other undertaking known to counsel to which the Acquiring Fund is a party
or by which it is bound, and the execution, delivery and performance of
this Agreement by the Acquiring Fund will not result in the acceleration of
any obligation, or the imposition of any penalty, under any agreement,
indenture, instrument, contract, lease, judgment or decree to which the
Acquiring Fund is a party or by which it is bound;
(e) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquiring Fund or any properties or assets
held by it. The Acquiring Fund knows of no facts which might form the basis
for the institution of such proceedings which would materially and
adversely affect its business and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body which
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materially and adversely affects its business or its ability to consummate
the transactions herein contemplated;
(f) The Statements of Assets and Liabilities, including the Investment
Portfolio, Operations, and Changes in Net Assets, and the Financial
Highlights of the Acquiring Fund at and for the year ended November 30,
1999 has been audited by KPMG LLP, independent certified public
accountants, and are in accordance with GAAP consistently applied, and such
statements (copies of which have been furnished to the Acquired Fund)
present fairly, in all material respects, the financial position, results
of operations, changes in net assets and financial highlights of the
Acquiring Fund as of such date in accordance with GAAP, and there are no
known contingent liabilities of the Acquiring Fund required to be reflected
on a statement of assets and liabilities (including the notes thereto) in
accordance with GAAP as of such date not disclosed therein;
(g) Since November 30, 1999, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquiring Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by Investment Funds on behalf of the
Acquired Fund. For purposes of this subsection (g), a decline in net asset
value per share of the Acquiring Fund due to declines in market values of
securities in the Acquiring Fund's portfolio, the discharge of Acquiring
Fund liabilities, or the redemption of Acquiring Fund shares by Acquiring
Fund shareholders shall not constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other tax
returns and reports of the Acquiring Fund required by law to have been
filed by such dates (including any extensions) shall have been filed and
are or will be correct in all material respects, and all federal and other
taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the
payment thereof, and, to the best of the Acquiring Fund's knowledge, no
such return is currently under audit and no assessment has been asserted
with respect to such returns;
(i) For each taxable year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification as a
regulated investment company and has elected to be treated as such, has
been eligible to and has computed its federal income tax under Section 852
of the Code, and will do so for the taxable year including the Closing
Date;
(j) All issued and outstanding shares of the Acquiring Fund (i) have been
offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the
1933 Act and state securities laws and (ii) are, and on the Closing Date
will be, duly and validly issued and outstanding, fully paid and non-
assessable, recognizing that under Massachusetts law shareholders of the
Acquiring Fund could under certain circumstances be held personally liable
for its obligations. The Acquiring Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of the
Acquiring Fund shares, nor is there outstanding any security convertible
into any of the Acquiring Fund shares;
(k) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund, for the account of the Acquired Fund Shareholders, pursuant to the
terms of this Agreement, will at the Closing Date have been duly authorized
and, when so issued and delivered, will be duly and validly issued and
outstanding Acquiring Fund Shares, and will be fully paid and non-
assessable, recognizing that under Massachusetts law shareholders of the
Acquiring Fund could under certain circumstances be held personally liable
for its obligations;
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(l) At the Closing Date, the Acquiring Fund will have good and marketable
title to the Acquiring Fund's assets, free of any liens or other
encumbrances, except those liens or encumbrances as to which the Acquired
Fund has received notice at or prior to the Closing;
(m) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of the Trustees of Investment Trust will constitute a valid and
binding obligation of Investment Trust on behalf of the Acquiring Fund,
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other laws relating to or affecting creditors' rights and to general equity
principles;
(n) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the National Association of
Securities Dealers, Inc.), which may be necessary in connection with the
transactions contemplated hereby, shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto;
(o) The current prospectus and statement of additional information of the
Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading;
(p) The Proxy Statement to be included in the Registration Statement,
only insofar as it relates to the Acquiring Fund, will, on the effective
date of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
materially misleading; provided, however, that the representations and
warranties in this Section shall not apply to statements in or omissions
from the Proxy Statement and the Registration Statement made in reliance
upon and in conformity with information that was furnished or should have
been furnished by the Acquired Fund for use therein; and
(q) The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state securities laws as may be necessary in order to continue
its operations after the Closing Date.
5. Covenants of the Acquiring Fund and the Acquired Fund
5.1. Investment Trust, on behalf of the Acquiring Fund, and Investment
Series, on behalf of the Acquired Fund, each covenants to operate its business
in the ordinary course between the date hereof and the Closing Date, it being
understood that (a) such ordinary course of business will include (i) the
declaration and payment of customary dividends and other distributions and
(ii) such changes as are contemplated by the Funds' normal operations; and (b)
each Fund shall retain exclusive control of the composition of its portfolio
until the Closing Date.
5.2. Upon reasonable notice, the Acquiring Fund's officers and agents shall
have reasonable access to the Acquired Fund's books and records necessary to
maintain current knowledge of the Acquired Fund and to ensure that the
representations and warranties made by the Acquired Fund are accurate.
5.3. Investment Series, on behalf of the Acquired Fund, covenants to call a
meeting of the Acquired Fund Shareholders entitled to vote thereon to consider
and act upon this Agreement and to take all other reasonable
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action necessary to obtain approval of the transactions contemplated herein.
Such meeting shall be scheduled for no later than September 25, 2000 (or such
other date as the Acquired Fund and the Acquiring Fund may agree to in
writing).
5.4. Investment Series, on behalf of the Acquired Fund, covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.5. Investment Series, on behalf of the Acquired Fund, covenants that it
will assist the Acquiring Fund in obtaining such information as the Acquiring
Fund reasonably requests concerning the beneficial ownership of the Acquired
Fund Shares and will provide the Acquiring Fund with a list of affiliates of
the Acquired Fund.
5.6. Subject to the provisions of this Agreement, Investment Trust, on
behalf of the Acquiring Fund, and Investment Series, on behalf of the Acquired
Fund, will each take, or cause to be taken, all actions, and do or cause to be
done, all things reasonably necessary, proper, and/or advisable to consummate
and make effective the transactions contemplated by this Agreement.
5.7. Each Fund covenants to prepare the Registration Statement on Form N-14
(the "Registration Statement"), in compliance with the 1933 Act, the 1934 Act
and the 1940 Act in connection with the meeting of the Acquired Fund
Shareholders to consider approval of this Agreement and the transactions
contemplated herein. The Acquiring Fund will file the Registration Statement,
including the Proxy Statement, with the Commission. The Acquired Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the Proxy Statement referred
to in Section 4.1(o), all to be included in the Registration Statement, in
compliance in all material respects with the 1933 Act, the 1934 Act and the
1940 Act.
5.8. Investment Trust, on behalf of the Acquired Fund, covenants that it
will, from time to time, as and when reasonably requested by the Acquiring
Fund, execute and deliver or cause to be executed and delivered all such
assignments and other instruments, and will take or cause to be taken such
further action as the Acquiring Fund may reasonably deem necessary or
desirable in order to vest in and confirm the Acquiring Fund's title to and
possession of all the assets and otherwise to carry out the intent and purpose
of this Agreement.
5.9. The Acquiring Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act and 1940 Act, and
such of the state securities laws as it deems appropriate in order to continue
its operations after the Closing Date and to consummate the transactions
contemplated herein; provided, however, that the Acquiring Fund may take such
actions it reasonably deems advisable after the Closing Date as circumstances
change.
5.10. The Acquiring Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquired Fund, execute and deliver or cause
to be executed and delivered all such assignments, assumption agreements,
releases, and other instruments, and will take or cause to be taken such
further action, as the Acquired Fund may reasonably deem necessary or
desirable in order to (i) vest and confirm to the Acquired Fund title to and
possession of all Acquiring Fund shares to be transferred to Acquired Fund
pursuant to this Agreement and (ii) assume the liabilities from the Acquired
Fund.
5.11. As soon as reasonably practicable after the Closing, the Acquired Fund
shall make a liquidating distribution to its shareholders consisting of the
Acquiring Fund Shares received at the Closing.
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5.12. Investment Trust, on behalf of the Acquiring Fund, and the Investment
Series, on behalf of the Acquired Fund, shall each use its reasonable best
efforts to fulfill or obtain the fulfillment of the conditions precedent to
effect the transactions contemplated by this Agreement as promptly as
practicable.
6. Conditions Precedent to Obligations of the Acquired Fund
The obligations of Investment Series, on behalf of the Acquired Fund, to
consummate the transactions provided for herein shall be subject, at its
election, to the performance by the Acquiring Fund of all the obligations to
be performed by it hereunder on or before the Closing Date, and, in addition
thereto, the following further conditions:
6.1. All representations and warranties of Investment Trust, with respect to
the Acquiring Fund, contained in this Agreement shall be true and correct in
all material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Agreement, as of the Closing
Date, with the same force and effect as if made on and as of the Closing Date;
and there shall be (i) no pending or threatened litigation brought by any
person (other than Acquired Fund, its adviser or any of their affiliates)
against the Acquiring Fund, the Acquired Fund or their advisers, trustees or
officers arising out of this Agreement and (ii) no facts known to the Acquired
Fund which the Acquired Fund reasonably believes might result in such
litigation.
6.2. The Acquiring Fund shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by a President or a Vice
President of Investment Trust, in a form reasonably satisfactory to the
Acquired Fund and dated as of the Closing Date, to the effect that the
representations and warranties of Investment Trust, with respect to the
Acquiring Fund, made in this Agreement are true and correct on and as of the
Closing Date, except as they may be affected by the transactions contemplated
by this Agreement, and as to such other matters as the Acquired Fund shall
reasonably request;
6.3. Investment Series, on behalf of the Acquired Fund, shall have received
on the Closing Date an opinion of Willkie Farr & Gallagher, in a form
reasonably satisfactory to Investment Series, and dated as of the Closing
Date, to the effect that:
(a) Investment Trust is a voluntary association of the type commonly
referred to as a Massachusetts business trust with transferable shares,
validly existing under the laws of The Commonwealth of Massachusetts;
(b) Investment Trust has filed the necessary certificates required to be
filed under Chapter 182 of the General Laws of The Commonwealth of
Massachusetts and paid the necessary fees due thereon; and Investment Trust
is duly authorized to exercise in The Commonwealth of Massachusetts all of
the powers recited in its Declaration of Trust, and to transact business as
a registered open-end management investment company in The Commonwealth of
Massachusetts. The Acquiring Fund has the power to carry on its business as
presently conducted in accordance with the description thereof in
Investment Trust's registration statement under the 1940 Act;
(c) the Agreement has been duly authorized, executed and delivered by
Investment Trust, on behalf of the Acquiring Fund, and constitutes a valid
and legally binding obligation of Investment Trust, on behalf of the
Acquiring Fund, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
laws of general applicability relating to or affecting creditors' rights
and to general equity principles;
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<PAGE>
(d) the execution and delivery of the Agreement did not, and the exchange
of the Acquired Fund's assets for Acquiring Fund Shares pursuant to the
Agreement will not, violate the Declaration of Trust, as amended, or By-
laws of Investment Trust; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by
Investment Trust, on behalf of the Acquiring Fund, under the Federal laws
of the United States or the laws of The Commonwealth of Massachusetts for
the exchange of the Acquired Fund's assets for Acquiring Fund Shares
pursuant to the Agreement have been obtained or made.
Such opinion may state that it is solely for the benefit of Investment Series,
its Trustees and its officers. Such counsel may rely as to matters governed by
the laws of The Commonwealth of Massachusetts on an opinion of Massachusetts
counsel and/or certificates of officers or Trustees of Investment Trust. Such
opinion also shall include such other matters incident to the transaction
contemplated hereby as the Acquired Fund may reasonably request.
6.4. The Acquiring Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquiring Fund on or before the Closing Date.
7. Conditions Precedent to Obligations of the Acquiring Fund
The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
the Acquired Fund of all of the obligations to be performed by it hereunder on
or before the Closing Date and, in addition thereto, the following further
conditions:
7.1. All representations and warranties of Investment Series, with respect
to the Acquired Fund, contained in this Agreement shall be true and correct in
all material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Agreement, as of the Closing
Date, with the same force and effect as if made on and as of the Closing Date;
and there shall be (i) no pending or threatened litigation brought by any
person (other than Acquiring Fund, its adviser or any of their affiliates)
against the Acquired Fund, the Acquiring Fund or their advisers, trustees or
officers arising out of this Agreement and (ii) no facts known to the
Acquiring Fund which the Acquiring Fund reasonably believes might result in
such litigation.
7.2. Investment Series shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities as of the Closing
Date, certified by the Treasurer of Investment Series;
7.3. Investment Series shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquiring Fund and dated
as of the Closing Date, to the effect that the representations and warranties
of Investment Series with respect to the Acquired Fund made in this Agreement
are true and correct on and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and as to such
other matters as the Acquiring Fund shall reasonably request;
7.4. The Acquiring Fund shall have received on the Closing Date an opinion
of Sullivan & Worcester LLP, in a form reasonably satisfactory to the
Acquiring Fund, and dated as of the Closing Date, to the effect that:
(a) Investment Series has been duly formed and is an existing business
trust;
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(b) Investment Series, with respect to the Acquired Fund, has the power
to carry on its business as presently conducted in accordance with the
description thereof in Investment Series' registration statement under the
1940 Act;
(c) the Agreement has been duly authorized, executed and delivered by
Investment Series, on behalf of the Acquired Fund, and constitutes a valid
and legally binding obligation of Investment Series, on behalf of the
Acquired Fund, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
laws of general applicability relating to or affecting creditors' rights
and to general equity principles;
(d) the execution and delivery of the Agreement did not, and the exchange
of the Acquired Fund's assets for Acquiring Fund Shares pursuant to the
Agreement will not, violate Investment Series' Declaration of Trust, as
amended, or By-laws; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by the
Acquired Fund under the Federal laws of the United States or the laws of
The Commonwealth of Massachusetts for the exchange of the Acquired Fund's
assets for Acquiring Fund Shares pursuant to the Agreement have been
obtained or made.
Such opinion may state that it is solely for the benefit of Investment Trust,
its Trustees and its officers. Such counsel may rely as to matters governed by
the laws of The Commonwealth of Massachusetts on an opinion of Massachusetts
counsel and/or certificates of officers or Trustees of the Acquired Fund. Such
opinion also shall include such other matters incident to the transaction
contemplated hereby, as the Acquiring Fund may reasonably request.
7.5. Investment Series, on behalf of the Acquired Fund shall have performed
all of the covenants and complied with all of the provisions required by this
Agreement to be performed or complied with by the Acquired Fund on or before
the Closing Date.
8. Further Conditions Precedent to Obligations of the Acquiring Fund and the
Acquired Fund
If any of the conditions set forth below have not been met on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the
other party to this Agreement shall, at its option, not be required to
consummate the transactions contemplated by this Agreement:
8.1. This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of
beneficial interests in the Acquired Fund in accordance with the provisions of
Investment Series' Declaration of Trust, as amended, and By-Laws, applicable
Massachusetts law and the 1940 Act, and certified copies of the resolutions
evidencing such approval shall have been delivered to the Acquiring Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund
nor the Acquired Fund may waive the conditions set forth in this Section 8.1;
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or to its knowledge threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain material damages or
other relief in connection with, this Agreement or the transactions
contemplated herein;
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation,
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in all material respects, of the transactions contemplated hereby shall have
been obtained, except where failure to obtain any such consent, order or
permit would not involve a risk of a material adverse effect on the assets or
properties of the Acquiring Fund or the Acquired Fund, provided that either
party hereto may for itself waive any of such conditions;
8.4. The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act; and
8.5. The parties shall have received an opinion of Willkie Farr & Gallagher
addressed to Investment Series, on behalf of the Acquired Fund, and Investment
Trust, on behalf of the Acquiring Fund, substantially to the effect that,
based upon certain facts, assumptions and representations, for Federal income
tax purposes: (i) the transfer to the Acquiring Fund of all of the assets of
the Acquired Fund in exchange solely for Shares and the assumption by the
Acquiring Fund of all of the stated liabilities of the Acquired Fund, followed
by the distribution of such Shares to Acquired Fund shareholders in exchange
for their shares of the Acquired Fund in complete liquidation of the Acquired
Fund, will constitute a "reorganization" within the meaning of Section
368(a)(1) of the Code, and the Acquiring Fund and the Acquired Fund will each
be "a party to a reorganization" within the meaning of Section 368(b) of the
Code; (ii) no gain or loss will be recognized by the Acquired Fund upon the
transfer of the Acquired Fund's assets to the Acquiring Fund in exchange for
the Acquiring Fund Shares and the assumption by the Acquiring Fund of
liabilities of the Acquired Fund or upon the distribution (whether actual or
constructive) of the Acquiring Fund Shares to the Acquired Fund's shareholders
in exchange for their shares of the Acquired Fund; (iii) the basis of the
assets of the Acquired Fund in the hands of the Acquiring Fund will be the
same as the basis of such assets of the Acquired Fund immediately prior to the
transfer; (iv) the holding period of the assets of the Acquired Fund in the
hands of the Acquiring Fund will include the period during which such assets
were held by the Acquired Fund; (v) no gain or loss will be recognized by the
Acquiring Fund upon the receipt of the assets of the Acquired Fund in exchange
for Shares and the assumption by the Acquiring Fund of all of the liabilities
of the Acquired Fund; (vi) no gain or loss will be recognized by the
shareholders of the Acquired Fund upon the receipt of Shares solely in
exchange for their shares of the Acquired Fund as part of the transaction;
(vii) the basis of Shares received by the shareholders of the Acquired Fund
will be the same as the basis of the shares of the Acquired Fund exchanged
therefor; and (viii) the holding period of Shares received by the shareholders
of the Acquired Fund will include the holding period during which the shares
of the Acquired Fund exchanged therefor were held, provided that at the time
of the exchange the shares of the Acquired Fund were held as capital assets in
the hands of the shareholders of the Acquired Fund. The delivery of such
opinion is conditioned upon receipt by Willkie Farr & Gallagher of
representations it shall request of each of Investment Series, on behalf of
the Acquired Fund, and Investment Trust, on behalf of the Acquiring Fund.
Notwithstanding anything herein to the contrary, neither Investment Trust, on
behalf of the Acquiring Fund nor Investment Series, on behalf of the Acquired
Fund, may waive the condition set forth in this Section 8.5.
9. Indemnification
9.1. Investment Trust, on behalf of the Acquiring Fund, agrees to indemnify
and hold harmless Investment Series and each of its trustees and officers from
and against any and all losses, claims, damages, liabilities or expenses
(including, without limitation, the payment of reasonable legal fees and
reasonable costs of investigation) to which jointly and severally Investment
Series or any of its trustees or officers may become
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subject, insofar as any such loss, claim, damage, liability or expense (or
actions with respect thereto) arises out of or is based on any breach by the
Acquiring Fund of any of its representations, warranties, covenants or
agreements set forth in this Agreement.
9.2. Investment Series agrees to indemnify and hold harmless Investment
Trust and each of its trustees and officers from and against any and all
losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally Investment Trust or any of its
trustees or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of
or is based on any breach by the Acquired Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
10. Fees and Expenses
10.1. Investment Trust, on behalf of the Acquiring Fund, and Investment
Series, on behalf of the Acquired Fund, represents and warrants to the other
that it has no obligations to pay any brokers or finders fees in connection
with the transactions provided for herein.
10.2. Expenses of the Reorganization that relate to the Acquiring Fund and
the Acquired Fund will be borne by SSB Citi. Any such expenses which are so
borne by SSB Citi will be solely and directly related to the Reorganization.
11. Entire Agreement; Survival of Warranties
11.1. Investment Trust, on behalf of the Acquiring Fund and Investment
Series, on behalf of the Acquired Fund, agree that neither party has made any
representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
11.2. Except as specified in the next sentence set forth in this Section
11.2, the representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall not survive the consummation of the transactions contemplated
hereunder.
The covenants to be performed after the Closing and the obligations of each
of Investment Series, on behalf of the Acquired Fund, and Investment Trust, on
behalf of the Acquired Fund, in Sections 9.1 and 9.2 shall survive the
Closing.
12. Termination
This Agreement may be terminated and the transactions contemplated hereby
may be abandoned by either party by (i) mutual agreement of the parties, or
(ii) by either party if the Closing shall not have occurred on or before
January 1, 2001, unless such date is extended by mutual agreement of the
parties, or (iii) by either party if the other party shall have materially
breached its obligations under this Agreement or made a material and
intentional misrepresentation herein or in connection herewith. In the event
of any such termination, this Agreement shall become void and there shall be
no liability hereunder on the part of any party or their respective directors
or officers, except for any such material breach or intentional
misrepresentation, as to each of which all remedies at law or in equity of the
party adversely affected shall survive.
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13. Amendments
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of
Investment Series and Investment Trust; provided, however, that following the
meeting of the Acquired Fund Shareholders called by Investment Series pursuant
to Section 5.3 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund
Shares to be issued to the Acquired Fund shareholders under this Agreement to
the detriment of such shareholders without their further approval.
14. Notices
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly
given if delivered by hand (including by Federal Express or similar express
courier) or transmitted by facsimile or three days after being mailed by
prepaid registered or certified mail, return receipt requested, addressed to
the Acquired Fund, c/o Concert Investment Series(R), 388 Greenwich Street, New
York, New York 10013, with a copy to Willkie Farr & Gallagher, 787 Seventh
Avenue, New York, New York, 10019-6099, Attn.: Burton M. Leibert, Esq., or to
the Acquiring Fund, c/o Smith Barney Investment Trust, 388 Greenwich Street,
New York, New York 10013, with a copy to Willkie Farr & Gallagher, 787 Seventh
Avenue, New York, N.Y. 10019-6099, Attn.: Burton M. Leibert, Esq., or to any
other address that the Investment Series or Investment Trust shall have last
designated by notice to the other party.
15. Headings; Counterparts; Assignment; Limitation of Liability
15.1. The Article and Section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.2. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
15.3. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any
person, firm or corporation, other than the parties hereto and the
shareholders of the Acquiring Fund and the Acquired Fund and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
15.4. Each of Investment Series and Investment Trust is organized as a
Massachusetts business trust, and references in this Agreement to Investment
Series or Investment Trust mean and refer to the Trustees from time to time
serving under the Declarations of Trust on file with the Secretary of State of
The Commonwealth of Massachusetts, as the same may be amended from time to
time, pursuant to which Investment Series and Investment Trust conduct their
businesses. It is expressly agreed that the obligations of Investment Series
and Investment Trust hereunder shall not be binding upon any of their
Trustees, shareholders, nominees, officers, agents, or employees of Investment
Series or Investment Trust personally, but bind only the property of each of
the Acquired Fund and the Acquiring Fund as provided in the Declaration of
Trust of Investment Series and of Investment Trust. Moreover, no series of
Investment Series other than the Acquired Fund or of Investment Trust other
than the Acquiring Fund shall be responsible for the obligations of Investment
Series or Investment Trust hereunder, and all persons shall look only to the
assets of the Acquired Fund and the Acquiring Fund to satisfy
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<PAGE>
the obligations of Investment Series and Investment Trust hereunder. The
execution and the delivery of this Agreement have been authorized by the Board
of Trustees of Investment Series and of Investment Trust and this Agreement
has been signed by authorized officers of Investment Series and Investment
Trust acting as such, and neither such authorization by such Trustees, nor
such execution and delivery by such officers, shall be deemed to have been
made by any of them individually or to impose any liability on any of them
personally, but shall bind only the property of the Acquired Fund as provided
in the Declaration of Trust of Investment Series and the Acquiring Fund as
provided in the Declaration of Trust of Investment Trust.
15.5. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York, without regard to its
principles of conflicts of laws.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President, Vice President, or in the case of SSB Citi, an
authorized person and attested by its Secretary, Assistant Secretary, or in
the case of SSB Citi, an authorized person.
Attest: CONCERT INVESTMENT SERIES(R)
on behalf of Mid Cap Fund
By: _________________________________
Name:
Title:
Attest: SMITH BARNEY INVESTMENT TRUST
on behalf of the Smith Barney Mid
Cap Core Fund
By: _________________________________
Name:
Title:
Attest: SSB CITI FUND MANAGEMENT LLC
By: _________________________________
Name:
Title:
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
388 Greenwich Street
New York, New York 10013
(800) 451-2010
RELATING TO THE ACQUISITION BY THE SMITH BARNEY
MID CAP CORE FUND (FORMERLY, THE SMITH BARNEY MID CAP BLEND FUND)
(THE "ACQUIRING FUND"), A SERIES OF
SMITH BARNEY INVESTMENT TRUST ("INVESTMENT TRUST")
OF THE ASSETS OF MID CAP
FUND (THE "FUND"),
A SERIES OF CONCERT INVESTMENT SERIES(R) ("INVESTMENT SERIES").
Dated: August 16, 2000
This Statement of Additional Information, relating specifically to the
proposed transfer of all of the assets of the Fund, a series of Investment
Series, to the Acquiring Fund in exchange for shares of the corresponding class
of the Acquiring Fund and the assumption by the Acquiring Fund of stated
liabilities of the Fund, consists of this cover page and the following described
documents, each of which accompanies this Statement of Additional Information
and is incorporated herein by reference.
1. Statement of Additional Information for the Acquiring Fund, dated
March 29, 2000.
2. Statement of Additional Information for the Fund, dated February
28, 2000.
3. Annual Report of the Acquiring Fund for the year ended November
30, 1999 and the Semi-Annual Report of the Acquiring Fund for the
six months ended May 31, 2000.
4. Annual Report of the Fund for the year ended October 31, 1999, and
the Semi-Annual Report of the Fund for the six months ended April
30, 2000.
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement, dated August 16, 2000, relating to the above-
referenced matter may be obtained without charge by calling or writing the
Acquiring Fund at the telephone number or address set forth above. This
Statement of Additional Information should be read in conjunction with the
Prospectus/Proxy Statement.
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<PAGE>
FINANCIAL STATEMENTS
The Annual Report of the Acquiring Fund for the year ended November 30,
1999 and the Annual Report of the Fund for the year ended October 31, 1999, each
including audited financial statements, notes to the financial statements and
report of the independent auditors, are incorporated by reference herein. To
obtain a copy of the Annual Reports (and, if applicable, any more recent semi-
annual report) without charge, please call 1-800-451-2010.
PRO FORMA FINANCIAL STATEMENTS
Due to the net asset value of the Fund being less than 10% of the Acquiring
Fund's net asset value, pro forma financial statements are not required to be
and have not been prepared for inclusion in the Statement of Additional
Information filed in connection with the Reorganization.
