[SB] Smith Barney
[MF] Mutual Funds
P R O S P E C T U S
Intermediate
Maturity
California
Municipals Fund
Class A, L and Y Shares
--------------------------------------------
March 29, 2000
The Securities and Exchange Commission has not
approved the fund's
shares as an investment or determined whether this
prospectus is
accurate or complete. Any statement to the contrary
is a crime.
<PAGE>
Intermediate Maturity California
Municipals Fund
Contents
<TABLE>
<S>
<C>
Investments, risks and
performance.......................................... 2
More on the fund's
investments..............................................
6
Management.................................................
................. 6
Choosing a class of shares to
buy........................................... 8
Comparing the fund's
classes................................................ 9
Sales
charges....................................................
........... 10
More about deferred sales
charges........................................... 12
Buying
shares.....................................................
.......... 13
Exchanging
shares.....................................................
...... 14
Redeeming
shares.....................................................
....... 16
Other things to know about share
transactions...............................................
..... 18
Dividends, distributions and
taxes.......................................... 20
Share
price......................................................
........... 21
Financial
highlights.................................................
....... 22
</TABLE>
You should know: An investment in the fund is not a bank
deposit and is not
insured or guaranteed by the FDIC or any other government
agency.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
Investment objective
The fund seeks to provide California investors with as high
a level of current
income exempt from federal income taxes and California
state personal income
taxes as is consistent with the preservation of principal.
Principal investment strategies
Key investments The fund invests primarily in investment
grade municipal secu-
rities. These include securities issued by the State of
California and certain
other municipal issuers, political subdivisions, agencies
and public authori-
ties that pay interest which is exempt from federal income
and California per-
sonal income taxes. The fund maintains an average portfolio
maturity of between
three and ten years. The fund can invest up to 20% of its
assets in unrated
securities that the manager determines are investment
grade.
Selection process The manager selects securities primarily
by identifying
undervalued sectors and individual securities, while also
selecting securities
it believes will benefit from changes in market conditions.
In selecting indi-
vidual securities, the manager:
.Uses fundamental credit analysis to estimate the relative
value and attrac-
tiveness of various securities and sectors and to exploit
opportunities in
the municipal bond market
.May trade between general obligation and revenue bonds and
among various reve-
nue bond sectors, such as housing, hospital and
industrial development, based
on their apparent relative values
.Considers the yields available for securities with
different maturities and a
security's maturity in light of the outlook for the
issuer, its sector and
interest rates
.Identifies individual securities with the most potential
for added value, such
as those involving unusual situations, new issuers, the
potential for credit
upgrades, unique structural characteristics or innovative
features
Intermediate Maturity California Municipals Fund
2
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investment in the fund,
or the fund may not
perform as well as other investments, if:
.Interest rates rise, causing the value of the fund's
portfolio to decline
.The issuer of a security owned by the fund defaults on its
obligation to pay
principal and/or interest or the security's credit rating
is downgraded
.California municipal securities fall out of favor with
investors. The fund
will suffer more than a national municipal fund from
adverse events affecting
California municipal issuers
.Unfavorable legislation affects the tax-exempt status of
municipal bonds
.The manager's judgment about the attractiveness, value or
income potential of
a particular security proves to be incorrect
It is possible that some of the fund's income distributions
may be, and distri-
butions of the fund's gains generally will be, subject to
federal and Califor-
nia state taxation. The fund may realize taxable gains on
the sale of its
securities or on transactions in derivative contracts. Some
of the fund's
income may be subject to the federal alternative minimum
tax. In addition, dis-
tributions of the fund's income and gains will be taxable
to investors in
states other than California.
The fund is classified as "non-diversified," which means it
may invest a larger
percentage of its assets in one issuer than a diversified
fund. To the extent
the fund concentrates its assets in fewer issuers, the fund
will be more sus-
ceptible to negative events affecting those issuers.
Who may want to invest The fund may be an appropriate
investment if you are a
California taxpayer:
.In a high federal tax bracket seeking income that is
exempt from California
and federal taxation
.Currently have exposure to other asset classes and are
seeking to broaden your
investment portfolio
.Are willing to accept the risks of municipal securities,
including the risks
of concentrating in a single state
Smith Barney Mutual Funds
3
<PAGE>
Risk return bar chart
This bar chart indicates the risks of investing in the fund
by showing changes
in the fund's performance from year to year. Past
performance does not neces-
sarily indicate how the fund will perform in the future.
This bar chart shows the performance of the fund's Class A
shares for each of
the past eight years. Class L and Y shares have different
performance because
of different expenses. The performance information in the
chart does not
reflect sales charges, which would reduce your return.
Total Return for Class A Shares
[BAR CHART APPEARS HERE]
92 93 94 95 96 97
98 99
---- ---- ---- ---- ---- ---- --
- -- ----
7.59% 11.52% (4.82)% 14.63% 4.19% 7.48%
5.80% (1.52)%
Calendar years ended December 31
Quarterly returns:
Highest: 5.80% in 1st quarter 1995; Lowest: (4.64)% in 1st
quarter 1994
Risk return table
This table indicates the risks of investing in the fund by
comparing the aver-
age annual total return of each class for the periods shown
to that of the Leh-
man Brothers Municipal Bond Index (the "Lehman Index"), a
broad-based unmanaged
index of municipal bonds and the Lipper California
Municipal Fund Average (the
"Lipper Funds Average"), an average composed of the fund's
peer group of mutual
funds. This table assumes imposition of the maximum sales
charge applicable to
the class, redemption of shares at the end of the period,
and reinvestment of
distributions and dividends.
Average Annual Total Returns
Calendar Years Ended December 31, 1999
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since
Inception Inception Date
<S> <C> <C> <C> <C>
<C>
A (3.49)% 5.56% n/a 5.17%
12/31/91
L (3.65)% 5.52% n/a 5.63%
11/08/94
Y (1.22)% n/a n/a 4.66%
09/08/95
Lehman Index (2.06)% 6.91% n/a 6.20%
*
Lipper Funds Average (1.32)% 5.85% n/a 5.26%
*
*Index Comparison begins on December 31, 1991
</TABLE>
Intermediate Maturity California Municipals Fund
4
<PAGE>
Fee table
This table sets forth the fees and expenses you will pay if
you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment)
Class A Class L Class Y
<S> <C>
<C> <C>
Maximum sales charge (load) imposed on purchases (as a
% of offering price)
2.00% 1.00% None
Maximum deferred sales charge (load) (as a % of the
lower of net asset value at purchase or redemption)
None* 1.00% None
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund assets)
Class A Class L Class Y
<S> <C>
<C> <C>
Management fees**
0.50% 0.50% 0.50%
Distribution and service (12b-1) fees
0.15% 0.35% None
Other expenses
0.40% 0.37% 0.36%
---
- ---- ------- -------
Total annual fund operating expenses
1.05% 1.22% 0.86%
======= ======= =======
Management fee waivers
(0.21)% (0.21)% (0.21)%
---
- ---- ------- -------
Net annual fund operating expenses
0.84% 1.01% 0.65%
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more
at net asset value
(without an initial sales charge) but if you redeem those
shares within 12
months of their purchase, you will pay a deferred sales
charge of 1.00%.
**Management has agreed to waive a portion of its
management fees. As a result
of these fee waivers currently in effect, the management
fees were 0.29%. The
manager may change or eliminate these fee waivers at any
time.
Example
This example helps you compare the costs of investing in
the fund with the
costs of investing in other mutual funds. Your actual costs
may be higher or
lower. The example assumes:
.You invest $10,000 in the fund for the period shown
.Your investment has a 5% return each year
.You reinvest all distributions and dividends without a
sales charge
.The fund's operating expenses remain the same
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5
years 10 years
<S> <C> <C> <C>
<C>
Class A (with or without redemption) $305 $527 $768
$1,457
Class L (redemption at end of period) $323 $483 $764
$1,563
Class L (no redemption) $223 $483 $764
$1,563
Class Y (with or without redemption) $ 88 $274 $477
$1,061
</TABLE>
Smith Barney Mutual Funds
5
<PAGE>
More on the fund's investments
California municipal securities California municipal
securities include debt
obligations issued by certain non-California governmental
issuers such as
Puerto Rico, the Virgin Islands and Guam. The interest on
California municipal
securities is exempt from federal income tax and California
personal income
tax. As a result, the interest rate on these bonds normally
is lower than it
would be if the bonds were subject to taxation.
The California municipal securities in which the fund
invests include general
obligation bonds, revenue bonds and notes, and municipal
leases. These securi-
ties may pay interest at fixed, variable or floating rates.
The fund may also
hold zero coupon securities which pay no interest during
the life of the obli-
gation but trade at prices below their stated maturity
value.
The fund normally invests in intermediate-term municipal
securities, which are
securities that have remaining maturities at the time of
purchase of three to
ten years. The fund normally maintains an average portfolio
maturity of between
three and ten years.
Defensive investing The fund may depart from its principal
investment strate-
gies in response to adverse market, economic or political
conditions by taking
temporary defensive positions in all types of money market
and short-term debt
securities. If the fund takes a temporary defensive
position, it may be unable
to achieve its investment goal.
Management
Manager The fund's investment adviser and administrator is
SSB Citi Fund Man-
agement LLC (successor to SSBC Fund Management Inc.), an
affiliate of Salomon
Smith Barney Inc. The manager's address is 388 Greenwich
Street, New York, New
York 10013. The manager selects the fund's investments and
oversees its opera-
tions. The manager and Salomon Smith Barney are
subsidiaries of Citigroup Inc.
Citigroup businesses produce a broad range of financial
services--asset manage-
ment, banking and consumer finance, credit and charge
cards, insurance, invest-
ments, investment banking and trading--and use diverse
channels to make them
available to consumer and corporate customers around the
world.
Joseph P. Deane, investment officer of the manager and
senior vice president
and managing director of Salomon Smith Barney, has been
responsible for the
day-to-day management of the fund's portfolio since its
inception in 1991.
David T. Fare, investment officer of the manager and vice
president of Salomon
Smith Barney, currently shares the responsibility
Intermediate Maturity California Municipals Fund
6
<PAGE>
for the day-to-day management of the fund's portfolio,
joining Mr. Deane in
1998. Mr. Deane and Mr. Fare have 30 and 13 years,
respectively, of securities
business experience.
Management fees For its services, the manager received a
management fee and
administrative fee during the Fund's last fiscal year equal
to 0.17% and 0.12%,
respectively, of the fund's average daily net assets.
Distributor The fund has entered into an agreement with
CFBDS, Inc. to distrib-
ute the fund's shares. A selling group consisting of
Salomon Smith Barney and
other broker dealers sells fund shares to the public.
Distribution plan The fund has adopted a Rule 12b-1
distribution plan for its
Class A and L shares. Under the plan, the fund pays
distribution and/or service
fees. These fees are an ongoing expense and, over time, may
cost you more than
other types of sales charges.
Transfer agent and shareholder servicing agent Smith Barney
Private Trust Com-
pany serves as the fund's transfer agent and shareholder
servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and
services agreement
with the transfer agent, PFPC Global Fund Services serves
as the fund's sub-
transfer agent (the "sub-transfer agent") to render certain
shareholder record
keeping and accounting services and functions.
Smith Barney Mutual Funds
7
<PAGE>
Choosing a class of shares to buy
You can choose among three classes of shares: Classes A, L
and Y. Each class
has different sales charges and expenses, allowing you to
choose the class that
best meets your needs. Which class is more beneficial to an
investor depends on
the amount and intended length of the investment.
.If you establish a program of regular investment, you may
wish to consider
Class A shares; as the investment accumulates, you may
qualify for reduced
sales charges and the shares are subject to lower ongoing
expenses.
.Class L shares are sold with a lower initial sales charge
than Class A shares,
which may also help to offset the higher annual expenses
of this class.
Because the fund's future return cannot be predicted,
however, there can be
no assurance that this would be the case for either
class.
You may buy shares from:
.A Salomon Smith Barney Financial Consultant
.An investment dealer in the selling group or a broker that
clears through Sal-
omon Smith Barney--a dealer representative
.The fund, but only if you are investing through certain
dealer representatives
Investment minimums Minimum initial and additional
investment amounts vary
depending on the class of shares you buy and the nature of
your investment
account.
<TABLE>
<CAPTION>
Initial
Additional
Classes A, L Class
Y All Classes
<S> <C> <C>
<C>
General $1,000 $15
million $50
Monthly Systematic Investment Plan $25 n/a
$25
Quarterly Systematic Investment Plan $50 n/a
$50
Uniform Gift to Minor Account $250 $15
million $50
</TABLE>
Intermediate Maturity California Municipals Fund
8
<PAGE>
Comparing the fund's classes
Your Salomon Smith Barney Financial Consultant or dealer
representative can
help you decide which class meets your goals. They may
receive different com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class L Class Y
<S> <C> <C> <C>
Key features .Initial .Initial .No initial
sales sales or deferred
charge charge is sales
.You may lower than charge
qualify for Class A .Minimum
reduction .Deferred investment
or waiver sales of at least
of initial charge for $15 million
sales 1 year .Lower
charge .Higher annual
.Lower annual expenses
annual expenses than the
expenses than Class other clas-
than Class A ses
L
- --------------------------------------------------------
Initial sales Up to 1.00% None
charge 2.00%;
reduced for
large pur-
chases and
waived for
certain
investors.
No charge
for pur-
chases of
$500,000 or
more
- --------------------------------------------------------
Deferred sales 1.00% on 1.00% if None
charge purchases you redeem
of $500,000 within 1
or more if year of
you redeem purchase
within 1
year of
purchase
- --------------------------------------------------------
Annual 0.15% of 0.35% of None
distribution average average
and service daily net daily net
fees assets assets
- --------------------------------------------------------
Exchange Class A Class L Class Y
Privilege* shares shares shares
of most of most of most
Smith Bar- Smith Bar- Smith Bar-
ney funds ney funds ney funds
- --------------------------------------------------------
</TABLE>
* Ask your Salomon Smith Barney Financial Consultant or
dealer representative
or visit the web site for the Smith Barney funds available
for exchange.
Smith Barney Mutual Funds
9
<PAGE>
Sales charges
Class A shares
You buy Class A shares at the offering price, which is the
net asset value plus
a sales charge. You do not pay a sales charge on
investments of $500,000 or
more, or on the fund's distributions or dividends you
reinvest in additional
Class A shares.
<TABLE>
<CAPTION>
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
<S> <C> <C>
Less than $500,000 2.00 2.04
$500,000 or more -0- -0-
</TABLE>
Investments of $500,000 or more You do not pay an initial
sales charge when you
buy $500,000 or more of Class A shares. However, if you
redeem these Class A
shares within one year of purchase, you will pay a deferred
sales charge of 1%.
Qualifying for a reduced Class A sales charge There are
several ways you can
combine multiple purchases of Class A shares of Smith
Barney funds to take
advantage of the breakpoints in the sales charge schedule.
.Accumulation privilege - lets you combine the current
value of Class A shares
owned
.by you, or
.by members of your immediate family,
and for which a sales charge was paid, with the amount of
your next purchase
of Class A shares for purposes of calculating the initial
sales charge. Cer-
tain trustees and fiduciaries may be entitled to combine
accounts in deter-
mining their sales charge.
.Letter of intent - lets you purchase Class A shares of the
fund and other
Smith Barney funds over a 13-month period and pay the
same sales charge, if
any, as if all shares had been purchased at once. You may
include purchases
on which you paid a sales charge within 90 days before
you sign the letter.
Intermediate Maturity California Municipals Fund
10
<PAGE>
Waivers for certain Class A investors Class A initial sales
charges are waived
for certain types of investors, including:
.Employees of members of the NASD
.Clients of newly employed Salomon Smith Barney Financial
Consultants if cer-
tain conditions are met
.Investors who redeemed Class A shares of a Smith Barney
fund in the past 60
days, if the investor's Salomon Smith Barney Financial
Consultant or dealer
representative is notified
If you want to learn about additional waivers of Class A
initial sales charges,
contact your Salomon Smith Barney Financial Consultant or
dealer representative
or consult the Statement of Additional Information: ("SAI")
Class L shares
You buy Class L shares at the offering price, which is the
net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In
addition, if you
redeem your Class L shares within one year of purchase, you
will pay a deferred
sales charge of 1%. If you held Class C shares of the fund
and/or other Smith
Barney mutual funds on June 12, 1998, you will not pay an
initial sales charge
on Class L shares you buy before June 22, 2001.
Class Y shares
You buy Class Y shares at net asset value with no initial
sales charge and no
deferred sales charge when you redeem. You must meet the
$15,000,000 initial
investment requirement. You can use a letter of intent to
meet this requirement
by buying Class Y shares of the fund over a 13-month
period. To qualify, you
must initially invest $5,000,000.
Smith Barney Mutual Funds
11
<PAGE>
More about deferred sales charges
The deferred sales charge is based on the net asset value
at the time of pur-
chase or redemption, whichever is less, and therefore you
do not pay a sales
charge on amounts representing appreciation or
depreciation.
In addition, you do not pay a deferred sales charge on:
.Shares exchanged for shares of another Smith Barney fund
.Shares representing reinvested distributions and dividends
.Shares no longer subject to the deferred sales charge
Each time you place a request to redeem shares, the fund
will first redeem any
shares in your account that are not subject to a deferred
sales charge and then
the shares in your account that have been held the longest.
If you redeemed shares of a Smith Barney fund in the past
60 days and paid a
deferred sales charge, you may buy shares of the fund at
the current net asset
value and be credited with the amount of the deferred sales
charge, if you
notify your Salomon Smith Barney Financial Consultant or
dealer representative.
Salomon Smith Barney receives deferred sales charges as
partial compensation
for its expenses in selling shares, including the payment
of compensation to
your Salomon Smith Barney Financial Consultant or dealer
representative.
Deferred sales charge waivers
The deferred sales charge for each share class will
generally be waived:
.On payments made through certain systematic withdrawal
plans
.For involuntary redemptions of small account balances
.For 12 months following the death or disability of a
shareholder
If you want to learn more about additional waivers of
deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or
dealer representative
or consult the SAI.
Intermediate Maturity California Municipals Fund
12
<PAGE>
Buying shares
Through a You should contact Salomon Smith Barney or
your dealer repre-
Salomon Smith sentative to open a brokerage account and
make arrangements
Barney to buy shares.
Financial
Consultant or If you do not provide the following
information, your order
dealer will be rejected:
representative
.Class of shares being bought
.Dollar amount or number of shares being
bought
You should pay for your shares through
your brokerage account
no later than the third business day after
you place your
order. Salomon Smith Barney or your dealer
representative may
charge an annual account maintenance fee.
- -----------------------------------------------------------
- ---------------------
Certain other investors who are clients of
the selling group
Through the are eligible to buy shares directly from
the fund.
fund's sub-
transfer
agent .Write the sub-transfer agent at the
following address:
Smith Barney Investment Trust
Intermediate Maturity California
Municipals Fund
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
.Enclose a check to pay for the shares.
For initial pur-
chases, complete and send an account
application.
.For more information, call the transfer
agent at 1-800-451-
2010.
- -----------------------------------------------------------
- ---------------------
Through a
systematic You may authorize Salomon Smith Barney,
your dealer represen-
investment tative or the sub-transfer agent to
transfer funds automati-
plan cally from a regular bank account, cash
held in a Salomon
Smith Barney brokerage account or Smith
Barney money market
fund to buy shares on a regular basis.
.Amounts transferred should be at least:
$25 monthly or $50
quarterly
.If you do not have sufficient funds in
your account on a
transfer date, Salomon Smith Barney,
your dealer represen-
tative or the sub-transfer agent may
charge you a fee
For more information, contact your Salomon
Smith Barney
Financial Consultant, dealer
representative or the transfer
agent or consult the SAI.
Smith Barney Mutual Funds
13
<PAGE>
Exchanging shares
Smith Barney You should contact Salomon Smith Barney or
your dealer repre-
offers a sentative to exchange into other Smith
Barney mutual funds.
distinctive Be sure to read the prospectus of the
Smith Barney mutual
family of fund you are exchanging into. An exchange
is a taxable trans-
mutual funds action.
tailored to
help meet the
varying needs
of both large
and small
investors
.You may exchange shares only for shares
of the same class of
another Smith Barney fund. Not all Smith
Barney funds offer
all classes.
.Not all Smith Barney funds may be offered
in your state of
residence. Contact Salomon Smith Barney,
your dealer repre-
sentative or the transfer agent.
.You must meet the minimum investment
amount for each fund,
except for systematic exchanges.
.If you hold share certificates, the sub-
transfer agent must
receive the certificates endorsed for
transfer or with
signed stock powers (documents
transferring ownership of
certificates) before the exchange is
effective.
.The fund may suspend or terminate your
exchange privilege if
you engage in an excessive pattern of
exchanges.
- -----------------------------------------------------------
- ---------------------
Waiver of Your shares will not be subject to an
initial sales charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will
continue to be mea-
sured from the date of your original
purchase.
Intermediate Maturity California Municipals Fund
14
<PAGE>
By telephone
If you do not have a brokerage account,
you may be eligible
to exchange shares through the transfer
agent. You must com-
plete an authorization form to authorize
telephone transfers.
If eligible, you may make telephone
exchanges on any day the
New York Stock Exchange is open. Call the
transfer agent at
1-800-451-2010 between 9:00 a.m. and 4:00
p.m. (Eastern
time).
You can make telephone exchanges only
between accounts that
have identical registrations.
- -----------------------------------------------------------
- ---------------------
By mail
If you do not have a Salomon Smith Barney
brokerage account,
contact your dealer representative or
write to the sub-trans-
fer agent at the address on the following
page.
Smith Barney Mutual Funds
15
<PAGE>
Redeeming shares
Generally Contact your Salomon Smith Barney
Financial Consultant or
dealer representative to redeem shares of
the fund.
If you hold share certificates, the sub-
transfer agent must
receive the certificates endorsed for
transfer or with signed
stock powers before the redemption is
effective.
If the shares are held by a fiduciary or
corporation, other
documents may be required.
Your redemption proceeds will be sent
within three business
days after your request is received in
good order. However,
if you recently purchased your shares by
check, your redemp-
tion proceeds will not be sent to you
until your original
check clears which may take up to 15 days.
If you have a Salomon Smith Barney
brokerage account, your
redemption proceeds will be placed in your
account and not
reinvested without your specific
instruction. In other cases,
unless you direct otherwise, your
redemption proceeds will be
paid by check mailed to your address of
record.
- -----------------------------------------------------------
- ---------------------
By mail
For accounts held directly at the fund,
send written requests
to the sub-transfer agent at the following
address:
Smith Barney Investment Trust
Intermediate Maturity California
Municipals Fund
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
Your written request must provide the
following:
.Your account number
.The class of shares and the dollar amount
or number of
shares to be redeemed
.Signatures of each owner exactly as the
account is
registered
Intermediate Maturity California Municipals Fund
16
<PAGE>
By telephone
If you do not have a brokerage account,
you may be eligible
to redeem shares in amounts up to $10,000
per day through the
transfer agent. You must complete an
authorization form to
authorize telephone redemptions. If
eligible, you may request
redemptions by telephone on any day the
New York Stock
Exchange is open. Call the transfer agent
at 1-800-451-2010
between 9:00 a.m. and 4:00 p.m. (Eastern
time).
Your redemption proceeds can be sent by
check to your address
of record or by wire transfer to a bank
account designated on
your authorization form. You must submit a
new authorization
form to change the bank account designated
to receive wire
transfers and you may be asked to provide
certain other docu-
ments.
- -----------------------------------------------------------
- ---------------------
Automatic You can arrange for the automatic
redemption of a portion of
cash your shares on a monthly or quarterly
basis. To qualify you
withdrawal must own shares of the fund with a value
of at least $10,000
plans and each automatic redemption must be at
least $50. If your
shares are subject to a deferred sales
charge, the sales
charge will be waived if your automatic
payments do not
exceed 1% per month of the value of your
shares subject to a
deferred sales charge.
The following conditions apply:
.Your shares must not be represented by
certificates
.All dividends and distributions must be
reinvested
For more information, contact your Salomon
Smith Barney
Financial Consultant or dealer
representative or consult the
SAI.
Smith Barney Mutual Funds
17
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must
be in good order.
This means you have provided the following information
without which your
request will not be processed:
.Name of the fund
.Account number
.Class of shares being bought, exchanged or redeemed
.Dollar amount or number of shares being bought, exchanged
or redeemed
.Signature of each owner exactly as the account is
registered
The transfer agent will try to confirm that any telephone
exchange or redemp-
tion request is genuine by recording calls, asking the
caller to provide a per-
sonal identification number for the account, sending you a
written confirmation
or requiring other confirmation procedures from time to
time.
Signature guarantees To be in good order, your redemption
request must include
a signature guarantee if you:
.Are redeeming over $10,000 of shares
.Are sending signed share certificates or stock powers to
the sub-transfer
agent
.Instruct the sub-transfer agent to mail the check to an
address different from
the one on your account
.Change your account registration
.Want the check paid to someone other than the account
owner(s)
.Are transferring the redemption proceeds to an account
with a different regis-
tration
You can obtain a signature guarantee from most banks,
dealers, brokers, credit
unions and federal savings and loans institutions, but not
from a notary pub-
lic.
The fund has the right to:
.Suspend the offering of shares
.Waive or change minimum and additional investment amounts
.Reject any purchase or exchange order
.Change, revoke or suspend the exchange privilege
.Suspend telephone transactions
Intermediate Maturity California Municipals Fund
18
<PAGE>
.Suspend or postpone redemptions of shares on any day when
trading on the New
York Stock Exchange is restricted, or as otherwise
permitted by the Securi-
ties and Exchange Commission
.Pay redemption proceeds by giving you securities. You may
pay transaction
costs to dispose of the securities
Small account balances If your account falls below $500
because of a redemption
of fund shares, the fund may ask you to bring your account
up to $500. If your
account is still below $500 after 60 days, the fund may
close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may determine
that a pattern of
frequent exchanges is detrimental to the fund's performance
and other share-
holders. If so, the fund may limit additional purchases
and/or exchanges by the
shareholder.
Share certificates The fund does not issue share
certificates unless a written
request signed by all registered owners is made to the sub-
transfer agent. If
you hold share certificates it will take longer to exchange
or redeem shares.
Smith Barney Mutual Funds
19
<PAGE>
Dividends, distributions and taxes
Dividends The fund pays dividends each month from its net
investment income.
The fund generally makes capital gain distributions, if
any, once a year, typi-
cally in December. The fund may pay additional
distributions and dividends at
other times if necessary for the fund to avoid a federal
tax. Capital gain dis-
tributions and dividends are reinvested in additional fund
shares of the same
class you hold. The fund expects distributions to be
primarily from income. You
do not pay a sales charge on reinvested distributions or
dividends. Alterna-
tively, you can instruct your Salomon Smith Barney
Financial Consultant, dealer
representative or the transfer agent to have your
distributions and/or divi-
dends paid in cash. You can change your choice at any time
to be effective as
of the next distribution or dividend, except that any
change given to the
transfer agent less than five days before the payment date
will not be effec-
tive until the next distribution or dividend is paid.
Taxes The following table describes the tax consequences of
certain fund trans-
actions.
<TABLE>
<CAPTION>
California tax
Transaction Federal tax status
status
<S> <C>
<C>
Redemption or exchange of shares Usually capital gain
Usually capital gain
or loss; long-term
or loss
only if shares owned
more than one year
Long-term capital gain distributions Taxable gain
Taxable gain
Short-term capital gain Ordinary income
Ordinary income
distributions
Dividends Exempt if from
Exempt if from
interest on tax-
interest on
exempt securities,
California municipal
otherwise ordinary
securities,
income
otherwise ordinary
income
</TABLE>
Any taxable dividends and capital gain distributions are
taxable whether
received in cash or reinvested in fund shares. Long-term
capital gain distribu-
tions are taxable to you as long-term capital gain
regardless of how long you
have owned your shares. You may want to avoid buying shares
when the fund is
about to declare a capital gain distribution or a taxable
dividend, because it
will be taxable to you even though it may actually be a
return of a portion of
your investment.
After the end of each year, the fund will
provide you with
information about the distributions and dividends you
received and any redemp-
tions of shares during the previous year. If you do not
provide
Intermediate Maturity California Municipals Fund
20
<PAGE>
the fund with your correct taxpayer identification number
and any required cer-
tifications, you may be subject to back-up withholding of
31% of your distribu-
tions, taxable dividends, and redemption proceeds. Because
each shareholder's
circumstances are different and special tax rules may
apply, you should consult
your tax adviser about your investment in the fund.
Share price
You may buy, exchange or redeem shares at their net asset
value, adjusted for
any applicable sales charge, next determined after receipt
of your request in
good order. The fund's net asset value is the value of its
assets minus its
liabilities. Net asset value is calculated separately for
each class of shares.
The fund calculates its net asset value every day the New
York Stock Exchange
is open. The Exchange is closed on certain holidays listed
in the SAI. This
calculation is done when regular trading closes on the
Exchange (normally 4:00
p.m., Eastern time).
Generally, the fund's investments are valued by an
independent pricing service.
If market quotations or a valuation from the pricing
service is not readily
available for a security or if a security's value has been
materially affected
by events occurring after the close of the Exchange or
market on which the
security is principally traded, that security may be valued
by another method
that the fund's board believes accurately reflects fair
value. A fund that uses
fair value to price securities may value those securities
higher or lower than
another fund using market quotations to price the same
securities. A security's
valuation may differ depending on the method used for
determining value.
In order to buy, redeem or exchange shares at that day's
price, you must place
your order with your Salomon Smith Barney Financial
Consultant or dealer repre-
sentative before the New York Stock Exchange closes. If the
Exchange closes
early, you must place your order prior to the actual
closing time. Otherwise,
you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must
transmit all orders
to buy, exchange or redeem shares to the fund's agent
before the agent's close
of business.
Smith Barney Mutual Funds
21
<PAGE>
Financial highlights
The financial highlights tables are intended to help you
understand the perfor-
mance of each class for the past 5 years (or since
inception if less than 5
years). Certain information reflects financial results for
a single share.
Total return represents the rate that a shareholder would
have earned (or lost)
on an investment in a class assuming reinvestment of all
dividends and distri-
butions. The information in the following tables was
audited by KPMG LLP, inde-
pendent accountants, whose report, along with the fund's
financial statements,
is included in the annual report (available upon request).
For a Class A share of beneficial interest outstanding
throughout each
year ended November 30:
<TABLE>
<CAPTION>
1999(/1/) 1998
1997 1996 1995
- -----------------------------------------------------------
- --------------------
<S> <C> <C> <C>
<C> <C>
Net asset value, beginning of
year $8.85 $8.66
$8.55 $8.53 $7.80
- -----------------------------------------------------------
- --------------------
Income (loss) from operations:
Net investment income(/2/) 0.37 0.39
0.40 0.40 0.40
Net realized and unrealized
gain (loss) (0.43) 0.19
0.11 0.02 0.73
- -----------------------------------------------------------
- --------------------
Total income (loss) from
operations (0.06) 0.58
0.51 0.42 1.13
- -----------------------------------------------------------
- --------------------
Less distributions from:
Net investment income (0.37) (0.39)
(0.40) (0.40) (0.40)
- -----------------------------------------------------------
- --------------------
Total distributions (0.37) (0.39)
(0.40) (0.40) (0.40)
- -----------------------------------------------------------
- --------------------
Net asset value, end of year $8.42 $8.85
$8.66 $8.55 $8.53
- -----------------------------------------------------------
- --------------------
Total return (0.70)% 6.78%
6.13% 5.05% 14.84%
- -----------------------------------------------------------
- --------------------
Net assets, end of year
(000)'s $29,522 $28,303
$25,630 $24,537 $26,211
- -----------------------------------------------------------
- --------------------
Ratios to average net assets:
Expenses(/2/) 0.84% 0.75%
0.75% 0.77% 0.75%
Net investment income 4.27 4.45
4.65 4.69 4.89
- -----------------------------------------------------------
- --------------------
Portfolio turnover rate 29% 8%
9% 15% 8%
- -----------------------------------------------------------
- --------------------
</TABLE>
(/1/) Per share amounts have been calculated using the
monthly average shares
method.
(/2/)The investment adviser and administrator waived all or
part of their fees
for each of the five years ended November 30, 1999. In
addition, the
investment adviser reimbursed the Fund for $75,189 in
expenses for the
year ended November 30, 1996. If such fees had not
been waived and
expenses had not been reimbursed, the per share effect
on net investment
income and expense ratios would have been as follows:
<TABLE>
<CAPTION>
Per Share Decreases to Expense Ratios
Without Fee
Net Investment Income Waivers and
Reimbursements
1999 1998 1997 1996 1995 1999 1998 1997
1996 1995
- -----------------------------------------------------------
- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C>
Class A $0.02 $0.02 $0.03 $0.07 $0.03 1.05% 1.00% 1.12%
1.54% 1.16%
- -----------------------------------------------------------
- ---------
</TABLE>
22
Intermediate Maturity California Municipals Fund
<PAGE>
For a Class L share of beneficial interest outstanding
throughout each year
ended November 30:
<TABLE>
<CAPTION>
1999(/1/) 1998(/2/)
1997 1996 1995
- -----------------------------------------------------------
- ---------------------
<S> <C> <C>
<C> <C> <C>
Net asset value, beginning of
year $8.84 $8.65
$8.54 $8.52 $7.80
- -----------------------------------------------------------
- ---------------------
Income (loss) from operations:
Net investment income(/3/) 0.35 0.37
0.38 0.38 0.38
Net realized and unrealized gain
(loss) (0.42) 0.19
0.11 0.02 0.72
- -----------------------------------------------------------
- ---------------------
Total income (loss) from
operations (0.07) 0.56
0.49 0.40 1.10
- -----------------------------------------------------------
- ---------------------
Less distributions from:
Net investment income (0.35) (0.37)
(0.38) (0.38) (0.38)
- -----------------------------------------------------------
- ---------------------
Total distributions (0.35) (0.37)
(0.38) (0.38) (0.38)
- -----------------------------------------------------------
- ---------------------
Net asset value, end of year $8.42 $8.84
$8.65 $8.54 $8.52
- -----------------------------------------------------------
- ---------------------
Total return (0.79)% 6.57%
5.92% 4.84% 14.36%
- -----------------------------------------------------------
- ---------------------
Net assets, end of year (000)'s $5,144 $5,260
$3,419 $2,607 $2,254
- -----------------------------------------------------------
- ---------------------
Ratios to average net assets:
Expenses(/3/) 1.01% 0.97%
0.96% 0.98% 0.98%
Net investment income 4.09 4.22
4.44 4.48 4.54
- -----------------------------------------------------------
- ---------------------
Portfolio turnover rate 29% 8%
9% 15% 8%
- -----------------------------------------------------------
- ---------------------
</TABLE>
(/1/) Per share amounts have been calculated using the
monthly average shares
method.
(/2/) On June 12, 1998, Class C shares were renamed Class L
shares.
(/3/) The investment adviser and administrator waived all
or part of their fees
for each of the five years ended November 30, 1999.
In addition, the
investment advisor reimbursed the Fund for $75,189 in
expenses for the
year ended November 30, 1996. If such fees had not
been waived and
expenses had not been reimbursed, the per share
effect on net investment
income and the expense ratios would have been as
follows:
<TABLE>
<CAPTION>
Per Share Decreases to Expense Ratios
Without Fee
Net Investment Income Waivers and
Reimbursements
1999 1998 1997 1996 1995 1999 1998 1997
1996 1995
- -----------------------------------------------------------
- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C>
Class L $0.02 $0.02 $0.03 $0.07 $0.03 1.22% 1.21% 1.33%
1.75% 1.39%
- -----------------------------------------------------------
- ---------
</TABLE>
Smith Barney Mutual Funds
23
<PAGE>
For a Class Y share of beneficial interest outstanding
throughout each year
ended November 30:
<TABLE>
<CAPTION>
1999(/1/) 1998
1997 1996 1995(/2/)
- -----------------------------------------------------------
- --------------------
<S> <C> <C> <C>
<C> <C>
Net asset value, beginning of year $8.86 $8.66
$8.56 $8.54 $8.39
- -----------------------------------------------------------
- --------------------
Income (loss) from operations:
Net investment income(/2/) 0.39 0.41
0.41 0.41 0.09
Net realized and unrealized gain
(loss) (0.42) 0.19
0.11 0.02 0.15
- -----------------------------------------------------------
- --------------------
Total income (loss) from operations (0.03) 0.60
0.52 0.43 0.24
- -----------------------------------------------------------
- --------------------
Less distributions from:
Net investment income (0.39) (0.40)
(0.42) (0.41) (0.09)
- -----------------------------------------------------------
- --------------------
Total distributions (0.39) (0.40)
(0.42) (0.41) (0.09)
- -----------------------------------------------------------
- --------------------
Net asset value, end of year $8.44 $8.86
$8.66 $8.56 $8.54
- -----------------------------------------------------------
- --------------------
Total return (0.40)% 7.09%
6.20% 5.22% 2.92%++
- -----------------------------------------------------------
- --------------------
Net assets, end of year (000)'s $ 311 $ 312 $
292 $ 274 $261
- -----------------------------------------------------------
- --------------------
Ratios to average net assets:
Expenses(/2/) 0.65% 0.57%
0.56% 0.59% 0.58%+
Net investment income 4.46 4.62
4.84 4.87 4.74+
- -----------------------------------------------------------
- --------------------
Portfolio turnover rate 29% 8%
9% 15% 8%
- -----------------------------------------------------------
- --------------------
</TABLE>
(/1/) Per share amounts have been calculated using the
monthly shares method.
(/2/) For the period from September 8, 1995 (inception
date) to November 30,
1995.
(/3/) The investment adviser and administrator waived all
or part of their fees
for each of the four years ended November 30, 1999
and the period ended
November 30, 1995. In addition, the investment
adviser reimbursed the Fund
for $75,189 in expenses for the year ended November
30, 1996. If such fees
had not been waived and expenses had not been
reimbursed, the per share
effect on net investment income and the expense
ratios would have been as
follows:
<TABLE>
<CAPTION>
Per Share Decreases to Expense Ratios
Without Fee
Net Investment Income Waivers and
Reimbursements
1999 1998 1997 1996 1995 1999 1998 1997
1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C>
----- ----- ----- ----- ----- ------ ------ -----
- ----- ------
Class Y $0.02 $0.02 $0.03 $0.07 $0.03 $0.86% $0.82% 0.94%
1.36% 0.99%+
</TABLE>
++Total return is not annualized, as it may not be
representative of the total
return for the year.
+Annualized.
Intermediate Maturity California Municipals Fund
24
<PAGE>
SalomonSmithBarney
-------
- ---------------------
A
member of citigroup [LOGO]
Intermediate Maturity California Municipals Fund
An investment portfolio of Smith Barney Investment Trust
Shareholder reports Annual and semiannual reports to
shareholders provide addi-
tional information about the fund's investments. These
reports discuss the mar-
ket conditions and investment strategies that affected the
fund's performance.
The fund sends only one report to a household if more than
one account has the
same address. Contact your Salomon Smith Barney Financial
Consultant, dealer
representative or the transfer agent if you do not want
this policy to apply to
you.
Statement of additional information The statement of
additional information
provides more detailed information about the fund and is
incorporated by refer-
ence into (is legally a part of) this prospectus.
You can make inquiries about the fund or obtain shareholder
reports or the
statement of additional information (without charge) by
contacting your Salomon
Smith Barney Financial Consultant or dealer representative,
by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith
Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit Our Web Site. Our web site is located at
www.smithbarney.com
Information about the fund (including the SAI) can be
reviewed and copied at
the Securities and Exchange Commission's (the "Commission")
Public Reference
Room in Washington, D.C. In addition, information on the
operation of the Pub-
lic Reference Room may be obtained by calling the
Commission at 1-202-942-8090.
Reports and other information about the fund are available
on the EDGAR Data-
base on the Commissions's Internet site at
http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by
electronic request at the
following E-mail address: [email protected], or by writing
the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in
this prospectus, you
should not rely upon that information. Neither the fund nor
the distributor is
offering to sell shares of the fund to any person to whom
the fund may not law-
fully sell its shares.
Salomon Smith Barney is a service mark of Salomon Smith
Barney Inc.
(Investment Company Act
file no. 811-06444)
FD0248 3/00
<PAGE>
[SMITH BARNEY MUTUAL FUNDS LOGO]
PROSPECTUS
INTERMEDIATE
MATURITY
NEW YORK
MUNICIPALS FUND
CLASS A, L AND Y SHARES
- ---------------------------------------
MARCH 29, 2000
The Securities and Exchange Commission has not approved or
disapproved these
securities or determined whether this prospectus is
accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
<PAGE>
(This page intentionally left blank)
<PAGE>
INTERMEDIATE MATURITY NEW YORK MUNICIPALS FUND
CONTENTS
<TABLE>
<S>
<C>
Investments, risks and performance.........................
2
More on the fund's investments.............................
8
Management.................................................
9
Choosing a class of shares to buy..........................
10
Comparing the fund's classes...............................
11
Sales charges..............................................
12
More about deferred sales charges..........................
14
Buying shares..............................................
15
Exchanging shares..........................................
17
Redeeming shares...........................................
19
Other things to know about share transactions..............
21
Dividends, distributions and taxes.........................
23
Share price................................................
25
Financial highlights.......................................
26
</TABLE>
YOU SHOULD KNOW: An investment in the fund is not a bank
deposit and is not
insured or guaranteed by the FDIC or any other government
agency.
Smith
Barney Mutual Funds 1
<PAGE>
Intermediate Maturity New York Municipals Fund
2
INVESTMENTS, RISKS AND PERFORMANCE
INVESTMENT OBJECTIVE
The fund seeks to provide New York investors with as high a
level of current
income exempt from federal income taxes and New York state
and New York City
personal income taxes as is consistent with the
preservation of principal.
PRINCIPAL INVESTMENT STRATEGIES
KEY INVESTMENTS The fund invests primarily in investment
grade municipal
securities. These include securities issued by the State of
New York and certain
other municipal issuers, political subdivisions, agencies
and public authorities
that pay interest which is exempt from federal income and
New York state and New
York City personal income taxes. The fund maintains an
average portfolio
maturity of between three and ten years. The fund can
invest up to 20% of its
assets in unrated securities that the manager determines
are investment grade.
SELECTION PROCESS The manager selects securities primarily
by identifying
undervalued sectors and individual securities, while also
selecting securities
it believes will benefit from changes in market conditions.
In selecting
individual securities, the manager:
- - Uses fundamental credit analysis to estimate the relative
value and
attractiveness of various securities and sectors and to
exploit opportunities
in the municipal bond market
- - May trade between general obligation and revenue bonds
and among various
revenue bond sectors, such as housing, hospital and
industrial development,
based on their apparent relative values
- - Considers the yields available for securities with
different maturities and a
security's maturity in light of the outlook for the
issuer, its sector and
interest rates
- - Identifies individual securities with the most potential
for added value, such
as those involving unusual situations, new issuers, the
potential for credit
upgrades, unique structural characteristics or innovative
features
2 Intermediate Maturity New York Municipals Fund
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investors could lose money on their investment in the fund,
or the fund may not
perform as well as other investments, if:
- - Interest rates rise, causing the value of the fund's
portfolio to decline
- - The issuer of a security owned by the fund defaults on
its obligation to pay
principal and/or interest or the security's credit rating
is downgraded
- - New York municipal securities fall out of favor with
investors. The fund may
suffer more than a national fund from adverse events
affecting New York
municipal issuers
- - Unfavorable legislation affects the tax-exempt status of
municipal bonds
- - The manager's judgment about the attractiveness, value or
income potential of
a particular security proves to be incorrect
It is possible that some of the fund's income distributions
may be, and
distributions of the fund's gains generally will be,
subject to federal, New
York State and New York City taxation. The fund may realize
taxable capital
gains on the sale of its securities or on transactions in
derivative contracts.
Some of the fund's income may be subject to the federal
alternative minimum tax.
In addition, distributions of the fund's income and gains
will be taxable to
investors in states other than New York.
The fund is classified as "non-diversified," which means it
may invest a larger
percentage of its assets in one issuer than a diversified
fund. To the extent
the fund concentrates its assets in fewer issuers, the fund
will be more
susceptible to negative events affecting those issuers.
WHO MAY WANT TO INVEST The fund may be an appropriate
investment if you are a
New York taxpayer:
- - In a high federal tax bracket seeking income exempt from
New York and federal
taxation
- - Currently have exposure to other asset classes and are
seeking to broaden your
investment portfolio
- - Are willing to accept the risks of municipal securities,
including the risks
of concentrating in a single state
Smith
Barney Mutual Funds 3
<PAGE>
RISK RETURN BAR CHART
This bar chart indicates the risks of investing in the fund
by showing changes
in the fund's performance from year to year. Past
performance does not
necessarily indicate how the fund will perform in the
future.
This bar chart shows the performance of the fund's Class A
shares for each of
the past seven years. Class L and Y shares have different
performance because of
different expenses. The performance information in the
chart does not reflect
sales charges, which would reduce your return.
TOTAL RETURN FOR CLASS A SHARES
[Risk bar chart]
<TABLE>
<CAPTION>
- -----------------------------------------------------------
- - -------------------------------------------
<S>
<C>
1992
9.77
1993
10.56
1994
- -3.92
1995
12.93
1996
3.75
1997
8.33
1998
5.63
1999
- -2.12
</TABLE>
CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS
Highest: 4.63% in 1st quarter 1995; Lowest: (4.82)% in 1st
quarter 1994.
4 Intermediate Maturity New York Municipals Fund
<PAGE>
RISK RETURN TABLE
This table indicates the risks of investing in the fund by
comparing the average
annual total return of each class for the periods shown to
that of the Lehman
Brothers Municipal Bond Index (the "Lehman Index"), an
unmanaged broad-based
index of municipal bonds and the Lipper New York
Intermediate Maturity Municipal
Fund Average (the "Lipper Funds Average"), an average
composed of the fund's
peer group of mutual funds. This table assumes imposition
of the maximum sales
charge applicable to the class, redemption of shares at the
end of the period,
and reinvestment of distributions and dividends.
AVERAGE ANNUAL TOTAL RETURNS
CALENDAR YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
CLASS 1 YEAR 5 YEARS 10 YEARS SINCE
INCEPTION INCEPTION DATE
<S> <C> <C> <C> <C>
<C>
A (4.10)% 5.17% n/a 5.20%
12/31/91
L (4.34)% 5.13% n/a 5.24%
12/5/94
Y** n/a n/a n/a n/a
11/7/94
Lehman Index (2.06)% 6.91% n/a 7.44%
*
Lipper Funds
Average (1.59)% 5.36% n/a 5.22%
*
</TABLE>
* Index comparison begins on December 31, 1991.
** There were no Class Y shares outstanding for the
calendar year ended December
31, 1999.
Smith
Barney Mutual Funds 5
<PAGE>
FEE TABLE
This table sets forth the fees and expenses you will pay if
you invest in fund
shares.
SHAREHOLDER FEES
<TABLE>
<CAPTION>
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A
CLASS L CLASS Y
<S> <C> <C>
<C>
Maximum sales charge (load) imposed on
purchases
(as a % of offering price) 2.00%
1.00% None
Maximum deferred sales charge (load) (as
a % of the lower of net asset value at
purchase or redemption) None*
1.00% None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
(EXPENSES DEDUCTED FROM FUND ASSETS) CLASS A CLASS L
CLASS Y+
<S> <C> <C>
<C>
Management fees** 0.50% 0.50%
0.50%
Distribution and service (12b-1) fees 0.15% 0.35%
None
Other expenses 0.23% 0.22%
0.23%
------- -------
- -------
Total annual fund operating expenses 0.88% 1.07%
0.73%
Management fee waivers (0.15)% (0.15)%
(0.15)%
------- -------
- -------
Net annual portfolio operating
expenses 0.73% 0.92%
0.58%
======= =======
=======
</TABLE>
* You may buy Class A shares in amounts of $500,000 or
more at net asset value
(without an initial sales charge) but if you redeem
those shares within 12
months of their purchase, you will pay a deferred sales
charge of 1.00%.
** Management has agreed to waive a portion of its
management fees. As a result
of the management fee waivers currently in effect, the
actual management fees
were 0.35%. The manager may change or eliminate these
fee waivers at any
time.
+ For Class Y shares, "Other expenses" have been estimated
based on expenses
incurred by Class A Shares because prior to November 30,
1999 no Class Y
Shares were sold.
6 Intermediate Maturity New York Municipals Fund
<PAGE>
EXAMPLE
This example helps you compare the costs of investing in
the fund with the costs
of investing in other mutual funds. Your actual costs may
be higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the period shown
- - Your investment has a 5% return each year
- - You reinvest all distributions and dividends without a
sales charge
- - The fund's operating expenses remain the same
NUMBER OF YEARS YOU OWN YOUR SHARES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
5 YEARS 10 YEARS
<S> <C> <C>
<C> <C>
Class A (with or without redemption) $288 $475
$678 $1,263
Class L (redemption at end of period) $308 $437
$684 $1,393
Class L (no redemption) $208 $437
$684 $1,393
Class Y (with or without redemption) $ 75 $233
$406 $ 906
</TABLE>
Smith
Barney Mutual Funds 7
<PAGE>
MORE ON THE FUND'S INVESTMENTS
NEW YORK MUNICIPAL SECURITIES New York municipal
securities include debt
obligations issued by certain non-New York governmental
issuers such as Puerto
Rico, the Virgin Islands and Guam. The interest on New York
municipal securities
is exempt from federal income tax and New York state and
New York City personal
income tax. As a result, the interest rate on these bonds
normally is lower than
it would be if the bonds were subject to taxation.
The New York municipal securities in which the fund invests
include general
obligation bonds, revenue bonds and notes, and municipal
leases. These
securities may pay interest at fixed, variable or floating
rates. The fund may
also hold zero coupon securities which pay no interest
during the life of the
obligation but trade at prices below their stated maturity
value.
The fund normally invests in intermediate-term municipal
securities, which are
securities that have remaining maturities at the time of
purchase of three to
ten years. The fund normally maintains an average portfolio
maturity of between
three and ten years.
DEFENSIVE INVESTING The fund may depart from its principal
investment
strategies in response to adverse market, economic or
political conditions by
taking temporary defensive positions in all types of money
market and short-term
debt securities. If the fund takes a temporary defensive
position, it may be
unable to achieve its investment goal.
8 Intermediate Maturity New York Municipals Fund
<PAGE>
MANAGEMENT
MANAGER The fund's investment adviser and administrator is
SSB
Citi Fund Management LLC (successor to SSBC Fund Management
Inc.), an affiliate
of Salomon Smith Barney Inc. The manager's address is 388
Greenwich Street, New
York, New York 10013. The manager selects the fund's
investments and oversees
its operations. The manager and Salomon Smith Barney are
subsidiaries of
Citigroup Inc. Citigroup businesses produce a broad range
of financial
services -- asset management, banking and consumer finance,
credit and charge
cards, insurance, investments, investment banking and
trading -- and use diverse
channels to make them available to consumer and corporate
customers around the
world.
Joseph P. Deane, investment officer of the manager and a
managing director of
Salomon Smith Barney, has been responsible for the day-to-
day management of the
fund's portfolio since February 2, 1999. Mr. Deane has 30
years of securities
business experience.
MANAGEMENT FEES For its services, the manager received a
management fee and
administrative fee during the fund's last fiscal year equal
to 0.21% and 0.14%,
respectively, of the fund's average daily net assets.
DISTRIBUTOR The fund has entered into an agreement with
CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of
Salomon Smith Barney
and other broker dealers sells fund shares to the public.
DISTRIBUTION PLAN The fund has adopted a Rule 12b-1
distribution plan for its
Class A and L shares. Under the plan, the fund pays
distribution and/or service
fees. These fees are an ongoing expense and, over time, may
cost you more than
other types of sales charges.
TRANSFER AGENT AND SHAREHOLDER SERVICING AGENT Smith
Barney Private Trust
Company serves as the fund's transfer agent and shareholder
servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and
services agreement with
the transfer agent, PFPC Global Fund Services serves as the
fund's sub-transfer
agent (the "sub-transfer agent") to render certain
shareholder record keeping
and accounting services and functions.
Smith
Barney Mutual Funds 9
<PAGE>
CHOOSING A CLASS OF SHARES TO BUY
You can choose among three classes of shares: Classes A, L
and Y. Each class has
different sales charges and expenses, allowing you to
choose the class that best
meets your needs. Which class is more beneficial to an
investor depends on the
amount and intended length of the investment.
- - If you establish a program of regular investment, you may
wish to consider
Class A shares; as the investment accumulates, you may
qualify for reduced
sales charges and the shares are subject to lower ongoing
expenses.
- - Class L shares are sold with a lower initial sales charge
than Class A shares,
which may also help to offset the higher annual expenses
of this class.
Because the fund's future return cannot be predicted,
however, there can be no
assurance that this would be the case for either class.
You may buy shares from:
- - A Salomon Smith Barney Financial Consultant
- - An investment dealer in the selling group or a broker
that clears through
Salomon Smith Barney -- a dealer representative
- - The fund, but only if you are investing through certain
dealer representatives
INVESTMENT MINIMUMS Minimum initial and additional
investment amounts vary
depending on the class of shares you buy and the nature of
your investment
account.
<TABLE>
<CAPTION>
INITIAL
ADDITIONAL
CLASSES A, L
CLASS Y ALL CLASSES
<S> <C>
<C> <C>
General $1,000
$15 million $50
Monthly Systematic Investment Plans $25
n/a $25
Quarterly Systematic Investment Plans $50
n/a $50
Uniform Gift to Minor Accounts $250
$15 million $50
</TABLE>
10 Intermediate Maturity New York Municipals Fund
<PAGE>
COMPARING THE FUND'S CLASSES
Your Salomon Smith Barney Financial Consultant or dealer
representative can help
you decide which class meets your goals. They may receive
different compensation
depending upon which class you choose.
<TABLE>
<CAPTION>
CLASS A CLASS L
CLASS Y
<S> <C> <C>
<C>
KEY FEATURES - Initial sales - Initial sales
- - No initial or
charge charge is
deferred sales
- You may lower than
charge
qualify for Class A
- - Minimum
reduction or - Deferred sales
investment of
waiver of charge for 1
at least $15
initial sales year
million
charge - Higher annual
- - Lower annual
- Lower annual expenses than
expenses than
expenses than Class A
the other
Class L
classes
- -----------------------------------------------------------
- ----------------
INITIAL SALES CHARGE Up to 2.00%; 1.00%
None
reduced for
large
purchases and
waived for
certain
investors. No
charge for
purchases of
$500,000 or
more
- -----------------------------------------------------------
- ----------------
DEFERRED SALES CHARGE 1.00% on 1.00% if you
None
purchases of redeem within
$500,000 or 1 year of
more if you purchase
redeem within
1 year of
purchase
- -----------------------------------------------------------
- ----------------
ANNUAL DISTRIBUTION 0.15% of average 0.35% of average
None
AND SERVICE FEES daily net daily net
assets assets
- -----------------------------------------------------------
- ----------------
EXCHANGE PRIVILEGE* Class A shares Class L shares
Class Y shares
of most Smith of most Smith
of most Smith
Barney funds Barney funds
Barney funds
</TABLE>
- -----------------------------------------------------------
- -------------------
*Ask your Salomon Smith Barney Financial Consultant or
dealer representative or
visit the web site for the Smith Barney funds available for
exchange.
Smith
Barney Mutual Funds 11
<PAGE>
SALES CHARGES
CLASS A SHARES
You buy Class A shares at the offering price, which is the
net asset value plus
a sales charge. You do not pay a sales charge on
investments of $500,000 or
more, or on the fund's distributions or dividends you
reinvest in additional
Class A shares.
<TABLE>
<CAPTION>
SALES
CHARGE AS A % OF:
OFFERING
NET AMOUNT
AMOUNT OF PURCHASE PRICE (%)
INVESTED (%)
<S> <C>
<C>
Less than $500,000 2.00
2.04
$500,000 or more -0-
- -0-
</TABLE>
INVESTMENTS OF $500,000 OR MORE You do not pay an initial
sales charge when you
buy $500,000 or more of Class A shares. However, if you
redeem these Class A
shares within one year of purchase, you will pay a deferred
sales charge of 1%.
QUALIFYING FOR A REDUCED CLASS A SALES CHARGE There are
several ways you can
combine multiple purchases of Class A shares of Smith
Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Accumulation privilege -- lets you combine the current
value of Class A shares
owned
- - by you, or
- - by members of your immediate family,
and for which a sales charge was paid, with the amount of
your next purchase of
Class A shares for purposes of calculating the initial
sales charge. Certain
trustees and fiduciaries may be entitled to combine
accounts in determining
their sales charge.
Letter of intent -- lets you purchase Class A shares of the
fund and other Smith
Barney funds over a 13-month period and pay the same sales
charge, if any, as if
all shares had been purchased at once. You may include
purchases on which you
paid a sales charge within 90 days before you sign the
letter.
12 Intermediate Maturity New York Municipals Fund
<PAGE>
WAIVERS FOR CERTAIN CLASS A INVESTORS Class A initial
sales charges are waived
for certain types of investors, including:
- - Employees of members of the NASD
- - Clients of newly employed Salomon Smith Barney Financial
Consultants, if
certain conditions are met
- - Investors who redeemed Class A shares of a Smith Barney
fund in the past 60
days, if the investor's Salomon Smith Barney Financial
Consultant or dealer
representative is notified
If you want to learn about additional waivers of Class A
initial sales charges,
contact your Salomon Smith Barney Financial Consultant or
dealer representative
or consult the Statement of Additional Information ("SAI").
CLASS L SHARES
You buy Class L shares at the offering price, which is the
net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In
addition, if you
redeem your Class L shares within one year of purchase, you
will pay a deferred
sales charge of 1%. If you held Class C shares of the fund
and/or other Smith
Barney Mutual Funds on June 12, 1998, you will not pay an
initial sales charge
on Class L shares you buy before June 22, 2001.
CLASS Y SHARES
You buy Class Y shares at net asset value with no initial
sales charge and no
deferred sales charge when you redeem. You must meet the
$15,000,000 initial
investment requirement. You can use a letter of intent to
meet this requirement
by buying Class Y shares of the fund over a 13-month
period. To qualify, you
must initially invest $5,000,000.
Smith
Barney Mutual Funds 13
<PAGE>
MORE ABOUT DEFERRED SALES CHARGES
The deferred sales charge is based on the net asset value
at the time of
purchase or redemption, whichever is less, and therefore
you do not pay a sales
charge on amounts representing appreciation or
depreciation.
In addition, you do not pay a deferred sales charge on:
- - Shares exchanged for another Smith Barney fund
- - Shares representing reinvested distributions and
dividends
- - Shares no longer subject to the deferred sales charge
Each time you place a request to redeem shares, the fund
will first redeem any
shares in your account that are not subject to a deferred
sales charge and then
the shares in your account that have been held the longest.
If you redeemed shares of a Smith Barney fund in the past
60 days and paid a
deferred sales charge, you may buy shares of the fund at
the current net asset
value and be credited with the amount of the deferred sales
charge, if you
notify your Salomon Smith Barney Financial Consultant or
dealer representative.
Salomon Smith Barney receives deferred sales charges as
partial compensation for
its expenses in selling shares, including the payment of
compensation to your
Salomon Smith Barney Financial Consultant or dealer
representative.
DEFERRED SALES CHARGE WAIVERS
The deferred sales charge for each share class will
generally be waived:
- - On payments made through certain systematic withdrawal
plans
- - For involuntary redemptions of small account balances
- - For 12 months following the death or disability of a
shareholder
If you want to learn more about additional waivers of
deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or
dealer representative
or consult the SAI.
14 Intermediate Maturity New York Municipals Fund
<PAGE>
BUYING SHARES
<TABLE>
<C> <S>
Through a You should contact your Salomon
Smith Barney
Salomon Smith Financial Consultant or dealer
representative
Barney Financial to open a brokerage account and make
Consultant arrangements to buy shares.
or dealer
representative If you do not provide the following
information, your order will be
rejected:
- Class of shares being bought
- Dollar amount or number of shares
being
bought
You should pay for your shares
through your
brokerage account no later than the
third
business day after you place your
order.
Salomon Smith Barney or your dealer
representative may charge an annual
account
maintenance fee.
- -----------------------------------------------------------
- ---------
Through the Certain other investors who are
clients of a
fund's sub-transfer selling group member are eligible to
buy
agent shares directly from the fund.
- Write the sub-transfer agent at
the
following address:
SMITH BARNEY INVESTMENT TRUST
INTERMEDIATE MATURITY NEW YORK
MUNICIPALS FUND
(SPECIFY CLASS OF SHARES)
C/O PFPC GLOBAL FUND SERVICES
P.O. BOX 9699
PROVIDENCE, RHODE ISLAND 02940-
9699
- Enclose a check to pay for the
shares. For
initial purchases, complete and
send an
account application.
- For more information, call the
transfer
agent at 1-800-451-2010.
</TABLE>
Smith
Barney Mutual Funds 15
<PAGE>
<TABLE>
<C> <S>
Through a You may authorize Salomon Smith
Barney, your
systematic dealer representative or the sub-
transfer
investment plan agent to transfer funds
automatically from a
regular bank account, cash held in a
Salomon
Smith Barney brokerage account or
Smith
Barney money market fund to buy
shares on a
regular basis.
- Amounts transferred should be at
least: $25
monthly or $50 quarterly.
- If you do not have sufficient
funds in your
account on a transfer date,
Salomon Smith
Barney, your dealer representative
or the
sub-transfer agent may charge you
a fee.
For more information, contact your
Salomon
Smith Barney Financial Consultant,
dealer
representative or the transfer agent
or
consult the SAI.
</TABLE>
16 Intermediate Maturity New York Municipals Fund
<PAGE>
EXCHANGING SHARES
<TABLE>
<C> <S>
Smith Barney offers You should contact your Salomon
Smith Barney
a distinctive Financial Consultant or dealer
representative
family of mutual to exchange into other Smith Barney
mutual
funds tailored to funds. Be sure to read the
prospectus of the
help meet the Smith Barney mutual fund you are
exchanging
varying needs of into. An exchange is a taxable
transaction.
both large and
small investors - You may exchange shares only for
shares of
the same class of another Smith
Barney fund.
Not all Smith Barney funds offer
all
classes.
- Not all Smith Barney funds may be
offered
in your state of residence.
Contact your
Salomon Smith Barney Financial
Consultant,
dealer representative or the
transfer
agent.
- You must meet the minimum
investment amount
for each fund (except for
systematic
exchanges).
- If you hold share certificates,
the
sub-transfer agent must receive
the
certificates endorsed for transfer
or with
signed stock powers (documents
transferring
ownership of certificates) before
the
exchange is effective.
- The fund may suspend or terminate
your
exchange privilege if you engage
in an
excessive pattern of exchanges.
- -----------------------------------------------------------
- ---------
Waiver of Your shares will not be subject to
an initial
additional sales sales charge at the time of the
exchange.
charges
Your deferred sales charge (if any)
will
continue to be measured from the
date of your
original purchase.
</TABLE>
Smith
Barney Mutual Funds 17
<PAGE>
<TABLE>
<C> <S>
By telephone If you do not have a brokerage
account, you
may be eligible to exchange shares
through
the transfer agent. You must
complete an
authorization form to authorize
telephone
transfers. If eligible, you may make
telephone exchanges on any day the
New York
Stock Exchange is open. Call the
transfer
agent at 1-800-451-2010 between 9:00
a.m. and
4:00 p.m. (Eastern time).
You can make telephone exchanges
only between
accounts that have identical
registrations.
- -----------------------------------------------------------
- ---------
By mail If you do not have a Salomon Smith
Barney
brokerage account, contact your
dealer
representative or write to the sub-
transfer
agent at the address on the
following page.
</TABLE>
18 Intermediate Maturity New York Municipals Fund
<PAGE>
REDEEMING SHARES
<TABLE>
<C> <S>
Generally Contact your Salomon Smith Barney
Financial
Consultant or dealer representative
to redeem
shares of the fund.
If you hold share certificates, the
sub-transfer agent must receive the
certificates endorsed for transfer
or with
signed stock powers before the
redemption is
effective.
If the shares are held by a
fiduciary or
corporation, other documents may be
required.
Your redemption proceeds will be
sent within
three business days after your
request is
received in good order. However, if
you
recently purchased your shares by
check, your
redemption proceeds will not be sent
to you
until your original check clears
which may
take up to 15 days.
If you have a Salomon Smith Barney
brokerage
account, your redemption proceeds
will be
placed in your account and not
reinvested
without your specific instruction.
In other
cases, unless you direct otherwise,
your
redemption proceeds will be paid by
check
mailed to your address of record.
- -----------------------------------------------------------
- ---------
By mail For accounts held directly at the
fund, send
written requests to the sub-transfer
agent at
the following address:
SMITH BARNEY INVESTMENT TRUST
INTERMEDIATE MATURITY NEW YORK
MUNICIPALS FUND
(SPECIFY CLASS OF SHARES)
C/O PFPC GLOBAL FUND SERVICES
P.O. BOX 9699
PROVIDENCE, RHODE ISLAND 02940-
9699
Your written request must provide
the
following:
- Your account number
- The class of shares and the dollar
amount
or number of shares to be redeemed
- Signatures of each owner exactly
as the
account is registered
</TABLE>
Smith
Barney Mutual Funds 19
<PAGE>
<TABLE>
<C> <S>
By telephone If you do not have a brokerage
account, you
may be eligible to redeem shares in
amounts
up to $10,000 per day through the
transfer
agent. You must complete an
authorization
form to authorize telephone
redemptions. If
eligible, you may request
redemptions by
telephone on any day the New York
Stock
Exchange is open. Call the transfer
agent at
1-800-451-2010 between 9:00 a.m. and
4:00
p.m. (Eastern time).
Your redemption proceeds can be sent
by check
to your address of record or by wire
transfer
to a bank account designated on your
authorization form. You must submit
a new
authorization form to change the
bank account
designated to receive wire transfers
and you
may be asked to provide certain
other
documents.
- -----------------------------------------------------------
- ---------
Automatic cash You can arrange for the automatic
redemption
withdrawal plans of a portion of your shares on a
monthly or
quarterly basis. To qualify you must
own
shares of the fund with a value of
at least
$10,000 and each automatic
redemption must be
at least $50. If your shares are
subject to a
deferred sales charge, the sales
charge will
be waived if your automatic payments
do not
exceed 1% per month of the value of
your
shares subject to a deferred sales
charge.
The following conditions apply:
- Your shares must not be
represented by
certificates
- All dividends and distributions
must be
reinvested
For more information, contact your
Salomon
Smith Barney Financial Consultant or
dealer
representative or consult the SAI.
</TABLE>
20 Intermediate Maturity New York Municipals Fund
<PAGE>
OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS
When you buy, exchange or redeem shares, your request must
be in good order.
This means you have provided the following information,
without which your
request will not be processed:
- - Name of the fund
- - Account number
- - Class of shares being bought, exchanged or redeemed
- - Dollar amount or number of shares being bought, exchanged
or redeemed
- - Signature of each owner exactly as the account is
registered
The transfer agent will try to confirm that any telephone
exchange or redemption
request is genuine by recording calls, asking the caller to
provide a personal
identification number for the account, sending you a
written confirmation or
requiring other confirmation procedures from time to time.
SIGNATURE GUARANTEES To be in good order, your redemption
request must include
a signature guarantee if you:
- - Are redeeming over $10,000 of shares
- - Are sending signed share certificates or stock powers to
the sub-transfer
agent
- - Instruct the sub-transfer agent to mail the check to an
address different from
the one on your account
- - Change your account registration
- - Want the check paid to someone other than the account
owner(s)
- - Are transferring the redemption proceeds to an account
with a different
registration
You can obtain a signature guarantee from most banks,
dealers, brokers, credit
unions and federal savings and loan institutions, but not
from a notary public.
The fund has the right to:
- - Suspend the offering of shares
- - Waive or change minimum and additional investment amounts
- - Reject any purchase or exchange order
- - Change, revoke or suspend the exchange privilege
- - Suspend telephone transactions
Smith
Barney Mutual Funds 21
<PAGE>
- - Suspend or postpone redemptions of shares on any day when
trading on the New
York Stock Exchange is restricted, or as otherwise
permitted by the Securities
and Exchange Commission
- - Pay redemption proceeds by giving you securities. You may
pay transaction
costs to dispose of the securities.
SMALL ACCOUNT BALANCES If your account falls below $500
because of a redemption
of fund shares, the fund may ask you to bring your account
up to $500. If your
account is still below $500 after 60 days, the fund may
close your account and
send you the redemption proceeds.
EXCESSIVE EXCHANGE TRANSACTIONS The manager may determine
that a pattern of
frequent exchanges is detrimental to the fund's performance
and other
shareholders. If so, the fund may limit additional
purchases and/or exchanges by
the shareholder.
SHARE CERTIFICATES The fund does not issue share
certificates unless a written
request signed by all registered owners is made to the sub-
transfer agent. If
you hold share certificates it will take longer to exchange
or redeem shares.
22 Intermediate Maturity New York Municipals Fund
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS The fund pays dividends each month from its net
investment income.
The fund generally makes capital gain distributions, if
any, once a year,
typically in December. The fund may pay additional
distributions and dividends
at other times if necessary for the fund to avoid a federal
tax. Capital gain
distributions and dividends are reinvested in additional
fund shares of the same
class you hold. The fund expects distributions to be
primarily from income. You
do not pay a sales charge on reinvested distributions or
dividends.
Alternatively, you can instruct your Salomon Smith Barney
Financial Consultant,
dealer representative or the transfer agent to have your
distributions and/or
dividends paid in cash. You can change your choice at any
time to be effective
as of the next distribution or dividend, except that any
change given to the
transfer agent less than five days before the payment date
will not be effective
until the next distribution or dividend is paid.
TAXES The following table describes the tax consequences
of certain fund
transactions.
<TABLE>
<CAPTION>
TRANSACTION FEDERAL TAX STATUS NEW
YORK TAX STATUS
<S> <C> <C>
Redemption or exchange Usually capital gain or Usually
capital gain or
of shares loss; long-term only if loss
shares owned more than
one year
Long-term capital gain Taxable gain Taxable
gain
distributions
Short-term capital gain Ordinary income
Ordinary income
distributions
Dividends Exempt if from interest Exempt
if from interest
on tax-exempt on New
York municipal
securities, otherwise
securities, otherwise
ordinary income
ordinary income
</TABLE>
Smith
Barney Mutual Funds 23
<PAGE>
Any taxable dividends and capital gain distributions are
taxable whether
received in cash or reinvested in fund shares. Long-term
capital gain
distributions are taxable to you as long-term capital gain
regardless of how
long you have owned your shares. You may want to avoid
buying shares when the
fund is about to declare a long-term capital gain
distribution or a dividend,
because it will be taxable to you even though it may
actually be a return of a
portion of your investment.
After the end of each year, the fund will provide you with
information about the
distributions and dividends you received and any
redemptions of shares during
the previous year. If you do not provide the fund with your
correct taxpayer
identification number and any required certifications, you
may be subject to
back-up withholding of 31% of your distributions, taxable
dividends, and
redemption proceeds. Because each shareholder's
circumstances are different and
special tax rules may apply, you should consult your tax
adviser about your
investment in the fund.
24 Intermediate Maturity New York Municipals Fund
<PAGE>
SHARE PRICE
You may buy, exchange or redeem shares at their net asset
value, adjusted for
any applicable sales charge, next determined after receipt
of your request in
good order. The fund's net asset value is the value of its
assets minus its
liabilities. Net asset value is calculated separately for
each class of shares.
The fund calculates its net asset value every day the New
York Stock Exchange is
open. The Exchange is closed on certain holidays listed in
the SAI. This
calculation is done when regular trading closes on the
Exchange (normally 4:00
p.m., Eastern time).
Generally, the fund's investments are valued by an
independent pricing service.
If market quotations or a valuation from the pricing
service is not readily
available for a security or if a security's value has been
materially affected
by events occurring after the close of the Exchange or
market on which the
security is principally traded, that security may be valued
by another method
that the fund's board believes accurately reflects fair
value. A fund that uses
fair value to price securities may value those securities
higher or lower than
another fund using market quotations to price the same
securities. A security's
valuation may differ depending on the method used for
determining value.
In order to buy, redeem or exchange shares at that day's
price, you must place
your order with your Salomon Smith Barney Financial
Consultant or dealer
representative before the New York Stock Exchange closes.
If the Exchange closes
early, you must place your order prior to the actual
closing time. Otherwise,
you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must
transmit all orders to
buy, exchange or redeem shares to the fund's agent before
the agent's close of
business.
Smith
Barney Mutual Funds 25
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you
understand the
performance of each class for the past 5 years (or since
inception if less than
5 years). Certain information reflects financial results
for a single share.
Total return represents the rate that a shareholder would
have earned (or lost)
on an investment in a class assuming reinvestment of all
dividends and
distributions. The information in the following tables, was
audited by KPMG LLP,
independent accountants, whose report, along with the
fund's financial
statements, is included in the annual report (available
upon request). No
information is present for Class Y shares because no shares
were outstanding
during these fiscal years.
FOR A CLASS A SHARE OF BENEFICIAL
INTEREST
OUTSTANDING THROUGHOUT EACH YEAR ENDED
NOVEMBER 30:
<TABLE>
<CAPTION>
1999(1) 1998 1997
1996 1995
<S> <C> <C> <C>
<C> <C>
- -----------------------------------------------------------
- ------------------
Net asset value, beginning of
year $8.76 $8.57 $8.47
$8.48 $7.80
- -----------------------------------------------------------
- ------------------
Income (loss) from operations:
Net investment income(2) 0.38 0.40 0.41
0.41 0.41
Net realized and unrealized
gain (loss) (0.48) 0.19 0.10
(0.01) 0.68
- -----------------------------------------------------------
- ------------------
Total income (loss) from
operations (0.10) 0.59 0.51
0.40 1.09
- -----------------------------------------------------------
- ------------------
Less distributions from:
Net investment income (0.38) (0.40)
(0.41) (0.41) (0.41)
- -----------------------------------------------------------
- ------------------
Total distributions (0.38) (0.40)
(0.41) (0.41) (0.41)
- -----------------------------------------------------------
- ------------------
Net asset value, end of year $8.28 $8.76 $8.57
$8.47 $8.48
- -----------------------------------------------------------
- ------------------
Total return(3) (1.18)% 7.01%
6.23% 4.85% 14.31%
- -----------------------------------------------------------
- ------------------
Net assets, end of year (000)'s $59,896 $54,624 $48,759
$49,355 $52,568
- -----------------------------------------------------------
- ------------------
Ratios to average net assets:
Expenses(2) 0.73% 0.70%
0.67% 0.66% 0.65%
Net investment income 4.47 4.59 4.83
4.86 5.01
- -----------------------------------------------------------
- ------------------
Portfolio turnover rate 23% 53%
52% 67% --
- -----------------------------------------------------------
- ------------------
</TABLE>
<TABLE>
<C> <S>
(1) Per shares amounts have been calculated using the
average
shares method.
(2) The investment adviser has waived all or part of its
fees
for the five years ended November 30, 1999. If such
fees had
not been waived, the per share effect on net
investment
income and the expense ratios would have been as
follows:
</TABLE>
<TABLE>
<CAPTION>
PER SHARE DECREASE IN NET
EXPENSE RATIOS
INVESTMENT INCOME
WITHOUT FEE WAIVERS
1999 1998 1997 1996 1995
1999 1998 1997 1996 1995
-------------------------------------------------------
- ------------------------------------
<S> <C> <C> <C> <C> <C>
<C> <C> <C> <C> <C>
Class A $0.01 $0.02 $0.03 $0.04
$0.03 0.88% 0.89% 0.98% 1.08% 0.97%
-------------------------------------------------------
- ------------------------------------
</TABLE>
<TABLE>
<C> <S>
(3) Total return does not reflect any applicable sales
load or
deferred sales charges.
</TABLE>
26 Intermediate Maturity New York Municipals Fund
<PAGE>
FOR A CLASS L SHARE OF BENEFICIAL
INTEREST
OUTSTANDING THROUGHOUT EACH YEAR ENDED
NOVEMBER 30:
<TABLE>
<CAPTION>
1999(1) 1998(2) 1997
1996 1995(3)
<S> <C> <C> <C>
<C> <C>
- -----------------------------------------------------------
- -----------------
Net asset value, beginning of
year $8.76 $8.57 $8.47
$8.48 $7.87
- -----------------------------------------------------------
- -----------------
Income (loss) from operations:
Net investment income(4) 0.37 0.38 0.39
0.39 0.38
Net realized and unrealized
gain (loss) (0.50) 0.19 0.10
(0.01) 0.61
- -----------------------------------------------------------
- -----------------
Total income (loss) from
operations (0.13) 0.57 0.49
0.38 0.99
- -----------------------------------------------------------
- -----------------
Less distributions from:
Net investment income (0.36) (0.38) (0.39)
(0.39) (0.38)
- -----------------------------------------------------------
- -----------------
Total distributions (0.36) (0.38) (0.39)
(0.39) (0.38)
- -----------------------------------------------------------
- -----------------
Net asset value, end of year $8.27 $8.76 $8.57
$8.47 $8.48
- -----------------------------------------------------------
- -----------------
Total return(5) (1.49)% 6.79% 6.00%
4.64% 13.01%(++)
- -----------------------------------------------------------
- -----------------
Net assets, end of year (000)'s $4.967 $4,247 $2,283
$1,192 $393
- -----------------------------------------------------------
- -----------------
Ratios to average net assets:
Expenses(4) 0.92% 0.89% 0.89%
0.88% 0.86%(+)
Net investment income 4.28 4.38 4.61
4.64 4.74(+)
- -----------------------------------------------------------
- -----------------
Portfolio turnover rate 23% 53% 52%
67% --
- -----------------------------------------------------------
- -----------------
</TABLE>
<TABLE>
<C> <S>
(1) Per share amounts have been calculated using the
average
shares method.
(2) On June 12, 1998, Class C shares were renamed Class L
shares.
(3) For the period from December 5, 1994 (inception date)
to
November 30, 1995.
(4) The investment adviser has waived all or part of its
fees
for the four years ended November 30, 1999 and the
period
ended November 30, 1995. If such fees had not been
waived,
the per share effect on net investment income and
expense
ratios would have been as follows:
</TABLE>
<TABLE>
<CAPTION>
PER SHARE DECREASES TO NET
EXPENSE RATIOS
INVESTMENT INCOME
WITHOUT FEE WAIVERS
1999 1998 1997 1996 1995
1999 1998 1997 1996 1995
-------------------------------------------------------
- ------------------------------------
<S> <C> <C> <C> <C> <C>
<C> <C> <C> <C> <C>
Class L $0.01 $0.01 $0.03 $0.02
$0.03 1.07% 1.09% 1.20% 1.30% 1.19%(+)
-------------------------------------------------------
- ------------------------------------
</TABLE>
<TABLE>
<C> <S>
(5) Total return does not reflect applicable sales load or
deferred sales charges.
(++) Total return is not annualized, as it may not be
representative of the total return for the year.
(+) Annualized.
</TABLE>
Smith
Barney Mutual Funds 27
<PAGE>
[This page intentionally left blank]
<PAGE>
[SALOMON SMITH BARNEY LOGO]
INTERMEDIATE MATURITY
NEW YORK MUNICIPALS FUND
- -- AN INVESTMENT PORTFOLIO OF
SMITH BARNEY INVESTMENT TRUST
SHAREHOLDER REPORTS Annual and semiannual reports to
shareholders provide
additional information about the fund's investments. These
reports discuss the
market conditions and investment strategies that affected
the fund's
performance.
The fund sends only one report to a household if more than
one account has the
same address. Contact your Salomon Smith Barney Financial
Consultant, dealer
representative or the transfer agent if you do not want
this policy to apply to
you.
STATEMENT OF ADDITIONAL INFORMATION The statement of
additional information
provides more detailed information about the fund. It is
incorporated by
reference into (is legally a part of) this prospectus.
You can make inquiries about the fund or obtain shareholder
reports or the
statement of additional information (without charge) by
contacting your Salomon
Smith Barney Financial Consultant or dealer representative,
by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith
Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at
WWW.SMITHBARNEY.COM
Information about the fund (including the SAI) can be
reviewed and copied at the
Securities and Exchange Commission's (the "Commission")
Public Reference Room in
Washington, D.C. In addition, information on the operation
of the Public
Reference Room may be obtained by calling the Commission at
1-202-942-8090.
Reports and other information about the Fund are available
on the EDGAR Database
on the Commission's Internet site at HTTP://WWW.SEC.GOV.
Copies of this
information may be obtained for a duplicating fee by
electronic request at the
following E-mail address: [email protected], or by writing
the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in
this prospectus, you
should not rely upon that information. Neither the fund nor
the distributor is
offering to sell shares of the fund to any person to whom
the fund may not
lawfully sell its shares.
Salomon Smith Barney is a service mark of Salomon Smith
Barney Inc.
(Investment Company Act
file no. 811-06444)
FD0247 3/00
<PAGE>
[SB] Smith Barney
[MF] Mutual Funds
P R O S P E C T U S
Large
Capitalization
Growth Fund
Class A, B, L and Y Shares
--------------------------------------------
March 29, 2000
The Securities and Exchange Commission has not
approved the fund's
shares as an investment or determined whether this
prospectus is
accurate or complete. Any statement to the contrary
is a crime.
<PAGE>
Large Capitalization Growth Fund
ontents
<TABLE>
<S>
<C>
Investments, risks and
performance.......................................... 2
More on the fund's
investments..............................................
6
Management.................................................
................. 7
Choosing a class of shares to
buy........................................... 8
Comparing the fund's
classes................................................ 9
Sales
charges....................................................
........... 10
More about deferred sales
charges........................................... 13
Buying
shares.....................................................
.......... 14
Exchanging
shares.....................................................
...... 15
Redeeming
shares.....................................................
....... 16
Other things to know
about share
transactions...............................................
..... 18
Salomon Smith Barney
Retirement
Programs...................................................
...... 20
Dividends, distributions and
taxes.......................................... 21
Share
price......................................................
........... 22
Financial
highlights.................................................
....... 23
</TABLE>
You should know: An investment in the fund is not a bank
deposit and is not
insured or guaranteed by the FDIC or any other government
agency.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
Investment objective
The fund seeks long-term growth of capital.
Principal investment strategies
Key investments The fund invests primarily in equity
securities of companies
with large market capitalizations. Large capitalization
companies are those
with total market capitalizations of $5 billion or more at
the time of invest-
ment. Equity securities include U.S. exchange traded and
over-the-counter com-
mon stocks, debt securities convertible into equity
securities, and warrants
and rights relating to equity securities.
Selection process The manager emphasizes individual
security selection while
diversifying the fund's investments across industries,
which may help to reduce
risk. The manager attempts to identify established large
capitalization compa-
nies with the highest growth potential. The manager then
analyzes each company
in detail, ranking its management, strategy and competitive
market position.
Finally, the manager attempts to identify the best values
available among the
growth companies identified.
In selecting individual companies for investment, the
manager considers:
.Favorable earnings prospects
.Technological innovation
.Industry dominance
.Competitive products and services
.Global scope
.Long term operating history
.Consistent and sustainable long-term growth in dividends
and earnings per
share
.Strong cash flow
.High return on equity
.Strong financial condition
.Experienced and effective management
Large Capitalization Growth Fund
2
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investments in the
fund, or the fund may
not perform as well as other investments, 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
the fund invests
.Large capitalization stocks fall out of favor with
investors
.The manager's judgment about the attractiveness, growth
prospects or potential
appreciation of a particular stock proves to be incorrect
Who may want to invest The fund may be an appropriate
investment if you:
.Are seeking to participate in the long-term growth
potential of the U.S. stock
market
.Are looking for an investment with potentially greater
return but higher risk
than fixed income investments
.Are willing to accept the risks of the stock market
Risk return bar chart
The bar chart below shows changes in the fund's performance
from year to year.
Past performance does not necessarily indicate how the fund
will perform in the
future. This bar chart shows the performance of the fund's
Class A shares for
each of the past two years. Class B, L and Y shares have
different performance
because of different expenses. The performance information
in the chart
does not reflect sales charges, which would reduce your
return.
Total Return for Class A Shares
98 99
---- ----
56.00% 30.84%
Smith Barney Mutual Funds
3
<PAGE>
Quarterly returns:
Highest: 38.99% in 4th quarter 1998; Lowest: (12.69)% in
3rd quarter 1998
Risk return table
This table compares the average annual total return of each
class for the peri-
ods shown with that of the S&P 500 Composite Index, a
broad-based unmanaged
market capitalization-weighted measure of 500 widely held
common stocks. This
table assumes the imposition of the maximum sales charge
applicable to the
class, the redemption of shares at the end of the period,
and the reinvestment
of distributions and dividends.
Average Annual Total Returns
Calendar Years Ended December 31, 1999
<TABLE>
<CAPTION>
Class 1 year Since Inception Inception Date
<S> <C> <C> <C>
A 24.28% 35.75% 8/29/97
B 24.88% 36.92% 8/29/97
L 27.55% 37.16% 8/29/97
Y 31.31% 37.94% 10/15/97
S&P 500 Index 21.03% 25.22% *
*Index Comparison begins on August 31, 1997.
</TABLE>
Fee table
This table sets forth the fees and expenses you will pay if
you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A
Class B Class L Class Y
<S> <C> <C>
<C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price) 5.00%
None 1.00% None
Maximum deferred sales charge (load) (as a %
of the lower of net asset value at purchase
or redemption) None*
5.00% 1.00% None
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund assets) Class A
Class B Class L Class Y
<S> <C> <C>
<C> <C>
Management fee 0.75%
0.75% 0.75% 0.75%
Distribution and service (12b-1) fees 0.25%
1.00% 1.00% None
Other expenses 0.15%
0.14% 0.14% 0.03%
----- --
- --- ----- -----
Total annual fund operating expenses 1.15%
1.89% 1.89% 0.78%
=====
===== ===== =====
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more
at net asset value
(without an initial sales charge) but if you redeem those
shares within 12
months of their purchase, you will pay a deferred sales
charge of 1.00%.
Large Capitalization Growth Fund
4
<PAGE>
Example
This example helps you compare the costs of investing in
the fund with the
costs of investing in other mutual funds. Your actual costs
may be higher or
lower. The example assumes:
.You invest $10,000 in the fund for the period shown
.Your investment has a 5% return each year
.You reinvest all distributions and dividends without a
sales charge
.The fund's operating expenses remain the same
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5
years 10 years
<S> <C> <C> <C>
<C>
Class A (with or without redemption) $611 $847
$1,101 $1,828
Class B (redemption at end of period) $692 $894
$1,121 $2,019
Class B (no redemption) $192 $594
$1,021 $2,019
Class L (redemption at end of period) $390 $688
$1,111 $2,289
Class L (no redemption) $290 $688
$1,111 $2,289
Class Y (with or without redemption) $ 80 $249 $
433 $ 966
</TABLE>
Smith Barney Mutual Funds
5
<PAGE>
More on the fund's investments
Foreign Investments The fund may invest up to 10% of its
net assets in the
securities of foreign issuers directly or in the form of
depositary receipts
representing an interest in those securities. The fund's
investments in securi-
ties of foreign issuers involve greater risk than
investments in securities of
U.S. issuers. Many foreign countries the fund invests in
have markets that are
less liquid and more volatile than markets in the U.S. In
some foreign coun-
tries, less information is available about foreign issuers
and markets because
of less rigorous accounting and regulatory standards than
in the U.S. Currency
fluctuations could erase investment gains or add to
investment losses. The
risks of investing in foreign securities are greater for
securities of emerging
market issuers because political or economic instability,
lack of market
liquidity, and negative government actions like currency
controls or seizure of
private businesses or property are more likely.
Short-term investments While the fund intends to invest
substantially all of
its assets in equity securities, the fund may maintain up
to 35% of its assets
in money market instruments and/or cash to pay expenses and
meet redemption
requests. Generally, the value of these fixed income
obligations will go down
if interest rates go up, the credit rating of the security
is downgraded or the
issuer defaults on its obligation to pay principal or
interest.
Other investments The fund may invest up to 35% of its
assets in equity securi-
ties of companies with total market capitalizations below
$5 billion (i.e.,
medium or small capitalization companies).
Defensive investing The fund may depart from its principal
investment strate-
gies in response to adverse market, economic or political
conditions by taking
temporary defensive positions in all types of money market
instruments. If the
fund takes a temporary defensive position, it may be unable
to achieve its
investment goal.
Large Capitalization Growth Fund
6
<PAGE>
Management
Manager The fund's investment manager is SSB Citi Fund
Management LLC (succes-
sor to SSBC Fund Management Inc.), an affiliate of Salomon
Smith Barney Inc.
The manager's address is 388 Greenwich Street, New York,
New York 10013. The
manager selects the fund's investments and oversees its
operations. The manager
and Salomon Smith Barney are subsidiaries of Citigroup Inc.
Citigroup busi-
nesses produce a broad range of financial services--asset
management, banking
and consumer finance, credit and charge cards, insurance,
investments, invest-
ment banking and trading--and use diverse channels to make
them available to
consumer and corporate customers around the world.
Alan Blake, investment officer of the manager and managing
director of Salomon
Smith Barney, has been responsible for the day-to-day
management of the fund's
portfolio since its inception in 1997. Mr. Blake has more
than 21 years of
securities business experience.
Management fee For its services, the manager received a fee
during the fund's
last fiscal year equal on an annual basis to 0.75% of the
fund's average daily
net assets.
Distributor The fund has entered into an agreement with
CFBDS, Inc. to distrib-
ute the fund's shares. A selling group consisting of
Salomon Smith Barney and
other broker-dealers sells fund shares to the public.
Distribution plan The fund has adopted a Rule 12b-1
distribution plan for its
Class A, B and L shares. Under the plan, the fund pays
distribution and/or
service fees. These fees are an ongoing expense and, over
time, may cost you
more than other types of sales charges.
Transfer agent and shareholder servicing agent Smith Barney
Private Trust Com-
pany serves as the fund's transfer agent and shareholder
servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and
services agreement
with the transfer agent, PFPC Global Fund Services serves
as the fund's sub-
transfer agent (the "sub-transfer agent") to render certain
shareholder record
keeping and accounting services and functions.
Smith Barney Mutual Funds
7
<PAGE>
Choosing a class of shares to buy
You can choose among four classes of shares: Classes A, B,
L and Y. Each class
has different sales charges and expenses, allowing you to
choose the class that
best meets your needs. Which class is more beneficial to an
investor depends on
the amount and intended length of the investment.
.If you plan to invest regularly or in large amounts,
buying Class A shares may
help you reduce sales charges and ongoing expenses.
.For Class B shares, all of your purchase amount and, for
Class L shares, more
of your purchase amount (compared to Class A shares) will
be immediately
invested. This may help offset the higher expenses of
Class B and Class L
shares, but only if the fund performs well.
.Class L shares have a shorter deferred sales charge period
than Class B
shares. However, because Class B shares convert to Class
A shares, and
Class L shares do not, Class B shares may be more
attractive to long-term
investors.
You may buy shares from:
.A Salomon Smith Barney Financial Consultant
.An investment dealer in the selling group or a broker that
clears through Sal-
omon Smith Barney--a dealer representative
.The fund, but only if you are investing through certain
qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional
investment amounts vary
depending on the class of shares you buy and the nature of
your investment
account.
<TABLE>
<CAPTION>
Initial
Additional
Classes A, B, L
Class Y All Classes
<S> <C> <C>
<C>
General $1,000 $15
million $50
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $250 $15
million $50
Qualified Retirement Plans* $25 $15
million $25
Simple IRAs $1
n/a $1
Monthly Systematic Investment Plans $25
n/a $25
Quarterly Systematic Investment Plans $50
n/a $50
</TABLE>
*Qualified Retirement Plans are retirement plans qualified
under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code,
including 401(k)
plans
Large Capitalization Growth Fund
8
<PAGE>
Comparing the fund's classes
Your Salomon Smith Barney Financial Consultant or dealer
representative can
help you decide which class meets your goals. They may
receive different com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L
Class Y
<S> <C> <C> <C>
<C>
Key features .Initial .No initial .Initial
.No initial
sales sales sales
or
charge charge charge is
deferred
.You may .Deferred lower
than sales
qualify sales Class A
charge
for reduc- charge .Deferred
.Must
tion or declines sales
invest at
waiver of over time charge
for least $15
initial .Converts only 1
million
sales to Class A year
.Lower
charge after 8 .Does not
annual
.Lower years convert
to expenses
annual .Higher Class A
than the
expenses annual .Higher
other
than Class expenses annual
classes
B and than Class expenses
Class L A than
Class
A
- -----------------------------------------------------------
- -------------
Initial sales charge Up to None 1.00%
None
5.00%;
reduced
for large
purchases
and waived
for cer-
tain
investors.
No charge
for pur-
chases of
$500,000
or more
- -----------------------------------------------------------
- -------------
Deferred sales charge 1.00% on Up to 5.00% 1.00%
if None
purchases charged you
redeem
of when you within 1
$500,000 redeem year of
or more if shares. purchase
you redeem The charge
within 1 is reduced
year of over time
purchase and there
is no
deferred
sales
charge
after 6
years
- -----------------------------------------------------------
- -------------
Annual distribution and 0.25% of 1.00% of 1.00% of
None
service fees average average average
daily net daily net daily net
assets assets assets
- -----------------------------------------------------------
- -------------
Exchange Privilege* Class A Class B Class L
Class Y
shares shares shares
shares
of most of most of most
of most
Smith Smith Smith
Smith
Barney Barney Barney
Barney
funds funds funds
funds
- -----------------------------------------------------------
- -------------
</TABLE>
* Ask your Salomon Smith Barney Financial Consultant or
dealer representative
or visit the web site for the Smith Barney funds available
for exchange.
Smith Barney Mutual Funds
9
<PAGE>
Sales charges
Class A shares
You buy Class A shares at the offering price, which is the
net asset value plus
a sales charge. You pay a lower sales charge as the size of
your investment
increases to certain levels called breakpoints. You do not
pay a sales charge
on the fund's distributions or dividends you reinvest in
additional Class A
shares.
<TABLE>
<CAPTION>
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
<S> <C> <C>
Less than $25,000 5.00 5.26
$25,000 but less than $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 3.00 3.09
$250,000 but less than $500,000 2.00 2.04
$500,000 or more 0.00 0.00
</TABLE>
Investments of $500,000 or more You do not pay an initial
sales charge when you
buy $500,000 or more of Class A shares. However, if you
redeem these Class A
shares within one year of purchase, you will pay a deferred
sales charge of 1%.
Qualifying for a reduced Class A sales charge There are
several ways you can
combine multiple purchases of Class A shares of Smith
Barney funds to take
advantage of the breakpoints in the sales charge schedule.
.Accumulation privilege - lets you combine the current
value of Class A shares
owned
.by you, or
.by members of your immediate family,
and for which a sales charge was paid, with the amount of
your next purchase
of Class A shares for purposes of calculating the initial
sales charge. Cer-
tain trustees and fiduciaries may be entitled to combine
accounts in deter-
mining their sales charge.
.Letter of intent - lets you purchase Class A shares of the
fund and other
Smith Barney funds over a 13-month period and pay the
same sales charge, if
any, as if all shares had been purchased at once. You may
include purchases
on which you paid a sales charge made within 90 days
before you sign the let-
ter.
Large Capitalization Growth Fund
10
<PAGE>
Waivers for certain Class A investors Class A initial sales
charges are waived
for certain types of investors, including:
.Employees of members of the NASD
.Clients of newly employed Salomon Smith Barney Financial
Consultants if cer-
tain conditions are met
.Investors who redeemed Class A shares of a Smith Barney
fund in the past 60
days, if the investor's Salomon Smith Barney Financial
Consultant or dealer
representative is notified
If you want to learn about additional waivers of Class A
initial sales charges,
contact your Salomon Smith Barney Financial Consultant or
dealer representative
or consult the Statement of Additional Information ("SAI").
Class B shares
You buy Class B shares at net asset value without paying an
initial sales
charge. However, if you redeem your Class B shares within
six years of pur-
chase, you will pay a deferred sales charge. The deferred
sales charge
decreases as the number of years since your purchase
increases.
<TABLE>
<CAPTION>
Year after purchase 1st 2nd 3rd 4th 5th 6th through 8th
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 5% 4% 3% 2% 1% 0%
</TABLE>
Class B conversion After 8 years, Class B shares
automatically convert into
Class A shares. This helps you because Class A shares have
lower annual
expenses. Your Class B shares will convert to Class A
shares as follows:
<TABLE>
<CAPTION>
Shares issued: Shares issued: Shares issued:
At initial purchase On reinvestment of Upon exchange
from
dividends and another Smith
Barney
distributions fund
<S> <C> <C>
Eight years after the In same proportion On the date the
date of purchase as the number of shares
originally
Class B shares con- acquired would
have
verting is to total converted into
Class
Class B shares you A shares
own (excluding
shares issued as
dividends)
</TABLE>
Class L shares
You buy Class L shares at the offering price, which is the
net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In
addition, if you
redeem your Class L shares within one year of purchase, you
will pay a deferred
sales charge of 1%. If you held Class C shares of the fund
and/or other Smith
Barney Mutual Funds on June 12, 1998, you will not pay an
initial sales charge
on Class L shares you buy before June 22, 2001.
Smith Barney Mutual Funds
11
<PAGE>
Class Y shares
You buy Class Y shares at net asset value with no initial
sales charge and no
deferred sales charge when you redeem. You must meet the
$15,000,000 initial
investment requirement. You can also use a letter of intent
to meet this
requirement by buying Class Y shares over a 13-month
period. To qualify, you
must initially invest $5,000,000.
Large Capitalization Growth Fund
12
<PAGE>
More about deferred sales charges
The deferred sales charge is based on the net asset value
at the time of pur-
chase or redemption, whichever is less, and therefore you
do not pay a sales
charge on amounts representing appreciation or
depreciation.
In addition, you do not pay a deferred sales charge on:
.Shares exchanged for shares of another Smith Barney fund
.Shares representing reinvested distributions and dividends
.Shares no longer subject to the deferred sales charge
Each time you place a request to redeem shares, the fund
will first redeem any
shares in your account that are not subject to a deferred
sales charge and then
the shares in your account that have been held the longest.
If you redeemed shares of a Smith Barney fund in the past
60 days and paid a
deferred sales charge, you may buy shares of the fund at
the current net asset
value and be credited with the amount of the deferred sales
charge, if you
notify your Salomon Smith Barney Financial Consultant or
dealer representative.
Salomon Smith Barney receives deferred sales charges as
partial compensation
for its expenses in selling shares, including the payment
of compensation to
your Salomon Smith Barney Financial Consultant or dealer
representative.
Deferred sales charge waivers
The deferred sales charge for each share class will
generally be waived:
.On payments made through certain systematic withdrawal
plans
.On certain distributions from a retirement plan
.For involuntary redemptions of small account balances
.For 12 months following the death or disability of a
shareholder
If you want to learn more about additional waivers of
deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or
dealer representative
or consult the SAI.
Smith Barney Mutual Funds
13
<PAGE>
Buying shares
Through a You should contact your Salomon Smith
Barney Financial Con-
Salomon Smith sultant or dealer representative to open a
brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant or If you do not provide the following
information, your order
dealer will be rejected:
representative
.Class of shares being bought
.Dollar amount or number of shares being
bought
You should pay for your shares through
your brokerage account
no later than the third business day after
you place your
order. Salomon Smith Barney or your dealer
representative may
charge an annual account maintenance fee.
- -----------------------------------------------------------
- ---------------------
Through the Qualified retirement plans and certain
other investors who
fund's sub- are clients of a selling group member are
eligible to buy
transfer shares directly from the fund.
agent
.Write the sub-transfer agent at the
following address:
Smith Barney Investment Trust
Large Capitalization Growth Fund
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
.Enclose a check to pay for the shares.
For initial pur-
chases, complete and send an account
application
.For more information, call the transfer
agent at 1-800-451-
2010
- -----------------------------------------------------------
- ---------------------
Through a
systematic You may authorize Salomon Smith Barney,
your dealer represen-
investment tative or the sub-transfer agent to
automatically transfer
plan funds from a regular bank account, cash
held in a Salomon
Smith Barney brokerage account or Smith
Barney money market
fund to buy shares on a regular basis.
.Amounts transferred should be at least:
$25 monthly or $50
quarterly.
.If you do not have sufficient funds in
your account on a
transfer date, Salomon Smith Barney,
your dealer represen-
tative or the sub--transfer agent may
charge you a fee.
For more information, contact your Salomon
Smith Barney
Financial Consultant, dealer
representative or the transfer
agent or consult the SAI.
Large Capitalization Growth Fund
14
<PAGE>
Exchanging shares
Smith Barney You should contact your Salomon Smith
Barney Financial Con-
offers a sultant or dealer representative to
exchange into other Smith
distinctive Barney mutual funds. Be sure to read the
prospectus of the
family of Smith Barney mutual fund you are
exchanging into. An exchange
funds is a taxable transaction.
tailored to
help meet the .You may exchange shares only for shares
of the same class of
varying needs another Smith Barney fund. Not all Smith
Barney funds offer
of both large all classes.
and small .Not all Smith Barney funds may be offered
in your state of
investors residence. Contact your Salomon Smith
Barney Financial Con-
sultant, dealer representative or the
transfer agent.
.You must meet the minimum investment
amount for each fund
(except for systematic exchanges)
.If you hold share certificates, the sub-
transfer agent must
receive the certificates endorsed for
transfer or with
signed stock powers (documents
transferring ownership of
certificates) before the exchange is
effective.
.The fund may suspend or terminate your
exchange privilege if
you engage in an excessive pattern of
exchanges
- -----------------------------------------------------------
- ---------------------
Waiver of Your shares will not be subject to an
initial sales charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will
continue to be mea-
sured from the date of your original
purchase. If the fund
you exchange into has a higher deferred
sales charge, you
will be subject to that charge. if you
exchange at any time
into a fund with a lower charge, the sales
charge will not be
reduced.
- -----------------------------------------------------------
- ---------------------
By telephone
If you do not have a brokerage account,
you may be eligible
to exchange shares through the transfer
agent. You must com-
plete an authorization form to authorize
telephone transfers.
If eligible, you may make telephone
exchanges on any day the
New York Stock Exchange is open. Call the
transfer agent at
1-800-451-2010 between 9:00 a.m. and 4:00
p.m. (Eastern
time).
You can make telephone exchanges only
between accounts that
have identical registrations.
- -----------------------------------------------------------
- ---------------------
By mail
If you do not have a Salomon Smith Barney
brokerage account,
contact your dealer representative or
write to the sub-trans-
fer agent at the address on the following
page.
Smith Barney Mutual Funds
15
<PAGE>
Redeeming shares
Generally Contact your Salomon Smith Barney
Financial Consultant or
dealer representative to redeem shares of
the fund.
If you hold share certificates, the sub-
transfer agent must
receive the certificates endorsed for
transfer or with signed
stock powers before the redemption is
effective.
If the shares are held by a fiduciary or
corporation, other
documents may be required.
Your redemption proceeds will be sent
within three business
days after your request is received in
good order. However,
if you recently purchased your shares by
check, your redemp-
tion proceeds will not be sent to you
until your original
check clears, which may take up to 15
days.
If you have a Salomon Smith Barney
brokerage account, your
redemption proceeds will be placed in your
account and not
reinvested without your specific
instruction. In other cases,
unless you direct otherwise, your
redemption proceeds will be
paid by check mailed to your address of
record.
- -----------------------------------------------------------
- ---------------------
By mail
For accounts held directly at the fund,
send written requests
to the sub-transfer agent at the following
address:
Smith Barney Investment Trust
Large Capitalization Growth Fund
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
Your written request must provide the
following:
.Your account number
.The class of shares and the dollar amount
or number of
shares to be redeemed
.Signatures of each owner exactly as the
account is
registered
Large Capitalization Growth Fund
16
<PAGE>
By telephone
If you do not have a brokerage account,
you may be eligible
to redeem shares (except those held in
retirement plans) in
amounts up to $10,000 per day through the
transfer agent. You
must complete an authorization form to
authorize telephone
redemptions. If eligible, you may request
redemptions by tel-
ephone on any day the New York Stock
Exchange is open. Call
the transfer agent at 1-800-451-2010
between 9:00 a.m. and
4:00 p.m. (Eastern time).
Your redemption proceeds can be sent by
check to your address
of record or by wire transfer to a bank
account designated on
your authorization form. You must submit a
new authorization
form to change the bank account designated
to receive wire
transfers and you may be asked to provide
certain other docu-
ments.
- -----------------------------------------------------------
- ---------------------
Automatic
cash You can arrange for the automatic
redemption of a portion of
withdrawal your shares on a monthly or quarterly
basis. To qualify you
plans must own shares of the fund with a value
of at least $10,000
($5,000 for retirement plan accounts) and
each automatic
redemption must be at least $50. If your
shares are subject
to a deferred sales charge, the sales
charge will be waived
if your automatic payments are equal to or
less than 1% per
month of the value of your shares subject
to a deferred sales
charge.
The following conditions apply:
.Your shares must not be represented by
certificates
.All dividends and distributions must be
reinvested
For more information, contact your Salomon
Smith Barney
Financial Consultant or dealer
representative or consult the
SAI.
Smith Barney Mutual Funds
17
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must
be in good order.
This means you have provided the following information
without which your
request will not be processed:
.Name of the fund
.Account number
.Class of shares being bought, exchanged or redeemed
.Dollar amount or number of shares being bought, exchanged
or redeemed
.Signature of each owner exactly as the account is
registered
The transfer agent will try to confirm that any telephone
exchange or redemp-
tion request is genuine by recording calls, asking the
caller to provide a per-
sonal identification number for the account, sending you a
written confirmation
or requiring other confirmation procedures from time to
time.
Signature guarantees To be in good order, your redemption
request must include
a signature guarantee if you:
.Are redeeming over $10,000 of shares
.Are sending signed share certificates or stock powers to
the sub-transfer
agent
.Instruct the sub-transfer agent to mail the check to an
address different from
the one on your account
.Changed your account registration
.Want the check paid to someone other than the account
owner(s)
.Are transferring the redemption proceeds to an account
with a different regis-
tration
You can obtain a signature guarantee from most banks,
dealers, brokers, credit
unions and federal savings and loan institutions, but not
from a notary public.
The fund has the right to:
.Suspend the offering of shares
.Waive or change minimum and additional investment amounts
.Reject any purchase or exchange order
.Change, revoke or suspend the exchange privilege
.Suspend telephone transactions
Large Capitalization Growth Funds
18
<PAGE>
.Suspend or postpone redemptions of shares on any day when
trading on the New
York Stock Exchange is restricted, or as otherwise
permitted by the Securi-
ties and Exchange Commission
.Pay redemption proceeds by giving you securities. You may
pay transaction
costs to dispose of the securities
Small account balances If your account falls below $500
because of a redemption
of fund shares, the fund may ask you to bring your account
up to $500. If your
account is still below $500 after 60 days, the fund may
close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may determine
that a pattern of
frequent exchanges is detrimental to the fund's performance
and other share-
holders. If so, the fund may limit additional purchases
and/or exchanges by the
shareholder.
Share certificates The fund does not issue share
certificates unless a written
request signed by all registered owners is made to the sub-
transfer agent. If
you hold share certificates it will take longer to exchange
or redeem shares.
Smith Barney Mutual Funds
19
<PAGE>
Salomon Smith Barney Retirement Programs
You may be eligible to participate in a retirement program
sponsored by Salomon
Smith Barney or one of its affiliates. The fund offers
Class A and Class L
shares at net asset value to participating plans under the
programs. You can
meet minimum investment and exchange amounts, if any, by
combining the plan's
investments in any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and
the class of shares
you may purchase depends on the amount of your initial
investment and/or the
date your account is opened. Once a class of shares is
chosen, all additional
purchases must be of the same class.
.For plans opened on or after March 1, 2000 that are not
part of the Paychex
offering, Class A shares may be purchased regardless of
the amount invested.
.For plans opened prior to March 1, 2000 and for plans that
are part of the
Paychex offering, the class of shares you may purchase
depends on the amount
of your initial investment:
.Class A shares may be purchased by plans investing at
least $1 million.
.Class L shares may be purchased by plans investing less
than $1 million.
Class L shares are eligible to exchange into Class A
shares not later
than 8 years after the plan joined the program. They
are eligible for
exchange in the following circumstances:
If the plan was opened on or after June 21, 1996 and a
total of $1 million is
invested in Smith Barney Funds Class L shares (other than
money market funds),
all Class L shares are eligible for exchange after the plan
is in the program 5
years.
If the plan was opened before June 21, 1996 and a total of
$500,000 is invested
in Smith Barney Funds Class L shares (other than money
market funds) on Decem-
ber 31 in any year, all Class L shares are eligible for
exchange on or about
March 31 of the following year.
For more information, call your Salomon Smith Barney
Financial Consultant or
the transfer agent, or consult the SAI.
Large Capitalization Growth Fund
20
<PAGE>
Dividends, distributions and taxes
Dividends The fund generally pays dividends and makes
capital gain distribu-
tions, if any, once a year, typically in December. The fund
may pay additional
distributions and dividends at other times if necessary for
the fund to avoid a
federal tax. Capital gain distributions and dividends are
reinvested in addi-
tional fund shares of the same class you hold. The fund
expects distributions
to be primarily from capital gains. You do not pay a sales
charge on reinvested
distributions or dividends. Alternatively, you can instruct
your Salomon Smith
Barney Financial Consultant, dealer representative or the
transfer agent to
have your distributions and/or dividends paid in cash. You
can change your
choice at any time to be effective as of the next
distribution or dividend,
except that any change given to the transfer agent less
than five days before
the payment date will not be effective until the next
distribution or dividend
is paid.
Taxes In general, redeeming shares, exchanging shares and
receiving distribu-
tions (whether in cash or additional shares) are all
taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually capital gain
or
loss; long-term only
if
shares owned more
than
one year
Long-term capital gain distributions Long-term capital
gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
</TABLE>
Long-term capital gain distributions are taxable to you as
long-term capital
gain regardless of how long you have owned your shares. You
may want to avoid
buying shares when the fund is about to declare a long-term
capital gain dis-
tribution or a dividend, because it will be taxable to you
even though it may
actually be a return of a portion of your investment.
After the end of each year, the fund will provide you with
information about
the distributions and dividends you received and any
redemptions of shares dur-
ing the previous year. If you do not provide the fund with
your correct tax-
payer identification number and any required
certifications, you may be subject
to back-up withholding of 31% of your distributions,
dividends, and redemption
proceeds. Because each shareholder's circumstances are
different and special
tax rules may apply, you should consult your tax adviser
about your investment
in the fund.
Smith Barney Mutual Fund
21
<PAGE>
Share price
You may buy, exchange or redeem shares at their net asset
value, plus any
applicable sales charge, next determined after receipt of
your request in good
order. The fund's net asset value is the value of its
assets minus its liabili-
ties. Net asset value is calculated separately for each
class of shares. The
fund calculates its net asset value every day the New York
Stock Exchange is
open. The Exchange is closed on certain holidays listed in
the SAI. This calcu-
lation is done when regular trading closes on the Exchange
(normally 4:00 p.m.,
Eastern time).
The fund generally values its fund securities based on
market prices or quota-
tions. The fund's currency conversions are done when the
London Stock Exchange
closes, which is 12 noon Eastern time. When reliable market
prices or quota-
tions are not readily available, or when the value of a
security has been
materially affected by event occurring after a foreign
exchange closes, the
fund may price those securities at fair
value. Fair value is determined in accordance with
procedures approved by the
fund's board. A fund that uses fair value to price
securities may value those
securities higher or lower than another fund using market
quotations to price
the same securities.
International markets may be open on days when U.S. markets
are closed and the
value of foreign securities owned by the fund could change
on days when you
cannot buy or redeem shares.
In order to buy, redeem or exchange shares at that day's
price, you must place
your order with your Salomon Smith Barney Financial
Consultant or dealer repre-
sentative before the New York Stock Exchange closes. If the
Exchange closes
early, you must place your order prior to the actual
closing time. Otherwise,
you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must
transmit all orders
to buy, exchange or redeem shares to the fund's agent
before the agent's close
of business.
Large Capitalization Growth Fund
22
<PAGE>
Financial highlights
The financial highlights tables are intended to help you
understand the perfor-
mance of each class since inception. Certain information
reflects financial
results for a single share. Total return represents the
rate that a shareholder
would have earned (or lost) on a fund share assuming
reinvestment of all divi-
dends and distributions. The information in the following
tables was audited by
KPMG LLP, independent accountants, whose report, along with
the fund's finan-
cial statements, are included in the annual report
(available upon request).
For a Class A share of capital stock outstanding
throughout each year ended
November 30:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/)
1997(/2/)
- -----------------------------------------------------------
- -----------
<S> <C> <C>
<C>
Net asset value, beginning of year $ 17.41 $12.28
$11.88
- -----------------------------------------------------------
- -----------
Income (loss) from operations:
Net investment income (loss) (0.06) (0.04)
0.01
Net realized and unrealized gain 6.92 5.20
0.39
- -----------------------------------------------------------
- -----------
Total income from operations 6.86 5.16
0.40
- -----------------------------------------------------------
- -----------
Less distributions from:
Net investment income (loss) -- (0.02)
- --
Net realized gains (loss) (0.33) (0.01)
- --
- -----------------------------------------------------------
- -----------
Total distributions (0.33) (0.03)
- --
- -----------------------------------------------------------
- -----------
Net asset value, end of year $ 23.94 $17.41
$12.28
- -----------------------------------------------------------
- -----------
Total return 39.50% 42.12%
3.37%++
- -----------------------------------------------------------
- -----------
Net assets, end of year (000)'s $770,392 $324,664
$111,063
- -----------------------------------------------------------
- -----------
Ratios to average net assets:
Expenses 1.15% 1.19%
1.15%+
Net investment income (loss) (0.27) (0.38)
0.38+
- -----------------------------------------------------------
- -----------
Portfolio turnover rate 9% 14%
1%
- -----------------------------------------------------------
- -----------
</TABLE>
(/1/) Per share amounts have been calculated using the
monthly average shares
method.
(/2/) For the period from August 29, 1997 (inception date)
to November 30, 1997.
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
Smith Barney Mutual Funds
23
<PAGE>
For a Class B share of capital stock outstanding
throughout each year ended
November 30:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/)
1997(/2/)
- -----------------------------------------------------------
- ------------
<S> <C> <C>
<C>
Net asset value, beginning of year $17.26 $12.26
$11.88
- -----------------------------------------------------------
- ------------
Income (loss) from operations:
Net investment loss (0.22) (0.17)
(0.01)
Net realized and unrealized gain 6.85 5.19
0.39
- -----------------------------------------------------------
- ------------
Total income from operations 6.63 5.02
0.38
- -----------------------------------------------------------
- ------------
Less distributions from:
Net investment income (loss) -- (0.01)
- --
Net realized gains (loss) (0.33) (0.01)
- --
- -----------------------------------------------------------
- ------------
Total distributions (0.33) (0.02)
- --
- -----------------------------------------------------------
- ------------
Net asset value, end of year $23.56 $17.26
$12.26
- -----------------------------------------------------------
- ------------
Total return 38.51% 41.02%
3.20%++
- -----------------------------------------------------------
- ------------
Net assets, end of year (000)'s $1,710,004 $636,464
$179,598
- -----------------------------------------------------------
- ------------
Ratios to average net assets:
Expenses 1.89% 1.95%
1.90%+
Net investment (loss) (1.01) (1.14)
(0.37)+
- -----------------------------------------------------------
- ------------
Portfolio turnover rate 9% 14%
1%
- -----------------------------------------------------------
- ------------
</TABLE>
(/1/) Per share amounts have been calculated using the
monthly average shares
method.
(/2/) For the period from August 29, 1997 (inception date)
to November 30, 1997.
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
Large Capitalization Growth Fund
24
<PAGE>
For a Class L share of capital stock outstanding
throughout each year
ended November 30:
<TABLE>
<CAPTION>
1999(/1/)
1998(/1/)(/2/) 1997(/3/)
- -----------------------------------------------------------
- ------------------
<S> <C> <C>
<C>
Net asset value, beginning of year $17.26
$12.26 $11.88
- -----------------------------------------------------------
- ------------------
Income (loss) from operations:
Net investment loss (0.22)
(0.17) (0.01)
Net realized and unrealized gain 6.85
5.19 0.39
- -----------------------------------------------------------
- ------------------
Total income from operations 6.63
5.02 0.38
- -----------------------------------------------------------
- ------------------
Less distributions from:
Net investment income (loss) --
(0.01) --
Net realized gains (loss) (0.33)
(0.01) --
- -----------------------------------------------------------
- ------------------
Total distributions (0.33)
(0.02) --
- -----------------------------------------------------------
- ------------------
Net asset value, end of year $23.56
$17.26 $12.26
- -----------------------------------------------------------
- ------------------
Total return 38.51%
41.02% 3.20%++
- -----------------------------------------------------------
- ------------------
Net assets, end of year (000)'s $677,792
$187,741 $37,224
- -----------------------------------------------------------
- ------------------
Ratios to average net assets:
Expenses 1.89%
1.96% 1.90%+
Net investment (loss) (1.01)
(1.14) (0.38)+
- -----------------------------------------------------------
- ------------------
Portfolio turnover rate 9%
14% 1%
- -----------------------------------------------------------
- ------------------
</TABLE>
(/1/) Per share amounts have been calculated using the
monthly average shares
method.
(/2/) On June 12, 1998, Class C shares were renamed Class L
shares.
(/3/) For the period from August 29, 1997 (inception date)
to November 30,
1997.
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
Smith Barney Mutual Funds
25
<PAGE>
For a Class Y share of capital stock outstanding
throughout each year ended
November 30:
<TABLE>
<CAPTION>
1999(/1/)
1998(/1/) 1997(/2/)
- -----------------------------------------------------------
- -------------------
<S> <C> <C>
<C>
Net asset value, beginning of year $17.49
$12.29 $12.66
- -----------------------------------------------------------
- -------------------
Income (loss) from operations:
Net investment income (loss) 0.02
(0.00)* 0.01
Net realized and unrealized gain (loss) 6.96
5.23 (0.38)
- -----------------------------------------------------------
- -------------------
Total income (loss) from operations 6.98
5.23 (0.37)
- -----------------------------------------------------------
- -------------------
Less distributions from:
Net investment income (loss) --
(0.02) --
Net realized gains (loss) (0,33)
(0.01) --
- -----------------------------------------------------------
- -------------------
Total distributions (0.33)
(0.03) --
- -----------------------------------------------------------
- -------------------
Net asset value, end of year 24.14
$17.49 $12.29
- -----------------------------------------------------------
- -------------------
Total return 40.00%
42.61% (2.92)%++
- -----------------------------------------------------------
- -------------------
Net assets, end of year (000)'s $186,369
$133,556 $84,758
- -----------------------------------------------------------
- -------------------
Ratio to average net assets:
Expenses 0.78%
0.83% 0.82%+
Net investment income (loss) 0.09%
(0.02) 0.54+
- -----------------------------------------------------------
- -------------------
Portfolio turnover rate 9%
14% 1%
- -----------------------------------------------------------
- -------------------
</TABLE>
(1) Per share amounts have been calculated using the
monthly average shares
method.
(2) For the period from October 15, 1997 (inception date)
to November 30, 1997.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
Large Capitalization Growth Fund
26
<PAGE>
Salomon Smith Barney
-------
- ---------------------
A
member of citigroup [LOGO]
Large Capitalization Growth Fund
An investment portfolio of Smith Barney Investment Trust
Shareholder reports Annual and semiannual reports to
shareholders provide addi-
tional information about the fund's investments. These
reports discuss the mar-
ket conditions and investment strategies that affected the
fund's performance.
The fund sends only one report to a household if more than
one account has the
same address. Contact your Salomon Smith Barney Financial
Consultant, dealer
representative or the transfer agent if you do not want
this policy to apply to
you.
Statement of additional information The statement of
additional information
provides more detailed information about the fund and is
incorporated by refer-
ence into (is legally a part of) this prospectus.
You can make inquiries about the fund or obtain shareholder
reports or the
statement of additional information (without charge) by
contacting your Salomon
Smith Barney Financial Consultant or dealer representative,
by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith
Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at
www.smithbarney.com
Information about the fund (including the SAI) can be
reviewed and copied at
the Securities and Exchange Commission's (the "Commission")
Public Reference
Room in Washington, D.C. In addition, information on the
operation of the Pub-
lic Reference Room may be obtained by calling the
Commission at 1-202-942-8090.
Reports and other information about the Fund are available
on the EDGAR Data-
base on the Commission's Internet site at
http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by
electronic request at the
following E-mail address: [email protected], or by writing
the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in
this prospectus, you
should not rely upon that information. Neither the fund nor
the distributor is
offering to sell shares of the fund to any person to whom
the fund may not law-
fully sell its shares.
SMSalomon Smith Barney is a service mark of Salomon Smith
Barney Inc.
(Investment Company Act
file no. 811-06444)
FD01306 3/00
[SB] Smith Barney
[MF] Mutual Funds
P R O S P E C T U S
Large
Capitalization
Growth Fund
Class Z Shares
--------------------------------------------
March 29, 2000
The Securities and Exchange Commission has not
approved the fund's
shares as an investment or determined whether this
prospectus is
accurate or complete. Any statement to the contrary
is a crime.
LARGE CAPITALIZATION GROWTH FUND
CONTENTS
<TABLE>
<S>
<C>
Investments, risks and
performance.......................................... 2
More on the fund's
investments..............................................
6
Management.................................................
................. 7
Buying, redeeming and exchanging Class Z
shares............................... 8
Dividends, distributions and
taxes.......................................... 9
Share
price......................................................
........... 10
Financial
highlights.................................................
....... 11
</TABLE>
The Class Z shares described in this prospectus are offered
exclusively for
sale to tax-exempt employee benefit and retirement plans of
Salomon Smith Bar-
ney Inc. or any of its affiliates.
YOU SHOULD KNOW: An investment in the fund is not a bank
deposit and is not
insured or guaranteed by the FDIC or any other government
agency.
Smith Barney Mutual Funds
1
<PAGE>
INVESTMENTS, RISKS AND PERFORMANCE
INVESTMENT OBJECTIVE
The fund seeks long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
KEY INVESTMENTS The fund invests primarily in equity
securities of companies
with large market capitalizations. Large capitalization
companies are those
with total market capitalizations of $5 billion or more at
the time of invest-
ment. Equity securities include U.S. exchange traded and
over-the-counter com-
mon stocks, debt securities convertible into equity
securities, and warrants
and rights relating to equity securities.
SELECTION PROCESS The manager emphasizes individual
security selection while
diversifying the fund's investments across industries,
which may help to reduce
risk. The manager attempts to identify established large
capitalization compa-
nies with the highest growth potential. The manager then
analyzes each company
in detail, ranking its management, strategy and competitive
market position.
Finally, the manager attempts to identify the best values
available among the
growth companies identified.
In selecting individual companies for investment, the
manager considers:
.Favorable earnings prospects
.Technological innovation
.Industry dominance
.Competitive products and services
.Global scope
.Long term operating history
.Consistent and sustainable long-term growth in dividends
and earnings per
share
.Strong cash flow
.High return on equity
.Strong financial condition
.Experienced and effective management
Large Capitalization Growth Fund--Class Z Shares
2
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investors could lose money on their investments in the
fund, or the fund may
not perform as well as other investments, 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
the fund invests
.Large capitalization stocks fall out of favor with
investors
.The manager's judgment about the attractiveness, growth
prospects or potential
appreciation of a particular stock proves to be incorrect
WHO MAY WANT TO INVEST The fund may be an appropriate
investment if you:
.Are seeking to participate in the long-term growth
potential of the U.S. stock
market
.Are looking for an investment with potentially greater
return but higher risk
than fixed income investments
.Are willing to accept the risks of the stock market
Smith Barney Mutual Funds
3
<PAGE>
RISK RETURN BAR CHART
The bar chart below shows changes in the fund's performance
from year to year.
Past performance does not necessarily indicate how the fund
will perform in the
future. This bar chart shows the performance of the fund's
Class A shares since inception. Class Z shares have
different performance because of different
expenses.
TOTAL RETURN FOR CLASS A SHARES
98 99
---- ----
54.72% 30.84%
Calendar years ended December 31
QUARTERLY RETURNS:
Highest: 38.99% in 4th quarter 1998; Lowest: (12.69)% in
3rd quarter 1998.
RISK RETURN TABLE
This table compares the average annual total return of each
class for the peri-
ods shown with that of the S&P 500 Index, a broad-based
unmanaged
market capitalization-weighted measure of 500 widely held
common stocks. This
table assumes the imposition of the maximum sales charge
applicable to the
class, the redemption of shares at the end of the period,
and the reinvestment
of distributions and dividends.
AVERAGE ANNUAL TOTAL RETURNS
CALENDAR YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
CLASS 1 YEAR SINCE INCEPTION INCEPTION DATE
<S> <C> <C> <C>
A** 24.28% 35.75% 8/29/97
S&P 500 Index 21.03% 25.22% *
</TABLE>
* Index comparison begins on August 31, 1997.
** Because Class Z shares were offered on January 4, 1999,
Class Z shares do
not yet have a sufficient operating history to generate
the performance
information.
Large Capitalization Growth Fund--Class Z Shares
4
<PAGE>
FEE TABLE
This table sets forth the fees and expenses you will pay if
you invest in fund
shares.
<TABLE>
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
<CAPTION>
(EXPENSES DEDUCTED FROM FUND ASSETS)
<S> <C> <C> <C> <C>
Management fee 0.75%
Other expenses 0.03%
-----
Total annual fund operating expenses 0.78%
=====
</TABLE>
EXAMPLE
This example helps you compare the costs of investing in
the fund with the
costs of investing in other mutual funds. Your actual costs
may be higher or
lower. The example assumes:
.You invest $10,000 in the fund for the period shown
.Your investment has a 5% return each year
.You reinvest all distributions and dividends
.The fund's operating expenses remain the same
NUMBER OF YEARS YOU OWN YOUR SHARES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class Z $80 $249 $433 $966
</TABLE>
Smith
Barney Mutual Funds
5
<PAGE>
MORE ON THE FUND'S INVESTMENTS
FOREIGN INVESTMENTS. The fund may invest up to 10% of its
net assets in the
securities of foreign issuers directly or in the form of
depositary receipts
representing an interest in those securities. The fund's
investments in securi-
ties of foreign issuers involve greater risk than
investments in securities of
U.S. issuers. Many foreign countries the fund invests in
have markets that are
less liquid and more volatile than markets in the U.S. In
some foreign coun-
tries, less information is available about foreign issuers
and markets because
of less rigorous accounting and regulatory standards than
in the U.S. Currency
fluctuations could erase investment gains or add to
investment losses. The
risks of investing in foreign securities are greater for
securities of emerging
market issuers because political or economic instability,
lack of market
liquidity, and negative government actions like currency
controls or seizure of
private businesses or property are more likely.
SHORT-TERM INVESTMENTS While the fund intends to invest
substantially all of
its assets in equity securities, the fund may maintain up
to 35% of its assets
in money market instruments and/or cash to pay expenses and
meet redemption
requests. Generally, the value of these fixed income
obligations will go down
if interest rates go up, the credit rating of the security
is downgraded or the
issuer defaults on its obligation to pay principal or
interest.
OTHER INVESTMENTS The fund may invest up to 35% of its
assets in equity securi-
ties of companies with total market capitalizations below
$5 billion (i.e.,
medium or small capitalization companies).
DEFENSIVE INVESTING The fund may depart from its principal
investment strate-
gies in response to adverse market, economic or political
conditions by taking
temporary defensive positions in all types of money market
instruments. If the
fund takes a temporary defensive position, it may be unable
to achieve its
investment goal.
Large Capitalization Growth Fund--Class Z Shares
6
<PAGE>
MANAGEMENT
MANAGER The fund's investment manager is SSB Citi Fund
Management LLC (succes-
sor to SSBC Fund Management Inc.), an affiliate of Salomon
Smith Barney Inc.
The manager's address is 388 Greenwich Street, New York,
New York 10013. The
manager selects the fund's investments and oversees its
operations. The manager
and Salomon Smith Barney are subsidiaries of Citigroup Inc.
Citigroup busi-
nesses produce a broad range of financial services--asset
management, banking
and consumer finance, credit and charge cards, insurance,
investments, invest-
ment banking and trading--and use diverse channels to make
them available to
consumer and corporate customers around the world.
Alan Blake, investment officer of the manager and managing
director of Salomon
Smith Barney, has been responsible for the day to day
management of the fund's
portfolio since its inception in 1997. Mr. Blake has more
than 21 years of
securities business experience.
MANAGEMENT FEE For its services, the manager received a fee
during the fund's
last fiscal year equal on an annual basis to 0.75% of the
fund's average daily
net assets.
DISTRIBUTOR The fund has entered into an agreement with
CFBDS, Inc. to distrib-
ute the fund's shares.
TRANSFER AGENT AND SHAREHOLDER SERVICING AGENT Smith Barney
Private Trust
Company serves as the fund's transfer agent and shareholder
servicing agent
(the "transfer agent"). Pursuant to a sub-transfer agency
and services
agreement with the transfer agent, PFPC Global Fund
Services serves as the
fund's sub-transfer agent (the "sub-transfer agent") to
render certain
shareholder record keeping and accounting services and
functions.
Smith Barney Mutual Funds
7
<PAGE>
BUYING, REDEEMING AND EXCHANGING CLASS Z SHARES
Through a You may buy, redeem or exchange Class Z
shares only through a
qualified "qualified plan." A qualified plan is a
tax-exempt employee
plan benefit or retirement plan of Salomon
Smith Barney, Inc. or
one of its affiliates.
There are no minimum investment
requirements for Class Z
shares. However, the fund reserves the
right to change this
policy at any time.
- -----------------------------------------------------------
- ---------------------
Buying Orders to buy Class Z shares must be made
in accordance with
the terms of a qualified plan. If you are
a participant in a
qualified plan, you may place an order
with your plan to buy
Class Z shares at net asset value, without
any sales charge.
Payment is due to Salomon Smith Barney on
settlement date,
which is the third business day after your
order is accepted.
If you make payment prior to this date,
you may designate a
temporary investment (such as a money
market fund of the
Smith Barney Mutual Funds) for payment
until settlement date.
The fund reserves the right to reject any
order to buy shares
and to suspend the offering of shares for
a period of time.
- -----------------------------------------------------------
- ---------------------
Redeeming Qualified plans may redeem their shares on
any day on which
the fund calculates its net asset value.
You should consult
the terms of your qualified plan for
special redemption pro-
visions.
- -----------------------------------------------------------
- ---------------------
Exchanging You should consult your qualified plan for
information about
available exchange options.
The fund has the right to:
.Suspend the offering of shares
.Waive or change minimum and additional investment amounts
.Reject any purchase or exchange order
.Change, revoke or suspend the exchange privilege
.Suspend telephone transactions
Large Capitalization Growth Fund--Class Z Shares
8
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
An investment in the fund will have the following
consequences for a qualified
plan as the owner of shares in the fund. Qualified plan
participants should
consult their plan document or tax advisors about the tax
consequences of par-
ticipating in a qualified plan.
DIVIDENDS The fund generally pays dividends and makes
capital gain distribu-
tions, if any, once a year, typically in December. The fund
may pay additional
distributions and dividends at other times if necessary for
the fund to avoid a
federal tax. Capital gain distributions and dividends are
reinvested in addi-
tional Class Z shares. The fund expects distributions to be
primarily from cap-
ital gains. No sales charge is imposed on reinvested
distributions or
dividends.
TAXES Provided that a qualified plan has not borrowed to
finance its investment
in the fund, it will not be taxable on the receipt of
dividends and distribu-
tions from the fund.
Dividends and interest received by the fund from investing
in foreign securi-
ties may give rise to withholding and other taxes imposed
by foreign countries.
Tax conventions between certain countries and the United
States may reduce or
eliminate such taxes. The fund's foreign tax payments will
reduce the amount of
its dividends and distributions.
Smith Barney Mutual Funds
9
<PAGE>
SHARE PRICE
Qualified plans may buy, exchange or redeem Class Z shares
of the fund at the
net asset value next determined after receipt of your
request in good order.
The fund's net asset value is the value of its assets minus
its liabilities.
Net asset value is calculated separately for each class of
shares. The fund
calculates its net asset value every day the New York Stock
Exchange is open.
The Exchange is closed on certain holidays listed in the
SAI. This calculation
is done when regular trading closes on the Exchange
(normally 4:00 p.m., East-
ern time).
The fund generally values its fund securities based on
market prices or quota-
tions. The fund's currency conversions are done when the
London Stock Exchange
closes which is 12 noon Eastern time. When reliable market
prices or quotations
are not readily available, or when the value of a security
has been materially
affected by events occurring after a foreign exchange
closes, the fund may price
those securities at fair value. Fair value is determined
in accordance with
procedures approved by the fund's board. A fund that uses
fair value to price
securities may value those securities higher or lower than
another fund using
market quotations to price the same securities.
International markets may be open on days when U.S. markets
are closed and the
value of foreign securities owned by the fund could change
on days when you can
not buy or redeem shares.
In order to buy, redeem or exchange shares at that day's
price, you must place
your order with your Salomon Smith Barney Financial
Consultant or dealer repre-
sentative before the New York Stock Exchange closes. If the
Exchange closes
early, you must place your order prior to the actual
closing time. Otherwise,
you will receive the next business day's price.
Your qualified plan must transmit all orders to buy,
exchange or redeem shares
to the fund's agent before the agent's close of business.
Large Capitalization Growth Fund--Class Z Shares
10
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you
understand the perfor-
mance of each class since inception. Certain information
reflects financial
results for a single share. Total return represents the
rate that a shareholder
would have earned (or lost) on a fund share assuming
reinvestment of all divi-
dends and distributions. The information in the following
tables was audited by
KPMG LLP, independent accountants, whose report, along with
the fund's finan-
cial statements, are included in the annual report
(available upon request).
FOR A CLASS Z SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT THE YEAR ENDED
NOVEMBER 30:
<TABLE>
<CAPTION>
1999(/1/)(/2/)
- -----------------------------------------------------
<S> <C>
Net asset value, beginning of period $19.48
- -----------------------------------------------------
Income from operations:
Net investment income 0.02
Net realized and unrealized gain 4.85
- -----------------------------------------------------
Total income from operations 4.87
- -----------------------------------------------------
Less distributions from:
Net investment income --
Net realized gain (0.33)
- -----------------------------------------------------
Total distributions (0.33)
- -----------------------------------------------------
Net asset value, end of period $24.02
- -----------------------------------------------------
Total return++ 25.08%
- -----------------------------------------------------
Net assets, end of period (000)'s $74,486
- -----------------------------------------------------
Ratios to average net assets +:
Expenses 0.78%
Net investment income 0.11
- -----------------------------------------------------
Portfolio turnover rate 9%
- -----------------------------------------------------
</TABLE>
(/1/) For the period from January 4, 1999 (inception date)
to November 30, 1999.
(/2/) Per share amounts calculated using the monthly
average shares method.
++Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
Smith
Barney Mutual Funds
11
<PAGE>
SalomonSmithBarney
-------
- ---------------------
A
member of citigroup [LOGO]
LARGE CAPITALIZATION GROWTH FUND
AN INVESTMENT PORTFOLIO OF SMITH BARNEY INVESTMENT TRUST
SHAREHOLDER REPORTS Annual and semiannual reports to
shareholders provide addi-
tional information about the fund's investments. These
reports discuss the mar-
ket conditions and investment strategies that affected the
fund's performance.
The fund sends only one report to a household if more than
one account has the
same address. Contact your qualified plan or the transfer
agent if you do not
want this policy to apply to you.
STATEMENT OF ADDITIONAL INFORMATION The statement of
additional information
provides more detailed information about the fund and is
incorporated by refer-
ence into (is legally a part of) this prospectus.
You can make inquiries about the fund or obtain shareholder
reports or the
statement of additional information (without charge) by
contacting your quali-
fied plan, by calling the fund at 1-800-451-2010, or by
writing to the fund at
Smith Barney Mutual Funds, 388 Greenwich Street, MF2, New
York, New York 10013.
Visit our web site. Our web site is located at
WWW.SMITHBARNEY.COM
Information about the Fund (including the SAI) can be
reviewed and copied at
the Securities and Exchange Commission's (the "Commission")
Public Reference
Room in Washington, D.C. In addition, information on the
operation of the Pub-
lic Reference Room may be obtained by calling the
Commission at 1-202-942-8090.
Reports and other information about the Fund are available
on the EDGAR Data-
base on the Commission's Internet site at
HTTP://WWW.SEC.GOV. Copies of this
information may be obtained for a duplicating fee by
electronic request at the
following E-mail address: [email protected], or by writing
the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in
this prospectus, you
should not rely upon that information. Neither the fund nor
the distributor is
offering to sell shares of the fund to any person to whom
the fund may not law-
fully sell its shares.
/SM/Salomon Smith Barney is a service mark of Salomon Smith
Barney Inc.
(Investment Company Act
file no. 811-06444)
FD01306 3/00
<PAGE>
[SB] Smith Barney
[MF] Mutual Funds
P R O S P E C T U S
Mid Cap
Blend Fund
Class A, B, L and Y Shares
--------------------------------------------
March 29, 2000
The Securities and Exchange Commission has not
approved the fund's
shares as an investment or determined whether this
prospectus is
accurate or complete. Any statement to the contrary
is a crime.
<PAGE>
Mid Cap Blend Fund
Contents
<TABLE>
<S>
<C>
Investments, risks and
performance.......................................... 2
More on the fund's
investments..............................................
7
Management.................................................
................. 9
Choosing a class of shares to
buy........................................... 10
Comparing the fund's
classes................................................ 11
Sales
charges....................................................
........... 12
More about deferred sales
charges........................................... 14
Buying
shares.....................................................
.......... 15
Exchanging
shares.....................................................
...... 17
Redeeming
shares.....................................................
....... 19
Other things to know
about share
transactions...............................................
..... 21
Salomon Smith Barney Retirement
Programs.................................... 23
Dividends, distributions and
taxes.......................................... 24
Share
price......................................................
........... 25
Financial
highlights.................................................
....... 26
</TABLE>
You should know: An investment in the fund is not a bank
deposit and is not
insured or guaranteed by the FDIC or any other government
agency.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
Investment objective
The fund seeks long-term growth of capital.
Principal investment strategies
Key investments The fund invests primarily 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
(the "Index") at the time of the fund's investment. The
size of the companies
in the Index changes with market conditions and the
composition of the Index.
As of February 29, 2000, the largest market capitalization
of a company in the
Index was $51 billion and the smallest market
capitalization was $0.11 billion.
Equity securities include exchange traded and over-the-
counter common stocks,
preferred stocks, debt securities convertible into equity
securities and war-
rants and rights relating to equity securities. The fund
may also invest up to
25% of its assets in securities of foreign issuers both
directly and through
depositary receipts for those securities.
Selection process The manager focuses on medium
capitalization companies that
exhibit attractive growth characteristics. The manager
selects individual
"growth" stocks for investment in two ways: by identifying
those companies
which exhibit the most favorable growth prospects and by
identifying those com-
panies which have favorable valuations relative to their
growth characteris-
tics. This strategy is commonly known as "growth at a
reasonable price" and
offers investors style diversification within a single
mutual fund. In select-
ing individual companies for investment, the manager
considers:
.Growth characteristics, including high historic growth
rates and high relative
growth compared with companies in the same industry or
sector
.Value characteristics, including low price/earnings ratios
and other statis-
tics indicating a security is undervalued
.Increasing profits and sales
.Competitive advantages that could be more fully exploited
by a company
.Skilled management committed to long-term growth
.Potential for a long-term investment by the fund
The manager uses fundamental research to find stocks with
strong growth poten-
tial and also uses quantitative analysis to determine
whether these stocks are
relatively undervalued or overvalued compared to stocks
with similar fundamen-
tal characteristics. The manager's quantitative valuations
determine whether
and when the fund will purchase or sell the stocks it
identifies through funda-
mental research.
Mid Cap Blend Fund
2
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investment in the fund,
or the fund may not
perform as well as other investments, if:
.U.S. stock markets 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
the fund invests
.Medium capitalization stocks fall out of favor with
investors
.The manager's judgment about the attractiveness, growth
prospects, value or
potential appreciation of a particular stock proves to be
incorrect
Because the fund invests primarily in medium capitalization
companies, an
investment in the fund may be more volatile and more
susceptible to loss than
an investment in a fund which invests primarily in large
capitalization compa-
nies. Medium capitalization companies may have more limited
product lines, mar-
kets and financial resources than large capitalization
companies. They may have
shorter operating histories and more erratic businesses,
although they gener-
ally have more established businesses than small
capitalization companies. The
prices of medium capitalization company stocks tend to be
more volatile than
the prices of large capitalization company stocks.
Who may want to invest The fund may be an appropriate
investment if you:
.Are seeking to participate in the long-term growth
potential of the U.S. stock
market
.Are looking for an investment with potentially greater
return but higher risk
than a fund that invests primarily in large cap companies
.Are willing to accept the risks of the stock market
Smith Barney Mutual Funds
3
<PAGE>
Risk return bar chart
This bar chart shows the performance of the fund's Class A
common shares for
the calendar year 1999, and, in the future, will show
changes in the fund's
performance from year to year. Past performance does not
necessarily indicate
how the fund will perform in the future. This bar chart
shows the performance
of the fund's Class A shares for the past year. Class B, L
and Y shares have
different performance because of different expenses. The
performance
information in the chart does not reflect sales charges,
which would reduce
your return.
Total Return for Class A Shares
99
----
29.63%
Calendar years ended December 31
Quarterly returns:
Highest: 23.91% in 4th quarter 1999; Lowest: (5.48)% in 3rd
quarter 1999
Mid Cap Blend Fund
4
<PAGE>
Risk return table
This table compares the average annual total return of each
class for the peri-
ods shown with that of the S&P Mid Cap Index, a broad-based
unmanaged market
capitalization-weighted measure of 400 widely held common
stocks. This table
assumes the imposition of the maximum sales charge
applicable to the class, the
redemption of shares at the end of the period, and the
reinvestment of distri-
butions and dividends.
Average Annual Total Returns
Calendar Years Ended December 31, 1999
<TABLE>
<CAPTION>
Since Inception
1 year Inception Date
<S> <C> <C> <C>
Class A 23.13% 48.96% 09/01/98
Class B 23.60% 51.00% 09/01/98
Class L 26.30% 52.41% 09/01/98
Class Y 30.03% 45.58% 12/03/98
S&P Mid Cap Index 14.72% 36.15% *
</TABLE>
*Index Comparison begins on 09/30/98.
Fee table
This table sets forth the fees and expenses you will pay if
you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your
investment) Class A Class B
Class L Class Y*
<S> <C> <C>
<C> <C>
Maximum sales charge (load) imposed
(as a % of offering price) 5.00% None
1.00% None
Maximum deferred sales charge (load) on
redemptions (as a % of
the lower of net asset value at
purchase or redemption) None* 5.00%
1.00% None
</TABLE>
<TABLE>
<S> <C> <C> <C>
<C>
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund assets) Class A Class B
Class L Class Y
<S> <C> <C> <C>
<C>
Management fee 0.75% 0.75%
0.75% 0.75%
Distribution and service (12b-1) fees 0.25% 1.00%
1.00% None
Other expenses 0.16% 0.15%
0.15% 0.07%
----- ----- ---
- -- -----
Total annual fund operating expenses 1.16% 1.90%
1.90% 0.82%
===== =====
===== =====
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more
at net asset value
(without an initial sales charge) but if you redeem those
shares within 12
months of their purchase, you will pay a deferred sales
charge of 1.00%.
Smith Barney Mutual Funds
5
<PAGE>
Example
This example helps you compare the costs of investing in
the fund with the
costs of investing in other mutual funds. Your actual costs
may be higher or
lower. The example assumes:
.You invest $10,000 in the fund for the period shown
.Your investment has a 5% return each year
.You reinvest all distributions and dividends without a
sales charge
.The fund's operating expenses remain the same
Number of years you own your shares
<TABLE>
<CAPTION>
5
1 year 3 years years
10 years
<S> <C> <C> <C>
<C>
Class A (with or without redemption) $612 $850
$1,106 $1,839
Class B (redemption at end of period) $693 $897
$1,126 $2,031
Class B (no redemption) $193 $597
$1,026 $2,031
Class L (redemption at end of period) $391 $691
$1,116 $2,300
Class L (no redemption) $291 $691
$1,116 $2,300
Class Y (with or without redemption) $ 84 $262 $
455 $1,014
</TABLE>
Mid Cap Blend Fund
6
<PAGE>
More on the fund's investments
Secondary investment practices The fund may invest up to
35% of its assets in
equity securities of companies with market capitalizations
outside the market
capitalization range of companies in the Index (i.e., small
or large capital-
ization companies).
Foreign investments The fund may invest up to 25% of its
assets in foreign
securities directly or in the form of depositary receipts
representing an
interest in those securities. The fund's investments in
securities of foreign
issuers involve greater risk than investments in securities
of U.S. issuers.
Many foreign countries the fund invests in have markets
that are less liquid
and more volatile than markets in the U.S. In some foreign
countries, less
information is available about foreign issuers and markets
because of less rig-
orous accounting and regulatory standards than in the U.S.
Currency fluctua-
tions could erase investment gains or add to investment
losses. The risks of
investing in foreign securities are greater for securities
of emerging market
issuers because political or economic instability, lack of
market liquidity,
and negative government actions like currency controls or
seizure of private
businesses or property are more likely.
Short-term debt securities While the fund intends to be
substantially fully
invested in equity securities, the fund may maintain up to
10% of its assets in
money market instruments and/or cash to pay expenses and
meet redemption
requests. Generally, the value of these fixed income
obligations will go down
if interest rates go up, the credit rating of the security
is downgraded or the
issuer defaults on its obligation to pay principal or
interest.
Derivatives and hedging techniques The fund may, but need
not, use derivative
contracts, such as futures and options on securities,
securities indices or
currencies; options on these futures; forward currency
contracts; and interest
rate or currency swaps for any of the following purposes:
.To hedge against the economic impact of adverse changes in
the market value of
its securities, because of changes in stock market
prices, currency exchange
rates or interest rates.
.As a substitute for buying or selling securities
A derivative contract will obligate or entitle the fund to
deliver or receive
an asset or cash payment based on the change in value of
one or more securi-
ties, currencies or indices. Even a small investment in
derivative contracts
can have a big impact on the fund's stock market, currency
and interest rate
exposure. Therefore, using derivatives can
disproportionately
Smith Barney Mutual Funds
7
<PAGE>
increase losses and reduce opportunities for gains when
stock prices, currency
rates or interest rates are changing. The fund may not
fully benefit from or
may lose money on derivatives if changes in their value do
not correspond accu-
rately to changes in the value of the fund's holdings.
The other parties to certain derivative contracts present
the same types of
credit risk as issuers of fixed income securities.
Derivatives can also make
the fund less liquid and harder to value, especially in
declining markets.
Defensive investing The fund may depart from its principal
investment strate-
gies in response to adverse market, economic or political
conditions by taking
temporary defensive positions in all types of money market
instruments. If the
fund takes a temporary defensive position, it may be unable
to achieve its
investment goal.
Mid Cap Blend Fund
8
<PAGE>
Management
Manager The fund's investment manager is SSB Citi Fund
Management LLC (succes-
sor to SSBC Fund Management Inc.), an affiliate of Salomon
Smith Barney Inc.
The manager's address is 388 Greenwich Street, New York,
New York 10013. The
manager selects the fund's investments and oversees its
operations. The manager
and Salomon Smith Barney are subsidiaries of Citigroup Inc.
Citigroup busi-
nesses produce a broad range of financial services--asset
management, banking
and consumer finance, credit and charge cards, insurance,
investments, invest-
ment banking and trading--and use diverse channels to make
them available to
consumer and corporate customers around the world.
Lawrence Weissman, investment officer of the manager and
managing director of
Salomon Smith Barney, has been responsible for the day-to-
day management of the
fund's portfolio since the fund's inception. Mr. Weissman
has more than 15
years of securities business experience.
Management fee For its services, the manager received a fee
during the fund's
last fiscal year equal on an annual basis to 0.75% of the
fund's average daily
net assets.
Distributor The fund has entered into an agreement with
CFBDS, Inc. to distrib-
ute the fund's shares. A selling group consisting of
Salomon Smith Barney and
other broker dealers sells fund shares to the public.
Distribution plan The fund has adopted a Rule 12b-1
distribution plan for its
Class A, B and L shares. Under the plan, the fund pays
distribution and/or
service fees. These fees are an ongoing expense and, over
time, may cost you
more than other types of sales charges.
Transfer agent and shareholder servicing agent Smith Barney
Private Trust Com-
pany serves as the fund's transfer agent and shareholder
servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and
services agreement
with the transfer agent, PFPC Global Fund Services serves
as the fund's sub-
transfer agent (the "sub-transfer agent") to render certain
shareholder record
keeping and accounting services and functions.
Smith Barney Mutual Funds
9
<PAGE>
Choosing a class of shares to buy
You can choose among four classes of shares: Classes A, B,
L and Y. Each class
has different sales charges and expenses, allowing you to
choose the class that
best meets your needs. Which class is more beneficial to an
investor depends on
the amount and intended length of the investment.
.If you plan to invest regularly or in large amounts,
buying Class A shares may
help you reduce sales charges and ongoing expenses.
.For Class B shares, all of your purchase amount and, for
Class L shares, more
of your purchase amount (compared to Class A shares) will
be immediately
invested. This may help offset the higher expenses of
Class B and Class L
shares, but only if the fund performs well.
.Class L shares have a shorter deferred sales charge period
than Class B
shares. However, because Class B shares convert to Class
A shares, and
Class L shares do not, Class B shares may be more
attractive to long-term
investors.
You may buy shares from:
.A Salomon Smith Barney Financial Consultant
.An investment dealer in the selling group or a broker that
clears through Sal-
omon Smith Barney--a dealer representative
.The fund, but only if you are investing through certain
qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional
investment amounts vary
depending on the class of shares you buy and the nature of
your investment
account.
<TABLE>
<CAPTION>
Initial
Additional
Classes A, B, L
Class Y All Classes
<S> <C> <C>
<C>
General $1,000 $15
million $50
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $ 250 $15
million $50
Qualified Retirement Plans* $ 25 $15
million $25
Simple IRAs $ 1
n/a $ 1
Monthly Systematic Investment Plans $ 25
n/a $25
Quarterly Systematic Investment Plans $ 50
n/a $50
</TABLE>
* Qualified Retirement Plans are retirement plans qualified
under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code,
including 401(k)
plans
Mid Cap Blend Fund
10
<PAGE>
Comparing the fund's classes
Your Salomon Smith Barney Financial Consultant or dealer
representative can
help you decide which class meets your goals. They may
receive different com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L
Class Y
<S> <C> <C> <C>
<C>
Key features .Initial .No initial .Initial
.No initial
sales sales sales
or
charge charge charge is
deferred
.You may .Deferred lower
than sales
qualify sales Class A
charge
for reduc- charge .Deferred
.Must
tion or declines sales
invest at
waiver of over time charge
for least $15
initial .Converts only 1
million
sales to Class A year
.Lower
charge after 8 .Does not
annual
.Lower years convert
to expenses
annual .Higher Class A
than the
expenses annual .Higher
other
than Class expenses annual
classes
B and than Class expenses
Class L A than
Class
A
- -----------------------------------------------------------
- -------------
Initial sales charge Up to None 1.00%
None
5.00%;
reduced for
large pur-
chases and
waived for
certain
investors.
No charge
for pur-
chases of
$500,000 or
more
- -----------------------------------------------------------
- -------------
Deferred sales charge 1.00% on Up to 5.00% 1.00% if
None
purchases charged you redeem
of $500,000 when you within 1
or more if redeem year of
you redeem shares. The purchase
within 1 charge is
year of reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
- -----------------------------------------------------------
- -------------
Annual Distribution and 0.25% of 1.00% of 1.00% of
None
service fees average average average
daily net daily net daily net
assets assets assets
- -----------------------------------------------------------
- -------------
Exchange Privilege* Class A Class B Class L
Class Y
shares shares shares
shares
of most of most of most
of most
Smith Smith Smith
Smith
Barney Barney Barney
Barney
funds funds funds
funds
- -----------------------------------------------------------
- -------------
</TABLE>
* Ask your Salomon Smith Barney Financial Consultant or
dealer representative
or visit the web site for the Smith Barney funds available
for exchange.
Smith Barney Mutual Funds
11
<PAGE>
Sales charges
Class A shares
You buy Class A shares at the offering price, which is the
net asset value plus
a sales charge. You pay a lower sales charge as the size of
your investment
increases to certain levels called breakpoints. You do not
pay a sales charge
on the fund's distributions or dividends you reinvest in
additional Class A
shares.
<TABLE>
<CAPTION>
Sales charge as a % of
Offering Net amount
Amount of purchase Price (%) Invested (%)
<S> <C> <C>
Less than $25,000 5.00 5.26
$25,000 but less than $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 3.00 3.09
$250,000 but less than $500,000 2.00 2.04
$500,000 or more -0- -0-
</TABLE>
Investments of $500,000 or more You do not pay an initial
sales charge when you
buy $500,000 or more of Class A shares. However, if you
redeem these Class A
shares within one year of purchase, you will pay a deferred
sales charge of 1%.
Qualifying for a reduced Class A sales charge There are
several ways you can
combine multiple purchases of Class A shares of Smith
Barney funds to take
advantage of the breakpoints in the sales charge schedule.
.Accumulation privilege - lets you combine the current
value of Class A shares
owned
.by you, or
.by members of your immediate family,
and for which a sales charge was paid, with the amount of
your next purchase
of Class A shares for purposes of calculating the initial
sales charge. Cer-
tain trustees and fiduciaries may be entitled to combine
accounts in deter-
mining their sales charge.
.Letter of intent - lets you purchase Class A shares of the
fund and other
Smith Barney funds over a 13-month period and pay the
same sales charge, if
any, as if all shares had been purchased at once. You may
Mid Cap Blend Fund
12
<PAGE>
include purchases on which you paid a sales charge within
90 days before you
sign the letter.
Waivers for certain Class A investors Class A initial sales
charges are waived
for certain types of investors, including:
.Employees of members of the NASD
.Clients of newly employed Salomon Smith Barney Financial
Consultants if cer-
tain conditions are met
.Investors who redeemed Class A shares of a Smith Barney
fund in the past 60
days, if the investor's Salomon Smith Barney Financial
Consultant or dealer
representative is notified
If you want to learn about additional waivers of Class A
initial sales charges,
contact your Salomon Smith Barney Financial Consultant or
dealer representative
or consult the Statement of Additional Information ("SAI").
Class B shares
You buy Class B shares at net asset value without paying an
initial sales
charge. However, if you redeem your Class B shares within
six years of pur-
chase, you will pay a deferred sales charge. The deferred
sales charge
decreases as the number of years since your purchase
increases.
<TABLE>
<CAPTION>
Year after purchase 1st 2nd 3rd 4th 5th 6th through 8th
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 5% 4% 3% 2% 1% 0%
</TABLE>
Class B conversion After 8 years, Class B shares
automatically convert into
Class A shares. This helps you because Class A shares have
lower annual
expenses. Your Class B shares will convert to Class A
shares as follows:
<TABLE>
<CAPTION>
Shares issued:
Shares issued: Shares issued:
Upon exchange from
At initial purchase On reinvestment of
another Smith
dividends and
Barney
distributions
fund
<S> <C>
<C>
Eight years after the date of purchase In same proportion
On the date the
as the number of
shares originally
Class B shares
acquired would
converting is to
have converted
total Class B
into Class A
shares you own
shares
(excluding shares
issued as divi-
dends)
</TABLE>
Smith Barney Mutual Funds
13
<PAGE>
Class L shares
You buy Class L shares at the offering price, which is the
net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In
addition, if you
redeem your Class L shares within one year of purchase, you
will pay a deferred
sales charge of 1%. If you held Class C shares of the fund
and/or other Smith
Barney mutual funds on June 12, 1998, you will not pay an
initial sales charge
on Class L shares you buy before June 22, 2001.
Class Y shares
You buy Class Y shares at net asset value with no initial
sales charge and no
deferred sales charge when you redeem. You must meet the
$15,000,000 initial
investment requirement. You can use a letter of intent to
meet this requirement
by buying Class Y shares of the fund over a 13-month
period. To qualify, you
must initially invest $5,000,000.
More about deferred sales charges
The deferred sales charge is based on the net asset value
at the time of pur-
chase or redemption, whichever is less, and therefore you
do not pay a sales
charge on amounts representing appreciation or
depreciation.
In addition, you do not pay a deferred sales charge on:
.Shares exchanged for shares of another Smith Barney fund
.Shares representing reinvested distributions and dividends
.Shares no longer subject to the deferred sales charge
Each time you place a request to redeem shares, the fund
will first redeem any
shares in your account that are not subject to a deferred
sales charge and then
the shares in your account that have been held the longest.
If you redeemed shares of a Smith Barney fund in the past
60 days and paid a
deferred sales charge, you may buy shares of the fund at
the current net asset
value and be credited with the amount of the deferred sales
charge, if you
notify your Salomon Smith Barney Financial Consultant or
dealer representative.
Salomon Smith Barney receives deferred sales charges as
partial compensation
for its expenses in selling shares, including the payment
of compensation to
your Salomon Smith Barney Financial Consultant or dealer
representative.
Mid Cap Blend Fund
14
<PAGE>
Deferred sales charge waivers
The deferred sales charge for each share class will
generally be waived:
.On payments made through certain systematic withdrawal
plans
.On certain distributions from a retirement plan
.For involuntary redemptions of small account balances
.For 12 months following the death or disability of a
shareholder
If you want to learn more about additional waivers of
deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or
dealer representative
or consult the SAI.
Buying shares
Through a You should contact your Salomon Smith
Barney Financial Con-
Salomon Smith sultant or dealer representative to open a
brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant or If you do not provide the following
information, your order
dealer will be rejected:
representative
.Class of shares being bought
.Dollar amount or number of shares being
bought
You should pay for your shares through
your brokerage account
no later than the third business day after
you place your
order. Salomon Smith Barney or your dealer
representative may
charge an annual account maintenance fee.
- -----------------------------------------------------------
- ---------------------
Through the Qualified retirement plans and certain
other investors who
fund's are clients of a selling group member are
eligible to buy
consultant shares directly from the fund.
sub-transfer
agent
.Write the sub-transfer agent at the
following address:
Smith Barney Investment Trust Mid Cap
Blend Fund
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
Smith Barney Mutual Funds
15
<PAGE>
.Enclose a check to pay for the shares.
For initial pur-
chases, complete and send an account
application
.For more information, call the transfer
agent at 1-800-451-
2010
-------------------------------------------------------
- --------------
Through a You may authorize Salomon Smith Barney,
your dealer represen-
systematic tative or the sub--transfer agent to
transfer funds automati-
investment cally from a regular bank account, cash
held in a Salomon
plan Smith Barney brokerage account or Smith
Barney money market
fund to buy shares on a regular basis.
.Amounts transferred should be at least:
$25 monthly or $50
quarterly.
.If you do not have sufficient funds in
your account on a
transfer date, Salomon Smith Barney,
your dealer represen-
tative or the sub-transfer agent may
charge you a fee.
For more information, contact your Salomon
Smith Barney
Financial Consultant, dealer
representative or the transfer
agent or consult the SAI.
Mid Cap Blend Fund
16
<PAGE>
Exchanging shares
Smith Barney You should contact Salomon Smith Barney or
your dealer repre-
offers a sentative to exchange into other Smith
Barney mutual funds.
distinctive Be sure to read the prospectus of the
Smith Barney mutual
family of fund you are exchanging into. An exchange
is a taxable trans-
mutual funds action.
tailored to
help meet the .You may exchange shares only for shares
of the same class of
varying needs another Smith Barney mutual fund. Not
all Smith Barney
of both large funds offer all classes.
and small .Not all Smith Barney funds may be offered
in your state of
investors residence. Contact Salomon Smith Barney,
your dealer repre-
sentative or the transfer agent.
.You must meet the minimum investment
amount for each fund
(except for systematic exchanges)
.If you hold share certificates, the sub-
transfer agent must
receive the certificates endorsed for
transfer or with
signed stock powers (documents
transferring ownership of
certificates) the exchange is effective.
.The fund may suspend or terminate your
exchange privilege if
you engage in an excessive pattern of
exchanges
- -----------------------------------------------------------
- ---------------------
Waiver of Your shares will not be subject to an
initial sales charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will
continue to be mea-
sured from the date of your original
purchase. If the fund
you exchange into has a higher deferred
sales charge, you
will be subject to that charge. If you
exchange at any time
into a fund with a lower charge, the sales
charge will not be
reduced.
- -----------------------------------------------------------
- ---------------------
By telephone
If you do not have a brokerage account,
you may be eligible
to exchange shares through the transfer
agent. You must com-
plete an authorization form to authorize
telephone transfers.
If eligible, you may make telephone
exchanges on any day the
New York Stock Exchange is open. Call the
transfer agent at
1-800- 451-2010 between 9:00 a.m. and 4:00
p.m. (Eastern
time).
Smith Barney Mutual Funds
17
<PAGE>
You can make telephone exchanges only
between accounts that
have identical registrations.
- -----------------------------------------------------------
- ---------------------
By mail
If you do not have a Salomon Smith Barney
brokerage account,
contact your dealer representative or
write to the sub-trans-
fer agent at the address on the following
page.
Mid Cap Blend Fund
18
<PAGE>
Redeeming shares
Generally Contact your Salomon Smith Barney
Financial Consultant or
dealer representative to redeem shares of
the fund.
If you hold share certificates, the sub-
transfer agent must
receive the certificates endorsed for
transfer or with signed
stock powers before the redemption is
effective.
If the shares are held by a fiduciary or
corporation, other
documents may be required.
Your redemption proceeds will be sent
within three business
days after your request is received in
good order. However,
if you recently purchased your shares by
check, your redemp-
tion proceeds will not be sent to you
until your original
check clears which may take up to 15 days.
If you have a Salomon Smith Barney
brokerage account, your
redemption proceeds will be placed in your
account and not
reinvested without your specific
instruction. In other cases,
unless you direct otherwise, your
redemption proceeds will be
paid by check mailed to your address of
record.
- -----------------------------------------------------------
- ---------------------
By mail
For accounts held directly at the fund,
send written requests
to the sub-transfer agent at the following
address:
Smith Barney Investment Trust
Mid Cap Blend Fund
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
Your written request must provide the
following:
.Your account number
.The class of shares and the dollar amount
or number of
shares to be redeemed
.Signatures of each owner exactly as the
account is regis-
tered
Smith Barney Mutual Funds
19
<PAGE>
By telephone
If you do not have a brokerage account,
you may be eligible
to redeem shares (except those held in
retirement plans) in
amounts up to $10,000 per day through the
transfer agent. You
must complete an authorization form to
authorize telephone
redemptions. If eligible, you may request
redemptions by tel-
ephone on any day the New York Stock
Exchange is open. Call
the transfer agent at 1-800-451-2010
between 9:00 a.m. and
4:00 p.m. (Eastern time).
Your redemption proceeds can be sent by
check to your address
of record or by wire transfer to a bank
account designated on
your authorization form. You must submit a
new authorization
form to change the bank account designated
to receive wire
transfers and you may be asked to provide
certain other docu-
ments.
- -----------------------------------------------------------
- ---------------------
Automatic
cash You can arrange for the automatic
redemption of a portion of
withdrawal your shares on a monthly or quarterly
basis. To qualify you
plans must own shares of the fund with a value
of at least $10,000
($5,000 for retirement plan accounts) and
each automatic
redemption must be at least $50. If your
shares are subject
to a deferred sales charge, the sales
charge will be waived
if your automatic payments do not exceed
1% per month of the
value of your shares subject to a deferred
sales charge.
The following conditions apply:
.Your shares must not be represented by
certificates
.All dividends and distributions must be
reinvested
For more information, contact your Salomon
Smith Barney
Financial Consultant or dealer
representative or consult the
SAI.
Mid Cap Blend Fund
20
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must
be in good order.
This means you have provided the following information
without which your
request will not be processed:
.Name of the fund
.Account number
.Class of shares being bought, exchanged or redeemed
.Dollar amount or number of shares being bought, exchanged
or redeemed
.Signature of each owner exactly as the account is
registered
The transfer agent will try to confirm that any telephone
exchange or redemp-
tion request is genuine by recording calls, asking the
caller to provide a per-
sonal identification number for the account, sending you a
written confirmation
or requiring other confirmation procedures from time to
time.
Signature guarantees To be in good order, your redemption
request must include
a signature guarantee if you:
.Are redeeming over $10,000 of shares
.Are sending signed share certificates or stock powers to
the sub-transfer
agent
.Instruct the sub-transfer agent to mail the check to an
address different from
the one on your account
.Changed your account registration
.Want the check paid to someone other than the account
owner(s)
.Are transferring the redemption proceeds to an account
with a different regis-
tration
You can obtain a signature guarantee from most banks,
dealers, brokers, credit
unions and federal savings and loan institutions, but not
from a notary public.
The fund has the right to:
.Suspend the offering of shares
.Waive or change minimum and additional investment amounts
.Reject any purchase or exchange order
.Change, revoke or suspend the exchange privilege
.Suspend telephone transactions
Smith Barney Mutual Funds
21
<PAGE>
.Suspend or postpone redemptions of shares on any day when
trading on the New
York Stock Exchange is restricted, or as otherwise
permitted by the Securi-
ties and Exchange Commission
.Pay redemption proceeds by giving you securities. You may
pay transaction
costs to dispose of the securities.
Small account balances If your account falls below $500
because of a redemption
of fund shares, the fund may ask you to bring your account
up to $500. If your
account is still below $500 after 60 days, the fund may
close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may determine
that a pattern of
frequent exchanges is detrimental to the fund's performance
and other share-
holders. If so, the fund may limit additional purchases
and/or exchanges by the
shareholder.
Share certificates The fund does not issue share
certificates unless a written
request signed by all registered owners is made to the sub-
transfer agent. If
you hold share certificates it will take longer to exchange
or redeem shares.
Mid Cap Blend Fund
22
<PAGE>
Salomon Smith Barney Retirement Programs
You may be eligible to participate in a retirement program
sponsored by Salomon
Smith Barney or one of its affiliates. The fund offers
Class A and Class L
shares at net asset value to participating plans under the
programs. You can
meet minimum investment and exchange amounts, if any, by
combining the plan's
investments in any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and
the class of shares
you may purchase depends on the amount of your initial
investment and/or the
date your account is opened. Once a class of shares is
chosen, all additional
purchases must be of the same class.
.For plans opened on or after March 1, 2000 that are not
part of the Paychex
offering, Class A shares may be purchased regardless of
the amount invested.
.For plans opened prior to March 1, 2000 and for plans that
are part of the
Paychex offering, the class of shares you may purchase
depends on the amount
of your initial investment:
.Class A shares may be purchased by plans investing at
least $1 million.
.Class L shares may be purchased by plans investing less
than $1 million.
Class L shares are eligible to exchange into Class A
shares not later than
8 years after the plan joined the program. They are
eligible for exchange
in the following circumstances:
If the plan was opened on or after June 21, 1996 and a
total of $1 million is
invested in Smith Barney Funds Class L shares (other than
money market funds),
all Class L shares are eligible for exchange after the plan
is in the program 5
years.
If the plan was opened before June 21, 1996 and a total of
$500,000 is invested
in Smith Barney Funds, Class L shares (other than money
market funds) on Decem-
ber 31 in any year, all Class L shares are eligible for
exchange on or about
March 31 of the following year.
For more information, call your Salomon Smith Barney
Financial Consultant or
the transfer agent, or consult the SAI.
Smith Barney Mutual Funds
23
<PAGE>
Dividends, distributions and taxes
Dividends The fund generally pays dividends and makes
capital gain distribu-
tions, if any, once a year, typically in December. The fund
may pay additional
distributions and dividends at other times if necessary for
the fund to avoid a
federal tax. Capital gain distributions and dividends are
reinvested in addi-
tional fund shares of the same class you hold. The fund
expects distributions
to be primarily from capital gains. You do not pay a sales
charge on reinvested
distributions or dividends. Alternatively, you can instruct
your Salomon Smith
Barney Financial Consultant, dealer representative or the
transfer agent to
have your distributions and/or dividends paid in cash. You
can change your
choice at any time to be effective as of the next
distribution or dividend,
except that any change given to the transfer agent less
than five days before
the payment date will not be effective until the next
distribution or dividend
is paid.
Taxes In general, redeeming shares, exchanging shares and
receiving distribu-
tions (whether in cash or additional shares) are all
taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually capital gain
or
loss; long-term only
if
shares owned more
than
one year
Long-term capital gain distributions Long-term capital
gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
</TABLE>
Long-term capital gain distributions are taxable to you as
long-term capital
gain regardless of how long you have owned your shares. You
may want to avoid
buying shares when the fund is about to declare a long-term
capital gain dis-
tribution or a dividend, because it will be taxable to you
even though it may
actually be a return of a portion of your investment.
After the end of each year, the fund will provide you with
information about
the distributions and dividends you received and any
redemptions of shares dur-
ing the previous year. If you do not provide the fund with
your correct tax-
payer identification number and any required
certifications, you may be subject
to back-up withholding of 31% of your distributions,
dividends, and redemption
proceeds. Because each shareholder's circumstances are
different and special
tax rules may apply, you should consult your tax adviser
about your investment
in the fund.
Mid Cap Blend Fund
24
<PAGE>
Share price
You may buy, exchange or redeem shares at their net asset
value, plus any
applicable sales charge, next determined after receipt of
your request in good
order. The fund's net asset value is the value of its
assets minus its liabili-
ties. Net asset value is calculated separately for each
class of shares. The
fund calculates its net asset value every day the New York
Stock Exchange is
open. The Exchange is closed on certain holidays listed in
the SAI. This calcu-
lation is done when regular trading closes on the Exchange
(normally 4:00 p.m.,
Eastern time).
The fund generally values its fund securities based on
market prices or quota-
tions. The fund's currency conversions are done when the
London stock exchange
closes, which is 12 noon Eastern time. When reliable market
prices or quota-
tions are not readily available, or when the value of a
security has been mate-
rially affected by events occurring after a foreign
exchange closes, the fund
may price those securities at fair value. Fair value is
determined in accor-
dance with procedures approved by the fund's board. A fund
that uses fair value
to price securities may value those securities higher or
lower than another
fund using market quotations to price the same securities.
International markets may be open on days when U.S. markets
are closed and the
value of foreign securities owned by the fund could change
on days when you
cannot buy or redeem shares.
In order to buy, redeem or exchange shares at that day's
price, you must place
your order with your Salomon Smith Barney Financial
Consultant or dealer repre-
sentative before the New York Stock Exchange closes. If the
Exchange closes
early, you must place your order prior to the actual
closing time. Otherwise,
you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must
transmit all orders
to buy, exchange or redeem shares to the fund's agent
before the agent's close
of business.
Smith Barney Mutual Funds
25
<PAGE>
Financial highlights
The financial highlights tables are intended to help you
understand the perfor-
mance of each class since inception. Certain information
reflects financial
results for a single share. Total return represents the
rate that a shareholder
would have earned (or lost) on a fund share assuming
reinvestment of all divi-
dends and distributions. The information in the following
tables was audited by
KPMG LLP, independent accountants, whose report, along with
the fund's finan-
cial statements, is included in the annual report
(available upon request).
For a Class A share of capital stock outstanding
throughout each year
(except where noted) ended November 30:
<TABLE>
<CAPTION>
1999(/1/) 1998(/2/)
- -----------------------------------------------------------
- --
<S> <C> <C>
Net asset value, beginning of period $ 13.63 $ 11.40
- -----------------------------------------------------------
- --
Income from operations:
Net investment income 0.04 0.02
Net realized and unrealized gain 4.63 2.21
- -----------------------------------------------------------
- --
Total income from operations 4.67 2.23
- -----------------------------------------------------------
- --
Less distributions from:
Net investment income (0.01) --
Net realized gains (loss) (0.55) --
- -----------------------------------------------------------
- --
Total distributions (0.56) --
- -----------------------------------------------------------
- --
Net asset value, end of period $ 17.74 $ 13.63
- -----------------------------------------------------------
- --
Total return 34.36%
19.56%++
- -----------------------------------------------------------
- --
Net assets, end of period (000)'s $130,534 $36,760
- -----------------------------------------------------------
- --
Ratios to average net assets:
Expenses 1.16%
1.27%+
Net investment income (loss) (0.21) 0.78+
- -----------------------------------------------------------
- --
Portfolio turnover rate 61% 15%
- -----------------------------------------------------------
- --
</TABLE>
(/1/)Per share amounts have been calculated using the
monthly average shares
method.
(/2/)For the period from September 1, 1998 (inception date)
to November 30,
1998.
++Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
Mid Cap Blend Fund
26
<PAGE>
For a Class B share of capital stock outstanding
throughout each year
(except where noted) ended November 30:
<TABLE>
<CAPTION>
1999(/1/) 1998(/2/)
- -----------------------------------------------------------
- --
<S> <C> <C>
Net asset value, beginning of period $ 13.60 $ 11.40
- -----------------------------------------------------------
- --
Income (loss) from operations:
Net investment income (loss) (0.09) 0.00*
Net realized and unrealized gain 4.62 2.20
- -----------------------------------------------------------
- --
Total income from operations 4.53 2.20
- -----------------------------------------------------------
- --
Less distributions from:
Net realized gains (loss) (0.55) --
- -----------------------------------------------------------
- --
Total distributions (0.55) --
- -----------------------------------------------------------
- --
Net asset value, end of period $ 17.58 $ 13.60
- -----------------------------------------------------------
- --
Total return 33.43%
19.30%++
- -----------------------------------------------------------
- --
Net assets, end of period (000)'s $245,317 $69,153
- -----------------------------------------------------------
- --
Ratios to average net assets:
Expenses 1.90%
2.01%+
Net investment income (loss) (0.54) 0.02+
- -----------------------------------------------------------
- --
Portfolio turnover rate 61% 15%
- -----------------------------------------------------------
- --
</TABLE>
(/1/) Per share amounts have been calculated using the
monthly average shares
method.
(/2/) For the period from September 1, 1998 (inception
date) to November 30,
1998.
* Represents less than $0.01.
++Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
Smith Barney Mutual Funds
27
<PAGE>
For a Class L share of capital stock outstanding
throughout each year
(except where noted) ended November 30:
<TABLE>
<CAPTION>
1999(/1/) 1998(/2/)
- -----------------------------------------------------------
- --
<S> <C> <C>
Net asset value, beginning of period $ 13.60 $ 11.40
- -----------------------------------------------------------
- --
Income (loss) from operations:
Net investment income (loss) (0.09) 0.00*
Net realized and unrealized gain 4.61 2.20
- -----------------------------------------------------------
- --
Total income from operations 4.52 2.20
- -----------------------------------------------------------
- --
Less distributions from:
Net realized gains (loss) (0.55) --
- -----------------------------------------------------------
- --
Total distributions (0.55) --
- -----------------------------------------------------------
- --
Net assets value, end of period $ 17.57 $ 13.60
- -----------------------------------------------------------
- --
Total return 33.35%
19.30%++
- -----------------------------------------------------------
- --
Net assets, end of period (000)'s $167,671 $45,045
- -----------------------------------------------------------
- --
Ratios to average net assets:
Expenses 1.90%
2.01%+
Net investment income (loss) (0.54) 0.03+
- -----------------------------------------------------------
- --
Portfolio turnover rate 61% 15%
- -----------------------------------------------------------
- --
</TABLE>
(/1/) Per share amounts have been calculated using the
monthly average shares
method.
(/2/) For the period from September 1, 1998 (inception
date) to November 30,
1998.
* Represents less than $0.01.
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
Mid Cap Blend Fund
28
<PAGE>
For a Class Y share of capital stock outstanding
throughout each year
(except where noted) ended November 30:
<TABLE>
<CAPTION>
Class Y Shares 1999(/1/)(/2/)
- -----------------------------------------------------
<S> <C>
Net asset value, beginning of period $ 13.65
- -----------------------------------------------------
Income from operations:
Net investment income 0.08
Net realized and unrealized gain 4.61
- -----------------------------------------------------
Total income from operations 4.69
- -----------------------------------------------------
Less distributions from:
Net investment income (loss) (0.01)
Net realized gains (loss) (0.55)
- -----------------------------------------------------
Total Distributions (0.56)
- -----------------------------------------------------
Net assets value, end of period $ 17.78
- -----------------------------------------------------
Total return++ 34.49%
- -----------------------------------------------------
Net assets, end of period (000)'s $112,075
- -----------------------------------------------------
Ratios to average net assets+:
Expenses 0.82%
Net investment income 0.50
- -----------------------------------------------------
Portfolio turnover rate 61%
- -----------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the
monthly average shares
method.
(/2/) For the period from December 3, 1998 (inception date)
to November 30,
1999.
++Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
Smith Barney Mutual Funds
29
<PAGE>
SalomonSmithBarney
-------
- ---------------------
A
member of citigroup [LOGO]
Mid Cap Blend Fund
An investment portfolio of Smith Barney Investment Trust
Shareholder reports Annual and semiannual reports to
shareholders provide addi-
tional information about the fund's investments. These
reports discuss the mar-
ket conditions and investment strategies that affected the
fund's performance.
The fund sends only one report to a household if more than
one account has the
same address. Contact your Salomon Smith Barney Financial
Consultant, dealer
representative or the transfer agent if you do not want
this policy to apply to
you.
Statement of additional information The statement of
additional information
provides more detailed information about the fund and is
incorporated by refer-
ence into (is legally a part of) this prospectus.
You can make inquiries about the fund or obtain shareholder
reports or the
statement of additional information (without charge) by
contacting your Salomon
Smith Barney Financial Consultant or dealer representative,
by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith
Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at
www.smithbarney.com
Information about the Fund (including the SAI) can be
reviewed and copied at
the Securities and Exchange Commission's (the "Commission")
Public Reference
Room in Washington, D.C. In addition, information on the
operation of the Pub-
lic Reference Room may be obtained by calling the
Commission at 1-202-942-8090.
Reports and other information about the Fund are available
on the EDGAR Data-
base on the Commission's Internet site at
http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by
electronic request at the
following E-mail address: [email protected], or by writing
the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in
this prospectus, you
should not rely upon that information. Neither the fund nor
the distributor is
offering to sell shares of the fund to any person to whom
the fund may not law-
fully sell its shares.
/SM/Salomon Smith Barney is a service mark of Salomon Smith
Barney Inc.
(Investment Company Act file no. 811-06444)
FD01499 3/00
March 29, 2000
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY INVESTMENT TRUST
Smith Barney Intermediate Maturity California Municipals
Fund
Smith Barney Intermediate Maturity New York Municipals Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
This Statement of Additional Information ("SAI") is meant
to be read in conjunction with the prospectuses of the
Smith Barney Intermediate Maturity California Municipals
Fund (the "California Fund") and the Smith Barney
Intermediate Maturity New York Municipals Fund (the "New
York Fund") dated March 29, 2000, as amended or
supplemented from time to time, and is incorporated by
reference in it entirety into the Prospectuses. Additional
information about each fund's investments is available in
each fund's annual and semi-annual reports to shareholders
which are incorporated herein by reference. The
prospectuses and copies of the reports may be obtained free
of charge by contacting a Salomon Smith Barney Financial
Consultant, or by writing or calling Salomon Smith Barney
Inc. ("Salomon Smith Barney") at the address or telephone
number above. The funds are separate investment series of
Smith Barney Investment Trust (the "trust").
TABLE OF CONTENTS
Investment Objective and Management and Policies 2
Risk Factors and Special Considerations Relating to
California
and New York Municipal Securities 12
Trustees and Executive Officers of the Fund 27
Investment Restrictions 30
Investment Management and Other Services 32
Portfolio Transactions 37
Portfolio Turnover 37
Purchase of Shares 38
Redemption of Shares 43
Valuation of Shares 45
Exchange Privilege 46
Performance Data 47
Dividends, Distributions and Taxes 51
Additional Information 56
Financial Statements 58
Appendix A ................................................ 59
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES FOR THE FUNDS
The prospectuses discuss the investment objective of each
fund and the principal policies employed to achieve those
objectives. Supplemental information is set out below
concerning the types of securities and other instruments in
which the funds may invest, the investment policies and
strategies that the funds may utilize and certain risks
attendant to those investments, policies and strategies.
SSB Citi Fund Management LLC (successor to SSBC Fund
Management Inc.) ("SSB Citi" or the "manager") serves as
investment adviser to each fund.
California and New York Fund
Under normal market conditions, each of the California Fund
and the New York Fund attempts to invest 100% of its assets
in a portfolio of investment grade debt obligations issued
by or on behalf of the State of California and the State of
New York, respectively, and other states, territories and
possessions of the United States, the District of Columbia
and their respective authorities, agencies,
instrumentalities and political subdivisions ("Municipal
Obligations"). For purposes of this SAI, debt obligations
issued by the State of California and the State of New
York, respectively, and its political subdivisions,
agencies and public authorities (together with certain
other governmental issuers such as the Commonwealth of
Puerto Rico), the interest from which debt obligations is,
in the opinion of bond counsel to the issuer, excluded from
gross income for Federal income tax purposes and exempt
from California and New York State personal income tax,
respectively, are defined as "California Exempt
Obligations." and "New York Exempt Obligations"
Collectively, California Exempt Obligations and New York
Exempt Obligation (defined below) are referred to generally
in this SAI as "Exempt Obligations." The California fund
will operate subject to a fundamental investment policy
providing that, under normal market conditions, the
California Fund will invest at least 80% of its net assets
in California Exempt Obligations rated investment grade.
Up to 20% of the fund's total assets may be invested in
unrated securities that are deemed by the manager to be of
a quality comparable to investment grade. The fund will not
invest in California Exempt Obligations that are rated
lower than investment grade at the time of purchase. The
New York Fund will operate subject to a fundamental
investment policy providing that, under normal market
conditions, the fund will invest at least 80% of its net
assets in New York Exempt Obligations. Up to 20% of the
fund's total assets may be invested in unrated securities
that are deemed by the manager to be of a quality
comparable to investment grade. The fund will not invest
in New York Exempt Obligations that are rated lower than
Baa by Moody's, BBB by S&P or BBB by Fitch, at the time of
purchase.
Securities Rating Criteria. The ratings of Moody's, S&P,
Fitch and other nationally recognized statistical rating
organizations ("NRSRO") represent their opinions as to the
quality of the Exempt Obligations that they undertake to
rate; the ratings are relative and subjective and are not
absolute standards of quality. The manager's judgment as
to credit quality of an Exempt Obligation, thus, may differ
from that suggested by the ratings published by a rating
service. See Appendix for a description of such
organization's ratings. The policies of the funds as to
ratings of portfolio investments will apply only at the
time of the purchase of a security, and neither fund will
be required to dispose of a security in the event Moody's,
S&P, Fitch or any NRSRO downgrades its assessment of the
credit characteristics of the security's issuer. In
addition, to the extent that ratings change as a result of
changes in rating organizations or their rating systems or
as a result of a corporate restructuring of Moody's, S&P,
Fitch or any NRSRO the manager will attempt to use
comparable ratings as standards for each fund's
investments.
Exempt Obligations rated no lower than Baa, MIG 3 or
Prime-1 by Moody's Investors Service, Inc. ("Moody's"),
BBB, SP-2 or A-1 by Standard & Poor's Ratings Group
("S&P"), BBB or F-1 by Fitch IBCA, Inc. ("Fitch") or have
the equivalent rating of any NRSRO are considered
investment grade securities. Although Exempt Obligations
rated Baa by Moody's, BBB by S&P or BBB by Fitch are
considered to be investment grade, they may be viewed as
being subject to greater risks than other investment grade
securities. Although Exempt Obligations rated Baa by
Moody's, BBB by S&P or BBB by Fitch are considered to be
investment grade, they may be viewed as being subject to
greater risks than other investment grade securities.
Exempt Obligations rated Baa by Moody's, for example, are
considered medium grade obligations that lack outstanding
investment characteristics and have speculative
characteristics as well. Exempt Obligations rated BBB by
S&P are regarded as having an adequate capacity to pay
principal and interest. Exempt Obligations rated BBB by
Fitch are deemed to be subject to a higher likelihood that
their rating will fall below investment grade than higher
rated bonds.
Maturity of Obligations Held By The Funds. The manager
believes that each fund may offer an attractive investment
opportunity for investors seeking a higher effective tax
yield than a tax-exempt money market fund or a tax-exempt
short-term bond fund and less fluctuation in net asset
value than a longer term tax-exempt bond fund. Each fund
normally invests in intermediate maturity securities; the
weighted average maturity of each fund's portfolio will
normally be not less than three nor more than 10 years.
The maximum remaining maturity of the securities in which
both the California Fund and New York Fund normally invest
will be no greater than 20 years.
Exempt Obligations. Exempt Obligations are classified as
general obligation bonds, revenue bonds and notes. General
obligation bonds are secured by the issuer's pledge of its
full faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable from the
revenue derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a
special excise or other specific revenue source, but not
from the general taxing power. Notes are short-term
obligations of issuing municipalities or agencies and are
sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues. Exempt Obligations bear fixed,
floating and variable rates of interest, and variations
exist in the security of Exempt Obligations, both within a
particular classification and between classifications.
The yields on, and values of, Exempt Obligations depend on
a variety of factors, including general economic and
monetary conditions, conditions in the Exempt Obligation
markets, size of a particular offering, maturity of the
obligation and rating of the issue. Consequently, Exempt
Obligations with the same maturity, coupon and rating may
have different yields or values, whereas obligations of the
same maturity and coupon with different ratings may have
the same yield or value.
Issuers of Exempt Obligations may be subject to the
provisions of bankruptcy, insolvency and other laws, such
as the Federal Bankruptcy Reform Act of 1978, affecting the
rights and remedies of creditors. In addition, the
obligations of those issuers may become subject to laws
enacted in the future by Congress, state legislatures or
referenda extending the time for payment of principal
and/or interest, or imposing other constraints upon
enforcement of the obligations or upon the ability of
municipalities to levy taxes. The possibility also exists
that, as a result of litigation or other conditions, the
power or ability of any issuer to pay, when due, the
principal of, and interest on, its obligations may be
materially affected.
Private Activity Bonds. Each fund may invest without limit
in Exempt Obligations that are "private activity bonds," as
defined in the Internal Revenue Code of 1986, as amended
(the "Code"), which are in most cases revenue bonds.
Private activity bonds generally do not carry the pledge of
the credit of the issuing municipality, but are guaranteed
by the corporate entity on whose behalf they are issued.
Interest income on certain types of private activity bonds
issued after August 7, 1986 to finance non-governmental
activities is a specific tax preference item for purposes
of the Federal individual and corporate alternative minimum
taxes. Individual and corporate shareholders may be
subject to a federal alternative minimum tax to the extent
the fund's dividends are derived from interest on these
bonds. Dividends derived from interest income on Exempt
Obligations are a "current earnings" adjustment item for
purposes of the Federal corporate alternative minimum tax.
See "Taxes." Private activity bonds held by a fund will be
included in the term Exempt Obligations for purposes of
determining compliance with the fund's policy of investing
at least 80% of its total assets in Exempt Obligations.
Related Instruments. The fund may invest without limit in
Exempt Obligations that are repayable out of revenues
generated from economically related projects or facilities
or debt obligations whose issuers are located in the same
state. Sizable investments in these obligations could
involve an increased risk to the fund should any of the
related projects or facilities experience financial
difficulties.
U.S. Government Securities. Each fund may invest in debt
obligations of varying maturities issued or guaranteed by
the United States government, its agencies or
instrumentalities ("U.S. Government Securities"). Direct
obligations of the U.S. Treasury include a variety of
securities that differ in their interest rates, maturities
and dates of issuance. U.S. Government Securities also
include securities issued or guaranteed by the Federal
Housing Administration, Farmers Home Loan Administration,
Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association
("GNMA"), General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan
Banks, Federal Home Loan Mortgage Corporation ("FHLMC"),
Federal Intermediate Credit Banks, Federal Land Banks,
Federal National Mortgage Association ("FNMA"), Maritime
Administration, Tennessee Valley Authority, District of
Columbia Armory Board and Student Loan Marketing
Association. A fund may also invest in instruments that
are supported by the right of the issuer to borrow from the
U.S. Treasury and instruments that are supported by the
credit of the instrumentality. Because the U.S. government
is not obligated by law to provide support to an
instrumentality it sponsors, a fund will invest in
obligations issued by such an instrumentality only if the
manager determines that the credit risk with respect to the
instrumentality does not make its securities unsuitable for
investment by the fund.
Municipal Obligations. Each fund invests principally in
Municipal Obligations. Municipal Obligations are debt
obligations issued to obtain funds for various public
purposes, including construction of a wide range of public
facilities, refunding of outstanding obligations, payment
of general operating expenses and extensions of loans to
public institutions and facilities. Private activity bonds
issued by or on behalf of public authorities to finance
privately operated facilities are considered to be
Municipal Obligations if the interest paid on them
qualifies as excluded from gross income (but not
necessarily from alternative minimum taxable income) for
Federal income tax purposes in the opinion of bond counsel
to the issuer. Municipal Obligations may be issued to
finance life care facilities, which are an alternative form
of long-term housing for the elderly that offer residents
the independence of a condominium life-style and, if
needed, the comprehensive care of nursing home services.
Bonds to finance these facilities have been issued by
various state industrial development authorities. Because
the bonds are secured only by the revenues of each facility
and not by state or local government tax payments, they are
subject to a wide variety of risks, including a drop in
occupancy levels, the difficulty of maintaining adequate
financial reserves to secure estimated actuarial
liabilities, the possibility of regulatory cost
restrictions applied to health care delivery and
competition from alternative health care or conventional
housing facilities.
Municipal Leases. Each fund may invest without limit in
"municipal leases." Municipal leases may take the form of
a lease or an installment purchase contract issued by state
or local government authorities to obtain funds to acquire
a wide variety of equipment and facilities such as fire and
sanitation vehicles, computer equipment and other capital
assets. Interest payments on qualifying municipal leases
are exempt from Federal income taxes and state income taxes
within the state of issuance. Although lease obligations
do not constitute general obligations of the municipality
for which the municipality's taxing power is pledged, a
lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make the payments
due under the lease obligation. However, certain lease
obligations contain "non-appropriation" clauses which
provide that the municipality has no obligation to make
lease or installment purchase payments in future years
unless money is appropriated for such purpose on a yearly
basis. In addition to the "non-appropriation" risk, these
securities represent a relatively new type of financing
that has not yet developed the depth of marketability
associated with more conventional bonds. Although "non-
appropriation" lease obligations are often secured by the
underlying property, disposition of the property in the
event of foreclosure might prove difficult. Each fund may
invest in municipal leases without non-appropriation
clauses only when the municipality is required to continue
the lease under all circumstances except bankruptcy. There
is no limitation on the percentage of a fund's assets that
may be invested in municipal lease obligations. In
evaluating municipal lease obligations, the manager will
consider such factors as it deems appropriate, which my
include: (a) whether the lease can be canceled; (b) the
ability of the lease obligee to direct the sale of the
underlying assets; (c) the general creditworthiness of the
lease obligor; (d) the likelihood that the municipality
will discontinue appropriating funding for the leased
property in the event such property is no longer considered
essential by the municipality; (e) the legal recourse of
the lease obligee in the event of such a failure to
appropriate funding; (f) whether the security is backed by
a credit enhancement such as insurance; and (g) any
limitations which are imposed on the lease obligor's
ability to utilize substitute property or services other
than those covered by the lease obligation.
Municipal leases that a fund may acquire will be both rated
and unrated. Rated leases include those rated investment
grade at the time of investment or those issued by issuers
whose senior debt is rated investment grade at the time of
investment. Each fund may acquire unrated issues that the
manager deems to be comparable in quality to rated issues
in which the fund is authorized to invest. A determination
that an unrated lease obligation is comparable in quality
to a rated lease obligation will be subject to oversight
and approval by the trust's board of trustees.
Municipal leases held by a fund will be considered illiquid
securities unless the trust's board of trustees determines
on an ongoing basis that the leases are readily marketable.
An unrated municipal lease with a non-appropriation risk
that is backed by an irrevocable bank letter of credit or
an insurance policy issued by a bank or insurer deemed by
the manager to be of high quality and minimal credit risk,
will not be deemed to be illiquid solely because the
underlying municipal lease is unrated, if the manager
determines that the lease is readily marketable because it
is backed by the letter of credit or insurance policy.
Zero Coupon Securities. Each fund may invest up to 10% of
its assets in zero coupon Exempt Obligations. Zero coupon
Exempt Obligations are generally divided into two
categories: pure zero obligations, which are those that pay
no interest for their entire life and zero/fixed
obligations, which pay no interest for some initial period
and thereafter pay interest currently. In the case of a
pure zero obligation, the failure to pay interest currently
may result from the obligation's having no stated interest
rate, in which case the obligation pays only principal at
maturity and is issued at a discount from its stated
principal amount. A pure zero obligation may, in the
alternative, carry a stated interest rate, but provide that
no interest is payable until maturity. The value to the
investor of a zero coupon Exempt Obligation consists of the
economic accretion either of the difference between the
purchase price and the nominal principal amount (if no
interest is stated to accrue) or of accrued, unpaid
interest during the Exempt Obligation's life or payment
deferral period.
Custodial Receipts. Each fund may acquire custodial
receipts or certificates under-written by securities
dealers or banks that evidence ownership of future interest
payments, principal payments, or both, on certain Exempt
Obligations. The underwriter of these certificates or
receipts typically purchases Exempt Obligations and
deposits the obligations in an irrevocable trust or
custodial account with a custodian bank, which then issues
receipts or certificates evidencing ownership of the
periodic unmatured coupon payments and the final principal
payment on the obligations. Custodial receipts evidencing
specific coupon or principal payments have the same general
attributes as zero coupon Exempt Obligations described
above. Although under the terms of a custodial receipt a
fund would typically be authorized to assert its rights
directly against the issuer of the underlying obligations,
the fund could be required to assert through the custodian
bank those rights as may exist against the underlying
issuer. Thus, if the underlying issuer fails to pay
principal and/or interest when due, the fund may be subject
to delays, expenses and risks that are greater than those
that would have been involved if the fund had purchased a
direct obligation of the issuer. In addition, if the trust
or custodial account in which the underlying security has
been deposited is determined to be an association taxable
as a corporation, instead of a non-taxable entity, the
yield on the underlying security would be reduced in
recognition of any taxes paid.
Exempt Obligation Components. Each fund may invest in
Exempt Obligations, the interest rate on which has been
divided by the issuer into two different and variable
components, which together result in a fixed interest rate.
Typically, the first of the components (the "Auction
Component") pays an interest rate that is reset
periodically through an auction process; whereas the second
of the components (the "Residual Component") pays a
residual interest rate based on the difference between the
total interest paid by the issuer on the Exempt Obligation
and the auction rate paid on the Auction Component. Each
fund may purchase both Auction and Residual Components.
Because the interest rate paid to holders of Residual
Components is generally determined by subtracting from a
fixed amount the interest rate paid to the holders of
Auction Components, the interest rate paid to Residual
Component holders will decrease as the Auction Component's
rate increases and increase as the Auction Component's rate
decreases. Moreover, the magnitude of the increases and
decreases in market value of Residual Components may be
larger than comparable changes in the market value of an
equal principal amount of a fixed rate Exempt Obligation
having similar credit quality, redemption provisions and
maturity.
Floating and Variable Rate Instruments. Each fund may
purchase floating and variable rate demand notes and bonds,
which are Exempt Obligations normally having a stated
maturity in excess of one year, but which permit their
holder to demand payment of principal at any time, or at
specified intervals. The maturity of a floating or
variable rate demand note or bond will be deemed shortened
by virtue of a demand feature.
The issuer of floating and variable rate demand obligations
normally has a corresponding right, after a given period,
to prepay at its discretion the outstanding principal
amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of these
obligations. The interest rate on a floating rate demand
obligation is based on a known lending rate, such as a
bank's prime rate, and is adjusted automatically each time
that rate is adjusted. The interest rate on a variable rate
demand obligation is adjusted automatically at specified
intervals. Frequently, floating and variable rate
obligations are secured by letters of credit or other
credit support arrangements provided by banks. Use of
letters of credit or other credit support arrangements will
not adversely affect the tax-exempt status of these
obligations. Because they are direct lending arrangements
between the lender and borrower, floating and variable rate
obligations generally will not be traded. In addition,
generally no secondary market exists for these obligations,
although their holders may demand payment at face value.
For these reasons, when floating and variable rate
obligations held by a fund are not secured by letters of
credit or other credit support arrangements, the fund's
rights to demand payment is dependent on the ability of the
borrower to pay principal and interest on demand. The
manager, on behalf of the fund, will consider on an ongoing
basis the creditworthiness of the issuers of floating and
variable rate demand obligations held by the fund.
Participation Interests. Each fund may purchase from
financial institutions tax-exempt participation interests
in Exempt Obligations. A participation interest gives the
fund an undivided interest in the Exempt Obligation in the
proportion that the fund's participation interest bears to
the total amount of the Exempt Obligation. These
instruments may have floating or variable rates of
interest. If the participation interest is unrated, it
will be backed by an irrevocable letter of credit or
guarantee of a bank that the trust's board of trustees has
determined meets certain quality standards, or the payment
obligation otherwise will be collateralized by obligations
of the United States government or its agencies and
instrumentalities ("U.S. government securities"). The fund
will have the right, with respect to certain participation
interests, to demand payment, on a specified number of
days' notice, for all or any part of the fund's interest in
the Exempt Obligation, plus accrued interest. Each fund
intends to exercise its right with respect to these
instruments to demand payment only upon a default under the
terms of the Exempt Obligation or to maintain or improve
the quality of its investment portfolio.
Taxable Investments. Under normal conditions, each fund
may hold up to 20% of its total assets in cash or money
market instruments, including taxable money market
instruments (collectively, "Taxable Investments"). In
addition, the manager believes that if market conditions
warrant, a fund may take a temporary defensive posture and
invest without limitation in short-term Exempt Obligations
and Taxable Investments. To the extent, a fund holds
Taxable Investments and, under certain market conditions,
certain floating and variable rate demand obligations or
Auction Components, the fund may not achieve its investment
objective.
Money market instruments in which the fund may invest
include: U.S. government securities; tax-exempt notes of
municipal issuers rated, at the time of purchase, no lower
than MIG 1 by Moody's, SP-1 by S&P of F-1 by Fitch, have
the equivalent rating by any NRSRO or, if not rated, by
issuers having outstanding, unsecured debt then rated
within the three highest rating categories; bank
obligations (including certificates of deposit, time
deposits and bankers acceptances of domestic banks,
domestic savings and loan associations and similar
institutions); commercial paper rated no lower than P-1 by
Moody's, A-1 by S&P of F-1 by Fitch or the equivalent from
any NRSRO or, if unrated of an issuer having an
outstanding, unsecured debt issue then rated within the
three highest rating categories; and repurchase agreements.
At no time will the funds' investments in bank obligations,
including time deposits, exceed 25% of the value of each
fund's assets.
U.S. government securities in which the funds may invest
include direct obligations of the United States and
obligations issued by U.S. government agencies and
instrumentalities. Included among direct obligations of the
United States are Treasury Bills, Treasury Notes and
Treasury Bonds, which differ principally in terms of their
maturities. Included among the securities issued by U.S.
government agencies and instrumentalities are: securities
that are supported by the full faith and credit of the
United States (such as Government National Mortgager
Association certificates); securities that are supported by
the right of the issuer to borrow from the United States
Treasury (such as securities of Federal Home Loan Banks);
and securities that are supported by the credit of the
instrumentality (such as Federal National Mortgage
Association and Federal Home Loan Mortgage Corporation
bonds).
Investment Techniques
The fund may employ, among others, the investment
techniques described below, which may give rise to taxable
income:
Financial Futures and Options Transactions. To hedge
against a decline in the value of Municipal Bonds it owns
or an increase in the price of Municipal Bonds it proposes
to purchase, each fund may enter into financial futures
contracts and invest in options on financial futures
contracts that are traded on a domestic exchange or board
of trade. The futures contracts or options on futures
contracts that may be entered into by the fund will be
restricted to those that are either based on an index of
Municipal Bonds or relate to debt securities the prices of
which are anticipated by the manager to correlate with the
prices of the Municipal Bonds owned or to be purchased by a
fund.
In entering into a financial futures contract, a fund will
be required to deposit with the broker through which it
undertakes the transaction an amount of cash or cash
equivalents equal to approximately 5% of the contract
amount. This amount, which is known as "initial margin,"
is subject to change by the exchange or board of trade on
which the contract is traded, and members of the exchange
or board of trade may charge a higher amount. Initial
margin is in the nature of a performance bond or good
faith deposit on the contract that is returned to the fund
upon termination of the futures contract, assuming all
contractual obligations have been satisfied. In accordance
with a process known as "marking-to market," subsequent
payments, known as "variation margin," to and from the
broker will be made daily as the price of the index or
securities underlying the futures contract fluctuates,
making the long and short positions in the futures contract
more or less valuable. At any time prior to the expiration
of a futures contract, the fund may elect to close the
position by taking an opposite position, which will operate
to terminate the fund's existing position in the contract.
A financial futures contract provides for the future sale
by one party and the purchase by the other party of a
certain amount of a specified property at a specified
price, date, time and place. Unlike the direct investment
in a futures contract, an option on a financial futures
contract gives the purchaser the right, in return for the
premium paid, to assume a position in the financial futures
contract at a specified exercise price at the any time
prior to the expiration date of the option. Upon exercise
of an option, the delivery of the futures position by the
writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the
writer's futures margin account, which represents the
amount by which the market price of the futures contract
exceeds, in the case of a call, or is less than, in the
case of a put, the exercise price of the option on the
futures contract. The potential loss related to the
purchase of an option on financial futures contracts is
limited to the premium paid for the option (plus
transaction costs). The value of the option may change
daily and that change would be reflected in the net asset
value of the fund.
Regulations of the Commodity Futures Trading Commission
applicable to each fund require that a fund's transactions
in financial futures contracts and options on financial
futures contracts be engaged in for bona fide hedging
purposes, or if a fund enters into futures contracts for
speculative purposes, that the aggregate initial margin
deposits and premiums paid by the fund will not exceed 5%
of the market value of its assets. In addition, the fund
will, with respect to its purchases of financial futures
contracts, establish a segregated account on the fund's
books consisting of cash or cash equivalents in an amount
equal to the total market value of the futures contracts,
less the amount of initial margin on deposit for the
contracts. Each fund's ability to trade in financial
futures contracts and options on financial futures
contracts may be limited to some extent by the requirements
of the Code, applicable to a regulated investment company
that are described below under "Taxes."
Although each fund intends to enter into financial futures
contracts and options on financial futures contracts that
are traded on a domestic exchange or board of trade only if
an active market will exist for them at any particular
time. If closing a futures position in anticipation of
adverse price movements is not possible, the fund would be
required to make daily cash payments of variation margin.
In those circumstances, an increase in the value of the
portion of the fund's investments being hedged, if any, may
offset partially or completely losses on the futures
contract. No assurance can be given, however, that the
price of the securities being hedged will correlate with
the price movements in a futures contract and, thus,
provide an offset to losses on the futures contract or
option on the futures contract. In addition, in light of
the risk of an imperfect correlation between securities
held by the fund that are the subject of a hedging
transaction and the futures or options used as a hedging
device, the hedge may not be fully effective because, for
example, losses on the securities held by the fund may be
in excess of gains on the futures contract or losses on the
futures contract may be in excess of gains on the
securities held by the fund that were the subject of the
hedge. In an effort to compensate for the imperfect
correlation of movements in the price of the securities
being hedged and movements in the price of futures
contracts, each fund may enter into financial futures
contracts or options on financial futures contracts in a
greater or lesser dollar amount than the dollar amount of
the securities being hedged if the historical volatility of
the futures contract has been less or greater than that of
the securities. This "over hedging" or "under hedging" may
adversely affect a fund's net investment results if market
movements are not as anticipated when the hedge is
established.
If a fund has hedged against the possibility of an increase
in interest rates adversely affecting the value of
securities it holds and rates decrease instead, the fund
will lose part or all of the benefit of the increased value
of securities that it has hedged because it will have
offsetting losses in its futures or options positions. In
addition, in those situations, if the fund has insufficient
cash, it may have to sell securities to meet daily
variation margin requirements on the futures contracts at a
time when it may be disadvantageous to do so. These sales
of securities may, but will not necessarily, be at
increased prices that reflect the decline in interest
rates.
When-Issued Securities and Delayed-Delivery Transactions.
Each fund may purchase securities on a "when-issued" basis
or for delayed delivery (i.e., payment or delivery occur
beyond the normal settlement date at a stated price and
yield). Each fund does not intend to engage in these
transactions for speculative purposes, but only in
furtherance of its investment goal. These transactions
occur when securities are purchased or sold by a fund with
payment and delivery taking place in the future to secure
what is considered an advantageous yield and price to a
fund at the time of entering into the transaction. The
payment obligation and the interest rate that will be
received on when-issued securities are fixed at the time
the buyer enters into the commitment. Due to fluctuations
in the value of securities purchased or sold on a
when-issued or delayed-delivery basis, the prices obtained
on such securities may be higher or lower than the prices
available in the market on the dates when the investments
are actually delivered to the buyers.
When a fund agrees to purchase when-issued or delayed-
delivery securities, the fund will set aside cash or liquid
securities equal to the amount of the commitment in a
segregated account on the fund's books. Normally, the fund
will set aside portfolio securities to satisfy a purchase
commitment, and in such a case a fund may be required
subsequently to place additional assets in the segregated
account on the fund's books in order to ensure that the
value of the account remains equal to the amount of the
fund's commitment. The assets contained in the segregated
account will be marked-to-market daily. It may be expected
that a fund's net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such
purchase commitments than when it sets aside cash. When a
fund engages in when-issued or delayed-delivery
transactions, it relies on the other party to consummate
the trade. Failure of the seller to do so may result in a
fund's incurring a loss or missing an opportunity to obtain
a price considered to be advantageous.
Stand-by Commitments. Each fund may acquire "stand-by
commitments" with respect to Exempt Obligations held in its
portfolio. Under a stand-by commitment, a broker, dealer
or bank is obligated to repurchase at the fund's option
specified securities at a specified price and, in this way,
stand-by commitment, therefore, is subject to the ability
of the seller to make payment on demand. A fund will
acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise the rights
afforded by the commitments for trading purposes. Each
fund anticipates that stand-by commitments will be
available from brokers, dealers and banks without the
payment of any direct or indirect consideration. Each fund
may pay for stand-by commitments if payment is deemed
necessary, thus increasing to a degree the cost of the
underlying Exempt Obligations and similarly decreasing the
security's yield to the funds.
Illiquid Securities. Each fund may invest up to 10% of its
net assets in illiquid securities, which term includes
securities subject to contractual or other restrictions on
resale and other instruments that lack readily available
markets. In addition, up to 5% of the value of each fund's
assets may be invested in securities of entities that have
been in continuous operation for fewer than three years.
Repurchase Agreements. Each fund may agree to purchase
securities from a bank or recognized securities dealer and
simultaneously commit to resell the securities to the bank
or dealer at an agreed-upon date and price reflecting a
market rate of interest unrelated to the coupon rate or
maturity of the purchased securities ("repurchase
agreements"). A fund would maintain custody of the
underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase
price on the date agreed to would be, in effect, secured by
such securities. If the value of such securities were less
than the repurchase price, plus interest, the other party
to the agreement would be required to provide additional
collateral so that at all times the collateral is at least
102% of the repurchase price plus accrued interest.
Default by or bankruptcy of a seller would expose a fund to
possible loss because of adverse market action, expenses
and/or delays in connection with the disposition of the
underlying obligations. The financial institutions with
which a fund may enter into repurchase agreements will be
banks and non-bank dealers of U.S. Government securities
that are on the Federal Reserve Bank of New York's list of
reporting dealers, if such banks and non-bank dealers are
deemed creditworthy by the fund's manager. The manager
will continue to monitor creditworthiness of the seller
under a repurchase agreement, and will require the seller
to maintain during the term of the agreement the value of
the securities subject to the agreement to equal at least
102% of the repurchase price (including accrued interest).
In addition, the manager will require that the value of
this collateral, after transaction costs (including loss of
interest) reasonably expected to be incurred on a default,
be equal to 102% or greater than the repurchase price
(including accrued premium) provided in the repurchase
agreement or the daily amortization of the difference
between the purchase price and the repurchase price
specified in the repurchase agreement. The manager will
mark-to-market daily the value of the securities.
Repurchase agreements are considered to be loans by a fund
under the Investment Company Act of 1940, as amended (the
"1940 Act").
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO
CALIFORNIA AND NEW YORK MUNICIPAL SECURITIES
Investment in the funds involves risk factors and special
considerations, such as those described below:
Exempt Obligations. Even though Exempt Obligations are
interest-bearing investments that promise a stable stream
of income, their prices are inversely affected by changes
in interest rates and, therefore, are subject to the risk
of market price fluctuations. The values of Exempt
Obligations with longer remaining maturities typically
fluctuate more than those of similarly rated Exempt
Obligations with shorter remaining maturities such as each
fund intends to hold. The values of fixed-income
securities also may be affected by changes in the credit
rating or financial condition of the issuing entities.
Opinions relating to the validity of Municipal Obligations
and to the exemption of interest in them from Federal
income taxes (and, with respect to Exempt Obligations, to
the exemption of interest on them from California or New
York, as applicable, state personal income taxes) as
rendered by bond counsel to the respective issuers at the
time of issuance. Neither the funds nor the manager will
review the proceedings relating to the issuance of Exempt
Obligations or the basis for opinions of counsel.
Potential Legislation. In past years, the United States
government has enacted various laws that have restricted or
diminished the income tax exemption on various types of
Municipal Obligations and may enact other similar laws in
the future. If any such laws are enacted that would reduce
the availability of Exempt Obligations for investment by
the funds so as to affect a fund's shareholders adversely,
the trust will reevaluate each fund's investment objective
and policies and might submit possible changes in a fund's
structure to shareholders for their consideration. If
legislation were enacted that would treat a type of Exempt
Obligation as taxable for Federal income tax purposes, the
fund would treat the security as a permissible Taxable
Investment within the applicable limits set forth in this
prospectus.
Unrated Securities. Each fund may invest in unrated
securities that the manager determines to be of comparable
quality to the rated securities in which the fund may
invest. Dealers may not maintain daily markets in unrated
securities and retail secondary markets for many of such
securities may not exist. As a result, a fund's ability to
sell these securities when the manager deems it appropriate
may be diminished.
Municipal Leases. Municipal leases in which the fund may
invest have special risks not normally associated with
Municipal Obligations. These obligations frequently
contain non-appropriation clauses that provide that the
governmental issuer of the obligation need not make future
payments under the lease or contract unless money is
appropriated for that purpose by a legislative body
annually or on another periodic basis. Municipal leases
have additional risks because they represent a type of
financing that has not yet developed the depth of
marketability generally associated with other Municipal
Obligations. Moreover, although a municipal lease will be
secured by financed equipment or facilities, the
disposition of the equipment or facilities in the event of
foreclosure might prove difficult. In addition, in certain
instances the tax-exempt status of the municipal lease will
not be subject to the legal opinion of a nationally
recognized bond counsel, although in all cases a fund will
require that a municipal lease purchased by the fund be
covered by a legal opinion to the effect that, as of each
effective date of the municipal lease, the lease is valid
and binding of the government issuer.
Municipal leases are also subject to the risk of non-
payment. The ability of issuers of municipal leases to
make timely lease payments may be adversely impacted in
general economic downturns and as relative governmental
cost burdens are allocated and reallocated among Federal,
state and local governmental units. Such non-payments
would result in a reduction of income to a fund, and could
result in a reduction in the value of the municipal lease
experiencing non-payment and a decrease in the net asset
value of the fund. Issuers of municipal securities might
seek protection under the bankruptcy laws. In the event of
bankruptcy of such an issuer, a fund could experience
delays and limitations with respect to the collection of
principal and interest on such municipal leases and the
fund may not, in all circumstances, be able to collect all
principal and interest to which it is entitled. To enforce
its rights in the event of a default in the lease payments,
each fund may take possession of and manage the assets
securing the issuer's obligations on such securities, which
may increase the fund's operating expenses and adversely
affect the net asset value of the fund. Any income derived
from the fund's ownership or operation of such assets may
not be tax-exempt. In addition, each fund's intention to
qualify as a "regulated investment company" under the Code
may limit the extent to which the fund may exercise its
rights by taking possession of such assets, because as a
regulated investment company the fund is subject to certain
limitations on its investments and on the nature of its
income.
Non-Publicly Traded Securities. As suggested above, each
fund may, from time to time, invest a portion of its assets
in non-publicly traded Exempt Obligations. Non-publicly
traded securities may be less liquid than publicly traded
securities. Although non-publicly traded securities may be
resold in privately negotiated transactions, the prices
realized from these sales could be less than those
originally paid by the fund.
When-Issued and Delayed-Delivery Transactions. Securities
purchased on a when-issued or delayed-delivery basis may
expose a fund to risk because the securities may experience
fluctuations in value prior to their delivery. Purchasing
securities on a when-issued or delayed-delivery basis can
involve the additional risk that the yield available in the
market when the delivery takes place may be higher than
that obtained in the transaction itself.
Non-Diversified Classification. Each fund is classified as
a non-diversified fund under the Investment Company Act of
1940, as amended (the "1940 Act") which means that the fund
is not limited by the Act in the proportion of its assets
that it may invest in the obligations of a single issuer.
Each fund intends to conduct its operations, however, so as
to qualify as a "regulated investment company" for purposes
of the Code, which will relieve the fund of any liability
for Federal income tax and California or New York State
franchise tax, as applicable, to the extent that its
earnings are distributed to shareholders. To qualify as a
regulated investment company, the fund will, among other
things, limit its investments so that, at the close of each
quarter of the taxable year (a) not more than 25% of the
market value of the fund's total assets will be invested in
the securities of a single issuer and (b) with respect to
50% of the market value of its total assets, not more than
5% of the market value of its total assets will be invested
in the securities of a single issuer and the fund will not
own more than 10% of the outstanding voting securities of a
single issuer.
As a result of the funds' non-classified status, an
investment in either fund may present greater risks to
investors than an investment in a diversified fund. The
investment return on a non-diversified fund typically is
dependent upon the performance of a smaller number of
securities relative to the number of securities held in a
diversified fund. Each fund's assumption of large
positions in the obligations of a small number of issuers
will affect the value of its portfolio to a greater extent
than that of a diversified fund in the event of changes in
the financial condition, or in the market's assessment, of
the issuers.
Portfolio Transactions And Turnover. Each fund's portfolio
securities ordinarily are purchased from and sold to
parties acting as either principal or agent. Newly issued
securities ordinarily are purchased directly from the
issuer or from an underwriter; other purchases and sales
usually are placed with those dealers from which it appears
that the best price or execution will be obtained. Usually
no brokerage commissions, as such, are paid by the funds
for purchases and sales undertaken through principal
transactions, although the price paid usually includes an
undisclosed compensation to the dealer acting as agent.
Special Considerations Relating to Exempt Obligations
The payment of principal and interest on most securities
purchased by either fund will depend on the ability of the
issuers to meet their obligations. A fund's portfolio will
be affected by general changes in interest rates, which
will result in increases or decreases in the value of the
obligations held by a fund. The market value of the
obligations in the fund's portfolio can be expected to vary
inversely to changes in prevailing interest rates. During
1996, the ratings of California general obligations bond
was upgraded. S&P Ratings Group upgraded its rating to A+;
the same rating has been assigned to such debt by Fitch.
Moody's has assigned such debt an A1 rating. Certain
substantial issuers of New York Exempt Obligations
(including issuers whose obligations may be acquired by the
New York Fund) have ,at times, experienced serious
financial difficulties in recent years. These difficulties
have at times jeopardized the credit standing and impaired
the borrowing abilities of all New York issuers and have
generally contributed to higher interest costs for their
borrowing and fewer markets for their outstanding debt
obligations. On the other hand, strong demand for New York
Exempt Obligations has more recently had the effect of
permitting New York Exempt Obligations to be issued with
yield relatively lower, and after issuance, to trade in the
market at prices relatively higher, than comparably rated
municipal obligations issued by other jurisdictions.
Investors should be aware that certain California or New
York constitutional amendments, legislative measures,
executive orders, administrative regulations and voter
initiatives could result in certain adverse consequences
affecting Exempt Obligations. For instance, certain
provisions of the California or New York Constitution and
statutes that limit the taxing and spending authority of
California, or New York, governmental entities may impair
the ability of the issuers of some Exempt Obligations to
maintain debt service on their obligations. Other measures
affecting the taxing or spending authority of California,
or New York, or their political sub-divisions may be
approved or enacted in the future.
In seeking to achieve its objective, each fund may invest
without limit in Municipal Obligations which are private
activity bonds. Moreover, although each fund does not
currently intend to do so on a regular basis, each fund may
invest more than 20% of its assets in Municipal Obligations
which are repayable out of revenue streams generated from
economically related projects or facilities, if such
investment is deemed necessary or appropriate by the
manager. To the extent a fund's assets are concentrated in
Municipal Obligations payable from revenues from
economically related projects or facilities, if a fund's
assets are concentrated in Municipal Obligations payable
from revenues on economically related projects and
facilities, the fund will be subject to the particular
risks presented by such projects to a greater extent than
it would be if the fund's assets were not so concentrated.
Special Considerations Relating To California Exempt
Obligations
Some of the significant financial considerations relating
to the California Fund's investments in California Exempt
Obligations are summarized below. This summary information
is derived principally from official statements and
prospectuses relating to securities offerings of the State
of California and various local agencies in California,
available as of the date of this SAI and does not purport
to be a complete description of any of the considerations
mentioned herein. It is also based on the disclosure
statement filed in the County of Orange bankruptcy case.
The accuracy and completeness of the information contained
in such official statements and disclosure statement has
not been independently verified.
Alternative Minimum Tax
Under current federal income tax law, (1) interest on tax-
exempt municipal securities issued after August 7, 1986
which are "specified private activity bonds," and the
proportionate share of any exempt-interest dividend paid by
a regulated investment company which receives interest from
such specified private activity bonds, will be treated as
an item of tax preference for purposes of the alternative
minimum tax ("AMT") imposed on individuals and
corporations, though for regular Federal income tax
purposes such interest will remain fully tax-exempt, and
(2) interest on all tax-exempt obligations will be included
in "adjusted current earnings" of corporations for AMT
purposes. Such private activity bonds ("AMT-Subject
bonds"), which include industrial development bonds and
bonds issued to finance such projects as airports, housing
projects, solid waste disposal facilities, student loan
programs and water and sewage projects, have provided, and
may continue to provide, somewhat higher yields than other
comparable municipal securities.
Investors should consider that, in most instances, no
state, municipality or other governmental unit with taxing
power will be obligated with respect to AMT-Subject bonds.
AMT-Subject bonds are in most cases revenue bonds and do
not generally have the pledge of the credit or the taxing
power, if any, of the issuer of such bonds. AMT-Subject
bonds are generally limited obligations of the issuer
supported by payments from private business entities and
not by the full faith and credit of a state or any
governmental subdivision. Typically the obligation of the
issuer of AMT-Subject bonds is to make payments to bond
holders only out of and to the extent of, payments made by
the private business entity for whose benefit the AMT-
Subject bonds were issued. Payment of the principal and
interest on such revenue bonds depends solely on the
ability of the user of the facilities financed by the bonds
to meet its financial obligations and the pledge, if any,
of real and personal property so financed as security for
such payment. It is not possible to provide specific
detail on each of these obligations in which fund assets
may be invested.
Risk of Concentration In a Single State
The primary purpose of investing in a portfolio of a single
state's municipal securities is the special tax treatment
accorded the state's resident individual investors.
However, payment of interest and preservation of principal
is dependent upon the continuing ability of the state's
issuers and/or obligors on state, municipal and public
authority debt obligations to meet their obligations
thereunder. Investors should be aware of certain factors
that might affect the financial condition of issuers of
municipal securities, consider the greater risk of the
concentration of a fund versus the safety that comes with a
less concentrated investment portfolio and compare yields
available in portfolios of the relevant state's issues with
those of more diversified portfolios, including out-of-
state issues, before making an investment decision.
Municipal securities in which a fund's assets are invested
may include debt obligations of the municipalities and
other subdivisions of the relevant state issued to obtain
funds for various public purposes, including the
construction of a wide range of public facilities such as
airports, bridges, highways, schools, streets and water and
sewer works. Other purposes for which municipal securities
may be issued include the obtaining of funds to lend to
public or private institutions for the construction of
facilities such as educational, hospital, housing, and
solid waste disposal facilities. The latter, including
most AMT-Subject bonds, are generally payable from private
sources which, in varying degrees, may depend on local
economic conditions, but are not necessarily affected by
the ability of the state and its political subdivisions to
pay their debts. It is not possible to provide specific
details on each of these obligations in which fund assets
may be invested. However, all such securities, the payment
of which is not a general obligation of an issuer having
general taxing power, must satisfy, at the time of an
acquisition by the fund, the minimum rating(s). See
"Appendix A: Bond and Commercial Paper Ratings" for a
description of ratings and rating criteria. Some municipal
securities may be rated based on a "moral obligation"
contract which allows the municipality to terminate its
obligation by deciding not to make an appropriation.
Generally, no legal remedy is available against the
municipality that is a party to the "moral obligation"
contract in the event of such non-appropriation.
Municipal Market Volatility Municipal securities can be
significantly affected by political changes as well as
uncertainties in the municipal market related to taxation,
legislative changes, or the rights of municipal security
holders. Because many municipal securities are issued to
finance similar projects, especially those relating to
education, health care, transportation and utilities,
conditions in those sectors can affect the overall
municipal market. In addition, changes in the financial
condition of an individual municipal insurer can affect the
overall municipal market.
Interest Rate Changes Debt securities have varying levels
of sensitivity to changes in interest rates. In general,
the price of a debt security can fall when interest rates
rise and can rise when interest rates fall. Securities with
longer maturities can be more sensitive to interest rate
changes. In other words, the longer the maturity of a
security, the greater the impact a change in interest rates
could have on the security's price. In addition, short-term
and long-term interest rates do not necessarily move in the
same amount or the same direction. Short-term securities
tend to react to changes in short-term interest rates, and
long-term securities tend to react to changes in long-term
interest rates.
Issuer-Specific Changes Changes in the financial condition
of an issuer, changes in specific economic or political
conditions that affect a particular type of security or
issuer, and changes in general economic or political
conditions can affect the credit quality or value of an
issuer's securities. Lower-quality debt securities (those
of less than investment-grade quality) tend to be more
sensitive to these changes than higher-quality debt
securities. Entities providing credit support or a
maturity-shortening structure also can be affected by these
types of changes. Municipal securities backed by current or
anticipated revenues from a specific project or specific
assets can be negatively affected by the discontinuance of
the taxation supporting the project or assets or the
inability to collect revenues for the project or from the
assets. If the Internal Revenue Service determines an
issuer of a municipal security has not complied with
applicable tax requirements, interest from the security
could become taxable and the security could decline
significantly in value. In addition, if the structure of a
security fails to function as intended, interest from the
security could become taxable or the security could decline
in value.
Risk Factors
The following brief summaries are included for the purpose
of providing certain information regarding the economic
climate and financial condition of the states of New York
and California, and are based primarily on information from
official statements made available in connection with the
issuance of certain securities and other documents and
sources and does not purport to be complete. The trust has
not undertaken to verify independently such information and
the trust assumes no responsibility for the accuracy of
such information. These summaries do not provide
information regarding most securities in which the funds
are permitted to invest and in particular do not provide
specific information on the issuers or types of municipal
securities in which the fund invests or the private
business entities whose obligations support the payments on
AMT-Subject bonds in which the funds will invest.
Therefore, the general risk factors as to the credit of the
state or its political subdivisions discussed herein may
not be relevant to the funds. Although revenue obligations
of a state or its political subdivisions may be payable
from a specific project or source, there can be no
assurance that future economic difficulties and the
resulting impact on state and local government finances
will not adversely affect the market value of the funds or
the ability of the respective obligors to make timely
payments of principal and interest on such obligations. In
addition, a number of factors may adversely affect the
ability of the issuers of municipal securities to repay
their borrowings that are unrelated to the financial or
economic condition of a state, and that, in some cases, are
beyond their control. Furthermore, issuers of municipal
securities are generally not required to provide ongoing
information about their finances and operations to holders
of their debt obligations, although a number of cities,
counties and other issuers prepare annual reports.
Unless stated otherwise, the ratings indicated are for
obligations of the state. A state's political subdivisions
may have different ratings which are unrelated to the
ratings assigned to state obligations.
CALIFORNIA
The 1999-2000 Budget Act estimated General Fund revenues
and transfers of $63.0 billion, and contained expenditures
totaling $63.7 billion. The 1999 Budget Act also contained
expenditures of $16.1 billion from special funds and $1.5
billion from bond funds. The Administration estimated the
State's Special Fund for Economic Uncertainties ("SFEU")
would have a balance at June 30, 2000, of about $880
million. Not included in this amount was an additional $300
million which (after the Governor's vetoes) was "set aside"
to provide funds for employee salary increases (to be
negotiated in bargaining with
employee unions), and for litigation reserves. The 1999
Budget Act anticipates normal cash flow borrowing during
the fiscal year.
The principal features of the 1999 Budget Act include
increased funding for educational programs, health and
human services and infrastructure projects.
Proposition 13. Certain of the Debt Obligations may be
obligations of issuers who rely in whole or in part on ad
valorem real property taxes as a source of revenue. On June
6, 1978, California voters approved an amendment to the
California Constitution known as Proposition 13, which
added Article XIIIA to the California Constitution. The
effect of Article XIIIA was to limit ad valorem taxes on
real property and to restrict the ability of taxing
entities to increase real property tax revenues.
Section 1 of Article XIIIA, as amended, limits the maximum
ad valorem tax on real property to 1% of full cash value to
be collected by the counties and apportioned according to
law. The 1% limitation does not apply to ad valorem taxes
or special assessments to pay the interest and redemption
charges on any bonded indebtedness for the acquisition or
improvement of real property approved by two-thirds of the
votes cast by the voters voting on the proposition. Section
2 of Article XIIIA defines "full cash value" to mean "the
County Assessor's valuation of real property as shown on
the 1975/76 tax bill under "full cash value" or,
thereafter, the appraised value of real property
when purchased, newly constructed, or a change in ownership
has occurred after the 1975 assessment." The full cash
value may be adjusted annually to reflect inflation at a
rate not to exceed 2% per year, or reduction in the
consumer price index or comparable local data, or reduced
in the event of declining property value caused by damage,
destruction or other factors.
Legislation enacted by the California Legislature to
implement Article XIIIA provides that notwithstanding any
other law, local agencies may not levy any ad valorem
property tax except to pay debt service on indebtedness
approved by the voters prior to July 1, 1978, and that each
county will levy the maximum tax permitted by Article
XIIIA.
Proposition 9. On November 6, 1979, an initiative known as
"Proposition 9" or the "Gann Initiative" was approved by
the California voters, which added Article XIIIB to the
California Constitution. Under Article XIIIB, State and
local governmental entities have an annual "appropriations
limit" and are not allowed to spend certain moneys called
"appropriations subject to limitation" in an amount higher
than the "appropriations limit." Article XIIIB does not
affect the appropriation of moneys which are excluded from
the definition of "appropriations subject to limitation,"
including debt service on indebtedness existing or
authorized as of January 1, 1979, or bonded indebtedness
subsequently approved by the voters. In general terms, the
"appropriations limit" is required to be based on certain
1978/79 expenditures, and is to be adjusted annually to
reflect changes in consumer prices, population, and certain
services provided by these entities. Article XIIIB also
provides that if these entities' revenues in any year
exceed the amounts permitted to be spent, the excess is to
be returned by revising tax rates or fee schedules over the
subsequent two years.
Proposition 98. On November 8, 1988, voters of the state
approved Proposition 98, a combined initiative
constitutional amendment and statute called the "Classroom
Instructional Improvement and Accountability Act."
Proposition 98 changed State funding of public education
below the university level and the operation of the State
Appropriations Limit, primarily by guaranteeing K-14
schools a minimum share of General Fund revenues. Under
Proposition 98 (modified by Proposition 111 as discussed
below), K-14 schools are guaranteed the greater of (a) in
general, a fixed percent of General Fund revenues ("Test
1"), (b) the amount appropriated to K-14 schools in the
prior year, adjusted for changes in the cost of living
(measured as in Article XIII B by reference to State per
capita personal income) and enrollment ("Test 2"), or (c) a
third test, which would replace Test 2 in any year when the
percentage growth in per capita General Fund revenues from
the prior year plus one half of one percent is less than
the percentage growth in State per capita personal income
("Test 3"). Under Test 3, schools would receive the amount
appropriated in the prior year adjusted for changes in
enrollment and per capita General Fund revenues, plus an
additional small adjustment factor. If Test 3 is used in
any year, the difference between Test 3 and Test 2 would
become a "credit" to schools which would be the basis of
payments in future years when per capita General Fund
revenue growth exceeds per capita personal income growth.
Proposition 98 permits the Legislature -- by two-thirds
vote of both houses, with the Governor's concurrence -- to
suspend the K-14 schools' minimum funding formula for a
one-year period. Proposition 98 also contains provisions
transferring certain State tax revenues in excess of the
Article XIII B limit to K-14 schools.
Proposition 111. On June 30, 1989, the California
Legislature enacted Senate Constitutional Amendment 1, a
proposed modification of the California Constitution to
alter the spending limit and the education funding
provisions of Proposition 98. Senate Constitutional
Amendment 1 -- on the June 5, 1990 ballot as Proposition
111 -- was approved by the voters and took effect on July
1, 1990. Among a number of important provisions,
Proposition 111 recalculated spending limits for the state
and for local governments, allowed greater annual increases
in the limits, allowed the averaging of two years' tax
revenues before requiring action regarding excess tax
revenues, reduced the amount of the funding guarantee in
recession years for school districts and community college
districts (but with a floor of 40.9 percent of state
general fund tax revenues), removed the provision of
Proposition 98 which included excess moneys transferred to
school districts and community college districts in the
base calculation for the next year, limited the amount of
state tax revenue over the limit which would be transferred
to school districts and community college districts, and
exempted increased gasoline taxes and truck weight fees
from the state appropriations limit. Additionally,
Proposition 111 exempted from the state appropriations
limit funding for capital outlays.
Proposition 62. On November 4, 1986, California voters
approved an initiative statute known as Proposition 62.
This initiative provided the following:
1. Requires that any tax for general governmental purposes
imposed by local governments be approved by resolution
or ordinance adopted by a two-thirds vote of the
governmental entity's legislative body and by a majority
vote of the electorate of the governmental entity;
2. Requires that any special tax (defined as taxes levied
for other than general governmental purposes) imposed by
a local governmental entity be approved by a two-thirds
vote of the voters within that jurisdiction;
3. Restricts the use of revenues from a special tax to the
purposes or for the service for which the special tax
was imposed;
4. Prohibits the imposition of ad valorem taxes on real
property by local governmental entities except as permitted
by Article XIIIA;
5. Prohibits the imposition of transaction taxes and sales
taxes on the sale of real property by local governments;
6. Requires that any tax imposed by a local government on
or after August 1, 1985 be ratified by a majority vote of
the electorate within two years of the adoption of the
initiative;
7. Requires that, in the event a local government fails to
comply with the provisions of this measure, a reduction in
the amount of property tax revenue allocated to such local
government occurs in an amount equal to the revenues
received by such entity attributable to the tax levied in
violation of the initiative; and
8. Permits these provisions to be amended exclusively by
the voters of the state of California.
In September 1988, the California Court of Appeal in City
of Westminster v. County of Orange, 204 Cal.App. 3d 623,
215 Cal.Rptr. 511 (Cal.Ct.App. 1988), held that Proposition
62 is unconstitutional to the extent that it requires a
general tax by a general law city, enacted on or after
August 1, 1985 and prior to the effective date of
Proposition 62, to be subject to approval by a majority of
voters. The Court held that the California Constitution
prohibits the imposition of a requirement that local tax
measures be submitted to the electorate by either
referendum or initiative. It is impossible to predict the
impact of this decision on charter cities, on special taxes
or on new taxes imposed after the effective date of
Proposition 62. The California Court of Appeal in City of
Woodlake v. Logan, (1991) 230 Cal.App.3d 1058, subsequently
held that Proposition 62's popular vote requirements for
future local taxes also provided for an unconstitutional
referendum. The California Supreme Court declined to review
both the City of Westminster and the City of Woodlake
decisions.
In Santa Clara Local Transportation Authority v. Guardino,
(Sept. 28, 1995) 11 Cal.4th 220, reh'g denied, modified
(Dec. 14, 1995) 12 Cal.4th 344e, the California Supreme
Court upheld the constitutionality of Proposition 62's
popular vote requirements for future taxes, and
specifically disapproved of the City of Woodlake decision
as erroneous. The Court did not determine the correctness
of the City of Westminster decision, because that case
appeared distinguishable, was not relied on by the parties
in Guardino, and involved taxes not likely to still be at
issue. It is impossible to predict the impact of the
Supreme Court's decision on charter cities or on taxes
imposed in reliance on the City of Woodlake case.
In McBrearty v. City of Brawley, 59 Cal. App. 4(S)/ 1441,
69 Cal. Rptr. 2d 862 (Cal. Ct. App. 1997), the Court of
Appeal held that the city of Brawley must either hold an
election or cease collection of utility taxes that were not
submitted to a vote. In 1991, the city of Brawley adopted
an ordinance imposing a utility tax on its residents and
began collecting the tax without first seeking voter
approval. In 1996, the taxpayer petitioned for writ of
mandate contending that Proposition 62 required the city to
submit its utility tax on residents to vote of local
electorate. The trial court issued a writ of mandamus and
the city appealed.
First, the Court of Appeal held that the taxpayer's cause
of action accrued for statute of limitation purposes at the
time of the Guardino decision rather than at the time when
the city adopted the tax ordinance which was July 1991.
Second, the Court held that the voter approval requirement
in Proposition 62 was not an invalid mechanism under the
state constitution for the involvement of the electorate in
the legislative process. Third, the Court rejected the
city's argument that Guardino should only be applied on a
prospective basis. Finally, the Court held Proposition 218
(see discussion below) did not impliedly protect any local
general taxes imposed prior to January 1, 1995 against
challenge.
Assembly Bill 1362 (Mazzoni), introduced February 28, 1997,
which would have made the Guardino decision inapplicable to
any tax first imposed or increased by an ordinance or
resolution adopted before December 14, 1995 was vetoed by
the Governor on October 11, 1997. The California State
Senate had passed the Bill on September 8, 1997 and the
California State Assembly had passed the Bill on September
11, 1997. It is not clear whether the Bill, if enacted,
would have been constitutional as a non-voted amendment to
Proposition 62 or as a non-voted change to Proposition 62's
operative date.
Proposition 218. On November 5, 1996, the voters of the
state approved Proposition 218, a constitutional
initiative, entitled the "Right to Vote on Taxes Act"
("Proposition 218"). Proposition 218 adds Articles XIII C
and XIII D to the California Constitution and contains a
number of interrelated provisions affecting the ability of
local governments to levy and collect both existing and
future taxes, assessments, fees and charges. Proposition
218 became effective on November 6, 1996. The Sponsors are
unable to predict whether and to what extent Proposition
218 may be held to be constitutional or how its terms will
be interpreted and applied by the courts. However, if
upheld, Proposition 218 could substantially restrict
certain local governments' ability to raise future revenues
and could subject certain existing sources of revenue to
reduction or repeal, and increase local government costs to
hold elections, calculate fees and assessments, notify the
public and defend local government fees and assessments in
court.
Article XIII C of Proposition 218 requires majority voter
approval for the imposition, extension or increase of
general taxes and two-thirds voter approval for the
imposition, extension or increase of special taxes,
including special taxes deposited into a local government's
general fund. Proposition 218 also provides that any
general tax imposed, extended or increased without voter
approval by any local government on or after January 1,
1995 and prior to November 6, 1996 shall continue to be
imposed only if approved by a majority vote in an election
held within two years of November 6, 1996.
Article XIII C of Proposition 218 also expressly extends
the initiative power to give voters the power to reduce or
repeal local taxes, assessments, fees and charges,
regardless of the date such taxes, assessments, fees or
charges were imposed. This extension of the initiative
power to some extent constitutionalizes the March 6, 1995
state Supreme Court decision in Rossi v. Brown, which
upheld an initiative that repealed a local tax and held
that the state constitution does not preclude the repeal,
including the prospective repeal, of a tax ordinance by an
initiative, as contrasted with the state constitutional
prohibition on referendum powers regarding statutes and
ordinances which impose a tax. Generally, the initiative
process enables California voters to enact legislation upon
obtaining requisite voter approval at a general election.
Proposition 218 extends the authority stated in Rossi v.
Brown by expanding the initiative power to include reducing
or repealing assessments, fees and charges, which had
previously been considered administrative rather than
legislative matters and therefore beyond the initiative
power.
The initiative power granted under Article XIII C of
Proposition 218, by its terms, applies to all local taxes,
assessments, fees and charges and is not limited to local
taxes, assessments, fees and charges that are property
related.
Article XIII D of Proposition 218 adds several new
requirements making it generally more difficult for local
agencies to levy and maintain "assessments" for municipal
services and programs. "Assessment" is defined to mean any
levy or charge upon real property for a special benefit
conferred upon the real property.
Article XIII D of Proposition 218 also adds several
provisions affecting "fees" and "charges" which are defined
as "any levy other than an ad valorem tax, a special tax,
or an assessment, imposed by a local government upon a
parcel or upon a person as an incident of property
ownership, including a user fee or charge for a property
related service." All new and, after June 30, 1997,
existing property related fees and charges must conform to
requirements prohibiting, among other things, fees and
charges which (i) generate revenues exceeding the funds
required to provide the property related service, (ii) are
used for any purpose other than those for which the fees
and charges are imposed, (iii) are for a service not
actually used by, or immediately available to, the owner of
the property in question, or (iv) are used for general
governmental services, including police, fire or library
services, where the service is available to the public at
large in substantially the same manner as it is to property
owners. Further, before any property related fee or charge
may be imposed or increased, written notice must be given
to the record owner of each parcel of land affected by such
fee or charges. The local government must then hold a
hearing upon the proposed imposition or increase of such
property based fee, and if written protests against the
proposal are presented by a majority of the owners of the
identified parcels, the local government may not impose or
increase the fee or charge. Moreover, except for fees or
charges for sewer, water and refuse collection services, no
property related fee or charge may be imposed or increased
without majority approval by
the property owners subject to the fee or charge or, at the
option of the local agency, two-thirds voter approval by
the electorate residing in the affected area.
Proposition 87. On November 8, 1988, California voters
approved Proposition 87. Proposition 87 amended Article
XVI, Section 16, of the California Constitution by
authorizing the California Legislature to prohibit
redevelopment agencies from receiving any of the property
tax revenue raised by increased property tax rates levied
to repay bonded indebtedness of local governments which is
approved by voters on or after January 1, 1989.
Other. Finally, certain bonds in the California Portfolio
may be subject to provisions of California law that could
adversely affect payments on those bonds or limit the
remedies available to bondholders. Among these are bonds of
health care institutions which are subject to the strict
rules and limits regarding reimbursement payments of
California's Medi-Cal Program for health care services to
welfare beneficiaries, and bonds secured by liens on real
property.
NEW YORK
The state ended its 1998-1999 fiscal year balanced on a
cash basis. The reported General Fund cash balance was $892
million. This does not include $2.31 billion that the state
has deposited into its tax refund reserve to pay for tax
refunds in the 1999-2000 fiscal year. The state projects a
General Fund balanced on a cash basis for the 1999-2000
fiscal year with total General Fund receipts projected in
excess of $39 billion. In September 1999, the New York
State Comptroller issued a report which projected budget
gaps in the 2000-2001 and 2001-2002 fiscal yars at $2.8
billion and $4.6 billion, respetively, after excluding the
unspecified operating efficiencies assumed in the state's
projections, and assuming higher spending for education and
other initiatives. The State Comptroller noted that the
underlying structural problem is even more apparent without
the planned use of the projected 1999-2000 fiscal year
surplus reflected in the tax reduction reserve, which would
result in the gaps growing to $3.4 billion in fiscal year
2000-2001 and $5.8 billion in fiscal year 2001-2002. The
State Comptroller also stated that revenues could trend
lower if the securities industry suffered a significant
downturn, and that a general economic recession is always a
major budget risk. The state in recent years has shown a
consistent pattern of closing previously projected budget
gaps.
The fiscal stability of New York state relates, at least in
part, to the fiscal stability of its localities and
authorities. Various state agencies, authorities and
localities have issued large amounts of bonds and notes
either guaranteed or supported by the state. In some cases,
the state has had to provide special assistance in recent
years to enable such agencies, authorities and localities
to meet their financial obligations and, in some cases, to
prevent or cure defaults. The extent to which state
agencies and local governments require state assistance to
meet their financial obligations, may adversely affect the
ability of the state to meet its own obligations as they
become due or to obtain additional financing
For the 1999 fiscal year, the City had an operating
surplus, before discretionary and other transfers, and
achieves balanced operating results, after discretionary
and other transfers, in accordance with Generally Accepted
Accounting Principles ("GAAP"). The 1999 fiscal year is the
nineteenth year that the City has achieved an operating
surplus, before discretionary and other transfers, and
balanced operating results, after discretionary and other
transfers. The City's financial plan projects a balanced
budget for the 2000 fiscal year, with total revenues
projected in excess of $35 billion, and budget gaps of $1.8
billion, $1.9 billion and $1.8 billion for the 2001, 2002
and 2003 fiscal years, respectively. Like the state of New
York, New York City has shown a pattern of consistently
projecting and closing budget gaps. The City has outlined a
gap-closing program which anticipates additional City
agency programs to reduce expenditures or increase revenues
and additional federal and state actions such as
intergovernmental aid to the City. There can be no
assurance that additional gap-closing measures, such as tax
increases or reductions in City services, will not be
required, the implementation of which could adversely
affect the City's economic base, and there is no assurance
that such measures will enable the City to achieve a
balanced budget, as required by state law, for any of the
2000 through 2003 fiscal years.
Implementation of the City's four-year annual financial
plan is also dependent upon the City's ability to market
its securities successfully in the public credit markets
including its ability to issue short term notes to finance
its seasonal working capital needs. The fiscal health of
New York City, which is the largest issuer of municipal
bonds in the country and a leading international commercial
center, exerts a significant influence upon the fiscal
health and bond values of issues throughout the state. Bond
values of the Municipal Assistance Corporation, the state
of New York, the New York Local Government Assistance
Corporation, the New York State Dormitory Authority, the
New York City Municipal Water Finance Authority, the New
York City Transitional Finance Authority and The
Metropolitan Transportation Authority would be particularly
affected by serious financial difficulties encountered by
New York City. The fund could be expected to hold bonds
issued by many, if not all of these issuers, at any given
time.
The financial condition of the state, City and other New
York issuers may be affected by many economic, social,
political and international factors which cannot be
predicted with certainty. These factors include, but may
not be limited to, litigation, collective bargaining with
governmental employees, the ability of issuers to handle
the "Year 2000" computer problem, changes resulting from
entitlement program reforms, the receipt of
intergovernmental aid, and the performance of the
securities and financial sector which is disproportionately
more significant to the New York economy than to the
national economy. Factors particularly affecting New York
City also include its ability to meet its increasing
infrastructure and other capital needs in the face of
rising debt service costs and limited volume capacity under
state law for incurring indebtedness; and costs it may
incur to achieve compliance with laws pertaining to
protecting its water supply and the disposal of its solid
waste.
PUERTO RICO, THE U.S. VIRGIN ISLANDS AND GUAM
PUERTO RICO. Puerto Rico has a diversified economy
dominated by the manufacturing and service sectors. The
North American Free Trade Agreement ("NAFTA"), which became
effective January 1, 1994, has led to loss of lower wage
jobs such as textiles, but economic growth in other areas,
particularly tourism, construction and the high technology
areas have compensated for that loss. Puerto Rico's economy
expanded in the 1990's in step with the U.S. economy.
The Commonwealth of Puerto Rico differs from the states in
its relationship with the federal government. Most federal
taxes, except those such as social security taxes that are
imposed by mutual consent, are not levied in Puerto Rico.
However, in conjunction with the 1993 U.S. budget plan,
Section 936 of the Code was amended and provided for two
alternative limitations to the Section 936 credit. The
first option limited the credit against such income to 40%
of the credit allowable under then current law, with a five
year phase-in period starting at 60% of the allowable
credit. The second option was a wage and depreciation based
credit. Additional amendments to Section 936 in 1996
imposed caps on these credits, beginning in 1998 for the
first option and beginning in 2002 for the second option.
More importantly, the 1996 amendments eliminated both
options for taxable years beginning in 2006.
Also in 1996, a new Section 30A was added to the Code.
Section 30A permits a "qualifying domestic corporation"
that meets certain gross income tests to claim a credit
against the federal income tax imposed on taxable income
derived from sources outside the United States from the
active conduct of a trade or business in Puerto Rico or
from the sale of substantially all the assets used in such
a business. Section 30A will be phased out by January 1,
2006. The Governor of Puerto Rico has proposed that
Congress permanently extend Section 30A until the Puerto
Rican economy achieves certain economic improvements.
Similarly, President Clinton proposed permanent extension
of the Section 30A in both his 1998 and 1999 budgets. To
date, however, no action has been taken.
The eventual elimination of tax benefits to those U.S.
companies with operations in Puerto Rico may lead to slower
growth in the future. There can be no assurance that this
will not lead to a weakened economy, a lower rating on
Puerto Rico's debt or lower prices for Puerto Rican bonds
that may be held by the Portfolio in the long-term. The
government of Puerto Rico has enacted its own tax incentive
programs for both industrial and tourist activities.
Puerto Ricans have periodically considered conversion to
statehood and such a vote is likely again in the future.
The statehood proposal was defeated in December, 1998.
THE U.S. VIRGIN ISLANDS. The United States Virgin Islands
("USVI") is heavily reliant on the tourism industry, with
roughly 43% of non-agricultural employment in tourist-
related trade and services. The tourism industry is
economically sensitive and would likely be adversely
affected by a recession in either the United States or
Europe.
An important component of the USVI revenue base is the
federal excise tax on rum exports. Tax revenues rebated by
the federal government to the USVI provide the primary
security of many outstanding USVI bonds. Since more than
90% of the rum distilled in the USVI is distilled at one
plant, any interruption in its operations (as occurred
after Hurricane Hugo in 1989) would adversely affect these
revenues. The last major hurricane to impact the USVI was
Hurricane Marilyn on September 15, 1995. Consequently,
there can be no assurance that rum exports to the United
States and the rebate of tax revenues to the USVI will
continue at their present levels. The preferential tariff
treatment the USVI rum industry currently enjoys could be
reduced under NAFTA. Increased competition from Mexican rum
producers could reduce USVI rum imported to the U.S.,
decreasing excise tax revenues generated. The USVI is
periodically hit by hurricanes. Several hurricanes have
caused extensive damage, which has had a negative impact on
revenue collections. There is currently no rated,
unenhanced Virgin Islands debt outstanding (although there
is unrated debt outstanding).
GUAM. The U.S. territory of Guam derives a substantial
portion of its economic base from Japanese tourism. With a
reduced U.S. military presence on the island, Guam has
relied more heavily on tourism in the past few years.
During its 1997 fiscal year, the government was able to
make noticeable progress on its traditional budgetary
problems operating with a balanced budget for that fiscal
year. However, during 1998, the Japanese recession combined
with the impact of typhoon Paka resulted in a budget
deficit of $21 million. With hotels alone accounting for
8.5% of Guam's employment and Japanese tourists comprising
86% of total visitor arrivals, the Japanese recession and
depreciation of the yen versus the dollar in 1999 have had
a negative impact on the island's economy. Based on these
factors, S&P downgraded Guam's rating to BBB- from BBB with
a negative outlook on May 26, 1999. There does seem to be
some recent improvement in the Japanese economy. However,
Guam has not realized any economic benefit as visitor
arrivals are 0.8% below 1998 levels for the second quarter
ended June 30, 1999, driving General Fund revenues down
3.1%.
TRUSTEES OF THE TRUST AND EXECUTIVE OFFICERS OF THE FUND
Overall responsibility for management and supervision of
the fund rests with the trust's board of trustees. The
trustees approve all significant agreements between the
fund and the companies that furnish services to the fund,
including agreements with the fund's distributor,
investment manager, custodian and transfer agent. The day-
to-day operations of the fund are delegated to the fund's
investment adviser and administrator, SSB Citi.
The trustees of the trust and executive officers of the
fund, together with information as to their principal
business occupations during the past five years, are shown
below. The executive officers of the fund are employees of
organizations that provide services to the fund. Each
trustee who is an "interested person" of the fund, as
defined in the 1940 Act, is indicated by an asterisk. The
address of the "non-interested" trustees and executive
officers of the fund is 388 Greenwich Street, New York, New
York 10013, unless otherwise indicated.
Herbert Barg, Trustee (Age 76). Private Investor. His
address is 273 Montgomery Avenue, Bala Cynwyd, Pennsylvania
19004. Director/Trustee of sixteen investment companies
associated with Citigroup, Inc. ("Citigroup")
*Alfred J. Bianchetti Trustee (Age 77). Retired; formerly
Senior Consultant to Dean Witter Reynolds Inc. His address
is 19 Circle End Drive, Ramsey, New Jersey 07466.
Director/Trustee of eleven investment companies associated
with Citigroup.
Martin Brody Trustee (Age 78). Consultant, HMK Associates;
Retired Vice Chairman of the Board of Restaurant Associates
Corp. His address is c/o HMK Associates, 30 Columbia
Turnpike, Florham Park, New Jersey 07932. Director/Trustee
of twenty-one investment companies associated with
Citigroup.
Dwight B. Crane Trustee (Age 62). Professor, Harvard
Business School. His address is c/o Harvard Business
School, Soldiers Field Road, Boston, Massachusetts 02163.
Director/Trustee of twenty-four investment companies
associated with Citigroup.
Burt N. Dorsett Trustee (Age 69). Managing Partner of
Dorsett McCabe Management. Inc., an investment counseling
firm; Director of Research Corporation Technologies, Inc.,
a nonprofit patent clearing and licensing firm. His
address is 201 East 62nd Street, New York, New York 10021.
Director/Trustee of eleven investment companies associated
with Citigroup.
Elliot S. Jaffe Trustee (Age 73). Chairman of the Board
and President of The Dress Barn, Inc. His address is 30
Dunnigan Drive, Suffern, New York 10901. Director/Trustee
of eleven investment companies associated with Citigroup.
Stephen E. Kaufman Trustee (Age 68). Attorney. His
address is 277 Park Avenue, New York, New York 10172.
Director/Trustee of thirteen investment companies
associated with Citigroup.
Joseph J. McCann Trustee (Age 69). Financial Consultant;
Retired Financial Executive, Ryan Homes, Inc. His address
is 200 Oak Park Place, Pittsburgh, Pennsylvania 15243.
Director/Trustee of eleven investment companies associated
with Citigroup.
*Heath B. McLendon Trustee (Age 66). Chairman of the Board,
President and Chief Executive Officer; Managing Director of
Salomon Smith Barney; President of SSB Citi and Travelers
Investment Adviser, Inc. ("TIA"); Chairman or Co-Chairman
of the Board of 71 investment companies associated with
Salomon Smith Barney. His address is 7 World Trade Center,
New York, New York 10048.
Cornelius C. Rose, Jr. Trustee (Age 66). President,
Cornelius C. Rose Associates, Inc., financial consultants,
and Chairman and Director of Performance Learning Systems,
an educational consultant. His address is Meadowbrook
Village, Building 4, Apt 6, West Lebanon, New Hampshire
03784. Director/Trustee of eleven investment companies
associated with Citigroup.
Lewis E. Daidone (Age 42). Managing Director of Salomon
Smith Barney; Senior Vice President and Treasurer of sixty-
one investment companies associated with Citigroup;
Director and Senior Vice President of SSB Citi and TIA.
Joseph P. Deane (Age 51) Vice President and Investment
Officer
Investment Officer of SSB Citi; Managing Director of
Salomon Smith Barney; Investment Officer of ten investment
companies associated with Citigroup.
David T. Fare (Age 37) Vice President and Investment
Officer
Investment Officer of SSB Citi; Vice President of Salomon
Smith Barney. Investment Officer of three investmetn
companies associated with Citigroup.
Paul Brook (Age 46). Controller; Director of Salomon Smith
Barney; Controller or Assistant Treasurer of forty-three
investment companies associated with Citigroup; from 1997-
1998 Managing Director of AMT Capital Services Inc.; prior
to 1997, Partner with Ernst & Young LLP.
Christina T. Sydor (Age 49). Secretary; Managing Director
of Salomon Smith Barney; Secretary of sixty-one investment
companies associated with Citigroup; General Counsel and
Secretary of SSB Citi and TIA.
As of March 9, 2000, the trustees and officers owned, in
the aggregate, less than 1% of the outstanding shares of
each of the funds. No officer, director or employee of
Salomon Smith Barney or any of its affiliates receives any
compensation from the trust for serving as an officer of
the funds or trustee of the trust. The trust pays each
trustee who is not an officer, director or employee of
Salomon Smith Barney or any of its affiliates a fee of
$12,000 per annum plus $1000 per in-person meeting and $100
per telephonic meeting. Each trustee emeritus who is not an
officer, director or employee of Salomon Smith Barney or
its affiliates receives a fee of $5,000 per annum plus $500
per in-person meeting and $50 per telephonic meeting. All
trustees are reimbursed for travel and out-of-pocket
expenses incurred to attend such meetings and for the last
fiscal year the aggregate reimbursement was $14,437.
For the fiscal year ended November 30, 1999, the trustees
of the trust were paid the following compensation:
Name of Person
Aggregate
Compensat
ion
From
Trust
Total
Pension or
Retirement
Benefits
Accrued
as part of
Trust
Expenses
Compensati
on
From Trust
and Fund
Complex
Paid to
Trustees
Number of
Funds for
Which
Trustees
Serves
Within
Fund
Complex
Herbert Barg**
$15,600
$0
$114,288
16
Alfred
Bianchetti*
14,600
0
53,900
11
Martin Brody**
13,600
0
138,600
21
Dwight B.
Crane**
15,500
0
155,363
24
Burt N.
Dorsett**
15,500
0
57,950
11
Elliot S.
Jaffe**
12,600
0
45,100
11
Stephen E.
Kaufman**
15,600
0
110,650
13
Joseph J.
McCann**
15,600
0
58,050
11
Heath B.
McLendon *
- -
- -
- -
71
Cornelius C.
Rose, Jr.**
14,600
0
53,500
11
* Designates an "interested" trustee.
** Designates member of Audit Committee.
Upon attainment of age 80, fund trustees are required to
change to emeritus status. Trustees Emeritus are entitled
to serve in emeritus status for a maximum of 10 years.
Trustees Emeritus may attend meetings but have no voting
rights.
The following table contains a list of shareholders of
record or who beneficially owned at least 5% of the
outstanding shares of a particular class of shares of a
fund of the Company as of March 9, 2000.
INTERMEDIATE MATURITY CALIFORNIA MUNICIPALS FUND CLASS L
PERCENTAGE OF SHARES
Monty Finefrock and
Paula Finefrock JTWROS
8 Skyline Drive
Woodside, CA 94062
Owned 58,825.543 (9.54%)
Donald B. McCaw and
Camilla B. McCaw
Camilla B McCaw Rev Trust
DTD 6/23/93
42 Forbes Avenue
San Anselino, , CA 94960
Owned 40,00.488 (6.48%)
Donald B. McCaw and
Camilla B. McCaw
Camilla B McCaw Rev Trust
DTD 6/23/93
42 Forbes Avenue
San Anselino, , CA 94960
Owned 38,635.159 (6.26%)
INTERMEDIATE MATURITY CALIFORNIA MUNICIPALS FUND CLASS Y
PERCENTAGE OF SHARES
Anthony S. Wong & Mandy Tang Wong
TTEES FBO the Amp Wong
Family Trust U/A/D 12/8/89
1071 Piedmont Drive
Sacramento, CA 95822
Owned 37,309.217 (100%) shares
INTERMEDIATE MATURITY NEW YORK MUNICIPAL FUND CLASS L
PERCENTAGE OF SHARES
Muriel S. Kessler
60 East 42nd St.
Suite 1136
New York, New York 10165
Owned 35,669.370 (6.31%) shares
INVESTMENT RESTRICTIONS
The investment restrictions numbered 1 through 6 below have
been adopted by the trust as fundamental policies of the
funds. Under the 1940 Act, a fundamental policy may not be
changed with respect to a fund without the vote of a
majority of the outstanding voting securities of the fund.
Majority is defined in the 1940 Act as the lesser of (a)
67% or more of the shares present at a fund meeting, if the
holders of more than 50% of the outstanding shares of the
fund are present or represented by proxy, or (b) more than
50% of outstanding shares. The remaining restrictions may
be changed by a vote of a majority of the trust's board of
trustees at any time.
Under the investment restrictions adopted by the trust with
respect to the funds: No fund will
1. Invest more than 25% of its total assets in securities,
the issuers of which conduct their principal business
activities in the same industry. For purposes of this
limitation, securities of the U.S. government (including
its agencies and instrumentalities) and securities of
state or municipal governments and their political
subdivisions are not considered to be issued by members
of any industry.
2. Borrow money, except that (a) the fund may borrow from
banks for temporary or emergency (not leveraging)
purposes, including the meeting of redemption requests
which might otherwise require the untimely disposition
of securities, and (b) the fund may, to the extent
consistent with its investment policies, enter into
reverse repurchase agreements, forward roll transactions
and similar investment strategies and techniques. To
the extent that it engages in transactions described in
(a) and (b), the fund will be limited so that no more
than 33 1/3% of the value of its total assets (including
the amount borrowed), valued at the lesser of cost or
market, less liabilities (not including the amount
borrowed), is derived from such transactions.
3. Issue "senior securities" as defined in the 1940 Act and
the rules, regulations and orders thereunder, except as
permitted under the 1940 Act and the rules, regulations
and orders thereunder.
4. Make loans. This restriction does not apply to: (a) the
purchase of debt obligations in which the fund may
invest consistent with its investment objectives and
policies; (b) repurchase agreements; and (c) loans of
its portfolio securities, to the fullest extent
permitted under the 1940 Act.
5. Purchase or sell real estate, real estate mortgages,
commodities or commodity contracts, but this restriction
shall not prevent the fund from (a) investing in
securities of issuers engaged in the real estate
business or the business of investing in real estate
(including interests in limited partnerships owning or
otherwise engaging in the real estate business or the
business of investing in real estate) and securities
which are secured by real estate or interests therein;
(b) holding or selling real estate received in
connection with securities it holds or held; (c) trading
in futures contracts and options on futures contracts
(including options on currencies to the extent
consistent with the funds' investment objective and
policies); or (d) investing in real estate investment
trust securities.
6. Engage in the business of underwriting securities issued
by other persons, except to the extent that the fund
may technically be deemed to be an underwriter under the
Securities Act of 1933, as amended, in disposing of
portfolio securities.
7. Purchase any securities on margin (except for such
short-term credits as are necessary for the clearance of
purchases and sales of portfolio securities) or sell any
securities short (except "against the box"). For
purposes of this restriction, the deposit or payment by
the fund of underlying securities and other assets in
escrow and collateral agreements with respect to initial
or maintenance margin in connection with futures
contracts and related options and options on securities,
indexes or similar items is not considered to be the
purchase of a security on margin.
8. No fund will invest in oil, gas or other mineral leases
or exploration or development programs.
9. No fund may write or sell puts, calls, straddles,
spreads or combinations of those transactions, except as
permitted under the fund's investment objective and
policies.
10. No fund will purchase a security if, as a result, the
fund would then have more than 5% of its total assets
invested in securities of issuers (including
predecessors) that have been in continuous operation for
fewer than three years, except that this limitation will
be deemed to apply to the entity supplying the revenues
from which the issue is to be paid, in the case of
private activity bonds purchased.
11. No fund may make investments for the purpose of
exercising control of management.
If any percentage restriction described above is complied
with at the time of an investment, a later increase or
decrease in percentage resulting from a change in values or
assets will not constitute a violation of such restriction.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Adviser and Administrator - SSB Citi (Manager)
SSB Citi serves as investment adviser to each fund pursuant
to an investment advisory agreement (the "Investment
Advisory Agreement") with the trust which was approved by
the board of trustees, including a majority of trustees who
are not "interested persons" of the trust or the manager.
The manager is a wholly owned subsidiary of Salomon Smith
Barney Holdings Inc. ("Holdings"), which in turn, is a
wholly owned subsidiary of Citigroup Subject to the
supervision and direction of the trust's board of trustees,
the manager manages each fund's portfolio in accordance
with the fund's stated investment objective and policies,
makes investment decisions for the fund, places orders to
purchase and sell securities, and employs professional
portfolio managers and securities analysts who provide
research services to the fund. The manager pays the salary
of any officer and employee who is employed by both it and
the Trust. The manager bears all expenses in connection
with the performance of its services.
As compensation for investment advisory services, each fund
pays the manager a fee computed daily and paid monthly at
the annual rate of 0.30% of the fund's average daily net
assets.
The funds paid the manager investment advisory fees, and
the investment manager waived fees and reimbursed expenses
as follows:
For the fiscal year ended
November 30, 1997
November 30, 1998
November 30, 1999
Fund
Fees
Paid
Fees
Waived and
Expenses
Reimbursed
Fees
Paid
Fees
Waived
and
Expenses
Reimburse
d
Fees
Paid
Fees Waived
and
Expenses
Reimbursed
California
Fund
$
20,278
$
63,087
$
47,759
$
46,438
$63,1
68
$ 46,738
New York
Fund
59,523
90,299
98,264
63,179
132,3
35
56,912
SSB Citi also serves as administrator to the New York and
California Funds pursuant to a written agreement (the
"Administration Agreement"), which was approved by the
trustees of the trust, including a majority of trustees who
are not "interested persons" of the trust or the
administrator. The administrator pays the salary of any
officer and employee who is employed by both it and the
trust and bears all expenses in connection with the
performance of its services.
As administrator SSB Citi: (a) assists in supervising all
aspects of the funds' operations except those performed by
the funds' investment manager under its investment advisory
agreement; b) supplies the fund with office facilities
(which may be in SSB Citi's own offices), statistical and
research data, data processing services, clerical,
accounting and bookkeeping services, including, but not
limited to, the calculation of (i) the net asset value of
shares of the fund, (ii) applicable contingent deferred
sales charges ("deferred sales charge") and similar fees
and charges and (iii) distribution fees, internal auditing
and legal services, internal executive and administrative
services, and stationary and office supplies; and (c)
prepares reports to shareholders of the fund, tax returns
and reports to and filings with the SEC and state blue sky
authorities.
As compensation for administrative services rendered to
each fund, the administrator receives a fee computed daily
and paid monthly at the annual rate of 0.20% of each fund's
average daily net assets.
The funds paid the administrator administration fees and
the administrator waived fees and reimbursed expenses as
follows:
For the fiscal year ended
November 30, 1997
November 30, 1998
November 30, 1999
Fund
Fees
Paid
Fees
Waived
and
Expenses
Reimburse
d
Fees
Paid
Fees
Waived and
Expenses
Reimbursed
Fees
Paid
Fees Waived
and
Expenses
Reimbursed
California
Fund
$
13,518
$
42,058
$
31,840
$ 30,958
$42,1
12
$ 31,159
New York Fund
33,023
66,858
65,508
42,120
88,22
4
37,941
The trust bears expenses incurred in its operation,
including: taxes, interest, brokerage fees and commissions,
if any; fees of trustees who are not officers, directors,
shareholders or employees of Salomon Smith Barney or SSB
Citi, Securities and Exchange Commission ("SEC") fees and
state Blue Sky qualification fees; charges of custodians;
transfer and dividend disbursing agent fees; certain
insurance premiums; outside auditing and legal expenses;
costs of maintaining corporate existence; costs of investor
services (including allocated telephone and personnel
expenses); costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing
shareholders; costs of shareholders' reports and
shareholder meetings; and meetings of the officers or board
of trustees of the trust.
Auditors
KPMG LLP, independent auditors, 345 Park Avenue, New York,
New York 100174, have been selected to serve as auditors of
the trust and to render opinions on the fund's financial
statements for the fiscal year ended November 30, 2000.
Custodian, Transfer Agent and Sub-Transfer Agent
PNC Bank, National Association ("PNC" or "custodian"),
located at 17th and Chestnut Streets, Philadelphia,
Pennsylvania, 19103, serves as the custodian of the fund.
Under its custody agreement with the fund, PNC holds the
fund's securities and keeps all necessary accounts and
records. For its services, PNC receives a monthly fee based
upon the month-end market value of securities held in
custody and also receives securities transactions charges.
The assets of the fund are held under bank custodianship in
compliance with the 1940 Act.
Smith Barney Private Trust Company (the "transfer agent"),
located at 388 Greenwich Street, New York, New York 10013
serves as the transfer agent and shareholder services agent
for the fund.
PFPC Global Fund Services ("PFPC" or "sub-transfer agent"),
located at Exchange Place, Boston, Massachusetts 02109,
serves as the trust's sub-transfer agent. Under the
transfer agency agreement, the sub-transfer agent maintains
the shareholder account records for the trust, handles
certain communications between shareholders and the trust
and distributes dividends and distributions payable by the
trust. For these services, the sub-transfer agent receives
a monthly fee computed on the basis of the number of
shareholder accounts it maintains for the trust during the
month, and is reimbursed for out-of-pocket expenses.
Code of Ethics. Pursuant to Rule 17j-1 of the 1940 Act, the
funds, their investment advisers and principal underwriter
have adopted codes of ethics that permit personnel to
invest in securities for their own accounts, including
securities that may be purchased or held by the funds. All
personnel must place the interests of clients first and
avoid activities, interests and relationships that might
interfere with the duty to make decisions in the best
interests of the clients. All personal securities
transactions by employees must adhere to the requirements
of the codes and must be conducted in such a manner as to
avoid any actual or potential conflict of interest, the
appearance of such a conflict, or the abuse of an
employee's position of trust and responsibility.
A copy of the funds' Code of Ethics is on file with the
Securities and Exchange Commission.
Distributor
CFBDS, Inc. serves as the fund's distributor pursuant to a
written agreement dated October 8, 1998 (the "Distribution
Agreement") which was approved by the fund's Board of
Directors, including a majority of the Independent
Directors on July 15, 1998. Prior to the merger of
Travelers Group, Inc. and Citicorp Inc. on October 8, 1998,
Salomon Smith Barney served as the fund's distributor.
Salomon Smith Barney continues to sell the funds shares as
part of the selling group.
Commissions on Class A Shares. For the and 1997 fiscal
year, the aggregate dollar amount of commissions on Class A
shares, all of which was paid to Salomon Smith Barney, is
as follows:
Class A
Name of Fund
Fiscal Year
Ended
11/30/97
California Fund
$ 37,000
New York Fund
46,000
For the period December 1, 1997 through October 7, 1998 and
for the period October 8, 1998 through November 30, 1998,
and fiscal year ended November 30, 1999 the aggregate
dollar amounts of commissions on Class A shares, are as
follows:
Class A
Name of Fund
12/01/97
through
10/07/98*
10/08/98
through
11/30/98**
Fiscal year
ended
11/30/99***
California Fund
$ 8,000
$ 65,000
$ 76,500
New York Fund
27,000
59,000
107,100
*The entire amount was paid to Salomon Smith Barney.
** The following amounts were paid to Salomon Smith Barney:
$58,500 and $53,100 with regard to the California Fund and
the New York Fund, respectively.
***The following amounts were paid to Salomon Smith Barney:
$8,500 and $11,900 with regard to the California Fund and
the New York
Fund, respectively.
Commissions on Class L Shares. For the period June 12,
1998 through October 7, 1998 and for the period October 8,
1998 through November 30, 1998 and for the fiscal year
ended 1999, the aggregate dollar amounts of commission on
Class L shares are as follows:
Class L
(On June 12, 1998, Class C shares were
renamed Class L Shares)*
Name of Fund
06/12/98
through
10/07/98*
10/08/98
through
11/30/98**
Fiscal year
Ended
11/30/99***
California Fund
$ 4,000
$ 65,000
$ 8,000
New York Fund
3,000
59,000
16,000
*The entire amount was paid to Salomon Smith Barney.
** The following amounts were paid to Salomon Smith Barney:
$7,200 and $14,400 with regard to the California Fund and
the New York Fund, respectively.
***The following amounts were paid to Salomon Smith Barney:
$1,200 and $1,800 with regard to the California Fund and
the New York
Fund, respectively.
Deferred Sales Charges on Class A and L Shares For the
1997, 1998 and 1999 fiscal years, the following deferred
sales charges were paid to Salomon Smith Barney on
redemptions of the funds' shares:
Class A
Name of Fund
Fiscal Year
Ended
11/30/97
Fiscal Year
Ended 11/30/98
Fiscal Year
Ended 11/30/99
California Fund
$0
$0
$0
New York Fund
1,000
3,000
0
Class L
(On June 12, 1998, Class C shares were
renamed Class L Shares)
Name of Fund
Fiscal Year
Ended
11/30/97
Fiscal Year
Ended 11/30/98
Fiscal Year
Ended 11/30/99
California Fund
$1,000
$ 1,000
$ 2,000
New York Fund
1,000
4,000
3,000
When payment is made by the investor before the settlement
date, unless otherwise requested in writing by the
investor, the funds will be held as a free credit balance
in the investor's brokerage account and Smith Barney may
benefit from the temporary use of the funds. The trust's
board of trustees has been advised of the benefits to
Salomon Smith Barney resulting from these settlement
procedures and will take such benefits into consideration
when reviewing the Advisory, Administration and
Distribution Agreements for continuance.
California Fund
For the fiscal year ended November 30, 1999, Salomon Smith
Barney incurred distribution expenses totaling $74,646
consisting of $6,606 for advertising, $362 for printing of
prospectuses, $32,024 for support services, $35,448 to
Salomon Smith Barney Financial Consultants, and $206 in
accruals for interest on the excess of Salomon Smith Barney
expenses incurred in distribution of the funds' shares over
the sum of the distribution fees and deferred sales charge
received by Salomon Smith Barney from the fund.
New York Fund
For the fiscal year ended November 30, 1999, Salomon Smith
Barney incurred distribution expenses totaling
approximately $127,828 consisting of $11,460 for
advertising, $348 for printing of prospectuses, $56,936 for
support services, $58,673 to Salomon Smith Barney Financial
Consultants, and $411 in accruals for interest on the
excess of Salomon Smith Barney expenses incurred in
distribution of the funds' shares over the sum of the
distribution fees and deferred sales charge received by
Salomon Smith Barney from the fund.
Distribution Arrangements for the New York and California
Fund
To compensate Salomon Smith Barney for the services it
provides and for the expense it bears, the trust has
adopted a services and distribution plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. Under the Plan,
both the New York and California Fund pays Salomon Smith
Barney a service fee, accrued daily and paid monthly,
calculated at the annual rate of 0.15% of the value of the
fund's average daily net assets attributable to the fund's
Class A and Class L shares. In addition, each fund pays
Salomon Smith Barney a distribution fee with respect to the
Class L shares primarily intended to compensate Smith
Barney for its initial expense of paying its Financial
Consultants a commission upon sales of those shares. The
Class L distribution fee is calculated at the annual rate
of 0.20% of the value of each fund's average net assets
attributable to the shares of the Class. The following
service and distribution fees were incurred during the
periods indicated:
DISTRIBUTION PLAN FEES
California Fund:
Year Ended
11/30/99
Year Ended
11/30/98
Year Ended
11/30/97
Class A
$46,3
19
$39,973
$37,151
Class L
19,0
55
15,564
9,596
New York Fund:
Class A
86,8
40
76,471
$72,443
Class L
18,1
62
9,917
5,758
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for each fund are made
by the manager, subject to the overall review of the
trust's board of trustees. Although investment decisions
for each fund are made independently from those of the
other accounts managed by the manager, investments of the
type that a fund may make also may be made by those other
accounts. When a fund and one or more other accounts
managed by the manager are prepared to invest in, or desire
to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner
believed by the manager to be equitable to each. In some
cases, this procedure may adversely affect the price paid
or received by a fund or the size of the position obtained
or disposed of by a fund. The trust has paid no brokerage
commissions since its commencement of operations.
Allocation of transactions on behalf of the funds,
including their frequency, to various dealers is determined
by the manager in its best judgment and in a manner deemed
fair and reasonable to the funds' shareholders. The
primary considerations of the manager in allocating
transactions are availability of the desired security and
the prompt execution of orders in an effective manner at
the most favorable prices. Subject to these
considerations, dealers that provide supplemental
investment research and statistical or other services to
the manager may receive orders for portfolio transactions
by a fund. Information so received is in addition to, and
not in lieu of, services required to be performed by the
manager, and the fees of the manager are not reduced as a
consequence of their receipt of the supplemental
information. The information may be useful to the manager
in serving both a fund and other clients, and conversely,
supplemental information obtained by the placement of
business of other clients may be useful to the manager in
carrying out its obligations to a fund.
No fund will purchase U.S. government securities or
Municipal Obligations during the existence of any
underwriting or selling group relating to the securities,
of which the Adviser is a member, except to the extent
permitted by the SEC. Under certain circumstances, a fund
may be at a disadvantage because of this limitation in
comparison with other funds that have similar investment
objectives but that are not subject to a similar
limitation.
The trust has paid no brokerage commissions for portfolio
transactions since its commencement of operations.
Portfolio securities transactions on behalf of the fund are
placed by the manager with a number of brokers and dealers,
including Salomon Smith Barney. Salomon Smith Barney has
advised the fund that in transactions with the fund,
Salomon Smith Barney charges a commission rate at least as
favorable as the rate that Salomon Smith Barney charges its
comparable unaffiliated customers in similar transactions.
PORTFOLIO TURNOVER
While a fund's portfolio turnover rate (the lesser of
purchases or sales of portfolio securities during the year,
excluding purchases or sales of short-term securities,
divided by the monthly average value of portfolio
securities) is generally not expected to exceed 100%, it
has in the past exceeded 100% with respect to these funds.
The rate of turnover will not be a limiting factor,
however, when a fund deems it desirable to sell or purchase
securities. This policy should not result in higher
brokerage commissions to a fund, as purchases and sales of
portfolio securities are usually effected as principal
transactions. Securities may be sold in anticipation of a
rise in interest rates (market decline) or purchased in
anticipation of a decline in interest rates (market rise)
and later sold. In addition, a security may be sold and
another security of comparable quality purchased at
approximately the same time to take advantage of what the
fund believes to be a temporary disparity in the normal
yield relationship between the two securities. These yield
disparities may occur for reasons not directly related to
the investment quality of particular issues or the general
movement of interest rates, such as changes in the overall
demand for, or supply of, various types of tax-exempt
securities.
The portfolio turnover rates are as follows:
Fund
Year Ended
11/30/99
Year Ended
11/30/98
California Fund
29%
8%
New York Fund
23%
53%
PURCHASE OF SHARES
Sales Charge Alternatives
The following classes of shares are available for purchase.
See the prospectus for a discussion of factors to consider
in selecting which Class of shares to purchase.
Class A Shares. Class A shares are sold to investors at
the public offering price, which is the net asset value
plus an initial sales charge as follows:
Amount of
Investment
Sales Charge as
a %
Of Transaction
Sales Charge as
a %
Of Amount
Invested
Dealers'
Reallowance as %
Of Offering Price
Less than
$500,000
2.00%
2.04%
1.80%
$500,000 and over
*
*
*
* Purchases of Class A shares of $500,000 or more will be
made at net asset value without any initial sales charge,
but will be subject to a deferred sales charge of 1.00% on
redemptions made within 12 months of purchase. The
deferred sales charge on Class A shares is payable to
Salomon Smith Barney, which compensates Salomon Smith
Barney Financial Consultants and other dealers whose
clients make purchases of $500,000 or more. The deferred
sales charge is waived in the same circumstances in which
the deferred sales charge applicable to Class L shares is
waived. See "Purchase of Shares-Deferred Sales Charge
Provisions" and "Purchase of Shares-Waivers of Deferred
Sales Charge."
Members of the selling group may receive up to 90% of the
sales charge and may be deemed to be underwriters of the
fund as defined in the Securities Act of 1933, as amended.
The reduced sales charges shown above apply to the
aggregate of purchases of Class A shares of the fund made
at one time by "any person," which includes an individual
and his or her immediate family, or a trustee or other
fiduciary of a single trust estate or single fiduciary
account.
Class L Shares. Class L shares are sold with an initial
sales charge of 1.00% (which is equal to 1.01% of the
amount invested) and are subject to a deferred sales charge
payable upon certain redemptions. See "Deferred Sales
Charge Provisions" below. Until June 22, 2001 purchases of
Class L shares by investors who were holders of Class C
shares of the fund on June 12, 1998 will not be subject to
the 1% initial sales charge.
Class Y Shares. Class Y shares are sold without an initial
sales charge or deferred sales charge and are available
only to investors investing a minimum of $15,000,000
(except purchases of Class Y shares by Smith Barney Concert
Allocation Series Inc., for which there is no minimum
purchase amount).
General
Investors may purchase shares from a Salomon Smith Barney
Financial Consultant or a Dealer Representative. In
addition, certain investors may purchase shares directly
from the fund. When purchasing shares of the fund,
investors must specify whether the purchase is for Class A,
Class L or Class Y shares. Salomon Smith Barney and Dealer
Representatives may charge their customers an annual
account maintenance fee in connection with a brokerage
account through which an investor purchases or holds
shares. Accounts held directly at the sub-transfer agent
are not subject to a maintenance fee.
Investors in Class A and Class L shares may open an account
in the fund by making an initial investment of at least
$1,000 for each account, in the fund. Investors in Class Y
shares may open an account by making an initial investment
of $15,000,000. Subsequent investments of at least $50 may
be made for all Classes. For shareholders purchasing shares
of the fund through the Systematic Investment Plan on a
monthly basis, the minimum initial investment requirement
for Class A and Class L shares and subsequent investment
requirement for all Classes is $25. For shareholders
purchasing shares of the fund through the Systematic
Investment Plan on a quarterly basis, the minimum initial
investment required for Class A and Class L shares and the
subsequent investment requirement for all Classes is $50.
There are no minimum investment requirements for Class A
shares for employees of Citigroup and its subsidiaries,
including Salomon Smith Barney, unitholders who invest
distributions from a Unit Investment Trust ("UIT")
sponsored by Salomon Smith Barney, and Directors/Trustees
of any of the Smith Barney mutual funds, and their spouses
and children. The fund reserves the right to waive or
change minimums, to decline any order to purchase its
shares and to suspend the offering of shares from time to
time. Shares purchased will be held in the shareholder's
account by the sub-transfer agent. Share certificates are
issued only upon a shareholder's written request to the
sub-transfer agent. It is not recommended that the fund be
used as a vehicle for Keogh, IRA or other qualified
retirement plans.
Purchase orders received by the fund or a Salomon Smith
Barney Financial Consultant prior to the close of regular
trading on the NYSE, on any day the fund calculates its net
asset value, are priced according to the net asset value
determined on that day (the ''trade date''). Orders
received by a Dealer Representative prior to the close of
regular trading on the NYSE on any day the fund calculates
its net asset value, are priced according to the net asset
value determined on that day, provided the order is
received by the fund or the fund's agent prior to its close
of business. For shares purchased through Salomon Smith
Barney or a Dealer Representative purchasing through
Salomon Smith Barney, payment for shares of the fund is due
on the third business day after the trade date. In all
other cases, payment must be made with the purchase order.
Systematic Investment Plan. Shareholders may make
additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment
Plan. Under the Systematic Investment Plan, Salomon Smith
Barney or the sub-transfer agent is authorized through
preauthorized transfers of at least $25 on a monthly basis
or at least $50 on a quarterly basis to charge the
shareholder's account held with a bank or other financial
institution on a monthly or quarterly basis as indicated by
the shareholder, to provide for systematic additions to the
shareholder's fund account. A shareholder who has
insufficient funds to complete the transfer will be charged
a fee of up to $25 by Salomon Smith Barney or the sub-
transfer agent. The Systematic Investment Plan also
authorizes Salomon Smith Barney to apply cash held in the
shareholder's Salomon Smith Barney brokerage account or
redeem the shareholder's shares of a Smith Barney money
market fund to make additions to the account. Additional
information is available from the fund or a Salomon Smith
Barney Financial Consultant or a Dealer Representative.
Sales Charge Waivers and Reductions
Initial Sales Charge Waivers. Purchases of Class A shares
may be made at net asset value without a sales charge in
the following circumstances: (a) sales to (i) Board Members
and employees of Citigroup and its subsidiaries and any
Citigroup affiliated funds including the Smith Barney
mutual funds (including retired Board Members and
employees); the immediate families of such persons
(including the surviving spouse of a deceased Board Member
or employee); and to a pension, profit-sharing or other
benefit plan for such persons and (ii) employees of members
of the National Association of Securities Dealers, Inc.,
provided such sales are made upon the assurance of the
purchaser that the purchase is made for investment purposes
and that the securities will not be resold except through
redemption or repurchase; (b) offers of Class A shares to
any other investment company to effect the combination of
such company with the fund by merger, acquisition of assets
or otherwise; (c) purchases of Class A shares by any client
of a newly employed Salomon Smith Barney Financial
Consultant (for a period up to 90 days from the
commencement of the Financial Consultant's employment with
Salomon Smith Barney), on the condition the purchase of
Class A shares is made with the proceeds of the redemption
of shares of a mutual fund which (i) was sponsored by the
Financial Consultant's prior employer, (ii) was sold to the
client by the Financial Consultant and (iii) was subject to
a sales charge; (d) purchases by shareholders who have
redeemed Class A shares in the fund (or Class A shares of
another Smith Barney mutual fund that is offered with a
sales charge) and who wish to reinvest their redemption
proceeds in the m, provided the reinvestment is made within
60 calendar days of the redemption; (e) purchases by
accounts managed by registered investment advisory
subsidiaries of Citigroup; (f) investments of distributions
from or proceeds from a sale of a UIT sponsored by Salomon
Smith Barney; and (g) purchases by investors participating
in a Salomon Smith Barney fee-based arrangement. In order
to obtain such discounts, the purchaser must provide
sufficient information at the time of purchase to permit
verification that the purchase would qualify for the
elimination of the sales charge.
Right of Accumulation. Class A shares of the fund may be
purchased by ''any person'' (as defined above) at a reduced
sales charge or at net asset value determined by
aggregating the dollar amount of the new purchase and the
total net asset value of all Class A shares of the fund and
of other Smith Barney mutual funds that are offered with a
sales charge as currently listed under ''Exchange
Privilege'' then held by such person and applying the sales
charge applicable to such aggregate. In order to obtain
such discount, the purchaser must provide sufficient
information at the time of purchase to permit verification
that the purchase qualifies for the reduced sales charge.
The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares
purchased thereafter.
Letter of Intent - Class A Shares. A Letter of Intent for
an amount of $50,000 or more provides an opportunity for an
investor to obtain a reduced sales charge by aggregating
investments over a 13 month period, provided that the
investor refers to such Letter when placing orders. For
purposes of a Letter of Intent, the ''Amount of
Investment'' as referred to in the preceding sales charge
table includes (i) all Class A shares of the fund and other
Smith Barney mutual funds offered with a sales charge
acquired during the term of the letter plus (ii) the value
of all Class A shares previously purchased and still owned.
Each investment made during the period receives the reduced
sales charge applicable to the total amount of the
investment goal. If the goal is not achieved within the
period, the investor must pay the difference between the
sales charges applicable to the purchases made and the
charges previously paid, or an appropriate number of
escrowed shares will be redeemed. The term of the Letter
will commence upon the date the Letter is signed, or at the
options of the investor, up to 90 days before such date.
Please contact a Salomon Smith Barney Financial Consultant
or the transfer agent obtain a Letter of Intent
application.
Letter of Intent - Class Y Shares. A Letter of Intent may
also be used as a way for investors to meet the minimum
investment requirement for Class Y shares (except purchases
of Class Y shares by Smith Barney Concert Allocation Series
Inc., for which there is no minimum purchase amount). Such
investors must make an initial minimum purchase of
$5,000,000 in Class Y shares of the fund and agree to
purchase a total of $15,000,000 of Class Y shares of the
fund within 13 months from the date of the Letter. If a
total investment of $15,000,000 is not made within the 13-
month period, all Class Y shares purchased to date will be
transferred to Class A shares, where they will be subject
to all fees (including a service fee of 0.15%) and expenses
applicable to the fund's Class A shares, which may include
a deferred sales charge of 1.00%. Please contact a Salomon
Smith Barney Financial Consultant or the transfer agent
further information.
Deferred Sales Charge Provisions
''Deferred Sales Charge Shares'' are: (a) Class L shares;
and (b) Class A shares that were purchased without an
initial sales charge but are subject to a deferred sales
charge. A deferred sales charge may be imposed on certain
redemptions of these shares.
Any applicable deferred sales charge will be assessed on an
amount equal to the lesser of the original cost of the
shares being redeemed or their net asset value at the time
of redemption. Deferred Sales Charge Shares that are
redeemed will not be subject to a deferred sales charge to
the extent the value of such shares represents: (a) capital
appreciation of fund assets; (b) reinvestment of dividends
or capital gain distributions; (c) with respect to Class L
shares and Class A shares that are Deferred Sales Charge
Shares, shares redeemed more than 12 months after their
purchase.
Class L shares and Class A shares that are Deferred Sales
Charge Shares are subject to a 1.00% deferred sales charge
if redeemed within 12 months of purchase. In circumstances
in which the deferred sales charge is imposed on Class B
shares, the amount of the charge will depend on the number
of years since the shareholder made the purchase payment
from which the amount is being redeemed. Solely for
purposes of determining the number of years since a
purchase payment, all purchase payments made during a month
will be aggregated and deemed to have been made on the last
day of the preceding Salomon Smith Barney statement month.
In determining the applicability of any deferred sales
charge, it will be assumed that a redemption is made first
of shares representing capital appreciation, next of shares
representing the reinvestment of dividends and capital gain
distributions and finally of other shares held by the
shareholder for the longest period of time. The length of
time that Deferred Sales Charge Shares acquired through an
exchange have been held will be calculated from the date
the shares exchanged were initially acquired in one of the
other Smith Barney mutual funds, and fund shares being
redeemed will be considered to represent, as applicable,
capital appreciation or dividend and capital gain
distribution reinvestments in such other funds. For Federal
income tax purposes, the amount of the deferred sales
charge will reduce the gain or increase the loss, as the
case may be, on the amount realized on redemption. The
amount of any deferred sales charge will be paid to Salomon
Smith Barney. To provide an example, assume an investor
purchased 100 Class B shares of the fund at $10 per share
for a cost of $1,000. Subsequently, the investor acquired
5 additional shares of the fund through dividend
reinvestment. During the fifteenth month after the
purchase, the investor decided to redeem $500 of his or her
investment. Assuming at the time of the redemption the net
asset value had appreciated to $12 per share, the value of
the investor's shares would be $1,260 (105 shares at $12
per share). The deferred sales charge would not be applied
to the amount which represents appreciation ($200) and the
value of the reinvested dividend shares ($60). Therefore,
$240 of the $500 redemption proceeds ($500 minus $260)
would be charged at a rate of 4.00% (the applicable rate
for Class B shares) for a total deferred sales charge of
$9.60.
Waivers of Deferred Sales Charge
The deferred sales charge will be waived on: (a) exchanges
(see ''Exchange Privilege''); (b) automatic cash
withdrawals in amounts equal to or less than 1.00% per
month of the value of the shareholder's shares at the time
the withdrawal plan commences (see ''Automatic Cash
Withdrawal Plan'') (however, automatic cash withdrawals in
amounts equal to or less than 2.00% per month of the value
of the shareholder's shares will be permitted for
withdrawal plans established prior to November 7, 1994);
(c) redemptions of shares within 12 months following the
death or disability of the shareholder; (d) involuntary
redemptions; and (e) redemptions of shares to effect a
combination of the fund with any investment company by
merger, acquisition of assets or otherwise. In addition, a
shareholder who has redeemed shares from other Smith Barney
mutual funds may, under certain circumstances, reinvest all
or part of the redemption proceeds within 60 days and
receive pro rata credit for any deferred sales charge
imposed on the prior redemption.
Deferred sales charge waivers will be granted subject to
confirmation (by Salomon Smith Barney in the case of
shareholders who are also Salomon Smith Barney clients or
by the transfer agent in the case of all other
shareholders) of the shareholder's status or holdings, as
the case may be.
Volume Discounts
The schedule of sales charges on Class A shares described
in the prospectus applies to purchases made by any
"purchaser," which is defined to include the following: (a)
an individual; (b) an individual's spouse and his or her
children purchasing shares for their own account; (c) a
trustee or other fiduciary purchasing shares for a single
trust estate or single fiduciary account; and (d) a trustee
or other professional fiduciary (including a bank, or an
investment adviser registered with the SEC under the
Investment Advisers Act of 1940, as amended) purchasing
shares of the fund for one or more trust estates or
fiduciary accounts. Purchasers who wish to combine
purchase orders to take advantage of volume discounts on
Class A shares should contact a Salomon Smith Barney
Financial Consultant.
Determination of Public Offering Price
Each fund offers its shares to the public on a continuous
basis. The public offering price for a Class A and Class Y
share of the fund is equal to the net asset value per share
at the time of purchase, plus for Class A shares an initial
sales charge based on the aggregate amount of the
investment. The public offering price for a Class L share
(and Class A share purchases, including applicable rights
of accumulation, equaling or exceeding $500,000) is equal
to the net asset value per share at the time of purchase
and no sales charge is imposed at the time of purchase. A
deferred sales charge, however, is imposed on certain
redemptions of Class L shares, and Class A shares when
purchased in amounts exceeding $500,000. The method of
computation of the public offering price is shown in each
fund's financial statements, incorporated by reference in
their entirety into this SAI.
REDEMPTION OF SHARES
The right of redemption of shares of either fund may be
suspended or the date of payment postponed (a) for any
periods during which the New York Stock Exchange, Inc. (the
"NYSE") is closed (other than for customary weekend and
holiday closings), (b) when trading in the markets the fund
normally utilizes is restricted, or an emergency exists, as
determined by the SEC, so that disposal of the fund's
investments or determination of its net asset value is not
reasonably practicable or (c) for any other periods as the
SEC by order may permit for the protection of the fund's
shareholders.
If the shares to be redeemed were issued in certificate
form, the certificates must be endorsed for transfer (or be
accompanied by an endorsed stock power) and must be
submitted to the sub-transfer agent together with the
redemption request. Any signature appearing on a share
certificate, stock power or written redemption request in
excess of $10,000 must be guaranteed by an eligible
guarantor institution such as a domestic bank, savings and
loan institution, domestic credit union, member bank of the
Federal Reserve System or member firm of a national
securities exchange. Written redemption requests of
$10,000 or less do not require a signature guarantee unless
more than one such redemption request is made in any 10-day
period or the redemption proceeds are to be sent to an
address other than the address of record. Unless otherwise
directed, redemption proceeds will be mailed to an
investor's address of record. The transfer agent may
require additional supporting documents for redemptions
made by corporations, executors, administrators, trustees
or guardians. A redemption request will not be deemed
properly received until the transfer agent receives all
required documents in proper form.
If a shareholder holds shares in more than one Class, any
request for redemption must specify the Class being
redeemed. In the event of a failure to specify which
Class, or if the investor owns fewer shares of the Class
than specified, the redemption request will be delayed
until the transfer agent receives further instructions from
Salomon Smith Barney, or if the shareholder's account is
not with Salomon Smith Barney, from the shareholder
directly. The redemption proceeds will be remitted on or
before the third business day following receipt of proper
tender, except on any days on which the NYSE is closed or
as permitted under the 1940 Act, in extraordinary
circumstances. Generally, if the redemption proceeds are
remitted to a Salomon Smith Barney brokerage account, these
funds will not be invested for the shareholder's benefit
without specific instruction and Salomon Smith Barney will
benefit from the use of temporarily uninvested funds.
Redemption proceeds for shares purchased by check, other
than a certified or official bank check, will be remitted
upon clearance of the check, which may take up to fifteen
days or more.
Distribution in Kind
If the board of trustees of the trust determines that it
would be detrimental to the best interests of the remaining
shareholders to make a redemption payment wholly in cash, a
fund may pay, in accordance with SEC rules, any portion of
a redemption in excess of the lesser of $250,000 or 1.00%
of the fund's net assets by a distribution in kind of
portfolio securities in lieu of cash. Securities issued as
a distribution in kind may incur brokerage commissions when
shareholders subsequently sell those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan")
is available to shareholders of any fund who own shares of
the fund with a value of at least $10,000 and who wish to
receive specific amounts of cash monthly or quarterly.
Withdrawals of at least $50 may be made under the
Withdrawal Plan by redeeming as many shares of the fund as
may be necessary to cover the stipulated withdrawal
payment. Any applicable deferred sales charge will not be
waived on amounts withdrawn by shareholders that exceed
1.00% per month of the value of a shareholder's shares at
the time the Withdrawal Plan commences. (With respect to
Withdrawal Plans in effect prior to November 7, 1994, any
applicable deferred sales charge will be waived on amounts
withdrawn that do not exceed 2.00% per month of the value
of a shareholder's shares at the time the Withdrawal Plan
commences). To the extent that withdrawals exceed
dividends, distributions and appreciation of a
shareholder's investment in a fund, continued withdrawal
payments will reduce the shareholder's investment, and may
ultimately exhaust it. Withdrawal payments should not be
considered as income from investment in a fund.
Furthermore, as it generally would not be advantageous to a
shareholder to make additional investments in the fund at
the same time he or she is participating in the Withdrawal
Plan in amounts of less than $5,000 ordinarily will not be
permitted.
Shareholders of a fund who wish to participate in the
Withdrawal Plan and who hold their shares of the fund in
certificate form must deposit their share certificates with
the sub-transfer agent as agent for Withdrawal Plan
members. All dividends and distributions on shares in the
Withdrawal Plan are reinvested automatically at net asset
value in additional shares of the fund involved. A
shareholder who purchases shares directly through the sub-
transfer agent may continue to do so and applications for
participation in the Withdrawal Plan must be received by
the sub-transfer agent no later than the eighth day of the
month to be eligible for participation beginning with that
month's withdrawal. For additional information,
shareholders should contact a Salomon Smith Barney
Financial Consultant or your Dealer Representative or the
sub-transfer agent.
VALUATION OF SHARES
The net asset value per share of each fund's Classes is
calculated on each day, Monday through Friday, except days
on which the NYSE is closed. The NYSE currently is
scheduled to be closed on New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas,
and on the preceding Friday or subsequent Monday when one
of these holidays falls on a Saturday or Sunday,
respectively. Because of the differences in distribution
fees and Class-specific expenses, the per share net asset
value of each Class may differ. The following is a
description of the procedures used by the trust in valuing
its assets.
In carrying out valuation policies adopted by the trust's
board of trustees for the New York Fund and California
Fund, the administrator, may consult with an independent
pricing service (the "Pricing Service") retained by the
trust. Debt securities of domestic issuers (other than
U.S. government securities and short-term investments),
including Municipal Obligations, are valued by the manager
after consultation with the Pricing Service. U.S.
government securities will be valued at the mean between
the closing bid and asked prices on each day, or, if market
quotations for those securities are not readily available,
at fair value, as determined in good faith by the trust's
board of trustees. With respect to other securities held
by the fund, when, in the judgment of the Pricing Service,
quoted bid prices for investments are readily available and
are representative of the bid side of the market, these
investments are valued at the mean between the quoted bid
prices and asked prices. Investments for which no readily
obtainable market quotations are available, in the judgment
of the Pricing Service, are carried at fair value as
determined by the Pricing Service. The procedures of the
Pricing Service are reviewed periodically by the officers
of the trust under the general supervision and
responsibility of the board of trustees.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any of the Smith
Barney mutual funds may exchange all or part of their
shares for shares of the same Class of other Smith Barney
mutual funds, on the basis of relative net asset value per
share at the time of exchange as follows:
A. Class A shares of the fund may be exchanged
without a sales charge for Class A shares of any of
the Smith Barney mutual funds.
B. Class L shares of any fund may be exchanged
without a sales charge. For purposes of deferred
sales charge applicability, Class L shares of the
fund exchanged for Class L shares of another Smith
Barney mutual fund will be deemed to have been owned
since the date the shares being exchanged were deemed
to be purchased.
The exchange privilege enables shareholders in any Smith
Barney mutual fund to acquire shares of the same Class in a
fund with different investment objectives when they believe
a shift between funds is an appropriate investment
decision. This privilege is available to shareholders
residing in any state in which the fund shares being
acquired may legally be sold. Prior to any exchange, the
shareholder should obtain and review a copy of the current
prospectus of each fund into which an exchange is being
considered. Prospectuses may be obtained from a Salomon
Smith Barney Financial Consultant.
Upon receipt of proper instructions and all necessary
supporting documents, shares submitted for exchange are
redeemed at the then-current net asset value and, subject
to any applicable deferred sales charge, the proceeds are
immediately invested, at a price as described above, in
shares of the fund being acquired. Smith Barney reserves
the right to reject any exchange request. The exchange
privilege may be modified or terminated at any time after
written notice to shareholders.
Additional Information Regarding the Exchange Privilege.
Although the exchange privilege is an important benefit,
excessive exchange transactions can be detrimental to
either the fund's performance or its shareholders. The
manager may determine that a pattern of frequent exchanges
is excessive and contrary to the best interests of the
fund's other shareholders. In this event, each fund may,
at its discretion, decide to limit additional purchases
and/or exchanges by a shareholder. Upon such a
determination, the fund will provide notice in writing or
by telephone to the shareholder at least 15 days prior to
suspending the exchange privilege and during the 15 day
period the shareholder will be required to (a) redeem his
or her shares in the fund or (b) remain invested in the
fund or exchange into any of the funds of the Smith Barney
mutual funds ordinarily available, which position the
shareholder would be expected to maintain for a significant
period of time. All relevant factors will be considered in
determining what constitutes an abusive pattern of
exchanges.
Additional Information Regarding Telephone Redemption and
Exchange Program.
Neither the funds nor their agents will be liable for
following instructions communicated by telephone that are
reasonably believed to be genuine. The funds nor their
agents will employ procedures designed to verify the
identity of the caller and legitimacy of instructions (for
example, a shareholder's name and account number will be
required and phone calls may be recorded). Each fund
reserves the right to suspend, modify or discontinue the
telephone redemption and exchange program or to impose a
charge for this service at any time following at least
seven (7) days prior notice to shareholders.
PERFORMANCE DATA
From time to time, the trust may quote a fund's yield or
total return in advertisements or in reports and other
communications to shareholders. The trust may include
comparative performance information in advertising or
marketing each fund's shares. Such performance information
may include the following industry and financial
publications- Barron's, Business Week, CDA Investment
Technologies, Inc., Changing Times, Forbes, Fortune,
Institutional Investor, Investors Business Daily, Money,
Morningstar Mutual Fund Values, The New York Times, USA
Today and The Wall Street Journal. To the extent any
advertisement or sales literature of a fund describes the
expenses or performance of any Class it will also disclose
such information for the other Classes.
Yield and Equivalent Taxable Yield
A fund's 30-day yield described in the Prospectuses is
calculated according to a formula prescribed by the SEC,
expressed as follows:
Yield = 2[(A - B + 1)6 - 1]
Where: a = Dividends and interest
earned during the period
b = Expenses accrued for the
period (net of reimbursements)
c = The average daily number of
shares outstanding during the
period that were entitled to
receive dividends
d = The maximum offering price
per share on the last day of
the period
For the purpose of determining the interest earned
(variable "a" in the formula) on debt obligations that were
purchased by a fund at a discount or premium, the formula
generally calls for amortization of the discount or
premium; the amortization schedule will be adjusted monthly
to reflect changes in the market values of the debt
obligations.
A fund's "equivalent taxable 30-day yield" for a Class is
computed by dividing that portion of the Class' 30-day
yield which is tax-exempt by one minus a stated income tax
rate and adding the product to that portion, if any, of the
Class' yield that is not tax-exempt.
The yield on municipal securities is dependent upon a
variety of factors, including general economic and monetary
conditions, conditions of the municipal securities market,
size of a particular offering, maturity of the obligation
offered and rating of the issue. Investors should
recognize that, in periods of declining interest rates, a
fund's yield for each Class of shares will tend to be
somewhat higher than prevailing market rates, and in
periods of rising interest rates a fund's yield for each
Class of shares will tend to be somewhat lower. In
addition, when interest rates are falling, the inflow of
net new money to a fund from the continuous sale of its
shares will likely be invested in portfolio instruments
producing lower yields than the balance of the fund's
portfolio, thereby reducing the current yield of the fund.
In periods of rising interest rates, the opposite can be
expected to occur.
The New York Fund's yield for Class A and Class L shares
for the 30-day period ended November 30, 1999 was 4.29% and
3.50%, respectively. The equivalent taxable yield for
Class A and Class L shares for that same period was 8.74%
and 7.13%, respectively, assuming the payment of Federal
income taxes at a rate of 39.6% and New York taxes at a
rate of 11.31%.
The California Fund's yield for Class A, Class L and Class
Y shares for the 30-day period ended November 30, 1999 was
4.05%, 3.42% and 1.38%, respectively. The equivalent
taxable yield for Class A, Class L and Class Y shares for
that same period was 7.93%, 6.69% and 2.70%, respectively,
assuming the payment of Federal income taxes at a rate of
39.6% and California taxes at a rate of 9.3%.
Average Annual Total Return
A fund's "average annual total return," as described below,
is computed according to a formula prescribed by the SEC.
The formula can be expressed as follows:
P(1 + T)n = ERV
Where: P = a hypothetical
initial payment of $1,000.
T = average annual total
return.
n = number of years.
ERV = Ending Redeemable Value
of a hypothetical
$1,000 investment made
at the beginning of a
1-, 5- or 10-year
period at the end of a
1-, 5- or 10-year
period (or fractional
portion thereof),
assuming reinvestment
of all dividends and
distributions.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period. A fund's
net investment income changes in response to fluctuations
in interest rates and the expenses of the fund.
California Fund
Average Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Since
Incept
ion1
Class A2
(2.68)
%
5.87%
N/A
5.33%
Class L3
(2.74)
%
5.85%
N/A
5.93%
Class Y4
(0.40)
%
N/A
N/A
4.95%
___________________
1 Class A commenced operations on December 31, 1991,
Class L commenced operations on November 8, 1994, and
Class Y commenced operations on September 8, 1995.
2 The average annual total return figure assumes that
the maximum 2.00% sales charge has been deducted from
the investment at the time of purchase. If the
maximum sales charge had not been deducted, the
average annual total return for Class A shares for
the same period would have been (0.70)%, 6.31% and
5.60% for one year, five years and since inception of
the fund, respectively.
3 The average annual total return figure assumes that
the maximum applicable initial and deferred sales
charges have been deducted from the investment at the
time of redemption. If the maximum initial and
deferred sales charge had not been deducted, the
average annual total return for Class L shares for
the same period would have been (0.79)%, 6.07% and
6.14% for one year, five years and since inception of
the fund, respectively.
4 Class Y shares do not incur sales charges nor
deferred sales charges.
New York Fund 1
Average Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Since
incept
ion2
Class A3
(3.17)
%
5.70%
N/A
5.34%
Class L4
(3.42)
%
N/A
N/A
5.48%
___________________
1 There is no information for Class Y shares because no
Class Y shares were outstanding for the periods
shown.
2 Class A commenced operations on December 31, 1991.
Class L commenced operations on December 2, 1994.
3 The average annual total return figure assumes that
the maximum 2.00% sales charge has been deducted from
the investment at the time of purchase. If the
maximum sales charge had not been deducted, the
average annual total return for Class A shares for
the same period would have been (1.18)%, 6.13% and
5.61% for one year, five years and since inception of
the fund, respectively.
4 The average annual total return figure assumes that
the maximum applicable initial and deferred sales
charges have been deducted from the investment at the
time of redemption. If the maximum initial and
deferred sales charges had not been deducted, the
average annual total return for Class L shares for
the same period would have been (1.49)% and 5.69% for
one year and since inception of the fund,
respectively.
Aggregate Total Return
The fund's "aggregate total return," as described below,
represents the cumulative change in the value of an
investment in the fund for the specified period and is
computed by the following formula:
ERV - P
P
Where: P = a hypothetical initial
payment of $10,000.
ERV = Ending Redeemable Value of a
hypothetical $10,000
investment made at the
beginning of the 1-, 5- or
10-year period at the end of
the 1-, 5- or 10-year period
(or fractional portion
thereof), assuming
reinvestment of all dividends
and distributions.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period.
California Fund
Aggregate Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Since
incepti
on1
Class A2
(2.68)
%
33.03%
N/A
50.92%
Class L3
(2.74)
%
32.90%
N/A
33.85%
Class Y4
(0.40)
%
N/A
N/A
22.67%
_______________________
1 Class A commenced operations on December 31, 1991,
Class L commenced operations on November 8, 1994, and
Class Y commenced operations on September 8, 1995.
2 The average annual total return figure assumes that
the maximum 2.00% sales charge has been deducted from
the investment at the time of purchase. If the
maximum sales charge had not been deducted, the
average annual total return for Class A shares for
the same period would have been (0.70)%, 35.76% and
53.98% for one year, five years and since inception
of the fund, respectively.
3 The average annual total return figure assumes that
the maximum applicable initial and deferred sales
charges have been deducted from the investment at the
time of redemption. If the maximum initial and
deferred sales charges had not been deducted, the
average annual total return for Class L shares for
the same period would have been (0.79)%, 34.27% and
35.23% for one year, five years and since inception
of the fund, respectively.
4 Class Y shares do not incur sales charges nor
deferred sales charges.
New York Fund 1
Aggregate Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Since
inceptio
n2
Class A3
(3.17)
%
31.93%
N/A
52.85%
Class L4
(3.42)
%
N/A
N/A
32.52%
_______________________
1 There is no information for Class Y shares because no
Class Y shares were outstanding for the periods
shown.
2 Class A commenced operations on December 31, 1991.
Class L commenced operations on December 2, 1994.
3 The average annual total return figure assumes that
the maximum 2.00% sales charge has been deducted from
the investment at the time of purchase. If the
maximum sales charge had not been deducted, the
average annual total return for Class A shares for
the same period would have been (1.18)%, 34.63% and
54.10% for one year, five years and since inception
of the fund, respectively.
4 The average annual total return figure assumes that
the maximum applicable initial and deferred sales
charges have been deducted from the investment at the
time of redemption. If the maximum initial and
deferred sales charges had not been deducted, the
average annual total return for Class L shares for
the same period would have been (1.49)% and 31.87%
for one year and since inception of the fund,
respectively.
It is important to note that the total return figures set
forth above are based on historical earnings and are not
intended to indicate future performance. Each Class' net
investment income changes in response to fluctuations in
interest rates and the expenses of the fund. Performance
will vary from time to time depending upon market
conditions, the composition of the fund's portfolio and
operating expenses and the expenses exclusively
attributable to the Class. Consequently, any given
performance quotation should not be considered
representative of the Class' performance for any specified
period in the future. Because performance will vary, it
may not provide a basis for comparing an investment in the
Class with certain bank deposits or other investments that
pay a fixed yield for a stated period of time. Investors
comparing a Class' performance with that of other mutual
funds should give consideration to the quality and maturity
of the respective investment companies' portfolio
securities.
DIVIDENDS, DISTRIBUTION AND TAXES
Dividends and Distributions. The fund's policy is to
declare and pay exempt-interest dividends monthly.
Dividends from net realized capital gains, if any, will be
distributed annually. The fund may also pay additional
dividends shortly before December 31 from certain amounts
of undistributed ordinary income and capital gains in order
to avoid a federal excise tax liability. If a shareholder
does not otherwise instruct, exempt-interest dividends and
capital gain distributions will be reinvested automatically
in additional shares of the same Class at net asset value,
with no additional sales charge charge or deferred sales
charge.
The per-share amounts of the exempt-interest dividends on
Class L shares may be lower than on Class A and Class Y
shares, mainly as a result of the distribution fees
applicable to Class L shares. Similarly, the per-share
amounts of exempt-interest dividends on Class A shares may
be lower than on Class A shares, as a result of the service
fee attributable to Class A shares. Capital gain
distributions, if any, will be the same for all Classes of
fund shares (A, L and Y).
Taxes
The following is a summary of the material United States
federal income tax considerations regarding the purchase,
ownership and disposition of shares of a fund. Each
prospective shareholder is urged to consult his or her tax
adviser with respect to the specific federal, state and
local consequences of investing in each fund. The summary
is based on the laws in effect on the date of this SAI and
existing judicial and administrative interpretations
thereof, both of which are subject to change.
The Funds and Their Investments
As described in the each fund's Prospectus, each fund is
designed to provide shareholders with current income that
is excluded from gross income for federal income tax
purposes and is exempt from California or New York State
and New York City personal income taxes. Neither fund is
intended to constitute a balanced investment program and
and neither fund is designed for investors seeking capital
gains or maximum tax-exempt income irrespective of
fluctuations in principal. Investment in each fund would
not be suitable for tax-exempt institutions, qualified
retirement plans, H.R. 10 plans and individual retirement
accounts because such investors would not gain any
additional tax benefit from the receipt of tax-exempt
income.
Each fund intends to continue to qualify as a regulated
investment company during each taxable year under the Code.
To so qualify, each fund must, among other things: (a)
derive at least 90% of its gross income in each taxable
year from dividends, interest, payments with respect to
securities loans, and gains from the sale or other
disposition of stock or securities or foreign currencies,
or other income (including, but not limited to, gains from
options, futures or forward contracts) derived with respect
to its business of investing in such stock, securities or
currencies; and (b) diversify its holdings so that, at the
end of each quarter of the fund's taxable year, (i) at
least 50% of the market value of the fund's assets is
represented by cash, securities of other regulated
investment companies, United States government securities
and other securities, with such other securities limited,
in respect of any one issuer, to an amount not greater than
5% of the fund's assets and not greater than 10% of the
outstanding voting securities of such issuer and (ii) not
more than 25% of the value of its assets is invested in the
securities (other than United States government securities
or securities of other regulated investment companies) of
any one issuer or any two or more issuers that the fund
controls and which are determined to be engaged in the same
or similar trades or businesses or related trades or
businesses.
As a regulated investment company, each fund will not be
subject to United States federal income tax on its net
investment income (i.e., income other than its net realized
long-term and short-term capital gains) and on its net
realized long-term and short-term capital gains, if any,
that it distributes to its shareholders, provided that an
amount equal to at least 90% of its investment company
taxable income (i.e., 90% of the sum of its taxable income
minus the excess, if any, of its net realized long-term
capital gains over its net realized short-term capital
losses (including any capital loss carryovers), plus or
minus certain other adjustments as specified in the Code)
and its net tax-exempt income for the taxable year is
distributed to its shareholders in compliance with the
Code's timing and other requirements but will be subject to
tax at regular corporate rates on any taxable income or
gains that it does not distribute.
On November 30,1999, the unused capital loss carryovers, by
the funds were approximately as follows: California Fund,
$1,142,000 and New York Fund $1,723,000. For federal
income tax purposes, these amounts are available to be
applied against future capital gains of the funds that has
the carryovers, if any, that are realized prior to the
expiration of the applicable carryover. The carryovers
expire as follows:
FUND
November
30,
(in thousands)
2000
2001
2002
2003
2004
2005
2006
2007
California
- --
- --
657
269
- --
- --
- --
$216
New York
- --
- --
856
337
76
- --
- --
$454
The Code imposes a 4% nondeductible excise tax on each fund
to the extent it does not distribute by the end of any
calendar year at least 98% of its income for that year and
at least 98% of its net capital gains (both long-term and
short-term) for the one-year period ending, as a general
rule, on October 31 of that year. For this purpose,
however, any ordinary income or net capital gains retained
by each fund that is subject to corporate income tax will
be considered to have been distributed by year-end. In
addition, the minimum amounts that must be distributed in
any year to avoid the excise tax will be increased or
decreased to reflect any underdistribution or
overdistribution, as the case may be, from the previous
year. Each fund anticipates that it will pay such
dividends and will make such distributions as are necessary
in order to avoid the application of this excise tax.
If, in any taxable year, each fund fails to qualify as a
regulated investment company under the Code or fails to
meet the distribution requirement, it would be taxed in the
same manner as an ordinary corporation and distributions to
its shareholders would not be deductible by each fund in
computing its taxable income. In addition, in the event of
a failure to qualify, each fund's distributions, to the
extent derived from each fund's current or accumulated
earnings and profits would constitute dividends (eligible
for the corporate dividends-received deduction) which are
taxable to shareholders as ordinary income, even though
those distributions might otherwise (at least in part) have
been treated in the shareholders' hands as tax-exempt
interest. If each fund fails to qualify as a regulated
investment company in any year, it must pay out its
earnings and profits accumulated in that year in order to
qualify again as a regulated investment company. In
addition, each fund may be required to recognize any net
built-in gains with respect to certain of its assets (i.e.
the excess of the aggregate gains, including items of
income, over aggregate losses that would have been realized
with respect to such assets if the fund had been
liquidated) in order to qualify as a regulated investment
company in a subsequent year.
Each fund's transactions in municipal bond index and
interest rate futures contracts and options on these
futures contracts (collectively "section 1256 contracts")
will be subject to special provisions of the Code
(including provisions relating to "hedging transactions"
and "straddles") that, among other things, may affect the
character of gains and losses realized by each fund (i.e.,
may affect whether gains or losses are ordinary or
capital), accelerate recognition of income to each fund and
defer fund losses. These rules could therefore affect the
character, amount and timing of distributions to
shareholders. These provisions also (a) will require each
fund to mark-to-market certain types of the positions in
its portfolio (i.e., treat them as if they were closed out)
and (b) may cause each fund to recognize income without
receiving cash with which to pay dividends or make
distributions in amounts necessary to satisfy the
distribution requirements for avoiding income and excise
taxes. Each fund will monitor its transactions, will make
the appropriate tax elections and will make the appropriate
entries in its books and records when it engages in these
transactions in order to mitigate the effect of these rules
and prevent disqualification of a fund as a regulated
investment company.
All section 1256 contracts held by each fund at the end of
its taxable year are required to be marked to their market
value, and any unrealized gain or loss on those positions
will be included in each fund's income as if each position
had been sold for its fair market value at the end of the
taxable year. The resulting gain or loss will be combined
with any gain or loss realized by each fund from positions
in section 1256 contracts closed during the taxable year.
Provided such positions were held as capital assets and
were not part of a "hedging transaction" nor part of a
"straddle," 60% of the resulting net gain or loss will be
treated as long-term capital gain or loss, and 40% of such
net gain or loss will be treated as short-term capital gain
or loss, regardless of the period of time the positions
were actually held by each fund.
Taxation of Shareholders
Because each fund will distribute exempt-interest
dividends, interest on indebtedness incurred by a
shareholder to purchase or carry fund shares is not
deductible for federal income tax purposes. In addition,
the interest on any such indebtedness is not deductible by
a shareholder of the California Fund for California
personal income tax purposes, nor by a New York Fund
shareholder for New York, New York City and the City of
Yonkers personal income tax purposes. If a shareholder
receives exempt-interest dividends with respect to any
share and if such share is held by the shareholder for six
months or less, then, for federal income tax purposes, any
loss on the sale or exchange of such share may, to the
extent of exempt-interest dividends, be disallowed. In
addition, the Code may require a shareholder, if he or she
receives exempt-interest dividends, to treat as Federal
taxable income a portion of certain otherwise non-taxable
social security and railroad retirement benefit payments.
Furthermore, that portion of any exempt-interest dividend
paid by each fund which represents income derived from
"private activity bonds" held by such fund may not retain
its federal tax-exempt status in the hands of a shareholder
who is a "substantial user" of a facility financed by such
bonds or a "related person" thereof. Moreover, some or all
of each fund's dividends may be a specific preference item,
or a component of an adjustment item, for purposes of the
federal individual and corporate alternative minimum taxes.
In addition, the receipt of each fund's dividends and
distributions may affect a foreign corporate shareholder's
federal "branch profits" tax liability and the federal or
California "excess net passive income" tax liability of a
shareholder of a Subchapter S corporation. Shareholders
should consult their own tax advisors to determine whether
they are (a) substantial users with respect to a facility
or related to such users within the meaning of the Code or
(b) subject to a federal alternative minimum tax, the
federal branch profits tax or the federal "excess net
passive income" tax.
Nether of the funds does not expects to realize a
significant amount of capital gains. Net realized short-
term capital gains are taxable to a United States
shareholder as ordinary income, whether paid in cash or in
shares. Distributions of net-long-term capital gains, if
any, that each fund designates as capital gains dividends
are taxable as long-term capital gains, whether paid in
cash or in shares and regardless of how long a shareholder
has held shares of each fund.
Shareholders receiving dividends or distributions in the
form of additional shares should have a cost basis in the
shares received equal to the amount of money that the
shareholders receiving cash dividends or distributions will
receive.
Upon the sale or exchange of his shares, a shareholder will
realize a taxable gain or loss equal to the difference
between the amount realized and his basis in his shares.
Such gain or loss will be treated as capital gain or loss
if the shares are capital assets in the shareholder's
hands, and will be long-term capital gain or loss if the
shares are held for more than one year and short-term
capital gain or loss if the shares are held for one year or
less. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are
replaced, including replacement through the reinvesting of
dividends and capital gains distributions in each fund,
within a 61-day period beginning 30 days before and ending
30 days after the disposition of the shares. In such a
case, the basis of the shares acquired will be increased to
reflect the disallowed loss. Any loss realized by a
shareholder on the sale of a fund share held by the
shareholder for six months or less (to the extent not
disallowed pursuant to the six-month rule described above
relating to exempt-interest dividends) will be treated for
United States federal income tax purposes as a long-term
capital loss to the extent of any distributions or deemed
distributions of long-term capital gains received by the
shareholder with respect to such share.
If a shareholder incurs a sales charge in acquiring shares
of a fund, disposes of those shares within 90 days and then
acquires shares in a mutual fund for which the otherwise
applicable sales charge is reduced by reason of a
reinvestment right (e.g., an exchange privilege), the
original sales charge will not be taken into account in
computing gain or loss on the original shares to the extent
the subsequent sales charge is reduced. Instead, the
disregarded portion of the original sales charge will be
added to the tax basis in the newly acquired shares.
Furthermore, the same rule also applies to a disposition of
the newly acquired shares made within 90 days of the second
acquisition. This provision prevents a shareholder from
immediately deducting the sales charge by shifting his or
her investment in a family of mutual funds.
Backup Withholding. Each fund may be required to withhold,
for United States federal income tax purposes, 31% of (a)
taxable dividends and distributions and (b) redemption
proceeds payable to shareholders who fail to provide such
fund with their correct taxpayer identification number or
to make required certifications, or who have been notified
by the IRS that they are subject to backup withholding.
Certain shareholders are exempt from backup withholding.
Backup withholding is not an additional tax and any amount
withheld may be credited against a shareholder's United
States federal income tax liabilities.
Notices. Shareholders will be notified annually by a fund
as to the United States federal income tax and California
or New York State and New York City personal income tax
status of the dividends and distributions made by a fund to
its shareholders. These statements also will designate the
amount of exempt-interest dividends that is a preference
item for purposes of the federal individual and corporate
alternative minimum taxes. The dollar amount of dividends
excluded or exempt from federal income taxation and
California or New York State and New York City personal
income taxation and the dollar amount of dividends subject
to federal income taxation and California or New York State
and New York City personal income taxation, if any, will
vary for each shareholder depending upon the size and
duration of such shareholder's investment in a fund. To
the extent each fund earns taxable net investment income,
it intends to designate as taxable dividends the same
percentage of each day's dividend as its taxable net
investment income bears to its total net investment income
earned on that day.
The foregoing is only a summary of certain material tax
consequences affecting each fund and its shareholders.
Shareholders are advised to consult their own tax advisers
with respect to the particular tax consequences to them of
an investment in each fund.
ADDITIONAL INFORMATION
The trust was organized on October 17, 1991 under the laws
of the Commonwealth of Massachusetts and is a business
entity commonly known as a "Massachusetts business trust."
The trust offers shares of beneficial interest of five
separate funds with a par value of $.001 per share. The
funds may offer shares of beneficial interest currently
classified into five Classes - A, B, L ,Y and Z. Each
Class of the fund represents an identical interest in the
fund's investment portfolio. As a result, the Classes have
the same rights, privileges and preferences, except with
respect to: (a) the designation of each Class; (b) the
effect of the respective sales charges; if any, for each
class; (c) the distribution and/or service fees borne by
each Class pursuant to the Plan; (d) the expenses allocable
exclusively to each Class; (e) voting rights on matters
exclusively affecting a single Class; (f) the exchange
privilege of each Class; and (g) the conversion feature of
the Class B shares. The trust's board of trustees does not
anticipate that there will be any conflicts among the
interests of the holders of the different Classes. The
trustees, on an ongoing basis, will consider whether any
such conflict exists and, if so, take appropriate action.
Under Massachusetts's law, shareholders could, under
certain circumstances, be held personally liable for the
obligations of each fund. The Master Trust Agreement
disclaims shareholder liability for acts or obligations of
the fund, however, and requires that notice of such
disclaimer be given in each agreement, obligation or
instrument entered into or executed by each fund or a
trustee. The Master Trust Agreement provides for
indemnification from fund property for all losses and
expenses of any shareholder held personally liable for the
obligations of each fund. Thus, the risk of a
shareholder's incurring financial loss on account of
shareholder liability is limited to circumstances in which
each fund itself would be unable to meet its obligations, a
possibility which management of the fund believes is
remote. Upon payment of any liability incurred by each
fund, a shareholder paying such liability will be entitled
to reimbursement from the general assets of each fund. The
trustees intend to conduct the operation of each fund in
such a way so as to avoid, as far as possible, ultimate
liability of the shareholders for liabilities of each fund.
The Master Trust Agreement of the funds permits the
trustees of the funds to issue an unlimited number of full
and fractional shares of a single class and to divide or
combine the shares into a greater or lesser number of
shares without thereby changing the proportionate
beneficial interests in the fund. Each share in each of
the funds represents an equal proportional interest in each
respective fund with each other share. Shareholders of
each fund are entitled upon its liquidation to share pro
rata in its net assets available for distribution. No
shareholder of each fund has any preemptive or conversion
rights. Shares of each fund are fully paid and non-
assessable.
Pursuant to the Master Trust Agreement, each fund's
trustees may authorize the creation of additional series of
shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional
classes of shares within any series (which would be used to
distinguish among the rights of different categories of
shareholders, as might be required by future regulations or
other unforeseen circumstances).
Each fund does not hold annual shareholder meetings. There
normally will be no meetings of shareholders for the
purpose of electing trustees unless and until such time as
less than a majority of the trustees holding office have
been elected by shareholders, at which time the trustees
then in office will call a shareholders' meeting for the
election of trustees. Shareholders of record of no less
than two-thirds of the outstanding shares of the trust may
remove a trustee through a declaration in writing or by
vote cast in person or by proxy at a meeting called for
that purpose. The trustees will call a meeting for any
purpose upon written request of shareholders holding at
least 10% of the trust's outstanding shares and the trust
will assist shareholders in calling such a meeting as
required by the 1940 Act.
When matters are submitted for shareholder vote,
shareholders of each Class will have one vote for each full
share owned and a proportionate, fractional vote for any
fractional share held of that Class. Generally, shares of
each fund will be voted on a fund-wide basis on all matters
except matters affecting only the interests of one Class,
in which case only shares of the affected Class would be
entitled to vote.
The trust was organized as an unincorporated Massachusetts
business trust on October 17, 1991 under the name Shearson
Lehman Brothers Intermediate-Term Trust. On October 14,
1994 and August 16, 1995, the Trust's name was changed
Smith Barney Income Trust and Smith Barney Investment
Trust, respectively.
Annual and Semi-Annual Reports. Each fund sends its
shareholders a semi-annual report and an audited annual
report, which include listings of investment securities
held by each fund at the end of the period covered. In an
effort to reduce the funds' printing and mailing costs,
each fund consolidates the mailing of its semi-annual and
annual reports by household. This consolidation means that
a household having multiple accounts with the identical
address of record will receive a single copy of each
report. In addition, each fund also consolidates the
mailing of its prospectus so that a shareholder having
multiple accounts will receive a single Prospectus
annually. Shareholders who do not want this consolidation
to apply to their accounts should contact their Salomon
Smith Barney Financial Consultant or the transfer agent.
Styles of Fund Management: In an industry where the
average portfolio manager has seven years of experience
(source: ICI, 1998), the portfolio managers of Smith Barney
mutual funds average 21 years in the industry and 15 years
with the firm.
Smith Barney mutual funds offers more than 60 mutual funds.
We understand that many investors prefer an active role in
allocating the mix of funds in their portfolio, while
others want the asset allocation decisions to be made by
experienced managers.
That's why we offer four "styles" of fund management that
can be tailored to suit each investor's unique financial
goals.
Style Pure Series - Our style Pure Series funds stay fully
invested within their asset class and investment style,
enabling investors to make asset allocation decisions in
conjunction with their Salomon Smith Barney Financial
Consultant.
Classic Investor Series - Our Classic Investor Series funds
offer a range of equity and fixed income strategies that
seek to capture opportunities across asset classes and
investment styles using disciplined investment approaches.
The Concert Allocation Series - As a fund of funds,
investors can select a Concert Portfolio that may help
their investment needs. As needs change, investors can
easily choose another long-term, diversified investment
from our Concert family.
Special Discipline Series - Our Special Discipline Series
funds are designed for investors who are looking beyond
more traditional market categories: from natural resources
to a roster of state-specific municipal funds.
FINANCIAL STATEMENTS
Each fund's annual report for the fiscal year ended
November 30, 1999 is incorporated herein by reference in
its entirety. The annual report was filed on February 16,
2000, Accession Number 91155-00-000110 .
APPENDIX
RATINGS ON DEBT OBLIGATIONS tc "
RATINGS ON DEBT OBLIGATIONS " \l 2
BOND (AND NOTES) RATINGS
Moody's Investors Service, Inc.
Aaa - Bonds that are rated "Aaa" are judged to be of
the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds that are rated "Aa" are judged to be of high
quality by all standards. Together with the "Aaa" group
they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or
fluctuation of protective elements may be of greater
amplitude or there may be other elements present that make
the long term risks appear somewhat larger than in "Aaa"
securities.
A - Bonds that are rated "A" possess many favorable
investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements
may be present that suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds that are rated "Baa" are considered as
medium grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
Ba - Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as
well assured. Often the protection of interest and
principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this
class.
B - Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other
terms of the contract over any long period of time may be
small.
Caa - Bonds which are rated Caa are of poor standing.
Such issues may be in default or there may be present
elements of danger with respect to principal or interest.
Ca - Bonds which are rated Ca represent obligations
which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest class of
bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real
investment standing.
Note: The modifier 1 indicates that the security ranks
in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its
generic rating category.
Standard & Poor's
AAA - Debt rated "AAA" has the highest rating assigned
by Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay
interest and repay principal and differs from the highest
rated issues only in small degree.
A - Debt rated "A" has a strong capacity to pay
interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher
rated categories.
BBB - Debt rated "BBB" is regarded as having an
adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in
this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated `BB', `B', `CCC', `CC'
or `C' is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the
obligation. `BB' indicates the lowest degree of speculation
and `C' the highest degree of speculation. While such debt
will likely have some quality and protective
characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse
conditions.
Plus (+) or Minus (-): The ratings from `AA' to `B' may
be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Provisional Ratings: The letter "p" indicates that the
rating is provisional. A provisional rating assumes the
successful completion of the project being financed by the
debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the
successful and timely completion of the project. This
rating, however, while addressing credit quality subsequent
to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such
completion. The investor should exercise judgment with
respect to such likelihood and risk.
L - The letter "L" indicates that the rating pertains
to the principal amount of those bonds where the underlying
deposit collateral is fully insured by the Federal Savings
& Loan Insurance Corp. or the Federal Deposit Insurance
Corp.
+ - Continuance of the rating is contingent upon S&P's
receipt of closing documentation confirming investments and
cash flow.
* - Continuance of the rating is contingent upon S&P's
receipt of an executed copy of the escrow agreement.
NR - Indicates no rating has been requested, that there
is insufficient information on which to base a rating, or
that S&P does not rate a particular type of obligation as a
matter of policy.
Fitch IBCA, Inc.
AAA - Bonds rated AAA by Fitch have the lowest
expectation of credit risk. The obligor has an
exceptionally strong capacity for timely payment of
financial commitments which is highly unlikely to be
adversely affected by foreseeable events.
AA - Bonds rated AA by Fitch have a very low
expectation of credit risk. They indicate very strong
capacity for timely payment of financial commitment. This
capacity is not significantly vulnerable to foreseeable
events.
A - Bonds rated A by Fitch are considered to have a low
expectation of credit risk. The capacity for timely payment
of financial commitments is considered to be strong, but
may be more vulnerable to changes in economic conditions
and circumstances than bonds with higher ratings.
BBB - Bonds rated BBB by Fitch currently have a low
expectation of credit risk. The capacity for timely payment
of financial commitments is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to impair this capacity. This is
the lowest investment grade category assigned by Fitch.
BB - Bonds rated BB by Fitch carry the possibility of
credit risk developing, particularly as the result of
adverse economic change over time. Business or financial
alternatives may, however, be available to allow financial
commitments to be met. Securities rated in this category
are not considered by Fitch to be investment grade.
B - Bonds rated B by Fitch carry significant credit
risk, however, a limited margin of safety remains. Although
financial commitments are currently being met, capacity for
continued payment depends upon a sustained, favorable
business and economic environment.
CCC, CC, C - Default on bonds rated CCC,CC, and C by
Fitch is a real possibility. The capacity to meet financial
commitments depends solely on a sustained, favorable
business and economic environment. Default of some kind on
bonds rated CC appears probable, a C rating indicates
imminent default.
Plus and minus signs are used by Fitch to indicate the
relative position of a credit within a rating category.
Plus and minus signs however, are not used in the AAA
category.
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.
Issuers rated "Prime-1" (or related supporting
institutions) have a superior capacity for repayment of
short-term promissory obligations. Prime-1 repayment will
normally be evidenced by the following characteristics:
leading market positions in well-established industries;
high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings
coverage of fixed financial changes and high internal cash
generation; well-established access to a range of financial
markets and assured sources of alternate liquidity.
Issuers rated "Prime-2" (or related supporting
institutions) have strong capacity for repayment of short-
term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to
a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity
is maintained.
Standard & Poor's
A-1 - This designation indicates that the degree of
safety regarding timely payment is either overwhelming or
very strong. Those issuers determined to possess
overwhelming safety characteristics will be denoted with a
plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this
designation is strong. However, the relative degree of
safety is not as high as for issues designated A-1.
Fitch IBCA, Inc.
Fitch's short-term ratings apply to debt obligations
that are payable on demand or have original maturities of
generally up to three years, including commercial paper,
certificates of deposit, medium-term notes, and municipal
and investment notes.
The short-term rating places greater emphasis than a
long-term rating on the existence of liquidity necessary to
meet financial commitment in a timely manner.
Fitch's short-term ratings are as follows:
F1+ - Issues assigned this rating are regarded as
having the strongest capacity for timely payments of
financial commitments. The "+" denotes an exceptionally
strong credit feature.
F1 - Issues assigned this rating are regarded as having
the strongest capacity for timely payment of financial
commitments.
F2 - Issues assigned this rating have a satisfactory
capacity for timely payment of financial commitments, but
the margin of safety is not as great as in the case of the
higher ratings.
F3 - The capacity for the timely payment of financial
commitments is adequate; however, near-term adverse changes
could result in a reduction to non investment grade.
The Thomson BankWatch ("TBW")
TBW-1 - Indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
TBW-2 - While the degree of safety regarding timely
repayment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated TBW-1.
SMITH BARNEY
INVESTMENT TRUST
Intermediate Maturity
California Municipal Fund
Intermediate Maturity
New York Municipal Fund
March 29, 2000
SMITH BARNEY INVESTMENT TRUST
388 Greenwich Street
New York, NY 10013
SALOMON SMITH BARNEY
A Member of
Citigroup
80
March 29, 2000
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY INVESTMENT TRUST
Smith Barney Large Capitalization Growth Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
This Statement of Additional Information ("SAI") is meant
to be read in conjunction with the prospectus of the Smith
Barney Large Capitalization Growth Fund (the "fund") dated
March 29, 2000, as amended or supplemented from time to
time (the "prospectus"), and is incorporated by reference
in its entirety into the prospectus. Additional information
about the fund's investments is available in the fund's
annual and semi-annual reports to shareholders which are
incorporated herein by reference. The prospectus and copies
of the reports may be obtained free of charge by contacting
a Salomon Smith Barney Financial Consultant, or by writing
or calling Salomon Smith Barney Inc. ("Salomon Smith
Barney") at the address or telephone number above. The fund
is a separate investment series of Smith Barney Investment
Trust (the "trust").
TABLE OF CONTENTS
Investment Objective and Management Policies 2
Investment Restrictions...... ..............................12
Trustees of the Trust and Executive Officers of the Fund 13
Investment Management and Other Services 17
Portfolio Transactions... ................................21
Portfolio Turnover.................. .....................23
Purchase of Shares .............................................24
Redemption of Shares 33
Valuation of Shares 34
Exchange Privilege 35
Performance Data .......................................................36
Dividends, Distributions and Taxes 39
Additional Information 44
Financial Statements ...................................................48
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The prospectus discusses the fund's investment objective
and policies. This section contains supplemental
information concerning the types of securities and other
instruments in which the fund may invest, the investment
policies and portfolio strategies the fund may utilize and
certain risks associated with these investments, policies
and strategies. SSB Citi Fund Management LLC (successor
to SSBC Fund Management Inc.) ("SSB Citi" or the "manager")
serves as investment manager to the fund.
The fund normally invests at least 65% of its total assets
in equity securities of large capitalization companies that
are dominant in their industries, global in scope and have
a long- term history of performance. The fund does have
the flexibility, however, to invest the balance in
companies with other market capitalizations. The fund
defines large market capitalization companies as those with
market capitalization of $5 billion or more at the time of
the fund's investment. Companies whose capitalizations
falls below this level after purchase will continue to be
considered large capitalization companies for purposes of
the 65% policy.
Under normal market conditions, the majority of the fund's
portfolio will consist of common stock, but it also may
contain money market instruments for cash management
purposes. The fund reserves the right, as a defensive
measure, to hold money market securities, including
repurchase agreements or cash, in such proportions as, in
the opinion of management, prevailing market or economic
conditions warrant.
Equity Securities. The fund will normally invest at least
65% of its assets in equity securities, including primarily
common stocks and, to a lesser extent, securities
convertible into common stock and rights to subscribe for
common stock. Common stocks represent an equity (ownership)
interest in a corporation. Although equity securities have
a history of long-term growth in value, their prices
fluctuate based on changes in a company's financial
condition and on overall market and economic conditions.
When-Issued Securities and Delayed-Delivery Transactions.
The fund may purchase securities on a "when-issued" basis,
for delayed delivery (i.e., payment or delivery occur
beyond the normal settlement date at a stated price and
yield) or on a forward commitment basis. The fund does not
intend to engage in these transactions for speculative
purposes, but only in furtherance of its investment goal.
These transactions occur when securities are purchased or
sold by the fund with payment and delivery taking place in
the future to secure what is considered an advantageous
yield and price to the fund at the time of entering into
the transaction. The payment obligation and the interest
rate that will be received on when-issued securities are
fixed at the time the buyer enters into the commitment.
Because of fluctuations in the value of securities
purchased or sold on a when-issued, delayed-delivery basis
or forward commitment basis, the prices obtained on such
securities may be higher or lower than the prices available
in the market on the dates when the investments are
actually delivered to the buyers.
When the fund agrees to purchase when-issued or delayed-
delivery securities, the fund will set aside cash or liquid
securities equal to the amount of the commitment in a
segregated account on the fund's books. Normally, the
custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case the fund may be
required subsequently to place additional assets in the
segregated account in order to ensure that the value of the
account remains equal to the amount of the fund's
commitment. The assets contained in the segregated account
will be marked-to-market daily. It may be expected that
the fund's net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such
purchase commitments than when it sets aside cash. When
the fund engages in when-issued or delayed-delivery
transactions, it relies on the other party to consummate
the trade. Failure of the seller to do so may result in
the fund's incurring a loss or missing an opportunity to
obtain a price considered to be advantageous.
Foreign Securities. The fund may invest in securities of
foreign issuers directly or in the form of American
Depository Receipts ("ADRs"), European Depository Receipts
("EDRs") or similar securities representing interests in
the common stock of foreign issuers. Management intends to
limit the fund's investment in these types of securities
to 10% of the fund's net assets. ADRs are receipts,
typically issued by a U.S. bank or trust company, which
evidence ownership of underlying securities issued by a
foreign corporation. EDRs are receipts issued in Europe
which evidence a similar ownership arrangement. Generally,
ADRs, in registered form, are designed for use in the U.S.
securities markets and EDRs are designed for use in
European securities markets. The underlying securities are
not always denominated in the same currency as the ADRs or
EDRs. Although investment in the form of ADRs or EDRs
facilitates trading in foreign securities, it does not
mitigate the risks associated with investing in foreign
securities.
Investments in foreign securities incur higher costs than
investments in U.S. securities, including higher costs in
making securities transactions as well as foreign
government taxes which may reduce the investment return of
the fund. In addition, foreign investments may include
additional risks associated with currency exchange rates,
less complete financial information about individual
companies, less market liquidity and political instability.
The Economic Monetary Union (EMU): For participating
countries, EMU will mean sharing a single currency (the
Euro) and single official interest rate and adhering to
agreed upon limits on government borrowing. There are a
number of significant risks associated with EMU. Monetary
and economic union on this scale has never been before.
There is a significant degree of uncertainty as to whether
participating countries will remain committed to EMU in the
face of changing economic conditions. This uncertainty may
increase the volatility of European markets. The
conversion to the Euro is being phased in over a three-year
period. During this time, valuation, systems and other
operational problems may occur in connection with the
fund's investments quoted in the Euro.
Money Market Instruments. The fund may invest for temporary
defensive purposes in corporate and government bonds and
notes and money market instruments. Money market
instruments include: obligations issued or guaranteed by
the United States government, its agencies or
instrumentalities ("U.S. government securities");
certificates of deposit, time deposits and bankers'
acceptances issued by domestic banks (including their
branches located outside the United States and subsidiaries
located in Canada), domestic branches of foreign banks,
savings and loan associations and similar institutions;
high grade commercial paper; and repurchase agreements with
respect to the foregoing types of instruments.
Certificates of deposit ("CDs") are short-term, negotiable
obligations of commercial banks. Time deposits ("TDs") are
non-negotiable deposits maintained in banking institutions
for specified periods of time at stated interest rates.
Bankers' acceptances are time drafts drawn on commercial
banks by borrowers, usually in connection with
international transactions.
Repurchase Agreements. The fund may agree to purchase
securities from a bank or recognized securities dealer and
simultaneously commit to resell the securities to the bank
or dealer at an agreed-upon date and price reflecting a
market rate of interest unrelated to the coupon rate or
maturity of the purchased securities ("repurchase
agreements"). The fund would maintain custody of the
underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase
price on the date agreed to would be, in effect, secured by
such securities. If the value of such securities were less
than the repurchase price, plus interest, the other party
to the agreement would be required to provide additional
collateral so that at all times the collateral is at least
102% of the repurchase price plus accrued interest.
Default by or bankruptcy of a seller would expose the fund
to possible loss because of adverse market action, expenses
and/or delays in connection with the disposition of the
underlying obligations. The financial institutions with
which the fund may enter into repurchase agreements will be
banks and non-bank dealers of U.S. Government securities on
the Federal Reserve Bank of New York's list of reporting
dealers, if such banks and non-bank dealers are deemed
creditworthy by the fund's manager. The manager will
continue to monitor creditworthiness of the seller under a
repurchase agreement, and will require the seller to
maintain during the term of the agreement the value of the
securities subject to the agreement to equal at least 102%
of the repurchase price (including accrued interest). In
addition, the manager will require that the value of this
collateral, after transaction costs (including loss of
interest) reasonably expected to be incurred on a default,
be equal to 102% or greater than the repurchase price
(including accrued premium) provided in the repurchase
agreement or the daily amortization of the difference
between the purchase price and the repurchase price
specified in the repurchase agreement. The manager will
mark-to-market daily the value of the securities.
Repurchase agreements are considered to be loans by the
fund under the Investment Company Act of 1940, as amended
(the "1940 Act").
Lending of Portfolio Securities. Consistent with
applicable regulatory requirements, the fund may lend
portfolio securities to brokers, dealers and other
financial organizations that meet capital and other credit
requirements or other criteria established by the Board.
The fund will not lend portfolio securities to affiliates
of the manager unless they have applied for and received
specific authority to do so from the Securities and
Exchange Commission ("SEC"). Loans of portfolio securities
will be collateralized by cash, letters of credit or U.S.
Government Securities, which are maintained at all times in
an amount equal to at least 102% of the current market
value of the loaned securities. Any gain or loss in the
market price of the securities loaned that might occur
during the term of the loan would be for the account of the
fund. From time to time, the fund may return a part of the
interest earned from the investment of collateral received
for securities loaned to the borrower and/or a third party
that is unaffiliated with the fund and that is acting as a
"finder."
By lending its securities, the fund can increase its income
by continuing to receive interest and any dividends on the
loaned securities as well as by either investing the
collateral received for securities loaned in short-term
instruments or obtaining yield in the form of interest paid
by the borrower when U.S. Government Securities are used as
collateral. Although the generation of income is not the
primary investment goal of the fund, income received could
be used to pay the fund's expenses and would increase an
investor's total return. The fund will adhere to the
following conditions whenever its portfolio securities are
loaned: (i) the fund must receive at least 102% cash
collateral or equivalent securities of the type discussed
in the preceding paragraph from the borrower; (ii) the
borrower must increase such collateral whenever the market
value of the securities rises above the level of such
collateral; (iii) the fund must be able to terminate the
loan at any time; (iv) the fund must receive reasonable
interest on the loan, as well as any dividends, interest or
other distributions on the loaned securities and any
increase in market value; (v) the fund may pay only
reasonable custodian fees in connection with the loan; and
(vi) voting rights on the loaned securities may pass to the
borrower, provided, however, that if a material event
adversely affecting the investment occurs, the Board must
terminate the loan and regain the right to vote the
securities. Loan agreements involve certain risks in the
event of default or insolvency of the other party including
possible delays or restrictions upon a Fund's ability to
recover the loaned securities or dispose of the collateral
for the loan.
Illiquid Securities. The fund may invest up to an
aggregate amount of 10% of its net assets in illiquid
securities, which term includes securities subject to
contractual or other restrictions on resale and other
instruments that lack readily available markets.
Options, Futures and Currency Strategies. The fund may use
forward currency contracts and certain options and futures
strategies to attempt to hedge its portfolio, i.e., reduce
the overall level of investment risk normally associated
with the fund. There can be no assurance that such efforts
will succeed.
In order to assure that the fund will not be deemed to be a
"commodity pool" for purposes of the Commodity Exchange
Act, regulations of the Commodity Futures Trading
Commission ("CFTC") require that the fund enter into
transactions in futures contracts and options on futures
only (i) for bona fide hedging purposes (as defined in CFTC
regulations), or (ii) for non-hedging purposes, provided
the aggregate initial margin and premiums on such non-
hedging positions do not exceed 5% of the liquidation value
of the fund's assets. To attempt to hedge against adverse
movements in exchange rates between currencies, the fund
may enter into forward currency contracts for the purchase
or sale of a specified currency at a specified future date.
Such contracts may involve the purchase or sale of a
foreign currency against the U.S. dollar or may involve two
foreign currencies. The fund may enter into forward
currency contracts either with respect to specific
transactions or with respect to its portfolio positions.
For example, when the manager anticipates making a purchase
or sale of a security, it may enter into a forward currency
contract in order to set the rate (either relative to the
U.S. dollar or another currency) at which the currency
exchange transaction related to the purchase or sale will
be made ("transaction hedging"). Further, when the manager
believes a particular currency may decline compared to the
U.S. dollar or another currency, the fund may enter into a
forward contract to sell the currency the manager expects
to decline in an amount approximating the value of some or
all of the fund's securities denominated in that currency,
or when the manager believes one currency may decline
against a currency in which some or all of the portfolio
securities held by the fund are denominated, it may enter
into a forward contract to buy the currency expected to
decline for a fixed amount ("position hedging"). In this
situation, the fund may, in the alternative, enter into a
forward contract to sell a different currency for a fixed
amount of the currency expected to decline where the
investment manager believes the value of the currency to be
sold pursuant to the forward contract will fall whenever
there is a decline in the value of the currency in which
portfolio securities of the fund are denominated ("cross
hedging"). The fund places (i) cash, (ii) U.S. Government
securities or (iii) equity securities or debt securities
(of any grade) in certain currencies provided such assets
are liquid, unencumbered and marked to market daily, or
other high-quality debt securities denominated in certain
currencies in a separate account of the fund having a value
equal to the aggregate amount of the fund's commitments
under forward contracts entered into with respect to
position hedges and cross-hedges. If the value of the
securities placed in a separate account declines,
additional cash or securities are placed in the account on
a daily basis so that the value of the amount will equal
the amount of the fund's commitments with respect to such
contracts.
For hedging purposes, the fund may write covered call
options and purchase put and call options on currencies to
hedge against movements in exchange rates and on debt
securities to hedge against the risk of fluctuations in the
prices of securities held by the fund or which the manager
intends to include in its portfolio. The fund also may use
interest rates futures contracts and options thereon to
hedge against changes in the general level in interest
rates.
The fund may write call options on securities and
currencies only if they are covered, and such options must
remain covered so long as the fund is obligated as a
writer. A call option written by the fund is "covered" if
the fund owns the securities or currency underlying the
option or has an absolute and immediate right to acquire
that security or currency without additional cash
consideration (or for additional cash consideration held in
a segregated account on the fund's books) upon conversion
or exchange of other securities or currencies held in its
portfolio. A call option is also covered if the fund holds
on a share-for-share basis a call on the same security or
holds a call on the same currency as the call written where
the exercise price of the call held is equal to less than
the exercise price of the call written or greater than the
exercise price of the call written if the difference is
maintained by the fund in cash, Treasury bills or other
high-grade, short-term obligations in a segregated account
on the fund's books.
The fund may purchase put and call options in anticipation
of declines in the value of portfolio securities or
increases in the value of securities to be acquired. If
the expected changes occur, the fund may be able to offset
the resulting adverse effect on its portfolio, in whole or
in part, through the options purchased. The risk assumed
by the fund in connection with such transactions is limited
to the amount of the premium and related transaction costs
associated with the option, although the fund may lose such
amounts if the prices of securities underlying the options
do not move in the direction or to the extent anticipated.
Although the portfolio may not use forward currency
contracts, options and futures, the use of any of these
strategies would involve certain investment risks and
transaction costs. These risks include: dependence on the
manager's ability to predict movements in the prices of
individual debt securities, fluctuations in the general
fixed-income markets and movements in interest rates and
currency markets, imperfect correlation between movements
in the price of currency, options, futures contracts or
options thereon and movements in the price of the currency
or security hedged or used for cover; the fact that skills
and techniques needed to trade options, futures contracts
and options thereon or to use forward currency contracts
are different from those needed to select the securities in
which the fund invests; lack of assurance that a liquid
market will exist for any particular option, futures
contract or option thereon at any particular time.
Over-the-counter options in which the fund may invest
differ from exchange traded options in that they are two-
party contracts, with price and other terms negotiated
between buyer and seller, and generally do not have as much
market liquidity as exchange-traded options. The fund may
be required to treat as illiquid over-the-counter options
purchased and securities being used to cover certain
written over-the-counter options.
Options on Securities. As discussed more generally above,
the fund may engage in writing covered call options. The
fund may also purchase put options and enter into closing
transactions. The principal reason for writing covered call
options on securities is to attempt to realize, through the
receipt of premiums, a greater return than would be
realized on the securities alone. In return for a premium,
the writer of a covered call option forgoes the right to
any appreciation in the value of the underlying security
above the strike price for the life of the option (or until
a closing purchase transaction can be effected).
Nevertheless, the call writer retains the risk of a decline
in the price of the underlying security. Similarly, the
principal reason for writing covered put options is to
realize income in the form of premiums. The writer of a
covered put option accepts the risk of a decline in the
price of the underlying security. The size of the premiums
the fund may receive may be adversely affected as new or
existing institutions, including other investment
companies, engage in or increase their option-writing
activities.
Options written by the fund will normally have expiration
dates between one and six months from the date written. The
exercise price of the options may be below, equal to, or
above the current market values of the underlying
securities when the options are written. In the case of
call options, these exercise prices are referred to as "in-
the-money," "at-the-money" and "out-of-the-money,"
respectively.
The fund may write (a) in-the-money call options when the
manager expects the price of the underlying security to
remain flat or decline moderately during the option period,
(b) at-the-money call options when the manager expects the
price of the underlying security to remain flat or advance
moderately during the option period and (c) out-of-the-
money call options when the manager expects that the price
of the security may increase but not above a price equal to
the sum of the exercise price plus the premiums received
from writing the call option. In any of the preceding
situations, if the market price of the underlying security
declines and the security is sold at this lower price, the
amount of any realized loss will be offset wholly or in
part by the premium received. Out-of-the-money, at-the-
money and in-the-money put options (the reverse of call
options as to the relation of exercise price to market
price) may be utilized in the same market environments as
such call options are used in equivalent transactions.
So long as the obligation of the fund as the writer of an
option continues, the fund may be assigned an exercise
notice by the broker-dealer through which the option was
sold, requiring it to deliver, in the case of a call, or
take delivery of, in the case of a put, the underlying
security against payment of the exercise price. This
obligation terminates when the option expires or the fund
effects a closing purchase transaction. The fund can no
longer effect a closing purchase transaction with respect
to an option once it has been assigned an exercise notice.
To secure its obligation to deliver the underlying security
when it writes a call option, or to pay for the underlying
security when it writes a put option, the fund will be
required to deposit in escrow the underlying security or
other assets in accordance with the rules of the Options
Clearing Corporation ("Clearing Corporation") or similar
clearing corporation and the securities exchange on which
the option is written.
An option position may be closed out only where there
exists a secondary market for an option of the same series
on a recognized securities exchange or in the over-the-
counter market. The fund expects to write options only on
national securities exchanges or in the over-the-counter
market. The fund may purchase put options issued by the
Clearing Corporation or in the over-the-counter market.
The fund may realize a profit or loss upon entering into a
closing transaction. In cases in which the fund has written
an option, it will realize a profit if the cost of the
closing purchase transaction is less than the premium
received upon writing the original option and will incur a
loss if the cost of the closing purchase transaction
exceeds the premium received upon writing the original
option. Similarly, when the fund has purchased an option
and engages in a closing sale transaction, whether it
recognizes a profit or loss will depend upon whether the
amount received in the closing sale transaction is more or
less than the premium the fund initially paid for the
original option plus the related transaction costs.
Although the fund generally will purchase or write only
those options for which the manager believes there is an
active secondary market so as to facilitate closing
transactions, there is no assurance that sufficient trading
interest to create a liquid secondary market on a
securities exchange will exist for any particular option or
at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an
option may cease to exist for a variety of reasons. In the
past, for example, higher than anticipated trading activity
or order flow, or other unforeseen events, have at times
rendered certain of the facilities of the Clearing
Corporation and national securities exchanges inadequate
and resulted in the institution of special procedures, such
as trading rotations, restrictions on certain types of
orders or trading halts or suspensions in one or more
options. There can be no assurance that similar events, or
events that may otherwise interfere with the timely
execution of customers' orders, will not recur. In such
event, it might not be possible to effect closing
transactions in particular options. If, as a covered call
option writer, the fund is unable to effect a closing
purchase transaction in a secondary market, it will not be
able to sell the underlying security until the option
expires or it delivers the underlying security upon
exercise.
Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each
class which may be held or written, or exercised within
certain periods, by an investor or group of investors
acting in concert (regardless of whether the options are
written on the same or different securities exchanges or
are held, written or exercised in one or more accounts or
through one or more brokers). It is possible that the fund
and other clients of the manager and certain of their
affiliates may be considered to be such a group. A
securities exchange may order the liquidation of positions
found to be in violation of these limits, and it may impose
certain other sanctions.
In the case of options written by the fund that are deemed
covered by virtue of the fund's holding convertible or
exchangeable preferred stock or debt securities, the time
required to convert or exchange and obtain physical
delivery of the underlying common stocks with respect to
which the fund has written options may exceed the time
within which the fund must make delivery in accordance with
an exercise notice. In these instances, the fund may
purchase or temporarily borrow the underlying securities
for purposes of physical delivery. By so doing, the fund
will not bear any market risk because the fund will have
the absolute right to receive from the issuer of the
underlying security an equal number of shares to replace
the borrowed stock, but the fund may incur additional
transaction costs or interest expenses in connection with
any such purchase or borrowing.
Although the manager will attempt to take appropriate
measures to minimize the risks relating to the fund's
writing of call options and purchasing of put and call
options, there can be no assurance that the fund will
succeed in its option-writing program.
Stock Index Options. As described generally above, the
fund may purchase put and call options and write call
options on domestic stock indexes listed on domestic
exchanges in order to realize its investment objective of
capital appreciation or for the purpose of hedging its
portfolio. A stock index fluctuates with changes in the
market values of the stocks included in the index. Some
stock index options are based on a broad market index such
as the New York Stock Exchange Composite Index or the
Canadian Market Portfolio Index, or a narrower market index
such as the Standard & Poor's 100. Indexes also are based
on an industry or market segment such as the American Stock
Exchange Oil and Gas Index or the Computer and Business
Equipment Index.
Options on stock indexes are generally similar to options
on stock except that the delivery requirements are
different. Instead of giving the right to take or make
delivery of stock at a specified price, an option on a
stock index gives the holder the right to receive a cash
"exercise settlement amount" equal to (a) the amount, if
any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case
of a call) the closing value of the underlying index on the
date of exercise, multiplied by (b) a fixed "index
multiplier." Receipt of this cash amount will depend upon
the closing level of the stock index upon which the option
is based being greater than, in the case of a call, or less
than, in the case of a put, the exercise price of the
option. The amount of cash received will be equal to such
difference between the closing price of the index and the
exercise price of the option expressed in dollars or a
foreign currency, as the case may be, times a specified
multiple. The writer of the option is obligated, in return
for the premium received, to make delivery of this amount.
The writer may offset its position in stock index options
prior to expiration by entering into a closing transaction
on an exchange or it may let the option expire unexercised.
The effectiveness of purchasing or writing stock index
options as a hedging technique will depend upon the extent
to which price movements in the portion of the securities
portfolio of the fund correlate with price movements of the
stock index selected. Because the value of an index option
depends upon movements in the level of the index rather
than the price of a particular stock, whether the fund will
realize a gain or loss from the purchase or writing of
options on an index depends upon movements in the level of
stock prices in the stock market generally or, in the case
of certain indexes, in an industry or market segment,
rather than movements in the price of a particular stock.
Accordingly, successful use by the fund of options on stock
indexes will be subject to the manager's ability to predict
correctly movements in the direction of the stock market
generally or of a particular industry. This requires
different skills and techniques than predicting changes in
the price of individual stocks.
Futures Contracts and Options on Futures Contracts. As
described generally above, the fund may invest in stock
index futures contracts and options on futures contracts
traded on a domestic exchange or board of trade. Futures
contracts provide for the future sale by one party and
purchase by another party of a specified amount of a
specific security at a specified future time and at a
specified price. The primary purpose of entering into a
futures contract by the fund is to protect the fund from
fluctuations in the value of securities without actually
buying or selling the securities. The fund may enter into
futures contracts and options on futures to seek higher
investment returns when a futures contract is priced more
attractively than stocks comprising a benchmark index, to
facilitate trading or to reduce transaction costs. The
fund will enter into futures contracts and options only on
futures contracts that are traded on a domestic exchange
and board of trade. Assets committed to futures contracts
will be segregated on the fund's books to the extent
required by law.
The purpose of entering into a futures contract by the fund
is to protect the fund from fluctuations in the value of
securities without actually buying or selling the
securities. For example, in the case of stock index futures
contracts, if the fund anticipates an increase in the price
of stocks it intends to purchase at a later time, the fund
could enter into contracts to purchase the stock index
(known as taking a "long" position) as a temporary
substitute for the purchase of stocks. If an increase in
the market occurs that influences the stock index as
anticipated, the value of the futures contracts increases
and thereby serves as a hedge against the fund's not
participating in a market advance. The fund then may close
out the futures contracts by entering into offsetting
futures contracts to sell the stock index (known as taking
a "short" position) as it purchases individual stocks. The
fund can accomplish similar results by buying securities
with long maturities and selling securities with short
maturities. But by using futures contracts as an investment
tool to reduce risk, given the greater liquidity in the
futures market, it may be possible to accomplish the same
result more easily and more quickly.
No consideration will be paid or received by the fund upon
the purchase or sale of a futures contract. Initially, the
fund will be required to deposit with the broker an amount
of cash or cash equivalents equal to approximately 1% to
10% of the contract amount (this amount is subject to
change by the exchange or board of trade on which the
contract is traded and brokers or members of such board of
trade may charge a higher amount). This amount is known as
"initial margin" and is in the nature of a performance bond
or good faith deposit on the contract which is returned to
the fund, upon termination of the futures contract,
assuming all contractual obligations have been satisfied.
Subsequent payments, known as "variation margin," to and
from the broker, will be made daily as the price of the
index or securities underlying the futures contract
fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as
"marking-to-market." In addition, when the fund enters into
a long position in a futures contract or an option on a
futures contract, it must deposit into a segregated account
with the fund's custodian an amount of cash or cash
equivalents equal to the total market value of the
underlying futures contract, less amounts held in the
fund's commodity brokerage account at its broker. At any
time prior to the expiration of a futures contract, the
fund may elect to close the position by taking an opposite
position, which will operate to terminate the fund's
existing position in the contract.
There are several risks in connection with the use of
futures contracts as a hedging device. Successful use of
futures contracts by the fund is subject to the ability of
the manager to predict correctly movements in the stock
market or in the direction of interest rates. These
predictions involve skills and techniques that may be
different from those involved in the management of
investments in securities. In addition, there can be no
assurance that there will be a perfect correlation between
movements in the price of the securities underlying the
futures contract and movements in the price of the
securities that are the subject of the hedge. A decision of
whether, when and how to hedge involves the exercise of
skill and judgment, and even a well-conceived hedge may be
unsuccessful to some degree because of market behavior or
unexpected trends in market behavior or interest rates.
Positions in futures contracts may be closed out only on
the exchange on which they were entered into (or through a
linked exchange) and no secondary market exists for those
contracts. In addition, although the fund intends to enter
into futures contracts only if there is an active market
for the contracts, there is no assurance that an active
market will exist for the contracts at any particular time.
Most futures exchanges and boards of trade limit the amount
of fluctuation permitted in futures contract prices during
a single trading day. Once the daily limit has been reached
in a particular contract, no trades may be made that day at
a price beyond that limit. It is possible that futures
contract prices could move to the daily limit for several
consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses. In
such event, and in the event of adverse price movements,
the fund would be required to make daily cash payments of
variation margin; in such circumstances, an increase in the
value of the portion of the portfolio being hedged, if any,
may partially or completely offset losses on the futures
contract. As described above, however, no assurance can be
given that the price of the securities being hedged will
correlate with the price movements in a futures contract
and thus provide an offset to losses on the futures
contract.
INVESTMENT RESTRICTIONS
The investment restrictions numbered 1 through 7 below and
the fund's investment objective have been adopted by the
trust as fundamental policies of the fund. Under the 1940
Act, a fundamental policy may not be changed with respect
to a fund without the vote of a majority of the outstanding
voting securities of the fund. Majority is defined in the
1940 Act as the lesser of (a) 67% or more of the shares
present at a fund meeting, if the holders of more than 50%
of the outstanding shares of the fund are present or
represented by proxy, or (b) more than 50% of outstanding
shares. The remaining restrictions may be changed by a
vote of a majority of the trust's board of trustees at any
time.
Under the investment restrictions adopted by the trust with
respect to the fund: the fund will not
1. Invest in a manner that would cause it to fail to be
a "diversified company" under the 1940 Act and the rules,
regulations and orders thereunder.
2. Invest more than 25% of its total assets in
securities, the issuers of which conduct their business
activities in the same industry. For purposes of this
limitation, securities of the U.S. government (including
its agencies and instrumentalities) and securities of state
or municipal governments and their political subdivisions
are not considered to be issued by members of any industry.
3. Borrow money, except that (a) the fund may borrow
from banks for temporary or emergency (not leveraging)
purposes, including the meeting of redemption requests
which might otherwise require the untimely disposition of
securities, and (b) the fund may, to the extent consistent
with its investment policies, enter into reverse repurchase
agreements, forward roll transactions and similar
investment strategies and techniques. To the extent that
it engages in transactions described in (a) and (b), the
fund will be limited so that no more than 331/3% of the
value of its total assets (including the amount borrowed),
valued at the lesser of cost or market, less liabilities
(not including the amount borrowed), is derived from such
transactions.
4. Issue "senior securities" as defined in the 1940 Act
and the rules, regulations and orders thereunder, except as
permitted under the 1940 Act and the rules, regulations and
orders thereunder
5. Make loans. This restriction does not apply to: (a)
the purchase of debt obligations in which the fund may
invest consistent with its investment objectives and
policies; (b) repurchase agreements; and (c) loans of its
portfolio securities, to the fullest extent permitted under
the 1940 Act.
6. Purchase or sell real estate, real estate mortgages,
commodities or commodity contracts, but this restriction
shall not prevent the fund from (a) investing in securities
of issuers engaged in the real estate business or the
business of investing in real estate (including interests
in limited partnerships owning or otherwise engaging in the
real estate business or the business of investing in real
estate) and securities which are secured by real estate or
interests therein; (b) holding or selling real estate
received in connection with securities it holds or held;
(c) trading in futures contracts and options on futures
contracts (including options on currencies to the extent
consistent with the fund's investment objective and
policies); or (d) investing in real estate investment
trust securities.
7. Engage in the business of underwriting securities
issued by other persons, except to the extent that the fund
may technically be deemed to be an underwriter under the
Securities Act of 1933, as amended, in disposing of
portfolio securities.
8. Purchase any securities on margin (except for such
short-term credits as are necessary for the clearance of
purchases and sales of portfolio securities) or sell any
securities short (except "against the box"). For purposes
of this restriction, the deposit or payment by the fund of
underlying securities and other assets in escrow and
collateral agreements with respect to initial or
maintenance margin in connection with futures contracts and
related options and options on securities, indexes or
similar items is not considered to be the purchase of a
security on margin.
9. Invest in oil, gas or other mineral leases or
exploration or development programs.
10. Write or sell puts, calls, straddles, spreads or
combinations of those transactions, except as permitted
under the fund's investment objective and policies.
11. Purchase a security if, as a result, the fund would
then have more than 5% of its total assets invested in
securities of issuers (including predecessors) that have
been in continuous operation for fewer than three years.
12. Make investments for the purpose of exercising
control of management.
If any percentage restriction described above is complied
with at the time of an investment, a later increase or
decrease in percentage resulting from a change in values or
assets will not constitute a violation of such restriction.
TRUSTEES OF THE TRUST AND EXECUTIVE OFFICERS OF THE FUND
The names of the trustees of the trust and executive
officers of the fund, together with information as to their
principal business occupations, are set forth below. The
executive officers of the fund are employees of
organizations that provide services to the fund. Each
trustee who is an "interested person" of the trust, as
defined in the 1940 Act, is indicated by an asterisk. The
address of the "non-interested" trustees and the executive
officers of the fund is 388 Greenwich Street, New York, New
York 10013, unless otherwise indicated.
Herbert Barg, Trustee (Age 76). Private Investor. His
address is 273 Montgomery Avenue, Bala Cynwyd, Pennsylvania
19004. Director/Trustee of sixteen investment companies
associated with Citigroup, Inc. ("Citigroup")
*Alfred J. Bianchetti Trustee (Age 77). Retired; formerly
Senior Consultant to Dean Witter Reynolds Inc. His address
is 19 Circle End Drive, Ramsey, New Jersey 07466.
Director/Trustee of eleven investment companies associated
with Citigroup.
Martin Brody Trustee (Age 78). Consultant, HMK Associates;
Retired Vice Chairman of the Board of Restaurant Associates
Corp. His address is c/o HMK Associates, 30 Columbia
Turnpike, Florham Park, New Jersey 07932. Director/Trustee
of twenty-one investment companies associated with
Citigroup.
Dwight B. Crane Trustee (Age 62). Professor, Harvard
Business School. His address is c/o Harvard Business
School, Soldiers Field Road, Boston, Massachusetts 02163.
Director/Trustee of twenty-four investment companies
associated with Citigroup.
Burt N. Dorsett Trustee (Age 69). Managing Partner of
Dorsett McCabe Management. Inc., an investment counseling
firm; Director of Research Corporation Technologies, Inc.,
a nonprofit patent clearing and licensing firm. His
address is 201 East 62nd Street, New York, New York 10021.
Director/Trustee of eleven investment companies associated
with Citigroup.
Elliot S. Jaffe Trustee (Age 73). Chairman of the Board
and President of The Dress Barn, Inc. His address is 30
Dunnigan Drive, Suffern, New York 10901. Director/Trustee
of eleven investment companies associated with Citigroup.
Stephen E. Kaufman Trustee (Age 68). Attorney. His
address is 277 Park Avenue, New York, New York 10172.
Director/Trustee of thirteen investment companies
associated with Citigroup.
Joseph J. McCann Trustee (Age 69). Financial Consultant;
Retired Financial Executive, Ryan Homes, Inc. His address
is 200 Oak Park Place, Pittsburgh, Pennsylvania 15243.
Director/Trustee of eleven investment companies associated
with Citigroup.
*Heath B. McLendon Trustee (Age 66). Chairman of the Board,
President and Chief Executive Officer; Managing Director of
Salomon Smith Barney; President of SSB Citi and Travelers
Investment Adviser, Inc. ("TIA"); Chairman or Co-Chairman
of the Board of 71 investment companies associated with
Salomon Smith Barney. His address is 7 World Trade Center,
New York, New York 10048.
Cornelius C. Rose, Jr. Trustee (Age 66). President,
Cornelius C. Rose Associates, Inc., financial consultants,
and Chairman and Director of Performance Learning Systems,
an educational consultant. His address is Meadowbrook
Village, Building 4, Apt 6, West Lebanon, New Hampshire
03784. Director/Trustee of eleven investment companies
associated with Citigroup.
Lewis E. Daidone (Age 42). Senior Vice President and
Treasurer; Managing Director of Salomon Smith Barney; Chief
Financial Officer of the Smith Barney Mutual funds;
Treasurer and Senior Vice President or Executive Vice
President of sixty-one investment companies associated with
Citigroup; Director and Senior Vice President of SSB Citi
and TIA.
Alan Blake (Age 50). Vice President and Investment Officer;
Managing Director of Salomon Smith Barney; Investment
Officer of two investment companies associated with
Citigroup; Investment Officer of SSB Citi.
Paul Brook (Age 46). Controller; Director of Salomon Smith
Barney; Controller or Assistant Treasurer of forty-three
investment companies associated with Citigroup; from 1997-
1998 Managing Director of AMT Capital Services Inc.; prior
to 1997 Partner with Ernst & Young LLP.
Christina T. Sydor (Age 49) Secretary; Managing Director of
Salomon Smith Barney; Secretary of sixty-one investment
companies associated with Citigroup; General Counsel and
Secretary of SSB Citi and TIA.
As of March 9, 2000, the trustees and officers owned, in
the aggregate, less than 1% of the outstanding shares of
each of the funds. No officer, director or employee of
Salomon Smith Barney or any of its affiliates receives any
compensation from the trust for serving as an officer of
the funds or trustee of the trust. The trust pays each
trustee who is not an officer, director or employee of
Salomon Smith Barney or any of its affiliates a fee of
$12,000 per annum plus $1000 per in-person meeting and $100
per telephonic meeting. Each trustee emeritus who is not
an officer, director or employee of Salomon Smith Barney or
its affiliates receives a fee of $5,000 per annum plus $500
per in-person meeting and $50 per telephonic meeting. All
trustees are reimbursed for travel and out-of-pocket
expenses incurred to attend such meetings, and for the most
recent calendar year the aggregate reimbursement was
$14,437.83.
For the fiscal year ended November 30, 1999, the Trustees
of the trust were paid the following compensation:
Name of Person
Aggregate
Compensat
ion
from
Trust
Total
Pension or
Retirement
Benefits
Accrued
As part of
Trust
Expenses
Compensation
From Trust
and Fund
Complex
Paid to
Trustees+
Number of
Funds for
Which Trustee
Serves
Within
Fund Complex
Herbert Barg**
Alfred
Bianchetti*
Martin Brody**
Dwight B.
Crane**
Burt N.
Dorsett**
Elliot S.
Jaffe**
Stephen E.
Kaufman**
Joseph J.
McCann**
Heath B.
McLendon*
Cornelius C.
Rose, Jr.**
$ 15,600
14,600
13,600
15,500
15,500
12,600
15,600
15,600
- -----
14,600
$0
0
0
0
0
0
0
0
0
0
$114,288
53,900
138,600
155,363
57,950
45,100
110,650
58,050
- ------
53,500
16
11
21
24
11
11
13
11
71
11
+ For calendar year ended December 31, 1999.
* Designated an "interested" trustee.
** Designates member of Audit Committee.
Upon attainment of age 80, fund trustees are required
to change to emeritus status. Trustees emeritus are
entitled to serve in emeritus status for a maximum of
10 years. A trustee emeritus may attend meetings but
has no voting rights.
The following table contains a list of shareholders of
record or who beneficially owned at least 5% of the
outstanding shares of a particular class of shares of the
fund as of March 9, 2000.
CLASS Y - PERCENTAGE OF SHARES
Smith Barney Concert Series, Inc.
High Growth Portfolio
PNC Bank NA
200 Stevens Drive, Suite 440
Attn: Beverly Timson
Lester, PA 19113
Owned 3,978,232.710 (49.38%) shares
Smith Barney Concert Series, Inc.
Growth Portfolio
PNC Bank NA
200 Stevens Drive, Suite 440
Attn: Beverly Timson
Lester, PA 19113
Owned 2,535,359.444 (31.47%) shares
Smith Barney Concert Series, Inc.
Select High Growth Portfolio
PNC Bank NA
200 Stevens Drive, Suite 440
Attn: Beverly Timson
Lester, PA 19113
Owned 632,197.977 (7.84%) shares
Smith Barney Concert Series, Inc.
Select Growth Portfolio
PNC Bank NA
200 Stevens Drive, Suite 440
Attn: Beverly Timson
Lester, PA 19113
Owned 485,369.228 (6.02%) shares
CLASS Z - PERCENTAGE OF SHARES
State Street Bank & Trust CUST
The Travelers Group 401(k)
Savings Plan
Attn: Rick Vest
225 Franklin Street
Boston, Ma 02101
Owned 3,695,964.693 (100%)shares
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Manager - SSB Citi
SSB Citi serves as investment manager to the fund pursuant
to an investment management agreement (the "Investment
Management Agreement") with the trust which was approved by
the board of trustees, including a majority of trustees who
are not "interested persons" of the trust or the manager.
The manager is a wholly owned subsidiary of Salomon Smith
Barney Holdings Inc. ("Holdings"), which in turn, is a
wholly owned subsidiary of Citigroup. Subject to the
supervision and direction of the trust's board of trustees,
the manager manages the fund's portfolio in accordance with
the fund's stated investment objective and policies, makes
investment decisions for the fund, places orders to
purchase and sell securities, and employs professional
portfolio managers and securities analysts who provide
research services to the fund. The manager pays the salary
of any officer and employee who is employed by both it and
the trust. The manager bears all expenses in connection
with the performance of its services. The manager also: (a)
assists in supervising all aspects of the fund's operations
except those performed by the fund's investment manager
under its investment advisory agreement; b) supplies the
fund with office facilities (which may be in SSB Citi's own
offices), statistical and research data, data processing
services, clerical, accounting and bookkeeping services,
including, but not limited to, the calculation of (i) the
net asset value of shares of the fund, (ii) applicable
contingent deferred sales charges ("Deferred Sales Charge")
and similar fees and charges and (iii) distribution fees,
internal auditing and legal services, internal executive
and administrative services, and stationary and office
supplies; and (c) prepares reports to shareholders of the
fund, tax returns and reports to and filings with the SEC
and state blue sky authorities.
As compensation for investment management services, the
fund pays the manager a fee computed daily and paid monthly
at the annual rate of 0.75% of the fund's average daily net
assets. The management fees paid by the fund in fiscal
years ended November 30, 1999, November 30, 1998 and the
fiscal period ended November 30, 1997 were $18,933,051,
$5,558,989 and $620,766, respectively.
Auditors
KPMG LLP, independent auditors, 345 Park Avenue, New York,
New York 10017, have been selected to serve as auditors of
the trust and to render opinions on the fund's financial
statements for the fiscal year ending November 30, 1999.
Custodian, Transfer Agent and Sub-Transfer Agent
PNC Bank, National Association ("PNC" or "custodian"),
located at 17th and Chestnut Streets, Philadelphia,
Pennsylvania, 19103, serves as the custodian of the fund.
Under its custody agreement with the fund, PNC holds the
fund's securities and keeps all necessary accounts and
records. For its services, PNC receives a monthly fee based
upon the month-end market value of securities held in
custody and also receives securities transactions charges.
The assets of the fund are held under bank custodianship in
compliance with the 1940 Act.
Smith Barney Private Trust Company (the "transfer agent"),
located at 388 Greenwich Street, New York, New York 10013
serves as the transfer agent and shareholder services agent
for the fund.
PFPC Global Fund Services ("PFPC" or "sub-transfer agent"),
located at Exchange Place, Boston, Massachusetts 02109,
serves as the trust's sub-transfer agent. Under the
transfer agency agreement, the sub-transfer agent maintains
the shareholder account records for the trust, handles
certain communications between shareholders and the trust
and distributes dividends and distributions payable by the
trust. For these services, the sub-transfer agent receives
a monthly fee computed on the basis of the number of
shareholder accounts it maintains for the trust during the
month, and is reimbursed for out-of-pocket expenses.
Code of Ethics. Pursuant to Rule 17j-1 of the 1940 Act, the
fund, its investment advisers and principal underwriter
have adopted codes of ethics that permit personnel to
invest in securities for their own accounts, including
securities that may be purchased or held by the fund. All
personnel must place the interests of clients first and
avoid activities, interests and relationships that might
interfere with the duty to make decisions in the best
interests of the clients. All personal securities
transactions by employees must adhere to the requirements
of the codes and must be conducted in such a manner as to
avoid any actual or potential conflict of interest, the
appearance of such a conflict, or the abuse of an
employee's position of trust and responsibility.
A copy of the Fund's Code of Ethics is on file with the
Securities and Exchange Commission.
Distributor
CFBDS, Inc., located at 20 Milk Street, Boston,
Massachusetts 02109-5408 serves as the fund's distributor
pursuant to a written agreement dated October 8, 1998 (the
"Distribution Agreement") which was approved by the fund's
Board of Trustees, including a majority of the independent
trustees on July 15, 1998. Prior to the merger of
Travelers Group, Inc. and Citicorp Inc. on October 8, 1998,
Salomon Smith Barney served as the fund's distributor.
For the fiscal period ended November 30, 1997, the
aggregate dollar amount of commissions on Class A shares
was $3,023,000, all of which was paid to Salomon Smith
Barney. For the period December 1, 1997 through October 7,
1998 the aggregate dollar amount of commissions on Class A
shares was $319,000, all of which was paid to Salomon Smith
Barney. For the period October 8, 1998 through November
30, 1998 the aggregate dollar amount of commissions on
Class A shares was $2,596,000, $2,336,400 of which was
paid to Salomon Smith Barney. For the fiscal year ended
November 30, 1999, the aggregate dollar amount of
commissions on Class A shares was $5,565,000, $5,008,500 of
which was paid to Salomon Smith Barney and $556,500 was
paid to CFBDS, Inc.
For the period June 12, 1998 through October 7, 1998 the
aggregate dollar amount of commissions on Class L shares
was $161,000, all of which was paid to Salomon Smith
Barney. For the period October 8, 1998 through November 30,
1998 the aggregate dollar amount of commissions on Class L
shares was $664,000, $597,600 of which was paid to Salomon
Smith Barney. For the fiscal year ended November 30, 1999,
the aggregate dollar amount of commissions on Class L
shares was $3,693,000, $3,323,700 of which was paid to
Salomon Smith Barney and $369,300 was paid to CFBDS, Inc.
For the fiscal period ended November 30, 1997 and the
fiscal years ended November 30, 1998 and November 30, 1999,
Salomon Smith Barney or its predecessor received from
shareholders $1,000, $23,000 and $6,000, respectively, in
deferred sales charges on the redemption of Class A shares.
For the fiscal period ended November 30, 1997 and the
fiscal years ended November 30, 1998, and November 30,
1999, Salomon Smith Barney or its predecessor received from
shareholders $28,000, $547,000 and $1,827,000,
respectively, in deferred sales charges on the redemption
of Class B shares.
For the fiscal period ended November 30, 1997 and the
fiscal years ended November 30, 1998 and November 30, 1999,
Salomon Smith Barney or its predecessor received from
shareholders $3,000, $45,000 and $201,000, respectively, in
deferred sales charges on the redemption of Class L shares.
When payment is made by the investor before the settlement
date, unless otherwise noted by the investor, the funds
will be held as a free credit balance in the investor's
brokerage account and Salomon Smith Barney may benefit from
the temporary use of the funds. The fund's Board of
Trustees has been advised of the benefits to Salomon Smith
Barney resulting from these settlement procedures and will
take such benefits into consideration when reviewing the
Investment Management and Distribution Agreements for
continuance.
Distribution Arrangements. To compensate Salomon Smith
Barney for the service it provides and for the expense it
bears, the fund has adopted a services and distribution
plan (the "Plan") pursuant to Rule 12b-1 under the 1940
Act. Under the Plan, the fund pays Salomon Smith Barney a
service fee, accrued daily and paid monthly, calculated at
the annual rate of 0.25% of the value of the fund's average
daily net assets attributable to the Class A, Class B and
Class L shares. In addition, the fund pays Salomon Smith
Barney a distribution fee with respect to Class B and Class
L shares primarily intended to compensate Salomon Smith
Barney for its initial expense of paying Financial
Consultants a commission upon sales of those shares. The
Class B and Class L distribution fee is calculated at the
annual rate of 0.75% of the value of the fund's average net
assets attributable to the shares of the respective Class.
The following service and distribution fees were incurred
pursuant to a Distribution Plan during the periods
indicated:
Distribution Plan Fees
Fiscal Year
Ended
11/30/99
Fiscal Year
Ended
11/30/98
Fiscal Period
Ended
11/30/97
Class A
$ 1,463,411
$ 489,693
$ 64,109
Class B
$12,650,700
$3,522,540
$404,500
Class L*
$ 4,624,888
$ 842,963
$ 82,645
* Class L shares were called Class C shares until
June 12, 1998.
For the fiscal year ended November 30, 1999, the
distributor incurred distribution expenses totaling
$43,032,508, consisting of $1,726,750 for advertising,
$123,662 for printing and mailing of prospectuses,
$10,394,858 for support services, $29,488,563 to Salomon
Smith Barney Financial Consultants, and $1,318,675 in
accruals for interest on the excess of Salomon Smith Barney
expenses incurred in distribution of the funds' shares over
the sum of the distribution fees and deferred sales charge
received by Salomon Smith Barney from the fund. For the
fiscal year ended November 30, 1999, the Salomon Smith
Barney received $18,738,999 in the aggregate from the Plan.
Under its terms, the Plan continues from year to year,
provided such continuance is approved annually by vote of
the board of trustees, including a majority of the trustees
who are not interested persons of the trust and who have no
direct or indirect financial interest in the operation of
the Plan or in the Distribution Agreement (the "independent
trustees"). The Plan may not be amended to increase the
amount of the service and distribution fees without
shareholder approval, and all amendments of the Plan also
must be approved by the trustees including all of the
independent trustees in the manner described above. The
Plan may be terminated with respect to a Class at any time,
without penalty, by vote of a majority of the independent
trustees or, with respect to any fund, by vote of a
majority of the outstanding voting securities of a fund (as
defined in the 1940 Act). Pursuant to the Plan, Salomon
Smith Barney will provide the board of trustees with
periodic reports of amounts expended under the Plan and the
purpose for which such expenditures were made.
PORTFOLIO TRANSACTIONS
The manager arranges for the purchase and sale of the
fund's securities and selects brokers and dealers
(including Salomon Smith Barney) which in its best judgment
provide prompt and reliable execution at favorable prices
and reasonable commission rates. The manager may select
brokers and dealers that provide it with research services
and may cause the fund to pay such brokers and dealers
commissions which exceed those other brokers and dealers
may have charged, if it views the commissions as reasonable
in relation to the value of the brokerage and/or research
services. In selecting a broker, including Salomon Smith
Barney, for a transaction, the primary consideration is
prompt and effective execution of orders at the most
favorable prices. Subject to that primary consideration,
dealers may be selected for research statistical or other
services to enable the manager to supplement its own
research and analysis.
Decisions to buy and sell securities for the fund are made
by the manager, subject to the overall supervision and
review of the trust's board of trustees. Portfolio
securities transactions for the fund are effected by or
under the supervision of the manager.
Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. There is generally no
stated commission in the case of securities traded in the
over-the-counter market, but the price of those securities
includes an undisclosed commission or mark-up. Over-the-
counter purchases and sales are transacted directly with
principal market makers except in those cases in which
better prices and executions may be obtained elsewhere. The
cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at
which securities are purchased from and sold to dealers
include a dealer's mark-up or mark-down.
In executing portfolio transactions and selecting brokers
or dealers, it is the fund's policy to seek the best
overall terms available. The manager, in seeking the most
favorable price and execution, considers all factors it
deems relevant, including, for example, the price, the size
of the transaction, the reputation, experience and
financial stability of the broker-dealer involved and the
quality of service rendered by the broker-dealer in other
transactions. The manager receives research, statistical
and quotation services from several broker-dealers with
which it places the fund's portfolio transactions. It is
possible that certain of the services received primarily
will benefit one or more other accounts for which the
manager exercises investment discretion. Conversely, the
fund may be the primary beneficiary of services received as
a result of portfolio transactions effected for other
accounts. The manager's fee under the management agreement
is not reduced by reason of its receiving such brokerage
and research services. The trust's board of trustees, in
its discretion, may authorize the manager to cause the fund
to pay a broker that provides brokerage and research
services to the manager a commission in excess of that
which another qualified broker would have charged for
effecting the same transaction. Salomon Smith Barney will
not participate in commissions from brokerage given by the
fund to other brokers or dealers and will not receive any
reciprocal brokerage business resulting therefrom. For the
fiscal year ended November 30, 1999, the fund directed
brokerage transactions totalling approximately $5,847,600
to brokers because of research services provided. The
amount of brokerage commissions paid on such transactions
totalled approximately $7,975.
In accordance with Section 17(e) of the 1940 Act and Rule
17e-1 thereunder, the trust's board of trustees has
determined that any portfolio transaction for the fund may
be executed through Salomon Smith Barney or an affiliate of
Salomon Smith Barney if, in the manager's judgment, the use
of Salomon Smith Barney or an affiliate is likely to result
in price and execution at least as favorable as those of
other qualified brokers and if, in the transaction, Salomon
Smith Barney or the affiliate charges the fund a commission
rate consistent with those charged by Salomon Smith Barney
or an affiliate to comparable unaffiliated customers in
similar transactions. In addition, under SEC rules Salomon
Smith Barney may directly execute such transactions for the
fund on the floor of any national securities exchange,
provided: (a) the board of trustees has expressly
authorized Salomon Smith Barney to effect such
transactions; and (b) Salomon Smith Barney annually advises
the fund of the aggregate compensation it earned on such
transactions.
Even though investment decisions for the fund are made
independently from those of the other accounts managed by
the manager, investments of the kind made by the fund also
may be made by those other accounts. When the fund and one
or more accounts managed by the manager are prepared to
invest in, or desire to dispose of, the same security,
available investments or opportunities for sales will be
allocated in a manner believed by the manager to be
equitable. In some cases, this procedure may adversely
affect the price paid or received by the fund or the size
of the position obtained for or disposed of by the fund.
The fund will not purchase securities during the existence
of any underwriting or selling group relating to the
securities, of which the manager is a member, except to the
extent permitted by the SEC. Under certain circumstances,
the fund may be at a disadvantage because of this
limitation in comparison with other funds that have similar
investment objectives but that are not subject to a similar
limitation.
The fund has paid the following in brokerage commissions
for portfolio transactions:
Fiscal
Fiscal Fiscal
Year Year
Period
Ended Ended
Ended
11/30/99 11/30/98
11/30/97
Total Brokerage Commissions $1,578,155
$543,185 $232,530
Total Brokerage Commissions
paid to Salomon Smith Barney $ 84,525
$25,080 $34,620
% of Total Brokerage Commissions
paid to Salomon Smith Barney 5.36%
4.62% 14.89%
% of Total Transactions involving
Commissions paid to Salomon
Smith Barney 4.67%
2.90% 8.11%
Portfolio securities transactions on behalf of the fund are
placed by the manager with a number of brokers and dealers,
including Salomon Smith Barney. Salomon Smith Barney has
advised the fund that in transactions with the fund,
Salomon Smith Barney charges a commission rate at least as
favorable as the rate that Salomon Smith Barney charges its
comparable unaffiliated customers in similar transactions.
PORTFOLIO TURNOVER
The fund's portfolio turnover rate (the lesser of purchases
or sales of portfolio securities during the year, excluding
purchases or sales of short-term securities, divided by the
monthly average value of portfolio securities) is generally
not expected to exceed 100%. The rate of turnover will not
be a limiting factor, however, when the fund deems it
desirable to sell or purchase securities. This policy
should not result in higher brokerage commissions to the
fund, as purchases and sales of portfolio securities are
usually effected as principal transactions. Securities may
be sold in anticipation of a rise in interest rates (market
decline) or purchased in anticipation of a decline in
interest rates (market rise) and later sold. In addition,
a security may be sold and another security of comparable
quality purchased at approximately the same time to take
advantage of what the fund believes to be a temporary
disparity in the normal yield relationship between the two
securities. These yield disparities may occur for reasons
not directly related to the investment quality of
particular issues or the general movement of interest
rates, such as changes in the overall demand for, or supply
of, various types of tax-exempt securities. The portfolio
turnover rates were 9% for the fiscal year ended November
30, 1999 and 14% for the fiscal year ended November 30,
1998.
PURCHASE OF SHARES
Sales Charge Alternatives
The following classes of shares are available for purchase.
See the prospectus for a discussion of factors to consider
in selecting which Class of shares to purchase.
Class A Shares. Class A shares are sold to investors at
the public offering price, which is the net asset value
plus an initial sales charge as follows:
Amount
of
Investme
nt
Sales Charge
as a %
of
Transaction
Sales
Charge as a
%
of Amount
Invested
Dealers'
Reallowance as
%
Of Offering
Price
Less than
$25,000
5.00%
5.26%
4.50%
$ 25,000 -
49,999
4.00
4.17
3.60
50,000 -
99,999
3.50
3.63
3.15
100,000 -
249,999
3.00
3.09
2.70
250,000 -
499,999
2.00
2.04
1.80
500,000 and
over
*
*
*
* Purchases of Class A shares of $500,000 or more will
be made at net asset value without any initial sales
charge, but will be subject to a Deferred Sales
Charge of 1.00% on redemptions made within 12 months
of purchase. The deferred sales charge on Class A
shares is payable to Salomon Smith Barney, which
compensates Salomon Smith Barney Financial
Consultants and other dealers whose clients make
purchases of $500,000 or more. The deferred sales
charge is waived in the same circumstances in which
the Deferred Sales Charge applicable to Class B and
Class L shares is waived. See "Deferred Sales Charge
Provisions" and "Waivers of Deferred Sales Charge."
Members of the selling group may receive up to 90% of the
sales charge and may be deemed to be underwriters of the
fund as defined in the 1933 Act. The reduced sales charges
shown above apply to the aggregate of purchases of Class A
shares of the fund made at one time by "any person," which
includes an individual and his or her immediate family, or
a trustee or other fiduciary of a single trust estate or
single fiduciary account.
Class B Shares. Class B shares are sold without an initial
sales charge but are subject to a Deferred Sales Charge
payable upon certain redemptions. See "Deferred Sales
Charge Provisions" below.
Class L Shares. Class L shares are sold with an initial
sales charge of 1.00% (which is equal to 1.01% of the
amount invested) and are subject to a Deferred Sales Charge
payable upon certain redemptions. See "Deferred Sales
Charge Provisions" below. Until June 22, 2001 purchases of
Class L shares by investors who were holders of Class C
shares of the fund and/or other Smith Barney mutual funds
on June 12, 1998 will not be subject to the 1% initial
sales charge.
Class Y Shares. Class Y shares are sold without an initial
sales charge or Deferred Sales Charge and are available
only to investors investing a minimum of $15,000,000
(except purchases of Class Y shares by Smith Barney Concert
Allocation Series Inc., for which there is no minimum
purchase amount).
Class Z Shares. Class Z Shares are sold without an initial
sales charge or Deferred Sales
Ccharge and are currently offered exclusively for sale to
tax-exempt employee benefit and retirement plans of Salomon
Smith Barney or any of its affiliates ("Qualified Plans")
and to certain unit investment trusts ("UIT) sponsored by
Salomon Smith Barney or any of its affiliates.
General
Investors may purchase shares from a Salomon Smith Barney
Financial Consultant or a broker that clears through
Salomon Smith Barney ("Dealer Representative"). In
addition, certain investors, including qualified retirement
plans purchasing through certain Dealer Representatives,
may purchase shares directly from the fund. When
purchasing shares of the fund, investors must specify
whether the purchase is for Class A, Class B, Class L or
Class Y shares. Salomon Smith Barney and Dealer
Representatives may charge their customers an annual
account maintenance fee in connection with a brokerage
account through which an investor purchases or holds
shares. Accounts held directly at the sub-transfer agent
are not subject to a maintenance fee.
Purchases of the fund's Class Z shares must be made in
accordance with the terms of a Qualified Plan or a Salomon
Smith Barney UIT. There are no minimum investment
requirements for Class Z shares; however the fund reserves
the right to vary this policy at any time. Shareholders
acquiring Class Z shares through a Qualified Plan or a
Salomon Smith Barney UIT should consult the terms of their
respective plans for redemption provisions.
Investors in Class A, Class B and Class L shares may open
an account in the fund by making an initial investment of
at least $1,000 for each account, or $250 for an IRA or a
Self-Employed Retirement Plan, in the fund. Investors in
Class Y shares may open an account by making an initial
investment of $15,000,000. Subsequent investments of at
least $50 may be made for all Classes. For participants in
retirement plans qualified under Section 403(b)(7) or
Section 401(c) of the Code, the minimum initial investment
required for Class A, Class B and Class L shares and the
subsequent investment requirement for all Classes in the
fund is $25. For shareholders purchasing shares of the
fund through the Systematic Investment Plan on a monthly
basis, the minimum initial investment requirement for Class
A, Class B and Class L shares and subsequent investment
requirement for all Classes is $25. For shareholders
purchasing shares of the fund through the Systematic
Investment Plan on a quarterly basis, the minimum initial
investment required for Class A, Class B and Class L shares
and the subsequent investment requirement for all Classes
is $50. There are no minimum investment requirements for
Class A shares for employees of Citigroup and its
subsidiaries, including Salomon Smith Barney, unitholders
who invest distributions from a unit investment trust
("UIT") sponsored by Salomon Smith Barney, and
Directors/Trustees of any of the Smith Barney mutual funds,
and their spouses and children. The fund reserves the right
to waive or change minimums, to decline any order to
purchase its shares and to suspend the offering of shares
from time to time. Shares purchased will be held in the
shareholder's account by the sub-transfer agent. Share
certificates are issued only upon a shareholder's written
request to the sub-transfer agent.
Purchase orders received by the fund or a Salomon Smith
Barney Financial Consultant prior to the close of regular
trading on the New York Stock Exchange ("NYSE"), on any day
the fund calculates its net asset value, are priced
according to the net asset value determined on that day
(the ''trade date''). Orders received by a Dealer
Representative prior to the close of regular trading on the
NYSE on any day the fund calculates its net asset value,
are priced according to the net asset value determined on
that day, provided the order is received by the fund or the
fund's agent prior to its close of business. For shares
purchased through Salomon Smith Barney or a Dealer
Representative purchasing through Salomon Smith Barney,
payment for shares of the fund is due on the third business
day after the trade date. In all other cases, payment must
be made with the purchase order.
Systematic Investment Plan. Shareholders may make
additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment
Plan. Under the Systematic Investment Plan, Salomon Smith
Barney or the sub-transfer agent is authorized through
preauthorized transfers of at least $25 on a monthly basis
or at least $50 on a quarterly basis to charge the
shareholder's account held with a bank or other financial
institution on a monthly or quarterly basis as indicated by
the shareholder, to provide for systematic additions to the
shareholder's fund account. A shareholder who has
insufficient funds to complete the transfer will be charged
a fee of up to $25 by Salomon Smith Barney or the sub-
transfer agent. The Systematic Investment Plan also
authorizes Salomon Smith Barney to apply cash held in the
shareholder's Salomon Smith Barney brokerage account or
redeem the shareholder's shares of a Smith Barney money
market fund to make additions to the account. Additional
information is available from the fund or a Salomon Smith
Barney Financial Consultant or a Dealer Representative.
Sales Charge Waivers and Reductions
Initial Sales Charge Waivers. Purchases of Class A shares
may be made at net asset value without a sales charge in
the following circumstances: (a) sales to (i) Board Members
and employees of Citigroup and its subsidiaries and any
Citigroup affiliated funds including the Smith Barney
mutual funds (including retired Board Members and
employees); the immediate families of such persons
(including the surviving spouse of a deceased Board Member
or employee); and to a pension, profit-sharing or other
benefit plan for such persons and (ii) employees of members
of the National Association of Securities Dealers, Inc.,
provided such sales are made upon the assurance of the
purchaser that the purchase is made for investment purposes
and that the securities will not be resold except through
redemption or repurchase; (b) offers of Class A shares to
any other investment company to effect the combination of
such company with the fund by merger, acquisition of assets
or otherwise; (c) purchases of Class A shares by any client
of a newly employed Salomon Smith Barney Financial
Consultant (for a period up to 90 days from the
commencement of the Financial Consultant's employment with
Salomon Smith Barney), on the condition the purchase of
Class A shares is made with the proceeds of the redemption
of shares of a mutual fund which (i) was sponsored by the
Financial Consultant's prior employer, (ii) was sold to the
client by the Financial Consultant and (iii) was subject to
a sales charge; (d) purchases by shareholders who have
redeemed Class A shares in the fund (or Class A shares of
another Smith Barney mutual fund that is offered with a
sales charge) and who wish to reinvest their redemption
proceeds in the fund, provided the reinvestment is made
within 60 calendar days of the redemption; (e) purchases by
accounts managed by registered investment advisory
subsidiaries of Citigroup; (f) direct rollovers by plan
participants of distributions from a 401(k) plan offered to
employees of Citigroup or its subsidiaries or a 401(k) plan
enrolled in the Smith Barney 401(k) Program (Note:
subsequent investments will be subject to the applicable
sales charge); (g) purchases by a separate account used to
fund certain unregistered variable annuity contracts; (h)
investments of distributions from or proceeds from a sale
of a UIT sponsored by Salomon Smith Barney; (i) purchases
by investors participating in a Salomon Smith Barney fee-
based arrangement; and (j) purchases of Class A shares by
Section 403(b) or Section 401(a) or (k) accounts associated
with Copeland Retirement Programs. In order to obtain such
discounts, the purchaser must provide sufficient
information at the time of purchase to permit verification
that the purchase would qualify for the elimination of the
sales charge.
Right of Accumulation. Class A shares of the fund may be
purchased by ''any person'' (as defined above) at a reduced
sales charge or at net asset value determined by
aggregating the dollar amount of the new purchase and the
total net asset value of all Class A shares of the fund and
of other Smith Barney mutual funds that are offered with a
sales charge as currently listed under ''Exchange
Privilege'' then held by such person and applying the sales
charge applicable to such aggregate. In order to obtain
such discount, the purchaser must provide sufficient
information at the time of purchase to permit verification
that the purchase qualifies for the reduced sales charge.
The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares
purchased thereafter.
Letter of Intent - Class A Shares. A Letter of Intent for
an amount of $50,000 or more provides an opportunity for an
investor to obtain a reduced sales charge by aggregating
investments over a 13 month period, provided that the
investor refers to such Letter when placing orders. For
purposes of a Letter of Intent, the ''Amount of
Investment'' as referred to in the preceding sales charge
table includes (i) all Class A shares of the fund and other
Smith Barney mutual funds offered with a sales charge
acquired during the term of the letter plus (ii) the value
of all Class A shares previously purchased and still owned.
Each investment made during the period receives the reduced
sales charge applicable to the total amount of the
investment goal. If the goal is not achieved within the
period, the investor must pay the difference between the
sales charges applicable to the purchases made and the
charges previously paid, or an appropriate number of
escrowed shares will be redeemed. The term of the Letter
will commence upon the date the Letter is signed, or at the
options of the investor, up to 90 days before such date.
Please contact a Salomon Smith Barney Financial Consultant
or the transfer agent to obtain a Letter of Intent
application.
Letter of Intent - Class Y Shares. A Letter of Intent may
also be used as a way for investors to meet the minimum
investment requirement for Class Y shares (except purchases
of Class Y shares by Smith Barney Concert Allocation Series
Inc., for which there is no minimum purchase amount). Such
investors must make an initial minimum purchase of
$5,000,000 in Class Y shares of the fund and agree to
purchase a total of $15,000,000 of Class Y shares of the
fund within 13 months from the date of the Letter. If a
total investment of $15,000,000 is not made within the 13-
month period, all Class Y shares purchased to date will be
transferred to Class A shares, where they will be subject
to all fees (including a service fee of 0.25%) and expenses
applicable to the fund's Class A shares, which may include
a deferred sales charge of 1.00%. Please contact a Salomon
Smith Barney Financial Consultant or the transfer agent for
further information.
Deferred Sales Charge Provisions
''Deferred Sales Charge Shares'' are: (a) Class B shares;
(b) Class L shares; and (c) Class A shares that were
purchased without an initial sales charge but are subject
to a deferred sales charge. A Deferred Sales Charge may be
imposed on certain redemptions of these shares.
Any applicable Deferred Sales Charge will be assessed on an
amount equal to the lesser of the original cost of the
shares being redeemed or their net asset value at the tims
charge to the extent that the value of such shares
represents: (a) capital appreciation of fund assets; (b)
reinvestment of dividends or capital gain distributions;
(c) with respect to Class B shares, shares redeemed more
than five years after their purchase; or (d) with respect
to Class L shares and Class A shares that are deferred
sales charge shares, shares redeemed more than 12 months
after their purchase.
Class L shares and Class A shares that are deferred sales
charge shares are subject to a 1.00% Deferred Sales Charge
if redeemed within 12 months of purchase. In circumstances
in which the Deferred Sales Charge is imposed on Class B
shares, the amount of the charge will depend on the number
of years since the shareholder made the purchase payment
from which the amount is being redeemed. Solely for
purposes of determining the number of years since a
purchase payment, all purchase payments made during a month
will be aggregated and deemed to have been made on the last
day of the preceding Salomon Smith Barney statement month.
The following table sets forth the rates of the charge for
redemptions of Class B shares by shareholders, except in
the case of Class B shares held under the Smith Barney
401(k) Program, as described below. See ''Purchase of
Shares-Smith Barney 401(k) and ExecChoiceTM Programs.''
Year Since Purchase Payment Was
Made
Deferred Sales Charge
First
5.00%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth and thereafter
0.00
Class B shares will convert automatically to Class A shares
eight years after the date on which they were purchased and
thereafter will no longer be subject to any distribution
fees. There will also be converted at that time such
proportion of Class B Dividend Shares owned by the
shareholders as the total number of his or her Class B
shares converting at the time bears to the total number of
outstanding Class B shares (other than Class B Dividend
Shares) owned by the shareholder.
In determining the applicability of any Deferred Sales
Charge, it will be assumed that a redemption is made first
of shares representing capital appreciation, next of shares
representing the reinvestment of dividends and capital gain
distributions and finally of other shares held by the
shareholder for the longest period of time. The length of
time that Deferred Sales Charge shares acquired through an
exchange have been held will be calculated from the date
that the shares exchanged were initially acquired in one of
the other Smith Barney mutual funds, and fund shares being
redeemed will be considered to represent, as applicable,
capital appreciation or dividend and capital gain
distribution reinvestments in such other funds. For Federal
income tax purposes, the amount of the Deferred Sales
Charge will reduce the gain or increase the loss, as the
case may be, on the amount realized on redemption. The
amount of any deferred sales charge will be paid to Salomon
Smith Barney. To provide an example, assume an investor
purchased 100 Class B shares of the fund at $10 per share
for a cost of $1,000. Subsequently, the investor acquired
5 additional shares of the fund through dividend
reinvestment. During the fifteenth month after the
purchase, the investor decided to redeem $500 of his or her
investment. Assuming at the time of the redemption the net
asset value had appreciated to $12 per share, the value of
the investor's shares would be $1,260 (105 shares at $12
per share). The Deferred Sales Charge would not be applied
to the amount which represents appreciation ($200) and the
value of the reinvested dividend shares ($60). Therefore,
$240 of the $500 redemption proceeds ($500 minus $260)
would be charged at a rate of 4.00% (the applicable rate
for Class B shares) for a total deferred sales charge of
$9.60.
Waivers of Deferred Sales Charge
The Deferred Sales Charge will be waived on: (a) exchanges
(see ''Exchange Privilege''); (b) automatic cash
withdrawals in amounts equal to or less than 1.00% per
month of the value of the shareholder's shares at the time
the withdrawal plan commences (see ''Automatic Cash
Withdrawal Plan'') (provided, however, that automatic cash
withdrawals in amounts equal to or less than 2.00% per
month of the value of the shareholder's shares will be
permitted for withdrawal plans that were established prior
to November 7, 1994); (c) redemptions of shares within 12
months following the death or disability of the
shareholder; (d) redemptions of shares made in connection
with qualified distributions from retirement plans or IRAs
upon the attainment of age 591/2; (e) involuntary
redemptions; and (f) redemptions of shares to effect a
combination of the fund with any investment company by
merger, acquisition of assets or otherwise. In addition, a
shareholder who has redeemed shares from other Smith Barney
mutual funds may, under certain circumstances, reinvest all
or part of the redemption proceeds within 60 days and
receive pro rata credit for any deferred sales charge
imposed on the prior redemption.
Deferred sales charge waivers will be granted subject to
confirmation (by Salomon Smith Barney in the case of
shareholders who are also Salomon Smith Barney clients or
by the transfer agent in the case of all other
shareholders) of the shareholder's status or holdings, as
the case may be.
Smith Barney Retirement Programs
You may be eligible to participate in a retirement program
sponsored by Salomon Smith Barney or one of its affiliates.
The fund offers Class A and Class L shares at net asset
value to participating plans under the programs. You can
meet minimum investment and exchange amounts, if any by
combining the plan's investments in any of the Smith Barney
mutual funds.
There are no sales charges when you buy or sell shares and
the class of shares you may purchase depends on the amount
of your initial investment and/or the date your account is
opened. Once a class of shares is chosen, all additional
purchases must by of the same class.
For plans opened on or after March 1, 2000 that are not
part of the Paychex offering, Class A shares may be
purchased regardless of the amount invested.
For plans opened prior to March 1, 2000 and for plans that
are part of the Paychex offering, the class of shares you
may purchase depends on the amount of your initial
investment:
Class A Shares. Class A shares may be purchased by plans
investing at least $1million.
Class L Shares. Class L shares may be purchased by plans
investing less than $1 million. Class L shares are
eligible to exchange into Class A shares not later than 8
years after the plan joined the program. They are eligible
for exchange in the following circumstances:
If the plan was opened on or after June 21, 1996 and a
total of $1 million is invested in Smith Barney Funds Class
L shares (other than money market funds), all Class L
shares are eligible for exchange after the plan is in the
program for 5 years.
If the plan was opened before June 21, 1996 and a total of
$500,000 is invested in Smith Barney Funds Class L shares
(other than money market funds) on December 31 in any year,
all Class L shares are eligible for exchange on or about
March 31 of the following year.
For more information, call your Salomon Smith Barney
Financial Consultant or the transfer agent.
Retirement Programs Opened On or After June 21, 1996. If,
at the end of the fifth year after the date the
participating plan enrolled in the Smith Barney 401(k)
Program or the ExecChoiceTM Program, a participating plan's
total Class L holdings in all non-money market Smith Barney
mutual funds equal at least $1,000,000, the participating
plan will be offered the opportunity to exchange all of its
Class L shares for Class A shares of the fund. (For
participating plans that were originally established
through a Salomon Smith Barney retail brokerage account,
the five-year period will be calculated from the date the
retail brokerage account was opened.) Such participating
plans will be notified of the pending exchange in writing
within 30 days after the fifth anniversary of the
enrollment date and, unless the exchange offer has been
rejected in writing, the exchange will occur on or about
the 90th day after the fifth anniversary date. If the
participating plan does not qualify for the five-year
exchange to Class A shares, a review of the participating
plan's holdings will be performed each quarter until either
the participating plan qualifies or the end of the eighth
year.
Retirement Programs Opened Prior to June 21, 1996. In any
year after the date a participating plan enrolled in the
Smith Barney 401(k) Program, if a participating plan's
total Class L holdings in all non-money market Smith Barney
mutual funds equal at least $500,000 as of the calendar
year-end, the participating plan will be offered the
opportunity to exchange all of its Class L shares for Class
A shares of the fund. Such Plans will be notified in
writing within 30 days after the last business day of the
calendar year and, unless the exchange offer has been
rejected in writing, the exchange will occur on or about
the last business day of the following March.
Any participating plan in the Smith Barney 401(k) or the
ExecChoiceTM Program, whether opened before or after June
21, 1996, that has not previously qualified for an exchange
into Class A shares will be offered the opportunity to
exchange all of its Class L shares for Class A shares of
the fund, regardless of asset size, at the end of the
eighth year after the date the participating plan enrolled
in the Smith Barney 401(k) Program or ExecChoiceTM Program.
Such plans will be notified of the pending exchange in
writing approximately 60 days before the eighth anniversary
of the enrollment date and, unless the exchange has been
rejected in writing, the exchange will occur on or about
the eighth anniversary date. Once an exchange has occurred,
a participating plan will not be eligible to acquire
additional Class L shares, but instead may acquire Class A
shares of the same fund. Any Class L shares not converted
will continue to be subject to the distribution fee.
Participating plans wishing to acquire shares of the fund
through the Smith Barney 401(k) Program or the Smith Barney
ExecChoiceTM Program must purchase such shares directly from
the transfer agent. For further information regarding these
Programs, investors should contact a Salomon Smith Barney
Financial Consultant.
Retirement Programs Investing in Class B Shares: Class B
shares of a fund are not available for purchase by
participating plans opened on or after June 21, 1996, but
may continue to be purchased by any participating plan in
the Smith Barney 401 (k) Program opened prior to such date
and originally investing in such Class. Class B shares
acquired are subject to a deferred sales charge of 3.00% of
redemption proceeds if the participating plan terminates
within eight years of the date the participating plan first
enrolled in the Smith Barney 401 (k) Program.
At the end of the eighth year after the date the
participating plan enrolled in the Smith Barney 401 (k)
Program, the participating plan will be offered the
opportunity to exchange all of its Class B shares for Class
A shares of the same fund. Such participating plan will be
notified of the pending exchange in writing approximately
60 days before the eighth anniversary of the enrollment
date and, unless the exchange has been rejected in writing,
the exchange will occur on or about the eighth anniversary
date. Once the exchange has occurred, a participating plan
will not be eligible to acquire additional Class B shares,
but instead may acquire Class A shares ofa the same fund.
If the participating elects not to exchange all of its
Class B shares at that time, each Class B share held by the
participating plan will have the same conversion feature as
Class B shares held by other investors. See "Purchase of
Shares-Deferred Sales Charge Alternatives."
No deferred sales charge is imposed on redemptions of Class
B shares to the extent that the net asset value of the
shares redeemed does not exceed the current net asset value
of the sahres purchased through reinvestment of dividends
or capital gain distributions, plus the current net asset
vlaue of Class B shares purchased more than eight years
prior to the redemption, plus increases in the net asset
value of the shareholders Class B shares above the purchase
payments made during the preceding eight years. Whether or
not the deferred sales charge applies to the redemption by
a participating plan depends on the number of years since
the participating plan first became enrolled in the Smith
Barney 401(k) Program, unlike the applicability of the
deferred sales charge to redemptions by other shareholders,
which depends on the number of years since those
shareholders made the purchase payment from which the
amount is being redeemed.
The deferred sales charge will be waived on redemptions of
Class B shares in connection with lump-sum or other
distributions made by a participating plan; as a result of
(a) the retirement of an employee in the participating
plan; (b) the termination of employment of an employee in
the participating plan; (c) the death or disability or an
employee in the participating plan; (d) the attainment of
age 59 1/2 by an employee in the participating plan; (e)
hardship of an employee in the participating plan to the
extent permitted under Section 401(k) o the Code; or (f)
redemptions of shares in connection with a loan made by the
participating plan to an employee.
Determination of Public Offering Price
The fund offers its shares to the public on a continuous
basis. The public offering price for a Class A and Class Y
share of the fund is equal to the net asset value per share
at the time of purchase, plus for Class A shares an initial
sales charge based on the aggregate amount of the
investment. The public offering price for a Class L share
(and Class A share purchases, including applicable rights
of accumulation, equaling or exceeding $500,000) is equal
to the net asset value per share at the time of purchase
and no sales charge is imposed at the time of purchase. A
deferred sales charge, however, is imposed on certain
redemptions of Class L shares, and Class A shares when
purchased in amounts exceeding $500,000. The method of
computation of the public offering price is shown in each
fund's financial statements, incorporated by reference in
their entirety into this SAI.
REDEMPTION OF SHARES
The right of redemption of shares of the fund may be
suspended or the date of payment postponed (a) for any
periods during which the NYSE is closed (other than for
customary weekend and holiday closings), (b) when trading
in the markets the fund normally utilizes is restricted, or
an emergency exists, as determined by the SEC, so that
disposal of the fund's investments or determination of its
net asset value is not reasonably practicable or (c) for
any other periods as the SEC by order may permit for the
protection of the fund's shareholders.
If the shares to be redeemed were issued in certificate
form, the certificates must be endorsed for transfer (or be
accompanied by an endorsed stock power) and must be
submitted to the sub-transfer agent together with the
redemption request. Any signature appearing on a share
certificate, stock power or written redemption request in
excess of $10,000 must be guaranteed by an eligible
guarantor institution such as a domestic bank, savings and
loan institution, domestic credit union, member bank of the
Federal Reserve System or member firm of a national
securities exchange. Written redemption requests of
$10,000 or less do not require a signature guarantee unless
more than one such redemption request is made in any 10-day
period or the redemption proceeds are to be sent to an
address other than the address of record. Unless otherwise
directed, redemption proceeds will be mailed to an
investor's address of record. The transfer agent may
require additional supporting documents for redemptions
made by corporations, executors, administrators, trustees
or guardians. A redemption request will not be deemed
properly received until the transfer agent receives all
required documents in proper form.
If a shareholder holds shares in more than one Class, any
request for redemption must specify the Class being
redeemed. In the event of a failure to specify which
Class, or if the investor owns fewer shares of the Class
than specified, the redemption request will be delayed
until the transfer agent receives further instructions from
Salomon Smith Barney, or if the shareholder's account is
not with Salomon Smith Barney, from the shareholder
directly. The redemption proceeds will be remitted on or
before the third business day following receipt of proper
tender, except on any days on which the NYSE is closed or
as permitted under the 1940 Act, in extraordinary
circumstances. Generally, if the redemption proceeds are
remitted to a Salomon Smith Barney brokerage account, these
funds will not be invested for the shareholder's benefit
without specific instruction and Salomon Smith Barney will
benefit from the use of temporarily uninvested funds.
Redemption proceeds for shares purchased by check, other
than a certified or official bank check, will be remitted
upon clearance of the check, which may take up to fifteen
days or more.
Distribution in Kind
If the board of trustees of the trust determines that it
would be detrimental to the best interests of the remaining
shareholders to make a redemption payment wholly in cash,
the fund may pay, in accordance with SEC rules, any portion
of a redemption in excess of the lesser of $250,000 or
1.00% of the fund's net assets by a distribution in kind of
portfolio securities in lieu of cash. Securities issued as
a distribution in kind may incur brokerage commissions when
shareholders subsequently sell those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan")
is available to shareholders of the fund who own shares of
the fund with a value of at least $10,000 and who wish to
receive specific amounts of cash monthly or quarterly.
Withdrawals of at least $50 may be made under the
Withdrawal Plan by redeeming as many shares of the fund as
may be necessary to cover the stipulated withdrawal
payment. Any applicable Deferred Sales Charge will not be
waived on amounts withdrawn by shareholders that exceed
1.00% per month of the value of a shareholder's shares at
the time the Withdrawal Plan commences. (With respect to
Withdrawal Plans in effect prior to November 7, 1994, any
applicable Deferred Sales Charge will be waived on amounts
withdrawn that do not exceed 2.00% per month of the value
of a shareholder's shares at the time the Withdrawal Plan
commences). To the extent that withdrawals exceed
dividends, distributions and appreciation of a
shareholder's investment in a fund, continued withdrawal
payments will reduce the shareholder's investment, and may
ultimately exhaust it. Withdrawal payments should not be
considered as income from investment in a fund.
Furthermore, as it generally would not be advantageous to a
shareholder to make additional investments in the fund at
the same time he or she is participating in the Withdrawal
Plan, purchases by such shareholders in amounts of less
than $5,000 ordinarily will not be permitted.
Shareholders of a fund who wish to participate in the
Withdrawal Plan and who hold their shares of the fund in
certificate form must deposit their share certificates with
the sub-transfer agent as agent for Withdrawal Plan
members. All dividends and distributions on shares in the
Withdrawal Plan are reinvested automatically at net asset
value in additional shares of the fund involved. A
shareholder who purchases shares directly through the sub-
transfer agent may continue to do so and applications for
participation in the Withdrawal Plan must be received by
the sub-transfer agent no later than the eighth day of the
month to be eligible for participation beginning with that
month's withdrawal. For additional information,
shareholders should contact a Salomon Smith Barney
Financial Consultant.
Additional Information Regarding Telephone Redemption And
Exchange Program
Neither the fund nor its agents will be liable for
following instructions communicated by telephone that are
reasonably believed to be genuine. The fund and its agents
will employ procedures designed to verify the identity of
the caller and legitimacy of instructions (for example, a
shareholder's name and account number will be required and
phone calls may be recorded). The fund reserves the right
to suspend, modify or discontinue the telephone redemption
and exchange program or to impose a charge for this service
at any time following at least seven (7) days prior notice
to shareholders.
VALUATION OF SHARES
The net asset value per share of the fund's Classes is
calculated on each day, Monday through Friday, except days
on which the NYSE is closed. The NYSE currently is
scheduled to be closed on New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas,
and on the preceding Friday or subsequent Monday when one
of these holidays falls on a Saturday or Sunday,
respectively. Because of the differences in distribution
fees and Class-specific expenses, the per share net asset
value of each Class may differ. The following is a
description of the procedures used by the trust in valuing
its assets.
Securities listed on a national securities exchange will be
valued on the basis of the last sale on the date on which
the valuation is made or, in the absence of sales, at the
mean between the closing bid and asked prices. Over-the-
counter securities will be valued at the mean between the
closing bid and asked prices on each day, or, if market
quotations for those securities are not readily available,
at fair value, as determined in good faith by the fund's
board of trustees. Short-term obligations with maturities
of 60 days or less are valued at amortized cost, which
constitutes fair value as determined by the fund's board of
trustees. Amortized cost involves valuing an instrument at
its original cost to the fund and thereafter assuming a
constant amortization to maturity of any discount or
premium, regardless of the effect of fluctuating interest
rates on the market value of the instrument. All other
securities and other assets of the fund will be valued at
fair value as determined in good faith by the fund's board
of trustees.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any of the Smith
Barney mutual funds may exchange all or part of their
shares for shares of the same Class of other Smith Barney
mutual funds, on the basis of relative net asset value per
share at the time of exchange as follows:
A. Class A and Class Y shares of the fund may be
exchanged without a sales charge for the respective
shares of any of the Smith Barney mutual funds.
B. Class B shares of any fund may be exchanged
without a sales charge. Class B shares of the fund
exchanged for Class B shares of another Smith Barney
mutual fund will be subject to the higher applicable
Deferred Sales Charge of the two funds and, for
purposes of calculating deferred sales charge rates
and conversion periods, will be deemed to have been
held since the date the shares being exchanged were
deemed to be purchased.
C. Class L shares of any fund may be exchanged
without a sales charge. For purposes of Deferred
Sales Charge applicability, Class L shares of the
fund exchanged for Class C shares of another Smith
Barney mutual fund will be deemed to have been owned
since the date the shares being exchanged were deemed
to be purchased.
D. Holders of Class Z shares should consult their
Qualified Plans for information about available
exchange options.
The exchange privilege enables shareholders in any Smith
Barney mutual fund to acquire shares of the same Class in a
fund with different investment objectives when they believe
a shift between funds is an appropriate investment
decision. This privilege is available to shareholders
residing in any state in which the fund shares being
acquired may legally be sold. Prior to any exchange, the
shareholder should obtain and review a copy of the current
prospectus of each fund into which an exchange is being
considered. Prospectuses may be obtained from a Salomon
Smith Barney Financial Consultant.
Upon receipt of proper instructions and all necessary
supporting documents, shares submitted for exchange are
redeemed at the then-current net asset value and, subject
to any applicable Deferred Sales Charge, the proceeds are
immediately invested, at a price as described above, in
shares of the fund being acquired. Salomon Smith Barney
reserves the right to reject any exchange request. The
exchange privilege may be modified or terminated at any
time after written notice to shareholders.
Additional Information Regarding the Exchange Privilege.
Although the exchange privilege is an important benefit,
excessive exchange transactions can be detrimental to the
fund's performance and its shareholders. The manager may
determine that a pattern of frequent exchanges is excessive
and contrary to the best interests of the fund's other
shareholders. In this event, the fund may, at its
discretion, decide to limit additional purchases and/or
exchanges by a shareholder. Upon such a determination, the
fund will provide notice in writing or by telephone to the
shareholder at least 15 days prior to suspending the
exchange privilege and during the 15 day period the
shareholder will be required to (a) redeem his or her
shares in the fund or (b) remain invested in the fund or
exchange into any of the funds of the Smith Barney mutual
funds ordinarily available, which position the shareholder
would be expected to maintain for a significant period of
time. All relevant factors will be considered in
determining what constitutes an abusive pattern of
exchanges.
PERFORMANCE DATA
From time to time the fund may advertise its total return
and average annual total return in advertisements and/or
other types of sales literature. These figures are
computed separately for Class A, Class B, Class L, Class Y
and Class Z shares of the fund. These figures are based on
historical earnings and are not intended to indicate future
performance. Total return is computed for a specified
period of time assuming deduction of the maximum sales
charge, if any, from the initial amount invested and
reinvestment of all income dividends and capital gain
distributions on the reinvestment dates at prices
calculated as stated in this prospectus, then dividing the
value of the investment at the end of the period so
calculated by the initial amount invested and subtracting
100%. The standard average annual total return, as
prescribed by the SEC is derived from this total return,
which provides the ending redeemable value. Such standard
total return information may also be accompanied with
nonstandard total return information for differing periods
computed in the same manner but without annualizing the
total return or taking sales charges into account. The
fund may also include comparative performance information
in advertising or marketing its shares. Such performance
information may include data from Lipper Analytical
Services, Inc. and other financial publications.
From time to time, the trust may quote a fund's yield or
total return in advertisements or in reports and other
communications to shareholders. The trust may include
comparative performance information in advertising or
marketing the fund's shares. Such performance information
may include the following industry and financial
publications- Barron's, Business Week, CDA Investment
Technologies, Inc., Changing Times, Forbes, Fortune,
Institutional Investor, Investors Business Daily, Money,
Morningstar Mutual Fund Values, The New York Times, USA
Today and The Wall Street Journal. To the extent any
advertisement or sales literature of the fund describes the
expenses or performance of any Class it will also disclose
such information for the other Classes.
Average Annual Total Return
A fund's "average annual total return," as described below,
is computed according to a formula prescribed by the SEC.
The formula can be expressed as follows:
P(1 + T)n = ERV
Where: P = a hypothetical
initial payment of $1,000.
T = average annual total
return.
n = number of years.
ERV = Ending Redeemable Value
of a hypothetical
$1,000 investment made
at the beginning of a
1-, 5- or 10-year
period at the end of a
1-, 5- or 10-year
period (or fractional
portion thereof),
assuming reinvestment
of all dividends and
distributions.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period. A fund's
net investment income changes in response to fluctuations
in interest rates and the expenses of the fund.
Average Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Since
Inceptio
n1
Class A2
32.50%
N/A
N/A
34.35%
Class B3
33.51%
N/A
N/A
35.56%
Class L4
36.15%
N/A
N/A
35.85%
Class Y5
40.00%
N/A
N/A
36.52%
Class Z5
N/A
N/A
N/A
25,08%
_______________________
1 Class A, B and L shares commenced operations on
August 29, 1997. Class Y and Class Z commenced
operations on October 15, 1997 and January 4, 1999,
respectively.
2 The average annual total return figure assumes that
the maximum 5.00% sales charge has been deducted from
the investment at the time of purchase. If the
maximum sales charge had not been deducted, the
average annual total return for Class A shares for
the same period would have been 39.50% and 37.46% for
one year and since inception of the fund,
respectively.
3 The average annual total return figure assumes that
the maximum applicable Deferred Sales Charge has been
deducted from the investment at the time of
redemption. If the maximum deferred sales charge had
not been deducted, the average annual total return
for Class B shares for the same period would have
been 38.51% and 36.46% for one year and since
inception of the fund, respectively.
4 The average annual total return figure assumes that
the maximum applicable initial and Deferred Sales
Charges have been deducted from the investment at the
time of redemption. If the maximum initial and
Deferred Sales Charges have not been deducted, the
average annual total return for Class L shares for
the same period would have been 38.51% and 36.46% for
one year and since inception of the fund,
respectively.
5 Class Y sharesand Class Z shares do not incur sales
charges nor Deferred Sales Charges.
Aggregate Total Return
The fund's "aggregate total return," as described below,
represents the cumulative change in the value of an
investment in the fund for the specified period and is
computed by the following formula:
ERV - P
P
Where: P = a hypothetical initial
payment of $10,000.
ERV = Ending Redeemable Value of a
hypothetical $10,000
investment made at the
beginning of the 1-, 5- or
10-year period at the end of
the 1-, 5- or 10-year period
(or fractional portion
thereof), assuming
reinvestment of all dividends
and distributions.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period.
Aggregate Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Since
Inceptio
n1
Class A2
32.50%
N/A
N/A
94.60%
Class B3
33.51%
N/A
N/A
98.56%
Class L4
36.15%
N/A
N/A
99.55%
Class Y5
40.00%
N/A
N/A
93.83%
Class Z5
N/A
N/A
N/A
25.08%
_______________________
1 Classes A, B and L shares commenced operations on
August 29, 1997. Class Y and Class Z shares
commenced operations on October 15, 1997 and January
4, 1999, respectively.
2 The average annual total return figure assumes that
the maximum 5.00% sales charge has been deducted from
the investment at the time of purchase. If the
maximum sales charge had not been deducted, the
average annual total return for Class A shares for
the same period would have been 39.50% and 104.92%
for one year and since inception of the fund,
respectively.
3 The average annual total return figure assumes that
the maximum applicable Deferred Sales Charge has been
deducted from the investment at the time of
redemption. If the maximum Deferred Sales Charge had
not been deducted, the average annual total return
for Class B shares for the same period would have
been 38.51% and 101.56% for one year and since
inception of the fund, respectively.
4 The average annual total return figure assumes that
the maximum applicable initial and Deferred Sales
Charges have been deducted from the investment at the
time of redemption. If the maximum initial and
Deferred Sales Charges had not been deducted, the
average annual total return for Class L shares for
the same period would have been 38.51% and 101.56%
for one year and since inception of the fund,
respectively.
5 Class Y shares and Class Z shares do not incur sales
charges nor Deferred Sales Charges.
Performance will vary from time to time depending upon
market conditions, the composition of the fund's portfolio
and operating expenses and the expenses exclusively
attributable to the Class. Consequently, any given
performance quotation should not be considered
representative of the Class's performance for any specified
period in the future. Because performance will vary, it
may not provide a basis for comparing an investment in the
Class with certain bank deposits or other investments that
pay a fixed yield for a stated period of time. Investors
comparing a Class's performance with that of other mutual
funds should give consideration to the quality and maturity
of the respective investment companies' portfolio
securities.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions
The fund's policy is to distribute its net investment
income and net realized capital gains, if any, annually.
The fund may also pay additional dividends shortly before
December 31 from certain amounts of undistributed ordinary
and capital gains realized, in order to avoid a Federal
excise tax liability.
If a shareholder does not otherwise instruct, dividends and
capital gains distributions will be reinvested
automatically in additional shares of the same Class at net
asset value, subject to no sales charge or deferred sales
charge. A shareholder may change the option at any time
by notifying his Salomon Smith Barney Financial Consultant
or Dealer Representative. Shareholders whose account are
held directly at the sub-transfer agent should notify the
sub-transfer agent in writing, requesting a change to this
reinvest option
The per share dividends on Class B and Class L shares of
the fund may be lower than the per share dividends on Class
A and Class Y shares principally as a result of the
distribution fee applicable with respect to Class B and
Class L shares. The per share dividends on Class A shares
of the fund may be lower than the per share dividends on
Class Y shares principally as a result of the service fee
applicable to Class A shares. Distributions of capital
gains, if any, will be in the same amount for Class A,
Class B, Class L and Class Y shares.
Taxes
The following is a summary of the material United States
federal income tax considerations regarding the purchase,
ownership and disposition of shares of a fund. Each
prospective shareholder is urged to consult his own tax
adviser with respect to the specific federal, state, local
and foreign tax consequences of investing in a fund. The
summary is based on the laws in effect on the date of this
SAI and existing judicial and administrative
interpretations thereof, both of, which are subject to
change.
The Fund and Its Investments
The fund intends to continue to qualify to be treated as a
regulated investment company during each taxable year under
the Internal Revenue Code of 1986, as amended (the "Code").
To so qualify, the fund must, among other things: (a)
derive at least 90% of its gross income in each taxable
year from dividends, interest, payments with respect to
securities loans and gains from the sale or other
disposition of stock or securities, foreign currencies, or
other income (including, but not limited to, gains from
options, futures or forward contracts) derived with respect
to its business of investing in such stock, securities or
currencies; and (b) diversify its holdings so that, at the
end of each quarter of the fund's taxable year, (i) at
least 50% of the market value of the fund's assets is
represented by cash, securities of other regulated
investment companies, United States government securities
and other securities, with such other securities limited,
in respect of any one issuer, to an amount not greater than
5% of the fund's assets and not greater than 10% of the
outstanding voting securities of such issuer and (ii) not
more than 25% of the value of its assets is invested in the
securities (other than United States government securities
or securities of other regulated investment companies) of
any one issuer or any two or more issuers that the fund
controls and which are determined to be engaged in the same
or similar trades or businesses or related trades or
businesses..
As a regulated investment company, the fund will not be
subject to United States federal income tax on its net
investment income (i.e., income other than its net realized
long-term and short-term capital gains) and its net
realized long- and short-term capital gains, if any, that
it distributes to its shareholders, provided an amount
equal to at least 90% of its investment company taxable
income (i.e., 90% of its taxable income minus the excess,
if any, of its net realized long-term capital gains over
its net realized short-term capital losses (including any
capital loss carryovers), plus or minus certain other
adjustments as specified in the Code) and its net tax-
exempt income for the taxable year is distributed to its
shareholders in compliance with the Code's timing and other
requirements, but will be subject to tax at regular
corporate rates on any taxable income or gains it does not
distribute.
</R.>
The Code imposes a 4% nondeductible excise tax on the fund
to the extent it does not distribute by the end of any
calendar year at least 98% of its ordinary income for that
year and at least 98% of its net of its capital gains (both
long-term and short-term) for the one-year period ending,
as a general rule, on October 31 of that year. For this
purpose, however, any ordinary income or net capital gains
retained by the fund that is subject to corporate income
tax will be considered to have been distributed by year-
end. In addition, the minimum amounts that must be
distributed in any year to avoid the excise tax will be
increased or decreased to reflect any underdistribution or
overdistribution, as the case may be, from the previous
year. The fund anticipates that it will pay such dividends
and will make such distributions as are necessary in order
to avoid the application of this excise tax.
If, in any taxable year, the fund fails to qualify as a
regulated investment company under the Code or fails to
meet the distribution requirement, it would be taxed in the
same manner as an ordinary corporation and distributions to
its shareholders would not be deductible by the fund in
computing its taxable income. In addition, in the event of
a failure to qualify, the fund's distributions, to the
extent derived from the fund's current or accumulated
earnings and profits would constitute dividends (eligible
for the corporate dividends-received deduction) which are
taxable to shareholders as ordinary income, even though
those distributions might otherwise (at least in part) have
been treated in the shareholders' hands as long-term
capital gains. Moreover, if the fund fails to qualify as a
regulated investment company in any year, it must pay out
its earnings and profits accumulated in that year in order
to qualify again as a regulated investment company. In
addition, the fund may be required to recognize any net
built-in gains with respect to certain of its assets (i.e.
the excess of the aggregate gains, including items of
income, over aggregate losses that would have been realized
with respect to such assets if the fund had been
liquidated) in order to qualify as a regulated investment
company in a subsequent year.
The fund's transactions in foreign currencies, forward
contracts, options and futures contracts (including options
and futures contracts on foreign currencies) will be
subject to special provisions of the Code (including
provisions relating to "hedging transactions" and
"straddles") that, among other things, may affect the
character of gains and losses realized by the fund (i.e.,
may affect whether gains or losses are ordinary or
capital), accelerate recognition of income to the fund and
defer fund losses. These rules could therefore affect the
character, amount and timing of distributions to
shareholders. These provisions also (a) will require the
fund to mark-to-market certain types of the positions in
its portfolio (i.e., treat them as if they were closed out)
and (b) may cause the fund to recognize income without
receiving cash with which to pay dividends or make
distributions in amounts necessary to satisfy the
distribution requirements for avoiding income and excise
taxes. The fund will monitor its transactions, will make
the appropriate tax elections and will make the appropriate
entries in its books and records when it acquires any
foreign currency, forward contract, option, futures
contract or hedged investment in order to mitigate the
effect of these rules and prevent disqualification of the
fund as a regulated investment company.
The fund's investment in so-called "section 1256
contracts", such as regulated futures contracts, most
foreign currency forward contracts traded in the interbank
market and options on most stock indices, are subject to
special tax rules. All section 1256 contracts held by the
fund at the end of its taxable year are required to be
marked to their market value, and any unrealized gain or
loss on those positions will be included in the fund's
income as if each position had been sold for its fair
market value at the end of the taxable year. The resulting
gain or loss will be combined with any gain or loss
realized by the fund from positions in section 1256
contracts closed during the taxable year. Provided such
positions were held as capital assets and were not part of
a "hedging transaction" nor part of a "straddle," 60% of
the resulting net gain or loss will be treated as long-term
capital gain or loss, and 40% of such net gain or loss will
be treated as short-term capital gain or loss, regardless
of the period of time the positions were actually held by
the fund.
Foreign Investments. Dividends or other income (including,
in some cases, capital gains) received by the fund from
investments in foreign securities may be subject to
withholding and other taxes imposed by foreign countries.
Tax conventions between certain countries and the United
States may reduce or eliminate such taxes in some cases.
The fund will not be eligible to elect to treat any foreign
taxes paid by it as paid by its shareholders, who therefore
will not be entitled to credits for such taxes on their own
tax returns. Foreign taxes paid by the fund will reduce
the return from the fund's investments.
Passive Foreign Investment Companies. If the fund
purchases shares in certain foreign investment entities,
called "passive foreign investment companies" (a "PFIC"),
it may be subject to United States federal income tax on a
portion of any "excess distribution" or gain from the
disposition of such shares even if such income is
distributed as a taxable dividend by the fund to its
shareholders. Additional charges in the nature of interest
may be imposed on the fund in respect of deferred taxes
arising from such distributions or gains. If the fund were
to invest in a PFIC and elected to treat the PFIC as a
"qualified electing fund" under the Code, in lieu of the
foregoing requirements, the fund might be required to
include in income each year a portion of the ordinary
earnings and net capital gains of the qualified electing
fund, even if not distributed to the fund, and such amounts
would be subject to the 90% and excise tax distribution
requirements described above. In order to make this
election, the fund would be required to obtain certain
annual information from the passive foreign investment
companies in which it invests, which may be difficult or
impossible to obtain.
Alternatively, the fund may make a mark-to-market election
that will result in the fund being treated as if it had
sold and repurchased all of the PFIC stock at the end of
each year. In such case, the fund would report any such
gains as ordinary income and would deduct any such losses
as ordinary losses to the extent of previously recognized
gains. The election, once made, would be effective for all
subsequent taxable years of the fund, unless revoked with
the consent of the Internal Revenue Service (the "IRS").
By making the election, the fund could potentially
ameliorate the adverse tax consequences with respect to its
ownership of shares in a PFIC, but in any particular year
may be required to recognize income in excess of the
distributions it receives from PFICs and its proceeds from
dispositions of PFIC stock. The fund may have to
distribute this "phantom" income and gain to satisfy the
90% distribution requirement and to avoid imposition of the
4% excise tax. The fund will make the appropriate tax
elections, if possible, and take any additional steps that
are necessary to mitigate the effect of these rules.
Taxation of United States Shareholders
Dividends and Distributions. Any dividend declared by the
fund in October, November or December of any calendar year
and payable to shareholders of record on a specified date
in such a month shall be deemed to have been received by
each shareholder on December 31 of such calendar year and
to have been paid by the fund not later than such December
31, provided such dividend is actually paid by the fund
during January of the following calendar year. The fund
intends to distribute annually to its shareholders
substantially all of its investment company taxable income,
and any net realized long-term capital gains in excess of
net realized short-term capital losses (including any
capital loss carryovers). The fund currently expects to
distribute any excess annually to its shareholders.
However, if the fund retains for investment an amount equal
to all or a portion of its net long-term capital gains in
excess of its net short-term capital losses and capital
loss carryovers, it will be subject to a corporate tax
(currently at a rate of 35%) on the amount retained. In
that event, the fund will designate such retained amounts
as undistributed capital gains in a notice to its
shareholders who (a) will be required to include in income
for United Stares federal income tax purposes, as long-term
capital gains, their proportionate shares of the
undistributed amount, (b) will be entitled to credit their
proportionate shares of the 35% tax paid by the fund on the
undistributed amount against their United States federal
income tax liabilities, if any, and to claim refunds to the
extent their credits exceed their liabilities, if any, and
(c) will be entitled to increase their tax basis, for
United States federal income tax purposes, in their shares
by an amount equal to 65% of the amount of undistributed
capital gains included in the shareholder's income.
Organizations or persons not subject to federal income tax
on such capital gains will be entitled to a refund of their
pro rata share of such taxes paid by the fund upon filing
appropriate returns or claims for refund with the IRS
Dividends of net investment income and distributions of net
realized short-term capital gains are taxable to a United
States shareholder as ordinary income, whether paid in cash
or in shares. Distributions of net realized-long-term
capital gains, if any, that the fund designates as capital
gains dividends are taxable as long-term capital gains,
whether paid in cash or in shares and regardless of how
long a shareholder has held shares of the fund. Dividends
and distributions paid by the fund attributable to
dividends on stock of U.S. corporations received by the
fund, with respect to which the fund meets certain holding
period requirements, will be eligible for the deduction for
dividends received by corporations. Distributions in excess
of the fund's current and accumulated earnings and profits
will, as to each shareholder, be treated as a tax-free
return of capital to the extent of a shareholder's basis in
his shares of the fund, and as a capital gain thereafter
(if the shareholder holds his shares of the fund as capital
assets). Shareholders receiving dividends or distributions
in the form of additional shares should be treated for
United States federal income tax purposes as receiving a
distribution in an amount equal to the amount of money that
the shareholders receiving cash dividends or distributions
will receive, and should have a cost basis in the shares
received equal to such amount.
</R.
Investors considering buying shares just prior to a
dividend or capital gain distribution should be aware that,
although the price of shares just purchased at that time
may reflect the amount of the forthcoming distribution,
such dividend or distribution may nevertheless be taxable
to them. If the fund is the holder of record of any stock
on the record date for any dividends payable with respect
to such stock, such dividends are included in the fund's
gross income not as of the date received but as of the
later of (a) the date such stock became ex-dividend with
respect to such dividends (i.e., the date on which a buyer
of the stock would not be entitled to receive the declared,
but unpaid, dividends) or (b) the date the fund acquired
such stock. Accordingly, in order to satisfy its income
distribution requirements, the fund may be required to pay
dividends based on anticipated earnings, and shareholders
may receive dividends in an earlier year than would
otherwise be the case.
Sales of Shares. Upon the sale or exchange of his shares,
a shareholder will realize a taxable gain or loss equal to
the difference between the amount realized and his basis in
his shares. Such gain or loss will be treated as capital
gain or loss if the shares are capital assets in the
shareholder's hands, and will be long-term capital gain or
loss if the shares are held for more than one year and
short-term capital gain or loss if the shares are held for
one year or less. Any loss realized on a sale or exchange
will be disallowed to the extent the shares disposed of are
replaced, including replacement through the reinvesting of
dividends and capital gains distributions in the fund,
within a 61-day period beginning 30 days before and ending
30 days after the disposition of the shares. In such a
case, the basis of the shares acquired will be increased to
reflect the disallowed loss. Any loss realized by a
shareholder on the sale of a fund share held by the
shareholder for six months or less will be treated for
United States federal income tax purposes as a long-term
capital loss to the extent of any distributions or deemed
distributions of long-term capital gains received by the
shareholder with respect to such share during such six-
month period. If a shareholder incurs a sales charge in
acquiring shares of the fund, disposes of those shares
within 90 days and then acquires shares in a mutual fund
for which the otherwise applicable sales charge is reduced
by reason of a reinvestment right (e.g., an exchange
privilege), the original sales charge will not be taken
into account in computing gain/loss on the original shares
to the extent the subsequent sales charge is reduced.
Instead, the disregarded portion of the original sales
charge will be added to the tax basis of the newly acquired
shares. Furthermore, the same rule also applies to a
disposition of the newly acquired shares made within 90
days of the second acquisition. This provision prevents a
shareholder from immediately deducting the sales charge by
shifting his or her investment in a family of mutual funds.
Backup Withholding. The fund may be required to withhold,
for United States federal income tax purposes, 31% of the
dividends, distributions and redemption proceeds payable to
shareholders who fail to provide the fund with their
correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that
they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup
withholding is not an additional tax and any amount
withheld may be credited against a shareholder's United
States federal income tax liabilities.
Notices. Shareholders will be notified annually by the
fund as to the United States federal income tax status of
the dividends, distributions and deemed distributions
attributable to undistributed capital gains (discussed
above in "Taxes - Taxation of United States Shareholders -
Dividends and Distributions") made by the fund to its
shareholders. Furthermore, shareholders will also receive,
if appropriate, various written notices after the close of
the fund's taxable year regarding the United States federal
income tax status of certain dividends, distributions and
deemed distributions that were paid (or that are treated as
having been paid) by the fund to its shareholders during
the preceding taxable year.
Class Z
Qualified plan participants should consult their plan
document or tax advisors about the tax consequences of
participating in a Qualified Plan. In addition to the
considerations described below, there may be other federal,
state, local, and/or foreign tax applications to consider.
Provided that a Qualified Plan has not borrowed to finance
its investment in the fund, it will not be taxable on the
receipt of dividends and distributions from the fund.
Qualified plan participants should consult their plan
document or tax advisors about the tax consequences of
participating in a Qualified Plan.
Other Taxation
Distributions also may be subject to additional state,
local and foreign taxes depending on each shareholder's
particular situation.
The foregoing is only a summary of certain material tax
consequences affecting the fund and its shareholders.
Shareholders are advised to consult their own tax advisers
with respect to the particular tax consequences to them of
an investment in the fund.
ADDITIONAL INFORMATION
The trust was organized on October 17, 1991 under the laws
of the Commonwealth of Massachusetts and is a business
entity commonly known as a "Massachusetts business trust."
The trust offers shares of beneficial interest of five
separate funds with a par value of $.001 per share. The
fund offers shares of beneficial interest currently
classified into five Classes - A, B, L, Y and Z. Each
Class of the fund represents an identical interest in the
fund's investment portfolio. As a result, the Classes have
the same rights, privileges and preferences, except with
respect to: (a) the designation of each Class; (b) the
effect of the respective sales charges; if any, for each
class; (c) the distribution and/or service fees borne by
each Class pursuant to the Plan; (d) the expenses allocable
exclusively to each Class; (e) voting rights on matters
exclusively affecting a single Class; (f) the exchange
privilege of each Class; and (g) the conversion feature of
the Class B shares. The trust's board of trustees does not
anticipate that there will be any conflicts among the
interests of the holders of the different Classes. The
trustees, on an ongoing basis, will consider whether any
such conflict exists and, if so, take appropriate action.
Under Massachusetts's law, shareholders could, under
certain circumstances, be held personally liable for the
obligations of the fund. The Master Trust Agreement
disclaims shareholder liability for acts or obligations of
the fund, however, and requires that notice of such
disclaimer be given in each agreement, obligation or
instrument entered into or executed by the fund or a
trustee. The Master Trust Agreement provides for
indemnification from fund property for all losses and
expenses of any shareholder held personally liable for the
obligations of the fund. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder
liability is limited to circumstances in which the fund
itself would be unable to meet its obligations, a
possibility which management of the fund believes is
remote. Upon payment of any liability incurred by the
fund, a shareholder paying such liability will be entitled
to reimbursement from the general assets of the fund. The
trustees intend to conduct the operation of the fund in
such a way so as to avoid, as far as possible, ultimate
liability of the shareholders for liabilities of the fund.
The Master Trust Agreement of the fund permits the trustees
of the fund to issue an unlimited number of full and
fractional shares of a single class and to divide or
combine the shares into a greater or lesser number of
shares without thereby changing the proportionate
beneficial interests in the fund. Each share in the fund
represents an equal proportional interest in the fund with
each other share. Shareholders of the fund are entitled
upon its liquidation to share pro rata in its net assets
available for distribution. No shareholder of the fund has
any preemptive or conversion rights. Shares of the fund are
fully paid and non-assessable.
Pursuant to the Master Trust Agreement, the fund's trustees
may authorize the creation of additional series of shares
(the proceeds of which would be invested in separate,
independently managed portfolios) and additional classes of
shares within any series (which would be used to
distinguish among the rights of different categories of
shareholders, as might be required by future regulations or
other unforeseen circumstances).
The fund does not hold annual shareholder meetings. There
normally will be no meetings of shareholders for the
purpose of electing trustees unless and until such time as
less than a majority of the trustees holding office have
been elected by shareholders, at which time the trustees
then in office will call a shareholders' meeting for the
election of trustees. Shareholders of record of no less
than two-thirds of the outstanding shares of the trust may
remove a trustee through a declaration in writing or by
vote cast in person or by proxy at a meeting called for
that purpose. The trustees will call a meeting for any
purpose upon written request of shareholders holding at
least 10% of the trust's outstanding shares and the trust
will assist shareholders in calling such a meeting as
required by the 1940 Act.
When matters are submitted for shareholder vote,
shareholders of each Class will have one vote for each full
share owned and a proportionate, fractional vote for any
fractional share held of that Class. Generally, shares of
the fund will be voted on a fund-wide basis on all matters
except matters affecting only the interests of one Class,
in which case only shares of the affected Class would be
entitled to vote.
The trust was organized as an unincorporated Massachusetts
business trust on October 17, 1991 under the name Shearson
Lehman Brothers Intermediate-Term Trust. On October 14,
1994 and August 16, 1995, the Trust's name was changed
Smith Barney Income Trust and Smith Barney Investment
Trust, respectively.
Annual and Semi-Annual Reports. The fund sends its
shareholders a semi-annual report and an audited annual
report, which include listings of investment securities
held by the fund at the end of the period covered. In an
effort to reduce the fund's printing and mailing costs, the
fund consolidates the mailing of its semi-annual and annual
reports by household. This consolidation means that a
household having multiple accounts with the identical
address of record will receive a single copy of each
report. In addition, the fund also consolidates the mailing
of its prospectus so that a shareholder having multiple
accounts (that is, individual, IRA and/or Self-Employed
Retirement Plan accounts) will receive a single Prospectus
annually. Shareholders who do not want this consolidation
to apply to their accounts should contact their Salomon
Smith Barney Financial Consultant or the transfer agent.
Styles of Fund Management: In an industry where the
average portfolio manager has seven years of experience
(source: ICI, 1998), the portfolio managers of Smith Barney
Mutual Funds average 21 years in the industry and 15 years
with the firm.
Smith Barney Mutual Funds offers more than 60 mutual funds.
We understand that many investors prefer an active role in
allocating the mix of funds in their portfolio, while
others want the asset allocation decisions to be made by
experienced managers.
That's why we offer four "styles" of fund management that
can be tailored ot suit each investor's unique financial
goals.
Style Pure Series - Our style Pure Series funds stay fully
invested within their asset class and investment style,
enabling investors to make asset allocation decisions in
conjunction with their Salomon Smith Barney Financial
Consultant.
Classic Investor Series - Our Classic Investor Series funds
offer a range of equity and fixed income strategies that
seek to capture opportunities across asset classes and
investment styles using disciplined investment approaches.
The Concert Allocation Series - As a fund of funds,
investors can select a Concert Portfolio that may help
their investment needs. As needs change, investors can
easily choose another long-term, diversified investment
from our Concert family.
Special Discipline Series - Our Special Discipline Series
funds are designed for investors who are looking beyond
more traditional market categories: from natural resources
to a roster of state-specific municipal funds.
FINANCIAL STATEMENTS
The fund's annual report for the fiscal year ended November
30, 1999 is incorporated herein by reference in its
entirety. The annual report was filed on February 16,
2000, Accession Number 91155-00-110.
SMITH BARNEY
INVESTMENT TRUST
Large Capitalization
Growth
Fund
March 29, 2000
SMITH BARNEY INVESTMENT TRUST
388 Greenwich Street
New York, NY 10013
SALOMON SMITH BARNEY
A Member of
Citigroup [Symbol]
60
March 29, 2000
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY INVESTMENT TRUST
Smith Barney Mid Cap Blend Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
This Statement of Additional Information ("SAI") is meant
to be read in conjunction with the prospectus of the Smith
Barney Mid Cap Blend Fund (the "fund") dated March 29,
2000, as amended or supplemented from time to time (the
"prospectus"), and is incorporated by reference in it
entirety into the prospectus. Additional information about
the fund's investments is available in the fund's annual
and semi-annual reports to shareholders which are
incorporated herein by reference. The prospectus and
copies of the reports may be obtained free of charge by
contacting a Salomon Smith Barney Financial Consultant, or
by writing or calling Salomon Smith Barney Inc. at the
address or telephone number above. The fund is a separate
investment series of Smith Barney Investment Trust (the
"trust").
TABLE OF CONTENTS
Investment Objective and Management Policies 2
Investment Restrictions...... ..............................14
Trustees of the Trust and Executive Officers of the Fund 15
Investment Management and Other Services 18
Portfolio Transactions... ...............................22
Portfolio Turnover.................. .................24
Purchase of Shares .............................................24
Redemption of Shares 33
Valuation of Shares 35
Exchange Privilege 35
Performance Data 36
Dividends, Distribution and Taxes 36
Additional Information 45
Financial Statements ...................................................48
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The prospectus discusses the fund's investment objective
and policies. This section contains supplemental
information concerning the types of securities and other
instruments in which the fund may invest, the investment
policies and portfolio strategies the fund may utilize and
certain risks associated with these investments, policies
and strategies. SSB Citi Fund Management LLC (successor to
SSBC Fund Management Inc.) ("SSB Citi" or the "manager")
serves as investment manager to the fund.
The fund is an open-end, diversified, management investment
company whose investment objective is to seek long-term
growth of capital by investing, under normal market
conditions, at least 65% of its total assets in equity
securities of medium-sized companies. Medium sized
companies are thosewhose market capitalization is within
the market capitalization range of companies in the S&P Mid
Cap Index ("Index") at the time of investment. The size of
the companies in the Index changes with market conditions
and the composition of the Index. As of February 29, 2000,
the largest market capitalization of a company in the Index
was $51 billion and the smallest market capitalization was
$106 million. Investing in medium-capitalization stocks may
involve greater risk than investing in large capitalization
stocks since they can be subject to more abrupt or erratic
movements. However, they tend to involve less risk than
stocks of small capitalization companies.
The fund normally invests in all types of equity
securities, including common stocks, preferred stocks,
securities that are convertible into common or preferred
stocks, such as warrants and convertible bonds, and
depository receipts for those securities. The fund may
maintain a portion of its assets, which will usually not
exceed 10%, in U.S. Government securities, money market
obligations, and in cash to provide for payment of the
fund's expenses and to meet redemption requests. It is the
policy of the fund to be as fully invested in equity
securities as practicable at all times. The fund reserves
the right, as a defensive measure, to hold money market
securities, including repurchase agreements or cash, in
such proportions as, in the opinion of management,
prevailing market or economic conditions warrant.
Equity Securities. The fund will normally invest at least
65% of its assets in equity securities, including primarily
common stocks and, to a lesser extent, securities
convertible into common stock and rights to subscribe for
common stock. Common stocks represent an equity (ownership)
interest in a corporation. Although equity securities have
a history of long-term growth in value, their prices
fluctuate based on changes in a company's financial
condition and on overall market and economic conditions.
Real Estate Investment Trusts ("REITS"). The fund may
invest in REITS, which are pooled investment vehicles that
invest primarily in either real estate or real estate
related loans. The value of a REIT is affected by changes
in the value of the properties owned by the REIT or
securing mortgage loans held by the REIT. REITs are
dependent upon cash flow from their investments to repay
financing costs and the ability of the REIT's manager.
REITs are also subject to risks generally associated with
investments in real estate. The fund will indirectly bear
its proportionate share of any expenses, including
management fees, paid by a REIT in which it invests.
Convertible Securities. Convertible securities in which
the fund may invest, including both convertible debt and
convertible preferred stock, may be converted at either a
stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible
securities enable an investor to benefit from increases in
the market price of the underlying common stock.
Convertible securities provide higher yields than the
underlying equity securities, but generally offer lower
yields than non-convertible securities of similar quality.
Like bonds, the value of convertible securities fluctuates
in relation to changes in interest rates and, in addition,
also fluctuates in relation to the underlying common stock.
When-Issued, Delayed-Delivery and Forward Commitment
Transactions. The fund may purchase securities on a
"when-issued" basis, for delayed delivery (i.e., payment or
delivery occur beyond the normal settlement date at a
stated price and yield) or on a forward commitment basis.
The fund does not intend to engage in these transactions
for speculative purposes, but only in furtherance of its
investment goal. These transactions occur when securities
are purchased or sold by the fund with payment and delivery
taking place in the future to secure what is considered an
advantageous yield and price to the fund at the time of
entering into the transaction. The payment obligation and
the interest rate that will be received on when-issued
securities are fixed at the time the buyer enters into the
commitment. Due to fluctuations in the value of securities
purchased or sold on a when-issued, delayed-delivery basis
or forward commitment basis, the prices obtained on such
securities may be higher or lower than the prices available
in the market on the dates when the investments are
actually delivered to the buyers.
When the fund agrees to purchase when-issued or delayed-
delivery securities, its fund will set aside cash or liquid
securities equal to the amount of the commitment in a
segregated account on the fund's books. Normally, the fund
will set aside portfolio securities to satisfy a purchase
commitment, and in such a case the fund may be required
subsequently to place additional assets in the segregated
account in order to ensure that the value of the account
remains equal to the amount of the fund's commitment. The
assets contained in the segregated account will be marked-
to-market daily. It may be expected that the fund's net
assets will fluctuate to a greater degree when it sets
aside portfolio securities to cover such purchase
commitments than when it sets aside cash. When the fund
engages in when-issued or delayed-delivery transactions,
it relies on the other party to consummate the trade.
Failure of the seller to do so may result in the fund's
incurring a loss or missing an opportunity to obtain a
price considered to be advantageous.
Foreign Securities. The fund has the authority to invest
up to 25% of its assets in foreign securities (including
European Depository Receipts ("EDRs") and Global Depository
Receipts ("GDRs")) and American Depository Receipts
("ADRs") or other securities representing underlying shares
of foreign companies. EDRs are receipts issued in Europe
which evidence ownership of underlying securities issued by
a foreign corporations. ADRs are receipts typically issued
by an American bank or trust company which evidence a
similar ownership arrangement. Generally, ADRs which are
issued in registered form, are designed for use in the
United States securities markets and EDRs, which are issued
in bearer form, are designed for use in European securities
markets. GDRs are tradeable both in the U.S. and Europe
and are designed for use throughout the world.
There are certain risks involved in investing in securities
of companies and governments of foreign nations that are in
addition to the usual risks inherent in domestic
investments. These risks include those resulting from
revaluation of currencies, future adverse political and
economic developments and the possible imposition of
currency exchange blockages or other foreign governmental
laws or restrictions, reduced availability of public
information concerning issuers and the lack of uniform
accounting, auditing and financial reporting standards or
of other regulatory practices and requirements comparable
to those applicable to domestic companies. The yield of
the fund may be adversely affected by fluctuations in value
of one or more foreign currencies relative to the U.S.
dollar. Moreover, securities of many foreign companies and
their markets may be less liquid and their prices more
volatile than those of securities of comparable domestic
companies. In addition, with respect to certain foreign
countries, there is the possibility of expropriation,
nationalization, confiscatory taxation and limitations on
the use or removal of funds or other assets of the fund,
including the withholding of dividends. Foreign securities
may be subject to foreign government taxes that could
reduce the yield on such securities. Because the fund may
invest in securities denominated or quoted in currencies
other than the U.S. dollar, changes in foreign currency
exchange rates may adversely affect the value of portfolio
securities and the appreciation or depreciation of
investments. Investment in foreign securities also may
result in higher expenses due to the cost of converting
foreign currency to U.S. dollars, the payment of fixed
brokerage commissions on foreign exchanges, which generally
are higher than commissions on domestic exchanges, the
expense of maintaining securities with foreign custodians,
and the imposition of transfer taxes or transaction charges
associated with foreign exchanges. Moreover, individual
foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross
domestic product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payment positions.
The fund may invest in securities of foreign governments
(or agencies or subdivisions thereof), and therefore many,
if not all, of the foregoing considerations apply to such
investments as well. These securities may not necessarily
be denominated in the same currency as the securities into
which they may be converted. In addition, the fund may
invest in securities into which they may be converted. The
fund also may invest in securities denominated in European
Currency Units (ECUs). An ECU is a "basket" consisting of
a specified amount of currencies of certain of the twelve
member states of the European Community. In addition, the
fund may invest in securities denominated in other currency
"baskets."
The Economic Monetary Union (EMU): For participating
countries, EMU will mean sharing a single currency (the
Euro) and single official interest rate and adhering to
agreed upon limits on government borrowing. There are a
number of significant risks associated with EMU. Monetary
and economic union on this scale has never been before.
There is a significant degree of uncertainty as to whether
participating countries will remain committed to EMU in the
face of changing economic conditions. This uncertainty may
increase the volatility of European markets. The
conversion to the Euro is being phased in over a three-year
period. During this time, valuation, systems and other
operational problems may occur in connection with the
fund's investments quoted in the Euro.
Short-Term Debt Securities. Debt securities in which the
fund may invest include notes, bills, commercial paper,
obligations issued or guaranteed by the government or any
of its political subdivisions, agencies or
instrumentalities, and certificates of deposit. Debt
securities represent money borrowed that obligate the
issuer (e.g., a corporation, municipality, government,
government agency) to repay the borrowed amount at maturity
(when the obligation is due and payable) and usually to pay
the holder interest at specific times.
All debt securities are subject to market risk and credit
risk. Market risk relates to market-induced changes in a
security's value, usually as a result of changes in
interest rates. The value of the fund's investments in
debt securities will change as the general levels of
interest rates fluctuate. During periods of falling
interest rates, the value of the fund's debt securities
will generally rise. Conversely, during periods of rising
interest rates, the value of the fund's debt securities
will generally decline. Credit risk relates to the ability
of the issuer to make payments of principal and interest.
The fund has no restrictions with respect to the maturities
or duration of the debt securities it holds. The fund's
investment in fixed income securities with longer terms to
maturity or greater duration are subject to greater
volatility than the fund's shorter-term securities.
Money Market Instruments. The fund may invest for
temporary defensive purposes in short-term instruments
including corporate and government bonds and notes and
money market instruments. Short-term instruments in which
the fund may invest include obligations of banks having at
least $1 billion in assets (including certificates of
deposit, time deposits and bankers' acceptances of domestic
or foreign banks, domestic savings and loan associations
and similar institutions); commercial paper rated no lower
than A-2 by Standard & Poor's Ratings Group or Prime-2 by
Moody's Investors Service, Inc. or the equivalent from
another nationally recognized statistical rating
organization or, if unrated, of an issuer having an
outstanding, unsecured debt issue then rated within the two
highest rating categories; and repurchase agreements with
respect to any of the foregoing entered into with banks and
non-bank dealers approved by the Trust's Board of Trustees.
Certificates of deposit ("CDs") are short-term, negotiable
obligations of commercial banks. Time deposits ("TDs") are
non-negotiable deposits maintained in banking institutions
for specified periods of time at stated interest rates.
Bankers' acceptances are time drafts drawn on commercial
banks by borrowers, usually in connection with
international transactions.
U.S. Government Securities. The fund may invest in U.S.
Government securities. Generally, these securities include
U.S. Treasury obligations and obligations issued or
guaranteed by U.S. Government agencies, instrumentalities
or sponsored enterprises. U.S. Government securities also
include Treasury receipts and other stripped U.S.
Government securities, where the interest and principal
components of stripped U.S. Government securities are
traded independently. The fund may also invest in zero
coupon U.S. Treasury securities and in zero coupon
securities issued by financial institutions, which
represent a proportionate interest in underlying U.S.
Treasury securities. A zero coupon security pays no
interest to its holder during its life and its value
consists of the difference between its face value at
maturity and its cost. The market values of zero coupon
securities generally are more volatile than the market
prices of securities that pay interest periodically.
Repurchase Agreements. The fund may agree to purchase
securities from a bank or recognized securities dealer and
simultaneously commit to resell the securities to the bank
or dealer at an agreed-upon date and price reflecting a
market rate of interest unrelated to the coupon rate or
maturity of the purchased securities ("repurchase
agreements"). The fund would maintain custody of the
underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase
price on the date agreed to would be, in effect, secured by
such securities. If the value of such securities were less
than the repurchase price, plus interest, the other party
to the agreement would be required to provide additional
collateral so that at all times the collateral is at least
102% of the repurchase price plus accrued interest. Default
by or bankruptcy of a seller would expose the fund to
possible loss because of adverse market action, expenses
and/or delays in connection with the disposition of the
underlying obligations. The financial institutions with
which the fund may enter into repurchase agreements will be
banks and non-bank dealers of U.S. Government securities
that are on the Federal Reserve Bank of New York's list of
reporting dealers, if such banks and non-bank dealers are
deemed creditworthy by the fund's manager. The manager
will continue to monitor creditworthiness of the seller
under a repurchase agreement, and will require the seller
to maintain during the term of the agreement the value of
the securities subject to the agreement to equal at least
102% of the repurchase price (including accrued interest).
In addition, the manager will require that the value of
this collateral, after transaction costs (including loss of
interest) reasonably expected to be incurred on a default,
be equal to 102% or greater than the repurchase price
(including accrued premium) provided in the repurchase
agreement or the daily amortization of the difference
between the purchase price and the repurchase price
specified in the repurchase agreement. The manager will
mark-to-market daily the value of the securities.
Repurchase agreements are considered to be loans by the
fund under the 1940 Act.
Reverse Repurchase Agreements. The fund may enter into
reverse repurchase agreements with the same parties with
whom it may enter into repurchase agreements. Reverse
repurchase agreements involve the sale of securities held
by the fund pursuant to its agreement to repurchase them at
a mutually agreed upon date, price and rate of interest.
At the time the fund enters into a reverse repurchase
agreement, it will establish and maintain a segregated
account with an approved custodian containing cash or
liquid securities having a value not less than the
repurchase price (including accrued interest). The assets
contained in the segregated account will be
marked-to-market daily and additional assets will be placed
in such account on any day in which the assets fall below
the repurchase price (plus accrued interest). The fund's
liquidity and ability to manage its assets might be
affected when it sets aside cash or portfolio securities to
cover such commitments. Reverse repurchase agreements
involve the risk that the market value of the securities
retained in lieu of sale may decline below the price of the
securities the fund has sold but is obligated to
repurchase. If the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes
insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to
enforce the fund's obligation to repurchase the securities,
and the fund's use of the proceeds of the reverse
repurchase agreement may effectively be restricted pending
such decision. The fund currently intends to invest not
more than 33% of its net assets in reverse repurchase
agreements.
Lending of Portfolio Securities. Consistent with
applicable regulatory requirements, the fund may lend
portfolio securities to brokers, dealers and other
financial organizations that meet capital and other credit
requirements or other criteria established by the Board.
The fund will not lend portfolio securities to affiliates
of the manager unless they have applied for and received
specific authority to do so from the Securities and
Exchange Commission ("SEC"). Loans of portfolio securities
will be collateralized by cash, letters of credit or U.S.
Government Securities, which are maintained at all times in
an amount equal to at least 102% of the current market
value of the loaned securities. Any gain or loss in the
market price of the securities loaned that might occur
during the term of the loan would be for the account of the
fund. From time to time, the fund may return a part of the
interest earned from the investment of collateral received
for securities loaned to the borrower and/or a third party
that is unaffiliated with the fund and that is acting as a
"finder."
By lending its securities, the fund can increase its income
by continuing to receive interest and any dividends on the
loaned securities as well as by either investing the
collateral received for securities loaned in short-term
instruments or obtaining yield in the form of interest paid
by the borrower when U.S. Government Securities are used as
collateral. Although the generation of income is not the
primary investment goal of the fund, income received could
be used to pay the fund's expenses and would increase an
investor's total return. The fund will adhere to the
following conditions whenever its portfolio securities are
loaned: (i) the fund must receive at least 102% cash
collateral or equivalent securities of the type discussed
in the preceding paragraph from the borrower; (ii) the
borrower must increase such collateral whenever the market
value of the securities rises above the level of such
collateral; (iii) the fund must be able to terminate the
loan at any time; (iv) the fund must receive reasonable
interest on the loan, as well as any dividends, interest or
other distributions on the loaned securities and any
increase in market value; (v) the fund may pay only
reasonable custodian fees in connection with the loan; and
(vi) voting rights on the loaned securities may pass to the
borrower, provided, however, that if a material event
adversely affecting the investment occurs, the Board must
terminate the loan and regain the right to vote the
securities. Loan agreements involve certain risks in the
event of default or insolvency of the other party including
possible delays or restrictions upon a fund's ability to
recover the loaned securities or dispose of the collateral
for the loan.
Illiquid Securities. The fund may invest up to an
aggregate amount equal to 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.
Options, Futures and Currency Strategies. The fund may use
forward currency contracts and certain options and futures
strategies to attempt to hedge its portfolio, i.e., reduce
the overall level of investment risk normally associated
with the fund. There can be no assurance that such efforts
will succeed.
In order to assure that the fund will not be deemed to be a
"commodity pool" for purposes of the Commodity Exchange
Act, regulations of the Commodity Futures Trading
Commission ("CFTC") require that the fund enter into
transactions in futures contracts and options on futures
only (i) for bona fide hedging purposes (as defined in CFTC
regulations), or (ii) for non-hedging purposes, provided
that the aggregate initial margin and premiums on such non-
hedging positions do not exceed 5% of the liquidation value
of the fund's assets. To attempt to hedge against adverse
movements in exchange rates between currencies, the fund
may enter into forward currency contracts for the purchase
or sale of a specified currency at a specified future date.
Such contracts may involve the purchase or sale of a
foreign currency against the U.S. dollar or may involve two
foreign currencies. The fund may enter into forward
currency contracts either with respect to specific
transactions or with respect to its portfolio positions.
For example, when the manager anticipates making a purchase
or sale of a security, it may enter into a forward currency
contract in order to set the rate (either relative to the
U.S. dollar or another currency) at which the currency
exchange transaction related to the purchase or sale will
be made ("transaction hedging"). Further, when the manager
believes that a particular currency may decline compared to
the U.S. dollar or another currency, the fund may enter
into a forward contract to sell the currency the manager
expects to decline in an amount approximating the value of
some or all of the fund's securities denominated in that
currency, or when the manager believes that one currency
may decline against a currency in which some or all of the
portfolio securities held by the fund are denominated, it
may enter into a forward contract to buy the currency
expected to decline for a fixed amount ("position
hedging"). In this situation, the fund may, in the
alternative, enter into a forward contract to sell a
different currency for a fixed amount of the currency
expected to decline where the investment manager believes
that the value of the currency to be sold pursuant to the
forward contract will fall whenever there is a decline in
the value of the currency in which portfolio securities of
the fund are denominated ("cross hedging"). The fund
places (i) cash, (ii) U.S. Government securities or (iii)
equity securities or debt securities (of any grade) in
certain currencies provided such assets are liquid,
unencumbered and marked to market daily, or other high-
quality debt securities denominated in certain currencies
in a separate account of the fund having a value equal to
the aggregate account of the fund's commitments under
forward contracts entered into with respect to position
hedges and cross-hedges. If the value of the securities
placed in a separate account declines, additional cash or
securities are placed in the account on a daily basis so
that the value of the amount will equal the amount of the
fund's commitments with respect to such contracts.
For hedging purposes, the fund may write covered call
options and purchase put and call options on currencies to
hedge against movements in exchange rates and on debt
securities to hedge against the risk of fluctuations in the
prices of securities held by the fund or which the manager
intends to include in its portfolio. The fund also may use
interest rates futures contracts and options thereon to
hedge against changes in the general level in interest
rates.
The fund may write call options on securities and
currencies only if they are covered, and such options must
remain covered so long as the fund is obligated as a
writer. A call option written by the fund is "covered" if
the fund owns the securities or currency underlying the
option or has an absolute and immediate right to acquire
that security or currency without additional cash
consideration (or for additional cash consideration held in
a segregated account by its custodian) upon conversion or
exchange of other securities or currencies held in its
portfolio. A call option is also covered if the fund holds
on a share-for-share basis a call on the same security or
holds a call on the same currency as the call written where
the exercise price of the call held is equal to less than
the exercise price of the call written or greater than the
exercise price of the call written if the difference is
maintained by the fund in cash, Treasury bills or other
high-grade, short-term obligations in a segregated account
on the fund's books.
The fund may purchase put and call options in anticipation
of declines in the value of portfolio securities or
increases in the value of securities to be acquired. In
the event that the expected changes occur, the fund may be
able to offset the resulting adverse effect on its
portfolio, in whole or in part, through the options
purchased. The risk assumed by the fund in connection with
such transactions is limited to the amount of the premium
and related transaction costs associated with the option,
although the fund may be required to forfeit such amounts
in the event that the prices of securities underlying the
options do not move in the direction or to the extent
anticipated.
Although the fund might not employ the use of forward
currency contracts, options and futures, the use of any of
these strategies would involve certain investment risks and
transaction costs to which it might not otherwise be
subject. These risks include: dependence on the manager's
ability to predict movements in the prices of individual
debt securities, fluctuations in the general fixed-income
markets and movements in interest rates and currency
markets, imperfect correlation between movements in the
price of currency, options, futures contracts or options
thereon and movements in the price of the currency or
security hedged or used for cover; the fact that skills and
techniques needed to trade options, futures contracts and
options thereon or to use forward currency contracts are
different from those needed to select the securities in
which the fund invests; lack of assurance that a liquid
market will exist for any particular option, futures
contract or options thereon at any particular time and
possible need to defer or accelerate closing out certain
options, futures contracts and options thereon in order to
continue to qualify for the beneficial tax treatment
afforded "regulated investment companies" under the
Internal Revenue Code of 1986, as amended (the "Code").
Over-the-counter options in which the fund may invest
differ from exchange traded options in that they are two-
party contracts, with price and other terms negotiated
between buyer and seller, and generally do not have as much
market liquidity as exchange-traded options. The fund may
be required to treat as illiquid over-the-counter options
purchased and securities being used to cover certain
written over-the-counter options.
Options on Securities. As discussed more generally above,
the fund may engage in the writing of covered call options.
The fund may also purchase put options and enter into
closing transactions.
The principal reason for writing covered call options on
securities is to attempt to realize, through the receipt of
premiums, a greater return than would be realized on the
securities alone. In return for a premium, the writer of a
covered call option forfeits the right to any appreciation
in the value of the underlying security above the strike
price for the life of the option (or until a closing
purchase transaction can be effected). Nevertheless, the
call writer retains the risk of a decline in the price of
the underlying security. Similarly, the principal reason
for writing covered put options is to realize income in the
form of premiums. The writer of a covered put option
accepts the risk of a decline in the price of the
underlying security. The size of the premiums the fund may
receive may be adversely affected as new or existing
institutions, including other investment companies, engage
in or increase their option-writing activities.
Options written by the fund will normally have expiration
dates between one and six months from the date written. The
exercise price of the options may be below, equal to or
above the current market values of the underlying
securities at the times the options are written. In the
case of call options, these exercise prices are referred to
as "in-the-money," "at-the-money" and "out-of-the-money,"
respectively.
The fund may write (a) in-the-money call options when SSB
Citi expects the price of the underlying security to remain
flat or decline moderately during the option period, (b)
at-the-money call options when SSB Citi expects the price
of the underlying security to remain flat or advance
moderately during the option period and (c) out-of-the-
money call options when SSB Citi expects that the price of
the security may increase but not above a price equal to
the sum of the exercise price plus the premiums received
from writing the call option. In any of the preceding
situations, if the market price of the underlying security
declines and the security is sold at this lower price, the
amount of any realized loss will be offset wholly or in
part by the premium received. Out-of-the-money, at-the-
money and in-the-money put options (the reverse of call
options as to the relation of exercise price to market
price) may be utilized in the same market environments as
such call options are used in equivalent transactions.
So long as the obligation of the fund as the writer of an
option continues, the fund may be assigned an exercise
notice by the broker-dealer through which the option was
sold, requiring it to deliver, in the case of a call, or
take delivery of, in the case of a put, the underlying
security against payment of the exercise price. This
obligation terminates when the option expires or the fund
effects a closing purchase transaction. The fund can no
longer effect a closing purchase transaction with respect
to an option once it has been assigned an exercise notice.
To secure its obligation to deliver the underlying security
when it writes a call option, or to pay for the underlying
security when it writes a put option, the fund will be
required to deposit in escrow the underlying security or
other assets in accordance with the rules of the Options
Clearing Corporation ("Clearing Corporation") or similar
clearing corporation and the securities exchange on which
the option is written.
An option position may be closed out only where there
exists a secondary market for an option of the same series
on a recognized securities exchange or in the over-the-
counter market. The fund expects to write options only on
national securities exchanges or in the over-the-counter
market. The fund may purchase put options issued by the
Clearing Corporation or in the over-the-counter market.
The fund may realize a profit or loss upon entering into a
closing transaction. In cases in which the fund has written
an option, it will realize a profit if the cost of the
closing purchase transaction is less than the premium
received upon writing the original option and will incur a
loss if the cost of the closing purchase transaction
exceeds the premium received upon writing the original
option. Similarly, when the fund has purchased an option
and engages in a closing sale transaction, whether it
recognizes a profit or loss will depend upon whether the
amount received in the closing sale transaction is more or
less than the premium the fund initially paid for the
original option plus the related transaction costs.
Although the fund generally will purchase or write only
those options for which SSB Citi believes there is an
active secondary market so as to facilitate closing
transactions, there is no assurance that sufficient trading
interest to create a liquid secondary market on a
securities exchange will exist for any particular option or
at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an
option may cease to exist for a variety of reasons. In the
past, for example, higher than anticipated trading activity
or order flow, or other unforeseen events, have at times
rendered certain of the facilities of the Clearing
Corporation and national securities exchanges inadequate
and resulted in the institution of special procedures, such
as trading rotations, restrictions on certain types of
orders or trading halts or suspensions in one or more
options. There can be no assurance that similar events, or
events that may otherwise interfere with the timely
execution of customers' orders, will not recur. In such
event, it might not be possible to effect closing
transactions in particular options. If, as a covered call
option writer, the fund is unable to effect a closing
purchase transaction in a secondary market, it will not be
able to sell the underlying security until the option
expires or it delivers the underlying security upon
exercise.
Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each
class which may be held or written, or exercised within
certain periods, by an investor or group of investors
acting in concert (regardless of whether the options are
written on the same or different securities exchanges or
are held, written or exercised in one or more accounts or
through one or more brokers). It is possible that the fund
and other clients of the manager and certain of their
affiliates may be considered to be such a group. A
securities exchange may order the liquidation of positions
found to be in violation of these limits, and it may impose
certain other sanctions.
In the case of options written by the fund that are deemed
covered by virtue of the fund's holding convertible or
exchangeable preferred stock or debt securities, the time
required to convert or exchange and obtain physical
delivery of the underlying common stocks with respect to
which the fund has written options may exceed the time
within which the fund must make delivery in accordance with
an exercise notice. In these instances, the fund may
purchase or temporarily borrow the underlying securities
for purposes of physical delivery. By so doing, the fund
will not bear any market risk because the fund will have
the absolute right to receive from the issuer of the
underlying security an equal number of shares to replace
the borrowed stock, but the fund may incur additional
transaction costs or interest expenses in connection with
any such purchase or borrowing.
Although SSB Citi will attempt to take appropriate measures
to minimize the risks relating to the fund's writing of
call options and purchasing of put and call options, there
can be no assurance that the fund will succeed in its
option-writing program.
Stock Index Options. As described generally above, the
fund may purchase put and call options and write call
options on domestic stock indexes listed on domestic
exchanges in order to realize its investment objective of
capital appreciation or for the purpose of hedging its
portfolio. A stock index fluctuates with changes in the
market values of the stocks included in the index. Some
stock index options are based on a broad market index such
as the New York Stock Exchange Composite Index or the
Canadian Market Portfolio Index, or a narrower market index
such as the Standard & Poor's 100. Indexes also are based
on an industry or market segment such as the American Stock
Exchange Oil and Gas Index or the Computer and Business
Equipment Index.
Options on stock indexes are generally similar to options
on stock except that the delivery requirements are
different. Instead of giving the right to take or make
delivery of stock at a specified price, an option on a
stock index gives the holder the right to receive a cash
"exercise settlement amount" equal to (a) the amount, if
any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case
of a call) the closing value of the underlying index on the
date of exercise, multiplied by (b) a fixed "index
multiplier." Receipt of this cash amount will depend upon
the closing level of the stock index upon which the option
is based being greater than, in the case of a call, or less
than, in the case of a put, the exercise price of the
option. The amount of cash received will be equal to such
difference between the closing price of the index and the
exercise price of the option expressed in dollars or a
foreign currency, as the case may be, times a specified
multiple. The writer of the option is obligated, in return
for the premium received, to make delivery of this amount.
The writer may offset its position in stock index options
prior to expiration by entering into a closing transaction
on an exchange or it may let the option expire unexercised.
The effectiveness of purchasing or writing stock index
options as a hedging technique will depend upon the extent
to which price movements in the portion of the securities
portfolio of the fund correlate with price movements of the
stock index selected. Because the value of an index option
depends upon movements in the level of the index rather
than the price of a particular stock, whether the fund will
realize a gain or loss from the purchase or writing of
options on an index depends upon movements in the level of
stock prices in the stock market generally or, in the case
of certain indexes, in an industry or market segment,
rather than movements in the price of a particular stock.
Accordingly, successful use by the fund of options on stock
indexes will be subject to the manager's ability to predict
correctly movements in the direction of the stock market
generally or of a particular industry. This requires
different skills and techniques than predicting changes in
the price of individual stocks.
Futures Contracts and Options on Futures Contracts. As
described generally above, the fund may invest in stock
index futures contracts and options on futures contracts
that are traded on a domestic exchange or board of trade.
Futures contracts provide for the future sale by one party
and purchase by another party of a specified amount of a
specific security at a specified future time and at a
specified price. The primary purpose of entering into a
futures contract by the fund is to protect the fund from
fluctuations in the value of securities without actually
buying or selling the securities. The fund may enter into
futures contracts and options on futures to seek higher
investment returns when a futures contract is priced more
attractively than stocks comprising a benchmark index, to
facilitate trading or to reduce transaction costs. The
fund will only enter into futures contracts and options on
futures contracts that are traded on a domestic exchange
and board of trade. Assets committed to futures contracts
will be segregated on the fund's books to the extent
required by law.
The purpose of entering into a futures contract by the fund
is to protect the fund from fluctuations in the value of
securities without actually buying or selling the
securities. For example, in the case of stock index futures
contracts, if the fund anticipates an increase in the price
of stocks that it intends to purchase at a later time, the
fund could enter into contracts to purchase the stock index
(known as taking a "long" position) as a temporary
substitute for the purchase of stocks. If an increase in
the market occurs that influences the stock index as
anticipated, the value of the futures contracts increases
and thereby serves as a hedge against the fund's not
participating in a market advance. The fund then may close
out the futures contracts by entering into offsetting
futures contracts to sell the stock index (known as taking
a "short" position) as it purchases individual stocks. The
fund can accomplish similar results by buying securities
with long maturities and selling securities with short
maturities. But by using futures contracts as an investment
tool to reduce risk, given the greater liquidity in the
futures market, it may be possible to accomplish the same
result more easily and more quickly.
No consideration will be paid or received by the fund upon
the purchase or sale of a futures contract. Initially, the
fund will be required to deposit with the broker an amount
of cash or cash equivalents equal to approximately 1% to
10% of the contract amount (this amount is subject to
change by the exchange or board of trade on which the
contract is traded and brokers or members of such board of
trade may charge a higher amount). This amount is known as
"initial margin" and is in the nature of a performance bond
or good faith deposit on the contract which is returned to
the fund, upon termination of the futures contract,
assuming all contractual obligations have been satisfied.
Subsequent payments, known as "variation margin," to and
from the broker, will be made daily as the price of the
index or securities underlying the futures contract
fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as
"marking-to-market." In addition, when the fund enters into
a long position in a futures contract or an option on a
futures contract, it must deposit into a segregated account
on the fund's books an amount of cash or cash equivalents
equal to the total market value of the underlying futures
contract, less amounts held in the fund's commodity
brokerage account at its broker. At any time prior to the
expiration of a futures contract, the fund may elect to
close the position by taking an opposite position, which
will operate to terminate the fund's existing position in
the contract.
There are several risks in connection with the use of
futures contracts as a hedging device. Successful use of
futures contracts by the fund is subject to the ability of
the manager to predict correctly movements in the stock
market or in the direction of interest rates. These
predictions involve skills and techniques that may be
different from those involved in the management of
investments in securities. In addition, there can be no
assurance that there will be a perfect correlation between
movements in the price of the securities underlying the
futures contract and movements in the price of the
securities that are the subject of the hedge. A decision of
whether, when and how to hedge involves the exercise of
skill and judgment, and even a well-conceived hedge may be
unsuccessful to some degree because of market behavior or
unexpected trends in market behavior or interest rates.
Positions in futures contracts may be closed out only on
the exchange on which they were entered into (or through a
linked exchange) and no secondary market exists for those
contracts. In addition, although the fund intends to enter
into futures contracts only if there is an active market
for the contracts, there is no assurance that an active
market will exist for the contracts at any particular time.
Most futures exchanges and boards of trade limit the amount
of fluctuation permitted in futures contract prices during
a single trading day. Once the daily limit has been reached
in a particular contract, no trades may be made that day at
a price beyond that limit. It is possible that futures
contract prices could move to the daily limit for several
consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses. In
such event, and in the event of adverse price movements,
the fund would be required to make daily cash payments of
variation margin; in such circumstances, an increase in the
value of the portion of the portfolio being hedged, if any,
may partially or completely offset losses on the futures
contract. As described above, however, no assurance can be
given that the price of the securities being hedged will
correlate with the price movements in a futures contract
and thus provide an offset to losses on the futures
contract.
INVESTMENT RESTRICTIONS
The investment restrictions numbered 1 through 7 below and
the fund's investment objective have been adopted by the
trust as fundamental policies of the fund. Under the 1940
Act, a fundamental policy may not be changed with respect
to a fund without the vote of a majority of the outstanding
voting securities of the fund. Majority is defined in the
1940 Act as the lesser of (a) 67% or more of the shares
present at a fund meeting, if the holders of more than 50%
of the outstanding shares of the fund are present or
represented by proxy, or (b) more than 50% of outstanding
shares. The remaining restrictions may be changed by a
vote of a majority of the trust's board of trustees at any
time.
Under the investment restrictions adopted by the trust with
respect to the fund: The fund will not
1. Invest in a manner that would cause it to fail
to be a "diversified company" under the 1940 Act and the
rules, regulations and orders thereunder.
2. Issue "senior securities" as defined in the
1940 Act, and the rules, regulations and orders thereunder,
except as permitted under the 1940 Act and the rules,
regulations and orders thereunder.
3. Invest more than 25% of its total assets in
securities, the issuers of which conduct their principal
business activities in the same industry. For purposes of
this limitation, securities of the U.S. government
(including its agencies and instrumentalities) and
securities of state or municipal governments and their
political subdivisions are not considered to be issued by
members of any industry.
4. Borrow money, except that (a) the fund may
borrow from banks for temporary or emergency (not
leveraging) purposes, including the meeting of redemption
requests which might otherwise require the untimely
disposition of securities, and (b) the fund may, to the
extent consistent with its investment policies, enter into
reverse repurchase agreements, forward roll transactions
and similar investment strategies and techniques. To the
extent that it engages in transactions described in (a) and
(b), the fund will be limited so that no more than 33 1/3%
of the value of its total assets (including the amount
borrowed), valued at the lesser of cost or market, less
liabilities (not including the amount borrowed), is derived
from such transactions.
5. Make loans. This restriction does not apply
to: (a) the purchase of debt obligations in which the fund
may invest consistent with its investment objective and
policies; (b) repurchase agreements; and (c) loans of its
portfolio securities, to the fullest extent permitted under
the 1940 Act.
6. Engage in the business of underwriting
securities issued by other persons, except to the extent
that the fund may technically be deemed to be an
underwriter under the Securities Act of 1933, as amended,
in disposing of portfolio securities.
7. Purchase or sell real estate, real estate
mortgages, commodities or commodity contracts, but this
restriction shall not prevent the fund from: (a) investing
in securities of issuers engaged in the real estate
business or the business of investing in real estate
(including interests in limited partnerships owning or
otherwise engaging in the real estate business or the
business of investing in real estate) and securities which
are secured by real estate or interests therein; (b)
holding or selling real estate received in connection with
securities it holds or held; (c) trading in futures
contracts and options on futures contracts (including
options on currencies to the extent consistent with the
funds' investment objective and policies); or (d) investing
in real estate investment trust securities.
8. Purchase any securities on margin (except for
such short-term credits as are necessary for the clearance
of purchases and sales of portfolio securities) or sell any
securities short (except "against the box"). For purposes
of this restriction, the deposit or payment by the fund of
underlying securities and other assets in escrow and
collateral agreements with respect to initial or
maintenance margin in connection with futures contracts and
related options and options on securities, indexes or
similar items is not considered to be the purchase of a
security on margin.
9. Invest in oil, gas or other mineral exploration
or development programs.
10. Purchase or otherwise acquire any security if,
as a result, more than 15% of its net assets would be
invested in securities that are illiquid.
11. Invest for the purpose of exercising control of
management.
If any percentage restriction described above is complied
with at the time of an investment, a later increase or
decrease in percentage resulting from a change in values or
assets will not constitute a violation of such restriction.
TRUSTEES OF THE TRUST AND EXECUTIVE OFFICERS OF THE FUND
The names of the trustees of the trust and executive
officers of the fund, together with information as to their
principal business occupations, are set forth below. The
executive officers of the fund are employees of
organizations that provide services to the fund. Each
trustee who is an "interested person" of the trust, as
defined in the 1940 Act, is indicated by an asterisk. The
address of the "non-interested" trustees and the executive
officers of the fund is 388 Greenwich Street, New York, New
York 10013, unless otherwise indicated.
Herbert Barg, Trustee (Age 76). Private Investor. His
address is 273 Montgomery Avenue, Bala Cynwyd, Pennsylvania
19004. Director/Trustee of sixteen investment companies
associated with Citigroup, Inc. ("Citigroup")
*Alfred J. Bianchetti Trustee (Age 77). Retired; formerly
Senior Consultant to Dean Witter Reynolds Inc. His address
is 19 Circle End Drive, Ramsey, New Jersey 07466.
Director/Trustee of eleven investment companies associated
with Citigroup.
Martin Brody Trustee (Age 78). Consultant, HMK Associates;
Retired Vice Chairman of the Board of Restaurant Associates
Corp. His address is c/o HMK Associates, 30 Columbia
Turnpike, Florham Park, New Jersey 07932. Director/Trustee
of twenty-one investment companies associated with
Citigroup.
Dwight B. Crane Trustee (Age 62). Professor, Harvard
Business School. His address is c/o Harvard Business
School, Soldiers Field Road, Boston, Massachusetts 02163.
Director/Trustee of twenty-four investment companies
associated with Citigroup.
Burt N. Dorsett Trustee (Age 69). Managing Partner of
Dorsett McCabe Management. Inc., an investment counseling
firm; Director of Research Corporation Technologies, Inc.,
a nonprofit patent clearing and licensing firm. His
address is 201 East 62nd Street, New York, New York 10021.
Director/Trustee of eleven investment companies associated
with Citigroup.
Elliot S. Jaffe Trustee (Age 73). Chairman of the Board
and President of The Dress Barn, Inc. His address is 30
Dunnigan Drive, Suffern, New York 10901. Director/Trustee
of eleven investment companies associated with Citigroup.
Stephen E. Kaufman Trustee (Age 68). Attorney. His
address is 277 Park Avenue, New York, New York 10172.
Director/Trustee of thirteen investment companies
associated with Citigroup.
Joseph J. McCann Trustee (Age 69). Financial Consultant;
Retired Financial Executive, Ryan Homes, Inc. His address
is 200 Oak Park Place, Pittsburgh, Pennsylvania 15243.
Director/Trustee of eleven investment companies associated
with Citigroup.
*Heath B. McLendon Trustee (Age 66). Chairman of the Board,
President and Chief Executive Officer; Managing Director of
Salomon Smith Barney; President of SSB Citi and Travelers
Investment Adviser, Inc. ("TIA"); Chairman or Co-Chairman
of the Board of 71 investment companies associated with
Salomon Smith Barney. His address is 7 World Trade Center,
New York, New York 10048.
Cornelius C. Rose, Jr. Trustee (Age 66). President,
Cornelius C. Rose Associates, Inc., financial consultants,
and Chairman and Director of Performance Learning Systems,
an educational consultant. His address is Meadowbrook
Village, Building 4, Apt 6, West Lebanon, New Hampshire
03784. Director/Trustee of eleven investment companies
associated with Citigroup.
Lewis E. Daidone (Age 42). Senior Vice President and
Treasurer; Managing Director of Salomon Smith Barney; Chief
Financial Officer of the Smith Barney Mutual funds;
Director and Senior Vice President of SSB Citi and TIA.
Lawrence Weissman (Age 39). Vice President and Investment
Officer; Managing Director of Salomon Smith Barney;
Investment Officer of SSB Citi; prior to 1998, portfolio
manager at Neuberger & Berman, LLC.; prior to that he was a
portfolio manager at TIAA-CREFF.
Paul Brook (Age 46). Controller; Director of Salomon Smith
Barney; from 1997-1998 Managing Director of AMT Capital
Services Inc.; prior to 1997, Partner with Ernst & Young
LLP.
Christina T. Sydor (Age 49). Secretary; Managing Director
of Salomon Smith Barney; General Counsel and Secretary of
SSB Citi and TIA.
As of March 9, 2000, the trustees and officers owned, in
the aggregate, less than 1% of the outstanding shares of
each of the funds. No officer, director or employee of
Salomon Smith Barney or any of its affiliates receives any
compensation from the trust for serving as an officer of
the funds or trustee of the trust. The trust pays each
trustee who is not an officer, director or employee of
Salomon Smith Barney or any of its affiliates a fee of
$12,000 per annum plus $1000 per in-person meeting and $100
per telephonic meeting. Each trustee emeritus who is not
an officer, director or employee of Salomon Smith Barney or
its affiliates receives a fee of $5,000 per annum plus $500
per in-person meeting and $50 per telephonic meeting. All
trustees are reimbursed for travel and out-of-pocket
expenses incurred to attend such meetings and for the most
recent calendar year it was $14,437.
The following table contains a list of shareholders of
record or who beneficially owned at least 5% of the
outstanding shares of a particular class of shares of a
fund as of March 9, 2000.
CLASS Y - PERCENTAGE OF SHARES
Smith Barney Concert Series, Inc.
Growth Portfolio
PNC Bank NA
200 Stevens Drive, Suite 440
Attn: Beverly Timson
Lester, PA 19113
Owned 2,981,907.611 (47.19%) shares
Smith Barney Concert Series, Inc.
High Growth Portfolio
PNC Bank NA
200 Stevens Drive, Suite 440
Attn: Beverly Timson
Lester, PA 19113
Owned 2,337,012.659 (36.98%) shares
Smith Barney Concert Series, Inc.
Select Growth Portfolio
PNC Bank NA
200 Stevens Drive, Suite 440
Attn: Beverly Timson
Lester, PA 19113
Owned 618,902.873 (9.79%) shares
Smith Barney Concert Series, Inc.
Select High Growth Portfolio
PNC Bank NA
200 Stevens Drive, Suite 440
Attn: Beverly Timson
Lester, PA 19113
Owned 379,826.745 (6.01%) shares
For the fiscal year ended November 30, 1999, the Trustees
of the fund were paid the following compensation:
Name of Person
Aggregate
Compensat
ion
from
Trust
Total
Pension or
Retirement
Benefits
Accrued
As part of
Trust
Expenses
Compensation
From Trust
and Fund
Complex
Paid to
Trustees
Number of
Funds for
Which Trustee
Serves Within
Fund Complex
Herbert Barg**
Alfred
Bianchetti* **
Martin Brody**
Dwight B.
Crane**
Burt N.
Dorsett**
Elliot S.
Jaffe**
Stephen E.
Kaufman**
Joseph J.
McCann**
Heath B.
McLendon*
Cornelius C.
Rose, Jr.**
$15,600
14,600
13,600
15,500
15,500
12,600
15,600
15,600
- -----
14,600
$0
0
0
0
0
0
0
0
0
0
$114,288
53,900
138,600
155,363
57,950
45,100
110,650
58,050
- ------
53,500
16
11
21
24
11
11
13
11
71
11
* Designated an "interested" trustee.
** Designates member of Audit Committee
Upon attainment of age 80, fund trustees are required to
change to emeritus status. Trustees emeritus are entitled
to serve in emeritus status for a maximum of 10 years. A
trustee emeritus may attend meetings but has no voting
rights.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Manager - SSB Citi
SSB Citi serves as investment manager to the fund pursuant
to an investment management agreement (the "Investment
Management Agreement") with the trust which was approved by
the board of trustees, including a majority of trustees who
are not "interested persons" of the trust or the manager.
The manager is a wholly owned subsidiary of Salomon Smith
Barney Holdings Inc. ("Holdings"), which in turn, is a
wholly owned subsidiary of Citigroup. Subject to the
supervision and direction of the trust's board of trustees,
the manager manages the fund's portfolio in accordance with
the fund's stated investment objective and policies, makes
investment decisions for the fund, places orders to
purchase and sell securities, and employs professional
portfolio managers and securities analysts who provide
research services to the fund. The manager pays the salary
of any officer and employee who is employed by both it and
the trust. The manager bears all expenses in connection
with the performance of its services. The manager bears all
expenses in connection with the performance of its
services. The manager also: (a) assists in supervising all
aspects of the Fund's operations except those performed by
the fund's investment manager under its investment advisory
agreement; b) supplies the fund with office facilities
(which may be in SSBC's own offices), statistical and
research data, data processing services, clerical,
accounting and bookkeeping services, including, but not
limited to, the calculation of (i) the net asset value of
shares of the fund, (ii) applicable contingent deferred
sales charges ("CDSC") and similar fees and charges and
(iii) distribution fees, internal auditing and legal
services, internal executive and administrative services,
and stationary and office supplies; and (c) prepares
reports to shareholders of the fund, tax returns and
reports to and filings with the SEC and state blue sky
authorities.
As compensation for investment management services, the
fund pays the manager a fee computed daily and paid monthly
at the annual rate of 0.75% of the fund's average daily net
assets. The management fee paid by the fund in fiscal year
ended November 30, 1999 was $3,544,958.
Auditors
KPMG LLP, independent auditors, 345 Park Avenue, New York,
New York 10017, have been selected to serve as auditors of
the trust and to render opinions on the fund's financial
statements for the fiscal year ending November 30, 2000.
Custodian, Transfer Agent and Sub-Transfer Agent
PNC Bank, National Association ("PNC" or "custodian")
located at 17th and Chestnut Streets, Philadelphia,
Pennsylvania, 19103, serves as the custodian of the fund.
Under its custody agreement with the fund, PNC holds the
fund's securities and keeps all necessary accounts and
records. For its services, PNC receives a monthly fee
based upon the month-end market value of securities held in
custody and also receives securities transactions charges.
The assets of the fund are held under bank custodianship in
compliance with the 1940 Act.
Smith Barney Private Trust Company (the "transfer agent"),
located at 388 Greenwich Street, New York, New York 10013
serves as the transfer agent and shareholder services agent
for the fund.
PFPC Global Fund Services ("PFPC" or "sub-transfer agent"),
located at Exchange Place, Boston, Massachusetts 02109,
serves as the trust's sub-transfer agent. Under the
transfer agency agreement, the sub-transfer agent maintains
the shareholder account records for the trust, handles
certain communications between shareholders and the trust
and distributes dividends and distributions payable by the
trust. For these services, the sub-transfer agent receives
a monthly fee computed on the basis of the number of
shareholder accounts it maintains for the trust during the
month, and is reimbursed for out-of-pocket expenses.
Code of Ethics. Pursuant to Rule 17j-1 of the 1940 Act, the
funds, their investment advisers and principal underwriter
have adopted codes of ethics that permit personnel to
invest in securities for their own accounts, including
securities that may be purchased or held by the funds. All
personnel must place the interests of clients first and
avoid activities, interests and relationships that might
interfere with the duty to make decisions in the best
interests of the clients. All personal securities
transactions by employees must adhere to the requirements
of the codes and must be conducted in such a manner as to
avoid any actual or potential conflict of interest, the
appearance of such a conflict, or the abuse of an
employee's position of trust and responsibility.
A copy of the Fund's Code of Ethics is on file with the
Securities and Exchange Commission.
Distributor
CFBDS, Inc., located at 20 Milk Street, Boston,
Massachusetts 02109-5408 serves as the fund's distributor
pursuant to a written agreement dated October 8, 1998 (the
"Distribution Agreement") which was approved by the fund's
Board of Trustees, including a majority of the Independent
trustees on July 15, 1998. Prior to the merger of
Travelers Group, Inc. and Citicorp Inc. on October 8, 1998,
Salomon Smith Barney served as the fund's distributor.
Salomon Smith Barney continues to sell the funds shares as
part of the selling group.
For the period September 1, 1998 through October 7, 1998
the aggregate dollar amount of commissions on Class A
shares was $104,000 all of which was paid to Salomon Smith
Barney. For the period October 8, 1998 through November
30, 1998 the aggregate dollar amount of commissions on
Class A shares was $592,000, $532,800 of which was paid to
Salomon Smith Barney. For the fiscal year ended November
30, 1999 the aggregate dollar amount of commissions on
Class A shares was $1,421,000 of which $1278,900 was paid
to Salomon Smith Barney
For the period September 1, 1998 through October 7, 1998
the aggregate dollar amount of commissions on Class L
shares was $58,000, all of which was paid to Salomon Smith
Barney. For the period October 8, 1998 through November 30,
1998 the aggregate dollar amount of commissions on Class L
shares was $270,000, $243,000 of which was paid to Salomon
Smith Barney. For the fiscal year ended November 30, 1999
the aggregate dollar amount of commissions on Class L
shares was $919,000, of which $827,000 was paid to Salomon
Smith Barney
For the fiscal period ended November 30, 1998, Salomon
Smith Barney received from shareholders $10,000 and $2,000,
in deferred sales charges on the redemption of Class B and
Class L shares, respectively. For the fiscal year ended
November 30, 1999 Salomon Smith Barney received from
shareholders $6,000, $318,000 and $44,000 in deferred sales
charges on the redemption of Class A, Class B, and Class L
shares respectively.
When payment is made by the investor before the settlement
date, unless otherwise noted by the investor, the funds
will be held as a free credit balance in the investor's
brokerage account and Salomon Smith Barney may benefit from
the temporary use of the funds. The fund's board of
trustees has been advised of the benefits to Salomon Smith
Barney resulting from these settlement procedures and will
take such benefits into consideration when reviewing the
Investment Management and Distribution Agreements for
continuance.
Distribution Arrangements. To compensate Salomon Smith
Barney for the service it provides and for the expense it
bears, the fund has adopted a services and distribution
plan (the "Plan") pursuant to Rule 12b-1 under the 1940
Act. Under the Plan, the fund pays Salomon Smith Barney a
service fee, accrued daily and paid monthly, calculated at
the annual rate of 0.25% of the value of the fund's average
daily net assets attributable to the Class A, Class B and
Class L shares. In addition, the fund pays Salomon Smith
Barney a distribution fee with respect to Class B and Class
L shares primarily intended to compensate Salomon Smith
Barney for its initial expense of paying Financial
Consultants a commission upon sales of those shares. The
Class B and Class L distribution fee is calculated at the
annual rate of 0.75% of the value of the fund's average net
assets attributable to the shares of the respective Class.
The following service and distribution fees were incurred
pursuant to a Distribution Plan during the period
indicated:
Distribution Plan Fees
Fiscal Year
Ended
11/30/99
Fiscal
Period
Ended
11/30/98
Class A
$
231,993
$16,625
Class B
$1,695,0
42
$121,87
4
Class L
$1,130,2
46
$81,200
For the fiscal year ended November 30, 1999, the
distributor incurred distribution expenses totaling
$9,195,907, consisting of $357,515 for advertising, $20,500
for printing and mailing of prospectuses, $1,412,337 for
support services, $6,490,212 to Salomon Smith Barney
Financial Consultants, and $295,836 in accruals for
interest on the excess of Salomon Smith Barney expenses
incurred in distribution of the funds' shares over the sum
of the distribution fees and Deferred Sales Charge received
by Salomon Smith Barney from the fund. For the fiscal year
ended November 30, 1999, the distributor, received
$3,057,281 in the aggregate from the Plan.
Under its terms, the Plan continues from year to year,
provided such continuance is approved annually by vote of
the board of trustees, including a majority of the trustees
who are not interested persons of the trust and who have no
direct or indirect financial interest in the operation of
the Plan or in the Distribution Agreement (the "independent
trustees"). The Plan may not be amended to increase the
amount of the service and distribution fees without
shareholder approval, and all amendments of the Plan also
must be approved by the trustees including all of the
independent trustees in the manner described above. The
Plan may be terminated with respect to a Class at any time,
without penalty, by vote of a majority of the independent
trustees or, with respect to any fund, by vote of a
majority of the outstanding voting securities of a fund (as
defined in the 1940 Act). Pursuant to the Plan, Salomon
Smith Barney will provide the board of trustees with
periodic reports of amounts expended under the Plan and the
purpose for which such expenditures were made.
PORTFOLIO TRANSACTIONS
The manager arranges for the purchase and sale of the
fund's securities and selects brokers and dealers
(including Salomon Smith Barney) which in its best judgment
provide prompt and reliable execution at favorable prices
and reasonable commission rates. The manager may select
brokers and dealers that provide it with research services
and may cause the fund to pay such brokers and dealers
commissions which exceed those other brokers and dealers
may have charged, if it views the commissions as reasonable
in relation to the value of the brokerage and/or research
services. In selecting a broker, including Salomon Smith
Barney, for a transaction, the primary consideration is
prompt and effective execution of orders at the most
favorable prices. Subject to that primary consideration,
dealers may be selected for research statistical or other
services to enable the manager to supplement its own
research and analysis.
Decisions to buy and sell securities for the fund are made
by the manager, subject to the overall supervision and
review of the trust's board of trustees. Portfolio
securities transactions for the fund are effected by or
under the supervision of the manager.
Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. There is generally no
stated commission in the case of securities traded in the
over-the-counter market, but the price of those securities
includes an undisclosed commission or mark-up. Over-the-
counter purchases and sales are transacted directly with
principal market makers except in those cases in which
better prices and executions may be obtained elsewhere. The
cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at
which securities are purchased from and sold to dealers
include a dealer's mark-up or mark-down.
In executing portfolio transactions and selecting brokers
or dealers, it is the fund's policy to seek the best
overall terms available. The manager, in seeking the most
favorable price and execution, considers all factors it
deems relevant, including, for example, the price, the size
of the transaction, the reputation, experience and
financial stability of the broker-dealer involved and the
quality of service rendered by the broker-dealer in other
transactions. The manager receives research, statistical
and quotation services from several broker-dealers with
which it places the fund's portfolio transactions. It is
possible that certain of the services received primarily
will benefit one or more other accounts for which the
manager exercises investment discretion. Conversely, the
fund may be the primary beneficiary of services received as
a result of portfolio transactions effected for other
accounts. The manager's fee under the management agreement
is not reduced by reason of its receiving such brokerage
and research services. The trust's Board of Trustees, in
its discretion, may authorize the manager to cause the fund
to pay a broker that provides brokerage and research
services to the manager a commission in excess of that
which another qualified broker would have charged for
effecting the same transaction. Salomon Smith Barney will
not participate in commissions from brokerage given by the
fund to other brokers or dealers and will not receive any
reciprocal brokerage business resulting therefrom.
In accordance with Section 17(e) of the 1940 Act and Rule
17e-1 thereunder, the trust's board of trustees has
determined that any portfolio transaction for the fund may
be executed through Salomon Smith Barney or an affiliate of
Salomon Smith Barney if, in the manager's judgment, the use
of Salomon Smith Barney or an affiliate is likely to result
in price and execution at least as favorable as those of
other qualified brokers and if, in the transaction, Salomon
Smith Barney or the affiliate charges the fund a commission
rate consistent with those charged by Salomon Smith Barney
or an affiliate to comparable unaffiliated customers in
similar transactions. In addition, under SEC rules Salomon
Smith Barney may directly execute such transactions for the
fund on the floor of any national securities exchange,
provided: (a) the board of trustees has expressly
authorized Salomon Smith Barney to effect such
transactions; and (b) Salomon Smith Barney annually advises
the fund of the aggregate compensation it earned on such
transactions.
Even though investment decisions for the fund are made
independently from those of the other accounts managed by
the manager, investments of the kind made by the fund also
may be made by those other accounts. When the fund and one
or more accounts managed by the manager are prepared to
invest in, or desire to dispose of, the same security,
available investments or opportunities for sales will be
allocated in a manner believed by the manager to be
equitable. In some cases, this procedure may adversely
affect the price paid or received by the fund or the size
of the position obtained for or disposed of by the fund.
The fund will not purchase securities during the existence
of any underwriting or selling group relating to the
securities, of which the manager is a member, except to the
extent permitted by the SEC. Under certain circumstances,
the fund may be at a disadvantage because of this
limitation in comparison with other funds that have similar
investment objectives but that are not subject to a similar
limitation.
The fund has paid the following in brokerage commissions
for portfolio transactions :
Fiscal Year Ended
Fiscal Period Ended
11/30/99
11/30/98
Total Brokerage Commissions $496,811
$133,876
Total Brokerage Commissions
paid to Salomon Smith Barney $10,200
$ 0
% of Total Brokerage Commissions 2.05%
0%
paid to Salomon Smith Barney
% of Total Transactions involving 2.04%
0%
Commissions paid to Salomon
Smith Barney
During the fiscal period ended November 30, 1998, the total
amount of commissionable transactions was $133,217,263, and
during the fiscal year ended November 30, 1999, the total
amount of commissionable transactions was $426,679,434 .
Portfolio securities transactions on behalf of the fund are
placed by the manager with a number of brokers and dealers,
including Salomon Smith Barney. Salomon Smith Barney has
advised the fund that in transactions with the fund,
Salomon Smith Barney charges a commission rate at least as
favorable as the rate that Salomon Smith Barney charges its
comparable unaffiliated customers in similar transactions.
PORTFOLIO TURNOVER
The fund's portfolio turnover rate (the lesser of purchases
or sales of portfolio securities during the year, excluding
purchases or sales of short-term securities, divided by the
monthly average value of portfolio securities) is generally
not expected to exceed 100%. The rate of turnover will not
be a limiting factor, however, when the fund deems it
desirable to sell or purchase securities. This policy
should not result in higher brokerage commissions to the
fund, as purchases and sales of portfolio securities are
usually effected as principal transactions. Securities may
be sold in anticipation of a rise in interest rates (market
decline) or purchased in anticipation of a decline in
interest rates (market rise) and later sold. In addition,
a security may be sold and another security of comparable
quality purchased at approximately the same time to take
advantage of what the fund believes to be a temporary
disparity in the normal yield relationship between the two
securities. These yield disparities may occur for reasons
not directly related to the investment quality of
particular issues or the general movement of interest
rates, such as changes in the overall demand for, or supply
of, various types of tax-exempt securities. The fund's
portfolio turnover rate for the fiscal period ended
November 30, 1998 was 15%, and for the fiscal year ended
November 30, 1999 was 61%.
PURCHASE OF SHARES
Sales Charge Alternatives
The following classes of shares are available for purchase.
See the prospectus for a discussion of factors to consider
in selecting which Class of shares to purchase.
Class A Shares. Class A shares are sold to investors at
the public offering price, which is the net asset value
plus an initial sales charge as follows:
Amount
of
Investme
nt
Sales Charge
as a %
of
Transaction
Sales
Charge as a
%
of Amount
Invested
Dealers'
Reallowance as
%
of Offering
Price
Less than
$25,000
5.00%
5.26%
4.50%
$ 25,000 -
49,999
4.00
4.17
3.60
50,000 -
99,999
3.50
3.63
3.15
100,000 -
249,999
3.00
3.09
2.70
250,000 -
499,999
2.00
2.04
1.80
500,000 and
over
*
*
*
* Purchases of Class A shares of $500,000 or more will
be made at net asset value without any initial sales
charge, but will be subject to a deferred sales
charge of 1.00% on redemptions made within 12 months
of purchase. The deferred sales charge on Class A
shares is payable to Salomon Smith Barney, which
compensates Salomon Smith Barney Financial
Consultants and other dealers whose clients make
purchases of $500,000 or more. The deferred sales
charge is waived in the same circumstances in which
the deferred sales charge applicable to Class B and
Class L shares is waived. See "Deferred Sales Charge
Provisions" and "Waivers of Deferred Sales Charge."
Members of the selling group may receive up to 90% of the
sales charge and may be deemed to be underwriters of the
fund as defined in the 1933 Act. The reduced sales charges
shown above apply to the aggregate of purchases of Class A
shares of the fund made at one time by "any person," which
includes an individual and his or her immediate family, or
a trustee or other fiduciary of a single trust estate or
single fiduciary account.
Class B Shares. Class B shares are sold without an initial
sales charge but are subject to a Deferred Sales Charge
payable upon certain redemptions. See "Deferred Sales
Charge Provisions" below.
Class L Shares. Class L shares are sold with an initial
sales charge of 1.00% (which is equal to 1.01% of the
amount invested) and are subject to a deferred sales charge
payable upon certain redemptions. See "Deferred Sales
Charge Provisions" below. Until June 22, 2001 purchases of
Class L shares by investors who were holders of Class C
shares of other Smith Barney mutual funds on June 12, 1998
will not be subject to the 1% initial sales charge.
Class Y Shares. Class Y shares are sold without an initial
sales charge or deferred sales charge and are available
only to investors investing a minimum of $15,000,000
(except purchases of Class Y shares by Smith Barney Concert
Allocation Series Inc., for which there is no minimum
purchase amount).
General
Investors may purchase shares from a Salomon Smith Barney
Financial Consultant or a broker that clears through
Salomon Smith Barney ("Dealer Representative"). In
addition, certain investors, including qualified retirement
plans purchasing through certain Dealer Representatives,
may purchase shares directly from the fund. When purchasing
shares of the fund, investors must specify whether the
purchase is for Class A, Class B, Class L or Class Y
shares. Salomon Smith Barney and Dealer Representatives
may charge their customers an annual account maintenance
fee in connection with a brokerage account through which an
investor purchases or holds shares. Accounts held directly
at sub-transfer agent are not subject to a maintenance fee.
Investors in Class A, Class B and Class L shares may open
an account in the fund by making an initial investment of
at least $1,000 for each account, or $250 for an IRA or a
Self-Employed Retirement Plan, in the fund. Investors in
Class Y shares may open an account by making an initial
investment of $15,000,000. Subsequent investments of at
least $50 may be made for all Classes. For participants in
retirement plans qualified under Section 403(b)(7) or
Section 401(c) of the Code, the minimum initial investment
required for Class A, Class B and Class L shares and the
subsequent investment requirement for all Classes in the
fund is $25. For shareholders purchasing shares of the
fund through the Systematic Investment Plan on a monthly
basis, the minimum initial investment requirement for Class
A, Class B and Class L shares and subsequent investment
requirement for all Classes is $25. For shareholders
purchasing shares of the fund through the Systematic
Investment Plan on a quarterly basis, the minimum initial
investment required for Class A, Class B and Class L shares
and the subsequent investment requirement for all Classes
is $50. There are no minimum investment requirements for
Class A shares for employees of Citigroup and its
subsidiaries, including Salomon Smith Barney, unitholders
who invest distributions from a unit investment trust
("UIT") sponsored by Salomon Smith Barney, and
Directors/Trustees of any of the Smith Barney mutual funds,
and their spouses and children. The fund reserves the right
to waive or change minimums, to decline any order to
purchase its shares and to suspend the offering of shares
from time to time. Shares purchased will be held in the
shareholder's account by the sub-transfer agent. Share
certificates are issued only upon a shareholder's written
request to the sub-transfer agent.
Purchase orders received by the fund or a Salomon Smith
Barney Financial Consultant prior to the close of regular
trading on the New York Stock Exchange ("NYSE"), on any day
the fund calculates its net asset value, are priced
according to the net asset value determined on that day
(the ''trade date''). Orders received by a Dealer
Representative prior to the close of regular trading on the
NYSE on any day the fund calculates its net asset value,
are priced according to the net asset value determined on
that day, provided the order is received by the fund or the
fund's agent prior to its close of business. For shares
purchased through Salomon Smith Barney or a Dealer
Representative purchasing through Salomon Smith Barney,
payment for shares of the fund is due on the third business
day after the trade date. In all other cases, payment must
be made with the purchase order.
Systematic Investment Plan. Shareholders may make
additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment
Plan. Under the Systematic Investment Plan, Salomon Smith
Barney or the sub-transfer agent is authorized through
preauthorized transfers of at least $25 on a monthly basis
or at least $50 on a quarterly basis to charge the
shareholder's account held with a bank or other financial
institution on a monthly or quarterly basis as indicated by
the shareholder, to provide for systematic additions to the
shareholder's fund account. A shareholder who has
insufficient funds to complete the transfer will be charged
a fee of up to $25 by Salomon Smith Barney or the sub-
transfer agent. The Systematic Investment Plan also
authorizes Salomon Smith Barney to apply cash held in the
shareholder's Salomon Smith Barney brokerage account or
redeem the shareholder's shares of a Smith Barney money
market fund to make additions to the account. Additional
information is available from the fund or a Salomon Smith
Barney Financial Consultant or a Dealer Representative.
Sales Charge Waivers and Reductions
Initial Sales Charge Waivers. Purchases of Class A shares
may be made at net asset value without a sales charge in
the following circumstances: (a) sales to (i) Board Members
and employees of Citigroup and its subsidiaries and any
Citigroup affiliated funds including the Smith Barney
mutual funds (including retired Board Members and
employees); the immediate families of such persons
(including the surviving spouse of a deceased Board Member
or employee); and to a pension, profit-sharing or other
benefit plan for such persons and (ii) employees of members
of the National Association of Securities Dealers, Inc.,
provided such sales are made upon the assurance of the
purchaser that the purchase is made for investment purposes
and that the securities will not be resold except through
redemption or repurchase; (b) offers of Class A shares to
any other investment company to effect the combination of
such company with the fund by merger, acquisition of assets
or otherwise; (c) purchases of Class A shares by any client
of a newly employed Salomon Smith Barney Financial
Consultant (for a period up to 90 days from the
commencement of the Financial Consultant's employment with
Salomon Smith Barney), on the condition the purchase of
Class A shares is made with the proceeds of the redemption
of shares of a mutual fund which (i) was sponsored by the
Financial Consultant's prior employer, (ii) was sold to the
client by the Financial Consultant and (iii) was subject to
a sales charge; (d) purchases by shareholders who have
redeemed Class A shares in the fund (or Class A shares of
another Smith Barney mutual fund that is offered with a
sales charge) and who wish to reinvest their redemption
proceeds in the fund, provided the reinvestment is made
within 60 calendar days of the redemption; (e) purchases by
accounts managed by registered investment advisory
subsidiaries of Citigroup; (f) direct rollovers by plan
participants of distributions from a 401(k) plan offered to
employees of Citigroup or its subsidiaries or a 401(k) plan
enrolled in the Smith Barney 401(k) Program (Note:
subsequent investments will be subject to the applicable
sales charge); (g) purchases by a separate account used to
fund certain unregistered variable annuity contracts; (h)
investments of distributions from or proceeds form a sale
of a UIT sponsored by Salomon Smith Barney; (i) purchases
by investors participating in a Salomon Smith Barney fee-
based arrangement; and (j) purchases of Class A shares by
Section 403(b) or Section 401(a) or (k) accounts associated
with Copeland Retirement Programs. In order to obtain such
discounts, the purchaser must provide sufficient
information at the time of purchase to permit verification
that the purchase would qualify for the elimination of the
sales charge.
Right of Accumulation. Class A shares of the fund may be
purchased by ''any person'' (as defined above) at a reduced
sales charge or at net asset value determined by
aggregating the dollar amount of the new purchase and the
total net asset value of all Class A shares of the fund and
of other Smith Barney mutual funds that are offered with a
sales charge as currently listed under ''Exchange
Privilege'' then held by such person and applying the sales
charge applicable to such aggregate. In order to obtain
such discount, the purchaser must provide sufficient
information at the time of purchase to permit verification
that the purchase qualifies for the reduced sales charge.
The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares
purchased thereafter.
Letter of Intent - Class A Shares. A Letter of Intent for
an amount of $50,000 or more provides an opportunity for an
investor to obtain a reduced sales charge by aggregating
investments over a 13 month period, provided that the
investor refers to such Letter when placing orders. For
purposes of a Letter of Intent, the ''Amount of
Investment'' as referred to in the preceding sales charge
table includes (i) all Class A shares of the fund and other
Smith Barney mutual funds offered with a sales charge
acquired during the term of the letter plus (ii) the value
of all Class A shares previously purchased and still owned.
Each investment made during the period receives the reduced
sales charge applicable to the total amount of the
investment goal. If the goal is not achieved within the
period, the investor must pay the difference between the
sales charges applicable to the purchases made and the
charges previously paid, or an appropriate number of
escrowed shares will be redeemed. The term of the Letter
will commence upon the date the Letter is signed, or at the
options of the investor, up to 90 days before such date.
Please contact a Salomon Smith Barney Financial Consultant
or the Transfer Agent to obtain a Letter of Intent
application.
Letter of Intent - Class Y Shares. A Letter of Intent may
also be used as a way for investors to meet the minimum
investment requirement for Class Y shares (except purchases
of Class Y shares by Smith Barney Concert Allocation Series
Inc., for which there is no minimum purchase amount). Such
investors must make an initial minimum purchase of
$5,000,000 in Class Y shares of the fund and agree to
purchase a total of $15,000,000 of Class Y shares of the
fund within 13 months from the date of the Letter. If a
total investment of $15,000,000 is not made within the 13-
month period, all Class Y shares purchased to date will be
transferred to Class A shares, where they will be subject
to all fees (including a service fee of 0.25%) and expenses
applicable to the fund's Class A shares, which may include
a deferred sales charge of 1.00%. Please contact a Salomon
Smith Barney Financial Consultant or the Transfer Agent for
further information.
Deferred Sales Charge Provisions
''Deferred Sales Charge Shares'' are: (a) Class B shares;
(b) Class L shares; and (c) Class A shares that were
purchased without an initial sales charge but are subject
to a deferred sales charge. A deferred sales charge may be
imposed on certain redemptions of these shares.
Any applicable deferred sales charge will be assessed on an
amount equal to the lesser of the original cost of the
shares being redeemed or their net asset value at the time
of redemption. Deferred Sales Charge Shares that are
redeemed will not be subject to a deferred sales charge to
the extent that the value of such shares represents: (a)
capital appreciation of fund assets; (b) reinvestment of
dividends or capital gain distributions; (c) with respect
to Class B shares, shares redeemed more than five years
after their purchase; or (d) with respect to Class L shares
and Class A shares that are Deferred Sales Charge Shares,
shares redeemed more than 12 months after their purchase.
Class L shares and Class A shares that are Deferred Sales
Charge Shares are subject to a 1.00% deferred sales charge
if redeemed within 12 months of purchase. In circumstances
in which the deferred sales charge is imposed on Class B
shares, the amount of the charge will depend on the number
of years since the shareholder made the purchase payment
from which the amount is being redeemed. Solely for
purposes of determining the number of years since a
purchase payment, all purchase payments made during a month
will be aggregated and deemed to have been made on the last
day of the preceding Salomon Smith Barney statement month.
The following table sets forth the rates of the charge for
redemptions of Class B shares by shareholders, except in
the case of Class B shares held under the Smith Barney
401(k) Program, as described below. See ''Purchase of
Shares-Smith Barney 401(k) and ExecChoiceTM Programs.''
Year Since Purchase Payment Was
Made
Deferred Sales Charge
First
5.00%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth and thereafter
0.00
Class B shares will convert automatically to Class A shares
eight years after the date on which they were purchased and
thereafter will no longer be subject to any distribution
fees. There will also be converted at that time such
proportion of Class B Dividend Shares owned by the
shareholders as the total number of his or her Class B
shares converting at the time bears to the total number of
outstanding Class B shares (other than Class B Dividend
Shares) owned by the shareholder.
In determining the applicability of any CDSC, it will be
assumed that a redemption is made first of shares
representing capital appreciation, next of shares
representing the reinvestment of dividends and capital gain
distributions and finally of other shares held by the
shareholder for the longest period of time. The length of
time that deferred sales charge shares acquired through an
exchange have been held will be calculated from the date
that the shares exchanged were initially acquired in one of
the other Smith Barney mutual funds, and fund shares being
redeemed will be considered to represent, as applicable,
capital appreciation or dividend and capital gain
distribution reinvestments in such other funds. For Federal
income tax purposes, the amount of the deferred sales
charge will reduce the gain or increase the loss, as the
case may be, on the amount realized on redemption. The
amount of any deferred sales charge will be paid to Salomon
Smith Barney.
To provide an example, assume an investor purchased 100
Class B shares of the fund at $10 per share for a cost of
$1,000. Subsequently, the investor acquired 5 additional
shares of the fund through dividend reinvestment. During
the fifteenth month after the purchase, the investor
decided to redeem $500 of his or her investment. Assuming
at the time of the redemption the net asset value had
appreciated to $12 per share, the value of the investor's
shares would be $1,260 (105 shares at $12 per share). The
deferred sales charge would not be applied to the amount
which represents appreciation ($200) and the value of the
reinvested dividend shares ($60). Therefore, $240 of the
$500 redemption proceeds ($500 minus $260) would be charged
at a rate of 4.00% (the applicable rate for Class B shares)
for a total deferred sales charge of $9.60.
Waivers of Deferred Sales Charge
The deferred sales charge will be waived on: (a) exchanges
(see ''Exchange Privilege''); (b) automatic cash
withdrawals in amounts equal to or less than 1.00% per
month of the value of the shareholder's shares at the time
the withdrawal plan commences (see ''Automatic Cash
Withdrawal Plan'') (provided, however, that automatic cash
withdrawals in amounts equal to or less than 2.00% per
month of the value of the shareholder's shares will be
permitted for withdrawal plans that were established prior
to November 7, 1994); (c) redemptions of shares within 12
months following the death or disability of the
shareholder; (d) redemptions of shares made in connection
with qualified distributions from retirement plans or IRAs
upon the attainment of age 591/2; (e) involuntary
redemptions; and (f) redemptions of shares to effect a
combination of the fund with any investment company by
merger, acquisition of assets or otherwise. In addition, a
shareholder who has redeemed shares from other Smith Barney
mutual funds may, under certain circumstances, reinvest all
or part of the redemption proceeds within 60 days and
receive pro rata credit for any deferred sales charge
imposed on the prior redemption.
Deferred sales charge waivers will be granted subject to
confirmation (by Salomon Smith Barney in the case of
shareholders who are also Salomon Smith Barney clients or
by the Transfer Agent in the case of all other
shareholders) of the shareholder's status or holdings, as
the case may be.
Smith Barney Retirement Programs
You may be eligible to participate in a retirement program
sponsored by Salomon Smith Barney or one of its affiliates.
The fund offers Class A and Class L shares at net asset
value to participating plans under the programs. You can
meet minimum investment and exchange amounts, if any by
combining the plan's investments in any of the Smith Barney
mutual funds.
There are no sales charges when you buy or sell shares and
the class of shares you may purchase depends on the amount
of your initial investment and/or the date your account is
opened. Once a class of shares is chosen, all additional
purchases must by of the same class.
For plans opened on or after March 1, 2000 that are not
part of the Paychex offering, Class A shares may be
purchased regardless of the amount invested.
For plans opened prior to March 1, 2000 and for plans that
are part of the Paychex offering, the class of shares you
may purchase depends on the amount of your initial
investment:
Class A Shares. Class A shares may be purchased by plans
investing at least $1million.
Class L Shares. Class L shares may be purchased by plans
investing less than $1 million. Class L shares are
eligible to exchange into Class A shares not later than 8
years after the plan joined the program. They are eligible
for exchange in the following circumstances:
If the plan was opened on or after June 21, 1996 and a
total of $1 million is invested in Smith Barney Funds Class
L shares (other than money market funds), all Class L
shares are eligible for exchange after the plan is in the
program for 5 years.
If the plan was opened before June 21, 1996 and a total of
$500,000 is invested in Smith Barney Funds Class L shares
(other than money market funds) on December 31 in any year,
all Class L shares are eligible for exchange on or about
March 31 of the following year.
For more information, call your Salomon Smith Barney
Financial Consultant or the transfer agent.
Retirement Programs Opened On or After June 21, 1996. If,
at the end of the fifth year after the date the
participating plan enrolled in the Smith Barney 401(k)
Program or the ExecChoiceTM Program, a participating plan's
total Class L holdings in all non-money market Smith Barney
mutual funds equal at least $1,000,000, the participating
plan will be offered the opportunity to exchange all of its
Class L shares shares for Class A shares of the fund. (For
participating plans that were originally established
through a Salomon Smith Barney retail brokerage account,
the five-year period will be calculated from the date the
retail brokerage account was opened.) Such participating
plans will be notified of the pending exchange in writing
within 30 days after the fifth anniversary of the
enrollment date and, unless the exchange offer has been
rejected in writing, the exchange will occur on or about
the 90th day after the fifth anniversary date. If the
participating plan does not qualify for the five-year
exchange to Class A shares, a review of the participating
plan's holdings will be performed each quarter until either
the participating plan qualifies or the end of the eighth
year.
Retirement Programs Opened Prior to June 21, 1996. In any
year after the date a participating plan enrolled in the
Smith Barney 401(k) Program, if a participating plan's
total Class L holdings in all non-money market Smith Barney
mutual funds equal at least $500,000 as of the calendar
year-end, the participating plan will be offered the
opportunity to exchange all of its Class L shares for Class
A shares of the fund. Such Plans will be notified in
writing within 30 days after the last business day of the
calendar year and, unless the exchange offer has been
rejected in writing, the exchange will occur on or about
the last business day of the following March.
Any participating plan in the Smith Barney 401(k) or the
ExecChoiceTM Program, whether opened before or after June
21, 1996, that has not previously qualified for an exchange
into Class A shares will be offered the opportunity to
exchange all of its Class L shares for Class A shares of
the fund, regardless of asset size, at the end of the
eighth year after the date the participating plan enrolled
in the Smith Barney 401(k) Program or ExecChoiceTM Program.
Such plans will be notified of the pending exchange in
writing approximately 60 days before the eighth anniversary
of the enrollment date and, unless the exchange has been
rejected in writing, the exchange will occur on or about
the eighth anniversary date. Once an exchange has occurred,
a participating plan will not be eligible to acquire
additional Class L shares, but instead may acquire Class A
shares of the same fund. Any Class L shares not converted
will continue to be subject to the distribution fee.
Participating plans wishing to acquire shares of the fund
through the Smith Barney 401(k) Program or the Smith Barney
ExecChoiceTM Program must purchase such shares directly from
the transfer agent. For further information regarding these
Programs, investors should contact a Salomon Smith Barney
Financial Consultant.
Retirement Programs Investing in Class B Shares: Class B
shares of a fund are not available for purchase by
participating plans opened on or after June 21, 1996, but
may continue to be purchased by any participating plan in
the Smith Barney 401 (k) Program opened prior to such date
and originally investing in Such Class. Class B shares
acquired are subject to a deferred sales charge of 3.00% of
redemption proceeds if the participating plan terminates
within eight years of the date the partcipating plan first
enrolled int eh Smith Banrey 401 (k) Program.
At the end of the eighth year after the date the
participating plan enrolled in the Smith Barney 401 (k)
Program, the participating plan will be offered the
opportunity to exchange all of its Class B shares for Class
A shares of the same fund. Such participating plan will be
notified of the pending exchange in writing approximately
60 days before the eighth anniversary of the enrollment
date and, unless the exchange has been rejected in writing,
the exchange will occur on or about the eighth anniversary
date. Once the exchange has occurred, a participating plan
will not be eligible to acquire additional Class B shares,
but instead may acquire Class A shares ofa the same fund.
If the participating elects not to exchange all of its
Class B shares at that time, each Class B share held by the
participating plan will have the same conversion feature as
Class B shares held by other investors. See "Purchase of
Shares-Deferred Sales Charge Alternatives."
No deferred sales charge is imposed on redemptions of Class
B shares to the extent that the net asset value of the
shares redeemed does not exceed the current net asset value
of the sahres purchased through reinvestment of dividends
or capital gain distributions, plus the current net asset
vlaue of Class B shares purchased more than eight years
prior to the redemption, plus increases in the net asset
value of the shareholders Class B shares above the purchase
payments made during the preceding eight years. Whether or
not the deferred sales charge applies to the redemption by
a participating plan depends on the number of years since
the participating plan first became enrolled in the Smith
Barney 401(k) Program, unlike the applicability of the
deferred sales charge to redemptions by other shareholders,
which depends on the number of years since those
shareholders made the purchase payment from which the
amount is being redeemed.
The deferred sales charge will be waived on redemptions of
Class B shares in connection with lump-sum or other
distributions made by a participating plan; as a result of
(a) the retirement of an employee in the participating
plan; (b) the termination of employment of an employee in
the participating plan; (c) the death or disability or an
employee in the participating plan; (d) the attainment of
age 59 1/2 by an employee in the participating plan; (e)
hardship of an employee in the participating plan to the
extent permitted under Section 401(k) o the Code; or (f)
redemptions of shares in connection with a loan made by the
participating plan to an employee.
Determination of Public Offering Price
The fund offers its shares to the public on a continuous
basis. The public offering price for a Class A and Class Y
share of the fund is equal to the net asset value per share
at the time of purchase, plus for Class A shares an initial
sales charge based on the aggregate amount of the
investment. The public offering price for a Class L share
(and Class A share purchases, including applicable rights
of accumulation, equaling or exceeding $500,000) is equal
to the net asset value per share at the time of purchase
and no sales charge is imposed at the time of purchase. A
deferred sales charge, however, is imposed on certain
redemptions of Class L shares, and Class A shares when
purchased in amounts exceeding $500,000. The method of
computation of the public offering price is shown in each
fund's financial statements, incorporated by reference in
their entirety into this SAI.
REDEMPTION OF SHARES
The right of redemption of shares of the fund may be
suspended or the date of payment postponed (a) for any
periods during which the NYSE is closed (other than for
customary weekend and holiday closings), (b) when trading
in the markets the fund normally utilizes is restricted, or
an emergency exists, as determined by the SEC, so that
disposal of the fund's investments or determination of its
net asset value is not reasonably practicable or (c) for
any other periods as the SEC by order may permit for the
protection of the fund's shareholders.
If the shares to be redeemed were issued in certificate
form, the certificates must be endorsed for transfer (or be
accompanied by an endorsed stock power) and must be
submitted to the sub-transfer agent together with the
redemption request. Any signature appearing on a share
certificate, stock power or written redemption request in
excess of $10,000 must be guaranteed by an eligible
guarantor institution such as a domestic bank, savings and
loan institution, domestic credit union, member bank of the
Federal Reserve System or member firm of a national
securities exchange. Written redemption requests of
$10,000 or less do not require a signature guarantee unless
more than one such redemption request is made in any 10-day
period or the redemption proceeds are to be sent to an
address other than the address of record. Unless otherwise
directed, redemption proceeds will be mailed to an
investor's address of record. The Transfer Agent may
require additional supporting documents for redemptions
made by corporations, executors, administrators, trustees
or guardians. A redemption request will not be deemed
properly received until the Transfer Agent receives all
required documents in proper form.
If a shareholder holds shares in more than one Class, any
request for redemption must specify the Class being
redeemed. In the event of a failure to specify which
Class, or if the investor owns fewer shares of the Class
than specified, the redemption request will be delayed
until the Transfer Agent receives further instructions from
Salomon Smith Barney, or if the shareholder's account is
not with Salomon Smith Barney, from the shareholder
directly. The redemption proceeds will be remitted on or
before the third business day following receipt of proper
tender, except on any days on which the NYSE is closed or
as permitted under the 1940 Act, in extraordinary
circumstances. Generally, if the redemption proceeds are
remitted to a Salomon Smith Barney brokerage account, these
funds will not be invested for the shareholder's benefit
without specific instruction and Salomon Smith Barney will
benefit from the use of temporarily uninvested funds.
Redemption proceeds for shares purchased by check, other
than a certified or official bank check, will be remitted
upon clearance of the check, which may take up to fifteen
days or more.
Distribution in Kind
If the board of trustees of the trust determines that it
would be detrimental to the best interests of the remaining
shareholders to make a redemption payment wholly in cash,
the fund may pay, in accordance with SEC rules, any portion
of a redemption in excess of the lesser of $250,000 or
1.00% of the fund's net assets by a distribution in kind of
portfolio securities in lieu of cash. Securities issued as
a distribution in kind may incur brokerage commissions when
shareholders subsequently sell those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan")
is available to shareholders of the fund who own shares of
the fund with a value of at least $10,000 and who wish to
receive specific amounts of cash monthly or quarterly.
Withdrawals of at least $50 may be made under the
Withdrawal Plan by redeeming as many shares of the fund as
may be necessary to cover the stipulated withdrawal
payment. Any applicable deferred sales charge will not be
waived on amounts withdrawn by shareholders that exceed
1.00% per month of the value of a shareholder's shares at
the time the Withdrawal Plan commences. (With respect to
Withdrawal Plans in effect prior to November 7, 1994, any
applicable deferred sales charge will be waived on amounts
withdrawn that do not exceed 2.00% per month of the value
of a shareholder's shares at the time the Withdrawal Plan
commences). To the extent that withdrawals exceed
dividends, distributions and appreciation of a
shareholder's investment in a fund, continued withdrawal
payments will reduce the shareholder's investment, and may
ultimately exhaust it. Withdrawal payments should not be
considered as income from investment in a fund.
Furthermore, as it generally would not be advantageous to a
shareholder to make additional investments in the fund at
the same time he or she is participating in the Withdrawal
Plan, purchases by such shareholders in amounts of less
than $5,000 ordinarily will not be permitted.
Shareholders of a fund who wish to participate in the
Withdrawal Plan and who hold their shares of the fund in
certificate form must deposit their share certificates with
the sub-transfer agent as agent for Withdrawal Plan
members. All dividends and distributions on shares in the
Withdrawal Plan are reinvested automatically at net asset
value in additional shares of the fund involved. A
shareholder who purchases shares directly through the sub-
transfer agent may continue to do so and applications for
participation in the Withdrawal Plan must be received by
the sub-transfer agent no later than the eighth day of the
month to be eligible for participation beginning with that
month's withdrawal. For additional information,
shareholders should contact a Salomon Smith Barney
Financial Consultant.
Additional Information Regarding Telephone Redemption And
Exchange Program
Neither the fund nor its agents will be liable for
following instructions communicated by telephone that are
reasonably believed to be genuine. The fund and its agents
will employ procedures designed to verify the identity of
the caller and legitimacy of instructions (for example, a
shareholder's name and account number will be required and
phone calls may be recorded). The fund reserves the right
to suspend, modify or discontinue the telephone redemption
and exchange program or to impose a charge for this service
at any time following at least seven (7) days prior notice
to shareholders.
VALUATION OF SHARES
The net asset value per share of the fund's Classes is
calculated on each day, Monday through Friday, except days
on which the NYSE is closed. The NYSE currently is
scheduled to be closed on New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas,
and on the preceding Friday or subsequent Monday when one
of these holidays falls on a Saturday or Sunday,
respectively. Because of the differences in distribution
fees and Class-specific expenses, the per share net asset
value of each Class may differ. The following is a
description of the procedures used by the trust in valuing
its assets.
Securities listed on a national securities exchange will be
valued on the basis of the last sale on the date on which
the valuation is made or, in the absence of sales, at the
mean between the closing bid and asked prices. Over-the-
counter securities will be valued at the mean between the
closing bid and asked prices on each day, or, if market
quotations for those securities are not readily available,
at fair value, as determined in good faith by the fund's
board of trustees. Short-term obligations with maturities
of 60 days or less are valued at amortized cost, which
constitutes fair value as determined by the fund's board of
trustees. Amortized cost involves valuing an instrument at
its original cost to the fund and thereafter assuming a
constant amortization to maturity of any discount or
premium, regardless of the effect of fluctuating interest
rates on the market value of the instrument. All other
securities and other assets of the fund will be valued at
fair value as determined in good faith by the fund's board
of trustees.
Except as noted below, shareholders of any of the Smith
Barney mutual funds may exchange all or part of their
shares for shares of the same Class of other Smith Barney
mutual funds, on the basis of relative net asset value per
share at the time of exchange as follows:
A. Class A and Class Y shares of the fund may be
exchanged without a sales charge for the respective
shares of any of the Smith Barney mutual funds.
B. Class B shares of any fund may be exchanged
without a sales charge. Class B shares of the fund
exchanged for Class B shares of another Smith Barney
mutual fund will be subject to the higher applicable
deferred sales charge of the two funds and, for
purposes of calculating deferred sales charge rates
and conversion periods, will be deemed to have been
held since the date the shares being exchanged were
deemed to be purchased.
C. Class L shares of any fund may be exchanged
without a sales charge. For purposes of deferred
sales charge applicability, Class L shares of the
fund exchanged for Class C shares of another Smith
Barney mutual fund will be deemed to have been owned
since the date the shares being exchanged were deemed
to be purchased.
The exchange privilege enables shareholders in any Smith
Barney mutual fund to acquire shares of the same Class in a
fund with different investment objectives when they believe
a shift between funds is an appropriate investment
decision. This privilege is available to shareholders
residing in any state in which the fund shares being
acquired may legally be sold. Prior to any exchange, the
shareholder should obtain and review a copy of the current
prospectus of each fund into which an exchange is being
considered. Prospectuses may be obtained from a Salomon
Smith Barney Financial Consultant.
Upon receipt of proper instructions and all necessary
supporting documents, shares submitted for exchange are
redeemed at the then-current net asset value and, subject
to any applicable deferred sales charge, the proceeds are
immediately invested, at a price as described above, in
shares of the fund being acquired. Salomon Smith Barney
reserves the right to reject any exchange request. The
exchange privilege may be modified or terminated at any
time after written notice to shareholders.
Additional Information Regarding the Exchange Privilege.
Although the exchange privilege is an important benefit,
excessive exchange transactions can be detrimental to the
fund's performance and its shareholders. The manager may
determine that a pattern of frequent exchanges is excessive
and contrary to the best interests of the fund's other
shareholders. In this event, the fund may, at its
discretion, decide to limit additional purchases and/or
exchanges by a shareholder. Upon such a determination, the
fund will provide notice in writing or by telephone to the
shareholder at least 15 days prior to suspending the
exchange privilege and during the 15 day period the
shareholder will be required to (a) redeem his or her
shares in the fund or (b) remain invested in the fund or
exchange into any of the funds of the Smith Barney mutual
funds ordinarily available, which position the shareholder
would be expected to maintain for a significant period of
time. All relevant factors will be considered in
determining what constitutes an abusive pattern of
exchanges.
PERFORMANCE DATA
From time to time the fund may advertise its total return
and average annual total return in advertisements and/or
other types of sales literature. These figures are
computed separately for Class A, Class B, Class L and
Class Y shares of the fund. These figures are based on
historical earnings and are not intended to indicate future
performance. Total return is computed for a specified
period of time assuming deduction of the maximum sales
charge, if any, from the initial amount invested and
reinvestment of all income dividends and capital gain
distributions on the reinvestment dates at prices
calculated as stated in this prospectus, then dividing the
value of the investment at the end of the period so
calculated by the initial amount invested and subtracting
100%. The standard average annual total return, as
prescribed by the SEC is derived from this total return,
which provides the ending redeemable value. Such standard
total return information may also be accompanied with
nonstandard total return information for differing periods
computed in the same manner but without annualizing the
total return or taking sales charges into account. The
fund may also include comparative performance information
in advertising or marketing its shares. Such performance
information may include data from Lipper Analytical
Services, Inc. and other financial publications.
From time to time, the trust may quote a fund's yield or
total return in advertisements or in reports and other
communications to shareholders. The trust may include
comparative performance information in advertising or
marketing the fund's shares. Such performance information
may include the following industry and financial
publications- Barron's, Business Week, CDA Investment
Technologies, Inc., Changing Times, Forbes, Fortune,
Institutional Investor, Investors Business Daily, Money,
Morningstar Mutual Fund Values, The New York Times, USA
Today and The Wall Street Journal. To the extent any
advertisement or sales literature of the fund describes the
expenses or performance of any Class it will also disclose
such information for the other Classes.
Average Annual Total Return
A fund's "average annual total return," as described below,
is computed according to a formula prescribed by the SEC.
The formula can be expressed as follows:
P(1 + T)n = ERV
Where: P = a hypothetical
initial payment of $1,000.
T = average annual total
return.
n = number of years.
ERV = Ending Redeemable Value
of a hypothetical
$1,000 investment made
at the beginning of a
1-, 5- or 10-year
period at the end of a
1-, 5- or 10-year
period (or fractional
portion thereof),
assuming reinvestment
of all dividends and
distributions.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period. A fund's
net investment income changes in response to fluctuations
in interest rates and the expenses of the fund.
Average Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Since
Inceptio
n1
Class A2
27.62%
N/A
N/A
40.37%
Class B3
28.43%
N/A
N/A
42.26%
Class L4
30.99%
N/A
N/A
43.91%
Class Y
N/A
N/A
N/A
34.49%
_______________________
1 Class A, B, L and Y commenced operations on September
1, 1998.
2 The average annual total return figure assumes that
the maximum 5.00% sales charge has been deducted from
the investment at the time of purchase. If the
maximum sales charge had not been deducted, the
average annual total return for Class A shares for
the same period would have been 34.36% and 46.27% for
one year and since inception of the fund,
respectively.
3 The average annual total return figure assumes that
the maximum applicable deferred sales charge has been
deducted from the investment at the time of
redemption. If the maximum deferred sales charge had
not been deducted, the average annual total return
for Class B shares for the same period would have
been 33.43% and 45.19% for one year and since
inception of the fund, respectively.
4 The average annual total return figure assumes that
the maximum applicable initial and deferred sales
charges have been deducted from the investment at the
time of redemption. If the maximum initial and
deferred sales charges had not been deducted, the
average annual total return for Class L shares for
the same period would have been 33.35% and 45.13% for
one year and since inception of the fund,
respectively..
Aggregate Total Return
The fund's "aggregate total return," as described below,
represents the cumulative change in the value of an
investment in the fund for the specified period and is
computed by the following formula:
ERV - P
P
Where: P = a hypothetical initial
payment of $10,000.
ERV = Ending Redeemable Value of a
hypothetical $10,000
investment made at the
beginning of the 1-, 5- or
10-year period at the end of
the 1-, 5- or 10-year period
(or fractional portion
thereof), assuming
reinvestment of all dividends
and distributions.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period.
Aggregate Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Since
Inceptio
n1
Class A2
27.62%
N/A
N/A
52.61%
Class B3
28.43%
N/A
N/A
55.18%
Class L4
30.99%
N/A
N/A
57.43%
Class Y
N/A
N/A
N/A
34.49%
_______________________
1 Classes A, B L and Y commenced operations on
September 1, 1998.
2 The average annual total return figure assumes that
the maximum 5.00% sales charge has been deducted from
the investment at the time of purchase. If the
maximum sales charge had not been deducted, the
average annual total return for Class A shares for
the same period would have been 34.36% and 60.65% for
one year and since inception of the fund,
respectively.
3 The average annual total return figure assumes that
the maximum applicable deferred sales charge has been
deducted from the investment at the time of
redemption. If the maximum deferred sales charge had
not been deducted, the average annual total return
for Class B shares for the same period would have
been 33.43% and 59.18% for on e year and since
inception of the fund, respectively.
4 The average annual total return figure assumes that
the maximum applicable initial and deferred sales
charges have been deducted from the investment at the
time of redemption. If the maximum initial and
deferred sales charges had not been deducted, the
average annual total return for Class L shares for
the same period would have been 33.35% and 59.09% for
one year and since inception of the fund,
respectively.
Performance will vary from time to time depending upon
market conditions, the composition of the fund's portfolio
and operating expenses and the expenses exclusively
attributable to the Class. Consequently, any given
performance quotation should not be considered
representative of the Class's performance for any specified
period in the future. Because performance will vary, it
may not provide a basis for comparing an investment in the
Class with certain bank deposits or other investments that
pay a fixed yield for a stated period of time. Investors
comparing a Class's performance with that of other mutual
funds should give consideration to the quality and maturity
of the respective investment companies' portfolio
securities.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions.
The fund's policy is to distribute its net investment
income and net realized capital gains, if any, annually.
The fund may also pay additional dividends shortly before
December 31 from certain amounts of undistributed ordinary
and capital gains realized, in order to avoid a Federal
excise tax liability.
If a shareholder does not otherwise instruct, dividends and
capital gains distributions will be reinvested
automatically in additional shares of the same Class at net
asset value, subject to no sales charge or deferred sales
charge. A shareholder may change the option at any time
by notifying his Salomon Smith Barney Financial Consultant
or Dealer Representative. Shareholders whose account are
held directly at PFPC should notify PFPC in writing,
requesting a change to this reinvest option
The per share dividends on Class B and Class L shares of
the fund may be lower than the per share dividends on Class
A and Class Y shares principally as a result of the
distribution fee applicable with respect to Class B and
Class L shares. The per share dividends on Class A shares
of the fund may be lower than the per share dividends on
Class Y shares principally as a result of the service fee
applicable to Class A shares. Distributions of capital
gains, if any, will be in the same amount for Class A,
Class B, Class L and Class Y shares.
Taxes
The following is a summary of the material United States
federal income tax considerations regarding the purchase,
ownership and disposition of shares of a fund. Each
prospective shareholder is urged to consult his own tax
adviser with respect to the specific federal, state, local
and foreign tax consequences of investing in a fund. The
summary is based on the laws in effect on the date of this
SAI and existing judicial and administrative
interpretations thereof, both of which are subject to
change.
The Fund and Its Investments
The fund intends to continue to qualify to be treated as a
regulated investment company during each taxable year under
the Internal Revenue Code of 1986, as amended (the "Code").
To so qualify, the fund must, among other things: (a)
derive at least 90% of its gross income in each taxable
year from dividends, interest, payments with respect to
securities loans and gains from the sale or other
disposition of stock or securities, foreign currencies, or
other income (including, but not limited to, gains from
options, futures or forward contracts) derived with respect
to its business of investing in such stock, securities or
currencies; and (b) diversify its holdings so that, at the
end of each quarter of the fund's taxable year, (i) at
least 50% of the market value of the fund's assets is
represented by cash, securities of other regulated
investment companies, United States government securities
and other securities, with such other securities limited,
in respect of any one issuer, to an amount not greater than
5% of the fund's assets and not greater than 10% of the
outstanding voting securities of such issuer and (ii) not
more than 25% of the value of its assets is invested in the
securities (other than United States government securities
or securities of other regulated investment companies) of
any one issuer or any two or more issuers that the fund
controls and which are determined to be engaged in the same
or similar trades or businesses or related trades or
businesses..
As a regulated investment company, the fund will not be
subject to United States federal income tax on its net
investment income (i.e., income other than its net realized
long-term and short-term capital gains) and its net
realized long- and short-term capital gains, if any, that
it distributes to its shareholders, provided an amount
equal to at least 90% of its investment company taxable
income (i.e., 90% of its taxable income minus the excess,
if any, of its net realized long-term capital gains over
its net realized short-term capital losses (including any
capital loss carryovers), plus or minus certain other
adjustments as specified in the Code) and its net tax-
exempt income for the taxable year is distributed to its
shareholders in compliance with the Code's timing and other
requirements, but will be subject to tax at regular
corporate rates on any taxable income or gains it does not
distribute.
The Code imposes a 4% nondeductible excise tax on the fund
to the extent it does not distribute by the end of any
calendar year at least 98% of its ordinary income for that
year and at least 98% of its net of its capital gains (both
long-term and short-term) for the one-year period ending,
as a general rule, on October 31 of that year. For this
purpose, however, any ordinary income or net capital gains
retained by the fund that is subject to corporate income
tax will be considered to have been distributed by year-
end. In addition, the minimum amounts that must be
distributed in any year to avoid the excise tax will be
increased or decreased to reflect any underdistribution or
overdistribution, as the case may be, from the previous
year. The fund anticipates that it will pay such dividends
and will make such distributions as are necessary in order
to avoid the application of this excise tax.
If, in any taxable year, the fund fails to qualify as a
regulated investment company under the Code or fails to
meet the distribution requirement, it would be taxed in the
same manner as an ordinary corporation and distributions to
its shareholders would not be deductible by the fund in
computing its taxable income. In addition, in the event of
a failure to qualify, the fund's distributions, to the
extent derived from the fund's current or accumulated
earnings and profits would constitute dividends (eligible
for the corporate dividends-received deduction) which are
taxable to shareholders as ordinary income, even though
those distributions might otherwise (at least in part) have
been treated in the shareholders' hands as long-term
capital gains. Moreover, if the fund fails to qualify as a
regulated investment company in any year, it must pay out
its earnings and profits accumulated in that year in order
to qualify again as a regulated investment company. In
addition, the fund may be required to recognize any net
built-in gains with respect to certain of its assets (i.e.
the excess of the aggregate gains, including items of
income, over aggregate losses that would have been realized
with respect to such assets if the fund had been
liquidated) in order to qualify as a regulated investment
company in a subsequent year.
The fund's transactions in foreign currencies, forward
contracts, options and futures contracts (including options
and futures contracts on foreign currencies) will be
subject to special provisions of the Code (including
provisions relating to "hedging transactions" and
"straddles") that, among other things, may affect the
character of gains and losses realized by the fund (i.e.,
may affect whether gains or losses are ordinary or
capital), accelerate recognition of income to the fund and
defer fund losses. These rules could therefore affect the
character, amount and timing of distributions to
shareholders. These provisions also (a) will require the
fund to mark-to-market certain types of the positions in
its portfolio (i.e., treat them as if they were closed out)
and (b) may cause the fund to recognize income without
receiving cash with which to pay dividends or make
distributions in amounts necessary to satisfy the
distribution requirements for avoiding income and excise
taxes. The fund will monitor its transactions, will make
the appropriate tax elections and will make the appropriate
entries in its books and records when it acquires any
foreign currency, forward contract, option, futures
contract or hedged investment in order to mitigate the
effect of these rules and prevent disqualification of the
fund as a regulated investment company.
The fund's investment in so-called "section 1256
contracts", such as regulated futures contracts, most
foreign currency forward contracts traded in the interbank
market and options on most stock indices, are subject to
special tax rules. All section 1256 contracts held by the
fund at the end of its taxable year are required to be
marked to their market value, and any unrealized gain or
loss on those positions will be included in the fund's
income as if each position had been sold for its fair
market value at the end of the taxable year. The resulting
gain or loss will be combined with any gain or loss
realized by the fund from positions in section 1256
contracts closed during the taxable year. Provided such
positions were held as capital assets and were not part of
a "hedging transaction" nor part of a "straddle," 60% of
the resulting net gain or loss will be treated as long-term
capital gain or loss, and 40% of such net gain or loss will
be treated as short-term capital gain or loss, regardless
of the period of time the positions were actually held by
the fund.
Foreign Investments. Dividends or other income (including,
in some cases, capital gains) received by the fund from
investments in foreign securities may be subject to
withholding and other taxes imposed by foreign countries.
Tax conventions between certain countries and the United
States may reduce or eliminate such taxes in some cases.
The fund will not be eligible to elect to treat any foreign
taxes paid by it as paid by its shareholders, who therefore
will not be entitled to credits for such taxes on their own
tax returns. Foreign taxes paid by the fund will reduce
the return from the fund's investments.
Passive Foreign Investment Companies. If the fund
purchases shares in certain foreign investment entities,
called "passive foreign investment companies" (a "PFIC"),
it may be subject to United States federal income tax on a
portion of any "excess distribution" or gain from the
disposition of such shares even if such income is
distributed as a taxable dividend by the fund to its
shareholders. Additional charges in the nature of interest
may be imposed on the fund in respect of deferred taxes
arising from such distributions or gains. If the fund were
to invest in a PFIC and elected to treat the PFIC as a
"qualified electing fund" under the Code, in lieu of the
foregoing requirements, the fund might be required to
include in income each year a portion of the ordinary
earnings and net capital gains of the qualified electing
fund, even if not distributed to the fund, and such amounts
would be subject to the 90% and excise tax distribution
requirements described above. In order to make this
election, the fund would be required to obtain certain
annual information from the passive foreign investment
companies in which it invests, which may be difficult or
impossible to obtain.
Alternatively, the fund may make a mark-to-market election
that will result in the fund being treated as if it had
sold and repurchased all of the PFIC stock at the end of
each year. In such case, the fund would report any such
gains as ordinary income and would deduct any such losses
as ordinary losses to the extent of previously recognized
gains. The election, once made, would be effective for all
subsequent taxable years of the fund, unless revoked with
the consent of the Internal Revenue Service.. By making
the election, the fund could potentially ameliorate the
adverse tax consequences with respect to its ownership of
shares in a PFIC, but in any particular year may be
required to recognize income in excess of the distributions
it receives from PFICs and its proceeds from dispositions
of PFIC stock. The fund may have to distribute this
"phantom" income and gain to satisfy the 90% distribution
requirement and to avoid imposition of the 4% excise tax.
The fund will make the appropriate tax elections, if
possible, and take any additional steps that are necessary
to mitigate the effect of these rules.
Taxation of United States Shareholders
Dividends and Distributions. Any dividend declared by the
fund in October, November or December of any calendar year
and payable to shareholders of record on a specified date
in such a month shall be deemed to have been received by
each shareholder on December 31 of such calendar year and
to have been paid by the fund not later than such December
31, provided such dividend is actually paid by the fund
during January of the following calendar year. The fund
intends to distribute annually to its shareholders
substantially all of its investment company taxable income,
and any net realized long-term capital gains in excess of
net realized short-term capital losses (including any
capital loss carryovers). The fund currently expects to
distribute any excess annually to its shareholders.
However, if the fund retains for investment an amount equal
to all or a portion of its net long-term capital gains in
excess of its net short-term capital losses and capital
loss carryovers, it will be subject to a corporate tax
(currently at a rate of 35%) on the amount retained. In
that event, the fund will designate such retained amounts
as undistributed capital gains in a notice to its
shareholders who (a) will be required to include in income
for United Stares federal income tax purposes, as long-term
capital gains, their proportionate shares of the
undistributed amount, (b) will be entitled to credit their
proportionate shares of the 35% tax paid by the fund on the
undistributed amount against their United States federal
income tax liabilities, if any, and to claim refunds to the
extent their credits exceed their liabilities, if any, and
(c) will be entitled to increase their tax basis, for
United States federal income tax purposes, in their shares
by an amount equal to 65% of the amount of undistributed
capital gains included in the shareholder's income.
Organizations or persons not subject to federal income tax
on such capital gains will be entitled to a refund of their
pro rata share of such taxes paid by the fund upon filing
appropriate returns or claims for refund with the IRS
Dividends of net investment income and distributions of net
realized short-term capital gains are taxable to a United
States shareholder as ordinary income, whether paid in cash
or in shares. Distributions of net realizedlong-term
capital gains, if any, that the fund designates as capital
gains dividends are taxable as long-term capital gains,
whether paid in cash or in shares and regardless of how
long a shareholder has held shares of the fund. Dividends
and distributions paid by the fund attributable to
dividends on stock of U.S. corporations received by the
fund, with respect to which the fund meets certain holding
period requirements, will be eligible for the deduction for
dividends received by corporations. Distributions in excess
of the fund's current and accumulated earnings and profits
will, as to each shareholder, be treated as a tax-free
return of capital to the extent of a shareholder's basis in
his shares of the fund, and as a capital gain thereafter
(if the shareholder holds his shares of the fund as capital
assets). Shareholders receiving dividends or distributions
in the form of additional shares should be treated for
United States federal income tax purposes as receiving a
distribution in an amount equal to the amount of money that
the shareholders receiving cash dividends or distributions
will receive, and should have a cost basis in the shares
received equal to such amount.
Investors considering buying shares just prior to a
dividend or capital gain distribution should be aware that,
although the price of shares just purchased at that time
may reflect the amount of the forthcoming distribution,
such dividend or distribution may nevertheless be taxable
to them. If the fund is the holder of record of any stock
on the record date for any dividends payable with respect
to such stock, such dividends are included in the fund's
gross income not as of the date received but as of the
later of (a) the date such stock became ex-dividend with
respect to such dividends (i.e., the date on which a buyer
of the stock would not be entitled to receive the declared,
but unpaid, dividends) or (b) the date the fund acquired
such stock. Accordingly, in order to satisfy its income
distribution requirements, the fund may be required to pay
dividends based on anticipated earnings, and shareholders
may receive dividends in an earlier year than would
otherwise be the case.
Sales of Shares. Upon the sale or exchange of his shares,
a shareholder will realize a taxable gain or loss equal to
the difference between the amount realized and his basis in
his shares. Such gain or loss will be treated as capital
gain or loss if the shares are capital assets in the
shareholder's hands, and will be long-term capital gain or
loss if the shares are held for more than one year and
short-term capital gain or loss if the shares are held for
one year or less. Any loss realized on a sale or exchange
will be disallowed to the extent the shares disposed of are
replaced, including replacement through the reinvesting of
dividends and capital gains distributions in the fund,
within a 61-day period beginning 30 days before and ending
30 days after the disposition of the shares. In such a
case, the basis of the shares acquired will be increased to
reflect the disallowed loss. Any loss realized by a
shareholder on the sale of a fund share held by the
shareholder for six months or less will be treated for
United States federal income tax purposes as a long-term
capital loss to the extent of any distributions or deemed
distributions of long-term capital gains received by the
shareholder with respect to such share during such six-
month period.. If a shareholder incurs a sales charge in
acquiring shares of the fund, disposes of those shares
within 90 days and then acquires shares in a mutual fund
for which the otherwise applicable sales charge is reduced
by reason of a reinvestment right (e.g., an exchange
privilege), the original sales charge will not be taken
into account in computing gain/loss on the original shares
to the extent the subsequent sales charge is reduced.
Instead, the disregarded portion of the original sales
charge will be added to the tax basis oof the newly
acquired shares. Furthermore, the same rule also applies
to a disposition of the newly acquired shares made within
90 days of the second acquisition. This provision prevents
a shareholder from immediately deducting the sales charge
by shifting his or her investment in a family of mutual
funds.
Backup Withholding. The fund may be required to withhold,
for United States federal income tax purposes, 31% of the
dividends, distributions and redemption proceeds payable to
shareholders who fail to provide the fund with their
correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that
they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup
withholding is not an additional tax and any amount
withheld may be credited against a shareholder's United
States federal income tax liabilities.
Notices. Shareholders will be notified annually by the
fund as to the United States federal income tax status of
the dividends, distributions and deemed distributions
attributable to undistributed capital gains (discussed
above in "Taxes - Taxation of United States Shareholders -
Dividends and Distributions") made by the fund to its
shareholders. Furthermore, shareholders will also receive,
if appropriate, various written notices after the close of
the fund's taxable year regarding the United States federal
income tax status of certain dividends, distributions and
deemed distributions that were paid (or that are treated as
having been paid) by the fund to its shareholders during
the preceding taxable year.
Other Taxation
Distributions also may be subject to additional state,
local and foreign taxes depending on each shareholder's
particular situation.
The foregoing is only a summary of certain material tax
consequences affecting the fund and its shareholders.
Shareholders are advised to consult their own tax advisers
with respect to the particular tax consequences to them of
an investment in the fund.
ADDITIONAL INFORMATION
The trust was organized on October 17, 1991 under the laws
of the Commonwealth of Massachusetts and is a business
entity commonly known as a "Massachusetts business trust."
The trust offers shares of beneficial interest of five
separate funds with a par value of $.001 per share. The
fund offers shares of beneficial interest currently
classified into four Classes - A, B, L and Y. Each Class
of the fund represents an identical interest in the fund's
investment portfolio. As a result, the Classes have the
same rights, privileges and preferences, except with
respect to: (a) the designation of each Class; (b) the
effect of the respective sales charges; if any, for each
class; (c) the distribution and/or service fees borne by
each Class pursuant to the Plan; (d) the expenses allocable
exclusively to each Class; (e) voting rights on matters
exclusively affecting a single Class; (f) the exchange
privilege of each Class; and (g) the conversion feature of
the Class B shares. The trust's board of trustees does not
anticipate that there will be any conflicts among the
interests of the holders of the different Classes. The
trustees, on an ongoing basis, will consider whether any
such conflict exists and, if so, take appropriate action.
Under Massachusetts's law, shareholders could, under
certain circumstances, be held personally liable for the
obligations of the fund. The Master Trust Agreement
disclaims shareholder liability for acts or obligations of
the fund, however, and requires that notice of such
disclaimer be given in each agreement, obligation or
instrument entered into or executed by the fund or a
trustee. The Master Trust Agreement provides for
indemnification from fund property for all losses and
expenses of any shareholder held personally liable for the
obligations of the fund. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder
liability is limited to circumstances in which the fund
itself would be unable to meet its obligations, a
possibility which management of the fund believes is
remote. Upon payment of any liability incurred by the
fund, a shareholder paying such liability will be entitled
to reimbursement from the general assets of the fund. The
trustees intend to conduct the operation of the fund in
such a way so as to avoid, as far as possible, ultimate
liability of the shareholders for liabilities of the fund.
The Master Trust Agreement of the fund permits the trustees
of the fund to issue an unlimited number of full and
fractional shares of a single class and to divide or
combine the shares into a greater or lesser number of
shares without thereby changing the proportionate
beneficial interests in the fund. Each share in the fund
represents an equal proportional interest in the fund with
each other share. Shareholders of the fund are entitled
upon its liquidation to share pro rata in its net assets
available for distribution. No shareholder of the fund has
any preemptive or conversion rights. Shares of the fund are
fully paid and non-assessable.
Pursuant to the Master Trust Agreement, the fund's trustees
may authorize the creation of additional series of shares
(the proceeds of which would be invested in separate,
independently managed portfolios) and additional classes of
shares within any series (which would be used to
distinguish among the rights of different categories of
shareholders, as might be required by future regulations or
other unforeseen circumstances).
The fund does not hold annual shareholder meetings. There
normally will be no meetings of shareholders for the
purpose of electing trustees unless and until such time as
less than a majority of the trustees holding office have
been elected by shareholders, at which time the trustees
then in office will call a shareholders' meeting for the
election of trustees. Shareholders of record of no less
than two-thirds of the outstanding shares of the trust may
remove a trustee through a declaration in writing or by
vote cast in person or by proxy at a meeting called for
that purpose. The trustees will call a meeting for any
purpose upon written request of shareholders holding at
least 10% of the trust's outstanding shares and the trust
will assist shareholders in calling such a meeting as
required by the 1940 Act.
When matters are submitted for shareholder vote,
shareholders of each Class will have one vote for each full
share owned and a proportionate, fractional vote for any
fractional share held of that Class. Generally, shares of
the fund will be voted on a fund-wide basis on all matters
except matters affecting only the interests of one Class,
in which case only shares of the affected Class would be
entitled to vote.
The trust was organized as an unincorporated Massachusetts
business trust on October 17, 1991 under the name Shearson
Lehman Brothers Intermediate-Term Trust. On October 14,
1994 and August 16, 1995, the Trust's name was changed
Smith Barney Income Trust and Smith Barney Investment
Trust, respectively.
Annual and Semi-Annual Reports. The fund sends its
shareholders a semi-annual report and an audited annual
report, which include listings of investment securities
held by the fund at the end of the period covered. In an
effort to reduce the fund's printing and mailing costs, the
fund consolidates the mailing of its semi-annual and annual
reports by household. This consolidation means that a
household having multiple accounts with the identical
address of record will receive a single copy of each
report. In addition, the fund also consolidates the mailing
of its prospectus so that a shareholder having multiple
accounts (that is, individual, IRA and/or Self-Employed
Retirement Plan accounts) will receive a single Prospectus
annually. Shareholders who do not want this consolidation
to apply to their accounts should contact their Salomon
Smith Barney Financial Consultant or the transfer agent.
Styles of Fund Management: In an industry where the
average portfolio manager has seven years of experience
(source: ICI, 1998), the portfolio managers of Smith Barney
Mutual Funds average 21 years in the industry and 15 years
with the firm.
Smith Barney Mutual Funds offers more than 60 mutual funds.
We understand that many investors prefer an active role in
allocating the mix of funds in their portfolio, while
others want the asset allocation decisions to be made by
experienced managers.
That's why we offer four "styles" of fund management that
can be tailored ot suit each investor's unique financial
goals.
Style Pure Series - Our style Pure Series funds stay fully
invested within their asset class and investment style,
enabling investors to make asset allocation decisions in
conjunction with their Salomon Smith Barney Financial
Consultant.
Classic Investor Series - Our Classic Investor Series funds
offer a range of equity and fixed income strategies that
seek to capture opportunities across asset classes and
investment styles using disciplined investment approaches.
The Concert Allocation Series - As a fund of funds,
investors can select a Concert Portfolio that may help
their investment needs. As needs change, investors can
easily choose another long-term, diversified investment
from our Concert family.
Special Discipline Series - Our Special Discipline Series
funds are designed for investors who are looking beyond
more traditional market categories: from natural resources
to a roster of state-specific municipal funds.
FINANCIAL STATEMENTS
The fund's annual report for the fiscal year ended November
30, 1999 is incorporated herein by reference in its
entirety. The annual report was filed on February 16,
2000, Accession Number 91155-00-000110.
SMITH BARNEY
INVESTMENT TRUST
Mid Cap Blend Fund
March 29, 2000
SMITH BARNEY INVESTMENT TRUST
388 Greenwich Street
New York, NY 10013
SALOMON SMITH BARNEY
A Member of
Citigroup [Symbol]
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