Securities Act Registration No. 2-34576
Investment Company Act Registration No. 811-1940
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 46 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 X
Amendment No. 33 X
SMITH BARNEY APPRECIATION FUND INC.
(Exact name of Registrant as specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of principal executive offices) (Zip Code)
(212) 816-6474
(Registrant's telephone number, including Area Code)
Christina T. Sydor, Secretary
Smith Barney Appreciation Fund Inc.
388 Greenwich Street(22nd Floor)
New York, New York 10013
(Name and address of agent for service)
_______________________________
Approximate Date of Proposed Public Offering: Continuous.
It is proposed that this filing will become effective:
(check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ X ] on April 28, 2000 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[ ] on (date) pursuant to paragraph (a)(i) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(ii) of Rule 485
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Title of Securities Being Registered: Shares of
Beneficial
PART A - For the following, dated April 28, 2000
PROSPECTUS - A, B, L and Y shares
<PAGE>
[Logo] Smith Barney
Mutual Funds
P R O S P E C T U S
Appreciation
Fund
Class A,B,L and Y Shares
- --------------------------------------
April 28, 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>
Appreciation Fund
Contents
<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........................................... 12
Buying shares............................................................... 13
Exchanging shares........................................................... 15
Redeeming shares............................................................ 17
Other things to know about share transactions............................... 19
Salomon Smith Barney Retirement Programs.................................... 21
Dividends, distributions and taxes.......................................... 22
Share price................................................................. 23
Financial highlights........................................................ 24
</TABLE>
You should know: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
Investment objective
The fund seeks long-term appreciation of shareholders' capital.
Principal investment strategies
Key investments The fund invests primarily in equity securities of U.S. compa-
nies. The fund typically invests in medium and large capitalization companies
but may also invest in small capitalization companies. Equity securities
include exchange traded and over-the-counter common stocks and preferred
stocks, debt securities convertible into equity securities, and warrants and
rights relating to equity securities.
Selection process The manager's investment strategy consists of individual com-
pany selection and management of cash reserves. The manager looks for invest-
ments among a strong core of growth and value stocks, consisting primarily of
blue chip companies dominant in their industries. The fund may also invest in
companies with prospects for sustained earnings growth and/or a cyclical
earnings record.
In selecting individual companies for the fund's portfolio, the manager looks
for the following:
. Strong or rapidly improving balance sheets
. Recognized industry leadership
. Effective management teams that exhibit a desire to earn consistent returns
for shareholders
In addition, the manager considers the following characteristics:
. Past growth records
. Future earnings prospects
. Technological innovation
. General market and economic factors
. Current yield or potential for dividend growth
Generally, companies in the fund's portfolio fall into one of the following
categories:
. Undervalued companies: companies with assets or earning power that are either
unrecognized or undervalued. The manager generally looks for a catalyst that
will unlock these values. The manager also looks for companies that are
expected to have unusual earnings growth or whose stocks appear likely to go
up in value because of marked changes in the way they do business (for exam-
ple, a corporate restructuring).
Appreciation Fund
2
<PAGE>
. Growth at a reasonable price: companies with superior demonstrated and
expected growth characteristics whose stocks are available at a reasonable
price. Typically, there is strong recurring demand for these companies' prod-
ucts.
The manager adjusts the amount held in cash reserves depending on the manag-
er's outlook for the stock market. The manager will increase the fund's allo-
cation to cash when, in the manager's opinion, market valuation levels become
excessive. The manager may sometimes hold a significant portion of the fund's
assets in cash while waiting for buying opportunities or to provide a hedge
against stock market declines.
Principal risks of investing in the fund
Investing in equity securities can bring added benefits, but it may also
involve additional risks. Investors could lose money on their investment in the
fund, or the fund may not perform as well as other investments, if:
. The U.S. stock market declines
. Large and medium capitalization stocks or growth stocks are temporarily out
of favor
. An adverse event depresses the value of a company's stock
. The manager's judgment about the attractiveness, value or potential apprecia-
tion of a particular stock or about the amount to hold in cash reserves
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 capital appreciation potential of
the stock market
. Are willing to accept the risks of investing in the stock market
. Are planning for a long term goal and can tolerate periods of market volatil-
ity
Smith Barney Mutual Funds
3
<PAGE>
Risk return bar chart
The 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. The bar chart shows
the performance of the fund's Class A shares for each of the past 10 calendar
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
Calendar years ended December 31
90 91 92 93 94 95 96 97 98 99
(0.27)% 26.94% 6.29% 8.13% (0.77)% 29.26% 19.25% 26.29% 20.45% 15.08%
Quarterly returns:
Highest: 17.89% in 4th quarter 1998; Lowest: (10.90)% in 3rd quarter 1990
Risk return table
The table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Stan-
dard & Poor's 500 Index (S&P 500 Index), a broad-based unmanaged index of
widely held stocks traded on the New York Stock Exchange. 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 divi-
dends.
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 9.29% 20.72% 13.98% 12.71% 03/10/70
B 9.19% 20.92% n/a 15.68% 11/06/92
L 12.01% 20.77% n/a 15.07% 02/04/93
Y 15.40% n/a n/a 20.54% 01/30/96
S&P 500
Index 21.03% 28.54% 18.19% 13.92%* n/a
</TABLE>
*Index comparison begins on 03/31/70.
Appreciation 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 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) on
redemptions (as a % of the lower of net asset
value at purchase or redemption) None* 5.00% 1.00% None
</TABLE>
Annual fund operating expenses
<TABLE>
<CAPTION>
(expenses deducted from fund assets) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Management fees 0.56% 0.56% 0.56% 0.56%
Distribution and service (12b-1) fees 0.25% 1.00% 1.00% None
Other expenses 0.11% 0.14% 0.15% 0.01%
----- ----- ----- -----
Total annual fund operating expenses 0.92% 1.70% 1.71% 0.57%
===== ===== ===== =====
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase, you will pay a deferred sales charge of 1.00%.
Example
This example helps you compare the costs of investing in the fund with the
costs of investing in other mutual funds. Your actual costs may be higher or
lower. The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The fund's operating expenses remain the same
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) $589 $779 $ 984 $1,575
Class B (redemption at end of period) $673 $836 $1,023 $1,802
Class B (no redemption) $173 $536 $ 923 $1,802
Class L (redemption at end of period) $372 $633 $1,019 $2,099
Class L (no redemption) $272 $633 $1,019 $2,099
Class Y (with or without redemption) $ 58 $183 $ 318 $ 714
</TABLE>
Smith Barney Mutual Funds
5
<PAGE>
More on the fund's investments
Derivatives and hedging techniques The fund may, but need not, use derivative
contracts, such as futures and options on securities and securities indices and
options on these futures 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
. 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 securities
or indices. Even a small investment in derivative contracts can have a big
impact on the fund's stock market exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains when
stock prices are changing. The fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of credit risk as issuers of fixed
income securities. Derivatives can also make the fund less liquid and harder to
value, especially in declining markets.
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.
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.
Appreciation Fund
6
<PAGE>
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.
Harry D. Cohen, investment officer of the manager and managing director of Sal-
omon Smith Barney, has been responsible for the day-to-day management of the
fund's portfolio since 1979.
Management fees For its services, the manager received an advisory fee and an
administration fee during the fund's last fiscal year equal to 0.41% and 0.15%,
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, 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 Citi Fiduciary 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>
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 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 invest-
ors.
You may buy shares from:
. A Salomon Smith Barney Financial Consultant
. An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney--a dealer representative
. The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
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
Appreciation 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 ini- .The ini- .No ini-
sales tial sales tial sales tial 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 expenses annual classes
Class B than expenses
and Class A than
Class L 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 of shares of shares of shares of
most Smith most Smith most Smith most 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
Appreciation Fund
10
<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>
6th
through
Year after purchase 1st 2nd 3rd 4th 5th 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 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
dividends)
</TABLE>
Smith Barney Mutual Funds
11
<PAGE>
Class L shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of 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.
Appreciation Fund
12
<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.
- --------------------------------------------------------------------------------
Qualified retirement plans and certain other investors who
Through the are clients of the selling group are eligible to buy shares
fund's sub- directly from the fund.
transfer
agent
. Write the sub-transfer agent at the following address:
Smith Barney Appreciation Fund Inc.
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
. Enclose a check made payable to the fund 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.
Smith Barney Mutual Funds
13
<PAGE>
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.
Appreciation 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 funds. Be sure to read the prospectus of the Smith
family of Barney fund you are exchanging into. An exchange is a taxable
funds transaction.
tailored to
help meet the . You may exchange shares only for shares of the same class
varying needs of another Smith Barney fund. Not all Smith Barney funds
of both large offer 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.
Smith Barney Mutual Funds
15
<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.
Appreciation Fund
16
<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 Appreciation Fund Inc.
(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
17
<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 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 ($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.
Appreciation Fund
18
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good order.
This means 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 reg-
istration
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
19
<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.
Appreciation Fund
20
<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
21
<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.
Appreciation Fund
22
<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. 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
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
23
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance of each class for the past 5 years (or since inception if less than 5
years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG LLP, independent
accountants, whose report, along with the fund's financial statements, is
included in the annual report (available upon request).
For a Class A share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/) 1997 1996 1995(/1/)
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $15.31 $13.92 $12.85 $11.90 $10.15
- -----------------------------------------------------------------------------
Income from operations:
Net investment income 0.15 0.18 0.19 0.19 0.20
Net realized and unrealized
gain 2.08 2.62 3.17 2.09 2.75
- -----------------------------------------------------------------------------
Total income from operations 2.23 2.80 3.36 2.28 2.95
- -----------------------------------------------------------------------------
Less distributions from:
Net investment income (0.14) (0.18) (0.20) (0.19) (0.20)
Net realized gains (1.67) (1.23) (2.09) (1.14) (1.00)
- -----------------------------------------------------------------------------
Total distributions (1.81) (1.41) (2.29) (1.33) (1.20)
- -----------------------------------------------------------------------------
Net asset value, end of year $15.73 $15.31 $13.92 $12.85 $11.90
- -----------------------------------------------------------------------------
Total return(/2/) 15.08% 20.45% 26.29% 19.25% 29.26%
- -----------------------------------------------------------------------------
Net assets, end of year
(millions) $3,326 $2,959 $2,526 $2,100 $1,933
- -----------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.92% 0.95% 0.95% 1.00% 1.02%
Net investment income 0.96 1.23 1.47 1.52 1.71
- -----------------------------------------------------------------------------
Portfolio turnover rate 71% 63% 57% 62% 57%
- -----------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts are calculated using the monthly average shares method.
(/2/) Total return does not take into account any applicable sales charges.
Appreciation Fund
24
<PAGE>
For a Class B share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/) 1997 1996 1995(/1/)
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $15.26 $13.88 $12.81 $11.88 $10.14
- -----------------------------------------------------------------------------
Income from operations:
Net investment income 0.03 0.06 0.07 0.08 0.11
Net realized and unrealized
gain 2.06 2.61 3.15 2.08 2.74
- -----------------------------------------------------------------------------
Total income from operations 2.09 2.67 3.22 2.16 2.85
- -----------------------------------------------------------------------------
Less distributions from:
Net investment income (0.02) (0.06) (0.06) (0.09) (0.11)
Net realized gains (1.67) (1.23) (2.09) (1.14) (1.00)
- -----------------------------------------------------------------------------
Total distributions (1.69) (1.29) (2.15) (1.23) (1.11)
- -----------------------------------------------------------------------------
Net asset value, end of year $15.66 $15.26 $13.88 $12.81 $11.88
- -----------------------------------------------------------------------------
Total return(/2/) 14.19% 19.52% 25.31% 18.29% 28.29%
- -----------------------------------------------------------------------------
Net assets, end of year
(millions) $1,755 $1,553 $1,410 $1,134 $988
- -----------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.70% 1.73% 1.73% 1.78% 1.77%
Net investment income 0.17 0.44 0.68 0.74 0.96
- -----------------------------------------------------------------------------
Portfolio turnover rate 71% 63% 57% 62% 57%
- -----------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts are calculated using the monthly average shares method.
(/2/) Total return does not take into account any applicable sales charges.
Smith Barney Mutual Funds
25
<PAGE>
For a Class L share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/)(/2/) 1997 1996 1995(/1/)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $15.26 $13.88 $12.81 $11.88 $10.14
- --------------------------------------------------------------------------------
Income from operations:
Net investment income 0.03 0.06 0.09 0.09 0.11
Net realized and
unrealized gain 2.05 2.61 3.13 2.08 2.74
- --------------------------------------------------------------------------------
Total income from
operations 2.08 2.67 3.22 2.17 2.85
- --------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.02) (0.06) (0.06) (0.10) (0.11)
Net realized gains (1.67) (1.23) (2.09) (1.14) (1.00)
- --------------------------------------------------------------------------------
Total distributions (1.69) (1.29) (2.15) (1.24) (1.11)
- --------------------------------------------------------------------------------
Net asset value, end of
year $15.65 $15.26 $13.88 $12.81 $11.88
- --------------------------------------------------------------------------------
Total return(/3/) 14.12% 19.52% 25.31% 18.34% 28.29%
- --------------------------------------------------------------------------------
Net assets, end of year
(000)'s $161,491 $83,215 $47,872 $25,505 $14,653
- --------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses 1.71% 1.73% 1.73% 1.77% 1.77%
Net investment income 0.18 0.44 0.68 0.75 0.96
- --------------------------------------------------------------------------------
Portfolio turnover rate 71% 63% 57% 62% 57%
- --------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts are calculated using the monthly average shares method.
(/2/) On June 12, 1998, Class C shares were renamed Class L shares.
(/3/) Total return does not take into account any applicable sales charges.
Appreciation Fund
26
<PAGE>
For a Class Y share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/) 1997(/1/) 1996(/2/)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $15.28 $13.93 $12.86 $12.10
- ------------------------------------------------------------------------------
Income from operations:
Net investment income 0.21 0.24 0.27 0.23
Net realized and unrealized gain 2.07 2.63 3.14 1.89
- ------------------------------------------------------------------------------
Total income from operations 2.28 2.87 3.41 2.12
- ------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.20) (0.29) (0.25) (0.22)
Net realized gains (1.67) (1.23) (2.09) (1.14)
- ------------------------------------------------------------------------------
Total distributions (1.87) (1.52) (2.34) (1.36)
- ------------------------------------------------------------------------------
Net asset value, end of year $15.69 $15.28 $13.93 $12.86
- ------------------------------------------------------------------------------
Total return 15.40% 20.93% 26.70% 17.65%++
- ------------------------------------------------------------------------------
Net assets, end of year (000)'s $98,920 $87,041 $56,302 $73,196
- ------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.57% 0.59% 0.59% 0.66%+
Net investment income 1.30 1.59 1.79 2.06+
- ------------------------------------------------------------------------------
Portfolio turnover rate 71% 63% 57% 24%
- ------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts are calculated using the monthly average shares method.
(/2/) For the period from January 30, 1996 (inception date) to December 31,
1996.
++ 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>
(This page is intentionally left blank.)
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
Appreciation Fund
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. 811-01940)
FD0202 04/00
PROSPECTUS - Z shares
<PAGE>
[LOGO] SMITH BARNEY
MUTUAL FUNDS
PROSPECTUS
APPRECIATION
FUND
Class Z Shares
----------------------------------------------------------------------
April 28, 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>
Appreciation Fund
Contents
<TABLE>
<S> <C>
Investments, risks and performance.......................................... 2
More on the fund's investments.............................................. 7
Management.................................................................. 8
Buying, redeeming and exchanging Class Z shares............................. 9
Dividends, distributions and taxes.......................................... 10
Share price................................................................. 11
Financial highlights........................................................ 12
</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 appreciation for shareholders' capital.
Principal investment strategies
Key investments The fund invests primarily in equity securities of U.S. compa-
nies. The fund typically invests in medium and large capitalization companies
but may also invest in small capitalization companies. Equity securities
include exchange traded and over-the-counter common stocks and preferred
stocks, debt securities convertible into equity securities, and warrants and
rights relating to equity securities.
Selection process The manager's investment strategy consists of individual com-
pany selection and management of cash reserves. The manager looks for invest-
ments among a strong core of growth and value stocks, consisting primarily of
blue chip companies dominant in their industries. The fund may also invest in
companies with prospects for sustained earnings growth and/or a cyclical earn-
ings record.
In selecting individual companies for the fund's portfolio, the manager looks
for the following:
. Strong or rapidly improving balance sheets
. Recognized industry leadership
. Effective management teams that exhibit a desire to earn consistent returns
for shareholders
In addition, the manager considers the following characteristics:
. Past growth records
. Future earnings prospects
. Technological innovation
. General market and economic factors
. Current yield or potential for dividend growth
Appreciation Fund--Class Z Shares
2
<PAGE>
Generally, companies in the fund's portfolio fall into one of the following
categories:
. Undervalued companies: companies with assets or earning power that are either
unrecognized or undervalued. The manager generally looks for a catalyst that
will unlock these values. The manager also looks for companies that are
expected to have unusual earnings growth or whose stocks appear likely to go
up in value because of marked changes in the way they do business (for exam-
ple, a corporate restructuring).
. Growth at a reasonable price: companies with superior demonstrated and
expected growth characteristics whose stocks are available at a reasonable
price. Typically, there is strong recurring demand for these companies' prod-
ucts.
The manager adjusts the amount held in cash reserves depending on the
manager's outlook for the stock market. The manager will increase the fund's
allocation to cash when, in the manager's opinion, market valuation levels
become exces-sive. The manager may sometimes hold a significant portion of the
fund's assets in cash while waiting for buying opportunities or to provide a
hedge against stock market declines.
Smith Barney Mutual Funds
3
<PAGE>
Principal risks of investing in the fund
Investing in equity securities can bring added benefits, but it may also
involve additional risks. Investors could lose money on their investment in the
fund, or the fund may not perform as well as other investments, if:
. The U.S. stock market declines
. Large and medium capitalization stocks or growth stocks are temporarily out of
favor
. An adverse event depresses the value of a company's stock
. The manager's judgment about the attractiveness, value or potential apprecia-
tion of a particular stock or about the amount to hold in cash reserves
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 capital appreciation potential of
the stock market
. Are willing to accept the risks of investing in the stock market
. Are planning for a long term goal and can tolerate periods of market volatil-
ity
Appreciation Fund--Class Z Shares
4
<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. The bar chart shows
the performance of the fund's Class Z shares for each of the past 7 calendar
years.
Total Return for Class Z Shares
[BAR GRAPH APPEARS HERE]
1993 1994 1995 1996 1997 1998 1999
8.47% (0.41)% 29.52% 19.66% 26.72% 20.91% 15.46%
Quarterly returns:
Highest: 18.05% in 4th quarter 1998; Lowest: (9.44)% in 3rd quarter 1998
Risk return table
This table indicates the risks of investing in the fund by comparing the aver-
age annual total return of Class Z shares for the periods shown with that of
the Standard & Poor's 500 Index (S&P 500 Index), a broad-based unmanaged index
of widely held stocks traded on the New York Stock Exchange. This table assumes
the reinvestment of distributions and dividends.
Average Annual Total Returns
Calendar Years Ended December 31, 1999
<TABLE>
<CAPTION>
1 year 5 years 10 years Since Inception Inception Date
<S> <C> <C> <C> <C> <C>
Class Z 15.46% 22.35% n/a 16.93% 11/06/92
S&P 500 Index 21.03% 28.54% n/a 21.45%* 11/30/92
</TABLE>
* Index comparison begins on 11/30/92
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.
Annual fund operating expenses
<TABLE>
<CAPTION>
(expenses deducted from fund assets)
<S> <C>
Management fees 0.56%
Other expenses 0.02%
-----
Total annual fund operating expenses 0.58%
=====
</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 (with or without redemption) $59 $186 $324 $726
</TABLE>
Appreciation Fund--Class Z Shares
6
<PAGE>
More on the fund's investments
Derivatives and hedging techniques The fund may, but need not, use derivative
contracts, such as futures and options on securities and securities indices and
options on these futures 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
. 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 securities
or indices. Even a small investment in derivative contracts can have a big
impact on the fund's stock market exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains when
stock prices are changing. The fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of credit risk as issuers of fixed
income securities. Derivatives can also make the fund less liquid and harder to
value, especially in declining markets.
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 business or property are more likely.
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.
Smith Barney Mutual Funds
7
<PAGE>
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.
Harry D. Cohen, investment officer of the manager and managing director of Sal-
omon Smith Barney, has been responsible for the day to day management of the
fund's portfolio since 1979.
Management fees For its services, the manager received an advisory fee and an
administration fee during the fund's last fiscal year equal to 0.41% and 0.15%,
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.
Transfer agent and shareholder servicing agent Citi Fiduciary 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.
Appreciation Fund--Class Z Shares
8
<PAGE>
Buying, redeeming and exchanging Class Z shares
Through a
qualified You may buy, redeem or exchange Class Z shares only through a
plan "qualified plan." A qualified plan is a tax-exempt employee
benefit or retirement plan of Salomon Smith Barney, Inc. or
one of its affiliates.
There are no minimum investment requirements for Class Z
shares. However, the fund reserves the right to change this
policy at any time.
- --------------------------------------------------------------------------------
Buying Orders to buy Class Z shares must be made in accordance with
the terms of a qualified plan. If you are a participant in a
qualified plan, you may place an order with your plan to buy
Class Z shares at net asset value, without any sales charge.
Payment is due to Salomon Smith Barney on settlement date,
which is the third business day after your order is accepted.
If you make payment prior to this date, you may designate a
temporary investment (such as a money market fund of the
Smith Barney 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.
Other The fund has the right to:
information
.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
9
<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.
Appreciation Fund--Class Z Shares
10
<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 Statement of Addi-
tional Information. This calculation is done when regular trading closes on the
Exchange (normally 4:00 p.m., Eastern time).
The fund generally values its fund securities based on market prices or quota-
tions. The fund's currency conversions are done when the London Stock Exchange
closes. 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 your
qualified plan 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 qualified plan before the New York Stock Exchange closes.
If the Exchange closes early, you must place your order prior to the actual
closing time. Otherwise, you will receive the next business day's price.
Your qualified plan must transmit all orders to buy, exchange or redeem shares
to the fund's agent before the agent's close of business.
Smith Barney Mutual Funds
11
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance of Class Z shares for the past 5 years. Certain information reflects
financial results for a single share. Total return represents the rate that a
shareholder would have earned (or lost) on a fund share assuming reinvestment
of all dividends and distributions. The information in the following tables was
audited by KPMG LLP, independent accountants, whose report, along with the
fund's financial statements, are included in the annual report (available upon
request).
For a Class Z share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/) 1997 1996 1995(/1/)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 15.29 $ 13.94 $ 12.87 $ 11.91 $ 10.16
- ------------------------------------------------------------------------------
Income from operations:
Net investment income 0.21 0.24 0.24 0.24 0.23
Net realized and
unrealized gain 2.08 2.63 3.18 2.09 2.75
- ------------------------------------------------------------------------------
Total income from
operations 2.29 2.87 3.42 2.33 2.98
- ------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.20) (0.29) (0.26) (0.23) (0.23)
Net realized gains (1.67) (1.23) (2.09) (1.14) (1.00)
- ------------------------------------------------------------------------------
Total distributions (1.87) (1.52) (2.35) (1.37) (1.23)
- ------------------------------------------------------------------------------
Net asset value, end of
year $ 15.71 $ 15.29 $ 13.94 $ 12.87 $ 11.91
- ------------------------------------------------------------------------------
Total return 15.46% 20.91% 26.72% 19.66% 29.52%
- ------------------------------------------------------------------------------
Net assets, end of year
(000)'s $267,640 $243,609 $194,070 $153,034 $131,357
- ------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses 0.58% 0.59% 0.59% 0.64% 0.77%
Net investment income 1.30 1.59% 1.82 1.88 1.96
- ------------------------------------------------------------------------------
Portfolio turnover rate 71% 63% 57% 62% 57%
- ------------------------------------------------------------------------------
</TABLE>
(/1/Per)share amounts are calculated using the monthly average shares method.
Appreciation Fund--Class Z Shares
12
<PAGE>
(This page is intentionally left blank.)
<PAGE>
[SALOMON SMITH BARNEY LOGO APPEARS HERE]
Appreciation Fund
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 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.
SMSalomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-01940)
FD0794 4/00
PART B - STATEMENT OF ADDITIONAL INFORMATION
For the following, dated April 28, 2000
April 28, 2000
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY APPRECIATION FUND INC.
388 Greenwich Street
New York, New York 10013
(800) 451-2010
This Statement of Additional Information ("SAI") is not a
prospectus and is meant to be read in conjunction with the
prospectus of the Smith Barney Appreciation Fund Inc. (the
"fund") dated April 28, 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 that
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, PFS
Investments Registered Representative, or by writing or
calling Salomon Smith Barney Inc. ("Salomon Smith Barney")
at the address or telephone number above.
TABLE OF CONTENTS
Investment Objective and Management
Policies.......................... 2
Investment Restrictions...... ......... 13
Directors and Executive Officers of the Fund....... 16
Investment Management and Other Services 19
Portfolio Transactions................................ 24
Portfolio Turnover..................................... 27
Purchase of Shares ......................................27
Redemption of Shares............................ 36
Valuation of Shares.............................. 40
Exchange Privilege................................... 40
Performance Data...................................... 42
Dividends, Distributions and Taxes........................ 46
Additional Information.................................... 52
Financial Statements ..............................54
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES tc \l1 "
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The fund is an open-end, diversified, management investment
company. The prospectus discusses the fund's investment
objective and the policies it employs to achieve its
objective. This section contains supplemental information
concerning the types of securities and other instruments in
which the fund may invest, the investment policies and
portfolio strategies the fund may utilize and certain risks
attendant to such 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.
Common Stock. The fund may invest in common stocks. Common
stocks are shares of a corporation or other entity entitling
the holder to a pro rata share of the profits of the
corporation, if any, without preference over any other
shareholder or class of shareholders, including holders of
the entity's preferred stock and other senior equity.
Common stock usually carries with it the right to vote and
frequently an exclusive right to do so.
Preferred Stock. Preferred stocks, like debt obligations,
are generally fixed-income securities. Shareholders of
preferred stocks normally have the right to receive
dividends at a fixed rate when and as declared by the
issuer's board of directors, but do not participate in other
amounts available for distribution by the issuing
corporation. Preferred stock dividends must be paid before
common stock dividends and, for that reason, preferred
stocks generally entail less risk than common stocks. Upon
liquidation, preferred stocks are entitled to a specified
liquidation preference, which is generally the same as the
par or stated value, and are senior in right of payment to
common stock. Preferred stocks are, however, equity
securities in the sense they do not represent a liability of
the issuer and, therefore, do not offer as great a degree of
protection of capital or assurance of continued income as
investments in corporate debt securities. In addition,
preferred stocks are subordinated in right of payment to all
debt obligations and creditors of the issuer, and
convertible preferred stocks may be subordinated to other
preferred stock of the same issuer.
Warrants. The fund may invest up to 5% of its assets in
warrants. Warrants acquired entitle the fund to buy common
stock from the issuer at a specified price and time.
Warrants are subject to the same market risks as stocks, but
may be more volatile in price. The fund's investment in
warrants will not entitle it to receive dividends or
exercise voting rights and will become worthless if the
warrants cannot be profitably exercised before the
expiration dates.
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.
Foreign Securities. The fund may invest up to 10% of its
assets (at the time of investment) in foreign securities.
The fund may invest directly in foreign issuers or invest in
depositary receipts. (securities of foreign issuers in the
form of American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") or similar securities
representing interests in the common stock of foreign
issuers). ADRs are receipts, typically issued by a U.S. bank
or trust company, which evidence ownership of underlying
securities issued by a foreign corporation. EDRs are
receipts issued in Europe which evidence a similar ownership
arrangement. Generally, ADRs, in registered form, are
designed for use in the U.S. securities markets and EDRs are
designed for use in European securities markets. The
underlying securities are not always denominated in the same
currency as the ADRs or EDRs. Although investment in the
form of ADRs or EDRs facilitates trading in foreign
securities, it does not mitigate the risks associated with
investing in foreign securities.
Investments in foreign securities incur higher costs than
investments in U.S. securities, including higher costs in
making securities transactions as well as foreign government
taxes which may reduce the investment return of the fund.
In addition, foreign investments may include additional
risks associated with currency exchange rates, less complete
financial information about individual companies, less
market liquidity and political instability.
Money Market Instruments. The fund may invest for temporary
defensive purposes in corporate and government bonds and
notes and money market instruments. Money market
instruments include: obligations issued or guaranteed by the
United States government, its agencies or instrumentalities
("U.S. government securities"); certificates of deposit,
time deposits and bankers' acceptances issued by domestic
banks (including their branches located outside the United
States and subsidiaries located in Canada), domestic
branches of foreign banks, savings and loan associations and
similar institutions; high grade commercial paper; and
repurchase agreements with respect to the foregoing types of
instruments. Certificates of deposit ("CDs") are short-
term, negotiable obligations of commercial banks. Time
deposits ("TDs") are non-negotiable deposits maintained in
banking institutions for specified periods of time at stated
interest rates. Bankers' acceptances are time drafts drawn
on commercial banks by borrowers, usually in connection with
international transactions. The fund may invest in cash and
in short-term instruments, and it may hold cash and short-
term instruments without limitation when the manager
determines that it is appropriate to maintain a temporary
defensive posture. Short-term instruments in which the fund
may invest include: (a) obligations issued or guaranteed as
to principal and interest by the United States government,
its agencies or instrumentalities (including repurchase
agreements with respect to such securities); (b) bank
obligations (including certificates of deposit, time
deposits and bankers' acceptances of domestic or foreign
banks, domestic savings and loan associations and similar
institutions); (c) floating rate securities and other
instruments denominated in U.S. dollars issued by
international development agencies, banks and other
financial institutions, governments and their agencies or
instrumentalities and corporations located in countries that
are members of the Organization for Foreign Cooperation and
Development; and (d) commercial paper rated no lower than A-
2 by Standard & Poor's Ratings Group ("S&P") or Prime-2 by
Moody's Investors Service, Inc. ("Moody's") or the
equivalent from another major rating service or, if unrated,
of an issuer having an outstanding, unsecured debt issue
then rated within the three highest rating categories.
INVESTMENT PRACTICES
In attempting to achieve its investment objective, the fund
may employ, among others, the following portfolio
strategies.
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 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 the value of this collateral, after transaction
costs (including loss of interest) reasonably expected to be
incurred on a default, to 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 meeting 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 Exchange Commission. 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
occurring 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 unaffiliated with the fund and 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.
DERIVATIVES TRANSACTIONS
Options on Securities. The fund may write (sell) covered
put and call options on securities ("options") and purchase
put and call options traded on foreign or U.S. securities
exchanges and over the counter. The fund will write such
options for the purpose of increasing its return and/or
protecting the value of its portfolio. In particular, where
the fund writes an option expiring unexercised or is closed
out by the fund at a profit, it will retain the premium paid
for the option, which will increase its gross income and
will offset in part the reduced value of a portfolio
security in connection with which the option may have been
written or the increased cost of portfolio securities to be
acquired. However, the writing of options constitutes only
a partial hedge, up to the amount of the premium, less any
transaction costs. In contrast, if the price of the
security underlying the option moves adversely to the fund's
position, the option may be exercised and the fund will be
required to purchase or sell the security at a
disadvantageous price, resulting in losses that may only be
partially offset by the amount of the premium. The fund may
also write combinations of put and call options on the same
security, known as "straddles." Such transactions generate
additional premium income but also present increased risk.
The fund may purchase put and call options in anticipation
of declines in the value of portfolio securities or
increases in the value of securities to be acquired. 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 be lose
such amounts in the event the prices of securities
underlying the options do not move in the direction or to
the extent anticipated. The fund can invest up to 5% of its
total assets in put and call options on securities.
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.
The fund will engage in stock index options transactions
only when determined by SSB Citi to be consistent with the
fund's efforts to control risk. There can be no assurance
that such judgment will be accurate or that the use of these
portfolio strategies will be successful. The fund can
invest up to 5% of its total assets in put and call options
on domestic and foreign stock indexes.
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 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 will maintain on it's books (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 account 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 rate 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 or 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 to
forfeit such amounts in the event the prices of securities
underlying the options do not move in the direction or to
the extent anticipated.
Although the portfolio might not employ the use of forward
currency contracts, options and futures, the use of any of
these strategies would involve certain investment risks and
transaction costs to which it might not otherwise be
subject. These risks include: dependence on the manager's
ability to predict movements in the prices of individual
debt securities, fluctuations in the general fixed-income
markets and movements in interest rates and currency
markets, imperfect correlation between movements in the
price of currency, options, futures contracts or options
thereon and movements in the price of the currency or
security hedged or used for cover; the fact that skills and
techniques needed to trade options, futures contracts and
options thereon or to use forward currency contracts are
different from those needed to select the securities in
which the fund invests; and lack of assurance that a liquid
market will exist for any particular option, futures
contract or options 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 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 foregoes 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 option and will incur a loss if
the cost of the closing purchase transaction exceeds the
premium received upon writing the 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 the fund will succeed in
its option-writing program.
Futures Contracts and Options on Futures Contracts. As
described generally above, the fund may enter into futures
contracts and purchase and write (sell) options on these
contracts, including but not limited to interest rate,
securities index and foreign currency contracts and put and
call options on these futures contracts. 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 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 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.
The fund will not enter into futures contracts and related
options for which the aggregate initial margin and premiums
exceed 5% of the fair market value of the fund's assets
after taking into account unrealized profits and unrealized
losses on any contracts it has entered into. All futures
and options on futures positions will be covered by owning
the underlying security or segregation of assets. With
respect to long positions in a futures contract or option
(e.g., futures contracts to purchase the underlying
instrument and call options purchased or put options written
on these futures contracts or instruments), the underlying
value of the futures contract at all times will not exceed
the sum of cash, short-term U.S. debt obligations or other
high quality obligations set aside for this purpose.
RISK FACTORS tc \l1 " RISK FACTORS
General. There can be no assurance that the fund's
investment objective will be achieved. The value of the
fund's investments will fluctuate in response to changes in
market and economic conditions, as well as the financial
condition and prospects of issuers in which the fund
invests.
Foreign Investments. 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.
Futures Contracts and Related Options. 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 tc \l1 " INVESTMENT RESTRICTIONS
The fund has adopted the following fundamental investment
restrictions for the protection of shareholders. These
restrictions cannot be changed without approval by the
holders of a majority of the outstanding shares of the fund,
defined as the lesser of (a) 67% or more of the fund's
shares present at a meeting, if the holders of more than 50%
of the outstanding shares are present in person or by proxy
or (b) more than 50% of the fund's outstanding shares. In
accordance with these restrictions, the fund will not:
1. Invest in a manner that would cause it to fail to be a
"diversified company" under the 1940 Act and the
rules, regulations and orders thereunder.
2. Issue "senior securities" as defined in the 1940 Act
and the rules, regulations and orders thereunder,
except as permitted under the 1940 Act and the rules,
regulations and orders thereunder.
3. Invest more than 25% of its total assets in
securities, the issuers of which are in the same
industry. For purposes of this limitation, U.S.
government securities 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 objectives 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 fund's investment
objective and policies); or (d) investing in real
estate investment trust securities.
While the fund is authorized to borrow money for purposes of
investment (leveraging) and to invest in securities of
foreign issuers, it has no current intention of engaging in
these investment activities and will do so only when the
fund's board of directors determines that either or both of
these activities are in the best interests of shareholders.
The fund has also adopted certain nonfundamental investment
restrictions that may be changed by the fund's board of
directors at any time. Accordingly, the fund may not:
1. 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.
2. Invest more than 5% of the value of its net assets in
warrants. Included within that amount, but not to
exceed 2% of the value of the fund's net assets, may
be warrants that are not listed on the New York Stock
Exchange, Inc. (the "NYSE") or the American Stock
Exchange. Warrants acquired by the fund in units or
attached to securities may be deemed to be without
value.
3. Invest in mineral-type programs or leases.
4. 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.
5. Invest for the purpose of exercising control of
management.
6. Purchase securities of any company with a record of
less than three years' continuous operation if such
purchase would cause its investments in such companies
to exceed 5% of the value of its total assets. (For
purposes of this limitation, issuers include
predecessors, sponsors, controlling persons, general
partners, guarantors and originators of underlying
assets.)
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.
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
DIRECTORS AND EXECUTIVE OFFICERS OF THE FUND tc \l1
"DIRECTORS AND EXECUTIVE OFFICERS OF THE FUND
Overall responsibility for management and supervision of the
fund rests with the fund's board of directors. The directors
approve all significant agreements between the fund and the
companies that furnish services to the fund, including
agreements with the fund's distributor, investment adviser,
custodian, transfer agent and sub-transfer agent. The day-
to-day operations of the fund are delegated to the fund's
investment adviser and administrator, SSB Citi.
The directors 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 director 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" directors and executive officers of the fund is
388 Greenwich Street, New York, New York 10013, unless
otherwise indicated.
Herbert Barg, Director (Age 77). 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 Director (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 Director (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 Director (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 Director (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 Director (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 Director (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 Director (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 Director (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. Director (Age 67). 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.
Harry D. Cohen (Age 59). Vice President and Investment
Officer
Managing Director of Salomon Smith Barney; Investment
Officer of SSB Citi, Vice President of 2 investment
companies associated with Citigroup. His address is 7 World
Trade Center, New York, New York 10048.
Scott Glasser (Age 34). Vice President and Investment
Officer
Director of Salomon Smith Barney; Investment Officer of SSB
Citi, Vice President of 2 investment companies associated
with Citigroup. His address is 7 World Trade Center, New
York, New York 10048.
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.
The following table shows the compensation paid by the fund
and other Smith Barney mutual funds to each director during
the fund's last fiscal year. None of the officers of the
fund received any compensation from the fund for such
period. The fund does not pay retirement benefits to its
directors and officers. Officers and interested directors
of the fund are compensated by Salomon Smith Barney.
For the calendar year ended December 31, 1999, the directors
of the fund were paid the following compensation.
Name of Person
Aggregate
Compensat
ion
from
Fund+
Total Pension
or
Retirement
Benefits
Accrued
as part of
Fund Expenses
Compensation
from Fund
and Fund
Complex
Paid to
Directors
Number of
Funds for
Which Director
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.**
$7,500
7,000
6,500
7,500
7,500
6,000
7,500
7,500
0
7,000
$0
0
0
0
0
0
0
0
0
0
$114,288
53,900
138,600
155,363
7,950
45,100
110,650
58,050
0
53,500
16
11
21
24
11
11
13
11
71
11
* Designates an "interested" director.
** Designates member of Audit Committee.
+ Upon attainment of age 80, fund directors are required
to change to emeritus status. Directors emeritus are
entitled to serve in emeritus status for a maximum of
10 years. Directors emeritus may attend meetings but
have no voting rights. During the fund's last fiscal
year, aggregate compensation paid by the fund to
directors emeritus was $1,875.
As of April 6, 2000, the directors and officers of the fund,
as a group, owned less than 1% of the outstanding shares of
beneficial interest of the fund.
To the best knowledge of the directors, as of April 6, 2000,
the following shareholders or "groups" (as such term is
defined in Section 13(d) of the Securities Exchange Act of
1934, as amended) owned beneficially or of record more than
5% of the shares of the following classes:
Shareholder
Class
Shares Held
PFS Shareholder Services (B)
Attn: Jay Barnhill
3100 Breckinridge Blvd.
Duluth, GA 30199
Class B
Owned 146,632,212.60
9.05% of shares
Shareholder
Class
Shares Held
Smith Barney Concert Series Inc.
Balanced Portfolio
PNC Bank NA
Attn: Beverly Timson
200 Stevens Drive, Suite 440
Lester, PA 19113-1522
Class Y
Owned 3,458,420.236
55.09% of shares
Smith Barney Concert Series Inc.
Select Balanced Portfolio
PNC Bank NA
Attn: Beverly Timson
200 Stevens Drive
Lester, PA 19113-1522
Class Y
Owned 1,306,144.705
20.80% of shares
Smith Barney Concert Series Inc.
Conservative Portfolio
PNC Bank NA
Attn: Beverly Timson
200 Stevens Drive, Suite 440
Lester, PA 19113-1522
Class Y
Owned 890,181.642
14.18% of shares
Smith Barney Concert Series Inc.
Select Conservative Portfolio
PNC Bank NA
Attn: Beverly Timson
200 Stevens Drive
Lester, PA 19113-1522
Class Y
Owned 355,826.583
5.66% of shares
State Street Bank & Trust Cust
The Travelers Group 401(k) Savings Plan
Attn: Rick Vest
225 Franklin Street
Boston, MA 02101
Class Z
Owned 16,495,822.392
99.96% of shares
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Adviser and Administrator
SSB Citi serves as investment adviser to the fund pursuant
to a written agreement (the "Investment Advisory
Agreement"), which was approved by the fund's board of
directors, including a majority of the directors who are not
interested persons of the fund or Smith Barney (the
"independent directors"). Subject to the supervision and
direction of the fund's board of directors, 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 fund. The
manager bears all expenses in connection with the
performance of its services. SSB Citi is a wholly owned
subsidiary of Salomon Smith Barney Holdings Inc.
("Holdings"), which in turn is a wholly owned subsidiary of
Citigroup. SSB Citi (through predecessor entities) has been
in the investment counseling business since 1968 and renders
investment advice to a wide variety of individual,
institutional and investment company clients that had
aggregate assets under management as of February 2000 in
excess of $217 billion.
As compensation for SSB Citi's investment advisory services
rendered to the fund, the fund pays a fee computed daily and
paid monthly at the following annual rates of the fund's
average daily net assets: 0.55%, up to $250 million; 0.513%
of the next $250 million; 0.476% of the next $500 million;
0.439% of the next $1 billion, 0.402% of the next $l
billion; and 0.365% of the average daily net assets in
excess of $3 billion. For the fiscal years ended December
31, 1999, 1998, and 1997, the fund paid $21,761,582,
$18,906,581 and $16,921,518, respectively, in investment
advisory fees.
SSB Citi also serves as administrator to the fund pursuant
to a written agreement (the "Administration Agreement"),
which was most recently approved by the fund's board of
directors, including a majority of the independent directors
of the fund. SSB Citi pays the salary of any officer and
employee who is employed by both it and the fund and bears
all expenses in connection with the performance of its
services.
As administrator SSB Citi will: (a) assist in supervising
all aspects of the fund's operations; b) supply 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) prepare reports to shareholders of the fund, tax
returns and reports to and filings with the SEC and state
blue sky authorities.
As compensation for administrative services rendered to the
fund, SSB Citi receives a fee computed daily and paid
monthly at the following annual rates: 0.20%, of the value
of the fund's average daily net assets up to $250 million;
0.187% of the next $250 million; 0.174% of the next $500
million; 0.161% of the next $1 billion; 0.148% of the next
$1 billion and 0.135% of the net assets in excess of $3
billion. For the fiscal years ended December 31, 1999, 1998
and 1997, the fund paid $8,002,567, $6,946,684 and
$6,212,415 in administration fees.
The fund bears expenses incurred in its operation including:
taxes, interest, brokerage fees and commissions, if any;
fees of directors 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's fees; certain
insurance premiums; outside auditing and legal expenses;
costs of maintaining corporate existence; investor services
(including allocated telephone and personnel expenses);
costs of preparation and printing of prospectuses and
statements of additional information for regulatory purposs
and for distribution to existing shareholders; costs of
shareholders' reports and shareholder meetings; and meetings
of the officers or board of directors of the fund.
Auditors
KPMG LLP, independent auditors, 757 Third Avenue, New York,
New York 10017, have been selected to render opinions on the
fund's financial statements and highlights for the fiscal
year ending December 31, 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.
Citi Fiduciary Trust Company ("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 P.O. Box 9699, Providence, R.I. 02940-9699 serves
as the fund's transfer agent to render certain shareholder
record keeping and accounting services functions. Under the
transfer agency agreement, the sub-transfer agent maintains
the shareholder account records for the fund, handles
certain communications between shareholders and the fund and
distributes dividends and distributions payable by the fund.
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 fund during the
month, and is reimbursed for out-of-pocket expenses.
The fund has also engaged the services of PFS Shareholder
Services as a sub-transfer agent for PFS Accounts ( "PFS" or
"sub-transfer agent"). PFS is located at 3100 Breckinridge
Blvd, Bldg 200, Duluth, Georgia 30099-0062.
Code of Ethics. Pursuant to Rule 17j-1 of the 1940 Act, the
fund, its investment adviser and principal underwriter has
adopted a code of ethics that permits 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 code 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 tc "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 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 and PFS Distributors, Inc. served as
the fund's distributors.
For the year ended December 31, 1997, the aggregate dollar
amount of commissions on Class A shares was $2,000,000, all
of which was paid to Salomon Smith Barney. For the period
January 1, 1998 through October 7, 1998 the aggregate dollar
amount of commissions on Class A shares was $1,754,000, all
of which was paid to Salomon Smith Barney. For the period
October 8, 1998 through December 31, 1998 the aggregate
dollar amount of commissions on Class A shares was $261,000,
$234,900 of which was paid to Salomon Smith Barney. For
the fiscal year ended December 31, 1999 the aggregate dollar
amount of commissions on Class A shares was $2,256,000, of
which $2,030,400 was paid to Salomon Smith Barney.
For the period June 12, 1998 through October 7, 1998 the
aggregate dollar amount of commissions on Class L shares was
$126,000, all of which was paid to Salomon Smith Barney. For
the period October 8, 1998 through December 31, 1998 the
aggregate dollar amount of commissions on Class L shares was
$48,000, $43,200 of which was paid to Salomon Smith Barney.
For the fiscal year ended December 31, 1999 the aggregate
dollar amount of commissions on Class L shares was $641,000,
of which $576,900 was paid to Salomon Smith Barney.
For the years ended December 31, 1997, December 31, 1998 and
December 31, 1999, Salomon Smith Barney or its predecessor
received from shareholders $45,000, $16,000 and $6,000,
respectively, in deferred sales charges on the redemption of
Class A shares.
For the years ended December 31, 1997, December 31, 1998 and
December 31, 1999, Salomon Smith Barney or its predecessor
received from shareholders $1,305,000, $1,091,000, and
$1,155,000, respectively, in deferred sales charges on the
redemption of Class B shares.
For the years ended December 31, 1997, December 31, 1998 and
December 31, 1999, Salomon Smith Barney or its predecessor
received from shareholders $9,000, $9,000 and $44,000,
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 directors
has been advised of the benefits to Salomon Smith Barney
resulting from these settlement procedures and will take
such benefits into consideration when reviewing the
Investment Advisory and Distribution Agreements for
continuance.
Distribution Arrangements. To compensate Salomon Smith
Barney for the services 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 the 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
daily net assets attributable to the shares of the
respective class.
The only classes of shares being offered for sale through
PFS Distributors is Class A shares and Class B shares.
Pursuant to the Plan (described above), PFS Distributors is
paid an annual service fee with respect to Class A and Class
B shares of the fund sold through PFS Distributors at the
annual rate of 0.25% of the average daily net assets of the
respective class. PFS Distributors is also paid an annual
distribution fee with respect to Class B shares at the
annual rate of 0.75% of the average daily net assets
attributable to that Class. Class B shares that
automatically convert to Class A shares eight years after
the date of original purchase will no longer be subject to a
distribution fee. The fees are paid to PFS Distributors,
which in turn, pays PFS Investments Inc. ("PFS Investments")
to pay its PFS Investments Registered Representatives for
servicing shareholder accounts and, in the case of Class B
shares, to cover expenses primarily intended to result in
the sale of those shares. These expenses include:
advertising expenses; the cost of printing and mailing
prospectuses to potential investors; payments to and
expenses of PFS Investments Registered Representatives and
other persons who provide support services in connection
with the distribution of shares; interest and/or carrying
charges; and indirect and overhead costs of PFS Investments
associated with the sale of fund shares, including lease,
utility, communications and sales promotion expenses.
The payments to PFS Investments Registered Representatives
for selling shares of a class include a commission or fee
paid by the investor or PFS at the time of sale and, with
respect to Class A and Class B shares, a continuing fee for
servicing shareholder accounts for as long as a shareholder
remains a holder of that class. PFS Investments Registered
Representatives may receive different levels of compensation
for selling different classes of shares.
PFS Investments may be deemed to be an underwriter for
purposes of the Securities Act of 1933. From time to time,
PFS or its affiliates may also pay for certain non-cash
sales incentives provided to PFS Investments Registered
Representatives. Such incentives do not have any effect on
the net amount invested. In addition to the reallowances
from the applicable public offering price described above,
PFS may from time to time, pay or allow additional
reallowances or promotional incentives, in the form of cash
or other compensation to PFS Investments Registered
Representatives who sell shares of the fund.
The following service and distribution fees were incurred
during the periods indicated:
DISTRIBUTION PLAN FEES
Year
Ended 12/31/99
Year
Ended 12/31/98
Year
Ended 12/31/97
Class A
$ 7,794,943
$ 6,774,230
$ 5,849,540
Class B
16,816,917
14,393,673
12,927,331
Class L
1,229,475
604,868
360,602
For the year ended December 31, 1999, Salomon Smith Barney
and/or PFS Distributors incurred distribution expenses
totaling $27,128,179, consisting of $1,020,592 for
advertising, $114,830 for printing and mailing of
prospectuses, $8,347,769 for support services, $17,106,970
for total compensation to Salomon Smith Barney Financial
Consultants, and $538,019 in accruals for interest on the
excess of Salomon Smith Barney expenses incurred in
distribution of the fund's shares over the sum of the
distribution fees and deferred sales charges received by
Salomon Smith Barney and/or PFS Distributors from the fund.
Under its terms, the Plan continues from year to year,
provided such continuance is approved annually by vote of
the fund's board of directors, including a majority of the
independent directors. 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 directors and independent
directors in the manner described above. The Plan may be
terminated with respect to a class of the fund at any time,
without penalty, by vote of a majority of the independent
directors or by vote of a majority (as defined in the 1940
Act) of the outstanding voting securities of the class.
Pursuant to the Plan, Salomon Smith Barney and PFS
Distributors will provide the fund's board of directors with
periodic reports of amounts expended under the Plan and the
purpose for which such expenditures were made.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the fund are made
by the manager, subject to the overall review of the fund's
board of directors. Although investment decisions for the
fund are made independently from those of the other accounts
managed by the manager, investments of the type the fund may
make also may be made by those other accounts. When the
fund and one or more other accounts managed by the manager
are prepared to invest in, or desire to dispose of, the same
security, available investments or opportunities for sales
will be allocated in a manner believed by the manager to be
equitable to each. In some cases, this procedure may
adversely affect the price paid or received by the fund or
the size of the position obtained or disposed of by the
fund.
Allocation of transactions on behalf of the fund, including
their frequency, to various dealers is determined by the
manager in its best judgment and in a manner deemed fair and
reasonable to the fund's shareholders. The primary
considerations of the manager in allocating transactions are
availability of the desired security and the prompt
execution of orders in an effective manner at the most
favorable prices. Subject to these considerations, dealers
that provide supplemental investment research and
statistical or other services to the manager may receive
orders for portfolio transactions by the fund. Information
so received is in addition to, and not in lieu of, services
required to be performed by the manager, and the fees of the
manager are not reduced as a consequence of their receipt of
the supplemental information. The information may be useful
to the manager in serving both the fund and other clients,
and conversely, supplemental information obtained by the
placement of business of other clients may be useful to the
manager in carrying out its obligations to the fund.
In selecting brokers or dealers to execute securities
transactions on behalf of the fund, SSB Citi seeks the best
overall terms available. In assessing the best overall
terms available for any transaction, SSB Citi will consider
the factors the adviser deems relevant, including the
breadth of the market in the security, the price of the
security, the financial condition and execution capability
of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a
continuing basis. In addition, the Investment Advisory
Agreement authorizes the manager, in selecting brokers or
dealers to execute a particular transaction and in
evaluating the best overall terms available, to consider the
brokerage and research services (as those terms are defined
in Section 28(e) of the Securities Exchange Act of 1934)
provided to the fund, the other portfolios and/or other
accounts over which the manager or its affiliates exercise
investment discretion. The fees under the Investment
Advisory Agreement and/or administration agreements between
the fund and the manager and/or administrator, respectively,
are not reduced by reason of their receiving such brokerage
and research services. The fund's board of directors, in
its discretion, may authorize the manager to cause the fund
to pay a broker that provides such brokerage and research
services a brokerage commission in excess of that which
another broker might have charged for effecting the same
transaction, in recognition of the value of such brokerage
and research services. The fund's board of directors
periodically will review the commissions paid by the
portfolios to determine if the commissions paid over
representative periods of time were reasonable in relation
to the benefits inuring to the fund.
For the fiscal year ended December 31, 1999, the following
table sets forth certain information regarding the fund's
payment of brokerage commissions and brokerage transactions
to brokers because of research services provided:
Amount of Transactions
Total Brokerage
Involving Commissions
Commissions Paid
Paid to Brokers
$469,411
$5,529,498,070
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 Fiscal
Year Fiscal Year
Ended 12/31/99 Ended
12/31/98 Ended 12/31/97
Total Brokerage Commissions $6,282,169
$4,113,439 $4,113,439
Total Brokerage Commissions $ 289,442
$ 334,520 $ 557,460
paid to Salomon Smith Barney
% of Total Brokerage Commissions 4.61%
6.98% 13.55%
paid to Salomon Smith Barney
% of Total Transactions involving 3.67%
6.47% 14.18%
Commissions paid to Salomon
Smith Barney
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 Salomon Smith Barney charges its
comparable unaffiliated customers in similar transactions.
PORTFOLIO TURNOVER
The fund generally does not engage in short-term trading but
intends to purchase securities for long-term capital
appreciation. The portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio
securities for the year by the monthly average value of
portfolio securities. Securities with remaining maturities
of one year or less at the date of acquisition are excluded
from the calculation. For the fiscal years ended December
31, 1999 and 1998, the fund's portfolio turnover rate was
71% and 63%, respectively.
Future portfolio turnover rates may vary greatly from year
to year as well as within a particular year and may be
affected by cash requirements for redemptions of the fund's
shares. Portfolio turnover rates will largely depend on the
level of purchases and redemptions of fund shares. Higher
portfolio turnover rates can result in corresponding
increases in brokerage commissions. In addition, to the
extent the fund realizes net short-term capital gains as the
result of more portfolio transactions, distributions of such
gains would be taxable to shareholders as ordinary income.
PURCHASE OF SHARES tc "PURCHASE OF SHARES"
Sales Charge Alternatives
The following classes of shares are available for purchase.
See the Prospectus for a discussion of factors to consider
in selecting which Class of shares to purchase.
Class A Shares. Class A shares are sold to investors at the
public offering price, which is the net asset value plus an
initial sales charge as follows:
Amount of
Investment
Sales Charge as a
%
of Transaction
Sales Charge as a
%
of Amount
Invested
Dealers'
Reallowance as %
of Offering Price
Less than $25,000
5.00
5.26
4.50
$ 25,000 - 49,999
4.00
4.17
3.60
50,000 - 99,999
3.50
3.63
3.15
100,000 - 249,999
3.00
3.09
2.70
250,000 - 499,999
2.00
2.04
1.80
500,000 and over
*
*
*
* Purchases of Class A shares of $500,000 or more will
be made at net asset value without any initial sales
charge, but will be subject to a deferred sales charge
of 1.00% on redemptions made within 12 months of
purchase. The deferred sales charge on Class A shares
is payable to Salomon Smith Barney, which compensates
Salomon Smith Barney Financial Consultants and other
dealers whose clients make purchases of $500,000 or
more. The deferred sales charge is waived in the same
circumstances in which the deferred sales charge
applicable to Class B and Class L shares is waived.
See "Deferred Sales Charge 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 on June 12, 1998 will not be subject to the 1%
initial sales charge.
Class Y Shares. Class Y shares are sold without an initial
sales charge or deferred sales charge and are available only
to investors investing a minimum of $15,000,000 (except
purchases of Class Y shares by Smith Barney Concert
Allocation Series Inc., for which there is no minimum
purchase amount).
Class Z Shares. Class Z Shares are sold without an initial
sales charge or deferred sales charge and are currently
offered exclusively for sale to tax-exempt employee benefit
and retirement plans of Salomon Smith Barney or any of its
affiliates ("Qualified Plans") and to certain unit
investment trusts ("UIT) sponsored by Salomon Smith Barney
or any of its affiliates.
General
Investors 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 Internal Revenue Code, as amended (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 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 PFPC.
Share certificates are issued only upon a shareholder's
written request to PFPC.
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 PFPC 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.
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 PFPC 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 PFPC.
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) 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 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% 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 Salomon Smith Barney Retirement Program, as
described below. See ''Salomon Smith Barney Retirement
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 through eight
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 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'')
(but, 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) 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.
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. 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 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 of 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 shares purchased through reinvestment of dividends or
capital gain distributions, plus the current net asset value
of Class B shares purchased more than eight years prior to
the redemption, plus increases in the net asset value of the
shareholder's 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) of 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 B share,
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 B and 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 tc "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 PFPC 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 15-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,
directors 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.
Qualified Plans may redeem Class Z shares on any day the
fund calculates its net asset value.
Distribution in Kind
If the board of directors of the trust determines that it
would be detrimental to the best interests of the remaining
shareholders to make a redemption payment wholly in cash,
the fund may pay, in accordance with SEC rules, any portion
of a redemption in excess of the lesser of $250,000 or 1.00%
of the fund's net assets by a distribution in kind of
portfolio securities in lieu of cash. Shareholders may incur
brokerage commissions when they subsequently sell those
securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan") is
available to shareholders of the fund who own shares of the
fund with a value of at least $10,000 and who wish to
receive specific amounts of cash monthly or quarterly.
Withdrawals of at least $50 may be made under the Withdrawal
Plan by redeeming as many shares of the fund as may be
necessary to cover the stipulated withdrawal payment. Any
applicable deferred sales charge will not be waived on
amounts withdrawn by shareholders that exceed 1.00% per
month of the value of a shareholder's shares at the time the
Withdrawal Plan commences. (With respect to Withdrawal
Plans in effect prior to November 7, 1994, any applicable
deferred sales charge will be waived on amounts withdrawn
that do not exceed 2.00% per month of the value of a
shareholder's shares at the time the Withdrawal Plan
commences). To the extent 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
PFPC 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 PFPC may continue to do so and
applications for participation in the Withdrawal Plan must
be received by PFPC 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 their Dealer Representative or the sub-
transfer agent.
Waivers of Deferred Sales Charge
The deferred sales charge will be waived on: (a) exchanges
(see "Exchange Privilege" in the prospectus); (b) automatic
cash withdrawals in amounts equal to or less than 1.00% per
month of the value of the shareholder's shares at the time
the withdrawal plan commences (see "Automatic Cash
Withdrawal Plan in the prospectus") (but, 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) redemptions of
shares made in connection with qualified distributions from
retirement plans or IRAs upon the attainment of age 591/2 ;
(e) involuntary redemptions; and (f) redemptions of shares
to effect a combination of the fund with any investment
company by merger, acquisition of assets or otherwise. In
addition, a shareholder who has redeemed shares from other
Smith Barney mutual funds may, under certain circumstances,
reinvest all or part of the redemption proceeds within 60
days and receive pro rata credit for any deferred sales
charge imposed on the prior redemption. deferred sales
charge waivers will be granted subject to confirmation (by
Salomon Smith Barney in the case of shareholders who are
also Salomon Smith Barney clients or by the transfer agent
in the case of all other shareholders) of the shareholder's
status or holdings, as the case may be.
Additional Information Regarding Telephone Redemption And
Exchange Program
Neither the fund nor its agents will be liable for following
instructions communicated by telephone that are reasonably
believed to be genuine. The fund and its agents will employ
procedures designed to verify the identity of the caller and
legitimacy of instructions (for example, a shareholder's
name and account number will be required and phone calls may
be recorded). The fund reserves the right to suspend,
modify or discontinue the telephone redemption and exchange
program or to impose a charge for this service at any time
following at least seven (7) days' prior notice to
shareholders.
PFS ACCOUNTS
Initial purchase of shares of the fund must be made through
a PFS Investments Registered Representative by completing
the appropriate application. The completed application
should be forwarded to PFS Shareholder Services, the sub-
transfer agent, with regard to PFS Accounts, P.O. Box
105033, Atlanta, Georgia 30348-5033. Checks drawn on foreign
banks must be payable in U.S. dollars and have the routing
number of the U.S. bank encoded on the check. Subsequent
investments may be sent directly to the sub-transfer agent.
In processing applications and investments, the transfer
agent acts as agent for the investor and for PFS Investments
and also as agent for the distributor, in accordance with
the terms of the prospectus. If the transfer agent ceases
to act as such, a successor company named by the fund will
act in the same capacity so long as the account remains
open.
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. A shareholder that has insufficient funds to
complete any purchase will be charged a fee of $30 per
returned purchase by PFS.
A shareholder, enrolled in the Systematic Investment Plan,
who has insufficient funds to complete a transfer will be
charged a fee of up to $30.00.
Investors in Class A and Class B shares may open an account
by making an initial investment of at least $1,000 for each
account in each Class (except for Systematic Investment Plan
accounts), or $250 for an IRA or a Self-Employed Retirement
Plan in a fund. Subsequent investments of at least $50 may
be made for each Class. For participants in retirement plans
qualified under Section 403(b)(7) or Section 401(a) of the
Code, the minimum initial investment requirement for Class A
and Class B shares and the subsequent investment requirement
for each Class in the fund is $25. For the fund's Systematic
Investment Plan, the minimum initial investment requirement
for Class A and Class B shares and the subsequent investment
requirement for each Class is $25. There are no minimum
investment requirements in Class A shares for employees of
Citigroup and its subsidiaries, including Salomon Smith
Barney, directors or 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. Purchase orders received by
the transfer agent or sub-transfer agent 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.
Upon completion of certain automated systems, shareholders
who establish telephone transaction authority on their
account and supply bank account information may make
additions to their accounts at any time. Initial purchases
of fund shares may also be made by wire. The minimum
investment that can be made by wire is $10,000. Once an
account is open, a shareholder may make additional
investments by wire. Prior to sending a wire, shareholders
should contact the sub-transfer agent at (800) 544-5445
between 8:00 a.m. and 8:00 p.m. eastern time any day that
the NYSE is open. If a shareholder does not wish to allow
telephone subsequent investments by any person in his
account, he should decline the telephone transaction option
on the account application. The minimum telephone
subsequent investment is $250 and can be up to a maximum of
$10,000. By requesting a subsequent purchase by telephone,
you authorize the sub-transfer agent to transfer funds from
the bank account provided for the amount of the purchase. A
shareholder that has insufficient funds to complete the
transfer will be charged a fee of up to $30 by PFS or the
sub-transfer agent. A shareholder who places a stop payment
on a transfer or the transfer is returned because the
account has been closed, will also be charged a fee of up to
$30 by PFS or the sub-transfer agent. Subsequent
investments by telephone may not be available if the
shareholder cannot reach the sub-transfer agent whether
because all telephone lines are busy or for any other
reason; in such case, a shareholder would have to use the
fund's regular subsequent investment procedure described
above.
Redemption proceeds can be sent by check to the address of
record or by wire transfer to a bank account designated on
the application. A shareholder will be charged a $30
service fee for wire transfers and a nominal service fee for
transfers made directly to the shareholder's bank by the
Automated Clearing House.
Additional information regarding the sub-transfer agent's
services may be obtained by contacting the Client Services
Department at (800) 544-5445.
VALUATION OF SHARES tc "VALUATION OF SHARES"
Each class' net asset value per share 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
differs. The following is a description of the procedures
used by the fund 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 directors. 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 directors. 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 directors.
The fund's net asset value per share is determined as of the
close of regular trading on the NYSE, on each day that the
NYSE is open, by dividing the value of the fund's net assets
attributable to each class by the total number of shares of
the class outstanding.
Generally, the fund's investments are valued at market value
or, in the absence of a market value with respect to any
securities, at fair value as determined by or under the
direction of the fund's board of directors. Short-term
investments that mature in 60 days or less are valued at
amortized cost whenever the fund's board of directors
determines that amortized cost is the fair value of those
instruments.
EXCHANGE PRIVILEGE tc "EXCHANGE PRIVILEGE"
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 tc "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 the 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.
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
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.
Class A's average annual total return was as follows for the
periods indicated:
9.29% for the one-year period ended December 31, 1999
20.72% per annum during the five-year period ended December
31, 1999
13.98% per annum during the ten-year period ended December
31, 1999
12.71% for the period from inception (March 10, 1970)
through December 31, 1999
The average annual total return figures assume 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, Class A's average annual total
return for those same periods would have been 15.08%,
21.96%, 14.57% and 12.90% respectively.
Class B's average annual total return was as follows for the
periods indicated:
9.19% for the one-year period ended December 31, 1999
20.92% per annum during the five-year period ended December
31, 1999
15.68% for the period from inception (November 6, 1992)
through December 31, 1999
The average annual total return figures assume 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, Class
B's average annual total return for those same periods would
have been 14.19%, 21.01% and 15.68%, respectively.
Class L's average annual total return was as follows for the
periods indicated:
12.01% for the one-year period ended December 31, 1999
20.77% per annum during the five-year period ended December
31, 1999
15.07% for the period from inception (February 4, 1993)
through December 31, 1999
The average annual total return figures assume that the
maximum applicable deferred sales charge has been deducted
from the investment at the time of redemption. If the
maximum initial and deferred sales charge had not been
deducted, Class L's average annual total return for those
same periods would have been 14.12%, 21.01% and 15.23%,
respectively.
Class Y's average annual total return was as follows for the
period indicated:
15.40% for the one-year period ended December 31,1999
20.54% for the period from inception (January 30, 1996)
through December 31,1999
Class Y shares do not incur initial sales charges nor
deferred sales charges.
Class Z's average annual total return was as follows for the
periods indicated:
15.46% for the one-year period ended December 31,1999
22.35% per annum during the five-year period ended December
31, 1999
16.93% for the period from inception (November 6, 1992)
through December 31, 1999
Class Z shares do not incur initial sales charges or
deferred sales charges.
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
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.
Class A's aggregate total return was as follows for the
periods indicated:
9.29% for the one-year period ended December 31, 1999
156.43% for the five-year period ended December 31, 1999
269.93% for the ten-year period ended December 31, 1999
These aggregate total return figures assume 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, Class A's aggregate total return for those
same periods would have been 15.08%, 169.82% and 289.58%,
respectively.
Class B's aggregate total return was as follows for the
periods indicated:
9.19% for the one-year period ended December 31, 1999
158.52% for the five-year period ended December 31, 1999
183.41% for the period from inception (November 6, 1992)
through December 31, 1999.
These aggregate total return figures assume that the maximum
applicable deferred sales charge has been deducted from the
investment at the time of redemption. If the maximum
applicable deferred sales charge had not been deducted,
Class B's aggregate total return for those same periods
would have been 14.19%, 159.52% and 183.41%, respectively.
Class L's aggregate total return was as follows for the
periods indicated:
12.01% for the one-year period ended December 31, 1999
156.95% for the five-year period ended December 31, 1999
163.64% for the period from inception (February 4, 1993)
through December 31, 1999
These aggregate total return figures assume that the maximum
applicable deferred sales charge has been deducted from the
investment at the time of redemption If the maximum
applicable deferrec sales charge had not been deducted,
Class L's aggregate total return for those same periods
would have been 14.12%, 159.48% and 166.27%, respectively.
Class Y's aggregate total return was as follows for the
period indicated:
15.40% for the one-year period ended December 31, 1999
108.02% for the period from inception (January 30, 1996)
through December 31,1999
Class Y shares do not incur sales charges or deferred sales
charges.
Class Z's aggregate total return was as follows for the
periods indicated:
15.46% for the one-year period ended December 31, 1999
174.19% for the five-year period ended December 31, 1999
206.21 % for the period from inception (November 6, 1992)
through December 31, 1999
Class Z shares do not incur sales charges or 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 accounts 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
tc "TAXES "
The following is a summary of the material United States
federal income tax considerations regarding the purchase,
ownership and disposition of shares of a fund. Each
prospective shareholder is urged to consult his own tax
adviser with respect to the specific federal, state, local
and foreign tax consequences of investing in a fund. The
summary is based on the laws in effect on the date of this
SAI, which are subject to change.
The Fund and Its Investments
The fund intends to continue to qualify to be treated as a
regulated investment company each taxable year under the
Internal Revenue Code of 1986, as amended (the "Code"). To
so qualify, the fund must, among other things: (a) derive at
least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to securities,
loans and gains from the sale or other disposition of stock
or securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures
or forward contracts) derived with respect to its business
of investing in such stock, securities or currencies; and
(b) diversify its holdings so that, at the end of each
quarter of the fund's taxable year, (i) at least 50% of the
market value of the fund's assets is represented by cash,
securities of other regulated investment companies, United
States government securities and other securities, with such
other securities limited, in respect of any one issuer, to
an amount not greater than 5% of the fund's assets and not
greater than 10% of the outstanding voting securities of
such issuer and (ii) not more than 25% of the value of its
assets is invested in the securities (other than United
States government securities or securities of other
regulated investment companies) of any one issuer or any two
or more issuers that the fund controls and which are
determined to be engaged in the same or similar trades or
businesses or related trades or businesses. The fund
expects that all of its foreign currency gains will be
directly related to its principal business of investing in
stocks and securities.
As a regulated investment company, the fund will not be
subject to United States federal income tax on its
investment company taxable income (i.e., income other any
excess of its net realized long-term capital gains over its
net realized short-term capital losses ("net realized
capital gains") or on its net realized capital gains, if
any, it distributes to its shareholders, provided an amount
equal to at least 90% of its investment company taxable
income, plus or minus certain other adjustments as specified
in the Code and 90% of its net tax-exempt income for the
taxable year is distributed in compliance with the Code's
timing and other requirements but will be subject to tax at
regular corporate rates on any taxable income or gains it
does not distribute.
The Code imposes a 4% nondeductible excise tax on the fund
to the extent it does not distribute by the end of any
calendar year at least 98% of its net investment income for
that year and 98% of the net amount of its capital gains
(both long-and short-term) for the one-year period ending,
as a general rule, on October 31 of that year. For this
purpose, however, any income or gain retained by the fund
that is subject to corporate income tax will be considered
to have been distributed by year-end. In addition, the
minimum amounts that must be distributed in any year to
avoid the excise tax will be increased or decreased to
reflect any underdistribution or overdistribution, as the
case may be, from the previous year. The fund anticipates it
will pay such dividends and will make such distributions as
are necessary in order to avoid the application of this tax.
If, in any taxable year, the fund fails to qualify as a
regulated investment company under the Code or fails to meet
the distribution requirement, it would be taxed in the same
manner as an ordinary corporation and distributions to its
shareholders would not be deductible by the fund in
computing its taxable income. In addition, in the event of
a failure to qualify, the fund's distributions, to the
extent derived from the fund's current or accumulated
earnings and profits would constitute dividends (eligible
for the corporate dividends-received deduction) which are
taxable to shareholders as ordinary income, even though
those distributions might otherwise (at least in part) have
been treated in the shareholders' hands as long-term capital
gains. If the fund fails to qualify as a regulated
investment company in any year, it must pay out its earnings
and profits accumulated in that year in order to qualify
again as a regulated investment company. In addition, if
the fund failed to qualify as a regulated investment company
for a period greater than one taxable year, the fund may be
required to recognize any net built-in gains (the excess of
the aggregate gains, including items of income, over
aggregate losses that would have been realized if it had
been liquidated) with respect to certain of its assets 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
positions in its portfolio (i.e., treat them as if they were
closed out) and (b) may cause the fund to recognize income
without receiving cash with which to pay dividends or make
distributions in amounts necessary to satisfy the
distribution requirements for avoiding income and excise
taxes. The fund will monitor its transactions, will make
the appropriate tax elections and will make the appropriate
entries in its books and records when it acquires any
foreign currency, forward contract, option, futures contract
or hedged investment in order to mitigate the effect of
these rules and prevent disqualification of the fund as a
regulated investment company.
The fund's investment in Section 1256 contracts, such as
regulated futures contracts, most forward currency forward
contracts traded in the interbank market and options on most
stock indices, are subject to special tax rules. All
section 1256 contracts held by the fund at the end of its
taxable year are required to be marked to their market
value, and any unrealized gain or loss on those positions
will be included in the fund's income as if each position
had been sold for its fair market value at the end of the
taxable year. The resulting gain or loss will be combined
with any gain or loss realized by the fund from positions in
section 1256 contracts closed during the taxable year.
Provided such positions were held as capital assets and were
not part of a "hedging transaction" nor part of a
"straddle," 60% of the resulting net gain or loss will be
treated as long-term capital gain or loss, and 40% of such
net gain or loss will be treated as short-term capital gain
or loss, regardless of the period of time the positions were
actually held by the fund.
Foreign Investments. Dividends or other income (including,
in some cases, capital gains) received by the fund from
investments in foreign securities may be subject to
withholding and other taxes imposed by foreign countries.
Tax conventions between certain countries and the United
States may reduce or eliminate such taxes in some cases.
The fund will not be eligible to elect to treat any foreign
taxes paid by it as paid by its shareholders, who therefore
will not be entitled to credits for such taxes on their own
tax returns. Foreign taxes paid by the fund will reduce the
return from the fund's investments.
Passive Foreign Investment Companies. If the fund purchases
shares in certain foreign investment entities, called
"passive foreign investment companies" (a "PFIC"), it may be
subject to United States federal income tax on a portion of
any "excess distribution" or gain from the disposition of
such shares even if such income is distributed as a taxable
dividend by the fund to its shareholders. Additional charges
in the nature of interest may be imposed on the fund in
respect of deferred taxes arising from such distributions or
gains. If the fund were to invest in a PFIC and elected to
treat the PFIC as a "qualified electing fund" under the
Code, in lieu of the foregoing requirements, the fund might
be required to include in income each year a portion of the
ordinary earnings and net capital gains of the qualified
electing fund, even if not distributed to the fund, and such
amounts would be subject to the 90% and excise tax
distribution requirements described above. In order to make
this election, the fund would be required to obtain certain
annual information from the PFICs in which it invests, which
may be difficult or not possible to obtain.
Alternatively, the fund may make a mark-to-market election
for its PFIC stock. This election would result in the fund
being treated as if it had sold and repurchased all of the
PFIC stock at the end of each year. In this case, the fund
would report gains as ordinary income and would deduct
losses as ordinary losses to the extent of previously
recognized gains. The election, once made, would be
effective for all subsequent taxable years of the fund,
unless revoked with the consent of the IRS. By making the
election, the fund could potentially ameliorate the adverse
tax consequences with respect to its ownership of shares in
a PFIC, but in any particular year may be required to
recognize income in excess of the distributions it receives
from PFICs and its proceeds from dispositions of PFIC stock.
The fund may have to distribute this "phantom" income and
gain to satisfy its distribution requirement and to avoid
imposition of the 4% excise tax. The fund will make the
appropriate tax elections, if possible, and take any
additional steps 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
capital gains. The fund currently expects to distribute any
such excess annually to its shareholders. However, if the
fund retains for investment an amount equal to all or a
portion of its net realized capital gains, it will be
subject to a corporate tax (currently at a rate of 35%) on
the amount retained. In that event, the fund will designate
such retained amounts as undistributed capital gains in a
notice to its shareholders who (a) will be required to
include in income for United Stares federal income tax
purposes, as long-term capital gains, their proportionate
shares of the undistributed amount, (b) will be entitled to
credit their proportionate shares of the 35% tax paid by the
fund on the undistributed amount against their United States
federal income tax liabilities, if any, and to claim refunds
to the extent their credits exceed their liabilities, if
any, and (c) will be entitled to increase their tax basis,
for United States federal income tax purposes, in their
shares by an amount equal to 65% of the amount of
undistributed capital gains included in the shareholder's
income. Organizations or persons not subject to federal
income tax on such capital gains will be entitled to a
refund of their pro rata share of such taxes paid by the
fund upon filing appropriate returns or claims for refund
with the Internal Revenue Service (the "IRS").
Dividends of net investment income and distributions of net
realized short-term capital gains are taxable to a United
States shareholder as ordinary income, whether paid in cash
or in shares. Distributions of net-long-term capital gains,
if any, that the fund designates as capital gains dividends
are taxable as long-term capital gains, whether paid in cash
or in shares and regardless of how long a shareholder has
held shares of the fund. Dividends and distributions paid
by the fund attributable to dividends on stock of U.S.
corporations received by the fund, with respect to which the
fund meets certain holding period requirements, will be
eligible for the deduction for dividends received by
corporations. Distributions in excess of the fund's current
and accumulated earnings and profits will, as to each
shareholder, be treated as a tax-free return of capital to
the extent of a shareholder's basis in his shares of the
fund, and as a capital gain thereafter (if the shareholder
holds his shares of the fund as capital assets).
Shareholders receiving dividends or distributions in the
form of additional shares should be treated for United
States federal income tax purposes as receiving a
distribution in the amount equal to the amount of money that
the shareholders receiving cash dividends or distributions
will receive, and should have a cost basis in the shares
received equal to such amount.
Investors considering buying shares just prior to a dividend
or capital gain distribution should be aware that, although
the price of shares just purchased at that time may reflect
the amount of the forthcoming distribution, such dividend or
distribution may nevertheless be taxable to them.
If the fund is the holder of record of any stock on the
record date for any dividends payable with respect to such
stock, such dividends are included in the fund's gross
income not as of the date received but as of the later of
(a) the date such stock became ex-dividend with respect to
such dividends (i.e., the date on which a buyer of the stock
would not be entitled to receive the declared, but unpaid,
dividends) or (b) the date the fund acquired such stock.
Accordingly, in order to satisfy its income distribution
requirements, the fund may be required to pay dividends
based on anticipated earnings, and shareholders may receive
dividends in an earlier year than would otherwise be the
case.
Sales of Shares. Upon the sale or exchange of his shares, a
shareholder will realize a taxable gain or loss equal to the
difference between the amount realized and his basis in his
shares. Such gain or loss will be treated as capital gain
or loss, if the shares are capital assets in the
shareholder's hands, and will be long-term capital gain or
loss if the shares are held for more than one year and
short-term capital gain or loss if the shares are held for
one year or less. Any loss realized on a sale or exchange
will be disallowed to the extent the shares disposed of are
replaced, including replacement through the reinvesting of
dividends and capital gains distributions in the fund,
within a 61-day period beginning 30 days before and ending
30 days after the disposition of the shares. In such a
case, the basis of the shares acquired will be increased to
reflect the disallowed loss. Any loss realized by a
shareholder on the sale of a fund share held by the
shareholder for six months or less will be treated for
United States federal income tax purposes as a long-term
capital loss to the extent of any distributions or deemed
distributions of long-term capital gains received by the
shareholder with respect to such share.
If a shareholder incurs a sales charge in acquiring shares
of the fund, disposes of those shares within 90 days and
then acquires shares in a mutual fund for which the
otherwise applicable sales charge is reduced by reason of a
reinvestment right (e.g., an exchange privilege), the
original sales charge will not be taken into account in
computing gain/loss on the original shares to the extent the
subsequent sales charge is reduced. Instead, the
disregarded portion of the original sales charge will be
added to the tax basis in the newly acquired shares.
Furthermore, the same rule also applies to a disposition of
the newly acquired shares made within 90 days of the second
acquisition. This provision prevents a shareholder from
immediately deducting the sales charge by shifting his or
her investment in a family of mutual funds.
Backup Withholding. The fund may be required to withhold,
for United States federal income tax purposes, 31% of the
dividends, distributions and redemption proceeds payable to
shareholders who fail to provide the fund with their correct
taxpayer identification number or to make required
certifications, or who have been notified by the IRS that
they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup
withholding is not an additional tax and any amount withheld
may be credited against a shareholder's United States
federal income tax liabilities.
Notices. Shareholders will be notified annually by the fund
as to the United States federal income tax status of the
dividends, distributions and deemed distributions
attributable to undistributed capital gains (discussed above
in "Dividends and Distributions") made by the fund to its
shareholders. Furthermore, shareholders will also receive,
if appropriate, various written notices after the close of
the fund's taxable year regarding the United States federal
income tax status of certain dividends, distributions and
deemed distributions that were paid (or that are treated as
having been paid) by the fund to its shareholders during the
preceding taxable year.
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 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 tc "ADDITIONAL INFORMATION"
Fund History. The fund was incorporated on September 2,
1969 under the name The Shearson Appreciation Fund, Inc. On
November 5, 1995 and October 14, 1994, the fund changed its
name to Shearson Lehman Brothers Appreciation Fund Inc. and
Smith Barney Appreciation Fund Inc., respectively.
Minimum Account Size. The fund reserves the right to
liquidate involuntarily any shareholder's account in the
fund if the aggregate net asset value of the shares held in
the fund account is less than $500. (If a shareholder has
more than one account in the fund, each account must satisfy
the minimum account size.) The fund, however, will not
redeem shares based solely on market reductions in net asset
value. Before the fund exercises such right, shareholders
will receive written notice and will be permitted 60 days to
bring accounts up to the minimum to avoid involuntary
liquidation.
Voting rights. The fund does not hold annual shareholder
meetings. There normally will be no meeting of shareholders
for the purpose of electing directors unless and until such
time as less than a majority of the directors holding office
have been elected by shareholders. The directors will call a
meeting for any purpose upon written request of shareholders
holding at least 10% of the fund's outstanding shares and
the fund 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 or more of the classes.
Annual and semi-annual reports. The fund sends its
shareholders a semi-annual report and an audited annual
report, which include listings of the investment securities
held by the fund at the end of the period covered. In an
effort to reduce the fund's printing and mailing costs, the
fund plans to consolidate the mailing of its semi-annual and
annual reports by household. This consolidation means that a
household having multiple accounts with the identical
address of record will receive a single copy of each report.
Shareholders who do not want this consolidation to apply to
their accounts should contact their 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
The fund's annual report for the fiscal year ended December
31, 1999 is incorporated herein by reference in its
entirety. The annual report was filed on February 25,
2000, Accession Number 91155-00-000122.
SMITH BARNEY
APPRECIATION
FUND INC.
April 28, 2000
SMITH BARNEYAPPRECIATION FUND INC.
388 Greenwich Street
New York, NY 10013
SALOMON SMITH BARNEY
A Member of Citigroup [Symbol]
- -1-
PART C - OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered in Part C of this Registration Statement.
Another version of the Prospectus will be created from this Registration
Statement. The distribution system for this version of the Prospectus
is different. The Prospectus will be filed pursuant to Rule 497.
Item 23. Exhibits
Unless otherwise noted, all references are
to the Registrant's Registration Statement
on Form N-8B-1 (the "Registration Statement")
as filed with the Securities and Exchange
Commission (SEC) on September 9, 1969
and Form N-1A (File Nos. 2-34576 and 811-1940)
(a)(1) Registrant's Articles of Incorporation,
Articles of Amendment and Articles Supplementary
dated August 25, 1969, May 9, 1983, August 26,
1987, July 20, 1989, November 2, 1992, and July
30, 1993, respectively, is incorporated by
reference to Post-Effective Amendment No. 34 filed
on December 29, 1993 ("Post-Effective Amendment
No. 34").
(a)(2) Registrant's Articles of Amendment dated
October 14, 1994, Form of Articles Supplementary
dated November 7, 1994 and Form of Articles of
Amendment dated November 7, 1993 s incorporated
by reference to Post-Effective Amendment No. 37
filed on November 7, 1994 ("Post-Effective
Amendment No. 37").
(a)(3) Registrant's Articles of Amendment dated
June 1, 1998 is incorporated by reference to Post-Effective
Amendment No. 44 on February 24, 1999 ("Post-Effective
Amendment No. 44").
(b)(1) Registrant's By-Laws are incorporated by
reference to the Registration Statement.
(b)(2) Amendment to Registrant's By-Laws is
incorporated by reference to Post-Effective
Amendment No. 24 filed on February 29, 1988.
(b)(3) Amendment to Registrant's By-Laws dated
January 24, 1987 and October 21, 1987 is
incorporated by reference to Post-Effective
Amendment No. 26.
(b)(4) Amendment to Registrant's By-Laws dated July 20,
1994 is incorporated by reference to Post-Effective
Amendment No. 41 filed on March 1, 1996.
(c)(1) Registrant's form of stock certificate is
incorporated by reference to Post-Effective
Amendment No. 31 filed on November 6, 1992 ("Post-
Effective Amendment No. 31").
(d) Investment Advisory Agreement between the
Registrant and Smith Barney Shearson Asset
Management, dated July 30, 1993, is incorporated
by reference to Post-Effective Amendment No. 34.
(e)(1) Distribution Agreement between the Registrant
and Smith Barney Shearson Inc., dated July 30,
1993, is incorporated by reference to Post-
Effective Amendment No. 34.
(e)(2) Form of Distribution Agreement between the
Registrant and PFS Distributors is incorporated by
reference to Post-Effective Amendment No. 39 filed
on July 3, 1995 ("Post-Effective Amendment No.
39").
(e)(3) Distribution Agreement between the Registrant and CFBDS,
Inc. incorporated by reference to Post-Effective
Amendment No. 44.
(f) Not Applicable.
(g) Form of Custodian Agreement between the
Registrant and PNC Bank, National Association is
incorporated by reference to Post-Effective
Amendment No. 39.
(h)(1) Administration Agreement between the
Registrant and Smith, Barney Advisers, Inc. dated
April 20, 1994, is incorporated by reference to
Post-Effective Amendment No. 35 filed on July 1,
1994 ("Post-Effective Amendment No. 35").
(h)(2) Transfer Agency Agreement between the
Registrant and The Shareholder Services Group,
Inc., dated April 20, 1993, is incorporated by
reference to Post-Effective Amendment No. 35.
(h)(3) Form of Sub-Transfer Agency Agreement between
the Registrant and PFS Shareholder Services is
incorporated by reference to Post-Effective
Amendment No. 39.
(i) Opinion of Counsel regarding legality of
shares being registered is incorporated by
reference to Post-Effective Amendment No. 38 filed
on February 28, 1995 ("Post-Effective Amendment
No. 38").
(j) Auditor's Consent is filed herein.
(k) Not Applicable.
(l) Not Applicable.
(m) Form of Amended and Restated Services and Distribution
Plan pursuant to Rule 12b-1 between the Registrant and
Salomon Smith Barney Inc., is incorporated by reference
to Post-Effective Amendment No. 44.
(n) A Financial Data Schedule is filed herein.
(o)(1) Form of Rule 18f-3(d) Multiple Class Plan of
the Registrant is incorporated by reference to
Post-Effective Amendment No. 40 filed on
December 22, 1995.
(o)(2) Rule 18F-3(d) Multiple Class Plan of the Registrant is
incorporated by reference to Post-Effective
Amendment No. 44.
(p) Code of Ethics is filed herein.
Item 24. Persons Controlled by or under Common Control with
Registrant
None
Item 25. Indemnification
Response to this item is incorporated by reference
to Post-Effective Amendment No. 38.
Item 26(a). Business and Other Connections of Investment
Adviser
Investment Adviser - SSB Citi Fund Management LLC ("SSB Citi")
(successor to SSBC Fund Management Inc.) was incorporated in
December 1968 under the laws of the State of Delaware. On
September 21, 1999, SSB Citi was converted into a Delaware Limited
Liability Company. SSB Citi is a wholly owned subsidiary of Salomon
Smith Barney Holdings Inc. ("Holdings"), which in turn is a wholly
owned subsidiary of Citigroup Inc. (formerly known as Travelers
Group Inc.). SSB Citi is registered as an investment adviser under
the Investment Advisers Act of 1940 (the "Advisers Act") and has,
through its predecessors, been in the investment counseling business
since 1968.
The list required by this Item 26 of officers and directors of SSB Citi
together with information as to any other business, profession, vocation
or employment of a substantial nature engaged in by such officers and
directors during the past two fiscal years, is incorporated by reference
to Schedules A and D of FORM ADV filed by SSB Citi pursuant
to the Advisers Act (SEC File No. 801-8314).
Item 27. Principal Underwriters
(a) CFBDS, Inc. the Registrant's Distributor, is also
the distributor for
CitiFundsSM International Growth & Income Portfolio,
CitiFundsSM International Equity Portfolio, CitiFundsSM Large Cap
Growth Portfolio, CitiFundsSM Intermediate Income Portfolio,
CitiFundsSM Short-Term U.S. Government Income Portfolio,
CitiFundsSM Emerging Asian Markets Equity Portfolio,
CitiFundsSM U.S. Treasury Reserves, CitiFundsSM Cash Reserves,
CitiFundsSM Premium U.S. Treasury Reserves,
CitiFundsSM Premium Liquid Reserves, CitiFundsSM Institutional U.S.
Treasury Reserves, CitiFundsSM Institutional Liquid Reserves,
SM Institutional Cash Reserves, CitiFundsSM Tax Free Reserves,
CitiFundsSM Institutional Tax Free Reserves,
CitiFundsSM California Tax Free Reserves,
CitiFundsSM Connecticut Tax Free Reserves,
CitiFundsSM New York Tax Free Reserves, CitiFundsSM Balanced Portfolio,
CitiFundsSM Small Cap Value Portfolio, CitiFundsSM Growth & Income
Portfolio,CitiFundsSM Small Cap Growth Portfolio, CitiFundsSM National
Tax Free Income Portfolio, CitiFundsSM New York Tax Free Income
Portfolio,CitiSelect VIP Folio 200, Citiselect VIP Folio 300,
CitiSelect VIP Folio 400, CitiSelect VIP Folio 500,
CitiFundsSM Small Cap Growth VIP Portfolio, CitiSelect Folio 200,
CitiSelect Folio 300, CitiSelect Folio 400, and CitiSelect Folio
500.
CFBDS is also the placement agent for Large Cap Value Portfolio,
International Portfolio, Foreign Bond Portfolio,
Intermediate Income Portfolio, Short-Term Portfolio,
Growth & Income Portfolio, Large Cap Growth Portfolio,
Small Cap Growth Portfolio, International Equity Portfolio,
Balanced Portfolio, Government Income Portfolio, Emerging
Asian Markets Equity Portfolio, Tax Free Reserves Portfolio,
Cash Reserves Portfolio and U.S. Treasury Reserves Portfolio.
CFBDS, Inc. is also the distributor for the following
Smith Barney Mutual Fund registrants:
Concert Investment Series
Consulting Group Capital Markets Funds
Greenwich Street Series Fund
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Concert Allocation Series Inc.
Smith Barney Equity Funds
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.
Smith Barney Income Funds
Smith Barney Institutional Cash Management Fund, Inc.
Smith Barney Investment Trust
Smith Barney Investment Funds Inc.
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc.
Smith Barney Muni Funds
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Sector Series Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund Inc.
Smith Barney Principal Return Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Telecommunications Trust
Smith Barney Variable Account Funds
Smith Barney World Funds, Inc.
Travelers Series Fund Inc.
And various series of unit investment trusts.
CFBDS also serves as the distributor for the following funds: The
Travelers Fund UL for Variable Annuities, The Travelers Fund VA for
Variable Annuities, The Travelers Fund BD for Variable Annuities, The
Travelers Fund BD II for Variable Annuities, The Travelers Fund BD
III for Variable Annuities, The Travelers Fund BD IV for Variable
Annuities, The Travelers Fund ABD for Variable Annuities, The
Travelers Fund ABD II for Variable Annuities, The Travelers Separate
Account PF for Variable Annuities, The Travelers Separate Account PF
II for Variable Annuities, The Travelers Separate Account QP for
Variable Annuities, The Travelers Separate Account TM for Variable
Annuities, The Travelers Separate Account TM II for Variable
Annuities, The Travelers Separate Account Five for Variable
Annuities, The Travelers Separate Account Six for Variable Annuities,
The Travelers Separate Account Seven for Variable Annuities, The
Travelers Separate Account Eight for Variable Annuities, The
Travelers Fund UL for Variable Annuities, The Travelers Fund UL II
for Variable Annuities, The Travelers Variable Life Insurance
Separate Account One, The Travelers Variable Life Insurance Separate
Account Two, The Travelers Variable Life Insurance Separate Account
Three, The Travelers Variable Life Insurance Separate Account Four,
The Travelers Separate Account MGA, The Travelers Separate Account
MGA II, The Travelers Growth and Income Stock Account for Variable
Annuities, The Travelers Quality Bond Account for Variable Annuities,
The Travelers Money Market Account for Variable Annuities, The
Travelers Timed Growth and Income Stock Account for Variable
Annuities, The Travelers Timed Short-Term Bond Account for Variable
Annuities, The Travelers Timed Aggressive Stock Account for Variable
Annuities, The Travelers Timed Bond Account for Variable Annuities.
CFBDS, Inc. is also the distributor for the following
Salomon Brothers funds;
Salomon Brothers Opportunity Fund Inc
Salomon Brothers Investors Fund Inc
Salomon Brothers Capital Fund Inc
Salomon Brothers Series Funds Inc
Salomon Brothers Institutional Series Funds Inc
Salomon Brothers Variable Series Funds Inc
In addition, CFBDS is also the distributor for the Centurion Funds,
Inc.
(b) The information required by this Item 27 with respect to each
director and officer of CFBDS is incorporated by reference to
Schedule A of Form BD filed by CFBDS pursuant to the Securities and
Exchange Act of 1934 (File No. 8-32417).
(c) Not applicable.
Item 28. Location of Accounts and Records
(1) With respect to the Registrant,
Investment Adviser and Administrator:
c/o SSB Citi Fund Management LLC
(successor to SSBC Fund Management LLC)
388 Greenwich Street, 22nd Floor
New York, New York 10013
(2) With respect to the Registrant's Custodian:
PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, Pennsylvania
(3) With respect to the Registrant's Transfer Agent:
Citi Fiduciary Trust Company
388 Greenwich Street
New York, New York 10013
(4) With respect to the Registrant's Sub-Transfer Agent:
PFPC Global Fund Services
One Exchange Place
Boston, Massachusetts 02109
(5) PFS Shareholder Services
3100 Breckinridge Blvd.
Bldg. 200
Duluth, Georgia 30099-0062
Item 29. Management Services
None
Item 30. Undertakings
None
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant
has duly caused this Post-Effective Amendment to its
Registration Statement to be signed on its behalf by the undersigned,
and where applicable, the true and lawful attorney-in-fact, thereto duly
authorized, in the City of New York and State of New York on
the 26th day of April, 2000.
SMITH BARNEY APPRECIATION FUND INC.
By: /s/ Heath B. McLendon
Heath B. McLendon,
Chief Executive Officer
Pursuant to the requirements of the Securities Act of
1933, as amended, this Amendment to the Registration
Statement has been signed
below by the following persons in the capacities and on the
dates indicated.
Signature Title Date
/s/ Heath B. McLendon Director, Chairman of the Board
4/26/00
Heath B. McLendon
/s/ Lewis E. Daidone Senior Vice President and 4/26/00
Lewis E. Daidone Treasurer (Chief Financial
and Accounting Officer)
/s/ Alfred J. Bianchetti* Director 4/26/00
Alfred J. Bianchetti
/s/ Herbert Barg* Director 4/26/00
Herbert Barg
/s/ Martin Brody * Director 4/26/00
Martin Brody
/s/ Burt N. Dorsett* Director 4/26/00
Burt N. Dorsett
Signature Title Date
/s/ Dwight B. Crane* Director 4/26/00
Dwight B. Crane
/s/ Elliott S. Jaffe* Director 4/26/00
Elliott S. Jaffe
/s/ Stephen E. Kaufman* Director 4/26/00
Stephen E. Kaufman
/s/ Joseph J. McCann* Director 4/26/00
Joseph J. McCann
/s/ Cornelius C. Rose, Jr.* Director 4/26/00
Cornelius C. Rose
* Signed by Heath B. McLendon, their duly authorized attorney-in-fact,
pursuant to power of attorney dated February 20, 1996.
/s/ Heath B. McLendon
Heath B. McLendon
EXHIBIT INDEX
Exhibit No. Exhibit
(j) Auditor's Consent
(n) Financial Data Schedule
(p) Code of Ethics
Independent Auditors' Consent
To the Shareholders and Board of Directors of
Smith Barney Appreciation Fund Inc.:
We consent to the incorporation by reference, in this
Prospectus and Statement of Additional Information, of our
report dated February 11, 2000, on the statement of assets
and liabilities for the Smith Barney Appreciation Fund Inc.
as of December 31, 1999 and the related statement of
operations for the year then ended, the statements of
changes in net assets for each of the years in the two-year
period then ended and the financial highlights for each of
the years in the five-year period then ended. These
financial statements and financial highlights and our report
thereon are included in the Annual Report of the Fund as
filed on Form N-30D.
We also consent to the references to our firm under the
headings "Financial Highlights" in the Prospectus and
"Auditors" in the Statement of Additional Information.
KPMG
LLP
New York, New York
April 24, 2000
Page
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<DISTRIBUTIONS-OF-INCOME> 2,454,139
<DISTRIBUTIONS-OF-GAINS> 176,185,762
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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PERSONAL INVESTMENT POLICY
FOR
SSB CITI ASSET MANAGEMENT GROUP - NORTH AMERICA
AND CERTAIN REGISTERED INVESTMENT COMPANIES
SSB Citi Asset Management Group ("SSB Citi") , and
those U.S.?registered investment companies advised or
managed by SSB Citi that have adopted this policy
("Funds"), have adopted this policy on securities
transactions in order to accomplish two goals: first,
to minimize conflicts and potential conflicts of
interest between employees of SSB Citi and SSB Citi's
clients (including the Funds), and between Fund
directors or trustees and their Funds, and second, to
provide policies and procedures consistent with
applicable law, including Rule 17j-1 under the
Investment Company Act of 1940, to prevent fraudulent
or manipulative practices with respect to purchases
or sales of securities held or to be acquired by
client accounts. All U.S. employees of SSB Citi,
including employees who serve as Fund officers or
directors, and all directors or trustees
("directors") of each Fund, are Covered Persons under
this policy. Other Covered Persons are described in
Section II below.
I. Statement of Principles - All SSB Citi
employees owe a fiduciary duty to SSB Citi's clients
when conducting their personal investment
transactions. Employees 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 Fund directors owe a fiduciary duty to each Fund
of which they are a director and to that Fund's
shareholders when conducting their personal
investment transactions. At all times and in all
matters Fund directors shall place the interests of
their Funds before their personal interests. The
fundamental standard to be followed in personal
securities transactions is that Covered Persons may
not take inappropriate advantage of their positions.
All personal securities transactions by Covered
Persons shall adhere to the requirements of this
policy and shall 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
the person's position of trust and responsibility.
While this policy is designed to address both
identified conflicts and potential conflicts, it
cannot possibly be written broadly enough to cover
all potential situations. In this regard, Covered
Persons are expected to adhere not only to the
letter, but also the spirit of the policies contained
herein.
Employees are reminded that they also are subject to
other Citigroup policies, including policies on
insider trading, the purchase and sale of securities
listed on any applicable SSB Citi restricted list,
the receipt of gifts and service as a director of a
publicly traded company. Employees must never trade
in a security or commodity while in possession of
material, non-public information about the issuer or
the market for those securities or commodities, even
if the employee has satisfied all other requirements
of this policy.
The reputation of SSB Citi and its employees for
straightforward practices and integrity is a
priceless asset, and all employees have the duty and
obligation to support and maintain it when conducting
their personal securities transactions.
II. Applicability - SSB Citi Employees - This
policy applies to all U.S. employees of SSB Citi,
including part-time employees. Each employee,
including employees who serve as Fund officers or
directors, must comply with all of the provisions of
the policy applicable to SSB Citi employees unless
otherwise indicated. Certain employees are considered
to be "investment personnel" (i.e., portfolio
managers, traders and research analysts (and each of
their assistants)), and as such, are subject to
certain additional restrictions outlined in the
policy. All other employees of SSB Citi are
considered to be "advisory personnel."
Generally, temporary personnel and consultants
working in any SSB Citi business are subject to the
same provisions of the policy as full-time employees,
and their adherence to specific requirements will be
addressed on a case-by-case basis.
The personal investment policies, procedures and
restrictions referred to herein also apply to an
employee's spouse and minor children. The policies
also apply to any other account over which the
employee is deemed to have beneficial ownership. This
includes: accounts of any immediate family members
sharing the same household as the employee; accounts
of persons or other third parties for whom the
employee exercises investment discretion or gives
investment advice; a legal vehicle in which the
employee has a direct or indirect beneficial interest
and has power over investment decisions; accounts for
the benefit of a third party (e.g., a charity) which
may be directed by the employee (other than in the
capacity of an employee); and any account over which
the employee may be deemed to have control. For a
more detailed description of beneficial ownership,
see Exhibit A attached hereto.
These policies place certain restrictions on the
ability of an employee to purchase or sell securities
that are being or have been purchased or sold by an
SSB Citi managed fund or client account. The
restrictions also apply to securities that are
"related" to a security being purchased or sold by an
SSB Citi managed fund or client account. A "related
security" is one whose value is derived from the
value of another security (e.g., a warrant, option or
an indexed instrument).
Fund Directors - This policy applies to all directors
of Funds that have adopted this policy. The personal
investment policies, procedures and restrictions that
specifically apply to Fund directors apply to all
accounts and securities in which the director has
direct or indirect beneficial ownership. See Exhibit
A attached hereto for a more detailed description of
beneficial ownership.
Securities are defined as stocks, notes, bonds,
closed-end mutual funds, debentures, and other
evidences of indebtedness, including senior debt,
subordinated debt, investment contracts, commodity
contracts, futures and all derivative instruments
such as options, warrants and indexed instruments,
or, in general, any interest or instrument commonly
known as a "security."
III. Enforcement - It is the responsibility of each
Covered Person to act in accordance with a high
standard of conduct and to comply with the policies
and procedures set forth in this document. SSB Citi
takes seriously its obligation to monitor the
personal investment activities of its employees. Any
violation of this policy by employees will be
considered serious, and may result in disciplinary
action, which may include the unwinding of trades,
disgorgement of profits, monetary fine or censure,
and suspension or termination of employment. Any
violation of this policy by a Fund director will be
reported to the Board of Directors of the applicable
Fund, which may impose such sanctions as it deems
appropriate.
IV. Opening and Maintaining Employee Accounts - All
employee brokerage accounts, including spouse
accounts, accounts for which the employee is deemed
to have beneficial ownership, and any other accounts
over which the employee and/or spouse exercise
control, must be maintained either at Salomon Smith
Barney ("SSB") or at Citicorp Investment Services
("CIS"). For spouses or other persons who, by
reason of their employment, are required to conduct
their securities, commodities or other financial
transactions in a manner inconsistent with this
policy, or in other exceptional circumstances,
employees may submit a written request for an
exemption to the Compliance Department. If approval
is granted, copies of trade confirmations and monthly
statements must be sent to the Compliance Department.
In addition, all other provisions of this policy will
apply.
V. Excluded Accounts and Transactions - The
following types of accounts/transactions need not be
maintained at SSB or CIS, nor are they subject to the
other restrictions of this policy:
1. Accounts at outside mutual funds that hold only
shares of open-end funds purchased directly from that
fund company. Note: transactions relating to
closed-end funds are subject to the pre-clearance,
blackout period and other restrictions of this
policy;
2. Estate or trust accounts in which an employee
or related person has a beneficial interest, but no
power to affect investment decisions. There must be
no communication between the account(s) and the
employee with regard to investment decisions prior to
execution. The employee must direct the trustee/bank
to furnish copies of confirmations and statements to
the Compliance Department;
3. Fully discretionary accounts managed by either
an internal or external registered investment adviser
are permitted and may be custodied away from SSB and
CIS if (i) the employee receives permission from the
Regional Director of Compliance and the unit's Chief
Investment Officer, and (ii) there is no
communication between the manager and the employee
with regard to investment decisions prior to
execution. The employee must designate that copies
of trade confirmations and monthly statements be sent
to the Compliance Department;
4. Employees may participate in direct investment
programs which allow the purchase of securities
directly from the issuer without the intermediation
of a broker/dealer provided that the timing and size
of the purchases are established by a pre-arranged,
regularized schedule (e.g., dividend reinvestment
plans). Employees must pre-clear the transaction at
the time that the dividend reinvestment plan is being
set up. Employees also must provide documentation of
these arrangements and direct periodic (monthly or
quarterly) statements to the Compliance Department;
and
5. In addition to the foregoing, the following
types of securities are exempted from pre-clearance,
blackout periods, reporting and short-term trading
requirements: open-ended mutual funds; open-end unit
investment trusts; U.S. Treasury bills, bonds and
notes; mortgage pass-throughs (e.g. Ginnie Maes) that
are direct obligations of the U.S. government;
bankers acceptances; bank certificates of deposit;
commercial paper; and high quality short-term debt
instruments (meaning any instrument that has a
maturity at issuance of less than 366 days and that
is rated in one of the two highest rating categories
by a nationally recognized statistical rating
organization, such as S&P or Moody's), including
repurchase agreements.
VI. Securities Holding Period/Short-Term Trading -
Securities transactions must be for investment
purposes rather than for speculation. Consequently,
employees may not profit from the purchase and sale,
or sale and purchase, of the same or equivalent
securities within sixty (60) calendar days,
calculated on a First In, First Out (FIFO) basis
(i.e., the security may be sold on the 61st day).
Citigroup securities received as part of an
employee's compensation are not subject to the 60-day
holding period. All profits from short-term trades
are subject to disgorgement. However, with the prior
written approval of both a Chief Investment Officer
and the Regional Director of Compliance, and only in
rare and/or unusual circumstances, an employee may
execute a short-term trade that results in a
significant loss or in break-even status.
VII. Pre-Clearance - All SSB Citi employees must
pre-clear all personal securities transactions (see
Section V for a listing of accounts, transactions and
securities that do not require pre-clearance). A copy
of the pre-clearance form is attached as Exhibit B.
In addition, employees are prohibited from engaging
in more than twenty (20) transactions in any calendar
month, except with prior written approval from their
Chief Investment Officer, or designee. A transaction
must not be executed until the employee has received
the necessary approval. Pre-clearance is valid only
on the day it is given. If a transaction is not
executed on the day pre-clearance is granted, it is
required that pre-clearance be sought again on a
subsequent day (i.e., open orders, such as limit
orders, good until cancelled orders and stop-loss
orders, must be pre-cleared each day until the
transaction is effected). In connection with
obtaining approval for any personal securities
transaction, employees must describe in detail any
factors which might be relevant to an analysis of the
possibility of a conflict of interest. Any trade
that violates the pre-clearance process may be
unwound at the employee's expense, and the employee
will be required to absorb any resulting loss and to
disgorge any resulting profit.
In addition to the foregoing, the CGAM NA Director of
Global Equity Research, or his designate, must
approve all personal securities transactions for
members of the CGAM Research Department prior to pre-
clearance from the Compliance Department as set forth
in this section. Pre-approval by the Director of
Research, or his designate, is in addition to and
does not replace the requirement for the pre-
clearance of all personal securities transactions.
VIII. Blackout Periods - No Covered Person shall
purchase or sell, directly or indirectly, any
security in which he/she has, or by reason of the
transaction acquires, any direct or indirect
beneficial ownership if he/she has knowledge at the
time of such transaction that the security is being
purchased or sold, or is being considered for
purchase or sale, by a managed fund or client account
or in the case of a Fund director, by the director's
Fund. In addition, the following Blackout Periods
apply to the categories of SSB Citi employees listed
below:
1. Portfolio Managers and Portfolio Manager
Assistants - may not buy or sell any securities for
personal accounts seven (7) calendar days before or
after managed funds or client accounts he/she manages
trade in that security.
2. Traders and Trader Assistants - may not buy or
sell any securities for personal accounts three (3)
calendar days before or seven (7) calendar days after
managed funds or client accounts he/she executes
trades for trade in that security.
3. Research Analysts and Research Assistants - may
not buy or sell any securities for personal accounts:
seven (7) calendar days before or after the issuance
of or a change in any recommendation; or seven (7)
calendar days before or after any managed fund or
client account about which the employee is likely to
have trading or portfolio information (as determined
by the Compliance Department) trades in that
security.
4. Advisory Personnel (see Section II for details)
- - may not buy or sell any securities for personal
accounts on the same day that a managed fund or
client account about which the employee is likely to
have trading or portfolio information (as determined
by the Compliance Department) trades in that
security.
5. Unit Trust Personnel - all employees assigned
to the Unit Trust Department are prohibited from
transacting in any security when a SSB Citi-sponsored
Unit Trust portfolio is buying the same (or a
related) security, until seven business days after
the later of the completion of the accumulation
period or the public announcement of the trust
portfolio. Similarly, all UIT employees are
prohibited from transacting in any security held in a
UIT (or a related security) seven business days prior
to the liquidation period of the trust.
Employees in the above categories may also be
considered Advisory Personnel for other accounts
about which the employee is likely to have trading or
portfolio information (as determined by the
Compliance Department).
Any violation of the foregoing provisions will
require the employee's trade to be unwound, with the
employee absorbing any resulting loss and disgorging
any resulting profit. Advisory personnel are subject
to the unwinding of the trade provision; however,
they may not be required to absorb any resulting loss
(at the discretion of the Compliance Department and
the employee's supervisor). Please be reminded that,
regardless of the provisions set forth above, all
employees are always prohibited from effecting
personal securities transactions based on material,
non-public information.
Blackout period requirements shall not apply to any
purchase or sale, or series of related transactions
involving the same or related securities, involving
500 or fewer shares in the aggregate if the issuer
has a market capitalization (outstanding shares
multiplied by the current price per share) greater
than $10 billion and is listed on a U.S. Stock
Exchange or NASDAQ. Note: Pre-clearance is still
required. Under certain circumstances, the Compliance
Department may determine that an employee may not
rely upon this "Large Cap/De Minimis" exemption. In
such a case, the employee will be notified prior to
or at the time the pre-clearance request is made.
IX. Prohibited Transactions - The following
transactions by SSB Citi employees are prohibited
without the prior written approval from the Chief
Investment Officer, or designee, and the Regional
Compliance Director:
1. The purchase of private placements; and
2. The acquisition of any securities in an initial
public offering (new issues of municipal debt
securities may be acquired subject to the other
requirements of this policy (e.g., pre-clearance).)
X. Transactions in Options and Futures - SSB Citi
employees may buy or sell derivative instruments such
as individual stock options, options and futures on
indexes and options and futures on fixed-income
securities, and may buy or sell physical commodities
and futures and forwards on such commodities. These
transactions must comply with all of the policies and
restrictions described in this policy, including pre-
clearance, blackout periods, transactions in
Citigroup securities and the 60-day holding period.
However, the 60-day holding period does not apply to
individual stock options that are part of a hedged
position where the underlying stock has been held for
more than 60 days and the entire position (including
the underlying security) is closed out.
XI. Prohibited Recommendations - No Covered Person
shall recommend or execute any securities transaction
by any managed fund or client account, or, in the
case of a Fund director, by the director's Fund,
without having disclosed, in writing, to the Chief
Investment Officer, or designee, any direct or
indirect interest in such securities or issuers,
except for those securities purchased pursuant to the
"Large Cap/De Minimis" exemption described in Section
VIII above. Prior written approval of such
recommendation or execution also must be received
from the Chief Investment Officer, or designee. The
interest in personal accounts could be in the form
of:
1. Any direct or indirect beneficial ownership of
any securities of such issuer;
2. Any contemplated transaction by the person in
such securities;
3. Any position with such issuer or its
affiliates; or
4. Any present or proposed business relationship
between such issuer or its affiliates and the person
or any party in which such person has a significant
interest.
XII. Transactions in Citigroup Securities - Unless
an SSB Citi employee is a member of a designated
group subject to more restrictive provisions, or is
otherwise notified to the contrary, the employee may
trade in Citigroup securities without restriction
(other than the pre-clearance and other requirements
of this policy), subject to the limitations set forth
below.
Employees whose jobs are such that they know about
Citigroup's quarterly earnings prior to release may
not engage in any transactions in Citigroup
securities during the "blackout periods" beginning on
the first day of a calendar quarter and ending on the
second business day following the release of earnings
for the prior quarter. Members of the SSB Citi
Executive Committee and certain other senior SSB Citi
employees are subject to these blackout periods.
Stock option exercises are permitted during a
blackout period (but the simultaneous exercise of an
option and sale of the underlying stock is
prohibited). With regard to exchange traded options,
no transactions in Citigroup options are permitted
except to close or roll an option position that
expires during a blackout period. Charitable
contributions of Citigroup securities may be made
during the blackout period, but an individual's
private foundation may not sell donated Citigroup
common stock during the blackout period. "Good 'til
cancelled" orders on Citigroup stock must be
cancelled before entering a blackout period and no
such orders may be entered during a blackout period.
No employee may engage at any time in any personal
transactions in Citigroup securities while in
possession of material non-public information.
Investments in Citigroup securities must be made with
a long-term orientation rather than for speculation
or for the generation of short-term trading profits.
In addition, please note that employees may not
engage in the following transactions:
Short sales of Citigroup securities;
Purchases or sales of options ("puts" or
"calls") on Citigroup securities, except writing a
covered call at a time when the securities could have
been sold under this policy;
Purchases or sales of futures on Citigroup
securities; or
Any transactions relating to Citigroup
securities that might reasonably appear speculative.
The number of Citigroup shares an employee is
entitled to in the Citigroup Stock Purchase Plan is
not treated as a long stock position until such time
as the employee has given instructions to purchase
the shares of Citigroup. Thus, employees are not
permitted to use options to hedge their financial
interest in the Citigroup Stock Purchase Plan.
Contributions into the firm's 401(k) Plan are not
subject to the restrictions and prohibitions
described in this policy.
XIII. Acknowledgement and Reporting Requirements -
SSB Citi Employees - All new SSB Citi employees must
certify that they have received a copy of this
policy, and have read and understood its provisions.
In addition, all SSB Citi employees must:
1. Acknowledge receipt of the policy and any
modifications thereof, in writing (see Exhibit C for
the form of Acknowledgement);
2. Within 10 days of becoming an SSB Citi
employee, disclose in writing all information with
respect to all securities beneficially owned and any
existing personal brokerage relationships (employees
must also disclose any new brokerage relationships
whenever established). Such information should be
provided on the form attached as Exhibit D;
3. Direct their brokers to supply, on a timely
basis, duplicate copies of confirmations of all
personal securities transactions (Note: this
requirement may be satisfied through the transmission
of automated feeds);
4. Within 10 days after the end of each calendar
quarter, provide information relating to securities
transactions executed during the previous quarter for
all securities accounts (Note: this requirement may
be satisfied through the transmission of automated
feeds);
5. Submit an annual holdings report containing
similar information that must be current as of a date
no more than 30 days before the report is submitted,
and confirm at least annually all brokerage
relationships and any and all outside business
affiliations (Note: this requirement may be
satisfied through the transmission of automated feeds
or the regular receipt of monthly brokerage
statements); and
6. Certify on an annual basis that he/she has read
and understood the policy, complied with the
requirements of the policy and that he/she has pre-
cleared and disclosed or reported all personal
securities transactions and securities accounts
required to be disclosed or reported pursuant to the
requirements of the policy.
Fund Directors - Fund Directors shall deliver the
information required by Items 1 through 6 of the
immediately preceding paragraph, except that a Fund
director who is not an "interested person" of the
Fund within the meaning of Section 2(a)(19) of the
Investment Company Act of 1940, and who would be
required to make reports solely by reason of being a
Fund Director, is not required to make the initial
and annual holdings reports required by Items 2 and
5. Also, a "non-interested" Fund Director need not
supply duplicate copies of confirmations of personal
securities transactions required by Item 3, and need
only make the quarterly transactions reports required
by Item 4 as to any security if at the time of a
transaction by the Director in that security, he/she
knew or in the ordinary course of fulfilling his/her
official duties as a Fund Director should have known
that, during the 15-day period immediately preceding
or following the date of that transaction, that
security is or was purchased or sold by that
Director's Fund or was being considered for purchase
or sale by that Director's Fund.
Disclaimer of Beneficial Ownership - The reports
described in Items 4 and 5 above may contain a
statement that the reports shall not be construed as
an admission by the person making the reports that
he/she has any direct or indirect beneficial
ownership in the securities to which the reports
relate.
XIV. Handling of Disgorged Profits - Any amounts
that are paid/disgorged by an employee under this
policy shall be donated by SSB Citi to one or more
charities. Amounts donated may be aggregated by SSB
Citi and paid to such charity or charities at the end
of each year.
XV. Confidentiality - All information obtained from
any Covered Person pursuant to this policy shall be
kept in strict confidence, except that such
information will be made available to the Securities
and Exchange Commission or any other regulatory or
self-regulatory organization or to the Fund Boards of
Directors to the extent required by law, regulation
or this policy.
XVI. Other Laws, Rules and Statements of Policy -
Nothing contained in this policy shall be interpreted
as relieving any person subject to the policy from
acting in accordance with the provision of any
applicable law, rule or regulation or, in the case of
SSB Citi employees, any statement of policy or
procedure governing the conduct of such person
adopted by Citigroup, its affiliates and
subsidiaries.
XVII. Retention of Records - All records relating to
personal securities transactions hereunder and other
records meeting the requirements of applicable law,
including a copy of this policy and any other
policies covering the subject matter hereof, shall be
maintained in the manner and to the extent required
by applicable law, including Rule 17j-1 under the
1940 Act. The Compliance Department shall have the
responsibility for maintaining records created under
this policy.
XVIII. Monitoring - SSB Citi takes seriously its
obligation to monitor the personal investment
activities of its employees and to review the
periodic reports of all Covered Persons. Employee
personal investment transaction activity will be
monitored by the Compliance Department. All noted
deviations from the policy requirements will be
referred back to the employee for follow-up and
resolution (with a copy to be supplied to the
employee's supervisor). Any noted deviations by Fund
directors will be reported to the Board of Directors
of the applicable Fund for consideration and follow-
up as contemplated by Section III hereof.
XIX. Exceptions to the Policy - Any exceptions to
this policy must have the prior written approval of
both the Chief Investment Officer and the Regional
Director of Compliance. Any questions about this
policy should be directed to the Compliance
Department.
XX. Board Review - Fund management and SSB Citi
shall provide to the Board of Directors of each Fund,
on a quarterly basis, a written report of all
material violations of this policy, and at least
annually, a written report and certification meeting
the requirements of Rule 17j-1 under the 1940 Act.
XXI. Other Codes of Ethics - To the extent that any
officer of any Fund is not a Covered Person
hereunder, or an investment subadviser of or
principal underwriter for any Fund and their
respective access persons (as defined in Rule 17j-1)
are not Covered Persons hereunder, those persons must
be covered by separate codes of ethics which are
approved in accordance with applicable law.
XXII. Amendments - SSB Citi Employees - Unless
otherwise noted herein, this policy shall become
effective as to all SSB Citi employees on March 30,
2000. This policy may be amended as to SSB Citi
employees from time to time by the Compliance
Department. Any material amendment of this policy
shall be submitted to the Board of Directors of each
Fund for approval in accordance with Rule 17j-1 under
the 1940 Act.
Fund Directors - This policy shall become
effective as to a Fund upon the approval and adoption
of this policy by the Board of Directors of that Fund
in accordance with Rule 17j-1 under the 1940 Act or
at such earlier date as determined by the Secretary
of the Fund. Any material amendment of this policy
that applies to the directors of a Fund shall become
effective as to the directors of that Fund only when
the Board of Directors of that Fund has approved the
amendment in accordance with Rule 17j-1 or at such
earlier date as determined by the Secretary of the
Fund.
March 15, 2000
EXHIBIT A
EXPLANATION OF BENEFICIAL OWNERSHIP
You are considered to have "Beneficial Ownership" of
Securities if you have or share a direct or indirect
"Pecuniary Interest" in the Securities.
You have a "Pecuniary Interest" in Securities if you
have the opportunity, directly or indirectly, to
profit or share in any profit derived from a
transaction in the Securities.
The following are examples of an indirect Pecuniary
Interest in Securities:
1. Securities held by members of your immediate
family sharing the same household; however, this
presumption may be rebutted by convincing evidence
that profits derived from transactions in these
Securities will not provide you with any economic
benefit.
"Immediate family" means any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law,
and includes any adoptive relationship.
2. Your interest as a general partner in
Securities held by a general or limited partnership.
3. Your interest as a manager-member in the
Securities held by a limited liability company.
You do not have an indirect Pecuniary Interest in
Securities held by a corporation, partnership,
limited liability company or other entity in which
you hold an equity interest, unless you are a
controlling equityholder or you have or share
investment control over the Securities held by the
entity.
The following circumstances constitute Beneficial
Ownership by you of Securities held by a trust:
1. Your ownership of Securities as a trustee where
either you or members of your immediate family have a
vested interest in the principal or income of the
trust.
2. Your ownership of a vested interest in a trust.
3. Your status as a settlor of a trust, unless the
consent of all of the beneficiaries is required in
order for you to revoke the trust.
The foregoing is a summary of the meaning of
"beneficial ownership". For purposes of the attached
policy, "beneficial ownership" shall be interpreted
in the same manner as it would be in determining
whether a person is subject to the provisions of
Section 16 of the Securities Exchange Act of 1934 and
the rules and regulations thereunder
